**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

 

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**FORM 10-Q**

 

**(Mark One)**

 
| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------------|

 

**For the QuarterEnded March 31, 2003**

 

**or**

 
| **o** | **TRANSITION REPORT PURSUANT TO SECTION  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**Commission filenumber 1-14430**

 

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**MAXIM PHARMACEUTICALS, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                               |   | **87-0279983**                    |
|------------------------------------------------------------|--------|-----------------------------------|
| (State of incorporation)                                   |   | (IRS Employer Identification No.) |
|                                                       |   |                              |
| **8899  University Center Lane, Suite 400, San Diego, CA** |   | **92122**                         |
| (Address of principal executive offices)                   |   | (zip code)                        |
|                                                       |   |                              |
| **(858) 453-4040**                                    |
| (Registrant’s telephone number, including area code)  |

 

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Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days. Yes ý  No o

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act). Yes o No ý

 

As of May 5, 2003,the registrant had 23,328,952 shares of Common Stock, $.001 par value,outstanding.

 

 

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**MAXIM PHARMACEUTICALS, INC. AND SUBSIDIARIES***(A Development Stage Company)*

 

**INDEX**

 
| **Part I–Financial Information** | **Page** |
|---------------------------------------|----------|
|                                  | Item  1. | Financial  Statements |   |
|                                  |     | Condensed  Consolidated Balance Sheets (unaudited)–March 31, 2003 and September 30,  2002 | 1 |
|                                  |     | Condensed  Consolidated Statements of Operations (unaudited)–Three and Six Months Ended  March 31, 2003 and 2002 and from Inception (October 23, 1989) through  March 31, 2003 | 2 |
|                                  |     | Condensed  Consolidated Statements of Cash Flows (unaudited)–Six Months Ended March 31,  2003 and 2002 and from Inception (October 23, 1989) through March 31,  2003 | 3 |
|                                  |     | Notes  to Condensed Consolidated Financial Statements (unaudited) | 4 |
|                                  | Item 2.  | Management’s Discussion and  Analysis of Financial Condition and Results of Operations | 9 |
|                                  | Item 3.  | Quantitative and Qualitative  Disclosures About Market Risk | 24 |
|                                  | Item 4.  | Controls and Procedures | 25 |
| **Part II–Other Information**    | 26       |
|                                  | Item 1.  | Legal Proceedings | 26 |
|                                  | Item  4. | Submission  of Matters to a Vote of Security Holders | 27 |
|                                  | Item 6.  | Exhibits  and Reports on Form 8-K | 27 |
| **SIGNATURES**                        | 28       |
| **CERTIFICATIONS**                    | 29       |
|                                       |          |  |  |  |

 

i

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**CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)****(in thousands, exceptshare data)**

 

*Maxim Pharmaceuticals, Inc. andSubsidiaries  (A Development StageCompany)*

 
|                                                                                                                                                                                 |   | **As of March 31  2003** |        | **As of  September 30  2002** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|-------------|-------------------------------|--------|
| **ASSETS**                                                                                                                                                                           |   |                     | ** **  |                          |   |
| **Current  Assets:**                                                                                                                                                                 |   |                     | ** **  |                          |   |
| Cash and cash  equivalents                                                                                                                                                           |   | **$**                    | **22,309**  | ** **                    | $      | 24,775 |   |
| Investments in  marketable securities, available for sale                                                                                                                            |   | **66,361**               | ** **  | 83,216                        |   |
| Accrued interest  and other current assets                                                                                                                                           |   | **2,423**                | ** **  | 3,109                         |   |
| Total current  assets                                                                                                                                                                |   | **91,093**               | ** **  | 111,100                       |   |
|                                                                                                                                                                                 |   |                     | ** **  |                          |   |
| Restricted cash  and cash equivalents                                                                                                                                                |   | **3,500**                | ** **  | 3,500                         |   |
| Property and  equipment, net                                                                                                                                                         |   | **5,077**                | ** **  | 5,578                         |   |
| Patents and  licenses, net                                                                                                                                                           |   | **3,074**                | ** **  | 2,893                         |   |
| Note receivable  from officer, net of allowance of $700,000 at March 31, 2003 and September  30, 2002                                                                                |   | **2,287**                | ** **  | 2,409                         |   |
| Deposits and  other assets                                                                                                                                                           |   | **161**                  | ** **  | 164                           |   |
| Total assets                                                                                                                                                                         |   | **$**                    | **105,192** | ** **                    | $      | 125,644 |   |
|                                                                                                                                                                                 |   |                     | ** **  |                          |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                       |   |                     | ** **  |                          |   |
| **Current  Liabilities:**                                                                                                                                                            |   |                     | ** **  |                          |   |
| Accounts payable                                                                                                                                                                     |   | **$**                    | **1,881**   | ** **                    | $      | 1,857 |   |
| Accrued expenses                                                                                                                                                                     |   | **3,610**                | ** **  | 2,648                         |   |
| Notes payable  and current portion of long-term debt and obligations under capital leases                                                                                            |   | **976**                  | ** **  | 1,347                         |   |
| Deferred revenue                                                                                                                                                                     |   | **285**                  | ** **  | 475                           |   |
| Total current  liabilities                                                                                                                                                           |   | **6,752**                | ** **  | 6,327                         |   |
|                                                                                                                                                                                 |   |                     | ** **  |                          |   |
| Long-term debt  and obligations under capital leases, excluding current portion                                                                                                      |   | **1,263**                | ** **  | 1,684                         |   |
| Provision for  loan guarantee for officer                                                                                                                                            |   | **900**                  | ** **  | 900                           |   |
|                                                                                                                                                                                 |   |                     | ** **  |                          |   |
| Commitments and  contingencies                                                                                                                                                       |   |                     | ** **  |                          |   |
|                                                                                                                                                                                 |   |                     | ** **  |                          |   |
| **Stockholders’  Equity:**                                                                                                                                                      |   |                     | ** **  |                          |   |
| Convertible  preferred stock, $.001 par value, 5,000,000 shares authorized; no shares  issued and outstanding at March 31, 2003 and September 30, 2002                               |   | **—**               | ** **  | —                        |   |
| Common stock,  $.001 par value,  40,000,000 shares  authorized; 23,328,952 and 23,311,191 shares issued and outstanding at March  31, 2003 and September 30, 2002, respectively |   | **23**                   | ** **  | 23                            |   |
| Additional  paid-in capital                                                                                                                                                          |   | **376,739**              | ** **  | 376,667                       |   |
| Deficit  accumulated during the development stage                                                                                                                                    |   | **(281,359**             | **)**       | (261,048                      | )      |
| Accumulated  other comprehensive income                                                                                                                                              |   | **874**                  | ** **  | 1,091                         |   |
| Total  stockholders’ equity                                                                                                                                                     |   | **96,277**               | ** **  | 116,733                       |   |
| Total  liabilities and stockholders’ equity                                                                                                                                     |   | **$**                    | **105,192** | ** **                    | $      | 125,644 |   |

 

*SeeAccompanying Notes to Condensed Consolidated Financial Statements*

 

1

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**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS (Unaudited)****(in thousands, exceptper share amounts)**

 

