<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________________________
FORM 10-Q
____X____ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
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. 0-19153
________________________
VIMRX PHARMACEUTICALS INC.
(Exact name of Registrant as specified in its Charter)
________________________
DELAWARE 06-1192468
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
2751 CENTERVILLE ROAD, SUITE 210, WILMINGTON, DELAWARE 19808
(Address of principal executive offices)
Registrants telephone number, including area code: (302) 998-1734
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 ______
-------
The aggregate number of Registrants shares outstanding on May 14, 1998 was
66,902,796 shares of Common Stock, $.001 par value.
<PAGE>
VIMRX PHARMACEUTICALS, INC.
INDEX
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997....................................... 3
Consolidated Statements of Operations (unaudited) for the three
months ended March 31, 1998 and 1997................................... 4
Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 1998 and 1997............................. 5
Notes to Financial Statements (unaudited)...................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................ 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................................... 9
Item 2. Changes in Securities............................................................... 9
Item 3. Defaults upon Senior Securities..................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders................................. 9
Item 5. Other Information................................................................... 9
Item 6. Exhibits and Reports on Form 8-K.................................................... 10
SIGNATURES ......................................................................... 11
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(unaudited) 1997
-------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 51,868,000 $ 57,830,000
Receivables from related party 2,165,000 4,235,000
Inventory 1,688,000 2,227,000
Other current assets 547,000 922,000
-------------- --------------
Total current assets 56,268,000 65,214,000
Fixed assets - net 15,699,000 15,464,000
Intangible assets- net 39,908,000 40,773,000
Other assets 611,000 496,000
-------------- --------------
Total assets $ 112,486,000 $ 121,947,000
============== ==============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 5,058,000 $ 3,380,000
Long-term debt current portion 94,000 130,000
Capital leases current portion 350,000 350,000
-------------- --------------
Total current liabilities 5,502,000 3,860,000
Long-term debt from related party 30,665,000 30,171,000
Capital leases 101,000 208,000
-------------- --------------
Total liabilities 36,268,000 34,239,000
-------------- --------------
Minority interest in subsidiary 2,409,000 4,161,000
SHAREHOLDERS EQUITY
Class A Convertible Preferred Stock; $.001 Par value 100 100
150,000 authorized shares; 66,304 issued and outstanding at March 31,
1998 and December 31, 1997 (liquidation value $66,304,000)
Common Stock; $.001 Par value, 120,000 shares authorized; 66,903,000 and 67,000 67,000
66,498,000 shares issued and outstanding at March 31, 1998 and
December 31, 1997, respectively.
Additional paid-in capital 182,538,900 182,538,900
Unearned compensation (406,000) (449,000)
Cumulative comprehensive loss (57,000) (40,000)
Accumulated deficit (108,334,000) (98,570,000)
-------------- --------------
Total shareholders' equity 73,809,000 83,547,000
-------------- --------------
Total liabilities and shareholders' equity $ 112,486,000 $ 121,947,000
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements
3
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VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------------------------
1998 1997
----------------------- ----------------
<S> <C> <C>
Revenue........................................... $ 2,819,000 $ --
Cost of goods sold................................ 2,055,000 --
----------------------- ----------------
Gross Profit ........................ 764,000 --
----------------------- ----------------
Operating expenses:
Research and development...................... 8,344,000 3,217,000
Purchased research and development............ -- 1,200,000
General and administrative.................... 3,000,000 1,597,000
Goodwill amortization......................... 878,000 103,000
Selling and marketing......................... 334,000 --
----------------------- ----------------
Total operating expenses............. 12,556,000 6,117,000
Operating loss.................................... (11,792,000) (6,117,000)
----------------------- ----------------
Other (income) expenses:
Royalty expense............................... 50,000 50,000
Minority interest in net loss of consolidated
subsidiaries........................... (1,771,000) (947,000)
Interest income............................... (777,000) (681,000)
Interest expense.............................. 519,000 37,000
Other, net.................................... (49,000) 104,000
----------------------- ----------------
Total other (income) expenses........ (2,028,000) (1,437,000)
Net loss.......................................... (9,764,000) (4,680,000)
Preferred stock dividends......................... (990,000) --
----------------------- ----------------
Net loss applicable to Common Stock............... $ (10,754,000) $ (4,680,000)
======================= ================
Basic loss per share.............................. $ (0.16) $ (0.09)
----------------------- ----------------
Weighted average number of shares of common stock
outstanding................................ 66,899,000 54,483,000
======================= ================
Diluted loss per share............................ $ (0.16) $ (0.09)
----------------------- ----------------
Weighted average number of shares of common stock
and dilutive equivalent shares outstanding. 66,899,000 54,483,000
======================= ================
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------------------------------
1998 1997
------------------------- -------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $ (9,764,000) $ (4,680,000)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation and amortization............................... 1,714,000 225,000
Transfer of collaborative rights............................ -- 509,000
Noncash compensation........................................ 63,000 135,000
Purchased in process research and........................... -- 698,000
