<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, 1997.
Transition report pursuant to Section 13 or 15(d) of the Securities
- ------- Exchange Act of 1934 for thetransition 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, 1997, the issuer had outstanding the indicated number of
shares of common stock: 14,439,992
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
----------------------------
<S> <C> <C>
Revenues:
Product sales ..................... $ 1,127,000 $ 1,337,000
Royalties and license fees ........ 35,000 30,000
------------ ------------
Total revenues ................ 1,162,000 1,367,000
Costs and expenses:
Cost of sales ..................... 772,000 925,000
Research and development .......... 1,106,000 1,182,000
Selling, general and
administrative .................. 604,000 745,000
------------ ------------
Total costs and expenses ...... 2,482,000 2,852,000
------------ ------------
Operating loss ......................... (1,320,000) (1,485,000)
Interest income ........................ 3,000 8,000
Interest expense ....................... (30,000) (69,000)
------------ ------------
Net loss ............................... $ (1,347,000) $ (1,546,000)
============ ============
Net loss per share ..................... $ (.10) $ (.13)
============ ============
Weighted average number of
shares used in computation ........... 14,108,668 12,124,423
============ ============
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .. $ 272,000 $ 422,000
Accounts receivable ........ 1,013,000 861,000
Inventories ................ 545,000 591,000
Prepaid and other .......... 81,000 191,000
---------- ----------
Total current assets ... 1,911,000 2,065,000
Property and equipment, net ..... 1,359,000 1,327,000
Assets under capital leases, net 43,000 309,000
Technology for developed products
and custom assays, net ..... 3,603,000 3,782,000
Other assets .................... 581,000 514,000
---------- ----------
Total assets ........... $7,497,000 $7,997,000
========== ==========
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable ................................................. $ 1,422,000 $ 1,221,000
Accounts payable .............................................. 2,072,000 1,386,000
Customer deposits ............................................. 158,000 132,000
Accrued liabilities ........................................... 750,000 655,000
Current portion of capital lease obligations .................. 38,000 76,000
------------ ------------
Total current liabilities ................................. 4,440,000 3,470,000
Other liabilities .................................................. -- 2,000
Shareholders' equity:
Preferred stock - $.01 par value; 15,000,000 shares authorized:
Series B - 642,583 shares issued and outstanding
(liquidation preference of $1,500,000) .................. 6,000 6,000
Series C - 1,262,543 shares issued and
outstanding at March 31, 1997 ........................... 13,000 17,000
Series D - 1,550 shares issued and
outstanding at March 31, 1997 ........................... -- --
Series E - 2,200 shares issued and
outstanding at March 31, 1997 ........................... -- --
Common stock - $.50 par value; 40,000,000 shares
authorized; 14,439,992 shares issued and outstanding
at March 31, 1997 ........................................... 7,220,000 6,895,000
Additional paid in capital .................................... 30,385,000 30,706,000
Accumulated deficit ........................................... (34,370,000) (33,023,000)
Accumulated translation adjustments ........................... (197,000) (76,000)
------------ ------------
Total shareholders' equity ................................ 3,057,000 4,525,000
------------ ------------
Total liabilities and shareholders' equity ......................... $ 7,497,000 $ 7,997,000
============ ============
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................... $(1,347,000) $(1,546,000)
Adjustments to reconcile net loss to cash provided
by (used for) operating activities:
Depreciation and amortization ............................. 452,000 370,000
Changes in assets and liabilities:
Accounts receivable ...................................... (152,000) 92,000
Inventories .............................................. 46,000 51,000
Other current assets ..................................... 110,000 45,000
Accounts payable ......................................... 686,000 525,000
Customer deposits ........................................ 26,000 --
Accrued liabilities ...................................... 95,000 (78,000)
----------- -----------
Net cash provided by (used for) operating activities (84,000) (541,000)
Cash flows from investing activities:
Purchases of equipment ...................................... (2,000) (13,000)
Additions to other assets ................................... (5,000) --
Other, net .................................................. (121,000) (49,000)
----------- -----------
Net cash provided by (used for) investing activities (128,000) (62,000)
Cash flows from financing activities:
Proceeds from issuance of notes ............................. 213,000 65,000
Proceeds from issuance of stock, net of related cost ........ -- 784,000
Stock issuance costs ........................................ (99,000) --
Repayment of short-term borrowings .......................... (12,000) (7,000)
Repayment of long-term debt and capital lease obligations ... (40,000) (91,000)
----------- -----------
Net cash provided by financing activities ............. 62,000 751,000
----------- -----------
Net increase (decrease) in cash and cash equivalents ........... (150,000) 148,000
Cash and cash equivalents - beginning of period ................ 422,000 727,000
----------- -----------
Cash and cash equivalents - end of period ...................... $ 272,000 $ 875,000
=========== ===========
</TABLE>
<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, 1996.
