UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended December 31, 2003.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _______ to _______.
Commission File Number: 000-25669
IMMTECH INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 39-1523370
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Fairway Drive, Suite 150, Vernon Hills, Illinois 60061
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (847) 573-0033
Indicate by checkmark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Exchange Act Rule 12b-2) Yes [ ] No [X]
As of February 10, 2004, 9,743,383 shares of the Registrant's common stock, par
value $0.01, were outstanding.
Table of Contents
Page No.
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PART I. FINANCIAL INFORMATION........................................... 1
Item 1. Condensed Consolidated Financial Statements..................... 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 23
Item 4. Controls and Procedures......................................... 23
PART II. OTHER INFORMATION............................................. 24
Item 1. Legal Proceedings.............................................. 24
Item 2. Change in Securities and Use of Proceeds....................... 25
Item 3. Defaults Upon Senior Securities................................ 26
Item 4. Submission of Matters to a Vote of Security Holders............ 26
Item 5. Other Information.............................................. 27
Item 6. Exhibits, and Reports on Form 8-K.............................. 29
EXHIBIT INDEX.......................................................... 30
SIGNATURES ............................................................ 31
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
IMMTECH INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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December 31, March 31,
ASSETS 2003 2003
CURRENT ASSETS:
Cash and cash equivalents $ 3,186,467 $ 112,040
Restricted funds on deposit 2,818,468 2,739,947
Other current assets 202,020 133,525
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Total current assets 6,206,955 2,985,512
PROPERTY AND EQUIPMENT - Net 3,632,968 3,604,656
OTHER ASSETS 12,146 19,848
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TOTAL $ 9,852,069 $ 6,610,016
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 733,020 $ 541,881
Accrued expenses 4,843 4,821
Deferred revenue 2,449,547 2,554,071
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Total current liabilities 3,187,410 3,100,773
DEFERRED RENTAL OBLIGATION 16,004 20,779
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Total liabilities 3,203,414 3,121,552
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MINORITY INTEREST -- 296,193
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 per share, 4,280,000 and 4,440,000 shares
authorized and unissued as of December 31, 2003 and March 31, 2003,
respectively
Series A convertible preferred stock, par value $0.01 per share, stated value
$25 per share, 320,000 shares authorized, 80,800 and 142,800 shares
outstanding as of December 31, 2003 and March 31, 2003, respectively;
aggregate liquidation
preference of $2,045,362 as of December 31, 2003 2,045,362 3,668,005
Series B convertible preferred stock, par value $0.01 per share,
stated value $25 per share, 240,000 shares authorized, 19,925 and 56,725
shares outstanding as of December 31, 2003 and March 31, 2003, respectively;
aggregate liquidation preference of $506,263 as
of December 31, 2003 506,263 1,469,967
Series C convertible preferred stock, par value $0.01 per share,
stated value $25 per share, 160,000 shares authorized, 97,272 shares
outstanding as of December 31, 2003, aggregate liquidation preference of
$2,473,279 as of December 31, 2003 2,473,279
Common stock, par value $0.01 per share, 30,000,000 shares
authorized, 9,642,488 and 7,898,986 shares issued and outstanding
as of December 31, 2003 and March 31, 2003, respectively 96,425 78,990
Additional paid-in capital 55,813,769 40,142,617
Deficit accumulated during the developmental stage (54,286,443) (42,167,308)
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Total stockholders' equity 6,648,655 3,192,271
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TOTAL $ 9,852,069 $ 6,610,016
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See notes to condensed consolidated financial statements.
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IMMTECH INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
October 15,
Three Months Ended Nine Months Ended 1984
December 31, December 31, (Inception) to
-------------------------- --------------------------- December 31,
2003 2002 2003 2002 2003
REVENUES $ 654,370 $ 233,830 $ 1,797,726 $ 1,024,082 $ 10,640,548
----------- ----------- ------------ ----------- ------------
EXPENSES:
Research and development 814,490 401,667 2,325,668 1,864,193 33,397,199
General and administrative 2,580,294 723,978 10,183,954 3,059,166 31,255,838
Equity in loss of joint venture -- -- -- -- 135,002
----------- ----------- ------------ ----------- ------------
Total expenses 3,394,784 1,125,645 12,509,622 4,923,359 64,788,039
----------- ----------- ------------ ----------- ------------
LOSS FROM OPERATIONS (2,740,414) (891,815) (10,711,896) (3,899,277) (54,147,491)
----------- ----------- ------------ ----------- ------------
OTHER INCOME (EXPENSE):
Interest income 5,913 3,130 11,252 13,031 588,830
Interest expense -- -- -- -- (1,129,502)
Loss on sales of investment securities - net -- -- -- -- (2,942)
Cancelled offering costs -- -- -- -- (584,707)
Gain on extinguishment of debt -- -- -- -- 1,427,765
----------- ----------- ------------ ----------- ------------
Other income (expense) - net 5,913 3,130 11,252 13,031 299,444
----------- ----------- ------------ ----------- ------------
NET LOSS (2,734,501) (888,685) (10,700,644) (3,886,246) (53,848,047)
CONVERTIBLE PREFERRED STOCK DIVIDENDS (130,700) (96,249) (298,214) (362,996) (1,688,018)
REDEEMABLE PREFERRED STOCK CONVERSION,
PREMIUM AMORTIZATION AND DIVIDENDS -- -- -- -- 2,369,899
CONVERTIBLE PREFERRED STOCK PREMIUM
DEEMED DIVIDENDS -- -- (1,120,277) -- (1,120,277)
----------- ----------- ------------ ----------- ------------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS $(2,865,201) $ (984,934) $(12,119,135) $(4,249,242) $(54,286,443)
=========== =========== ============ =========== ============
BASIC AND DILUTED NET LOSS PER SHARE
ATTRIBUTABLE TO COMMON STOCKHOLDERS:
Net loss $ (0.30) $ (0.14) $ (1.23) $ (0.62)
Convertible preferred stock dividends (0.01) (0.02) (0.03) (0.06)
Convertible preferred stock premium deemed dividends -- -- (0.13) --
----------- ------------ ------------ ------------
BASIC AND DILUTED LOSS PER SHARE
ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (0.31) $ (0.16) $ (1.39) $ (0.68)
=========== ============ ============ ============
WEIGHTED AVERAGE SHARES USED IN COMPUTING
BASIC AND DILUTED NET LOSS PER SHARE 9,330,360 6,350,855 8,746,914 6,246,023
=========== ============ =========== ============
See notes to condensed consolidated financial statements.
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IMMTECH INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
--------------------------------------------------------------------------------
October 15,
Three Months Ended Nine Months Ended 1984
December 31, December 31, (Inception) to
------------------------- --------------------------- December 31,
2003 2002 2003 2002 2003
OPERATING ACTIVITIES:
Net loss $(2,734,501) $ (888,685) $(10,700,644) $ (3,886,246) $(53,848,047)
Adjustments to reconcile net loss to net
cash used in operating activities:
Compensation recorded related to issuance of common
stock, common stock options and warrants 1,259,765 55,963 6,955,339 1,132,286 21,815,314
Depreciation and amortization of property and equipment 35,466 23,654 85,574 71,965 722,754
Deferred rental obligation (1,592) (1,591) (4,775) (4,774) 16,004
Equity in loss of joint venture 135,002
Loss on sales of investment securities - net 2,942
Amortization of debt discounts and issuance costs 134,503
Gain on extinguishment of debt (1,427,765)
Changes in assets and liabilities:
Restricted funds on deposit (219,628) (1,843,265) (78,521) (2,534,761) (2,818,468)
Other current assets (6,362) (35,000) 112,744 4,881 (20,781)
Other assets -- -- 7,702 -- (12,146)
Accounts payable (24,236) (5,047) 191,139 (201,554) 1,060,555
Accrued expenses 834 (6) 22 (3,401) 667,856
Deferred revenue 13,630 1,817,170 (104,524) 2,575,403 2,449,547
----------- ----------- ------------ ------------ ------------
Net cash used in operating activities (1,676,624) (876,807) (3,535,944) (2,846,201) (31,122,730)
----------- ----------- ------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of investment securities (1,803,469)
Proceeds from sales and maturities of investment securities 1,800,527
Purchases of property and equipment (5,872) (5,397) (10,079) (16,069) (723,869)
Cash paid for acquisitions (400,000) (400,000) (604,924)
Investment in and advances to joint venture (135,002)
----------- ----------- ------------ ------------ ------------
Net cash used in investing activities (405,872) (5,397) (410,079) (16,069) (1,466,737)
----------- ----------- ------------ ------------ ------------
FINANCING ACTIVITIES:
Advances from stockholders and affiliates 985,172
Proceeds from issuance of notes payable 2,645,194
Principal payments on notes payable (218,119)
Payments for debt issuance costs (53,669)
Payments for extinguishment of debt (203,450)
Net proceeds from issuance of redeemable preferred stock 3,330,000
Net proceeds from issuance of convertible preferred stock
and warrants 25,000 2,845,473 1,859,333 8,553,321
Net proceeds from issuance of common stock for stock
option and warrant exercises 530,431 4,357,666 125 20,674,949
Payments for fractional shares for convertible
preferred stock dividends and the conversions of
convertible preferred stock (1,242) (86) (1,450) (262) (1,784)
Deferred offering costs (21,239) (181,239) (181,239)
Additional capital contributed by stockholders 245,559
----------- ----------- ------------ ------------ ------------
Net cash provided by financing activities 507,950 24,914 7,020,450 1,859,196 35,775,934
----------- ----------- ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,574,546) (857,290) 3,074,427 (1,003,074) 3,186,467
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,761,013 1,892,029 112,040 2,037,813 --
----------- ----------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,186,467 $ 1,034,739 $ 3,186,467 $ 1,034,739 $ 3,186,467
=========== =========== ============ ============ ============
See notes to condensed consolidated financial statements.
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IMMTECH INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by Immtech International, Inc. and its subsidiaries (the
"Company") pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and, in the opinion of the Company, include
all adjustments necessary for a fair statement of results for each period
shown (unless otherwise noted herein, all adjustments are of a normal
recurring nature). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such SEC rules and regulations. The
Company believes that the disclosures made are adequate to prevent the
financial information given from being misleading. It is suggested that
these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's latest Annual
Report on Form 10-K/A.
