<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
For Quarter Ended Commission File Number
September 30, 1996 33-2262-A
ADVANCED VIRAL RESEARCH CORP.
(Exact name of registrant as specified in its charter)
Delaware 59-2646820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1250 East Hallandale Beach Blvd., Hallandale, Florida 33009
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (954) 458-7636
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
The number of shares outstanding of the Registrant's common stock as of
September 30, 1996 was 266,643,558.
Traditional Small Business Format (check one)
Yes [X] No
<PAGE> 2
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
FINANCIAL INFORMATION (UNAUDITED)
Balance Sheet, September 30, 1996 and December 31, 1995 3
Consolidated Condensed Statement of Operations for the Three and Nine Months Ended
September 30, 1996 and 1995 and From Inception (February 20, 1984)
to September 30, 1996 4
Consolidated Condensed Statement of Stockholders' Equity From Inception
(February 20, 1984) to September 30, 1996 5
Consolidated Condensed Statement of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 and From Inception (February 20, 1984)
to September 30, 1996 9
Notes to Consolidated Condensed Financial Statements 10
Management's Discussion and Analysis or Plan of Operation 15
PART II
LEGAL PROCEEDINGS, CHANGES IN SECURITIES, DEFAULTS
IN SENIOR SECURITIES, SUBMISSION OF MATTERS TO VOTE
OF SECURITIES HOLDERS, OTHER INFORMATION, AND FORM
8-K EXHIBITS 17
SIGNATURES 18
</TABLE>
<PAGE> 3
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1996 December 31,
ASSETS (Unaudited) 1995
------ ----------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 455,884 $ 65,230
Investments 1,233,641 479,000
Inventory 19,729 18,091
Other current assets 8,774 12,967
----------- -----------
Total current assets 1,718,028 575,288
Property and Equipment 205,381 214,494
Other Assets 6,459 6,459
----------- -----------
Total assets $ 1,929,868 $ 796,241
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 10,723 $ 3,750
Accrued taxes - 3,101
Customer deposits 7,800 7,800
----------- -----------
Total current liabilities 18,523 14,651
----------- -----------
Commitments and Contingencies -- --
Stockholders' Equity:
Common stock; 1,000,000,000 shares of
$.00001 par value authorized; 266,643,558 and
251,181,774 shares issued and outstanding 2,667 2,512
Additional paid-in capital 6,182,154 4,475,875
Deficit accumulated in the development stage (4,273,476) (3,696,797)
----------- -----------
Total stockholders' equity 1,911,345 781,590
----------- -----------
Total liabilities and stockholders' equity $ 1,929,868 $ 796,241
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
-3-
<PAGE> 4
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 20, 1984) TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Inception
Three Months Ended September 30 Nine Months Ended September 30 (February 20, 1984)
------------------------------- ------------------------------- to
1996 1995 1996 1995 September 30, 1996
------------ ------------ ------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Sales $ 674 $ 3,067 $ 15,943 $ 26,958 $ 183,873
Interest 8,966 5,674 27,915 10,054 326,528
Other income 32,000 -- 32,000 25,000 112,000
------------ ------------ ------------ ------------ -----------
41,640 8,741 75,858 62,012 622,401
------------ ------------ ------------ ------------ -----------
Costs and Expenses:
Research and development 104,502 4,200 178,502 35,131 1,029,250
General and administrative 272,203 136,892 461,232 248,533 3,691,450
Depreciation and amortization 4,268 3,670 12,803 11,009 172,967
Interest -- -- -- -- 2,210
------------ ------------ ------------ ------------ -----------
380,973 144,762 652,537 294,673 4,895,877
------------ ------------ ------------ ------------ -----------
Net Loss $ (339,333) $ (136,021) $ (576,679) $ (232,661) $(4,273,476)
============ ============ ============ ============ ===========
Net Loss Per Share of Common Stock $ (.00) $ (.00) $ (.00) $ (.00) $ (.00)
============ ============ ============ ============ ===========
Weighted Average Number of Common
Shares Outstanding 259,725,350 247,252,885 259,725,350 247,252,885
============ ============ ============ ============
</TABLE>
See notes to consolidated condensed financial statements.
