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, 2002.
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File Number: 000-25669
IMMTECH INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 39-1523370
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
150 Fairway Drive, Suite 150, Vernon Hills, Illinois 60061
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(Address of principal executive offices)(Zip Code)
(847) 573-0033
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
As of November 8, 2002, 6,349,669 shares of the Registrant's common stock, par
value $0.01 per share ("Common Stock"), were outstanding.
INDEX
Page No.
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PART I. FINANCIAL INFORMATION................................................1
Item 1. Condensed Financial Statements........................................1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................13
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........18
Item 4. Controls and Procedures..............................................18
PART II. OTHER INFORMATION..................................................18
Item 1. Legal Proceedings....................................................18
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from
Registered Securities................................................18
Item 3. Defaults Upon Senior Securities......................................19
Item 4. Submission of Matters to a Vote of Security Holders..................20
Item 5. Other Information....................................................20
Item 6. Exhibits, and Reports on Form 8-K....................................20
Exhibit Index.................................................................21
SIGNATURES....................................................................22
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS (UNAUDITED)
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SEPTEMBER 30, MARCH 31,
ASSETS 2002 2002
CURRENT ASSETS:
Cash and cash equivalents $ 1,892,029 $ 2,037,813
Restricted funds on deposit 1,293,896 602,400
Other current assets 39,881
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Total current assets 3,185,925 2,680,094
PROPERTY AND EQUIPMENT - Net 138,311 175,950
OTHER ASSETS 19,848 19,848
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TOTAL $ 3,344,084 $ 2,875,892
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 348,510 $ 545,017
Accrued expenses 862 4,257
Deferred revenue 1,321,668 563,435
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Total current liabilities 1,671,040 1,112,709
DEFERRED RENTAL OBLIGATION 23,962 27,145
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Total liabilities 1,695,002 1,139,854
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STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 per
share, 4,440,000 shares authorized and
unissued
Series A convertible preferred stock, par
value $0.01 per share, stated value $25
per share, 320,000 shares authorized,
150,800 and 160,100 shares outstanding
as of September 30, 2002 and March 31,
2002, respectively; aggregate
liquidation preference of $3,874,115 as
of September 30, 2002 3,874,115 4,031,900
Series B convertible preferred stock, par
value $0.01 per share, stated value $25
per share, 240,000 shares authorized,
75,725 shares outstanding as of
September 30, 2002; aggregate
liquidation preference of $1,895,615 as
of September 30, 2002 1,895,615
Common stock, par value $0.01 per share,
30,000,000 shares authorized, 6,318,052
and 6,066,459 shares issued and
outstanding as of September 30, 2002 and
March 31, 2002, respectively 63,181 60,664
Additional paid-in capital 36,116,849 34,679,844
Deficit accumulated during the
developmental stage (40,300,678) (37,036,370)
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Total stockholders' equity 1,649,082 1,736,038
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TOTAL $ 3,344,084 $ 2,875,892
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See notes to condensed financial statements.
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IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED OCTOBER 15, 1984
SEPTEMBER 30, SEPTEMBER 30, (INCEPTION) TO
-------------------------- -------------------------- SEPTEMBER 30,
2002 2001 2002 2001 2002
----------- ----------- ----------- ----------- ------------
REVENUES $ 360,171 $ 836,584 $ 790,252 $ 1,959,422 $ 8,024,225
----------- ----------- ----------- ----------- ------------
EXPENSES:
Research and development 711,154 1,236,779 1,462,526 1,781,073 29,963,687
General and administrative 883,035 711,605 2,335,188 1,681,002 19,675,674
Equity in loss of joint venture 135,002
----------- ----------- ----------- ----------- ------------
Total expenses 1,594,189 1,948,384 3,797,714 3,462,075 49,774,363
----------- ----------- ----------- ----------- ------------
LOSS FROM OPERATIONS (1,234,018) (1,111,800) (3,007,462) (1,502,653) (41,750,138)
----------- ----------- ----------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest income 1,640 10,842 9,901 36,360 573,629
Interest expense (1,129,502)
Loss on sales of investment securities - net (2,942)
Cancelled offering costs (584,707)
----------- ----------- ----------- ----------- ------------
Other income (expense) - net 1,640 10,842 9,901 36,360 (1,143,522)
----------- ----------- ----------- ----------- ------------
LOSS BEFORE EXTRAORDINARY ITEM (1,232,378) (1,100,958) (2,997,561) (1,466,293) (42,893,660)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF
DEBT 1,427,765
----------- ----------- ----------- ----------- ------------
NET LOSS (1,232,378) (1,100,958) (2,997,561) (1,466,293) (41,465,895)
CONVERTIBLE PREFERRED STOCK DIVIDENDS (207,057) (266,747) (1,204,682)
REDEEMABLE PREFERRED STOCK CONVERSION,
PREMIUM AMORTIZATION AND DIVIDENDS 2,369,899
----------- ----------- ----------- ----------- ------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS $(1,439,435) $(1,100,958) $(3,264,308) $(1,466,293) $(40,300,678)
=========== =========== =========== =========== ============
BASIC AND DILUTED NET LOSS PER SHARE
ATTRIBUTABLE TO COMMON STOCKHOLDERS:
Net loss $ (0.20) $ (0.18) $ (0.49) $ (0.24)
Convertible preferred stock dividends (0.03) (0.04)
----------- ----------- ----------- -----------
BASIC AND DILUTED NET LOSS PER SHARE
ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (0.23) $ (0.18) $ (0.53) $ (0.24)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES USED IN COMPUTING
BASIC AND DILUTED LOSS PER SHARE 6,281,391 6,005,371 6,193,321 6,002,121
=========== =========== =========== ===========
See notes to condensed financial statements.
