<PAGE>
 
               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                                        
                             WASHINGTON, D.C. 20549
                                        
                                   FORM 10-K
                                        
 X    Annual report pursuant to Section 13 or 15(d) of the Securities
---   Exchange Act of 1934 for the fiscal year ended December 31, 1997.

      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


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 February 28, 1998 (assuming conversion of all outstanding voting
preferred stock into common stock) was $17,862,000.

Number of shares outstanding of Registrant's common stock as of February 28,
1998: 28,775,324 shares.

Certain of the information required by Part III of this Form 10-K is
incorporated by reference from a portion of the Company's Proxy Statement for
1998 Annual Meeting of Stockholders.
<PAGE>
 
                                    CONTENTS
<TABLE>
<CAPTION>
PART I                                                                    PAGE
 <S>             <C>                                                      <C>
  Item 1.          Business.............................................    1
 
  Item 2.          Properties...........................................   10
 
  Item 3.          Legal Proceedings....................................   11
 
  Item 4.          Submission of Matters to a Vote of Security Holders..   11
 
PART II
 
  Item 5.          Market for Registrant's Common Stock and Related
                   Shareholder Matters..................................   11
 
  Item 6.          Selected Financial Data..............................   12
 
  Item 7.          Management's Discussion and Analysis of Financial
                   Condition and Results of Operations..................   13
 
  Item 7 A.        Quantitative and Qualitative Disclosures About Market
                   Risk - Not Applicable
 
  Item 8.          Financial Statements and Supplementary Data..........   18
 
  Item 9.          Changes in and Disagreements with Accountants
                   on Accounting and Financial Disclosure...............   42
 
PART III
 
  Item 10.         Directors and Executive Officers of the Registrant...   42
 
  Item 11.         Executive Compensation...............................   42
 
  Item 12.         Security Ownership of Certain Beneficial Owners
                   and Management.......................................   42
 
  Item 13.         Certain Relationships and Related Transactions.......   42
 
PART IV
 
  Item 14.         Exhibits, Financial Statement Schedules and
                   Reports on Form 8-K..................................   43
 
SIGNATURES..............................................................   44
 
EXHIBIT INDEX...........................................................   45
</TABLE>
<PAGE>
 
                                    PART I

ITEM 1.   BUSINESS.


INTRODUCTION

  Certain of the statements contained in this report are forward-looking
  statements based on current expectations which involve a number of
  uncertainties.  The events described herein may not occur due to risks
  inherent in research and product development, the uncertainty of market
  acceptance of Company products, the possible inability to obtain financing,
  and other factors.  Accordingly, the Company's future activities may differ
  materially from those projected in the forward-looking statements.

  OXIS International, Inc., ("OXIS" or the "Company"), a Delaware corporation,
  is a leader in the discovery, development and commercialization of therapeutic
  and diagnostic products to diagnose, treat and prevent diseases of oxidative
  stress. Oxidative stress occurs when the concentration of free radicals and
  reactive oxygen species ("ROS"), highly reactive molecules produced during
  oxidative processes, exceed the body's antioxidant defense mechanisms.

  In February 1998, the Company's Board of Directors approved the restructuring
  of the Corporation into two wholly owned subsidiaries, OXIS Health Products,
  Inc. and OXIS Therapeutics, Inc.  Although the restructuring has not yet been
  completed, these subsidiary corporations have been formed.  The Company's
  international diagnostic business which markets research and commercial
  diagnostic assays and fine chemicals to research and clinical laboratories and
  other customers will be carried out by OXIS Health Products, Inc.  The
  Company's drug discovery business focused on new drugs to treat diseases
  associated with tissue damage from free radicals and ROS will be carried out
  by OXIS Therapeutics, Inc.  The Company is in the process of transferring
  assets and liabilities to the new subsidiary corporations.

  Effective March 18, 1998, Timothy C. Rodell, M.D., formerly Chief Operating
  Officer of OXIS International, Inc., was appointed President of OXIS
  Therapeutics, Inc.; and Humberto V. Reyes, formerly Senior Vice President of
  OXIS International, Inc. was appointed President of OXIS Health Products, Inc.
  At the same time, Anna D. Barker, Ph.D., resigned as President and Chief
  Executive Officer of OXIS International, Inc., and Ray R. Rogers, Chairman of
  OXIS International, Inc., also became its Chief Executive Officer.

  The Company has targeted its drug discovery and development programs to
  address diseases that have underlying pathologies based on oxidative stress,
  and for which there is currently no optimum treatment.  The Company is
  developing lead molecules from three series of small molecular weight
  antioxidants.  The first of these lead molecules has entered a Phase II
  clinical trial, and the second and third are in preclinical development.

                                       1
<PAGE>
 
  The Company derives current business revenues from its diagnostic assays and
  two fine chemicals, ergothioneine and bovine superoxide dismutase ("bSOD").
  The Company's diagnostic products portfolio includes fourteen commercial
  therapeutic drug monitoring ("TDM") assays based on fluorescence polarization
  immunoassay technology ("FPIA"); twelve drugs of abuse assays which utilize an
  enzyme-multiplied immunoassay technique ("EMIT"); and eleven assays to measure
  oxidative stress.

  The Company's thirteen FDA-cleared therapeutic drug monitoring ("TDM") assays
  are sold to clinical and reference laboratories, primarily through a network
  of international distributors.  The assays for markers of oxidative stress are
  sold through international distribution and catalog sales to basic researchers
  and clinicians working in oxidative stress research.  The Company's TDM assays
  are designed to run on Abbott's TDx(R) and TDx/FLx(R) instruments, while the
  enzyme immunoassays and colorimetric assays run on a variety of commercially
  available instruments.

  Through a business acquisition completed December 31, 1997, the Company now
  develops, manufactures and sells a variety of medical instruments.

  The Company has invested significant resources to build an early and
  substantial patent position on both its antioxidant therapeutic technologies
  and selected oxidative stress assays.

  The Company's corporate offices are located in a 15,000 sq. ft. facility at
  6040 N. Cutter Circle, Suite 317, Portland, OR 97217.  Research operations of
  the Company are located outside of Paris at Z.A. des Petits Carreaux, 2, av.
  des Coquelicots, 94385 Bonneuil-Sur-Marne, Cedex, France.  Facilities for
  development and manufacturing medical instruments are located at 55 Steam
  Whistle Drive, Ivyland, PA 18974.


ACQUISITIONS/MERGERS

  In September 1994, the Company acquired all of the capital stock of Bioxytech
  S.A. located in Paris, France, and merged with International BioClinical, Inc.
  ("IBC"), an Oregon corporation, and changed its name from DDI Pharmaceuticals,
  Inc. to OXIS International, Inc.  Bioxytech S.A. was subsequently renamed OXIS
  International S.A. ("OXIS S.A.").  At the time of the acquisition, OXIS S.A.'s
  research and development programs were focused on the synthesis of novel
  antioxidant therapeutic molecules and assays to measure markers of oxidative
  stress.  OXIS S.A. was also selling  six research assays for measuring
  specific markers of oxidative stress.  IBC was selling thirteen therapeutic
  drug monitoring ("TDM") assays at the time of its acquisition by the Company.
  It was  also developing one additional TDM assay which was completed during
  1995.

  In July 1995, OXIS acquired Therox Pharmaceuticals, Inc. ("Therox"), a
  Delaware corporation, through an exchange of stock.  Therox was merged into a
  subsidiary of the Company.  Therox was founded in 1994 by S.R. One, Limited
  (the venture investment arm of SmithKline Beecham) and Brantley Venture
  Partners II, L.P.  Therox was focused on the development of

                                       2
<PAGE>
 
  membrane active antioxidants and molecules that combine antioxidant activity
  with other key therapeutic effects. The acquisition provided the Company with
  complimentary therapeutic technologies, seven patents and several
  relationships with university scientists.

  Prior to the acquisitions of Bioxytech S.A. and IBC in 1994, substantially all
  of the Company's research and development efforts involved superoxide
  dismutase ("SOD") and poly-ethylene glycol ("PEG").  The 1994 and 1995
  acquisitions substantially expanded the Company's research and development
  capabilities in the areas of synthetic chemistry, biochemistry and diagnostic
  assay development.

  On December 31, 1997, the Company acquired all of the issued and outstanding
  capital stock of Innovative Medical Systems Corp. ("IMS"), a Pennsylvania
  corporation pursuant to a transaction whereby the Company acquired all of the
  outstanding stock of IMS in exchange for 1,000,000 shares of the Company's
  common stock issued immediately and additional common shares to be issued.
  IMS develops, manufactures, markets and sells medical instruments, including a
  laboratory analyzer that is being modified to automate the Company's assays to
  measure markers of oxidative stress.

RESEARCH AND DEVELOPMENT

  The Company's research and development programs with respect to its
  therapeutics business are focused primarily on the discovery and development
  of new therapeutic molecules to combat diseases related to damage from
  oxidative stress.  OXIS believes that the control or elimination of oxidative
  stress represents an important but largely untapped area for drug development.
  The Company's technical approach is to supplement the natural defense systems
  through unique, synthetic molecules which, because of their pharmacological
  and/or distribution properties, will reduce oxidative stress in target cells
  and tissues.

  Because of the wide range of diseases and organ systems affected by oxidative
  stress and its consequences, no single compound or family of compounds is
  likely to be appropriate for all indications.  For this reason, OXIS is
  developing three families of molecules which are targeted to different disease
  indications.

<TABLE> 
<CAPTION> 
GPx Mimics                                Lipid Soluble             L-ergothioneine
BXT-51072                                 Antioxidants              and analogs
<S>                                       <C>                       <C> 
Inflammatory bowel disease                Neurodegenerative         Acute respiratory distress syndrome
Acute respiratory distress syndrome         Alzheimer disease       Transplant
Restenosis                                  Parkinson disease       AIDS
Asthma                                    Arthlerosclerosis         Nutrition
                                          Skin                      Cosmetic
</TABLE> 

                                       3
<PAGE>
 
  As shown in the above diagram, the Company is targeting acute and subacute
  inflammatory diseases with a family of small molecular weight mimics of the
  enzyme glutathione peroxidase ("GPx").  These molecules have been demonstrated
  to both block direct oxidative damage in vitro, to block nuclear factor kappa
  B ("NFkB") activation at low nanomolar concentrations and to block the
  production of numerous cytokines and other molecules which are under the
  control of NFkB.  These molecules have also been shown in animal models to
  block endotoxic shock, restenosis and inflammatory bowel disease.

  The second series of molecules is designed to mimic the salutary activity of
  vitamin E while addressing its limitations as a pharmaceutical.  Vitamin E is
  the predominant natural lipid soluble antioxidant in animals and, as such, has
  a primary role in the protection of cell membranes from damage from ROS.  This
  role is critical in cardiovascular and central nervous system disease.  The
  limitations of vitamin E as an antioxidant are its potency, which is very low,
  and its kinetics of membrane incorporation.  The OXIS lipid soluble
  antioxidants are twenty to forty fold more potent than vitamin E as
  antioxidants and are incorporated into membranes a great deal more quickly.
  These molecules are currently targeted for development in the area of
  cardiovascular and neurodegenerative disease.

  The third series of molecules are designed around a natural antioxidant known
  as L-ergothioneine.  L-ergothioneine itself is a sulfur-containing
  antioxidant, related to glutathione, which is a natural product and which is
  contained in tissues in the body subjected to significant oxidative stress
  such as the lens of the eye, the liver and red blood cells.  Unlike
  glutathione, l-ergothioneine is stable in aqueous solutions and is well
  absorbed orally.  Humans do not synthesize l-ergothioneine and therefore
  require it in their diet.  It has been demonstrated to be depleted in the lens
  of the eye in patients with cataracts, and the company is currently
  investigating its levels in a number of other disease states including AIDS.
  OXIS holds a patent for what it believes to be the only commercially feasible
  synthetic process for pure l-ergothioneine.  In addition, Company scientists
  have synthesized a series of proprietary analogs of l-ergothioneine which are
  more potent and which can be developed in areas where a proprietary position
  on natural l-ergothioneine is not available.

