<PAGE>
As filed with the Securities and Exchange Commission on August 12, 1996
Registration No. 33-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------------
ADVANCED VIRAL RESEARCH CORP.
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 5129 59-2646820
- -------- ---- ----------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer Identification
of incorporation or Classification Code Number) Number)
organization)
</TABLE>
1250 East Hallandale Beach Blvd.
Suite 501
Hallandale, Fl 33009
(954) 458-7636
(Address, Including zip code, and telephone number, including area code
of registrant's principle executive offices)
-----------------------
BERNARD FRIEDLAND, President
ADVANCED VIRAL RESEARCH CORP.
1250 East Hallandale Beach Blvd.
Suite 501
Hallandale, Fl 33009
(954) 458-7636
(Name, address, including zip code, and telephone number,
including area code of agent for service)
-----------------------
Copies of all communications and notices to:
RICHARD J. RUBIN ESQ.
1650 Broadway
Suite 508
New York, N.Y. 10019
(212) 581-6908
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [X]
<PAGE>
Table applies to Cover Page of Registration Statement on Form S-1.
================================================================================
<TABLE>
<CAPTION>
Title of Each Class of Amount To Be Proposed Maximum Proposed Maximum Amount of Registration
Securities to be Registered Offering Price per Aggregate Offering Fee
Registered Share(1) Price(3)
<S> <C> <C> <C> <C>
Common Shares 4,199,500(2)(a)) $.10 $419,950 $144.78
$.00001 par value
Common Shares 1,348,300(2)((b) $.11 $148,313 $51.06
$.0001 par value
Common Shares 1,700,000(2)((c) $.12 $204,000 $70.23
$.0001 par value
Common Shares 858,000(2)(d) $.13 $111,540 $35.50
$.0001 par value
Common Shares 4,100,000(2)((e) $.18 $738,000 $254.10
$.0001 par value
Common Shares 5,000,000(2)(f) $.19 $950,000 $327.10
$.0001 par value
Common Shares 2,000,000(2)(g) $.20 $400,000 $137.72
$.0001 par value
Common Shares 3,000,0002)(h) $.25 $750,000 $258.25
$.0001 par value
Common Shares 5,000,0002)(i) $.27 $1,350,000 $465.89
$.0001 par value
Common Shares 5,000,0002)(j) $.36 $1,800,000 $619.75
$.0001 par value
Common Shares 2,155,500(2)(k) -- -- --
$.0001 par value
Total 34,361,300 -- $6,871,800(3) $2,369(1)
---------- ----------- --------
</TABLE>
================================================================================
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(g).
(2)(a) Includes 4,199,500 Shares of Common Stock issuable upon exercise of
Options by Selling Security Holders at $ .10 per Share. (b) 1,348,300 Shares
issuable upon exercise of Options by Selling Security Holders at $.11 per Share;
(c) 1,700,000 Shares issuable upon exercise of Options by Selling Security
Holders at $.12 per Share; (d) 858,000 Shares issuable upon exercise of Options
by Selling Security Holders at $.13 per Share; (e) 4,100,000 Shares issuable
upon exercise of Options by Selling Security Holders at $.18 per Share; (f)
5,000,000 Shares issuable upon exercise of Options by Selling Security Holders
at $.19 per Share; (g) 2,000,000 Shares issuable upon exercise of Options by
Selling Security Holders at $.20 per Share; (h) 3,000,000 Shares issuable upon
exercise of Options by Selling Security Holders at $.25 per Share; (i) 5,000,000
Shares issuable upon exercise of Options by Selling Security Holders at $.27 per
Share; (i) 5,000,000 Shares issuable upon exercise of Options by Selling
Security Holders at $.27 per Share; (j) 5,000,000 Shares issuable upon exercise
of Options by Selling Security Holders at $.36 per Share; and (k) Pursuant to
Rule 429, promulgated under the Securities Act of 1933, as amended, the
Prospectus forming a part of this Registration Statement also relates to up to
2,155,500 Shares of Common Stock to be sold for the account of Selling Security
Holders, which were initially included in Advanced Viral Research Corp.'s
Registraiton Statement on Form S-1 declared effective on July 27, 1995. The
Registrant hereby amends this Registration Statement on such date as may be
necessary to delay its effective date until the Registrant shall file a further
amendment which specifically states that this Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine. (3) Represents proceeds to Issuer
assuming exercise of all Options, but no proceeds from sales of Option Shares.
ii
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
CROSS-REFERENCE SHEET
Between Items of Part I of Form S-1
and the Registration Statement
<TABLE>
<CAPTION>
Item No Caption or Page
- ----------------------------------------------- -------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Facing Page; Reference Sheet
Outside Front Cover Page of Prospectus Outside front Cover Page
2. Inside Front and Outside Back Cover Pages Inside Front Cover Page;
Outside of Prospectus Front Cover Page
3. Summary Information, Risk Factors and Ratio Prospectus Summary; The Offering
of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Plan of Distribution
6. Dilution Dilution
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Outside Front Cover; Plan of
Distribution
9. Description of Securities to be Registered Outside Front Cover Page;
Description of Securities
10. Interests of Named Experts and Counsel *
11. Information with Respect to the Registrant
(a) Description of Business Business
(b) Description of Property Business - Properties
(c) Legal Proceedings *
(d) Market Price of and Dividends on the Market Information; Dividend Policy;
Registrant's Common Equity and Related Description of Securities
Stockholder Matters
(e) Financial Statements Index to Consolidated Financial
Statements
(f) Selected Financial data Selected Financial Data
(g) Supplementary Financial Information Index to Consolidated Financial
Statements
(h) Management's Discussion and Analysis of Management's Discussion and Analysis
Financial Condition and Result of Operations of Financial Condition and Result of
Operations
(i) Changes in and Disagreements with Accountants *
of Accounting and Financial Disclosure
(j) Director, Executive Officers, Promoters Management
and Control Persons
(k) Executive Compensation Management
(l) Security Ownership of Certain Beneficial Principal Shareholders
Owners and Management
(m) Certain Relationships and Related Transactions Management - Certain Transactions
12. Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities
</TABLE>
iii
<PAGE>
PROSPECTUS Subject to Completion
ADVANCED VIRAL RESEARCH CORP.
34,361,300 Shares of Common Stock
Advanced Viral Research Corp. (the "Company") hereby registers an
aggregate of 34,361,300 shares of Common Stock, par value $ .00001 (the
"Shares") which includes 32,205,800 Shares underlying and which are issuable
upon exercise by Option Holders of certain Common Stock Purchase Options (the
"Option Shares") at $.10 to $.36 per Option Share, and 2,155,500 Shares
previously registered, all of Shares and Option Shares are registered for resale
by Selling Security Holders hereunder. The foregoing also include and this
Prospectus also relates to Shares of Common Stock and Option Shares underlying
Options which were initially included in the Company's Registration Statements
on Form S-1 declared effective on July 1, 1994 and on July 27, 1995. From
January 1, 1996, through April 30, 1996, when the latter Registration Statement
was no longer current, and with respect to which this Registrations Statement
and Prospectus shall serve as a post effective amendment, 14,255,784 Option
Shares were issued to Selling Security Holders upon exercise of certain
outstanding Options at prices ranging from $.05 to $.18 per Option Share,
resulting in proceeds to the Company of approximately $1,375,000. See "SELLING
SECURITY HOLDERS", and "DESCRIPTION OF SECURITIES - PLAN OF DISTRIBUTION".
On July 30, 1996 the high and low bid prices for the Company's Common
Stock in the over-the-counter market as reported by the National Quotation
Bureau ("NQB") were $.64 and $.58, respectively.
The Option Shares issuable upon exercise of the Options will be
offered from time to time by Selling Security Holders thereof in the public
market. The Company will receive proceeds on the exercise of the Options, as set
forth below, but will not receive any proceeds on the public sale of the Option
Shares by the holders.
THESE SECURITIES ARE HIGHLY SPECULATIVE , INVOLVING A HIGH DEGREE OF RISK
ASSOCIATED WITH THE COMPANY'S LIMITED OPERATING HISTORY, AND SHOULD ONLY BE
PURCHASED BY THOSE WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT (See "HIGH
RISK FACTORS")
-------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=========================================================================================================
Exercise price(1) Underwriting Dis- Proceeds to Com-
counts and Commis- pany(2)(3)
sions
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share (or exercise of Options) $.10 - $.36 $.00 $6,871,800
=========================================================================================================
</TABLE>
(1) See "Plan of Distribution" for pricing and selling arrangements. The
Options are exercisable to acquire Option Shares at a price range of from $.10
to $.36 per Option Share. (2) Expenses of the offering, estimated to be
$50,000, shall be paid by the Option Holders and Selling Security Holders, and
shall not be paid by the Company. (3) Represents proceeds to the Company
assuming exercise of the Options. Does not include proceeds from the sale of the
Option Shares, which will be offered from time to time in the public
marketplace, and which proceeds will be paid to the Holders of such securities
and not to the Company.
The date of this Prospectus is August , 1996
1
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement on Form S-1 relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the Registration Statement
becomes effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
AVAILABLE INFORMATION
This prospectus, which constitutes part of a Registration Statement on
Form S-1 (the "Registration Statement") files by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, which the Company has filed
with the Commission in Washington, D.C. Reference is hereby made to the
Registration Statement and to the exhibits thereto for further information with
respect to the Company and securities offered hereby. Statements contained
herein concerning the provisions of documents filed as exhibits to the
Registration Statement are necessarily summaries of such documents, and such
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. Copies of the information and
exhibits are on file at the offices of the Commission and may be obtained, upon
payment of the fee prescribed by the Commission, or may be examined without
charge at the offices of the Commission.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and, in accordance therewith, files reports and
other information with the Commission. Such reports and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549 and at
the following regional offices: Chicago Regional Office, Northwest Atrium, 500
West Madison Street, Suite 1400, Chicago, Illinois 50551 and 7 World Trade
Center, New York, New York. Also, copies of such material can be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, NW, Washington
D.C. 20549.
No person has been authorized to give any information or to make any
representations in connection with the offering described herein other than
those contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer of any securities other
than those to which it relates or an offer to sell or a solicitation of an offer
to buy by anyone in any jurisdiction in which such offer or solicitation is not
qualified to do so or to any person to whom it is not lawful to make such offer
or solicitation in such jurisdiction. The information contained in this
Prospectus if given as of the date hereof, except where otherwise indicated and
neither in a delivery of this Prospectus, nor any sale made hereunder, shall,
under any circumstances create any implications that there has been no change in
the facts set forth herein or in the affairs of the Company since the date
hereof.
2
<PAGE>
PROSPECTUS SUMMARY
This Prospectus, which constitutes part of Registration Statement
filed with the Company with the U.S. Securities and Exchange Commission
("Commission") under the Securities Act of 1933, as amended, omits certain of
the information contained in the Registration Statement. Reference is hereby
made to the Registration Statements and to their exhibits for further
information with respect to the Company and the securities offered hereby.
Statements contained herein concerning provisions of documents are necessarily
summaries of such documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission.
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by the more detailed information and
financial statements and notes appearing elsewhere in this Prospectus and
particularly in the section entitled "High Risk Factors."
THE COMPANY
- -----------
Advanced Viral Research Corp. (the "Company") was organized on July
31, 1985, under the laws of the State of Delaware to engage in the production
and marketing, promotion and sale of RETICULOSE(R)/1/ peptide-nucleic acid
complex preparation. RETICULOSE is not presently approved for sale anywhere in
the world. See "BUSINESS - MARKETING AND SALES," and "GOVERNMENT REGULATION."
The Company is in the developmental stage, and has not yet commenced any
commercial operations.
RETICULOSE, which was acquired by the Company in 1985, was marketed
and used in the United States and elsewhere in the world from 1940 until 1962.
See "BUSINESS - GENERAL, "RETICULOSE," and "EXCLUSIVE RIGHTS TO RETICULOSE AND
PRODUCTION ARRANGEMENTS." In 1962 RETICULOSE was classified as a "new drug" by
the United States Food and Drug Administration (FDA), requiring FDA approval for
sale in the United States. Legal action by the FDA resulted in RETICULOSE being
withdrawn from the United States market. See "BUSINESS - BACKGROUND OF
RETICULOSE." Between 1967 and 1968, two applications for approval of RETICULOSE
for sale in the United States were filed and withdrawn without prejudice on
indications from the FDA that the applications would not be approved, despite
historical usage prior to 1962. See "BUSINESS - RETICULOSE" and "THE
INVESTIGATIONAL NEW DRUG APPLICATION ("IND") PROCESS." See generally,
"GLOSSARY", "HIGH RISK FACTORS" and "SOURCES". (All references to "SOURCES"
hereinafter are made with the caveat that such list of sources should be read in
conjunction with the portions of this Prospectus which discuss the negative
results of certain studies).
While there have been no controlled double-blind clinical trials of
RETICULOSE to date, the Company believes that the prior history of RETICULOSE,
and the published data for the years 1951 though 1970, largely anecdotal,
indicates and/or establishes that RETICULOSE is an anti-viral pharmaceutical
product which is safe and effective in treating a number of interferon related
viruses such as Asian Influenza, Viral Pneumonia, Virus Infectious Hepatitis,
Mumps, Encephalitis, Herpes Simplex and Herpes Zoster. However, two reports in
recognized medical journals questioned the efficacy of RETICULOSE on certain
viral diseases in laboratory tests. Testing of RETICULOSE on the Human Papilloma
Virus (HPV) has commenced in Argentina. There can be no assurance of the
success of such testing or whether such testing or any other potential testing
that may be commenced will result in FDA approval. See "RISK FACTOR 4. -
RETICULOSE - Limited Medical Acceptance and No Assurance of Effectiveness," and
"BUSINESS - CURRENT STATUS OF TESTING OF RETICULOSE".
Bernard Friedland, President of the Company, as sponsor, filed with
the FDA on September 20, 1984 an application for a study, on human subjects, of
the efficacy of RETICULOSE upon AIDS. In response to two deficiency letters
from the FDA,, the Company on March 6, 1992, submitted to the FDA additional
information, including findings from independent research laboratories
intending,, among other things, to procure the FDA's approval to conduct Phase I
human trials for RETICULOSE. On July 31, 1992, the Company received a further
deficiency letter from the FDA (the "July 1992 Deficiency Letter"). The July
1992 Deficiency Letter provided detailed comments with respect to chemistry,
toxicology, microbiology and clinical areas requiring further studies and action
on the part of the Company. To date the Company has not formally responded to
the July 1992 Deficiency Letter from the FDA. The Company presently contemplates
that it shall either file an amendment with the FDA
- -----------------------------
/1/RETICULOSE(R) is a Registered trademark of the Company.
3
<PAGE>
seeking to reactivate the IND that had been previously filed with the FDA, or
withdraw such IND that has been deactivated by the FDA, and filing a new IND
application. The Company intends to allocate certain funds from the exercise of
Options, provided at least 25% of the Options are exercised, for the purpose and
filing a new IND with the FDA. See "BUSINESS - CURRENT STATUS OF TESTING OF
RETICULOSE". No assurance can be given, however, that any Options will be
exercised, or that a new IND will be accepted by the FDA or that any tests
previously conducted or to be conducted will satisfy FDA requirements. See
"BUSINESS - BACKGROUND OF RETICULOSE" and the "CURRENT STATUS OF TESTING OF
RETICULOSE."
The Company maintains its executive offices at 1250 East Hallandale
Beach Blvd., Hallandale, Florida 33009. Its telephone number is (954) 458-7636.
See "BUSINESS-PROPERTY."
THE OFFERING
- ------------
The Company hereby registers for sale the Option Shares and the Selling Security
Holder Shares.
Stock Ownership
- ---------------
Common Stock Outstanding 265,437,558 Shares of Common Stock, par
Prior to Offering value $.00001
Securities Being Registered Of the total of 34,361,300 Shares being
registered hereunder, 32,205,800 Option Shares
underlie the $.10 to $.36 Options held by Option
Holders, which include 10,683,000 Option Shares
pursuant to Options granted to Selling Security
Holders and 2,155,500 Shares that were issued
upon exercise of previously issued Options and
were included in the Company's Registration
Statements declared effective by the SEC on July
1, 1994, and/or July 27,1995 All such Shares and
Option Shares are included in this Registration
Statement, for public resale by the Selling
Security Hold-ers. See "SELLING SECURITY
HOLDERS".
Common Stock to be Outstanding 297,643,358 Shares of Common Stock(2)
Following Exercise of the
Options
(2) Includes all of the Option Shares being registered hereunder, and assumes
all Options are exercised.
4
<PAGE>
Use of Proceeds The Company, from January 1, 1996 to April 30,
1996, has received approximately $1,375,000 from
the exercise by Option Holders of the previously
issued Options at prices from $.05 and $.18
Options which were registered and included for
resale in the Company's July 27, 1995
Registration Statement. The Company shall
receive $6,871,800 assuming all Options
registered hereunder are exercised. The Company
shall apply such proceeds to pay the general
operating and administrative expenses, contin-
ued research and development and clinical trials
regarding RETICULOSE and establishing a new or
enhancing the existing production facility,
among other uses. If only 25% of the Options are
exercised, the Company will receive proceeds of
approximately $1,717,950 See "USE OF PROCEEDS"
below.
High Risk Factors Prospective purchasers should consider carefully
certain risks concerning the Company and its
business, including Limited Operations, No
Record of Earnings and Accumulated Deficit;
Failure of RETICULOSE to be Approved for Sale by
FDA; Single Product- Very Limited Sales;
RETICULOSE- Limited Medical Acceptance and No
Assurance of Effectiveness; and Qualification
Regarding Going Concern; among other factors.
See "HIGH RISK FACTORS."
5
<PAGE>
GLOSSARY
The following is a glossary of some of the scientific terms used in this
Prospectus.
. Amino Acids: The basic chemical molecules from which proteins
are synthesized in the body. Amino acids are
composed of carbon, hydrogen, oxygen and
nitrogen.
. Antibodies: Modified type of serum proteins which are
responsible for immunity to an infectious agent.
. Anti-viral agent: A pharmaceutical product which has properties to
stop or reduce the effects of a virus infection.
. Interferon: A protein generated by the body's cells in the
presence of certain virus groups which counters the
effects of the invading viruses with the cells.
. Intramuscular: Refers to injection of medication into and within
the muscle.
. Karposi's sarcoma: Mucocutaneous tumors, secondary opportunistic
infection related to HIV infection.
. Lipotrotein: A protein molecule with one or more fat molecules
attached.
. Lymphocytes: (White Blood Cells) The white corpuscles of the
blood system which are the first line of defense
against invading organisms.
. Nucleic acids: Ribonucleic acid (RNA) or deoxyribonucleic (DNA)
protein molecules which determine genetic memory of
cells. These molecules are essential to life.
. Peptides: Low molecular weight protein building blocks
derived from beef or from milk.
. Peptones: Water soluble protein building blocks derived from
beef or from milk.
. Subcutaneous: Refers to injection of medication between the skin
and muscle layers.
. Virus Replication: The duplication of a virus by itself within the
body cell by breaking down the RNA or DNA of the
host cell and using it to make a replicate of
itself, while killing the host cell.
. Immune System
Modulator: Substance or substances which stimulate the human
body's immune system to more actively counter the
effects of viral infection and viral invasion.
6
<PAGE>
Selected Financial Data
The following presents selected consolidated financial information for Advanced
Viral Research Corp. and is qualified ii its entirely by the more complete
information contained in the financial statements and accompanying notes which
are an integral part thereof appearing elsewhere in this registration statement.
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
Consolidated 1995 1994 1993 1992 1991 1990 Inception
Statement of (2/20/84-
Operation 3/31/96)
<S> <C> <C> <C> <C> <C> <C> <C>
==============================================================================================================================
Revenue (1) $ 69,483 $ 84,852 $ 23,892 $ 23,920 $ 18,465 $ 39,290 $ 557,451
==============================================================================================================================
Net Loss (401,884) (440,837) (563,309) (839,981) (249,871) (267,867) (3,764,196)
==============================================================================================================================
Net Loss per Share (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance 1995 1994 1993 1992 1991 1990
Sheet:
================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Working Capital $ 560,637 $167,360 $ 318,582 $ 564,943 $ 179,679 $ 366,075
================================================================================================================
Total Assets 796,241 452,264 572, 507 858,019 462,309 652,985
================================================================================================================
Total Liabilities 14,651 40,244 8,150 37,854 19,359 5,905
================================================================================================================
Shareholder's Equity 781,590 412,020 564,357 820,165 442,950 647,080
================================================================================================================
Shares Outstanding 251,181,774 241,616,991 236,276,991 227,276,991 204,073,782 200,299,882
================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statement of Operation: 1996 1995
Three Months Ended March 31.
==============================================================================================================================
<S> <C> <C>
Revenue (1) $ 10,908 $ 29,521
==============================================================================================================================
Net Loss (67,399) (66,106)
==============================================================================================================================
Net Loss per Share $(0.00) ($.00)
==============================================================================================================================
Consolidated Balance Sheet at March 31: 1996 1995
==============================================================================================================================
Working Capital $ 888,267 $ 465,973
==============================================================================================================================
Total Assets 1,119,138 726,916
==============================================================================================================================
Total Liabilities 13,068 38,715
==============================================================================================================================
Shareholder's Equity 1,106,070 688,201
==============================================================================================================================
Shares Outstanding 256,838,508 245,238,441
==============================================================================================================================
</TABLE>
(1) Substantially all revenues since inception were derived from investment
income, except that during 1994 and 1995 the Company was also paid for rights
to sell RETICULOSE.
7
<PAGE>
HIGH RISK FACTORS
-----------------
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE IN NATURE AND INVOLVE A
HIGH DEGREE OF RISK THEY SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO
LOSE THEIR ENTIRE INVESTMENT. THEREFORE, EACH PROSPECTIVE PURCHASER SHOULD,
PRIOR TO PURCHASE, CONSIDER VERY CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL
AS ALL OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS, PARTICULARLY
THE INFORMATION CONTAINED IN THE FINANCIAL STATEMENTS HEREIN.
1. Limited Operations, No Record of Earnings and Accumulated Deficit.- The
------------------------------------------------------------------
Company was incorporated under the laws of the State of Delaware on July 31,
1985, has a very limited operating history, only insignificant operating
revenues and must be considered promotional and still in its early developmental
stage. From inception through December 31, 1995, the Company had an accumulated
deficit of $3,696,797. Through its quarter ended March 31, 1996 the Company's
accumulated deficit was $3,764,196. The Company is dependent upon approval of
RETICULOSE for sale before it can begin any significant commercial operations.
Until recently, application for approval has been filed in any country, except
for the Investigational New Drug Application ("IND") filed in the United States
with the U.S. Food and Drug Administration ("FDA") on September 20, 1984 by
Bernard Friedland, President of the Company, as sponsor. The Company has
received and responded to certain deficiency letters from the FDA, which
responses were not deemed adequate. The Company has not yet responded to a July
1992 FDA Deficiency Letter with respect to this IND. The Company hopes to
prepare and file a new IND with the FDA but cannot predict the time or costs
associated therewith. However, the Company's distributors, AVIX International
Pharmaceutical Corp. ("AVIX") and DCT S.R.L. ("DCT"), have commenced the
application process in China and Mexico (AVIX) and Argentina (DCT), and open
label clinical trials (the "Clinical Trial") have commenced in Argentina on
Human Papilloma Virus (HPV). See "BUSINESS-CURRENT STATUS OF TESTING OF
RETICULOSE". There can be no assurance that the Clinical Trial or any other
potential testing that may be commenced will prove successful.
The Company's cash position, from time to time, has been the result of the
proceeds from the Company's initial public offering; the exercise of warrants
issued in connection with the initial public offering; the exercise of Options;
fees paid for distribution rights by Company's exclusive distributors which fees
also included deposits on purchases of RETICULOSE by a distributor; and limited
sales of RETICULOSE for testing purposes. Its current cash position of
approximately $1,700,000 as of June 30, 1996, is largely the result of Options
being exercised, which were due to recently prevailing prices of the Company's
Shares. This amount is adequate for the Company's operations at present levels
for approximately 70 months. However, such funds may not be adequate to pay all
the costs associated with the full range of continued research and development
and testing , as well as the clinical trials that may be required by the FDA,
in order to obtain approval for IND to test RETICULOSE in the United States,
which is a prerequisite for being able to market and sell RETICULOSE in the U.S.
However, its cash position is sufficient to fund the ongoing open label Clinical
Trial and other studies and tests that may be undertaken, which costs are
estimated at $250,000. The Company also gave a grant of approximately $30,000 to
the Mount Sinai School of Medicine, New York, NY to study the mechanism by which
RETICULOSE inhibited the replication of the Human Immunodeficiency Virus (HIV).
The Company has also given another grant to Mount Sinai in the amount of $35,000
to conduct certain additional tests of RETICULOSE. Unless and until RETICULOSE
is approved for sale in the United States, in another developed country or one
or more of the Company's distributors obtains approval for the sale of
RETICULOSE in any of their respective territories, the Company will be dependent
upon the continued sale of its securities and/or the exercise of options for
funds to meet its continued cash requirements.
In such event the Company will also be dependent on the willingness of third
parties to accept the issuance of Shares and/or the grant of Options as
compensation to conduct tests or provide other services to the Company.
8
<PAGE>
No assurance can be given that such financing or services, if and when required,
will be available, or if available, will be at terms acceptable to the Company.
Any issuance of a substantial number of additional Shares would also dilute the
ownership of present shareholders.
Potential investors should be made aware of the difficulties encountered by
any business enterprise in its development stage, especially in view of the
intense competition from existing and more established businesses in the
medical/pharmaceutical fields, most of which have substantial capital assets and
income to fund any research, development, promotional and marketing programs and
regulatory protocols that are necessary in connection with
medical/pharmaceutical products. See, "BUSINESS -COMPETITION." There is nothing
at this time upon which to base any assumption that the Company will either
generate operating revenues or will ever be able to operate on a profitable
basis. If the Company's plans prove to be unsuccessful, its stockholders and
Option Holders may lose all or a substantial portion of their investment. See
"BUSINESS - CURRENT STATUS OF TESTING OF RETICULOSE," and "EXCLUSIVE
DISTRIBUTION AGREEMENTS".
2. Failure of RETICULOSE to be Approved for Sale by the FDA - The United States
--------------------------------------------------------
constitutes the major and most profitable pharmaceutical market in the world.
From 1962, when RETICULOSE, among many other drugs, was reclassified as a "new
drug" by the FDA until the present date, the Company has not been able to market
RETICULOSE in the United States, or any other developed country. This has been
the direct result of its inability to satisfy the regulatory protocols and the
substantial preapproval requirements imposed by the FDA upon the introduction of
any new or unapproved drug product, which include lengthy and detailed
laboratory and clinical testing procedures, sampling activities and other costly
and time consuming procedures. While the United States pharmaceutical market is
the largest in the world, it also takes the longest time for new drug approval.
