<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, 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. 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)
Registrant's 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 Registrant's shares outstanding on May 10, 1999 was
69,566,089 shares of Common Stock, $.001 par value.
________________________
<PAGE>
VIMRX PHARMACEUTICALS, INC.
INDEX
-----
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets (unaudited) as of
March 31, 1999 and December 31, 1998..................... 3
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 1999 and 1998........ 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1999 and 1998........ 5
Notes to Condensed Consolidated Financial
Statements (unaudited).................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk............ 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................... 12
Item 2. Changes in Securities................................................. 12
Item 3. Defaults upon Senior Securities....................................... 12
Item 4. Submission of Matters to a Vote of Security Holders................... 12
Item 5. Other Information..................................................... 12
Item 6. Exhibits and Reports on Form 8-K...................................... 12
SIGNATURES ...................................................................... 13
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VIMRX PHARMACEUTICALS INC. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,586,000 $ 33,091,000
Receivables from related party 2,963,000 2,450,000
Inventory - finished goods 1,242,000 2,389,000
Other current assets 948,000 842,000
--------------- ---------------
Total current assets 34,739,000 38,772,000
Fixed assets, net 10,374,000 10,942,000
Intangible assets, net 39,844,000 37,635,000
Other assets 261,000 252,000
--------------- ---------------
Total assets $ 85,218,000 $ 87,601,000
=============== ===============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 6,452,000 $ 6,487,000
Long-term debt current portion 96,000 96,000
Capital leases current portion 138,000 172,000
--------------- ---------------
Total current liabilities 6,686,000 6,755,000
Long-term debt from related party 32,519,000 32,031,000
--------------- ---------------
Total liabilities 39,205,000 38,786,000
--------------- ---------------
SHAREHOLDERS' EQUITY
Class A Convertible Preferred Stock; $.001 par value
150,000 authorized shares; 70,282 issued and outstanding at March 31,
1999 and at December 31, 1998 (liquidation value $71,497,000 and 100 100
$70,458,000)
Common Stock; $.001 par value, 120,000,000 shares authorized,
69,566,000 and 67,830,000 shares issued and outstanding
at March 31, 1999 and December 31, 1998, respectively. 70,000 68,000
Additional paid-in capital 185,829,900 182,537,900
Unearned compensation (234,000) (278,000)
Accumulated other comprehensive income (loss) (1,000) 20,000
Accumulated deficit (139,652,000) (133,533,000)
--------------- ---------------
Total shareholders' equity 46,013,000 48,815,000
--------------- ---------------
Total liabilities and shareholders' equity $ 85,218,000 $ 87,601,000
=============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
<PAGE>
VIMRX PHARMACEUTICALS INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Revenue............................................... $ 5,513,000 $ 2,819,000
Cost of goods sold.................................... 3,158,000 2,055,000
------------- -------------
Gross profit.............................. 2,355,000 764,000
------------- -------------
Operating expenses:
Research and development........................... 3,777,000 8,344,000
General and administrative......................... 2,160,000 3,000,000
Goodwill amortization.............................. 825,000 878,000
Selling and marketing.............................. 951,000 334,000
Restructuring costs................................ 504,000 --
------------- -------------
Total operating expenses................. 8,217,000 12,556,000
Operating (loss)...................................... (5,862,000) (11,792,000)
------------- -------------
Other (income) expenses:
Royalty income..................................... (1,000) (258,000)
Royalty expense.................................... -- 50,000
Minority interest in net loss of consolidated
subsidiaries....................................... -- (1,771,000)
Interest income.................................... (375,000) (777,000)
Interest expense................................... 488,000 519,000
Other, net......................................... 145,000 209,000
------------- -------------
Total other (income) expenses............. 257,000 (2,028,000)
Net (loss)............................................ (6,119,000) (9,764,000)
Preferred stock dividends............................. (1,039,000) (990,000)
------------- -------------
Net (loss) applicable to common stock................. $ (7,158,000) $ (10,754,000)
============= =============
Basic and diluted loss per share...................... $ (0.10) $ (0.16)
------------- -------------
Weighted average number of shares of common stock
outstanding basic and diluted..................... 69,627,000 66,899,000
============= =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
<PAGE>
VIMRX PHARMACEUTICALS INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (6,119,000) $(9,764,000)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation and amortization......................... 1,513,000 1,714,000
Noncash compensation.................................. 44,000 63,000
