<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number
33-2262-A
ADVANCED VIRAL RESEARCH CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 59-2646820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1250 East Hallandale Beach Blvd., Suite 501, Hallandale, Florida 33009
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (954) 458-7636
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No
The number of shares outstanding of the issuer's classes of common stock as of
March 31, 1997 was 270,414,391.
Traditional Small Business Disclosure Format (check one)
Yes [X] No
<PAGE> 2
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
FORM 10-QSB
QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
FINANCIAL INFORMATION (UNAUDITED)
Consolidated Condensed Balance Sheets, March 31, 1997 and December 31, 1996 1
Consolidated Condensed Statements of Operations for the Three Months Ended March 31, 1997
and 1996 and from Inception (February 20, 1984) to March 31, 1997 2
Consolidated Condensed Statements of Stockholders' Equity from Inception (February 20, 1984)
to March 31, 1997 3-6
Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 1997
and 1996 and from Inception (February 20, 1984) to March 31, 1997 7
Notes to Consolidated Condensed Financial Statements 15
Management's Discussion and Analysis or Plan of Operation
PART II
CHANGES IN SECURITIES, EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
</TABLE>
<PAGE> 3
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Condensed from
Audited
March 31, 1997 Financial Statements
(Unaudited) December 31, 1996
-------------- --------------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 1,441,324 $ 61,396
Investments 760,194 1,378,841
Inventory 19,729 19,729
Other current assets 40,452 16,081
----------- -----------
Total current assets 2,261,699 1,476,047
Property and Equipment 235,213 207,209
Other Assets 187,053 33,544
----------- -----------
Total assets $ 2,683,965 $ 1,716,800
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued liabilities $ 37,539 $ 46,674
Customer deposits 7,800 7,800
----------- -----------
Total current liabilities 45,339 54,474
----------- -----------
Convertible Debenture, Net of beneficial conversion
feature and discount on warrants 782,335 --
Commitments and Contingencies -- --
Stockholders' Equity:
Common stock; 1,000,000,000 shares of $.00001 par value
authorized; 270,414,391 and 267,031,058 shares issued and outstanding 2,704 2,671
Additional paid-in capital 7,722,519 7,003,351
Subscription receivable (19,000) (19,000)
Deficit accumulated during the development stage (5,472,912) (4,851,537)
Deferred compensation cost (377,020) (473,159)
----------- -----------
Total stockholders' equity 1,856,291 1,662,326
----------- -----------
Total liabilities and stockholders' equity $ 2,683,965 $ 1,716,800
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
-1-
<PAGE> 4
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31, Inception
--------------------------------- (February 20, 1984)
1997 1996 to March 31, 1997
------------- ------------- -------------------
<S> <C> <C> <C>
Revenues:
Sales $ 303 $ 7,685 $ 192,344
Interest 14,610 3,223 360,019
Other income -- -- 112,000
------------- ------------- -------------
14,913 10,908 664,363
------------- ------------- -------------
Costs and Expenses:
Research and development 70,214 160 1,176,622
General and administrative 326,985 74,477 4,540,459
Depreciation and amortization 5,719 3,670 184,614
Interest 233,370 -- 235,580
------------- ------------- -------------
636,288 78,307 6,137,275
------------- ------------- -------------
Net Loss $ (621,375) $ (67,399) $ (5,472,912)
============= ============= =============
Net Loss Per Common Share $ (.00) $ (.00)
============= =============
Weighted Average Number of Common Shares Outstanding 267,381,641 250,922,624
============= =============
</TABLE>
See notes to consolidated condensed financial statements.
-2-
<PAGE> 5
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
INCEPTION (FEBRUARY 20, 1984) TO MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Deficit
-------------------- Accumulated
Amount Additional during the
Per Paid-In Development
Share Shares Amount Capital Stage
----- ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance, inception (February 20, 1984)
as previously reported -- $ 1,000 $ -- $ (1,000)
Adjustment for pooling of interests -- (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)
----------- -------- --------- ----------
</TABLE>
See notes to consolidated condensed financial statements.
-3-
<PAGE> 6
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Deficit
------------------------- Accumulated
Amount Additional during the
Per Paid-In Development
Share Shares Amount Capital Stage
----- ------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1986 154,666,014 $ 1,547 $ 307,534 $ (203,942)
Issuance of common stock, exercise of "A" warrants $.03 38,622,618 386 1,158,321 --
Expenses of stock issuance -- -- (11,357) --
Acquisition of subsidiary for cash -- -- (46,000) --
Cancellation of debt due to stockholders -- -- 86,565 --
Net loss, period ended December 31, 1987 -- -- -- (258,663)
----------- ----------- ------------- -----------
Balance, December 31, 1987 193,288,632 1,933 1,495,063 (462,605)
Net loss, year ended December 31, 1988 -- -- -- (199,690)
----------- ----------- ------------- -----------
Balance, December 31, 1988 193,288,632 1,933 1,495,063 (662,295)
Net loss, year ended December 31, 1989 -- -- -- (270,753)
----------- ----------- ------------- -----------
Balance, December 31, 1989 193,288,632 1,933 1,495,063 (933,048)
Issuance of common stock, expiration of redemption
offer on "B" warrants .05 6,729,850 67 336,475 --
Issuance of common stock, exercise of "B" warrants .05 268,500 3 13,422 --
Issuance of common stock, exercise of "C" warrants .08 12,900 -- 1,032 --
Net loss, year ended December 31, 1990 -- -- -- (267,867)
----------- ----------- ------------- -----------
Balance, December 31, 1990 200,299,882 $ 2,003 $ 1,845,992 $(1,200,915)
----------- ----------- ------------- -----------
</TABLE>
See notes to consolidated condensed financial statements.
