================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE )
/X/ Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2000.
OR
/ / Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from ________ to _________.
Commission File No. _______________.
IMX PHARMACEUTICALS, INC.
-------------------------------------------------
(Name of Small Business Issuer in its Charter)
Utah 87-0394290
- -------------------------------- ---------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2295 Corporate Boulevard, Suite 131, Boca Raton, Florida 33431
- -------------------------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
561.998.5660
- ---------------------------
(Issuer's Telephone Number)
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 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 the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.
At May 4, 2000 there were 5,628,096 shares of common stock, par value $.001 per
share outstanding.
Transitional Small Business Disclosure Format (check one): Yes / / No /X/
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IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
INDEX
Page Number
Part I. Financial Information
Item 1 Financial Statements 1-2
Consolidated Balance Sheets as of December 31,
1999 (audited) and March 31, 2000 (unaudited) 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 (unaudited)
and March 31, 2000 (unaudited) 4
Consolidated Statements of Changes In Stockholders'
Equity 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 (unaudited)
and March 31, 2000 (unaudited) 6-23
Notes to Consolidated Financial Statements
(unaudited) 24-26
Item 2. Management's Discussion and Analysis or Plan
of Operation 26
Part II. Other Information 27
Signatures
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1999 2000
------------------ ------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,497,791 $ 1,219,267
Securities available for sale 30,463 28,269
Accounts receivable (net of allowance for
doubtful accounts of $1,600 and $27,494) 110,525 96,430
Other receivable 0 281,060
Loan receivable - related party 31,153 29,567
Inventories 557,593 710,628
Refundable deposit 0 400,000
Vendor deposits 50,000 0
Prepaid expenses and other 46,731 64,777
------------------ ------------------
Total Current Assets 3,324,256 2,829,998
------------------ ------------------
PROPERTY AND EQUIPMENT:
Property and equipment (net of accumulated
depreciation of $197,436 and $179,216) 105,913 104,085
------------------ ------------------
OTHER ASSETS:
Deposits and other 67,646 77,646
------------------ ------------------
Total Other Assets 67,646 77,646
------------------ ------------------
TOTAL ASSETS $ 3,497,815 $ 3,011,729
================== ==================
1
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1999 2000
------------------ ------------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable $ 436,398 $ 312,362
Accrued expenses and other current
liabilities 49,700 127,870
Capital lease payable, current portion 2,896 2,896
------------------ ------------------
Total Current Liabilities 488,994 443,128
------------------ ------------------
LONG-TERM LIABILITIES:
Capital lease payable, non-current portion 4,896 4,097
------------------ ------------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 50,000,000 shares
authorized, 9,634,707 and 9,634,707 shares issued,
5,802,461 and 5,802,461 shares outstanding 9,635 9,635
Additional paid-in capital 7,943,050 7,943,050
Retained earnings (deficit) (4,348,955) (4,786,182)
Treasury stock, at cost - 3,832,246 and
3,832,246 shares (578,054) (578,054)
Accumulated other comprehensive loss (21,751) (23,945)
------------------ ------------------
Total Stockholders' Equity 3,003,925 2,564,504
------------------ ------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,497,815 $ 3,011,729
================== ==================
2
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1999 2000
------------------- ------------------
NET SALES $ 367 $ 231,346
COST OF SALES 145 81,501
------------------- ------------------
GROSS PROFIT 222 149,845
------------------- ------------------
OPERATING EXPENSES:
Selling 215,353 392,304
Advertising 49,212 32,530
General and administrative 377,143 389,637
Depreciation and amortization 13,000 18,094
------------------- ------------------
Total Operating Expenses 654,708 832,565
------------------- ------------------
LOSS FROM OPERATIONS (654,486) (682,720)
OTHER INCOME (EXPENSES):
Other income 58,592 245,493
------------------- ------------------
Income (Loss)
Before Income Taxes (595,894) (437,227)
Provision for Income Taxes 0 0
------------------- ------------------
Net income (loss) available to
common stockholders $ (595,894) $ (437,227)
=================== ==================
- ----------------------------------------------------------------------------------------------------------
Weighted average number of shares of common stock outstanding:
Basic 5,033,038 4,998,508
Diluted 5,033,038 5,329,256
- ----------------------------------------------------------------------------------------------------------
Net income (loss) per common share:
Basic $ (0.12) $ (0.09)
Diluted $ (0.12) $ (0.08)
- ----------------------------------------------------------------------------------------------------------
3
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
PREFFERED STOCK COMMON STOCK
------------------------- ------------------------ ADDITIONAL
NUMBER NUMBER PAID-IN
