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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
(Mark one)
/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1999 or
/ / Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________to ___________.
Commission File No. ________
IMX PHARMACEUTICALS, INC.
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(Name of Small Business Issuer in its Charter)
Utah 87-0394290
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
2295 Corporate Boulevard, Suite 131, Boca Raton, Florida 33431
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(Address of Principal Executive Offices) (Zip Code)
561.998.5660
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(Issuer's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001
par value per share.
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
preceding 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days: Yes /X/ No / /
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation SB is not contained herein and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10SKB or any other
amendment to this Form 10SKB. / /
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and ask price of such common equity,
as of a specified date within the past 60 days: $3,636,433 based upon the bid of
$.6875 and asked of $.875 on March 10, 2000.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 5,623,556.
Documents Incorporated By Reference: None.
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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(TM). 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 12. "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(R) 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(R)
technology. No assurances can be given that any products using Novasome(R)
technology will be commercially acceptable.
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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 ("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 report, the Company continues to develop lines
of health and beauty products which the Company believes will offer superior
benefits to consumers. In the second quarter of fiscal 1999, the Company
launched its Mother 2 Be(R) line of products, and recently launched two (2)
additional product lines, Proctozone(TM) and Podiatrx(TM), in the first quarter
of fiscal 2000. Another product line, Deep(TM), is to be launched in the second
half of fiscal year 2000. In addition, the Company is actively seeking to
acquire one or more product lines or businesses. No assurances can be given that
any such acquisitions will be consummated, or if consummated, that they will be
profitable.
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 remained in effect until December 31, 1999. See
"Item 2. 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 6.
Management's Discussion and Analysis of Results of Operations".
Products
Mother 2 Be(TM). 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
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of pregnancy skin care products under the Company's Mother 2 Be brand name,
which contains natural, safe and effective biodegradable ingredients, including
Lactoferrenate(TM), (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 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(TM), a cream to relieve itchy abdominal conditions associated with
pregnancy which helps relieve dryness, inflammation and irritation; Soothe(TM),
an areola and nipple restorative cream; Restore(TM), a breast firming cream;
Minimize(TM), a stretch-mark minimizer; Rejuvenate(TM), a soothing gel that
refreshes tired legs and feet; Indulge(TM), 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(TM), which helps regulate
oil production by absorbing excess oil, while moisturizing dry facial areas.
Podiatrx(TM). 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(TM).
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(TM)
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, and
recently commenced marketing Podiatrx products during the first quarter of
fiscal 2000. See "Sales and Marketing".
Proctozone(TM). 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
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C2P delivery system, is unlike most greasy competitive ointments on the market
today.
The Company plans to market the Proctozone line through pharmaceutical
wholesalers, and recently commenced marketing Proctozone products during the
first quarter of fiscal 2000. See "Sales and Marketing".
Deep(TM). Deep(TM) 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 report, it plans to launch the line of temporary pain reliever products
in the second half of fiscal year 2000. See "Sales and Marketing".
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 has developed 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.
The Company has commenced marketing its Podiatrx and Proctozone
products lines during the first quarter of fiscal 2000, and anticipates
marketing 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.
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.
However, management recognizes that the Company does not have the
financial resources to sustain a major national advertising campaign to market
its products to
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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.
In addition, the Mother 2 Be product line is also being marketed over
the internet at three (3) other websites, ibaby.com, a subsidiary of iVillage,
Inc., www.babystyle.com, which is owned by eStyle, Inc. and www.babycenter.com,
a maternity website of Baby Center, Inc., San Francisco.
During fiscal year ended December 31, 1999 one (1) customer, Pea in the
Pod, accounted for 24% of net sales. During fiscal year ended December 31, 1998,
Walgreen's accounted for 10.1% 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.
All raw materials and packaging components for the Company's product
lines are readily available to the Company.
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Inventory
At December 31, 1999, the Company maintained inventory valued at
approximately $558,000, 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, 1999 or December 31, 1998. 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 choose. 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
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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 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
The Company is the owner of the registered trademark, Mother 2 Be(R),
and trademark applications have been filed for the, 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.
The Company has on file with the U.S. Patent and Trademark Office, a
provisional patent application for a method of delivering ingredients to the
body through the lips. The Company believes that this unique delivery system may
have several applications in the cosmetic and drug fields.
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 other personal care/cosmetic
products. These efforts include product formulation, packaging design and
prototypes, product safety and
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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 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. 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.
Preliminary Agreement
The Company has entered into a preliminary agreement with a view
towards a potential acquisition of a multi-level marketing and manufacturing
company. The preliminary agreement provides that any transaction is subject to a
formal, definitive acquisition agreement, corporate approvals, as well as any
appropriate regulatory filings. In addition, the Company is presently
negotiating Operating Agreements, pursuant to which the Company will manage the
company and purchase product from the manufacturer for resale to the independent
distributors. Such proposed acquisition would also be contingent upon the
Company securing financing. At the present time no assurances can be given that
either Operating Agreements or a definitive acquisition agreement will be
signed, financing will be raised on favorable terms or at all, or that the
proposed acquisition will be consummated.
In accordance with the terms of the preliminary agreement, the Company
has made a $400,000 refundable deposit, the return of which has been personally
guaranteed by the principal of the other company. The Company has the right to
the return of the deposit if a definitive agreement has not been signed by April
15, 2000.
Employees
As of the date of this report, the Company had twenty-four (24)
full-time employees. The Company believes that its relationship with its
employees is good.
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Item 2. 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 month-to-month lease. 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
continued to sublease the Company's premises for a period not to exceed six (6)
months. As of December 31, 1999, the LLC no longer subleased the Company's
premises
Item 3. 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 have any merit, as the
management was never advised by the manufacturer, Meyer-Zall Laboratories of
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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 4. Submissions Of Matters To A Vote Of Security Holders
Not applicable.
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PART II
Item 5. Market For Common Equity and Related Stockholder 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 and the symbol for the Common Stock is "IMXN".
The reported high and low bid prices for the Common Stock are as shown
below for fiscal years ended December 31, 1999 and December 31, 1998. 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.
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High Bid Low Bid
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1999
First Quarter $ 3 1/2 $ 1
Second Quarter $ 2 1/8 $ 1 1/2
Third Quarter $ 2 1/8 $ 1 1/4
Fourth Quarter $ 1 3/8 $ 5/16
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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
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The closing bid and asked prices of the Company's Common Stock on March
10, 2000, were$.6875 and $.875 respectively, as quoted on the over-the-counter
Electronic Bulletin Board. As of the February 15, 2000, there were 353
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.
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.
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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.
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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 with an
exercise price of $30 per share, which 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 to 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.
14
<PAGE>
1998 Miscellaneous
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 5,000
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 6. Management's Discussion and Analysis or Plan of Operation.
General
The Company is engaged in the development of lines of health and beauty
products which the Company believes will offer superior benefits to consumers.
In the second quarter of fiscal 1999, the Company launched its Mother 2 Be(R)
line of products, and recently launched two (2) additional product lines,
Proctozone(TM) and Podiatrx(TM), in the first quarter of fiscal 2000. Another
product line, Deep(TM), is to be launched in the second half of fiscal year
2000. In addition, the Company is actively seeking to acquire one or more
product lines or businesses. No assurances can be given that any such
acquisitions will be consummated, or if consummated, that they will be
profitable.
Results of Operations
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 fiscal 1999, consolidated net sales were approximately $203,000, as
compared to approximately $3.9 million for the preceding year. The decrease of
approximately $3.7 million resulting primarily from the Company's conveyance of
the Exorex product line to the LLC in June 1998. As the owner of a 49% interest
in the LLC, the Company did not record any sales made by the LLC.
