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, 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 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
As of August 4, 2003, 8,558,342 shares of the Registrant's common stock, par
value $0.01 per share ("Common Stock"), were outstanding.
Table Of Contents
Page(s)
PART I. FINANCIAL INFORMATION................................................2
Item 1. Condensed Consolidated Financial Statements...........................2
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................15
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........18
Item 4. Controls and Procedures..............................................18
PART II. OTHER INFORMATION.................................................19
Item 1. Legal Proceedings....................................................19
Item 2. Change in Securities and Use of Proceeds.............................20
Item 3. Defaults Upon Senior Securities......................................20
Item 4 Submission of Matters to a Vote of Security Holders..................20
Item 5 Other Information....................................................21
Item 6 Exhibits, and Reports on Form 8-K....................................21
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PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
IMMTECH INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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June 30, March 31,
ASSETS 2003 2003
CURRENT ASSETS:
Cash and cash equivalents $ 2,032,938 $ 112,040
Restricted funds on deposit 3,285,134 2,739,947
Other current assets 285,000 133,525
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Total current assets 5,603,072 2,985,512
PROPERTY AND EQUIPMENT - Net 3,593,091 3,604,656
OTHER ASSETS 12,146 19,848
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TOTAL $ 9,208,309 $ 6,610,016
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 493,684 $ 541,881
Accrued expenses 856 4,821
Deferred revenue 3,094,601 2,554,071
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Total current liabilities 3,589,141 3,100,773
DEFERRED RENTAL OBLIGATION 19,188 20,779
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Total liabilities 3,608,329 3,121,552
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MINORITY INTEREST 296,193 296,193
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 per share, 4,280,000 and 4,440,000 shares
authorized and unissued as of June 30, 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, 105,800 and 142,800 shares
outstanding as of June 30, 2003 and March 31, 2003, respectively; aggregate
liquidation preference of $2,677,893 as of June 30, 2003 2,677,893 3,668,005
Series B convertible preferred stock, par value $0.01 per share,
stated value $25 per share, 240,000 shares authorized, 31,525 and 56,725
shares outstanding as of June 30, 2003 and March 31, 2003, respectively;
aggregate liquidation preference of $801,049 as of June 30, 2003. 801,049 1,469,967
Series C convertible preferred stock, par value $0.01 per share,
stated value $25 per share, 160,000 shares authorized, 125,352 shares
outstanding as of June 30, 2003, aggregate liquidation preference of
$3,144,605 as of June 30, 2003. 3,144,605
Common stock, par value $0.01 per share, 30,000,000 shares
authorized, 8,550,009 and 7,898,986 shares issued and outstanding
as of June 30, 2003 and March 31, 2003, respectively 85,500 78,990
Additional paid-in capital 43,085,369 40,142,617
Deficit accumulated during the developmental stage (44,490,629) (42,167,308)
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Total stockholders' equity 5,303,787 3,192,271
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TOTAL $ 9,208,309 $ 6,610,016
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See notes to condensed consolidated financial statements.
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IMMTECH INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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October 15,
Three Months Ended 1984
June 30, (Inception) to
-------------------------------- June 30,
2003 2002 2003
REVENUES $ 484,672 $ 430,081 $ 9,327,494
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EXPENSES:
Research and development 606,558 751,372 31,678,089
General and administrative 1,007,404 1,452,153 22,079,288
Equity in loss of joint venture 135,002
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Total expenses 1,613,962 2,203,525 53,892,379
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LOSS FROM OPERATIONS (1,129,290) (1,773,444) (44,564,885)
----------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest income 888 8,261 578,466
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
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Other income (expense) - net 888 8,261 289,080
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NET LOSS (1,128,402) (1,765,183) (44,275,805)
CONVERTIBLE PREFERRED STOCK DIVIDENDS (74,642) (59,690) (1,464,446)
REDEEMABLE PREFERRED STOCK CONVERSION, PREMIUM
AMORTIZATION AND DIVIDENDS 2,369,899
CONVERTIBLE PREFERRED STOCK PREMIUM
DEEMED DIVIDENDS (1,120,277) (1,120,277)
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $(2,323,321) $(1,824,873) $(44,490,629)
=========== ============ ============
BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS:
Net loss $ (0.14) $ (0.29)
Convertible preferred stock dividends (0.01) (0.01)
Redeemable preferred stock conversion, premium
amortization and dividends
Convertible preferred stock conversion premium
amortization and dividends (0.14)
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BASIC AND DILUTED LOSS PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (0.29) $ (0.30)
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WEIGHTED AVERAGE SHARES USED IN COMPUTING
BASIC AND DILUTED NET LOSS PER SHARE 8,144,534 6,082,073
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See notes to condensed consolidated financial statements.
