Back to GetFilings.com
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 June 30, 2002.
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.
--------------------------------------------------------
(Exact Name of Registrant as specified in its Charter)
Delaware 39-1523370
------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Fairway Drive, Suite 150, Vernon Hills, Illinois 60061
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (847) 573-0033
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
As of August 12, 2002, 6,317,552 shares of the Registrant's common stock, par
value $0.01 per share ("Common Stock"), were outstanding.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION..............................................1
Item 1. Condensed Financial Statements......................................1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................11
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........14
PART II. OTHER INFORMATION................................................15
Item 1. Legal Proceedings..................................................15
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from
Registered Securities.........................................15
Item 3. Defaults Upon Senior Securities....................................16
Item 4. Submission of Matters to a Vote of Security Holders................16
Item 5. Other Information..................................................16
Item 6. Exhibits, and Reports on Form 8-K..................................17
SIGNATURES..................................................................19
-i-
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
JUNE 30, MARCH 31,
ASSETS 2002 2002
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 974,917 $2,037,813
Restricted funds on deposit 265,794 602,400
Other current assets 39,881
---------- ----------
Total current assets 1,240,711 2,680,094
PROPERTY AND EQUIPMENT - Net 152,152 175,950
OTHER ASSETS 19,848 19,848
DEFERRED OFFERING COSTS 18,677
---------- ----------
TOTAL $1,431,388 $2,875,892
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 328,376 $ 545,017
Accrued expenses 862 4,257
Deferred revenue 273,028 563,435
---------- ----------
Total current liabilities 602,266 1,112,709
DEFERRED RENTAL OBLIGATION 25,554 27,145
---------- ----------
Total liabilities 627,820 1,139,854
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01
per share, 4,680,000 shares
authorized and unissued
Series A convertible preferred stock,
par value $0.01 per share, stated
value $25 per share, 320,000 shares
authorized, 154,100 and 160,100 shares
outstanding as of June 30, 2002 and
March 31, 2002, respectively; aggregate
liquidation preference of $3,900,630 as
of June 30, 2002 3,900,630 4,031,900
Common stock, par value $0.01 per share,
30,000,000 shares authorized, 6,259,181
and 6,066,459 shares issued and
outstanding as of June 30, 2002 and
March 31, 2002, respectively 62,591 60,664
Additional paid-in capital 35,701,590 34,679,844
Deficit accumulated during the developmental
stage (38,861,243) (37,036,370)
---------- ------------
Total stockholders' equity 803,568 1,736,038
---------- ----------
TOTAL $1,431,388 $2,875,892
========== ==========
See notes to condensed financial statements
-1-
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
- ------------------------------------------------------------------------------------------
OCTOBER 15,
1984
THREE MONTHS ENDED (INCEPTION) TO
JUNE 30, JUNE 30,
2002 2001 2002
---------- ----------
REVENUES $ 430,081 $1,122,838 $ 7,664,054
---------- ---------- ------------
EXPENSES:
Research and development 751,372 544,294 29,252,533
General and administrative 1,452,153 969,397 18,792,639
Equity in loss of joint venture 135,002
---------- ---------- ------------
Total expenses 2,203,525 1,513,691 48,180,174
---------- ---------- ------------
LOSS FROM OPERATIONS (1,773,444) (390,853) (40,516,120)
---------- ---------- ------------
OTHER INCOME (EXPENSE):
Interest income 8,261 25,518 571,989
Interest expense (1,129,502)
Loss on sales of investment
securities - net (2,942)
Cancelled offering costs (584,707)
---------- ---------- ------------
Other income (expense) - net 8,261 25,518 (1,145,162)
---------- ---------- ------------
LOSS BEFORE EXTRAORDINARY ITEM (1,765,183) (365,335) (41,661,282)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT 1,427,765
---------- ---------- ------------
NET LOSS (1,765,183) (365,335) (40,233,517)
CONVERTIBLE PREFERRED STOCK DIVIDENDS (59,690) (997,625)
REDEEMABLE PREFERRED STOCK CONVERSION, PREMIUM
AMORTIZATION AND DIVIDENDS 2,369,899
---------- ---------- ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $(1,824,873 $ (365,335) $(38,861,243)
========== ========== ============
BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS:
Net loss $ (0.29) $ (0.06)
Convertible preferred stock dividends (0.01)
---------- -----------
BASIC AND DILUTED LOSS PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (0.30) $ (0.06)
========== ===========
WEIGHTED AVERAGE SHARES USED IN COMPUTING
BASIC AND DILUTED NET LOSS PER SHARE 6,082,073 5,998,834
========== ==========
See notes to condensed financial statements.