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IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED OCTOBER 15, 1984
SEPTEMBER 30, SEPTEMBER 30, (INCEPTION) TO
------------------------- ------------------------- SEPTEMBER 30,
2002 2001 2002 2001 2002
----------- ----------- ----------- ----------- ------------
OPERATING ACTIVITIES:
Net loss $(1,232,378) $(1,100,958) $(2,997,561) $(1,466,293) $(41,465,895)
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 243,563 85,101 1,076,323 161,824 14,658,923
Depreciation and amortization of property and equipment 22,715 25,481 48,311 47,861 592,071
Deferred rental obligation (1,592) (1,592) (3,183) (3,182) 23,962
Equity in loss of joint venture 135,002
Loss on sales of investment securities - net 2,942
Amortization of debt discounts and issuance costs 134,503
Extraordinary gain on extinguishment of debt (1,427,765)
Changes in assets and liabilities:
Restricted funds on deposit (1,028,102) 569,906 (691,496) 1,560,314 (1,293,896)
Other current assets (46,212) 39,881 (21,711)
Other assets (19,848)
Accounts payable 20,134 404,105 (196,507) (261,341) 677,650
Accrued expenses (25,000) (3,395) (20,000) 663,875
Deferred revenue 1,048,640 (657,123) 758,233 (1,521,269) 1,321,668
----------- ----------- ----------- ----------- ------------
Net cash used in operating activities (927,020) (746,292) (1,969,394) (1,523,797) (25,996,808)
----------- ----------- ----------- ----------- ------------
INVESTING ACTIVITIES:
Purchases of investment securities (1,803,469)
Proceeds from sales and maturities of investment
securities 1,800,527
Purchases of property and equipment (8,874) (10,672) (61,994) (703,858)
Investment in and advances to joint venture (135,002)
----------- ----------- ----------- ----------- ------------
Net cash used in investing activities (8,874) (10,672) (61,994) (841,802)
----------- ----------- ----------- ----------- ------------
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)
Proceeds from issuance of redeemable preferred stock 3,330,000
Net proceeds from issuance of common stock 125 18,843 16,317,280
Net proceeds from issuance of convertible preferred
stock and warrants 1,853,010 1,834,333 5,682,848
Payments of convertible preferred stock dividends for
fractional shares (166) (166)
Payments for fractional shares of common stock resulting
from the conversions of convertible preferred stock (4) (10) (10)
Additional capital contributed by stockholders 245,559
----------- ----------- ----------- ----------- ------------
Net cash provided by financing activities 1,853,006 1,834,282 18,843 28,730,639
----------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 917,112 (746,292) (145,784) (1,566,948) 1,892,029
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 974,917 1,277,062 2,037,813 2,097,718
----------- ----------- ----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,892,029 $ 530,770 $ 1,892,029 $ 530,770 $ 1,892,029
=========== =========== =========== =========== ============
See notes to condensed financial statements.
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IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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1. BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared by
Immtech International, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and, in the
opinion of the Company, include all adjustments necessary for a fair
statement of results for each period shown (unless otherwise noted herein,
all adjustments are of a normal recurring nature). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to such SEC
rules and regulations. The Company believes that the disclosures made are
adequate to prevent the financial information given from being misleading.
It is suggested that these financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
latest Annual Report on Form 10-K and subsequent quarterly reports on Form
10-Q.
2. COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Immtech International, Inc. is a pharmaceutical
company focusing on the discovery, development and commercialization of
drugs to treat infectious diseases that include fungal infections,
malaria, tuberculosis, hepatitis C, Pneumocystis carinii pneumonia and
tropical medicine diseases including African sleeping sickness
(trypanosomiasis) and leishmaniasis. The Company is a development stage
enterprise and, since its inception on October 15, 1984, has engaged in
research and development programs, expanding its network of scientists and
scientific advisors, negotiating and consummating technology licensing
agreements, and advancing their technology platform toward
commercialization. The Company uses the expertise and resources of
strategic partners and contracted parties in a number of areas, including:
(i) laboratory research, (ii) pre-clinical and human clinical trials and
(iii) the manufacture of pharmaceutical products. The Company holds
worldwide patents, licenses and rights to license worldwide patents,
patent applications and technologies from third parties that are integral
to the Company's business. The Company has licensing and exclusive
commercialization rights to a dicationic anti-infective pharmaceutical
platform and is developing drugs intended for commercial use based on that
platform.
The Company does not have any products currently available for sale, and
no products are expected to be commercially available for sale until after
March 31, 2003, if at all.
Going Concern Presentation and Related Risks and Uncertainties - The
accompanying condensed financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
Since inception, the Company has incurred accumulated losses of
approximately $41,466,000. Management expects the Company to continue to
incur significant losses during the next several years as the Company
continues its research and development activities and clinical trial
efforts. There can be no assurance that the Company's continued research
will lead to the development of commercially viable products. The
Company's operations to date have consumed substantial amounts of cash.
The negative cash flow from operations is expected to continue in the
foreseeable future. The Company will
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require substantial funds to conduct research and development, laboratory
and clinical testing and to manufacture (or have manufactured) and market
(or have marketed) its product candidates.
The Company's working capital is not sufficient to fund the Company's
operations through the commercialization of one or more products yielding
sufficient revenues to support the Company's operations; therefore, the
Company will need to raise additional funds. The Company believes its
existing unrestricted cash and cash equivalents and the grants the Company
has received or has been awarded and is awaiting disbursement of, will be
sufficient to meet the Company's planned expenditures through July 2003,
although there can be no assurance the Company will not require additional
funds. These factors, among others, indicate that the Company may be
unable to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the
outcome of these uncertainties.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient funds to meet its obligations as they
become due and, ultimately, to obtain profitable operations. Management's
plans for the forthcoming year, in addition to normal operations, include
continuing their efforts to obtain additional equity and/or debt
financing, obtain additional grants and enter into various research,
development and commercialization agreements with other entities.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. Cash and cash equivalents consist of an amount on
deposit at a bank and an investment in a money market mutual fund, stated
at cost, which approximates fair value.
Restricted Funds on Deposit - Restricted funds on deposit consist of cash
on deposit at a bank which is restricted for use in accordance with a
clinical research subcontract agreement with The University of North
Carolina at Chapel Hill.
Investment - The Company accounts for its investment in NextEra
Therapeutics, Inc. ("NextEra") on the equity method. As of September 30,
2002 and March 31, 2002, the Company owned approximately 28% of the issued
and outstanding shares of NextEra common stock. The Company has recognized
an equity loss in NextEra to the extent of the basis of its investment,
and the investment balance is zero as of September 30, 2002 and March 31,
2002. Recognition of any investment income on the equity method by the
Company for its investment in NextEra will occur only after NextEra has
earnings in excess of previously unrecognized equity losses.
Income Taxes - The Company accounts for income taxes using an asset and
liability approach. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable
income. In addition, the valuation allowance is recognized if it is more
likely than not that some or all of the deferred income tax assets will
not be realized. A valuation allowance is used to offset the related net
deferred income tax assets due to uncertainties of realizing the benefits
of certain net operating loss and tax credit carryforwards and other
deferred income tax assets.
Net Income (Loss) Per Share - Net income (loss) per share is calculated in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." Basic net income (loss) per share and diluted net
income (loss) per share are computed by dividing net income (loss)
attributable to common stockholders by the weighted average number of
common shares outstanding. Diluted net income (loss) per share, when
applicable, is computed by dividing net income (loss) attributable to
common
-5-
stockholders by the weighted average number of common shares outstanding
increased by the number of potential dilutive common shares based on the
treasury stock method. Diluted net loss per share was the same as the
basic net loss per share for the three and six months ended September 30,
2002 and 2001, as the Company's outstanding common stock options, warrants
and conversion features of Series A and B Convertible Preferred Stock were
antidilutive.
