<PAGE>
WASHINGTON, D.C. 20549
FORM 10-SB
General Form for Registration of Securities of Small Business Issuers
Under Section 12(b) or 12(g) of the Securities Act of 1934
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)
2295 Corporate Boulevard, Suite 131, Boca Raton, Florida 33431
- -------------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
561.998.5660
------------
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
- ------------------- ------------------------------
- ----------------------------------------- ------------------------------
- ----------------------------------------- ------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of Class)
<PAGE>
PART I
Item 1. Description of Business
General
IMX Pharmaceuticals, Inc. (the "Company") is engaged in the development
and marketing of health and beauty aids and related products for the skin care,
cosmetic and health care industries. The Company was organized under the laws of
the State of Utah in June of 1982, originally for the purpose of engaging in the
acquisition, exploration and development of natural resources. For a period of
time commencing in January 1984, the Company was engaged in the business of
importing and brokering various products and merchandise.
From 1991 until September 1995, the Company had only conducted limited
business and had virtually no assets or liabilities.
In September 1995, the Company entered into an agreement whereby it
acquired 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 an over-the-counter psoriasis
medication developed by Meyer-Zall, Exorex(Trademark). In connection with the
agreement, the Company also entered into an agreement with Meyer-Zall which gave
the Company certain rights of first refusal for distribution rights in the
United States for new pharmaceutical products developed or manufactured by
Meyer-Zall. (See Item 7. "Certain Relationships and Related Transactions").
Primarily utilizing capital raised during the first six months of 1996 in
a private placement, the Company began to market and distribute the Exorex
psoriasis product line. In 1997 and 1998 product marketing intensified through
capital raised in connection with two subsequent private placements and the
Company also launched its line of Exorex eczema medications.
Effective September 30, 1997, the Company entered into an exclusive supply
agreement with IGI, Inc. and its affiliates ("IGI"). Under the agreement, the
Company acquired the exclusive rights to market IGI's line of therapeutic
topical skin care products utilizing its Novasome(Registered) technology to mass
merchandisers and through multi-level marketing, direct response advertising
and/or electronic media marketing in the United States, Canada and Puerto Rico.
However, as of December 31, 1998, the Company canceled this product line due to
limited sales. In August 1999, the Company entered into an agreement with IGI,
whereby the Company agreed to register shares of common stock of the Company
held by IGI for resale, and IGI agreed to return shares of the Company it holds
according to a schedule, commencing upon the sale of products using
Novasome(Registered) technology. No assurances can be given that any products
using Novasome(Registered) technology will be commercially acceptable.
In June of 1998, the Company completed the formation of a joint venture,
the Exorex Company, LLC (the "LLC") with Medicis Pharmaceutical Corporation of
Phoenix, Arizona
<PAGE>
("Medicis"). The LLC, in which the Company received a 49% interest, acquired
from the Company all of the Company's rights to market the Exorex product line.
The LLC also acquired the use of substantially all of the Company's executive
office and warehouse facilities in Boca Raton, Florida and nearly all of the
Company's current staff, including the Company's Helpline, which is comprised of
health care professionals providing a toll-free 800 service to sufferers of
psoriasis and eczema.
In June 1999, the Company sold its interest in the LLC in return for $3.6
million in cash and the assumption of all liabilities of the Company in the LLC
and certain inventory of the LLC with a shelf life of less than 12 months which
the Company has the right to sell abroad, subject to certain restrictions.
As of the date of this Registration Statement, the Company continues to
develop lines of health and beauty products which the Company believes will
offer superior benefits to consumers, has recently launched its Mother 2
Be(Trademark) line of products and anticipates the launch of two (2) additional
product lines, Proctozone(Trademark) and Podiatrx(Trademark), by the end of the
first quarter of fiscal year ending December 31, 2000, and the Deep(Trademark)
product line in the second half of fiscal year 2000.
Sale of Joint Venture Interest
In June 1999, the Company sold its interest in the LLC in return for $3.6
million in cash and the assumption of all liabilities of the Company in the LLC
and certain inventory of the LLC with a shelf life of less than 12 months which
the Company has the right to sell abroad subject to certain restrictions. In
addition, certain ancillary agreements entered into in connection with the
formation of the LLC were terminated, with the exception of the Facility
Agreement (which relates to the leasing of substantially all of the Company's
office and warehouse), which will remain in full force and effect. See "Item 3.
Description of Property".
The determination of the Board of Directors to sell the Company's interest
in the LLC was based principally upon its conclusion that the LLC was not
operating in a manner that was in the best interests of the Company and the cash
infusion to be received by the Company on the closing of such sale. Management
believed that the cash infusion will assist the Company in the marketing and
development of the Company's other products. See "Item 2. Management's
Discussion and Analysis of Results of Operations".
Products
Mother 2 Be(Trademark). Through its wholly-owned subsidiary, Sarah J.,
Inc., the Company has developed and launched in the second quarter of fiscal
1999 (see "Sales and Marketing") a line of pregnancy skin care products under
the Company's Mother 2 Be brand name, which contains natural, safe and effective
biodegradable ingredients, including Lactoferrenate(Trademark), (Lactoferrin), a
natural component also found in mother's milk. In nature, Lactoferrin has the
characteristics of an antioxidant to help protect the skin, as well as the
natural anti-inflammatory and antibacterial properties needed to help maintain
the health and beauty of the
2
<PAGE>
skin. This unique blend of ingredients helps soothe, heal and protect an
expectant mother's skin. All Mother 2 Be products are hypoallergenic, making
them ideal for sensitive skin.
The Mother 2 Be line presently consists of the following products:
Calm(Trademark), a cream to relieve itchy abdominal conditions associated with
pregnancy which helps relieve dryness, inflammation and irritation;
Soothe(Trademark), an areola and nipple restorative cream; Restore(Trademark), a
breast firming cream; Minimize(Trademark), a stretch-mark minimizer;
Rejuvenate(Trademark), a soothing gel that refreshes tired legs and feet;
Indulge(Trademark), a unique blend of all-natural ingredients designed to help
relieve and relax the stress associated with the aches and pains common during
pregnancy; and Balance(Trademark), which helps regulate oil production by
absorbing excess oil, while moisturizing dry facial areas.
Podiatrx(Trademark). Through its wholly-owned subsidiary, Podiatrix, Inc.,
the Company has been working with a leading podiatrist in the development of
foot care products that offer greater comfort and efficacy in the treatment of
foot fungal conditions. As the result of such collaboration, the Company has
developed a line of over-the-counter anti-fungal foot care products, which
includes topical ointments and bath soaks under the brand name
Podiatrx(Trademark).
Podiatrx is a unique two (2) product system designed to increase the
exfoliation and relieve dryness of the foot, which prepares the skin surface for
better delivery of anti-fungal medication. Podiatrx TFM, tri-fective
moisturizer, is a self-terminating exfoliator which gently removes the upper
surface skin when fungal conditions exist, to make the skin more receptive for
Podiatrx AF, antifungal cream, 2% Miconazole Nitrate, to combat fungal
conditions.
The Podiatrx product line takes advantage of the new C2P
Technology(Trademark) developed at the Company, where over-the-counter active
drug substances are delivered in a cream base that dries to a creamy powder.
This new delivery system, which contains a skin protectant (kaolin), has
soothing and calming effects on the skin and remains in place without
significant rub-off.
The Company plans to market the Podiatrx line through podiatrists. While
the Company has not marketed any Podiatrx products as of the date of this
Registration Statement, it plans to launch the line of foot care products during
the first quarter of fiscal 2000. See "Sales and Marketing".
Proctozone(Trademark). Through its wholly owned subsidiary, Proctozone,
Inc., the Company has been working in conjunction with a leading analrectal
surgeon to develop the Proctozone line of over-the-counter anorectal
anti-inflammatory and anesthetic drug products. Available in two active forms,
the Proctozone line will offer soothing and non-messy alternatives for
physicians to recommend to their patients for post-surgical treatment and
general inflammation and associated pain of the anorectal area. Proctozone,
which uses the Company's proprietary C2P delivery system, is unlike most greasy
competitive ointments on the market today.
The Company plans to market the Proctozone line through pharmaceutical
wholesalers. While the Company has not marketed any Proctozone products as of
the date of this
3
<PAGE>
Registration Statement, it plans to launch the line in the first quarter of
fiscal 2000. See "Sales and Marketing".
Deep(Trademark). Deep(Trademark) is a line of over-the-counter, temporary
topical analgesic products for minor arthritis and sore muscle pain with the
active ingredient, Capsaicin. The Company plans to market these products through
physicians. While the Company has not marketed any Deep products as of the date
of this Registration Statement, it plans to launch a market for the temporary
pain reliever products in the second half of fiscal year 2000. See "Sales and
Marketing".
The Company is presently negotiating to acquire a license for an
over-the-counter psoriasis medication. No assurances can be given that the
license will be acquired, or that the products will be commercially marketable.
Sales and Marketing
In the second quarter of fiscal 1999, the Company launched its Mother 2 Be
product line, which is being marketed and sold to spas, salons, specialty
retailers and catalogue companies, both domestically and abroad, and continues
to develop referrals by professional birthing consultants, such as nurses,
mid-wives, La Leche League instructors, lactation consultants, child birth
educators, Lamaze International instructors, general practice physicians,
gynecologists, as well as prenatal specialty stores. In order to further develop
its professional referrals, the Company is developing a "Physician Script
Program" which facilitates the recommendation of Mother 2 Be products by
physicians and ordering of such products by patients, as well as direct mail and
conventional retail marketing programs. In addition, the Company intends to
market the Mother 2 Be product line abroad, principally through foreign
distributors.
Although the Company has not marketed any Podiatrx, Proctozone or Deep
products as of the date of this Registration Statement, it plans to launch the
Podiatrx foot care line and the Proctozone line of analrectal products in the
first quarter of fiscal 2000 and the Deep line of topical analgesic products in
the second half of fiscal 2000. The Company plans to market these products
through physicians using a Physician Script Program which facilitates the
recommendation of such products by physicians and ordering of such products by
patients from their local pharmacies, or through toll-free helpline telephone
numbers being established by the Company. No distribution agreements have been
signed for the sale of the any of such brands as of the date of this
Registration Statement.
The Company has previously marketed over-the-counter products to
conventional retail outlets, first on its own in November 1996, when the Company
launched its national retail sales program for Exorex products, and secondly,
through the LLC commencing in June 1998. Through the efforts of the Company's
executive sales personnel and a number of independent national sales
representatives, the Exorex products were carried by several major national and
regional Drugstore chains and national wholesalers, as well as independent
pharmacies and health food stores.
4
<PAGE>
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. There can be no assurance that the
Company will be able to achieve widespread commercial acceptance of any of the
Company's products. Conventional retail distribution is a very difficult medium
for products without significant consumer brand recognition. Shelf space at
retail outlets is at a premium, returns can be significant, payment terms are
extended, and offsets, credits against invoices and allowances are the norm.
Without significant brand recognition, the Company will not have any meaningful
conventional retail distribution.
In August 1999, the Company announced that it launched its Mother 2 Be web
site, www.mother2be.com, which permits consumers to purchase the Mother 2 Be
products over the Internet, as well as providing information regarding skin care
during pregnancy. In addition, the Company intends to market additional products
through its web site over the Internet. Although there have been numerous
statements and reports concerning the potential of the Internet as a vehicle for
commercial transactions, its potential has yet to be properly and successfully
exploited to any significant degree by any health and beauty company. Some
anticipated problems include limited Internet access by certain consumers,
unreliable technology, and the reluctance of consumers to provide their credit
card numbers over the Internet to consummate sales. No assurances can be given
that Internet marketing will be successful to any degree.
For the nine (9) month period ended September 30, 1999, two (2) customers,
Mother's Work and Unique Salon Services, accounted for 25% and 16% of net sales,
respectively. During fiscal year ended December 31, 1998, Walgreen's accounted
for 10.1% of net sales. During fiscal year ended December 31, 1997, each of
Eckerd's and Walgreen's accounted for 16% of net sales.
Manufacturing and Supplies
All of the Company's products are presently manufactured exclusively for
the Company by independent third parties in the United States. Although the
Company does not own a factory or production plant, it acts as a general
contractor, and supervises each stage of production from the creation of the
product, design and creation of the packaging, filling of same and packing, all
as performed by various subcontractors. Management believes that its
relationships with such subcontractors are good, and that there are sufficient
alternate subcontractors should one or more subcontractors become unavailable.
In addition, the Company has commenced manufacturing its samples of its
products in its warehouse facilities, and all required permits have been
received to permit the Company to commence manufacturing its products, should
management determine to do so in the future.
All raw materials and packaging components for the Company's product lines
are readily available to the Company.
5
<PAGE>
Inventory
At September 30, 1999, the Company maintained inventory valued at
approximately $447,000, as compared to approximately $160,000 at December 31,
1998. The low level of inventory maintained by the Company resulted from sale of
substantially all of the Company's inventory to the LLC in June 1998.
The Company has generally delivered its orders within one (1) day of the
date orders are booked. As a result thereof, The Company had no backlog of firm
booked orders at December 31, 1998 or December 31, 1997. The business of the
Company is not seasonal.
As the result of the cash infusion of $3.6 million from the sale of its
interest in the LLC, management does not anticipate any difficulty in financing
foreseeable inventory requirements within the next twelve (12) months.
Competition
The health and beauty market in which the Company operates is
characterized by intense competition and there are numerous prescription and
non-prescription drugs available from which consumers may chose. The Company
competes against established pharmaceutical and consumer product companies which
market products with equivalent or functionally similar ingredients and which
have national and/or regional brand name recognition. Most of the Company's
competitors possess substantially greater financial, technical and other
resources than the Company. Moreover, these companies possess greater marketing
capabilities than the Company, including the ability to implement extensive
advertising campaigns.
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. There can be no assurance that the
Company will be able to achieve widespread commercial acceptance of any of the
Company's products.
The Company's success will be dependent upon its ability to demonstrate
the effectiveness of its products and the acceptance of the Company's method of
treatment, as well as the Company's distribution plans. There can be no
assurance that the Company will be able to compete successfully.
Government Regulation
Under the Federal Food, Drug and Cosmetic Act ("FDA Act"), an
over-the-counter non-prescription pharmaceutical product may not be
commercialized or otherwise distributed in the United States without the prior
approval of the FDA, upon submission to it of a new drug application or
abbreviated new drug application, unless the combination of active ingredients
in such products have been determined to be recognized as generally safe and
effective for uses under the conditions prescribed, recommended or suggested in
the FDA prescribed labeling in accordance with final monograph rules promulgated
by the FDA and the labeling is in
6
<PAGE>
compliance therewith. The Company presently intends to market non-prescription
products which contain active ingredients in the products that have been
recognized as generally safe and effective for the recommended uses by panels of
medical experts appointed by the government in the monograph rule making
proceedings.