2. COMPANY BUSINESS AND SELECTED ACCOUNTING POLICIES
Description of Business - Immtech International, Inc. (a development stage
enterprise) and its subsidiaries (the "Company") are pharmaceutical
companies focused on the development and commercialization of oral drugs
to treat infectious diseases. The Company has ongoing programs to develop
treatments for pneumonia, fungal infections, malaria, tuberculosis, and
hepatitis and tropical diseases such as African sleeping sickness (a
parasitic disease also known as Trypanosomiasis) and Leishmaniasis (a
parasitic disease that destroys the liver). The Company holds worldwide
patents, patent applications, licenses and rights to license worldwide
patents and technologies from a scientific consortium and exclusive rights
to commercialize products from those patents and licenses that are
integral to the Company. The Company is a development stage enterprise and
since its inception on October 15, 1984, has engaged in research and
development programs, expanding its network of scientists and scientific
advisors, licensing technology agreements, and advancing the
commercialization of its dication technology platform. The Company uses
the expertise and resources of strategic partners and third parties in a
number of areas, including: (i) laboratory research, (ii) pre-clinical and
human clinical trials and (iii) manufacture of pharmaceutical drugs.
The Company does not have any products currently available for sale, and
no products are expected to be commercially available for the foreseeable
future.
Since inception, the Company has incurred accumulated losses of
approximately $53,848,000. Management expects the Company to continue to
incur significant losses during the next several years as the Company
continues its commercialization, research and development activities and
clinical trial efforts. In addition, the Company has various research and
development agreements with third parties and is dependent upon their
ability to perform under these agreements. There can be no assurance that
the Company's continued research will lead to the development of
commercially viable products. The Company's operations to date have
consumed substantial amounts of cash. The negative cash flow from
operations is expected to continue in the foreseeable future. The Company
will require substantial additional funds to commercialize its product
candidates. The Company's cash requirements may vary materially from those
now planned due to the results of research and development efforts,
results of pre-
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clinical and clinical testing, responses to grant requests, relationships
with strategic partners, changes in the focus and direction of the
Company's research and development programs, competitive and technological
advances, the regulatory process, and other factors. In any of these
circumstances, the Company may require substantially more funds than are
currently available or than management intends to raise.
The Company believes its existing unrestricted cash and cash equivalents,
and the grants the Company has received or has been awarded and is
awaiting disbursement of, will be sufficient to meet the Company's planned
expenditures through at least the next twelve months, although there can
be no assurance the Company will not require additional funds. Management
may seek to satisfy future funding requirements through public or private
offerings of securities, by collaborative or other arrangements with
pharmaceutical or biotechnology companies or from other sources.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient funds to meet its obligations as they
become due and, ultimately, to obtain profitable operations. Management's
plans for the forthcoming year, in addition to normal operations, include
continuing their efforts to create strategic joint ventures, to obtain
additional research grants and to enter into research and development
agreements with other entities.
Principles of Consolidation - The condensed consolidated financial
statements include the accounts of Immtech International, Inc. and its
wholly-owned subsidiaries (see Note 3). All significant intercompany
balances and transactions have been eliminated.
Investment - The Company accounts for its investment in NextEra
Therapeutics, Inc. ("NextEra") on the equity method. As of December 31,
2003 and March 31, 2003, the Company owned approximately 28% of the issued
and outstanding shares of NextEra common stock. The Company has recognized
an equity loss in NextEra to the extent of the basis of its investment,
and the investment balance is zero as of December 31, 2003 and March 31,
2003. Recognition of any investment income on the equity method by the
Company for its investment in NextEra will occur only after NextEra has
earnings in excess of previously unrecognized equity losses.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. Cash and cash equivalents consist of an amount on
deposit at a bank and an investment in a money market mutual fund, stated
at cost, which approximates fair value.
Restricted Funds on Deposit - Restricted funds on deposit consist of cash
on deposit at a bank which is restricted for use in accordance with a
clinical research subcontract agreement with The University of North
Carolina at Chapel Hill and a testing agreement with Medicines for Malaria
Venture.
Concentration of Credit Risk - The Company maintains its cash in
commercial banks. Balances on deposit are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to specified limits. Balances in excess
of FDIC limits are uninsured.
Minority Interest - Minority interest represents the carryover basis of
the 20% of Lenton Fibre Optics Development Limited ("Lenton") not owned by
the Company at the date of acquisition, plus equity in earnings or minus
equity in losses from that date through the date of disposal of this
ownership interest.
Income Taxes - The Company accounts for income taxes using an asset and
liability approach. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based
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on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. In addition, a
valuation allowance is recognized if it is more likely than not that some
or all of the deferred income tax assets will not be realized.
Net Income (Loss) Per Share - Net income (loss) per share is calculated in
accordance with Statement of Financial Accounting Standard No. 128,
"Earnings Per Share." Basic net income (loss) and diluted net (loss) per
share are computed by dividing net income (loss) attributable to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted net income per share, when applicable, is
computed by dividing net income attributable to common stockholders by the
weighted average number of common shares outstanding increased by the
number of potential dilutive common shares.
Comprehensive Loss - There were no differences between comprehensive loss
and net loss for the three month and nine month periods ended December 31,
2003 and 2002, respectively.
3. EXCHANGE OF OWNERSHIP INTERESTS
On November 28, 2003, the Company entered into a share purchase agreement
and deed of indemnity (the "Share Purchase Agreement") as related to the
shares in Super Insight Limited ("Super Insight") and an allonge to the
share purchase agreement and deed of indemnity as related to the shares in
Super Insight and Immtech Hong Kong Limited (the "Allonge") with Mr. Chan
Kon Fung ("Mr. Chan"), Lenton, Super Insight and Immtech Hong Kong
Limited. Pursuant to the terms of the Share Purchase Agreement and the
Allonge, Immtech purchased (i) from Mr. Chan 100% of the outstanding
shares of Super Insight and its wholly-owned subsidiary, subsequently
named Immtech Life Science Limited ("Immtech Life Science") and (ii) from
Lenton, 100% of Lenton's interest in Immtech Hong Kong. As payment for the
shares of Super Insight and Immtech Hong Kong, Immtech transferred to Mr.
Chan its 80% interest in Lenton and $400,000 in cash.
Immtech Life Science has ownership of a portion of a newly-constructed
building located in the Futian Bonded Zone, Shenzen, in the People's
Republic of China through May 2051.
This transaction resulted in the exchange of the Company's ownership
interest in Lenton for Super Insight and the consolidation of Super
Insight as a wholly-owned subsidiary. The primary asset of Lenton was
land-use rights in China and the primary asset of Super Insight is a
portion of the building described above. This transaction has been
accounted for as a like-kind exchange of similar assets. Accordingly, this
transaction did not impact the Company's statement of operations.
4. STOCKHOLDERS' EQUITY
On January 7, 2004, the shareholders of the Company approved an increase
in the number of authorized common stock from 30 million to 100 million.
On January 7, 2004, the shareholders of the Company also approved an up to
two-for-one stock split of the Company's common stock. The Company has not
yet implemented either of the increase in its authorized capital nor the
up to two-for-one stock split.
Series A Convertible Preferred Stock - On February 14, 2002, the Company
filed a Certificate of Designation with the Secretary of State of the
State of Delaware designating 320,000 shares of the Company's 5,000,000
authorized shares of preferred stock as Series A Convertible Preferred
Stock, $0.01 par value, with a stated value of $25.00 per share. Dividends
accrue at a rate of 6.0% per annum on the $25.00 stated value per share
and are payable semi-annually on April 15 and October 15 of each year
while the shares are outstanding. The Company has the option to pay the
dividend either in cash or in equivalent shares of common stock, as
defined. Included in the carrying value of the Series A Convertible
Preferred Stock in the accompanying condensed consolidated balance sheets
is $25,362 and
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$98,005 of accrued preferred stock dividends at December 31, 2003 and
March 31, 2003, respectively. Each share of Series A Convertible Preferred
Stock may be converted by the holder at any time into shares of the
Company's common stock at a conversion rate determined by dividing the
$25.00 stated value, plus any accrued and unpaid dividends (the
"Liquidation Price"), by a $4.42 conversion price (the "Conversion Price
A"), subject to certain antidilution adjustments, as defined in the
Certificate of Designation. On October 15, 2003, the Company issued 4,010
shares of common stock and paid $296 in lieu of fractional common shares
as dividends on the preferred shares and on October 15, 2002, the Company
issued 28,959 shares of common stock and paid $64 in lieu of fractional
common shares as dividends on the preferred shares. On April 15, 2003, the
Company issued 23,316 shares of common stock and paid $96 in lieu of
fractional common shares as dividends on the preferred shares and on April
15, 2002, the Company issued 8,249 shares of common stock and paid $166 in
lieu of fractional common shares as dividends on the preferred shares.
During the three month periods ended December 31, 2003 and 2002, certain
preferred stockholders converted 17,000 and 8,000 shares of Series A
Convertible Preferred Stock, including accrued dividends, for 96,238 and
45,978 shares of common stock, respectively. During the nine month period
ended December 31, 2003 and 2002, certain preferred stockholders converted
62,000 and 17,300 shares of Series A Convertible Preferred Stock,
including accrued dividends for 353,667 and 99,105 shares of common stock,
respectively.
The Company may at any time after February 14, 2003, require that any or
all outstanding shares of Series A Convertible Preferred Stock be
converted into shares of the Company's common stock. The number of shares
of common stock to be received by the holders of the Series A Convertible
Preferred Stock upon a mandatory conversion by the Company is determined
by (i) dividing the Liquidation Price by the Conversion Price A, provided
that the closing bid price for the Company's common stock exceeds $9.00
for 20 consecutive trading days within 180 days prior to notice of
conversions, as defined, or (ii) if the requirements of (i) are not met,
the number of shares of common stock is determined by dividing 110% of the
Liquidation Price by the Conversion Price. During the nine month period
ended December 31, 2003, the closing price of the Company's common stock
did exceed $9 per share for 20 consecutive days. The Conversion Price is
subject to certain antidilution adjustments, as defined in the Certificate
of Designation.
The Company may at any time, upon 30 day's notice, redeem any or all
outstanding shares of the Series A Convertible Preferred Stock by payment
of the Liquidation Price to the holder of such shares, provided that the
holder does not convert the Series A Convertible Preferred Stock into
shares of Common Stock during the 30 day period. Each issued and
outstanding share of Series A Convertible Preferred Stock shall be
entitled to 5.6561 votes with respect to any and all matters presented to
the stockholders of the Company for their action or consideration. Except
as provided by law or by the provisions establishing any other series of
preferred stock, Series A Convertible Preferred stockholders and holders
of any other outstanding preferred stock shall vote together with the
holders of common stock as a single class.