-2-
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------------------
OCTOBER 15,
THREE MONTHS ENDED 1984
JUNE 30, (INCEPTION) TO
---------- ----------- JUNE 30,
2002 2001 2002
OPERATING ACTIVITIES:
Net loss $(1,765,183) $ (365,335) $(40,233,517)
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 832,760 76,723 14,415,360
Depreciation and amortization of
property and equipment 25,596 22,380 569,356
Deferred rental obligation (1,591) (1,590) 25,554
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
Extraordinary gain on extinguishment
of debt (1,427,765)
Changes in assets and liabilities:
Restricted funds on deposit 336,606 990,408 (265,794)
Other current assets 39,881 24,501
Other assets (19,848)
Accounts payable (216,641) (665,446) 657,516
Accrued expenses (3,395) 5,000 663,875
Deferred revenue (290,407) (864,146) 273,028
---------- ---------- ------------
Net cash used in operating activities (1,042,374) (777,505) (25,069,788)
---------- ---------- ------------
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 (1,798) (61,994) (694,984)
Investment in and advances to joint venture (135,002)
---------- ---------- ------------
Net cash used in investing activities (1,798) (61,994) (832,928)
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 3,848,515
Net proceeds from issuance of common stock 125 18,843 16,317,280
Payments of convertible preferred stock
dividends for fractional shares (166) (166)
Payments for fractional shares of
common stock resulting from the
conversion of convertible preferred
stock (6) (6)
Deferred offering costs (18,677) (18,677)
Additional capital contributed by
stockholders 245,559
---------- ---------- ------------
Net cash (used in) provided by
financing activities (18,724) 18,843 26,877,633
---------- ---------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (1,062,896) (820,656) 974,917
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,037,813 2,097,718 0
---------- ---------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 974,917 $1,277,062 $ 974,917
========== ========== ============
See notes to condensed financial statements.
-3-
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared by
Immtech International, Inc. (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.
2. COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Immtech International, Inc. is a pharmaceutical
company focusing on the discovery, development and commercialization of
drugs to treat infectious diseases that include fungal infections, malaria,
tuberculosis, Hepatitis C, pneumonia, diarrhea, and African sleeping
sickness and cancer. The Company is a development stage enterprise and
since its inception on October 15, 1984, the Company has engaged in
research and development programs, expanding its network of scientists and
scientific advisors, negotiating and consummating technology licensing
agreements, and advancing its technology platform toward commercialization.
The Company uses the expertise and resources of strategic partners and
contracted parties in a number of areas, including: (i) laboratory
research, (ii) pre-clinical and human clinical trials and (iii) the
manufacture of pharmaceutical products. The Company holds worldwide
patents, licenses and rights to license worldwide patents, patent
applications and technologies from third parties that are integral to the
Company's business. The Company has licensing and commercialization rights
to a dicationic anti-infective pharmaceutical platform and is developing
drugs intended for commercial use based on that platform.
The Company does not have any products currently available for sale, and no
products are expected to be commercially available for sale until after
March 31, 2003, if at all.
Going Concern Presentation and Related Risks and Uncertainties - The
accompanying condensed financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
Since inception, the Company has incurred accumulated losses of
approximately $40,234,000. Management expects the Company to continue to
incur significant losses during the next several years as the Company
continues its clinical trial, development and commercialization efforts.
There can be no assurance that the Company's continued
-4-
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 funds to conduct
research and development and laboratory and clinical testing and to
manufacture (or have manufactured) and market (or have marketed) its
product candidates.
The Company's working capital is not sufficient to fund the Company's
operations through the commercialization of one or more products yielding
sufficient revenues to support the Company's operations; therefore, the
Company will need to raise additional funds. 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 October 2002,
although there can be no assurance the Company will not require additional
funds. These factors, among others, indicate that the Company may be unable
to continue as a going concern. The accompanying financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
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 obtain additional equity and/or debt financing,
obtain additional research grants and enter into various research and
development agreements with other entities.
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.
