Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended December 31, 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
- --------------------------------- --------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
150 Fairway Drive, Suite 150, Vernon Hills, Illinois 60061
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (847) 573-0033
--------------
Securities registered under Section 12 (b) of the Exchange Act:
Name of Each Exchange
Title of Each Class in which Registered
- ------------------------------- ----------------------
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 |X| No |_|
As of January 20, 2000, 5,276,334 shares of the Registrant's Common Stock
were Outstanding.
Transitional Small Business Disclosure Format: (Check One): Yes |_| No |X|
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PART I.
Item 1. Financial Statements
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
CONDENSED BALANCE SHEETS
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December 31, March 31,
ASSETS 1999 1999
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 7,188,632
Prepaid expenses and supplies 47,858 $ 8,364
------------ ------------
Total current assets 7,236,490 8,364
------------ ------------
PROPERTY AND EQUIPMENT:
Furniture and equipment 359,345 296,042
Leasehold improvements 17,205
------------ ------------
Total - at cost 359,345 313,247
Less accumulated depreciation
and amortization 265,322 283,230
------------ ------------
Property and equipment - net 94,023 30,017
DEFERRED OFFERING COSTS 513,210
------------ ------------
TOTAL $ 7,330,513 $ 551,591
============ ============
LIABILITIES AND COMMON STOCKHOLDERS'
INVESTMENT (DEFICIENCY IN ASSETS)
CURRENT LIABILITIES:
Accounts payable $ 253,970 $ 508,232
Accrued interest 281,470
Other accrued liabilities 415,963 50,351
Advances from stockholders and affiliates 50,000
Notes payable 110,000
------------ ------------
Total current liabilities 669,933 1,000,053
------------ ------------
COMMON STOCKHOLDERS' INVESTMENT
(DEFICIENCY IN ASSETS):
Preferred stock
Common stock 52,483 32,455
Additional paid-in capital 27,348,570 10,997,198
Deficit accumulated during the
developmental stage (20,740,473) (11,478,115)
------------ ------------
Total common stockholders'
investment (deficiency in assets) 6,660,580 (448,462)
------------ ------------
TOTAL $ 7,330,513 $ 551,591
============ ============
See notes to condensed financial statements.
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IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
October 15,
Three Months Ended Nine Months Ended 1984
December 31, December 31, (Inception) to
----------------------------- ----------------------------- December 31,
1999 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C>
REVENUES $ 17,520 $ 13,469 $ 79,410 $ 198,735 $ 2,067,483
------------ ------------ ------------ ------------ ------------
EXPENSES:
Research and development 971,899 191,064 8,283,554 540,201 15,876,761
General and administrative 417,655 1,170,234 1,182,065 2,596,869 9,230,684
Cancelled offering costs 584,707
------------ ------------ ------------ ------------ ------------
Total expenses 1,389,554 1,361,298 9,465,619 3,137,070 25,692,152
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,372,034) (1,347,829) (9,386,209) (2,938,335) (23,624,669)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (67,543) (1,129,502)
Interest income 96,410 584 258,647 5,505 264,327
Miscellaneous income (expense) - net 204 15,517 86,707
Equity in loss of joint venture (135,000) (135,000) (135,000)
------------ ------------ ------------ ------------ ------------
Other income (expense) - net (38,590) 584 123,851 (46,521) (913,468)
------------ ------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (1,410,624) (1,347,245) (9,262,358) (2,984,856) (25,538,137)
EXTRAORDINARY GAIN ON EXTINGUISHMENT
OF DEBT 1,427,765 1,427,765
------------ ------------ ------------ ------------ ------------
NET (LOSS) INCOME (1,410,624) (1,347,245) (9,262,358) (1,557,091) (23,110,372)
CONVERSION OF REDEEMABLE PREFERRED
STOCK 3,713,334 3,713,334
REDEEMABLE PREFERRED STOCK PREMIUM
AMORTIZATION 440,119
REDEEMABLE PREFERRED STOCK DIVIDENDS (137,689) (1,783,554)
------------ ------------ ------------ ------------ ------------
NET (LOSS) INCOME ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (1,410,624) $ (1,347,245) $ (9,262,358) $ 2,018,554 $(20,740,473)
============ ============ ============ ============ ============
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS:
Net (loss) income $ (0.27) $ (0.42) $ (1.87) $ (0.72)
Conversion of redeemable preferred
stock net of redeemable preferred
stock dividends 1.64
------------ ------------ ------------ ------------
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (0.27) $ (0.42) $ (1.87) $ .92
============ ============ ============ ============
SHARES USED IN COMPUTING NET (LOSS)
INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS 5,235,109 3,205,015 4,958,121 2,184,735
============ ============ ============ ============
</TABLE>
See notes to condensed financial statements.