Comprehensive Loss - There were no differences between comprehensive loss
and net loss for the three and six month periods ended September 30, 2002
and 2001, respectively.
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. Accrued preferred stock dividends are included in the carrying
value of the Series A Convertible Preferred Stock in the accompanying
condensed balance sheets. Each share of Series A Convertible Preferred
Stock shall be convertible by the holder at any time into shares of the
Company's common stock at a conversion rate determined by dividing the
$25.00 stated value, plus any accrued and unpaid dividends (the
"Liquidation Price"), by a $4.42 conversion price (the "Conversion
Price"), subject to certain antidilution adjustments as defined in the
Certificate of Designation. On April 15, 2002, the Company issued 8,249
shares of common stock and paid $165.92 to holders of fractional shares as
dividends on the Series A preferred shares. During the three month period
ended September 30, 2002, certain Series A preferred stockholders
converted 3,300 shares of Series A Convertible Preferred Stock, including
accrued dividends, for 18,871 shares of common stock. During the six month
period ended September 30, 2002, certain Series A preferred stockholders
converted 9,300 shares of Series A Convertible Preferred Stock including
accrued dividends, for 53,127 shares of common stock. The Company also
paid $6.41 to certain preferred stockholders for fractional shares of
common stock not issued upon conversion. The accrued preferred stock
dividends of $57,000 were reported as dividends in determining the net
loss attributable to common stockholders in the accompanying statement of
operations for the three months ended September 30, 2002. On October 15,
2002, the Company issued 28,959 shares of common stock and paid $64.24 to
holders of fractional shares as dividends on the Series A preferred
shares.
The Company may at any time after February 14, 2003, require that any or
all outstanding shares of Series A Convertible Preferred Stock be
converted into shares of the Company's common stock, provided that the
shares of common stock into which the Series A Convertible Preferred Stock
are convertible are registered pursuant to an effective registration
statement, as defined. The number of shares of common stock to be received
by the holders of the Series A Convertible Preferred Stock upon conversion
at the request of the Company shall be determined by (i) dividing the
Liquidation Price by the Conversion Price provided that the closing bid
price for the Company's common stock exceeds $9.00 for 20 consecutive
trading days within 180 days prior to notice of conversions, as defined,
(ii) or if the requirements of (i) are not met, the number of shares of
common stock is determined by dividing 110% of the Liquidation Price by
the Conversion Price. The Conversion Price is subject to certain
antidilution adjustments, as defined in the Certificate of Designation.
The Company may at any time, upon 30 day 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
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equal to $25.00 per share, plus any accrued and unpaid dividends. Each
issued and outstanding share of Series A Convertible Preferred Stock is
entitled to 5.6561 votes (subject to adjustment for dilution) with respect
to any and all matters presented to the stockholders of the Company for
their action or consideration. Except as provided by law or by the
provisions establishing any other series of preferred stock, Series A
Convertible Preferred stockholders and holders of any other outstanding
preferred stock shall vote together with the holders of common stock as a
single class.
Series B Convertible Preferred Stock - On September 25, 2002, the Company
filed a Certificate of Designation with the Secretary of State of the
State of Delaware designating 240,000 shares of the Company's 5,000,000
authorized shares of preferred stock as Series B Convertible Preferred
Stock, $0.01 par value, with a stated value of $25.00 per share. Dividends
accrue at a rate of 8.0% per annum on the $25.00 stated value per share
and are payable semi-annually on April 15 and October 15 of each year
while the shares are outstanding. The Company has the option to pay the
dividend either in cash or in equivalent shares of common stock, as
defined. Accrued preferred stock dividends are included in the carrying
value of the Series B Convertible Preferred Stock in the accompanying
condensed balance sheets. Each share of Series B Convertible Preferred
Stock shall be convertible by the holder at any time into shares of the
Company's common stock at a conversion rate determined by dividing the
$25.00 stated value, plus any accrued and unpaid dividends (the
"Liquidation Price"), by a $4.00 conversion price (the "Conversion
Price"), subject to certain antidilution adjustments, as defined in the
Certificate of Designation. During the quarter ended September 30, 2002
the Company issued 75,725 shares of, Series B Convertible Preferred Stock
for net proceeds of $1,834,333 (net of offering costs of $58,900 of which
$18,700 was paid during the quarter-ending June 30, 2002). On October 15,
2002, the Company issued 2,658 shares of common stock and paid $16.59 to
holders of fractional shares as dividends on the Series B preferred
shares.
The Company may at any time after September 24, 2003, require that any or
all outstanding shares of Series B Convertible Preferred Stock be
converted into shares of the Company's common stock, provided that the
shares of common stock into which the Series B Convertible Preferred Stock
are convertible are registered pursuant to an effective registration
statement, as defined. The number of shares of common stock to be received
by the holders of the Series B Convertible Preferred Stock upon conversion
at the request of the Company shall be determined by (i) dividing the
Liquidation Price by the Conversion Price provided that the closing bid
price for the Company's common stock exceeds $9.00 for 20 consecutive
trading days within 180 days prior to notice of conversions, as defined,
(ii) or if the requirements of (i) are not met, the number of shares of
common stock is determined by dividing 110% of the Liquidation Price by
the Conversion Price. The Conversion Price is subject to certain
antidilution adjustments, as defined in the Certificate of Designation.
The Company may at any time, upon 30 day notice, redeem any or all
outstanding shares of the Series B Convertible Preferred Stock by payment
of the Liquidation Price to the holder of such shares, provided that the
holder does not convert the Series B Convertible Preferred Stock into
shares of Common Stock during the 30 day period. The Series B Convertible
Preferred Stock has a preference in liquidation equal to $25.00 per share,
plus any accrued and unpaid dividends. Each issued and outstanding share
of Series B Convertible Preferred Stock shall be entitled to 6.25 votes
(subject to adjustment for dilution) with respect to any and all matters
presented to the stockholders of the Company for their action or
consideration. Except as provided by law or by the provisions establishing
any other series of preferred stock, Series B Convertible Preferred
stockholders and holders of any other outstanding preferred stock shall
vote together with the holders of common stock as a single class.
