UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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|X|
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for
the fiscal year ended March 31,
2008.
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|__|
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for
the transition period from [__] to
[__].
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Commission
file number 001-14907
IMMTECH
PHARMACEUTICALS, INC.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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39-1523370
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(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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One
North End Avenue
New
York, New York
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10282
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area
code: (847) 573-0033
Securities
registered pursuant to Section 12(b) of the Securities Exchange Act of
1934:
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Common
Stock, par value $0.01 per share
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||
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(Title
of class)
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Securities
registered pursuant to Section 12(g) of the Securities Exchange Act of
1934:
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None
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(Title
of class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act of
1933. Yes |__| No |X|
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934. Yes |__| No |X|
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 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 |__|
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
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-K or any amendment to this Form 10-K. |X|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange
Act of 1934. Large Accelerated Filer |__| Accelerated Filer |X| Non-accelerated
Filer |__| Smaller reporting company |__|
Indicate
by check mark if the registrant is a shell company (as defined in Rule 12b-2 of
the Securities Exchange Act of
1934. Yes |__| No |X|
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the last price at which the common
equity was last sold as of the last business day of the registrant’s most
recently completed second fiscal quarter was $124,182,768.
As of
June 16, 2008, the total number of shares of the registrant’s common stock
outstanding was 15,876,983 shares.
Documents
incorporated by reference. None.
IMMTECH
PHARMACEUTICALS, INC.
TABLE
OF CONTENTS
Page
PART
I.
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ITEM
1.
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BUSINESS
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1
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| ITEM 1A. | RISK FACTORS |
25
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ITEM
2.
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PROPERTIES
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39
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ITEM
3.
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LEGAL
PROCEEDINGS
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39
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ITEM
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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40
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PART
II.
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ITEM
5.
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MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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40
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ITEM
6.
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SELECTED
FINANCIAL DATA
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44
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ITEM
7.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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46
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| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
58
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ITEM
8.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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58
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ITEM
9.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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58
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ITEM
9A.
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CONTROLS AND PROCEDURES |
58
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| ITEM 9B. | OTHER INFORMATION |
59
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PART
III.
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ITEM
10.
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DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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60
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ITEM
11.
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EXECUTIVE
COMPENSATION
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65
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ITEM
12.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
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77
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ITEM
13.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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80
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ITEM
14.
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PRINCIPAL ACCOUNTANT FEES AND SERVICES |
81
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PART
IV.
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ITEM
15.
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EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
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82
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FORWARD-LOOKING
STATEMENTS
This
annual report on Form 10-K and the documents incorporated by reference herein
regarding Immtech Pharmaceuticals, Inc.’s business contain “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995 and are subject to risks and
uncertainties. 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. Actual results
could differ materially from these forward-looking
statements. Factors that could cause or contribute to such
differences include, but are not limited to, the following: (i) Immtech’s
ability to develop commercially viable products; (ii) Immtech’s ability to
achieve profitability; (iii) Immtech’s ability to retain key personnel;
(iv) the ability of Immtech’s scientists and collaborators to discover new
compounds; (v) the availability of additional research grants;
(vi) Immtech’s ability to obtain regulatory approval of its drugs
candidates; (vii) the success of Immtech’s clinical trials;
(viii) dependence upon and contractual relationship with partners;
(ix) Immtech’s ability to manufacture or to contract with a third party to
manufacture its drug candidates at a reasonable cost; (x) Immtech’s ability
to protect its intellectual property; (xi) competition and alternative
technologies; (xii) Immtech’s ability to obtain reimbursement from third party
payers for any product it commercializes and (xiii) potential exposure to
significant product liability. We undertake no obligation to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
PART
I.
ITEM
1. BUSINESS
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A.
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Business
Overview
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Immtech
Pharmaceuticals, Inc., (the “Registrant”) is focused on global opportunities in
the healthcare sector. Globalization and the increased income levels
seen in numerous emerging regions have created significant opportunities in both
the development of new drugs and, more broadly, in healthcare services for drug
developers and for physicians and patients. Immtech aims to leverage its
established expertise and other assets in both new drug sales and enhanced
healthcare-related services, including laboratory research and
information-providing services, for developed and developing
countries. To capitalize on the opportunities arising in the global
healthcare marketplace, we seek to develop proprietary, high-growth operations
in the People’s Republic of China (“China”) and potentially in other regional
markets.
As one
opportunity for growth, we plan to further our focus on the discovery and
development of drugs to treat infectious diseases. These diseases
present significant unmet needs and will increase dramatically as threats to the
global community. According to the World Health Organization (“WHO”),
infectious diseases are collectively the most common cause of death in the world
today. Yet relatively few new drugs for the treatment of infectious
diseases have been brought to market in the past two decades. New
drugs are needed to address the risk
-1-
of drug
resistance by known pathogens and the emergence of new pathogens in the years
ahead. Accordingly, infectious diseases will continue to be a prime
focus for Immtech.
Much of
the drug development being conducted today emphasizes the chronic conditions of
citizens of developed nations, and often requires lengthy, complex clinical
trials to establish both drug efficacy and superiority to an existing standard
of care. By contrast, infectious disease-related drug development generally
involves clinical trials with well-defined endpoints that can be evaluated
clearly over a relatively short duration. We have worked with
world-renowned universities and scientific institutions since 1999 and plan to
expand our scientific consortium for drug discovery.
Our focus
on global opportunities leads naturally to an expansion of business development
in China, given that China has 20% of the world’s population. Our experience
there also creates various opportunities outside the laboratory environment as
China expands its healthcare infrastructure. According to Boston
Consultancy, an independent consulting group, China is projected to become the
world’s fifth largest pharmaceutical market by 2010. Further, it is
estimated that demand for drugs, healthcare information, education, and services
will propel China’s pharmaceutical market to grow by more than 20% a year even
as growth rates in key European and U.S. markets are
decelerating. According to the WiCon International Group, the
publisher of Pharma China, sales of pharmaceutical, herbal, and Chinese medicine
drug products reached $50 billion in 2007. The growth and expansion
of healthcare needs in China will require a vastly expanded supply of both
products and services, and we believe that we are well poised to benefit in this
dynamic market.
In
addition to our internal drug discovery programs, the growing demand for
contract research services (“CRS”) in China and other rapidly emerging markets
represents an attractive commercial opportunity. Clinical research
programs in these markets require a depth of understanding related to research
capabilities, regulatory guidelines and cultural knowledge. Because of our
capabilities in each of these areas, we plan to leverage our experience by
partnering with local institutions and providing CRS to other international
companies involved in drug development. We believe that our
experience in drug development in international markets has positioned us to
develop a valuable and competitive range of business services related to
clinical research.
As an
expansion of the strategy to pursue our drug development and CRS businesses, we
also anticipate cultivating business opportunities to distribute healthcare
information. We believe that most healthcare systems could be
enhanced through improved continuing education and training programs to
professional medical staff as well as through the distribution of high-quality
healthcare information to the general public. Therefore, we plan to
implement medical information initiatives in China and potentially throughout
Asia. We believe that these medical education initiatives present
growth opportunities for us and may lead to the development of unique
assets.
These
services must be positioned to meet the needs of consumers and medical
professionals alike by providing high-quality, accurate information. We
believe our experience and established business relationships represent valuable
resources in support of our efforts to build and expand content distribution in
China and elsewhere in Asia. We plan to access content
-2-
from universities, research institutions, and media outlets with extensive libraries of materials. The dynamic nature of electronic content distribution could lead to the creation of unique assets in this area.
During
the year ended March 31, 2008, our drug development program for pafuramidine was
discontinued due to findings of renal and liver adverse events among
participants in our study of healthy volunteers conducted in South Africa. This
clinical trial had been initiated to provide safety data in support of the
African sleeping sickness and pneumocystis pneumonia indications. It
was halted in December 2007 after several subjects developed abnormal liver
function (“clinical hold”). The program was formally discontinued in
February 2008 when five subjects in the same study developed renal abnormalities
that required medical intervention and hospitalization. All affected subjects
have recovered fully, and to date, no lasting adverse effects have been observed
in these volunteers. See “Products and Drug Development
Programs—Pafuramidine.”
In
addition to licenses related to pafuramidine, we hold worldwide exclusive
licenses to develop and commercialize an expanding library of compounds, some of
which are in early stages of research. These compounds target fungal infections,
the Hepatitis C virus (“HCV”), drug resistant Gram positive bacteria and other
serious diseases. Furthermore, over the past year we have initiated
an independent medicinal chemistry effort to drive these development programs
and to expand our library of both proprietary and Company-owned intellectual
property. Our initial in vitro and in vivo assessments have
identified several potential lead compound candidates for each of these
diseases. We continue to test compounds to identify optimum lead
candidates to move into preclinical testing and subsequent human clinical
trials, to be followed ultimately by commercialization.
Immtech
maximizes its research spending by collaborating with its research partners and
designing cost effective clinical trials targeting indications amenable to
shorter duration treatments with well-defined endpoints. Our first
drug candidate, pafuramidine, and several compounds for our discovery programs
in fungal diseases, bacterial infections and HCV were synthesized and initially
evaluated by our research partners at The University of North Carolina at Chapel
Hill (“UNC-CH”) and Georgia State University (“Georgia State”). We
have exclusive worldwide licenses to develop and commercialize compounds
discovered and patented by scientists at these universities, and we have access
to their large library of compounds. We call these scientists, and
others from whom we have rights to commercialize technology discovered or
developed by them, our consortium scientists. Our license rights
include 148 issued domestic U.S. and foreign patents that cover many classes of
novel chemical compounds.
A
predecessor of the Registrant was incorporated under the laws of the State of
Wisconsin on October 15, 1984, and subsequently merged with and into the
Registrant on April 1, 1993. We began the development of drugs
to treat infectious disease in 1997. Our executive offices are
located at One North End Avenue, New York, New York 10282, telephone number
(212) 791-2911 or toll-free (877) 898-8038. Our common stock
(the “Common Stock”) is listed on The American Stock Exchange (“AMEX”) under the
ticker symbol “IMM.” Trading on the AMEX commenced on August 11,
2003.
-3-
For the
fiscal year ended March 31, 2008, we had revenues of approximately
$9.7 million and a net loss of approximately $10.5 million which
included non-cash compensation expenses of approximately $3.2 million
related to the vesting of Common Stock options, extension of warrants and
issuance of Common Stock during the year. We
currently have enough cash to operate through December 31, 2008 and capital
resources through the sale of land use rights that we believe are sufficient to
support our operations beyond March 31, 2009. We are a
development stage pharmaceutical company that operates as one
segment.
The
discontinuation of the pafuramidine development program and the new business
opportunities discussed above raise doubt about our ability to continue as a
going concern. If we become unable to continue as a going concern, we
may need to liquidate our assets, and we might realize significantly less than
the values at which they are carried on our financial
statements. However, the accompanying financial statements do not
include any adjustments or charges that might be necessary should we be unable
to continue as a going concern, such as charges related to impairment of our
assets, the recoverability and classification of assets or amounts and
classification of liabilities or other similar adjustments. In
addition, the report of our independent registered public accounting firm on the
accompanying financial statements included in this Annual Report on Form 10-K
contains an explanatory paragraph regarding going concern
uncertainty.
We file
annual, quarterly and current reports, proxy statements and other documents with
the United States Securities and Exchange Commission (the “SEC”), under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). You
may read and copy any materials that we file with the SEC at the SEC’s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Our reports, proxy statements and other
documents filed electronically with the SEC are available at the website
maintained by the SEC at http://www.sec.gov. We also make available
free of charge on or through our Internet website at
http://www.immtechpharma.com, the annual, quarterly and current reports, and, if
applicable, amendments to those reports, filed or furnished pursuant to
Section 13(a) of the Exchange Act, as soon as reasonably practicable after
we electronically file such reports with the SEC. Information on our
website is not incorporated as part of this report.
When we
use the words the “Company” or “Immtech” in this report, we are referring to the
Registrant and its subsidiaries. When we use the word “we,” “our” or
“us,” we are referring to the Registrant and its subsidiaries or solely the
Registrant as the context requires.
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B.
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Products
and Drug Development Programs
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The
pafuramidine program is currently being closed out. Presently, we are
continuing follow-up assessment of African sleeping sickness subjects in our
Phase III study of pafuramidine as planned. These patients completed treatment
in March 2007 and will be followed for 24 months. All other pafuramidine studies
have either been closed or the follow-up of previously treated patients and
volunteers is ongoing.
As part
of the close out activities of the pafuramidine program, final reports for all
clinical trials are being prepared with primary focus on the safety and
tolerability of pafuramidine. These reports will be submitted to the
FDA and other regulatory agencies. A full
-4-
report
of our evaluation of the adverse events associated with the use of pafuramidine
is also being prepared and will be submitted to the FDA in response to the full
clinical hold. We are also conducting follow up of subjects who have
received pafuramidine in prior clinical trials to assess whether any unexpected
adverse events occurred that have not previously been reported to us by the
investigators for such trials.
All
documents related to the pafuramidine development program will be
archived. The information gained from the review of the preclinical
and clinical studies of pafuramidine and DB75 will be used by the Consortium for
Parasitic Drug Development, led by UNC-CH, as new compounds are evaluated as
potential clinical candidates for future development for African sleeping
sickness, Chagas disease or other related diseases.
The
following sections provide the current status of the studies that were ongoing
at the time of the clinical hold in December 2007 and update the results
presented in our annual report filed with the SEC for the year ended March 31,
2007. We do not anticipate providing any future updates regarding the
pafuramidine development program.
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1.
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Pafuramidine
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i.
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Supportive
Phase I Safety Study in Healthy
Volunteers
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The
primary goal of this study was to provide a safety database of acceptable size
to support the registration of pafuramidine for both African sleeping sickness
and Pneumocystis pneumonia (“PCP”). This was a randomized, double-blind Phase I
safety and tolerability study of pafuramidine maleate (DB289) in healthy
subjects. The secondary objective of this study was to evaluate the
potential effect of pafuramidine maleate on specific analytes that can be
assessed by clinical chemistry and hematology testing.
The
enrollment of additional subjects was prematurely discontinued on December 20,
2007 after 100 of the anticipated 175 subjects completed
treatment. Eighty subjects received pafuramidine and 20 subjects
received placebo. Approximately 25% of subjects who received
pafuramidine developed significant liver function abnormalities within five days
of completing treatment. These abnormalities resulted in the FDA
placing a full clinical hold on the pafuramidine development program and a
request for additional follow up from the Data Safety Monitoring
Board. Values in all subjects returned to the normal range during
follow up without intervention. A liver specialist was consulted and
it was recommended that laboratory follow up of the subjects at three and six
months be conducted. These follow up evaluations are continuing at
present.
During the extended follow up period
(approximately eight weeks after the last dose of study drug), five subjects
treated with pafuramidine were hospitalized for acute renal
insufficiency. A kidney specialist was consulted and it was
recommended that monthly follow up of all subjects who received pafuramidine for
at least six months post-treatment due to a suspected drug-induced
hypersensitivity reaction be conducted. Additional follow up of
subjects who received pafuramidine in this trial is ongoing and will continue
until subjects return to baseline.
-5-
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ii.
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Definitive
Bioequivalence Study
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The primary objective of the definitive
bioequivalence study was to establish the bioequivalence of a new formulation of
pafuramidine which was planned for commercial use, to the reference formulation
of pafuramidine maleate. A total of 84 subjects were enrolled in this
study, which had completed dosing at the time of the clinical
hold. Follow up of these subjects will continue through at least June
2008.
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iii.
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Pafuramidine
for PCP in HIV/AIDS
Patients
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PCP is a
fungus that overgrows the air sacs in the lungs of people whose immune systems
have been significantly suppressed. PCP can cause life-threatening
pneumonia. Moreover, it is one of the most common opportunistic
infections affecting HIV/AIDS patients.
Our Phase
III pivotal clinical trial of pafuramidine to treat PCP in patients with
HIV/AIDS was being conducted under an Investigational New Drug (“IND”)
application filed with the FDA. This was a comparative clinical trial
against the current standard of care, trimethoprim-sulfamethoxazole (“TMP-SMX”). The
main objective of this Phase III clinical trial was to determine whether the
efficacy of pafuramidine is comparable to the efficacy of
TMP-SMX. The study was also to compare the safety and tolerability of
pafuramidine and TMP-SMX. At this point, half of the required
patients had been enrolled. Our Phase III clinical trial sites in the US and
Latin America have been closed and we are preparing a final report of the
study. All subjects enrolled in this trial underwent additional
follow up to identify any potential late occurring adverse events. After all
reports are received, they will be submitted to US FDA and local regulatory
authorities along with our response to the clinical hold.
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iv.
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Pafuramidine
for African Sleeping Sickness
Treatment
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African
sleeping sickness is a parasitic disease that is spread by tsetse flies in
sub-Saharan Africa. Doctors Without Borders estimates that the
geographical range in sub-Sahara Africa where African sleeping sickness occurs
encompasses 36 countries, in which more than 60 million people are at risk
of contracting the disease.
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·
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Pivotal
Phase III Clinical
Trial
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The Phase
III clinical trial for first stage African sleeping sickness caused by Trypanosoma brucei gambiense,
the West African form of sleeping sickness (“West African sleeping sickness”)
was conducted in six clinical sites in central Africa and is being wound
down. We had completed enrollment of 273
patients. Patients in the study were administered a study drug, which
was either pafuramidine or pentamidine (the current standard of care for first
stage African sleeping sickness). The last patient was treated with
pafuramidine in March 2007. Follow up visits are in progress and
patients will be followed for 24 months after completion of their
treatment. The interim analysis for this study was completed by the
Data Safety Monitoring Board (“DSMB”) in August 2007 after half of the subjects
had completed the 12 month follow up visit. All subjects have now
completed the 12 month follow up visit and a report of the primary efficacy
endpoint of the trial is in preparation.
-6-
No
patient prematurely discontinued study drug treatment due to an adverse
event. Three patients have died during follow up in this trial in the
past year; two of these deaths were related to a relapse of African sleeping
sickness. None of these deaths were considered to be related to
receiving the study drug.
We were
granted access to the information about whether a patient received pafuramidine
or pentamidine in order to fully participate in the review of safety data with
the Data Safety Monitoring Board and the risk-benefit assessment that was
conducted by the Governance Council for the UNC-CH grant (as discussed
below). The safety data from all prior and then on-going pafuramidine
studies was reviewed subsequent to the clinical hold with particular attention
focused on prior reports of abnormal liver function that were identified in
subjects. These data were presented to the Governance Council in
early February 2008 prior to the hospitalization of five subjects in the Phase I
safety study for kidney abnormalities. Following discovery of the
renal adverse events, the safety data from all prior studies was again reviewed
for potential kidney abnormalities. Three subjects in the Phase III
African sleeping sickness study had experienced kidney-related serious adverse
events, two of which are considered to be possibly related to
pafuramidine. These data were presented to the Governance Council and
the Data Safety Monitoring Board. The consensus of these committees,
our research partners, and our management was that the development program for
pafuramidine should be discontinued.
In the
next year, we expect to complete the 12 month follow up analysis, which is
planned for the second half of 2008, and we intend to complete the 24 month
follow up visits of all patients enrolled in the trial by March
2009. These reports will be submitted to the FDA.
Our
clinical trials of pafuramidine to treat African sleeping sickness were
financially supported by a grant to UNC-CH from the Bill and Melinda Gates
Foundation (“Foundation”) under a Clinical Research Sub-contract (see “Funding
for African Sleeping Sickness Research and Clinical Trials”
below). We do not expect to receive future funding under the Clinical
Research Subcontract unless additional funding is necessary to close out the
pafuramidine development program.
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·
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Funding
for African Sleeping Sickness Research and Clinical
Trials
|
Our
development of pafuramidine for treating African sleeping sickness has been
supported financially by a grant to UNC-CH from the Foundation. To
date, the Foundation has granted to UNC-CH approximately $40 million for the
development of pafuramidine to treat this disease. This total
includes a grant to UNC-CH for $22.6 million in 2006 to complete the Phase III
clinical trial of pafuramidine to treat African sleeping sickness and prepare
the drug for commercialization, initiate a Phase IIIb expanded access clinical
trial, develop a pediatric formulation for use by infants and children, and test
pafuramidine in a pilot program for the East African form of African sleeping
sickness. Pursuant to the Clinical Research Subcontract and Amended
and Restated Clinical Research Subcontract (as discussed below), we have
received approximately $17.3 million of the approximately $40 million granted to
UNC-CH by the Foundation.
In
November 2000, the Foundation awarded a $15.1 million grant to a research
group led by UNC-CH to develop new drugs to treat African sleeping sickness and
leishmaniasis. The
-7-
research group led by
UNC-CH includes Immtech and, in addition to UNC-CH, five other universities and
research centers around the world that collectively employ scientists and
physicians considered to be the foremost experts in one or both of these
diseases.
On
March 29, 2001, we entered into a clinical research subcontract (“Clinical
Research Subcontract”) with UNC-CH to advance the work funded by the
Foundation’s $15.1 million grant. Under the terms of the
Clinical Research Subcontract, we are responsible for the oversight of
Phase II and Phase III clinical trials of the drug candidate
pafuramidine for African sleeping sickness. The terms of the Clinical
Research Subcontract require us to segregate the Clinical Research Subcontract
funds from our other funds and to use the proceeds only for developing a drug to
treat African sleeping sickness.
In June
2003, the Foundation awarded an additional $2.7 million grant to the UNC-CH
led research group to (i) expand the Phase IIb trial of pafuramidine
to treat African sleeping sickness into the pivotal multi-phase, multi-site
Phase II/III randomized clinical trial described below, (ii) implement
an improved method of synthesizing pafuramidine to reduce drug manufacturing
costs and (iii) improve the formulation of pafuramidine to facilitate
increased drug absorption into blood circulation. Under the Clinical
Research Subcontract, approximately $1.0 million of the additional grant
was paid to us in June 2003 and approximately $1.4 million was paid to us
on March 14, 2005 (approximately $1.4 million of the $3.0 million
March 14, 2005 payment described below was attributable to our services
under the additional grant).
Effective
March 28, 2006, we amended and restated the Clinical Research Subcontract
(“Amended and Restated Clinical Research Subcontract”) to continue the Phase III
clinical trial of pafuramidine to treat African sleeping sickness and to prepare
the drug for commercialization, conduct an expanded access trial, develop a
pediatric formulation for infants and children, and test pafuramidine in a pilot
study of the East African form of African sleeping sickness. Under
the Amended and Restated Clinical Research Subcontract, we received from the
UNC-CH led consortium a five year funding commitment of approximately $13.6
million to support the Phase III trial and development of the drug for
commercialization, and to conduct the additional research. Under the
Amended and Restated Clinical Research Subcontract, we received on May 24, 2006,
the first payment of approximately $5,649,000 and on November 2, 2007, the
second payment of approximately $5,123,000 of the five year approximately $13.6
million contract. Since the pafuramidine program was cancelled on
February 22, 2008, no further funding is expected under the Amended and Restated
Clinical Research Subcontract unless more funds are required for closing out the
project.
In the
aggregate, we have received the following under the Clinical Research
Subcontract and the Amended and Restated Clinical Research Subcontract:
(a) $4.3 million paid to us in fiscal year 2001 to fund Phase II
clinical trials to test the safety/tolerability and efficacy of pafuramidine
against African sleeping sickness in approximately 30 patients;
(b) approximately $1.4 million paid to us in September 2002 upon the
successful completion of our Phase IIa clinical trial;
(c) approximately $2.0 million paid to us in December 2002 upon the
delivery of the final Phase IIa report in respect of the Phase II
clinical trial; (d) approximately $1.0 million paid to us in June 2003
relating to the additional grant for improving drug synthesis and formulation;
(e) approximately $3.0 million paid to us on March 14, 2005 (a
portion of which was from the additional acceleration grant described above) to
fund Phase IIb and Phase III
-8-
clinical trials to test
the efficacy and safety/tolerability of pafuramidine against African sleeping
sickness in a larger, more diverse group of patients in calendar year 2005; (f)
approximately $5.6 million paid to us in May 2006; and (g) approximately $5.1
million paid to us in November 2007.
|
v.
|
Pafuramidine
for Malaria Prophylaxis
(Prevention)
|
An
exploratory study was designed to determine whether we should focus on
commercializing a blood-stage or a liver-stage malaria prevention
drug. The malaria parasite initially travels to the liver where it
grows for about seven days before spreading to the blood. Malaria
prevention drugs can work by preventing the infection in the liver or in the
blood stream. A liver stage regimen would continue for seven days
after travel and a blood stage regiment would continue for 30 days after
travel.
We
completed this Phase II malaria challenge clinical trial in healthy volunteers
in September 2007. In this study, volunteers were exposed to
mosquitoes infected with a well-characterized strain of malaria that is readily
treated with chloroquine. Nineteen volunteers participated in this
study, which included a screening period, a dosing period and a period following
exposure to the mosquitoes in which subjects were monitored for the development
of disease due to malaria. The subjects were randomized to receive one of three
treatments prior to mosquito exposure: (a) one pafuramidine 100 mg tablet was
administered on Day 8 (eight days before challenge with the malaria-infected
mosquitoes), (b) one pafuramidine 100 mg tablet was administered on Day 1 (the
day prior to challenge), or (c) a placebo was administered on both
days. Clinical trial volunteers were regularly monitored for up to
three months after the exposure, including assessment of fever or other clinical
symptoms of malaria, and also by regular blood sampling to detect the presence
of malaria parasites.
All but
one volunteer who received pafuramidine and all volunteers who received placebo
developed evidence of malaria and were promptly treated with chloroquine and
carefully monitored until they were determined to be free of
disease. These results indicate that a single dose of pafuramidine
did not prevent infection but did not determine whether additional doses prior
to exposure and/or after exposure would have prevented
infection. These subjects will undergo their one year follow up
evaluations in June 2008, as required by the study protocol and per FDA
requirements.
|
vi.
|
Pafuramidine
for Malaria
Treatment
|
In April
2007, we commenced enrollment in a new Phase IIb clinical trial of pafuramidine
in the treatment of uncomplicated malaria. The study was conducted in Thailand
and was to include up to 140 patients. The study is a partial factorial design
and comprised of two stages. The first stage randomized 60 patients
(15 per group) to evaluate the variable components in dosing of pafuramidine
tablets, including total daily dose (400 mg vs. 600 mg), dosing frequency
(once daily vs. divided twice daily), and in combination with artesunate (Yes
vs. No). The study was designed such that if none of the three day
regimens was considered acceptable, the stage two treatments would be
administered for five days. All patients were to be treated and
monitored for 28 days, which was the primary endpoint for the
study.
-9-
Patients’
blood samples were evaluated for parasites prior to enrollment in the study to
establish a baseline and checked at regular times during the therapy, and then
periodically until 28 days after commencement of the study. For
purposes of this study, patients were considered “cured” if the malaria
parasites were eliminated seven days after the start of therapy and did not
recur within 28 days after the start of treatment.
Following
the first stage of the study, the efficacy for each of the four regimens
administered for three days was approximately 80%. Based on these
data, the second stage enrollment was initiated and subjects were randomized to
either pafuramidine 200 mg BID for three days or for five days. This
study had enrolled 107 subjects at the time of the clinical
hold. Follow up and analysis of data from this study is currently
underway.
|
vii.
|
Pafuramidine
Licensing
Agreements
|
On June
8, 2007, we entered into an exclusive licensing agreement pursuant to which we
licensed to Par Pharmaceutical Companies, Inc. (“Par”) commercialization rights
in the U.S. to pafuramidine for the treatment of PCP in AIDS patients (“Par
License Agreement”). In addition, under the Par License Agreement, we could
collaborate with Par 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 was to also
pay us as much as $29 million in development milestones if pafuramidine advanced
through ongoing Phase III clinical trials and FDA regulatory review and
approval. In addition to royalties on sales, we could have received
up to $115 million in additional milestone payments on future sales and retain
the right to co-market pafuramidine in the U.S. We granted Par a
right of first offer to enter into a license agreement if we determined that
pafuramidine could be used for the treatment and/or prophylaxis of
malaria. The Par License Agreement was terminated by Par on May 9,
2008.
Additionally,
on December 3, 2007, we entered into a licensing agreement with BioAlliance
Pharma SA (“BioAlliance”) pursuant to which we granted BioAlliance and its
affiliates an exclusive license to commercialize pafuramidine in Europe for the
treatment of PCP in AIDS patients and African sleeping sickness (“BioAlliance
License Agreement”). We also granted BioAlliance an option to
commercialize pafuramidine in Europe for the prevention and treatment of malaria
in travelers. Pursuant to the BioAlliance License Agreement, we
received an initial payment of $3 million from BioAlliance, and we could receive
an additional $13 million upon achieving certain regulatory and pricing
milestones. In addition, we could receive an additional $10 million
upon achieving certain sales milestones and also receive double-digit royalties
based on sales.
-10-
|
2.
|
Drug
Discovery and Development
Programs
|
|
i.
|
Antifungal
Program
|
We have
identified several aromatic cationic compounds with the potential to treat both
Candida and Aspergillus infections, which account for a significant percentage
of morbidity and mortality in hospitalized patients. In vitro studies conducted by
our consortium scientists and an independent laboratory have identified several
compounds that display broad based antifungal activity against Candida,
Aspergillus and Cryptococcus fungi. From these studies, we have
identified a lead group of compounds that display significant in vitro activity against
both drug-sensitive and drug-resistant strains of fungi.
The
market for an effective antifungal drug was estimated by Datamonitor in 2003-04
to be approximately $4.0 billion annually. Datamonitor forecasts the
systemic antifungal market to be worth approximately $5.7 billion by 2014 due to
the increasing number of patients who are susceptible to fungal diseases, such
as patients undergoing cancer chemotherapy, patients with HIV and those who have
undergone organ transplants. In addition, the frequency of infections
acquired while a patient is in a hospital caused by fungi is now the third most
common cause of sepsis, replacing Escherichia coli (E.
coli). Sepsis is an uncommon but serious consequence of an infection
that quickly overwhelms the immune system and can rapidly lead to
death. Recently, strains of fungi resistant to currently available
treatments have developed. There is a significant opportunity for new
drugs effective against specific strains of fungi, including drug resistant
strains, as well as drugs with broad spectrum effectiveness for both Candida and
Aspergillus infections.
|
ii.
|
Hepatitis
C
|
According
to a December 2005 Decision Resources, Inc. report, the number of prevalent
cases of HCV in the major markets exceeded 11 million in 2004. The
HCV drug market, which was approximately $3 billion in 2005, is projected to
grow to $9 billion in 2012 and over $10 billion annually by
2014. Growth in use of HCV therapies also will come from increasing
numbers of patients who do not respond to initial treatments, and are being
retreated with second courses of standard and/or other new
therapies.
We base
our HCV research activities upon published findings that show compounds active
in an HCV-related animal virus, bovine viral diarrhea virus (“BVDV”), may have
similar activity against HCV. We have tested several classes of
compounds against the BVDV virus in vitro, and several
compounds exhibited potent inhibitory effects on the BVDV viral life cycle. We
have identified a class of compounds that prevents BVDV infection at very low
concentrations in cell culture, and have evaluated these compounds in in vitro cell culture assays
of HCV infection. Certain classes of compounds exhibit potent
cross-reactivity in this assay and preliminary time of addition studies point to
the compounds having an effect on early events in the virus
life-cycle. We are following this important proof-of-concept with new
medicinal chemistry efforts to further optimize the pharmacokinetics, safety and
pharmacological activity characteristics of the lead compound
series. The potential novel mechanism of action suggests a compound
from this class could have synergies with other existing and developing anti-HCV
compounds.
-11-
|
iii.
|
Antibacterial
Program
|
We have
recently identified a unique class of compounds within our proprietary library
that demonstrate significant activity in inhibiting the growth of
antibiotic-susceptible and antibiotic-resistant, Gram positive pathogens,
frequently referred to as “superbugs.” The underserved need for new
antibiotics to combat superbugs represents a significant potential future
opportunity for us and these compounds will serve as a starting point for the
discovery and development of a potential new clinical candidate.
In 2004,
the global antibacterial market was valued at approximately $24
billion. Following the introduction of virtually every class of
antibiotics in the past 50 years, antibiotic resistance has emerged that limits
or is threatening to limit their efficacy. Drug resistance has and
will continue to be an incessant source of medical need. Novel
classes of antibacterials are needed to combat multi-drug resistant infections
and expand physician treatment options. Rapid uptake of products
focused on drug-resistant infections has been driven by the increasing numbers
of immunocompromised patients in hospitals.
Several
of our compounds show potent, submicrogram/mL activity against a panel of
methicillin-resistant staph (methicillin-resistant Staphylococcus aureus,
“MRSA”), methicillin-sensitive staph (“MSSA”), and vancomycin-resistant
enterococcus (“VRE”). MRSA is a type of bacteria that is resistant to
certain antibiotics including methicillin, oxacillin, penicillin and
amoxicillin. Healthcare-associated MRSA and VRE occur most frequently among
persons in hospitals and healthcare facilities who have weakened immune
systems. MRSA is a major cause of hospital-acquired infections that
are becoming increasingly difficult to combat because of emerging resistance to
all current antibiotic classes and its appearance as an outpatient infection in
individuals with normal immune systems. According to a May 2006
Espicom Business Intelligence report, the market for anti-MRSA antibiotics is
expected to reach $2 billion by 2006.
Selected
compounds are being tested in in vivo models of
efficacy. The first compound to be tested demonstrated potent
activity against a MSSA infection in a neutropenic mouse thigh infection
model. Medicinal chemistry lead optimization is in progress to
improve the pharmacokinetics, safety and efficacy profile.
Through
macromolecular synthesis profiling, we have determined that our antibiotic
compounds are acting through inhibition of bacterial protein
synthesis. The lead compounds in the class were found to be
non-selective since they also inhibited mammalian cell protein
synthesis. This observation created a challenge for the program and
the class since mammalian cell protein synthesis inhibition will lead to
significant acute systemic toxicity in vivo. A major
medicinal chemistry effort has been undertaken to modify the design of the lead
compound to maintain antibiotic potency while attempting to design out mammalian
cell protein synthesis inhibition.
|
iv.
|
Other
Programs and
Trials
|
We have
recently generated data that indicates that a subset of compounds generated for
the HCV program shows potent in vitro activity against
West Nile virus. Work is ongoing to evaluate the drug development
potential of these findings. We continue to screen our library for
-12-
activity
against other viral diseases in search of hits. In addition, research
indicates that our aromatic cationic compounds may be useful as small molecule
drugs that can potentially selectively control gene expression.
|
C.
|
Collaboration
in Contract Research Services
|
On June
18, 2008, we entered into a letter of intent to provide contract research
services (“CRS”) in China in
collaboration with Beijing Capital Medical University (“BCMU”) with a primary
focus on pre-clinical drug development. CRS will be available to
international corporate and academic institutions seeking to advance research
and discovery platforms quickly and cost effectively. The joint
venture will seek to expand access to BCMU’s robust and
well-established research capabilities and experience in in vivo and in vitro characterization for
drug discovery.
Through
this collaboration, CRS will be available to support all phases of early stage
discovery from research, planning and risk assessment through clinical study
design. Our collaboration will also be positioned to support
later-stage clinical development and to provide counsel and support services
related to clinical research regulatory guidelines and regulatory review in
China.
The
letter of intent provides for the operations of the joint venture to be
controlled by us. Services will be available to guide pre-clinical
research efforts within standards compliant with US FDA requirements and other
U.S. regulatory guidelines including both General Lab Practice (GLP) and non-GLP
preclinical studies.
|
D.
|
Technology
of Aromatic Cationic
Compounds
|
The
pharmaceutical compounds made by the scientists at our consortium universities
UNC-CH and Georgia State generally fall under the broad class of “aromatic
cationic” compounds. Aromatic cations are molecules that have at
least one positively charged end and at least one benzene ring in their
structure. The cationic species in our library are largely comprised
of amidines, substituted amidines, amidine bioisosteres and
prodrugs. Many of the active compounds in our library are aromatic
dications. Our library of compounds also includes a subclass of aromatic
compounds containing a single positive charge (monocations).
One
mechanism of action of many of our aromatic cationic compounds involves binding
to segments of deoxyribonucleic acid (“DNA”). Some aromatic cation
drugs bind in the minor groove of DNA and in so doing, interfere with the
activity of enzymes needed for microbial and cell growth. The
composition of the dications, with positive charges on the ends and linkers of
different length, shape, flexibility and curvature, allows binding to specific
sites of the DNA or other receptors, interfering with key biochemical processes
fundamental to microbe growth and development.
Scientists
at UNC-CH and Georgia State used pentamidine as a template to design aromatic
compounds that have significant advantages over pentamidine. While
pentamidine has broad based activity against many diseases including fungal
infections and cancer, it can only be administered intravenously, by
intramuscular injection, or via inhalation, and is therefore costly
-13-
and
difficult to administer outside of a hospital setting. In addition,
pentamidine has many adverse effects and due to its narrow margin of safety, it
needs to be administered by a person trained in the use and administration of
this drug.
Consortium
scientists have developed a large and growing library of compounds based on
decades of work on aromatic compounds. Several compounds have been
tested in a wide variety of assays and animal models for activity against
various diseases. These compounds and their methods of use and
manufacture are the subject of over 150 patents that have issued to date to our
partner universities, patents to which we have exclusive, worldwide licenses.
See “— Collaborations.”