In addition, each of the Mother 2 Be products is also a "cosmetic" as that
term is defined under the FDA Act, and must comply with the labeling
requirements of the FDA Act, the Fair Packaging and Labeling Act, and the
regulations thereunder.
Advertising of the Company's products is also subject to the review of the
Federal Trade Commission ("FTC") pursuant to the authority of the FTC to monitor
and prevent unfair and deceptive trade practices.
Management believes that its products are in compliance with all
applicable regulatory requirements.
Licenses, Patents and Trademarks
Trademark applications have been filed for the Mother 2 Be, Podiatrx,
Proctozone, and Deep product lines as well as for C2P Technology, the Company's
proprietary cream to powder over-the-counter drug delivery system.
Research and Development
During fiscal 1999, the Company's research and development program
completed development of the Mother 2Be product line, and the Podiatrx,
Proctozone and Deep product lines are anticipated to be completed by the end of
fiscal 1999.
Several of the Company's product lines incorporate the new C2P delivery
technology developed at the Company, where over-the-counter active drug
substances are delivered in a cream base that dries to a creamy powder. This new
delivery system, which contains a skin protectant (kaolin), has soothing and
calming effects on the skin and remains in place without significant rub-off.
Management believes that C2P drug delivery technology has capabilities for
several new over-the-counter drug applications.
Developmental efforts are continuing for numerous other personal
care/cosmetic products. These efforts include product formulation, packaging
design and prototypes, product safety and stability testing, along with certain
efficacy studies to support product claims. However, no assurances can be given
that any commercially acceptable products will be developed.
The Company's has contracted with R.F. Technology Consultants, Inc.
("RFTC") to conduct its research and development program. The principal of RFTC
is Ray Figueroa. From 1994 to the present, he has been the President and
Technology Director of RFTC, which provides product development services to
cosmetic and dermatological marketers, with specialization in topical dosage
forms for therapeutic and personal care applications. Mr.
7
<PAGE>
Figueroa has twenty-five (25) years of experience in topical care management as
a formulation chemist with several fortune 500 companies. From 1990 through
1994, he was the Vice President of Research and Development for Baker Cummins
Dermatological, Inc. He previously worked for Richardson Vicks, Proctor &
Gamble, IVAX Pharmaceuticals, Estee Lauder, Almay and Revlon International. Mr.
Figueroa has an A.A.S. degree in medical technology and a B.S. Degree in
Chemistry.
The Company has entered into a series of product development agreements
with RFTC, which provides for compensation to RFTC 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 RFTC for the Company.
Employees
As of the date of this registration statement, the Company had twenty-one
(21) full-time employees. The Company believes that its relationship with its
employees is good.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company is engaged in the development and marketing of health and
beauty aids and related products for the skin care, cosmetic and health care
industries. As of the date of this Registration Statement, the Company is
developing lines of health and beauty products which the Company believes will
offer superior benefits to consumers, has recently launched its Mother 2
Be(Trademark) line of products and anticipates the launch of two (2) additional
product lines, Proctozone(Trademark) and Podiatrx(Trademark), by the end of the
first quarter of fiscal year ending December 31, 2000, and the Deep(Trademark)
product line in the second half of fiscal year 2000.
Results of Operations
During 1997 and for the first six (6) months of 1998, the Company's
business consisted of primarily marketing its Exorex product line, utilizing
capital raised during 1996 and 1997 in private placement financings. However,
commencing 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 received a 49%
interest, acquired from the Company all of the Company's rights to market the
Exorex product line.
For the nine (9) month period ending September 30, 1999, consolidated net
sales were approximately $203,000, as compared to approximately $2.9 million for
the same period of the preceding year. The decrease of approximately $2.7
million resulting primarily from the Company's conveyance of the Exorex product
line to the LLC in June 1998.
8
<PAGE>
Consolidated net sales aggregated approximately $3.9 million in 1998, as
compared to $4.3 million in 1997. The decrease of approximately $400,000 also
resulted from the conveyance of the Exorex product line to the LLC in June 1998.
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 products with equivalent or functionally
similar ingredients and which have national and/or regional brand name
recognition, from which consumers may choose.
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 in return for conveyance of all of the Company's
interest in the Exorex product line. 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 for $3.6 million in cash and other consideration. Management intends
to use the cash received from the sale of the Company's interest in the LLC for
development of the Company's proprietary brands.
During April 1999, the Company launched its line of pregnancy skin care
products under the Company's Mother 2 Be brand name. Net sales for the initial
five (5) months of this new line beginning in May 1999 were approximately
$203,000. The Company is also preparing new product introductions for 2000, and
anticipates the launch of two (2) additional product lines during the first
quarter of fiscal 2000, Proctozone, an over-the-counter line of medications for
various anal-rectal aliments and Podiatrx an over-the-counter line of
medications for various foot ailments, as well as Deep, a line of
over-the-counter, temporary topical analgesic products for minor arthritis and
sore muscle pain with the active ingredient, Capsaicin, in the second half of
fiscal 2000.
Management is also actively pursuing the development and/or acquisition of
new product lines and technologies in order to expand its lines of health and
beauty products. However, no assurances can be given that any new products or
lines of products will be developed or acquired, or if developed or acquired,
that they will be profitable.
Gross profit margin decreased to 65% of net sales for the nine (9) month
period ending September 30, 1999, as compared to 70% of net sales for the same
period of the preceding year. Gross profit margin decreased to 72% of net sales
in 1998, as compared to 77% of net sales in 1997. Gross profit margins
fluctuated with the changes in the Company's product mix.
Selling, general and administrative expenses incurred by the Company
increased to $5.1 million 1998 as compared to $3.9 million in 1997. For the nine
(9) month period ending September 30, 1999, selling, general and administrative
expenses incurred by the Company decreased to approximately $2.3 million, as
compared to approximately $3.3 million, for the
9
<PAGE>
corresponding period of the prior year. Increases from 1997 to 1998 reflect
expenses incurred to support new product development and introductions,
including approximately $256,000 of expense in 1998 as compared to $-0- in 1997.
The decrease for the nine (9) month comparable periods reflect the absorption of
a significant amount of overhead as the result of the conveyance of the Exorex
product line to the LLC. Such decreases for the nine (9) months ended September
30, 1999 as compared to September 30, 1998 included a decrease in selling and
advertising expenses of approximately $1,157,000 from approximately $2,140,000
to $983,000.
Net loss was approximately $2.0 million or $.45 per basic and diluted
share in 1998 as compared to approximately $580,000 or $.20 per basic and
diluted share in 1997. Results for 1998 included approximately $884,000 as an
impairment loss, as the result of management's decision to cancel the product
line developed under the agreement with IGI due to disappointing product sales.
Results for 1998 were also impacted by a decrease in gross profit of
approximately $488,000 compared to 1997 due primarily to the transfer of the
Exorex product line to the LLC in June 1998.
For the nine (9) month period ending September 30, 1999, net income was
approximately $1.3 million, as compared to net loss of approximately
$(1,015,000) for the same period of the preceding year. The results for the nine
(9) month period ending September 30, 1999 include a gain of approximately $3.4
million on the sale of the Company's interest in the LLC. For such nine (9)
month period, the Company had a loss of $(2.2) million from operations,
exclusive of such gain, compared to a loss from operations of approximately
$(1.2) million for the nine (9) months ended September 30, 1998.
As the Company anticipates developing additional product lines, it will
necessarily incur additional expenses normally associated with 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 1999.
Liquidity and Capital Resources
At September 30, 1999, the Company's financial condition included working
capital of approximately $3.6 million, as compared to approximately $2.1 million
at December 31, 1998. In June 1999, the Company sold its interest in the LLC in
return for approximately $3.6 million in cash and other consideration. It is
management's intention that the cash received from the sale of the Company's
interest in the LLC is to be used in connection with development of the
Company's proprietary brands.
During 1997 and 1998, the Company raised capital from investors to finance
its capital requirements. In 1997 the Company commenced a private placement
offering, which was extended to February 1998, at which time the Company raised
net proceeds of approximately
10
<PAGE>
$947,000. In June 1998 and in connection with the Company's acquisition of its
equity interest in the LLC, Medicis purchased 400,000 shares of Common Stock for
$1,000,000 or $2.50 per share, the estimated fair market value at the time of
such sale.
At the present time and for the foreseeable future, the Company's
short-term capital requirements are expected to be met by available cash. For
fiscal 1998, net cash generated from operations was approximately $1.2 million.
Such amount includes approximately $2.26 million of cash for the sale of trade
accounts receivable and $1.367 million for the sale of inventory in connection
with the acquisition by the Company of its equity interest in the LLC. For
fiscal 1997, operating activities used cash of approximately $1.9 million.
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. Further, in the event of a significant increase in
capital requirements, the Company may require 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.
Year 2000 Readiness
Many currently installed computer systems and software products are coded
to accept or recognize only 2-digit entries in the date code field. Such systems
and software products will need to accept 4-digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations, causing disruptions of normal business activities.
We have made an assessment of the Year 2000 readiness of our operating and
administrative systems. Our assessment plan consisted of testing of our
internally developed information and computing systems with special attention to
their representation and manipulation of calendar dates. We have confirmed that
our software avoids Year 2000 concerns. In addition, in our assessment plan, we
contacted third-party vendors, which have indicated that the products and
services used by us are currently Year 2000 compliant.
To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. Most of our expenses have related to,
and are expected to continue to relate to, the operating costs associated with
time spent by employees in the evaluation process and Year 2000 compliance
matters generally. We do not presently anticipate that such expenditures will be
material.
While, based on our assessment to date, we believe that our internal
systems are Year 2000 compliant and will not produce erroneous results, fail to
function or interrupt performance, despite our testing, our systems may contain
undetectable errors or defects
11
<PAGE>
associated with Year 2000 and operational difficulties may result. In addition,
while vendors of our material software, hardware and services have indicated
that they are in compliance, we cannot assure you that third-party software,
hardware or services incorporated into our systems upon which we are reliant
will not need to be revised or replaced, which could be time consuming and
expensive.
In addition, no assurances can be given that governmental agencies,
utility companies, Internet access companies, third-party service provides and
others outside of our control will be Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could result in a systematic failure beyond
our control, such as telecommunications or electrical failure, which could also
prevent us from producing or delivering our products, which would have a
material adverse effect on our business, results of operations and financial
condition.
The likely worse-case Year 2000 scenario is a systematic failure beyond
our control, such as a prolonged telecommunications or electrical failure. Such
a failure could prevent us from operating our business. We believe that the
primary business risks, in the event of such a failure, would include delays in
product production, lost revenue, increased operating costs, or other business
interruptions of a material nature, as well as claims of mismanagement,
misrepresentation or breach of contract, any of which could have a material
adverse effect on our business, results of operations and financial condition.
We have not made any contingency plans to address such worse-case scenario.
Inflation
Inflation rates in the U.S. 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
Registration Statement 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.
12
<PAGE>
Item 3. Description of Property
The Company leases a total of 3,590 square feet of office space in Boca
Raton, Florida pursuant to leases, all of which terminate on March 31, 2001. In
addition, the Company leases approximately 3,000 square feet of warehouse space
in Boca Raton, Florida pursuant to a lease that terminates on December 31, 1999.
Monthly lease payments are approximately $5,400 and $2,100, respectively.
In connection with the organization of the LLC, the Company entered into a
Facility Agreement, whereby the Company subleased to the LLC, substantially all
of its office space, furniture, computer hardware, all utilities, including
telephone and fax services and warehouse facilities, and equipment leased and
owned and occupied by the Company for substantially the Company's cost. From
June 1998 through June 1999, the LLC paid a substantial portion of the office
rent and warehouse rent.
In connection with the sale of the Company's equity interest in the LLC,
the Company entered into a Transition Services Agreement, whereby the LLC will
continue to sublease the Company's premises for a period not to exceed six (6)
months.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, as of October 22, 1999 with
respect to the beneficial ownership of the Company's Common Stock by (a) each
person known by the Company to be the beneficial owner of more than five percent
(5%) of the Company's outstanding Common Stock, (b) the executive officers and
directors of the Company and (c) the directors and officers of the Company as a
group. The address of each of the persons set forth below is 2295 Corporate
Boulevard, Suite 131, Boca Raton, Florida 33431, except as otherwise noted.
- --------------------------------------------------------------------------------
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership (1) of Class (1)
- --------------------------------------------------------------------------------
William A. Forster 1,196,261 (2) 18.7%
- --------------------------------------------------------------------------------
Meyer-Zall Laboratories (PTY), Ltd. 645,544 (3) 11.0%
JCC House, First Floor
27 Owl Street
Auckland Park, Johannesburg 2192
Private Bag X7
Auckland Park, 2008 South Africa
- --------------------------------------------------------------------------------
East Asia Development, Ltd. 400,000 (3) 6.8%
Passage Max Meuron 1
Neuchatel, Switzerland 2001
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership (1) of Class (1)
- --------------------------------------------------------------------------------
Tandilly Company Ltd. 400,000 (3) 6.8%
c/o Primeway S.A.
7, Rue Du Rhone
GH-1204 Geneva, Switzerland
- --------------------------------------------------------------------------------
Medicis Pharmaceuticals Corporation 400,000 6.8%
4343 E. Camelback, Suite 250
Phoenix, Arizona 85018
- --------------------------------------------------------------------------------
Benson Holdings Limited 389,268 (3) 6.6%
P.O. Box 932
Suite 932, Europort, Gibraltar
- --------------------------------------------------------------------------------
IGI, Inc. 271,714 4.6%
Wheat Road & Lincoln Avenue
P.O. Box 687
Buena, New Jersey 08310
- --------------------------------------------------------------------------------
Sanfurd G. Bluestein, M.D. 322,700 (4) 5.4%
309 Upper Mountain Avenue
Upper Mountain, New Jersey 07043
- --------------------------------------------------------------------------------
David A. Gross, M.D. 149,548 (5) 2.5%
16244 S. Military Trail, #610
Delray Beach, Florida 33484
- --------------------------------------------------------------------------------
Michael Holick, Ph.D, M.D. 107,980 (6) 1.8%
Boston University Medical Center
80 Concord St. M-1013
Boston, Massachusetts 02118
- --------------------------------------------------------------------------------
Eugene Miller 97,516 (7) 1.6%
7351 Ballantrae Court
Boca Raton, Florida 33496
- --------------------------------------------------------------------------------
Westby J. Rogers 148,068 (8) 2.4%
2881 East Oakland Park Boulevard
Ft. Lauderdale, FL 33306
- --------------------------------------------------------------------------------
Lawrence D. Russell 186,480 (9) 3.1%
800 Palm Trail, No. 200
Delray Beach, FL 33483
- --------------------------------------------------------------------------------
Marc Falkin 210,558 (10) 3.5%
- --------------------------------------------------------------------------------
Gary Spielfogel 258,000 (11) 3.9%
- --------------------------------------------------------------------------------
Leonard F. Kaplan 10,000 (12) Less than 1%
- --------------------------------------------------------------------------------
All officers and directors
as a group (10 persons) 2,687,111 (13) 35.5%
- --------------------------------------------------------------------------------
(1) Based upon information furnished to the Company by the security holders or
obtained from the stock transfer books of the Company. Other than
indicated in the notes, the Company has been informed that such persons
have sole voting and dispositive power with respect to their shares.