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IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
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<TABLE>
<CAPTION>
October 15,
Three Months Ended Nine Months Ended 1984
December 31, December 31, (Inception) to
---------------------------- ---------------------------- December 31,
1999 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (1,410,624) $ (1,347,245) $ (9,237,358) $ (1,557,091) $(23,110,372)
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Depreciation and amortization of
property and equipment 8,235 6,780 21,923 20,340 336,833
Amortization of debt discount and
issuance costs
Equity in loss of joint venture 135,000 135,000 135,000 134,503
Compensation recorded related to issuance
of common stock or common stock options 176,797 1,166,333 6,506,724 2,300,000 11,395,687
Extraordinary gain on extinguishment
of debt (1,427,765) (1,427,765)
Changes in operating assets and liabilities:
Prepaid expenses and supplies (2,593) 250 (39,494) 3,500 (47,858)
Accounts payable 179,395 115,991 (254,262) 90,935 253,970
Other accrued liabilities 188,539 13,672 340,612 63,294 415,963
Accrued interest 663,013
------------ ------------ ------------ ------------ ------------
Net cash used in operating
activities (725,251) (44,219) (2,526,855) (506,787) (11,251,026)
------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of property and equipment (38,478) (85,927) (404,330)
Advances to joint venture (135,000) (135,000) (135,000)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (173,478) (220,927) (539,330)
------------ ------------ ------------
FINANCING ACTIVITIES:
(Repayments of) advances from stockholders
and affiliates (50,000) 985,172
Proceeds from the issuance of senior
subordinated debt 525,000
Proceeds from the issuance of notes
payable 2,120,194
Payments on notes payable (7,500) (110,000) (11,000) (218,119)
Payments for debt issuance costs (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 2,000,000
Proceeds from the issuance of common
stock 35,102 13,350 10,096,414 978,490 12,262,126
Additional capital contributed by
stockholders 231,734
Payments for offering costs deferred (164,766) (164,766)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities 35,102 (158,916) 9,936,414 599,274 18,978,988
------------ ------------ ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (863,627) (203,135) 7,188,632 92,487 7,188,632
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 8,052,259 295,622
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,188,632 $ 92,487 $ 7,188,632 $ 92,487 $ 7,188,632
============ ============ ============ ============ ============
</TABLE>
See notes to condensed financial statements.
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IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared by
Immtech International, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and, in the
opinion of the Company, include all adjustments necessary for a fair
statement of results for each period shown. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. The
Company believes that the disclosures made are adequate to prevent the
financial information given from being misleading. It is suggested that
these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's previously filed
Form 10-KSB.
2. COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - 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 $20,740,000. 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. On April 30,
1999, the Company completed an initial public offering which raised
approximately $9,173,000 of
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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.
Cash Equivalents - The Company considers all investments with purchased
maturities of less than three months to be cash equivalents. Cash
equivalents consist of overnight time deposits.
Investment - The Company accounts for its investment in NextEra
Therapeutics, Inc. ("NextEra") on the equity method.
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.
Deferred Offering Costs - Costs incurred with respect to a common stock
offering in process as of March 31, 1999 were 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 30, 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 three months ended December 31, 1999
and 1998, and the nine months ended December 31, 1999 and 1998.
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 three months ended December
31, 1999 and 1998, and the nine months ended December 31, 1999 and 1998.
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
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financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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, as amended by SFAS
No. 137, and does not believe the adoption of SFAS No. 133 will have a
significant effect on the Company's financial statements. This statement
is required to be adopted no later than the year ended March 31, 2002.
3. 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
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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 24, 2004.
On April 30, 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. The underwriters received warrants to purchase
100,000 additional shares of common stock at $16.00 per share. The
warrants expire April 30, 2003.
4. INVESTMENT IN NEXTERA THERAPEUTICS, INC.
On July 8, 1998, the Company, together with Franklin Research Group, Inc.