15
<PAGE>
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 of this new line
beginning in May 1999 were approximately $203,000. The Company recently
introduced two (2) new 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. Another product line, Deep, an over-the-counter, temporary topical
analgesic products for minor arthritis and sore muscle pain with the active
ingredient, Capsaicin, is to be launched 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 61% of net sales for fiscal 1999, as
compared to 72% of net sales in 1998. Gross profit margins fluctuated with the
changes in the Company's product mix.
Selling, general and administrative expenses incurred by the Company
decreased to approximately $3.1 million in fiscal 1999 from $5.1 million
1998.The decrease from 1998 to 1999 reflects the absorption of a significant
amount of overhead as the result of the conveyance of the Exorex product line to
the LLC. Such decrease for fiscal 1999 as compared to fiscal 1998 included a
decrease in selling and advertising expenses of approximately $1,089,000 from
approximately $2,602,000 to $1,573,000.
16
<PAGE>
For fiscal 1999, net income was approximately $503,000, as compared to
net loss of approximately $(2,186,000) for the preceding year. The results for
fiscal 1999 include a gain of approximately $3.4 million on the sale of the
Company's interest in the LLC. For 1999, the Company had a loss of $(3.0)
million from operations, exclusive of such gain, compared to a loss from
operations of approximately $(2.2) million for 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
fiscal 2000.
Liquidity and Capital Resources
At December 31, 1999, the Company's financial condition included
working capital of approximately $2.8 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 $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 1999, operating activities used cash of approximately $3.09 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.
17
<PAGE>
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 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.
18
<PAGE>
As of the date of this report, the Company has not experienced any Year
2000 problems.
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 report
regarding matters that are not historical facts are forward-looking statements
(as such term is defined in the Private Securities Litigation Reform Act of
1995). Because such forward-looking statements include risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements. All statements which address operating performance,
events or developments that management expects or anticipates to incur in the
future, including statements relating to sales and earnings growth or statements
expressing general optimism about future operating results, are forward-looking
statements. The forward-looking statements are based on management's current
views and assumptions regarding future events and operating performance. Many
factors could cause actual results to differ materially from estimates contained
in management's forward-looking statements. The differences may be caused by a
variety of factors, including but not limited to adverse economic conditions,
competitive pressures, inadequate capital, unexpected costs, lower revenues and
net incomes and forecasts, the possibility of fluctuation and volatility of the
Company's operating results and financial condition, inability to carry out
marketing and sales plans, and loss of key executives, among other things.
Item 7. Financial Statements.
The required financial statements commence on page F-1.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
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
19
<PAGE>
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 Position
- --------------------------------------------------------------------------------
William A. Forster Chairman of the Board, President and
Chief Executive Officer
- --------------------------------------------------------------------------------
David A. Gross, M.D. Director
- --------------------------------------------------------------------------------
Eugene Miller Director
- --------------------------------------------------------------------------------
Michael F. Holick, Ph.D., M.D. Director
- --------------------------------------------------------------------------------
Sanfurd Bluestein, M.D. Director
- --------------------------------------------------------------------------------
Westby J. Rogers Director
- --------------------------------------------------------------------------------
Lawrence D. Russell Director
- --------------------------------------------------------------------------------
Gary P. Spielfogel Executive Vice President
- --------------------------------------------------------------------------------
Marc Falkin Senior Vice President
- --------------------------------------------------------------------------------
Leonard F. Kaplan Chief Financial Officer
- --------------------------------------------------------------------------------
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. In October
1999, the membership of the Compensation Committee was changed to consist of
Lawrence D. Russell, Westby J. Rogers and David A. Gross, M.D. The Audit
Committee consists of Lawrence D. Russell, Eugene Miller and Sanfurd Bluestein,
M.D.
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.
20
<PAGE>
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).
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
21
<PAGE>
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, 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.
22
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
During fiscal year ended December 31, 1999, the following persons
failed to timely file the following reports under Section 16(a):
1. Meyer-Zall Laboratories (pty), Ltd., a 10% shareholder,
Auckland Park, South Africa - failed to file Form 3.
2. Eugene Miller, a Director, filed his Form 3 approximately two
(2) weeks late. (Mr. Miller was out of the country)
3. Each of William A. Forster, David A. Gross, M.D., Eugene
Miller, Michael F. Holick, Ph.D., M.D., Sanfurd Bluestein,
M.D. and Lawrence D. Russell, omitted in their respective
initial Forms 3, to include the grant of one option, as the
Company did not prepare option agreements or provide specific
notice of such grants to such persons until shortly prior to
the filing of this report. An amended Form 3 for each such
person disclosing such grant was recently filed.
Item 10. 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 $100,000 per annum
for services rendered in all capacities to the Company and its subsidiaries
during fiscal years ended December 31, 1999, December 31, 1998 and December 31,
1997:
23
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Awards
------------------------------------------------------- ---------------------------------
Securities
Name and Other Annual Underlying All other
Principal Position Year Salary Bonus Compensation ($) Options Compensation
- ------------------------------- --------- ---------- ------------- -------------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
William A. Forster, Chief 1999 227,250 -0- 44,328(1) 5,000 -0-
Executive Officer
1998 226,600 166,852 36,800(2) 20,000(4) -0-
1997 100,000 36,126 7,200(3) -0- -0-
- ------------------------------- --------- ---------- ------------- -------------------- --------------- -----------------
Gary Spielfogel, Executive 1999 125,000 144,000 38,183(5) -0- -0-
Vice President
1998 112,500 1,875 9,000(3) 50,000(4) -0-
1997 59,375 10,000 4,500(3) 150,000 -0-
- ------------------------------- --------- ---------- ------------- -------------------- --------------- -----------------
Marc Falkin, 1999 80,000 114,012 37,995(6) -0- -0-
Senior Vice President
1998 74,116 3,283 7,750(3) -0-(4) -0-
1997 46,200 10,000 6,000(3) 150,000 -0-
- ------------------------------- --------- ---------- ------------- -------------------- --------------- -----------------
</TABLE>
Option Grants in the Last Fiscal Year
The following table sets forth certain information relating to
stock option grants during Fiscal 1999 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 1999:
- --------
(1) Consists of a non accountable automobile allowance of $12,000 and $32,328
realized from the exercise of an option to purchase shares of common stock of
Medicis Corporation ("Medicis Option") granted in connection with the formation
of the Exorex Company LLC and the subsequent sale of the shares issued upon
exercise of the Medicis Option. The balance of the unexercised Medicis Option,
80%, is being held for the benefit of the Company.
(2) Consists of a non accountable automobile allowance of $11,800 and $25,000
for life insurance premiums.
(3) Consist of a non accountable automobile allowance.
(4) Does not include the Medicis Option.
(5) Consists of a non accountable automobile allowance of $12,000 and $26,183
realized in 2000 from the exercise of a Medicis Option and the subsequent sale
of the shares issued upon exercise of the Medicis Option. The balance of the
unexercised Medicis Option, 80%, is being held for the benefit of the Company.
(6) Consists of a non accountable automobile allowance of $12,000 and $25,995
realized in 2000 from the exercise of a Medicis Option and the subsequent sale
of the shares issued upon exercise of the Medicis Option. The balance of the
unexercised Medicis Option, 80%, is being held for the benefit of the Company.
