Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended March 31, 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
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 |_|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
Issuer's revenues for its most recent fiscal year were $368,844.
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the price at which the common stock was
sold, or the average bid and asked price of such common stock as of April 28,
2000 was $66,960,000.
As of such date, 5,333,249 shares of the Registrant's Common Stock were
outstanding.
Transitional Small Business Disclosure Format: (Check One): Yes |_| No |X|
Documents Incorporated by Reference
The issuer's Definitive Proxy Statement for its 2000 meeting of
shareholders is incorporated by reference into Part III of Form 10-KSB.
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PART I
Item 1. Business
Overview
Immtech International, Inc. (the "Company" or "Immtech") 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.
A predecessor of the Company was incorporated under the laws of the State
of Wisconsin on October 15, 1984 and subsequently merged into the current
Delaware corporation on April 1, 1993. The Company's executive offices are
located at 150 Fairway Drive, Suite 150, Vernon Hills, Illinois 60061, telephone
number 847-573-0033.
University Consortium Agreement
The Company has an agreement with 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 ("GSU")
(the "Consortium"), regarding the continuing development and commercialization
of the technology underlying the Company's dicationic pharmaceutical product
candidates. In addition, the initial compounds developed by the Consortium
(compounds made prior to 1996) which were licensed to Pharm-Eco Laboratories,
Inc. ("Pharm-Eco") are to be transferred to Immtech pursuant to the Agreement.
In accordance with this Agreement, the Company has obtained rights to the
technology platform for
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making dicationic pharmaceutical products and to treat microbial infections
using an existing library of 800 compounds developed by the Consortium and
future Compounds designed by the Consortium. The Company considers its
relationship with the Consortium, which includes many of the world's leading
experts in opportunistic infections and rational drug design, a substantial
asset. Members of the Consortium have laboratory testing systems for screening
compounds for activity to specific micro-organisms (using both laboratory and
animal models). Additionally, Georgia State University has years of experience
and proprietary computer modeling technology which simulates the binding of
dicationic compounds to cellular DNA, which facilitates the work of research
chemists in designing dicationic compounds to treat specific infections.
Immtech's Products
The Company has not generated meaningful revenue to date and does not have
any therapeutic products currently available for sale.
Immtech's Products Under Development
Pharmaceutical Products - Dications
The Company's pharmaceutical platform technology for developing dications
is the result of a research program focused on understanding how dications bind
to the DNA of infectious and cancerous organisms. Pentamidine (a drug marketed
by several pharmaceutical companies) was the prototype drug used by researchers
at UNC to understand the mechanism by which dications work. Although the drug
has reported toxicity, Pentamidine is effective for the treatment of
Pneumocystis carinii pneumonia ("PCP"), a specialized form of fungus common in
patients with compromised immune systems. Pentamidine is also used to treat the
early stages of Trypanosomiasis ("African Sleeping Sickness"). Researchers at
UNC discovered that most of Pentamidine's toxicity was caused by certain
metabolites formed as the drug breaks down within the body. This discovery led
the researchers to design new compounds with more stable molecular structures
which, the Company believes, do not break down into toxic substances that cause
side effects. These newly designed compounds proved to be significantly less
toxic and more effective in treating PCP than Pentamidine. The methodology used
by these researchers to develop these new compounds evolved into the Company's
platform technology for designing dicationic compounds. The Company is using
this platform technology to design new pharmaceutical compounds to develop
treatments for a wide variety of infectious diseases.
The Company has two dicationic compounds ready to begin human clinical
trials in 2000. The first compound, DB-289, is for the treatment of PCP. The
second compound, DB-075, is for the treatment of Cryptosporidium parvum, a
parasite that causes severe diarrhea and wasting in immune suppressed patients
and for which no cure currently exists. These two orally administered drugs are
ideally suited to demonstrate the power and versatility of the dicationic
technology platform. DB-289 which works in the circulatory system, was developed
with the Company's proprietary (patented) drug delivery method which temporarily
neutralizes the
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positive charges allowing the drug to readily pass through the digestive
membranes into the circulatory system where the drug is activated for treatment
of diseases. On the other hand, DB-075 was developed to treat a parasite that is
found only in the gastro-intestinal tract ("gut"). Because of its positive
charges, DB-075 does not cross the digestive membranes (less than 10% crosses
into circulation), and stays in the digestive tract. As a result, potential
harmful side-effects are greatly reduced.
Oral Drug Delivery
Researchers within the Consortium have developed a proprietary prodrug
technology for making dications orally active in systemic blood circulation.
Dication compounds as a group are not orally active due to the positive charges
on the outer edges of the molecule, greatly reducing its movement across
membranes. However, the university researchers in the Consortium have developed
several novel (patented) approaches to temporarily masking the positive charges
allowing the molecules to move across the membrane of the digestive membranes.
The prodrugs are developed with a neutralizing chemical group which bind
to the positively charged ends of the active or parent molecule. The
neutralizing charges allow the drug to be taken orally and pass through the
digestive membranes into blood circulation. Once the drug is in circulation,
there are specific enzymes (enzymes and methods for removing charges in
circulation depending on the method used to neutralize charges) that remove the
masking charges to release the active drug in circulation. The Company's
researchers have discovered recently that the prodrug stays in circulation long
enough to allow it to pass through the blood brain membranes and treat
infectious diseases that affect the brain. The prodrug technology greatly
enhances the attractiveness of this class of compounds for pharmaceutical use to
treat diseases.
Drugs Entering Clinical Trials
Drug DB-289
DB-289 was developed as an oral substitute for the drug Pentamidine,
currently used to treat PCP and Trypanosomiasis. Pentamidine is administered via
slow I.V. infusion or inhalation due to its inability to cross membranes; it is
generally administered in a hospital setting at substantial cost. DB-289 is an
analog prodrug of Pentamidine in that its positive charges have been neutralized
to enable DB-289 to cross the digestive membranes. DB-289 was designed with a
more stable molecular structure which delivers more drug to the infected site
and reduces toxicity caused by breakdown products. Once DB-289 enters the
circulatory system, naturally occurring enzymes remove the patented masking or
neutralizing charges to release the active drug. Since DB-289 can be given
orally, it is anticipated that it will be self-administered, making it practical
to use in third world countries and substantially less expensive to use than
Pentamidine. As of June 2000, manufacturing has been completed for the Phase I
human clinical trial of DB-289 scheduled to begin in 2000. The Company will
apply for fast-track approval from the Food and Drug Administration ("FDA").
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In addition, Immtech has approached several large foundations about
supporting clinical Phase II trials of DB-289 to treat Trypanosomiasis. In
animal studies of the disease, researchers have shown that four doses of DB-289
administered orally eliminate the Trypanosomiasis from blood circulation. The
Company believes that DB-289 could be an effective orally administered treatment
for African Sleeping Sickness, which left untreated is fatal. Immtech plans to
work with the World Health Organization ("WHO") and other non-profit
organizations to conduct the studies in the sub-Sahara Africa where the disease
is causing an epidemic. WHO estimates that 55 million people in Central Africa
are at risk for Trypanosomiasis.
Drug DB-075
Cryptosporidiosis is recognized around the world as one of the most common
infections of the intestinal tract. Currently, no drug is available in the
market to treat this disease. DB-075 is designed to block a key enzyme from
binding in the minor groove of the Cryptosporidium's DNA, thus inhibiting or
killing the growth of the organism. DB-075 is unique because it will work
directly in the gut and not be absorbed into the circulatory system,
substantially reducing the possibility of adverse side-effects. The Company has
specifically targeted a drug for the treatment of Cryptosporidiosis in an effort
to take advantage of the fast track FDA approval process often afforded to drugs
which cure diseases for which there is no acceptable treatment.
As previously mentioned, DB-289 is expected to enter Phase I safety trials
in 2000. DB-075 is scheduled to begin clinical trials in the first quarter of
2001. The clinical trials will be managed by Parexel International Corp. in
their facility in Berlin, Germany. The studies are expected to take
approximately four to six months to complete.
Anti-Fungal Program
Immtech's primary research focus within the pharmaceutical program is on
the development of a new anti-fungal drug with broad spectrum activity; (i.e.)
activity against the three most common strains, Candida, Aspergillus, and
Cryptococcus. The Company has identified compounds with broad anti-fungal
activity in vitro. Researchers at Duke University have screened hundreds of
Immtech's compounds for anti-fungal activity against the three strains of fungal
disease. The results of the in vitro screening process identified over thirty
compounds with multiple species activity, as well as activity against several
strains of fungi that are drug resistant. Duke has developed animal models for
testing the top drug candidates for in vivo testing of anti-fungal activity. The
compounds with low toxicity and broad anti-fungal activity in animals are being
used as the prototypes to develop new compounds using combinatorial chemistry
methods and rational drug design methods. The focus of the Company's
combinatorial anti-fungal program is to make variations of the compounds to
improve their performance in animal models. The objective of this program is to
rapidly identify through in vitro and in vivo models anti-fungal compounds with
superior broad spectrum activity and low toxicity that can be entered into
preclinical trials in 2001.
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The anti-fungal market in 1998 for drugs used to treat systemic disease
was over $3 billion. The market is growing rapidly due to the increasing number
of immunosuppressed patients who are susceptible to fungal disease, such as
cancer chemotherapy, HIV, transplant, and elderly patients. In addition, the
frequency of nosocomial infection in hospitals caused by fungal pathogens has
increased drastically and is now the third most common cause of sepsis,
replacing E. coli. Sepsis is an infection which quickly overwhelms the immune
system and can lead to sudden death. In the past several years, strains of fungi
have developed that are resistant to the current drugs. There is significant
opportunity for a new drug with broad spectrum activity that is orally
administered.
Cancer Program
The National Cancer Institute ("NCI") has tested over 550 of the Company's
dication compounds for anti-cancer activity. The NCI reported that a significant
number of the compounds have activity against many different types of cancer
cells. The NCI has identified forty seven of the Company's compounds with
impressive specificity and potency as anti-cancer agents. Eighteen of these
compounds were chosen by the NCI to advance into in vivo testing in mice. The
early results show that specific dication compounds have activity against
different cancer types and that most of the compounds tested had activity at low
doses.
Researchers at Georgia State University have formed a collaboration with
several other Georgia Universities to apply for a state initiated program to
fund research in the development of new cancer treatments. A multi-year proposal
for approximately $10 million has been submitted to a government agency within
Georgia for review.
Tuberculosis Program
The WHO has declared tuberculosis a global public health emergency.
Tuberculosis is the world's number one killer among infectious diseases and the
cause of over 3 million deaths per year; one death every ten seconds. The Center
for Disease Control ("CDC") reports that about 2 billion people, including 15
million Americans, are infected with Mycobacterium tuberculosis ("TB"). The
disease is spreading rapidly in countries in Asia, Africa, and South America,
and is becoming increasingly problematic in developed countries. Japan recently
declared TB as the country's most threatening disease because a large number of
the Japanese population is affected by it. Even the U.S. is seeing an alarming
trend in TB cases. The combination of rapid spread of the disease and the
development of multi-drug resistance strains of tuberculosis make it a major
health threat throughout the world.
The National Institutes of Health ("NIH") and several large pharmaceutical
companies have significantly increased research for new drugs to treat
tuberculosis. The research focus is to develop oral compounds that are effective
against the drug resistant strains of tuberculosis, and to create therapies that
shorten the length of time that individuals must take the drug to eradicate
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the disease. The target is for two to six months of treatment versus the current
nine to 18 month period.
Researchers at NIH have been evaluating Immtech's dication compounds as
potential treatments for tuberculosis. During the past two years the NIH has
screened over 500 of Immtech's compounds for activity against tuberculosis. The
results of the screening test have identified ten to 15 compounds with activity
that is comparable or superior in performance to the current drugs in the
market. The Company has recently advanced several of its most promising
compounds into an advanced animal model of chronic TB. Immtech plans to use its
combinatorial approach to focus on improving the performance of the best
compounds coming from the in vitro studies. The Company expects to continue
testing its compounds to identify a lead drug within the next 18 to 24 months
for human clinical trials, one which will be both potent and safe as an oral
compound.
Trypanosomiasis Program
Immtech is in discussions with several foundations concerning sponsorship
of a Phase II clinical trial in Africa for the drug DB-289. DB-289 is an oral
treatment for Trypanosomiasis which in animal studies has shown to be superior
in safety and activity to pentamidine which is the standard for treatment for
Trypanosomiasis. Pentamidine, which is administered intravenously is not a
practical drug for use in rural regions of Africa. A new oral treatment for
treating African Trypanosomiasis is needed to stem the epidemic.
The World Health Organization estimates that 55 million people in Central
Africa are at risk for Trypanosomiasis. Based on the last survey conducted by
the WHO, it is estimated that there are 300,000 to 500,000 active cases of the
disease, with an "epidemic situation" in the sub-Sahara region of Africa.
Leishmaniasis Program
The Company recently established a research program focused on developing
new treatments for Leishmaniasis, a parasitic disease that affects more than 15
million people in tropical and arid countries worldwide. Leishmaniasis is caused
by a parasite harbored in rodents and certain primates, which is then
transmitted to humans by sand flies. There are many sub-species of the parasite
in different regions of the world, including India, Africa, the Middle East,
Russia and South America.
This research program for developing new drugs for Leishmaniasis includes
Immtech, The London School of Hygiene and Tropical Medicine, of London, England,
Georgia State University and a U.S. military research laboratory. The military
research laboratory will be responsible for screening the drug candidates
supplied by GSU using an in vitro test. Compounds with promising activity will
be evaluated by researchers in London in advanced animal models of the disease,
seeking to develop treatments with superior activity against Leishmania. In
addition to Dr. Croft, Dr. J. Ed Hall of UNC and Dr. David W. Boykin of GSU
(both universities are members of Immtech's Scientific Consortium) will
participate in the
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research consortium. Since the U.S. military often sends soldiers to regions of
the world where the Leishmania parasite is prevalent, soldiers return home
infected with it. Immtech and the researchers involved in the program are
committed to developing a safe and effective oral treatment for this disease.
Biological Products - Modified CRP
The Company's biological program, which is in a joint venture company
called NextEra Therapeutics, Inc. ("NextEra") (see Certain Relationships and
Related Transactions), is focused on strengthening the innate or natural immune
system by (1) improving the structural environment around cells and (2)
reprogramming cancer cells to act normally. The immune system coordinates the
body's responses to injury and infection. It is the body's primary defense
against disease. The Company's scientists discovered that, as part of the immune
system's response to disease, the blood protein CRP is modified by the body to
form modified CRP ("mCRP"). Modified CRP strengthens tissues and their
interconnective structures which work to increase their ability to resist
disease and improve the effectiveness of the immune system. Modified CRP is
found naturally in healthy tissues surrounding blood vessels, in the tissues in
lymphatic organs, and in cells that have secretory functions. In contrast, mCRP
is absent (or present in greatly reduced amounts) in cancerous tissues, such as
those found in the lung, breast or prostate.
Cancers occur when normal cells grow uncontrollably. Rapidly dividing
cancer cells produce enzymes which attack and weaken surrounding tissues,
allowing cancer cells to grow unrestrained and become tumors. This unrestrained
growth may destroy surrounding organs or impair physiological functions, often
leading to death. The Company's scientists discovered that when cancerous cells
come in contact with mCRP, cell behavior is markedly changed, abnormal rapid
growth ceases and the cell returns to normal activity. The Company's biological
program focuses on replacing mCRP in areas where mCRP is deficient, increasing
barriers between cells to reduce the entry and propagation of disease, and
enhancing immune reactions.
In 1996, the Company conducted a Phase I human clinical trial of rmCRP in
HIV-infected volunteers. The clinical results showed that the drug was safe to
administer and duplicated the positive results seen in the animal pre-clinical
tests. The Company entered into an agreement with the Franklin Research Group, a
venture capital partnership (See Certain Relationships and Related
Transactions), to obtain funding to accelerate the Company's biotherapeutic
program for the treatment of cancer and related diseases based on rmCRP. This
resulted in a joint venture company, NextEra Therapeutics, Inc., between Immtech
and Franklin being formed in July, 1998. NextEra has signed a contract with a
third party manufacturing company to make rmCRP for human Phase Ib clinical
trials in cancer patients. Franklin Research has completed the first phase of
funding ($1,350,000) and is in discussions with Immtech to determine how the
joint venture will be managed and funded going forward. Clinical trials will not
begin until financing is secured.