*Maxim Pharmaceuticals, Inc. andSubsidiaries (A Development Stage Company)*

 
|                                                                              |   | **Three Months Ended March 31** |        | **Six Months Ended March 31** |     | **From  Inception  (October 23, 1989)  Through  March 31, 2003** |       |
|-----------------------------------------------------------------------------------|--------|---------------------------------|-------------|-------------------------------|----------|------------------------------------------------------------------|------------|
| **2003**                                                                          |   | **2002**                        | **2003**    |                          | **2002** |
|                                                                              |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Collaboration  and research revenue                                               |   | **$**                           | **651**     | ** **                    | $        | 594                                                              |       | **$** | **1,041** | ** ** | $ | 1,042 |   | $ | 12,029 |   |
|                                                                              |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Operating  expenses:                                                              |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Research and  development                                                         |   | **9,974**                       | ** **  | 8,413                         |     | **18,229**                                                       | ** ** | 15,870 |   | 191,481 |   |
| Business development  and marketing                                               |   | **346**                         | ** **  | 662                           |     | **718**                                                          | ** ** | 1,383 |   | 20,994 |   |
| General and  administrative                                                       |   | **1,940**                       | ** **  | 1,815                         |     | **3,847**                                                        | ** ** | 3,479 |   | 36,437 |   |
| Amortization of  goodwill and other acquisition-related intangible assets         |   | **—**                      | ** **  | —                        |     | **—**                                                       | ** ** | — |   | 2,955 |   |
| Purchased  in-process technology                                                  |   | **—**                      | ** **  | —                        |     | **—**                                                       | ** ** | — |   | 42,300 |   |
| Provisions for  note receivable and loan guarantee to/for officers                |   | **—**                      | ** **  | —                        |     | **—**                                                       | ** ** | — |   | 1,600 |   |
| Total operating  expenses                                                         |   | **12,260**                      | ** **  | 10,890                        |     | **22,794**                                                       | ** ** | 20,732 |   | 295,767 |   |
|                                                                              |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Loss from  operations                                                             |   | **(11,609**                     | **)**       | (10,296                       | )        | **(21,753**                                                      | **)**      | (19,690 | ) | (283,738 | ) |
|                                                                              |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Other income  (expense):                                                          |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Investment  income                                                                |   | **667**                         | ** **  | 1,278                         |     | **1,492**                                                        | ** ** | 2,883 |   | 28,848 |   |
| Gain on sale of  assets                                                           |   | **—**                      | ** **  | —                        |     | **—**                                                       | ** ** | — |   | 4,435 |   |
| Interest expense                                                                  |   | **(34**                         | **)**       | (39                           | )        | **(67**                                                          | **)**      | (91 | ) | (2,738 | ) |
| Other income  (expense)                                                           |   | **(5**                          | **)**       | (6                            | )        | **17**                                                           | ** ** | 10 |   | 13 |   |
| Total other  income                                                               |   | **628**                         | ** **  | 1,233                         |     | **1,442**                                                        | ** ** | 2,802 |   | 30,558 |   |
|                                                                              |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Loss before  cumulative effect of accounting change and preferred stock dividends |   | **(10,981**                     | **)**       | (9,063                        | )        | **(20,311**                                                      | **)**      | (16,888 | ) | (253,180 | ) |
|                                                                              |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Cumulative  effect of accounting change                                           |   | **—**                      | ** **  | —                        |     | **—**                                                       | ** ** | (28,179 | ) | (28,179 | ) |
|                                                                              |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Net loss before  preferred stock dividends                                        |   | **(10,981**                     | **)**       | (9,063                        | )        | **(20,311**                                                      | **)**      | (45,067 | ) | (281,359 | ) |
| Dividends on  preferred stock                                                     |   | **—**                      | ** **  | —                        |     | **—**                                                       | ** ** | — |   | 5,496 |   |
|                                                                              |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Net loss  applicable to common stock                                              |   | **$**                           | **(10,981** | **)**                         | $        | (9,063                                                           | )          | **$** | **(20,311** | **)** | $ | (45,067 | ) | $ | (286,855 | ) |
|                                                                              |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Basic and  diluted net loss per share of common stock                             |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Excluding  cumulative effect of accounting change                                 |   | **$**                           | **(0.47**   | **)**                         | $        | (0.39                                                            | )          | **$** | **(0.87** | **)** | $ | (0.73 | ) |   |   |
| Cumulative  effect of accounting change                                           |   | **—**                      | ** **  | —                        |     | **—**                                                       | ** ** | (1.21 | ) |   |   |
|                                                                              |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Basic and  diluted net loss per share of common stock                             |   | **$**                           | **(0.47**   | **)**                         | $        | (0.39                                                            | )          | **$** | **(0.87** | **)** | $ | (1.94 | ) |   |   |
|                                                                              |   |                            | ** **  |                          |     |                                                             | ** ** |   |   |   |   |
| Weighted average  shares outstanding                                              |   | **23,328,501**                  | ** **  | 23,266,001                    |     | **23,320,973**                                                   | ** ** | 23,259,663 |   |   |   |

 

*SeeAccompanying Notes to Condensed Consolidated Financial Statements*

 

2

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**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)****(In thousands)**

 

*MaximPharmaceuticals, Inc. and Subsidiaries (A Development Stage Company)*

 
|                                                                                   |   | **Six Months Ended March 31** |        | **From  Inception  (October 23, 1989)  Through  March 31, 2003** |   |
|----------------------------------------------------------------------------------------|--------|-------------------------------|-------------|------------------------------------------------------------------|--------|
| **2003**                                                                               |   | **2002**                      |
| **OPERATING ACTIVITIES:**                                                              |   |                          | ** **  |                                                             |   |   |   |
| Net loss                                                                               |   | **$**                         | **(20,311** | **)**                                                            | $      | (45,067 | ) | $ | (281,359 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities:           |   |                          | ** **  |                                                             |   |   |   |
| Depreciation and amortization                                                          |   | **1,183**                     | ** **  | 1,134                                                            |   | 11,407 |   |
| Stock contributions to 401(k) plan                                                     |   | **46**                        | ** **  | 101                                                              |   | 643 |   |
| Cumulative effect of accounting change                                                 |   | **—**                    | ** **  | 28,179                                                           |   | 28,179 |   |
| Stock-based compensation                                                               |   | **26**                        | ** **  | —                                                           |   | 1,300 |   |
| Loss on disposal of property and equipment                                             |   | **3**                         | ** **  | 3                                                                |   | 284 |   |
| Provisions for note receivable and loan guarantees to/for officers                     |   | **—**                    | ** **  | —                                                           |   | 1,600 |   |
| Purchased in-process technology                                                        |   | **—**                    | ** **  | —                                                           |   | 44,946 |   |
| Gain on sale of assets                                                                 |   | **—**                    | ** **  | —                                                           |   | (2,146 | ) |
| Loss on write-off of patents                                                           |   | **—**                    | ** **  | —                                                           |   | 444 |   |
| Amortization of premium on investments                                                 |   | **—**                    | ** **  | —                                                           |   | 535 |   |
| Cumulative effect of reorganization                                                    |   | **—**                    | ** **  | —                                                           |   | 1,153 |   |
| Gain on sale of subsidiary                                                             |   | **—**                    | ** **  | —                                                           |   | (2,288 | ) |
| Other                                                                                  |   | **—**                    | ** **  | —                                                           |   | (284 | ) |
| Changes in operating assets and liabilities:                                           |   |                          | ** **  |                                                             |   |   |   |
| Accrued interest and other current assets                                              |   | **686**                       | ** **  | 1,362                                                            |   | (828 | ) |
| Deposits and other assets                                                              |   | **3**                         | ** **  | 203                                                              |   | (657 | ) |
| Accounts payable                                                                       |   | **24**                        | ** **  | (1,131                                                           | )      | 789 |   |
| Accrued expenses                                                                       |   | **962**                       | ** **  | 27                                                               |   | 2,313 |   |
| Deferred revenue                                                                       |   | **(190**                      | **)**       | (325                                                             | )      | 285 |   |
| Net cash used in operating activities                                                  |   | **(17,568**                   | **)**       | (15,514                                                          | )      | (193,684 | ) |
|                                                                                   |   |                          | ** **  |                                                             |   |   |   |
| **INVESTING ACTIVITIES:**                                                              |   |                          | ** **  |                                                             |   |   |   |
| Purchases of marketable securities                                                     |   | **(19,316**                   | **)**       | (44,086                                                          | )      | (407,847 | ) |
| Sales and maturities of marketable securities                                          |   | **35,954**                    | ** **  | 62,400                                                           |   | 342,867 |   |
| Purchases of property and equipment                                                    |   | **(539**                      | **)**       | (596                                                             | )      | (10,589 | ) |
| Additions to patents and licenses                                                      |   | **(277**                      | **)**       | (549                                                             | )      | (5,793 | ) |
| Net proceeds from sale of assets                                                       |   | **—**                    | ** **  | 45                                                               |   | 3,452 |   |
| Cash acquired in acquisition of business                                               |   | **—**                    | ** **  | —                                                           |   | 1,121 |   |
| Net cash provided by (used in) investing activities                                    |   | **15,822**                    | ** **  | 17,214                                                           |   | (76,789 | ) |
|                                                                                   |   |                          | ** **  |                                                             |   |   |   |
| **FINANCING ACTIVITIES:**                                                              |   |                          | ** **  |                                                             |   |   |   |
| Net proceeds from issuance of common stock and exercise of stock  options and warrants |   | **—**                    | ** **  | 51                                                               |   | 253,286 |   |
| Net proceeds from issuance of preferred stock                                          |   | **—**                    | ** **  | —                                                           |   | 41,298 |   |
| Payment of preferred stock dividends                                                   |   | **—**                    | ** **  | —                                                           |   | (302 | ) |
| Proceeds from issuance of notes payable, capital lease and long-term  debt             |   | **—**                    | ** **  | 475                                                              |   | 9,318 |   |
| Restricted cash                                                                        |   | **—**                    | ** **  | —                                                           |   | (3,500 | ) |
| Payments on notes payable, long-term debt, and capital lease  obligations              |   | **(842**                      | **)**       | (509                                                             | )      | (7,979 | ) |
| Proceeds from issuance of notes payable to related parties                             |   | **—**                    | ** **  | —                                                           |   | 4,982 |   |
| Payments on notes payable to related parties                                           |   | **—**                    | ** **  | —                                                           |   | (1,330 | ) |
| Loan to officer                                                                        |   | **122**                       | ** **  | (69                                                              | )      | (2,987 | ) |
| Net cash provided by (used in) financing activities                                    |   | **(720**                      | **)**       | (52                                                              | )      | 292,786 |   |
|                                                                                   |   |                          | ** **  |                                                             |   |   |   |
| Effect of exchange rate changes on cash                                                |   | **—**                    | ** **  | —                                                           |   | (4 | ) |
|                                                                                   |   |                          | ** **  |                                                             |   |   |   |
| Net increase (decrease) in cash and cash equivalents                                   |   | **(2,466**                    | **)**       | 1,648                                                            |   | 22,309 |   |
|                                                                                   |   |                          | ** **  |                                                             |   |   |   |
| Cash and cash  equivalents at beginning of period                                      |   | **24,775**                    | ** **  | 20,439                                                           |   | — |   |
|                                                                                   |   |                          | ** **  |                                                             |   |   |   |
| Cash and cash equivalents at end of period                                             |   | **$**                         | **22,309**  | ** **                                                       | $      | 22,087 |   | $ | 22,309 |   |
|                                                                                   |   |                          | ** **  |                                                             |   |   |   |
| Noncash investing activities:                                                          |   |                          | ** **  |                                                             |   |   |   |
| Acquisition of property and equipment under capital lease                              |   | **$**                         | **51**      | ** **                                                       | $      | — |   | $ | 271 |   |
| Increase (decrease) in fair value of securities available for sale                     |   | **$**                         | **(217**    | **)**                                                            | $      | (1,266 | ) | $ | 878 |   |

 

*See Accompanying Notes to Condensed Consolidated FinancialStatements*

 

 

3

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**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)***Maxim Pharmaceuticals, Inc.and Subsidiaries (A Development Stage Company)*

 

**1.**                                      **PRINCIPLES OF INTERIM PERIOD REPORTING**

 

Maxim Pharmaceuticals, Inc. (the “Company”)has not earned significant revenues from planned principal operations.Accordingly, the Company’s activities have been accounted for as those of a“Development Stage Enterprise” as set forth in Financial Accounting StandardsBoard Statement No. 7.

