U.S. SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 33-2262-A
ADVANCED VIRAL RESEARCH CORP.
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(exact name of Registrant as specified in its charter)
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DELAWARE 59-2646820
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 Corporate Boulevard South
Yonkers, New York 10701
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(Address of principal executive offices) (Zip Code)
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(914) 376-7383
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(Registrant's telephone number including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon the average of the closing bid and ask quotations
for the Common Stock on March 27, 2000 on the OTC Bulletin Board, was
approximately $191,917,552. The shares of Common Stock held by each officer and
director and by each person known to the company who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. As of March 27, 2000, Registrant
had outstanding 343,368,290 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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ADVANCED VIRAL RESEARCH CORP.
FORM 10-K
Year Ended December 31, 1999
TABLE OF CONTENTS
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PART I............................................................................................................1
Item 1. Business........................................................................................1
Item 2. Description of Property........................................................................10
Item 3. Legal Proceedings..............................................................................11
Item 4. Submission of Matters to a Vote of Security Holders............................................11
PART II..........................................................................................................11
Item 5. Market for Common Equity and Related Stockholder Matters.......................................11
Item 6. Selected Consolidated Financial Data...........................................................13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................15
Item 7a. Quantitative and Qualitative Disclosure about Market Risk .....................................26
Item 8. Financial Statements...........................................................................27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................................................27
PART III.........................................................................................................27
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act..............................................27
Item 11. Executive Compensation.........................................................................28
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................36
Item 13. Certain Relationships and Related Transactions.................................................37
Item 14. Exhibits and Reports on Form 8-K...............................................................37
Financial Statements............................................................................................F-1
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As used in this Report, the terms "we," "us," "our," and "ADVR" mean
Advanced Viral Research Corp. and its subsidiaries (unless the context indicates
a different meaning).
FORWARD-LOOKING STATEMENTS
ADVR cautions readers that some of the information in this report
contains forward-looking statements within the meaning of the federal securities
laws. For this purpose, any statements contained in this report that are not
statements of historical fact may be deemed to be forward- looking statements.
Forward-looking statements typically are identified by use of terms like "may,"
"will," "expect," "anticipate," "estimate", "believe", "intend", "could",
"would" and similar words, although some forward-looking statements are
expressed differently. You should be aware that ADVR's actual results could
differ materially from those contained in the forward-looking statements due to
a number of factors, including our limited operating history and substantial
operating losses, availability of capital resources, ability to effectively
compete, economic conditions, unanticipated difficulties in pharmaceutical
research and development, ability to continue research and development, ability
to gain governmental approvals, uncertainty relating to timing of governmental
approval process, dependence on equity and debt financing for continued
operations, dependence on third party distributors and consultants, dependence
on our key personnel, ability to protect our intellectual property and the
impact of future government regulation on our business. You should also consider
carefully the risks described in this Report or detailed from time to time in
our filings with the Securities and Exchange Commission (the "SEC").
PART I
ITEM 1. BUSINESS
Overview
Advanced Viral Research Corp. ("ADVR") was formed in July 1985 to
engage in the production and marketing, promotion and sale of a pharmaceutical
drug with the trade name "Reticulose." Under the Federal Food, Drug, and
Cosmetic Act, as amended in 1962, the Food and Drug Administration, or FDA,
classified Reticulose as a "new drug" requiring FDA approval prior to any sale
in the United States. Reticulose (the current formulation of which is now known
as and hereinafter referred to as "Product R") has not been approved for sale or
use by the FDA or any foreign government body, and thus we have not as yet
commenced any commercial operations. We are dependent on registration and/or
approval by applicable regulatory authorities of Product R in order to commence
commercial operations.
Our operations over the last five years have been limited principally
to engaging in research, in vitro testing and analysis of Product R in the
United States, and engaging others to perform testing and analysis of Product R
on human patients overseas. The FDA has not approved human clinical trials for
Product R in the United States. We may be required, in the absence of grants or
other subsidies, to bear the expenses of the first phase of human clinical
trials to the extent the FDA permits human clinical trials to occur. We do not
know what the actual cost of such trials would be. If we need additional
financing to fund such human clinical trials, it may not be available to us,
which may force us to reduce our operations.
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Government Regulation
The FDA imposes substantial requirements upon and conditions precedent
to the introduction of therapeutic drug products, such as Product R, through
lengthy and detailed laboratory and clinical testing procedures, sampling
activities and other costly and time consuming procedures to demonstrate that
such products are both safe and effective in treating the indications for which
approval is sought. After testing in animals, an Investigational New Drug, or
IND, application must be filed with the FDA to obtain authorization for human
testing. When the clinical testing has been completed and analyzed, final
manufacturing processes and procedures are in place, and certain other required
information is available to the manufacturer, a manufacturer may submit a new
drug application, or NDA, to the FDA. No action can be taken to market Product
R, or any therapeutic drug product, in the United States until an NDA has been
approved by the FDA.
The IND process in the United States is governed by regulations
established by the FDA which strictly control the use and distribution of
investigational drugs in the United States. The guidelines require that an
application contain sufficient information to justify administering the drug to
humans, that the application include relevant information on the chemistry,
pharmacology and toxicology of the drug 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.
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 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 clinical trials, which involve the administration of the
drug to a small number of healthy subjects to determine safety, tolerance,
absorption and metabolism characteristics; phase II clinical trials, which
involve the administration of the drug to a limited number of patients for a
specific disease to determine dose response, efficacy and safety; and phase III
clinical trials, which involve the study of the drug to gain confirmatory
evidence of efficacy and safety from a wide base of investigators and patients.
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 in the IND.
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 as a substitute for other pre-clinical work.
After the FDA approves the IND, the investigation is permitted to
proceed, during which the sponsor must keep the FDA informed of new studies,
including animal studies, make progress reports on the study or studies covered
by the IND, and also be responsible for alerting FDA and clinical investigators
immediately of unforeseen serious side effects or injuries.
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When all clinical testing has been completed and analyzed, final
manufacturing processes and procedures are in place, and certain other required
information is available to the manufacturer, a manufacturer may submit an NDA
to the FDA. An NDA must be approved by the FDA covering the drug before its
manufacturer can commence commercial distribution of the drug. The NDA contains
a section describing the clinical investigations of the drug which section
includes, among other things, 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 and other laboratory data,
demonstrated or potential adverse effects of the drug, including clinically
significant potential adverse effects of administration of the drug
contemporaneously with the administration of other drugs 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 data concerning the action of
a drug in the human body over a period of time and data concerning the extent of
drug absorption in the human body or information supporting a waiver of the
submission of such 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 availability 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.
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 clinical
investigations by experts qualified by scientific training and experience, to
evaluate the effectiveness of the drug involved.
On September 20, 1984, Bernard Friedland, our former President and
current Chairman of the Board, as sponsor, submitted to the FDA an IND to
conduct a study testing the effectiveness of Reticulose on human subjects with
AIDS, as well as certain other viruses. The FDA has issued four letters of
deficiency with regard to the IND. In a letter dated November 29, 1984, the FDA
indicated, among other deficiencies noted, that the publications submitted with
the IND and relating to the effectiveness of Reticulose on virus related
diseases will not be accepted in support of the safety of Reticulose unless we
could establish that the proposed formulation of Reticulose is the same as the
formulation of Reticulose referenced in those publications. In addition, the FDA
required, among other things, that an IND application include relevant
information on the chemistry, laboratory and animal controls to assure the
integrity of the dosage form and that safety information be provided for the
initial study proposed to be
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conducted on humans. The FDA also required that the information assure the
proper identification, quality, purity and strength of Reticulose and a
description of the physical, chemical and microbiological characteristics of
Reticulose. On September 11, 1987, we received a further deficiency letter from
the FDA, stating that no data had been submitted supporting in vitro anti-HIV
activity or any criterion for a biological response modifier.
On March 6, 1992, we submitted an amendment to the IND which attempted
to address the FDA's concerns. In response to the March 1992 submission, we
received a third deficiency letter from the FDA dated July 27, 1992, which
provided detailed comments with respect to chemistry, toxicology, microbiology
and clinical areas requiring further studies and action on our part. In June
1995, we received further correspondence from the FDA which stated, among other
things, that our prior submissions to the FDA did not provide an adequate
response to the FDA's earlier request for preclinical information and
accordingly our IND was "inactivated."
We have not formally responded to the 1992 deficiency letters or the
1995 deficiency letter, nor have any of the studies cited in those letters been
undertaken. In February 1998, we contracted with GloboMax LLC of Hanover,
Maryland to advise and assist us in our preparation of a new IND to be filed
with the FDA, and to otherwise guide us through the FDA process with the
objective of obtaining full approval for Product R in the United States. During
the year ended December 31, 1999, GloboMax continued its project management
services to ADVR for the pre-clinical development and IND submission of Product
R to the FDA, the development of standard operating procedures and validation
protocol for the preparation and manufacture of Product R. Expenses paid during
1999 relating to the GloboMax agreement were approximately $200,000. Pursuant to
the agreement with GloboMax, we are obligated to pay for services on an hourly
basis, at prescribed rates.
We currently do not have the resources necessary to complete the FDA
approval process. We may allocate certain proceeds from the exercise of
currently outstanding options and warrants for the purpose of filing a new IND
with the FDA, however, such proceeds, if any, will not be sufficient to improve
our financial condition to any great degree. It is possible that the new IND for
clinical tests of Product R on humans, if submitted, will not be approved by the
FDA for human clinical trials on AIDS or other diseases, and that any tests
previously conducted or to be conducted will not satisfy FDA requirements. It is
also possible that the results of such human clinical trials, if performed, will
not prove that Product R is safe or effective in the treatment of AIDS or other
diseases, or that the FDA will not approve the sale of Product R in the United
States if we submitted a proper NDA. It is not known at this time how extensive
the phase II and phase III clinical trials will be, if they are conducted. The
data generated may not show that the drug Product R is safe and effective, and
even if the data shows that Product R is safe and effective, obtaining approval
of the NDA could take years and require financing of amounts not presently
available to us.
In connection with our activities outside the United States, we are
also subject to regulatory requirements governing the testing, approval,
manufacture, labeling, marketing and sale of pharmaceutical and diagnostic
products, which requirements vary from country to country. Government regulation
in certain countries may delay marketing of Product R for a considerable period
of time and impose costly procedures upon our activities. The extent of
potentially adverse government regulations which might arise from future
legislation or administrative action cannot be predicted. Whether or not FDA
approval has been obtained for a product, approval of the product by comparable
regulatory authorities of foreign countries must be obtained prior to marketing
the product in those countries. The approval process may be more
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or less rigorous from country to country, and the time required for approval may
be longer or shorter than that required in the United States. Clinical studies
conducted outside of any country may not be accepted by such country, and the
approval of any pharmaceutical or diagnostic product in one country does not
assure that such product will be approved in another country. Accordingly, until
registration is granted, if ever, in the United States or another developed or
developing country, we do not expect that we will be able to generate material
sales revenue. We received a grant of authority from the Bahamian Port
Authority, an authorized division of the Bahamian Government, on October 15,
1992 confirming the right of our subsidiary, Advance Viral Research, Ltd., a
Bahamian corporation, to carry on the manufacture and export sale of ethical
pharmaceutical products. See "--Marketing And Sales."
Research, Development And Testing
For the period from inception (February 20, 1984) through December 31,
1999 we expended approximately $5.3 million on testing and research and
development activities either in our laboratories or pursuant to various testing
agreements with both domestic and foreign companies. In 1995, we retained Shalom
Hirschman as our President. As President, Dr. Hirschman established our research
facility in Yonkers, New York, monitored the testing of Product R and recently
performed analyses of Product R with our scientific personnel, which analyses we
believe may be used in connection with the FDA approval process. We currently
are funding research and testing to:
o determine the safety of the topical use of Product R on
animals and cultured human cells;
o assess the effectiveness of the topical application of
Product R on HPV and certain cancer causing proteins of HPV.
Recent laboratory testing has indicated that Product R may
inhibit the expression of a protein of HPV which causes
cervical cancer;
o study the effects of Product R in inhibiting the mutation of
the AIDS virus in humans;
o assess the effectiveness of the topical application of
Product R for the treatment of persons diagnosed with herpes
labialis/genital infections;
o compare the results of treatment of persons diagnosed with
AIDS taking a three drug cocktail and Product R with those
taking a three drug cocktail and a placebo;
o determine the effectiveness of Product R for the treatment
of rheumatoid arthritis in humans;
o study the effects of Product R in inhibiting the production
of a key cancer-causing protein (E-7 protein) of the human
papilloma virus (HPV). The E-7 protein is associated with
the development of cervical cancer in women infected with
cancer causing subtypes of HPV; and
o study the effects of Product R in inhibiting the production
of key cellular receptors for HIV (CCR5 and CXCR4
receptors). The CCR5 and CXCR4 receptors are two
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of the cell receptors used by the AIDS virus, HIV, to attach
to its target cell and initiate infection.
Our studies detailing the results of the above research and testing may
not positively impact the FDA's decision to approve a new IND for Product R or
approve the marketing, sales or distribution of Product R within the United
States, and as a result may not improve our chances of gaining approval for the
marketing, sales or distribution of Product R anywhere in the world.
Patents
We believe that patent protection and trade secret protection are
important to our business and that our future will depend, in part, on our
ability to maintain trade secret protection, obtain patents and operate without
infringing the proprietary rights of others both in the United States and
abroad. We have currently pending 15 patent applications with the United States
Patent and Trademark Office (the "PTO") relating to Product R and 17 foreign
patent applications. In the United States, ADVR has one patent allowed and three
have been issued by the PTO. As patent applications in the United States are
maintained in secrecy until patents issue and as publication of discoveries in
the scientific or patent literature often lag behind the actual discoveries, we
cannot be certain that we were the first to make the inventions covered by each
of our pending patent applications or that we were the first to file patent
applications for such inventions. Furthermore, the patent positions of
biotechnology and pharmaceutical companies are highly uncertain and involve
complex legal and factual questions, and, therefore, the breadth of claims
allowed in biotechnology and pharmaceutical patents or their enforceability
cannot be predicted. We cannot be sure that any additional patents will issue
from any of our patent applications or, should any patents issue, that we will
be provided with adequate protection against potentially competitive products.
Furthermore, we cannot be sure that should patents issue, they will be of
commercial value to us, or that private parties, including competitors, will not
successfully challenge our patents or circumvent our patent position in the
United States or abroad. In the absence of adequate patent protection, our
business may be adversely affected by competitors who develop comparable
technology or products. Moreover, pursuant to the terms of the Uruguay Round
Agreements Act, patents filed on or after June 8, 1995 have a term of twenty
years from the date of such filing, irrespective of the period of time it may
take for such patent to ultimately issue. This may shorten the period of patent
protection afforded to our products as patent applications in the
biopharmaceutical sector often take considerable time to issue. Under the Drug
Price Competition and Patent Term Restoration Act of 1984 (the "Patent Act"), a
sponsor may obtain marketing exclusivity for a period of time following FDA
approval of certain drug applications, regardless of patent status, if the drug
is a new chemical entity or if new clinical studies were used to support the
marketing application for the drug. Pursuant to the FDA Modernization Act of
1997, the period of exclusivity can be extended if the applicant performs
certain studies in pediatric patients. This marketing exclusivity prevents a
third party from obtaining FDA approval for a similar or identical drug under an
Abbreviated New Drug Application ("ANDA") or a "505(b)(2)" New Drug Application.
The statute also allows a patent owner to obtain an extension of applicable
patent terms for a period equal to one-half the period of time elapsed between
the filing of an IND and the filing of the corresponding NDA plus the period of
time between the filing of the NDA and FDA approval, with a five year maximum
patent extension. We cannot be sure that we will be able to take advantage of
either the patent term extension or marketing exclusivity provisions of this
law.
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In order to protect the confidentiality of our technology, including
trade secrets and know-how and other proprietary technical and business
information, we require all of our employees, consultants, advisors and
collaborators to enter into confidentiality agreements that prohibit the use or
disclosure of information that is deemed confidential. The agreements also
oblige our employees, consultants, advisors and collaborators to assign to us
developments, discoveries and inventions made by such persons in connection with
their work with us. We cannot be sure that confidentiality will be maintained or
disclosure prevented by these agreements or that our proprietary information or
intellectual property will be protected thereby or that others will not
independently develop substantially equivalent proprietary information or
intellectual property.
The pharmaceutical industry is highly competitive and patents have been
applied for by, and issued to, other parties relating to products competitive
with Product R. Therefore, Product R and any other drug candidates may give rise
to claims that they infringe the patents or proprietary rights of other parties
existing now and in the future. Furthermore, to the extent that we or our
consultants or research collaborators use intellectual property owned by others
in work performed for us, disputes may also arise as to the rights in such
intellectual property or in related or resulting know-how and inventions. An
adverse claim could subject us to significant liabilities to such other parties
and/or require disputed rights to be licensed from such other parties. We cannot
be sure that any license required under any such patents or proprietary rights
would be made available on terms acceptable to us, if at all. If we do not
obtain such licenses, we may encounter delays in product market introductions,
or may find that the development, manufacture or sale of products requiring such
licenses may be precluded. In addition, we could incur substantial costs in
defending ourselves in legal proceedings instituted before the PTO or in a suit
brought against it by a private party based on such patents or proprietary
rights, or in suits by us asserting our patent or proprietary rights against
another party, even if the outcome is not adverse to us. There are extensions
available under the Patent Act if the delay in prosecution of the patent
application results from a delay in the PTO's handling of any interference or
appeal involving the application. We have not conducted any searches or made any
independent investigations of the existence of any patents or proprietary rights
of other parties.
Marketing And Sales
Except for limited sales of Product R for testing and other purposes,
Product R is not sold commercially anywhere in the world. As of the date of this
report, our efforts or the efforts of our representatives have produced no
material benefits to us regarding our ability to have Product R sold
commercially anywhere in the world. We have entered into exclusive distribution
agreements with five separate entities granting exclusive rights to distribute
Product R in the countries of China, Japan, Hong Kong, Macao, Taiwan, Mexico,
Channel Islands, Isle of Man, British West Indies, Jamaica, Haiti, Bermuda,
Belize, Saudi Arabia, Argentina, Bolivia, Paraguay, Uruguay, Brazil and Chile.
Pursuant to these agreements, the distributors are obligated to cause Product R
to be approved for commercial sale in such countries and upon such approval, to
purchase from us certain minimum quantities of Product R to maintain the
exclusive distribution rights. Our marketing plans for Product R are still
dependent upon registration of Product R for sale in various jurisdictions where
our distributors are seeking approvals.
To date we have received no information that would lead us to believe
that we will be positioned to sell Product R commercially anywhere in the world
in the immediate future, and it is possible that none of our distributors will
ever secure registration of Product R. The only application for registration of
Product R which has been filed as of the date hereof is an
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application requesting that Product R be permitted to be sold in Argentina,
which was filed in March 1998. In this March 1998 filing, DCT, S.R.L., ADVR's
distribution agent in Argentina, received an investigational new drug
identification number from the National Administration for Drug, Food and
Medical Technology in Argentina, or ANMAT. This allowed DCT to begin pre-
clinical studies on behalf of ADVR with Product R which have since been
concluded. In February 2000, DCT received approval from the ANMAT to proceed
further with Phase I clinical trials in Argentina for Product R. ADVR is
currently evaluating the costs and time necessary to proceed with Phase I
clinical trials in Argentina. In addition, DCT must apply for approval from the
ANMAT to proceed with Phases II and III clinical trials before Product R is
approved for sale in Argentina. The costs and time necessary to complete such
trials cannot be predicted at this time.
We initially targeted our sales and marketing efforts to those
countries where Reticulose was previously marketed by its prior owners for a
number of years as an anti-viral agent in the treatment of Asian influenza,
viral pneumonia, viral infectious hepatitis, mumps, encephalitis, herpes simplex
and herpes zoster. Those countries included Singapore, Hong Kong, Malaysia,
Taiwan, the Philippines and Malta. Registration of Product R will be required in
such countries as well as in the other countries comprising the distributors'
territories before any significant sales may begin. The registration of Product
R for sale in these countries has been frustrated due to our inability to obtain
the registration and approval to sell Product R in the Bahamas, the country of
origin, and a general lack of published data on the effectiveness of Product R.
Until Product R is registered and approved for sale in the United States, in
another developed country or in the other countries included in the
distributors' territories, we will not generate any material sales of Product R.
For the years ended December 31, 1999, 1998 and 1997, we reported no commercial
sales except limited sales for testing purposes. Product R is not legally
available for commercial sale anywhere in the world, except for testing
purposes. See "--Research, Development and Testing."
By letter dated February 13, 1996, our subsidiary in the Bahamas,
Advance Viral Research, Ltd., was notified that the National Economic Council of
the Bahamas had refused our subsidiary's request for a "free sales certificate"
for Product R. A free sales certificate is a document typically issued by a
country in which a pharmaceutical product is manufactured which certifies that
such country permits the "free sale" of such product in such country. Most
countries require that, before allowing the registration of a pharmaceutical
product for use in that country, it must at least be registered and certified
for free sale in the country in which it is manufactured. However, the Bahamas
has no procedures currently in place to issue a free sales certificate for any
therapeutic drug, including Product R. If we do not obtain a free sales
certificate or other equivalent document from the Bahamas or another country, or
if we do not receive FDA approval, it is possible that we will not be able to
meet registration requirements in the countries which require that a
pharmaceutical product be at least registered and certified for free sale in the
country in which it is manufactured. Currently, ADVR intends to manufacture
Product R in Argentina, where it is seeking regulatory approval and therefore
does not need a free sale certificate for Argentina.
ADVR is currently in the planning stages for the reconfiguration of our
New York research facilities to enable ADVR to manufacture and produce Product R
if and when the FDA approves Product R for distribution and sale in the United
States.
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Competition
The pharmaceutical drug industry is highly competitive and rapidly
changing. If we ever successfully develop Product R, it will compete with
numerous existing therapies. In addition, many companies are pursuing novel
drugs that target the same diseases we are targeting with Product R. We believe
that a significant number of drugs are currently under development and will
become available in the future for the treatment of HIV, HPV, hepatitis and
other viruses. We anticipate that we will face intense and increasing
competition as new products enter the market and advanced technologies become
available. Our competitors' products may be more effective, or more effectively
marketed and sold, than Product R. Competitive products may render Product R
obsolete or noncompetitive before we can recover the expenses of developing and
commercializing Product R. Furthermore, the development of a cure or new
treatment methods for the diseases we are targeting could render Product R
noncompetitive, obsolete or uneconomical. Many of our competitors:
o have significantly greater financial, technical and human
resources than we have and may be better equipped to develop,
manufacture and market products,
o have extensive experience in preclinical testing and clinical
trials, obtaining regulatory approvals and manufacturing and
marketing pharmaceutical products,
o have products that have been approved or are in late stage
development and operate large, well-funded research and
development programs.
A number of therapeutics are currently marketed or are in advanced
stages of clinical development for the treatment of HIV infection and AIDS,
including several products currently marketed as part of a "cocktail" in the
United States. We believe Product R should be added to such cocktails in order
to enhance their effectiveness. Among the companies with significant commercial
presence in the AIDS market are Glaxo Wellcome, Bristol-Myers Squibb,
Hoffmann-La Roche, Agouron Pharmaceuticals, Merck & Co. and DuPont Pharma. In
addition, Glaxo Wellcome, in collaboration with Biochem Pharma, is pursuing
development of Lamivudine, a nucleoside analogue to treat hepatitis B infection.
This compound was recently approved for marketing in the United States, China
and several other countries and represents significant potential competition for
Product R as a treatment for hepatitis B.
Several therapeutics are currently marketed or are in advanced stages
of clinical development for the treatment of HPV. Schering Plough Corp.
manufactures Intron A, an injectable interferon product approved by the FDA for
the treatment of HPV. 3M Pharmaceuticals received FDA approval for its
immune-response modifier, Aldara(R), a self-administered topical cream, for the
treatment of HPV. Product R, if approved for commercial sale by the FDA, would
also compete with surgical, chemical, and other methods of treating HPV.
Products developed by our competitors or advances in other methods of the
treatment of HPV may have a negative impact on the commercial viability of
Product R.
Several products are currently marketed or are in advanced stages of
clinical development for the treatment of rheumatoid arthritis. Immunex Corp.'s
product Enbrel, a biologic response modifier, was approved by the FDA in
November 1998 for the treatment of moderate to severe rheumatoid arthritis.
Centocor Inc. is developing a monoclonal antibody known as Remicade, an
anti-inflammatory agent that has completed phase III trials in rheumatoid
arthritis. The FDA approved Remicade for treatment of Crohn's disease in August
1998. Centocor filed for FDA
9
<PAGE>
approval of an expanded indication for Remicade for rheumatoid arthritis in
January 1999. These products represent significant competition for Product R as
a treatment for rheumatoid arthritis.
Three antiviral products are presently sold in the United States for
the treatment of recurrent genital herpes: Zovirax(R) (manufactured by Glaxo
Wellcome Inc.) which contains acyclovir and is administered orally, topically,
or intravenously, Famvir(R) (manufactured by SmithKline Beecham Pharmaceuticals)
which contains famcyclovir and is administered orally, and Valtrex(R)
(manufactured by Glaxo Wellcome, Inc.) which contains valacyclovir and is also
administered orally. These products represent significant competition for
Product R as a treatment for genital herpes.
Other small companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical and
biotechnology companies. Academic institutions, governmental agencies and other
public and private research organizations are also becoming increasingly aware
of the commercial value of their inventions and are more actively seeking to
commercialize the technology they have developed.
If we successfully develop and obtain approval for Product R, we will
face competition based on the safety and effectiveness of Product R, the timing
and scope of regulatory approvals, the availability of supply, marketing and
sales capability, reimbursement coverage, price, patent position and other
factors. Our competitors may develop or commercialize more effective or more
affordable products, or obtain more effective patent protection, than we do.
Accordingly, our competitors may commercialize products more rapidly or
effectively than we do, which could hurt our competitive position and adversely
affect our business. If and when we obtain FDA approval for Product R, we expect
to compete primarily on the basis of product performance and price with a number
of pharmaceutical companies, both in the United States and abroad.
Employees
We have 25 full-time employees, consisting of our four executive
officers, 18 employees involved in research, and three administrative employees.
Dr. Hirschman, our President and Chief Executive Officer and a director, Bernard
Friedland, our Chairman of the Board and a director, William Bregman, our
Secretary, Treasurer and a director, and Alan V. Gallantar, our Chief Financial
Officer, each devote all of their business time to our day-to-day business
operations. Additionally, we 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--Employment Contracts, Termination of
Employment and Change-in-Control Arrangements."
ITEM 2. DESCRIPTION OF PROPERTY
ADVR leases approximately 16,650 square feet for executive offices,
including research laboratory space, at 200 Corporate Boulevard South, Yonkers,
New York from an unaffiliated third party (the "Yonkers Lease"). The term of the
Yonkers Lease is five years through April 2005 and ADVR's annual rental
obligation under the Yonkers Lease is approximately $260,000.
ADVR currently maintains corporate offices at 1250 East Hallandale
Beach Boulevard, Hallandale, Florida 33009, pursuant to a three year lease
agreement, at approximately $14,000 annually. The Bahamian manufacturing
facility, which was acquired on December 16, 1987, is
10
<PAGE>
located in Freeport, Bahamas and consists of a 29,242 square 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 Product
R. The Bahamian facility is currently being used to store and produce inventory
for testing purposes.
ITEM 3. LEGAL PROCEEDINGS
ADVR is not currently a party to any material litigation, nor, to the
knowledge of management, is any such litigation currently threatened.
During 1989, the Commission conducted an informal inquiry into certain
of ADVR's prior disclosure documents, including its original prospectus, press
releases and annual reports. On December 14, 1989, the Commission, 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 ADVR, its then President, Bernard Friedland, and its
then Secretary-Treasurer, William Bregman. The Complaint, a copy of which is
filed as an exhibit to ADVR's current report on Form 8-K dated December 14, 1989
which was filed with the Commission (the "December 1989 Form 8-K"), alleged
violations of Sections 5(b)(2) and 17(a) of the Securities Act of 1933, as
amended (the "Securities Act"), Sections l0(b) and 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Rules l0b-5, 12b-20,
15d-1 and 15d-13 promulgated thereunder.
