<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 2000.
/ / Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from ______________________ to
_________.
Commission File No. _______________.
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)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days:
Yes No X Form 8-KA will be filed shortly.
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
At August 17, 2000 there were 9,605,586 shares of common
stock, par value $.001 per share outstanding.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
General
Prior to the second quarter of this year, IMX was primarily engaged in
the development of lines of health and beauty products that the company believes
will offer superior benefits to consumers. The Mother 2 Be(R), Proctozone(TM),
and Podiatrx(TM) lines were launched in the last five quarters. In the second
quarter of this year, the Company completed its acquisition of the Enviro-Tech
Distribution Network and acquired new product lines to join its earlier lines in
direct distribution.
These acquisitions will transform the Company from a development
company into a Multi Level Marketing company with a large North American
Independent Distributor network and a modern manufacturing, warehousing, and
distribution facility for its growing array of proprietary products.
On May 17, 2000 the Company signed an Agreement for Sale and Purchase
of Assets with Dri-Kleen, Inc. d/b/a Enviro-Tech International ("Enviro-Tech").
The agreement provided for the Company to purchase Enviro-Tech's Multi-Level
Distribution Network consisting of approximately 20,000 independent distributors
in North America. The purchase price set forth in the Agreement was $2,400,000
and 2,000,000 shares of the Company's common stock. An additional $850,000 was
paid as a refundable deposit at the time of signing. This amount, together with
the $400,000 paid when the original letter of intent was signed constitutes the
$1,250,000 of deposits shown on the balance sheet.
The agreement also provided that, as of May 22, 2000, the Company would
begin to operate the Distribution Network for its benefit and risk and at its
expense. Net sales of $1,221,309, cost of goods of $329,700, and direct expenses
of $332,000 attributable to the Company's operation of the Distribution Network
are included in the Results of Operations for the quarter ended June 30, 2000.
On July 21, 2000 the Company and Enviro-Tech signed a Revised Agreement
for Sale and Purchase of Assets. The Revised Agreement provides that, in
addition to purchasing the Distribution Network, The Company will acquire all of
Enviro-Tech's inventory of Dri Wash n' Guard(TM) and nutritional supplement
products and its 45,000 square foot factory, warehouse, and distribution center
in Elbow Lake, Minnesota. The consideration for the purchase was changed to
$1,900,000 in cash (the balance of which was paid upon execution of the revised
Agreement), 2,500,000 shares of the Company's common stock, a ninety-day note
for $600,000, and the assumption of almost $1,000,000 in various Enviro-Tech
debts. In addition, the Company and Enviro-Tech signed a long-term supply
agreement with respect to the Dri Wash n' Guard(TM) line of waterless car and
home cleaning products. The Supply Agreement requires the Company to purchase at
least 60,000 gallons of Dri Wash n' Guard(TM) annually and pay a minimum annual
royalty fee of $300,000. The Company took control of the assets on July 24,
2000.
<PAGE>
On June 16, 2000 the Company signed an agreement with Pure
Distributors' Inc. d/b/a Envion International to become the exclusive worldwide
distributor of all of Envion's products. The main products include meal
replacement bars and nutritional supplements marketed under the BioZone(R) and
Envitamins(R) names. Envion's products and now marketed through its
WellnesShop.com web site and a companion catalogue, both of which will now be
operated by the Company. The Company will pay a fee to Envion for the
distributorship. The fee amounts to $185,000 during 2000, $86,000 during 2001,
and $66,000 during 2002 and each year thereafter.
At the same time, the Company acquired Envion's entire current product
inventory for $750,000 payable monthly over two years. In addition, the Company
has agreed to purchase all of its requirements for Envion products from Envion.
The Company also has an option to purchase all of Envion's rights to
its products, its customer lists, and various other contract rights for
$200,000. If the option is exercised, the fees paid in connection with the
Distribution Agreement would be cancelled, the Company would no longer be
required to purchase its requirements from Envion, and would only pay Envion
royalties based on its purchase of Envion products from the manufactures
thereof.
Sales of $69,994, cost of good sold of $16,252, and direct expenses of
$36,520 relating to the sale of Envion products are included in the Results of
Operations for the quarter ended June 30, 2000.
On June 15, 2000, the Company purchased all of the stock of Select
Benefits Corporation for a three-year note in the amount of $189,510.45 and
100,000 shares of its common stock. Select Benefits Corporation has now changed
its name to IMX Select Benefits Corporation. Select Benefits provides discount
health care memberships that provide discounts of 10% to 60% for prescription
drugs, vision care, dentistry, chiropractic, hearing, and other health related
benefits. Sales and expenses in connection with Select Benefits during the
quarter ended June 30, 2000 were not material.
Results of Operations
For the three months and six months ended June 30, 2000, consolidated
net sales were approximately $1,702,000 and $1,933,000, as compared to $50,000
and $51,000, for the same periods ended June 30, 1999. This increase was
primarily due to the sales as a result of the operation of Enviro-Tech
distribution network after May 22, 2000.
Gross profit margin for the three and six months ended June 30, 2000
were 74% and 73% compared to 56% for the same periods ended June 30, 1999. This
result is due to increased profit margins in general of the new product lines
carried by Enviro-Tech.
Selling expenses were approximately $892,000 and $1,284,000 for the
three and six months ended June 30, 2000, as compared to $408,000 and $786,000
for the same
<PAGE>
periods ended June 30, 1999. This increase is attributed to expenses related to
the acquisition of the Enviro-Tech distribution network.
General and Administrative expenses were approximately $687,000 and
$1,076,000 for the three and six months ended June 30, 2000, as compared to
approximately $408,000 and $786,000 for the same periods ended June 30th, 1999.
The increase is attributed to the increased payroll due to the acquisition of
Enviro-Tech. Part of this increase is due to duplication of tasks, which will be
absorbed in the future as such duplication is eliminated.
For the three months and six months ended June 30, 2000, the net loss
from operations was $(345,000) and $(1,028,000) for the periods ended June 30,
2000, as compared to $(777,000) and $(1,431,000) for the same periods ended June
30, 1999.
The Company is anticipating having its existing products sold
through its newly acquired multi level marketing network.
Liquidity and Capital Resources
At June 30, 2000, the Company's financial condition included working
capital of approximately $2.6 million as compared to approximately $2.8 million
at December 31, 1999. The Enviro-Tech distributorship was purchased for $1.9
million in cash. In addition, inventory of $750,000 was purchased from Envion.