24
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realized Value
at Assumed Annual
Rates of Stock
Price Appreciation
Individualized Grants for Options Terms
- ----------------------------------------------------------------------------------------------------------------
Number of % of Total
Name Securities Options/SARs Exercise or Expiration Five (5%) Ten (10%)
Underlying Granted to Base Price Date Percent Percent
Options Employees in ($/Sh) ($) ($)
Granted (#) Fiscal Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William A. Forster 5,000 25 1.4375 8.31.09 11,708 18,643
- ----------------------------------------------------------------------------------------------------------------
Gary Spielfogel -0- -0- NA NA NA NA
- ----------------------------------------------------------------------------------------------------------------
Marc Falkin -0- -0- NA NA NA NA
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Option Exercises and Holdings
The following table sets forth certain information relating to option
exercises effected during Fiscal 1999, 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 $100,000 per annum for services rendered
in all capacities to the Company and its subsidiaries during Fiscal 1999:
AGGREGATE OPTION EXERCISES FOR FISCAL 1999
AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
-----------------------------------------------
Number of Unexercised Value(1) of Unexercised
Options at In-the-Money
December 31, 1999 (#) Options at
December 31, 1999 ($)
- -----------------------------------------------------------------------------------------------------------
Name Shares Acquired Value ($) Exercisable/ Exercisable/
on Exercise Realized(2) Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William A. Forster -0- -0- 505,000/15,000 -0-
- -----------------------------------------------------------------------------------------------------------
Gary Spielfogel -0- -0- 245,500/12,500 -0-
- -----------------------------------------------------------------------------------------------------------
Marc Falkin -0- -0- 200,000/-0- -0-
- -----------------------------------------------------------------------------------------------------------
</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
$.625 on December 31, 1999.
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,
25
<PAGE>
Mr. Forster receives an annual base salary of $225,000 (effective as of January
1, 1998), 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. For
fiscal year 2000, Mr. Forster agreed to reduce his compensation by $50,000.
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.
Part III
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, as of March 22, 2000 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
26
<PAGE>
set forth below is 2295 Corporate Boulevard, Suite 131, Boca Raton, Florida
33431, except as otherwise noted.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Name and Address of Beneficial Owner Amount and Nature of Percent of
Beneficial Ownership (1) Class (1)
------------------------------------------------------------------------------------------------------
<S> <C> <C>
William A. Forster 2,506,261 (2) 40.1%
------------------------------------------------------------------------------------------------------
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) 7.1%
Passage Max Meuron 1
Neuchatel, Switzerland 2001
------------------------------------------------------------------------------------------------------
Tandilly Company Ltd. 400,000 (3) 7.1%
c/o Primeway S.A.
7, Rue Du Rhone
GH-1204 Geneva, Switzerland
------------------------------------------------------------------------------------------------------
Medicis Pharmaceuticals Corporation 400,000 7.1%
4343 E. Camelback, Suite 250
Phoenix, Arizona 85018
------------------------------------------------------------------------------------------------------
Benson Holdings Limited 389,268 (3) 6.9%
P.O. Box 932
Suite 932, Europort, Gibraltar
------------------------------------------------------------------------------------------------------
Sanfurd G. Bluestein, M.D. 332,700 (4) 5.6%
309 Upper Mountain Avenue
Upper Mountain, New Jersey 07043
------------------------------------------------------------------------------------------------------
David A. Gross, M.D. 159,548 (5) 2.6%
16244 S. Military Trail, #610
Delray Beach, Florida 33484
------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Michael Holick, Ph.D, M.D. 117,980 (6) 2.0%
Boston University Medical Center
80 Concord St. M-1013
Boston, Massachusetts 02118
------------------------------------------------------------------------------------------------------
Eugene Miller 107,516 (7) 1.8%
7351 Ballantrae Court
Boca Raton, Florida 33496
------------------------------------------------------------------------------------------------------
Westby J. Rogers 148,068 (8) 2.6%
2881 East Oakland Park Boulevard
Ft. Lauderdale, FL 33306
------------------------------------------------------------------------------------------------------
Lawrence D. Russell 206,480 (9) 3.3%
800 Palm Trail, No. 200
Delray Beach, FL 33483
------------------------------------------------------------------------------------------------------
Marc Falkin 210,558 (10) 3.6%
------------------------------------------------------------------------------------------------------
Gary Spielfogel 258,000 (11) 4.4%
------------------------------------------------------------------------------------------------------
Leonard F. Kaplan 11,200 (12) Less than 1%
------------------------------------------------------------------------------------------------------
All officers and directors 4,058,313 (13) 54.5%
as a group (10 persons)
------------------------------------------------------------------------------------------------------
</TABLE>
(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 report.
(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; 530,000 shares which may be acquired pursuant to the exercise of
vested stock options; and 19,869 warrants to purchase shares of Common.
In addition, Mr. Forster has an Irrevocable Limited Proxy and is deemed
to have shared voting power of an additional 1,300,000 shares.
(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 30,000
shares and warrants to purchase 154,850 shares.
(5) Consists of options to purchase 137,500 shares, 11,490 shares
indirectly as a beneficiary of a profit sharing plan and warrants to
purchase 10,558 shares.
28
<PAGE>
(6) Consists of 61,490 shares held directly, options to purchase 45,000
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 55,000 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, options to
purchase 20,000 shares 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 968,922 shares held directly or indirectly, and options and
warrants to purchase 1,744 389 shares of Common Stock. In addition, Mr.
Forster has an Irrevocable Limited Proxy and is deemed to have shared
voting power of an additional 1,300,000 shares.
Item 12. 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.
29
<PAGE>
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.
Medicis Options. In connection with the acquisition in June 1998 of the
Company's interest in the LLC, Medicis Corporation granted options to purchase
shares of its common stock (collectively the "Medicis Options") to William A.
Forster, President, Marc Falkin, Senior Vice President ("Falkin") and Gary
Spielfogel, Executive Vice President ("Spielfogel"), and others which vested
ratably over a five (5) year period. Subsequent to ratification by the Board of
Directors of the Company of the receipt of the Medicis Options and the exercise
of the vested portion of the Medicis Options by Forster, Falkin and Spielfogel,
in March 2000, each of Forster, Falkin and Spielfogel have agreed to relinquish
all interest in the balance of the unexercised Medicis Options, which are now
being held by each of Forster, Falkin and Spielfogel as nominees for the
Company.
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 year December 31, 1998, the Company purchased inventory
from Meyer-Zall in the approximate amount of $569,000.
30
<PAGE>
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.
Recapitalization Agreement
On October 16, 1997, the Company entered into a Recapitalization
Agreement with 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 $23,700 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 prior to December 31, 2000.
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
31
<PAGE>
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 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.
32
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K.
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, 1999 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, 1999.
IMX PHARMACEUTICALS, INC.
CONTENTS
Page
----
Reports of Independent Certified Public Accountants F-1
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
(a) Exhibits
The following documents are incorporated by reference to the Company's
Registration Statement, no. 000-30294.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
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
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
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 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
</TABLE>
34
<PAGE>
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.11 Agreement among IMX Pharmaceuticals, Inc., William A. Forster, et al., dated March 19, 2000
</TABLE>
(b) Reports on Form 8-K. The Company filed a current report on Form 8-K (date of
event -January 24, 2000), disclosing Items 4 and 7.
35
<PAGE>
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<PAGE>
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Reports of Independent Certified Public Accountants:
For the year ended December 31, 1999 ....................... F-1
For the year ended December 31, 1998 ....................... F-2
Balance Sheets .................................................... F-3 - F-4
Statements of Operations .......................................... F-5
Statements of Changes in Stockholders' Equity ..................... F-6
Statements of Cash Flows .......................................... F-7 - F-8
Notes to Financial Statements ..................................... F-9 - F-31
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of
Directors and Stockholders
IMX Pharmaceuticals, Inc.