Investment - The Company accounts for its investment in NextEra
Therapeutics, Inc. ("NextEra") on the equity method. As of June 30, 2002
and March 31, 2002, 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 June 30, 2002 and March 31, 2002.
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.
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 on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. In addition,
the 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. A
valuation allowance is used to offset the related net deferred income tax
assets due to uncertainties of realizing the benefits of certain net
operating loss and tax credit carryforwards and other deferred income tax
assets.
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) per share
-5-
and diluted net income (loss) per share are computed by dividing net income
(loss) attributable to common stockholders by the weighted average number
of common shares outstanding. Diluted net income (loss) per share, when
applicable, is computed by dividing net income (loss) attributable to
common stockholders by the weighted average number of common shares
outstanding increased by the number of potential dilutive common shares
based on the treasury stock method. Diluted net loss per share was the same
as the basic net loss per share for the three months ended June 30, 2002
and 2001, as the Company's outstanding common stock options, warrants and
conversion features of Series A Convertible Preferred Stock were
antidilutive.
Comprehensive Loss - There were no differences between comprehensive loss
and net loss for the three month periods ended June 30, 2002 and 2001.
3. STOCKHOLDERS' EQUITY
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 dividends
either in cash or in equivalent shares of common stock, as defined. Accrued
preferred stock dividends are included in the carrying value of the Series
A Convertible Preferred Stock in the accompanying condensed balance sheets.
Each share of Series A Convertible Preferred Stock shall be convertible 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"), subject to certain antidilution
adjustments, as defined in the Certificate of Designation. On April 15,
2002, the Company issued 8,249 shares of common stock and paid $166.00 to
holders of fractional shares as dividends on the preferred shares. During
the three month period ended June 30, 2002, certain preferred stockholders
converted 6,000 shares of Series A Convertible Preferred Stock, including
accrued dividends, for 34,256 shares of common stock. The Company also paid
$6.00 to certain preferred stockholders for fractional shares of common
stock not issued upon conversion.
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, provided that the shares of
common stock into which the Series A 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 A Convertible Preferred Stock upon conversion at the
request of the Company shall be determined by (i) dividing the Liquidation
Price by the Conversion Price 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 such notice of conversion, as defined, or 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. The Conversion Price is subject to certain antidilution adjustments,
as defined in the Certificate of Designation.
The Company may at any time, upon 30 days' 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 such 30 day period. The Series A Convertible
Preferred Stock has a preference in liquidation equal to $25.00 per share,
plus any accrued and unpaid dividends.
-6-
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. 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 when voting as a single class
with the holders of common stock.
Common Stock - On June 28, 2002, the Company entered into a Finder's
Agreement with an individual 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 $758,000 as a general and administrative
expense during the three month period ended June 30, 2002, based on the
estimated fair value of the shares issued.
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 provides for
the issuance of up to 350,000 shares of common stock, in the form of
incentive options and non-qualified stock options. Options granted under
the 2000 Stock Incentive Plan that expire are available to be reissued. The
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. During the three month period ended June
30, 2002, 20,000 options expired which were previously granted under the
2000 Stock Incentive Plan which are available to be reissued. As of June
30, 2002, there were 73,750 shares available for grant including 12,000
shares which are reserved for issuance under certain consulting agreements
with nonemployees.
During the three months ended June 30, 2002 and 2001, the Company issued
options to purchase 22,000 and 12,000 shares, respectively, of common stock
to nonemployees and recognized expense of approximately $75,000 and
$77,000, respectively, related to these options and certain options issued
during prior years which vest over a four year service period. The expense
was determined based on the estimated fair value of the options issued.
4. 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. 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
dictations developed by a consortium of universities consisting of The
University of North Carolina at Chapel Hill ("UNC"), Duke University,
Auburn University and Georgia State University (the "Consortium") pursuant
to an agreement, dated January 15, 1997 (as amended, the "Consortium
Agreement") among the
-7-
Company, Pharm-Eco Laboratories, Inc. ("Pharm-Eco"), and UNC (to which each
of the other members of the 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 Consortium and
previously licensed or optioned to Pharm-Eco (the "Current Compounds") and
to be licensed to the Company in accordance with the Consortium Agreement,
and all technology and compounds developed by the Consortium after January
15, 1997, through use of Company-sponsored research funding or National
Cooperative Drug Development grant funding made available to the 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 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
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 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
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 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 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 negotiation 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 Consortium a royalty based on a
percentage of any royalties the Company 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 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 Consortium with
regard to the Current Compounds. The Consortium Agreement also provides
that the Company is required to pay UNC on behalf the Consortium
reimbursement of all costs to maintain and defend all patents and patent
application relating to any Compounds or products.