There is no assurance that FDA approval for the sale of RETICULOSE in the United
States will ever be obtained or that the Clinical results of the current
Clinical Trial or any other clinical studies and tests will be sufficient to
lead to FDA approval of an IND for clinical testing of RETICULOSE on humans in
the U.S. Nor can there be any assurance that RETICULOSE will ever be approved by
any developed or developing country, without which no significant revenues will
ever be generated by the Company from the sale of RETICULOSE.
3. Single Product - Very Limited Sales - Since April 1988, there have been no
-----------------------------------
sales of RETICULOSE, except for insignificant revenues related to distribution
of the drug for testing purposes. RETICULOSE is not presently marketed anywhere
in the world. It is not presently approved for sale or use in the United States
and there can be no assurance that it ever will be approved in the United States
in the future. RETICULOSE was previously sold in the Philippines, Hong Kong,
Singapore, Malta, Taiwan, Malaysia, the Bahamas, the Dominican Republic and
Montserrat, but no licensed distributors are presently selling RETICULOSE in
such countries. The Company has currently in effect Exclusive Distribution
Agreements with distributors to market and sell RETICULOSE, subject to each
distributor obtaining regulatory approval, in the following countries: China,
Japan, Hong Kong, Macao, and Taiwan (AVIX International Pharmaceutical Corp.);
Mexico (AVIX); Channel Islands, Isle of Man, British West Indies, Jamaica,
Haiti, Bermuda and Belize (Commonwealth Pharmaceuticals) and Argentina (DCT
S.R.L.). The Company is presently dependent upon RETICULOSE obtaining
regulatory approval in the United States, in other developed countries, or
alternatively in one or more of its distributors' territories if it ever hopes
to have significant distribution and sales of RETICULOSE. There can be no
assurance that any significant sales will be generated by the Company's
distribution agreements, and further, there can be no assurance that any such
distributors will timely receive, if ever, necessary approvals to market
RETICULOSE in their respective territories. SEE "BUSINESS - EXCLUSIVE
DISTRIBUTION AGREEMENT WITH AVIX"; "ARGENTINA AGREEMENT WITH DCT S.R.L." and
"EXCLUSIVE DISTRIBUTION AGREEMENT WITH COMMONWEALTH".
4. RETICULOSE - Limited Medical Acceptance and No Assurance of Effectiveness -
-------------------------------------------------------------------------
Although the Company believes that the prior history of RETICULOSE, since its
development, should establish that RETICULOSE is a non-toxic and an effective
anti-viral compound that is useful in treating such diseases as Asian Influenza,
Viral Pneumonia, Viral Infectious Hepatitis, Herpes Simplex, Herpes Zoster and
Mumps Encephalitis, RETICULOSE is neither widely known nor accepted by the
medical community nor approved for use in the
9
<PAGE>
U.S. for any purpose by the FDA. However, recent laboratory tests of RETICULOSE
at the Mount Sinai School of Medicine, New York, N.Y. under the supervision of
Dr. Shalom Z. Hirschman, the Director of Mount Sinai Division of Infectious
Diseases, have shown that RETICULOSE stimulates the production of a unique set
of chemokines including Interleukin 6 (IL-6) and Gamma Interferon and inhibits
replication of HIV in cell cultures. Previously, two articles published in 1962
in recognized medical journals have questioned the anti-viral effect of
RETICULOSE on Mumps Encephalitis and Herpes Simplex utilizing tissue culture; on
Herpes Simplex in students; and on Lansing Polio and mouse adapted and egg
adapted Influenza A. Kempe, Failure to Demonstrate Antiviral Activity of
--------------------------------------------
Reticulose, Diseases of Children, Vol. 103, No. 5, May 1962 and Behbehani,
- --------------------------------
The Effect of Reticulose on Viral Infection of Experimental Animals, Southern
- -------------------------------------------------------------------
Medical Journal, Vol. 55, No. 2, February 1962. Notwithstanding the foregoing,
historically, the Company believes that the effectiveness of RETICULOSE has been
demonstrated, albeit in a limited number of clinical studies, some of which were
reported in recognized medical journals, and in limited public use. Reference is
made to "SOURCES" below. However, because no "double blind" studies of
RETICULOSE have ever been completed by or for the Company, there can be no
assurance that RETICULOSE will be effective in treating viruses of any variety
on a wide scale or any other basis. In addition, although the Company has filed
an IND with the FDA, it must first satisfy the FDA that the present formulation
of RETICULOSE is identical to the formulation reported on the prior anecdotal
history and studies. A peptide study conducted by the University of Wisconsin
Biotechnical Center in 1988 exclusively for the Company (the "Wisconsin Study")
has shown that the prior formulation of RETICULOSE is essentially the same as
-----------
the present formulation. Should the Wisconsin Study not satisfy the FDA, and
should the FDA not consider such prior anecdotal studies, RETICULOSE will
continue to be considered as a total new drug. In such event, the uncertain
amount of time and costs required for IND approval as a result of the FDA not
accepting the prior history of the drug, can be expected to be financially
burdensome and have a materially adverse effect on the Company and its
likelihood of ever obtaining any requisite approval in the United States. The
Company is dependent on the pending Clinical Trial or any other tests and trials
that may be commenced in the future, the results of which, if successful, may
assist the Company in receiving an IND for testing on humans on the United
States.
On March 6, 1992, the Company submitted to the FDA additional information
which the Company believed was responsive to the FDA deficiency letters (the
"March 1992 FDA Submission"). The March 1992 FDA Submission included, among
other things, findings from certain independent research laboratories, including
the Wisconsin Study. The purpose of the March 1992 FDA Submission was to obtain
FDA approval to conduct Phase I human clinical trials regarding the
effectiveness of RETICULOSE on AIDS. The FDA responded with a deficiency letter
dated July 31, 1992, (the "July 1992 Deficiency Letter") but the Company has not
responded to the Deficiency Letter and does not anticipate that it will be
capable of responding to the FDA in the near future. The Company lacks the
financial resources to fund all the tests and full clinical trials necessary to
permit it to resubmit to the FDA the information required for approval. The
Company is contemplating commencing preliminary steps to assist the Company in
preparing a new IND for filing with the FDA. However, if the Company should be
successful in obtaining approval of RETICULOSE in a industrially developed
country, of which there can be no assurance, the Company may reevaluate its
position with respect to the FDA and attempt to meet the FDA's stringent
requirements.
There can be no assurance that the FDA will ever approve the sale or even the
testing on humans of RETICULOSE in the United States. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS",
"BUSINESS - BACKGROUND OF RETICULOSE" and "CURRENT STATUS OF TESTING OF
RETICULOSE."
5. Qualification Regarding Going Concern. - The Company's independent
--------------------------------------
accountants' report on the Company's financial statements included in the
Company's Report on Form 10-KSB for the fiscal year ended December 31, 1995,
includes an explanatory paragraph (Footnote 3) in the footnotes to Financial
Statements 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 accountant's report does not include
any adjustment that might result from the outcome of this uncertainty. The
Company has no immediate plan to issue any securities. The Company has suffered
losses from operations during its limited operating history.
10
<PAGE>
The Company is dependent upon registration of RETICULOSE for sale in the United
States or in another country before it can begin commercial operations. The
Company's cash position will be inadequate to pay all the costs associated with
the full range of testing and clinical trials required by the FDA. Management
does not anticipate registration or other approval of RETICULOSE in a developed
country in the near future. Unless and until RETICULOSE is approved for sale in
the United States or another industrially developed country or unless RETICULOSE
is approved in one or more of its distributors territories with both a material
population and healthy profile, the Company will be dependent upon the continued
sale of its securities and/or exercise of its Options for funds to meet its cash
requirements. Management continues to sell or issue for services the Company's
securities in an attempt to mitigate the effects of its losses and poor cash
position; however, no assurance can be given that such equity financing, if and
when required, will be available. In the event that such equity financing is not
available, in order to continue operations, management anticipates that they
will have to defer their salaries. In addition, the Company may require to seek
debt financing, but no such financing is in place or identified. Management does
not believe that such financing will be readily obtainable on favorable terms
unless FDA approval for Phase I testing of RETICULOSE is granted in one or more
countries. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets and
classification of liabilities that might be necessary should the Company be
unable to continue in existence. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "Notes to Consolidated
Financial Statements."
6. Additional Financing Necessary. - There can be no assurance that the
------------------------------
presently outstanding Options at prices ranging from $.10 to $.36 per Option
Shares, which Options and Option Shares are registered in the Registration
Statement, will be exercised in their entirety. During the period from January
1, 1996 to April 30, 1996, 14,255,784 Option Shares underlying the previously
registered Options were issued for total consideration of $1,375,000. However,
Management believes that it current liquid assets of approximately $1,700,000
plus the proceeds derived from the exercise of all the Options being newly
registered hereunder should be sufficient to enable the Company to conduct its
contemplated activities for at least 55 months and conduct day to day operations
at present levels, based upon currently monthly operating expenses of
approximately $30,000. See "USE OF PROCEEDS". It should be noted that the
exercise prices of the Options is significantly still below the recent
prevailing market price of the Company's Shares. The Company may require
additional equity and/or debt financing in the future to meet the considerable
costs of human clinical trials, should the FDA grant permission for such trials.
The cost of the tests in the distributors' territories will be paid by the
Company's distributors in their respective territories. Such costs have not
been ascertained by the Company. If no additional Options are exercised, the
Company will be able to continue its business, which remains in the development
stage at current levels for approximately 55 months. There can be no assurance
that any additional financing will be available or, if available, that it can be
obtained on terms satisfactory to Management. If the Company does not obtain any
material proceeds from the exercise of Options, the Company could be dependent
upon joint ventures with, or the sale of certain rights regarding RETICULOSE to
third parties, the terms of which might not be advantageous to the Company. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS" and "BUSINESS - EXCLUSIVE DISTRIBUTION AGREEMENT.
7. Potential Loss of Bahamian Rights. - RETICULOSE has been manufactured only
---------------------------------
in limited quantities, by the Company's Bahamian subsidiary, Advance Viral
Research Ltd. ("LTD"), in the facility located in Freeport, Grand Bahama Island,
and RETICULOSE is currently being produced at the Bahamas facility in limited
quantities for preliminary testing and potential submission to regulatory
authorities. Although there can be no assurance that this facility will have
sufficient capacity in the event that demand should develop for RETICULOSE, the
Company believes that its manufacturing facility is ready for production. The
Company has a license to manufacture pharmaceutical products, including
RETICULOSE, for export from the Grand Bahama Port Authority. The Grand Bahama
Port Authority is a private, semi-autonomous body established by statute under
the laws of the Bahamas. 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. No proceeding to prevent the Company's manufacture for
export of RETICULOSE has been instituted or threatened by the Government of the
Bahamas.
11
<PAGE>
If any such proceedings were to be instituted, which the Company has no reason
to believe is intended, the Company would vigorously contest such proceeding. No
assurance can be given that the Company could successfully defend and would
indeed prevail if such a proceeding were commenced.
8. Lack of Product Liability Insurance - The Company, like any pharmaceutical
-----------------------------------
manufacturer 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 in guinea pigs from doses 500 times normal human
dosage. 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 future marketability of RETICULOSE. As of the date hereof, the Company does
not have product liability insurance for RETICULOSE. The Company has not
allocated any portion of the proceeds that it may receive upon the exercise of
any Options Shares, of which there can be assurance, for the cost of liability
insurance. There can be no assurance that the Company will be able to secure
such insurance in adequate amounts, at reasonable premiums if it so desires.
Should the Company be unable to secure product liability insurance, the risk of
loss to the Company in the event of claims would be greatly increased and could
materially adversely effect the Company.
9. 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 using processes similar to
those of the Company. Notwithstanding the foregoing, the Company is
contemplating retaining patent counsel for the purpose of determining whether,
in light of recent laboratory tests and the present cash position of the
Company, the Company should pursue patent protection for RETICULOSE. However,
there is no certainty that if such applications are filed, that patents will be
granted, or if granted, that it will be sustained if judicially attacked, and,
if declared valid, whether patents, in fact, will operate to protect the Company
from others copying RETICULOSE. The Company has relied upon the utilization of
proprietary information, trade secrets and confidentiality agreements to protect
RETICULOSE and the processes for its manufacture, but there can be no assurance
that such efforts and procedures will continue to be successful and protect the
Company from any competition in the future.
10. Potential Claim for Royalties - While the Company does not believe that any
-----------------------------
valid claim for Royalties exists, if the Company was successful in selling
RETICULOSE, the Company could be subject to claims from the heirs and the Estate
of Mr. B. E. LaPenta in connection with royalty payments on the sale 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 received, to date, any
notice of claim from such party and further, the Company believes that any
royalty claims were barred as a result of the Company's purchase of RETICULOSE
from the Hong Kong Bankruptcy Court. Mr. LaPenta died in 1976 and no claims have
ever been made to the Company's best knowledge. The Company would vigorously
contest any Royalty claim in the future. See "BUSINESS - BACKGROUND OF
RETICULOSE."
11. Limited Staff for Operations - Reliance Upon Officers - The Company is
-----------------------------------------------------
currently wholly dependent upon the personal efforts and abilities of its two
full-time, executive officers/employees, only one of whom, Bernard Friedland,
President, has any substantial experience in the pharmaceutical industry. See
"MANAGEMENT - OFFICERS AND DIRECTORS" for further information concerning the
extent, nature and scope of its officers' business experience. The loss or
unavailability to the Company of the services of Bernard Friedland could have a
materially adverse effect on the Company's business prospects and any potential
earning capacity, and therefore, the Company has obtained "key-man" insurance on
Mr. Friedland in the amount of $400,000. See "USE OF PROCEEDS." In the event the
Company's level of operations shall significantly increase, the business may
depend upon its abilities to attract and hire additional management and staff
employees. There can be no assurance that the Company will be able to secure
such additional management and staff, if necessary.
12. Government Regulation - The FDA and comparable regulatory agencies in
---------------------
foreign countries impose substantial requirements upon the introduction of
therapeutic drug products including lengthy and detailed laboratory and clinical
testing procedures, sampling activities and other costly and time consuming
12
<PAGE>
procedures. There is no assurance that FDA approval for the sale of RETICULOSE
in the United States will ever be obtained or that the Company will have
adequate funds to finance the necessary clinical studies and related costs. A
New Drug Application was filed for RETICULOSE by Key Pharmaceuticals in 1967
and subsequently withdrawn without prejudice. An IND was filed in 1968 and
withdrawn in 1972 when RETICULOSE was sold to a Singapore company which
subsequently went bankrupt for reasons unrelated to the pharmaceutical business.
See "BUSINESS - BACKGROUND OF RETICULOSE." In 1984, the Company's President, as
sponsor, filed an IND which is still pending and in the preliminary stages of
the FDA approval process. The effect of FDA and foreign government regulation
will be to delay marketing of RETICULOSE for a considerable period of time in
certain countries, to impose costly procedures upon the Company's activities and
to impede and/or prevent the Company's ability to compete with larger companies
in its industry. The extent of potentially adverse government regulations which
might arise from future legislation or administrative action cannot be
predicted.
The FDA does not regulate and has no requirements or control over foreign
manufacturers of products offered exclusively for sale, in foreign countries,
whether with respect to proof of toxicity, stability, safety, efficacy, or to
maintain records concerning same. However, in recent years, "Third World"
countries have become increasingly more thorough in the registration and
licensing of pharmaceutical products. In many of the Third World countries,
registration/approval of a pharmaceutical product in one or more "developed"
countries is a prerequisite in order to obtain registration and sale in Third
World countries. Accordingly, until registration is granted, if ever, in the
United States or another "developed" country, such as Canada, sales to Third
World countries may not produce a material amount of revenue for the Company,
unless RETICULOSE shall be approved for testing in one or more Third World
countries having both a significant population and health profile.
13. Dilution - Prior to this offering, during the period from 1985 through
--------
1987, the officers, directors, and promoters of the Company acquired 91,061,537
shares for which they paid total cash consideration of $910.61, or $.00001 per
Share. Purchasers of the 32,205,800 Option Shares underlying the Options
registered herein will realize a material dilution of their equity-interest, as
follows: $.2097 per Share, $.2039 per Share, and $.1932, assuming exercise of
25%, 50% and 100% of all such Options. See "DILUTION."
14. Intense Competition - There are inherent difficulties for any development
-------------------
stage company, such as the Company, seeking to enter an established field,
particularly a field as capital intensive as the manufacture and sale of
pharmaceuticals. The Company can expect to encounter intense competition from
well-known pharmaceutical companies and chemical companies engaged in the
development and marketing of therapeutic drug products.
Almost all of such companies are substantially larger, possessing far greater
capital resources, more substantial operating histories and records of
successful operations, greater personnel and other resources, and more extensive
facilities than the Company now has or will have in the foreseeable future.
Accordingly, such companies are and shall continue to remain in a far better
position to compete in this industry than the Company. Such companies may
succeed in discovering, developing and marketing products that are either as
effective or more effective than RETICULOSE, which has not yet been established
or proven to be effective as an anti-viral agent to the FDA or indeed any other
regulatory agency's standards. The Company is not at present and will not be in
the foreseeable future a significant factor in the field in which it is
endeavoring to engage. Additionally, small development stage entities, such as
the Company, with very limited resources, are at a very serious disadvantage in
attempting to operate in a market against established competitors. See "BUSINESS
- -COMPETITION."
15. Voting - Control by Present Management - On July 31, 1996, the present
--------------------------------------
officers and directors of the Company owned 77,886,383 Shares of the present
outstanding Common Stock of the Company or approximately 29.3% of the Company's
outstanding Common Stock. Assuming the acquisition of all of the Option Shares
pursuant to the exercise of the Options, of which there can be no assurance, the
present officers and directors of the Company will own approximately 26.2% of
the Company's outstanding Common Stock. As there are no cumulative voting
rights, present members of management, by virtue of their stock ownership, can
be expected to substantially influence the election of all of the directors of
the Company and thereby continue to control the Company's business.
13
<PAGE>
16. No Dividends and None Anticipated - The Company has not paid any dividends
---------------------------------
upon its Common Stock since its inception and it does not anticipate paying any
dividends upon its Common Stock in the foreseeable future. See "DIVIDEND
POLICY", and "DESCRIPTION OF SECURITIES".
17. Potential Sales Pursuant to Rule 144 - As of July 31, 1996, approximately
------------------------------------
77,886,383 Shares of the Company's presently issued and outstanding Common Stock
are "restricted" Shares and the securities as that term is defined under Rule
144 under the Securities Act of 1933, as amended (the "Act"), excluding
"restricted" Option Shares which may be issued to Selling Security Holders and
are being registered or are otherwise being included for sale pursuant to this
Registration Statement. In the future, the 77,385,383 Shares may be sold
without prior registration under the Act upon compliance with Rule 144. Giving
effect to the exercise and the sale of all the Option Shares, the Company will
have issued and outstanding 297,643,358 Shares of Common Stock, of which
77,385,383 Shares will be "restricted" securities. The 32,205,800 Option Shares
underlying presently outstanding Options and 2,155,500 Shares that were issued
in connection with previously outstanding Options are being included for resale
by Selling Security Holders pursuant to this Registration Statement.
In general, under Rule 144, a person (or persons whose shares are aggregated)
who has held restricted securities for a period of two (2) years may, under
certain circumstances, sell to the public, in ordinary brokerage transactions,
within any three month period, a number of shares which does not exceed the
greater of one percent of the then outstanding shares of the Company's Common
Stock, or the average weekly trading volume of the shares during the four (4)
calendar weeks prior to such sale. In addition, under Rule 144, there are
certain additional requirements that may apply, including but not limited to,
the requirement that the Company have available adequate current public
information with respect to the Company under the Securities and Exchange Act of
1934 and that a notice of proposed sale on Form 144 be filed with the Securities
and Exchange Commission (the "Commission") at its principal office in
Washington, D.C. Further, the shares held by persons deemed to be affiliates of
the Company would be "controlled securities," and therefore, these persons would
be required to sell shares under the provisions of Rule 144. Rule 144 also
permits under certain circumstances, the sale of shares by a person who is not
an affiliate of the Company and who has satisfied a three year holding period
(a) without any quantity limitations, (b) a requirement that adequate current
published information be available, or (c) the requirement to file the Form 144
notice. Possible or actual sales of such Common Stock by current stockholders of
the Company under Rule 144 may have a depressive effect upon the price of the
Company's Common Stock in the over-the-counter market, and also could render
difficult the sales of the Company's Shares purchased by investors herein.
18. Lack of Underwriter - The Selling Security Holder Shares and any Option
-------------------
Shares offered hereby will be sold directly by the Selling Security Holders,
from time to time in the market, without an underwriter. Because an underwriter
is not involved in this offering, the services that an underwriter typically
would render will not be available to purchasers of the Option Shares or the
Selling Security Holder Shares. Such services typically include, among others,
representations and warranties of the material facts contained in the
Prospectus. There has been no independent confirmation or due diligence
investigation undertaken by any third party of any of the representations made
in this Prospectus, which is normally an obligation undertaken by an
underwriter.
19. Benefit to Certain Officers and Directors - Upon completion of the
-----------------------------------------
Company's initial public offering, the Company paid $50,000 to an affiliate,
Advance Viral Research Ltd. ("LTD") in consideration for the acquisition of
exclusive rights to manufacture and market RETICULOSE. In addition, the Company
purchased certain inventories from LTD for a consideration of $45,000 and was
obligated to pay LTD $3.00 per ampule of RETICULOSE for the initial 100,000
ampules purchased the first year and $2.00 per ampule purchased thereafter. The
Company, on December 16,1987, acquired LTD. See "BUSINESS - EXCLUSIVE RIGHTS TO
RETICULOSE AND PRODUCTION ARRANGEMENTS." Such $95,000 was used to prepare the
Company's manufacturing facility based upon what the Company believed was
required for the production of RETICULOSE. Bernard Friedland, President and a
director of the Company, and William Bregman, Secretary-Treasurer and a director
of the Company, were also officers and directors and owner of 99.6% of the LTD.
stock. Messrs.
14
<PAGE>
Friedland and Bregman continue to hold such LTD Stock as trustees for the
Company, pending Bahamian approval of the Company's acquisition of LTD.
20. Broker-Dealer Sales of the Company's Common Stock - The Company's Common
-------------------------------------------------
Stock is subject to SEC rule that imposes additional sales practice requirements
on certain broker-dealers who sell securities, such as securities of the Company
with stock prices of less than $ 5.00, to persons other than institutional-
accredited investors and affiliates of the Company or the Company itself. Such
rule does not apply to transactions which are not recommended by the broker-
dealers. For transactions covered by this rule, the broker-dealer must make a
special suitability determination for the purchaser, receive the purchaser's
written agreement to the transaction prior to the sale, provide customers with a
disclosure document including information regarding market quotations, if any,
compensation to be delivered by the broker-dealer and its salesperson as a
result of the sale, and monthly account statements showing the market value of
each security deemed a "penny stock" under the SEC rule held in the customer's
account.
The SEC rule may affect the ability of broker-dealers to sell the Company's
Common Stock and also may affect the ability of purchasers who acquire shares of
the Company's Common Stock to sell their Shares in the secondary market. In
addition, certain states may have rules and regulations that impose additional
sales practice requirements on broker-dealers who sell the Company's Common
Stock.
DILUTION
As of the date of this Prospectus, the Company has 265,437,558 Shares of
Common Stock outstanding, which were issued for an aggregate cash consideration
of approximately assuming the exercise of twenty-five (25%) percent, fifty
(50%) percent, and one hundred (100%) percent of the unexercised 32,205,800
Option Shares underlying the Options registered in this Registration Statement
at an average exercise price of $.22 per Option Share, a total of 8,051,450;
16,102,900; and 32,205,800 additional Shares of Common Stock, respectively, will
be issued, in which event the holders of the Option Shares will have purchased
approximately 1.44%; 5.72%; or 10.82%, respectively, of the Company's then
issued and outstanding Common Stock for which they will have paid approximately
$1,717,950; $3,435,900; and $6,871,800, respectively. There can be no assurance
that any additional Options will be exercised, unless the market price of the
Shares prevailing recently price rage of from $1.50 to $.85, while in excess of
the Option exercise prices of the Option Shares registered hereunder, has
fluctuated during the last 12 months. As of July 31, 1996, the high and low bid
prices in the over the counter market and reported by the NQB were $.64 and
$.58, respectively.
Dilution is a reduction in the value of a purchaser's investment measured by
the difference between the purchase price and the net tangible book value of the
shares after purchase. The net tangible book value of a share is equal to
stockholders' equity, as shown on the Company's balance sheet, less intangible
assets, divided by the number of shares outstanding. As of April 30, 1996, the
net tangible book value of 265,437,558 outstanding Shares of Common Stock was
$.0028 per Share (without giving effect to the results of any Company operations
since March 31, 1996) and assuming the exercise of twenty-five (25%), fifty
(50%) and one hundred (100%) percent of the 32,205,800 Options the net tangible
book value of 273,489,008; 281,549,458; or 297,643,358 Shares of Common Stock,
respectively, to be outstanding (without giving effect to the results of any
Company operations since March 31, 1996) will be $2,824,105; $4,542,056; and
$7,477,955, respectively, or approximately $.0103; $.0161; or $.0268 per Share
or an increase of $.0061; $.0119 or $.0226 per Share, respectively. Such
increase will be derived from the proceeds of exercise of Options this offering
and will inure to the benefit of the Company's present stockholders and be at
the expense of the persons exercising Options at an average price of $.__ per
Option Share, who will sustain an immediate dilution to the extent of
approximately $..2097; $.2039; or $.1932 per Share, respectively, the difference
between such net tangible book value and the average exercise price of $..22 per
Share, if only the Options are exercised.
The following table compares the total number of Shares of Common Stock
purchased from the Company, by officers and directors of the Company and the
public investors in the initial public offering, the total cash consideration
and the price per Share paid and to be paid by the Option Holders assuming
exercise of
15
<PAGE>
twenty-five (25%), fifty percent (50%) and one hundred percent (100%) of the
32,205,800 Options registered hereunder.
<TABLE>
<CAPTION>
25% of 50% of 100% of
Options Options Options
Exercised Exercised Exercised
--------- --------- ---------
<S> <C> <C> <C>
Net tangible book value per Share
before exercise of Options: $.0042 $.0042 $.0042
Increase per Share attributable to
payment by public investors: $.0061 $.0019 $.0226
Net tangible book value after Offering: $.0103 $.0161 $.0268
Dilution of book value per Share: $.2097 $.2039 $.1932
</TABLE>
(1) For the purpose of the table, it is assumed that the 32,205,800 Options
will be exercised at an average price of $..213 per Option Share.
