SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934 for the quarterly period ended June 30, 2001.
or
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934 for the transition period from to
-------- -----.
Commission File Number O-8092
OXIS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1620407
- --------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6040 N. Cutter Circle, Suite 317, Portland, Oregon 97217
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(503) 283-3911
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
At June 30, 2001, the issuer had outstanding the indicated number of shares of
common stock: 9,660,458
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -------------------------------
2001 2000 2001 2000
Revenues $ 841,000 $ 779,000 $ 1,814,000 $ 1,722,000
Costs and expenses:
Operational cost of goods 738,000 833,000 1,627,000 1,685,000
Write-down of inventory 516,000 -- 516,000 --
------------ ------------- ------------- -----------
Cost of product sales 1,254,000 833,000 2,143,000 1,685,000
Research and development 191,000 447,000 509,000 785,000
Selling, general and administrative 782,000 642,000 1,707,000 1,364,000
Write-down of equipment 369,000 -- 369,000 --
------------ ------------ ------------- -----------
Total costs and expenses 2,596,000 1,922,000 4,728,000 3,834,000
------------ ------------ ------------- -----------
Operating loss (1,755,000) (1,143,000) (2,914,000) (2,112,000)
Interest income 5,000 65,000 22,000 87,000
Interest expense (6,000) (23,000) (12,000) (44,000)
------------ ------------ ------------- ------------
Net loss (1,756,000) (1,101,000) (2,904,000) (2,069,000)
Other comprehensive income
(loss) - foreign currency
translation adjustments (39,000) 6,000 (29,000) (20,000)
-------------- ------------ ------------- ------------
Comprehensive loss $(1,795,000) $(1,095,000) $(2,933,000) $(2,089,000)
============== ============ ============= ===========
Net loss per share - basic and diluted $ (.18) $ (.12) $ (.30) $ (.24)
============== ============ ============= ===========
Weighted average number of
shares used in computation -
basic and diluted 9,660,458 9,324,735 9,613,068 8,794,943
============== ============ ============= ===========
See condensed notes to consolidated financial statements
2
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2001 2000
------------ --------------
ASSETS
Current assets:
Cash and cash equivalents $ 462,000 $ 2,059,000
Accounts receivable 354,000 502,000
Inventories 521,000 1,271,000
Prepaid and other 130,000 81,000
------------ ------------
Total current assets 1,467,000 3,913,000
Furniture and equipment, net 165,000 651,000
Technology for developed products 631,000 681,000
Other assets 351,000 380,000
------------ ------------
Total assets $2,614,000 $ 5,625,000
============ ============
See condensed notes to consolidated financial statements
3
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2001 2000
------------ --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 160,000 $ 160,000
Accounts payable 699,000 628,000
Customer deposits 37,000 174,000
Accrued payroll, payroll taxes and other 287,000 341,000
Current portion of long-term debt 135,000 99,000
------------ ------------
Total current liabilities 1,318,000 1,402,000
Long-term debt due after one year 156,000 150,000
Shareholders' equity:
Preferred stock - $.01 par value; 15,000,000 shares authorized:
Series B - 428,389 shares issued and outstanding at June 30,
2001 and December 31, 2000
(liquidation preference of $1,000,000) 4,000 4,000
Series C - 296,230 shares issued and outstanding
at June 30, 2001 and December 31, 2000 3,000 3,000
Common stock - $.001 par value; 95,000,000 shares authorized;
9,660,458 shares issued and outstanding at June 30, 2001
(9,560,458 at December 31, 2000) 9,000 9,000
Warrants 1,670,000 2,870,000
Additional paid in capital 57,156,000 55,956,000
Accumulated deficit (57,290,000) (54,386,000)
Accumulated other comprehensive loss -
foreign currency translation adjustment (412,000) (383,000)
------------ ------------
Total shareholders' equity 1,140,000 4,073,000
------------ ------------
Total liabilities and shareholders' equity $ 2,614,000 $ 5,625,000
============ ============
See condensed notes to consolidated financial statements
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-----------------------------------
2001 2000
Cash flows from operating activities:
Net loss $(2,904,000) $(2,069,000)
Adjustments to reconcile net loss to cash
used for operating activities:
Depreciation and amortization 234,000 276,000
Litigation settlement 57,000 --
Write-down of inventory and equipment 885,000 --
Changes in assets and liabilities:
Accounts receivable 148,000 405,000
Inventories 234,000 82,000
Other current assets (49,000) (45,000)
Accounts payable 71,000 (651,000)
Customer deposits (137,000) --
Accrued payroll, payroll taxes and other (54,000) 119,000
--------------- -------------
Net cash used for operating activities (1,515,000) (1,883,000)
Cash flows from investing activities:
Purchases of equipment (10,000) (55,000)
Additions to other assets (28,000) (65,000)
Other, net (29,000) 5,000
--------------- ----------------
Net cash used for investing activities (67,000) (115,000)
Cash flows from financing activities:
Proceeds from issuance of stock, net of related costs -- 5,868,000
Repayment of short-term borrowings -- (75,000)
Repayment of long-term debt (15,000) (26,000)
--------------- ---------------
Net cash provided by (used in) financing activities (15,000) 5,767,000
Effect of exchange rate changes on cash -- 6,000
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (1,597,000) 3,775,000
Cash and cash equivalents - beginning of period 2,059,000 789,000
--------------- ---------------
Cash and cash equivalents - end of period $ 462,000 $ 4,564,000
=============== ===============
Non-cash transactions:
Issuance of common stock in exchange
for cancellation of notes and accrued interest $ -- $ 202,000
Cancellation of note payable as a result of
litigation settlement 63,000 --
See condensed notes to consolidated financial statements
5
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. FINANCIAL STATEMENTS AND CONDENSED NOTES
The unaudited consolidated financial statements, which have been prepared
in accordance with the instructions to Form 10-Q, do not include all of the
information and notes required by accounting principles generally accepted
in the United States of America for complete financial statements. All
adjustments considered necessary by management for a fair presentation have
been included. Operating results for interim periods are not necessarily
indicative of the results that may be expected for the full year.
An annual report (Form 10-K) has been filed with the Securities and
Exchange Commission ("Commission") for the year ended December 31, 2000.
That report contains, among other information, a description of the
Company's business, audited financial statements, notes to the financial
statements, the report of the independent auditors and management's
discussion and analysis of results of operations and financial condition.
Readers of this report are presumed to be familiar with that annual report.
2. NEW ACCOUNTING PRONOUNCEMENT
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets", which is effective January 1, 2002. SFAS 142 requires,
among other things, the discontinuance of goodwill amortization. In
addition, the standard includes provisions for the reclassification of
certain existing recognized intangibles, reclassification of certain
intangibles out of previously reported goodwill and the identification of
reporting units for purposes of assessing potential future impairments of
goodwill. SFAS 142 also requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company
is currently assessing but has not yet determined the impact of SFAS 142 on
its financial position and results of operations.
3. NASDAQ LISTING
The Company was notified by Nasdaq that it was not in compliance with
certain Nasdaq requirements for continued listing on the Nasdaq National
Market. Specifically, the Company failed to meet the requirements for
maintaining (1) a minimum bid price of $1.00 and (2) a market value of
public float greater than $5,000,000. Nasdaq staff notified the Company
that it had determined to delist the Company's common stock from the Nasdaq
National Market. The Company appealed the staff's determination and
appeared on April 26, 2001 at an oral hearing before a Nasdaq Listing
Qualifications Panel (the "Panel"). On May 16, 2001, the Panel issued its
decision denying the Company's appeal, and on May 17 , 2001, the Company's
common stock was delisted from the Nasdaq National Market. However, the
Company continues to be publicly traded over-the-counter and continues to
be listed in Europe on Nouveau Marche.
