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 September 30, 2000.
/ / 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. 000-30294
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IMX PHARMACEUTICALS, INC.
-------------------------------------------------
(Name of Small Business Issuer in its Charter)
Utah 87-0394290
------------------------------- --------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1900 Corporate Boulevard, Suite 400 E, Boca Raton, Florida 33431
---------------------------------------------------------- ------------
(Address of Principal Executive Offices) (Zip Code)
561.998.5660
-------------------------------------------------------------------------------
(Issuer's Telephone Number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 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 / / No /X/
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
At September 30, 2001 there were 8,132,076 shares of common stock, par
value $.001 per share outstanding.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
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, 2000 (audited)
and June 30, 2001 (unaudited)
3 Consolidated Statements of Operations for the Six Months Ended
June 30, 2001 (unaudited) and June 30, 2000 (unaudited) and
Three Months Ended June 30, 2001 (unaudited) and June 30,
2000(unaudited)
4 Consolidated Statements of Changes In Stockholders' Equity
5 Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2001 (unaudited) and June 30, 2000 (unaudited) and
Three Months Ended June 30, 2001 (unaudited) and June 30, 2000
(unaudited)
6-34 Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis or Plan of Operation
35-38 Text
Part II. Other Information
39 Item 2(c). Recent Sales of Unregistered Securities
39 Item 6. Exhibits and Reports on Form 8-K.
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited) (Audited)
September 30, December 31,
2000 1999
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,051 $2,497,791
Securities available for sale 5,541 30,463
Accounts receivable (net of allowance for
doubtful accounts of $4,235 and $27,495) 51,809 110,525
Other receivables 596,860 0
Loan receivable - related party 0 31,153
Inventories 2,072,009 557,593
Vendor deposits 145,000 50,000
Prepaid expenses and other 65,984 46,731
---------- ----------
Total Current Assets 2,951,254 3,324,256
---------- ----------
PROPERTY AND EQUIPMENT:
Property and equipment (net of accumulated
depreciation of $250,734 and $179,216) 1,940,754 105,913
---------- ----------
OTHER ASSETS:
Goodwill 3,524,147 0
Deposits and other 40,615 67,646
---------- ----------
Total Other Assets 3,564,762 67,646
---------- ----------
TOTAL ASSETS $8,456,770 $3,497,815
========== ==========
See accompanying notes to the consolidated financial statements.
1
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited) (Audited)
September 30, December 31,
2000 1999
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 972,751 $ 436,398
Accrued expenses and other current
liabilities 340,842 49,700
Stock recission payable 488,300
Loans payable 53,500
Notes payable, current portion 1,825,823 0
Capital lease payable, current portion 2,896
---------- ----------
Total Current Liabilities 3,681,216 488,994
---------- ----------
LONG-TERM LIABILITIES:
Notes payable, non-current portion 1,086,359 0
Capital lease payable, non-current portion 0 4,896
---------- ----------
Total Long Term Liabilities 1,086,359 4,896
---------- ----------
TOTAL LIABILITIES 4,767,575 493,890
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 50,000,000
shares authorized, 12,898,522 and 9,634,707
shares issued, 8,132,076 and 5,802,461 shares
outstanding 12,898 9,635
Additional paid-in capital 10,495,487 7,943,050
Retained earnings (deficit) (6,220,704) (4,348,955)
Treasury stock, at cost - 4,766,446 and
3,832,246 shares (578,054) (578,054)
Accumulated other comprehensive loss (20,432) (21,751)
---------- ----------
Total Stockholders' Equity 3,689,195 3,003,925
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $8,456,770 $3,497,815
========== ==========
See accompanying notes to consolidated financial statements.
2
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
---------------------------------------------------------------------
(Unaudited) (Unaudited)
Nine Monts Ended Three Months
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
NET SALES $ 3,660,017 $ 202,842 $ 2,134,706 $ 152,124
COST OF SALES 1,956,883 70,965 1,435,911 48,600
----------- ----------- ----------- -----------
GROSS PROFIT 1,703,134 131,877 698,795 103,524
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling 1,416,160 819,698 132,179 332,902
Advertising 60,107 162,838 11,975 46,300
General and administrative 2,020,475 1,265,770 944,176 480,173
Supply agreement impairement loss 0 44,598 0 1,250
Depreciation and amortization 71,518 38,954 39,635 11,750
----------- ----------- ----------- -----------
Total Operating Expenses 3,568,260 2,331,858 1,127,965 872,375
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,865,126) (2,199,981) (429,170) (768,851)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Equity in loss of unconsolidated
subsidiary 0 (12,887) 0 0
Medicis inventory recovery gain (loss) 0 -- (180,162) 0
Gain on sale of investment in unconsolidated 0 -- 0 0
subsidiary 0 3,357,734 0 1,729
Other (6,623) 155,579 (56,070) 73,238
----------- ----------- ----------- -----------
Total Other Income ( Expenses) 0 3,500,426 (236,232) 74,967
----------- ----------- ----------- -----------
Income (Loss) before income taxes (1,871,749) 1,300,445 (665,402) (693,884)
Provision for Income Taxes 0 0 0 0
----------- ----------- ----------- -----------
Net Income (loss) (1,871,749) 1,300,445 (665,402) (693,884)
Dividend on preferred stock 0 (43,400) 0 0
----------- ----------- ----------- -----------
Net loss available to
common stockholders $(1,871,749) $ 1,257,045 $ (665,402) $ (693,884)
=========== =========== =========== ===========
=========================================================================================================
Weighted average number of shares of
common stock outstanding:
Basic 6,118,938 5,281,948 8,417,078 5,932,544
Diluted 6,118,938 5,612,696 8,417,078 5,932,554
=========================================================================================================
Net loss per common share:
Basic $ (0.31) $ 0.24 $ (0.08) $ (0.12)
Diluted $ (0.31) $ 0.22 $ (0.08) $ (0.12)
=========================================================================================================
See accompanying notes to the consolidated financial statements.