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. SUBSEQUENT EVENTS - ADDITIONAL FINANCING
In March and April 1997 the Company borrowed $808,000 pursuant to short-
term notes as described in Note 4. On May 13, 1997, the Company finalized
an underwriting agreement with certain underwriters in France whereby such
underwriters have agreed to purchase 9,000,000 shares of the Company's
common stock at a price of approximately $.80 per share (the "Placement
Price"). The stock is to be listed on the French stock market, Le Nouveau
Marche, no later than May 15, 1997, and the settlement from the sale is to
close no later than May 20, 1997. The underwriters also have the option to
purchase up to an additional 1,500,000 shares of common stock at the
Placement Price within 30 days of the listing. The securities offered have
not been, and will not be, registered under the Securities Act of 1933, as
amended, (the "Act") and may not be offered or sold in the United States
absent registration under the Act or an applicable exemption from such
registration requirements.
<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, 1997 and December 31, 1996, consisted of
the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
Raw materials $167,000 $148,000
Work in process 186,000 200,000
Finished goods 192,000 243,000
-------- --------
Total $545,000 $591,000
======== ========
</TABLE>
4. NOTES PAYABLE
During March 1997 the Company borrowed $160,000 from a shareholder pursuant
to issuance of a short-term unsecured promissory note with a 3% origination
fee and bearing interest at an annual rate of 8%. In April 1997 an
additional $648,000 was borrowed from other shareholders pursuant to
promissory notes with similar terms. All of the notes are due in June and
July 1997, but no later than ten days following the consummation of the
Company's planned public offering of common stock to be traded over the
French stock market, Le Nouveau Marche as described in Note 2.
5. SHAREHOLDERS' EQUITY
During the first quarter of 1997, 384,614 shares of Series C Preferred
Stock and 100 shares of Series D Preferred Stock were converted into an
aggregate of 649,256 shares of common stock.
<PAGE>
6. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." SFAS 128 changes the standards for computing and
presenting earnings per share ("EPS") and supersedes APB Opinion No. 15,
"Earnings per Share." SFAS 128 simplifies the standards for computing
earnings per share and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS 128 is effective for financial statements
issued for periods ended after December 15, 1997, including interim
periods; earlier application is not permitted. This Statement requires
restatement of all prior-period EPS data presented. Earnings per share
reported for the three-month periods ended March 31, 1996 and 1997 are not
affected as a result of adopting SFAS 128 due to the Company's losses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit increased during the first quarter of
1997 from $1,405,000 at December 31, 1996 to $2,529,000 at March 31, 1997.
This increase in the Company's working capital deficit resulted primarily
from the effect of the net loss for the first quarter of 1997 ($1,347,000
less non-cash charges of $452,000) and an increase in accounts payable of
$686,000, offset by proceeds from issuance of short-term notes ($213,000).
Cash and cash equivalents decreased from $422,000 at December 31, 1996 to
$272,000 at March 31, 1997.
The Company expects to continue to report losses in 1997 as the level of
expenses is expected to continue to exceed revenues. The Company can give
no assurances as to when and if its revenues will exceed its expenses.
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
<PAGE>
of these products. There is no assurance that the Company's effort to
develop such business alliances will be successful.
During March and April 1997, the Company has raised $808,000 through the
issuance of short-term notes to certain of its shareholders. The notes are
due in June and July 1997, but no later than ten days following the
consummation of the Company's planned public offering of common stock to be
traded over the French stock market, Le Nouveau Marche.