Series B Convertible Preferred Stock - On September 25, 2002, the Company
filed a Certificate of Designation with the Secretary of State of the
State of Delaware designating 240,000 shares of the Company's 5,000,000
authorized shares of preferred stock as Series B Convertible Preferred
Stock, $0.01 par value, with a stated value of $25.00 per share. Dividends
accrue at a rate of 8.0% per annum on the $25.00 stated value per share
and are payable semi-annually on April 15 and October 15 of each year
while the shares are outstanding. The Company has the option to pay the
dividend either in cash or in equivalent shares of common stock, as
defined. Included in the carrying value of the Series B Convertible
Preferred Stock in the accompanying condensed consolidated balance sheets
is $8,138 and $51,842 of accrued preferred stock dividends as of December
31, 2003 and March 31, 2003, respectively. Each share of Series B
Convertible Preferred Stock may be converted by the holder at any time
into shares of the Company's common stock at a conversion rate determined
by dividing the $25.00
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stated value, plus any accrued and unpaid dividends (the "Liquidation
Price"), by a $4.00 conversion price (the "Conversion Price B"), subject
to certain antidilution adjustments, as defined in the Certificate of
Designation. On October 15, 2003, the Company issued 1,130 shares of
common stock and paid $139 in lieu of fractional common shares as
dividends on the preferred shares and on October 15, 2002, the Company
issued 2,658 shares of common stock and paid $17 in lieu of fractional
common shares as dividends on the preferred shares. On April 15, 2003, the
Company issued 11,049 shares of common stock and paid $17 in lieu of
fractional common shares as dividends on the preferred shares. During the
three month period ended December 31, 2003, certain preferred stockholders
converted 800 shares of Series B Convertible Preferred stock, including
accrued dividends, for 5,002 shares of common stock. During the nine month
period ended December 31, 2003, certain preferred stockholders converted
36,800 shares of Series B Convertible Preferred Stock, including accrued
dividends, for 232,851 shares of common stock. There were no conversions
of Series B Convertible Preferred Stock during the three month period or
nine month period ended December 31, 2002.
The Company may at any time after September 24, 2003, require that any or
all outstanding shares of Series B Convertible Preferred Stock be
converted into shares of the Company's common stock. The number of shares
of common stock to be received by the holders of the Series B Convertible
Preferred Stock upon a mandatory conversion by the Company is determined
by (i) dividing the Liquidation Price by the Conversion Price B, provided
that the closing bid price for the Company's common stock exceeds $9.00
for 20 consecutive trading days within 180 days prior to notice of
conversions, as defined, or (ii) if the requirements of (i) are not met,
the number of shares of common stock is determined by dividing 110% of the
Liquidation Price by the Conversion Price B. During the nine month period
ended December 31, 2003, the closing price of the Company's common stock
did exceed $9 per share for 20 consecutive days. The Conversion Price B is
subject to certain antidilution adjustments, as defined in the Certificate
of Designation.
The Company may at any time, upon 30 day notice, redeem any or all
outstanding shares of the Series B Convertible Preferred Stock by payment
of the Liquidation Price to the holder of such shares, provided that the
holder does not convert the Series B Convertible Preferred Stock into
shares of common stock during the 30 day period. Each issued and
outstanding share of Series B Convertible Preferred Stock shall be
entitled to 6.25 votes (subject to adjustment for dilution) with respect
to any and all matters presented to the stockholders of the Company for
their action or consideration. Except as provided by law or by the
provisions establishing any other series of preferred stock, Series B
Convertible Preferred stockholders and holders of any other outstanding
preferred stock shall vote together with the holders of common stock as a
single class.
Series C Convertible Preferred Stock - On June 6, 2003, the Company filed
a Certificate of Designation with the Secretary of State of the State of
Delaware designating 160,000 shares of the Company's 5,000,000 authorized
shares of preferred stock as Series C Convertible Preferred Stock, $0.01
par value, with a stated value of $25.00 per share. Dividends accrue at a
rate of 8.0% per annum on the $25.00 stated value per share and are
payable semi-annually on April 15 and October 15 of each year while the
shares are outstanding. The Company has the option to pay the dividend
either in cash or in equivalent shares of common stock, as defined.
Included in the carrying value of the Series C Convertible Preferred Stock
in the accompanying condensed consolidated balance sheet is $41,479 of
accrued preferred stock dividends as of December 31, 2003. Each share of
Series C Convertible Preferred Stock may be converted by the holder at any
time into shares of the Company's common stock at a conversion rate
determined by dividing the $25.00 stated value, plus any accrued and
unpaid dividends (the "Liquidation Price"), by a $4.42 conversion price
(the "Conversion Price C"), subject to certain antidilution adjustments,
as defined in the Certificate of Designation. During the three month
period ended June 30, 2003, the Company issued 125,352 shares of Series C
Convertible Preferred Stock for net proceeds of $2,845,000 (net of
approximately $288,000 of cash offering costs). The preferred shares
- 8 -
issued have an embedded beneficial conversion feature based on the market
value on the day of issuance and the price of conversion. The beneficial
conversion was equal to approximately $1,120,000 and was accounted for as
a deemed dividend during the three month period ended June 30, 2003. On
October 15, 2003, the Company issued 4,893 shares of common stock and paid
$594 in lieu of fractional common shares as dividends on the preferred
shares. During the three and nine month periods ended December 31, 2003,
certain preferred stockholders converted 28,080 shares of Series C
Convertible Preferred Stock, including accrued dividends, for 159,018
shares of common stock. There were no conversions of Series C Convertible
Preferred Stock prior to the three month period ended December 31, 2003.
The Company may at any time after May 31, 2004, require that any or all
outstanding shares of Series C Convertible Preferred Stock be converted
into shares of the Company's common stock, provided that the shares of
common stock into which the Series C Convertible Preferred Stock are
convertible are registered pursuant to an effective registration
statement, as defined. The number of shares of common stock to be received
by the holders of the Series C Convertible Preferred Stock upon a
mandatory conversion by the Company is determined by (i) dividing the
Liquidation Price by the Conversion Price C provided that the closing bid
price for the Company's common stock exceeds $9.00 for 20 consecutive
trading days within 180 days prior to notice of conversions, as defined,
or (ii) if the requirements of (i) are not met, the number of shares of
common stock is determined by dividing 110% of the Liquidation Price by
the Conversion Price C. The Conversion Price C is subject to certain
antidilution adjustments, as defined in the Certificate of Designation.
The Company may at any time, upon 30 day notice, redeem any or
all-outstanding shares of the Series C Convertible Preferred Stock by
payment of the Liquidation Price to the holder of such shares, provided
that the holder does not convert the Series C Convertible Preferred Stock
into shares of common stock during the 30 day period. Each issued and
outstanding share of Series C Convertible Preferred Stock shall be
entitled to 5.6561 votes (subject to adjustment for dilution) with respect
to any and all matters presented to the stockholders of the Company for
their action or consideration. Except as provided by law or by the
provisions establishing any other series of preferred stock, Series C
Convertible Preferred stockholders and holders of any other outstanding
preferred stock shall vote together with the holders of common stock as a
single class.
Series D Convertible Preferred Stock - On January 15, 2004, the Company
filed a Certificate of Designation with the Secretary of State of the
State of Delaware designating 200,000 shares of the Company's 5,000,000
authorized shares of preferred stock as Series D Convertible Preferred
Stock, $0.01 par value, with a stated value of $25.00 per share. Dividends
accrue at a rate of 6.0% per annum on the $25.00 stated value per share
and are payable semi-annually on April 15 and October 15 of each year
while the shares are outstanding. The Company has the option to pay the
dividend either in cash or in equivalent shares of common stock, as
defined. Each share of Series D Convertible Preferred Stock may be
converted by the holder at any time into shares of the Company's common
stock at a conversion rate determined by dividing the $25.00 stated value,
plus any accrued and unpaid dividends (the "Liquidation Price"), by a
$9.00 conversion price (the "Conversion Price D"), subject to certain
antidilution adjustments, as defined in the Certificate of Designation.
Subsequent to December 31, 2003, the Company issued 200,000 shares of
Series D Convertible Preferred Stock for gross proceeds of approximately
$5,000,000 (net of approximately $425,000 of cash offering costs).
Included in other current assets in the accompanying condensed
consolidated balance sheet is $21,239 of deferred offering costs as of
December 31, 2003 related to the Series D Convertible Preferred Stock. The
preferred shares issued have an embedded beneficial conversion feature
based on the market value on the day of issuance and the price of
conversion which will be accounted for as a deemed dividend during the
fourth quarter.
- 9 -
The Company may at any time after January 1, 2005, require that any or all
outstanding shares of Series D Convertible Preferred Stock be converted
into shares of the Company's common stock, provided that the shares of
common stock into which the Series D Convertible Preferred Stock are
convertible are registered pursuant to an effective registration
statement, as defined. The number of shares of common stock to be received
by the holders of the Series D Convertible Preferred Stock upon a
mandatory conversion by the Company is determined by (i) dividing the
Liquidation Price by the Conversion Price D provided that the closing bid
price for the Company's common stock exceeds $18.00 for 20 consecutive
trading days within 180 days prior to notice of conversions, as defined,
or (ii) if the requirements of (i) are not met, the number of shares of
common stock is determined by dividing 110% of the Liquidation Price by
the Conversion Price D. The Conversion Price D is subject to certain
antidilution adjustments, as defined in the Certificate of Designation.
Each issued and outstanding share of Series D Convertible Preferred Stock
shall be entitled to 2.7778 votes (subject to adjustment for dilution)
with respect to any and all matters presented to the stockholders of the
Company for their action or consideration. Except as provided by law or by
the provisions establishing any other series of preferred stock, Series D
Convertible Preferred stockholders and holders of any other outstanding
preferred stock shall vote together with the holders of common stock as a
single class.
In connection with the Series D Preferred Stock Offering, the Company
issued warrants to purchase 200,000 shares of common stock with an
exercise price of $16.00 per common share.
In connection with the Series D Preferred Stock offering, the Company
entered into a Finder's Agreement with Ace Noble Holdings Limited (the
"Finder") to identify and introduce qualified leads, increase financial
market awareness in the Company and to assist the Company in raising
funds. As consideration for services to be performed under this agreement,
the Company was obligated to pay a cash fee of 8% of funds invested in
Immtech's Series D Preferred Stock by Non-U.S. persons prior to January
23, 2004 by investors introduced by the Finder and expenses not to exceed
$36,000. Subsequent to December 31, 2003, fees of $350,800 and expenses of
$36,000 were paid with respect to this agreement.