The Company anticipates having to secure a line of credit for the
short and long-term to produce working capital for its operations. Cash on hand
at August 17, 2000 is approximately $176,000. There is no guarantee that the
Company would have enough funds for its daily operations without securing a line
of credit or other financing. There is no assurance that such a line of credit
or other financing can be secured.
Inflation
Inflation rates in the United States have not had a significant impact
on operating results for the periods presented.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this item and elsewhere in this report
regarding matters that are not historical facts are forward-looking statements
(as such term is defined in the Private Securities Litigation Reform Act of
1995). Because such forward-looking statements include risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements. All statements that address operating performance,
events or developments that management expects or anticipates to incur in the
future, including statements relating to sales and earnings growth or statements
expressing general optimism about future operating results, are forward-looking
statements. The forward-looking statements are based on management's
<PAGE>
current views and assumptions regarding future events and operating performance.
Many factors could cause actual results to differ materially from estimates
contained in management's forward-looking statements. The differences may be
caused by a variety of factors, including but not limited to adverse economic
conditions, competitive pressures, inadequate capital, unexpected costs, lower
revenues and net incomes and forecasts, the possibility of fluctuation and
volatility of the Company's operating results and condition, inability to carry
out marketing and sales plans, and loss of key executives, among other things.
Part II. Other Information
Items 1,3,4, and 5 are omitted as they are either not applicable or
have been included in Part I.
Item 2 (c) Recent Sales of Unregistered Securities
As part of its acquisition of the all of the outstanding stock of
Select Benefits Corporation, on June 15th, 2000 the Company issued 100,000
shares of its common stock, par value $0.001, to Pete Longbons, the president
and a major shareholder of Select Benefits. These shares are now held in escrow
to secure the payment of the note issued in connection with the acquisition.
The securities were not sold for cash, no broker was involved, the
securities were not convertible, and the only proceeds were the shares of Select
Benefit Common Stock previously owned by Mr. Longbons. The Select Benefits stock
will be held in the Company's treasury as evidence of its ownership of Select
Benefits Corporation.
In connection with the issuance to Mr. Longbons, the Company relied on
the exemption in Section 4(2) of the Securities Act of 1933, as amended, as a
transaction by an issuer not involving any public offering. Mr. Longbons had
full access to information on the Company, has agreed not to distribute his
shares, and has accepted a restrictive legend on his certificate, as did the
escrow agent.
Item 6(b) Reports on Form 8-K
A report on Form 8-K was filed on June 1, 2000. The financial
statements required in connection with these reports are being filled by
amendment.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed in its behalf by the
undersigned thereunto duly authorized on the 18th day of August 2000.
IMX PHARMACEUTICALS, INC
By: /s/ Leonard F. Kaplan
-----------------------------------
Leonard F. Kaplan, Chief Financial Officer
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements
1-2 Consolidated Balance Sheets as of December 31, 1999
(audited) and June 30, 2000 (unaudited)
3 Consolidated Statements of Operations for the Three Months
Ended March 31, 1999 (unaudited) and March 31, 2000
(unaudited) and Six Months Ended June 30, 1999 (unaudited)
and June 30, 2000 (unaudited)
4 Consolidated Statements of Changes In Stockholders' Equity
5 Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 (unaudited) and March 31, 2000
(unaudited) and Six Months Ended June 30, 1999 (unaudited)
and June 30, 2000 (unaudited)
6-27 Notes to Consolidated Financial Statements (unaudited)
Item 2.
28-30 Management's Discussion and Analysis or Plan of Operation
Part II.
31 Other Information
Signatures
32
<PAGE>
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Audited) (Unaudited)
December 31, June 30,
1999 2000
------------------ ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,497,791 $ 122,500
Securities available for sale 30,463 28,269
Accounts receivable (net of allowance for
doubtful accounts of $27,495 and $3,170) 110,525 63,641
Other receivables 0 424,251
Loan receivable - related party 31,153 30,125
Inventories 557,593 1,364,008
Refundable deposit 0 1,250,000
Vendor deposits 50,000 120,000
Prepaid expenses and other 46,731 47,237
------------------ ------------------
Total Current Assets 3,324,256 3,450,031
------------------ ------------------
PROPERTY AND EQUIPMENT:
Property and equipment (net of accumulated
depreciation of $179,216 and $210,422) 105,913 159,971
------------------ ------------------
OTHER ASSETS:
Goodwill 264,303
Deposits and other 67,646 112,646
------------------ ------------------
Total Other Assets 67,646 376,949
------------------ ------------------
TOTAL ASSETS $ 3,497,815 $ 3,986,951
================== ==================
</TABLE>
F-1
See accompanying notes to the consolidated financial statements.
<PAGE>
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Audited) (Unaudited)
December 31, June 30,
1999 2000
------------------ ------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 436,398 $ 457,094
Accrued expenses and other current
liabilities 49,700 294,442
Notes payable, current portion 435,000
Capital lease payable, current portion 2,896 2,896
------------------ ------------------
Total Current Liabilities 488,994 1,189,432
------------------ ------------------
LONG-TERM LIABILITIES:
Notes payable, non-current portion 503,504
Capital lease payable, non-current portion 4,896 4,896
------------------ ------------------
Total Long Term Liabilities 4,896 508,400
------------------ ------------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 50,000,000 shares
authorized, 9,634,707 and 9,734,707 shares issued,
5,802,461 and 5,902,461 shares outstanding 9,635 9,735
Additional paid-in capital 7,943,050 8,017,950
Retained earnings (deficit) (4,348,955) (5,147,491)
Treasury stock, at cost - 3,832,246 and
3,832,246 shares (578,054) (578,054)
Accumulated other comprehensive loss (21,751) (13,021)
------------------ ------------------
Total Stockholders' Equity 3,003,925 2,289,119
------------------ ------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,497,815 $ 3,986,951
================== ==================
</TABLE>
F-2
See accompanying notes to the consolidated financial statements.
