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, 2006.
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 PHARMACEUTICALS, 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 incorporation (I.R.S. Employer
or organization) Identification No.)
One North End Avenue, New York, New York 10282
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (847) 573-0033
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Former name, former address and former fiscal year,
if changed since last report
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 a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2.
Large Accelerated filer |_| Accelerated Filer |X| Non-Accelerated Filer |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act. Yes |_| No |X|
As of November 8, 2006, 14,085,134 shares of the Registrant's common stock, par
value $0.01 per share ("Common Stock"), were outstanding.
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Table Of Contents
Page(s)
PART I FINANCIAL INFORMATION..........................................................2
Item 1 Condensed Consolidated Financial Statements..................................2
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................22
Item 3 Quantitative and Qualitative Disclosures about Market Risk..................26
Item 4 Controls and Procedures.....................................................26
PART II OTHER INFORMATION.............................................................27
Item 1 Legal Proceedings...........................................................27
Item 1A Risk Factors................................................................28
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.................28
Item 3 Defaults Upon Senior Securities.............................................29
Item 4 Submission of Matters to a Vote of Security Holders.........................29
Item 5 Other Information...........................................................29
Item 6 Exhibits....................................................................29
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
-------------------------------------------
IMMTECH PHARMACEUTICALS, INC. AND
SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
------------------------------------------------------------------------------------------------------------
September 30, March 31,
ASSETS 2006 2006
CURRENT ASSETS:
Cash and cash equivalents $ 8,537,550 $ 14,137,867
Restricted funds on deposit 4,209,543 530,186
Other receivables (see Note 5) 1,874,454
Other current assets 301,566 193,059
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Total current assets 14,923,113 14,861,112
PROPERTY AND EQUIPMENT - Net 3,518,423 3,555,965
OTHER ASSETS 66,942 137,341
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TOTAL $ 18,508,478 $ 18,554,418
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,996,044 $ 2,328,965
Accrued expenses 252,513 226,749
Deferred revenue 3,611,747 395,779
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Total current liabilities 5,860,304 2,951,493
Total liabilities 5,860,304 2,951,493
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STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 per share, 3,913,000 shares
authorized and unissued as of September 30, 2006 and
March 31, 2006.
Series A convertible preferred stock, par value $0.01 per share,
stated value $25 per share, 320,000 shares authorized, 56,000
and 58,400 shares issued and outstanding as of September 30,
2006 and March 31, 2006, respectively; aggregate liquidation
preference of $1,438,358 as of September 30, 2006. 1,438,358 1,499,785
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Series B convertible preferred stock, par value $0.01 per share,
stated value $25 per share, 240,000 shares authorized, 13,464
shares issued and outstanding as of September 30, 2006 and March
31, 2006; aggregate liquidation preference of $348,694 as of
September 30, 2006. 348,694 348,621
Series C convertible preferred stock, par value $0.01 per share,
stated value $25 per share, 160,000 shares authorized, 45,536
shares issued and outstanding as of September 30, 2006 and March
31, 2006; aggregate liquidation preference of $1,180,594 as of
September 30, 2006. 1,180,594 1,180,345
Series D convertible preferred stock, par value $0.01 per share,
stated value $25 per share, 200,000 shares authorized, 117,200
shares issued and outstanding as of September 30, 2006 and March
31, 2006; aggregate liquidation preference of $3,011,396 as of
September 30, 2006. 3,011,396 3,010,914
Series E convertible preferred stock, par value $0.01 per share,
stated value $25 per share, 167,000 shares authorized, 110,600
and 156,600 shares issued and outstanding as of September 30,
2006 and March 31, 2006, respectively; aggregate liquidation
preference of $2,841,847 as of September 30, 2006. 2,841,847 3,975,528
Common stock, par value $0.01 per share, 100,000,000 shares
authorized, 14,032,356 and 13,758,506 shares issued and outstanding
as of September 30, 2006 and March 31, 2006, respectively 140,324 137,585
Additional paid-in capital 97,026,664 94,292,235
Deficit accumulated during the developmental stage (93,339,693) (88,842,088)
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Total stockholders' equity 12,648,174 15,602,925
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TOTAL $ 18,508,478 $ 18,554,418
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See notes to condensed consolidated financial statements.
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IMMTECH PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------
October 15,
Three Months Ended Six Months Ended 1984
September 30, September 30, (Inception) to
-------------------------------------------------------- September 30,
2006 2005 2006 2005 2006
REVENUES $ 491,330 $ 879,721 $ 2,432,939 $ 2,358,301 $ 23,197,679
----------- ---------- ----------- ------------ -------------
EXPENSES:
Research and development 1,755,326 2,671,930 4,224,162 4,941,137 55,577,716
General and administrative 2,363,796 3,329,233 4,583,651 6,061,506 59,466,451
Other (see Note 5) (1,874,454) (1,874,454) (1,874,454)
Equity in loss of joint venture 135,002
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Total expenses 2,244,668 6,001,163 6,933,359 11,002,643 113,304,715
--------- --------- --------- ---------- -----------
LOSS FROM OPERATIONS (1,753,338) (5,121,442) (4,500,420) (8,644,342) (90,107,036)
----------- ----------- ----------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest income 132,334 42,931 282,695 100,518 1,226,882
Interest expense (1,129,502)
Loss on sales of investment securities - net (2,942)
Cancelled offering costs (584,707)
Gain on extinguishment of debt 1,427,765
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Other income 132,334 42,931 282,695 100,518 937,496
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NET LOSS (1,621,004) (5,078,511) (4,217,725) (8,543,824) (89,169,540)
CONVERTIBLE PREFERRED STOCK DIVIDENDS AND CONVERTIBLE
PREFERRED STOCK PREMIUM DEEMED DIVIDENDS (137,082) (105,087) (279,890) (223,909) (6,540,062)
REDEEMABLE PREFERRED STOCK CONVERSION, PREMIUM
AMORTIZATION AND DIVIDENDS 2,369,899
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $(1,758,086) $(5,183,598) $(4,497,615) $ (8,767,733) $ (93,339,703)
============ ============ ============ ============= ==============
BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS:
Net loss $ (0.12) $ (0.44) $ (0.30) $ (0.74)
Convertible preferred stock dividends and convertible
preferred stock premium deemed dividends (0.01) (0.01) (0.02) (0.02)
----------- ---------- ----------- ------------
BASIC AND DILUTED LOSS PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (0.13) $ (0.45) $ (0.32) $ (0.76)
============ =========== =========== ============
WEIGHTED AVERAGE SHARES USED IN COMPUTING
BASIC AND DILUTED NET LOSS PER SHARE 14,026,413 11,556,816 13,973,658 11,474,311
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
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IMMTECH PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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October 15,
Three Months Ended Six Months Ended 1984
September 30, September 30, (Inception) to
-------------------------------------------------------- September 30,
2006 2005 2006 2005 2006
OPERATING ACTIVITIES:
Net loss $(1,621,004) $(5,078,511) $(4,217,725) $(8,543,824) $ (89,169,540)
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 557,307 7,571 1,233,387 44,852 28,974,914
Depreciation and amortization of property and
equipment 37,951 39,390 77,213 77,712 1,113,633
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:
Other current assets (see Note 5) (1,781,143) 81,639 (1,982,961) (241,363) (2,176,020)
Other assets 70,000 207 70,399 335 (66,942)
Accounts payable (751,187) 2,495,116 (332,921) 1,679,012 2,323,579
Accrued expenses 18,378 (495,780) 25,764 490,662 915,526
Deferred revenue (491,329) (836,206) 3,215,968 (1,314,786) 3,611,747
----------- ----------- ----------- ------------- -------------
Net cash used in operating activities (3,961,027) (3,786,574) (1,910,876) (7,807,400) (55,628,421)
----------- ----------- ----------- ------------- -------------
INVESTING ACTIVITIES:
Purchase of property and equipment (5,659) (26,291) (39,671) (50,262) (1,605,126)
Restricted funds on deposit 557,628 1,152,254 (3,679,357) 1,440,168 (4,209,543)
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Advances to joint venture (135,002)
Proceeds from maturities of investment securities 1,800,527
Purchases of investment securities - - - - (1,803,469)
----------- ----------- ----------- ------------- -------------
Net cash provided by (used in) investing activities 551,969 1,125,963 (3,719,028) 1,389,906 (5,952,613)
----------- ----------- ----------- ------------- -------------
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 17,085,434
Payments of convertible preferred stock dividends and
for fractional shares of common stock resulting from
the conversions of convertible preferred stock (2) (54) (407) (591) (5,221)
Net proceeds from issuance of common stock 30,000 40,871 29,994 80,312 46,307,684
Additional capital contributed by stockholders - - - - 245,559
----------- ----------- ----------- ------------- -------------
Net cash provided by financing activities 29,998 40,817 29,587 79,721 70,118,584
----------- ----------- ----------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,379,060) (2,619,794) (5,600,317) (6,337,773) 8,537,550
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,916,610 5,753,715 14,137,867 9,471,694 -
----------- ----------- ----------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,537,550 $3,133,921 $ 8,537,550 $ 3,133,921 $ 8,537,550
=========== ========== =========== ============ =============
See notes to condensed consolidated financial statements.
