2/12/01
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 December 31, 2001.
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _______ to _______.
Commission file number: 000-25669
IMMTECH INTERNATIONAL, INC.
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(Exact Name of Registrant as specified in its Charter)
Delaware 39-1523370
--------------------------------- -------------------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
150 Fairway Drive, Suite 150, Vernon Hills, Illinois 60061
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (847) 573-0033
Check 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 prior 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [_]
As of January 31, 2002, 6,005,371 shares of the Registrant's common stock, par
value $0.01 ("Common Stock"), were outstanding.
INDEX
Page No.
PART I. FINANCIAL INFORMATION..................................................1
Item 1. Condensed Financial Statements......................................1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................14
Item 3. Quantitative and Qualitative Disclosures
about Market Risk..................................................19
PART II. OTHER INFORMATION....................................................19
Item 1. Legal Proceedings..................................................19
Item 2. Recent Sales of Unregistered Securities; Use of
Proceeds from Registered Securities................................20
Item 3. Defaults Upon Senior Securities....................................22
Item 4. Submission of Matters to a Vote of Security Holders................22
Item 5. Other Information..................................................23
Item 6. Exhibits, and Reports on Form 8-K..................................23
SIGNATURES....................................................................24
-i-
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS (UNAUDITED)
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DECEMBER 31, MARCH 31,
ASSETS 2001 2001
CURRENT ASSETS:
Cash and cash equivalents $ 63,894 $ 2,097,718
Restricted funds on deposit 1,500,900 3,812,553
Other current assets 28,289
------------ ------------
Total current assets 1,564,794 5,938,560
PROPERTY AND EQUIPMENT - Net 198,677 210,024
OTHER ASSETS 19,848 19,848
------------ ------------
TOTAL $ 1,783,319 $ 6,168,432
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY IN ASSETS)
CURRENT LIABILITIES:
Accounts payable $ 1,853,472 $ 1,695,721
Accrued expenses 50,862 70,862
Deferred revenue 1,129,710 3,509,194
------------ ------------
Total current liabilities 3,034,044 5,275,777
DEFERRED RENTAL OBLIGATION 28,737 33,511
------------ ------------
Total liabilities 3,062,781 5,309,288
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS):
Preferred stock, par value $0.01 per share, 5,000,000 shares
authorized and unissued
Common stock, par value $0.01 per share, 30,000,000 shares authorized,
6,005,371 and 5,955,245 shares issued and outstanding
as of December 31, 2001 and March 31, 2001, respectively 60,054 59,552
Additional paid-in capital 33,840,169 33,574,917
Deficit accumulated during the developmental stage (35,179,685) (32,775,325)
------------ ------------
Total stockholders' equity (deficiency in assets) (1,279,462) 859,144
------------ ------------
TOTAL $ 1,783,319 $ 6,168,432
============ ============
See notes to condensed financial statements.
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
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OCTOBER 15,
1984
THREE MONTHS ENDED NINE MONTHS ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------------- ---------------------------- --------------
2001 2000 2001 2000 2001
REVENUES $ 954,660 $ 86,440 $ 2,914,082 $ 425,398 $ 6,625,942
------------ ------------ ------------ ------------ ------------
EXPENSES:
Research and development 1,205,808 1,207,471 2,986,881 5,095,348 27,529,935
General and administrative 689,328 1,928,692 2,370,330 3,243,393 16,783,090
Equity in loss of joint venture 135,002
------------ ------------ ------------ ------------ ------------
Total expenses 1,895,136 3,136,163 5,357,211 8,338,741 44,448,027
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (940,476) (3,049,723) (2,443,129) (7,913,343) (37,822,085)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 2,409 13,336 38,769 151,833 561,887
Interest expense (1,129,502)
Loss on sales of investment securities - net (2,942) (2,942)
Cancelled offering costs (584,707)
------------ ------------ ------------ ------------ ------------
Other income (expense) - net 2,409 13,336 38,769 148,891 (1,155,264)
------------ ------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (938,067) (3,036,387) (2,404,360) (7,764,452) (38,977,349)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT 1,427,765
------------
NET LOSS (938,067) (3,036,387) (2,404,360) (7,764,452) (37,549,584)
REDEEMABLE PREFERRED STOCK CONVERSION, PREMIUM
AMORTIZATION AND DIVIDENDS 2,369,899
------------ ------------ ------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ (938,067) $ (3,036,387) $ (2,404,360) $ (7,764,452) $(35,179,685)
============ ============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.16) $ (0.55) $ (0.40) $ (1.43)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES USED IN COMPUTING
BASIC AND DILUTED LOSS PER SHARE 6,005,371 5,520,357 6,003,208 5,410,991
============ ============ ============ ============
See notes to condensed financial statements.
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
OCTOBER 15,
1984
THREE MONTHS ENDED NINE MONTHS ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------------- ---------------------------- --------------
2001 2000 2001 2000 2001
OPERATING ACTIVITIES:
Net loss $ (938,067) $ (3,036,387) $ (2,404,360) $ (7,764,452) $ (37,549,584)
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 85,087 1,141,830 246,911 1,276,498 13,497,506
Depreciation and amortization of
property and equipment 25,480 28,973 73,341 80,164 518,208
Deferred rental obligation (1,592) (1,591) (4,774) (4,775) 28,737
Equity in loss of joint venture 135,002
Loss on sales of investment securities - net 2,942 2,942
Amortization of debt discounts and issuance costs 134,503
Extraordinary gain on extinguishment of debt (1,427,765)
Changes in assets and liabilities:
Restricted funds on deposit 751,339 2,311,653 (1,500,900)
Other current assets 50,000 28,289 11,200
Other assets (19,848)
Accounts payable 419,092 (383,944) 157,751 (771,212) 2,182,612
Accrued expenses (25,789) (20,000) 713,875
Deferred revenue (858,215) (2,379,484) 27,622 1,129,710
------------- ------------- ------------- ------------- -------------
Net cash used in operating activities (466,876) (2,276,908) (1,990,673) (7,142,013) (22,155,002)
------------- ------------- ------------- ------------- -------------
INVESTING ACTIVITIES:
Purchases of investment securities (199,996) (1,803,469)
Proceeds from sales and maturities
of investment securities 1,558,043 1,800,527
Purchases of property and equipment (6,329) (61,994) (59,730) (690,361)
Investment in and advances to joint venture (135,002)
------------- ------------- ------------- ------------- -------------
Net cash (used in) provided by
investing activities (6,329) (61,994) 1,298,317 (828,305)
------------- ------------- ------------- ------------- -------------
FINANCING ACTIVITIES:
Advances from stockholders and affiliates 985,172
Proceeds from issuance of notes payable 2,645,194
Principal payments on notes payable (218,119)
Payments for debt issuance costs (53,669)
Payments for extinguishment of debt (203,450)
Proceeds from issuance of redeemable
preferred stock 3,330,000
Net proceeds from issuance of common stock 4,410,162 18,843 4,348,457 16,316,514
Additional capital contributed by stockholders 13,825 245,559
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities 4,410,162 18,843 4,362,282 23,047,201
------------- ------------- ------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (466,876) 2,126,925 (2,033,824) (1,481,414) 63,894
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 530,770 987,980 2,097,718 4,596,319 0
------------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 63,894 $ 3,114,905 $ 63,894 $ 3,114,905 $ 63,894
============= ============= ============= ============= =============
See notes to condensed financial statements.