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL (DEFICIT)
------------ --------- ----------- --------- ------------ --------------
Balance - December 31, 1998 86,424 $ 86 8,728,108 $ 8,728 $ 7,780,988 $ (4,883,487)
Comprehensive Income:
Net income 577,932
Change in other comprehensive income
Total comprehensive income
Preferred stock dividend declared 1,736 2 43,398 (43,400)
Compensation - fair value of common
stock options issued to non-employees 44,483
Conversion of preferred stock to
common stock (88,160) (88) 881,600 882 (794)
Exercise of common stock options 5,000 5 4,995
Transfer of redeemed common stock to
treasury stock 19,999 20 69,980
Conversion of loan receivable to
treasury stock
Purchase of treasury stock
------------ --------- ----------- --------- ------------ --------------
Balance - December 31, 1999 0 0 9,634,707 9,635 7,943,050 (4,348,955)
Comprehensive Income:
Net income (437,227)
Change in other comprehensive income
Total comprehensive income
------------ --------- ----------- --------- ------------ --------------
Balance - March 31, 2000 0 0 9,634,707 $ 9,635 $ 7,943,050 $ (4,786,182)
============ ========= =========== ========= ============ ==============
TREASURY STOCK ACCUMULATED
--------------------------- OTHER TOTAL
NUMBER COMPREHENSIVE STOCKHOLDERS'
OF SHARES AMOUNT INCOME EQUITY
------------ ----------- --------------- -------------
Balance - December 31, 1998 3,724,757 $ (357,657) $ 11,000 $ 2,559,658
------------
Comprehensive Income:
Net income 577,932
Change in other comprehensive income (32,751) (32,751)
------------
Total comprehensive income 545,181
Preferred stock dividend declared 0
Compensation - fair value of common
stock options issued to non-employees 44,483
Conversion of preferred stock to
common stock 0
Exercise of common stock options 5,000
Transfer of redeemed common stock to
treasury stock 19,999 (70,000) 0
Conversion of loan receivable to
treasury stock 76,000 (125,400) (125,400)
Purchase of treasury stock 11,490 (24,997) (24,997)
------------ ----------- ------------ -------------
Balance - December 31, 1999 3,832,246 (578,054) (21,751) 3,003,925
Comprehensive Income:
Net income (437,227)
Change in other comprehensive income (2,194) (2,194)
------------
Total comprehensive income (439,421)
------------ ----------- ------------ ------------
Balance - March 31, 2000 3,832,246 $ (578,054) $ (23,945) $ 2,564,504
============ =========== ============ ============
4
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1999 2000
---------------------- ---------------------
OPERATING ACTIVITIES:
Net income (loss) $ (595,894) $ (437,227)
Adjustments to reconcile net income (loss)
to net cash (used) provided by operating activities:
Depreciation and amortization 13,000 18,094
Provision for doubtful accounts (5,534) (25,894)
(Increase) decrease in accounts receivable (228,320) (241,071)
Decrease (increase) in inventories (261,812) (153,035)
(Increase) in prepaid expenses (20,752) (18,046)
Decrease (increase) in deposits - (350,000)
Decrease (increase) in other assets (35,623) (10,000)
(Decrease) increase in accounts payable
and accrued expenses (94,248) (45,740)
---------------------- --------------------
Net cash (used) provided by operating activities (1,229,183) (1,262,919)
---------------------- --------------------
Investing Activities:
Purchase of furniture and equipment (1,158) (16,391)
Loan repayment from (advance to) related party (352) 1,586
Decrease in investment in and advances to
unconsolidated subsidiary 339,194 0
---------------------- --------------------
Net cash (used) provided by investing activities 337,684 (14,805)
---------------------- --------------------
Financing Activities:
Net proceeds (repayments) of notes payable 9,390 (799)
Purchase of securities available for sale 1,689,200 -
Purchase of treasury stock (69,997) 0
---------------------- --------------------
Net cash (used) provided by financing activities 1,628,593 (799)
---------------------- --------------------
Net increase (decrease) in cash and cash equivalents 737,094 (1,278,523)
Cash and cash equivalents - beginning of year 623,860 2,497,790
---------------------- --------------------
Cash and cash equivalents - end of year $ 1,360,954 $ 1,219,267
====================== ====================
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
- ----------------------------------------------
Cash paid for interest $ 12,122 $ 0
Cash paid for income taxes $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES
- --------------------------------------------
Dividends on preferred stock:
Preferred stock issued in lieu of cash for dividends payable
on preferred stock 43,400 $ 0
Conversion of preferred stock to common stock 882 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
5
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 1 - NATURE OF BUSINESS
IMX Pharmaceuticals, Inc. (the "Company"), formerly IMX
Corporation, was organized under the laws of the State of Utah
on June 2, 1982. The Company changed its name to IMX
Pharmaceuticals, Inc. on June 30, 1997. The consolidated
financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
In 1995, the Company entered into an acquisition agreement
(the "Agreement'), with Interderm, Ltd., ("Interderm") for the
assignment of the exclusive marketing and distribution rights
in the United States for certain pharmaceutical products
manufactured by Meyer-Zall Laboratories of South Africa
("Meyer-Zall"). The products included Exorex, an
over-the-counter psoriasis medication.
