imm10q-080907.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
|X|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
For
the quarterly period ended June 30,
2007
|
or
|_|
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
For
the transition period from _______ to
_______
|
Commission
file number: 001-14907
|
|
IMMTECH
PHARMACEUTICALS, INC.
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
|
39-1523370
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
One
North End Avenue, New York, New
York 10282
|
(Address
of principal executive offices) (Zip
Code)
|
|
Registrant’s
telephone number: (212)
791-2911
|
|
Former
name, former address and former fiscal year, if changed since last
report
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 |_|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer.
Large
accelerated filer |_| Accelerated
filer |X| Non-accelerated
filer |_|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes |
| No |X|
As
of
August 7, 2007, 15,387,146 shares of the Registrant’s common stock, par value
$0.01 per share (“Common Stock”), were outstanding.
Table
of Contents
Page
PART
I
|
FINANCIAL
INFORMATION
|
2
|
|
Item
1
|
Financial
Statements (unaudited)
|
2
|
|
Item
2
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
22
|
|
Item
3
|
Quantitative
and Qualitative Disclosures about Market Risk
|
25
|
|
Item
4
|
Controls
and Procedures
|
25
|
PART
II
|
OTHER
INFORMATION
|
26
|
|
Item
1
|
Legal
Proceedings
|
26
|
|
Item
2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
26
|
|
Item
3
|
Defaults
Upon Senior Securities
|
26
|
|
Item
4
|
Submission
of Matters to a Vote of Security Holders
|
27
|
|
Item
5
|
Other
Information
|
27
|
PART
I. FINANCIAL
INFORMATION
|
Item
1.
|
Financial
Statements.
|
IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
(A
Development Stage Enterprise)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
March
31,
|
|
ASSETS
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
12,173,125
|
|
|
$ |
12,461,795
|
|
Restricted
funds on deposit
|
|
|
1,682,287
|
|
|
|
3,118,766
|
|
Other
current assets
|
|
|
503,773
|
|
|
|
98,627
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
14,359,185
|
|
|
|
15,679,188
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT - Net
|
|
|
121,882
|
|
|
|
140,263
|
|
|
|
|
|
|
|
|
|
|
PREPAID
RENT
|
|
|
3,290,508
|
|
|
|
3,309,240
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
193,108
|
|
|
|
15,477
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$ |
17,964,683
|
|
|
$ |
19,144,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
1,365,546
|
|
|
$ |
2,585,395
|
|
Accrued
expenses
|
|
|
421,151
|
|
|
|
375,925
|
|
Deferred
revenue
|
|
|
3,890,455
|
|
|
|
1,726,673
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
5,677,152
|
|
|
|
4,687,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
5,677,152
|
|
|
|
4,687,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $0.01 per share, 3,913,000 shares authorized
and
|
|
|
|
|
|
|
|
|
unissued
as of June 30, 2007 and March 31, 2007.
|
|
|
|
|
|
|
|
|
Series
A convertible preferred stock, par value $0.01 per share, stated
value
|
|
|
|
|
|
|
|
|
$25
per share, 320,000 shares authorized, 55,500 shares issued and
outstanding
|
|
|
|
|
|
|
|
|
as
of June 30, 2007 and March 31, 2007; aggregate liquidation
preference
|
|
|
|
|
|
|
|
|
of
$1,404,528 as of June 30, 2007.
|
|
|
1,404,528
|
|
|
|
1,425,283
|
|
Series
B convertible preferred stock, par value $0.01 per share, stated
value
|
|
|
|
|
|
|
$25
per share, 240,000 shares authorized, 13,464 shares issued and
outstanding
|
|
|
|
|
|
|
as
of June 30, 2007 and March 31, 2007; aggregate liquidation
preference
|
|
|
|
|
|
|
of
$341,902 as of June 30, 2007.
|
|
|
341,902
|
|
|
|
348,621
|
|
Series
C convertible preferred stock, par value $0.01 per share, stated
value
|
|
|
|
|
|
|
|
|
$25
per share, 160,000 shares authorized, 45,536 shares issued and
outstanding
|
|
|
|
|
|
|
|
|
as
of June 30, 2007 and March 31, 2007; aggregate liquidation
preference
|
|
|
|
|
|
|
|
|
of
$1,157,639 as of June 30, 2007.
|
|
|
1,157,639
|
|
|
|
1,180,345
|
|
Series
D convertible preferred stock, par value $0.01 per share, stated
value
|
|
|
|
|
|
|
|
|
$25
per share, 200,000 shares authorized, 117,200 shares issued and
outstanding
|
|
|
|
|
|
|
|
|
as
of June 30, 2007 and March 31, 2007; aggregate liquidation
preference
|
|
|
|
|
|
|
|
|
of
$2,967,085 as of June 30, 2007.
|
|
|
2,967,085
|
|
|
|
3,010,914
|
|
Series
E convertible preferred stock, par value $0.01 per share, stated
value
|
|
|
|
|
|
|
|
|
$25
per share, 167,000 shares authorized, 108,200 and 110,200 shares
issued
|
|
|
|
|
|
|
|
|
and
outstanding as of June 30, 2007 and March 31, 2007,
respectively;
|
|
|
|
|
|
|
|
|
aggregate
liquidation preference of $2,739,272 as of June 30, 2007.
|
|
|
2,739,272
|
|
|
|
2,831,116
|
|
Common
stock, par value $0.01 per share, 100,000,000 shares
|
|
|
|
|
|
|
|
|
authorized,
15,381,493 and 15,333,221 shares issued and outstanding
|
|
|
|
|
|
|
|
|
as
of June 30, 2007 and March 31, 2007, respectively.
|
|
|
153,815
|
|
|
|
153,332
|
|
Additional
paid-in capital
|
|
|
106,844,562
|
|
|
|
106,031,851
|
|
Deficit
accumulated during the developmental stage
|
|
|
(103,321,272 |
) |
|
|
(100,525,287 |
) |
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
12,287,531
|
|
|
|
14,456,175
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$ |
17,964,683
|
|
|
$ |
19,144,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to condensed consolidated financial statements
(unaudited).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
(A
Development Stage Enterprise)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
15,
|
|
|
|
|
|
|
|
|
|
1984
|
|
|
|
Three
Months Ended
|
|
|
(Inception)
to
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$ |
826,349
|
|
|
$ |
1,941,609
|
|
|
$ |
25,909,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,917,812
|
|
|
|
2,468,836
|
|
|
|
62,031,745
|
|
General
and administrative
|
|
|
1,717,288
|
|
|
|
2,219,855
|
|
|
|
65,694,645
|
|
Other
(litigation settlement)
|
|
|
|
|
|
|
|
|
|
|
(1,874,454 |
) |
Equity
in loss of joint venture
|
|
|
-
|
|
|
|
-
|
|
|
|
135,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
3,635,100
|
|
|
|
4,688,691
|
|
|
|
125,986,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(2,808,751 |
) |
|
|
(2,747,082 |
) |
|
|
(100,077,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
147,763
|
|
|
|
150,361
|
|
|
|
1,621,794
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
(1,129,502 |
) |
Loss
on sales of investment securities - net
|
|
|
|
|
|
|
|
|
|
|
(2,942 |
) |
Cancelled
offering costs
|
|
|
|
|
|
|
|
|
|
|
(584,707 |
) |
Gain
on extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
1,427,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
147,763
|
|
|
|
150,361
|
|
|
|
1,332,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(2,660,988 |
) |
|
|
(2,596,721 |
) |
|
|
(98,745,428 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CONVERTIBLE
PREFERRED STOCK DIVIDENDS AND CONVERTIBLE
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED
STOCK PREMIUM DEEMED DIVIDENDS
|
|
|
(134,997 |
) |
|
|
(142,808 |
) |
|
|
(6,945,743 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
REDEEMABLE
PREFERRED STOCK CONVERSION, PREMIUM
|
|
|
|
|
|
|
|
|
|
|
|
|
AMORTIZATION
AND DIVIDENDS
|
|
|
-
|
|
|
|
-
|
|
|
|
2,369,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$ |
(2,795,985 |
) |
|
$ |
(2,739,529 |
) |
|
$ |
(103,321,272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE
|
|
|
|
|
|
|
TO
COMMON STOCKHOLDERS:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(0.17 |
) |
|
$ |
(0.19 |
) |
Convertible
preferred stock dividends and convertible
|
|
|
|
|
|
|
|
|
preferred
stock premium deemed dividends
|
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED LOSS PER SHARE ATTRIBUTABLE
|
|
|
|
|
|
|
|
|
TO
COMMON STOCKHOLDERS
|
|
$ |
(0.18 |
) |
|
$ |
(0.20 |
) |
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES USED IN COMPUTING
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET LOSS PER SHARE
|
|
|
15,370,054
|
|
|
|
13,920,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to condensed consolidated financial statements
(unaudited).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
(A
Development Stage Enterprise)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
15,
|
|
|
|
|
|
|
|
|
|
1984
|
|
|
|
Three
Months Ended
|
|
|
(Inception)
to
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,660,988 |
) |
|
$ |
(2,596,721 |
) |
|
$ |
(98,745,428 |
) |
Adjustments
to reconcile net loss to net cash used in
|
|
|
|
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
recorded related to issuance of common stock,
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock options and warrants
|
|
|
492,793
|
|
|
|
676,080
|
|
|
|
31,185,763
|
|
Depreciation
and amortization of property and equipment
|
|
|
37,113
|
|
|
|
39,262
|
|
|
|
1,225,807
|
|
(Gain)/Loss
on disposal of fixed assets
|
|
|
|
|
|
|
|
|
|
|
5,982
|
|
Equity
in loss of joint venture
|
|
|
|
|
|
|
|
|
|
|
135,002
|
|
Loss
on sales of investment securities - net
|
|
|
|
|
|
|
|
|
|
|
2,942
|
|
Amortization
of debt discounts and issuance costs
|
