<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, 2000.
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 March 31, 2000, the issuer had outstanding the indicated number of shares of
common stock: 8,981,330
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------
2000 1999
---------- -----------
<S> <C> <C>
Revenues $ 943,000 $ 1,456,000
Costs and expenses:
Cost of sales 852,000 1,007,000
Research and development 338,000 770,000
Selling, general and administrative 722,000 858,000
---------- -----------
Total costs and expenses 1,912,000 2,635,000
---------- -----------
Operating loss (969,000) (1,179,000)
Interest income 22,000 18,000
Interest expense (21,000) (30,000)
---------- -----------
Net loss (968,000) (1,191,000)
Other comprehensive income (loss) -
Foreign currency translation adjustments (26,000) 12,000
---------- -----------
Comprehensive loss $ (994,000) $(1,179,000)
========== ===========
Net loss per share - basic and diluted $(.12) $(.15)
========== ===========
Weighted average number of
shares used in computation - basic and diluted 8,259,330 7,845,926
========== ===========
</TABLE>
1
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $4,205,000 $ 789,000
Accounts receivable 760,000 1,072,000
Inventories 1,281,000 1,327,000
Prepaid and other 48,000 37,000
---------- ----------
Total current assets 6,294,000 3,225,000
Property and equipment, net 738,000 808,000
Technology for developed products 819,000 864,000
Other assets 307,000 287,000
---------- ----------
Total assets $8,158,000 $5,184,000
========== ==========
</TABLE>
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 446,000 $ 681,000
Accounts payable 462,000 1,131,000
Accrued payroll, payroll taxes and other 604,000 395,000
Current portion of long-term debt 96,000 94,000
------------ ------------
Total current liabilities 1,608,000 2,301,000
Long-term debt due after one year 188,000 194,000
Shareholders' equity:
Preferred stock - $.01 par value; 15,000,000 shares
authorized:
Series B - 428,389 shares issued and outstanding
at March 31, 2000 (liquidation preference of
$1,000,000) 4,000 4,000
Series C - 608,536 shares issued and outstanding
at March 31, 2000 6,000 6,000
Common stock - $.001 par value; 95,000,000 shares
authorized; 8,981,330 shares issued and outstanding
at March 31, 2000 (7,928,784 at December 31, 1999) 9,000 8,000
Additional paid in capital 57,422,000 52,756,000
Accumulated deficit (50,718,000) (49,750,000)
Accumulated other comprehensive loss -
foreign currency translation adjustment (361,000) (335,000)
------------ ------------
Total shareholders' equity 6,362,000 2,689,000
------------ ------------
Total liabilities and shareholders' equity $ 8,158,000 $ 5,184,000
============ ============
</TABLE>
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (968,000) $(1,191,000)
Adjustments to reconcile net loss to cash
used for operating activities:
Depreciation and amortization 156,000 289,000
Gain on sale of land and building -- (16,000)
Changes in assets and liabilities:
Accounts receivable 309,000 (130,000)
Inventories 46,000 --
Prepaid and other current assets (12,000) (233,000)
Accounts payable (668,000) (145,000)
Accrued payroll, payroll taxes and other 255,000 (96,000)
---------- -----------
Net cash used for operating activities (882,000) (1,522,000)
Cash flows from investing activities:
Proceeds from sale of land and building -- 1,959,000
Purchases of equipment (37,000) (25,000)
Additions to other assets (36,000) (24,000)
Other, net (1,000) (1,000)
---------- -----------
Net cash provided by (used for) investing activities (74,000) 1,909,000
Cash flows from financing activities:
Proceeds from issuance of common stock 4,466,000 --
Repayment of short-term borrowings (75,000) --
Repayment of long-term debt (5,000) (1,502,000)
---------- -----------
Net cash provided by (used for) financing activities 4,386,000 (1,502,000)
Effect of exchange rate changes on cash (14,000) 23,000
---------- -----------
Net increase (decrease) in cash and cash equivalents 3,416,000 (1,092,000)
Cash and cash equivalents - beginning of period 789,000 2,575,000
---------- -----------
Cash and cash equivalents - end of period $4,205,000 $ 1,483,000
========== ===========
</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 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, 1999. 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. 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 March 31,
2000 and December 31, 1999, consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
<S> <C> <C>