Boca Raton, Florida
We have audited the balance sheet of IMX Pharmaceuticals, Inc., and Subsidiaries
(the "Company") a Florida corporation, as of December 31, 1999 and the related
statements of operations, changes in stockholders' equity and cash flows for the
year 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 audit. The financial statements of IMX
Pharmaceuticals, Inc. as of December 31, 1998 and for the year then ended was
audited by other auditors whose report dated April 21, 1999, expressed an
unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1999 financial statements referred to above present fairly,
in all material respects, the financial position of IMX Pharmaceuticals, Inc. as
of December 31, 1999 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
MIAMI, FLORIDA BERENFELD, SPRITZER, SHECHTER & SHEER
March 3, 2000
F-1
<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 sheet of IMX
Pharmaceuticals, Inc. and subsidiaries (the "Company") as of December 31, 1998
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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 at December 31, 1998, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
West Palm Beach, Florida BDO Seidman, LLP
April 21, 1999
F-2
<PAGE>
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $2,497,791 $ 623,860
Securities available for sale 30,463 1,689,200
Accounts receivable (net of allowance for
doubtful accounts of $27,494 and $13,647) 110,525 194,405
Other receivables 31,153 0
Inventories 557,593 160,152
Loan receivable - related party 0 120,000
Vendor deposits 50,000 0
Prepaid expenses and other 46,731 38,858
------------ ------------
Total Current Assets 3,324,256 2,826,475
------------ ------------
PROPERTY AND EQUIPMENT:
Property and equipment (net of accumulated
depreciation of $179,216 and $111,261) 105,913 119,176
------------ ------------
OTHER ASSETS:
Deposits and other 67,646 42,720
Licensing and supply agreements, net 0 44,598
Investment in and advances to unconsolidated
subsidiary 0 348,016
------------ ------------
Total Other Assets 67,646 435,334
------------ ------------
TOTAL ASSETS $3,497,815 $3,380,985
============ ============
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 436,398 $ 267,208
Accrued expenses and other current
liabilities 49,700 214,414
Capital lease payable, current portion 2,896 0
Recourse obligation 0 269,705
------------ ------------
Total Current Liabilities 488,994 751,327
------------ ------------
LONG-TERM LIABILITIES:
Capital lease payable, non-current portion 4,896 0
------------ ------------
Redeemable common stock 0 70,000
------------ ------------
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, $.001 par
value, 1,000,000 shares authorized,
0 and 86,424 shares issued and outstanding 0 86
Common stock, $.001 par value, 50,000,000
shares authorized, 9,634,707 and 8,728,108
shares issued, 5,811,076 and 5,003,351 shares
outstanding 9,635 8,728
Additional paid-in capital 7,943,050 7,780,988
Retained earnings (deficit) (4,348,955) (4,883,487)
Treasury stock, at cost - 3,823,631 and
3,724,757 shares (578,054) (357,657)
Accumulated other comprehensive income (loss) (21,751) 11,000
------------ ------------
Total Stockholders' Equity 3,003,925 2,559,658
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,497,815 $3,380,985
============ ============
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
1999 1998
------------ -------------
NET SALES $ 203,334 $ 3,942,371
COST OF SALES 80,466 1,106,261
------------ -------------
GROSS PROFIT 122,868 2,836,110
------------ -------------
OPERATING EXPENSES:
Selling 1,337,485 1,594,588
Advertising 181,709 1,006,557
General and administrative 1,486,261 1,412,841
Supply agreement impairment loss 0 884,199
Depreciation and amortization 67,956 172,106
------------ -------------
Total Operating Expenses 3,073,411 5,070,291
------------ -------------
LOSS FROM OPERATIONS (2,950,543) (2,234,181)
OTHER INCOME (EXPENSES):
Equity in earnings (loss) of unconsolidated
subsidiary (12,887) 81,474
Gain on sale of investment in
unconsolidated subsidiary 3,357,807 0
Other 183,555 135,664
------------ -------------
Income (Loss)
Before Income Taxes 577,932 (2,017,043)
Provision for Income Taxes 0 0
------------ -------------
Net Income (Loss) 577,932 (2,017,043)
Dividends on preferred stock (43,400) (168,850)
------------ -------------
Net income (loss) available to
common stockholders $ 534,532 $ (2,185,893)
============ =============
- --------------------------------------------------------------------------------
Weighted average number of shares of
common stock outstanding:
Basic 4,998,508 4,879,622
Diluted 5,329,256 4,879,622
- --------------------------------------------------------------------------------
Net income (loss) per common share:
Basic $ 0.11 $ (0.45)
Diluted $ 0.10 $ (0.45)
- --------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFFERED STOCK COMMON STOCK
---------------------------- ----------------------------------
NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT
------------- ----------- ------------------ -------------
<S> <C> <C> <C> <C>
Balance - December 31, 1997 76,750 77 7,741,166 7,741
Comprehensive income:
Net loss
Other comprehensive income -
unrealized gain on securities available
for sale
Total comprehensive income (loss)
Preferred stock dividend declared 9,674 9
Purchase of treasury stock
Compensation - fair value of common
stock options issued to non-employees
Issuance of common stock for
consulting services 24,286 24
Issuance of common stock to
settle supply agreements payable 271,714 272
Original issue discount for fair value of
warrant issued with notes payable
Net proceeds from sale of common stock 710,941 711
Reclassification of redeemable common stock (19,999) (20)
------------- ----------- ------------------ -------------
Balance - December 31, 1998 86,424 86 8,728,108 8,728
Comprehensive Income:
Net income
Change in other comprehensive income
Total comprehensive income
Preferred stock dividend declared 1,736 2
Compensation - fair value of common
stock options issued to non-employees
Conversion of preferred stock to
common stock (88,160) (88) 881,600 882
Exercise of common stock options 5,000 5
Transfer of redeemed common stock to
treasury stock 19,999 20
Conversion of loan receivable to
treasury stock
Purchase of treasury stock
------------- ----------- ------------------ -------------
Balance - December 31, 1999 0 $ 0 9,634,707 $ 9,635
============= =========== ================== =============
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
PAID-IN TREASURY COMPREHENSIVE STOCKHOLDERS'
CAPITAL (DEFICIT) STOCK INCOME EQUITY
-------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1997 4,662,168 (2,697,594) (200,000) 0 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 dividend declared 168,841 (168,850) 0
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 services 96,176 96,200
Issuance of common stock to
settle supply agreements payable 950,727 950,999
Original issue discount for fair value of
warrant issued with notes payable 108,595 108,595
Net proceeds from sale of common stock 1,786,129 1,786,840
Reclassification of redeemable common stock (69,980) (70,000)
-------------- ---------------- --------------- -------------- --------------
Balance - December 31, 1998 7,780,988 (4,883,487) (357,657) 11,000 2,559,658
Comprehensive Income:
Net income 577,932 577,932
Change in other comprehensive income (32,751) (32,751)
--------------
Total comprehensive income 545,181
Preferred stock dividend declared 43,398 (43,400) 0
Compensation - fair value of common
stock options issued to non-employees 44,483 44,483
Conversion of preferred stock to
common stock (794) 0
Exercise of common stock options 4,995 5,000
Transfer of redeemed common stock to
treasury stock 69,980 (70,000) 0
Conversion of loan receivable to
treasury stock (125,400) (125,400)
Purchase of treasury stock (24,997) (24,997)
-------------- ---------------- --------------- -------------- --------------
Balance - December 31, 1999 $7,943,050 $ (4,348,955) $ (578,054) $ (21,751) $ 3,003,925
============== ================ =============== ============== ==============
</TABLE>
F-6
<PAGE>
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 577,932 $ (2,017,043)
Adjustments to reconcile net income (loss)
to net cash (used) provided by operating activities:
Depreciation and amortization 67,956 172,106
Provision for doubtful accounts 13,847 3,647
Amortization of original issue discount 0 185,437
Compensation, fair value of stock, stock options
and warrants 44,483 174,532
Equity in income (loss) - net of accretion of
unconsolidated subsidiary 28,452 (3,628)
Gain on sale of investment in
unconsolidated subsidiary (3,357,734) 0
Impairment loss on supply and licensing agreement 44,598 884,199