-4-
<PAGE> 5
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
INCEPTION (FEBRUARY 20, 1984) TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------------
Deficit
Accumulated
Amount Additional in the
Per Paid-In Development
Share Shares Amount Capital Stage
------ ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance, inception (February 20, 1984)
as previously reported -- $ 1,000 $ -- $ (1,000)
Adjustment for pooling of interest -- (1,000) 1,000 --
----------- ------- --------- ---------
Balance, inception, as restated -- -- -- (1,000)
Net loss, period ended December 31, 1984 -- -- -- (17,809)
----------- ------- --------- ---------
Balance, December 31, 1984 -- -- 1,000 (18,809)
Issuance of common stock for cash $.00 113,846,154 1,138 170 --
Net loss, year ended December 31, 1985 -- -- -- (25,459)
----------- ------- --------- ---------
Balance, December 31, 1985 113,846,154 1,138 1,170 (44,268)
Issuance of common stock - public offering .01 40,000,000 400 399,600 --
Issuance of underwriter's warrants -- -- 100 --
Expenses of public offering -- -- (117,923) --
Issuance of common stock, exercise of "A" warrants .03 819,860 9 24,587 --
Net loss, year ended December 31, 1986 -- -- -- (159,674)
----------- ------- --------- ---------
Balance, December 31, 1986 154,666,014 $ 1,547 $ 307,534 $(203,942)
----------- ------- --------- ---------
</TABLE>
See notes to consolidated condensed financial statements.
-5-
<PAGE> 6
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------
Deficit
Accumulated
Amount Additional in the
Per Paid-In Development
Share Shares Amount Capital Stage
------ ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1986 154,666,014 $1,547 $ 307,534 $ (203,942)
Issuance of common stock; exercise of "A" warrants $.03 38,622,618 386 1,158,321 --
Expenses of stock issuance -- -- (11,357) --
Acquisition of subsidiary for cash -- -- (46,000) --
Cancellation of debt due to stockholders -- -- 86,565 --
Net loss, period ended December 31, 1987 -- -- -- (258,663)
----------- ------ ---------- -----------
Balance, December 31, 1987 193,288,632 1,933 1,495,063 (462,605)
Net loss, year ended December 31, 1988 -- -- -- (199,690)
----------- ------ ---------- -----------
Balance, December 31, 1988 193,288,632 1,933 1,495,063 (662,295)
Net loss, year ended December 31, 1989 -- -- -- (270,753)
----------- ------ ---------- -----------
Balance, December 31, 1989 193,288,632 1,933 1,495,063 (933,048)
Issuance of common stock, expiration of redemption
offer on "B" warrants .05 6,729,850 67 336,475 --
Issuance of common stock, exercise of "B" warrants .05 268,500 3 13,422 --
Issuance of common stock; exercise of "C" warrants .08 12,900 -- 1,032 --
Net loss, year ended December 31, 1990 -- -- -- (267,867)
----------- ------ ---------- -----------
Balance, December 31, 1990 200,299,882 $2,003 $1,845,992 $(1,200,915)
----------- ------ ---------- -----------
</TABLE>
See notes to consolidated condensed financial statements.
-6-
<PAGE> 7
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------
Deficit
Accumulated
Amount Additional in the
Per Paid-In Development
Share Shares Amount Capital Stage
------ ------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1990 200,299,882 $2,003 $1,845,992 $(1,200,915)
Issuance of common stock; exercise of "B" warrants $.05 11,400 -- 420 --
Issuance of common stock; exercise of "C" warrants .08 2,500 -- 200 --
Issuance of common stock; exercise of underwriters
warrants .012 3,760,000 38 45,083 --
Net loss, period ended December 31, 1991 -- -- -- (249,871)
----------- ------ ---------- -----------
Balance, December 31, 1991 204,073,782 2,041 1,891,695 (1,450,786)
Issuance of common stock; exchange for testing .0405 10,000,000 100 404,900 --
Issuance of common stock; exchange for consulting services .055 500,000 5 27,495 --
Issuance of common stock; exercise of "B" warrants .05 7,458,989 75 372,875 --
Issuance of common stock; exercise of "C" warrants .08 5,244,220 52 419,487 --
Expenses of stock issuance (7,792)
Net loss, year ended December 31, 1992 -- -- -- (839,981)
----------- ------ ---------- -----------
Balance, December 31, 1992 227,276,991 2,273 3,108,660 (2,290,767)
----------- ------ ---------- -----------
Issuance of common stock, exchange for consulting services .055 500,000 5 27,495
.03 3,500,000 35 104,965
Issuance of common stock; exchange for testing .035 5,000,000 50 174,950
Net loss, year ended December 31, 1993 -- -- -- (563,309)
----------- ------ ---------- -----------
Balance, December 31, 1993 236,276,991 $2,363 $3,416,070 $(2,854,076)
----------- ------ ---------- -----------
</TABLE>
See notes to consolidated condensed financial statements.