ADVR, 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 ADVR, Bernard Friedland and William
Bregman are filed as exhibits to the December 1989 Form 8-K. A permanent
injunction was entered in form and also attached as an exhibit to the December
1989 Form 8-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 1999,
no matters were submitted to a vote of security holders of ADVR.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock
The principal United States market in which our common stock is traded
is the over-the-counter market electronic Bulletin Board. The following table
shows the range of reported low bid and high bid per share quotations for our
common stock for each full quarterly period during the two recent fiscal years
ended December 31, 1998 and 1999, and for the first quarter of 2000. The high
and low bid prices for the periods indicated reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
11
<PAGE>
Low Bid High Bid
------- --------
First Quarter 1998.............................$0.18 $0.4375
Second Quarter 1998.............................0.245 0.46
Third Quarter 1998..............................0.16 0.30
Fourth Quarter 1998.............................0.155 0.23
First Quarter 1999..............................0.175 0.35
Second Quarter 1999.............................0.202 0.322
Third Quarter 1999..............................0.1875 0.2344
Fourth Quarter 1999.............................0.19 0.27
First Quarter 2000 (until March 29, 2000).......0.185 1.40
Stockholders
The approximate number of holders of record of the Common stock as of
the date of this report is 2,746 inclusive of those brokerage firms and/or
clearing houses holding shares of common stock for their clientele (with each
such brokerage house and/or clearing house being considered as one holder).
Dividend Policy
We have not declared or paid any dividends on our shares of common
stock. We intend to retain future earnings, if any, that may be generated from
our operations to finance our future operations and expansion and do not plan
for the reasonably foreseeable future to pay dividends to holders of our common
stock. Any decision as to the future payment of dividends will depend on our
results of operations and financial position and such other factors as our board
of directors in its discretion deems relevant.
12
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial data as of and for the
years ended December 31, 1995, 1996, 1997, 1998 and 1999 have been derived from
our audited financial statements. The selected consolidated financial data set
forth below should be read along with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes thereto included elsewhere in this report
<TABLE>
<CAPTION>
Selected Statement of Operations Data
-------------------------------------
Year Ended December 31
---------------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Sales $ 27,328 $ 24,111 $ 2,278 $ 656 $ 10,953
Interest and dividends 16,155 46,796 111,845 102,043 42,744
Other income 25,000 32,000 7,800 293 --
------------- ------------- ------------- ------------- -------------
68,483 102,907 121,923 102,992 53,697
------------- ------------- ------------- ------------- -------------
Costs and Expenses:
Research and development 34,931 255,660 817,603 1,659,456 1,745,937
General and administrative 420,757 983,256 1,681,436 1,420,427 2,244,205
Depreciation 14,679 18,731 26,288 110,120 230,785
Interest -- -- 1,738,325 1,470,699 2,007,032
------------- ------------- ------------- ------------- -------------
470,367 1,257,647 4,263,652 4,660,702 6,227,959
------------- ------------- ------------- ------------- -------------
Net loss ($ 401,884) ($ 1,154,740) ($ 4,141,729) ($ 4,557,710) ($ 6,174,262)
============= ============= ============= ============= =============
Net loss per share of common stock - basic and
diluted $ 0.00 $ 0.00 ($ 0.02) ($ 0.02) ($ 0.02)
============= ============= ============= ============= =============
Weighted Average Number of Common Shares
Outstanding 248,002,608 257,645,815 274,534,277 294,809,073 302,361,109
============= ============= ============= ============= =============
</TABLE>
- --------------------------------
See notes to consolidated financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
Selected Balance Sheet Data
---------------------------
December 31
---------------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 65,230 $ 61,396 $ 236,059 $ 924,420 $ 836,876
Investments 479,000 1,378,841 2,984,902 821,047 --
Inventory 18,091 19,729 19,729 19,729 19,729
Other current assets 12,967 16,081 20,240 29,818 59,734
------------- ------------- ------------- ------------- -------------
Total current assets 575,288 1,476,047 3,260,930 1,795,014 916,339
Property and Equipment 214,494 207,209 485,661 1,049,593 1,375,923
Other Assets 6,459 33,544 443,251 460,346 569,312
------------- ------------- ------------- ------------- -------------
Total Assets $ 796,241 $ 1,716,800 $ 4,189,842 $ 3,304,953 $ 2,861,574
============= ============= ============= ============= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 14,651 $ 54,474 $ 375,606 $ 279,024 $ 728,872
Capital lease payable-current portion -- -- -- 38,355 50,315
Note payable-current portion -- -- -- -- 19,035
------------- ------------- ------------- ------------- -------------
Total current liabilities 14,651 54,474 375,606 317,379 798,282
------------- ------------- ------------- ------------- -------------
Long-Term Debt:
Convertible debenture, net -- -- 2,384,793 1,457,919 4,446,629
Capital lease payable-long-term portion -- -- -- 167,380 152,059
Note payable-long term portion -- -- -- -- 77,964
------------- ------------- ------------- ------------- -------------
Total Long-Term Debt -- -- 2,384,793 1,625,299 4,676,652
------------- ------------- ------------- ------------- -------------
Deposit on securities purchase agreement -- -- -- 600,000 --
------------- ------------- ------------- ------------- -------------
Stockholders' Equity (Deficiency):
Common stock, 1,000,000,000 shares of par
value $0.00001 authorized 2,512 2,671 2,779 2,964 3,034
Additional paid-in capital 4,475,875 7,003,351 10,512,767 14,325,076 17,537,333
Subscription receivable -- (19,000) (19,000) -- --
Deficit accumulated during the development (3,696,797) (4,851,537) (8,993,266) (13,550,976) (19,725,238)
stage
Deferred compensation cost -- (473,159) (73,837) (14,769) --
Discount on warrants -- -- -- -- (428,489)
Stockholders' equity (deficiency) -- -- -- 762,295 (2,613,360)
------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders' equity $ 796,241 $ 1,716,800 $ 4,189,842 $ 3,304,953 $ 2,861,574
============= ============= ============= ============= =============
Shares outstanding at period end 251,181,774 267,031,058 277,962,574 296,422,907 303,472,035
============= ============= ============= ============= =============
</TABLE>
- ---------------------
See notes to consolidated financial statements.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the results of operations and the financial
condition of ADVR should be read in conjunction with ADVR's Consolidated
Financial Statements and Notes thereto included elsewhere in this Report.
Overview
Since our inception in July 1985, ADVR has been engaged primarily in
research and development activities. We have not yet generated significant
operating revenues, and as of December 31, 1999 we had incurred a cumulative net
loss of $19,725,238. Our ability to generate substantial operating revenue
depends upon our success in gaining FDA approval for the commercial use and
distribution of Product R. All of our research and development efforts have been
devoted to the development of Product R.
In order to commence clinical trials for regulatory approval of Product
R in the United States, we must submit an IND with the FDA. Filings with foreign
regulatory agencies are required to continue or begin new clinical trials
outside the United States. We have recently contracted with GloboMax LLC of
Hanover, Maryland to assist us in our preparation and filing of the IND with the
FDA, and to otherwise assist us through the FDA process with the objective of
obtaining full approval for the manufacture and commercial distribution of
Product R in the United States. The IND will seek approval to conduct a study
testing the effectiveness of Product R on human subjects with AIDS and other
diseases. In the IND we intend to include, among other things:
o information on chemistry, laboratory and animal controls;
o safety information for the initial study proposed to be
conducted on humans; and
o information assuring the identification, quality and purity
of Product R and a description of the physical, chemical and
microbiological characteristics of Product R.
We believe that the IND will demonstrate the low rate of adverse
reactions occurring in the use of Product R as a treatment of AIDS and other
diseases, however, it is impossible to determine if or how much of the data from
any ongoing studies will be considered useful by the FDA in considering the IND
application, if it is ever filed. FDA approval to begin human clinical trials of
Product R pursuant to an approved IND will require significant cash
expenditures. Furthermore, Product R may never be approved for commercial
distribution by any country.
We plan to continue to provide funding for testing programs in our
laboratory and at selected universities, medical schools, laboratories and
hospitals, but the amount of research that will be conducted at those
institutions will depend upon our financial status. Because our research and
development expenses and clinical trial expenses will be charged against
earnings for financial reporting purposes, we expect that losses from operations
will continue to be incurred for the foreseeable future.
15
<PAGE>
Results of Operations
Years Ended December 31, 1999, 1998 and 1997
--------------------------------------------
During the years ended December 31, 1999 and 1998, we incurred losses
of approximately $6,174,000 and $4,558,000, respectively, compared to
approximately $4,142,000 in 1997. Our increased losses for the fiscal years
ended December 31, 1999 and 1998 as compared with the fiscal year ended December
31, 1997 were attributable primarily to:
General and Administrative Expenses. General and administrative
expenses were approximately $1,681,000, $1,420,000 and $2,244,000 in 1997, 1998
and 1999, respectively. The decrease in general and administrative expense from
1997 to 1998 resulted from the amortization of deferred compensation costs
associated with options granted to non-employees and recorded as compensation
expense in 1997 ($340,000), and also from the fact that 50% of Dr. Hirschman's
salary ($162,500) was accounted for as research and development expense in 1998.
The increase in general and administrative expense from 1998 to 1999 resulted
from increased consulting fees (approximately $124,000 in 1998 to $345,000 in
1999) primarily resulting from the GloboMax agreement, increased health
insurance costs (approximately $80,000 in 1998 to $160,000 in 1999), increased
professional fees (approximately $335,000 in 1998 and $425,000 in 1999)
primarily for expenses relating to SEC registrations for convertible debentures
and warrants issued by ADVR during 1998 and 1999, and increased compensation
expense related to modification of existing options outstanding and payroll
expenses ($450,000 in 1998 and $788,000 in 1999) primarily due to the salaries
of ADVR's President and Chief Financial Officer and accounted for compensation
expense.
Research and Development Expense. Research and development expense
increased from approximately $818,000 in 1997, to $1,659,000 in 1998, to
approximately $1,746,000 in 1999. The increase from 1997 to 1998 resulted
primarily from the maintenance of the Yonkers, New York laboratory. The
approximate costs of rent, personnel, operating costs and laboratory supplies
associated with the Yonkers laboratory for the years ended 1997, 1998 and 1999
were charged to research and development expense as follows: $60,000, $950,000
and $1,325,000.
Depreciation Expense. Depreciation expense increased from approximately
$26,000 in 1997, $110,000 in 1998 to $231,000 in 1999 as a result of the
acquisition of furniture, fixtures and equipment for the Yonkers office and
laboratory, along with the additional leasehold improvements for laboratory
space leased during 1998 and 1999.
Interest Expense. Interest expense for the years ended 1997, 1998 and
1999 was approximately $1,738,000, $1,471,000 and $2,007,000, respectively.
Included in interest expense for these periods was:
o the beneficial conversion feature on certain convertible
debentures of approximately $1,553,000, $836,000 and
$1,045,000 for the years ended 1997, 1998 and 1999,
respectively;
o interest expense associated with certain convertible
debentures of approximately $29,000, $95,000 and $163,000
for the years ended 1997, 1998 and 1999, respectively;
16
<PAGE>
o amortization of discount on certain warrants of
approximately $291,000 and $148,000 for the years ended 1998
and 1999, respectively;
o amortization of loan costs of approximately $112,000,
$230,000 and $331,000 for the years ended 1997, 1998 and
1999, respectively; and
o additional financing costs related to effective date of
certain registration statements of $286,000 in 1999.
Revenues. There were $10,953 and $656 in sales revenue in 1999 and
1998, respectively, compared to $2,278 in sales revenues for 1997. All sales
revenue resulted from distributors purchasing Product R for testing purposes.
The decrease in sales revenue from 1997 is due to the fact that in 1997, we sold
ampules of Product R outside the United States to independent organizations
solely for testing purposes. In 1998, the majority of the research and
development was conducted by our laboratory personnel, accordingly, sales to
outside entities for testing purposes were nominal. Interest income was
approximately $43,000 and $102,000 in 1999 and 1998, respectively, compared to
approximately $112,000 in 1997.
Liquidity
Years Ended December 31, 1999 and 1998
--------------------------------------
As of December 31, 1999, we had current assets of approximately
$916,000, compared to approximately $1,795,000 at December 31, 1998. We had
total assets of approximately $2,862,000 and $3,305,000 at December 31, 1999 and
1998, respectively. The decrease in current and total assets was primarily
attributable to the use of investment capital to fund increased operating
expenditures.
During 1999, we used cash of approximately $4,148,000 for operating
activities, as compared to approximately $3,365,000 in 1998. During 1999, we:
o incurred non-cash expenses of approximately $331,000 and
$148,000, respectively, relating to amortization of loan
costs and discount on warrants relating to convertible
debentures issued in 1997, 1998 and 1999;
o incurred non-cash expenses of approximately $1,045,000
relating to amortization of deferred interest associated
with the beneficial conversion feature of the 1998 and 1999
convertible debentures;
o expended approximately $770,000 in professional and
consulting fees;
o expended approximately $229,000 in laboratory supplies;
o expended approximately $1,685,000 for payroll and related
costs.
During 1999, cash flows provided by investing and financing activities
was primarily due to the proceeds from the issuance of the 1998 and 1999
convertible debentures of approximately $3,000,000, and proceeds from the sale
of securities of approximately $700,000. In addition, we expended approximately
$407,000 for leasehold improvements and furniture and equipment at our Yonkers,
New York office.
17
<PAGE>
Under the terms of an agreement with RBB Bank, A.G. entered in November
1998 pursuant to which RBB purchased a 7% convertible debenture and related
warrants, we were required to file with the Commission a registration statement
to register shares of the common stock issuable upon conversion of the
convertible debenture and upon exercise of the related warrants to allow the
investors to resell such common stock to the public. Because the registration
statement was not declared effective by the Commission on or before April 13,
1999, the RBB agreement provides that we pay RBB a penalty equal to the sum of
(x) $30,000 and (y) $1,500 for each day lapsed after such date, until the
registration statement is declared effective by the Commission, provided,
however, that total penalties shall not exceed $100,000 in the aggregate. As of
the date hereof, RBB has not requested payment of the penalty, and we are
negotiating with RBB to have the penalty waived.
Under the terms of an agreement with several purchasers entered in
December 1998, pursuant to which such purchasers purchased an aggregate of
4,917,276 shares of common stock and warrants to purchase an additional
2,366,788 shares of common stock, we were required to file with the Commission a
registration statement to register the common stock issued under the purchase
agreement, and upon exercise of the warrants to allow the resale of such common
stock to the public. Because the registration statement was not declared
effective by the Commission on or before May 21, 1999, the agreement provides
that we pay a penalty of $16,050 for each full calendar month or portion thereof
lapsed after such date, until the registration statement is declared effective,
provided, however, that total penalties shall not exceed $100,000 in the
aggregate. The registration statement was declared effective by the Commission
on December 16, 1999. Pursuant to an agreement in January 2000, the purchasers
in this transaction were paid an aggregate cash penalty
of $96,300 in connection with the registration statement.
Under the terms of an agreement with several purchasers entered in June
1999, pursuant to which such purchasers purchased an aggregate of 1,851,852
shares of common stock and warrants to purchase an additional 926,528 shares of
common stock, we were required to file with the Commission a registration
statement to register the common stock issued under the purchase agreement, and
upon exercise of the warrants to allow the resale of such common stock to the
public. The agreement provides that if the registration statement is not
declared effective by the Commission prior to December 3, 1999, we must pay the
purchasers a penalty of $10,000, on a pro rata basis, for each full calendar
month lapsed after such date, and a pro rated amount of said $10,000 based on a
month of 30 or 31 days (as applicable to the month in which the registration
statement is declared effective), provided, however, that total penalties shall
not exceed $20,000 in the aggregate. The registration statement was declared
effective by the Commission on December 29, 1999.
Under the terms of a securities purchase agreement with Focus Investors
LLC dated August 3, 1999 pursuant to which Focus Investors purchased 7%
convertible debentures and related warrants, we were required to file with the
Commission a registration statement to register shares of the common stock
issuable upon conversion of the debentures and upon exercise of the warrants to
allow the purchaser to resell such common stock to the public. The purchase
agreement provides that, if the registration statement is not declared effective
prior to December 1, 1999, or if the number of shares qualified for trading on
the OTC Bulletin Board or reserved for issuance is insufficient for issuance
upon the conversion of the debentures and the exercise of the warrants, or if a
blackout event occurs (as described in the agreement, each of these events
referred to as a "default"), we will be required to pay the purchaser a penalty
for each 30 day
18
<PAGE>
period during which a default shall be in effect equal to $40,000, pro rated for
the number of days during each period the defaults were pending. To the extent
the periodic amounts for all default periods exceed $100,000 in the aggregate,
the excess amount shall be paid in shares of common stock, as set forth in the
agreement. The agreement further provides that until the registration statement
has been filed and becomes effective, we will not file any other registration
statement without the written consent of Focus Investors. The registration
statement was declared effective by the Commission on December 29, 1999.
Under the terms of a securities purchase agreement with Endeavour
Capital Fund S.A. dated December 28, 1999 and related documents thereto pursuant
to which Endeavour purchased 7% convertible debentures and related warrants, we
were required to file with the Commission a registration statement to register
shares of the common stock issuable upon conversion of the debentures (together
with interest on the debentures, which is payable in common stock on conversion)
and upon and upon exercise of the warrants to allow the purchaser to resell such
common stock to the public. The purchase agreement provided that, if the
registration statement was not declared effective prior to April 1, 2000, or if
the purchaser is restricted from making sales of registrable securities covered
by a previously effective registration statement at any time after the effective
date other than during a permitted suspension period (as defined in the
agreement), then, we will be required to pay the purchaser $40,000 (2% of the
purchase price) for each 30- day period of such default (except that, prior to
the initial effectiveness of this registration statement, the amount will be
$30,000 (1.5% of the purchase price) during the first two 30-day periods of such
default). The registration statement was declared effective by the Commission on
January 18, 2000.
In February 2000 pursuant to a securities purchase agrement, we sold to
Harbor View Group and various other purchasers 13,636,357 shares of common stock
and warrants to purchase an aggregate of 5,454,544 shares of common stock in a
private offering transaction. Under the terms of the agreement, we are required
to use our best effort to file a registration statement to register the
securities issued or issueble in connection with the agreement by May 31, 2000.
THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT ON OUR
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999,
INCLUDES AN EXPLANATORY PARAGRAPH REGARDING OUR ABILITY TO CONTINUE AS A GOING
CONCERN. NOTE 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS STATES THAT OUR ABILITY
TO CONTINUE OPERATIONS IS DEPENDENT UPON THE CONTINUED SALE OF OUR SECURITIES
AND DEBT FINANCING FOR FUNDS TO MEET OUR CASH REQUIREMENTS, WHICH RAISE
SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. FURTHER, THE
ACCOUNTANT'S REPORT DOES NOT INCLUDE ANY ADJUSTMENTS THAT MIGHT RESULT FROM THE
OUTCOME OF THIS UNCERTAINTY. ALTHOUGH WE MAY NOT BE SUCCESSFUL IN DOING SO, WE
PLAN TO ELIMINATE OR REMEDY THE DEFICIENCIES IN OUR FINANCIAL CONDITION THROUGH
THE ISSUANCE OF ADDITIONAL SECURITIES FOR CASH.
19
<PAGE>
Capital Resources
We have been dependent upon the proceeds from the continued sale of
securities for the funds required to continue operations at present levels and
to fund further research and development activities. The following table
summarizes sales of our securities since February 1997.
<TABLE>
<CAPTION>
- ---------------- -------------- ------------------ ------------------- -------------------------- ------------------------
Gross Convertible / Conversion Price / Maturity Date /
Date Issued Proceeds Security Issued Exercisable Into Exercise Price Expiration Date
- ---------------- -------------- ------------------ ------------------- -------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
February 1997 $1,000,000 Debenture 6,675,982 shares $0.15-0.20 per share Fully converted
------------------ ------------------- -------------------------- ------------------------
Warrants 535,134 shares $0.288-0.864 per share February 28, 2007
- ---------------- -------------- ------------------ ------------------- -------------------------- ------------------------
August 1997 $3,000,000 Debenture 17,577,354 shares $0.13-0.23 per share Fully converted
------------------ ------------------- -------------------------- ------------------------
Warrants 1,800,000 shares $0.20-0.27 per share August 30, 2007
- ---------------- -------------- ------------------ ------------------- -------------------------- ------------------------
November 1998 $1,500,000 Debenture 10,130,246 shares $0.1363-$.2011 per share Fully converted
------------------ ------------------- -------------------------- ------------------------
Warrants 375,000 shares $0.20 per share October 31, 2008
------------------- --------------------------
375,000 shares $0.24 per share
- ---------------- -------------- ------------------ ------------------- -------------------------- ------------------------
January 1999 $802,500 Common Stock 4,917,276 shares n/a n/a
------------------ ------------------- -------------------------- ------------------------
Warrants 1,183,394 shares $0.2040 per share December 31, 2003
------------------- --------------------------
1,183,394 shares $0.2448 per share
- ---------------- -------------- ------------------ ------------------- -------------------------- ------------------------
July 1999 $500,000 Common Stock 1,851,852 shares n/a n/a
------------------ ------------------- -------------------------- ------------------------
Warrants 463,264 shares $0.324 per share June 30, 2004
------------------- --------------------------
463,264 shares $0.378 per share
- ---------------- -------------- ------------------ ------------------- -------------------------- ------------------------
August 1999 $2,000,000 Debentures 14,348,847 shares $0.1396-$.1438 per share Fully converted
------------------ ------------------- -------------------------- ------------------------
Warrants 1,000,000 shares $0.2461 per share August 3, 2004
- ---------------- -------------- ------------------ ------------------- -------------------------- ------------------------
December 1999 $2,000,000 Debentures 13,871,891 shares $0.1363-.1929 per share December 31, 2004
and January 2000 (1)
------------------ ------------------- -------------------------- ------------------------
Warrants 210,000 shares $0.19916667 per share December 31, 2002
- ---------------- -------------- ------------------ ------------------- -------------------------- ------------------------
February 2000 $3,000,000 Common Stock 13,636,957 shares n/a n/a
------------------ ------------------- -------------------------- ------------------------
Warrants 2,727,272 shares $0.275 per share February 28, 2005
------------------- --------------------------
2,727,272 shares $0.33 per share
- ---------------- -------------- ------------------ ------------------- -------------------------- ------------------------
</TABLE>
- ----------------------------
(1) Represents 13,842,753 shares of common stock issued in January and February
2000 upon the conversion of $1,985,000 principal amount of the convertible
debentures, plus an additional 29,138 shares issuable upon conversion of the
remaining $15,000 principal amount, excluding interest, assuming an applicable
conversion price of $0.5148, based on the average of the high and low bid price
of our common stock on March 27, 2000.
Securities Issued in 1997
-------------------------
RBB Bank, A.G.: In February 1997 and October 1997, in order to finance
research and development, we sold $1,000,000 and $3,000,000, respectively,
principal amount of our ten-year 7% convertible debentures due February 28, 2007
and August 30, 2007, respectively, to RBB in offshore transactions pursuant to
Regulation S under the Securities Act. Accrued interest under the 1997
debentures was payable semiannually, computed at the rate of 7% per annum on the
unpaid principal balance from the date of issuance until the date of interest
payment. The 1997 debentures were convertible, at the option of the holder, into
shares of common stock pursuant to specified formulas. On April 22, 1997, June
6, 1997, July 3, 1997 and August 20, 1997, pursuant to notice by the holder,
RBB, to us under the February 1997 debenture, $330,000, $134,000,
20
<PAGE>
$270,000 and $266,000, respectively, of the principal amount of the February
1997 debenture was converted into 1,648,352, 894,526, 2,323,580 and 1,809,524
shares of the common stock, respectively. As of August 20, 1997 the February
1997 debenture was fully converted. On December 9, 1997, January 7, 1998,
January 14, 1998, February 19, 1998, February 23, 1998, March 31, 1998, May 4,
1998 and May 5, 1998, pursuant to notice by the holder, RBB, to us, $120,000,
$133,000, $341,250, $750,000, $335,750, $425,000, $275,000 and $620,000,
respectively, of the October 1997 debenture was converted into 772,201,
1,017,011, 2,512,887, 5,114,218, 1,498,884, 1,870,869, 1,491,485, and 3,299,979
shares of common stock, respectively. As of May 5, 1998, the October 1997
debenture was fully converted.
In connection with the issuance of the 1997 debentures, we issued to
RBB six warrants to purchase common stock, three of which entitle the holder to
purchase, from February 21, 1997 through February 28, 2007, 178,378 shares of
the common stock, and three of which entitle the holder to purchase, from August
30, 1997 through August 30, 2007, 600,000 shares of the common stock. The
exercise prices of such warrants are $0.288, $0.576, $0.864, $0.20, $0.23 and
$0.27 per warrant share, respectively. Each such 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 such 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 of the date of this
report, none of the warrants have been exercised.
Securities Issued in 1998
-------------------------
RBB Bank, A.G.: In November 1998 we sold $1,500,000 principal amount of
our ten-year 7% convertible debenture due October 31, 2008 to RBB, as agent for
the accounts of certain persons, in an offshore transaction pursuant to
Regulation S under the Securities Act. Accrued interest under the convertible
debenture is payable semiannually, computed at the rate of 7% per annum on the
unpaid principal balance from the date of issuance until the date of interest
payment. The convertible debenture is convertible, at the option of the holder,
into shares of common stock pursuant to a specified formula. The actual number
of shares of common stock issued or issuable upon conversion of the convertible
debenture is subject to adjustment and could be materially less or more than the
above estimated amount, depending upon the future market price of the common
stock and the potential conversion of accrued interest into shares of common
stock.
Based on the terms for conversion associated with the convertible
debenture, there is an intrinsic value associated with the beneficial conversion
feature of $625,000. Since conversion can occur immediately upon issuance of the
convertible debenture, this amount was recognized as interest expense in 1998.
On January 19 and March 7, 2000, pursuant to notice by RBB to ADVR,
$1,222,500 and $377,500 principal amount of the November 1998 debenture was
converted into 8,252,746 and 1,877,500 shares of common stock, respectively. As
of March 7, 2000, the November 1998 debenture was fully converted.
In connection with the issuance of the convertible debenture, we issued
to RBB two warrants to purchase common stock , each warrant entitling the holder
to purchase, until October 31, 2008, 375,000 shares of the common stock. The
exercise prices of the two warrants are
21
<PAGE>
$0.20 and $0.24 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 of the date of this
report, none of these warrants had been exercised.
The fair value of the warrants issued in connection with the
convertible debenture was estimated to be $48,000 ($0.064 per warrant) based
upon a financial analysis of the terms of such warrants using the Black-Sholes
pricing model with the following assumptions: expected volatility of 20%; a risk
free interest rate of 5.75% and an expected holding period of one year. This
amount is being amortized in the accompanying consolidated financial statements
as interest expense related to the convertible debenture.
Harbor View Group, Inc., et al.: In December 1998 pursuant to a
securities purchase agreement, we sold to Harbor View Group, Inc. and various
other purchasers 4,917,276 shares of common stock, and warrants to purchase an
aggregate of 2,366,788 shares of common stock, including (x) warrants to
purchase an aggregate of 1,966,788 shares of common stock and (y) a finder's fee
paid to Harbor View Group consisting of two warrants to purchase an aggregate
400,000 shares of common stock, in a private offering transaction pursuant to
Section 4(2) of the Securities Act, for an aggregate purchase price of $802,500.
Of the $802,500 purchase price, $600,000 was received on December 31, 1998, and
$202,500 was received in January 1999. The warrants entitle the holders to
purchase an aggregate of 1,183,394 shares of common stock at an exercise price
of $0.204 per share, and 1,183,394 shares at an exercise price of $0.2448 per
share. The warrants are exercisable at any time and from time to time until
December 31, 2003. 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 of the date of this report, warrants to
purchase 245,098 shares of common stock had been exercised.
The fair value of the warrants issued as of January 7, 1999, the date
of issuance of the shares in connection with the securities purchase agreement,
was estimated to be $494,000 ($0.0208 per warrant) based upon a financial
analysis of the terms of such warrants using the Black-Sholes Pricing Model with
the following assumptions: expected volatility of 20%, and a risk free interest
rate of 6% through the December 31, 2003 expiration date. This amount is being
amortized to interest expense in the accompanying consolidated financial
statements.
Securities Issued in 1999
-------------------------
Berman, et al.: In July 1999 pursuant to a securities purchase
agreement, we sold 1,851,852 shares of common stock, and warrants to purchase an
aggregate of 925,926 shares of common stock to Michael Berman, Pak-Lin Law and
Kwong Wai Au in a private offering transaction pursuant to Section 4(2) of the
Securities Act, for an aggregate purchase price of $500,000, received in July
1999. The warrants entitle the holders to purchase 463,264 and 463,264 shares of
common stock at exercise prices of $0.324 and $0.378 per share, respectively.
22
<PAGE>
The warrants are exercisable at any time and from time to time until June 28,
2004. 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 of the date of this report, none of the warrants
had been exercised.
The fair value of the warrants issued as of July 9, 1999, the date of
issuance of the shares in connection with the securities purchase agreement, was
estimated to be $37,000 ($0.04 per warrant) based upon a financial analysis of
the terms of such warrants using the Black-Sholes Pricing Model with the
following assumptions: expected volatility of 20%, and a risk free interest rate
of 5.75% through the June 30, 2004 expiration date. This amount is being
amortized to interest expense in the accompanying consolidated financial
statements.