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Strategy
The Company's pharmaceutical strategy is to develop a broad product line
by utilizing the platform technology developed by the Consortium's scientists
for making pharmaceutical products. The initial two objectives are to (1)
commercialize dications in niche markets by gaining fast-track FDA approvals and
(2) demonstrate the power of the dication platform technology upon which many
new drugs can be developed, leading to the Company's introduction of a new
anti-fungal oral drug. The Company will continue to develop other treatments for
infectious diseases which afflict large populations. The Company's biological
strategy is to commercialize its rmCRP products as a primary therapy against
cancer and as an adjuvant for use with chemotherapy in treating cancer and in
the administration of vaccines.
The Company's short-term strategy is to (i) focus its resources on current
core technologies, (principally DB-289 and DB-075) and gain FDA acceptance of
its dicationic technology; (ii) commence human clinical trials of DB-289 and
DB-075; and (iii) leverage its resources through corporate joint ventures to
minimize the cost to the Company of extended clinical trials and the development
of manufacturing procedures for the production of the Company's products. The
current status of the Company's products planned for clinical trials is
summarized below:
Clinical Development Plan
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Clinical Trial Trial Design/Phase Expected Result
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DB-289
Pro-drug Oral o Phase I o Establish safety and
o 50 normals therapeutic dose
o Oral dosing range
o Dose ranging
o Bioavailability
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DB-075
Dictation Therapy o Phase I o Establish safety and
Against Opportunistic o 50 normals therapeutic dose
Diarrhea; o Oral dosing range
Cyptosporidiosis
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The Company intends to continue to conduct independent research and to use
business-sponsored research programs, joint ventures and other forms of
collaborative programs for product development, manufacturing and marketing. The
Company considers its current
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collaborative relationships significant to the successful development of its
business and believes that it will enter into arrangements in the future to
develop, manufacture and market not only the products on which it is currently
focusing, but also those which it will seek to commercialize.
Target Market
The market for the Company's products consists of those seeking to treat
infectious diseases (fungal, parasitic, bacterial), cancer, and HIV disease
associated with immune suppressed patients. According to the Centers for Disease
Control and Prevention ("CDC"), cancer and infectious diseases rank second and
third as causes of death in the United States. In 1997, approximately 538,000
deaths (one of every four) resulted from cancer. Over 1.2 million people are
diagnosed with cancer every year, and one of every four Americans now living
will eventually develop cancer. In 1997 the estimated cost to society to treat
cancer patients was over $100 billion, more than $5 billion of it for drugs
(both chemotherapeutic agents and treatments for opportunistic infections).
The infectious disease market represents a major opportunity for Immtech.
Infectious diseases cause approximately 175,000 deaths in the United States
annually - 40 to 50 per cent from respiratory infections, and approximately 20
percent from opportunistic infections associated with HIV disease and AIDS. In
addition, 2 million people will contract infections this year during a hospital
stay, adding approximately 8 million days of extended hospital stay at an annual
cost of $4.5 billion.
In 1997, worldwide sales of drugs to combat infectious disease were
approximately $26 billion, including $7 billion in the United States. Three
individual drugs each had sales of more than $1 billion. Most prominent
anti-infectives have targeted bacterial and fungal infections. However, there is
an acute need to develop new drugs to treat not only primary infections but
secondary or opportunistic infections as well. The emergence around the world of
drug-resistant strains of micro-organisms has contributed to this need, as has
the growing immuno-suppressed population created by disease (e.g., HIV) and the
use of immunosuppressive drugs (e.g., chemotherapeutic agents).
Cancer patients account for the largest number of opportunistic infections
(an estimated 500,000 patients in the United States and 1 billion worldwide in
1997).Of the approximately 200,000 AIDS patients in the United States,
one-fourth will develop opportunistic infections which become life-threatening.
Before 1987, opportunistic infections generally occurred as single infections;
today, 50 to 75 percent of AIDS patients develop multiple opportunistic
infections. The use of protease inhibitors as antiviral therapy in HIV positive
patients has reduced the number of opportunistic infections reported in the U.S.
The protease drugs are often used in combination therapy made up of several
different protease drugs in a cocktail. This cocktail therapy is very expensive
(requires a rigid protocol for taking the drug) and is only used in patients
that can afford the high cost of the drugs. Further, in recent meetings at the
National Institutes of Health ("NIH"), it has been reported that protease
resistant strains of the HIV virus are developing in a significant number of
patients. This trend suggests that over the next five years there will be an
increase in opportunistic infections in the HIV patient population.
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In a report sponsored by The Rockefeller Foundation that was published in
April 2000, "Global Expenditures and Drug Sales in TB: A Market Failure?", it
was reported that the market for private and government sales of TB drugs was
greater than $700 million per year. The private market for TB medicines sold
globally is estimated to be $300-500 million. This number does not include
government tenders, which would add an additional $300 million. Further, there
is a bulk chemical market relevant to TB medicines worth approximately $300
million. The Company believes that a new drug which works by a new mechanism
which shorterns the time of treatment (used in combination with existing drugs)
could dramatically increase the overall size of the TB drug market.
Another emerging opportunistic infection, Cryptosporidium parvum, occurs
not only in AIDS patients but in patients with cancers and heart disease, and
occasionally in the general population. The outbreak of Cryptosporidium parvum
in Milwaukee in 1993 afflicted approximately 400,000 people and was fatal to
100. This potentially life-threatening ailment affects 2-5% of AIDS patients,
with greater prevalence outside the United States, where protease inhibitors
have reduced the incidence. To date, there is no approved drug to treat
Cryptosporidium parvum associated diarrhea. Immtech aims to have the first drug
in clinical trials and approved for treatment of this condition, although there
can be no assurance this will occur.
Manufacturing
Pharmaceutical Products
The Company has entered into an agreement with MediChem Research, Inc.
("MediChem") to produce good manufacturing practices ("GMP") - quality
dicationic drugs and prodrugs for the initial two compounds (DB-289 and DB-075)
for clinical testing and early commercialization. MediChem is a full-service
drug synthesis and chemical services company that has synthesized numerous
compounds and advanced them into clinical testing. MediChem is known
internationally for providing high-quality contract manufacturing services to
NIH, the U.S. military, the federally-funded AIDS programs, and numerous large
pharmaceutical firms. MediChem has extensive experience in developing and
validating bulk pharmaceutical processes and in preparing Drug Master Files.
Biological Products
The Company has developed a recombinant form of the protein rmCRP.
Recombinant manufacturing involves the use of cloned genetic material (DNA) to
produce proteins in large quantities. The Company's scientists have successfully
cloned and expressed the gene from mCRP in Escherichia coli ("E. coli"). The
Company has developed methods to isolate rmCRP from E. coli and remove other
cell debris produced in the fermentation process. The Company's scientists have
determined that the recombinant protein has the same characteristics as the
naturally occurring protein, which showed promising safety and efficacy
characteristics in the
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Company's initial human trial. The Company is continuously documenting the
safety and efficacy of recombinant mCRP to expeditiously file an investigational
new drug ("IND") to conduct Phase I&IIa trials with the products. See Government
Regulation.
The Company intends to execute a contract with a third party manufacturer
to manufacture rmCRP on a commercial scale. The recombinant mCRP has been
isolated and purified to completion, and the Company has completed development
of a formulation method that is suitable for sterile and ongoing clinical
trials. The Company expects that the third party manufacturer will make
sufficient quantities of rmCRP to satisfy requirements for Phase I & IIa
clinical trials.
Competition
Competition in the biopharmaceutical, biotherapeutic, and biotechnology
industries is intense. Factors such as scientific and technological
developments, the availability of patents, timely governmental approval for
testing, manufacturing and marketing, and the ability to commercialize products
in a timely fashion play a significant role in determining a company's ability
to effectively compete. Furthermore, these industries are subject to rapidly
evolving technology that could result in the obsolescence of any products
developed by the Company. The Company competes with many specialized
biopharmaceutical firms, as well as a growing number of large pharmaceutical
companies that are applying biotechnology to their operations. Many of these
companies have concentrated their efforts in the development of human
therapeutics, and developed or acquired internal biotechnology capabilities.
These companies, as well as academic institutions, governmental agencies and
other public and private organizations conducting research, also compete with
the Company in recruiting and retaining highly qualified scientific personnel
and consultants and may establish collaborative arrangements with competitors of
the Company.
The Company's competition will be determined in part by the potential
indications for which the Company's products are developed and ultimately
approved by regulatory authorities. The Company is relying on its collaborations
with the Consortium, UNC and NextEra Therapeutics to enhance its competitive
edge by providing manufacturing, testing and commercialization support.
The Company knows of other companies and institutions dedicated to the
development of therapeutics similar to those being developed by the Company,
including Eli Lilly and Company, Hoffman-LaRoche and Abbott Laboratories. Many
of the Company's competitors, existing or potential, have substantially greater
financial and technical resources and therefore may be in a better position to
develop, manufacture and market biopharmaceutical products. Many of these
competitors are also more experienced with regard to preclinical testing, human
clinical trials and obtaining regulatory approvals. The current or future
existence of competitive products may also adversely affect the marketability of
the Company's products.
Patents and Licenses
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The Company's success will depend in part on its ability to obtain patent
protection for its products, both in the United States and abroad. Although the
Company aggressively pursues patent protection, obtaining patents for
biopharmaceutical products involves complex legal and factual questions and
consequently involves a high degree of uncertainty. The Company has a policy of
developing new forms of and uses for its products and then applying for a patent
on each newly developed product.
There can be no assurance that any particular patent will be granted or
that patents issued to the Company will provide the protection contemplated.
Patents can be challenged, invalidated or circumvented. It is also possible that
competitors will develop similar products simultaneously. The Company and the
Consortium have filed a total of 196 patent applications in the United States
and other countries worldwide.
As of June 23, 2000, the Company, by itself or jointly with others, has
applied for 21 United States patents for biological products. Eighteen of the 21
applications filed (13 of which have been issued) cover rmCRP's clinical uses
for (1) treating cancer, viral infections, bacterial infections,
thrombocytopenia, and immune complex disease, (2) diagnostic imaging of tissue
based disease, (3) monoclonal antibodies which specifically bind rmCRP and (4)
the production and isolation of rmCRP. As of June 23, 2000, the Company has been
issued 34 patents in the U.S. and in various global markets on its biological
products.
The Company has also obtained worldwide exclusive licensing rights to 125
additional patents filed domestically and globally for its pharmaceutical
products. The pharmaceutical patent applications cover compound structure and
uses for the treatment of infections caused by Pneumocystis carinii,
Cryptosporidium parvum, Giardia lamblia, Leishmania mexicana amazonesis,
Trypanosoma brucei rhodesienes, various fungi, Plasmodium falciparum and HIV.
Also, patent applications cover the process for making prodrugs and the uses of
the Company's unique compounds to detect and quantify nucleic acids and
cytoskeleton elements. To date, 35 U.S. patents and 88 total patents have been
issued on the Company's pharmaceutical products.
Four of the 18 U.S. patents relating to mCRP products were filed jointly
with Northwestern University or Rush Medical School, and the Company retains
exclusive worldwide rights to use the technology covered by these patents
pursuant to license agreements. All of the Company's patents on its
pharmaceutical products have been filed jointly with UNC and the other academic
institutions of the Consortium.
It should be noted that as of June 8, 1995, certain legislative changes
implementing the General Agreement on Trade and Tariffs resulted in changes to
United States patent laws that affect the length of patent protection. Whereas
the term for patent applications used to be for a period of seventeen years from
the date of grant, the new term of a United States patent commences on the date
of issuance and terminates twenty years from the earliest effective filing date
of the application. The time from filing to issuance of biotechnology patent
application is often more than three years; consequently, a twenty-year term
from the effective date of filing may result in a negative impact on the
Company's patent position by offering a substantially shortened term of
protection.
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The Company's potential products may conflict with patents which have been
or may be granted to competitors, universities or others. As the
biopharmaceutical industry expands and more patents are issued, the risk
increases that the Company's potential products may give rise to claims that
they infringe the patents of others. Such other persons could bring legal
actions against the Company claiming damages and seeking to enjoin clinical
testing, manufacturing and marketing of the affected products. If any such
actions are successful, in addition to any potential liability for damages, the
Company could be required to obtain a license in order to continue to
manufacture or market the affected products. There can be no assurance that the
Company would prevail in any such action or that any license required under any
such patent would be made available on acceptable terms, if at all. If the
Company becomes involved in litigation, it could consume a substantial portion
of the Company's time and resources.
The Company also relies on trade secret protection for its confidential
and proprietary information. However, trade secrets are difficult to protect and
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or technology, or that the Company
can meaningfully protect its rights to unpatented trade secrets.
The Company requires its employees, consultants and advisors to execute a
confidentiality agreement upon the commencement of an employment or consulting
relationship with the Company. The agreements generally provide that trade
secrets and all inventions conceived by the individual and all confidential
information developed or made known to the individual during the term of the
relationship shall be the exclusive property of the Company and shall be kept
confidential and not disclosed to third parties except in specified
circumstances. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's proprietary information in the
event of unauthorized use or disclosure of such information.
Government Regulation
The Company's development, manufacture and potential sale of therapeutics
is subject to extensive regulation by United States and foreign governmental
authorities.
Products being developed by the Company may be regulated by the FDA as
drugs or biologics. New drugs are subject to regulation under the Federal Food,
Drug, and Cosmetic Act, and biological products, in addition to being subject to
certain provisions of that Act, are regulated under the Public Health Service
Act. The Company believes that drug products developed by it or its
collaborators will be regulated either as biological products or as new drugs.
Both statutes and the regulations promulgated thereunder govern, among other
things, the testing, manufacturing, safety, efficacy, labeling, storage, record
keeping, advertising and other promotional practices involving biologics or new
drugs. FDA approval or other clearances must be obtained before clinical
testing, and before manufacturing and marketing, of biologics and drugs.
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Obtaining FDA approval has historically been a costly and time consuming
process. Generally, in order to gain FDA pre-market approval, a developer first
must conduct pre-clinical studies in the laboratory and in animal model systems
to gain preliminary information on an agent's efficacy and to identify any
safety problems. The results of these studies are submitted as a part of an IND
application, which the FDA must review before human clinical trials of an
investigational drug can start. The IND application includes a detailed
description of the clinical investigations to be undertaken.
In order to commercialize any product, the Company or its collaborator
must sponsor and file an IND and be responsible for initiating and overseeing
the clinical studies to demonstrate the safety, efficacy and potency that are
necessary to obtain FDA approval of any such products. For Company or
collaborator-sponsored INDs, the Company or its collaborator will be required to
select qualified investigators (usually physicians within medical institutions)
to supervise the administration of the products, and ensure that the
investigations are conducted and monitored in accordance with FDA regulations,
including the general investigational plan and protocols contained in the IND.
Clinical trials are normally done in three phases, although the phases may
overlap. Phase I trials are concerned primarily with the safety and preliminary
effectiveness of the drug, involve fewer than 100 subjects, and may take from
six months to over one year. Phase II trials normally involve a few hundred
patients and are designed primarily to demonstrate effectiveness in treating or
diagnosing the disease or condition for which the drug is intended, although
short-term side effects and risks in people whose health is impaired may also be
examined. Phase III trials are expanded clinical trials with larger numbers of
patients which are intended to evaluate the overall benefit-risk relationship of
the drug and to gather additional information for proper dosage and labeling of
the drug. Clinical trials generally take two to five years to complete, but may
take longer. The FDA receives reports on the progress of each phase of clinical
testing, and it may require the modification, suspension, or termination of
clinical trials if it concludes that an unwarranted risk is presented to
patients.