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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1. BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared by
Immtech International, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and, in the
opinion of the Company, include all adjustments necessary for a fair
statement of results for each period shown (unless otherwise noted herein,
all adjustments are of a normal recurring nature). Certain information and
note 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-KSB/A (Amendment No. 1).
2. COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Immtech International, Inc. (the "Company") is a
biopharmaceutical company focused on the discovery, development and
commercialization of drugs for the treatment of fungal diseases,
tuberculosis, hepatitis, pneumonia, diarrhea, and cancer. The Company has
two separate platform technologies for developing drugs, one for
developing a new class of anti-microbial molecules as pharmaceuticals and
the other for developing (Through NextEra Therapeutics, Inc., a joint
venture among the Company, Franklin Research Group, Inc. and an
individual. See Note 3) a series of biological proteins that work in
conjunction with the immune system.
The Company was incorporated in 1984. The Company is in the development
stage and has directed its efforts toward research and development, hiring
scientific and management personnel, arranging for facilities and
conducting laboratory and clinical trials of product candidates. The
Company does not have any products currently available for sale, and no
products are expected to be commercially available for several years.
Going Concern Presentation and Related Risks and Uncertainties - The
accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
Since inception, the Company has incurred accumulated losses of
approximately $37,550,000. Management expects the Company to continue to
incur significant losses during the next several years as the Company
expands its research and development activities and clinical trial
efforts. In addition, the Company has various research and development
agreements with certain entities that are thinly capitalized and are
dependent upon their ability to raise additional funds to continue their
research and development activities. There can be no assurance that the
Company's continued research will lead to the development of commercially
viable products. The Company's operations to date have consumed
substantial amounts of cash. The negative cash flow from operations is
expected to continue in the foreseeable future. The Company will require
substantial funds to conduct research and development and laboratory and
clinical testing and to manufacture (or have manufactured) and market (or
have marketed) its product candidates.
-4-
The Company's working capital is not sufficient to fund the Company's
operations through the commercialization of one or more products yielding
sufficient revenues to support the Company's operations; therefore, the
Company will need to raise additional funds. On February 14, 2002, the
Company closed the initial stage of two private placement offerings which
raised approximately $3,867,500 of additional equity (before offering
costs) through the issuance of 154,700 shares of Series A convertible
preferred stock and warrants to purchase 386,750 shares of common stock
(see Note 7). The Company believes its existing unrestricted cash and cash
equivalents, and the grants the Company has received or has been awarded
and is awaiting disbursement of, together with the proceeds from the
aforementioned private placements offerings, will be sufficient to meet
the Company's planned expenditures through December, 2002, although there
can be no assurance the Company will not require additional funds. These
factors, among others, indicate that the Company may be unable to continue
as a going concern. The accompanying financial statements do not include
any adjustments that might result from an adverse outcome of these
uncertainties.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient funds to meet its obligations as they
become due and, ultimately, to obtain profitable operations. Management's
plans for the remainder of the fiscal year, in addition to normal
operations, include continuing their efforts to obtain additional equity
and/or debt financing (see Notes 4 and 7), obtain additional research
grants and enter into various research and development agreements with
other entities.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. Cash and cash equivalents consist of an amount on
deposit at a bank and an investment in a money market mutual fund, stated
at cost, which approximates fair value.
Restricted Funds on Deposit - Restricted funds on deposit consist of cash
on deposit at a bank which is restricted for use in accordance with a
clinical research subcontract agreement with The University of North
Carolina at Chapel Hill (see Note 5).
Income Taxes - The Company accounts for income taxes using an asset and
liability approach. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable
income. In addition, the valuation allowance is recognized if it is more
likely than not that some or all of the deferred income tax assets will
not be realized. A valuation allowance is used to offset the related net
deferred income tax assets due to uncertainties of realizing the benefits
of certain net operating loss and tax credit carryforwards and other
deferred income tax assets.
-5-
Comprehensive Loss - Comprehensive loss for the nine months ended December 31,
2000 was as follows:
Net loss $(7,764,452)
Other comprehensive income (loss):
Unrealized loss on investment securities available for sale (1,764)
Reclassification adjustment for loss included in net loss 2,942
-----------
Comprehensive loss $(7,763,274)
===========
There were no differences between comprehensive loss and net loss for the three
months and nine months ended December 31, 2001 and the three months ended
December 31, 2000.
Reclassifications - Certain amounts previously reported have been reclassified
to conform with the current presentation.
3. INVESTMENT IN NEXTERA THERAPEUTICS, INC.
On July 8, 1998, the Company, together with Franklin Research Group, Inc.
("Franklin") and an individual, formed NextEra Therapeutics, Inc.
("NextEra") to develop therapeutic products for treating cancer and
related diseases. The Company and Franklin have a research and funding
agreement with NextEra in which Franklin provided funding of $1,350,000 to
NextEra to fund the scale-up of manufacturing for and initiation of
certain clinical trials of NextEra's product candidates. The Company
contributed its rmCRP technology as well as use of its current laboratory
facilities for 330,000 common shares of NextEra. During the year ended
March 31, 2000, the Company advanced $135,000 to NextEra to fund its
operations. The Company did not advance any funds to NextEra during the
nine months ended December 31, 2000 and 2001.
NextEra funded the operation of the Company's primary facility, including
certain salaries related to work on rmCRP, rent, and overhead associated
with the project from July 1998 through December 1999. Since January 1,
2000, NextEra has funded only their own compensation expenses, as they
stopped funding the Company's primary facility and any associated
overhead. In addition, NextEra has funded and is required to fund the cost
of maintaining and defending the patents that are part of the intellectual
property transferred to NextEra by the Company.
NextEra has incurred accumulated losses of approximately $2,174,000 since
inception (July 8, 1998) through December 31, 2001. NextEra is expected to
continue to incur significant losses during the next several years. In
addition, as of December 31, 2001, NextEra's current liabilities exceeded
its current assets by approximately $303,000 and NextEra had a
stockholders' deficiency of approximately $269,000.
As of December 31, 2001, September 30, 2001 and March 31, 2001, the
Company owned approximately 28%, 28% and 43%, respectively, of the issued
and outstanding shares of NextEra common stock.
On April 27, 2000, Franklin filed a complaint against the Company in the
United States District Court for the Southern District of Ohio, Eastern
Division alleging fraud, negligent misrepresentation and breach of the
implied covenant of good faith and fair dealing in connection with the
research and funding agreement entered into between Franklin, the Company
and NextEra. The complaint sought compensatory damages, unquantified
punitive damages, attorneys' fees, costs and expenses. On March 23, 2001,
Franklin voluntarily dismissed its complaint against the Company and
together
-6-
with NextEra filed a new complaint in the Court of Common Pleas, Franklin
County, Ohio alleging fraud, negligent misrepresentation and breach of the
implied covenant of good faith and fair dealing in connection with the
research and funding agreement entered into between Franklin, the Company
and NextEra. In addition, NextEra alleged the Company tortuously
interfered with an employment agreement between NextEra and the chief
scientific officer of NextEra. The complaint sought compensatory damages
in excess of $25,000, unquantified punitive damages, attorneys' fees,
costs and expenses. On May 25, 2001, the case was dismissed without
prejudice by the Court of Common Pleas, Franklin County, Ohio. The Company
is currently in negotiations with Franklin and its designees to resolve
certain issues, including the possible restructuring of the joint venture
and relationship with NextEra to better position NextEra in its fund
raising efforts, and increasing the Company's ownership in NextEra as
consideration for services provided to NextEra, expenses the Company
previously incurred on behalf of NextEra and funds previously advanced to
NextEra.