 

The information atMarch 31, 2003 and for the three and six months ended March 31, 2003 and 2002and from inception (October 23, 1989) through March 31, 2003 is unaudited. Inthe opinion of the Company, these condensed consolidated financial statementscontain all of the adjustments, consisting only of normal recurring adjustmentsand accruals, necessary to present fairly the condensed consolidated financialposition of the Company as of March 31, 2003 and September 30, 2002, andthe condensed consolidated results of operations for the three and six months endedMarch 31, 2003 and 2002 and from inception (October 23, 1989) throughMarch 31, 2003. The condensed consolidated results of operations for the threeand six months ended March 31, 2003 are not necessarily indicative of theresults to be expected in subsequent periods or for the year as a whole. Forfurther information, refer to the consolidated financial statements andfootnotes thereto in our Annual Report on Form 10-K for the year endedSeptember 30, 2002.

 

**2.**                                      **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

*Stock Option Plans*-The Company accounts forits stock option plans under the recognition and measurement principles of APBOpinion No. 25, “Accounting for Stock Issued to Employees”,**and related Interpretations.  No stock-based employee compensation cost isreflected in net income, as all options granted under those plans had anexercise price equal to the market value of the underlying common stock on thedate of grant.  The following tableillustrates the effect on net income and earnings per share if the company hadapplied the fair value recognition provisions of FASB Statement No. 123,“Accounting for Stock-Based Compensation”,**tostock-based employee compensation.

 
|                                                                                                            |   | **Three  Months Ended** |    | **Six Months  Ended** |   |
|-----------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|-----------------------|--------|
|                                                                                                            |   | **March 31,  2003**     |    | **March 31, 2002**    |   | **March 31, 2003** |   | **March 31, 2002** |   |
| Net loss, as reported                                                                                           |   | $                       | (10,981 | )                     | $      | (9,063 | ) | $ | (20,311 | ) | $ | (45,067 | ) |
| Add: Total stock-based  employee compensation expense determined under fair value based methods for  all awards |   | (857                    | )       | (1,354                | )      | (1,839 | ) | (2,664 | ) |
| Pro forma net loss                                                                                              |   | $                       | (11,838 | )                     | $      | (10,417 | ) | $ | (22,150 | ) | $ | (47,731 | ) |
|                                                                                                            |   |                    |    |                  |   |   |   |   |   |
| Net loss per share:                                                                                             |   |                    |    |                  |   |   |   |   |   |
| Basic and diluted-as reported                                                                                   |   | $                       | (0.47   | )                     | $      | (0.39 | ) | $ | (0.87 | ) | $ | (1.94 | ) |
| Basic and diluted- pro forma                                                                                    |   | $                       | (0.51   | )                     | $      | (0.45 | ) | $ | (0.95 | ) | $ | (2.05 | ) |

 

4

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The fair value of thestock options were estimated at the date of grant using the “Black-Scholes”method for option pricing and the following weighted-average assumptions forthe three and six months ended, March 31, 2003 and 2002, respectively:

 
|                         |   | **Three  Months Ended** |   | **Six Months  Ended** |   |
|------------------------------|--------|-------------------------|--------|-----------------------|--------|
|                         |   | **March 31,  2003**     |   | **March 31, 2002**    |   | **March 31, 2003** |   | **March 31, 2002** |   |
| Risk free interest rate      |   | 2.81                    | %      | 2.68                  | %      | 2.81 | % | 2.68 | % |
| Dividend Yield               |   | 0                       |   | 0                     |   | 0 |   | 0 |   |
| Volatility Factor            |   | 75                      | %      | 86                    | %      | 75 | % | 86 | % |
| Expected Life (in years)     |   | 6                       |   | 6                     |   | 6 |   | 6 |   |
| Resulting average fair value |   | $                       | 1.55   |                  | $      | 3.79 |   | $ | 1.48 |   | $ | 3.80 |   |
|                              |        |                         |        |                       |        |  |  |  |  |  |  |  |  |

 

**3.**                                      **TOTAL OTHER COMPREHENSIVE LOSS**

 

Total othercomprehensive loss for the three months ended March 31, 2003 and 2002 was$11,045,000 and $9,913,000, respectively. Total other comprehensive loss for the six months ended March 31, 2003and 2002 was $20,528,000 and $46,333,000, respectively.  The difference between total othercomprehensive loss and net loss attributable to common stock was composed ofunrealized gains and losses on available-for-sale securities.

 

**4.**                                      **NET LOSS PER SHARE**

 

Net loss per shareis calculated in accordance with Statement of Financial Accounting StandardsNo. 128 “Earnings per Share.” Basic net loss per share of common stock iscomputed by dividing the net loss after deduction of dividends on preferredstock by the weighted average number of shares of common stock outstandingduring the period. Diluted loss per share is calculated by including theadditional common shares issuable upon exercise of outstanding options andwarrants in the basic weighted average share calculation unless the effect oftheir inclusion is antidilutive. For the quarters ended March 31, 2003 and2002, outstanding options and warrants totaled 4,045,625 and 3,223,122,respectively. As these securities were antidilutive, diluted loss per shareequaled basic loss per share in each respective period.

 

**5.****                                      ADOPTIONOF NEW ACCOUNTING PRONOUNCEMENT—GOODWILL AND OTHER INTANGIBLE ASSETS**

 

On June 16, 2000, the Company acquired all of the outstanding capitalstock of Cytovia, Inc. (“Cytovia”), a privately held biopharmaceutical researchcompany. The transaction was accounted for using the purchase method ofaccounting in accordance with Accounting Principles Board (APB) Opinion No. 16.The Company recorded goodwill and other intangible assets, consisting ofassembled workforce, that combined had an unamortized book value of $28,179,000at September 30, 2001. Through September 30, 2001, goodwill and assembledworkforce were being amortized over 15 years and five years, respectively.

 

Effective October 1, 2001, the Company adopted the provisions ofStatement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill andOther Intangible Assets”. SFAS No. 142 requires that goodwill and intangibleassets with indefinite useful lives no longer be amortized,

 

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butinstead be tested for impairment at least annually. SFAS No. 142 also requiresthat intangible assets with definite useful lives be amortized over theirrespective estimated useful lives to their estimated residual values, andreviewed for impairment in accordance with SFAS No. 121, “Accounting for theImpairment of Long-Lived Assets to Be Disposed Of”.

 

As a result of the adoption of SFAS No. 142, the Company ceasedamortizing goodwill on October 1, 2001, and performed the transitionalimpairment assessment of the goodwill related to the Cytovia acquisition forimpairment as of October 1, 2001. Although the goodwill arose from purchaseaccounting applied to the acquisition of a specific entity, SFAS No. 142requires that this test be applied to the relevant “reporting unit” which maydiffer from the specific entity acquired. Due to the integrated nature of theCompany’s operations, the entire Company was determined to be one singlereporting unit. Under the provisions of SFAS No. 142, the Company was requiredfor the first time to determine the impairment of goodwill by first comparingthe fair value of the Company, with the fair value based on the market price ofthe Company’s common stock, to the carrying value of its assets, includinggoodwill. As this analysis indicated an impairment of goodwill, the Company wasrequired to measure the amount of impairment by comparing the “implied” fairvalue of the goodwill to its carrying amount.

 

The analyses performed under SFAS No. 142 resulted in an implied fairvalue of the goodwill of zero. Therefore, a charge of $28,179,000 was recordedduring the quarter ended December 31, 2001 reflecting the cumulative effect ofchange in accounting principle resulting from the adoption of SFAS No. 142 andthe related write down of goodwill.

 

**6.**                                      **RECLASSIFICATIONS**

 

Certain amounts in the prior period financialstatements have been reclassified to conform with current periodclassifications.

 

**7.**                                      **RELATED PARTY TRANSACTIONS**

 

In December 2000,the Company entered into a secured revolving promissory note with an officer ofthe Company. The purpose of the agreement was to allow the repayment of marginloans associated with the exercise of stock options, the payment of incometaxes associated with such exercises and the purchase of a residence.  The Board determined that it was in theCompany’s best interest to provide the loan to the officer to avoid thenecessity of selling personal holdings of the Company’s securities during aperiod of depressed market prices.  Thenote, as amended, bears interest at an annual rate of 4.0% and is secured by theofficer’s outstanding options and shares of common stock. During the quarterended September 30, 2002, the Company determined that the note to the officerhad become impaired because the Company determined that the officer did nothave the ability to repay the loan in full when due.  Accordingly, the Company has not recorded interest income of$96,000 on the note subsequent to June 30, 2002 and has recorded an allowanceon the note in the amount of $700,000. In December 2002, the officer paid the Company $122,000 of interest dueon the note.  The entire outstandingbalance of principal and interest was due on December 8, 2002.  As of the date the note came due, theofficer did not have the liquid assets necessary to repay the loan.  The Company is reviewing its options andalternatives and intends to collect the outstanding principal and interest onthe loan.

 

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As of March 31, 2003, therecorded outstanding principal and interest balance on the note was $2,287,000,net of the $700,000 allowance.