In the
wake of the recent discontinuation of pafuramidine, the emphasis on the
consortium’s library of dicationic compounds and prodrugs thereof is
waning. New and independent efforts by us are underway to pursue
leads that differ substantially in structure, mechanism of action, and metabolic
fate from dications related to pafuramidine. To that end, the lead
compounds in the antibiotic program appear to act by inhibiting bacterial
protein synthesis. The monocations in the antiviral program appear,
in general, to inhibit an early step in the virus lifecycle likely associated
with virus entry.
|
E.
|
Collaborations
|
|
1.
|
Scientific
Consortium at UNC-CH, Georgia State, Duke, and
Auburn
|
On
January 15, 1997, we entered into a consortium agreement with UNC-CH and a third
party (“Consortium Agreement”) (to which each of Georgia State, Duke University
and Auburn University shortly thereafter joined (collectively with UNC-CH, the
“Scientific Consortium”)). The Consortium Agreement provided that
aromatic cations developed by the Scientific Consortium were to be exclusively
licensed to us for global commercialization. As contemplated by the
Consortium Agreement, on January 28, 2002, we entered into a license agreement
with the Scientific Consortium whereby we received the exclusive license to
commercialize all future technology and compounds (“future compounds”) developed
or invented by one or more of the consortium scientists after January 15, 1997
(the “License Agreement”), and which also incorporated into such License
Agreement our license with the Scientific Consortium with regard to compounds
developed on or prior to January 15, 1997 (defined in the Consortium Agreement
as “current compounds”). The License Agreement was amended and
restated effective as of March 24, 2006 (the “Amended and Restated License
Agreement”).
Pursuant
to the Consortium Agreement, the worldwide license and exclusive right to
commercialize (together with related technology and patents), 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 (current compounds), was
transferred to us by the third party. The License Agreement granted
to us a similar worldwide license and exclusive right to commercialize
discoveries covering products based on aromatic cationic technology developed by
the Scientific Consortium after January 15, 1997 (defined in the License
Agreement as “future compounds”) and incorporated the worldwide license and
exclusive right to commercialize discoveries assigned to us by the Consortium
Agreement. The key modifications included in the Amended
-14-
and
Restated License Agreement are expansion of the Company’s rights to future
technology developed by the consortium with future grants and increased access
to the consortium’s patent counsel.
The
Consortium Agreement gives us rights to the Scientific Consortium’s large and
growing library of aromatic cationic compounds and to all future aromatic cation
technology designed by them. The consortium scientists are considered
to be among the world’s leading experts in aromatic cations, infectious
diseases, computer modeling of cationic pharmaceutical drugs and
computer-generated drug designs.
The
Consortium Agreement requires us to (i) reimburse UNC-CH, on behalf of our
consortium scientists for certain patent and patent-related fees, (ii) pay
certain milestone payments, and (iii) make royalty payments based on revenue
derived from the licensed technology. Each month on behalf of the
consortium scientist or university, as the case may be, UNC-CH submits to us an
invoice to reimburse patenting-related fees incurred prior to the invoice date
and related to patents and patent applications to which we hold a license under
the Consortium Agreement. For the fiscal year ended March 31,
2008, we reimbursed UNC-CH approximately $380,000 for such patent and
patent-related costs, and through March 31, 2008, we have reimbursed to UNC-CH
approximately $3,418,000 in the aggregate for patent and patent-related
costs. We are also required to make milestone payments in the form of
issuance of 100,000 shares of our Common Stock to the consortium upon the filing
of our first new New Drug Application or an Abbreviated New Drug Application
based on consortium technology developed and are required to pay to UNC-CH on
behalf of the consortium (other than Duke University), (i) royalty payments
capped at a percentage 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, we are
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.
|
2.
|
Clinical
Research Agreement with
UNC-CH
|
In
November 2000, the Foundation awarded to UNC-CH a $15.1 million grant to develop
new drugs to treat African sleeping sickness and leishmaniasis (the “Foundation
Grant”). On March 29, 2001, we entered into the Clinical
Research Subcontract with UNC-CH, whereby we were to receive up to $9.8 million
to be paid contingent upon UNC-CH’s receipt of the Foundation
Grant. Our continued funding under the Clinical Research Subcontract
was subject to certain terms and conditions over the succeeding five year
period. We were required to conduct certain clinical and research
studies related to the Foundation Grant. In April 2003, the
Foundation increased the Foundation Grant by approximately $2.7 million for the
expansion of Phase IIb/III clinical trials of pafuramidine to treat African
sleeping sickness and improved manufacturing processes. As of March
31, 2006, we had received, pursuant to the Clinical Research Subcontract,
inclusive of our portion of the Foundation Grant increase, a total amount of
funding of approximately $11.7 million. In March 2006, we amended and
restated the Clinical Research Subcontract with UNC-CH and UNC-CH in turn
obtained an expanded funding commitment of $13.6 million from the
Foundation. Under the Amended and Restated
-15-
Clinical
Research Subcontract, on May 24, 2006, the Company received the first
payment of approximately $5.6 million, and on November 2, 2007, the second
payment of approximately $5.1 million of a five year $13.6 million
contract, bringing funds awarded under all Foundation Grants to approximately
$22.4 million. Since the pafuramidine program was discontinued,
no further funding is expected on this grant unless more funds are required for
closing out the project.
|
F.
|
Our
Subsidiaries
|
|
1.
|
Immtech
Hong Kong
Limited
|
On
January 13, 2003, we entered into an agreement with an investor who owned,
through Lenton Fibre Optics Development Limited (“Lenton”), a Hong Kong company,
a 1.6 plus acre commercial real estate parcel located in a “free-trade zone”
called the Futian Free Trade Zone, Shenzhen, in China. Under the
agreement, we purchased an 80% interest in Lenton by issuing to the investor
1.2 million unregistered shares of our Common Stock. We
subsequently resold to the investor our interest in Lenton and the parcel of
land in exchange for 100% ownership in the improved property described below
under the headings “Super Insight Limited” and “Immtech Life Science
Limited.” In connection with the sale of Lenton, we acquired 100%
ownership of Immtech Hong Kong Limited (“Immtech HK”), a Hong Kong company,
including Immtech HK’s interest in Immtech Therapeutics Limited (“Immtech
Therapeutics”).
Subsequently,
through a sublicense agreement, we transferred to Immtech HK the rights licensed
to us under the Consortium Agreement to develop and license the aromatic cation
technology platform in certain Asian countries and to commercialize resulting
products. We intend to use Immtech HK as a vehicle to further
sublicense rights to develop specific indications through other subsidiaries
formed for the purpose that are expected to partner with investors who fund
development costs of those indications.
|
2.
|
Immtech
Therapeutics
Limited
|
Immtech
Therapeutics, a Hong Kong company, provides assistance to healthcare companies
seeking access to China to conduct clinical trials and to manufacture and/or
distribute pharmaceutical products in China.
Immtech
Therapeutics is majority owned by Immtech HK. Its minority owners are
Centralfield International Limited (a British Virgin Islands
(“BVI”) company and wholly-owned subsidiary of TechCap Holdings Limited
(“TechCap”)) and Bingo Star Limited (“Bingo Star”). TechCap has
assets and resources in China upon which Immtech Therapeutics may
draw. Bingo Star has substantial financial and medical expertise and
resources located in Hong Kong and throughout China.
|
3.
|
Super
Insight
Limited
|
On
November 28, 2003, we purchased (i) from an investor, 100% of Super Insight
Limited (“Super Insight”), a BVI company, and Immtech Life Science Limited
(“Immtech Life Science”) (Immtech Life Science is a wholly-owned subsidiary of
Super Insight) and (ii) from
-16-
Lenton, a
100% interest in Immtech HK. As payment for the acquisition, we
transferred to the investor our 80% interest in Lenton and $400,000 in
cash.
|
4.
|
Immtech
Life Science
Limited
|
Immtech
Life Science, a Hong Kong company, owns two floors of a building (the
“Property”) located in the Futian Free Trade Zone, Shenzhen, in
China. We are exploring the possibility of housing a pharmaceutical
production facility for the manufacture of drug products here or at other
locations within China. The Property comprises the first two levels
of a building named the Immtech Life Science Building. The duration
of the land use right associated with the building on which the Property is
located is 50 years, which expires May 24, 2051.
Under
current law, we would enjoy reduced tax on the business located on the Property
because the local government has granted incentives to business in high
technology industrial sectors located in the Futian Free Trade
Zone. Our intended pharmaceutical manufacture use would qualify for
the tax incentives.
|
G.
|
Manufacturing
|
|
1.
|
Pafuramidine
Maleate
|
Immtech
finalized the drug substance process scale-up to commercial scale and validated
the process. The drug substance micronization process had also been
validated. The drug product (tablet) process had been scaled up to
the expected commercial scale and had been validated. All
pafuramidine maleate drug activities have been terminated in conjunction with
the program discontinuation.
|
2.
|
Aromatic
Cationic
Compounds
|
The
scientists at our consortium universities, specifically the synthetic chemistry
laboratories at Georgia State and UNC-CH, have the capability to produce and
inventory small quantities of aromatic cations under license to
us. To date, Georgia State and UNC-CH have produced and supplied the
aromatic cations requested in the quantities required under various testing
agreements with third parties. We believe that these scientists will
continue to produce and deliver small quantities of compounds as needed for
testing purposes.
|
3.
|
Third
Party
Sources
|
In April
2005, we entered into an agreement with Dr. Reddy’s Laboratories, Inc. (“DRL”)
to improve a selected step in the synthetic process for producing pafuramidine,
which work had been successfully completed. Since April 2005, we had entered
into several more work orders with DRL. At this time no further work
is being done by DRL.
|
4.
|
Property
in
China
|
The
Property is located in a mixed-use office park and is suitable for
administrative offices and research and development operations, as well as
potentially housing a small-scale pharmaceutical production facility capable of
producing up to 10 tons of drug product per year.
-17-
In
addition, we have begun the site selection process to find a location in China
for a manufacturing plant capable of producing up to 60 tons of Good
Manufacturing Practice quality drug product per year. This has been
put on hold since the discontinuation of the pafuramidine
program. See discussion above under the heading “Immtech Life Science
Limited”.
|
H.
|
Strategy
|
Our
strategy is to develop and commercialize a pipeline of new drugs to treat
infectious diseases and other disorders. Infectious diseases in the
global population have increased significantly during the past 20 years and are
the most common cause of death worldwide according to the
WHO. Relatively few new drugs for the treatment of infectious
diseases have been brought to market during this period. New drugs
are needed to overcome the health risks of multi-drug resistant strains of known
diseases, as well as to combat emerging new pathogens. Accordingly,
we plan to target infectious diseases that represent significant unmet
needs.
Our drug
development strategy represents a new paradigm focused on reducing the time and
cost to develop drugs aimed at solving global health issues. It
leverages biomedical discoveries made by the leading scientists and researchers
who are members of our Consortium Agreement. It also seeks to put into action
the public health commitments of governments and major health-related
non-governmental organizations. The compounds we investigate include aromatic
cations and dications, which have shown activity against a range of pathogens,
as well as other substances identified within our large library of proprietary
compounds. Our drug discovery activities include programs in fungal diseases,
bacterial infections, HCV, and other viral diseases.
We intend
to proceed with the development and commercialization of aromatic cations. We
also seek to capitalize upon on our presence in China by utilizing our unique
resources to penetrate China’s healthcare infrastructure. We intend
to bring approved drugs, healthcare products and services from developed markets
to China for sales and distribution. Similarly, we expect to partner
with local Chinese institutions to provide CRS to other international companies
involved in drug development.
Moreover,
we anticipate cultivating business opportunities in China to distribute
healthcare information to consumers and to provide continuing education and
training programs to professional medical staff. We believe timing is ideal to
expand our business activities from drug development into the CRS business and
healthcare content distribution because the healthcare market in China is
projected to grow at 20% per year.
|
I.
|
Research
and
Development
|
Our
success will depend in part on our ability to develop and commercialize products
derived from a large library of well defined compounds to which we hold
worldwide licenses and exclusive rights to commercialize.
We
estimate that we have spent approximately $4.3 million, $5.8 million,
and $7.0 million respectively, in fiscal years ended March 31, 2006,
2007 and 2008, on Company- sponsored research and development and approximately
$5.4 million, $3.0 million, and $4.6 million respectively, in
fiscal years ended March 31, 2006, 2007 and 2008, on research and
-18-
development
sponsored by others. All research and development activity for fiscal
years ended March 31, 2006, 2007 and 2008 has been in support of our
pharmaceutical commercialization effort.
|
J.
|
Patents
and Trade
Secrets
|
Our
pharmaceutical compounds are protected by multiple patents secured by our
research partners. We consider the protection of our proprietary
technologies and products to be important to our business. We rely on
a combination of patents, licenses, copyrights and trademarks to protect these
technologies and products. Protection of our aromatic cation
technology platform includes exclusive licensing rights to, as of May 28, 2008,
224 patents and patent applications, 148 of which have issued in the United
States and in various global markets. We also own separately six
issued patents that have been assigned to us. Generally, United
States patents have a term of 17 years from the date of issue for patents issued
from applications submitted prior to June 8, 1995, and 20 years from the date of
filing of the application in the case of patents issued from applications
submitted on or after June 8, 1995. Patents in most other countries
have a term of 20 years from the date of filing the patent
application.
Our
policy is to file patent applications and defend the patents licensed to and/or
owned by us covering the technology we consider important to our business in all
countries where such protection is available and worthwhile. We
intend to continue to file and defend patent applications we license or
own. Although we pursue and encourage patent protection and defend
our patents and those licensed to us, obtaining patents for pharmaceutical drugs
and their specific uses involves complex legal and factual questions and
consequently involves a high degree of uncertainty. In addition,
others may independently develop similar products, duplicate our potential
products or design around our patent claims. Because of the time
delay in patent approval and the secrecy afforded patent applications during the
first 18 months after they are filed, we do not know if other applications,
which might have priority over our applications, have been filed. We
also rely on trade secrets, unpatented know-how and continuing technological
innovation to develop and maintain our competitive position.
Publication
of discoveries in the scientific or patent literature tends to lag behind actual
discoveries by several months at a minimum. As a result, there can be
no assurance that patents will be issued from any of our patent applications or
from applications licensed to us. The scope of any of our issued
patents may not be sufficiently broad to offer meaningful
protection. In addition, our issued patents or patents licensed to us
could be successfully challenged, invalidated or circumvented so that our patent
rights would not create an effective competitive barrier.
The
patents and patent applications to which we hold an exclusive worldwide license
right include claims to pharmaceutical compounds, methods of their manufacture,
and their uses to treat conditions related to diseases including PCP, TB, Cryptosporidium parvum, Giardia lamblia, Leishmania mexicana
amazonensis, Trypanosoma brucei
rhodesiense, various fungi, Plasmodium falciparum,
Alzheimer’s disease, amyloidosis, Type II diabetes, HCV, BVDV and
HIV. We are obligated to reimburse or pay for the patents and patent
prosecution process for any patent applications which claim subject matter to
which we want to have an exclusive license. Patents and patent
applications also protect certain processes for making prodrugs and
-19-
the uses
of compounds to detect and treat specific diseases as well as for a new method
for making chemical compounds that stack on top of each other (called dimers)
when they are bound to DNA.
We also
rely in part on trade secret, copyright and trademark protection of our
intellectual property. We protect our trade secrets by entering into
confidentiality agreements with third parties, employees and
consultants. Generally, employees and consultants sign agreements to
assign to us their interests in patents and copyrights arising from their work
for us. Key employees also generally agree not to engage in unfair
competition with us during and after their employment with us. We
have additional secrecy measures as well. However, these agreements
can be breached and, if they were, there might not be an adequate remedy
available to us. Also, a third party could learn our trade secrets
through means other than by breach of our confidentiality agreements, or our
trade secrets could be independently developed by our competitors.
|
K.
|
Governmental
Regulation
|
The
manufacturing and marketing of our potential products and our ongoing research
and development activities are subject to extensive regulation by numerous
governmental authorities in the United States and other
countries. Before marketing in the United States, any new drug
developed by us must undergo rigorous preclinical testing, clinical trials and
an extensive regulatory clearance process implemented by the FDA under the
Federal Food, Drug, and Cosmetic Act, as amended (the “FFDCA”). The
FDA regulates, among other things, the development, testing, manufacture,
safety, efficacy, record keeping, labeling, storage, approval, advertising,
promotion, sale and distribution of biopharmaceutical products. None
of our drug candidates has been approved for sale in the United States or any
foreign market. The regulatory review and approval process, which
includes preclinical testing and clinical trials of each drug candidate, is
lengthy, expensive and uncertain.
In the
United States, drug candidates are tested in animals until adequate proof of
safety is established. Clinical trials for new drug candidates are
typically conducted in three sequential phases that may
overlap. Phase I trials involve the initial introduction of the
drug candidate into healthy human volunteers. The emphasis of Phase I
trials is on testing for safety or adverse effects, dosage, tolerance,
metabolism, distribution, excretion and clinical pharmacology. Phase
II involves studies in a limited patient population to determine the initial
efficacy of the compound for specific targeted indications, to determine dosage
tolerance and optimal dosage and to identify possible adverse side effects and
safety risks. Once a compound shows evidence of effectiveness and is
found to have an acceptable safety profile in Phase II evaluations, Phase III
trials are undertaken to more fully evaluate clinical
outcomes. Before commencing clinical investigations in humans, we or
our collaborators must submit to the FDA an Investigational New Drug
Application, or IND.
Regulatory
authorities may require additional data before allowing the clinical studies to
commence or proceed from one phase to another, and could demand that the studies
be discontinued or suspended at any time if there are significant safety
issues. Clinical testing must also meet requirements for
institutional review board oversight, informed consent and good clinical
practices.
-20-
To
establish a new drug candidate’s safety and efficacy, the FDA requires companies
seeking approval to market a drug product to submit extensive preclinical and
clinical data, along with other information, for each indication. The
data and information are submitted to the FDA in the form of a New Drug
Application, or NDA. Generating the required data and information for
an NDA takes many years and requires the expenditure of substantial
resources. Information generated in this process is susceptible to
varying interpretations that could delay, limit or prevent regulatory approval
at any stage of the process. The failure to demonstrate adequately
the quality, safety and efficacy of a drug candidate under development would
delay or prevent regulatory approval of the drug candidate. We cannot
assure you that, even if clinical trials are completed, either our collaborators
or we will submit applications for required authorizations to manufacture and/or
market potential products or that any such application will be reviewed and
approved by the appropriate regulatory authorities in a timely manner, if at
all. Under applicable laws and FDA regulations, each NDA submitted
for FDA approval is usually given an internal administrative review within 60
days following submission of the NDA. If deemed sufficiently complete
to permit a substantive review, the FDA will “file” the NDA, thereby triggering
substantive review of the application. The FDA can refuse to file any
NDA that it deems incomplete or not properly reviewable. The FDA has
established internal goals of six months for priority review for NDAs that cover
drug candidates that offer major advances in treatment or provide a treatment
where no adequate therapy exists, and 10 months for the standard review of
non-priority NDAs. However, the FDA is not legally required to
complete its review within these periods and these performance goals may change
over time. Moreover, the outcome of the review, even if generally
favorable, may not be an actual approval but an “action letter” that describes
additional work that must be done before the NDA can be approved. The
FDA’s review of an NDA may involve review and recommendations by an independent
FDA advisory committee.
Before
receiving FDA approval to market a potential product, we or our collaborators
must demonstrate through adequate and well-controlled clinical studies that the
potential product is safe and effective on the patient population that will be
treated. If regulatory approval of a potential product is granted,
this approval will be limited to those disease states and conditions for which
the product is approved. Marketing or promoting a drug for an
unapproved indication is generally prohibited. Furthermore, FDA
approval may entail ongoing requirements for post-marketing
studies. Even if approval is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to continuing review
and periodic inspections by the FDA. Discovery of previously unknown
problems with a product, manufacturer or facility may result in restrictions on
the product or manufacturer, including labeling changes, costly recalls or
withdrawal of the product from the market.
Any drug
is likely to produce some toxicities or undesirable side effects in animals and
in humans when administered at sufficiently high doses and/or for sufficiently
long periods of time. Unacceptable toxicities or side effects may
occur at any dose level at any time in the course of studies in animals designed
to identify unacceptable effects of a drug candidate, known as toxicological
studies, or during clinical trials of our potential products. The
appearance of any unacceptable toxicity or side effect could cause us or
regulatory authorities to interrupt, limit, delay or abort the development of
any of our drug candidates. Further, such unacceptable toxicity or
side effects could ultimately prevent a potential product’s approval by the FDA
or
-21-
foreign
regulatory authorities for any or all targeted indications or limit any labeling
claims, even if the product is approved.
We and
our collaborators also are required to comply with the applicable FDA current
good manufacturing practice regulations. Good manufacturing practice regulations
include requirements relating to quality control and quality assurance as well
as the corresponding maintenance of records and
documentation. Manufacturing facilities are subject to inspection by
the FDA. These facilities must be approved before we can use them in
commercial manufacturing of our potential products. The FDA may
conclude that we or our collaborators are not in compliance with applicable good
manufacturing practice requirements and other FDA regulatory
requirements.
If the
product is approved, we must also comply with post-marketing requirements,
including, but not limited to, compliance with the Prescription Drug Marketing
Act and post-marketing safety surveillance. In addition, we are
subject to state regulation including, but not limited to, implementation of
corporate compliance programs and gift reporting to healthcare
professionals.
Outside
of the United States, our ability to market a product is contingent upon
receiving a marketing authorization from the appropriate regulatory
authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. At present, foreign marketing authorizations are
applied for at a national level, although within the European Community, or EC,
registration procedures are available to companies wishing to market a product
in more than one EC member state. If the regulatory authority is
satisfied that adequate evidence of safety, quality and efficacy has been
presented, marketing authorization will be granted. This foreign
regulatory approval process involves all of the risks associated with FDA
marketing approval discussed above.
|
1.
|
Drugs
for Serious or Life-Threatening
Illnesses
|
The FFDCA
and FDA regulations provide certain mechanisms for the accelerated “Fast Track”
approval of potential products intended to treat serious or life-threatening
illnesses which have been studied for safety and effectiveness and which
demonstrate the potential to address unmet medical needs. These
procedures permit early consultation and commitment from the FDA regarding the
preclinical and clinical studies necessary to gain marketing
approval. Provisions of this regulatory framework also permit, in
certain cases, NDAs to be approved on the basis of valid surrogate markers of
product effectiveness, thus accelerating the normal approval
process. Certain potential products employing our technology might
qualify for this accelerated regulatory procedure. Even if the FDA
agrees that these potential products qualify for accelerated approval
procedures, the FDA may deny approval of our drugs or may require that
additional studies be required before approval. The FDA may also
require us to perform post-approval, or Phase IV, studies as a condition of such
early approval. In addition, the FDA may impose restrictions on
distribution and/or promotion in connection with any accelerated approval, and
may withdraw approval if post-approval studies do not confirm the intended
clinical benefit or safety of the potential product.
-22-
|
2.
|
Other
U.S. Regulatory
Requirements
|
In the
United States, the research, manufacturing, distribution, sale, and promotion of
drug products are potentially subject to regulation by various federal, state
and local authorities in addition to the FDA, including the Centers for Medicare
& Medicaid Services, other divisions of the United States Department of
Health & Human Services, including, for example, the Office of Inspector
General, and state and local governments. For example, if a drug
product is reimbursed by Medicare, Medicaid or other federal or state health
care programs, sales, marketing and scientific/educational grant programs must
comply with the Medicare-Medicaid Anti-Fraud and Abuse Act, as amended, the
False Claims Act, also as amended, and similar state laws. If a drug
product is reimbursed by Medicare or Medicaid, pricing and rebate programs must
comply with, as applicable, the Medicaid rebate requirements of the Omnibus
Budget Reconciliation Act of 1990, as amended, and the Medicare Prescription
Drug Improvement and Modernization Act of 2003. If drug products are
made available to authorized users of the Federal Supply Schedule of the General
Services Administration, additional laws and requirements apply. All
of these activities are also potentially subject to federal and state consumer
protection and unfair competition laws.
|
L.
|
Competition
|
Competition
in the pharmaceutical and biotechnology industries is
intense. Factors such as scientific and technological developments,
the procurement of patents, timely governmental approval for testing,
manufacturing and marketing, availability of funds, the ability to commercialize
drug candidates in an expedient fashion and the ability to obtain governmental
approval for testing, manufacturing and marketing play a significant role in
determining our ability to effectively compete. Furthermore, our
industry is subject to rapidly evolving technology that could result in the
obsolescence of any drug candidates prior to profitability.
Many of
our potential competitors may have substantially greater financial, technical
and human resources than we have and may be better equipped to develop,
manufacture and market products. Many of our potential competitors
have concentrated their efforts in the development of human therapeutics and
developed or acquired internal biotechnology capabilities. In
addition, many of these companies have extensive experience in preclinical
testing and human clinical trials and in obtaining regulatory
approvals. Our competitors may succeed in obtaining approval for
products more rapidly than us and in developing and commercializing products
that are safer and more effective than those that we propose to
develop. Competitors, as well as academic institutions, governmental
agencies and private research organizations, also compete with us in acquiring
rights to products or technologies from universities, and recruiting and
retaining highly qualified scientific personnel and consultants. The
timing of market introduction of our potential products or of competitors’
products will be an important competitive factor. Accordingly, the
relative speed with which we can develop products, complete preclinical testing,
human clinical trials and regulatory approval processes and supply commercial
quantities to market will influence our ability to bring a product to
market.
Our
competition will be determined in part by the indications for which our products
are developed and ultimately approved by regulatory authorities. We
rely on our collaborations with our university partners and other joint venture
partners to enhance our competitive edge by
-23-
providing
manufacturing, testing and commercialization support. We are
developing products to treat infectious diseases and other diseases, some with
no current or effective therapies. There are a number of companies of which we
are aware which manufacture products that may compete with other products we are
currently developing. However, many of these companies’ competing
products have limitations in terms of effectiveness to treat their indicated
diseases, toxicity, severity of side-effects, and/or difficulty of
delivery.
|
M.
|
Employees
|
As of
June 2, 2008, we had 24 employees (including two employees who work for Immtech
HK, our Hong Kong subsidiary), nine of whom hold advanced
degrees. Twelve of our employees work in support of
clinical trials, research and development, and regulatory compliance, and the
other 12 work in
general and administrative capacities which include business development,
finance, investor relations and administration. In addition, there
are over 50 scientists affiliated with our consortium university partners who
are engaged in the research and discovery of novel pharmaceutical compounds to
which we have exclusive license and commercialization rights. We
expect to reduce the number of employees by at least six by the end of June
2008.
-24-
ITEM
1A. RISK
FACTORS
There
is no assurance that we will successfully develop a commercially viable
product.
We are in
various stages of preclinical development activities required for drug approval
and commercialization. Since our formation in October 1984, we
have engaged in research and development programs, expanding our network of
scientists and scientific advisors, licensing technology agreements and, since
obtaining the rights thereto in 1997, advancing the commercialization of the
aromatic cation technology platform that we expect will be the basis for our
drug candidates. We have generated no revenue from product sales, do
not have any products currently available for sale, and none are expected to be
commercially available for sale until after March 31, 2009, if at
all. We cannot assure that the research we fund and manage will lead
to commercially viable products.
We
have a history of losses and an accumulated deficit and, as a result, our future
profitability is uncertain.
We have
experienced significant operating losses since our inception and we expect to
incur additional operating losses as we continue research and development,
clinical trial and commercialization efforts. As of March 31, 2008,
we had an accumulated deficit of approximately
$111.6 million. Losses from operations were approximately
$11.7 million and $11.0 million for the fiscal years ended
March 31, 2007 and March 31, 2008, respectively.
New
business strategies that we may pursue may present unforeseen integration
obstacles or costs.
We may
selectively pursue complementary business initiatives and joint ventures in
China, including the distribution of approved drug and other healthcare
products, partnerships with local entities to provide CRS and provision of
healthcare information, each of which inherently involve a number of risks and
present financial, managerial and operational challenges,
including:
|
·
|
potential
disruption of our on-going business and distraction of
management;
|
|
·
|
difficulty
with integration of personnel and financial and other
systems;
|
|
·
|
hiring
additional management and other critical personnel;
and
|
|
·
|
increasing
the scope, geographic diversity and complexity of our
operations.
|
In
addition, we may encounter unforeseen obstacles or costs in the integration of
our new strategies. We have designed our new strategy to help us take
advantage of expected market trends. However, our expectations may
not be accurate and these markets may not develop or they may take longer to
develop than expected. Additionally, we cannot assure that our
customers and potential customers will accept our products quickly enough or in
sufficient volume to grow revenue and profit. A lack of market
acceptance would materially and adversely affect our results of operations,
financial position and cash flow.
-25-
We
need substantial additional funds, currently and in future years, to continue
our research and development. If such financing is not available, we
may be required to pursue other financing alternatives, reduce spending for our
research programs or cease operations.
Our
operations to date have consumed substantial amounts of
cash. Negative cash flow from operations is expected to continue in
the foreseeable future. Without substantial additional financing, we
may be required to reduce some or all of our research programs or cease
operations. Our cash requirements may vary materially from those now
planned because of results of research and development, results of preclinical
and clinical testing, responses to our grant requests, relationships with
strategic partners, changes in the focus and direction of our research and
development programs, delays or failure in the enrollment and completion of our
clinical trials, competitive and technological advances, FDA and foreign
regulatory approval processes and other factors. In any of these
circumstances, we may require substantially more funds than we currently have
available or intend to raise to continue our business. We may seek to
satisfy future funding requirements through public or private offerings of
equity securities, by collaborative or other arrangements with pharmaceutical or
biotechnology companies, issuance of debt or from other
sources. Additional financing may not be available when needed or may
not be available on acceptable terms. If adequate financing is not
available, we may not be able to continue as a going concern or may be required
to delay, scale back or eliminate certain research and development programs,
relinquish rights to certain technologies or drug candidates, forego desired
opportunities or license third parties to commercialize our products or
technologies that we would otherwise seek to pursue internally. To
the extent we raise additional capital by issuing equity securities, ownership
dilution to existing stockholders may result.
We
receive funding primarily from research and development programs, fees
associated with licensing of our technology, grants and from sales of equity
securities. To date we have directed most of such funds not used for
general and administrative overhead toward our research and development and
commercialization programs (including preparation of submissions to regulatory
agencies). Until one or more of our drug candidates is approved for
sale, our funding is limited to funds from research and development programs,
fees associated with licensing of our technology, grants and proceeds from sales
of equity or debt securities.
Although
we formally discontinued development of pafuramidine and expect to reduce our
workforce, we may be unable to successfully manage our remaining resources,
including available cash, while we seek to identify new drug development
candidates or complete a strategic transaction.
We formally discontinued clinical
development of pafuramidine in February 2008 after the pafuramidine program had
been placed on clinical hold. We had previously devoted a majority of
our research, development and clinical efforts and financial resources toward
the development of pafuramidine, and we have few product candidates in clinical
or preclinical development. In connection with the termination of our clinical
development of pafuramidine, we anticipate workforce reductions. By
the end of June 2008, we expect to reduce our workforce by six full-time
employees. We cannot predict whether we will be able to identify
alternate strategic transactions which will either provide us with new drug
development candidates or return value to our stockholders on a timely basis or
at all. We also cannot predict whether any
-26-
potential
strategic transaction would be consummated on favorable terms, and anticipate
that such transaction may require us to incur significant additional
costs.
There
is substantial doubt about our ability to continue as a going
concern.
We
currently have enough cash to operate through December 31, 2008 and
capital resources through the sale of the land use rights that we believe to be
sufficient to support our operations beyond March 31, 2009. Our
recent decision to terminate our pafuramidine development program has
significantly depressed our stock price and severely impaired our ability to
raise additional funds. We are currently evaluating our strategic
alternatives with respect to all aspects of our business. We may be
unable to realize value from our assets and discharge our liabilities in the
normal course of business. All of these factors raise substantial
doubt about our ability to continue as a going concern.
If we become unable to continue as a
going concern, we would have to liquidate our assets, and we might realize
significantly less than the values at which they are carried on our financial
statements. In addition, the accompanying financial statements do not include
any adjustments or charges that might be necessary should we be unable to
continue as a going concern, such as charges related to impairment of our
assets, the recoverability and classification of assets or the amounts and
classification of liabilities or other similar adjustments. The report of our
independent registered public accounting firm on the accompanying financial
statements contains an explanatory paragraph regarding going-concern
uncertainty.
We
may not be successful in retaining key employees and in attracting qualified new
employees as required in the future. If we are unable to retain our
management, scientific staff and scientific advisors or to attract additional
qualified personnel, our ability to operate our business will be seriously
jeopardized.
By the end of June 2008, we expect to
reduce our workforce by 6 employees. Competition among biotechnology companies
for qualified employees is intense, and the ability to retain and attract
qualified individuals is critical to our success. We may experience further
reductions in our workforce due to voluntary employee resignations and a
diminished ability to recruit new employees. We may be unable to attract or
retain key personnel on acceptable terms, if at all.
All of
our employees are “at will” and may leave at any time. None of our
executive officers has as of this date, expressed any intention to retire or
leave our employ. We do not have “key-man” life insurance policies on
any of our executives.
Most of
the financial aspects of our business, including investor relations,
intellectual property control and corporate governance, are under the
supervision of Eric L. Sorkin, Cecilia Chan and Gary Parks. Together,
Mr. Sorkin, Ms. Chan and Mr. Parks hold institutional knowledge and
business acumen that they utilize to assist us to forge new relationships and
foster new business opportunities without diminishing or undermining existing
programs and obligations.
-27-
A
substantial portion of our proprietary intellectual property is developed by
scientists who are not employed by us.
Our
business depends to a significant degree on the continuing contributions of our
key management, scientific and technical personnel, as well as on the continued
discoveries of scientists, researchers and specialists at UNC-CH, Georgia State
University, Duke University, Auburn University, and Tulane University and other
research groups that form part of our Scientific Consortium and assist in the
development of our drug candidates. A substantial portion of our
proprietary intellectual property is developed by scientists who are employed by
our partner universities and other research groups. We do not have
control over, knowledge of, or access to those employment
arrangements. We have not been advised by any of our key employees,
key members of the scientific research groups or other research groups that form
part of our Scientific Consortium of their intention to leave their employ with
these parties or the programs they conduct.
There can
be no assurance that the loss of certain members of our management or the
scientists, researchers and technicians from the universities or other members
of our Scientific Consortium would not materially adversely affect our
business.
Additional
research grants to fund our operations may not be available or, if available,
not on terms acceptable to us.
We have
funded our product development and operations as of March 31, 2008 through a
combination of sales of equity instruments and revenue generated from research
agreements and grants. As of March 31, 2008, our accumulated deficit
was approximately $111.6 million, net of approximately $34.8 million,
which was funded either directly or indirectly with grant funds and payments
from research and testing agreements, and licensing agreements. We
have received funding from different sources pursuant to research and testing
agreements; however, we do not anticipate any future funds under any such
agreement unless we require more funds to close out our pafuramidine development
program.
We will
continue to apply for new grants to support continuing research and development
of our proprietary aromatic cation technology platform and other drug
candidates. The process of obtaining grants is extremely competitive
and there can be no assurance that any of our grant applications will be acted
upon favorably. Some charitable organizations that directly or
indirectly provide funding to us may require licenses to our proprietary
information or may impose price restrictions on the products we develop with
their funds. We may not be able to negotiate terms that are
acceptable to us with such organizations. In the event we are unable
to raise sufficient funds to advance our product developments with such grant
funds we may seek to raise additional capital with the issuance of equity or
debt securities. There can be no assurance that we will be able to
place or sell equity or debt securities on terms acceptable to us and, if we
sell equity, existing stockholders may suffer dilution. See “— Shares
eligible for future sale may adversely affect our ability to sell equity
securities” and “— Our outstanding options and warrants may adversely affect our
ability to consummate future equity financings due to the dilution potential to
future investors.”
-28-
None
of our drug candidates have been approved for sale by any regulatory
agency. Such approval is required before we can sell drug products
commercially.
There can
be no assurance that any of our drug candidates will be successfully developed,
demonstrated to be safe and effective in human clinical trials, meet applicable
regulatory standards, be approved by regulatory authorities, be eligible for
third-party reimbursement from governmental or private insurers, be successfully
marketed or achieve market acceptance. If we are unable to
commercialize our drug candidates in a timely manner we may be required to seek
additional funding, reduce or cancel some or all of our development programs,
sell or license some of our proprietary information or cease
operations.
Delays
in successfully completing any clinical trials we may conduct could jeopardize
our ability to obtain regulatory approval or market our potential product
candidates on a timely basis.
As we develop potential product
candidates, our business prospects may depend on our ability to complete patient
enrollment in clinical trials, to obtain satisfactory results, to obtain
required regulatory approvals and to successfully commercialize our product
candidates. Product development, undertaken to show adequate evidence of
effectiveness in animal models and safety and efficacy in humans, is a long,
expensive and uncertain process, and delay or failure can occur at any stage of
our non-clinical studies or clinical trials. Any delay or significant adverse
clinical events arising during any of our clinical trials could force us to
abandon a product candidate altogether or to conduct additional clinical trials
in order to obtain approval from the FDA or other regulatory body. These
development efforts and clinical trials are lengthy and expensive, and the
outcome is uncertain. Completion of any clinical trials we may commence,
announcement of results of the trials and our ability to obtain regulatory
approvals could be delayed for a variety of reasons, including:
|
·
|
slower-than-anticipated
enrollment of volunteers in the
trials;
|
|
·
|
lower-than-anticipated
recruitment or retention rate of volunteers in the
trials;
|
|
·
|
serious
adverse events related to the product
candidates;
|
|
·
|
unsatisfactory
results of any clinical trial;
|
|
·
|
the
failure of our principal third-party investigators to perform our clinical
trials on our anticipated schedules;
or
|
|
·
|
different
interpretations of our preclinical and clinical data, which could
initially lead to inconclusive
results.
|
Our
development costs will increase if we have material delays in any clinical trial
or if we need to perform more or larger clinical trials than planned. If the
delays are significant, or if any of our product candidates do not prove to be
safe or effective or do not receive required regulatory approvals, our financial
results and the commercial prospects for our product
-29-
candidates
will be harmed. Furthermore, our inability to complete our clinical trials in a
timely manner could jeopardize our ability to obtain regulatory
approval.