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
--------- ------- ------------ ------------ ------------
Balance - December 31, 1998 86,424 $ 86 8,728,108 $ 8,728 $ 7,780,988
Comprehensive Income:
Net income
Change in other comprehensive income
Total comprehensive income
Preferred stock dividend declared 1,736 2 43,398
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
Issuance of common stock for
acquisition of Select Benefits, Inc. 100,000 100 74,900
Issuance of common stock for
acquisition of Dri-Kleen, Inc. Distribution network,
inventory of finished goods and materials and
manufacturing facility in Elbow Lake, Minnesota 2,500,000 2,500 1,872,500
Issuance of common stock to VoyagerIT.com 500,000 500 499,500
Issuance of common stock to Shulman & Associates 100,000 100 99,900
Meyer Zall Laboratories Ltd. return of stock
in exchange of release of certain license agreements
Return to authorized
Prior period correction of prefered stock conversion 48,815 48 (48)
Net proceeds from sale of common stock 1,300,000 1,300 492,700
Recission of stock purchase (1,285,000) (1,285) (487,015)
--------- ------- ------------ ------------ ------------
0 0 12,898,522 12,898 10,495,487
Comprehensive Income:
Net income (loss)
Change in other comprehensive income
Total comprehensive income
--------- ------- ------------ ------------ ------------
Balance - September 30, 2000 0 $ 0 12,898,522 $ 12,898 $ 10,495,487
========= ======= ============ ============ ============
TREASURY STOCK ACCUMULATED
---------------------- OTHER TOTAL
NUMBER OF COMPREHENSIVE STOCKHOLDERS'
(DEFICIT) SHARES AMOUNT INCOME EQUITY
------------ --------- ---------- -------------- ------------
Balance - December 31, 1998 $ (4,883,487) 3,724,757 $ (357,657) $ 11,000 $ 2,559,658
Comprehensive Income:
Net income 577,932 577,932
Change in other comprehensive income (32,751) (32,751)
------------
Total comprehensive income 545,181
Preferred stock dividend declared (43,400) 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 (4,348,955) 3,832,246 (578,054) (21,751) 3,003,925
Issuance of common stock for
acquisition of Select Benefits, Inc. 75,000
Issuance of common stock for
acquisition of Dri-Kleen, Inc. Distribution network,
inventory of finished goods and materials and
manufacturing facility in Elbow Lake, Minnesota 1,875,000
Issuance of common stock to VoyagerIT.com 500,000
Issuance of common stock to Shulman & Associates 100,000
Meyer Zall Laboratories Ltd. return of stock
in exchange of release of certain license agreements 734,000 0
Return to authorized 200,200
Prior period correction of prefered stock conversion 0
Net proceeds from sale of common stock 494,000
Recission of stock purchase (488,300)
------------ --------- ---------- -------------- ------------
(4,348,955) 4,766,446 (578,054) (21,751) 5,559,625
Comprehensive Income:
Net income (loss) (1,871,749) (1,871,749)
Change in other comprehensive income 1,319 1,319
Total comprehensive income
------------ --------- ---------- -------------- ------------
Balance - September 30, 2000 $ (6,220,704) 4,766,446 $ (578,054) $ (20,432) $ 3,689,195
============ ========= ========== ============== ============
See accompanying notes to the consolidated financial statements.
4
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Unaudited)
Nine Months Ended Nine Months Ended
September 30, September 30,
2000 1999
----------------- -----------------
OPERATING ACTIVITIES:
Net income (loss) $(1,871,749) $ 1,300,445
Adjustments to reconcile net loss
to net cash used provided by operating activities:
Depreciation and amortization 71,518 38,954
Provision for doubtful accounts (23,260) (13,647)
Deferred income tax -- (25,000)
Compensation, fair value of stock, stock options and warrents 0 0
Equity in loss off unconsolidated subsidiary 0 42,456
Accretion of investment in unconsolidated subsidiary 0 12,887
Gain on sale of investment in unconsolidated subsidiary 0 (3,357,734)
Impairement loss on suply and licensing agreements 0 44,598
(Increase) decrease in accounts receivable 81,976 43,310
Decrease (increase) in inventories (1,514,416) (351,372)
(Increase) in prepaid expenses (19,253) (104,743)
Decrease (increase) in deposits (67,969) 51,097
Decrease (increase) in other assets (596,865) 0
(Decrease) increase in stock recission payable 488,300 0
(Decrease) increase in accounts payable
and accrued expenses 833,200 207,247
----------- -----------
Net cash used by operating activities (2,618,518) (2,111,502)
----------- -----------
Investing Activities:
Purchase of furniture and equipment (1,906,359) (57,905)
Loan repayment from (advance to) related party 31,153 0
Goodwill purchased (3,524,147) 0
Sale of securities 0 0
Proceeds from sale of investement in unconsolidated subsidiary 0 3,189,281
Decrease in investment in securities 19,619 0
Decrease in investment in and advances to 0 0
unconsolidated subsidiary 0 0
----------- -----------
Net cash (used) provided by investing activities (5,379,734) 3,131,376
----------- -----------
Financing Activities:
Net proceeds (repayments) of notes payable 2,957,890 0
Proceeds from sale of common stock 277,250 0
Purchase of securities available for sale 0 (52,214)
Proceeds from sale of securities available for sale 6,622 0
Stock issuance to purchase goodwill 0 0
Proceeds from maturity of securities 0 1,678,200
Proceeds from exercise of common stock options 2,272,750 5,000
Purchase of treasury stock 0 0
----------- -----------
Net cash (used) provided by financing activities 5,514,512 1,630,986
----------- -----------
Net increase (decrease) in cash and cash equivalents (2,483,740) 2,650,860
Cash and cash equivalents - beginning of period 2,497,791 623,860
----------- -----------
Cash and cash equivalents - end of period $ 14,051 $ 3,274,720
=========== ===========
===========================================================================================================
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 7,843.00 $ 12,405
Cash paid for income taxes 0 $ 19,264
===========================================================================================================
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES
Dividends on preferred stock:
Preferred stock issued in lieu of cash for dividends payable
on preferred stock $ 0 $ 43,400
Conversion of preferred stock to common stock $ 0 $ --
===========================================================================================================
(Unaudited) (Unaudited)
Three Months Ended Three Months Ended
September 30, September 30,
2000 1999
------------------ ------------------
OPERATING ACTIVITIES:
Net income (loss) (665,402) (693,884)
Adjustments to reconcile net loss
to net cash used provided by operating activities:
Depreciation and amortization 40,312 11,750
Provision for doubtful accounts 1,064 0
Deferred income tax 0
Compensation, fair value of stock, stock options and warrents 0 (46,308)
Equity in loss off unconsolidated subsidiary 0 (124,882)
Accretion of investment in unconsolidated subsidiary 0 110,627
Gain on sale of investment in unconsolidated subsidiary 0 (1,729)
Impairement loss on suply and licensing agreements 0 1,250
(Increase) decrease in accounts receivable 27,209 (62,141)
Decrease (increase) in inventories (708,001) (18,117)
(Increase) in prepaid expenses (18,747) (74,118)