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IMMTECH PHARMACEUTICALS, 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 Pharmaceuticals, Inc. and its subsidiaries (the
"Company") pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and, in the opinion of management, include all
adjustments necessary for a fair statement of results for each period
shown (unless otherwise noted herein, all adjustments are of a normal
recurring nature). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such SEC rules and regulations. The
Company believes that the disclosures made are adequate to prevent the
financial information given from being misleading. It is suggested that
these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's latest Annual
Report on Form 10-K.
2. COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Immtech Pharmaceuticals, Inc. (a development
stage enterprise), along with its subsidiaries, is a pharmaceutical
company working to commercialize oral drugs to treat infectious diseases,
and the Company is expanding its targeted markets by applying its
proprietary pharmaceutical platform to treat other disorders. Immtech has
advanced clinical programs that include new oral treatments for
Pneumocystis pneumonia ("PCP"), malaria, and trypanosomiasis ("African
Sleeping Sickness"), and a well defined, expanding library of compounds
targeting fungal infections, Hepatitis C and other serious diseases.
Immtech holds an exclusive worldwide license to certain patents and patent
applications related to technology and products derived from a proprietary
pharmaceutical platform. The Company has worldwide rights to commercialize
and sublicense such patented technology, including a large library of
well-defined compounds from which a pipeline of therapeutic products could
be developed.
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-CH"), 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 work to
commercialize the aromatic cation pharmaceutical technology platform (the
Company acquired its rights to the aromatic cation technology platform in
1997 and promptly thereafter commenced development of its current
programs). The Company uses the expertise and resources of strategic
partners and third parties in a number of areas, including: (i) laboratory
research, (ii) animal and human trials and (iii) manufacture of
pharmaceutical drugs.
The Company does not have any products currently available for sale, and
no products are expected to be commercially available for sale until after
March 31, 2007, if at all.
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Since inception, the Company has incurred accumulated net losses of
approximately $89,170,000. Management expects the Company will continue to
incur significant losses during the next several years as the Company
continues development activities, clinical trials and commercialization
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 assurance
that the Company's activities 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 believes it
will require substantial additional funds to commercialize its drug
candidates. The Company's cash requirements may vary materially from those
now planned when and if the following become known: results of research
and development efforts, results of clinical testing, responses to grant
requests, formation and development of relationships with strategic
partners, changes in the focus and direction of development programs,
competitive and technological advances, requirements in the regulatory
process and other factors. Changes in circumstances in any of the above
areas may require the Company to allocate substantially more funds than
are currently available or than management 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 or by issuance of debt.
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, complete the development and commercialization of drug
candidates and, ultimately, to generate sufficient revenues for 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 condensed consolidated financial
statements include the accounts of Immtech Pharmaceuticals, Inc. and its
wholly owned subsidiaries. All inter-company balances and transactions
have been eliminated.
Restricted Funds on Deposit - Restricted funds on deposit consist of cash
in two accounts on deposit at a bank which are restricted for use in
accordance with (i) a clinical research subcontract agreement with UNC-CH
and (ii) a malaria drug development agreement with 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 specified limits.
Investment - The Company accounts for its investment in NextEra
Therapeutics, Inc. ("NextEra") on the equity method. As of September 30,
2006 and March 31, 2006, 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, 2006 and March 31,
2006. Recognition of any investment income on the equity method by the
Company for its investment in NextEra will occur
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only after NextEra has earnings in excess of previously unrecognized
equity losses. The Company does not provide, and has not provided, any
financial guarantees to NextEra.
Property and Equipment - Property and equipment are recorded at cost and
depreciated and amortized using the straight-line method over the
estimated useful lives of the respective assets, ranging from three to
fifty years. Leasehold improvements are amortized over the lesser of the
life of the related lease or their useful life.
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 which is measured by the difference
between the fair value and the carrying value of the asset.
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 grant 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 related net
deferred income tax assets due to uncertainties of realizing the benefits
of certain net operating loss and tax credit carry-forwards 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 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 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 the basic net loss per share
for the three and six month periods ended September 30, 2006 and September
30, 2005, as none of the Company's outstanding common stock options,
warrants and the conversion features of Series A, B, C, D and E
Convertible Preferred Stock were dilutive.
Comprehensive Loss - There were no differences between comprehensive loss
and net loss for the three and six month periods ended September 30, 2006
and 2005, respectively.
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Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ materially from these estimates.
New Accounting Standards - In September 2006, the FASB issued Statement
No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair
value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles, and expands disclosures about
fair value measurements. SFAS 157 is effective for us in 2008. The Company
is currently assessing the impact of the adoption of this statement.
3. STOCKHOLDERS' EQUITY
On January 7, 2004, the stockholders of the Company approved an increase
in the number of authorized common stock from 30 million to 100 million
shares. On June 14, 2004, the Company filed with the Secretary of State of
the State of Delaware an Amended and Restated Certificate of Incorporation
implementing, among other things, the approved authorized 70 million share
common stock increase from 30 million to 100 million shares of common
stock.