We
do not currently have pharmaceutical manufacturing and distribution capability,
which could impair our ability to develop commercially viable products at
reasonable costs.
Our
ability to commercialize drug candidates will depend in part upon our ability to
have manufactured or developed the capability to manufacture our drug candidates
and to distribute those goods, either directly or through third parties, at a
competitive cost and in accordance with FDA and other regulatory
requirements. We currently lack facilities and personnel to
manufacture or distribute our drug candidates. There can be no
assurance that we will be able to acquire such resources, either directly or
through third parties, at reasonable costs, if we develop commercially viable
products.
We
are dependent on third party relationships for critical aspects of our
business. Problems that develop in these relationships may increase
costs and/or diminish our ability to develop our drug candidates.
We use
the expertise and resources of strategic partners and third parties in a number
of key areas, including (i) discovery research, (ii) preclinical and
human clinical trials, (iii) product development, (iv) manufacturing
of pharmaceutical drugs, and (v) distribution. We have a worldwide
license and exclusive commercialization rights to a proprietary aromatic cation
technology platform and are developing drugs intended for commercial use based
on that platform. This strategy creates risks by placing critical
aspects of our business in the hands of third parties, whom we may not be able
to control. If these third parties do not perform in a timely and
satisfactory manner, we may incur costs and delays as we seek alternate sources
of such products and services, if available. Such costs and delays may have a
material adverse effect on our business if the delays jeopardize our licensing
arrangements by causing us to become non-compliant with certain license
agreements.
We may
seek additional third party relationships in certain areas, particularly in
clinical testing, manufacturing, marketing, distribution and other areas where
pharmaceutical and biotechnology company collaborators will enable us to develop
particular products or geographic markets that are otherwise beyond our current
resources and/or capabilities. There is no assurance that we will be
able to obtain any such collaboration or any other research and development,
clinical trial, manufacturing, marketing or distribution
relationships. Our inability to obtain and maintain satisfactory
relationships with third parties may have a material adverse effect on our
business by slowing our ability to develop new products, requiring us to expand
our internal capabilities, increasing our overhead and expenses, hampering
future growth opportunities or causing us to delay or terminate affected
programs.
We
are uncertain about our ability to protect or obtain necessary patents and
protect our proprietary information. Our ability to develop and
commercialize drug candidates would be compromised without adequate intellectual
property protection.
We have
spent and continue to spend considerable funds to develop our drug candidates
and we are relying on the potential to exploit commercially without competition
the results of
-30-
our
product development. Much of our intellectual property is licensed to
us under various agreements, including the Consortium Agreement, Amended and
Restated License Agreement, and the Tulane License
Agreement. It is the primary responsibility of the discoverer to
develop his, her or its invention confidentially, insure that the invention is
unique, and to obtain patent protection. In most cases, our role is
to reimburse patent related costs after we decide to develop any such
invention. We therefore rely on the inventors to insure that
technology licensed to us is adequately protected. Without adequate
protection for our intellectual property we believe our ability to realize
profits on our future commercialized product would be
diminished. Without protection, competitors might be able to copy our
work and compete with our products without having invested in the
development.
There can
be no assurance that any particular patent will be granted or that issued
patents (issued to us directly or through licenses) will provide us with the
intellectual property protection contemplated by such
patents. Patents and licenses of patents can be challenged,
invalidated or circumvented. Patent litigation is expensive and
time-consuming and the outcome cannot be predicted. It is also
possible that competitors will develop similar products
simultaneously. Our breach of any license agreement or the failure to
obtain a license to any technology or process which may be required to develop
or commercialize one or more of our drug candidates may have a material adverse
effect on our business, including the need for additional capital to develop
alternate technology, the potential that competitors may gain unfair advantage
and lessen our expectation of potential future revenues.
The
pharmaceutical and biotechnology fields are characterized by a large number of
patent filings, and a substantial number of patents have already been issued to
other pharmaceutical and biotechnology companies. Third parties may
have filed applications for, or may have been issued, certain patents and may
obtain additional patents and proprietary rights related to products or
processes competitive with or similar to those that we are attempting to develop
and commercialize. We may not be aware of all of the patents
potentially adverse to our interests that may have been issued to
others. No assurance can be given that patents do not exist, have not
been filed or could not be filed or issued, which contain claims relating to or
competitive with our technology, drug candidates, product uses or
processes. If patents have been or are issued to others containing
preclusive or conflicting claims, then we may be required to obtain licenses to
one or more of such patents or to develop or obtain alternative
technology. There can be no assurance that the licenses or
alternative technology that might be required for such alternative processes or
products would be available on commercially acceptable terms, or at
all.
Because
of the substantial length of time and expense associated with bringing new drug
products to market through the development and regulatory approval process, the
pharmaceutical and biotechnology industries place considerable importance on
patent and trade secret protection for new technologies, products and
processes. Since patent applications filed in the United States are
confidential for eighteen months after filing and some are confidential until
their date of issue as a patent and since publication of discoveries in the
scientific or patent literature often lag behind actual discoveries, we cannot
be certain that we (or our licensors) were the first to make the inventions
covered by pending patent applications or that we (or our licensors) were the
first to file patent applications for such inventions. The patent
positions of pharmaceutical and biotechnology companies can be highly uncertain
and involve complex legal and factual
-31-
questions
and, therefore, the breadth of claims allowed in pharmaceutical and
biotechnology patents, or their enforceability, cannot be
predicted. There can be no assurance that any patents under pending
patent applications or any further patent applications will be
issued. Furthermore, there can be no assurance that the scope of any
patent protection will exclude competitors or provide us competitive advantages,
that any of our (or our licensors’) patents that have been issued or may be
issued will be held valid if subsequently challenged, or that others, including
competitors or current or former employers of our employees, advisors and
consultants, will not claim rights in, or ownership to, our (or our licensors’)
patents and other proprietary rights. There can be no assurance that
others will not independently develop substantially equivalent proprietary
information or otherwise obtain access to our proprietary information, or that
others may not be issued patents that may require us to obtain a license for,
and pay significant fees or royalties for, such proprietary
information.
We
rely on technology developed by others and shared with collaborators to develop
our drug candidates, which puts our proprietary information at risk of
unauthorized disclosure.
We rely
on trade secrets, know-how and technological advancement to maintain our
competitive position. Although we use license agreements,
confidentiality agreements and employee proprietary information and invention
assignment agreements to protect our trade secrets and other unpatented
know-how, these agreements may be breached by the other party thereto or may
otherwise be of limited effectiveness or enforceability.
We are
licensed to commercialize technology from a proprietary aromatic cation
technology platform developed by our research partners, comprised primarily of
scientists employed by universities in our Scientific Consortium. The
academic world is improved by the sharing of information. As a
business, however, the sharing of information whether through publication of
research, academic lectures or general intellectual discourse among
contemporaries is not conducive to protection of proprietary
information. Our proprietary information may fall into the possession
of unintended parties without our knowledge through customary academic
information sharing.
At times
we may enter into confidentiality agreements with other companies, allowing them
to test our technology for potential future licensing, in return for milestone
and royalty payments should any discoveries result from the use of our
proprietary information. We cannot be assured that such parties will
honor these confidentiality agreements subjecting our intellectual property to
unintended disclosure.
The
pharmaceutical and biotechnology industries have experienced extensive
litigation regarding patent and other intellectual property
rights. We could incur substantial costs in defending suits that may
be brought against us (or our licensors) claiming infringement of the rights of
others or in asserting our (or our licensors’) patent rights in a suit against
another party. We may also be required to participate in interference
proceedings declared by the United States Patent and Trademark Office or similar
foreign agency for the purpose of determining the priority of inventions in
connection with our (or our licensors’) patent applications.
-32-
Adverse
determinations in litigation or interference proceedings could require us to
seek licenses (which may not be available on commercially reasonable terms) or
subject us to significant liabilities to third parties, and could therefore have
a material adverse effect on our business by increasing our
expenses. Even if we prevail in an interference proceeding or a
lawsuit, substantial resources, including the time and attention of our
officers, would be required.
Confidentiality
agreements may not adequately protect our intellectual property, which could
result in unauthorized disclosure or use of our proprietary
information.
We
require our employees, consultants and third parties with whom we share
proprietary information to execute confidentiality agreements upon the
commencement of their relationship with us. 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 will be our exclusive property and will 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 our proprietary information in
the event of unauthorized use or disclosure of such information. If
our unpatented proprietary information is publicly disclosed before we have been
granted patent protection, our competitors could be unjustly enriched and we
could lose the ability to profitably develop products from such
information.
Our
industry has significant competition; our drug candidates may become obsolete
prior to commercialization due to alternative technologies, thereby rendering
our development efforts obsolete or non-competitive.
The
pharmaceutical and biotechnology fields are characterized by extensive research
efforts and rapid technological progress. Competition from other
pharmaceutical and biotechnology companies and research and academic
institutions is intense and other companies are engaged in research and product
development to treat the same diseases that we target. New
developments in pharmaceutical and biotechnology fields are expected to continue
at a rapid pace in both industry and academia. There can be no
assurance that research and discoveries by others will not render some or all of
our programs or products non-competitive or obsolete.
We are
aware of other companies and institutions dedicated to the development of
therapeutics similar to those we are developing. Many of our existing
or potential competitors have substantially greater financial and technical
resources than we do and therefore may be in a better position to develop,
manufacture and market pharmaceutical products. Many of these
competitors are also more experienced performing preclinical testing and human
clinical trials and obtaining regulatory approvals. The current or
future existence of competitive products may also adversely affect the
marketability of our drug candidates.
In the
event some or all of our programs are rendered non-competitive or obsolete, we
do not currently have alternative strategies to develop new product lines or the
financial resources to pursue such a course of action.
-33-
There
is no assurance that we will receive FDA or corollary foreign approval for any
of our drug candidates for any indication. We are subject to
government regulation for the commercialization of our drug
candidates.
We have
not made application to the FDA or any other regulatory agency to sell
commercially or label any of our drug candidates. All new
pharmaceutical drugs, including our drug candidates, are subject to extensive
and rigorous regulation by the federal government, principally the FDA under the
FFDCA and other laws and by applicable state, local and foreign
governments. Such regulations govern, among other things, the
development, testing, manufacturing, labeling, storage, pre-market clearance or
approval, advertising, promotion, sale and distribution of pharmaceutical
drugs. If drug products are marketed abroad, they are subject to
extensive regulation by foreign governments. Failure to comply with
applicable regulatory requirements may subject us to administrative or
judicially imposed sanctions such as civil penalties, criminal prosecution,
injunctions, product seizure or detention, product recalls, total or partial
suspension of production and FDA refusal to approve pending
applications.
Each of
our drug candidates must be approved for each indication for which we believe it
to be viable. We have not yet determined from which regulatory
agencies we will seek approval for our drug candidates or indications for which
approval will be sought. Once determined, the approval process is
subject to those agencies’ policies and acceptance of those agencies’ approvals,
if obtained, in the countries where we intend to market our drug
candidates.
We
have not received regulatory approval in the United States or any foreign
jurisdiction for the commercial sale of any of our drug candidates.
The
process of obtaining FDA or other regulatory approvals, including foreign
approvals, often takes many years and varies substantially based upon the type,
complexity and novelty of the products involved and the indications being
studied. Furthermore, the approval process is extremely expensive and
uncertain. There can be no assurance that our drug candidates will be
approved for commercial sale in the United States by the FDA or regulatory
agencies in foreign countries. The regulatory review process can take
many years and we will need to raise additional funds to complete the regulatory
review process for our current drug candidates. The failure to
receive FDA or other governmental approval would have a material adverse effect
on our business by precluding us from marketing and selling such products and
negatively impacting our ability to generate future revenues. Even if
regulatory approval of a product is granted, there can be no assurance that we
will be able to obtain the labeling claims (a labeling claim is a product’s
description and its FDA permitted uses) necessary or desirable for the promotion
of such product. FDA regulations prohibit the marketing or promotion
of a drug for unapproved indications. Furthermore, regulatory
marketing approval may entail ongoing requirements for post-marketing studies if
regulatory approval is obtained. We will also be subject to ongoing
FDA obligations and continued regulatory review. In particular, we,
or our third party manufacturers, will be required to adhere to good
manufacturing practices, which require us (or our third party manufacturers) to
manufacture products and maintain records in a prescribed manner with respect to
manufacturing, testing and quality control. Further, we (or our third
party manufacturers) must pass a manufacturing facilities pre-approval
inspection by the FDA or corollary agency before obtaining marketing
approval. Failure to comply with applicable regulatory requirements
may result in penalties, such as restrictions on a product’s
-34-
marketing
or withdrawal of the product from the market. In addition,
identification of certain side-effects after a drug is on the market or the
occurrence of manufacturing problems could cause subsequent withdrawal of
approval, reformulation of the drug, additional preclinical testing or clinical
trials and changes in labeling of the product.
Prior to
the submission of an application for FDA or other regulatory approvals, our
pharmaceutical drugs undergo rigorous preclinical and clinical testing, which
may take several years and the expenditure of substantial financial and other
resources. Before commencing clinical trials in humans in the United
States, we must submit to the FDA and receive clearance of an
IND. There can be no assurance that submission of an IND for future
clinical testing of any of our drug candidates under development or other future
drug candidates will result in FDA permission to commence clinical trials or
that we will be able to obtain the necessary approvals for future clinical
testing in any foreign jurisdiction. Further, there can be no
assurance that if such testing of drug candidates under development is
completed, any such drug compounds will be accepted for formal review by the FDA
or any foreign regulatory agency or approved by the FDA for marketing in the
United States or by any such foreign regulatory agencies for marketing in
foreign jurisdictions.
Shares
eligible for future sale may adversely affect our ability to sell equity
securities.
Sales of
our Common Stock (including the issuance of shares upon conversion of our
preferred stock (the “Preferred Stock”)) in the public market could materially
and adversely affect the market price of shares because prior sales have been
executed at or below our current market price. We have outstanding
five series of Preferred Stock that convert to our Common Stock at prices
equivalent to $4.42, $4.00, $4.42, $9.00 and $7.04, respectively, for our
series A convertible preferred stock (“Series A Preferred Stock”),
series B convertible preferred stock (“Series B Preferred Stock”),
series C convertible preferred stock (“Series C Preferred Stock”),
series D convertible preferred stock (“Series D Preferred Stock”) and
series E convertible preferred stock (“Series E Preferred Stock”) (subject
to adjustment for stock splits, stock dividends and similar dilutive
events). Our obligation to convert our Preferred Stock upon demand by
the holders may depress the price of our Common Stock and also make it more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that we deem appropriate.
As of
June 2, 2008 we had 15,876,983 shares of Common Stock outstanding, plus
(1) 50,500 shares of Series A Preferred Stock, convertible into
approximately 285,633 shares of Common Stock at the conversion rate of 1:5.6561,
(2) 11,464 shares of Series B Preferred Stock convertible into
approximately 71,650 shares of Common Stock at the conversion rate of 1:6.25,
(3) 45,536 shares of Series C Preferred Stock convertible into
approximately 257,556 shares of Common Stock at the conversion rate of 1:5.6561,
(4) 115,200 shares of Series D Preferred Stock convertible into
approximately 320,003 shares of Common Stock at the conversion rate of 1:2.7778,
(5) 98,600 shares of Series E Preferred Stock convertible into
approximately 350,143 shares of Common Stock at the conversion rate of 1:3.5511,
(6) 2,031,236 options to purchase shares of Common Stock with a
weighted-average exercise price of $10.29 per share, and (7) 2,259,800
warrants to purchase shares of Common Stock with a weighted-average exercise
price of $8.20. Of the shares outstanding, 15,093,771 shares of Common Stock
are freely tradable without restriction. All of the remaining 783,212
shares are restricted from resale,
-35-
except
pursuant to certain exceptions under the Securities Act of 1933, as amended (the
“Securities Act”).
Our
outstanding options and warrants may adversely affect our ability to consummate
future equity financings due to the dilution potential to future
investors.
We have
outstanding options and warrants for the purchase of shares of our Common Stock
with exercise prices currently below market which may adversely affect our
ability to consummate future equity financings. The holders of such
warrants and options may exercise them at a time when we would otherwise be able
to obtain additional equity capital on more favorable terms. To the
extent any such options and warrants are exercised, the value of our outstanding
shares of our Common Stock may be diluted.
As of
June 2, 2008, we have outstanding vested options to purchase 1,664,937
shares of Common Stock at a weighted-average exercise price of $9.29 and vested
warrants to purchase 2,249,800 shares of Common Stock with a weighted-average
price of $8.18.
Due to
the number of shares of Common Stock we are obligated to sell pursuant to
outstanding options and warrants described above, potential investors may not
purchase our future equity offerings at market price because of the potential
dilution such investors may suffer as a result of the exercise of the
outstanding options and warrants.
The
market price of our Common Stock has experienced significant
volatility.
The
securities markets from time to time experience significant price and volume
fluctuations unrelated to the operating performance of particular
companies. In addition, the market prices of the Common Stock of many
publicly traded pharmaceutical companies have been and can be expected to be
especially volatile. Our Common Stock price in the 52-week period
ended March 31, 2008 had a high of $8.99 and a low of $0.48, and on June 2, 2008
had a high of $1.00 and a low of $0.93. Announcements of
technological innovations or new products by us or our competitors, developments
or disputes concerning patents or proprietary rights, publicity regarding actual
or potential clinical trial results relating to products under development by us
or our competitors, regulatory developments in both the United States and
foreign countries, delays in our testing and development schedules, public
concern as to the safety of pharmaceutical drugs and economic and other external
factors, as well as period-to-period fluctuations in our financial results, may
have a significant impact on the market price of our Common
Stock. The realization of any of the risks described in these “Risk
Factors” may have a significant adverse impact on such market
prices.
We
may pay vendors and advisors in stock as consideration for their
services. This may result in stockholder dilution, additional costs
and difficulty retaining certain vendors.
In order
for us to preserve our cash resources, we have previously paid and may in the
future pay vendors and advisors in shares, warrants or options to purchase
shares of our Common Stock rather than cash. Payments for services in
stock may materially and adversely affect our stockholders by diluting the value
of outstanding shares of our Common Stock. In addition, in situations
where we have agreed to register the shares issued to a vendor or advisor, we
may incur additional expenses associated with such
registration. Paying vendors or advisors in
-36-
shares,
warrants or options to purchase shares of Common Stock may also limit our
ability to contract with the vendor or advisor of our choice should that vendor
or advisor decline payment in stock.
We
do not intend to pay dividends on our Common Stock. Until such time
as we pay cash dividends, our stockholders must rely on increases in our stock
price for appreciation.
We have
never declared or paid dividends on our Common Stock. We intend to
retain future earnings to develop and commercialize our products and therefore
we do not intend to pay cash dividends in the foreseeable
future. Until such time as we determine to pay cash dividends on our
Common Stock, our stockholders must rely on increases in our Common Stock’s
market price for appreciation.
We incur increased costs and demands
upon management as a result of complying with the laws and regulations affecting
public companies, which may adversely affect our operating results and failure
to achieve and maintain effective internal controls in accordance with
Section 404 of the Sarbanes-Oxley Act could cause investors to lose
confidence in our operating results and in the accuracy of our financial reports
and could have a material adverse effect on our business and on the price of our
Common Stock.
As a
public company, we are required, pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, to furnish a report by management on, among other
things, the effectiveness of our internal control over financial reporting for
our 2008 fiscal year. Management is responsible for implementing
controls and other procedures designed to ensure that information required to be
disclosed by us in the reports that we file with the SEC is disclosed accurately
and is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms. In the event that we are not
able to demonstrate compliance with Section 404 of the Sarbanes-Oxley Act
in a timely manner, or are unable to produce timely or accurate financial
statements, we may be subject to sanctions or investigations by regulatory
authorities such as the SEC or AMEX and investors may lose confidence in our
operating results and our stock price could decline. Furthermore, if
we or our auditors are unable to certify that our internal control is effective
and in compliance with Section 404 we may be subject to sanctions or
investigations by regulatory authorities such as the SEC or AMEX and we could
lose investor confidence in the accuracy and completeness of our financial
reports, which would have a material adverse effect on our business and on the
price of our common stock.
Furthermore,
as a public company, we incur significant additional legal, accounting and other
expenses. In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure, including regulations implemented by
the SEC and AMEX may increase legal and financial compliance costs and make some
activities more time consuming. These laws, regulations and standards
are subject to varying interpretations and, as a result, their application in
practice may evolve over time as new guidance is provided by regulatory and
governing bodies. We intend to invest resources to comply with
evolving laws, regulations and standards, and this investment may result in
increased general and administrative expenses and a diversion of management’s
time and attention from revenue-generating activities to compliance
activities. If notwithstanding our efforts to comply with new laws,
regulations and
-37-
standards,
we fail to comply, regulatory authorities may initiate legal proceedings against
us and our business may be harmed.
Failure
to comply with these rules might also make it more difficult for us to obtain
certain types of insurance, including director and officer liability insurance,
and we might be forced to accept reduced policy limits and coverage and/or incur
substantially higher costs to obtain the same or similar
coverage. The impact of these events could also make it more
difficult for us to attract and retain qualified persons to serve on our board
of directors, on committees of our board of directors, or as executive
officers.
There
are limitations on the liability of our directors, and we may have to indemnify
our officers and directors in certain instances.
Our
certificate of incorporation limits, to the maximum extent permitted under
Delaware law, the personal liability of our directors for monetary damages for
breach of their fiduciary duties as directors. Our bylaws provide
that we will indemnify our officers, directors, employees and other agents to
the fullest extent permitted by law. These provisions may be in some
respects broader than the specific indemnification provisions under Delaware
law. The indemnification provisions may require us, among other
things, to (i) indemnify such persons against certain liabilities that may
arise by reason of their status with or service to the Company (other than
liabilities arising from willful misconduct of a culpable nature),
(ii) advance expenses incurred as a result of any proceeding against such
persons as to which they could be indemnified and (iii) obtain directors’
and officers’ insurance. Section 145 of the Delaware General
Corporation Law provides that a corporation may indemnify a director, officer,
employee or agent made or threatened to be made a party to an action by reason
of the fact that he or she was a director, officer, employee or agent of the
corporation or was serving at the request of the corporation, against expenses
actually and reasonably incurred in connection with such action if he or she
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. Delaware law does not permit a corporation to
eliminate a director’s duty of care and the provisions of our certificate of
incorporation have no effect on the availability of equitable remedies, such as
injunction or rescission, for a director’s breach of the duty of
care.
We
believe that our limitation of officer and director liability assists us to
attract and retain qualified officers and directors. However, in the
event an officer, a director or our board of directors commits an act that may
legally be indemnified under Delaware law, we will be responsible to pay for
such officer(s) or director(s) legal defense and potentially any damages
resulting therefrom. Furthermore, the limitation on director
liability may reduce the likelihood of derivative litigation against directors,
and may discourage or deter stockholders from instituting litigation against
directors for breach of their fiduciary duties, even though such an action, if
successful, might benefit us and our stockholders. Given the
difficult environment and potential for incurring liabilities currently facing
directors of publicly-held corporations, we believe that director
indemnification is in our and our stockholders’ best interests because it
enhances our ability to attract and retain highly qualified directors and reduce
a possible deterrent to entrepreneurial decision-making.
-38-
Nevertheless,
limitations of director liability may be viewed as limiting the rights of
stockholders, and the broad scope of the indemnification provisions contained in
our certificate of incorporation and bylaws could result in increased
expenses. Our board of directors believes, however, that these
provisions will provide a better balancing of the legal obligations of, and
protections for, directors and will contribute positively to the quality and
stability of our corporate governance. Our board of directors has
concluded that the benefit to stockholders of improved corporate governance
outweighs any possible adverse effects on stockholders of reducing the exposure
of directors to liability and broadened indemnification rights.
ITEM
2. PROPERTIES
Our
executive offices are in New York, located at One North End Avenue, New York,
New York 10282. We have paid rent of approximately $10,100 per month,
on a month-to-month basis, for approximately 2,500 square feet of space for our
New York office. The current rate effective February 2008 is
approximately $12,000 per month. Our research and development offices
are located at 150 Fairway Drive, Suite 150, Vernon Hills, Illinois
60061. We occupy approximately 9,750 square feet of space under a
lease that expires on March 14, 2010. Our rent for the Vernon
Hills facility has been approximately $8,200 per month. The current
rate effective March 2008 is approximately $8,600 per month. We are
also charged by the landlord of our Vernon Hills, Illinois office and the New
York office a portion of the real estate taxes and common area operating
expenses. In December 2007, the Company entered into a one year lease
of an office facility in Beijing, China that requires monthly lease payments of
approximately $5,000 with an option to extend the lease upon sixty days notice
prior to the end of the lease. Additionally in November 2007, the
Company entered into a one year residential lease in Beijing, China that
requires monthly lease payments of approximately $1,800. We believe
our current facilities are adequate for our needs for the foreseeable future
and, in the opinion of our management, the facilities are adequately
insured.
Our
indirectly wholly-owned subsidiary, Immtech Life Science, owns two floors of a
newly-constructed building located in the Futian Free Trade Zone, Shenzhen, in
China. The property comprises the first two floors of an industrial
building named the Immtech Life Science Building. The duration of the
land use right associated with the building on which the property is located is
50 years which expires May 24, 2051.
ITEM
3. LEGAL
PROCEEDINGS
We are a
party to the following legal proceeding:
Gerhard
Von der Ruhr et al. v. Immtech International, Inc. et. al.
-39-
damages,
in addition to equitable relief and costs. In a filing made in late February
2005, the Von der Ruhr Plaintiffs specified damages of approximately $44.5
million in damages.
In 2005, one of the breach of contract
claims was dismissed upon the Company's motion for summary judgment. On October
26, 2006, a preliminary pre-trial conference was held and the court granted the
Company's motions in limine to exclude plaintiffs’ damage claim for lost profits
and prohibited plaintiff from offering expert testimony at trial on this issue.
The court subsequently granted a motion to sever the trial on Count V, regarding
the technology license agreement, from the trial on the remaining counts. The
trial on the remaining counts concluded on December 7, 2007, and a jury returned
a verdict against the Company and certain officers and directors for a total
amount of $361,704.90. The Company immediately filed a motion with the court
seeking to overturn the jury verdict, which the court subsequently
denied.
In the first quarter of 2008, the Von
der Ruhr Plaintiffs appealed the trial court’s ruling excluding their damage
claim for lost profits. Separately, the Company’s officers and directors
have appealed the jury’s finding on the intentional interference with
contractual relations claim. The United States Court of Appeals for the
Seventh Circuit has consolidated these appeals and now will be briefed to the
appellate court. The last brief is now scheduled to be filed in September
2008.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not submit any matters to a vote
of security holders during the fourth quarter of our most recent fiscal
year.
PART
II.
ITEM
5. MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
|
A.
|
Market
Information
|
Our
common stock is listed on the American Stock Exchange and trades under the
symbol “IMM”. Following are the reported high and low share trade prices as
reported by IDD Information Services, NASDAQ Online and Lexis/Nexis for each of
the quarters set forth below since the fiscal quarter ended March 31,
2005.
-40-
|
High
|
Low
|
||||||||
|
2005
|
|||||||||
|
Quarter
ended March 31, 2005
|
$15.70
|
$10.03
|
|||||||
|
Quarter
ended June 30, 2005
|
$13.89
|
$9.50
|
|||||||
|
Quarter
ended September 30, 2005
|
$12.63
|
$10.61
|
|||||||
|
Quarter
ended December 31, 2005
|
$11.94
|
$6.30
|
|||||||
|
2006
|
|||||||||
|
Quarter
ended March 31, 2006
|
$9.62
|
$6.80
|
|||||||
|
Quarter
ended June 30, 2006
|
$8.25
|
$6.66
|
|||||||
|
Quarter
ended September 30, 2006
|
$6.98
|
$4.50
|
|||||||
|
Quarter
ended December 31, 2006
|
$9.60
|
$4.80
|
|||||||
|
2007
|
|||||||||
|
Quarter
ended March 31, 2007
|
$8.90
|
$5.00
|
|||||||
|
Quarter
ended June 30, 2007
|
$8.50
|
$5.68
|
|||||||
|
Quarter
ended September 30, 2007
|
$8.99
|
$5.80
|
|||||||
|
Quarter
ended December 31, 2007
|
$8.40
|
$2.10
|
|||||||
|
2008
|
|||||||||
|
Quarter
ended March 31, 2008
|
$3.75 |
$0.48
|
|||||||
|
B.
|
Stockholders
|
As of
June 2, 2008, the Company had approximately 214 stockholders of record of our
Common Stock and the number of beneficial owners of shares of Common Stock as of
such date was approximately 2,854. As of June 2, 2008, the Company
had approximately 15,876,983 shares of Common Stock issued and
outstanding.
|
C.
|
Dividends
|
We have
never declared or paid dividends on our Common Stock and we do not intend to pay
any Common Stock dividends in the foreseeable future. Our Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, and Series E Preferred Stock earn dividends of 6%, 8%, 8%, 6%,
and 6% per annum, respectively, each payable semi-annually on each April 15 and
October 15 while outstanding, and which, at our option, may be paid in cash
or in shares of our Common Stock valued at the 10-day volume-weighted average of
the closing sale price of our Common Stock as reported by the primary stock
exchange on which such stock is listed or traded.
|
D.
|
Recent
Sales of Unregistered
Securities
|
We issued
unregistered securities in the following conversion of Preferred Stock to Common
Stock, pursuant to Section 4(2) of the Securities Act and Regulation 506
thereunder, during the fiscal quarter ended March 31, 2008:
|
·
|
On
January 8, 2008, a holder of Series A Preferred Stock converted 4,000
shares of Series A Preferred Stock and accrued dividends into 23,083
shares of Common
Stock.
|
-41-
|
E.
|
Stock
Performance Graph
|
The
following graph shows a comparison of cumulative total stockholder returns for
our Common Stock, the S&P 500 Index and the Peer Group. The graph
assumes the investment of $100 on April 1, 2003, and the reinvestment of all
dividends. The performance shown is not necessarily indicative of
future performance.
The
information contained in the graph above shall not be deemed to be “soliciting
material” or to be “filed” with the SEC, nor shall such information be
incorporated by reference into any future filing under the Securities Act or the
Exchange Act, or subject to Regulation 14A or 14C promulgated under the Exchange
Act, other than as provided in Item 402 of the SEC’s Regulation S-K, or to the
liabilities of Section 18 of the Exchange Act, except to the extent that Immtech
specifically requests that the information be treated as soliciting material or
specifically incorporates it by reference in such filing.
-42-
TOTAL
STOCKHOLDER RETURNS
Total
Return To Stockholder’s
(Dividends
reinvested monthly)
|
ANNUAL
RETURN PERCENTAGE
YEARS
ENDED
|
||||||
|
Company Name / Index
|
Mar
04
|
Mar
05
|
Mar
06
|
Mar
07
|
Mar
08
|
|
|
Immtech Pharmaceuticals, Inc.
|
311.58
|
-32.93
|
-37.59
|
-25.80
|
-85.74
|
|
|
S&P 500 Index
|
35.13
|
6.67
|
11.71
|
11.83
|
-5.07
|
|
|
Peer Group
|
158.50
|
0.30
|
28.17
|
-14.58
|
-19.37
|
|
Peer
Group Companies
Cubist
Pharmaceuticals, Inc. (NASDAQ: CBST)
EntreMed,
Inc. (NASDAQ: ENMD)
Encysive
Pharmaceuticals, Inc. (NASDAQ: ENCY)
-43-
ITEM
6. SELECTED
FINANCIAL DATA
The
following table sets forth certain selected financial data that was derived from
our consolidated financial statements (dollars in thousands except share and per
share data):
|
Fiscal
Year Ended March 31,
|
||||||||||||||||||||
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
|
Statement
of Operations:
|
||||||||||||||||||||
|
REVENUES
|
$ | 9,717 | $ | 4,318 | $ | 3,575 | $ | 5,931 | $ | 2,416 | ||||||||||
|
EXPENSES:
|
||||||||||||||||||||
|
Research and development
|
11,570 | 8,760 | 9,680 | 7,309 | 3,292 | |||||||||||||||
|
General and administrative
|
9,100 | (7) | 9,095 | (5) | 9,631 | (4) | 12,190 | (3) | 11,989 | (1) | ||||||||||
|
Other
|
(1,875 | )(6) | ||||||||||||||||||
|
Total expenses
|
20,670 | 15,980 | 19,311 | 19,499 | 15,282 | |||||||||||||||
|
LOSS
FROM OPERATIONS
|
(10,953 | ) | (11,662 | ) | (15,736 | ) | (13,569 | ) | (12,866 | ) | ||||||||||
|
OTHER
INCOME (EXPENSE):
|
||||||||||||||||||||
|
Interest income
|
440 | 530 | 210 | 135 | 20 | |||||||||||||||
|
Interest expense
|
||||||||||||||||||||
|
Other income (expense) – net
|
440 | 530 | 210 | 135 | 20 | |||||||||||||||
|
NET
LOSS
|
(10,513 | ) | (11,132 | ) | (15,526 | ) | (13,433 | ) | (12,846 | ) | ||||||||||
|
PREFERRED
STOCK DIVIDENDS(2)
|
(529 | ) | (551 | ) | (764 | ) | (580 | ) | (3,526 | )(2) | ||||||||||
|
NET
(LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
(11,042 | ) | (11,683 | ) | (16,290 | ) | (14,013 | ) | (16,372 | ) | ||||||||||
|
BASIC
AND DILUTED NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO COMMON
STOCKHOLDERS:
|
||||||||||||||||||||
|
Net loss
|
(0.68 | ) | (0.78 | ) | (1.31 | ) | (1.27 | ) | (1.43 | ) | ||||||||||
|
Preferred Stock dividends
|
(0.03 | ) | (0.04 | ) | (0.06 | ) | (0.05 | ) | (0.39 | ) | ||||||||||
|
BASIC
AND DILUTED NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO COMMON
STOCKHOLDERS
|
$ | (0.71 | ) | $ | (0.82 | ) | $ | (1.37 | ) | $ | (1.32 | ) | $ | (1.82 | ) | |||||
|
WEIGHTED
AVERAGE SHARES USED IN COMPUTING BASIC AND DILUTED LOSS PER
SHARE
|
15,477,463 | 14,207,048 | 11,852,630 | 10,606,917 | 8,977,817 | |||||||||||||||
-44-
|
Fiscal
Year Ended March 31,
|
||||||||||||||||||||
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
5,996 | 12,462 | 14,138 | 9,472 | 6,745 | |||||||||||||||
|
Restricted
funds on deposit
|
3,776 | 3,119 | 530 | 2,044 | 2,155 | |||||||||||||||
|
Working
capital
|
4,242 | 10,991 | 11,910 | 8,069 | 6,136 | |||||||||||||||
|
Total
assets
|
13,438 | 19,144 | 18,554 | 15,276 | 12,586 | |||||||||||||||
|
Preferred
Stock
|
8,267 | 8,796 | 10,015 | 7,752 | 9,522 | |||||||||||||||
|
Deficit
accumulated during development stage
|
(111,567 | ) | (100,525 | ) | (88,842 | ) | (72,552 | ) | (58,539 | ) | ||||||||||
|
Stockholders’
equity
|
7,600 | 14,456 | 15,603 | 11,741 | 9,748 | |||||||||||||||
|
(1)
|
Includes
non-cash charges of (i) $2,744 of costs related to the issuance of
warrants to purchase 600,000 shares of Common Stock issued to China
Harvest International Ltd as payment for “services to assist in obtaining
regulatory approval to conduct clinical trials in China, (ii) $63 for
the issuance of 10,000 shares of Common Stock issued to Mr. David Tat Koon
Shu for consulting services in China, (iii) $1,400 for the issuance
of 100,000 shares of Common Stock issued to Fulcrum for assisting with
listing the Company’s securities on a recognized stock exchange and for
consulting services, (iv) $2,780 for the vested portion of 91,667
shares of Common Stock and the vested portion of warrants to purchase
320,835 shares of Common Stock issued to Fulcrum during the fiscal year
based on agreements signed March 21, 2003 and (v) $247 for
the attainment of certain milestones with respect to the vesting of
warrants to purchase 20,000 shares of Common Stock issued to Pilot Capital
Groups, LLC (f/k/a The Gabriela Group, LLC) based upon agreements signed
July 31, 2002.
|
|
(2)
|
See
Note 8 to the notes to our consolidated financial statements included in
this Annual Report on Form 10-K for a discussion on the Preferred Stock
dividends.
|
|
(3)
|
Includes
non-cash charges of (i) $4,531 of costs related to the four year
extension of warrants received from RADE Management Corporation (“RADE”),
(ii) $233 for the issuance of 20,000 options to Mr. Tony Mok for
consulting services in China, (iii) $301 for the extension of the
unexercised Fulcrum warrants to December 23, 2005 and (iv) $10 for
the extension of warrants initially issued to underwriters to purchase
21,400 shares of Common Stock from April 24, 2004 to May 11,
2004.
|
|
(4)
|
Includes
non-cash charges of $125 for the repricing and reduced exercise period of
125,000 Fulcrum warrants. Fulcrum exercised 35,000
warrants. The remaining 90,000
expired.
|
|
(5)
|
Includes
non-cash charges of (i) $36 for the issuance of 5,000 common shares to
Tulane University for the AQ13 agreement, (ii) $36 for the issuance of
5,000 common shares to T. Stephen Thompson under his retirement agreement,
and (iii) $564,000 for the issuance of 80,000 common shares to China
Pharmaceutical for the attainment of certain
milestones.
|
|
(6)
|
Includes
the award by the International Court of Arbitration of the International
Chamber of Commerce for the breach of a testing agreement by Neurochem,
Inc., and attorneys’ fees and costs of approximately
$1,875,000.
|
|
(7)
|
Includes
non-cash charges of (i) $172 for the issuance of 50,000 warrants to a
consultant, (ii) $118 for the issuance of 30,000 warrants to an investor
relations firm, and (iii) $440 for the two year extension of warrants to
China Harvest International Ltd. referenced in Note 1
above.
|
-45-
ITEM
7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
A.
|
Overview
|
With the
exception of certain research funding agreements and certain grants, we have not
generated any revenue from operations. For the period from the date
of our inception, October 15, 1984, to March 31, 2008, we incurred
cumulative net losses of approximately $106,597,000. We have incurred
additional operating losses since March 31, 2008 and expect to incur operating
losses for the foreseeable future. We expect that our cash sources
for at least the next year will be limited to:
|
·
|
payments
from charitable foundations and other research collaborators under
arrangements that may be entered into in the
future;
|
|
·
|
research
grants, such as Small Business Innovation Research (“SBIR”) grants;
and
|
|
·
|
sales
of equity securities or borrowing
funds.
|
The
timing and amounts of grant and other revenues, if any, will likely fluctuate
sharply and depend upon the achievement of specified milestones. Our
results of operations for any period may be unrelated to the results of
operations for any other period.