If clinical trials of a new product are completed successfully, the
sponsor of the product may seek FDA marketing approval. If the product is
regulated as a biologic, the FDA will require the submission and approval of
both a Product License Application ("PLA") and an Establishment License
Application before commercial marketing of the biologic. If the product is
classified as a new drug, the Company must file a New Drug Application ("NDA")
with the FDA and receive approval before commercial marketing of the drug. The
NDA or PLA must include detailed information about the drug and its manufacture
and the results of product development, preclinical studies and clinical trials.
The testing and approval processes require substantial time and effort and there
can be no assurance that any approval will be granted on a timely basis, if at
all. NDAs and PLAs submitted to the FDA can take, on average, two to five years
to receive approval. If questions arise during the FDA review process, approval
can take more than five years. Notwithstanding the submission of relevant data,
the FDA may ultimately decide that the NDA or PLA does not satisfy its
regulatory criteria for approval and deny approval or require additional
clinical studies. In addition, the FDA may condition marketing approval on the
conduct of specific post-marketing studies to further evaluate safety and
effectiveness. Even if FDA regulatory clearances are obtained, a marketed
product is subject to continual review, and later discovery of previously
unknown problems or failure to comply with
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the applicable regulatory requirements may result in restrictions on the
marketing of a product or withdrawal of the product from the market as well as
possible civil or criminal sanctions.
The Company also is subject to foreign regulatory requirements governing
human clinical trials and marketing approval for drugs with respect to marketing
outside the United States. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country.
Employees
The Company currently has nine employees, four of whom hold advanced
degrees. Through its collaborative agreement with the UNC Consortium,
approximately 25 researchers associated with institutions such as UNC, Auburn
University, Duke University and Georgia State University have worked to advance
the Company's products toward commercialization. The Company expects to hire
several new employees primarily to focus on regulatory and clinical development
activities. Recent hires are engaged directly in supporting the Company's
regulatory and clinical trial programs.
Research and Development
Pharmaceutical
The Company conducts independent research and development efforts and is
also a participant since 1997 in the Consortium organized by Dr. Richard R.
Tidwell of UNC. Many of the world's leading experts in opportunistic infections
are affiliated with members of the Consortium, including:
o Dr. John Perfect of Duke University (for fungal diseases)
o Dr. James E. Hall of UNC (for Trypanosomiasis and Leishmaniasis diseases)
o Drs. Dave Wilson and Dave Boykin of Georgia State University (for the
chemical design, synthesis, and molecular characterization of novel
anti-infective drugs)
o Dr. Byron Blagburn of Auburn University (for parasitic diseases)
o Dr. Christine Dykstra of Auburn (for the molecular and biochemical effects
of dicationic compounds on DNA and for viral disease)
o Dr. Scott G. Franzblau of University of Illinois at Chicago (for
Tuberculosis disease)
NIH has awarded two National Cooperative Drug Development Grants ("NCDDG")
to the Consortium, which has developed a library of 800 compounds that have been
tested in vitro and in animals against infectious disease agents. In addition,
the Company and the Consortium have recently filed for grants to support new
programs for the continued development of the dication platform technology. The
new NIH programs request include funding for a $5 million National Cancer
Institute ("NCI") grant for using combinatorial chemistry to generate and screen
new anti-cancer dication compounds, a research proposal for approximately $1.2
million for studying the use of dications to inhibit receptors in the brain that
are related to memory, a
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proposal for $3 million to fund additional research into anti-fungal compounds,
a $4 million extension of the existing NCDDG grant for tropical disease
applications, and a proposal for $0.8 million to fund additional research into
Cryptosporidium. Immtech received from the NIH a $0.8 million Small Business
Innovation Research ("SBIR") II grant to assist in the completion of the GLP
preclinical studies for DB-075, a drug to treat Cryptosporidium. The Company has
applied for and gotten Committee approval on $0.7 million for a NIH SBIR II
grant for the preclinical and manufacturing scale-up of a drug to treat PCP and
Trypanosomiasis. Immtech and the Consortium members will continue in 2000 to
apply for new grants to support applications for expanding the dication platform
technology. However, the process of obtaining grants is extremely competitive
and there can be no assurance that any of the Company's grant applications will
be acted upon favorably.
The Company is aggressively seeking to commence human clinical trials with
well-defined, short-term clinical end points. DB-289, DB-075 and rmCRP are being
produced under GMP conditions, and study protocols and regulatory information
are being compiled in anticipation of starting clinical trials in the first drug
in 2000.
The Company plans to conduct multiple clinical trials using dication
drugs. Specifically:
o DB-289 will be entering into a Phase I safety trial as an orally
active prodrug formulation to treat PCP. DB-289 is designed to cross
the intestinal membrane to get into the bloodstream, where it is
activated by natural enzymes found in human cells. Once activated,
the drug kills the microbes causing the pneumonia, resulting in a
clearing of the airways. The Company is pursuing an A-IND (an
abbreviated IND for rapid FDA approval) for this human trial because
the Company's application will focus primarily on enhancing the
safety and delivery mechanics of a currently approved drug. The
Company will test its prodrug in PCP-infected AIDS patients.
o DB-075 will be entering into a Phase I safety trial for oral
treatment of patients afflicted with severe diarrhea caused by the
intestinal parasite Cryptosporidium parvum. Final plans are in place
for synthesis, final toxicology testing prior to human use,
adsorption, distribution, metabolism and excretion analyses,
formulation for administration, and regulatory approvals. This study
is intended to establish that DB-075 reduces the duration of
Cryptosporidium caused diarrhea, the associated weight loss, and the
number of Cryptosporidium parvum organisms excreted in the stool.
Biological
The Company has completed two human Phase I biological clinical trials of
its biological products. Biological trials conducted to date have had promising
results:
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o In 1994, a proof-of-principle Phase I human clinical safety study of
mCRP, conducted in a limited number of HIV-positive patients in
Germany, established that mCRP can be safely injected intravenously
in multiple-injection protocols. During treatment, CD4+ and CD8+
cell counts increased, HIV viral titers decreased, platelet numbers
increased, and platelet mass increased significantly.
o In 1995-1996, the Company developed rmCRP, which was tested in a
follow-up human Phase I/IIa dose escalation clinical trial, also in
Germany. Consistent with the initial trial in both safety and
efficacy, rmCRP enhanced the immune system (i.e., lymphocytes
increased and viral load decreased) and increased the number of
circulating platelets.
The next step is to test rmCRP in a Phase I/IIa trial in cancer patients
with funds provided by Franklin. See Certain Relationships and Related
Transactions. Initial studies will investigate the safety and anti-cancer
activity of rmCRP as a primary therapy. A cohort of 30 to 50 cancer patients
with various malignancies will be enrolled. The anti-cancer effects of rmCRP
will be monitored by changes in relative levels of blood markers of cancer,
non-invasive diagnostic imaging techniques, and biopsy evaluations.
Item 2. Properties
The Company's administrative offices and research laboratories are located
in Vernon Hills, Illinois. The Company occupies approximately 9,750 square feet
of space under a lease which expires on March 14, 2005. As part of the joint
venture with Franklin (See Certain Relationships and Related Transactions), the
Company shares its facility, which includes space for research and development
activities, with NextEra. The Company also pays on a month to month basis for
for approximately 2,500 square feet of space for its New York operations.
Item 3. Legal Proceedings
Except as noted in footnote three to the Notes to the Financial
Statements, the Company is not presently involved in any material litigation nor
is it aware of any impending litigation.
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is quoted on the Nasdaq National Market System
under the symbol "IMMT". The Company's common stock began trading in April 1999
upon completion of its IPO.
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Following are the reported high and low bid prices as reported by Dow
Jones for each of the quarters for the year ended March 31, 2000.
High Low
---- ---
Quarter ended June 30, 1999 $ 30.938 $ 11.75
Quarter ended September 30, 1999 $ 23.375 $ 14.625
Quarter ended December 31, 1999 $ 34.875 $ 21.188
Quarter ended March 31, 2000 $ 33.75 $ 25.625
There were approximately 206 shareholders of record and approximately 782
beneficial owners of the Company's Common Stock as of April 28, 2000. The
Company has never declared nor paid dividends on its Common Stock and does not
intend to pay any dividends in the foreseeable future.
Recent Sales of Unregistered Securities.
Set forth below is certain information concerning all sales of securities
by the Company during the past year that were not registered under the Act and
were not previously reported on Form 10-Q or Form 10-K. These shares were issued
in reliance on Section 4(2) of the Securities Act of 1933.
Date Description/Consideration Holder Number of Shares of
Common Stock Issued
1/19/00 Option exercise $13,437 Duane Anderson 27,970
2/28/00 Option exercise $ 2,790 Jeffrey Bluestone 6,000
Use of Proceeds
In April 1999, the Company sold 1,150,000 shares of common stock at $10.00
per share (which included the underwriters over allotment of 150,000 shares)
through the IPO. The U.S. underwriter Westport Resources handled the placement
of 300,000 shares plus the overallotment of 150,000 shares. The international
underwriter The New China Hong Kong Securities LTD placed the remaining 700,000
shares. The gross proceeds from the IPO totaled $11,500,000 and the net proceeds
totaled $9,172,610. 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
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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 eleven months after the IPO ended March 31, 2000, the Company has
used the proceeds as follows:
Arrearage in research support $ 150,000
Debt payment $ 110,000
Research and development $ 3,139,156
Patent protection $ 185,335
Working capital and general corporate purposes $ 1,685,162
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
Immtech is a biopharmaceutical company focused on the discovery and
commercialization of therapeutics for the treatment of patients afflicted with
opportunistic infectious diseases, cancer or compromised immune systems. The
Company has two independent programs for developing drugs. The first is based on
a technology for the design of a new class of pharmaceutical compounds commonly
referred to as dications. The Company believes that pharmaceutical dications can
be designed to inhibit the growth of a wide variety of infectious organisms
which cause fungal, protozoan parasitic, bacterial and viral diseases. The
second is based on biological proteins that work in conjunction with the body's
immune system. These biological proteins are derivatives of C-Reactive Protein
("CRP"), which occurs naturally in the body and which the Company believes can
be used to control the structural environment around cancerous tumors and to
reprogram cancerous cells to stop growing uncontrollably and revert to normal
cell behavior.
With the exception of research agreements and past development funding
from Centocor, Sigma-Aldrich and certain research grants, the Company has not
generated any revenue from operations. For the period from inception to March
31, 2000, the Company incurred a cumulative net loss of approximately
$22,912,000. 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 Grants ("STTR") or Small Business Innovation Research Grants ("SBIR")
and payments from other collaborators under arrangements that may be entered
into in the future. The timing and amounts of such revenues, if any, will likely
fluctuate sharply and depend upon the achievement of specified milestones, and
results of operations for any period may be unrelated to the results of
operations for any other period.
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Results of Operations
Year Ended March 31, 2000 Compared with Year Ended March 31, 1999.
Revenues under collaborative research and development agreements were
approximately $369,000 and $267,000 in the years ended March 31, 2000 and 1999,
respectively. In 2000, there were grant revenues of approximately $369,000 from
STTR and SBIR Programs from the National Institutes of Health ("NIH") while for
1999 the grant revenue from the NIH was $172,000. The balance of the revenue in
1999 was from a license agreement with Sigma Diagnostics that has since been
transferred to Criticare Systems, Inc. See Certain Relationships and Related
Transactions.
Research and development expenses increased from approximately $739,000 in
1999 to $10,255,000 in 2000. This is due primarily to expenses of approximately
$6,113,000 for non-cash expenses 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"), an increase of $350,000 of
payments to the Consortium on the "Agreement", an increase of non-cash
compensation expenses for services related to research and development covered
through the issuance of stock options totaling approximately $276,000, and
pre-clinical, manufacturing, and contract services costs increasing by
approximately $2,774,000.
General and administrative expenses in 2000 were approximately $1,731,000
compared to $2,701,000 in 1999. The Company recorded $2,220,000 as compensation
expense for services by RADE Management Corporation for warrants issued for
management consulting, market analysis and strategic advisory services performed
during 1999. Underlying increases of general and administrative expenses in 2000
consisted of approximately $505,000 relating to marketing and the New York
office, approximately $327,000 in additional contract services and professional
fees, approximately $427,000 due to the increase of personnel related activities
and support functions, and approximately $37,000 non-cash compensation expenses
for advisory services covered through the issuance of stock options.
The Company incurred a net loss of approximately $1,791,000 for the year
ended March 31, 1999 as compared with a net loss of approximately $11,434,000
for the year ended March 31, 2000. The total compensation expense for services
rendered in 1999 of $2,426,000 was offset by the extraordinary gain on
extinguishment of debt of approximately $1,428,000. The primary non-cash loss in
2000 was the $6,113,000 expense incurred for the issuance of stock to Pharm-Eco
and the Consortium. In addition, there was a $135,000 equity in loss of joint
venture in NextEra in 2000.
Year Ended March 31, 1999 Compared with Year Ended March 31, 1998.
Revenues under collaborative research and development agreements were
approximately
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$267,000 and $20,000 in the years ended March 31, 1999 and 1998, respectively.
In 1999, there were grant revenues of approximately $172,000 from STTR Programs
from the National Institutes of Health ("NIH") while for 1998 the grant revenue
from the NIH was $20,000. The balance of the revenue in 1999 was from a license
agreement with Sigma Diagnostics that has since been transferred to Criticare.
See Certain Relationships and Related Transactions.
Research and development expenses increased from approximately $312,000 in
1998 to $739,000 in 1999. This is due primarily to an increase of $200,000 of
payments to the Consortium on the "Agreement", additional expensed payments of
approximately $49,000 to the Consortium relating to the STTR's mentioned above,
and non-cash compensation expenses for services related to research and
development totaling $196,000 covered by the issuance of stock options.
General and administrative expenses, including cancelled offering costs in
1998, increased in 1999 to approximately $2,701,000 from $609,000 in 1998. The
Company recorded $2,220,000 as compensation expense for services by RADE for
warrants issued for management consulting, market analysis and strategic
advisory services performed during 1999. The cancelled offering costs in 1998
were approximately $74,000.
The Company incurred a net loss of approximately $1,791,000 for the year
ended March 31, 1999 as compared with a net loss of approximately $1,146,000 for
the year ended March 31, 1998. The total compensation expense for services
rendered in 1999 of $2,426,000 was offset by the extraordinary gain on
extinguishment of debt of approximately $1,428,000.
Liquidity and Capital Resources
From inception through March 31, 2000, the Company financed its operations
from (i) the net proceeds of private placements of debt and equity securities
and cash contributed from stockholders, which in the aggregate, raised
approximately $19,470,000 (ii) payments from research agreements and SBIR grants
and STTR Program grants of approximately $2,357,000 and (iii) use of stock,
options and warrants in lieu of cash compensation.
In July 1998, the Company completed a private placement equity offering of
$1,000,000 (the "Private Placement"). As a condition to this investment, the
Company completed a recapitalization (the "Recapitalization") pursuant to which:
(i) the Company effected a 0.645260-for-1 reverse stock split of all of the
shares of Common Stock issued and outstanding immediately prior to the
effectiveness of such stock split, resulting in the reduction in the number of
issued and outstanding shares of Common Stock from 2,305,166 to 1,487,431 (the
"First Reverse Stock Split"); (ii) the Company converted approximately
$3,151,000 in indebtedness (consisting of stockholder advances, notes payable
and related accrued interest and accounts payable) outstanding immediately prior
to the effective date of the recapitalization into 1,209,962 shares of Common
Stock (after giving effect to the First Reverse Stock Split), (iii) 1,794,550
shares of Series A Preferred Stock issued and outstanding immediately prior to
the effective date were converted into 1,157,931 shares of Common Stock (after
giving effect to the First Reverse Stock Split), (iv) 1,600,000 shares of Series
B Preferred Stock issued and outstanding
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immediately prior to the Effective Date were converted into 1,232,133 shares of
Common Stock (after giving effect to the First Reverse Stock Split), (v) as a
result of the First Reverse Stock Split, options outstanding immediately prior
to the effective date and held by employees of or consultants to the Company to
purchase an aggregate of 1,746,815 shares of Common Stock were automatically
converted into options to purchase 1,127,150 shares of Common Stock and the
purchase prices thereof were adjusted proportionately and (vi) the total number
of authorized shares was increased to 35,000,000, consisting of 30,000,000
shares of Common Stock, $0.01 par value and 5,000,000 shares of Preferred Stock,
$0.01 par value. In February of 1999 the Company effected a 1-for-2 reverse
stock split of all of the shares of Common Stock issued and outstanding
immediately prior to the effectiveness of such stock split, resulting in the
reduction in the number of issued and outstanding shares of Common Stock from
6,491,135 to 3,245,517.