Certain options disclosed hereunder may not have been fully vested as of
the date of this registration statement.
(2) Consists of 609,741 shares held directly; 31,100 shares held by Mr.
Forster's wife; 15,551 shares held by Mr. Forster in trust for a minor
child; 520,000 shares which may be acquired pursuant to the exercise of
vested stock options; and 19,869 warrants to purchase shares of Common.
14
<PAGE>
(3) Meyer-Zall Laboratories, East Asia Development, Ltd., Tandilly Company,
Ltd. and Benson Holdings Limited are shareholders of Interderm Limited,
the company that previously licensed exclusive marketing and distribution
rights to the Meyer-Zall products to the Company. As such, they may be
deemed affiliates and the beneficial owners of each others shares of
Common Stock.
(4) Consists of 147,850 shares held directly, options to purchase 20,000
shares and warrants to purchase 154,850 shares.
(5) Consists of options to purchase 127,500 shares, 11,490 shares indirectly
as a beneficiary of a profit sharing plan and warrants to purchase 10,558
shares.
(6) Consists of 61,490 shares held directly, options to purchase 35,000 shares
and warrants to purchase 11,490 shares. (Includes 50,000 shares in the
process of being transferred from Meyer-Zall).
(7) Consists of 16,990 shares held indirectly as a trust beneficiary, options
to purchase 45,000 shares and warrants to purchase 35,526 shares.
(8) Consists of 75,000 shares held directly, an option to purchase 5,000
shares and warrants to purchase 68,068 shares.
(9) Consists of 10,000 shares held jointly with his spouse and warrants to
purchase 176,480 shares.
(10) Consists of options to purchase 200,000 shares and warrants to purchase
10,558 shares.
(11) Consists of options to purchase 258,000 shares.
(12) Consists of options to purchase 10,000 shares.
(13) Consists of 967,722 shares held directly or indirectly, and options and
warrants to purchase 1,719,389 shares of Common Stock.
Item 5. Directors, Executive Officers, Promoters and Control
The following table sets forth the names, positions with the Company and
ages of the executive officers and directors of the Company. All directors serve
until the next annual meeting of the Company's shareholders or until their
successors are elected and qualify. Officers are elected by the Board and their
terms of office are, except to the extent governed by employment contract, at
the discretion of the Board.
- --------------------------------------------------------------------------------
Name Age Position
- --------------------------------------------------------------------------------
William A. Forster 54 Chairman of the Board, President and
Chief Executive Officer
- --------------------------------------------------------------------------------
David A. Gross, M.D. 52 Director
- --------------------------------------------------------------------------------
Eugene Miller 73 Director
- --------------------------------------------------------------------------------
Michael F. Holick, Ph.D., M.D. 53 Director
- --------------------------------------------------------------------------------
Sanford Bluestein, M.D. 78 Director
- --------------------------------------------------------------------------------
Westby J. Rogers 57 Director
- --------------------------------------------------------------------------------
Lawrence D. Russell 41 Director
- --------------------------------------------------------------------------------
Gary P. Spielfogel 44 Executive Vice President
- --------------------------------------------------------------------------------
Marc Falkin 28 Senior Vice President
- --------------------------------------------------------------------------------
Leonard F. Kaplan 52 Chief Financial Officer
- --------------------------------------------------------------------------------
15
<PAGE>
Mr. Forster has served as a Director of the Company since 1987. Dr. Gross
and Mr. Miller were elected Directors by the shareholders at a shareholder's
meeting held in November 1995. Dr. Holick was elected to the Board in January
1996, Dr. Bluestein was elected in November 1997, Mr. Rogers was elected to the
Board in June 1999 and Mr. Russell was appointed to the Board in October 1999.
All Directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors. During 1998, the Compensation
Committee of the Board of Directors consisted of Messrs. Eugene Miller and David
Natan, a former director. David Walt, a former director was a member of the
Compensation Committee until September 1998.
Marc Falkin, the Company's Senior Vice President, is the son-in-law of
William Forster, the Company's Chairman of the Board, President and Chief
Executive Officer. Apart from this relationship, there is no family relationship
between any of the officers and directors of the Company.
The following sets forth biographical information as to the business
experience of each executive officer and director of the Company for at least
the past five (5) years.
William A. Forster, age 54, a Director, has been the Chairman of the Board
since 1987, and is also President and Chief Executive Officer and founder of the
Company. From September 1992 until May 1994, he was the President and Chief
Executive Officer of MBF U.S.A., a publicly held marketer of infection control
products. He is also actively involved in many city, state, national and
international non-profit organizations.
Dr. David A. Gross, M.D., F.A.P.A., age 52, has been a Director since
November 1995, is a physician in private practice, the Director of the Palm
Beach Evaluation Center and was previously Chairman of the IMX Medical Advisory
Panel. He is a Fellow, American Psychiatric Association, listed in Best Doctors
in America 1995, Southeastern Edition, and was commissioned by then Florida
Governor, Lawton Chiles, to the Physicians Input Panel. He is also
President-Elect of the Florida Psychiatric Society. Dr. Gross was appointed by
President William Clinton to the Executive Advisory Panel to the Office of
National Drug Control. He also serves on the Advisory Panel on Community Health
Care Purchasing Alliance. He holds degrees from the University of Rochester
(A.B. Magna Cum Laude), the University of Florida College of Medicine (M.D.) and
has completed his residency at Yale University School of Medicine.
Eugene Miller, age 73, has been a Director since November 1995, is an
Executive-in-Residence and Adjunct Professor of the College of Business at
Florida Atlantic University and a director of MFRI, Inc., a publicly held
company. Prior to affiliating with Florida Atlantic University, he served as
Vice-Chairman and Chief Financial Officer of USG Corporation (formerly United
States Gypsum Company), Senior Vice President of the New York Stock Exchange,
Senior Vice President of CNA Financial Corporation and Vice President of
McGraw-Hill, Inc. He holds degrees from Bethany College (A.B.), Georgia Tech
(B.S.), Columbia University (M.S.) New York University (M.B.A.) and Bethany
College (hon. LL.D).
16
<PAGE>
Dr. Michael F. Holick, Ph.D., M.D., age 53, has been a Director since
January 1996, is a Professor of Dermatology and Physiology since 1990 and a
Professor of Medicine since 1987 at the Boston University School of Medicine. He
is also Chief of the Endocrinology, Diabetes and Metabolism Section of Boston
University School of Medicine. Since 1987, he has served as a Director of the
Bone Health Clinic at the Boston University Medical Center Hospital, a Director
of the Vitamin D, Skin and Bone Research Laboratory and Program Director of the
General Clinical Research Center at the Boston University School of Medicine.
Prior to that, he was a Professor of Nutrition, Medicine and Physiology at Tufts
University Medical School and a Director of the Vitamin D, Skin and Bone
Research Laboratory, USDA/Human Nutrition Research Center On Aging at Tufts
University. From 1982 to 1985, he was the Associate Director of the Clinical
Research Center at the Massachusetts Institute of Technology. From 1981 to 1985
he was Associate Professor of Medicine and Associate Professor of Nutritional
Biochemistry at Harvard Medical School. From 1978 to 1981 he was Assistant
Professor of Medicine at Harvard Medical School and from 1979 to 1981, a
lecturer at the Massachusetts Institute of Technology. From 1976 to 1978 he was
a Clinical Fellow in Medicine at Harvard Medical School. He holds degrees from
Seton Hall University (B.S.) and the University of Wisconsin (M.S. Ph.D. and
M.D.). He completed his residency at the Massachusetts General Hospital.
Dr. Sanfurd Bluestein, M.D., age 78, has been a Director since November
1997, is a Director of Pharmachem Corp. in Allentown, Pennsylvania and a member
of the Medical Advisory Counsel of Mark Solutions in Bloomfield, New Jersey.
Presently retired from the practice of medicine, Dr. Bluestein is a partner of
Estate Associates, a privately held company. He has also served as the Chairman
and Director of Radiology Barnert Hospital in Patterson, New Jersey, and as
Chairman and Director of Radiology, Chilton Hospital in Pompton Plains, New
Jersey. He is a member emeritus of the Passaic County Medical Society and a
member emeritus of the American Medical Association. He holds degrees from
Lafayette College (B.A.), Yale Medical School (M.D.) and has completed his
residency at Mt. Sinai Hospital in New York City, New York.
Westby J. Rogers, age 57, has been a Director since June 1999. Mr. Rogers
is the District Manager of Florida for Metronic Inc. From 1987 through May 1999,
Mr. Rogers was the President of Implant Specialties of Fort Lauderdale, Florida,
and was responsible for sales, marketing and financial aspects of such business.
Lawrence D. Russell, age 41, was appointed as a Director in October 1999.
From December 1996 to the present, Mr. Russell has been the President of Freedom
Management Group, a corporate consulting firm. In addition, from January 1998 to
the present, Mr. Russell has also been a registered representative with
Brookstreet Securities, an investment banking firm. From January 1997 through
January 1998, Mr. Russell was a registered representative with Delta Equity
Services, an investment banking firm. In addition, for the five year period
ending December 1996, Mr. Russell was the Senior Vice President at Euro-Atlantic
Securities, a stock brokerage firm.
Gary P. Spielfogel, age 44, has 20 years of business management experience
in the chain drug industry. Before joining the Company in March 1997 as a Senior
Vice President,
17
<PAGE>
Mr. Spielfogel served as President and Chief Operating Officer of Medicap
Pharmacy Express, the Florida master franchisee of Medicap Pharmacies, Inc. the
12th largest U.S. drug chain. Prior to Medicap, for 5 years until 1990, Mr.
Spielfogel served as President of Austin Drugs, a $42 million regional drug
chain. In addition, for 10 years until 1987, Mr. Spielfogel acted as Vice
President of Interstate Cigar Company, a national wholesale drug distributor,
and had oversight of a $40 million division responsible for sales and
purchasing. Mr. Spielfogel became the Company's Executive Vice President in
September of 1998.
Marc Falkin, age 28, joined the Company in September of 1996 and is the
Senior Vice President. Prior to that, and from August, 1993, he was Project
Manager of International Sales for Taylor Environmental International, a New
Jersey based environmental wastewater management company. His responsibilities
included managing environmental industrial wastewater treatment projects
worldwide and building a distribution network of international representatives.
He graduated from George Washington University in 1993, with a Bachelor of
Business Administration in international business.
Leonard F. Kaplan, age 52, a C.P.A., has been the Company's Chief
Financial Officer since July 1, 1999, and was the company's controller from
September 1998 through June 1999. From February 1998 through August 1998, Mr.
Kaplan was the controller of Southern Service Corp., and from July 1983 through
March 1998, he was the owner of a printing company.
Item 6. Executive Compensation
Cash Compensation
The following table sets forth a summary of all compensation awarded to,
earned by or paid to, the Company's Chief Executive Officer and the other
executive officer of the Company whose compensation exceeded $100,000 per annum
for services rendered in all capacities to the Company and its subsidiaries
during fiscal years ended December 31, 1998, December 31, 1997 and December 31,
1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Awards
- -------------------------------------------------------------------------------------------------------------------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($)(1) Options (#) Compensation
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William A. Forster, Chief 1998 237,500 150,000 $12,000(2) 20,000 -0-
Executive Officer 1997
1996
- -------------------------------------------------------------------------------------------------------------------------
Gary Spielfogel, Executive 1998 125,000 -0- $12,000(3) 50,000 -0-
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes perquisites and other personal benefits that in the aggregate do
not exceed 10% of the named officer's total salary and bonus.
(2) Consists of a nonaccountable automobile expense allowance.
(3) Consists of a nonaccountable automobile expense allowance.
18
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Vice President 1997
1996
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Option Grants in the Last Fiscal Year
The following table sets forth certain information relating to stock
option grants during Fiscal 1998 to the Company's Chief Executive Officer and
the other executive officer of the Company whose compensation exceeded $100,000
per annum for services rendered in all capacities to the Company and its
subsidiaries during Fiscal 1998:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realized Value
at Assumed Annual Rates
of Stock Price
Appreciation
Individualized Grants for Option Terms
- ----------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or Five (5%) Ten (10%)
Options Employees in Base Price Expiration Percent Percent
Name Granted (#) Fiscal Year ($/Sh) Date ($) ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William A. Forster 20,000 6.57 1.75 9/01/08 3,878 5,895
- ----------------------------------------------------------------------------------------------------------------------
Gary Spielfogel 50,000 16.42 1.75 7/01/08 9,696 14,737
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Option Exercises and Holdings
The following table sets forth certain information relating to option
exercises effected during Fiscal 1998, and the value of options held as of such
date by each of the Chief Executive Officer and the other executive officer of
the Company whose compensation exceeded $100,000 per annum for services rendered
in all capacities to the Company and its subsidiaries during Fiscal 1998:
AGGREGATE OPTION EXERCISES FOR FISCAL 1998
AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
------------------------------------------------
Value(1) of Unexercised
Number of Unexercised In-the-Money
Options at Options at
December 31, 1998 (#) December 31, 1998 ($)
- -------------------------------------------------------------------------------------------------------------
Name Shares Acquired Value ($) Exercisable/ Exercisable/
on Exercise Realized(2) Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William A. Forster -0- -0- 500,000/20,000 262,500/2,500
- -------------------------------------------------------------------------------------------------------------
Gary Spielfogel -0- -0- 158,000/50,000 -0-/6,250
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total value of unexercised options is based upon the fair market value of
the Common Stock as reported by the over-the-counter Bulletin Board of
$1.875 on December 31, 1998.
19
<PAGE>
(2) Value realized in dollars is based upon the difference between the fair
market value of the Common Stock on the date of exercise, and the exercise
price of the option.