As part of the Series B Convertible Preferred Stock private placement
offering, the Company also issued warrants to purchase 189,312 shares of
the Company's common stock at an exercise price of
-7-
$6.125 per share of common stock. The warrants expire at various dates in
September 2007. The warrant exercise period commences upon the conversion
or the redemption of the Series B Convertible Preferred Stock that was
concurrently issued to the warrant holders. At any time after the first
anniversary of the date of grant and if the Company's common stock closes
above 200% of the exercise price for 20 consecutive trading days, the
Company may, upon 20 days notice, redeem any unexercised portion of any
warrants for a redemption fee of $.10 per share of common stock underlying
the warrants. During the 20 day notice period, if the warrants are then
exercisable as a result of the conversion or redemption of the Series B
Convertible Preferred Stock, such warrant holder may then exercise all or
a portion of the warrant by tendering the appropriate exercise price.
The warrants issued in September 2002 to the holders of the Series B
Preferred Convertible Stock were valued using the Black-Scholes option
valuation model and the amount recorded of $147,483 was determined by
applying the relative fair value method in relation to the estimated fair
value of Series B Convertible Preferred Stock resulting in a $147,483
discount on the preferred stock in accordance with the Emerging Issues
Task Force ("EITF") Issue No. 00-27, "Application of Issue No. 98-5 to
Certain Convertible Instruments." The dividend on the Series B Convertible
Preferred Stock was charged to deficit accumulated during the development
stage immediately upon issuance, as the preferred stock is immediately
convertible. The preferred stock dividend of $147,483 and the accrued
preferred stock dividends of $2,500 were reported as dividends in
determining the net loss attributable to common stockholders in the
accompanying statement of operations for the three months ended September
30, 2002.
Common Stock - On June 28, 2002, the Company entered into a Finder's
Agreement with an individual to develop and qualify potential strategic
partners for the purpose of testing and/or the commercialization of
Company products in China. As consideration for entering into the
agreement, the individual received 150,000 shares of the Company's common
stock and the Company recognized approximately $757,500 as a general and
administrative expense during the three month period ended September 30,
2002, based on the estimated fair value of the shares issued.
On July 31, 2002, the Company entered into a one year agreement with The
Gabriele Group, L.L.C. ("Gabriele") for assistance to be provided by
Gabriele to the Company with respect to management consulting, strategic
planning, public relations and promotions. As compensation for these
services, the company granted Gabriele 40,000 shares of the Company's
common stock and the Company recognized approximately $187,600 as a
general and administrative expense during the three month period ended
September 30, 2002, based on the estimated fair value of the shares
issued. The Company also granted Gabriele warrants to purchase 30,000
shares of the Company's common stock at $6.00 per share. These warrants
vest when the price of the Company's common stock reaches certain
milestones, beginning at $10.00 per share for a period of 20 consecutive
days. This agreement may be renewed for additional one year terms at the
sole discretion of the Company.
Common Stock Options - On October 12, 2000, the Company's stockholders
approved the issuance of options to purchase shares of common stock to
certain employees and other nonemployees who have been engaged to assist
the Company in various research and administrative capacities as part of
the 2000 Stock Incentive Plan. The 2000 Stock Incentive Plan provides for
the issuance of up to 350,000 shares of common stock, in the form of
incentive options and non-qualified stock options. Options granted under
the 2000 Stock Incentive Plan that expire are available to be reissued.
The incentive stock options must be granted at a price at least equal to
fair market value on 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
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or ten years. During the three and six month periods ended September 30,
2002, the Company did not, in either period, issue options to purchase
shares of common stock to its employees and directors. During the three
and six month periods ended September 30, 2002, zero and 20,000 options
expired, respectively, which were previously granted under the 2000 Stock
Incentive Plan which are available to be reissued. As of September 30,
2002, there were 73,750 shares available for grant (including 12,000
shares which are reserved for issuance under certain consulting agreements
with nonemployees).
During the three and six month periods ended September 30, 2002, the
Company issued options to purchase 0 and 22,000 shares, respectively, of
common stock to nonemployees and recognized expense of approximately
$56,000 and $131,000, respectively, related to these options and certain
options issued prior to July 1, 2002 which vest over a four year service
period. During the three months ended September 30, 2001, the Company did
not issue any options to nonemployees and recognized expense of
approximately $85,000 related to certain options issued prior to July 1,
2001 which vest over four year service periods. During the six months
ended September 30, 2001, the Company issued options to purchase 12,000
shares of common stock to nonemployees and recognized expense of
approximately $162,000 related to these options and certain options issued
prior to July 1, 2001 which vest over four year service periods. The
expenses were determined based on the estimated fair value of the options
issued.
The Company's stockholders exercised options for 0 and 217 shares of
common stock, respectively, as of and for the three and six month periods
ended September 30, 2002.
4. COLLABORATIVE RESEARCH AND DEVELOPMENT ACTIVITIES
The Company has various collaborative research agreements with commercial
enterprises. Under the terms of these arrangements, the Company has agreed
to perform best efforts research and development and, in exchange, the
Company may receive advanced cash funding and may also earn additional
fees for the attainment of certain milestones. The Company may receive
royalties on the sales of such products. The other parties generally
receive exclusive marketing and distribution rights for certain products
for set time periods in specific geographic areas.
The Company initially acquired its rights to the platform technology and
dictations developed by a consortium of universities consisting of The
University of North Carolina at Chapel Hill ("UNC"), Duke University,
Auburn University and Georgia State University (the "Consortium") pursuant
to an agreement, dated January 15, 1997 (as amended, the "Consortium
Agreement") among the Company, Pharm-Eco Laboratories, Inc. ("Pharm-Eco"),
and UNC (to which each of the other members of the Consortium agreed
shortly thereafter to become a party). The Consortium Agreement commits
the parties to collectively research, develop, finance the research and
development of, manufacture and market both the technology and compounds
owned by the Consortium and previously licensed or optioned to Pharm-Eco
(the "Current Compounds") and to license to the Company in accordance with
the Consortium Agreement, all technology and compounds developed by the
Consortium after January 15, 1997, through use of Company-sponsored
research funding or National Cooperative Drug Development grant funding
made available to the Consortium (the "Future Compounds" and, collectively
with the Current Compounds, the "Compounds").
The Consortium Agreement contemplated that upon the completion of the
Company's initial public offering ("IPO") of shares of its common stock
with gross proceeds of at least $10,000,000 by April 30, 1999, the Company
and Pharm-Eco, with respect to the Current Compounds, and the Company and
UNC, (on behalf of the Consortium), with respect to Future Compounds,
would enter into license agreements for, or assignments of, the
intellectual property rights relating to the Compounds held by
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Pharm-Eco and the Consortium; pursuant to which the Company would pay
royalties and other payments based on revenues received for the sale of
products based on the Compounds.