-4-
<PAGE> 7
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY~(Continued)
INCEPTION (FEBRUARY 20, 1984) TO MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Deficit
-------------------- Accumulated
Amount Additional during 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, for testing .040 10,000,000 100 404,900 --
Issuance of common stock, 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, for consulting services .055 500,000 5 27,495 --
Issuance of common stock, for consulting services 3,500,000 35 104,965 --
Issuance of common stock, for testing .035 5,000,000 50 174,950 --
Net loss, year ended December 31, 1993 -- -- -- (563,309)
----------- -------- ----------- ------------
Balance, December 31, 1993 236,276,991 $ 2,363 $ 3,416,070 $ (2,854,076)
----------- -------- ----------- ------------
</TABLE>
See notes to consolidated condensed financial statements.
-5-
<PAGE> 8
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Deficit
----------------- Accumulated
Amount Additional during the Deferred
Per Paid-In Subscription Development Compensation
Share Shares Amount Capital Receivable Stage Cost
----- ------ -------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 236,276,991 $ 2,363 $3,416,070 $ -- $ (2,854,076) $ --
Issuance of common stock, 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, for consulting
services .11 1,150,000 12 126,488 -- -- --
Issuance of common stock, 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 33 166,634 -- -- --
Issuance of common stock, exercise of options .08 1,158,850 12 92,696 -- -- --
Issuance of common stock, exercise of options .10 7,163,600 72 716,288 -- -- --
Issuance of common stock, exercise of options .11 170,000 2 18,698 -- -- --
Issuance of common stock, exercise of options .12 1,300,000 13 155,987 -- -- --
Issuance of common stock, exercise of options .18 1,400,000 14 251,986 -- -- --
Issuance of common stock, exercise of options .19 500,000 5 94,995 -- -- --
Issuance of common stock, exercise of options .20 473,500 5 94,695 -- -- --
Issuance of common stock, for services rendered .50 350,000 3 174,997 -- -- --
Options granted -- -- 760,500 -- -- (473,159)
Subscription receivable -- -- -- (19,000) -- --
Net loss, year ended December 31, 1996 -- -- -- -- (1,154,740) --
----------- ------- ---------- -------- ------------- ---------
Balance, December 31, 1996 267,031,058 2,671 7,003,351 (19,000) (4,851,537) (473,159)
----------- ------- ---------- -------- ------------- ---------
Issuance of common stock, for consulting
services 0.41 50,000 -- 20,500 -- -- --
Issuance of common stock, exercise of options 0.08 3,333,333 33 247,653 -- -- --
Beneficial conversion feature -- -- 413,793 -- -- --
Warrant costs -- -- 37,242 -- -- --
Amortization of deferred compensation costs -- -- -- -- -- 96,139
Net loss, three months ended March 31, 1997 -- -- -- -- (621,375) --
----------- ------- ---------- -------- ------------- ---------
Balance, March 31, 1997 270,414,391 $ 2,704 $7,722,519 $(19,000) $ (5,472,912) $(377,020)
=========== ======= ========== ======== ============= =========
</TABLE>
See notes to consolidated condensed financial statements.