Series A Convertible Preferred Stock - On February 14, 2002, the Company
filed a Certificate of Desigation with the Secretary of State of the State
of Delaware designating 320,000 shares of the Company's 5,000,000
authorized shares of preferred stock as Series A Convertible Preferred
Stock, $0.01 par value, with a stated value of $25.00 per share. Dividends
accrue at a rate of 6.0% per annum on the $25.00 stated value per share
and are payable semi-annually on April 15 and October 15 of each year
while the shares are outstanding. The Company has the option to pay the
dividend either in cash or in equivalent shares of common stock, as
defined. Included in the carrying value of the Series A Convertible
Preferred Stock in the accompanying condensed consolidated balance sheets
are $38,358 and $39,785 of accrued preferred stock dividends at September
30, 2006 and March 31, 2006, respectively. Each share of Series A
Convertible Preferred Stock may be converted by the holder at any time
into shares of our 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 adjustments, as defined in the Series A
Certificate of Designation. On April 15, 2006, the Company issued 5,547
shares of common stock and paid $47 in lieu of fractional common shares as
dividends on the preferred shares. On April 15, 2005, the Company issued
3,469 shares of common stock and paid $117 in lieu of fractional common
shares as dividends on the preferred shares. During the three and six
month periods ended September 30, 2006 and 2005 certain preferred
stockholders converted 2,400 and 2,000 shares of Series A Convertible
Preferred Stock, including accrued dividends, for 13,690 and 11,409 shares
of common stock, respectively.
The Company may at any time 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 A, provided that the closing bid price for the Company's
common stock exceeds $9.00 for 20 consecutive trading days within 180 days
prior to notice of 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 A. The
Conversion Price is subject to certain adjustments, as defined in the
Series A Certificate of Designation.
The Company may at any time, upon 30 days' notice, redeem any or all
outstanding shares of the Series A Convertible Preferred Stock by payment
of the Liquidation Price to the holder of such
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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, over the
common stock and is pari passu with all other outstanding series of
preferred stock. Each issued and outstanding share of Series A Convertible
Preferred Stock shall be entitled to 5.6561 votes (subject to adjustment)
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, $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
are $12,094 and $12,021 of accrued preferred stock dividends as of
September 30, 2006 and March 31, 2006, 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 adjustments, as defined in the Series B
Certificate of Designation. On April 15, 2006, the Company issued 1,703
shares of common stock and paid $31 in lieu of fractional common shares as
dividends on the preferred shares. On April 15, 2005, the Company issued
1,526 shares of common stock and paid $49 in lieu of fractional common
shares as dividends on the preferred shares. During the three and six
month periods ended September 2006 and 2005, there were no conversions.
The Company may at any time 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 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 B. The
Conversion Price B is subject to certain 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 over the common stock and is pari
passu with all other outstanding series of preferred stock. Each issued
and outstanding share of Series B Convertible Preferred Stock shall be
entitled to 6.25 votes (subject to adjustment) 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
- 12 -
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, we 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 are $42,194 and
$41,945 of accrued preferred stock dividends as of September 30, 2006 and
March 31, 2006, respectively. Each 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
adjustments, as defined in the Series C Certificate of Designation. On
April 15, 2006, the Company issued 5,761 shares of common stock and paid
$95 in lieu of fractional common shares as dividends on the preferred
shares. On April 15, 2005, the Company issued 4,625 shares of common stock
and paid $212 in lieu of fractional common shares as dividends on the
preferred shares. During the three and six month periods ended September
30, 2006 there were no conversions. During the three month period ended
September 30, 2005 certain preferred stockholders converted 4,800 shares
of Series C Convertible Preferred Stock, including accrued dividends, for
27,354 shares of common stock. During the six month period ended September
30, 2005 certain preferred stockholders converted 13,916 shares of Series
C Convertible Preferred Stock, including accrued dividends, for 78,976
shares of common stock.
The Company may at any time require that any or all outstanding shares of
Series C Convertible Preferred Stock be converted into shares of the
Company's common stock, provided that the shares of common stock into
which the Series C Convertible Preferred Stock are convertible are
registered pursuant to an effective registration statement, as defined.
The number of shares of common stock to be received by the holders of the
Series C Convertible Preferred Stock upon a mandatory conversion by the
Company is determined by (i) dividing the Liquidation Price by the
Conversion Price C provided that the closing bid price for the Company's
common stock exceeds $9.00 for 20 consecutive trading days within 180 days
prior to notice of 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 C. The
Conversion Price C is subject to certain 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. The Series C Convertible
Preferred Stock has a preference in liquidation equal to $25.00 per share,
plus any accrued and unpaid dividends, over the common stock and is pari
passu with all other outstanding series of preferred stock. Each issued
and outstanding share of Series C Convertible Preferred Stock shall be
entitled to 5.6561 votes (subject to adjustment) 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.
- 13 -
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 condensed consolidated balance sheets
are $81,396 and $80,914 of accrued preferred stock dividends as of
September 30, 2006 and March 31, 2006, 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 adjustments, as defined in the Series D
Certificate of Designation. On April 15, 2006, the Company issued 11,134
shares of common stock and paid $79 in lieu of fractional common shares as
dividends on the preferred shares. On April 15, 2005, the Company issued
9,219 shares of common stock and paid $135 in lieu of fractional common
shares as dividends on the preferred shares. During the three and six
month periods ended September 30, 2006 there were no conversions. During
the three and six month periods ended September 30, 2005 certain preferred
stockholders converted 43,080 shares of Series D Convertible Preferred
Stock, including accrued dividends, for 121,324 shares of common stock,
respectively.
The Company may at any time, require that any or all outstanding shares of
Series D Convertible Preferred Stock be converted into shares of our
common stock, provided that the shares of common stock into which the
Series D Convertible Preferred Stock are convertible are registered
pursuant to an effective registration statement, as defined. The number of
shares of common stock to be received by the holders of the Series D
Convertible Preferred Stock upon a mandatory conversion by the Company is
determined by (i) dividing the Liquidation Price by the Conversion Price D
provided that the closing bid price for the Company's common stock exceeds
$18.00 for 20 consecutive trading days within 180 days prior to notice of
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 adjustments, as defined in the Certificate of
Designation.
The Series D Convertible Preferred Stock has a preference in liquidation
equal to $25.00 per share, plus any accrued and unpaid dividends, over the
common stock and is pari passu with all other series of preferred stock.
Each issued and outstanding share of Series D Convertible Preferred Stock
shall be entitled to 2.7778 votes (subject to adjustment) 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.
Series E Convertible Preferred Stock -On December 13, 2005, the Company
filed a Certificate of Designation with the Secretary of State of the
State of Delaware designating 167,000 shares of the Company's 5,000,000
authorized shares of preferred stock as Series E 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 E Convertible
Preferred Stock in the accompanying condensed
- 14 -
consolidated balance sheets are $76,847 and $60,528 of accrued preferred
stock dividends as of September 30, 2006 and March 31, 2006, respectively.
Each share of Series E 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 $7.04 conversion price
(the "Conversion Price E"), subject to certain adjustments, as defined in
the Series E Certificate of Designation. On April 15, 2006, the Company
issued 8,819 shares of common stock and paid $135 in lieu of fractional
common shares as dividends on the preferred shares. During the three month
period ended September 30, 2006 there were no conversions. During the six
month period ended September 30, 2006, certain preferred stockholders
converted 46,000 shares of Series E Convertible Preferred Stock, including
accrued dividends, for 163,847 shares of common stock.