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IMMTECH INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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October 15,
Three Months Ended 1984
June 30, (Inception) to
--------------------------- June 30,
2003 2002 2003
OPERATING ACTIVITIES:
Net loss $ (1,128,402) $ (1,765,183) $(44,275,805)
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 394,573 832,760 15,254,548
Depreciation and amortization of property and equipment 11,565 25,596 648,745
Deferred rental obligation (1,591) (1,591) 19,188
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 (545,187) 336,606 (3,285,134)
Other current assets (151,475) 39,881 (285,000)
Other assets 7,702 (12,146)
Accounts payable (48,197) (216,641) 821,219
Accrued expenses (3,965) (3,395) 663,869
Deferred revenue 540,530 (290,407) 3,094,601
------------ ------------ ------------
Net cash used in operating activities (924,447) (1,042,374) (28,511,233)
------------ ------------ -------------
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) (713,790)
Cash paid for acquisition of land use rights (204,924)
Investment in and advances to joint venture (135,002)
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Net cash used in investing activities (1,798) (1,056,658)
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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 2,845,473 8,553,321
Net proceeds from issuance of common stock 16,317,283
Payments of convertible preferred stock dividends for fractional shares
Payments for convertible preferred stock dividends and for fractional shares of
common stock resulting from the conversions of convertible preferred stock (128) (47) (462)
Deferred offering costs (18,677)
Additional capital contributed by stockholders 245,559
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Net cash provided by (used in) financing activities 2,845,345 (18,724) 31,600,829
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,920,898 (1,062,896) 2,032,938
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 112,040 2,037,813 -
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,032,938 $ 974,917 $2,032,938
============ ============ ============
See notes to condensed consolidated financial statements.
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IMMTECH INTERNATIONAL, INC. AND SUBSIDIARY
(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 subsidiary (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. (a development
stage enterprise) and its subsidiary (the "Company") are pharmaceutical
companies focused on the development and commercialization of oral drugs
to treat infectious diseases. The Company has drug development programs
to develop oral treatments for fungal infections, Malaria, Tuberculosis,
Hepatitis C, diabetes, Pneumocystis carinii pneumonia and tropical
medicine diseases including 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 has licensing and exclusive commercialization rights to a
dicationic pharmaceutical platform and is developing oral 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, 2004, if at all.
Since inception, the Company has incurred accumulated losses of
approximately $44,276,000. Management expects the Company to continue to
incur significant losses during the next several years as the Company
continues its research and development activities and clinical trial
efforts. In addition, the Company has various research and development
agreements with third parties and are 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
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to develop its product candidates. The Company's cash requirements may
vary materially from those now planned because of results of research and
development, results of pre-clinical and clinical testing, responses to
grant requests, relationships with strategic partners, changes in the
focus and direction in 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 June of 2004, 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 obtain additional equity and/or debt
financing, obtain additional research grants and entering into research
and development agreements with other entities.
Principles of Consolidation - The consolidated financial statements
include the accounts of Lenton Fibre Optics Development Limited
("Lenton"), a majority-owned subsidiary, located in Hong Kong. All
significant intercompany balances and transactions have been eliminated.
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, 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 June 30, 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.