On April 26, 1999, the Company issued 1,150,000 shares of common stock
through an initial public stock offering ("IPO") 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 on
April 30, 2003.
The Company used $110,000 of the net proceeds of the IPO to repay amounts
due to the State of Illinois and Northwestern University. Substantially all of
the remaining net proceeds of the IPO, $9,062,610, will be used to fund the
Company's research and development efforts, including clinical and preclinical
studies. Any net proceeds not applied to the Company's research and development
efforts will be used for working capital and general corporate purposes,
including hiring additional employees. The amount and timing of expenditures of
the net proceeds of the IPO cannot be precisely determined, and will depend on
numerous factors, including the status of the Company's product development
efforts, the results of clinical trials and the regulatory approval process. The
Company may also use a portion of the net proceeds to acquire complementary
businesses, products or technologies, although the Company has no agreements and
is not involved in any negotiations with respect to any such transaction.
Pending such uses, the Company plans to invest the net proceeds from the IPO in
short-term, investment-grade, interest-bearing securities.
The Company's cash resources have been used to finance research and
development, including sponsored research, capital expenditures, expenses
associated with the efforts of the Consortium and general and administrative
expenses. Over the next several years, the Company expects to incur substantial
additional research and development costs, including costs related to
early-stage research in preclinical and clinical trials, increased
administrative expenses to support its research and development operations and
increased capital expenditures for expanded research capacity, various equipment
needs and facility improvements or relocation.
The Company was a party to sponsored research agreements with UNC which
requires it to fund an aggregate of approximately $100,000 per quarter from
April 30, 1999 through April 30, 2002.
As of March 31, 2000, the Company had federal net operating loss
carryforwards of approximately $20,500,000 which expire from 2006 through 2020.
As of March 31, 2000, the
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Company had available for federal income tax purposes approximately $19,600,000
of alternative minimum tax net operating loss carryforwards which expire from
2006 through 2020. The Company also has approximately $18,300,000 of state net
operating loss carryforwards as of March 31, 2000, which expire from 2008
through 2020, available to offset certain future taxable income for state
(primarily Illinois) income tax purposes. Because of "change of ownership"
provisions of the Tax Reform Act of 1986, approximately $924,000 of the
Company's net operating loss carryforwards for federal purposes are subject to
an annual limitation regarding utilization against taxable income in future
periods. As of March 31, 2000, the Company had federal income tax credit
carryforwards of approximately $127,000 which expire from 2008 through 2020.
The Company believes its existing resources but not including proceeds
from any grants the Company may receive, to be sufficient to meet the Company's
planned expenditures through May 31, 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.
Special Note--Forward-Looking Statements
Certain statements contained in this report, including, without
limitation, statements containing the words "believe," "anticipates," "expects"
and words of similar import, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the Company's need for substantial additional funds and its access to capital
markets, the lack of any Company products currently available for sale, the
early stages of experiments and the uncertainties involved in clinical trials,
the Company's history of operating losses, the dependence of the Company on
third party relationships for the manufacture of its products and the
performance of its clinical trials, the Company's limited manufacturing
capability, existing government regulations and changes in, or the failure to
comply with, government regulations; competition; the ability to attract and
retain qualified personnel and the Company's dependence on key personnel; the
ability to protect technology, patents and proprietary information; and other
factors referenced in this report. Certain of these factors are discussed in
more detail elsewhere in this report. Given these uncertainties, readers of this
report and investors are cautioned not to place undue reliance on such
forward-looking statements. The
24
<PAGE>
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
Item 7. Consolidated Financial Statements and Supplementary Data
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Financial Statements as of March 31, 1999 and
2000, the Years Ended March 31, 1998, 1999 and
2000 and for the Period October 15, 1984 (Date of
Inception) to March 31, 2000 (Unaudited) and
Independent Auditors' Report
IMMTECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS F-1
FINANCIAL STATEMENTS AS OF MARCH 31, 1999 AND 2000
AND FOR THE YEARS ENDED MARCH 31, 1998, 1999 AND 2000,
AND FOR THE PERIOD FROM OCTOBER 15, 1984 (DATE OF
INCEPTION) TO MARCH 31, 2000 (UNAUDITED):
Balance Sheets F-2
Statements of Operations F-3
Statements of Common Stockholders' Investment (Deficiency in Assets) F-4-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8-25
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Immtech International, Inc.
(A Development Stage Enterprise):
We have audited the accompanying balance sheets of Immtech International, Inc.
(a development stage enterprise) (the "Company") as of March 31, 1999 and 2000,
and the related statements of operations, common stockholders' investment
(deficiency in assets), and cash flows for each of the three years in the period
ended March 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of March 31, 1999 and 2000,
and the results of its operations and its cash flows for each of the three years
in the period ended March 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.
Deloitte & Touche LLP
Milwaukee, Wisconsin
June 6, 2000
F-1
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
MARCH 31, 1999 AND 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 2000
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $4,595,141
Investment securities available for sale (Notes 1 and 4) 1,360,989
Prepaid expenses and supplies $ 8,364 31,048
-------- ----------
Total current assets 8,364 5,987,178
-------- ----------
PROPERTY AND EQUIPMENT (Notes 1 and 3):
Research and laboratory equipment 244,562 399,198
Furniture and office equipment 51,480 112,036
Leasehold improvements 17,205 9,797
-------- ----------
Total - at cost 313,247 521,031
Less accumulated depreciation and amortization 283,230 283,741
-------- ----------
Property and equipment - net 30,017 237,290
DEFERRED OFFERING COSTS (Notes 1 and 2) 513,210
-------- ----------
TOTAL $551,591 $6,224,468
======== ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND COMMON STOCKHOLDERS' 1999 2000
INVESTMENT (DEFICIENCY IN ASSETS)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable (Note 1) $ 508,232 $ 1,531,011
Accrued interest (Note 6) 281,470
Other accrued liabilities 50,351 33,904
Advances from stockholders and affiliates (Note 5) 50,000
Notes payable (Note 6) 110,000
------------ ------------
Total current liabilities 1,000,053 1,564,915
DEFERRED RENTAL OBLIGATION (Note 11) 39,879
------------ ------------
Total liabilities 1,000,053 1,604,794
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 3, 8, 11 and 13)
COMMON STOCKHOLDERS' INVESTMENT (DEFICIENCY
IN ASSETS) (Notes 2, 5, 6, 7, 9, 12 and 13):
Preferred stock, par value $0.01 per share, 5,000,000 shares
authorized and unissued
Common stock, par value $0.01 per share, 30,000,000 shares
authorized, 3,245,517 and 5,282,334 shares issued and
outstanding as of March 31, 1999 and 2000, respectively 32,455 52,823
Additional paid-in capital 10,997,198 27,480,070
Deficit accumulated during the developmental stage (11,478,115) (22,912,041)
Net unrealized losses on investment securities
available for sale (Notes 1 and 4) (1,178)
------------ ------------
Total common stockholders' investment (deficiency in assets) (448,462) 4,619,674
------------ ------------
TOTAL $ 551,591 $ 6,224,468
============ ============
</TABLE>
F-3
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998, 1999 AND 2000 AND THE PERIOD FROM
OCTOBER 15, 1984 (DATE OF INCEPTION) TO MARCH 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 15,
1984
Years Ended March 31, (Inception)
----------------------------------------- to March 31,
1998 1999 2000 2000
(unaudited)
<S> <C> <C> <C> <C>
REVENUES (Notes 1, 12 and 13) $ 19,552 $ 266,952 $ 368,844 $ 2,356,917
----------- ------------ ------------ ------------
EXPENSES:
Research and development (Notes 1, 9 and 13) 312,366 738,762 10,255,301 17,848,508
General and administrative (Notes 9 and 12) 537,132 2,685,404 1,731,348 9,693,462
Equity in loss of joint venture (Notes 1 and 4) 2 135,000 135,002
----------- ------------ ------------ ------------
Total expenses 849,498 3,424,168 12,121,649 27,676,972
----------- ------------ ------------ ------------
LOSS FROM OPERATIONS (829,946) (3,157,216) (11,752,805) (25,320,055)
----------- ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 5,680 318,879 324,559
Interest expense (241,767) (67,543) (1,129,502)
Cancelled offering costs (73,984) (584,707)
----------- ------------ ------------ ------------
Other income (expense) - net (315,751) (61,863) 318,879 (1,389,650)
----------- ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (1,145,697) (3,219,079) (11,433,926) (26,709,705)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
(Notes 2, 5 and 6) 1,427,765 1,427,765
----------- ------------ ------------ ------------
NET LOSS (1,145,697) (1,791,314) (11,433,926) (25,281,940)
CONVERSION OF REDEEMABLE PREFERRED STOCK
(Notes 2 and 7) 3,713,334 3,713,334
REDEEMABLE PREFERRED STOCK PREMIUM
AMORTIZATION (Note 7) 81,696 440,119
REDEEMABLE PREFERRED STOCK DIVIDENDS (Note 7) (413,131) (137,689) (1,783,554)
----------- ------------ ------------ ------------
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON
STOCKHOLDERS $(1,477,132) $ 1,784,331 $(11,433,926) $(22,912,041)
=========== ============ ============ ============
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS:
Loss before extraordinary gain $ (1.69) $ (1.31) $ (2.27)
Extraordinary gain 0.58
----------- ------------ ------------
Net loss (1.69) (0.73) (2.27)
Redeemable preferred stock conversion, premium
amortization and dividends (0.49) 1.46
----------- ------------ ------------
NET (LOSS) INCOME PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (2.18) $ 0.73 $ (2.27)
=========== ============ ============
SHARES USED IN COMPUTING NET (LOSS) INCOME PER
SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS 676,471 2,446,297 5,036,405
=========== ============ ============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF COMMON STOCKHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS)
YEARS ENDED MARCH 31, 1998, 1999 AND 2000 AND THE PERIOD FROM
OCTOBER 15, 1984 (DATE OF INCEPTION) TO MARCH 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized Total
Deficit Losses on Common
Common Accumulated Investment Stockholders'
Shares Issued Common Additional During the Securities Equity
and Stock Paid-in Development Available (Deficiency in
Outstanding Amount Capital Stage for Sale Assets)
<S> <C> <C> <C> <C> <C>
October 15, 1984 (date of inception)
Issuance of common stock to founders 113,243 $1,132 $ 24,868 $ 26,000
--------- ------- ----------- -----------
Balance, March 31, 1985 113,243 1,132 24,868 26,000
Issuance of common stock 85,368 854 269,486 270,340
Net loss $ (209,569) (209,569)
--------- ------- ----------- ------------ -----------
Balance, March 31, 1986 198,611 1,986 294,354 (209,569) 86,771
Issuance of common stock 42,901 429 285,987 286,416
Net loss (47,486) (47,486)
--------- ------- ----------- ------------ -----------
Balance, March 31, 1987 241,512 2,415 580,341 (257,055) 325,701
Issuance of common stock 4,210 42 28,959 29,001
Net loss (294,416) (294,416)
--------- ------- ----------- ------------ -----------
Balance, March 31, 1988 245,722 2,457 609,300 (551,471) 60,286
Issuance of common stock 62,792 628 569,372 570,000
Provision for compensation 489,975 489,975
Net loss (986,746) (986,746)
--------- ------- ----------- ------------ -----------
Balance, March 31, 1989 308,514 3,085 1,668,647 (1,538,217) 133,515
Issuance of common stock 16,478 165 171,059 171,224
Provision for compensation 320,980 320,980
Net loss (850,935) (850,935)
Balance, March 31, 1990 324,992 3,250 2,160,686 (2,389,152) (225,216)
Issuance of common stock 218 2 1,183 1,185
Provision for compensation 6,400 6,400
Net loss (163,693) (163,693)
--------- ------- ----------- ------------ -----------
Balance, March 31, 1991 325,210 3,252 2,168,269 (2,552,845) (381,324)
Issuance of common stock 18,119 181 85,774 85,955
Provision for compensation 864,496 864,496
Issuance of stock options in exchange
for cancellation of indebtedness 57,917 57,917
Net loss (1,479,782) (1,479,782)
--------- ------- ----------- ------------ -----------
Balance, March 31, 1992 343,329 3,433 3,176,456 (4,032,627) (852,738)
Issuance of common stock 195,790 1,958 66,839 68,797
Provision for compensation 191,502 191,502
Net loss (1,220,079) (1,220,079)
--------- ------- ----------- ------------ -----------
Balance, March 31, 1993 539,119 5,391 3,434,797 (5,252,706) (1,812,518)
Issuance of common stock 107,262 1,073 40,602 41,675
Provision for compensation 43,505 43,505
Net loss (2,246,426) (2,246,426)
--------- ------- ----------- ------------ -----------
Balance, March 31, 1994 646,381 6,464 3,518,904 (7,499,132) (3,973,764)
Net loss (1,661,677) (1,661,677)
--------- ------- ----------- ------------ -----------
Balance, March 31, 1995 (unaudited) 646,381 6,464 3,518,904 (9,160,809) (5,635,441)
Issuance of common stock for
compensation 16,131 161 7,339 7,500
Net loss (1,005,962) (1,005,962)
--------- ------- ----------- ------------ -----------
Balance, March 31, 1996 662,512 6,625 3,526,243 (10,166,771) (6,633,903)
Issuance of common stock 12,986 130 5,908 6,038
Provision for compensation -
employees 45,086 45,086
Provision for compensation -
nonemployees 62,343 62,343
Issuance of warrants to purchase
common stock 80,834 80,834
Net loss (1,618,543) (1,618,543)
--------- ------- ----------- ------------ -----------
</TABLE>
(Continued)
F-5
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF COMMON STOCKHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS)
YEARS ENDED MARCH 31, 1998, 1999 AND 2000 AND THE PERIOD FROM
OCTOBER 15, 1984 (DATE OF INCEPTION) TO MARCH 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized Total
Deficit Losses on Common
Common Accumulated Investment Stockholders'
Shares Issued Common Additional During the Securities Equity
and Stock Paid-in Development Available (Deficiency in
Outstanding Amount Capital Stage for Sale Assets)
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1997 675,498 $6,755 $3,720,414 $(11,785,314) $(8,058,145)
Exercise of options (Notes 9 and 10) 68,167 682 28,862 29,544
Provision for compensation -
employees (Note 9) 50,680 50,680
Provision for compensation -
nonemployees (Note 9) 201,696 201,696
Contributed capital - common
stockholders (Note 12) 231,734 231,734
Net loss (1,477,132) (1,477,132)
--------- ------- ----------- ------------ -----------
Balance, March 31, 1998 743,665 7,437 4,233,386 (13,262,446) (9,021,623)
Issuance of common stock under
private placement offering (Note 2) 575,000 5,750 824,907 830,657
Conversion of Criticare debt to
common stock (Notes 5 and 6) 180,756 1,808 856,485 858,293
Conversion of debt to common stock
(Notes 5 and 6) 424,222 4,242 657,555 661,797
Conversion of redeemable preferred
stock to common stock (Note 7) 1,195,017 11,950 1,852,300 1,864,250
Exercise of options (Note 9) 40,650 406 12,944 13,350
Provision for compensation -
nonemployees (Note 9) 2,426,000 2,426,000
Issuance of common stock to
Criticare (Note 12) 86,207 862 133,621 134,483
Net income 1,784,331 1,784,331
--------- ------- ----------- ------------ -----------
Balance, March 31, 1999 3,245,517 32,455 10,997,198 (11,478,115) (448,462)
-----------
Comprehensive income (loss):
Net loss (11,433,926) (11,433,926)
Other comprehensive income (loss):
Unrealized losses on investment
securities available for sale $(1,178) (1,178)
-----------
Comprehensive loss (11,435,104)
Issuance of common stock under
initial public offering (Note 2) 1,150,000 11,500 9,161,110 9,172,610
Issuance of common stock for
accrued interest (Note 6) 28,147 281 281,189 281,470
Exercise of options and warrants
(Note 9) 247,420 2,474 424,348 426,822
Provision for compensation -
nonemployees (Note 9) 509,838 509,838
Issuance of common stock for
compensation - nonemployees
(Note 13) 611,250 6,113 6,106,387 6,112,500
--------- ------- ----------- ------------ ------- -----------
Balance, March 31, 2000 5,282,334 $52,823 $27,480,070 $(22,912,041) $(1,178) $ 4,619,674
========= ======= =========== ============ ======= ===========
</TABLE>
See notes to financial statements. (Concluded)
F-6
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998, 1999 AND 2000 AND THE PERIOD FROM
OCTOBER 15, 1984 (DATE OF INCEPTION) TO MARCH 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 15,
1984
Years Ended March 31, (Inception)
----------------------------------------- to March 31,
1998 1999 2000 2000
(unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,145,697) $ (1,791,314) $(11,433,926) $(25,281,940)
Adjustments to reconcile net loss to net cash used in operating
activities:
Compensation recorded related to issuance of common stock or
common stock options 252,376 2,426,000 6,622,338 11,511,301
Depreciation and amortization of property and equipment 27,119 27,120 40,341 355,251
Deferred rental obligation 39,879 39,879
Equity in loss of joint venture 2 135,000 135,002
Amortization of debt discounts and issuance costs 30,542 134,503
Extraordinary gain on extinguishment of debt (1,427,765) (1,427,765)
Changes in assets and liabilities:
Prepaid expenses and supplies 1,068 5,270 (22,684) (31,048)
Accounts payable 187,462 112,496 1,350,741 1,858,973
Accrued interest 208,329 663,013
Other accrued liabilities (101,024) 18,223 (16,447) 33,904
----------- ------------ ------------ ------------
Net cash used in operating activities (539,825) (629,968) (3,284,758) (12,008,927)
----------- ------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of property and equipment (247,614) (566,017)
Investment in and advances to joint venture (2) (135,000) (135,002)
Proceeds from maturities of investment securities 242,484 242,484
Purchases of investment securities (1,603,473) (1,603,473)
------------ ------------ ------------
Net cash used in investing activities (2) (1,743,603) (2,062,008)
------------ ------------ ------------
FINANCING ACTIVITIES:
(Repayments of) advances from stockholders and affiliates 215,172 50,000 (50,000) 985,172
Proceeds from issuance of notes payable 2,645,194
Principal payments on notes payable (3,500) (11,000) (110,000) (218,119)
Payments for debt issuance costs (53,669)
Payments for extinguishment of debt (203,450) (203,450)
Proceeds from issuance of preferred stock 3,330,000
Net proceeds from issuance of common stock 17,909 978,490 9,783,502 12,133,284
Additional capital contributed by stockholders 231,734 231,734
Payments for offering costs deferred (184,070) (184,070)
----------- ------------ ------------ ------------
Net cash provided by financing activities 461,315 629,970 9,623,502 18,666,076
----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (78,510) 0 4,595,141 4,595,141
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 78,510 0 0 0
----------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 0 $ 0 $ 4,595,141 $ 4,595,141
=========== ============ ============ ============
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION (Note 10)
See notes to financial statements.