Common Stock - On June 28, 2002, the Company entered into a Finder's
Agreement with Mr. Cheung Ming Tak to develop and qualify potential
strategic partners for the purpose of testing and/or the commercialization
of Company products in China. As consideration for entering into the
agreement, the individual received 150,000 shares of the Company's common
stock and the Company recognized approximately $757,500 as a general and
administrative expense during the nine month period ended December 31,
2002, based on the estimated fair value of the shares on the date issued.
On July 31, 2002, the Company entered into a one year agreement with The
Gabriele Group. L.L.C. ("Gabriele") for assistance to be provided by
Gabriele to the Company with respect to management consulting, strategic
planning, public relations and promotions. As compensation for these
services, the Company granted Gabriele 40,000 shares of the Company's
common stock and the Company recognized approximately $187,600 as a
general and administrative expense during the nine month period ended
December 31, 2002, based on the fair value of the shares on the date
issued. The Company also granted Gabriele warrants to purchase 30,000
shares of the Company's common stock at $6.00 per share. These warrants
vest when the price of the Company's common stock reaches certain
milestones. During the three month period ended December 31, 2003, the
Company recognized general and administrative expenses of approximately
$247,000 because the prescribed milestones had been reached
- 10 -
with respect to a warrant to purchase 20,000 shares of the Company's
common stock. This expense was recorded based on the estimated fair value
of the warrants using the Black-Scholes option valuation model.
On March 21, 2003, the Company entered into media production agreements
with Winmaxmedia, an operating division of Winmax Trading Group, Inc.
("Winmax"), to produce materials to be used in connection with equity
fundraising efforts. As consideration for services to be performed under
the agreement, the Company issued 100,000 shares of its common stock and
paid approximately $100,000 of cash during the year ended March 31, 2003.
On March 21, 2003, the Company entered into an Investor Relations
Agreement with Fulcrum Holdings of Australia, Inc. ("Fulcrum") for
financial consulting services and public relations management to be
provided over a 12-month period. As consideration for services to be
performed under the agreement, the Company will issue to Fulcrum, ratably
over the term in monthly installments, 100,000 shares of common stock and
warrants to purchase an additional 350,000 shares of common stock at
prices ranging from $6.00 to $15.00 per share. The common shares and
warrants will be issued, and the related expense will be recognized, on a
pro-rata basis over the contract period. During the three month period
ended December 31, 2003, 25,000 common shares were issued and a general
and administrative expense of $358,750 was recorded based on the market
value of the common stock on the dates of issuance. During the nine month
period ended December 31, 2003, 75,000 common shares were issued and a
general and administrative expense of $831,669, based on the market value
of the common shares on the dates of issuance. Also, during the three
month period ended December 31, 2003, warrants to purchase 87,500 shares
of common stock were issued and a general and administrative expense of
$588,355 was recorded based on the value of the warrants using the
Black-Scholes option valuation model. During the nine month period ended
December 31, 2003, warrants to purchase 262,500 shares of common stock
were issued and a general and administrative expense of $1,468,835 was
recorded based on the value of the warrants using the Black-Scholes option
valuation model.
On March 21, 2003, the Company entered into a Finder's Agreement with
Wyndham Associates Limited ("Wyndham") to identify potential strategic
partners and assist in the raising of equity financing. As consideration
for services to be performed under the agreement, the Company was
obligated to issue 220,000 shares of common stock and pay a cash fee equal
to 4% of funds raised. The agreement further provided that Wyndham would
receive a cash fee for any additional equity investments by investors
introduced by Wyndham. During the nine month period ended December 31,
2003, 220,000 common shares were issued and offering costs of $1,397,000
were recorded based on the market value of the Company's common stock on
the date of issuance.
On July 25, 2003, the Company entered into a consulting agreement with
Fulcrum to identify and negotiate with stock exchanges to list the common
stock of the Company and to assist the Company to prepare applications to
list the common stock of the Company on a stock exchange. As consideration
for services under this agreement, upon the listing of the Company's
common stock on a stock exchange, the Company would issue to Fulcrum
100,000 shares of common stock. On August 11, 2003, the Company's common
stock was listed on the American Stock Exchange. Accordingly, the Company
issued 100,000 shares of its common stock to Fulcrum, resulting in the
recognition of general and administrative expenses of $1,400,000 during
the nine month period ended December 31, 2003, based on the market value
of the Company's common stock on the date of issuance.
In September 2003, the Company entered into a separate Finder's Agreement
with Wyndham to identify potential strategic partners and to assist in the
private placements of debt, equity and/or warrants through December 2003.
As consideration for services to be performed under this agreement, a cash
fee equal to 8.0% of funds received by the Company from investors
introduced by Wyndham, was due at the closing date of the respective
private placement. The Company also paid a refundable retainer of $160,000
to
- 11 -
Wyndham. In the event that investors introduced by Wyndham did not
subscribe to invest at least $20,000,000, the $160,000 retainer was to be
returned to the Company. The $160,000 retainer is recorded in the
accompanying December 31, 2003 condensed consolidated balance sheet within
other current assets as the minimum subscription amount of $20,000,000 was
not achieved prior to December 31, 2003.
On July 16, 2003, the Company entered into an agreement with China Harvest
International Ltd. ("China Harvest") for services to be provided to assist
the Company in obtaining regulatory approval to conduct clinical trials in
China. As consideration for these services, the Company granted China
Harvest warrants to purchase 600,000 shares of common stock from the
Company at $6.08 per share. These warrants are fully vested and have an
exercise period of five years. During the nine month period ended December
31, 2003, approximately $2,744,000 was recorded as general and
administrative expenses, based on the estimated value of the warrants
using the Black-Scholes option valuation model. There were no expenses
incurred with respect to this agreement during the three month period
ended December 31, 2003.
On July 16, 2003, the Company entered into a consulting agreement with Mr.
David Tat-Koon Shu for services to assist the Company with the formation
of a subsidiary and to gain regulatory approvals to enter into clinical
trials in China. As compensation for these services, Mr. Shu was granted
10,000 shares of the Company's common stock and a general and
administrative expense of $62,900 was recorded during the nine month
period ended December 31, 2003 based on the market value of the common
stock on the date of issuance. There were no expenses incurred with
respect to this agreement during the three month period ended December 31,
2003.
During the three month period ended December 31, 2003, warrants to
purchase 83,350 shares of common stock were exercised, resulting in
proceeds to the Company of $530,431. During the nine month period ended
December 31, 2003, warrants to purchase 539,350 shares of common stock
were exercised, resulting in proceeds to the Company of $4,354,165. There
were no warrants exercised during the three and nine month periods ended
December 31, 2002.
Common Stock Options - On October 12, 2000, the Company's stockholders
approved the issuance of options to purchase shares of common stock to
certain employees and other nonemployees who have been engaged to assist
the Company in various research and administrative capacities as part of
the 2000 Stock Incentive Plan. The 2000 Stock Incentive Plan provided for
the issuance of up to 350,000 shares of common stock, in the form of
incentive options and non-qualified stock options. At the stockholders'
meeting held November 15, 2002, the stockholders approved an amendment to
the 2000 Stock Incentive Plan to increase the number of shares of common
stock reserved for issuance from 350,000 shares to 1,100,000 shares.
Options granted under the 2000 Stock Incentive Plan that expire are
available to be reissued. Incentive stock options must be granted at a
price at least equal to fair market value at the date of grant.
The Company has granted common stock options to individuals who have
contributed to the Company in various capacities. The options contain
various provisions regarding vesting periods and expiration dates. The
options generally vest over periods ranging from 0 to 4 years and
generally expire after five or ten years.
Options Granted to Employees - During the three month and nine month
periods ended December 31, 2003, the Company issued 164,500 options to
purchase shares of common stock to employees and directors. During the
three and nine month periods ended December 31, 2002, the Company issued
203,000 options to purchase shares of its common stock to its employees
and directors. During the three month period ended December 31, 2003,
3,500 options expired and are available to be reissued. During
- 12 -
the three month period ended December 31, 2002, no options expired which
were previously granted under the 2000 Stock Incentive Plan. During the
nine month periods ended December 31, 2003 and 2002, 3,500 and 20,000
options expired, respectively, which were previously granted under the
2000 Stock Incentive Plan and are available to be reissued. As of December
31, 2003, there were 447,750 shares available for grant.
Options Granted to Nonemployees - During the three month periods ended
December 31, 2003 and 2002, the Company did not issue any options to
purchase shares of Company common stock to nonemployees. However, during
the three month periods ended December 31, 2003 and 2002, the Company
recognized expenses of approximately $66,000 and $56,000, respectively,
related to certain options issued during prior years which vest over a
four year period. During each of the nine month periods ended December 31,
2003 and 2002, the Company issued options to purchase 22,000 shares of
common stock to nonemployees and recognized research and development
expenses of $201,000 and $187,000, respectively, related to these options
and certain options issued during prior years which vest over a four year
period. The options issued during the nine month period ended December 31,
2003 were granted as consideration for consulting services with respect to
medical, technical and scientific issues. The compensation expense was
determined based on the estimated fair value of the options issued using
the Black-Scholes option valuation model.
Stock-Based Compensation - The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," and
applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its employee stock option plans. If the
Company had recognized compensation expense for the current and historical
options granted during the three and nine month periods ended December 31,
2003 and 2002, consistent with the method prescribed by SFAS No. 123, net
loss and net loss per share would have been changed to the pro forma
amounts indicated below:
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- ---------------------------
2003 2002 2003 2002
Net loss attributable to common shareholders -
as reported $(2,865,201) $ (984,934) $(12,119,135) $(4,249,242)
Add: stock-based compensation expense to
employees and directors included in reported
net loss -- -- -- --
Deduct: total stock-based compensation expense
determined under fair value method for awards to
employees and directors (359,229) (63,106) (553,180) (197,752)
----------- ----------- ------------ -----------
Net loss attributable to common stockholders -
pro forma $(3,224,430) $(1,048,040) $(12,672,315) $(4,446,994)
=========== =========== ============ ===========
Basic and diluted net loss per share attributable
to common stockholders - as reported $ (0.31) $ (0.16) $ (1.39) $ (0.68)
=========== =========== ============ ===========
Basic and diluted net loss per share attributable
to common stockholders - pro forma $ (0.35) $ (0.17) $ (1.45) $ (0.71)
=========== =========== ============ ===========
- 13 -
5. COLLABORATIVE RESEARCH AND DEVELOPMENT ACTIVITIES
The Company has various collaborative research agreements with commercial
enterprises. Under the terms of these arrangements, the Company has agreed
to perform best efforts research and development and, in exchange, the
Company may receive advanced cash funding and may also earn additional
fees for the attainment of certain milestones. The Company may receive
royalties on the sales of such products that may result from these
research and development activities and the other parties generally
receive exclusive marketing and distribution rights for certain products
for set time periods in specific geographic areas.
