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 June 30, 2000.
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _______ to _______.
Commission file number 000-25669
IMMTECH INTERNATIONAL, INC.
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(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: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 per share
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 July 31, 2000, 5,367,769 shares of the Registrant's Common Stock
were outstanding.
Transitional Small Business Disclosure Format: (Check One): Yes |_| No |X|
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<PAGE>
PART I.
Item 1. Financial Statements
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
CONDENSED BALANCE SHEETS (UNAUDITED)
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<TABLE>
<CAPTION>
June 30, March 31,
------------ ------------
ASSETS 2000 2000
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,572,057 $ 4,596,319
Investment securities available for sale 1,359,811
Other current assets 11,200
------------ ------------
Total current assets 3,572,057 5,967,330
------------ ------------
PROPERTY AND EQUIPMENT:
Research and laboratory equipment 401,740 399,198
Furniture and office equipment 140,444 112,036
Leasehold improvements 9,797 9,797
------------ ------------
Total - at cost 551,981 521,031
Less accumulated depreciation and amortization 309,824 283,741
------------ ------------
Property and equipment - net 242,157 237,290
------------ ------------
OTHER ASSETS 19,848 19,848
------------ ------------
TOTAL $ 3,834,062 $ 6,224,468
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,582,678 $ 1,531,011
Other accrued liabilities 44,450 33,904
------------ ------------
Total current liabilities 1,627,128 1,564,915
DEFERRED RENTAL OBLIGATION 38,287 39,879
------------ ------------
Total liabilities 1,665,415 1,604,794
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock
Common stock 53,677 52,823
Additional paid-in capital 27,570,540 27,480,070
Deficit accumulated during the developmental stage (25,455,570) (22,912,041)
Net unrealized loss on investment securities available for sale (1,178)
------------ ------------
Total stockholders' equity 2,168,647 4,619,674
------------ ------------
TOTAL $ 3,834,062 $ 6,224,468
============ ============
</TABLE>
See notes to condensed financial statements.
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<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
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<TABLE>
<CAPTION>
October 15,
Three Months Ended 1984
June 30, (Inception)
------------------------- to June 30,
2000 1999 2000
<S> <C> <C> <C>
REVENUES $ 135,578 $ 5,788 $ 2,492,495
----------- ----------- ------------
EXPENSES:
Research and development 2,177,118 6,614,714 20,025,626
General and administrative 595,996 349,934 10,874,165
Equity in loss of joint venture 135,002
----------- ----------- ------------
Total expenses 2,773,114 6,964,648 31,034,793
----------- ----------- ------------
LOSS FROM OPERATIONS (2,637,536) (6,958,860) (28,542,298)
----------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest income 96,949 64,842 421,508
Interest expense (1,129,502)
Loss on sales of investment securities - net (2,942) (2,942)
----------- ----------- ------------
Other income (expense) - net 94,007 64,842 (710,936)
----------- ----------- ------------
LOSS BEFORE EXTRAORDINARY ITEM (2,543,529) (6,894,018) (29,253,234)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT 1,427,765
----------- ----------- ------------
NET LOSS (2,543,529) (6,894,018) (27,825,469)
REDEEMABLE PREFERRED STOCK CONVERSION,
PREMIUM AMORTIZATION AND DIVIDENDS 2,369,899
----------- ----------- ------------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS $(2,543,529) $(6,894,018) $(25,455,570)
=========== =========== ============
NET LOSS PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (0.48) $ (1.54)
=========== ===========
SHARES USED IN COMPUTING NET LOSS PER SHARE
ATTRIBUTABLE TO COMMON STOCKHOLDERS 5,344,119 4,464,313
=========== ===========
</TABLE>
See notes to condensed financial statements.