In June 1999, the Company entered into a research and manufacturing
agreement with Pharm-Eco for Pharm-Eco to produce good manufacturing
practices quality, as defined, diatonic drugs and products for clinical
testing and for early commercialization. Pharm-Eco was unable to
manufacture
-8-
certain required compounds and the Company subsequently engaged alternate
suppliers who successfully manufactured the compounds.
In August 2000, Pharm-Eco and two of its senior executives filed suit in
Delaware against the Company in connection with a dispute under the
Consortium Agreement. The Company responded by denying the allegations and
filing a counter-claim against Pharm-Eco for breach of contract.
The Company filed a Motion for Summary Judgment, which was granted on
February 21, 2001. In his Memorandum Opinion, the Vice Chancellor hearing
the proceeding dismissed all of the plaintiffs' claims against the Company
and held that Pharm-Eco had breached the Consortium Agreement by failing to
grant or assign to the Company a license for the Current Compounds. On
March 12, 2001, the Vice Chancellor signed a Final Order and Judgment
directing Pharm-Eco to execute and deliver to the Company an agreement
granting or assigning to the Company the license. On March 27, 2001,
Pharm-Eco and the Company entered into an agreement assigning the license.
No further claims against the Company remain in this proceeding, and on May
1, 2001, a Stipulation of Dismissal was filed with the Court.
On April 20, 2001, the Company entered into a settlement agreement with
Pharm-Eco and certain other parties resolving all remaining matters between
them. Pursuant to this agreement, the Company received a cash payment of
$1,000,000; an assignment from Pharm-Eco of various contract rights; and a
termination of all of the Company's obligations to Pharm-Eco, including,
without limitation, (a) the obligation to issue an aggregate of 850,000
warrants for shares of the Company's stock, (b) the obligation to issue
shares of common stock upon the occurrence of a certain future event, (c)
the obligation to pay a percentage of all non-royalty payments that the
Company might receive under any sublicense that the Company might enter
into with respect to certain compounds, and (d) certain accounts payable
which Pharm-Eco claimed to be owed of approximately $159,000; and a release
of any and all claims that Pharm-Eco may have had against the Company. The
cash payment received and the accounts payable obligations which were
forgiven, aggregating approximately $1,159,000, was recorded as a credit to
(reduction of) research and development expense during the three months
ended June 30, 2001; as the Company had previously expensed the estimated
fair value of the shares of common stock issued to Pharm-Eco at the time of
the IPO and the accounts payable obligations, as research and development
expense.
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 months ended June 30, 2002 and
2001, the Company expensed grant payments to UNC of $100,000 and $100,000,
respectively. Such payments were recorded as research and development
costs.
In August 2000, the Company was awarded two Small Business Innovation
Research ("SBIR") grants aggregating approximately $831,000 from the
National Institutes of Health ("NIH") to research various infections.
During the three months ended June 30, 2001, the Company recognized
revenues of approximately $259,000 from these grants and expensed payments
to UNC and certain other Consortium universities of approximately $75,000
for contracted research related to these grants. There is no additional
funding available to the Company under these grants.
In August 2001, the Company was awarded an additional SBIR grant from the
NIH of approximately $144,000 as the third year grant to continue research
on "Novel Procedures for Treatment of Opportunistic Infections." During the
three months ended June 30, 2002, the Company recognized revenues of
approximately $65,000 from this grant and expensed payments of
approximately $65,000 to UNC and certain other Consortium universities for
contracted research related to this grant. There
-9-
is additional funding available to the Company under this grant of
approximately $5,000 as of June 30, 2002.
During the three month periods ended June 30, 2002 and 2001, the Company
expensed approximately $28,000 and $69,000, respectively, of other payments
to UNC and certain other Consortium universities for patent related costs
and other contracted research. Total payments expensed to UNC and certain
other Consortium universities were approximately $193,000 and $244,000
during the three months ended June 30, 2002 and 2001, respectively.