The Company initially acquired its rights to the platform technology and
dications developed by a consortium of universities consisting of The
University of North Carolina at Chapel Hill ("UNC"), Georgia State
University, Duke University and Auburn University (the "Scientific
Consortium") pursuant to an agreement, dated January 15, 1997 (as amended,
the "Consortium Agreement") among the Company, Pharm-Eco Laboratories,
Inc. ("Pharm-Eco"), and UNC (to which each of the other members of the
Scientific Consortium agreed shortly thereafter to become a party). The
Consortium Agreement commits the parties to collectively research,
develop, finance the research and development of, manufacture and market
both the technology and compounds owned by the Scientific Consortium and
previously licensed or optioned to Pharm-Eco and licensed to the Company
in accordance with the Consortium Agreement (the "Current Compounds"), and
all technology and compounds developed by the Scientific Consortium after
January 15, 1997, through use of Company-sponsored research funding or
National Cooperative Drug Development grant funding made available to the
Scientific Consortium (the "Future Compounds" and, collectively with the
Current Compounds, the "Compounds").
The Consortium Agreement contemplated that upon the completion of the
Company's initial public offering ("IPO") of shares of its common stock
with gross proceeds of at least $10,000,000 by April 30, 1999, the Company
and Pharm-Eco, with respect to the Current Compounds, and the Company and
UNC, (on behalf of the Scientific Consortium), with respect to Future
Compounds, would enter into license agreements for, or assignments of, the
intellectual property rights relating to the Compounds held by Pharm-Eco
and the Scientific Consortium; pursuant to which the Company would pay
royalties and other payments based on revenues received for the sale of
products based on the Compounds.
The Company completed its IPO on April 26, 1999, with gross proceeds in
excess of $10,000,000. Pursuant to the Consortium Agreement, both
Pharm-Eco and the Scientific Consortium then became obligated to grant or
assign to the Company an exclusive worldwide license to use, manufacture,
have manufactured, promote, sell, distribute, or otherwise dispose of any
products based directly or indirectly on all of the Current Compounds and
Future Compounds.
As a result of the closing of the IPO, the Company issued an aggregate of
611,250 shares of common stock, of which 162,500 shares were issued to the
Scientific Consortium and 448,750 shares were issued to Pharm-Eco or
persons designated by Pharm-Eco.
Pursuant to the Consortium Agreement, the Company may, subject to the
satisfaction of certain conditions, be required to issue 100,000 shares of
common stock to the Scientific Consortium upon the filing by the Company
of the first new drug application or an abbreviated new drug application
with the Food and Drug Administration with respect to a product
incorporating certain Compounds. In addition, the Company will pay the
Scientific Consortium an aggregate royalty of up to 5.0% of net sales
derived from the Compounds, except that the royalty rate payable on any
Compound developed at Duke University will be determined by negotiations
at the time such Compound is developed. In the event that the Company
sublicenses its rights with respect to the Compounds to a third party, the
Company will pay the Scientific Consortium a royalty based on a percentage
of any royalties the Company
- 14 -
receives, and a percentage of all signing, milestone and other payments
made to the Company pursuant to the sublicense agreement.
As contemplated by the Consortium Agreement, on January 28, 2002, the
Company entered into a License Agreement with the Scientific Consortium
whereby the Company received the exclusive license to commercialize
dication technology and compounds developed or invented by one or more of
the Consortium scientists after January 15, 1997, and which also
incorporated into such License Agreement the Company's existing license
with the Scientific Consortium with regard to the Current Compounds.
The Company was required, under an agreement which has subsequently
expired, to make quarterly research grants in the amount of $100,000 to
UNC through April 30, 2002. During the three month and nine month periods
ended December 31, 2003, the Company did not expense any grant payments to
UNC. During the three month and nine month periods ended December 31,
2002, the Company expensed grant payments to UNC of zero and $100,000,
respectively. Such payments were recorded as research and development
expenses.
In August 2001, the Company was awarded a Small Business Innovation
Research grant from the National Institutes of Health of approximately
$144,000 as a three year grant to continue research on "Novel Procedures
for Treatment of Opportunistic Infections." During the three month and
nine month periods ended December 31, 2003 no revenues or expenses were
recognized under this grant. During the three month and nine month periods
ended December 31, 2002, the Company recognized revenues of approximately
zero and $70,000, respectively, from this grant and expense payments of
approximately zero and $70,000, respectively, to UNC and certain other
Scientific Consortium universities for contracted research related to this
grant. There is no additional funding available to the Company under this
grant.
During the three and nine month periods ended December 31, 2003, the
Company expensed approximately $177,000 and $404,000, respectively, of
other payments to UNC and certain other Scientific Consortium universities
for patent related costs and other contracted research. During the three
month and nine month periods ended December 31, 2002, the Company expensed
approximately $99,000 and $284,000, respectively, of other payments to UNC
and certain other Scientific Consortium universities for patent related
costs and other contracted research. Total payments expensed to UNC and
certain other Scientific Consortium universities were approximately
$177,000 and $404,000 during the three month and nine month periods ended
December 31, 2003, respectively. Total payments expensed to UNC and
certain other Scientific Consortium universities were approximately
$99,000 and $454,000 during the three month and nine month periods ended
December 31, 2002, respectively. Included in accounts payable as of
December 31, 2003 and March 31, 2003, were approximately $64,000, and
$15,000, respectively, due to UNC and certain other Scientific Consortium
universities.
In November 2000, The Bill & Melinda Gates Foundation ("Gates Foundation")
awarded a $15,114,000 grant to UNC to develop new drugs to treat Human
Trypanosomiasis (African sleeping sickness) and Leishmaniasis. On March
29, 2001, UNC entered into a clinical research subcontract agreement with
the Company, whereby the Company is to receive up to $9,800,000, subject
to certain terms and conditions, over a five year period to conduct
certain clinical and research studies.
In April 2003, the Gates Foundation awarded a $2,713,124 supplemental
grant to UNC for the expansion of phase IIB/III clinical trials for
treatment of Human Trypanosomiasis (African sleeping sickness) and
improved manufacturing processes. The supplemental increase to the Company
due to this amendment is $2,466,475, bringing the total available funding
to the Company under this agreement to $12,266,475. The proceeds due to
the Company under this arrangement are restricted to the development of
new drugs for the treatment of Human Trypanosomiesis, leishmaniasis, and
improved drug manufacturing processes and must be segregated from other
funds and used for specific purposes.
- 15 -
Through the year ended March 31, 2003 the Company had received $7,680,000
and during the nine month period ended December 31, 2003, the Company
received an additional $1,025,201 (none of which was received during the
three month period ended December 31, 2003). The Company has recognized
revenues of approximately $6,740,000 from inception of this grant through
December 31, 2003 for services performed under this agreement, including
approximately $1,614,000 and $804,000 during the nine month periods ended
December 31, 2003 and 2002, respectively, and $471,000 and $199,000 during
the three month periods ended December 31, 2003 and 2002, respectively.
The remaining amount (approximately $1,965,000 as of December 31, 2003)
has been deferred and will be recognized as revenue over the remaining
term of the agreement as the services are performed.
On April 22, 2002, the Company entered into a Confidentiality, Testing and
Option Agreement with Neurochem, Inc., ("Neurochem"), a Canadian
corporation, to supply Neurochem with selected dicationic compounds for
the testing, evaluation and potential future licensing of such compounds
for (i) the treatment and diagnosis of amyloidosis and the related
underlying conditions of Alzheimer's Disease, cerebral amyloid angiopathy,
primary amyloidosis, diabetes, rheumatic diseases and (ii) the treatments
of conditions related to secondary amyloidosis. Under the agreement,
Neurochem had the right to license technology related to the tested
compounds upon the conclusion of the Confidentiality, Testing and Option
Agreement, as defined in the agreement. On April 4, 2003, the Company
notified Neurochem that the Confidentiality, Testing and Option Agreement
had previously expired by its terms and that all rights granted to
Neurochem thereunder had concurrently expired, including any right
Neurochem may or may not have had to license such technology.
On November 26, 2003, the Company entered into a testing agreement with
Medicines for Malaria Venture ("MMV"), a foundation established in
Switzerland, and UNC. Pursuant to this agreement the Company, with the
support of MMV and UNC, will conduct a proof of concept study of the
dicationic drug candidate DB289, including Phase II and Phase III human
clinical trials, and will pursue drug development activities of DB289
alone, or in combination with other anti-malaria drugs, with the goal of
obtaining marketing approval of a product for the treatment of malaria.
Under the terms of the agreement, MMV has committed to advance funds to
Immtech to pay for human clinical trials and regulatory preparation and
filing costs for the approvals to market DB289 for treatment of malaria by
at least one internationally accepted regulatory body and one malaria
endemic country. The funding under this agreement is for the performance
of specific research and is not subject to maximum funding amounts. The
term of the funding portion of this agreement is three years and is
subject to annual renewals. The Company has forecasted such costs to be
approximately $8.2 million over the next three years. In return for this
funding from MMV, Immtech is required to sell all malaria drugs derived
from this research at a price not to exceed the cost to manufacture the
drugs plus a reasonable profit (not to exceed 10% of the cost to
manufacture) when selling into a malaria endemic country, as defined.
Sales of malaria drugs to non-malaria endemic countries require that the
Company pay a royalty not to exceed 7% of sales be paid to MMV until the
amount funded under the agreement with UNC and a related discovery
agreement among MMV, UNC and The Swiss Tropical Institute is refunded to
MMV. The MMV, UNC and STI discovery agreement is budgeted at approximately
$3 million.
MMV has agreed to fund the forecasted amount based on progress achieved,
including payment to the Company of approximately $668,000 during the
three month period ended December 31, 2003 related to human clinical
trials. The Company recognized revenues of approximately $184,000 during
the three and nine month periods ended December 31, 2003 for expenses
incurred related to activities within the scope of the agreement with MMV.
At December 31, 2003, the Company has approximately $484,000 recorded as
deferred revenue with respect to this agreement. The discovery agreement
is also subject to progress achievement requirements for continuation.