Changes in assets and liabilities:
Decrease in accounts receivable 38,880 1,166,456
Decrease (increase) in inventories (397,441) 1,204,235
(Increase) in prepaid expenses (7,873) (15,530)
Decrease (increase) in deposits (20,864) 104,704
Decrease (increase) in other assets (54,062) 17,839
(Decrease) increase in accounts payable
and accrued expenses 4,476 (672,361)
------------ ---------------
Net cash (used) provided by operating activities (3,017,350) 1,204,593
------------ ---------------
Investing Activities:
Purchase of furniture and equipment (54,692) (65,022)
Unrealized loss on securities available for sale (21,751) 0
Loan to related party 120,000 (120,000)
Decrease in investment in and advances to
unconsolidated subsidiary 348,016 0
Proceeds from sale of investment in
unconsolidated subsidiary 3,189,281 0
------------ ---------------
Net cash (used) provided by investing activities 3,580,854 (185,022)
------------ ---------------
</TABLE>
F-7
<PAGE>
IMX PHARMACEUTICALS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------------ ---------------------
<S> <C> <C>
Financing Activities:
Net proceeds (repayments) of notes payable 0 (372,000)
Proceeds from sale of common stock 0 1,786,840
Net proceeds from capital lease payable 7,792
Conversion of loan receivable to treasury stock (125,400) 0
Purchase of securities available for sale (30,463) (1,678,200)
Proceeds from maturity of securities available for sale 1,678,200 0
Release from recourse obligation (269,705) 0
Transfer of redeemed common stock to treasury stock 70,000 0
Proceeds from exercise of common stock options 5,000 0
Purchase of treasury stock (24,997) (157,657)
------------------ ---------------------
Net cash (used) provided by financing activities 1,310,427 (421,017)
------------------ ---------------------
Net increase in cash and cash equivalents 1,873,931 598,554
Cash and cash equivalents - beginning of year 623,860 25,306
------------------ ---------------------
Cash and cash equivalents - end of year $ 2,497,791 $ 623,860
================== =====================
- --------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
- --------------------------------------------------------------------------------
Cash paid for interest $ 13,584 $ 38,265
Cash paid for income taxes $ 19,264 $ 0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES
- --------------------------------------------------------------------------------
Common stock issued to settle supply agreement payable $ 0 $ 950,999
Dividends on preferred stock:
Preferred stock issued in lieu of cash for dividends payable
on preferred stock 43,400 168,850
Contribution of non cash assets to unconsolidated subsidiary 0 5,194
Conversion of loan receivable to treasury stock 125,400 0
Conversion of preferred stock to common stock 882 0
- --------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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 (Note 8).
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 (Note 9) in return for
$3,600,000.
F-9
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all
highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
Securities Available for Sale
Securities available for sale are carried at estimated market value.
Unrealized holding gains and losses on securities available for sale
are reported as a net amount in a separate component of
stockholders' equity until realized. Gains and losses realized from
the sale of investment securities are computed using the
specific-identification method.
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization are computed using methods that approximate the
straight-line method over the assets' estimated useful lives.
Licensing and Supply Agreements
Licensing and supply agreements are recorded at cost, including the
estimated fair value of common stock issued by the Company to
acquire the agreements. The agreements are amortized over their
estimated useful lives 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
amounts 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-10
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Revenue Recognition
Sales are generally recorded upon shipment of goods to customers,
except for goods shipped to certain retail 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 review of the retail sales of the Company's products
has been performed. Goods shipped under the holdback arrangements
are accounted for as consigned inventories until the holdback
payment is received, at which time sales are recorded.
Production Development Costs
Costs incurred for the development of new product lines are expensed
as incurred as specified by SOP 98-5 issued by the American
Institute of Certified Public Accountants (Note 3).
Stock-Based Compensation
The Company accounts for stock based compensation as set forth in
Accounting Principles Board ("APB") Opinion 25, "Accounting for
Stock Issued to Employees," and discloses the proforma effect on net
income (loss) and income (loss) per share of adopting the full
provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123 "Accounting for Stock-Based Compensation". Accordingly, the
Company has elected to continue using APB Opinion 25 and has
disclosed in the footnotes proforma income (loss) and income (loss)
per share information as if the fair value method had been applied.
Income Taxes
The Company files consolidated Federal and State of Florida income
tax returns. Income taxes are calculated using the liability
method specified by SFAS No. 109, "Accounting for Income Taxes".
Net Income (Loss) Per Common Share
Net income (loss) per common share is calculated according to
Accounting SFAS No.128, "Earnings Per Share" which requires
companies to present basic and diluted earnings per share. Net
income (loss) per common share-- basic is based 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.
F-11
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Net Income (Loss) Per Common Share (Cont'd)
Convertible preferred stock, certain common stock options and common
stock warrants were excluded from the computations of net loss per
share for the years ended December 31, 1998 and 1999 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).
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.
F-12
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 3 - RECENT ACCOUNTING (CONT'D)
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 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 - EXOREX PRODUCT LINE PROFORMA INFORMATION
The following consolidated proforma statement of operations for the
year ended December 31, 1998 illustrates the effect on the statement
of operations if the Joint Venture Agreement of June 24, 1998 (Note
1), and the Consulting Agreement (Note 9) occurred effective January
1, 1998. The proforma statement of operations sets out revenues 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 U.S. Securities and Exchange Commission.
F-13
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 4 - EXOREX PRODUCT LINE PROFORMA INFORMATION (CONT'D)
<TABLE>
<CAPTION>
Proforma Consolidated Statement of Operations (unaudited)
Year ended December 31, 1998
- -----------------------------------------------------------------------------------------------------------------
Historical Exorex
Statement of Product
Operations Line Adjustments Pro Forma
--------------- -------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 3,942,371 $ (3,745,994) $ 0 $ 196,377
Cost of sales 1,106,261 (953,263) 0 152,998
--------------- -------------- ---------------- -----------------
Gross profit 2,836,110 (2,792,731) 0 43,379
--------------- -------------- ---------------- -----------------
Operating expenses:
Selling 1,594,588 (989,817) 0 604,771
Advertising 1,006,557 (744,091) 0 262,466
General and administrative 1,412,841 (614,795) 0 798,046
Supply agreement impairment loss 884,199 0 0 884,199
Depreciation and amortization 172,106 (30,000) 0 142,106
--------------- -------------- ---------------- -----------------
Total operating expenses 5,070,291 (2,378,703) 0 2,691,588
--------------- -------------- ---------------- -----------------
(Loss) from operations (2,234,181) (414,028) 0 (2,648,209)
Other income (expenses):
Equity in earnings (loss) of
unconsolidated subsidiary 81,474 0 (240,850) (159,376)
Other 135,664 (2,565) 0 133,099
--------------- -------------- ---------------- -----------------
Net (loss) (2,017,043) (416,593) (240,850) (2,674,486)
Dividends on preferred stock (168,850) 0 0 (168,850)
--------------- -------------- ---------------- -----------------
Net (loss) 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>
The adjustment assumes the provisions of the Joint Venture Agreement
were in place for the period January 1, 1998 through June 24, 1998,
and includes a 12% 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.