-7-
<PAGE> 8
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------
Deficit
Accumulated
Amount Additional in the
Per Paid-In Development
Share Shares Amount Capital Stage
------ ------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 236,276,991 $2,363 $3,416,070 $(2,854,076)
Issuance of common stock; exchange for consulting services $.05 4,750,000 47 237,453 --
Issuance of common stock; exercise of options .08 400,000 4 31,996 --
Issuance of common stock; exercise of options .10 190,000 2 18,998 --
Net loss, year ended December 31, 1994 -- -- -- (440,837)
----------- ------ ---------- -----------
Balance, December 31, 1994 241,616,991 2,416 3,704,517 (3,294,913)
Issuance of common stock; exercise of options .05 3,333,333 33 166,633 --
Issuance of common stock; exercise of options .08 2,092,850 21 167,407 --
Issuance of common stock; exercise of options .10 2,688,600 27 268,833 --
Issuance of common stock; exchange for consulting services .11 1,150,000 12 126,488 --
Issuance of common stock; exchange for consulting services .14 300,000 3 41,997 --
Net loss, year ended December 31, 1995 -- -- -- (401,884)
----------- ------ ---------- -----------
Balance, December 31, 1995 251,181,774 2,512 4,475,875 (3,696,797)
Issuance of common stock; exercise of options .05 3,333,334 33 166,633 --
Issuance of common stock; exercise of options .08 1,158,850 12 92,696 --
Issuance of common stock; exercise of options .10 7,163,600 72 716,288 --
Issuance of common stock; exercise of options .12 1,300,000 13 155,987 --
Issuance of common stock; exercise of options .18 1,400,000 14 251,986 --
Issuance of common stock; exercise of options .19 350,000 4 66,496 --
Issuance of common stock; exercise of options .20 406,000 4 81,196 --
Issuance of common stock; exchange for services rendered .50 350,000 3 174,997 --
Net loss, nine months ended September 30, 1996 -- -- -- (576,679)
----------- ------ ---------- -----------
Balance, September 30, 1996 266,643,558 $2,667 $6,182,154 $(4,273,476)
=========== ====== ========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
-8-
<PAGE> 9
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Inception
Nine Months Ended September 30 (February 20,
------------------------------ 1984) to
1996 1995 September 30, 1996
---- ---- ------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (576,679) $(232,661) $(4,273,476)
---------- --------- -----------
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 12,803 11,009 172,967
Exchange of common stock for services rendered 175,000 69,500 1,372,000
(Increase) decrease in other current assets 4,193 7,752 (8,774)
Increase in inventory (1,638) -- (19,729)
Increase in other assets -- (800) (6,459)
Increase (decrease) in accounts payable and
accrued liabilities 3,871 (27,500) 16,922
---------- --------- -----------
Total adjustments 194,229 59,961 1,526,927
---------- --------- -----------
Net cash used in operating activities (382,450) (172,700) (2,746,549)
---------- --------- -----------
Cash Flows from Investing Activities:
Purchase of investments (754,641) (3,506) (1,233,641)
Repayments on loan receivable - stockholder -- 8,762 --
Expenditures for property and equipment (3,690) (5,074) (376,748)
---------- --------- -----------
Net cash used in investing activities (758,331) 182 (1,610,389)
---------- --------- -----------
Cash Flows from Financing Activities:
Proceeds from sale of securities, net of
issuance costs 1,531,435 578,955 4,812,822
---------- --------- -----------
Net cash provided by financing activities 1,531,435 578,955 4,812,822
---------- --------- -----------
Net Increase in Cash and Cash Equivalents 390,654 406,437 455,884
Cash and Cash Equivalents, Beginning 65,230 202,441 --
---------- --------- -----------
Cash and Cash Equivalents, Ending $ 455,884 $ 608,878 $ 455,884
========== ========= ===========
</TABLE>
See notes to consolidated condensed financial statements.
-9-
<PAGE> 10
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
at September 30, 1996 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and reflect all adjustments which, in the opinion
of management, are necessary for a fair presentation of the financial position
as of September 30, 1996 and the results of operations for the three and nine
months ended September 30, 1996 and 1995 and cash flows for the nine months
ended September 30, 1996 and 1995. All such adjustments are of a normal
recurring nature. The results of operations for interim periods are not
necessarily indicative of the results to be expected for a full year. The
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on
Form 10-KSB for year ended December 31, 1995.