In connection with the Agreement, the Company also acquired
the right of first refusal for distribution rights in the
United States for new pharmaceutical products developed or
manufactured by Meyer-Zall.
During 1996 and 1997, the Company began to market and
distribute Exorex and other related products in the retail
market using capital raised from private placements.
Effective June 24, 1998, the Company entered into an agreement
(the "Joint Venture Agreement") with various affiliates of
Medicis Pharmaceutical Corporation ("Medicis") to form a joint
venture Medicis Consumer Products Company, LLC ("LLC") to
develop and market skin care products.
Under the terms of the Joint Venture Agreement, Medicis
contributed cash of $4,000,000 to the joint venture in return
for a 51% interest in the LLC. The Company contributed all of
the assets, property and associated rights in connection with
the Exorex product line, with an unamortized cost of
approximately $5,200 in return for a 49% interest in the LLC.
Effective June 30, 1999, the Company entered a Sale and
Transfer Agreement ("Sale Agreement") with Medicis, whereby
the Company sold its 49% interest in the LLC to Medicis in
return for $3,600,000.
6
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying unaudited consolidated financial statements
as of March 31, 2000 and for the three month periods ended
March 31, 1999 and 2000 have been prepared in accordance with
generally accepted accounting principles for interim financial
information. In the opinion of management, all adjustments
consisting of normal recurring accruals considered necessary
for a fair presentation have been included. Operating results
for the three-month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for
the year ending December 31, 2000.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers
all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Securities Available for Sale
Securities available for sale are carried at estimated market
value. Unrealized holding gains and losses on securities
available for sale are reported as a net amount in a separate
component of stockholders' equity until realized. Gains and
losses realized from the sale of investment securities are
computed using the specific-identification method.
Inventories
Inventories are stated at the lower of cost or market value.
Cost is determined using the first-in, first-out method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization are computed using methods that approximate the
straight-line method over the assets' estimated useful lives.
7
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Revenue Recognition
Sales are generally recorded upon shipment of goods to
customers.
Production Development Costs
Costs incurred for the development of new product lines are
expensed as incurred as specified by SOP 98-5 issued by the
American Institute of Certified Public Accountants (Note 3).
Stock-Based Compensation
The Company accounts for stock based compensation as set forth
in Accounting Principles Board ("APB") Opinion 25, "Accounting
for Stock Issued to Employees," and discloses the proforma
effect on net income (loss) and income (loss) per share of
adopting the full provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123 "Accounting for
Stock-Based Compensation". Accordingly, the Company has
elected to continue using APB Opinion 25 and has disclosed in
the footnotes proforma income (loss) and income (loss) per
share information as if the fair value method had been
applied.
Income Taxes
The Company files consolidated Federal and State of Florida
income tax returns. Income taxes are calculated using the
liability method specified by SFAS No. 109, "Accounting for
Income Taxes".
Net Income (Loss) Per Common Share
Net income (loss) per common share is calculated according to
Accounting SFAS No.128, "Earnings Per Share" which requires
companies to present basic and diluted earnings per share. Net
income (loss) per common share-- basic is based
8
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Net Income (Loss) Per Common Share (Cont'd)
on the weighted average number of common shares outstanding
during the year. Net income (loss) per common share -- diluted
is based on the weighted average number of common shares and
dilutive potential common shares outstanding during the year.
Convertible preferred stock, certain common stock options and
common stock warrants were excluded from the computations of
net loss per share for the three month periods ended March 31,
1999 and 2000 and because the effect of their inclusion would
be anti-dilutive.
Fair Value of Financial Instruments
SFAS No. 107 requires the disclosure of the fair value of
financial instruments. The estimated fair value amounts have
been determined by the Company's management using available
market information and other valuation methods. However,
considerable judgment is required to interpret market data in
developing the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of
the amounts the Company could realize in a current market
exchange.
The following methods and assumptions were used in estimating
the fair value disclosure for financial instruments:
Cash and Cash Equivalents, Accounts and Loan Receivable,
Accounts Payable, Accrued Expenses and Notes Payable - the
carrying amounts reported in the consolidated balance sheets
approximate fair value because of the short maturity of those
instruments.
Securities Available for Sale - the fair values are based on
quoted market prices at the reporting date of those or similar
investments (Note 5).
9
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make certain 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 revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
NOTE 3 - RECENT ACCOUNTING
In June, 1997, the Financial Accounting Standards Board (the
Pronouncements "FASB") issued SFAS No. 130, "Reporting
Comprehensive Income" which became effective in 1998. SFAS No.
130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of
general-purpose financial statements. The Company adopted SFAS
No.130 on January 1, 1998.
In June, 1997 the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information" which
became effective in 1998. SFAS No. 131 establishes standards
for the way public enterprises are to report operating
segments in annual financial statements and requires reporting
of selected information about operating segments in interim
reports. The Company's adoption of SFAS No. 131 did not affect
the Company's consolidated financial statements.
