Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended March 31, 1999.
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 001-14907
IMMTECH INTERNATIONAL, INC.
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(Name of Small Business as specified in its Charter)
Delaware 39-1523370
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1890 Maple Avenue, Suite 110, Evanston, Illinois 60201
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (847) 869-0033
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class in which Registered
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Common Stock, $.01 per share Boston Stock Exchange
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 |_| No |X|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
Issuer's revenues for its most recent fiscal year were $266,952.
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the price at which the common stock was
sold, or the average bid and asked price of such common stock as of May 24, 1999
was $54,957,721.
As of such date, 5,056,691 shares of the Registrant's Common Stock were
outstanding (including 611,250 shares of the Registrant's Common Stock that the
Registrant was obligated to issue as of April 30, 1999, but has not issued as of
the date of the filing of this report).
Transitional Small Business Disclosure Format: (Check One): Yes |_| No |X|
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PART I
Item 1. Business
OVERVIEW
Immtech International, Inc. (the "Company" or "Immtech") is a
biopharmaceutical company focused on the discovery and commercialization of
therapeutics for the treatment of patients afflicted with opportunistic
infectious diseases, cancer or compromised immune systems such as HIV infected
persons. The Company has a pharmaceutical and a biological program for
developing drugs. The pharmaceutical program is based on a technology platform
for the design of a class of pharmaceutical compounds referred to as dications.
Dicationic compounds have two positively charged ends held together by a
neutrally charged chemical linker group. The unique structure of the compounds
with positive charges on the ends (shaped like molecular barbells) allows them
to bind to the negatively charged surface in the minor groove of the organism's
DNA (like a band-aid), preventing life-sustaining enzymes from attaching to the
DNA's active sites. Once a site is occupied by one of the Company's compounds,
the necessary enzyme cannot bind to the DNA, preventing the organism from
dividing, stopping the spread of the related disease by inhibiting or killing
the growth of the target organism. This will accelerate the body's return to
normal health. The Company believes that pharmaceutical dications can be
designed to inhibit the growth of a wide variety of infectious organisms which
cause parasitic, fungal, protozoan, bacterial and viral diseases. The biological
program for developing drugs is based on biological proteins that work in
conjunction with the body's immune system. These biological proteins are
derivatives of C-Reactive Protein ("CRP"), which occurs naturally in the body
and which the Company believes can be used to control the structural environment
around cancerous tumors and to reprogram cancerous cells to stop growing
uncontrollably and revert to normal cell behavior.
A predecessor of the Company was incorporated under the laws of the State
of Wisconsin on October 15, 1984 and subsequently merged into the current
Delaware corporation on April 1, 1993. The Company's executive offices are
located at 1890 Maple Avenue, Suite 110, Evanston, Illinois 60201, telephone
number 847-869-0033.
UNIVERSITY CONSORTIUM AGREEMENT
The Company has an agreement with Pharm-Eco Laboratories, Inc.
("Pharm-Eco") and the University of North Carolina at Chapel Hill ("UNC"),
acting on behalf of a consortium of universities including UNC, Duke University,
Auburn University and Georgia State University (the "Consortium"), regarding the
continuing development and commercialization of the technology underlying the
Company's dicationic pharmaceutical product candidates. Pursuant to this
Agreement, the Company has obtained rights to the technology platform for making
dicationic pharmaceutical products and to treat microbial infections using an
existing library of 800 compounds developed by the Consortium and future
Compounds designed by the Consortium. The Company considers its relationship
with the Consortium, which includes many of the world's leading experts in
opportunistic infections and rational drug design, a substantial asset. Members
of the Consortium have laboratory testing systems for screening compounds for
activity to specific micro-organisms (using both laboratory and animal models).
Additionally, Georgia State University has years of experience and proprietary
computer modeling technology which simulates the binding of dicationic compounds
to cellular DNA, which facilitates the work of research chemists in designing
dicationic compounds to treat specific infections.
IMMTECH'S PRODUCTS
The Company has not generated meaningful revenue to date and does not have
any therapeutic products currently available for sale.
IMMTECH'S PRODUCTS UNDER DEVELOPMENT
Pharmaceutical Products - Dications
The Company's pharmaceutical platform technology for developing dications
is the result of a research program focused on understanding how dications bind
to the DNA of infectious and cancerous organisms. Pentamidine (a drug marketed
by Fujisawa Healthcare, Inc.) was the prototype drug used by researchers at UNC
to understand the mechanism by which dications work. Although the drug has
reported toxicity, Pentamidine is effective for the treatment of Pneumocystis
carinii pneumonia ("PCP"), a form of pneumonia common in patients with
compromised immune systems. Researchers at UNC discovered that most of
Pentamidine's toxicity was caused by certain metabolites formed as the drug
breaks down within the body. This discovery led the researchers to design new
compounds with more stable molecular structures which, the Company believes, do
not break down into toxic substances that cause side effects. These newly
designed compounds proved to be significantly less toxic and more effective in
treating PCP than Pentamidine. The methodology used by these researchers to
develop these new compounds evolved into the Company's platform technology for
designing
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dicationic compounds. The Company is using this platform technology to design
new pharmaceutical compounds to develop treatments for a wide variety of
infectious diseases.
The Company has two dicationic compounds ready to begin human clinical
trials. The first compound, DAP-092, is for the treatment of Cryptosporidium
parvum, a parasite that causes severe diarrhea and wasting. The second compound,
DB-289, is for the treatment of PCP. These two orally administered drugs are
ideally suited to demonstrate the power and versatility of the dicationic
technology platform. DAP-092 was developed to treat a parasite that is found
only in the gastro-intestinal tract ("gut"). Because of its positive charges,
DAP-092 cannot cross the digestive membranes, and stays in the digestive tract.
As a result, potential harmful side-effects are greatly reduced. On the other
hand, DB-289 which works in the circulatory system, was developed with a
proprietary (patented) method of temporarily neutralizing the positive charges
allowing it to readily pass through the digestive membranes into the circulatory
system where the dications become activated for treatment of diseases.
DAP-092
Cryptosporidiosis is recognized around the world as one of the most common
infections of the intestinal tract. Currently, no drug is available in the
market to treat this disease. DAP-092 was designed to block a key enzyme from
binding in the minor groove of the Cryptosporidium's DNA, thus inhibiting or
killing the growth of the organism. DAP-092 is unique because it will work
directly in the gut and not be absorbed into the circulatory system,
substantially reducing the possibility of adverse side-effects. The Company has
specifically targeted a drug for the treatment of Cryptosporidiosis in an effort
to take advantage of the fast track Food and Drug Administration ("FDA")
approval process often afforded to drugs which cure diseases for which there is
no acceptable treatment.
DB-289
DB-289 was developed as an oral substitute for the drug Pentamidine,
currently used to treat PCP. Pentamidine is administered via slow I.V. infusion
or inhalation due to its inability to cross membranes and its toxicity; it is
generally administered in a hospital setting at substantial cost. DB-289 is an
analog of Pentamidine in that its positive charges have been neutralized to
enable DB-289 to cross the digestive membranes. DB-289 was also designed with a
more stable molecular structure which delivers more drug to the infected site
and reduces toxicity caused by breakdown products. Once DB-289 enters the
circulatory system, naturally occurring enzymes remove the patented masking or
neutralizing charges to expose the active drug. Since DB-289 can be given orally
and does not result in toxic metabolites as it breaks down, it is anticipated
that it will be self-administered at home, making it substantially less
expensive to use than Pentamidine. The Company believes DB-289 will receive a
fast-track approval from the FDA.
Both DAP-092 and DB-289 are expected to enter Phase I/IIa trials in the
first half of 2000. The Company also has a series of dication compounds under
development to treat fungal infections. In addition, further back in the
pipeline are compounds being developed to treat malaria, tuberculosis and
cancer.
Biological Products - Modified CRP
The Company's biological program is focused on strengthening the innate or
natural immune system by (1) improving the structural environment around cells
and (2) reprogramming cancer cells to act normally. The immune system
coordinates the body's responses to injury and infection. It is the body's
primary defense against disease. The Company's scientists discovered that, as
part of the immune system's response to disease, the blood protein CRP is
modified by the body to form modified CRP ("mCRP"). Modified CRP strengthens
tissues and their interconnective structures which work to increase their
ability to resist disease and improve the effectiveness of the immune system.
Modified CRP is found naturally in healthy tissues surrounding blood vessels, in
the tissues in lymphatic organs, and in cells that have secretory functions. In
contrast, mCRP is absent (or present in greatly reduced amounts) in cancerous
tissues, such as those found in the lung, breast or prostate.
Cancers occur when normal cells grow uncontrollably. Rapidly dividing
cancer cells produce enzymes which attack and weaken surrounding tissues,
allowing cancer cells to grow unrestrained and become tumors. This unrestrained
growth may destroy surrounding organs or impair physiological functions, often
leading to death. The Company's scientists discovered that when cancerous cells
come in contact with mCRP, cell behavior is markedly changed, abnormal rapid
growth ceases and the cell returns to normal activity. The Company's biological
program focuses on replacing mCRP in areas where mCRP is deficient, increasing
barriers between cells to reduce the entry and propagation of disease, and
enhancing immune reactions.
Many scientists believe that although therapies that directly kill
infected or cancerous cells - e.g. chemotherapy, radiation therapy - are the
cornerstone to curing cancer, it is also necessary to develop therapies which
will bolster the immune system during treatment and foster regeneration of a
normal immune system. By combining "killing" therapies with "strengthening"
therapies, the
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chances for recovery are greatly increased. The Company believes that its mCRP
based biotherapeutic product is such a strengthening therapy. The Company has
developed a synthetic or recombinant form of mCRP ("rmCRP") which it believes
can be produced economically. In 1996, the Company conducted a Phase I human
clinical trial of rmCRP in HIV-infected volunteers. The clinical results showed
that the drug was safe to administer and duplicated the positive results seen in
the animal pre-clinical tests. The Company entered into an agreement with the
Franklin Research Group, a venture capital partnership (See Certain
Relationships and Related Transactions), to obtain funding to accelerate the
Company's biotherapeutic program for the treatment of cancer and related
diseases based on rmCRP. This resulted in a joint venture company, Next Era
Therapeutics, Inc., between Immtech and Franklin being formed in July, 1998.
STRATEGY
The Company's pharmaceutical strategy is to utilize the platform
technology developed by the Consortium's scientists for making pharmaceutical
products. The initial two objectives are to (1) commercialize dications in niche
markets by gaining fast-track FDA approvals and (2) demonstrate the power of the
dication platform technology upon which many new drugs can be developed. The
Company will continue to develop other dications which target diseases with
larger patient populations, and hence, larger markets. The Company's biological
strategy is to commercialize its rmCRP products as a primary therapy against
cancer and as an adjuvant for use with chemotherapy in treating cancer and in
the administration of vaccines.
The Company's short-term strategy is to (i) focus its resources on current
core technologies, (principally DAP-092 and DB-289) and gain FDA acceptance of
its dicationic technology; (ii) commence human clinical trials of DAP-092 and
DB-289; (iii) commence human clinical trials of rmCRP as a primary treatment for
cancer; and (iv) leverage its resources through corporate joint ventures to
minimize the cost to the Company of extended clinical trials and the development
of manufacturing procedures for the production of the Company's products. The
current status of the Company's products planned for clinical trials is
summarized below:
Clinical Development Plan
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Clinical Trial Trial Design/Phase Expected Result
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Dication Therapy o Phase I/IIa o Shorter diarrhea duration
Against Opportunistic o 20-30 HIV-infected o Prevent weight loss
Diarrhea; patients o Safety and efficacy
Cryptosporidiosis o Oral dosing established
DAP-092
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Pro-drug Oral o Phase I/IIa o Equivalent/improved anti-
Administration for o 25-50 PCP-infected, HIV- microbial effect against
Pneumocystis and infected patients PCP
tropical diseases o Oral dosing o Facilitated drug delivery
DB-289 o Bioavailability o Reduced side effects
o Safety and efficacy
established
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RmCRP o Phase I/IIa o Tumor growth stopped
Anticancer Therapy; o 30-50 patients-all cancers o Reduced metastatic disease
NextEra o IV injections o Tumor cells killed
o Dose escalation
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The Company intends to continue to conduct independent research and to use
business-sponsored research programs, joint ventures and other forms of
collaborative programs for product development, manufacturing and marketing. The
Company considers its current collaborative relationships significant to the
successful development of its business and believes that it will enter into
arrangements in the future to develop, manufacture and market not only the
products on which it is currently focusing, but also those which it will seek to
commercialize.
TARGET MARKET
The market for the Company's products consists of those seeking to treat
cancer and HIV disease and the opportunistic infections associated with immune
suppressed patients. According to the Centers for Disease Control and Prevention
("CDC"), cancer
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and infectious diseases rank second and third as causes of death in the United
States. In 1997, approximately 538,000 deaths (one of every four) resulted from
cancer. Over 1.2 million people are diagnosed with cancer every year, and one of
every four Americans now living will eventually develop cancer. In 1997, the
estimated cost to society to treat cancer patients was over $100 billion, more
than $5 billion of it for drugs (both chemotherapeutic agents and treatments for
opportunistic infections).
The infectious disease market represents a major opportunity for Immtech.
Infectious diseases cause approximately 175,000 deaths in the United States
annually - 40 to 50 per cent from respiratory infections, and approximately 20
percent from opportunistic infections associated with HIV disease and AIDS. In
addition, 2 million people will contract infections this year during a hospital
stay, adding approximately 8 million days of extended hospital stay at an annual
cost of $4.5 billion.
In 1997, worldwide sales of drugs to combat infectious disease were
approximately $26 billion, including $7 billion in the United States. Three
individual drugs each had sales of more than $1 billion. Most prominent
anti-infectives have targeted bacterial and fungal infections. However, there is
an acute need to develop new drugs to treat not only primary infections but
secondary or opportunistic infections as well. The emergence around the world of
drug-resistant strains of micro-organisms has contributed to this need, as has
the growing immuno-suppressed population created by disease (e.g., HIV) and the
use of immunosuppressive drugs (e.g., chemotherapeutic agents).
Cancer patients account for the largest number of opportunistic infections
(an estimated 500,000 patients in the United States and 1 billion worldwide in
1997). Of the approximately 200,000 AIDS patients in the United States,
one-fourth will develop opportunistic infections which become life-threatening.
Before 1987, opportunistic infections generally occurred as single infections;
today, 50 to 75 percent of AIDS patients develop multiple opportunistic
infections. The use of protease inhibitors as antiviral therapy in HIV positive
patients has reduced the number of opportunistic infections reported in the U.S.
The protease drugs are often used in combination therapy made up of several
different protease drugs in a cocktail. This cocktail therapy is very expensive
(requires a rigid protocol for taking the drug) and is only used in patients
that can afford the high cost of the drugs. Further, in recent meetings at the
National Institutes of Health ("NIH"), it has been reported that protease
resistant strains of the HIV virus are developing in a significant number of
patients. This trend suggests that over the next five years there will be an
increase in opportunistic infections in the HIV patient population.
The CDC recently issued a warning that drug-resistant forms of
Mycobacterium tuberculosis ("TB") are becoming prominent opportunistic
infections. The estimated annual cost to eradicate TB, reported to be $36
million in 1987 and $540 million in 1992, is estimated to have reached $825
million in 1996. In the state of New York, 23% of TB patients show signs of
having drug-resistant strains. It is estimated that 80% of patients with
multi-drug resistant TB die.
Another emerging opportunistic infection, Cryptosporidium parvum, occurs
not only in AIDS patients but in patients with cancers and heart disease, and
occasionally in the general population. The outbreak of Cryptosporidium parvum
in Milwaukee in 1993 afflicted approximately 400,000 people and was fatal to
100. This potentially life-threatening ailment affects 2-5% of AIDS patients,
with greater prevalence outside the United States, where protease inhibitors
have reduced the incidence. To date, there is no approved drug to treat
Cryptosporidium parvum-associated diarrhea. Immtech aims to have the first drug
in clinical trials and approved for treatment of this condition, although there
can be no assurance this will occur.
MANUFACTURING
Pharmaceutical Products
The Company has executed a letter of intent to form a manufacturing joint
venture with Pharm-Eco to produce good manufacturing practices ("GMP") - quality
dicationic drugs and prodrugs for the initial two compounds (DAP-092 and DP-289)
for clinical testing and early commercialization. Pharm-Eco is a full-service
drug synthesis and chemical services company that has synthesized numerous
compounds and advanced them into clinical testing. Pharm-Eco is known
internationally for providing high-quality contract manufacturing services to
NIH, the U.S. military, the federally-funded AIDS programs, and numerous large
pharmaceutical firms. Pharm-Eco has extensive experience in developing and
validating bulk pharmaceutical processes and in preparing Drug Master Files.
It is contemplated that the joint venture will reduce the cost and risk
associated with manufacturing the initial pharmaceutical products (DAP-092 and
DB-289). If and when the commercial sale of products begins, Immtech and
Pharm-Eco will deduct their costs associated with making and marketing
(including selling, marketing, and regulatory support) products. Any remaining
margin, after the costs have been subtracted, will be divided equally between
the joint venture partners. At such time when Immtech's sales reach $20 million
for DAP-092 and DB-289, Immtech can elect not to use the joint venture or
Pharm-Eco for manufacturing, whereupon Immtech would be required to pay a
royalty to Pharm-Eco of no more than 2% of sales.
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Biological Products
The Company has developed a recombinant form of the protein rmCRP.
Recombinant manufacturing involves the use of cloned genetic material (DNA) to
produce proteins in large quantities. The Company's scientists have successfully
cloned and expressed the gene from mCRP in Escherichia coli ("E. coli"). The
Company has developed methods to isolate rmCRP from E. coli and remove other
cell debris produced in the fermentation process. The Company's scientists have
determined that the recombinant protein has the same characteristics as the
naturally occurring protein, which showed promising safety and efficacy
characteristics in the Company's initial human trial. The Company is
continuously documenting the safety and efficacy of recombinant mCRP to
expeditiously file an investigational new drug ("IND") to conduct Phase I&IIa
trials with the products. See Government Regulation.
The Company intends to execute a contract with a third party manufacturer
to manufacture rmCRP on a commercial scale. The recombinant mCRP has been
isolated and purified to completion, and the Company has completed development
of a formulation method that is suitable for sterile and ongoing clinical
trials. The Company expects that the third party manufacturer will make
sufficient quantities of rmCRP to satisfy requirements for Phase I & IIa
clinical trials.
COMPETITION
Competition in the biotherapeutic, biotechnology and biopharmaceutical
industries is intense. Factors such as scientific and technological
developments, the availability of patents, timely governmental approval for
testing, manufacturing and marketing, and the ability to commercialize products
in a timely fashion play a significant role in determining a company's ability
to effectively compete. Furthermore, these industries are subject to rapidly
evolving technology that could result in the obsolescence of any products
developed by the Company. The Company competes with many specialized
biopharmaceutical firms, as well as a growing number of large pharmaceutical
companies that are applying biotechnology to their operations. Many of these
companies have concentrated their efforts in the development of human
therapeutics, and developed or acquired internal biotechnology capabilities.
These companies, as well as academic institutions, governmental agencies and
other public and private organizations conducting research, also compete with
the Company in recruiting and retaining highly qualified scientific personnel
and consultants and may establish collaborative arrangements with competitors of
the Company.
The Company's competition will be determined in part by the potential
indications for which the Company's products are developed and ultimately
approved by regulatory authorities. The Company is relying on its collaborations
with the Consortium, Pharm-Eco, UNC and NextEra Therapeutics to enhance its
competitive edge by providing manufacturing, testing and commercialization
support.
The Company knows of other companies and institutions dedicated to the
development of therapeutics similar to those being developed by the Company,
including Eli-Lilly, Hoffman-LaRoche and Abbott Laboratories. Many of the
Company's competitors, existing or potential, have substantially greater
financial and technical resources and therefore may be in a better position to
develop, manufacture and market biopharmaceutical products. Many of these
competitors are also more experienced with regard to preclinical testing, human
clinical trials and obtaining regulatory approvals. The current or future
existence of competitive products may also adversely affect the marketability of
the Company's products.
PATENTS AND LICENSES
The Company's success will depend in part on its ability to obtain patent
protection for its products, both in the United States and abroad. Although the
Company aggressively pursues patent protection, obtaining patents for
biopharmaceutical products involves complex legal and factual questions and
consequently involves a high degree of uncertainty. The Company has a policy of
developing new forms of and uses for its products and then applying for a patent
on each newly developed product.