We
currently have enough cash to operate through December 31, 2008 and
capital resources through the sale of the land use rights that we believe are
sufficient to support our operations beyond March 31, 2009. We
are unlikely to raise sufficient funds to continue our existing operations
beyond that time. Our recent decision to terminate our pafuramidine
development program has significantly depressed our stock price and impaired our
ability to raise additional funds. We are evaluating our strategic
alternatives with respect to all aspects of the business. We cannot
assure you that any actions that we take would raise or generate sufficient
capital to fully address the uncertainties of our financial
position. Moreover, we may not successfully identify or implement any
of these alternatives, and, even if we determine to pursue one or more of these
alternatives, we may be unable to do so on acceptable financial
terms. As a result, we may be unable to realize value from our assets
and discharge our liabilities in the normal course of business. All
of these factors raise substantial doubt about our ability to continue as a
going concern. If we become unable to continue as a going concern, we
may need to liquidate our assets, and we might realize significantly less than
the values at which they are carried on our financial
statements. However, the accompanying financial statements do not
include any adjustments or charges that might be necessary should we be unable
to continue as a going concern, such as charges related to impairment of our
assets, the recoverability and classification of assets or the amounts and
classification of liabilities or other similar adjustments. In
addition, the report of our independent registered public accounting firm on the
accompanying financial statements included in this Annual Report on Form 10-K
contains an explanatory paragraph regarding going concern
uncertainty.
-46-
|
B.
|
Critical
Accounting Policies and
Estimates
|
Our
significant accounting policies are described in Note 1 of the notes to our
consolidated financial statements included in this Annual Report on Form
10-K. Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States. The preparation of our consolidated financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
liabilities. On an ongoing basis, we evaluate our estimates,
including those related to the fair value of our Preferred Stock and Common
Stock and related options and warrants, the recognition of revenues and costs
related to our research contracts, and the useful lives or impairment of our
property and equipment. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis of judgments
regarding the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Grants to
perform research are our 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. Prepaid 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.
Effective
April 1, 2006, we 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). That 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 service 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
-47-
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
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.
Effective
April 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN No. 48), which clarifies the accounting for
uncertainty in income taxes recognized in financial statements in accordance
with FASB 109, Accounting for Income Taxes. This interpretation
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in an income tax return. There are no significant matters
determined to be unrecognized tax benefits taken or expected to be taken in a
tax return that have been recorded on our consolidated financial statements for
the year ended March 31, 2008. Additionally, there were no interest
or penalties related to income taxes that have been accrued or recognized for
open tax years.
In
December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations”
(“SFAS 141(R)”). SFAS 141(R) changes the requirements for an
acquirer’s recognition and measurement of the assets acquired and the
liabilities assumed in a business combination. SFAS 141(R) is
effective for us in fiscal year 2009. The impact of SFAS
141(R) will depend on future acquisitions.
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. Subsequently in February 2008, the FASB issued FASB
Staff Position 157-1, “Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13” (“FSP 157-1”) and FASB Staff Position 157-2, “Partial Deferral of the Effective
Date of Statement 157” (“FSP 157-2”). FSP 157-1 removed
leasing transactions accounted for under Statement No. 13 and related guidance
from the scope of SFAS 157. FSP 157-2 deferred the effective date of
SFAS 157 for all nonfinancial assets and nonfinancial liabilities to fiscal
years beginning after November 15, 2008. SFAS 157 is effective for us
in fiscal year 2009. We do not expect the impact of adoption to be
material.
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. We have assessed the
standard and will not elect the fair value option.
In
December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
160”). SFAS 160 requires (a) that noncontrolling (minority) interests
be reported as a component of shareholders’ equity, (b) that net income
attributable to the parent and to the noncontrolling interest be separately
identified in the consolidated statement of operations, (c) that changes in a
parent’s
-48-
ownership
interest while the parent retains its controlling interest be accounted for as
equity transactions, (d) that any retained noncontrolling equity investment upon
the deconsolidation of a subsidiary be initially measured at fair value, and (e)
that sufficient disclosures are provided that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS 160 is effective for us in fiscal year 2009 and should
be applied prosectively. However, the presentation and disclosure
requirements of the statement shall be applied retrospectively for all periods
presented. We do not expect the impact of adoption to be
material.
We
believe that the accounting policies affecting these estimates are our critical
accounting policies.
|
C.
|
Research
and Development Expenses
|
All
research and development costs are expensed as incurred. Research and
development expenses include, but are not limited to, payroll and personnel
expenses, lab supplies, preclinical studies, raw materials to manufacture
clinical trial drugs, manufacturing costs, sponsored research at other labs,
consulting and research-related overhead. Accrued liabilities for raw
materials to manufacture clinical trial drugs, manufacturing costs and sponsored
research reimbursement fees are included in accrued liabilities and included in
research and development expenses. Specific information pertaining to
amounts spent directly on each of our major research and development projects
follows. This information includes to the extent ascertainable, project status,
costs incurred for the relevant fiscal years (including costs to date), nature,
timing and estimated costs of project completion, anticipated completion dates
and the period in which material net cash inflow from projects is expected to
commence, if at all. Not included in the information below are
development activities and the costs therefor undertaken by our Scientific
Consortium where we are not responsible for reimbursement.
All of
our research and development projects contain high levels of
risk. Even if development is completed on schedule, there is no
guarantee that any of our products will be licensed for sale. Human
trials conducted in foreign and developing countries have additional risks,
including governmental instability and local militia uprisings that may
interrupt or displace our work. We are unable to quantify the impact
to our operations, financial position or liquidity if we are unable to complete
on schedule, or at all, any of our product commercialization
programs.
Since we
have terminated the pafuramidine development program and we expect to reduce our
workforce, we expect our research and development expenditures to decrease
significantly during the fiscal year ending March 31, 2009. We are
seeking funding and evaluating strategic alternatives with respect to all
aspects of our business. Many factors can affect the cost of the development of
our product candidates, including the timing of the results of our preclinical
tests and the timing of the filing of an IND. The development of our
products is subject to extensive governmental regulation. These
factors make it difficult for us to predict the timing and costs of further
development, if any, of our product candidates.
-49-
|
D.
|
Liquidity
and Capital Resources
|
From our
inception through March 31, 2008, we have financed our operations
with:
|
·
|
proceeds
from various private placements of debt and equity securities, secondary
public stock offerings, our initial public stock offering (our “IPO”) and
other cash contributed from stockholders, which in the aggregate raised
approximately $77,608,000;
|
|
·
|
payments
from research agreements, licensing agreements, foundation grants and SBIR
grants and Small-Business Technology Transfer program grants of
approximately $34,800,000; and
|
|
·
|
the
use of stock, options and warrants in lieu of cash
compensation.
|
On
February 13, 2007, we completed a secondary public offering of Common Stock
which raised approximately $6,750,000 of gross proceeds through the issuance of
1,000,000 shares of Common Stock sold to the public at $6.75 per
share. Net proceeds were approximately $6,114,000.
On
February 13, 2006, we completed a secondary public offering of Common Stock
which raised approximately $14,880,000 of gross proceeds through the issuance of
2,000,000 shares of Common Stock sold to the public at $7.44 per
share. Net proceeds were approximately $14,713,000.
On
December 13, 2005, we issued an aggregate of 133,600 shares of our Series E
Preferred Stock in a private placement to certain accredited and non-United
States investors in reliance on Regulation D and Regulation S, respectively,
under the Securities Act. The gross proceeds of the offering were
$3,340,000. The net proceeds were approximately $3,286,000. We issued
to the purchasers of the Series E Preferred Stock, in connection with the
offering, warrants to purchase in the aggregate 83,500 shares of our Common
Stock at an exercise price of $10.00 per share of Common Stock (a warrant
to purchase one share of Common Stock for each $40 invested in Series E
Preferred Stock). The warrants expire on December 12,
2008. The securities were sold pursuant to exemptions from
registration under the Securities Act. Each purchaser of the Series E
Preferred Stock was also granted an option to purchase, at $25.00 per share, up
to an additional 25% of the number of shares of Series E Preferred Stock
purchased on December 13, 2005 (the option period terminated on March 10,
2006). On March 10, 2006, we completed private placements to the
Series E Preferred Stock option holders of 27,000 additional shares of Series E
Preferred Stock, which resulted in gross proceeds to us of approximately
$675,000. Each share of Series E Preferred Stock, among other things,
(i) earns a 6% dividend payable, at our discretion, in cash or Common
Stock, (ii) has a $25.00 (plus accrued but unpaid dividends) liquidation
preference pari passu
with our other outstanding Preferred Stock over our Common Stock, (iii) is
convertible at the initial conversion rate into 3.5511 shares of Common Stock,
and (iv) may be converted to Common Stock by us at any time.
-50-
On
July 30, 2004, we completed a secondary public offering of Common Stock
wherein we sold 899,999 shares of Common Stock. The shares were sold to the
public at $10.25 per share. The net proceeds were approximately
$8,334,000.
On
January 22, 2004, we sold in private placements pursuant to Regulation D and
Regulation S of the Securities Act (i) 200,000 shares of our Series D
Preferred Stock, $0.01 par value, at a stated value of $25.00 per share and
(ii) warrants to purchase 200,000 shares of our Common Stock with a $16.00
per share exercise price, for the aggregate consideration of $5,000,000 before
issuance cost. The net proceeds were approximately
$4,571,000. Each share of Series D Preferred Stock, among other
things, (i) earns a 6% dividend payable, at our discretion, in cash or
Common Stock, (ii) has a $25.00 (plus accrued but unpaid dividends)
liquidation preference pari
passu with our other outstanding preferred stock, (iii) is
convertible at the initial conversion rate into 2.7778 shares of Common Stock,
and (iv) may be converted to Common Stock by us at any time. The
related warrants expire five years from the date of grant.
From June
6, 2003 through June 9, 2003, we issued an aggregate of 125,352 shares of our
Series C Preferred Stock in private placements to certain accredited and
non-United States investors in reliance on Regulation D and Regulation S,
respectively, under the Securities Act. The securities were sold
pursuant to exemptions from registration under the Securities Act and were
subsequently registered on Form S-3 (Registration Statement No.
333-108278). The gross proceeds of the offering were $3,133,800 and
the net proceeds were approximately $2,845,000.
On
September 25, 2002 and October 28, 2002, we issued an aggregate of 76,725
shares of our Series B Preferred Stock and 191,812 related warrants in private
placements to certain accredited and non-United States investors in reliance on
Regulation D and Regulation S, respectively, under the Securities
Act. The warrants have an exercise period of five years from the date
of issuance and an exercise price of $6.125 per share. The securities
were sold pursuant to exemptions from registration under the Securities Act and
were subsequently registered on Form S-3 (Registration Statement No.
333-101197). The gross proceeds of the offering were $1,918,125 and
the net proceeds were approximately $1,859,000.
On
February 14, 2002 and February 22, 2002, we issued an aggregate of 160,100
shares of our Series A Preferred Stock and 400,250 related warrants in private
placements to certain accredited and non-United States investors in reliance on
Regulation D and Regulation S, respectively, under the Securities
Act. In connection with this offering, we issued in the aggregate
60,000 shares of Common Stock and 760,000 warrants to purchase shares of Common
Stock to consultants assisting in the private placements. The
warrants have an exercise period of five years from the date of issuance and
exercise prices of (i) $6.00 per share for 500,000 warrants,
(ii) $9.00 per share for 130,000 warrants, and (iii) $12.00 per share
for 130,000 warrants. The $9.00 and $12.00 warrants did not
vest, and therefore were cancelled, since our Common Stock did not meet or
exceed the respective exercise price for 20 consecutive trading days prior to
January 31, 2003. The gross proceeds of the offering were $4,003,000
and the net proceeds were $3,849,000.
On
December 8, 2000, we completed a private placement offering that raised net
proceeds of approximately $4,306,000 of additional net equity capital through
the issuance of 584,250 shares of Common Stock.
-51-
On April
26, 1999, we issued 1,150,000 shares of Common Stock through our IPO, resulting
in net proceeds of approximately $9,173,000. The underwriters in our
IPO received warrants to purchase 100,000 additional shares of Common Stock at
$16.00 per share. Those warrants were due to expire on April 25,
2004. All warrants other than warrants to purchase 21,400 shares
expired. The warrant to purchase 21,400 shares was pursuant to an
agreement with the holder and subsequently exercised.
Negative
cash flows in operating activities and investing activities are due to the fact
that we are an early development stage pharmaceutical
company. Positive cash flow financing activities for the year have
included primarily the exercise of warrants. Our cash resources have
been used to finance research and development, including sponsored research,
capital expenditures, expenses associated with the efforts of our Scientific
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 early-stage research in
preclinical and clinical trials, increased administrative expenses to support
research and development and commercialization operations and increased capital
expenditures for regulatory approvals, expanded research capacity and various
equipment needs.
As of
March 31, 2008, the Company had federal net operating losses carryforwards of
approximately $86,388,000, and federal income tax credit carryforwards of
approximately $2,422,000, which expire from 2009 through 2028. As of
March 31, 2008, the Company also had state net operating losses (primarily in
Illinois) of approximately $85,838,000 which expire from 2009 to 2023 and
foreign operating losses totaling approximately $500,000, which carryforward
indefinitely.
We
currently
have enough cash to operate through December 31, 2008 and capital resources
through the sale of land use rights that we believe are sufficient to support
our operations beyond
March 2009, although there can be no assurance that we will not require
additional funds. Our working capital requirements will depend upon
numerous factors, including the progress of our research and development
programs (which may vary as drug candidates are added or abandoned), preclinical
testing and clinical trials, achievement of regulatory milestones, our partners
fulfilling their obligations to us, the timing and cost of seeking regulatory
approvals, the level of resources that we devote to the development of
manufacturing, our ability to maintain existing collaborative arrangements and
establish new ones with other companies to provide funding to us to support
these activities and other factors. In any event, we will require
substantial funds in addition to our existing working capital to develop our
drug candidates and otherwise to meet our business objectives. See “Risk Factors —
We need substantial additional funds, currently and in future years, to
continue our research and development. If such financing is not available,
we may be required to pursue other financing alternatives, reduce spending for
our research programs or cease operations. ”
-52-
|
E.
|
Payments
Due under Contractual
Obligations
|
We have
future commitments at March 31, 2008 consisting of operating lease
obligations as follows:
|
Year
Ending
March 31,
|
Lease
Payments
|
|
|
2009
|
166,000
|
|
|
2010
|
99,000
|
|
|
Total
|
$265,000
|
|
F.
|
Results
of
Operations
|
|
1.
|
Fiscal
Year Ended March 31, 2008 Compared with Fiscal Year Ended
March 31,
2007
|
Revenues
under collaborative research and development agreements increased from
approximately $4,318,000 in the fiscal year ended March 31, 2007 to
approximately $9,717,000 in the fiscal year ended March 31, 2008. Revenue
relating to the Clinical Research Subcontract increased from approximately
$3,922,000 in the fiscal year ended March 31, 2007 to approximately $4,601,000
in the fiscal year ended March 31, 2008. Approximately $2,558,000 was recognized
from the Par License Agreement and approximately $2,558,000 was recognized from
the BioAlliance License Agreement for the fiscal year ended March 31, 2008.
Additionally there were revenues of approximately $396,000 recognized relating
to the testing agreement entered into with Medicines for Malaria Venture (the
“MMV Testing Agreement”) in the fiscal year ended March 31, 2007.
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 increased from approximately $8,760,000 in the fiscal
year ended March 31, 2007 to approximately $11,570,000 in the fiscal year ended
March 31, 2008. Expenses relating to the Clinical Research
Subcontract supporting the African sickness sleeping program increased from
approximately $2,795,000 in the fiscal year ended March 31, 2007 to
approximately $4,601,000 in the fiscal year ended March 31,
2008. Expenses
-53-
relating
to the MMV Testing Agreement decreased from approximately $455,000 in the fiscal
year ended March 31, 2007 to approximately $13,000 in the fiscal year ended
March 31, 2008. Expenses relating to preclinical and clinical trial
costs primarily for PCP and general research increased from approximately
$4,731,000 in the fiscal year ended March 31, 2007 to approximately $6,431,000
in the fiscal year ended March 31, 2008. The increase in expenses for
PCP-related preclinical and clinical trial costs was primarily due to ongoing
Phase III clinical trials in the United States and Latin America and their
subsequent discontinuation in February 2008. Non-cash expenses of
approximately $525,000 were charged to research and development in the fiscal
year ended March 31, 2008 for expense related to options given during that
fiscal year and options vesting during the year which are covered by SFAS No.
123(R). The non-cash expense for options in the fiscal year ended
March 31, 2007 was approximately $779,000.
General
and administrative expenses were approximately $9,100,000 in the fiscal year
ended March 31, 2008, compared to approximately $9,095,000 in the fiscal year
ended March 31, 2007. Non-cash general and administrative expenses
for Common Stock, stock options and warrants in the fiscal year ended March 31,
2008 were approximately $2,647,000 as compared to approximately $2,173,000 in
the fiscal year ended March 31, 2007. Non-cash expenses in the fiscal
year ended March 31, 2008 included (i) approximately $172,000 for the 50,000
warrants issued to a consultant, (ii) approximately $118,000 for the 30,000
warrants issued to an investor relations firm, (iii) approximately $440,000 for
the two year extension of warrants to China Harvest International Ltd., and (iv)
approximately $1,916,000 for expense related to options given during the fiscal
year ended March 31, 2008 and options vesting during the year which were covered
by SFAS No. 123(R) as compared to non-cash expenses in the fiscal year ended
March 31, 2007 including (i) approximately $36,000 for the issuance of 5,000
restricted common shares to Tulane University under the Tulane License
Agreement, (ii) approximately $36,000 for the issuance of 5,000 restricted
shares of Common Stock to T. Stephen Thompson, our former chief executive
officer, under his retirement agreement, (iii) approximately $564,000 for
the issuance of 80,000 shares of Common Stock to China Pharmaceutical for the
attainment of certain milestones, and (iv) approximately $1,536,000 for expense
related to options given during the fiscal year ended March 31, 2007 and options
vesting during the year which are covered by SFAS No. 123(R). Legal expenses for
patents decreased from approximately $715,000 in the fiscal year ended March 31,
2007 to approximately $390,000 in the fiscal year ended March 31,
2008. Legal fees, primarily related to the defense of the Von der
Ruhr case, increased from approximately $722,000 in the fiscal year ended March
31, 2007 to approximately $938,000 the fiscal year ended March 31,
2008. Ongoing expenses relating to Immtech Therapeutics, Super
Insight, Immtech Life Science and Immtech HK remained relatively constant with
approximately $236,000 in the fiscal year ended March 31, 2007 and approximately
$244,000 in the fiscal year ended March 31, 2008. Accounting fees
increased from approximately $228,000 in the fiscal year ended March 31, 2007 to
approximately $348,000 in the fiscal year ended March 31, 2008 primarily due to
tax filing related expenses. Payroll and associated expenses
increased from approximately $1,369,000 in the fiscal year ended March 31, 2007
to approximately $1,401,000 in the fiscal year ended March 31,
2008. Contract services increased from approximately $257,000 in the
fiscal year ended March 31, 2007 to approximately $324,000 in the fiscal year
ended March 31, 2008. Travel expenses decreased from approximately $502,000 in
the fiscal year ended March 31, 2007 to approximately $371,000 in the fiscal
year ended March 31, 2008. Marketing, business development and
commercialization related expenses decreased from approximately $1,722,000
-54-
in the
fiscal year ended March 31, 2007 to approximately $682,000 in the fiscal year
ended March 31, 2008, due primarily to the discontinuation of the pafuramidine
project. Additionally there was a reserve for approximately $362,000
set up in the year ended March 31, 2008 for the settlement relating to the Von
der Ruhr trial. All other general and administrative expenses, primarily
relating to rent, Director and Officer insurance, exchange listing fees and
franchise taxes, increased from approximately $1,171,000 in the fiscal year
ended March 31, 2007 to approximately $1,393,000 in the fiscal year ended March
31, 2008.
We
incurred a net loss of approximately $10,513,000 for the fiscal year ended March
31, 2008, as compared to a net loss of approximately $11,133,000 for the fiscal
year ended March 31, 2007.
In the
fiscal year ended March 31, 2008, we also charged deficit accumulated during the
development stage of approximately $529,000 of non-cash Preferred Stock
dividends and Preferred Stock premium deemed dividends as compared to
approximately $551,000 in the fiscal year ended March 31, 2007.
|
2.
|
Fiscal
Year Ended March 31, 2007 Compared with Fiscal Year Ended
March 31,
2006
|
Revenues
under collaborative research and development agreements increased from
approximately $3,575,000 in the fiscal year ended March 31, 2006 to
approximately $4,318,000 in the fiscal year ended March 31, 2007. Revenue
relating to the Clinical Research Subcontract increased from approximately
$869,000 in the fiscal year ended March 31, 2006 to approximately $3,922,000 in
the fiscal year ended March 31, 2007, while revenue relating to the MMV Testing
Agreement decreased from approximately $2,663,000 to approximately $396,000 over
the same period. Additionally there were revenues of approximately $43,000
recognized from an SBIR grant from the National Institutes of Health in the
fiscal year ended March 31, 2006.
Research
and development expenses decreased from approximately $9,680,000 in the fiscal
year ended March 31, 2006 to approximately $8,760,000 in the fiscal year ended
March 31, 2007. Expenses relating to the Clinical Research
Subcontract increased from approximately $2,756,000 in the fiscal year ended
March 31, 2006 to approximately $2,795,000 in the fiscal year ended March 31,
2007. Expenses relating to the MMV Testing Agreement decreased from
approximately $2,650,000 in the fiscal year ended March 31, 2006 to
approximately $455,000 in the fiscal year ended March 31,
2007. Expenses relating to preclinical and clinical trial costs
primarily for PCP and general research increased from approximately $3,323,000
in the fiscal year ended March 31, 2006 to approximately $4,731,000 in the
fiscal year ended March 31, 2007. The increase in expenses for
PCP-related preclinical and clinical trial costs was primarily due to ongoing
Phase III clinical trials in the United States and Latin
America. Non-cash expenses of approximately $779,000 were charged to
research and development in the fiscal year ended March 31, 2007 for expense
related to options given during that fiscal year and options vesting during the
year which are covered by SFAS No. 123(R). The non-cash expense for
options in the fiscal year ended March 31, 2006 was approximately
$53,000.
-55-
General
and administrative expenses were approximately $9,095,000 in the fiscal year
ended March 31, 2007, compared to approximately $9,631,000 in the fiscal year
ended March 31, 2006. Non-cash general and administrative expenses
for Common Stock, stock options and warrants in the fiscal year ended March 31,
2007 were approximately $2,173,000 as compared to approximately $151,000 in the
fiscal year ended March 31, 2006. Non-cash expenses in the fiscal
year ended March 31, 2007 included (i) approximately $36,000 for the issuance of
5,000 restricted common shares to Tulane University under the Tulane License
Agreement, (ii) approximately $36,000 for the issuance of 5,000 restricted
shares of Common Stock to T. Stephen Thompson, our former chief executive
officer, under his retirement agreement, (iii) approximately $564,000 for
the issuance of 80,000 shares of Common Stock to China Pharmaceutical for the
attainment of certain milestones, and (iv) approximately $1,536,000 for expense
related to options given during the fiscal year ended March 31, 2007 and options
vesting during the year which are covered by SFAS No. 123(R) as compared to
non-cash expenses in the fiscal year ended March 31, 2006 of
(i) approximately $125,000 for the reduction in the warrant price from
$15.00 to $8.80 of warrants granted to Fulcrum and the shortening of the
exercise period from December 23, 2005 to November 5, 2005 and
(ii) approximately $26,000 for the issuance of 2,000 shares of Common Stock
for settling a disputed obligation. Legal expenses for patents increased from
approximately $442,000 in the fiscal year ended March 31, 2006 to approximately
$715,000 in the fiscal year ended March 31, 2007. Legal fees,
primarily related to the dispute with Neurochem, Inc. concerning a testing
agreement (including fees to the International Chamber of Commerce and expert
witnesses), decreased from approximately $4,778,000 in the fiscal year ended
March 31, 2006 to approximately $722,000 the fiscal year ended March 31,
2007. Ongoing expenses relating to Immtech Therapeutics, Super
Insight, Immtech Life Science and Immtech HK increased from approximately
$217,000 in the fiscal year ended March 31, 2006 to approximately $236,000 in
the fiscal year ended March 31, 2007. Accounting fees increased from
approximately $217,000 in the fiscal year ended March 31, 2006 to approximately
$228,000 in the fiscal year ended March 31, 2007. Payroll and
associated expenses decreased from approximately $1,479,000 in the fiscal year
ended March 31, 2006 to approximately $1,369,000 in the fiscal year ended March
31, 2007, due primarily to a reduction in administrative
employees. Contract services decreased from approximately $363,000 in
the fiscal year ended March 31, 2006 to approximately $257,000 in the fiscal
year ended March 31, 2007. Travel expenses increased from approximately $399,000
in the fiscal year ended March 31, 2006 to approximately $502,000 in the fiscal
year ended March 31, 2007. Marketing, business development and
commercialization related expenses increased from approximately $339,000 in the
fiscal year ended March 31, 2006 to approximately $1,722,000 in the fiscal year
ended March 31, 2007 in anticipation of product launch. All other
general and administrative expenses, primarily relating to rent, Director and
Officer insurance, exchange listing fees and franchise taxes, increased from
approximately $685,000 in the fiscal year ended March 31, 2006 to approximately
$1,171,000 in the fiscal year ended March 31, 2007.
Other
(see Note 10 in the financial pages section) includes the award by the
International Court of Arbitration of the International Chamber of Commerce for
the breach of the testing agreement by Neurochem, Inc., and attorneys’ fees and
costs of approximately $1,875,000, which reduced expenses.
-56-
We
incurred a net loss of approximately $11,133,000 for the fiscal year ended March
31, 2007, as compared to a net loss of approximately $15,525,000 for the fiscal
year ended March 31, 2006.
In the
fiscal year ended March 31, 2007, we also charged deficit accumulated during the
development stage of approximately $551,000 of non-cash Preferred Stock
dividends and Preferred Stock premium deemed dividends as compared to
approximately $764,000 in the fiscal year ended March 31, 2006.
|
3.
|
Impact
of
Inflation
|
Although
it is difficult to predict the impact of inflation on our costs and revenues in
connection with our operations, we do not anticipate that inflation will
materially impact our costs of operation or the profitability of our products
when and if marketed.
|
4.
|
Selected
Quarterly Information
(Unaudited)
|
See Note
12 in our accompanying financials statements.
-57-
ITEM
7A. 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. We have no
off-balance sheet arrangements as defined in Regulation S-K Item
303(a)(4)(ii).
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Our
consolidated financial statements appear following Item 15 of this Annual Report
on Form 10-K and are incorporated herein by reference.
The
accompanying financial statements have been prepared assuming that we will
continue as a going concern. The report of independent registered
public accounting firm included with the financial statements is an unqualified
opinion with an explanatory paragraph about conditions raising substantial doubt
about our ability to continue as a going concern.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS
AND PROCEDURES
|
A.
|
Evaluation
of Disclosures and Procedures
|
In
accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the
“Exchange Act”), the Company’s management evaluated, with the participation of
the Chief Executive Officer and Chief Financial Officer, the effectiveness of
the design and operation of the company’s disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Exchange Act) as of March 31,
2008. Based upon their evaluation of these disclosure controls and
procedures, the Chief Executive Officer and Chief Financial Officer concluded
that the disclosure controls and procedures were effective as of March 31, 2008
to ensure that information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time period specified in the Securities and
Exchange Commission rules and forms, and to ensure that information required to
be disclosed by the Company in the reports it files or submits under the
Exchange Act is accumulated and communicated to the company’s management,
including its principal executive and principal financial officers, as
appropriate, to allow timely decisions regarding required
disclosure.
|
B.
|
Management’s
Report on Internal Control Over Financial
Reporting
|
As
defined in Rule 13a-15(f) under the exchange act, the Company’s management is
responsible for establishing and maintaining an adequate system of internal
control over financial reporting. Management conducted an assessment
of internal controls over financial reporting based on the framework established
by the Committee of Sponsoring Organizations of the
-58-
Treadway
Commission in Internal Control
– Integrated Framework. Based on the assessment, management
concluded that, as of March 31, 2008, internal control over financial reporting
is effective. The Company’s internal control over financial reporting
as of March 31, 2008, has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report which
is included herein.
|
C.
|
Changes
in Internal Control Over Financial
Reporting
|
There was
no change in the Company’s internal control over financial reporting that
occurred during the Company’s fourth quarter of fiscal 2008 that has materially
affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.
ITEM
9B. OTHER
INFORMATION
None
-59-
PART
II.
ITEM
10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
A.
|
Information
Regarding Directors and Executive
Officers
|
The table
below sets forth the names and ages of our directors and executive officers as
of June 2, 2008, as well as the positions and offices held by such
persons. A summary of the background and experience of each of these
individuals is set forth after the table. Each director serves for a
term of one year and is eligible for reelection at our next annual stockholders’
meeting.
|
Name
|
Age
|
Position(s)
|
||
|
Eric
L. Sorkin
|
48
|
President,
Chief Executive Officer and Chairman of the Board of
Directors
|
||
|
Cecilia
Chan
|
45
|
Vice
Chairman and Director
|
||
|
Gary
C. Parks
|
58
|
Chief
Financial Officer, Secretary and Treasurer
|
||
|
Carol
Ann Olson, MD, Ph.D.
|
55
|
Senior
Vice President and Chief Medical Officer
|
||
|
David
Fleet
|
63
|
Director
|
||
|
Judy
Lau
|
48
|
Director
|
||
|
Levi
H.K. Lee, MD
|
66
|
Director
|
||
|
Donald
F. Sinex
|
57
|
Director
|
Eric L.
Sorkin, President, Chief Executive Officer and Chairman of the Board of
Directors. In 2000, Mr. Sorkin became a director of the
Registrant. In 2005, he was appointed Chairman of the Board of
Directors and in January 2006, Chief Executive Officer. He became
President in May 2006. Mr. Sorkin began his career on Wall Street in
1982 at Dean Witter, which is now a subsidiary of Morgan
Stanley. From an entry-level position, he was promoted to Managing
Director within six years. Mr. Sorkin was among the core group of
professionals at Dean Witter that developed the firm's investment portfolio to
assets of over $3 billion. Mr. Sorkin was responsible for investment
selection, negotiations, transaction and financial structuring, debt placement
and asset management. Mr. Sorkin was a Vice President, owner, and/or
director of over 20 public investment partnerships with investment funds
totaling over $1 billion. In 1993, Mr. Sorkin created his own
investment firm and began making private equity investments in the United States
and in China. Mr. Sorkin graduated from Yale University with a B.A.
in Economics.
Cecilia
Chan, Vice Chairman and Director. Ms. Chan has served as a member of
the Board of Directors since November 16, 2001. She joined the
Registrant as Vice President in July 1999, and was appointed to her current post
as Vice Chairman on November 13, 2007. She has 22 years of experience
in making investments and in business development. She began working
on our growth strategy in 1998, spearheading our IPO in April
1999. Ms. Chan is responsible for strategic development, fund
raising and directing our uses of capital resources. Prior to joining
-60-
us, Ms.
Chan was a Vice President at Dean Witter until 1993 and thereafter concentrated
her efforts as a private investor until she joined us. During her
eight years at Dean Witter, Ms. Chan completed over $500 million in
investments and was Vice-President of public partnerships having assets in
excess of $800 million. Since 1993, Ms. Chan has developed and
funded investments in the United States and in China. She graduated
from New York University in 1985 with a Bachelor of Science degree in
International Business.
Gary C.
Parks, Secretary, Treasurer and Chief Financial Officer. Mr. Parks
joined us 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 MBA from the University of Michigan.
Carol Ann
Olson, MD, Ph.D., Senior Vice President and Chief Medical
Officer. Dr. Olson leads the development of our pharmaceutical
products from drug candidate status through global registration and launch,
followed by appropriate life cycle management. She is responsible for strategic
planning and execution of all aspects of the clinical development plans,
including preclinical and clinical research, chemistry, manufacturing and
controls, regulatory affairs, and regulatory compliance and quality assurance.
Dr. Olson joined the Company in October 2004 from Abbott Laboratories, where she
worked for 11 years in various functions, most recently as Global Project Head
and Global Medical Director for all Abbott antibiotics. In this capacity, Dr.
Olson handled strategic planning, execution of clinical development plans, drug
product safety, scientific communications, regulatory affairs planning and
execution, and support for the commercial success of these products. Dr. Olson
received her MD with Honors in 1986 from The Pritzker School of Medicine, The
University of Chicago, and her Ph.D. in Biochemistry in 1982 from The University
of Chicago. While at Abbot Laboratories she received the Outstanding Achievement
Award, Global Medical Affairs (2001) and the Chairman’s Award
(1994).
David M.
Fleet, Director. Mr. Fleet has served as
a director since August 24, 2007. Since 2002, Mr. Fleet has served as
Principal in David Fleet Pharmaceutical Industry Consultancy
Services. From 1997 to 2002, Mr. Fleet was Senior Vice President of
Global Business Development for Innovex Ltd. – Quintiles
Transnational. Mr. Fleet was a founding shareholder of Innovex Ltd in
1988 until Innovex’s acquisition by Quintiles Transnational in 1996. During that
time he served as Managing Director at Novex Pharma Ltd from 1988 to 1993, and
from 1993 to 1996 he was responsible for global business development and
establishment of principal subsidiaries in Germany, the United States, and
Japan. From 1978 to 1988, Mr. Fleet worked at Schering-Plough where he was
responsible for various operations. From 1985 to 1988 he was Area Director for
Middle East and Africa responsible for development and growth of ethical and OTC
products business. Previously he was manager of Schering-Plough’s third-largest
pharmaceutical plant in Europe with responsibility for manufacturing operations
for a full range of pharmaceutical products. From 1975 to 1978, Mr.
Fleet worked at Major & Co. Manufacturing based in Ghana/Nigeria as general
manager for ethical pharmaceuticals. From 1967 to 1975, he worked at
Ward Blenkinsop & Co. Ltd., a division of Boehringer Ingelheim.
-61-
Judy Lau,
Director. Ms. Lau has served as a member of the Board of Directors
since October 31, 2003. Since July 2002, Ms. Lau has served
as the Chairperson of Convergent Business Group, a Hong Kong-based investment
advisory firm with investments focused in high technology, life sciences,
healthcare and environmental engineering projects in the greater China
region. From May of 2001 to July of 2002, Ms. Lau served as
General Manager of China Overseas Venture Capital Co. Ltd., a venture capital
firm. From October of 2000 to April of 2001, Ms. Lau served as
Chief Executive Officer of the Good Fellow Group, a Chinese investment firm; and
from March of 1999 to September of 2000, Ms. Lau was the Managing Director
of America Online HK, an Internet Service Provider and Hong Kong affiliate of
Time Warner, Inc. From April of 1998 to February of 1999, Ms. Lau
worked as a consultant to Pacific Century Group. Ms. Lau has served
in the position of Director of Immtech HK since June, 2003. Ms. Lau
was named in 2000, one of the thirty-six most influential Business Women of Hong
Kong by Capital Magazine and is a Fellow of the Hong Kong Association for the
Advancement of Science and Technology.
Levi Hong
Kaye Lee, MD, Director. Dr. Lee has served as Director since
October 31, 2003. Dr. Lee has been in private medical
practice, specializing in pediatrics, since 1971. His practice is
located in Hong Kong. Dr. Lee received a B.A. in Biochemistry
from the University of California, Berkeley, in 1962, and received his M.D. from
the University of California, San Francisco, in 1966. Dr. Lee
has served in the position of Director of Immtech HK since June,
2003. He was appointed a Diplomat of the American Board of Pediatrics
in 1971.
