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 September 30, 2004.
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
--------------------------------- -----------------------------
(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 [X] No [ ]
As of November 8, 2004, 10,922,118 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...............................................1
Item 1. Condensed Consolidated Financial Statements.........................1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................17
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........22
Item 4. Controls and Procedures............................................22
PART II. OTHER INFORMATION..................................................23
Item 1. Legal Proceedings..................................................23
Item 2. Change in Securities and Use of Proceeds...........................24
Item 3. Defaults Upon Senior Securities....................................25
Item 4. Submission of Matters to a Vote of Security Holders................25
Item 5. Other Information..................................................25
Item 6. Exhibits, and Reports on Form 8-K..................................25
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
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IMMTECH INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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September 30, March 31,
ASSETS 2004 2004
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CURRENT ASSETS:
Cash and cash equivalents $ 11,514,686 $ 6,745,283
Restricted funds on deposit 1,139,027 2,154,928
Other current assets 239,555 59,979
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Total current assets 12,893,268 8,960,190
PROPERTY AND EQUIPMENT - Net 3,608,423 3,610,214
OTHER ASSETS 15,477 15,477
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TOTAL $ 16,517,168 $ 12,585,881
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,119,427 $ 970,308
Accrued expenses 78,574 22,382
Deferred revenue 343,600 1,831,093
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Total current liabilities 1,541,601 2,823,783
DEFERRED RENTAL OBLIGATION 11,229 14,413
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Total liabilities 1,552,830 2,838,196
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STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 per share, 4,080,000 shares authorized and
unissued as of September 30, 2004 and March 31, 2004
Series A convertible preferred stock, par value $0.01 per share, stated value
$25 per share, 320,000 shares authorized, 72,400 and 80,800 shares
outstanding as of September 30, 2004 and March 31, 2004, respectively;
aggregate liquidation preference of $1,859,748 as of September 30, 2004 1,859,748 2,075,250
Series B convertible preferred stock, par value $0.01 per share, stated value
$25 per share, 240,000 shares authorized, 19,925 shares outstanding as of
September 30, 2004 and March 31, 2004; aggregate liquidation preference of
$516,202 as of September 30, 2004 516,202 516,093
Series C convertible preferred stock, par value $0.01 per share, stated value
$25 per share, 160,000 shares authorized, 64,452 and 72,304 shares
outstanding as of September 30, 2004 and March 31, 2004, respectively;
aggregate liquidation preference of $1,671,011 as of September 30, 2004 1,671,011 1,874,186
Series D convertible preferred stock, par value $0.01 per share, stated value
$25 per share, 200,000 shares authorized, 200,000 shares outstanding as of
September 30, 2004 and March 31, 2004; aggregate liquidation preference of
$5,138,755 as of September 30, 2004 5,138,755 5,056,712
Common stock, par value $0.01 per share, 100,000,000 shares authorized,
10,877,037 and 9,835,286 shares issued and outstanding
as of September 30, 2004 and March 31, 2004, respectively 108,748 98,353
Additional paid-in capital 69,073,102 58,666,489
Deficit accumulated during the development stage (63,403,228) (58,539,398)
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Total stockholders' equity 14,964,338 9,747,685
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TOTAL $ 16,517,168 $ 12,585,881
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See notes to condensed consolidated financial statements.
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IMMTECH INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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October 15,
1984
Three Months Ended Six Months Ended (Inception) to
September 30, September 30, September 30,
---------------------------- ---------------------------- ------------
2004 2003 2004 2003 2004
------------ ------------ ------------ ------------ ------------
REVENUES: $ 1,704,634 $ 658,684 $ 2,562,246 $ 1,143,356 $ 13,821,248
------------ ------------ ------------ ------------ ------------
EXPENSES
Research and development 2,187,210 904,620 3,273,426 1,511,178 37,637,694
General and administrative 2,463,412 6,596,256 3,892,166 7,603,660 36,953,720
Equity in loss of joint venture -- -- -- -- 135,002
------------ ------------ ------------ ------------ ------------
Total expenses 4,650,622 7,500,876 7,165,592 9,114,838 74,726,416
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (2,945,988) (6,842,192) (4,603,346) (7,791,482) (60,905,168)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 27,046 4,451 36,112 5,339 634,104
Interest expense -- -- -- -- (1,129,502)
Loss on sales of investment securities -
net -- -- -- -- (2,942)
Cancelled offering costs -- -- -- -- (584,707)
Gain on extinguishment of debt -- -- -- -- 1,427,765
------------ ------------ ------------ ------------ ------------
Other income (expense) - net 27,046 4,451 36,112 5,339 344,718
NET LOSS (2,918,942) (6,837,741) (4,567,234) (7,966,143) (60,560,450)
CONVERTIBLE PREFERRED STOCK DIVIDENDS AND
CONVERTIBLE PREFERRED STOCK PREMIUM
DEEMED DIVIDENDS (147,754) (92,872) (296,596) (1,287,791) (5,212,677)
REDEEMABLE PREFERRED STOCK CONVERSION,
PREMIUM AMORTIZATION AND DIVIDENDS -- -- -- -- 2,369,899
------------ ------------ ------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (3,066,696) $ (6,930,613) $ (4,863,830) $ (9,253,934) $(63,403,228)
============ ============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER SHARE
ATTRIBUTABLE TO COMMON STOCKHOLDERS
Net loss $ (0.28) $ (0.79) $ (0.45) $ (0.95)
Convertible preferred stock dividends and
convertible preferred stock premium
deemed dividends (0.01) (0.01) (0.03) (0.15)
------------ ------------ ------------ ------------
BASIC AND DILUTED LOSS PER SHARE
ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (0.29) $ (0.80) $ (0.48) $ (1.10)
WEIGHTED AVERAGE SHARES USED IN COMPUTING
BASIC AND DILUTED NET LOSS PER SHARE 10,560,065 8,701,680 10,222,910 8,443,568
============ ============ ============ ============
See notes to condensed consolidated financial statements.