6
4. INVENTORIES
Inventories are stated at the lower of cost or market. Cost has been
determined by using the first-in, first-out method. Inventories at June 30,
2001 and December 31, 2000, consisted of the following:
June 30, December 31,
2001 2000
------------ ---------------
Raw materials $203,000 $ 682,000
Work in process 133,000 398,000
Finished goods 185,000 191,000
-------- -----------
Total $521,000 $1,271,000
======== ==========
5. CLOSURE OF CERTAIN OPERATIONS
In the second quarter of 2001, the Company's health products segment
decided to cease operating its instrument manufacturing facility and its
wellness services program. All remaining employees of the instruments
manufacturing facility and wellness services program were terminated during
the second quarter of 2001. The Company is negotiating the sale of certain
of the remaining inventory and equipment relating to these operations.
Accordingly, the inventory and equipment for manufacturing instruments and
for the wellness services program have been written down to their estimated
net realizable value, ($516,000 for inventory and $369,000 for equipment)
resulting in a charge to total cost and expenses of $885,000 for the second
quarter of 2001.
6. STOCK OPTIONS AND WARRANTS
The Company has a stock incentive plan under which 2,250,000 shares of the
Company's common stock are reserved for issuance (the "Plan"). The Plan
permits the Company to grant stock options to acquire shares of the
Company's common stock, award stock bonuses of the Company's common stock,
and grant stock appreciation rights. During the six months ended June 30,
2001, options to purchase 50,600 shares at an exercise price of $.6875 per
share were issued under the Plan and options to purchase 78,623 shares were
forfeited.
An option that was issued outside the plan to acquire 400,000 shares of
common stock at an exercise of $1.56 per share was forfeited in the first
six months of 2001. Warrants to purchase 1,673,598 shares of common stock
at exercise prices ranging from $4.92 to $16.25 per share expired in the
first six months of 2001.
At June 30, 2001, options issued pursuant to the Plan to acquire 1,774,463
shares of common stock at exercise prices ranging from $.4375 to $17.50
remained outstanding. Options issued outside the Plan to acquire 32,000
shares of common stock at exercise prices of $1.38 to
7
$8.44 and warrants to acquire 3,521,279 shares of common stock at exercise
prices of $3.05 to $9.38 also remained outstanding at June 30, 2001.
7. OPERATING SEGMENTS
The following table presents information about the Company's two operating
segments:
Health Therapeutic
Products Development Total
-------- ----------- -----
Quarter ended June 30, 2001:
Revenues from external $ 841,000 -- $ 841,000
customers
Net loss (1,514,000) (242,000) (1,756,000)
As of June 30, 2001 -
Total assets 1,561,000 1,053,000 2,614,000
Quarter ended June 30, 2000:
Revenues from external
customers $ 779,000 $ -- $ 779,000
Net loss (736,000) (365,000) (1,101,000)
As of June 30, 2000 -
Total assets 2,970,000 5,368,000 8,338,000
Six months ended June 30, 2001:
Revenues from external
customers $ 1,814,000 $ -- $ 1,814,000
Net loss (2,270,000) (634,000) (2,904,000)
Six months ended June 30, 2000:
Revenues from external
customers $ 1,722,000 $ -- $ 1,722,000
Net loss (1,365,000) (704,000) (2,069,000)
8. LACK OF CAPITAL
The Company believes that its capital is insufficient for ongoing
operations, with current cash reserves almost completely exhausted.
Although the Company is attempting to secure additional funds through asset
sales and additional investments in or loans to the Company, there can be
no assurance that the Company will be able to raise any additional funds or
that such funds will be available on acceptable terms. Any funds raised
through equity financing will likely be significantly dilutive to current
shareholders. The failure by the Company to secure additional funds within
the next several months will materially affect the Company and its
business, and may cause the Company to cease operations or to seek
protection of the courts through reorganization, bankruptcy or insolvency
proceedings. Consequently, shareholders could incur losses of their entire
investment in the Company.