The Company may at any time after December 1, 2006, require that any or
all outstanding shares of Series E Convertible Preferred Stock be
converted into shares of our common stock, provided that the shares of
common stock into which the Series E 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 E Convertible Preferred Stock upon a
mandatory conversion by us is determined by (i) dividing the Liquidation
Price by the Conversion Price E provided that the closing bid price for
the Company's common stock exceeds $10.56 for 20 out of 30 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 E. The Conversion Price E is subject to certain
adjustments, as defined in the Certificate of Designation.
The Series E Convertible Preferred Stock has a preference in liquidation
equal to $25.00 per share, plus any accrued and unpaid dividends, over the
common stock and is parri passu with all other outstanding series of
preferred stock. Each issued and outstanding share of Series E Convertible
Preferred Stock is entitled to 3.5511 votes (subject to adjustment) 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 E
Convertible Preferred stockholders and holders of any other outstanding
preferred stock shall vote together with the holders of common stock as a
single class.
The Company will, on December 13, 2008, at the Company's election, (i)
redeem the Series E Convertible Preferred Stock plus any accrued and
unpaid interest for cash, (ii) convert the Series E Convertible Preferred
Stock and any accrued and unpaid interest into common stock, or (iii)
redeem and convert the Series E Convertible Preferred Stock in any
combination of (i) or (ii).
Common Stock - On May 26, 2006, restricted shares in the amount of 5,000
shares of common stock were issued to Tulane University as part of the
Tulane License Agreement granting to us an exclusive license to develop,
manufacture and commercialize a group of 4 - aminoquinoline drugs for
treatment, prophylaxis and diagnosis of infectious diseases. The lead
candidate, AQ-13, is targeted as a candidate for treatment and prophylaxis
for malaria.
On May 26, 2006, restricted shares in the amount of 5,000 shares of common
stock were issued to T. Stephen Thompson as part of his retirement and
consulting agreement dated May 1, 2006.
Warrants - During the three and six month periods ended September 30,
2006, warrants to purchase 5,000 shares of common stock were exercised,
resulting in proceeds to the Company of $30,000. There were no warrants
exercised in the three month period ended September 30, 2005. During the
- 15 -
six month period ended September 30, 2005, warrants to purchase 1,800
shares of common stock were exercised, resulting in proceeds to the
Company of $11,646.
In connection with services rendered to us, effective July 13, 2005, the
company issued to an investment bank and two of its affiliates, warrants
to purchase 100,000 shares of our common stock. The warrants are
exercisable at $13.11 per share (the exercise price was set by calculating
a 15% premium over the Company's common stock volume weighted average
price for the 10 day period immediately preceding July 12, 2005). The
warrants are exercisable beginning on July 13, 2006 through July 12, 2010.
The Company may redeem any outstanding warrants, at $0.01 per share
underlying each warrant, upon 30 day prior notice if at any time prior to
the expiration of the warrant the market closing price of the Company's
common stock meets or exceeds $26.22 for 20 consecutive trading days. The
warrant holder may exercise the warrant, pursuant to its terms, during the
30 day notice period.
Incentive Stock Programs - At the stockholders' meeting held November 12,
2004, the stockholders approved the second amendment to the 2000 Stock
Incentive Plan which increased the number of shares of common stock
reserved for issuance from 1,100,000 shares to 2,200,000 shares. Options
granted under the 2000 Stock Incentive Plan that expire are available to
be reissued. During the three month periods ended September 30, 2006 and
2005, 5,000 and 34,084 options, respectively, previously granted under the
2000 Stock Incentive Plan expired and were available to be reissued.
During the six month periods ended September 30, 2006 and 2005, 14,166 and
76,834 options, respectively, previously granted under the 2000 Stock
Incentive Plan expired and were available to be reissued. During the three
month period ended September 30, 2006, no options were issued. During the
three month period ended September 30, 2005, 8,500 options were issued.
During the six month periods ended September 30, 2006 and 2005, the
Company issued 56,000 and 38,500 options, respectively, to purchase shares
of common stock. Additionally, the Company granted 5,000 restricted stock
awards during the six month period ended September 30, 2006. As of
September 30, 2006, there were a total of 715,249 shares available for
grant. The purchase price of shares must be at least equal to the fair
market value of the common stock on the date of grant, and the maximum
term of an option is 10 years. The options generally vest over periods
ranging from 0 to 4 years. During the three month period ended September
30, 2006, 19,342 options were exercised on a cashless basis resulting in
18,000 common shares being issued, while for the three month period ended
September 30, 2005, 18,744 options were exercised on a cashless basis
resulting in 18,000 common shares being issued and 16,028 options were
exercised with an exercise price of $2.55. During the six month period
ended September 30, 2006, 51,605 options were exercised on a cashless
basis resulting in 48,349 common shares being issued, while for the six
month period ended September 30, 2005, 18,744 options were exercised on a
cashless basis resulting in 18,000 common shares being issued and 26,928
options were exercised with an exercise price of $2.55.
The following table summarizes information about stock options outstanding as of
September 30, 2006 and changes during the six months then ended:
Options Outstanding Options Exercisable
Weighted Weighted
Average Weighted Average
Remaining Average Remaining Weighted
Shares Contractual Exercise Shares Contractual Average
Outstanding Life-Years Price Exercisable Life-Years Exercise Price
April 1, 2006 1,554,380 5.75 $9.25 1,115,167 5.75 $9.56
Granted 56,000 7.35
Exercised (aggregate
intrinsic value was
$342,101 ).......
(51,605) 0.47
Lapsed (14,166) 9.72
------------ ----------------- ---------- ----------------- -------------------- -----------
September 30, 2006 1,544,609 5.94 $9.47 1,192,023 5.83 $9.85
============ ================= ========== ================= ==================== ===========
- 16 -
The aggregate intrinsic value of options outstanding and exercisable at
September 30, 2006 was approximately $788,000. The total unrecognized
compensation cost related to all share-based compensation plans at
September 30, 2006 amounted to approximately $1,901,000 and is expected to
be recognized over the next twenty one months.