Focus Investors LLC: Pursuant to a securities purchase agreement dated
August 3,1999 in a private offering transaction under Section 4(2) of the
Securities Act, we sold to Focus Investors LLC an aggregate of 20 units for an
aggregate gross purchase price of $2 million, each unit consisting of $100,000
principal amount of our ten-year 7% convertible debentures due August 3, 2009,
and series W warrants to purchase 50,000 shares of our common stock exercisable
until August 3, 2004. Accrued interest under the convertible debentures is
payable semiannually, computed at the rate of 7% per annum on the unpaid
principal balance from the date of issuance until the date of interest payment.
The convertible debentures are convertible, at the option of the holder, into
shares of common stock pursuant to a specified formula. The actual number of
shares of common stock issued or issuable upon conversion of the convertible
debentures is subject to adjustment and could be materially less or more than
the above estimated amount, depending upon the future market price of the common
stock and the potential conversion of accrued interest into shares of common
stock. On January 19, February 17, and March 3, 2000, pursuant to notice by
Focus Investors to ADVR, $300,000, $900,000, and $800,000 principal amount of
the Focus debentures was converted into 2,178,155, 6,440,725 and 5,729,967
shares of common stock, respectively. As of March 3, 2000, the debenture was
fully converted.
The exercise price of the series W warrants is $0.2461 per warrant
share. The warrants provide that the holder may elect to receive a reduced
number of shares of common stock on the basis of a cashless exercise; The series
W warrants contain anti-dilution provisions which provide for the adjustment of
the warrant price and warrant shares. As of March 17, 2000, all of the warrants
had been exercised.
The fair value of the warrants issued as of August 3, 1999 in
connection with the securities purchase agreement was estimated to be $52,953
($0.0526 per warrant) based upon a financial analysis of the terms of such
warrants using the Black-Sholes Pricing Model with the following assumptions:
expected volatility of 20%, and a risk free interest rate of 5.75% through the
June 30, 2004 expiration date. This amount is being amortized to interest
expense in the accompanying consolidated financial statements.
Endeavour Capital Fund S.A.: Pursuant to a securities purchase
agreement dated December 28, 1999 in a private offering transaction under
Section 4(2) of the Securities Act, we issued the first $1,000,000 tranche of
$2,000,000 in aggregate principal amount of our 7% convertible debentures due
December 31, 2004 to Endeavour Capital Fund S.A. (the "Endeavour
23
<PAGE>
Transaction"). In connection with the sale of the first tranche of debentures,
we issued warrants to purchase 100,000 shares of our common stock to Endeavour,
and two warrants to purchase 5,000 shares of common stock to Endeavour's legal
counsel. Accrued interest under the convertible debentures is computed at the
rate of 7% per annum on the unpaid principal balance from the date of issuance
until the date of interest payment and is payable on conversion of the debenture
or on maturity in common stock using the same conversion formula. The
convertible debentures are convertible, at the option of the holder, into shares
of common stock pursuant to a specified formula. The actual number of shares of
common stock issued or issuable upon conversion of the convertible debentures is
subject to adjustment and could be materially less or more than the estimated
number of shares in this report, depending upon the future market price of the
common stock and the potential conversion of accrued interest into shares of
common stock.
These warrants expire on December 31, 2002 and are exercisable at
$0.19916667 per share. The warrants provide that the holder may elect to receive
a reduced number of shares of common stock on the basis of a cashless exercise.
The warrants contain anti-dilution provisions which provide for the adjustment
of the warrant price and warrant shares. As of the date of this report, none of
these warrants had been exercised.
The fair value of the warrants issued as of December 28, 1999 in
connection with the securities purchase agreement was estimated to be $4,285
($0.0429 per warrant) based upon a financial analysis of the terms of such
warrants using the Black-Sholes Pricing Model with the following assumptions:
expected volatility of 20%, and a risk free interest rate of 6% through the June
30, 2004 expiration date. This amount is being amortized to interest expense in
the accompanying consolidated financial statements.
Securities Issued in 2000
-------------------------
Endeavour Capital Fund S.A.: In January 2000, in connection with the
Endeavour Transaction, we issued the second $1,000,000 tranche of $2,000,000 in
aggregate principal amount of our 7% convertible debentures due December 31,
2004, along with warrants to purchase 100,000 shares of our common stock to
Endeavour Capital Fund, S.A. The terms of the second tranche of debentures and
warrants are the identical to the terms of the debentures and warrants issued in
first tranche of the Endeavour Transaction.
On January 27, February 22, 23, 24, and 29, 2000 pursuant to notice by
Endeavour Capital Fund to ADVR, $150,000, $135,000, $715,000, $785,000 and
$200,000 principal amount of the Endeavour debentures was converted into
1,105,435, 988,913, 5,149,035, 5,562,696 and 1,036,674 shares of common stock,
respectively. As of March 27, 2000, $15,000 of the principal amount of the
debenture remained unconverted.
In February 2000 pursuant to a consulting agreement with Harbor View
Group, we issued to Harbor View warrants to purchase 1,750,000 shares at an
exercise price of $0.21 per share, and warrants to purchase 1,750,000 shares at
an exercise price of $0.26 per share, until February 28, 2005, in exchange for
consulting services provided or to be provided to ADVR. Each warrant contains
anti-dilution provisions which provide for the adjustment of warrant price and
warrant shares. As of the date of this report, none of these warrants had been
exercised.
In February 2000 pursuant to a securities purchase agreement, we sold
to Harbor View Group and various other purchasers 13,636,357 shares of common
stock, and warrants to purchase an aggregate of 5,454,544 shares of common stock
in a private offering transaction
24
<PAGE>
pursuant to Section 4(2) of the Securities Act, for an aggregate purchase price
of $3,000,000. Half of the warrants are exercisable at $0.275 per share, and
half of the warrants are exercisable at $0.33 per share, until February 28,
2005. 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 of the date of this report, none of these warrants
had been exercised.
Projected Expenses
During the next 12 months, we expect to spend approximately $9,000,000,
approximately $4,000,000 of which was raised during the first quarter of fiscal
2000, on research and development related activities, including approximately:
(1) $4,000,000 for operating expenses;
(2) $2,250,000 for the submission of the IND for Product
R to the FDA in connection with GloboMax's project
management services to ADVR for the pre-clinical
development and IND submission of Product R to the
FDA, the development of standard operating procedures
and validation protocol for the preparation and
manufacture of Product R, and toxicology studies of
Product R;
(3) $1,500,000 for capital expenditures for leasehold
improvements and equipment at our Yonkers, New York
office relating to additional laboratories and
manufacturing and production facilities for Product
R; and
(4) $1,250,000 for additional personnel.
We anticipate that we can continue operations through September 2000
with our current liquid assets, including the proceeds from the recent sale of
the convertible debenture and other securities if no stock options or warrants
are exercised nor additional securities sold. If all of the outstanding stock
options and warrants are exercised, we will receive net proceeds of
approximately $10.6 million. Those proceeds will contribute to general and
administrative and working capital and will permit us to substantially increase
our budget for research and development and clinical trials and testing and to
operate at significantly increased levels of operation, assuming Product R
receives approvals and prospects for sales increase to justify such increased
levels of operation. The recent prevailing market price for shares of common
stock has from time to time been above the exercise prices of certain of the
outstanding options and warrants. As such, recent trading levels may not be
sustained nor may any additional options or warrants be exercised. If less than
50% or none of the outstanding options and warrants are exercised, and we obtain
no other additional financing, in order for us to achieve the level of
operations contemplated by management, management anticipates that we will have
to limit intentions to expand operations beyond current levels.
We anticipate that we will be required to sell additional securities to
obtain the funds necessary to further our research and development activities.
We are currently seeking debt
25
<PAGE>
financing, licensing agreements, joint ventures and other sources of financing,
but the likelihood of obtaining such financing on favorable terms, if at all, is
small. Management anticipates that they will have to defer their salaries if
financing is not available in order to continue operations,. 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 large uncertainties involved in the FDA approval process
for commercial drug use on humans, it is possible that we may never be able to
sell Product R commercially.
Year 2000 Compliance
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead. If not corrected, those programs could cause date-related
transaction failures.
We developed a compliance assurance process to address this concern. A
project team performed a detailed assessment of all internal computer systems
and developed and implemented plans to correct any problems.
Year 2000 problems could affect our research and development,
financial, administrative and communication operations. Systems critical to our
business which were identified as non- Year 2000 compliant were either replaced
or corrected through programming modifications. In addition, the project team
looked at Year 2000 readiness from other aspects of our business. We remediated
and replaced systems as needed and have been successfully testing and verifying
our modifications. In addition to our in-house efforts, we have asked vendors,
major customers, service suppliers, communications providers and banks whose
systems failures potentially could have a significant impact on our operations
to verify their Year 2000 readiness. To date, we have not encountered any
significant effects related to the Year 2000 and we do not anticipate that any
unforeseen Year 2000 problems will have a material effect on our results of
operations or financial condition.
External and internal costs specifically associated with modifying
internal use software for Year 2000 compliance were expensed as incurred and
will not have a material impact on our consolidated financial position, results
of operations or cash flows.
The above expectations are subject to uncertainties. For example, if we
were unsuccessful in identifying or fixing all Year 2000 problems in our
critical operations, or if we are affected by the inability of certain vendors
or suppliers to continue operations due to such a problem, our results of
operations or financial condition could be materially impacted.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
The Independent Auditors' Report, Consolidated Financial Statements and
Notes to Consolidated Financial Statements begin on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Our directors and executive officers and further information concerning
them are as follows:
Name Age Position
- ---- --- --------
Shalom Z. Hirschman, 63 President, Chief Executive Officer,
M.D. Chief Scientific Officer, Director
Bernard Friedland 74 Chairman of the Board of Directors
William Bregman 78 Vice President, Secretary,
Treasurer, Director
Louis J. Silver 71 Director
Alan V. Gallantar 42 Chief Financial Officer
Shalom Z. Hirschman, M.D., President, Chief Executive Officer and a
director since October 1996, was Director of the Division of Infectious Diseases
and Professor of Medicine at Mount Sinai School of Medicine, New York, New York,
from May 1969 until October 1996.
Bernard Friedland, Chairman of the Board since May 1987, director since
July 1985 and President and Chief Executive Officer from September 1985 until
October 1996, was employed by Key, Inc. for 30 years, until March 1, 1986, in
the Research and Development and Quality Assurance Departments in
Pharmaceuticals, Pharmacology, and Cancer antimetabolites, and has been the
President and CEO of our subsidiary, Advance Viral Research, Ltd. since 1984.
William Bregman, director since July 1985 and Secretary-Treasurer since
September 1985, was Vice President from September 1985 until May 1987 and Vice
President and Treasurer of our subsidiary, Advance Viral Research, Ltd., from
August 1984 until the present.
27
<PAGE>
Louis J. Silver, director since May 1992, has been self-employed as a
free-lance accountant and auditor since 1985. Mr. Silver previously served as a
member of the board of directors during the periods from May 1987 to July 1987.
Alan V. Gallantar, Chief Financial Officer since October 1999, was
treasurer and controller from March1998 to September 1999 of AMBI Inc., a
nutraceutical company, senior vice president and chief financial officer from
1992 to 1997 of Bradley Pharmaceuticals, Inc., a pharmaceutical manufacturer,
and vice president and divisional controller from 1989 to 1991 for PaineWebber
Incorporated. From 1985 to 1989, Mr. Gallantar was second vice president at The
Chase Manhattan Bank, N.A., and from 1983 to 1985, was a senior accountant at
Philip Morris, Incorporated. From 1979 to 1983, Mr. Gallantar was a senior
accountant in the audit department of Deloitte & Touche.
Bernard Friedland and William Bregman may be deemed a "parent" and
"promoter" as those terms as defined in the rules and regulations promulgated
under the Securities Act. Directors are elected to serve until the next annual
meeting of stockholders and until their successors have been elected and have
qualified.
ITEM 11. EXECUTIVE COMPENSATION
Director Compensation
The arrangement for director compensation is $150 for each meeting of
the board of directors attended, which has not in fact been paid within at least
the last three years.
Executive Officer Compensation
Other than Dr. Hirschman, our President and Chief Executive Officer,
none of our directors, officers or employees received salary and bonus exceeding
in the aggregate $100,000 in the years ended December 31, 1999, 1998 or 1997.
The following table provides certain summary information concerning compensation
paid or accrued by ADVR, to or on behalf of the named executive officer for the
years ended December 31, 1999, 1998 and 1997.
28
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation Awards
------------------- -------------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary (1) Bonus Compensation (2) Options/SARs (3) Compensation (4)
- ------------------ ---- ---------- ----- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shalom Z. Hirschman, M.D., 1999 $325,000 $0 $34,738 -- $4,316
President, Chief Executive ----------------------------------------------------------------------------------------------------
Officer and Chief Scientific 1998 $325,000 $0 $12,288 23,000,000 $4,316
Officer since October 1996 ----------------------------------------------------------------------------------------------------
and consultant from May 24, 1997 $325,000 $43,000 $14,604 -- $3,956
1995 until October 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
Alan V. Gallantar, Chief 1999 $43,750 $0 $1,500 4,547,880 --
Financial Officer since ----------------------------------------------------------------------------------------------------
October 1999. 1998 -- -- -- -- --
----------------------------------------------------------------------------------------------------
1997 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------
(1) Dr. Hirschman's salary increased for the year 2000 to $361,000. Mr.
Gallantar was hired in October 1999 and therefore his salary reflects only
three months of his $175,000 annual salary.
(2) Other Annual Compensation for Dr. Hirschman includes medical insurance
premiums paid by ADVR on his behalf, and aggregate incremental cost to ADVR
of Dr. Hirschman's automobile lease, gas, oil, repairs and maintenance.
Other Annual Compensation for Mr. Gallantar includes an automobile
allowance of $500 per month.
(3) Includes all options granted during fiscal years shown. No stock
appreciation rights were granted with any options.
(4) The dollar value of insurance premiums paid by, or on behalf of, us with
respect to term life insurance for the benefit of Dr. Hirschman.
In February 1998, we granted Dr. Hirschman options to acquire
23,000,000 shares of common stock, the exerciseability of which is subject to
conditions precedent. In October 1999, we granted Mr. Gallantar options to
acquire 4,547,880 shares of common stock, exercisable in one third increments on
October 1, 2000, 2001, and 2002, until October 1, 2009. No other stock options
were granted to the named executive officers during 1999. Other than Dr.
Hirschman's and Mr. Gallantar's stock options, we currently have outstanding:
o Warrants to purchase 14,247,896 shares of common stock at
exercise prices ranging from $0.199 to $0.864 per warrant
share;
o options to acquire 7,618,234 shares of the common stock at
exercise prices ranging from $0.14 to $0.36 per option share,
none of which are beneficially owned by directors, officers or
employees of ADVR; and
o options to acquire 430,000 shares of the common stock at
exercise prices of $0.21 per option share, all of which are
beneficially owned by employees of ADVR.
29
<PAGE>
The following table sets forth certain summary information concerning
exercised and unexercised options to purchase our common stock as of December
31, 1999 held by the named executive officers. No options were exercised during
the year ended December 31, 1999 by the named executive officers.
<TABLE>
<CAPTION>
Aggregated Option Exercises in
Last Fiscal Year And Year-end Option Values
-------------------------------------------
Number of Securities Value of Unexercised In-the-
Shares Underlying Unexercised Money Options at
Acquired on Value Options at Fiscal Year-End Fiscal Year-End
Name Exercise (#) Realized (1) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Shalom Z. Hirschman, M.D. 0 N/A 16,100,000 / 23,000,000 $0 / $0 (2)(3)
Alan V. Gallantar 0 N/A 0 / 4,547,880 $0 / $0 (2)(4)
</TABLE>
- --------------------------------
(1) The difference between the average of the high and low bid prices per share
of the common stock as reported by the Bulletin Board on the date of
exercise, and the exercise or base price.
(2) The difference between the average of the high and low bid prices per share
of the common stock as reported by the Bulletin Board on December 31, 1999,
$0.125, and the exercise or base price of in-the-money stock options.
(3) As of December 31, 1999, Dr. Hirschman held options to purchase 4,100,000
shares of common stock at $0.18 per share, 4,000,000; shares of common
stock at $0.19 per share; 4,000,000 shares of common stock at $0.27 per
share; and 4,000,000 shares of common stock at $0.36 per share, all of
which are currently exercisable. In addition, Dr. Hirschman held options to
purchase 23,000,000 shares of common stock at $0.27 per share which become
exercisable through February 2008 upon the earlier to occur of the day an
IND number is obtained from and approved by the FDA so that human research
may be conducted using Product R, the occurrence of a change in control, or
the execution of an agreement relating to co-marketing pursuant to which
one or more third parties commit to make payments to ADVR of at least $15
million.
(4) As of December 31, 1999, Mr. Gallantar held options to purchase 4,547,880
shares of common stock at $0.24255 per share, which are exercisable in
increments of 1,515,960 on October 1, 2000, 2001 and 2002.
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
Hirschman Employment Agreement
Pursuant to an Amended and Restated Employment Agreement dated as of
July 8, 1998 between ADVR and Dr. Hirschman, we employ Dr. Hirschman on a full
business time basis as our President, Chief Executive Officer, Chief Scientific
Officer and Chairman of our Scientific Advisory Board, with duties including
supervising our day-to-day operations, including management of scientific,
medical, financial, regulatory and corporate matters, establishing appropriate
laboratory, executive and other facilities on our behalf, and raising additional
capital on our behalf. The agreement includes an agreement that Dr. Hirschman
will be nominated as a director for the duration of Dr. Hirschman's employment
with us under the agreement, and voting agreements regarding the election of
Messrs. Friedland, Bregman and Dr. Hirschman as directors. See "Principal
Stockholders."
Pursuant to the agreement, the term of Dr. Hirschman's employment
continues until December 31, 2000 and will continue for one year periods
thereafter unless either we or Dr. Hirschman gives the other notice at least two
years in advance that such one year automatic
30
<PAGE>
extension shall be vitiated. If the agreement is terminated by us for cause, we
may cancel all unvested stock options, benefits under stock bonus plans and
stock appreciation rights ("SARs") granted to Dr. Hirschman. If the agreement is
terminated by Dr. Hirschman for cause, we are required to pay to Dr. Hirschman
his annual salary and employee benefits through the remainder of the then
current term.
Pursuant to the agreement, Dr. Hirschman receives an annual salary of
$325,000, payable in equal biweekly installments. The agreement also entitles
Dr. Hirschman to a major medical insurance policy, disability policy and dental
policy insurance to Dr. Hirschman and his dependents that is reasonably
acceptable to the parties, and a term life insurance policy at least in the
amount of $1,000,000, with a beneficiary to be designated by Dr. Hirschman. The
agreement further provides that we shall:
o take such action as may be necessary to permit Dr. Hirschman
to be entitled to participate in stock option, stock bonus
or similar plans (including plans for SARs) as are
established by us;
o lease or purchase for Dr. Hirschman, at his discretion, an
automobile selected and to be used by him, having a list
price not in excess of $40,000, and pay for all gas, oil,
repairs and maintenance, as well as the lease or purchase
payments, as applicable, in connection with the automobile;
o reimburse Dr. Hirschman for all of his proven expenses
incurred in and about the course of his employment that are
deductible under the current tax law, including, among other
expenses, his license fees, membership dues in professional
organizations, subscriptions to professional journals,
necessary travel, hotel and entertainment expenses incurred
in connection with overnight, out-of-town trips that
contribute to the benefit of us in the reasonable
determination of Dr. Hirschman, and all other expenses that
may be pre-approved by our board of directors; and
o provide not less than four weeks paid vacation annually and
such paid sick or other leave as we provide to all of our
employees.
The agreement also provides for the payment of $100,000 to Dr.
Hirschman on the date we obtain an IND number from the FDA so that Product R may
be tested on humans, so long as such IND number is obtained while Dr. Hirschman
is employed by us.
The agreement further provides that Dr. Hirschman is not authorized,
without the express written consent of the board of directors and other than in
the ordinary course of business, to pledge the credit of ADVR or any of our
other employees, to bind us, to release or discharge any debt due us unless we
have received payment in full, or to dispose (as collateral or otherwise) of all
or substantially all of our assets.
Dr. Hirschman has agreed that he will assign to us all patents he
develops which result from his knowledge acquired while performing his duties
under the agreement, and that, if his employment under the agreement is
terminated by us "for cause" or by Dr. Hirschman otherwise than "for cause," as
specified in that agreement, he will not, directly or indirectly, compete with
us for three years after termination or solicit our employees to leave our
employ for one year after termination.
31
<PAGE>
Pursuant to the execution of the agreement, we ratified a $100,000
bonus payment made to Dr. Hirschman in February 1998 and the February 1998 grant
to Dr. Hirschman of options to acquire 23,000,000 shares of common stock
exercisable at any time and from time to time through February 2008 at $0.27 per
share commencing upon:
o the day an IND number is obtained from and approved by the
FDA so that human research may be conducted using Product R;
o the occurrence of a change in control; or
o the execution of an agreement relating to co-marketing
pursuant to which one or more third parties commit to make
payments to us of at least $15 million.
Gallantar Employment Agreement
ADVR entered into an Employment Agreement dated as of October 1, 1999
with Alan V. Gallantar, pursuant to which Mr. Gallantar is employed as our Chief
Financial Officer on a full business time basis. Under the agreement, the term
of Mr. Gallantar's employment continues until October 1, 2002. If the agreement
is terminated by us for cause, Mr. Gallantar will have no accrued right to
receive any bonus for the year in which his employment is terminated, all
unvested stock options will be cancelled, and any vested stock options will
terminate 90 days after the effective date of termination. If the agreement is
terminated by ADVR not for cause, we are required to pay to Mr. Gallantar all
accrued and unpaid compensation, and all stock options granted as of the date of
the agreement shall become 100% vested. Upon such termination not for cause, all
options which became vested as a result of this provision may be exercised by
Mr. Gallantar until 90 days after the effective date of termination. If Mr.
Gallantar elects to terminate this agreement as a result of a change in control,
he will be paid his base salary for the remaining term of the agreement, and all
stock options granted on the date of the agreement will become 100% vested and
exercisable until 90 days after the effective date of termination. If Mr.
Gallantar elects to terminate this agreement for any other reason, he will be
paid all unaccrued and unpaid base salary, and he will have the right to
exercise any vested stock until 90 days after the effective date of termination.
All payments made to Mr. Gallantar in connection with the termination of the
agreement are subject to reduction to the extent they exceed 2.99 times the
"base amount" as determined under Section 280G of the Internal Revenue Code of
1986.
Pursuant to the agreement, Mr. Gallantar will receive an annual salary
of $175,000 for the first year of the agreement; $200,000 for the second year of
the agreement; and $225,000 for the third year of the agreement. For each year
of the agreement, Mr. Gallantar is entitled to a cash bonus of between 10% and
50% of his base salary, based on certain targets and the discretion of the board
of directors. As of the date of the agreement, Mr. Gallantar received options to
purchase an aggregate of 4,547,880 shares of our common stock. The options
expire on October 1, 2009, and are exercisable in three increments of 1,515,960
on the October 1, 2000, 2001 and 2002, respectively. The agreement further
provides that:
o Mr. Gallantar and his family are entitled to receive the
same benefits generally given to other senior executives of
ADVR.
32
<PAGE>
o Mr. Gallantar is entitled to 15 working days of vacation
during the first year and 20 days of vacation during each
year thereafter, subject to certain exceptions.
o Mr. Gallantar will receive a non-accountable automobile
allowance of $500 per month, provided however, that he is be
responsible for all costs of acquiring and maintaining the
automobile.
o We will reimburse Mr. Gallantar for certain professional
license and membership fees up to a maximum of $5,000 per
year in the aggregate, and all other expenses incurred in
the performance of his duties with the prior approval of the
Chief Executive Officer.
o If Mr. Gallantar relocates his primary residence to
Westchester County, New York, or New York City prior to the
second anniversary of the agreement, we will pay reasonable
moving, legal and brokerage fees or costs incurred by him in
connection with such relocation up to a maximum of $15,000.
The agreement provides that Mr. Gallantar is not authorized, without
the express written consent of the board of directors and other than in the
ordinary course of business, to pledge the credit of ADVR, to bind us under any
note, mortgage or other monetary obligation, to release or discharge any debt
due us unless we have received payment in full, or to dispose (as collateral or
otherwise) of a substantial amount of our assets. Furthermore, Mr. Gallantar
agreed that he will assign to us all intellectual property rights developed by
him which result from the knowledge he acquired while performing his duties
under the agreement. Finally, he has agreed that he will not, directly or
indirectly, compete with us for five years after termination of his employment
or solicit our employees to leave our employ for one year after termination.
33
<PAGE>
Performance Graph
Securities and Exchange Commission rules require that a line graph
performance presentation be provided comparing cumulative total stockholder
return with a performance indicator of a broad market index and a nationally
recognized industry index. The graph and table set forth below compare the
cumulative total stockholder return on ADVR's Common Stock for 1995 through 1999
with the Dow Jones Pharmaceuticals Index and the Dow Jones Equity Market Index
for the same period. The graph and table assume an investment of $100 in the
Common Stock and each index on December 31, 1994 and the reinvestment of all
dividends, if any.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ADVANCED VIRAL RESEARCH CORP.,
THE DOW JONES EQUITY MARKET INDEX
AND THE DOW JONES PHARMACEUTICALS INDEX
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
5 YEAR CUMULATIVE TOTAL RETURN
12/94 12/95 12/96 12/97 12/98 12/99
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Advanced Viral Research Corp. 100 85 160 100 116 100
Dow Jones Pharmaceuticals 100 138 171 227 292 351
Dow Jones Equity Market 100 164 206 320 475 424
</TABLE>
34
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of the date of this report for (i)
each stockholder who is known by us to own beneficially more than 5% of our
common stock, (ii) each director and named executive officer, and (iii) all of
our directors and executive officers as a group. Except as otherwise indicated,
we believe, based on information furnished by the persons named in this table
that such persons have voting and investment power with respect to all shares of
common stock beneficially owned by them, subject to community property laws,
where applicable.
<TABLE>
<CAPTION>
Shares of Common Stock
Name and Address of Beneficial Owner Beneficially Owned (1) Percent Owned
- ------------------------------------ ---------------------- -------------
<S> <C> <C> <C>
Shalom Z. Hirschman, M.D. 16,100,000 (2)(3) 4.5%
c/o Advanced Viral Research Corp.
200 Corporate Boulevard South
Yonkers, New York 10701
Bernard Friedland 39,246,730 (3)(4) 11.4%
c/o Advanced Viral Research Corp.
1250 East Hallandale Beach Blvd.
Hallandale, FL 33009
William Bregman 35,705,403 (3)(5) 10.4%
c/o Advanced Viral Research Corp.
1250 East Hallandale Beach Blvd.
Hallandale, FL 33009
Louis J. Silver 0 0.0%
5110 S.W. 127th Place
Miami, FL 33175
Alan V. Gallantar 0 0.0%
c/o Advanced Viral Research Corp.
200 Corporate Boulevard South
Yonkers, New York 10701
All officers & directors (5 persons) 91,052,133 (2) 25.3%
</TABLE>
- --------------------------------
(1) The persons named in this table have sole voting power with respect to all
shares shown as beneficially owned by them, except as indicated in other
footnotes to this table. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of
common stock subject to options or warrants held by that person that are
currently exercisable or exercisable within 60 days from the date hereof,
are deemed outstanding. According to American Stock Transfer & Trust
Company, the transfer agent for the common stock, 303,292,035 shares of the
common stock were outstanding as of the close of business as of the date
hereof.
(2) Includes shares which may be acquired pursuant to options to purchase
common stock exercisable within 60 days from the date hereof.
(3) The Hirschman employment agreement provides that Messrs. Friedland and
Bregman, during the term of Dr. Hirschman's employment under that
agreement, shall vote all shares of the common stock owned or voted by them
in favor of Dr. Hirschman as a director of ADVR. That agreement, however,
does not restrict or otherwise limit their right to sell their shares to
third parties without restriction. The Hirschman employment agreement also
provides that Dr. Hirschman, during that term, shall take no action which
shall preclude Messrs. Friedland and Bregman from being nominees as
directors of ADVR and that Dr. Hirschman shall vote all shares of the
common
35
<PAGE>
stock owned or voted by him in favor of Messrs. Friedland and Bregman as
directors of ADVR. See "--Employment Contracts, Termination of Employment
and Change-in-Control Arrangements."
(4) Includes 1,000,000 shares of the common stock owned by Mr. Friedland and
Beth Friedland, his daughter, as joint tenants;) 20,000,000 shares owned by
Mr. Friedland and Shirley Friedland, his spouse, as joint tenants; and
500,000 shares owned the B&SD Friedland Foundation, a not-for-profit
foundation controlled by Mr. Friedland. Does not include 15,000 shares
owned by Shirley Friedland as to which Mr. Friedland disclaims beneficial
ownership.