|
|
|
|
|
|
|
|
|
|
134,503
|
|
Gain
on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(1,427,765 |
) |
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
current assets
|
|
|
(405,146 |
) |
|
|
(201,818 |
) |
|
|
(503,773 |
) |
Other
assets
|
|
|
(177,631 |
) |
|
|
399
|
|
|
|
(193,108 |
) |
Accounts
payable
|
|
|
(1,219,849 |
) |
|
|
418,266
|
|
|
|
1,693,081
|
|
Accrued
expenses
|
|
|
45,226
|
|
|
|
7,386
|
|
|
|
1,084,164
|
|
Deferred
revenue
|
|
|
2,163,782
|
|
|
|
3,707,297
|
|
|
|
3,890,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(1,724,700 |
) |
|
|
2,050,151
|
|
|
|
(61,512,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
|
|
|
|
(34,012 |
) |
|
|
(1,617,249 |
) |
Restricted
funds on deposit
|
|
|
1,436,479
|
|
|
|
(4,236,985 |
) |
|
|
(1,682,287 |
) |
Advances
to joint venture
|
|
|
|
|
|
|
|
|
|
|
(135,002 |
) |
Proceeds
from maturities of investment securities
|
|
|
|
|
|
|
|
|
|
|
1,800,527
|
|
Purchases
of investment securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,803,469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
1,436,479
|
|
|
|
(4,270,997 |
) |
|
|
(3,437,480 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
from stockholders and affiliates
|
|
|
|
|
|
|
|
|
|
|
985,172
|
|
Proceeds
from issuance of notes payable
|
|
|
|
|
|
|
|
|
|
|
2,645,194
|
|
Principal
payments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(218,119 |
) |
Payments
for debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
(53,669 |
) |
Payments
for extinguishment of debt
|
|
|
|
|
|
|
|
|
(203,450 |
) |
Net
proceeds from issuance of redeemable preferred stock
|
|
|
|
|
|
|
|
|
3,330,000
|
|
Net
proceeds from issuance of convertible preferred stock and
warrants
|
|
|
|
|
|
|
|
|
17,085,434
|
|
Payments
of convertible preferred stock dividends and for fractional shares
of
|
|
|
|
|
|
|
|
|
|
|
common
stock resulting from the conversions of convertible preferred
stock
|
|
|
(449 |
) |
|
|
(405 |
) |
|
|
(6,041 |
) |
Net
proceeds from issuance of common stock
|
|
|
|
|
|
|
(6 |
) |
|
|
53,312,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
capital contributed by stockholders
|
|
|
-
|
|
|
|
-
|
|
|
|
245,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) provided by financing
activities
|
|
|
(449 |
) |
|
|
(411 |
) |
|
|
77,122,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(288,670 |
) |
|
|
(2,221,257 |
) |
|
|
12,173,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
12,461,795
|
|
|
|
14,137,867
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$ |
12,173,125
|
|
|
$ |
11,916,610
|
|
|
$ |
12,173,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to condensed consolidated financial statements
(unaudited).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The
accompanying condensed consolidated financial statements have been prepared
by
Immtech Pharmaceuticals, Inc. and its subsidiaries (the “Company” or “Immtech”)
pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”) and, in the opinion of management, include all adjustments necessary for
a fair statement of results for each period shown (unless otherwise noted
herein, all adjustments are of a normal recurring nature). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such SEC
rules and regulations. The Company, with a fiscal year ending March
31, believes that the disclosures made are adequate to prevent the financial
information given from being misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company’s latest Annual Report on Form
10-K.
2.
|
COMPANY
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Description
of Business– Immtech Pharmaceuticals, Inc. (a development stage enterprise)
along with its subsidiaries, is a pharmaceutical company working to
commercialize drugs to treat infectious diseases, and the Company is expanding
its targeted markets by applying its proprietary pharmaceutical platform to
treat other disorders. Immtech has advanced clinical programs that
include new treatments for Pneumocystis pneumonia (“PCP”), malaria, and
trypanosomiasis (“African sleeping sickness”), and a well-defined, expanding
library of compounds targeting fungal infections, HCV and other serious
diseases. Immtech holds an exclusive worldwide license to certain
patents and patent applications related to technology and products derived
from
a proprietary pharmaceutical platform. The Company has worldwide rights to
commercialize and sublicense such patented technology, including a large library
of well-defined compounds from which a pipeline of therapeutic products could
be
developed.
The
Company holds worldwide patents and patent applications, and licenses and rights
to license technology, primarily from a scientific consortium that has granted
to the Company exclusive rights to commercialize products from, and license
rights to the technology. The scientific consortium includes
scientists from The University of North Carolina at Chapel Hill (“UNC-CH”),
Georgia State University (“Georgia State”), Duke University (“Duke University”)
and Auburn University (“Auburn University”) (collectively, the “Scientific
Consortium”). The Company is a development stage enterprise and,
since its inception on October 15, 1984, has engaged in research and
development programs, expanded its network of scientists and scientific advisors
and licensing technology agreements, and work to commercialize the aromatic
cation pharmaceutical technology platform (the Company acquired its rights
to
the aromatic cation technology platform in 1997 and promptly thereafter
commenced development of its current programs). The Company uses the
expertise and resources of strategic partners and third parties in a number
of
areas, including: (i) laboratory research, (ii) animal and
human trials and (iii) manufacture of pharmaceutical drugs.
The
Company does not have any products currently available for sale, and no products
are expected to be commercially available for sale until after March 31,
2008, if at all.
Since
inception, the Company has incurred accumulated net losses of approximately
$98,745,000. Management expects the Company will continue to incur
significant losses during the next several years as the Company continues
development activities, clinical trials and commercialization
efforts. In addition, the Company has various research and
development agreements with third parties and is dependent upon such parties’
abilities to perform under these agreements. There can be no
assurance that the Company’s activities will lead to the development of
commercially viable products. The Company’s operations to date have
consumed substantial amounts of cash. The negative cash flow from
operations is expected to continue in the foreseeable future. The
Company believes it will require substantial additional funds to commercialize
its drug candidates. The Company’s cash requirements may vary
materially from those now planned when and if the following become known:
results of research and development efforts, results of clinical testing,
responses to grant requests, formation and development of relationships with
strategic partners, changes in the focus and direction of development programs,
competitive and technological advances, requirements in the regulatory process
and other factors. Changes in circumstances in any of the above areas
may require the Company to allocate substantially more funds than are currently
available or than management intends to raise.
Management
believes the Company’s existing unrestricted cash and cash equivalents, and the
grants received or awarded and awaiting disbursement of, will be sufficient
to
meet the Company’s planned expenditures through at least the next twelve months,
although there can be no assurance the Company will not require additional
funds. Management may seek to satisfy future funding requirements
through public or private offerings of securities, by collaborative or other
arrangements with pharmaceutical or biotechnology companies or from other
sources or by issuance of debt.
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,
complete the development and commercialization of drug candidates and,
ultimately, to generate sufficient revenues for profitable
operations. Management’s plans for the forthcoming year, in addition
to normal operations, include continuing financing efforts, obtaining additional
research grants and entering into research and development agreements with
other
entities.
Principles
of Consolidation– The consolidated financial statements include the
accounts of Immtech Pharmaceuticals, Inc. and its wholly owned
subsidiaries. All intercompany balances and transactions have been
eliminated.
Cash
and Cash Equivalents – The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents. Cash and cash equivalents consist of an amount on
deposit at a bank and an investment in a money market mutual fund, stated at
cost, which approximates fair value.
Restricted
Funds on Deposit– Restricted funds on deposit consist of cash in two
accounts on deposit at a bank which are restricted for use in accordance with
(i) a clinical research subcontract agreement with UNC-CH and (ii) a
malaria drug development agreement with Medicines for Malaria Venture
(“MMV”).