Decrease (increase) in deposits 1,252,031 25,323
Decrease (increase) in other assets (551,865) 0
(Decrease) increase in stock recission payable 488,300 0
(Decrease) increase in accounts payable
and accrued expenses 567,762 61,797
----------- -----------
Net cash used by operating activities 432,663 (810,432)
----------- -----------
Investing Activities:
Purchase of furniture and equipment (1,821,096) (27,731)
Loan repayment from (advance to) related party 30,125 0
Goodwill purchased (3,259,844) 0
Sale of securities (2,194) 0
Proceeds from sale of investement in unconsolidated subsidiary 0 3,189,281
Decrease in investment in securities 10,889 0
Decrease in investment in and advances to 0 0
unconsolidated subsidiary 0 0
----------- -----------
Net cash (used) provided by investing activities (5,042,120) 3,161,550
----------- -----------
Financing Activities:
Net proceeds (repayments) of notes payable 2,019,386 0
Proceeds from sale of common stock 277,250
Purchase of securities available for sale 0 (27,214)
Proceeds from sale of securities available for sale 6,622 0
Stock issuance to purchase goodwill (75,000) 0
Proceeds from maturity of securities 0 0
Proceeds from exercise of common stock options 2,272,750 5,000
Purchase of treasury stock 0 0
----------- -----------
Net cash (used) provided by financing activities 4,501,008 (22,214)
----------- -----------
Net increase (decrease) in cash and cash equivalents (108,449) 2,328,904
Cash and cash equivalents - beginning of period 122,500 945,816
----------- -----------
Cash and cash equivalents - end of period $ 14,051 $ 3,274,720
=========== ===========
========================================================================================================
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 166.00 $ 12,218
Cash paid for income taxes $ -- $ --
========================================================================================================
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES
Dividends on preferred stock:
Preferred stock issued in lieu of cash for dividends payable
on preferred stock $ -- $ --
Conversion of preferred stock to common stock $ -- $ --
========================================================================================================
See accompanying notes to consolidated financial statements.
5
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 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 for $3,600,000.
6
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS (CONT'D)
On June 16, 2000 the Company signed an agreement with Pure
Distributors' Inc. d/b/a Envion International to become the
exclusive worldwide distributor of all Envion's products. The main
products include meal replacement bars and nutritional supplements
marketed under the labels of BioZone and Envitamins. Envion's
products are now marketed through its WellnessShop.com web site and
companion catalogue, both of which will now be operated by the
Company. The Company will pay a fee to Envion for the
distributorship of $185,000 during 2000, $86,000 during 2001, and
$66,000 during 2002 and each year thereafter.
The Company also acquired Envions entire current product inventory
for $750,000 payable monthly over two years. The Company has agreed
to purchase all of its requirements for Envion products from Envion.
The Company has an option to purchase all of Envion's rights to its
products, customer lists and various other contract rights for
$200,000. If the option is exercised, the fees paid in connection
with the Distribution Agreement would be cancelled; the Company
would no longer be required to purchase its requirements from
Envion, and would only pay Envion royalties based on its purchase of
Envion products from the manufacturers thereof.
The consolidated statement of operations for the nine and three
months ended September 30, 2000 include sales of $2,600,751, cost of
goods sold of $530,138 and direct expenses of $1,272,974 relating to
the sale of Envion products
On June 15, 2000 the Company purchased all the stock of Select
Benefits Corporation for a three-year note in the amount of $189,510
and 100,000 shares of its common stock. Select Benefits has now
changed its name to IMX Select Benefits Corporation. Select Benefits
provides discount health care memberships that provide discounts of
10% to 60% for prescription drugs, vision care, dentistry,
chiropractic, hearing and other health related benefits. Sales and
expenses in connection with Select Benefits during the nine and
three months ended September 30, 2000 were not material.
7
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS (CONT'D)
On July 21, 2000 the Company and Enviro-Tech signed a revised
agreement for the sale and purchase of assets. The revised agreement
provided that, in addition to purchasing the Distribution Network,
the Company would acquire all of Enviro-Tech's inventory of Dri-Wash
n' Guard, nutritional supplement products and its 45,000 square foot
factory, warehouse, and distribution center in Elbow Lake,
Minnesota. The consideration for the purchase was changed to
$1,900,000 in cash (the balance of which was paid upon execution of
the revised agreement), 2,500,000 shares of the Company's common
stock, a ninety-day interest-free note and assumption of almost
$1,000,000 in various Enviro-Tech debts. In addition the Company and
Enviro-Tech signed a long-term supply agreement with respect to the
Dri-Wash n' Guard line of waterless car and home cleaning products.
The Company took control of the assets on July 24, 2000.
The Company assumed responsibility for (i) all payments to the first
and second mortgage holders of the Las Vegas property owned by
Enviro-Tech which was pending foreclosure and (ii) all operating
expenses of the Las Vegas property. The Company's responsibility for
items (i) and (ii), collectively, the "Las Vegas Expenses" commenced
at the closing date and terminated after four months or until the
Company had expended $100,000, whichever occured first. The Company
was to be reimbursed for all amounts paid for the Las Vegas Expenses
from the proceeds of the Sale of the Las Vegas property after all
the obligations of the first and second trust deed notes were
satisfied.
During the first five contract years, (the Royalty period) The
Company had agreed to pay a royalty to Enviro-Tech equal to 20% of
the purchase price paid for the formula (the Royalty fee). The
minimum guaranteed Royalty Fee (the Guaranteed Royalty Fee) for the
first contract year is $286,000 and $300,000 for the succeeding four
contract years. The Guaranteed Royalty Fee is due in monthly
installments of no less than $20,000 and the minimum quarterly
royalty fee is $61,000 for the first quarter and $75,000 for each
following quarter. Interest on any monthly or quarterly royalty fee
deficiency was to accrue interest at an annualized rate of 12%
Upon notification of a royalty fee payment delinquency the Company
would have had forty-five days to make payment. Should the Company
fail to cure the delinquency within the forty-five day period,
Enviro-Tech may at its sole
8
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS (CONT'D)
discretion terminate the Company's right to exclusively distribute
Enviro-Tech products in North America and the Caribbean Islands.