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IMMTECH INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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October 15,
1984
Three Months Ended Six Months Ended (Inception)
September 30, September 30, September 30,
--------------------------- --------------------------- ------------
2004 2003 2004 2003 2004
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OPERATING ACTIVITIES:
Net loss $ (2,918,942) $ (6,837,741) $ (4,567,234) $ (7,966,143) $(60,560,450)
Adjustments to reconcile net loss to net
cash used in operating activities:
Compensation recorded related to issuance
of common stock, common stock options
and warrants 1,051,428 5,301,001 1,345,579 5,695,574 23,706,906
Depreciation and amortization of property
and equipment 31,740 38,543 62,050 50,108 814,491
Deferred rental obligation (1,592) (1,592) (3,184) (3,183) 11,229
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 32,932 686,294 1,015,901 141,107 (1,139,027)
Other current assets 85,342 270,581 (179,576) 119,106 (239,555)
Other assets -- -- -- 7,702 (15,477)
Accounts payable 659,900 263,572 149,119 215,375 1,446,962
Accrued expenses (30,525) 3,153 56,192 (812) 741,587
Deferred revenue (629,882) (658,684) (1,487,493) (118,154) 343,600
------------ ------------ ------------ ------------ ------------
Net cash used in operating activities (1,719,599) (934,873) (3,608,646) (1,859,320) (36,045,052)
------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of property and equipment (52,702) (4,207) (60,259) (4,207) (1,395,985)
Advances to joint venture (135,002)
Proceeds from maturities of investment
securities 1,800,527
Purchases of investment securities (1,803,469)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (52,702) (4,207) (60,259) (4,207) (1,533,929)
------------ ------------ ------------ ------------ ------------
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 13,124,364
Payments of convertible preferred stock
dividends and for fractional shares of
common stock resulting from the
conversions of convertible preferred stock (23) (80) (1,360) (208) (3,093)
Net proceeds from the issuance of common
stock 8,393,688 3,827,235 8,439,668 3,827,235 29,241,709
Deferred offering costs (160,000) (160,000)
Additional capital contributed by
stockholders 245,559
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities 8,393,665 3,667,155 8,438,308 6,512,500 49,093,667
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 6,621,364 2,728,075 4,769,403 4,648,973 11,514,686
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 4,893,322 2,032,938 6,745,283 112,040
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,514,686 $ 4,761,013 $ 11,514,686 $ 4,761,013 $ 11,514,686
============ ============ ============ ============ ============
See notes to condensed consolidated financial statements.
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IMMTECH INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by Immtech International, Inc. and its subsidiaries (the
"Company, we or us") 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.
The Company suggests that these financial statements be read in
conjunction with the financial statements and notes thereto included in
the Company's latest Annual Report on Form 10-K/A filed with the SEC on
July 20, 2004.
2. COMPANY BUSINESS AND SELECTED ACCOUNTING POLICIES
Description of Business - Immtech International, Inc. (a development stage
enterprise) and its subsidiaries are pharmaceutical companies advancing
the development and commercialization of oral drugs to treat infectious
diseases, and neoplastic (cancer) and metabolic (diabetes) disorders. The
Company has development programs that include treatments for fungal
infections, malaria, tuberculosis, diabetes, Pneumocystis carinii
pneumonia ("PCP") and tropical diseases, including African sleeping
sickness (trypanosomiasis) and leishmaniasis. The Company holds worldwide
patents and patent applications, and licenses and rights to license
technology, primarily from a scientific consortium that has granted to the
Company exclusive rights to commercialize products from, and license
rights to, the technology. The scientific consortium includes scientists
from The University of North Carolina at Chapel Hill ("UNC"), Georgia
State University ("Georgia State"), Duke University ("Duke University")
and Auburn University ("Auburn University") (collectively, the "Scientific
Consortium"). The Company is a development stage enterprise and, since its
inception on October 15, 1984, has engaged in research and development
programs, expanded its network of scientists and scientific advisors and
licensing technology agreements, and advanced the commercialization of the
dication technology platform (the Company acquired rights to the dication
platform in 1997). 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 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, 2005, if at all.
Since inception, the Company has incurred accumulated net losses of
approximately $60,560,000. Company management expects that the Company
will continue to incur significant losses during the next several years as
the Company continues research and development activities and clinical
trial efforts. In addition, the Company has various research and
development agreements with third parties and is dependent upon such
parties' abilities to perform under these agreements. There can be no
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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. Negative cash flow from
operations is expected to continue in the foreseeable future. The Company
will require substantial additional funds to commercialize its product
candidates. The Company's cash requirements may vary materially from those
now planned because of the 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 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 currently intends to raise.
Management believes the Company's existing unrestricted cash and cash
equivalents, and the grants received or awarded and awaiting disbursement
of, will be sufficient to meet the Company's planned expenditures through
at least the next twelve months, although there can be no assurance the
Company will not require additional funds. Management may seek to satisfy
future funding requirements through public or private offerings of
securities, by collaborative or other arrangements with pharmaceutical or
biotechnology companies or from other sources.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient funds to meet its obligations as they
become due and, ultimately, to obtain profitable operations. Management's
plans for the forthcoming year, in addition to normal operations, include
continuing financing efforts, obtaining additional research grants and
entering into research and development agreements with other entities.
Principles of Consolidation - The consolidated financial statements
include the accounts of Immtech International, Inc. and its wholly-owned
subsidiaries. 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 (i) a
clinical research subcontract agreement with The University of North
Carolina at Chapel Hill and/or (ii) a malaria drug development agreement
with the Medicines for Malaria Venture ("MMV").
Concentration of Credit Risk - The Company maintains its cash in
commercial banks. Balances on deposit are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to specific limits. Balances in excess
of FDIC limits are uninsured.
Investment - The Company accounts for its investment in NextEra
Therapeutics, Inc. ("NextEra") on the equity method. As of September 30,
2004 and March 31, 2004, 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 September 30, 2004 and March 31,
2004. Recognition of any investment income on the equity method for the
Company's investment in NextEra will occur only after NextEra has earnings
in excess of previously unrecognized equity losses.
-5-
Property and Equipment - Property and equipment are recorded at cost and
depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the respective assets ranging from
three to fifty years.
Long-Lived Assets - The Company periodically evaluates the carrying value
of its property and equipment. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of an asset, a
loss is recognized for the asset and is measured by the difference between
the fair value and the carrying value of the asset.
Deferred Rental Obligation - Rental obligations with scheduled rent
increases are recognized on a straight-line basis over the lease term.
Revenue Recognition - Grants to perform research are the Company's primary
source of revenue and are generally granted to support research and
development activities for specific projects or drug candidates. Revenue
related to grants to perform research and development is recognized as
earned based on the performance requirements of the specific grant.
Upfront cash payments from research and development grants are reported as
deferred revenue until such time as the research and development
activities covered by the grants are performed.
Research and Development Costs - Research and development costs are
expensed as incurred and include costs associated with research performed
pursuant to collaborative agreements. Research and development costs
consist of direct and indirect internal costs related to specific projects
as well as fees paid to other entities that conduct certain research
activities on the Company's behalf.
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, 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 realized 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 ("SFAS") No.
128, "Earnings Per Share". Basic net income (loss) and diluted (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 per share, when applicable, is computed by dividing net
income attributable to common stockholders by the weighted average number
of common shares outstanding increased by the number of potential dilutive
common shares based on the treasury stock method. Diluted net loss per
share was the same as basic net loss per share for the three and six month
periods ended September 30, 2004 and September 30, 2003, as the Company's
outstanding common stock options and warrants and conversion features of
Series A, B, C, and D Convertible Preferred Stock were anti-dilutive.
Comprehensive Loss - There were no differences between comprehensive loss
and net loss for the three and six month periods ended September 30, 2004
and 2003, respectively.