The Company completed its IPO on April 26, 1999, with gross proceeds in
excess of $10,000,000. Pursuant to the Consortium Agreement, both
Pharm-Eco and the Consortium then became obligated to grant or assign to
the Company an exclusive worldwide license to use, manufacture, have
manufactured, promote, sell, distribute, or otherwise dispose of any
products based directly or indirectly on all of the Current Compounds and
Future Compounds.
As a result of the closing of the IPO, the Company issued an aggregate of
611,250 shares of common stock, of which 162,500 shares were issued to the
Consortium and 448,750 shares were issued to Pharm-Eco or persons
designated by Pharm-Eco.
Pursuant to the Consortium Agreement, the Company may, subject to the
satisfaction of certain conditions, be required to issue 100,000 shares of
common stock to the Consortium upon the filing by the Company of the first
new drug application or an abbreviated new drug application with the Food
and Drug Administration with respect to a product incorporating certain
Compounds. In addition, the Company will pay the Consortium an aggregate
royalty of up to 5.0% of net sales derived from the Compounds, except that
the royalty rate payable on any Compound developed at Duke University will
be determined by negotiation at the time such Compound is developed. In
the event that the Company sublicenses its rights with respect to the
Compounds to a third party, the Company will pay the Consortium a royalty
based on a percentage of any royalties the Company receives, and a
percentage of all signing, milestone and other payments made to the
Company pursuant to the sublicense agreement.
As contemplated by the Consortium Agreement, on January 28, 2002, the
Company entered into a License Agreement with the Consortium whereby the
Company received the exclusive license to commercialize dictation
technology and compounds developed or invented by one or more of the
Consortium scientists after January 15, 1997, and which also incorporated
into such License Agreement the Company's existing license with the
Consortium with regard to the Current Compounds.
In June 1999, the Company entered into a research and manufacturing
agreement with Pharm-Eco for Pharm-Eco to produce good manufacturing
practices quality, as defined, diatonic drugs and products for clinical
testing and for early commercialization. Pharm-Eco was unable to
manufacture certain required compounds and the Company subsequently
engaged alternate suppliers who successfully manufactured the compounds.
In August 2000, Pharm-Eco and two of its senior executives filed suit in
Delaware against the Company in connection with a dispute under the
Consortium Agreement. The Company responded by denying the allegations and
filing a counter-claim against Pharm-Eco for breach of contract.
The Company filed a Motion for Summary Judgment, which was granted on
February 21, 2001. In his Memorandum Opinion, the Vice Chancellor hearing
the proceeding dismissed all of the plaintiffs' claims against the Company
and held that Pharm-Eco had breached the Consortium Agreement by failing
to grant or assign to the Company a license for the Current Compounds. On
March 12, 2001, the Vice Chancellor signed a Final Order and Judgment
directing Pharm-Eco to execute and deliver to the Company an agreement
granting or assigning to the Company the license. On March 27, 2001,
Pharm-Eco and the Company entered into an agreement assigning the license.
No further claims against the Company remain in this proceeding, and on
May 1, 2001, a Stipulation of Dismissal was filed with the Court.
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On April 20, 2001, the Company entered into a settlement agreement with
Pharm-Eco and certain other parties resolving all remaining matters
between them. Pursuant to this agreement, the Company received a cash
payment of $1,000,000; an assignment from Pharm-Eco of various contract
rights; and a termination of all of the Company's obligations to
Pharm-Eco, including, without limitation, (a) the obligation to issue an
aggregate of 850,000 warrants for shares of the Company's stock, (b) the
obligation to issue shares of common stock upon the occurrence of a
certain future event, (c) the obligation to pay a percentage of all
non-royalty payments that the Company might receive under any sublicense
that the Company might enter into with respect to certain compounds, and
(d) certain accounts payable which Pharm-Eco claimed to be owed of
approximately $159,000; and a release of any and all claims that Pharm-Eco
may have had against the Company. The cash payment received and the
accounts payable obligations which were forgiven, aggregating
approximately $1,159,000, was recorded as a credit to (reduction of)
research and development expense during the three months ended June 30,
2001; as the Company had previously expensed the estimated fair value of
the shares of common stock issued to Pharm-Eco at the time of the IPO and
the accounts payable obligations, as research and development expense.
The Company was required, under an agreement which has subsequently
expired, to make quarterly research grants in the amount of $100,000 to
UNC through April 30, 2002. During the three month period ended September
30, 2001, the Company expensed grant payments to UNC of $100,000. During
the six month periods ended September 30, 2002 and 2001, the Company
expensed grant payments to UNC of $100,000 and $200,000, respectively.
Such payments were recorded as research and development costs.
In August 2000, the Company was awarded two Small Business Innovation
Research ("SBIR") grants aggregating approximately $831,000 from the
National Institutes of Health ("NIH") to research various infections.
During the three and six months ended September 30, 2001, the Company
recognized revenues of approximately $180,000 and $438,000, respectively,
from these grants. During the three months and six months ended September
30, 2001, the Company expensed payments of approximately $56,000 and
$132,000, respectively, to UNC and certain other Consortium universities
for contracted research related to these grants. There is no additional
funding available to the Company under these grants.
In August 2001, the Company was awarded an additional SBIR grant from the
NIH of approximately $144,000 as the third year grant to continue research
on "Novel Procedures for Treatment of Opportunistic Infections." During
the three and six months ended September 30, 2002, the Company recognized
revenues of approximately $5,000 and $70,000, respectively, from this
grant and expensed payments of approximately $5,000 and $70,000,
respectively, to UNC and certain other Consortium universities for
contracted research related to this grant. There is no additional funding
available to the Company under this grant.
During the three month periods ended September 30, 2002 and 2001, the
Company expensed approximately $60,000 and $104,000, respectively, of
other payments to UNC and certain other Consortium universities for patent
related costs and other contracted research. Total payments expensed to
UNC and certain other Consortium universities were approximately $65,000
and $261,000 during the three months ended September 30, 2002 and 2001,
respectively. During the six months ended September 30, 2002 and 2001 the
Company expensed approximately $88,000 and $173,000, respectively, of
other payments to UNC and certain other Consortium universities for
reimbursement of patent related costs and other contracted research. Total
payments expensed to UNC and certain other Consortium universities were
approximately $259,000 and $505,000 during the six months ended September
30, 2002 and 2001, respectively. Included in accounts payable as of
September 30, 2002 and March 31,
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2002, were approximately $65,000 and $267,000, respectively, due to UNC
and certain other Consortium universities.