Concentration
of Credit Risk– The Company maintains its cash in commercial
banks. Balances on deposit are insured by the Federal Deposit
Insurance Corporation (“FDIC”) up to specified limits.
Investment–
The Company accounts for its investment in NextEra Therapeutics, Inc.
(“NextEra”) on the equity method. As of June 30, 2007 and March 31,
2007, according to NextEra’s disclosure, the Company owned approximately 28% of
the issued and outstanding shares of NextEra common stock. The
Company has recognized an equity loss in NextEra to the extent of the basis
of
its investment, and the investment balance is zero as of June 30, 2007 and
March
31, 2007. 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
Company does not provide, and has not provided, any financial guarantees to
NextEra.
Property
and Equipment– Property and equipment are recorded at cost and depreciated
and amortized using the straight-line method over the estimated useful lives
of
the respective assets, ranging from three to five years. Leasehold
improvements are amortized over the lesser of the life of the related lease
or
their useful lives.
Prepaid
Rent– Prepaid rent relates to land use rights that the Company has recorded
at cost and amortized using the straight-line method over the estimated useful
life of fifty years.
Long-Lived
Assets– The Company periodically evaluates the carrying value of its
property and equipment. 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 asset which is measured by the difference between the fair
value and the carrying value of the asset.
Revenue
Recognition– Grants to perform research have been the Company’s primary
source of revenue and are generally granted to support research and development
activities for specific projects or drug candidates. Revenue related
to grants to perform research and development is recognized as earned based
on
the performance requirements of the specific grant. Upfront cash
payments from research and development grants are reported as deferred revenue
until such time as the research and development activities covered by the grant
are performed.
Revenue
from licensing arrangements is recorded when earned based on the performance
requirements of the contract. Nonrefundable upfront license fees, for
product candidates where the Company is providing continuing services related
to
product development, are deferred and recognized as revenue over the development
period or as the Company provides services required under the
agreement. The timing and amount of revenue the Company recognizes
from licenses, either from upfront fees or milestones where the Company is
providing continuing services related to product development, is dependent
upon
the Company’s estimates of filing dates. As product candidates move
through the development process, it is necessary to revise these estimates
to
consider changes to the product development cycle, such as changes in the
clinical development plan, regulatory requirements, or various other factors,
many of which may be outside of the Company’s control. The impact on
revenue changes in the Company’s estimates and the timing thereof, is recognized
prospectively over the remaining estimated product development
period.
Research
and Development Costs– Research and development costs are expensed as
incurred and include costs associated with research performed pursuant to
collaborative agreements. Research and development costs consist of
direct and indirect internal costs related to specific projects as well as
fees
paid to other entities that conduct certain research activities on the Company’s
behalf.
Income
Taxes– The Company accounts for income taxes using an asset and liability
approach. Deferred income tax assets and liabilities are computed
annually for differences between the
financial
statement and tax bases of assets and liabilities that will result in taxable
or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable
income. In addition, 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 loss and tax credit carry-forwards and other deferred
income tax assets.
Net
Income (Loss) Per Share– Net income (loss) per share is calculated in
accordance with Statement of Financial Accounting Standard (“SFAS”) No. 128,
“Earnings Per Share.” Basic net income (loss) and diluted net income
(loss) per share are computed by dividing net income (loss) attributable to
common stockholders by the weighted average number of common shares
outstanding. Diluted net income per share, when applicable, is
computed by dividing net income attributable to common stockholders by the
weighted average number of common shares outstanding increased by the number
of
potential dilutive common shares based on the treasury stock
method. Diluted net loss per share was the same as the basic net loss
per share for the three month periods ended June 30, 2007 and June 30, 2006,
as
none of the Company’s outstanding common stock options, warrants and the
conversion features of Series A, B, C, D and E Convertible Preferred Stock
were
dilutive.
Stock-Based
Compensation– Effective April 1, 2006, the Company adopted SFAS No. 123(R),
“Share-Based Payment,” using the modified prospective
method. SFAS No. 123(R) requires entities to recognize the cost of
employee services in exchange for awards of equity instruments based on the
grant-date fair value of those awards (with limited exceptions). The
cost, based on the estimated number of awards that are expected to vest, will
be
recognized over the period during which the employee is required to provide
the
services in exchange for the award. No compensation cost is
recognized for awards for which employees do not render the requisite
service. Upon adoption, the grant-date fair value of employee share
options and similar instruments was estimated using the Black-Scholes valuation
model. The Black-Scholes valuation requires the input of highly
subjective assumptions, including the expected life of the stock-based award
and
stock price volatility. The assumptions used are management’s best
estimates, but the estimates involve inherent uncertainties and the application
of management’s judgment. As a result, if other assumptions had been
used, the recorded and pro forma stock-based compensation expense could have
been materially different from that depicted in the financial
statements.
Fair
Value of Financial Instruments– The Company believes that the carrying
amount of its financial instruments (cash and cash equivalents, restricted
funds
on deposit, accounts payable and accrued expenses) approximates the fair value
of such instruments as of June 30, 2007 and March 31, 2007 based on the
short-term nature of the instruments.
Segment
Reporting– The Company is
a development stage
pharmaceutical company that operates as one segment.
Comprehensive
Loss– There were no differences between comprehensive loss and net loss for
the three month periods ended June 30, 2007 and 2006, respectively.
Use
of Estimates– The preparation of financial statements in conformity with
accounting principles generally accepted 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 materially from these estimates.
New
Accounting Standard – The Company adopted FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes,” (“FIN 48”) on April 1,
2007. The adoption of FIN 48 did not have an impact. At
the adoption date and as of June 30, 2007, the Company does not have a liability
for uncertain tax benefits. The Company does not presently expect any
reasonably possible material change to the estimated amount of liability
associated with its uncertain tax positions during the next twelve
months.
The
Company files income tax returns in the U.S. federal jurisdiction, and various
state jurisdictions. Periods subject to examination for the Company’s
federal tax return are the 1990 through 2006 tax years. In addition,
open tax years related to state jurisdictions remain subject to examination
but
are not considered material.
New
Accounting Standard – In September 2006, the FASB issued Statement No. 157
(“SFAS 157”), “Fair Value Measurements.” SFAS 157 defines
fair value, establishes a framework for measuring fair value in accordance
with
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 is effective for us in fiscal year
2009. The Company is currently assessing the impact of the adoption
of this statement.
New
Accounting Standard – In February 2007, the FASB issued Statement No. 159
(“SFAS 159”), “Fair Value Option for Financial Assets and Financial
Liabilities.” SFAS 159 establishes the irrevocable option to
elect to carry certain financial assets and liabilities at fair value, with
changes in fair value recorded in earnings. SFAS 159 is effective for
us in fiscal year 2009. The Company is currently assessing the impact
of the adoption of this statement.
On
January 7, 2004, the stockholders of the Company approved an increase in the
number of authorized common stock from 30 million to 100 million
shares. On June 14, 2004, the Company filed with the Secretary of
State of the State of Delaware an Amended and Restated Certificate of
Incorporation implementing, among other things, the approved authorized 70
million share common stock increase from 30 million to 100 million shares of
common stock.
Series
A Convertible Preferred Stock - On February 14, 2002, the Company filed a
Certificate of Designation with the Secretary of State of the State of Delaware
designating 320,000 shares of the Company’s 5,000,000 authorized shares of
preferred stock as Series A Convertible Preferred Stock, $0.01 par value, with
a
stated value of $25.00 per share. Dividends accrue at a rate of 6.0%
per annum on the $25.00 stated value per share and are payable semi-annually
on
April 15 and October 15 of each year while the shares are
outstanding. The Company has the option to pay the dividend either in
cash or in equivalent shares of common stock, as defined. Included in
the carrying value of the Series A Convertible Preferred Stock in the
accompanying condensed consolidated balance sheets are $17,028 and $37,783
of
accrued preferred stock dividends at June 30, 2007 and March 31, 2007,
respectively. Each share of Series A Convertible Preferred Stock may
be converted by the holder at any time into shares of our common stock at a
conversion rate determined by dividing the $25.00 stated value, plus any accrued
and unpaid dividends (the “Liquidation Price”), by a $4.42 conversion price (the
“Conversion Price A”), subject to certain adjustments, as defined in the Series
A Certificate of Designation. On April 15, 2007, the Company issued
6,308 shares of common stock and paid $87 in lieu of fractional common shares
as
dividends on the preferred shares. On
April
15,
2006, the Company issued 5,547 shares of common stock and paid $47 in lieu
of
fractional common shares as dividends on the preferred shares. During
the three month periods ended June 30, 2007 and 2006 there were no
conversions.