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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 the
dividend either in cash or in equivalent shares of common stock, as
defined. Included in the carrying value of the Series A Convertible
Preferred Stock in the accompanying condensed consolidated balance sheets
is $49,748 and $55,250 of accrued preferred stock dividends at September
30, 2004 and March 31, 2004, respectively. Each share of Series A
Convertible Preferred Stock may be converted by the holder at any time
into shares of common stock at a conversion rate determined by dividing
the $25.00 stated value, plus any accrued and unpaid dividends (the
"Liquidation Price"), by a $4.42 conversion price (the "Conversion Price
A"), subject to certain anti-dilution adjustments, as defined in the
Series A Certificate of Designation. On April 15, 2004, the Company issued
2,961 shares of common stock and paid $352 in lieu of fractional common
shares as dividends on the preferred shares. On April 15, 2003, the
Company issued 23,316 shares of common stock and paid $96 in lieu of
fractional common shares as dividends on the preferred shares. During the
three month periods ended September 30, 2004 and 2003, certain preferred
stockholders converted 8,000 and 8,000 shares of Series A Convertible
Preferred Stock, including accrued dividends, for 45,678 and 45,616 shares
of common stock, respectively. During the six month period ended September
30, 2004 and 2003, certain preferred stockholders converted 8,400 and
45,000 shares of Series A Convertible Preferred Stock, including accrued
dividends for 47,942 and 257,429 shares of common stock, respectively.
The Company may 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 (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 A. The Conversion Price is
subject to certain anti-dilution adjustments, as defined in the Series A
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 Company's
stockholders 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,
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$0.01 par value, with a stated value of $25.00 per share. Dividends accrue
at a rate of 8.0% per annum on the $25.00 stated value per share and are
payable semi-annually on April 15 and October 15 of each year while the
shares are outstanding. The Company has the option to pay the dividend
either in cash or in equivalent shares of common stock, as defined.
Included in the carrying value of the Series B Convertible Preferred Stock
in the accompanying condensed consolidated balance sheets is $18,077 and
$17,968 of accrued preferred stock dividends as of September 30, 2004 and
March 31, 2004, respectively. Each share of Series B Convertible Preferred
Stock may be converted by the holder at any time into shares of 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
anti-dilution adjustments, as defined in the Series B Certificate of
Designation. On April 15, 2004, the Company issued 974 shares of common
stock and paid $107 in lieu of fractional common shares as dividends on
the preferred shares. During the three month period ended September 30,
2003, certain preferred stockholders converted 10,800 shares of Series B
Convertible Preferred stock, including accrued dividends, for 68,004
shares of common stock. During the six month period ended September 30,
2003, certain preferred stockholders converted 36,000 shares of Series B
Convertible Preferred Stock, including accrued dividends, for 227,849
shares of common stock. There were no conversions of Series B Convertible
Preferred Stock during the three month and six month period ended
September 30, 2004.
The Company may 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 anti-dilution adjustments, as defined in the
Series B Certificate of Designation.
The Company may at any time, upon 30 days 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 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 Company's stockholders for their action or consideration.
Except as provided by law or by the provisions establishing any other
series of preferred stock, Series B Convertible Preferred stockholders and
holders of any other outstanding preferred stock shall vote together with
the holders of common stock as a single class.
Series C Convertible Preferred Stock - On June 6, 2003, the Company filed
a Certificate of Designation with the Secretary of State of the State of
Delaware designating 160,000 shares of the Company's 5,000,000 authorized
shares of preferred stock as Series C Convertible Preferred Stock, $0.01
par value, with a stated value of $25.00 per share. Dividends accrue at a
rate of 8.0% per annum on the $25.00 stated value per share and are
payable semi-annually on April 15 and October 15 of each year while the
shares are outstanding. The Company has the option to pay the dividend
either in cash or in equivalent shares of common stock, as defined.
Included in the carrying value of the Series C Convertible Preferred Stock
in the accompanying condensed consolidated balance sheets is $59,711 and
$66,586 of accrued preferred stock dividends as of September 30, 2004 and
March 31, 2004, respectively. Each
-8-
share of Series C Convertible Preferred Stock may be converted by the
holder at any time into shares of 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 Series C Certificate of Designation. On April 15, 2004,
the Company issued 3,534 shares of common stock and paid $397 in lieu of
fractional common shares as dividends on the preferred shares. During the
three month period ended September 30, 2004, certain preferred
stockholders converted 2,800 shares of Series C Convertible Preferred
Stock, including accrued dividends, for 16,036 shares of common stock.
During the six month period ended September 30, 2004 certain preferred
stockholders converted 7,852 shares of Series C Convertible Preferred
Stock, including accrued dividends for 44,611 shares of common stock.
There were no conversions of the Series C Convertible Preferred Stock
during the three month period or six month period ended September 30,
2003.
During the six month period ended September 30, 2003, the Company issued
125,352 shares of Series C Convertible Preferred Stock for net proceeds of
$2,845,000 (net of approximately $288,000 of cash offering costs). The
preferred shares issued have an embedded beneficial conversion feature
based on the difference between the closing price of the Company's common
stock on the day of issuance and the conversion price of the Series C
Convertible Preferred Stock. The beneficial conversion was equal to
approximately $1,120,000 and was accounted for as a deemed dividend during
the six month period ended September 30, 2003.
The Company may at any time require that any or all outstanding shares of
Series C Convertible Preferred Stock be converted into shares of 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 Series C
Certificate of Designation.
The Company may at any time, upon 30 days notice, redeem any or all
outstanding shares of the Series C Convertible Preferred Stock by payment
of the Liquidation Price to the holder of such shares, provided that the
holder does not convert the Series C Convertible Preferred Stock into
shares of common stock during the 30 day period. Each issued and
outstanding share of Series C Convertible Preferred Stock shall be
entitled to 5.6561 votes (subject to adjustment for dilution) with respect
to any and all matters presented to the Company's stockholders for their
action or consideration. Except as provided by law or by the provisions
establishing any other series of preferred stock, Series C Convertible
Preferred stockholders and holders of any other outstanding preferred
stock shall vote together with the holders of common stock as a single
class.
Series D Convertible Preferred Stock - On January 15, 2004, the Company
filed a Certificate of Designation with the Secretary of State of the
State of Delaware designating 200,000 shares of the Company's 5,000,000
authorized shares of preferred stock as Series D Convertible Preferred
Stock, $0.01 par value, with a stated value of $25.00 per share. Dividends
accrue at a rate of 6.0% per annum on the $25.00 stated value per share
and are payable semi-annually on April 15 and October 15 of each year
while the shares are outstanding. The Company has the option to pay the
dividend either in cash or in equivalent shares of common stock, as
defined. Included in the carrying value of the Series D Convertible
Preferred Stock in the accompanying consolidated balance sheets is
$138,755 and $56,712
-9-
of accrued preferred stock dividends as of September 30, 2004 and March
31, 2004, respectively. Each share of Series D Convertible Preferred Stock
may be converted by the holder at any time into shares of common stock at
a conversion rate determined by dividing the $25.00 stated value, plus any
accrued and unpaid dividends (the "Liquidation Price"), by a $9.00
conversion price (the "Conversion Price D"), subject to certain
anti-dilution adjustments, as defined in the Series D Certificate of
Designation.