There can be no assurance that any particular patent will be granted or
that patents issued to the Company will provide the protection contemplated.
Patents can be challenged, invalidated or circumvented. It is also possible that
competitors will develop similar products simultaneously. The Company and the
Consortium have filed a total of 164 patent applications in the United States
and other countries worldwide.
As of April 1999, the Company, by itself or jointly with others, has
applied for 22 United States patents for biological products. Seventeen of the
22 applications filed (10 of which have been issued) cover rmCRP's clinical uses
for (1) treating cancer, viral infections, bacterial infections,
thrombocytopenia, and immune complex disease, (2) diagnostic imaging of tissue
based disease,
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(3) monoclonal antibodies which specifically bind rmCRP and (4) the production
and isolation of rmCRP. As of April 1999, the Company has been issued 24 patents
in the U.S. and in various global markets on its biological products.
The Company has also obtained worldwide exclusive licensing rights to 106
additional patents filed domestically and globally for its pharmaceutical
products. The pharmaceutical patent applications cover compound structure and
uses for the treatment of infections caused by Pneumocystis carinii pneumonia,
Cryptosporidium parvum, Giardia lamblia, Leishmania mexicana amazonesis,
Trypanosoma brucei rhodesienes, various fungi, Plasmodium falciparum and HIV.
Also, patent applications cover the process for making prodrugs and the uses of
the Company's unique compounds to detect and quantify nucleic acids and
cytoskeleton elements. To date, 30 U.S. patents and 72 total patents have been
issued on the Company's pharmaceutical products.
Four of the 17 U.S. patents relating to mCRP products were filed jointly
with Northwestern University or Rush Medical School, and the Company retains
exclusive worldwide rights to use the technology covered by these patents
pursuant to license agreements. All of the Company's patents on its
pharmaceutical products have been filed jointly with UNC and the other academic
institutions of the Consortium.
It should be noted that as of June 8, 1995, certain legislative changes
implementing the General Agreement on Trade and Tariffs resulted in changes to
United States patent laws that affect the length of patent protection. Whereas
the term for patent applications used to be for a period of seventeen years from
the date of grant, the new term of a United States patent commences on the date
of issuance and terminates twenty years from the earliest effective filing date
of the application. The time from filing to issuance of biotechnology patent
application is often more than three years; consequently, a twenty-year term
from the effective date of filing may result in a negative impact on the
Company's patent position by offering a substantially shortened term of
protection.
The Company's potential products may conflict with patents which have been
or may be granted to competitors, universities or others. As the
biopharmaceutical industry expands and more patents are issued, the risk
increases that the Company's potential products may give rise to claims that
they infringe the patents of others. Such other persons could bring legal
actions against the Company claiming damages and seeking to enjoin clinical
testing, manufacturing and marketing of the affected products. If any such
actions are successful, in addition to any potential liability for damages, the
Company could be required to obtain a license in order to continue to
manufacture or market the affected products. There can be no assurance that the
Company would prevail in any such action or that any license required under any
such patent would be made available on acceptable terms, if at all. If the
Company becomes involved in litigation, it could consume a substantial portion
of the Company's time and resources.
The Company also relies on trade secret protection for its confidential
and proprietary information. However, trade secrets are difficult to protect and
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or technology, or that the Company
can meaningfully protect its rights to unpatented trade secrets.
The Company requires its employees, consultants and advisors to execute a
confidentiality agreement upon the commencement of an employment or consulting
relationship with the Company. The agreements generally provide that trade
secrets and all inventions conceived by the individual and all confidential
information developed or made known to the individual during the term of the
relationship shall be the exclusive property of the Company and shall be kept
confidential and not disclosed to third parties except in specified
circumstances. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's proprietary information in the
event of unauthorized use or disclosure of such information.
GOVERNMENT REGULATION
The Company's development, manufacture and potential sale of therapeutics
is subject to extensive regulation by United States and foreign governmental
authorities.
Products being developed by the Company may be regulated by the FDA as
drugs or biologics. New drugs are subject to regulation under the Federal Food,
Drug, and Cosmetic Act, and biological products, in addition to being subject to
certain provisions of that Act, are regulated under the Public Health Service
Act. The Company believes that drug products developed by it or its
collaborators will be regulated either as biological products or as new drugs.
Both statutes and the regulations promulgated thereunder govern, among other
things, the testing, manufacturing, safety, efficacy, labeling, storage, record
keeping, advertising and other promotional practices involving biologics or new
drugs. FDA approval or other clearances must be obtained before clinical
testing, and before manufacturing and marketing, of biologics and drugs.
Obtaining FDA approval has historically been a costly and time consuming
process. Generally, in order to gain FDA pre-market approval, a developer first
must conduct pre-clinical studies in the laboratory and in animal model systems
to gain preliminary
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information on an agent's efficacy and to identify any safety problems. The
results of these studies are submitted as a part of an IND application, which
the FDA must review before human clinical trials of an investigational drug can
start. The IND application includes a detailed description of the clinical
investigations to be undertaken.
In order to commercialize any product, the Company or its collaborator
must sponsor and file an IND and be responsible for initiating and overseeing
the clinical studies to demonstrate the safety, efficacy and potency that are
necessary to obtain FDA approval of any such products. For Company or
collaborator-sponsored INDs, the Company or its collaborator will be required to
select qualified investigators (usually physicians within medical institutions)
to supervise the administration of the products, and ensure that the
investigations are conducted and monitored in accordance with FDA regulations,
including the general investigational plan and protocols contained in the IND.
Clinical trials are normally done in three phases, although the phases may
overlap. Phase I trials are concerned primarily with the safety and preliminary
effectiveness of the drug, involve fewer than 100 subjects, and may take from
six months to over one year. Phase II trials normally involve a few hundred
patients and are designed primarily to demonstrate effectiveness in treating or
diagnosing the disease or condition for which the drug is intended, although
short-term side effects and risks in people whose health is impaired may also be
examined. Phase III trials are expanded clinical trials with larger numbers of
patients which are intended to evaluate the overall benefit-risk relationship of
the drug and to gather additional information for proper dosage and labeling of
the drug. Clinical trials generally take two to five years to complete, but may
take longer. The FDA receives reports on the progress of each phase of clinical
testing, and it may require the modification, suspension, or termination of
clinical trials if it concludes that an unwarranted risk is presented to
patients.
If clinical trials of a new product are completed successfully, the
sponsor of the product may seek FDA marketing approval. If the product is
regulated as a biologic, the FDA will require the submission and approval of
both a Product License Application ("PLA") and an Establishment License
Application before commercial marketing of the biologic. If the product is
classified as a new drug, the Company must file a New Drug Application ("NDA")
with the FDA and receive approval before commercial marketing of the drug. The
NDA or PLA must include detailed information about the drug and its manufacture
and the results of product development, preclinical studies and clinical trials.
The testing and approval processes require substantial time and effort and there
can be no assurance that any approval will be granted on a timely basis, if at
all. NDAs and PLAs submitted to the FDA can take, on average, two to five years
to receive approval. If questions arise during the FDA review process, approval
can take more than five years. Notwithstanding the submission of relevant data,
the FDA may ultimately decide that the NDA or PLA does not satisfy its
regulatory criteria for approval and deny approval or require additional
clinical studies. In addition, the FDA may condition marketing approval on the
conduct of specific post-marketing studies to further evaluate safety and
effectiveness. Even if FDA regulatory clearances are obtained, a marketed
product is subject to continual review, and later discovery of previously
unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market as well as possible civil or criminal
sanctions.
The Company also is subject to foreign regulatory requirements governing
human clinical trials and marketing approval for drugs with respect to marketing
outside the United States. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country.
EMPLOYEES
The Company currently has three employees, two of whom hold advanced
degrees. Through its collaborative agreement with the UNC Consortium,
approximately 25 researchers associated with institutions such as UNC, Auburn
University, Duke University and Georgia State University have worked to advance
the Company's products toward commercialization. The Company expects to hire up
to 12 new employees primarily to focus on regulatory and clinical development
activities and business opportunities. Among the employees to be hired will be a
physician to serve as the Company's Clinical Medical Director to coordinate and
carry out human trials; several project management employees with experience in
overseeing the pharmaceutical products and recombinant proteins as they progress
from discovery to human trials; an expert in regulatory affairs to oversee
government filings; and a quality assurance coordinator to oversee and verify
compliance of good laboratory products ("GLP") and data reporting. These
employees will be engaged directly in supporting the Company's regulatory and
clinical trial programs.
RESEARCH AND DEVELOPMENT
Pharmaceutical
The Company conducts independent research and development efforts and is
also a participant since 1997 in the Consortium organized by Dr. Richard R.
Tidwell of UNC. Many of the world's leading experts in opportunistic infections
are affiliated with members of the Consortium, including:
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o Dr. James E. Hall of UNC (for Pneumocystis diseases)
o Dr. John Perfect of Duke University (for fungal diseases)
o Dr. Byron Blagburn of Auburn University (for parasitic diseases)
o Dr. Christine Dykstra of Auburn (for the molecular and biochemical effects
of dicationic compounds on DNA and for viral disease)
o Drs. Dave Wilson and Dave Boykin of Georgia State University (for the
chemical design, synthesis, and molecular characterization of novel
anti-infective drugs).
NIH has awarded two National Cooperative Drug Development Grants ("NCDDG")
to the Consortium, which has developed a library of 800 compounds that have been
tested in vitro and in animals against infectious disease agents. In addition,
the Company and the Consortium have recently filed for grants to support new
programs for the continued development of the dication platform technology. The
new NIH programs request include funding for a $5 million National Cancer
Institute ("NCI") grant for using combinatorial chemistry to generate and screen
new anti-cancer dication compounds, a research proposal for approximately $1.2
million for studying the use of dications to inhibit receptors in the brain that
are related to memory, a proposal for $3 million to fund additional research
into anti-fungal compounds, a $4 million extension of the existing NCDDG grant
for tropical disease applications, and a proposal for $0.8 million to fund
additional research into Cryptosporidium. Immtech received a notice from the NIH
that a $0.8 million Small Business Innovation Research ("SBIR") I grant to
complete the GLP preclinical studies for DAP-092, a drug to treat
Cryptosporidium, is in the final approval stage for funding. Immtech and the
Consortium members will continue in 1999 to apply for new grants to support
applications for expanding the dication platform technology. However, the
process of obtaining grants is extremely competitive and there can be no
assurance that any of the Company's grant applications will be acted upon
favorably.
The Company is aggressively seeking to commence human clinical trials with
well-defined, short-term clinical end points. DAP-092, DB-289 and rmCRP are
being produced under GMP conditions, and study protocols and regulatory
information are being compiled in anticipation of starting clinical trials by
1999.
The Company plans to conduct multiple clinical trials using dication
drugs. Specifically:
o DAP-092 will be given orally to patients afflicted with severe
diarrhea caused by the intestinal parasite Cryptosporidium parvum.
Final plans are in place for synthesis, final toxicology testing
prior to human use, adsorption, distribution, metabolism and
excretion analyses, formulation for administration, and regulatory
approvals. This study is intended to establish that DAP-092 reduces
the duration of Cryptosporidium parvum-caused diarrhea, the
associated weight loss, and the number of Cryptosporidium parvum
organisms excreted in the stool.
o DB-289 entered into a Phase I/IIa trial as an orally active prodrug
formulation to treat PCP. DB-289 is designed to cross the intestinal
membrane to get into the bloodstream, where it is activated by
natural enzymes found in human cells. Once activated, the drug kills
the microbes causing the pneumonia, resulting in a clearing of the
airways. The Company is pursuing an A-IND (an abbreviated IND for
rapid FDA approval) for this human trial because the Company's
application will focus primarily on enhancing the safety and
delivery mechanics of a currently approved drug. The Company will
test its prodrug in PCP-infected AIDS patients.
Biological
The Company has completed two human Phase I biological clinical trials of
its biological products. Biological trials conducted to date have had promising
results:
o In 1994, a proof-of-principle Phase I human clinical safety study of
mCRP, conducted in a limited number of HIV-positive patients in
Germany, established that mCRP can be safely injected intravenously
in multiple-injection protocols. During treatment, CD4+ and CD8+
cell counts increased, HIV viral titers decreased, platelet numbers
increased, and platelet mass increased significantly.
o In 1995-1996, the Company developed rmCRP, which was tested in a
follow-up human Phase I/IIa dose escalation clinical trial, also in
Germany. Consistent with the initial trial in both safety and
efficacy, rmCRP enhanced the immune system (i.e., lymphocytes
increased and viral load decreased) and increased the number of
circulating platelets.
The next step is to test rmCRP in a Phase I/IIa trial in cancer patients
with funds provided by Franklin. See Certain Relationships and Related
Transactions. Initial studies will investigate the safety and anti-cancer
activity of rmCRP as a primary
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therapy. A cohort of 25 to 50 cancer patients with various malignancies will be
enrolled. The anti-cancer effects of rmCRP will be monitored by changes in
relative levels of blood markers of cancer, non-invasive diagnostic imaging
techniques, and biopsy evaluations.
Item 2. Properties
The Company's administrative offices and research laboratories are located
in Evanston, Illinois. The Company occupies approximately 2,500 square feet of
space under a lease which expires on November 30, 1999. As part of the joint
venture with Franklin (See Certain Relationships and Related Transactions), the
Company's current facilities will also be shared with NextEra. The Company
expects that it will obtain new office space, as well as space for research and
development activities that will be jointly occupied by Immtech and NextEra.
Management believes it will be able to conclude successfully its current
negotiations for a 9,750 square foot facility at commercially competitive rates.
Item 3. Legal Proceedings
The Company is not presently involved in any litigation, nor is it aware
of any impending litigation.
Item 4. Submission of Matters to a Vote of Security Holders
On February 5, 1999, by written consent in lieu of a meeting in accordance
with Section 228 of the Delaware General Corporation Law, the shareholders
approved a 1-for-2 reverse stock split of all of the shares of Common Stock
issued and outstanding immediately prior to the effectiveness of such stock
split, resulting in the reduction in the number of issued and outstanding shares
of Common Stock from 6,491,135 to 3,245,517. Of the 6,491,135 outstanding shares
of common stock held by persons entitled to vote on the reverse stock split,
5,164,367 shares or 79.6% of the shares were voted in favor of such stock split,
0 shares or 0% were voted against such stock split and 1,326,768 shares or 20.4%
abstained from voting.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is quoted on the Nasdaq SmallCap Market under
the symbol "IMMT". The Company's Common Stock is quoted on the Boston Stock
Exchange under the symbol "IMM".
No high and low closing sales prices per share as reported by the Nasdaq
SmallCap Market and the Boston Stock Exchange for the Company's Common Stock are
indicated because no calendar period has been completed as of the filing of this
form.
There were approximately 140 shareholders of record and approximately 566
beneficial owners of the Company's Common Stock as of May 24, 1999. The Company
has never declared nor paid dividends on its Common Stock and does not intend to
pay any dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is certain information concerning all sales of securities
by the Registrant during the past three years that were not registered under the
Act. The information set forth below gives effect to a 0.645260-for-1 reverse
stock split of the Company's Common Stock effected on July 24, 1998 and a
1-for-2 reverse stock split of the Company's Common Stock effected on February
5, 1999.
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1. The following shares of Series B Preferred Stock have been privately placed
during the past three years:
Date No. of Shares Purchaser Total Offering Price
---- ------------- --------- --------------------
12/16/96 7,700 William N. Pontikes $ 25,000.00
12/16/96 30,803 Nicholas K. Pontikes, Trustee $ 100,000.00
12/16/96 7,700 Nicholas R. Pontikes $ 25,000.00
01/02/97 23,102 Rick Kash $ 75,000.00
01/22/97 7,700 Donna & James Hale $ 25,000.00
These shares were sold to accredited investors in reliance on Section 4(2)
of the Act based on the limited number of purchasers, their sophistication and
close relationship to principals of the Company and access to information
regarding the Company as a result of their relationships.
2. The following shares of Common Stock have been issued as a result of the
exercise of stock options:
Date No. of Shares Purchaser Total Offering Price
---- ------------- --------- --------------------
3/18/97 12,985 Dr. Jeffrey Leiden $ 6,037.50
3/24/98 1,855 Barbara Buhrow $ 1,092.50
3/24/98 18,417 Gerald Walsh $ 10,485.96
(Contribution of
Promissory Note)
3/24/98 7,112 David Keating $ 4,044.95
(Contribution of
Promissory Note)
3/27/98 40,832 T. Stephen Thompson $ 13,921.82
(extinguishment of
Company obligation)
12/31/98 24,197 T. Stephen Thompson $ 8,250.00
12/31/98 16,131 Dr. Robert Murphy $ 5,000.00
12/31/98 322 Hans Liao $ 100.00
These stock options were granted to employees of and consultants to the
Company and were issued in reliance on Section 4(2) of the Act based on the
limited number of purchasers, their sophistication and close relationship to
principals of the Company and access to information regarding the Company as a
result of these relationships. No underwriters were involved in these
transactions.
3. As of July 24, 1998, the Company completed a private placement in Hong Kong
at $1.74 per common share and issued a total of 575,000 Common Shares to the
following individuals for aggregate cash consideration of $1,000,000. These
issuances were made in reliance on Section 4(2) and Regulation D of the Act by
the Company.
Date No. of Shares Purchaser Total Offering Price
---- ------------- --------- --------------------
11/10/98 160,000 Wingpearl Investment
Ltd. $ 278,260.86
11/10/98 105,000 Happy Result Ltd. $ 182,608.70
11/10/98 80,000 Fukoku Asset
Management Ltd. $ 139,130.43
11/10/98 40,000 United Resources
Investment Ltd. $ 69,565.21
11/10/98 190,000 Creditview Ltd. $ 330,434.78
All of the investors were accredited investors. The determination of whether an
investor was accredited or nonaccredited was based on the responses in the
questionnaire filled out by each investor.
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In connection with the transaction, the Company paid a placement agency
fee to The New China Hong Kong Securities Ltd. consisting of $50,000 and
warrants to purchase an aggregate of 75,000 shares of Common Stock at an
exercise price of $0.10 per share.
4. On July 24, 1998, 86,207 shares of the Company's Common Stock were issued to
Criticare (in addition to rights to certain patents, agreements and rights
associated with those assigned assets) for an aggregate purchase price of
$150,000. This sale was made in reliance on Section 4(2) of the Act. Criticare
qualifies as an accredited investor. Criticare had access to all the records of
the Company before its purchase of this stock. No underwriter was involved in
this transaction.
5. An aggregate of 145,353 shares of the Company's Common Stock were issued to
Criticare on July 24, 1998 in exchange for the cancellation of a promissory note
in the amount of $597,722 and accrued interest in the amount of $68,368. This
sale was made in reliance on Section 4(2) of the Act. Criticare qualifies as an
accredited investor. Criticare had access to all the records of the Company
before the purchase of this stock. No underwriter was involved in this
transaction.
As of July 24, 1998, an aggregate of 196,824 shares of the Company's
Common Stock were issued to other shareholders in exchange for advances in the
aggregate amount of $387,450. This sale was made in reliance on Section 4(2) of
the Act. The shareholders qualify as accredited investors. The shareholders had
access to all the records of the Company before the purchase of this stock. No
underwriter was involved in this transaction.
6. In July, 1996, the Company pursued a private placement at $1,000 per Unit,
with each Unit consisting of $1,000 principal amount of Senior Subordinated
Debentures due 1997 and one warrant to purchase 200 (100 shares after the .5 for
1 reverse stock split) shares of the Company's Common Stock, $0.01 par value per
share, and issued a total of 914 units to the following individuals for
aggregate cash consideration of $914,000. These issuances were made in
compliance with Rule 505, Regulation D of the Securities Act by Registrant's
management and placement agent. A commission of 7% of the Offering Price was
paid to the placement agent, H.D. Brous & Co., Inc. No general solicitation was
utilized. All of the investors were accredited investors. The determination of
whether an investor was accredited or nonaccredited was based on the response in
the subscription agreement filled out by each investor.