In April,1998, the American Institute of Certified Public
Accountants issued Statement of Position No. 98-5, "Reporting
for the Costs of Start-Up Activities", ("SOP 98-5"). The
Company is required to expense all start-up costs related to
new operations as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP
98-5 is adopted. The Company's adoption of SOP 98-5 did not
have a material impact on its financial position or results of
operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Company is
required to adopt SFAS
10
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 3 - RECENT ACCOUNTING (CONT"D)
133, as amended by SFAS 137, for the year ending December 31,
2001. SFAS 133 establishes methods of accounting for
derivative financial instruments and hedging activities
related to those instruments as well as other hedging
activities. Because the Company currently holds no derivative
financial instruments and does not currently engage in hedging
activities, adoption of SFAS 133 is expected to have no
material impact on the Company's financial condition or
results of operations.
NOTE 4 - SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of 69,630 shares of
common stock in Hydron Technologies, Inc. At December 31,1999
and March 31 2000, the cost basis of $52,214 of the common
stock in Hydron Tech, Inc. exceeded the market value by
$21,751 and $23,945 respectively.
NOTE 5 - INVENTORIES
Inventories consisted of the following:
December 31, March 31,
1999 2000
---- ----
Finished goods $ 237,195 $ 392,913
Work in process 16,969 15,498
Packaging supplies 303,429 302,217
--------- ---------
Total $ 557,593 $ 710,628
========= =========
11
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31, March 31,
1999 2000
---- ----
Computers and office equipment $ 193,997 $ 198,734
Furniture, fixtures and improvements 91,132 102,787
--------- ---------
285,129 301,521
Less: accumulated depreciation and
amortization (179,216) (197,436)
--------- ---------
Property and equipment net of
accumulated depreciation $ 105,913 $ 104,085
========= =========
NOTE 7 - INCOME TAXES
The provision for income taxes in the consolidated statements
of operations is as follows:
December 31, March 31,
1999 2000
---- ----
Current:
Federal $ 0 $ 0
State 0 0
----- -----
$ 0 $ 0
----- -----
Deferred:
Federal $ 0 $ 0
State 0 0
----- -----
$ 0 $ 0
----- -----
12
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 7 - INCOME TAXES (CONT'D)
Applicable incomes taxes for financial reporting purposes
differ from the amounts computed by applying the statutory
federal and state income tax rates as follows:
December 31, March 31,
1999 2000
---- ----
Tax (benefit) at statutory rate $ 185,800 $ 137,500
Increase (decrease) in tax
resulting from:
State income tax, net of federal tax benefit 31,500 23,200
Other 0 0
Increase (decrease) in
valuation allowance (217,300) (160,700)
--------- ---------
Income taxes $ 0 $ 0
========= =========
The approximate tax effects of temporary differences that give
rise to the deferred tax assets and deferred tax (liabilities)
are as follows:
December 31, March 31,
1999 2000
---- ----
Fair value of common stock options and
warrants $ 130,889 $ 130,889
Start-up costs 139,100 139,100
Depreciation and amortization (71,700) (71,700)
Other 12,000 12,000
Net operating loss carry forwards 641,700 1,069,382
----------- -----------
851,989 1,279,671
Less: valuation allowance (851,989) (1,279,671)
----------- -----------
Total net deferred tax asset $ 0 $ 0
=========== ===========
13
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 7 - INCOME TAXES (CONT'D)
At December 31, 1999, the Company had net operating loss
carryforwards of approximately $1,700,000 for income tax
purposes. Those losses are available for carryforward for
periods ranging from fifteen to twenty years, and will expire
beginning in 2011. Any future significant changes in ownership
of the Company may limit the annual utilization of the tax net
operating loss carryforwards.
NOTE 8 - CAPITAL STOCK
Common stock
Common stock has one vote per share for the election of
directors. All other matters are submitted to a vote of
stockholders. Shares of common stock do not have cumulative
voting, preemptive, redemption or conversion rights.
At December 31, 1999 and March 31, 2000, the Company had
reserved 3,538,216 and 3,538,216 shares of Common stock
respectively for issuance relating to unexpired options and
warrants.
NOTE 9 - STOCK OPTIONS
On January 21, 1996, the Company adopted a stock option plan
with 2,000,000 shares of Common stock reserved for the grant
of options to key employees, non-employees, officers and
directors of the Company. On September 9, 1998, the Company
adopted a stock option plan with 1,200,000 shares of common
stock reserved for grant of options to key employees,
non-employees, officers and directors of the Company. Options
under these plans are exercisable over a period of ten years
with various vesting terms. All shares granted are subject to
significant restrictions as to disposition by the optionee.