On May 13, 1997, the Company finalized an underwriting agreement with
certain underwriters in France whereby such underwriters have agreed to
purchase 9,000,000 shares of the Company's common stock at a price of
approximately $.80 per share (the "Placement Price"). The stock is to be
listed on the French stock market, Le Nouveau Marche, no later than May 15,
1997, and the settlement from the sale is to close no later than May 20,
1997. The underwriters also have the option to purchase up to an additional
1,500,000 shares of common stock at the Placement Price within 30 days of
the listing. The securities offered have not been, and will not be,
registered under the Securities Act of 1933, as amended, (the "Act") and
may not be offered or sold in the United States absent registration under
the Act or an applicable exemption from such registration requirements.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997
COMPARED WITH THREE MONTHS ENDED MARCH 31, 1996
REVENUES
The Company's product sales for the quarters ended March 31, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Diagnostic and research assays ......... $ 548,000 $ 621,000
Bovine superoxide dismutase (bSOD)
for research and human use ........... 412,000 621,000
Palosein(R)(bSOD for veterinary use) ... 154,000 78,000
Other .................................. 13,000 17,000
---------- ----------
$1,127,000 $1,337,000
========== ==========
</TABLE>
Sales of the Company's diagnostic and research assays decreased from
$621,000 in the first quarter of 1996 to $548,000 in the first quarter of
1997. This decrease of $73,000 consists of decreases in sales of the
Company's therapeutic drug monitoring assays ($91,000) and assays for drugs
of abuse ($17,000), offset by a $35,000 increase in sales of assays for
measures of oxidative stress. Sales of therapeutic drug monitoring assays
in the first
<PAGE>
quarter of 1997 were adversely impacted by larger than normal stocking
orders shipped to distributors in December 1996.
Sales of bulk bSOD for research and human use decreased by $209,000 in the
first quarter of 1997 as compared to the first quarter of 1996. The
Company's sales of bulk bSOD in the first quarters of 1996 and 1997 were
almost entirely to the Company's Spanish licensee. Bulk bSOD sales in the
first quarter of 1997 declined as compared to the first quarter of 1996 due
to a 20% decline in the volume of product delivered and a decrease in the
value of the Dutch guilder, the currency in which the Company sells bSOD to
its Spanish licensee. Future sales of bulk bSOD continue to be largely
dependent on the needs of the Company's Spanish licensee. The Company
expects its orders for 1997 from the Spanish licensee to be less than those
for 1996. The Company's sales of bulk bSOD beyond 1997 are uncertain and
difficult to predict and no assurances can be given with respect thereto.
Palosein(R)sales increased from $78,000 in the first quarter of 1996 to
$154,000 in the first quarter of 1997. The increase in Palosein(R)sales is
attributable to a substantial sale in the first quarter of 1997 to a
distributor in Germany.
COSTS AND EXPENSES
Costs of sales was 69% of product sales for the first quarter of both 1996
and 1997. Cost of sales of diagnostic and research assays declined from 79%
of the related sales in the first quarter of 1996 to 67% in the first
quarter of 1997, following the consolidation of the Company's manufacturing
operations into one location in the third quarter of 1996. Cost of assay
sales in both the first quarter of 1996 and the first quarter of 1997
include approximately $180,000 in amortization of purchase adjustments
relating to 1994 business acquisitions. Excluding such amortization the
cost of diagnostic and research assays for the first quarter of 1997 was
approximately 34% of the related sales. The decline in cost of diagnostic
and research assays was offset by an increase in the cost of bulk bSOD and
Palosein(R) sold in the first quarter of 1997 as compared to the first
quarter of 1996.
Research and development expenses decreased from $1,182,000 in the first
quarter of 1996 to $1,106,000 in the first quarter of 1997. The decrease in
research and development expenses resulted from cost reductions in the
first quarter of 1997 compared to the first quarter of 1996 of (1) $96,000
in research and development costs of the Company's French subsidiary, (2)
$88,000 in costs of the former Therox operations (the former Therox
laboratory facility was closed in May 1996), and (3) $77,000 in research
and development costs at the Company's Portland, Oregon facility. These
cost reductions were partially offset by a $172,000 increase in expenses
for outside development contracts primarily relating to the preclinical
development work and the Phase I clinical trial on the Company's
glutathione peroxidase mimics program.
<PAGE>
Selling, general and administrative expenses decreased from $745,000 in the
first quarter of 1996 to $604,000 in the first quarter of 1997. The
decrease is primarily the result of a decrease in the general and
administrative expenses of the Company's French subsidiary. In the third
quarter of 1996 all of the Company's manufacturing operations were
consolidated in the United States and the French subsidiary became a
research facility. In connection with this restructuring, two
administrative positions have been eliminated and certain other costs which
were previously charged to administrative expenses are now being classified
as research and development costs.
INTEREST EXPENSE
Interest expense decreased by $39,000 in the first quarter of 1997 as
compared with the first quarter of 1996, primarily due to a reduction in
interest-bearing obligations.
NET LOSS
The Company continued to experience losses in the first quarter of 1997.
The first quarter 1997 loss of $1,347,000 ($.10 per share) was $199,000
less than the $1,546,000 ($.13 per share) loss for the first quarter of
1996. The reduction in the net loss is primarily due to the decreased
research and development and selling, general and administrative expenses,
offset by a decline in gross margin from product sales.