On April 1, 2006, the company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") no. 123 (revised 2004),
"Share-Based Payment," which requires that the fair value of share-based
awards be recorded in the results of operations. Under the revised
standard, awards issued prior to 2007 are charged to expense under the
prior rules, and awards issued after 2006 are charged to expense under the
revised rules. Total non-cash compensation expense charged against income
in the three and six month periods ended September 30, 2006 for
share-based plans totaled approximately $557,000 and $1,162,000,
respectively. Through March 31, 2006, the Company measured compensation
cost using the intrinsic value-based method of accounting for stock
options granted to employees and directors. The Company used the modified
prospective method of adoption. Under this method, prior years' financial
results do not include the impact of recording stock options using fair
value. Had compensation cost been determined using the fair value-based
accounting method in the three and six month periods ended September 30,
2005, pro forma net income and earnings per share ("EPS") amounts would
have been as follows:
- 17 -
Three Months Ended Six Months Ended
September 30, September 30,
---------------- -----------------
2005 2005
Net loss attributable to common shareholders -
as reported $(5,183,598) $ (8,767,733)
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 (1,035,536) (2,028,907)
----------- -----------
Net loss attributable to common stockholders -
pro forma $(6,219,134) $ (10,796,640)
============= ==============
Basic and diluted net loss per share attributable
to common stockholders - as reported $ (0.45) $ (0.76)
=========== =============
Basic and diluted net loss per share attributable
to common stockholders - pro forma $ (0.54) $ (0.94)
=========== =============
The weighted average fair value of an option granted in the six month
periods ended September 30, 2006 and 2005 was $7.35 and $11.64,
respectively. The fair value of an option grant was estimated using the
Black-Scholes option pricing model with the following assumptions:
Six Months Ended September 30,
2006 2005
Risk free interest rate 4.89% 4.14%
Average life of options (years) 6.0 10.0
Volatility 69% 92%
Dividend yield -0- -0-
The average risk-free interest rate is based on the U.S. Treasury security
rate in effect over the estimated life of the grant date. The average life
of the options is based upon historical data. The Company determined
expected volatility in the Black-Scholes model based upon two year
historical data at the end of each month for the six months ended
September 30, 2005, and implied volatility based upon exchange traded
options for the Company's common stock for the six months ended September
30, 2006. Implied volatility better reflects future market conditions and
better indicates expected volatility than purely historical volatility.
There is no dividend yield.
4. COLLABORATIVE RESEARCH AND DEVELOPMENT ACTIVITIES
The Company earns revenue under various collaborative research agreements.
Under the terms of these arrangements, the Company generally has agreed to
perform best efforts research and
- 18 -
development and, in exchange, the Company may receive advanced cash
funding, an allowance for management overhead, and may also earn
additional fees for the attainment of certain milestones.
The Company initially acquired its rights to the aromatic cation
technology platform developed by a consortium of universities consisting
of UNC-CH, Georgia State University, Duke University and Auburn University
pursuant to an agreement, dated January 15, 1997 (as amended, the
"Consortium Agreement") among the Company, UNC-CH and a third-party (to
which each of the other members of the scientific consortium shortly
thereafter joined) (the "original licensee"). 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 the original licensee and licensed to the Company in
accordance with the Consortium Agreement (the "Current Compounds"), and
all technology and compounds developed by the scientific consortium after
January 15, 1997, through use of Company-sponsored research funding or
National Cooperative Drug Development grant funding made available to the
scientific consortium (the "Future Compounds" and, collectively with the
Current Compounds, the "Compounds").
The Consortium Agreement contemplated that upon the completion of our
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, with
respect to the Current Compounds, and UNC-CH, (on behalf of the Scientific
Consortium), with respect to Current Compounds and Future Compounds, would
enter into license agreements for the intellectual property rights
relating to the Compounds 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 an IPO on April 26, 1999, with gross proceeds in
excess of $10,000,000 thereby earning a worldwide license and exclusive
rights to commercially 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 the original
licensee or persons designated by the original licensee.
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 the
aromatic cation technology platform 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. Also pursuant to the Consortium Agreement, the original
licensee transferred to the Company the worldwide license and exclusive
right to commercially use, manufacture, have manufactured, promote, sell,
distribute or otherwise dispose of any and all products based directly or
indirectly on aromatic cations developed by the Scientific Consortium on
or prior to January 15, 1997 and previously licensed (together with
related technology and patents) to the third-party.
The Consortium Agreement provides that the Company is required to pay to
UNC-CH on behalf of the Scientific Consortium reimbursement of patent and
patent-related fees, certain milestone payments and royalty payments based
on revenue derived from the Scientific Consortium's aromatic cation
technology platform. Each month on behalf of the inventor scientist or
university, as the case may be, UNC-CH submits an invoice to the Company
for payment of patent-related fees related to
- 19 -
current compounds or future compounds incurred prior to the invoice date.
The Company is also required to make milestone payments in the form of the
issuance of 100,000 shares of its common stock to the Consortium when it
files its first initial New Drug Application ("NDA") or an Abbreviated New
Drug Application ("ANDA") based on Consortium technology. The Company is
also required to pay to UNC-CH on behalf of the Scientific Consortium
(other than Duke University) (i) royalty payments of up to 5% of our net
worldwide sales of "current products" and "future products" (products
based directly or indirectly on current compounds and future compounds,
respectively) and (ii) a percentage of any fees the Company receives under
sublicensing arrangements. With respect to products or licensing
arrangements emanating from Duke University technology, the Company is
required to negotiate in good faith with UNC-CH (on behalf of Duke
University) royalty, milestone or other fees at the time of such event,
consistent with the terms of the Consortium Agreement.
Under the License Agreement, the Company must also reimburse the cost of
obtaining patents and assume liability for future costs to maintain and
defend patents so long as the Company chooses to retain the license to
such patents.
During the three and six month periods ended September 30, 2006, the
Company expensed approximately $393,000 and $635,000, respectively, of
other payments to UNC-CH and certain other Scientific Consortium
universities for patent related costs and other contracted research. For
the corresponding periods ended September 30, 2005, the Company expensed
approximately $255,000 and $466,000, respectively. Included in accounts
payable as of September 30, 2006 and March 31, 2006, were approximately
$311,000, and $601,000, respectively, due to UNC-CH and certain other
Scientific Consortium universities.
In November 2000, The Bill & Melinda Gates Foundation ("Foundation")
awarded a $15,114,000 grant to UNC-CH to develop new drugs to treat human
Trypanosomiasis (African sleeping sickness) and leishmaniasis. On March
29, 2001, UNC-CH entered into a clinical research subcontract agreement
with the Company, whereby the Company was 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 related to the Foundation
Grant.
In April 2003, the Foundation awarded a supplemental grant of
approximately $2,700,000 to UNC-CH for the expansion of phase IIB/III
clinical trials to treat human Trypanosomiasis (African sleeping sickness)
and improved manufacturing processes. The Company has received, pursuant
to the clinical research subcontract with UNC-CH, inclusive of its portion
of the supplemental grant, a total amount of funding of approximately
$11,700,000. Grant funds paid in advance of the Company's delivery of
services are treated as restricted funds and must be segregated from other
funds and used for the purposes specified. In March 2006, the Company
amended and restated the clinical research subcontract with UNC-CH and
UNC-CH in turn obtained an expanded funding commitment for the Company of
approximately $13,601,000 from the Foundation. Under the amended and
restated agreement, the Company received on May 24, 2006 the first payment
of approximately $5,649,000 of the five year approximately $13,601,000
contract.
During the three and six months ended September 30, 2006, approximately
$379,000 and $1,208,000 was utilized for clinical and research purposes
conducted and expensed, respectively. During the three and six months
ended September 30, 2005, approximately $846,000 and $1,698,000 was
utilized for clinical and research purposes conducted and expensed,
respectively. The Company has recognized revenues of approximately
$379,000 and $2,138,000 during the three and six months ended September
30, 2006, respectively. The Company has recognized revenues of
approximately $17,000 and $869,000 during the three and six months ended
September 30, 2005,
- 20 -
respectively. The remaining amount (approximately $3,511,000 as of
September 30, 2006) has been deferred and will be recognized as revenue
over the term of the agreement as the services are performed.