Land Use Rights - Land use rights represent an agreement by Lenton Fibre
Optics Development Limited ("Lenton") to use land in the People's
Republic of China for a period of 50 years and is being amortized over
that period on a straight-line basis.
Minority Interest - Minority interest represents the carryover basis of
the 20% of Lenton not owned by the Company at the date of acquisition,
plus equity in earnings or minus equity in losses from that date.
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. 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 is 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, 2003 and 2002, as the Company's outstanding common
stock options and warrants and conversion features of Series A, B and C
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, 2003 and 2002,
respectively.
3. STOCKHOLDERS' EQUITY
Series A Convertible Preferred Stock - On February 14, 2002, the Company
filed a Certificate of Desigation 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. As of June 30, 2003 and March 31, 2003, the Company recorded
$32,893 and $98,005, respectively, of accrued preferred stock dividends,
which 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, 2003, the Company issued 23,316 shares of common stock and
paid $96.06 in lieu of fractional common shares as dividends on the
preferred shares. On April 15, 2002, the Company issued 8,249 shares of
common stock and paid $165.92 in lieu of fractional common shares as
dividends on the preferred shares. During the three month periods ended
June 30, 2003 and 2002, certain preferred stockholders converted 37,000
and 6,000 shares of Series A Convertible Preferred Stock, including
accrued dividends, for 211,813 and 34,256 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, 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 a mandatory conversion by the Company is 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 notice of conversions, as defined,
or if the
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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 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. The Series A Convertible
Preferred Stock has a preference in liquidation equal to $25.00 per
share, plus any accrued and unpaid dividends. 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. As of June 30, 2003 and March 31, 2003, the Company recorded
$12,924 and $51,842, respectively, of accrued preferred stock dividends
which are included in the carrying value of the Series B Convertible
Preferred Stock in the accompanying condensed balance sheets. Each share
of Series B 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 $4.00
conversion price (the "Conversion Price B"), subject to certain
antidilution adjustments, as defined in the Certificate of Designation.
On April 15, 2003, the Company issued 11,049 shares of common stock and
paid $16.67 in lieu of fractional common shares as dividends on the
preferred shares. During the three month period ended June 30, 2003,
certain preferred stockholders converted 25,200 shares of Series B
Convertible Preferred stock, including accrued dividends, for 159,845
shares of common stock.
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, provided that the
shares of common stock into which the Series B 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 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. 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. The Series B Convertible
Preferred Stock has a preference in liquidation equal to $25.00 per
share, plus any accrued and unpaid dividends. Each issued and outstanding
share of Series
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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. As of
June 30, 2003, the Company recorded $10,805 of accrued preferred stock
dividends which are included in the carrying value of the Series C
Convertible Preferred Stock in the accompanying balance sheets. Each
share of Series C 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 C"), subject to certain
antidilution adjustments, as defined in the Certificate of Designation.
During the three months 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). These
shares 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 months ending June
30, 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. The Series C Convertible
Preferred Stock has a preference in liquidation equal to $25.00 per
share, plus any accrued and unpaid dividends. 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.
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
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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 three month period ended June 30, 2002, based on the
estimated fair value of the shares 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 three month period ended
September 30, 2002, based on the estimated fair value of the shares
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, 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.
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 common stock and paid
various amounts in cash. Amounts for services under the contracts are
recorded as deferred offering costs within other current assets on the
consolidated balance sheet.
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 100,000
shares of common stock and warrants to purchase 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 months
ended June 30, 2003, 25,000 common shares were issued and a general and
administrative expense of $141,250 was recorded based on the market value
of the common shares on the date of issuance. Also during the three
months ended June 30, 2003, warrants to purchase 87,500 shares of common
stock were issued and a general and administrative expense of $195,879
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 will issue
220,000 shares of common stock and pay a cash fee equal to 4% of funds
raised. The agreement further provides that Wyndam will receive a cash
fee for any additional equity investments by investors introduced by
Wyndham. During the three months ended June 30, 2003, 220,000 common
shares were issued and offering costs of $1,397,000 were recorded based
on the market value of the common shares on the date of issuance.