In November 2000, The Bill & Melinda Gates Foundation ("Gates Foundation")
awarded a $15,114,000 grant to UNC to develop new drugs to treat Human
Trypanosomiasis (African sleeping sickness) and Leishmaniasis. On March
29, 2001, UNC entered into a clinical research subcontract agreement with
the Company, whereby the Company is to receive up to $9,800,000, subject
to certain terms and conditions, over a five year period to conduct
certain clinical and research studies. The proceeds from this agreement
are restricted and must be segregated from the Company's other funds and
used for specific purposes. On March 29, 2001, the Company received the
first installment of $4,300,000, and on September 24, 2002 approximately
$1,364,000 of which approximately $315,000 and $605,000 was utilized for
clinical and research purposes conducted and expensed during the three
months and six months ended September 30, 2002. The Company has recognized
aggregate revenues of approximately $4,338,000 through September 30, 2002
for services performed under the agreement, including approximately
$315,000 and $605,000 during the three and six months ended September 30,
2002. The remaining amount (approximately $1,294,000 as of September 30,
2002) has been deferred and will be recognized as revenue over the term of
the agreement as the services are performed.
On April 22, 2002, the Company entered into a Confidentiality, Testing and
Option Agreement with Neurochem, Inc., ("Neurochem"), a Canadian
corporation, to supply Neurochem with selected dicationic compounds for
the testing, evaluation and potential future licensing of such compounds
for (i) the treatment and diagnosis of amyloidosis and the related
underlying conditions of Alzheimer's Disease, cerebral amyloid angiopathy,
primary amyloidosis, diabetes, rheumatic diseases and (ii) the treatments
of conditions related to secondary amyloidosis. Neurochem has the right to
license tested compounds upon the conclusion of the Confidentiality,
Testing and Option Agreement, as defined in the agreement. The Company has
recognized revenues for the three and six month periods ended September
30, 2002 of $40,000 and $115,000, respectively.
* * * * * *
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this annual report and in the
documents incorporated by reference herein, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements other than statements of historical fact may be deemed
to be forward-looking statements. Forward-looking statements frequently, but not
always, use the words "intends," "plans," "believes," "anticipates" or "expects"
or similar words and may include statements concerning the Company's strategies,
goals and plans. Forward-looking statements involve a number of significant
risks and uncertainties that could cause our actual results or achievements or
other events to differ materially from those reflected in such forward-looking
statements. Such factors include, among others described in our annual report,
the following (i) we are in an early stage of product development, (ii) our
technology is in the research and development stage and therefore its potential
benefits for human therapy are unproven, (iii) the possibility that favorable
relationships with collaborators cannot be established or, if established, will
be abandoned by the collaborators before completion of product development, (iv)
the possibility that we or our collaborators will not successfully develop any
marketable products, (v) the possibility that advances by competitors will cause
our product candidates not to be viable, (vi) uncertainties as to the
requirement that a drug product be found to be safe and effective after
extensive clinical trials and the possibility that the results of such trials,
if commenced and completed, will not establish the safety or efficacy of our
drug product candidates, (vii) risks relating to requirements for approvals by
governmental agencies, such as the FDA, before products can be marketed and the
possibility that such approvals will not be obtained in a timely manner or at
all or will be conditioned in a manner that would impair our ability to market
its product candidates successfully, (viii) the risk that our patents could be
invalidated or narrowed in scope by judicial actions or that our technology
could infringe upon the patent or other intellectual property rights of third
parties, (ix) the possibility that we will not be able to raise adequate capital
to fund our operations through the process of developing and testing a
successful product or that future financing will be completed on unfavorable
terms, (x) the possibility that any products successfully developed by us will
not achieve market acceptance and (xi) other risks and uncertainties which may
not be described herein.
Overview
We are a pharmaceutical company focused on the development and
commercialization of drugs to treat infectious diseases that include fungal
infections, malaria, tuberculosis, hepatitis C, Pneumocystis carinii pneumonia
and tropical medicine diseases including African sleeping sickness
(trypanosomiasis) and leishmaniasis. We hold worldwide patents, licenses and
rights to license worldwide patents, patent applications, technologies from a
scientific consortium and exclusive rights to commercialize products from those
patents and licenses that are integral to the company's business.
Since our formation in October 1984, we have engaged in research and
development programs, expanding our network of scientists and scientific
advisors, negotiating
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and consummating technology licensing agreements, and advancing technology
platform toward commercialization. We use the expertise and resources of
strategic partners and contracted parties in a number of areas, including: (i)
laboratory research, (ii) pre-clinical and human clinical trials and (iii) the
manufacture of pharmaceutical products. We have licensing and exclusive
commercialization rights to a dicationic anti-infective pharmaceutical platform
and are developing drugs intended for commercial use based on that platform.
These dication pharmaceuticals work by blocking life-sustaining enzymes from
binding to the key sites in the "minor groove" of an organism's deoxyribonucleic
acid ("DNA"), thereby killing the infectious organisms that cause fungal,
parasitic, bacterial and viral diseases. The minor groove or key site on an
organism's DNA is an area where enzymes interact with the DNA as part of their
normal life cycle. Structurally, dications are chemical molecules which have two
positively charged ends that are held together by a chemical linker. The
composition of the dications, with positive charges on both ends (shaped like
molecular barbells) allows dications to bind (similar to a bandaid) to the
negatively charged active sites (sites where enzymes interact with DNA) in
certain areas of an infectious microorganism's DNA. The bound dications prevent
enzymes necessary to the life of the microorganism from attaching to certain of
its DNA's active sites. Research has shown that once a site is occupied by a
dication, enzymes necessary to the life of the infectious microorganism are
blocked and the infectious microorganism dies.
Our pharmaceutical program is based on technology for developing a
class of compounds known as dications. The dication technology is the result of
a research program designed to understand how dications bind to the DNA of
infectious microorganisms. The dication platform was developed by scientists at
The University of North Carolina at Chapel Hill ("UNC"), Duke University ("Duke
University"), Auburn University ("Auburn University") and Georgia State
University ("Georgia State") (collectively, the "Consortium"). We entered into
an agreement with the Consortium, dated January 15, 1997, as amended, and a
License Agreement, dated as of January 28, 2002 (collectively, the "Consortium
Agreements"), to commercialize product candidates resulting from the
Consortium's research, including the dication technology. We do not have any
commercially available products nor do we expect to have any commercially
available products for sale until after March 31, 2003, if at all.
Results of Operations
Immtech International, Inc. ("Immtech" or the "Company") has not
generated any revenue from operations and does not anticipate generating any
revenue from operations until after March 31, 2003, if at all. The Company has
funded, and plans to continue to fund, its operations through research funding
agreements and grants, and the sale of debt and equity securities. For the
period from inception, October 15, 1984, to September 30, 2002, the Company
incurred cumulative net losses of approximately $41,466,000. The Company has
incurred additional losses since such date and expects to incur additional
operating losses for the foreseeable future.