 

At March 31, 2003,the Company was a guarantor on $1,800,000 in loans made by a bank to twoofficers and one former officer of the Company. Under the guarantor agreement,the Company granted the bank a security interest in a $1,800,000 certificate ofdeposit as collateral for the loans the bank made to the officers. The purposeof the guarantees was to allow the payment of income taxes associated with theexercise of stock options.  The Boarddetermined that it was in the Company’s best interest to provide the guaranteesto avoid the necessity of the officers selling personal holdings of theCompany’s securities during a period of depressed market prices.  These loans are due in July 2004.  The Company does not hold any assets ascollateral for the guarantees; however, in a case of default the Company wouldpursue collection from the individuals. During the fourth quarter of fiscal year 2002, the Company determinedthat it was probable that one of the officers would not have the ability torepay his loan. Therefore, the Company recorded a liability in the amount of$900,000.  The Company intends tocollect from the officer any amounts that may ultimately be paid by the Companyto the bank as a result of the guarantee on behalf of the officer.

 

**8.**                                      **CONTINGENCIES**

 

On December 14,2000 plaintiff, Blake Martin, on behalf of himself and purportedly on behalf ofa class of others similarly situated, filed a complaint in the United StatesDistrict Court for the Southern District of California against the Company andtwo officers of the Company, alleging violations of federal securities lawsrelated to declines in the Company’s stock price in connection with variousstatements and alleged omissions to the public and to the securities markets,and seeking damages therefore. Thereafter, approximately thirteen similarcomplaints were filed in the Southern District.  The Southern District complaints have been consolidated into asingle action.  No discovery has beenconducted.  The Company successfullybrought a motion to dismiss the consolidated complaint, and plaintiff was givenleave to file a second amended complaint. The Company successfully brought a motion to dismiss the second amendedcomplaint, and plaintiff was given leave to file a third amendedcomplaint.  At present, plaintiff hasthe right to file his third amended complaint by May 27, 2003, and the Companywould have until June 24, 2003 in which to file its motion to dismiss.  The complaints have been tendered to the Company’sinsurance carrier.

 

In October 2001 and May 2002, certain former shareholders of Cytoviafiled complaints in California Superior Court in San Diego against the Companyand two of its officers based on similar facts and circumstances, allegingfraud and negligent misrepresentation in connection with the Company’sacquisition of Cytovia. The Superior Court subsequently issued an ordercompelling the first lawsuit to a binding arbitration forum, and the secondlawsuit has been stayed pending resolution of the arbitration proceeding.  The binding arbitration proceeding with theAmerican Arbitration Association is currently underway.

 

The Company believes that the claims set forth in each of thesecomplaints are without merit, and it intends to engage in a rigorous defenseagainst such claims.  No assurances can be made that the Companywill be successful in its defense of these claims. If the Company is not

 

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successfulin its defense of such claims, the Company could be forced to make significantpayments to its stockholders, the plaintiffs and defense lawyers, and suchpayments could have a material adverse effect on the Company’s business,financial condition and results of operations if not covered by the Company’sinsurance carrier. Even if the Company’s defense against such claims issuccessful, the litigation could result in substantial costs and divertmanagement’s attention and resources, which could adversely affect theCompany’s business.

 

The Company is aguarantor on $1,800,000 in loans made by a bank to two officers and one formerofficer of the Company. These loans are due in July 2004.  The Company does not hold any assets ascollateral for the guarantees; however, in a case of default the Company wouldpursue collection from the individuals. During the fourth quarter of fiscal year 2002, the Company determinedthat it was probable that one of the officers would not have the ability torepay his loan.  Therefore, the Companyrecorded a liability in the amount of $900,000.  The Company intends to collect from the officer any amounts thatmay ultimately be paid by the Company to the bank as a result of the guaranteeon behalf of the officer.

 

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**ITEM 2.**                             **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS**

 

*Maxim Pharmaceuticals, Inc. and Subsidiaries (ADevelopment Stage Company)*

 

*This Management’s Discussion and Analysis ofFinancial Condition and Results of Operations contains certain forward-lookingstatements that involve risks and uncertainties. Such forward-lookingstatements include but are not limited to statements regarding plans for thedevelopment and commercialization of the Company’s drug candidates and futurecash requirements. Such statements are only predictions and the Company’sactual results could differ materially from those anticipated or projected insuch forward-looking statements. Moreover, the Company assumes noresponsibility for the accuracy and completeness of the forward-lookingstatements.  The Company is under noduty to update any of the forward-looking statements after the date hereof toconform such statements to actual results or to changes in its expectations.  Factors that could cause or contribute tosuch differences include, but are not limited to, those discussed in thesection entitled “Risk Factors” following in this Report. As a result, you arecautioned not to rely on these forward-looking statements.*

 

*This Management’s Discussion and Analysis ofFinancial Condition and Results of Operations should be read in conjunctionwith the condensed consolidated financial statements, including the relatednotes, appearing in Item 1 of this Quarterly Report on Form 10-Q as well as theCompany’s Annual Report on Form 10-K for the year ended September 30, 2002.*

 

**CRITICAL ACCOUNTING POLICIES**

 

The preparation of condensed consolidated financial statements inconformity with accounting principles generally accepted in the United Statesof America requires the Company to make estimates and judgments that affect thereported amounts of assets, liabilities, revenues and expenses as well asrelated disclosure of contingent assets and liabilities. These estimatesinclude useful lives for fixed assets, useful lives for intellectual property,estimated lives for license agreements, revenue recognition, allowance for notereceivable, reserve related to loan guarantees, valuation of intellectualproperty, and estimates for clinical trial expenses incurred but not yetbilled.  On an on-going basis, theCompany evaluates its estimates. The Company bases its estimates on historicalexperience and various other assumptions that are believed to be reasonableunder the circumstances. Under different assumptions or conditions theseestimates may vary significantly. In addition, actual results may differmaterially from these estimates.

 

The Company believes the following critical accounting policies affectits more significant judgments and estimates used in the preparation of itscondensed consolidated financial statements.

 

*Revenue Recognition.*  TheCompany’s collaborative development agreements generally contain specificpayments for specific activities or elements of the agreements. Up-fronttechnology access fees are recognized over the term of the agreement or ongoingresearch period, as applicable, unless the Company has no further continuingperformance obligations related to the fees. Research funding is recognizedover the applicable research period as research activities are performed. Milestonepayments are recognized when earned, as the milestone events are substantiveand their achievability is not reasonably assured at the inception of theagreement.

 

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Amountsreceived but unearned are recorded as deferred revenue.  Certain collaborative agreements provide theCompany donated materials and services which are recorded when used at the fairmarket value of the material received or the service provided.

 

*Clinical trial expenses.*  TheCompany accounts for certain study drug, clinical trial site and other clinicaltrial costs by estimating the services incurred but not reported for eachpatient enrolled in each trial. These costs and estimates vary based on thetype of clinical trial, the site of the clinical trial, the length of treatmentperiod for each patient and the length of time required to receive formaldocumentation of the actual expenses incurred. As actual costs become known,the Company may need to revise its estimated accrual, which could alsomaterially affect its results of operations.

 

*Valuation of Intellectual Property.*  TheCompany evaluates its patents and licenses for impairment on an annual basisand whenever indicators of impairment exist. During this process, the Companyreviews its portfolio of pending domestic and international patentapplications, domestic and international issued patents, and licenses theCompany has acquired from other parties. To determine if any impairment ispresent, the Company considers challenges or potential challenges to itsexisting patents, the likelihood of applications being issued, the scope of itsissued patents and its experience. In the event that it is determined that animpairment exists where the Company had previously determined that one did notexist, it may result in a material adjustment to the Company’s financialstatements.

 

**RESULTS OF OPERATIONS FOR THE THREEAND SIX MONTHS ENDED MARCH 31, 2003 AND 2002**

 

*Collaboration and Research Revenue*–For the quarter ended March 31, 2003, collaborationand research revenue was $651,000, which was consistent with the quarter endedMarch 31, 2002.  Collaboration andresearch revenue for the six-month period ended March 31, 2003 totaled$1,041,000, which was consistent with the six months ended March 31, 2002.

 

*Research andDevelopment Expenses*–Researchand development expenses for the quarter ended March 31, 2003 totaled$9,974,000, an increase of $1,561,000, or 19%, over the same period in theprior year.  For the six monthsended March 31, 2003, research and development expenses were $18,229,000, anincrease of $2,359,000 or 15%.  These increases were primarily due to increasedexpenses associated with our ongoing Phase 3 clinical trial of Cepleneäfor the treatment of patients with advanced metastatic melanoma with livermetastases, and our Phase 2 triple-drug combination therapy trial for thetreatment of patients infected with Hepatitis C, as well as an increase inexpenses related to development of an oral formulation of histamine, the activeagent underlying Ceplene.  Theseincreases were offset by a decrease in expenses related to completednon-clinical development studies which included chronic toxicology studies forCeplene.

 

*BusinessDevelopment and Marketing Expenses*–Business development and marketing expenses for the quarter ended March31, 2003 were $346,000, a decrease of $316,000, or 48%, from the same period ofthe prior year. Business development and marketing expenses for the six

 

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months ended March 31, 2003 were $718,000, a decrease of $665,000, or48%, from the same period of the prior year. These decreases were due to a decrease in sales and marketingpersonnel.

 

*General and Administrative Expenses*–For the quarter ended March 31, 2003, general andadministrative expenses were $1,940,000, which was consistent with the quarterended March 31, 2002.  General andadministrative expenses for the six months ended March 31, 2003 were $3,847,000an increase of $368,000, or 11%, over the same period in the prior year,primarily as a result of increased legal expenses related to the shareholderlitigation.