MARKET INFORMATION
The principal U.S. market in which the Company's Common Stock, $.00001 par
value, is traded in the over-the-counter market. The following table shows the
range of reported low bid and high bid quotations for the Common Stock for each
full quarterly period during the Company's six most recent fiscal years ending
December 31, 1990, 1991 ,1992, 1993, 1994, and 1995 and for the quarters ending
March 31, and June 30, 1996 and the period ending July 31, 1996. The high and
low bid prices for the periods indicated are inter-dealer prices, without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions. These quotations have been obtained from the National Daily
Quotation Bureau ("Pink Sheets").
<TABLE>
<CAPTION>
Low Bid(Per Share) High Bid(Per Share)
------------------ -------------------
<S> <C> <C>
Quarter Ending March 31, 1990 $ 0.01 $ 0.02
Quarter Ending June 30, 1990 0.005 0.0225
Quarter Ending September 30, 1990 0.01 0.0375
Quarter Ending December 31, 1990 0.02 0.07
Quarter Ending March 31, 1991 $ 0.02 $0.0425
Quarter Ending June 30, 1991 0.02 0.0425
Quarter Ending September 30, 1991 0.015 0.03
Quarter Ending December 31, 1991 0.02 0.065
Quarter Ending March 31, 1992 $ 0.02 0.07
Quarter Ending June 30, 1992 0.02 0.09
Quarter Ending September 30, 1992 0.02 0.11
Quarter Ending December 31, 1992 0.01 0.065
Quarter Ending March 31, 1993 $ 0.02 $ 0.08
Quarter Ending June 30, 1993 0.01 0.055
Quarter Ending September 30, 1993 0.01 0.06
Quarter Ending December 31, 1993 0.01 0.06
Quarter Ending March 31, 1994 $ 0.02 $ 0.05
Quarter Ending June 30, 1994 0.03 0.17
Quarter Ending September 30, 1994 0.10 0.24
Quarter Ending December 31, 1994 0.055 0.21
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
Quarter Ending March 31, 1995 $ 0.03 0.40
Quarter Ending June 30, 1995 0.12 0.20
Quarter Ending September 30, 1995 0.10 0.19
Quarter Ending December 31, 1995 0.10 0.17
Quarter Ending March 31, 1996 $ 0.14 $ 0.14
Quarter Ending June 30, 1996 0.10 1.57
Period Ending July 31, 1996 0.125 0.57
</TABLE>
The approximate number of holders of the Company's Common Stock, as of July
31, 1996 is 2,842 inclusive of those brokerage firms and/or clearing houses
holding the Company's Shares of Common Stock for their clientele (with each such
brokerage house and/or clearing house being considered as one holder).
DIVIDEND POLICY
The Company has not paid or declared any dividends upon its Common Stock
since its inception and, by reason of its present financial status and its
contemplated financial requirement, does not contemplate paying any dividends
upon its Common Stock in the foreseeable future.
USE OF PROCEEDS
The net proceeds to be received by the Company assuming the exercise of all
the Options included and registered hereby, are estimated to be $6,871,800. If
25% of such Options are exercised, the net proceeds are estimated to be
$1,717,550.
<TABLE>
<CAPTION>
Assuming Exercise of
--------------------
100% of Options 25% of Options
-------------------- --------------
Approximate Approximate
Use Amount Amount
- ------------------------------------------------ -------------------- --------------
<S> <C> <C>
Research and Development $1,000,000 $ 500,000
Clinical Trials and Testing 1,500,000 300,000
Production Facility or Enhancement 2,000,000 250,000
Production Raw Materials and Supplies 800,000 100,000
General and Administrative, including rent,
salaries, supplies, insurance 525,000 225,000
Bahamian Facility Costs 75,000 75,000
Professional Fees, Licenses and Permits 350,000 100,000
Working Capital $ 621,800 $ 52,450
---------- ----------
$6,817,800 $1,717,550
========== ==========
</TABLE>
If substantially less than 100% of the Options are exercised, the Company's
priority of its Use of Proceeds shall be as follows: Research and Development;
and Clinical Trials and Testing have a priority because they are essential to
the Company's obtaining approval to market RETICULOSE in any country where it or
its distributors are currently seeking such approval; General and Administrative
will increase as a result of the possibility of the Company determining to
engage the services of scientific and pharmaceutical specialists, if available
at satisfactory terms; Professional Fees, Licenses and Permits are essential in
order for the Company to commence the regulatory approval process and potential
for patents; Production Facility or Enhancement will have reduced priority but
remains important to assure the Company's ability to produce RETICULOSE for all
Clinical Trials and testing. If substantial revenues are generated from sales of
RETICULOSE, through the Company's distributors or as a result of approvals from
one or more countries, of which there can be no assurance whatsoever, together
with the proceeds form 100% of the Options, the Company may determine to build a
new
17
<PAGE>
production facility. No feasibility study or actual cost estimate of a new
production facility has been prepared but the Company believes that it will have
the required resources if it has received approvals and generated sales. The
Company will also allocate funds from Working Capital, if 100% of the Options
are exercised, as required to increase of its administrative staff, and begin
hiring scientific personnel to assist in Research and Development. There can be
no assurance that qualified personnel will be available at terms satisfactory to
the Company, in light of its limited operations to date.
The foregoing represents the Company's best estimate of the allocation of the
net proceeds of the offering, based on both the expected utilization of funds
necessary to finance the Company's existing research and development activities
and the Company's current objectives, as well as current regulatory conditions.
The Company may reallocate funds from time to time among the categories shown
above or to new categories if it believes reallocation to be in its best
interest. The above does not include the revenues that the Company may receive,
if any, from its Exclusive Distribution Agreements with its distributors. Prior
to application of the net proceeds of from the exercise of Options, if any, to
the purposes discussed above, the Company may invest these proceeds in short-
term money market instruments and Government securities.
The Company believes that the net proceeds from the exercise of all of the
Options registered in this offering, together with existing working capital,
will be adequate to planned expenditures and to sustain continued operations for
approximately a 55 month period following the completion of this offering. If
only 25% of the Options are exercised, at an average exercise price of $.213 per
Option Share, the Company will lack funds to build a new production facility but
will be able to enhance its present production capacity, unless revenues are
generated from the arrangements with AVIX, DCT, Commonwealth or from some other
presently unidentified sources, of which there can be no assurance. There can
be no assurance, notwithstanding recently prevailing prices for the Shares, and
the fact that 14,255,784 Options were exercised from January 1, 1996 through
April 30, 1996, on which latter date the prior Registration Statement was no
longer current, that any additional Options will be exercised.
CAPITALIZATION
The following table sets forth the Pro Forma capitalization of the Company at
March 31, 1996, and as adjusted to reflect the exercise of Options through
April 30, 1996 .
<TABLE>
<CAPTION>
Pro Forma
March 31, 1996 * As Adjusted
---------------- ------------
<S> <C> <C>
Stockholders' Equity:
Common Stock, $.0001 par value;
1,000,000,000 shares authorized;
265,437,558 Shares outstanding as of
April 30, 1996;
297,642,358 shares outstanding if
all of the Options are exercised. $ 2.654 $ 2,976
Additional paid-in-capital 4,870,351 11,739,175
Deficit accumulated in the
Development Stage* (3,764,196) (3,764,196)
----------- -----------
Total Stockholders' Equity $ 1,106,155 $ 8,563,000
=========== ===========
</TABLE>
*Pro Forma is adjusted to reflect the exercise of Options through April 30,
1996. From March 31, 1996 through April 30, 1996, total of 8,599,050 Option
Shares were issued at an average of $.243 per Option Share.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS
Results of Operations
---------------------
During the fiscal year ended December 31, 1995, the Company incurred a loss
of $401,884 ($.00 per Share) compared to $440,837 ($.00 per Share) in 1994 and
compared to a loss of $563,309 ($.00 per Share) during 1993.
The Company's decreased losses for 1995 as compared with 1994 and 1993 were
attributable to: (i) the issuance in 1993 to Plata of the 5,000,000 Shares in
consideration for the performance of certain services in connection with the
Plata Agreement (the "Plata Issuance"); (ii) increased professional fees in 1993
relating to the preparation and processing of registration statements relating
to the exercise of warrants issued a part of the initial public offering of the
Company, and (iii) the issuance in 1993 to Leonard Cohen, a consultant to the
Company, of 3,500,000 Shares (the "Cohen Issuance"). The Plata Issuance was
accounted for as a research and development expense in the amount of the
Company's valuation of the 5,000,000 Shares. The Cohen Issuance was accounted
for as an administrative expense in the amount of the Company's valuation of the
3,500,000 Shares. The Company incurred no significant expense in connection
with the preparation and processing of Registration Statements declared
effective July 1, 1994 and July 27, 1995, in which the Selling Security Holders,
paid the expenses of offering their securities which were registered.
For the three month period ended March 31, 1996, the Company incurred a loss
of $67,399 compared $66,106 for the three month period ended March 31, 1995.
During the fiscal year ended December 31, 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 during the above periods and historically are
principally attributable to ongoing administrative expenses, the lack of sales
revenues and non-cash expenses resulting from issuance of Shares for testing,
consulting and other services.
There were sales of $7,685 and $2,359 respectively during the three month
periods ended March 31, 1996, and March 31, 1995. All sales during the three
month periods ended March 31, 1996, and March 31, 1995, resulted from
distributors purchasing limited quantities of RETICULOSE from the Company for
testing purposes. Interest income was $3,223 and $2,162, respectively, during
the three month periods ended March 31, 1996 and March 31, 1995, respectively.
There were $27,328 in sales revenues in 1995 compared to $22,402 in sales
revenues for 1994, compared with $12,000 in 1993 and $12,700 in 1992. All sales
revenues resulted from distributors purchasing RETICULOSE for testing purposes.
Interest income was $16,155 in 1995, $7,450 in 1994 and $11, 892 in 1993. In
1995, the Company collected $25,000 for the sale of territorial rights compared
to $55,000 for the sale of territorial rights in 1994.
The Company's decreased losses for the fiscal year ended December 31, 1995
($401,884) as compared with ($440,837) for the fiscal year ended December 31,
1994 were attributable to a reduction in the issuance of shares for consulting
services compared to 1994 and no increase in operating expenses.
In 1993, the Company issued 5,000,000 Shares to Plata and granted 10,000,000
Options to Plata (5,000,000 Options exercisable at $.08 and 5,000,000 Options
exercisable at $.10). The Plata Issuance was accounted for as a research and
development expense in the amount of $.035 per Share, the bid price of the
Shares on the date of issuance, and the Cohen Issuance of 1,000,000 Shares was
accounted for as a general and administrative expense during the last quarter of
1992 (500,000 Shares) and the first quarter of 1993 (500,000 Shares) in the
amount of $.055 per Share, the bid price on the respective dates of issuance.
The 3,500,000 Shares issued to Mr. Cohen and his designees in 1994 were
accounted for as general and administrative expenses in the amount of $.03 per
Share, the bid price of the Shares on the date of issuance. Based upon the
foregoing, the 1992 TRM Share issuance of 10,000,000 Shares aggregated $405,000;
the Cohen Share issuance of 500,000 Shares during the last quarter of 1992 and
500,000 Shares during the first quarter of 1993 aggre-
19
<PAGE>
gated $27,500 and $27,500, respectively; the Cohen Share issuance of 3,500,000
Shares in 1994 aggregated $105,000; and the Plata Share Issuance of 5,000,000
Shares in 1993 aggregated $175,000. In 1995, the Company in connection with the
Hirschman Consulting Agreement issued 1,000,000 shares to Dr. Hirschman and
100,000 shares to Deborah Silver, which issuance was valued at $.11 per share.
The Company in 1995 also issued 300,000 shares to Richard Rubin for professional
services which issuance was valued at $.14 per share. See "CONSOLIDATED
FINANCIAL STATEMENTS -CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
and the Notes thereto. See the discussion under "BUSINESS-CONSULTING
AGREEMENTS", "TESTING AGREEMENTS" and "AIDS DEMONSTRATION IN DOMINICAN REPUBLIC"
with respect to the issuance of Shares.
Although there can be no assurance of the levels, if any, the Company
believes that it will generate sales revenue at least with respect to testing of
RETICULOSE pursuant to its agreements with exclusive distributors from initial
testing in their respective territories. However, there will be no likelihood
of significant sales of RETICULOSE unless and until requisite approvals are
obtained in such territories.
Liquidity
---------
As of March 31, 1996, the Company had current liquid assets of $901,335
compared to $504,688 at March 31, 1995, and $269,062 at March 31, 1994. The
Company had total assets of $1,119,138, $726,916 and $510,415, at March 31,
1996, 1995 and 1994, respectively. The increase in liquid assets and total
assets was primarily attributable to the exercise of options. Subsequent to its
year ended December 31, 1995 and through March 31, 1996, a total of 11,451,633
Options were exercised, resulting in proceeds of approximately $990,650. From
March 31, 1996 through April 30, 1996, a total of 2,804,151 Option Shares were
issued for total consideration to the Company of $384,350.
As of December 31, 1995, the Company had current liquid assets of $575,288
compared to $207,444 as of December 31, 1994, and $314,986 as of December 31,
1993. The increase in liquid assets at year end 1995 resulted principally from
revenues from the exercise of the Company's Options. As of December 31, 1995,
1994, and 1993, the Company had total assets of $796,291, $452,264, and $572,507
respectively.
Until RETICULOSE is registered for sale in a developed country or in one or
more of its distributors territories, sales of RETICULOSE are not expected to
generate material revenues. There can be no assurances that RETICULOSE will
ever be available for sale in any developed country. FDA approval to begin
human clinical trials will require significant cash expenditures, the amount of
which is not presently determinable. As of April 1996 the Company has taken no
action with regard to the most recent deficiency letter received from the FDA.
The Company is contemplating filing use patent applications for RETICULOSE(R)
and believes it has the financial resources to do so at this time. Because
RETICULOSE(R) does not have patent protection, there is a risk that other
companies could develop a similar product using processes similar to those of
the Company. 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 protect other from copying
RETICULOSE(R). The duplication of RETICULOSE(R) by others would have a
materially adverse affect on the Company.
In the event the Ministry of Health of the Bahamas for any presently
unforeseen reason shall seek to prevent the manufacture of RETICULOSE by the
Company for export from Freeport under its license from the Grand Bahamas Port
Authority, the Company may be required to relocate the manufacturing facility.
Should such relocation become necessary, the Company currently anticipates being
able to obtain a suitable site. The cost of such relocation depending upon the
site of such relocation will in any event be material. See "USE OF PROCEEDS".
The Company's independent accountants' report on the Company's financial
statements included in the Company's Report on Form 10-KSB for the fiscal year
ended December 31, 1994 includes an explanatory paragraph in the footnotes to
Financial Statements stating that the Company's ability to continue operations
is
20
<PAGE>
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 accountant's report does not include
any adjustment that might result from the outcome of this uncertainty. The
Company has no immediate plan to issue any securities.
While the Company has received approximately $1,375,000 from the exercise of
Options from December 31,1995 through April 30, 1996, if the Company does not
begin to generate revenues from the sale of RETICULOSE, and if the Company does
not receive significant funds from the exercise of additional Options, it shall
be dependent upon additional debt and/or equity financing, of which there can be
no assurance or must reduce expenses or further limit operations.
Capital Resources
-----------------
The Company in the past has been dependent upon sales of Shares of its Common
Stock and upon the exercise of its warrants, all of which have expired and since
the expiration of the Warrants the Company has been dependent upon the proceeds
from the continued exercise of the outstanding Options for the funds required to
continue operations at present levels and to fund the planned research and
development, clinical trials and testing of RETICULOSE. If FDA or other
approvals are ever obtained, of which there can be no assurance, funds will have
to be budgeted by the Company from such sources, including potential grants
and/or additional equity if available.
The Company is currently expending approximately $30,000 per month, which
expenses include salaries, rent, accounting fees, license fees and taxes, and
travel, principally between Company's headquarters and its Bahamian facility,
and anticipates that it can continue operations for at least sixty months with
its current liquid assets, if no additional Options are exercised. If all of
the outstanding Options are exercised hereunder the Company will receive
proceeds of $6,871,800. The total net proceeds of approximately $6,871,800 will
contribute to G&A and working capital and will permit the Company substantially
increase its budget for research and development and clinical trials and testing
and to operate for at significantly increased levels of operation, assuming
RETICULOSE receives approvals and prospects for sales increase to justify such
increased levels of operation, of which there can be no assurance. See "USE OF
PROCEEDS" with respect to the uses of such proceeds. However, there can be no
assurance that any additional Options will be exercised. The recent prevailing
market price for the Shares has been above the exercise prices of the Options
registered hereunder. However, there can be no assurance that the recent
trading levels will be sustained or that any additional Options will be
exercised. In the event that less than 25% or no additional Options are
exercised, and no other additional financing is obtained by the Company, in
order for the Company to achieve the level of operations contemplated under "USE
OF PROCEEDS", management anticipates that they will have to limit intentions to
expand operations beyond current levels which involve expenditures of $30,000
per month. Based upon the Company's current cash position of approximately
$1,700,000, the Company can operate for approximately 55 months. In addition,
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, other than potential funding from the
Exclusive Distribution Agreements between the Company and its Exclusive
Distributors, as well as certain levels of purchases for testing and higher
levels of purchases following any Exclusive Distributors obtaining regulatory
approvals. There can be no assurance that any of the Company's distributors
will ever obtain regulatory approvals to test, or market and sell RETICULOSE in
any territory. Management does not believe that at present, debt or equity
financing will be readily obtainable on favorable terms unless FDA approval for
Phase I clinical testing is granted or comparable approval is obtained from
another developed country. Due to the uncertainties involved in the process of
gaining approval for commercial drug use on humans, no assurance can be given
that the Company will be able to ever sell RETICULOSE anywhere. See "BUSINESS
- - THE INVESTIGATIONAL NEW DRUG APPLICATION ("IND") PROCESS".
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.
21
<PAGE>
Should such relocation become necessary, the Company currently anticipates being
able to obtain a suitable site. The cost of such relocation will in any event be
material, but is not likely to exceed the Company's current assets.
BUSINESS
Advanced Viral Research Corp. (the "Company"), incorporated under the laws of
the State of Delaware on July 31, 1985, was organized to engage in the
production and marketing, promotion and sale of an anti-viral peptide-nucleic
acid complex preparation with the trade name RETICULOSE(R). RETICULOSE(R) has
not been approved by the FDA. The Company is in the developmental stage, has not
as yet commenced any material commercial operations. The Company is dependent on
registration and/or approval by applicable regulatory authorities of
RETICULOSE(R) in a developed or developing country in order to commence
commercial operations, which shall include the production, marketing, promotion
and sale of RETICULOSE(R) in each jurisdiction where the product becomes
registered.
BACKGROUND OF RETICULOSE(R)
RETICULOSE(R) had been marketed in the United States during the 1940's
through the early 1960's. In 1962, the FDA issues regulations which caused
RETICULOSE, among other drugs, to be classified as a "New Drug" requiring FDA
approval prior to any sales in the United States. Since the FDA regulation,
RETICULOSE has not been marketed in the U.S. or other developed countries. See
"GOVERNMENT REGULATION" and "the INVESTIGATIONAL NEW DRUG APPLICATION ("IND")
PROCESS" below. While there have been no controlled clinical trials of
RETICULOSE(R), the published data for the years 1951 through 1970, largely
anecdotal, indicates that RETICULOSE(R) is a anti-viral pharmaceutical product
which is effective in treating a number of interferon related viruses such as
Asian Influenza, Viral Pneumonia, Virus Infectious Hepatitis, Mumps,
Encephalitis, Herpes Simplex and Herpes Zoster. The Company believes that
RETICULOSE(R) should be classified as an Immune System Modulator. The Company is
in receipt of recently completed studies by Dr. Shalom Z. Hirschman, Professor
of Medicine and Director of The Division of Infectious Diseases of The Mount
Sinai School of Medicine, in New York City, which show that RETICULOSE
stimulates the production of unique chemokines, including Gamma Interferon and
Interleukin 6, and inhibits the replication of HIV in cell cultures. The Company
is dependent upon the success of studies and tests of RETICULOSE if it is ever
to receive regulatory approval in the United States, or developed or developing
countries to market RETICULOSE and generate significant operating revenues. See
"CURRENT STATUS OF TESTING OF RETICULOSE" below.
The concept of an anti-viral agent composed of peptones, peptides,
lipoproteins and nucleic acid was an original idea of Vincent M. LaPenta, M.D.
In 1934, Dr. LaPenta produced a product utilizing horse serum albumen, peptones
and ribonucleic acid which had anti-viral properties and evidenced no toxicity.
The product was later modified to substitute bovine serum albumen for horse
serum albumen and was named RETICULOSE(R). From 1951 through 1962, data was
collected and reported concerning the safety and scope of the use of
RETICULOSE(R). Much of the data was of "anecdotal nature," such as reports by
physicians of results from the use of RETICULOSE(R), some of which were
published in recognized medical journals. No controlled "double blind" studied
were undertaken during this period. Two reports in recognized medical journals
questioned the efficacy of RETICULOSE(R) in tests respectively, in vitro (i.e.,
-------- ----
eggs) and in mice by intracerebral and intraperitoneal injection. The two
reports are Kempe, Failure to Demonstrate Antiviral Activity of Reticulose,
-------------------------------------------------------
Diseases of Children, Vol. 103, No. 5, May 1962 and Behbehani, The Effects of
--------------
Reticulose on Viral Infection of Experimental Animals, Southern Medical Journal,
- -----------------------------------------------------
Vol. 55, No. 2, February 1962.
22
<PAGE>
In the early 1940's, Chemico Laboratories, Inc. ("Chemico"), a Florida
corporation, headed by B.E. LaPenta, the son of Vincent M. LaPenta, M.D., was
established to manufacture RETICULOSE(R). It distributed the product for the
treatment of viral diseases in the midwest and southern United States until the
early 1960's. During the period beginning October, 1960 through January, 1962,
in excess of one million ampules of RETICULOSE(R) (2 milliliter dosages) were
distributed and sold by Chemico in the United States.
In 1962, the FDA issued regulations which caused RETICULOSE(R), among other
drugs, to be classified as a "New Drug" requiring FDA approval prior to sale in
the United States. A forfeiture action then instituted by the FDA against
RETICULOSE(R) as well as other drugs classified as "New Drugs". The FDA was
successful in its litigation and RETICULOSE(R) as well as other "New Drugs" were
withdrawn from the U.S. market. In 1965, the rights to manufacture and market
RETICULOSE(R) were sold to Key Pharmaceuticals, Inc. through a subsidiary, Key
Pharmaceuticals, Ltd. ("Key") which obtained license to produce pharmaceuticals,
including RETICULOSE, for export and sale from the Grand Bahama Port Authority,
the governing body of the Free Port area of Grand Bahama Island, Bahamas. Key
proceeded to construct a manufacturing facility in Freeport, Bahamas, and
produce RETICULOSE(R) strictly for sale in certain foreign markets. A New Drug
Application ("NDA") for RETICULOSE(R) was filed with the FDA by Key in 1967.
After review by the FDA the New Drug Application was withdrawn without prejudice
when the FDA advised Key that the New Drug Application would not be approved.
Key then filed an Investigational New Drug Application ("IND") in 1968 with the
FDA, which IND was pending for four (4) years without favorable action by the
FDA and was withdrawn in 1972 without prejudice. In 1972, Key sold Key
Pharmaceuticals Ltd., its Bahamian manufacturing facilities, and the product
RETICULOSE(R), as well as the services of Mr. B.E. LaPenta, to Mr. Cepher Chen
Yan Sun. Mr. Chen distributed existing inventory of RETICULOSE(R) for a number
of years but the product was not manufactured after Mr. LaPenta died in 1976.
Mr. Chen was subsequently forced into bankruptcy for reasons unrelated to
RETICULOSE and the pharmaceutical business.
In 1984, Bernard Friedland and William Bregman, President and Vice-president
of the Company respectively, purchased Key Pharmaceuticals, Ltd., all rights to
RETICULOSE(R), including existing inventory of the product, and the license from
the Grand Bahama Port Authority from the Hong Kong Bankruptcy Court Receiver.
Messrs. Friedland and Bregman then changed the name of Key Pharmaceuticals, Ltd.
to Advance Viral Research Ltd., ("LTD"), and assigned all the rights which they
had acquired individually to LTD. In 1985, Messrs. Friedland and Bregman
organized the Company for the purpose of producing RETICULOSE(R), seeking
approvals for marketing it world-wide, and causing rights to RETICULOSE(R) to be
assigned from LTD to the Company as part of the Exclusive Rights and Production
Agreement between the Company and LTD.
Laboratory analysis of RETICULOSE(R) by the University of Wisconsin Bio-
Technology Center, based on a study conducted exclusively for the Company from
December 1987 to September 1988, has indicated that RETICULOSE(R) contains both
long and short chain peptides. Peptides nucleic acids appear to cause an
alteration of virus activity and/or the inhibition of virus replication within
infected cells. However the exact mechanism by which RETICULOSE(R) may be
effective in treatment, if at all, is, at present, uncertain and shall be
dependent upon the success of the Clinical Double Blind Tests and the clinical
trials in Argentina as well as other future studies and tests.
Since the IND was originally filed on September 20, 1984, the FDA has
submitted three (3) letters of deficiency with regard to the IND of the Company.
Pursuant to a deficiency letter dated November 29, 1984, the FDA indicated that
the prior anecdotal and other published evidence relating to the effectiveness
of RETICULOSE(R) on virus related diseases will not be accepted unless the
Company can establish that the RETICULOSE(R) recently used was the same
formulation as the RETICULOSE(R) produced in 1984. In addition, the FDA required
among other things, that an IND application include relevant information on the
chemistry, laboratory and animal testing and that a protocol be provided for the
initial study to be conducted on humans. The information must also assure the
proper identification, quality, purity and strength of the investigational drug
and a description of the drug substance, including its physical, chemical and
biological characteristics. On September 11, 1987, the Company received a
further deficiency letter from the FDA, and in July 1992 the Company gain
received a deficiency letter from the FDA. See "THE INVESTIGATIONAL NEW DRUG
APPLICATION ("IND") PROCESS" below.
23
<PAGE>
On March 6, 1992 the Company submitted to the FDA additional information,
which the Company believed was responsive to the earlier FDA deficiency letters
(the "March 1992 FDA Submission"). The March 1992 FDA Submission included, among
other things, findings from a certain independent research laboratories. The
purpose of the March 1992 FDA Submission was to enable the Company to obtain FDA
approval to conduct Phase I human clinical trials regarding the effectiveness of
RETICULOSE(R) on AIDS. However, no assurance can be given as to the time
required for the completion of such tests or the time required for FDA approval,
if ever, for commencement of human clinical trials. No contractual arrangements
have been made by the Company for the preparation of protocol necessary for
conducting such human clinical trials in the United States, assuming that FDA
approval for conducting such human clinical trials will ever take place. There
can be no assurance that the FDA will ever approve the sale of RETICULOSE(R) in
the United States.