  CURRENT PROJECT STATUS

  BXT-51072 AND GPX MIMICS.  BXT-51072 is the lead molecule from the Company's
  GPx mimics program.  In vitro BXT-51072 blocks the direct toxicity of
  oxidative stress and has also been shown to inhibit the activation of NFkB and
  the production of numerous inflammatory mediators including tumor necrosis
  factor ("TNF"), interleukins 6 and 8 (Il-6 and Il-8) and the expression of a
  number of  cellular adhesion molecules.  In animal models, BXT-51072 has shown
  that it protects against toxicity from endotoxin, blocks the clinical
  manifestations of inflammatory bowel disease and prevents restenosis following
  balloon angioplasty.

                                       4
<PAGE>
 
                            STRUCTURE OF BXT-51072
                                        
                            (GRAPHIC APPEARS HERE)

                                        
  BXT-51072 entered human clinical development and completed a Phase I clinical
  trial in late 1996.  In that trial, it showed no toxicity and was found to be
  well absorbed orally.

  BXT-51072 is currently in Phase II clinical trials for ulcerative colitis.
  The first part of this Phase II study, which will investigate safety,
  pharmacokinetics, and activity is expected to be completed in the first half
  of 1998 and data from a second, double-blind, placebo controlled efficacy
  phase should be available by early 1999.

  The Company is also in the process of initiating a small Phase IB clinical
  trial in asthma.  Assuming adequate resources, this trial could be completed
  in 1998.

  LIPID SOLUBLE ANTIOXIDANTS (LSAS).  These molecules are currently in
  preclinical development for cardiovascular disease and neurodegenerative
  disease.  The Company has targeted a late 1998 to early 1999 Investigational
  new drug application for one of these molecules.

  L-ERGOTHIONEINE AND ANALOGS.  L-ergothioneine is currently being investigated
  in animals for acute respiratory distress syndrome ("ARDS").  Acute and
  subacute, non-GLP toxicity studies have been completed and scale-up has
  proceeded to the 1 kg level.

  L-ergothioneine, as a natural product, is being developed by the Company for
  use in cosmetics, food preservation and dietary supplementation.

  In addition to its research and development programs in synthetic
  antioxidants, OXIS also has conducted research programs in the development of
  oxidative stress assays, bovine superoxide dismutase and poly-ethylene glycol
  technology.  The status of these programs are as follows:

  OXIDATIVE STRESS ASSAYS.  The Company has developed eight research assay kits
  for markers of oxidative stress that are designed to ultimately facilitate
  diagnosis and optimize therapy of free radical-associated diseases.  These
  assays also provide developmental synergy for the pharmaceutical research and
  development programs by facilitating the assessment of oxidative stress in
  laboratory studies and in patients.  The Company intends to develop additional
  assays for key markers of oxidative stress as part of its ongoing research and
  development efforts in oxidative stress diagnostics.  The Company is in the
  process of developing an instrument system to support certain of the assays
  for markers of oxidative stress.

                                       5
<PAGE>
 
  BOVINE SUPEROXIDE DISMUTASE (BSOD).  The Company also has extensive experience
  in developing, manufacturing and marketing bovine superoxide dismutase
  ("bSOD").  Bovine superoxide dismutase has been previously studied in numerous
  clinical trials by OXIS and other companies.  OXIS  is not currently pursuing
  an active research program in bSOD, but supplies bulk bSOD for human use and
  sells an injectable dosage form of the drug for veterinary applications under
  the registered trademark Palosein(R).

  POLY-ETHYLENE GLYCOL TECHNOLOGY (PEG).  The Company is not currently pursuing
  an active research program in PEG technology, but this technology is still
  available for license or sale.  During 1997 the Company entered into a
  nonexclusive licensing arrangement giving Enzon, Inc. the right to use certain
  of its PEG technologies.

  Overall, the Company has an extensive  portfolio of patents that cover its
  synthetic antioxidant therapeutic molecules, superoxide dismutase,
  polyethylene glycol technology, assays for markers of oxidative stress and
  fine chemicals.  The Company currently holds fifteen U.S. patents and nine
  French patents and has filed for seven additional U.S. patents.

  The Company's overall research and development strategy is to discover and
  advance its therapeutic molecules through early stage clinical trials to
  demonstrate efficacy in the target disease populations.  The Company expects
  to seek strategic pharmaceutical partners for later stage clinical development
  and commercialization of its therapeutics, but, to date, has not entered into
  any such partnership and no assurances can be given that it will enter into
  any such partnership.

  Much of the Company's success depends on its potential products which are in
  research and development and from which no material revenues have yet been
  generated.  The Company must successfully partner, develop, obtain regulatory
  approval for and market or sell its potential therapeutic products to achieve
  profitable operations.  No assurances can be given that the Company's product
  development efforts will be successfully competed, that required regulatory
  approvals will be obtained, or that any such products, if developed and
  introduced will be successfully marketed.  Furthermore, no assurances can be
  given that the Company will be able to raise the working capital necessary to
  continue to advance its research and development programs.  Competition in the
  pharmaceutical industry is intense, and no assurances can be given that OXIS'
  competitors will not develop technologies and products that are more effective
  than those being developed by OXIS.

  Research and development expenses were $4,319,000, $4,908,000 and $4,299,000
  for the years ended December 31, 1997, 1996 and 1995, respectively.

                                       6
<PAGE>
 
PRODUCTS

DIAGNOSTIC PRODUCTS

  Revenues from sales of the Company's diagnostic products comprised 49% of its
  revenues in both 1997 and 1996, and 44% of its 1995 revenues.

  OXIDATIVE STRESS RESEARCH PRODUCTS.  The Company has twenty-four research
  products available for sale that include:

          Assays for markers of oxidative stress
          Spin traps
          Antibodies
          Proteins
          Specialty chemicals
          Controls

  The primary technology foundation for the research product line are eleven
  assay test kits which measure key markers in free radical biochemistry
  (markers of oxidative stress).  Specifically, these assays measure levels of
  antioxidant protection, oxidative alterations, and pro-oxidant activation of
  specific white blood cells.  OXIS' research assays include:

          SOD-525 (superoxide dismutase)
          GSH-400 (reduced glutathione)
          pl.GPx-EIA (human plasma-specific glutathione peroxidase)
          LPO-586 (lipid peroxidation)
          MPO-EIA (human myeloperoxidase)
          Lactoferrin-EIA (human lactoferrin)
          c-GPx-340 (cellular glutathione peroxidase)
          GR-340 (glutathione reductase)
          8-Isoprostane (8 epi-prostagladin F2alpha)
          Nitric Oxide
          Nitric Oxide, Non enzymatic

  These assay kits utilize either chemical (colorimetric) or immunoenzymatic
  (EIA) reactions that can be read using laboratory spectrophotometers and
  microplate readers, respectively.  The Company's assays offer advantages over
  conventional laboratory methods, including ease of use, speed, specificity and
  accuracy.

  The assays for markers of oxidative stress are currently being sold to
  researchers in Europe, Japan and the United States, primarily through
  distributors.  The Company estimates that there are more than 3,500 scientists
  and clinicians who are working directly in research on free radical
  biochemistry, and who are potential customers for these research assays.
  Eight of the Company's research assays are manufactured at the facility in
  Portland, Oregon.  The others are manufactured pursuant to private label
  agreements.

                                       7
<PAGE>
 
  The Company's assays for markers of oxidative stress are generally protected
  by trade secrets, and to a more limited extent, patents.  Seven French patent
  applications have been filed with respect to these assays, two of which have
  resulted in the issuance of patents.  The oxidative stress assays are sold
  under the registered trademark "Bioxytech(R)".

  Several companies other than OXIS have developed assays for markers of
  oxidative stress and offer assays that compete directly with the Company's
  assays for superoxide dismutase, cellular glutathione peroxidase, reduced
  glutathione, lipid peroxidation and glutathione reductase.

  THERAPEUTIC DRUG MONITORING (TDM) ASSAYS.  The Company sells fourteen TDM
  assays which are based on FPIA (fluorescent polarization immunoassay)
  technology.  These products are sold under the trade name INNOFLUORO(TM).  The
  Company's test menu encompasses approximately 90% of the routine TDM tests
  performed by clinical and reference laboratories worldwide.  These assays are
  designed for use on the Abbott Laboratories TDx(R) and TDx/FL/x/(R) analyzers.
  In May 1997, the Company launched in the U.S. a new anti-convulsant assay for
  the measurement of the drug TOPAMAX(R) developed and marketed by McNeil
  Pharmaceutical.  TOPAMAX(R) is one of the newer classes of drugs developed to
  treat difficult cases of epilepsy.

  The TDM products are sold through a combination of direct customer sales and
  distributors in the United States, and through a network of distributors
  outside the United States, principally in Europe.  The TDM assays are
  manufactured at the Company's facility in Portland, Oregon.

  The Company has one pending U.S. patent application, in addition to relying on
  trade secrets, know-how and trademark laws to protect its TDM assays.  The
  Company's TDM assays have been sold under the trade name INNOFLUOR(TM) since
  the mid-1980s.

  Six major diagnostic companies dominate the therapeutic drug monitoring
  market.  Each of these six companies provides a range of both instrumentation
  and assays to clinical laboratories.  Of these, Abbott Laboratories holds the
  largest market share.  OXIS competes most directly with Abbott Laboratories,
  because OXIS' assays are designed to be run on Abbott's analyzers.  The
  Company competes based on high product quality, an aggressive pricing strategy
  and technical services.  Abbott Laboratories and certain of the Company's
  other competitors have substantially greater financial and other resources
  than the Company and there can be no assurances that the Company can
  effectively compete with Abbott Laboratories and such other competitors.

  All of the research products and TDM assays are manufactured in batches in
  anticipation of customer orders.  Orders are generally filled within a few
  days; therefore, the Company does not have any significant backlog of orders
  for its diagnostic products.  The Company believes that adequate supplies of
  raw materials are either currently on hand, available from commercial
  suppliers or available through development on a custom basis by commercial
  contractors, as needed.

                                       8
<PAGE>
 
THERAPEUTIC PRODUCTS

  Revenues from sales of bulk bSOD, royalties on bSOD products sold by
  licensees, and sales of Palosein(R), the Company's veterinary bSOD product,
  comprised approximately 42% of the Company's total revenues in 1997, 50% in
  1996 and 48% in 1995.

  BOVINE SOD (BSOD) PRODUCTS.  Commercial-scale manufacture and quality control
  of bulk bSOD, as well as subsequent quality control and processing of United
  States Department of Agriculture-inspected edible beef liver into highly
  purified bulk bSOD requires a complex, multi-step process.  OXIS has
  significant knowledge regarding the manufacture of bSOD that is protected
  through trade secrets and proprietary know-how.

  The Company has an agreement with Diosynth B.V., a Dutch contract manufacturer
  of pharmaceutical ingredients, to manufacture bulk bSOD and supply it to OXIS
  under the terms of a license based on the Company's processes.  Diosynth B.V.
  is an affiliate of AKZO-Nobel N.V., a large, Dutch multinational chemical and
  health care company.  The Company believes that its present source of bSOD is
  adequate for its near-term foreseeable needs.