<PAGE>
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
1999 2000 1999 2000
--------------- -------------- ---------------- -----------------
<S> <C> <C> <C> <C>
NET SALES $ 50,718 $ 1,933,122 $ 50,351 $ 1,701,776
COST OF SALES 22,365 520,972 22,220 439,471
--------------- -------------- ---------------- -----------------
GROSS PROFIT 28,353 1,412,150 28,131 1,262,305
--------------- -------------- ---------------- -----------------
OPERATING EXPENSES:
Selling 486,796 1,283,981 271,443 891,677
Advertising 116,538 48,132 67,326 15,602
General and administrative 785,597 1,076,299 408,454 686,662
Supply agreement impairement loss 43,348 - 43,348 -
Depreciation and amortization 27,204 31,883 14,204 13,789
--------------- -------------- ---------------- -----------------
Total Operating Expenses 1,459,483 2,440,295 804,775 1,607,730
--------------- -------------- ---------------- -----------------
LOSS FROM OPERATIONS (1,431,130) (1,028,145) (776,644) (345,425)
OTHER INCOME (EXPENSES):
Equity in loss of unconsolidated
subsidiary (12,887) - (12,887) -
Medicis inventory recovery gain (loss) - 180,162 - (40,091)
Gain on sale of investment in unconsolidated - - - -
subsidiary 3,356,005 - 3,356,005 -
Other 82,341 49,447 23,749 24,207
--------------- -------------- ---------------- -----------------
-
Income (Loss) before income taxes 1,994,329 (798,536) 2,590,223 (361,309)
Provision for Income Taxes - - - -
--------------- -------------- ---------------- -----------------
Net Income (loss) 1,994,329 (798,536) 2,590,223 (361,309)
Dividend on preferred stock (43,400) - (43,400) -
--------------- -------------- ---------------- -----------------
Net loss available to
common stockholders $ 1,950,929 $ (798,536) $ 2,546,823 $ (361,309)
=============== ============== ================ =================
---------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares of common stock
outstanding:
Basic 5,430,340 5,811,252 5,884,951 5,820,043
Diluted 5,718,584 6,142,000 6,173,195 6,150,791
---------------------------------------------------------------------------------------------------------------------------
Net loss per common share:
Basic $ 0.36 $ (0.14) $ 0.43 $ (0.06)
Diluted $ 0.34 $ (0.13) $ 0.41 $ (0.06)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-3
See accompanying notes to the consolidated financial statements.
<PAGE>
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFFERED STOCK COMMON STOCK
----------------------- ------------------------ ADDITIONAL
NUMBER NUMBER PAID-IN
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL (DEFICIT)
------------ --------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1998 86,424 $ 86 8,728,108 $ 8,728 $ 7,780,988 $ (4,883,487)
Comprehensive Income:
Net income 577,932
Change in other comprehensive income
Total comprehensive income
Preferred stock dividend declared 1,736 2 43,398 (43,400)
Compensation - fair value of common
stock options issued to non-employees 44,483
Conversion of preferred stock to
common stock (88,160) (88) 881,600 882 (794)
Exercise of common stock options 5,000 5 4,995
Transfer of redeemed common stock to
treasury stock 19,999 20 69,980
Conversion of loan receivable to
treasury stock
Purchase of treasury stock
---------- --------- ------------- ---------- ----------- -----------
Balance - December 31, 1999 0 0 9,634,707 9,635 7,943,050 (4,348,955)
Issuance of common stock for
acquisition of Select Benefits 100,000 100 74,900
Comprehensive Income:
Net income (798,536)
Change in other comprehensive income
Total comprehensive income
---------- --------- ------------- ---------- ----------- -----------
Balance - June 30, 2000 0 $ 0 9,734,707 $ 9,735 $ 8,017,950 $ (5,147,491)
========== ========= ============= ========== =========== ===========
<CAPTION>
TREASURY STOCK ACCUMULATED
----------------------- OTHER TOTAL
NUMBER COMPREHENSIVE STOCKHOLDERS'
OF SHARES AMOUNT INCOME EQUITY
----------- ---------- --------------- --------------
<S> <C> <C> <C> <C>
Balance - December 31, 1998 3,724,757 $ (357,657) $ 11,000 $ 2,559,658
--------------
Comprehensive Income:
Net income 577,932
Change in other comprehensive income (32,751) (32,751)
--------------
Total comprehensive income 545,181
Preferred stock dividend declared 0
Compensation - fair value of common
stock options issued to non-employees 44,483
Conversion of preferred stock to
common stock 0
Exercise of common stock options 5,000
Transfer of redeemed common stock to
treasury stock 19,999 (70,000) 0
Conversion of loan receivable to
treasury stock 76,000 (125,400) (125,400)
Purchase of treasury stock 11,490 (24,997) (24,997)
----------- ---------- --------------- --------------
Balance - December 31, 1999 3,832,246 (578,054) (21,751) 3,003,925
Issuance of common stock for
acquisition of Select Benefits 75,000
Comprehensive Income:
Net income (798,536)
Change in other comprehensive income 8,730 8,730
--------------
Total comprehensive income (789,806)
----------- ---------- -------------- --------------
Balance - June 30, 2000 3,832,246 $ (578,054) $ (13,021) $ 2,289,119
=========== ========== ============== ==============
</TABLE>
F-4
See accompanying notes to the consolidated financial statements.