8
9. LEGAL PROCEEDINGS
The Company in June settled the Catarious litigation described in prior
filings. The settlement calls for the Company to remove Mr. Catarious (who
had asserted about $3.5 million in claims against the Company) as an
obligor on an approximately $130,000 bank loan (on which the Company
regularly had been making payments and which has been and is shown on its
financial statements as a Company obligation), to pay Mr. Catarious $10,000
per month for 12 months (partially offset by the Company's release from an
obligation to pay Mr. Catarious a $63,000 note and its associated accrued
interest of $8,000), and to make two future stock distributions to him in
accordance with the terms of the Share Exchange Agreement pursuant to which
the Company in December 1997 acquired Innovative Medical Systems Corp. Both
the Company and Mr. Catarious released all other claims against each other.
The Company's financial statements reflect its liabilities for its future
obligations under the settlement, and the elimination of other actual or
potential obligations which were extinguished as a result of the
settlement.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
CERTAIN STATEMENTS SET FORTH BELOW MAY CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995. THE FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS TO DIFFER FROM THOSE EXPRESSED OR IMPLIED BY
THE FORWARD-LOOKING STATEMENTS. WITH RESPECT TO THE COMPANY, THE FOLLOWING
FACTORS, AMONG OTHERS, COULD CAUSE ACTUAL RESULTS OR OUTCOMES TO DIFFER
MATERIALLY FROM CURRENT EXPECTATIONS: THE INABILITY TO OBTAIN FINANCING;
UNCERTAINTIES RELATING TO PATENTS AND PROPRIETARY INFORMATION; THE
POTENTIAL FOR PATENT-RELATED LITIGATION EXPENSES AND OTHER COSTS RESULTING
FROM CLAIMS ASSERTED AGAINST THE COMPANY OR ITS CUSTOMERS BY THIRD PARTIES;
ACHIEVEMENT OF PRODUCT PERFORMANCE SPECIFICATIONS; THE ABILITY OF NEW
PRODUCTS TO COMPETE SUCCESSFULLY IN EITHER EXISTING OR NEW MARKETS; THE
POTENTIAL FOR ADVERSE FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES; THE
EFFECT OF PRODUCT OR MARKET DEVELOPMENT ACTIVITIES; AVAILABILITY AND FUTURE
COSTS OF MATERIALS AND OTHER OPERATING EXPENSES; COMPETITIVE FACTORS; THE
RISKS INVOLVED IN INTERNATIONAL OPERATIONS AND SALES; THE PERFORMANCE AND
NEEDS OF INDUSTRIES SERVED BY THE COMPANY AND THE FINANCIAL CAPACITY OF
CUSTOMERS IN THESE INDUSTRIES TO PURCHASE THE COMPANY'S PRODUCTS; AS WELL
AS OTHER FACTORS DISCUSSED UNDER THE HEADING "RISK FACTORS" IN ITEM 1 OF
THE
9
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
2000 WHICH IS INCORPORATED HEREIN BY REFERENCE. GIVEN THESE UNCERTAINTIES
STOCKHOLDERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE
FORWARD-LOOKING STATEMENTS. THE COMPANY DISCLAIMS ANY OBLIGATION
SUBSEQUENTLY TO REVISE OR UPDATE FORWARD-LOOKING STATEMENTS TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS OR TO REFLECT THE
OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased from $2,059,000 at December 31, 2000 to
$462,000 at June 30, 2001.
The Company's working capital decreased during the first half of 2001 by
$2,362,000, from $2,511,000 at December 31, 2000 to $149,000 at June 30,
2001. The decrease in working capital resulted primarily from the effect of
the net loss for the period ($2,904,000 less depreciation, amortization and
equipment write-offs totaling $603,000).
While the Company believes that its new therapeutic products and
technologies show considerable promise, its ability to realize revenues
therefrom is dependent upon the Company's success in developing business
alliances with biotechnology and/or pharmaceutical companies that have the
resources required to develop and market certain of these products. There
is no assurance that the Company's effort to develop such business
alliances will be successful.
