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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
X Annual report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934 for the fiscal year ended December 31, 1994.
--- 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
Formerly: DDI Pharmaceuticals, Inc.
518 Logue Avenue
Mountain View, CA 94043
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 24, 1995 was $18,953,578.
Number of shares outstanding of Registrant's common stock as of March 24, 1995:
9,282,672 shares.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
ACQUISITIONS
Effective September 7, 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 and IBC. 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 the acquisition.
IBC was merged into the Company. Bioxytech operates as a subsidiary of the
Company.
In accordance with generally accepted accounting principles, the Company
recorded a one-time non-cash charge to operations of $3,675,000 in the third
quarter of 1994 to write off the costs related to research and development
projects that were in process by the acquired companies and that had no
alternative future use other than completion of these projects.
Because the acquisitions have been accounted for as purchases, the Company's
consolidated results of operations for 1994 include the operating results of
the acquired businesses from the date of the acquisition only.
The acquisitions have placed further demand on the Company's limited financial
resources. See "Financial Condition, Liquidity and Capital Resources" below.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
With the combination of the three companies as of September 7, 1994, OXIS'
financial condition and liquidity have changed significantly from the
Company's pre-acquisition position. Cash and certificates of deposit at
December 31, 1994 totaled $1,432,000 down from $2,138,000 at December 31,
1993. The Company had a working capital deficit of $1,046,000 at December 31,
1994. This significant decline in working capital from the end of 1993 is due
to the loss for the year (exclusive of the one-time, noncash charge), to
expenses paid or accrued in connection with the acquisitions and to
liabilities assumed, primarily of Bioxytech, in the acquisitions.
The Company expects to continue to report losses in the near term as the
current level of expenses is expected to continue to exceed revenues. The
Company must raise capital resources promptly during the second quarter of
1995, and failure to raise such additional capital would cause the Company to
cease, or severely curtail, its operations. For more information concerning
the Company's ability to continue as a going concern, see Note 1 to the
consolidated financial statements.
The Company has engaged an investment banking firm on a best-efforts basis to
assist it in completing a private placement of equity securities. The Company
is seeking to raise in the range of $4,500,000 to $9,000,000. The Company
cannot predict the success or failure of this effort and no assurances can be
given that the Company will successfully raise the needed capital. Certain
former shareholders of Bioxytech have committed to participate in the
anticipated private placement. During February, 1995, these former Bioxytech
shareholders advanced the Company approximately
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$765,000 under promissory notes due February 5, 1996. Interest on the
notes, which is also due February 5, 1996, accrues at 8% per year. As further
consideration for these loans, the Company has agreed to issue 93,300 shares
of its common stock to the lenders. These advances, and the forbearance of
certain major trade creditors and lessors have made it possible for the
Company to continue to operate through the first quarter of 1995. Assuming
that the Company successfully completes its private placement of equity
securities, it is anticipated that further financing would be needed within
eighteen months to allow the Company to continue its planned development and
marketing of additional products.
While the Company believes that its new products show considerable promise,
its ability to realize significant revenues therefrom is dependent upon the
Company being able to form alliances, joint ventures or other partnership
arrangements with major biotechnology or pharmaceutical companies to complete
work on those products and bring them to market. There is no assurance that
the Company's effort to develop such relationships will be successful.
Further, there can be no assurances that the sales of recent years to Sanofi
Winthrop (35% of 1994 revenues) will continue. In addition, European sales
and royalties continue to decline due to the recent product withdrawals in
Germany and Italy. Potential product withdrawals in Spain may cause a further
decrease in revenues; and interest income will decline as the Company uses its
cash balances to fund operations. Therefore, no assurances can be given that
the Company will have adequate liquidity and capital resources to continue
operating at present levels, or at all, much beyond the first quarter of 1995.
The Company cannot predict the source, terms, amount, form, and/or
availability of additional capital to fund its operations for the remainder of
1995 and beyond.