Fixed asset impairment................................ 112,000 --
Minority interest in net loss......................... -- (1,771,000)
Changes in operating assets and liabilities:
Decrease in other current assets and other assets... 488,000 2,861,000
Increase (decrease) in accounts payable and
accrued expenses................................... (35,000) 1,645,000
------------ -----------
Net cash (used in) operating activities.................... (3,997,000) (5,252,000)
------------ -----------
Cash flows from investing activities:
Purchases of equipment................................... (393,000) (1,103,000)
Proceeds from sale of equipment.......................... 147,000 --
------------ -----------
Net cash (used in) investing activities.................... (246,000) (1,103,000)
Cash flows from financing activities:
Proceeds from issuance of common stock in connection
with the exercise of warrants....... 921,000 --
Repurchase/retirement of common stock.................... (627,000) --
Interest on long term debt from related party............ 487,000 494,000
Repayment of capital leases.............................. (34,000) (102,000)
------------ -----------
Net cash provided by financing activities.............. 747,000 392,000
------------ -----------
Effect of exchange rate changes on cash.................... (9,000) 1,000
------------ -----------
Net (decrease) in cash and cash equivalents................ (3,505,000) (5,962,000)
Cash and cash equivalents at beginning of period........... 33,091,000 57,830,000
------------ -----------
Cash and cash equivalents at end of period................. $29,586,000 $51,868,000
=========== ===========
Supplemental disclosure of non-cash investing and financing activities:
In January 1999, the Company issued 1,882,215 shares of common stock valued at
$3,000,000 in exchange for certain intangible assets.
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
VIMRX PHARMACEUTICALS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(unaudited)
(1) Financial Statement Presentation
The unaudited condensed consolidated financial statements of VIMRX
Pharmaceuticals Inc. ("VIMRX") and subsidiaries (collectively, 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 condensed consolidated unaudited financial statements
have been prepared in conformity with the accounting principles applied in
our 1998 Annual Report on Form 10-K for the year ended December 31, 1998.
These condensed consolidated financial statements and the notes thereto
should be read in conjunction with the consolidated financial statements
and the notes thereto included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998. The results for the interim
periods are not necessarily indicative of the results for the full fiscal
year.
(2) Principles of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of VIMRX, Nexell Therapeutics Inc. ("Nexell"), VIMRX Genomics,
Inc. ("VGI"), Innovir Laboratories, Inc. ("Innovir") and its subsidiaries.
All significant intercompany balances and transactions have been
eliminated.
(3) Comprehensive Loss
The Company's total comprehensive loss is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net loss $6,119,000 $9,764,000
Foreign currency translation loss 21,000 17,000
---------- ----------
Comprehensive loss $6,140,000 $9,781,000
========== ==========
</TABLE>
6
<PAGE>
(4) Per Share Information
Stock options and warrants outstanding were excluded from the computation
of diluted loss per share as the impact would be antidilutive.
(5) Restructuring Costs
In 1998, the Company discontinued funding its 85% owned subsidiary,
Innovir, and in order to reduce operating expenses, Innovir closed all
operations and discontinued research and development activities. Innovir
continues to seek partners, licensees or purchasers of its technology.
The three Innovir operating locations, Cambridge, England; Gottingen,
Germany; and New York, New York were closed in 1998. The total number of
employees terminated as a result of the restructuring was 44, all of which
were terminated by December 31, 1998. Termination payments, however, will
continue into 1999.
Fixed assets of the closed facilities consisting mainly of laboratory
equipment, were sold or are held for sale. Costs of $2,625,000 related to
the restructuring were expensed in 1998. During the first quarter of 1999,
the Company made restructuring related cash payments of $192,000. The
balance of the remaining restructuring related accrual, which is for
severance payments, was $189,000 at March 31, 1999, and cash payments will
be made throughout 1999.
In January 1999, the Company announced that it intends to acquire 100% of
its 80.5% held subsidiary, Nexell, and to restructure the Company under the
Nexell name. The corporate headquarters will relocate to Nexell's offices
in Irvine, California. A total of eight employees will be terminated as a
result of the restructuring. The following related costs were expensed in
the first quarter of 1999 and severance related cash payments will be made
throughout 1999:
<TABLE>
<CAPTION>
Restructuring
Provision
---------
<S> <C>
Severance related $392,000
Fixed asset impairment 112,000
--------
Total $504,000
========
</TABLE>
7
<PAGE>
(6) Acquisition of CellPro Assets
On January 29, 1999, Nexell consummated an agreement (the "CellPro
Acquisition Agreement") with CellPro Incorporated ("CellPro"), formerly one
of Nexell's principal competitors, to purchase substantially all the
intellectual property assets of CellPro, together with certain related
tangible and intangible assets in exchange for 1,882,215 shares of VIMRX's
common stock valued by the parties at $3,000,000.