* * * * * *
- 16 -
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion should be read in conjunction with our
condensed consolidated financial statements and related notes thereto included
in Part I, Item 1 of this quarterly report on Form 10-Q.
Forward-Looking Statements
Certain statements contained in this report and in the documents
incorporated by reference herein, constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. All
statements other than statements of historical fact may be deemed to be
forward-looking statements. Forward-looking statements frequently, but not
always, use the words "intends," "plans," "believes," "anticipates" or "expects"
or similar words and may include statements concerning our strategies, goals and
plans. Forward-looking statements involve a number of significant risks and
uncertainties that could cause our actual results or achievements or other
events to differ materially from those reflected in such forward-looking
statements. Such factors include, among others described in this report and in
our annual report, the following (i) we are in an early stage of product
development, (ii) our technology is in the research and development stage and
therefore its potential benefits for human therapy are unproven, (iii) the
possibility that favorable relationships with collaborators cannot be
established or, if established, will be abandoned by the collaborators before
completion of product development, (iv) the possibility that we or our
collaborators will not successfully develop any marketable products, (v) the
possibility that advances by competitors will cause our product candidates not
to be viable, (vi) uncertainties as to the requirement that a drug product may
not be found to be safe and effective after extensive clinical trials and the
possibility that the results of such trials, if commenced and completed, will
not establish the safety or efficacy of our drug product candidates, (vii) risks
relating to requirements for approvals by governmental agencies, such as the
Food & Drug Administration, before products can be marketed and the possibility
that such approvals will not be obtained in a timely manner or at all or will be
conditioned in a manner that would impair our ability to market our product
candidates successfully, (viii) the risk that our patents could be invalidated
or narrowed in scope by judicial actions or that our technology could infringe
upon the patent or other intellectual property rights of third parties, (ix) the
possibility that we will not be able to raise adequate capital to fund our
operations through the process of developing and testing a successful product or
that future financing will be completed on unfavorable terms, (x) the
possibility that any products successfully developed by us will not achieve
market acceptance and (xi) other risks and uncertainties which may not be
described herein.
General
Our revenues are primarily derived from joint ventures with our
research partners, research and testing agreements, and grants, all related to
the development and commercialization of oral treatments for diseases such as
pneumonia, fungal infections, malaria, tuberculosis and hepatitis, and tropical
diseases such as African sleeping sickness and leishmaniasis. The Company has
worldwide, exclusive rights to commercialize a dicationic
- 17 -
pharmaceutical platform from which a pipeline of products may be developed to
target large, global markets.
Results of Operations
With the exception of certain research agreements and grants, we
have not generated any revenue from operations and do not anticipate generating
any revenue from operations for the foreseeable future. We have funded, and plan
to continue to fund, our operations through research funding agreements and
grants, and the issuance of equity securities and debt. For the period from
inception, October 15, 1984, to December 31, 2003, we incurred cumulative net
losses of approximately $53,848,000. We have incurred additional losses since
December 31, 2003 and expect to incur additional operating losses for the
foreseeable future. We expect that our cash sources for at least the next year
will be generated from:
o Joint ventures with strategic partners,
o Research grants, such as Small Business Technology Transfer
Program ("STTR") grants and Small Business Innovation Research
("SBIR") grants,
o Payments under a research subcontract with the University of
North Carolina at Chapel Hill, a testing agreement with
Medicines For Malaria Venture, a Swiss foundation ("MMV"),
private foundations and other research collaborators under
arrangements that may be entered into in the future, and
o The issuance of equity securities or borrowed funds.
The timing and amounts of grant revenues, if any, will likely
fluctuate sharply and depend upon the continued progress of our research and
development activities, and the results of operations for any period may be
unrelated to the results of operations for any other period.
Three Month Period Ended December 31, 2003 Compared with the Three Month Period
Ended December 31, 2002.
Revenues under collaborative research and development agreements
were approximately $654,000 and $234,000 for the three month periods ended
December 31, 2003 and December 31, 2002, respectively. For the three month
period ended December 31, 2003 there were revenues recognized of approximately
$470,000 relating to a clinical research subcontract agreement between us and
UNC, while for the three month period ended December 31, 2002, there were
revenues recognized of approximately $199,000 relating to the clinical research
subcontract agreement and revenues of $35,000 relating to the Confidentiality,
Testing and Option Agreement between us and Neurochem, Inc. ("Neurochem"). The
clinical research subcontract agreement relates to a grant from the Bill &
Melinda Gates Foundation ("Gates Foundation") to UNC to develop new drugs to
treat Trypanosomiasis (African sleeping sickness) and Leishmaniasis. This
program was initiated in March 2001. For the three month period ended December
31, 2003 there were revenues recognized of approximately $184,000 relating to
- 18 -
the testing agreement with MMV. The MMV testing agreement was effective as of
November 26, 2003. Grant and research and development agreement revenue is
recognized as research is completed under the terms of the respective
agreements. Grant and research and development funds received prior to
completion under the terms of the respective agreements are recorded as deferred
revenues.
Research and development expenses increased to approximately
$814,000 in the three month period ended December 31, 2003 from approximately
$402,000 in the three month period ended December 31, 2002. Expenses relating to
the clinical research subcontract agreement with UNC increased from
approximately $111,000 in the three month period ended December 31, 2002 to
approximately $470,000 for the three month period ended December 31, 2003. The
initiation of the MMV testing agreement in the three month period ended December
31, 2003 accounted for expenses of approximately $182,000. Other pre-clinical
and clinical trial expenses for the three month period ended December 31, 2003
decreased approximately $129,000 from the corresponding three month period in
2002.
General and administrative expenses increased for the three month
period ended December 31, 2003 to approximately $2,580,000 from approximately
$724,000 for the three month period ended December 31, 2002. The increase was
primarily due to non-cash expenses for stock and warrant issuances: (i)
approximately $947,000 was recorded for the vesting of 25,000 shares of a
100,000 share issuance of common stock and the vesting of 87,500 shares of
warrants to purchase 350,000 shares of common stock, each issued to Fulcrum
Holdings of Australia, Inc. relating to the agreements signed March 21, 2003,
and (ii) approximately $247,000 relating to the vesting of warrants to purchase
20,000 shares of common stock resulting from the attainment of certain stock
price milestones on warrants issued to Pilot Capital Group, LLC (f/k/a The
Gabriele Group, LLC), on July 31, 2002. Legal fees increased from approximately
$155,000 during the three month period ended December 31, 2002 to approximately
$502,000 during the three month period ended December 31, 2003. The legal fee
increase was primarily due to expenses of litigation with Neurochem and expenses
related to the acquisition of Super Insight Limited (see description Item 5
herein). Accounting fees and patent fees increased from approximately $32,000
and $48,000, to $87,000 and $184,000, respectively, over the same period. The
increase in patent expenses was primarily due to filing of patents protecting
certain uses of dication compounds and nationalization of patents in the
European Union. In addition, during the three month period ended December 31,
2003, the Company incurred approximately $154,000 in expenses related to Immtech
Hong Kong. The Immtech Hong Kong expenses were primarily transaction costs
related to the Super Insight transaction.
Interest income for the three month period ended December 31, 2003
was approximately $5,900. Interest income for the three month period ended
December 31, 2002 was approximately $3,000. The increase in interest income is
due to an increase in available funds invested. We had no interest expense
during the three month period ended December 31, 2003 and December 31, 2002.
We incurred a net loss of approximately $2,735,000 for the three
month period ended December 31, 2003 as compared with a net loss of
approximately $889,000 for the three month period ended December 31, 2002. The
increase in net loss was due primarily to an
- 19 -
increase in general and administrative expenses which was predominately
attributable to non-cash expenses related to stock and warrant issuances for
services and increased litigation fees.
Nine Month Period Ended December 31, 2003 Compared with the Nine Month Period
ended December 31, 2002.
Revenues under collaborative research and development agreements
were approximately $1,798,000 and $1,024,000 for the nine month period ended
December 31, 2003 and 2002, respectively. For the nine month period ended
December 31, 2003 there were revenues recognized of approximately $1,614,000
relating to the clinical research subcontract agreement between us and UNC, and
approximately $184,000 relating to the testing agreement with MMV, while for the
nine month period ended December 31, 2002, there were revenues recognized of
approximately $804,000 relating to the clinical research subcontract agreement,
grant revenues of approximately $70,000 from SBIR grants from the NIH and
revenues of $150,000 relating to the Confidentiality, Testing and Option
Agreement between us and Neurochem. Research activities covered by the SBIR and
NIH grants were completed in the prior year and there have been no SBIR and NIH
grants during the nine month period ended December 31, 2003.
Research and development expenses increased to approximately
$2,326,000 during the nine month period ended December 31, 2003 from
approximately $1,864,000 in the nine month period ended December 31, 2002.
Expenses relating to the clinical research subcontract agreement with UNC
increased from approximately $711,000 in the nine month period ended December
31, 2002 to approximately $1,601,000 for the nine month period ended December
31, 2003. The initiation of the MMV testing agreement in the nine month period
ended December 31, 2003 accounted for expenses of approximately $182,000.
Expenses relating to pre-clinical and clinical trial costs primarily for
Pneumocystis carinii pneumonia decreased from approximately $444,000 in the nine
month period ended December 31, 2002 to approximately $69,000 in the nine month
period ended December 31, 2003. The decrease in trial costs for Pneumocystis
carinii pneumonia was due primarily to the payment of start up costs to a
contract research organization in South Africa and Peru during the nine month
period ended December 31, 2002 which were not incurred in the same period for
2003. Other research and development costs relating primarily to SBIR's and
contracted obligations to UNC decreased from approximately $492,000 for the nine
month period ended December 31, 2002 to approximately $257,000 for the nine
month period ended December 31, 2003.