NextEra's ability to continue as a going concern is dependent upon its
ability to generate sufficient funds to meet its obligations as they
become due and, ultimately, to obtain profitable operations. NextEra's
financial plans for the forthcoming year include continuing efforts to
obtain additional equity financing.
The Company has recognized an equity loss in NextEra to the extent of the
basis of its investment and the investment balance has remained zero since
March 31, 2001. Recognition of any investment income on the equity method
by the Company for its investment in NextEra will occur only after NextEra
has earnings in excess of previously unrecognized equity losses.
4. COMMON STOCK OPTIONS AND WARRANTS
On October 12, 2000, the Company's stockholders approved the issuance of
options to purchase shares of common stock to certain employees and other
nonemployees who have been engaged to assist the Company in various
research and administrative capacities as part of the 2000 Stock Incentive
Plan. The 2000 Stock Incentive Plan provides for the issuance of up to
350,000 shares of common stock in the form of incentive stock options and
non-qualified stock options. The incentive stock options must be granted
at a price at least equal to fair market value at the date of grant.
The Company has granted common stock options to individuals who have
contributed to the Company in various capacities. The options contain
various provisions regarding vesting periods and expiration dates. The
options generally vest over periods ranging from zero to four years and
generally expire after five or ten years. During the three months and nine
months ended December 31, 2001, the Company issued options to purchase
56,000 and 95,750 shares of common stock to certain employees and
directors. As of December 31, 2001, there were 75,750 shares available for
grant, including 24,000 shares which are reserved for issuance under
certain consulting agreements with nonemployees.
During the three months ended December 31, 2001, the Company did not issue
any options to nonemployees and recognized expense of approximately
$85,000 related to certain options issued prior to July 1, 2001 which vest
over four year service periods. During the nine months ended December 31,
2001, the Company issued options to purchase 12,000 shares of common stock
to nonemployees and recognized expense of approximately $247,000 related
to these options and certain other options issued prior to April 1, 2001
which vest over four year service periods. During the three months and
nine months ended December 31, 2000, the Company issued options to
purchase 105,750 shares of common stock to nonemployees and recognized
expenses of approximately $276,000 and $410,000, respectively, related to
these options and certain other options issued prior to April 1, 2000
which vest over four year service periods. The expenses were determined
based on the estimated fair value of the options issued.
-7-
On July 31, 2000, the Company entered into an agreement with the
principals of Stonegate Securities, Inc. ("Stonegate") for assistance to
be provided by Stonegate in connection with raising additional equity
capital for the consideration of warrants to purchase 200,000 shares of
the Company's common stock. Pursuant to a notice of termination of the
agreement dated December 8, 2000, 100,000 of the warrants shall not vest.
The remaining 100,000 warrants expire on July 31, 2005 and have an
exercise price of $12.06 per share. The Company recognized a general and
administrative expense of $866,000 during the three months and nine months
ended December 31, 2000, as the warrants were for compensation unrelated
to the December 8, 2000 private placement offering. The expense was
determined based on the estimated fair value of the 100,000 issued and
vested warrants.
On March 15, 2001, the Company entered into a one year agreement with The
Kriegsman Group ("Kriegsman") for assistance to be provided by Kriegsman
to the Company with respect to financial consulting, planning,
structuring, business strategy, public relations and promotions. This
agreement was terminated by the Company effective September 14, 2001. As
compensation for these services, the Company paid a retainer fee to
Kriegsman of $20,000 per month for the term of the agreement. The Company
also granted Kriegsman warrants to purchase 250,000 shares of the
Company's common stock at $10.75 per share. Warrants to purchase 100,000
shares vested immediately while the remaining 150,000 warrants did not
vest as the Company's market capitalization did not reach the required
milestones. The warrants to purchase 100,000 shares of the Company's
common stock are exercisable over a five year period and contain a
cashless exercise provision.
On July 24, 2001, the Company entered into an agreement with H.C.
Wainwright & Co., Inc. ("Wainwright"), an investment bank, to seek
investors for a private placements of debt, equity and/or warrant
securities of the Company. This agreement was terminated by the Company
effective January 28, 2002. The Company was obligated to grant to
Wainwright, upon the closing of any private placement offering of the
Company's securities arranged by Wainwright, warrants to purchase 10% of
the amount of securities sold in such private placement offering at an
exercise price equal to the price at which the securities are sold in the
private placement offering, with a five year exercise period, and grant
registration rights on any underlying shares, among other items. In
addition, Wainwright was entitled to a fee of 7.5% of the aggregate cash
consideration received by the Company through their sources in connection
with the private placement offering. No warrants were issued and no
consideration was paid to Wainwright as Wainwright did not place any
securities for the Company.
5. COLLABORATIVE RESEARCH AND DEVELOPMENT ACTIVITIES
The Company has various collaborative research agreements with commercial
enterprises. Under the terms of these arrangements, the Company has agreed
to perform best efforts research and development and, in exchange, the
Company may receive advanced cash funding and may also earn additional
fees for the attainment of certain milestones. The Company may receive
royalties on the sales of such products. The other parties generally
receive exclusive marketing and distribution rights for certain products
for set time periods in specific geographic areas.
The Company initially acquired its rights to the platform technology and
dictations developed by a consortium of universities consisting of The
University of North Carolina at Chapel Hill ("UNC"), Duke University,
Auburn University and Georgia State University (all four universities
collectively,
-8-
the "Consortium") pursuant to an agreement, dated January 15, 1997 (as
amended, the "Consortium Agreement"), among the Company, Pharm-Eco
Laboratories, Inc. ("Pharm-Eco"), and UNC (to which each of the other
members of the Consortium agreed shortly thereafter to become a party).
The Consortium Agreement commits the parties to, collectively, research,
develop, finance the research and development of, manufacture and market
the technology and compounds owned by the Consortium and then licensed or
optioned to Pharm-Eco (the "Current Compounds") and to be licensed to the
Company in accordance with the Consortium Agreement, and all technology
and compounds developed by the Consortium after the date thereof through
use of Company-sponsored research funding or National Cooperative Drug
Development grant funding made available to the Consortium (the "Future
Compounds" and, collectively with the Current Compounds, the "Compounds").
The Consortium Agreement contemplated that upon the completion of the
Company's initial public offering ("IPO") of shares of its common stock
with gross proceeds of at least $10,000,000 by April 30, 1999, the Company
and Pharm-Eco, with respect to the Current Compounds, and the Company and
UNC, (on behalf of the Consortium), with respect to Future Compounds,
would enter into license agreements for, or assignments of, the
intellectual property rights relating to the Compounds held by Pharm-Eco
and the Consortium; pursuant to which the Company would pay royalties and
other payments based on revenues received for the sale of products based
on the Compounds.
The Company completed its IPO on April 26, 1999, with gross proceeds in
excess of $10,000,000. Pursuant to the Consortium Agreement, both
Pharm-Eco and the Consortium then became obligated to grant or assign to
the Company an exclusive worldwide license to use, manufacture, have
manufactured, promote, sell, distribute, or otherwise dispose of any
products based directly or indirectly on all of the Current Compounds and
Future Compounds.
As a result of the closing of the IPO, the Company issued an aggregate of
611,250 shares of common stock, of which 137,500 shares were issued to the
Consortium and 473,750 shares were issued to Pharm-Eco or persons
designated by Pharm-Eco.