NOTE 2 - SUBSEQUENT EVENT
The numerous acquisitions described above required the Company to
raise approximately $1,500,000 in asset based financing to achieve
the results aspired by its business plan. The Company was not able
to obtain the financing. The Company experienced delays in
consolidating its operations in Boca Raton, Florida and Elbow Lake,
Minnesota, resulting in expenses that exceeded its current revenues.
Consequently, the Company's cash flow generated was insufficient to
sustain operations and pay its creditors. Accordingly, the Company
decided to file a chapter 11 bankruptcy petition for the Company and
IMX-ETI Life Partners' Inc. on November 20, 2000 (the "Petition
Date").
On December 27, 2000 the bankruptcy court entered an order
authorizing the joint administration of IMX Pharmaceuticals, Inc.
(the parent) and IMX-ETI's respective bankruptcy cases. The other
subsidiaries Sarah J, Proctozone, Podiatrix and Select Benefits are
not a party to the bankruptcy proceedings.
Post-petition, The Company has derived revenues from its
subsidiaries through the sale of their respective products. The
Company continues to operate as a debtor in possession. On March 16,
2001 the Company and IMX-ETI filed a Motion to Extend the
Exclusivity Period for filing a Plan and the periods to Solicit
Exceptances of Plan ("the Exclusivity Motion"). On April 4, 2001 the
court entered an Order granting the Exclusivity Motion and extended
the time within which the Company had exclusive rights to file a
plan for an additional thirty (30) days there from and extended the
period for solicitation of acceptances for an additional sixty (60)
days.
Subsequent to the filing of the bankruptcy case it became evident
that the Company could not sustain itself as an entity to assist in
the operation of the subsidiaries respective businesses- the sole
source of its revenues. The Company sought offers for
recapitalization of the business and each of the subsidiaries'
businesses by third parties. The Company received two expressions of
interest,
9
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 2 - SUBSEQUENT EVENT (CONT'D)
only one of which, in the opinion of the Company's management was
substantial. The appeal to the two parties who expressed an interest
in investing in the Company was based primarily on its status as a
public company. Consequently, there is no value in the assets of the
Company to provide a return to unsecured creditors and if the
Company were liquidated, after payments are made to the secured
creditors and priority and administrative creditors, there would be
no property available for distribution to unsecured creditors. In
the opinion of management, the only substantial offer was received
from Cater Barnard, plc ("Cater Barnard"). Management determined
that the value to be invested in the Company is substantially in
excess of the Company's value as a going concern or on a liquidation
basis. The Company has filed a plan of reorganization with the
United States Bankruptcy Court, Southern District of Florida dated
May 23, 2001 pursuant to section 1125 of Title 11 of the United
States Code. (The "Bankruptcy code"). The plan is currently pending
approval of the United States Bankruptcy Court.
On July 8, 2000, 1,300,000 shares of common stock were issued to
approximately thirteen (13) individuals at $.38 per share. Based
upon the subsequent discovery of materially erroneous information
concerning the volume of sales, the issuance of the stock was
rescinded on November 5, 2000, by the Company's board of directors
for six (6) of the individuals holding 450,638 shares of common
stock. The Company lacked the funds to pay the individuals affected
and therefore the liabilities created by the rescission was recorded
as stock rescission payable. Subsequent to the Petition Date, The
Company's board of directors resolved to rescind the issuance of the
balance of 849,362 shares of common stock and the schedules will be
amended to reflect these individuals and entity as unsecured
creditors. One individual who was issued 15,000 shares elected to
not participate in the rescission.
Inventories
During the fourth quarter of 2000, the Company significantly reduced
its production and marketing efforts in connection with several of
its products. This decision was based on the projected continued
loss of market share for these products and the inability to deliver
product on a timely basis. All of the IMX & IMX-ETI Life Partners
Inc. inventory was not in physical control of The
10
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 2 - SUBSEQUENT EVENT (CONT'D)
Company. Management does not have sufficient resources to pursue
control of this inventory and has abandoned it. The value of the
inventories of Sarah J, Proctozone, and Podiatrx have been
significantly reduced due to The Company's diminished capability to
market and distribute its products. Management has reduced these
inventories to their estimated liquidation value. Accordingly at
December 31, 2000 the inventories listed below have been written
down to their estimated net realizable value and results of
operations for 2000 include a corresponding charge of $ 2,090,484.
Estimated Loss on
Carrying Net Realizable Write down of
Company Value Value Inventory
------------------------------ ---------- -------------- -------------
IMX Pharmaceuticals, Inc. $ 18,295 $ -- $ 18,295
IMX-ETI Life Partners, Inc. 1,528,289 -- 1,528,289
---------- ---------- ----------
Reorganization items $1,546,584 $ -- $1,546,584
========== ========== ==========
Sarah J. Inc. 453,992 100,000 353,992
Proctozone, Inc. 80,390 5,000 75,390
Podiatrx, Inc. 119,518 5,000 114,518
Select Benefits Inc. -- --
---------- ---------- ----------
$ 653,900 $ 110,000 $ 543,900
========== ========== ==========
Fixed Assets and Other Assets
During the fourth quarter 2000 the assets listed below were deemed
to be impaired and written down to their fair market value. Fair
value, which was determined by reference to the present value of the
estimated future cash inflows of such assets, exceeded their
carrying value by $ 893,735. An impairment loss of that amount has
been charged to operations in the fourth quarter of 2000.
11
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 2 - SUBSEQUENT EVENTS (CONT'D)
MACHY AND FURNITURE AND LEASEHOLD OTHER
COMPANY: Totals EQUIP FIXTURES IMPROVEMENTS LAND BUILDING ASSETS
------------ ------------ ------------- ------------ -------- ---------- ---------
IMX PHARMACEUTICALS $ 296,071 $ 219,937 $ 54,533 $ 21,601 $ 0 $ 0 $ 0
IMX-ETI 1,818,157 780,862 7,114 0 150,000 850,000 30,181
SARAH J 125,072 106,688 0 0 0 0 18,384
PROCTOZONE 0 0 0 0 0 0 0
PODIATRX 8,319 0 0 0 0 0 8,319
SELECT BENEFITS 0 0 0 0 0 0 0
----------- ----------- -------- -------- -------- --------- --------
TOTALS 2,247,619 1,107,487 61,647 21,601 150,000 850,000 56,884
LESS: ACCUMULATED
DEPRECIATION (363,875) (268,353) (35,292) (18,314) 0 (9,989) (31,927)
----------- ----------- -------- -------- -------- --------- --------
NET BOOK VALUE 1,883,744 839,134 26,355 3,287 150,000 840,011 24,957
LESS: VALUATION
ALLOWANCE (893,733) (839,134) (26,355) (3,287) 0 0 (24,957)
----------- ----------- -------- -------- -------- --------- --------
NET RELIZABLE VALUE $ 990,011 $ 0 $ 0 $ 0 $150,000 $ 840,011 $ 0
=========== =========== ======== ======== ======== ========= ========
In the fourth quarter of 2000 Management has established valuation
allowances for these assets based on the following circumstances:
Machinery, Equipment, Furniture and Fixtures
IMX and IMX-ETI:
These assets were not in the physical control of The
Company. Management does not have sufficient resources
to pursue control of these assets and therefore
abandoned them.