Donald F.
Sinex, Director. Mr. Sinex has served as a Director since October
2006. Since 1997, Mr. Sinex has been a partner with Devonwood
Investors, LLC, a private equity firm specializing in real estate and general
corporate investments. Prior to founding Devonwood Investors in 1997, Mr. Sinex
was executive vice president and managing director of JMB Realty Corporation,
one of the largest commercial real estate companies in the United States. While
at JMB Realty Corporation, Mr. Sinex managed all acquisitions and investments in
New York City, Washington, and Boston, and completed acquisitions of over
$6.5 billion of assets during his tenure. Mr. Sinex received his
B.A. from the University of Delaware, a J.D. degree from the University of Miami
School of Law, and an MBA from the Harvard Business School.
|
B.
|
Section 16(a)
Beneficial Ownership Reporting
Compliance
|
Section 16(a)
of the Exchange Act requires our directors, executive officers and 10%
stockholders of a registered class of equity securities to file reports of
ownership and reports of changes in ownership of our Common Stock and other
equity securities with the SEC. Directors, executive officers and 10%
stockholders are required to furnish us with copies of all Section 16(a)
forms they file. Based on a review of the copies of such reports
furnished to us, we believe that during the fiscal year ended March 31, 2008,
our directors and 10% stockholders complied with all Section 16(a) filing
requirements applicable to them. Dr. Lee was late with one Form 4
filing due to an administrative error.
-62-
|
1.
|
Board
Committees
|
The board
of directors has an Audit Committee, a Compensation Committee and a Nominating
Committee. The function, composition and number of meetings of each
of these committees are described
below.
|
i.
|
Audit
Committee
|
The Audit
Committee (a) has sole authority to appoint, replace and compensate our
independent registered public accounting firm and is directly responsible for
oversight of its work; (b) approves all audit fees and terms, as well as
any permitted non-audit services; (c) meets and discusses directly with our
independent registered public accounting firm its audit work and related
matters; and (d) oversees and performs such investigations with respect to
our internal and external auditing procedures and affairs as the Audit Committee
deems necessary or advisable and as may be required by applicable
law. Our Audit Committee’s charter can be found in the “Corporate
Governance” section of our website at www.immtechpharma.com.
The
members of the Audit Committee are Mr. Sinex (Chairman), Dr. Lee and Ms.
Lau. Each member of the audit committee is “independent” in
accordance with the current listing standards of the American Stock Exchange and
Mr. Sinex qualifies as an “audit committee financial expert” as defined under
the rules of the SEC.
|
ii.
|
Compensation
Committee
|
The
Compensation Committee (a) annually reviews and determines salaries,
bonuses and other forms of compensation paid to our executive officers and
management; (b) selects recipients of awards of incentive stock options and
non-qualified stock options and establishes the number of shares and other terms
applicable to such awards; and (c) construes the provisions of and
generally administers the 2007 Stock Incentive Plan (the “2007 Plan”).
The
members of the Compensation Committee are Ms. Lau (Chairman), Mr. Fleet and Mr.
Sinex. Each member of the compensation committee is “independent” in
accordance with the current listing standards of the American Stock Exchange.
Our compensation committee’s charter can be found in the “Corporate Governance”
section of our website at www.immtechpharma.com.
|
iii.
|
Nominating
Committee
|
The
Nominating Committee has authority to review the qualifications of, interview
and nominate candidates for election to the board of directors. Our
Nominating Committee’s charter can be found in the “Corporate Governance”
section of our website at www.immtechpharma.com. The members of the Nominating
Committee are Dr. Lee (Chairman), Mr. Fleet and Mr. Sinex. Each member of the
Nominating Committee is “independent” in accordance with the current listing
standards of the American Stock Exchange.
The
primary functions of the Nominating Committee are to:
|
·
|
recruit,
review and nominate candidates for election to the board of
directors;
|
-63-
|
·
|
monitor
and make recommendations regarding committee functions, contributions and
composition;
|
|
·
|
develop
the criteria and qualifications for membership on the board of directors;
and
|
|
·
|
administer
any director compensation plan.
|
The
Nominating Committee will consider recommendations for director candidates
submitted in good faith by stockholders. A stockholder recommending an
individual for consideration by the nominating committee must provide
(i) evidence in accordance with Rule 14a-8 of the Exchange Act of
compliance with the stockholder eligibility requirements, (ii) the written
consent of the candidate(s) for nomination as a director, (iii) a resume or
other written statement of the qualifications of the candidate(s) and
(iv) all information regarding the candidate(s) that would be required to
be disclosed in a proxy statement filed with the SEC if the candidate(s) were
nominated for election to the board, including, without limitation, name, age,
business and residence address and principal occupation or employment during the
past five years. Stockholders should send the required information to the
Company at 150 Fairway Drive, Suite 150, Vernon Hills, Illinois 60061,
Attention: Mr. Gary C. Parks.
For board
membership, the Nominating Committee takes into consideration applicable laws
and regulations (including those of the American Stock Exchange), diversity,
age, skills, experience, integrity, ability to make independent analytical
inquires, understanding of our business and business environment, willingness to
devote adequate time and effort to board responsibilities and other relevant
factors.
|
C.
|
Communications
with the Board of Directors
|
The board
has provided a procedure for stockholders or other persons to send written
communications to the board, a board committee or any of the directors,
including complaints to the audit committee regarding accounting, internal
accounting controls, or auditing matters. Stockholders may send written
communications to the board, the appropriate committee or any of the directors
by certified mail only, c/o Audit Committee Chairman, Immtech Pharmaceuticals,
Inc., One North End Avenue, New York, NY 10282. All such written communications
will be compiled by the Chairman of the Audit Committee and submitted to the
board, a committee of the board or the individual directors, as appropriate,
within a reasonable period of time. These communications will be
retained with Immtech’s corporate records.
|
D.
|
Code
of Ethics
|
We have
adopted a “Code of Ethics”, as defined by the SEC, that applies to our Chief
Executive Officer, Chief Financial Officer, principal accounting officer and
persons performing similar functions with Immtech and our subsidiaries as well
as all of our other employees. A copy of our Code of Ethics is
available on our Internet website at www.immtechpharma.com.
|
E.
|
Family
Relationships
|
There are
no family relationships between or among any officer or director of the
Company.
-64-
ITEM
11. EXECUTIVE
COMPENSATION
|
A.
|
Compensation
Discussion and
Analysis
|
|
1.
|
Overview
|
The
Compensation Committee of our board of directors has overall responsibility for
the compensation program for our executive officers. Our Compensation
Committee consists solely of independent directors, as determined by the
American Stock Exchange listing standards. The
Compensation Committee’s responsibilities are set forth in its charter, which
you can find on our website at www.immtechpharma.com.
The
Compensation Committee is responsible for establishing policies and otherwise
discharging the responsibilities of the board with respect to the compensation
of our executive officers, senior management, and other
employees. In evaluating executive officer pay, the
Compensation Committee may retain the services of an independent compensation
consultant or research firm and consider recommendations from the chief
executive officer and persons serving in supervisory positions over a particular
officer or executive officer with respect to goals and compensation of the other
executive officers. The Compensation Committee assesses the information it
receives in accordance with its business judgment. The Compensation Committee
also periodically is responsible for administering all of our incentive and
equity-based plans. All decisions with respect to executive
compensation are first approved by the Compensation Committee and then
submitted, together with the Compensation Committee’s recommendation, to the
independent members of the board for final approval.
We
believe that the compensation of our executive officers should reflect their
success in attaining key operating objectives. Compensation is based
on growth of operating earnings and earnings per share, return on assets,
satisfactory results of regulatory examinations, growth or maintenance of market
share and long-term competitive advantage, which lead to attaining an increased
market price for our stock. We promote asset growth and asset quality. We
believe the performance of the executives in managing our company, considering
general economic and company, industry and competitive conditions, should be the
basis for determining our executive officers’ overall compensation. We also
believe that their compensation should not be based on the short-term
performance of our stock, whether favorable or unfavorable. The price
of our stock will, in the long-term, reflect our operating performance, and
ultimately, the management of our company by our executive officers. We seek to
have the long-term performance of our stock reflected in executive compensation
through our stock option program.
Elements
of compensation for our executive officers include:
|
·
|
base
salary (typically subject to upward adjustment annually based on
individual performance);
|
|
·
|
stock
option awards;
|
|
·
|
401(k)
plan contributions; and
|
|
·
|
health,
disability and life insurance.
|
-65-
In making
its recommendations to our independent directors, our Compensation Committee
relies upon its own judgment in making compensation decisions, after reviewing
the performance of the Company and carefully evaluating an executive officer’s
performance during the year against established goals, leadership qualities,
operational performance, business responsibilities, career with our Company,
current compensation arrangements and long-term potential to enhance shareholder
value. Our Compensation Committee also reviews the history of all the
elements of each executive officer’s total compensation over the past several
years and compares the compensation of the executive officers with that of the
executive officers in an appropriate market comparison group comprised of other
biotechnology and pharmaceutical companies similar in size, stage of development
and other characteristics. Typically, our chief executive officer
makes compensation recommendations to our Compensation Committee with respect to
the executive officers who report to him. Our Compensation Committee
also considers recommendations submitted by other persons serving in a
supervisory position over a particular officer or executive
officer. Such executive officers are not present at the time of these
deliberations. The Compensation Committee then makes its formal
recommendations to the other independent members of our board which then sets
the final compensation for officers and executive officers.
We choose
to pay the various elements of compensation discussed in order to attract and
retain the necessary executive talent, reward annual performance and provide
incentive for primarily long-term strategic goals, while considering short-term
performance. The amount of each element of compensation is determined by or
under the direction of our Compensation Committee, which uses the following
factors to determine the amount of salary and other benefits to pay each
executive:
|
·
|
performance
against corporate and individual objectives for the previous
year;
|
|
·
|
difficulty
of achieving desired results in the coming
year;
|
|
·
|
value
of their unique skills and capabilities to support long-term performance
of the Company;
|
|
·
|
performance
of their management
responsibilities;
|
|
·
|
whether
an increase in responsibility or change in title is warranted;
and
|
|
·
|
contribution
as a member of the executive management
team.
|
Our
allocation between long-term and currently paid compensation is intended to
ensure adequate base compensation to attract and retain personnel, while
providing incentives to maximize long-term value for our Company and our
shareholders. We provide cash compensation in the form of base salary
to meet competitive salary norms and reward performance on an annual basis. We
provide non-cash compensation to reward performance against specific objectives
and long-term strategic goals. Our compensation package for the fiscal year
ending March 31, 2008 ranges from 61% to 44% in cash compensation and 39% to 56%
in non-cash compensation, including benefits and equity-related
awards. We believe that
-66-
this
ratio is competitive within the marketplace for companies at our stage of
development and appropriate to fulfill our stated policies.
|
2.
|
Elements
of
Compensation
|
|
i.
|
Base
Salary
|
Our
Compensation Committee desires to establish salary compensation for our
executive officers based on our operating performance relative to comparable
peer companies over a three year period. In recommending base
salaries for the fiscal year ending March 31, 2008, our Compensation Committee
considered salaries paid to executive officers of other biotechnology and
pharmaceutical companies similar in size, stage of development and other
characteristics. Our Compensation Committee’s objective is to provide
for base salaries that are competitive with the average salary paid by our
peers. In making its recommendations, our Compensation Committee
takes into account recommendations submitted by persons serving in a supervisory
position over a particular officer or executive officer.
With
respect to our fiscal year end March 31, 2008, the base salaries for our
executive officers are reflected in our summary compensation table
below.
Base
salaries for the current fiscal year, which will end March 31, 2009, are as
follows:
|
Eric L. Sorkin
|
$
250,000 (1)
|
|
Cecilia Chan
|
$
150,000 (2)
|
|
Gary Parks
|
$
200,000
|
|
Carol Olson
|
$
235,000
|
(1) On
March 12, 2008, Mr. Sorkin volunteered to reduce his annual salary from $375,000
to $250,000 effective as of April 1, 2008 and the request was approved by the
board of directors.
(2) On
March 12, 2008, Ms. Chan volunteered to reduce her annual salary from $201,234
to $150,000 effective as of April 1, 2008 and the request was approved by the
board of directors.
|
ii.
|
Bonus
and Other Non-Equity Incentive Plan
Compensation
|
Given our
stage of development and our desire to conserve cash, we generally do not award
cash bonuses or provide for other non-equity incentive plan
compensation. However, Mr. Sorkin, our chief executive officer, is
entitled to a cash bonus of up to 60% of his base salary for each year of his
employment with us based on milestones to be determined by our Compensation
Committee pursuant to the terms of his employment agreement with
us.
-67-
Stock
Option and Equity Incentive Programs
We
believe that equity grants provide our executive officers with a strong link to
our long-term performance, create an ownership culture and closely align the
interests of our executive officers with the interests of our
shareholders. Because of the direct relationship between the value of
an option and the market price of our common stock, we have always believed that
granting stock options is the best method of motivating the executive officers
to manage our Company in a manner that is consistent with the interests of our
Company and our shareholders. In addition, the vesting feature
of our equity grants should aid officer retention because this feature provides
an incentive to our executive officers to remain in our employ during the
vesting period. In determining the size of equity grants
to our executive officers, our Compensation Committee considers our
Company-level performance, the applicable executive officer’s performance, the
period during which an executive officer has been in a key position with us,
comparative share ownership of our competitors, the amount of equity previously
awarded to the applicable executive officer, the vesting of such awards, the
number of shares available under our 2007 Plan, the limitations under our 2007
Plan and the recommendations of management and any other consultants or advisors
with whom our Compensation Committee may choose to consult.
We
currently do not have any formal plan requiring us to grant, or not to grant,
equity compensation on specified dates. With respect to newly hired
executives, our practice is typically to consider stock grants at the first
meeting of the Compensation Committee and the board of directors, following such
executive officer’s hire date. The recommendations of the
Compensation Committee are subsequently submitted to the board for
approval. We intend to ensure that we do not award equity grants in
connection with the release, or the withholding, of material non-public
information, and that the grant value of all equity awards is equal to the fair
market value on the date of grant.
We
granted stock options to executive officers, Mr. Parks and Dr. Olson, on
November 13, 2007 under our 2000 Stock Incentive Plan. In keeping
with our standard policy and practice, the exercise price of the stock options
that were awarded was $6.35 per share, which was the fair market value on the
date of grant. The options generally vest ratably on a monthly basis
over a two year period from the date of grant and expire ten years from the date
of grant. The options that were granted are set forth in the Grants
of Plan-Based Awards table below. All options are intended to be
qualified stock options as defined under Section 422 of the Internal Revenue
Code of 1986, as amended, to the extent possible.
|
iii.
|
Perquisites
|
Our
executive officers do not receive any perquisites and are not entitled to
benefits that are not otherwise available to all of our employees. In
this regard it should be noted that we do not provide pension arrangements,
post-retirement health coverage, or similar benefits for our executive officers
or employees.
-68-
|
iv.
|
Defined
Contribution
Plan
|
We
maintain a qualified retirement plan pursuant to Internal Revenue Code Section
401(k) covering substantially all employees subject to certain minimum age and
service requirements. Our 401(k) plan allows employees to make
voluntary contributions. The assets of the 401(k) plan are held in
trust for participants and are distributed upon the retirement, disability,
death or other termination of employment of the participant.
Employees
who participate in our 401(k) may contribute to their 401(k) account up to the
maximum amount that varies annually in accordance with the Internal Revenue
Code. We also make available to 401(k) plan participants the ability
to direct the investment of their 401(k) accounts in various investment
funds.
|
3.
|
Employment
Agreements
|
In
general, we do not enter into formal employment agreements with our employees,
other than our chief executive officer. We have entered into an
employment agreement with Mr. Sorkin, our current president and chief executive
officer, as amended March 12, 2008 which reduces his base salary from $375,000
to $250,000 from April 1, 2008 through March 31, 2009. See
“Post-Employment Compensation—Employment Agreement with Mr. Sorkin”
below.
Our
Compensation Committee recommended this agreement in part to enable us to induce
our chief executive officer to work at a small, dynamic and rapidly growing
company where his longer-term compensation would largely depend on future stock
appreciation. Our chief executive officer may from time to time have
competitive alternatives that may appear to him to be more attractive or less
risky than working at Immtech. The change in control and severance
benefits also mitigates a potential acquisition of the Company, particularly
when services of the chief executive officer may not be required by the
acquiring company. A description of the terms of these agreements,
including post-employment payments and triggers, is included in the section
entitled “Potential Payments Upon Termination or Change in
Control.”
|
4.
|
Accounting
and Tax
Considerations
|
We select
and implement our various elements of compensation for their ability to help us
achieve our performance and retention goals and not based on any unique or
preferential financial accounting treatment. In this regard, Section
162(m) of the Internal Revenue Code generally sets a limit of $1.0 million on
the amount of annual compensation (other than certain enumerated categories of
performance-based compensation) that we may deduct for federal income tax
purposes. Compensation realized upon the exercise of stock options is
considered performance based if, among other requirements, the plan pursuant to
which the options are granted has been approved by the a company’s stockholders
and has a limit on the total number of shares that may be covered by options
issued to any plan participant in any specified period. Options
granted under our 2007 Plan are considered performance
based. Therefore any compensation realized upon the exercise of stock
options granted under the 2007 Plan will be excluded from the deductibility
limits of Section 162(m). While we have not adopted a policy
requiring that all compensation be deductible, we consider the consequences of
Section 162(m) in designing our compensation practices.
-69-
|
5.
|
Stock
Ownership
Guidelines
|
Although
we have not adopted any stock ownership guidelines, we believe that our
compensation of executive officers, which includes the use of stock options,
results in an alignment of interest between these individuals and our
stockholders.
|
B.
|
Report
of the Compensation Committee
|
The material in this report is not
“solicitation material,” is not deemed filed with the Securities and Exchange
Commission, and is not incorporated by reference in any filing of the company
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, whether made before or after the date hereof and irrespective
of any general incorporation language in any filing.
Our
Compensation Committee is responsible for reviewing and approving corporate
goals and objectives relevant to the compensation of our chief executive
officer, evaluating the chief executive officer’s performance in light of those
goals and objectives and, determining and approving the chief executive
officer’s compensation level based on this evaluation. Our Compensation
Committee is also responsible for reviewing and approving the salaries and other
compensation of our other executive officers. Each member of our Compensation
Committee is independent under the American Stock Exchange listing requirements.
The Compensation Committee’s function is more fully described in its charter
which has been approved by our board of directors. The charter can be viewed,
together with any future changes that may occur, on our website at
www.immtechpharma.com.
Our
Compensation Committee has reviewed the Compensation Discussion &
Analysis with management and, based on that review, recommends to the board of
directors that it be included in the Annual Report on Form 10-K for the year
ended March 31, 2008 for filing with the Securities and Exchange
Commission.
By the
Compensation Committee of the Board of Directors:
Judy Lau,
Compensation Committee Chair
David M.
Fleet, Compensation Committee Member
Donald F.
Sinex, Compensation Committee Member
-70-
|
C.
|
Named
Executive Officer Compensation
|
SUMMARY
COMPENSATION TABLE
|
Name
and
Principal
Position |
Year
|
Salary
$
|
Bonus
$
|
Stock
Awards $
|
Option
Awards
$ (2)
|
Non-equity
Incentive Plan Compensation
$
|
Change
in Pension Value and NQDC Earnings
$
|
All
Other Compensation
$
(3)
|
Total
$
|
||||||||||||||||||||
|
Eric
L. Sorkin(1)
Chief
Executive Officer and Chairman
|
2008
|
$375,000 |
-----
|
-----
|
$232,911 |
-----
|
-----
|
$7,328
|
$615,239 | ||||||||||||||||||||
|
Cecilia
Chan(4)
Vice
Chairman
|
2008
|
$201,234 |
-----
|
-----
|
$181,005 |
-----
|
-----
|
$7,328
|
$389,567 | ||||||||||||||||||||
|
Gary
C. Parks
Secretary,
Treasurer and Chief Financial Officer
|
2008
|
$200,000 |
-----
|
-----
|
$162,627 |
-----
|
-----
|
$15,192
|
$377,819 | ||||||||||||||||||||
|
Carol
Ann Olson, MD, Ph.D.
Senior
Vice President and Chief Medical Officer
|
2008
|
$235,000 |
-----
|
-----
|
$290,300 |
-----
|
-----
|
$11,068
|
$536,368 | ||||||||||||||||||||
|
(1)
|
Mr.
Sorkin became Chief Executive Officer on January 23, 2006 and subsequently
became President on May 1, 2006. Mr. Sorkin’s base salary as of
April 1, 2007 was $375,000 and was voluntarily reduced to $250,000 for one
year effective as of April 1, 2008.
|
|
(2)
|
This
column represents the dollar amount recognized for financial statement
reporting purposes with respect to the 2008 fiscal year for the fair value
of the stock options granted to each of the named executive officers in
2008 and prior fiscal years, in accordance with SFAS
123(R). The amounts shown exclude the impact of estimated
forfeitures related to service-based vesting conditions. For
additional information on the valuation assumptions with respect to the
2007 option grants, please refer to the notes in our financial
statements. These amounts reflect our accounting expense for
these awards, and do not correspond to the actual value that will be
recognized by the named executive
officers.
|
|
(3)
|
This
column represents the dollar amount for the Company paid portion of
health, dental, short term disability, long term disability, life
insurance, and accidental death and dismemberment
costs.
|
|
(4)
|
Ms.
Chan’s base salary as of April 1, 2007 was $201,234 and was voluntarily
reduced to $150,000 for one year effective as of April 1,
2008.
|
-71-
|
D.
|
Stock
Option Grants and Exercises During the Fiscal Year Ended March 31,
2008
|
The
following table sets forth information concerning stock option grants made
during the fiscal year ended March 31, 2008, to our executive officers
named in the “Summary Compensation Table” above. This information is
for illustration purposes only and is not intended to predict the future price
of our Common Stock. The actual future value of the options will
depend on the market value of the Common Stock.
GRANTS
OF PLAN-BASED AWARDS
|
Estimated
Future
Payouts
Under
Non-Equity
Incentive
Plan Awards
|
Estimated
Future
Payouts
Under
Equity
Incentive
Plan Awards
|
|||||||||||||||||||||||||||||||||||||||||
|
Name
|
Grant
Date |
Threshold
($)
|
Target
($) |
Maximum
($)
|
Threshold
($)
|
Target
($) |
Maximum
($)
|
All Other Stock Awards: Number
of Shares of Stock or Units
(#) |
All Other Options Awards:
Number of Securities Underlying Options (#)
(1)
|
Exercise
or Base Price of Option Awards ($/Sh) (2)
|
Grant
Date Fair Value of Option Awards
($)
(3)
|
|||||||||||||||||||||||||||||||
|
Gary
C. Parks
|
11/13/07
|
----
|
----
|
----
|
----
|
----
|
----
|
----
|
45,000
|
6.35
|
210,982
|
|||||||||||||||||||||||||||||||
|
Carol
Ann Olson
|
11/13/07
|
----
|
----
|
----
|
----
|
----
|
----
|
----
|
45,000
|
6.35
|
210,982
|
|||||||||||||||||||||||||||||||
|
(1)
|
These
options vest and become exercisable in equal monthly installments with the
first installment vesting on December 13, 2007. The options
expire 10 years from the date of grant, which was November 13,
2007.
|
|
(2)
|
This
column shows the exercise price for the stock options granted, which was
the closing price of our Common Stock on November 13, 2007, the date of
grant.
|
|
(3)
|
This
column represents the dollar amount recognized for financial statement
reporting purposes with respect to the 2008 fiscal year for the fair value
of the stock options granted to each of the named executive officers in
2008 in accordance with SFAS 123(R). The amounts shown exclude
the impact of estimated forfeitures related to service-based vesting
conditions. For additional information on the valuation
assumptions with respect to the 2007 grants, please refer to the notes in
our financial statements. These amounts reflect our accounting
expense for these awards, and do not correspond to the actual value that
will be recognized by the named executive
officers.
|
-72-
The following table sets forth certain
information with respect to outstanding option and warrant awards of the named
executive officers for the fiscal year ended March 31, 2008.
OUTSTANDING
EQUITY AWARDS AT MARCH 31, 2008
|
Option/Warrant
Awards
|
Stock
Awards
|
||||||||||||||||||||||||||||||||
|
Name
|
Number
of Securities Underlying Unexercised Options/
Warrants
Exercisable (#)(1)
|
Number
of Securities Underlying Unexercised Options/ Warrants Unexercisable
(#)(1)
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option/Warrant
Exercise Price ($)
|
Option/
Warrant Expiration Date (2)
|
Number
of Shares or Units of Stock that Have Not Vested (#)
|
Market
Value of Shares or Units of Stock that Have Not Vested
($)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other
Rights that Have Not Vested (#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares,
Units or Other Rights That Have Not Vested ($)
|
||||||||||||||||||||||||
|
Eric
L. Sorkin
|
26,923(2) | 0 | --- | 6.47 |
7/24/2008
|
--- | --- | --- | --- | ||||||||||||||||||||||||
| 173,077(2) | 0 | --- | 6.47 |
10/12/2008
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 22,000 | 0 | --- | 14.29 |
2/2/2014
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 22,000 | 0 | --- | 11.03 |
11/16/2014
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 20,834 | 0 | --- | 7.85 |
1/25/2016
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 53,125 | 21,875 | --- | 5.74 |
10/16/2016
|
--- | --- | --- | --- | |||||||||||||||||||||||||
|
Cecilia
Chan
|
50,123(2) | 0 | --- | 6.47 |
7/24/2008
|
--- | --- | --- | --- | ||||||||||||||||||||||||
| 173,077(2) | 0 | --- | 6.47 |
10/12/2008
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 22,000 | 0 | --- | 2.55 |
12/24/2012
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 25,000 | 0 | --- | 21.66 |
11/6/2013
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 20,000 | 0 | --- | 9.41 |
9/8/2014
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 53,125 | 21,875 | --- | 5.74 |
10/16/2016
|
--- | --- | --- | --- | |||||||||||||||||||||||||
|
Gary
C. Parks
|
14,195 | 0 | --- | 1.74 |
4/16/2008
|
--- | --- | --- | --- | ||||||||||||||||||||||||
| 10,000 | 0 | --- | 10.00 |
7/20/2011
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 25,000 | 0 | --- | 2.55 |
12/24/2012
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 15,000 | 0 | --- | 21.66 |
11/6/2013
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 15,000 | 0 | --- | 9.41 |
9/8/2014
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 20,000 | 0 | --- | 7.29 |
1/24/2016
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 21,250 | 8,750 | --- | 5.74 |
10/16/2016
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 9,375 | 35,625 | 6.35 |
11/13/2017
|
--- | --- | --- | --- | ||||||||||||||||||||||||||
|
Carol
Ann Olson
|
40,000 | 0 | --- | 8.38 |
10/18/2014
|
--- | --- | --- | --- | ||||||||||||||||||||||||
| 30,000 | 0 | --- | 7.29 |
1/24/2016
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 21,250 | 8,750 | --- | 5.74 |
10/16/2016
|
--- | --- | --- | --- | |||||||||||||||||||||||||
| 9,375 | 35,625 | 6.35 |
11/13/2017
|
--- | --- | --- | --- | ||||||||||||||||||||||||||
|
(1)
|
Except
as indicated, the options granted vest and become exercisable in monthly
installments over a two year period, commencing on the date of
grant.
|
|
(2)
|
The
amount represents the shares of Common Stock issuable upon exercise of the
vested warrants.
|
-73-
OPTION/WARRANT
EXERCISES
|
Option/Warrant
Awards
|
||||||||
|
Name
|
Number
of
Shares
Acquired
on
Exercise
(#)
|
Value
Realized
on
Exercise
($)
|
||||||
|
Eric
L. Sorkin
|
10,000
|
(3,550)(1)
|
||||||
|
972
|
3,344(2)
|
|||||||
|
Cecilia
Chan
|
2,312
|
7,953(3)
|
||||||
|
Gary
C. Parks
|
0
|
|||||||
|
Carol
Ann Olson
|
0
|
|||||||
|
(1)
|
Based
on the market value of $5.99 per share on November 14, 2007, the exercise
date, minus the average per share exercise price of $6.47 multiplied by
the number of shares underlying the
warrant.
|
|
(2)
|
Based
on the market value of $5.99 per share on November 14, 2007, the exercise
date, minus the average per share exercise price of $2.55 multiplied by
the number of shares underlying the
option.
|
|
(3)
|
Based
on the market value of $8.30 per share on September 25, 2007, the exercise
date, minus the average per share exercise price of $6.13 multiplied by
the number of shares underlying the
warrant.
|
|
E.
|
Post-Employment
Compensation
|
|
1.
|
Employment
Agreement with Mr.
Sorkin
|
Upon
becoming the Company’s Chief Executive Officer in January 2006, Mr. Sorkin
elected to provide services to the Company without receiving an annual
salary. On December 20, 2006, the Company and Mr. Sorkin entered into
an employment agreement pursuant to which Mr. Sorkin was engaged as the
Company’s President and Chief Executive Officer through March 31, 2007, with
annual automatic renewals, unless either party provides not less than 30 days
written notice. Mr. Sorkin is entitled to receive an annual cash
salary of $375,000 beginning on April 1, 2007. In connection with the
employment agreement, he also had the right to receive a stock option to
purchase up to 325,000 shares of the Company’s common stock for an exercise
price equal to $9.01, the closing price of our common stock on the date the
agreement was signed, subject to the stockholders approval of a new equity
incentive plan. Under the terms of the agreement, Mr. Sorkin also may
receive (i) a cash bonus of up to 60% of his base salary beginning with the
fiscal year ended March 31, 2008, based on milestones set in the sole discretion
of the Compensation Committee or in the discretion of the Compensation Committee
together with the other independent members of the board of directors (as
directed by the board). The agreement was amended and restated in
March 2007 at the request of Mr. Sorkin to remove the requirement that he be
granted the 325,000 stock options and to provide that he will be eligible for
future stock options conditioned on the Company’s achievements and milestones as
determined by the Compensation Committee and the other independent directors of
the board. The agreement was again amended and restated in March 2008
at the request of Mr. Sorkin to reduce his annual salary to $250,000 from April
1, 2008 through March 31, 2009.
If Mr.
Sorkin is terminated without cause (as defined in the agreement) or resigns for
good reason (as defined in the agreement), then he will be entitled to receive
(i) his base salary
-74-
for a
period of six months, (ii) benefits for 12 months, (iii) cash bonus on the date
he otherwise would have received it, (iv) vesting of all stock options,, and (v)
the right to exercise all of his outstanding stock options through the end of
their respective terms. In the event of Mr. Sorkin’s death, his
estate is entitled to (i) his base salary for a period of 12 months, (ii)
benefits for 12 months, (iii) vesting of all outstanding stock options, (iv) pro
rata share of cash bonus through date of death, and (v) the right to exercise
the options through the end of their respective terms. If Mr. Sorkin
becomes disabled (as defined in the agreement) he is entitled to receive (i) his
base salary for a period of 12 months (paid out of disability insurance to the
extent available), (ii) benefits for 12 months, (iii) pro rata share of cash
bonus through the date of disability, (iv) vesting of all outstanding stock
options, and (v) the right to exercise the stock options through the end of
their respective terms. In the event there is a change in control of
the Company (as defined), whether or not Mr. Sorkin’s employment is terminated,
all outstanding stock options will vest.
The following table quantifies the
amounts that we would owe Mr. Sorkin upon each of the termination triggers
discussed above:
EXECUTIVE PAYMENTS UPON TERMINATION AS
OF MARCH 31, 2008
Eric L.
Sorkin
Chairman, Chief Executive Officer and President
Chairman, Chief Executive Officer and President
|
Executive
Benefits and Payments Upon Termination
|
Disability
|
Death
|
Termination
without Cause or with Good Reason Prior to CIC or more than 24 months
after CIC (1)
|
CIC
Whether or Not Services are Terminated
|
||||||||||||
|
Severance
Payments
|
||||||||||||||||
|
Base
Salary
|
$ | 375,000 | (2) | $ | 375,000 | (2) | $ | 187,500 | (3) | ---- | ||||||
|
Short-Term
Incentive
|
--- | (4) | ---- | (4) | --- | (5) | ---- | |||||||||
|
Value
of Unvested Equity Awards and Accelerated
|
||||||||||||||||
|
Options
|
105,586 | (6) | 105,586 | (6) | 105,586 | (6) | 105,586 | (6) | ||||||||
|
Total
|
$ | 480,586 | $ | 480,586 | $ | 293,086 | $ | 105,586 | ||||||||
|
(1)
|
“CIC”
means change in control, as defined within the effective employment
agreement between Mr. Sorkin and the
Company.
|
|
(2)
|
12
months base salary.
|
|
(3)
|
6
months base salary.
|
|
(4)
|
Pro
rata bonus.
|
|
(5)
|
Full
cash bonus otherwise payable.
|
|
(6)
|
Vesting
of all stock options.
|
-75-
|
F.
|
DIRECTOR
COMPENSATION
|
|
Name
|
Fees
Earned or Paid in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
(2)
|
Non-Equity
Incentive Plan Compensation ($)
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
($)
|
All
Other Compensation ($)
|
Total
($)
|
|||||||||||||||||||||
|
David
M. Fleet (1)
|
12,137 | ---- | 50,567 | ---- | --- | --- | 62,704 | |||||||||||||||||||||
|
Judy
Lau
|
20,000 | ---- | 234,638 | ---- | --- | --- | 254,638 | |||||||||||||||||||||
|
Levi
H. K. Lee
|
20,000 | ---- | 211,439 | ---- | --- | --- | 231,439 | |||||||||||||||||||||
|
Donald
F. Sinex
|
20,000 | --- | 162,978 | ---- | --- | --- | 182,978 | |||||||||||||||||||||
(1) David
Fleet was appointed to our board of directors on August 23, 2007.
|
|
(2)
|
This
column represents the dollar amount recognized for financial statement
reporting purposes with respect to the 2008 fiscal year for the fair value
of the stock options granted to each director in 2008 in accordance with
SFAS 123(R). The amounts shown exclude the impact of estimated
forfeitures related to service-based vesting conditions. For
additional information on the valuation assumptions with respect to the
2007 grants, please refer to the notes in our financial
statements. These amounts reflect our accounting expense for
these awards, and do not correspond to the actual value that will be
recognized by the named directors.
|
|
1.
|
Overview
of Compensation and
Procedures
|
We
generally compensate non-employee directors for their service as a member of the
board of directors through the grant to each such director of 20,000 options to
purchase shares of common stock upon joining the board. In addition,
each non-employee director receives options to purchase 15,000 shares of Common
Stock for each subsequent year of board service, options to purchase 3,000
shares of Common Stock for each year of service on the Compensation Committee
and Nominating Committee, respectively, and options to purchase 5,000 shares of
Common Stock for each year of service on the Audit Committee. In lieu
of an award for each year of service on a committee, the Audit Committee chair
receives options to purchase 10,000 shares of Common Stock for each year of
service and the Compensation Committee and Nominating Committee chairs each
receive options to purchase 6,000 shares of Common Stock for each year of
service. Such options are generally granted at fair market value on the date of
grant, vest ratably on a monthly basis over 2 years from the date of grant and
expire 10 years from the date of grant. We have not yet made these
grants with respect to fiscal year 2008. Additionally, non-employee
directors receive $20,000 per year and are reimbursed for out-of-pocket expenses
incurred in connection with their service as directors.
-76-
|
G.
|
Compensation
Committee Interlocks and Insider
Participation
|
All
compensation decisions made for the fiscal year ending March 31, 2008 were made
exclusively by the independent directors serving on the Compensation Committee,
with respect to our Chief Executive Officer, executive officers and other
officers.
The
members of the Compensation Committee for the fiscal year ending March 31, 2008
were Messrs. Lau, Fleet, and Sinex, none of whom were officers or employees of
the Company or any of our subsidiaries for the fiscal year ending March 31, 2008
or in any prior year. None of our executive
officers serves on the board of directors or compensation committee of a company
that has an executive officer that serves on our board or compensation
committee. No member of our board is an executive officer of a company in
which one of our executive officers serves as a member of the board of directors
or compensation committee of that company.
ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
A.
|
Principal
Stockholders
|
The
following table sets forth, as of June 2, 2008, certain information regarding
the beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) of our Common Stock based
upon the most recent information available to us for (i) each person known
by us to own beneficially more than five (5%) percent of our outstanding common
stock, (ii) each director, (iii) each person listed in the “Summary
Compensation Table” above and (iv) all executive officers and directors as
a group.
In
computing the number of shares of Common Stock beneficially owned by a person
and the percentage ownership of that person, we have deemed outstanding shares
of Common Stock subject to options held by that person that are exercisable
within 60 days of June 2, 2008. We have not deemed these shares outstanding
for the purpose of computing the percentage ownership of any other
person.
|
Name
and Address
|
Number
of Shares
of
Common Stock
Beneficially Owned |
Percentage
of Outstanding
Shares of
Common Stock
|
||||
|
Eric
L. Sorkin(1)
c/o
Immtech Pharmaceuticals, Inc.
One
North End Ave.
New
York, NY 10282
|
502,045
shares
|
3.08%
|
||||
|
Cecilia
Chan(2)
c/o
Immtech Pharmaceuticals, Inc.
One
North End Ave.
New
York, NY 10282
|
418,380
shares
|
2.58%
|
||||
|
Gary
C. Parks(3)
c/o
Immtech Pharmaceuticals, Inc.