The Company expects to continue to report losses in 2001 as expenses are
expected to continue to exceed revenues. The Company can give no assurance
as to whether or when its revenues will exceed its expenses.
The Company believes that its capital is insufficient for ongoing
operations, with current cash reserves almost completely exhausted.
Although the Company is attempting to secure additional funds through asset
sales and additional investments in or loans to the Company, there can be
no assurance that the Company will be able to raise any additional funds,
or that such funds will be available on acceptable terms. Any funds raised
through equity financing will likely be significantly dilutive to current
shareholders. The failure by the Company to secure additional funds within
the next several months will materially affect the Company and its
business, and may cause the Company to cease operations or to seek
protection of the courts through reorganization, bankruptcy or insolvency
proceedings. Consequently, shareholders could incur losses of their entire
investment in the Company.
10
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2001
COMPARED WITH THREE MONTHS ENDED JUNE 30, 2000
Revenues
The Company's revenues for the quarters ended June 30, 2001 and 2000 were
as follows:
2001 2000
Research assays and fine chemicals $388,000 $293,000
Therapeutic drug monitoring assays -- 174,000
Instruments 300,000 292,000
Bovine superoxide dismutase (bSOD)
for research and human use 117,000 --
Other 36,000 20,000
-------- --------
$841,000 $779,000
======== ========
Sales of research assays and fine chemicals increased by $95,000 from
$293,000 in the second quarter of 2000 to $388,000 in the second quarter of
2001 due primarily to an increase in sales volumes.
The Company's contract to manufacture therapeutic drug monitoring assays
has terminated, and the Company ceased manufacturing and selling these
products in the first quarter of 2001.
Revenue from instrument development sales increased by $8,000, from
$292,000 in the second quarter of 2000 to $300,000 in the second quarter of
2001. The Company decided to cease operating its instrument manufacturing
facility in the second quarter of 2001, in the effort to lower the
Company's losses. Therefore, instrument sales subsequent to the second
quarter of 2001 are expected to be substantially reduced from previous
levels, consisting only of certain inventory in process at the end of the
second quarter and the Company's OxyScan instruments which are expected to
be manufactured on a contract basis, as necessary, to meet orders.
Sales of bSOD in the second quarter of 2001 consisted of one shipment of
bulk bSOD to the Company's Spanish licensee. No significant sales of bulk
bSOD were made during 2000. Future sales of bulk bSOD beyond 2001 are
largely dependent on the needs of the Company's Spanish licensee. Because
such needs are uncertain and difficult to predict, no assurance can be
given that the Company will continue to sell bulk bSOD to its Spanish
licensee.
11
Costs and Expenses
Cost of product sales for the second quarter of 2001 includes a charge of
$516,000 to write down inventory relating to the closure of the Company's
instrument manufacturing facility and wellness services program. Excluding
this $516,000 charge, cost of product sales for the second quarter of 2001
was $738,000, or 88% of revenues, compared to $833,000, or 107% of revenues
for the second quarter of 2000.
Research and development expenses decreased from $447,000 in the second
quarter of 2000 to $191,000 in the second quarter of 2001. The decrease in
research and development expenses resulted primarily from a reduction in
research and development activity by the Company's therapeutic development
segment necessitated by the Company's lack of capital.
Selling, general and administrative expenses increased from $642,000 in the
second quarter of 2000 to $782,000 in the second quarter of 2001. This
increase was primarily the result of a $223,000 increase in legal fees and
other costs incurred in the conducting and settling of the litigation
relating to the acquisition of Innovative Medical Systems Corp., offset by
a $106,000 reduction in selling, general and administrative expenses of the
Company's wellness services program that was closed in the second quarter
of 2001.
Cost and expenses for the second quarter of 2001 includes a charge of
$369,000 to write down the equipment values relating to the closure of the
Company's instrument manufacturing facility and wellness services program.
Net Loss
The Company continued to experience losses in the second quarter of 2001.