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, and, as a
result, expects to incur a substantial net loss for 1997.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - See Exhibit Index on page 12.
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 12, 1996 By s/Anna D. Barker
------------------
Anna D. Barker, Ph.D.
President and Chief Executive Officer
May 12, 1996 By s/Jon S. Pitcher
------------------
Jon S. Pitcher
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description of Document
10(a) Form of Promissory Notes dated March 27, 1997 -
April 24, 1997 (13)
27(a) Financial data schedule (15)
<PAGE>
EXHIBIT 10(a) - FORM OF PROMISSORY NOTES
PROMISSORY NOTE
$160,000 March 24, 1997
FOR VALUE RECEIVED, OXIS INTERNATIONAL, INC., a Delaware corporation
(the "Company"), promises to pay to the order of __________("Lender"), the sum
of ONE HUNDRED SIXTY THOUSAND ($160,000) in lawful money of the United States of
America which shall be legal tender for the payment of debts from time to time,
together with interest on the principal amount hereof remaining outstanding and
unpaid, from the date hereof until maturity, at the rate of eight percent (8%)
per annum (computed on the actual number of days elapsed over a year of 365
days).
The principal balance evidenced by this Promissory Note ("Note"), and
any accrued but unpaid interest, shall be due and payable in full on the earlier
of (i) June 24, 1997 or (ii) ten (10) business days following the consummation
of the Company's public offering of shares of common stock through Credit
Lyonnais which will be listed for trading over Le Nouveau Marche (the "Due
Date").
The Company shall have the privilege to prepay at any time and from
time to time, all or any part of the principal amount of this Note, any accrued
interest thereon, the Loan Origination Fee (defined below) without notice,
penalty or fee.
The occurrence or existence of any one of the following events or
conditions shall constitute an "Event of Default" under this Note:
(a) any principal or interest on this Note, or the Loan Origination
Fee, shall not have been paid on June 24, 1997; or
(b) the Company makes an assignment for the benefit of creditors, or
applies to any tribunal for the appointment of a trustee or
receiver of a substantial part of the assets of the Company or
commences, or has commenced against it, any proceedings relating
to the Company under any bankruptcy, reorganization, arrangement,
readjustment of debts or other insolvency law of any
jurisdiction; or an order is entered appointing such trustee or
receiver, or adjudicating the Company bankrupt, or approving the
petition in any such proceeding.
The Company expressly agrees that upon the happening or occurrence of
an Event of Default, Lender may at its option, declare the unpaid principal
balance of this Note, all interest then accrued hereon, and the Loan Origination
Fee, at once due and payable, and in such event if this Note is placed in the
hands of an attorney for collection, or suit is brought on same, or the
1
<PAGE>
same is collected through any judicial or other proceeding whatsoever, then the
Company agrees and promises to pay reasonable attorneys' fees and expenses.
In addition to the principal and interest payable hereunder, on the Due
Date the Company shall pay to the Lender a loan origination fee equal to three
percent (3%) of the principal amount of this Note as of the date hereof ("Loan
Origination Fee").
All of the provisions hereof shall be binding upon and inure to the
benefit of the Company and Lender and their respective successors and permitted
assigns, except as otherwise provided. This Note may not be assigned by Lender
without the consent of the Company.
This Note shall be governed by the laws of the State of Oregon. The
parties hereto agree that any dispute, action or proceeding which arises under
or relates to this Note, shall be submitted to binding arbitration in accordance
with the rules of the American Arbitration Association with such arbitration to
be held in New York City, New York. The results, determination, finding,
judgement or award rendered through such arbitration, shall be final and binding
on each of the Company and Lender and not subject to final appeal.
OXIS INTERNATIONAL, INC.
(the "Company")
BY:
-----------------------
Jon S. Pitcher
Chief Financial Officer
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 272,000
<SECURITIES> 0
<RECEIVABLES> 1,013,000
<ALLOWANCES> 0
<INVENTORY> 545,000
<CURRENT-ASSETS> 1,911,000
<PP&E> 1,359,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,497,000
<CURRENT-LIABILITIES> 4,440,000
<BONDS> 0
0
19,000
<COMMON> 7,220,000
<OTHER-SE> 4,182,000
<TOTAL-LIABILITY-AND-EQUITY> 7,497,000
<SALES> 1,127,000
<TOTAL-REVENUES> 1,162,000
<CGS> 772,000
<TOTAL-COSTS> 772,000
<OTHER-EXPENSES> 1,710,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,000
<INCOME-PRETAX> (1,347,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,347,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,347,000)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