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<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
October 15,
Three Months Ended 1984
June 30, (Inception)
-------------------- to June 30,
2000 1999 2000
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(2,543,529) $(6,894,018) $(27,825,469)
Adjustments to reconcile net loss to net cash used in operating activities:
Compensation recorded related to issuance of common stock or
common stock options 49,516 6,216,277 11,560,817
Depreciation and amortization of property and equipment 26,083 6,780 381,334
Deferred rental obligation (1,592) 38,287
Equity in loss of joint venture 135,002
Loss on sales of investment securities - net 2,942 2,942
Amortization of debt discounts and issuance costs 134,503
Extraordinary gain on extinguishment of debt (1,427,765)
Changes in assets and liabilities:
Other current assets 11,200 (7,500)
Accounts payable 51,667 224,598 1,911,818
Accrued interest 663,013
Other accrued liabilities 10,546 (16,479) 44,450
----------- ----------- ------------
Net cash used in operating activities (2,393,167) (470,342) (14,381,068)
----------- ----------- ------------
INVESTING ACTIVITIES:
Purchases of investment securities (199,996) (1,803,469)
Proceeds from sales and maturities of investment securities 1,558,043 1,800,527
Purchases of property and equipment (30,950) (45,126) (596,967)
Investment in and advances to joint venture (135,002)
Increase in other assets (19,848)
----------- ----------- ------------
Net cash provided by (used in) investing activities 1,327,097 (45,126) (754,759)
----------- ----------- ------------
FINANCING ACTIVITIES:
(Repayments of) advances from stockholders and affiliates (50,000) 985,172
Proceeds from issuance of notes payable 2,645,194
Principal payments on notes payable (110,000) (218,119)
Payments for debt issuance costs (53,669)
Payments for extinguishment of debt (203,450)
Proceeds from issuance of preferred stock 3,330,000
Net proceeds from issuance of common stock 41,808 9,200,710 12,175,092
Additional capital contributed by stockholders 231,734
Payments for offering costs deferred (184,070)
----------- ----------- ------------
Net cash provided by financing activities 41,808 9,040,710 18,707,884
----------- ----------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,024,262) 8,525,242 3,572,057
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,596,319 0 0
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,572,057 $ 8,525,242 $ 3,572,057
=========== =========== ============
</TABLE>
See notes to condensed financial statements.
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<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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1. BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared by
Immtech International, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and, in the
opinion of the Company, include all adjustments necessary for a fair
statement of results for each period shown. 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 - The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business.
Since inception, the Company has incurred accumulated losses of
approximately $25,456,000. 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. On April 26, 1999, the Company completed an initial
public offering which raised approximately
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<PAGE>
$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. The Company believes its existing working
capital is sufficient to meet the Company's planned expenditures through
May 31, 2000, although there can be no assurance the Company will not
require additional funds. These factors, among others, indicate that the
Company may be unable to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient funds to meet its obligations as they
become due and, ultimately, to obtain profitable operations. Management's
plans for the forthcoming year 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 maturities
of three months or less to be cash equivalents. Cash equivalents consist
of an investment in a money market mutual fund and corporate debt
instruments, recorded at cost, which approximate fair value.
Investment Securities - The Company classifies its investment in debt
securities as available for sale. Securities available for sale are
recorded at fair value, with unrealized gains (losses) recorded as a
separate component of stockholders' equity. Gains (losses) on the sale of
investment securities are recorded on the specific identification method.
Investment - The Company accounts for its investment in NextEra
Therapeutics, Inc. ("NextEra") on the equity method (see Note 3).
Property and Equipment - Property and equipment are recorded at cost and
depreciation and amortization are provided using primarily the
straight-line method over estimated useful lives ranging from three to
seven years.
The Company periodically evaluates the carrying value of its property and
equipment in accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." Long-lived assets are reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. If the sum of the expected
future undiscounted cash flows is less than the carrying amount of an
asset, a loss is recognized for the difference between the fair value and
carrying value of the asset.
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
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<PAGE>
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 June 30, 1999 and
2000.
Segment Reporting - The Company is a development stage biopharmaceutical
company that operates as one segment.
Comprehensive Income (Loss) - Comprehensive loss for the three months
ended June 30, 2000 is as follows:
Net loss $(2,543,529)
-----------
Other comprehensive income:
Unrealized loss on investment securities available for sale (1,764)
Reclassification adjustment for loss included in net loss 2,942
-----------
Total other comprehensive income 1,178
-----------
Comprehensive loss $(2,542,351)
===========
There was no difference between comprehensive loss and net loss for the
three months ended June 30, 1999.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Approved Accounting Standard Not Adopted - In 1998, the Financial
Accounting Standards Board issued 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.
Reclassifications - Certain amounts previously reported have been
reclassified to conform with the current presentation.