If the Company is unable to complete the private placement discussed above, it
will attempt to raise a smaller amount of capital ($1,500,000 to $2,000,000)
through the issuance of either debt or equity securities that management
believes would allow the Company to continue operating. However, if the
Company does not raise at least $4,500,000 the Company intends to severely
curtail its operations, particularly its research and development efforts. If
the Company fails to raise any capital before the end of the second quarter of
1995, it may be forced into reorganization, bankruptcy or insolvency
proceedings.
RESULTS OF OPERATIONS
REVENUES
The Company's sales for the past three years consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Bovine superoxide dismutase (bSOD)
for research and human use $2,130,000 $2,098,000 $1,689,000
Palosein(R) (bSOD for veterinary use) 346,000 123,000 --
Diagnostic and research assays 645,000 -- --
Other 204,000 94,000 201,000
---------- ---------- ----------
Total sales $3,325,000 $2,315,000 $1,890,000
========== ========== ==========
</TABLE>
Sales of bulk bSOD for research and human use increased by $409,000 in 1993,
as compared to 1992. This increase resulted from significant sales in 1993 to
Sanofi Winthrop for use in its research
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and clinical trials, offset by a reduction in sales to the Company's European
licensees. Reductions of bulk bSOD sales to Sanofi Winthrop (total sales in
1994 of $1,204,000) and to the 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. As discussed in Note 12 to the
consolidated financial statements, the Company does not expect further SOD
sales to the German licensee. In Spain, where the Company's sales were
$620,000 in 1994, the Company's licensee has had informal discussion with
regulatory authorities regarding the Company's product, but no action has been
taken by those authorities with regard to the Company's product. Sales to
Sanofi Winthrop beyond the sale of product scheduled to be delivered in the
first quarter of 1995 depend upon Sanofi Winthrop's plans for additional
clinical trials and commercialization of its new pharmaceutical for closed
head injury. Thus, the Company's sales of bulk bSOD for 1995 and beyond are
uncertain and difficult to predict and no assurances can be given with respect
thereto.
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 to
$346,000 in 1994 as a result of an active direct mail marketing campaign,
which the Company intends to continue. Subsequent to the end of 1994, the
Company has obtained approval for the veterinary use of Palosein(R) in Canada,
and has entered into an agreement with a Canadian company to distribute
Palosein(R) in Canada.
Diagnostic and research assays are products acquired with the acquisitions of
IBC and Bioxytech. Sales of these products represent sales from September 8
through the end of the year.
Royalty income in 1994 declined to $145,000, from $729,000 in 1993 and
$882,000 in 1992. As discussed above and 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.
COSTS AND EXPENSES
Gross margin increased from 32% in 1992 to 43% in 1993. This increase
resulted from increased sales to customers that do not pay royalties. The
Company's gross margin decreased to 38% in 1994 due to the inclusion, in 1994,
of sales and cost of products of the recently acquired businesses. The gross
margin produced from these new revenues was reduced by the inclusion in costs
of the amortization of acquired technology.
After declining from $1,375,000 in 1992 to $813,000 in 1993, research and
development expenses increased to $1,670,000 in 1994. The decrease in 1993
resulted primarily from the discontinuation of U.S. human clinical studies of
SOD as a treatment for arthritis. The 1994 increase resulted almost entirely
from the cost of the research and development activities of the newly acquired
businesses. If the Company is able to obtain sufficient additional capital
funding, it expects its investment in research and development activities to
continue at a level substantially higher than historical amounts.
Sales, general and administrative expenses increased between 1992 and 1993 by
$292,000. The increase was primarily the result of the initiation of a sales
and marketing program during the last three fiscal quarters of 1993 and
increases in shareholder relations costs and other costs following the change
in management on May 10, 1993.
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Sales, general and administrative expenses increased further from $1,008,000
in 1993 to $1,652,000 in 1994. This increase is due to the inclusion of
general and administrative costs of the acquired businesses after the
acquisitions in 1994, other current expenses related to the acquisitions,
increases in insurance coverage, and increased marketing costs relating to
Palosein(R) and new products from the 1994 acquisitions.