Date Purchaser Total Offering Price
---- --------- --------------------
08/31/96 Tim Connolly $ 25,000.00
08/31/96 Alvin Silver $ 25,000.00
08/31/96 L. Patrick Mellon $100,000.00
08/31/96 Dean L. Davis $ 25,000.00
08/31/96 William Grossman $ 25,000.00
08/31/96 Hugh W. van der Wilt $100,000.00
08/31/96 Charles T. Graham $ 50,000.00
08/31/96 Dale L. Davis $100,000.00
08/31/96 Howard Brous (Todd) $ 15,000.00
08/31/96 Howard Brous (Robert) $ 15,000.00
08/31/96 Tim Connolly $ 15,000.00
08/31/96 Criticare $ 59,000.00
08/31/96 James Randolph $ 30,000.00
08/31/96 Alan & Larry Phelps $ 6,000.00
08/31/96 Frederick Wackerle $ 14,000.00
08/31/96 Michael & Martha Harshbarger $ 57,000.00
08/31/96 T. Stephen Thompson $ 8,000.00
08/31/96 Dale Phelps $ 11,000.00
08/31/96 Dale Geiss $ 58,000.00
08/31/96 Frederick Frank $ 1,000.00
08/31/96 Ray Reister $ 1,000.00
08/31/96 Richard Lione $ 35,000.00
08/31/96 Walt Gustavson $ 59,000.00
08/31/96 Jack Schuler $ 18,000.00
08/31/96 Paul Lavins $ 1,000.00
08/31/96 Gerhard Von der Ruhr $ 49,000.00
08/31/96 Joseph Lai $ 12,000.00
7. As of July 24, 1998, the following debtholders of the Company converted
approximately $2,127,007 in indebtedness, consisting of stockholder advances,
notes payable and related accrued interest and accounts payable into 604,978
shares of Common Stock and
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<PAGE>
$203,000 cash in reliance on Section 4(2) of the Act. The debtholders qualify as
accredited investors. The debtholders had access to all the records of the
Company before the conversion of debt to stock. No underwriter was involved in
this transaction.
Date No. of Shares Purchaser Total Offering Price
---- ------------- --------- --------------------
7/27/98 36,401 Walsh & Keating, SC $ 192,288
7/27/98 1,031 Gary Walsh $ 6,135.50
7/27/98 1,031 David Keating $ 6,135.50
7/27/98 35,359 Winston & Strawn $ 184,172
7/27/98 10,454 Reinhart, Boerner, Van Dueren, $ 57,270.00
Norris & Rieselbach
7/27/98 25,527 Criticare $116,978.00
7/27/98 8,066 William N. Pontikes $ 25,000.00+
7/27/98 32,263 Nicholas K. Pontikes $100,000.00+
7/27/98 8,066 Nicholas R. Pontikes $ 25,000.00+
7/27/98 290 Gary Parks $ 450.00+
7/27/98 8,066 Donna & James Hale $ 25,000.00+
7/27/98 3,226 Kevin Bowen $ 10,000.00+
7/27/98 16,131 Rick Kash $ 50,000.00+
7/27/98 46,562 T. Stephen Thompson $ 72,160.00+
7/27/98 49,955 Gerhard Von der Ruhr $ 77,419.00+
7/27/98 24,197 N.C. Joseph Lai $ 37,500.00
10/19/98 5,022 James G. Randolph $ 38,532.00*
10/19/98 4,185 William Grossman, IRA $ 32,110.00*
10/19/98 16,740 L. Patrick Mellon $128,439.00*
10/19/98 16,740 Hugh W. van der Wilt $128,439.00*
10/19/98 16,740 Dale Leslie Davis $128,439.00*
10/19/98 4,185 Dean L. Davis $ 32,110.00*
10/19/98 2,511 Tim Connolly, IRA $ 19,266.00*
10/19/98 4,185 Tim Connolly $ 32,110.00*
10/19/98 8,370 Charles T. Graham $ 64,220.00*
10/19/98 4,185 Alvin Silver $ 32,110.00*
10/19/98 2,511 Howard Brous (Todd) $ 19,266.00*
10/19/98 2,511 Howard Brous (Robert) $ 19,266.00*
10/19/98 9,876 Criticare Systems $ 75,779.00*
10/19/98 2,009 N.C. Joseph Lai $ 15,413.00*
10/19/98 8,202 Gerhard Von der Ruhr $ 62,935.00*
10/19/98 167 Paul Lavins $ 1,284.00*
10/19/98 3,013 Jack Schuler $ 23,119.00*
10/19/98 9,876 Walter Gustavson $ 75,779.00*
10/19/98 5,859 Richard Lione $ 44,954.00*
10/19/98 167 Ray Reister $ 1,284.00*
10/19/98 167 Frederick Frank $ 1,284.00*
10/19/98 9,709 Dale Geiss $ 74,495.00*
10/19/98 1,841 Dale Phelps $ 14,128.00*
10/19/98 1,339 T. Stephen Thompson $ 10,275.00*
10/19/98 2,344 Frederick Wackerle $ 17,982.00*
10/19/98 1,004 Alan & Larry Phelps $ 7,706.00*
10/19/98 9,542 Hirschberger International, Inc. $ 73,211.00*
*Refers to amount in Paragraph No. 6 of this Item No. 5 above.
+Refers to amounts included in second paragraph of Paragraph No. 5 of this Item
No. 5 above.
The Company issued warrants to purchase an aggregate of 91,400 shares of
Common Stock to the individuals designated by an (*) in the table above as of
August 31, 1996 in connection with the Senior Subordinated Debentures referenced
in Paragraph No. 6 of this Item No. 5, which warrants carry an exercise price of
$5.00 per Share and are exercisable from April 30, 1999 until August 31, 1999.
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<PAGE>
On July 29, 1998, the Company issued warrants to purchase 225,000 shares
of Common Stock, at an exercise price of $0.10 per share, to RADE Management
Corporation ("RADE") in exchange for management consulting services. RADE had
access to information on the Company necessary to make an informed investment
decision for services valued at $198,000. (See Paragraph No. 3 of this Item No
5.) On April 22, 1999, the Warrant Agreement was amended to increase the
exercise price from $.10 per share to $6.47 per share.
On October 12, 1998, the Company issued warrants to purchase 750,000
shares of Common Stock, at an exercise price of $0.10 per share, to RADE in
exchange for management consulting services valued at $2,220,000. On April 22,
1999, the Warrant Agreement was amended to increase the exercise price from $.10
per share to $6.47 per share.
On July 29, 1998, the Company issued warrants to purchase 75,000 shares of
Common Stock, at an exercise price of $0.10 per share, to NCHK in connection
with the private placement on July 24, 1998. NCHK had access to information on
the Company necessary to make an informed investment decision for services
valued at $66,000. (See Paragraph No. 3 of this Item No 5.)
USE OF PROCEEDS
In April 1999, the Company sold 1,150,000 shares of common stock at $10.00
per share (which included the underwriters over allotment of 150,000 shares)
through the IPO. The U.S. underwriter Westport Resources handled the placement
of 300,000 shares plus the overallotment of 150,000 shares. The international
underwriter The New China Hong Kong Securities LTD placed the remaining 700,000
shares. The gross proceeds from the IPO totaled $11,500,000 and the net proceeds
totaled $9,172,610. $2,327,390 in proceeds from the IPO were used as follow:
Description Amount
----------- ------
Underwriters' Fees and Expenses $1,485,770
Legal Fees $ 450,809
Accounting Fees $ 147,468
Printing Fees $ 129,151
Blue Sky/Listing Fees $ 65,459
Travel, Promotion and Research $ 48,733
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
OVERVIEW
Immtech is a biopharmaceutical company focused on the discovery and
commercialization of therapeutics for the treatment of patients afflicted with
opportunistic infectious diseases, cancer or compromised immune systems. The
Company has two independent programs for developing drugs. The first is based on
a technology for the design of a new class of pharmaceutical compounds commonly
referred to as dications. The Company believes that pharmaceutical dications can
be designed to inhibit the growth of a wide variety of infectious organisms
which cause fungal, protozoan parasitic, bacterial and viral diseases. The
second is based on biological proteins that work in conjunction with the body's
immune system. These biological proteins are derivatives of C-Reactive Protein
("CRP"), which occurs naturally in the body and which the Company believes can
be used to control the structural environment around cancerous tumors and to
reprogram cancerous cells to stop growing uncontrollably and revert to normal
cell behavior.
With the exception of research agreements and past development funding
from Centocor, Sigma-Aldrich and certain research grants, the Company has not
generated any revenue from operations. For the period from inception to March
31, 1999, the Company incurred a cumulative net loss of $11,478,115. The Company
has incurred additional losses since such date and expects to incur additional
operating losses for the foreseeable future. The Company expects that its
revenue sources for at least the next several years will be limited to research
grants from Small Business Technology Transfer Program Grants ("STTR") and
payments from other collaborators under arrangements that may be entered into in
the future. The timing and amounts of such 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.
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RESULTS OF OPERATIONS
Year Ended March 31, 1999 Compared with Year Ended March 31, 1998.
Revenues under collaborative research and development agreements were
approximately $267,000 and $20,000 in the years ended March 31, 1999 and 1998,
respectively. In 1999, there were grant revenues of approximately $172,000 from
STTR Programs from the National Institutes of Health ("NIH") while for 1998 the
grant revenue from the NIH was $20,000. The balance of the revenue in 1999 was
from a license agreement with Sigma Diagnostics that has since been transferred
to Criticare. See Certain Relationships and Related Transactions.
Research and development expenses increased from approximately $312,000 in
1998 to $739,000 in 1999. This is due primarily to an increase of $200,000 of
payments to the Consortium on the "Agreement", additional expensed payments of
approximately $49,000 to the Consortium relating to the STTR's mentioned above,
and compensation expenses totaling $196,000 for services relating to the
issuance of stock options.
General and administrative expenses, including cancelled offering costs in
1998, increased in 1999 to approximately $2,701,000 from $609,000 in 1998. The
Company recorded $2,220,000 as compensation expense for services by RADE for
warrants issued for management consulting, market analysis and strategic
advisory services performed during 1999. The cancelled offering costs in 1998
were approximately $74,000.
The Company incurred a net loss of approximately $1,791,000 for the year
ended March 31, 1999 as compared with a net loss of approximately $1,146,000 for
the year ended March 31, 1998. The total compensation expense for services
rendered in 1999 of $2,426,000 was offset by the extraordinary gain on
extinguishment of debt of approximately $1,428,000.
Year Ended March 31, 1998 Compared with Year Ended March 31, 1997
Collaborative research and development revenue remained relatively
constant at approximately $20,000 for the year ended March 31, 1998 as compared
with approximately $15,000 for the year ended March 31, 1997.
Research and development expenses decreased to approximately $312,000 for
the year ended March 31, 1998 from approximately $479,000 for the year ended
March 31, 1997. The decrease was due to the internal shift from the biological
to the pharmaceutical focus with research being done through the Consortium.
General and administrative expenses, including cancelled offering costs in
each year, increased slightly to approximately $609,000 for the year ended March
31, 1998 from approximately $598,000 for the year ended March 31, 1997.
The Company incurred a net loss of approximately $1,146,000 for the year
ended March 31, 1998 as compared with a net loss of approximately $1,351,000 for
the year ended March 31, 1997. The smaller loss was due to lower interest
expense and the decrease in research and development costs.
LIQUIDITY AND CAPITAL RESOURCES
From inception through March 31, 1999, the Company financed its operations
from (i) the net proceeds of private placements of debt and equity securities
and cash contributed from stockholders, which in the aggregate, raised
approximately $11,000,000, (ii) payments from research agreements and SBIR
grants and STTR Program grants of approximately $1,988,000 and (iii) use of
stock, options and warrants in lieu of cash compensation.
In July 1998, the Company completed a private placement equity offering of
$1,000,000 (the "Private Placement"). As a condition to this investment, the
Company completed a recapitalization (the "Recapitalization") pursuant to which:
(i) the Company effected a 0.645260-for-1 reverse stock split of all of the
shares of Common Stock issued and outstanding immediately prior to the
effectiveness of such stock split, resulting in the reduction in the number of
issued and outstanding shares of Common Stock from 2,305,166 to 1,487,431 (the
"First Reverse Stock Split"); (ii) the Company converted approximately
$3,151,000 in indebtedness (consisting of stockholder advances, notes payable
and related accrued interest and accounts payable) outstanding immediately prior
to the Effective Date into 1,209,962 shares of Common Stock (after giving effect
to the First Reverse Stock Split), (iii) 1,794,550 shares of Series A Preferred
Stock issued and outstanding immediately prior to the Effective Date were
converted into 1,157,931 shares of Common Stock (after giving effect to the
First Reverse Stock Split), (iv) 1,600,000 shares of Series B Preferred Stock
issued
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<PAGE>
and outstanding immediately prior to the Effective Date were converted into
1,232,133 shares of Common Stock (after giving effect to the First Reverse Stock
Split), (v) as a result of the First Reverse Stock Split, options outstanding
immediately prior to the Effective Date and held by employees of or consultants
to the Company to purchase an aggregate of 1,746,815 shares of Common Stock were
automatically converted into options to purchase 1,127,150 shares of Common
Stock and the purchase prices thereof were adjusted proportionately and (vi) the
total number of authorized shares was increased to 35,000,000, consisting of
30,000,000 shares of Common Stock, $0.01 par value and 5,000,000 shares of
Preferred Stock, $0.01 par value. As referred to in Item 4 of this report, in
February of 1999 the Company effected a 1-for-2 reverse stock split of all of
the shares of Common Stock issued and outstanding immediately prior to the
effectiveness of such stock split, resulting in the reduction in the number of
issued and outstanding shares of Common Stock from 6,491,135 to 3,245,517.
The Company has used $100,000 of the net proceeds of the IPO to repay
amounts due to the State of Illinois. Substantially all of the remaining net
proceeds of the IPO, $9,072,610, will be used to fund the Company's research and
development efforts, including clinical and preclinical studies. Any net
proceeds not applied to the Company's research and development efforts will be
used for working capital and general corporate purposes, including hiring up to
12 additional employees. The amount and timing of expenditures of the net
proceeds of the IPO cannot be precisely determined, and will depend on numerous
factors, including the status of the Company's product development efforts, the
results of clinical trials and the regulatory approval process. The Company may
also use a portion of the net proceeds to acquire complementary businesses,
products or technologies, although the Company has no agreements and is not
involved in any negotiations with respect to any such transaction. Pending such
uses, the Company plans to invest the net proceeds from the IPO in short-term,
investment-grade, interest-bearing securities.
The Company's cash resources have been used to finance research and
development, including sponsored research, capital expenditures, expenses
associated with the efforts of the Consortium and general and administrative
expenses. Over the next several years, the Company expects to incur substantial
additional research and development costs, including costs related to
early-stage research in preclinical and clinical trials, increased
administrative expenses to support its research and development operations and
increased capital expenditures for expanded research capacity, various equipment
needs and facility improvements or relocation.
The Company was a party to sponsored research agreements with UNC which
requires it to fund an aggregate of approximately $100,000 per quarter from
April 30, 1999 through April 30, 2002.
At March 31, 1999, the Company had federal net operating loss
carryforwards of approximately $7,506,000, which expire from 2006 through 2019.
At March 31, 1999, the Company had available for federal income tax purposes
approximately $7,456,000 of alternative minimum tax net operating loss
carryforwards which expire from 2006 through 2019. The Company also has
approximately $5,405,000 of state net operating loss carryforwards as of March
31, 1999, which expire from 2008 through 2019, available to offset certain
future state taxable income for Illinois state tax purposes. Because of "change
of ownership" provisions of the Tax Reform Act of 1986, approximately $924,000
of the Company's net operating loss carryforwards for federal purposes are
subject to an annual limitation regarding utilization against taxable income in
future periods. At March 31, 1999, the Company had federal tax credit
carryforwards of approximately $90,000, which expire from 2008 through 2019.
The Company believes its existing resources but not including proceeds
from any grant the Company may receive, to be sufficient to meet the Company's
planned expenditures through December 2000, although there can be no assurance
the Company will not require additional funds. The Company's working capital
requirements will depend upon numerous factors, including the progress of the
Company's research and development programs (which may vary as product
candidates are added or abandoned), preclinical 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
development of manufacturing, the ability of the Company to maintain existing
and establish new collaborative arrangements with other companies to provide
funding to the Company to support these activities and other factors. In any
event, the Company will require substantial funds in addition to the present
existing working capital to develop its product candidates and otherwise to meet
its business objectives.
YEAR 2000
Business interruptions resulting from technology problems arising out of
the Year 2000 may adversely affect companies in various industries. The Company
currently anticipates that it will still be in the process of conducting
clinical trials or otherwise developing its initial products at the onset of the
Year 2000. Consequently, it is not likely that the Company will be engaged in
time sensitive activities likely to be materially disrupted by the Year 2000
problems. Nevertheless, the Company recently assessed both its information
technology systems and other systems to determine the likelihood of a Year 2000
disruption. The Company has recently purchased new accounting software and has
been told by the vendor that it is Year 2000 compliant.
15
<PAGE>
The Company intends to assess the Year 2000 vulnerability of its business
partners in mid 1999 to determine which, if any, relationships require
corrective action. The Company has received confirmation that the Company's main
research affiliates have the appropriate programs in place to achieve Year 2000
compliance.
SPECIAL NOTE--FORWARD-LOOKING STATEMENTS
Certain statements contained in this report, including, without
limitation, statements containing the words "believe," "anticipates," "expects"
and words of similar import, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. 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 future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the Company's need for substantial additional funds and its access to capital
markets, the lack of any Company products currently available for sale, the
early stages of experiments and the uncertainties involved in clinical trials,
the Company's history of operating losses, the dependence of the Company on
third party relationships for the manufacture of its products and the
performance of its clinical trials, the Company's limited manufacturing
capability, existing government regulations and changes in, or the failure to
comply with, government regulations; competition; the ability to attract and
retain qualified personnel and the Company's dependence on key personnel; the
ability to protect technology, patents and proprietary information; and other
factors referenced in this report. Certain of these factors are discussed in
more detail elsewhere in this report. Given these uncertainties, readers of this
report and investors 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.
Item 7. Consolidated Financial Statements and Supplementary Data
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Financial Statements as of March 31, 1998 and
1999, the Years Ended March 31, 1997, 1998
and 1999 and for the Period October 15, 1984
(Date of Inception) to March 31, 1999 (Unaudited)
and Independent Auditors' Report
16
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS 18
FINANCIAL STATEMENTS AS OF MARCH 31, 1998 AND 1999
AND FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND
1999, AND FOR THE PERIOD FROM OCTOBER 15, 1984
(DATE OF INCEPTION) TO MARCH 31, 1999 (UNAUDITED):
Balance Sheets 19
Statements of Operations 21
Statements of Common Stockholders' Investment (Deficiency in Assets) 22
Statements of Cash Flows 23
Notes to Financial Statements 24-39
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Immtech International, Inc.
(A Development Stage Enterprise):
We have audited the accompanying balance sheets of Immtech International, Inc.
(a development stage enterprise) (the "Company") as of March 31, 1998 and 1999,
and the related statements of operations, common stockholders' investment
(deficiency in assets), and cash flows for each of the three years in the period
ended March 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of March 31, 1998 and 1999,
and the results of its operations and its cash flows for each of the three years
in the period ended March 31, 1999 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
May 28, 1999
18
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
MARCH 31, 1998 AND 1999
- --------------------------------------------------------------------------------
ASSETS 1998 1999
CURRENT ASSETS -
Prepaid expenses and supplies $ 13,634 $ 8,364
-------- --------
Total current assets 13,634 8,364
-------- --------
PROPERTY AND EQUIPMENT (Notes 1 and 3):
Furniture and equipment 296,042 296,042
Leasehold improvements 17,205 17,205
-------- --------
Total - at cost 313,247 313,247
Less accumulated depreciation and amortization 256,110 283,230
-------- --------
Property and equipment - net 57,137 30,017
DEFERRED OFFERING COSTS (Notes 1 and 2) 513,210
-------- --------
TOTAL $ 70,771 $551,591
======== ========
See notes to financial statements.