("Franklin") formed NextEra Therapeutics, Inc. ("NextEra") to develop
therapeutic products for treating cancer and related diseases. The Company
and Franklin have a research and funding agreement with NextEra in which
Franklin agreed to fund $1,350,000 to NextEra for the scale-up of
manufacturing and initiation of Phase I clinical trials. Franklin and
investors identified by them have provided funding of approximately
$1,026,000 through December 31, 1999 and Franklin is in default of its
funding obligations. The Company contributed its rmCRP technology as well
as use of its current laboratory facilities for 330,000 common shares of
NextEra. During the three months ended December 31, 1999, the Company
advanced $135,000 to NextEra to fund its operations.
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.
NextEra has incurred accumulated losses of approximately $1,293,000 since
inception (July 8, 1998) through December 31, 1999. NextEra is expected to
continue to incur significant losses during the next several years.
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.
The Company has recognized an equity loss in NextEra to the extent of the
basis of its original investment and advances.
5. 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 July 24, 1998, Criticare exchanged $597,722 of
advances and $68,368 of accrued interest for 145,353 shares of common
stock. 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. 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 nine months ended December 31, 1998. 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.
6. NOTES PAYABLE
Notes payable consisted of the following as of March 31, 1999:
State of Illinois, payment made in May 1999 upon closure of
initial public offering, 0% interest, unsecured $100,000
Northwestern University, payment made in May 1999,
0% interest, unsecured 10,000
--------
Total notes payable $110,000
========
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
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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.
On July 24, 1998, certain notes payable to Criticare aggregating $89,777
and related accrued interest of $27,201 were exchanged for 25,526 shares
of common stock. The carrying value of the outstanding Criticare
indebtedness under such notes in excess of the estimated fair value of the
shares of common stock exchanged was accounted for as additional paid-in
capital, as Criticare is a significant stockholder.
On July 24, 1998, certain notes payable aggregating $1,365,673, related
accrued interest aggregating $353,515 and accounts payable aggregating
$261,597 were exchanged for 247,734 shares of common stock and $203,450
cash. During the nine months ended December 31, 1998, the Company
recognized an extraordinary gain on the extinguishment of debt of
$1,347,361 for the outstanding aggregate indebtedness under such 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.
7. REDEEMABLE PREFERRED STOCK
On July 24, 1998, Series A and B Preferred stockholders exchanged their
preferred shares for an aggregate 1,195,017 shares of common stock. 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.
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.
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 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 nine months ended December 31, 1998.
8. STOCK OPTIONS, WARRANTS AND COMMON STOCK
The Company had 5,248,364 shares and 3,245,517 shares of common stock
outstanding as of December 31, 1999 and March 31, 1999, respectively.
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
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of December 31, 1999, there were options outstanding to purchase 450,018
shares of common stock. As of December 31, 1999, there were 2,581 employee
stock options available for grant.
During the three months ended December 31, 1999, the Company issued no
stock options to nonemployees for services rendered to the Company. During
the nine months ended December 31, 1999, the Company issued 2,176 stock
options to non-employees for services rendered to the Company and recorded
an expense of approximately $37,000 for these options. The expense was
determined based on the estimated fair value of the options issued.
The activity during the nine months ended December 31, 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, 1999 516,992 $0.31-2.70 $ 0.64
Granted 2,176 0.59 0.59
Exercised 69,150 0.31-2.70 0.81
------- ---------- -------
Outstanding at December 31, 1999 450,018 $0.31-1.74 $ 0.61
======= ========== =======
Exercisable at December 31, 1999 392,348 $0.31-1.74 $ 0.64
======= ========== =======
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 recognized
$2,220,000 as a general and administrative expense during the nine months
ended December 31, 1998, 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 December 31, 1999 after giving affect to the April 22,
1999 amendments to certain warrant agreements:
Warrants
Exercise Price Outstanding Expiration Date
$6.47 per share (as amended on April 22, 1999) 225,000 July 24, 2004
$6.47 per share 750,000 October 12, 2004
$16.00 per share 100,000 April 30, 2003
$20.52 per share 850,000 April 30, 2009
---------
Total warrants outstanding 1,925,000
=========
During the nine months ended December 31, 1999, certain warrant holders
exercised warrants to purchase 69,300 shares of common stock at $5.00 per
share, respectively. The warrants, which were issued during the year ended
March 31, 1997, had an August 29, 1999 expiration date. Warrants to
purchase 22,100 shares of common stock expired as of such date.
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
-10-
<PAGE>
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its employee stock option plans. There were no common stock
options issued to employees during the three months ended December 31,
1999 and 1998, and the nine months ended December 31, 1999 and 1998.
9. 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.