The Company may at any time after January 1, 2005, require that any or all
outstanding shares of Series D Convertible Preferred Stock be converted
into shares of common stock, provided that the shares of common stock into
which the Series D Convertible Preferred Stock are convertible are
registered pursuant to an effective registration statement, as defined.
The number of shares of common stock to be received by the holders of the
Series D Convertible Preferred Stock upon a mandatory conversion by us is
determined by (i) dividing the Liquidation Price by the Conversion Price D
provided that the closing bid price for our common stock exceeds $18.00
for 20 consecutive trading days within 180 days prior to notice of
conversion, as defined, or (ii) if the requirements of (i) are not met,
the number of shares of common stock is determined by dividing 110% of the
Liquidation Price by the Conversion Price D. The Conversion Price D is
subject to certain anti-dilution adjustments, as defined in the Series D
Certificate of Designation. On April 15, 2004, the Company issued 3,340
shares of common stock and paid $447 in lieu of fractional common shares
as dividends on the preferred shares. There were no conversions of the
Series D Convertible Preferred Stock during the three month period or six
month period ended September 30, 2004.
Each issued and outstanding share of Series D Convertible Preferred Stock
shall be entitled to 2.7778 votes (subject to adjustment for dilution)
with respect to any and all matters presented to the Company's
stockholders for their action or consideration. Except as provided by law
or by the provisions establishing any other series of preferred stock,
Series D Convertible Preferred stockholders and holders of any other
outstanding preferred stock shall vote together with the holders of common
stock as a single class.
Common Stock - 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 issued to Fulcrum 100,000
shares of common stock and warrants to purchase an additional 350,000
shares of common stock at prices ranging from $6.00 to $15.00 per share.
The common shares and warrants were issued, and the related general and
administrative expenses were recognized, on a pro-rata basis over the
contract period. During the three month period ended September 30, 2003,
25,000 common shares were issued and a general and administrative expense
of $331,669 was recorded based on the market value of the common stock on
the date of issuance. During the six month period ended September 30,
2003, 50,000 common shares were issued and a general and administrative
expense of $472,919 based on the market value of the common shares on the
date of issuance was taken. Also during the three month period ended
September 30, 2003, warrants to purchase 87,500 shares of common stock
were issued and a general and administrative expense of $684,601 was
recorded based on the value of the warrants using the Black-Scholes option
valuation model.
During the six month period ended September 30, 2003, warrants to purchase
175,000 shares of common stock were issued and a general and
administrative expense of $880,480 was recorded based on the value of the
warrants using the Black-Scholes option valuation model.
On July 25, 2003, the Company entered into a consulting agreement with
Fulcrum to identify and negotiate with stock exchanges to list the
Company's common stock and to assist the Company to prepare applications
to list the Company's common stock on a stock exchange. As consideration
for
-10-
services under this agreement, upon the listing of the Company's common
stock on a stock exchange, the Company would issue to Fulcrum 100,000
shares of common stock. On August 11, 2003, the Company's common stock was
listed on the American Stock Exchange. Accordingly, the Company issued
100,000 shares of common stock to Fulcrum, resulting in general and
administrative expenses of $1,400,000, based on the market value of common
stock on the date of issuance.
On March 21, 2003, the Company entered into a Finder's Agreement with
Wyndham Associates Limited ("Wyndham") to identify potential strategic
partners and assist in the raising of equity financing. As consideration
for services to be performed under the agreement, the Company was
obligated to issue 220,000 shares of common stock and pay a cash fee equal
to 4% of funds raised. The agreement further provided that Wyndham would
receive a cash fee for any additional equity investments by investors
introduced by Wyndham. During the six month period ended September 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 stock on the date of
issuance. There were no common shares issued or expenses incurred with
respect to this agreement during the three month period ended September
30, 2003.
In September 2003, the Company entered into a second Finder's Agreement
with Wyndham to identify potential strategic partners and assist the
Company in private placements of debt or equity securities with proceeds
to the Company of not less $20 million through December 2003. The Company
advanced to Wyndham a refundable retainer fee of $160,000 against a cash
fee for Wyndham's services equal to 8.0% of funds received by the Company
from investors introduced by Wyndham. The private placements contemplated
in the September 2003 were not completed by December 2003 or at all. The
Company requested but Wyndham did not return the retainer fee. The Company
has written off the retainer fee as uncollectible.
On July 16, 2003, the Company entered into an agreement with China Harvest
International Ltd. ("China Harvest") for services to be provided to assist
the Company in obtaining regulatory approval to conduct clinical trials in
China. As consideration for these services, the Company granted China
Harvest warrants to purchase 600,000 shares of common stock from the
Company at $6.08. These warrants are fully vested and have an exercise
period of five years. During the three month and six month periods ended
September 30, 2003, approximately $2,744,000 was recorded as general and
administrative expenses, based on the estimated value of the warrants
using the Black-Scholes option valuation model.
On July 16, 2003, the Company entered into a consulting agreement with
David Tat-Koon Shu for services to assist the Company with the formation
of a subsidiary and to gain regulatory approvals to enter into clinical
trials in China. As compensation for these services, Mr. Shu was granted
10,000 shares of the Company's common stock and a general and
administrative expense of $62,900 was recorded based on the market value
of the common stock on the date of issuance.
On July 30, 2004 the Company closed a secondary public offering of its
common stock. In the offering the Company issued 899,999 shares of common
stock resulting in net proceeds to the Company of approximately
$8,334,000. The shares were sold to the public at $10.25 per share.
Jeffries & Company, Inc. acted as the sole book-running manager and
underwriter of this offering.
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
-11-
Plan to increase the number of shares of common stock reserved for
issuance from 350,000 shares to 1,100,000 shares. Options granted under
the 2000 Stock Incentive Plan that expire are available to be reissued.
Incentive stock options must be granted at a price at least equal to fair
market value at the date of grant.
The Company has granted common stock options to individuals who have
contributed to the Company in various capacities. The options contain
various provisions regarding vesting periods and expiration dates. The
options generally vest over periods ranging from 0 to 4 years and
generally expire after five or ten years. During the three month period
ended September 30, 2004, the Company issued options to purchase 157,000
shares of common stock to employees and directors. During the three month
period ended September 30, 2003, the Company did not issue any shares of
common stock to employees and directors. During the three month periods
ended September 30, 2004 and 2003, no options expired which were
previously granted under the 2000 Stock Incentive Plan. During the six
month periods ended September 30, 2004 and 2003, no options expired which
were previously granted under the 2000 Stock Incentive Plan and are
available to be reissued. As of September 30, 2004, there were 163,250
shares available for grant.
During the three month periods ended September 30, 2004 and 2003, the
Company issued options to purchase zero and 10,000 shares, respectively,
of common stock to nonemployees and recognized expense of approximately
$19,000 and $78,000, respectively, related to these options and certain
options issued during prior years which vest over a four year period. The
10,000 options issued during the three month period ended September 30,
2003 were granted as consideration for consulting services with respect to
medical, technical and scientific issues, resulting in a research and
development expense of $45,738. During the six month periods ended
September 30, 2004 and 2003, the Company issued options to purchase 20,000
and 22,000 shares of common stock, respectively, to nonemployees and
recognized research and development expenses of $303,000 and $135,000,
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 using
the Black-Scholes option valuation model.