Raw materials $ 692,000 $ 492,000
Work in process 347,000 438,000
Finished goods 242,000 397,000
---------- ----------
Total $1,281,000 $1,327,000
========== ==========
</TABLE>
3. SHAREHOLDERS' EQUITY
During the first quarter of 2000, the Company completed the first closing of a
private placement of units, consisting of one share of the Company's common
stock plus warrants to purchase two shares of the Company's common stock (the
"Units"), primarily to a series of institutional investors. The Units were
priced at the Nasdaq closing price for the Company's common stock the day
prior to the signing of the subscription agreements relating to the purchase
of such Units. The price per Unit was $4.75. In the first closing, 1,010,868
common shares and warrants to purchase 2,021,736 common shares were issued in
exchange for gross proceeds of $4,600,000 in cash and conversion of $202,000
of short-term notes and accrued interest payable. The exercise price of one-
half of the warrants
5
<PAGE>
issued in the private placement is equal to 125% of the price paid per Unit.
The exercise price of the other half of the warrants is equal to 150% of the
price paid per Unit.
The Company has agreed to issue additional warrants to its placement agents
giving the agents the right to acquire 155,000 common shares at an exercise
price of $5.94 per share.
The Company has agreed to file, within 90 days of the final closing of the
private placement, a registration statement with the Commission registering
the common shares, and the common shares issuable upon exercise of the
warrants, issued in the private placement.
The private placement was completed in April 2000 with a second closing
resulting in gross proceeds to the Company of $1,450,000 in cash.
4. STOCK OPTIONS
The Company has a stock incentive plan under which 1,365,000 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 three months ended March 31, 2000,
options to purchase 225,000 shares at an exercise price of $1.9125 have been
issued under the Plan. Options to purchase an additional 400,000 common
shares at an exercise price of $1.9125 have also been issued, subject to
shareholder approval of an amendment to the Plan.
The Company's board of directors has also approved an additional option grant
to purchase 400,000 common shares at an exercise price of $1.5625. This
option grant is not issued pursuant to the Plan.
5. OPERATING SEGMENTS
The following table presents information about the Company's two operating
segments:
<TABLE>
<CAPTION>
Health Therapeutic
Products Development Total
----------- ------------ -----------
<S> <C> <C> <C>
Quarter ended March 31, 2000:
Revenues from external
customers $ 943,000 $ -- $ 943,000
Intersegment revenues -- -- --
Segment loss (629,000) (339,000) (968,000)
As of March 31, 2000 -
Segment assets 3,658,000 4,500,000 8,158,000
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C>
Quarter ended March 31, 1999:
Revenues from external
customers $1,428,000 $ 28,000 $ 1,456,000
Intersegment revenues -- 24,000 24,000
Segment loss (409,000) (782,000) (1,191,000)
As of March 31, 1999 -
Segment assets 5,885,000 2,334,000 8,219,000
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
CERTAIN STATEMENTS SET FORTH BELOW CONSTITUTE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
STATEMENTS THAT EXPRESSLY OR BY IMPLICATION PREDICT FUTURE RESULTS, PERFORMANCE
OR EVENTS ARE FORWARD-LOOKING. THE WORDS "BELIEVES," "PLANS," "EXPECTS,"
"ANTICIPATES," "ESTIMATES," AND SIMILAR EXPRESSIONS ALSO IDENTIFY FORWARD-
LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY OR INDUSTRY RESULTS TO BE MATERIALLY
DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY THE FORWARD-LOOKING STATEMENTS. WITH RESPECT TO THE COMPANY, THESE
FACTORS INCLUDE UNCERTAINTY OF ADDITIONAL FUNDING; LOSS OR IMPAIRMENT OF SOURCES
OF CAPITAL; DEPENDENCE ON STRATEGIC PARTNERS; UNCERTAINTIES RELATING TO PATENTS
AND PROPRIETARY INFORMATION; DEPENDENCE ON KEY PERSONNEL; TECHNOLOGICAL CHANGE
AND COMPETITION AND CHANGES IN LAWS OR REGULATIONS. GIVEN THESE UNCERTAINTIES
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING
STATEMENTS. THE COMPANY DOES NOT INTEND TO UPDATE ANY FORWARD-LOOKING
STATEMENTS.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased during the first quarter of 2000 by
$3,762,000, from $924,000 at December 31, 1999 to $4,686,000 at March 31,
2000. The increase in working capital resulted primarily from the net
proceeds from issuance of common stock of $4,668,000, offset in part by the
effect of the net loss for the quarter ($968,000 less non-cash charges of
$156,000).