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: (i)
will use $5,000,000, to develop the Compounds; (ii) has issued an
aggregate of 611,250 shares of common stock to Pharm-Eco or persons
designated by Pharm-Eco, which number includes 137,500 shares issued to
the Consortium; the Company has recorded $6,112,500 research and
development costs, during the three months and nine months ended June 30,
1999 and December 31, 1999, respectively, based on the estimated fair
value of the 611, 250 shares issued; (iii) will 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 ($20.52 per share), which warrants are exercisable
upon the occurrence of certain events and subject to redemption by the
Company; and (iv) agrees 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
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<PAGE>
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 a result of the April 26, 1999 IPO: (a) Pharm-Eco is entitled to
designate for appointment one representative to the Company's Board of
Directors, (b) UNC is 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 is required to 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.
During the three months ended December 31, 1999 and 1998, the Company
expensed grant payments to UNC of $100,000 and $50,000, respectively.
During the nine months ended December 31, 1999 and 1998, the Company
expensed grant payments to UNC of $550,000 and $250,000, respectively.
Such payments were expensed as research and development costs.
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.
The Company has 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.
* * * * * *
-12-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
OVERVIEW
Immtech International, Inc. ("Immtech" or the "Company") 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, parasitic protozoan, 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 December
31, 1999, the Company incurred a cumulative net loss of $20,740,473. 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 my 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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<PAGE>
RESULTS OF OPERATIONS
Nine Months Ended December 31, 1999 Compared with Nine Months Ended
December 31, 1998.
Revenues under collaborative research and development agreements were
approximately $79,000 and $199,000 in the nine months ended December 31, 1999
and 1998,respectively. In the nine months ended December 31, 1999, there were
grant revenues of approximately $79,000 from STTR Programs from the National
Institutes of Health ("NIH") while for the nine months ended December 31, 1998
the grant revenue from the NIH was $104,000. The balance of the revenue in the
nine months ended December 31, 1998 was $45,000 from a license agreement with
Sigma Diagnostics that has since been transferred to Criticare Systems, Inc. and
a $50,000 payment from Franklin Research Group, Inc. for certain technology
rights.
Interest income for the nine months ended December 31, 1999 was
approximately $259,000. Interest is generated on the cash balances on hand from
the proceeds of the initial public offering in April 1999 (the "IPO"). Interest
income in the nine months ended December 31, 1998 was approximately $6,000
earned on the money deposited from the Private Placement which closed July 24,
1998. There was no interest expense for the nine months ended December 31, 1999.
Interest expense for the nine months ended December 31, 1998 was approximately
$68,000.
Research and development expenses increased from approximately $540,000 in
the nine months ended December 31, 1998 to $8,284,000 in the nine months ended
December 31, 1999. This is due primarily to expenses of approximately $6,113,000
for the issuance of 611,250 shares of common stock pursuant to 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"), expenses totaling $357,000 for services relating
to the issuance of stock options, contractual payments of $550,000 for research
and development activities and reduced research and development activities prior
to the Private Placement in July 1998.
General and administrative expenses decreased in the nine months ended
December 31, 1999 to approximately $1,182,000 from approximately $2,597,000 in
the nine months ended December 31, 1998. The decrease was a combination of
expenses of approximately $2,257,000 recorded for services relating to the
issuance of stock options and warrants in the nine months ended December 31,
1998 offset by increased running expenses in the nine months ended December 31,
1999. Reduced general and administrative salaries were taken in the nine months
ended December 31, 1998. In the nine months ended December 31, 1999, there were
four new hires.
The Company incurred a net loss attributable to common stockholders of
approximately $9,262,000 for the nine months ended December 31, 1999 as compared
with a net gain of approximately $2,019,000 for the nine months ended December
31, 1998. The gain in the nine months ended December 31, 1998 was due to the
conversion of redeemable preferred stock (net of preferred stock dividends) of
approximately $3,576,000 and an extraordinary gain on the extinguishment of debt
of approximately $1,428,000 offset by compensation expenses of approximately
$2,257,000 relating to the issuance of stock options and warrants. The loss
occurring in the nine months ended December 31, 1999 is primarily attributable
to expenses for general and administrative activities and research and
development expenses related to the common stock issued to Pharm-Eco and the
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<PAGE>
Consortium in the nine months ended December 31, 1999 for an aggregate of
$7,020,000.
Three Months Ended December 31, 1999 Compared with Three Months Ended
December 31, 1998.