<PAGE>
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Six Months Ended Six Months Ended
June 30, June 30,
1999 2000
-------------------------- --------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,994,329 $ (798,536)
Adjustments to reconcile net loss
to net cash used provided by operating activities:
Depreciation and amortization 27,204 31,206
Provision for doubtful accounts (13,647) (24,324)
Deferred income tax (25,000)
Compensation, fair value of stock, stock options and warrents 46,308
Equity in loss off unconsolidated subsidiary 167,338
Accretion of investment in unconsolidated subsidiary (97,740)
Gain on sale of investment in unconsolidated subsidiary (3,356,005)
Impairement loss on suply and licensing agreements 43,348
(Increase) decrease in accounts receivable 105,451 (353,044)
Decrease (increase) in inventories (333,255) (806,415)
(Increase) in prepaid expenses (30,625) (506)
Decrease (increase) in deposits 25,774 (1,320,000)
Decrease (increase) in other assets - (45,000)
(Decrease) increase in accounts payable -
and accrued expenses 145,450 265,438
-------------------------- --------------------------
Net cash used by operating activities (1,301,070) (3,051,181)
-------------------------- --------------------------
Investing Activities:
Purchase of furniture and equipment (30,174) (85,263)
Loan repayment from (advance to) related party - 1,028
Goodwill purchased (264,303)
Sale of securities 2,194
Decrease in investment in securities 8,730
Decrease in investment in and advances to
unconsolidated subsidiary - 0
-------------------------- --------------------------
Net cash (used) provided by investing activities (30,174) (337,614)
-------------------------- --------------------------
Financing Activities:
Net proceeds (repayments) of notes payable - 938,504
Purchase of securities available for sale (25,000) -
Stock issuance to purchase goodwill 75,000
Proceeds from maturity of securities 1,678,200
Purchase of treasury stock - 0
-------------------------- --------------------------
Net cash (used) provided by financing activities 1,653,200 1,013,504
-------------------------- --------------------------
Net increase (decrease) in cash and cash equivalents 321,956 (2,375,291)
Cash and cash equivalents - beginning of period 623,860 2,497,791
-------------------------- --------------------------
Cash and cash equivalents - end of period $ 945,816 $ 122,500
========================== ==========================
------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 12,218 $ 7,843
Cash paid for income taxes $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES
Dividends on preferred stock:
Preferred stock issued in lieu of cash for dividends payable
on preferred stock $ 43,400 $ 0
Conversion of preferred stock to common stock $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Three Months Ended
June 30, June 30,
1999 2000
-------------------------- --------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 2,590,223 $ (361,309)
Adjustments to reconcile net loss
to net cash used provided by operating activities:
Depreciation and amortization 14,204 13,112
Provision for doubtful accounts (8,113) 1,570
Deferred income tax (25,000) -
Compensation, fair value of stock, stock options and warrents 46,308 -
Equity in loss off unconsolidated subsidiary 167,338 -
Accretion of investment in unconsolidated subsidiary (97,740) -
Gain on sale of investment in unconsolidated subsidiary (3,356,005) -
Impairement loss on suply and licensing agreements 43,348 -
(Increase) decrease in accounts receivable 333,771 (111,973)
Decrease (increase) in inventories (71,443) (653,380)
(Increase) in prepaid expenses (9,873) 17,541
Decrease (increase) in deposits 25,774 (970,000)
Decrease (increase) in other assets 35,623 (35,000)
(Decrease) increase in accounts payable - -
and accrued expenses 239,698 311,178
-------------------------- --------------------------
Net cash used by operating activities (71,887) (1,788,261)
-------------------------- --------------------------
Investing Activities:
Purchase of furniture and equipment (29,016) (68,872)
Loan repayment from (advance to) related party 352 (558)
Goodwill purchased (264,303)
Sale of securities 2,194
Decrease in investment in securities 8,730
Decrease in investment in and advances to - -
unconsolidated subsidiary (339,194) -
-------------------------- --------------------------
Net cash (used) provided by investing activities (367,858) (322,809)
-------------------------- --------------------------
Financing Activities:
Net proceeds (repayments) of notes payable (9,390) 939,303
Purchase of securities available for sale (1,714,200) -
Stock issuance to purchase goodwill 75,000
Proceeds from maturity of securities 1,748,197 -
Purchase of treasury stock - -
-------------------------- --------------------------
Net cash (used) provided by financing activities 24,607 1,014,303
-------------------------- --------------------------
Net increase (decrease) in cash and cash equivalents (415,138) (1,096,767)
Cash and cash equivalents - beginning of period 1,360,954 1,219,267
-------------------------- --------------------------
Cash and cash equivalents - end of period $ 945,816 $ 122,500
========================== ==========================
----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 12,218 $ 166
Cash paid for income taxes $ 0 $ 0
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES
Dividends on preferred stock:
Preferred stock issued in lieu of cash for dividends payable
on preferred stock $ 43,400 $ 43,400
Conversion of preferred stock to common stock $ 0 $ 0
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 1 - NATURE OF BUSINESS
IMX Pharmaceuticals, Inc. (the "Company"), formerly IMX
Corporation, was organized under the laws of the State of Utah
on June 2, 1982. The Company changed its name to IMX
Pharmaceuticals, Inc. on June 30, 1997. The consolidated
financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
In 1995, the Company entered into an acquisition agreement
(the "Agreement'), with Interderm, Ltd., ("Interderm") for the
assignment of the exclusive marketing and distribution rights
in the United States for certain pharmaceutical products
manufactured by Meyer-Zall Laboratories of South Africa
("Meyer-Zall"). The products included Exorex, an
over-the-counter psoriasis medication.
In connection with the Agreement, the Company also acquired
the right of first refusal for distribution rights in the
United States for new pharmaceutical products developed or
manufactured by Meyer-Zall.
During 1996 and 1997, the Company began to market and
distribute Exorex and other related products in the retail
market using capital raised from private placements.
Effective June 24, 1998, the Company entered into an agreement
(the "Joint Venture Agreement") with various affiliates of
Medicis Pharmaceutical Corporation ("Medicis") to form a joint
venture, Medicis Consumer Products Company, LLC ("LLC"), to
develop and market skin care products. Under the terms of the
Joint Venture Agreement, Medicis contributed cash of
$4,000,000 to the joint venture in return for a 51% interest
in the LLC. The Company contributed all of the assets,
property and associated rights in connection with the Exorex
product line, with an unamortized cost of approximately
$5,200, in return for a 49% interest in the LLC.
Effective June 30, 1999, the Company entered a Sale and
Transfer Agreement ("Sale Agreement") with Medicis, whereby
the Company sold its 49% interest in the LLC to Medicis for
$3,600,000.
F-6
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 1 - NATURE OF BUSINESS (CONT'D)
---------------------------
On June 16, 2000 the Company signed an agreement with Pure
Distributors' Inc. d/b/a Envion International to become the
exclusive worldwide distributor of all Envion's products. The
main products include meal replacement bars and nutritional
supplements marketed under the labels of BioZone and
Envitamins. Envion's products are now marketed through its
WellnessShop.com web site and companion catalogue, both of
which will now be operated by the Company. The Company will
pay a fee to Envion for the distributorship of $185,000 during
2000, $86,000 during 2001, and $66,000 during 2002 and each
year thereafter.
The Company also acquired Envions entire current product
inventory for $750,000 payable monthly over two years. The
Company has agreed to purchase all of its requirements for
Envion products from Envion.
The Company has an option to purchase all of Envion's rights
to its products, customer lists and various other contract
rights for $200,000. If the option is exercised, the fees paid
in connection with the Distribution Agreement would be
cancelled; the Company would no longer be required to purchase
its requirements from Envion, and would only pay Envion
royalties based on its purchase of Envion products from the
manufacturers thereof.
The consolidated statement of operations for the six and three
months ended June 30, 2000 include sales of $69,994, cost of
goods sold of $16,252 and direct expenses of $36,520 relating
to the sale of Envion products
On June 15, 2000 the Company purchased all the stock of Select
Benefits Corporation for a three-year note in the amount of
$189,510 and 100,000 shares of its common stock. Select
Benefits has now changed its name to IMX Select Benefits
Corporation. Select Benefits provides discount health care
memberships that provide discounts of 10% to 60% for
prescription drugs, vision care, dentistry, chiropractic,
hearing and other health related benefits. Sales and expenses
in connection with Select Benefits during the six and three
months ended June 30, 2000 were not material.