-6-
<PAGE> 9
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31, Inception
---------------------------- (February 20, 1984)
1997 1996 to March 31, 1997
----------- --------- ------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (621,375) $ (67,399) $(5,472,912)
----------- --------- -----------
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 6,029 3,670 184,924
Amortization of deferred interest cost on
beneficial conversion feature of convertible
debenture 233,060 -- 233,060
Amortization of deferred compensation cost 96,139 -- 383,480
Issuance of common stock for services 20,500 -- 1,392,500
(Increase) decrease in other current assets (24,371) 5,349 (59,452)
Increase in inventory -- (1,638) (19,729)
Increase in other assets (154,395) -- (187,939)
Increase (decrease) in accounts payable
and accrued liabilities (9,135) (1,583) 43,739
----------- --------- -----------
Total adjustments (167,827) 5,798 1,970,583
----------- --------- -----------
Net cash used by operating activities (453,548) (61,601) (3,502,329)
----------- --------- -----------
Cash Flows from Investing Activities:
Purchase of investments -- (34,000) (1,726,256)
Proceeds from sale of investments 618,647 -- 966,062
Repayments on loan receivable - stockholder -- -- --
Expenditures for property and equipment (32,837) (520) (417,341)
----------- --------- -----------
Net cash provided (used) by investing activities 585,810 (34,520) (1,177,535)
----------- --------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of convertible debenture 1,000,000 -- 1,000,000
Proceeds from sale of securities, net of issuance costs 266,666 391,879 5,121,188
----------- --------- -----------
Net cash provided by financing activities 1,266,666 391,879 6,121,188
----------- --------- -----------
Net Increase in Cash and Cash Equivalents 1,398,928 295,758 1,441,324
Cash and Cash Equivalents, Beginning 42,396 65,230 --
----------- --------- -----------
Cash and Cash Equivalents, Ending $ 1,441,324 $ 360,988 $ 1,441,324
=========== ========= ===========
</TABLE>
See notes to consolidated condensed financial statements.
-7-
<PAGE> 10
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
at March 31, 1997 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
financial position as of March 31, 1997 and results of operations for
the three months ended March 31, 1997 and 1996 and cash flows for the
three months ended March 31, 1997 and 1996. All such adjustments are of
a normal recurring nature. The results of operations for interim
periods are not necessarily indicative of the results to be expected
for a full year. The statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1996.
NOTE 2. COMMITMENTS AND CONTINGENCIES
GOING CONCERN
The accompanying unaudited consolidated condensed financial
statements at March 31, 1997 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 may 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, 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
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 seek additional debt
financing. No assurance can be given that the Company will be
able to sustain its operations until 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.
POTENTIAL CLAIM FOR ROYALTIES
The Company may be subject to claims from certain third parties for
royalties due on sale of RETICULOSE. The Company has not as yet
received any notice of claim from such parties.
-8-
<PAGE> 11
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 2. COMMITMENTS AND CONTINGENCIES
POTENTIAL LOSS OF BAHAMIAN RIGHTS
RETICULOSE is manufactured by Advance Viral Research Limited (LTD)
in facilities located in Freeport, Grand Bahama Island. LTD has a
license to manufacture pharmaceutical products for export from The
Grand Bahama Port Authority, Limited. LTD's counsel 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. LTD has received an opinion of its counsel in the
Bahamas that the license from The Grand Bahama Port Authority,
Limited is valid for the manufacture, export and sale by LTD 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,
LTD intends to defend them vigorously. No assurance can be given
that LTD would successfully defend such proceedings.
PRODUCT LIABILITY
The Company could be subjected to claims for adverse reactions
resulting from the use of RETICULOSE. Although 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.
There can be no assurance that the Company would be able
to secure such insurance in adequate amounts, at reasonable
premiums, if it determined to do so. 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 and
could materially adversely affect the Company.
LACK OF PATENT PROTECTION
The Company does not presently have a patent for RETICULOSE but the
Company is currently applying for patents for RETICULOSE as a
treatment for certain diseases. The Company can give no assurance
that other companies, having greater economic resources, will not
be successful in developing a similar product. There can be no
assurance that the Company will obtain such patents or if obtained
that they will be enforceable.
TESTING AGREEMENTS
PLATA PARTNERS LIMITED PARTNERSHIP
On March 20, 1992, the Company entered into an agreement with Plata Partners
Limited Partnership ("Plata") pursuant to which Plata agreed to perform a
demonstration in the Dominican Republic in accordance with a certain agreed upon
protocol (the "Protocol") to assess the efficacy of a treatment using RETICULOSE
incorporated in the Protocol against AIDS (the "Plata Agreement"). Plata covered
all costs and expenses associated with the demonstration.
-9-
<PAGE> 12
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 2. COMMITMENTS AND CONTINGENCIES
Pursuant to the Plata Agreement, the Company authorized the
issuance to Plata of 5,000,000 shares of common stock, and options
to purchase an 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 (the "Additional Plata
Options"). Pursuant to several amendments, the Plata Options and
the Additional Plata Options are exercisable through April 30, 1997
at an exercise price of $.12 and $.14, respectively. As of March
31, 1997, there are outstanding Plata Options to acquire 813,000
shares at an exercise price of $.12 per share and Additional Plata
Options to acquire 858,100 shares at an exercise price of $.14 per
share. Through March 31, 1997, the Company has received
approximately $670,000 pursuant to the issuance of approximately
7.7 million shares in connection with the exercise of the Plata
Options and the Additional Plata Options. The Board of Directors of
the Company is currently considering extending the period of
exercisability of the Plata Options and the Additional Plata
Options.
TRM MANAGEMENT CORP.