19
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND COMMON STOCKHOLDERS' 1998 1999
INVESTMENT (DEFICIENCY IN ASSETS)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable (Notes 5 and 12) $ 395,736 $ 508,232
Accrued interest (Notes 2, 4 and 5) 663,013 281,470
Other accrued liabilities 32,128 50,351
Advances from stockholders and affiliates (Notes 2 and 4) 985,172 50,000
Notes payable (Notes 2 and 5) 1,576,450 110,000
------------ ------------
Total current liabilities 3,652,499 1,000,053
------------ ------------
REDEEMABLE PREFERRED STOCK (Notes 2 and 6):
Series A redeemable, par value $0.01 per share, 1,794,550
shares authorized and issued, aggregate liquidation
preference of $2,711,171 as of March 31, 1998,
converted to 578,954 shares of common stock on July 24,
1998 2,711,171
Series B redeemable, par value $0.01 per share, 1,600,000
shares authorized and issued, aggregate liquidation
preference of $2,728,724 as of March 31, 1998,
converted to 616,063 shares of common stock on July 24, 1998 2,728,724
------------
Total redeemable preferred stock 5,439,895
------------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 3, 5, 10 and 12)
COMMON STOCKHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS)
(Notes 2, 4, 5, 6, 8, 11 and 12):
Preferred stock, par value $.01 per share, 5,000,000 shares authorized
and unissued
Common stock, par value $0.01 per share, 30,000,000 shares authorized,
743,665 and 3,245,517 shares issued and outstanding as of
March 31, 1998 and 1999, respectively 7,437 32,455
Additional paid-in capital 4,233,386 10,997,198
Deficit accumulated during the developmental stage (13,262,446) (11,478,115)
------------ ------------
Total common stockholders' investment (deficiency in assets) (9,021,623) (448,462)
------------ ------------
TOTAL $ 70,771 $ 551,591
============ ============
</TABLE>
20
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THE PERIOD FROM
OCTOBER 15, 1984 (DATE OF INCEPTION) TO MARCH 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 15,
1984
Years Ended March 31, (Inception)
-------------------------------------------- to March 31,
1997 1998 1999 1999
(unaudited)
<S> <C> <C> <C> <C>
REVENUES (Notes 1, 11 and 12) $ 15,000 $ 19,552 $ 266,952 $ 1,988,073
------------ ------------ ------------ ------------
EXPENSES:
Research and development (Notes 1, 8 and 12) 478,871 312,366 738,762 7,593,207
General and administrative (Notes 8 and 11) 532,642 534,984 2,700,923 8,048,619
Cancelled offering costs 65,837 73,984 584,707
------------ ------------ ------------
Total expenses 1,077,350 921,334 3,439,685 16,226,533
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,062,350) (901,782) (3,172,733) (14,238,460)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (281,710) (241,767) (67,543) (1,129,502)
Interest income 5,680 5,680
Miscellaneous (expense) income - net (6,503) (2,148) 15,517 86,503
------------ ------------ ------------ ------------
Other expense - net (288,213) (243,915) (46,346) (1,037,319)
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (1,350,563) (1,145,697) (3,219,079) (15,275,779)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
(Notes 2, 4 and 5) 1,427,765 1,427,765
------------ ------------ ------------ ------------
NET LOSS (1,350,563) (1,145,697) (1,791,314) (13,848,014)
CONVERSION OF REDEEMABLE PREFERRED STOCK
(Notes 2 and 6) 3,713,334 3,713,334
REDEEMABLE PREFERRED STOCK PREMIUM
AMORTIZATION (Note 6) 100,145 81,696 440,119
REDEEMABLE PREFERRED STOCK DIVIDENDS (Note 6) (368,125) (413,131) (137,689) (1,783,554)
------------ ------------ ------------ ------------
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON
STOCKHOLDERS $ (1,618,543) $ (1,477,132) $ 1,784,331 $(11,478,115)
============ ============ ============ ============
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS:
Loss before extraordinary gain $ (2.04) $ (1.69) $ (1.31)
Extraordinary gain 0.58
------------ ------------ ------------
Net loss (2.04) (1.69) (0.73)
Redeemable preferred stock conversion, premium amortization
and dividends (0.40) (0.49) 1.46
------------ ------------ ------------
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (2.44) $ (2.18) $ 0.73
============ ============ ============
SHARES USED IN COMPUTING NET (LOSS) INCOME PER
SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS 662,975 676,471 2,446,297
============ ============ ============
</TABLE>
See notes to financial statements.
21
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF COMMON STOCKHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THE PERIOD FROM
OCTOBER 15, 1984 (DATE OF INCEPTION) TO MARCH 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Deficit Common
Common Accumulated Stockholders'
Shares Issued Common Additional During the Equity
and Stock Paid-in Development (Deficiency in
Outstanding Amount Capital Stage Assets)
<S> <C> <C> <C> <C> <C>
October 15, 1984 (date of inception)
Issuance of common stock to founders 113,243 $ 1,132 $ 24,868 $ 26,000
--------- -------- ----------- -----------
Balance, March 31, 1985 113,243 1,132 24,868 26,000
Issuance of common stock 85,368 854 269,486 270,340
Net loss $ (209,569) (209,569)
--------- -------- ----------- ------------- -----------
Balance, March 31, 1986 198,611 1,986 294,354 (209,569) 86,771
Issuance of common stock 42,901 429 285,987 286,416
Net loss (47,486) (47,486)
--------- -------- ----------- ------------- -----------
Balance, March 31, 1987 241,512 2,415 580,341 (257,055) 325,701
Issuance of common stock 4,210 42 28,959 29,001
Net loss (294,416) (294,416)
--------- -------- ----------- ------------- -----------
Balance, March 31, 1988 245,722 2,457 609,300 (551,471) 60,286
Issuance of common stock 62,792 628 569,372 570,000
Provision for compensation 489,975 489,975
Net loss (986,746) (986,746)
--------- -------- ----------- ------------- -----------
Balance, March 31, 1989 308,514 3,085 1,668,647 (1,538,217) 133,515
Issuance of common stock 16,478 165 171,059 171,224
Provision for compensation 320,980 320,980
Net loss (850,935) (850,935)
--------- -------- ----------- ------------- -----------
Balance, March 31, 1990 324,992 3,250 2,160,686 (2,389,152) (225,216)
Issuance of common stock 218 2 1,183 1,185
Provision for compensation 6,400 6,400
Net loss (163,693) (163,693)
--------- -------- ----------- ------------- -----------
Balance, March 31, 1991 325,210 3,252 2,168,269 (2,552,845) (381,324)
Issuance of common stock 18,119 181 85,774 85,955
Provision for compensation 864,496 864,496
Issuance of stock options in exchange
for cancellation of indebtedness 57,917 57,917
Net loss (1,479,782) (1,479,782)
--------- -------- ----------- ------------- -----------
Balance, March 31, 1992 343,329 3,433 3,176,456 (4,032,627) (852,738)
Issuance of common stock 195,790 1,958 66,839 68,797
Provision for compensation 191,502 191,502
Net loss (1,220,079) (1,220,079)
--------- -------- ----------- ------------- -----------
Balance, March 31, 1993 539,119 5,391 3,434,797 (5,252,706) (1,812,518)
Issuance of common stock 107,262 1,073 40,602 41,675
Provision for compensation 43,505 43,505
Net loss (2,246,426) (2,246,426)
--------- -------- ----------- ------------- -----------
Balance, March 31, 1994 646,381 6,464 3,518,904 (7,499,132) (3,973,764)
Net loss (1,661,677) (1,661,677)
--------- -------- ----------- ------------- -----------
Balance, March 31, 1995 (unaudited) 646,381 6,464 3,518,904 (9,160,809) (5,635,441)
Issuance of common stock for compensation 16,131 161 7,339 7,500
Net loss (1,005,962) (1,005,962)
--------- -------- ----------- ------------- -----------
Balance, March 31, 1996 662,512 6,625 3,526,243 (10,166,771) (6,633,903)
Issuance of common stock 12,986 130 5,908 6,038
Provision for compensation - employees 45,086 45,086
Provision for compensation - non-employees 62,343 62,343
Issuance of warrants to purchase common stock 80,834 80,834
Net loss (1,618,543) (1,618,543)
--------- -------- ----------- ------------- -----------
Balance, March 31, 1997 675,498 6,755 3,720,414 (11,785,314) (8,058,145)
Issuance of common stock 68,167 682 28,862 29,544
Provision for compensation - employees 50,680 50,680
Provision for compensation - non-employees 201,696 201,696
Contributed capital - common stockholders (Note 11) 231,734 231,734
Net loss (1,477,132) (1,477,132)
--------- -------- ----------- ------------- -----------
Balance, March 31, 1998 743,665 7,437 4,233,386 (13,262,446) (9,021,623)
Issuance of common stock 701,857 7,018 971,472 978,490
Provision for compensation - non-employees (Note 8) 2,426,000 2,426,000
Conversion of redeemable preferred stock to common
stock (Note 6) 1,195,017 11,950 1,852,300 1,864,250
Conversion of debt to common stock (Notes 4 and 5) 424,222 4,242 657,555 661,797
Conversion of Criticare debt to common stock
(Notes 4 and 5) 180,756 1,808 856,485 858,293
Net income 1,784,331 1,784,331
--------- -------- ----------- ------------- -----------
Balance, March 31, 1999 3,245,517 $ 32,455 $10,997,198 $(11,478,115) $ (448,462)
========= ======== =========== ============= ===========
</TABLE>
See notes to financial statements.
22
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND THE PERIOD FROM
OCTOBER 15, 1984 (DATE OF INCEPTION) TO MARCH 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 15,
1984
Years Ended March 31, (Inception)
---------------------------------------------- to March 31,
1997 1998 1999 1999
(unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,350,563) $(1,145,697) $(1,791,314) $(13,848,014)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of
property and equipment 36,814 27,119 27,120 314,910
Amortization of debt discount 62,218 18,616 80,834
Amortization of debt issuance costs 41,743 11,926 53,669
Compensation recorded related to issuance of
common stock or common stock options 107,429 252,376 2,426,000 4,888,963
Extraordinary gain on extinguishment of debt (1,427,765) (1,427,765)
Changes in operating assets and liabilities:
Prepaid expenses and supplies (1,068) 1,068 5,270 (8,364)
Deferred revenue (15,000)
Accounts payable (205,487) 187,462 112,496 508,232
Other accrued liabilities 103,152 (101,024) 18,223 50,351
Accrued interest 169,726 208,329 663,013
----------- ----------- ----------- ------------
Net cash used in operating activities (1,051,036) (539,825) (629,970) (8,724,171)
----------- ----------- ----------- ------------
INVESTING ACTIVITIES - Purchases of property
and equipment (17,172) (318,403)
----------- ------------
FINANCING ACTIVITIES:
Advances from stockholders and affiliates 458,500 215,172 50,000 1,035,172
Proceeds from the issuance of senior subordinated debt 525,000 525,000
Proceeds from the issuance of notes payable 2,120,194
Payments on notes payable (39,151) (3,500) (11,000) (108,119)
Payments for debt issuance costs (53,669) (53,669)
Payments for extinguishment of debt (203,450) (203,450)
Proceeds from the issuance of Preferred Stock - Series A 1,330,000
Proceeds from the issuance of Preferred Stock - Series B 250,000 2,000,000
Proceeds from the issuance of common stock 6,038 17,909 978,490 2,349,782
Additional capital contributed by stockholders 231,734 231,734
Payments for offering costs deferred (184,070) (184,070)
----------- ----------- ----------- ------------
Cash provided by financing activities 1,146,718 461,315 629,970 9,042,574
----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH 78,510 (78,510) 0 0
CASH, BEGINNING OF PERIOD 0 78,510 0 0
----------- ----------- ----------- ------------
CASH, END OF PERIOD $ 78,510 $ 0 $ 0 $ 0
=========== =========== =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION
(Note 9)
</TABLE>
See notes to financial statements.
23
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
- --------------------------------------------------------------------------------
1. COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Immtech International, Inc. (the "Company") is a
biopharmaceutical company focusing on the discovery and development of
therapeutic products for the treatment of opportunistic diseases and
cancer in patients with compromised immune responses. The Company has two
separate platform technologies for developing drugs, one based on
developing a new class of molecules as pharmaceuticals and a second for
developing 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 clinical trials. The Company has no products currently
available for sale, and none are expected to be commercially available for
several years.
Risks and Uncertainties - Since inception, the Company has incurred
accumulated losses of approximately $11,478,000. Management of the Company
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 various entities that are
thinly capitalized and are dependent upon their ability to raise
additional funds to continue their research and development activities.
The Company does not have any therapeutic products currently available for
sale, and none are expected to be commercially available for several
years, if at all. 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 and to
accelerate in the foreseeable future. The Company will require substantial
funds to conduct research and development, preclinical and clinical
testing and to manufacture (or have manufactured) and market (or have
marketed) its product candidates.
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. As discussed
in Note 2, on April 26, 1999, the Company completed an initial public
offering which raised approximately $9,173,000 of additional equity
capital. The net proceeds from the initial public offering are 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. Management's plans for the forthcoming year include continuing
their efforts to obtain additional equity financing and research grants,
and enter into various research and development agreements with other
entities (see Notes 3 and 12).
Investment - The Company accounts for its investment in NextEra
Therapeutics, Inc. ("NextEra") on the equity method (see Note 3).
24
<PAGE>
Property and Equipment - Equipment and leasehold improvements are recorded
at cost and depreciation and amortization are provided using accelerated
methods. Assets are depreciated over five to seven years.
Debt Issuance Costs and Debt Discounts - Costs incurred in connection with
the issuance of the senior subordinated notes were deferred and amortized
over the original life of these notes using the interest method.
Amortization of approximately $42,000 and $12,000 was charged to
operations for the years ended March 31, 1997 and 1998, respectively, as
additional interest expense. Discounts related to the issuance of debt
were amortized and charged to operations using the interest method.
Deferred Offering Costs - Costs incurred with respect to a common stock
offering in process as of March 31, 1999 have been deferred pending the
completion of the offering. As of March 31, 1999, there were approximately
$329,000 of deferred offering costs that were unpaid and included in
accounts payable. The offering was completed on April 26, 1999 and the
costs were netted with the proceeds of the offering.
Revenue Recognition - Revenue under grants and research and development
agreements is recognized based on the Company's estimates of the stage of
completion under the terms of the respective agreements.
Research and Development Costs - All research and development costs are
charged to operations as incurred.
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.
Net (Loss) Income Per Share - Net (loss) income per share is calculated in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share." Diluted net (loss) income per share was the
same as the basic net (loss) income per share as the stock options and
warrants were antidilutive for the years ended March 31, 1997, 1998 and
1999.
Fair Value Information - Due to the financial condition of the Company as
of March 31, 1998, management determined that it was not practicable to
estimate the fair value of the Company's financial instruments (notes
payable and preferred stock) as of such date. As of March 31, 1999, the
carrying value of the notes payable approximated fair value.
Segment Reporting - The Company is a development stage biopharmaceutical
company that operates as one segment.
Comprehensive Income (Loss) - There is no difference between comprehensive
income (loss) and net income (loss) for the years ended March 31, 1998 and
1999.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles 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 from
those estimates.
25
<PAGE>
Approved Accounting Standard Not Adopted - In 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The Company is in the process of evaluating the
accounting and reporting requirements of SFAS No. 133 and does not believe
the adoption of SFAS No. 133 will have a significant effect on the
Company's financial statements.
2. RECAPITALIZATION, PRIVATE PLACEMENT, STOCK SPLITS AND INITIAL PUBLIC
OFFERING
On July 24, 1998 (the "Effective Date"), the Company (with stockholder
approval) completed a recapitalization (the "Recapitalization) pursuant to
which: (i) the Company effected a .645260-for-1 reverse stock split of all
of the shares of common stock issued and outstanding immediately prior to
the Effective Date, resulting in the reduction in the number of issued and
outstanding shares of common stock from 2,305,166 to 1,487,431 (the "First
Reverse Stock Split"); (ii) the Company's debtholders converted
approximately $3,151,000 in stockholder advances, notes payable and
related accrued interest and accounts payable outstanding immediately
prior to the Effective Date into 1,209,962 shares of common stock (after
giving effect to the First Reverse Stock Split) and approximately $203,000
in cash; (iii) the Company's Series A Preferred stockholders converted
1,794,550 shares of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Date into 1,157,931 shares of common
stock (after giving effect to the First Reverse Stock Split); (iv) the
Company's Series B Preferred stockholders converted 1,600,000 shares of
Series B Preferred Stock issued and outstanding immediately prior to the
Effective Date into 1,232,133 shares of common stock (after giving effect
to the First Reverse Stock Split); (v) the Company converted options
outstanding immediately prior to the Effective Date and held by employees
of or consultants to the Company to purchase an aggregate of 1,746,815
shares of common stock into options to purchase 1,127,150 shares of common
stock (after giving effect to the First Reverse Stock Split); and (vi) the
total number of authorized shares was increased to 35,000,000, consisting
of 30,000,000 shares of common stock, $.01 par value, and 5,000,000 shares
of preferred stock, $.01 par value.
On January 25, 1999, the Company effected a .5-for-1 reverse stock split
of all of the shares of common stock issued and outstanding as of February
5, 1999, resulting in a reduction in the number of issued and outstanding
shares from 6,491,135 to 3,245,517 (the "Second Reverse Stock Split") as
of December 31, 1998.
All other share and per share information included in the accompanying
financial statements has been restated to reflect the First Reverse Stock
Split and the Second Reverse Stock Split.
Contemporaneously with the completion of the Recapitalization, the Company
issued and sold 575,000 shares of common stock for $1.74 per share, or
aggregate consideration to the Company of $1,000,000 to certain accredited
investors. For services and expenses involved with this Recapitalization,
the placement agent New China Hong Kong Securities Limited ("NCHK")
received $50,000 and warrants to purchase 75,000 shares of the Company's
common stock at $.10 per share. On May 17, 1999, NCHK exercised their
warrants. For advisory services in this transaction, RADE Management
Corporation ("RADE") received warrants to purchase 225,000 shares of the
Company's common stock at $.10 per share. On April 22, 1999, the warrant
agreement with RADE was amended to increase the exercise price from $.10
per share to $6.47 per share. The warrants expire July 29, 2004.
On April 26, 1999, the Company issued 1,150,000 shares of common stock
through an initial public stock offering resulting in net proceeds of
approximately $9,173,000.
26
<PAGE>
3. INVESTMENT IN NEXTERA THERAPEUTICS, INC.
On July 8, 1998, the Company, together with Franklin Research Group, Inc.
("Franklin") and certain other parties, formed NextEra Therapeutics, Inc.
("NextEra") to develop therapeutic products for treating cancer and
related diseases. NextEra's initial focus will be on the manufacturing and
clinical development of recombinant modified CRP ("rmCRP"). NextEra
intends to fund rmCRP through the clinical Phases I, II, and III and early
commercialization.
On September 29, 1998, the Company and Franklin entered into a Research
and Funding Agreement with NextEra in which Franklin agreed to advance a
minimum of $1,350,000 to NextEra to fund the scale-up of manufacturing and
Phase I clinical trials. On September 29, 1998, the Company contributed
its rmCRP technology, including relevant patents and know-how, as well as
use of its current laboratory facilities for 330,000 common shares of
NextEra. NextEra's scientists are in the process of preparing drug
substance and documents for a Phase I safety study in 30 to 40 cancer
patient to be carried out at Northwestern University. The focus of the
study is to evaluate the safety and early efficacy of rmCRP in patients
with different types of cancer. If Franklin fails to make their investment
in NextEra, the Company can purchase the shares owned by Franklin at 90%
of their net investment, as defined, in exchange for the Company's common
stock (if the Company's common stock is publicly traded), or cash.
The Company and Franklin estimate that it will take approximately 18
months to complete the initial Phase I clinical trial. At the conclusion
of the trial, the data for safety and efficacy will be evaluated and
Franklin will have 90 days to decide whether to continue the development
of rmCRP in human Phase II and III clinical trials. If Franklin decides to
proceed, it has to invest a minimum of an additional $6,500,000 for which
Franklin will receive an additional 160,000 common shares of NextEra. In
addition, if Franklin elects to proceed, at its option, the Company shall
have the right to provide $1,625,000 of the additional investment of
$6,500,000 in return for 40,000 of the 160,000 common shares Franklin
would receive. At such time the Company will assign its laboratory
facilities to NextEra. If Franklin decides not to proceed, the Company can
purchase majority control of NextEra by buying NextEra common stock at
$1.00 per share until enough shares are purchased for majority control.
The lead scientist of NextEra, who is also a director of NextEra, received
33,333 shares of NextEra common stock at the formation of NextEra and will
receive options to purchase 30,000 additional common shares that will vest
upon submission of a new drug application for a product based on rmCRP.
NextEra has also reserved 100,000 shares of common stock for issuance as
stock options for employees and consultants.