(5) Includes 22,594,864 shares held in a trust for which Mr. Bregman is the
sole trustee and sole beneficiary; 110,000 shares owned by Carol Bregman,
his daughter; 113,000 shares owned by Janet Berlin, his daughter; 110,000
shares owned by Forest Berlin, his grandson; and 110,000 shares owned by
Jessica Berlin, his granddaughter.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the past three fiscal years, there were no material transactions
between ADVR and any of its officers or directors which involved $60,000 or
more.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
1. Financial Statements
2. Exhibits: See Exhibits Index. The Exhibits listed in the
accompanying Exhibits Index are filed or incorporated by
reference as part of this report.
(b) Reports on Form 8-K during and after the fiscal quarter ended December
31, 1999:
None.
36
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets, December 31, 1999 and 1998 F-2
Statements of Operations for the Years Ended December 31, 1999, 1998 and
1997 and from Inception (February 20, 1984) to December 31, 1999 F-3
Statements of Stockholders' Equity (Deficiency) from Inception (February 20,
1984) to December 31, 1999 F-4
Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and
1997 and from Inception (February 20, 1984) to December 31, 1999 F-12
Notes to Consolidated Financial Statements F-13-F-37
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Stockholders and Directors
Advanced Viral Research Corp.
(A Development Stage Company)
Yonkers, New York
We have audited the accompanying consolidated balance sheets of Advanced Viral
Research Corp. (A Development Stage Company) as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows for each of the years in the three year period ended
December 31, 1999 and for the period from inception (February 20, 1984) to
December 31, 1999. 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, 1999 and 1998
and the results of their operations and their cash flows for each of the years
in the three year period ended December 31, 1999 and for the period from
inception (February 20, 1984) to December 31, 1999 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 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and is dependent upon the continued sale of its securities or
obtaining debt financing 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 with regard to these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
January 26, 2000, except for the fourth paragraph of Note 12, as to which the
date is March 9, 2000
F-1
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
ASSETS
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 836,876 $ 924,420
Investments -- 821,047
Inventory 19,729 19,729
Other current assets 59,734 29,818
------------ ------------
Total current assets 916,339 1,795,014
Property and Equipment 1,375,923 1,049,593
Other Assets 569,312 460,346
------------ ------------
Total assets $ 2,861,574 $ 3,304,953
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
Current Liabilities:
Accounts payable and accrued liabilities $ 728,872 $ 279,024
Current portion of capital lease obligation 50,315 38,335
Current portion of note payable 19,095 --
------------ ------------
Total current liabilities 798,282 317,359
------------ ------------
Long-Term Debt:
Convertible debenture, net 4,446,629 1,457,919
Capital lease obligation - long-term portion 152,059 167,380
Note payable - long-term portion 77,964 --
------------ ------------
Total long-term debt 4,676,652 1,625,299
------------ ------------
Deposit on Securities Purchase Agreement -- 600,000
------------ ------------
Commitments, Contingencies and Subsequent Events -- --
Stockholders' Equity (Deficiency):
Common stock; 1,000,000,000 shares of $.00001
par value authorized, 303,472,035 and 296,422,907
shares issued and outstanding 3,034 2,964
Additional paid-in capital 17,537,333 14,325,076
Deficit accumulated during the development stage (19,725,238) (13,550,976)
Deferred compensation cost -- (14,769)
Discount on warrants (428,489) --
------------ ------------
Total stockholders' equity (deficiency) (2,613,360) 762,295
------------ ------------
Total liabilities and stockholders' equity (deficiency) $ 2,861,574 $ 3,304,953
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Inception
(February 20,
Year Ended December 31, 1984) to
----------------------- December 31,
1999 1998 1997 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales $ 10,953 $ 656 $ 2,278 $ 205,928
Interest and dividends 42,744 102,043 111,845 602,041
Other income -- 293 7,800 120,093
------------ ------------ ------------ ------------
53,697 102,992 121,923 928,062
------------ ------------ ------------ ------------
Costs and Expenses:
Research and development 1,745,937 1,659,456 817,603 5,329,404
General and administrative 2,244,205 1,420,427 1,681,436 9,559,452
Depreciation 230,785 110,120 26,288 546,223
Interest 2,007,032 1,470,699 1,738,325 5,218,221
------------ ------------ ------------ ------------
6,227,959 4,660,702 4,263,652 20,653,300
------------ ------------ ------------ ------------
Net Loss $ (6,174,262) $ (4,557,710) $ (4,141,729) $(19,725,238)
============ ============ ============ ============
Net Loss Per Share of Common
Stock - Basic and Diluted $ (0.02) $ (0.02) $ (0.02)
============ ============ ============
Weighted Average Number of
Common Shares Outstanding 302,361,109 294,809,073 274,534,277
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1999
<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 financial statements.
F-4
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1999
<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> <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, 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 .05 6,729,850 67 336,475 --
offer on "B" warrants
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 financial statements.
F-5
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1999
<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> <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 .0405 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 .03 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 financial statements.
F-6
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock
------------
Amount Additional
Per Paid-In
Share Shares Amount Capital
----- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 236,276,991 $2,363 $ 3,416,070
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 -- -- --
----------- ------ -----------
Balance, December 31, 1994 241,616,991 2,416 3,704,517
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 -- -- --
----------- ------ -----------
Balance, December 31, 1995 251,181,774 2,512 4,475,875
----------- ------ -----------
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Deficit
Accumulated
during the Deferred
Subscription Development Compensation
Receivable Stage Cost
---------- ----- ----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $- $(2,854,076) $-
Issuance of common stock, for consulting services -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Net loss, year ended December 31, 1994 -- (440,837) --
--- ----------- ---
Balance, December 31, 1994 -- (3,294,913) --
--
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, for consulting services -- -- --
Issuance of common stock, for consulting services -- -- --
Net loss, year ended December 31, 1995 -- (401,884) --
--- ----------- ---
Balance, December 31, 1995 -- (3,696,797) --
--- ----------- ---
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock
------------
Amount Additional
Per Paid-In
Share Shares Amount Capital
----- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 251,181,774 $ 2,512 $ 4,475,875
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
Subscription receivable -- -- --
Net loss, year ended December 31, 1996 -- -- --
----------- ------- -----------
Balance, December 31, 1996 267,031,058 2,671 7,003,351
----------- ------- -----------
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Deficit
Accumulated
during the Deferred
Subscription Development Compensation
Receivable Stage Cost
---------- ----- ----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ -- $(3,696,797) $ --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, for services rendered -- -- --
Options granted -- -- (473,159)
Subscription receivable (19,000) -- --
Net loss, year ended December 31, 1996 -- (1,154,740) --
-------- ----------- ---------
Balance, December 31, 1996 (19,000) (4,851,537) (473,159)
-------- ----------- ---------
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock
------------
Amount Additional
Per Paid-In
Share Shares Amount Capital
----- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 267,031,058 $2,671 $ 7,003,351
Issuance of common stock, exercise of options .08 3,333,333 33 247,633
Issuance of common stock, conversion of debt .20 1,648,352 16 329,984
Issuance of common stock, conversion of debt .15 894,526 9 133,991
Issuance of common stock, conversion of debt .12 2,323,580 23 269,977
Issuance of common stock, conversion of debt .15 1,809,524 18 265,982
Issuance of common stock, conversion of debt .16 772,201 8 119,992
Issuance of common stock, for services rendered .41 50,000 -- 20,500
Issuance of common stock, for services rendered .24 100,000 1 23,999
Beneficial conversion feature, February debenture -- -- 413,793
Beneficial conversion feature, October debenture -- -- 1,350,000
Warrant costs, February debenture -- -- 37,242
Warrant costs, October debenture -- -- 291,555
Amortization of deferred compensation cost -- -- --
Imputed interest on convertible debenture -- -- 4,768
Net loss, year ended December 31, 1997 -- -- --
----------- ------ -----------
Balance, December 31, 1997 277,962,574 2,779 10,512,767
----------- ------ -----------
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Deficit
Accumulated
during the Deferred
Subscription Development Compensation
Receivable Stage Cost
---------- ----- ----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $(19,000) $(4,851,537) $ (473,159)
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, conversion of debt -- -- --
Issuance of common stock, conversion of debt -- -- --
Issuance of common stock, conversion of debt -- -- --
Issuance of common stock, conversion of debt -- -- --
Issuance of common stock, conversion of debt -- -- --
Issuance of common stock, for services rendered -- -- --
Issuance of common stock, for services rendered -- -- --
Beneficial conversion feature, February debenture -- -- --
Beneficial conversion feature, October debenture -- -- --
Warrant costs, February debenture -- -- --
Warrant costs, October debenture -- -- --
Amortization of deferred compensation cost -- -- 399,322
Imputed interest on convertible debenture -- -- --
Net loss, year ended December 31, 1997 -- (4,141,729) --
-------- ----------- -----------
Balance, December 31, 1997 (19,000) (8,993,266) (73,837)
-------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock
------------
Amount Additional
Per Paid-In
Share Shares Amount Capital
----- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 277,962,574 $2,779 $ 10,512,767
Issuance of common stock, exercise of options .12 295,000 3 35,397
Issuance of common stock, exercise of options .14 500,000 5 69,995
Issuance of common stock, exercise of options .16 450,000 5 71,995
Issuance of common stock, exercise of options .20 10,000 -- 2,000
Issuance of common stock, exercise of options .26 300,000 3 77,997
Issuance of common stock, conversion of debt .13 1,017,011 10 132,990
Issuance of common stock, conversion of debt .14 2,512,887 25 341,225
Issuance of common stock, conversion of debt .15 5,114,218 51 749,949
Issuance of common stock, conversion of debt .18 1,491,485 15 274,985
Issuance of common stock, conversion of debt .19 3,299,979 33 619,967
Issuance of common stock, conversion of debt .22 1,498,884 15 335,735
Issuance of common stock, conversion of debt .23 1,870,869 19 424,981
Issuance of common stock, for services rendered .21 100,000 1 20,999
Beneficial conversion feature, November debenture -- -- 625,000
Warrant costs, November debenture -- -- 48,094
Amortization of deferred compensation cost -- -- --
Write off of subscription receivable -- -- (19,000)
Net loss, year ended December 31, 1998 -- -- --
------------ ------ ------------
Balance, December 31, 1998 296,422,907 2,964 14,325,076
------------ ------ ------------
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Deficit
Accumulated
during the Deferred
Subscription Development Compensation
Receivable Stage Cost
---------- ----- ----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $(19,000) $ (8,993,266) $(73,837)
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, exercise of options -- -- --
Issuance of common stock, conversion of debt -- -- --
Issuance of common stock, conversion of debt -- -- --
Issuance of common stock, conversion of debt -- -- --
Issuance of common stock, conversion of debt -- -- --
Issuance of common stock, conversion of debt -- -- --
Issuance of common stock, conversion of debt -- -- --
Issuance of common stock, conversion of debt -- -- --
Issuance of common stock, for services rendered -- -- --
Beneficial conversion feature, November debenture -- -- --
Warrant costs, November debenture -- -- --
Amortization of deferred compensation cost -- -- 59,068
Write off of subscription receivable 19,000 -- --
Net loss, year ended December 31, 1998 -- (4,557,710) --
-------- ------------ --------
Balance, December 31, 1998 -- (13,550,976) (14,769)
-------- ------------ --------
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Continued)
INCEPTION (FEBRUARY 20, 1984) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock
------------
Amount Additional
Per Paid-In
Share Shares Amount Capital
----- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 296,422,907 $2,964 $ 14,325,076
Issuance of common stock, securities purchase agreement .16 4,917,276 49 802,451
Issuance of common stock, securities purchase agreement .27 1,851,852 18 499,982
Issuance of common stock, for services rendered .22 100,000 1 21,999
Issuance of common stock, for services rendered .25 180,000 2 44,998
Beneficial conversion feature, August debenture -- -- 687,500
Beneficial conversion feature, December debenture -- -- 357,143
Warrant costs, securities purchase agreement -- -- 494,138
Warrant costs, securities purchase agreement -- -- 37,025
Warrant costs, August debenture -- -- 52,592
Warrant costs, December debenture -- -- 4,285
Amortization of warrant costs, securities purchase agreement -- -- --
Amortization of deferred compensation cost -- -- --
Compensation expense related to modification of existing options -- -- 210,144
Net loss, year ended December 31, 1999 -- -- --
------------ ------ ------------
Balance, December 31, 1999 303,472,035 3,034 $ 17,537,333
============ ====== ============
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Deficit
Accumulated
during the Deferred Discount
Development Compensation on
Stage Cost Warrants
----- ---- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $(13,550,976) $(14,769) $ --
Issuance of common stock, securities purchase agreement -- -- --
Issuance of common stock, securities purchase agreement -- -- --
Issuance of common stock, for services rendered -- -- --
Issuance of common stock, for services rendered -- -- --
Beneficial conversion feature, August debenture -- -- --
Beneficial conversion feature, December debenture -- -- --
Warrant costs, securities purchase agreement -- -- (494,138)
Warrant costs, securities purchase agreement -- -- (37,025)
Warrant costs, August debenture -- -- --
Warrant costs, December debenture -- -- --
Amortization of warrant costs, securities purchase agreement -- -- 102,674
Amortization of deferred compensation cost -- 14,769 --
Compensation expense related to modification of existing options -- -- --
Net loss, year ended December 31, 1999 (6,174,262) -- --
------------ ------- ----------
Balance, December 31, 1999 $(19,725,238) $ -- $ (428,489)
============ ======= ==========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Inception
(February 20,
Year Ended December 31, 1984) to
----------------------- December 31,
1999 1998 1997 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (6,174,262) $ (4,557,710) $ (4,141,729) $(19,725,238)
------------ ------------ ------------ ------------
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 230,785 110,120 26,288 546,133
Amortization of debt issue costs 331,250 229,978 111,957 673,185
Amortization of deferred interest cost on beneficial
conversion feature 1,044,643 835,951 1,552,842 3,433,361
Amortization of discount on warrants 148,262 290,297 -- 438,559
Amortization of deferred compensation cost 14,769 59,068 399,322 760,500
Issuance of common stock for services 67,000 21,000 44,500 1,504,500
Compensation expense related to modification of existing options 210,144 -- -- 210,144
Other -- -- (1,607) (1,607)
Changes in operating assets and liabilities:
Increase in other current assets (29,917) (9,608) (4,159) (59,735)
Increase in inventory -- -- -- (19,729)
Increase in other assets (440,216) (247,072) (496,126) (1,216,958)
Increase (decrease) in accounts payable and
accrued liabilities 449,848 (96,582) 328,932 735,072
------------ ------------ ------------ ------------
Total adjustments 2,026,568 1,193,152 1,961,949 7,003,425
------------ ------------ ------------ ------------
Net cash used by operating activities (4,147,694) (3,364,558) (2,179,780) (12,721,813)
------------ ------------ ------------ ------------
Cash Flows from Investing Activities:
Purchase of investments -- (915,047) (3,651,676) (6,292,979)
Proceeds from sale of investments 821,047 3,078,902 2,045,615 6,292,979
Acquisition of property and equipment (407,150) (451,734) (307,362) (1,550,750)
Proceeds from sale of property and equipment -- -- 1,200 1,200
------------ ------------ ------------ ------------
Net cash provided (used) by investing activities 413,897 1,712,121 (1,912,223) (1,549,550)
------------ ------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of convertible debt 3,000,000 1,500,000 4,000,000 8,500,000
Proceeds from deposit on securities purchase agreement -- 600,000 -- 600,000
Proceeds from sale of securities, net of issuance costs 702,500 257,400 266,666 6,081,088
Payments under capital lease (41,986) (16,602) -- (58,588)
Payments on note payable (14,261) -- -- (14,261)
------------ ------------ ------------ ------------
Net cash provided by financing activities 3,646,253 2,340,798 4,266,666 15,108,239
------------ ------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents (87,544) 688,361 174,663 836,876
Cash and Cash Equivalents, Beginning 924,420 236,059 61,396 --
------------ ------------ ------------ ------------
Cash and Cash Equivalents, Ending $ 836,876 $ 924,420 $ 236,059 $ 836,876
============ ============ ============ ============
Supplemental Disclosure of Non-Cash Financing Activities:
Cash paid during the year for interest $ 118,870 $ 6,042 $ --
============ ============ ============
</TABLE>
During 1999, the Company purchased equipment under a capital lease totaling
$38,645 and under an installment note payable totaling $111,320.
See notes to consolidated financial statements.
F-12
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1. 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 (the current formulation of which is now known as
and hereinafter referred to as "Product R"). 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, Product R, to
commence commercial operations.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its 99.6% owned subsidiary, Advance Viral Research,
Ltd. (LTD), a Bahamian Corporation. All significant intercompany
accounts have been eliminated.
Development Stage Enterprise
As described above, the Company was incorporated on July 31, 1985,
and, since that time, has been primarily involved in organizational
activities, research and development activities, and raising
capital. Planned operations, as described above, have not commenced
to any significant extent. Accordingly, the Company is considered
to be in the development stage, and the accompanying consolidated
financial statements represent those of a development stage
enterprise.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments (money fund),
with original maturities of three months or less.
Investments
At December 31, 1999, investments consist of a money fund, which is
reported at its fair value. At December 31, 1998, investments
consisted of U.S. Government discount notes classified as "held to
maturity" and are carried at amortized cost, which approximates
fair value.
F-13
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
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.
Research and Development
Research and development costs are expensed as incurred by the
Company.
Income Taxes
The Company accounts for its income taxes using Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes, which requires recognition of deferred tax
liabilities and assets for expected future tax consequences of
events that have been included in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the differences between the financial statement
and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse.
Estimated Fair Value Of Financial Instruments
The information set forth below provides disclosure of the
estimated fair value of the Company's financial instruments
presented in accordance with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 107. Fair value estimates
discussed herein are based upon certain market assumptions and
pertinent information available to management as of December 31,
1999 and 1998. Since the reported fair values of financial
instruments are based upon a variety of factors, they may not
represent actual values that could have been realized as of
December 31, 1999 and 1998 or that will be realized in the future.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial
instruments include cash, a money fund, U.S. government
obligations, accounts payable and the convertible debentures. Fair
values were assumed to approximate carrying values for these
financial instruments since they are short-term in nature and their
carrying amounts approximate fair values or they are receivable or
payable on demand.
F-14
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Estimated Fair Value Of Financial Instruments (Continued)
At December 31, 1998, the fair value of non-current investments,
primarily U.S. government obligations, have been estimated using
quoted market prices. The differences between the estimated fair
value and the carrying value of non-current and current debt
instruments were considered immaterial in relation to the Company's
financial position.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash. At
various times during the year, the Company has cash balances in
excess of federally insured limits. The Company maintains its cash,
which consists primarily of demand deposits, with high quality
financial institutions, which the Company believes limits risk.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB No.
25), and related interpretations, in accounting for its employee
stock options rather than the alternative fair value accounting
allowed by SFAS No. 123, Accounting for Stock-Based Compensation.
APB No. 25 provides that the compensation expense relative to the
Company's employee stock options is measured based on the intrinsic
value of the stock option. SFAS No. 123 requires companies that
continue to follow APB No. 25 to provide a pro-forma disclosure of
the impact of applying the fair value method of SFAS No. 123.
The Company follows SFAS No. 123 in accounting for stock options
issued to non-employees.
Net Loss Per Common Share
The Company computes loss per share in accordance with SFAS No.
128, Earnings Per Share, which was adopted in 1997. This standard
requires dual presentation of basic and diluted earnings per share
on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator
and denominator of the diluted earnings per share computation.
Net loss per common share (basic and diluted) is based on the net
loss divided by the weighted average number of common shares
outstanding during the year.
The Company's potentially issuable shares of common stock pursuant
to outstanding stock options are excluded from the Company's
diluted computation, as their effect would be anti-dilutive.
F-15
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
The limited sales generated by the Company have consisted of sales
of Product R for testing and other purposes. The Company records
sales when the product is shipped to customers.
Reclassifications
Certain amounts in the 1997 and 1998 financial statements have been
reclassified to conform to 1999 presentation.
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.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as
a hedge, the objective of which is to match the timing of the gain
or loss recognition on the hedging derivative with the recognition
of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss
is recognized in income in the period of change. On June 30, 1999,
the FASB issued SFAS No. 137, Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 133 as amended by SFAS No. 137 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 2000.
Historically, the Company has not entered into derivatives
contracts to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new
standard on January 1, 2000 to affect its financial statements.
F-16
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. 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 history. The
Company is dependent upon registration of Product R 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. Unless and until
Product R 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 and debt financing 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 equity or debt
financing, if and when required, will be available.
During 1999 and 1998, the Company was successful in obtaining equity
and debt financing aggregating approximately $3,700,000 and $2,400,000,
respectively. 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, or that the Company will be successful
in the efforts to obtain equity or debt financing. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. The Company expects to submit an application for approval with
the FDA in the near future, and plans to continue to seek additional
equity and debt financing as the need arises. 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.
NOTE 3. ACQUISITION
Two of the principal stockholders of the Company 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 interests. In 1986, the Company acquired
from LTD exclusive rights to manufacture and market Reticulose
(currently referred to as Product R) worldwide, except within the
Bahamas, for $50,000. The Company also purchased inventory of Product R
from LTD for $45,000 and was obligated to pay $3 per ampule of Product
R 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 of the principal
stockholders of the Company. Both stockholders concurrently canceled
$86,565 of indebtedness due them from LTD.
F-17
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Estimated Useful
Lives (Years) 1999 1998
------------- ---- ----
<S> <C> <C> <C>
Land and improvements 15 $ 34,550 $ 34,550
Building and improvements 30 483,865 324,083
Machinery and equipment 5 1,400,880 1,003,768
------------ ----------
1,919,295 1,362,401
Less accumulated depreciation 543,372 312,808
------------ ----------
$ 1,375,923 $1,049,593
============ ==========
</TABLE>
The Company maintains certain property and equipment in Freeport,
Bahamas. This property and equipment amounted to $385,087 as of
December 31, 1999 and $370,028 as of December 31, 1998 including
$17,623 expended in 1987 to purchase a land lease expiring in 2068.
Included with machinery and equipment is $38,645 and $222,318 of
equipment purchased under capital leases during 1999 and 1998,
respectively. Depreciation expense for equipment under the capital
leases was approximately $47,040 and $12,000 in 1999 and 1998,
respectively. These amounts are included above.
NOTE 5. OTHER ASSETS
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Patent development costs $517,816 $344,319
Loan costs, net of accumulated amortization of $341,395 - 96,250
Other 51,496 19,777
-------- --------
$569,312 $460,346
======== ========
</TABLE>
Patent development costs are capitalized as incurred. Loan costs relate
to fees paid in connection with the issuance of convertible debentures
(Note 8) and are amortized over the life of the debenture or until
conversion.
NOTE 6. SECURITIES PURCHASE AGREEMENTS
Convertible Debentures
In February 1997 and October 1997, in order to finance research and
development, the Company sold $1,000,000 and $3,000,000,
respectively, principal amount of its ten-year 7% Convertible
Debentures (the "February Debenture" and the "October Debenture",
collectively, the "Debentures") due February 28, 2007 and August
30, 2007, respectively, to RBB Bank Aktiengesellschaft ("RBB") in
offshore transactions pursuant to Regulation S under the Securities
Act of 1933, as amended. Accrued interest under the Debentures was
payable semi-annually, computed at the rate of 7% per annum on the
unpaid principal
F-18
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. SECURITIES PURCHASE AGREEMENTS (Continued)
Convertible Debentures (Continued)
balance from the date of issuance until the date of interest
payment. The Debentures were convertible, at the option of the
holder, into shares of Common Stock pursuant to specified formulas.
On April 22, 1997, June 6, 1997, July 3, 1997 and August 20, 1997,
pursuant to notice by the holder, RBB, to the Company under the
February Debenture, $330,000, $134,000, $270,000 and $266,000,
respectively, of the principal amount of the February Debenture was
converted into 1,648,352, 894,526, 2,323,580 and 1,809,524 shares
of the Common Stock, respectively. As of August 20, 1997, the
February Debenture was fully converted. On December 9, 1997,
January 7, 1998, January 14, 1998, February 19, 1998, February 23,
1998, March 31, 1998, May 4, 1998 and May 5, 1998, pursuant to
notice by the holder, RBB, to the Company, $120,000, $133,000,
$341,250, $750,000, $335,750, $425,000, $275,000 and $620,000,
respectively, of the October Debenture was converted into 772,201,
1,017,011, 2,512,887, 5,114,218, 1,498,884, 1,870,869, 1,491,485
and 3,299,979 Common Stock, respectively. As of May 5, 1998, the
October Debenture was fully converted.
In connection with the issuance of the February Debenture, the
Company issued to RBB three warrants (the "February Warrants") to
purchase common stock, each such February Warrant entitling the
holder to purchase, from February 21, 1997 through February 28,
2007, 178,378 shares of common stock. The exercise price of the
three February Warrants was $0.288, $0.576 and $0.864 per warrant
share, respectively. The fair value of the February Warrants was
estimated to be $37,000 ($.021 per warrant) based upon a financial
analysis of the terms of the warrants using the Black-Sholes
Pricing Model. This amount has been reflected in the accompanying
financial statements as interest expense related to the convertible
February Debenture. Based on the terms for conversion associated
with the February Debenture, there was an intrinsic value
associated with the beneficial conversion feature of $413,793. This
amount has been fully amortized to interest expense with a
corresponding credit to additional paid-in capital.
In connection with the issuance of the October Debenture, the
Company issued to RBB three warrants (the "October Warrants") to
purchase Common Stock, each such October Warrant entitling the
holder to purchase, from the date of grant through August 30, 2007,
600,000 shares of the Common Stock. The exercise price of the three
October Warrants was $0.20, $0.23 and $0.27 per warrant share,
respectively. The fair value of the three October Warrants was
established to be $106,571 ($.178 per warrant), $97,912 ($.163 per
warrant) and $87,472 ($.146 per warrant), respectively, based upon
a financial analysis of the terms of the warrants using the
Black-Sholes 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 over the expected term of the
notes, which at December 31, 1997 was 120 months. In May 1998, the
remaining unamortized discount of $276,957 was amortized upon full
conversion of the October Debenture.
F-19
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. SECURITIES PURCHASE AGREEMENTS (Continued)
Convertible Debentures (Continued)
Based on the terms for conversion associated with the October
Debenture, there was an intrinsic value associated with the
beneficial conversion feature of $1,350,000. This amount has been
treated as deferred interest expense and recorded as a reduction of
the convertible debenture liability with a corresponding credit to
additional paid-in capital and has been amortized to interest
expense over the period from October 8, 1997 (date of debenture) to
February 24, 1998 (date the debenture was fully convertible). The
interest expense relative to this item was $210,951 for 1998 and
$1,139,049 for 1997.
In November 1998, in order to finance further research and
development, the Company sold $1,500,000 principal amount of its
ten year 7% Convertible Debenture (the "November Debenture") due
October 31, 2008, to RBB. Accrued interest under the November
Debenture is payable semi-annually, computed at the rate of 7% per
annum on the unpaid principal balance from the date of the issuance
of the November Debenture until the date of interest payment. The
November 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 November
Debenture is convertible, at the option of the holder, into shares
of common stock.
In connection with the issuance of the November Debenture, the
Company issued to RBB two warrants (the "November Warrants") to
purchase Common Stock, each such November Warrant entitling the
holder to purchase 375,000 shares of the Common Stock at any time
and from time to time through October 31, 2008. The exercise price
of the two November Warrants is $.20 and $.24 per warrant share,
respectively. The fair value of the November warrants was estimated
to be $48,000 ($.064 per warrant) based upon a financial analysis
of the terms of the warrants using the Black-Sholes Pricing Model
with the following assumptions: expected volatility of 20%; a risk
free interest rate of 5.75% and an expected holding period of one
year. This amount is being amortized to interest expense in the
accompanying consolidated financial statements.
Based on the terms for conversion associated with the November
Debenture, there was an intrinsic value associated with the
beneficial conversion feature of $625,000. This amount has been
recorded as interest expense in 1998.
In August 1999, in order to finance further research and
development, the Company entered into a securities purchase
agreement to issue an aggregate of 20 units, each unit consisting
of $100,000 principal amount of the Company's 7% convertible
debenture (the "August Debenture") due August 3, 2009 to Focus
Investors LLC ("Focus"). Accrued interest under
F-20
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. SECURITIES PURCHASE AGREEMENTS (Continued)
Convertible Debentures (Continued)
the August Debenture is payable semi-annually, computed at the rate
of 7% on the unpaid principal balance from the date of issuance
until the date of the interest payment. No payment of the principal
of the August Debenture may be made prior to the maturity date
without the consent of the holder. The August Debenture is
convertible, at the option of the holder, into shares of common
stock.