Executive Employment Agreements
Mr. Forster currently serves as the Company's Chief Executive Officer,
President and Chairman of the Board of Directors under a 3-year Employment
Agreement entered into as of July 1, 1998, which superseded a prior employment
contract. Under the Agreement, Mr. Forster receives an annual base salary of
$225,000, and at the discretion of the Company's Board of Directors, he may be
awarded annual bonuses up to an amount of 100% of his base salary depending upon
his performance and certain other factors. In the event the Company does not
renew his agreement for an additional term of 2 years, Mr. Forster will receive
an amount equal to his base salary for the third year of the term of the
agreement, plus the annual cash value of all other benefits provided to him in
that third year, payable in full at the time of expiration of the Agreement.
As of July 1, 1998, the Company entered into a 3-year Employment Agreement
with Gary P. Spielfogel relating to his services as the Company's Executive Vice
President. This Agreement superseded a prior employment agreement. Mr.
Spielfogel receives an annual base salary of $125,000. In connection with the
sale of the Company's interest in the LLC in June 1999, Mr. Spielfogel received
bonus compensation of $144,000.
As of August 1, 1998, the Company entered into a 3-year Employment
Agreement with Marc Falkin, relating to his service as the Company's Senior Vice
President. This Agreement superseded a prior employment agreement. Mr. Falkin
receives an annual base salary of $80,000. In connection with the sale of the
Company's interest in the LLC in June 1999, Mr. Falkin received bonus
compensation of $114,012.
Board of Directors
In September 1998, each current member of the board of directors was
granted options to purchase twenty thousand (20,000) shares of Common Stock at a
price equal to $1.75, one hundred percent (100%) of the fair market value as of
the date of grant. In addition, each member of the board of directors elected
subsequently, as of the date of his or her election, shall be granted
automatically options to purchase twenty thousand (20,000) shares of Common
Stock at a price equal to one hundred percent (100%) of the fair market value as
of the date of grant. On each year anniversary of the each such grant, each
member of the board of directors shall be entitled to an automatic grant of
options to purchase five thousand (5,000) shares of Common Stock, at a price
equal to one hundred percent (100%) of the Fair Market Value as of the date of
grant. The shares subject to the options granted to board members are
exercisable over a period of 10 years from the date of grant, and vest over a
2-year period.
20
<PAGE>
Item 7. Certain Relationships and Related Transactions
The Exorex Company, L.L.C.
Formation of Joint Venture. Effective June 1998, the Company and Medicis
Partners Incorporated, a wholly-owned subsidiary of Medicis Pharmaceutical
Corporation ("Medicis") formed a joint venture pursuant to the terms of a Joint
Venture Agreement, the purpose of which was to develop and market skin care
products through Medicis Consumer Products Company, L.L.C., which was
subsequently known as The Exorex Company, L.L.C. (the "LLC"). On the closing
date of the Joint Venture Agreement, Medicis Partners contributed to the LLC
cash in the sum of $4,000,000, and received a 51% interest in the LLC. The
Company contributed all assets and property and associated rights and interest
used in connection with the development, manufacture, marketing and sale of the
Exorex Product Line and the Helpline and product fulfillment center (the
"Contributed Assets"). The assets included certain of the Company's receivables
and inventory relating to the Exorex Product Line. In consideration for the
Contributed Assets, except for the inventory and the receivables, the Company
received a 49% interest in the LLC with a basis valuation of $4,000,000. As
consideration for the Receivables and the Inventory, the LLC paid to the Company
approximately $2,258,000 and $1,367,000, respectively. In connection with the
transfer of the Contributed Assets, the LLC did not assume any of the Company's
liabilities, except for certain of the liabilities related to the business of
the Contributed Assets incurred in the ordinary course of the business.
As an additional condition to the Company's participation in the joint
venture, at the closing, Medicis purchased 400,000 shares of the Company's
Common Stock at $2.50 per share for a total purchase price of $1,000,000.
Certain ancillary agreements were entered into in connection with the
Joint Venture. The Company entered into a Consulting, Confidentiality and
Non-Compete Agreement under the terms of which the LLC agreed to pay to the
Company a fee equal to 6% of the LLC's net sales. In addition, pursuant to the
terms of a Facility Agreement, the Company subleased to the LLC, the office
space, furniture, computer hardware, all utilities, including telephone and fax
services and warehouse facilities, and equipment leased and owned and occupied
by the Company for substantially the Company's cost.
For the period from inception, June 18, 1998 through the date of its sale,
June 30, 1999, Medicis Partners was responsible for the day-to-day operations of
the LLC and it entered into a Service Agreement to provide additional support
services to the LLC. The support services may include the following: general and
administrative support, financial reporting, provision of manufacturing
facilities, provision of warehousing facilities, product distribution, sales
support, customer service and product research and development. The compensation
paid Medicis Partners under the Service Agreement was a fee in an amount equal
to 6% of the LLC's net sales and include reimbursement of its actual costs.
21
<PAGE>
Sale of Joint Venture Interest
In June 1999, the Company sold its interest in the LLC in return for $3.6
million in cash and the assumption of all liabilities of the Company in the LLC
and certain inventory of the LLC with a shelf life of less than 12 months which
the Company has the right to sell abroad, subject to certain restrictions. In
addition, certain ancillary agreements entered into in connection with the
formation of the LLC were terminated, with the exception of the Facility
Agreement (which relates to the leasing of substantially all of the Company's
office and warehouse), which will remain in full force and effect. See "Item 3.
Description of Property".
Meyer-Zall
During fiscal years ended December 31, 1997 and December 31, 1998, the
Company purchased inventory from Meyer-Zall in the approximate amounts of
$1,170,000 and $569,000, respectively.
On or about July 15, 1998, the Company loaned $120,000 to Meyer-Zall,
which loan was secured by all of Meyer-Zall's accounts receivable in sales of
products to the LLC and 900,000 shares of common stock of the Company. In
addition, the Company reserved the right, pursuant to the terms of the Loan
Agreement, at any time within 6 months of execution of the Agreement, to convert
all of the principal amount of the loan into 2% of Meyer-Zall's outstanding
voting securities. Initially, interest at a rate of 18% per annum was due on the
principal amount of the loan from the Company to Meyer-Zall, and the principal
was in four equal monthly installments of $30,000 to be paid commencing February
1, 1999. However, after November 11, 1998, interest no longer accrued, and
repayment of the principal amount was postponed indefinitely. In September 1999,
Meyer-Zall returned to the Company 76,000 shares of the Company's Common Stock
which Meyer-Zall held, in return for cancellation of the outstanding debt of
$125,400, inclusive of accrued interest.
IGI
Effective September 30, 1997, the Company acquired certain exclusive
marketing rights from IGI. and its affiliates to a line of therapeutic topical
skin care products. Pursuant to the terms of an Exclusive Supply Agreement
between the Company and IGI, as amended, the Company paid IGI the sum of $50,000
and issued to IGI 271,770 shares of Common Stock.
However, as of December 31, 1998, the Company canceled this product line
due to limited sales. In August 1999, the Company entered into an agreement with
IGI, whereby the Company agreed to register shares of common stock of the
Company held by IGI for resale, and IGI agreed to return shares of the Company
it holds according to a schedule, commencing upon the sale of products using
Novasome(Registered) technology. No assurances can be given that any products
using Novasome(Registered) technology will be commercially acceptable.
Recapitalization Agreement
On October 16, 1997, the Company entered into a Recapitalization Agreement
with
22
<PAGE>
Meyer-Zall, Tandilly Company Ltd., East Church Limited, Omaha Investments Ltd.,
Interderm Limited, Benson Holdings Ltd., William A. Forster, Gary Spielfogel,
Marc Falkin and Adele Folk. Under the terms of the Agreement, in consideration
of a payment in the aggregate amount of $200,000 and certain commitments with
respect to registration of a portion of their remaining shares, Meyer-Zall, East
Asia, Tandilly, East Church, Omaha, Interderm and Benson, who in the aggregate
held 5,828,013 shares of the Company's Common Stock, agreed to a redemption and
cancellation of an aggregate of 3,524,557 shares. As part of the
Recapitalization Agreement, which closed in February 1998, a prior voting trust
agreement with William A. Forster and certain other agreements were terminated.
In addition, as part of the Recapitalization Agreement, William Forster,
Gary Spielfogel, Marc Falkin and Adele Folk agreed to a cancellation of an
aggregate of 400,000 stock options and Mr. Forster has agreed to amend certain
bonus provisions in his prior employment agreement.
Loans To and From Officers and Directors
The Company made a loan in the sum of $22,500 to a corporation controlled
by William A. Forster, the Chief Executive Officer and Chairman of the Board.
Repayment of the loan, together with interest at the rate of ten (10%) percent
per annum, is due and payable on December 31, 1999.
In November 1997, the Company received an aggregate of $550,000 of
short-term bridge loans. $100,000 of the loans came from a family partnership of
Dr. Sanford G. Bluestein, a Director of the Company, $100,000 of the loans came
from Westby Rogers, who became a Director in June 1999, $125,000 of the loans
came from William A. Forster, the Company's Chief Executive Officer, President
and Chairman of the Board, $50,000 came from Eugene Miller, a Director and
$25,000 came from Marc Falkin, Senior Vice President. Dr. Bluestein's loan was
repaid to him together with 18% interest in December 1997, Mr. Rogers loan was
repaid to him together with 18% interest in June 1998, Mr. Forster's loan was
repaid to him together with 18% interest in February 1998 and June 1998, Mr.
Miller's loan was repaid to him with 18% interest in June 1998 and Mr. Falkin's
loan was repaid to him together with 18% interest in June 1998. In addition,
each bridge lender received warrants to purchase shares of common stock at a
purchase price of $3.50 per share at any time up to June 2003. The amount of
Warrants was based on the period of time in which the loan was outstanding. Dr.
Bluestein received 7,000 warrants, Mr. Rogers received 48,068 warrants, Mr.
Forster received 19,869 warrants, Mr. Miller received 24,036 warrants and Mr.
Falkin received 10,558 warrants.
In December 1997, the Company advanced approximately $17,800 to companies
affiliated with the President, which was repaid during 1998.
Issuances of Unregistered Securities
In connection with 1997 Preferred Stock Private Placement, the Company
issued to Delta Equity Services Corporation and Roundhill Securities, Inc., the
placement and selling agents and their affiliates, warrants to purchase 7,586.25
shares of Convertible Preferred Stock
23
<PAGE>
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. Mr. Lawrence D. Russell, who is presently a Director of the
Company, was a registered representative of Delta Equity Services Corporation,
and received 2,152.50 warrants.
During July 1997, in connection with an agreement with a financial
advisor, the Company issued warrants to six (6) persons purchase an aggregate of
50,000 shares of Common Stock at $4.75 per share, exercisable for the period
ending July 2002. Mr. Lawrence D. Russell, who is presently a Director of the
Company, received 25,750 warrants.
In connection with October 1997 Private Placement, the Company raised
gross proceeds of $1,088,300. Placement agent commissions aggregated $113,188.
Brookstreet Securities Corporation and Delta Equity Services Corporation acted
as placement agents. Mr. Lawrence D. Russell, who is presently a Director of the
Company, was a registered representative of the placement agents. In addition,
the Company issued 20,180 warrants issued to placement agents and their
affiliates (four (4) persons) in the 1997 October Private Placement on February
28, 1998. Mr. Russell received 6,180 warrants.
Item 8. Description of Securities
General
Under the Company's Articles of Incorporation, the Company is authorized
to issue 51,000,000 shares of capital stock, comprised of 50,000,000 shares of
Common Stock, par value $.001 per share and 1,000,000 shares of Preferred Stock,
par value $.001 per share.
Common Stock
As of September 22, 1999, 5,853,371 shares of the Company's common stock,
$.001 par value per share ("Common Stock") were outstanding, inclusive of an
aggregate of 249,820 shares of Common Stock issuable on conversion of Preferred
Stock effected on March 31, 1999, for which certificates have not yet delivered.
Each shareholder is entitled to one vote for each share of Common Stock
owned of record. The holders of shares of Common Stock do not possess cumulative
voting rights, which means that the holders of more than 50% of the outstanding
shares voting for the election of directors can elect all of the directors, and
in such event the holders of the remaining shares will be unable to elect any of
the Company's directors. Holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board of Directors may from time to time
determine. Upon the liquidation, dissolution, or winding up of the Company, the
assets legally available for distribution to the shareholders will be
distributable ratably among the holders of the shares outstanding at the time.
Holders of the shares of Common Stock have no preemptive, conversion, or
subscription rights,
24
<PAGE>
and shares are not subject to redemption. All outstanding shares of Common Stock
will be fully paid and non-assessable.
Preferred Stock
Under its Articles of Incorporation, the Company is authorized to issue
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors will be empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's stock. In the event of issuance, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change of control of the Company. There are presently no shares of
preferred stock outstanding.
Common Stock Purchase Warrants
In connection with the Company's 1996 Private Offering, the Company issued
580,000 warrants. Each warrant entitles the holder to purchase at any time
during a period of three (3) years, commencing on July 9, 1996, one (1) share of
common stock at a price of $5.00 per share. In July 1999, the Company extended
the expiration date of the warrants for a period of one year, until July 9,
2000. The warrants may be redeemed by the Company on 30 days' prior notice at a
price of ten cents per warrant at any time during the warrant exercise period,
if a Registration Statement covering the resale of the shares of common stock,
issuable upon exercise of the warrants, is effective with the Securities and
Exchange Commission as of that date.
In connection with the conversion of the outstanding shares of the Series
A Preferred Stock as of March 31, 1999, in addition to receipt of ten shares of
Common Stock, the holders received ten Common Stock Purchase Warrants. Each
Warrant entitles the holder thereof to purchase at any time during a period of
five years commencing on the date of issuance (the "Warrant Exercise Period"),
ten shares of Common Stock. Each Warrant may be exercised for a price of $6.50
per share. The Warrants may be redeemed by the Company upon 30 days prior
written notice at a price of $.10 per Warrant at any time during the Warrant
Exercise Period, if a Registration Statement covering the resale of the shares
of Common Stock issuable upon exercise of the Warrants is effective with the
Securities and Exchange Commission as of that date.
25
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
The Company's shares of Common Stock are traded over-the-counter and
quoted in the over-the-counter Electronic Bulletin Board on a limited and
sporadic basis. Initially the symbol for the Common Stock was "IMXN" which was
temporarily changed to "IMXNE". The Company as been advised that the symbol will
automatically be changed back to IMXN on the effective date of this registration
statement.
The reported high and low bid prices for the Common Stock are as shown
below for fiscal year ended December 31, 1997, fiscal year ended December 31,
1998 and for the nine months ended September 30, 1999. The quotations reflect
inter-dealer prices and do not include retail mark-ups, mark-downs or
commissions. The prices do not necessarily reflect actual transactions.