The second quarter 2001 net loss of $1,756,000 ($0.18 per share-basic and
diluted) was $655,000 more than the $1,101,000 ($0.12 per share-basic and
diluted) net loss for the second quarter of 2000. The increase in the net
loss is primarily due to the $885,000 charge to write down inventory and
equipment relating to operations that were closed during the quarter and
increased selling, general and administrative costs, offset by reduced
research and development expenses.
The Company expects to incur a substantial net loss for 2001. If the
Company develops substantial new revenue sources or if substantial
additional capital is raised through further sales of securities, the
Company plans to continue to invest in research and development activities
and incur sales, general and administrative expenses in amounts greater
than its anticipated near-term product margins. If the Company is unable to
raise sufficient additional capital or develop new revenue sources, it will
have to cease, or severely curtail, its operations. In this event, while
expenses will be reduced, expense levels, and the potential write down of
various assets, would still be in amounts greater than anticipated
revenues. The Company expects that additional capital will be required in
2001.
12
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2001
COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000
Revenues
The Company's revenues for the six-month periods ended June 30, 2001 and
2000 were as follows:
2001 2000
Research assays and fine chemicals $ 713,000 $ 609,000
Therapeutic drug monitoring assays 378,000 464,000
Instruments 554,000 625,000
Bovine superoxide dismutase (bSOD)
for research and human use 117,000 --
Other 52,000 24,000
----------- -----------
$1,814,000 $1,722,000
========== ==========
Sales of research assays and fine chemicals increased by $104,000, from
$609,000 in the first half of 2000 to $713,000 in the first half of 2001.
This increase was due primarily to an increase in sales volumes.
The Company's contract to manufacture therapeutic drug monitoring assays
has terminated, and the Company ceased manufacturing and selling these
products in the first quarter of 2001.
Revenue from instrument development and sales declined by $71,000, from
$625,000 in the first half of 2000 to $554,000 in the first half of 2001.
The Company decided to cease operating its instrument manufacturing
facility in the second quarter of 2001, in the effort to lower the
Company's losses. Therefore, instrument sales subsequent to the second
quarter of 2001 are expected to be substantially reduced from previous
levels, consisting only of certain inventory in process at the end of the
second quarter and the Company's OxyScan instruments which are expected to
be manufactured on a contract basis, as necessary, to meet orders.
Sales of bSOD in the first half of 2001 consisted of one shipment of bulk
bSOD to the Company's Spanish licensee. No significant sales of bulk bSOD
were made during 2000. Future sales of bulk bSOD beyond 2001 are largely
dependent on the needs of the Company's Spanish licensee. Because such
needs are uncertain and difficult to predict, no assurance can be given
that the Company will continue to sell bulk bSOD to its Spanish licensee.
13
Costs and Expenses
Cost of product sales for the first half of 2001 includes a charge of
$516,000 to write down inventory relating to the closure of the Company's
instrument manufacturing facility and wellness services program. Excluding
this $516,000 charge, cost of product sales for the first half of 2001 was
$1,627,000, or 90% of revenues, compared to $1,685,000, or 98% of revenues
for the first half of 2000.
Research and development expenses decreased from $785,000 in the first half
of 2000 to $509,000 in the first half of 2001. The decrease in research and
development expenses resulted primarily from a reduction in research and
development activity by the Company's therapeutic development segment
necessitated by the Company's lack of capital.
Selling, general and administrative expenses increased by $343,000, from
$1,364,000 in the first half of 2000 to $1,707,000 in the first half of
2001. This increase was primarily the result of a $251,000 increase in
legal fees and other costs incurred in the conducting and settling of the
litigation relating to the acquisition of Innovative Medical Systems Corp.,
plus a $240,000 increase in administrative payroll expense. The increased
payroll expense was the result of severance payments to two executive whose
employment agreements expired March 31, 2001 and the addition of one
salaried executive for four months during the first half of 2001. These
increases were partially offset by a $150,000 reduction in selling, general
and administrative expenses of the Company's wellness services program that
was closed in the second quarter of 2001.