Minority interest in Net loss............................... (1,771,000) (947,000)
Changes in operating assets and liabilities:
Decrease in other current assets and other assets........ 2,861,000 64,000
Increase (decrease) in accounts payable and accrued
Expenses.............................................. 1,645,000 (310,000)
------------------------- -------------------------
Net cash (used in) operating activities........................... (5,252,000) (4,306,000)
------------------------- -------------------------
Cash flows from investing activities:
Net sales of short-term investments............................ -- 731,000
Purchases of equipment......................................... (1,103,000) (515,000)
------------------------- -------------------------
Net cash provided by (used in) investing activities............... (1,103,000) 216,000
Cash flows from financing activities:
Interest on long term debt from related party.................. 494,000 --
Repayment of capital leases.................................... (102,000) (83,000)
------------------------- -------------------------
Net cash provided by financing activities................... 392,000 (83,000)
------------------------- -------------------------
Effect of exchange rate changes on cash........................... 1,000 (8,000)
------------------------- -------------------------
Net (decrease) in cash and cash equivalents....................... (5,962,000) (4,181,000)
Cash and cash equivalents at beginning of period.................. 57,830,000 8,611,000
------------------------- -------------------------
Cash and cash equivalents at end of period........................ $ 51,868,000 $ 4,430,000
========================= =========================
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
VIMRX PHARMACEUTICALS INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements of VIMRX Pharmaceuticals Inc. and
subsidiaries (the "Company") herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC) and
in the opinion of management, reflect all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the results of
operations for the interim periods presented. Certain information and
footnote disclosures normally included in financial statements, prepared in
accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations. However,
management believes that the disclosures are adequate to make the
information presented not misleading. These financial statements and the
notes thereto should be read in conjunction with the financial statements
and the notes thereto included in the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 1997. The results for the interim
periods are not necessarily indicative of the results for the full fiscal
year.
(2) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
VIMRX, Nexell, VIMRX Genomics, Inc. ("VGI"), Innovir and all its
subsidiaries. All significant intercompany balances and transactions have
been eliminated.
(3) RESEARCH AGREEMENTS
In March 1997, VIMRX entered into a research agreement relating to the
discovery, mapping, sequencing and validation of disease-related genes with
Columbia University ("Columbia"). The agreement provides for VIMRX, through
VGI, to provide $30 million in funding to the Columbia Genome Center over a
5-year period and for VGI to receive an exclusive license to develop,
manufacture, use, sell or market products resulting from any invention,
research information and biological materials developed by the Columbia
Genome Center and funded under the agreement. The agreement is terminable
by either Columbia or VGI during the initial five-year term upon six months
notice, but in no event earlier than September 7, 1999. Under the
agreement, VIMRX issued 200,000 shares of Common Stock to Columbia, which
shares have subsequently been registered under the Securities Act of 1933,
as amended. VGI had paid Columbia $6.0 million in funding in quarterly
installments in respect of its obligations for 1997 under the Agreement.
VGI has sought technology collaborations with pharmaceutical and/or
diagnostic companies and has solicited equity investments in VGI from
potential technology partners and other investors, but has been unable to
consummate any such transactions on reasonable terms.
6
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As a result, VGI is engaged in discussions with Columbia with a view to
reconstructing its relationship with Columbia. The Company anticipates that
this restructuring will involve a termination of the Research Agreement
with Columbia, and the transfer to VGI, to be renamed "Ventiv Biogroup
Inc." (hereinafter, "Ventiv"), of VIMRX's Hypericin VM201 and VM301
programs. Ventiv is expected to retain rights to the BCL-6 and MUM-1 genes.
Under such a restructuring, the current obligation to provide $30 million
funding over 5 years would be terminated and replaced with a commitment to
provide approximately $5.5 million in funding over the next 4 years.
4) Accounting Principles
Effective January 1, 1998, The Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires that all items recognized under accounting standards as
components of comprehensive earnings be reported in an annual financial
statement that is displayed with the same prominence as other annual
financial statements. This Statement also requires that an entity classify
items of other comprehensive earnings by their nature in an annual
financial statement. For example, other comprehensive earnings may include
foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on marketable securities
classified as available-for-sale. Annual financial statement for prior
periods will be reclassified, as required. The Company's total
comprehensive earnings were as follows:
Three Months Ended March 31,
----------------------------
1998 1997
--------- ---------
Net Loss 9,764,000 4,680,000
Foreign currency translation 17,000 8,000
Unrealized loss on investments -- 316,000
--------- ---------
Comprehensive loss 9,781,000 5,004,000
--------- ---------
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share". Adoption of this Statement, which requires
restatement of previously reported amounts, had no impact on prior year
loss per share. Basic loss per share is calculated by dividing loss by the
weighted average number of common shares outstanding during the period. For
diluted loss per share, net loss is divided by the weighted average number
of common and potentially diluted shares outstanding during the period.
Potentially dilutive common shares consist of stock options and warrants
using the treasury stock method, but are excluded if their effect is
antidilutive.