Pursuant to the Consortium Agreement, the Company may, subject to the
satisfaction of certain conditions, be required to issue 100,000 shares of
common stock to the Consortium upon the filing by the Company of the first
new drug application or an abbreviated new drug application with the Food
and Drug Administration for a product covered by the Consortium Agreement
under Current Compounds. In addition, the Company will pay the Consortium
an royalty based on a percentage of the net sales of products derived from
the Compounds or revenues derived from sub-license agreements.
On January 28, 2002 the Company amended the Consortium Agreement whereby
the Company received the right to commercialize all future technology and
compounds developed or invented by one or more of the Consortium
scientists after January 15, 1997 and also incorporated into such license
agreement its existing license with the Consortium with regard to
compounds already under license. Under the terms of this license the
Company is required to continue to make quarterly research grants in the
amount of $100,000 to UNC through April 30, 2002 and pay all costs to
maintain and defend all patents and patent applications relating to any
products based on any Compounds. In addition, the Company will pay the
Consortium certain royalties based upon net sales or sub-license revenues
of commercialized products derived from the Compounds. During each of the
three month periods ended December 31, 2001 and 2000, the Company expensed
grant payments to UNC of $100,000. During each of the nine month periods
ended December 31, 2001 and 2000, the Company expensed grant payments to
UNC of $300,000. Such payments were expensed as research and development
costs.
-9-
In June 1999, the Company entered into a research and manufacturing
agreement with Pharm-Eco for Pharm-Eco to produce good manufacturing
practices quality, as defined, diatonic drugs and products for clinical
testing and for early commercialization. Pharm-Eco was unable to
manufacture certain required compounds and the Company subsequently
engaged alternate suppliers who successfully manufactured the compounds.
In August 2000, Pharm-Eco and two of its senior executives filed suit in
Delaware against the Company in connection with a dispute under the
Consortium Agreement. The Company responded by denying the allegations and
filing a counter-claim against Pharm-Eco for breach of contract.
The Company filed a Motion for Summary Judgment, which was granted on
February 21, 2001. In his Memorandum Opinion, the Vice Chancellor hearing
the proceeding dismissed all of the plaintiffs' claims against the Company
and held that Pharm-Eco had breached the Consortium Agreement by failing
to grant or assign to the Company a license for the Current Compounds. On
March 12, 2001, the Vice Chancellor signed a Final Order and Judgment
directing Pharm-Eco to execute and deliver to the Company an agreement
granting or assigning to the Company such a license. On March 27, 2001,
Pharm-Eco and the Company entered into an agreement assigning to the
Company the license to the Current Compounds. No further claims against
the Company remain in this proceeding, and on May 1, 2001, a Stipulation
of Dismissal was filed with the Court.
On April 20, 2001, the Company entered into a settlement agreement with
Pharm-Eco and certain other parties resolving all remaining matters
between them. Pursuant to this agreement, the Company received a cash
payment of $1,000,000; an assignment from Pharm-Eco of various contract
rights; and a termination of all of the Company's obligations to
Pharm-Eco, including, without limitation, (a) the obligation to issue an
aggregate of 850,000 warrants for shares of the Company's stock, (b) the
obligation to issue shares of common stock upon the occurrence of a
certain future event, (c) the obligation to pay a percentage of all
non-royalty payments that the Company might receive under any sublicense
that the Company might enter into with respect to certain compounds, and
(d) certain accounts payable which Pharm-Eco claimed to be owed of
approximately $159,000; and a release of any and all claims that Pharm-Eco
may have had against the Company. The cash payment received and the
accounts payable obligations which were forgiven, aggregating
approximately $1,159,000, was recorded as a credit to (reduction of)
research and development expense during the three months ended June 30,
2001; as the Company had previously expensed the estimated fair value of
the shares of common stock issued to Pharm-Eco at the time of the IPO and
the accounts payable obligations, as research and development expense.
In August 1999, the Company received a Small Business Innovation Research
("SBIR") grant of approximately $598,000 from the National Institutes of
Health ("NIH") to research various infections. During the nine months
ended December 31, 2000, the Company recognized revenues of approximately
$236,000 from this grant and expensed payments to UNC of approximately
$51,000, respectively, for contracted research related to the grant. There
was no additional funding available to the Company under the
aforementioned grant as of September 30, 2000.
In August 2000, the Company received two additional SBIR grants from the
NIH aggregating approximately $831,000. During the three months and nine
months ended December 31, 2001, the Company recognized revenues of
approximately $65,000 and $503,000, respectively, from these grants.
During the three months and nine months ended December 31, 2000, the
Company recognized revenues of approximately $86,000 and $189,000,
respectively, from these grants. During the three months and nine months
ended December 31, 2001, the Company expensed payments of approximately
$32,000 and $163,000, respectively, to UNC and certain other Consortium
universities for contracted research related to these grants. During the
three months
-10-
and nine months ended December 31, 2000, the Company expensed payments of
approximately $64,000 to UNC and certain other Consortium universities for
contracted research related to these grants. There was no additional
funding available to the Company under the aforementioned grants as of
December 31, 2001.
In August 2001, the Company was awarded an additional SBIR grant of
$144,000 from the NIH. During the three months and nine months ended
December 31, 2001, the Company recognized revenues of approximately
$32,000 related to this grant. During the three months and nine months
ended December 31, 2001, the Company expensed payments of approximately
$32,000 to UNC and certain other consortium universities for contracted
research related to this grant. There is additional funding available to
the Company under the aforementioned grant of approximately $112,000 as of
December 31, 2001.
During the three months ended December 31, 2001 and 2000, the Company
expensed approximately $58,000 and $115,000, respectively, of other
payments to UNC and certain other Consortium universities for
reimbursement of patent related costs and other contracted research. Total
payments expensed to UNC and certain other Consortium universities were
approximately $222,000 and $279,000 during the three months ended December
31, 2001 and 2000, respectively. During the nine months ended December 31,
2001 and 2000, the Company expensed approximately $231,000 and $286,000,
respectively, of other payments to UNC and certain other Consortium
universities for reimbursement of patent related costs and other
contracted research. Total payments expensed to UNC and certain other
Consortium universities were approximately $726,000 and $701,000 during
the nine months ended December 31, 2001 and 2000, respectively. Included
in accounts payable as of December 31, 2001 and March 31, 2001, were
approximately $390,000 and $215,000, respectively, due to UNC and certain
other Consortium universities.
In November 2000, the Bill & Melinda Gates Foundation awarded a
$15,114,000 grant to UNC to develop new drugs to treat Trypanosomiasis
(African sleeping sickness) and Leishmaniasis. On March 29, 2001, UNC
entered into a clinical research subcontract agreement with the Company,
whereby the Company is to receive up to $9,800,000 of such grant funds,
subject to certain terms and conditions, over a five year period to
conduct certain clinical and research studies in connection with such
diseases. The proceeds from this agreement are restricted and must be
segregated from the Company's other funds and used for specific purposes.
On March 29, 2001, the Company received the first installment of
$4,300,000, of which approximately $858,000 and $2,379,000 was utilized
for clinical and research purposes conducted and expensed during the three
months and nine months ended December 31, 2001, respectively. The Company
has recognized aggregate revenues of approximately $3,170,000 through
December 31, 2001 for services performed under the agreement. The
remaining amount (approximately $1,130,000) has been deferred and will be
recognized as revenue over the term of the agreement as the services are
performed.