During the three month period ended September 30, 2004, there were no
options exercised. During the three month period ended September 30, 2003,
options to purchase 7,550 shares, and options to purchase 5,000 shares
with an exercise price of $11.50 per share were exercised on a cashless
basis. Based on the fair market value calculated as of the date of
exercise, the option holder received 1,668 shares of common stock. During
the six month periods ended September 30, 2004 and 2003, there were
options exercised to purchase 18,000 and 9,218 shares of common stock,
respectively.
Warrants - On July 20, 2004, the Company's board of directors approved a
four-year exercise extension to warrants to purchase 225,000 shares of the
Company's common stock which were originally issued to RADE Management
Corporation ("RADE") on July 24, 1998. The expiration dates for these
warrants, which have an exercise price of $6.47 per share, were extended
from July 24, 2004 to July 24, 2008. The Company has recorded a non-cash
charge during the three month period ended September 30, 2004 of
$1,032,000, determined using the Black-Scholes option pricing model.
In connection with the secondary public offering completed on July 30,
2004, the underwriter (Jeffries & Company, Inc.) was granted a warrant to
purchase 80,100 shares of common stock at an exercise price
-12-
of $12.81 per shares. The warrant is exercisable for five years from the
date of grant and has standard anti-dilution protection for
recapitalizations.
During the three month periods ended September 30, 2004 and 2003, warrants
to purchase 10,000 and 456,000 shares of common stock were exercised,
resulting in proceeds to the Company of $60,000 and $3,824,000,
respectively. During the six month periods ended September 30, 2004 and
2003, warrants to purchase 20,390 and 456,000 shares of common stock were
exercised, resulting in proceeds to the Company of $106,000 and
$3,824,000, respectively.
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 month and six month periods ended September 30, 2004
Company issued 157,000 options to employees and directors. During the
three month and six month periods ended September 30, 2003 there were no
options issued to employees or directors. If the Company had recognized
compensation expense for the historical options granted during the three
and six month periods ended September 30, 2004 and 2003, 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 Six Months Ended
September 30, September 30,
----------------------------- -----------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net loss attributable to common shareholders -
as reported $ (3,066,696) $ 6,930,613 $(4,863,830) $(9,252,934)
Add: stock-based compensation expense to
employees and directors included in reported
net loss -- -- -- --
Deduct: total stock-based compensation expense
determined under fair value method for awards
to employees and directors (870,793) (96,749) (1,573,743) (193,951)
----------- ----------- ----------- -----------
Net loss attributable to common stockholders -
pro forma $(3,937,489) (7,027,362) $(6,437,573) $(9,447,885)
=========== ========== =========== ===========
Basic and diluted net loss per share attributable
to common stockholders - as reported $ (0.29) $ (0.80) $ (0.48) $ (1.10)
=========== ========== =========== ===========
Basic and diluted net loss per share attributable
to common stockholders - pro forma $ (0.37) $ (0.81) $ (0.63) $ (1.12)
=========== ========== =========== ===========
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
dications developed by a consortium of universities consisting of The
University of North Carolina at Chapel Hill ("UNC"), Georgia State
University, Duke University and Auburn University (the "Scientific
Consortium") pursuant to an agreement, dated January 15, 1997 (as amended,
the "Consortium Agreement") among the Company, Pharm-Eco Laboratories,
Inc. ("Pharm-Eco"), and UNC (to which each of the other
-13-
members of the Scientific Consortium agreed shortly thereafter to become a
party). The Consortium Agreement commits the parties to collectively
research, develop, finance the research and development of, manufacture
and market both the technology and compounds owned by the Scientific
Consortium and previously licensed or optioned to Pharm-Eco and licensed
to the Company in accordance with the Consortium Agreement (the "Current
Compounds") and 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, Pharm-Eco
and the Company, with respect to the Current Compounds, and UNC, (on
behalf of the Scientific Consortium), and the Company, 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 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.
In July 2004, the Company was awarded an SBIR grant from the NIH of
$107,000 as a grant to research on "Aromatic Dication Prodrugs for CNS
Trypanosomiasis." During the three month period ended September 30, 2004,
the Company recognized no revenues from this grant and expensed payments
of approximately $63,000. Approximately $33,000 of this went to UNC and
certain other Scientific Consortium universities for contracted research
related to this grant.
-14-
During the three month and six month periods ended September 30, 2004, the
Company expensed approximately $206,000 and $304,000, respectively, of
other payments to UNC and certain other Scientific Consortium universities
for patent related costs and other contracted research. During the three
month and six month periods ended September 30, 2003, the Company expensed
approximately $150,000 and $227,000, 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 $240,000 and $337,000 during the three month and six month
periods ended September 30, 2004, respectively. Total payments expensed to
UNC and certain other Scientific Consortium universities were
approximately $150,000 and $227,000 during the three month and six month
periods ended September 30, 2003, respectively. Included in accounts
payable as of September 30, 2004 and March 31, 2004, were approximately
$34,000 and $132,000 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 processes. The supplemental
increase to the Company due to this amendment is $2,466,475, bringing the
total available funding to the Company under this agreement to
$12,266,475. The proceeds to the Company are restricted and must be
segregated from other funds and used for specific purposes. Through the
year ended March 31, 2004 the Company received approximately $8,705,000
and during the three and six month periods ended September 30, 2004, the
Company received no additional funds. Approximately $1,566,000 and
$1,143,000 of these proceeds were utilized for clinical and research
purposes conducted and expensed during the six month periods ended
September 30, 2004 and 2003, respectively. Approximately $920,000 and
$659,000 of these proceeds were utilized for clinical and research
purposes conducted and expensed during the three month periods ended
September 30, 2004 and 2003, respectively. The Company has recognized
revenues of approximately $8,705,000 from inception through September 30,
2004 for services performed under this agreement, including approximately
$1,465,000 and $1,143,000 during the six month periods ended September 30,
2004 and 2003, respectively, and $819,000 and $659,000 during the three
month periods ended September 30, 2004 and 2003, respectively. At
September 30, 2004, the Company had $0 restricted funds on deposit.
On November 26, 2003, the Company entered into a testing agreement with
the Medicines for Malaria Venture ("MMV"), a foundation established in
Switzerland, and UNC. Pursuant to this agreement the Company, with the
support of MMV and UNC, is to conduct a proof of concept study of the
dicationic drug candidate DB289, including Phase II and Phase III human
clinical trials, and will pursue drug development activities of DB289
alone, or in combination with other anti-malaria drugs, with the goal of
obtaining marketing approval of a product for the treatment of malaria
(the "MMV Agreement").