F-7
<PAGE>
IMMTECH INTERNATIONAL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1998, 1999 AND 2000
--------------------------------------------------------------------------------
1. COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Immtech International, Inc. (the "Company") is a
biopharmaceutical company focusing on the discovery and development of
therapeutic products for the treatment of opportunistic diseases and
cancer in patients with compromised immune responses. The Company has two
separate platform technologies for developing drugs, one based on
developing a new class of molecules as pharmaceuticals and a second for
developing a series of biological proteins that work in conjunction with
the immune system.
The Company was incorporated in 1984. The Company is in the development
stage and has directed its efforts toward research and development, hiring
scientific and management personnel, arranging for facilities and
conducting clinical trials. The Company has no products currently
available for sale, and none are expected to be commercially available for
several years.
Risks and Uncertainties - Since inception, the Company has incurred
accumulated losses of approximately $22,912,000. Management of the Company
expects the Company to continue to incur significant losses during the
next several years as the Company expands its research and development
activities and clinical trial efforts. In addition, the Company has
various research and development agreements with various entities that are
thinly capitalized and are dependent upon their ability to raise
additional funds to continue their research and development activities.
The Company does not have any therapeutic products currently available for
sale, and none are expected to be commercially available for several
years, if at all. There can be no assurance that the Company's continued
research will lead to the development of commercially viable products. The
Company's operations to date have consumed substantial amounts of cash.
The negative cash flow from operations is expected to continue and to
accelerate in the foreseeable future. The Company will require substantial
funds to conduct research and development, preclinical and clinical
testing and to manufacture (or have manufactured) and market (or have
marketed) its product candidates.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient funds to meet its obligations as they
become due and ultimately, to obtain profitable operations. As discussed
in Note 2, on April 26, 1999, the Company completed an initial public
offering which raised approximately $9,173,000 of additional equity
capital. The net proceeds from the initial public offering are not
sufficient to fund the Company's operations through the commercialization
of one or more products yielding sufficient revenues to support the
Company's operations; therefore, the Company will need to raise additional
funds. Management's plans for the forthcoming year include continuing
their efforts to obtain additional equity financing and research grants,
and enter into various research and development agreements with other
entities (see Notes 3 and 13).
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.
F-8
<PAGE>
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 common stockholders' investment (deficiency in
assets). 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.
Debt Issuance Costs and Debt Discounts - Costs incurred in connection with
the issuance of certain debt were deferred and amortized over the original
life of such notes using the interest method. Discounts related to the
issuance of certain debt were amortized and charged to operations using
the interest method. Amortization of approximately $31,000 was charged to
operations during the year ended March 31, 1998, as additional interest
expense.
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 26, 1999, and the
costs were netted with the proceeds of the offering.
Revenue Recognition - Revenue under grants and research and development
agreements is recognized based on the Company's estimates of the stage of
completion under the terms of the respective agreements.
Research and Development Costs - All research and development costs are
charged to operations as incurred.
Income Taxes - The Company accounts for income taxes using an asset and
liability approach. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable
income.
Net (Loss) Income Per Share - Net (loss) income per share is calculated in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share." Diluted net (loss) income per share was the
same as the basic net (loss) income per share as the stock options and
warrants were antidilutive for the years ended March 31, 1998, 1999 and
2000.
F-9
<PAGE>
Fair Value of Financial Instruments Information - The Company believes
that the carrying amount of its financial instruments (cash and cash
equivalents, investment securities available for sale, accounts payable
and notes payable) approximates the fair value of such instruments as of
March 31, 1999 and 2000.
Segment Reporting - The Company is a development stage biopharmaceutical
company that operates as one segment.
Comprehensive Income (Loss) - Comprehensive income (loss) for the year
ended March 31, 2000 included net unrealized losses on investment
securities available for sale. There was no difference between
comprehensive income (loss) and net income (loss) for the years ended
March 31, 1998 and 1999.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles 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.
2. RECAPITALIZATION, PRIVATE PLACEMENT, STOCK SPLITS AND INITIAL PUBLIC OFFERING
On July 24, 1998 (the "Effective Date"), the Company (with stockholder
approval) completed a recapitalization (the "Recapitalization") pursuant
to which: (i) the Company effected a .645260-for-1 reverse stock split of
all of the shares of common stock issued and outstanding immediately prior
to the Effective Date, resulting in the reduction in the number of issued
and outstanding shares of common stock from 2,305,166 to 1,487,431 (the
"First Reverse Stock Split"); (ii) the Company's debtholders converted
approximately $3,151,000 in stockholder advances, notes payable and
related accrued interest and accounts payable outstanding immediately
prior to the Effective Date into 1,209,962 shares of common stock (after
giving effect to the First Reverse Stock Split) and approximately $203,000
in cash; (iii) the Company's Series A Preferred stockholders converted
1,794,550 shares of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Date into 1,157,931 shares of common
stock (after giving effect to the First Reverse Stock Split); (iv) the
Company's Series B Preferred stockholders converted 1,600,000 shares of
Series B Preferred Stock issued and outstanding immediately prior to the
Effective Date into 1,232,133 shares of common stock (after giving effect
to the First Reverse Stock Split); (v) the Company converted options
outstanding immediately prior to the Effective Date and held by employees
of or consultants to the Company to purchase an aggregate of 1,746,815
shares of common stock into options to purchase 1,127,150 shares of common
stock (after giving effect to the First Reverse
F-10
<PAGE>
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 under a private placement offering. For services and expenses
involved with this Recapitalization, the placement agent New China Hong
Kong Securities Limited ("NCHK") received $50,000 and warrants to purchase
75,000 shares of the Company's common stock at $.10 per share. On May 17,
1999, NCHK exercised their warrants. For advisory services in this
transaction, RADE Management Corporation ("RADE") received warrants to
purchase 225,000 shares of the Company's common stock at $.10 per share.
On April 22, 1999, the warrant agreement with RADE was amended to increase
the exercise price from $.10 per share to $6.47 per share. The warrants
expire July 24, 2004. The private placement offering resulted in net
proceeds of approximately $831,000.
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. The underwriters received warrants to purchase
100,000 additional shares of common stock at $16.00 per share. The
warrants expire April 30, 2003.
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 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 is in the process of preparing drug substance and documents for a
Phase I safety study in 30 to 50 cancer patients to be carried out at
Northwestern University. The focus of the study is to evaluate the safety
and early efficacy of rmCRP in patients with different types of cancer.
The Company and Franklin estimate that it will take approximately 18
months to complete the Phase I clinical trial once sufficient funds are
available to initiate the trial. At the conclusion of the trial, the data
for safety and efficacy will be evaluated and Franklin will have 90 days
to decide whether to continue the development of rmCRP in human Phase II
and III clinical trials. If Franklin decides to proceed, it has to invest
a minimum of an additional $6,500,000 for which Franklin will receive an
additional 160,000 common shares of NextEra. In addition, if Franklin
elects to proceed, at its option, the Company shall have the right to
provide $1,625,000 of the additional investment of $6,500,000 in return
for 40,000 of the
F-11
<PAGE>
160,000 common shares Franklin would receive. At such time the Company
will assign its laboratory facilities to NextEra. If Franklin decides not
to proceed, the Company can purchase majority control of NextEra by buying
NextEra common stock at $1.00 per share until enough shares are purchased
for majority control.
The lead scientist of NextEra, who is also a director of NextEra, received
33,333 shares of NextEra common stock at the formation of NextEra and will
receive options to purchase 30,000 additional common shares that will vest
upon submission of a new drug application for a product based on rmCRP.
NextEra has also reserved 100,000 shares of common stock for issuance as
stock options for employees and consultants.
The Board of Directors of NextEra consists of two directors appointed by
the Company (one Company employee and a representative from RADE) and five
by Franklin. Unanimous approval of NextEra's Board of Directors is
required for issuance of stock to employees, mergers, sales or disposition
of substantially all assets, or liquidation of NextEra.
The Company has, on the fifth anniversary of the formation of NextEra, a
"put" option of NextEra stock. The exercise of the put will cause NextEra
to purchase the stock owned by Immtech at an appraised value, or at $5.00
per share, whichever is lower.
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 $1,416,000 since
inception (July 8, 1998) through March 31, 2000. NextEra is expected to
continue to incur significant losses during the next several years. In
addition, as of March 31, 2000, NextEra's current liabilities exceeded its
current assets by approximately $1,231,000 and NextEra had a stockholders'
deficiency of approximately $1,200,000.
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. Currently, the
Company is 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.
F-12
<PAGE>
As of March 31, 1999 and 2000, the Company owned approximately 49% and
44%, respectively, of the issued and outstanding shares of NextEra common
stock.
F-13
<PAGE>
The following is a summary of the Company's investment in NextEra as of
March 31, 1999 and 2000:
1999 2000
Investment in NextEra:
Common stock $ 2 $ 2
Advances from the Company 135,000
--- --------
Total 2 135,002
Less investment losses recognized 2 135,002
--- --------
Net investment $ 0 $ 0
=== ========
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.
The following is summarized financial information for NextEra as of March
31, 1999 and 2000 and for the period from inception (July 8, 1998) through
March 31, 1999 and the year ended March 31, 2000:
1999 2000
Current assets $ 66,000 $ 32,000
Noncurrent assets 5,000 25,000
Current liabilities:
Advances from Franklin 441,000 1,084,000
Advances from the Company -- 135,000
Advances from other shareholder -- 26,000
Other 2,000 18,000
Stockholders' deficiency (372,000) (1,200,000)
Revenues -- --
Net loss (372,000) (1,416,000)
4. INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost and carrying value (fair value) of investment
securities available for sale as of March 31, 2000 are summarized as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
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
========== ===== ======= ==========
F-14
<PAGE>
The maturities of the investment securities available for sale as of March
31, 2000 are as follows:
Net
Fair Amortized Unrealized
Value Cost Losses
Due in one year or less $ 477,075 $ 477,111 $ (36)
Due after one year through two years 682,736 683,878 (1,142)
Due after two years through three years 200,000 200,000
----------- ----------- --------
Total $ 1,359,811 $ 1,360,989 $ (1,178)
=========== =========== ========
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 (see Note 2). The carrying value of the outstanding Criticare
indebtedness under the advances in excess of the estimated fair value of
the shares of common stock and cash exchanged was accounted for as
additional paid-in capital.
Certain other stockholders had advanced funds to the Company aggregating
$387,450 as of March 31, 1998. The advances were non-interest bearing and
payable on demand. On July 24, 1998, the other shareholders exchanged
$387,450 of advances for 196,824 shares of common stock (see Note 2). The
Company recognized an extraordinary gain on the extinguishment of debt of
$80,404 for the outstanding indebtedness under the advances in excess of
the estimated fair value of the 196,824 shares of common stock ($307,046)
during the year ended March 31, 1999.
As of 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
F-15
<PAGE>
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 $148,777
and related accrued interest of $43,426 were exchanged for 35,403 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 $1,306,673, related
accrued interest aggregating $337,290 and accounts payable aggregating
$261,597 were exchanged for 227,398 shares of common stock and $203,450
cash. During the year ended March 31, 1999, the Company recognized an
extraordinary gain on the extinguishment of debt of $1,347,361 for the
outstanding aggregate indebtedness under 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.
7. REDEEMABLE PREFERRED STOCK
On July 24, 1998, the Series A and B Preferred stockholders exchanged
their preferred shares for an aggregate 1,195,017 shares of common stock
(see Note 2). The holders of the Series A and Series B Preferred Stock had
cumulative dividend preferences at the rate of 8% per annum, compounded
daily, of the liquidation value thereof, plus accumulated and unpaid
dividends thereon, in preference to any dividend on common stock, payable
when and if declared by the Company's 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 year ended March 31, 1999.
8. INCOME TAXES
The Company accounts for income taxes using an asset and liability
approach which generally requires the recognition of deferred income tax
assets and liabilities based on the expected future income tax
consequences of events that have previously been recognized in the
Company's financial statements or tax returns. In addition, a valuation
allowance is recognized if it is more likely than not that some or all of
the deferred income tax assets will not be realized. A valuation allowance
is used to offset the related net deferred income tax assets due to
uncertainties of realizing the benefits of certain net operating losses
and tax credit carryforwards.