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
-10-
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. During the three month periods
ended June 30, 2003 and 2002, the Company issued options to purchase 0
and 22,000 shares, respectively, of common stock to certain employees and
directors. During the three month periods ended June 30, 2003 and 2002, 0
and 20,000 options, respectively, expired which were previously granted
under the 2000 Stock Incentive Plan which are available to be reissued.
As of June 30, 2003, there were 618,750 shares available for grant.
During the three months ended June 30, 2003 and 2002, the Company issued
options to purchase 12,000 and 22,000 shares, respectively, of common
stock to nonemployees and recognized expense of approximately $57,444 and
$75,260, 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.
Stock-Based Compensation - The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation,"
but applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its employee stock option plans.
During the three months ended June 30, 2003 and 2002, the Company issued
0 and 22,000 options, respectively, to certain employees and directors.
If the Company had recognized compensation expense for the options
granted during the three months ended June 30, 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 June 30,
----------------------------
2003 2002
Net loss attributable to common shareholders - as reported $ (2,323,321) $ (1,824,873)
Add: stock-based compensation expense included in reported
net loss 0 0
Deduct: total stock-based compensation expense determined
under fair value method for all awards (97,202) (68,115)
------------ ------------
Net loss attributable to common stockholders - pro forma $ 2,420,523 $ (1,892,988)
============ ============
Basic and diluted net loss per share attributable to common
stockholders - as reported $ (0.29) $ (0.30)
============ ============
Basic and diluted net loss per share attributable to common
stockholders - pro forma $ (0.30) $ (0.31)
============ ============
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
-11-
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"), 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 (the "Current
Compounds") and to be licensed to the Company in accordance with the
Consortium Agreement, 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
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 Scientific 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 Scientific Consortium
whereby the Company received the exclusive license to commercialize
dication technology and compounds developed or invented by one or more of
the
-12-
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 months ended June 30, 2003
and 2002, the Company expensed grant payments to UNC of $0 and $100,000,
respectively. Such payments were recorded as research and development
costs.
In August 2001, the Company was awarded an 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." No revenues
or expenses were recognized under this grant during the three months
ended June 30, 2003. 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
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 month periods ended June 30, 2003 and 2002, the Company
expensed approximately $77,000 and $28,000, 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 $77,000 and $193,000 during the three months ended June 30,
2003 and 2002, respectively. Included in accounts payable as of June 30,
2003 and March 31, 2003, were approximately $90,000, 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 Bill & Melinda Gates Foundation ("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 process. The supplemental
increase to the Company due to the amendment is $2,466,475. The proceeds
to the Company are restricted and must be segregated from other funds and
used for specific purposes. Through the year ended March 31, 2003 the
Company had received $7,680,000 and during the three months ended June
30, 2003, the Company had received an additional $1,025,201, of which in
total approximately $485,000 and $290,000 was utilized for clinical and
research purposes conducted and expensed during the three months ended
June 30, 2003 and 2002, respectively. The Company has recognized
aggregate revenues of approximately $5,610,000 through June 30, 2003 for
services performed under this agreement, including approximately $485,000
and $290,000 during the three months ended June 30, 2003 and 2002,
respectively. The remaining amount (approximately $3,095,000 as of June
30, 2003) 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. Under the
agreement, Neurochem had the
-13-
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.
5. SUBSEQUENT EVENTS
On July 16, 2003, the Company entered into an agreement with China
Harvest International Ltd. ("China Harvest") for services to be provided
to assist in obtaining regulatory approval to conduct clinical trails in
China. China Harvest was granted a warrant to purchase 600,000 shares of
common stock exercisable at $6.08, with a five year exercise period.
On July 16, 2003, the Company entered into an agreement with David
Tat-Koon Shu for services to assist in the formation of a subsidiary and
to gain regulatory approvals to enter into clinical trials in China. For
his services, Mr. Shu was granted 10,000 shares of common stock.