Three Months Ended September 30, 2002 Compared with the Three
Months Ended September 30, 2001.
Revenues under collaborative research and development agreements
were approximately $360,000 and $837,000 for the three months ended September
30, 2002 and
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September 30, 2001, respectively. For the three months ended September 30, 2002,
there were revenues recognized of approximately $315,000 relating to a clinical
research subcontract agreement between the Company and UNC, grant revenues of
approximately $5,000 from Small Business Innovative Research ("SBIR") grants
from the National Institutes of Health ("NIH"), and $40,000 from the
Confidentiality, Testing and Option Agreement with Neurochem, Inc.,
("Neurochem"), while for the three months ended September 30, 2001, there were
revenues recognized of approximately $657,000 relating to a clinical research
subcontract agreement between the Company and UNC and grant revenues of
approximately $180,000 from SBIR grants from the NIH. The clinical research
subcontract agreement initiated in March 2001 relates to a grant from the Bill &
Melinda Gates Foundation ("Gates Foundation") to UNC to develop new drugs to
treat Trypanosomiasis (African sleeping sickness) and Leishmaniasis. Grant and
research and development agreement revenue is recognized as completed under the
terms of the respective agreements, according to Company estimates. Grant and
research and development funds received prior to completion under the terms of
the respective agreements are recorded as deferred revenues.
Interest income for the three months ended September 30, 2002 was
approximately $2,000. Interest income for the three months ended September 30,
2001 was approximately $11,000. The decrease is due to a reduction in funds
invested and a decrease in interest rates paid on the invested funds from the
prior corresponding quarter. There was no interest expense for the three months
ended September 30, 2002 and September 30, 2001.
Research and development expenses decreased to approximately
$711,000 from $1,237,000 for the three months ended September 30, 2002, and
September 30, 2001, respectively. The decreases in research and development
costs of approximately $345,000 and approximately $126,000, respectively,
correspond to the decrease in the revenues relating to the clinical research
subcontract agreement between the Company and UNC and the decrease in the grant
revenues from SBIR grants from the NIH.
General and administrative expenses increased to approximately
$883,000 from approximately $712,000 for the three months ended September 30,
2002, and September 30, 2001, respectively. This is primarily attributable to a
non-cash charge of approximately $188,000 for the issuance of 40,000 shares of
Common Stock to The Gabriele Group, L.L.C. for assistance with respect to
management consulting, strategic planning, public relations and promotions. The
net loss increased to approximately $1,232,000 from approximately $1,101,000 for
the three months ended September 30, 2002, and September 30, 2001, respectively.
Six Months Ended September 30, 2002 Compared with the Six Months
Ended September 30, 2001.
Revenues under collaborative research and development agreements
were approximately $790,000 and $1,959,000 for the six months ended September
30, 2002 and 2001, respectively. For the six months ended September 30, 2002
there were revenues recognized of approximately $605,000 relating to a clinical
research subcontract agreement between the Company and UNC, grant revenues of
approximately $70,000 from SBIR grants from NIH, and $115,000 from the
Confidentiality, Testing and Option Agreement with Neurochem, while for the six
months ended September 30, 2001, revenues consisted of approximately $1,521,000
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relating to the clinical research subcontract agreement between the Company and
UNC and grant revenues of approximately $438,000 from SBIR grants from the NIH.
The clinical research subcontract agreement relates to a grant from the Gates
Foundation to UNC for development of new drugs to treat Trypanosomiasis (African
sleeping sickness) and Leishmaniasis. The clinical research subcontract
agreement with UNC was consummated in March 2001. Grant and research and
development agreement revenue is recognized as completed under the terms of the
respective agreements, according to Company estimates. Funds received prior to
completion under the terms of the respective agreements are recorded as deferred
revenues.
Interest income for the six months ended September 30, 2002 was
approximately $10,000. Interest income for the six months ended September 30,
2001 was approximately $36,000. The decrease is due to a reduction in funds
invested and a reduction in interest rates paid on the invested funds. There was
no interest expense for the six months ended September 30, 2002 and September
30, 2001.
Research and development expenses decreased to approximately
$1,463,000 in the six months ended September 30, 2002 from approximately
$1,781,000 in the six months ended September 30, 2001. The decrease for the
period is primarily attributable to the Company having had significant expenses
relating to pre-clinical studies required for regulatory filings in the six
months ending September 30, 2001, which were not incurred in 2002.
General and administrative expenses increased for the six months
ended September 30, 2002 to approximately $2,335,000 from approximately
$1,681,000 for the six months ended September 30, 2001. The increase was
primarily due to a non-cash expense of approximately $758,000 resulting from the
issuance of 150,000 shares of Common Stock to Mr. Cheung Ming Tak to act as the
Company's non-exclusive agent to develop and qualify potential strategic
partners for the purpose of testing and/or the commercialization of Company
products in China and a non-cash charge of approximately $188,000 for the
issuance of 40,000 shares of Common Stock to The Gabriele Group, L.L.C. for
assistance with respect to management consulting, strategic planning, public
relations and promotions, offset by a decrease in legal fees of approximately
$343,000.
We incurred a net loss of approximately $2,998,000 for the six
months ended September 30, 2002 as compared with a net loss of approximately
$1,466,000 for the six months ended September 30, 2001.
Financial Condition
For the three months and six month periods ended September 30, 2002,
cash and cash equivalents, substantially all of which were invested in a money
market mutual fund, were approximately $1,892,000.
There were approximately $9,000 ans $11,000, respectively, of
equipment expenditures for the three and six month periods ended September 30,
2002 as compared to 0 and approximately $62,000 of equipment expenditures for
the same periods last year. No significant purchases of equipment are
anticipated by the Company during the next three months.
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The Company periodically receives cash from the exercise of Common
Stock options. During the three and six month periods ended September 30, 2002,
there were options exercised for 0 and 217 shares of Common Stock, respectively.
We believe our existing unrestricted cash and cash equivalents and
the grants we have received or have been awarded and are awaiting disbursement
of, will be sufficient to meet our planned expenditures through July 2003,
although there can be no assurance we will not require additional funds.
To date, we have financed our operations with:
o proceeds from various private placements of debt and equity
securities, an initial public offering and other cash
contributed from stockholders, which in the aggregate raised
approximately $28,731,000;
o payments from research and testing agreements, foundation
grants and SBIR grants and Small Business Technology Transfer
Program grants of approximately $8,024,000; and
o the use of stock, options and warrants in lieu of cash
compensation.