The Board of Directors of NextEra consists of two directors appointed by
the Company and five by Franklin. Unanimous approval of the Board is
required for issuance of stock to employees, mergers, sales or disposition
of substantially all assets, or liquidation of NextEra. The Company's
President is an officer and director of NextEra, and the Company's Chief
Financial Officer is also NextEra's Chief Financial Officer. In addition,
the principal stockholder in RADE is also a director of NextEra.
The Company has, on the fifth anniversary of the formation of NextEra, a
"put" option of NextEra stock. The exercise of the put will cause NextEra
to purchase the stock owned by Immtech at an appraised value, or at $5.00
per share, whichever is lower.
27
<PAGE>
NextEra has agreed to fund the operation of the Company's primary
facility, including salaries related to work on rmCRP, rent and overhead
associated with the project. In addition, NextEra has agreed to fund the
maintenance and prosecution of all patents that are part of the
intellectual property transferred to NextEra by the Company.
NextEra has incurred accumulated losses of approximately $372,000 since
inception (July 8, 1998) through March 31, 1999. NextEra is expected to
continue to incur significant losses during the next several years. In
addition, as of March 31, 1999, NextEra's current liabilities exceeded its
current assets by approximately $377,000 and NextEra had a stockholders'
deficiency of approximately $372,000.
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 the continuing efforts to
obtain additional equity financing.
As of March 31, 1999, the Company owned approximately 49% of the issued
and outstanding shares of NextEra common stock.
The following is a summary of the Company's investment in NextEra as of
March 31, 1999:
Investment in NextEra:
Common stock $ 2
Less investment losses recognized 2
---
Net investment $ 0
===
The Company has recognized an equity loss in NextEra to the extent of the
basis of its original investment. 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.
The following is summarized financial information for NextEra as of March
31, 1999 and for the period from inception (July 8, 1998) through March
31, 1999:
Current assets $ 66,000
Noncurrent assets 5,000
Current liabilities:
Advances from Franklin 441,000
Other 2,000
Stockholders' equity (deficit) (372,000)
Revenues --
Net loss (372,000)
4. ADVANCES FROM STOCKHOLDERS AND AFFILIATES
Criticare Systems, Inc. ("Criticare"), a significant stockholder of the
Company, who, as of March 31, 1998, owned 1,000,000 shares of Series A
Preferred Stock, 1,200,000 shares of Series B Preferred Stock and 112,501
shares of common stock, had advanced $597,722 to the Company as of March
31, 1998. Interest on the advances accrued at a rate of 5%. The advances
were payable on demand. On
28
<PAGE>
July 24, 1998, Criticare exchanged $597,722 of advances and $68,368 of
accrued interest for 145,353 shares of common stock (see Note 2). The
carrying value of the outstanding Criticare indebtedness under the
advances in excess of the estimated fair value of the shares of common
stock and cash exchanged was accounted for as additional paid-in capital.
As of July 24, 1998, Criticare owned 1,087,939 shares (approximately 34%)
of the Company's outstanding common stock.
Certain other stockholders had advanced funds to the Company aggregating
$387,450 as of March 31, 1998. The advances were non-interest bearing and
payable on demand. On July 24, 1998, the other shareholders exchanged
$387,450 of advances for 196,824 shares of common stock (see Note 2). The
Company recognized an extraordinary gain on the extinguishment of debt of
$80,404 for the outstanding indebtedness under the advances in excess of
the estimated fair value of the 196,824 shares of common stock ($307,046)
during the year ended March 31, 1999. As of July 24, 1998, none of the
other stockholders individually owned more than approximately 8% of the
Company's outstanding common stock.
As of March 31, 1999, NextEra and the Company's president had each
advanced $25,000 to the Company. The advances were non-interest bearing
and were repaid in May 1999.
5. NOTES PAYABLE
Notes payable consist of the following as of March 31, 1998 and 1999:
1998 1999
State of Illinois, payment made in May 1999
upon closure of initial public offering,
0% interest as of March 31, 1998 and 1999,
unsecured $ 100,000 $ 100,000
Northwestern University, payment made in May
1999, 0% interest as of March 31, 1998 and
1999, unsecured 21,000 10,000
Criticare term note, due December 31, 1997,
8.5% interest, unsecured, together with
accrued interest of $27,201, was exchanged
for 25,526 shares of common stock on July
24, 1998 89,777
Senior subordinated notes - Criticare, due
May 31, 1997, 15% interest, unsecured,
together with accrued interest of $16,225,
were exchanged for 9,876 shares of common
stock on July 24, 1998 59,000
Senior subordinated notes - other, due May
31, 1997, 15% interest, unsecured,
together with accrued interest of
$243,712, were exchanged for 143,128
shares of common stock on July 24, 1998 855,000
Walsh & Keating, S.C. term note, due
December 31, 1997, 8.5% interest,
unsecured, together with accrued interest
of $25,149, was exchanged for 36,401
shares of common stock and $28,907 on July
24, 1998 167,139
29
<PAGE>
1998 1999
Partners of Walsh & Keating, S.C. term note,
due December 31, 1997, 8.5% interest,
unsecured, together with accrued interest
of $1,605, was exchanged for 2,062 shares
of common stock and $1,637 on July 24,
1998 $ 10,666
Winston & Strawn term note, due December 31,
1997, 8.5% interest, unsecured, together
with accrued interest of $30,428, was
exchanged for 35,359 shares of common
stock and $17,679 on July 24, 1998 153,744
Brinks, Hofer, Gilson & Lione term note, due
December 31, 1997, 8.5% interest,
unsecured, together with accrued interest
of $36,396 and accounts payable of
$204,327, was exchanged for $150,000 on
July 24, 1998 120,124
---------- ---------
Total notes payable 1,576,450 110,000
Less current portion 1,576,450 110,000
---------- ---------
Long-term debt $ 0 $ 0
========== =========
Interest on the State of Illinois loan stopped accruing during the year
ended March 31, 1996, when the maximum interest of $281,470 from this loan
was reached. The accrued interest obligation was settled with the issuance
of 28,147 shares of common stock in May 1999. The interest rate on this
loan was 25% prior to when it stopped accruing interest. Interest on the
Northwestern University loan stopped accruing during the year ended March
31, 1997, when this loan was restructured to provide Northwestern
University with higher monthly payments in exchange for no further
interest accrual. Before this loan was restructured, the interest rate was
8.12%.
On July 24, 1998, the senior subordinated notes, the Criticare term note,
the Walsh & Keating related term notes, the Winston & Strawn term note and
the Brinks, Hofer, Gilson & Lione term note, together with related accrued
interest and accounts payable, were exchanged for shares of common stock
and cash (see Note 2). The Company did not have sufficient funds to pay
such notes on the original maturity dates indicated and, accordingly, all
such notes were in default as of March 31, 1998. In addition, on July 24,
1998, certain other trade creditors exchanged $57,270 of accounts payable
for 20,908 shares of common stock and $5,227 cash.
The carrying value of the outstanding Criticare indebtedness under the
term note and senior subordinated notes in excess of the estimated fair
value of the shares of common stock and cash exchanged was accounted for
as additional paid-in capital, as Criticare is a significant stockholder.
During the year ended March 31, 1999, the Company recognized an
extraordinary gain on the extinguishment of debt of $1,347,361 for the
outstanding aggregate indebtedness under the other term notes and
subordinated notes ($1,306,673), related accrued interest ($337,290) and
accounts payable ($261,597) in excess of the estimated fair value of the
shares of common stock ($354,749) and cash ($203,450) exchanged. As of
July 24, 1998, none of these debt holders individually owned more than
approximately 8% of the Company's outstanding common stock.
During the year ended March 31, 1997, approximately $389,000 of notes
payable were exchanged, in $1,000 increments, for an equal amount of
senior subordinated debt and a detachable warrant to
30
<PAGE>
purchase 100 shares of the common stock of the Company. Also during fiscal
1997, the Company sold for $525,000, senior subordinated notes in
increments of $1,000, each with a warrant to purchase 100 shares of the
Company's common stock. The holders of these warrants would be entitled to
purchase a share of common stock, in the event the Company participates in
an initial public offering, at a price equivalent to one-half the price in
the initial public offering. As of March 31, 1997 and 1998 and 1999, there
were warrants outstanding to purchase 91,400 shares of common stock at a
price equivalent to $5.00 per share (one-half the price of the April 26,
1999 initial public offering). These warrants expire August 29, 1999.
The discount on the senior subordinated notes resulted from the allocation
of the proceeds from the issuance of the senior subordinated notes to the
debt and related stock warrants at their estimated fair value. The
estimated fair value of these warrants was $.90 per warrant at the date
the warrants were granted, resulting in a discount of $80,834. This
discount was amortized using the interest method over the original life of
the senior subordinated notes.
6. REDEEMABLE PREFERRED STOCK
On July 24, 1998, the Series A and B Preferred stockholders exchanged
their preferred shares for an aggregate 1,195,017 shares of common stock
(see Note 2). The holders of the Series A and Series B Preferred Stock had
cumulative dividend preferences at the rate of 8% per annum, compounded
daily, of the liquidation value thereof, plus accumulated and unpaid
dividends thereon, in preference to any dividend on common stock, payable
when and if declared by the Board of Directors. Dividends accrued whether
or not they had been declared and whether or not there were profits,
surplus or other funds of the Company legally available for the payment of
dividends. In the event the Company declared a dividend or distribution on
the common stock, the holders of the preferred stock and the holders of
the common stock would have shared pro rata in such dividend or
distribution.
The holders of the Series A and Series B Preferred Stock had the right to
convert each share at any time, into one share of common stock. The
holders of the preferred stock had the right to vote with the holders of
the common stock. The holders had voting rights equivalent to the number
of shares of common stock issuable upon conversion.
The difference between the initial estimated fair value of the Series A
Preferred Stock and the aggregate redemption value was amortized by a
credit to retained earnings (deficit accumulated during the developmental
stage) and a debit to the carrying value of the redeemable preferred stock
during the period from issuance to December 21, 1997 using the interest
method.
At any time on or after December 21, 1997, a holder of Series A and B
Preferred Stock could have required the Company to redeem all or part of
the holder's shares at the liquidation value plus all accrued but unpaid
dividends thereon. The Company was required to redeem such shares in a
series of eight equal quarterly redemptions commencing on the last day of
the calendar quarter occurring at least 30 days following the Company's
receipt of the holder's redemption notice. The aggregate future annual
redemption requirements of the liquidation value plus accrued unpaid
dividends was $5,439,895 as of March 31, 1998.
The Series A and Series B Preferred Stock had redemption (carrying) values
of $2,780,324 and $2,797,260, respectively, as of July 24, 1998. In
connection with the Recapitalization, the Series A and Series B Preferred
stockholders agreed to accept 578,954 and 616,063 shares of common stock,
respectively, for their shares of the preferred stock. The difference
between the carrying value of the
31
<PAGE>
Series A and Series B Preferred Stock and the estimated fair value of the
common shares exchanged of $1,877,138 and $1,836,196, respectively, was
credited to deficit accumulated during the development stage during the
year ended March 31, 1999.
7. INCOME TAXES
The Company accounts for income taxes using an asset and liability
approach which generally requires the recognition of deferred income tax
assets and liabilities based on the expected future income tax
consequences of events that have previously been recognized in the
Company's financial statements or tax returns. 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 losses
and tax credit carryforwards.
The Company has no significant deferred income tax liabilities.
Significant components of the Company's deferred income tax assets are as
follows:
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Deferred income tax assets:
Federal net operating loss carryforwards $ 2,467,000 $ 2,770,000 $ 2,552,000
State net operating loss carryforwards 247,300 290,000 259,000
Federal tax credit carryforwards 86,400 89,100 89,800
----------- ----------- -----------
Total deferred income tax assets 2,800,700 3,149,100 2,900,800
----------- ----------- -----------
Valuation allowance (2,800,700) (3,149,100) (2,900,800)
----------- ----------- -----------
Net deferred income taxes recognized
in the accompanying balance sheets $ 0 $ 0 $ 0
=========== =========== ===========
</TABLE>
At March 31, 1999, the Company had federal net operating loss
carryforwards of approximately $7,506,000 which expire from 2006 through
2019. At March 31, 1999, the Company had available for federal income tax
purposes approximately $7,456,000 of alternative minimum tax net operating
loss carryforwards which expire from 2006 through 2019. The Company also
has approximately $5,405,000 of state net operating loss carryforwards,
which expire from 2009 through 2019, available to offset certain future
state taxable income for Illinois State tax purposes. Because of "change
of ownership" provisions of the Tax Reform Act of 1986, approximately
$924,000 of the Company's net operating loss carryforwards for federal
purposes are subject to an annual limitation regarding utilization against
taxable income in future periods. At March 31, 1999, the Company had
federal tax credit carryforwards of approximately $90,000 which expire
from 2008 through 2019.
The income tax provision consists of the following:
Years Ended
March 31,
--------------------------
1997 1998 1999
Current:
Federal $ 0 $ 0 $ 0
State 0 0 0
--- --- ---
Total income tax provision $ 0 $ 0 $ 0
=== === ===
32
<PAGE>
A reconciliation of the provision for income taxes (benefit) at the
federal statutory income tax rate to the effective income tax rate
follows:
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------
1997 1998 1999
<S> <C> <C> <C>
Federal statutory income tax rate (34.0)% (34.0)% (34.0)%
State statutory income tax rate (4.8) (4.8) (4.8)
Non-deductible compensation 7.5 29.2
Benefit of federal and state net operating loss
and tax credit carryforwards not recognized 38.8 31.3 9.6
----- ----- -----
Effective income tax rate 0% 0% 0%
===== ===== =====
</TABLE>
8. STOCK OPTIONS, WARRANTS AND COMMON STOCK
The Company has granted common stock options to individuals who have
contributed to the Company. The options contain various provisions
regarding vesting periods, expiration dates, stockholder approval
requirements and contingencies on the approval of an increase in the stock
option pool by the Board of Directors. The options vest in periods ranging
from 0 to 4 years and generally expire in ten years. As of March 31, 1998
and 1999, 480,030 and 516,992 granted options are outstanding,
respectively. As of March 31, 1999, there were 2,581 employee stock
options available for grant.
During the years ended March 31, 1997, 1998 and 1999, the Company issued
stock options to nonemployees for services rendered to the Company. During
the year ended March 31, 1997, 29,036 options were issued and expense of
approximately $62,000 was recorded. During the year ended March 31, 1998,
99,141 options were issued and expense of approximately $202,000 was
recorded. During the year ended March 31, 1999, 96,787 options were issued
and expense of $206,000 was recorded. The expense was determined based on
the estimated fair value of the options issued.
The activity during the years ended March 31, 1997, 1998 and 1999 for the
Company's stock options is summarized as follows:
Weighted
Number of Stock Options Average
Shares Price Range Exercise Price
Outstanding at April 1, 1996 476,430 $0.31-6.88 $0.68
Granted 68,397 0.46-0.46 0.46
Exercised (12,986) 0.46-0.46 0.46
Expired (565) 0.46-0.46 0.46
-------- ---------- -----
Outstanding at March 31, 1997 531,276 0.31-6.88 0.84
Granted 144,955 0.59-1.74 1.02
Exercised (68,217) 0.34-0.59 0.44
Expired (127,984) 0.34-6.88 1.48
-------- ---------- -----
Outstanding at March 31, 1998 480,030 0.31-1.74 0.59
Granted 96,787 0.46-2.70 0.68
Exercised (40,650) 0.31-0.34 0.33
Expired (19,175) 0.31-0.59 0.39
-------- ---------- -----
Outstanding at March 31, 1999 516,992 $0.31-2.70 $0.64
======== ========== =====
Exercisable at March 31, 1999 446,014 $0.31-2.70 $0.67
======== ========== =====
33
<PAGE>
The following table summarizes information about stock options outstanding
as of March 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ------------------------
Weighted
Shares Average Weighted Shares Weighted
Outstanding at Remaining Average Exercisable at Average
Range of March 31, Contractual Exercise March 31, Exercise
Exercise Prices 1999 Life-Years Price 1999 Price
<S> <C> <C> <C> <C> <C>
$0.31 to 0.34 120,115 2.10 $ 0.33 120,115 $ 0.33
0.46 to 0.59 331,709 5.06 0.51 260,731 0.52
1.74 to 2.70 65,168 9.07 1.88 65,168 1.88
------- -------
516,992 4.88 $ 0.64 446,014 $ 0.67
======= =======
</TABLE>
On October 12, 1998, RADE received warrants to purchase 750,000 shares of
the Company's common stock at $.10 per share. On April 22, 1999, the
warrant agreement was amended to increase the exercise price from $.10 per
share to $6.47 per share. The warrants were issued as compensation for
management consulting, market analysis and strategic advisory services
performed during July through December 1998. The Company recorded a
general and administrative expense of $2,220,000 during the year ended
March 31, 1999 based upon the estimated fair value of the warrants issued.
The warrants expire October 12, 2004.
The following table summarizes information about common stock warrants
outstanding as of March 31, 1999 after giving affect to the April 22, 1999
amendments to certain warrant agreements:
<TABLE>
<CAPTION>
Warrants
Exercise Price Outstanding Expiration Date
<S> <C> <C>
$5.00 per share (50% of initial public offering price
per share) (see Note 5) 91,400 August 29, 1999
$.10 per share (see Note 2) 75,000 July 29, 2004
$6.47 per share (as amended on April 22, 1999)
(see Note 2) 225,000 July 29, 2004
$6.47 per share (as amended on April 22, 1999) 750,000 October 12, 2004
----------
Total warrants outstanding 1,141,400
==========
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation," but applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its employee stock
option plans. During the year ended March 31, 1997, the Company issued
39,361 options to employees and recognized expense of $45,814 related to
those options. During the year ended March 31, 1998, the Company issued
45,814 options to employees and recognized expense of $50,680 related to
those options. There were no options issued to employees during the year
ended March 31, 1999. The expense was calculated as the difference between
the option exercise price and the estimated fair value of the Company's
stock as of the date the option was granted. If the Company had recognized
compensation expense for the options granted during the years ended
34
<PAGE>
March 31, 1997 and 1998 and 1999, consistent with the method prescribed by
SFAS No. 123, net (loss) income and net (loss) income per share would have
been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Net (loss) income attributable to common
stockholders - as reported $(1,618,543) $(1,477,132) $1,784,331
Net (loss) income attributable to common
stockholders - pro forma $(1,623,641) $(1,503,470) $1,781,318
Net (loss) income per share attributable to
common stockholders - as reported $ (2.44) $ (2.18) $ 0.73
Net (loss) income per share attributable to
common stockholders - pro forma $ (2.44) $ (2.22) $ 0.73
</TABLE>
The fair value of stock options used to compute pro forma net (loss) income and
net (loss) income per share is the estimated present value at the grant date
using the Black-Scholes option-pricing model with the following weighted average
assumptions:
Years Ended March 31,
------------------------------------
1997 1998 1999
Volatility 27.5% 27.5% 33.0%
Risk-free interest rate 6.1% 5.4% 5.4%
Expected holding period 3.7 years 4.5 years 5.4 years
Dividend yield 0% 0% 0%
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's options have
characteristics significantly different from traded options, and because
changes in the subjective input assumptions can materially affect the fair
value estimate, in the opinion of management, the existing models do not
necessarily provide a reliable single value of its options and may not be
representative of the future effects on reported net (loss) income or the
future stock price of the Company. The weighted average estimated fair
value of employee stock options granted during the years ended March 31,
1997 and 1998 was $2.41 per share each year. There were no employee stock
options granted during the year ended March 31, 1999. For purposes of pro
forma disclosure, the estimated fair value of the options is amortized to
expense over the options' vesting period.
The pro forma effect on net (loss) income for the years ended March 31,
1997, 1998 and 1999 is not representative of the pro forma effect in
future years because it does not take into consideration pro forma
compensation cost related to grants made prior to April 1, 1996.
9. SUPPLEMENTAL CASH FLOW INFORMATION
The Company did not pay any income taxes during the years ended March 31,
1997, 1998 or 1999. The Company paid $8,023, $0 and $0 in interest during
the years ended March 31, 1997, 1998 and 1999, respectively.
35
<PAGE>
Non-Cash Financing Activities:
During the years ended March 31, 1997, 1998 and 1999, the Company
increased the carrying value of the Series A and B Preferred Stock by
amounts representing the value of dividends not currently declared or
paid, but which are payable under mandatory redemption features. The
Company also recorded Series A Preferred Stock premium amortization on the
securities. Also, during the years ended March 31, 1997, 1998 and 1999,
the Company issued common stock or options as compensation for services.