 

*Other Income*–Investment income was $667,000 for the quarter ended March 31, 2003, adecrease of $611,000, or 48%, from the same period in the prior year.Investment income for the six months ended March 31, 2003 was $1,492,000, adecrease of $1,391,000 or 48% from the same period in the prior year.  These decreases were a result of thedecrease in investment balances and the rate of earnings due to reductions ininterest rates.

 

*CumulativeEffect of Change in Accounting Principle*–The non-cash$28,179,000 charge recorded during the six months ended March 31, 2002 reflectsthe write down of the carrying value of goodwill associated with the Cytoviaacquisition recorded as a result of the adoption, effective October 1, 2001, ofSFAS No. 142, “Accounting for Goodwill and Other Intangible Assets”.

 

*Net Loss Applicable to Common Stock*–Net loss applicable to common stock for thequarter ended March 31, 2003 totaled $10,981,000, an increase of $1,918,000, or21%, from the same period in the prior year. This increase was primarily due tothe increase in research and development expenses and the decrease ininvestment income, partially offset by the decrease in business development andmarketing expenses, as described above. Net loss applicable to common stock for the six months ended March 31,2003 totaled $20,311,000, a decrease of $24,756,000, or 55%, from the sameperiod in the prior year primarily as a result of the cumulative effect ofchange in accounting principle which occurred in October 2001, as describedabove.

 

#### **LIQUIDITY AND CAPITAL RESOURCES**

 

The Company hasfinanced its operations primarily through the sale of its equity securities,including an initial public offering in 1996, an international follow-on publicoffering in 1997, private offerings of preferred stock in July and November1999 and a follow-on public offering in February 2000, that provided total netproceeds of approximately $294 million.

 

Until required foroperations, the Company’s policy under established guidelines is to keep itscash reserves in bank deposits, corporate debt securities, United Statesgovernment instruments and other readily marketable debt instruments, all ofwhich are investment-grade quality.  Asof March 31, 2003, the Company had cash, cash equivalents and investmentstotaling approximately $92.2 million compared with $111.5 million at September30, 2002.  As of March 31, 2003, theCompany had working capital of approximately $84.3 million compared with $104.8million at September 30, 2002.  Thedecrease in the Company’s cash, cash equivalents and investments, and workingcapital was primarily due to day-to-day operating expenses relating to researchand development activities.

 

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In December 2000,the Company entered into a secured revolving promissory note with an officer ofthe Company.  The note, as amended,bears interest at an annual rate of 4.0% and is secured by the officer’soutstanding options and shares of common stock.  The Company determined that the note to the officer is impairedbecause the officer did not have the ability to repay the loan in full whendue.  Accordingly, the Company has notrecorded interest income of $96,000 on the note subsequent to June 30, 2002,and has recorded an allowance on the note in the amount of $700,000.  In December 2002, the officer paid theCompany $122,000 of interest due on the note. The entire outstanding balance of principal and interest was due onDecember 8, 2002.  The Company isreviewing its options and alternatives and intends to collect the outstandingprincipal and interest on the loan.  Asof March 31, 2003, the recorded outstanding principal and interest balance onthe note was $2,287,000, net of the $700,000 allowance.

 

The Company is aguarantor on $1,800,000 in loans made by a bank to two officers and one formerofficer of the Company. Under the guarantor agreement, the Company granted thebank a security interest in a $1,800,000 certificate of deposit as collateralfor the loans the bank made to the officers. These loans are due in July 2004. The Company does not hold any assets as collateral for the guarantees;however, in a case of default the Company would pursue collection from theofficers or former officer.  During thefourth quarter of fiscal year 2002, the Company determined that it was probablethat one of the officers would not have the ability to repay his loan.  Therefore, the Company recorded a liabilityin the amount of  $900,000.  The Company intends to collect from theofficer any amounts that may ultimately be paid by the Company to the bank as aresult of the guarantee on behalf of the officer.

 

The Company hasterm loans with a bank totaling $2,045,000 at March 31, 2003, the proceeds ofwhich were used to finance capital expenditures.  The loans require the Company to maintain a minimum aggregatebalance of $3,500,000 at the institution, including the $1,800,000 certificate ofdeposit held under the loan guarantees, as described above.

 

The Company, as a development stage enterprise, anticipates incurringsubstantial additional losses at least in the near future as it continues toexpend substantial amounts on its ongoing and planned clinical trials and itsexpanded efforts related to its other research and development efforts,including the apoptosis modulator program acquired as part of the Cytoviapurchase.  In addition, the Company’scash requirements may fluctuate in future periods as it conducts additionalresearch and development activities including clinical trials, other researchand development activities, and efforts associated with the commercial launchof any products that are approved for sale by government regulatorybodies.  Among the activities that mayresult in an increase in cash requirements are the scope and timing of thePhase 3 and Phase 2 Ceplene cancer and hepatitis C clinical trials currentlyunderway, and earlier-stage clinical trials and other research related to liverdisease and the apoptosis modulator and topical histamine technologies. Otherfactors that may impact the Company’s cash requirements include the results ofclinical trials, the scope of other research and development activities, the timerequired to obtain regulatory approvals, costs associated with defendingcertain lawsuits currently pending against the Company, the costs of filing,prosecuting, defending and enforcing patent claims and other intellectualproperty rights, and the ability to establish marketing alliances andcollaborative

 

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arrangements.As a result of these factors, it is difficult to predict accurately the timingand amount of future cash requirements.

 

The Company may pursue the issuance of additional equity securities andcorporate collaborative agreements, as required, to meet its cash requirements.The Company is currently pursuing a pharmaceutical collaboration regarding themarketing of Ceplene and is pursuing the out-licensing of its apoptosismodulator technology.  There can be noassurance that the Company will be able to enter into agreements on acceptableterms, if at all.  The issuance ofadditional equity securities, if any, could result in substantial dilution tothe Company’s stockholders. There can be no assurance that additional fundingwill be available on terms acceptable to the Company, if at all. The failure tofund the Company’s capital requirements would have a material adverse effect onits business, financial condition and results of operations.

 

We believe that our available cash, cash equivalents and investments atMarch 31, 2003 will be sufficient to satisfy our funding needs for at least thenext 24 months.

 

The Company has never paid a cash dividend on its common stock and suchpayments are prohibited by the terms of the Company’s bank loan. The Companydoes not contemplate the payment of cash dividends on its common stock in theforeseeable future.

 

**IMPACT OF INFLATION**

 

The impact of inflation on the operations of the Company for the threeand six months ended March 31, 2003 and 2002 was not material.

 

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**RISKFACTORS**

 

You shouldcarefully consider the following risk factors and the other informationincluded herein as well as the information included in our Annual Report onForm 10-K for the year ended September 30, 2002, and other reports and filingsmade with the Securities and Exchange Commission before investing in our commonstock. If any of the following risks actually occurs, our business, financialcondition or results of operations could be harmed. The trading price of ourcommon stock could decline due to any of these risks, and you may lose part orall of your investment.

 

**The development of our drug candidates is subject touncertainties, many of which are beyond our control. If we fail to successfullydevelop our drug candidates, our ability to generate revenues will besubstantially impaired.**

 

Potential products based on our Ceplene, apoptosis modulator andMaxDermTM technologies will require, dependent upon the current specific drugcandidate, extensive research and development, preclinical testing, clinicaltesting, regulatory approval and substantial additional investment before wecan market them. We cannot assure you that any of our drug candidates will:

 

•                  be successfully developed;

 

•                  prove to be safe and effective in clinicaltrials;

 

•                  meet applicable regulatory standards;

 

•                  be capable of being produced in commercialquantities at acceptable costs;

 

•                  be commercially viable;

 

•                  be eligible for third party reimbursementfrom governmental or private insurers; or

 

•                  be successfully marketed or achieve marketacceptance.

 

We have not completed final testing for efficacy or safety in humansfor the diseases we propose to treat with Ceplene and our other drugcandidates. Failure to ultimately obtain approval for Ceplene and our otherdrug candidates, any delay in our expected testing and development schedules,or any elimination of a product development program in its entirety, willnegatively impact our ability to generate revenues in the future from the saleof our products.

 

**We may not obtain regulatory clearance to market Ceplene orour other drug candidates on a timely basis, or at all.**

 

Ceplene and our other drug candidates are subject to extensivegovernment regulations related to development, clinical trials, manufacturingand commercialization. The process of obtaining FDA and other governmental andsimilar international regulatory approvals is costly,

 

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timeconsuming, uncertain and subject to unanticipated delays. Even if we believethat preclinical and clinical data are sufficient to support regulatoryapproval for a drug candidate, the FDA and similar international regulatoryauthorities may not ultimately approve the candidate for commercial sale in anyjurisdiction. The FDA or similar international regulators may refuse to approvean application for approval of a drug candidate if they believe that applicableregulatory criteria are not satisfied. The FDA or similar internationalregulators may also require additional testing for safety and efficacy. Forexample, in 2000, we submitted an NDA to the FDA seeking approval to marketCeplene based on the data from our first Phase 3 clinical study in advancedmetastatic melanoma. In January 2001, the FDA determined that a secondstudy was required to support approval. In response to the FDA request, inJanuary 2002 we commenced another Phase 3 trial. Although we believe thatthis additional Phase 3 trial, in combination with the results of the firstPhase 3 trial, will support approval in the United States and other countries,we have no assurance that (i) the results from this additional Phase 3trial will confirm the results from the first Phase 3 trial, (ii) the FDAwill not require additional Phase 3 trials, or (iii) the FDA will approveour NDA.

 

In addition, manufacturing facilities operated by the third partymanufacturers with whom we contract to manufacture Ceplene and our other drugcandidates may not pass an FDA or similar international regulatory preapprovalinspection. Moreover, if the FDA grants regulatory approval of a product, theapproval may be limited to specific indications or limited with respect to itsdistribution. Similar international regulatory authorities may apply similarlimitations or may refuse to grant any approval.