3. INVESTMENT IN NEXTERA THERAPEUTICS, INC.
On July 8, 1998, the Company, together with Franklin Research Group, Inc.
("Franklin") and certain other parties, 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 has provided funding of
$1,350,000 to NextEra through March 31, 2000
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<PAGE>
to fund the scale-up of manufacturing and initiation of Phase I clinical
trials. The Company contributed its rmCRP technology as well as use of its
current laboratory facilities for 330,000 common shares of NextEra. During
the year ended March 31, 2000, the Company advanced $135,000 to NextEra to
fund its operations.
NextEra funded the operation of the Company's primary facility, including
certain salaries related to work on rmCRP, rent and overhead associated
with the project from July 1998 through December 1999. Since January 1,
2000, NextEra has funded only their own compensation expenses, as they
stopped funding the Company's primary facility and any associated
overhead. In addition, NextEra has funded and is required to fund the cost
of maintaining and defending the patents that are part of the intellectual
property transferred to NextEra by the Company.
NextEra has incurred accumulated losses of approximately $1,702,000 since
inception (July 8, 1998) through June 30, 2000. NextEra is expected to
continue to incur significant losses during the next several years. In
addition, as of June 30, 2000, NextEra's current liabilities exceeded its
current assets by approximately $1,510,000 and NextEra had a stockholders'
deficiency of approximately $1,486,000.
As of June 30, 2000 and March 31, 2000, the Company owned approximately
44% of the issued and outstanding shares of NextEra common stock.
The Company has learned that, on April 27, 2000, Franklin filed a
complaint against the Company in the United States District Court for the
Southern District of Ohio, Eastern Division. The complaint alleges fraud,
negligent misrepresentation and breach of the implied covenant of good
faith and fair dealing in connection with the research and funding
agreement entered into between Franklin, the Company and NextEra. NextEra
is not a party to the lawsuit. The complaint seeks compensatory damages in
excess of $800,000, unquantified punitive damages, attorneys' fees, costs
and expenses. The Company has not been served with the complaint and thus
has filed no responsive pleadings. The Company believes the complaint
lacks merit and intends to vigorously defend this action. The Company is
currently in negotiations with Franklin and its designees to resolve the
underlying issues, including the possible restructuring of the joint
venture and relationship with NextEra to better position NextEra in its
fund raising efforts.
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 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.
4. INVESTMENT SECURITIES AVAILABLE FOR SALE
The Company had no investment securities available for sale as of June 30,
2000. Proceeds from the sales of investment securities during the three
months ended June 30, 2000 were $1,558,043. Gross gains and gross losses
of $212 and $3,154, respectively, were realized on such sales during the
three months ended June 30, 2000.
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<PAGE>
The amortized cost and carrying value (fair value) of investment
securities available for sale as of March 31, 2000 is summarized as
follows:
<TABLE>
<CAPTION>
March 31, 2000
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Corporate debt securities $ 933,759 $119 $(1,142) $ 932,736
Asset backed securities 427,230 (155) 427,075
---------- ---- ------- ----------
Total $1,360,989 $119 $(1,297) $1,359,811
========== ==== ======= ==========
</TABLE>
As of March 31, 2000, the net unrealized losses on investment securities
available for sale were $1,178.
5. STOCK OPTIONS, WARRANTS AND COMMON STOCK
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. Costs incurred of approximately $513,000 as of
March 31, 1999, including approximately $329,000 of costs that were unpaid
and included in accounts payable as of such date, with respect to the
offering were deferred pending the completion of the offering and netted
with the proceeds of the offering. The underwriters received warrants to
purchase 100,000 additional shares of common stock at $16.00 per share.
The warrants expire April 30, 2003.
The Company had 5,367,769 shares and 5,282,334 shares of common stock
outstanding as of June 30, 2000 and March 31, 2000, 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 over periods
ranging from 0 to 4 years and generally expire in ten years. As of June
30, 2000, there were 2,581 employee stock options available for grant.
During the three months ended June 30, 2000, the Company did not issue any
options to nonemployees and recognized expense of approximately $50,000
related to certain options issued during the year ended March 31, 1999
which vest over a four year service period. During the three months ended
June 30, 1999, the Company issued 2,176 options to nonemployees and
recognized expense of approximately $37,000 related to such options and
approximately $67,000 of expense related to certain options issued during
the year ended March 31, 1999 which vest over a four year service period.