6. CONTINGENCIES
In June 2000, Technikrom, Inc. ("Technikrom"), filed a claim against the
Company with the American Arbitration Association in Chicago, Illinois. In
that proceeding, Technikrom sought to recover $124,000 in fees, interest
and costs for certain method development services provided to the Company
relating to the purification of a protein known as rmCRP. The Company has
filed a counterclaim against Technikrom for fraudulent inducement of
contract which sought compensatory damages of at least $224,000, plus
fees, interest and costs. The Company also sought a declaratory judgment
that Technikrom, inter alia, failed to use its best efforts to develop a
purification method within the time parameters set by the parties. The
parties engaged an arbitrator and in November 2001 Technikrom was awarded
a $95,000 settlement, which the Company subsequently paid.
-11-
The Company is involved in various other claims and litigation incidental
to its operations. In the opinion of management, the ultimate resolution
of these actions will not have a material effect on the Company's
financial statements.
7. SUBSEQUENT EVENTS
On February 14, 2002, the Company filed a Certificate of Designation with
the Secretary of State of the State of Delaware designating 320,000 shares
of the Company's 5,000,000 authorized shares of preferred stock as Series
A Convertible Preferred Stock, $0.01 par value, with a stated value of
$25.00 per share. Dividends accrue at a rate of 6% 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. Each share of Series A Convertible Preferred Stock
shall be convertible by the holder at any time into shares of the
Company's common stock at a conversion rate determined by dividing the
$25.00 stated value, plus any accrued and unpaid dividends (the
"Liquidation Price"), by a $4.42 conversion price (the "Conversion Price")
subject to antidilution adjustment. The Company may at any time after
February 14, 2003, require that any or all outstanding shares of Series A
Convertible Preferred Stock be converted into shares of the Company's
common stock, provided that the shares of common stock into which the
Series A Convertible Preferred Stock is convertible is registered pursuant
to an effective registration statement, as defined. The Company may redeem
the Series A Convertible Preferred upon 30 day's notice followed by
payment in cash to the investor of the Liquidation Price, unless the
holder converts the Series A Convertible Stock to Common Stock during such
30 day notice period. The number of shares of common stock shall be
determined by (i) dividing the Liquidation Price by the Conversion Price
provided that the closing bid price for the Company's common stock exceeds
$9.00 for 20 consecutive tracking days within 180 days prior to notice of
conversion, as defined, or if the requirements of (i) are not met, the
number of shares of common stock is determined by dividing 110% of the
Liquidation Price by the Conversion Price. The Conversion Price is subject
to antidilution adjustments, as defined in the Certificate of Designation.
The Company may, upon 30 days' notice, redeem any or all outstanding
shares of the Series A Convertible Preferred Stock by payment of the
Liquidation Price to the holder of such shares, provided that the holder
does not convert the Series A Convertible Preferred Stock into shares of
Common Stock during the 30 day period. The Series A Convertible Preferred
Stock has a preference in liquidation equal to $25.00 per share, plus any
accrued and unpaid dividends. Each issued and outstanding share of Series
A Convertible Preferred Stock shall be entitled to 5.6561 votes with
respect to any and all matters presented to the stockholders of the
Company for their action or consideration. Except as provided by law or by
the provisions establishing any other series of preferred stock, Series A
Convertible Preferred stockholders and holders of any other outstanding
preferred stock shall vote together with the holders of common stock as a
single class.
On February 14, 2002, the Company closed the initial stage of two private
placement offerings pursuant to Regulation D and Regulation S of the
Securities Act of 1933, as amended, which raised approximately $3,867,500
(before offering costs) through the issuance of 154,700 shares of Series A
Convertible Preferred Stock and warrants to purchase 386,750 shares of the
Company's common stock at an exercise price of $6.00 per share of Common
Stock. The warrants expire five years from the date of grant. The warrants
contain antidilution provisions.
On February 1, 2002, in connection with the aforementioned private
placement offerings, the Company entered into a one year consulting
agreement with Yorkshire Capital Limited ("Yorkshire") for assistance to
be provided by Yorkshire to the Company with respect to financial
consulting, planning, structuring, business strategy, public relations and
promotions, among other items. As compensation for such services, the
Company is required to pay a retainer fee to Yorkshire of $10,000 per
month for the term of the agreement. The Company also granted Yorkshire
warrants to purchase 360,000 shares of the Company's common stock at
prices ranging
-12-
from $6.00 to $12.00 per share. Warrants to purchase 100,000 shares at an
exercise price of $6.00 per share vested upon the closing of the initial
stage of the private placement offerings. Warrants to purchase 130,000
shares of the Company's common stock at a price of $9.00 per share shall
vest, should the Company's common stock trade at or above the $9.00
exercise price per share for 20 consecutive trading days. Warrants to
purchase 130,000 shares of the Company's common stock at a price of $12.00
per share shall vest, should the Company's common stock trade at or above
the $12.00 exercise price per share for 20 consecutive trading days. The
warrants expire on February 14, 2007 and contain antidilution provisions.
The Company may, upon 30 days notice, redeem any vested warrants for $0.10
per share if the Company's Common Stock trades at 200% of the exercise
price for 20 consecutive trading days. Yorkshire may exercise any vested
warrants during such notice period. In addition, in connection with the
closing of the initial stage of the private placement offerings, Yorkshire
received 60,000 shares of the Company's common stock as consideration for
identifying investors and raising funds.
In addition, on February 1, 2002, the Company entered into an introductory
brokerage agreement with Ace Champion, Ltd. and Pacific Dragon Group, Ltd.
(the "Introductory Brokers") for assistance to be provided by the
Introductory Brokers to the Company with respect to obtaining funds in
connection with the aforementioned Regulation S private placement
offerings. As compensation for such services, the Introductory Brokers are
entitled warrants to purchase 400,000 shares of the Company's common stock
at an exercise price of $6.00 per share, subject to certain conditions.
The warrants shall be considered earned, provided that the Company raises
$4,000,000 of funds in connection with the Regulation S private placement
offerings by March 1, 2002. Should less than $4,000,000 in such funds be
raised by March 1, 2002, the agreement will terminate as of such date. As
of February 14, 2002, $1,767,500 had been raised under the Regulation S
Private Placement. The Company may, after February 14, 2003 upon 30 days'
notice, redeem for $0.10 per share any earned warrants, provided that the
Company's common stock has traded at or above 200% of the exercise price
for 20 consecutive trading days. The Introductory Brokers may
exercise their warrants during the 30 day notice period. The warrants
expire five years from the date of issuance and contain antidilution
provisions.
* * * * * *
-13-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report and in the documents
incorporated by reference herein, including, without limitation, statements
containing the words "believe," "anticipate," "expect" and words of similar
import, constitute "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended ("Securities Act"), and Section
21E of the Exchange Act of 1934, as amended ("Exchange Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: (i) the Company's
history of operating losses, (ii) the Company's need for substantial additional
funds, (iii) the Company's ability to access the capital markets and/or to
secure private sources of funding, (iv) the availability of grant money, (v) the
length of time until any of the Company's product candidates may be available
for sale, (vi) the uncertainties involved in clinical trials being performed on
the product candidates the Company is developing, (vii) the Company's dependence
on third party relationships for the manufacture of product candidates and the
performance of clinical trials with regard to its product candidates, (viii) the
intense competition and rapid technological changes in the Company's industry,
(ix) the extensive and rigorous federal and foreign regulations of the Company's
testing, manufacturing and sale of its product candidates, (x) the Company's
dependence on key personnel and contributions from scientists, researchers and
technicians from consortium-member universities, (xi) the Company's ability to
protect the technology, patents and proprietary information on which its
business relies, (xii) the disposition of certain legal actions, (xiii) the
Company's ability to keep its common stock listed on the NASDAQ National Market
System and (xiv) other factors referenced in this report. Given these
uncertainties, readers of this report are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future events
or developments.