 

Any failure or delay in obtaining these approvals could prohibit ordelay us from marketing Ceplene and our other drug candidates. If Ceplene andour other drug candidates do not meet applicable regulatory requirements forapproval, we may not have the financial resources to continue research anddevelopment of these candidates, and we may not generate revenues from thecommercial sale of any products.

 

**Delays in the commencement, conduct or completion of ourclinical trials would negatively impact our business.**

 

We may encounter problems with any of our completed, ongoing or plannedclinical studies. For example, we may encounter delays in commencing studies orenrolling volunteers, lower than anticipated retention rate of volunteers in atrial, or serious side effects experienced by study participants relating tothe drug candidate. Factors that could affect patient enrollment include thesize of the patient enrollment population for the targeted disease, eligibilitycriteria, proximity of eligible patients to clinical sites, clinical trialprotocols, and the existence of competing protocols, including competitivefinancial incentives for patients and clinicians, and

 

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existingapproved drugs. If we encounter any delay in the commencement, conduct orcompletion of our clinical studies for Ceplene or our other drug candidates, wemay experience the following consequences:

 

•                  the analysis of data from our clinicalstudies and the reporting of results may be delayed;

 

•                  the submission of our applications forregulatory approval of Ceplene and other drug candidates with regulatoryauthorities in North America, Europe, and elsewhere in the world may bedelayed;

 

•                  regulatory approval of our drug candidatesmay be delayed and may not occur on a timely basis, delaying the generation ofrevenues from the commercial sale of any of our marketed products;

 

•                  wemay not have the financial resources to continue and complete research anddevelopment of any of our product candidates; and

 

•                  we may not be able to enter intocollaborative arrangements relating to any product as a result of the delay inclinical development or regulatory filings.

 

**We have been named as a defendant in securities class actionlitigation that could result in substantial costs and divert management’sattention and resources.**

 

On December 14,2000 plaintiff, Blake Martin, on behalf of himself and purportedly on behalf ofa class of others similarly situated, filed a complaint in the United StatesDistrict Court for the Southern District of California against us and twoofficers of our Company, alleging violations of federal securities laws relatedto declines in the Company’s stock price in connection with various statementsand alleged omissions to the public and to the securities markets, and seekingdamages therefore. Thereafter, approximately thirteen similar complaints werefiled in the Southern District.  TheSouthern District complaints have been consolidated into a single action.  No discovery has been conducted.  We successfully brought a motion to dismissthe consolidated complaint, and plaintiff was given leave to file a secondamended complaint.  We successfullybrought a motion to dismiss the second amended complaint, and plaintiff wasgiven leave to file a third amended complaint. At present, plaintiff has the right to file his third amended complaintby May 27, 2003, and we would have until June 24, 2003 in which to file amotion to dismiss.  The complaints havebeen tendered to our insurance carrier.

 

In October 2001 and May 2002, certain former shareholders ofCytovia filed complaints in California Superior Court in San Diego against usand two of our officers based on similar facts and circumstances, allegingfraud and negligent misrepresentation in connection with our acquisition ofCytovia. The Superior Court subsequently issued an order compelling the firstlawsuit to a binding arbitration forum, and the second lawsuit has been stayedpending the resolution of the arbitration proceeding. The binding arbitrationproceeding with the American Arbitration Association is currently underway.

 

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No assurances can be made that we will be successful in our defense ofthese claims. If we are not successful in our defense of such claims, we couldbe forced to make significant payments to our stockholders, the plaintiffs anddefense lawyers, and such payments could have a material adverse effect on ourbusiness, financial condition and results of operations if not covered by ourinsurance carrier. Even if our defense against such claims is successful, thelitigation could result in substantial costs and divert management’s attentionand resources, which could adversely affect our business.

 

**Because we are dependent on clinical research centers andother contractors for clinical testing and for certain research and developmentactivities, the results of our clinical trials and such research activitiesare, to a certain extent, beyond our control.**

 

The nature of clinical trials and our business strategy requires us torely on clinical research centers and our other contractors to assist us withclinical testing and certain research and development activities. As a result,our success is dependent upon the success of these outside parties inperforming their responsibilities. Although we believe our contractors areeconomically motivated to perform on their contractual obligations, we cannotdirectly control the adequacy and timeliness of the resources and expertiseapplied to these activities by our contractors. If our contractors do not performtheir activities in an adequate or timely manner, the development andcommercialization of our drug candidates could be delayed.

 

**We expect to rely on collaborative partners for research,development and commercialization of certain potential products.**

 

We expect to rely on collaborative arrangements for research anddevelopment and commercialization of certain drug candidates discovered anddeveloped by us, such as our agreement with Schering Corporation related to ourPhase 2 Ceplene clinical trial in nonresponder hepatitis C patients. We cannotbe certain that we will be able to maintain these collaborations or enter intoany future collaborative arrangements, that any of our collaborations will besuccessful or that we will receive revenues from any of these collaborations.The success of these and any future collaborations will depend, in significantpart, on our partners’ development and strategic considerations, including therelative advantages of alternative products being developed or marketed bycompetitors. If our partners fail to conduct their activities in a timelymanner, or at all, preclinical or clinical development of drug candidates underthose collaborations could be delayed or terminated. The suspension ortermination of our collaborations, the failure of our collaborations to besuccessful or the delay in the development or commercialization of drugcandidates pursuant to our collaborations could harm our business.

 

**Our planned business may expose us to product, clinical trialand other liability claims.**

 

Our design, testing, and development of products involves an inherentrisk of exposure to clinical trial and product liability claims and relatedadverse publicity. Insurance coverage is expensive and difficult to obtain, andwe may be unable to obtain coverage in the future on acceptable terms, if atall. Although we currently maintain clinical trial insurance for our drugcandidates in the amounts we believe to be commercially reasonable, we cannotbe certain that the coverage limits of our insurance policies or those of ourstrategic partners will be adequate. If

 

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weare unable to obtain sufficient insurance at an acceptable cost or if a claimis brought against us, whether fully covered by insurance or not, our business,results of operations and financial condition could be materially adverselyaffected.

 

**Our products may not be accepted, purchased or used bydoctors, patients or payors.**

 

Ceplene, and any of our other drug candidates in development, may notachieve market acceptance even if they are approved by the FDA and similarinternational regulatory agencies. The degree of market acceptance of ourproducts will depend on a number of factors, including:

 

•                  the scope of regulatory approvals;

 

•                  the establishment and demonstration of theclinical efficacy, safety and advantages of our products by clinical trialresults, and the acceptance of such results by the medical community;

 

•                  the potential advantages of our products overexisting treatment methods; and

 

•                  reimbursement policies of government andother third-party payors.

 

We cannot guarantee that physicians, patients, payors or the medicalcommunity in general will accept and utilize any products that we develop.

 

**We have yet to market or sell any of our products.**

 

We currently intend to co-market Ceplene in the United States, if it isapproved by the FDA. Maxim has never before marketed or sold any pharmaceuticalproduct. In order to co-market Ceplene or certain other drug candidates, wewill need to hire a significant number of people with relevant pharmaceuticalexperience to staff our sales force and marketing group, and possibly also tomake appropriate arrangements with strategic partners. If we cannot develop therequired marketing and sales expertise both internally and through ourpartnering arrangements, our ability to generate revenue from product saleswill likely suffer.

 

In addition to a collaborative partner in the United States, we expectto rely on collaborative partners to market and sell Ceplene in internationalmarkets, and such arrangements may be sought to market certain other drugcandidates in all markets. We have not yet entered into any collaborativearrangement with respect to marketing or selling Ceplene with the exception ofagreements relating to Australia, New Zealand and Israel, and have not enteredinto any agreements regarding the marketing or selling of our other drugcandidates with the exception of a license agreement relating to our MX2105series of anti-cancer compounds. We cannot guarantee that we will be able toenter into any such arrangements on terms favorable to us, or at all. If we areable to enter into marketing and selling arrangements with collaborativepartners, we cannot assure you that such marketing collaborators will applyadequate resources and skills to their responsibilities, or that theirmarketing efforts will be successful.

 

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**We will be dependent on third party manufacturers of ourproducts. Our ability to sell our products may be harmed if adequate quantitiesof our products are not manufactured on a timely basis.**

 

We do not intend to acquire or establish our own dedicatedmanufacturing facilities for Ceplene and our other drug candidates in theforeseeable future. We have contracted and expect to continue to contract withestablished pharmaceutical manufacturers for the production of Ceplene. If weare unable to continue to contract with third-party manufacturers on acceptableterms or our manufacturers do not comply with applicable regulatoryrequirements, our ability to conduct clinical testing and to produce commercialquantities of Ceplene and other products will be adversely affected. If wecannot adequately manufacture our products, it could result in delays insubmissions for regulatory approval and in commercial product launches, whichin turn could materially impair our competitive position and the possibility ofachieving profitability. We cannot guarantee that we will be able to maintainour existing contract manufacturing relationships, or acquire or establish new,satisfactory third-party relationships to provide adequate manufacturingcapabilities in the future.

 

**We are not profitable and expect to continue to incur losses.If we do not become profitable, we may ultimately be forced to discontinue ouroperations.**

 

We are a development-stage enterprise. We have experienced net lossesevery year since our inception. The net loss applicable to common stock for thesix months ended March 31, 2003 and 2002 was $20.3 million and $45.1 million,respectively.  As of March 31, 2003, wehad an accumulated deficit of approximately $281.4 million. We anticipateincurring substantial additional losses over at least the next several yearsrelated to developing and testing our drug candidates and preparing forcommercialization and planned market launches of our products. If we do notbecome profitable, our stock price will be negatively affected, and we mayultimately be forced to discontinue our operations. We may never generatesufficient product revenue to become profitable. We expect to havequarter-to-quarter fluctuations in revenues, expenses, and losses, some ofwhich could be significant.