Sarah J, Proctozone, Podiatrix:
These assets have been taken out of service and are
expected to provide no further economic benefits.
12
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 2 - SUBSEQUENT EVENTS (CONT'D)
Machinery, Equipment, Furniture and Fixtures (Cont'd)
Leasehold Improvements:
IMX
The Company abandoned its leasehold improvements upon
been evicted from their corporate offices in Boca Raton,
Florida.
Other Assets:
IMX and IMX-ETI
Other assets were composed of unamortized programming
fees and licensing agreements. Due to The Company's
diminished capability to market and distribute its
products these assets are expected to provide no further
economic benefits.
Distribution network and related Goodwill
During the fourth quarter of 2000, the Distribution network that was
acquired in the purchase of IMX-ETI Life Partners, Inc. was deemed
to be impaired. In addition goodwill with a carrying value of $
1,226,637 which arose in connection with the acquisition of IMX-ETI
Life Partners, Inc. has been written down to zero in the fourth
quarter of 2000 .
NOTE 3 - GOING CONCERN
The company has incurred operating losses for each of the last three
years ended December 31, 1997, 1998 and 1999 and the nine months
ended September 30, 2000. The Company's current liabilities exceed
its current assets by $729,962. These matters raise substantial
doubt about the ability of the Company to continue as a going
concern.
13
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 3 - GOING CONCERN (CONT'D)
The Company's continuance will be dependent on the ability to
restructure its operations to achieve profitability in the near term
and its ability to raise sufficient debt or equity capital to fund
continuing operations until such restructuring is completed.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying unaudited consolidated financial statements as of
September 30, 2000 and for the nine and three month periods ended
September 30, 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 nine
and three-month periods ended September 30, 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
values. 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.
14
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
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.
Revenue Recognition
Sales are generally recorded upon the 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 5).
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".
15
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Net Income (Loss) Per Common Share
Net income (loss) per common share is calculated according to 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 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 nine and three month periods ended September 30, 1999
and 2000 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 6).
16
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 4 - 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 5 - 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
17
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 5 - 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 6- SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of shares of common stock in
Hydron Technologies, Inc. ("Hydron"). At December 31,1999 and
September 30, 2000, the cost basis of $30,463 and $25,973 of the
common stock in Hydron exceeded the market value by $21,751 and
$20,432 respectively.
NOTE 7 - INVENTORIES
Inventories consisted of the following:
September 30, December 31,
------------- ------------
2000 1999
------------- ------------
Finished goods $1,565,738 $ 237,195
Work-in-process -- 16,969
Packaging supplies 506,272 303,429
---------- ----------
Total $2,072,010 $ 557,593
========== ==========
18
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 8 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September 30, December 31,
------------- ------------
2000 1999
------------- ------------
Land and Building $ 1,000,000
Computers and office equipment 1,088,649 $ 193,997
Furniture, fixtures and improvements 102,839 91,132
----------- -----------
2,191,488 285,129
Less: accumulated depreciation and
amortization (250,734) (179,216)
----------- -----------
Property and equipment, net of
accumulated depreciation $ 1,940,754 $ 105,913
=========== ===========
NOTE 9- INCOME TAXES
The provision for income taxes in the consolidated statements of
operations is as follows:
September 30, December 31,
------------- ------------
2000 1999
------------- ------------
Current:
Federal $ 0 $ 0
State 0 0
------ ------
$ 0 $ 0
------ ------
Deferred:
Federal $ 0 $ 0
State 0 0
------ ------
$ 0 $ 0
------ ------
19
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 9- 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:
September 30, December 31,
------------- ------------
2000 1999
------------- ------------
Tax (benefit) at statutory rate $ 567,000 $ 185,800
Increase (decrease) in tax
resulting from:
State income tax, net of federal tax benefit 97,000 31,500
Other 0 0
Increase (decrease) in
valuation allowance (664,000) (217,300)
--------- ---------
Income taxes $ -- $ 0
========= =========
The approximate tax effects of temporary differences that give rise
to the deferred tax assets and deferred tax (liabilities) are as
follows:
September 30, December 31,
------------- ------------
2000 1999
------------- ------------
Fair value of common stock options and
warrants $ -- $ 130,889
Start-up costs -- 139,100
Depreciation and amortization -- (71,700)
Other -- 12,000
Net operating loss carry forwards 1,212,800 641,700
----------- -----------
1,212,800 851,989
Less: valuation allowance (1,212,800) (851,989)
----------- -----------
Total net deferred tax asset $ 0 $ 0
=========== ===========
20
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 9- INCOME TAXES (CONT'D)
At September 30, 2000, the Company had net operating loss
carryforwards of approximately $3,472,000 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 10 - 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 September 30, 2000, the Company had
reserved 3,538,216 and 864,641 shares of common stock respectively
for issuance relating to unexpired options and warrants.
NOTE 11 - 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.