- --------------------------------------------------------------------------------
High Bid Low Bid
- --------------------------------------------------------------------------------
1997
First Quarter $ 5 $ 3 1/4
Second Quarter $ 5 $ 3 1/4
Third Quarter $ 6 $ 4 3/4
Fourth Quarter $ 6 $ 4 1/4
- --------------------------------------------------------------------------------
1998
First Quarter $ 5 1/2 $ 4
Second Quarter $ 5 1/2 $ 3
Third Quarter $ 4 $ 1 1/4
Fourth Quarter $ 1 7/8 $ 5/8
- --------------------------------------------------------------------------------
1999
First Quarter $ 3 1/2 $ 1
Second Quarter $ 2 1/8 $ 1 1/2
Third Quarter $ 2 1/8 $ 1 1/4
- --------------------------------------------------------------------------------
The closing bid and asked prices of the Company's Common Stock on
September 26, 1999, were 1 3/8 and 1 7/8, respectively, as quoted on the
over-the-counter Electronic Bulletin Board. As of the June 16, 1999, there were
336 shareholders of record of the Company's Common Stock.
Dividends
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain future earnings to finance the expansion of its
business and does not anticipate that any cash dividends will be paid in the
foreseeable future. The future dividend policy will depend on the Company's
earnings, capital requirements, expansion plans, financial condition and other
relevant factors.
26
<PAGE>
Shares of Series A Preferred Stock were issued in July 1997, which accrued
an annual 8% dividend, which the company paid in additional shares of Preferred
Stock. Each of the shares of Preferred Stock were converted into ten (10) shares
of Common Stock and ten (10) warrants to purchase Common Stock in March 1999.
Transfer Agent
The Transfer Agent of the Company's Common Stock is Interwest Transfer
Co., Inc., 1981 East Murray Holladay Road, P. O. Box 17136, Salt Lake City, Utah
84117.
Item 2. Legal Proceedings
There are no material pending legal proceedings to which the Company is a
party, or to which any of its properties or assets are subject, except as set
forth below.
In November 1999, Bioglan Pharma PLC and Bioglan Pharma, Inc.
(collectively, "Bioglan") commenced an arbitration 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 (American Arbitration Association, Case #50 133 00398 99).
Specifically, Bioglan claims that Medicis, the LLC and the Company
breached an Asset Purchase Agreement by transferring inventory to Bioglan which
(a) had a remaining shelf life which was less than 12 months and (b) was
otherwise unmarketable. It is remote that the Company would bear any
responsibility with regard to the first claim. The Asset Purchase Agreement
specified that Bioglan was to take title to all inventory which had a shelf life
greater than 12 months and the Company was to take title to inventory which had
a shelf life of 12 months or less. However, the products were warehoused
together. Management of the Company believes that Medicis, under an interim
management agreement with Bioglan, filled Bioglan orders with the Company's
inventory. 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 inventory which it received had
not been properly stored and was therefore unmarketable. Bioglan alleges that
the products should have been kept in cold storage. Management of the Company is
of the belief that this claim does not has any merit, as the management was
never advised by the manufacturer, Meyer-Zall Laboratories of South Africa, of
any requirement of cold storage for the product. The Company intends to
vigorously defend this matter. However, management cannot asses the likelihood
of an unfavorable outcome ,or the range of potential loss, if any, which might
result from this claim.
Item 3. Changes In and Disagreements With Accountants
Not applicable.
27
<PAGE>
Item 4. Recent Sales of Unregistered Securities
1996 Private Placement
In July 1996, the Company issued an aggregate of 580,000 shares of Common
Stock and 580,000 Warrants to purchase common stock to forty-three (43)
investors, pursuant to the terms of a private placement memorandum dated
February 9, 1996 (the "1996 Private Placement"). Each investor warranted and
represented to the Company in connection with their subscriptions for the
aforementioned securities that they were purchasing the securities for
investment and not with a view towards distribution. The offering was conducted
without a general solicitation or advertisement, was made solely to
sophisticated investors or accredited investors (as defined in Rule 501 of
Regulation D) and accordingly, the Company relied upon the exemption from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, pursuant to the provisions of Section 4(2) of the Securities Act and
Regulation D, promulgated thereunder.
In connection with 1996 Private Placement, Euro-Atlantic Securities, Inc.
acted as the placement agent on a best efforts basis. The Company raised gross
proceeds of $1,450,000, paid placement agent commissions of $145,000, and issued
58,000 warrants to Euro-Atlantic Securities, Inc. to purchase 58,000 shares of
Common Stock and 58,000 warrants to purchase common stock.
1997 Preferred Stock Private Placement
On February 28, 1997, the Company offered to sell, through a private
placement, 200 units at a price of $25,000 per unit without any requirement that
a specified number of units be sold (the "1997 Preferred Stock Private
Placement"). Each unit consisted of 1,000 shares of Series A Convertible
Preferred Stock ("Preferred Stock"), $.001 par value, with a price of $25 per
share. Each share of Preferred Stock was convertible into 10 shares of Common
Stock and 10 Common Stock Purchase Warrants. Each warrant is exercisable until
July 10, 2002 and entitles the holder to purchase one share of Common Stock at a
price of $6.50 per share. As of July 10, 1997, the Company sold 76,750 shares of
Preferred Stock and received gross proceeds of $1,918,750 less costs of
approximately $217,000. On March 31, 1999, each of the outstanding shares of
this series was converted on a mandatory basis into ten shares of Common Stock
and ten warrants to purchase Common Stock.
Each investor warranted and represented to the Company in connection with
their subscriptions for the aforementioned securities that they were purchasing
the securities for investment and not with a view towards distribution. The
offering was conducted without a general solicitation or advertisement, was made
solely to accredited investors (as defined in Rule 501 of Regulation D) and
accordingly, the Company relied upon the exemption from the registration
requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) of the Securities Act and Regulation D,
promulgated thereunder.
28
<PAGE>
In connection with 1997 Preferred Stock Private Placement, the Company
issued to Delta Equity Services Corporation and Roundhill Securities, Inc., the
placement and selling agents and their affiliates (fifteen (15) persons),
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.
Financial Advisor Warrants
During July 1997, in connection with an agreement with a financial
advisor, the Company issued warrants to six (6) persons purchase an aggregate of
50,000 shares of Common Stock at $4.75 per share, exercisable for the period
ending July 2002.
October 1997 Private Placement
From December 1997 through February 1998, the Company issued an aggregate
of 310,941 shares of Common Stock, pursuant to the terms of a private placement
memorandum dated October 30, 1997 (the "October 1997 Private Placement"). Each
investor warranted and represented to the Company in connection with their
subscriptions for the aforementioned securities that they were purchasing the
securities for investment and not with a view towards distribution. The offering
was conducted without a general solicitation or advertisement, was made solely
to accredited investors (as defined in Rule 501 of Regulation D) and
accordingly, the Company relied upon the exemption from the registration
requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) of the Securities Act and Regulation D,
promulgated thereunder.
In connection with October 1997 Private Placement, the Company raised
gross proceeds of $1,088,300. Placement agent commissions aggregated $113,188.
Brookstreet Securities Corporation and Delta Equity Services Corporation acted
as placement agents. In addition, the Company issued 20,180 warrants issued to
placement agents and their affiliates (four (4) persons) in the 1997 October
Private Placement on February 28, 1998.
1998 Sale to Medicis
As a condition of the Joint Venture Agreement (See Business, Item 1), in
June 1998 Medicis purchased 400,000 shares of Common Stock at the estimated fair
value of $2.50 per share. Medicis was an accredited investor, and warranted and
represented to the Company in connection with its purchase of the aforementioned
securities that it was purchasing the securities for investment and not with a
view towards distribution. The offering was conducted without a general
solicitation or advertisement and accordingly, the Company relied upon the
exemption from the registration requirements of Section 5 of the Securities Act
of 1933, as amended, pursuant to the provisions of Section 4(2) of the
Securities Act and Regulation D, promulgated thereunder.
1998 Miscellaneous
29
<PAGE>
On July 29, 1998, the Company issued 14,286 shares of its Common Stock to
Dr. Marta Rendon in connection with her services as a finder for the Company. On
or about that same date, the Company granted to Dr. Spencer Kellogg 25,000 stock
options at an exercise price of $3.00 per share, with all options expiring 2003
in connection with his services to the Company's subsidiary, Sarah J., Inc. In
addition, the Company granted 6,000 stock options to R.F. Technology
Consultants, which options are exercisable at $2.00 per share for a period of
five years, with 3,000 stock options vesting upon the completion of each of the
products listed in an agreement between the Company and R.F. Technology
Consultants. These options were granted in connection with R.F. Technology
Consultants' preparation and development of seven products for the Company's
subsidiary, Sarah J., Inc. The foregoing issuances were conducted without a
general solicitation or advertisement to sophisticated investors, and
accordingly, the Company relied upon the exemption from the registration
requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) of the Securities Act and Regulation D,
promulgated thereunder.
Item 5. Indemnification of Directors and Officers
Pursuant to ss.16-10a-902 of the Utah Revised Business Corporation Act and
our Company's Articles of Incorporation, as amended, we may indemnify an
individual made a party to a proceeding because he is or was a director, against
liability incurred in the proceeding if: (i) his conduct was in good faith; (ii)
he reasonably believed that his conduct was in, or not opposed to, the
Corporation's best interest; and (iii) in the case of criminal proceeding, he
had no reasonable cause to believe his conduct was unlawful. The indemnification
provided herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any statute, by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such office
and shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
We may purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of our Company or is or was serving
at our request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not our Company would have the power to indemnify
him against such liability under the provisions of the Utah Revised Business
Corporation Act or of these by-laws.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for directors, officers and controlling persons of our
Company pursuant to the above-described provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than our payment of expenses incurred or paid by
the director, officer or controlling person of our Company the most successful
defense in any
30
<PAGE>
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
31
<PAGE>
PART F/S
The financial statements and supplementary data are included herein.
Financial Statements and Exhibits
The following consolidated financial statements of the Company, include
the audited balance sheet at December 31, 1998 and the related audited
statements of operations, changes in stockholders' equity, and cash flows for
each of the years in the two-year period ended December 31, 1998 and the
unaudited balance sheet at September 30, 1999 and the related unaudited
statements of operations, changes in stockholders' equity, and cash flows for
each of the nine months ended September 30, 1999 and September 30, 1998.
IMX PHARMACEUTICALS, INC.