Revenues under collaborative research and development agreements were
approximately $18,000 and $13,000 in the three months ended December 31, 1999
and 1998,respectively. In the three months ended December 31, 1999, there were
grant revenues of approximately $18,000 from STTR Programs from the National
Institutes of Health ("NIH") while for the three months ended December 31, 1998
the grant revenue from the NIH was $13,000.
Interest income for the three months ended December 31, 1999 was
approximately $96,000. Interest is generated on the cash balances on hand from
the proceeds of the initial public offering in April 1999 (the "IPO"). Interest
income in the three months ended December 31, 1998 was approximately $1,000
earned on the money deposited from the Private Placement which closed July 24,
1998. There was no interest expense for the three months ended December 31, 1999
and December 31, 1998.
Research and development expenses increased from approximately $191,000 in
the three months ended December 31, 1998 to $972,000 in the three months ended
December 31, 1999. This is due primarily to expenses totaling $177,000 for
services relating to the issuance of stock options, and contractual payments of
$731,000 for research and development activities.
General and administrative expenses decreased in the three months ended
December 31, 1999 to approximately $417,000 from approximately $1,170,000 in the
three months ended December 31, 1998. The decrease was primarily due to expenses
of approximately $1,110,000 recorded for services relating to the issuance of
warrants in the three months ended December 31 1998 offset by increased
marketing costs in the three months ended December 31, 1999.
The Company incurred a net loss attributable to common stockholders of
approximately $1,411,000 for the three months ended December 31, 1999 as
compared with a net loss of approximately $1,347,000 for the three months ended
December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1999, the Company has financed its
operations with the net proceeds of the IPO and other debt and equity offerings
aggregating, approximately $21,096,000, payments from research agreements and
SBIR grants and STTR Program grants of approximately $2,067,000 and use of
stock, options and warrants in lieu of cash compensation.
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 through
April 30, 2002.
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<PAGE>
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 into May 2001, 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
The Company has taken the necessary steps to ensure Year 2000 compliance
with its computer systems, network elements, software applications and other
business systems. The Company has experienced no significant Year 2000 problems
to date and all disciplines have continued to operate without interruption. The
Company will continue to monitor normal daily activities as part of the post
Year 2000 process. The Company has received confirmation that the Company's main
research affiliates have the appropriate programs in place to achieve continuing
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. 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
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<PAGE>
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.
Part II
Item 2. Recent Sales of Unregistered Securities Pursuant to Section 4(2)
<TABLE>
<CAPTION>
Date Description/Consideration Holder Number of Shares of Common Stock Issued
<S> <C> <C> <C> <C>
11/12/99 Exercise of option $35,102 Duane Anderson 29,035
</TABLE>
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 overallotment 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.
Substantially all of the remaining net proceeds of the IPO 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. 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 continues to invest the net proceeds from the IPO in short-term,
investment-grade, interest-bearing securities.
For the eight months after the IPO ended December 31, 1999, the Company
has used the proceeds as follows:
Arrearage in research support $ 150,000
Debt payment $ 110,000
Research and development generally $1,611,852
Patent protection $ 113,770
Working capital and general corporate purposes $1,121,995
-17-
<PAGE>
Item 5. Other Information
The Company recognized an equity loss of $135,000 on its joint venture
activities with NextEra Therapeutics, Inc. Franklin Research Group, Inc.
is in default of its funding obligations to NextEra Therapeutics, Inc.
Item 6. 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.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMMTECH INTERNATIONAL, INC.
Date: February 14, 2000 By: /s/ T. Stephen Thompson
------------------------------------
T. Stephen Thompson
Chief Executive Officer and
President
Date: February 14, 2000 /s/ Gary C. Parks
------------------------------------
Gary C. Parks
Treasurer, Secretary and Chief
Financial Officer (Principal
Financial and Accounting
Officer)
-19-
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
27.1(1) Financial Data Schedule
-20-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S QUARTERLY REPORT ON FORM
10-QSB FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,188,632
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,236,490
<PP&E> 359,345
<DEPRECIATION> 265,322
<TOTAL-ASSETS> 7,330,513
<CURRENT-LIABILITIES> 669,933
<BONDS> 0
0
0
<COMMON> 52,483
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,330,513
<SALES> 0
<TOTAL-REVENUES> 17,520
<CGS> 0
<TOTAL-COSTS> 1,389,554
<OTHER-EXPENSES> 135,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (96,410)
<INCOME-PRETAX> (1,410,624)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,410,624)
<EPS-BASIC> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