Included in accounts payable as of June 30, 2002 and March 31, 2002, were
approximately $102,000, and $267,000, respectively, due to UNC and certain
other 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. The proceeds from this agreement are
restricted and must be segregated from the Company's other funds and used
for specific purposes. On March 29, 2001, the Company received the first
installment of $4,300,000, of which approximately $290,000 and $864,000 was
utilized for clinical and research purposes conducted and expensed during
the three months ended June 30, 2002 and 2001, respectively. The Company
has recognized aggregate revenues of approximately $4,027,000 through June
30, 2002 for services performed under the agreement, including
approximately $290,000 and $864,000 during the three months ended June 30,
2002 and 2001, respectively. The remaining amount (approximately $273,000
as of June 30, 2002) has been deferred and will be recognized as revenue
over the 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. Neurochem has the right to
license tested compounds upon the conclusion of the Confidentiality,
Testing and Option Agreement, as defined in the agreement. The Company has
recognized revenues of approximately $75,000 through June 30, 2002 for
services performed under the agreement.
5. SUBSEQUENT EVENTS
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. 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, beginning at $10.00 per share for a period of 20 consecutive
days. This agreement may be renewed for additional one year terms at the
sole discretion of the Company.
* * * * * *
-10-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this annual 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 the Company's 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 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 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 FDA, 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
its 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.
RESULTS OF OPERATIONS
Immtech International, Inc. ("Immtech" or the "Company") has not generated
any revenue from operations and does not anticipate generating any revenue from
operations for the foreseeable future. The Company has funded, and plans to
continue to fund, its operations through research funding agreements and grants,
and the sale of debt and equity securities. For the period from inception,
October 15, 1984, to June 30, 2002, the Company incurred cumulative net losses
of approximately $40,234,000. The Company has incurred additional losses since
such date and expects to incur additional operating losses for the foreseeable
future.
-11-
Three Months Ended June 30, 2002 Compared with the Three Months Ended June
30, 2001.
Revenues under collaborative research and development agreements were
approximately $430,000 and $1,123,000 for the three months ended June 30, 2002
and June 30, 2001, respectively. For the three months ended June 30, 2002, there
were revenues recognized of approximately $290,000 relating to a clinical
research subcontract agreement between the Company and The University of North
Carolina at Chapel Hill ("UNC"), grant revenues of approximately $65,000 from
Small Business Innovative Research ("SBIR") grants from the National Institutes
of Health ("NIH"), and $75,000 from the initial stage of the Confidentiality,
Testing and Option Agreement with Neurochem, Inc., ("Neurochem"), while for the
three months ended June 30, 2001, there were revenues recognized of
approximately $864,000 relating to a clinical research subcontract agreement
between the Company and UNC and grant revenues of approximately $259,000 from
SBIR grants from the NIH. The clinical research subcontract agreement initiated
in March 2001 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. Grant and research and
development agreement revenue is recognized as completed under the terms of the
respective agreements, according to Company estimates. Grant and research and
development funds received prior to completion under the terms of the respective
agreements are recorded as deferred revenues.
Interest income for the three months ended June 30, 2002 was approximately
$8,000. Interest income for the three months ended June 30, 2001 was
approximately $26,000. The decrease is due to a reduction in funds invested and
a decrease in interest rates paid on the invested funds from the prior
corresponding quarter. There was no interest expense for the three months ended
June 30, 2002 and June 30, 2001.
Research and development expenses increased to approximately $751,000 from
$544,000 for the three months ended June 30, 2002, and June 30, 2001,
respectively. The three month period ended June 30, 2001 was affected by an
April 20, 2001 settlement agreement with Pharm-Eco, whereby Immtech received
from Pharm-Eco a cash payment of $1,000,000 and certain accounts payable
obligations to Pharm-Eco of approximately $159,000 were forgiven. The cash
payment received and the accounts payable obligation forgiven were recorded as a
credit to (reduction of) research and development expenses because we had
previously expensed to research and development the estimated fair value of the
shares of our Common Stock received by Pharm-Eco at the time of our initial
public offering on April 26, 1999, and the accounts payable obligations. The
Company had significant expenses relating to pre-clinical studies required for
regulatory filings in the three months ended June 30, 2001, which were not
incurred in 2002.
General and administrative expenses increased to approximately $1,452,000
from approximately $969,000 for the three months ended June 30, 2002, and June
30, 2001, respectively. The increase was primarily due to a non-cash expense of
approximately $758,000 resulting from the issuance of 150,000 shares of Common
Stock to Mr. Cheung Ming Tak to act as the Company's non-exclusive agent to
develop and qualify potential strategic partners for the purpose of testing
and/or the commercialization of Company products in China.