B. COMMITMENTS AND CONTINGENCIES
Potential Claim for Royalties
The Company may be subject to claims from certain third parties for
royalties due on sales of RETICULOSE in an amount equal to 5% of net sales in
the United States and 4% of net sales in foreign countries. The Company has
not as yet received any notice of claim from such parties.
Potential Loss of Bahamian Rights
RETICULOSE is manufactured by Advance Viral Research, Ltd. (LTD.) in
facilities located in Freeport, Grand Bahama Island. The Company has a license
to manufacture pharmaceutical products for export from the Grand Bahama Port
Authority. The Company was advised in August, 1988 by the Ministry of Health
of the Government of the Bahamas that a license from the Ministry of Health is
required for the manufacture of pharmaceuticals in the Freeport area of Grand
Bahama Island. The Company has received an opinion of its counsel in the
Bahamas that the license from the Grand Bahama Port Authority is valid for the
manufacture for export by the Company of ethical pharmaceutical products in the
Freeport area of Grand Bahama Island. No proceeding to prevent the Company's
export of RETICULOSE has been instituted by the Government of the Bahamas. If
such proceedings are instituted the Company intends to vigorously contest such
claim. No assurance can be given that the Company would successfully defend
such claim.
-10-
<PAGE> 11
Product Liability
The Company could be subjected to claims for adverse reactions
resulting from the use of RETICULOSE. While the Company is unaware of any such
claims or threatened claims since RETICULOSE was initially marketed in the
1940's, one study noted adverse reactions from highly concentrated doses in
guinea pigs. In the event any claims for substantial amounts were successful,
they could have a material adverse effect on the Company's financial condition
and on the marketability of RETICULOSE. As of the date hereof, the Company
does not have product liability insurance for RETICULOSE. There can be no
assurance that the Company will be able to secure such insurance in adequate
amounts, at reasonable premiums. Should the Company be unable to secure such
product liability insurance, the risk of loss to the Company in the event of
claims would be greatly increased.
Lack of Patent Protection
The Company does not presently have a patent for RETICULOSE and no
application for a patent has been filed. The Company can give no assurance
that other companies, having greater economic resources, will not be successful
in developing a similar product. The Company does have a pending U.S. patent
application for RETICULOSE for treating Hepatitis D. There can be no assurance
that the Company will obtain such a patent or if obtained that it will be
enforceable.
Office Lease
Management executed a non-cancelable lease for new office space on
January 1, 1996, expiring on December 31, 1998 at approximately $14,000
annually. Rental expense for 1995 was $13,832.
Future minimum rental payments are as follows:
<TABLE>
<S> <C>
1996 $14,000
1997 14,000
1998 14,000
-------
$42,000
</TABLE>
TESTING AGREEMENTS
Plata Partners Limited Partnership
On March 20, 1992, the Company entered into an agreement with Plata
Partners Limited Partnership ("Plata") pursuant to which Plata agreed to
perform a demonstration in the Dominican Republic in accordance with a certain
agreed upon protocol (the "Protocol") to assess the efficacy of a treatment
using RETICULOSE incorporated in the Protocol against AIDS (the "Plata
Agreement"). Plata covered all costs and expenses associated with the
demonstration.
-11-
<PAGE> 12
Pursuant to the Plata Agreement, the Company authorized the issuance
to Plata of 5,000,000 shares of Common Stock and options to purchase additional
5,000,000 shares at $.08 per share through July 9, 1994 (the "Plata Options")
and 5,000,000 shares at $.10 per share through July 9, 1994. Pursuant to
several amendments, the Plata Options and the Additional Plata Options are
exercisable through December 31, 1996. As of September 30, 1996 there are
outstanding Plata Options to acquire 983,000 shares at $.11 per share and
Additional Plata Options to acquire 858,100 shares at $.13 per share through
December 31, 1996. Through September 30, 1996, the Company has received
approximately $650,000 pursuant to the issuance of approximately 7.5 million
shares in connection with the exercise of the Plata Options and the Additional
Plata Options.
TRM Management Corp. ("TRM")
In August 1991, the Company entered into an agreement with TRM,
whereby TRM would perform certain open human clinical trial tests in Haiti
using RETICULOSE (the "TRM Agreement"). According to the TRM Agreement, the
purpose of the Haiti tests was to assess the effectiveness of RETICULOSE
against the Hepatitis "A" virus and Hepatitis "B" virus in accordance with and
in compliance with a certain Hepatitis Open Label Clinical Trial Protocol
developed by TRM. At the conclusion of the Haiti tests, TRM was required to
prepare a paper describing the methods and results of testing, the form and
substance of which shall be appropriate for publication by recognized
scientific journals ("Results Paper"). The Results Paper was published in the
December, 1992 issue of the Journal of the Royal Society of Health.