CONTENTS
Page
----
Report of Independent Certified Public Accountants F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-6
Consolidated Statements of Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-9
Notes to Consolidated Financial Statements F-10
32
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
====================================================
Consolidated Financial Statements
Nine Month Periods Ended September 30, 1998 and 1999
Years Ended December 31, 1997 and 1998
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Contents
================================================================================
Report of Independent Certified Public Accountants F-3
Consolidated Financial Statements
Balance Sheets F-4 to 5
Statements of Operations F-6
Statements of Changes in Stockholders' Equity F-7 to 8
Statements of Cash Flows F-9
Notes to Financial Statements F-10 to 35
F-2
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors of
IMX Pharmaceuticals, Inc.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of IMX
Pharmaceuticals, Inc. and subsidiaries (the "Company") as of December 31, 1997
and 1998 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of IMX Pharmaceuticals,
Inc. and subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
West Palm Beach, Florida BDO Seidman, LLP
April 21, 1999
F-3
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
------------------------ ------------
1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 25,306 $ 623,860 $3,274,720
Securities available for sale (Note 5) -- 1,689,200 52,214
Accounts receivable, net of allowance for doubtful accounts of
$10,000, $13,647, and $0 1,159,136 194,405 229,634
Inventory (Note 6) 1,300,054 160,152 447,191
Loan receivable - related party (Note 17) -- 120,000 --
Prepaid expenses and other 68,875 38,858 127,322
- --------------------------------------------------------------------------------------------------------------------
Total current assets 2,553,371 2,826,475 4,131,081
- --------------------------------------------------------------------------------------------------------------------
Property and equipment, net (Note 7) 109,460 119,176 138,127
- --------------------------------------------------------------------------------------------------------------------
Other assets:
Deposits and other 111,720 42,720 2,502
Licensing and supply agreements, net (Note 8) 1,053,593 44,598 --
Investment in and advances to unconsolidated subsidiary (Note 9) -- 348,016 --
- --------------------------------------------------------------------------------------------------------------------
Total other assets 1,165,313 435,334 2,502
- --------------------------------------------------------------------------------------------------------------------
$3,828,144 $3,380,985 $4,271,710
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
-------------------------- -------------
1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 588,217 $ 267,208 $ 272,981
Accrued expenses 171,378 214,414 227,570
Recourse obligation (Note 11) -- 269,705 --
Supply agreement payable (Note 8) 50,000 -- --
Notes payable (Note 12) 295,158 -- --
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 1,104,753 751,327 500,551
- ----------------------------------------------------------------------------------------------------------------
Long-term Liabilities:
Supply agreement payable (Note 8) 950,999 -- --
- ----------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 9, 11, 13 and 18) -- -- --
- ----------------------------------------------------------------------------------------------------------------
Redeemable common stock (Note 13) -- 70,000 --
- ----------------------------------------------------------------------------------------------------------------
Stockholders' equity (Notes 13, 14, 15, 16 and 18):
Series A convertible preferred stock $.001 par value,
1,000,000 shares authorized; 76,750, 86,424 and
0 shares issued and outstanding 77 86 --
Common stock, $.001 par value, 50,000,000 shares
authorized, 7,741,166, 8,728,108 and 9,634,707 shares
issued; 4,216,609, 5,003,351 and 5,813,951 outstanding 7,741 8,728 9,635
Additional paid-in capital 4,662,168 7,780,988 7,941,023
Deficit (2,697,594) (4,883,487) (3,626,442)
Treasury stock, at cost - 3,524,557, 3,724,757 and
3,820,756 shares (200,000) (357,657) (553,057)
Accumulated other comprehensive income -- 11,000 --
- ----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,772,392 2,559,658 3,771,159
- ----------------------------------------------------------------------------------------------------------------
$ 3,828,144 $ 3,380,985 $ 4,271,710
================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Consolidated Statements of Operations
================================================================================
<TABLE>
<CAPTION>
(Unaudited)
Years Ended Nine Months Ended
December 31, September 30,
-------------------------- --------------------------
1997 1998 1998 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 4,344,907 $ 3,942,371 $ 2,957,159 $ 202,842
Cost of sales (Note 17) 1,021,014 1,106,261 883,964 70,965
- ---------------------------------------------------------------------------------------------------------------
Gross profit 3,323,893 2,836,110 2,073,195 131,877
- ---------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling 1,357,234 1,594,588 1,380,807 819,698
Advertising 1,131,986 1,006,557 759,658 162,838
General and administrative 1,365,012 1,412,841 1,079,201 1,265,770
Supply agreement impairment loss (Note 8) -- 884,199 -- 44,598
Depreciation and amortization 44,064 172,106 87,465 38,954
- ---------------------------------------------------------------------------------------------------------------
Total operating expenses 3,898,296 5,070,291 3,307,131 2,331,858
- ---------------------------------------------------------------------------------------------------------------
Loss from operations (574,403) (2,234,181) (1,233,936) (2,199,981)
Other income (expenses):
Equity in earnings (loss) of unconsolidated
subsidiary (Note 9) -- 81,474 131,510 (12,887)
Gain on sale of investment in unconsolidated
subsidiary (Note 9) -- -- -- 3,357,734
Other (5,618) 135,664 87,050 155,579
- ---------------------------------------------------------------------------------------------------------------
Net (loss) income before income taxes (580,021) (2,017,043) (1,015,376) 1,300,445
Provision for income taxes (Note 10) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Net (loss) income (580,021) (2,017,043) (1,015,376) 1,300,445
Dividends on preferred stock
(Note 13) (840,496) (168,850) (114,750) (43,400)
- ---------------------------------------------------------------------------------------------------------------
Net (loss) income available to common
Stockholders $(1,420,517) $(2,185,893) $(1,130,126) $ 1,257,045
===============================================================================================================
Weighted average number of shares of
common stock outstanding
Basic 6,995,622 4,879,622 4,761,356 5,281,948
Diluted 6,995,622 4,879,622 4,761,356 5,612,696
===============================================================================================================
Net (loss) income per common share - (Note 16)
Basic $ (.20) $ (.45) $ (.24) $ .24
Diluted $ (.20) $ (.45) $ (.24) $ .22
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
================================================================================
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ----------------- Accumulated
Number Number Additional Other Total
of of Paid-in Treasury Comprehensive Stockholders'
Shares Amount Shares Amount Capital Deficit Stock Income Equity
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,December 31, 1996 -- $ -- 7,738,666 $7,738 $1,596,801 $(1,277,077) $ -- $ -- $ 327,462
Comprehensive income:
Net loss -- -- -- -- -- (580,021) -- -- (580,021)
-----------
Total comprehensive income (loss) -- -- -- -- -- -- -- -- (580,021)
Preferred stock:
Net proceeds from sale 76,750 77 -- -- 1,702,121 -- -- -- 1,702,198
Dividends declared -- -- -- -- 72,996 (72,996) -- -- --
Deemed dividends -- -- -- -- 767,500 (767,500) -- -- --
Purchase of treasury stock -- -- -- -- -- -- (200,000) -- (200,000)
Exercise of common stock options -- -- 2,500 3 6,247 -- -- -- 6,250
Compensation - fair value of
common stock options and
warrants issued to
non-employees -- -- -- -- 214,810 -- -- -- 214,810
Original issue discount for fair
value of warrants issued
with notes payable -- -- -- -- 141,121 -- -- -- 141,121
Net proceeds from common stock
subscriptions -- -- -- -- 160,572 -- -- -- 160,572
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 76,750 77 7,741,166 7,741 4,662,168 (2,697,594) (200,000) -- 1,772,392
Comprehensive income:
Net loss -- -- -- -- -- (2,017,043) -- -- (2,017,043)
Other comprehensive income -
unrealized gain on
securities available
for sale -- -- -- -- -- -- -- 11,000 11,000
-----------
Total comprehensive income (loss) -- -- -- -- -- -- -- -- (2,006,043)
Preferred stock dividends
declared 9,674 9 -- -- 168,841 (168,850) -- -- --
Purchase of treasury stock -- -- -- -- -- -- (157,657) -- (157,657)
Compensation - fair value of
common stock options issued to
non-employees -- -- -- -- 78,332 -- -- -- 78,332
Issuance of common stock for
consulting service -- -- 24,286 24 96,176 -- -- -- 96,200
Issuance of common stock to
settle supply agreement payable -- -- 271,714 272 950,727 -- -- -- 950,999
Original issue discount for fair
value of warrants issued with
notes payable -- -- -- -- 108,595 -- -- -- 108,595
Net proceeds from sale of common
stock -- -- 710,941 711 1,786,129 -- -- -- 1,786,840
Reclassification of redeemable
common stock -- -- (19,999) (20) (69,980) -- -- -- (70,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 86,424 86 8,728,108 8,728 7,780,988 (4,883,487) (357,657) 11,000 2,559,658
</TABLE>
F-7
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
================================================================================
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ---------------- Accumulated
Number Number Additional Other Total
of of Paid-in Treasury Comprehensive Stockholders'
Shares Amount Shares Amount Capital Deficit Stock Income Equity
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 86,424 $ 86 8,728,108 $8,728 $7,780,988 $(4,883,487) $(357,657) $ 11,000 $ 2,559,658
Nine months ended September 30,
1999 (Unaudited)
Comprehensive income:
Net income -- -- -- -- -- 1,300,445 -- -- 1,300,445
Change in other comprehensive
income -- -- -- -- -- -- -- (11,000) (11,000)
------------
Total comprehensive income -- -- -- -- -- -- -- -- 1,289,445
Preferred stock dividends
declared 1,736 2 -- -- 43,398 (43,400) -- -- --
Compensation -fair value of
common stock options issued
to non-employees -- -- -- -- 42,456 -- -- -- 42,456
Conversion of preferred stock to
common stock (88,160) (88) 881,600 882 (794) -- -- -- --
Exercise of common stock options -- -- 5,000 5 4,995 -- -- -- 5,000
Transfer of redeemed common stock
to treasury stock -- -- 19,999 20 69,980 -- (70,000) -- --
Conversion of loan receivable to
treasury stock -- -- -- -- -- -- (125,400) -- (125,400)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999
(Unaudited) -- $ -- 9,634,707 $9,635 $7,941,023 $(3,626,442) $(553,057) $ -- $ 3,771,159
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
(Unaudited)
Years Ended Nine Months Ended
December 31, September 30,
------------------------- -------------------------
1997 1998 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Activities:
Net (loss) income $ (580,021) $(2,017,043) $(1,015,376) $ 1,300,445
Adjustments to reconcile net (loss) income to net cash (used) provided
by operating activities:
Depreciation and amortization 44,064 172,106 87,465 38,954
Provision of doubtful accounts 10,000 3,647 49,923 (13,647)
Deferred income taxes -- -- -- (25,000)
Amortization of original issue discount 64,279 185,437 185,437 --
Compensation, fair value of stock, stock options and warrants 105,560 174,532 163,377 42,456
Equity in loss (net of accretion) of unconsolidated subsidiary -- (3,628) (89,864) 12,887
Gain on sale of investment in unconsolidated subsidiary -- -- -- (3,357,734)
Impairment loss on supply and licensing agreements -- 884,199 -- 44,598
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (991,649) 1,166,456 1,624,629 43,310
Decrease ( increase) in inventory (1,071,893) 1,204,235 1,299,782 (351,372)
Increase in prepaid expenses (1,287) (15,530) (57,500) (104,743)
Decrease (increase) in deposits (19,574) 104,704 142,142 51,097
Decrease in other assets 2,908 17,839 20,434 --
(Decrease) increase in accounts payable and accrued expenses 511,523 (672,361) (788,063) 207,247
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (1,926,090) 1,204,593 1,622,386 (2,111,502)
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchase of furniture and equipment (77,749) (65,022) (50,424) (57,905)
Loan to related party -- (120,000) (120,000) --
Proceeds from sale of investment in unconsolidated subsidiary -- -- -- 3,189,281
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (77,749) (185,022) (170,424) 3,131,376
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net proceeds (repayments) under notes payable 314,500 (372,000) (372,000) --
Proceeds from sale of preferred stock 1,702,198 -- -- --
Proceeds from sale of common stock 160,572 1,786,840 1,786,840 --
Purchase of securities available for sale -- (1,678,200) -- (52,214)
Proceeds from maturity of securities -- -- -- 1,678,200
Proceeds from exercise of common stock options 6,250 -- -- 5,000
Purchase of treasury stock (200,000) (157,657) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 1,983,520 (421,017) 1,414,840 1,630,986
- ------------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (20,319) 598,554 2,866,802 2,650,860
Cash and cash equivalents - beginning of period 45,625 25,306 25,306 623,860
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 25,306 $ 623,860 $ 2,892,108 $ 3,274,720
====================================================================================================================================
Supplemental Schedule of Cash Flow Information:
Cash paid for interest $ 11,690 $ 38,265 $ 38,265 $ 12,405
Cash paid for income taxes -- -- -- 19,264
====================================================================================================================================
Supplemental Schedule of Noncash Activities:
Common stock issued to settle supply agreement payable $ -- $ 950,999 $ 950,999 $ --
Acquisition of supply agreement for payable 1,000,999 -- -- --
Dividends on preferred stock:
Preferred stock issued in lieu of cash for dividends payable on
preferred stock 72,996 168,850 114,750 43,400
Deemed dividend 767,500 -- -- --
Contribution of non-cash assets to unconsolidated subsidiary -- 5,194 5,194 --
Conversion of loan receivable to treasury stock -- -- -- 125,400
Conversion of preferred stock to common stock -- -- -- 882
Exchange of loan receivable to reduce licensing fees payable 72,151 -- -- --
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
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
entered into an agreement with Meyer-Zall, which
provides the Company with 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 a campaign to
market and distribute Exorex and other related products
in the retail market using capital raised in 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 (the "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. 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 (see Note 8).
F-10
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
1. Nature of Business Effective June 30, 1999, the Company entered a Sale and
(Concluded) Transfer Agreement (the "Sale Agreement") with
Medicis, whereby the Company sold its 49%
interest in the LLC to Medicis (Note 9).
2. Summary of Interim Financial Statements
Significant
Accounting The accompanying unaudited consolidated financial
Policies statements as of September 30, 1999 and for the nine
month periods ended September 30, 1998 and 1999 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-month period ended September 30, 1999 are
not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
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.
Cash and Cash Equivalents
For purposes of reporting cash flow, the Company
considers all highly liquid investments purchased with
an original maturity of three months or less to be cash
equivalents.
F-11
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
2. Summary of Securities Available for Sale
Significant
Accounting Securities available for sale are carried at estimated
Policies market value. Unrealized holding gains and losses on
(Continued) 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 by the
specific-identification method.
Inventory
Inventory is 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.
Licensing and Supply Agreements
Licensing and supply agreements were recorded at cost,
including the estimated fair value of common stock
issued by the Company to acquire the agreements. The
agreements were being amortized over the estimated
useful life of the agreements, which ranged from 5 to 20
years.
The Company reviews the carrying values of its
long-lived and identifiable intangible assets for
possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the
assets may not be recoverable.
Investment in Unconsolidated Subsidiary
The Company's 49% interest in the LLC was accounted for
using the equity method.
F-12
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
2. Summary of Revenue Recognition
Significant
Accounting Sales are generally recorded upon shipment of goods to
Policies customers, except for goods shipped to certain retail
(Continued) customers under holdback arrangements. Under such
holdback arrangements, the Company has agreed to allow
these retail customers to hold payment for goods shipped
until a subsequent review of resales of the Company's
products by the retailers. Goods shipped under the
holdback arrangements are accounted for as consigned
inventory until the holdback payment is received, at
which time a sale is recorded.
Production Development Costs
Costs incurred for the development of new product lines
are expensed as incurred.
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 (loss) income and
(loss) income 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 (loss) income and (loss) income per share
information as if the fair value method had been
applied.
Income Taxes
The Company files consolidated Federal income tax
returns. Income taxes are calculated using the liability
method specified by SFAS No. 109, "Accounting for Income
Taxes".
F-13
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
2. Summary of Net Income (Loss) Per Common Share
Significant
Accounting Net income (loss) per common share is calculated
Policies according to SFAS No.128, "Earnings Per Share" which
(Concluded) 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, common stock options and
common stock warrants are excluded from the computations
of net loss per share for the years ended December 31,
1997 and 1998, and the nine months ended September 30,
1998, because the effect of their inclusion would be
anti-dilutive.
Fair Value of Financial Instruments
SFAS No. 107 requires the disclosure of 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 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).
F-14
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
3. Recent Accounting In June 1997, the Financial Accounting Standards Board
Pronouncements (the "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 effect 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 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.
F-15
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
4. Exorex Product The accompanying consolidated pro forma statement of
Line Pro Forma operations for the year ended December 31, 1998
Information illustrates the effect on the statement of operations
had the Joint Venture Agreement of June 24, 1998 (Note
1), and the Consulting Agreement (Note 9) occurred
effective January 1, 1998. The pro forma statement of
operations sets out revenue and expenses related to the
Exorex product line for the period from January 1, 1998
to June 24, 1998, and adjusts for the equity in earnings
from unconsolidated subsidiary that the LLC would have
contributed to the Company during that same period. This
statement of operations has been prepared to
substantially comply with rules and regulations of the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
Unaudited Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1998
- -------------------------------------------------------------------------------------------
Historical Exorex
Statement of Product
Operations Line Adjustment Pro Forma
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 3,942,371 $(3,745,994) $ -- $ 196,377
Cost of sales 1,106,261 (953,263) -- 152,998
- -------------------------------------------------------------------------------------------
Gross profit 2,836,110 (2,792,731) -- 43,379
- -------------------------------------------------------------------------------------------
Operating Expenses:
Selling 1,594,588 (989,817) -- 604,771
Advertising 1,006,557 (744,091) -- 262,466
General and administrative 1,412,841 (614,795) -- 798,046
Supply agreement impairment loss 884,199 -- -- 884,199
Depreciation and amortization 172,106 (30,000) -- 142,106
- -------------------------------------------------------------------------------------------
Total operating expenses 5,070,291 (2,378,703) -- 2,691,588
- -------------------------------------------------------------------------------------------
(Loss) income from operations (2,234,181) (414,028) -- (2,648,209)
Other income (expenses):
Equity in earnings (loss) of
unconsolidated subsidiary 81,474 -- (240,850) (159,376)
Other 135,664 (2,565) -- 133,099
- -------------------------------------------------------------------------------------------
Net (loss) income (2,017,043) (416,593) (240,850) (2,674,486)
Dividends on preferred stock (168,850) -- -- (168,850)
- -------------------------------------------------------------------------------------------
Net (loss) income applicable to
common stockholders $(2,185,893) $ (416,593) $(240,850) $(2,843,336)
===========================================================================================
Weighted average number of shares
of common stock outstanding 4,879,622 4,879,622
===========================================================================================
Net loss per common share - basic
and diluted $ (0.45) $ (0.58)
===========================================================================================
</TABLE>
F-16
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
4. Exorex Product The adjustment assumes the provisions of the Joint
Line Pro Forma Venture Agreement were in place for the period January
Information 1, 1998 through June 24, 1998, and includes a 12%
(Concluded) management fee expense on net sales ($449,500),
management fee income of $224,750 to the Company, and
49% of the equity in loss of the product line, after the
$449,500 management fee expense ($16,100), for a total
of $240,850.