  With the exception of recently developed, patent protected long-acting SOD
  derivatives, the Company's older patents protecting the manufacture of bSOD
  have expired.  Expiration of the Company's patents may enable other companies
  to benefit from research and development efforts of the Company, but such
  other companies would not receive the benefits of the Company's unpatented
  trade secrets and know-how or unpublished preclinical or clinical data.  Such
  companies would still be required to expend considerable resources to conduct
  preclinical and clinical studies of their own pharmaceutical preparations of
  SOD to gain regulatory approval.

  The Company sells bulk bSOD for human use outside the United States, but does
  not market dosage forms of bSOD for human use.  The Company does not currently
  intend to seek approval for human use of bSOD in the United States for any
  indication, and only intends to sell bulk bSOD to the extent that there is a
  demand for it.  Palosein(R) is OXIS' registered trademark for its veterinary
  brand of bSOD.  Although there are other sources of bSOD and other laboratory
  and pilot-scale processes to produce bSOD, the Company believes that it is the
  only company manufacturing bSOD on a commercial scale for pharmaceutical uses.

  The Company's Spanish licensee, Tedec-Meiji Farma, S.A., which distributes
  bSOD for human use in Spain, has been responsible for a substantial portion of
  the Company's revenues in recent years.  Sales of bSOD to Tedec-Meiji were 31%
  of the Company's revenues in 1997, 39% in 1996 and 16% in 1995.  No assurances
  can be given that the Company will continue selling bSOD to Tedec-Meiji or any
  other party.

                                       9
<PAGE>
 
MEDICAL INSTRUMENTS

  With the acquisition of IMS, effective December 31, 1997, the Company acquired
  staff, facilities and equipment to develop and manufacture medical
  instruments.  Instruments currently being manufactured by IMS include tissue
  processors, automated stainers and a hemodynamic monitoring system.  IMS
  generally manufactures product to fill specific orders, and, as of December
  31, 1997, had a backlog of orders of approximately $1,400,000.  While the
  Company believes such orders to be firm, orders from customers are generally
  cancelable.

EMPLOYEES

  As of December 31, 1997, the Company had 85 employees (65 in the United States
  and 20 in France).  Employees of the Company's French subsidiary are covered
  by a government-sponsored collective bargaining agreement.  None of the United
  States employees are subject to a collective bargaining agreement.  The
  Company has never experienced a work interruption.


FOREIGN OPERATIONS AND EXPORT SALES

  For information regarding the Company's foreign operations and export sales,
  see Note 9 to the consolidated financial statements.


ITEM 2.   PROPERTIES.

  The Company occupies, pursuant to leases expiring in 1998, office and
  laboratory space in Portland, Oregon and near Paris, France.

  IMS, acquired by the Company on December 31, 1997, owns a 45,000 square foot
  building on approximately four acres located near Philadelphia, Pennsylvania.
  This facility houses the Company's medical instrument development and
  manufacturing business.  The land and building are subject to a mortgage
  securing a note in the amount of $1,535,000.

  Although the premises currently occupied are suitable for the Company's
  present requirements, the Company believes that other equally suitable
  premises are readily available.

                                       10
<PAGE>
 
ITEM 3.   LEGAL PROCEEDINGS.

  There are no material legal proceedings to which the Company is a party or to
  which any of its property is subject.  The Company has received correspondence
  from a representative of the holder of its Series D Preferred Stock, stating
  that the Series D Preferred holder is entitled to certain interest and other
  payments and other rights with respect to the remaining Series D Preferred
  Stock which is not convertible into common stock.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

  No matters were submitted to a vote of security holders of the Company during
  the fourth quarter of the year ended December 31, 1997.



                                    PART II
                                        

ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS.

  The Company's common stock is traded on The NASDAQ Stock Market and the French
  stock market, Le Nouveau Marche under the symbol OXIS.

  Recent quarterly high and low prices of the Company's common stock on the
  NASDAQ Stock Market are as follows:

<TABLE>
<CAPTION>
                            1997                                1996
               -------------------------------   ---------------------------------
                4th     3rd     2nd      1st       4th      3rd      2nd      1st
<S>            <C>     <C>     <C>     <C>       <C>       <C>     <C>       <C>
 
     High      29/32   25/32   1 3/8   1 17/32   1 25/32   2 1/8   2 11/16   2
 
     Low       5/16    7/16    19/32   29/32     1 7/32    1 1/2   1 7/16    1 1/2
</TABLE>

  The Company has an estimated 6,800 stockholders, including approximately 2,700
  shareholders who have shares in the names of their stockbrokers.  The Company
  utilizes its assets to develop its business and, consequently, has never paid
  a dividend and does not expect to pay dividends in the foreseeable future.

  The Company has been notified by the NASDAQ Stock Market, Inc. that, because
  the bid price of its common stock is less than $1.00, its common stock is
  currently not in compliance with the NASDAQ Marketplace Rule 4450 (a) (5)
  relating to the NASDAQ minimum bid price requirements.  The Company has been
  informed by the NASDAQ that it has until May 28, 1998, to regain compliance
  with this standard.  The Company may regain compliance if the bid price for
  its common

                                       11
<PAGE>
 
  stock closes at or above the minimum requirement for at least ten (10)
  consecutive trade days.  If the security does not regain compliance within 90
  days, NASDAQ will issue a delisting letter which will identify the review
  procedures available to the Company.  The Company may request a review at or
  before that time, which, the NASDAQ has stated, will stay delisting until a
  hearing occurs.  If the common stock of the Company ceases to be listed on the
  NASDAQ, such failure to be listed could have a material adverse effect on the
  transferability of the Company's common stock, and may have a material adverse
  effect on the value of the common stock as well.


ITEM 6.   SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
  FOR YEARS ENDED
  DECEMBER 31:                1997           1996            1995              1994               1993
<S>                       <C>            <C>            <C>                <C>                <C>
 
   Total Revenues/1//      $ 5,059,000    $ 4,867,000    $ 5,136,000        $ 3,470,000        $ 3,044,000
                                                          
   Net loss                $(5,151,000)   $(5,992,000)   $(8,892,000)/2//   $(5,567,000)/3//   $(1,485,000)/4//
                                                          
   Net loss                                               
    per share - basic      $      (.23)   $      (.47)   $      (.82)/2//   $      (.88)/3//   $      (.30)/4//
                                                          
<CAPTION>                                                 
  AS OF DECEMBER 31:          1997           1996            1995              1994               1993

<S>                        <C>            <C>            <C>                <C>                <C>
   Total assets            $12,575,000    $ 7,997,000    $ 9,870,000        $11,194,000        $ 3,124,000
                                                          
   Long-term                                              
    obligations            $ 1,570,000    $     2,000    $ 1,332,000        $   376,000                 --
                                                          
   Common shares                                          
    outstanding             28,596,320     13,790,736     12,124,423          9,322,762          4,982,670
</TABLE>

  1/ Earned interest not included in revenue.
  --                                         
  2/ Includes a charge of $3,329,000 ($.31 per share) for the write off of
  -- certain technology of an acquired company.
  3/ Includes a charge of $3,675,000 ($.58 per share) for the write off of
  -- certain technology of acquired companies.
  4/ Includes a charge of $1,531,000 ($.31 per share) for control contest
  -- expense.

  As explained under the caption "ACQUISITIONS" in Management's Discussion and
  Analysis of Financial Condition and Results of Operations below, the Company
  made significant acquisitions during 1994, 1995 and 1997 that affect the
  comparability of the amounts reflected in the table above.

                                       12
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

ACQUISITIONS

  In September 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 S.A. (now "OXIS S.A.") and
  International BioClinical, Inc. ("IBC") (together the "1994 acquired
  businesses").  IBC was merged into the Company.  OXIS S.A. operates as a
  subsidiary of the Company.

  In July 1995, the Company acquired Therox Pharmaceuticals, Inc. ("Therox")
  through an exchange of stock.  Therox was merged into a wholly-owned
  subsidiary of the Company.  The acquisition of Therox provided the Company
  with a technology portfolio complementary to its novel therapeutics for
  treatment of free radical associated diseases together with university
  relationships and seven patents.

  On December 31, 1997, the Company acquired Innovative Medical Systems Corp.
  ("IMS").  IMS develops, manufactures, markets and sells medical equipment.

  The acquisitions of all four companies described above 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 dates of the acquisitions.

  Because the acquisitions have been accounted for as purchases, the Company's
  consolidated results of operations include the operating results of the
  acquired businesses from the dates of acquisition only.  Therefore, the
  results of operations of the 1994 acquired businesses are included in the
  consolidated statements of operations from September 7, 1994, the results of
  Therox's operations are included in the consolidated statements of operations
  from July 19, 1995, and the results of IMS' operations will only be included
  in the Company's consolidated statement of operations beginning January 1,
  1998.

  Costs relating to the acquisitions and the Company's more complex corporate
  structure and the increased research and development investments have placed
  significant demand on the Company's limited financial resources.  See
  "Financial Condition, Liquidity and Capital Resources" below.

                                       13
<PAGE>
 
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

  The Company's working capital position improved during 1997 to $958,000 as of
  December 31, 1997 from a deficit of $1,405,000 as of December 31, 1996.  This
  increase in working capital resulted primarily from the proceeds from issuance
  of common stock of $6,215,000 plus $203,000 in net working capital resulting
  from the acquisition of IMS, offset by the effect of the net loss for 1997
  ($5,151,000 less non-cash charges of $1,224,000).

  Cash and cash equivalents increased from $422,000 at December 31, 1996, to
  $1,290,000 at December 31, 1997.

  However, the Company expects to continue to report losses in 1998 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.  The
  Company must raise additional capital during the first half of 1998.  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 1 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 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.
  Although the Company is currently seeking additional capital (as 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.

  As described in Note 6 to the consolidated financial statements, during 1997,
  the Company raised approximately $5,964,000 cash through the sale of its
  common stock in a public offering to European investors.  Substantial
  additional capital will be required during 1998 to continue operating in
  accordance with management's current plans.  If sufficient capital is raised
  during 1998, the Company expects that research and development expenditures
  for 1998 will be similar to the 1997 amount.  The Company has engaged agents
  to assist on a best-efforts basis to complete a private placement of its
  common stock.  However, no assurances can be given that the Company will
  successfully raise the needed capital.  If the Company is unable to raise
  additional capital during the first half of 1998, it would endeavor to extend
  its ability to continue in business through the substantial reduction of
  personnel and facility costs particularly in the therapeutics business, by
  slowing research and development efforts, and by reducing other operating
  costs; however, no assurances can be given that it will be able to do so.  If
  the Company were to be unable to sufficiently curtail its costs in such a
  situation, it might be forced to seek protection of the courts through
  reorganization, bankruptcy or insolvency proceedings.

                                       14
<PAGE>
 
INFORMATION SYSTEMS AND THE YEAR 2000

  As is the case with most other companies using computers in their operations,
  the Company is in the process of addressing the Year 2000 problem.  The
  Company is currently engaged in a project to review computer software to
  determine whether its programs will consistently and properly recognize the
  Year 2000.  Certain of the Company's systems include hardware and packaged
  software recently purchased from vendors who have represented that these
  systems are already Year 2000 compliant.  The Company plans to replace certain
  other hardware and packaged software during the next year regardless of the
  Year 2000 problem.

  The Company will utilize both internal and external resources to reprogram or
  replace and test all of its software for Year 2000 compliance, and the Company
  expects to complete the project in early 1999.  The cost for this project is
  not expected to have a material effect on the Company's consolidated financial
  statements.