RESULTS OF OPERATIONS
Immtech International, Inc. ("Immtech" or the "Company") has not
generated any revenue from operations and does not anticipate generating any
revenue from operations for the foreseeable future. The Company has funded, and
plans to continue to fund, its operations through research funding agreements
and grants, and the sale of debt and equity securities. For the period from
inception (October 15, 1984) to December 31, 2001, the Company incurred
cumulative net losses of approximately $37,550,000. The Company has incurred
additional losses since such date and expects to incur additional operating
losses for the foreseeable future.
-14-
Three Months Ended December 31, 2001 and 2000.
Revenues under collaborative research and development agreements
were approximately $955,000 and $86,000 for the three months ended December 31,
2001 and 2000, respectively. For the three months ended December 31, 2001 there
were revenues recognized of approximately $858,000 relating to a clinical
research subcontract agreement between the Company and The University of North
Carolina at Chapel Hill ("UNC") and grant revenues of approximately $97,000 from
Small Business Innovative Research ("SBIR") grants from the National Institutes
of Health ("NIH"), while for the three months ended December 31, 2000, revenues
consisted of an NIH grant of approximately $86,000. The clinical research
subcontract agreement relates to a grant from the Bill & Melinda Gates
Foundation ("Gates Foundation") to UNC to develop new drugs to treat
Trypanosomiasis (African sleeping sickness) and Leishmaniasis. This program was
initiated in March 2001 (fourth quarter of last fiscal year). Grant and research
and development agreement revenue is recognized as completed under the terms of
the respective agreements, according to Company estimates. Funds received prior
to completion under the terms of the respective agreements are recorded as
deferred revenues.
Interest income for the three months ended December 31, 2001 was
approximately $2,000. Interest income in the three months ended December 31,
2000 was approximately $13,000. The decrease is due to a reduction in funds
invested and a decrease in interest rates paid on the invested funds from the
prior corresponding quarter. There was no interest expense for the three months
ended December 31, 2001 and December 31, 2000.
Research and development expenses decreased to approximately
$1,206,000 in the three months ended December 31, 2001 from approximately
$1,207,000 in the three months ended December 31, 2000.
General and administrative expenses decreased for the three months
ended December 31, 2001 to approximately $689,000 from approximately $1,929,000
for the three months ended December 31, 2000. General and administrative
expenses for the three months ended December 31, 2000 included a non-cash charge
of approximately $866,000 related to the issuance and vesting of warrants to
purchase 100,000 shares of the Company's Common Stock to Stonegate Securities,
Inc. ("Stonegate") as compensation for terminated services with respect to
raising additional capital. Additionally, there were expenses of approximately
$659,000 for general legal work and legal fees related to disputes with
Pharm-Eco, Technikrom and with our NextEra joint venture partner during the
three months ended December 31, 2000.
We incurred a net loss of approximately $938,000 for the three
months ended December 31, 2001 as compared with a net loss of approximately
$3,036,000 for the three months ended December 31, 2000.
Nine Months Ended December 31, 2001 and 2000.
Revenues under collaborative research and development agreements
were approximately $2,914,000 and $425,000 for the nine months ended December
31, 2001 and 2000, respectively. For the nine months ended December 31, 2001
there were revenues recognized of approximately $2,379,000 relating to a
clinical research subcontract agreement
-15-
between the Company and The University of North Carolina at Chapel Hill ("UNC")
and grant revenues of approximately $535,000 from Small Business Innovative
Research ("SBIR") grants from the National Institutes of Health ("NIH"), while
for the nine months ended December 31, 2000, revenues consisted of an NIH grant
of approximately $425,000. The clinical research subcontract agreement relates
to a grant from the Gates Foundation to UNC for development of new drugs to
treat Trypanosomiasis (African sleeping sickness) and Leishmaniasis. The
clinical research subcontract agreement with UNC was consummated in March 2001.
Grant and research and development agreement revenue is recognized as completed
under the terms of the respective agreements, according to Company estimates.
Funds received prior to completion under the terms of the respective agreements
are recorded as deferred revenues.
Interest income for the nine months ended December 31, 2001 was
approximately $39,000. Interest income for the nine months ended December 31,
2000 was approximately $152,000. The decrease is due to a reduction in funds
invested and a reduction in interest rates paid on the invested funds. There was
no interest expense for the nine months ended December 31, 2001 and December 31,
2000.
Research and development expenses decreased to approximately
$2,987,000 in the nine months ended December 31, 2001 from approximately
$5,095,000 in the nine months ended December 31, 2000. The decrease for the
period is primarily attributable to an April 20, 2001 settlement agreement with
Pharm-Eco Laboratories, Inc. ("Pharm-Eco"), whereby Immtech received from
Pharm-Eco a cash payment of $1,000,000. Certain accounts payable obligations to
Pharm-Eco of approximately $159,000 were also forgiven. The cash payment
received and the accounts payable obligation forgiven were recorded as a credit
to (reduction of) research and development expenses during the nine months ended
December 31, 2001 because we had previously expensed in research and development
the estimated fair value of the shares of our common stock received by Pharm-Eco
at the time of our initial public offering on April 26, 1999 and the accounts
payable obligations. The nine months ended December 31, 2000 had significant
spending on preclinical studies required for regulatory filings which were not
required in the same period this year.
General and administrative expenses decreased for the nine months
ended December 31, 2001 to approximately $2,370,000 from approximately
$3,243,000 for the nine months ended December 31, 2000. The decrease was
primarily due to a non-cash charge of approximately $866,000 recorded in the
nine months ended December 31, 2000 related to the issuance and vesting of
warrants to purchase 100,000 shares of the Company's Common Stock to Stonegate
as compensation for terminated services with respect to raising additional
capital.
We incurred a net loss of approximately $2,404,000 for the nine
months ended December 31, 2001 as compared with a net loss of approximately
$7,764,000 for the nine months ended December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2001, the Company had approximately $64,000 of
cash and cash equivalents, substantially all of which were invested in a money
market mutual fund.
-16-
There were no equipment expenditures for the three months ended
December 31, 2001 as compared to approximately $6,000 for the same period last
year. During the nine months ended December 31, 2001 and 2000, equipment
purchases were approximately $62,000 and $60,000, respectively. No significant
purchases of equipment are anticipated by the Company during the next three
months.
The Company periodically receives cash from the exercise of common
stock options. During the three months ended December 31, 2001, there were no
options exercised.
On February 14th, 2002 we closed the initial stage of two private
placements of 154,700 shares of our Series A Convertible Preferred Stock,
$0.01 par value ("Series A Convertible Preferred Stock"), pursuant to Regulation
D and Regulation S of the Securities Act at a stated value of $25.00 per share
and warrants to purchase 387,650 shares of the Company's Common Stock at an
exercise price of $6.00 per share of Common Stock, $3,867,500 in the aggregate
("Private Placements"). Each share of Series A Convertible Preferred Stock,
among other things, (i) earns a 6% dividend, (ii) has a $25.00 (plus accrued but
unpaid dividends) liquidation preference, (iii) has "weighted average"
anti-dilution protection until December 31, 2002, (iv) is convertible into
5.6561 shares of Common Stock and (v) may be redeemable by the Company after one
year under certain circumstances. The warrants expire five years from the date
of grant and contain certain anti-dilution protections. A complete description
of the designations, preferences, voting powers, qualifications, special or
relative rights and privileges of the Series A Convertible Preferred Stock is
contained in the Company's Series A Convertible Preferred Stock Certificate of
Designation file on Form 8-K on February 14, 2002.