The expense was determined based on the estimated fair value of the
options issued.
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<PAGE>
The activity during the three months ended June 30, 2000 for the Company's
stock options is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Number of Stock Options Average
Shares Price Range Exercise Price
<S> <C> <C> <C>
Outstanding as of April 1, 2000 416,048 $0.31-1.74 $ 0.63
Exercised (85,435) 0.31-0.59 0.49
Expired (27,655) 0.59 0.59
-------- ----------- --------
Outstanding as of June 30, 2000 302,958 $0.31-1.74 $ 0.67
======== =========== ========
Exercisable as of June 30, 2000 270,839 $0.31-1.74 $ 0.69
======== =========== ========
</TABLE>
The Board of Directors have approved the issuance of 127,750 stock options
at the closing market price on the grant date of the options to certain
scientific members of a research consortium (see Note 6), employees of the
Company and other individuals. These options are subject to shareholder
approval, and had not been approved as of June 30, 2000.
The following table summarizes information about common stock warrants
outstanding as of June 30, 2000:
Warrants
Exercise Price Outstanding Expiration Date
$6.47 per share 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 three months ended June 30, 1999 and September 30, 1999,
certain warrant holders exercised warrants to purchase 1,400 and 67,900
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. In addition, on May 17, 1999, warrants to
purchase 75,000 shares of common stock were exercised at $.10 per share.
The Company has adopted the disclosure-only provisions of 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. There were no options issued to
employees during the three months ended June 30, 2000 and 1999.
6. 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
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<PAGE>
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.
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)
used $5,000,000 to develop the Compounds; (ii) 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 research and development costs of $6,112,500
during the three months ended June 30, 1999, based on the estimated fair
value of the 611,250 shares issued; (iii) may be required to 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) may be required 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 covered
by the Agreement under current Compounds. 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.
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<PAGE>
The Company entered into an agreement with Pharm-Eco to use reasonable
efforts to form a joint venture to produce Good Manufacturing Practices
("GMP")-quality dicationic drugs and products for clinical testing and for
early commercialization. Pharm-Eco was unable to manufacture certain
required compounds and the Company subsequently engaged alternate
suppliers who successfully manufactured the compounds.
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 is required to make quarterly research grants in the amount of
$100,000 to UNC through April 30, 2002 and pay all costs to maintain and
defend all patents and patent applications relating to any Compounds or
products. During the three months ended June 30, 2000 and 1999, the
Company expensed grant payments to UNC of $100,000 and $350,000,
respectively. Such payments were expensed as research and development
costs.
In August 1999, the Company received a Small Business Innovation Research
Grant for approximately $598,000 from the National Institutes of Health
("NIH") to research various infections. During the three months ended June
30, 2000 and the year ended March 31, 2000, the Company recognized revenue
of approximately $136,000 and $363,000, respectively, from this grant and
expensed payments to the Consortium for approximately $38,000 and $56,000,
respectively, for contracted research related to such grant. During the
three months ended June 30, 1999, the Company recognized revenue of
approximately $6,000 for research related to a specific research grant
from the NIH and expensed payments to the Consortium of approximately
$6,000 for contracted research related to such grant. There is no
additional funding available to the Company under this grant.
* * * * * *
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<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
pharmaceutical 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 program for developing drugs with a
specific focus on new drugs to treat fungal diseases. 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 fungal, parasitic, bacterial and viral
diseases. Separately, Immtech has formed a joint venture company to finance and
manage a biological program for developing drugs 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 certain research funding agreements and certain
grants, the Company has not generated any revenue from operations. For the
period from inception (October 15, 1984) to June 30, 2000, the Company incurred
cumulative net losses of approximately $25,456,000. 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 ("STTR") grants and Small Business
Innovation Research ("SBIR") grants 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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<PAGE>
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 Compared with Three Months Ended June 30,
1999.
Revenues under collaborative research and development agreements were
approximately $136,000 and $6,000 for the three months ended June 30, 2000 and
1999, respectively. For the three months ended June 30, 2000, there were grant
revenues of approximately $136,000 from an SBIR grant from the National
Institutes of Health ("NIH") while for the three months ended June 30, 1999 the
grant revenue from an NIH grant was approximately $6,000.