RESULTS OF OPERATIONS

REVENUES

  The Company's sales for the past three years consisted of the following:

<TABLE>
<CAPTION>
                                              1997         1996         1995
<S>                                        <C>          <C>          <C>
                                          
  Diagnostic and research assays           $2,495,000   $2,364,000   $2,240,000
  Bovine superoxide dismutase (bSOD)      
      for research and human use            1,559,000    1,935,000    1,817,000
  Palosein(R) (bSOD for veterinary use)       542,000      480,000      555,000
  Other                                       254,000       23,000      370,000
                                           ----------   ----------   ----------
      Total sales                          $4,850,000   $4,802,000   $4,982,000
                                           ==========   ==========   ==========
</TABLE>

  Diagnostic and research assay sales volumes have increased modestly in each of
  the last two years, resulting in a 6% increases in sales in 1996 and 1997.

  Bulk bSOD sales in 1995 included sales to Sanofi Winthrop, Inc.  Sales of bulk
  bSOD to Sanofi Winthrop ceased in 1995, when Sanofi Winthrop announced that
  the clinical trial in which it was using the Company's bSOD failed to show the
  desired results.  The decline in sales to Sanofi Winthrop has been offset by
  increases in sales of bSOD to Tedec-Meiji Farma S.A., the Company's Spanish
  licensee.  The decrease in bulk bSOD sales in 1997 as compared to 1996 was due
  primarily to the decline in the value of the Dutch guilder (the currency in
  which the sales have been made) as compared to the U.S. dollar.  Future sales
  of bulk bSOD are largely dependent on the needs of the Company's Spanish
  licensee which are uncertain and difficult to predict and no assurances can be
  given that the Company will continue to sell bulk bSOD to its Spanish
  licensee.

                                       15
<PAGE>
 
  Sales of Palosein(R), which is sold primarily to veterinary wholesalers in the
  United States and Europe, declined from $555,000 in 1995 to $480,000 in 1996
  due in part to large stocking orders by distributors in late 1995.
  Palosein(R) sales increased by $62,000, to $542,000 in 1997 as a result of an
  increase in volume, particularly in export sales.

  The decrease in other sales in 1995 was principally the result of the
  completion of an assay development contract in early 1996.  Other sales
  increased in 1997 primarily due to sales of ergothioneine, a fine chemical
  synthesized in the Company's French research facility.


COSTS AND EXPENSES

  Cost of sales as a percent of product sales increased to 63% in 1996 from 59%
  in 1995.  Cost of sales increased further in 1997, to 66% of product sales.
  The increases in both years were primarily caused by declines in the gross
  margin on bulk bSOD sales.  The Company's cost of sales includes amortization
  of technology acquired in 1994 (amortization of $737,000 in 1995 and 1996 and
  $705,000 in 1997).

  Research and development costs increased from $4,299,000 in 1995, to
  $4,908,000 in 1996.  The increase of $609,000 in 1996 is the result of
  increased expenditures relating to preclinical development work and the Phase
  I clinical trial on the Company's lead therapeutics program (glutathione
  peroxidase mimics) of approximately $1,130,000, and a $230,000 increase in
  expenses of the former Therox operations, offset by a cost reduction of
  approximately $780,000 from the closure of the Company's Mountain View,
  California facility in the fourth quarter of 1995.  The expenses of the Therox
  operations are included in the 1995 expenses starting in July 1995; the former
  Therox laboratory facility was closed in May 1996.  Research and development
  costs decreased by $589,000 in 1997, to $4,319,000.  This reduction in
  expenses was due primarily to reductions in expenses of the Company's French
  subsidiary.

  Sales, general and administrative expenses decreased by $491,000, from
  $3,332,000 in 1995 to $2,841,000 in 1996, and declined by an additional
  $223,000, to $2,618,000 in 1997.  Most of the decreases resulted from a
  reduction in the selling, 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 have subsequently
  been classified as research and development costs.  The administrative costs
  of the Company's French subsidiary decreased $359,000 in 1996 as compared to
  1995, and decreased an additional $348,000 in 1997.

  Expenses included a charge of $3,329,000 to operations for 1995, reflecting
  the write-off of purchased in-process technology, as described in Note 3 to
  the consolidated financial statements.

                                       16
<PAGE>
 
NET LOSS

  The Company incurred net losses in 1995, 1996 and 1997, and does not expect to
  be profitable in the foreseeable future.  The 1995 loss includes a $3,329,000
  ($.31 per share) charge to operations for the write-off of purchased in-
  process technology related to the acquisition of Therox.  Excluding this
  unusual charge, the Company would have incurred a net loss $5,563,000, or $.51
  per share for 1995, as compared to a net loss of $5,992,000, or $.47 per share
  for 1996 and a net loss of $5,151,000, or $.23 per share for 1997.

  The increased loss for 1996 as compared to 1995 (excluding the unusual charge)
  is attributable primarily to the increased research and development costs
  relating to the Company's glutathione peroxidase mimics program.  Decreases in
  research and development and sales, general and administrative expenses
  resulted in the decrease in the net loss for 1997.  The decrease in net loss
  per share in 1997 is primarily due to the increase in the weighted average
  number of shares outstanding.

  The Company expects to incur a substantial net loss for 1998.  If substantial
  additional capital is raised through further sales of securities (See
  Financial Condition, Liquidity and Capital Resources), 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, 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.

  See Note 2 to the consolidated financial statements regarding new accounting
  pronouncements issued but not yet adopted.

                                       17
<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

  INDEPENDENT AUDITORS' REPORT

  To the Board of Directors and Shareholders of
  OXIS International, Inc.:

  We have audited the accompanying consolidated balance sheets of OXIS
  International, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
  related consolidated statements of operations, shareholders' equity and cash
  flows for each of the three years in the period ended December 31, 1997.
  These financial statements are the responsibility of the management of OXIS
  International, Inc.  Our responsibility is to express an opinion on these
  financial statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
  standards.  Those standards require that we plan and perform the audit to
  obtain reasonable assurance about whether the financial statements are free of
  material misstatement.  An audit includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the consolidated financial
  statements.  An audit also includes assessing the accounting principles used
  and significant estimates made by management, as well as evaluating the
  overall financial statement presentation.  We believe that our audits provide
  a reasonable basis for our opinion.

  In our opinion, such consolidated financial statements present fairly, in all
  material respects, the financial position of OXIS International, Inc. and
  subsidiaries at December 31, 1997 and 1996, and the results of their
  operations and their cash flows for each of the three years in the period
  ended December 31, 1997, in conformity with generally accepted accounting
  principles.

  The accompanying financial statements have been prepared assuming that the
  Company will continue as a going concern.  As discussed in Note 1 to the
  financial statements, the Company has incurred losses in each of the last
  three years, and at December 31, 1997, the Company had an accumulated deficit
  of $38,174,000, raising substantial doubt about its ability to continue as a
  going concern.  Management's plans concerning these matters are also described
  in Note 1.  The financial statements do not include any adjustments that might
  result from the outcome of this uncertainty.


  DELOITTE & TOUCHE LLP

  March 13, 1998
  Portland, Oregon

                                       18
<PAGE>
 
                          CONSOLIDATED BALANCE SHEETS
                          DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                              1997          1996
<S>                                        <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents                $ 1,290,000   $  422,000
  Accounts receivable                        2,011,000      861,000
  Inventories                                1,828,000      591,000
  Prepaid and other                             79,000      191,000
                                           -----------   ----------
 
     Total current assets                    5,208,000    2,065,000
 
Property, plant and equipment, net           3,968,000    1,327,000
 
Assets under capital leases, net                    --      309,000
 
Technology for developed products and
  custom assays, net                         3,065,000    3,782,000
 
Other assets                                   334,000      514,000
                                           -----------   ----------
 
     Total assets                          $12,575,000   $7,997,000
                                           ===========   ==========
</TABLE>

                            See accompanying notes.

                                       19
<PAGE>
 
                          CONSOLIDATED BALANCE SHEETS
                          DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                    1997            1996
<S>                                                             <C>             <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities:
  Notes payable                                                 $  1,423,000    $  1,221,000
  Accounts payable                                                 1,553,000       1,386,000
  Customer deposits                                                       --         132,000
  Accrued payroll, payroll taxes and other                         1,181,000         655,000
  Current portion of long-term debt                                   93,000          76,000
                                                                ------------    ------------
     Total current liabilities                                     4,250,000       3,470,000
 
Long-term debt due after one year                                  1,570,000           2,000
 
Commitments and contingencies (Notes 1, 3 and 10)
 
Shareholders' equity:
  Preferred stock - $.01 par value; 15,000,000 shares
   authorized:
     Series B - 642,583 shares issued and outstanding
     at December 31, 1997 and 1996 (liquidation
     preference of $1,500,000)                                         6,000           6,000
     Series C - 1,021,697 shares issued and outstanding
     at December 31, 1997 (1,647,157 at December 31, 1996)            11,000          17,000
     Series D - 750 shares issued and outstanding
     at December 31, 1997 (1,650 at December 31, 1996)                    --              --
     Series E - no shares issued and outstanding
     at December 31, 1997 (2,200 at December 31, 1996)                    --              --
  Common stock - $.50 par value; 50,000,000 shares
   authorized; 28,596,320 shares issued and outstanding
   at December 31, 1997 (13,790,736 at December 31, 1996)         14,298,000       6,895,000
  Additional paid in capital                                      30,868,000      30,706,000
  Accumulated deficit                                            (38,174,000)    (33,023,000)
  Accumulated translation adjustments                               (254,000)        (76,000)
                                                                ------------    ------------
 
   Total shareholders' equity                                      6,755,000       4,525,000
                                                                ------------    ------------
 
       Total liabilities and shareholders' equity               $ 12,575,000    $  7,997,000
                                                                ============    ============
</TABLE>

                            See accompanying notes.

                                       20
<PAGE>
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                    1997            1996            1995
<S>                                             <C>             <C>             <C>
Revenues:
  Sales                                          $ 4,850,000     $ 4,802,000     $ 4,982,000
  Royalties and license fees                         209,000          65,000         154,000
                                                 -----------     -----------     -----------
 
   Total revenues                                  5,059,000       4,867,000       5,136,000
 
 
Costs and expenses:
  Cost of sales                                    3,200,000       3,009,000       2,939,000
  Research and development                         4,319,000       4,908,000       4,299,000
  Sales, general and administrative                2,618,000       2,841,000       3,332,000
  Purchased in-process technology (Note 3)                --              --       3,329,000
                                                 -----------     -----------     -----------
 
   Total costs and expenses                       10,137,000      10,758,000      13,899,000
                                                 -----------     -----------     -----------
 
Operating loss                                    (5,078,000)     (5,891,000)     (8,763,000)
 
Interest income                                       78,000          37,000          42,000
 
Interest expense                                    (151,000)       (138,000)       (171,000)
                                                 -----------     -----------     -----------
 
Net loss                                         $(5,151,000)    $(5,992,000)    $(8,892,000)
                                                 ===========     ===========     ===========
 
Net loss per share - basic                             $(.23)          $(.47)         $(0.82)
                                                 ===========     ===========     ===========
 
Weighted average number of shares
  used in computation - basic                     21,947,119      12,821,544      10,854,149
                                                 ===========     ===========     ===========
</TABLE>

                            See accompanying notes.

