SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1996...Commission File Number 0-24672
INITIAL ACQUISITION CORP.
(Exact name of Registrant as specified in its charter)
Delaware 13-3197002
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(State of other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
810 Seventh Avenue, 27th Floor, New York, NY 10019
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 333-2620
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Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities and 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
----------- ----------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
------------------------ ---------------------------------
Common Stock, par value 833,250 shares
$.01 per share
<PAGE>
INITIAL ACQUISITION CORP.
(A CORPORATION IN THE DEVELOPMENTAL STAGE)
INDEX
Page Number
-----------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENTS OF OPERATIONS -
Three Months Ended September 30, 1996
and September 30, 1995 and
Nine Months ended September 30, 1996 and
September 30, 1995
Period January 1, 1993 to September 30, 1996 1
BALANCE SHEETS -
September 30, 1996 and December 31, 1995 2
STATEMENT OF STOCKHOLDERS' EQUITY -
Nine Months Ended September 30, 1996 3
STATEMENTS OF CASH FLOWS -
Nine Months ended September 30, 1996 and
September 30, 1995
Period January 1, 1993 to September 30, 1996 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 7
None
<PAGE>
INITIAL ACQUISITION CORP.
(A CORPORATION IN THE DEVELOPMENTAL STAGE)
STATEMENTS OF OPERATIONS
3 Months 3 Months 9 Months
Ended Sept. Ended Sept. Ended Sept.
30, 1995 30, 1996 30, 1995
---------- ---------- ---------
Interest Income 87,333 88,042 123,228
General and
administrative 10,272 (94,088) 15,405
Provision for taxes -- (12,500) --
---------- ---------- ----------
Net (loss) income 77,061 (18,546) 107,823
========== ========== ==========
Earnings per share $ 0.09 $ (0.02) $ 0.20
======== ======== ========
Weighted average
common shares
outstanding 833,250 833,250 533,250
========== ========= =========
9 Months Period
Ended January 1,
Sept. 30, 1993 Sept.
1996 30, 1996
----------- ----------
Interest income 264,986 $489,291
General and
administrative (132,152) (218,120)
--------- ----------
Provision for taxes 100,684 $187,021
========== ==========
Earnings per share $ 0.12
==========
Weighted average 833,250
common shares ==========
outstanding
See accompanying notes to financial statements
1
<PAGE>
INITIAL ACQUISITION CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
September 30, December 31,
1996 1995
----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 202,165 $ 305,171
Investment in U.S. Treasury Bills 6,469,000 6,213,588
---------- ----------
Other Assets:
Deferred Acquisition Costs 21,099 -
---------- ---------
Total $6,692,264 $6,518,759
========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accrued expenses $ 78,311 $ 37,640
Income taxes payable 84,150 52,000
Preferred stock, $.01 par
value-shares authorized
authorized 5,000; none
issued -- --
Common stock, subject to
possible redemption,
89,940 shares at
conversion value 969,703 932,316
Common stock, $.01 par value-
shares authorized 10,000,000;
issued and outstanding 833,250
(which includes 89,940 shares
subject to possible
conversion) respectively 7,434 7,434
Additional paid-in capital 5,436,065 5,436,065
Earnings accumulated during
development stage 116,601 53,304
---------- ---------
Total $6,692,264 $6,518,759
========== ==========
See accompanying notes to financial statements
2
<PAGE>
INITIAL ACQUISITION CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF COMMON STOCK, COMMON STOCK SUBJECT TO
POSSIBLE REDEMPTION, PREFERRED STOCK,
ADDITIONAL PAID-IN CAPITAL AND EARNINGS ACCUMULATED
DURING THE DEVELOPMENT STAGE
Common Stock subject
to
Common Stock possible redemption
------------------ -------------------
Shares Amount Shares Amount
------ ------ ------ -------
Balance at
December 31,
1995 743,310 $7,434 89,940 932,316
Net Income -- -- -- --
Accretion to
redemption
value of
common stock -- -- -- 37,387
------- ------ ------ --------
Balance at
September 30,
1996 743,310 $7,434 89,940 $969,703
======= ====== ====== ========
Earnings
(deficit)
accumulated
Additional during the
paid-in development
capital stage
---------- -----------
Balance at December 31, 1995 $5,436,065 $ 53,304
Net Income 100,684