On November 26, 2003, the Company entered into a testing agreement
("Testing Agreement") with Medicines for Malaria Venture ("MMV"), a
foundation established in Switzerland, and UNC, pursuant to which the
Company, with the support of MMV and UNC-CH, conducted a proof of concept
study of the dicationic first drug candidate pafuramidine for the
treatment of malaria.
Under the terms of the Testing Agreement, MMV committed to pay for human
clinical trials and, subject to certain milestones, regulatory preparation
and filing costs for the approvals to market pafuramidine to treat
malaria. In return for MMV's funding, the Company is required, when
selling malaria drugs derived from this research into "malaria-endemic
countries," as defined, to sell such drugs at affordable prices. An
affordable price is defined in the Testing Agreement to mean a price not
to 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. There are no 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 Testing Agreement and amounts funded under a related
discovery agreement between MMV and UNC-CH is refunded to MMV at face
value. The company and MMV agreed to terminate the Testing Agreement
effective as of February 10, 2006. The Company has received approximately
$5,636,000 under this contract.
The Company recognized revenues of approximately $112,000 and $294,000
during the three and six month periods ended September 30, 2006,
respectively, for expenses incurred related to activities within the scope
of the Testing Agreement. For the corresponding periods ended September
30, 2005, the recognized revenues were approximately $819,000 and
$869,000, respectively, and expenses were approximately $961,000 and
$1,446,000, respectively. At September 30, 2006, the Company has
approximately $101,000 recorded as deferred revenue with respect to this
agreement.
5. NEUROCHEM ARBITRATION
On June 9, 2006, the International Court of Arbitration of the ICC
notified the parties that (i) the Arbitral Panel found that Neurochem
breached the testing agreement and awarded Immtech approximately $1.9
million in damages and attorneys' fees and costs, and (ii) denied all of
Neurochem's claims against Immtech. On July 10, 2006, Immtech requested
that the Arbitral Panel make certain corrections to the Award. On
September 27, 2006, Immtech received an Addendum to the Final Award, which
did not alter the substance or amount of the Arbitral Panel's Award.
Subsequent to September 30, 2006, Neurochem disbursed funds representing
the Final Award by the Arbitral Panel.
* * * * * *
- 21 -
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 that may not be described
herein. We undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Results of Operations
---------------------
With the exception of certain research funding agreements and certain grants, we
have not generated any revenue from operations. For the period from inception
(October 15, 1984) to September 30, 2006, we incurred cumulative net losses of
approximately $89,170,000. 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:
o payments from foundations and other collaborators under arrangements
that may be entered into in the future;
o grants from the United States government and other governments and
entities; and
o proceeds from the issuance of securities or borrowing of funds.
The timing and amounts of grant and payment revenues, if any, will likely
fluctuate sharply and depend upon the achievement of specified milestones, and
results of operations for any period may be unrelated to the results of
operations for any other period.
- 22 -
Three Month Period Ended September 30, 2006 Compared with the Three Month Period
Ended September 30, 2005.
Revenues under collaborative research and development agreements were
approximately $491,000 and $880,000 for the three month periods ended September
30, 2006 and September 30, 2005, respectively. For the three month period ended
September 30, 2006, we recognized revenues of approximately $379,000 related to
a clinical research subcontract agreement between us and The University of North
Carolina at Chapel Hill ("UNC-CH") and approximately $112,000 related to a grant
from Medicines for Malaria Venture ("MMV") to fund clinical studies and
licensure of DB289 for treatment of malaria which has since lapsed, while for
the three month period ended September 30, 2005, revenues recognized of
approximately $17,000 related to the abovementioned UNC-CH clinical research
subcontract and $819,000 related to the abovementioned MMV grant for treatment
of malaria.
The clinical research subcontract agreement relates to a grant from a
philanthropic foundation (the "Foundation") to UNC-CH to develop new drugs to
treat trypanosomiasis (African sleeping sickness) and leishmaniasis. MMV also
receives funding from the Foundation. 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 month period ended September 30, 2006 was
approximately $132,000. Interest income during the three month period ended
September 30, 2005 was approximately $43,000. The increase is primarily due to
an increase in funds invested from the prior corresponding quarter. There were
no interest expenses during the three month periods ended September 30, 2006 and
September 30, 2005.
Research and development expenses decreased to approximately $1,755,000 from
$2,672,000 for the three month periods ended September 30, 2006 and September
30, 2005, respectively. Expenses relating to the MMV testing agreement and the
UNC-CH subcontract, respectively, decreased from approximately $961,000 and
$846,000 in the three month period ended September 30, 2005 to approximately
$112,000 and $379,000 in the three month period ended September 30, 2006.
Additionally, contract services relating to trials for treatment of pneumocystis
pneumonia increased from approximately $557,000 to approximately $632,000 in the
same periods. Non-cash options expense under research and development increased
from approximately $8,000 in the three month period ended September 30, 2005 to
approximately $174,000 in the three month period ended September 30, 2006.
Adopting SFAS 123(R) accounted for approximately $142,000 of the $174,000 in the
three month period ended September 30, 2006. Other research and development
expenses increased approximately $158,000 from the three month period ended
September 30, 2005 to the three month period ended September 30, 2006.
General and administrative expenses decreased to approximately $2,364,000 from
approximately $3,329,000 during the three month periods ended September 30,
2006, and September 30, 2005, respectively. The decrease was largely due to
decreased legal fees, primarily concerning legal proceedings with Neurochem (see
Part II, Item 1), which decreased from approximately $1,975,000 in the three
month period ended September 30, 2005, to approximately $137,000 in the three
month period ended September 30, 2006. Patent fees increased over the three
month periods ended September 30, 2005 and 2006, with charges of approximately
$138,000 and $343,000, respectively. Payroll and related costs increased
slightly from approximately $333,000 in the three month period ended September
30, 2005 to approximately $348,000 in the three month period ended September 30,
2006. Non-cash general and administrative expenses increased from nothing in the
three month period ended September 30, 2005 to approximately $383,000 in the
three month period ended September 30, 2006. Adopting SFAS 123 (R)
- 23 -
accounted for approximately $346,000 of the $383,000 in the three month period
ended September 30, 2006. Other general and administrative costs increased by
approximately $270,000 over the same periods.
Our net loss decreased to approximately $1,621,000 from approximately $5,079,000
during the three month periods ended September 30, 2006 and September 30, 2005,
respectively. The decrease was primarily attributable to the decrease in legal
costs and the other receivable (see Note 5) offset by the adoption of SFAS
123(R).
Six Month Period Ended September 30, 2006 Compared with the Six Month Period
Ended September 30, 2005.
Revenues under collaborative research and development agreements were
approximately $2,433,000 and $2,358,000 for the six month periods ended
September 30, 2006 and September 30, 2005, respectively. For the six month
period ended September 30, 2006, we recognized revenues of approximately
$2,139,000 related to a clinical research subcontract agreement between us and
UNC-CH and approximately $294,000 related to a grant from MMV to fund clinical
studies and licensure of DB289 for treatment of malaria which has since lapsed,
while for the six month period ended September 30, 2005, revenues recognized of
approximately $869,000 related to the abovementioned UNC-CH clinical research
subcontract and $1,446,000 related to the abovementioned MMV grant for treatment
of malaria.