In connection with the issuance of the August Debenture, the
Company issued to Focus one warrant (the "August Warrant") to
purchase Common Stock, such August Warrant entitling the holder to
purchase 1,000,000 shares of the Common Stock at any time and from
time to time through August 3, 2004. The exercise price of the
August Warrant is $.2461 per warrant share. The fair value of the
August Warrants was estimated to be $52,593 ($.0526 per warrant
share) based upon a financial analysis of the terms of the warrant
using the Black-Sholes Pricing Model with the following
assumptions: expected volatility of 20%; a risk free interest rate
of 5.75% and an expected holding period of five years. This amount
is being amortized to interest expense in the accompanying
consolidated financial statements.
Based on the terms for conversion associated with the August
Debenture, there was an intrinsic value associated with the
beneficial conversion feature of $687,500. This amount has been
recorded as interest expense in 1999.
In December 1999, in order to finance further research and
development, the Company entered into a securities purchase
agreement to sell $2,000,000 principal amount of the Company's 7%
convertible debenture (the December Debenture) due December 28,
2009 to Endeavour Capital ("Endeavour"). Accrued interest under the
December Debenture is payable semi-annually, computed at the rate
of 7% on the unpaid principal balance from the date of issuance
until the date of the interest payment. No payment of the principal
of the December Debenture may be made prior to the maturity date
without the consent of the holder. The December Debenture is
convertible, at the option of the holder, into shares of common
stock.
During 1999, $1,000,000 of these debentures were sold. The
remaining $1,000,000 was not available until the shares underlying
the first $1,000,000 were registered. Such registration statement
was declared effective in January 2000 and the remaining $1,000,000
transaction was consummated. See Subsequent Event, Note 12.
F-21
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. SECURITIES PURCHASE AGREEMENTS (Continued)
Convertible Debentures (Continued)
In connection with the issuance of the December Debenture, the
Company issued to Endeavour warrants (the December Warrants) to
purchase Common Stock, such December Warrant entitling the holder
to purchase 100,000 shares of the Common Stock at any time and from
time to time through December 31, 2002. The exercise price of the
December Warrant is $.19 per warrant share. The fair value of the
December Warrants was estimated to be $4,285 ($.0429 per warrant
share) based upon a financial analysis of the terms of the warrant
using the Black-Sholes Pricing Model with the following
assumptions: expected volatility of 20%; a risk free interest rate
of 6% and an expected holding period of three years. This amount is
being amortized to interest expense in the accompanying
consolidated financial statements.
Based on the terms for conversion associated with the December
Debenture, there was an intrinsic value associated with the
beneficial conversion feature of $357,143. This amount has been
recorded as interest expense in 1999.
A summary of the outstanding convertible debentures is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Unpaid principal balance of November debenture $ 1,500,000 $ 1,500,000
Unpaid principal balance of August debenture 2,000,000 --
Unpaid principal balance of December debenture 1,000,000 --
----------- -----------
4,500,000 1,500,000
Less unamortized discount 53,371 42,081
----------- -----------
Convertible debentures, net $ 4,446,629 $ 1,457,919
=========== ===========
</TABLE>
Other
In January 1999, pursuant to a securities purchase agreement dated
December 1998, the Company issued 4,917,276 shares of its common
stock for an aggregate purchase price of $802,500. Such agreement
also provided for the issuance of four warrants to purchase a total
of 2,366,788 shares of common stock at prices ranging from $.204 to
$.2448 per share at any time until December 31, 2003. The fair
value of these warrants was estimated to be $494,138 ($.209 per
warrant) based upon a financial analysis of the terms of the
warrants using the Black-Sholes Pricing Model with the following
assumptions: expected volatility of 20%; a risk free interest rate
of 6% and an expected holding period of five years. This amount is
being amortized to interest expense in the accompanying
consolidated financial statements.
F-22
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. SECURITIES PURCHASE AGREEMENTS (Continued)
Other (Continued)
Included in interest expense for the year ended December 31, 1999
is $256,000, which may be payable by the Company as additional
financing costs related to the effective date of a registration
statement covering the resale of certain securities sold by the
Company.
On June 23, 1999, the Company entered into a securities purchase
agreement with certain individuals whereby the Company will issue
1,851,852 shares of its common stock for an aggregate purchase
price of $500,000. These proceeds were received in July 1999. Such
agreement also provides for the issuance of warrants to purchase an
aggregate of 925,926 shares of common stock at any time until June
30, 2004. The fair value of these warrants was estimated to be
$37,000 ($.04 per warrant) based upon a financial analysis of the
terms of the warrants using the Black-Sholes Pricing Model with the
following assumptions: expected volatility of 20%; a risk free
interest rate of 5.75% and an expected holding period of five
years. This amount is being amortized to interest expense.
NOTE 7. NOTE PAYABLE
During 1999, the Company entered into an installment purchase agreement
for equipment totaling $123,600. The agreement is collateralized by the
property and calls for monthly installments of $2,476 at 12% per annum
for 60 months, commencing in March 1999 and expiring in February 2004.
The aggregate maturities of the installment purchase agreement for each
of the five years subsequent to December 31, 1999 are as follows:
Year ending December 31:
2000 $19,095
2001 19,517
2002 26,246
2003 27,321
2004 4,880
-------
97,059
Less current portion 19,095
-------
Note payable - long-term portion $77,964
=======
F-23
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES
GENERAL
Potential Claim for Royalties
The Company may be subject to claims from certain third parties for
royalties due on sale of Product R. The Company has not as yet
received any notice of claim from such parties.
Product Liability
The Company could be subjected to claims for adverse reactions
resulting from the use of Product R. Although the Company is
unaware of any such claims or threatened claims since Product R 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 Product R. As of the date hereof, the Company
does not have product liability insurance for Product R. There can
be no assurance that the Company will 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 have a
material adverse effect on the Company.
Lack of Patent Protection
The Company has three issued patents and one allowed patent for the
use of Product R. The Company currently has 15 patent applications
pending with the U.S. Patent Office and 17 foreign patent
applications. 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 such patents, if obtained, 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 Product R incorporated in
the Protocol against AIDS (the "Plata Agreement"). Plata covered
all costs and expenses associated with the demonstration.
F-24
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
GENERAL (Continued)
Plata Partners Limited Partnership (Continued)
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 June 30, 2000
at an exercise price of $.15 and $.17, respectively. As of December
31, 1999, there are outstanding Plata Options to acquire 683,300
shares at $.15 per share and Additional Plata Options to acquire
108,100 shares at an exercise price of $.17 per share. The fair
value of these options are estimated to be $32,925 ($.0348 per
option share) based upon a financial analysis of the terms of the
options using the Black-Sholes Pricing Model with the following
assumptions: expected volatility of 20%; risk free interest rate of
6%. This amount has been charged to compensation expense at
December 31, 1999 as it related to services previously provided.
Through December 31, 1999, the Company has received approximately
$1,332,000 pursuant to the issuance of approximately 9.2 million
shares in connection with the exercise of the Plata Options and the
Additional Plata Options.
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 Product R 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 12 male and
female human patients between the ages of 18 and 50.
Pursuant to the Argentine Agreement, the Company delivered $34,000
to DCT to cover out-of-pocket expenses associated with the Clinical
Trials. The Argentine Agreement further provides that at the
conclusion of the Clinical Trials, DCT shall cause Dr. Flichman to
prepare and deliver a written report to the Company regarding the
methodology and results of the Clinical Trials (the "Written
Report"). In September 1996, Dr. Flichman delivered the Written
Report 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
a purchase price of $.20 per share. Pursuant to several amendments,
the DCT options are exercisable through June 30, 2000 at an
exercise price of $.21 per share. The fair value of these options
are estimated to be $1,788 ($.0012 per option share) based
F-25
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
TESTING AGREEMENTS (Continued)
Argentine Agreement (Continued)
upon a financial analysis of the terms of the options using the
Black-Sholes Pricing Model with the following assumptions: expected
volatility of 20%; risk free interest rate of 6%. This amount has
been charged to compensation expense at December 31, 1999 as it
related to services previously provided. As of December 31, 1999,
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 SRL 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
Product R in Argentina, Bolivia, Paraguay, Uruguay, Brazil, and
Chile (the "DCT Exclusive Distribution Agreement").
In April 1996, the Company entered into an agreement with DCT (the
HIV-HPV Agreement") whereby the Company agreed to provide to DCT or
its assignees, up to $600,000 to cover the costs of a double blind
placebo controlled study in approximately 150 patients to assess
the efficacy of Product R for the treatment of persons diagnosed
with the HIV virus (AIDS) and HPV (the "HIV-HPV Study").
Subsequently, the Company has agreed to advance additional funds
towards such study.
In connection with the HIV-HPV Agreement, the Company advanced
approximately $665,000, which is accounted for as research and
development expense. The amounts have been used to cover expenses
associated with clinical activities of the HIV-HPV Study.
The HIV-HPV Agreement provides that (i) in the event the date from
the HIV-HPV Study is used in connection with Product R being
approved for commercial sale anywhere within the territory granted
under the DCT Exclusive Distribution Agreement or (ii) DCT receives
financing to cover the costs of the HIV-HPV Study, then DCT is
obligated to reimburse the Company for all amounts expended in
connection with the HIV-HPV Study.
In October 1997, the Company entered into two agreements with DCT,
whereby the Company agreed to provide DCT or its assignees, up to
$220,000 and $341,000 to cover the costs of double blind placebo
controlled studies in approximately 360 and 240 patients,
respectively to assess the efficacy of the topical application of
Product R for the treatment of persons diagnosed with Herpes
Labialis/Genital Infections (the "Herpes Study") and HPV (the "HPV
Topical Study").
F-26
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
TESTING AGREEMENTS (Continued)
Argentine Agreement (Continued)
In connection with the Herpes Study and the HPV Topical Study
(collectively, the "Studies"), the Company has advanced
approximately $58,000 and $132,000, respectively. Such expenses are
accounted for as research and development expense. The amounts
expended have been used to cover expenses associated with
pre-clinical activities. Neither the Herpes Study nor the HPV
Topical Study has commenced.
Both Agreements with DCT provide that (i) in the event the data
from the Studies are used in connection with Product R being
approved for commercial sale anywhere within the territory granted
under the DCT Exclusive Distribution Agreement or (ii), DCT
receives financing to cover the costs of the Studies, then DCT is
obligated to reimburse the Company for all amounts expended in
connection with the Studies.
In February 1998, the Company entered into an agreement with DCT
(the "Concurrent Agreement") whereby the Company agreed to provide
DCT or its assignees, up to $413,000 to cover the costs of a study
in 65 patients to compare the results of treatment of patients with
AIDS taking a three drug cocktail and Product R with those taking a
three drug cocktail and a placebo. As of December 31, 1999, the
Company has advanced approximately $50,000 for such study, which
has been accounted for as research and development expense.
In May 1998, the Company entered into an agreement with DCT (the
"Rheumatoid Arthritis Agreement") whereby the Company agreed to
provide DCT or its assignees, up to $95,000 to cover the costs of a
controlled study in 30 patients to determine the efficacy of
Product R for the treatment of rheumatoid arthritis in humans. In
connection with this study, the Company has advanced approximately
$85,000, which has been accounted for as research and development
expense.
In July 1998, the Company authorized expenditures of up to $90,000
to study the effects of Product R in inhibiting the mutation of the
AIDS virus. As of December 31, 1999, the Company has advanced
approximately $50,000 for such study, which has been accounted for
as research and development expense.
As of December 31, 1999, the Company advanced approximately
$236,000 for expenses in connection with the drug approval process
in Argentina.
F-27
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
TESTING AGREEMENTS (Continued)
Barbados Study
A double blind study assessing the efficacy of the Company's drug
Product R in 43 human patients diagnosed with HIV (AIDS) has been
conducted at the Queen Elizabeth Hospital, Bridgetown, Barbados
(the "Barbados Study"). As of December 31, 1999, the Company has
expended approximately $390,000 to cover the costs of the Barbados
Study.
In July 1998, the Company authorized expenditures of up to $45,000
to study the effects of Product R in inhibiting the mutation of the
AIDS virus. As of December 31, 1999, the Company has advanced
approximately $15,000 for such study, which has been accounted for
as research and development expense.
National Cancer Institute Agreement
In March 1997, the Company entered into a Material Transfer
Agreement - Cooperative Research and Development Agreement with the
National Cancer Institute ("NCI") of the National Institutes of
Health. Under the terms of the Agreement, NCI researchers and the
Company will collaborate to elucidate the molecular mechanism by
which Product R affects the transcription of the gamma interferon
gene. This agreement was extended for an additional one-year term
through March 3, 1999 to investigate the anti-tumor activity of
Product R using kidney tumor model systems. In addition, NCI was to
study the effects of Product R on inflammation associated with
rheumatoid arthritis.
Topical Safety Study
During 1998, the Company paid approximately $200,000 for a safety
study conducted in the United States for the topical use of Product
R.
CONSULTING AND EMPLOYMENT AGREEMENTS
Hirschman Agreement
In May 1995, the Company entered into a consulting agreement with
Shalom Hirschman, M.D., Professor of Medicine of Mt. Sinai School
of Medicine, New York, New York and Director of Mt. Sinai's
Division of Infectious Diseases, whereby Dr. Hirschman was to
provide consulting services to the Company through May 1997. The
consulting services included the development and location of
pharmacological and biotechnology companies and assisting the
Company in seeking joint ventures with and financing of companies
in such industries.
F-28
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
CONSULTING AND EMPLOYMENT AGREEMENTS (Continued)
Hirschman Agreement (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 $.18 per
share. As of December 31, 1999, 900,000 shares have been issued
upon exercise of these options for cash consideration of $162,000
under this Agreement.
In March 1996, the Company entered into an addendum to the
consulting 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 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, 2009 at an exercise price of $.19 per
share, of which options to acquire 500,000 shares were (exercisable
until March 23, 2001) 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, 2009 at an exercise price of
$.27 per share, of which options to acquire 500,000 shares
(exercisable until March 23, 2001) 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, 2009 at an
exercise price of $.36 per share, of which options to acquire
500,000 shares (exercisable until March 23, 2001) 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 December 31, 1999, 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 consultation with Dr.
Hirschman.
In November 1997, Dr. Hirschman assigned to Henry Kamioner, a
consultant to Dr. Hirschman, options to acquire 1,500,000 shares
(500,000 at $.19, 500,000 at $.27, and 500,000 at $.36) which are
exercisable until March 23, 2001.
On 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
F-29
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
CONSULTING AND EMPLOYMENT AGREEMENTS (Continued)
Hirschman Agreement (Continued)
December 31, 1997, funding of $3,000,000 from sources other than
traditional institutional/bank debt financing or proceeds from the
purchase by Dr. Hirschman of the Company's securities, including,
without limitation, the exercise of Dr. Hirschman of outstanding
stock options. Pursuant to the Employment Agreement, Dr. Hirschman
is entitled to receive an annual base salary of $325,000 (increased
to $361,000 as of January 1, 2000), use of an automobile, 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.
On February 18, 1998, the Board of Directors authorized a $100,000
bonus to Dr. Hirschman and granted options to acquire 23,000,000
shares of stock at $0.27 per option share provided that the Company
is granted FDA approval for testing in the United States.
In July 1998, the Company and Dr. Hirschman entered into an amended
and restated employment agreement, which supersedes in its entirety
the original employment agreement of October 1996. Such amendment
and restatement extends the term of the employment agreement to
December 31, 2000. Additionally, the February 1998 Board of
Directors action regarding the $100,000 bonus and the granting of
23,000,000 options (contingent upon the occurrence of certain
events) is included in this employment agreement.
Cohen 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's 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 10, 1993 (which date has been
extended through June 30, 2000), 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 $.16 per
share) (the "September 1992 Cohen Options"). The fair value of
these options are
F-30
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
CONSULTING AND EMPLOYMENT AGREEMENTS (Continued)
Cohen Agreements (Continued)
estimated to be $59,030 ($.0347 per option share) based upon a
financial analysis of the terms of the options using the
Black-Sholes Pricing Model with the following assumptions: expected
volatility of 20%; risk free interest rate of 6%. This amount has
been charged to compensation expense at December 31, 1999 as it
related to services previously provided. As of December 31, 1999,
1,300,000 of the September 1992 Cohen Options have been exercised
for cash consideration of $156,000.
In February 1993, the Company entered into a second consulting
agreement with Mr. Cohen (the "February 1993 Cohen Agreement") for
a three year term commencing on March 1, 1993. The February 1993
Cohen Agreement provides that Mr. Cohen provide financing business
consulting services concerning the operations 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.
The fair value of these options was estimated to be $376,126
($.0827 per option share) based upon a financial analysis of the
terms of the options using the Black-Sholes Pricing Model with the
following assumptions: expected volatility of 20%; a risk free
interest rate of 6% and an expected holding period of three years
(the term of the employment agreement).
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 each at $.10 per share exercisable through May 1, 1996 (the
"Bauer and Rizzuto Options"). Through December 31, 1999, 2,855,000
shares were issued pursuant to the exercise of the Bauer and
Rizzuto Options for an aggregate exercise price of $285,500. Mr.
Rizzuto sold all of his shares and all shares underlying his
options. Pursuant to several amendments, the remaining Bauer
options are exercisable through June 30, 2000 at an option price of
$.14. The fair value of these options are estimated to be $116,101
($.0541 per option share) based upon a financial analysis of the
terms of the options using the Black-Sholes Pricing Model with the
following assumptions: expected volatility of 20%; risk free
interest rate of 6%. This amount has been charged to compensation
expense at December 31, 1999 as it related to services previously
provided.
F-31
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
CONSULTING AND EMPLOYMENT AGREEMENTS (Continued)
GloboMax Agreement
On January 18, 1999, the Company entered into a consulting
agreement with Globomax LLC to provide services at hourly rates
established by the contract to the Company's Investigational New
Drug application submission and to perform all work that is
necessary to obtain FDA approval. The contract was extended by
mutual consent of both parties. The Company has incurred
approximately $203,000 in services to GloboMax through December 31,
1999.
Gallantar Agreement
On October 1, 1999, the Company entered into an employment
agreement with Alan Gallantar whereby Mr. Gallantar has agreed to
serve as the Chief Financial 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 agreement, without cause or upon the occurrence of certain
events. Such agreement provides for Mr. Gallantar to receive a base
salary of $175,000, $200,000 and $225,000 annually for each of the
three years of the term of the agreement as well as various
performance based bonuses ranging from 10% to 50% of the base
salary and various other benefits. Additionally, in connection with
such agreement, the Company granted Mr. Gallantar options to
purchase an aggregate of 4,547,880 shares of the Company's common
stock. Such options have a term of ten years and have an exercise
price of $.24255 per share. 1,515,960 options vest on each of the
first, second and third anniversary dates of this employment
agreement.
The fair value of these options are estimated to be $376,126
($.0827 per option share) based upon a financial analysis of the
terms of the options using the Black-Sholes Pricing Model with the
following assumptions: expected volatility of 20%; a risk free
interest rate of 6% and an expected holding period of three years
(the term of the employment agreement).
Financial reporting of these options has been done pursuant to the
Company's policy of following APB No. 25, and related
interpretations, in accounting for its employee stock options.
Accordingly, the following pro forma financial information is
presented to reflect amortization of the fair value of the options.
As
Reported
December 31, Pro forma As
1999 Adjustment Adjusted
---- ---------- --------
Net loss $(6,174,262) $(31,344) $(6,205,606)
=========== ======= ==========
Net loss per share $(0.02) $(0.00) $(0.02)
====== ====== ======
F-32
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
CONSULTING AND EMPLOYMENT AGREEMENTS (Continued)
Gallantar Agreement (Continued)
There were no other options outstanding that would require pro
forma presentation in 1997 or 1998.
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 Product R 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 Product R to be
approved for commercial sale in such countries and upon such approval,
to purchase from the Company certain minimum quantities of Product R 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. To date, the Company has recorded
revenue classified as other income for the sale of territorial rights
under the distribution agreements. The Company has made no sales under
the distribution agreements other than for testing purposes.
Other
The Company has entered into an agreement with an unaffiliated third
party to increase the square footage of its corporate and laboratory
offices in Yonkers, New York (the "build-out"). The Company anticipates
that the total expenses associated with the build-out would be
approximately $400,000, of which $155,000 has been incurred as of
December 31, 1999.
GENERAL
Capital Leases
During 1998, the Company entered into a purchase lease agreement
for equipment totaling $222,318. The lease calls for monthly
payments of $4,529 for 60 months commencing on September 1998 and
expiring on July 2003. Additionally, during 1999, the Company
entered into a purchase lease agreement for equipment totaling
$38,645. The lease calls for monthly payments of $965 for 48 months
commencing in August 1999 and expiring in July 2003. Future minimum
capital lease payments and the net present value of the future
minimum lease payments at December 31, 1999 are as follows:
F-33
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
GENERAL (Continued)
Capital Leases (Continued)
Year ending December 31:
2000 $ 65,928
2001 65,928
2002 65,928
2003 38,458
--------
Total minimum lease payments 236,242
Less amount representing interest (33,868)
--------
Present value of net minimum lease payments 202,374
Current maturities (50,315)
--------
$152,059
========
Operating Leases
Management executed a non-cancelable lease for new office space in
Florida on January 1, 1996, expiring on December 31, 1999 at
approximately $14,000 annually. The Company has three options to
renew for an additional one year per option. Management has
exercised its option for the year 2000.
On December 30, 1998, the Company executed an amendment to its
existing lease dated April 1997 for the laboratory facilities in
Yonkers, New York. The lease on the additional space is effective
May 1, 1999. The new lease adds 10,550 square feet (for a total of
16,650 square feet) and extends its term until April 2005.
Annual rent on the original lease is approximately $85,000. Rent
for the additional facilities is approximately $175,000. Total
rental commitment for the laboratory facilities will be $260,000.
The Company leased an automobile in November 1999 for 36 months at
$711 per month.
Total lease expense for the years ended December 31, 1999, 1998 and
1997 amounted to $191,974, $121,477 and $76,351, respectively.
F-34
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
GENERAL (Continued)
Operating Leases (Continued)
Future minimum lease commitments as of December 31, 1999 are as
follows:
Year ending December 31:
2000 $ 282,500
2001 268,500
2002 288,000
2003 290,000
2004 290,000
Thereafter 290,000
----------
Total $1,709,000
==========
NOTE 9. STOCKHOLDERS' EQUITY
During 1998, the Company issued 18,460,333 shares of common stock for
an aggregate consideration of $3,158,400. The amounts were comprised of
the issuance of common stock pursuant to the exercise of stock options
of 1,555,000 shares for $257,400 and the issuance of common stock in
exchange for consulting services of 100,000 shares for consideration of
$21,000 and the issuance of common stock upon conversion of debt of
16,805,333 shares for $2,880,000.
During 1999, the Company issued 7,049,128 shares of common stock for an
aggregate consideration of $1,369,500. The amounts were comprised of
the issuance of common stock for cash of 6,769,128 shares for
$1,302,500 and issuance of common stock in exchange for consulting
services of 280,000 shares for consideration of $67,000.
NOTE 10. INCOME TAXES
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. SFAS No. 109 is an asset and liability approach for computing
deferred income taxes.
As of December 31, 1999 and 1998, the Company had a net operating loss
carryforward for Federal income tax reporting purposes amounting to
approximately $14,600,000 and $9,700,000, which expire in varying
amounts to 2019.
F-35
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. INCOME TAXES (Continued)
The Company presently has temporary differences between financial
reporting and income tax reporting relating to interest expense on the
beneficial conversion feature of the convertible debt, depreciation and
patent costs. The components of the deferred tax asset as of December
31, 1999 and 1998 were as follows:
1999 1998
---- ----
Benefit of net operating loss carryforwards $4,850,000 $3,300,000
Less valuation allowance 4,850,000 3,300,000
---------- ---------
Net deferred tax asset $ -- $ --
=========== ==========
As of December 31, 1999, sufficient uncertainty exists regarding the
realizability of these operating loss carryforwards and, accordingly, a
valuation allowance of $4,850,000 has been established.
NOTE 11. STOCK OPTIONS
As more fully described in Note 8 to these consolidated financial
statements, the Company granted stock options in exchange for testing
and consulting services. In accordance with SFAS 123, Accounting for
Stock-Based Compensation (effective for options granted after December
15, 1995), the Company recognized compensation cost based on the fair
value at the grant dates. The compensation cost is amortized over the
shorter of the service period or the life of the option. The deferred
compensation cost is reported as a component of stockholders' equity.
At December 31, 1999 and 1998, there were approximately 7,600,000
option shares outstanding with a weighted average exercise price of
$0.195 per share.
On January 3, 2000, the Company issued to employees stock options to
acquire an aggregate of 430,000 shares of common stock at an exercise
price of $0.21 per share. These options expire on January 2, 2010 and
vest in 20% increments at the end of each year for five years.
NOTE 12. SUBSEQUENT FINANCINGS
On January 19, 2000, pursuant to the August 31, 1999 convertible
debenture, the investors exercised their right to convert $300,000 of
the $2,000,000 debenture outstanding into 2,178,155 shares of common
stock.
On January 19, 2000, pursuant to the November 1998 convertible
debenture, the investors exercised their right to convert $1,122,500 of
the $1,500,000 debenture outstanding into 8,252,746 shares of common
stock.
In addition, on January 25, 2000, pursuant to the December 28, 1999
securities purchase agreement, the Company received an additional
$1,000,000 structured through the convertible debenture. Therefore, the
convertible debenture under this agreement is $2,000,000 as of January
25, 2000.
F-36
<PAGE>
ADVANCED VIRAL RESEARCH CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 12. SUBSEQUENT FINANCINGS (Continued)
Pursuant to a securities purchase agreement dated February 16, 2000,
the Company received on March 9, 2000, $3,000,000 in exchange for
13,636,357 shares of common stock and warrants to purchase
approximately 5,454,544 shares of common stock.
The pro forma effects of these transactions on the 1999 balance sheet,
are summarized as follows:
<TABLE>
<CAPTION>
Pro forma
Historical Adjustment Pro forma
---------- ---------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Current Assets $916,000 (b) $1,000,000 $4,916,000
(c) 3,000,000
Property and Equipment 1,376,000 - 1,376,000
Other Assets 570,000 - 570,000
--------- -------------- ----------
$2,862,000 $ 4,000,000 $ 6,862,000
========== ============== ===========
Current Liabilities $798,000 - $ 798,000
Long-Term Debt 4,677,000 (a) $(1,423,000)
(b) 1,000,000 4,254,000
Stockholders' Equity (Deficiency) (2,613,000) (a) 1,423,000
(b) 3,000,000 1,810,000
--------- -----------
$2,862,000 $4,000,000 $ 6,862,000
========= ========== ===========
</TABLE>
(a) Assuming conversion of convertible debentures into common stock
(b) Assuming issuance of additional $1,000,000 convertible debenture
(c) Assuming issuance of new $3,000,000 securities purchase agreement
F-37
<PAGE>
INDEX OF EXHIBITS
Number Description
- ------ -----------
4.24 Form of Warrant dated February 7, 2000 to purchase shares of
common stock at $.21 per share.
4.25 Form of Warrant dated February 7, 2000 to purchase shares of
common stock at $.26 per share.
4.26 Form of Warrant dated February 16, 2000 to purchase shares of
common stock at $.275 per share.
4.27 Form of Warrant dated February 16, 2000 to purchase shares of
common stock at $.33 per share.
10.35 Consulting Agreement dated February 7, 2000 between ADVR and
Harbor View Group, Inc.
10.36 Securities Purchase Agreement dated February 16, 2000 between ADVR
and Harbor View Group, Inc.
21.1 Subsidiaries of Registrant
27.1 Financial Data Schedule of ADVR as of and for the Year ended
December 31, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 29, 2000 ADVANCED VIRAL RESEARCH CORP. (Registrant)
By: /s/ Shalom Z. Hirschman, M.D.
-----------------------------
Shalom Z. Hirschman, M.D., President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this amended report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Date: March 29, 2000 By: /s/ Shalom Z. Hirschman, M.D.