In response to the March 1992 FDA Submission, the Company received from the
FDA a further Deficiency Letter dated July 31, 1992 ("July 1992 Deficiency
Letter") providing detailed comments with respect to chemistry, toxicology,
microbiology, and clinical areas regarding further studies and actions on the
part of the Company. Following receipt of the July 31, 1992 Deficiency Letter,
the Company has made no further submission or response to the FDA nor does the
Company have any present intention to make an application or response with the
FDA. As a result, there can be no assurance that the FDA will ever approve the
sale of RETICULOSE(R) in the United States if any application were to be made by
the Company. The Company shall reevaluate this position depending upon the
results of the Clinical Trial in Argentina, among other planned tests and
studies. "THE INVESTIGATIONAL NEW DRUG APPLICATION ("IND") PROCESS" below. The
--------------------------------------------------------
Company intends that further clinical trials and studies will be commenced when
FDA requirements are clarified.
No assurance can be given that any new IND for clinical tests on humans will
ever be approved by the FDA for human clinical trials on AIDS or other immune
related diseases, or that the results of such human clinical trials will prove
that RETICULOSE(R) is effective in the treatment of AIDS, or other immune
related diseases.
While the FDA has not yet approved human clinical trials in the United States
and therefore the Company has not made arrangements for a principal investigator
for the Phase I human clinical trials, if such trials are ever approved by the
FDA. The Company may be required, in the absence of grants or other subsidies,
to bear the expenses of the Phase I human clinical trials. The Company does not
know what the actual cost of such trials, if ever conducted, will be, but has
allocated certain sums under "USE OF PROCEEDS". However, the Company may need
additional financing to fund such Phase I human clinical trials, and there can
be no assurance that additional financing will be available to the Company.
EXCLUSIVE RIGHTS OF THE COMPANY TO RETICULOSE AND PRODUCTION ARRANGEMENTS
On January 3, 1986, the Company and LTD entered into an agreement pursuant to
which the Company purchased the exclusive rights to manufacture and market
RETICULOSE worldwide, except in the Bahamas, for $50,000.
The agreement further provided that LTD would produce and sell RETICULOSE to
the Company until consummation of the Company's public offering, which occurred
on May 14, 1986. In addition, pursuant to its exclusive agreement with LTD, the
Company purchased from LTD at $3.00 per ampule, approximately 15,000 ampules of
RETICULOSE for $45,000. The Company has utilized these 15,000 ampules for
testing and promotional inventory.
LTD received a Grand Bahama Port Authority license to produce pharmaceutical
products and leased the former Key plant in Freeport, Bahamas, consisting of a
29,242 foot site containing a one-story concrete building of approximately 7,300
square feet which facility was equipped for all phases of the testing,
production and packaging of RETICULOSE.
24
<PAGE>
Historically, this plant had a production capacity of 40,000 ampules per week
and management believes such capacity should support the Company's requirements
for the foreseeable future. However, if RETICULOSE should be approved for sale
in the United States or any other market with material demand for its products,
there can be no assurance that this facility will be sufficient to produce
adequate quantities of RETICULOSE. If and when the Company's business requires
a higher level of production of RETICULOSE that such level of sales will
generate sufficient revenues to permit construction of another production
facility.
The Company's facility in Freeport, Grand Bahama Island is licensed for the
manufacture of pharmaceuticals for export by the Grand Bahama Port Authority,
which is a private, semi-autonomous body established by statute under the laws
of the Bahamas.
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. No proceeding to prevent the Company's export of RETICULOSE has ever
been instituted by the Government of the Bahamas nor does the Company have any
knowledge that any such proceedings shall be instituted. The Company would of
course vigorously contest such proceeding if commenced. However, there can be
no assurance that the Company would be successful in contesting any action by
the government of the Bahamas.
The lease on the Grand Bahama facility expired by its terms in July of 1987.
Prior to such time, the landlord advised the Company that he would sell the
property in the Bahamas to the Company for a purchase price of $250,000.
Management secured an appraisal from a Registered Real Estate Appraiser in the
Bahamas which indicated that the value of the property including the building
and improvements was, as at June 17, 1986, of a value of B$580,170 or US$
582,000. Management secured a later appraisal from another Bahamian Registered
Appraiser which stated that, as of July 24, 1987, the "property," which consists
of a the land-lease from the Grand Bahama Port Authority (which has a residue of
80 years to run), the 7,300 sq. feet one-story building thereon and the plant
and equipment contained therein was valued at B$450,000 or US$ 459,000.
Management also ascertained that there were certain legal restrictions
relating to the purchase of real property interests in the Bahamas by non-
Bahamian citizens or by legal entities, such as corporations or partnerships,
which are owned or controlled by non-Bahamian citizens. Inasmuch as LTD was a
pre-existing Bahamian corporation and had secured and maintained the appropriate
licenses and has Bahamian citizens owning .4% of its stock, and Messrs.
Friedland and Bregman, the Company's principals, had been approved by the
Central Bank of the Bahamas, the Company believes that LTD could legally
purchase the property.
The Company acquired 99.6% control of LTD and furnished LTD, as the Company's
subsidiary, the funds necessary to effect the purchase following its initial
public offering in May, 1986.
The transaction involved an immediate transfer to the Company of
approximately $46,000 cash, and of all of Bernard Friedland's and William
Bregman's beneficial interest in all of the 996 shares of the Ordinary Shares,
B$1.00 par value per share, registered in their names, representing 99.6% of all
of the outstanding Ordinary Shares of LTD. Messrs. Friedland and Bregman agreed
to make a contribution to the capital of LTD of approximately $86,000 which they
had previously loaned to LTD. Messrs. Friedland and Bregman also agreed that
payment to them for their shares in LTD would be made from refund of the
security deposit.
At the Annual Shareholders Meeting on November 12, 1987, the Company's
shareholders approved the acquisition by the Company of LTD, and the purchase of
the Bahamian manufacturing facility. On December 16, 1987, Management, through
an appropriate trust agreement to satisfy the Bahamian Government, completed the
approved transactions, acquiring LTD, as a wholly owned (99.6%) subsidiary of
the Company, and paid approximately $29,000 of closing costs. The acquisition
eliminated the exclusive production agreement pursuant to which the Company was
required to pay LTD $2.00 per ampule. No additional payments were made to LTD
with respect to the exclusive production agreement.
25
<PAGE>
The Company has not taken further action since August 1988 to seek to cause
the Bahamian Government to approve the formal transfer of LTD Shares to the
Company./2/ Messrs. Friedland and Bregman have agreed, by virtue of their
execution and delivery of a Declaration of Trust, that they shall, without
remuneration, hold their shares "in trust" for the Company, delineated in such
Declaration of Trust as the owner of the beneficial interest in such shares and
will vote all such shares and transfer the record ownership thereof as directed
by the Company. The Bahamian Government has not acted to permit the transfer of
the LTD shares to the Company, because prior to any such approval, the company
believes that the Bahamian government would require approval of all of present
2,738 shareholders of record of the Company.
The Company does not believe that it will be adversely effected by such lack
of formal approval and believes it can operate indefinitely under its present
arrangement. Messrs. Friedland and Bregman continue to hold the Company's
shares of LTD as trustees for the Company and no royalties or other payments are
or shall become due to LTD under this arrangement.
GOVERNMENT REGULATION
The FDA and regulatory agencies in foreign countries impose substantial
requirements upon and conditions precedent to the introduction of therapeutic
drug products through lengthy and detailed laboratory and clinical testing
procedures, sampling activities and other costly and time consuming procedures.
There is no assurance that FDA approval for the sale of RETICULOSE in the United
States will ever be obtained. However, the Company through the current efforts
of its Exclusive Distributors: AVIX in China, the Far East and Mexico;
Commonwealth, principally in the Caribbean; and DCT S.R.L in Argentina and the
MERCOSUR countries to secure approval for the sale of RETICULOSE, though not
necessarily in the United States. The Company has sufficient funds to finance
the necessary clinical studies of RETICULOSE on humans for among other diseases
Hepatitis B and C and AIDS. In the event that regulatory approvals are obtained
in such areas. If such human clinical trials are successful of which there can
be no assurance the Company will endeavor to raise the required capital for the
purpose of furthering the FDA process. There can be no assurance that the
Company will ever have available sufficient funds nor is there any assurance
that the Company could satisfy FDA regulatory protocol and gain approval for
RETICULOSE in the United States.
The effect of government regulation may be to delay marketing of RETICULOSE
for a considerable period of time in certain countries, to impose costly
procedures upon the Company's activities and to furnish a competitive advantage
to the larger companies which compete with the Company in the field of anti-
viral drugs. The extent of potentially adverse government regulations which
might arise from future legislation or administrative action cannot be
predicted.
The FDA has no regulatory authority or control over foreign manufacturers of
pharmaceutical products offered exclusively for sale in foreign countries,
However, in recent years, even Third World countries have become increasingly
more thorough in the registration and licensing of pharmaceutical products and
require new products to prove their non toxicity, stability, safety, efficacy
and to maintain records concerning same in many of the Third World countries.
Accordingly, until registration is granted, if ever, in the United States or
another developed or developing country, it is not expected that the Company
will be able to generate material sales revenues. See "CURRENT STATUS OF
TESTING OF RETICULOSE" below.
THE INVESTIGATIONAL NEW DRUG APPLICATION ("IND") PROCESS
The IND process is governed by the guidelines established by the FDA which
strictly control the use and distribution of an investigational drug in the
United States. The guidelines require that the application contain sufficient
information to justify giving the drug to humans, that the application includes
relevant information on the chemistry, pharmacology and toxicology of the drug-
data derived from chemical, laboratory and animal or in vitro testing, and that
--------
a protocol be provided for the initial study of the new drug to be conducted on
humans.
- -----------------------------
/2/ The Company received from The Grand Bahama Port Authority, Limited, a copy
of a grant of authority, dated October 15, 1992, confirming the right of LTD to
manufacture and export sale ethical pharmaceutical products, including
Reticulose.
26
<PAGE>
In order to conduct a clinical trial of a new drug in humans, a sponsor must
prepare and submit to the FDA a comprehensive IND. The clinical study cannot
begin unless the FDA has responded to the IND within 30 days or has approved the
IND. The Company's understanding is that it is rare for a new drug sponsor to
obtain approval of an IND on the basis of the initial submission, as the FDA
almost always requests additional information. The focal point of the IND is a
description of the overall plan for investigating the drug product and a
comprehensive protocol for each planned study. The plan is carried out in three
phases: Phase I, in which the pharmacological effects and possible toxicity are
evaluated in a small number of volunteers or patients; Phase II, in which the
drug is carefully evaluated in a small population of patients for the
effectiveness of the drug and short-term side effects in controlled clinical
trials; and Phase III, in which greater numbers of patients are employed and
broader information is gathered to provide the basis for the drug's proper use
by physicians. The initial IND may cover only Phase I.
An investigator's brochure must be included in the IND and the IND must
commit the sponsor to obtain initial and continual review and approval of the
clinical investigation. A section describing the composition, manufacture and
control of the drug substance and the drug product is included. Sufficient
information is required to be submitted to assure the proper identification,
quality, purity and strength of the investigational drug. A description of the
drug substance, including its physical, chemical, and biological
characteristics, must also be included in the IND. The general method of
preparation of the drug substance must be included. A list of all components
including inactive ingredients must also be submitted. There must be adequate
information about pharmacological and toxicological studies of the drug
involving laboratory animals or in vitro tests on the basis of which the sponsor
--------
has concluded that it is reasonably safe to conduct the proposed clinical
investigation. Where there has been widespread use of the drug outside of the
United States or otherwise, it is possible in some limited circumstances to use
well documented clinical experience in place of some other pre-clinical work.
After the FDA approves the protocol, the investigation is permitted to
proceed, during which the sponsor must keep the FDA informed of new studies,
including animal studies, make progress reports, and also be responsible for
alerting FDA and clinical investigators immediately of unforeseen serious side
effects or injuries.
When the clinical testing has been completed and analyzed and final
manufacturing processes and procedures are in place, a manufacturer submits a
new drug application ("NDA") to the FDA. The NDA must be approved before the
manufacturer can commence commercial distribution of the drug. The NDA contains
a section describing the clinical investigations of the drug which section
includes the following: a description and analysis of each clinical pharmacology
study of the drug; a description and analysis of each controlled clinical study
pertinent to a proposed use of the drug; a description of each uncontrolled
clinical study including a summary of the results and a brief statement
explaining why the study is classified as uncontrolled; and a description and
analysis of any other data or information relevant to an evaluation of the
safety and effectiveness of the drug product obtained or otherwise received by
the applicant from any source foreign or domestic. The NDA also includes an
integrated summary of all available information about the safety of the drug
product including pertinent animal data, demonstrated or potential adverse
effects of the drug, clinically significant drug-drug interactions and other
related drugs. A section is included describing the statistical controlled
clinical study and the documentation and supporting statistical analysis used in
evaluating the controlled clinical studies.
Another section of the NDA describes the human pharmacokinetic data and human
bioavailability data (or information supporting a waiver of the submission of in
--
vivo bioavailability data). Also included in the NDA is a section describing the
- ----
composition, manufacture and specification of the drug substance including the
following: a full description of the drug substance, its physical and chemical
characteristics; its stability; the process controls used during manufacture and
packaging; and such specifications and analytical methods as are necessary to
assure the identity, strength, quality and purity of the drug substance as well
as the bioavailability of the drug products made from the substance. NDA's
contain lists of all components used in the manufacture of the drug product and
a statement of the specifications and analytical methods for each component.
Also included are studies of the toxicological actions of the drug as they
relate to the drug's intended uses.
27
<PAGE>
The data in the NDA must establish that the drug has been shown to be safe
for use under its proposed labeling conditions and that there is substantial
evidence that the drug is effective for its proposed use(s). Substantial
evidence is defined by statute and FDA regulation to mean evidence consisting of
adequate and well-controlled investigations, including chemical investigations
by experts qualified by scientific training and experience, to evaluate the
effectiveness of the drug involved.
It is not known at this time how extensive the Phase II and Phase III
clinical trials will be, if they are conducted. There can be no assurances that
the data generated will show that the drug RETICULOSE(R) is safe and effective
as described above and even if the data shows that RETICULOSE, is safe and
effective, obtaining approval of the NDA could take years and require financing
of amounts not presently available to the Company.
Management of the Company believed that there was sufficient data available
on RETICULOSE to file an IND with the FDA to investigate the possible effects of
the drug for the treatment of patients with AIDS as well as other interferon
related viruses. This belief was based upon the fact that RETICULOSE was
distributed in the United States and used regionally from the late 1940's
through the mid 1960's during which period several million ampules were utilized
medically by physicians to treat patients with the viral diseases previously
listed. Further, no significant side effects in humans were reported for a
period of over 15 years of use of RETICULOSE from the 1940's to the early
1960's.
Nevertheless, on November 29, 1984, the FDA, in a letter to Bernard
Friedland, as sponsor, found that "the information presented is inadequate and
does not allow us to conclude that it is reasonably safe to initiate clinical
trials." The FDA letter further stated:
"The deficiencies are summarized as follows:
Regarding Manufacturing and Controls:
- -------------------------------------
1. You have not provided an acceptable definition of the drug moiety. If you
propose a lipid-protein-nucleic acid complex, then the lipid, protein and
nucleic acid must be characterized and their interactions defined.
2. After the moiety has been acceptably defined, its quantitative composition
in the vehicle must be stated.
3. You should include appropriate chemical, physical and microbiological
controls to assure the integrity of the dosage form as well as data from
stability studies using these controls.
4. Please provide complete information on the composition, size and
dimensions of the container-closure system to be used.
5. Please include a complete description of the manufacturing and packaging
procedures and the name and address of the producing facility. An FDA
inspection will be required.
6. Labeling is inadequate until the drug moiety is characterized and a
quantitative composition is proposed. The drug must be labeled sterile.
Regarding the Clinical and Preclinical Portions of Your Submission:
- -------------------------------------------------------------------
1. Please provide data that show that you RETICULOSE formulation is the same
as the RETICULOSE formulation that is the subject of the articles you have
provided. The articles cannot be used in support of the safety of your product
if the formulations are different. If the formulations are not the same, you
must provide complete pharmacology/toxicology in formation for your formulation.
2. Please provide clinical and preclinical data to support the statement that
RETICULOSE is either an antiviral or a biological response modifier, or both.
28
<PAGE>
3. We are reserving full comment on your clinical protocol until you have
provided the necessary safety information. However, we have these preliminary
comments.
a. The study objectives are not stated clearly.
b. [Some of the raw materials]/3/ used in RETICULOSE are animal antigens
capable of inducing adverse reactions in humans. What precautions will
be taken with regard to this possibility?
c. You have not submitted a patient consent form.
On March 27, 1987, the Company advised the FDA that the Freeport, Grand Bahama
manufacturing facility for RETICULOSE had been put into "good
manufacturing process" condition and requested an FDA inspection. The
Company advised the FDA that stability data and other requested
information would be forwarded by the Company as a separate submission
in conjunction with this inspection.
On May 22, 1987, the Company submitted to the FDA what the Company considered
to be the requested information for the completion of the submission
of the IND for RETICULOSE.
On September 11, 1987, the FDA responded to the Company's May 22, 1987
submission stating the FDA finding that "essentially no new
information has been provided," and further that "they were unable to
conclude that it is sufficiently safe to initiate clinical trials."
The deficiencies noted in September 1987 by the FDA were as follows:
There is no scientific rationale provided for the use of RETICULOSE in
patients with HIV infections. Please submit data which support in
--
vitro anti-HIV activity. There are no data submitted which support any
-----
criterion for a biological response modifier. Without a scientific
rationale and supporting in vitro data there is no basis for allowing
--------
your study to proceed. Once a rationale for use of the drug has been
established, the following should be addressed:
1. There are no data provided that show that the product you intend to
manufacture is the same RETICULOSE formulation that is the subject of
the articles cited in support of safety. As acknowledged in the
application, the formulation of RETICULOSE has changed over the years.
It appears from our records that there have been at least three
formulations. We are unable to determine from the submission
specifically which formulation was used in each of the various animal
and human studies.
The assertion that "the sponsor was trained by the original manufacturer of
RETICULOSE and is utilizing the same formulation with identical raw
materials, in the same facility with the same equipment as was
utilized for the RETICULOSE described in the animal safety studies
submitted with this application, and in the published human clinical
data" is not sufficient. Please provide data that characterize the
present formulation and its relationship to previous formulations. If
possible, please submit a letter of authorization from the original
manufacturer to allow us to refer to their data in order to make the
comparison. We may not refer to another manufacturer's data on file
with us on your behalf without specific written authorization.
2. We have concerns regarding the allergenic potential of RETICULOSE.
Please refer to the referenced study reported in 1968 by Kozima et al.
of Nikken Chemicals Co. Ltd. In that study, RETICULOSE was
administered intraperitoneally to guinea pigs and the animals were
subsequently rechallenged 3 weeks later. "Shock symptoms were observed
in 7 of the 10 animals.
- -----------------------------
/3/ Ingredients deleted to preserve confidentiality.
29
<PAGE>
These studies should be repeated with the currently proposed
formulation and a detailed report on all animals,including necropsy
findings, should be submitted.
3. The manufacturing and controls information requested in our November
29, 1984 letter have not been adequately addressed:
a. Please provide a complete characterization of the raw materials
used for the drug substance.
b. Provide a complete characterization of the nucleic acid/lipoprotein
complex.
c. After the above characterizations have been completed, set
specifications for the final drug substance and for stability
profiles.
d. Provide comparative stability data for all formulations.
e. Specifications and methods must be submitted for the dosage form which
assure reproducible chemical, physical, and microbiological
attributes.
f. Complete manufacturing details for the drug substance and dosage form
must be submitted with clear descriptions of conditions, in-process
controls and facilities.
g. Labeling must define quantities of each ingredient and state that the
product is sterile.
4. We will not conduct an inspection of the manufacturing facility until the
application is complete in other respects.
5. Comments on the clinical protocol will not be made until the necessary
safety information has been submitted.
On March 6, 1992, the Company submitted to the FDA additional information
which the Company believed was responsive to the FDA deficiency letters (the
"March 1992 FDA Submission"). The March 1992 FDA Submission included, among
other things, findings from certain independent research laboratories. The
purpose of the March 1992 FDA Submission was for the Company to obtain FDA
approval to conduct Phase I human clinical trials regarding the effectiveness of
RETICULOSE on AIDS.
On July 31, 1992, the Company received from the FDA certain correspondence
regarding the Company's IND (the "July 1992 Deficiency Letter"). The July 1992
Deficiency Letter stated, among other things, that the Company's resubmitted IND
application, dated February 28, 1992, "does not adequately respond to the
concerns listed in the FDA's letter to the Company dated September 11, 1987."
The FDA July 1992 Deficiency Letter further states that the following
deficiencies must be addressed prior to initiation of clinical studies:
Chemistry
- ---------
1. Please provide the supplier, biological source and method of preparation
for [specific ingredients]/4/ ether directly or by cross-reference to the
appropriate Drug Master Files(s). Also, please submit a certificate of
analysis and acceptance specifications for each of these substances as well
as for the inactive ingredients.
2. Please revise the manufacturing process to use one of the USP-recommended
waters./5/
- -----------------------------
/4/ Specific ingredients have been deleted to preserve confidentiality.
/5/ Specific discussion of waters used in the manufacturing
process has been deleted to preserve confidentiality.
30
<PAGE>
3. Please submit documentation concerning the controls and verification of
sterility along the entire aseptic processing pathway, including sampling
points. Also, please state the final temperature obtained in the autoclave
during the reaction step of the manufacturing process and during
sterilization of the ampules.
4. Please describe the chemical tests used to determine the dilution factor
during manufacturing. Also, please provide sample calculations.
5. Please describe in detail the analytical methods, including sterility and
LAL test, used for drug product release specifications.
6. Please submit batch analyses on all available preclinical and clinical lots
of the drug product.
7. Please establish a complete stability protocol describing test parameters,
testing stations and storage conditions, which include room temperature,
elevated temperature, elevated humidity and light exposure.
8. Please revise the labeling on individual ampules and ampule shipping
cartons to be in accordance with FDA Guideline, "Compilation of Regulatory
Labeling Requirements for Human Drug Products," pages 40-44 (copy
enclosed). Please include the following information on the label: (a)
"Reticulose For Injection; (b) "CAUTION: New Drug. Limited by Federal law
-------------
to investigational use" in accordance with 21 CFR 312.6 (copy enclosed);
(c)the potency, i.e. mg/ml of the active ingredient(s) in the drug product;
(d) an identifying lot or control number from which the manufacturing
history can be determined; (e) the name or code number of the patient; (f)
the name and address of the investigator; (g) the expiration date of the
drug; and (h) the study and/or protocol designation.
Toxicology
- ----------
9. Please perform 4-week repeat dose toxicity studies in two species, one
being a non-rodent, with the proposed investigational article in a manner
consistent with Good Laboratory Practices. Studies should include
hematologic and clinical chemistry measurements and complete
histopathologic evaluation of all animals. Doses selected should include
some clearly toxic doses, if feasible.
Microbiology
- ------------
10. Please perform in vitro studies to determine what effect, if any,
--------
Reticulose has on HIV replication inmodels of both acute and chronic
(i.e., low persistent) infections. Studies have indicated that agents
which modulate macrophage and T-cell functions such as IL-2 and TNF-A, may
modulate viral expression and/or release of HIV from infected cells. The
potential for drug-associated regulation of virus production is an
important consideration in the analysis of risk/benefit. At a minimum,
activation potential should be evaluated in the following human cell
types:
(a) Freshly isolated peripheral blood mononuclear cells;
(b) At least one established T-cell line (e.g., H9, MT4, MT2 or
MOLT4); and,
(c) One line representative of the monocyte/macrophage lineage (e.g.,
U937, U1 or OM10.1).
Studies employing a variety of different human cell cultures and HIV
strains are encouraged.
Clinical
- --------
11. Please submit the name and address and a statement of the qualifications
(curriculum vitae or other statement of qualifications) of the principal
investigator.
31
<PAGE>
12. Please define inclusion and exclusion criteria according to current
standard terminology and practice. For example, the confirmatory test for
HIV infection is the Western Blot, not the ELISA test for HIV antibody.
13. Please provide an initial proposed dosage based on preclinical safety
information. Please also refer to the comment under "Toxicology" in
developing preclinical safety data.
14. Please provide a rationale for the proposed study parameters, for
laboratory monitoring, and for toxicity evaluation. In addition, please
define endpoints which are measurable and can be quantified and which may
be subject to statistical analysis. For example, please specify what
constitutes a "significant and consistent increase" in CD4 lymphocyte
count. Please provide safety monitoring which is appropriate for the
preclinical safety data. In particular, please provide monitoring for the
potential for anaphylaxis, as seen in the preclinical repeat dose study in
guinea pigs.
15. Please revise the informed consent document to reflect the preclinical
safety and effectiveness data.
16. Please provide a concise rationale for the proposed sample size and
define the proposed statistical methodology. In general, interim
analyses are not appropriate for a 12 week phase 1 study.
Until you have submitted the above-required information for items 1-16, and we
notify you that if it is safe to initiate the studies, you may not proceed with
the proposed study.
We also have the following advice which we believe would improve your IND:
Chemistry
- ---------
The following chemistry issues must be addressed prior to studies beyond initial
phase 1/2 studies:
17. Please establish the identity(ies) and structure(s) of the active
component(s).
18. Please identify the impurities contained in the drug substance(s) and
drug product and establish individual limits for the impurities.
19. Please incorporate into the drug product specifications and
identification test(s) and an assay for the active ingredient(s) using
properly validated analytical methods.
20. Please identify the supplier and composition of the ampules.
Microbiology
- ------------
21. Please clarify the following with respect to the data submitted in the
submission:
(a) Please specify whether the peptide nucleic acid solution and the
Reticulose preparation used by Dr. Resnick are the same or a different
preparation.
(b) Please provide the units of p24 and RT activity and explain whether
the results represent percent inhibition of activity. In addition,
please clarify the discrepancy in the numbers shown in the submission
and in the published report.
The following microbiology issues should be addressed concurrent with phase 1/2
studies:
22. Please use preclinical studies in appropriate animal models of retrovirus
infection to define and characterize the activity of Reticulose.
32
<PAGE>
23. Please perform studies to investigate whether Reticulose can induce an
antibody response which might inhibit its activity against HIV.
24. We encourage you to investigate the mechanism by which Reticulose
inhibits HIV."
As of the date of the Prospectus, the Company has not submitted to the FDA
a formal response to the July 1992 Deficiency Letter, nor have any of the
studies cited therein been undertaken. The Company has no immediate plans to
respond to the FDA. However, with the availability of significant additional
funds from the recent exercise of Options, the Company believes that it may
commence discussions with the FDA for the purpose of reactivating or commencing
anew the IND Application process.