                                       21
<PAGE>
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                                1997           1996           1995
<S>                                                                         <C>            <C>            <C>
Cash flows from operating activities:
  Net loss                                                                  $(5,151,000)   $(5,992,000)   $(8,892,000)
  Adjustments to reconcile net loss to cash
   used for operating activities:
     Depreciation and amortization                                            1,224,000      1,381,000      1,369,000
     Purchased in-process technology                                                 --             --      3,329,000
     Changes in assets and liabilities (net of business acquisitions):
      Accounts receivable                                                      (881,000)       (50,000)       (70,000)
      Inventories                                                              (152,000)       355,000        (17,000)
      Prepaid and other current assets                                          132,000         (2,000)       209,000
      Accounts payable                                                         (178,000)       220,000       (565,000)
      Customer deposits                                                        (132,000)      (118,000)      (866,000)
      Accrued liabilities                                                       291,000        (69,000)       251,000
                                                                            -----------    -----------    -----------
       Net cash used for operating activities                                (4,847,000)    (4,275,000)    (5,252,000)
 
Cash flows from investing activities:
  Redemption of certificates of deposit                                              --             --        496,000
  Purchase of equipment                                                         (70,000)       (58,000)       (99,000)
  Cash of businesses acquired (Note 3)                                            7,000             --        143,000
  Additions to patents and other assets                                         (50,000)       (99,000)            --
  Other                                                                              --         (1,000)      (136,000)
                                                                            -----------    -----------    -----------
       Net cash provided by (used for)
        investing activities                                                   (113,000)      (158,000)       404,000
 
Cash flows from financing activities:
  Short-term borrowing                                                          872,000      1,061,000      1,366,000
  Proceeds from issuance of long-term debt                                           --             --      1,255,000
  Costs in connection with issuance of long-term debt                                --             --       (152,000)
  Deferred financing costs                                                           --       (251,000)            --
  Proceeds from issuance of stock, net of related cost                        6,215,000      4,305,000      3,077,000
  Repayment of short-term notes                                              (1,113,000)      (690,000)      (340,000)
  Repayment of capital lease obligations and
   other liabilities                                                            (71,000)      (294,000)      (573,000)
                                                                            -----------    -----------    -----------
       Net cash provided by financing activities                              5,903,000      4,131,000      4,633,000
 
Effect of exchange rate changes on cash                                         (75,000)        (3,000)         6,000
                                                                            -----------    -----------    -----------
 
Net increase (decrease) in cash and cash equivalents                            868,000       (305,000)      (209,000)
 
Cash and cash equivalents - beginning of year                                   422,000        727,000        936,000
                                                                            -----------    -----------    -----------
 
Cash and cash equivalents - end of year                                     $ 1,290,000    $   422,000    $   727,000
                                                                            ===========    ===========    ===========
</TABLE>

                            See accompanying notes.

                                       22
<PAGE>
 
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                 YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                1997         1996         1995
<S>                                                          <C>          <C>          <C>
Supplemental schedule of noncash operating and
  financing activities:
   Inventory purchase with deferred payment terms                    --           --   $  250,000
   Common stock issued as incentive to purchase notes                --           --   $  156,000
   Issuance of Series C Preferred Stock in exchange
      for cancellation of notes                                      --   $  844,000           --
   Conversion of 8% Convertible Subordinated Debentures
      into Common Stock                                              --   $1,312,000           --
   Conversion of Preferred Stock into Common Stock           $2,527,000   $  515,000           --
   Common stock issued or to be issued in business
      acquisitions, net of cash acquired                     $1,552,000           --   $3,210,000
</TABLE>

                            See accompanying notes.

                                       23
<PAGE>
 

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

<TABLE> 
<CAPTION> 
                                                                           
                              Preferred Stock            Common Stock          Additional                 Accumulated     Total
                              ---------------            ------------           paid-in     Accumulated   translation  shareholders'
                            Shares       Amount       Shares       Amount       capital       deficit     adjustments     equity

<S>                        <C>          <C>        <C>          <C>          <C>           <C>              <C>         <C> 
Balances,
 Janueary 1, 1995             40,000                9,322,762   $4,661,000   $20,230,000   $(18,139,000)    $(53,000)   $ 6,699,000
Shares issued in
 connection with short-
 term notes                                            93,300       47,000       109,000                                    156,000
Sale of common shares                               1,227,625      614,000     1,089,000                                  1,703,000
Conversion of Series A
 preferred shares to 
 common                      (40,000)                  40,000       20,000       (20,000)                                        --
Shares issued in
 connection with 1995
 business combination
 (Note 3)                                           1,440,736      720,000     2,633,000                                  3,353,000
Series B preferred shares
 issued (Note 3)             642,583     $ 6,000                               1,169,000                                  1,175,000
Accumulated translation
 adjustments                                                                                                 110,000        110,000
Net loss                                                                                     (8,892,000)                 (8,892,000)
                           ---------    --------   ----------   ----------   -----------   ------------     --------    -----------
Balances,
 December 31, 1995           642,583       6,000   12,124,423    6,062,000    25,210,000    (27,031,000)      57,000      4,304,000
Sale of Series C preferred
 shares for cash           1,125,590      11,000                               1,225,000                                  1,236,000
Series C preferred shares
 issued in exchange for
 concellation of notes       648,490       7,000                                 837,000                                    844,000
Sale of Series D
 preferred shares              2,000           -                               1,939,000                                  1,939,000
Common shares issued
 upon conversion of
 debentures                                         1,050,217      525,000       787,000                                  1,312,000
Conversion of Series C
 preferred shares to 
 common stock               (126,923)     (1,000)     136,924       69,000       (68,000)                                         -
Conversion of Series D
 preferred shares to 
 common stock                   (350)          -      360,839      180,000      (180,000)                                         -
</TABLE> 

                                       24
<PAGE>
 
          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
                 YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

<TABLE> 
<CAPTION> 
                                                     
                              Preferred Stock            Common Stock         Additional                  Accumulated     Total
                              ---------------            ------------           paid-in     Accumulated   translation  shareholders'
                            Shares       Amount       Shares       Amount       capital       deficit     adjustments     equity

<S>                        <C>          <C>        <C>          <C>          <C>           <C>              <C>         <C> 
Sale of Series E preferred
 and common shares for
 cash                          2,200           -       55,000       27,000       923,000                                    950,000
Other issuances of common
 shares                                                63,333       32,000        33,000                                     65,000
Accumulated translation
 adjustments                                                                                                (133,000)      (133,000)
Net loss                                                                                     (5,992,000)                 (5,992,000)
                           ---------    --------   ----------  -----------   -----------   ------------     --------    -----------
Balances,
 December 31, 1996         2,293,590      23,000   13,790,736    6,895,000    30,706,000    (33,023,000)     (76,000)     4,525,000
Conversion of Series C
 preferred shares to common (625,460)     (6,000)     869,625      435,000      (429,000)                                         -
Conversion of Series D
 preferred shares to common     (900)          -    1,884,804      942,000      (942,000)                                         -
Conversion of Series E
 preferred shares to common   (2,200)          -    1,981,100      991,000      (991,000)                                         -
Public offering of common
 shares (Note 6)                                    9,000,000    4,500,000     1,464,000                                  5,964,000
Shares issued in connection
 with 1997 business
 combination (Note 3)                               1,000,000      500,000     1,059,000                                  1,559,000
Other issuance of common
 stock                                                 70,055       35,000         1,000                                     36,000
Accumulated translation
 adjustments                                                                                                (178,000)      (178,000)
Net loss                                                                                     (5,151,000)                 (5,151,000)
                           ---------    --------   ----------  -----------   -----------   ------------    ---------    -----------
Balances,
 December 31, 1997         1,665,030     $17,000   28,596,320  $14,298,000   $30,868,000   $(38,174,000)   $(254,000)   $ 6,755,000
                           =========    ========   ==========  ===========   ===========   ============    =========    ===========
</TABLE> 

                            See accompanying notes.

                                       25
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                        

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

   OXIS International, Inc. (the "Company") develops, manufactures and markets
   selected therapeutic and diagnostic products. The Company's research and
   development efforts are concentrated principally in the development of
   products to diagnose, treat and prevent diseases associated with free
   radicals and reactive oxygen species. The Company is headquartered in
   Portland, Oregon and operates a research and development facility near Paris,
   France. As described in Note 3, on December 31, 1997, the Company acquired a
   manufacturer of medical equipment located near Philadelphia, Pennsylvania.

   Therapeutic drug monitoring assays are manufactured by the Company in the
   United States and are sold to hospital clinical laboratories and reference
   laboratories by an in-house sales force and a network of distributors both
   within and outside the United States. Assays to measure markers of oxidative
   stress are manufactured by the Company in the United States (in France prior
   to July, 1996) and are sold directly to researchers and to distributors for
   resale to researchers, primarily in Europe, the United States and Japan. The
   Company also sells pharmaceutical forms of superoxide dismutase (SOD) for
   human and veterinary use.

   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 at December 31, 1997 had an accumulated deficit of
   $38,174,000. These factors, among others, may indicate that the Company may
   be unable to continue as a going concern for a reasonable period of time.
   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. 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.

   During 1997, the Company raised approximately $5,964,000 net of expenses
   through the sale of its common stock. The Company expects that additional
   capital will be required during 1998 to continue operating in accordance with
   its current plans. The Company has engaged an agent to assist on a best-
   efforts basis to complete a private placement of its common stock. If the
   Company is unable to raise additional capital during the first half of 1998
   it intends to curtail its operations through the reduction of personnel and
   facility costs and by reducing its research and development efforts; however,
   no assurances can be given that it will be able to do so. If the Company were
   to be unable to sufficiently curtail its costs in such a situation, it might
   be forced to seek protection of the courts through reorganization, bankruptcy
   or insolvency proceedings.

                                       26
<PAGE>
 
2. SIGNIFICANT ACCOUNTING POLICIES

   PRINCIPLES OF CONSOLIDATION - The accompanying financial statements include
   the accounts of the Company as well as its subsidiaries. The functional
   currency of the Company's French subsidiary is the French franc. The French
   subsidiary's assets and liabilities are translated at the exchange rate at
   the end of the year, and its statement of operations is translated at the
   average exchange rates during each year. Gains or losses resulting from
   foreign currency translation are accumulated as a separate component of
   shareholders' equity. All significant intercompany balances and transactions
   are eliminated in consolidation.

   CASH EQUIVALENTS consist of money market accounts with commercial banks.

   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 December 31, 1997 and 1996, consisted of the
   following:

<TABLE>
<CAPTION>
                               1997        1996

<S>                         <C>          <C>
       Raw materials        $1,319,000   $148,000
       Work in process         344,000    200,000
       Finished goods          165,000    243,000
                            ----------   --------
 
       Total                $1,828,000   $591,000
                            ==========   ========
</TABLE>

   PROPERTY, PLANT AND EQUIPMENT is stated at cost, or, in the case of property,
   plant and equipment acquired in transactions accounted for by the purchase
   method, at the estimated fair market value at the date of the acquisition
   (which is then considered to be the Company's cost). Depreciation of
   equipment is computed using the straight-line method over estimated useful
   lives of three to ten years. Leasehold improvements are amortized over the
   shorter of five years or the remaining lease term.

                                       27
<PAGE>
 
  Property, plant and equipment at December 31, 1997 and 1996, consisted of the
  following:

<TABLE>
<CAPTION>
                                                  1997           1996

<S>                                           <C>            <C>
       Land                                   $   220,000    $        --
       Building and improvements                1,780,000             --
       Furniture and office equipment             457,000        369,000
       Laboratory and manufacturing
        equipment                               3,608,000      2,510,000
       Leasehold improvements                     669,000        766,000
                                              -----------    -----------
 
          Property, plant and equipment,
           at cost                              6,734,000      3,645,000
 
       Accumulated depreciation and
        amortization                           (2,766,000)    (2,318,000)
                                              -----------    -----------
 
          Property, plant and equipment,
           net                                $ 3,968,000    $ 1,327,000
                                              ===========    ===========
</TABLE>

  During 1996 and 1997 certain equipment under capital lease was purchased, and
  the cost and accumulated amortization of that equipment was reclassified to
  property, plant and equipment.