General and administrative expenses increased during the nine month
period ended December 31, 2003 to approximately $10,184,000 from approximately
$3,059,000 for the nine month period ended December 31, 2002. The increase in
general and administrative expenses was primarily due to non-cash expenses for
common stock, stock options and warrant issuance in the nine month period ended
December 31, 2003 of approximately $6,754,000 as compared to non-cash stock
issuance in the nine month period ended December 31, 2002 of approximately
$945,000. Non-cash expenses in the nine month period ended December 31, 2003
included (i) approximately $2,744,000 for the issuance of warrants to purchase
600,000 shares of common stock issued to China Harvest International Ltd. as
payment for services to assist in obtaining regulatory approval to conduct
clinical trials in China, (ii) approximately $63,000 for the issuance of 10,000
shares of common stock issued to Mr. David Tat Koon Shu for
- 20 -
consulting services in China, (iii) approximately $1,400,000 for the issuance of
100,000 shares of common stock issued to Fulcrum for assistance with listing the
Company's securities on a recognized stock exchange and for consulting services,
(iv) approximately $2,300,000 for the vested portion of 75,000 shares of common
stock and the vested portion of warrants to purchase 262,500 shares of common
stock issued to Fulcrum during the period based on agreements signed March 21,
2003, and (v) approximately $247,000 for the attainment of certain milestones
with respect to the vesting of warrants to purchase 20,000 shares of common
stock issued to Pilot Capital Group, LLC (f/k/a The Gabriele Group, LLC), based
on agreements signed July 31, 2002. Patent expenses increased from approximately
$163,000 in the nine month period ended December 31, 2002 to approximately
$365,000 during the nine month period ended December 31, 2003. The increase in
patent expenses was primarily due to filing of patents to protect structures and
uses of dication compounds and nationalization of patents in the European Union.
Legal fees increased from approximately $485,000 in the nine month period ended
December 31, 2002 to approximately $1,187,000 during the nine month period ended
December 31, 2003 primarily due to increased litigation fees. Expenses relating
to the start-up of Immtech Therapeutics and continuing expenses for Immtech Hong
Kong were approximately $327,000 for the nine month period ended December 31,
2003.
Interest income for the nine month period ended December 31, 2003
was approximately $11,000. Interest income for the nine month period ended
December 31, 2002 was approximately $13,000. The decrease in interest income is
due to a reduction in average funds invested. We had no interest expense during
the nine month period ended December 31, 2003 and December 31, 2002.
We incurred a net loss of approximately $10,701,000 for the nine
month period ended December 31, 2003 as compared with a net loss of
approximately $3,886,000 for the nine month period ended December 31, 2002. The
increase in net loss was primarily due to an increase in general and
administrative expenses resulting from non-cash expenses related to stock,
option and warrant issuances for services and increased litigation fees.
Liquidity and Capital Resources
As of December 31, 2003, we had approximately $3,186,000 of cash and
cash equivalents, substantially all of which were invested in a money market
mutual fund.
There were equipment expenditures of approximately $6,000 for the
three month period ended December 31, 2003 as compared to equipment expenditures
of approximately $5,000 for the three month period ended December 31, 2002.
During the nine month periods ended December 31, 2003 and December 31, 2002,
equipment purchases were approximately $10,000 and $16,000, respectively.
We paid $400,000 in cash plus our 80% interest in Lenton Fibre
Optics Development, Ltd. for the acquisition of Super Insight Limited completed
on November 28, 2003. Super Insight's primary asset is land use rights in a
portion of an industrial building located in the Futian province of China. We
anticipate capital expenditures in fiscal year 2005 to outfit the building.
- 21 -
We periodically receive cash from the exercise of common stock
options. During the three month period ended December 31, 2003 no options were
exercised and during the nine month period ended December 31, 2003 options to
purchase 9,218 shares of common stock were exercised resulting in the payment of
the aggregate amount of $3,510 to us. During the three month and nine month
period ended December 31, 2003 warrants to purchase 103,350 and 559,350 shares
of common stock, respectively, were exercised resulting in the payment of the
aggregate amount of $650,475 and $4,474,350 to us.
On January 22, 2004, we sold in private placements pursuant to
Regulation D and Regulation S of the Securities Act of 1933, as amended
("Securities Act") (i) 200,000 shares of our Series D Convertible Preferred
Stock, $0.01 par value ("Series D Stock") at a stated value of $25.00 per share
and (ii) warrants to purchase 200,000 shares of our common stock with a $16.00
per share exercise price, for the aggregate consideration of $5,000,000 before
issue cost. Each share of Series D Stock, among other things, (i) earns a 6%
dividend payable, at our discretion, in cash or common stock, (ii) has a $25.00
(plus accrued but unpaid dividends) liquidation preference pari passu with our
other outstanding preferred stock, (iii) is convertible into 2.7778 shares of
common stock and (iv) may be converted to common stock by us any time after
January 1, 2005. The related warrants expire five years from the date of grant.
We believe our existing unrestricted cash and cash equivalents and
the grants we have received or have been awarded and are awaiting disbursement
of, will be sufficient to meet our planned expenditures from the end of the
quarter through at least the next twelve months, although there can be no
assurance we will not require additional funds.
To date, we have financed our operations with:
o proceeds from the above mentioned Series D Stock private
placements which in the aggregate raised net proceeds of
approximately $4,575,000;
o proceeds from various other private placements of debt and
equity securities, an initial public offering, exercises of
stock options and warrants and other cash contributed from
stockholders, which in the aggregate raised approximately
$35,776,000;
o funding from research agreements, foundation grants, SBIR
grants and Small Business Technology Transfer Program grants
and testing agreements of approximately $10,641,000; and
o the use of stock, options and warrants in lieu of cash
compensation.
Our cash resources have been used to finance, develop and begin
commercialization of drug product candidates, including sponsored research,
conduct of human clinical trials, capital expenditures, expenses associated with
development of product candidates pursuant to an agreement, dated January 15,
1997, (the "Consortium Agreement"), among us, UNC, and Pharm-Eco Laboratories,
Inc. (to which each of Duke University, Auburn University and Georgia State
University agreed shortly thereafter to become a party, and all of which,
collectively with UNC, are referred to as the "Consortium") and, as contemplated
by the
- 22 -
Consortium Agreement, under a license agreement dated January 28, 2002
("Consortium License Agreement") with the Consortium, and general and
administrative expenses. Over the next several years we expect to incur
substantial additional research and development costs, including costs related
to research in pre-clinical (laboratory) and human clinical trials,
administrative expenses to support our research and development operations and
marketing expenses to launch the sale of any commercialized product that may be
developed.
Our future working capital requirements will depend upon numerous
factors, including the progress of research, development and commercialization
programs (which may vary as product candidates are added or abandoned),
pre-clinical testing and human clinical trials, achievement of regulatory
milestones, third party collaborators fulfilling their obligations to us, the
timing and cost of seeking regulatory approvals, the level of resources that we
devote to the engagement or development of manufacturing capabilities including
the build-out of our subsidiary's facility in China, our ability to maintain
existing and to establish new collaborative arrangements with others to provide
funding to support these activities, and other factors. In any event, we will
require substantial additional funds in addition to our existing resources to
develop product candidates and to otherwise meet our business objectives.
Management's plans for the remainder of the fiscal year, in addition
to normal operations, include continuing their efforts to create strategic joint
ventures, obtain additional grants, and to develop and enter into research,
development and/or commercialization agreements with others.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk represents the risk of changes in value of a financial
instrument, derivative or non-derivative, caused by fluctuations in interest
rates, foreign exchange rates and equity prices. Our cash and cash equivalents
are maintained primarily in U.S. dollar accounts and amounts payable for
research and development to research organizations are contracted in U.S.
dollars. Accordingly, our exposure to foreign currency risk is limited because
our transactions are primarily based in U.S. dollars. We do not have any other
exposure to market risk. We intend to develop policies and procedures to manage
market risk in the future if and when circumstances require.
Item 4. Controls and Procedures.
Disclosure and Procedures
We maintain controls and procedures designed to ensure that we are
able to collect the information we are required to disclose in our SEC reports,
and to process, summarize and disclose this information within the time periods
specified in the rules of the SEC. Our Chief Executive and Chief Financial
Officers are responsible for establishing and maintaining these procedures and,
as required by the rules of the SEC, evaluate their effectiveness. Based on
their evaluation of our disclosure controls and procedures, which took place as
of the end of the period covered by this quarterly report on Form 10-Q, our
Chief Executive and Chief Financial Officers believe that these procedures are
effective to ensure that we are able to collect, process
- 23 -
and disclose the information we are required to disclose in the reports we file
with the SEC within the required time periods.
Internal Controls
We maintain a system of internal controls designed to provide
reasonable assurance that: transactions are executed in accordance with
management's general or specific authorization; and transactions are recorded as
necessary (i) to permit preparation of financial statements in conformity with
generally accepted accounting principles and (ii) to maintain accountability for
assets. Access to assets is permitted only in accordance with management's
general or specific authorization and the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
There was no change in our internal control over financial reporting
that occurred during the most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Dale M. Geiss v. Criticare Systems, Inc. and Immtech International, Inc.
On January 23, 2004, Geiss filed a motion for voluntary dismissal of
the action. On February 10, 2004, the court granted Geiss' motion without
prejudice.
Immtech International, Inc. v. Neurochem Inc.
On January 5, 2004, Neurochem filed with the court a motion to
compel arbitration and stay the action, and, in the alternative, to dismiss the
action. On January 23, 2004, we amended our complaint by adding: (1) additional
plaintiffs, The University of North Carolina at Chapel Hill and Georgia State
University Research Foundation, (2) an additional defendant, Neurochem
(International) Limited, (3) additional facts, and (4) an additional claim for
fraudulent inducement. On February 10, 2004, Neurochem filed a supplemental
brief and our response is due February 27, 2004. A hearing is scheduled for
April 5, 2004.
Except as noted above and in Part I, Item 3, Legal Proceedings, of
our Form 10-K/A filed on October 15, 2003, in Part II, Item 1 of the Form 10-Q
filed on November 14, 2003 and in Part II, Item 1 of the Form 10-Q filed on
August 14, 2003, we are not aware of any pending litigation.
- 24 -
Item 2. Change in Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
Common Stock.
None.
Series D Stock
On January 22, 2004 we issued (i) 24,600 shares of our Series D
Stock and related warrants to purchase 24,600 shares of our common stock
pursuant to an exemption from registration under Regulation D of the Securities
Act for $615,000 in the aggregate and (ii) 175,400 shares of our Series D Stock
and related warrants to purchase 175,400 shares of our common stock pursuant to
an exemption from registration under Regulation S of the Securities Act for
$4,385,000 in the aggregate. A complete description of the designations,
preferences, voting powers, qualifications, special or relative rights and
privileges of the Series D Stock is contained in our Series D Convertible
Preferred Stock Certificate of Designation and a complete description of the
terms of the warrants are contained in our form of Common Stock Warrant, both
filed as exhibits to our current report on Form 8-K dated January 22, 2004.
Option Exercises.
None.
Conversion of Preferred Stock to Common Stock.