Cost and expenses for the second quarter of 2001 includes a charge of
$369,000 to write down the equipment values relating to the closure of the
Company's instrument manufacturing facility and wellness services program.
Net Loss
The Company continued to experience losses in the first six months of 2001.
The first half 2001 net loss of $2,904,000 ($.30 per share-basic and
diluted) was $835,000 more than the $2,069,000 ($.24 per share-basic and
diluted) net loss for the first half of 2000. The increase in the net loss
is primarily due to the $885,000 charge to write down inventory and
equipment relating to operations that were closed during the second quarter
and increased selling, general and administrative costs, offset by reduced
research and development expenses.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company in June settled the Catarious litigation described in prior
filings. The settlement calls for the Company to remove Mr. Catarious (who
had asserted about $3.5 million in claims against the Company) as an
obligor on an approximately $130,000 bank loan (on which the Company
regularly had been making payments and which has been and is
14
shown on its financial statements as a Company obligation), to pay
Mr. Catarious $10,000 per month for 12 months (partially offset by the
Company's release from an obligation to pay Mr. Catarious a $63,000 note
and its associated accrued interest of $8,000), and to make two future
stock distributions to him in accordance with the terms of the Share
Exchange Agreement pursuant to which the Company in December 1997 acquired
Innovative Medical Systems Corp. Both the Company and Mr. Catarious
released all other claims against each other. The Company's financial
statements reflect its liabilities for its future obligations under the
settlement, and the elimination of other actual or potential obligations
which were extinguished as a result of the settlement.
Threatened Litigation
Dr. Paul Sharpe, a former chief executive officer and director of the
Company, in May threatened to file suit against the Company and possibly
also against certain of its directors and officers based on a variety of
employment and federal securities law claims. Management, in late June and
early July, advised Dr. Sharpe's counsel that (i) it believes such claims
are without merit and the Company has good and valid defenses thereto, (ii)
because of the time, effort, and expense that would be involved in
litigation in England, where Dr. Sharpe resides, the Company has not
pursued claims that management believes the Company has against Dr. Sharpe
based upon acts and conduct in which he engaged during his tenure with the
Company, (iii) that the Company and its directors and officers will
vigorously contest any claims Dr. Sharpe may assert through litigation, and
(iv) in the event that Dr. Sharpe does initiate litigation, the Company
will assert and prosecute the claims management believes the Company has
against him.
Item 5. Other Information
Executive Management Changes
Pursuant to his commitment with the Company, the employment of Joseph F.
Bozman, Jr. terminated effective June 30, 2001. He voluntarily terminated
salary effective April 30, 2001. His resignation from all executive
offices, including his presidency and chief executive office position with
the Company, also became effective June 30, 2001. Mr. Bozman remains a
member of the Board of Directors of the Company and a member of the
Executive Committee. The Board of Directors on August 1, 2001, appointed
Ray R. Rogers, as the interim chairman of the Board, president and chief
executive officer. Mr. Rogers, currently a member of the Board of
Directors, previously served in those positions. Prior to his CEO
appointment, Mr. Rogers was serving as a consultant. He will serve in this
interim position until the successful completion of an executive search
engages a permanent chief executive officer. Under the terms of the
Company's proposed business plan, an executive search would begin if and
when the Company secures additional working capital. The Company presently
is negotiating a loan transaction but no firm commitment to complete this
loan transaction has been obtained at this time. The employment of Jon S.
Pitcher and his tenure as chief financial officer of the Company was
terminated effective March 31, 2001. Sharon Ellis is currently
serving on a part-time basis as the Company's director of finance and
administration. The contemplated executive search if and when it occurs
would include a search effort to locate and engage the services of a chief
financial officer.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OXIS International, Inc.
August 14, 2001 By /s/Ray R. Rogers
------------------------------------------------
Ray R. Rogers
Interim Chairman of the Board,
President, and Interim Principal Accounting Officer
16