14
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 9 - STOCK OPTIONS (CONT'D)
A summary of the Company's stock option activity is as
follows:
Year ended Three months ended
December 31, 1999 March 31, 2000
------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- -----------------------------------------------------------------------------
Options outstanding,
beginning of period 1,350,000 $ 2.71 1,485,000 $ 2.46
Granted 234,500 1.73 0 -
Exercised (5,000) 1.75 0 -
Forfeited/canceled (94,500) 4.31 0 -
- -----------------------------------------------------------------------------
Outstanding at end of
period 1,485,000 $ 2.46 1,485,000 $ 2.46
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Exercisable at end of
period 1,560,100 $ 2.55 1,560,100 $ 2.55
- -----------------------------------------------------------------------------
Weighted average fair
market value of
options granted
period $ 0.85 $ 0.85
- -----------------------------------------------------------------------------
15
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 9 - STOCK OPTIONS (CONT'D)
A summary of the Company's fixed stock options outstanding is
as follows:
Weighted
Average
Remaining Weighted Weighted
Range of Options Contractual Average Options Average
Exercise Price Outstanding Life in Years Exercise Price Exercisable Exercise Price
- ---------------------------------------------------------------------------------------------------------
December 31, 1999
- ---------------------------------------------------------------------------------------------------------
$0.75 - 0.99 20,000 9.75 $ 0.75 20,000 $ 0.75
$1.00 - 3.00 1,175,500 7.24 1.64 1,021,750 1.62
3.87 - 4.00 270,000 7.99 4.00 270,000 4.00
4.78 - 6.50 256,475 7.56 5.03 248,350 4.97
- ---------------------------------------------------------------------------------------------------------
$0.75 - 6.50 1,721,975 7.43 2.49 1,560,100 2.55
- ---------------------------------------------------------------------------------------------------------
March 31, 2000
- ---------------------------------------------------------------------------------------------------------
$0.75 - 0.99 20,000 9.50 $ 0.75 20,000 $ 0.75
$1.00 - 3.00 1,175,500 6.89 1.64 1,021,750 1.62
3.87 - 4.00 270,000 7.92 4.00 270,000 4.00
4.78 - 6.50 256,475 8.12 5.03 248,350 4.97
- ---------------------------------------------------------------------------------------------------------
$0.75 - 6.50 1,721,975 7.27 2.49 1,560,100 2.55
- ---------------------------------------------------------------------------------------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation",
requires the Company to provide pro forma information
regarding net income (loss) and income (loss) per share as if
compensation cost for the Company's employee stock option
plans had been determined in accordance with the fair value
based method prescribed in SFAS No. 123. The Company estimates
the fair value of each option at the grant date by using the
Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1998 and 1999,
expected volatility ranging from 45% to 46%; risk-free
interest rates ranging from 4.35% to 6% and expected lives
ranging from 2 to 10 years.
16
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 9 - STOCK OPTIONS (CONT'D)
Under the accounting provisions of SFAS 123, the Company's net
income (loss) and income (loss) per share would have changed
to the pro forma amounts indicated below:
Year Ended Three Months
December 31, Ended March 31,
1999 2000
---- ----
Net income (loss) applicable to
common stockholders
As reported $ (595,894) $ (437,227)
Pro forma $ (595,894) $ (707,260)
Income (loss) per share - basic
As reported $ (0.12) $ (0.09)
Pro forma $ (0.12) $ (0.14)
Income (loss) per share - diluted
As reported $ (0.12) $ (0.08)
Pro forma $ (0.12) $ (0.13)
Three executive officers of IMX Pharmaceuticals, Inc. received
a total of 24,000 options to purchase shares of common stock
of Medicis Corporation. The options were granted in connection
with the formation of The Exorex Company LLC. The options vest
over a five year period; twenty per cent becoming vested each
year. The original purchase price was $24.67. Twenty per cent
has been exercised. The remainder of the options are held by
the officers for the benefit of IMX Pharmaceuticals, Inc.
NOTE 10 - STOCK WARRANTS
In connection with a 1996 private placement offering of common
stock, the Company issued 580,000 warrants, each redeemable
for one share of common stock, at any time during a period of
three years, commencing on July 9, 1996 for $5.00 per share.
The warrants may be redeemed by the Company with 30 days prior
notice at a price of ten cents per warrant at any time during
the warrant exercise period, under certain conditions (as
defined). During July 1999, the Company extended the exercise
period one year to July 9, 2000.
In addition, 58,000 warrants, each to purchase one share of
common stock for $3.00 per share, and exercisable for the
three year period ending July 9, 1999, were issued to
placement agents in connection with the 1996 Private
Placement. During July 1997, in connection with a financial
advisory agreement with the
17
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 10 - STOCK WARRANTS (CONT'D)
placement agents, the exercise price of the 58,000 warrants
was reduced to $2.50 per share, and the exercise period was
extended to February 9, 2001. The Company recorded
approximately $71,000 as deferred consulting expense for the
estimated fair value of warrants which is being amortized over
the two year term of the agreement.