There can be no assurance that FDA approval of the IND will ever be obtained or
that the Company will have adequate funds to finance the necessary clinical
studies and related costs referenced in the FDA Correspondence, whether or not
the Barbados Clinical Trials.
CURRENT STATUS OF TESTING OF RETICULOSE
In response to the FDA letters in 1984 and 1987, the Company undertook a
series of protein tests for product control and protein fragment identification
which were conducted by the University of Wisconsin's Biotechnical Center. Prior
to the completion phase of laboratory testing of RETICULOSE in vitro at the
--------
Mount Sinai School of Medicine, New York, New York by Dr. Hirschman, the
rationale for trial of RETICULOSE in humans was based upon in vitro studies
--------
which the Company believes have demonstrated at least partial activity against
HIV. In October 1989 and December 1989, respectively, Southern Research
Institute, Birmingham, Alabama and Vironic Testing Laboratory, Miami, Florida
conducted in vitro screenings of RETICULOSE against the HIV virus in two
--------
separately conducted independent laboratory screenings. In both screenings,
RETICULOSE was shown to be partially active against HIV at specific dilutions
and was non-cytotoxic. The IND was submitted for a Phase I type study to
determine if there was any pharmacological activity in humans against HIV. In
addition, a historical search is being conducted and the timeline to connect the
current RETICULOSE product and its manufacturer with the original product and
its manufacturer. This search is being documented for eventual submission to
the FDA to further substantiate the identity of the current product which is the
subject of the IND. In October 1989, International Diagnostics, Ltd., Dania,
Florida, an independent testing laboratory, undertook standard mouse toxicity
assays to demonstrate toxicity of RETICULOSE. Results indicated no apparent
signs of toxicity in RETICULOSE treated animals at specific doses. Management of
the Company originally believed that due to the early safety record and
published reports of human use that the FDA would permit the initial Phase I
trials in humans after approximately six months. Provided that sufficient funds
are available from the exercise of Options and/or other sources, the Company
currently believes that it will take the requisite scientific steps to satisfy
the FDA that the formulation of RETICULOSE is identical to the formulation
reported in the prior anecdotal history and studies. To date, the FDA has not
considered that such studies justify RETICULOSE not being considered as a new
drug. The time and costs required for IND approval as a result of the FDA not
accepting the prior history of the drug is presently not known to the Company
but could be considerable. Certain of the foregoing studies, excluding the Mount
Sinai testing and the present Clinical Trial in Argentina, were submitted to
the FDA as part of the March 1992 FDA submission, but were not deemed sufficient
by the FDA.
The Company, during the period from 1992 to 1995, had been seeking approval
in Canada for controlled distribution of RETICULOSE. It submitted an application
for a limited study (the "Canadian Study") on 24 patients with Kaposi's
Sarcoma, a condition associated with AIDS, the approval of which application was
pending in 1995. However, due to delay in obtaining the approval for this study
and after receiving deficiency letters from the Health Protection Branch of the
Health and Welfare Department of Canada ("HPB"), the Company has withdrawn the
application to have this study commenced.
The recently completed studies by Dr. Shalom Z. Hirschman, Professor of
Medicine and Director of The Division of Infectious Diseases of The Mount Sinai
School of Medicine, New York City, show that RETICULOSE stimulates the
production of unique chemokines, including Gamma Interferon and
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Interleukin 6, and inhibits the replication of HIV in cell cultures. However the
exact mechanism by which RETICULOSE(R) may be effective in treatment, if at all,
is, at present, uncertain. See "TESTING AGREEMENTS" below.
TESTING AGREEMENTS
Canadian Contract
Pursuant to an agreement with Dr. R.A. Morisset, a Canadian physician (the
"Canadian Agreement"), the Company was informed that a Compassionate Treatment
was being undertaken of ten HIV-positive patients treated with the Company's
drug RETICULOSE and comparing such treatment with ten HIV-positive persons not
treated with RETICULOSE (the "Canadian Compassionate Treatment").
While the Company advanced certain monies under this agreement, the Company does
not presently intend to advance any further monies for the Canadian
Compassionate Treatment. Further, due to the delays in obtaining information and
guidance from Dr. Morisset regarding the Canadian Compassionate Treatment, the
Company believes that no further efforts are being employed by Dr. Morisset in
connection with the Canadian Compassionate Treatment. The Company presently
believes that no further work will be performed by Dr. Morisset and has no
further obligation under this agreement.
TRM Management Corp.
Pursuant to an agreement dated August 20, 1991 between the Company and TRM
Management Corp. ("TRM"), a Florida corporation unaffiliated with the Company
(the "TRM Agreement"), TRM performed certain open clinical trial tests in Haiti
to assess the effectiveness of RETICULOSE against the Hepatitis "A" virus and
Hepatitis "B" virus in accordance and in compliance with the Hepatitis Open
Label Clinical Trial Protocol developed by TRM (the "Haiti Tests"). The Haiti
Tests were previously reported by the Company on its Report on Form 8-K filed
with the U.S. Securities and Exchange Commission on January 17, 1992.
In accordance with the TRM Agreement, Matthew Cohen prepared a paper which
describes the methods and results of the Haiti Tests (the "Results Paper"). The
Results Paper was published by The Royal Society of Health , December 1992 issue
(the "Journal"). Matthew Cohen is not affiliated with or related to Leonard
Cohen, who acts as a consultant to the Company.
The Results Paper states, among other things, that the Haiti Tests resulted
in certain "positive clinical and laboratory effects" regarding the use of
RETICULOSE against the Hepatitis "A" virus and Hepatitis "B" virus. The Company
believes, however, that the Haiti Tests may have been limited in terms of its
methodology and results. The Company is considering such factors relative to
future testing. In accordance with the terms of the TRM Agreement, the Company
has issued to the shareholders and certain associated persons of TRM (the
"Recipients") (i) an aggregate amount of 10,000,000 shares of the Company's
Common Stock (the "TRM Shares") and (ii) an option to acquire, at one time,
until January 28, 1997, 10,000,000 shares of the Company's Common Stock at a
purchase price of $.05 per share (the "TRM Options"). Through April 30, 1996
the Company has received $333,333 pursuant to the issuance of 6,666,667 Shares
in connection with the exercise of TRM Options by David Sass, as an assignee of
Mr. Posner, and by Richard Waldman, two of the three original TRM shareholders.
Messrs. Waldman and Sass are Selling Security Holders in this Registration
Statement, but Matthew Cohen has not requested the inclusion of his Shares or
Option Shares for registration and resale hereunder. See "SELLING SECURITY
HOLDERS" below.
Plata Partners Limited Partnership
On March 20, 1992, the Company entered into an agreement with Plata
Partners Limited Partnership, a Michigan limited partnership unaffiliated with
the company (the "Plata Agreement"), pursuant to which Plata agreed to perform a
demonstration at Campus #1 University C.B.E.P., University of Santo Domingo,
34
<PAGE>
Santo Domingo, 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 "Demonstration"). The Protocol
provides, among other things, that the treatment consists of RETICULOSE along
with vitamin supplements.
The preliminary and final results of the Demonstration were previously reported
by the Company in its Reports on Form 8-K filed with the Securities and Exchange
Commission on July 10, 1992 and November 6, 1992.
The Demonstration was conducted from May 1992 through August 1992. The
Demonstration was supervised by Angelo Chinnici, M.D., of New Jersey, and
administered by medical doctors certified to practice in the Dominican Republic.
A videotape has been produced by Plata memorializing the Demonstration, which
videotape was delivered to the Company in August, 1992. In August 12, 1992 the
Company received from Plata a translated written transcript of a press
conference (the "Press Conference") called and conducted by Plata in Santo
Domingo, Dominican Republic on August 7, 1992 (the "Transcript"). The Press
Conference was held by Plata following the completion and the release of
preliminary results of the Demonstration.
The Transcript, a copy of which has been filed with the Company's Report on
Form 8-K with the U.S. Securities and Exchange Commission on August 14, 1992,
provides, among other things, statements from Dr. Joaquin Perez Mendez, the
Director of the Program for Control of Sexually Transmitted Diseases (Procets) a
governmental organization in the Dominican Republic, who participated in the
administration of the Demonstration, Dr. Charles Dunlop, the Surgeon General of
the Dominican Republic, Dr. Norman de Castro and Dr. Rafael Alcantara, who is
associated with the Center for Sexually Transmitted Diseases in the Dominican
Republic.
Generally, the Transcript states that the Doctors expressed "optimism and
hopefulness" and encouraged further testing of the efficacy of RETICULOSE
against AIDS. Further, the Transcript notes that Dr. Dunlop, the Surgeon
General of the Dominican Republic, stated that "my job from the point of view of
the government has been to register the medicine and we are doing all the
studies possible with the Public Health Center and Drug Administration to see
that this happens." As of the date hereof, the Company has not (i) independently
verified the accuracy or completeness of the Transcript or the Press Articles,
or (ii) otherwise substantiated the statements reflected in the Transcript or
the Press Articles. The Demonstration conducted by Plata was not a double-blind
study. However, as of the date of this Prospectus, no registration certificate
has been granted by the Dominican Republic, and there can be no assurance that
such certificate will be issued.
The Company has also been made aware that newspaper articles appeared in
Spanish language newspapers (published in the Dominican Republic) regarding the
Press Conference (the "Press Articles") and interviews with Drs. Perez-Mendez
and Alcantara. Certain of the Press Articles report that the preliminary
results of the Demonstration were "very encouraging" and that the "laboratory
results subsequent to the treatment, reveal a more than 50 percent reconversion
of the cell immunological system in almost all of the patients being maintained
with relatively little favorable change in the only patients who did not
complete the treatment". According to certain of the Press Articles, certain of
the Doctors stated: "Although it (the Demonstration) does not have the
representativeness which a study of this caliber requires, precisely due to the
small number of patients involved in the same, and above all due to the fact
that it did not rely on a control group which permits us to make some
significant comparisons, basically it is a good job of research and the results
[are] clearly excellent." Certain of the Press Articles, including translated
copies thereof, have been filed with the Company's Report on Form 8-K filed with
the Securities and Exchange Commission on August 14, 1992
As of the date hereof, the Company has not (i) independently verified the
accuracy or completeness of the Transcript or the Press Articles, or (ii)
otherwise substantiated the statements reflected in the Transcript or the Press
Articles. The Demonstration conducted by Plata was not a double blind study.
The Company received from Plata certain written information, certain copies
of which are incorporated by reference into the Company's Reports on Form 8-K
delivered for filing to the U.S. Securities and Exchange Commission on July 10,
and July 23, 1992 (the "Plata Statement"). The Plata Statement reports, among
other things, certain positive preliminary results of the Demonstration (the
"Results"). The Plata Statement advised
35
<PAGE>
the Company of preliminary improvement of the patients participating in
the Demonstration. Specifically, according to the Plata Statement, all patients
showed weight gain, as well as resolution of malaise, joint pain, diarrhea and
that those patients "initially presented with herpetic lesions (i.e., shingles)
showed clearing and well healed vesicles."
In October, 1992, the Company received from Anthony Mangia, M.D., a medical
doctor certified by Plata to be an expert in the area of AIDS research, written
correspondence relating to the Demonstration (the "Mangia Correspondence"). The
Mangia Correspondence states, among other things, Dr. Mangia's opinion as an
independent observer to the Demonstration. The Mangia Correspondence provides
"Review of the data submitted indicates that RETICULOSE may be an effective
alternative treatment for AIDS patients." As an independent observer, Dr.
Mangia visited the Demonstration site, reviewed scientific data regarding the in
vitro activity of RETICULOSE against certain viruses, interviewed the
physicians, examined some of the patients, and reviewed the written results of
the Demonstration. The Mangia Correspondence concludes that the results of the
Demonstration appear to indicate that RETICULOSE is " well tolerated, with no
significant adverse reactions to the drug."
The Mangia Correspondence also indicates that the patients he examined had
experienced an "amelioration in symptoms and a sense of well being" by the time
the Demonstration had concluded. The Mangia Correspondence does, however,
contain several criticisms of the Demonstration, including, among other things,
the brevity of the Demonstration, the lack of stratification according to CD 4
count, the small number of subjects, the inclusion of nutritional supplements
along with the RETICULOSE, and the lack of pre- and post-treatment weights and
performance status evaluation of the subjects. The Mangia Correspondence
concluded that the results of the Demonstration appear to indicate that further
studies in animals and humans appear to be warranted. The Mangia Correspondence
suggested that such further studies need to be better controlled and performed
on a larger scale with more sophisticated methods, including the monitoring of
endogenous interferons, other cytokines and "surrogate markers" for HIV
activity, than the Demonstration.
On October 30, 1992, the Company received from Plata a copy of certain
correspondence from Angelo Chinnici, M.D. regarding the Demonstration (the
"Chinnici Correspondence"). The Chinnici Correspondence reports on the
hypothesis, objective, methodology, clinical tracking and procedures involved in
the Demonstration. The Chinnici Correspondence concludes that the majority of
the subjects involved experienced "dramatic clinical improvement, i.e.,
reduction in oral thrush, reduction in herpetic lesions, and improvement in
certain dermatological conditions such as seborrheic dermatitis and eczema."
Dr. Chinnici noted: "The most dramatic change was observed in the number of CD 4
and CD 8 lymphocytes, as well as in the CD 4 and CD 8 ratio. Nine of the ten
patients experienced an increase in the CD 4 cells, the most dramatic being that
of an initial count of 27 at the initial phase of treatment , which rose to
193". The Chinnici Correspondence further concluded that the administration of
RETICULOSE, among other things, produced no adverse side affects nor caused
significant anemia or decrease in the subject's white blood cell count.
Further, the Chinnici Correspondence states that RETICULOSE may cause a halt to
viral replication and possibly produce endogenous interferon which serves to
ameliorate a patient's condition. The Chinnici Correspondence also indicated,
among other things, however, that the Demonstration was limited in that the
subjects were treated for a short period of time and there was no control group.
The Company has not independently verified any of the statements contained in
either the Mangia Correspondence or the Chinnici Correspondence.
Pursuant to the Plata Agreement, the Company authorized the issuance to
Plata of 5,000,000 Shares and Options to purchase an additional 5,000,000 Shares
at $.08 per Option Share through July 9, 1994 (the "Plata Options") and
5,000,000 Option Shares at $.10 per share through July 9, 1994. Pursuant to
several amendments, the Plata Options and the Additional Plata Options are
exercisable through April 30, 1996. The Company offered and the holders of the
Plata Options and the Additional Plata Options accepted the offer to extend the
exercise date of the Plata Options and the Additional Plata Options through
December 31, 1996 in consideration for an increase in the exercise price to $.10
per Option Share as to the Plata Options and $.13 per Option Share as to the
Additional Plata Options. As of April 30, 1996, the last date that the Plata
Options and Additional Plata Options could be exercised and the underlying
Option Shares could be sold under the registration
36
<PAGE>
statement declared effective July 27, 1996, holders of Plata Options and the
Additional Plata Options agreed to the extension through December 31, 1996.
The Company believes the Demonstration will not significantly impact the
FDA's decision to (i) approve the pending IND filed with the FDA or (ii) approve
of the marketing, sales or distribution of RETICULOSE within the United states.
Further the Company believes the Demonstration will not significantly impact the
Company's ability to obtain approval for the marketing, sales or distribution of
RETICULOSE anywhere in the world.
Argentina Agreement
On December 27, 1993, the Company entered into an agreement (the "Initial
Argentina Agreement") with Dr. Juan Carlos Flichman, President of the Argentine
Association Against Sexually Transmitted Diseases, whereby Dr. Flichman agreed
to conduct a double blind study of RETICULOSE in Argentina of (i) forty patients
who have been diagnosed by Dr. Flichman as suffering from Hepatitis "B" and (ii)
twenty patients diagnosed by Dr. Flichman as suffering from Hepatitis "C" (the
"Argentina Study"). The treatment of Hepatitis "B" patients was expected to last
for 20 days followed by a 60 day observation period and of Hepatitis "C"
patients was expected to last for 20 days followed by 180 day observation
period. Dr. Flichman, however, indicated to the Company that the Argentina
Study was delayed because of the Argentina Health Ministry.
In April, 1996, the Company entered into an amended agreement (the "1996
Argentina Agreement") with DCT SRL, and Argentine corporation ("DCT"), pursuant
to which DCT agreed to conduct open label clinical trials of RETICULOSE at two
separate hospitals located in Buenos Aires, Argentina (collectively, the
"Clinical Trial"). Prior to the execution of the 1996 Argentina Agreement, the
Company, in June, 1994, entered into an exclusive distribution agreement with
DCT, whereby the Company granted to DCT the exclusive right to distribute and
sell RETICULOSE in certain South American countries, including Argentina and
other MERCOSUR States. See " EXCLUSIVE DISTRIBUTION AGREEMENTS" below. Pursuant
to the 1996 Argentina Agreement, the Clinical Trial commenced and is being
conducted pursuant to a protocol developed by Juan Carlos Flichman, M.D. The
purpose of the Clinical Trial is to assess the efficacy of 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 patients between the
ages of 18 and 50 years of age. The Clinical Trial is not a double blind study
and will not include a placebo control group or reference to any other anti-
viral drug.
Pursuant to the 1996 Argentina Agreement, the Company agreed to deliver
$34,000 to DCT to cover out of pocket expenses associated with the Clinical
Trial. The 1996 Argentina Agreement further provided that at the conclusion of
the Clinical Trial, DCT shall cause Dr. Flichman to prepare and deliver a
written report to the Company regarding the methodology and results of the
Clinical Trial. as further consideration for the 1996 Argentina Agreement, the
Company has included for registration hereunder 2,000,000 Option Shares
underlying an Option exercisable at $.20 per Option Share. This Option is
exercisable for a period of one year after delivery of the written report to the
Company. On April 22, 1996, the Company was informed by DCT that the Clinical
Trial had commenced and Dr. Flichman presently anticipates that the Trial should
be complete by in or about August 1996.
Study at The Mount Sinai School of Medicine
The Company in late 1995 issued a grant of $30,000 to The Mount Sinai
School of Medicine, New York City, New York, for the purpose of studying the
mechanism, if any, by which RETICULOSE inhibits replication of HIV. The study
was conducted by Dr. Shalom Z. Hirschman, Professor of Medicine of The Mount
Sinai School of Medicine and Director of the Division of Infectious Diseases of
The Mount Sinai Medical Center. The Company grant of $30,000 was to fund the
costs of research study conducted at Mount Sinai. The results of this research
were presented by Dr. Hirschman at Biomedicine '96, the national meeting of the
Ameri-
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can Medical honor societies, held May 4-6, 1996, in Washington, D.C. The
manuscript of Dr. Hirschman, entitled "Peptide Nucleic Acids Stimulate Gamma
Interferon and Inhibit the Replication of the Human Immunodeficiency Virus",
will be published by the Journal of Investigative Medicine at the end of August,
1996. Dr. Hirschman was able to report to the Company that its drug, RETICULOSE,
inhibits the replication of HIV and stimulates a unique set of chemokines,
including Interleukin 6 and Gamma Interferon, and that this action may in part
account for the previously reported antiviral action of RETICULOSE.
MARKETING AND SALES
RETICULOSE is not presently being sold commercially anywhere in the world.
The Company has entered into Exclusive Distribution Agreements with AVIX
International Pharmaceutical Corp., Commonwealth Pharmaceuticals and DCT S.R.L.,
which entities are currently endeavoring to secure approvals to test and
thereafter market RETICULOSE in their respective territories. See "EXCLUSIVE
DISTRIBUTION AGREEMENTS" below.
The marketing plans of the Company for RETICULOSE are still dependent upon
registration of RETICULOSE for sale in the various jurisdictions where its
distributors are seeking approvals.
The Company may also determine to renew its efforts to secure an IND for human
testing of RETICULOSE in the United States. There can be no assurance that the
Company or any distributor will ever secure registration of RETICULOSE. The
Company initially targeted its sales and marketing efforts to those countries
where RETICULOSE was previously marketed by its prior owners for a number of
years as a successful anti-viral agent in the treatment of Asian Influenza,
Viral Pneumonia, Virus Infectious Hepatitis, Mumps, Encephalitis, Herpes Simplex
and Herpes Zoster. Those countries included Singapore, Hong Kong, Malaysia,
Taiwan, the Philippines, Malta, the Dominican Republic and Montserrat.
Registration of RETICULOSE will be required in such countries as well as in the
other countries comprising the distributors' territories before any significant
sales may begin. Until RETICULOSE is registered and approved for sale in the
United States, in another developed country or in the other countries the
distributors' territories, there can be no assurance that the Company will
generate significant sales of RETICULOSE. For the years ended December 31,
1995, 1994 and 1993, the Company reported no commercial sales except limited
sales for testing purposes($27,325, $22,400 and $12,000, respectively).
RETICULOSE is not legally available for use anywhere in the world, except for
testing purposes. See "CURRENT STATUS OF TESTING OF RETICULOSE" and "TESTING
AGREEMENTS" above, with respect to the Hepatitis Demonstration in Haiti, the
AIDS Trials in Santo Domingo, the recently terminated Canadian Compassionate
Treatment of RETICULOSE on AIDS patients, the Study at The Mount Sinai School of
Medicine in New York, and the Clinical Trial in Argentina.
COMPETITION
There are inherent difficulties for any development stage company seeking
to enter an established field, particularly in a field so capital intensive as
the manufacture and sale of pharmaceuticals. The Company if it is ever
successful in securing FDA and other regulatory approvals, will encounter
intense competition engaged in the development and marketing of drug products,
all of which are substantially larger, possess far greater capital assets, have
substantial operating histories and records of successful operations, greater
financial and other resources, more employees and far more extensive facilities
than the Company now has or will have in the foreseeable future. Accordingly,
such companies are in a far better position to compete than the Company.
Moreover, such companies may succeed in discovering, developing and marketing
anti-viral products that are more effective than RETICULOSE. The Company at
present is not and in the foreseeable future will not be a significant factor in
the field in which it proposes to engage. Additionally, small "start-up" firms,
such as the Company, with very limited resources, are at a very serious
competitive disadvantage against established companies. The Company hopes to
compete, however, based on cost and the effectiveness of RETICULOSE.
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EMPLOYEES
At the present time, the Company has three (3) full-time employees
including its two (2) executive officers and an administrative employee.
Bernard Friedland, President and a Director of the Company and William Bregman,
Secretary-Treasurer and a Director of the Company, each devote all of their
business time to the day-to-day business operations of the Company.
Additionally, the Company may hire, as and when needed, and as available,
such sales and technical support staff and consultants for specific projects on
a contract basis. See "Management".
CONSULTING AGREEMENTS
On September 11, 1992, the Company entered into a one (1) year consulting
agreement with Leonard Cohen. Prior to the execution of this initial consulting
agreement, Mr. Cohen had no relationship with the Company other than as a former
holder of the Company's Class C Warrants which had expired. Mr. Leonard Cohen
has no relationship to Matthew Cohen who was one of the principals of TRM. This
initial Cohen agreement required that Leonard Cohen provide the Company certain
consulting services including: (i) the identification of pharmaceutical
companies which may have an interest in engaging in joint ventures or other
agreements to advance the testing and study of RETICULOSE; (ii) services related
to achieving approval of RETICULOSE for commercial sale in the United States and
in foreign countries; (iii) the location of investment banking firms and venture
capital firms, the purpose of which is to raise capital for the Company; (iv)
the dissemination of public information about the Company to persons who may
have an interest in RETICULOSE; and (v) making contacts with persons in the
investment and financial communities.
The initial Cohen agreement provided that: (i) upon execution, the Company
issue to Leonard Cohen 500,000 Shares of Common Stock, which were issued October
20, 1992; and (ii) upon completion of 50 hours of services, the Company issue to
Leonard Cohen an additional 500,000 Shares of Common Stock which were issued on
February 28, 1993, after Mr. Cohen completed the 50 hours of consulting
services. Mr. Cohen provided the 50 hours of services to the Company during the
last quarter of 1992 and the first quarter of 1993. In addition, upon execution
of the initial Cohen agreement, the Company granted to Leonard Cohen the option
to acquire commencing as of September 11, 1992, 3,000,000 shares of Common Stock
of the Company, at an exercise price of $.09 per Share (the "Cohen Options").
The initial Cohen agreement granted to the holder of the Cohen Options,
piggyback registration rights with respect to the Shares of Common Stock issued
for services and Shares underlying the Cohen Options.
On February 28, 1993, the Company entered into a further three-year
consulting agreement with Leonard Cohen (the "Cohen Agreement"). This Cohen
Agreement provides that Leonard Cohen shall provide to the Company financial
consulting services concerning the business operations of the Company. The
Cohen Agreement was entered into because the Company believed that the Cohen
Agreement provided incentive to Mr. Cohen to provide greater services to the
Company and because Mr. Cohen's hourly obligations under the prior consulting
agreement had been satisfied during the last quarter of 1992 and the first
quarter of 1993. The Company issued to Leonard Cohen and his designees a total
of 3,500,000 Shares of Common Stock, which was accounted for as a general and
administrative expense. On February 28, 1993, pursuant to the Cohen Agreement,
3,500,000 Shares of the Company's Common Stock were issued to Mr. Cohen and his
designees as follows: (i) Leonard Cohen - 2,000,000 Shares; (ii) Richard Rubin -
1,000,000 Shares; and (iii) Bobby Goldman - 500,000 Shares, and the latter
persons sold the Shares transferred to them in the prior registration
statements. The services provided and to be provided by Mr. Cohen under the
Cohen Agreement were not all inclusive nor was the compensation given to Mr.
Cohen. As a result, in consideration for the additional services provided by
Mr. Cohen in connection with the introduction and negotiation of Exclusive
Distribution Agreement with C.U.R.E. Pharmaceutical Corp. , which agreement was
terminated because of the failure of C.U.R.E., but was then superseded by the
AVIX Agreement, Mr. Cohen was issued an additional 2,500,000 Shares in April
1994. Further, the Company agreed to issue to Leonard Cohen an additional
300,000 Shares in 1995, at a time when the Shares were valued at $.14 per Share,
in consideration for expenditures incurred by Mr. Cohen in connection with
securing for the benefit of the Company and AVIX the continued services of Dr.
Chinnici. Such additional
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300,000 Shares were inadvertently not issued to Mr. Cohen in 1995, though were
included for registration in the Registration Statement declared effective by
the SEC on July 27, 1995, and therefore have been included again in this
Registration Statement, of which this Prospectus is a part, and shall be
accounted for as general and administrative expense at $.14 per Share, the price
when the Shares were to be issued, in the Company's Quarterly Report on Form 10-
QSB for the period ended June 30, 1996. See the discussion below and "EXCLUSIVE
DISTRIBUTION AGREEMENTS".