F-14
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 5 - SECURITIES AVAILABLE FOR SALE
Securities available for sale consists of Federal Home Loan Bank
discount notes that matured in January, 1999 and 69,630 shares of
common stock in Hydron Technologies, Inc. At December 31, 1998, the
estimated market value of $1,689,200 of the Federal Home Loan Bank
discount notes securities exceeded their cost basis by $11,000. At
December 31, 1999, the cost basis of $52,214 of the common stock in
Hydron Tech, Inc. exceeded the market value by $21,751.
NOTE 6 - INVENTORIES
Inventories consisted of the following:
December 31,
-----------------------
1999 1998
---------- ----------
Finished goods $ 237,195 $ 64,333
Raw materials 16,969 0
Packaging supplies 303,429 95,819
---------- ----------
Total $ 557,593 160,152
========== ==========
At December 31, 1999 and 1998 finished goods inventories included
approximately $0 and $64,000, respectively, of goods shipped to
retail customers on consignment.
F-15
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31,
-------------------------------
1999 1998
-------------- --------------
Computers and office equipment $193,997 $163,457
Furniture, fixtures and improvements 91,132 66,980
-------------- --------------
285,129 230,437
Less: accumulated depreciation and
amortization (179,216) (111,261)
-------------- --------------
Property and equipment net of
accumulated depreciation $105,913 $119,176
============== ==============
NOTE 8 - LICENSING AND SUPPLY AGREEMENTS
On September 30, 1997, the Company entered into an agreement for a
term of five years with IGI, Inc. ("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 (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).
December 31,
-----------------------------
1999 1998
---------- --------------
Supply agreements $ 0 $ 0
Licensing agreements 0 50,000
---------- --------------
0 50,000
Less: accumulated amortization 0 (5,402)
---------- --------------
$ 0 $ 44,598
========== ==============
F-16
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 9 - UNCONSOLIDATED SUBSIDIARY
The Company owned a 49% interest in the LLC (Note 1), a skin care
joint venture located in Phoenix, Arizona, which was sold effective
June 30, 1999.
December 31,
----------------------------------
1999 1998
-------------- ---------------
Company's share of net
loss on LLC $ 0 $ (96,970)
Investments in LLC 0 105,792
Advances to LLC $ 0 $ 339,194
----------------- -----------------
$ 0 $ 348,016
================= =================
At December 31, 1998, the unaccreted excess of the Company's equity
in the underlying net assets of the LLC 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 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 equal to 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
F-17
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 9 - UNCONSOLIDATED SUBSIDIARY (CONT'D)
$159,000 and $77,000 for the years ended December 31, 1998 and 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.
NOTE 10 - INCOME TAXES
The provision for income taxes in the consolidated statements of
operations is as follows:
December 31,
-----------------------------------
1999 1998
--------------- ---------------
Current:
Federal $ 0 $ 0
State 0 0
--------------- ---------------
$ 0 $ 0
--------------- ---------------
Deferred:
Federal $ 0 $ 0
State 0 0
--------------- ---------------
$ 0 $ 0
--------------- ---------------
F-18
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES (CONT'D)
Applicable incomes taxes for financial reporting purposes differ
from the amounts computed by applying the statutory federal and
state income tax rates as follows:
December 31,
-------------------------
1999 1998
----------- ----------
Tax (benefit) at statutory rate $185,800 $(685,800)
Increase (decrease) in tax
resulting from:
State income tax, net of federal tax
benefit 31,500 (73,200)
Other 0 3,600
Increase (decrease) in
valuation allowance (217,300) 755,400
----------- ----------
Income taxes $ 0 $ 0
=========== ==========
The approximate tax effects of temporary differences that give rise
to the deferred tax assets and deferred tax (liabilities) are as
follows:
December 31,
--------------------------
1999 1998
---------- ---------
Supply agreement impairment loss $ 0 $ 332,700
Fair value of common stock options and
warrants 130,889 95,200
Start-up costs 139,100 97,200
Depreciation and amortization (71,700) (26,600)
Other 12,000 6,800
Net operating loss carry forwards 641,700 840,800
---------- -----------
851,989 1,346,100
Less: valuation allowance (851,989) (1,346,100)
---------- -----------
Total net deferred tax asset $ 0 $ 0
========== ===========
At December 31, 1998, the Company had net operating loss
carryforwards of approximately $2,234,000 for income tax purposes.
Those losses are available for carryforward for periods ranging from
fifteen to twenty years, and will expire beginning in 2011. During
1999, the Company utilized approximately $578,000 of the net
operating loss carryfowards. Any future significant changes in
ownership of the Company may limit the annual utilization of the tax
net operating loss carryforwards.
F-19
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 11 - RECOURSE OBLIGATION
Effective June 18, 1998 the Company sold approximately $2,509,000 of
accounts receivable related to Exorex to the LLC for cash of
approximately $2,259,000 (90%), and Exorex inventories with a cost
of approximately $1,367,000. 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
assignments. 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.
NOTE 12 - NOTES PAYABLE
At December 31, 1997, the Company had notes payable to six
individuals totaling $372,000. The notes bear interest at 18% per
annum. Included in this amount are two notes to two officers of the
Company totaling $75,000 (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, to purchase 1,750
shares of the Company's common stock for $3.50 per share, for each
month the notes were outstanding (Note 13). The Company repaid all
of the notes 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 $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 were amortized during 1997 and 1998 respectively.
NOTE 13 - 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, 1998 and 1999, the Company had reserved 3,385,856
and 3,538,216 shares of Common stock respectively for issuance
relating to unexpired options and warrants.
On October 30, 1997, and as amended on November 24, 1997, the
Company
F-20
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 13 - CAPITAL STOCK (CONT'D)
offered to sell, through a private placement, 100 units at a price
of $50,000 per unit (A unit consisted 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.
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.
Rescission 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 rescission 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 1999 these shares were
transferred to treasury stock.
F-21
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 13 - CAPITAL STOCK (CONT'D)
Preferred Stock
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,
$.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, 1998, and March 31, 1999, the Company accrued
dividends payable on the preferred stock of approximately $169,000,
and $43,400 for the years ended December 31, 1998 and 1999,
respectively. The Company elected to pay the dividends by issuing
additional shares of preferred stock.
NOTE 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.
F-22
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 14 - STOCK OPTIONS (CONT'D)
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
------------------------------------------------------
1998 1998 1999 1999
- ---------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period 1,350,000 $2.72 1,586,975 $2.71
Granted 246,975 2.73 234,500 1.73
Exercised - - 5,000 1.75
Forfeited/canceled (10,000) 4.06 (94,500) 4.31
- --------------------------------------------------------------------------------
Outstanding at end of
period 1,586,975 $2.71 1,721,975 $2.49
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exercisable at end of
period 1,235,725 $2.49 1,560,100 $2.55
- --------------------------------------------------------------------------------
Weighted average fair
market value of
options granted
period $0.87 $0.85
- --------------------------------------------------------------------------------
</TABLE>
F-23
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 14 - 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
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------------
December 31, 1999
- -------------------------------------------------------------------------------------------------------------------
$0.75 - 0.99 20,000 9.75 $0.75 20,000 $0.75
$1.00 - 3.00 1,175,500 7.24 1.64 1,021,750 1.62
3.87 - 4.00 270,000 7.99 4.00 270,000 4.00
4.78 - 6.50 256,475 7.56 5.03 248,350 4.97
- -------------------------------------------------------------------------------------------------------------------
$0.75 - 6.50 1,721,975 7.44 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 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.