On January 3, 1992, TRM delivered to the Company the Results Paper.
In accordance with the terms of the TRM Agreement, the Company has authorized
the issuance to the shareholders and certain associated persons of TRM (1) an
aggregate amount of 10,000,000 shares of the Company's common stock (the "TRM
Shares") and (2) an option to acquire, at any time, for a period of five years
from the date of issuance of the option, 10,000,000 shares of the Company's
common stock at a purchase price of $.05 per share (the "TRM Options"). As of
September 30, 1996, 6,666,666 shares of Common Stock were issued pursuant to the
exercise of the TRM Options for an aggregate exercise price of $333,333.
Argentine Agreement
In April 1996 the Company entered into an agreement (the "Argentine
Agreement") with DCT SRL, an Argentine corporation unaffiliated with the
Company ("DCT") pursuant to which DCT was to cause a clinical trial to be
conducted in two separate hospitals located in Buenos Aires, Argentina (the
"Clinical Trials"). Pursuant to the Argentine Agreement, the Clinical Trials
were to be conducted pursuant to a protocol developed by Juan Carlos Flichman,
M.D. and the purpose of the Clinical Trials was to assess the efficacy of the
Company's drug Reticulose on the Human Papilloma Virus (HPV). The protocol
calls for, among other things, a study to be performed with clinical and
laboratory follow-up on 20 male and female human patients between the ages of
18 and 50. The Clinical Trials did not include a placebo control group or
reference to any other antiviral drug.
-12-
<PAGE> 13
Pursuant to the Argentine Agreement the Company delivered $34,000 to
DCT to cover out of pocket expenses associated with the Clinical Trials. The
Argentine Agreement further provides that at the conclusion of the Clinical
Trials, DCT shall cause Dr. Flichman to prepare and deliver a written report to
the Company regarding the methodology and results of the Clinical Trials (the
"Written Report"). In September 1996, the Written Report was delivered by
Dr. Flichman to the Company. The Written Report stated that when Reticulose
was applied topically to twenty patients (6 males and 14 females) diagnosed to
be infected with HPV two of the 20 patients had total remissions and eight of
the twenty patients experienced clinical improvement ranging from reduction in
color intensity, size and texture. Further, the Written Report provides that
no side effects were observed in any of the 20 patients and only one patient
experienced redness of the skin that disappeared spontaneously within 24 hours.
Upon delivery of the Written Report to the Company, the Company delivered to
the principals of DCT options to acquire 2,000,000 shares of the Company's
Common Stock for a period of one year from the date of the delivery of the
Written Report, at a purchase price of $.20 per share. As of September 30,
1996, 406,000 shares of Common Stock were issued pursuant to the exercise of
these options for an aggregate exercise price of $81,200.
In June 1994, DCT SRL and the Company entered into an exclusive
distribution agreement whereby the Company granted to DCT SRL the exclusive
right to distribute the Company's drug Reticulose in certain South American
countries, including Argentina and the other MERCOSUR States.
Barbados Study
A double blind study assessing the efficacy of the Company's drug
Reticulose in 48 human patients diagnosed with HIV (AIDS) is being conducted at
the Queen Elizabeth Hospital, Bridgetown, Barbados (the "Barbados Study"). As
of September 30, 1996 the Company has expended approximately $150,000 to cover
the costs of the Barbados Study. Based on information received from the
coordinators of the Barbados Study, the Company is uncertain as to the costs to
be incurred in connection with the Barbados Study and has not been informed as
to when results from the Barbados Study will be forthcoming.
Hirschman Agreement
In May 1995, the Company entered into a consulting agreement with
Shalom Hirschman, M.D., Professor of Medicine of Mt. Sinai School of Medicine,
New York, New York and Director of Mt. Sinai's Division of Infectious
Diseases, whereby Dr. Hirschman was to provide consulting services to the
Company through May 1997. The consulting services included the development and
location of pharmaceutical and biotechnology joint venture partners and
assisting the Company with regulatory approvals and protocols.
In connection with the consulting agreement, the Company issued to Dr.