The
Company may at any time require that any or all outstanding shares of Series
A
Convertible Preferred Stock be converted into shares of the Company’s common
stock, provided that the shares of common stock into which the Series A
Convertible Preferred Stock are convertible are registered pursuant to an
effective registration statement, as defined. The number of shares of
common stock to be received by the holders of the Series A Convertible Preferred
Stock upon a mandatory conversion by the Company is determined by (i) dividing
the Liquidation Price by the Conversion Price A, provided that the closing
bid
price for the Company’s common stock exceeds $9.00 for 20 consecutive trading
days within 180 days prior to notice of conversion, as defined, or (ii) if
the
requirements of (i) are not met, the number of shares of common stock is
determined by dividing 110% of the Liquidation Price by the Conversion Price
A. The Conversion Price A is subject to certain adjustments, as
defined in the Series A Certificate of Designation.
The
Company may at any time, upon 30 days’ notice, redeem any or all outstanding
shares of the Series A Convertible Preferred Stock by payment of the Liquidation
Price to the holder of such shares, provided that the holder does not convert
the Series A Convertible Preferred Stock into shares of common stock during
the
30 day period. The Series A Convertible Preferred Stock has a
preference in liquidation equal to $25.00 per share, plus any accrued and unpaid
dividends, over the common stock and is pari passu with all other outstanding
series of preferred stock. Each issued and outstanding share of
Series A Convertible Preferred Stock shall be entitled to 5.6561 votes (subject
to adjustment) with respect to any and all matters presented to the Company’s
stockholders for their action or consideration. Except as provided by
law or by the provisions establishing any other series of preferred stock,
Series A Convertible Preferred stockholders and holders of any other outstanding
preferred stock shall vote together with the holders of common stock as a single
class.
Series
B Convertible Preferred Stock - On September 25, 2002, the Company filed a
Certificate of Designation with the Secretary of State of the State of Delaware
designating 240,000 shares of the Company’s 5,000,000 authorized shares of
preferred stock as Series B Convertible Preferred Stock, $0.01 par value, with
a
stated value of $25.00 per share. Dividends accrue at a rate of 8.0%
per annum on the $25.00 stated value per share and are payable semi-annually
on
April 15 and October 15 of each year while the shares are
outstanding. The Company has the option to pay the dividend either in
cash or in equivalent shares of common stock, as defined. Included in
the carrying value of the Series B Convertible Preferred Stock in the
accompanying condensed consolidated balance sheets are $5,302 and $12,021 of
accrued preferred stock dividends as of June 30, 2007 and March 31, 2007,
respectively. Each share of Series B Convertible Preferred Stock may
be converted by the holder at any time into shares of common stock at a
conversion rate determined by dividing the $25.00 stated value, plus any accrued
and unpaid dividends (the “Liquidation Price”), by a $4.00 conversion price (the
“Conversion Price B”), subject to certain adjustments, as defined in the Series
B Certificate of Designation. On April 15, 2007, the Company issued
2,040 shares of common stock and paid $30 in lieu of fractional common shares
as
dividends on the preferred shares. On April 15, 2006, the Company issued 1,703
shares of common stock and paid $31 in lieu of fractional common shares as
dividends on the preferred shares. During the three month
periods ended June 30, 2007 and 2006, there were no conversions.
The
Company may at any time require that any or all outstanding shares of Series
B
Convertible Preferred Stock be converted into shares of the Company’s common
stock, provided that the shares of common stock into which the Series B
Convertible Preferred Stock are convertible are registered pursuant to an
effective registration statement, as defined. The number of shares of
common stock
to
be
received by the holders of the Series B Convertible Preferred Stock upon a
mandatory conversion by the Company is determined by (i) dividing the
Liquidation Price by the Conversion Price B, provided that the closing bid
price
for the Company’s common stock exceeds $9.00 for 20 consecutive trading days
within 180 days prior to notice of conversion, as defined, or (ii) if the
requirements of (i) are not met, the number of shares of common stock is
determined by dividing 110% of the Liquidation Price by the Conversion Price
B. The Conversion Price B is subject to certain adjustments, as
defined in the Series B Certificate of Designation.
The
Company may at any time, upon 30 days’ notice, redeem any or all outstanding
shares of the Series B Convertible Preferred Stock by payment of the Liquidation
Price to the holder of such shares, provided that the holder does not convert
the Series B Convertible Preferred Stock into shares of common stock during
the
30 day period. The Series B Convertible Preferred Stock has a
preference in liquidation equal to $25.00 per share, plus any accrued and unpaid
dividends, over the common stock and is pari passu with all other outstanding
series of preferred stock. Each issued and outstanding share of
Series B Convertible Preferred Stock shall be entitled to 6.25 votes (subject
to
adjustment) with respect to any and all matters presented to the Company’s
stockholders for their action or consideration. Except as provided by
law or by the provisions establishing any other series of preferred stock,
Series B Convertible Preferred stockholders and holders of any other outstanding
preferred stock shall vote together with the holders of common stock as a single
class.
Series
C Convertible Preferred Stock - On June 6, 2003, the Company filed a
Certificate of Designation with the Secretary of State of the State of Delaware
designating 160,000 shares of the Company’s 5,000,000 authorized shares of
preferred stock as Series C Convertible Preferred Stock, $0.01 par value, with
a
stated value of $25.00 per share. Dividends accrue at a rate of 8.0%
per annum on the $25.00 stated value per share and are payable semi-annually
on
April 15 and October 15 of each year while the shares are
outstanding. The Company has the option to pay the dividend either in
cash or in equivalent shares of common stock, as defined. Included in
the carrying value of the Series C Convertible Preferred Stock in the
accompanying condensed consolidated balance sheets are $19,239 and $41,945
of
accrued preferred stock dividends as of June 30, 2007 and March 31, 2007,
respectively. Each share of Series C Convertible Preferred
Stock may be converted by the holder at any time into shares of common stock
at
a conversion rate determined by dividing the $25.00 stated value, plus any
accrued and unpaid dividends (the “Liquidation Price”), by a $4.42 conversion
price (the “Conversion Price C”), subject to certain adjustments, as defined in
the Series C Certificate of Designation. On April 15, 2007, the
Company issued 6,900 shares of common stock and paid $99 in lieu of fractional
common shares as dividends on the preferred shares. On April 15, 2006, the
Company issued 5,761 shares of common stock and paid $95 in lieu of fractional
common shares as dividends on the preferred
shares. During the three month periods ended June 30,
2007 and 2006, there were no conversions.
The
Company may at any time require that any or all outstanding shares of Series
C
Convertible Preferred Stock be converted into shares of the Company’s common
stock, provided that the shares of common stock into which the Series C
Convertible Preferred Stock are convertible are registered pursuant to an
effective registration statement, as defined. The number of shares of
common stock to be received by the holders of the Series C Convertible Preferred
Stock upon a mandatory conversion by the Company is determined by (i) dividing
the Liquidation Price by the Conversion Price C provided that the closing bid
price for the Company’s common stock exceeds $9.00 for 20 consecutive trading
days within 180 days prior to notice of conversion, as defined, or (ii) if
the
requirements of (i) are not met, the number of shares of common stock is
determined by dividing 110% of the Liquidation Price by the Conversion Price
C. The Conversion Price C is subject to certain adjustments, as
defined in the Series C Certificate of Designation.
The
Company may at any time, upon 30 days’ notice, redeem any or all outstanding
shares of the Series C Convertible Preferred Stock by payment of the Liquidation
Price to the holder of such shares, provided that the holder does not convert
the Series C Convertible Preferred Stock into shares of common stock during
the
30 day period. The Series C Convertible Preferred Stock has a preference in
liquidation equal to $25.00 per share, plus any accrued and unpaid dividends,
over the common stock and is pari passu with all other outstanding series of
preferred stock. Each issued and outstanding share of Series C
Convertible Preferred Stock shall be entitled to 5.6561 votes (subject to
adjustment) with respect to any and all matters presented to the Company’s
stockholders for their action or consideration. Except as provided by
law or by the provisions establishing any other series of preferred stock,
Series C Convertible Preferred stockholders and holders of any other outstanding
preferred stock shall vote together with the holders of common stock as a single
class.
Series
D Convertible Preferred Stock – On January 15, 2004, the Company filed
a Certificate of Designation with the Secretary of State of the State of
Delaware designating 200,000 shares of the Company’s 5,000,000 authorized shares
of preferred stock as Series D Convertible Preferred Stock, $0.01 par value,
with a stated value of $25.00 per share. Dividends accrue at a rate
of 6.0% per annum on the $25.00 stated value per share and are payable
semi-annually on April 15 and October 15 of each year while the shares
are outstanding. The Company has the option to pay the dividend
either in cash or in equivalent shares of common stock, as defined. Included
in
the carrying value of the Series D Convertible Preferred Stock in the
accompanying condensed consolidated balance sheets are $37,085 and $80,914
of
accrued preferred stock dividends as of June 30, 2007 and March 31, 2007,
respectively. Each share of Series D Convertible Preferred Stock may
be converted by the holder at any time into shares of common stock at a
conversion rate determined by dividing the $25.00 stated value, plus any accrued
and unpaid dividends (the “Liquidation Price”), by a $9.00 conversion price (the
“Conversion Price D”), subject to certain adjustments, as defined in the Series
D Certificate of Designation. On April 15, 2007, the Company issued 13,334
shares of common stock and paid $95 in lieu of fractional common shares as
dividends on the preferred shares. On April 15, 2006, the Company
issued 11,134 shares of common stock and paid $79 in lieu of fractional common
shares as dividends on the preferred shares. During the three month
periods ended June 30, 2007 and 2006, there were no conversions.