 

**We will need to raise additional funds in the future. If weare unable to obtain the funds necessary to continue our operations, we will berequired to delay, scale back or eliminate one or more of our drug developmentprograms.**

 

We have already spent substantial funds developing our products andbusiness. We expect to continue to have negative cash flow from our operationsfor at least the next several years. We will have to raise additional funds tocomplete the development of our drug candidates and to bring them to market.Our future capital requirements will depend on numerous factors, including:

 

•                  the results of our clinical trials;

 

•                  the timing and scope of any additionalclinical trials undertaken;

 

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•                  the scope and results of our research anddevelopment programs;

 

•                  the time required to obtain regulatoryapprovals;

 

•                  our ability to establish marketing alliancesand collaborative agreements;

 

•                  the cost of our internal marketingactivities; and

 

•                  the cost of filing, prosecuting and, ifnecessary, enforcing patent claims.

 

Additional financing may not be available on acceptable terms, if atall. If adequate funds are not available, we will be required to delay, scaleback or eliminate one or more of our drug development programs or obtain fundsthrough arrangements with collaborative partners or others that may require usto relinquish rights to certain of our technologies or products that we wouldnot otherwise relinquish.

 

**We compete against many companies and research institutionsthat are developing products to treat the same diseases as our drug candidates.To the extent these competitors are successful in developing and marketing suchproducts, our future potential market share and revenues could be reduced.**

 

There are many companies, both publicly and privately held, includingwell-known pharmaceutical companies and academic and other researchinstitutions, engaged in developing pharmaceutical products for the treatmentof life-threatening cancers and liver diseases. Products developed by any ofthese companies or institutions may demonstrate greater safety or efficacy thanour drug candidates or be more widely accepted by doctors, patients orthird-party payors. Many of our competitors and potential competitors have substantiallygreater capital resources, research and development capabilities and humanresources than we do. Many of these competitors also have significantly greaterexperience than we do in undertaking preclinical testing and clinical trials ofnew pharmaceutical products and obtaining FDA and other regulatory approvals.If any of our drug candidates are approved for commercial sale, we will also becompeting with companies that have greater resources and experience inmanufacturing, marketing and selling pharmaceutical products. To the extentthat any of our competitors succeed in developing products that are moreeffective, less costly or have better side effect profiles than our products,then our future potential market share could decrease which may have a negativeimpact on our business.

 

**If we fail to secure adequate protection of our intellectualproperty or the right to use certain intellectual property of others, we maynot be able to protect our products and technologies from competitors.**

 

Our success depends in large part on our ability to obtain, maintainand protect patents and trade secrets and to operate without infringing uponthe proprietary rights of others. If we are unable to do so, our products andtechnologies may not provide us with any competitive advantage.

 

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The patent positions of biotechnology and pharmaceutical companies arehighly uncertain and involve complex legal and factual questions, and thebreadth of claims allowed in biotechnology and pharmaceutical patents cannot bepredicted. As a result, patents may not issue from any of our patentapplications. Patents currently held by us or issued to us in the future, or tolicensors from whom we have licensed technology rights, may be challenged,invalidated or circumvented so that our intellectual property rights may notprotect our technologies or provide commercial advantage to us. In addition, wealso rely on unpatented trade secrets and proprietary know-how, and we cannotbe sure that others will not obtain access to or independently develop suchtrade secrets and know-how. Enforcement of our intellectual property rightsagainst any infringers of our patents relating to Ceplene and our othertechnologies will be costly and time-consuming. Because of the nature of thosepatents, we could be required to bring lawsuits against many different entitiessuch as hospitals or clinics. This would have the effect of increasing thecosts of enforcing our rights.

 

The pharmaceutical industry has experienced extensive litigationregarding patent and other intellectual property rights. Although, to date, weare not aware of any intellectual property claims against us, in the future wecould be forced to incur substantial costs in defending ourselves in lawsuitsthat are brought against us claiming that we have infringed on the patentrights of others or in asserting our patent rights in lawsuits against otherparties. We may also be required to participate in interference proceedingsdeclared by the United States Patent and Trademark Office or internationalpatent authorities for the purpose of determining the priority of inventions inconnection with our patent applications or other parties’ patent applications.Adverse determinations in litigation or interference proceedings could requireus to seek licenses that may not be available on commercially reasonable termsor subject us to significant liabilities to third parties.

 

**The technology in our sector is developing rapidly, and ourfuture success depends on our ability to keep abreast of technological change.**

 

We are engaged in the pharmaceutical field, which is characterized byextensive research efforts and rapid technological progress. New developmentsin oncology, cancer therapy, medicinal pharmacology, biochemistry and otherfields are expected to continue at a rapid pace. Research and discoveries byothers may render some or all of our proposed programs or productsnoncompetitive or obsolete. Our business strategy is subject to the risks inherentin the development of new products using new technologies and approaches.Unforeseen problems may develop with these technologies or applications, and wemay not be able to successfully address technological challenges we encounterin our research and development programs. This may result in our inability todevelop commercially feasible products.

 

**Our future success depends on our ability to attract andretain key personnel.**

 

Our success will depend, to a great extent, upon the experience,abilities and continued services of our executive officers and key research anddevelopment personnel. If we lose the services of any of these officers or keyresearch and development personnel, our business could be harmed. Our successalso will depend upon our ability to attract and retain other highly qualifiedresearch and development, managerial, manufacturing and sales personnel and our

 

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abilityto develop and maintain relationships with qualified clinical researchers.Competition for these personnel and relationships is intense and we competewith numerous pharmaceutical and biotechnology companies as well as withuniversities and non-profit research organizations. We may not be able tocontinue to attract and retain qualified personnel or develop and maintainrelationships with clinical researchers.

 

**The marketability of our products may depend on reimbursementand reform measures in the health care industry.**

 

Our success may depend, in part, on the extent to which reimbursementfor the costs of therapeutic products and related treatments will be availablefrom third-party payors such as United States and similar internationalgovernment health administration authorities, private health insurers, managed careprograms and other organizations. Over the past decade, the cost of health carehas risen significantly, and there have been numerous proposals by legislators,regulators and third-party health care payors to curb these costs. Some ofthese proposals have involved limitations on the amount of reimbursement forcertain products. We cannot guarantee that similar United States federal orstate or similar international health care legislation will not be adopted inthe future or that any products sought to be commercialized by us will beconsidered cost-effective or that adequate third-party insurance coverage willbe available for us to establish and maintain price levels sufficient forrealization of an appropriate return on our investment in product development.Moreover, the existence or threat of cost control measures could have anadverse effect on the willingness of potential collaborators to pursue researchand development programs related to our products.

 

**We may engage in strategic transactions, which couldadversely affect our business.**

 

From time to time we consider strategic transactions and alternativeswith the goal of maximizing stockholder value. We evaluate potential strategic transactions and alternatives which webelieve have the potential to enhance stockholder value. These potentialtransactions may include a variety of different business arrangements,including spin-offs, acquisitions, strategic partnerships, joint ventures,restructurings, divestitures, business combinations and investments. We cannotassure you that any such transactions will be consummated on favorable terms orat all, will in fact enhance stockholder value, or will not adversely affectour business or the trading price of our stock. Any such transaction mayrequire us to incur non-recurring or other charges and may pose significantintegration challenges and/or management and business disruptions, any of whichcould materially and adversely affect our business and financial results.

 

**Our stock price may be highly volatile due to externalfactors.**

 

Our common stock currently trades on the Nasdaq National Market and onthe OM Stockholm Exchange. Historically, our common stock has generallyexperienced relatively low daily trading volumes in relation to the aggregatenumber of shares outstanding. Sales of substantial amounts of our common stockin the public market could adversely affect the prevailing market prices of ourcommon stock and our ability to raise equity capital in the future.

 

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Factors that may have a significant impact on the market price or theliquidity of our common stock also include:

 

•                  actual or potential clinical trial resultsrelating to drug candidates under development by us or our competitors;

 

•                  delays in our clinical testing anddevelopment schedules;

 

•                  events or announcements relating to ourcollaborative relationships;

 

•                  announcements of technological innovations ornew products by us or our competitors;

 

•                  developments or disputes concerning patentsor proprietary rights;

 

•                  regulatory developments in both the UnitedStates and other countries;

 

•                  economic and other external factors,disasters or crisis, as well as period-to-period fluctuations in our financialresults;

 

•                  market conditions for pharmaceutical andbiotechnology stocks, whether or not related to results or news regarding us orour competitors; and

 

•                  publicity regarding actual or potentialmedical results relating to products under development by us or ourcompetitors.

 

External factors may also adversely affect the market price for ourcommon stock. The price and liquidity of our common stock may be significantlyaffected by the overall trading activity and market factors on the NasdaqNational Market and the OM Stockholm Exchange, and these factors may differbetween the two markets. In addition, the securities markets have from time totime experienced significant price and volume fluctuations that may beunrelated to the operating performance of particular companies. The market pricesof the common stock of many publicly traded pharmaceutical or biotechnologycompanies have in the past been, and can in the future be expected to be,especially volatile.

 

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**Certain anti-takeover provisions in our charter, by-laws,shareholder rights plan and under Delaware law may deter a third party fromacquiring us, even though such acquisition may be beneficial to ourstockholders.**

 

Certain provisions of our charter and by-laws may make it more difficultfor a third party to acquire control of us, even though such acquisition may bebeneficial to our stockholders. These provisions include:

 

•                  a staggered or classified board;

 

•                  the inability of stockholders to act bywritten consent; and

 

•                  no right to remove directors other than forcause.