Expenses for 1994 included a $3,675,000 charge to operations reflecting the
write-off of purchased in-process technology, as described in Note 3 to the
financial statements.
Control contest related costs of $1,531,000 were incurred by the Company in
1993.
The lease of the Company's Mountain View, California, facility expires at the
end of June 1995, and management does not intend to renew this lease.
Management expects the costs relating to the closure of this facility and
moving of the California operations to Oregon will be substantially offset by
savings from the combining of operations within the first one to two years
after the move.
INTEREST INCOME
Interest income decreased in both 1993 and 1994, and is expected to continue
to decrease due to a decline in certificates of deposit caused by increased
research and development expenditures, particularly by the businesses acquired
during the second half of 1994.
NET LOSS
The Company continued to experience losses in 1994. The 1994 loss of
$5,567,000, or $.88 per share, includes the $3,675,000 ($.58 per share) charge
to operations for the write-off of purchased in-process technology related to
the acquisitions of Bioxytech and IBC. Likewise, in 1993, the Company
recorded non-recurring costs and expenses of $1,531,000 ($.31 per share)
relating to the contest for control of the Company. Excluding these non-
recurring charges, the Company would have incurred a net loss of $1,892,000,
or $.30 per share, for 1994 as compared to net income of $46,000, or $.01 per
share, for 1993, and a net loss of $339,000, or $.07 per share, for 1992.
The Company expects to incur a substantial net loss for 1995. If additional
capital is raised through a private placement of securities (See Financial
Condition, Liquidity and Capital Resources), the Company plans to continue to
invest in research and development activities and incur marketing, sales 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.
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ITEM 11. EXECUTIVE COMPENSATION.
DIRECTORS
The Company pays an annual fee of $4,000 to each non-employee director and an
additional $1,000 to non-employee directors for serving as committee chairmen,
but does not pay meeting fees. Directors are also reimbursed for their
expenses incurred in attending meetings. Employee directors receive no
compensation as directors. Compensation is also paid for special assignments.
The Company has paid, or accrued to be paid, $70,870 for legal and consulting
services by Mr. Taussig during 1994. The Company paid $5,400 to Mr. Brown for
consulting services during 1994.
EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows the compensation paid during the last three years to
Company officers who received more than $100,000, or served as Chief Executive
Officer during 1994:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- AWARDS
NAME AND POSITION YEAR SALARY BONUS OPTIONS
<S> <C> <C> <C> <C>
Ray R. Rogers,
Chairman, President and CEO 1994 $153,125
(from May 10, 1993 to September 7, 1994) 1993 $ 83,570 $15,000/1/
Chairman of the Board
(from September 7, 1994)
Anna D. Barker,
President and Chief Executive Officer 1994 $ 58,163 15,000/2/
(from September 7, 1994)
Mark G.P. Saifer,
Vice President 1994 $105,000
1993 $ 95,000 $15,000/1/
1992 $ 95,000
</TABLE>
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/1/ Accrued in 1993 and paid in 1994.
/2/ Options to purchase 15,000 shares of the Company's common stock at an
exercise price of $3.50 per share awarded to Dr. Barker as a non-employee
director before she became an employee of the Company.
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EMPLOYMENT AGREEMENT
Dr. Saifer has entered into an agreement which is intended to provide an
orderly transition after notice of termination is given by either the Company
or him. His agreement provides that his employment will continue for up to 12
months subsequent to such notice at his then current rate of compensation and
level of benefits in effect at the time of such notice. In addition, under a
letter agreement with the Company, Dr. Saifer also is eligible to receive a
bonus of 10% to 30% of his 1994 base salary, based upon his performance during
the year. The actual amount of such bonus has not yet been determined and,
therefore, is excluded from the compensation table above.
STOCK PURCHASE WARRANTS
In prior years, the Company issued warrants to purchase shares of common stock
to certain officers and key employees (some of whom no longer hold any
position with the Company) and to former directors.