In August 1991, the Company entered into an agreement with TRM
Management Corp. ("TRM"), whereby TRM performed, at the Company's
expense, a controlled open clinical trial test in Haiti (the
"Haiti Tests") 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 issued 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
December 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. Pursuant to an amendment, the TRM
Options are exercisable through March 15, 1997 at an exercise
price of $.08. In March 1997, the remaining 3,333,333 shares of
common stock were issued pursuant to the exercise of the TRM
options for an aggregate exercise price of $266,667.
ARGENTINE AGREEMENT
In April 1996, the Company entered into an agreement (the
"Argentine Agreement") with DCT S.R.L., 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 were not a double-blind study and did not include a
placebo control group or reference to any other anti-viral drug.
-10-
<PAGE> 13
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 2. COMMITMENTS AND CONTINGENCIES
Pursuant to the Argentine Agreement, the Company paid
approximately $34,000 to DCT to cover out-of-pocket expenses
associated with the Clinical Trials. The Argentine Agreement
further provides that, at the conclusion of the Clinical Trials,
DCT shall cause Dr. Flichman to prepare and deliver a written
report to the Company regarding the methodology and results of the
Clinical Trials (the "Written Report"). In September 1996, the
Written Report was delivered by Dr. Flichman to the Company. Upon
delivery of the Written Report to the Company, the Company
delivered to the principals of DCT options to acquire 2,000,000
shares of the Company's common stock for a period of one year from
the date of the delivery of the Written Report, at an exercise
price of $.20 per share. As of March 31, 1997, 473,500 shares of
common stock were issued pursuant to the exercise of these options
for an aggregate exercise price of approximately $95,000.
In June 1994, DCT and the Company entered into an exclusive
distribution agreement whereby the Company granted to DCT,
subject to certain conditions, the exclusive right to market and
sell RETICULOSE in Argentina, Bolivia, Paraguay, Uruguay, Brazil
and Chile.
BARBADOS STUDY
A double-blind clinical trial using RETICULOSE in the treatment
of AIDS is being conducted at the Queen Elizabeth Hospital,
Bridgetown, Barbados (the "Barbados Study"). As of March 31, 1997,
the Company has expended approximately $250,000 to cover the costs
of the Barbados Study. Based on information received from the
coordinators of the Barbados Study, the Company is uncertain as to
the costs to be incurred in connection with the Barbados Study and
has not been informed as to when results from the Barbados Study
will be forthcoming. In December 1996, the Company received from
the coordinators of the Barbados Study, a written summary of
preliminary results of the Barbados Study (the "Written Summary").
HIRSCHMAN AGREEMENT
As of May 1995, the Company entered into a consulting agreement
with Shalom Z. Hirschman, M.D., then Professor of Medicine of The
Mount Sinai School of Medicine, New York, New York and Director of
Mount Sinai's Division of Infectious Diseases, whereby Dr.
Hirschman was to provide consulting services to the Company
through May 1997. The consulting services included the development
and location of pharmacological and biotechnology companies and
assisting the Company in seeking joint ventures with and financing
of companies in such industries.
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 an exercise price of $.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 an
exercise price of $.18 per share. As of March 31, 1997, 900,000
shares have been issued upon exercise of these options for cash
consideration of $162,000 under this Agreement.
-11-
<PAGE> 14
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 2. COMMITMENTS AND CONTINGENCIES
In March 1996, the Company entered into an addendum to the
consulting agreement with Dr. Hirschman whereby Dr. Hirschman
agreed to provide additional consulting services to the Company
through May 2000 (the "Addendum"). Pursuant to the Addendum, the
Company granted to Dr. Hirschman and his designees options to
purchase an aggregate of 15,000,000 shares of the Company's common
stock for a three year period pursuant to the following schedule:
(i) options to purchase 5,000,000 shares exercisable at any time
and from time to time commencing March 24, 1996 and ending March
23, 1999 at an exercise price of $.19 per share, of which options
to acquire 500,000 shares were assigned by Dr. Hirschman to Richard
Rubin, consultant to Dr. Hirschman; (ii) options to purchase
5,000,000 shares exercisable at any time and from time to time
commencing March 24, 1997 and ending March 23, 1999 at an exercise
price of $.27 per share, of which options to acquire 500,000 shares
were assigned by Dr. Hirschman to Richard Rubin, consultant to Dr.
Hirschman; and (iii) options to purchase 5,000,000 shares
exercisable at any time and from time to time commencing March 24,
1998 and ending March 23, 1999 at an exercise price of $.36 per
share, of which options to acquire 500,000 shares were assigned by
Dr. Hirschman to Richard Rubin, consultant to Dr. Hirschman. In
addition, the Company has agreed to cause the shares underlying
these options to be registered so long as there is no cost to the
Company. As of March 31, 1997, 500,000 shares of common stock were
issued pursuant to the exercise of stock options by Richard Rubin.
Mr. Rubin has, from time to time in the past, advised the Company
on matters unrelated to his representation of Dr. Hirschman.
As of October 14, 1996, the Company and Dr. Hirschman entered
into an agreement (the "Employment Agreement") whereby Dr.