150
Fairway Drive, Ste. 150
Vernon
Hills, IL 60061
|
153,261
shares
|
0.96%
|
||||
-77-
|
Name
and Address
|
Number
of Shares
of
Common Stock
Beneficially Owned |
Percentage
of Outstanding
Shares of
Common Stock
|
||||
|
Carol
Ann Olson, MD, Ph.D.(4)
c/o
Immtech Pharmaceuticals, Inc.
150
Fairway Drive, Ste. 150
Vernon
Hills, IL 60061
|
113,125
shares
|
0.71%
|
||||
|
David
M. Fleet(5)
c/o
Woodpeckers
Chanctonbury
Drive
Sunningdale,
Berkshire UK
|
14,286
shares
|
0.09%
|
||||
|
Judy
Lau(6)
Room
1002, 10th
Floor
Jupiter
Tower
9
Jupiter Street
North
Point, Hong Kong
|
119,709
shares
|
0.75%
|
||||
|
Levi
H.K. Lee, MD(7)
1405
Lane Crawford House
70
Queens Road Central,
Hong
Kong
|
308,815
shares
|
1.92%
|
||||
|
Donald
F. Sinex(8)
c/o
Devonwood Investors, LLC
4388
McKinley Avenue
Rutland
Town, VT 05701
|
110,608
shares
|
0.70%
|
||||
|
All
executive officers and directors as a group (8 persons)
|
1,740,229
shares
|
10.08%
|
||||
|
(1)
|
Includes
(i) 90,456 shares of Common Stock; (ii) 20,362 shares of Common
Stock issuable upon the conversion of Series A Preferred Stock; (iii)
53,267 shares of Common Stock issuable upon the conversion of Series E
Preferred Stock; (iv) 207,500 shares of Common Stock issuable upon
the exercise of warrants as follows: vested warrant to purchase
26,923 shares of Common Stock at $6.47 per share by July 24, 2008,
vested warrant to purchase 173,077 shares of Common Stock at $6.47 per
share by October 12, 2008, and vested warrant to purchase 7,500
shares of Common Stock at $10.00 per share by December 13, 2008; and
(v) 130,460 shares of Common Stock issuable upon the exercise of
options as follows: vested option to purchase 22,000 shares of
Common Stock at $14.29 per share by February 1, 2014, vested option to
purchase 22,000 shares of Common Stock at $11.03 by November 15, 2014, the
vested option to purchase 20,834 shares of Common Stock at $7.85 by
January 24, 2016 and the vested portion of 65,626 of an option to purchase
75,000 shares of Common Stock at $5.74 by October 15,
2016.
|
|
(2)
|
Includes
(i) 56,773 shares of Common Stock; (ii) 5,781 shares of Common
Stock issuable upon the conversion of Series B Preferred Stock;
(iii) 223,200 shares of Common Stock issuable upon the exercise of
warrants as follows: vested warrant to purchase 50,123 shares
of Common Stock at $6.47 per share by July 24, 2008, and vested
warrant to purchase 173,077 shares of Common Stock at $6.47 per share by
October 12, 2008; and (iv) 132,626 shares of Common Stock
issuable upon the exercise of options as follows: vested option
to purchase 22,000 shares of Common Stock at $2.55 per share by December
24, 2012, vested option to purchase 25,000 shares of Common Stock at
$21.66 per share by November 5, 2013, vested option to purchase 20,000
shares of Common Stock at $9.41 per share by September 7, 2014 and the
vested portion of 65,626 of an option to purchase 75,000 shares of Common
Stock at $5.74 by October 15, 2016.
|
|
(3)
|
Includes
(i) 22,874 shares of Common Stock; (ii) 2,262 shares of Common
Stock issuable upon the conversion of Series A Preferred Stock; and
(iii) 128,125 shares of Common Stock issuable upon the exercise of
options as follows: vested option to purchase 10,000 shares of
Common Stock at $10.00 per share by
|
-78-
|
|
July 19,
2011, vested option to purchase 25,000 shares of Common Stock at $2.55 per
share by December 24, 2012, vested option to purchase 15,000 shares of
Common Stock at $21.66 per share by November 5, 2013, vested option to
purchase 15,000 shares of Common Stock at $9.41 per share by September 7,
2014, vested option to purchase 20,000 shares of Common Stock at $7.29 per
share by January 23, 2016, the vested portion of 26,250 of an option to
purchase 30,000 shares of Common Stock at $5.74 by October 15, 2016 and
the vested portion of 16,875 of an option to purchase 45,000 shares of
Common Stock at $6.35 by November 13,
2017.
|
|
(4)
|
Includes
113,125 shares of Common Stock issuable upon the exercise of options as
follows: vested option to purchase 40,000 shares of Common
Stock at $8.38 per share by October 17, 2014, vested option to
purchase 30,000 shares of Common Stock at $7.29 per share by January 23,
2016, the vested portion of 26,250 of an option to purchase 30,000 shares
of Common Stock at $5.74 by October 15, 2016 and the vested portion of
16,875 of an option to purchase 45,000 shares of Common Stock at $6.35 by
November 13, 2017.
|
|
(5)
|
Includes
14,286 shares of Common Stock issuable upon the exercise of options as
follows: the vested portion of 994 of an option to purchase
2,650 shares of Common Stock at $6.35 by November 13, 2017 and the vested
portion of 13,292 of an option to purchase 29,000 shares of Common Stock
at $7.45 by August 24, 2017.
|
|
(6)
|
Includes
119,709 shares of Common Stock issuable upon the exercise of options as
follows: vested option to purchase 20,000 shares of Common
Stock at $21.66 per share by November 5, 2013, vested option to
purchase 21,000 shares of Common Stock at $14.29 per share by February 1,
2014, vested option to purchase 21,000 shares of Common Stock at $11.03 by
November 15, 2014, vested option to purchase 21,167 shares of Common Stock
at $7.85 by January 24, 2016, vested option to purchase 22,292 shares of
Common Stock at $6.85 by August 17, 2017 and the vested portion of 14,250
of an option to purchase 28,500 shares of Common Stock at $6.85 by August
17, 2017.
|
|
(7)
|
Includes
(i) 137,257 shares of Common Stock; (ii) 11,312 shares of Common
Stock issuable upon the conversion of Series A Preferred Stock;
(iii) 52,037 shares of Common Stock issuable upon the conversion of
Series C Preferred Stock; and (iv) 108,209 shares of Common Stock
issuable upon the exercise of options as follows: vested option
to purchase 20,000 shares of Common Stock at $21.66 per share by November
5, 2013, vested option to purchase 18,000 shares of Common Stock at $14.29
per share by February 1, 2014, vested option to purchase 18,000 shares of
Common Stock at $11.03 by November 15, 2014, vested option to purchase
19,000 shares of Common Stock at $7.85 by January 24, 2016, vested option
to purchase 19,625 shares of Common Stock at $6.85 by August 17, 2017 and
the vested portion of 13,584 of an option to purchase 27,167 shares of
Common Stock at $6.85 by August 17,
2017.
|
|
(8)
|
Includes
(i) 42,717 shares of Common Stock; (ii) 21,307 shares of Common
Stock issuable upon the conversion of Series E Preferred Stock; (iii)
3,750 shares of Common Stock issuable upon the exercise of warrants as
follows: vested warrant to purchase 3,750 shares of Common Stock at
$10.00 per share by December 13, 2008; and (iv) 42,834 shares of
Common Stock issuable upon the exercise of options as
follows: vested option to purchase 10,084 shares of Common
Stock at $6.85 by August 17, 2017, the vested portion of 17,500 shares of
an option to purchase 20,000 shares of Common Stock at $5.60 by October
22, 2016 and the vested portion of 15,250 shares of an option to purchase
30,500 shares of Common Stock at $6.85 by August 17,
2017.
|
-79-
|
B.
|
Securities
Authorized for Issuance under Equity Compensation
Plans
|
The
following table provides information as of March 31, 2008, regarding
compensation plans (including individual compensation arrangements) under which
our equity securities are authorized for issuance.
|
Plan
category (in thousands)
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights(1)
(a)
|
Weighted
average exercise price of outstanding options, warrants and rights(1)
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in
column(a))
(c)
|
|||||||||
|
Equity
compensation plans approved by security holders(2)
|
2,098,113
|
$8.53
|
1,593,274
|
|||||||||
|
Equity
compensation plans not approved by security holders(3)
|
2,259,800
|
$8.20
|
||||||||||
|
Total
|
4,357,913
|
$8.36
|
1,593,274
|
|||||||||
|
(1)
|
As
adjusted for reverse stock splits that occurred on each of July 24,
1998 and January 25, 1999.
|
|
(2)
|
This
category consists solely of
options.
|
|
(3)
|
This
category consists solely of
warrants.
|
|
C.
|
Equity
Compensation Plans Not Approved by
Shareholders
|
We
currently do not have any equity compensation plans that have not received
necessary stockholder approval.
ITEM
13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
A.
|
Policies
and Procedures with Respect to Transactions with Related
Persons
|
The board
of directors has adopted a policy for the review, approval and ratification of
transactions that involve related parties and potential conflicts of
interest.
The
related party transaction policy applies to each director and executive officer
of the Company, any nominee for election as a director, any security holder who
is known to own more than five percent of the Company’s voting securities, any
immediate family member of any of the foregoing persons and any corporation,
firm or association in which one or more of the Company’s directors are
directors or officers, or have a substantial financial interest.
Under the
related party transaction policy, a related person transaction is a transaction
or arrangement involving a related person in which the Company is a participant
or that would require disclosure in the Company’s filings with the SEC as a
transaction with a related person.
The
related persons must disclose to the Audit Committee any potential related
person transactions and must disclose all material facts with respect to such
interest. All related person
-80-
transactions
will be reviewed by the Audit Committee. In determining whether to approve or
ratify a transaction, the Audit Committee will consider the relevant facts and
circumstances of the transaction which may include factors such as the
relationship of the related person with the Company, the materiality or
significance of the transaction to the Company and the business purpose and
reasonableness of the transaction, whether the transaction is comparable to a
transaction that could be available to the Company on an arms-length basis, and
the impact of the transaction on the Company’s business and
operations.
During
the fiscal year ended March 31, 2008, there was no transaction or series of
transactions, or any currently proposed transaction, in which the amount
involved exceeds $120,000 and in which any director, executive officer, holder
of more than 5% of our Common Stock or any member of the immediate family of any
of the foregoing persons had or will have a direct or indirect material
interest.
|
B.
|
Director
Independence
|
Currently,
four of our six directors are independent. Our independent directors are Mr.
Fleet, Ms. Lau, Dr. Lee and Mr. Sinex. The board of directors has
standing Audit, Compensation, and Nominating Committees, the members of which
are all independent.
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The Audit
Committee selects our independent registered public accounting firm for each
fiscal year. During the fiscal year ended March 31, 2008,
Deloitte & Touche LLP was employed primarily to perform the annual audit and
to render other services, including audit services related to the Company’s
internal control reporting to comply with Section 404 of the Sarbanes-Oxley
Act. The following table presents the aggregate fees billed for
professional services rendered by Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their respective affiliates (collectively, the
“Deloitte Entities”) during the fiscal years ended March 31, 2007 and
2008. Other than as set forth below, no professional services were
rendered or fees billed by the Deloitte Entities during the fiscal years ended
March 31, 2007 and 2008.
|
2008
|
2007
|
|||||||
|
Audit
Fees(1)
|
$271,000
|
$218,000
|
||||||
|
Tax
Fees(2)
|
57,000
|
6,000
|
||||||
|
Total
Fees
|
$328,000
|
$224,000
|
||||||
|
(1)
|
Includes
fees and out-of-pocket expenses for the following
services: Audit of the consolidated financial statements,
quarterly reviews, SEC filings and consents, financial accounting and
reporting consultation, and costs in our fiscal year ended March 31,
2008 preparing the 2008 audit requirement for compliance with Section 404
of the Sarbanes-Oxley Act and financial
testing.
|
|
(2)
|
Includes
fees and out-of-pocket expenses for tax compliance, tax planning and
advice.
|
All work
performed by the Deloitte Entities as described above has been approved by the
Audit Committee prior to the Deloitte Entities’ engagement to perform such
service. The Audit Committee pre-approves on an annual basis the
audit, audit-related, tax and other services to be
-81-
rendered
by the Deloitte Entities based on historical information and anticipated
requirements for the following fiscal year. To the extent that our
management believes that a new service or the expansion of a current service
provided by the Deloitte Entities is necessary, such new or expanded service is
presented to the Audit Committee or one of its members for review and
approval.
PART
III.
ITEM
15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
A.
|
Documents
Filed with this
Report.
|
The
following documents are filed as part of this Annual Report on Form
10-K:
|
1.
|
Financial
Statements
|
Our
consolidated financial statements required by this item are submitted in a
separate section beginning on page F-1 of this report.
|
2.
|
Financial
Statement
Schedules
|
None.
|
3.
|
Exhibits
|
The
information called for by this paragraph is contained in the Index to Exhibits
of this Annual Report on Form 10-K, which is incorporated herein by
reference.
-82-
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
|
IMMTECH
PHARMACEUTICALS, INC.
|
|||
| Date: |
June 18,
2008
|
By: /s/
Eric L. Sorkin
|
|
|
Eric
L. Sorkin
Chief
Executive Officer and President
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, 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/
Eric L. Sorkin
|
June
18, 2008
|
|
|
Eric
L. Sorkin
Chief
Executive Officer and President
(Principal
Executive Officer)
|
||
|
/s/
Gary C. Parks
|
June
18, 2008
|
|
|
Gary
C. Parks
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
||
|
/s/
Cecilia Chan
|
June
18, 2008
|
|
|
Cecilia
Chan
Vice
Chairman and Director
|
||
|
/s/
David Fleet
|
June
18, 2008
|
|
|
David
Fleet
Director
|
||
|
/s/
Judy Lau
|
June
18, 2008
|
|
|
Judy
Lau
Director
|
||
|
/s/
Levi H.K. Lee, MD
|
June
18, 2008
|
|
|
Levi
H.K. Lee, MD
Director
|
||
|
/s/
Donald F. Sinex
|
June
18, 2008
|
|
|
Donald
F. Sinex
Director
|
-83-
EXHIBIT
INDEX
|
EXHIBIT
NUMBER
|
DESCRIPTION
OF EXHIBIT
|
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of the Company, dated
June 14, 2004 (Form 10-K for fiscal year ended March 31, 2004)
*
|
|
|
3.2
|
Certificate
of Correction to Certificate of Incorporation dated December 14, 2005
(Form 8-K, dated December 14, 2005) *
|
|
|
3.3
|
Certificate
of Amendment (Name Change) to Certificate of Incorporation dated March 22,
2006 (Form 8-K, dated March 23, 2006) *
|
|
|
3.4
|
Certificate
of Amendment (Number of Members of the Board of Directors) to Certificate
of Incorporation dated April 17, 2007 **
|
|
|
3.5
|
Certificate
of Designation for Series A Convertible Preferred Stock Private Placement,
dated February 14, 2002 (Form 8-K, dated February 14, 2002)
*
|
|
|
3.6
|
Certificate
of Designation for Series B Convertible Preferred Stock Private Placement,
dated September 25, 2002 (Form 8-K, dated September 25, 2002)
*
|
|
|
3.7
|
Certificate
of Designation for Series C Convertible Preferred Stock Private Placement,
dated June 6, 2003 (Form 8-K, dated June 10, 2003)
*
|
|
|
3.8
|
Certificate
of Designation for Series D Convertible Preferred Stock Private Placement,
dated January 15, 2004 (Form 8-K, dated January 21, 2004)
*
|
* These
items are hereby incorporated by reference from the exhibits of the filing or
report indicated (except) where noted, (Commission File No. 001-14907) and are
hereby made a part of this Report.
** Filed
herewith.
# Portions
of this exhibit 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)
Management compensation contract
-84-
|
EXHIBIT
NUMBER
|
DESCRIPTION
OF EXHIBIT
|
|
|
3.9
|
Certificate
of Designation for Series E Convertible Preferred Stock Private Placement,
dated December 13, 2005 (Form 8-K, dated December 14, 2005)
*
|
|
|
3.10
|
Amended
and Restated Bylaws of the Company effective as of June 8, 2007 (Form 8-K,
dated June 12, 2007) *
|
|
|
4.1
|
Form
of Common Stock Certificate (Form SB-2/A Registration Statement, dated
March 30, 1999, File No. 333-64393) *
|
|
|
4.2
|
Warrant
Agreement, dated July 24, 1998, by and between the Company and RADE
Management Corporation (Form SB-2/A Registration Statement, dated February
11, 1999, File No. 333-64393) *
|
|
|
4.3
|
Warrant
Agreement, dated October 12, 1998, by and between the Company and RADE
Management Corporation (Form SB-2/A Registration Statement, dated February
11, 1999, File No. 333-64393) *
|
|
|
4.8
|
Stock
Purchase Warrant, dated September 25, 2002, for Series B Convertible
Preferred Stock Private Placement (Form 8-K, dated September 25, 2002)
*
|
|
|
4.11
|
Stock
Purchase Warrant, dated January 15, 2004, for Series D Convertible
Preferred Stock Private Placement (Form 8-K, dated January 21, 2004)
*
|
|
|
4.13
|
Stock
Purchase Warrant, dated December 13, 2005, for Series E Convertible
Preferred Stock Private Placement (Form 8-K, dated December 14, 2005)
*
|
|
|
4.18
|
Form
of Stock Purchase Warrant, dated December 14, 2006, issued to Ferris,
Baker Watts **
|
|
|
10.1
|
Letter
Agreement, dated January 15, 1997, by and among the Company,
Pharm-Eco Laboratories, Inc. and The University of North Carolina at
Chapel Hill, as amended (Form SB-2 Registration Statement, File No.
333-64393) *
|
* These
items are hereby incorporated by reference from the exhibits of the filing or
report indicated (except) where noted, (Commission File No. 001-14907) and are
hereby made a part of this Report.
** Filed
herewith.
# Portions
of this exhibit 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)
Management compensation contract
-85-
|
EXHIBIT
NUMBER
|
DESCRIPTION
OF EXHIBIT
|
|
|
10.2
(1)
|
1993
Stock Option and Award Plan (Form SB-2 Registration Statement, File No.
333-64393) *
|
|
|
10.3
(1)
|
2000
Stock Option and Award Plan (Definitive Proxy Statement, dated August 25,
2000, File No. 000-25669) *
|
|
|
10.4
(1)
|
2007
Stock Option and Award Plan (Definitive Proxy Statement, dated October 17,
2007) *
|
|
|
10.5
|
Indemnification
Agreement, dated June 1, 1998, between the Company and RADE
Management Corporation (Form SB-2 Registration Statement, File No.
333-64393) *
|
|
|
10.6
|
Letter
Agreement, dated June 24, 1998, between the Company and Criticare
Systems, Inc. (Form SB-2 Registration Statement, File No. 333-64393)
*
|
|
|
10.7
|
Letter
Agreement, dated June 25, 1998, between the Company and Criticare
Systems, Inc. (Form SB-2 Registration Statement, File No. 333-64393)
*
|
|
|
10.8
|
Amendment,
dated January 15, 1999, to Letter Agreement among the Company,
Pharm-Eco Laboratories, Inc. and The University of North Carolina at
Chapel Hill, as amended (Form SB-2/A Registration Statement, dated
February 11, 1999, File No. 333-64393) *
|
|
|
10.9
|
Office
Lease, dated August 26, 1999, by and between the Company and Arthur
J. Rogers & Co. (Form 10-K for fiscal year ended March 31, 2000, File
No. 000-25669) *
|
|
|
10.10
|
License
Agreement, dated August 25, 1993, by and among the University of
North Carolina at Chapel Hill and Pharm-Eco Laboratories, Inc. (Form
10-KSB/A for fiscal year ended March 31, 2001, as amended on July 6, 2001)
*
|
|
|
10.11
|
Assignment
Agreement, dated as of March 27, 2001, by and between the Company and
Pharm-Eco Laboratories, Inc. (Form 10-KSB/A for fiscal year ended March
31, 2001, as amended on July 6, 2001)
*
|
* These
items are hereby incorporated by reference from the exhibits of the filing or
report indicated (except) where noted, (Commission File No. 001-14907) and are
hereby made a part of this Report.
** Filed
herewith.
# Portions
of this exhibit 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)
Management compensation contract
-86-
|
EXHIBIT
NUMBER
|
DESCRIPTION
OF EXHIBIT
|
|
|
10.12
|
Clinical
Research Subcontract, dated as of March 29, 2001, by and between The
University of North Carolina at Chapel Hill and the Company (Form 10-KSB/A
for fiscal year ended March 31, 2001, as amended on July 6, 2001)
*
|
|
|
10.14
|
License
Agreement, dated March 10, 1998, by and between the Company and
Northwestern University (Form SB-2 Registration Statement, File No.
333-64393) *
|
|
|
10.15
|
License
Agreement, dated October 27, 1994, by and between the Company and
Northwestern University (Form SB-2 Registration Statement, File No.
333-64393) *
|
|
|
10.16
|
Assignment
of Intellectual Properties, dated June 29, 1998, between the Company
and Criticare Systems, Inc. (Form SB-2 Registration Statement, File No.
333-64393) *
|
|
|
10.18
|
Assignment
Agreement, dated June 26, 1998, by and between the Company and
Criticare Systems, Inc. (Form SB-2 Registration Statement, File No.
333-64393) *
|
|
|
10.19
|
Assignment
Agreement, dated June 29, 1998, by and between the Company and
Criticare Systems, Inc. (Form SB-2 Registration Statement, File No.
333-64393) *
|
|
|
10.20
|
International
Patent, Know-How and Technology License Agreement, dated June 29,
1998, by and between the Company and Criticare Systems, Inc. (Form SB-2
Registration Statement, File No. 333-64393) *
|
|
|
10.22
|
Funding
and Research Agreement, dated September 30, 1998, by and among the
Company, NextEra Therapeutics, Inc. and Franklin Research Group, Inc.
(Form SB-2/A Registration Statement, dated February 11, 1999, File No.
333-64393) *
|
|
|
10.24
|
Employment
Agreement, dated 1998, by and between NextEra and Lawrence Potempa (Form
10-KSB for fiscal year ended March 31, 1999)
*
|
* These
items are hereby incorporated by reference from the exhibits of the filing or
report indicated (except) where noted, (Commission File No. 001-14907) and are
hereby made a part of this Report.
** Filed
herewith.
# Portions
of this exhibit 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)
Management compensation contract
-87-
|
EXHIBIT
NUMBER
|
DESCRIPTION
OF EXHIBIT
|
|
|
10.29
|
Amendment,
dated January 28, 2002, to License Agreement among the Company,
Pharm-Eco Laboratories, Inc. and The University of North Carolina at
Chapel Hill, as amended (Form 10-Q for quarter ended December 31, 2001)
*
|
|
|
10.35
|
Share
Purchase Agreement and Deed of Indemnity as related to shares in Super
Insight Limited, dated November 28, 2003, by and between the Company,
Chan Kon Fung and Super Insight Limited (Form 8-K, dated December 2, 2003)
*
|
|
|
10.36
|
Allonge
to the Share Purchase Agreement and Deed of Indemnity as related to shares
in Super Insight Limited and Immtech Hong Kong Limited, dated
November 28, 2003, by and between the Company, Chan Kon Fung, Lenton
Fibre Optics Development Limited, Super Insight Limited, and Immtech Hong
Kong Limited (Form 8-K, dated December 2, 2003) *
|
|
|
10.39
|
Form
of First Amendment to Office Lease, dated August 18, 2004, by and
between the Company and Arthur J. Rogers & Co. (Form 8-K, dated
October 8, 2004) *
|
|
|
10.41
|
Amended
and Restated Consortium License Agreement (Redacted) dated March 24, 2006,
among Immtech, The University of North Carolina at Chapel Hill, Auburn
University, Duke University and the Georgia State University Research
Gates Foundation, Inc. (Form 8-K, dated March 30, 2006)
*
|
|
|
10.42
|
Amended
and Restated Clinical Research Subcontract, dated March 28, 2006, between
Immtech and The University of North Carolina at Chapel Hill (Form 8-K,
dated March 30, 2006) *
|
|
|
10.44
(1)
|
Form
of Incentive Stock Option Agreement (Form 10-Q for quarter ended December
31, 2006) *
|
|
|
10.45
(1)
|
Form
of Non-qualified Stock Option Agreement (Form 10-Q for quarter ended
December 31, 2006) *
|
|
|
10.46
(1)
|
Amended
and Restated Employment Agreement between the Company and Eric L. Sorkin
dated March 12, 2008
**
|
* These
items are hereby incorporated by reference from the exhibits of the filing or
report indicated (except) where noted, (Commission File No. 001-14907) and are
hereby made a part of this Report.
** Filed
herewith.
# Portions
of this exhibit 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)
Management compensation contract
-88-
|
EXHIBIT
NUMBER
|
DESCRIPTION
OF EXHIBIT
|
|
|
10.47
|
Placement
Agency Agreement between the Company and Ferris, Baker Watts, Incorporated
dated February 7, 2007 (Form 8-K, dated February 13,
2007)*
|
|
|
10.48#
|
Licensing
Agreement with Par Pharmaceutical Companies, Inc., dated June 11, 2007
(Form 10-Q for the quarter ended June 30, 2007)*
|
|
|
10.49#
|
Supply
& Distribution Agreement with Par Pharmaceutical Companies, Inc.,
dated June 11, 2007 (Form 10-Q for the quarter ended June 30,
2007)*
|
|
|
10.50#
|
Licensing
Agreement, dated as of December 3, 2007, by and between Immtech
Pharmaceuticals, Inc. and BioAlliance Pharma SA (Form 10-Q for the quarter
ended December 31, 2007)*
|
|
|
21.1
|
Subsidiaries
of Registrant (Form 10-K for fiscal year ended March 31, 2003)
*
|
|
|
23.1
|
Consent
of Deloitte & Touche LLP **
|
|
|
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 **
|
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
**
|
* These
items are hereby incorporated by reference from the exhibits of the filing or
report indicated (except) where noted, (Commission File No. 001-14907) and are
hereby made a part of this Report.
** Filed
herewith.
# Portions
of this exhibit 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)
Management compensation contract
-89-
IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A
Development Stage Enterprise)
Consolidated
Financial Statements as of
March 31,
2007 and 2008, for the Years
Ended
March 31, 2006, 2007 and 2008 and
for
the Period October 15, 1984 (Date of
Inception)
to March 31, 2008 (Unaudited)
and
Report of Independent Registered
Public
Accounting Firm
F-i
IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A
Development Stage Enterprise)
TABLE
OF CONTENTS
Page
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-1
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-3
|
CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007 AND 2008, FOR THE YEARS ENDED MARCH
31, 2006, 2007 AND 2008, AND FOR THE PERIOD FROM OCTOBER 15, 1984 (DATE OF
INCEPTION) TO MARCH 31, 2008 (UNAUDITED):
|
CONSOLIDATED
BALANCE SHEETS
|
F-5
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
F-7
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
F-8-11
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
F-12
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-13-45
|
F-ii
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Immtech
Pharmaceuticals, Inc.:
(New
York, NY)
We have
audited the accompanying consolidated balance sheets of Immtech Pharmaceuticals,
Inc. and subsidiaries (a development stage enterprise) (the “Company”) as of
March 31, 2008 and 2007, and the related consolidated statements of
operations, stockholders’ equity and cash flows for each of the three years in
the period ended March 31, 2008. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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 consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of March 31, 2008 and
2007, and the results of its operations and its cash flows for each of the three
years in the period ended March 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements, for the year ended March 31, 2008, have been
prepared assuming the Company will continue as a going concern. The
Company is a development stage enterprise engaged in developing and
commercializing drugs for infectious diseases. As discussed in Note 1 to
the financial statements, the Company’s recurring losses from operations and
cash position raise substantial doubt about its ability to continue as a going
concern. Management’s plans concerning these matters are also discussed in
Note 1 to the financial statements. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
As
described in Notes 1 and 8 to the consolidated financial statements, effective
April 1, 2006, the Company changed its method for share-based compensation to
adopt Financial Accounting Standards Board (FASB) Statement No. 123 (revised
2004), Share-Based
Payment.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of March 31, 2008, based on the criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated June 16, 2008
expressed an unqualified opinion on the Company’s internal control over
financial reporting.
F-1
/s/Deloitte
& Touche LLP
Milwaukee,
WI
June 16,
2008
F-2
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Immtech
Pharmaceuticals, Inc.:
(New
York, NY)
We have
audited the internal control over financial reporting of Immtech
Pharmaceuticals, Inc. and subsidiaries (a development stage enterprise) (the
“Company”) as of March 31, 2008, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
F-3
are
subject to the risk that the controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of March 31, 2008, based on the
criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in
accordance with standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year
ended March 31, 2008 of the Company and our report dated June 16, 2008,
expressed an unqualified opinion and includes an explanatory paragraph relating
to the Company’s
ability to continue as a going concern.
/s/Deloitte
& Touche LLP
Milwaukee,
WI
June 16,
2008
F-4
IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A
Development Stage Enterprise)
CONSOLIDATED
BALANCE SHEETS
MARCH 31,
2007 AND 2008
|
ASSETS
|
2007
|
2008
|
||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash and cash
equivalents
|
$ | 12,461,795 | $ | 5,996,157 | ||||
|
Restricted funds on
deposit
|
3,118,766 | 3,776,253 | ||||||
|
Other
receivables
|
54,205 | |||||||
|
Other current
assets
|
98,627 | 253,014 | ||||||
|
Total current
assets
|
15,679,188 | 10,079,629 | ||||||
|
PROPERTY
AND EQUIPMENT - Net
|
140,263 | 89,519 | ||||||
|
PREPAID
RENT
|
3,309,240 | 3,234,314 | ||||||
|
OTHER
ASSETS
|
15,477 | 34,142 | ||||||
|
TOTAL
ASSETS
|
$ | 19,144,168 | $ | 13,437,604 | ||||
See notes
to consolidated financial statements.
F-5
IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A
Development Stage Enterprise)
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
2007
|
2008
|
||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Accounts
payable
|
$ | 2,585,395 | $ | 2,938,511 | ||||
|
Accrued
expenses
|
375,925 | 499,770 | ||||||
|
Deferred
revenue
|
1,726,673 | 2,399,676 | ||||||
|
Total current
liabilities
|
4,687,993 | 5,837,957 | ||||||
|
Total
liabilities
|
4,687,993 | 5,837,957 | ||||||
|
STOCKHOLDERS’
EQUITY:
|
||||||||
|
Preferred
stock, par value $0.01 per share, 3,913,000 shares authorized and unissued
as of March 31, 2007 and 2008
|
||||||||
|
Series
A convertible preferred stock, par value $0.01 per share, stated value $25
per share, 320,000 shares authorized, 55,500 and 50,500 shares issued and
outstanding as of March 31, 2007 and 2008, respectively; aggregate
liquidation preference of $1,425,283 and $1,296,831 as of March 31,
2007 and 2008, respectively
|
1,425,283 | 1,296,831 | ||||||
|
Series
B convertible preferred stock, par value $0.01 per share, stated value $25
per share, 240,000 shares authorized, 13,464 and 11,464 shares issued and
outstanding as of March 31, 2006 and 2007, respectively; aggregated
liquidation preference of $348,621 and $296,780 as of March 31, 2007
and 2008, respectively
|
348,621 | 296,780 | ||||||
|
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 March 31, 2007, and 2008; aggregate liquidation preference of
$1,180,345 as of March 31, 2007 and 2008
|
1,180,345 | 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 and 115,200 shares issued
and outstanding as of March 31, 2007 and 2008, respectively;
aggregate liquidation preference of $3,010,914 and $2,959,533 as of
March 31, 2007 and 2008, respectively
|
3,010,914 | 2,959,533 | ||||||
|
Series
E convertible preferred stock, par value $0.01 per share, stated value $25
per share, 167,000 shares authorized, 110,200 and 98,600 shares issued and
outstanding as of March 31, 2007 and 2008, respectively; aggregate
liquidation preference of $2,831,116 and $2,533,107 as of March 31, 2007
and 2008, respectively
|
2,831,116 | 2,533,107 | ||||||
|
Common
stock, par value $0.01 per share, 100,000,000 shares authorized,
15,333,221 and 15,597,768 shares issued and outstanding as of
March 31, 2007 and 2008, respectively
|
153,332 | 155,978 | ||||||
|
Additional
paid-in capital
|
106,031,851 | 110,743,899 | ||||||
|
Deficit
accumulated during the developmental stage
|
(100,525,287 | ) | (111,566,826 | ) | ||||
|
Total stockholders’
equity
|
14,456,175 | 7,599,647 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 19,144,168 | $ | 13,437,604 | ||||
See notes
to consolidated financial statements.
F-6
IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A
Development Stage Enterprise)
CONSOLIDATED
STATEMENTS OF OPERATIONS
YEARS
ENDED MARCH 31, 2006, 2007 AND 2008 AND THE PERIOD
OCTOBER
15, 1984 (DATE OF INCEPTION) TO MARCH 31, 2008 (UNAUDITED)
|
Years
Ended March 31,
|
October 15,
1984 (Inception)
to
March 31,
|
|||||||||||||||
|
2006
|
2007
|
2008
|
2008
|
|||||||||||||
|
REVENUES
|
$ | 3,575,042 | $ | 4,318,013 | $ | 9,717,243 | $ | 34,799,996 | ||||||||
|
EXPENSES:
|
||||||||||||||||
|
Research and
development
|
9,680,184 | 8,760,379 | 11,569,785 | 71,683,718 | ||||||||||||
|
General and
administrative
|
9,631,018 | 9,094,557 | 9,099,955 | 73,077,312 | ||||||||||||
|
Other
(see note 10)
|
(1,874,454 | ) | (1,874,454 | ) | ||||||||||||
|
Equity in loss of joint
venture
|
135,002 | |||||||||||||||
|
Total expenses
|
19,311,202 | 15,980,482 | 20,669,740 | 143,021,578 | ||||||||||||
|
LOSS
FROM OPERATIONS
|
(15,736,160 | ) | (11,662,469 | ) | (10,952,497 | ) | (108,221,582 | ) | ||||||||
|
OTHER
INCOME (EXPENSE):
|
||||||||||||||||
|
Interest income
|
210,725 | 529,844 | 439,545 | 1,913,576 | ||||||||||||
|
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 (expense) -
net
|
210,725 | 529,844 | 439,545 | 1,624,190 | ||||||||||||
|
NET
LOSS
|
(15,525,435 | ) | (11,132,625 | ) | (10,512,952 | ) | (106,597,392 | ) | ||||||||
|
CONVERTIBLE
PREFERRED STOCK DIVIDENDS AND CONVERTIBLE PREFERRED STOCK PREMIUM DEEMED
DIVIDENDS
|
(764,275 | ) | (550,574 | ) | (528,587 | ) | (7,339,333 | ) | ||||||||
|
REDEEMABLE
PREFERRED STOCK CONVERSION, PREMIUM AMORTIZATION AND
DIVIDENDS
|
2,369,899 | |||||||||||||||
|
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$ | (16,289,710 | ) | $ | (11,683,199 | ) | $ | (11,041,539 | ) | $ | (111,566,826 | ) | ||||
|
BASIC
AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO COMMON
STOCKHOLDERS:
|
||||||||||||||||
|
Net loss
|
$ | (1.31 | ) | $ | (0.78 | ) | $ | (0.68 | ) | |||||||
|
Convertible preferred stock
dividends and convertible preferred stock premium deemed
dividends
|
(0.06 | ) | (0.04 | ) | (0.03 | ) | ||||||||||
|
BASIC
AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO COMMON
STOCKHOLDERS
|
$ | (1.37 | ) | $ | (0.82 | ) | $ | (0.71 | ) | |||||||
|
WEIGHTED
AVERAGE SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS PER
SHARE
|
11,852,630 | 14,207,048 | 15,477,463 | |||||||||||||
See notes
to consolidated financial statements.