-----------------------------
Shalom Z. Hirschman, M.D., President and Chief
Executive Officer and Director
Date: March 29, 2000 By: /s/ Bernard Friedland
------------------------------
Bernard Friedland, Chairman of the Board and
Director
Date: March 29, 2000 By: /s/ William Bregman
------------------------------
William Bregman, Secretary-Treasurer, Director
Date: March 29, 2000 By: /s/ Louis J. Silver
------------------------------
Louis J. Silver, Director
Date: March 29, 2000 By: /s/ Alan V. Gallantar
---------------------
Alan V. Gallantar, Principal Financial and
Accounting Officer
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.1 Articles of Incorporation of Advanced Viral Research Corp. ("ADVR")
(2)
3.2 Bylaws of ADVR, as amended(1)
3.3 Amendment to Articles of Incorporation of ADVR(2)
4.1 Specimen Certificate of Common Stock(1)
4.2 Specimen Warrant Certificate(1)
4.3 Warrant Agreement between ADVR and American Stock Transfer and Trust
Company(1)
4.4 Forms of Common Stock Options and Agreements granted by ADVR to TRM
Management Corp.(5)
4.5 Form of Common Stock Option and Agreement granted by ADVR to Plata
Partners Limited Partnership(12)
4.6 Consulting Agreement, dated September 11, 1992, and Form of Common
Stock granted by ADVR to Leonard Cohen(6)
4.7 Addendum to Agreement granted by ADVR to Shalom Z. Hirschman, M.D.
dated March 24, 1996(10)
4.8 Securities Purchase Agreement dated November 16, 1998 by and between
ADVR and RBB Bank AG. (11)(o)
4.9 7% Convertible Debenture dated November 16, 1998. (11)(o)
4.10 Warrant dated November 16, 1998 to purchase 375,000 shares of common
stock at $0.20 per share. (11)(o)
4.11 Warrant dated November 16, 1998 to purchase 375,000 shares of common
stock at $0.24 per share. (11)(o)
4.12 Securities Purchase Agreement dated December 22, 1998 by and between
ADVR and various purchasers. (15)
4.13 Form of Warrant dated December 22, 1998 to purchase shares of common
stock of ADVR at $0.2040 per share. (15)
4.14 Form of Warrant dated December 22, 1998 to purchase shares of common
stock of ADVR at $0.2448 per share. (15)
4.15 Securities Purchase Agreement dated June 23, 1999 by and between ADVR
and various purchasers. (15)
4.16 Form of Warrant dated June 23, 1999 to purchase shares of common stock
of ADVR at $0.324 per share. (15)
<PAGE>
Exhibit
Number Description
- ------ -----------
4.17 Form of Warrant dated June 23, 1999 to purchase shares of common stock
of ADVR at $0.378 per share. (15)
4.18 Securities Purchase Agreement dated August 3, 1999 by and between ADVR
and Focus Investors, LLC. (15)
4.19 Form of 7% Convertible Debenture dated August 3, 1999. (15)
4.20 Form of Warrant dated August 3, 1999 to purchase 50,000 shares of
common stock at $0.2461 per share. (15)
4.21 Securities Purchase Agreement dated December 28, 1999 by and between
ADVR and Endeavour Capital Fund S.A. (16)
4.22 Form of 7% Convertible Debenture dated December 28, 1999. (16)
4.23 Form of Warrant dated December 28, 1999 to purchase shares of common
stock at $0.19916667 per share. (16)
4.24 Form of Warrant dated February 7, 2000 to purchase shares of common
stock at $.21 per share. *
4.25 Form of Warrant dated February 7, 2000 to purchase shares of common
stock at $.26 per share. *
4.26 Form of Warrant dated February 16, 2000 to purchase shares of common
stock at $.275 per share. *
4.27 Form of Warrant dated February 16, 2000 to purchase shares of common
stock at $.33 per share. *
10.1 Declaration of Trust by Bernard Friedland and William Bregman in favor
of ADVR dated November 16, 1987(12)
10.2 Clinical Trials Agreement, dated September 19, 1990, between Clinique
Medical Actuel and ADVR. (3)
10.3 Letter, dated March 15, 1991 to ADVR from Health Protection Branch(3)
10.4 Agreement dated August 20, 1991 between TRM Management Corp. and ADVR.
(11)(a)
10.5 Lease dated December 18, 1991 between Bayview Associates, Inc. and
ADVR. (4)
10.6 Lease Agreement, dated February 16, 1993 between Stortford Brickell
Inc. and ADVR. (7)
10.7 Consulting Agreement dated February 28, 1993 between Leonard Cohen and
ADVR. (8)
10.8 Medical Advisor Agreement, dated as of September 14, 1993, between
Lionel Resnick, M.D. and ADVR. (11)(b)
10.9 Agreement, dated November 9, 1993, between Dormer Laboratories Inc.
and ADVR. (12)
10.10 Exclusive Distribution Agreement, dated April 25, 1994, between
C.U.R.E. Pharmaceutical Corp. and ADVR. (11)(c)
<PAGE>
Exhibit
Number Description
- ------ -----------
10.11 Exclusive Distribution Agreement, dated as of June 1, 1994, between
C.U.R.E. Pharmaceutica Central Americas Ltd. and ADVR. (11)(d)
10.12 Exclusive Distribution Agreement dated as of June 17, 1994 between DCT
S.R.L. and ADVR, as amended(11)(e)
10.13 Contract, dated as of October 25, 1994 between Commonwealth
Pharmaceuticals of the Channel Islands and ADVR. (11)(f)
10.14 Agreement dated May 24, 1995 between ADVR and Deborah Silver(9)
10.15 Agreement dated May 29, 1995 between ADVR and Shalom Z. Hirschman,
M.D.(9)
10.16 Exclusive Distribution Agreement, dated as of June 2, 1995, between
AVIX International Pharmaceutical Corp. and ADVR. (12)
10.17 Supplement to Exclusive Distribution Agreement, dated November 2, 1995
with Commonwealth Pharmaceuticals(12)
10.18 Exclusive Distributorship & Limited License Agreement, dated December
28, 1995, between AVIX International Pharmaceutical Corp., Beijing
Unistone Pharmaceutical Co., Ltd. and ADVR. (11)(g)
10.19 Modification Agreement, dated December 28, 1995, between AVIX
International Pharmaceutical Corp. and ADVR. (11)(g)
10.20 Agreement dated April 1, 1996, between DCT S.R.L. and ADVR. (11)(h)
10.21 Addendum, dated as of March 24, 1996, to Consulting Agreement between
ADVR and Shalom Z. Hirschman, M.D.(10)
10.22 Addendum to Agreement, dated July 11, 1996, between AVIX International
Pharmaceutical Corp. and ADVR. (11)(i)
10.23 Employment Agreement, dated October 17, 1996, between ADVR and Shalom
Z. Hirschman, M.D.(11)(j)
10.24 Lease, dated February 7, 1997 between Robert Martin Company, LLC and
ADVR. (12)
10.25 Copy of Purchase and Sale Agreement, dated February 21, 1997 between
ADVR and Interfi Capital Group(11)(k)
10.26 Material Transfer Agreement-Cooperative Research And Development
Agreement, dated March 13, 1997, between National Institute of Health,
Food and Drug Administration and the Centers for Disease Control and
Prevention(11)(l)
10.27 Copy of Purchase and Sale Agreement, dated September 26, 1997 between
ADVR and RBB Bank AG. (11)(m)
<PAGE>
Exhibit
Number Description
- ------ -----------
10.28 Copy of Extension to Materials Transfer Agreement-Cooperative Research
and Development Agreement, dated March 4, 1998, between National
Institute of Health, Food and Drug Administration and the Centers for
Disease Control and Prevention. (13)
10.29 Amended and Restated Employment Agreement dated July 8, 1998 between
ADVR and Shalom Z. Hirschman, M.D.(11)(n)
10.30 Agreement between ADVR and Angelo Chinnici, M.D. dated July 1, 1999.
(14)
10.31 Consulting Agreement between ADVR and GloboMax LLC dated January 18,
1999. (15)
10.32 Registration Rights Agreement dated August 3, 1999 between ADVR
Research and Focus Investors LLC. (15)
10.33 Employment Agreement dated October 1, 1999 between ADVR and Alan V.
Gallantar (15)
10.34 Registration Rights Agreement dated December 28, 1999 between ADVR and
Endeavour Capital Fund, S.A. (16)
10.35 Consulting Agreement dated February 7, 2000 between ADVR and Harbor
View Group, Inc.*
10.36 Securities Purchase Agreement dated February 16, 2000 between ADVR and
Harbor View Group, Inc. *
21.1 Subsidiaries of Registrant. *
27.1 Financial Data Schedule of ADVR as of and for the Year ended December
31, 2000.*
* Filed herewith.
1. Documents incorporated by reference herein to certain exhibits our
registration statement on Form S-1, as amended, File No. 33-33895,
filed with the Securities and Exchange Commission on March 19, 1990.
2. Documents incorporated by reference herein to certain exhibits to our
registration statement on Form S-18, File No. 33-2262-A, filed with
the Securities and Exchange Commission on February 12, 1989.
3. Documents incorporated by reference herein to certain exhibits to our
Annual Report on Form 10-K for the fiscal year ended December 31,
1990.
4. Documents incorporated by reference herein to certain exhibits to our
Annual Report on Form 10-K for period ended March 31, 1991.
5. Documents incorporated by reference herein to certain exhibits to our
Annual Report on Form 10-K for the fiscal year ended December 31,
1991.
6. Documents incorporated by reference herein to certain exhibits to our
Quarterly Report on Form 10-Q for the period ended September 30, 1992.
7. Documents incorporated by reference herein to certain exhibits to our
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1992.
8. Documents incorporated by reference herein to certain exhibits to our
Quarterly Report on Form 10-QSB for the period ended March 31, 1993.
9. Documents incorporated by reference herein to certain exhibits to our
Quarterly Report on Form 10-QSB for the period ended June 30, 1995.
<PAGE>
10. Documents incorporated by reference herein to certain exhibits to our
Quarterly Report on Form 10-QSB for the period ended March 31, 1996.
11. Incorporated by reference herein to our Current Reports on Form 8-K
and exhibits thereto as follows:
(a) A report on Form 8-K dated January 3, 1992.
(b) A report on Form 8-K dated September 14, 1993.
(c) A report on Form 8-K dated April 25, 1994.
(d) A report on Form 8-K dated June 3, 1994.
(e) A report on Form 8-K dated June 17, 1994.
(f) A report on Form 8-K dated October 25, 1994.
(g) A report on Form 8-K dated December 28, 1995.
(h) A report on Form 8-K dated April 22, 1996.
(i) A report on Form 8-K dated July 12, 1996.
(j) A report on Form 8-K dated October 17, 1996.
(k) A report on Form 8-K dated February 21, 1997.
(l) A report on Form 8-K dated March 25, 1997.
(m) A report on Form 8-K dated September 26, 1997.
(n) A report on Form 8-K dated July 21, 1998.
(o) A report on Form 8-K dated November 24, 1998.
12. Documents incorporated by reference herein to certain exhibits to our
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1996.
13. Documents incorporated by reference herein to certain exhibits to our
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997.
14. Documents incorporated by reference herein to certain exhibits to our
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
15. Documents incorporated by reference herein to certain exhibits to our
registration statement on Form S-1, as amended, File No. 33-70523,
filed with the Securities and Exchange Commission on January 13, 1999.
16. Documents incorporated by reference herein to certain exhibits to our
registration statement on Form S-1, as amended, File No. 333-94529,
filed with the Securities and Exchange Commission on January 12, 2000.
42
EXHIBIT 4.24
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS
WARRANT (COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT.
WARRANT TO PURCHASE
COMMON STOCK, PAR VALUE $.00001 PER SHARE
OF
ADVANCED VIRAL RESEARCH CORP.
-------------------------------
This certifies that, for value received, Harbor View Group,
Inc., or registered assigns ("Warrantholder"), is entitled to purchase from
ADVANCED VIRAL RESEARCH CORP. (the "Company"), subject to the provisions of this
Warrant, at any time and from time to time until 5:00 p.m. Eastern Standard Time
on February 28, 2005, 1,750,000 shares of the Company's Common Stock, par value
$.00001 per share ("Warrant Shares"). The purchase price payable upon the
exercise of this Warrant shall be $.21 per Warrant Share. The Warrant Price and
the number of Warrant Shares which the Warrantholder is entitled to purchase is
subject to adjustment upon the occurrence of the contingencies set forth in
Section 3 of this Warrant, and as adjusted from time to time, such purchase
price is hereinafter referred to as the "Warrant Price."
This Warrant is subject to the following terms and conditions:
1. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised in whole or in part but not for a
fractional share. Upon delivery of this Warrant at the offices of
the Company or at such other address as the Company may designate
by notice in writing to the registered holder hereof with the
Subscription Form annexed hereto duly executed, accompanied by
payment of the Warrant Price for the number of Warrant Shares
purchased (in cash, by certified, cashier's or other check
acceptable to the Company), the registered holder
<PAGE>
of this Warrant shall be entitled to receive a certificate or
certificates for the Warrant Shares so purchased. Such
certificate or certificates shall be promptly delivered to the
Warrantholder. Upon any partial exercise of this Warrant, the
Company shall execute and deliver a new Warrant of like tenor for
the balance of the Warrant Shares purchasable hereunder.
(b) The Warrant Shares deliverable hereunder shall, upon issuance, be
fully paid and non_assessable and the Company agrees that at all
times during the term of this Warrant it shall cause to be
reserved for issuance such number of shares of its Common Stock
as shall be required for issuance and delivery upon exercise of
this Warrant.
2. Transfer or Assignment of Warrant.
---------------------------------
(a) Any assignment or transfer of this Warrant shall be made by
surrender of this Warrant at the offices of the Company or at
such other address as the Company may designate in writing to the
registered holder hereof with the Assignment Form annexed hereto
duly executed and accompanied by payment of any requisite
transfer taxes, and the Company shall, without charge, execute
and deliver a new Warrant of like tenor in the name of the
assignee for the portion so assigned in case of only a partial
assignment, with a new Warrant of like tenor to the assignor for
the balance of the Warrant Shares purchasable.
(b) Prior to any assignment or transfer of this Warrant, the holder
thereof shall deliver an opinion of counsel to the Company to the
effect that the proposed transfer may be effected without
registration under the Act.
3. Adjustment of Warrant Price and Warrant Shares -- Anti_Dilution
---------------------------------------------------------------
Provisions.
-----------
A. (1) Except as hereinafter provided, in case the Company
shall at any time after the date hereof issue any shares of
Common Stock (including shares held in the Company's treasury)
without consideration, then, and thereafter successively upon
each issuance, the Warrant Price in effect immediately prior
to each such issuance shall forthwith be reduced to a price
determined by multiplying the Warrant Price in effect
immediately prior to such issuance by a fraction:
(a) the numerator of which shall be the total number of
shares of Common Stock outstanding immediately prior
to such issuance, and
(b) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after
such issuance.
For the purposes of any computation to be made in accordance with the
provisions of this clause(1), the following provisions shall be made.
<PAGE>
(i) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall
be deemed to have been issued and to be outstanding
at the close of business on the record date fixed for
the determination of stockholders entitled to receive
such dividend or other distribution and shall be
deemed to have been issued without consideration.
Shares of Common Stock issued otherwise than as a
dividend, shall be deemed to have been issued and to
be outstanding at the close of business on the date
of issue.
(ii) The number of shares of Common Stock at any time
outstanding shall not include any shares then owned
or held by or for the account of the Company.
(2) In case the Company shall at any time subdivide or combine
the outstanding shares of Common Stock, the Warrant Price shall forthwith be
proportionately decreased in the case of the subdivision or proportionately
increased in the case of combination to the nearest one cent. Any such
adjustment shall become effective at the close of business on the date that such
subdivision or combination shall become effective.
B. In the event that the number of outstanding shares of Common Stock
is increased by a stock dividend payable in shares of Common Stock or by a
subdivision of the outstanding shares of Common Stock, which may include a stock
split, then from and after the time at which the adjusted Warrant Price becomes
effective pursuant to the foregoing Subsection A of this Section by reason of
such dividend or subdivision, the number of shares issuable upon the exercise of
this Warrant shall be increased in proportion to such increase in outstanding
shares. In the event that the number of outstanding shares of Common Stock is
decreased by a combination of the outstanding shares of Common Stock, then, from
and after the time at which the adjusted Warrant Price becomes effective
pursuant to such Subsection A of this Section by reason of such combination, the
number of shares issuable upon the exercise of this Warrant shall be decreased
in proportion to such decrease in outstanding shares.
C. In the event of an adjustment of the Warrant Price, the number of
shares of Common Stock (or reclassified stock) issuable upon exercise of this
Warrant after such adjustment shall be equal to the number determined by
dividing:
(1) an amount equal to the product of (i) the number of
shares of Common Stock issuable upon exercise of this
Warrant immediately prior to such adjustment, and
(ii) the Warrant Price immediately prior to such
adjustment, by
(2) the Warrant Price immediately after such adjustment.
D. In the case of any reorganization or reclassification of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination) or in the case of any consolidation of the Company
with, or merger of the Company with, another corporation, or in the case of any
<PAGE>
sale, lease or conveyance of all, or substantially all, of the property, assets,
business and goodwill of the Company as an entity, the holder of this Warrant
shall thereafter have the right upon exercise to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification, consolidation, merger or sale by a holder of
the number of shares of Common Stock which the holder of this Warrant would have
received had all Warrant Shares issuable upon exercise of this Warrant been
issued immediately prior to such reorganization, reclassification,
consolidation, merger or sale, at a price equal to the Warrant Price then in
effect pertaining to this Warrant (the kind, amount and price of such stock and
other securities to be subject to adjustment as herein provided).
E. In case the Company shall, at any time prior to the expiration of
this Warrant and prior to the exercise thereof, dissolve, liquidate or wind up
its affairs, the Warrantholder shall be entitled, upon the exercise thereof, to
receive, in lieu of the Warrant Shares of the Company which it would have been
entitled to receive, the same kind and amount of assets as would have been
issued, distributed or paid to it upon such Warrant Shares of the Company, had
it been the holder of record of shares of Common Stock receivable upon the
exercise of this Warrant on the record date for the determination of those
entitled to receive any such liquidating distribution. After any such
dissolution, liquidation or winding up which shall result in any distribution in
excess of the Warrant Price provided for by this Warrant, the Warrantholder may
at its option exercise the same without making payment of the aggregate Warrant
Price and in such case the Company shall upon the distribution to said
Warrantholder consider that the aggregate Warrant Price has been paid in full to
it and in making settlement to said Warrantholder, shall deduct from the amount
payable to such Warrantholder an amount equal to the aggregate Warrant Price.
F. In case the Company shall, at any time prior to the expiration of
this Warrant and prior to the exercise thereof make a distribution of assets
(other than cash) or securities of the Company to its stockholders (the
"Distribution") the Warrantholder shall be entitled, upon the exercise thereof,
to receive, in addition to the Warrant Shares it is entitled to receive, the
same kind and amount of assets or securities as would have been distributed to
it in the Distribution had it been the holder of record of shares of Common
Stock receivable upon exercise of this Warrant on the record date for
determination of those entitled to receive the Distribution.
G. Irrespective of any adjustments in the number of Warrant Shares and
the Warrant Price or the number or kind of shares purchasable upon exercise of
this Warrant, this Warrant may continue to express the same price and number and
kind of shares as originally issued.
4. Officer's Certificate.
---------------------
Whenever the number of Warrant Shares and the Warrant Price shall be
adjusted pursuant to the provisions hereof, the Company shall forthwith file, at
its principal executive office a statement, signed by the Chairman of the Board,
President, or one of the Vice Presidents of the Company and by its Chief
Financial Officer or one of its Treasurers or Assistant Treasurers, stating the
adjusted number of Warrant Shares and the new Warrant Price calculated to the
nearest one hundredth and setting forth in reasonable detail the method of
calculation and the facts requiring such adjustment and upon which such
calculation is based. Each adjustment shall remain in effect until a subsequent
adjustment hereunder is required. A copy of such statement shall be mailed to
the Warrantholder.
<PAGE>
5. Charges, Taxes and Expenses.
---------------------------
The issuance of certificates for Warrant Shares upon any exercise of
this Warrant shall be made without charge to the Warrantholder for any tax or
other expense in respect to the issuance of such certificates, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued only in the name of the Warrantholder.
6. Miscellaneous.
--------------
(a) The terms of this Warrant shall be binding upon and shall
inure to the benefit of any successors or assigns of the
Company and of the holder or holders hereof and of the shares
of Common Stock issued or issuable upon the exercise hereof.
(b) No holder of this Warrant, as such, shall be entitled to vote
or receive dividends or be deemed to be a stockholder of the
Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the holder of this
Warrant, as such, any rights of a stockholder of the Company
or any right to vote, give or withhold consent to any
corporate action, receive notice of meetings, receive
dividends or subscription rights, or otherwise.
(c) Receipt of this Warrant by the holder hereof shall constitute
acceptance of an agreement to the foregoing terms and
conditions.
(d) The Warrant and the performance of the parties hereunder shall
be construed and interpreted in accordance with the laws of
the State of New York and the parties hereunder consent and
agree that the State and Federal Courts which sit in the State
of New York and the County of New York shall have exclusive
jurisdiction with respect to all controversies and disputes
arising hereunder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer and its corporate seal to be affixed
hereto.
Dated: February 7, 2000
ADVANCED VIRAL RESEARCH CORP.
BY: /s/ Shalom Hirschman, M.D.
--------------------------
Shalom Hirschman, M.D.
President
EXHIBIT 4.25
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS
WARRANT (COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT.
WARRANT TO PURCHASE
COMMON STOCK, PAR VALUE $.00001 PER SHARE
OF
ADVANCED VIRAL RESEARCH CORP.
------------------------------
This certifies that, for value received, Harbor View Group,
Inc., or registered assigns ("Warrantholder"), is entitled to purchase from
ADVANCED VIRAL RESEARCH CORP. (the "Company"), subject to the provisions of this
Warrant, at any time and from time to time until 5:00 p.m. Eastern Standard Time
on February 28, 2005, 1,750,000 shares of the Company's Common Stock, par value
$.00001 per share ("Warrant Shares"). The purchase price payable upon the
exercise of this Warrant shall be $.26 per Warrant Share. The Warrant Price and
the number of Warrant Shares which the Warrantholder is entitled to purchase is
subject to adjustment upon the occurrence of the contingencies set forth in
Section 3 of this Warrant, and as adjusted from time to time, such purchase
price is hereinafter referred to as the "Warrant Price."
This Warrant is subject to the following terms and conditions:
1. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised in whole or in part but not for
a fractional share. Upon delivery of this Warrant at the
offices of the Company or at such other address as the Company
may designate by notice in writing to the registered holder
hereof with the Subscription Form annexed hereto duly
executed, accompanied by payment of the Warrant Price for the
number of Warrant Shares purchased (in cash, by certified,
cashier's or other check acceptable to the Company), the
registered holder of this Warrant shall be entitled to receive
a certificate or certificates for the Warrant Shares so
purchased. Such certificate or certificates shall be promptly
delivered to
<PAGE>
the Warrantholder. Upon any partial exercise of this Warrant,
the Company shall execute and deliver a new Warrant of like
tenor for the balance of the Warrant Shares purchasable
hereunder.
(b) The Warrant Shares deliverable hereunder shall, upon issuance,
be fully paid and non_assessable and the Company agrees that
at all times during the term of this Warrant it shall cause to
be reserved for issuance such number of shares of its Common
Stock as shall be required for issuance and delivery upon
exercise of this Warrant.
2. Transfer or Assignment of Warrant.
---------------------------------
(a) Any assignment or transfer of this Warrant shall be made by
surrender of this Warrant at the offices of the Company or at
such other address as the Company may designate in writing to
the registered holder hereof with the Assignment Form annexed
hereto duly executed and accompanied by payment of any
requisite transfer taxes, and the Company shall, without
charge, execute and deliver a new Warrant of like tenor in the
name of the assignee for the portion so assigned in case of
only a partial assignment, with a new Warrant of like tenor to
the assignor for the balance of the Warrant Shares
purchasable.
(b) Prior to any assignment or transfer of this Warrant, the
holder thereof shall deliver an opinion of counsel to the
Company to the effect that the proposed transfer may be
effected without registration under the Act.
3. Adjustment of Warrant Price and Warrant Shares -- Anti-Dilution
---------------------------------------------------------------
Provisions.
A. (1) Except as hereinafter provided, in case the Company
shall at any time after the date hereof issue any shares of
Common Stock (including shares held in the Company's treasury)
without consideration, then, and thereafter successively upon
each issuance, the Warrant Price in effect immediately prior
to each such issuance shall forthwith be reduced to a price
determined by multiplying the Warrant Price in effect
immediately prior to such issuance by a fraction:
(a) the numerator of which shall be the
total number of shares of Common
Stock outstanding immediately prior
to such issuance, and
(b) the denominator of which shall be
the total number of shares of
Common Stock outstanding
immediately after such issuance.
For the purposes of any computation to be made in accordance
with the provisions of this clause (1), the following provisions shall be
applicable:
(i) Shares of Common Stock issuable by way of
dividend or other distribution on any stock
of the Company shall be deemed to have been
issued and to be outstanding at the close
<PAGE>
of business on the record date fixed for the
determination of stockholders entitled to
receive such dividend or other distribution
and shall be deemed to have been issued
without consideration. Shares of Common
Stock issued otherwise than as a dividend,
shall be deemed to have been issued and to
be outstanding at the close of business on
the date of issue.
(ii) The number of shares of Common Stock at any
time outstanding shall not include any
shares then owned or held by or for the
account of the Company.
(2) In case the Company shall at any time subdivide
or combine the outstanding shares of Common Stock, the Warrant Price shall
forthwith be proportionately decreased in the case of the subdivision or
proportionately increased in the case of combination to the nearest one cent.
Any such adjustment shall become effective at the close of business on the date
that such subdivision or combination shall become effective.
B. In the event that the number of outstanding shares of Common Stock
is increased by a stock dividend payable in shares of Common Stock or by a
subdivision of the outstanding shares of Common Stock, which may include a stock
split, then from and after the time at which the adjusted Warrant Price becomes
effective pursuant to the foregoing Subsection A of this Section by reason of
such dividend or subdivision, the number of shares issuable upon the exercise of
this Warrant shall be increased in proportion to such increase in outstanding
shares. In the event that the number of outstanding shares of Common Stock is
decreased by a combination of the outstanding shares of Common Stock, then, from
and after the time at which the adjusted Warrant Price becomes effective
pursuant to such Subsection A of this Section by reason of such combination, the
number of shares issuable upon the exercise of this Warrant shall be decreased
in proportion to such decrease in outstanding shares.
C. In the event of an adjustment of the Warrant Price, the number of
shares of Common Stock (or reclassified stock) issuable upon exercise of this
Warrant after such adjustment shall be equal to the number determined by
dividing:
(1) an amount equal to the product of (i) the number of
shares of Common Stock issuable upon exercise of this
Warrant immediately prior to such adjustment, and
(ii) the Warrant Price immediately prior to such
adjustment, by
(2) the Warrant Price immediately after such adjustment.
D. In the case of any reorganization or reclassification of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination) or in the case of any consolidation of the Company
with, or merger of the Company with, another corporation, or in the case of any
sale, lease or conveyance of all, or substantially all, of the property, assets,
business and goodwill of the Company as an entity, the holder of this Warrant
shall thereafter have the right upon exercise to purchase the kind and amount of
shares of stock and other securities and property receivable upon
<PAGE>
such reorganization, reclassification, consolidation, merger or sale by a holder
of the number of shares of Common Stock which the holder of this Warrant would
have received had all Warrant Shares issuable upon exercise of this Warrant been
issued immediately prior to such reorganization, reclassification,
consolidation, merger or sale, at a price equal to the Warrant Price then in
effect pertaining to this Warrant (the kind, amount and price of such stock and
other securities to be subject to adjustment as herein provided).
E. In case the Company shall, at any time prior to the expiration of
this Warrant and prior to the exercise thereof, dissolve, liquidate or wind up
its affairs, the Warrantholder shall be entitled, upon the exercise thereof, to
receive, in lieu of the Warrant Shares of the Company which it would have been
entitled to receive, the same kind and amount of assets as would have been
issued, distributed or paid to it upon such Warrant Shares of the Company, had
it been the holder of record of shares of Common Stock receivable upon the
exercise of this Warrant on the record date for the determination of those
entitled to receive any such liquidating distribution. After any such
dissolution, liquidation or winding up which shall result in any distribution in
excess of the Warrant Price provided for by this Warrant, the Warrantholder may
at its option exercise the same without making payment of the aggregate Warrant
Price and in such case the Company shall upon the distribution to said
Warrantholder consider that the aggregate Warrant Price has been paid in full to
it and in making settlement to said Warrantholder, shall deduct from the amount
payable to such Warrantholder an amount equal to the aggregate Warrant Price.
F. In case the Company shall, at any time prior to the expiration of
this Warrant and prior to the exercise thereof make a distribution of assets
(other than cash) or securities of the Company to its stockholders (the
"Distribution") the Warrantholder shall be entitled, upon the exercise thereof,
to receive, in addition to the Warrant Shares it is entitled to receive, the
same kind and amount of assets or securities as would have been distributed to
it in the Distribution had it been the holder of record of shares of Common
Stock receivable upon exercise of this Warrant on the record date for
determination of those entitled to receive the Distribution.
G. Irrespective of any adjustments in the number of Warrant Shares and
the Warrant Price or the number or kind of shares purchasable upon exercise of
this Warrant, this Warrant may continue to express the same price and number and
kind of shares as originally issued.