In March 1999, the Company repurchased from CellPro 627,405 shares of the
Company's common stock, $.001 par value ("common stock"), at $1.00 per
share.
(7) Equity
In January 1999, DH Blair exercised 481,140 underwriter options to
purchase common stock at an exercise price of $1.91.
8
<PAGE>
VIMRX PHARMACEUTICALS INC.
Item 2. Management's 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, 1998.
Three Months Ended March 31, 1999 and 1998
For the quarter ended March 31, 1999, total revenues were $5,513,000, an
increase of $2,694,000 compared to the quarter ended March 31, 1998. These
revenues reflect product sales by Nexell, a majority owned subsidiary of VIMRx,
to its distributor Baxter Healthcare Corporation. The increase primarily
reflects the timing of orders of the distributor. The gross profit percentage
increased by 16 percentage points from 27% in 1998 to 43% in 1999. The increase
in gross profit percentage was primarily the result of spreading substantially
constant costs over a larger sales base in 1999.
Total operating expenses decreased by $4,339,000 or 35% due to decreases in
research and development of $4,567,000 or 55%, general and administration of
$840,000 or 28% and goodwill amortization of $53,000 or 6%, partially offset by
an increase in sales and marketing of $617,000 or 185% and restructuring costs
of $504,000.
The $4,567,000 decrease in research and development expenses results primarily
from closing all Innovir operations and research and development activities and
scaling back research programs within VIMRx for development projects other than
VIMRxyn(R), the Company's chemically synthesized hypericin product, and the
Company's wound healing agent, VM301.
General and administrative expenses decreased primarily due to the closing of
Innovir operations.
The increase in sales and marketing expenses relates to the ramp up of Nexell's
marketing efforts for the planned U.S. launch of the Isolex(R)300 and
Isolex(R)300i, pending final approval from the U.S. Food and Drug
Administration.
Costs for severance related items ($392,000) and the write-down of fixed assets
($112,000), both related to the restructuring and relocation of the corporate
headquarters, were expensed during the first quarter of 1999.
Royalty income decreased $257,000 due to the termination in the second quarter
of 1998 of the CellPro infringement royalty income from Baxter Healthcare
Corporation.
The minority interest in the net loss of consolidated subsidiaries was fully
expensed in 1998.
9
<PAGE>
The decrease in interest income of $402,000 or 52% is mainly due to the decrease
in the cash and cash equivalents average balance in 1999 as compared to the cash
and cash equivalents average balance in the same period in 1998.
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 $29,586,000 in cash and cash equivalents as of March 31, 1999 as
compared to $33,091,000 in cash and cash equivalents as of December 31, 1998,
and working capital of $28,053,000 at March 31, 1999 as compared to $32,017,000
at December 31, 1998. Most of the decrease in cash resulted from cash used in
the operations of the Company of $3,997,000 and purchases of equipment for
$393,000.
Net cash used in operating activities decreased $1,255,000 or 24% over the cash
used in operating activities in the three months ended March 31, 1998 due
principally to the increased sales activity of the Nexell operations and
decreased spending by Innovir.
The Company expects to incur substantial expenditures in the foreseeable future
for the research and development and commercialization of its proposed products
as well as the step-up of marketing activities at Nexell. Based on current
projections, which are subject to change, the Company's management believes that
the present balance of cash and cash equivalents is sufficient to fund its
operations for approximately one and one-half years, assuming no capital
infusions 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. There can be no guarantee that the Company's present cash
and cash equivalents balance will be sufficient to fund operations for the
period expected, or that additional funds will be available to the Company at
the expiration of such period on terms favorable to the Company, or at all.
Year 2000 Issues
The Company is aware of and has addressed many of the "Year 2000" issues
associated with both information technology ("IT") and non-IT systems which
could cause problems and network failures should the systems fail to recognize
year designations after 1999.
The Company has reviewed its own computer, communication, software and operating
systems and is satisfied they are Year 2000 compliant. Furthermore, the Company
has taken proactive measures to ensure the system servers and workstations' BIOS
have been reprogrammed and are Year 2000 compliant (BIOS are responsible for
starting the computer by providing a basic set of instructions. It performs all
the tasks which need to be done at start-up time).