We believe the proceeds of the Private Placements, together with our
existing resources, but not including proceeds from any grants we may receive,
to be sufficient to meet our planned expenditures through December, 2002,
although there can be no assurance we will not require additional funds.
To date, we have financed our operations with:
-17-
o proceeds from the above mentioned Series A Convertible
Preferred Stock and warrants to purchase Common Stock Private
Placements which in the aggregate raised gross proceeds of
approximately $3,876,500;
o proceeds from various other private placements of debt and
equity securities, an initial public offering and other cash
contributed from stockholders, which in the aggregate raised
approximately $23,047,000;
o payments from research agreements, foundation grants and SBIR
grants and Small Business Technology Transfer Program grants
of approximately $6,626,000; and
o the use of stock, options and warrants in lieu of cash
compensation.
Our cash resources have been used to finance research and
development, including sponsored research, capital expenditures, expenses
associated with development of product candidates under an agreement dated
January 15, 1997, as amended and restated on January 28, 2002 (the "Consortium
Agreement"), among the Company, The University of North Carolina at Chapel Hill
("UNC"), and Pharm-Eco Laboratories, Inc. (to which each of Duke University,
Auburn University and Georgia State University agreed shortly thereafter to
become a party, and all of which, collectively with UNC, are referred to as the
"Consortium"), and general and administrative expenses. Over the next several
years we expect to incur substantial additional research and development costs,
including costs related to early-stage research in preclinical (laboratory) and
clinical (human) trials, administrative expenses to support our research and
development operations and capital expenditures for expanded research capacity,
various equipment needs and facility improvements or relocation.
Pursuant to the Consortium Agreement, we are required to fund
certain research of the Consortium at an aggregate cost of approximately
$100,000 per quarter through April 30, 2002.
Our future working capital requirements will depend upon numerous
factors, including the progress of research and development programs (which may
vary as product candidates are added or abandoned), pre-clinical testing and
clinical trials, achievement of regulatory milestones, the Company's corporate
partners fulfilling their obligations to the Company, the timing and cost of
seeking regulatory approvals, the level of resources that the Company devotes to
the engagement or development of manufacturing capabilities, the ability of the
Company to maintain existing and to establish new collaborative arrangements
with other companies to provide funding to the Company to support these
activities, and other factors. In any event, we will require substantial funds
in addition to our existing working capital to develop product candidates and
otherwise to meet our business objectives.
Our ability to continue as a going concern is dependent upon our
ability to generate sufficient funds to meet obligations as they become due and,
ultimately, to obtain profitable operations. Management's plans for the
remainder of the fiscal year, in addition to normal operations, include
continuing their efforts to obtain additional financing and research grants, and
to enter into various research and development agreements with other entities.
-18-
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company's cash and cash equivalents are maintained primarily in
U.S. dollar accounts and amounts payable for research and development to
research organizations are contracted in U.S. dollars. Accordingly, the
Company's exposure to foreign currency risk is limited because its transactions
are primarily based in U.S. dollars. The Company does not have any other
exposure to market risk. The Company will develop policies and procedures to
manage market risk in the future as circumstances may require.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Technikrom, Inc. v. Immtech International, Inc.
In June 2000, Technikrom, Inc. ("Technikrom") filed a claim against
the Company with the American Arbitration Association in Chicago, Illinois.
Technikrom sought to recover $124,000 in fees, interest and costs for certain
method development services provided to the Company related to the purification
of a protein known as rmCRP. The Company filed a counterclaim against Technikrom
for fraudulent inducement of contract which sought compensatory damages of at
least $224,000, plus fees, interest and costs. The Company also sought a
declaratory judgment that Technikrom, inter alia, failed to use its best efforts
to develop a purification method within the time parameters set by the parties.
The parties engaged an arbitrator and in November, 2001 Technikrom was awarded a
$95,000 settlement which the Company subsequently paid.
Except as noted above and in Note 3 of the Notes to the Condensed
Financial Statements set forth in Part I, Item 1, Condensed Financial
Statements, of this Form 10-Q, in Part I, Item 3, Legal Proceedings, of the Form
10-KSB/A (Amendment No. 1) filed on July 6, 2001, in Part II, Item 1 of the Form
10-Q filed on November 14, 2001 and in Part II, Item 1, Legal Proceedings, of
the Form 10-Q filed on August 14, 2001, the Company is not aware of any
impending litigation.
-19-
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds
from Registered Securities.
On February 14, 2002 we issued 154,700 shares of Series A
Convertible Preferred Stock, $0.01 par value ("Series A Convertible Preferred
Stock") and warrants to purchase 386,750 shares of our Common Stock at a $6.00
per share exercise price to the below listed accredited and non-U.S. investors
pursuant to the initial closing of the Private Placements of our Series A
Preferred Stock for gross proceeds of $3,867,500. The Series A Convertible
Preferred Stock is convertible into 5.6561 shares of our Common Stock and is
subject to antidilution protection until January 1, 2003. The Series A
Convertible Preferred Stock also has liquidation and dividend preferences
superior to those of existing shareholders. The holders of outstanding Series A
Convertible Preferred Stock are entitled to receive, out of funds legally
available for the payment of dividends, semi-annual dividends. Each semi-annual
dividend is computed by dividing the annual dividend rate of 6.0% by two and is
payable, at the option of the Company, in cash or shares of Common Stock. The
warrants have a five year exercise period and are redeemable by the Company for
$0.10 per share upon 30 days' notice to the warrant holder if the Company's
Common Stock trades at 200% of the exercise price for 20 consecutive trading
days. The warrant holders may exercise the warrants during the notice period.
The proceeds of the Private Placements will be used for general corporate
purposes.