On July 17, 2003, the Company entered into a consulting agreement for
services concerning medical, technical, and scientific issues. For this
the consultant was granted 10,000 options to purchase common stock.
* * * * * *
-14-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Forward Looking Statements
Certain statements contained in this quarterly 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 quarterly
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 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 and 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 that may not be described herein. We undertake no
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
Results of Operations
With the exception of certain research funding agreements and certain grants,
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, 2003, the Company incurred cumulative net losses
of approximately $44,276,000. The Company has incurred additional losses since
such date and
-15-
expects to incur additional operating losses for the foreseeable future. The
Company expects that its cash sources for at least the next year will be limited
to:
o Research grants, such as Small Business Technology Transfer Program
("STTR") grants and Small Business Innovation Research ("SBIR")
Grants;
o Payments from the University of North Carolina at Chapel Hill,
charitable foundations and other research collaborators under
arrangements that may be entered into in the future; and
o Borrowing funds or the issuance of securities.
The timing and amounts of grant payment revenues, if any, will likely fluctuate
sharply and depend upon the achievement of specified milestones, and results of
operations for any period may be unrelated to the results of operations for any
other period.
Three Months Ended June 30, 2003 Compared with the Three Months Ended June
30, 2002.
Revenues under collaborative research and development agreements were
approximately $485,000 and $430,000 for the three months ended June 30, 2003 and
June 30, 2002, respectively. For the three months ended June 30, 2003, all
revenues recognized of approximately $485,000 related to a clinical research
subcontract agreement between the Company and The University of North Carolina
at Chapel Hill ("UNC"), while for the three months ended June 30, 2002, there
were revenues recognized of approximately $290,000 relating to the clinical
research subcontract agreement between the Company and UNC and grant revenues of
approximately $65,000 from SBIR grants from the NIH, and $75,000 from the
initial stage of the Confidentiality, Testing and Option Agreement with
Neurochem, Inc., ("Neurochem") 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, 2003 was approximately
$1,000. Interest income for the three months ended June 30, 2002 was
approximately $8,000. 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, 2003 and June 30, 2002.
Research and development expenses decreased to approximately $607,000 from
$751,000 for the three months ended June 30, 2003, and June 30, 2002,
respectively. The three month period ended June 30, 2002 was affected by the
last quarterly payment of $100,000 to UNC under the Consortium Agreement.
-16-
General and administrative expenses decreased to approximately $1,007,000 from
approximately $1,452,000 for the three months ended June 30, 2003, and June 30,
2002, respectively. The decrease was primarily due to non-cash expenses for
stock and warrant issuance in the three months ended June 30, 2003 of
approximately $337,000 as compared to non-cash stock issuance in the three
months ended June 30, 2002 of approximately $757,000.
The net loss decreased to approximately $1,128,000 from approximately $1,765,000
for the three months ended June 30, 2003, and June 30, 2002, respectively.
Liquidity and Capital Resources
For the three months ended June 30, 2003, cash and cash equivalents,
substantially all of which were invested in a money market mutual fund, were
$2,032,938.
There were no equipment expenditures for the three months ended June 30, 2003 as
compared to approximately $2,000 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, 2003, there were no options
exercised for 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 June 2004, 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
$31,601,000;
o payments from research and testing agreements, foundation grants and
SBIR grants and STTR grants of approximately $9,327,000; 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, as well as general and administrative expenses. All
resources have been used 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. Over the next several years we expect to incur substantial
additional research and development costs, including costs related to early-
-17-
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
Item 4. Controls and Procedures.
Disclosure and Procedures
The Company maintains controls and procedures designed to ensure that it is able
to collect the information it is required to disclose in the reports it files
with the SEC, and to process, summarize and disclose this information within the
time periods specified in the rules of the SEC. The Company's 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 the Company's disclosure controls
and procedures, which took place as of the end of the period covered by this
quarterly report on Form 10-Q, the Chief Executive and Chief Financial Officers
believe that these procedures are effective to ensure that the Company is able
to collect, process and disclose the information it is required to disclose in
the reports it files with the SEC within the required time periods.