Hirschman has agreed to serve as the President and Chief Executive
Officer of the Company for a period of three years, subject to
earlier termination by either party, either "for cause," as
defined in and in accordance with the provisions of the Employment
Agreement, or if the Company does not receive, on or prior to
December 31, 1997, funding of at least $3,000,000 from sources
other than traditional institutional/bank debt financing or
proceeds from the purchase by Dr. Hirschman of the Company's
securities, including, without limitation, the exercise by Dr.
Hirschman of outstanding stock options. Pursuant to the Employment
Agreement, Dr. Hirschman is entitled to receive an annual base
salary of $325,000, use of an automobile and major medical, term
life, disability and dental insurance benefits for the term of his
employment. The Employment Agreement further provides that Dr.
Hirschman shall be nominated by the Company to serve as a member
of the Company's Board of Directors and that Bernard Friedland and
William Bregman will vote in favor of Dr. Hirschman as a director
of the Company, for the duration of Dr. Hirschman's employment, and
since October 1996, Dr. Hirschman has served as a member of
the Company's Board of Directors.
-12-
<PAGE> 15
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 2. COMMITMENTS AND CONTINGENCIES
CONSULTING AGREEMENTS
COHEN AGREEMENTS
In September 1992, the Company entered into a consulting
agreement with Leonard Cohen (the "September 1992 Cohen
Agreement") for a one-year term. The September 1992 Cohen
Agreement required that Mr. Cohen provide certain consulting
services to the Company in exchange for the Company's issuing to
Mr. Cohen 1,000,000 shares of common stock (the "September 1992
Cohen Shares"), 500,000 shares 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 10, 1993 (which date has been
extended through April 30, 1997), the option to acquire 3,000,000
shares of common stock of the Company at an exercise price of $.09
per share (which exercise price has been increased to $.13 per
share) (the "September 1992 Cohen Options"). As of March 31, 1997,
1,300,000 of the September 1992 Cohen Options have been exercised
for cash consideration of $156,000. The Board of Directors of the
Company is currently considering extending the period of
exercisability of the September 1992 Cohen Options.
In February 1993, the Company entered into a second consulting
agreement with Leonard Cohen (the "February 1993 Cohen
Agreement") for a three-year term commencing on March 1, 1993. The
February 1993 Cohen Agreement provides that Mr. Cohen provide
financial business consulting services concerning the operation of
the business of the Company and possible strategic transactions
in exchange for the Company issuing to Mr. Cohen 3,500,000 shares
of common stock (the "February 1993 Cohen Shares"), 1,500,000
shares of which Mr. Cohen has informed the Company he has
assigned to certain other persons not affiliated with the Company
or any of its officers or directors.
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 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 had been granted certain distribution rights,
which were terminated on May 31, 1995. Through March 31, 1997,
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 year ended December 31, 1996, approximately
3,000,000 shares of common stock were issued for cash
consideration of $300,000 pursuant to the exercise of the
Bauer and Rizzuto Options. Pursuant to an amendment, the Rizzuto
options are exercisable through April 30, 1997 at an option price
of $.11. The Company agreed to issue to 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 the
affiliated distributor, the continued services of a doctor. The
Board of Directors of the Company is currently considering
extending the period of exercisability of the Rizzuto Options.
-13-
<PAGE> 16
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 2. COMMITMENTS AND CONTINGENCIES
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. During the year ended December 31, 1996, Mr. Cohen was issued
300,000 shares for services rendered. These shares were accounted
for as an administrative expense in the amount of the Company's
valuation of such shares as of the issuance date.
DISTRIBUTION AGREEMENTS
The Company currently is a party to separate agreements with
five different entities (the "Entities"), whereby the Company has
granted exclusive rights to distribute RETICULOSE in the countries of
China, Japan, Macao, Hong Kong, Taiwan, Mexico, Argentina, Bolivia,
Paraguay, Uruguay, Brazil, Chile, Channel Islands, The Isle of Man,
British West Indies, Jamaica, Haiti, Bermuda, Belize and Saudi Arabia.
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.
NOTE 3. CONVERTIBLE DEBENTURE
On February 21, 1997, in order to finance research and development, the
Company sold $1,000,000 principal amount of its ten-year 7% Convertible
Debenture due February 28, 2007 (the "Debenture"), to RBB Bank
Aktiengesellschaft ("RBB"). Accrued interest under the Debenture is
payable semiannually, computed at the rate of 7% per annum on the
unpaid principal balance from February 21, 1997 until the date of
interest payment. The Debenture may be prepaid by the Company before
maturity, in whole or in part, without premium or penalty, if the
Company gives the holder of the Debenture notice not less than 30 days
before the date fixed for prepayment in that notice. The Debenture is
convertible, at the option of the holder, into shares of common stock.
The Debenture is not convertible until April 14, 1997, is convertible
only to the extent of $333,333 from April 15, 1997 through April 29,
1997, is convertible only to the extent of $666,667 (less any amount
previously converted) from April 30, 1997 through May 29, 1997, and is
fully convertible after May 29, 1997.