By letter of September 15, 1993, Leonard Cohen requested registration of
the Shares and Option Shares issued to Mr. Cohen and his designees pursuant to
the Cohen Agreements. On January 25, 1994, the Company filed a Registration
Statement on Form S-1 which was declared effective by the SEC on July 1, 1994
respecting the registration of Shares and Option Shares for the account of
Selling Security Holders (including the Plata Partners, Mr. Cohen and his
designees. Subsequent to the year ended December 31, 1993, and the quarter
ended March 31, 1994, the Company issued the above referenced additional
2,500,000 Shares to Mr. Cohen for additional services rendered by Mr. Cohen in
connection with the introduction, negotiation and execution of an Exclusive
Distribution Agreement between the Company and C.U.R.E. Pharmaceutical Corp.
dated April 25, 1994. Mr. Cohen transferred by gift 2,500,000 Shares to his
adult sons, Todd, Glenn and David Cohen, and disclaims beneficial interest with
respect to the 2,000,000 Shares presently owned by his sons, which are included
herein to permit their resale under this prospectus. These services were in
addition to those under the Cohen Agreement. Such additional Shares were
included in the July 1, 1994 and July 27, 1995 Registration Statements to permit
the public sale of the Shares by Mr. Cohen.
The Company's Exclusive Distribution Agreements with C.U.R.E. and its
affiliate were terminated according to their terms on May 31, 1995 because of
C.U.R.E.'s inability to obtain Approvals in a timely manner and its ability to
obtain requisite funding to pursue such Approvals. See "TERMINATION OF
AGREEMENTS WITH C.U.R.E." below. In connection with the execution of the
Exclusive Distribution Agreement with C.U.R.E. in April 1994, the Company issued
Messrs. Elliot Bauer and Lee Rizzuto a total of 1,250,000 Shares and granted
Options to acquire 10,000,000 Shares at $.10 per Share exercisable through May
1, 1996 which Shares and Option Shares were included in the July 1, 1994
Registration Statement and were also included in the July 27, 1995 Registration
Statement. The Shares issued to Messr. Cohen, Bauer and Rizzuto have been
accounted for as a general and administrative expense at a price $.055 per
Share. Prior to April 30, 1996, Mr. Rizzuto executed and sold all of the 625,000
Shares and all but 100,000 Option Shares underlying his Options, which 100,000
Option Shares are registered herein. Mr. Bauer sold 850,000 Option Shares
underlying his Option prior to April 30, 1996, and Mr. Bauer also transferred
312,500 Shares to Mark Montifiore and 312,500 Shares to his minor children and
he disclaims any beneficial interest with respect to such Shares. The 4,150,000
Option Shares underlying Mr. Bauer's Option and the 312,500 Shares owned by Mr.
Bauer's minor children as well as the 112,500 Shares owned by Mr. Montifiore are
also being registered to permit public resale hereunder. In addition, Mr. Cohen
sold 1,300,000 Option Shares underlying his Options prior to April 30, 1996. See
"SELLING SECURITY HOLDERS"
Hirschman Consulting Agreement
The Company entered into the Hirschman Consulting Agreement with Dr. Shalom
Hirschman dated as of May 24, 1995, pursuant to which the consultant agreed to
provide services relating to financing of pharmacological/biotechnology
companies and agreed to assist the Company in seeking joint ventures with and
financing of companies in such industries. As consideration for such financial
related services, the Company issued 1,000,000 Shares to Shalom Hirschman, which
have been accounted for as a general and administrative expense, at a price of
$.11 per Share, the market price on the date of issuance, and granted Options to
acquire 5,000,000 Shares at $.18 per Option Share, exerciable through May
24,1998, which Shares and Option Shares were included in the Registration
Statement declared effective on July 27, 1995. Dr. Hirschman sold the 1,000,000
Shares in 1995 and exercised part of the Option to acquire 900,000 Option
Shares at $.18 per Option Share prior to April 30, 1996. As a result, 4,100,000
of the Option Shares underlying the initial Hirschman Option are also included
in this Registration Statement.
40
<PAGE>
In connection with the Hirschman Consulting Agreement, the Company also issued
to Deborah Silver 100,000 Shares and granted 500,000 Options exerciable for one
year at $.18, which Option was fully exercised and all the Option Shares were
sold prior to April 30, 1996. However, the 100,000 Shares owned by Ms. Silver
were not sold and therefore are included for resale hereunder. Such Options and
Shares were issued for services to the Company and were also accounted for as a
general administrative expense at $.11 per Share. The Company in 1995 also
issued 300,000 Shares to Richard Rubin for services, which Share issuances were
accounted for at $.11 per Share, the price at the date of issuance. The Company,
as of March 24, 1996, executed an addendum to the Consulting Agreement with
Shalom Hirschman, which addendum did not become effective until April 1, 1996.
Pursuant to the Addendum, Shalom Hirschman agreed to provide additional services
to the Company, for the extended period of five (5) years.
Such additional services shall include furthering the Company's financial and
investment banking efforts, and assisting the Company in joint efforts for the
purpose of securing manufacturing and sale approvals for RETICULOSE, as well as
efforts to pursue regulatory approvals and fulfill regulatory protocols
regarding RETICULOSE. In consideration for the foregoing increased term and
additional services, especially in assisting the Company in its investment
banking efforts, the Company granted to Shalom Hirschman and his designees a
total of 15,000,000 Options, exercisable as follows: 5,000,000 Options at $.19
per Option Share; 5,000,000 Options at $.27 per Option Share; and 5,000,000
Options at $.36 per Option Share. The price of the Shares at the date the
addendum was agreed to was $.18 to $.185 per Share. Pursuant to this Addendum,
Shalom Hirschman assigned rights with respect to such Options as follows:
1,500,000 Options to Richard Rubin and 1,500,000 Options to Deborah Silver, each
of which shall be exercisable at the same terms and prices as are the Hirschman
Options granted in the Addendum, which Option Shares are registered hereunder.
EXCLUSIVE DISTRIBUTION AGREEMENTS
ARGENTINA AGREEMENT WITH DCT S.R.L.
On December 27, 1993, the Company entered into an Agreement with Dr. Juan
Carlos Flichman, President of the Argentine Association Against Sexually
Transmitted Diseases, whereby Dr. Flichman agreed to conduct a study in
Argentina of: (i) patients who have been diagnosed by Dr. Flichman as suffering
from Hepatitis "B" and (ii) patients diagnosed by Dr. Flichman as suffering from
Hepatitis "C" (the "Argentina Study"). Dr. Flichman expected that the Argentina
Study would commence in March, 1994, but such study was not in fact commenced,
due to delays in Argentina by the Health Ministry.
In June, 1994, the Company entered into an Exclusive Distribution Agreement
with DCT S.R.L. ("DCT"), a corporation formed under the laws of Argentina,
whereby the Company has granted, to DCT subject to certain conditions precedent,
the exclusive right to market and sell RETICULOSE within the territories of
Argentina, Bolivia, Paraguay, Uruguay, Brazil and Chile (the "DCT Agreement").
The term of the DCT Agreement is for a three year period with renewals, from the
date DCT obtains approval (the "Argentina Approval") to import and distribute
RETICULOSE in Argentina; provided, however, that in the event the Argentina
Approval is nor obtained by June 12, 1995, the Company may terminate the DCT
Agreement, subject to DCT; right to extend the DCT Agreement so long as DCT is
meeting certain minimum purchase requirements as set forth in the DCT Agreement.
The DCT Agreement further provides that in the event the Argentina Approval is
obtained, DCT shall be obligated to make minimum purchases of RETICULOSE from
the Company. DCT was also be granted an Option to purchase for a period of one
year from the date of the Argentina Approval, 2,000,000 Shares at a purchase
price of $.20 per Share.
As a result of the 1996 Argentina Agreement, discussed under "TESTING
AGREEMENTS" above, and the Health Ministry's approval for and the commencement
of the test of RETICULOSE on the Human Papilloma Virus (HPV) on patients, the
Company agreed that the DCT Option vested and the 2,000,000 Option Shares
underlying this Option are included for public resale by the three principals of
DCT in this Registration Statement. See "SELLING SECURITY HOLDERS".
41
<PAGE>
TERMINATION OF AGREEMENTS WITH C.U.R.E.
On April 25, 1994, the Company entered into an Exclusive Distribution
Agreement with C.U.R.E. Pharmaceutical Corp., a Delaware corporation formed for
the purpose of the Agreement, pursuant to which C.U.R.E. was granted exclusive
rights to distribute RETICULOSE within the countries of China, Japan, Thailand,
Singapore, Hong Kong, Taiwan and Malaysia.
The Exclusive Distribution Agreement with C.U.R.E was for an initial term
of five (5) years, subject to certain automatic extensions if C.U.R.E. satisfied
its minimum purchase obligations and obtained Approval to sell and market
RETICULOSE in one or more countries constituting the Territory, within one year
from the Agreement. Because of its failure to obtain any Approval, the Company
terminated the rights of C.U.R.E. under this Agreement.
As of June 1, 1994, the Company had also entered into an Exclusive
Distribution Agreement with C.U.R.E. Pharmaceutica Central Americas Ltd., a
Delaware corporation and an affiliate of C.U.R.E. ("C.U.R.E. C/A Ltd.").
C.U.R.E. C/A Ltd. was required to purchase a minimum of 20,000 milliliters of
RETICULOSE during the first year following Approval and such Approval had to be
obtained within one year of this Agreement. C.U.R.E. was unable to obtain such
Approval and the Company terminated C.U.R.E.'s exclusive distribution rights,
effective May 31,1995, following acknowledgment by C.U.R.E. and its affiliate
that neither had obtained Approvals and both lacked additional financing to
pursue the Approvals.
EXCLUSIVE AGREEMENTS WITH AVIX
As the result of the termination of Agreement with C.U.R.E. and C.U.R.E.
C/A LTD, the Company entered into an Exclusive Distribution Agreement dated as
of June 2, 1995 with AVIX International Pharmaceutical Corp. ("AVIX"), a newly
organized New York corporation, pursuant to which AVIX has been granted the
exclusive distribution rights to the countries previously subject to the
agreement with C.U.R.E. and a separate Exclusive Distribution Agreement with
AVIX with respect to Mexico, which rights previously belonged to C.U.R.E. C/A
Ltd. AVIX has informed the Company that it has commenced negotiations with
parties in Mexico, China and elsewhere in the Far East for the purpose of
seeking initial authorization for testing RETICULOSE, following which Approvals
to sell RETICULOSE shall be sought. The Company has been informed by AVIX that
certain of the principals of AVIX were formerly principals of C.U.R.E.
In December, 1995, the Company entered into a separate agreement with AVIX
and Unistone Pharmaceutical Co., Ltd., a company established and in good
standing under the laws of the People's Republic of China, with headquarters in
Beijing, China (the "ADVR-Unistone-AVIX Agreement"). In connection with the
ADVR-Unistone-AVIX Agreement, the Company and AVIX agreed to utilize the
services of Unistone for the purposes of securing approval to test RETICULOSE in
China, with the intent of gaining regulatory for marketing and selling
RETICULOSE in China. In this agreement, Unistone shall be the actual distributor
in China and AVIX shall receive a royalty equal to 12% of the total sales of
RETICULOSE in China during the term of this agreement.
In June, 1996, the agreement with AVIX was amended with AVIX being granted
the additional country of Macao and waiving its rights to the countries of
Singapore, Thailand and Malaysia, as well as AVIX penalty rights that existed
under the prior agreement that vested in the event that the Company could not
produce sufficient quantities of RETICULOSE within certain periods. This last
right was waived, in part, because AVIX has not yet generated a sufficient
demand for RETICULOSE within its territories and because of the Company's
increased liquidity from the exercise of Options and potential future exercise
of additional Options registered hereunder.
AVIX shall be required, pursuant to the Exclusive Distribution Agreement
for China and the Far East to purchase 42,000 milliliters of RETICULOSE for
$500,000 and within one (1) year after Approval
42
<PAGE>
C.U.R.E. is required to purchase a minimum of 42,000 additional milliliters of
RETICULOSE for $500,000. If, however, AVIX does not obtain Approval to market
and sell RETICULOSE in any country in the Far East Territory by June 2, 1996,
the Company may terminate such Exclusive Distribution Agreement, subject to the
right of AVIX to extend the period for obtaining any approval for up to an
additional twelve (12) months until June 2, 1997, by paying the Company $8,000
for each month that it is continuing to seek approval. The Company has been
informed by AVIX that it intends to pay the Company the $8,000 per month to
secure this extension and retain their exclusive rights, and has paid such sum
during both June and July, 1996. If AVIX satisfies its purchase requirements
during the 5 year term of the Agreement, the Agreement provides for automatic
extension for additional 5 year terms. The separate Agreement for Mexico
requires Approval within one year and has minimum annual purchase requirement
commencing at 20,000 milliliters. The Company has extended the period of one
year for AVIX to secure Approval from Mexico because AVIX has been diligently
seeking such Approval from the FDA of Mexico.
EXCLUSIVE DISTRIBUTION AGREEMENT WITH COMMONWEALTH
On October 24, 1994, the Company entered into an Exclusive Distribution
Agreement (the "Commonwealth Agreement") with Commonwealth Pharmaceuticals,
whereby the Company has granted to Commonwealth, subject to certain conditions
precedent, the exclusive right to market and sell the Company's pharmaceutical
drug RETICULOSE within the territories of the Channel Islands, The Isle of Man,
the British West Indies, Jamaica, Haiti, Bermuda and Belize (collectively, the
"Commonwealth Territories"). The term of the Commonwealth Agreement is for
successive three year periods from the date Commonwealth obtains Approval to
import and distribute RETICULOSE in any one of the Commonwealth Territories;
provided, however, that in the event Approval is not obtained by October 25,
1996, the Company may terminate the Commonwealth Agreement.
Pursuant to the Commonwealth Agreement, Commonwealth purchased from the
Company 1,500 ampules of RETICULOSE at a purchase price of $12.00 per ampule (2
milliliters per ampules) and delivered to the Company $5,000 as a signing
payment (for a total payment of $23,000) Further, pursuant to the Commonwealth
Agreement, in the event Approval is obtained, Commonwealth is obligated to
purchase from the Company (i) $225,000 worth of RETICULOSE within one year from
the date of Approval; (ii) $642,000 worth of RETICULOSE during the second year
from the date of Approval; and (iii) $1,026,000 worth of RETICULOSE during the
third year from the date of Approval. In addition, pursuant to the Commonwealth
Agreement, the Company has granted to Commonwealth the right to acquire
3,000,000 Shares of the Company's Common Stock at a purchase price of $.25 per
Share at any time and from time to time for a period of one year from the date
that certain tests are conducted and a paper is published with respect to such
test of RETICULOSE. The Company has been informed by Commonwealth that certain
of the affiliates of the Commonwealth Distributor were formally affiliated with
Plata.
PROPERTIES
The Company presently maintains its executive offices at 1250 East
Hallandale Beach Blvd., Hallandale, Florida 33009, pursuant to a three year
lease agreement, at approximately $12,000 annually. The Company's telephone
number is (954) 458-7636. The Bahamian manufacturing facility, which was
acquired on December 16, 1987, is located in Freeport, Bahamas and consists of a
29,242 foot site containing a one-story concrete building of approximately 7,300
square feet and is equipped for all phases of the testing, production, and
packaging of RETICULOSE. The Bahamian facility is currently being used to store
and produce inventory for testing purposes. In September, 1992, a new roof was
placed on the manufacturing facility at a cost to the Company of approximately
$15,000.
43
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The Officers of the Company, and further information concerning them, are
as follows:
<TABLE>
<CAPTION>
Name Positions
---- ---------
<S> <C>
Bernard Friedland President and Director
William Bregman Secretary-Treasurer and a Director
Louis J. Silver Director
</TABLE>
Bernard Friedland (age 70), President and a Director of the company
received his Bachelor of Science degree in Chemistry from Rollins College in
June, 1949. Mr. Friedland was employed by Key Pharmaceuticals, Inc. of Florida
for twenty-nine years, until March 1, 1986, in the Research and Development and
Quality Assurance Departments in Pharmaceuticals, Pharmacology, and
Canceantimetabolites. Mr. Friedland is also currently President of Advanced
Viral Research, Ltd. ("LTD") and has been since September 1984. Mr. Friedland
received an honorary Doctor of Science degree from St. Joseph's College,
Philippines, in 1968. He did research projects at both Rollins College (1949)
and Vanderbilt University Medical School (1956). He is a member of twelve
Scientific and Medical Societies and has published thirteen scientific papers.
William Bregman (age 74), Secretary-Treasurer and a Director of the
Company, received his Bachelor of Electrical Engineering degree from the
Polytechnic Institute of Brooklyn in June, 1952 and his Professional Engineering
license from the State of Florida. Since September, 1984, Mr. Bregman has been
Secretary-Treasurer of LTD. From 1968 to 1983, Mr. Bregman was President of
American Food Equipment Co., Inc., a Company which sold and repaired food
service equipment and supplies for the hotel and restaurant industry in Miami
Florida.
From March 1949 to March 1961, he practiced as an Electrical Engineer for
American Electrical Power Corp., and from 1961 to 1968, Mr. Bregman was in the
real estate business, including the operation of the Majestic Hotel in Miami
Beach, Florida.
Louis J. Silver (age 67) was elected a Director at the Special Board of
Directors Meeting on May 4, 1992. He received his bachelor of Science Degree in
Finance from Rider College in Trenton, New Jersey and did post-graduate course
work in accounting at the University of Miami, Coral Gables, Florida. From 1962
to 1984, Mr. Silver was a supervisor in the Payroll and Resort Tax Departments
for the City of Miami Beach, Florida. Since 1985, Mr. Silver has been self-
employed as a free-lance bookkeeper and auditor. Mr. Silver previously served as
a member of the Board of Directors of the Company during the period from May,
1987 to July , 1987.
Bernard Friedland and William Bregman may be deemed a "parent" and
"promoter" of the Company as those terms as defined in the rules and regulations
promulgated under the Securities Act of 1933, as amended and, except for Mr.
Silver has served the Company in the capacity indicated since the Company's
formation in December of 1985.
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Officers are appointed to serve until the meeting of he Board of Directors
following the next annual meeting of stockholders and until their successors
have been elected and have qualified.
44
<PAGE>
REMUNERATION
No individual officer, Director or other person received compensation in
excess of $100,000 in the fiscal year 1995. All officers and Directors were
paid $70,000 in the aggregate. The table below sets forth the remuneration paid
to the Company's executive officers.
EXECUTIVE COMPENSATION
No officer or Director employed by received compensation in excess of
$100,000 in the fiscal years 1995, 1994 or 1993. All officers and Directors (2
persons) were paid an aggregate of $70,000 during each such years. The following
summary compensation table sets for the information concerning compensation for
services in all capacities awarded to, earned by or paid to, the Chief Executive
Officer and Principal Financial Officer, both of whom are also Directors of the
Company. No other person employed by the Company earned in excess of $100,000
during the fiscal years ended December 31, 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------------------------
Annual Compensation Awards Payouts
===================================================================================================================================
Name and Securities All Other
Principal Other Annual Restricted Stock Underlying LTIP Compen-
Position Year Salary ($) Bonus ($) Compensation ($) Award ($) Options/SARs Payouts ($) sation ($)(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Bernard Friedland
CEO
1994 35,000 0 6,500 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
1993 35,000 0 6,500 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
1992 35,000 0 6,500 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
William Bregman
Sect/Tres 1994 35,000 0 6,500 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
1993 35,000 0 6,500 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
1992 35,000 0 6,500 0 0 0 0
===================================================================================================================================
</TABLE>
(1) Other Annual Compensation represents medical insurance premiums paid by the
Company for executive officers.
45
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth as at July 31, 1996, certain information
regarding the beneficial ownership of the Company Common Stock, par value
$.00001 per Share, by (i) each person who is known by the Company to own
beneficially more than 5% of the Company's outstanding voting securities; (ii)
each of the Company's directors; and (iii) all directors and officers of the
Company as a group.
<TABLE>
<CAPTION>
Shares of Common Stock Percent Before Percent Owned After
Name and Address of Beneficial Owner Beneficially Owned Offering(1) Exercise of all Options(3)
- ------------------------------------ ------------------------ ---------------- --------------------------
<S> <C> <C> <C>
Bernard Friedland 40,916,730 15.4% 13.7%
c/o Advanced Viral Research Corp.
1250 Hallandale Beach Blvd.
Hallandale, FL 33009
William Bregman 36,468,653(2) 13.7% 12.3%
939 W. 47 Court
Miami Beach, FL 33140
Louis J. Silver 501,000 .002% .002%
5100 S.W. 127th Place
Miami, FL 33175
All Officers & Directors 77,886,383 29.2% 26.3%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on 265,437,558 shares outstanding as of July 31, 1996.
(2) Includes 23,705,000 Shares held in a trust for which Mr. Bregman is the sole
trustee and sole beneficiary.
(3) Reflects the exercise of the 32,205,800 Option Shares being registered
hereunder for Selling Security (Option) Holders. See "Selling Security Holders"
below.
CERTAIN TRANSACTIONS
For the past three fiscal years, there were no material transactions
between the Company and any of its officers and/or directors which involved
$60,000 or more.
SELLING SECURITY HOLDERS
The following table sets forth the number and percentage of Shares of
Common Stock, including the Shares underlying the Options (the "Option Shares")
that are being registered by this Prospectus for the account of Selling Security
Holders. The foregoing also include Shares and Option Shares previously
registered in the Company's registration statements declared effective on July
1,1994 and July 27, 1995. No underwriter is obligated to sell or repurchase any
of such Shares. The Shares may be sold by such Selling Security Holders from
time to time in the public marketplace. The Company has agreed to update the
information contained in this Prospectus to reflect any facts or events arising
after the date of this Prospectus, which, individually, or in the aggregate,
represents a fundamental change in the information set forth in this Prospectus
and to include any material information respecting a plan of distribution
materially different from the plan of distribution disclosed in this Prospectus.
46
<PAGE>
The Company granted to the Selling Security Holders certain registration
rights, pursuant to which the Registration Statement of which this Prospectus is
a part, has been filed:
<TABLE>
<CAPTION>
Name Number of Shares Number of Shares By Number of Shares By
Beneficially Owned By Offered For Each Selling Each Selling Security
Each Selling Security Holder(s) Security Holder's Account After ComletionOf
Offerings(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard Waldman 1,218,000 1,218,000 0
David Sass 400,000 400,000 0
Charles Miller(a) 1,383,100 1,383,100 0
David Duffy(b) 800,000 800,000 0
Jeffrey A. &
Cheryl L. Miller(c) 503,800 503,800 0
Leonard Cohen(d) 4,100,000 4,100,000 0
David Cohen(j) 650,000 650,000 0
Glenn Cohen(j) 500,000 500,000 0
Todd Cohen(j) 650,000 650,000 0
Richard Rubin(e) 1,500,000 1,500,000 0
Elliot Bauer(f) 4,462,500 4,462,500 0
Shalom Hirschman (g) 16,100,000 16,100,000 0
Deborah Silver (e) 1,600,000 1,600,000 0
Commonwealth(h) 3,000,000 3,000,000 0
Freddie Velez(i) 1,000,000 1,000,000 0
Gary Hussian(i) 500,000 500,000 0
Cesar Blumtritt(i) 500,000 500,000 0
Arthur Hawkins(j) 500,000 500,000 0
Mark Montifiore(j) 112,500 112,500 0
Leandro Rizzuto(j) 100,000 100,000 0
Michael Binder(j) 50,000 50,000 0
Laurie Cornell 100,000 100,000 0
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Option Shares to purchase 32,205,800 Shares underlying Options registered
for Selling Security Holders hereunder, as follows: (a) Options to purchase
465,000 Option Shares at $.11 and 758,100 Option Shares at $.13 per Option Share
and 160,000 Shares previously registered which are included for resale
hereunder; (b) Options to purchase 800,000 Option Shares at $.11 per Option
Share; (c) Options to purchase 83,300 Options Shares at $.11 and 100,000 Option
Shares at $.13 per Option Share and 320,500 Shares; (d) Options to purchase
1,700,000 Option Shares at $.12 per Option Share and 320,500 Shares previously
registered which are included for resale hereunder. David , Glenn and Todd Cohen
are adult sons Leonard Cohen, who gifted the Shares to his sons, with respect to
which Leonard Cohen disclaims any beneficial interest; (e) Options to purchase
1,500,000 Option Shares, with 500,000 Option Shares at each of $.19, $.27, and
$.36 per Option Share; (f) Options to purchase 4,150,000 Option Shares at $.10
per Option Share and 312,500 Shares owned of record and beneficially by the
minor children of Elliot Bauer, with respect to which he disclaims any
beneficial interest, which Shares were previously registered and are included
for resale hereunder; (g) Options to purchase 4,100,000 Option Shares at $.18
per Option Share, and 4,000,000 Option Shares at each of $.19, $.27 and $.36 per
Option Share and with respect to Ms. Silver includes 100,000 Shares previously
registered and are included for resale hereunder; (h) Options to purchase
3,000,000 Option Shares at $.25 per Option Share; (i) Options to purchase
2,000,000 Option Shares at $.20 per Option Share; and (j) Shares previously
registered which are included for resale hereunder.
(2) Assumes all Shares and Options Shares are sold in this offering.
47
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of the Company consists of 1,000,000,000
shares of Common Stock, par value $.00001 per Share. The holders of Common Stock
(i) have equal ratable rights to dividends from funds legally available
therefore, when, as and if declared by the Board of Directors of the Company;
(ii) entitled to share ratably in all of the assets of the Company available for
distribution to holders of Common Stock upon liquidation, dissolution or winding
up of the affairs of the Company; (iii) do not have preemptive, subscription, or
conversion rights and there are no redemption or sinking fund provisions
applicable thereto; and (iv) are entitled to one noncumulative vote per share on
all matters which stockholders may vote on at all meetings of stockholders. All
shares of Common Stock now outstanding are fully paid for and non-assessable.
NON-CUMULATIVE VOTING
The holders of shares of Common Stock of the Company do not have cumulative
voting rights, which means that the holders of more than 50% of such outstanding
shares, when voting for the offices, Directors, can elect all of the Directors
to be elected, if they so choose and in such event, the holders of the remaining
shares will not be able to elect any of the Company's Directors.
The Company has not paid or declared and dividends upon its common stock
since its inception and, by reason of its present financial status and its
contemplated financial requirements, does not contemplate, or anticipate paying
any dividends upon its common stock in the foreseeable future.
REPORTS TO STOCKHOLDERS
The Company intends to furnish its stockholders with annual reports
containing audited financial statements as soon as practicable at the end of
each year. In addition, the Company may, in its discretion, distribute quarterly
reports containing unaudited financial information for each of the first three
quarters of each year.