7
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VIMRX PHARMACEUTICALS INC.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Quarterly
Report on Form 10-Q and with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
Three Months Ended March 31, 1998 and 1997
Revenue of $2,819,000 resulted from sales generated by Nexell, Inc., a majority
owned subsidiary acquired in December 1997. This revenue was offset by cost of
goods sold $2,055,000 to net a gross profit of $764,000.
Total operating expenses increased by $6,439,000 or 105% due to increases in
research and development, $5,127,000 or 159%, general and administration,
$1,403,000 or 88%. Intangible amortization, $775,000 or 752%, and sales and
marketing expense, $334,000. These expenses were offset by a $1,200,000 decrease
in purchased research and development.
The $5,127,000 increase in research and development expenses results primarily
from the inclusion of the operations of Nexell fully for the first time
($4,736,000). In addition, spending increased on VIMRX and VGI programs.
General and administrative expenses increased $1,403,000 due to the
inclusion of Nexell ($1,411,000).
Minority interest in the net loss of consolidated subsidiaries increased
$824,000 or 87% due principally to the loss incurred by Nexell which was not
included in the first quarter of 1997.
The increase in interest income of $96,000 or 14% is mainly due to an increase
in the average cash and cash equivalents of 1998 as compared to the average cash
and marketable securities balance in the same period in 1997.
Interest expense increased $482,000 due principally to the interest related to
the long-term debt due to a related party.
The foregoing resulted in an increase in the net loss of $5,084,000.
LIQUIDITY AND CAPITAL RESOURCES
Before fiscal 1997, the Company had not realized any operating revenues and has
financed its operation through the sale of its securities.
The Company had $51,868,000 in cash and cash equivalents as of March 31, 1998 as
compared to $57,830,000 in cash, cash equivalents and marketable securities held
for sale as of December 31,
8
<PAGE>
1997 and working capital of $50,766,000 at March 31, 1998 as compared to
$61,354,000 at December 31, 1997. Most of the decrease position resulted from
cash used in the operations of the Company of $5,252,000 and in purchases of
equipment for $1,103,000. The decrease in working capital is the result of the
step up of operations at Nexell.
Cash used in operating activities increased $946,000 or 22% over the cash used
in operating activities in the three months ended March 31, 1998 due principally
to the Nexell operations in 1998.
The Company expects to incur substantial expenditures in the foreseeable future
for the research and development and commercialization of its proposed products.
Based on current projections, which are subject to change, the Company's
management believes that the present balance of cash, cash equivalents and
marketable securities held for sale, is sufficient to fund its operations for
over two years, assuming no capital infusions or revenues are received.
Thereafter, the Company will require additional funds, which it may seek to
raise through public or private equity or debt financings, collaborative or
other arrangements with corporate sources, or through other sources of
financing.
The Company is developing and implementing a plan to address Year 2000 risk.
Management does not expect associated costs to be material to the statement of
operations or financial position of the Company.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
9
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
---------
27 Financial Data Schedule.
(b) Reports on Form 8-K:
--------------------
On January 3, 1998, the Company filed a current report on Form 8-K
announcing the acquisition of the assets of the Immunology Division of the
Biotech Business Group of Baxter Healthcare Corporation.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 14, 1998
VIMRX PHARMACEUTICALS INC.
a Delaware Corporation
(Registrant)
By: /s/ Richard L. Dunning
--------------------------------------
Richard L. Dunning
President and
Chief Executive Officer
By: /s/ Francis M. O'Connell
--------------------------------------
Francis M. O'Connell
Chief Accounting Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 51,868,000 4,430,000
<SECURITIES> 0 37,252,000
<RECEIVABLES> 0 0
<ALLOWANCES> 2,165,000 0
<INVENTORY> 1,686,000 0
<CURRENT-ASSETS> 56,268,000 39,865,000
<PP&E> 18,628,000 4,488,000
<DEPRECIATION> 2,929,000 1,444,000
<TOTAL-ASSETS> 112,486,000 46,689,000
<CURRENT-LIABILITIES> 5,502,000 2,100,000
<BONDS> 0 0
0 0
100 0
<COMMON> 67,000 55,000
<OTHER-SE> 73,741,900 41,985,000
<TOTAL-LIABILITY-AND-EQUITY> 112,486,000 44,689,000
<SALES> 2,819,000 0
<TOTAL-REVENUES> 2,819,000 0
<CGS> 2,055,000 0
<TOTAL-COSTS> 12,556,000 6,117,000
<OTHER-EXPENSES> (2,547,000) (1,400,000)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 519,000 37,000
<INCOME-PRETAX> (9,764,000) (4,680,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,764,000) (4,680,000)
<EPS-PRIMARY> (0.16) (0.09)<F1>
<EPS-DILUTED> (0.16) (0.09)<F1>
<FN>
<F1>To restate earnings per share to reflect adoption of SFAS 128,earnings per
share.
</FN>
</TABLE>