21
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 11 - STOCK OPTIONS (CONT'D)
A summary of the Company's stock option activity is as follows:
Nine months ended Year ended
September 30, 2000 December 31, 1999
------------------------ -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------------------------------------------------------------------------------
Options outstanding,
beginning of period 1,485,000 $2.46 1,350,000 $2.71
Granted 400,000 1.00 234,500 1.73
Exercised 0 -- (5,000) 1.75
Forfeited/canceled (1,375,000) 2.59 (94,500) 4.31
--------------------------------------------------------------------------------
Outstanding at end of
period 510,000 $1.60 1,485,000 $2.46
--------------------------------------------------------------------------------
================================================================================
Exercisable at end of
period 1,560,100 $1.60 1,560,100 $2.55
================================================================================
Weighted average fair
market value of
options granted
period $ -- $0.85
================================================================================
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
-------------------------------------------------------------------------------------------------------------------
September 30, 2000
-------------------------------------------------------------------------------------------------------------------
$1.00 300,000 5.76 1.00 300,000 1.00
$1.75 - 2.50 210,000 6.00 2.46 210,000 2.46
-------------------------------------------------------------------------------------------------------------------
$0.75 - 6.50 510,000 5.86 1.60 510,000 1.60
-------------------------------------------------------------------------------------------------------------------
22
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 11 - STOCK OPTIONS (CONT'D)
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 1999 and
2000, 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. 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:
Nine Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999
------------------- -------------------
Net income (loss) applicable to
common stockholders
As reported $ (1,871,749) $ 1,257,045
Pro forma $ (1,871,749) $ 1,018,933
Income (loss) per share - basic
As reported $ (0.31) $ 0.23
Pro forma $ (0.31) $ 0.19
Income (loss) per share - diluted
As reported $ (0.31) $ 0.22
Pro forma $ (0.31) $ 0.18
Three executive officers of IMX Pharmaceuticals, Inc. received a
total of 24,000 options to purchase shares of common stock of
Medicis Corporation. In March of 2000 the executive officers
assigned the beneficial ownership of these options to the Company.
The options were granted in connection with the formation of The
Exorex Company LLC. The options vest over a five-year period; twenty
percent becoming vested each year. The exercise price is $24.67.
Forty percent has been exercised. The remainder of the options are
held by the officers as nominees for the benefit of IMX
Pharmaceuticals, Inc.
23
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 12- STOCK WARRANTS
In connection with a 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 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 are 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
24
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 12- STOCK WARRANTS (CONT'D)
per share, exercisable prior to 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, 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.
The aggregate number of common shares reserved for issuance upon the
exercise of warrants is 1,816,241 as of September 30, 2000. The
expiration date and exercise prices of the outstanding warrants are
as follows:
Outstanding Expiration Exercise
Warrants Date Price
----------- ---------- ------------
58,000 2001 $ 2.50
132,863 2002 1.75 - 4.75
163,778 2003 1.75 - 3.50
-------
354,641
=======
25
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 13 - NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted
net loss per common share:
Nine months ended Nine months ended Three months ended Three months ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------ ------------------
Numerator:
Numerator for basic and diluted
Loss per share available
to common stockholders $(1,871,749) $ 1,257,045 $ (769,120) $ (693,884)
----------- ----------- ----------- -----------
Denominator:
Denominator for basic loss per
share-weighted-average shares 6,118,938 5,281,948 5,811,252 5,281,948
Effect of dilutive securities:
Common stock options -- 330,748 330,748 330,748
----------- ----------- ----------- -----------
Denominator for diluted loss per
share-adjusted weighted average
shares and assumed conversions 6,118,938 5,612,696 6,142,000 5,612,696
----------- ----------- ----------- -----------
Basic net loss per common share $ (0.31) $ 0.24 $ (0.13) $ (0.13)
----------- ----------- ----------- -----------
Diluted net loss per common share $ (0.31) $ 0.22 $ (0.13) $ (0.12)
----------- ----------- ----------- -----------
Net loss per common share is calculated by dividing the net 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 September 30,
1999 and 2000, were outstanding options of 859,475 and1,679,475, and
warrants to purchase 1,816,241 and 1,816,241 shares of common stock
respectively, at exercise prices ranging from $2.50 to $6.50,
because to do so would be anti-dilutive.
26
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 14 - RELATED PARTY TRANSACTIONS
During 1999, the Company made advances to Shalom Yall, a company
affiliated to the President. The balance due the Company at December
31, 1999 and September 30, 2000, totaled $31,153 and $0,
respectively.
During 2000, the Company received advances from related parties. The
balance due to these related parties as of September 30, 2000 was as
follows:
Loans Notes
Relationship Payable Payable
------- -------
Officer $ 0 $65,740
Officers 53,500 0
------- -------
$53,500 $65,740
======= =======
NOTE 15 - 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 September 30, 2000 are approximately as
follows:
Future
Minimum
Rental
Year Payments
---- --------
2000 $32,000
2001 54,000
2002 36,000
2003 19,000
27
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONT'D)
Total rent expense for all non-cancelable operating leases having a
term of more than one year was approximately $15,000 and $5,000 for
the nine month periods ended September 30, 1999 and 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.
Bioglan Pharma PLC and Bioglan Pharma, Inc.
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
28
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONT'D)
inventories. In addition, the Company has filed a counterclaim in
the arbitration against Bioglan for damages relating to the
conversion of this property.
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 were
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.
Dri-Kleen, Inc.
A disputed payable in the approximate amount of $ 1,475,000 has been
asserted by Dri-Kleen, Inc. related to the acquisition of IMX-ETI.
Management believes that this matter will be resolved as part of the
bankruptcy proceedings and the exact amount of the liability, if
any, is indeterminate therefore no accrual has been made.
NOTE 16 - 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. In 2000, the capital lease was assumed by a third party and
The Company was relieved of any further obligation.
29
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 16 - CAPITAL LEASE PAYABLE (CONT'D)
2000 1999
-------- --------
Total capital lease payable $ 0 $ 7,792
Less: Current portion 0 (2,896)
------- -------
Total capital lease
payable - noncurrent $ 0 $ 4,896
======= =======
On July 21, 2000 the Company and Enviro-Tech signed a revised
agreement for the sale and purchase of assets. The revised agreement
provided that, in addition to purchasing the Distribution Network,
the Company would acquire all of Enviro-Tech's inventory of Dri-Wash
n' Guard, nutritional supplement products and its 45,000 square foot
factory, warehouse, and distribution center in Elbow Lake,
Minnesota. The consideration for the purchase was changed to
$1,900,000 in cash (the balance of which was paid upon execution of
the revised agreement), 2,500,000 shares of the Company's common
stock, a ninety-day interest-free note and assumption of almost
$1,000,000 in various Enviro-Tech debts. In addition the Company and
Enviro-Tech signed a long-term supply agreement with respect to the
Dri-Wash n' Guard line of waterless car and home cleaning products.
The Company took control of the assets on July 24, 2000.