Under the terms of the MMV Agreement, MMV has committed to advance funds
to Immtech to pay for human clinical trials and regulatory preparation and
filing costs for the approvals to market DB289 for treatment of malaria by
at least one internationally accepted regulatory body and one malaria
endemic country. The funding under this agreement is for the performance
of specific research and is not subject to maximum funding amounts. The
term of the funding portion of the MMV Agreement is three years and is
subject to annual renewals. The Company has forecasted such costs to be
approximately $8.2
-15-
million over the three years. In return for this funding from MMV, the
Company is required to sell all malaria drugs derived from this research
into "malaria endemic countries," as defined, at an affordable price. As
used in the agreement, an affordable price shall not be less than the cost
to manufacture and deliver the drugs plus administrative overhead costs
(not to exceed 10% of the cost to manufacture) and a modest profit. The
agreement does not subject the Company to price constraints on product
sales into non-malaria endemic countries. The Company must, however, pay
to MMV a royalty not to exceed 7% of net sales as defined, on product
sales into non-malaria endemic countries until the amount funded under the
agreement and amounts funded under a related discovery agreement between
MMV and UNC is refunded to MMV.
MMV has agreed to fund the forecasted amount based on progress achieved.
Through the period ended September 30, 2004, the Company received
approximately $1,743,000 and during the three and six month periods ended
September 30, 2004, the Company received approximately $1,075,000. The
Company recognized revenues of approximately $886,000 and $1,097,000
during the three month and six month periods ended September 30, 2004 for
expenses incurred related to activities within the scope of the agreement
with MMV. At September 30, 2004, the Company has approximately $344,000
recorded as deferred revenue with respect to this agreement.
On April 22, 2002, the Company entered into a Confidentiality, Testing and
Option Agreement with Neurochem, Inc., ("Neurochem"), a Canadian
corporation, to supply Neurochem with selected dicationic compounds for
the testing, evaluation and potential future licensing of such compounds
for (i) the treatment and diagnosis of amyloidosis and the related
underlying conditions of Alzheimer's Disease, cerebral amyloid angiopathy,
primary amyloidosis, diabetes, rheumatic diseases and (ii) the treatments
of conditions related to secondary amyloidosis. Under the agreement,
Neurochem had the right to license technology related to the tested
compounds upon the conclusion of the Confidentiality, Testing and Option
Agreement, as defined in the agreement. On April 4, 2003, the Company
notified Neurochem that the Confidentiality, Testing and Option Agreement
had previously expired by its terms and that all rights granted to
Neurochem thereunder had concurrently expired, including any right
Neurochem may or may not have had to license such technology.
5. SUBSEQUENT EVENTS
Pursuant to the approval of the Company's board of directors, on October
12, 2004, the Company extended the exercise date of warrants to purchase
750,000 shares of the Company's common stock which were originally issued
to RADE Management Corporation ("RADE") on October 12, 1998. The
expiration dates for these warrants, which have an exercise price of $6.47
per share, were extended from October 12, 2004 to October 12, 2008. As a
result of these extensions, the Company expects to record a non-cash
charge during the quarter ending December 31, 2004 of approximately
$3,498,000, determined using the Black-Scholes option pricing model.
On October 27, 2004, the Company received notice of additional funding of
$1,280,724 from MMV.
* * * * * *
-16-
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 "may", "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)
the possibility that favorable relationships with collaborators cannot be
established or, if established, will be abandoned by the collaborators before
completion of product development, (iii) the possibility that we or our
collaborators will not successfully develop any marketable products, (iv) the
possibility that advances by competitors will cause our product candidates not
to be viable, (v) 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 completed, will not establish
the safety or efficacy of our drug product candidates, (vi) 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, (vii) 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, (viii) the
possibility that we will not be able to raise adequate capital to fund our
operations through the process of commercializing a successful product or that
future financing will be completed on unfavorable terms, (ix) the possibility
that any products successfully developed by us will not achieve market
acceptance and (x) other risks and uncertainties not 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, we
have not generated any revenue from operations. For the period from inception
(October 15, 1984) to September 30, 2004, we incurred cumulative net losses of
approximately $60,560,000. We have incurred additional losses since such date
and we expect to incur additional operating losses for the foreseeable future.
We expect that our cash sources for at least the next year will be limited to:
-17-
o payments pursuant to research funding agreements and certain grants
from The University of North Carolina at Chapel Hill and the
Medicines for Malaria Venture ("MMV"), and other foundations and
research collaborators under arrangements that may be entered into
in the future;
o research grants, such as Small Business Technology Transfer Program
("STTR") grants and Small Business Innovation Research ("SBIR")
grants;
o collaborative or other arrangements with pharmaceutical or
biotechnology companies; and
o borrowed funds or the process of issuing securities.
The timing and amounts of grant and payment revenues, if any, will likely
fluctuate sharply and depend upon the achievement of specified milestones, and
our results of operations for any period may be unrelated to the results of
operations for any other period.
Three Month Period Ended September 30, 2004 Compared with the Three
Month Period Ended September 30, 2003.
Revenues under collaborative research and development agreements were
approximately $1,705,000 and $659,000 for the three month periods ended
September 30, 2004 and September 30, 2003, respectively. For the three month
period ended September 30, 2004, revenues recognized of approximately $819,000
related to a clinical research subcontract agreement between the Company and The
University of North Carolina at Chapel Hill ("UNC") and $886,000 related to a
grant from MMV to fund clinical studies and manufacturing of DB289 for treatment
of malaria, while for the three month period ended September 30, 2003, all
revenues related to the clinical research subcontract agreement between us and
UNC. The UNC 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 earned when the reasearch and development is complete 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 month periods ended September 30, 2004 and
September 30, 2003 was approximately $27,000 and $4,000, respectively. The
increase in interest income was due to an increase in funds invested. There was
no interest expense for the three month periods ended September 30, 2004 and
September 30, 2003.
Research and development expenses increased to approximately $2,187,000 from
approximately $905,000 for the three month periods ended September 30, 2004, and
September 30, 2003, respectively. The increase in research and development
expenses was primarily due to the acceleration of human trials in malaria
pursuant to the MMV program which had not commenced as of the three month period
ended September 30, 2003. MMV related research and development expenses were
approximately $883,000 in the three month period ended September 30, 2004.
Additionally, research and development expenses related to trypanosomiasis
funded by
-18-
UNC under the Gates Foundation grant increased approximately $272,000 to
approximately $920,000 in the three month period ended September 30, 2004 from
approximately $648,000 in the three month period ended September 30, 2003.
General and administrative expenses decreased to approximately $2,463,000 from
approximately $6,596,000 for the three month periods ended September 30, 2004,
and September 30, 2003, respectively. The decrease was primarily due to a
reduction in non-cash expenses including non-cash expenses related to warrant
extensions of approximately $1,032,000 in the three month period ended September
30, 2004 as compared to non-cash expenses of stock issuances of approximately
$5,223,000 in the three month period ended September 30, 2003.
During the three month period ended September 30, 2004, the Company recorded
non-cash charges of approximately $1,032,000 relating to the extension of the
exercise date to July 24, 2008 of the warrants issued to RADE Management
Corporation ("RADE") to purchase 225,000 shares of the Company's common stock.
