<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934 for the quarterly period ended March 31, 1996.
_____ 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
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 March 31, 1996, the issuer had outstanding the indicated number of shares of
common stock: 12,124,423
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995
<S> <C> <C>
Revenues:
Product sales $ 1,337,000 $2,075,000
Royalties 30,000 51,000
----------- ----------
Total revenues 1,367,000 2,126,000
Cost and expenses:
Cost of sales 925,000 1,177,000
Research and development 1,182,000 1,029,000
Selling, general and administrative 745,000 645,000
----------- ----------
Total costs and expenses 2,852,000 2,851,000
----------- ----------
Operating loss (1,485,000) (725,000)
Interest income 8,000 6,000
Interest expense (69,000) (38,000)
----------- ----------
Net loss $(1,546,000) $ (757,000)
=========== ==========
Net loss per share $ (.13) $ (.08)
=========== ==========
Weighted average number of
shares used in computation 12,124,423 9,377,705
=========== ==========
</TABLE>
1
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 875,000 $ 727,000
Accounts receivable 731,000 823,000
Inventories 902,000 953,000
Prepaid and other 217,000 262,000
---------- ----------
Total current assets 2,725,000 2,765,000
Property and equipment, net 996,000 1,092,000
Assets under capital leases, net 1,103,000 1,198,000
Technology for developed products
and custom assays, net 4,319,000 4,498,000
Other assets 331,000 317,000
---------- ----------
Total assets $9,474,000 $9,870,000
========== ==========
</TABLE>
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,674,000 $ 1,616,000
Accounts payable 1,707,000 1,182,000
Customer deposits 250,000 250,000
Accrued liabilities 825,000 903,000
Current portion of capital lease obligations 225,000 283,000
------------ ------------
Total current liabilities 4,681,000 4,234,000
Capital lease obligations and other 44,000 77,000
8% convertible subordinated debentures 1,255,000 1,255,000
Shareholders' equity:
Preferred stock - $.01 par value; 5,000,000 shares
authorized:
Series B - 642,583 shares issued and outstanding
(liquidation preference of $1,500,000) 6,000 6,000
Series C - 663,976 shares issued and
outstanding 7,000 --
Common stock - $.50 par value; 25,000,000 shares
authorized; 12,124,423 shares issued and outstanding 6,062,000 6,062,000
Additional paid in capital 25,987,000 25,210,000
Accumulated deficit (28,576,000) (27,031,000)
Accumulated translation adjustments 8,000 57,000
------------ ------------
Total shareholders' equity 3,494,000 4,304,000
------------ ------------
Total liabilities and shareholders' equity $ 9,474,000 $ 9,870,000
============ ============
</TABLE>
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,546,000) $(757,000)
Adjustments to reconcile net loss to cash provided
by (used for) operating activities:
Depreciation and amortization 370,000 385,000
Changes in assets and liabilities:
Accounts receivable 92,000 (262,000)
Inventories 51,000 20,000
Other current assets 45,000 44,000
Accounts payable 525,000 504,000
Customer deposits -- (866,000)
Accrued liabilities (78,000) 33,000
----------- ---------
Net cash provided by (used for) operating activities (541,000) (899,000)
Cash flows from investing activities:
Redemption of certificates of deposit -- 298,000
Purchases of equipment (13,000) --
Deferred stock issuance costs -- (23,000)
Other, net (49,000) (137,000)
----------- ---------
Net cash provided by (used for) investing activities (62,000) 138,000
Cash flows from financing activities:
Proceeds from issuance of notes 65,000 766,000
Proceeds from issuance of stock, net of related cost 784,000 --
Repayment of short-term borrowings (7,000) (142,000)
Repayment of long-term debt and capital lease obligations (91,000) (75,000)
----------- ---------
Net cash provided by financing activities 751,000 549,000
----------- ---------
Net increase (decrease) in cash and cash equivalents 148,000 (212,000)
Cash and cash equivalents - beginning of period 727,000 936,000
----------- ---------
Cash and cash equivalents - end of period $ 875,000 $ 724,000
=========== =========
</TABLE>
4
<PAGE>
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS AND CONDENSED NOTES
The unaudited consolidated financial statements, which have been prepared in
accordance with the instructions to Form 10-Q, do not include all of the
information and notes required by generally accepted accounting principles
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, 1995. 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.
The functional currency of OXIS International S.A. ("OXIS S.A."), the
Company's foreign subsidiary, is the French franc. OXIS S.A.'s assets and
liabilities are translated using the exchange rate at the end of the period.
Its statement of operations is translated at the average exchange rate
during the period. Gains or losses resulting from foreign currency
translation are accumulated as a separate component of shareholders' equity.
2. BASIS OF PRESENTATION
These financial statements 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 for the quarter ended March 31, 1996. As of March
31, 1996, the Company's current liabilities exceeded its current assets by
$1,956,000. These and other factors indicate that the Company may 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.