5. Securities Securities available for sale consist of Federal Home
Available Loan Bank discount notes that matured in January, 1999.
For Sale At December 31, 1998, the estimated market value of
$1,689,200 of these securities exceeded their cost basis
by $11,000.
6. Inventory Inventory consists of the following:
December 31, September 30,
-------------------------------------
1997 1998 1999
- --------------------------------------------------------------------------------
Finished goods $ 644,628 $ 64,333 $ 174,982
Raw materials 480,262 -- 11,109
Packaging supplies 175,164 95,819 261,100
- --------------------------------------------------------------------------------
$ 1,300,054 $ 160,152 $ 447,191
================================================================================
At December 31, 1997 and 1998, and September 30, 1999,
finished goods inventory included approximately
$380,000, $64,000 and $0, respectively, of goods shipped
to retail customers on consignment.
F-17
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
7. Property and Property and equipment consists of the following:
Equipment
December 31, September 30,
-------------------------------------
1997 1998 1999
- --------------------------------------------------------------------------------
Computer and office
equipment $ 113,080 $ 163,457 $ 212,257
Furniture, fixtures and
improvements 55,137 66,980 76,085
- --------------------------------------------------------------------------------
168,217 230,437 288,342
Accumulated depreciation
and amortization 58,757 111,261 150,215
- --------------------------------------------------------------------------------
$ 109,460 $ 119,176 $ 138,127
================================================================================
8. Licensing and Licensing and supply agreements consisted of the
Supply Agreements following:
December 31, September 30,
-------------------------------------
1997 1998 1999
- --------------------------------------------------------------------------------
Supply agreement $ 1,000,999 $ -- $ --
Licensing agreements 56,021 50,000 --
- --------------------------------------------------------------------------------
1,057,020 50,000 --
Accumulated amortization 3,427 5,402 --
- --------------------------------------------------------------------------------
$ 1,053,593 $ 44,598 $ --
================================================================================
F-18
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
8. Licensing and On September 30, 1997, the Company entered into an
Supply Agreements agreement with a term of five years with IGI, Inc.
(Concluded) ("IGI") to acquire exclusive rights to market IGI's skin
care products, in exchange for $50,000 in cash and
$950,999 of the Company's Common Stock (See Note 13). A
supply agreement payable of $1,000,999 was recorded as
of December 31, 1997, which was paid during March 1998,
with cash and Common Stock as described above. During
1998, approximately $116,800 of amortization expense was
recorded beginning with the first order of goods in May
1998. Effective December 31, 1998, due to limited sales
of such products, management cancelled this product
line, and recorded an impairment loss of $884,199.
During 1998, the Company contributed its licensing
rights to Exorex with an unamortized cost of
approximately $5,200 in exchange for a 49% interest in
the LLC (Notes 1 and 9).
9. Unconsolidated The Company had a 49% ownership interest in the LLC
Subsidiary (Note 1), a skin care joint venture located in Phoenix,
Arizona, which was sold effective June 30, 1999.
December 31, September 30,
------------------------------
1997 1998 1999
--------------------------------------------------------
Company's share of net
loss on LLC $ - $(96,970) $ -
Investment in LLC - 105,792 -
Advances to LLC - 339,194 -
--------------------------------------------------------
$ - $348,016 $ -
========================================================
F-19
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
9. Unconsolidated At December 31, 1998, the unaccreted excess of the
Subsidiary Company's equity in the underlying net assets of the LLC
(Concluded) over its investment at the date of acquisition was
approximately $1,859,000, which was netted against the
investment for balance sheet presentation purposes. The
excess was being accreted to income over a ten year
period. During 1998 and the nine months ended September
30, 1999, approximately $100,600 and $97,700,
respectively, of accretion was included in the caption
Equity in Earnings of Unconsolidated Subsidiary in the
accompanying consolidated statements of operations.
Under the terms of a Consulting Agreement with the LLC,
the Company received a management fee from the LLC of 6%
of the LLC's Net Sales (as defined) for certain
consulting services related to their specialized
knowledge of the Exorex line. The Company recorded
management fee income of approximately $159,000 and
$77,000 for the year ended December 31, 1998 and the
nine months ended September 30, 1999, respectively, of
which approximately $77,800 and $37,600 (49%) is
included in the caption Equity in Earnings of
Unconsolidated Subsidiary in the accompanying
consolidated statements of operations.
Effective June 30, 1999, the Company entered into the
Sale Agreement with Medicis, whereby the Company sold
its 49% interest in the LLC to Medicis. The Company
received $3,600,000 on July 1, 1999 for its interest and
has recorded a gain of approximately $3,358,000 from the
sale, net of the Company's basis of ($36,000) and
expenses of approximately $278,000.
F-20
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
10. Income Taxes The provision for income taxes in the consolidated
statements of operations is as follows:
Years Ended Nine Months Ended
December 31, September 30,
------------------------ -------------------------
1997 1998 1998 1999
- --------------------------------------------------------------------------------
Current:
Federal $ -- $ -- $ -- $ 25,000
State -- -- -- --
- --------------------------------------------------------------------------------
-- -- -- 25,000
- --------------------------------------------------------------------------------
Deferred
Federal -- -- -- (25,000)
State -- -- -- --
- --------------------------------------------------------------------------------
-- -- -- (25,000)
- --------------------------------------------------------------------------------
$ -- $ -- $ -- $ --
================================================================================
Applicable income taxes for financial reporting purposes
differ from the amount computed by applying the
statutory federal income tax rate as follows:
Years Ended Nine Months Ended
December 31, September 30
--------------------- ---------------------
1997 1998 1998 1999
- --------------------------------------------------------------------------------
Tax (benefit) at statutory rate $(197,200) $(685,800) $(345,200) $ 442,200
Increase (decrease) in tax
resulting from:
State income tax, net
of federal tax benefit (21,100) (73,200) (29,400) 47,200
Other 3,000 3,600 2,600 9,300
Increase (decrease) in
valuation allowance 215,300 755,400 372,000 (498,700)
- --------------------------------------------------------------------------------
Income taxes $ -- $ -- $ -- $ --
================================================================================
F-21
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
10. Income Taxes The approximate tax effects of temporary differences
(Concluded) that give rise to the deferred tax assets and deferred
tax (liabilities) are as follows:
September
December 31, 30,
------------------------- ---------
1997 1998 1999
- -------------------------------------------------------------------------------
Supply agreement impairment loss $ -- $ 332,700 $ --
Fair value of common stock options and
Warrants 39,700 95,200 126,300
Start-up costs -- 97,200 139,100
Depreciation and amortization 4,700 (26,600) (71,700)
Other 13,800 6,800 12,000
Net operating loss carryforwards 532,500 840,800 641,700
- -------------------------------------------------------------------------------
590,700 1,346,100 847,400
Less valuation allowance (590,700) (1,346,100) (847,400)
- -------------------------------------------------------------------------------
Total net deferred tax asset $ -- $ -- $ --
===============================================================================
At December 31, 1997 and 1998, the Company had net
operating loss carryforwards of approximately $1,415,000
and $2,234,000, respectively, 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.
11. Recourse Effective June 18, 1998 the Company sold approximately
Obligation $2,509,000 of accounts receivable related to Exorex, to
the LLC for cash of approximately $2,259,000 (90%), and
Exorex inventory with a cost of approximately $1,367,000
for cash. The LLC had the right to assign any accounts
receivable not collected by August 18, 1998 back to the
Company. As of December 31, 1998, the LLC had made no
such assignment, however the Company recorded a recourse
obligation of approximately $269,700 for the amount of
accounts receivable that were uncollected. Pursuant to
the Sale Agreement (Note 9), the Company was relieved of
the recourse obligation effective June 30, 1999.
F-22
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
12. Notes Payable At December 31, 1997, the Company had notes payable
totaling $372,000, bearing interest at 18%, to six
individuals, including notes to two officers of the
Company totaling $75,000 (see Note 17). In addition, for
each $25,000 borrowed, the Company issued warrants with
a five year exercise period from the origination date of
the notes payable, to purchase 1,750 shares of the
Company's common stock for $3.50 per share, for each
month the notes payable were outstanding (Note 13). The
Company repaid all of the notes payable during 1998, and
150,598 of such warrants were issued. Using the
Black-Scholes option pricing model, the fair market
value of the warrants was calculated as approximately
$249,700 with the following assumptions: 45% volatility,
5 year expected life, and a 6% risk-free interest rate.
The fair value of the warrants represents an original
issue discount of which approximately $64,300 and
$185,400 was amortized during 1997 and 1998,
respectively.
13. Capital Stock Common Stock
Common Stock has one vote per share for the election of
directors and all other matters submitted to a vote of
stockholders. Shares of Common Stock do not have
cumulative voting, preemptive, redemption or conversion
rights.
At December 31, 1997 and 1998, and September 30, 1999,
the Company has reserved 2,966,483, 3,385,856 and
3,495,716 shares of Common Stock, respectively, for
issuance relating to unexpired options and warrants.
F-23
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
13. Capital Stock 1997 Private Placement
(Continued)
On October 30, 1997, and as amended November 24, 1997,
the Company offered to sell, through a private
placement, 100 units at a price of $50,000 per unit
(consisting of 14,285 shares of Common Stock at $3.50
per share), with no requirement for a minimum number of
units to be sold. At December 31, 1997, net proceeds of
approximately $160,600 had been received ($162,500 of
proceeds less expenses of approximately $1,900). The
closing date of the offering was extended to February
28, 1998, at which time the gross proceeds totaled
approximately $1,088,000 less offering costs of
approximately $141,000.
1997 Recapitalization Agreement
On October 16, 1997, the Company entered into a
Recapitalization Agreement with Interderm, Meyer-Zall,
and certain of their affiliates (the "sellers"), whereby
the Company repurchased 3,524,557 shares of the
Company's Common Stock for $200,000 from the sellers.
The significant terms of the agreement were as follows:
the option agreements with the sellers dated January 21,
1997 for the Company's purchase of 2,359,113 shares for
$1.00 per share were terminated; the January 1996 voting
agreement between the sellers and the Company's
President, granting voting rights of the 6,107,432
shares previously held by the sellers to the President
was terminated; the President and three other officers
agreed to a recission of employee stock options for the
purchase of 400,000 shares of Common Stock at exercise
prices ranging from $5.00 to $6.50 per share, and had
$1,500,000 of proceeds from the Company's October 1997
Private Placement of Common Stock been reached,
1,000,000 shares of Common Stock owned by the sellers
would be included in a planned registration statement
upon completion (as defined) of the private placement.
F-24
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
13. Capital Stock 1997 Supply Agreement
(Continued)
On March 20, 1998, the Company completed the supply
agreement transaction with IGI (Note 8), for the
issuance of 271,714 shares of Common Stock valued at
$3.50 per share to IGI.
In August 1999, the Company entered into an agreement
with IGI, whereby the Company agreed to register certain
shares of Common Stock of the Company held by IGI for
resale, and IGI agreed to return certain other shares of
the Company's Common Stock it holds according to a
schedule, commencing upon the sale of certain IGI
products by the Company. No assurances can be given that
any such products will be commercially acceptable.
1998 Stock Purchase Agreement
As a condition of the Joint Venture Agreement (Note 1),
in June 1998 Medicis purchased 400,000 shares of Common
Stock at the estimated fair value of $2.50 per share.
Recission Offer
The State of Maryland requested that the Company offer
to repurchase up to 69,998 of the Company's Common Stock
from residents of Maryland that purchased Common Stock
in the 1997 Private Placement. The Company commenced a
recission offer to repurchase these shares for $3.50 per
share ending on February 26, 1999. Two stockholders with
a total of 19,999 shares accepted the offer by the
expiration date and were paid approximately $70,000. At
December 31, 1998, $70,000 is reflected as redeemable
common stock in the accompanying consolidated balance
sheet. During the nine months ended September 30, 1999,
the 19,999 shares of Common Stock were transferred to
treasury stock.
F-25
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
13. Capital Stock Preferred Stock
(Concluded)
On February 28, 1997, the Company offered to sell,
through a private placement, 200 units at a price of
$25,000 per unit without any requirement that a
specified number of units be sold. Each unit consisted
of 1,000 shares of Series A Convertible Preferred Stock
("Preferred Stock"), $.001 par value, with a price of
$25 per share. The Preferred Stock accrued cumulative
annual dividends of 8% per annum ($2 per share) payable
quarterly. Initial dividends accrued from July 10, 1997,
the date of issuance and are payable in cash or
additional shares of Preferred Stock, at the option of
the Company. In the event of liquidation, each holder of
Preferred Stock is entitled to a liquidating
distribution of $25 per share after payment of
liabilities. Each share of the Preferred Stock is
convertible at the option of the holder into ten shares
of Common Stock (at a price of $2.50 per share) and ten
warrants to purchase Common Stock. Each warrant is
exercisable until July 10, 2002 and entitles the holder
to purchase one share of Common Stock at a price of
$6.50 per share. Holders of each share of Preferred
Stock are entitled to ten votes and both the common and
preferred classes of stock will vote as a single class.
As of July 10, 1997, the Company sold 76,750 shares of
Preferred Stock and received gross proceeds of
$1,918,750 less costs of approximately $217,000. On
March 31, 1999, each of the outstanding shares of this
series was converted into ten shares of Common Stock and
ten warrants to purchase Common Stock.
At December 31, 1997 and 1998, and March 31, 1999, the
Company accrued dividends payable on the Preferred Stock
of approximately $73,000, $169,000, and $43,400 for the
period July 10, 1997 to December 31, 1997, the year
ended December 31, 1998 and nine months ended September
30, 1999, respectively. The Company elected to pay the
dividends, by issuing additional shares of Preferred
Stock.
For the year ended December 31, 1997 the Company also
recorded a deemed Preferred Stock dividend of $767,500
representing a $1.00 discount on conversion (from a
market price of $3.50 per share at the February, 1997
offering date) on the 767,500 shares of Common Stock
into which the Preferred Stock is convertible.
F-26
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
14. 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.