Accretion to redemption -- (37,387)
value of common stock ---------- --------
$5,436,065 $116,601
Balance at September 30, 1996 ========== ========
See accompanying notes to financial statements
3
<PAGE>
INITIAL ACQUISITION CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
9 Months Ended 9 Months Ended
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
Cash flows from operating
activities:
Net income $ 100,684 $ 30,762
Adjustments to reconcile net
income to net cash used in
operating activities:
Accrued interest income (255,412) (117,666)
Change in assets and
liabilities:
Accrued expenses 40,671 2,500
Income taxes payable 32,105 (6,000)
Deferred acquisition costs (21,099) -
---------- ----------
Net cash used in operating
activites (103,006) (13,343)
---------- ----------
Cash flows from investing
activities:
Purchase of US Treasury Bills (6,412,283) (5,999,218)
Proceeds from US Treasury
Bills 6,412,000 -
---------- ----------
Net Cash used in Investing
Activities (-) (5,999,218)
---------- ----------
Cash flows from financing
activities:
Proceeds from sale of common
stock - 6,260,457
Net proceeds from public
offering - 63,043
---------- ----------
Net cash provided by financing
activities - 6,323,500
---------- ----------
Net increase (decrease) in
cash and cash equivalents (103,006) 310,939
Cash and cash equivalents,
beginning of period 305,171 11,096
---------- ----------
Cash and cash equivalents,
end of year $ 202,165 $ 322,035
========== ==========
Period January 1, 1993
To Sept. 30, 1996
----------------------
Cash flows from operating
activities:
Net income $ 187,021
Adjustments to reconcile net
income to net cash used in
operating activities:
Accrued interest income (469,782)
Change in assets and
liabilities:
Accrued expenses 78,311
Income taxes payable 84,150
Deferred acquisition costs (21,099)
----------
Net cash used in operating
activites (141,399)
----------
Cash flows from investing
activities:
Purchase of US Treasury Bills (12,411,501)
Proceeds from US Treasury
Bills 6,412,283
----------
Net Cash used in Investing
Activities (5,999,218)
----------
Cash flows from financing
activities:
Proceeds from sale of common
stock 6,260,457
Net proceeds from public
offering 82,325
----------
Net cash provided by financing
activities 6,342,782
----------
Net increase (decrease) in
cash and cash equivalents 202,165
Cash and cash equivalents,
beginning of period -
----------
Cash and cash equivalents,
end of year $ 202,165
==========
See accompanying notes to financial statements
4
<PAGE>
INITIAL ACQUISITION CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial statements are presented in accordance with the
requirements of Form 10-Q and Regulation 210 of S-X and
consequently do not include all of the disclosures normally made
in an annual Form 10-K filing. Accordingly, the financial
statements included herein should be reviewed in conjunction with
the financial statements and footnotes therein included within
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
The financial information has been prepared in accordance with
the Company's customary accounting practices and has not been
audited. In the opinion of management, the information presents
all adjustments necessary for a fair statement of interim
results. All such adjustments are of a normal and recurring
nature. The foregoing interim results are not necessarily
indicative of the results of operations to be expected for a full
year.
2. INVESTMENTS
The Company has invested the majority of the proceeds from the
initial public offering in United States Treasury Bills. These
treasury bills, which were purchased at a discount, are presented
at their accreted cost. The treasury bills matured in October
1996 and were reinvested in treasury bills to mature November 14,
1996.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Initial Acquisition Corp. (the "Company") is a "blank check"
or "blind pool" company which was formed on November 18, 1992 to
serve as a vehicle to effect a merger, exchange of capital stock,
asset acquisition or other business combination (a "Business
Combination") with an operating business (a "Target Business").
The business objective of the Company is to effect a Business
Combination with a Target Business which the Company believes has
significant growth potential. To date, the Company has not
effected a Business Combination.