During the year ended March 31, 1997, certain creditors exchanged notes
payable and accrued interest on such notes for senior subordinated notes
and during the year ended March 31, 1998, the Company issued common stock
as consideration for a note payable payment. In connection with the
recapitalization (see Note 2) during the year ended March 31, 1999, the
preferred stock, and certain debt, accrued interest, accounts payable and
shareholder advances were converted to common stock. The amounts of these
transactions were as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Preferred stock dividends accrued $ 368,125 $ 413,131 $ 137,689
Preferred stock premium amortization (100,145) (81,696)
Issuance of common stock, stock options, or stock warrants as compensation
for services 107,429 252,376 2,426,000
Notes payable and accrued interest exchanged for senior subordinated notes 389,000
Common stock issued as consideration for note payable payment (11,635)
Conversion of preferred stock to common stock 5,577,584
Conversion of debt, accrued interest and accounts payable to common stock 1,702,110
Conversion of Criticare debt to common stock 858,293
Conversion of shareholder advances to common stock 387,450
</TABLE>
10. COMMITMENTS
The Company leases office space under an operating lease which requires
monthly lease payments of $4,100 through November 1999. Total rental
expense was approximately $57,000, $50,000 and $6,000 during the years
ended March 31, 1997, 1998 and 1999, respectively. As discussed in Note 3,
NextEra agreed to pay the Company's obligation under the operating lease
effective May 1, 1998. NextEra made approximately $43,000 of lease
payments during the year ended March 31, 1999.
11. OTHER RELATED PARTY TRANSACTIONS
During the year ending March 31, 1998, the following payments for various
Company expenses were made on behalf of the Company by related parties:
approximately $146,000 from Criticare; approximately $56,000 from an
investment fund whose directors are also directors of the Company; and
approximately $30,000 from certain officers and directors of the Company.
These payments were recorded as expenses and additional paid-in capital in
the Company's financial statements during the year ended March 31, 1998.
There were no such payments during the years ended March 31, 1997 or 1999.
Transactions with Criticare Systems, Inc.
As part of agreeing to the private placement of stock by NCHK, Criticare
obtained an option to license rmCRP as a therapy for treating sepsis.
Sepsis is a bacterial infection which quickly overwhelms the immune
systems and can lead to sudden death.
36
<PAGE>
Criticare's option includes patents and know-how developed by the Company.
NextEra has licensed the rights for producing rmCRP back to the Company
for use with sepsis applications. Criticare has twelve months from the
date of the closing on the private placement by NCHK to raise a minimum of
$500,000 to fund both the development of the sepsis technology and the
initiation of clinical trials. If Criticare or its assignee is unable to
raise the funds, the Company can acquire the sepsis technology from
Criticare at market price, determined by negotiations between the two
parties or an agreed third party if an agreement on price cannot be
reached. The Company is required to pay the cost of maintaining and
prosecuting the patents until the initial financing is completed by
Criticare or its assignee.
On July 2, 1998, the Company transferred to Criticare certain of its
intangible assets and 86,207 shares of the Company's common stock for
$150,000. These assets include rights to the Company's diagnostic products
for measuring hemoglobin A1c. in diabetic patients and Carbohydrate
Deficient Transferrin ("CDT") as a marker in the blood for long-term
alcohol abuse, as well as patents that have been issued for both
technologies and exclusive worldwide rights from Northwestern University
to develop and sell the products, which now inure to the benefit of
Criticare. Criticare will be responsible for the maintenance and
prosecution of the patents for both technologies. The shares issued were
assigned a fair value of $134,483 and the remainder ($15,517) was recorded
as miscellaneous income during the year ended March 31, 1999.
12. 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
dicationic compounds developed by a consortium of universities including
The University of North Carolina at Chapel Hill ("UNC"), Duke University,
Auburn University and Georgia State University (the "Consortium") pursuant
to an agreement, dated January 15, 1997 (as amended in May 1998, the
"Consortium Agreement") among the Consortium, Pharm-Eco Laboratories, Inc.
("Pharm-Eco"), and on behalf of itself and the other academic institutions
in the Consortium. The Consortium Agreement commits each party to the
agreement to 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 licensed to the Company pursuant to 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 contemplates that
the Company and Pharm-Eco, with respect to the Current Compounds, and the
Company and UNC, with respect to Future Compounds, will enter into more
comprehensive license or assignments of the intellectual property rights
held by Pharm-Eco and the Consortium; and that Pharm-Eco and the Company
will enter into an arrangement relating to the manufacture of products
derived from the Compounds.
37
<PAGE>
Under the Consortium Agreement, the Company agreed to use its best efforts
to complete an initial public offering ("IPO") of shares of its common
stock with gross proceeds of at least $10,000,000 or an alternative form
of financing ("Alternative Financing") to raise at least $4,000,000 by
April 30, 1999. As a result of the closing of the IPO, the Company will:
(i) use the greater of (x) 33% of the net proceeds from the IPO or (y)
$5,000,000, to develop the Compounds; (ii) issue an aggregate of 611,250
shares of common stock to Pharm-Eco or persons designated by Pharm-Eco,
which number includes 137,500 shares to be issued to the Consortium; the
Company has recorded as research and development costs the estimated fair
value of the 611,250 shares in the first quarter of fiscal 2000; (iii)
issue warrants to purchase an aggregate of 850,000 shares of common stock
to Pharm-Eco or persons designated by Pharm-Eco with a ten-year term from
the date of issuance, at an exercise price equal to the weighted average
market price of the Company's common stock during the first 20 days of
trading on the over-the-counter market, which warrants are exercisable
upon the occurrence of certain events and subject to redemption by the
Company; and (iv) agree to issue an aggregate of 150,000 shares of common
stock collectively to Pharm-Eco or persons designated by Pharm-Eco, which
number of shares includes 100,000 shares of common stock to be issued to
the Consortium, upon the filing by the Company of a new drug application
or an abbreviated new drug application with the Food and Drug
Administration with respect to any product. In addition, the Company will
pay UNC an aggregate royalty of 5% of net sales of Current Products and
Future Products, except that the royalty rate payable on any Compound
developed at Duke University will be determined by negotiation at the time
such Compound is developed. In the event that the Company sublicenses its
rights with respect to the Compounds, the Company will pay UNC, in
addition to the royalty described above, 2.5% of all signing, milestone
and other non-royalty payments made to the Company pursuant to the
sublicense agreement and will pay to Pharm-Eco 2.5% of all signing,
milestone and other nonroyalty payments made to the Company pursuant to
the sublicense agreement.
As of April 26, 1999: (a) Pharm-Eco will be entitled to designate for
appointment one representative to the Company's Board of Directors, (b)
UNC will be entitled to designate one person as a non-voting observer of
all meetings and other proceedings of the Company's Board of Directors,
(c) the Company will make quarterly $100,000 research grants to UNC
commencing on the final day of the month during which the closing of the
offering occurs, and continuing every three months thereafter until, at a
minimum, the third anniversary of the offering and (d) the Company will
pay all costs to prosecute, maintain and defend all patents and patent
applications relating to any Compounds or products.
Since the gross proceeds of the April 26, 1999 initial public offering
were more than $10,000,000, both Pharm-Eco and UNC will grant 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.
In exchange for UNC's and Pharm-Eco's permission to extend the period of
time for the Company to fulfill its obligations under the Consortium
Agreement, the Company has (i) provided financial support to Dr. Richard
Tidwell's laboratory and research covered by the agreement, (ii) paid fees
and expenses charged UNC by UNC's patent counsel during the period of the
extension, (iii) paid arrearages in research support accrued prior to the
date of the First Amendment, (iv) replenished Dr. Tidwell's UNC Department
of Pathology & Laboratory Medicine trust fund of all monies spent due to
the delay in receipt of the research grants, currently estimated at
$150,000 and (v) provide each of UNC and Pharm-Eco with 25,000 shares of
common stock of the Company (included in the aforementioned 611,250
shares).
38
<PAGE>
During the years ended March 31, 1997, 1998 and 1999, the Company made
payments to UNC of $100,000, $100,000 and $300,000, respectively. Such
payments were expensed as research and development costs.
The Company entered into an agreement with Pharm-Eco to use reasonable
efforts to form a joint venture to produce Good Manufacturing
Practices-quality dicationic drugs and products for clinical testing and
for early commercialization. The proposed joint venture would manufacture
the initial pharmaceutical products (DAP-092 and DB-289). Once the
commercial sale of products begins, the Company and Pharm-Eco would deduct
their costs associated with making and marketing (including selling,
marketing, and regulatory support) products. The remaining margin, after
the costs have been subtracted, would be divided equally between the
parties. At such time when the Company's sales reach $20 million for
DAP-092 and DB-289, the Company could elect not to use Pharm-Eco for
manufacturing, whereupon the Company would be required to pay a royalty to
Pharm-Eco of no more than 2% of sales.
In February 1998, the Company received a Small Business Technology
Transfer Research Grant for approximately $97,000 from the National
Institutes of Health ("NIH") to develop simple, immune-based assays to
measure drug presence and concentration in blood. During the years ended
March 31, 1998 and 1999, the Company recognized revenue of approximately
$20,000 and $78,000, respectively, from this grant. During the years ended
March 31, 1998 and 1999, the Company expensed payments to the Consortium
in the amount of approximately $15,000 and $50,000, respectively, for
their research. Another Small Business Technology Transfer Research Grant
for $100,000 was awarded to the Company in May 1998 from the NIH to study
the applicability and effectiveness of using prodrug compounds as an oral
treatment for tropical diseases such as trypanosomiasis, leishmaniasis and
malaria. During the year ended March 31, 1999, the Company recognized
revenue of approximately $94,000 from this grant and expensed payments to
the Consortium in the amount of approximately $14,000 for their research.
In March 1998, the Company entered into an option and worldwide exclusive
license agreement with Sigma Diagnostics, Inc. ("Sigma") for hemoglobin
Alc technology which the Company had the right to. The option part of the
agreement allows Sigma to evaluate the technology for potential
manufacturing and use on instrumentation developed by Sigma. The option
agreement includes a series of payments as specific research milestones
are met. The first three milestones were completed and payments by Sigma
of $20,000 and $25,000 were received by the Company in April 1998 and June
1998, respectively. A third payment of $50,000 was received in March 1999
and subsequently paid to Criticare in May 1999. The remaining milestone
and license payments (which have not been paid) are for $60,000 and will
be paid to Criticare, which acquired the Company's rights to future
payments from Sigma, as further described in Note 11. In addition, if a
license is purchased by Sigma and sales are made through commercial sales,
Criticare will receive annual royalty payments. The Company will receive
no ongoing revenues nor will it have any further obligations to Sigma.
* * * * * *
39
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters during the Company's two most recent
fiscal years.
Part III
Item 9. Directors and Executive Officers of the Registrant
EXECUTIVE OFFICERS, KEY SCIENTISTS, CONSULTANTS AND DIRECTORS
The executive officers, key scientists, consultants and directors of the
Company are as follows:
Name Age Position
---- --- --------
T. Stephen Thompson 52 Director, President and Chief Executive
Officer
Lawrence A. Potempa, Ph.D. 48 Vice President-Research and Chief Scientific
Officer
Gary C. Parks 49 Treasurer, Secretary and Chief Financial
Officer
Byron E. Anderson, Ph.D. 56 Director
Emil Soika 61 Director
T. Stephen Thompson, President, Chief Executive Officer and Director. Mr.
Thompson has served as a Director since 1991. He joined Immtech in April 1991
from Amersham Corporation, where he was President and Chief Executive Officer.
He was responsible for Amersham Corporation's four North American divisions:
Life Sciences, Radiopharmaceuticals, Diagnostics, and Quality and Safety
Products. In addition, he had direct responsibility for the Clinical Reagent (in
vitro diagnostic) Division in the United Kingdom. He was employed by Amersham
Corporation from 1986 to 1991. Mr. Thompson has 20 years' experience in health
care with previous positions as President of a small diagnostic start-up,
General Manager of the Infectious Disease and Immunology Business Unit in the
Diagnostic Division of Abbott Laboratories from 1981 to 1986, and Group
Marketing Manager for the Hyland Division of Baxter International Inc. from 1978
to 1981. Mr. Thompson is a Director of Matritech, Inc. (Nasdaq: NMPS). Mr.
Thompson holds a B.S. from the University of Cincinnati and an M.B.A. from
Harvard University. Mr. Thompson is also President and a Director of NextEra.
40
<PAGE>
Lawrence A. Potempa, Ph.D., Vice President-Research and Chief Scientific
Officer. Dr. Potempa has been employed by the Company for 11 years. Dr. Potempa
has over 10 years experience in the Biotechnology industry and has successfully
brought the Company's lead biological therapy into human trials. Dr. Potempa has
an appointment as an Adjunct Associate Professor of the Department of Medicine
at Northwestern University Medical School. Dr. Potempa received his B.S. degree
cum laude from Bradley University in 1973 and earned his Ph.D. in biochemistry
in 1977 at Northwestern University. He was an NIH postdoctoral fellow in
Immunology at Rush Medical College until 1981 and was an Assistant Professor at
Rush University in the Department of Immunology/Microbiology until he joined
Immtech in 1988. He has over 40 publications and is the lead inventor on 39 of
the Company's patents. Dr. Potempa is a member of the American Chemical Society
and has received various government grants and other awards for excellence.
Gary C. Parks, Treasurer, Secretary and Chief Financial Officer. Mr. Parks
joined Immtech in January 1994, having previously served at Smallbone, Inc. from
1989 until 1993, where he was Vice President, Finance. Mr. Parks was a Division
Controller with International Paper from 1986 to 1989. Prior to that, he was
Vice President, Finance of SerckBaker, Inc., a subsidiary of BTR plc, from 1982
to 1986 and a board member of SerckBaker de Venezuela. Mr. Parks holds a B.A.
from Principia College and an M.B.A. from the University of Michigan. Mr. Parks
is also Chief Financial Officer of NextEra.
Emil Soika, Director. Mr. Soika has served as Director of the Company
since March 1999. Since November 1998, he has served as President of Criticare,
developer and manufacturer of medical devices. From 1995 to November 1998, he
served as Vice President and General Manager of Spacelabs Medical, Inc., a
manufacturer of noninvasive medical diagnostic and monitoring equipment. From
1990 to 1994, he served as President and Chief Executive Officer of Block
Medical Inc. He has also held various positions with Baxter International, Inc.,
where he ultimately served as Division President and General Manager of the Auto
Syringe Division, directing international manufacturing and sales operations.
Mr. Soika holds a B.S.M.E. from Marquette University and an M.B.A. from
Northwestern University.
Byron E. Anderson, Ph.D., Director. Dr. Anderson was a founder of Immtech
and has served as a Director since 1984. He is presently a Professor at
Northwestern University Medical School in the Department of Cell, Molecular, and
Structural Biology. He is a member of the American Association of Immunologists,
the American Society of Molecular and Biological Chemists, the American
Association for Advancement of Science, and several other biological and medical
research societies. Dr. Anderson received his B.A. in Chemistry and Biology from
Kalamazoo College in 1963, and a Ph.D. from the University of Michigan. He was a
postdoctoral fellow of the Helen Hay Whitney Foundation, a Senior Investigator
of the Arthritis Foundation, and a NIH Research Career Development Awardee. His
research areas include peptide, protein and glycoprotein structure and function,
as well as immunopathology of autoimmune and cancer diseases.
Section 16(a) Beneficial Ownership Reporting Compliance
Messrs. Thompson, Parks, Anderson, Potempa and Ng and RADE filed their
Initial Statements of Beneficial Ownership of Securities on Form 3 required by
Section 16(a) approximately 20 days after the filing deadline.
Item 10. Executive Compensation
Summary Compensation Table. The following table sets forth certain
information regarding the compensation of the Company's Chief Executive Officer
for the fiscal year ended March 31, 1999 and the fiscal year ended March 31,
1998. None of the Company's employees received a salary in excess of $100,000
during the 1998 and 1999 fiscal years.
SUMMARY COMPENSATION TABLE
Annual
Compensation Long-Term Compensation
------------ ----------------------
Name And Principal Position Year Salary ($) Options/Sars(#)
--------------------------- ---- ---------- ---------------
T. Stephen Thompson 1999 $56,250 0
President, Chief Executive
Officer and Director 1998 $12,500 0
Option Exercises in Last Fiscal Year and Fiscal Year End Option Values. T.
Stephen Thompson exercised 24,197 options during the year ended March 31, 1999.
The following table sets forth for each of the Named Executive Officers (i) the
41
<PAGE>
number of shares acquired as a result of option exercises during the year ended
March 31, 1999 and the value realized and (ii) the number and value of
securities underlying unexercised options/warrants held at March 31, 1999:
AGGREGATE OPTION/WARRANT EXERCISES IN YEAR ENDED MARCH 31, 1999 AND
OPTION/WARRANT VALUES AT MARCH 31, 1999
<TABLE>
<CAPTION>
Exercised Number of Unexercised Value of Unexercised
Options/Warrants At Options/Warrants At In-the Money Options/Warrants at
March 31, 1999(1) March 31, 1999 (#) March 31, 1999 ($)(1)
------------------- -------------------------------- --------------------------------
Value
Name Number Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
T. Stephen Thompson 24,197 $230,839 Options: 36,133 0 $ 328,107 0
Warrants: 800 0 $ 4,000 0
</TABLE>
- ----------
(1) Based on a value of $10.00 per share, minus the per share exercise price,
multiplied by the number of shares underlying the option/warrant.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Thompson in 1992
pursuant to which the Company retained Mr. Thompson as its President and Chief
Executive Officer for an annual base salary of $150,000 (subject to annual
adjustment by the Board), plus reimbursement for related business expenses. The
agreement, which includes certain confidentiality and non-disclosure provisions,
also grants to Mr. Thompson the right to receive an annual bonus to be
established by the Board in an amount not to exceed 60% of Mr. Thompson's annual
base salary for the year and certain other fringe benefits. If the Company
breaches the agreement or Mr. Thompson is terminated by the Company without
cause, he is entitled to all payments which he would otherwise accrue over the
greater of nine months from the date of termination or the remaining term under
the agreement. Additionally, rights to all options granted to Mr. Thompson
pursuant to the agreement vest immediately upon his termination without cause or
a change of control of the Company. The term of Mr. Thompson's agreement expires
on May 11, 1999, subject to automatic renewal for successive one-year terms
unless terminated by either party upon 30 days notice. Except for $12,500 paid
to Mr. Thompson during the fiscal year ended March 31, 1998, Mr. Thompson has
waived any right to receive salary due under his employment agreement prior to
June 30, 1998. Beginning July 1, 1998 and continuing until April 30, 1999, Mr.
Thompson agreed to accept one-half of his annual salary as full satisfaction of
the Company's salary obligation under his employment agreement. Mr. Thompson,
effective May 1, 1999, has resumed his full salary rate of $150,000 per annum
under his employment agreement, but will not be paid amounts previously waived.
NextEra has entered into a three year employment agreement with Dr.
Potempa, with an option on the part of NextEra to extend the agreement for an
additional two year period, whereby Dr. Potempa has been retained as the lead
scientist for an annual base salary of $120,000. The Agreement provides that Dr.
Potempa shall receive bonuses and salary increases as determined by NextEra's
CEO and/or Board of Directors. NextEra issued 33,333 shares to Dr. Potempa upon
the formation of NextEra. Additionally, Dr. Potempa received options to purchase
30,000 shares of NextEra upon submission of an NDA relating to rmCRP to a
regulatory agency for product approval. These options shall vest immediately if
there is a change of control of NextEra. The employment agreement contains
confidentiality and non-disclosure provisions.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of April 30, 1999 by (i) each of
the Company's Directors and Named Executive Officers, (ii) all directors and
executive officers as a group and (iii) each person known to be the beneficial
owner of more than 5% of the Shares.
42
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of Percentage of
Common Stock Outstanding Shares of
Name and Address Beneficially Owned(1) Common Stock
---------------- --------------------- ------------
<S> <C> <C>
T. Stephen Thompson 283,443(2) 5.76%
c/o Immtech International, Inc.