Cash and cash equivalents increased from $789,000 at December 31, 1999 to
$4,205,000 at March 31, 2000.
7
<PAGE>
While the Company believes that its new therapeutic products and technologies
show considerable promise, its ability to realize significant revenues
therefrom is dependent upon the Company's success in developing business
alliances with biotechnology and/or pharmaceutical companies that have the
required resources to develop and market certain of these products. 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 2000 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.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE
MONTHS ENDED MARCH 31, 1999
Planned Divestiture of Assets
At the direction of the Company's board of directors, the Company is currently
undertaking a restructuring and reorganization under which the non-therapeutic
assets of the Company, including substantially all of the assets of OXIS
Health Products, Inc., are to be divested or spun off and the Company will be
refocused in the area of ethical pharmaceutical development. Although a
formal plan for this divestiture has not been put in place, it is anticipated
that all of the assets that are currently generating revenues for the Company
will either be sold to a third party or spun off to the Company's
shareholders. Upon completion of this anticipated restructuring, the Company
will no longer have a source of current revenues. The Company's continued
operations will be dependent upon additional capital financing until such time
as revenues can be generated from its therapeutic development programs.
Revenues
The Company's revenues for the quarters ended March 31, 2000 and 1999 were as
follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Research assays and fine chemicals $ 294,000 $ 354,000
Therapeutic drug monitoring assays 290,000 484,000
Medical instruments 333,000 487,000
Other 26,000 131,000
---------- --------
$ 943,000 $1,456,000
========== ==========
</TABLE>
Sales of research assays and fine chemicals declined by $60,000 from $354,000
in the first quarter of 1999 to $294,000 in the first quarter of 2000 due to a
decline in sales volumes.
8
<PAGE>
Revenues from sales of therapeutic drug monitoring assays declined in the
first quarter of 2000 as compared to the first quarter of 1999 resulting in a
decrease in sales of $194,000. Effective June 28, 1999, the Company sold the
intellectual property, contract rights and finished goods inventory relating
to its therapeutic drug monitoring assays. Therapeutic drug monitoring assay
revenues in the first quarter of 2000 represent contract sales of assays and
services to the purchaser of the rights to this technology. Such revenues are
expected to continue to be less than the level prior to July 1999. Revenues
from therapeutic drug monitoring assay sales and related services may
terminate at the end of the third quarter of 2000, when the contract to
manufacture product for the purchaser of the technology expires.
Revenue from instrument sales and development declined by $154,000, from
$487,000 in the first quarter of 1999 to $333,000 in the first quarter of
2000. This decrease resulted from reduced orders from customers. Since early
1999, the Company has not invested in any significant marketing efforts to
replace lost instrument customers.
Other revenues in the first quarter of 1999 included a $50,000 royalty payment
that did not recur in the first quarter of 2000.