F-7
IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A
Development Stage Enterprise)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS
ENDED MARCH 31, 2006, 2007 AND 2008 AND THE PERIOD
OCTOBER
15, 1984 (DATE OF INCEPTION) TO MARCH 31, 2008 (UNAUDITED)
|
Series
A Convertible
Preferred
Stock
|
Series
B Convertible
Preferred
Stock
|
Series
C Convertible
Preferred
Stock
|
Series
D Convertible
Preferred
Stock
|
Series
E Convertible
Preferred
Stock
|
|||||||||||||||||||||||||||||||||||||||||||||
|
Issued
and Outstanding
|
Amount
|
Issued
and Outstanding
|
Amount
|
Issued
and Outstanding
|
Amount
|
Issued
and Outstanding
|
Amount
|
Issued and Outstanding
|
Amount
|
Common
Stock
Issued
and Outstanding
|
Amount
|
Additional
Paid-in Capital
|
Deficit
Accumulated During the Development Stage
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Stockholders’ Equity (Deficiency in Assets)
|
||||||||||||||||||||||||||||||||||
|
October 15,
1984 (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
|
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 | ) | ||||||||||||||||||||||||||||||||||||||||||
F-8
|
Series
A Convertible
Preferred
Stock
|
Series
B Convertible
Preferred
Stock
|
Series
C Convertible
Preferred
Stock
|
Series
D Convertible
Preferred
Stock
|
Series
E Convertible
Preferred
Stock
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Issued
and Outstanding
|
Amount
|
Issued
and Outstanding
|
Amount
|
Issued
and Outstanding
|
Amount
|
Issued
and Outstanding
|
Amount
|
Issued and Outstanding
|
Amount
|
Common
Stock
Issued
and Outstanding
|
Amount
|
Additional
Paid-in Capital
|
Deficit
Accumulated During the Development Stage
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Stockholders’ Equity (Deficiency in Assets)
|
|||||||||||||||||||||||||||||||||||
|
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 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
|
Balance,
March 31, 1997
|
675,498 | 6,755 | 3,720,414 | (11,785,314 | ) | (8,058,145 | ) | |||||||||||||||||||||||||||||||||||||||||||
|
Exercise of
options
|
68,167 | 682 | 28,862 | 29,544 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Provision for compensation -
employees
|
50,680 | 50,680 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Provision for compensation -
nonemployees
|
201,696 | 201,696 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Contributed capital - common
stockholders
|
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
|
575,000 | 5,750 | 824,907 | 830,657 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Exercise of
options
|
40,650 | 406 | 12,944 | 13,350 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Provision for compensation -
nonemployees
|
2,426,000 | 2,426,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance of common stock to
Criticare
|
86,207 | 862 | 133,621 | 134,483 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Conversion of Criticare debt to
common stock
|
180,756 | 1,808 | 856,485 | 858,293 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Conversion of debt to common
stock
|
424,222 | 4,242 | 657,555 | 661,797 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Conversion
of redeemable preferred stock to common stock
|
1,195,017 | 11,950 | 1,852,300 | 3,713,334 | 5,577,584 | |||||||||||||||||||||||||||||||||||||||||||||
|
Net loss
|
(1,929,003 | ) | (1,929,003 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
|
Balance,
March 31, 1999
|
3,245,517 | 32,455 | 10,997,198 | (11,478,115 | ) | (448,462 | ) | |||||||||||||||||||||||||||||||||||||||||||
|
Comprehensive
loss:
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net loss
|
(11,433,926 | ) | (11,433,926 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
|
Other
comprehensive loss:
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Unrealized loss on investment
securities available for sale
|
$ | (1,178 | ) | (1,178 | ) | |||||||||||||||||||||||||||||||||||||||||||||
|
Comprehensive
loss
|
(11,435,104 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of common stock under initial public offering, less offering costs of
$513,000
|
1,150,000 | 11,500 | 9,161,110 | 9,172,610 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Exercise of options and
warrants
|
247,420 | 2,474 | 424,348 | 426,822 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Provision for compensation –
nonemployees
|
509,838 | 509,838 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of common stock for compensation - nonemployees
|
611,250 | 6,113 | 6,106,387 | 6,112,500 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance of common stock for
accrued interest
|
28,147 | 281 | 281,189 | 281,470 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Balance,
March 31, 2000
|
5,282,334 | 52,823 | 27,480,070 | (22,912,041 | ) | (1,178 | ) | 4,619,674 | ||||||||||||||||||||||||||||||||||||||||||
|
Comprehensive
loss:
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net loss
|
(9,863,284 | ) | (9,863,284 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
|
Other
comprehensive income (loss):
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Unrealized
loss on investment securities available for sale
|
(1,764 | ) | (1,764 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
|
Reclassification
adjustment for loss included in net loss
|
2,942 | 2,942 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Comprehensive
loss
|
(9,862,106 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of common stock under private placement offering
|
584,250 | 5,843 | 4,299,806 | 4,305,649 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Exercise of
options
|
88,661 | 886 | 41,922 | 42,808 | ||||||||||||||||||||||||||||||||||||||||||||||
|
Provision for compensation -
nonemployees
|
1,739,294 | 1,739,294 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Contributed capital - common
stockholder
|
13,825 | 13,825 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance,
March 31, 2001
|
5,955,245 | 59,552 | 33,574,917 | (32,775,325 | ) | 859,144 | ||||||||||||||||||||||||||||||||||||||||||||
|
Net loss
|
(3,323,110 | ) | (3,323,110 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
F-9
|
Series
A Convertible
Preferred
Stock
|
Series
B Convertible
Preferred
Stock
|
Series
C Convertible
Preferred
Stock
|
Series
D Convertible
Preferred
Stock
|
Series
E Convertible
Preferred
Stock
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issued
and Outstanding
|
Amount
|
Issued
and Outstanding
|
Amount
|
Issued
and Outstanding
|
Amount
|
Issued
and Outstanding
|
Amount
|
Issued and Outstanding
|
Amount
|
Common
Stock
Issued
and Outstanding
|
Amount
|
Additional
Paid-in Capital
|
Deficit
Accumulated During the Development Stage
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Stockholders’ Equity (Deficiency in Assets)
|
|||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of Series A convertible
preferred stock under private placement offerings, less cash offering costs of $153,985 |
160,100 | $ | 4,002,500 | 754,550 | (908,535 | ) | 3,848,515 | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of common stock as offering costs under private placement
offerings
|
60,000 | 600 | (600 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Accrual of preferred stock
dividends
|
29,400 | (29,400 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Exercise of
options
|
51,214 | 512 | 18,972 | 19,484 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Provision for compensation -
nonemployees
|
332,005 | 332,005 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance,
March 31, 2002
|
160,100 | 4,031,900 | 6,066,459 | 60,664 | 34,679,844 | (37,036,370 | ) | 1,736,038 | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net
loss
|
(4,679,069 | ) | (4,679,069 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of Series B convertible preferred stock under private placement offerings,
less cash offering costs of $58,792
|
76,725 | $ | 1,918,125 | 90,640 | (149,432 | ) | 1,859,333 | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of common stock for services provided in connection with private placement
offerings
|
290,000 | 2,900 | 942,200 | 945,100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Conversion
of convertible preferred stock to common stock
|
(17,300 | ) | (437,396 | ) | (20,000 | ) | (515,671 | ) | 228,448 | 2,285 | 950,758 | (24 | ) | |||||||||||||||||||||||||||||||||||||||||||||
|
Accrual
of preferred stock dividends
|
226,210 | 76,227 | (302,437 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Payment
of preferred stock dividends
|
(152,709 | ) | (8,714 | ) | 45,529 | 456 | 160,657 | (310 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of common stock for land-use rights acquisition
|
1,260,000 | 12,600 | 2,986,200 | 2,998,800 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of common stock and warrants for services
|
8,333 | 83 | 89,042 | 89,125 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Exercise
of options
|
217 | 2 | 126 | 128 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Provision
for compensation - nonemployees
|
243,150 | 243,150 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance,
March 31, 2003
|
142,800 | 3,668,005 | 56,725 | 1,469,967 | 7,898,986 | 78,990 | 40,142,617 | (42,167,308 | ) | 3,192,271 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Net loss
|
(12,845,813 | ) | (12,845,813 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of Series C convertible preferred stock under private placement offerings,
less offering costs of $1,685,365 (including cash of
$289,000)
|
125,352 | 3,133,800 | (565,088 | ) | (1,120,277 | ) | 1,448,435 | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of Series D convertible preferred stock under private placement offerings,
less cash offering costs of $428,919
|
200,000 | 5,000,000 | 1,544,368 | (1,973,287 | ) | 4,571,081 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of common stock for services provided in connection with private placement
offerings
|
220,000 | 2,200 | 1,394,800 | 1,397,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Conversion
of convertible preferred stock to common stock
|
(62,000 | ) | (1,566,440 | ) | (36,800 | ) | (939,231 | ) | (53,048 | ) | (1,344,792 | ) | 887,817 | 8,878 | 3,841,327 | (258 | ) | |||||||||||||||||||||||||||||||||||||||||
|
Accrual of preferred stock
dividends
|
147,311 | 53,533 | 175,157 | 56,712 | (432,713 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Payment of preferred stock
dividends
|
(173,626 | ) | (68,176 | ) | (89,979 | ) | 44,398 | 443 | 330,197 | (1,141 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
|
Exercise of
warrants
|
559,350 | 5,594 | 4,468,572 | 4,474,166 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of common stock and warrants for services – nonemployees
|
201,667 | 2,017 | 7,231,835 | 7,233,852 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Exercise of
options
|
23,068 | 231 | 10,361 | 10,592 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Provision for compensation -
nonemployees
|
267,500 | 267,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance,
March 31, 2004
|
80,800 | 2,075,250 | 19,925 | 516,093 | 72,304 | 1,874,186 | 200,000 | 5,056,712 | 9,835,286 | 98,353 | 58,666,489 | (58,539,398 | ) | 9,747,685 | ||||||||||||||||||||||||||||||||||||||||||||
|
Net loss
|
(13,433,164 | ) | (13,433,164 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Conversion
of convertible preferred stock to common stock
|
(20,400 | ) | (521,960 | ) | (11,852 | ) | (301,463 | ) | (39,720 | ) | (1,016,645 | ) | 295,813 | 2,959 | 1,837,011 | (98 | ) | |||||||||||||||||||||||||||||||||||||||||
|
Accrual of preferred stock
dividends
|
112,758 | 39,849 | 130,988 | 296,220 | (579,816 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Payment of preferred stock
dividend
|
(114,883 | ) | (39,849 | ) | (136,735 | ) | (218,630 | ) | 42,878 | 429 | 507,934 | (1,734 | ) | |||||||||||||||||||||||||||||||||||||||||||||
|
Exercise of
warrants
|
235,390 | 2,354 | 1,893,482 | 1,895,836 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Extension of
warrants
|
4,841,245 | 4,841,245 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
F-10
|
Series
A Convertible
Preferred
Stock
|
Series
B Convertible
Preferred
Stock
|
Series
C Convertible
Preferred
Stock
|
Series
D Convertible
Preferred
Stock
|
Series
E Convertible
Preferred
Stock
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issued
and Outstanding
|
Amount
|
Issued
and Outstanding
|
Amount
|
Issued
and Outstanding
|
Amount
|
Issued
and Outstanding
|
Amount
|
Issued and Outstanding
|
Amount
|
Common
Stock
Issued
and Outstanding
|
Amount
|
Additional
Paid-in Capital
|
Deficit
Accumulated During the Development Stage
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Stockholders’ Equity (Deficiency in Assets)
|
|||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of common stock for
secondary offering, less offering costs of $337,803 |
899,999 | 8,999 | 8,324,687 | 8,333,687 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Exercise of
options
|
23,000 | 230 | 21,870 | 22,100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Provision for compensation -
nonemployees
|
335,412 | 335,412 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance,
March 31, 2005
|
60,400 | 1,551,165 | 19,925 | 516,093 | 60,452 | 1,566,976 | 160,280 | 4,117,657 | 11,332,366 | 113,324 | 76,428,132 | (72,552,378 | ) | 11,740,969 | ||||||||||||||||||||||||||||||||||||||||||||
|
Net loss
|
(15,525,435 | ) | (15,525,435 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Conversion
of convertible preferred stock to common stock
|
(2,000 | ) | (51,068 | ) | (6,461 | ) | (163,249 | ) | (14,916 | ) | (375,903 | ) | (43,080 | ) | (1,095,429 | ) |
(4,000)
|
(101,611)
|
272,428 | 2,724 | 1,784,435 | (101 | ) | |||||||||||||||||||||||||||||||||||
|
Accrual of preferred stock
dividends
|
88,784 | 34,423 | 96,222 | 196,707 |
62,139
|
(478,275 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
Payment of preferred stock
dividend
|
(89,096 | ) | (38,646 | ) | (106,950 | ) | (208,021 | ) | 37,812 | 378 | 441,187 | (1,148 | ) | |||||||||||||||||||||||||||||||||||||||||||||
|
Exercise of
warrants
|
60,000 | 600 | 429,950 | 430,550 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Repricing of
warrants
|
125,042 | 125,042 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of Series E convertible preferred stock under private placement offerings,
less cash offering costs of $53,930
|
160,600
|
4,015,000
|
232,070 | (286,000 | ) | 3,961,070 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of common stock for secondary offering, less offering costs of
$166,554
|
2,000,000 | 20,000 | 14,693,373 | 14,713,373 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of common stock for services – nonemployees
|
2,000 | 20 | 25,800 | 25,820 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Exercise of
options
|
53,900 | 539 | 79,563 | 80,102 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Provision for compensation -
nonemployees
|
52,683 | 52,683 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance,
March 31, 2006
|
58,400 | 1,499,785 | 13,464 | 348,621 | 45,536 | 1,180,345 | 117,200 | 3,010,914 |
156,600
|
3,975,528
|
13,758,506 | 137,585 | 94,292,235 | (88,842,088 | ) | 15,602,925 | ||||||||||||||||||||||||||||||||||||||||||
|
Net
loss
|
(11,132,625 | ) | (11,132,625 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Conversion
of convertible preferred stock to
common
stock
|
(2,900 | ) | (73,480 | ) |
(46,400)
|
(1,163,731)
|
181,812 | 1,818 | 1,235,370 | (23 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
|
Accrual
of preferred stock dividends
|
84,773 | 26,928 | 91,072 | 175,800 |
172,001
|
(550,574 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
Payment
of preferred stock dividends
|
(85,795 | ) | (26,928 | ) | (91,072 | ) | (175,800 | ) |
(152,682)
|
84,318 | 843 | 530,679 | (755 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
Exercise
of warrants
|
150,500 | 1,505 | 901,435 | 902,940 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of common stock for secondary
offering,
less cash offering costs of $635,574
|
1,000,000 | 10,000 | 6,104,426 | 6,114,426 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Exercise
of options
|
68,085 | 681 | 17,163 | 17,844 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
based compensation
|
90,000 | 900 | 2,950,543 | 2,951,443 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance,
March 31, 2007
|
55,500 | 1,425,283 | 13,464 | 348,621 | 45,536 | 1,180,345 | 117,200 | 3,010,914 |
110,200
|
2,831,116
|
15,333,221 | 153,332 | 106,031,851 | (100,525,287 | ) | $ | 14,456,175 | |||||||||||||||||||||||||||||||||||||||||
|
Net
loss
|
(10,512,952 | ) | (10,512,952 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Conversion
of convertible preferred stock to
Common
stock
|
(5,000 | ) | (126,759 | ) | (2,000 | ) | (50,460 | ) | (2,000 | ) | (50,773 | ) |
(11,600)
|
(292,890)
|
88,615 | 886 | 519,965 | (31 | ) | |||||||||||||||||||||||||||||||||||||||
|
Accrual
of preferred stock dividends
|
80,804 | 25,547 | 91,072 | 173,688 |
157,476
|
(528,587 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
Payment
of preferred stock dividends
|
(82,497 | ) | (26,928 | ) | (91,072 | ) | (174,296 | ) |
(162,595)
|
74,394 | 744 | 535,692 | (952 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
Exercise
of warrants
|
78,312 | 783 | 482,328 | 483,111 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Extension
of warrants
|
440,422 | 440,422 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Exercise
of options
|
23,226 | 233 | 2,246 | 2,479 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Stock
based compensation
|
2,731,395 | 2,731,395 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance,
March 31, 2008
|
50,500 | $ | 1,296,831 | 11,464 | $ | 296,780 | 45,536 | $ | 1,180,345 | 115,200 | $ | 2,959,533 |
98,600
|
$2,533,107
|
15,597,768 | $ | 155,978 | $ | 110,743,899 | $ | 111,566,826 | $ | 7,599,647 | |||||||||||||||||||||||||||||||||||
F-11
IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A
Development Stage Enterprise)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS
ENDED MARCH 31, 2006, 2007 AND 2008 AND THE PERIOD
OCTOBER
15, 1984 (DATE OF INCEPTION) TO MARCH 31, 2008 (UNAUDITED)
|
Years
Ended March 31,
|
October 15,
1984 (Inception)
to
March 31,
|
|||||||||||||||
|
OPERATING
ACTIVITIES:
|
2006
|
2007
|
2008
|
2008
|
||||||||||||
|
Net loss
|
$ | (15,525,435 | ) | $ | (11,132,625 | ) | $ | (10,512,952 | ) | $ | (106,597,392 | ) | ||||
|
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
|
203,545 | 2,951,443 | 3,171,817 | 33,864,787 | ||||||||||||
|
Depreciation and amortization
of property and equipment
|
155,273 | 152,274 | 144,543 | 1,333,237 | ||||||||||||
|
Deferred rental
obligation
|
||||||||||||||||
|
(Gain)/Loss
on disposal of fixed assets
|
5,982 | 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:
|
||||||||||||||||
|
Accounts
receivable
|
(54,205 | ) | (54,205 | ) | ||||||||||||
|
Other current
assets
|
(104,956 | ) | 94,432 | (154,387 | ) | (253,014 | ) | |||||||||
|
Other assets
|
(120,747 | ) | 121,864 | (18,665 | ) | (34,142 | ) | |||||||||
|
Accounts
payable
|
282,345 | 256,430 | 353,116 | 3,266,046 | ||||||||||||
|
Accrued
expenses
|
53,050 | 149,176 | 123,845 | 1,162,783 | ||||||||||||
|
Deferred
revenue
|
(919,007 | ) | 1,330,894 | 673,003 | 2,399,676 | |||||||||||
|
Net cash used in operating
activities
|
(15,975,932 | ) | (6,070,130 | ) | (6,273,885 | ) | (66,061,560 | ) | ||||||||
|
INVESTING
ACTIVITIES:
|
||||||||||||||||
|
Purchase of property and
equipment
|
(55,634 | ) | (51,794 | ) | (18,873 | ) | (1,636,122 | ) | ||||||||
|
Restricted funds on
deposit
|
1,513,893 | (2,588,580 | ) | (657,487 | ) | (3,776,253 | ) | |||||||||
|
Advances to Joint
Venture
|
(135,002 | ) | ||||||||||||||
|
Proceeds from maturities of
investments
|
1,800,527 | |||||||||||||||
|
Purchases of investment
securities
|
(1,803,469 | ) | ||||||||||||||
|
Net cash provided by (used in)
investing activities
|
1,458,259 | (2,640,374 | ) | (676,360 | ) | (5,550,319 | ) | |||||||||
|
FINANCING
ACTIVITIES:
|
||||||||||||||||
|
Net 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
|
3,961,070 | 17,085,434 | ||||||||||||||
|
Payments for convertible
preferred stock dividends and for fractional shares of common stock
resulting from the conversions of convertible preferred
stock
|
(1,249 | ) | (778 | ) | (983 | ) | (6,575 | ) | ||||||||
|
Net proceeds from issuance of
common stock
|
15,224,025 | 7,035,210 | 485,590 | 53,798,490 | ||||||||||||
|
Additional capital contributed
by stockholders
|
245,559 | |||||||||||||||
|
Net cash provided by financing
activities
|
19,183,846 | 7,034,432 | 484,607 | 77,608,036 | ||||||||||||
|
NET
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS
|
4,666,173 | (1,676,072 | ) | (6,465,638 | ) | 5,996,157 | ||||||||||
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF THE YEAR
|
9,471,694 | 14,137,867 | 12,461,795 | |||||||||||||
|
CASH
AND CASH EQUIVALENTS, END OF THE YEAR
|
$ | 14,137,867 | $ | 12,461,795 | $ | 5,996,157 | $ | 5,996,157 | ||||||||
|
SUPPLEMENTAL
CASH FLOW INFORMATION (Note 11)
|
||||||||||||||||
F-12
IMMTECH
PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A
Development Stage Enterprise)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2006, 2007 AND
2008.
|
1.
|
COMPANY
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Description of Business –
Immtech Pharmaceuticals, Inc. and subsidiaries (a development stage enterprise)
(the “Company”) is a pharmaceutical company working to commercialize oral 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 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.
During
the year ended March 31, 2008, the Company’s drug development
program for pafuramidine was discontinued due to findings of renal and
liver adverse events among participants in the study of healthy volunteers
conducted in South Africa. It was halted in December 2007 after several subjects
developed abnormal liver function. The program was formally discontinued in
February 2008 when five subjects in the same study developed renal abnormalities
that required medical intervention and hospitalization. All affected subjects
have recovered fully, and to date, no lasting adverse events have been observed
in those volunteers.
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,
2009, if at all.
The
Company also intends to increase its presence in China by: (i) bringing approved
drugs, health products and services from developed markets to China for sales
and distribution, (ii) partnering with local Chinese institutions to provide
Contract Research Organization services to other international companies
involved in drug development and (iii) distributing healthcare information to
patients and continuing education and training programs to professional medical
staff.
F-13
Going Concern Presentation
and Related Risks and Uncertainties – The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business.
Since
inception, the Company has incurred accumulated net losses of approximately
$106,597,000. 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 implement its
strategy. 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 future 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.
The
Company believes its existing unrestricted cash and cash equivalents, and the
grants the Company has received or has been awarded, will be sufficient to meet
the Company’s
planned expenditures through December 2008, and through the sale of land use
rights capital resources will be sufficient to support our operations beyond
March 2009, although there can be no assurance the Company will not require
additional funds. The recent decision to
terminate the pafuramidine development program has significantly depressed the
Company’s stock price and impaired its ability to raise
additional funds. The Company is evaluating its strategic alternatives
with respect to all aspects of the business. These factors, among
others, indicate that the Company may be unable to continue as a going concern.
The accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
The
Company’s ability to continue as a going concern is dependent upon its ability
to generate sufficient funds to meet its obligations as they become due and,
ultimately, to 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 an account on deposit at a bank
which is restricted for use in accordance with a clinical research
subcontract agreement with UNC-CH.
F-14
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 March 31, 2007 and 2008, 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 March 31, 2007 and
2008. 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
life.
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 are 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
F-15
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 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 years ended March 31, 2006, 2007 and 2008, 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
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.
F-16
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 March 31, 2007 and 2008 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 years ended
March 31, 2006, 2007, and 2008.
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 those 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 March
31, 2008, 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. Additionally, there were no interest or penalties related to
income taxes that have been accrued or recognized for open tax
years.
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 1991 through 2007 tax years. In addition,
open tax years related to state jurisdictions remain subject to examination but
are not considered material.
New Accounting Standard – In
December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“SFAS
141(R)”). SFAS 141(R) changes the requirements for an acquirer’s
recognition and measurement of the assets acquired and the liabilities assumed
in a business combination. SFAS 141(R) is effective for us in fiscal
year 2009. The impact of SFAS 141(R) will depend on future
acquisitions.
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. Subsequently in February 2008, the FASB issued FASB
Staff Position 157-1, “Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13” (“FSP 157-1”) and FASB Staff Position 157-2, “Partial Deferral of the Effective
Date of Statement 157” (“FSP 157-2”). FSP 157-1 removed
leasing transactions accounted for under Statement No. 13 and related guidance
from the scope of SFAS 157. FSP 157-2 deferred the effective date
F-17
of SFAS
157 for all nonfinancial assets and nonfinancial liabilities to fiscal years
beginning after November 15, 2008. SFAS 157 is effective for us in
fiscal year 2009. The Company does not expect the impact of adoption
to be material.
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 has assessed the
standard and will not elect the fair value option.
New Accounting Standard – In
December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
160”). SFAS 160 requires (a) that noncontrolling (minority) interests
be reported as a component of shareholders’ equity, (b) that net income
attributable to the parent and to the noncontrolling interest be separately
identified in the consolidated statement of operations, (c) that changes in a
parent’s ownership interest while the parent retains its controlling interest be
accounted for as equity transactions, (d) that any retained noncontrolling
equity investment upon the deconsolidation of a subsidiary be initially measured
at fair value, and (e) that sufficient disclosures are provided that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS 160 is effective for us in fiscal
year 2009 and should be applied prosectively. However, the
presentation and disclosure requirements of the statement shall be applied
retrospectively for all periods presented. The Company does not
expect the impact of adoption to be material.
|
2.
|
RECAPITALIZATION,
PRIVATE PLACEMENTS, INITIAL PUBLIC OFFERING AND SECONDARY PUBLIC
OFFERING
|
On
July 24, 1998 (the “Effective Date”), the Company completed a
recapitalization (the “Recapitalization”) pursuant to which, among other
items: (i) the Company’s debt holders converted approximately
$3,151,000 in stockholder advances, notes payable and related accrued interest
and accounts payable into 604,978 shares of common stock and approximately
$203,000 in cash; (ii) the Company’s Series A Redeemable Preferred
stockholders converted 1,794,550 shares of Series A Redeemable Preferred Stock
into 578,954 shares of common stock and (iii) the Company’s Series B
Redeemable Preferred stockholders converted 1,600,000 shares of Series B
Redeemable Preferred Stock into 616,063 shares of common stock.
Contemporaneously
with the completion of the Recapitalization, the Company issued and sold 575,000
shares of common stock at $1.74 per share, or $1,000,000 in the aggregate, to
certain accredited investors pursuant to private placements. 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
$0.10 per share for services and expense reimbursed. RADE Management
Corporation (“RADE”) received warrants to purchase 225,000 shares of the
Company’s common stock at $0.10 per share, which was subsequently amended on
April 22, 1999 to increase the exercise price from $0.10 per share to $6.47
per share, for RADE’s services in the Recapitalization. RADE
subleases an office facility to the Company for which the Company pays rent
directly to RADE’s landlord on RADE’s behalf (see Note 9). During the
F-18
years
ended March 31, 2006, 2007, and 2008, the Company paid
approximately $120,000, $122,000 and $134,000 respectively, for the
use of the office facility.
On April
26, 1999, the Company issued 1,150,000 shares of common stock in an initial
public stock offering resulting in net proceeds of approximately
$9,173,000. Costs incurred of approximately $513,000 and warrants to
purchase 100,000 shares of common stock issued to the underwriters for their
services in the initial public offering were netted from the proceeds of the
offering .
On
December 8, 2000, the Company completed a private placement offering which
raised approximately $4,306,000 of additional equity capital through the
issuance of 584,250 shares of common stock.
In
February 2002, the Company completed private placement offerings which raised
approximately $3,849,000 of additional equity capital (net of approximately
$154,000 of cash offering costs) through the issuance of 160,100 shares of
Series A Convertible Preferred Stock, and five-year warrants to purchase 400,250
shares of the Company’s common stock at an exercise price of $6.00 per share
(see Note 8).
In
September and October 2002, the Company completed private placement
offerings which raised approximately $1,859,000 of additional equity capital
(net of approximately $59,000 of cash offering costs) through the issuance of
76,725 shares of Series B Convertible Preferred Stock and five-year warrants to
purchase 191,812 shares of the Company’s common stock at an exercise price of
$6.125 per share (see Note 8).
In June
2003, the Company completed private placement offerings which raised
approximately $2,845,000 of additional equity capital (net of approximately
$289,000 of cash offering costs) through the issuance of 125,352 shares of
Series C Convertible Preferred Stock. Total cash and non-cash
offering costs with respect to the issuance of the Series C Convertible
Preferred Stock was approximately $1,685,000 (see Note 8).
In
January 2004, the Company completed private placement offerings which raised
approximately $4,571,000 of additional equity capital (net of approximately
$429,000 of cash offering costs) through the issuance of 200,000 shares of
Series D Convertible Preferred Stock and warrants to purchase 200,000 shares of
the Company’s common stock at an exercise price of $16.00 per
share. The warrants expire five years from the date of grant (see
Note 8).
In
July 2004, the Company completed a secondary public offering of its common
stock which raised approximately $8,334,000 of additional equity capital (net of
approximately $338,000 of cash offering costs) through the issuance of 899,999
shares of the Company’s common stock which were sold to the public at $10.25 per
share (see Note 8).
In
December 2005, the Company completed private placement offerings which raised
approximately $3,340,000 of additional equity capital (net of approximately
$54,000 of cash offering costs) through the issuance of 133,600 shares of Series
E Convertible Preferred Stock and warrants to purchase 83,500 shares of the
Company’s common stock at an exercise price of $10.00 per share. The
warrants expire three years from the date of grant (see Note 8).
F-19
In
February 2006, the Company completed a secondary public offering of its common
stock which raised approximately $14,880,000 of additional equity (net of
approximately $167,000 of cash offering costs) through the issuance of 2,000,000
shares of the Company’s common stock which were sold to the public at $7.44 per
share (see Note 8).
In March
2006, the Company completed private placement offerings which raised $675,000 of
additional equity capital (option agreement attached to the December 2005
offering) through the issuance of 27,000 shares of Series E Convertible
Preferred Stock (see Note 8).
In
February 2007, the Company completed a secondary public offering of its common
stock which raised approximately $6,750,000 of additional equity (net of
approximately $636,000 of cash offering costs) through the issuance of 1,000,000
shares of the Company’s common stock which were sold to the public at $6.75 per
share (see Note 8).
|
3.
|
INVESTMENT
IN NEXTERA THERAPEUTICS,
INC.
|
As of
March 31, 2007 and 2008, the Company owned, as disclosed by NextEra,
approximately 28% of the issued and outstanding shares of NextEra common
stock. The Company does not provide, and has not provided, any
financial guarantees to NextEra. The Company has recognized an equity
loss in NextEra to the extent of the basis of its investment. Future
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. As of March 31, 2007 and
2008, the Company’s net investment in NextEra is zero.
|
4.
|
PROPERTY
AND
EQUIPMENT
|
Property
and equipment consist of the following as of March 31, 2006 and
2007:
|
2007
|
2008
|
|||||||
|
Research
and laboratory equipment
|
$ | 450,806 | $ | 451,441 | ||||
|
Furniture
and office equipment
|
331,237 | 344,333 | ||||||
|
Leasehold
improvements
|
42,359 | 42,359 | ||||||
|
Property
and equipment – at cost
|
824,402 | 838,133 | ||||||
|
Less
accumulated depreciation
|
684,139 | 748,614 | ||||||
|
Property
and equipment – net
|
$ | 140,263 | $ | 89,519 | ||||
|
5.
|
PREPAID
RENT
|
Through
Immtech Pharmaceuticals, Inc.’s wholly owned subsidiary, Super Insight Limited
(“Super Insight”), and its wholly owned subsidiary, Immtech Life Science Limited
(“Immtech Life Science”), Immtech Life Science has land-use rights through May
2051 for two floors of a newly-constructed building (November 2002) located in
the Futian Bonded Zone, Shenzhen, in China.
Prepaid
rent consists of the following as of March 31, 2007 and 2008:
F-20
|
2007
|
2008
|
|||||||
|
Prepaid
rent
|
$ | 3,558,994 | $ | 3,558,994 | ||||
|
Less
amortization
|
249,754 | 324,680 | ||||||
|
Prepaid
rent - net
|
$ | 3,309,240 | $ | 3,234,314 | ||||
|
6.
|
ACCRUED
EXPENSES AND OTHER CURRENT
LIABILITIES
|
Accrued
expenses and other current liabilities as of March 31, 2007 and 2008, consist
of:
|
2007
|
2008
|
|||||||
|
Accrued
research and development
|
$ | 199,789 | $ | 20,817 | ||||
|
Accrued
general and administrative
|
75,000 | 20,000 | ||||||
| Accrued litigation settlement | 0 | 362,000 | ||||||
| Accrued patents | 50,000 | 40,000 | ||||||
| Accrued compensation | 39,516 | 35,457 | ||||||
|
Other
|
11,620 | 21,496 | ||||||
| $ | 375,925 | $ | 499,770 | |||||
F-21
|
7.
|
INCOME
TAXES
|
The
Company has no significant deferred income tax
liabilities. Significant components of the Company’s deferred income
tax assets are as follows:
|
March 31,
|
||||||||
|
2007
|
2008
|
|||||||
|
Deferred
income tax assets:
|
||||||||
|
Federal net operating loss
carryforwards
|
$ | 29,090,000 | $ | 31,237,000 | ||||
|
State net operating loss
carryforwards
|
4,011,000 | 4,146,000 | ||||||
|
Federal income tax credit
carryforwards
|
1,885,000 | 2,422,000 | ||||||
|
Deferred
revenue
|
587,000 | 816,000 | ||||||
|
Total deferred income tax
assets
|
35,573,000 | 38,621,000 | ||||||
|
Valuation
allowance
|
(35,573,000 | ) | (38,621,000 | ) | ||||
|
Net
deferred income taxes recognized in the accompanying balance
sheets
|
$ | 0 | $ | 0 | ||||
As of
March 31, 2008, the Company had federal net operating losses carryforwards of
approximately $86,388,000, and federal income tax credit carryforwards of
approximately $2,422,000, which expire from 2009 through 2028. As of
March 31, 2008, the Company also had state net operating losses (primarily in
Illinois) of approximately $85,838,000 which expire from 2009 to 2023 and
foreign operating losses totaling approximately $500,000, which carryforward
indefinitely.
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,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
Federal
statutory income tax rate
|
(34.0 | )% | (34.0 | )% | (34.0 | )% | ||||||
|
State
income taxes
|
(4.8 | ) | (4.8 | ) | (4.8 | ) | ||||||
|
Benefit
of federal and state net operating loss and tax credit carryforwards and
other deferred income tax assets not recognized
|
38.8 | 38.8 | 38.8 | |||||||||
|
Effective
income tax rate
|
0.0 | % | 0.0 | % | 0.0 | % | ||||||
|
8.
|
STOCKHOLDERS’
EQUITY
|
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
F-22
stock, as
defined. Included in the carrying value of the Series A Convertible
Preferred Stock in the accompanying consolidated balance sheets are $37,783 and
$34,331 of accrued preferred stock dividends at March 31, 2007 and 2008,
respectively. Each share of Series A 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 A”), subject to certain adjustments, as defined in the Series
A Certificate of Designation. During the year ended March 31,
2002, the Company issued 160,100 shares of Series A Convertible Preferred Stock
for net proceeds of $3,849,000 (less cash offering costs of approximately
$154,000). On April 15, 2005, the Company issued 3,469 shares of common stock
and paid $117 in lieu of fractional common shares as dividends on the preferred
shares and on October 15, 2005, the Company issued 4,213 shares of common stock
and paid $206 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 and on October 15, 2006, the Company issued 7,929 shares of common
stock and paid $84 in lieu of fractional common shares as dividends on the
preferred shares. On April 15, 2007, the Company issued 6,308 shares of common
stock and paid $86 in lieu of fractional common shares as dividends on the
preferred shares and on October 15, 2007, the Company issued 5,106 shares
of common stock and paid $109 in lieu of fractional common shares as dividends
on the preferred shares. During the years ended March 31, 2006,
2007 and 2008 certain preferred stockholders converted 2,000, 2,900, and 5,000
shares of Series A Convertible Preferred Stock, including accrued dividends, for
11,409, 16,541 and 28,784 shares of common stock, respectively.
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
F-23
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 consolidated
balance sheets are $12,021 and $10,180 of accrued preferred stock dividends as
of March 31, 2007 and 2008, 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. During the year ended March 31, 2003, the Company
issued 76,725 shares of Series B Convertible Preferred Stock for net proceeds of
$1,859,000 (net of cash offering costs of approximately $59,000). On April 15,
2005, the Company issued 1,526 shares of common stock and paid $49 in lieu of
fractional common shares as dividends on the preferred shares and on
October 15, 2005, the Company issued 1,805 shares of common stock and paid
$48 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 and on
October 15, 2006, the Company issued 2,542 shares of common stock and paid
$26 in lieu of fractional common shares as dividends on the preferred
shares. 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 and on October 15, 2007, the Company issued 1,682 shares
of common stock and paid $36 in lieu of fractional common shares as dividends on
the preferred shares. During the years ended March 31, 2006, 2007, and 2008
certain preferred stockholders converted 6,461, 0, and 2,000 shares of Series B
Convertible Preferred stock, including accrued dividends, for 40,569, 0, and
12,574 shares of common stock, respectively.
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.
F-24
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 consolidated
balance sheets are $41,945 and $41,945 of accrued preferred stock dividends as
of March 31, 2007 and 2008, 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. During the year ended March 31, 2004, the Company
issued 125,352 shares of Series C Convertible Preferred Stock for net proceeds
of $2,845,000 (net of approximately $289,000 of cash offering
costs). Total cash and non-cash offering costs with respect to the
issuance of the Series C Convertible Preferred Stock were approximately
$1,685,000. The preferred shares issued have an embedded beneficial
conversion feature based on the market value on the day of issuance and the
price of conversion. The beneficial conversion was equal to
approximately $1,120,000 and was accounted for as a deemed dividend during the
year ended March 31, 2004. On April 15, 2005, the Company issued
4,625 shares of common stock and paid $212 in lieu of fractional common shares
as dividends on the preferred shares and on October 15, 2005, the Company
issued 4,483 shares of common stock and paid $148 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 and on October 15, 2006, the company
issued 8,602 shares of common stock and paid $62 in lieu of fractional common
shares as dividends on the preferred shares. 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 and on October 15, 2007,
the Company issued 5,694 shares of common stock and paid $75 in lieu of
fractional common shares as dividends on the preferred shares. During
the years ended March 31, 2006, 2007, and 2008 certain preferred
stockholders converted 14,916, 0, and 0 shares of Series C Convertible Preferred
Stock, including accrued dividends, for 84,708, 0, and 0 shares of common stock,
respectively.
F-25
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 consolidated
balance sheets are $80,914 and $79,533 of accrued preferred stock dividends as
of March 31, 2007 and 2008, 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. During the year ended March 31, 2004, the Company
issued 200,000 shares of Series D Convertible Preferred Stock for net proceeds
of approximately $4,571,000 (net of approximately $429,000 of cash offering
costs). On April 15, 2005, the Company issued 9,219 shares of
common stock and paid $135 in lieu of fractional common shares as dividends on
the preferred shares and on October 15, 2005, the Company issued 8,472
shares of common stock and paid $235 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 and on October 15, 2006, the Company
issued 16,611 shares of common stock and paid $86 in lieu of fractional common
shares as
F-26
dividends
on the preferred shares. 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 and on October 15, 2007, the
Company issued 10,804 shares of common stock and paid $140 in lieu of fractional
common shares as dividends on the preferred shares. During the years
ended March 31, 2006, 2007, and 2008 certain preferred stockholders
converted 43,080, 0, and 2,000 shares of Series D Convertible
Preferred Stock, including accrued dividends, for 114,581, 0, and 5,701 shares
of common stock, respectively.