Hirschman 1,000,000 shares of the Company's Common Stock and the option to
acquire 5,000,000 shares of the Company's Common Stock for a period of three
years as per the vesting schedule as referred to in the agreement, at a
purchase price of $0.18 per share. In addition and in connection with entering
into the consulting agreement with Dr. Hirschman, the Company issued to a
person unaffiliated with the Company, 100,000 shares of the Company's Common
Stock, and an option to acquire for a period of one year, from June 1, 1995 an
additional 500,000 shares at a purchase price of $0.18 per share. As of
September 30, 1996, 900,000 options have been exercised for cash consideration
of $162,000 under this Agreement.
In March 1996 the Company entered into an Addendum to Agreement with
Dr. Hirschman whereby Dr. Hirschman agreed to provide consulting services to
the Company through May 2000 (the "Addendum"). Pursuant to the Addendum, the
Company granted to Dr. Hirschman the option to purchase 15,000,000 shares of
the Company's Common Stock for a three year period pursuant to the following
vesting schedule: (i) options to purchase 5,000,000 shares exercisable at any
time and from time to time commencing March 24, 1996 and ending March 23, 1999
at an exercise price of $.19 per share of which options to acquire 500,000
shares were assigned by Dr. Hirschman to Richard Rubin, counsel to
Dr. Hirschman; (ii) options to purchase 5,000,000 shares exercisable at any
time and from time to time commencing March 24, 1997 and ending March
-13-
<PAGE> 14
23, 1999 at an exercise price of $.27 per share of which options to acquire
500,000 shares were assigned by Dr. Hirschman to Richard Rubin, counsel to
Dr. Hirschman; and (iii) options to purchase 5,000,000 shares exercisable at
any time and from time to time commencing March 23, 1998 and ending March 23,
1999 at an exercise price of $.36 per share of which options to acquire
500,000 shares were assigned by Dr. Hirschman to Richard Rubin, counsel to
Dr. Hirschman. In addition, the Company has agreed to cause the shares
underlying these options to be registered so long as there is no cost to the
Company. As of September 30, 1996, 350,000 shares of Common Stock were issued
pursuant to the exercise of stock options by Richard Rubin. Mr. Rubin has
from time to time, in the past, advised the Company on matters unrelated to his
representation of Dr. Hirschman.
On October 17, 1996, the Company and Dr. Hirschman entered into an
agreement (the "Employment Agreement") whereby Dr. Hirschman has agreed to
serve as the President and Chief Executive Officer of the Company for a period
of three years, subject to earlier termination by either party if the Company
does not receive on or prior to December 31, 1997, funding of $3,000,000 from
sources other than traditional institutional/bank debt financing or proceeds
from the purchase by Dr. Hirschman of the Company's securities, including,
without limitation, the exercise by Dr. Hirschman of outstanding stock
options. Pursuant to the Employment Agreement Dr. Hirschman is entitled to
receive an annual base salary of $325,000, automobile and health, life,
disability and dental insurance benefits for the term of his employment. The
Employment Agreement further provides that Dr. Hirschman shall be nominated by
the Company to serve as a member of the Company's Board of Directors for the
duration of his employment and since October 17, 1996 Dr. Hirschman has served
as a member of the Company's Board of Directors.
CONSULTING AGREEMENTS
In September 1992, the Company entered into a one year consulting
agreement with Leonard Cohen (the "September 1992 Cohen Agreement"). The
September 1992 Cohen Agreement required that Mr. Cohen provide certain
consulting services to the Company in exchange for the Company issuing to
Mr. Cohen 1,000,000 shares of Common Stock (the "September 1992 Cohen Shares"),
500,000 of which were issuable upon execution of the September 1992 Cohen
Agreement and the remaining 500,000 shares of which were issuable upon Mr.
Cohen completing 50 hours of consulting service to the Company. The Company
issued the first 500,000 shares to Mr. Cohen in October 1992 and the remaining
500,000 shares to Mr. Cohen in February 1993. Further pursuant to the
September 1992 Cohen Agreement, the Company granted to Mr. Cohen the option to
acquire, at any time and from time to time through September 11, 1993 (which
date has been extended through December 31, 1996), the option to acquire
3,000,000, shares of Common Stock of the Company at a purchase price of $.09
per share which exercise price has been increased to $.12 per share) (the
"September 1992 Cohen Options"). As of September 30, 1996, 1,300,000 of the
September 1992 Cohen Options have been exercised for cash consideration of
$156,000.