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.
Subsequent to March 31, 1996, as further described in Note 5, the Company
has raised an additional $600,000 through further private placement of
equity securities.
5
<PAGE>
3. INVENTORIES
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 March 31, 1996 and December 31, 1995, consisted of
the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- -----------
<S> <C> <C>
Raw materials $157,000 $173,000
Work in process 386,000 354,000
Finished goods 359,000 426,000
-------- --------
Total $902,000 $953,000
======== ========
</TABLE>
4. NOTES PAYABLE
In February 1995 certain of the Company's shareholders, who were former
Bioxytech shareholders, advanced $766,000 to the Company pursuant to
promissory notes. The notes were due in February 1996 and bear interest at
8% per year. The notes are secured by certain of the Company's products and
related assets.
The shareholders who hold the notes have agreed to convert the notes into
shares of Series C Preferred Stock.
5. SHAREHOLDERS' EQUITY
In February and March 1996, the Company issued 663,976 shares of Series C
Preferred Stock for $863,000. Subsequent to March 31, 1996, the Company has
issued an additional 461,614 shares of Series C Preferred Stock for
$600,000. 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 has
the right to automatically convert the Series C Preferred Stock into common
stock under certain circumstances.
Each share of Series C Preferred Stock is entitled to the number of votes
equal to 1.30 divided by the average closing bid price of the Company's
common stock during the fifteen consecutive trading days immediately prior
to the date such shares of Series C Preferred Stock were purchased.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1996 the Company's working capital deficit
increased from $1,469,000 at December 31, 1995 to $1,956,000 at March 31,
1996. This increase in the Company's working capital deficit resulted
primarily from the effect of the net loss for the first quarter of 1996
($1,546,000 less non-cash charges of $370,000), offset by proceeds from
issuance of stock ($784,000). Shareholders who hold $766,000 of notes
that are included in current liabilities at March 31, 1996 have agreed to
convert the notes and accrued interest into shares of Series C Preferred
Stock. When such notes are converted to Company stock, the Company's
working capital deficit will be reduced by the balance of the notes plus
accrued interest.
Cash and cash equivalents increased from $727,000 at December 31, 1995 to
$875,000 at March 31, 1996.
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.
Although the Company has continued to raise additional funds through
private placements (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. 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 2 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, in part, upon the Company's success in developing
business alliances with biotechnology and/or pharmaceutical companies
that have the required resources to develop and market certain of these
products. There is no assurance that the Company's effort to develop
such business alliances will be successful. 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(TM) (a
coupled form of OXIS' bovine superoxide dismutase) to treat head trauma
failed to show statistically significant improvements between the
treatment and control groups.
Through May 13, 1996, the Company has raised $1,463,000 through the sale
of 1,125,590 shares of its Series C Preferred Stock. The Company expects
that additional capital will be required during 1996 to continue
operating in accordance with its current plans. However, no assurances
can be given that the Company will successfully raise the needed capital.
If
7
<PAGE>
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 - THREE MONTHS ENDED MARCH 31, 1996
COMPARED WITH THREE MONTHS ENDED MARCH 31, 1995
REVENUES
The Company's product sales for the quarters ended March 31, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Diagnostic and research assays $ 621,000 $ 559,000
Bovine superoxide dismutase (bSOD)
for research and human use 621,000 1,121,000
Palosein(R) (bSOD for veterinary use) 78,000 190,000
Other 17,000 205,000
---------- ----------
$1,337,000 $2,075,000
========== ==========
</TABLE>
Sales of the Company's diagnostic and research assays increased from
$559,000 in the first quarter of 1995 to $621,000 in the first quarter of
1996. This increase of $62,000 was due primarily to an increase of
volume in sales of the Company's research assays, which are sold almost
entirely through distributors.
Sales of bulk bSOD for research and human use decreased by $500,000 in
the first quarter of 1996 as compared to the first quarter of 1995. Bulk
bSOD sales in the first quarter of 1995 included a $948,000 sale of bSOD
to Sanofi Winthrop Inc. Since no further sales of bSOD to Sanofi
Winthrop are anticipated, future sales of bulk bSOD are largely dependent
on the needs of the Company's Spanish licensee. Although the Spanish
licensee's purchases of bSOD in the first and second quarters of 1996
have increased from the 1995 levels, the Company has received no further
firm orders for bSOD beyond what has been shipped in the first two
quarters of 1996 and does not expect the volume of sales in the first
quarter of 1996 to continue for the remainder of the year. Thus, the
Company's sales of bulk bSOD for the remainder of 1996 and beyond are
uncertain and difficult to predict and no assurances can be given with
respect thereto.