 

We have also adopted a shareholder rights plan or “poison pill.” Ourshareholder rights plan is designed to protect our shareholders in the event ofan unsolicited bid to acquire the company. In general terms, the rights planimposes a significant penalty upon any person or group that acquires 15% ormore of our outstanding common stock without the approval of our board ofdirectors. Our shareholder rights plan could discourage a third party fromattempting to acquire us through an acquisition of our outstanding votingstock, even though such acquisition may be beneficial to our stockholders.

 

Our board of directors also has the authority to issue, at any time,without further stockholder approval, up to 5,000,000 shares of preferredstock, and to determine the price, rights, privileges and preferences of thoseshares. We have used shares in connection with our shareholder rights plan. Anyissuance of preferred stock could discourage a third party from acquiring amajority of our outstanding voting stock.

 

Furthermore, we are subject to the provisions of Section 203 ofthe DGCL, an anti-takeover law, which may also dissuade a potential acquiror ofour common stock, even though such acquisition may be beneficial to ourstockholders.

 

**ITEM 3.**                             **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The Company’sexposure to market risk is principally confined to its cash equivalents andinvestments that have maturities of less than three years. The Company maintainsa non-trading investment portfolio of investment grade, liquid debt securitiesthat limits the amount of credit exposure to any one issue, issuer or type ofinstrument. The securities in its investment portfolio are not leveraged, areclassified as available-for-sale and are therefore subject to interest raterisk. The Company currently does not hedge interest rate exposure. Ahypothetical 10 percent change in interest rates during the quarter endedMarch 31, 2003 would have resulted in approximately an $70,000 change in netloss.  The Company has not usedderivative financial instruments in its investment portfolio. There have beenno significant changes in the types or maturities of investments held fromSeptember 30, 2002.

 

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**ITEM 4.**                             **CONTROLS AND PROCEDURES**

 

(a)                                  Within the 90 days prior to the date of thisreport, the Company carried out an evaluation, under the supervision and withthe participation of the Company’s management, including the Company’s Presidentand Chief Executive Officer and Chief Financial Officer, of the effectivenessof the design and operation of the Company’s disclosure controls andprocedures, as defined in Exchange Act Rule 15d-14(c).  Based upon that evaluation, the Company’s Presidentand Chief Executive Officer and Chief Financial Officer concluded that theCompany’s disclosure controls and procedures are effective in enabling theCompany to record, process, summarize and report information required to beincluded in the Company’s periodic SEC filings within the required time period.

 

(b)                                 There have been no significant changes in theCompany’s internal controls or in other factors that could significantly affectinternal controls subsequent to the date the Company carried out itsevaluation.

 

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**PART II–OTHER INFORMATION**

 

*Item 1.  LegalProceedings*

 

On December 14,2000 plaintiff, Blake Martin, on behalf of himself and purportedly on behalf ofa class of others similarly situated, filed a complaint in the United StatesDistrict Court for the Southern District of California against the Company andtwo officers of the Company, alleging violations of federal securities lawsrelated to declines in the Company’s stock price in connection with variousstatements and alleged omissions to the public and to the securities markets,and seeking damages therefore. Thereafter, approximately thirteen similarcomplaints were filed in the Southern District.  The Southern District complaints have been consolidated into asingle action.  No discovery has beenconducted.  The Company successfullybrought a motion to dismiss the consolidated complaint, and plaintiff was givenleave to file a second amended complaint. The Company successfully brought a motion to dismiss the second amendedcomplaint, and plaintiff was given leave to file a third amendedcomplaint.  At present, plaintiff hasthe right to file his third amended complaint by May 27, 2003, and the Companywould have until June 24, 2003 in which to file its motion to dismiss.  The complaints have been tendered to theCompany’s insurance carrier.

 

In October 2001and May 2002, a state court action was filed by former Cytovia shareholders inthe Superior Court in San Diego County, California, alleging fraud andmisrepresentation in connection with the Company’s acquisition of Cytovia. TheSuperior Court subsequently issued an order compelling the first lawsuit to abinding arbitration forum, and the second lawsuit has been stayed pending theresolution of the arbitration proceeding. The binding arbitration proceeding with the American ArbitrationAssociation is currently underway.

 

No assurances canbe made that the Company will be successful in its defense of these claims. Ifit is not successful in its defense of such claims, the Company could be forcedto make significant payments to its stockholders, the plaintiffs and defenselawyers, and such payments could have a material adverse effect on theCompany’s business, financial condition and results of operations, if notcovered by the Company’s insurance carrier. Even if the Company’s defenseagainst such claims is successful, the litigation could result in substantialcosts and divert management’s attention and resources, which could adversely affectthe Company’s business.

 

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*Item 4.  Submission of Matters to a Vote of SecurityHolders*

 

a)                   TheCompany’s Annual Meeting of Stockholders (the “Annual Meeting”) was held onFebruary 20, 2003.

 

b)                  Atthe Annual Meeting, the stockholders considered and approved the followingproposals:

 

(i)               Election of Directors to serve until the 2006Annual Meeting of Stockholders.  Thestockholders voted to elect Theodor H. Heinrichs as a Director with 20,529,460votes cast for the nominee.  A total of830,305 of the shares had abstained. The stockholders voted to elect F. DuwaineTownsen as a Director with 20,552,328 votes cast for the nominee.  A total of 807,437 of the shares hadabstained.  The stockholders voted toelect Robert L. Zerbe as a Director with 20,555,235 votes cast for thenominee.  A total of 804,530 of theshares had abstained.  There were novotes against, votes withheld or broker non-votes with respect to the electionof any of the nominees.

 

(ii)            Approval of the amendment to the 2001 IncentiveStock Option Plan (the “Plan”) to increase the aggregate number of shares ofthe Company’s common stock authorized for issuance pursuant to the Plan.  The stockholders approved the amendment tothe Plan.  The proposal received19,910,278 votes in favor, 1,398,046 votes against, and 51,441abstentions.  There were no voteswithheld or broker non-votes with respect to the proposal.

 

(iii)         Ratification of Appointment of KPMG LLP as independent auditors of theCompany for its fiscal year ending September 30, 2003.  The stockholders ratified the selection ofKPMG LLP as the independent public auditors of the Company for the fiscal yearwith 21,301,027 votes cast for ratification, 46,644 votes against ratificationand 12,094 abstentions.  There were novotes withheld or broker non-votes with respect to the proposal.

 

*Item 6. Exhibits and Reports on Form 8-K*

 
|   | *a)  Exhibits* |
|--------|---------------------|
| 10.1   |                | Form of Indemnification  Agreement for directors and officers of the Registrant. |
| 99.1   |                | Certification of Larry G.  Stambaugh, Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 99.2   |                | Certification of Anthony  E. Altig, Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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*b)  Reports on Form 8-K*

 
| **Date of  Report** |   | **Description  of Exhibit**            |   | **Financial  Statements Filed** |   |
|---------------------|--------|----------------------------------------|--------|---------------------------------|--------|
| May 7, 2003         |   | Press Release: “Maxim             |   | No                              |   |
|                |   | Pharmaceuticals Announces 2003         |   |                            |   |
|                |   | Second Quarter Financial Results” |   |                            |   |

 

Pursuant to the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|               | MAXIM PHARMACEUTICALS, INC. |
|--------------------|-----------------------------|
|               | By:                         | /s/ ANTHONY E. ALTIG |
|               |                        | Anthony E. Altig, |
|               |                        | *Vice President, Finance and Chief Financial Officer  (Principal Financial and Accounting Officer duly authorized to  sign on behalf of the registrant)* |
|               |                        |   |
| Date:  May 9, 2003 |                        |   |

 

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**CERTIFICATION****BY CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C.SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002**

 

I, Larry G. Stambaugh, certify that:

 

1.                                       I have reviewed this quarterly report onForm 10-Q of MAXIM PHARMACEUTICALS, INC.;

 

2.                                       Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.                                       The registrant’s other certifying officer andI are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a.                                       designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b.                                      evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior tothe filing date of this quarterly report (the “Evaluation Date”); and

 

c.                                       presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifying officer andI have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a.                                       all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and have identifiedfor the registrant’s auditors any material weaknesses in internal controls; and

 

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b.                                      any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.                                       The registrant’s other certifying officer andI have indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
|               | /s/  LARRY G. STAMBAUGH                                                            |
|--------------------|------------------------------------------------------------------------------------|
|               | Larry  G. Stambaugh                                                                |
| Date:  May 9, 2003 | Chairman  of the Board and Chief Executive  Officer  (Principal Executive Officer) |

 

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**CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO18 U.S.C.SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002**

 

I, Anthony E. Altig, certify that:

 

1.                                       I have reviewed this quarterly report onForm 10-Q of MAXIM PHARMACEUTICALS, INC.;

 

2.                                       Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.                                       The registrant’s other certifying officer andI are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a.                                       designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b.                                      evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within90 days prior to the filing date of this quarterly report (the “EvaluationDate”); and

 

c.                                       presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifying officer andI have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a.                                       all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

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b.                                      any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.                                       The registrant’s other certifying officer andI have indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
|               | /s/  ANTHONY E. ALTIG                                                                               |
|--------------------|-----------------------------------------------------------------------------------------------------|
|               | Anthony  E. Altig                                                                                   |
| Date:  May 9, 2003 | Vice  President, Finance and Chief Financial  Officer  (Principal Financial and Accounting Officer) |

 

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