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
Date Investor Consideration Series A Common Exemption
Convertible Stock
Preferred Warrants
Stock
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Monet Capital Fund 1, LP $350,000 14,000 35,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 TEFA Capital, Inc. $350,000 14,000 35,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Ching-Jung Cheng $300,000 12,000 30,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Clough Investment Partners I, LP $285,000 11,400 28,500 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Thomas G. Hill $250,000 10,000 25,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Bruce Chiu $200,000 8,000 20,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 T. Stephen Thompson $200,000 8,000 20,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Chan Chee Wing $150,000 6,000 15,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Cheng Yuk Chor Dickie $100,000 4,000 10,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 High Achiever Inc. $100,000 4,000 10,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Arvin H. Kash $100,000 4,000 10,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Kingsway Lion Spur Technology Ltd. $100,000 4,000 10,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Li Kwo Yuk $100,000 4,000 10,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Wong Lin Chooi $100,000 4,000 10,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Eric L. Sorkin $90,000 3,600 9,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Clough Offshore Fund, Ltd. $85,000 3,400 8,500 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Thorpe Limited $70,000 2,800 7,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Tsang Wai Ping Alfred $70,000 2,800 7,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Fu Hui Chen $62,500 2,500 6,250 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Dwight B. Crane $60,000 2,400 6,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Frederick W. Wackerle $60,000 2,400 6,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Lau Chu $50,000 2,000 5,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 To Wing Ming James $50,000 2,000 5,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Vivienne Lee $50,000 2,000 5,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Ho Sin Wai Celia $50,000 2,000 5,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Donald H. Wong $50,000 2,000 5,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Select Defender Fund $50,000 2,000 5,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Wo Ka Po $50,000 2,000 5,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Val Busler $30,000 1,200 3,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Clough Investment Partners II, LP $30,000 1,200 3,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Lau Mei Lin Amy $30,000 1,200 3,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Cheung Wai Hung $25,000 1,000 2,500 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
-20-
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
Date Investor Consideration Series A Common Exemption
Preferred Stock
Stock Warrants
2/14/02 Stephen D. Chubb $25,000 1,000 2,500 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 John J. Orlando $25,000 1,000 2,500 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Purchase Power Management Ltd. $25,000 1,000 2,500 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Wong Hon Fai Jones $25,000 1,000 2,500 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Martin Boyle $20,000 800 2,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Chu Yau Sum $20,000 800 2,000 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Lo Sui Sun $15,000 600 1,500 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Au Yeung Chun Kit $12,500 500 1,250 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Leung Shuk Lan $12,500 500 1,250 Regulation S
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 John Coonan $10,000 400 1,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 James M. Florsheim Trust $10,000 400 1,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Gary C. Parks $10,000 400 1,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
2/14/02 Michael Volpe $10,000 400 1,000 Regulation D
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
Totals $3,867,500 154,700 386,750
-------------- --------------------------------------------- -------------------- ------------- ------------- ------------------
The total offering price for securities sold in the Private
Placements under Regulation D of the Securities Act of 1933, as amended, was
$2,100,000. The total offering price for securities sold in the Private
Placements under Regulation S of the Securities Act of 1933, as amended, was
$1,767,500. In connection with the above Private Placements, certain executive
officers and the directors of the Company executed Lock-up Agreements preventing
them from disposing of more than 5% of the equity each of them holds in the
Company for the six month period that commenced on February 14, 2002.
On January 28, 2002, the Company terminated its engagement agreement
entered into on July 24, 2001, with H.C. Wainwright & Co., Inc., an investment
bank ("Wainwright"). The Company paid Wainwright $50,000 for its services but
has no further obligations under the engagement agreement.
On February 1, 2002, in connection with the aforementioned private
placement offerings, the Company entered into a one year consulting agreement
with Yorkshire Capital Limited ("Yorkshire") for assistance to be provided by
Yorkshire to the Company with respect to financial consulting, planning,
structuring, business strategy, public relations and promotions, among other
items. As compensation for such services, the Company is required to pay a
retainer fee to Yorkshire of $10,000 per month for the term of the agreement.
The Company also granted Yorkshire warrants to purchase 360,000 shares of the
Company's common stock at prices ranging from $6.00 to $12.00 per share.
Warrants to purchase 100,000 shares at an exercise price of $6.00 per share
vested upon the closing of the initial stage of the private placement offerings.
Warrants to purchase 130,000 shares of the Company's common stock at a price of
$9.00 per share shall vest, should the Company's common stock trade at or above
the $9.00 exercise price per share for 20 consecutive trading days. Warrants to
purchase 130,000 shares of the Company's common stock at a price of $12.00 per
share shall vest, should the Company's common stock trade at or above the $12.00
exercise price per share for 20 consecutive trading days. The warrants have a
five year exercise period and are redeemable by the Company for $0.10 per share
upon 30 days' notice to the warrant holder if the Company's Common Stock trades
at 200% of the exercise price for 20 consecutive days. The warrant holders may
exercise the warrants during the notice period. In addition, in connection with
the closing of the initial stage of the private placement offerings, Yorkshire
received 60,000 shares of the Company's common stock.
-21-
On February 1, 2002, the Company also entered into an introductory
brokerage agreement with Ace Champion, Ltd. and Pacific Dragon Group, Ltd. (the
"Introductory Brokers") for assistance to be provided by the Introductory
Brokers to the Company with respect to obtaining funds in connection with the
aforementioned Regulation S private placement offerings. As compensation for
such services, the Introductory Brokers are entitled warrants to purchase
400,000 shares of the Company's common stock at an exercise price of $6.00 per
share, subject to certain conditions. The warrants shall be considered earned,
provided that the Company raises $4,000,000 of funds in connection with the
Regulation S private placement offerings by March 1, 2002. Should less than
$4,000,000 in such funds be raised by March 1, 2002, the agreement will
terminate as of such date. If any warrants for are earned, the Company may upon
30 days' notice after February 14, 2003, redeem such warrants $0.10 per share,
provided that the Company's Common Stock has traded at or above 200% of the
exercise price for 20 consecutive trading days, unless the Introductory Brokers
do not exercise their warrants during the 30 day notice period. The warrants
expire five years from the date of issuance and contain antidilution protection.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
VOTES OF THE SHAREHOLDERS.
The Company held its Annual Meeting on December 17, 2001 at the Westin O'Hare in
Rosemont, Illinois. The following matters were presented to the stockholders:
(1) the election of five directors and (2) the ratification of the Company's
Board of Director's selection of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending March 31, 2002. The results of
the vote are as follows:
Proposal 1: The following individuals were elected Directors by the Shareholders
VOTES AUTHORITY
FOR WITHHELD
T. Stephen Thompson 3,701,367 14,990
Harvey Colten 3,713,867 2,490
Eric L. Sorkin 3,701,367 14,990
Cecilia Chan 3,701,367 14,990
Frederick W. Wackerle 3,713,867 2,490
PROPOSAL 2 VOTES VOTES
FOR AGAINST ABSTAIN
RATIFICATION OF DELOITTE & TOUCHE LLP AS 3,711,687 520 4,150
INDEPENDENT AUDITORS. (98.7%) (.01%) (.12%)
-22-
Item 5. Other Information.
Consortium Agreement.
On January 28, 2002 the Company finalized a license agreement with
The University of North Carolina at Chapel Hill ("UNC"), Auburn University, Duke
University and the Georgia State University Research Foundation, Inc. (all of
the foregoing entities shall be collectively referred to as the "Consortium")
whereby the Company received the right to commercialize all future technology
and compounds developed or invented by one or more of the Consortium scientists
and also incorporated into such license agreement its existing license with the
Consortium with regard to current compounds already under license. Under the
terms of this license the Company is required to pay to UNC on behalf of the
Consortium reimbursement of patent and patent related fees and a royalty based
on revenue derived from commercialized products. The license agreement is
attached hereto as Exhibit 10.1.
Item 6. Exhibits, and Reports on Form 8-K.
(a) Exhibits.
10.1 License Agreement dated as of January 28, 2002 among The
University of North Carolina at Chapel Hill, Auburn University, Duke
University, Georgia State University Research Foundation, Inc. and Immtech
International, Inc. Portions of this exhibit have been omitted pursuant to
a request for confidential treatment.
(b) Reports On Form 8-K.
A Form 8-K was filed on February 14, 2002 under Item 5 with regard
to the closing of the initial stage of the Regulation D and Regulation S
Private Placements collectively resulting in the sale of 154,700 shares of
Series A Convertible Preferred Stock and warrants to purchase 386,750
shares of Common Stock for gross proceeds of $3,867,500.
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: February 14, 2002 IMMTECH INTERNATIONAL, INC.
By: /s/ T. Stephen Thompson
----------------------------------------
T. Stephen Thompson
President and Chief Executive Officer
Date: February 14, 2002 By: /s/ Gary C. Parks
----------------------------------------
Gary C. Parks
Treasurer, Secretary and
Chief Financial Officer
(Principal Financial and
Accounting Officer)