The Company assumed responsibility for (i) all payments to the first
and second mortgage holders of the Las Vegas property owned by
Enviro-Tech which was pending foreclosure and (ii) all operating
expenses of the Las Vegas property. The Company's responsibility for
items (i) and (ii), collectively, the "Las Vegas Expenses" commenced
at the closing date and terminated after four months or until the
Company had expended $100,000, whichever occured first. The Company
was to be reimbursed for all amounts paid for the Las Vegas Expenses
from the proceeds of the Sale of the Las Vegas property after all
the obligations of the first and second trust deed notes were
satisfied.
30
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 16 - CAPITAL LEASE PAYABLE (CONT'D)
During the first five contract years, (the Royalty period) The
Company had agreed to pay a royalty to Enviro-Tech equal to 20% of
the purchase price paid for the formula (the Royalty fee). The
minimum guaranteed Royalty Fee (the Guaranteed Royalty Fee) for the
first contact year is $286,000 and $300,000 for the succeeding four
contract years. The Guaranteed Royalty Fee is due in monthly
installments of no less than $20,000 and the minimum quarterly
royalty fee is $61,000 for the first quarter and $75,000 for each
following quarter. Interest on any monthly or quarterly royalty fee
deficiency was to accrue interest at an annualized rate of 12%
Upon notification of a royalty fee payment delinquency the Company
would have had forty-five days to make payment. Should the Company
fail to cure the delinquency within the forty-five day period,
Enviro-Tech may at its sole discretion terminate the Company's right
to exclusively distribute Enviro-Tech products in North America and
the Caribbean Islands.
NOTE 17 - REFUNDABLE DEPOSIT
On May 2, 2000 the Company executed a letter of intent with
Dri-Kleen, Inc. d/b/a Enviro -Tech International (Enviro-Tech).
Pursuant to the letter of intent a refundable deposit of $400,000
has been paid to Enviro-Tech, a multi-level marketing company, for
the purchase of it's network sales and marketing division for the
United States and Canada for all current products. An additional
refundable deposit of $850,000 was paid at the time of signing. The
market will be extended worldwide for any new products developed by
Enviro-Tech.
NOTE 18 - CASH BALANCES
The Company maintains its cash balances at various financial
institutions. 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 September 30, 2000
were approximately $ 2,460,000 and $0 respectively.
31
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 19 - GOODWILL
Goodwill is the total acquisition cost of Select Benefits
Corporation (see Note 1, page 7).
NOTE 20 - OTHER RECEIVABLES
Other receivables are as follows:
Due from Pure Distributors' Inc.
d/b/a Envion International-Note 1 $71,750
Commissions receivable 10,650
Due from Select Benefits Corporation - Note 1 9,017
Due from Elbow Lake 5,000
-------
Other 443
Total $96,860
=======
NOTE 21 - NOTES PAYABLE
Notes payable consist of the following as of September 30, 2000:
Promissory note payable, Pure
Distributors, Inc. d/b/a Envion
International, payable in 24 monthly
installments of $31,250 principal only $718,750
Promissory note payable, Wachovia Bank,
N.A. payable in 24 monthly installments of
$8,851 principal and interest. 190,950
Interest-free promissory note payable,
Dri-Kleen, Inc. d/b/a Enviro-Tech
International, to be paid down from
proceeds of sale of inventory acquired
from Dri-Kleen, Inc. Payments to be
remitted within two business days of
inventory sale, with any remaining balance
payable 90 days after the execution of the
note. 600,000
32
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 21 - NOTES PAYABLE (CONT'D)
Promissory note payable, Vitaquest
International, Inc. payable in 12 monthly
installments of $6,000 in the first year
commencing August 1, 2000, followed by 12
monthly installments of $7,000 commencing
August 1, 2001, followed by monthly
installments of $8,000 commencing August
1, 2002 and continuing until the note is
paid in full. 192,000
Promissory note payable, Community First
National Bank, bearing interest at 5% per
annum, payable in 24 monthly installments
of $6,250 principal and interest with
balloon payments as follows: 632,637
November, 2001 $ 75,000
August, 2002 250,000
August, 2003 132,637
Non-recourse note payable, Select
Benefits, Inc. Monthly installments equal
to 15% of sales from a select group of
clients that pre-exisited the acquisition
date (Note 1, page 7) The note paydown is
estimated at $60,000 per year. 189,101
Non-interest bearing loans payable,
Dry-Kleen, with no stated repayment terms 266,000
Non-interest bearing loan payable,
Distributors, with no stated repayment
terms. 4,707
Non-interest bearing loan payable other,
with no stated repayment terms 6,993
33
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2000 and for the nine and three month
periods ended September 30, 1999 and 2000 are unaudited)
----------------------------------------------------------------------
NOTE 21 - NOTES PAYABLE (CONT'D)
Non-interest bearing note payable,
Dry-Kleen, with no stated repayment terms 45,304
Non-interest bearing note payable, William
Forster, with no stated repayment terms. 65,740
----------
Total notes payable $2,912,182
Less: current portion 1,825,823
----------
Non-current portion $1,086,359
==========
34
Item 2. Management's Discussion and Analysis or Plan of Operation.
General
The third quarter of 2000 represents IMX's first full quarter of
operations including all of the Company's new products and utilizing its newly
acquired Distribution Network.
Prior to the second quarter of this year, IMX was a development company
primarily engaged in the development of lines of health and beauty products that
the company believes will offer superior benefits to consumers. The Mother 2
Be(R), Proctozone(TM), and Podiatrx(TM) lines were launched in 1999 and earlier
this year.
The Company, after the acquisitions of the second and third quarters,
is designed to be a Multi Level Marketing company with a large North American
Independent Distributor network and a modern manufacturing, warehousing, and
distribution facility for its growing array of proprietary products.
Unfortunately, delays in the consolidation of the Company's operations
in Boca Raton, Florida and Elbow Lake, Minnesota and continued failure to secure
the needed $1,500,000 in asset based financing, are depleting the Company's cash
and operational difficulties caused by contractual differences with Envion
International at their facility in Nashua, New Hampshire are hurting sales
volume and distributor confidence. Unless these problems could be solved, the
Company's bankruptcy was inevitable.
Bankruptcy
On November 20, 2000 the Company and imx-eti LifePartners, Inc., its
wholly owned subsidiary, filed for protection from their creditors and an
opportunity to reorganize under Chapter 11 of the United States Bankruptcy Act.
The Company's other active subsidiaries, Sarah J, Inc. (d/b/a Mother 2 Be(TM)),
Proctozone(TM), Inc., Podiatrx(TM), Inc., and IMX Select Benefits Corporation,
are not parties to the bankruptcy proceedings.