The
Company may at any time require that any or all outstanding shares of Series
D
Convertible Preferred Stock be converted into shares of our common stock,
provided that the shares of common stock into which the Series D Convertible
Preferred Stock are convertible are registered pursuant to an effective
registration statement, as defined. The number of shares of common
stock to be received by the holders of the Series D Convertible Preferred Stock
upon a mandatory conversion by us is determined by (i) dividing the Liquidation
Price by the Conversion Price D provided that the closing bid price for the
Company’s common stock exceeds $18.00 for 20 consecutive trading days within 180
days prior to notice of conversion, as defined, or (ii) if the requirements
of
(i) are not met, the number of shares of common stock is determined by dividing
110% of the Liquidation Price by the Conversion Price D. The
Conversion Price D is subject to certain adjustments, as defined in the
Certificate of Designation.
The
Series D Convertible Preferred Stock has a preference in liquidation equal
to
$25.00 per share, plus any accrued and unpaid dividends, over the common stock
and is pari passu with all other outstanding series of preferred
stock. Each issued and outstanding share of Series D Convertible
Preferred Stock shall be entitled to 2.7778 votes (subject to adjustment) with
respect to any and all matters presented to the Company’s stockholders for their
action or consideration. Except as provided by law or by the provisions
establishing any other series of preferred stock, Series D Convertible Preferred
stockholders and holders of any other outstanding preferred stock shall vote
together with the holders of common stock as a single class.
Series
E Convertible Preferred Stock–On December 13, 2005, the Company filed a
Certificate of Designation with the Secretary of State of the State of Delaware
designating 167,000 shares of the Company’s 5,000,000 authorized shares of
preferred stock as Series E Convertible Preferred Stock, $0.01 par value, with
a
stated value of $25.00 per share. Dividends accrue at a rate of 6.0%
per annum on the $25.00 stated value per share and are payable semi-annually
on
April 15 and October 15 of each year while the shares are
outstanding. The Company has the option to pay the dividend either in
cash or in equivalent shares of common stock, as defined. Included in
the carrying value of the Series E Convertible Preferred Stock in the
accompanying condensed consolidated balance sheets are $34,272 and $76,116
of
accrued preferred stock dividends as of June 30, 2007 and March 31, 2007,
respectively. Each share of Series E Convertible Preferred Stock may
be converted by the holder at any time into shares of common stock at a
conversion rate determined by dividing the $25.00 stated value, plus any accrued
and unpaid dividends (the “Liquidation Price”), by a $7.04 conversion price (the
“Conversion Price E”), subject to certain adjustments, as defined in the Series
E Certificate of Designation. On April 15, 2007, the Company issued
12,531 shares of common stock and paid $132 in lieu of fractional common shares
as dividends on the preferred shares. On April 15, 2006, the Company issued
8,819 shares of common stock and paid $135 in lieu of fractional common shares
as dividends on the preferred shares. During the three month period
ended June 30, 2007, a preferred shareholder converted 2,000 shares of Series
E
Convertible Preferred Stock, including accrued dividends, for 7,159 shares
of
common stock. During the three month period ended June 30, 2006,
certain preferred stockholders converted 46,000 shares of Series E Convertible
Preferred Stock, including accrued dividends, for 163,847 shares of common
stock.
The
Company may at any time after December 1, 2006, require that any or all
outstanding shares of Series E Convertible Preferred Stock be converted into
shares of our common stock, provided that the shares of common stock into which
the Series E Convertible Preferred Stock are convertible are registered pursuant
to an effective registration statement, as defined. The number of
shares of common stock to be received by the holders of the Series E Convertible
Preferred Stock upon a mandatory conversion by us is determined by (i) dividing
the Liquidation Price by the Conversion Price E provided that the closing bid
price for the Company’s common stock exceeds $10.56 for 20 out of 30 consecutive
trading days within 180 days prior to notice of conversion, as defined, or
(ii)
if the requirements of (i) are not met, the number of shares of common stock
is
determined by dividing 110% of the Liquidation Price by the Conversion Price
E. The Conversion Price E is subject to certain adjustments, as
defined in the Certificate of Designation.
The
Series E Convertible Preferred Stock has a preference in liquidation equal
to
$25.00 per share, plus any accrued and unpaid dividends, over the common stock
and is parri passu with all other outstanding series of preferred
stock. Each issued and outstanding share of Series E Convertible
Preferred Stock is entitled to 3.5511 votes (subject to adjustment) with respect
to any and all matters presented to the Company’s stockholders for their action
or consideration. Except as provided by law or by the provisions establishing
any other series of preferred stock, Series E Convertible Preferred stockholders
and holders of any other outstanding preferred stock shall vote together with
the holders of common stock as a single class.
The
Company will, on December 13, 2008, at the Company’s election, (i) redeem the
Series E Convertible Preferred Stock plus any accrued and unpaid interest for
cash, (ii) convert the Series E Convertible Preferred Stock and any accrued
and
unpaid interest into common stock, or (iii) redeem and convert the Series E
Convertible Preferred Stock in any combination of (i) or (ii).
Common
Stock–On May 26, 2006, restricted shares in the amount of 5,000 shares of
common stock were issued and expensed with a grant date value of approximately
$36,000 to Tulane University as
part
of
the Tulane License Agreement granting to us an exclusive license to develop,
manufacture and commercialize a group of four – aminoquinoline drugs for
treatment, prophylaxis and diagnosis of infectious diseases.
On
May
26, 2006, restricted shares in the amount of 5,000 shares of common stock were
issued and expensed with a grant date value of approximately $36,000 to T.
Stephen Thompson as part of his retirement and consulting agreement dated May
1,
2006.
Warrants–
No warrants were exercised in the three month periods ended June 30, 2007 and
2006.
Incentive
Stock Programs – At the stockholders’ meeting held November 12, 2004, the
stockholders approved the second amendment to the 2000 Stock Incentive Plan
which increased the number of shares of common stock reserved for issuance
from
1,100,000 shares to 2,200,000 shares. Options granted under the 2000
Stock Incentive Plan that expire are available to be reissued. During
the three month periods ended June 30, 2007 and 2006, 81,000 and 9,166 options,
respectively, previously granted under the 2000 Stock Incentive Plan expired
and
were available to be reissued. During the three month periods ended
June 30, 2007 and 2006, the Company issued 7,500 and 56,000 options,
respectively, to purchase shares of common stock. Additionally, the
Company granted 5,000 restricted stock awards in the period ended June 30,
2006. As of June 30, 2007, there were a total of 513,013 shares
available for grant. The purchase price of shares must be at least equal to
the
fair market value of the common stock on the date of grant, and the maximum
term
of an option is 10 years. The options generally vest over periods
ranging from 0 to 4 years.
The
Company recognized approximately $493,000 and $605,000 of compensation cost
for
the three month periods ended June 30, 2007 and 2006, respectively. During
the
three month period ended June 30, 2006, 32,263 options were exercised on a
cashless basis resulting in 30,349 common shares being issued with an exercise
price of $0.47
The
fair
value of each stock option award is estimated on the date of grant using the
Black-Scholes valuation model. The Company uses historical data
regarding stock option exercise behaviors to estimate the expected term of
options granted (based on the period of time that options granted are expected
to be outstanding). Expected implied volatility is based on the
volatility of the Company’s exchange traded options for the Company’s common
stock. The risk-free interest rate is based on the U.S. treasury
security rate in effect over the estimated life of the option. There is no
dividend yield. The following weighted-average assumptions were used
in calculating the fair value of stock options granted during the three month
periods ended June 30, 2007 and 2006.
|
Three
Months Ended June 30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Risk
free interest rate |
|
5.11% |
|
4.89% |
|
Average
life of options (years) |
|
10.0 |
|
6.0 |
|
Volatility |
|
75% |
|
69% |
|
Dividend
yield |
|
-0- |
|
-0- |
|
A
summary
of stock option activity as of and for the three month period ended June 30,
2007, is presented below:
|
|
Shares
|
|
|
Exercise
Price Per Share (*)
|
|
|
Remaining
Contractual Term(*) in Years
|
|
Outstanding
at March 31, 2007
|
|
|
1,800,609
|
|
|
$ |
8.92
|
|
|
|
|
Granted
|
|
|
7,500
|
|
|
|
6.67
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(81,000 |
) |
|
|
10.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(*)
Weighted-average
The
weighted-average grant date fair value of options granted during the three
month
periods ended June 30, 2007 and 2006 was $6.67 and $7.35,
respectively. The intrinsic value of options exercised during the
three month period ended June 30, 2006 was approximately $238,000. No
options were exercised during the three month period ended June 30,
2007. The intrinsic value of stock options vested during the three
month periods ended June 30, 2007 and 2006 was approximately $2,123,000 and
$1,597,000, respectively. The intrinsic value of stock options
outstanding during the three month periods ended June 30, 2007 and 2006 was
approximately $2,774,000 and $1,598,000, respectively.