Subsequent to March 31, 1997, RBB exercised its right to convert
$330,000 of principal amount of the Debenture into 1,648,352 shares
of the Company's common stock at a conversion price of $0.2002 per
share.
In connection with the issuance of the Debenture, the Company issued to
RBB three warrants (the "Warrants") to purchase common stock, each such
warrant entitling the holder to purchase, from February 21, 1997
through February 27, 2007, 178,378 shares of common stock. The
exercise prices of the Warrants are $0.288, $0.576 and $0.864 per
warrant share, respectively. The fair value of the Warrants was
estimated to be $37,000 ($.021 per warrant) based upon a financial
analysis of the terms of the Warrants using the Black-Sholls Pricing
Model. This amount has been reflected in the accompanying financial
statements as a discount on the convertible debenture, with a
corresponding credit to additional paid-in capital, and is being
amortized to interest expense over the expected term of the notes (6
months).
Based on the terms for conversion associated with the debenture, there
is an intrinsic value associated with the beneficial conversion feature
of $413,793. This amount has been treated as deferred interest expense
and has been recorded as a reduction of the convertible debenture
liability with a corresponding credit to additional paid-in capital and
is being amortized to interest expense over the period from February
21, 1997 (date of issuance) to May 29, 1997 (date the debenture is
entirely convertible). The interest expense relative to this item was
$233,060 for the three months ended March 31, 1997.
-14-
<PAGE> 17
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion of the results of operations and the financial
condition of the Company should be read in conjunction with the Company's
Consolidated Condensed Financial Statements and Notes thereto included elsewhere
in this Report.
Results of Operations
For the three month periods ended March 31, 1997 and March 31, 1996,
the Company incurred a loss of $621,375 ($0.00 per share) and $67,399 ($0.00 per
share), respectively. The Company's increased losses during 1997 are principally
due to the employment of Shalom Z. Hirschman, M.D. as President and Chief
Executive Officer of the Company, interest charges as a result of the beneficial
conversion features associated with the convertible debenture, increased
research and development expenses associated with the services provided by Dr.
Hirschman, and the implementation of Statement of Financial Accounting Standards
Board (SFAS) No. 123, "Accounting for Stock-Based Compensation," which accounts
for Common Stock purchase options granted in 1996. Administrative expenses and
the lack of sales revenues also contribute to the Company's losses.
-15-
<PAGE> 18
There were sales of $303 and $7,685, respectively, during the three
month periods ended March 31, 1997, and March 31, 1996. In fiscal year 1996, the
Company collected $40,000 for the sale of territorial rights compared to $25,000
for the sale of territorial rights in 1995. All sales during these periods
resulted from distributors purchasing RETICULOSE for testing purposes. Interest
income was $14,610 and $3,223 during the three months ended March 31, 1997 and
March 31, 1996, respectively.
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, 1997, and December 31, 1996, the Company had current
liquid assets (cash and cash equivalents and investments) of $2,201,518 and
$1,440,237, respectively. As of March 31, 1997, and December 31, 1996, the
Company had total assets of $2,683,965 and $1,716,800. The increase in liquid
assets and total assets was primarily attributable to the exercise of options
and the sale of the Debenture. See "--Capital Resources."
Until RETICULOSE is registered for sale, sales of RETICULOSE
are not expected to generate significant revenues. There can be no assurances
that RETICULOSE will be available for sale or, even if available, that it would
generate significant revenues. FDA approval to begin human clinical trials will
require significant cash expenditures, the amount of which is not currently
determinable. BEFORE SEPTEMBER 1995, THE COMPANY RECEIVED CORRESPONDENCE FROM
THE FOOD AND DRUG ADMINISTRATION OF THE UNITED STATES DEPARTMENT OF HEALTH AND
HUMAN SERVICES (THE "FDA"), WHICH STATED, AMONG OTHER COMMENTS, THAT THE
COMPANY'S PRIOR SUBMISSIONS TO THE FDA DID NOT PROVIDE AN ADEQUATE RESPONSE TO
THE FDA'S EARLIER REQUEST FOR PRECLINICAL INFORMATION AND ACCORDINGLY THE
COMPANY'S NOTICE OF CLAIMED INVESTIGATIONAL EXEMPTION FOR A NEW DRUG SUBMITTED
TO THE FDA ON SEPTEMBER 20, 1984 WAS "INACTIVATED." The Company has taken no
action with regard to deficiency letters received by it from the FDA.
In the event the Ministry of Health of the Government of the Bahamas
attempts to prevent the manufacture of RETICULOSE by the Company's subsidiary
for export from Freeport under its license from The Grand Bahama Port
Authority, Limited, the Company's subsidiary 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.
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 it must reduce
expenses or further limit operations.