-12-
The net loss increased to approximately $1,765,000 from approximately
$365,000 for the three months ended June 30, 2002, and June 30, 2001,
respectively. The three months ended June 30, 2001, was affected by the
previously described April 20, 2001 settlement agreement with Pharm-Eco, whereby
Immtech received from Pharm-Eco a cash payment of $1,000,000 and certain
accounts payable obligations to Pharm-Eco of approximately $159,000 were
forgiven.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended June 30, 2002, cash and cash equivalents,
substantially all of which were invested in a money market mutual fund, were
$975,000.
There were approximately $2,000 of equipment expenditures for the three
months ended June 30, 2002 as compared to approximately $62,000 for the same
period last year. No significant purchases of equipment are anticipated by the
Company during the next three months.
The Company periodically receives cash from the exercise of Common Stock
options. During the three months ended June 30, 2002, there were options
exercised for 217 shares of Common Stock.
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 through October 2002,
although there can be no assurance we will not require additional funds.
To date, we have financed our operations with:
o proceeds from various private placements of debt and equity
securities, an initial public offering and other cash contributed from
stockholders, which in the aggregate raised approximately $26,878,000;
-13-
o payments from research and testing agreements, foundation grants and
SBIR grants and Small Business Technology Transfer Program grants of
approximately $7,664,000; and
o the use of stock, options and warrants in lieu of cash compensation.
Our cash resources have been used to finance research and development,
including sponsored research, capital expenditures, expenses associated with
development of product candidates pursuant to an agreement, dated January 15,
1997, (the "Consortium Agreement"), among the Company, The University of North
Carolina at Chapel Hill ("UNC"), and Pharm-Eco (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 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 early-stage research in
pre-clinical (laboratory) and clinical (human) trials, administrative expenses
to support our research and development operations and capital expenditures for
expanded research capacity, various equipment needs and facility improvements.
Our future working capital requirements will depend upon numerous factors,
including the progress of research and development programs (which may vary as
product candidates are added or abandoned), pre-clinical testing and clinical
trials, achievement of regulatory milestones, the Company's corporate partners
fulfilling their obligations to the Company, the timing and cost of seeking
regulatory approvals, the level of resources that the Company devotes to the
engagement or development of manufacturing capabilities, the ability of the
Company to maintain existing and to establish new collaborative arrangements
with other companies to provide funding to the Company to support these
activities, and other factors. In any event, we will require substantial funds
in addition to our existing working capital to develop product candidates and
otherwise to meet our business objectives.
Our ability to continue as a going concern is dependent upon our ability to
generate sufficient funds to meet obligations as they become due and,
ultimately, to obtain profitable operations. Management's plans for the
remainder of the fiscal year, in addition to normal operations, include
continuing their efforts to obtain additional financing and research grants, and
to enter into various research and development agreements with other entities.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company's 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, the Company's
exposure to foreign currency risk is limited because its transactions are
primarily based in U.S. dollars. The Company does not have any other exposure to
market risk. The Company will develop policies and procedures to manage market
risk in the future as circumstances may require.
-14-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Except as noted in Part I, Item 3, Legal Proceedings, of the Form 10-K
filed on July 15, 2002, the Company is not aware of any pending litigation.
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from
Registered Securities.
Common Stock.
On June 28, 2002, the Company entered into an agreement (the "Tak Finder's
Agreement") with Mr. Cheung Ming Tak for services to be provided on a
non-exclusive basis to identify, qualify and develop potential strategic
partners to assist the Company with the testing and commercialization of drug
product candidates and to develop the pharmaceutical market in China. The
Company issued 150,000 shares of the Company's Common Stock to Mr. Tak as
compensation for his services. The Company has agreed to use commercially
reasonable efforts to register those shares. The securities were issued in
reliance on an exemption from registration under Regulation S of the Securities
Act of 1933, as amended ("Securities Act"). The Tak Finder's Agreement is
attached hereto as Exhibit 10.1.