  TECHNOLOGY - Technology for developed products and custom assays, acquired in
  business combinations, is being amortized over estimated useful lives of seven
  to ten years.  Accumulated amortization of technology for developed products
  and custom assays was $2,334,000 as of December 31, 1997, and $1,682,000 as of
  December 31, 1996.  The Company periodically reviews net cash flows from sales
  of products and projections of net cash flows from sales of products on an
  undiscounted basis to assess recovery of intangible assets.

  STOCK OPTIONS - The Company applies the intrinsic value based method described
  in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
  Employees", in accounting for its stock incentive plan.

  REVENUE RECOGNITION - The Company recognizes product sales upon shipment of
  the product to the customer.

  INCOME TAXES - Deferred income taxes, reflecting the net tax effects of
  temporary differences between the carrying amount of assets and liabilities
  recognized for financial reporting purposes and the amounts recognized for
  income tax purposes, are based on tax laws currently enacted.  A valuation
  allowance is established when necessary to reduce deferred tax assets to the
  amount expected to be realized.

                                       28
<PAGE>
 
   NET LOSS PER SHARE - Net loss per share is computed based upon the weighted
   average number of common shares outstanding ("basic") and, if dilutive, the
   incremental shares issuable upon the assumed exercise of stock options or
   warrants and the assumed conversion of preferred stock ("dilutive"). Due to
   the net losses in each of the last three years, the computation of dilutive
   net loss per share is antidilutive and is not presented.

   USE OF ESTIMATES - The preparation of financial statements in conformity with
   generally accepted accounting principles requires management to make
   estimates and assumptions that affect the reported amounts of assets and
   liabilities and disclosure of contingent assets and liabilities at the date
   of the financial statements and the reported amounts of sales and expenses
   during the reporting period. Actual results could differ from those
   estimates.

   FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount reported in the
   balance sheet for cash and cash equivalents, accounts receivable, notes
   payable, customer deposits and accounts payable approximates fair value due
   to the short-term nature of the accounts. The carrying amount reported in the
   balance sheet for secured convertible term notes approximates fair value
   because the terms of the notes were determined and the notes and debentures
   were sold shortly before the dates of the balance sheets in which they
   appear.

   NEW ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT ADOPTED - In June 1997, the
   Financial Accounting Standards Board (FASB) issued Statement of Financial
   Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. SFAS No.
   130 establishes standards for reporting and display of comprehensive income
   and its components (revenues, expenses, gains, and losses) in a full set of
   general-purpose financial statements. This Statement requires that all items
   that are required to be recognized under accounting standards as components
   of comprehensive income be reported in a financial statement that is
   displayed with the same prominence as other financial statements. This
   Statement is effective for fiscal years beginning after December 15, 1997.

   In June 1997, FASB issued SFAS No. 131, Disclosures about Segments of an
   Enterprise and Related Information. SFAS No. 131 establishes standards for
   the way that public enterprises report information about operating segments
   in annual financial statements and requires that those enterprises report
   selected information about operating segments in interim financial reports
   issued to shareholders. It also establishes standards for related disclosures
   about products and services, geographic areas, and major customers. This
   Statement is effective for fiscal years beginning after December 15, 1997.
   The Company has not completed its analysis of which segments it will report
   on.


3. BUSINESS COMBINATIONS

   On July 19, 1995, the Company consummated the acquisition of Therox
   Pharmaceuticals, Inc. ("Therox") pursuant to a transaction wherein Therox was
   merged with and into a wholly-owned subsidiary of the Company. Therox was a
   Philadelphia-based start-up company focused on the development of
   therapeutics to treat diseases associated with damage from

                                       29
<PAGE>
 
  free radicals.  The Company issued 1,440,736 shares of its common stock to
  Therox stockholders in exchange for all of the Therox capital stock.  In
  addition, the acquisition agreement provides for payment of up to $2,000,000
  by the Company to the Therox stockholders based on the successful
  commercialization of the Therox technologies.  As of December 31, 1997, no
  additional payments have been made.

  The acquisition of Therox has been recorded as a purchase and, accordingly,
  the acquired assets and liabilities were recorded at their estimated fair
  values as of the date of acquisition.  The aggregate purchase price was
  $3,353,000 of which approximately $3,329,000 represented technology related to
  research and development projects that were in process and that had no
  alternative future use other than the completion of these projects.
  Accordingly, these costs have been charged to operations immediately upon
  completion of the acquisition.

  Simultaneously with the Therox acquisition, a Series B Preferred Stock
  Purchase Agreement was entered into between the Company and two venture
  capital firms (S.R. One, Limited and Brantley Venture Partners II, L.P.) which
  were major stockholders of Therox.  Pursuant to this agreement, the Company
  sold 642,583 shares of its Series B Preferred Stock for an aggregate price of
  $1,500,000 (net proceeds of $1,175,000).

  On December 31, 1997, the Company consummated the acquisition of Innovative
  Medical Systems Corp. ("IMS") pursuant to a transaction whereby the Company
  acquired all of the outstanding stock of IMS in exchange for 1,000,000 shares
  of the Company's common stock issued immediately and additional common shares
  to be issued.  The acquisition of IMS has been recorded as a purchase and,
  accordingly, the acquired assets and liabilities were recorded at their
  estimated fair values as of the date of acquisition.  The aggregate purchase
  price of $1,559,000 has been allocated to the assets and liabilities acquired.
  The purchase price represents the sum of (1) 1,000,000 common shares issued
  times the average per share closing price of the Company's common stock for
  the three days before and after November 1, 1997, the date on which the two
  companies reached agreement on the purchase price and (2) the present value of
  minimum future issuances of common stock aggregating $1,250,000.  The number
  of additional common shares to be issued to former IMS shareholders depends on
  future revenues of IMS through 2002 and on the market price of the Company's
  common stock.  The total number of additional shares of common stock to be
  issued to former IMS shareholders in exchange for their IMS stock is limited
  to a maximum of 4,519,264 shares.

                                       30
<PAGE>
 
  Subject to final valuation of assets acquired and liabilities assumed, the
  cost of the acquisition of IMS has been allocated to the assets acquired and
  liabilities assumed as follows:

<TABLE>
<S>                                          <C>
          Cash                               $     7,000
          Accounts receivable                    324,000
          Inventories                          1,093,000
          Property, plant and equipment        2,861,000
          Other assets                            86,000
          Less liabilities assumed            (2,812,000)
                                             -----------
                    Acquisition cost         $ 1,559,000
                                             ===========
</TABLE>

  Because the acquisition has been recorded as a purchase, the Company's
  consolidated results of operations for 1995, 1996 and 1997 do not include the
  operating results of the acquired company.

  The following table presents the unaudited pro forma combined results of
  operations for the years ended December 31, 1997 and 1996, as if the
  acquisition had occurred at the beginning of the period presented:

<TABLE>
<CAPTION>
                                                     1997           1996
<S>                                              <C>            <C>
 
          Total revenues                         $ 7,207,000    $ 8,313,000
 
          Net loss                               $(6,080,000)   $(6,214,000)
 
          Net loss per share (based
          on 28,596,320 shares outstanding)      $      (.21)   $      (.22)
</TABLE>

  The above table includes, on an unaudited pro forma basis, the Company's
  financial information for the years ended December 31, 1997 and 1996, combined
  with the financial information of IMS for its fiscal years ended October 31,
  1997 and 1996.

  The unaudited pro forma combined results of operations are presented for
  illustrative purposes only and are not necessarily indicative of the operating
  results that would have occurred had the acquisition been consummated at the
  beginning of the periods presented, nor are they necessarily indicative of
  future operating results.

                                       31
<PAGE>
 
4. NOTES PAYABLE

   Notes payable at December 31, 1997 and 1996 consisted of the following:

<TABLE>
<CAPTION>
                                                                                     1997         1996
<S>                                                                               <C>          <C>
 
     Secured convertible term notes                                               $  500,000   $1,000,000
 
     8% unsecured notes                                                              480,000           --
 
     Note payable to Mellon Bank, interest at 12.5%; 
     subsequently refinanced                                                         389,000           --
 
     Liability, without interest, under inventory 
     purchase agreement                                                                   --      200,000
 
     Other                                                                            54,000       21,000
                                                                                  ----------   ----------
 
                                                                                  $1,423,000   $1,221,000
                                                                                  ==========   ==========
</TABLE>

   In October 1996, the Company sold $1,000,000 of secured convertible term
   notes with warrants to two of the Company's current shareholders. The
   remaining note bears interest at 15% per annum, was due in June 1997, and is
   convertible into common stock at a price determined based on the closing bid
   price of the Company's common stock. The warrants issued entitle the holders
   to purchase up to 300,000 shares of common stock at an exercise price of
   $1.61 per share. The conversion rate of the convertible term note and the
   exercise price of the warrants are subject to change under certain
   circumstances. The convertible term note is secured by assets relating to the
   Company's clinical diagnostic products.

   The 8% unsecured notes are due to shareholders of the Company. The notes were
   due in May 1997. The majority of the noteholders are indebted to the Company
   under the terms of a separate indemnification agreement.

   Payment of the secured convertible term note and the 8% unsecured notes has
   been deferred pending the outcome of ongoing discussions with representative
   of the noteholders.

   The note payable to Mellon Bank was paid in full in February 1998 from
   proceeds of a loan pursuant to a $450,000 line of credit from Commerce
   Bank/Pennsylvania, N.A. The liability under the new line of credit bears
   interest at the bank's prime rate plus 1.75% (initially 10.5%). The liability
   is secured by inventory and accounts receivable of IMS and is guaranteed by a
   former IMS shareholder.

                                       32
<PAGE>
 
5. LONG-TERM DEBT

   Long-term debt at December 31, 1997 and 1996 consisted of the following:

<TABLE>
<CAPTION>
                                                               1997            1996
<S>                                                         <C>               <C>
 
     Note payable to AT&T Small Business Lending 
     Corporation, secured by land, building, 
     improvements, equipment, accounts receivable 
     and general intangibles of IMS; interest at prime 
     plus 2% (10.5% at December 31, 1997) due in 
     monthly installments through October 2011              $1,535,000        $    --
                                                                              
     Note payable to shareholder                               128,000             --
                                                                              
     Other                                                          --        $78,000
                                                            ----------        -------
                                                             1,663,000         78,000
                                                                              
     Less amounts due within one year                           93,000         76,000
                                                            ----------        -------
                                                            
                                                            $1,570,000        $ 2,000
                                                            ==========        =======
</TABLE>

   The aggregate annual maturities of long-term debt during the years ending
   December 31, 1999 to 2002 are as follows:  1999 - $100,000; 2000 - $110,000;
   2001 - $71,000; 2002 - $79,000.


6. SHAREHOLDERS' EQUITY

   COMMON STOCK - On May 20, 1997, the Company issued 9,000,000 shares of its
   common stock pursuant to an underwriting agreement with certain underwriters
   in France. The underwriters purchased the stock at a price of 4.60 French
   francs per share (an aggregate of $7,328,000). The newly-issued shares have
   been listed on the French stock market, Le Nouveau Marche, and on the NASDAQ
   National Market System.

   PREFERRED STOCK - Terms of the preferred stock are to be fixed by the Board
   of Directors at such time as the preferred stock is issued. Forty thousand
   (40,000) shares of nonvoting Series A Preferred Stock were issued during 1994
   and were converted to common stock on a one share for one share basis during
   1995. The 642,583 shares of Series B Preferred Stock which were issued in
   1995 and remained outstanding at December 31, 1997 are convertible into
   common stock on a one-for-one basis and have the same voting rights as the
   common stock. The Series B Preferred Stock has certain preferential rights
   with respect to liquidation and dividends.