1890 Maple Avenue, Suite 110
Evanston, IL 60201
Byron Anderson, Ph.D. 109,322(3) 2.22%
c/o Northwestern University Medical School
303 East Chicago Avenue
Chicago, IL 60611
Criticare Systems, Inc. (4) 1,093,839 22.37%
20925 Cross Road Circle
Waukesha, WI 53186
University of North Carolina 611,250(5) 12.51%
at Chapel Hill/Pharm-Eco Laboratories
c/o Office of Technology Development
308 Bynum Hall
Chapel Hill, NC 27599
All directors and officers 693,848 13.52%
as a group (5 persons)
</TABLE>
- ------------
(1) Unless otherwise indicated below, the persons in the above table have sole
voting and investment power with respect to all shares beneficially owned
by them, subject to applicable community property laws.
(2) Includes 246,510 shares of Common Stock, 800 warrants to purchase Common
Stock, and 36,133 shares of Common Stock issuable upon the exercise of
options as follows: option to purchase 8,872 shares of Common Stock at
$0.46 per share by March 21, 2006; option to purchase 13,066 shares of
Common Stock at $0.34 per share by November 27, 2001; and option to
purchase 14,195 shares of Common Stock at $1.74 per share by April 16,
2008.
(3) Includes 78,834 shares of Common Stock, and 30,488 shares of Common Stock
issuable upon the exercise of option as follows: option to purchase 21,777
shares of Common Stock at $0.59 per share by April 13, 2000; option
granted to Dr. Anderson's wife to purchase 8,711 shares at $0.34 per share
by May 1, 2001.
(4) Criticare Systems, Inc. (Nasdaq: CXIM) designs, manufactures and markets
cost-effective patient monitoring systems and noninvasive sensors for a
wide range of hospitals and alternate health care environments throughout
the worlds.
(5) University of North Carolina at Chapel Hill ("Consortium") and Pharm-Eco
jointly own 611,250 shares of Common Stock. At the time of an ANDA or NDA
filing, 150,000 additional shares of Common Stock shall be issued.
Additionally, upon reaching certain milestones of development, the
Consortium and Pharm-Eco are entitled to warrants to purchase 850,000
shares of Common Stock at an exercise price equal to the weighted average
market price of the Company's Common Stock during the first 20 days of
trading on any stock exchange or in any over-the-counter market.
Item 12. Certain Relationships and Related Transactions
In addition to the transactions discussed in Item 5 and in Item 6 under
Liquidity and Capital Resources, the following related party transactions are
disclosed.
PHARMACEUTICAL PRODUCTS-DICATIONS
The Company initially acquired its rights to the platform technology and
dicationic compounds developed by the Consortium pursuant to an Agreement, dated
January 15, 1997 (as amended, the "Consortium Agreement") among the Consortium,
Pharm-Eco and UNC on behalf of itself and the other academic institutions in the
Consortium. The Consortium Agreement commits each party to the agreement to
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 licensed to the Company
pursuant to the Consortium Agreement, and all technology and compounds developed
by the Consortium after the date thereof through use of Immtech-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 contemplates that
Immtech and Pharm-Eco, with respect to the Current Compounds, and Immtech and
UNC, with respect to Future Compounds, will enter into more comprehensive
license or assignments of the intellectual property rights held by Pharm-Eco and
the Consortium; and that Pharm-Eco and the Company will enter into an
arrangement relating to the manufacture of products derived from the Compounds.
Under the Consortium Agreement, Immtech agreed to use its best efforts to
complete an initial public offering ("IPO") of shares of its Common Stock with
gross proceeds of at least $10,000,000 or an alternative form of financing
("Alternative Financing") to raise at least
43
<PAGE>
$4,000,0000 by April 30, 1999. Immtech completed its IPO on April 30, 1999.
Under the Consortium Agreement, the Company committed to: (i) use the greater of
(x) 33% of the net proceeds from the IPO or (y) $5,000,000, to develop the
Compounds, (ii) issue an aggregate of 611,250 shares of Common Stock to
Pharm-Eco or persons designated by Pharm-Eco, which number includes 137,500
shares to be issued to the Consortium, (iii) issue warrants to purchase an
aggregate of 850,000 shares of Common Stock to Pharm-Eco or persons designated
by Pharm-Eco with a ten-year term from the date of issuance, at an exercise
price equal to the weighted average market price of the Company's Common Stock
during the first 20 days of trading on any stock exchange or in any
over-the-counter market, which warrants are exercisable upon the occurrence of
certain events and subject to redemption by Immtech; and (iv) upon the filing by
Immtech of an NDA or ANDA with the FDA with respect to any product, issue an
aggregate of 150,000 shares of Common Stock collectively to Pharm-Eco or persons
designated by Pharm-Eco, which number of shares includes 100,000 shares of
Common Stock to be issued to the Consortium. In addition, Immtech will pay UNC
an aggregate royalty of 5% of net sales of Current Products and Future Products,
except that the Royalty Rate payable on any Compound developed at Duke
University will be determined by negotiation at the time such Compound is
developed. In the event that Immtech sublicenses its rights with respect to the
Compounds, Immtech will pay UNC, in addition to the royalty described above,
2.5% of all signing, milestone and other non-royalty payments made to Immtech
pursuant to the sublicense agreement and will pay to Pharm-Eco 2.5% of all
signing, milestone and other non-royalty payments made to Immtech pursuant to
the sublicense agreement.
As a result of the completion of the IPO: (a) Pharm-Eco is entitled to
designate for appointment one representative to Immtech's Board of Directors,
(b) UNC is entitled to designate one person as a non-voting observer of all
meetings and other proceedings of Immtech's Board of Directors, (c) Immtech has
begun making quarterly $100,000 Research Grants to UNC commencing April, 1999,
and continuing every three months thereafter until, at a minimum, April, 2002
and (d) Immtech will pay all costs to prosecute, maintain and defend all patents
and patent applications relating to any Compounds or products. As of the filing
of this report, Pharm-Eco has not designated its representative to the Immtech
Board of Directors and UNC has not designated a non-voting observer.
Because the gross proceeds of the IPO were more than $10,000,000, both
Pharm-Eco and UNC are in the process of granting Immtech 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.
In exchange for UNC's and Pharm-Eco's permission to extend the period of
time for Immtech to fulfill its obligations under the Agreement (such
obligations having been satisfied upon completion of the IPO), Immtech has (i)
provided financial support to Dr. Richard Tidwell's laboratory and research
covered by the agreement, (ii) paid fees and expenses charged UNC by UNC's
patent counsel during the period of the extension, (iii) replenished Dr.
Tidwell's UNC Department of Pathology & Laboratory Medicine trust fund of all
monies spent due to the delay in receipt of the Research Grants and (iv) agreed
to provide each of UNC and Pharm-Eco with 25,000 shares of Common Stock of
Immtech (included in the 611,250 shares described above).
FORMATION OF NEXTERA THERAPEUTICS, INC.
The Company has entered into a joint venture agreement with Franklin
Research Group ("Franklin"), pursuant to which the parties have formed a
corporation, NextEra Therapeutics, Inc. ("NextEra"), to develop therapeutic
products for treating cancer and related diseases. NextEra will focus initially
on the development of rmCRP. NextEra plans to fund the development of rmCRP
through Phase I, II and III clinical trials and early commercialization.
The joint venture agreement, commits Franklin to invest a minimum of
$1,350,000 to fund the Phase I human clinical trials using rmCRP in return for
510,000 common shares of NextEra. Of the $1,350,000 minimum investment, NextEra
has received $436,000 and Franklin has secured an irrevocable letter of credit
in favor of NextEra for $600,000. Immtech has contributed its rmCRP technology,
including relevant patents and know-how, as well as the use of its current
laboratory facilities, for 330,000 common shares of NextEra. NextEra's
scientists are in the process of preparing drug substance and documents for a
safety study in 30-40 cancer patients to be carried out at Northwestern
University. The focus of the study is to evaluate the safety and early efficacy
of rmCRP in patients with different types of cancer.
At the conclusion of the Phase I trial, the data for safety and efficacy
will be evaluated and Franklin will have 90 days to decide to continue the
development of rmCRP in human Phase II and III clinical trials. If Franklin
decides to proceed, it will invest a minimum of an additional $6,500,000 for
which it will receive an additional 160,000 common shares of NextEra. If
Franklin decides not to proceed, Immtech can purchase majority control of
NextEra by buying stock at $1.00/share until enough shares are purchased for
majority control. In addition, if Franklin elects to proceed, at its option,
Immtech can invest $1,625,000 of the $6,500,000 required of Franklin after the
Phase I trial, in which event Franklin will receive only 40,000 of the 160,000
shares to which it otherwise would be entitled.
44
<PAGE>
In addition to the shares of NextEra that are held by Immtech and
Franklin, 33,000 shares are held by Dr. Potempa, 100,000 shares will be reserved
for issuance to employees of the Company and Dr. Potempa has been granted an
option to purchase 30,000 shares.
The Company has, on the fifth anniversary of NextEra, a "put" option of
NextEra stock. The exercise of the put will cause NextEra to purchase the stock
owned by Immtech at an appraised value, or at $5.00 per share, whichever is
lower.
NextEra will fund the operation of Immtech's primary facility, including
compensatory costs related to work on rmCRP and overhead associated with the
project. In addition, NextEra will fund the maintenance and prosecution of all
patents that are part of the intellectual property transferred to NextEra by
Immtech.
As of March 31, 1999, NextEra had advanced $25,000 to the Company. The
advance was noninterest bearing and was subsequently repaid in May 1999.
CONSULTING ARRANGEMENTS
RADE has been engaged by the Company since July 1998 to assist in various
aspects of the Company's ongoing operations, including analyzing the market
potential of the Company's products, developing a long term strategy for
exploitation of the Company's products and assisting in the negotiation of
agreements with other parties which performed services for the Company. Such
services have been provided on behalf of RADE by Messrs. James Ng, Eric Sorkin
and Ms. Cecilia Chan. As compensation for the services which RADE has provided,
in July and October of 1998, the Company granted to RADE warrants to purchase
225,000 shares of Common Stock and 750,000 shares of Common Stock, respectively,
exercisable at $6.47 per share, subject to certain vesting conditions. In
October 1998, in recognition of RADE's continued efforts, the Company waived the
conditions to vesting of the RADE warrants.
The Company may continue to consult with RADE from time to time. The
Company anticipates, however, that the net proceeds from the IPO will be
sufficient to enable the Company to hire additional management personnel,
eliminating the need to rely upon RADE to supplement its management personnel.
RADE has agreed not to sell any of their Shares, warrants or underlying
Shares for the twenty-four month period (the "Initial Twenty-four Month Period")
commencing April, 1999. RADE further has agreed not to sell or transfer any of
their Shares unless the sooner of (1) the Share market price, adjusted for
splits and like transactions, closes at or above $20.00 per share for a period
of 20 consecutive trading days or (2) April, 2004.
The Company has also agreed, through April 2000, if so requested by RADE,
to nominate and use its best efforts to elect two designees of RADE as directors
of the Company, or at RADE's option, as non-voting advisers to the Company's
Board of Directors. RADE has not yet exercised its right to designate such
persons.
CRITICARE SYSTEMS, INC.
Criticare Systems, Inc. ("Criticare"), a shareholder, has advanced
$597,722 and $590,000 to the Company as of June 30, 1998 and 1997, respectively.
These advances plus accrued interest of $66,474 have been converted into an
aggregate of 145,843 shares of Common Stock.
Criticare, the largest shareholder in Immtech, agreed to the Private
Placement by New China Hong Kong Securities Limited ("NCHK"). In connection with
the Recapitalization and other related transactions, Criticare obtained an
option to license rmCRP as a therapy for treating sepsis. Sepsis is a bacterial
infection which quickly overwhelms the immune systems and can lead to sudden
death.
On June 25, 1998 Criticare agreed to pay Immtech $150,000 (which amount
Immtech chose to apply toward extinguishing outstanding indebtedness of Immtech
to a service vendor) in exchange for 86,207 shares of Common Stock and the
following additional consideration: (i) all of Immtech's right, title and
interest in the Patent #5,484,735, which is used in the development of a
hemoglobin A1c ("HbA1c") assay to minor diabetics for long term diet and glucose
control; (ii) all of Immtech's right, title and interest in the Patent
#5,702,904 which is used in the development of a carbohydrate deficient
transferrin ("CDT") blood to screen individuals who abuse alcohol over a
sustained period of time; (iii) all of Immtech's rights under the Sigma
Diagnostics, Inc. ("Sigma") Agreement dated as of March 23, 1998, including up
to $110,000 in license fees payable by Sigma upon Sigma's exercise of options to
license technology to conduct research and evaluation; (iv) all of Immtech's
rights with respect to the License agreements between Immtech and Northwestern
University dated as of March 10, 1998 and as of October 27, 1994, the former
license agreement involving certain patent rights and know-how relating to
Immunoassay Constructs to Quantitate Glucosylated-Hemoglobin and other
Glucosylated Serum Proteins (NU 8403) and the latter license agreement involving
certain inventions in the field of Immunoassay for Identifying Alcoholics and
Monitoring Alcohol Consumption (NU 9134); (v) an exclusive, royalty-free,
world-wide license under Patent 5,405,832 to Potempa, granted as of April 11,
1995 to utilize rmCRP for the treatment of sepsis, a life threatening disease
caused by bacteria that overwhelm the body's immune response; (vi) the right to
sue for past infringement with respect to all of the foregoing; and (vii) all
other rights reasonably required to make, use, sell and offer for sale products
based on or related to the assigned assets. Under the agreement, Criticare is
not assuming any other liabilities or obligations of any nature or kind,
including any of Immtech's liabilities for obligations to Northwestern
University under the Northwestern NU 8403 License and the
45
<PAGE>
Northwestern NU 9134 License that occurred prior to the closing. Additionally
for a period of three years following closing, Immtech has agreed to make
available to Criticare the part-time services of Dr. Potempa to consult with and
advise Criticare regarding research, testing, FDA compliance and approval,
manufacture and commercialization of the products or applications covered by the
above referenced patents. In exchange for Dr. Potempa's services, Criticare will
reimburse Immtech for Immtech's out-of-pocket salary and employee benefit plan
expenses, pro rata, with respect to Dr. Potempa. For a period of five years from
the time of closing, Criticare shall have the option of purchasing supplies of
rmCRP from Immtech. Criticare also, may manufacture rmCRP. If Criticare does
decide to manufacture rmCRP, Immtech will provide all necessary know-how and
expertise to enable Criticare to manufacture the molecule in commercially viable
quantities. Criticare has until July of 1999 to raise a minimum of $500,000 to
fund the development of a sepsis product and begin clinical trials. If Criticare
is not successful in raising the funds, Immtech has a right to acquire the
technology at market value. As of March 31, 1999, the Company owed Criticare
$50,000 for payments received from Sigma. The amount was subsequently paid in
May 1999.
In November 1997, Criticare advanced $120,000 on behalf of the Company in
order to fulfill a patent payment obligation of the Company to UNC. T. Stephen
Thompson, CEO of Immtech, reimbursed Criticare for the advancement of funds by
purchasing 20,425 shares of Criticare common stock (calculated using the average
of the high and low quotation price for Criticare's common stock on the NASDAQ
on the day of reimbursement). Criticare and Mr. Thompson have released Immtech
from any obligation to repay either of them with respect to the patent payment.
OTHER RELATED PARTY TRANSACTIONS
In January 1998, in connection with the acquisition of a "public shell"
corporation that the Company was considering merging into, certain stockholders
of the Company, including T. Stephen Thompson, President and Chief Executive
Officer of the Company, made royalty payments to UNC on behalf of the Company in
the amount of $56,000. The payments were made on a voluntary basis in order to
preserve the Company's rights to the assets licensed from UNC pending completion
of the proposed merger between the Company and the "public shell" corporation.
Thereafter, the Board of Directors of the Company voted not to pursue the
proposed merger and the $56,000 advanced on behalf of the Company was deemed to
represent a contribution to the Company's additional paid-in capital. As of
March 31, 1999 T. Stephen Thompson had advanced $25,000 to the Company. The
advance was non-interest bearing and was subsequently repaid in May 1998.
Other shareholders have converted interest free advances of $387,450 as of
June 30, 1998 into an aggregate of 196,824 shares of Common Stock.
Item 13. Exhibits, and Reports on Form 8-K
(A) EXHIBITS
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this report.
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K have been filed during the past quarter.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(2) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMMTECH INTERNATIONAL, INC.
By: /s/ T. Stephen Thompson
------------------------------------------
T. Stephen Thompson
Chief Executive Officer and President
Date: June 28, 1999
47
<PAGE>
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Date
--------- ----
/s/ T. Stephen Thompson
- ---------------------------------------------------
T. Stephen Thompson
President, Chief Executive Officer and Director June 28, 1999
/s/ Gary C. Parks
- ---------------------------------------------------
Gary C. Parks
Treasurer, Secretary and Chief Financial Officer
(Principal Financial and Accounting Officer) June 28, 1999
/s/ Byron E. Anderson
- ---------------------------------------------------
Byron E. Anderson
Director June 28, 1999
/s/ Emil Soika
- ---------------------------------------------------
Emil Soika
Director June 28, 1999
48
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
3.1(4) Certificate of Incorporation of the Company
3.2(3) By-laws of the Company
4.1(2) Form of Common Stock Certificate
4.2(4) Warrant Agreement relating to the Underwriters' Warrants
4.3(4) Warrant Agreement dated July 24, 1998 by and between the Company and
RADE Management Corporation
4.4(4) Warrant Agreement dated October 12, 1998 by and between the Company
and RADE Management Corporation
4.5(3) Warrant Agreement dated July 24, 1998 by and between the Company and
The New China Hong Kong Securities Ltd.
4.6(3) Registration Agreement dated December, 1992 by and among the
Company, Marquette Ventures Partners II, L.P. and certain investors
10.1(3) Consulting Agreement dated May 15, 1998 by and between the Company
and RADE Management Corporation
10.2(3)* 1993 Stock Option and Award Plan
10.3(3) Letter Agreement dated January 15, 1997 between the Company,
Pharm-Eco Laboratories, Inc. and The University of North Carolina at
Chapel Hill, as amended
10.4(3) Letter Agreement dated May 29, 1998 between the Company and Franklin
Research Group, Inc.
10.5(3) Indemnification Agreement dated June 1, 1998 between the Company and
RADE Management Corporation
10.6(3) Letter Agreement dated June 24, 1998 between the Company and
Criticare Systems, Inc.
10.7(3) Letter Agreement dated June 25, 1998 between the Company and
Criticare Systems, Inc.
10.8(3) Option Agreement dated April 20, 1998 between the Company and
ImmvaRx
10.9(3) Material Transfer and Option Agreement dated March 23, 1998 by and
between the Company and Sigma Diagnostics, Inc.
10.10(3) License Agreement dated March 10, 1998 by and between the Company
and Northwestern University
10.11(3) License Agreement dated October 27, 1994 by and between the Company
and Northwestern University
10.12(3) Settlement Agreement and Release dated June 29, 1998 by and between
the Company and Brinks, Hofer, Gilson & Lione
10.13(3) Assignment of Intellectual Properties dated June 29, 1998 between
the Company and Criticare Systems, Inc.
10.14(3) Assignment Agreement dated June 26, 1998 by and between the Company
and Criticare Systems, Inc.
49
<PAGE>
10.15(3) International Patent, Know-How and Technology License Agreement
dated June 29, 1998 by and between the Company and Criticare
Systems, Inc.
10.16(3) Assignment Agreement dated June 29, 1998 by and between the Company
and Criticare Systems, Inc.
10.17(3)* Employment Agreement dated 1992 by and between the Company and T.
Stephen Thompson
10.18(4) Amendment, dated January 15, 1999, to Letter Agreement between the
Company, Pharm-Eco Laboratories, Inc. and The University of North
Carolina at Chapel Hill, as amended
10.19(4) Funding and Research Agreement dated September 30, 1998 by and among
the Company, Next Era Therapeutics, Inc. and Franklin Research
Group, Inc.
10.20(4) Office Lease dated December 5, 1991, as amended, by and between the
Company and Shaw Realty Services, Inc., as agent for CHS Evanston
One Associates, Limited Partnership
10.21(2) Amendment, dated March 8, 1999, to Letter Agreement between the
Company, Pharm-Eco Laboratories, Inc. and The University of North
Carolina at Chapel Hill, as amended
10.22(2) Form of One Year Lock-Up Agreement executed by HPK Aeersborg, Duane
F. Anderson, Robert E. Bellin, Robert F. Benz, M. R. Braun (U.S.
Bank National Association Trustee, Dorsey & Whitney Master Trust FBO
Struyk), Howard D. Brous, Barbara A. Buhrow, Tim Connolly, Edward O.