DIVIDENDS
The payment by the Company of dividends, if any, in the future rests within
the discretion of its Board of Directors and will depend, among other things,
upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Company has not paid -or
declared any dividends upon its Common Stock since its inception and, by reason
of its present financial status and its contemplated financial requirements,
does not contemplate or anticipate paying any dividends upon its Common Stock in
the foreseeable future. See "HIGH RISK FACTORS."
PLAN OF DISTRIBUTION
A total of 32,205,800 Option Shares underlying the outstanding Options, and
2,155,500 Shares being registered for public resale by Selling Security Holders.
The exercise prices for all of the Options was determined by negotiation between
the Company and the Option Holders at the time the Options were granted. There
is no relationship between the exercise price of the Options and the assets,
book value, net worth of the Company or any other economic or recognized
criterion of value.
The Option Shares and Shares are registered for the account of the Selling
Security Holders will be offered for sale by them from time to time in the
public marketplace. None of the securities offered by Selling Security Holders
are being offered through underwriters and no arrangements have been made with
any outside broker, dealer or underwriter for the resale of such securities, all
of which may be offered for sale from time to time through the over-the-counter
market. The Company will not receive any proceeds from the sale of the Selling
Security Holders Shares.
48
<PAGE>
TRANSFER AGENT AND WARRANT AGENT
The Transfer Agent for the Common Stock of the Company is American Stock
Transfer & Trust Company, 40 Wall Street, 46th Floor, New York, New York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, assuming that all the Selling Security
Holders Option Shares are exercised, the Company will have a total of
297,643,358 Shares of Common Stock outstanding. Of these shares, the 77,886,383
Shares of Common Stock will be "restricted" securities, within the meaning of
Rule 144 ("Restricted Shares") excluding the securities being registered
pursuant to this Registration Statement, and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemption provided by Rule 144.
Restricted Shares may not be sold unless they are registered under the
Securities Act or are sold pursuant to an applicable exemption from
registration, including pursuant to Rule 144. In general, under Rule 144, as
currently in effect, beginning 90 days after this offering a person (or persons
whose Shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, including affiliates of the Company, would be entitled to sell
in brokers' transactions or to market makers within any three-month period a
number of Restricted Shares that does not exceed the greater of one percent (1%)
of (i) the then outstanding Shares outstanding after this offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company.
Affiliates may sell Shares not constituting Restricted Shares in accordance
with the foregoing volume limitations and other restrictions, but without regard
to the two-year holding period. Restricted Shares held by affiliates of the
Company eligible for sale in the public market under Rule 144 are subject to the
foregoing two-year holding period, volume limitations and other restrictions.
A person who is not an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned Restricted Shares for at
least three years, is currently entitled to sell such Restricted Shares under
Rule 144(k) without regard to the availability of current public information,
volume limitations, manner of sale provisions or notice requirements.
LITIGATION
The Company is not presently a party to any material litigation, nor, to
the knowledge of management, is any such litigation presently threatened.
During 1989, the U.S. Securities and Exchange Commission ("SEC") conducted
an informal inquiry into certain of the Company's prior disclosure documents,
including its original prospectus, press releases and annual reports. On
December 14, 1989, the SEC, as plaintiff, filed a civil complaint-for permanent
injunction and other equitable relief (the "Complaint") in the United States
District Court, Southern District of Florida, Miami Division, against the
Company, its President, Bernard Friedland, and its Secretary-Treasurer, William
Bregman. The Complaint, a copy of which is filed as an exhibit to the Company's
current report on Form 8-K dated December 14, 1989 which was filed with the SEC
(the "Report"), alleged violations of Sections 5(b)(2) and 17(a) of the
Securities Act of 1933, as amended, Sections lO(b) and 15(d) of the Securities
Exchange Act of 1934, as amended, and Rules lOb-5, 12b-20, 15d-1 and 15d-13
promulgated thereunder.
49
<PAGE>
The Company, Bernard Friedland and William Bregman each, without admitting
or denying the allegations of the Complaint, consented to the entry of an
injunction. Copies of the consents of the Company, Bernard Friedland and William
Bregman are filed as exhibits to the Report. A permanent injunction was entered
in form and also attached as an exhibit to the Report.
Between May 1, 1987, and May 10, 1988, 6,766,350 of the Company's B
Warrants were exercised for the purchase of 6,766,350 shares at a price of $.05
per share for a total of $338,317.50. The prospectus delivered with the shares
on exercise of the B Warrants was not current; accordingly, the Company was not
in compliance with the prospectus delivery provisions of the Securities Act of
1933. The Company offered a right of rescission to al exercising B Warrant
holders. The rescission offer period commenced on August 16, 1990 and terminated
October 25, 1990. The Company was obligated to pay an aggregate of approximately
$2,500 to shareholders who exercised their rescission right during the
rescission offer period.
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
its license from the Grand Bahama Port Authority is valid for the manufacture,
and export, of ethical pharmaceutical products in the Freeport area of Grand
Bahama Island. No proceedings have been instituted or threatened by the Ministry
of Health. If such proceedings are instituted the Company intends to vigorously
contest such claim.
LEGAL MATTERS
Richard J. Rubin, Esq., 1650 Broadway, Suite 508, New York, N.Y. 10019 has
rendered an opinion on matters relating to Federal securities law (which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part) to the effect that the shares of Common Stock offered hereby, when issued
and paid for as described herein, will constitute legally issued securities of
the Company, fully paid and nonassessable. Mr. Rubin has an Option to purchase
1,500,000 Option Shares, exercisable as follows: 500,000 at $.19, 500,000 at
$.27 and 500,000 at $.36 per Option Share.
EXPERTS
The Consolidated Financial Statements and schedules of the Company included
in this Prospectus and in the Registration Statement except as they pertain to
periods unaudited, have been audited by Rachlin Cohen & Holtz, independent
certified public accountants, for the periods indicated in their report
appearing elsewhere herein, and are included herein in reliance upon the report
of such firm given upon the authority of such firm as experts in accounting and
auditing.
50
<PAGE>
SOURCES
The following is a list of pharmacological and clinical reports on RETICULOSE:
* Anderson, Robert H., Encephalitis, Symposium, pages 39-52, 1960.
* Anderson, Robert H. and Thompson, Ralph M., Treatment of Viral Syndrome
with a Lipoprotein-Nucleic Acid Compound (RETICULOSE). A Report of Five Cases.
Virginia Medical Monthly, 84, pages 347-353, 1957.
* Behbehani, The Effect of RETICULOSE on Viral Infection of Experimental
Animals, Southern Medical Journal, Vol. 55, No. 2, February 1962.
* Berry, L. Joe and Mitchell, Roland B., The Influence of Polycythemia
Produced at High Altitude on Resistance to Infection, School of Aviation
Medicine, Project Report, 21-35-005, 1951.
* Cooke, Stanford B., Upper Respiratory Viral Manifestations, Symposium,
pages 25-32, 1960.
* Debus, David A. and Meyer, Francis.J., (a) Acute Intraperitoneal Toxicity
of RETICULOSE in the Mouse; (b) Acute Intraperitoneal Toxicity of RETICULOSE in
the Rat; (c) Acute Intraperitoneal Toxicity of RETICULOSE in the Guniea Pig,
Reports, Huntington Research Center, Inc., Baltimore, Maryland, September 15,
1969.
* Kempe, Failure to Demonstrate Antiviral Activity of RETICULOSE, Diseases
of Children, Vol. 103, No. 5, May 1962.
* Kosaka, K and Shimada, Y., Infectious Hepatitis, Symposium, pages 61-74,
1960.
* Kozima, Fumio, Osawa, Mitsuo and Oyama, Mitsuko, Animal Tests on
RETICULOSE ("Key"), Kensan Report No. Sho 43-22, September 4, 1968.
* Kuckku, Morri@ E., Herpetic Diseases, Symposium, pages 713, 1960.
* McCrady, William D., RETICULOSE in Treatment Herpes Simplex Labialis,
Personal Communication to B.E. LaPenta, March 18, 1964.
* Medoff, Lawreence R., (a) Infectious Mononucleosis, Symposium, pages 33-
37, 1960; (b) Use of a Lipoprotein-Nucleic-Acid Compound in Treatment of
Infectious Mononucleosis, Clinical Medicine, 69: page@ 1-4, 1962.
* Plucinski, Stanisloff J., Suspected Viral Varieties, Symposium, pages 53-
59, 1960.
* Reynolds, Margaret R., (a) Generalized Vaccinia Successfully Treated with
Lipoprotein-Nucleic Acid Complex (RETICULOSE), Archives of Pediatrics, 77:421-
422, 1960; (b) Generalized Vaccinia, Symposium, pages 5-6, 1960.
* Sanders, Murray, Controlled Animal Studies with RETICULOSE Illustrating
the Interference of Lipoprotein-Nucleic Acid Complex (RETICULOSE) in the
Experimental Animal Infected with Human Pathogenic Viral Entities, Exhibit,
Southern Medical Association, Dallas, Texas, November 1961.
* Schaeffer, Oden A., Influenza, Symposium, pages 15-21, 1960.
* Seydel, Frank, Epidemic, Asian Influenza, Symposium, pages 23-24, 1960.
51
<PAGE>
* Snyder, Walter E., Case Reportings and Observations on the Use of
RETICULOSE in Dogs, Personal Communication to B.E. LaPenta.
* Symposium: CIinicaI Symposium on ViraI Diseases Demonstrating the Anti-
Viral Biotic Properties of the Drug RETICULOSE, Chemico Laboratories, Inc.,
Miami, Florida, September 1, 1960.
* Thompson, Ralph M., A Lipoprotein-Nucleic Acid Complex in the Treatment
of Radiation Injury (A Preliminary Report), The Military Surgeon, 110:51-58,
1952.
* Wegryn, Stanley P., Marks, Robert A. and Baugh, John R., Herpes
Gestationis, A Report of 2 Cases, American Journal of Obstetrics and Gynecology,
79:812-814, 1960.
The following laboratories or individuals have also conducted studies on
RETICULOSE:
* Southern Research Institute.
* Scientific Associates.
* International Diagnostics Ltd.
* Dr. Ralph Cott (Dominican Republic).
* Dr. Richard A. Morisset (Canada)
THESE SOURCES SHOULD BE READ IN CONJUNCTION WITH THE PORTIONS OF THIS PROSPECTUS
WHICH DISCUSS THE NEGATIVE RESULTS OF CERTAIN STUDIES.
52
<PAGE>
INDEX TO CONSOLIDATE FINANCIAL STATEMENTS
-----------------------------------------
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet, December 31, 1995 F-3
Consolidated Statement of Operations for the Years Ended December 31,
1995 and 1994, and for the Period From Inception (February 20,
1984) to December 31, 1995 F-4
Consolidated Statement of Stockholders' Equity for the Period From
Inception (February 20, 1984) to December 31, 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995 and 1994, and for the Period From Inception
(February 20, 1984) to December 31, 1995 F-9
Notes to Consolidated Financial Statements F-10
Condensed Consolidated Balance Sheets, March 31, 1996 and
December 31, 1995 F-18
Condensed Consolidated Statement of Operations for the Three Months
Ended March 31, 1996 and 1995, and for the Period From Inception
(February 20, 1984) to March 31, 1996 F-19
Condensed Consolidate Statement of Stockholders' Equity for the Period
from Inception (February 20, 1984) to March 31, 1996 F-20
Condensed Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 1996 and 1995, and for the Period From Inception
(February 20, 1984) to March 31, 1996 F-24
Notes to Condensed Consolidated Financial Statements F-25
F-1
<PAGE>
[LETTERHEAD OF RACHLIN COHEN & HOLTZ]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
-------------------------------------------------
To the Stockholders and Directors
Advanced Viral Research Corp.
(A Development Stage Company)
Hallandale, Florida
We have audited the accompanying consolidated balance sheet of Advanced Viral
Research Corp. (A Development Stage Company) as of December 31, 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1995 and for
the period from inception (February 20, 1984) to December 31, 1995. These
consolidated financial statements are the responsibility of the management of
the Company. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Advanced Viral
Research Corp. (A Development Stage Company) as of December 31, 1995 and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1995 and for the period from inception (February 20,
1984) to December 31, 1995 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note B to
the consolidated financial statements, the Company has suffered recurring losses
from operations and is dependent upon the continued sale of its securities for
funds to meet its cash requirements. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are described in Note B. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Rachlin Cohen & Holtz
RACHLIN COHEN & HOLTZ
Miami, Florida
March 7, 1996
[LETTERHEAD]
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
December 31, 1995
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 65,230
Investments 479,000
Inventory 18,091
Other current assets 12,967
----------
Total current assets 575,288
PROPERTY AND EQUIPMENT 214,494
OTHER ASSETS 6,459
----------
Total Assets $ 796,241
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,750
Accrued taxes 3,101
Customer deposits 7,800
----------
Total current liabilities 14,651
----------
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY:
Common stock; 1,000,000,000 shares of $.00001 par
value authorized; 251,181,774
shares issued and outstanding; 2,512
Additional paid-in capital 4,475,875
Deficit accumulated in the development stage (3,696,797)
----------
Total stockholders' equity 781,590
----------
Total liabilities and stockholders' equity $ 796,241
==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Inception
(February 20,
1984) to
Year ended December 31 December 31
1995 1994 1995
---- ---- -------------
<S> <C> <C> <C>
Revenues:
Sales $ 27,328 $ 22,402 $ 167,930
Interest 16,155 7,450 298,613
Sales of Territorial
Rights 25,000 55,000 80,000
------------ ------------ -----------
68,483 84,852 546,543
------------ ------------ -----------
Costs and expenses:
Research and development 34,931 30,040 850,748
General & Administrative 420,757 478,984 3,230,218
Interest - - 2,210
Depreciation and
amortization 14,679 16,665 160,164
------------ ------------ -----------
470,367 525,689 4,243,340
------------ ------------ -----------
Net loss $ (401,884) $ (440,837) $(3,696,797)
============ ============ ===========
Net loss per share of
common stock $ (.00) $ (.00)
============ ============
Weighted average number
of common shares
outstanding 248,022,608 238,354,491
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1995
<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) previously reported - $ 1,000 $ - $ (1,000)
Adjustment for pooling of interest - - (1,000) 1,000 -
----------- ------ ---------- ---------
Balance, inception, as restated - - - 1,000 (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)
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 stock-
holders - - - 86,565 -
Net loss, year ended December 31,
1987 - - - - (258,663)
----------- ------ --------- ---------
Balance, December 31, 1987 193,288,632 1,933 1,495,063 (462,605)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1995
<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, 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)
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 .12 3,760,000 38 45,083 --
Net loss, year ended December 31, 1991 -- -- -- (249,871)
----------- ------ ---------- -----------
Balance, December 31, 1991 204,073,762 $2,041 $1,891,695 $(1,450,786)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1995
<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, 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 (7,795)
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>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Developmental Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1995
<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, period ended
December 31, 1995 -- -- -- 401,884
----------- ------ ---------- -----------
251,181,774 $2,512 $4,475,875 $(3,696,797)
=========== ====== ========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-8
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Inception
(February 20,
1984) to
Year ended December 31, December 31,
1995 1994 1995
---------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(401,884) $(440,837) $(3,696,797)
---------- ------------ ------------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 14,679 16,665 158,564
Exchange of common stock for services rendered 168,500 288,499 1,197,000
(Increase) decrease in other current assets (2,804) 1,583 (12,967)
(Increase) decrease in inventory (18,091) -- (18,091)
(Increase) decrease in other assets (4,659) -- (6,459)
Increase (decrease) in accounts payable and accrued taxes (25,594) 32,095 14,651
---------- ------------ ------------
Total adjustments 132,031 338,842 1,332,698
---------- ------------ ------------
Net cash used in operating activities (269,853) (101,995) (2,364,099)
---------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in investments (474,000) 252,963 (479,000)
Repayments on loan receivable -- stockholder 8,762 5,000 --
Expenditures for property and equipment (5,075) (10,550) (373,058)
---------- ------------ ------------
Net cash provided by (used in) investing activities (470,313) 247,413 (852,058)
---------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of securities, net of issuance costs 602,955 -- 3,281,387
---------- ------------ ------------
Net cash provided by financing activities 602,955 -- 3,281,387
---------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (137,211) 145,418 65,230
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 202,441 57,023 --
---------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 65,230 $ 202,441 $ 65,230
========== ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-9
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Advanced Viral Research Corp. (the Company) was incorporated in Delaware
on July 31, 1985. The Company was organized for the purpose of
manufacturing and marketing a pharmaceutical product named RETICULOSE.
While the Company has had limited sales of this product, primarily for
research purposes, the success of the Company will be dependent upon
obtaining certain regulatory approval for its pharmaceutical product,
RETICULOSE, to commence commercial operations. The Company was in the
development stage at December 31, 1995.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its 99.6% owned subsidiary, Advance Viral Research Limited (LTD), a
Bahamian Corporation. All significant intercompany accounts have been
eliminated.
Cash Equivalents
Cash Equivalents consist of highly liquid investments, with original
maturities of three months or less.
Investments
Investments consist of certificates of deposit carried at cost which is
market value, with maturities greater than three months, and U.S.
Government discount notes. The notes are classified as "held to maturity"
and are carried at their amortized cost.
Consolidated Statement of Cash Flows
As supplemental information related to the consolidated statement of cash
flows, cash paid for interest was $2,210 for the period from inception
(February 20, 1984) to December 31, 1995. See Note G for disclosure of
noncash financing activities.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight line method, over the estimated useful lives of the assets. Gain
or loss on disposition of assets is recognized currently. Maintenance and
repairs are charged to expense as incurred. Major replacements and
betterments are capitalized and depreciated over the remaining useful
lives of the assets.
Reclassification
Certain amounts in the 1994 financial statements have been reclassified to
conform to 1995 presentation.
F-10
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the future,
they may ultimately differ from actual results.
B. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplate
the continuance of the Company as a going concern. The Company has
suffered losses from operations during its operating history. The Company
is dependent upon registration of RETICULOSE for sale before it can begin
commercial operations. The Company's cash position will be inadequate to
pay all the costs associated with the full range of testing and clinical
trials required by the FDA. Management does not anticipate registration or
other approval of RETICULOSE in the near future in the United States.
Unless and until RETICULOSE is approved for sale in the United States or
another industrially developed country, the Company may be dependent upon
the continued sale of its securities for funds to meet its cash
requirements. Management intends to continue to sell the Company's
securities in an attempt to mitigate the effects of its poor cash
position; however, no assurance can be given that such equity financing,
if and when required, will be available. In the event that such equity
financing is not available, in order to continue operations, management
anticipates that they will have to defer their salaries. In addition, the
Company will seek debt financing, but no such financing is in place or
identified. Management does not believe that such financing will be
readily obtainable on favorable terms unless U.S. Food and Drug
Administration (FDA) approval for Phase I testing of RETICULOSE is
granted. No assurance can be given that the Company will be able to
sustain its operations until FDA approval is granted or that any approval
will ever be granted. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets and classification of
liabilities that might be necessary should the Company be unable to
continue in existence.
C. ACQUISITION
The principal shareholders acquired LTD, a Bahamian Corporation with
pharmaceutical manufacturing and warehousing facilities, on February 20,
1984. The acquisition is a combination of two entities under common
control and has been accounted for in a manner similar to a pooling of
interest. In 1986, the Company acquired exclusive rights to manufacture
and market RETICULOSE from LTD for $50,000. The Company also purchased
inventory of RETICULOSE from LTD for $45,000 and was obligated to pay $3
per ampule of RETICULOSE for the initial 100,000 ampules purchased and $2
per ampule for purchases exceeding 100,000 ampules. On December 16, 1987,
the Company acquired the controlling beneficial interest in 99.6% of the
common stock of LTD through an appropriate trust agreement to satisfy the
rules of the Bahamian Government, from two principal shareholders of the
Company at a cost of $46,000. Both shareholders concurrently canceled
$86,565 of indebtedness, due them from LTD.
F-11
<PAGE>
D. LOAN RECEIVABLE-STOCKHOLDER
The unsecured demand loan to a principal stockholder bore interest at 5%
and at December 31, 1994 the outstanding balance was approximately $8,800.
The balance was paid during 1995.
E. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATED
USEFUL December 31, December 31,
(YEARS) 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
Land and improvements 15 $ 34,550 $ 34,550
Building and improvements 30 239,434 239,434
Machinery and equipment 5 99,074 94,000
-------- --------
373,058 367,984
Less accumulated depreciation 158,564 143,886
-------- --------
$214,494 224,098
======== ========
</TABLE>
The Company maintains certain property and equipment in Freeport, Bahamas.
The property and equipment amounted to $361,602 as of December 31, 1995
including $17,623 expended in 1987 to purchase a land lease expiring in
2068. These amounts are included above.
F. 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.
F-12
<PAGE>
F. COMMITMENTS AND CONTINGENCIES (continued)
Product Liability
The Company could be subject 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 using processes similar to
those of the Company. In addition, although the Company has no present
intention to file a patent application for RETICULOSE, there is no
certainty that if such application is filed, that a patent will be
granted, or if granted, that it will be sustained if judicially attacked,
and, if declared valid, whether said patent will in fact operate to
protect others against copying RETICULOSE.
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 and 1994 was $13,832 and $13,174, respectively
Future minimum rental payments are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $14,000
1997 14,000
1998 14,000
-------
$42,000
=======
</TABLE>
G. TESTING AGREEMENTS
Canadian Contract
Pursuant to an agreement with a Canadian physician (the "Canadian
Agreement"), the Canadian physician, Dr. R.A. Morisset, is conducting in
Montreal, Canada, a Compassionate Treatment of ten HIV-positive patients
being treated with the Company's drug Reticulose and comparing such
treatment with ten HIV-positive persons not treated with Reticulose (the
"Canadian Compassionate Treatment").
F-13
<PAGE>
G. TESTING AGREEMENTS (Continued)
Based on the Canadian Agreement the Company believes that the Canadian
Compassionate Treatment will be conducted for a period of sixty days and
the patients involved in the Canadian Compassionate Treatment will be
monitored by Dr. Morisset for an additional thirty days. In November, 1993
the Company was informed by Dr. Morisset that the Canadian Compassionate
Treatment commenced. As of March 1, 1996 no results or information has
been delivered to the Company by Dr. Morisset regarding the Canadian
Compassionate Treatment.
Dr. Morisset has informed the Company on several occasions the last of
which occurred on March 8, 1995 that the Canadian Compassionate Treatment
was being extended to acquire additional data. The Company has requested
but not received from Dr. Morisset a definitive date when the results
from the Canadian Compassionate Treatment will be delivered to the
Company. The Canadian Agreement provides that the Company is obligated to
pay to the Canadian physician the sum of (i) U.S. $10,000, which has been
paid, and an additional (ii) $82,000 Canadian (U.S. $59,854 as of March 1,
1996) in three equal installments. As of December 31, 1995, two
installments, totaling $62,000 Canadian (U.S. $44,300) have been made.
Further, the Company has agreed to issue to Dr. Morisset 75,000 shares of
the Company's Common Stock upon the Company's receipt from the Canadian
physician of data regarding the Canadian Compassionate Treatment (the
"Compassionate Treatment Data"). In the event that the Canadian
Compassionate Treatment Data is published in an appropriate medical or
scientific journal, the Canadian Agreement provides for the Company to
deliver to Dr. Morisset an additional $35,000 Canadian (U.S. $25,600) as
of December 31, 1995). The Company does not presently intend to a advance
any further monies for the Canadian Compassionate Treatment, and due to
delays in obtaining information and guidance form Dr. Morisset regarding
the Canadian Compassionate Treatment, believes no further efforts are
being employed by Dr. Morisset in connection with the Canadian
Compassionate Treatment.
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.
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 April 30, 1996. The
Company has offered the holders of the Plata Options and the Additional
Plata Options to extend the exercise date of the Plata Options and the
Additional plata Options through December 31, 1996 in consideration for an
increase in the exercise price to $.10 per share as to the Plata Options
and $.13 per share as to the Additional Plata Options (the "December 31,
1996 Extension"). As of March 1, 1996, holders of Plata Options to acquire
1,100,000 shares and holders of Additional Plata Options to acquire
600,000 shares have agreed to the December 31, 1996. Through March, 1,
1996, The Company has received approximately $320,000 pursuant to the
issuance of approximately 3.8 million shares in connection with the
exercise of the Plata Options and the Additional Plata Options. The Plata
Shares and the Underlying Shares have been registered pursuant to a
Registration Statement declared effective by the Commission on July 1,
1994.
F-14
<PAGE>
G. TESTING AGREEMENTS (continued)
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 at one 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 December
31, 1995, 6,666,667 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 December 1993, the Company entered into an agreement (the "Argentine
Agreement") with Dr. Juan Carlos Flichman, President of the Argentine
Association Against Sexually Transmitted Diseases, whereby Dr. Flichman
will conduct a double-blind study in Argentina (the "Double-Blind Study")
of (i) forty patients who have been diagnosed by Dr. Flichman as
suffering from Hepatitis "B" and (ii) twenty patients diagnosed by Dr.
Flichman as suffering from Hepatitis "C", both groups being treated with
the Company's pharmaceutical drug Reticulose. The Argentine Agreement
provides that the treatment (I) for Hepatitis "B" is expected to last for
20 days followed by a 60 day observation period and (II) for Hepatitis
"C" is expected to last for 20 days followed by a 180 day observation
period.
Dr. Flichman indicated to the Company that the Double-Blind Study would
commence in March 1994; however as of December 31, 1995, due to delays in
Argentina, the study has not yet commenced. Due to delays in commencing
the Double-Blind Study, the Company has advised Dr. Flichman to
discontinue his efforts relating to the Double-Blind Study.
Hirschman Agreement
In May 1995, the Company entered into a consulting agreement with Dr.
Sholom 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 shall provide consulting
service to the Company.
F-15
<PAGE>
G. TESTING AGREEMENTS (continued)
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
the 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 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 December 31, 1995, no options had been exercised under this
Agreement.
H. 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
April 30, 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 December 31, 1995, none of the September 1992 Cohen
Options have been exercised. Pursuant to Mr. Cohen's request therefor
(pursuant to his demand registration right), the September 1992 Cohen
Shares and the shares of Common Stock underlying the September 1992 Cohen
Options have been registered pursuant to the Company's Registration
Statement on Form S-1 (SEC File No. 33-74454) declared effective by the
U.S. Securities and Exchange Commission on July 1, 1994 (the "July
Registration Statement").
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. The February 1993 Cohen Shares have been
registered pursuant to the July Registration Statement.
In July 1994, in consideration for services related to the introduction
negotiation and execution of the C.U.R.E. Agreement (as defined
hereinbelow), 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
pursuant to the July Registration Statement. The Company has been informed
that Messrs. Cohen, Bauer and Rizzuto and principals of C.U.R.E. (as
defined hereinbelow). Through December 31, 1995, 2,000,000 shares were
issued pursuant to exercise of the Bauer and Rizzuto Options. An
additional 200,000 shares were issued in February 1996 pursuant to the
exercise of the Bauer and Rizzuto Options.