4. Officer's Certificate.
---------------------
Whenever the number of Warrant Shares and the Warrant Price shall be
adjusted pursuant to the provisions hereof, the Company shall forthwith file, at
its principal executive office a statement, signed by the Chairman of the Board,
President, or one of the Vice Presidents of the Company and by its Chief
Financial Officer or one of its Treasurers or Assistant Treasurers, stating the
adjusted number of Warrant Shares and the new Warrant Price calculated to the
nearest one hundredth and setting forth in reasonable detail the method of
calculation and the facts requiring such adjustment and upon which such
calculation is based. Each adjustment shall remain in effect until a subsequent
adjustment hereunder is required. A copy of such statement shall be mailed to
the Warrantholder.
5. Charges, Taxes and Expenses.
---------------------------
<PAGE>
The issuance of certificates for Warrant Shares upon any exercise of
this Warrant shall be made without charge to the Warrantholder for any tax or
other expense in respect to the issuance of such certificates, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued only in the name of the Warrantholder.
6. Miscellaneous.
--------------
(a) The terms of this Warrant shall be binding upon and shall
inure to the benefit of any successors or assigns of the
Company and of the holder or holders hereof and of the shares
of Common Stock issued or issuable upon the exercise hereof.
(b) No holder of this Warrant, as such, shall be entitled to vote
or receive dividends or be deemed to be a stockholder of the
Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the holder of this
Warrant, as such, any rights of a stockholder of the Company
or any right to vote, give or withhold consent to any
corporate action, receive notice of meetings, receive
dividends or subscription rights, or otherwise.
(c) Receipt of this Warrant by the holder hereof shall constitute
acceptance of an agreement to the foregoing terms and
conditions.
(d) The Warrant and the performance of the parties hereunder shall
be construed and interpreted in accordance with the laws of
the State of New York and the parties hereunder consent and
agree that the State and Federal Courts which sit in the State
of New York and the County of New York shall have exclusive
jurisdiction with respect to all controversies and disputes
arising hereunder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer and its corporate seal to be affixed
hereto.
Dated: February 7, 2000
ADVANCED VIRAL RESEARCH CORP.
BY: /s/ Shalom Hirschman, M.D.
--------------------------
Shalom Hirschman, M.D.
President
EXHIBIT 4.26
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS
WARRANT (COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT.
WARRANT TO PURCHASE
COMMON STOCK, PAR VALUE $.00001 PER SHARE
OF
ADVANCED VIRAL RESEARCH CORP.
--------------------------------
This certifies that, for value received, [Name of Purchaser], or
registered assigns ("Warrantholder"), is entitled to purchase from ADVANCED
VIRAL RESEARCH CORP. (the "Company"), subject to the provisions of this Warrant,
at any time and from time to time until 5:00 p.m. Eastern Standard Time on
February 28, 2005, _______ shares of the Company's Common Stock, par value
$.00001 per share ("Warrant Shares"). The purchase price payable upon the
exercise of this Warrant shall be $.275 per Warrant Share. The Warrant Price and
the number of Warrant Shares which the Warrantholder is entitled to purchase is
subject to adjustment upon the occurrence of the contingencies set forth in
Section 3 of this Warrant, and as adjusted from time to time, such purchase
price is hereinafter referred to as the "Warrant Price."
This Warrant is subject to the following terms and conditions:
1. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised in whole or in part but not for
a fractional share. Upon delivery of this Warrant at the
offices of the Company or at such other address as the Company
may designate by notice in writing to the registered holder
hereof with the Subscription Form annexed hereto duly
executed, accompanied by payment of the Warrant Price for the
number of Warrant Shares purchased (in cash, by certified,
cashier's or other check acceptable to the Company, by Common
Stock of the Company having a Market Value (as hereinafter
defined) equal to the aggregate Warrant Price for the Warrant
Shares to be purchased, or any combination of the foregoing),
the registered holder of this Warrant shall be entitled to
receive a certificate or certificates for the Warrant Shares
so purchased. Such certificate or
<PAGE>
certificates shall be promptly delivered to the Warrantholder.
Upon any partial exercise of this Warrant, the Company shall
execute and deliver a new Warrant of like tenor for the
balance of the Warrant Shares purchasable hereunder.
(b) In lieu of exercising this Warrant pursuant to Section 1(a),
the holder may elect to receive shares of Common Stock equal
to the value of this Warrant determined in the manner
described below (or any portion thereof remaining unexercised)
upon delivery of this Warrant at the offices of the Company or
at such other address as the Company may designate by notice
in writing to the registered holder hereof with the Notice of
Cashless Exercise Form annexed hereto duly executed. In such
event the Company shall issue to the holder a number of shares
of the Company's Common Stock computed using the following
formula:
X = Y (A-B)
------
A
Where X = the number of shares of Common Stock to be issued to the holder.
Y = the number of shares of Common Stock purchasable under this Warrant
(at the date of such calculation).
A = the Market Value of the Company's Common Stock on the business day
immediately preceding the day on which the Notice of Cashless Exercise
is received by the Company.
B = Warrant Price (as adjusted to the date of such calculation).
(c) The Warrant Shares deliverable hereunder shall, upon issuance, be
fully paid and non_assessable and the Company agrees that at all
times during the term of this Warrant it shall cause to be
reserved for issuance such number of shares of its Common Stock
as shall be required for issuance and delivery upon exercise of
this Warrant.
(d) For purposes of this Warrant, the Market Value of a share of
Common Stock on any date shall be equal to (i) the closing bid
price per share as published by a national securities exchange on
which shares of Common Stock (or other units of the security) are
traded (an "Exchange") on such date or, if there is no bid for
Common Stock on such date, the bid price on such exchange at the
close of trading on the next earlier date or, (ii) if shares of
Common Stock are not listed on a national securities exchange on
such date, the closing bid price per share as published on the
National Association of Securities Dealers Automatic Quotation
System ("NASDAQ") National Market System if the shares are quoted
on such system on such date, or (iii) the closing bid price in
the over_the_counter market at the close of trading on such date
if the shares are not traded on an exchange or listed on the
NASDAQ National Market System, or (iv) if the Common Stock is not
traded on a national securities exchange or in the
over_the_counter market, the fair market value of a share of
Common Stock on such date as determined in good faith by the
Board of Directors. If the holder disagrees with the
determination of the Market Value of any securities of the
Company determined by the Board of Directors under Section
1(d)(iv) the
<PAGE>
Market Value of such securities shall be determined by an
independent appraiser acceptable to the Company and the holder
(or, if they cannot agree on such an appraiser, by an independent
appraiser selected by each of them, and Market Value shall be the
median of the appraisals made by such appraisers). If there is
one appraiser, the cost of the appraisal shall be shared equally
between the Company and the holder. If there are two appraisers,
each of the Company and the holder shall pay for its own
appraisal.
2. Transfer or Assignment of Warrant.
---------------------------------
(a) Any assignment or transfer of this Warrant shall be made by
surrender of this Warrant at the offices of the Company or at
such other address as the Company may designate in writing to
the registered holder hereof with the Assignment Form annexed
hereto duly executed and accompanied by payment of any
requisite transfer taxes, and the Company shall, without
charge, execute and deliver a new Warrant of like tenor in the
name of the assignee for the portion so assigned in case of
only a partial assignment, with a new Warrant of like tenor to
the assignor for the balance of the Warrant Shares
purchasable.
(b) Prior to any assignment or transfer of this Warrant, the
holder thereof shall deliver an opinion of counsel to the
Company to the effect that the proposed transfer may be
effected without registration under the Act.
3. Adjustment of Warrant Price and Warrant Shares -- Anti-Dilution
---------------------------------------------------------------
Provisions.
A. (1) Except as hereinafter provided, in case the Company shall at any
time after the date hereof issue any shares of Common Stock (including shares
held in the Company's treasury) without consideration, then, and thereafter
successively upon each issuance, the Warrant Price in effect immediately prior
to each such issuance shall forthwith be reduced to a price determined by
multiplying the Warrant Price in effect immediately prior to such issuance by a
fraction:
(a) the numerator of which shall be the total number of
shares of Common Stock outstanding immediately prior
to such issuance, and
(b) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after
such issuance.
For the purposes of any computation to be made in accordance with the
provisions of this clause (1), the following provisions shall be applicable:
(i) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of
the Company shall be deemed to have been issued
and to be outstanding at the close of business on
the record date fixed for the determination of
stockholders entitled to receive such dividend or
other distribution and shall be deemed to have
been issued without consideration. Shares of
Common Stock issued otherwise than as a dividend,
shall be deemed to have been issued and to be
outstanding at the close of business on the date
of issue.
<PAGE>
(ii) The number of shares of Common Stock at any time
outstanding shall not include any shares then
owned or held by or for the account of the
Company.
(2) In case the Company shall at any time subdivide or
combine the outstanding shares of Common Stock, the Warrant
Price shall forthwith be proportionately decreased in the case
of the subdivision or proportionately increased in the case of
combination to the nearest one cent. Any such adjustment shall
become effective at the close of business on the date that
such subdivision or combination shall become effective.
B. In the event that the number of outstanding shares of Common Stock
is increased by a stock dividend payable in shares of Common Stock or by a
subdivision of the outstanding shares of Common Stock, which may include a stock
split, then from and after the time at which the adjusted Warrant Price becomes
effective pursuant to the foregoing Subsection A of this Section by reason of
such dividend or subdivision, the number of shares issuable upon the exercise of
this Warrant shall be increased in proportion to such increase in outstanding
shares. In the event that the number of outstanding shares of Common Stock is
decreased by a combination of the outstanding shares of Common Stock, then, from
and after the time at which the adjusted Warrant Price becomes effective
pursuant to such Subsection A of this Section by reason of such combination, the
number of shares issuable upon the exercise of this Warrant shall be decreased
in proportion to such decrease in outstanding shares.
C. In the event of an adjustment of the Warrant Price, the number of
shares of Common Stock (or reclassified stock) issuable upon exercise of this
Warrant after such adjustment shall be equal to the number determined by
dividing:
(1) an amount equal to the product of (i) the number of shares
of Common Stock issuable upon exercise of this Warrant
immediately prior to such adjustment, and (ii) the Warrant
Price immediately prior to such adjustment, by
(2) the Warrant Price immediately after such adjustment.
D. In the case of any reorganization or reclassification of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination) or in the case of any consolidation of the Company
with, or merger of the Company with, another corporation, or in the case of any
sale, lease or conveyance of all, or substantially all, of the property, assets,
business and goodwill of the Company as an entity, the holder of this Warrant
shall thereafter have the right upon exercise to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification, consolidation, merger or sale by a holder of
the number of shares of Common Stock which the holder of this Warrant would have
received had all Warrant Shares issuable upon exercise of this Warrant been
issued immediately prior to such reorganization, reclassification,
consolidation, merger or sale, at a price equal to the Warrant Price then in
effect
<PAGE>
pertaining to this Warrant (the kind, amount and price of such stock and other
securities to be subject to adjustment as herein provided).
E. In case the Company shall, at any time prior to the expiration of
this Warrant and prior to the exercise thereof, dissolve, liquidate or wind up
its affairs, the Warrantholder shall be entitled, upon the exercise thereof, to
receive, in lieu of the Warrant Shares of the Company which it would have been
entitled to receive, the same kind and amount of assets as would have been
issued, distributed or paid to it upon such Warrant Shares of the Company, had
it been the holder of record of shares of Common Stock receivable upon the
exercise of this Warrant on the record date for the determination of those
entitled to receive any such liquidating distribution. After any such
dissolution, liquidation or winding up which shall result in any distribution in
excess of the Warrant Price provided for by this Warrant, the Warrantholder may
at its option exercise the same without making payment of the aggregate Warrant
Price and in such case the Company shall upon the distribution to said
Warrantholder consider that the aggregate Warrant Price has been paid in full to
it and in making settlement to said Warrantholder, shall deduct from the amount
payable to such Warrantholder an amount equal to the aggregate Warrant Price.
F. In case the Company shall, at any time prior to the expiration of
this Warrant and prior to the exercise thereof make a distribution of assets
(other than cash) or securities of the Company to its stockholders (the
"Distribution") the Warrantholder shall be entitled, upon the exercise thereof,
to receive, in addition to the Warrant Shares it is entitled to receive, the
same kind and amount of assets or securities as would have been distributed to
it in the Distribution had it been the holder of record of shares of Common
Stock receivable upon exercise of this Warrant on the record date for
determination of those entitled to receive the Distribution.
G. Irrespective of any adjustments in the number of Warrant Shares and
the Warrant Price or the number or kind of shares purchasable upon exercise of
this Warrant, this Warrant may continue to express the same price and number and
kind of shares as originally issued.
4. Officer's Certificate. Whenever the number of Warrant Shares and the
Warrant Price shall be adjusted pursuant to the provisions hereof, the
Company shall forthwith file, at its principal executive office a
statement, signed by the Chairman of the Board, President, or one of the
Vice Presidents of the Company and by its Chief Financial Officer or one of
its Treasurers or Assistant Treasurers, stating the adjusted number of
Warrant Shares and the new Warrant Price calculated to the nearest one
hundredth and setting forth in reasonable detail the method of calculation
and the facts requiring such adjustment and upon which such calculation is
based. Each adjustment shall remain in effect until a subsequent adjustment
hereunder is required. A copy of such statement shall be mailed to the
Warrantholder.
5. Charges, Taxes and Expenses. The issuance of certificates for Warrant
Shares upon any exercise of this Warrant shall be made without charge to
the Warrantholder for any tax or other expense in respect to the issuance
of such certificates, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued only in the name of the
Warrantholder.
<PAGE>
6. Miscellaneous.
--------------
(a) The terms of this Warrant shall be binding upon and shall inure to
the benefit of any successors or assigns of the Company and of the
holder or holders hereof and of the shares of Common Stock issued
or issuable upon the exercise hereof.
(b) No holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be deemed to be a stockholder of the Company
for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder of this Warrant, as such, any
rights of a stockholder of the Company or any right to vote, give
or withhold consent to any corporate action, receive notice of
meetings, receive dividends or subscription rights, or otherwise.
(c) Receipt of this Warrant by the holder hereof shall constitute
acceptance of an agreement to the foregoing terms and conditions.
(d) The Warrant and the performance of the parties hereunder shall be
construed and interpreted in accordance with the laws of the State
of New York and the parties hereunder consent and agree that the
State and Federal Courts which sit in the State of New York and
the County of New York shall have exclusive jurisdiction with
respect to all controversies and disputes arising hereunder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer and its corporate seal to be affixed hereto.
Dated: February 16, 2000
ADVANCED VIRAL RESEARCH CORP.
BY: /s/ Shalom Hirschman, M.D.
--------------------------
Shalom Hirschman, M.D.
President
EXHIBIT 4.27
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS
WARRANT (COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT.
WARRANT TO PURCHASE
COMMON STOCK, PAR VALUE $.00001 PER SHARE
OF
ADVANCED VIRAL RESEARCH CORP.
This certifies that, for value received, [Name of Purchaser], or registered
assigns ("Warrantholder"), is entitled to purchase from ADVANCED VIRAL RESEARCH
CORP. (the "Company"), subject to the provisions of this Warrant, at any time
and from time to time until 5:00 p.m. Eastern Standard Time on February 28,
2005, _______ shares of the Company's Common Stock, par value $.00001 per share
("Warrant Shares"). The purchase price payable upon the exercise of this Warrant
shall be $.33 per Warrant Share. The Warrant Price and the number of Warrant
Shares which the Warrantholder is entitled to purchase is subject to adjustment
upon the occurrence of the contingencies set forth in Section 3 of this Warrant,
and as adjusted from time to time, such purchase price is hereinafter referred
to as the "Warrant Price."
This Warrant is subject to the following terms and conditions:
1. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised in whole or in part but not for a
fractional share. Upon delivery of this Warrant at the offices of
the Company or at such other address as the Company may designate
by notice in writing to the registered holder hereof with the
Subscription Form annexed hereto duly executed, accompanied by
payment of the Warrant Price for the number of Warrant Shares
purchased (in cash, by certified, cashier's or other check
acceptable to the Company, by Common Stock of the Company having a
Market Value (as hereinafter defined) equal to the aggregate
Warrant Price for the Warrant Shares to be purchased, or any
combination of the foregoing), the registered holder of this
Warrant shall be entitled to receive a certificate or certificates
for the Warrant Shares so purchased. Such certificate or
certificates shall be promptly delivered
<PAGE>
to the Warrantholder. Upon any partial exercise of this Warrant,
the Company shall execute and deliver a new Warrant of like tenor
for the balance of the Warrant Shares purchasable hereunder.
(b) In lieu of exercising this Warrant pursuant to Section 1(a), the
holder may elect to receive shares of Common Stock equal to the
value of this Warrant determined in the manner described below (or
any portion thereof remaining unexercised) upon delivery of this
Warrant at the offices of the Company or at such other address as
the Company may designate by notice in writing to the registered
holder hereof with the Notice of Cashless Exercise Form annexed
hereto duly executed. In such event the Company shall issue to the
holder a number of shares of the Company's Common Stock computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the holder.
Y = the number of shares of Common Stock purchasable under this Warrant
(at the date of such calculation).
A = the Market Value of the Company's Common Stock on the business day
immediately preceding the day on which the Notice of Cashless Exercise
is received by the Company.
B = Warrant Price (as adjusted to the date of such calculation).
(c) The Warrant Shares deliverable hereunder shall, upon issuance, be
fully paid and non_assessable and the Company agrees that at all
times during the term of this Warrant it shall cause to be
reserved for issuance such number of shares of its Common Stock as
shall be required for issuance and delivery upon exercise of this
Warrant.
(d) For purposes of this Warrant, the Market Value of a share of
Common Stock on any date shall be equal to (i) the closing bid
price per share as published by a national securities exchange on
which shares of Common Stock (or other units of the security) are
traded (an "Exchange") on such date or, if there is no bid for
Common Stock on such date, the bid price on such exchange at the
close of trading on the next earlier date or, (ii) if shares of
Common Stock are not listed on a national securities exchange on
such date, the closing bid price per share as published on the
National Association of Securities Dealers Automatic Quotation
System ("NASDAQ") National Market System if the shares are quoted
on such system on such date, or (iii) the closing bid price in the
over-the-counter market at the close of trading on such date if
the shares are not traded on an exchange or listed on the NASDAQ
National Market System, or (iv) if the Common Stock is not traded
on a national securities exchange or in the over-the-counter
market, the fair market value of a share of Common Stock on such
date as determined in good faith by the Board of Directors. If the
holder disagrees with the determination of the Market Value of any
securities of the Company determined by the Board of Directors
under Section 1(d)(iv) the Market Value of such securities shall
be determined by an independent appraiser acceptable to the
Company and the holder (or, if they cannot agree on such an
appraiser,
<PAGE>
by an independent appraiser selected by each of them, and Market
Value shall be the median of the appraisals made by such
appraisers). If there is one appraiser, the cost of the appraisal
shall be shared equally between the Company and the holder. If
there are two appraisers, each of the Company and the holder shall
pay for its own appraisal.
2. Transfer or Assignment of Warrant.
---------------------------------
(a) Any assignment or transfer of this Warrant shall be made by
surrender of this Warrant at the offices of the Company or at
such other address as the Company may designate in writing to
the registered holder hereof with the Assignment Form annexed
hereto duly executed and accompanied by payment of any
requisite transfer taxes, and the Company shall, without
charge, execute and deliver a new Warrant of like tenor in the
name of the assignee for the portion so assigned in case of
only a partial assignment, with a new Warrant of like tenor to
the assignor for the balance of the Warrant Shares
purchasable.
(b) Prior to any assignment or transfer of this Warrant, the
holder thereof shall deliver an opinion of counsel to the
Company to the effect that the proposed transfer may be
effected without registration under the Act.
3. Adjustment of Warrant Price and Warrant Shares -- Anti-Dilution
---------------------------------------------------------------
Provisions.
-----------
A. (1) Except as hereinafter provided, in case the Company shall at any
time after the date hereof issue any shares of Common Stock (including shares
held in the Company's treasury) without consideration, then, and thereafter
successively upon each issuance, the Warrant Price in effect immediately prior
to each such issuance shall forthwith be reduced to a price determined by
multiplying the Warrant Price in effect immediately prior to such issuance by a
fraction:
(a) the numerator of which shall be the total number of
shares of Common Stock outstanding immediately prior
to such issuance, and
(b) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after
such issuance.
For the purposes of any computation to be made in accordance with the
provisions of this clause (1), the following provisions shall be applicable:
(i) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of
the Company shall be deemed to have been issued
and to be outstanding at the close of business on
the record date fixed for the determination of
stockholders entitled to receive such dividend or
other distribution and shall be deemed to have
been issued without consideration. Shares of
Common Stock issued otherwise than as a dividend,
shall be deemed to have been issued and to be
outstanding at the close of business on the date
of issue.
(ii) The number of shares of Common Stock at any time
outstanding shall not include any shares then
owned or held by or for the account of the
Company.
<PAGE>
(2) In case the Company shall at any time subdivide or
combine the outstanding shares of Common Stock, the Warrant
Price shall forthwith be proportionately decreased in the case
of the subdivision or proportionately increased in the case of
combination to the nearest one cent. Any such adjustment shall
become effective at the close of business on the date that
such subdivision or combination shall become effective.
B. In the event that the number of outstanding shares of Common Stock
is increased by a stock dividend payable in shares of Common Stock or by a
subdivision of the outstanding shares of Common Stock, which may include a stock
split, then from and after the time at which the adjusted Warrant Price becomes
effective pursuant to the foregoing Subsection A of this Section by reason of
such dividend or subdivision, the number of shares issuable upon the exercise of
this Warrant shall be increased in proportion to such increase in outstanding
shares. In the event that the number of outstanding shares of Common Stock is
decreased by a combination of the outstanding shares of Common Stock, then, from
and after the time at which the adjusted Warrant Price becomes effective
pursuant to such Subsection A of this Section by reason of such combination, the
number of shares issuable upon the exercise of this Warrant shall be decreased
in proportion to such decrease in outstanding shares.
C. In the event of an adjustment of the Warrant Price, the number of
shares of Common Stock (or reclassified stock) issuable upon exercise of this
Warrant after such adjustment shall be equal to the number determined by
dividing:
(1) an amount equal to the product of (i) the number of shares
of Common Stock issuable upon exercise of this Warrant
immediately prior to such adjustment, and (ii) the Warrant
Price immediately prior to such adjustment, by
(2) the Warrant Price immediately after such adjustment.
D. In the case of any reorganization or reclassification of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination) or in the case of any consolidation of the Company
with, or merger of the Company with, another corporation, or in the case of any
sale, lease or conveyance of all, or substantially all, of the property, assets,
business and goodwill of the Company as an entity, the holder of this Warrant
shall thereafter have the right upon exercise to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification, consolidation, merger or sale by a holder of
the number of shares of Common Stock which the holder of this Warrant would have
received had all Warrant Shares issuable upon exercise of this Warrant been
issued immediately prior to such reorganization, reclassification,
consolidation, merger or sale, at a price equal to the Warrant Price then in
effect pertaining to this Warrant (the kind, amount and price of such stock and
other securities to be subject to adjustment as herein provided).
<PAGE>
E. In case the Company shall, at any time prior to the expiration of
this Warrant and prior to the exercise thereof, dissolve, liquidate or wind up
its affairs, the Warrantholder shall be entitled, upon the exercise thereof, to
receive, in lieu of the Warrant Shares of the Company which it would have been
entitled to receive, the same kind and amount of assets as would have been
issued, distributed or paid to it upon such Warrant Shares of the Company, had
it been the holder of record of shares of Common Stock receivable upon the
exercise of this Warrant on the record date for the determination of those
entitled to receive any such liquidating distribution. After any such
dissolution, liquidation or winding up which shall result in any distribution in
excess of the Warrant Price provided for by this Warrant, the Warrantholder may
at its option exercise the same without making payment of the aggregate Warrant
Price and in such case the Company shall upon the distribution to said
Warrantholder consider that the aggregate Warrant Price has been paid in full to
it and in making settlement to said Warrantholder, shall deduct from the amount
payable to such Warrantholder an amount equal to the aggregate Warrant Price.
F. In case the Company shall, at any time prior to the expiration of
this Warrant and prior to the exercise thereof make a distribution of assets
(other than cash) or securities of the Company to its stockholders (the
"Distribution") the Warrantholder shall be entitled, upon the exercise thereof,
to receive, in addition to the Warrant Shares it is entitled to receive, the
same kind and amount of assets or securities as would have been distributed to
it in the Distribution had it been the holder of record of shares of Common
Stock receivable upon exercise of this Warrant on the record date for
determination of those entitled to receive the Distribution.
G. Irrespective of any adjustments in the number of Warrant Shares and
the Warrant Price or the number or kind of shares purchasable upon exercise of
this Warrant, this Warrant may continue to express the same price and number and
kind of shares as originally issued.
4. Officer's Certificate. Whenever the number of Warrant Shares and the
Warrant Price shall be adjusted pursuant to the provisions hereof, the
Company shall forthwith file, at its principal executive office a
statement, signed by the Chairman of the Board, President, or one of the
Vice Presidents of the Company and by its Chief Financial Officer or one of
its Treasurers or Assistant Treasurers, stating the adjusted number of
Warrant Shares and the new Warrant Price calculated to the nearest one
hundredth and setting forth in reasonable detail the method of calculation
and the facts requiring such adjustment and upon which such calculation is
based. Each adjustment shall remain in effect until a subsequent adjustment
hereunder is required. A copy of such statement shall be mailed to the
Warrantholder.
5. Charges, Taxes and Expenses. The issuance of certificates for Warrant
Shares upon any exercise of this Warrant shall be made without charge to
the Warrantholder for any tax or other expense in respect to the issuance
of such certificates, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued only in the name of the
Warrantholder.
<PAGE>
6. Miscellaneous.
--------------
(a) The terms of this Warrant shall be binding upon and shall inure to
the benefit of any successors or assigns of the Company and of the
holder or holders hereof and of the shares of Common Stock issued
or issuable upon the exercise hereof.
(b) No holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be deemed to be a stockholder of the Company
for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder of this Warrant, as such, any
rights of a stockholder of the Company or any right to vote, give
or withhold consent to any corporate action, receive notice of
meetings, receive dividends or subscription rights, or otherwise.
(c) Receipt of this Warrant by the holder hereof shall constitute
acceptance of an agreement to the foregoing terms and conditions.
(d) The Warrant and the performance of the parties hereunder shall be
construed and interpreted in accordance with the laws of the State
of New York and the parties hereunder consent and agree that the
State and Federal Courts which sit in the State of New York and
the County of New York shall have exclusive jurisdiction with
respect to all controversies and disputes arising hereunder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer and its corporate seal to be affixed hereto.
Dated: February 16, 2000
ADVANCED VIRAL RESEARCH CORP.
BY: /s/ Shalom Hirschman, M.D.
------------------------------
Shalom Hirschman, M.D.
President
EXHIBIT 10.35
CONSULTING AGREEMENT
--------------------
CONSULTING AGREEMENT dated as of the 7th day of February, 2000 by and
between Advanced Viral Research Corp., a Delaware corporation, with offices
located at 200 Corporate Boulevard South, Suite 4, Yonkers, New York 10701 (the
"Company") and Harbor View Group, Inc., a New York corporation, with offices
located at One Old Country Road, Carle Place, New York 11514 (the "Consultant").
PREAMBLE:
---------
A. Heretofore, Consultant has provided valuable services to the Company
in connection with the Company's search for a chief financial officer ("CFO")
and provided assistance to the Company in connection with its ultimate
engagement of Alan Gallantar as CFO.
B. Consultant has considerable experience in corporate structuring,
financial transactions, financial public relations, corporate governance and
shareholder relations, which such experience it is willing to make available to
the Company.
C. The Company desires to retain Consultant to provide the services
referred to in Paragraph B above, to provide additional advisory services as
requested, and to compensate Consultant for its prior contribution to the
Company as described in Paragraph A above.
NOW, THEREFORE, in consideration of the promises and commitments set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. Term of Agreement. This Agreement shall commence as of the date hereof and
shall continue until December 31, 2000, unless sooner terminated in accordance
with the provisions of this Agreement.
2. Responsibilities of Consultant. Subject to the terms and conditions
hereinafter set forth, the Company hereby retains Consultant and Consultant
hereby agrees, to use its expertise to render assistance to the Company in
connection with the matters referred to in Preamble paragraphs A and B hereof.
Consultant shall devote such time as it deems necessary and required to carry
out its duties in assisting the Company hereunder. Consultant shall not have
authority to execute any agreements or make any commitments on behalf of the
Company, but Consultant may advise others that it is engaged as a consultant for
the Company. Consultant shall not be an employee or agent of the Company; all
services will be rendered as an independent contractor. Consultant shall act in
good faith to carry forward the reputation of the Company and shall take no
action which would jeopardize the Company from doing business anywhere in the
world.