F-16
<PAGE>
The Company has no significant deferred income tax liabilities.
Significant components of the Company's deferred income tax assets are as
follows:
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------------
1998 1999 2000
Deferred income tax assets:
<S> <C> <C> <C>
Federal net operating loss carryforwards $ 2,770,000 $ 2,552,000 $ 6,970,000
State net operating loss carryforwards 290,000 259,000 880,000
Federal income tax credit carryforwards 89,100 89,800 126,500
----------- ----------- -----------
Total deferred income tax assets 3,149,100 2,900,800 7,976,500
----------- ----------- -----------
Valuation allowance (3,149,100) (2,900,800) (7,976,500)
----------- ----------- -----------
Net deferred income taxes recognized
in the accompanying balance sheets $ 0 $ 0 $ 0
=========== =========== ===========
</TABLE>
As of March 31, 2000, the Company had federal net operating loss
carryforwards of approximately $20,500,000 which expire from 2006 through
2020. As of March 31, 2000, the Company had available for federal income
tax purposes approximately $19,600,000 of alternative minimum tax net
operating loss carryforwards which expire from 2006 through 2020. The
Company also has approximately $18,300,000 of state net operating loss
carryforwards as of March 31, 2000, which expire from 2009 through 2020,
available to offset future taxable income for state (primarily Illinois)
income tax purposes. Because of "change of ownership" provisions of the
Tax Reform Act of 1986, approximately $924,000 of the Company's net
operating loss carryforwards for federal income tax purposes are subject
to an annual limitation regarding utilization against taxable income in
future periods. As of March 31, 2000, the Company had federal income tax
credit carryforwards of approximately $127,000 which expire from 2008
through 2020.
The income tax provision consists of the following:
Years Ended
March 31,
----------------------
1998 1999 2000
Current:
Federal $ 0 $ 0 $ 0
State 0 0 0
--- --- ---
Total income tax provision $ 0 $ 0 $ 0
=== === ===
F-17
<PAGE>
A reconciliation of the provision for income taxes (benefit) at the
federal statutory income tax rate to the effective income tax rate
follows:
Years Ended March 31,
------------------------
1998 1999 2000
Federal statutory income tax rate (34.0)% (34.0)% (34.0)%
State statutory income tax rate (4.8) (4.8) (4.8)
Non-deductible compensation and expenses 7.5 29.2
Benefit of federal and state net operating loss and
tax credit carryforwards not recognized 31.3 9.6 38.8
---- ---- ----
Effective income tax rate 0% 0% 0%
==== ==== ====
9. STOCK OPTIONS, WARRANTS AND COMMON STOCK
The Company has granted common stock options to individuals who have
contributed to the Company. The options contain various provisions
regarding vesting periods, expiration dates, stockholder approval
requirements and contingencies on the approval of an increase in the stock
option pool by the Board of Directors. The options vest in periods ranging
from 0 to 4 years and generally expire in ten years. As of March 31, 2000,
there were 2,581 employee stock options available for grant.
During the years ended March 31, 1998, 1999 and 2000, the Company issued
stock options to nonemployees for services rendered to the Company. During
the year ended March 31, 1998, the Company issued 99,141 options to
nonemployees and recognized expense of approximately $202,000 related to
such options. During the year ended March 31, 1999, the Company issued
96,787 options to nonemployees and recognized expense of $206,000 related
to such options. During the year ended March 31, 2000, the Company issued
2,176 options to nonemployees and recognized expense of approximately
$37,000 related to such options. The expense was determined based on the
estimated fair value of the options issued.
The activity during the years ended March 31, 1998, 1999 and 2000 for the
Company's stock options is summarized as follows:
Weighted
Number of Stock Options Average
Shares Price Range Exercise Price
Outstanding as of April 1, 1997 531,276 $0.31- 6.88 $0.84
Granted 144,955 0.59- 1.74 1.02
Exercised (68,167) 0.34- 0.59 0.43
Expired (128,034) 0.34- 6.88 1.48
------- ----------- -----
Outstanding as of March 31, 1998 480,030 0.31- 1.74 0.59
Granted 96,787 0.46- 2.70 0.68
Exercised (40,650) 0.31- 0.34 0.33
Expired (19,175) 0.31- 0.59 0.39
------- ----------- -----
Outstanding as of March 31, 1999 516,992 0.31- 2.70 0.64
Granted 2,176 0.59 0.59
Exercised (103,120) 0.31- 2.70 0.71
------- ----------- -----
Outstanding as of March 31, 2000 416,048 $0.31- 1.74 $0.63
======= =========== =====
Exercisable as of March 31, 2000 379,493 $0.31- 1.74 $0.64
======= =========== =====
F-18
<PAGE>
The following table summarizes information about stock options outstanding
as of March 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- ------------------------
Weighted
Shares Average Weighted Shares Weighted
Outstanding at Remaining Average Exercisable at Average
Range of March 31, Contractual Exercise March 31, Exercise
Exercise Prices 2000 Life-Years Price 2000 Price
<S> <C> <C> <C> <C> <C>
$0.31 to 0.34 105,260 1.09 $ 0.33 105,260 $ 0.33
0.46 to 0.59 255,298 4.52 0.50 218,743 0.51
1.74 55,490 8.04 1.74 55,490 1.74
------- -------
416,048 4.12 $ 0.63 379,493 $ 0.64
======= =======
</TABLE>
On March 30, 2000, the Board of Directors approved the issuance of 107,750
stock options at the closing market price on the grant date of the options
to certain scientific members of the Consortium, employees of the Company
and other individuals. These options are all subject to shareholder
approval, and had not been approved as of March 31, 2000.
On October 12, 1998, RADE received warrants to purchase 750,000 shares of
the Company's common stock at $.10 per share. On April 22, 1999, the
warrant agreement was amended to increase the exercise price from $.10 per
share to $6.47 per share. The warrants were issued as compensation for
management consulting, market analysis and strategic advisory services
performed during July through December 1998. The Company recorded a
general and administrative expense of $2,220,000 during the year ended
March 31, 1999 based upon the estimated fair value of the warrants issued.
The warrants expire October 12, 2004.
The following table summarizes information about common stock warrants
outstanding as of March 31, 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 (see Note 13) 850,000 April 30, 2009
----------
Total warrants outstanding 1,925,000
=========
During the year ended March 31, 2000, 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. In addition, on May
17, 1999, NCHK exercised warrants to purchase 75,000 shares of common
stock 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. During the year ended March 31, 1998,
the Company issued 45,814 options to employees and recognized expense of
approximately $51,000 related to such options. There were no options
issued to employees during the years ended March 31, 1999 and March 31,
2000. The expense was calculated as the difference between the option
F-19
<PAGE>
exercise price and the estimated fair value of the Company's stock as of
the date the option was granted. If the Company had recognized
compensation expense for the options granted during the years ended March
31, 1998 and 1999 and 2000, consistent with the method prescribed by SFAS
No. 123, net (loss) income and net (loss) income per share would have been
changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------------------
1998 1999 2000
<S> <C> <C> <C>
Net (loss) income attributable to common
stockholders - as reported $ (1,477,132) $ 1,784,331 $(11,433,926)
Net (loss) income attributable to common
stockholders - pro forma $ (1,503,470) $ 1,781,318 $(11,440,266)
Net (loss) income per share attributable to
common stockholders - as reported $ (2.18) $ 0.73 $ (2.27)
Net (loss) income per share attributable to
common stockholders - pro forma $ (2.22) $ 0.73 $ (2.27)
</TABLE>
The fair value of stock options used to compute pro forma net (loss)
income and net (loss) income per share is the estimated present value at
the grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions:
Years Ended March 31,
-----------------------------------------------
1998 1999 2000
Volatility 27.5% 33.0% 65.0%
Risk-free interest rate 5.4% 5.4% 6.0%
Expected life of options 4.5 years 5.4 years 5.6 years
Dividend yield 0% 0% 0%
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's options have
characteristics significantly different from traded options, and because
changes in the subjective input assumptions can materially affect the fair
value estimate, in the opinion of management, the existing models do not
necessarily provide a reliable single value of its options and may not be
representative of the future effects on reported net (loss) income or the
future stock price of the Company. The weighted average estimated fair
value of employee stock options granted during the year ended March 31,
1998 was $2.41 per share. There were no employee stock options granted
during the years ended March 31, 1999 and 2000. For purposes of pro forma
disclosure, the estimated fair value of the options is amortized to
expense over the options' vesting period.
The pro forma effect on net (loss) income for the years ended March 31,
1998, 1999 and 2000 is not representative of the pro forma effect in
future years because it does not take into consideration pro forma
compensation cost related to grants made prior to April 1, 1996.
10. SUPPLEMENTAL CASH FLOW INFORMATION
The Company did not pay any income taxes or interest during the years
ended March 31, 1998, 1999 or 2000.
F-20
<PAGE>
Non-Cash Financing Activities:
During the years ended March 31, 1998, 1999 and 2000, the Company issued
common stock options or warrants as compensation for services. During the
year ended March 31, 1998, a note holder converted the Company's
obligation under a note payable agreement as consideration for exercising
certain stock options. During the years ended March 31, 1998 and 1999, the
Company increased the carrying value of the Series A and B Preferred Stock
by amounts representing the value of dividends not currently declared or
paid, but which are payable under mandatory redemption features. The
Company also recorded premium amortization on the Series A Preferred Stock
securities during the year ended March 31, 1998. In connection with the
recapitalization (see Note 2) during the year ended March 31, 1999, the
preferred stock, and certain debt, accrued interest, accounts payable and
shareholder advances were converted to common stock. During the year ended
March 31, 2000, the Company issued common stock as consideration for an
accrued interest obligation. During the year ended March 31, 1999, the
Company paid and deferred certain offering costs which were netted with
the proceeds of an initial public offering during the year ended March 31,
2000. The amounts of these transactions are summarized as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------
1998 1999 2000
<S> <C> <C> <C>
Issuance of common stock options or warrants as compensation
for services $252,376 $2,426,000 $6,622,338
Conversion of note payable as consideration for exercising certain stock options 11,635
Common stock issued as consideration for payment of accrued interest 281,470
Offering costs paid and deferred in prior year netted with proceeds
of initial public offering as a reduction of additional paid-in capital 184,070
Preferred stock dividends accrued 413,131 137,689
Preferred stock premium amortization 81,696
Conversion of preferred stock to common stock 5,577,584
Conversion of debt, accrued interest and accounts payable to common stock 1,702,110
Conversion of Criticare debt to common stock 858,293
Conversion of shareholder advances to common stock 387,450
</TABLE>
11. LEASE COMMITMENTS
In December 1999, the Company started leasing its main office and research
facility under an operating lease that requires lease payments starting in
March 2000 of approximately $12,000 per month through March 2005. The
Company also leases an additional office facility on a month-to-month
lease for approximately $8,000 per month.
As discussed in Note 3, NextEra paid a portion of the Company's lease
obligation under a former operating lease agreement. This lease expired in
December 1999, at which time NextEra discontinued making any lease
payments on the Company's behalf. NextEra made approximately $43,000 and
$35,000 of lease payments for the Company during the years ended March 31,
1999 and 2000, respectively. Total rent expense was approximately $50,000,
$6,000 and $152,000 for all leases during the years ended March 31, 1998,
1999 and 2000, respectively.
F-21
<PAGE>
Future minimum lease payments on noncancellable operating leases as of
March 31, 2000 approximated as follows:
Years Lease
Ending Payments
March 31,
2001 $146,000
2002 146,000
2003 146,000
2004 153,000
2005 140,000
--------
Total $731,000
========
12. OTHER RELATED PARTY TRANSACTIONS
During the year ending March 31, 1998, the following payments for various
Company expenses were made on behalf of the Company by related parties:
approximately $146,000 from Criticare; approximately $56,000 from an
investment fund whose directors are also directors of the Company; and
approximately $30,000 from certain officers and directors of the Company.
These payments were recorded as expenses and additional paid-in capital in
the Company's financial statements during the year ended March 31, 1998.
There were no such payments during the years ended March 31, 1999 or 2000.
Transactions with Criticare Systems, Inc.
As part of agreeing to the private placement of stock by NCHK, Criticare
obtained an option to license rmCRP as a therapy for treating sepsis.
Sepsis is a bacterial infection which quickly overwhelms the immune
systems and can lead to sudden death.
Criticare's option includes patents and know-how developed by the Company.
NextEra has licensed the rights for producing rmCRP back to the Company
for use with sepsis applications. Criticare assigned the technology to
another party and the assignee had twelve months from the date of the
closing on the private placement by NCHK to raise a minimum of $500,000 to
fund both the development of the sepsis technology and the initiation of
clinical trials. The Company has not received notification from the
assignee as to whether or not the funds have been raised. If the assignee
is unable to raise the funds, the Company can acquire the sepsis
technology from the assignee at market price, determined by negotiations
between the two parties or an agreed third party if an agreement on price
cannot be reached. The Company is required to pay the cost of maintaining
and defending the patents until the initial financing is completed by the
assignee.
On July 2, 1998, the Company transferred to Criticare certain of its
intangible assets and 86,207 shares of the Company's common stock for
$150,000. These assets include rights to the Company's diagnostic products
for measuring hemoglobin A1c. in diabetic patients and Carbohydrate
Deficient Transferring ("CDT") as a marker in the blood for long-term
alcohol abuse, as well as patents that have been issued for both
technologies and exclusive worldwide rights from Northwestern University
to develop and sell the products, which now inure to the benefit of
Criticare. Criticare will be responsible for the maintenance and
prosecution of the patents for both technologies. The shares issued were
assigned a
F-22
<PAGE>
fair value of $134,483 and the remainder ($15,517) was recorded as income
during the year ended March 31, 1999.
13. 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)
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 year ended March 31, 2000, 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
F-23
<PAGE>
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.
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 years ended March 31, 1998, 1999 and 2000, the
Company expensed grant payments to UNC of $100,000, $300,000 and $650,000,
respectively. Such payments were expensed as research and development
costs.
In February 1998, the Company received a Small Business Technology
Transfer Research Grant for approximately $97,000 from the National
Institutes of Health ("NIH") to develop simple, immune-based assays to
measure drug presence and concentration in blood. During the years ended
March 31, 1998 and 1999, the Company recognized revenue of approximately
$20,000 and $77,000, respectively, from this grant. During the years ended
March 31, 1998 and 1999, the Company expensed payments to the Consortium
in the amount of approximately $15,000 and $50,000, respectively, for
their research. Another Small Business Technology Transfer Research Grant
for $100,000 was awarded to the Company in May 1998 from the NIH to study
the applicability and effectiveness of using prodrug compounds as an oral
treatment for tropical diseases such as trypanosomiasis, leishmaniasis and
malaria. During the years ended March 31, 1999 and 2000, the Company
recognized revenue of approximately $94,000 and $6,000, respectively, from
this grant and expensed payments to the Consortium in the amounts of
approximately $14,000 and $6,000, respectively, for their research. In
August 1999, the Company received a Small Business Innovation Research
Grant for $598,000 from the NIH to research various infections. During the
year ended March 31, 2000, the Company recognized revenue of $363,000 from
this grant and expensed payments of $56,000 to Pharm-Eco for their
research.
In March 1998, the Company entered into an option and worldwide exclusive
license agreement with Sigma Diagnostics, Inc. ("Sigma") for hemoglobin
Alc technology which the Company had the right to. The option part of the
agreement allows Sigma to evaluate the technology for potential
manufacturing and use on instrumentation developed by Sigma. The option
agreement includes a series of payments as specific research milestones
are met. The first two milestones were completed and payments by Sigma of
$45,000 were received by the Company and recognized as revenue during the
year ended March 31, 1999. Criticare, which subsequently acquired the
Company's rights to future payments from Sigma, is entitled to up to
$110,000 of contingent milestone and license payments (see Note 12). In
addition, if a license is purchased by Sigma and sales are made through
commercial sales, Criticare will receive
F-24
<PAGE>
annual royalty payments. The Company will receive no ongoing revenues nor
will it have any further obligations to Sigma.