F-7
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Interim Financial Statements
The accompanying unaudited consolidated financial statements
as of June 30, 2000 and for the six and three month periods
ended June 30, 1999 and 2000 have been prepared in accordance
with generally accepted accounting principles for interim
financial information. In the opinion of management, all
adjustments consisting of normal recurring accruals considered
necessary for a fair presentation have been included.
Operating results for the six and three-month periods ended
June 30, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers
all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Securities Available for Sale
Securities available for sale are carried at estimated market
values. Unrealized holding gains and losses on securities
available for sale are reported as a net amount in a separate
component of stockholders' equity until realized. Gains and
losses realized from the sale of investment securities are
computed using the specific-identification method.
Inventories
Inventories are stated at the lower of cost or market value.
Cost is determined using the first-in, first-out method.
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.
F-8
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
---------------------------------------------------
Revenue Recognition
Sales are generally recorded upon the shipment of goods to
customers.
Production Development Costs
Costs incurred for the development of new product lines are
expensed as incurred, as specified by SOP 98-5 issued by the
American Institute of Certified Public Accountants (Note 3).
Stock-Based Compensation
The Company accounts for stock based compensation as set forth
in Accounting Principles Board ("APB") Opinion 25, "Accounting
for Stock Issued to Employees," and discloses the proforma
effect on net income (loss) and income (loss) per share of
adopting the full provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123 "Accounting for
Stock-Based Compensation". Accordingly, the Company has
elected to continue using APB Opinion 25 and has disclosed in
the footnotes proforma income (loss) and income (loss) per
share information as if the fair value method had been
applied.
Income Taxes
The Company files consolidated Federal and State of Florida
income tax returns. Income taxes are calculated using the
liability method specified by SFAS No. 109, "Accounting for
Income Taxes".
Net Income (Loss) Per Common Share
Net income (loss) per common share is calculated according to
SFAS No.128, "Earnings Per Share" which requires companies to
present basic and diluted earnings per share. Net income
(loss) per common share-- basic is based
F-9
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
---------------------------------------------------
Net Income (Loss) Per Common Share (Cont'd)
on the weighted average number of common shares outstanding
during the year. Net income (loss) per common share -- diluted
is based on the weighted average number of common shares and
dilutive potential common shares outstanding during the year.
Convertible preferred stock, certain common stock options and
common stock warrants were excluded from the computations of
net loss per share for the six and three month periods ended
June 30, 1999 and 2000 because the effect of their inclusion
would be anti-dilutive.
Fair Value of Financial Instruments
SFAS No. 107 requires the disclosure of the fair value of
financial instruments. The estimated fair value amounts have
been determined by the Company's management using available
market information and other valuation methods. However,
considerable judgment is required to interpret market data in
developing the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of
the amounts the Company could realize in a current market
exchange.
The following methods and assumptions were used in estimating
the fair value disclosure for financial instruments:
Cash and Cash Equivalents, Accounts and Loan Receivable,
Accounts Payable, Accrued Expenses and Notes Payable - the
carrying amounts reported in the consolidated balance sheets
approximate fair value because of the short maturity of those
instruments.
Securities Available for Sale - the fair values are based on
quoted market prices at the reporting date of those or similar
investments (Note 5).
F-10
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
---------------------------------------------------
Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
NOTE 3 - RECENT ACCOUNTING
-----------------
In June, 1997, the Financial Accounting Standards Board (the
Pronouncements "FASB") issued SFAS No. 130, "Reporting
Comprehensive Income" which became effective in 1998. SFAS No.
130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of
general-purpose financial statements. The Company adopted SFAS
No.130 on January 1, 1998.
In June, 1997 the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information" which
became effective in 1998. SFAS No. 131 establishes standards
for the way public enterprises are to report operating
segments in annual financial statements and requires reporting
of selected information about operating segments in interim
reports. The Company's adoption of SFAS No. 131 did not affect
the Company's consolidated financial statements.
In April,1998, the American Institute of Certified Public
Accountants issued Statement of Position No. 98-5, "Reporting
for the Costs of Start-Up Activities", ("SOP 98-5"). The
Company is required to expense all start-up costs related to
new operations as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP
98-5 is adopted. The Company's adoption of SOP 98-5 did not
have a material impact on its financial position or results of
operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Company is
required to adopt SFAS
F-11
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 3 - RECENT ACCOUNTING (CONT'D)
--------------------------
133, as amended by SFAS 137, for the year ending December 31,
2001. SFAS 133 establishes methods of accounting for
derivative financial instruments and hedging activities
related to those instruments as well as other hedging
activities. Because the Company currently holds no derivative
financial instruments and does not currently engage in hedging
activities, adoption of SFAS 133 is expected to have no
material impact on the Company's financial condition or
results of operations.
NOTE 4 - SECURITIES AVAILABLE FOR SALE
-----------------------------
Securities available for sale consist of shares of common
stock in Hydron Technologies, Inc. ("Hydron"). At December
31,1999 and June 30, 2000, the cost basis of $30,463 and
$28,269 of the common stock in Hydron exceeded the market
value by $21,751 and $13,021 respectively.