F-24
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 14 - 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>
For the year ended
December 31,
--------------------------------
1999 1998
------------- ---------------
<S> <C> <C>
Net income (loss) applicable to
common stockholders
As reported $534,532 $(2,185,893)
Pro forma $264,499 (2,555,000)
Income (loss) per share - basic
As reported $0.11 $(0.45)
Pro forma $0.05 $(0.52)
Income (loss) per share - basic
As reported $0.10 $(0.45)
Pro forma $0.05 $(0.52)
</TABLE>
NOTE 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.
On March 31, 1999, in connection with the Company's 1997 Private
Placement of convertible preferred stock (Note 13), 88,160 (76,750
original
F-25
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 15 - STOCK WARRANTS (CONT'D)
shares, plus 11,410 shares issued in lieu of cash as preferred stock
dividends) shares outstanding at March 31, 1999 were converted into
ten shares of common stock and warrants to purchase ten shares of
common stock at any time during the period ending July 2002 for
$6.50 per share. As of December 31, 1999 no warrants to purchase
common stock have been exercised.
In addition to warrants issued to investors in the February 1997
Private Placement, warrants to purchase 7,586.25 shares of
Convertible Preferred Stock were issued to placement and selling
agents with an exercise price of $30 per share, and are exercisable
for the five year period ending July 2002. Each share of preferred
stock is convertible into 10 shares of common stock at $3.50 per
share and 10 warrants, each warrant to purchase one share of common
stock at $6.50 per share. Prior to the March 31, 1999 conversion, no
warrants to purchase preferred stock had been exercised.
During July, 1997, in connection with an agreement with a financial
advisor, the Company issued warrants to purchase 50,000 shares of
common stock at $4.75 per share, exercisable for the period ending
July 2002. The Company recorded approximately $67,000 as deferred
consulting expense for the estimated fair value of the warrants,
which is being amortized over the two year term of the agreement.
In connection with notes payable issued during 1997 (Note 12), as of
December 31, 1998, warrants to purchase 85,120 shares of common
stock have been issued. Also, in connection with February, 1998
closing of the October 1997 Private Placement, warrants to purchase
20,180 shares of common stock were issued to placement and selling
agents. Each of the warrants mentioned above has an exercise price
of $3.50 per share, and expires five years from the date of
issuance. As of December 31, 1998 and 1999, no warrants have been
exercised.
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-26
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 16 - NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted
net income (loss) per common share:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1999 December 31, 1998
---------------------- ---------------------
<S> <C> <C>
Numerator:
Numerator for basic and diluted
Earnings per share-income (loss) available
to common stockholders $ 534,532 $(2,185,893)
---------------------- ---------------------
Denominator:
Denominator for basic earnings per
share-weighted-average shares 4,998,508 4,879,622
Effect of dilutive securities:
Common stock options 330,748 0
---------------------- ---------------------
Denominator for diluted earnings per
share-adjusted weighted average
shares and assumed conversions 5,329,256 4,879,622
---------------------- ---------------------
Basic net income per common share $ 0.11 $ (0.45)
---------------------- ---------------------
Diluted net income per common share $ 0.10 $ (0.45)
---------------------- ---------------------
</TABLE>
Net income (loss) per common share is calculated by dividing the net
income (loss) by the weighted-average shares of common stock and
common stock equivalents outstanding during the period. Excluded
from the computation of net loss per common share - diluted at
December 31, 1998 and 1999, were convertible preferred stock of
864,240 and 0, outstanding options of 1,586,975 and 1,679,475, and
warrants to purchase 1,798,881 and 1,816,241 shares of common stock
respectively, at exercise prices ranging from $1.00 to $6.50, and
from $2.50 to $6.50, because to do so would be anti-dilutive.
F-27
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 17 - RELATED PARTY TRANSACTIONS
The Company purchased inventories from Meyer-Zall of approximately
$569,000 for the year ended December 31, 1998.
During July 1998, the Company loaned $120,000 to Meyer-Zall. The
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.
See Notes 9 and 11 regarding transactions during 1998 and 1999 with
Medicis and the LLC.
At December 31, 1997, the Company advanced approximately $17,800 to
companies affiliated to the President. The advances were repaid
during 1999.
During 1997 the Company issued notes payable and warrants of
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.
During 1999, the Company made advances to a company affiliated to
the President. The balance due the Company at December 31, 1999
totaled $31,153. These advances together with interest at the rate
of ten (10%) percent is due and payable prior to December 31, 2000.
F-28
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 18 - 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
Total rent expense for all non-cancelable operating leases having a
term of more than one year was approximately $61,000 and $91,000 for
the years ended December 31, 1998 and 1999 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. In connection with the Sale
Agreement, bonuses of approximately $258,000 are included as an
expense of sale of the investment in unconsolidated subsidiary in
the accompanying consolidated statement of operations for the year
ended December 31, 1999.
F-29
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 18 - COMMITMENTS AND CONTINGENCIES (CONT'D)
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.
In the second claim, Bioglan seeks unspecified damages from the
Company, Medicis and the LLC because it claims that the inventories
that it received had not been properly stored and therefore was
unmarketable. Management believes that this claim does not have any
merit, since it was never advised by the manufacturer, Meyer-Zall,
of any requirement for cold storage for the product. The Company
intends to vigorously defend this matter. However, management cannot
assess the likelihood of an unfavorable outcome, or the range of
potential loss, if any, which might result from this claim.
NOTE 19 - SALES TO ONE CUSTOMER
During 1998 the Company had net sales to a retail drug chain
representing approximately 10% of net sales for the year. During
1999 the Company had net sales to two customers representing
approximately 25% and 16% of net sales.
F-30
<PAGE>
IMX PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 20 - 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
=======
F-31
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
IMX PHARMACEUTICALS, INC.
By: /s/ William A. Forster
---------------------------
William A. Forster, Chief Executive Officer
Date: March 27, 2000
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William A. Forster Chief Executive Officer
- ---------------------- and Chairman of the Board March 27, 2000
William A. Forster
/s/ Leonard F. Kaplan Chief Financial
- --------------------- and Accounting Officer March 27, 2000
Leonard F. Kaplan
/s/ David A. Gross Director March 27, 2000
- ------------------
David A. Gross, M.D.
/s/ Eugene Miller
- -------------------------
Eugene Miller Director April 12, 2000
/s/ Michael F. Holick
- ------------------------------ Director March 27, 2000
Michael F. Holick, Ph.D., M.D.
/s/ Sanfurd Bluestein, M.D.
- ------------------------- Director April 11, 2000
Sanfurd Bluestein, M.D.
- ------------------------- Director
Westby J. Rogers
/s/ Lawrence D. Russell
- -------------------------
Lawrence D. Russell Director April 12, 2000
</TABLE>
<PAGE>
Exhibit 10.11
AGREEMENT
AGREEMENT made this 19th day of March, 2000, by and among IMX PHARMACEUTICALS,
INC., a Utah corporation (the "Company"), with its offices at 2295 Corporate
Boulevard, Suite 131, Boca Raton, Florida 33431; WILLIAM A. FORSTER ("Forster"),
MARC FALKIN ("Falkin") and GARY SPIELFOGEL ("Spielfogel"), each an individual
with his principal place of business at c/o IMX Pharmaceuticals, Inc.