On March 31, 1999, in connection with the Company's 1997
Private Placement of convertible preferred stock (Note 13),
88,160 (76,750 original shares, plus 11,410 shares issued in
lieu of cash as preferred stock dividends) shares outstanding
at March 31, 1999 were converted into ten shares of common
stock and warrants to purchase ten shares of common stock at
any time during the period ending July 2002 for $6.50 per
share. As of December 31, 1999 no warrants to purchase common
stock have been exercised.
In addition to warrants issued to investors in the February
1997 Private Placement, warrants to purchase 7,586.25 shares
of Convertible Preferred Stock were issued to placement and
selling agents with an exercise price of $30 per share, and
are exercisable for the five year period ending July 2002.
Each share of preferred stock is convertible into 10 shares of
common stock at $3.50 per share and 10 warrants, each warrant
to purchase one share of common stock at $6.50 per share.
Prior to the March 31, 1999 conversion, no warrants to
purchase preferred stock had been exercised.
During July, 1997, in connection with an agreement with a
financial advisor, the Company issued warrants to purchase
50,000 shares of common stock at $4.75 per share, exercisable
for the period ending July 2002. The Company recorded
approximately $67,000 as deferred consulting expense for the
estimated fair value of the warrants, which is being amortized
over the two year term of the agreement.
In connection with notes payable issued during 1997 (Note 12),
as of December 31, 1998, warrants to purchase 85,120 shares of
common stock have been issued. Also, in connection with
February, 1998 closing of the October 1997 Private Placement,
warrants to purchase 20,180 shares of common stock were issued
to placement and selling agents. Each of the warrants
mentioned above has an exercise price of $3.50 per share, and
expires five years from the date of issuance. As of December
31, 1998 and 1999, no warrants have been exercised.
18
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 10 - STOCK WARRANTS (CONT'D)
The aggregate number of common shares reserved for issuance
upon the exercise of warrants is 1,816,241 as of December 31,
1999. The expiration date and exercise prices of the
outstanding warrants are as follows:
Outstanding Expiration Exercise
Warrants Date Price
-------- ---- -----
580,000 2000 $ 5.00
58,000 2001 2.50
1,007,463 2002 3.00-6.50
170,778 2003 3.50
NOTE 11 - NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and
diluted net income (loss) per common share:
Year Ended Three Months
December 31, Ended March 31,
------------ ---------------
1999 2000
---- ----
Net income (loss) applicable to
common stockholders
As reported $ (595,894) $ (437,227)
Pro forma $ (595,894) $ (707,260)
Income (loss) per share - basic
As reported $ (0.12) $ (0.09)
Pro forma $ (0.12) $ (0.14)
Income (loss) per share - diluted
As reported $ (0.12) $ (0.08)
Pro forma $ (0.12) $ (0.13)
19
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 11 - NET INCOME (LOSS) PER COMMON SHARE (CONT'D)
Net income (loss) per common share is calculated by dividing
the net income (loss) by the weighted-average shares of common
stock and common stock equivalents outstanding during the
period. Excluded from the computation of net loss per common
share - diluted at December 31, 1998 and 1999, were
convertible preferred stock of 864,240 and 0, outstanding
options of 1,586,975 and 1,679,475, and warrants to purchase
1,798,881 and 1,816,241 shares of common stock respectively,
at exercise prices ranging from $1.00 to $6.50, and from $2.50
to $6.50, because to do so would be anti-dilutive.
NOTE 12 - RELATED PARTY TRANSACTIONS
During 1999, the Company made advances to a company affiliated
to the President. The balance due the Company at December 31,
1999 and March 31, 2000 totaled $31,153 and $29,567
respectively. These advances together with interest at the
rate of ten (10%) percent is due and payable prior to December
31, 2000.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under
non-cancelable operating leases. The Company has a sublease
agreement for certain facilities and equipment. The future
minimum rental payments required under these operating leases
that have initial or remaining non-cancelable lease terms in
excess of one year, and the future minimum rental receipts
required under non-cancelable sub-leases of December 31, 1999
are approximately as follows:
Future
Minimum
Rental
Year Payments
---- --------
2000 $ 128,000
2001 54,000
2002 36,000
2003 19,000
20
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONT'D)
Total rent expense for all non-cancelable operating leases
having a term of more than one year was approximately $91,000
for the year ended December 31, 1999 and $5,000 for the three
month period ended March 31, 2000, respectively.
On July 1, 1998, the Company entered into an employment
agreement for a period of three years with William Forster,
the Company's Chairman of the Board, President and Chief
Executive Officer. Mr. Forster is entitled to receive an
annual salary of $225,000 and a bonus based on a percentage of
the Company's sales (as defined).
Effective July 1, and August 1, 1998, the Company entered into
employment agreements with two officers for annual salaries
totaling approximately $205,000, plus discretionary bonuses,
and bonuses upon the sale of the Company's interest in the LLC
(as defined). The term of each agreement is three years.