* * * * * *
F-25
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters during the Company's two most recent
fiscal years.
Part III
Item 9. Directors and Executive Officers of the Registrant
Executive Officers, and Directors
The executive officers, and directors of the Company are as follows:
Name Age Position
---- --- --------
T. Stephen Thompson 53 Director, President and Chief Executive Officer
Gary C. Parks 50 Treasurer, Secretary and Chief Financial Officer
Byron E. Anderson, Ph.D. 58 Director
Emil Soika 62 Director
Eric L. Sorkin 40 Director
T. Stephen Thompson, President, Chief Executive Officer and Director. Mr.
Thompson has served as a Director since 1991. He joined Immtech in April 1991
from Amersham Corporation, where he was President and Chief Executive Officer.
He was responsible for Amersham Corporation's four North American divisions:
Life Sciences, Radiopharmaceuticals, Diagnostics, and Quality and Safety
Products. In addition, he had direct responsibility for the Clinical Reagent (in
vitro diagnostic) Division in the United Kingdom. He was employed by Amersham
Corporation from 1986 to 1991. Mr. Thompson has 20 years' experience in health
care with previous positions as President of a small diagnostic start-up,
General Manager of the Infectious Disease and Immunology Business Unit in the
Diagnostic Division of Abbott Laboratories from 1981 to 1986, and Group
Marketing Manager for the Hyland Division of Baxter International Inc. from 1978
to 1981. Mr. Thompson is a Director of Matritech, Inc. (Nasdaq: NMPS). Mr.
Thompson holds a B.S. from the University of Cincinnati and an M.B.A. from
Harvard University.
Gary C. Parks, Treasurer, Secretary and Chief Financial Officer. Mr. Parks
joined Immtech in January 1994, having previously served at Smallbone, Inc. from
1989 until 1993, where he was Vice President, Finance. Mr. Parks was a Division
Controller with International Paper from 1986 to 1989. Prior to that, he was
Vice President, Finance of SerckBaker, Inc., a subsidiary of BTR plc, from 1982
to 1986 and a board member of SerckBaker de Venezuela. Mr. Parks holds a B.A.
from Principia College and an M.B.A. from the University of Michigan.
26
<PAGE>
Byron E. Anderson, Ph.D., Director. Dr. Anderson was a founder of Immtech
and has served as a Director since 1984. He is presently a Professor at
Northwestern University Medical School in the Department of Cell, Molecular, and
Structural Biology. He is a member of the American Association of Immunologists,
the American Society of Molecular and Biological Chemists, the American
Association for Advancement of Science, and several other biological and medical
research societies. Dr. Anderson received his B.A. in Chemistry and Biology from
Kalamazoo College in 1963, and a Ph.D. from the University of Michigan. He was a
postdoctoral fellow of the Helen Hay Whitney Foundation, a Senior Investigator
of the Arthritis Foundation, and a NIH Research Career Development Awardee. His
research areas include peptide, protein and glycoprotein structure and function,
as well as immunopathology of autoimmune and cancer diseases.
Emil Soika, Director. Mr. Soika has served as Director of the Company
since March 1999. Since November 1998, he has served as President of Criticare,
developer and manufacturer of medical devices. From 1995 to November 1998, he
served as Vice President and General Manager of Spacelabs Medical, Inc., a
manufacturer of noninvasive medical diagnostic and monitoring equipment. From
1990 to 1994, he served as President and Chief Executive Officer of Block
Medical Inc. He has also held various positions with Baxter International, Inc.,
where he ultimately served as Division President and General Manager of the Auto
Syringe Division, directing international manufacturing and sales operations.
Mr. Soika holds a B.S.M.E. from Marquette University and an M.B.A. from
Northwestern University.
Eric L. Sorkin, Director. Mr. Sorkin is a private investor. Prior to 1994,
Mr. Sorkin worked eleven years at Dean Witter Realty Inc., a wholly owned
subsidiary of Morgan Stanley Dean Witter, which grew to hold an investment
portfolio of over $3 billion. He became Managing Director in 1988 and was
responsible for the negotiation, structuring, and debt placement of various
investments. Mr. Sorkin managed the company's retail (shopping center) portfolio
of over 2 million square feet, and participated in the development of office,
residential, industrial, and retail property development and acquisition of over
5 million square feet of assets. He is a graduate of Yale University with a
Bachelor of Arts degree in Economics.
Section 16(a) Beneficial Ownership Reporting Compliance
Messrs. Thompson, Parks, Anderson, and Ng and RADE filed their Initial
Statements of Beneficial Ownership of Securities on Form 3 required by Section
16(a) approximately 20 days after the filing deadline. Mr. Ng filed his Form 4
in May 2000 for the exercise of an option for 2,800 shares in July 1999.
Criticare Systems, Inc. filed a Form 4 in January 2000 for transactions covering
the period from August 1999 through October 1999.
Item 10. Executive Compensation
Summary Compensation Table. The following table sets forth certain
information
27
<PAGE>
regarding the compensation of the Company's Chief Executive Officer and its
Chief Financial Officer for the fiscal years ended March 31, 1998, 1999 and
2000. None of the Company's other employees received a salary in excess of
$100,000 during such years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual
Compensation Long-Term Compensation
------------ ----------------------
Name and Principal Position Year Salary ($) Options/Sars (#)
--------------------------- ---- ---------- ----------------
<S> <C> <C> <C>
T. Stephen Thompson 2000 $ 143,750 0
President, Chief Executive
Officer and Director 1999 $ 56,250 0
1998 $ 12,500 0
Gary C. Parks 2000 $ 120,833 0
Secretary, Treasurer and
Chief Financial Officer 1999 $ 56,250 0
1998 $ 8,667 0
</TABLE>
OPTION/SAR GRANTS IN YEAR ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
% of total
Options/SARs
Number of Securities Granted to Exercise or
Underlying Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
---- ----------- ----------- ------ ----
<S> <C> <C> <C> <C>
T. Stephen Thompson 0 NA NA NA
Gary C. Parks 0 NA NA NA
</TABLE>
AGGREGATE OPTION/WARRANT EXERCISES IN YEAR ENDED MARCH 31, 2000
AND OPTION/WARRANT VALUES AT MARCH 31, 2000
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the Money Options at
Options At March 31, 2000 March 31, 2000 ($)(1)
(#)
------------------------- --------------------------
Shares (1)
Acquired on Realized
Name Exercise (#) Value ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
T. Stephen Thompson 800 18,600 36,133 0 987,535 0
Gary C. Parks 0 0 35,487 0 968,014 0
</TABLE>
(1) Based on the March 31, 2000 value of $28.25 per share, minus the per share
exercise price, multiplied by the number of shares underlying the
option/warrant.
28
<PAGE>
Employment Agreements
The Company entered into an employment agreement with Mr. Thompson in 1992
pursuant to which the Company retained Mr. Thompson as its President and Chief
Executive Officer for an annual base salary of $150,000 (subject to annual
adjustment by the Board), plus reimbursement for related business expenses. The
agreement, which includes certain confidentiality and non-disclosure provisions,
also grants to Mr. Thompson the right to receive an annual bonus to be
established by the Board in an amount not to exceed 60% of Mr. Thompson's annual
base salary for the year and certain other fringe benefits. If the Company
breaches the agreement or Mr. Thompson is terminated by the Company without
cause, he is entitled to all payments which he would otherwise accrue over the
greater of nine months from the date of termination or the remaining term under
the agreement. Additionally, rights to all options granted to Mr. Thompson
pursuant to the agreement vest immediately upon his termination without cause or
a change of control of the Company. The term of Mr. Thompson's agreement expired
on May 11, 1999, subject to automatic renewal for successive one-year terms
unless terminated by either party upon 30 days notice. Except for $12,500 paid
to Mr. Thompson during the fiscal year ended March 31, 1998, Mr. Thompson has
waived any right to receive salary due under his employment agreement prior to
June 30, 1998. Beginning July 1, 1998 and continuing until April 30, 1999, Mr.
Thompson agreed to accept one-half of his annual salary as full satisfaction of
the Company's salary obligation under his employment agreement. Mr. Thompson,
effective May 1, 1999, has resumed his full salary rate of $150,000 per annum
under his employment agreement, but will not be paid amounts previously waived.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of April 28, 2000 by
(i) each of the Company's Directors and Executive Officers, (ii) all directors
and executive officers as a group and (iii) each person known to be the
beneficial owner of more than 5% of the Shares.
29
<PAGE>
Number of Shares of Percentage of
Common Stock Outstanding Shares of
Name and Address Beneficially Owned(1) Common Stock
---------------- --------------------- ------------
T. Stephen Thompson (2)
c/o Immtech international, Inc.
150 Fairway Drive, Ste. 150 294,593 5.49%
Vernon Hills, IL 60061
Gary C. Parks (3)
c/o Immtech International, Inc.
150 Fairway Drive, Ste. 150 35,777 0.67%
Vernon Hills, IL 60061
Cecilia Chan (4)
c/o Immtech International, Inc.
One North End Ave., Ste. 1111 227,000 4.08%
New York, NY 10282
Byron Anderson, Ph.D. (5)
c/o Northwestern University
Medical School 109,322 2.05%
303 East Chicago Avenue
Chicago, IL 60611
Emil Soika (6)
c/o Criticare Systems, Inc.
20925 Cross Road Circle 474,956 8.91%
Waukesha, WI 53186
Eric Sorkin (7)
93 Prospect Avenue
Montclair, NJ 07042 246,500 4.62%
Criticare Systems, Inc. (8)
20925 Crossroads Circle
Waukesha, WI 53186 474,956 8.91%
James Ng (9)
c/o RADE Management
New York Mercantile 357,800 6.29%
Exchange, Box 415
New York, NY 10282
University of North Carolina
at Chapel Hill/Pharm-Eco
Laboratories (10) 611,250 11.46%
c/o Office of Technology
Development
308 Bynum Hall
30
<PAGE>
Chapel Hill, NC 27599
All directors and officers
as a group(6 persons) 913,192 15.57%
(1) Unless otherwise indicated below, the persons in the above table have sole
voting and investment power with respect to all shares beneficially owned
by them, subject to applicable community property laws.
(2) Includes 258,460 shares of Common Stock, and 36,133 shares of Common Stock
issuable upon the exercise of options as follows: option to purchase 8,872
shares of Common Stock at $0.46 per share by March 21, 2006; option to
purchase 13,066 shares of Common Stock at $0.34 per share by November 27,
2001; and option to purchase 14,195 shares of Common Stock at $1.74 per
share by April 16, 2008.
(3) Includes 290 shares of Common Stock, and 35,487 shares of Common Stock
issuable upon the exercise of options as follows: option to purchase
14,195 shares of Common Stock at $0.46 per share by February 1, 2004;
option to purchase 7,097 shares of Common Stock at $0.46 per share by May
10, 2006; and option to purchase 14,195 shares of Common Stock at $1.74
per share by April 16, 2008.
(4) Includes 2,000 shares of Common Stock, and 225,000 shares of Common Stock
issuable upon the exercise of warrants as follows: warrant to purchase
51,923 shares of Common Stock at $6.47 per share by July 24, 2004; and
warrant to purchase 173,077 shares of Common Stock at $6.47 per share by
October 12, 2004.
(5) Includes 100,611 shares of Common Stock, and 8,711 shares of Common Stock
issuable upon the exercise of option as follows: option granted to Dr.
Anderson's wife to purchase 8,711 shares at $0.34 per share by May 1,
2001.
(6) Includes 474,956 shares held by Criticare Systems, Inc. Mr. Soika is
President of Criticare Systems and, therefore, may be deemed to share
investment and voting power with respect to the shares owned by Criticare
Systems, Inc.
(7) Includes 21,500 shares of Common Stock, and 225,000 shares of Common Stock
issuable upon the exercise of warrants as follows: warrant to purchase
51,923 shares of Common Stock at $6.47 per share by July 24, 2004; and
warrant to purchase 173,077 shares of Common Stock at $6.47 per share by
October 12, 2004.
(8) Criticare Systems, Inc. (Nasdaq: CXIM) designs, manufactures and markets
cost-effective patient monitoring systems and noninvasive sensors for a
wide range of hospitals and alternate health care environments throughout
the worlds.
(9) Includes 2,800 shares of Common Stock, and 225,000 shares of Common Stock
issuable upon the exercise of warrants as follows: warrant to purchase
51,923 shares of Common Stock at $6.47 per share by July 24, 2004; and
warrant to purchase 173,077 shares of Common Stock at $6.47 per share by
October 12, 2004. As beneficial owner of RADE Management, includes 130,000
shares of Common Stock issuable upon the exercise of warrants as follows:
warrant to purchase 30,000 shares of Common Stock at $6.47 per share by
July 24, 2004; and warrant to purchase 100,000 shares of Common Stock at
$6.47 per share by October 12, 2004.
(10) University of North Carolina at Chapel Hill ("Consortium") and Pharm-Eco
jointly own 611,250 shares of Common Stock. At the time of an ANDA or NDA
filing, 150,000
31
<PAGE>
additional shares of Common Stock shall be issued. Additionally, upon
reaching certain milestones of development, the Consortium and Pharm-Eco
may be entitled to warrants to purchase 850,000 shares of Common Stock at
an exercise price ($20.52) equal to the weighted average market price of
the Company's Common Stock during the first 20 days of trading on any
stock exchange or in any over-the-counter market.
Item 12. Certain Relationships and Related Transactions
In addition to the transactions discussed in Item 6 under Liquidity and
Capital Resources, the following related party transactions are disclosed.
Pharmaceutical Products-Dications
The Company initially acquired its rights to the platform technology and
dicationic compounds developed by the Consortium pursuant to an Agreement, dated
January 15, 1997 (as amended, the "Consortium Agreement") among the Consortium,
Pharm-Eco and UNC on behalf of itself and the other academic institutions in the
Consortium. The Consortium Agreement commits each party to the agreement to
research, develop, finance the research and development of, manufacture and
market the technology and compounds owned by the Consortium and then licensed or
optioned to Pharm-Eco (the "Current Compounds") and licensed to the Company
pursuant to the Consortium Agreement, and all technology and compounds developed
by the Consortium after the date thereof through use of Immtech-sponsored
research funding or National Cooperative Drug Development grant funding made
available to the Consortium (the "Future Compounds" and, collectively with the
Current Compounds, the "Compounds"). The Consortium Agreement contemplates that
Immtech and Pharm-Eco, with respect to the Current Compounds, and Immtech and
UNC, with respect to Future Compounds, will enter into more comprehensive
license or assignments of the intellectual property rights held by Pharm-Eco and
the Consortium; and that Pharm-Eco and the Company will enter into an
arrangement relating to the manufacture of products derived from the Compounds.
Under the Consortium Agreement, Immtech agreed to use its best efforts to
complete an initial public offering ("IPO") of shares of its Common Stock with
gross proceeds of at least $10,000,000 or an alternative form of financing
("Alternative Financing") to raise at least $4,000,0000 by April 30, 1999.
Immtech completed its IPO on April 30, 1999. Under the Consortium Agreement, as
a result of the completion 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, (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 ($20.52) equal to the weighted average market price of the
Company's Common Stock during the first 20 days of trading on any stock exchange
or in any over-the-counter market, which warrants are exercisable upon the
occurrence of certain events and subject to redemption by Immtech; and (iv) upon
the filing by Immtech of an NDA or ANDA with the FDA with respect to any product
covered by the Agreement under current Compounds, may be required to issue an
aggregate of 150,000 shares
32
<PAGE>
of Common Stock collectively to Pharm-Eco or persons designated by Pharm-Eco,
which number of shares includes 100,000 shares of Common Stock to be issued to
the Consortium. In addition, Immtech will pay UNC an aggregate royalty of 5% of
net sales of Current Products and Future Products, except that the Royalty Rate
payable on any Compound developed at Duke University will be determined by
negotiation at the time such Compound is developed. In the event that Immtech
sublicenses its rights with respect to the Compounds, Immtech will pay UNC, in
addition to the royalty described above, 2.5% of all signing, milestone and
other non-royalty payments made to Immtech pursuant to the sublicense agreement
and will pay to Pharm-Eco 2.5% of all signing, milestone and other non-royalty
payments made to Immtech pursuant to the sublicense agreement.