In February 1993, the Company entered into a second consulting
agreement with Mr. Cohen (the "February 1993 Cohen Agreement"). The February
1993 Cohen Agreement provides that Mr. Cohen provide financial consulting
services concerning the business operations of the Company in exchange for the
Company issuing to Mr. Cohen 3,500,000 shares of Common Stock (the "February
1993 Cohen Shares"), 1,000,000 Shares of which Mr. Cohen has informed the
Company he has assigned to certain other persons non-affiliated with the
Company.
In July 1994, in consideration for services related to the
introduction, negotiation and execution of a distribution agreement the Company
issued (i) to Mr. Cohen, an additional 2,500,000 shares (the "April 1994 Cohen
Shares") and (ii) to each of Elliot Bauer and Lee Rizzuto, 625,000 shares (the
"Bauer and Rizzuto Shares") as well as options to acquire an additional
5,000,000 Shares at $.10 per share exercisable through May 1, 1996 (the "Bauer
and Rizzuto Options"). The April 1994 Cohen Shares, the Bauer and Rizzuto
Shares and the shares of Common Stock underlying the Bauer and Rizzuto Options
have been registered. The Company has been informed that Messrs. Cohen, Bauer
and Rizzuto are principals of a firm which has been granted certain
distribution rights. Through March 31, 1996 2,855,000 shares were issued
pursuant to the exercise of the Bauer and Rizzuto Options for an aggregate
exercise price of $285,500. During the nine month period ended September 30,
1996, approximately 3,000,000 shares of Common Stock for cash consideration of
$300,000 were issued pursuant to the exercise of the Bauer and Rizzuto Options.
The issuance of the September 1992 Cohen Shares, the February 1993
Cohen Shares, the
-14-
<PAGE> 15
April 1994 Cohen Shares and the Bauer and Rizzuto Shares have been accounted
for as an administrative expense in the amount of the Company's valuation of
such shares as of the issuance date. During the three month period ended
September 30, 1996, Mr. Cohen was issued 300,000 shares for services rendered.
These shares were accounted for as an administrative expense in the amount of
the Company's valuation of such shares as of the issuance date.
DISTRIBUTION AGREEMENTS
The Company has entered into separate agreements with five different
entities (the "Entities"), whereby the Company has granted exclusive rights to
distribute Reticulose in the countries of China, Japan, Macao, Hong Kong,
Taiwan, Malaysia, Mexico, Saudi Arabia, Russia, Argentina, Bolivia, Paraguay,
Uruguay, Brazil, Chile, Channel Islands, The Isle of Man, British West Indies,
Jamaica, Haiti, Bermuda, and Belize. Pursuant to these agreements,
distributors are obligated to cause Reticulose to be approved for commercial
sale in such countries and upon such approval, to purchase from the Company
certain minimum quantities of Reticulose to maintain the exclusive
distribution rights. Leonard Cohen, a former consultant to the Company, has
informed the Company that he is an affiliate of two of these entities.
C. STOCKHOLDERS EQUITY
During 1995, the Company issued 9,564,783 shares of Common Stock for
an aggregate consideration of $771,454. These amounts were comprised of the
issuance of Common Stock pursuant to the exercise of stock options of 8,114,783
shares for $602,954 and the issuance of Common Stock in exchange for consulting
services of 1,450,000 shares for consideration of $168,500. During the nine
month period ended September 30, 1996, the Company issued, pursuant to the
exercise of stock options and for services rendered, approximately 15.4 million
shares of Common Stock for an aggregate consideration of approximately
$1,500,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
For the nine month periods ended September 30, 1996 and September 30,
1995, the Company incurred a loss of $576,679 and $232,661, respectively.
For the three month periods ended September 30, 1996 and September 30, 1995
the Company incurred a loss of $339,333 and $136,021, respectively. The
increased losses during 1996 is principally due to increased research and
development expenses associated with the services provided by Dr. Hirschman.
During the fiscal year ended 1995 the Company incurred a net loss of $401,884
($.00 per share) compared to a loss of $440,837 ($.00 per share) in 1994. The
Company's losses are principally attributable to ongoing administrative
expenses and lack of sales revenues and non-cash items resulting from issuance
of shares for testing and consulting services.
-15-
<PAGE> 16
There were sales of $15,943 and $26,958 respectively during the nine
month periods ended September 30, 1996, and September 30, 1995 and sales of
$674 and $3,067, respectively during the three month periods ended September
30, 1996 and September 30, 1995. All sales during these periods resulted
from distributors purchasing RETICULOSE for testing purposes. Interest income
was $27,915 and $10,054 during the nine months ended September 30, 1996 and
September 30, 1995. Interest income was $8,966 and $5,674 during the three
months ended September 30, 1996 and September 30, 1995.