The Company has entered into a series of product development
agreements with a consultant that provide for compensation to
the consultant in the form of cash, options to purchase shares
of the Company's common stock which vest as products are
developed, royalties based upon net sales of products, a
royalty based upon the sale of the rights to the products
developed, and an interest in any patents granted on products
developed by the consultant to the Company.
In November 1999, Bioglan Pharma PLC and Bioglan Pharma, Inc.
(collectively, "Bioglan") commenced an arbitration action
against the Company, Medicis and the LLC, in which Bioglan
claims damages for breach of various contractual obligations
arising out of the sale of the LLC and the Exorex product line
to Bioglan.
Specifically, Bioglan claims that Medicis, the LLC and the
Company breached an Asset Purchase Agreement by transferring
inventories to Bioglan that had a remaining shelf life less
than 12 months and was otherwise unmarketable. The Asset
Purchase Agreement specified that Bioglan was to take title to
all inventories having a shelf life greater than 12 months,
and the Company was to take title to inventories having a
shelf life of 12 months or less. The products were warehoused
together. Management believes that Medicis, under an interim
management agreement with Bioglan, filled Bioglan orders with
the Company's inventories. In addition, the Company has filed
a counterclaim in the arbitration against Bioglan for damages
relating to the conversion of this property.
21
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONT'D)
In the second claim, Bioglan seeks unspecified damages from
the Company, Medicis and the LLC because it claims that the
inventories that it received had not been properly stored and
therefore was unmarketable. Management believes that this
claim does not have any merit since it was never advised by
the manufacturer, Meyer-Zall, of any requirement for cold
storage for the product. The Company intends to vigorously
defend this matter. However, management cannot assess the
likelihood of an unfavorable outcome, or the range of
potential loss, if any, which might result from this claim.
NOTE 14 - CAPITAL LEASE PAYABLE
The Company is a lessee under a capital lease of equipment
from an unrelated third party. The lease agreement calls for
36 equal monthly payments of $241 with a final fixed purchase
price of $1 at the end of the lease. The asset and liability
under this capital lease is valued at a fair market value of
approximately $8,000. The asset is being depreciated over its
estimated useful life of 5 years.
Total capital lease payable $ 6,993
Less: Current portion 2,896
-------
Total capital lease
payable - non current $ 4,097
=======
NOTE 15 - REFUNDABLE DEPOSIT
An initial refundable deposit of $400,000 has been paid to
Dri-Kleen, Inc. d/b/a Enviro-Tech International
("Enviro-Tech"), a multi-level marketing company, for the
purchase of Enviro-Tech's network sales and marketing division
for the United Sates and Canada only for all current products.
The market will be worldwide for any new products. The Company
executed a letter of intent with Dri-Kleen, Inc. on May 2,
2000. The proposed transaction is subject to approval by the
Board of Directors of each company and the execution of a
definitive agreement.
22
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three month
periods ended March 31, 1999 and 2000 are unaudited)
NOTE 16 - The Company maintains its cash balances at financial
institutions located in South Florida. The balances at these
institutions are insured by the Federal Deposit Insurance
Corporation up to $100,000 per account. Uninsured balances as
of December 31, 1999 and March 31, 2000 were approximately
$160,200 and $67,000 respectively.
23
Item 2. Management's Discussion and Analysis or Plan of Operation.
General
The Company is engaged in the development of lines of health and beauty
products which the Company believes will offer superior benefits to consumers.
In the second quarter of fiscal 1999, the Company launched its Mother 2 Be(R)
line of products, and recently launched two (2) additional product lines,
Proctozone(TM) and Podiatrx(TM), in the first quarter of fiscal year 2000.
Another product line, Deep(TM), is to be launched in the second half of fiscal
year 2000.
On May 2, 2000, the Company executed a letter of intent with Dri-Kleen,
Inc., d/b/a Enviro-Tech International ("Enviro-Tech"), a multi level marketing
company, for the purchase of Enviro-Tech's network sales and marketing division
for the United States and Canada only for all current products. The market will
be worldwide for any new products. An initial refundable deposit of $400,000 has
been paid. The proposed transaction is subject to approval by the Board of
Directors of each company and the execution of a definitive agreement.
In addition, the Company is actively seeking to acquire one or more
product lines or businesses. No assurances can be given that any such
acquisitions will be consummated, or if consummated, that they will be
profitable.
Results of Operations
For the three months ended March 31, 2000, consolidated net sales were
approximately $231,000, as compared to approximately $367 for the three months
ended March 31, 1999. The three months ended March 31, 2000 reflect sales from
Mother 2 Be line as well as Podiatrx and Proctozone lines, which were launched
during the first quarter of fiscal 2000. In June 1998, the Company completed the
formation of a joint venture, the Exorex Company, LLC (the "LLC") with Medicis
Pharmaceutical Corporation of Phoenix, Arizona ("Medicis"). The LLC, in which
the Company had received a 49% interest, acquired from all of the Company's
rights to market its Exorex product line. As the owner of a 49% interest in the
LLC, the Company did not record any sales made by the LLC during the first
quarter of 1999. In June 1999, the Company sold its interest in the LLC in
return for approximately $3.6 million in cash and other consideration.