NOTE 5 - INVENTORIES
-----------
Inventories consisted of the following:
December 31, June 30
--------------- ---------------
1999 2000
--------------- ---------------
Finished goods $237,195 $1,038,412
Work-in-process 16,969 25,431
Packaging supplies 303,429 300,165
--------------- ---------------
Total $557,593 $1,364,008
=============== ===============
F-12
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 6 - PROPERTY AND EQUIPMENT
----------------------
Property and equipment consisted of the following:
December 31, June 30,
---------------- ---------------
1999 2000
---------------- ---------------
Computers and office equipment $ 193,997 $ 257,174
Furniture, fixtures and improvements 91,132 113,219
---------------- ---------------
285,129 370,393
Less: accumulated depreciation and
amortization (179,216) (210,422)
---------------- ---------------
Property and equipment, net of
accumulated depreciation $ 105,913 $ 159,971
================ ===============
NOTE 7 - INCOME TAXES
------------
The provision for income taxes in the consolidated statements
of operations is as follows:
December 31, June 30,
--------------- --------------
1999 2000
--------------- --------------
Current:
Federal $ 0 $ 0
State 0 0
------------------ ----------------
$ 0 $ 0
------------------ ----------------
Deferred:
Federal $ 0 $ 0
State 0 0
------------------ ----------------
$ 0 $ 0
------------------ ----------------
F-13
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 7 - INCOME TAXES (CONT'D)
---------------------
Applicable incomes taxes for financial reporting purposes differ from
the amounts computed by applying the statutory federal and state income
tax rates as follows:
<TABLE>
<CAPTION>
December 31, June 30,
------------------ ----------------
1999 2000
------------------ ----------------
<S> <C> <C>
Tax (benefit) at statutory rate $ 185,800 $ 256,500
Increase (decrease) in tax
resulting from:
State income tax, net of federal tax benefit 31,500 44,000
Other 0 0
Increase (decrease) in
valuation allowance (217,300) (300,500)
------------------ ----------------
Income taxes $ 0 $ 0
================== ================
</TABLE>
The approximate tax effects of temporary differences that give rise to
the deferred tax assets and deferred tax (liabilities) are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
------------------- ----------------
1999 2000
------------------- ----------------
<S> <C> <C>
Fair value of common stock options and
warrants $ 130,889 $ 130,889
Start-up costs 139,100 139,100
Depreciation and amortization (71,700) (71,700)
Other 12,000 12,000
Net operating loss carry forwards 641,700 1,440,236
--------------------- -------------------
851,989 1,650,525
Less: valuation allowance (851,989) (1,650,525)
--------------------- -------------------
Total net deferred tax asset $ 0 $ 0
===================== ===================
</TABLE>
F-14
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 7 - INCOME TAXES (CONT'D)
At December 31, 1999, the Company had net operating loss carryforwards
of approximately $1,700,000 for income tax purposes. Those losses are
available for carryforward for periods ranging from fifteen to twenty
years, and will expire beginning in 2011. Any future significant
changes in ownership of the Company may limit the annual utilization of
the tax net operating loss carryforwards.
NOTE 8 - CAPITAL STOCK
Common stock
Common stock has one vote per share for the election of directors. All
other matters are submitted to a vote of stockholders. Shares of common
stock do not have cumulative voting, preemptive, redemption or
conversion rights.
At December 31, 1999 and June 30, 2000, the Company had reserved
3,538,216 and 3,538,216 shares of common stock respectively for
issuance relating to unexpired options and warrants.
NOTE 9 - STOCK OPTIONS
On January 21, 1996, the Company adopted a stock option plan with
2,000,000 shares of Common stock reserved for the grant of options to
key employees, non-employees, officers and directors of the Company. On
September 9, 1998, the Company adopted a stock option plan with
1,200,000 shares of common stock reserved for grant of options to key
employees, non-employees, officers and directors of the Company.
Options under these plans are exercisable over a period of ten years
with various vesting terms. All shares granted are subject to
significant restrictions as to disposition by the optionee.
F-15
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 9 - STOCK OPTIONS (CONT'D)
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
Year ended Six and three months ended
December 31, 1999 June 30, 2000
------------------------------------ ------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period 1,350,000 $ 2.71 1,485,000 $ 2.46
Granted 234,500 1.73 0 -
Exercised (5,000) 1.75 0 -
Forfeited/canceled (94,500) 4.31 0 -
------------------------------------------------------------------------------------------------------------------
Outstanding at end of
period 1,485,000 $ 2.46 1,485,000 $ 2.46
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
Exercisable at end of
period 1,560,100 $ 2.55 1,560,100 $ 2.55
------------------------------------------------------------------------------------------------------------------
Weighted average fair
market value of
options granted
period $ 0.85 $ 0.85
------------------------------------------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 9- STOCK OPTIONS (CONT'D)
A summary of the Company's fixed stock options outstanding is 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
------------------------------------------------------------------------------------------------------------------
December 31, 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.75 - 0.99 20,000 9.75 $ 0.75 20,000 $ 0.75
$1.00 - 3.00 1,175,500 7.24 1.64 1,021,750 1.62
3.87 - 4.00 270,000 7.99 4.00 270,000 4.00
4.78 - 6.50 256,475 7.56 5.03 248,350 4.97
------------------------------------------------------------------------------------------------------------------
$0.75 - 6.50 1,721,975 7.43 2.49 1,560,100 2.55
------------------------------------------------------------------------------------------------------------------
June 30, 2000
------------------------------------------------------------------------------------------------------------------
$0.75 - 0.99 20,000 9.50 $ 0.75 20,000 $ 0.75
$1.00 - 3.00 1,175,500 6.89 1.64 1,021,750 1.62
3.87 - 4.00 270,000 7.92 4.00 270,000 4.00
4.78 - 6.50 256,475 8.12 5.03 248,350 4.97
------------------------------------------------------------------------------------------------------------------
$0.75 - 6.50 1,721,975 7.27 2.49 1,560,100 2.55
------------------------------------------------------------------------------------------------------------------
</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 1999 and 2000, expected volatility
ranging from 45% to 46%; risk-free interest rates ranging from 4.35% to
6% and expected lives ranging from 2 to 10 years.
F-17
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 9 - STOCK OPTIONS (CONT'D)
Under the accounting provisions of SFAS 123, the Company's net income
(loss) and income (loss) per share would have changed to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
Six Months Six Months
Ended June 30, Ended June 30,
-------------------- ----------------------
1999 2000
-------------------- ----------------------
<S> <C> <C>
Net income (loss) applicable to
common stockholders
As reported $ 1,950,929 $ (798,536)
Pro forma $ 1,748,000 $ (1,068,569)
Income (loss) per share - basic
As reported $ 0.36 $ (0.14)
Pro forma $ 0.32 $ (0.18)
Income (loss) per share - diluted
As reported $ 0.34 $ (0.13)
Pro forma $ 0.31 $ (0.17)
</TABLE>
Three executives officers of IMX Pharmaceuticals, Inc. received a total
of 24,000 options to purchase shares of common stock of Medicis
Corporation. The options were granted in connection with the formation
of The Exorex Company LLC. The options vest over a five-year period;
twenty percent becoming vested each year. The original purchase price
was $24.67. Twenty percent has been exercised. The remainder of the
options are held by the officers for the benefit of IMX
Pharmaceuticals, Inc.
F-18
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 10 -STOCK WARRANTS
In connection with a 1996 private placement offering of common stock,
the Company issued 580,000 warrants, each redeemable for one share of
common stock, at any time during a period of three years, commencing on
July 9, 1996 for $5.00 per share. The warrants may be redeemed by the
Company with 30 days prior notice at a price of ten cents per warrant
at any time during the warrant exercise period, under certain
conditions (as defined). During July 1999, the Company extended the
exercise period one year to July 9, 2000.