A summary of the Company's stock option activity is as
follows:
<TABLE>
<CAPTION>
Years Ended
December 31, Nine Months Ended
------------------------------------------ September 30,
1997 1998 1999
------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of period 1,095,000 $ 2.39 1,350,000 $ 2.72 1,586,975 $ 2.71
Granted 640,000 4.91 246,975 2.73 169,500 1.90
Exercised (2,500) 2.50 -- -- (5,000) 1.00
Forfeited/canceled (382,500) 5.44 (10,000) 4.06 (72,000) 5.44
- -----------------------------------------------------------------------------------------------
Outstanding at end of
period 1,350,000 $ 2.72 1,586,975 $ 2.71 1,679,475 $ 2.54
===============================================================================================
Exercisable at end of
period 821,750 $ 1.93 1,235,725 $ 2.49 1,435,725 $ 2.64
===============================================================================================
Weighted average fair
market value of
options granted
period $ .81 $ .87 $ .86
===============================================================================================
</TABLE>
F-27
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
14. Stock Options The following table summarizes information about fixed
(Continued) stock options outstanding as follows:
<TABLE>
<CAPTION>
Weighted
Average
Remaining Weighted Weighted
Range of Options Contractual Average Options Average
Exercise Price Outstanding Life in Years Exercise Price Exercisable Exercise Price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
- -------------------------------------------------------------------------------------------------------
$1.00 - 2.50 820,000 8.00 $ 1.54 711,250 $ 1.51
3.87 - 4.00 280,000 9.35 3.99 60,000 3.98
5.00 - 6.50 250,000 9.00 5.16 50,500 5.50
- -------------------------------------------------------------------------------------------------------
$1.00 - 6.50 1,350,000 8.50 $ 2.72 821,750 $ 1.93
=======================================================================================================
December 31, 1998
- -------------------------------------------------------------------------------------------------------
$1.00 - 3.00 1,006,000 7.34 $ 1.60 834,750 $ 1.56
3.87 - 4.00 270,000 8.17 4.00 270,000 4.00
4.78 - 6.50 310,975 7.64 5.18 130,975 5.32
- -------------------------------------------------------------------------------------------------------
$1.00 - 6.50 1,586,975 7.54 $ 2.71 1,235,725 $ 2.49
=======================================================================================================
September 30, 1999
- -------------------------------------------------------------------------------------------------------
$1.00 - 3.00 1,150,500 7.25 $ 1.63 917,375 $ 1.60
3.87 - 4.00 270,000 7.99 4.00 270,000 4.00
4.78 - 6.50 258,975 7.56 5.03 248,350 4.97
- -------------------------------------------------------------------------------------------------------
$1.00 - 6.50 1,679,475 7.45 $ 2.54 1,435,725 $ 2.64
=======================================================================================================
</TABLE>
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 1997, 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, respectively.
F-28
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
14. Stock Options Under accounting provisions of SFAS 123, the Company's
(Concluded) net income (loss) and income (loss) per share would have
changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended September 30,
---------------------------- ----------------------------
1997 1998 1998 1999
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) applicable to
common stockholders
As Reported $ (1,420,517) $ (2,185,893) $ (1,130,126) $ 1,257,045
Pro forma (1,591,000) (2,555,000) (1,499,320) 1,018,933
Income (loss) per share - basic
As Reported (.20) (.45) (.24) .24
Pro forma (.23) (.52) (.32) .19
Income (loss) per share - diluted
As Reported (.20) (.45) (.24) .22
Pro forma $ (.23) $ (.52) $ (.32) $ .18
================================================================================================
</TABLE>
15. 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 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.
F-29
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
15. Stock Warrants On March 31, 1999, in connection with the Company's 1997
(Continued) 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 September
30, 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 and 1997, warrants to
purchase 65,478 and 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 September 30, 1999, no
warrants have been exercised.
F-30
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
15. Stock Warrants The aggregate number of common shares reserved for
(Concluded) issuance upon the exercise of warrants is 1,816,241 as
of September 30, 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
=======================================================
16. Net Income (Loss) The following table sets forth the computation of basic
Per Common Share and diluted net income per common share:
Nine Months Ended
September 30,
1999
-------------------------------------------------------
Numerator:
Numerator for basic and diluted
Earnings per share-income available
to common stockholders $1,257,045
=======================================================
Denominator:
Denominator for basic earnings per
share-weighted-average shares 5,281,948
Effect of dilutive securities:
Common stock options 330,748
-------------------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 5,612,696
=======================================================
Basic net income per common share $ .24
=======================================================
Diluted net income per common share $ .22
=======================================================
F-31
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
16. Net Income (Loss) Net income (loss) per common share is calculated by
Per Common Share dividing the net income (loss) by the weighted-average
(Concluded) 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 September 30, 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.
17. Related Party The Company purchased inventory from Meyer-Zall of
Transactions approximately $1,170,000 and $569,000 for the years
ended December 31, 1997 and 1998, respectively.
During July 1998, the Company loaned $120,000 to
Meyer-Zall, such loan was secured by all of Meyer-Zall's
accounts receivable in sales of products to the LLC and
900,000 shares of the Company's Common Stock. In
addition, the Company reserved the right, pursuant to
the terms of the loan agreement, at any time within six
months of execution of the loan agreement, to convert
all of the principal amount of the loan into 2% of
Meyer-Zall's outstanding voting securities. Initially,
interest at a rate of 18% per annum was due on the
principal amount of the loan, and the principal was due
in four equal monthly installments of $30,000 to be paid
commencing February 1, 1999. However, after November 11,
1998, interest no longer accrued, and repayment of the
principal amount was postponed indefinitely. In
September 1999, Meyer-Zall returned to the Company
76,000 shares of the Company's Common Stock which
Meyer-Zall held, in return for cancellation of the
outstanding debt of $125,400 ($1.65 per share),
inclusive of accrued interest.
F-32
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
17. Related Party See Notes 9 and 11 regarding transactions during 1998
Transactions and the nine months ended September 30, 1999 with
(Concluded) Medicis and the LLC.
At December 31, 1997, the Company advanced approximately
$17,800 to companies affiliated to the President. At
September 30, 1999 approximately $23,400 of such
advances were outstanding and to be repaid during 1999.
During 1997 the Company issued notes payable and
warrants (Note 12) totaling approximately $175,000 to
officers and directors. The notes and warrants were
issued under the same terms as those to unrelated
parties. One note payable in the amount of $100,000 to a
director was repaid during December, 1997. The remaining
$75,000 of notes were repaid during 1998.
18. Commitments and The Company leases its facility and certain equipment
Contingencies under non-cancelable operating leases. The Company has a
sub-lease agreement for certain facilities and
equipment. The future minimum rental payments required
under these operating leases that have initial or
remaining noncancelable lease terms in excess of one
year, and the future minimum rental receipts required
under noncanceable sub-leases of December 31, 1998 are
approximately as follows:
Future Minimum Future Minimum Net Future Minimum
Rental Payment Rental Receipt Rental Payment
--------------------------------------------------------
1999 $ 126,000 $ 61,000 $ 65,000
2000 91,000 61,000 30,000
2001 44,000 15,000 29,000
2002 25,000 -- 25,000
2003 14,000 -- 14,000
========================================================
Total rent expense for all non-cancelable operating
leases having a term of more than one year was
approximately $100,000 and $61,000 for the years ended
December 31, 1997 and 1998, and $44,000 and $26,000 for
the nine month periods ended September 30, 1998 and
1999, respectively.
F-33
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
18. Commitments and On July 1, 1998, the Company entered into an employment
Contingencies agreement for a period of three years with William
(Continued) Forster, the Company's Chairman of the Board, President
and Chief Executive Officer. By virtue of a voting
agreement entered into with principal stockholders, Mr.
Forster had voting control of approximately 86.8% of the
outstanding shares of the Company's Common Stock as of
January 21, 1996. As a result of the termination of the
voting agreement under the terms of the October 1997
Recapitalization Agreement with Interderm, Meyer-Zall,
and certain of their affiliates and new issuances of
Common Stock (Note 13), Mr. Forster's voting control was
reduced to approximately 13%. 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. In connection with the
Sale Agreement, bonuses of approximately $258,000 are
included as an expense of the gain on sale of investment
in unconsolidated subsidiary in the accompanying
consolidated statement of operations for the nine months
ended September 30, 1999.
The Company has entered into a series of product
development agreements with a consultant, which provides
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 for the Company.
In November 1999, Bioglan Pharma PLC and Bioglan Pharma,
Inc. (collectively, "Bioglan") commenced an arbitration
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.
F-34
<PAGE>
IMX Pharmaceuticals, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the nine month
periods ended September 30, 1998 and 1999 are unaudited)
================================================================================
18. Commitments and Specifically, Bioglan claims that Medicis, the LLC and
Contingencies the Company breached an Asset Purchase Agreement by
(Concluded) transferring inventory to Bioglan, which had a remaining
shelf life which was less than 12 months, and was
otherwise unmarketable. The Asset Purchase Agreement
specified that Bioglan was to take title to all
inventory which had a shelf life greater than 12 months,
and the Company was to take title to inventory which had
a shelf life of 12 months or less. However, the products
were warehoused together. Management believes that
Medicis, under an interim management agreement with
Bioglan, filled Bioglan orders with the Company's
inventory. 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 inventory which it received had not been
properly stored and was therefore unmarketable.
Management believes that this claim does not have any
merit, as Management was never advised by the
manufacturer, Meyer-Zall, of any requirement of 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.
19. Sales To One During 1997 the Company had net sales to two large
Customer retail drug chains each representing approximately 16%
of total net sales for the year. During 1998 the Company
had net sales to a retail drug chain representing
approximately 10% of net sales for the year. During the
nine months ended September 30, 1999 the Company had net
sales to two customers representing approximately 25%
and 16% of net sales for the period.
F-35
<PAGE>
PART III
Item 2. Index to Exhibits
Exhibit No. Description
3.1 Restated Articles of Incorporation
3.2 Amended and Restated By-Laws
4.1 Long Term Incentive Plan
10.1 Agreement dated September 18, 1995 between Interderm Limited
and IMX Corporation
10.1.1 Amendment Agreement dated September 18, 1995 among Meyer-Zall
Laboratories, Interderm Limited and IMX Corporation
10.2 First Refusal Agreement dated October 13, 1995 between
Meyer-Zall Laboratories (PTY), Ltd. and IMX Corporation
10.2.1 Amendment Agreement between Meyer-Zall Laboratories (PTY),
Ltd. and IMX Pharmaceuticals, Inc. dated January 15, 1998
10.3 Exclusive Supply Agreement dated as of September 30, 1997
among IGI, Inc., IGEN, Inc., Immunogenetics, Inc. and IMX
Pharmaceuticals, Inc.
10.3.1 Amendment to Exclusive Supply Agreement dated March 20, 1998
among IGI, Inc., IGEN, Inc., Immunogenetics, Inc. and IMX
Pharmaceuticals, Inc.
10.3.2 Letter Agreement dated August 3, 1999 between IGI, Inc. and
IMX Pharmaceuticals, Inc.
10.4 Joint Venture Agreement between (sic) Medicis Pharmaceutical
Corporation, Medicis Consumer Products Company, LLC and IMX
Pharmaceuticals, Inc. dated June 12, 1998
10.4.1 Limited Liability Company Agreement of Medics Consumer
Products Company, LLC dated as of June 18, 1998
10.4.2 New Products Agreement between Medicis Pharmaceutical
Corporation and IMX Pharmaceuticals, Inc. dated as of June 18,
1998
10.4.3 Facility Agreement between Medics Consumer Products Company,
LLC and IMX Pharmaceuticals, Inc. dated as of June 18, 1998
10.5 Asset Purchase Agreement by and among The Exorex Company, LLC,
Bioglan Pharma PLC, Medicis Pharmaceutical Corporation and IMX
Pharmaceuticals, Inc.
10.5.1 Sale and Transfer Agreement by and between Medicis
Pharmaceutical Corporation and IMX Pharmaceuticasl, Inc.
10.5.2 Transition Services Agreement by and among The Exorex Company,
LLC, Bioglan Pharma PLC, Medicis Pharmaceutical Corporation
and IMX Pharmaceutical, Inc.
10.6 Lease dated March 29, 1996 between Aspen Realty and Management
Co. and IMX Corporation
10.6.1 Addendum to Lease dated March 11, 1997 between Aspen Realty
and Management Co. and IMX Corporation
10.6.2 Addendum to Lease dated August 28, 1997 between Aspen Realty
and
33
<PAGE>
Management Co. and IMX Corporation
10.7 Lease Agreement between Lewis Rental Properties and IMX
Corporation dated December 18, 1998
10.8 Employment Agreement by and between IMX Pharmaceuticals, Inc.
and William A. Forster dated as of July 1, 1998
10.9 Employment Agreement by and between IMX Pharmaceuticals, Inc.
and Gary Spielfogel dated as of July 1, 1998
10.10 Employment Agreement by and between IMX Pharmaceuticals, Inc.
and Marc Falkin dated as of August 1, 1998
21 Subsidiaries
34
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
IMX PHARMACEUTICALS, INC.
By: /s/ William A. Forster
William A. Forster, Chief Executive Officer
Date: December 17, 1999
In accordance with Section 12 of the Securities Exchange Act of 1934, this
registration statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated; and
Further, that each of the persons who signed below hereby appoints and
constitutes William A. Forster, his true and lawful attorney-in-fact and agent,
with fully power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to execute the any and all
amendments to this registration statement, and to file the same, together with
all exhibits thereto, with the Securities and Exchange Commission, and such
other agencies, offices and persons as may be required by applicable law, and to
execute such other documents in connection therewith as may be required by
applicable law, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ William A. Forster Chief Executive Officer and
- -------------------------------------- Chairman of the Board December 17, 1999
William A. Forster
/s/ Leonard F. Kaplan Chief Financial and Accounting
- -------------------------------------- Officer December 17, 1999
Leonard F. Kaplan
/s/ David A. Gross, M.D.
- -------------------------------------
David A. Gross, M.D. Director December 17, 1999
/s/ Eugene Miller
- -------------------------------------
by William A. Forster, Director December 17, 1999
as attorney-in-fact
Eugene Miller
/s/ Michael F. Holick, Ph.D., M.D.
- -------------------------------------
by William A. Forster, Director December 17, 1999
as attorney-in-fact
Michael F. Holick, Ph.D., M.D.
/s/ Sanfurd Bluestein, M.D.
- -------------------------------------
by William A. Forster, Director December 17, 1999
as attorney-in-fact
Sanford Bluestein, M.D.
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
Director December 17, 1999
/s/ Westby J. Rogers
- -------------------------------------
by William A. Forster,
as attorney-in-fact
Westby J. Rogers
/s/ Lawrence D. Russell
- -------------------------------------
by William A. Forster, Director December 17, 1999
as attorney-in-fact
Lawrence D. Russell
</TABLE>
36