During the three month period ended September 30, 2003, non-cash charges of (i)
approximately $2,744,000 were recorded for the issuance of warrants to purchase
600,000 shares of common stock issued to China Harvest International Ltd. as
payment for services to assist in obtaining regulatory approval to conduct
clinical trials in China, (ii) approximately $61,000 were recorded for the
issuance of 10,000 shares of common stock issued to an individual for consulting
services in China, (iii) approximately $1,400,000 were recorded for the issuance
of 100,000 common stock to Fulcrum Holdings of Australia, Inc. ("Fulcrum") for
assistance with listing our securities on a recognized stock exchange and for
consulting services, and (iv) approximately $1,016,000 were recorded for the
vested portion of 25,000 shares of common stock and the vested portion of
warrants to purchase 87,500 shares of common stock issued to Fulcrum during the
period based on agreements effective as of March 21, 2003.
Legal fees decreased from approximately $521,000 during the three month period
ended September 30, 2003 to approximately $211,000 during the three month period
ended September 30, 2004. Insurance, investor relations (less non-cash charges),
and payroll expenses, which included three new hires during the quarter,
increased from approximately $281,000 to approximately $639,000 during the three
month periods ended September 30, 2003 and September 30, 2004, respectively.
Our net loss decreased to approximately $2,919,000 from approximately $6,838,000
during the three month periods ended September 30, 2004, and September 30, 2003,
respectively. The decrease was primarily attributable to the offset of increases
in research and development costs by the greater decrease in general and
administrative expenses noted above.
Six Month Period Ended September 30, 2004 Compared with the Six Month
Period Ended September 30, 2003.
Revenues under collaborative research and development agreements were
approximately $2,562,000 and $1,143,000 for the six month period ended September
30, 2004 and September 30, 2003, respectively. For the six month period ended
September 30, 2004, revenues recognized of approximately $1,465,000 related to a
clinical research subcontract agreement
-19-
between us and UNC and $1,097,000 related to a grant from MMV, while for the six
month period ended September 30, 2003, all revenues related to the clinical
research subcontract agreement between us and UNC. 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 six month periods ended September 30, 2004 and September
30, 2003 was approximately $36,000 and $5,000, respectively. The increase in
interest income was due to an increase in funds invested. There was no interest
expense for the six month period ended September 30, 2004 and September 30,
2003.
Research and development expenses increased to approximately $3,273,000 from
approximately $1,511,000 in the six month periods ended September 30, 2004, and
September 30, 2003, respectively. The increase in research and development
expenses is directly related to the MMV program pursuant to which we expensed
$1,093,000 in research and development costs during the six month period ended
September 30, 2004. The MMV agreement commenced after the six month period ended
September 30, 2003, therefore there were no similar expenses attributable to
that period. Research and development costs funded by UNC under the Gates
Foundation grant increased from approximately $1,131,000 in the six month period
ended September 30, 2003 to approximately $1,563,000 in the six month period
ended September 30, 2004.
General and administrative expenses decreased for the six month period ended
September 30, 2004 to approximately $3,892,000 from approximately $7,604,000 for
the six month period ended September 30, 2003. The decrease in general and
administrative expenses was primarily due to a reduction in non-cash expenses
including expenses for stock and warrant issuances in the six month period ended
September 30, 2004 of approximately $1,276,000 as compared to non-cash expenses
for stock issuance in the six month period ended September 30, 2003 of
approximately $5,561,000. Non-cash expenses in the six month period ended
September 30, 2004 included (i) approximately $1,032,000 for the extension of
the RADE warrants on July 20, 2004, (ii) approximately $233,000 for the issuance
of options to purchase 20,000 shares of common stock issued to an individual to
assist in developing relationships with Tsinghua University in China and (iii)
approximately $10,000 relating to the cashless exercise of warrants issued to
underwriters in connection with the Company's initial public offering as
compared to non-cash expenses in the six month period ended September 30, 2003
(i) approximately $2,744,000 for the issuance of warrants to purchase 600,000
shares of common stock issued to China Harvest International Ltd. as payment for
services, (ii) approximately $61,000 for the issuance of 10,000 shares of common
stock issued to an individual for consulting services in China, (iii)
approximately $1,400,000 for the issuance of 100,000 shares of common stock
issued to Fulcrum for assistance with listing our securities on a recognized
stock exchange and for consulting services, and (iv) approximately $1,353,000
for the vested portion of 50,000 shares of common stock and the vested portion
of warrants to purchase 175,000 shares of common stock issued to Fulcrum during
the period based on agreements signed March 21, 2003. Insurance, investor
relations, travel, payroll and recruiting charges increased from approximately
$699,000 during the six month period ended September 30, 2003 to approximately
$1,228,000 during the six month period ended September 30, 3004.
-20-
Our net loss decreased to approximately $4,567,000 during the six month period
ended September 30, 2004, as compared to a net loss of $7,966,000 during the six
month period ended September 30, 2003. The decrease in net loss was primarily
due to a decrease in general and administrative expenses resulting from a
reduction in non-cash expenses related to stock, option and warrant issuances.
Liquidity and Capital Resources
- -------------------------------
During the three and six month periods ended September 30, 2004, cash and cash
equivalents were primarily invested in a money market fund. Unrestricted cash
and cash equivalents were approximately $11,515,000 as of September 30, 2004 and
restricted funds on deposit were approximately $1,139,000.
There were equipment expenditures during the three and six month periods ended
September 30, 2004 of approximately $53,000 and $60,000, respectively as
compared to approximately $4,000 during the three and six month periods ended
September 30, 2003, respectively.
We periodically receive cash from the exercise of common stock options. During
the three month period ended September 30, 2004 there were no options exercised.
During the six month period ended September 30, 2004, options were exercised for
18,000 shares of common stock on a cashless basis.
We believe our existing unrestricted cash and cash equivalents and the grants we
have received, or have been awarded and are awaiting disbursement of, will be
sufficient to meet our planned expenditures from September 30, 2004, through the
next twelve month period, although there can be no assurance we will not require
additional funds.
Through September 30, 2004, 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 $49,094,000;
o payments from research and testing agreements, foundation
grants and SBIR grants and STTR grants of approximately
$13,821,000; 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. Our
resources have been used pursuant to certain research and development agreements
and to fund Company sponsored programs. Our research and development agreements
include (1) an agreement, dated January 15, 1997, (the "Consortium Agreement"),
among us, 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 (2) an agreement, dated November 26, 2003, among us, UNC, and the
Medicines for Malaria Venture ("MMV"). Company sponsored clinical
-21-
programs include Pneumocystis carinii pneumonia trials that are ongoing in Peru.
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 and commercialization
programs (which may vary as product candidates are added or abandoned),
pre-clinical testing and clinical trials, achievement of regulatory milestones,
our business counterparts fulfilling their obligations to us, the timing and
cost of seeking regulatory approvals, the level of resources that we devote to
the engagement or development of manufacturing capabilities, our ability to
maintain existing and to establish new collaborative arrangements with other
persons or entities to provide funding to us 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 come 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
licensing, research and development and commercialization agreements with other
entities.