Interest income for the three months ended June 30, 2000 was approximately
$97,000. Interest is generated on the invested funds remaining from the proceeds
of the initial public offering on April 26, 1999 (the "IPO"). Interest income in
the three months ended June 30, 1999 was approximately $65,000. There was no
interest expense for the three months ended June 30, 2000 and June 30, 1999.
Research and development expenses decreased to approximately $2,177,000 in
the three months ended June 30, 2000 from approximately $6,615,000 in the three
months ended June 30, 1999. Research and development expenses for the three
months ended June 30, 1999 included a non-cash expense of approximately
$6,113,000 related to 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"). Research and development expenses for the period
ended June 30, 1999 exclusive of the non-cash charge were approximately $502,000
compared to approximately $2,177,000 of expenses for the three month period
ended June 30, 2000. The increase is due primarily to increased direct spending
on product development on the Company's lead pharmaceutical compounds offset by
a $250,000 reduction in grant payments to the Consortium.
General and administrative expenses increased for the three months ended
June 30, 2000 to approximately $596,000 from approximately $350,000 for the
three months ended June 30, 1999. The increase was primarily due to expenses of
approximately $190,000 for activities related to promoting the Company and
exploring various alternatives to raising additional capital and other costs
associated with our New York office which opened in July 1999 for the purpose of
corporate development and investor relation activities and the hiring of
additional employees.
The Company incurred a net loss of approximately $2,544,000 for the three
months ended June 30, 2000 as compared with a net loss of approximately
$6,894,000 for the three months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
From inception through June 30, 2000, the Company financed its operations
from (i) the net proceeds from the issuance of debt and equity securities and
cash contributed from stockholders, which in the aggregate, raised approximately
$19,367,000 (ii) payments from research agreements and SBIR grants and STTR
grants of approximately $2,492,000 and (iii) 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 anticipates that its research and development spending for the
second, third, and fourth quarters of the current fiscal year to be
significantly less than that for the first quarter due to the amount of
available working capital and the timing of planned expenditures.
The Company is a party to sponsored research agreements with UNC which
requires it to make quarterly research payments of $100,000 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.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient funds to meet its obligations as they become due
and, ultimately, to obtain profitable operations. Management's plans for the
forthcoming year include continuing their efforts to obtain additional equity
financing and research grants, and enter into various research and development
agreements with other entities.
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 1. Legal Proceedings
Except as noted in footnote three in Part I item 1 in this form 10QSB and
footnote three to the Notes to the Financial Statements in the form 10KSB, the
Company is not presently involved in any material litigation nor is it aware of
any impending litigation.
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>
4/12/00 Exercise of option $ 6,900 Gerhard J. von der Ruhr 11,716
4/12/00 Exercise of option $ 12,848 Byron Anderson 21,777
4/14/00 Exercise of option $ 10,260 Lawrence Potempa 17,422
5/12/00 Exercise of option $ 7,500 Hirshberger International 24,197
5/12/00 Exercise of option $ 1,000 Henry Gewurz 3,226
6/01/00 Exercise of option $ 3,300 Gary C. Parks 7,097
</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 over-allotment of 150,000 shares)
through the IPO. The U.S. underwriter Westport Resources handled the placement
of 300,000 shares plus the over-allotment 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 has chosen to invest any available funds in short-term, interest-bearing
investments.
For the 15 months during the period from the IPO through June 30, 2000,
the Company has used the proceeds as follows:
Arrearage in research support $ 150,000
Debt payment $ 110,000
Research and development $ 5,112,598
Patent protection $ 185,335
Working capital and general corporate purposes $ 2,198,051
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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.
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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: August 10, 2000 By: /s/ T. Stephen Thompson
------------------------------------
T. Stephen Thompson
Chief Executive Officer and
President
Date: August 10, 2000 /s/ Gary C. Parks
------------------------------------
Gary C. Parks
Treasurer, Secretary and Chief
Financial Officer (Principal
Financial and Accounting
Officer)
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EXHIBIT INDEX
Exhibit Description
------- -----------
27.1(1) Financial Data Schedule
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