As
of
June 30, 2007, there was approximately $1,868,000 of unrecognized compensation
cost related to non-vested stock option compensation arrangements granted under
the 2000 Plan that is expected to be recognized as a charge to earnings over
a
weighted-average period of 0.9 years. As of June 30, 2007, 1,319,286
options have vested or are expected to vest with a weighted-average exercise
price of $10.82, a weighted-average remaining life of 6.67 years, and with
an
intrinsic value of approximately $2,600,000.
4.
|
COLLABORATIVE
RESEARCH AND DEVELOPMENT
ACTIVITIES
|
The
Company earns revenue under various collaborative research
agreements. Under the terms of these arrangements, the Company
generally has agreed to perform best efforts research and development and,
in
exchange, the Company may receive advanced cash funding, an allowance for
management overhead, and may also earn additional fees for the attainment of
certain milestones.
The
Company initially acquired its rights to the aromatic cation technology platform
developed by a consortium of universities consisting of UNC-CH, Georgia State
University, Duke University and Auburn University pursuant to an agreement,
dated January 15, 1997 (as amended, the “Consortium Agreement”) among the
Company, UNC-CH and a third-party (to which each of the other members of the
scientific consortium shortly thereafter joined) (the “original
licensee”). The Consortium Agreement commits the parties to
collectively research, develop, finance the research and development of,
manufacture and market both the technology and compounds owned by the scientific
consortium and previously licensed or optioned to the original licensee and
licensed to the Company in accordance with the Consortium Agreement
(the “Current Compounds”), and all technology and compounds developed by the
scientific consortium after January 15, 1997, through use of Company-sponsored
research funding or National Cooperative Drug Development grant
funding
made available to the scientific consortium (the “Future Compounds” and,
collectively with the Current Compounds, the “Compounds”).
The
Consortium Agreement contemplated that upon the completion of our initial public
offering (“IPO”) of shares of its common stock with gross proceeds of at least
$10,000,000 by April 30, 1999, the Company, with respect to the Current
Compounds, and UNC-CH, (on behalf of the Scientific Consortium), with respect
to
Current Compounds and Future Compounds, would enter into license agreements
for
the intellectual property rights relating to the Compounds pursuant to which
the
Company would pay royalties and other payments based on revenues received for
the sale of products based on the Compounds.
The
Company completed an IPO on April 26, 1999, with gross proceeds in excess of
$10,000,000 thereby earning a worldwide license and exclusive rights to
commercially use, manufacture, have manufactured, promote, sell, distribute,
or
otherwise dispose of any products based directly or indirectly on all of the
Current Compounds and Future Compounds.
As
a
result of the closing of the IPO, the Company issued an aggregate of 611,250
shares of common stock, of which 162,500 shares were issued to the Scientific
Consortium and 448,750 shares were issued to the original licensee or persons
designated by the original licensee.
As
contemplated by the Consortium Agreement, on January 28, 2002, the Company
entered into a License Agreement with the Scientific Consortium whereby the
Company received the exclusive license to commercialize the aromatic cation
technology platform and compounds developed or invented by one or more of the
Consortium scientists after January 15, 1997 and which also incorporated into
such License Agreement the Company’s existing license with the Scientific
Consortium with regard to the Current Compounds. Also pursuant to the
Consortium Agreement, the original licensee transferred to the Company the
worldwide license and exclusive right to commercially use, manufacture, have
manufactured, promote, sell, distribute or otherwise dispose of any and all
products based directly or indirectly on aromatic cations developed by the
Scientific Consortium on or prior to January 15, 1997 and previously licensed
(together with related technology and patents) to the third-party.
The
Consortium Agreement provides that the Company is required to pay to UNC-CH
on
behalf of the Scientific Consortium reimbursement of patent and patent-related
fees, certain milestone payments and royalty payments based on revenue derived
from the Scientific Consortium’s aromatic cation technology
platform. Each month on behalf of the inventor scientist or
university, as the case may be, UNC-CH submits an invoice to the Company for
payment of patent-related fees related to current compounds or future compounds
incurred prior to the invoice date. The Company is also required to
make milestone payments in the form of the issuance of 100,000 shares of its
common stock to the Consortium when it files its first initial New Drug
Application (“NDA”) or an Abbreviated New Drug Application (“ANDA”) based on
Consortium technology. The Company is also required to pay to UNC-CH
on behalf of the Scientific Consortium (other than Duke University)
(i) royalty payments of up to 5% of our net worldwide sales of “current
products” and “future products” (products based directly or indirectly on
current compounds and future compounds, respectively) and (ii) a percentage
of any fees we receive under sublicensing arrangements. With respect
to products or licensing arrangements emanating from Duke University technology,
the Company is required to negotiate in good faith with UNC-CH (on behalf of
Duke University) royalty, milestone or other fees at the time of such event,
consistent with the terms of the Consortium Agreement.
Under
the
License Agreement, the Company must also reimburse the cost of obtaining patents
and assume liability for future costs to maintain and defend patents so long
as
the Company chooses to retain the license to such patents.
During
the three month periods ended June 30, 2007 and 2006, the Company expensed
approximately $192,000 and $242,000, respectively, of payments to UNC-CH and
certain other Scientific Consortium universities for patent related costs and
other contracted research. Included in accounts payable
as of June 30, 2007 and March 31, 2007, were approximately $261,000, and
$174,000, respectively, due to UNC and certain other Scientific Consortium
universities.
In
November 2000, The Bill & Melinda Gates Foundation (“Foundation”) awarded a
$15,114,000 grant to UNC to develop new drugs to treat Human Trypanosomiasis
(African sleeping sickness) and leishmaniasis. On March 29, 2001,
UNC-CH entered into a clinical research subcontract agreement with the Company,
whereby the Company was to receive up to $9,800,000, subject to certain terms
and conditions, over a five year period to conduct certain clinical and research
studies related to the Foundation grant.
In
April
2003, the Foundation awarded a supplemental grant of approximately $2,700,000
to
UNC-CH for the expansion of phase IIB/III clinical trials to treat human
Trypanosomiasis (African sleeping sickness) and improved manufacturing
processes. The Company has received, pursuant to the clinical
research subcontract with UNC-CH, inclusive of its portion of the supplemental
grant, a total amount of funding of approximately $11,700,000. Grant
funds paid in advance of the Company’s delivery of services are treated as
restricted funds and must be segregated from other funds and used only for
the
purposes specified. In March 2006, the Company amended and restated the clinical
research subcontract with UNC-CH and UNC-CH in turn obtained an expanded funding
commitment for the Company of approximately $13.6 million from the
Foundation. Under the amended and restated agreement, the Company
received on May 24, 2006 the first payment of approximately $5,649,000 of the
five year approximately $13,601,000 contract.
Approximately
$678,000 and $829,000 was utilized for clinical and research purposes conducted
and expensed during the three months ended June 30, 2007 and 2006,
respectively. The Company has recognized revenues of approximately
$678,000 and $1,759,000 during the three months ended June 30, 2007 and 2006,
respectively. The remaining amount (approximately $1,048,000 as of
June 30, 2007) has been deferred and will be recognized as revenue over the
term
of the agreement as the services are performed.
On
November 26, 2003, the Company entered into a testing agreement (“Testing
Agreement”) with Medicines for Malaria Venture (“MMV”), a foundation established
in Switzerland, and UNC, pursuant to which the Company, with the support of
MMV
and UNC-CH, pursuant to which the Company, with the support of MMV and UNC-CH,
conducted a proof of concept study of the dicationic first drug candidate
pafuramidine for the treatment of malaria.
Under
the
terms of the Testing Agreement, MMV committed to pay for human clinical trials
and, subject to certain milestones, regulatory preparation and filing costs
for
the approvals to market pafuramidine to treat malaria. In return for
MMV’s funding, the Company is required, when selling malaria drugs derived from
this research into “malaria-endemic countries,” as defined, to sell such drugs
at affordable prices. An affordable price is defined in the Testing
Agreement to mean a price not to be less than the cost to manufacture and
deliver the drugs plus administrative overhead costs (not to exceed 10% of
the
cost to manufacture) and a modest profit. There are no price constraints on
product sales into non-malaria-endemic countries. The Company must,
however, pay to MMV a royalty not to exceed 7% of net sales, as defined, on
product sales into non-malaria-endemic
countries,
until the amount funded under the Testing Agreement and amounts funded under
a
related discovery agreement between MMV and UNC-CH is refunded to MMV at face
value. The Company and MMV agreed to terminate the Testing Agreement
effective as of February 10, 2006. The Company has received
approximately $5,636,000 under this contract.