Our cash resources have been used to finance, develop and begin
commercialization of drug product candidates, including sponsored research,
capital expenditures, expenses associated with development of product candidates
pursuant to an agreement, dated January 15, 1997, (the "Consortium Agreement"),
among the Company, UNC, and Pharm-Eco (to which each of Duke University, Auburn
University and Georgia State agreed shortly thereafter to become a party, and
all of which, collectively with UNC, are referred to as the "Consortium") and,
as contemplated by the Consortium Agreement, under a license agreement dated
January 28, 2002 ("Consortium License Agreement") with the Consortium, and
general and administrative expenses. Over the next several years we expect to
incur substantial additional research and development costs, including costs
related to research in pre-clinical (laboratory) and clinical (human) trials,
administrative expenses to support our research and development operations.
Our future working capital requirements will depend upon numerous
factors, including the progress of research, development and commercialization
programs (which may vary as product candidates are added or abandoned),
pre-clinical testing and clinical trials, achievement of regulatory milestones,
the Company's corporate partners fulfilling their obligations to the Company,
the timing and cost of seeking regulatory approvals, the level of resources that
the Company devotes to the engagement or development of manufacturing
capabilities, the ability of the Company to maintain existing and to establish
new collaborative arrangements with other companies to provide funding to the
Company to support these activities, and other factors. In any event, we will
require substantial funds in addition to our existing working capital to develop
product candidates and otherwise to meet our business objectives.
Our ability to continue as a going concern is dependent upon our
ability to generate sufficient funds to meet obligations as they become due and,
ultimately, to obtain
-17-
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 grants, and to enter into various research, development
and commercialization agreements with other entities.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company's cash and cash equivalents are maintained primarily in
U.S. dollar accounts and amounts payable for research and development to
research organizations are contracted in U.S. dollars. Accordingly, the
Company's exposure to foreign currency risk is limited because its transactions
are primarily based in U.S. dollars. The Company does not have any other
exposure to market risk. The Company will develop policies and procedures to
manage market risk in the future as circumstances may require.
Item 4. Controls and Procedures.
The Company maintains "disclosure controls and procedures", as such
term is defined under Exchange Act Rule 13a-14(c), that are designed to ensure
that information required to be disclosed in the Company's Exchange Act reports
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures. The Company has carried out an evaluation,
within the 90 days prior to the date of filing of this report, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based upon their evaluation and subject to the foregoing, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective in ensuring that material
information relating to the Company, is made known to the Chief Executive
Officer and Chief Financial Officer during the period in which this report was
being prepared. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date the Company completed its evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Dale M. Geiss v. Immtech International, Inc. and Criticare Systems, Inc.
On September 19, 2002, the Court (Circuit Court of the Nineteenth Judicial
Circuit, Lake County, Illinois) granted Immtech's motion to dismiss plaintiff's
amended complaint, but gave plaintiff another opportunity to file and serve an
amended complaint, if he so chooses. On November 1, 2002, Geiss filed an amended
complaint against the Company and Criticare alleging the same allegations as
before. The Company intends to vigorously defend against the allegations and
believes the claims have no merit.
Except as noted above and in Part I, Item 3, Legal Proceedings of
the Form 10-K filed on July 15, 2002, the Company is not aware of any pending
litigaiton.
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds
from Registered Securities.
Common Stock.
None.
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Series B Convertible Preferred Stock
On September 25, 2002, Immtech issued an aggregate of 75,725 shares
of its Series B Convertible Preferred Stock ("Series B Stock") and 189,312
related warrants ("Warrants") in private placements to certain accredited and
non-United States investors in reliance on Regulation D and Regulation S,
respectively, under the Securities Act. The gross proceeds of the offering were
$1,893,125. The Series B Stock is subject to the terms and conditions of the
Series B Convertible Preferred Stock Certificate of Designation attached as
Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission via Edgar on September 25, 2002 (the
"September 25 Form 8-K"). The Warrants are subject to the terms and conditions
of the Form of Stock Purchase Warrant attached to the September 25 Form 8-K as
Exhibit 10.3. The securities were sold pursuant to exemptions from registration
under the Securities Act and have not been registered under the Securities Act.
They may not be offered, sold, pledged or otherwise transferred by the
purchasers in the absence of registration or an applicable exemption therefrom.
On November 13, 2002, the Company filed with the Securities and Exchange
Commission a registration statement on Form S-3 (Reg. No. 333-_____) covering
the resale of the shares of the Company's common stock issuable upon conversion
of the Series B Stock and exercise of the related Warrants. The terms of the
private placements are more fully set forth in the Form of Regulation D
Subscription Agreement and Form of Regulation S Subscription Agreement attached
to the September 25 Form 8-K as Exhibits 10.1 and 10.2, respectively.
Option Exercise.
None.
Conversion of Series A Stock to Common Stock.
On July 1, 2002, the holders of Series A Convertible Preferred Stock
("Series A Stock") converted 2,000 shares of Series A Stock into 11,312 shares
of Common Stock and on July 16, 2002, the holders of Series A Stock converted
1,300 shares of Series A Stock to 7353 shares of Common Stock.
Series A and Series B Stock Dividend Payment.
On October 15, 2002, the Company issued 31,617 shares of Common
Stock as a dividend to the holders of outstanding shares of Series A Stock and
Series B Stock to the holders, pro rata on the basis of the shares of Series A
Stock and Series B Stock held.
Use of Proceeds
Immtech will use proceeds from the sale of its stock, including the
sale of Series B Stock and related Warrants, for general corporate purposes.
Item 3. Defaults Upon Senior Securities.
None.
-19-
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, page 21.
Reports On Form 8-K.
The Company filed a report on Form 8-K with the Securities and
Exchange Commission on September 25, 2002, regarding the Series B Stock private
placements.
-20-
Exhibit Index
99.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
-21-
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
IMMTECH INTERNATIONAL, INC.
Date: November 14, 2002 By: /s/ T. Stephen Thompson
------------------------------------------------
T. Stephen Thompson
President and Chief Executive Officer
Date: November 14, 2002 By: /s/ Gary C. Parks
------------------------------------------------
Gary C. Parks
Treasurer, Secretary and Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATIONS
I, T. Stephen Thompson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Immtech International,
Inc.:
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ T. Stephen Thompson
-----------------------------------
T. Stephen Thompson
President & Chief Executive Officer
I, Gary C. Parks, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Immtech International,
Inc.:
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Gary C. Parks
-----------------------------------
Gary C. Parks
Chief Financial Officer