F-16
<PAGE>
H. CONSULTING AGREEMENTS (continued)
The issuance of the September 1992 Cohen Shares, the February 1993 Cohen
Shares, the 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.
I. 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,
Thailand, Singapore, Hong Kong, Taiwan, Malaysia, Mexico, Saudi Arabia,
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.
J. 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.
K. INCOME TAXES
As of December 31, 1995, the Company had a net operations loss carryover
of approximately $3,500,000 for both financial reporting and tax reporting
purposes which will, if unused, expire from 2000 to 2008.
F-17
<PAGE> 2
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1996 December 31,
ASSETS (Unaudited) 1995
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 360,988 $ 65,230
Investments 513,000 479,000
Inventory 19,729 18,091
Other current assets 7,618 12,967
---------- ----------
Total current assets 901,335 575,288
Property and Equipment 211,344 214,494
Other Assets 6,459 6,459
---------- ----------
Total assets $1,119,138 $ 796,241
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,943 $ 3,750
Accrued taxes 2,325 3,101
Customer deposits 7,800 7,800
---------- ----------
Total current liabilities 13,068 14,651
---------- ----------
Commitments and Contingencies - -
Stockholders' Equity:
Common stock; 1,000,000,000 shares of
$.00001 par value authorized; 256,838,508
shares issued and outstanding 2,569 2,512
Additional paid-in capital 4,867,697 4,475,875
Deficit accumulated in the development stage (3,764,196) (3,696,797)
---------- ----------
Total stockholders' equity 1,106,070 781,590
---------- ----------
Total liabilities and stockholders' equity $1,119,138 $ 796,241
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-18
<PAGE> 3
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
Inception
February 20,
1984 to
1996 1995 March 31, 1996
----------- ------------ --------------
<S> <C> <C> <C>
Revenue:
Sales $ 7,685 $ 2,359 $ 175,615
Interest 3,223 2,162 301,836
Sales of territorial rights - 25,000 80,000
------------ ------------ -----------
10,908 29,521 557,451
------------ ------------ -----------
Costs and Expenses:
Research and development 160 30,931 850,908
General and administrative 74,477 61,026 3,304,695
Depreciation and amortization 3,670 3,670 163,834
Interest - - 2,210
------------ ------------ -----------
78,307 95,627 4,321,647
------------ ------------ -----------
Net loss $ (67,399) $ (66,106) $(3,764,196)
============ ============ ===========
Net loss per share of common stock $ (.00) $ (.00) $ (.00)
============ ============ ===========
Weighted Average Number of
Common Shares Outstanding 250,922,624 244,031,991
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
F-19
<PAGE> 4
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
INCEPTION (FEBRUARY 20, 1984) TO MARCH 31, 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, 1994) - $ 1,000 $ - $ (1,000)
as previously reported
Adjustment for pooling of interest - (1,000) 1,000 -
----------- ------- -------- --------
Balance, inception, as restated - - 1,000 (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 .03 819,860 9 24,587 -
"A" warrants
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 condensed consolidated financial statements.
F-20
<PAGE> 5
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO MARCH 31, 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 $.03 38,622,618 386 1,158,321 -
"A" warrants
Expenses of stock issuance - - (11,357) -
Acquisition of subsidiary for cash - - (46,000) -
Cancellation of debt due to stockholders - - 86,565 -
Net loss, year 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 condensed consolidated financial statements.
F-21
<PAGE> 6
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO MARCH 31, 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, year 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 condensed consolidated financial statements.
F-22
<PAGE> 7
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO MARCH 31, 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 .08 356,400 4 28,508 -
Issuance of common stock; exercise of options .10 1,967,000 20 196,680 -
Net loss, three months ended March 31, 1996 - - - (67,399)
----------- ------ ---------- -----------
Balance, March 31, 1996 256,838,508 $2,569 $4,867,696 $(3,764,196)
=========== ====== ========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-23
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
--------------------------- Inception
(February 20,
1984) to
1996 1995 March 31, 1996
-------- -------- --------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(67,399) $(66,106) $(3,764,196)
-------- -------- -----------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 3,670 3,670 162,234
Exchange of common stock for services rendered - - 1,197,000
(Increase) decrease in other current assets 5,349 5,222 (7,618)
(Increase) decrease in inventory (1,638) - (19,729)
(Increase) in other assets - - (6,459)
Increase (decrease) in accounts payable and accrued liabilities (1,583) (1,529) 13,068
-------- -------- -----------
Total adjustments 5,798 7,363 1,338,496
-------- -------- -----------
Net cash used in operating activities (61,601) (58,743) (2,425,700)
-------- -------- -----------
Cash Flows from Investing Activities:
(Increase) decrease in investments (34,000) - (513,000)
Repayments on loan receivable - stockholder - 8,762 -
Expenditures for property and equipment (520) - (373,578)
-------- -------- -----------
Net cash provided by investing activities (34,520) 8,762 (886,578)
-------- -------- -----------
Cash Flows from Financing Activities:
Proceeds from sale of securities, net of issuance costs 391,879 342,287 3,673,266
-------- -------- -----------
Net cash provided by financing activities 391,879 342,287 3,673,266
-------- -------- -----------
Net Increase in Cash and Cash Equivalents 295,758 292,306 360,988
Cash and Cash Equivalents, Beginning of Period 65,230 202,441 -
-------- -------- -----------
Cash and Cash Equivalents, End of Period $360,988 $494,747 $ 360,988
======== ======== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-24
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements at March 31,
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 March 31, 1996
and the results of operations for the three months then ended. 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. For further information, refer to 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.
Product Liability
The Company could be subjected to claims for adverse reactions resulting from
the use of RETICULOSE. While the Company is unaware of
F-25
<PAGE>
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 using processes similar to those of the Company.
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>
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.
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 May 15, 1996 there are outstanding Plata
Options to acquire 1,348,300 shares at $.11 per share and Additional Plata
Options to acquire 858,000 shares at $.13 per share through December 31, 1996.
Through March 31, 1996, the
F-26
<PAGE>
Company has received approximately $384,000 pursuant to the issuance of
approximately 4.5 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
March 31, 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 will not include a placebo control group or reference to any other
antiviral drug.
Pursuant to the Argentine Agreement the Company is obligated to deliver
$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"). Upon delivery of the Written Report to the
Company, the Company shall deliver 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
F-27
<PAGE>
Report, at a purchase price of $.20 per share.
On April 22, 1996 DCT informed the Company that DCT was informed by Dr.
Flichman that the Clinical Trials had commenced April 15, 1996 and that the
Clinical Trials will last approximately 90 days.
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.
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 shall 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 March 31, 1996, no
options had been exercised 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; (ii) options to purchase 5,000,000 shares
exercisable at any time and from time to time commencing March 24, 1997 and
ending March 23, 1999 at an exercise price of $.27 per share; 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. 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.
C. 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
F-28
<PAGE>
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 March 31, 1996 none of the September 1992 Cohen Options have
been exercised.
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 three month period ended March 31, 1996, 855,000 shares of Common
stock 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 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.
D. 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, Thailand, Singapore, Hong Kong,
Taiwan, Malaysia, Mexico, Saudi Arabia, Argentina, Bolivia, Paraguay, Uruguay,
Brazil Chile, Channel Islands, The Isle of Man, British West Indies, Jamaica,
Haiti Bermuda, and Belize. Pursuant
F-29
<PAGE>
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.
E. 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 three
month period ended March 31, 1996, the Company issued, pursuant to the exercise
of stock options, approximately 5.7 million shares of Common Stock for an
aggregate consideration of approximately $175,000.
Subsequent to March 31, 1996, the Company issued pursuant to the exercise of
stock options approximately 5.0 million shares of Common Stock for an aggregate
consideration of approximately $500,000.
F-30
<PAGE>
No dealer, salesperson or other persons is authorized to give any information or
to make any representations in connection with this offering other than those
contained in this Prospectus and, if given or made, such information or
representations must be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy the Securities offered hereby by anyone in any jurisdiction in
which such offer or solicitation is not authorized or is unlawful. The delivery
of this Prospectus shall not, under any circumstances, create any implication
that the information herein is correct as of any time subsequent to the date of
this Prospectus.
TABLE OD CONTENTS Page
Additional Information 2
Prospectus Summary 3
The Company 3
Glossary 6
Selected Financial Data 7
High Risk Factors 8
Dilution 15
Market Information 16
Divided Policy 17
Use of Proceeds 17
Capitalization 18
Management's
Discussion and Analysis
of Financial Condition and Results
of Operation 19
Business 22
Management 43
Principal Shareholders 46
Certain Transactions 46
Selling Security Holders 46
Description
of Securities 48
Shares Eligible for Future
Sale 49
Litigation 49
Legal Matters 50
Experts 50
Sources 52
Index of Financial
Statements F-1
ADVANCED VIRAL
RESEARCH CORP.
---------------
PROSPECTUS
---------------
34,361,300 Shares of Common Stock
August , 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
- -----------------------------------------------------
The following table sets forth the estimated expenses to be incurred
in connection with the offering of the securities:
Amount
SEC Registration Fee $2,369.00
Printing Costs* $ 325.00
Legal Fees and Expenses* $1,500.00
Accounting Fees and Expenses* $2,000.00
Miscellaneous* $ 500.00
Total $6,694.00
*Indicates expenses that have been estimated for the purposes of this filing.
Item 14. Indemnification of Directors and Officers.
- ---------------------------------------------------
Article "Ninth" of the Company's Certificate of Incorporation contains
the following provision with respect to indemnification of Directors and
Officers:
Ninth: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all
of the expenses, liabilities or other matters referred to in or covered
by said section, and the indemnification provided for herein shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any By-law, agreement, vote of stockholders or disinterested Directors
or otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office, and shall continue as to
a person, who has ceased to be director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of
such a person.
Section 145 of the General: Corporate Law of the State of Delaware
contains provisions regarding indemnification, among others, of officers
and directors. Section 145 of the General Corporate Law of the State of
Delaware provides in relevant part:
(a) a corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending
or completed
1
<PAGE>
action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by
or in the right of the corporation) by reason of the fact
that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys
fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action,
suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any,
criminal action or proceeding, has no reasonable cause to
believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which
he 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 reasonable cause to believe that
his conduct was unlawful.
(b) A corporation may indemnify any person who was or is
a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of
the corporation to procure a judgement in its favor by reason
of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including
attorney's fee) actually and reasonably incurred by him
in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of
the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court
of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances
of the case, such person is fairly and
2
<PAGE>
reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or
agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding
referred to in subsections (a) and (b) of this section,
or in defense of any claim, issue or, matter therein, he
shall be "indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under subsections (a) and (b) of
this section (unless ordered by a court) shall be made by
the corporation only as authorized in the specific case
upon a determination that indemnification of the director,
officer, employee or agent is in proper in the circumstances
because he has met the applicable standard of conduct set
forth in subsections (a) and (b) of this section. Such
determination shall be made (1) by the board of directors
by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or
(2) if such a quorum is not obtainable, or, even if obtainable
a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
The Company's Certificate of Incorporation, was amended December 30, 1987,
to limit or eliminate director liability by incorporating in new Article
"Eleventh" which provides:
A director of the Corporation shall not be personally liable the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director
duty of loyalty to the Corporation for its stockholders (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of laws (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
an improper personal benefit.
Item 15. Recent Sales of Unregistered Securities.
- -------------------------------------------------
The following table sets forth the Company's sales of unregistered
securities for past three years. All transactions listed below involved
the issuance of Shares or Common Stock and options to acquire Shares of
Common Stock and options to acquire Shares of Common Stock prior to
commencement of the offering described in the foregoing Prospectus. No
underwriters were employed with respect to the sale of any of the
3
<PAGE>
securities listed below. All shares were issued in reliance upon Section
4 (2) and/or 3 (b) of the Act.
- -------------------------------------------------------------------------------
Securities Issued Purchaser Date Acquired Consideration
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,500,000 Leonard Cohen 4-25-94 Services (Consulting)
(1)
- -------------------------------------------------------------------------------
300,000 Leonard Cohen 6-23-95 Services (Consulting)
(2)
- -------------------------------------------------------------------------------
300,000 Richard Rubin 5-24-95 Service
- -------------------------------------------------------------------------------
500,000 Options at Richard Rubin 4-1-96 Service
each of $.19, $.27 and
$.36
- -------------------------------------------------------------------------------
5,000,000 Options at Elliot Bauer 4-25-94 Services (Consulting)
$.10 and 625,000 (1)
Shares
- -------------------------------------------------------------------------------
5,000,000 Options at Lee Rizzuto 4-25-94 Services (Consulting)
$.10 and 625,000 (1)
Shares
- -------------------------------------------------------------------------------
1,000,000 Shares Shalom Hirschman 5-24-95 Services (Consulting)
(1)
- -------------------------------------------------------------------------------
5,000,000 Options at Shalom Hirschman 4-1-96 Services (Consulting
$.18 and 4,000,000 (2)
Options at each of
$.19, $.27 and $.36
- -------------------------------------------------------------------------------
100,000 Shares Deborah Silver 5-24-95 Services (Consulting)
(2)
- -------------------------------------------------------------------------------
500,000 Options at Deborah Silver 4-1-96 Services (Consulting)
$.18 (2)
- -------------------------------------------------------------------------------
500,000 Options at Deborah Silver 4-1-96 Services (Consulting)
each of $.19, $.27 and (2)
$.36
- -------------------------------------------------------------------------------
3,000,000 Options at Commonwealth 10-24-94 Services (Consulting)
$.25 (2)
- -------------------------------------------------------------------------------
1,000,000 Options at Freddie Veler 4-1-96 Services (Consulting)
$.20 (2)
- -------------------------------------------------------------------------------
500,000 Options at Gary Hussian 4-1-96 Services (Consulting)
$.20 (2)
- -------------------------------------------------------------------------------
500,000 Options at Cesar Blumtritt 4-1-96 Services (Consulting)
$.20 (2)
- -------------------------------------------------------------------------------
(1) The 3,750,000 Shares issued for Consulting Services on 4-25-94 have
been valued at $.05 per Share.
(2) The 1,700,000 Shares issued for Consulting Services on 5-24-95 and 6-23-95
have been valued at $.11 per Share.
4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
- ----------------------------------------------------
Exhibit Number description
- --------------------------
3(a) Article of incorporation, as amended, and Bylaws.(1)
4(a) Specimen Common Stock and Warrant Certificates Offer of
Rescission.(1)
4(b) Warrant Agreement between the Company and American Stock Transfer
and Trust Company.(2)
4(c) Forms of Common Stocks Options and Agreements granted by the Company
to TRM Management Corp.(6)
4(d) Forms of Common Stocks Options and Agreements granted by the Company
to Elliott Bauer and Lee Rizzuto.(7)
4(e) Forms of Common Stocks Options and Agreements granted by the Company
to Shalom Hirschman and Deborah Silver.(7)
5(a) Option of Richard J. Rubin and Consent.(8)
10(a) Canadian Clinical Trials Agreement dated September 14, 1990.(4)
10(b) Letter, dated March 15, 1991 to the Company from Health Protection
Branch.(5)
10(c) Lease Agreement, dated February 16, 1993 between Stortford Brickell
Inc. and the Company.(9)
10(e) Report, dated October 4, 1989, of the tests conducted by Southern
Research Institute, Birmingham, Alabama.(4)(a)
10(g) Agreement, dated August 20, 1991, between the Company and TRM
Management Corp.(5)
10(h) Lease Agreement, dated December 18, 1991 between Bayview Associates,
Inc. and the Company(5).
10(i) Agreement, dated March 20, 1992, between Plata Partners Limited
Partnership and Company.(5)
10(j) Consulting Agreement dated September 18, 1992 between Leonard
Cohen and the Company.(6)
10(k) Option Agreement, dated February 28, 1993 between Leonard Cohen
and the Company.(9)
10(l) Consulting Agreement dated February 28, 1993 between Leonard Cohen
and the Company.(9)
10(m) Exclusive Distribution Agreement dated April 25, 1994 between
C.U.R.E. Pharmaceutical Corp. and the Company.(10)
10(n) Exclusive Distribution Agreement dated as of June 1, 1994 between
C.U.R.E. Pharmaceutical Central Americas Ltd. and the Company.(10)
10(o) Exclusive Distribution Agreement dated as of June 17, 1994 between
DCT S.R.L. and the Company as amended.(10)
10(p) Exclusive Distribution Agreement dated as of October 25, 1994
between Commonwealth Pharmaceuticals and the Company.(10)
10(q) Correspondence dated October 28, 1994 from Dr. Morisset to the
Company regarding the Canadian Compassionate Treatment.(11)(b)(v)
10(r)(i) Exclusive Distribution Agreement dated as of June 2, 1995 between
AVIX International Pharamaceutical Corp. and the Company.(11)
10(r)(ii) Modification Agreement, Exclusive Distribution Agreement and
Limited License Agreement and dated as of December 28, 1995 by
and between the Company, AVIX and Unistone.(12)(vi)
5
<PAGE>
10(s) Consulting Agreement between the Company and Shalom Hirschman and
Deborah Silver dated May 24, 1995.(7)
22 Subsidiaries of Registration - Advanced Viral Research, Ltd., a
Bahamian corporation.(6)
24(a) Consent of Rachlin, Cohen & Holtz, independent certified public
accountants.(8)
24(b) Consent of Dr. Angelo A. Chinnici.(8)
24(c) Consent of Dr. Anthony J. Mangia.(8)
24(d) Consent of Dr. Shalom Hirschman.(8)
24(e) Consent of Dr. Juan Carlos Flichman.(8)
Footnotes to Exhibit List
(1) Documents incorporated by reference herein to certain exhibits the
Company's Registration Statement on Form S-1, as amended, File No.
33-33895, filed with the Securities and Exchange Commission.
(2) Documents incorporated by reference herein to certain exhibits to
the Company's Registration Statement on Form S-18, File No. 33-2262-A,
filed with the Securities and Exchange Commission on February 12,
1998.
(3) Documents incorporated by reference herein to certain exhibits to
the Company's Post-Effective Amendment No.'s 1, 2 and 3 to the Company's
Registration Statement on Form S-1, File No. 33-33895, filed with
the Securities and Exchange Commission.
(4)(a) Documents incorporated by reference herein to certain exhibits to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989.
(4)(b) Documents incorporated by reference herein to certain exhibits to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
(5) Documents incorporated by reference herein to certain exhibits to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
(6) Documents incorporated by reference herein to certain exhibits to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.
(7) Documents incorporated by reference herein to certain exhibits the
Company's Registration Statement on Form S-1, File No. 33-74454,
filed with the Securities and Exchange Commission.
(8) Filed herewith.
(9) Documents incorporated by reference herein to certain exhibits to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993.
(10) Documents incorporated by reference herein to certain exhibits to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994.
6
<PAGE>
(11) Documents incorporated by reference herein to certain exhibits to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995.
(12) Incorporated by reference herein to the Company's Reports on Form
8-K and Exhibits thereto as follows:
(i) A report on Form 8-K dated December 27, 1993.
(ii) A report on Form 8-K dated April 25, 1994.
(iii) A report on Form 8-K dated June 24, 1994.
(iv) A report on Form 8-K dated October 26, 1994.
(v) A report on Form 8-K dated October 28, 1994.
(vi) A report on Form 8-K dated December 28, 1995.
(vii) A report on Form 8-K dated January 16, 1996.
(viii) A report on Form 8-K dated January 31, 1996.
(ix) A report on Form 8-K dated April 18, 1996.
(x) A report on Form 8-K dated April 30, 1996.
7
<PAGE>
Item 17. Undertakings.
- ----------------------
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933
as amended; (ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof which individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement (iii) to include by material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) For the purpose of determining any liability under the Securities
Act of 1933 as amended each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such
8
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended,
Advanced Viral Research Corp., has duly caused this Registration Statement
on Form S-1 to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Miami, Florida on day of August, 1995.
ADVANCED VIRAL RESEARCH CORP.
By:____________________________
Bernard Friedland, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed hereinbelow by the
following persons in the capacities and on the dates indicated.
________________________ President - Chief Executive 8/ /1996
Bernard Friedland Officer and Director
________________________ Secretary-Treasurer and 8/ /1996
William Bregman Director (Principal
Financial and Accounting Officer)
________________________ Director 8/ /1996
Louis J. Silver
9
<PAGE>
Exhibit 5A
RICHARD J. RUBIN
Attorney at Law
Suite 508
1650 Broadway
New York, N.Y. 10019
--------
(212) 581-6908
FAX (212) 581-6906
ALSO MEMBER OF DISTRICT
OF COLUMBIA BAR
August 8, 1996
Advanced Viral Research Corp.
1250 East Hallandale Beach Blvd.
Suite 415
Hallandale, Fl. 33009
RE: ADVANCED VIRAL RESEARCH CORP.
Gentlemen:
I have acted as counsel to Advanced Viral Research Corp. a Delaware
corporation ("the Company"), and certain Selling Security Holders (as defined
in the Company's Registration Statement) in connection with the proposed
issuance and sale of the following securities registered on a Form S-1
Registration Statement File No. 33- (the "Registration Statement") filed
with the Securities Act of 1933, as amended (the "Act"):
1. A total of 34,361,300 Shares of Common Stock, including 32,205,800
Shares Holders Common Stock Purchase Options, and 2,155,500 Shares.
In rendering the option expressed herein, I have examined the following
documents and instruments:
1. The Registration Statement, the exhibits filed or to be filed in
connection therewith, and the form of Prospectus contained therein;
2. The Company's Certificate of Incorporation, as amended, as certified
by the Secretary of the State of Delaware;
3. The Company's Bylaws; and
4. The resolution adopted by the board of Directors of the Company
authorizing the issuance and sale of the Company's securities pursuant
to the terms contained in the Registration Statement.
In addition, I have obtained from public officials and from officers
of the Company certificates, agreements and assurances and examined originals
or copies, identified to our satisfaction, such other certificates, agreements
and other assurances as we considered necessary for the rendering of the opinion
hereinafter expressed.
<PAGE>
RICHARD J. RUBIN
Attorney at Law
Suite 508
1650 Broadway
New York, N.Y. 10019
------
(212) 581-6908
FAX (212) 581-6906
ALSO MEMBER OF DISTRICT
OF COLUMBIA BAR
I have also consulted with officers and directors of the Company and
have obtained such representations with respect to the matters of fact as
I have deemed necessary or advisable for purposes of rendering the opinion
hereinafter expressed. I have independently verified the factual statements
made to us in connection therewith, nor the veracity of such representations.
Based on the foregoing, it is my opinion that:
After the commission has declared the Registration Statement effective
(such Registration Statement as is finally declared effective and the form
of Prospectus contained therein being hereinafter referred to as the
"Registration Statement" and the "Prospectus", respectively) and when the
applicable provisions of "Blue Sky" or other state securities laws shall
have been applied with, the Company's securities covered by the Registration
Statement, when issued and sold in accordance with the terms of the
Registration Statement, upon receipt of payment therefor, will constitute
legally issued securities of the Company's, fully paid and non-assessable.
I hereby consent to the use of this opinion as an exhibit to Registration
Statement and to the reference of this law firm in Prospectus under the
heading "Legal Matters". In giving this consent, I do not hereby admit that I
am in the category of person whose consent is required under Section 7 of
the Act of the rules and regulations of the Commission promulgated thereunder.
Respectfully submitted,
/s/ Richard J. Rubin
--------------------
Richard J. Rubin
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended,
Advanced Viral Research Corp., had duly caused this Registration Statement
on Form S-1 to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Miami, Florida on 9th day of August, 1996.
ADVANCED VIRAL RESEARCH CORP.
By: /S/ Bernard Friedland
-------------------------------
Bernard Friedland, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed hereinbelow by the
following persons in the capacities and on the dates indicated.
/S/ Bernard Friedland President - Chief Executive 8/9/1996
- --------------------- Officer and Director
Bernard Friedland
/S/ William Bregman Secretary-Treasurer and 8/9/1996
- --------------------- Director (Principal
William Bregman Financial and Accounting Officer)
/S/ Louis J. Silver Director 8/9/1996
- ---------------------
Louis J. Silver
<PAGE>
Consent of Independent Auditors
-------------------------------
We consent to the use in Form S-1 Registration Statement, dated August 8,
1996 of Advanced Viral Research Corp. of our report dated March 7, 1996
accompanying the consolidated financial statements of Advanced Viral Research
Corp. contained in such Registration Statement, and to the use of our name,
and the statements with respect to us, as appearing under the heading "Experts"
in the Prospectus.
/s/ Rachlin Cohen & Holtz
RACHLIN COHEN & HOLTZ
Miami, Florida
August 8, 1996
<PAGE>
Exhibit 24B
Angelo Chinnici, M.D.
601 Sunset Avenue
Asbury Park, NJ 07712
August 7, 1996
Advanced Viral Research Corp.
1250 East Hallandale Beach Blvd.
Suite 501
Hallandale, Fl. 33009
Re: Consent
Gentlemen:
I hereby consent to the use of my name and reference to me in the Registration
Statement of Advanced Viral Research Corp. and any amendments thereto.
/S/ Angelo Chinnici, M.D.
-------------------------
Angelo Chinnici, M.D.
<PAGE>
Exhibit 24C
Anthony Mangia, M.D.
239 Washington St.
Jersey City, N.J. 07302
August 8, 1996
Advanced Viral Research Corp.
1250 East Hallandale Beach Blvd.
Suite 501
Hallandale, Fl. 33009
Re: Consent
Gentlemen:
I hereby consent to the use of my name and reference to me in the Registration
Statement of Advanced Viral Research Corp. and any amendment thereto.
/S/ Anthony Mangia, M.D.
------------------------
Anthony Mangia, M.D.
<PAGE>
Exhibit 24D
Shalom Z. Hirschman
5240 Blackstone Avenue
Bronx NY 10471
August 7, 1996
Advanced Viral Research Corp.
1250 East Hallandale Beach Blvd.
Suite 501
Hallandale, Fl. 33009
Re: Consent
Gentlemen:
I hereby consent to the use of my name and reference to me in the Registration
Statement of Advanced Viral Research Corp. and any amendment thereto.
/S/ Shalom Z. Hirschman
-------------------------
Shalom Z. Hirschman
<PAGE>
Exhibit 24E
Juan Carlos Flichman, M.D.
August 8, 1996
Advanced Viral Research Corp.
1250 East Hallandale Beach Blvd.
Suite 501
Hallandale, Fl. 33009
Re: Consent
Gentlemen:
I hereby consent to the use of my name and reference to me in the Registration
Statement of Advanced Viral Research Corp. and any amendment thereto.
/S/ Juan Carlos Flichman, M.D.
------------------------------
Juan Carlos Flichman, M.D.