Cox, Milton Datsopoulos, Joseph G. and Lila M. Dellosso, Tin Y. Eng,
Frederick Frank, Susan K. Goodrich, Charles T. Graham, James C.
Hale, Michael M. Harshbarger, Nadine Healy, Rick Kash, N.C. Joseph
Lai, Paul N. Lavins, Richard G. Lione, Charles F. Manker, Phillip H.
Martin, Daniel J. McCarty, M.D., Aleta Renee Ryder Mellon, Executrix
- The Estate of Lawrence Patrick Mellon, Thomas O. Moe, Douglas B.
Neumann, D. H. Nimmer, Sandra Topp and William Offenkrantz, M.D.,
Dale Phelps, Larry & Alan Phelps, Kenneth G. Pigott, Nicholos K.
Pontikes, Nicholos R. Pontikes, William N. Pontikes, James L.
Popken, James G. Randolph, Raymond A. Reister, Gerhard J. Von der
Ruhr, Marc Von der Ruhr, James R. Sanger, Frank R. Schmid, Herbert
A. Schmiedel, Jack W. Schuler, Robert J. Struyk, Frederick W.
Wackerle and Jeanette C. and James R. Wollinka
10.23(2) Form of One Year Plus 200% Lock-Up Agreement executed by Byron E.
Anderson, Gary C. Parks, Lawrence A. Potempa and T. Stephen Thompson
10.24(1) Two Year Plus 200% Lock-Up Agreement executed by James Ng
10.25(1)* Employment Agreement dated 1998 by and between NextEra and Lawrence
Potempa
27.1(1) Financial Data Schedule
- ----------
* Management Contract
(1) Filed herewith.
(2) Incorporated by Reference to Amendment No. 2 to the Company's Registration
Statement on Form SB-2 (Registration Statement No. 333-64393), as filed
with the Securities and Exchange Commission on March 30, 1999.
(3) Incorporated by Reference to the Company's Registration Statement on Form
SB-2 (Registration Statement No 333-64393), as filed with the Securities
and Exchange Commission on September 28, 1998.
(4) Incorporated by Reference to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (Registration Statement No. 333-64393), as filed
with the Securities and Exchange Commission on February 11, 1999.
50
IMMTECH INTERNATIONAL, INC.
LOCK-UP AGREEMENT
April 23, 1999
Westport Resources Investment Services, Inc.
The New China Hong Kong Securities Ltd.
As Representatives of the Several Underwriters
c/o Westport Resources Investment Services, Inc.
315 Post Road West
P.O. Box 3039
Westport, Connecticut 06380
Re: 5% Stockholders and Employee Option Holders
Ladies and Gentlemen:
The undersigned is currently a securityholder of Immtech International, Inc.
(the "Company") and wishes to facilitate the public offering (the "Offering") of
Common Stock of the Company ("Common Stock") pursuant to a Registration
Statement (the "Registration Statement") to be declared effective by the
Securities and Exchange Commission (the "Commission").
In consideration of the foregoing, in order to induce you to act as underwriters
in the Offering, and for other good and valuable consideration, receipt of which
is hereby acknowledged, the undersigned hereby irrevocably agrees that it will
not, directly or indirectly, sell, offer, contract to sell, transfer the
economic risk of ownership in, make any short sale, pledge, loan or otherwise
dispose of (each, a "Disposition") any shares of Common Stock or any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for or any other rights to purchase or
acquire Common Stock (collectively, "Securities"), without the prior written
consent of Westport Resources Investment Services, Inc. acting alone or of each
of the Representatives of the Underwriters acting jointly, (i) beginning on the
date of the prospectus and ending twenty-four (24) months from the date of the
final prospectus related to the Offering (the "Lock-Up Period"), and (ii) after
the Lock-Up Period, only after the average of the bid and ask prices of the
Company's Common Stock, as such Common Stock is quoted on the Nasdaq Automated
Quotation System, exceeds 200% of the per share initial public offering price
for twenty (20) consecutive trading days (occurring during or after the Lock-Up
Period), after adjustment for any stock splits, stock combinations or other
similar changes in the outstanding shares of Common Stock of the Company (the
"Threshold Share Price").
Notwithstanding the foregoing: (i) if the undersigned is a corporation or
partnership, it may distribute Securities on a pro rata basis to shareholders or
limited partners, respectively, so long as such transaction does not involve a
disposition for value; and (ii) if the
<PAGE>
Westport Resources Investment Services, Inc.
The New China Hong Kong Securities Ltd.
April 23, 1999
undersigned is an individual, he or she may transfer Securities either during
his or her lifetime or, on death, by will or intestacy, to his or her immediate
family or to a trust the beneficiaries of which are exclusively the undersigned
and/or a member or members of his or her immediate family; provided in each such
case, however, that prior to any such transfer, each donee, transferee or
distributee shall execute an agreement, satisfactory to Westport Resources
Investment Services, Inc., pursuant to which each donee, transferee or
distributee shall agree to receive and hold such Securities subject to the
provisions hereof, and there shall be no further transfer except in accordance
with the provisions hereof. For the purposes of this paragraph, "immediate
family" shall mean spouse, lineal descendant, father, mother, brother or sister
of the transferor.
The foregoing restriction on Dispositions is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-Up Period or until the Threshold Share Price is
achieved even if such Securities would be disposed of by someone other than the
undersigned. Such prohibited hedging or other transactions would include,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities.
The undersigned hereby waives any rights of the undersigned to sell shares of
Common Stock or any other security issued by the Company pursuant to the
Registration Statement, and acknowledges and agrees that, during the Lock-Up
Period and until the Threshold Share Price is achieved, the undersigned has no
right to require the Company to register under the Securities Act of 1933 such
Common Stock or other securities issued by the Company and beneficially owned by
the undersigned.
The undersigned understands that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of Common Stock or other securities
- -2-
<PAGE>
Westport Resources Investment Services, Inc.
The New China Hong Kong Securities Ltd.
April 23, 1999
of the Company held by the undersigned except in compliance with this agreement.
Very truly yours,
RADE MANAGEMENT CORPORATION
Dated: April 30, 1999 By: /s/ James Ng
------------------- -------------------------------------
Signature
James Ng, Director
-----------------------------------------
Printed Name and Title
Address
_________________________________________
_________________________________________
At the request of the Company, Westport Resources Investment Services, Inc.
irrevocably waives its rights to release any shareholder from the attached
lock-up during the Lock-Up Period. Westport confirms that if the Common Stock
achieves the Threshold Share Price during the Lock-Up Period, such condition
will be deemed satisfied regardless of the price of the Common Stock after the
Lock-Up Period. Westport hereby irrevocably releases all shareholders from the
attached Lock-Up Agreement effective the fifth anniversary of the effective date
of the Registration Statement relating to the offering regardless of the trading
price of the Common Stock. At the request of Westport Resources Investment
Services, Inc. the Company acknowledges the foregoing Lock-Up Agreement and
agrees that it will not allow any shares to be transferred of record in
contravention thereof.
Immtech International, Inc.
By: /s/ T. Stephen Thompson
-----------------------------------
Westport Resources Investment Services, Inc.
By: /s/ John D. Lane V.P.
-----------------------------------
-3-
NEXTERA THERAPEUTICS, INC.
Employment Agreement for Lawrence A. Potempa
This Employment Agreement (this "Agreement") is entered into effective as
of the Employment Commencement Date set forth in ss.1 by and between NextEra
Therapeutics, Inc., a Delaware corporation (the "Company"), and Lawrence A.
Potempa, an individual (the "Employee"), who hereby agree as hereinafter
provided.
ss.1. Definitions. As used herein, the following terms shall have the
meanings set forth below.
"Agreement" shall have the meaning set forth in the introductory paragraph
hereof.
"Cause" shall have the meaning set forth in ss.9(b).
"Company" shall have the meaning set forth in the introductory paragraph
hereof.
"Disability" means the total and permanent disability of the Employee,
which shall be deemed to have occurred (i) on the date of the certification to
the Company by a physician approved by the Company that the Employee is so
mentally or physically disabled as to be incapable of engaging in, and
performing the material duties of, his employment position described in ss.3 and
that such disability is likely to be permanent, or (ii) on the date as of which
the Employee has been unable to work for a period of time of 60 consecutive days
or for a period of time of 90 days in any period of 180 consecutive days.
"Employee" shall have the meaning set forth in the introductory paragraph
hereof.
"Employment Commencement Date" means October 1, 1998.
"Employment Period" shall have the meaning set forth in ss.2.
"Employment Termination Date" means the date the Employment Period
terminates as provided in ss.9.
"Initial Period" shall have the meaning set forth in ss.2.
"Renewal Period" shall have the meaning set forth in ss.2.
"Termination Payment Period" means the 90-day period immediately following
the Employment Termination Date.
ss.2. Employment and Term. The Company hereby employees the Employee, and
the Employee hereby accepts such employment by the Company, for the purposes and
upon the
<PAGE>
terms and conditions contained in this Agreement. The term of such employment
shall be for an initial period (the "Initial Period") of three (3) years
commencing on the Employment Commencement Date. The Employment Period hereunder
shall be renewed and extended for an additional two (2) year renewal period
(the "Renewal Period") upon written notice of renewal given by the Company to
the Employee not less than 90 days prior to the end of the Initial Period. As
used herein, the term "Employment Period" shall mean the Initial Period and the
Renewal Period (if any) until terminated as provided in ss.9.
ss.3. Capacities and Duties. The Employee shall be employed throughout the
Employment Period as the Company's Vice President - Chief Scientific Officer or
in such other position as is mutually agreed to by the Company and the Employee.
As the Vice President - Chief Scientific Officer, the Employee will be
responsible for all aspects of the development of rmCRP/mCRP.
ss.4. Performance Covenants. The Employee accepts the employment described
in ss.3 and agrees to devote his full working time and efforts (except for
absences due to illness and appropriate vacations) to the business and affairs
of the Company and the performance of the aforesaid duties and responsibilities.
However, nothing in this Agreement shall preclude the Employee from devoting a
reasonable amount of his time and efforts to civic, community, charitable,
professional and trade association affairs and matters.
ss.5. Compensation. The Company shall pay to the Employee, for his
services hereunder, the compensation hereinafter provided in this ss.5. Such
compensation shall be paid to the Employee at the time and in the manner as
provided below.
(a) Base Salary. The Employee shall be paid a base salary at an
annual rate of $120,000. The base salary may be increased (but may not be
decreased) at any time or from time to time by the Company's Chief Executive
Officer and/or Board of Directors. The base salary shall be paid in equal
monthly, twice monthly or two week installments as determined by the Company.
(b) Bonuses. During the Employment Period, the Employee will be
entitled to such bonuses (if any) as are determined by the Company's Chief
Executive Officer and/or Board of Directors.
ss.6. Reimbursement of Expenses. The Company shall pay or reimburse the
Employee for reasonable expenses paid or incurred by the Employee on behalf of
the Company in connection with and reasonably necessary for the rendering of his
services to the Company hereunder, subject to prior approval by the Company of
such expenditures. Any such reimbursement shall be made as promptly as
practicable after the Employee has submitted to the Company vouchers or reports
for such expenditures in such reasonable detail and with such supporting
receipts and other evidence of expenditures as the Company may reasonably
require for such purposes.
ss.7. Employee Benefits. During the Employment Period, the Employee shall
be entitled to such group medical/hospitalization and other group employee plans
and benefits (if
-2-
<PAGE>
any) as are presently or may hereafter be provided generally to employees of the
Company. Additionally, the Employee shall be entitled to 3 weeks vacation per
year.
ss.8. Certain Company Protection Provisions. The below provisions apply
for the protection of the Company.
(a) Noncompetition. During the Restricted Period (defined below),
the Employee shall not directly or indirectly compete with the Company by
owning, managing, controlling or participating in the ownership, management or
control of, or be employed or engaged by or otherwise affiliated or associated
with, any Competitive Business (defined below). As used herein, the term
"Restricted Period" means the Employment Period and a period of two years
thereafter. Also, as used herein, a "Competitive Business" is a business
involving C Reactive proteins and modified forms; provided, however, that
ownership of not more than one percent (1%) of the stock of any publicly traded
company shall not be deemed a violation of this provision.
(b) Non-Interference. During the Restricted Period, the Employee
shall not induce or solicit any employee of the Company or any person doing
business with the Company to terminate his or her employment or business
relationship with the Company or otherwise interfere with any such relationship.
(c) Confidentiality. The Employee agrees and acknowledges that, by
reason of the nature of his duties as an employee, he will have or may have
access to and become informed of confidential and secret information which is a
competitive asset of the Company ("Confidential Information"), including without
limitation any research data, inventions, patents or other trade secrets of the
Company and any of the foregoing which belong to any person or company but to
which the Employee has had access by reason of his employment relationship with
the Company. The Employee agrees faithfully to keep in strict confidence, and
not, either directly or indirectly, to make known, divulge, reveal, furnish,
make available or use (except for use in the regular course of his employment
duties ) any such Confidential Information. The Employee acknowledges that any
and all documents containing Confidential Information furnished to the Employee
by the Company or otherwise acquired or developed by the Employee shall at all
times be the property of the Company. Upon termination of the Employment Period,
the Employee shall return to the Company any such property or documents which
are in his possession, custody or control, but his obligation of confidentiality
shall survive such termination of the Employment Period unless and until any
such Confidential Information shall have become, through no fault of the
Employee, generally known to the trade. The obligations of the Employee under
this subsection are in addition to, and not in limitation or preemption of, all
other obligations of confidentiality which the Employee may have to the Company
under general legal or equitable principles.
(d) Remedies. It is expressly agreed by the Employee and the Company
that the provisions of this ss.8 are reasonable for purposes of preserving for
the Company its business, goodwill and proprietary information. It is also
agreed that if any provision is found by a court having jurisdiction to be
unreasonable because of scope, area or time, then that provision shall be
amended to correspond in scope, area and time to that considered reasonable by a
court and as
-3-
<PAGE>
amended shall be enforced and the remaining provisions shall remain effective.
In the event of any breach of these provisions by the Employee, the parties
recognize and acknowledge that a remedy at law may be inadequate and the Company
may suffer irreparable injury. Accordingly, the Employee consents to injunctive
and other appropriate equitable relief upon the institution of proceedings
therefor by the Company in order to protect the Company's rights (without the
necessity of posting bond if such requirement may be legally waived). Such
relief shall be in addition to any other relief to which the Company may be
entitled at law or in equity.
ss.9. Termination. The Employee's employment by the Company and the
Employment Period shall terminate effective upon the first to occur of the
following:
(a) The last day of the Initial Period if the Company does not
notify the Employee of renewal for the Renewal Period, or otherwise the last day
of the Renewal Period.
(b) A date specified by the Company by notice to the Employee for
Cause. For purposes of this Agreement, "Cause" means (i) a breach by the
Employee of any of his material covenants and agreements contained in this
Agreement if such breach is not cured by the Employee within 30 days after being
given notice of such breach by the Company, (ii) action by the Employee
constituting willful malfeasance or felonious conduct which in any material
respect impairs the reputation, goodwill or business position of the Company or
involves misappropriation of the Company's funds or other assets or (iii)a
determination by the Company in its reasonable discretion that the Employee
continued to fail to perform his duties with the Company (other than any such
failure resulting from incapacity due to mental or physical illness) after a
demand in writing for performance was given to the Employee by the Company.
(c) The death of the Employee (in which case the date of termination
shall be the date of death).
(d) The occurrence of any Disability of the Employee, provided the
Company gives the Employee at least 30 days' notice of such termination (in
which case the date of termination shall be the date specified in such notice
or, in the absence thereof, such date as is 30 days after the Company gives such
notice).
(e) A date specified by the Employee by notice to the Company upon a
breach by the Company of any of its material covenants and agreements contained
in this Agreement if such breach is not cured by the Company within 30 days
after being given notice of such breach by the Employee.
(f) A date mutually agreed to in writing by the Company and the
Employee.
Any notice of termination by either party under this ss.9 shall clearly
state that the terminating party elects to terminate the Employment Period and
upon which subsection of this ss.9 such party is relying as the basis for such
termination.
If the Employment Period is terminated under this ss.9, then, except as
specifically provided herein, this Agreement shall be terminated and of no
further force or effect; the
-4-
<PAGE>
Employee shall have no obligation or duty to be employed by the Company in any
capacity; and the Company shall have no obligation to employ the Employee in any
capacity.
ss.10. Indemnification. As an employee of the Company, the Employee shall
be indemnified against all liabilities, damages, fines, costs and expenses by
the Company to the fullest extent to which employees of a corporation organized
under the laws of the State of Delaware may be indemnified.
ss.11. Successors and Assigns. Except as hereinafter expressly provided,
the agreements, covenants, terms and provisions of this Agreement shall bind the
respective heirs, executors, administrators, successors and assigns of the
parties. If the Employee should die while any amounts are payable to him
hereunder, then this Agreement shall inure to the benefit of and be enforceable
by the Employee's executors, administrators, heirs, distributees, devisees and
legatees and all amounts payable hereunder shall then be paid in accordance with
the terms of this Agreement to the appropriate such person. This Agreement is
personal in nature and neither of the parties hereto shall, without the consent
of the other, assign or transfer this Agreement or any rights or obligations
hereunder.
ss.12. Notices. Any notice or other communication required or desired to
be given hereunder shall be in writing and shall be deemed sufficiently given
when personally delivered or when mailed by first class certified mail, return
receipt requested and postage prepaid, addressed to the parties at their
respective addresses set forth under their respective signatures below or to
such other persons or addresses as shall be given by notice of any party.
ss.13. Waiver; Remedies Cumulative. No waiver of any right or option
hereunder by any party shall operate as a waiver of any other right or option,
or the same right or option as respects any subsequent occasion for its
exercise, or of any real legal remedy. No waiver by any party of any breach of
this Agreement or of any agreement or covenant contained herein shall be valid
unless it is in writing and executed by the waiving party and such a waiver
shall not be held to constitute a waiver of any other breach or a continuation
of the same breach. All remedies provided by this Agreement are in addition to
all other remedies by it or the law provided.
ss.14. Governing Law; Severability. The various terms, provisions,
covenants and agreements of this Agreement, and the performance thereof, shall
be construed, interpreted and enforced under and with reference to the laws of
the State of Delaware. It is the intention of the Company and the Employee to
comply fully with all laws and matters of public policy relating to employment
agreements, and this Agreement shall be construed consistently with such laws
and public policy to the extent possible. If and to the extent any one or more
covenants, agreements, terms and provisions of this Agreement or any portion or
portions thereof shall be held invalid or unenforceable by a court of competent
jurisdiction, then such covenants, agreements, terms and provisions (or portions
thereof) shall be deemed separable from the remaining covenants, agreements,
terms and provisions of this Agreement and such holding shall in no way affect
the validity or enforceability of any of the other covenants, agreements, terms
and provisions of this Agreement.
-5-
<PAGE>
ss.15. Miscellaneous. This Agreement constitutes the entire understanding
of the parties hereto with respect to the subject matter hereof. This Agreement
may not be modified, changed or amended except in a writing signed by both of
the parties hereto. This Agreement may be signed in multiple counterparts, each
of which shall be deemed an original hereof. The captions of the several
sections and subsections of this Agreement are not a part of the context hereof,
are inserted only for convenience in locating such sections and subsections and
shall be ignored in construing this Agreement.
IN WITNESS WHEREOF, the Company and the Employee have executed multiple
counterparts of this Agreement effective as of the Employment Commencement Date.
Company: Employee:
NEXTERA THERAPEUTICS, INC.
By: /s/ Phillip D. Nick /s/ Lawrence A. Potempa
-------------------------- ----------------------------
Name: Phillip D. Nick Name: Lawrence A. Potempa
Title: President Address: 1630 Montgomery Road
Address: 2035 Riverside Drive Deerfield, IL 60015
Columbus, Ohio 43221
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,364
<PP&E> 313,247
<DEPRECIATION> 283,230
<TOTAL-ASSETS> 551,591
<CURRENT-LIABILITIES> 1,000,053
<BONDS> 0
0
0
<COMMON> 32,455
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 551,591
<SALES> 0
<TOTAL-REVENUES> 266,952
<CGS> 0
<TOTAL-COSTS> 3,439,685
<OTHER-EXPENSES> (21,197)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,543
<INCOME-PRETAX> (3,219,079)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 1,427,765
<CHANGES> 0
<NET-INCOME> (1,791,314)
<EPS-BASIC> (.73)
<EPS-DILUTED> (.73)
</TABLE>