8
<PAGE>
Palosein(R) sales decreased from $190,000 in the first quarter of 1995 to
$78,000 in the first quarter of 1996. The decrease in Palosein(R) sales
is attributable primarily to a reduction in volume of Palosein(R) export
sales and a reduction of purchases by domestic distributors in the first
quarter of 1996 caused by a promotional campaign in the fourth quarter of
1995. The fourth quarter 1995 promotional campaign is not expected to
adversely affect Palosein(R) sales after the second quarter of 1996.
COSTS AND EXPENSES
Cost of sales as a percentage of product sales increased from 57% in the
first quarter of 1995 to 69% in the first quarter of 1996. This increase
in cost was primarily the result of (1) the decrease in 1996 of bulk bSOD
sales which have a lower cost of sales than the Company's other products
and (2) a lower price for a major portion of the first quarter 1996 bulk
bSOD sales resulting in a lower margin realized than on the 1995 bulk
bSOD sales. Cost of sales in both the first quarter of 1995 and the
first quarter of 1996 include $184,000 in amortization of purchase
adjustments relating to 1994 business acquisitions.
Research and development expenses increased from $1,029,000 in the first
quarter of 1995 to $1,182,000 in the first quarter of 1996. This
increase was primarily the net result of three factors. First, the
Company's research and development expenses in the first quarter of 1996
included the costs of the ongoing operations formerly carried out by
Therox Pharmaceuticals, Inc. which was acquired by the Company in July
1995. Second, the Company's investment in its two lead therapeutics
programs (glutathione peroxidase mimics and lipid soluble antioxidants)
increased in the first quarter of 1996 with significant expenditures for
preclinical testing by outside contractors. Third, a substantial portion
of these increases were offset by cost reductions from the closure of the
Company's Mountain View, California facility in the fourth quarter of
1995.
Selling, general and administrative expenses increased from $645,000 in
the first quarter of 1995 to $745,000 in the first quarter of 1996. The
largest components of this increase are: increased activity relating to
equity financing and investor relations, foreign exchange losses of
$22,000 in the first quarter of 1996 and gains of $18,000 in the first
quarter of 1995, and recruiting expenses in the first quarter of 1996
incurred in the Company's search for a Chief Operating Officer.
INTEREST INCOME AND EXPENSE
Interest expense increased by $31,000 in the first quarter of 1996 as
compared with the first quarter of 1995, primarily due to the interest on
the Company's 8% convertible subordinated debentures issued in the fourth
quarter of 1995.
9
<PAGE>
NET LOSS
The Company continued to experience losses in the first quarter of 1996.
The first quarter 1996 loss of $1,546,000 ($.13 per share) was $789,000
greater than the $757,000 ($.08 per share) loss for the first quarter of
1995. The increase in the net loss is primarily due to the reduction in
sales and gross margins and increased research and development and
selling, general and administrative expenses.
The Company expects to incur a substantial net loss for 1996. If
sufficient additional capital is raised through private placement of
securities (See Financial Condition, Liquidity and Capital Resources
above), 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
the event that operations are severely curtailed, so that cash
expenditures for operations are equal to receipts from product sales and
royalties, the Company expects to continue to report net losses due to
the amortization and potential write down of various assets.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - See Exhibit Index on page 12.
(b) Reports on Form 8-K.
The Company has filed with the Commission a Report on Form 8-K dated March
15, 1996 (the "Form 8-K"). The Form 8-K reports the sale of 587,053 shares
of the Company's Series C Preferred Stock.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OXIS International, Inc.
May 13, 1996 By /s/ Anna D. Barker
--------------------
Anna D. Barker, Ph.D.
President and Chief Executive Officer
May 13, 1996 By /s/ Jon S. Pitcher
--------------------
Jon S. Pitcher
Chief Financial Officer
11
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description of Document Number
--------- ----------------------- ------
3(a) Certificate of Designations, Preferences, and
Rights of Series C Preferred Stock of the
Company (1)
27(a) Financial data schedule
--------------
(1) Incorporated by reference to the Company's Form 8-K Current Report
dated March 15, 1996.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 875,000
<SECURITIES> 0
<RECEIVABLES> 731,000
<ALLOWANCES> 0
<INVENTORY> 902,000
<CURRENT-ASSETS> 2,725,000
<PP&E> 996,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,474,000
<CURRENT-LIABILITIES> 4,681,000
<BONDS> 0
0
13,000
<COMMON> 6,062,000
<OTHER-SE> 8,000
<TOTAL-LIABILITY-AND-EQUITY> 9,474,000
<SALES> 1,337,000
<TOTAL-REVENUES> 1,367,000
<CGS> 925,000
<TOTAL-COSTS> 925,000
<OTHER-EXPENSES> 1,182,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,000
<INCOME-PRETAX> (1,546,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,546,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,546,000)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> .00
</TABLE>