As a result of the completion of the IPO: (a) Pharm-Eco is entitled to
designate for appointment one representative to Immtech's Board of Directors,
(b) UNC is entitled to designate one person as a non-voting observer of all
meetings and other proceedings of Immtech's Board of Directors, (c) Immtech has
begun making quarterly $100,000 Research Grants to UNC commencing April, 1999,
and continuing every three months thereafter until, at a minimum, April, 2002
and (d) Immtech will pay all costs to obtain, maintain and defend all patents
and patent applications relating to any Compounds or products. As of the filing
of this report, Pharm-Eco has not designated its representative to the Immtech
Board of Directors and UNC has not designated a non-voting observer.
Because the gross proceeds of the IPO were more than $10,000,000, both
Pharm-Eco and UNC will grant Immtech an exclusive worldwide license to use,
manufacture, have manufactured, promote, sell, distribute, or otherwise dispose
of any products based directly or indirectly on all of the Current Compounds and
Future Compounds.
In exchange for UNC's and Pharm-Eco's permission to extend the period of
time for Immtech to fulfill its obligations under the Agreement (such
obligations having been satisfied upon completion of the IPO), Immtech has (i)
provided financial support to Dr. Richard Tidwell's laboratory and research
covered by the agreement, (ii) paid fees and expenses charged UNC by UNC's
patent counsel during the period of the extension, (iii) replenished Dr.
Tidwell's UNC Department of Pathology & Laboratory Medicine trust fund of all
monies spent due to the delay in receipt of the Research Grants and (iv) agreed
to provide each of UNC and Pharm-Eco with 25,000 shares of Common Stock of
Immtech (included in the 611,250 shares described above).
Formation Of Nextera Therapeutics, Inc.
The Company has entered into a joint venture agreement with Franklin
Research Group ("Franklin"), pursuant to which the parties have formed a
corporation, NextEra Therapeutics, Inc. ("NextEra"), to develop therapeutic
products for treating cancer and related diseases. NextEra will focus initially
on the development of rmCRP. NextEra plans to fund the development of rmCRP
through Phase I, II and III clinical trials and early commercialization.
The joint venture agreement commits Franklin to invest a minimum of
$1,350,000 to
33
<PAGE>
fund the Phase I human clinical trials using rmCRP in return for 510,000 common
shares of NextEra. Immtech has contributed its rmCRP technology, including
relevant patents and know-how, as well as the use of its current laboratory
facilities, for 330,000 common shares of NextEra. NextEra is in the process of
preparing drug substance and documents for a safety study in 30-50 cancer
patients to be carried out at Northwestern University subject to availability of
funds. The focus of the study is to evaluate the safety and early efficacy of
rmCRP in patients with different types of cancer.
At the conclusion of the Phase I trial, the data for safety and efficacy
will be evaluated and Franklin will have 90 days to decide to continue the
development of rmCRP in human Phase II and III clinical trials. If Franklin
decides to proceed, it will invest a minimum of an additional $6,500,000 for
which it will receive an additional 160,000 common shares of NextEra. If
Franklin decides not to proceed, Immtech can purchase majority control of
NextEra by buying stock at $1.00/share until enough shares are purchased for
majority control. In addition, if Franklin elects to proceed, at its option,
Immtech can invest $1,625,000 of the $6,500,000 required of Franklin after the
Phase I trial, in which event Franklin will receive only 40,000 of the 160,000
shares to which it otherwise would be entitled.
In addition to the shares of NextEra that are held by Immtech and
Franklin, 33,000 shares are held by Dr. Potempa, Chief Scientific Officer of
NextEra, 100,000 shares will be reserved for issuance to employees of the
Company and Dr. Potempa has been granted an option to purchase 30,000 shares.
The Company has, on the fifth anniversary of NextEra, a "put" option of
NextEra stock. The exercise of the put will cause NextEra to purchase the stock
owned by Immtech at an appraised value, or at $5.00 per share, whichever is
lower. For purposes hereof, the "Put Period" shall be from July 8, 2003 through
and including August 6, 2003.
NextEra has funded the operation of Immtech's primary facility, including
compensatory costs related to work on rmCRP and overhead associated with the
project from July 1998 through December 1999. In addition, NextEra will continue
to fund scientific salaries and the maintenance of all patents that are part of
the intellectual property transferred to NextEra by Immtech.
Consulting Arrangements
RADE has been engaged by the Company since July 1998 to assist in various
aspects of the Company's ongoing operations, including analyzing the market
potential of the Company's products, developing a long term strategy for
exploitation of the Company's products and assisting in the negotiation of
agreements with other parties which performed services for the Company. Such
services have been provided on behalf of RADE by Messrs. James Ng, Eric Sorkin
and Ms. Cecilia Chan. As compensation for the services which RADE has provided,
in July and October of 1998, the Company granted to RADE warrants to purchase
225,000 shares of Common Stock and 750,000 shares of Common Stock, respectively,
exercisable at $6.47 per share, subject to certain vesting conditions. In
October 1998, in recognition of RADE's
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continued efforts, the Company waived the conditions to vesting of the RADE
warrants.
The Company may continue to consult with RADE from time to time. The
Company anticipates, however, that the net proceeds from the IPO will be
sufficient to enable the Company to hire additional management personnel,
eliminating the need to rely upon RADE to supplement its management personnel.
RADE has agreed not to sell any of their Shares, warrants or underlying
Shares for the twenty-four month period (the "Initial Twenty-four Month Period")
commencing April, 1999. RADE further has agreed not to sell or transfer any of
their Shares unless the sooner of (1) the Share market price, adjusted for
splits and like transactions, closes at or above $20.00 per share for a period
of 20 consecutive trading days or (2) April, 2004. The 20 consecutive trading
days above $20.00 per share has been met.
The Company nominated and elected Eric Sorkin as a director to the
Company's Board of Directors as a designee of RADE.
Criticare Systems, Inc.
Criticare Systems, Inc. ("Criticare"), a shareholder, has advanced
$597,722 and $590,000 to the Company as of June 30, 1998 and 1997, respectively.
These advances plus accrued interest of $66,474 have been converted into an
aggregate of 145,843 shares of Common Stock.
Criticare, the largest shareholder in Immtech at the time, agreed to the
Private Placement by New China Hong Kong Securities Limited ("NCHK"). In
connection with the Recapitalization and other related transactions, Criticare
obtained an option to license rmCRP as a therapy for treating sepsis. Sepsis is
a bacterial infection which quickly overwhelms the immune systems and can lead
to sudden death.
On June 25, 1998 Criticare agreed to pay Immtech $150,000 (which amount
Immtech chose to apply toward extinguishing outstanding indebtedness of Immtech
to a service vendor) in exchange for 86,207 shares of Common Stock and the
following additional consideration: (i) all of Immtech's right, title and
interest in the Patent #5,484,735, which is used in the development of a
hemoglobin A1c ("HbA1c") assay to minor diabetics for long term diet and glucose
control; (ii) all of Immtech's right, title and interest in the Patent
#5,702,904 which is used in the development of a carbohydrate deficient
transferring ("CDT") blood to screen individuals who abuse alcohol over a
sustained period of time; (iii) all of Immtech's rights under the Sigma
Diagnostics, Inc. ("Sigma") Agreement dated as of March 23, 1998, including up
to $110,000 in license fees payable by Sigma upon Sigma's exercise of options to
license technology to conduct research and evaluation; (iv) all of Immtech's
rights with respect to the License agreements between Immtech and Northwestern
University dated as of March 10, 1998 and as of October 27, 1994, the former
license agreement involving certain patent rights and know-how relating to
Immunoassay Constructs to Quantitate Glucosylated-Hemoglobin and other
Glucosylated Serum Proteins (NU 8403) and the latter license agreement involving
certain inventions in the field of Immunoassay for Identifying Alcoholics and
Monitoring Alcohol Consumption (NU 9134); (v)
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an exclusive, royalty-free, world-wide license under Patent 5,405,832 to
Potempa, granted as of April 11, 1995 to utilize rmCRP for the treatment of
sepsis, a life threatening disease caused by bacteria that overwhelm the body's
immune response; (vi) the right to sue for past infringement with respect to all
of the foregoing; and (vii) all other rights reasonably required to make, use,
sell and offer for sale products based on or related to the assigned assets.
Under the agreement, Criticare is not assuming any other liabilities or
obligations of any nature or kind, including any of Immtech's liabilities for
obligations to Northwestern University under the Northwestern NU 8403 License
and the Northwestern NU 9134 License that occurred prior to the closing.
Additionally for a period of three years following closing, Immtech has agreed
to make available to Criticare the part-time services of Dr. Potempa, Chief
Scientific Officer of NextEra, to consult with and advise Criticare regarding
research, testing, FDA compliance and approval, manufacture and
commercialization of the products or applications covered by the above
referenced patents. In exchange for Dr. Potempa's services, Criticare will
reimburse Immtech for Immtech's out-of-pocket salary and employee benefit plan
expenses, pro rata, with respect to Dr. Potempa. For a period of five years from
the time of closing, Criticare shall have the option of purchasing supplies of
rmCRP from Immtech. Criticare also may manufacture rmCRP. If Criticare does
decide to manufacture rmCRP, Immtech will provide all necessary know-how and
expertise to enable Criticare to manufacture the molecule in commercially viable
quantities. Subsequently the world-wide license referenced in (v) above has been
assigned to a third party. The assignee to date has not notified the Company
that they have been able to raise a minimum of $500,000 to fund the development
of a sepsis product and begin clinical trials. Immtech is evaluating its options
with respect to the technology. As of March 31, 1999, the Company owed Criticare
$50,000 for payments received from Sigma. The amount was subsequently paid in
May 1999.
In November 1997, Criticare advanced $120,000 on behalf of the Company in
order to fulfill a patent payment obligation of the Company to UNC. T. Stephen
Thompson, CEO of Immtech, reimbursed Criticare for the advancement of funds by
purchasing 20,425 shares of Criticare common stock (calculated using the average
of the high and low quotation price for Criticare's common stock on the NASDAQ
on the day of reimbursement). Criticare and Mr. Thompson have released Immtech
from any obligation to repay either of them with respect to the patent payment.
Other Related Party Transactions
In January 1998, in connection with the acquisition of a "public shell"
corporation that the Company was considering merging into, certain stockholders
of the Company, including T. Stephen Thompson, President and Chief Executive
Officer of the Company, made royalty payments to UNC on behalf of the Company in
the amount of $56,000. The payments were made on a voluntary basis in order to
preserve the Company's rights to the assets licensed from UNC pending completion
of the proposed merger between the Company and the "public shell" corporation.
Thereafter, the Board of Directors of the Company voted not to pursue the
proposed merger and the $56,000 advanced on behalf of the Company was deemed to
represent a contribution to the Company's additional paid-in capital.
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Other shareholders have converted interest free advances of $387,450 as of
June 30, 1998 into an aggregate of 196,824 shares of Common Stock.
Item 13. Exhibits, and Reports on Form 8-K
(A) EXHIBITS
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this report.
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K have been filed during the past quarter.
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.
By: /s/ T. Stephen Thompson
-----------------------------------
T. Stephen Thompson
Chief Executive Officer and President
Date: June 29, 2000
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Date
--------- ----
/s/ T. Stephen Thompson June 29, 2000
------------------------------------------------
T. Stephen Thompson
Chief Executive Officer, President and
Director
/s/ Gary C. Parks June 29, 2000
------------------------------------------------
Gary C. Parks
Treasurer, Secretary and Chief Financial Officer
(Principal Financial and Accounting Officer)
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/s/ Byron E. Anderson June 29, 2000
------------------------------------------------
Byron E. Anderson
Director
/s/ Emil Soika June 29, 2000
------------------------------------------------
Emil Soika
Director
/s/ Eric L. Sorkin June 29, 2000
------------------------------------------------
Eric L. Sorkin
Director
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EXHIBIT INDEX
Exhibit Description
3.1(4) Certificate of Incorporation of the Company
3.2(3) By-laws of the Company
4.1(2) Form of Common Stock Certificate
4.2(4) Warrant Agreement relating to the Underwriters' Warrants
4.3(4) Warrant Agreement dated July 24, 1998 by and between the Company and
RADE Management Corporation
4.4(4) Warrant Agreement dated October 12, 1998 by and between the Company
and RADE Management Corporation
4.5(3) Warrant Agreement dated July 24, 1998 by and between the Company and
The New China Hong Kong Securities Ltd.
10.1(3) Consulting Agreement dated May 15, 1998 by and between the Company
and RADE Management Corporation
10.2(3)* 1993 Stock Option and Award Plan
10.3(3) Letter Agreement dated January 15, 1997 between the Company,
Pharm-Eco Laboratories, Inc. and The University of North Carolina at
Chapel Hill, as amended
10.4(3) Letter Agreement dated May 29, 1998 between the Company and Franklin
Research Group, Inc.
10.5(3) Indemnification Agreement dated June 1, 1998 between the Company and
RADE Management Corporation
10.6(3) Letter Agreement dated June 24, 1998 between the Company and
Criticare Systems, Inc.
10.7(3) Letter Agreement dated June 25, 1998 between the Company and
Criticare Systems, Inc.
10.8(3) Material Transfer and Option Agreement dated March 23, 1998 by and
between the Company and Sigma Diagnostics, Inc.
10.9(3) License Agreement dated March 10, 1998 by and between the Company
and Northwestern University
10.10(3) License Agreement dated October 27, 1994 by and between the Company
and Northwestern University
10.11(3) Settlement Agreement and Release dated June 29, 1998 by and between
the Company and Brinks, Hofer, Gilson & Lione
10.12(3) Assignment of Intellectual Properties dated June 29, 1998 between
the Company and Criticare Systems, Inc.
10.13(3) Assignment Agreement dated June 26, 1998 by and between the Company
and Criticare Systems, Inc.
10.14(3) International Patent, Know-How and Technology License Agreement
dated June 29, 1998 by and between the Company and Criticare
Systems, Inc.
10.15(3) Assignment Agreement dated June 29, 1998 by and between the Company
and Criticare Systems, Inc.
10.16(3)* Employment Agreement dated 1992 by and between the Company and T.
Stephen
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Thompson
10.17(4) Amendment, dated January 15, 1999, to Letter Agreement between the
Company, Pharm-Eco Laboratories, Inc. and The University of North
Carolina at Chapel Hill, as amended
10.18(4) Funding and Research Agreement dated September 30, 1998 by and among
the Company, Next Era Therapeutics, Inc. and Franklin Research
Group, Inc.
10.19(1) Office lease dated August 26, 1999 by and between the Company and
Arthur J. Rogers & Co.
10.20(2) Amendment, dated March 8, 1999, to Letter Agreement between the
Company, Pharm-Eco Laboratories, Inc. and The University of North
Carolina at Chapel Hill, as amended
10.21(5) Two Year Plus 200% Lock-Up Agreement executed by James Ng
10.22(5)* Employment Agreement dated 1998 by and between NextEra and Lawrence
Potempa
27.1(1) Financial Data Schedule
* Management Contract
(1) Filed herewith.
(2) Incorporated by Reference to Amendment No. 2 to the Company's Registration
Statement on Form SB-2 (Registration Statement No. 333-64393), as filed
with the Securities and Exchange Commission on March 30, 1999.
(3) Incorporated by Reference to the Company's Registration Statement on Form
SB-2 (Registration Statement No 333-64393), as filed with the Securities
and Exchange Commission on September 28, 1998.
(4) Incorporated by Reference to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (Registration Statement No. 333-64393), as filed
with the Securities and Exchange Commission on February 11, 1999.
(5) Incorporated by reference to Exhibit 10.25 to Company's Form 10-KSB for
the Year ended March 31, 1999.
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