On November 17, 2003 and November 20, 2003, holders of Series A
Convertible Preferred Stock ("Series A Stock") converted 1,000 shares and 16,000
shares of Series A Stock and accrued dividends into 5,660 shares and 90,578
shares of common stock, respectively.
On October 27, 2003, holders of Series B Convertible Preferred Stock
("Series B Stock") converted 800 shares of Series B Stock and accrued dividends
into 5,002 shares of common stock.
On November 20, 2003, December 3, 2003, January 2, 2004 and January
20, 2004, holders of Series C Convertible Preferred Stock ("Series C Stock")
converted 26,880 shares, 1,200 shares, 13,800 shares and 400 shares of Series C
Stock and accrued dividends into 152,213 shares, 6,805 shares, 78,615 shares and
2,280 shares of common stock, respectively.
Preferred Stock Dividend Payment.
On October 15, 2003, we issued 10,033 shares of common stock in the
aggregate as preferred stock dividends to the holders of outstanding shares of
our Series A Stock, Series B Stock and Series C Stock, pro rata, based on the
number of the shares of preferred stock held.
- 25 -
Warrant Exercises.
The table below sets forth dates, shares of common stock purchased,
exercise prices paid and aggregate consideration received by us in connection
with warrant exercises during the quarter and prior to the filing of this
quarterly report on Form 10-Q.
Shares of Common Per Share Aggregate
Date Stock Purchased Exercise Price Consideration
10/14/03 6,250 $6.000 $37,500
10/21/03 20,000 $6.000 $120,000
10/22/03 30,000 $6.125 $183,750
10/29/03 1,250 $6.000 $7,500
11/8/03 15,000 $6.000 $90,000
11/8/03 3,000 $6.125 $18,375
11/12/03 2,600 $16.000 $41,600
11/12/03 2,000 $6.125 $12,250
11/14/03 1,250 $6.000 $7,500
11/17/03 2,000 $6.000 $12,000
1/23/04 20,000 $6.000 $120,000
------------------- ----------------
103,350 $650,475
Use of Proceeds.
Immtech will use the proceeds from the sale of its stock, including
the exercise of options and warrants, for general corporate purposes.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Votes of the Shareholders.
We held our Annual Meeting on January 7, 2004 at the American Stock
Exchange in New York City. The following matters were presented to the
stockholders: (1) election of seven directors to serve until the next annual
meeting of the stockholders, (2) Proposal No. 1 - to approve up to a two-for-one
stock split of our common stock; (3) Proposal No. 2 - to approve amendments to
and a restatement of our certificate of incorporation to (a) increase our
authorized common stock from 30 million to 100 million shares, (b) generally
update the current certificate of incorporation, as amended, to reflect current
Delaware law, (c) incorporate into one document previously filed amendments to
the certificate of incorporation, and (d) file with the Delaware Secretary of
State an amended and restated certificate of incorporation and (4) Proposal 3 -
ratification of our Board of Directors' selection of Deloitte & Touche LLP as
our independent auditors for the fiscal year ending March 31, 2004. The results
of the votes are as follows:
- 26 -
The following individuals were elected Votes Authority
Directors by the Shareholders: For Withheld
------------ -----------
T. Stephen Thompson 7,755,463 17,731
Cecilia Chan 7,754,263 18,931
Harvey M. Colten, M.D. 7,719,963 53,231
Judy Lau 7,754,563 18,631
Levi Lee, M.D. 7,755,763 17,431
Eric L. Sorkin 7,718,463 54,731
Frederick W. Wackerle 6,178,105 1,595,089
Votes Votes
For Against Abstain
----------- --------- ---------
Proposal 1 - Approval of 7,759,911 12,603 680
up to a 2-for-1 stock split (99.83%) (.16%) (.01%)
Proposal 2 - Approval of
amendment to Certificate 7,578,814 191,480 2,900
of Incorporation (97.50%) (2.46%) (.04%)
Proposal 3 - Ratification
of Deloitte & Touche LLP 6,256,851 1,513,302 3,041
as independent auditors (80.49%) (19.47%) (.04%)
Proposals 1 and 2 were approved by our shareholders at our annual
meeting held on January 7, 2004, however, our board of directors has as of the
date of this quarterly report on Form 10-Q not determined the scope of the stock
split, if any, that it will institute. Our board plans to consider the scope of
the stock split, if any, at subsequent board meetings and intend to file our
amended and restated certificate of incorporation concurrently with the
implementation of the stock split, if any.
Item 5. Other Information.
Frankfort Stock Exchange
Our common stock first was listed for trading on the Frankfort Stock
Exchange in March of 2000. Trading in our common stock on the Frankfort Exchange
ceased in November of 2002, we were told, due to insufficent trading volume.
Trading of our shares recommenced on May 16, 2003 through the efforts of a
German marketmaker, Koch & Co.
Philadelphia Stock Exchange
On February 6, 2004, call and put options of our common stock
commenced trading on the Philadelphia Stock Exchange.
- 27 -
Super Insight Limited
On November 28, 2003, we entered into a share purchase agreement and
deed of indemnity related to the purchase of Super Insight Limited (the "Share
Purchase Agreement") and an Allonge to the Share Purchase Agreement related to
the shares in Super Insight Limited ("Super Insight") and Immtech Hong Kong
Limited ("Immtech Hong Kong") (the "Allonge") with Mr. Chan Kon Fung ("Mr.
Chan"), Lenton Fibre Optics Development Limited, Super Insight and Immtech Hong
Kong. Pursuant to the terms of the Share Purchase Agreement and the Allonge, we
purchased (i) from Mr. Chan 100% of the outstanding shares of Super Insight and
its wholly-owned subsidiary, subsequently named Immtech Life Science Limited
("Immtech Life Science") and (ii) from Lenton, 100% of Lenton's interest in
Immtech Hong Kong. As payment for Super Insight and Immtech Hong Kong, we
transferred to Mr. Chan our 80% interest in Lenton and paid him $400,000 in
cash.
Immtech Life Science has through May 2051 land-use rights to a
portion of a newly-constructed building located in the Futian Bonded Zone,
Shenzen, in the People's Republic of China.
Affiliate Transaction
In November 2002, Mr. Chan Kon Fung, the counterparty in the Super
Insight transaction listed above, received 1,200,000 shares of our common stock
in exchange for an 80% interest in Lenton Fibre Optics Development Limited; the
same 80% interest we are transferring to Mr. Chan to obtain the 100% interest in
Super Insight. With 1,200,000 shares of our common stock, Mr. Chan became and
remains, a "10% beneficial owner" of Immtech and therefor our board determined
that the acquisition of Super Insight required increased scrutiny as an
affiliate transaction. Our board reviewed the Super Insight transaction prior
to its completion and determined that the terms of the transaction were no less
favorable to us than we could have obtained in a similar transaction with an
unaffiliated third party and therefor approved the transaction.
Medicines For Malaria Venture
On November 26, 2003, we entered into a Testing Agreement with
Medicines For Malaria Venture, a foundation established in Switzerland ("MMV"),
and The University of North Carolina at Chapel Hill, a public institution of
higher education with administrative offices at Chapel Hill, North Carolina,
United States of America ("UNC"), pursuant to which we, with the support of MMV
and UNC, will conduct a proof of concept study of the dicationic molecule DB289,
including Phase II and Phase III human clinical trials, and will pursue drug
development activities of DB289 alone, or in combination with other
anti-malarial drugs, with the goal of obtaining marketing approval of a product
for the treatment of malaria.
Under the terms of the testing agreement, MMV has committed to
advance funds to us to pay for human clinical trials and regulatory preparation
and filing costs for the approval to market DB289 for treatment of malaria by at
least one internationally accepted regulatory body and one malaria endemic
country. Immtech has forecasted such costs to be approximately $8.2 million over
the next three years. MMV has also budgeted an additional $3 million to fund a
related discovery agreement with UNC and The Swiss Tropical Institute. MMV has
agreed to
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fund the forecasted amounts under the testing and discovery agreements based on
progress achieved which is periodically reviewed with them.
We are obligated to pay to MMV a royalty of up to seven percent of
our net sales of products developed under the testing agreement to non-malaria
endemic countries (defined in the agreement) up to the amount that MMV funds
under the testing agreement plus any amounts that MMV funds to UNC and STI under
the related discovery agreement among MMV, UNC and the STI. Immtech has the
exclusive right to commercialize all products developed under the discovery
agreement among MMV, UNC and STI.
MMV may terminate the testing agreement and its future funding
obligations, subject to payment of certain prior commitments, for any reason at
any time upon ninety days prior written notice if it decides not to proceed with
the program, or immediately for safety concerns.
Section 16
Ms. Vivian Lee, the wife of Dr. Lee, one of our new independent
directors purchased 2,000 shares and sold 1,000 shares of our common stock in a
series of trades on February 5, 2004, resulting in a profit of $235 to Ms. Lee.
Dr. Lee paid $265 to us as a Section 16 fee.
Item 6. Exhibits, and Reports on Form 8-K.
1. Exhibits.
See Exhibit Index, page 30.
2. Reports on Form 8-K.
We filed the following reports on Form 8-K during our third fiscal
quarter and prior to the date of filing of this Quarterly report on Form 10-Q.
On December 2, 2003, we announced on Form 8-K the purchase of Super
Insight Limited pursuant to which we purchased a portion of a newly-constructed
commercial building in exchange for our 80% interest in Lenton Fibre Optics
Development Limited and $400,000 paid by us in cash. Lenton's primary asset is
an undeveloped industrially zoned land parcel. Concurrently with the
consummation of the transaction, Immtech Hong Kong Limited, Lenton's
wholly-owned subsidiary, was transferred to us and is now directly held.
On December 3, 2003, we announced on Form 8-K, the consummation of a
Testing Agreement with Medicines For Malaria Venture and The University of North
Carolina at Chapel Hill pursuant to which we, with the support of MMV and UNC,
will conduct a proof of concept study of the dicationic drug candidate DB289 for
the treatment of malaria.
On January 21, 2004, we announced on Form 8-K the offering of a $5
million private placement of our Series D Convertible Preferred Stock and
related warrants. On January 22, 2004 the offering was completed and closed.
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Exhibit Index
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
Pursuant to the requirements of Sections 13 and 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
IMMTECH INTERNATIONAL, INC.
Date: February 17, 2004 By: /s/ T. Stephen Thompson
-----------------------
T. Stephen Thompson
President and Chief Executive Officer
Date: February 17, 2004 By: /s/ Gary C. Parks
-----------------
Gary C. Parks
Treasurer, Secretary and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
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