The Company has upgraded all productivity, communication and accounting software
to meet Year 2000 compliance. The Company has tested the accounting systems
with the Year 2000 date and feels confident they are compliant.
10
<PAGE>
The Company will continue system-wide testing in the second quarter of 1999.
Any system failures will be identified and corrected no later than the end of
the third quarter of 1999. The Company feels its Year 2000 risks are minimal.
The Company spent approximately $750,000 in 1998 to upgrade its systems which
brought it into Year 2000 readiness.
The Company will continue to contact critical suppliers, collaborators, partners
and vendors to determine if their operations, as they relate to the Company, are
Year 2000 compliant. During the second and third quarters of 1999, the Company
will develop and implement certain contingency plans if any such critical third
parties are determined to be Year 2000 non-compliant.
Although the Company will take all practical measures to prevent problems
related with the Year 2000 programming issue, such problems and failures may
occur which could seriously affect the Company's progress. Because of the
unprecedented nature of such problems, the extent of the effect on the Company's
progress cannot be certain.
Disclosure Regarding Forward Looking Statements
This Report on Form 10-Q contains certain statements that are "Forward Looking
Statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended.
Those statements include, among other things, the discussions of the Company's
expectations contained in "Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations." Although the Company believes
that the expectations reflected in Forward Looking Statements are reasonable,
management can give no assurance that such expectations will prove to have been
correct. Generally, these statements relate to business plans or strategies,
projected or anticipated benefits or other consequences of such plans or
strategies, or projections involving anticipated revenues, expenses, earnings,
levels of capital expenditures, liquidity or indebtedness or other aspects of
operating results of financial position. All phases of the operations of the
Company are subject to a number of uncertainties, risks and other influences,
many of which are outside the control of the Company and any one of which, or a
combination of which, could materially affect the results of the Company's
operations and whether the Forward Looking Statements made by the Company
ultimately prove to be accurate.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company maintains excess cash in a mutual fund, the "BlackRock Low Duration
Bond Portfolio" (the "Fund"), which invests in asset backed securities, bonds
and various other commercial obligations. The Fund may, from time to time, use
certain derivatives in its investment strategy.
Two of the main risks disclosed by the Fund are interest rate risk and credit
risk. Typically, when interest rates rise, there is a corresponding decline in
the market value of bonds such as those held by the Fund. Credit risk refers to
the possibility that the issuer of the bond will not be able to make principal
and interest payments.
11
<PAGE>
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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
---------
27 Financial Data Schedule.
(b) Reports on Form 8-K:
-------------------
On January 8, 1999, the Company filed a Current Report on Form 8-K
announcing the issuance by the FDA of an "approvable letter" stating that
the application for premarket approval of the Isolex Cell Selection System
is approvable subject to the submission of additional information needed
primarily to finalize labeling and the inspection of manufacturing
facilities.
On February 1, 1999, the Company filed a Current Report on Form 8-K
announcing that Nexell, a majority owned subsidiary, completed its
acquisition of essentially all of CellPro Incorporated's research,
intellectual property, patents, antibodies and related cell banks, and
licensed rights, in exchange for 1,882,215 registered shares of VIMRX
Common Stock, $.001 par value.
12
<PAGE>
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, 1999
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
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 29,586,000 51,868,000
<SECURITIES> 0 0
<RECEIVABLES> 2,963,000 2,450,000
<ALLOWANCES> 0 0
<INVENTORY> 1,242,000 2,389,000
<CURRENT-ASSETS> 34,739,000 56,268,000
<PP&E> 14,959,000 18,628,000
<DEPRECIATION> 4,585,000 2,929,000
<TOTAL-ASSETS> 85,218,000 112,486,000
<CURRENT-LIABILITIES> 6,686,000 5,502,000
<BONDS> 0 0
0 0
100 100
<COMMON> 70,000 67,000
<OTHER-SE> 45,942,900 73,741,900
<TOTAL-LIABILITY-AND-EQUITY> 85,218,000 112,486,000
<SALES> 5,513,000 2,819,000
<TOTAL-REVENUES> 5,513,000 2,819,000
<CGS> 3,158,000 2,055,000
<TOTAL-COSTS> 7,713,000 12,556,000
<OTHER-EXPENSES> 504,000 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 488,000 519,000
<INCOME-PRETAX> (6,119,000) (9,764,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,119,000) (9,764,000)
<EPS-PRIMARY> (0.10) (0.16)
<EPS-DILUTED> (0.10) (0.16)
</TABLE>