Upon exercise of a warrant, the purchase price for the number of shares being
purchased is payable in cash. Warrants contain provisions for adjustments in
the event of stock splits, stock dividends, reorganizations and similar
events. Subject to satisfaction of certain conditions, the Company has agreed
to register, pursuant to the Securities Act of 1933, as amended (the
"Securities Act") the warrants and/or the shares purchased upon exercise of
the warrants.
Warrants are taxed as stock options which do not meet the requirements of the
Internal Revenue Code of 1986 for incentive stock options. As a consequence,
warrants do not receive the favorable tax treatment accorded to incentive
stock options. Generally, upon exercise or transfer of a warrant, the holder
of the warrant realizes ordinary taxable income, and the Company realizes a
tax deduction, equal to the difference between the exercise price and the fair
market value of the shares at the time, without regard to legal restrictions
on transfer of the shares in the event the shares received are not registered
pursuant to the Securities Act. To avoid the necessity for the warrant holder
to borrow cash to purchase the shares subject to a warrant, exercisable
warrants are subject to registration by the Company pursuant to the Securities
Act and the warrants and underlying shares are transferable.
All warrants issued to officers, directors and present key employees are
exercisable at $2.875 per share and expire through December 31, 1999.
At December 31, 1994, Dr. Mark G.P. Saifer held warrants to purchase 195,000
shares of the Company's common stock. The closing price of the Company's
common stock on December 30, 1994, was $1.75. Therefore, these warrants were
not "In-the-Money" at December 31, 1994.
STOCK OPTIONS
In September 1994, the Company's shareholders approved the 1994 Stock
Incentive Plan under which 400,000 shares of the Company's common stock are
reserved for issuance. The plan permits granting stock options to acquire
shares of the Company's common stock, awarding stock bonuses of the Company's
common stock, and granting stock appreciation rights. As of December 31,
1994, the Company had granted options to purchase 90,000 shares of the
Company's common stock under this
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plan. Options to purchase 15,000 shares of the Company's common stock at an
exercise price of $3.50 per share were granted to directors Barker, Brown,
Mayer, Sitaraman and Taussig. Options to purchase 15,000 shares of the
Company's common stock at an exercise price of $3.13 were granted to
Dr. Needham.
In addition, options to purchase 214,700 shares of the Company's common stock,
exercisable at $3.55 per share, were granted in connection with the 1994
acquisitions of Bioxytech and IBC. Mr. Rogers and Dr. Barker each received
20,000 of such stock options.
OPTION GRANTS IN LAST FISCAL YEAR
Options granted to executive officers of the Company who are included in the
Summary Compensation Table above during 1994 were as shown below:
<TABLE>
<CAPTION>
Individual Grants
- ----------------------------------------------------------------------------------
Number of % of total
common shares options granted Exercise
underlying to employees price per Expiration
Name grant in 1994 share date
- -------------------- ------------- --------------- --------- -------------
<S> <C> <C> <C> <C>
Ray R. Rogers 20,000 /1/ $3.55 July 15, 1998
Anna D. Barker 15,000 /2/ $3.50 June 15, 2004
20,000 /1/ $3.55 July 15, 1998
</TABLE>
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/1/ These options are part of the options granted in connection with the 1994
acquisitions of Bioxytech and IBC pursuant to the terms of the
acquisition agreements and were not awarded in connection with services
provided to the Company. These options have been approved by the
Company's Board of Directors, but the options have not yet been issued.
/2/ Options granted to Dr. Barker as a non-employee director under the 1994
Stock Incentive Plan before she became an employee of the Company.
FISCAL YEAR END OPTION VALUES
During 1994, no options or warrants were exercised. All options and warrants
issued to executive officers who are included in the Summary Compensation
Table above were exercisable, and are shown below.
<TABLE>
<CAPTION>
Number of
common shares Value of
underlying unexercised
unexercised in-the-money
options or options or
warrants at warrants at
December 31, December 31,
Name 1994 1994
- --------------------- ------------- ------------
<S> <C> <C>
Ray R. Rogers 20,000 $0
Anna D. Barker 35,000 $0
Mark G.P. Saifer 195,000 $0
</TABLE>
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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: August 28, 1995
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)
9