                                       33
<PAGE>
 
  During the first six months of 1996, the Company issued 1,125,590 shares of
  its Series C Preferred Stock for net cash proceeds of $1,236,000.  In
  addition, in May 1996, the Company issued 648,490 shares of its Series C
  Preferred stock in exchange for the cancellation of $766,000 principal plus
  accrued interest of $78,000 on 8% notes payable to former shareholders of the
  Company's French subsidiary.  The shares of Series C Preferred Stock are
  convertible into shares of the Company's common stock at the option of the
  holders at any time.  The conversion ratio is based on the average closing bid
  price of the common stock for the fifteen consecutive trading days ending on
  the date immediately preceding the date notice of conversion is given, but
  cannot be less than one nor more than 1.4444 common shares for each Series C
  Preferred share.  The conversion ratio may be adjusted under certain
  circumstances, and 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.  At December 31, 1997,
  1,021,697 shares of Series C Preferred Stock remained outstanding.

  In May 1996, the Company issued 2,000 shares of its Series D Preferred Stock
  and warrants to purchase 810,126 shares of common stock for net cash proceeds
  of $1,939,000.  The Series D Preferred Stock entitles the holder thereof to
  convert its shares into a number of shares of common stock determined by
  dividing the stated value of the Series D Preferred Stock (i.e., $1,000 per
  share), plus a premium in the amount of 8% per annum of the stated value from
  the date of issuance, by a conversion price equal to the lesser of (i) $2.30
  and (ii) 75% of the average of the closing bid prices for shares of common
  stock for the five trading days immediately prior to conversion, but limited
  to a maximum of 2,424,884 shares of common stock.  The holders of Series D
  Preferred Stock have no voting power, except as specifically provided by
  Delaware General Corporation Law.  At December 31, 1997, 750 shares of Series
  D Preferred Stock remained outstanding.

  In December 1996, the Company issued 2,200 shares of its Series E Preferred
  Stock and 55,000 shares of common stock for net cash proceeds of $950,000.
  During 1997 all of the Series E Preferred Stock was converted into common
  stock.

  STOCK WARRANTS - In prior years, the Company issued warrants to purchase
  shares of common stock to certain officers and key employees (none of whom any
  longer hold a position with the Company) and to former directors.  These
  warrants are exercisable at $2.875 per share and expire through 1999.  At
  December 31, 1996 and 1995, warrants to purchase 1,012,500 shares were
  outstanding and exercisable.  No warrants were exercised during 1995, 1996 or
  1997.  During 1997 warrants to purchase 35,000 shares expired.  At December
  31, 1997, warrants to purchase 977,500 shares remained outstanding and
  exercisable.

                                       34
<PAGE>
 
  In connection with the issuance of common stock, 8% Convertible Subordinated
  Debentures, and Series B, C and E Preferred Stock, the Company has issued to
  its placement agents warrants to purchase 614,573 shares of common stock at
  prices ranging from $1.375 to $3.25 per share.  The warrants all remained
  outstanding and were exercisable at December 31, 1997.

  A warrant to purchase 810,126 common shares at $3.09 per share was issued to
  the purchaser of the Company's Series D Preferred Stock.  The warrant was
  immediately exercisable and remained outstanding as of December 31, 1997.

  Warrants to purchase 300,000 common shares were issued to the purchasers of
  the secured convertible term notes in October 1996.  The warrants have an
  exercise price of $.61 per share.  They were immediately exercisable and
  remained outstanding as of December 31, 1997.

  STOCK OPTIONS - The Company has a stock incentive plan under which 4,200,000
  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.  Options granted pursuant to the Plan have a
  maximum term of ten years; vesting is determined by the Compensation Committee
  of the Company's board of directors.  Options granted through 1997 have had
  vesting requirements of up to three years.  Options granted and outstanding
  under the plan are summarized as follows:

<TABLE>
<CAPTION>
                                      1997                    1996                 1995
                                      ----                    ----                 ----
                                          Weighted                Weighted             Weighted
                                          average                 average              average
                                          exercise                exercise             exercise
                               Shares      price       Shares      price      Shares    price
                             ---------    --------   ---------    --------   -------   --------
<S>                          <C>          <C>        <C>          <C>        <C>        <C>
 
     Outstanding at
      beginning of year      1,420,500       $1.92     382,900       $2.93    90,000    $3.44
 
     Granted                   943,800       $ .62   1,090,000       $1.57   317,900    $2.73
 
     Exercised                      --          --      (3,333)      $1.69        --       --
 
     Forfeitures               (20,600)      $1.33     (49,067)      $2.17   (25,000)   $2.25
                             ---------               ---------               -------
     Outstanding at end
      of year                2,343,700       $1.40   1,420,500       $1.92   382,900    $2.93
                             =========               =========               =======
     Exercisable at end
      of year                1,333,065       $1.66     619,331       $2.29   219,299    $3.18
                             =========               =========               =======
</TABLE>

  The number of shares under option, weighted average exercise price and
  weighted average remaining contractual life of all options outstanding as of
  December 31, 1997, by range of exercise price was as follows:

                                       35
<PAGE>
 
<TABLE>
<CAPTION>
                                      Weighted   Weighted
          Range of                    average    average
          exercise                    exercise   remaining
           price           Shares      price      life
           -----           ------      -----      ----    

<S>                      <C>           <C>       <C>
      $ .53 - $ .91        798,700     $ .55     9.2 years
      $1.15 - $1.69      1,174,500     $1.52     8.5 years
      $2.25 - $2.28        125,500     $2.26     6.7 years
      $3.00 - $3.50        245,000     $3.31     7.1 years
</TABLE>

  The number of shares under option and weighted average exercise price of
  options exercisable as of December 31, 1997, by range of exercise price was as
  follows:

<TABLE>
<CAPTION>
                                              Weighted
                Range of                      average
                exercise                      exercise
                 price            Shares       price
                 -----            ------       -----

<S>          <C>                  <C>          <C>
             $ .53 - $ .91        309,566      $ .59
             $1.15 - $1.69        652,999      $1.51
             $2.25 - $2.28        125,500      $2.26
             $3.00 - $3.50        245,000      $3.31
</TABLE>

  The Company applies Accounting Principles Board Opinion No. 25, "Accounting
  for Stock Issued to Employees", in accounting for its stock incentive plan.
  Accordingly, since the exercise price of all options issued under the plan has
  been greater than or equal to the fair market value of the stock at the date
  of issue of the options, no compensation cost has been recognized for options
  granted under the plan.  Had compensation cost for options granted under the
  plan been determined based on the fair value at the grant dates in a manner
  consistent with the method determined under Statement of Financial Accounting
  Standards No. 123, "Accounting for Stock-Based Compensation", the net loss and
  net loss per share for 1997, 1996 and 1995 would have been increased to the
  pro forma amounts indicated below:

<TABLE>
<CAPTION>
                              1997           1996           1995
<S>                       <C>            <C>            <C>
      Net loss:
         As reported      $(5,151,000)   $(5,992,000)   $(8,892,000)
         Pro forma        $(5,543,000)   $(6,596,000)   $(9,195,000)
 
      Net loss per share:
         As reported      $      (.23)   $      (.47)   $      (.82)
         Pro forma        $      (.25)   $      (.51)   $      (.85)

</TABLE> 

                                       36
<PAGE>
 
   For the purpose of computing the pro forma expense, the fair value of each
   option is estimated on the grant date using the Black-Scholes option pricing 
   model with the following assumptions:

<TABLE>
<CAPTION>
                                            Grants issued in
                                       --------------------------
                                       1997       1996       1995

<S>                                    <C>        <C>        <C>
         Dividend yield                 0%         0%         0%
         Expected volatility           69%        75%        75%
         Risk-free interest rate        5.7%       6%         6%
         Expected lives                 3 years    3 years    3 years
</TABLE>

   The weighted average fair value as of the option date was computed to be $.33
   per share for options issued during 1997, $.83 per share for options issued
   during 1996 and $1.53 per share for options issued during 1995.

   As of December 31, 1997, the Company also has options outstanding that have
   not been issued pursuant to its stock incentive plan. These options grant the
   holders the right to acquire 249,699 shares of the Company's common stock at
   exercise prices ranging from $1.69 to $3.55 per share.


7. INCOME TAXES

   INCOME TAX PROVISION - Income tax provisions were not necessary in 1997, 1996
   and 1995 due to net losses.

   DEFERRED TAXES - Deferred taxes reflect the net tax effects of (a) temporary
   differences between the carrying amounts of assets and liabilities for
   financial reporting purposes and the amounts used for income tax purposes,
   and (b) operating losses and tax credit carryforwards.

                                       37
<PAGE>
 
  The tax effects of significant items comprising the Company's deferred taxes
  as of December 31 were as follows:

<TABLE>
<CAPTION>
United States taxes:                                                     1997           1996
<S>                                                                  <C>            <C>
       Deferred tax assets:
          Federal net operating loss carryforward
           and capitalized research and development
           expenses                                                  $ 5,396,000    $ 5,194,000
          Federal R&D tax credit carryforward                            522,000        522,000
          State net operating loss carryforward and capitalized
           research and development expenses                             310,000        211,000
       Deferred tax liabilities - book basis in excess
        of noncurrent assets acquired in the
        acquisition of IBC                                            (1,300,000)    (1,102,000)
                                                                     -----------    -----------
 
       Net deferred tax assets                                         4,928,000      4,825,000
 
       Valuation allowance                                            (4,928,000)    (4,825,000)
                                                                     -----------    -----------
 
       Net deferred taxes                                            $        --    $        --
                                                                     ===========    ===========
 
  French taxes:                                                             1997           1996
       Deferred tax assets:
          Net operating loss carryforward                            $ 4,320,000    $ 5,426,000
          Impact of temporary differences                               (133,000)      (211,000)
                                                                     -----------    -----------
 
       Total                                                           4,187,000      5,215,000
 
       Valuation allowance                                            (4,187,000)    (5,215,000)
                                                                     -----------    -----------

       Net deferred taxes                                            $        --    $        --
                                                                     ===========    ===========
</TABLE>

  Temporary differences for French taxes result primarily from leases treated as
  operating leases for French tax reporting and as capital leases in the
  consolidated financial statements.

  The tax benefits ($5,136,000) of the net operating losses of $15,410,000
  which existed at the date of acquisition (September 7, 1994) of the French
  subsidiary will be recorded as a reduction of the net unamortized balance of
  property, equipment, capitalized lease assets and intangible assets of
  $1,824,000 when and if realized, and the remaining benefit will be recorded as
  a reduction of income tax expense.

  The tax benefits ($351,000) of the net operating losses of $1,032,000 which
  existed at the date of acquisition (December 31, 1997) of IMS will be recorded
  as a reduction of the net unamortized balance of property, plant and equipment
  of $2,861,000 when and if realized.

  Statement of Financial Accounting Standards No. 109 requires that the tax
  benefit of net operating losses, temporary differences and credit
  carryforwards be recorded as an asset to the extent that management assesses
  that realization is "more likely than not."  Realization of the future tax
  benefits is dependent on the Company's ability to generate sufficient taxable

                                       38
<PAGE>
 
   income within the carryforward period. Because of the Company's recent
   history of operating losses, management has provided a valuation allowance
   for its net deferred tax assets.

   TAX CARRYFORWARDS - At December 31, 1997, the Company had net operating loss
   carryforwards of approximately $2,493,000 to reduce United States federal
   taxable income in future years, and research and development tax credit
   carryforwards of $522,000 to reduce United States federal taxes in future
   years. In addition, the Company's French subsidiary had operating loss
   carryforwards of $11,784,000 (70,862,000 French francs) to reduce French
   taxable income in future years. These carryforwards expire as follows:

<TABLE>
<CAPTION>
                             United States         R&D tax         French    
                             net operating         credit      operating loss
   Year of expiration      loss carryforward    carryforward    carryforward 
                                                                             
<S>                           <C>                  <C>           <C>          
         1998                 $  208,000                         $ 1,070,000  
         1999                    111,000                             190,000  
         2000                         --                               5,000  
         2001                     23,000           $123,000               --  
         2002                      7,000              6,000               --  
         2003-2012             2,144,000            393,000               --  
         No expiration                --                 --       10,519,000  
                              ----------           --------      -----------  
                                                                              
                              $2,493,000           $522,000      $11,784,000  
                              ==========           ========      ===========  
</TABLE>

   Utilization of the United States tax carryforwards is subject to certain
   restrictions in the event of a significant change (as defined in Internal
   Revenue Service guidelines) in ownership of the Company.


8. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

   One domestic customer and one foreign licensee have accounted for significant
   portions of the Company's revenues during the past three years. The
   percentages of total revenues derived from sales to, and royalties from,
   these major customers are as follows:

<TABLE>
<CAPTION>
                               1997    1996    1995

<S>                           <C>     <C>     <C>
       Domestic customer        --      --      18%
       Spanish licensee         31%     39%     16%
</TABLE>

                                       39
<PAGE>
 
   The Company's domestic customer to whom sales of bovine superoxide dismutase
   ("bSOD") accounted for 18% of the Company's revenues in 1995, announced in
   the fourth quarter of 1995 that the clinical trial in which it was using bSOD
   purchased from the Company failed to show the desired results, and sales of
   bSOD to this customer have ceased.

   The Company limits its foreign exchange risk by buying and selling bulk bSOD
   in a single currency, the Dutch guilder. The Company maintains a bank account
   in The Netherlands for receipt and disbursement of Dutch guilders and had the
   equivalent of $112,000 and $1,000 in that account at December 31, 1997 and
   1996, respectively.

   The Company and its French subsidiary maintain bank accounts in France and
   had the equivalent of $116,000 and $6,000 in those accounts at December 31,
   1997 and 1996, respectively. Foreign currency transaction gains and losses
   were not material.


9. GEOGRAPHIC AREA INFORMATION

   The Company operates in a single industry segment: the development,
   manufacture and marketing of therapeutic and diagnostic products. The
   Company's foreign operations consist of research and development and
   manufacturing facilities and certain marketing activities conducted by the
   Company's subsidiary in France. Sales and costs associated with bSOD
   manufactured in the Netherlands are considered to be United States
   operations, since the contract to manufacture bSOD and all related sales
   activities are administered in the United States. Similarly, royalties from
   foreign customers that relate to bSOD-based products are considered to be
   export sales from the United States, since the product was developed in the
   United States.

   Sales, operating income and identifiable assets, classified by the major
   geographic areas in which the Company operates, are as follows:

<TABLE>
<CAPTION>
                                                    1997            1996           1995
<S>                                              <C>            <C>            <C>
 
     Revenues from unaffiliated customers:
       United States                             $ 1,946,000    $ 1,303,000    $ 2,686,000
       Export sales from the U.S.                  3,113,000      3,185,000      1,878,000
       France                                             --        379,000        572,000
                                                 -----------    -----------    -----------
         Total                                   $ 5,059,000    $ 4,867,000    $ 5,136,000
                                                 ===========    ===========    ===========
 
     Operating loss:
       United States                             $(2,873,000)   $(2,874,000)   $(5,653,000)
       France                                     (2,205,000)    (3,017,000)    (3,110,000)
                                                 -----------    -----------    -----------
         Total                                   $(5,078,000)   $(5,891,000)   $(8,763,000)
                                                 ===========    ===========    ===========
 
     Identifiable assets:
       United States                             $10,068,000    $ 5,110,000    $ 7,824,000
       France                                      2,507,000      2,942,000      3,866,000
       Eliminations                                       --        (55,000)    (1,820,000)
                                                 -----------    -----------    -----------
         Total                                   $12,575,000    $ 7,997,000    $ 9,870,000
                                                 ===========    ===========    ===========
 </TABLE>

                                       40
<PAGE>
 
10. COMMITMENTS AND CONTINGENCIES

    The Company leases its facilities in Oregon and in France under operating
    leases that expire in 1998. Lease payments to which the Company is committed
    in 1998 are $230,000. Rental expense included in the accompanying statements
    of operations was $361,000 in 1997, $519,000 in 1996 and $492,000 in 1995.

    The Company and its subsidiaries are parties to various claims. Although the
    Company is unable to predict with certainty whether or not it will
    ultimately be successful in its defense of such claims or, if not, what the
    impact might be, management currently believes that disposition of these
    matters will not have a materially adverse effect on the Company's
    consolidated financial statements.


11. 401(k) SAVINGS PLAN

    The Company has a 401(k) saving plan (the "Plan") which covers all United
    States employees who meet certain minimum age and service requirements. The
    Company's matching contribution to the Plan for each year is 100% of the
    first $1,000 of each employee's salary deferral and 33-1/3% of the next
    $3,000 of salary deferral. The Company's contributions have not been
    material.

                                       41
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

  Not applicable.

                                        


                                    PART III

ITEM 10. Directors and Executive Officers of the Registrant.

  The information required by this item is incorporated herein by reference from
  the material contained under the caption "Proposal No. 1-Election of
  Directors" in the Company's definitive proxy statement to be filed with the
  Commission pursuant to Regulation 14A.


ITEM 11. EXECUTIVE COMPENSATION

  The information required under this item is incorporated herein by reference
  from the material contained under the caption "Compensation of Executive
  Officers" in the Company's definitive proxy statement to be filed with the
  Commission pursuant to Regulation 14A.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

  The information required under this item is incorporated herein by reference
  from the material contained under the caption "Proposal No. 1-Election of
  Directors" in the Company's definitive proxy statement to be filed with the
  Commission pursuant to Regulation 14A.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

  The information required under this item is incorporated herein by reference
  from the material contained under the caption "Proposal No. 1-Election of
  Directors" in the Company's definitive proxy statement to be filed with the
  Commission pursuant to Regulation 14A.

                                       42
<PAGE>
 
                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)  The following documents are filed as part of this report:

  1. FINANCIAL STATEMENTS

       See pages 18 to 41.

  2. FINANCIAL STATEMENT SCHEDULES

       Schedules are omitted because they are not applicable or the required
       information is included in the financial statements and notes thereto.

  3. EXHIBITS

       See Exhibit Index - page 45.

(b)  Reports on Form 8-K.

     No reports on Form 8-K were filed by the Company during the fourth quarter
     of 1997.

(c)  Exhibits specified by item 601 of Regulation S-K.

     See Exhibit Index - page 45.

(d)  Financial statement schedules required by Regulation S-K are omitted
     because they are not applicable or the required information is included in
     the financial statements and notes hereto.

                                       43
<PAGE>
 
                                   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:  March 23, 1998


                                    OXIS INTERNATIONAL, INC.
                                    Registrant

                                    By: /s/ Ray R. Rogers
                                        -----------------------------
                                        Ray R. Rogers
                                        Chairman of the Board and
                                        Chief Executive Officer
                                        (Principal Executive Officer)

                                        /s/ Jon S. Pitcher
                                        -----------------------------
                                        Jon S. Pitcher
                                        Chief Financial Officer
                                        (Principal Financial and
                                        Accounting Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors on behalf of the Registrant.


/s/ Anna D. Barker     March 23, 1998       /s/ Timothy G. Biro   March 23, 1998
-------------------------------------       ------------------------------------
Anna D. Barker         Date                 Timothy G. Biro       Date
                     
/s/ Richard A. Davis   March 23, 1998       /s/ Stuart S. Lang    March 23, 1998
-------------------------------------       ------------------------------------
Richard A. Davis       Date                 Stuart S. Lang        Date
                     
/s/ David Neeham       March 23, 1998       /s/ Ray R. Rogers     March 23, 1998
-------------------------------------       ------------------------------------
David Needham          Date                 Ray R. Rogers         Date
                     
/s/ A.R. Sitaraman     March 23, 1998
-------------------------------------       
A.R. Sitaraman         Date

                                       44
<PAGE>
 
                                 EXHIBIT INDEX
<TABLE>
<CAPTION>
 
EXHIBIT                                                                             PAGE
NUMBER                              DESCRIPTION OF DOCUMENT                        NUMBER
<S>      <C>                                                                       <C>
 
2  (a)   Agreement and Plan of Reorganization and Merger between
         OXIS International, Inc., OXIS Acquisition Corporation
         and Therox Pharmaceuticals, Inc. Dated July 18, 1995                       (1)
   
2  (b)   Amendment No. 1 to Agreement and Plan for Reorganization
         and Merger between OXIS International, Inc., OXIS Acquisition
         Corporation and Therox Pharmaceuticals, Inc.                               (2)
   
2  (c)   Share exchange Agreement by and among Innovative Medical
         Systems Corp. ("Seller"), OXIS International, Inc. ("Buyer") and
         each of The Shareholders Who Are Signatories Hereto (collectively,
         the "Shareholders").                                                       (3)
   
3  (a)   Second Restated Certificate of Incorporation as filed
         September 10, 1996                                                         (4)
   
3  (b)   Certificate of Designations, Preferences, and Rights of Series E
         Preferred Stock of the Company                                             (5)
   
3  (c)   Bylaws of the Company as amended on June 15, 1994                          (6)
   
4  (a)   Securities Purchase Agreement, Registration Rights Agreement
         and Security Agreement                                                     (7)
   
10 (a)   1987 Stock Purchase Warrants                                               (6)
   
10 (b)   1988 Stock Purchase Warrants                                               (9)
   
10 (c)   Lease agreement between Bioxytech S.A. and Sofibus                        (10)
   
10 (d)   OXIS International, Inc. Series B Preferred Stock Purchase Agreement
         dated July 18, 1995                                                       (11)
   
10 (e)   Factoring (security) Agreement dated September 6, 1996 between
         Silicon Valley Financial Services and OXIS International, Inc.             (4)
   
10 (f)   Form of Promissory Notes dated March 27, 1997 - April 24, 1997            (12)
   
10 (g)   Underwriting agreement                                                    (13)
</TABLE>

                                       45
<PAGE>
 
                                 EXHIBIT INDEX
<TABLE>
<CAPTION>
 
EXHIBIT                                                                   PAGE
NUMBER                          DESCRIPTION OF DOCUMENT                  NUMBER
<S>     <C>                                                               <C>
 
10 (h)   Listing advisor - market making agreement                        (13)
   
10 (i)   Non-Exclusive License Agreement between OXIS International,
         Inc. and Enzon, Inc. dated July 29, 1997                         (14)
   
10 (j)   Note Payable to AT&T Small Business Lending Corporation
         and related Open-End Mortgage                                     47
   
21 (a)   Subsidiaries of OXIS International, Inc.                          55
   
23 (a)   Independent Auditors' Consent                                     56
   
27 (a)   Financial data schedule                                           57
</TABLE>

(1)  Incorporated by reference to the Company's Current Report on Form 8-K dated
     July 19, 1995.

(2)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     1995 - Exhibit 2 (b).

(3)  Incorporated by reference to the Company's Form 8-K Current Report, dated
     January 15, 1998.

(4)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     1996.

(5)  Incorporated by reference to the Company's Form 8-K Current Report dated
     December 30, 1996.

(6)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended June 30, 1994.

(7)  Incorporated by reference to the Company's Form 8-K Current Report dated
     November 4, 1996.

(8)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     1992 - Exhibit 10(b).

(9)  Incorporated by reference to the Company's Annual Report on Form 10-K for
     1992 - Exhibit 10(c).

(10) Incorporated by reference to the Company's Annual Report on Form 10-K for
     1994.
 
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended September 30, 1995.

(12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1997.

(13) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended June 30, 1997.

(14) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended September 30, 1997.

                                       46