The clinical research subcontract agreement relates to a grant from a
philanthropic foundation (the "Foundation") to UNC-CH to develop new drugs to
treat trypanosomiasis (African sleeping sickness) and leishmaniasis. MMV also
receives funding from the Foundation. 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 period ended September 30, 2006 was
approximately $283,000. Interest income during the six month period ended
September 30, 2005 was approximately $101,000. The increase is primarily due to
an increase in funds invested from the prior corresponding six month period.
There were no interest expenses during the six month periods ended September 30,
2006 and September 30, 2005.
Research and development expenses decreased to approximately $4,224,000 from
$4,941,000 for the six month periods ended September 30, 2006 and September 30,
2005, respectively. Expenses relating to the MMV testing agreement and the
UNC-CH subcontract, respectively, decreased from approximately $1,588,000 and
$1,698,000 in the six month period ended September 30, 2005 to approximately
$294,000 and $1,208,000 in the six month period ended June 30, 2006.
Additionally, contract services relating to trials for treatment of pneumocystis
pneumonia increased from approximately $942,000 to approximately $1,758,000 in
the same periods. Non-cash options expense under research and development
increased from approximately $19,000 in the six month period ended September 30,
2005 to approximately $351,000 in the six month period ended September 30, 2006.
Adopting SFAS 123(R) accounted for approximately $285,000 of the $351,000 in the
six month period ended September 30, 2006. Other research and development
expenses decreased approximately $81,000 from the six month period ended
September 30, 2005 to the six month period ended September 30, 2006.
General and administrative expenses decreased to approximately $4,584,000 from
approximately $6,062,000 during the six month periods ended September 30, 2006,
and September 30, 2005, respectively. The decrease was largely due to decreased
legal fees, primarily concerning legal proceedings with Neurochem (see Part II,
Item 1), which decreased from approximately $3,375,000 in the six month period
ended September 30, 2005, to approximately $318,000 in the six month period
ended
- 24 -
September 30, 2006. Patent fees increased over the six month periods ended
September 30, 2005 and 2006, with charges of approximately $303,000 and
$506,000, respectively. Payroll and related costs also remained relatively
constant having increased from approximately $724,000 in the six month period
ended September 30, 2005 to approximately $731,000 in the six month period ended
September 30, 2006. Non-cash general and administrative expenses increased from
approximately $26,000 in the six month period ended September 30, 2005 to
approximately $882,000 in the three month period ended June 30, 2006. Adopting
SFAS 123 (R) accounted for approximately $759,000 of the $882,000 in the six
month period ended September 30, 2006. Other general and administrative costs
which were primarily commercial development costs increased by approximately
$513,000 over the same periods.
Our net loss decreased to approximately $4,218,000 from approximately $8,544,000
during the six month periods ended September 30, 2006 and September 30, 2005,
respectively. The decrease was primarily attributable to the decrease in legal
costs and the other receivable (see Note 5) offset by the adoption of SFAS
123(R).
Liquidity and Capital Resources
As of September 30, 2006, cash and cash equivalents were approximately
$8,538,000.
We spent approximately $6,000 and $40,000, respectively, on equipment purchases
during the three and six month periods ended September 30, 2006, compared to
$26,000 and $50,000 for equipment expenditures during the same periods in the
previous year. No significant purchases of equipment are anticipated by us
during the year ending March 31, 2007.
We periodically receive cash from the exercise of common stock options and
warrants. During the three month period ended September 30, 2006, we received
$30,000 for the exercise of warrants. During the three month period ended
September 30, 2005, we received approximately $41,000 from the exercise of
options.
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 at least November 2007,
although there can be no assurance we will not require additional funds.
Through September 30, 2006, we 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
$70,119,000;
o payments from research agreements, foundation grants and SBIR grants
and STTR program grants of approximately $23,198,000; and
o the use of stock, options and warrants in lieu of cash compensation.
Our cash resources have been used to finance, develop and begin
commercialization of drug product candidates, including sponsored research,
conduct of human clinical trials, capital expenditures, expenses associated with
development of product candidates pursuant to an agreement, dated January 15,
1997, (the "Consortium Agreement"), among us and UNC-CH (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-CH, 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
- 25 -
the Consortium, and general and administrative expenses. Over the next several
years we expect to incur substantial additional research and development costs,
including costs related to research in pre-clinical (laboratory) and human
clinical trials, administrative expenses to support our research and development
operations and marketing expenses to launch the sale of any commercialized
product that may be developed.
Our future working capital requirements will depend upon numerous factors,
including the progress of research, development and commercialization programs
(which may vary as product candidates are added or abandoned), results of
pre-clinical testing and human clinical trials, achievement of regulatory
milestones, third party collaborators fulfilling their obligations to us, the
timing and cost of seeking regulatory approvals, the level of resources that we
devote to the engagement or development of manufacturing capabilities including
the build-out of our subsidiary's facility in China, our ability to maintain
existing and to establish new collaborative arrangements with others to provide
funding to support these activities, and other factors. In any event, we will
require substantial additional funds in addition to our existing resources to
develop product candidates and to otherwise meet our business objectives.
Management's plans for the remainder of the fiscal year, in addition to normal
operations, include continuing their efforts to create joint ventures, obtain
additional grants and to develop and enter into research, development and/or
commercialization agreements with others. Subject to management's strategic
development plan, we are going to continue our efforts to raise additional
capital.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
----------------------------------------------------------
The exposure of market risk associated with risk-sensitive instruments is not
material, 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 Officer and Chief
Financial Officer are responsible for establishing and maintaining these
procedures and, as required by the rules of the SEC, evaluate their
effectiveness. Based on their evaluation of our disclosure controls and
procedures, which took place as of the end of the period covered by this
Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial
Officer 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: (1) transactions are executed in accordance with management's
general or specific authorization and (2) transactions are recorded as necessary
to (a) permit preparation of financial statements in conformity with generally
accepted accounting principles and (ii) maintain accountability for assets.
Access to assets is permitted only in accordance with management's general or
specific authorization and the recorded accountability
- 26 -
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
Changes in Internal Controls
We have not made any material changes in our internal control over financial
reporting during the quarter ended September 30, 2006 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Immtech International, Inc., et al. v. Neurochem, Inc., et al.
On August 12, 2003, the Company filed a lawsuit against Neurochem, Inc.
("Neurochem") alleging that Neurochem misappropriated the Company's trade
secrets by filing a series of patent applications relating to compounds
synthesized and developed by the scientific consortium with whom Immtech has an
exclusive licensing agreement. The misappropriated intellectual property was
provided to Neurochem pursuant to a testing agreement under which Neurochem
agreed to test the compounds to determine if they could be successfully used to
treat amyloid diseases. Pursuant to the terms of the agreement, Neurochem agreed
to keep all information confidential, not to disclose or exploit the information
without Immtech's prior written consent, to immediately advise Immtech if any
invention was discovered and to cooperate with Immtech and its counsel in filing
any patent applications.
Since the filing of the complaint, Neurochem had aggressively sought to have an
International Chamber of Commerce ("ICC") arbitration panel hear this dispute,
as opposed to the federal district court in which the action was originally
filed. The Company agreed to have a three member ICC arbitration panel (the
"Arbitration Panel") hear and rule on the dispute on the expectation that the
Arbitration Panel would reach a more timely and economical resolution. The
federal district court litigation, which included UNC and Georgia State
University, was stayed pending the Arbitration Panel's award.