-18-
Internal Controls
The Company maintains a system of internal controls designed to provide
reasonable assurance that: transactions are executed in accordance with
management's general or specific authorization; 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. Immtech International, Inc. and Criticare Systems, Inc.
On April 28, 2003, the Company filed an Answer to Geiss' Second Amended
Complaint generally denying the allegations contained therein. On June 27, 2003,
Geiss' counsel filed a motion to withdraw from representing Geiss, which the
court subsequently granted. Geiss has obtained new counsel, who recently filed
with the court a notice of appearance.
Immtech International, Inc. v. Neurochem, Inc.
On August 12, 2003, the Company filed a lawsuit in Federal District Court in New
York against Neurochem, Inc. The Company's complaint alleges that Neurochem
misappropriated the Company's intellectual property by filing a series of patent
applications concerning compounds and proprietary information owned by, or
licensed to, Immtech. The misappropriated intellectual property was provided by
the Company to Neurochem pursuant to the Confidentiality, Testing and Option
Agreement, dated April 2002 (the "Testing Agreement"). The Company also claimed
that Neurochem breached the Testing Agreement, committed fraud by failing to
disclose the patent applications, breached its fiduciary duty and has been
unjustly enriched. The complaint seeks injunctive relief, monetary and punitive
damages.
In addition to filing the complaint, on August 12, 2003, the Company filed an
emergency application with the court seeking temporary injunctive relief. The
hearing on the Company's application is scheduled for August 14, 2003.
Except as noted above and in Part I, Item 3, Legal Proceedings, of the Form 10-K
filed on June 27, 2003, the Company is not aware of any pending litigation.
-19-
Item 2. Change in Securities and Use of Proceeds.
Recent Sales of Unregistered Securities.
Common Stock.
Option Exercise.
None.
Conversion of Series A Preferred Stock to Common Stock.
On April 7, 2003, the Company converted 9,000 shares of Series A Convertible
Preferred Stock to 52,857 shares of Common Stock. On May 16, 2003, the Company
converted 28,000 shares of Series A Convertible Preferred Stock into 158,956
shares of Common Stock. On July 16, 2003, the Company converted 3,300 shares of
Series A Convertible Preferred Stock into 18,871 shares of Common Stock. Each
conversion was made at the request of the holders of the respective Series A
Convertible Preferred Stock and included accrued interest through the day prior
to the date of conversion.
Series A Preferred Stock Dividend Payment.
On April 15, 2003, the Company issued 23,316 shares of Common Stock as payment
of a dividend earned on outstanding Series A Preferred Stock to the holders
thereof.
Conversion of Series B Preferred Stock to Common Stock.
On April 7, 2003, the Company converted 9,200 shares of Series B Convertible
Preferred Stock into 59,495 shares of Common Stock. On May 1, 2003, the Company
converted 14,000 shares of Series B Convertible Preferred Stock into 87,789
shares of Common Stock. On May 21, 2003, the Company converted 2,000 shares of
Series B Convertible Preferred Stock into 12,561 shares of Common Stock. Each
conversion was made at the request of the holders of the respective Series B
Convertible Preferred Stock and included accrued interest through the day prior
to the date of conversion.
Series B Preferred Stock Dividend Payment.
On April 15, 2003, the Company issued 11,049 shares of Common Stock as payment
of a dividend earned on outstanding Series B 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.
-20-
Item 5. Other Information.
None.
Item 6. Exhibits, and Reports on Form 8-K.
Exhibits.
See Exhibit Index.
Reports On Form 8-K.
None.
-21-
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.
-22-
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: August 14, 2003 By: /s/ T. Stephen Thompson
--------------------------------------
T. Stephen Thompson
President and Chief Executive Officer
Date: August 14, 2003 By: /s/ Gary C. Parks
--------------------------------------
Gary C. Parks
Treasurer, Secretary and Chief Financial
Officer
(Principal Financial and Accounting
Officer)