The
Company may at any time require that any or all outstanding shares of
Series D Convertible Preferred Stock be converted into shares of 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 the Company 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 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 completed a private placement
of 133,600 shares its Series E Convertible Preferred Stock, $0.01 par value
(“Series E Stock”) at $25.00 per share, which resulted in gross proceeds to the
Company of approximately, $3,340,000, or $3,286,000 of additional equity capital
(net of approximately $54,000 of cash offering costs). Each purchaser
of the Series E Stock was granted (i) an option to purchase, at $25.00 per
share, up to an additional 25% of the number of shares of Series E Stock
purchased on December 13, 2005 (the option period terminated on March 10, 2006)
and (ii) a warrant to purchase one share of common stock for each $40 of Series
E Stock purchased on December 13, 2005. The Warrants are exercisable
during the three-year period commencing on December 13, 2005, at an exercise
price of $10.00, subject to adjustment for stock splits, dividends and similar
events. On March 10, 2006, the Company completed a private placement
of 27,000 shares of its Series E Stock at $25.00 per share, which resulted in
gross proceeds to the Company of approximately $675,000 of additional equity
capital as a result of Series E holders exercising their options.
F-27
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 consolidated
balance sheets are $76,116 and $68,107 of accrued preferred stock dividends as
of March 31, 2007 and 2008, 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,
2006, the Company issued 8,819 shares of common stock and paid $134 in lieu of
fractional common shares as dividends on the preferred shares and on October 15,
2006, the Company issued 15,670 shares of common stock and paid $111 in lieu of
fractional common shares as dividends on the preferred shares. On
April 15, 2007, the Company issued 12,531 shares of common stock and paid $133
in lieu of fractional common shares as dividends on the preferred shares and on
October 15, 2007, the Company issued 9,995 shares of common stock and paid $149
in lieu of fractional common shares as dividends on the preferred
shares. During the years ended March 31, 2006, 2007 and 2008 certain
preferred stockholders converted 4,000, 46,400 and 11,600 shares of Series E
Convertible Preferred Stock, including accrued dividends, for 14,418, 165,271
and 41,604 shares of common stock, respectively.
The
Company may at any time, 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 pari 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.
F-28
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 – In February
2006, the Company completed a secondary public offering of its common stock
which raised approximately $14,880,000 of additional equity (net of
approximately $167,000 of cash offering costs) through the issuance of 2,000,000
shares of the Company’s common stock which were sold to the public at $7.44 per
share. Ferris, Baker Watts, Incorporated acted as the sole
book-running manager and underwriter of this offering.
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.
On
November 28, 2006, restricted shares in the amount of 80,000 shares of common
stock were expensed and issued to China Pharmaceutical Investments Limited
(“China Pharmaceutical”) with a grant date fair value of approximately $564,000
as part of the agreement signed August 28, 2006 between Immtech Pharmaceuticals,
Inc. and China Pharmaceutical. China Pharmaceutical achieved
milestone payments of common stock for identification of a site deemed suitable
by the Company for building a pharmaceutical plant and for completing the
feasibility study to be submitted to the appropriate governmental
agencies.
In
February 2007, the Company completed a secondary public offering of its common
stock which raised approximately $6,750,000 of additional equity (net of
approximately $636,000 of cash offering costs) through the issuance of 1,000,000
shares of the Company’s common stock which were sold to the public at $6.75 per
share. Ferris, Baker Watts, Incorporated acted as the placement
agent.
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. At the stockholders’ meeting held November 29, 2007, the
stockholders approved the 2007 Stock Incentive Plan which increased the number
of shares of common stock reserved for issuance an additional 1,500,000
shares. Options granted under the 2000 and 2007 Stock Incentive Plan
that expire are available to be reissued. During the year ended March
31, 2008, 141,079 options previously granted under the 2000 Stock Incentive Plan
expired and were available to be reissued.
F-29
The
Company has granted options to purchase common stock to individuals who have
contributed to the Company in various capacities. The options contain
various provisions regarding vesting periods and expiration dates. 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 zero to
four years. As of March 31, 2008, there were a total of
1,593,274 shares available for grant.
During
the year ended March 31, 2006, the Company issued options to purchase
40,000 shares of common stock to non-employees and recognized expense of
approximately $53,000 related to such options and certain other options issued
in prior years which vest over a two or four-year service
period. During the year ended March 31, 2007, the Company issued
options to purchase 76,000 shares of common stock to non-employees and
recognized expense of approximately $315,000 related to such options and certain
other options issued in prior years which vest over a one to four-year service
period. During the year ended March 31, 2008, the Company issued
options to purchase 10,000 shares of common stock to a non-employee and
recognized expense of approximately $132,000 related to such option and certain
other options issued in prior years which vest over a two or four-year service
period. The expense was determined based on the estimated fair value of the
options using the Black-Scholes option valuation model and assumptions regarding
volatility of the Company’s common stock, risk-free interest rates, and life of
the option of the Company’s common stock all at the date such options were
issued. Additionally, the Company granted 5,000 restricted stock awards during
the year ended March 31, 2007 and recognized expense of approximately
$36,000.
During
the year ended March 31, 2006, the company issued options to purchase 324,001
shares of common stock to employees and directors which vest over two
years. During the year ended March 31, 2007, the Company issued
options to purchase 345,000 shares of common stock to employees and directors
which vest over two years and recognized expense of approximately $2,001,000
related to such options and certain other options issued in prior years which
vest over a two to four-year service period. During the
year ended March 31, 2008, the Company issued options to purchase 477,318 shares
of common stock to employees and directors which vest over two
years. The expense was determined based on the estimated fair value
of the options using the Black-Scholes option valuation model.
F-30
The
activity during the years ended March 31, 2006, 2007 and 2008 for the
Company’s stock options is summarized as follows:
|
Number
of
Shares |
Stock
Options Price Range
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life-Years |
|||||||||||
|
Outstanding
as of March 31, 2005
|
1,330,057 |
0.34
- 21.66
|
9.26 | 6.77 | ||||||||||
|
Granted
|
364,001 |
7.29-12.38
|
8.02 | |||||||||||
|
Exercised
|
(62,844) |
0.46
- 2.55
|
1.63 | |||||||||||
|
Expired
|
(76,834) |
2.55-21.66
|
9.86 | |||||||||||
|
Outstanding
as of March 31, 2006
|
1,554,380 |
0.34
- 21.66
|
9.25 | 5.75 | ||||||||||
|
Granted
|
421,000 |
5.60-
7.35
|
5.97 | |||||||||||
|
Exercised
|
(87,605) |
0.46
- 4.75
|
2.05 | |||||||||||
|
Expired
|
(87,166) |
4.75
-12.33
|
5.27 | |||||||||||
|
Outstanding
as of March 31, 2007
|
1,800,609 |
0.34
- 21.66
|
8.92 | 6.90 | ||||||||||
|
Granted
|
487,318 |
6.35
- 7.45
|
6.57 | |||||||||||
|
Exercised
|
(23,226) |
0.46-
2.55
|
0.94 | |||||||||||
|
Expired
|
(166,588) |
0.46
-14.29
|
7.97 | |||||||||||
|
Outstanding
as of March 31, 2008
|
2,098,113 |
$0.46
– 21.66
|
$8.53
|
6.94 | ||||||||||
|
Exercisable
as of March 31, 2006
|
1,115,167 |
0.34
- 21.66
|
9.56 | 5.75 | ||||||||||
|
Exercisable
as of March 31, 2007
|
1,307,610 |
0.34
- 21.66
|
9.76 | 6.19 | ||||||||||
|
Exercisable
as of March 31, 2008
|
1,666,259 |
0.46
- 21.66
|
9.10 | 6.32 | ||||||||||
All
options exercised during the year ended March 31, 2008 were cashless except for
972 which provided approximately $2,000 to the Company.
On April
1, 2006, the company adopted the provisions of Statement of Financial Accounting
Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment,” which
requires that the fair value of share-based awards be recorded in the results of
operations. Under the revised standard, awards issued prior to April
1, 2006 are charged to expense under the prior rules, and awards issued after
that date are charged to expense under the revised rules. Total
non-cash compensation expense charged against income for the year ended March
31, 2008 for share-based plans totaled approximately
$2,441,000. Through March 31, 2006, the Company measured compensation
cost using the intrinsic value-based method of accounting for stock options
granted to employees and directors. The Company used the modified
prospective method of adoption. Under this method, prior years’
financial results do not include the impact of recording stock options using
fair value. Had compensation cost been determined using the fair
value-based accounting method in the year ended March 31, 2006, pro forma net
income and earnings per share (“EPS”) amounts would have been as
follows:
F-31
|
2006
|
||||
|
Net
loss attributable to common shareholders -
|
||||
|
as
reported
|
$ | (16,289,710 | ) | |
|
Deduct: total
stock-based compensation expense
|
||||
|
determined
under fair value method for awards to
|
||||
|
employees
and directors
|
(3,575,570 | ) | ||
|
Net
loss attributable to common stockholders -
|
||||
|
pro
forma
|
$ | (19,865,280 | ) | |
|
Basic
and diluted net loss per share attributable
|
||||
|
to
common stockholders - as reported
|
$ | (1.37 | ) | |
|
Basic
and diluted net loss per share attributable
|
||||
|
to
common stockholders - pro forma
|
$ | (1.68 | ) | |
The
weighted-average grant-date fair value of options granted during the years ended
March 31, 2006, 2007 and 2008 was $8.02, $5.97 and $6.57,
respectively. The intrinsic value of options exercised during the
years ended March 31, 2006, 2007 and 2008 was approximately $553,000, $488,000
and $165,000, respectively. The intrinsic value of stock options
vested during the years ended March 31, 2006, 2007 and 2008 was approximately
$2,197,000, $1,038,000 and $4,000, respectively. The intrinsic value
of stock options outstanding during the years ended March 31, 2006, 2007 and
2008 was approximately $2,286,000, $1,043,000 and $4,000,
respectively. As of the year ended March 31, 2008, there is
approximately $2,115,000 of unrecognized compensation cost related to non-vested
stock option compensation arrangements granted under the 2000 and 2007 Plans
that is expected to be recognized as a charge to earnings over a
weighted-average period of 1.6 years. As of the year ended March 31,
2008, 1,693,396 options have vested or are expected to vest with a weighted
average exercise price of $10.03, a weighted average remaining life of 6.9
years, and with an aggregate intrinsic value of approximately
$4,000. The fair value of an option grant was estimated using the
Black-Scholes option pricing model with the following assumptions:
|
2006
|
2007
|
2008
|
||||||||||
|
Risk
free interest rate
|
4.59%
|
4.80%
|
4.41%
|
|||||||||
|
Average
life of options (years)
|
10.0
|
9.5
|
10.0
|
|||||||||
|
Volatility
|
70%
|
78%
|
67%
|
|||||||||
|
Dividend
yield
|
-0-
|
-0-
|
-0-
|
|||||||||
The
average risk-free interest rate is based on the U.S. Treasury security rate in
effect over the estimated life at the grant date. The average life of
the options is based upon historical data. The Company determined
expected volatility in the Black-Scholes model based upon
F-32
implied
volatility of exchange traded options for the Company’s common stock for the
years ended March 31, 2006, 2007 and 2008. There is no dividend
yield.
Warrants – On January 31,
2002, the Company entered into a one year consulting agreement with Yorkshire
Capital Limited (“Yorkshire”) for services related to identifying investors and
raising funds in connection with the February 2002 private placement and
assistance to be provided by Yorkshire to the Company with respect to financial
consulting, planning, structuring, business strategy, public relations and
promotions, among other items. In connection with the closing of the
private placement, the Company granted Yorkshire warrants to purchase 360,000
shares of the Company’s common stock at prices ranging from $6.00 to $12.00 per
share. The warrant to purchase 100,000 shares of the Company’s common
stock at an exercise price of $6.00 per share vested upon the closing of the
private placement. The remaining warrants did not vest and were
cancelled. The vested warrant expired on February 14,
2007.
In
February 2002, the Company, in connection with the Series A Convertible
Preferred Stock private placement, issued warrants to purchase 400,250 shares of
the Company’s common stock at an exercise price of $6.00 per share of common
stock to the purchasers of the Series A Convertible Preferred
Stock. The warrants expired in February 2007.
On
February 1, 2002, the Company entered into an introductory brokerage agreement
with Ace Champion, Ltd. (“Ace”) and Pacific Dragon Group, Ltd. (“Pacific
Dragon”) (collectively, the “Introductory Brokers”) for assistance to be
provided by the Introductory Brokers to the Company with respect to obtaining
funds in connection with the aforementioned February 2002 private placement to
the purchaser of the Series B Convertible Preferred Stock (see Note
3). As compensation for such services, Ace and Pacific Dragon
received warrants to purchase 100,000 shares and 300,000 shares, respectively,
of the Company’s common stock at an exercise price of $6.00 per share, subject
to certain conditions. The warrants expired on February 22,
2007.
In
September 2002, in connection with the Series B Convertible Preferred Stock
private placement offering, the Company issued to the purchaser of the Series B
Convertible Preferred Stock warrants to purchase 191,812 shares of the Company’s
common stock at an exercise price of $6.125 per share of common
stock. The warrants expired at various dates in September
2007.
In
January 2004, in connection with the Series D Convertible Preferred Stock
private placement, the Company issued to the purchasers of Series D Convertible
Preferred Stock warrants to purchase 200,000 shares of the Company’s common
stock at an exercise price of $16.00 per share of common stock. The
warrants expire at various dates in January 2009. The warrant
exercise period commenced immediately upon issuance of the
warrant. The Company may, upon 20 days’ notice, redeem any
unexercised portion of any warrants for a redemption fee of $0.10 per share of
common stock underlying the warrants provided that the closing bid price of the
Company’s common stock exceeds $18.00 for 20 consecutive trading days within
180 days prior to the notice of conversion. During the 20-day
notice period, if the warrants are then exercisable as a result of the
conversion or redemption of the Series D Convertible Preferred Stock, such
warrant holder may then exercise all or a portion of the warrants by tendering
the appropriate exercise price.
F-33
On
July 20, 2004, the Company’s board of directors approved a four-year
exercise extension to warrants to purchase 225,000 shares of the Company’s
common stock which were originally issued to RADE Management Corporation
(“RADE”) on July 24, 1998. The expiration date for these
warrants, which have an exercise price of $6.47 per share, was extended from
July 24, 2004 to July 24, 2008; the Company therefore recorded a
non-cash charge during the year ended March 31, 2005 of $1,032,000,
determined using the Black-Scholes option pricing
model. Additionally, the Company’s board of directors approved a
four-year exercise extension to warrants to purchase 750,000 shares of the
Company’s common stock which were originally issued to RADE on October 12,
1998; the Company therefore recorded a non-cash charge during the year ended
March 31, 2005 of $3,498,000, determined using the Black-Scholes option
pricing model. The expiration date for these warrants, which have an
exercise price of $6.47 per share, was extended from October 12, 2004 to
October 12, 2008.
In
connection with services rendered to us by Ferris, Baker Watts, Incorporated,
effective July 13, 2005, the Company issued warrants to purchase 100,000
shares of our common stock. The warrants are exercisable at $13.11
per share (the exercise price was set by calculating a 15% premium over the
Company’s common stock volume weighted average price for the 10 day period
immediately preceding July 12, 2005). The warrants are
exercisable beginning on July 13, 2006 through July 12,
2010. The Company may redeem any outstanding warrants, at $0.01 per
share underlying each warrant, upon 30 day prior notice if at any time prior to
the expiration of the warrant the market closing price of the Company’s common
stock meets or exceeds $26.22 for 20 consecutive trading days. The
warrant holder may exercise the warrant, pursuant to its terms, during the 30
day notice period.
In
December 2005, in connection with the Series E Convertible Preferred Stock
private placement, the Company issued to the purchasers of Series E Convertible
Preferred Stock warrants to purchase 83,500 shares of the Company’s common stock
at an exercise price of $10.00 per share of common stock. The
warrants expire on December 13, 2008. The warrant exercise period commenced
immediately upon issuance of the warrant. The Company may, upon 20
days’ notice after the first anniversary of the date of grant, redeem any
unexercised portion of any warrants for a redemption fee of $0.10 per share of
common stock underlying the warrants provided that the closing bid price of the
Company’s common stock exceeds $15.00 for 20 of 30 consecutive trading
days. During the 20-day notice period, if the warrants are then
exercisable as a result of the conversion or redemption of the Series E
Convertible Preferred Stock, such warrant holder may then exercise all or a
portion of the warrants by tendering the appropriate exercise
price.
In
connection with the Series E Convertible Preferred Stock offering of December
13, 2005, the Company entered into an Introductory Agreement with Ableguard
Investment Limited (“Ableguard”) pursuant to which Ableguard assisted the
Company to identify qualified investors. For its services, the
Company granted to Ableguard a warrant to purchase 68,000 shares of common
stock. The warrant is exercisable during the three-year period
commencing on December 13, 2005, at an exercise price of $10.00, subject to
adjustment for stock splits, dividends and similar events.
In
connection with services rendered to us by Ferris, Baker Watts, Incorporated,
effective January 16, 2007, the Company issued warrants to purchase 100,000
shares of our
F-34
common
stock. The warrants are exercisable at $9.18 per share (the exercise
price was set by calculating a 15% premium over the Company’s common stock
volume weighted average price for the 10 day period immediately preceding
January 15, 2007). The warrants are exercisable beginning on January
16, 2008 through January 16, 2012. The Company may redeem any
outstanding warrants, at $0.01 per share underlying each warrant, upon 30 day
prior notice if at any time prior to the expiration of the warrant the market
closing price of the Company’s common stock meets or exceeds $18.36 for 20
consecutive trading days. The warrant holder may exercise the
warrant, pursuant to its terms, during the 30 day notice period.
In
February 2008, the Company extended for two years the five year warrants to
purchase 600,000 shares of common stock from the Company at $6.08 per share
given July 16, 2003 to China Harvest International Ltd. (“China Harvest”) for
services provided to assist the Company in obtaining regulatory approval to
conduct clinical trials in China. During the year ended March 31,
2008, approximately $440,000 was recorded as general administrative expenses,
based on the estimated value of the warrants using the Black-Scholes option
valuation model.
The
activity during the years ended March 31, 2006, 2007 and 2008 for the
Company’s warrants to purchase shares of common stock is summarized as
follows:
|
Number
of Shares
|
Warrants
Price
Range
|
Weighted
Average Exercise Price
|
||||||||
|
Outstanding
as of March 31, 2005
|
2,740,410
|
6.00-16.00
|
7.51
|
|||||||
|
Granted
|
251,500
|
10.00-13.11
|
11.24
|
|||||||
|
Cancelled
|
(90,000)
|
8.80
|
8.80
|
|||||||
|
Exercised
|
(51,800)
|
6.47-8.80
|
8.04
|
|||||||
|
Outstanding
as of March 31, 2006
|
2,850,110
|
6.00-16.00
|
7.52
|
|||||||
|
Granted
|
100,000
|
9.18
|
9.18
|
|||||||
|
Cancelled
|
(496,000)
|
6.00
|
6.00
|
|||||||
|
Exercised
|
(150,500)
|
6.00
|
6.00
|
|||||||
|
Outstanding
as of March 31, 2007
|
2,303,610
|
6.00-16.00
|
8.02
|
|||||||
|
Granted
|
80,000
|
9.00-10.00
|
9.63
|
|||||||
|
Cancelled
|
(45,498)
|
6.00-6.13
|
6.10
|
|||||||
|
Exercised
|
(78,312)
|
6.13-6.47
|
6.17
|
|||||||
|
Outstanding
as of March 31, 2008
|
2,259,800
|
$6.08-16.00
|
$8.20
|
|||||||
|
Exercisable
as of March 31, 2006
|
2,740,110
|
6.00-16.00
|
7.34
|
|||||||
|
Exercisable
as of March 31, 2007
|
2,293,610
|
6.00-16.00
|
8.05
|
|||||||
|
Exercisable
as of March 31, 2008
|
2,249,800
|
6.08-16.00
|
8.18
|
|||||||
F-35
The
following table summarizes information about outstanding warrants to purchase
shares of the Company’s common stock as of March 31, 2008:
|
Exercise
Price Per Share
|
Warrants
Outstanding |
Expiration
Date
|
|||||
|
6.08
|
600,000
|
7/16/10
|
|||||
|
6.47
|
198,200
|
7/24/08
|
|||||
|
6.47
|
750,000
|
10/12/08
|
|||||
|
9.00
|
30,000
|
7/17/11
|
|||||
|
9.18
|
100,000
|
1/16/12
|
|||||
|
10.00
|
50,000
|
9/10/10
|
|||||
|
10.00
|
151,500
|
12/13/08
|
|||||
|
12.81
|
80,100
|
7/30/09
|
|||||
|
13.11
|
100,000
|
7/13/10
|
|||||
|
16.00
|
200,000
|
1/22/09
|
|||||
|
Total
Warrants Outstanding
|
2,259,800
|
||||||
|
9.
|
COLLABORATIVE
RESEARCH AND DEVELOPMENT
ACTIVITIES
|
The
Company earns revenue under various collaborative research
agreements. Under the terms of these arrangements, the Company has
generally agreed to perform best efforts research and development and, in
exchange, the Company may receive advance 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 the Company’s
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 its 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,
F-36
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. We are 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 years ended March 31, 2006, 2007 and 2008, the Company expensed
approximately $978,000, $1,012,000 and $675,000 respectively, of other payments
to UNC-CH and certain other Scientific Consortium universities for patent
related costs and other contracted research. Total payments expensed
to UNC-CH and certain other Scientific Consortium universities were
approximately $978,000, $1,012,000 and $675,000 during the years ended
March 31, 2006, 2007 and 2008, respectively. Included in
accounts payable as of March 31,
F-37
2007 and
2008, was approximately $174,000 and $755,000 respectively, due to UNC-CH and
certain other Scientific Consortium universities.
In
November 2000, The Bill & Melinda Gates Foundation (“Foundation”) awarded a
$15,114,000 grant to UNC-CH 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 award.
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. As of March 31, 2006, approximately $11,700,000,
relating to the clinical research subcontract, had been received by the
Company. 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 $13,601,000 from the
Foundation. Under the amended and restated agreement, the Company
received on May 24, 2006 the first payment of approximately $5,649,000 and on
November 2, 2007 the second payment of approximately $5,123,000 of the five year
approximately $13,601,000 contract. Since the pafuramidine program was cancelled
on February 22, 2008, no further funding is expected on this grant unless more
funds are required for closing out the project.
During
the years ended March 31, 2006, 2007 and 2008, the Company received
installment payments under the November 2000, April 2003 and March 2006 grants
of approximately $0, $5,649,000 and $5,123,000, respectively, and approximately
$2,759,000, $2,795,000 and $4,601,000 was utilized for clinical and research
purposes conducted and expensed during the years ended March 31, 2006, 2007
and 2008, respectively. The Company recognized revenues of
approximately $869,000, $3,922,000 and $4,601,000 during the years ended
March 31, 2006, 2007 and 2008, respectively, for services performed under
the agreement. The remaining amount (approximately $2,248,000 as of
March 31, 2008) has been deferred and will be recognized as revenue over the
term of the agreement as 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-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
F-38
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 received approximately
$5,636,000 under this contract.
The
Company recognized revenues of approximately $2,663,000, and $396,000 during the
years ended March 31, 2006, and 2007, respectively, for expenses incurred
related to activities within the scope of the Testing Agreement. At
March 31, 2006 and 2007, the Company has approximately $396,000 and $0,
respectively, recorded as deferred revenue with respect to this
agreement. There was no activity in the year ended March 31,
2008.
On June
8, 2007, the Company entered into an exclusive licensing agreement pursuant to
which the Company licensed to Par Pharmaceutical Companies, Inc. (“Par”)
commercialization rights in the U.S. to pafuramidine for the treatment of PCP in
AIDS patients (“Par License Agreement”). The Company and Par could 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, the Company received an initial payment of $3 million. Par
was to also pay the Company 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,
the Company could have received up to $115 million in additional milestone
payments on future sales and retain the right to co-market pafuramidine in the
U.S. The Company granted Par a right of first offer to enter into a
license agreement with it if the Company determined that pafuramidine could be
used for the treatment and/or prophylaxis of malaria. As a result of
the discontinuation of the pafuramidine program, the Company recognized
approximately $1,619,000 and $2,558,000, respectively, of deferred income in the
fourth quarter and the year ended March 31, 2008. The Par License Agreement was
terminated by Par on May 9, 2008.
On
December 3, 2007, the Company entered into a licensing agreement with
BioAlliance Pharma SA (“BioAlliance”) pursuant to which the Company granted
BioAlliance and its affiliates an exclusive license to commercialize
pafuramidine in Europe for the treatment of PCP in AIDS patients and African
sleeping sickness (“BioAlliance License Agreement”). The Company also granted
BioAlliance an option to commercialize pafuramidine in Europe for the prevention
and treatment of malaria in travelers. Pursuant to the BioAlliance
License Agreement, the Company received an initial payment of $3 million from
BioAlliance, and it could receive an additional $13 million upon achieving
certain regulatory and pricing milestones. In addition, the Company may receive
an additional $10 million upon achieving certain sales milestones and also
receive double-digit royalties based on sales. As a result of the
discontinuation of the pafuramidine program, the Company recognized
approximately
F-39
$2,445,000
and $2,558,000, respectively, of deferred income in the fourth quarter and the
year ended March 31, 2008.
On
December 20, 2007, the Food and Drug Administration (the “FDA”) informed the
Company that it had placed all of the Company’s ongoing and projected clinical
trials relating to the development of pafuramidine on clinical
hold. The FDA placed this clinical hold on the pafuramidine program
after subjects in the Company’s Phase I safety study demonstrated abnormal liver
function tests. The affected subjects do not currently have any signs
and symptoms related to the liver abnormalities and the Company’s clinical
follow-up of the subjects remains ongoing.
The
Company has reviewed data from the Phase I safety study with experts in liver
and kidney diseases, the Company’s consortium scientific advisors and governance
council, and the Data Safety Monitoring Board members recommended that the
development of pafuramidine be discontinued. Subsequently the program was
discontinued effective February 22, 2008. Such experts are assisting
the Company in preparing a report to be submitted to the FDA reviewing data
related to the liver and kidney functions of subjects from the Company’s
clinical trials. In addition, the Company has implemented a risk management plan
to monitor potential liver and kidney abnormalities in pafuramidine studies
related to African sleeping sickness, PCP and malaria, which will be submitted
to the FDA as a part of the report.
|
10.
|
OTHER
COMMITMENTS AND
CONTINGENCIES
|
Operating Leases – In
October 2004, the Company entered into an amendment to the lease of its
main office and research facility under an operating lease that requires lease
payments starting in March 2005 of approximately $8,200 per month through
March 2008 and $8,600 from April 2008 through
March 2010. The Company is required to pay certain real estate
and occupancy costs. In July 1999, the Company began leasing an
additional office facility from RADE, a consultant who previously provided
services to the Company, on a month-to-month basis, for approximately $10,100
per month, which as of February 2008 has been raised to approximately $12,000
per month. In December 2007, the Company entered into a one year
lease of an office facility in Beijing, China that requires monthly lease
payments of approximately $5,000 with an option to extend the lease upon sixty
days notice prior to the end of the lease. Additionally in November
2007, the Company entered into a one year residential lease in Beijing, China
that requires monthly lease payments of approximately $1,800. Total
rent expense was approximately $252,000, $256,000 and $290,000 for all leases
during the years ended March 31, 2006, 2007, and 2008,
respectively.
As of
March 31, 2008, future minimum lease payments required under the
aforementioned noncancellable operating leases approximated the
following:
|
Year
Ending March 31,
|
Lease
Payments
|
|
|
2009
|
166,000
|
|
|
2010
|
99,000
|
|
|
Total
|
$265,000
|
Other Contingencies – On
August 12, 2003, the Company filed a lawsuit against Neurochem, Inc.
(“Neurochem”) alleging that Neurochem misappropriated the Company’s trade
F-40
secrets
by filing a series of patent applications relating to compounds synthesized and
developed by the Consortium, with whom Immtech has an exclusive licensing
agreement. The misappropriated intellectual property was provided to
Neurochem pursuant to a testing agreement under which Neurochem agreed to test
the compounds to determine if they could be successfully used to treat
Alzheimer’s disease (the “Neurochem Testing Agreement”). Pursuant to
the terms of the Neurochem Testing Agreement, Neurochem agreed to keep all
information confidential, not to disclose or exploit the information without
Immtech’s prior written consent, to immediately advise Immtech if any invention
was discovered and to cooperate with Immtech and its counsel in filing any
patent applications.
In its
complaint, the Company also alleged, among other things, that Neurochem
fraudulently induced the Company into signing the Neurochem Testing Agreement,
and breached numerous provisions of the Neurochem Testing Agreement, thereby
blocking the development of the Consortium’s compounds for the treatment of
Alzheimer’s disease. By engaging in these acts, the Company alleged
that Neurochem has prevented the public from obtaining the potential benefit of
new drugs for the treatment of Alzheimer’s disease, which would compete with
Neurochem’s Alzhemed drug.
Since the
filing of the complaint, Neurochem had aggressively sought to have an
International Chamber of Commerce (“ICC”) arbitration panel hear this dispute,
as opposed to the federal district court in which the action was originally
filed. The Company agreed to have a three member ICC arbitration
panel (the “Arbitration Panel”) hear and rule on the dispute on the expectation
that the Arbitration Panel would reach a more timely and economical
resolution.
The ICC
hearing was held September 7 to September 20, 2005. Final papers were
filed by both parties on November 2, 2005. The ICC tribunal closed
the hearing on April 17, 2006.
On June
9, 2006, the International Court of Arbitration of the ICC notified the parties
that (i) the Arbitral Tribunal found that Neurochem breached the Neurochem
Testing Agreement and awarded Immtech approximately $1.9 million in damages and
attorneys’ fees and costs, which was received, and (ii) denied all of
Neurochem’s claims against Immtech.
In October 2003, Gerhard Von der Ruhr
and his son Mark (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 officers and directors alleging breaches of a stock lock-up
agreement, option agreements and a technology license agreement by the Company.
The Von de Ruhr Plaintiffs also alleged a claim for intentional interference
with contractual relations by certain officers of the Company. The complaint
sought unspecified monetary damages and punitive damages, in addition to
equitable relief and costs. In a filing made in late February 2005, the Von
der Ruhr Plaintiffs specified damages of approximately $44.5 million in
damages.
In 2005, one of the breach of contract
claims was dismissed upon the Company’s motion for summary judgment. On October
26, 2006, a preliminary pre-trial conference was held and the court granted the
Company's motions in limine to exclude plaintiffs’ damage claim for lost profits
and prohibited plaintiff from offering expert testimony at trial on this issue.
The court subsequently granted a motion to sever the trial on Count V, regarding
the technology license agreement, from the trial on the remaining counts. The
trial on the remaining counts concluded
F-41
on
December 7, 2007, and a jury returned a verdict against the Company and certain
officers and directors for a total amount of $361,704.90. The Company
immediately filed a motion with the court seeking to overturn the jury verdict,
which the court subsequently denied.
In the first quarter of 2008, the Von
der Ruhr Plaintiffs appealed the trial court’s ruling excluding their damage
claim for lost profits. Separately, the Company's officers and directors
have appealed the jury’s finding on the intentional interference with
contractual relations claim. The United States Court of Appeals for the
Seventh Circuit has consolidated these appeals and now will be briefed to the
appellate court. The last brief is now scheduled to be filed in September
2008.
|
11.
|
SUPPLEMENTAL
CASH FLOW
INFORMATION
|
The
Company did not pay any income taxes or interest during the years ended
March 31, 2006, 2007 and 2008.
Non-Cash
Transactions
During
the years ended March 31, 2006, 2007 and 2008, the Company issued common
stock, common stock options and warrants or modified existing arrangements as
compensation for services and also engaged in certain other non-cash investing
and financing activities. The amounts of these other transactions are
summarized as follows:
|
Year
Ended March 31,
|
||||||||||||
|
2006
|
2007
|
2008
|
||||||||||
|
Convertible
preferred stock dividends recorded
|
478,275 | 550,574 | 528,587 | |||||||||
|
Issuance
of common stock as payment of convertible preferred stock
dividends
|
441,565 | 531,522 | 536,436 | |||||||||
|
Issuance
of common stock for conversions of convertible preferred
stock
|
1,787,159 | 1,237,188 | 520,851 | |||||||||
F-42
|
12.
|
SELECTED
QUARTERLY INFORMATION
(UNAUDITED)
|
The
following table sets forth certain unaudited selected quarterly information
(amounts in thousands, except per share amounts):
|
Fiscal
Quarter Ended
|
Fiscal
Quarter Ended
|
|||||||||||||||
|
March 31,
2008 |
December
31, 2007
|
September
30, 2007
|
June
30,
2007 |
March 31,
2007 |
December
31, 2006 |
September
30, 2006
|
June
30, 2006
|
|||||||||
|
Statements
of Operations Data:
|
||||||||||||||||
|
REVENUES
|
$ 6,025(6)
|
$ 1,835
|
$ 1,030
|
$ 826
|
$
1,339
|
$
546
|
$ 491
|
$1,942
|
||||||||
|
EXPENSES:
|
||||||||||||||||
|
Research
and development
|
3,155
|
4,214
|
2,283
|
1,918
|
2,674
|
1,862
|
1,755
|
2,469
|
||||||||
|
General
and administrative
|
2,243(7)
|
2,926
|
2,214(5)
|
1,717
|
1,881
|
2,630(4)
|
2,364
|
2,220(2)
|
||||||||
|
Other
|
(1,875)
(3)
|
|||||||||||||||
|
Total
expenses
|
5,398
|
7,140
|
4,497
|
3,635
|
4,555
|
4,492
|
2,244
|
4,689
|
||||||||
|
INCOME/(LOSS)
FROM OPERATIONS
|
627
|
(5,305)
|
(3,467)
|
(2,809)
|
(3,216)
|
(3,946)
|
(1,753)
|
(2,747)
|
||||||||
|
OTHER
INCOME(EXPENSE):
|
||||||||||||||||
|
Interest
income
|
59
|
101
|
132
|
148
|
131
|
117
|
132
|
150
|
||||||||
|
NET
LOSS
|
(3,085)
|
(3,829)
|
(1,621)
|
(2,597)
|
||||||||||||
|
PREFERRED
STOCK DIVIDENDS AND PREFERRED STOCK PREMIUM DEEMED DIVIDENDS(1)
|
(126)
|
(133)
|
(135)
|
(135)
|
(134)
|
(137)
|
(137)
|
(143)
|
||||||||
|
NET
INCOME/(LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$ 560
|
$ (5,336)
|
$ (3,469)
|
$ (2,796)
|
$
(3,219)
|
$
(3,966)
|
$
(1,758)
|
$
(2,740)
|
||||||||
|
NET
INCOME/(LOSS) PER SHARE ATTRIBUTABLE TO COMMON
STOCKHOLDERS:
|
||||||||||||||||
|
Net
income/(loss)
|
$ 0.04
|
$ (0.33)
|
$ (0.22)
|
$ (0.17)
|
$ (0.21)
|
$
(0.27)
|
$ (0.12)
|
$ (0.19)
|
||||||||
|
Preferred
Stock dividends
|
(0.01)
|
(0.01)
|
(0.01)
|
(0.01)
|
(0.01)
|
(0.01)
|
(0.01)
|
(0.01)
|
||||||||
|
BASIC
AND DILUTED NET INCOME/(LOSS) PER SHARE ATTRIBUTABLE TO COMMON
STOCKHOLDERS
|
$ 0.03
|
$ (0.34)
|
$ (0.23)
|
$ (0.18)
|
$ (0.22)
|
$
(0.28)
|
$ (0.13)
|
$ (0.20)
|
||||||||
|
(1)
|
See
Note 8 to the notes to our consolidated financial statements included in
this Annual Report on Form 10-K for a discussion on the Preferred Stock
dividends.
|
|
(2)
|
Includes
$36 of costs relating to the issuance of 5,000 common shares to Tulane
University for the AQ-13 agreement and $36 of costs relating to the
issuance of 5,000 common shares under the T. Stephen Thompson retirement
agreement.
|
|
(3)
|
Includes
the award by the International Court of Arbitration of the International
Chamber of Commerce for the breach of a testing agreement by Neurochem,
Inc., and attorneys’ fees and costs of approximately
$1,875,000.
|
F-43
|
(4)
|
Includes
$564 of costs relating to the issuance of 80,000 common shares to China
Pharmaceutical for the attainment of certain
milestones.
|
|
(5)
|
Includes
$172 of costs relating to the issuance of 50,000 warrants to a consultant
and $118 of costs relating to the issuance of 30,000 warrants to an
investor relations firm.
|
|
(6)
|
Includes
$1,619 relating to revenue from the license agreement with Par
Pharmaceutical Companies, Inc. and $2,444 relating to revenue from the
license agreement with BioAlliance Pharma SA. The revenue comes
about by the discontinuation of the pafuramidine project. See
Notes 1 and 9 to the notes to our consolidated financial
statements included in this Annual Report on Form 10-K for a discussion on
revenue recognition.
|
|
(7)
|
Includes
$440 of costs relating to the two year extension of the China Harvest
International, Ltd. warrants.
|
F-44
|
13.
|
SUBSEQUENT
EVENT
|
On May 9,
2008, the Company received formal notification of the cancellation of the
exclusive licensing agreement pursuant to which we had licensed to Par
Pharmaceutical Companies, Inc. (“Par”) commercialization rights in the United
States to pafuramidine for the treatment of PCP in AIDS patients.
*
* * * * *
F-45