WITNESSETH:
WHEREAS, in June, 1998, Medicis Pharmaceutical Corporation ("Medicis"),
in order to recognize and strengthen Forster's, Falkin's, and Spielfogel's
commitment the joint venture between it and the Company, decided independently
to grant them and others options to purchase shares of its common stock
(collectively the "Medicis Options") which vest ratably over a five (5) year
period;
WHEREAS, the Board of Directors of the Company initially ratified the
receipt and the exercise of the vested portion of the Medicis Options by
Forster, Falkin and Spielfogel;
WHEREAS, subsequent to ratification by the Board of Directors of the
receipt of the Medicis Options and the exercise of the vested portion of the
Medicis Options by Forster, Falkin and Spielfogel, they have revisited the
matter and, in view of the Board of Director's concern for the present financial
condition of the Company, they have requested and Forster, Falkin and Spielfogel
have agreed that the balance of the unexercised Medicis Options should be held
for the benefit of the Company;
WHEREAS, the Board of Directors wishes to reaffirm that the grant of
the Medicis Options to Forster, Falkin, and Spielfogel was entirely proper;
WHEREAS, the Board of Directors again ratifies the continued ownership
by Forster, Falkin, and Spielfogel of the common stock issued to them as a
result of their exercise of a part of their Medicis Options;
WHEREAS, paragraph 7 of each Medicis Option provides that the Medicis
Options are not transferable (except upon death of the option holder); and
WHEREAS, each of Forster, Falkin and Spielfogel have agreed that the
balance of the unexercised Medicis Options shall be held as nominees for the
benefit of the Company.
NOW, THEREFORE, in consideration of the mutual covenants, conditions
and promises contained herein, the parties hereto hereby agree as follows:
1. Warranties and Representation. Each of Forster, Falkin and
Spielfogel hereby warrants and represents to the Company that
<PAGE>
(a) only 1/5 of the Medicis Options have been exercised;
(b) each has not transferred or hypothecated any interest in
and to the Medicis Options, the shares issuable upon exercise of the Medicis
Options and the proceeds of the sale thereof are or will be, owned free and
clear of all liens and encumbrances, subject only to the terms contained in
agreements for the Medicis Options; and
(c) true and complete copies of each Medicis Option and the
plan under which the Medicis Options have been granted have been delivered to
the Company.
2. Transfer of Rights. Each of Forster, Falkin and Spielfogel hereby
irrevocably transfer any and all rights in and to, and relinquish any and all
rights and benefits to the balance of, the unexercised Medicis Options, the
additional shares issuable upon the Medicis Options, and the proceeds of the
sale thereof; and covenant and agree with the Company that the balance of the
unexercised Medicis Options, the additional shares issuable upon exercise of the
Medicis Options, and the proceeds of the sale thereof shall be held as nominees
for the sole benefit of the Company.
3. Instructions of the Company. Each of Forster, Falkin and Spielfogel
hereby agree that they shall follow the instructions of the Company in respect
of the exercise of the Medicis Options, transfer, sale and voting of the
additional shares issuable upon the exercise of the Medicis Options, and the
disposition of the proceeds of the sale of the additional shares issuable upon
the exercise of the Medicis Options.
4. Acceptance by Company. The Company hereby accepts the rights in the
Medicis Options conveyed herein, and agrees to permit Forster, Falkin and
Spielfogel to hold the Medicis Options and the shares issuable upon the Medicis
Options for the sole benefit of the Company.
5. Retention of Medicis Common Stock. The Company agrees that Forster,
Falkin, and Spielfogel shall retain the Medicis Common Stock previously issued
to them upon exercise of a portion of their Medicis Options and hereby releases
them from any claim for that stock, the proceeds of its sale, or otherwise
against them.
6. Indemnification. Each of the parties shall hold the other parties
harmless from any and all damage, loss, liability and expense (including,
without limitation, reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any action, suit or proceeding)
incurred or suffered by such persons arising out of any misrepresentation or
breach of warranty, covenant or agreement made or to be performed by a party
pursuant to this Agreement.
7. Further Assurances.
(a) Each of Forster, Falkin and Spielfogel shall at any one
time and from time to time, at the request of the Company and at its expense, if
any, execute and deliver such other instruments of conveyance or transfer and
take such other actions as the Company may request in order to vest in the
Company good and marketable title to the Medicis Options, the additional share
issuable upon the Medicis Options and the
<PAGE>
proceeds of the sale thereof. In the event that each of Forster, Falkin and
Spielfogel, within seven (7) days after the Company's request therefore, has not
executed or delivered such instruments of conveyance or transfer, or take such
other actions to vest in the Company good and marketable title to the Medicis
Options, the shares issuable upon the Medicis Options and the proceeds of the
sale thereof as requested by the Company, then, each of Forster, Falkin and
Spielfogel each hereby grant to the Company an irrevocable power of attorney to
effect same in the name and stead of each of Forster, Falkin and Spielfogel, as
the case may be. The Company need not take any other action, nor have any other
documents executed, to effect such power of attorney. Each of Forster, Falkin
and Spielfogel expressly acknowledge and agree that such power of attorney is
irrevocable and shall be deemed to be coupled with an interest.
(b) If any of Forster, Falkin, and Spielfogel shall be subject
to any Federal or state income or property tax as a result of the transfer
described in Section 2, following an instruction pursuant to section 3, or any
action taken pursuant to paragraph (a) of this section, the Company shall
immediately either (i) pay that tax or reimburse Forster, Falkin, and Spielfogel
for any tax paid by or assessed against them, and (ii) pay or reimburse Forster,
Falkin, and Spielfogel for any tax due as a result of any payment made under
this section.
8. Acknowledgement and Release. The Company agrees that the receipt and
partial exercise of the Medicis Options by Forster, Falkin, and Spielfogel was
not wrong in any way and hereby forever releases, on its own behalf and on
behalf of any successors or assigns, any claim that it might have or will ever
have against them. The provisions of the Company's Certificate of Incorporation
relating to indemnification shall apply to any claim made against Forster,
Falkin, or Spielfogel in contravention of this release.
9. Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties hereto and no amendment, modification or waiver
of any provision herein shall be effective unless in writing, executed by the
party charged therewith.
10. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with and shall be governed by the laws of the State of
Florida without regard to the principles of conflicts of laws.
11. Paragraph Headings. The paragraph headings herein have been
inserted for convenience of reference only, and shall in no way modify or
restrict any of the terms or provisions hereof.
12. Unenforceability; Severability. If any provision of this Agreement
is found to be void or unenforceable by a court of competent jurisdiction, then
the remaining provisions of this Agreement, shall, nevertheless, be binding upon
the parties and remain in full force and effect. Upon such determination, the
parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner so that the transactions contemplated hereby shall be consummated as
originally contemplated to the fullest extent possible.
<PAGE>
13. Counterparts: Facsimile Signatures. This Agreement may be executed
in counterparts, all of which shall be deemed to be duplicate originals.
Delivery by facsimile transmission of an executed signature page to this
Agreement shall be effective as delivery of a manually executed counterpart
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this instrument
the date first above written.
IMX PHARMACEUTICALS, INC.
By: /s/William A. Forster
-------------------------
William A. Forster, President
/s/William A. Forster
-------------------------
William A. Forster
/s/ Marc Falkin
-------------------------
Marc Falkin
/s/ Gary Spielfogel
-------------------------
Gary Spielfogel
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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0
0
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