<PAGE>
3. Compensation. As full compensation for its services hereunder Consultant
shall receive the following compensation: (a) a warrant to purchase 1,750,000
shares of the Company's Common Stock, par value $.00001 per share, at an
exercise price of $.21 per share, and (b) a warrant to purchase 1,750,000 shares
of the Company's Common Stock, par value $.00001 per share, at an exercise price
of $.26 per share. The warrants shall be exercisable in whole or in part at any
time and from time to time prior to 5:00 p.m. Eastern Standard Time on February
28, 2005, and shall otherwise contain substantially the same terms and
conditions as are set forth in the exhibit attached hereto as Exhibit A. Except
as otherwise agreed to in writing, the Company shall not be responsible to
reimburse Consultant for any out-of-pocket expenses incurred by Consultant in
connection with the performance of its duties hereunder.
It is specifically understood that Consultant shall have the right to
engage experienced people or entities in the financial community to assist it in
the performance of its duties hereunder provided that such persons or entities
enjoy favorable reputations in the financial and business community and are
otherwise acceptable to the Company. Any compensation earned by such persons or
entities shall be the responsibility of Consultant, who shall have the right to
assign part of its warrant interest herein thereto, subject to all of the terms
and conditions of this Agreement.
The warrants granted hereunder shall otherwise be non-transferable
provided, however, that Consultant shall have the right to transfer all or any
part of the warrants to any principal of Consultant, to the spouse or child of
any principal of Consultant or to any trust for the benefit of any of the
aforesaid persons if the provisions of such trust are permissive thereof. Any
such transfer shall be subject to the provisions of this Agreement and have the
terms of the warrants.
Consultant represents that it is an Accredited Investor as that term is
defined in Rule 501 of Regulation D under the Securities Act of 1933.
4. Transaction.
-----------
4.1 The Company shall have the absolute right, in the exercise of its
sole discretion, to accept or reject any proposal for investment brought to it
by Consultant. If, and at such time as, the Company shall enter into and
consummate a transaction with one or more private investors (other than those
security holders of the Company as of the date hereof), the Company will pay
Consultant a fee which shall be negotiated in good faith based upon the size and
terms of the investment secured by Consultant.
4.2 If, during the term of this Agreement, Consultant introduces a
prospective investor to the Company and the Company consummates a transaction
with such investor during the term of this Agreement or within one year
thereafter, Consultant shall be entitled to compensation as referred to in this
Paragraph 4.
<PAGE>
5. Property Rights of Parties.
--------------------------
5.1. Consultant shall not disclose any trade secrets of the Company,
directly or indirectly, nor use them in any way either during the term of this
Agreement or at any time thereafter except as required in the course of its
consulting. All files, records, documents, drawings, specifications, equipment
and similar items relating to the business of the Company, whether or not
prepared by Consultant, shall remain the exclusive property of the Company and
shall not be removed from the premises of the Company under any circumstances,
except in pursuit of the trade and business of the Company and as approved in
writing in advance by a senior officer of the Company.
5.2. On the termination of this Agreement or whenever requested by the
Company, Consultant shall immediately deliver to the Company all property in
Consultant's possession or under Consultant's control belonging to the Company,
including, but not limited to, all accounting records, computer terminals and
tapes, disks, or other data storage mechanisms, accounting machines, and all
office furniture and fixtures, supplies and other personal property in the
possession or under the control of Consultant, in good condition, ordinary wear
and tear excepted, and including, without limitation, all correspondence files,
research data, and patent information or data, of every sort.
5.3. Consultant does not claim any rights or interests in and to trade
secrets, formulas, devices, inventions, processes, patents, applications,
continuations, copyrights, trademarks, compilations of information, records,
specifications, rights, interests and data of any other sort, affecting or
pertaining directly or indirectly to the business of the Company as now
conducted, or to the patents, trade secrets, and other rights now owned by the
Company.
5.4. Consultant hereby irrevocably releases and forever discharges the
Company, its successors, assigns, representatives, directors, officers,
employees and agents from any and all causes of action, suits, claims, debts,
accounts, reckonings, claims for attorneys fees, interests, contracts, promises,
damages and demands of any nature arising out of any services performed by
Consultant to the Company prior to the date hereof, including, without
limitation, any fees for finding any person, firm or entity employed by the
Company or which has invested in or provided financing for the Company.
6. Entire Agreement. This Agreement constitutes the entire Agreement of the
parties hereto with respect to the subject matter hereof and no amendment or
modification hereof shall be valid or binding unless made in writing and signed
by the party against whom enforcement thereof is sought.
7. Notices. Any notice required, permitted or desired to be given pursuant to
any of the provisions of this Agreement shall be deemed to have been
sufficiently given or served for all purposes if delivered in person or sent by
telephone facsimile or sent by certified mail, return receipt requested, or sent
by responsible overnight delivery service, postage and fees prepaid, to the
parties hereto at their respective addresses set forth in the preamble to this
Agreement. Either
<PAGE>
of the parties hereto may at any time and from time to time change the address
to which notice shall be sent hereunder by notice to the other party given under
this Section 7. The date of the giving of any notice sent by mail shall be three
business days following the date of the posting of the mail, the date delivered
in person, the next business day following delivery to an overnight delivery
service or the date sent by telephone facsimile, as applicable. All notices to
the Company, to be valid, shall simultaneously be delivered to Robert E.
Fischer, Wolf, Block, Schorr and Solis-Cohen, LLP, 250 Park Avenue, New York,
New York 10177.
8. No Assignment. This Agreement may not be assigned by Consultant. This
Agreement shall be binding upon Consultant and the Company and their respective
successors and assigns.
9. No Waiver. No course of dealing nor any delay on the part of the Company in
exercising any rights hereunder shall operate as a waiver of any such rights. No
waiver of any default or breach of this Agreement shall be deemed a continuing
waiver or a waiver of any other breach or default.
10. Governing Law. This Agreement shall be governed, interpreted and construed
in accordance with the substantive laws of the State of New York applicable to
Agreements entered into and to be performed entirely therein. Any suit, action
or proceeding with respect to this Agreement shall be brought exclusively in the
courts of the State of New York, County of New York or in the United States
District Court for the Southern District of New York.
11. Severability. If any clause, paragraph, section or part of this Agreement
shall be held or declared to be void, invalid or illegal, for any reason, by any
court of competent jurisdiction, such provision shall be ineffective but shall
not in any way invalidate or affect any other clause, paragraph, section or part
of this Agreement. The parties intend that all clauses, paragraphs, sections or
parts of this Agreement shall be enforceable to the fullest extent permitted by
law.
12. Counterparts. This Agreement may be executed in one or more counterparts,
each of which counterparts, when taken together, shall constitute but one and
the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ADVANCED VIRAL RESEARCH CORP.
By: /s/ Shalom Z. Hirschman, M
--------------------------
Name: Shalom Hirschman, M.D.
Title: President
HARBOR VIEW GROUP, INC.
By: /s/ Lawrence J. Pomeranz
--------------------------
Name: Lawrence J. Pomeranz
Title: Chairman
Agreed to as to Paragraph 5
/s/ Lawrence J. Pomeranz
- -------------------------
Lawrence J. Pomerantz
EXHIBIT 10.36
February 16, 2000
AGREEMENT dated this 16th day of February, 2000 by and between
ADVANCED VIRAL RESEARCH CORP., a Delaware corporation (the "Company"), with
offices at 200 Corporate Boulevard South, Yonkers, New York 10701 and each of
those persons, severally and not jointly, listed as a purchaser on the Schedule
of purchasers attached as Exhibit B hereto. Such persons are hereafter
collectively referred to as the "Purchasers" and each individually as a
"Purchaser".
ARTICLE 1.
AUTHORIZATION OF THE SECURITIES
-------------------------------
The Company represents that it has taken all corporate action necessary
to authorize the issuance and sale of 13,636,357 shares of Common Stock of the
Company, par value $.00001 per share ("Common Stock") and warrants to purchase
an aggregate of 5,454,544 shares of Common Stock of the Company (the
"Warrants"). The Common Stock and the Warrants (collectively, the "Securities")
are to be sold to each Purchaser pursuant to this Agreement. For purposes of
this Agreement the term "Shares" shall mean the shares of Common Stock purchased
hereunder and the shares of Common Stock which may be issued from time to time
pursuant to the exercise of the Warrants.
ARTICLE 2.
SALE AND PURCHASE OF THE SECURITIES; CLOSING
--------------------------------------------
2.1.Sale and Purchase of the Securities . Subject to the terms and
conditions hereof and in reliance on the representations and warranties
contained herein, or made pursuant hereto, the Company will issue and sell to
each Purchaser as more particularly referred to below, and each Purchaser will
purchase from the Company, on the Closing Date specified in Section 2.2, the
Securities for the purchase price set forth next to the name of such Purchaser
on Exhibit B, at an aggregate purchase price for all Purchasers of $3,000,000
(the "Aggregate Purchase Price").
2.2. Closing.
(a) The closing of the purchase and sale of the Securities
(the "Closing") shall be deemed to occur when this Agreement has been executed
by both the Company and Purchaser and the Company has received payment for the
Securities. The date on which this occurs is herein called the "Closing Date."
(b) On the Closing Date there will be delivered to each
Purchaser (i) the shares of Common stock indicated on Exhibit B registered in
its name and (ii) warrant certificates in the forms of Exhibits A-1 and A-2
registered in such name representing the right to purchase the number of shares
of Common Stock set forth therein. The foregoing Securities shall be delivered
by the Company, against delivery by the Purchasers to the Company of an
unendorsed certified or
<PAGE>
official bank check drawn upon or issued by a bank which is a member of the New
York Clearinghouse for banks (or wire transfer) for the aggregate purchase price
to be paid by such Purchaser) payable to the order of the Company.
ARTICLE 3.
PURCHASERS REPRESENTATIONS AND WARRANTIES
-----------------------------------------
Each Purchaser represents and warrants to and covenants with the
Company that:
3.1. Qualified Buyer. Purchaser is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the Securities Act of
1933, as amended (the "Securities Act"). Either alone or together with the
advice of a representative, Purchaser is sophisticated and experienced in
making, and is qualified to make, decisions with respect to investments in
securities presenting an investment decision like that involved in the purchase
of the Securities, including investments in securities issued by the Company.
Purchaser has requested, received, reviewed and considered, either alone or with
a representative, all information Purchaser deems relevant in making an informed
decision to purchase the Securities.
3.2. Compliance With Laws. Purchaser will not, directly or indirectly,
offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to
buy, purchase or otherwise acquire or take a pledge of) any of the Securities
purchased hereunder except in compliance with the Securities Act, applicable
blue sky laws, and the rules and regulations promulgated thereunder.
3.3.Qualified Investor Questionnaire. Purchaser has completed or caused
to be completed the Confidential U.S. Purchaser Questionnaire For Individuals,
attached hereto as Appendix I. The answers thereto are true and correct as of
the date hereof and will be true and correct as of the Closing (provided that
Purchaser shall be entitled to update such information by providing notice
thereof to the Company prior to the Closing).
3.4. Capacity to Enter Into Agreement. Purchaser has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby. Upon the execution and delivery of this
Agreement by Purchaser, this Agreement shall constitute a valid and binding
obligation, enforceable in accordance with its terms, except (a) as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally, and (b) as limited by equitable principles generally.
3.5. Ownership in the Company. Upon completion of the transaction or
upon exercise of any Warrant, Purchaser will not directly or beneficially own
more than 4.9% of the Common Stock of the Company.
3.6.Independent Investigation . In electing to purchase the Securities
hereunder, Purchaser has relied solely upon the representations and warranties
of the Company set forth in this Agreement and on independent investigation made
by Purchaser and his representatives, if any, and Purchaser has not been given
any oral or written representations or assurance from the Company or any
representative of the Company other than as set forth in this Agreement or in a
document
<PAGE>
executed by a duly authorized representative of the Company making reference to
this Agreement.
3.7. No Government Recommendation or Approval. Purchaser understands
that no United States federal or state agency, or similar agency of any other
country, has passed upon or made any recommendation or endorsement of the
Company, this transaction or the purchase of the Securities.
3.8. Further Limitations on Disposition. Without in any way limiting
the representations set forth above, Purchaser agrees not to make any
disposition of all or any portion of the Securities (or the Shares issuable upon
the exercise of the Warrants) unless and until (a) there is then in effect a
registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with such registration
statement, or (b) the disposition is made pursuant to an available exemption
from the registration requirements of the Securities Act and in the case of
clause (b) Purchaser shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will not
violate any of the securities laws of the United States.
3.9. Legal Representation. Purchaser has had the opportunity to be
represented in this transaction by counsel of his own choice and has been so
advised by counsel for the Company.
3.10 Separate Purchasers. Each Purchaser is a separate investor; no
Purchaser is acting in concert with any other Purchaser or any other person in
connection with the purchase of Securities pursuant to this Agreement.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
Other than as provided in the Schedule of Exceptions attached hereto as
Exhibit C, the Company represents and warrants as follows:
4.1.Organization and Existence, etc. The Company is a corporation duly
organized and validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all requisite corporate power and
authority to carry on its business as now conducted and proposed to be
conducted; the Company has all requisite corporate power and authority to enter
into this Agreement, to issue the Securities as contemplated herein and to carry
out and perform its obligations under the terms and conditions of this
Agreement. The Company does not own or lease any property or engage in any
activity in any jurisdiction which might require qualification to do business as
a foreign corporation in such jurisdiction and where the failure to so qualify
would have a material adverse effect on the financial condition of the Company
or subject the Company to a material liability. To the extent the Company has
not qualified to do business in such jurisdictions, it has, as of the date
hereof, prepared the necessary applications or documents to be filed with the
appropriate authorities in such jurisdictions to obtain such qualifications. The
Company has furnished each Purchaser with true, correct and complete copies of
its Certificate of Incorporation, By-laws and all amendments thereto to date.
<PAGE>
4.2. Authorization. All corporate action on the part of the Company
and the directors and stockholders of the Company necessary for the
authorization, execution, delivery and performance by the Company of this
Agreement and the transactions contemplated herein, and for the authorization,
issuance and delivery of the Securities, has been taken or will have been taken
prior to the Closing.
4.3. Binding Obligations; No Material Adverse Contracts, etc. This
Agreement is a valid and binding obligation of the Company enforceable in
accordance with its terms. The execution, delivery and performance by the
Company of this Agreement and compliance herewith will not result in any
violation of and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under, any provision of state or Federal law
to which the Company is subject, the Certificate of Incorporation, as amended,
or the By-laws, as amended, of the Company, or any mortgage, indenture,
agreement, instrument, judgment, decree, order, rule or regulation or other
restriction to which the Company is a party or by which it is bound, or, result
in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of
the properties or assets of the Company pursuant to any such term. Except as set
forth herein, or as waived by such stockholder, no stockholder of the Company
has or will have any preemptive rights or rights of first refusal by reason of
the issuance of the Securities.
4.4. Offering. Subject in part to the truth and accuracy of the
representations made by each Purchaser herein and such Purchaser's compliance
with his covenants set forth in this Agreement, the offer, sale and issuance of
the Securities as contemplated by this Agreement are not subject to the
registration requirements of the Securities Act, and the Company, or anyone
acting on its behalf, will not take any action hereafter that would cause such
registration requirements to be applicable.
4.5 SEC Reports. (a) The Company has filed with the Securities and
Exchange Commission (the "Commission") all reports ("SEC Reports") required to
be filed by it under the Securities Act of 1934, as amended (the "Exchange
Act"). All of the SEC Reports filed by the Company comply in all material
respects with the requirements of the Exchange Act. None of the SEC Reports
contains as of the respective dates thereof, any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made. All financial statements contained in
the SEC Reports have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the period indicated
("GAAP"). Each balance sheet presents fairly in accordance with GAAP the
financial position of the Company as of the date of such balance sheet, and each
statement of operations, of stockholders' equity and of cash flows presents
fairly in accordance with GAAP the results of operations, the stockholders'
equity and the cash flows of the Company for the periods then ended.
(b) No event has occurred since December 31, 1998 requiring the filing
of an SEC Report that has not heretofore been filed.
(c) The SEC Reports and this Agreement taken together as a whole will
not, as of the Closing Date, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein, or necessary to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading.
<PAGE>
4.6 Disclosure. The information heretofore provided and to be provided
pursuant to this Agreement, and each of the agreements, documents, certificates
and writings previously delivered to Purchaser or his representatives, do not
and will not contain any untrue statement of material fact and do not and will
not omit to state a material fact required to be stated herein or therein or
necessary in order to make the statements and writings contained herein and
therein not false or misleading in light of the circumstances under which they
were made .To the knowledge of the Company, there is no fact which materially
adversely affects the business, prospects or condition (financial or otherwise)
of the Company which has not been set forth herein.
ARTICLE V
CONDITIONS TO PURCHASERS CLOSING
--------------------------------
Each Purchaser's obligation to purchase the Securities at the Closing
is subject to the fulfillment to such Purchaser's satisfaction on or prior to
the Closing Date of each of the following conditions, any of which may be waived
by such Purchaser:
5.1. Representations and Warranties Correct. The representations and
warranties in Article IV hereof shall be true and correct in all material
respects when made, and shall be true and correct in all material respects on
the Closing Date with the same force and effect as if they had been made on and
as of the Closing Date.
5.2. Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with by the Company in
all material respects.
5.3. No Impediments. Neither Purchaser nor the Company shall be subject
to any order, decree or injunction of a court or administrative agency of
competent jurisdiction which would impose any material limitation on Purchaser's
ability to exercise full rights of ownership of the Securities.
5.4. Other Agreements. The Company shall have issued to Purchaser all
of the Securities.
5.5. Legal Investment. At the time of the Closing, the purchase of the
Securities to be purchased hereunder shall be legally permitted by all laws and
regulations to which Purchaser and the Company are subject.
5.6. Proceedings and Other Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
shall have been taken and Purchaser shall have received such other documents, in
form and substance reasonably satisfactory to Purchaser, as to such other
matters incident to the transaction contemplated hereby as Purchaser may
reasonably request.
<PAGE>
ARTICLE VI
CONDITIONS TO CLOSING OF THE COMPANY
------------------------------------
The Company's obligation to sell the Securities at the Closing is
subject to the fulfillment to its satisfaction on or prior to the Closing Date
of each of the following conditions:
6.1. Representations. The representations made by each Purchaser in
Article III hereof shall be true and correct when made and shall be true and
correct on the Closing Date.
6.2. Legal Investment. At the time of the Closing, the offer, sale and
purchase of the Securities shall be legally permitted by all laws and
regulations to which the Purchasers and the Company are subject.
6.3. Payment of Purchase Price. The Company shall have received payment
in full of the Aggregate Purchase Price.
ARTICLE VII
AFFIRMATIVE COVENANTS AND INDEMNITY
-----------------------------------
The Purchasers and the Company hereby covenant and agree as follows:
7.1. Further Assurances. From time to time the Company shall execute
and deliver to each Purchaser and each Purchaser shall execute and deliver to
the Company such other instruments, certificates, agreements and documents and
take such other action and do all other things as may be reasonably requested by
the other party in order to implement or effectuate the terms and provisions of
this Agreement and any of the Securities.
7.2. Registration Rights.
-------------------
(a) The Company shall use its best efforts to file on or
before May 31, 2000, a registration statement (the "Registration Statement")
with the Commission, on such form as the Company deems to be appropriate, to
register the Shares under the Securities Act. The Company shall thereafter use
its best efforts to cause the Registration Statement to be declared effective by
the Commission.
(b) Each Purchaser shall furnish to the Company such
information as the Company shall reasonably request in writing and as shall be
required in connection with the registration.
7.3. Indemnification.
---------------
(a) The Company agrees to indemnify and hold each Purchaser
harmless from and against any losses, claims, damages or liabilities to which
such Purchaser may become subject (under the Securities Act or otherwise)
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, any Untrue
Statement (as defined below) on or after the effective date of the Registration
Statement, or arise out of any failure by the Company to fulfill any undertaking
included in the Registration Statement and the Company will
<PAGE>
reimburse such Purchaser any reasonable legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such action,
proceeding or claim; provided, however, that the Company shall not be liable in
any such case to the extent that such loss, claim, damage or liability arises
out of, or is based upon, an Untrue Statement made in such Registration
Statement in reliance upon and in conformity with written information furnished
to the Company by such Purchaser or on such Purchaser's behalf, specifically for
use in preparation of the Registration Statement, or any statement or omission
in any prospectus that is corrected in any subsequent prospectus that was
delivered prior to the pertinent sale or sales by such Purchaser of his Shares.
(b) Each Purchaser agrees to indemnify and hold harmless the
Company and each person, if any, who controls the Company within the meeting of
Section 15 of the Securities Act, each officer of the Company who signs the
Registration Statement and each director of the Company from and against any
losses, claims, damages or liabilities to which the Company or any such officer,
director or controlling person may become subject (under the Securities Act or
otherwise), insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of, or are based upon, any failure
to comply with such Purchaser's representation and warranties hereunder, or any
Untrue Statement contained in the Registration Statement on or after the
effective date thereof if such Untrue Statement was made in reliance upon and in
conformity with written information furnished by such Purchaser or on such
Purchaser's behalf specifically for use in preparation of the Registration
Statement, as the case may be, for any legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such action,
proceeding or claim; provided, however, that in no event shall such Purchaser's
indemnity exceed the gross proceeds received by Purchaser from the sale of
Shares covered by such Registration Statement.
(c) Promptly after receipt by any indemnified person of a
notice of a claim or the beginning of any action in respect of which indemnity
is to be sought against an indemnifying person pursuant to this section, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and such indemnifying person shall have been notified
thereof, such indemnifying person shall be entitled to participate therein, and,
to the extent it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified person. After notice from the
indemnifying person to such indemnified person of its election to assume the
defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof; provided, however,
that if there exists or shall exist a conflict of interest that would make it
inappropriate, in the opinion of counsel to the indemnified person, for the same
counsel to represent both the indemnified person and such indemnifying person or
any affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person; provided
further, however, that no indemnifying person shall be responsible for the fees
and expenses of more than one separate counsel for all indemnified parties.
(d) "Untrue Statement" means any untrue statement or alleged
untrue statement, or any omission or alleged omission to state in the
Registration Statement a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
<PAGE>
ARTICLE VIII
COMPLIANCE WITH THE SECURITIES ACT
----------------------------------
8.1. Legends. The certificate(s) representing the Securities delivered
to the Purchasers at Closing shall be stamped or otherwise imprinted with a
legend substantially similar the following ( in addition to any other legend
required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER
THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON OTHER WRITTEN EVIDENCE IN THE
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE, OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
ARTICLE IX
MISCELLANEOUS
-------------
9.1. Governing Law. This Agreement and the rights of the parties
hereunder shall be governed in all respects by the laws of the State of New
York.
9.2. Survival. The representations, warranties, covenants and
agreements made herein shall survive the Closing, for a period of one year from
the date of Closing.
9.3. Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding upon
and enforceable by and against, the successors, assigns, heirs, executors and
administrators of the parties hereto; provided, however, that the Company may
not assign its rights hereunder.
9.4. Entire Agreement. This Agreement (including the Exhibits hereto)
and the other documents delivered pursuant hereto and simultaneously herewith
constitute the full and entire understanding and agreement between the parties
with regard to the subject matter hereof and thereof.
9.5. Amendment. This Agreement may not be amended, discharged or
terminated without the written consent of each Purchaser and that of the
Company.
9.6. Notices, etc. All notices, demands or other communications given
hereunder shall be in writing and shall be sufficiently given if delivered
either personally or by a nationally recognized courier service marked for next
business day delivery or sent in a sealed envelope by first class mail, postage
prepaid and either registered or certified, addressed as follows:
<PAGE>
(a) if to the Company: Advanced Viral Research Corp.
200 Corporate Boulevard South
Yonkers, New York 10701
Attention: Shalom Z. Hirschman, M.D.
President and Chief Executive Officer
(b) if to Purchaser, to the address set forth on Exhibit B to this
Agreement or to such other address with respect to any party hereto as such
party may from time to time notify (as provided above) the other parties hereto.
Any such notice, demand or communication shall be deemed to have been given (i)
on the date of delivery, if delivered personally, (ii) one business day after
delivery to a nationally recognized overnight courier service, if marked for
next day delivery or (iii) five business days after the date of mailing, if
mailed.
Copies of any notice, demand or communication given to the Company
shall be delivered to Wolf, Block, Schorr and Solis-Cohen LLP, 250 Park Avenue,
New York, New York, 10177, Attn.: Robert E. Fischer, Esq., or such other address
as may be directed.
9.7. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Securities upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence, therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in such writing. Except as otherwise
provided herein, all remedies, either under this Agreement or by law or
otherwise afforded to any holder, shall be cumulative and not alternative.
9.8. Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
9.9. Placement Fee. Each Purchaser hereby represents and warrants to
the Company that he has not retained a finder or broker in connection with the
transactions contemplated by this Agreement. The Company hereby represents and
warrants to each Purchaser that it has not retained a finder or broker in
connection with the transactions contemplated by this Agreement. The Company
agrees to indemnify and to hold each Purchaser harmless of and from any
liability for commission or compensation in the nature of an agent's or broker's
fee to any broker, person or firm claiming to have been retained by Company to
act as a finder or broker in connection with this transaction and the costs and
expenses of defending against such liability or asserted liability. Each
Purchaser agrees to indemnify and to hold the Company harmless of and from any
liability for commission or compensation in the nature of an agent's or broker's
fee to any broker, person or firm claiming to have been retained by or on behalf
of such Purchaser to act as a finder or broker in
<PAGE>
connection with this transaction and the costs and expenses of defending against
such liability or asserted liability.
9.10. Expenses. Each of the parties shall bear its own expenses and
legal fees incurred on its behalf with respect to the negotiation, execution and
consummation of the transactions contemplated by this Agreement.
9.11. Litigation. The parties each hereby waive trial by jury in any
action or proceeding of any kind or nature in any court in which an action may
be commenced arising out of this Agreement or by reason of any other cause or
dispute whatsoever between them. The parties hereto agree that the State and
Federal Courts which sit in the State of New York and the County of New York
shall have exclusive jurisdiction to hear and determine any claims or disputes
between the Company and such holders, pertaining directly or indirectly to this
Agreement or to any matter arising therefrom. The parties each expressly submit
and consent in advance to such jurisdiction in any action or proceeding
commenced in such courts provided that such consent shall not be deemed to be a
waiver of personal service of the summons and complaint, or other process or
papers issued therein. The choice of forum set forth in this Section 9.11 shall
not be deemed to preclude the enforcement of any judgment obtained in such forum
or the taking of any action under this Agreement to enforce same in any
appropriate jurisdiction. The parties each waive any objection based upon forum
non conveniens and any objection to venue of any action instituted hereunder.
9.12. Titles and Subtitles. The titles of the articles, sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
9.13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
If a Purchaser is in agreement with the foregoing, such Purchaser
should sign where indicated below and thereupon this letter shall become a
binding agreement between such Purchaser and the Company.
ADVANCED VIRAL RESEARCH CORP.
By: /s/ Shalom Z. Hirschman, M.D.
---------------------------------
Name: Shalom Z. Hirschman, M.D.
Title: President and Chief Executive Officer
AGREED:
/s/ Joseph Fechbach /s/ Kevin Sossin
- ------------------- ----------------
Joseph Fechbach Kevin Sossin
HARBOR VIEW GROUP, INC. /s/ Frederick P. Lutz
----------------------
Frederick P. Lutz
By: /s/ Lawrence Pomerantz /s/ Michael Duong
------------------------- ----------------------
Lawrence Pomerantz Michael Duong
<PAGE>
/s/ Myron Weiner /s/ Joseph Deglomina
- ---------------- --------------------
Myron Weiner Joseph Deglomina
/s/ Victor Sherman WEDAR BIOTECH CORP.
- ------------------
Victor Sherman
By: /s/ authorized representative
-----------------------------
/s/ Michael A. Berman /s/ Gerry Goodrich
- --------------------------- ------------------
Michael A. Berman Gerry Goodrich
/s/ John Zimmerman /s/ Merry Contillo
- -------------------------- ----------------------------
John Zimmerman Merry Contillo
/s/ Russel Kuhn /s/ Bice Grobstein
- -------------------------- ----------------------------
Russell Kuhn Bice Grobstein
/s/ Steve Levitt /s/ Byron Lassin
- -------------------------- ----------------------------
Steve Levitt Byron Lassin
CARDINAL COLOR INC.
By: /s/ authorized representative
--------------------------------
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
1. Advance Viral Research Ltd., a Bahamian corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS OF ADVANCED VIRAL
RESEARCH CORP. FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 836,876
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 19,729
<CURRENT-ASSETS> 916,339
<PP&E> 1,375,923<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,861,574
<CURRENT-LIABILITIES> 798,282
<BONDS> 0
0
0
<COMMON> 3,034
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,861,574
<SALES> 0
<TOTAL-REVENUES> 53,697
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,220,927
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,007,032
<INCOME-PRETAX> (6,174,262)
<INCOME-TAX> (6,174,262)
<INCOME-CONTINUING> (6,174,262)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,174,262)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
<FN>
PP&E VALUES REPRESENT NET AMOUNTS
</FN>
</TABLE>