Costs and Expenses
Cost of sales was 69% of revenues for the first quarter 1999 and increased to
90% of product sales for the first quarter of 2000. This increase in the cost
of sales as a percentage of sales is due primarily to the effect of the fixed
manufacturing costs for the Company's products being spread over a lower
manufacturing and sales volume. Sales volume for the first quarter of 2000
was approximately 35% less than that of the first quarter of 1999. Cost of
sales declined from $1,007,000 in the first quarter of 1999 to $852,000 in the
first quarter of 2000, but this decrease was not in proportion to the decrease
in sales volumes.
Research and development expenses decreased from $770,000 in the first quarter
of 1999 to $338,000 in the first quarter of 2000. The decrease in research
and development expenses resulted primarily from the closure of the Company's
French research laboratory in the second quarter of 1999.
Selling, general and administrative expenses decreased from $858,000 in the
first quarter of 1999 to $722,000 in the first quarter of 2000. The decrease
is primarily the result of reductions in personnel of approximately $66,000
and a reduction in professional fees of approximately $30,000.
9
<PAGE>
Net Loss
The Company continued to experience losses in the first quarter of 2000. The
first quarter 2000 loss of $968,000 ($.12 per share-basic and diluted) was
$223,000 less than the $1,191,000 ($.15 per share-basic and diluted) loss
for the first quarter of 1999. The decrease in the net loss is primarily due
to the decreases in research and development and selling, general and
administrative costs.
The Company expects to incur a substantial net loss for 2000. 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 to 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.
10
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On March 3, 2000, the Company issued 1,010,868 shares of its common stock and
warrants to purchase 2,021,736 shares of its common stock to eight accredited
investors. Gross proceeds from the sale of these securities were $4,802,000,
including $4,600,000 in cash and $202,000 in exchange for a note and accrued
interest. The securities were sold in a private placement pursuant to
Regulation D of the rules of the Securities and Exchange Commission.
In April 2000 the Company completed the second and final closing of its
private placement pursuant to Regulation D by issuing an additional 366,081
shares of its common stock and warrants to purchase 732,162 shares of its
common stock to three accredited investors, two of which also acquired shares
and warrants in the March closing. Gross proceeds from the April closing were
$1,450,000.
In total, warrants to purchase 2,753,898 shares of common stock were issued to
investors in the private placement. The number of shares subject to the
warrants by exercise price is as follows:
<TABLE>
<CAPTION>
Exercise Shares subject
Price to warrants
-------- --------------
<S> <C>
$7.13 1,021,394
$5.94 1,021,394
$5.91 355,555
$4.92 355,555
</TABLE>
The $5.94 and $4.92 warrants expire one year from issuance. The $7.13 and
$5.91 warrants expire two years from issuance.
In connection with this sale of securities the Company has paid or will pay to
its placement agents $219,000 in cash commissions together with warrants to
purchase 155,000 shares of the Company's common stock at an exercise price of
$5.94 per share.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - See Exhibit Index on page 13.
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Company on March 23, 2000,
reporting the sale of shares of common stock and warrants with gross
proceeds to the Company of $4,802,000.
11
<PAGE>
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.
May 12, 2000 By /s/Paul C. Sharpe
--------------------
Paul C. Sharpe
Chief Executive Officer
May 12, 2000 By /s/Jon S. Pitcher
--------------------
Jon S. Pitcher
Chief Financial Officer
12
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EXHIBIT INDEX
Exhibit Page
Number Description of Document Number
27(a) Financial data schedule 14
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,205,000
<SECURITIES> 0
<RECEIVABLES> 760,000
<ALLOWANCES> 0
<INVENTORY> 1,281,000
<CURRENT-ASSETS> 6,294,000
<PP&E> 738,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,158,000
<CURRENT-LIABILITIES> 1,608,000
<BONDS> 0
0
10,000
<COMMON> 9,000
<OTHER-SE> 6,343,000
<TOTAL-LIABILITY-AND-EQUITY> 8,158,000
<SALES> 943,000
<TOTAL-REVENUES> 943,000
<CGS> 852,000
<TOTAL-COSTS> 852,000
<OTHER-EXPENSES> 338,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,000
<INCOME-PRETAX> (968,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (968,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (968,000)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