-16-
<PAGE> 19
Capital Resources
The Company in the past has been dependent upon sales of shares of its
Common Stock, $.00001 par value (the "Common Stock"), and upon the exercise of
its warrants issued in the Company's initial public offering in 1986, 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 outstanding
options for the funds required to continue operations at present levels and to
fund the planned Research and Development and Clinical Trials and Testing of
RETICULOSE.
On February 21, 1997, in order to finance research and development, the
Company sold $1,000,000 principal amount of its ten-year 7% Convertible
Debenture (the "Debenture") due February 28, 2007, to RBB Bank
Aktiengesellschaft ("RBB") in an offshore transaction pursuant to Regulation S
under the Securities Act of 1933, as amended. Accrued interest under the
Debenture is payable semiannually, computed at the rate of 7% per annum on the
unpaid principal balance from February 21, 1997 until the date of interest
payment. (After default, interest accrues at 10% per annum.) The Debenture may
be prepaid by the Company before maturity, in whole or in part, without premium
or penalty, if the Company gives the holder of the Debenture notice not less
than 30 days before the date fixed for prepayment in that notice (prepayment
applied first to pay interest and then to principal then outstanding). The
Debenture is convertible, at the option of the holder, into shares of Common
Stock pursuant to the following formula: Upon receipt by the holder of the
Debenture of the Company's notice of prepayment of the Debenture, in whole or in
part, and otherwise in accordance with the schedule stated in the last sentence
of this paragraph, the outstanding principal amount of the Debenture is
convertible into such number of shares of Common Stock as shall equal the
quotient obtained by dividing (x) the principal amount of the Debenture by (y)
the Applicable Conversion Price; provided, however, that the right to convert
outstanding principal of the Debenture terminates at the close of business on
the third calendar day preceding the date fixed for prepayment of the Debenture
in the Company's notice of prepayment, unless the Company defaults in making
such prepayment. For this purpose, the term "Applicable Conversion Price" means
the lesser of (q) $0.3432 and (r) the product obtained by multiplying the
Average Closing Price by 0.70; and the "Average Closing Price" with respect to
any conversion elected to be made by the holder of the Debenture shall be the
average of the daily closing prices for the five consecutive trading days ended
on the trading day immediately preceding the date on which the holder gives the
Company a written notice of the holder's election to convert outstanding
principal of the Debenture. The closing price on any trading day shall be (a) if
the Common Stock is then listed or quoted on either the National Association of
Securities Dealers, Inc.'s OTC Bulletin Board, The Nasdaq SmallCap Market or The
Nasdaq National Market, the reported closing bid price for the Common Stock on
such day or (b) if the Common Stock is listed on either the American Stock
Exchange or New York Stock Exchange, the last reported sales price for the
Common Stock on such exchange on such day. The Debenture is not convertible
until April 14, 1997, is convertible only to the extent of $333,333 from April
15, 1997 through April 29, 1997, is convertible only to the extent of $666,667
(less any amount previously converted) from April 30, 1997 through May 29, 1997,
and is fully convertible after May 29, 1997. On April 22, 1997, pursuant to
notice by the holder, RBB, to the Company on April 22, 1997 under the Debenture,
$330,000 of the principal amount of the Debenture was converted into 1,648,352
shares of the Common Stock.
In connection with this transaction, the Company issued to RBB three
warrants (the "Warrants") to purchase Common Stock, each such Warrant entitling
the holder to purchase, from February 21, 1997 through February 28, 2007,
178,378 shares of the Common Stock. The exercise prices of the three Warrants
are $0.288, $0.576 and $0.864 per Warrant share, respectively. Each Warrant
provides that the holder may elect to receive a reduced number of shares of
Common Stock on the basis of a cashless exercise; that number of shares bears
the same proportion to the total number shares issuable under that Warrant as
the excess of the market value of shares of Common Stock over the warrant
exercise price bears to that market value. Each Warrant contains anti-dilution
provisions which provide for the adjustment of Warrant price and Warrant shares
as more particularly set forth therein.
Based on the terms for conversion associated with the debenture, there
is an intrinsic value associated with the beneficial conversion feature of
$413,793. This amount has been treated as deferred interest expense and has been
recorded as a reduction of the convertible debenture liability with a
corresponding credit to additional paid-in capital and is being amortized to
interest expense over the period from February 21, 1997 (date of issuance) to
May 29, 1997 (date the debenture is entirely convertible).
Under an agreement approved by the Board of Directors of the Company in
December 1996, the Company retained Interfi Capital Group, Inc. ("Interfi"), a
firm unaffiliated with the Company, to arrange financing for the Company for a
fee. In connection with issuance by the Company of the Debenture, the Company
paid to Interfi the sum of $70,000.
If the FDA or other approvals are obtained, of which there can be no
assurance, funds must be budgeted by the Company from the exercise of options
and the Warrants, potential grants and/or additional equity, which there is no
assurance will be available.