On September 10, 2001, the imx-eti LifePartners, Inc. Bankruptcy
Proceeding was dismissed.
On September 26, 2001, the Bankruptcy Court approved the Company's Plan
of Reorganization.
Acquisitions
On July 21, 2000 the Company, Enviro-Tech, and ETI International, Inc.
entered into and closed a Revised Agreement for Sale and Purchase of Assets. The
Revised Agreement provided that, in addition to purchasing the Distribution
Network, the Company acquire assets including all of Enviro-Tech's inventory of
Dri Wash n' Guard(TM) and nutritional supplement products and its 45,000 square
foot factory, warehouse, and
35
distribution center in Elbow Lake, Minnesota. The consideration for the purchase
was changed to $1,900,000 in cash (the balance of which was paid upon execution
of the revised Agreement), 2,500,000 shares of the Company's common stock, a
ninety-day note for $600,000, and the assumption of almost $1,000,000 in various
Enviro-Tech debts. In addition, the Company and Enviro-Tech signed a long-term
supply agreement with respect to the Dri Wash n' Guard(TM) line of waterless car
and home cleaning products. The Supply Agreement requires the Company to
purchase at least 60,000 gallons of Dri Wash n' Guard(TM) annually and pay a
minimum annual royalty fee of $300,000. The Company took control of the assets
on July 24, 2000.
The Company planed to have its existing products sold through its newly
acquired multi level marketing network and to acquire additional products that
would benefit from distribution through the new network.
During the prior quarter, the Company purchased all of the stock of
Select Benefits Corporation and became the exclusive worldwide distributor of
all of Envion International's products. Select Benefits provides discount health
care memberships that provide discounts of 10% to 60% for prescription drugs,
vision care, dentistry, chiropractic, hearing, and other health related
benefits. Envion's main products include meal replacement bars and nutritional
supplements marketed under the BioZone(R) and Envitamins(R) names.
Results of Operations
For the three months and nine months ended September 30, 2000,
consolidated net sales were approximately $2,135,000 and $3,660,000, as compared
to $152,000 and $203,000, for the same periods ended September 30, 1999. This
increase was primarily due to the sales through the newly acquired Enviro-Tech
distribution network.
Gross profit margin for the three and six months ended September 30,
2000 was 32% and 46% compared to 65% and 67% for the same periods ended
September 30, 1999. This result is due to the reduced profit margins associated
with the newly acquired product lines now distributed through Enviro-Tech
distribution network.
Selling expenses were approximately $132,000 and $1,416,000 for the
three and nine months ended September 30, 2000, as compared to $333,000 and
$820,000 for the same periods ended September 30, 1999. This increase is
attributed to expenses related to operating the newly acquired Enviro-Tech
distribution network.
General and Administrative expenses were approximately $944,000 and
$2,030,000 for the three and nine months ended September 30, 2000, as compared
to approximately $480,000 and $1,266,000 for the same periods ended September
30th, 1999. The increase is attributed to the increased payroll due to the
acquisition of Enviro-Tech. The increase arises from duplication of payroll due
to the delayed consolidation of operations and extra payroll due to the
acquisition of Enviro-Tech and the continued operation of the Envion
International distribution center.
36
For the three months and nine months ended September 30, 2000, the net
loss from operations was approximately $(429,000) and $(1,865,000) for the
periods ended September 30, 2000, as compared to $(769,000) and $(2,200,000) for
the same periods ended September 30, 1999.
Liquidity and Capital Resources
At September 30, 2000, the Company's financial condition included
working capital of approximately $(.8) million as compared to approximately $2.8
million at December 31, 1999. The Enviro-Tech distributorship was purchased for
$1.9 million in cash. Inventory of $750,000 and $600,000 was purchased from
Envion and Enviro-Tech, respectively. $5 million has been invested in equipment
and operations systems to operate the newly acquired Distribution Network.
The Company now needs asset based financing to produce working capital
for its operations. Cash on hand at September 30, 2000 was approximately
$14,000. There is no assurance that the Company will have enough funds for its
daily operations without securing a line of credit or other financing. There is
no assurance that such a line of credit or other financing can be secured. (See
- Bankruptcy, above)
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 that 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 condition, inability to carry out marketing and
sales plans, and loss of key executives, among other things.
37
Part II. Other Information
Items 1,3,4, and 5 are omitted as they are either not applicable or
have been included in Part I.
Item 2 (c) Recent Sales of Unregistered Securities
On July 19, 2000, fourteen (14) sophisticated investors, including five
(5) members of management purchased an aggregate of 1,300,000 shares of Common
Stock at the purchase price of $.38 per share, and the Company received $494,000
in proceeds. In the transaction, shares of common stock were sold to accredited
investors, affiliates, consultants and employees, which were exempt from the
registration requirements of Section 5 of the Securities Act under Section 4(2)
of the Securities Act. Unfortunately, at the time of this sale, the Company was
circulating materially inaccurate information concerning its sales during the
second quarter. As described in the Company's Amended Report on Form 10-QSB for
the quarter ended June 30, 2000, sales were overstated by approximately $400,000
or almost one-quarter. This material misstatement created a rescission right on
behalf of the purchasing parties. On November 8, 2000 and April 17, 2001, the
Board of Directors voted to rescind the sale and treat the purchasers as
unsecured creditors. All but one has accepted. The declining person holds 15,000
shares for which he paid $5,700.
In July 2000, as part of the consideration for the acquisition of
the assets of Enviro-Tech, 2.5 million shares of restricted stock were issued to
Enviro-Tech, of which 100,000 were assigned to one company as a finder's fee for
the transaction. In addition, 100,000 shares of restricted common stock were
issued to the same company. Further, the same company received a finder's fee of
$240,000. In the transaction, the purchasers of the shares of common stock
represented that the shares were being acquired for investment and not for
distribution, which was exempt from the registration requirements of Section 5
of the Securities Act under Section 4(2) of the Securities Act.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K SB (reporting items 2 and 7) and 8-KA SB
(reporting items 2 and 7) were filed on June 1, 2000 and July 28, 2000,
respectively.
38
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has caused this quarterly report on Form 10-QSB to be signed in
its behalf by the undersigned thereunto duly authorized on the 30th day of
September 2001.
IMX PHARMACEUTICALS, INC
By: /s/ Leonard F. Kaplan
-----------------------------------------------
Leonard F. Kaplan, Chief Financial Officer
39