In addition, 58,000 warrants, each to purchase one share of common
stock for $3.00 per share, and exercisable for the three year period
ending July 9, 1999, were issued to placement agents in connection with
the 1996 Private Placement. During July 1997, in connection with a
financial advisory agreement with the placement agents, the exercise
price of the 58,000 warrants was reduced to $2.50 per share, and the
exercise period was extended to February 9, 2001. The Company recorded
approximately $71,000 as deferred consulting expense for the estimated
fair value of warrants which are being amortized over the two year term
of the agreement.
On March 31, 1999, in connection with the Company's 1997 Private
Placement of convertible preferred stock (Note 13), 88,160 (76,750
original shares, plus 11,410 shares issued in lieu of cash as preferred
stock dividends) shares outstanding at March 31, 1999 were converted
into ten shares of common stock and warrants to purchase ten shares of
common stock at any time during the period ending July 2002 for $6.50
per share. As of December 31, 1999 no warrants to purchase common stock
have been exercised.
In addition to warrants issued to investors in the February, 1997
Private Placement, warrants to purchase 7,586.25 shares of Convertible
Preferred Stock were issued to placement and selling agents with an
exercise price of $30 per share, and are exercisable for the five year
period ending July, 2002. Each share of preferred stock is convertible
into 10 shares of common stock at $3.50 per share and 10 warrants, each
warrant to purchase one share of common stock at $6.50 per share. Prior
to the March 31, 1999 conversion, no warrants to purchase preferred
stock had been exercised.
F-19
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 10-STOCK WARRANTS (CONT'D)
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 prior to July 2002. The
Company recorded approximately $67,000 as deferred consulting expense
for the estimated fair value of the warrants, which is being amortized
over the two year term of the agreement.
In connection with notes payable issued during 1997 (Note 12), as of
December 31, 1998, warrants to purchase 85,120 shares of common stock
have been issued. Also, in connection with February, 1998 closing of
the October, 1997 Private Placement, warrants to purchase 20,180 shares
of common stock were issued to placement and selling agents. Each of
the warrants mentioned above has an exercise price of $3.50 per share,
and expires five years from the date of issuance. As of December 31,
1998 and 1999, no warrants have been exercised.
The aggregate number of common shares reserved for issuance upon the
exercise of warrants is 1,816,241 as of December 31, 1999. The
expiration date and exercise prices of the outstanding warrants are as
follows:
Outstanding Expiration Exercise
Warrants Date Price
--------------- ------------ ----------
580,000 2000 $ 5.00
58,000 2001 2.50
1,007,463 2002 3.00-6.50
170,778 2003 3.50
F-20
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 11- NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted net
loss per common share:
<TABLE>
<CAPTION>
Six months ended Six months ended Three months ended Three months ended
June 30, 1999 June 30, 2000 June 30, 1999 June 30, 2000
------------------- -------------------- ---------------------- -------------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted
Loss per share available
to common stockholders $ 1,950,929 $ (798,536) $ 2,546,823 $ (361,309)
------------------- -------------------- ---------------------- -------------------
Denominator:
Denominator for basic loss per
share-weighted-average shares 5,430,340 5,811,252 5,884,951 5,811,252
Effect of dilutive securities:
Common stock options 288,244 330,748 288,244 330,748
------------------- -------------------- ---------------------- -------------------
Denominator for diluted loss per
share-adjusted weighted average
shares and assumed conversions 5,718,584 6,142,000 6,173,195 6,142,000
------------------- -------------------- ---------------------- -------------------
Basic net loss per common share $ 0.36 $ (0.14) $ 0.43 $ (0.06)
------------------- -------------------- ---------------------- -------------------
Diluted net loss per common share $ 0.34 $ (0.13) $ 0.41 $ (0.06)
------------------- -------------------- ---------------------- -------------------
</TABLE>
F-21
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 11- NET INCOME (LOSS) PER COMMON SHARE (CONT'D)
Net loss per common share is calculated by dividing the net loss by the
weighted-average shares of common stock and common stock equivalents
outstanding during the period. Excluded from the computation of net
loss per common share - diluted at June 30, 1999 and 2000, were
outstanding options of 859,475 and1,679,475, and warrants to purchase
1,816,241 and 1,816,241 shares of common stock respectively, at
exercise prices ranging from $2.50 to $6.50, because to do so would be
anti-dilutive.
NOTE 12- RELATED PARTY TRANSACTIONS
During 1999, the Company made advances to a company affiliated to the
President. The balance due the Company at December 31, 1999 and June
30, 2000 totaled $31,153 and $30,125 respectively. These advances,
together with interest at the rate of ten (10%) percent, is due and
payable prior to December 31, 2000.
NOTE 13- COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under
non-cancelable operating leases. The Company has a sublease agreement
for certain facilities and equipment. The future minimum rental
payments required under these operating leases that have initial or
remaining non-cancelable lease terms in excess of one year, and the
future minimum rental receipts required under non-cancelable sub-leases
of December 31, 1999 are approximately as follows:
Future
Minimum
Rental
Year Payments
---------------- ----------------
2000 $ 128,000
2001 54,000
2002 36,000
2003 19,000
F-22
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 13- COMMITMENTS AND CONTINGENCIES (CONT'D)
Total rent expense for all non-cancelable operating leases having a
term of more than one year was approximately $15,000 and $5,000 for the
six month periods ended June 30, 1999 and 2000, respectively.
On July 1, 1998, the Company entered into an employment agreement for a
period of three years with William Forster, the Company's Chairman of
the Board, President and Chief Executive Officer. Mr. Forster is
entitled to receive an annual salary of $225,000 and a bonus based on a
percentage of the Company's sales (as defined).
Effective July 1, and August 1, 1998, the Company entered into
employment agreements with two officers for annual salaries totaling
approximately $205,000, plus discretionary bonuses, and bonuses upon
the sale of the Company's interest in the LLC (as defined). The term of
each agreement is three years.
The Company has entered into a series of product development agreements
with a consultant that provide for compensation to the consultant in
the form of cash, options to purchase shares of the Company's common
stock which vest as products are developed, royalties based upon net
sales of products, a royalty based upon the sale of the rights to the
products developed, and an interest in any patents granted on products
developed by the consultant to the Company.
In November 1999, Bioglan Pharma PLC and Bioglan Pharma, Inc.
(collectively, "Bioglan") commenced an arbitration action against the
Company, Medicis and the LLC, in which Bioglan claims damages for
breach of various contractual obligations arising out of the sale of
the LLC and the Exorex product line to Bioglan.