Management is of the belief that the market experienced intense
competition for over-the-counter drugs in general, and psoriasis medication in
competition with the Exorex line in particular. The Company competed against
established pharmaceutical and consumer product companies, which market numerous
prescription and non prescription drugs with equivalent or functionally similar
ingredients, and which have national or regional brand name recognition, from
which consumers may choose.
24
Management initially believed that aligning the Company with Medicis, a
substantially larger pharmaceutical concern, would assist the Company in
bringing its products to market, building brand recognition and gaining
widespread commercial acceptance. Accordingly, in June 1998 the Company acquired
its interest in the LLC. However, management's expectations for the marketing of
the Exorex line by the LLC and Medicis were not met during the first year of the
LLC's operations, and therefore, the Company sold its interest in the LLC.
Gross profit margin increased to 65% of net sales for the three months
ended March 31, 2000, as compared to 60% of net sales in 1999. Gross profit
margins fluctuated with the changes in the Company's product mix.
Total operating expenses incurred by the Company increased to
approximately $830,000 for the three months ended March 31, 2000 from $655,000
for the three months ended March 31, 1999. The increase from 1999 to 2000
reflects the expenses associated with the introduction of two new product lines,
Podiatrx and Proctozone.
For the months ended March 31, 2000, net loss was approximately
$(437,000), as compared to net loss of approximately $(596,000) for the three
months ended March 31, 2000.
As the Company anticipates developing additional product lines, it will
necessarily incur additional expenses normally associated with the start-up of
new lines. Further, substantial time may be necessary to build brand awareness
and sales. Accordingly, the likelihood of the success of the Company's
operations must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with the formation
and development of a new business, the commencement and expansion of operations
and the regulatory and competitive environment in which the Company will
operate. As a result of the foregoing, operating losses are anticipated for the
balance of fiscal 2000.
Liquidity and Capital Resources
At March 31, 2000, the Company's financial condition included working
capital of approximately $2.4 million, as compared to approximately $2.8 million
at December 31, 1999. In June 1999, the Company sold its interest in the LLC in
return for approximately $3.6 million in cash and other consideration. The cash
received from the sale of the Company's interest in the LLC is being used in
connection with development of the Company's proprietary brands, acquisition of
drug delivery technologies, and/or undermarketed established brands. In
addition, $400,000 was tendered as a refundable deposit in connection with the
potential purchase of Enviro-Tech's network sales and marketing division.
For the short term, the Company's capital requirements are expected to
be met by available cash. For the three months ended March 31, 2000, operating
activities used cash
25
of approximately $1.26 million. A significant part of this was due to the launch
of the Company's two new product lines- Podiatrx and Proctozone. Purchase of
inventory accounted for approximately $500,000. However, in the absence of a
substantial increase in sales, the Company may need to raise additional
financing.
In addition, the Company intends to develop and market through various
channels, its proprietary over-the-counter drugs and health and beauty products.
However, management recognizes that the Company does not have the financial
resources to sustain a major national advertising campaign to market its
products to conventional retail outlets. Accordingly, the Company may need to
raise additional financing.
However, no assurances can be given that the Company will be able to
raise sufficient capital should the need arise. In the absence of such
additional financing, there can be no assurance that the Company will be able to
achieve widespread commercial acceptance of any of the Company's products.
Inflation
Inflation rates in the United States have not had a significant impact
on operating results for the periods presented.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this item and elsewhere in this report
regarding matters that are not historical facts are forward-looking statements
(as such term is defined in the Private Securities Litigation Reform Act of
1995). Because such forward-looking statements include risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements. All statements which address operating performance,
events or developments that management expects or anticipates to incur in the
future, including statements relating to sales and earnings growth or statements
expressing general optimism about future operating results, are forward-looking
statements. The forward-looking statements are based on management's current
views and assumptions regarding future events and operating performance. Many
factors could cause actual results to differ materially from estimates contained
in management's forward-looking statements. The differences may be caused by a
variety of factors, including but not limited to adverse economic conditions,
competitive pressures, inadequate capital, unexpected costs, lower revenues and
net incomes and forecasts, the possibility of fluctuation and volatility of the
Company's operating results and financial condition, inability to carry out
marketing and sales plans, and loss of key executives, among other things.
Part II. Other Information
Items 1,2,3,4,5, and 6 are omitted as they are either not
applicable or have been included in Part I.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized on the 16th day of May 2000.
IMX PHARMACEUTICALS, INC.
By: /s/ Leonard F. Kaplan
------------------------------------------
Leonard F. Kaplan, Chief Financial Officer
27