On May 23 1995 (the "Closing Date"), the Company consummated
its initial public offering (the "Offering") of (a) 600,000 units
(the "Units"), each Unit consisting of (i) one share of common
stock, $.01 par value per share (the "Common Stock"), and (ii)
one Class A Common Stock Purchase Warrant (the "Class A
Warrants") entitling the holder thereof to purchase one share of
Common Stock, and (b) 240,000 Redeemable Class B Unit Purchase
Warrants (the "Class B Warrants"), each such Class B Warrant
entitling the holder thereof to purchase one Unit. On the
Closing Date, the Registrant received net proceeds of $6,330,680
(the "Net Proceeds"), after giving effect to the payment of all
underwriting discounts, the underwriters' non-accountable expense
allowance and offering expenses. Pursuant to the terms of the
Offering, $6 million of the Net Proceeds, representing an amount
equal to the gross proceeds from the sale of the Units, was
placed in escrow with The Chase Manhattan Bank, N.A., subject to
release in accordance with the terms of the Offering. These Net
Proceeds have been invested in United States Treasury Bills and
Commercial Paper.
Subsequent Event:
----------------
On November 1, 1996, the Company and Hollis-Eden, Inc., a
Delaware corporation ("Hollis-Eden"), entered into an Agreement
and Plan of Merger (the "Merger Agreement") pursuant to which,
among other things, the Company will acquire Hollis-Eden through
the merger of Hollis-Eden with and into the Company (the
"Merger"), with the Company being the surviving corporation to
the Merger. Hollis-Eden is a Portland, Oregon based bio-
pharmaceutical company engaged in the development and
commercialization of safe and cost effective
therapeutic/preventative agents for the treatment of viral and
immune disorders.
Pursuant to the Merger Agreement, which is subject to the
satisfaction of certain closing conditions, including the
approval by stockholders of the Company and Hollis-Eden and
satisfactory completion of due diligence by the Company, each
outstanding share of Hollis-Eden common stock will be exchanged
for one share of surviving corporation common stock and each
outstanding warrant or option to acquire Hollis-Eden Common Stock
will be converted into warrants and options, as the case may be,
to acquire surviving corporation common stock. As a result of
the Merger, and based upon the capitalization of Hollis-Eden, the
surviving corporation will issue 4,911,004 shares of common stock
and options and warrants to acquire an additional 2,229,650
6
<PAGE>
shares of common stock. Upon completion of the Merger, the
surviving corporation will change its name to Hollis-Eden
Pharmaceuticals, Inc. The Merger Agreement further provides that
each stockholder of the Company who possesses the right to have
his stock redeemed in lieu of participating in the Merger shall
be entitled to receive additional shares of surviving corporation
common stock twenty-four months after the consummation of the
Merger if the average public trading price for the surviving
corporation does not equal or exceed $20 per share for a
specified period of time within such twenty-four month period.
Hollis-Eden has advised the Company that Hollis-Eden
believes that its initial drug discovery, INACTIVIN(TM), presents
the potential for a safe, efficacious and cost-effective strategy
in the treatment of HIV/AIDS. Hollis-Eden has further advised
the Company that Hollis-Eden expects to enter PHASE II trials
with the Food and Drug Administration on INACTIVIN(TM) upon the
consummation of the Merger.
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(b) None.
7
<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.
INITIAL ACQUISITION CORP.
By: /s/ Salvatore J. Zizza
---------------------------
Salvatore J. Zizza
Chairman of the Board,
President,
Chief Executive Officer
and Principal Financial
Officer
Dated: November 8, 1996
8
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS OF OPERATIONS, BALANCE SHEETS, STATEMENTS OF STOCKHOLDERS'
EQUITY AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 202,165
<SECURITIES> 6,469,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,671,165
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,692,264
<CURRENT-LIABILITIES> 162,461
<BONDS> 0
0
0
<COMMON> 7,434
<OTHER-SE> 6,522,369
<TOTAL-LIABILITY-AND-EQUITY> 6,692,264
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (132,152)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 132,834
<INCOME-TAX> (32,165)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,684
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