Specifically, Bioglan claims that Medicis, the LLC and the Company
breached an Asset Purchase Agreement by transferring inventories to
Bioglan that had a remaining shelf life less than 12 months and was
otherwise unmarketable. The Asset Purchase Agreement specified that
Bioglan was to take title to all inventories having a shelf life
greater than 12 months, and the Company was to take title to
inventories having a shelf life of 12 months or less. The products were
warehoused together. Management believes that Medicis, under an interim
management agreement with Bioglan, filled Bioglan orders with the
Company's inventories. In addition, the Company has filed a
counterclaim in the arbitration against Bioglan for damages relating to
the conversion of this property.
F-23
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 13- COMMITMENTS AND CONTINGENCIES (CONT'D)
In the second claim, Bioglan seeks unspecified damages from the
Company, Medicis and the LLC because it claims that the inventories
that it received had not been properly stored and therefore were
unmarketable. Management believes that this claim does not have any
merit. since it was never advised by the manufacturer, Meyer-Zall, of
any requirement for cold storage for the product. The Company intends
to vigorously defend this matter. However, management cannot assess the
likelihood of an unfavorable outcome, or the range of potential loss,
if any, which might result from this claim.
NOTE 14- CAPITAL LEASE PAYABLE
The Company is a lessee under a capital lease of equipment from an
unrelated third party. The lease agreement calls for 36 equal monthly
payments of $241 with a final fixed purchase price of $1 at the end of
the lease. The asset and liability under this capital lease is valued
at a fair market value of approximately $8,000. The asset is being
depreciated over its estimated useful life of 5 years.
Total capital lease payable $7,792
Less: Current portion 2,896
-------
Total capital lease
payable - non current $4,896
======
NOTE 15- REFUNDABLE DEPOSIT
On May 2, 2000 the Company executed a letter of intent with Dri-Kleen,
Inc. d/b/a Enviro -Tech International (Enviro-Tech). Pursuant to the
letter of intent a refundable deposit of $400,000 has been paid to
Enviro-Tech, a multi-level marketing company, for the purchase of it's
network sales and marketing division for the United States and Canada
for all current products. An additional refundable deposit of $850,000
was paid at the time of signing. The market will be extended worldwide
for any new products developed by Enviro-Tech.
F-24
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 16- SUBSEQUENT EVENT
On July 21, 2000 the Company and Enviro-Tech signed a revised agreement
for the sale and purchase of assets. The revised agreement provides
that, in addition to purchasing the Distribution Network, the Company
will acquire all of Enviro-Tech's inventory of Dri-Wash n' Guard,
nutritional supplement products and its 45,000 square foot factory,
warehouse, and distribution center in Elbow Lake Minnesota. The
consideration for the purchase was changed to $1,900,000 in cash (the
balance of which was paid upon execution of the revised agreement),
2,500,000 shares of the Company's common stock, a ninety-day
interest-free note and assumption of almost $1,000,000 in various
Enviro-Tech debts. In addition the Company and Enviro-Tech signed a
long-term supply agreement with respect to the Dri-Wash n' Guard line
of waterless car and home cleaning products. The Company took control
of the assets on July 24, 2000.
The proposed transaction is subject to approval by the Board of
Directors of each company and the execution of a definitive agreement.
The Company assumed responsibility for (i) all payments to the first
and second mortgage holders of the Las Vegas property owned by
Enviro-Tech which is pending foreclosure and (ii) all operating
expenses of the Las Vegas property. The Company's responsibility for
items (i) and (ii), collectively, the "Las Vegas Expenses" commences at
the closing date and terminates after four months or until the Company
has expended $100,000, whichever occurs first. The Company will be
reimbursed for all amounts paid for the Las Vegas Expenses from the
proceeds of the Sale of the Las Vegas property after all the
obligations of the first and second trust deed notes are satisfied.
During the first five contract years, (the Royalty period) The Company
has agreed to pay a royalty to Enviro-Tech equal to 20% of the purchase
price paid for the formulae (the Royalty fee). The minimum guaranteed
Royalty Fee (the Guaranteed Royalty Fee) for the first contact year is
$286,000 and $300,000 for the succeeding four contract years. The
Guaranteed Royalty Fee is due in monthly installments of no less that
$20,000 and the minimum quarterly royalty fee is $61,000 for the first
quarter and $75,000 for each following quarter. Interest on any monthly
or quarterly royalty fee deficiency will accrue interest at an
annualized rate of 12%
F-25
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 16- SUBSEQUENT EVENT
Upon notification of a royalty fee payment delinquency the Company will
have forty-five days to make payment. Should the Company fail to cure
the delinquency within the forty-five day period, Enviro-Tech may at
its sole discretion terminate the Company's right to exclusively
distribute Enviro-Tech products in North America and the Caribbean
Islands.
A Due from Dri-Kleen Inc. (see Note 19) was collected at closing.
NOTE 17- CASH BALANCES
The Company maintains its cash balances at various financial
institutions. The balances at these institutions are insured by the
Federal Deposit Insurance Corporation up to $100, 000 per account.
Uninsured balances as of December 31, 1999 and June 30, 2000 were
approximately $160,200 and $0 respectively.
NOTE 18- GOODWILL
Goodwill is the total acquisition cost of Select Benefits Corporation
(see Note 1, page 7).
NOTE 19- OTHER RECEIVABLES
Other receivables are as follows:
Due from Dri-Kleen Inc.
d/b/a Enviro Tech International - Note 16 $ 407,811
Due from Pure Distributors' Inc.
d/b/a Envion International-Note 1 15,444
Due from Select Benefits Corporation - Note 1 554
Other 443
-------------
$ 424,251
=============
F-26
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six and three month
periods ended June 30, 1999 and 2000 are unaudited)
NOTE 19- OTHER RECEIVABLES (CONT'D)
Due from Dri-Kleen Inc. represents credit card sales processed by
Dri-Kleen Inc. on behalf of the Company.
NOTE 20- NOTES PAYABLE
Notes payable consist of the following as of June 30, 2000:
<TABLE>
<CAPTION>
<S> <C>
Promissory note payable, Pure Distributors, Inc.
d/b/a Envion International, payable in 24 monthly
installments of $31,250 principal only $750,000
Non-recourse note payable, Select Benefits, Inc. Monthly
installments equal to 15% of sales from a select group of
clients that pre-exisited the acquisition date (Note 1, page
7) The note paydown is estimated
at $60,000 per year. 188,504
---------
Total notes payable $938,504
Less: current portion 435,000
---------
Non-current portion $503,504
=========
</TABLE>