-17-
<PAGE> 20
The Company is currently expending approximately $105,000 per month,
which expenses include salaries, rent, professional fees, license fees and
taxes, and travel, principally between the Company's headquarters and its
Bahamian facility, and anticipates that it can continue operations for at least
21 months with its current liquid assets, if no Common Stock purchase options or
Warrants are exercised. If all of the outstanding options are exercised, the
Company will receive net proceeds of approximately $6,660,510. Those proceeds
will contribute to general and administrative and working capital and will
permit the Company to substantially increase its budget for research and
development and clinical trials and testing and to operate 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. However, there can be no assurance that any
additional options will be exercised. The recent prevailing market price for
shares of Common Stock has been above the exercise prices of certain of the
outstanding options. 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 none of the outstanding 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 by management,
management anticipates that it will have to limit intentions to expand
operations beyond current levels which involve expenditures of $105,000 per
month. In addition, the Company has in the past sought debt financing, licensing
agreements, joint ventures and other sources of financing, but no such financing
except the Debenture is in place or identified or currently under discussion.
There can be no assurance that any of the Company's distributors will ever
obtain regulatory approvals to test or market RETICULOSE in any territory. In
the event that financing is not available, in order to continue operations,
management anticipates that they will have to defer their salaries. Management
does not believe that, at present, debt or equity financing will be readily
obtainable on favorable terms unless and until FDA approval for Phase I clinical
testing is granted or comparable approval is obtained from another developed or
developing country. Because of 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 sell RETICULOSE. For a discussion of the risk
of relocation of the manufacturing facility of the Company's subsidiary, see "--
Liquidity."
The Company does not have a patent for RETICULOSE, although two
applications for United States patents have been filed on behalf of the Company
and others are contemplated to be filed. There can be 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.
There can be no assurance that the Company will obtain such a patent or, if
obtained, that it will be enforceable. The Company has retained patent counsel
for the purpose of pursuing additional patent protection for RETICULOSE.
However, there is no certainty that patents will be granted, or if granted,
that the patents will be sustained if judicially attacked, and, if declared
valid, that the patents, in fact, will operate to protect the Company from
others copying RETICULOSE. The Company has relied upon laws protecting
proprietary information and trade secrets and upon confidentiality agreements
to protect its rights to 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.
-18-
<PAGE> 21
PART II. OTHER INFORMATION
Item 2. Changes in Securities
(c) On February 26, 1997, the Company issued 50,000 shares of the
Company's common stock to Malcom Santer for his services, which have been
valued at $.41 per share.
For a description of the Company's sale on February 21, 1997 of the
Company's ten-year 7% Convertible Debenture due February 28, 2007 and, in
connection with that transaction, the Company's issuance of warrants to purchase
shares of the common stock, see Part I, Item 2. Management's Discussion and
Analysis or Plan of Operation - Capital Resources." On April 22, 1997, pursuant
to notice by the holder, RBB, to the Company on April 22, 1997 under the
Debenture, $330,000 of principal amount of the Debenture was converted into
1,648,352 shares of the common stock.
On March 21, 1997, the Company issued 3,333,333 shares of the common
stock for cash in the amount of $266,667 in connection with the exercise of
options held by stockholders of TRM Management Corp. or their assignee.
All shares were issued in reliance upon Section 4(2) and/or 3(b) of the
Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
(1) Report dated February 21, 1997, including Item 5, regarding:
A. the Convertible Debenture to RBB Bank AG dated February 21,
1997;
B. An executed lease dated February 7, 1997 from Robert
Martin Company, LLC to the Company; and
C. Acceptance of the Company's invitation to Robert C.
Kolodny, M.D. to serve as a member of its Board of Directors
as of February 24, 1997 until the next annual meeting of
shareholders and until a successor shall be elected and shall
qualify.
No financial statements were filed.
(2) Report dated March 13, 1997, including Item 5, regarding an Agreement
between the National Cancer Institute of the National Institutes of
Health and the Company, dated March 13, 1997. No financial statements
were filed.
-19-
<PAGE> 22
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ADVANCED VIRAL RESEARCH CORP.
Date: May 14, 1997 By: /s/ William Bregman
-------------------------------
William Bregman,
Duly Authorized Officer
and Principal Financial and
Accounting Officer
-20-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
FIRST QUARTER 10-QSB OF ADVANCED VIRAL RESEARCH CORP. FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,441,324
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 19,729
<CURRENT-ASSETS> 2,261,699
<PP&E> 235,213<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,683,965
<CURRENT-LIABILITIES> 45,339
<BONDS> 0
0
0
<COMMON> 2,704
<OTHER-SE> 1,853,587
<TOTAL-LIABILITY-AND-EQUITY> 2,683,965
<SALES> 303
<TOTAL-REVENUES> 14,913
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 636,288
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (621,375)
<INCOME-TAX> 0
<INCOME-CONTINUING> (621,375)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (621,375)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>PP&E VALUES REPRESENT NET AMOUNTS.
</FN>
</TABLE>