Pursuant to the approval of the Company's board of directors, on October 12,
2004, the Company extended the exercise date of warrants to purchase 750,000
shares of the Company's common stock which were originally issued to RADE on
October 12, 1998. The expiration dates for these warrants, which have an
exercise price of $6.47 per share, were extended from October 12, 2004 to
October 12, 2008. As a result of these extensions, the Company expects to record
a non-cash charge during the quarter ending December 31, 2004 of approximately
$3,498,000, determined using the Black-Scholes option pricing model.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
----------------------------------------------------------
The exposure of market risk associated with risk-sensitive instruments is not
material to our business, as our operations are conducted primarily in U.S.
dollars and we invest primarily in short-term government obligations and other
cash equivalents. We intend to develop policies and procedures to manage market
risk in the future if and when circumstances require.
Item 4. Controls and Procedures.
-----------------------
Disclosures and Procedures.
- ---------------------------
We maintain controls and procedures designed to ensure that we are able to
collect the information we are required to disclose in the reports we file with
the SEC, and to process, summarize and disclose this information within the time
periods specified in the rules of the SEC. Our Chief Executive and Chief
Financial Officers are responsible for establishing and
-22-
maintaining these procedures and, as required by the rules of the SEC, evaluate
their effectiveness. Based on their evaluation of our disclosure controls and
procedures, which took place as of the end of the period covered by this
Quarterly Report on Form 10-Q, our Chief Executive and Chief Financial Officers
believe that these procedures are effective to ensure that we are able to
collect, process and disclose the information we are required to disclose in the
reports we file with the SEC within the required time periods.
Internal Controls.
- ------------------
We maintain a system of internal controls designed to provide reasonable
assurance that: transactions are executed in accordance with management's
general or specific authorization; 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 have been no significant changes during the three months ended September
30, 2004 in such controls or in other factors that could have significantly
affected those controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Internal Controls over Financial Reporting.
- ------------------------------------------
We are currently undergoing a comprehensive effort to ensure compliance with
Section 404 of the Sarbanes-Oxley Act of 2002 for our fiscal year ending March
31, 2005. This effort includes internal control documentation and review under
the direction of senior management. During the course of these activities, we
have identified certain internal control issues which management believed needed
to be improved. These control issues are, in large part, the result of our
increased size and need for segregation of duties. The review has not identified
any material weakness in internal control as defined by the Public Company
Accounting and Oversight Board. However, we have made improvements to our
internal controls over financial reporting as a result of our review efforts and
will continue to do so. These improvements include formalization of policies and
procedures, improved segregation of duties and additional monitoring controls.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Company is party to certain lawsuits and legal proceedings, which are
described in "Part I, Item 3. Legal Proceedings", of our Annual Report on Form
10-K/A for our fiscal year ended March 31, 2004 filed with the SEC on July 20,
2004. The following is a description of material developments during the period
covered by this Quarterly Report and through the filing of this Quarterly
Report, and should be read in conjunction with the Annual Report referenced
above.
Immtech International, Inc. et. al. v. Neurochem, Inc. et al.
- --------------------------------------------------------------
-23-
On September 27, 2004, Neurochem filed an answer to the Request for Arbitration
and asserted counterclaims. The Company has requested the arbitration panel
suspend the Company's deadline to answer counterclaims the pending determination
of whether the claims should be heard in court or through arbitration.
Gerhard Von der Ruhr et al. v. Immtech International, Inc. et. al.
- -------------------------------------------------------------------
On July 30, 2004, the court denied the Company's motion to dismiss and on August
20, 2004, the Company filed an answer to the complaint and asserted various
defenses.
Except as noted above and in Part I, Item 3, Legal Proceedings, of our Form
10-K/A filed on July 20, 2004, we are not aware of any pending litigation.
Item 2. Change in Securities and Use of Proceeds.
----------------------------------------
Recent Sales of Unregistered Securities.
- ----------------------------------------
Common Stock.
None.
Option Exercise.
None.
Warrant Exercise.
On July 2, 2004, Fulcrum exercised warrants to purchase 10,000 shares of common
stock at an exercise price of $6.00 per share resulting in gross proceeds to the
Company of $60,000.
Conversion of Series A Preferred Stock to Common Stock.
On August 20, 2004, certain shareholders required that the Company convert
8,000 shares of Series A Convertible Preferred Stock to 45,678 shares of common
stock. Each conversion included conversion of accrued but unpaid interest
through the day prior to the date of conversion into common stock.
Conversion of Series B Preferred Stock to Common Stock.
None.
Conversion of Series C Preferred Stock to Common Stock.
On August 13, 2004, certain shareholders required that the Company convert
2,400 shares of Series C Convertible Preferred Stock to 13,741 shares of common
stock. On September 16, 2004 certain shareholders requested that the Company
convert 400 shares of Series C Convertible Preferred Stock to 2,295 shares of
common stock. Each conversion included conversion of accrued but unpaid interest
through the day prior to the date of conversion into common stock.
-24-
Conversion of Series D Preferred Stock to Common Stock.
None.
Series A, Series B, Series C and Series D Preferred Stock Dividend Payment.
On October 15, 2004, the Company issued 6,026 shares of common stock as payment
of a dividend earned on outstanding Series A Preferred Stock to holders thereof.
On October 15, 2004, the Company issued 2,213 shares of common stock as payment
of a dividend earned on outstanding Series B Preferred Stock to holders thereof.
On October 15, 2004, the Company issued 7,161 shares of common stock as payment
of a dividend earned on outstanding Series C Preferred Stock to holders thereof.
On October 15, 2004, the Company issued 16,669 shares of common stock as payment
of a dividend earned on outstanding Series D Preferred Stock to 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.
Item 6. Exhibits, and Reports on Form 8-K.
----------------------------------
Exhibits.
- ---------
See Exhibit Index.
Reports On Form 8-K.
- --------------------
Immtech filed the following reports on Form 8-K during the second quarter of
2004:
On July 26, 2004, we announced on Form 8-K that we entered into an
Underwriting Agreement with Jefferies & Company, Inc. ("Jefferies") relating to
the offering and sale of up to 899,999 shares of the Company's common stock. On
July 30, 2004 the offering was completed and closed.
On July 28, 2004, we announced on Form 8-K that Jefferies fully exercised
its over-allotment option to purchase 117,391 shares of the common stock of the
Company pursuant to the Underwriting Agreement between Jefferies and the Company
dated July 26, 2004.
-25-
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.
-26-
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: November 9, 2004 By: /s/ T. Stephen Thompson
------------------------------------------------
T. Stephen Thompson
President and Chief Executive Officer
Date: November 9, 2004 By: /s/ Gary C. Parks
------------------------------------------------
Gary C. Parks
Treasurer, Secretary and Chief Financial Officer
(Principal Financial and Accounting Officer)