The
Company recognized revenues of approximately $0 and $182,000 during the three
month periods ended June 30, 2007 and 2006, respectively, for expenses incurred
related to activities within the scope of the Testing Agreement.
On
June
8, 2007, the Company entered into an exclusive licensing agreement pursuant
to
which we have licensed to Par Pharmaceutical Companies, Inc. (“Par”)
commercialization rights in the United States of America to pafuramidine for
the
treatment of PCP in AIDS patients. The Company and Par may also collaborate
on
efforts to develop pafuramidine as a preventative therapy for patients at risk
of developing PCP, including people living with HIV, cancer and other
immunosuppressive conditions.
In
return, we received an initial payment of $3 million. Par will also
pay us as much as $29 million in development milestones if pafuramidine advances
through ongoing Phase III clinical trials and FDA regulatory review and
approval. In addition to royalties on sales, we may receive up to
$115 million in additional milestone payments on future sales and will retain
the right to co-market pafuramidine in the United States of
America. We have also granted Par a right of first offer to enter
into a license agreement with us if we determine that pafuramidine can be used
for the treatment and/or prophylaxis of malaria.
*
* * * *
*
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Forward
Looking Statements
Certain
statements contained in this quarterly report and in the documents incorporated
by reference herein constitute “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995. All
statements other than statements of historical fact may be deemed to be
forward-looking statements. Forward-looking statements frequently,
but not always, use the words “may”, “intends”, “plans”, “believes”,
“anticipates” or “expects” or similar words and may include statements
concerning our strategies, goals and plans. Forward-looking
statements involve a number of significant risks and uncertainties that could
cause our actual results or achievements or other events to differ materially
from those reflected in such forward-looking statements. Such factors
include, among others described in this quarterly report, the following: (i)
we
are in an early stage of product development, (ii) the possibility that
favorable relationships with collaborators cannot be established or, if
established, will be abandoned by the collaborators before completion of product
development, (iii) the possibility that we or our collaborators will not
successfully develop any marketable products, (iv) the possibility that advances
by competitors will cause our product candidates not to be viable, (v)
uncertainties as to the requirement that a drug product be found to be safe
and
effective after extensive clinical trials and the possibility that the results
of such trials, if completed, will not establish the safety or efficacy of
our
drug product candidates, (vi) risks relating to requirements for approvals
by
governmental agencies, such as the Food and Drug Administration, before products
can be marketed and the possibility that such approvals will not be obtained
in
a timely manner or at all or will be conditioned in a manner that would impair
our ability to market our product candidates successfully, (vii) the risk that
our patents could be invalidated or narrowed in scope by judicial actions or
that our technology could infringe upon the patent or other intellectual
property rights of third parties, (viii) the possibility that we will not be
able to raise adequate capital to fund our operations through the process of
commercializing a successful product or that future financing will be completed
on unfavorable terms, (ix) the possibility that any products successfully
developed by us will not achieve market acceptance and (x) other risks and
uncertainties that may not be described herein. We undertake no
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
Results
of Operations
With
the
exception of certain research funding agreements, license agreements and certain
grants, we have not generated any revenue from operations. For the
period from inception (October 15, 1984) to June 30, 2007, we incurred
cumulative net losses of approximately $98,745,000. We have incurred
additional losses since such date and we expect to incur additional operating
losses for the foreseeable future. We expect that our cash sources
for at least the next year will be limited to:
|
·
|
payments
from foundations and other collaborators under arrangements that
may be
entered into in the future;
|
|
·
|
payments
from license agreement milestones;
|
|
·
|
grants
from the United States government and other governments and entities;
and
|
|
·
|
the
issuance of securities or borrowing of
funds.
|
The
timing and amounts of grant and payment 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.
Three
Month Period Ended June 30, 2007 Compared with the Three Month Period Ended
June 30, 2006.
Revenues
under collaborative research and development, and license agreements were
approximately $826,000 and $1,942,000 for the three month periods ended June
30,
2007 and June 30, 2006, respectively. For the three month period
ended June 30, 2007, we recognized revenues of approximately $678,000 related
to
a clinical research subcontract agreement between us and The University of
North
Carolina at Chapel Hill (“UNC-CH”) and approximately $148,000 related to the Par
Pharmaceutical license agreement, while for the three month period ended June
30, 2006, revenues recognized of approximately $1,759,000 related to the
abovementioned UNC-CH clinical research subcontract and $183,000 related to
a
grant from Medicines for Malaria Venture (“MMV”) to fund clinical studies and
licensure of pafuramidine (“DB289”) for treatment of malaria which has since
lapsed.
The
clinical research subcontract agreement relates to a grant from a philanthropic
foundation (the “Foundation”) to UNC-CH to develop new drugs to treat
trypanosomiasis (African sleeping sickness) and leishmaniasis. MMV
also receives funding from the Foundation. Grant and research and
development agreement revenue is recognized as completed under the terms of
the
respective agreements, according to Company estimates. Grant and
research and development funds received prior to completion under the terms
of
the respective agreements are recorded as deferred revenues.
Revenue
from licensing arrangements is recorded when earned based on the performance
requirements of the contract. Nonrefundable upfront license fees, for
product candidates where the Company is providing continuing services related
to
product development, are deferred and recognized as revenue over the development
period or as the Company provides services required under the
agreement. The timing and amount of revenue the Company recognizes
from licenses, either from upfront fees or milestones where the Company is
providing continuing services related to product development, is dependent
upon
the Company’s estimates of filing dates.
Research
and development expenses decreased to approximately $1,918,000 from $2,469,000
for the three month periods ended June 30, 2007 and June 30, 2006,
respectively. Expenses relating to the MMV testing agreement and the
UNC subcontract, respectively, decreased to approximately $9,000 and $676,000
in
the three month period ended June 30, 2007 from approximately $182,000 and
$825,000 in the three month period ended June 30, 2006. Additionally,
contract services relating to trials for treatment of pneumocystis pneumonia
decreased to approximately $1,005,000 from approximately $1,125,000 in the
same
periods. Non-cash options expense under research and development
decreased to approximately $118,000 in the three month period ended June 30,
2007 from approximately $177,000 in the three month period ended June 30,
2006. Other research and development expenses decreased by
approximately $50,000 over the same periods.
General
and administrative expenses decreased to approximately $1,717,000 from
approximately $2,220,000 during the three month periods ended June 30, 2007,
and
June 30, 2006, respectively. Legal fees increased to approximately
$215,000 in the three month period ended June 30, 2007 from approximately
$182,000 in the three month period ended June 30, 2006. The increase
is primarily attributable to the review of the Par Pharmaceutical license
agreement. Patent fees decreased to approximately $72,000 from
approximately $163,000 in the corresponding periods, respectively. Non-cash
general and administrative expenses decreased to approximately $375,000 in
the
three month period ended
June 30, 2007 from approximately $499,000 in the three month period ended June
30, 2006. Other general and administrative costs decreased by
approximately $321,000 over the same periods.
Our
net
loss increased to approximately $2,661,000 from approximately $2,597,000 during
the three month periods ended June 30, 2007 and June 30, 2006,
respectively.
Liquidity
and Capital Resources
As
of
June 30, 2007, cash and cash equivalents were approximately
$12,173,000.
Capital
expenditures were zero during the three month period ended June 30, 2007,
compared to $34,000 for equipment expenditures during the same period in the
previous year. No significant purchases of equipment are anticipated
by us during the year ending March 31, 2008.
We
periodically receive cash from the exercise of common stock options and
warrants. During the three month periods ended June 30, 2007 and
2006, we did not receive any proceeds for the exercise of options or
warrants.
We
believe our existing unrestricted cash and cash equivalents and the grants
we
have received or have been awarded and are awaiting disbursement of, will be
sufficient to meet our planned expenditures through at least August 2008,
although there can be no assurance we will not require additional
funds.
Through
June 30, 2007, we financed our operations with:
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·
|
proceeds
from various private placements of debt and equity securities, an
initial
public offering, and other cash contributed from stockholders, which
in
the aggregate raised approximately
$77,123,000;
|
|
·
|
payments
from research agreements, license agreements, foundation grants,
and SBIR
grants and STTR program grants of approximately $25,909,000;
and
|
|
·
|
the
use of stock, options and warrants in lieu of cash
compensation.
|
Our
cash
resources have been used to finance, develop and begin commercialization of
drug
product candidates, including sponsored research, conduct of human clinical
trials, capital expenditures, expenses associated with development of product
candidates pursuant to an agreement, dated January 15, 1997, (the “Consortium
Agreement”), among us and UNC (to which each of Duke University, Auburn
University and Georgia State University agreed shortly thereafter to become
a
party, and all of which, collectively with UNC, are referred to as the
“Consortium”) and, as contemplated by the Consortium Agreement, under a license
agreement dated January 28, 2002 (“Consortium License Agreement”) with the
Consortium, and general and administrative expenses. Over the next
several years we expect to incur substantial additional research and development
costs, including costs related to research in pre-clinical (laboratory) and
human clinical trials, administrative expenses to support our research and
development operations and marketing expenses to launch the sale of any
commercialized product that may be developed.