Liquidity
As of September 30, 1996 and December 31, 1995 the Company had current
liquid assets of $1,718,028 and $575,288, respectively. As of September 30,
1996 and December 31, 1995 the Company had total assets of $1,924,868 and
$796,241. The increased cash results from the Company receiving cash in
connection with the exercise of convertible securities.
Until RETICULOSE is registered for sale in a developed country, sales
of RETICULOSE are not expected to provide a material amount of cash. FDA
approval to begin human clinical trials will require significant cash
expenditures, the amount of which is not presently determinable. Although it
has not done so to date, the Company may apply for grants and other financial
assistance for such studies.
Capital Resources
As the Company has limited sources of internal liquidity, the Company
is dependent upon sales of its common stock through the exercise of outstanding
convertible securities for the cash required to continue operations and to fund
the planned testing of RETICULOSE if FDA approval is obtained.
The Company is currently expending approximately $75,000 per month and
anticipates that it can continue operations for at least 20 months with its
current liquid assets. At present, the Company is substantially dependant upon
the sale of its securities pursuant to the exercise of outstanding convertible
securities to sustain operations. The Company has in the past sought debt
financing, licensing agreements, joint ventures and other sources of financing,
but no such financing is in place or identified or currently under discussion.
To some extent, management believes that financing may be more easily obtained
if the FDA permits the Company to either engage or cause others to become
engaged in Phase I testing of the Company's drug Reticulose. As of September
1995, the Company received further deficiency correspondence from the FDA which
stated that the Company's prior submissions to the FDA did not provide adequate
responses to the FDA's earlier inquires regarding pre-clinical information and
accordingly the Company's Investigational New Drug Application (the "IND") was
"inactivated." No assurances can be given that the Company's IND, will ever be
approved by the FDA or that results of any testing will demonstrate that
Reticulose is effective in the treatment of disease.
Because RETICULOSE does not have patent protection, there is a risk
that other companies could develop a similar product.
-16-
<PAGE> 17
Should the Company later have the financial resources, it anticipates applying
for a patent. No assurance can be given that a patent will be granted, or if
granted, that it will be sustained if judicially attacked, and if declared
valid, whether such patent will in fact operate to prohibit others from copying
RETICULOSE. The duplication of RETICULOSE by others would have a materially
adverse affect on the Company.
In the event the Ministry of Health of the Bahamas attempts to prevent
the manufacture of RETICULOSE for export in Freeport by the Company's
subsidiary under its license from the Grand Bahamas Port Authority, and is
successful, the Company will be required to relocate the manufacturing plant.
Should such relocation become necessary, the Company will obtain a suitable
site. The cost of such relocation will in any event be material.
Legal Expenses
The Company's future legal expenses are subject to whether the
Ministry of Health of the Bahamas attempts to enforce their position regarding
their jurisdiction over the Grand Bahamas Port Authority.
The Company's independent accountants' report on the Company's
financial statements includes an explanatory paragraph stating that the
Company's ability to continue operations is dependent upon its continued sale
of its securities for funds to meet its cash requirements, which raises
substantial doubt about the Company's ability to continue as a going concern.
Further, the accountants' report does not include any adjustments that might
result from the outcome of this uncertainty.
PART II. OTHER INFORMATION
Item 6. (a) Exhibits
27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
The Company filed with the Securities and Exchange Commission Reports
on Form 8-K dated (i) September 11, 1996 regarding the receipt of the Written
Report and (ii) October 17, 1996 regarding the Employment Agreement.
-17-
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED VIRAL RESEARCH CORP.
Date: November 14, 1996 By: /s/ William Bregman
-------------------------------
William Bregman,
Duly Authorized Officer
and Principal Financial Officer
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
THIRD QUARTER 10-QSB OF ADVANCED VIRAL RESEARCH CORP. FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,689,525
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 19,729
<CURRENT-ASSETS> 1,718,028
<PP&E> 205,381<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,929,868
<CURRENT-LIABILITIES> 18,523
<BONDS> 0
0
0
<COMMON> 2,667
<OTHER-SE> 1,908,678
<TOTAL-LIABILITY-AND-EQUITY> 1,929,868
<SALES> 15,943
<TOTAL-REVENUES> 75,858
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 652,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (576,679)
<INCOME-TAX> 0
<INCOME-CONTINUING> (576,679)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (576,679)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>PP&E VALUES REPRESENT NET AMOUNTS.
</FN>
</TABLE>