On June 9, 2006, the International Court of Arbitration of the ICC notified the
parties that (i) the Arbitral Panel found that Neurochem breached the testing
agreement and awarded Immtech approximately $1.9 million in damages and
attorneys' fees and costs, and (ii) denied all of Neurochem's claims against
Immtech. On July 10, 2006, Immtech requested that the Arbitral Panel make
certain corrections to the Award. On September 27, 2006, Immtech received an
Addendum to the Final Award, which did not alter the substance or amount of the
Arbitral Panel's Award. Subsequent to September 30, 2006, Neurochem disbursed
funds representing the Final Award by the Arbitral Panel.
Gerhard Von der Ruhr et al. v. Immtech International, Inc. et. al.
In October 2003, Gerhard Von der Ruhr et al (the "Von der Ruhr Plaintiffs")
filed a complaint in the United States District Court for the Northern District
of Illinois against the Company and certain officers and directors. The Von der
Ruhr Plaintiff's complaint alleged that (i) the Company refused to authorize the
Company's transfer agent to remove the restrictive legends from the stock
certificates of the Von der Ruhr Plaintiffs, (ii) the Company refused to honor
the Von der Ruhr Plaintiffs' exercise of certain stock options and (iii) the
Company refused to honor an agreement regarding certain technology. The Von der
Ruhr Plaintiffs also allege that certain officers and directors interfered with
the Von der Ruhr Plaintiffs' contracts with the Company. The complaint sought
unspecified monetary damages and punitive damages,
- 27 -
in addition to equitable relief and costs. In a filing made in late February,
2005, the Von der Ruhr Plaintiffs specified damages of approximately $44.5
million in damages, which includes $42 million related to the alleged technology
agreement claim (the "Technology Claim"), which the Company believes is
meritless. In 2005, one of the counts in the case was dismissed upon the
Company's motion for summary judgment. The Company has filed pre-trial motions
regarding the evidence to be introduced at the trial of the remaining counts,
including a motion to preclude disclosure of evidence of Von der Ruhr's alleged
damages. On September 21, 2006, the Court issued an Order granting the Company's
motion to exclude certain evidence relating to damages. The Court's ruling
effectively precludes plaintiffs from seeking any monetary damages with respect
to the $42 million Technology Claim. At the Court's instruction, on October 16,
2006, defendants filed a Motion to Dismiss, or in the alternative, to Sever the
Technology Claim. Plaintiffs have until November 16, 2006 to file a response,
and the Company has until December 5, 2006 to file a reply brief.
Item 1A. Risk Factors
------------
There are no material changes in risk factors previously disclosed in Item 1A to
Part I of our Form 10-K for the fiscal year ended March 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
-----------------------------------------------------------
Recent Sales of Unregistered Securities.
----------------------------------------
All such shares of common stock herein described as issuances below were made
pursuant to Section 4(2) of the Securities Act of 1933, as amended.
Option Exercise
On July 20, 2006, options to purchase 19,342 shares with an exercise price of
$0.47 per share were exercised on a cashless basis. Common shares in the amount
of 18,000 were issued.
Warrant Exercise
On July 31, 2006, warrants to purchase 5,000 shares with an exercise price of
$6.00 per share were exercised, resulting in proceeds to the Company of $30,000.
Conversion of Preferred Stock to Common Stock.
During July 2006 a holder of Series A Convertible Preferred Stock, $0.01 par
value ("Series E Stock") converted an aggregate of 2,400 shares of Series A
Preferred Stock into an aggregate of 13,690 shares of our common stock.
Preferred Stock Dividend Payment.
On October 15, 2006, we issued 51,354 shares of common stock as payment of a
dividend earned on outstanding preferred stock to the holders thereof: holders
of Series A Stock earned 7,929 shares of common stock on 56,000 outstanding
shares; holders of Series B Stock earned 2,542 shares of common stock on 13,464
outstanding shares; holders of Series C Stock earned 8,602 shares of common
stock on 45,536 outstanding shares; holders of Series D Stock earned 16,611
shares of common stock on 117,200 outstanding shares; and holders of Series E
Stock earned 15,670 shares of common stock on 110,600 outstanding shares. We
also paid holders of our outstanding preferred stock $367 in cash in lieu of
fractional shares.
- 28 -
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.
--------
Exhibits
--------
- 29 -
Exhibit Index
-------------
3.1 (5) Amended and Restated Certificate of Incorporation of the
Company, dated June 14, 2004
3.2 (6) Certificate of Correction to Certificate of
Incorporation dated December 14, 2005.
3.3 (7) Certificate of Amendment (Name Change) to Certificate of
Incorporation dated March 22, 2006.
3.4 (1) Certificate of Designation for Series A Convertible
Preferred Stock Private Placement, dated February 14,
2002
3.5 (2) Certificate of Designation for Series B Convertible
Preferred Stock Private Placement, dated September 25,
2002
3.6 (3) Certificate of Designation for Series C Convertible
Preferred Stock Private Placement, dated June 6, 2003
3.7 (4) Certificate of Designation for Series D Convertible
Preferred Stock Private Placement, dated January 15,
2004
3.8 (6) Certificate of Designation for Series E Convertible
Preferred Stock Private Placement, dated December 13,
2005
3.9 (7) Amended and Restated Bylaws of the Company effective as
of March 22, 2006.
10.44 (8) Form of Incentive Stock Option Agreement
10.45 (8) Form of Non-qualified Stock Option Agreement
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
- 30 -
(1) Incorporated by Reference to our Form 8-K (File No. 001-14907), as filed
with the Securities and Exchange Commission on February 14, 2002.
(2) Incorporated by Reference to our Form 8-K (File No. 001-14907), as filed
with the Securities and Exchange Commission on September 25, 2002.
(3) Incorporated by Reference to our Form 8-K (File No. 001-14907), as filed
with the Securities and Exchange Commission on June 10, 2003.
(4) Incorporated by Reference to our Form 8-K (File No. 001-14907), as filed
with the Securities and Exchange Commission on January 21, 2004.
(5) Incorporated by Reference to our Form 10-K (File No. 001-14907), as filed
with the Securities and Exchange Commission on June 14, 2004.
(6) Incorporated by Reference to our Form 8-K (File No. 001-14907), as filed
with the Securities and Exchange Commission on December 14, 2005.
(7) Incorporated by Reference to our Form 8-K (File No. 001-14907), as filed
with the Securities and Exchange Commission on March 23, 2006.
(8) Incorporated by Reference to our Form 8-K (File no. 001-14907) as filed
with the Securities Exchange Commission on October 16, 2006.
- 31 -
SIGNATURES
Pursuant to 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 PHARMACEUTICALS, INC.
Date: November 9, 2006 By: /s/ Eric L. Sorkin
------------------
Eric L. Sorkin
President and Chief Executive Officer
Date: November 9, 2006 By: /s/ Gary C. Parks
-----------------
Gary C. Parks
Treasurer, Secretary and Chief Financial
Officer
(Principal Financial and Accounting
Officer)