On July 31, 2002, the Company entered into an agreement (the "Gabriele
Finder's Agreement") with the Gabriele Group, L.L.C. (the "Gabriele Group"),
whereby the Gabriele Group agreed to act as the Company's non-exclusive agent to
develop and qualify potential business partners and "accredited investors"
(within the meaning of Rule 501 of Regulation D, promulgated under the
Securities Act to invest in potential future debt or equity offerings of the
Company. As compensation for its services, the Company issued to the Gabriele
Group 40,000 shares of its Common Stock and warrants to purchase 30,000 shares
of Common Stock for the 12 month period that commenced on July 31, 2002. The
aforementioned 30,000 warrants expire five years from the date of grant, have an
exercise price of $6.00 per share and shall vest only as follows: (A) 10,000
shares (i) if the market price of the Company's Common Stock meets or exceeds
$10 for a period of 20 consecutive trading days or (ii) if the valuation of the
Company Common Stock in a merger or acquisition meets or exceeds $10 per share;
(B) 10,000 shares (i) if the market price of the Company's Common Stock meets or
exceeds $15 for a period of 20 consecutive trading days or (ii) if the valuation
of the Company's Common Stock in a merger or acquisition meets or exceeds $15
per share; and (C) 10,000 shares (i) if the market price of the Company's Common
Stock meets or exceeds $20 for a period of 20 consecutive trading days or (ii)
if the valuation of the Company's Common Stock in a merger or acquisition meets
or exceeds $20 per share.
The Company may, in its sole discretion, renew the Gabriele Finder's
Agreement for one or more successive one-year terms. For each one-year renewal,
the Company will pay to the Gabriele Group an additional 40,000 shares of Common
Stock and warrants to purchase 30,000 shares of Common Stock as compensation for
such period. Those warrants shall be exercisable for a period of five years from
the date of grant, have an exercise price of $6.00 per share and shall vest only
as follows: (A) 10,000 shares of each subsequent renewal term (i) if the
-15-
market price of the Company's Common Stock meets or exceeds $25 for a period of
20 consecutive trading days or (ii) if the valuation of the Company's Common
Stock in a merger or acquisition meets or exceeds $25 per share; (B) 10,000
shares of each subsequent renewal term (i) if the market price of the Company's
Common Stock meets or exceeds $30 for a period of 20 consecutive trading days or
(ii) if the valuation of the Company's Common Stock in a merger or acquisition
meets or exceeds $30 per share; and (C) 10,000 shares of each subsequent renewal
term (i) if the market price of the Company's Common Stock meets or exceeds $35
for a period of 20 consecutive trading days or (ii) if the valuation of the
Company's Common Stock in a merger or acquisition meets or exceeds $35 per
share.
These securities were issued in reliance upon an exemption from
registration under Regulation D of the Securities Act. The Gabriele Finder's
Agreement is attached hereto as Exhibit 10.2.
Option Exercise.
James Dohnal exercised options for 217 shares of Common Stock on April 12,
2002, for an aggregate purchase price of $125.00.
Conversion of Series A Preferred Stock to Common Stock.
On June 13, 2002, the Company converted 2,000 shares of Series A
Convertible Preferred Stock to 11,420 shares of Common Stock, on June 25, 2002,
the Company converted 1,200 shares of Series A Convertible Preferred Stock to
6,850 shares of Common Stock and on June 26, 2002, the Company converted 2,800
shares of Series A Convertible Preferred Stock to 15,986 shares of Common Stock,
all at the request of the holders of the respective Series A Convertible
Preferred Stock.
Series A Preferred Stock Dividend Payment.
On April 15, 2002, the Company issued 8,249 shares of Common Stock as
payment of a dividend earned on outstanding Series A Preferred Stock to the
holders thereof.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
-16-
Item 6. Exhibits, and Reports on Form 8-K.
(a) Exhibits.
See Exhibit Index.
(b) Reports On Form 8-K.
None.
-17-
Exhibit Index
10.1 Finder's Agreement, dated June 28, 2002, by and between the Company and Mr.
Cheung Ming Tak.
10.2 Finder's Agreement, dated July 31, 2002, by and between the Company and the
Gabriele Group, L.L.C.
99.1 Certification of Chief Executive Officer and Chief Financial Officer.
-18-
SIGNATURES
Pursuant to the requirements of Section 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: August 14, 2002 By: /s/ T. Stephen Thompson
-----------------------
T. Stephen Thompson
President and Chief Executive
Officer
Date: August 14, 2002 By: /s/ Gary C. Parks
-----------------
Gary C. Parks
Treasurer, Secretary and
Chief Financial Officer
(Principal Financial and
Accounting Officer)