Our
future working capital requirements will depend upon numerous factors, including
the progress of research, development and commercialization programs (which
may
vary as product candidates are added or abandoned), results of pre-clinical
testing and human clinical trials, achievement of regulatory milestones, third
party collaborators fulfilling their obligations to us, the timing and cost
of
seeking regulatory
approvals, the level of resources that we devote to the engagement or
development of manufacturing capabilities including the build-out of our
subsidiary’s facility in China, our ability to maintain existing and to
establish new collaborative arrangements with others to provide funding to
support these activities, and other factors. In any event, we will
require substantial additional funds in
addition
to our existing resources to develop product candidates and to otherwise meet
our business objectives.
Management’s
plans for the remainder of the fiscal year, in addition to normal operations,
include continuing their efforts to create joint ventures, obtain additional
grants and to develop and enter into research, development and/or
commercialization agreements with others.
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market
Risk.
|
The
exposure of market risk associated with risk-sensitive instruments is not
material, as our operations are conducted primarily in U.S. dollars and we
invest primarily in short-term government obligations and other cash
equivalents. We intend to develop policies and procedures to manage
market risk in the future if and when circumstances require.
|
Item
4.
|
Controls
and Procedures.
|
Disclosures
and Procedures
We
maintain controls and procedures designed to ensure that we are able to collect
the information we are required to disclose in the reports we file with the
SEC,
and to process, summarize and disclose this information within the time periods
specified in the rules of the SEC. Our Chief Executive Officer and
Chief Financial Officer are responsible for establishing and maintaining these
procedures and, as required by the rules of the SEC, evaluate their
effectiveness. Based on their evaluation of our disclosure controls
and procedures, which took place as of the end of the period covered by this
Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial
Officer believe that these procedures are effective to ensure that we are able
to collect, process and disclose the information we are required to disclose
in
the reports we file with the SEC within the required time periods.
Internal
Controls
We
maintain a system of internal controls designed to provide reasonable assurance
that: (1) transactions are executed in accordance with management’s general
or specific authorization and (2) transactions are recorded as necessary to
(a) permit preparation of financial statements in conformity with generally
accepted accounting principles and (b) maintain accountability for
assets. Access to assets is permitted only in accordance with
management’s general or specific authorization and the recorded accountability
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
Changes
in Internal Controls
We
have
not made any changes in our internal control over financial reporting during
the
quarter ended June 30, 2007 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
PART
II. OTHER
INFORMATION
|
Item
1.
|
Legal
Proceedings.
|
Gerhard
Von der Ruhr et al. v. Immtech International, Inc. et. al.
In
October 2003, Gerhard Von der Ruhr
et al (the “Von der Ruhr Plaintiffs”) filed a complaint in the United States
District Court for the Northern District of Illinois against the Company and
certain of its officers and directors alleging breaches of a stock lock-up
agreement, option agreements and a technology license agreement by the Company,
as well as interference with the Von der Ruhr Plaintiffs’ contracts with the
Company by its officers. The complaint sought unspecified monetary
damages and punitive damages, in addition to equitable relief and
costs. In 2005, one of the counts in the case was dismissed upon the
Company’s motion for summary judgment. A preliminary pre-trial
conference was held on October 26, 2006 and the court granted the Company’s
motions in limine to exclude plaintiffs’ claim for lost profits damages and to
prohibit plaintiff Gerhard Von der Ruhr from offering expert testimony at
trial. The court subsequently granted a motion to sever the trial on
Count V, regarding a technology license agreement, from the trial on the
remaining counts. A pre-trial order was submitted to the court in
April 2007. On July 27, 2007, the court conducted a pre-trial
conference and set a trial date of December 3, 2007.
Item
1A. Risk
Factors
There
are
no material changes in risk factors previously disclosed in Item 1A to Part
I of
our Form 10-K for the fiscal year ended March 31, 2007.
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds.
|
Recent
Sales of Unregistered Securities.
All
such
shares of common stock herein described as issuances below were made pursuant
to
Section 4(2) of the Securities Act of 1933, as amended.
Conversion
of Preferred Stock to Common Stock.
During
June 2007 a certain holder of Series E Convertible Preferred Stock, $0.01 par
value (“Series E Stock”) converted 2,000 shares of Series E Preferred Stock into
7,159 shares of our common stock.
Preferred
Stock Dividend Payment.
On
April
15, 2007, we issued 41,113 shares of common stock as payment of a dividend
earned on outstanding preferred stock to the holders thereof: holders of Series
A Stock earned 6,308 shares of common stock on 55,500 outstanding shares;
holders of Series B Stock earned 2,040 shares of common stock on 13,464
outstanding shares; holders of Series C Stock earned 6,900 shares of common
stock on 45,536 outstanding shares; holders of Series D Stock earned 13,334
shares of common stock on 117,200 outstanding shares; and holders of Series
E
Stock earned 12,531 shares of common stock on 108,200 outstanding
shares. We also paid holders of our outstanding preferred stock $443
in cash in lieu of fractional shares.
|
Item
3.
|
Defaults
Upon Senior
Securities.
|
None
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders.
|
None
|
Item
5.
|
Other
Information.
|
None
Exhibit
Number
|
Exhibit
Description
|
|
|
3.1
(5)
|
Amended
and Restated Certificate of Incorporation of the Company, dated
June 14, 2004
|
|
|
3.2
(6)
|
Certificate
of Correction to Certificate of Incorporation dated December 14,
2005.
|
|
|
3.3
(7)
|
Certificate
of Amendment (Name Change) to Certificate of Incorporation dated
March 22,
2006.
|
|
|
3.4
(1)
|
Certificate
of Designation for Series A Convertible Preferred Stock Private Placement,
dated February 14, 2002
|
|
|
3.5
(2)
|
Certificate
of Designation for Series B Convertible Preferred Stock Private Placement,
dated September 25, 2002
|
|
|
3.6
(3)
|
Certificate
of Designation for Series C Convertible Preferred Stock Private Placement,
dated June 6, 2003
|
|
|
3.7
(4)
|
Certificate
of Designation for Series D Convertible Preferred Stock Private Placement,
dated January 15, 2004
|
|
|
3.8
(6)
|
Certificate
of Designation for Series E Convertible Preferred Stock Private Placement,
dated December 13, 2005
|
|
|
3.9
(8)
|
Amended
and Restated Bylaws of the Company effective as of June 6,
2007.
|
|
|
10.48*
|
Licensing
Agreement with Par Pharmaceutical, Inc., dated June 11,
2007.
|
|
|
10.49*
|
Supply
& Distribution Agreement with Par Pharmaceutical, Inc., dated June
11,
2007.
|
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002
|
*
Portions of these exhibits have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a confidential treatment request
under Rule 24b-2 of the Securities and Exchange Act of 1934, as
amended.
(1)
|
Incorporated
by Reference to our Form 8-K (File No. 001-14907), as filed with
the
Securities and Exchange Commission on February 14, 2002.
|
(2)
|
Incorporated
by Reference to our Form 8-K (File No. 001-14907), as filed with
the
Securities and Exchange Commission on September 25,
2002.
|
(3)
|
Incorporated
by Reference to our Form 8-K (File No. 001-14907), as filed with
the
Securities and Exchange Commission on June 10,
2003.
|
(4)
|
Incorporated
by Reference to our Form 8-K (File No. 001-14907), as filed with
the
Securities and Exchange Commission on January 21,
2004.
|
(5)
|
Incorporated
by Reference to our Form 10-K (File No. 001-14907), as filed with
the
Securities and Exchange Commission on June 14,
2004.
|
(6)
|
Incorporated
by Reference to our Form 8-K (File No. 001-14907), as filed with
the
Securities and Exchange Commission on December 14,
2005.
|
(7)
|
Incorporated
by Reference to our Form 8-K (File No. 001-14907), as filed with
the
Securities and Exchange Commission on March 23,
2006.
|
(8)
|
Incorporated
by Reference to our Form 8-K (File No. 001-14907), as filed with
the
Securities and Exchange Commission on June 12,
2007.
|
SIGNATURES
Pursuant
to the requirements 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
PHARMACEUTICALS, INC.
|
|
|
|
|
Date: August
9, 2007
|
By: /s/
Eric L.
Sorkin
Eric
L.
Sorkin
President
and
Chief Executive Officer
|
|
|
|
|
Date: August
9, 2007
|
By: /s/
Gary C.
Parks
Gary
C.
Parks
Treasurer,
Secretary and Chief Financial Officer
(Principal
Financial and Accounting Officer)
|