--------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________to____________
Commission File No. 0-19153
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VIMRx PHARMACEUTICALS INC.
(Exact name of Registrant as specified in its Charter)
---------------------
Delaware
06-1192468
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
2751 Centerville Road, Wilmington, Delaware
19808
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code:(302) 998-1734
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The aggregate number of Registrant's shares outstanding on November 14,
1996 was 51,430,437 shares of Common Stock, $.001 par value.
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Page 1
<PAGE>
VIMRx PHARMACEUTICALS INC.
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1996 (unaudited) and
December 31, 1995 ..........................................3
Consolidated Statements of Operations (unaudited) for the Three
Months Ended September 30, 1996 and 1995, for the Nine
Months Ended September 30, 1996 and 1995, and for the
Period from Inception through September 30, 1996............4
Consolidated Statements of Cash Flows (unaudited) for
the Nine Months
Ended September 30, 1996 and 1995 and for the Period
from Inception through September 30, 1996...................5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................11
Item 2. Changes in Securities.........................................11
Item 3. Defaults upon Senior Securities...............................11
Item 4. Submission of Matters to a Vote of Security Holders...........11
Item 5. Other Information.............................................11
Item 6. Exhibits and Reports on Form 8-K..............................12
SIGNATURES. . . . . ......................................................13
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VIMRx PHARMACEUTICALS INC. AND SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
---------------- -----------
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 1,564,060 $ 2,218,970
Securities held for sales 48,487,845 -0-
Deferred finance cost -0- 310,000
Other current assets 31,030 96,115
------------- -----------
Total current assets $50,082,935 2,625,085
Equipment 661,964 107,942
Notes receivable -0- 225,000
Total assets $ 50,744,899 $ 2,958,027
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 206,377 $ 431,491
Notes payable -0- 1,802,048
------------ ---------
Total current liabilities 206,377 2,233,539
Other liabilities 17,920 464,000
--------- ----------
Total liabilities 224,297 2,697,539
-------- ---------
Shareholders' equity
Common stock, $.001 par value,
51,430,437 and 19,894,576 shares outstanding
on September 30, 1996 and December 31, 1995,
respectively 51,431 19,895
Additional paid-in capital 80,404,207 23,244,460
Deficit accumulated during the
development stage (29,292,523) (22,510,867)
Unearned compensation (744,449) (493,000)
Unearned gain from investment 101,936 -0-
Total shareholders' equity 50,520,602 260,488
--------------- ------------
Total liabilities and
shareholders' equity $ 50,744,899 $ 2,958,027
=============== ===========
3
<PAGE>
VIMRx PHARMACEUTICALS INC. AND SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C>
(unaudited)
Three Months Nine Months December 30, 1986
Ended September 30, Ended September 30, (Inception)
1996 1995 1996 1995 to September 30, 1996
---- ----- ----- ---- ---------------------
Operating expenses:
Research and development.................. $ 717,408 $ 786,486 $ 1,693,569 $ 1,934,057 $ 14,682,886
Purchased research and development See Note 6 162,989 - 3,104,955 - 3,104,955
Royalty expense - See Note 4............... - - 100,000 100,000 300,000
Termination of agreement - See Note 5 - - (464,000) - (464,000)
General and administrative................ 782,144 562,878 2,906,058 1,797,543 12,461,994
------- -------- ----------- ---------- -----------
Total operating expenses........... 1,662,541 1,349,364 7,340,582 3,831,600 30,085,835
---------- ---------- ---------- ---------- ----------
Other (income) expenses:
Interest (income)...................... (736,010) (32,605) (831,184) (146,780) (1,990,405)
Interest expense....................... - - 318,619 - 401,884
Provision for losses (recovery) on notes
receivables....................... - - - - 135,010
Investment in and advances to research and
development entities charged to expense - - - - 700,000
Other - net .......................... (46,693) 593 (46,361) 765 (39,801)
-------- ----------- ----------- ---------- ---------
Total other (income) expenses (782,703) (32,012) (558,926) (146,015) (793,312)
--------- -------- --------- --------- ---------
NET LOSS.................................. $ 879,838 $ 1,317,352 $ 6,781,656 $3,685,585 $29,292,523
========= ============ =========== ========== ===========
NET LOSS PER SHARE........................ $0.02 $ 0.07 $ 0.13 $ 0.19
----- ------- ------ ------
Weighted average number of shares of
common stock outstanding.......... 51,430,437 19,744,185 51,430,437 19,743,118
=========== =========== ========== ==========
</TABLE>
4
<PAGE>
VIMRx PHARMACEUTICALS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<S> <C>
December 30, 1986
Nine Months Ended September 30, (Inception)
1996 1995 to September 30, 1996
----- ------ ---------------------
Cash flows from operating activities:
Net (loss)................................................ $ (6,781,656) $ (3,685,585) $ (29,292,523)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation and amortization.......................... 31,206 16,591 130,662
Amortization of debt cost. . . . . . . . . . .. . . . .. 310,000 310,000
Interest expense settled through issuance of stock..... 72,260
Accretion of compensatory option. . . . . . . . . . . . 148,551 246,551
Amortization of debt discount. . . . . . . . . . . . . 197,952 200,000
Termination of agreement. . . . . . . . . . . . . . . (464,000) -
Consulting fees settled through issuance of stock...... 75,000
Research & Development fees to be settled through the
issuance of stock . . . . . . . . . . . 212,500
Provision for (recovery of) losses on notes receivable. 135,010
Investment in and advances to research and development
entities charged to expense 700,000
Loss from disposal of equipment........................ 8,202
Warrants issued & other non-cash consideration for purchase
research & development. . . 1,562,200 1,562,200
Changes in operating assets and liabilities:
(Increase) decrease in prepayments under research contracts 47,334
(Increase) in organization costs..................... (3,463)
(Increase) decrease in other current assets.......... 65,085 125,691 (31,030)
Increase in accounts payable and accrued liabilities. 17,806 240,978 399,296
------------- ------------ -------
Net cash (used in) operating activities.............. (4,912,856) (3,042,491) (25,487,835)
- ----------- ----------- -----------
Cash flows from investing activities:
Net sales (purchases) of short-term investments........ (48,385,909) 2,590,268 (48,385,909)
Purchases of equipment................................. (585,228) (40,798) (823,915)
Proceeds from sale of equipment........................ 26,550
Loans to DNA Pharmaceuticals, Inc...................... (295,800)
Repayment of DNA Pharmaceuticals, Inc. loans........... 160,790
Loans to Ribonetics GmbH. . ........................... (600,000)
Investments in & loan to CambES Ltd. . . .......... (325,000)
---------------- ------------- --------
Net cash provided by (used in) investing activities.. 48,971,137) 2,549,470 (50,243,284)
------------ --------- ------------
Cash flows from financing activities:
Proceeds from sales of preferred and common stock,
exercise of wrrants and options 55,229,083 3,001 78,401,765
Costs incurred in connection with issuance of common stock (2,325,050)
Purchase of treasury stock............................. (8,341)
Proceeds from bridge loans............................. 3,141,045
Repayment of bridge loans.............................. (2,000,000) (2,500,000)
Issuance of convertible demand notes payable........... 600,000
Return of capital...................................... (14,240)
---------------- ------------ -------------
Net cash provided by financing activities............ 53,229,083 3,001 77,295,179
---------- ------------ ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (654, 910) (490,020) 1,564,060
Cash and cash equivalents at beginning of period.......... 2,218,970 2,054,506
----------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $1,564,060 $ 1,564,486 $ 1,540,060
========== ============= ===========
</TABLE>
5
<PAGE>
VIMRx PHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Financial Statement Presentation
The unaudited consolidated financial statements of VIMRx Pharmaceuticals Inc.
and subsidiaries (the "Company") herein have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC") and, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the results of operations for
the interim periods presented. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. However, management believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements and the notes thereto should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995. The results for the interim periods are not necessarily indicative of the
results for the full fiscal year.
(2) Principle of Consolidation
The consolidated financial statements include the accounts of VIMRx
Pharmaceuticals Inc., VIMRx Holdings, Ltd. (formerly VPI Holdings, Ltd.), and
its wholly-owned subsidiaries, VPI (U.K.) Limited, V.P.I. GmbH and Ribonetics
GmbH. In consolidation, all significant inter-company transactions and balances
have been eliminated.
(3) Cash Flows and Supplemental Cash Flow Disclosures
For purposes of the statements of cash flows, the Company considers investments
with original maturities of up to 90 days to be cash equivalents.
(4) Royalty Expense
Royalty expense represents the annual $100,000 minimum royalty payment under the
Company's license agreement with New York University Medical Center and the
Weizmann Institute of Science in Israel.
(5) Termination of Agreement
On January 26, 1996, the Company terminated a research and development agreement
with Ribonetics GmbH under which it was obligated to issue 500,000 shares of
common stock each year for three years if the research and development agreement
remained in force. The reversal of the accrual of that obligation resulted in a
credit to operating costs during the nine months ended September 30,1996.
6
<PAGE>
(6) Acquisition of Ribonetics
On May 23, 1996, the Company acquired all of the issued and outstanding
capital stock of Ribonetics GmbH ("Ribonetics") for $1,500,000 in cash
and warrants to purchase 365,000 shares of the Company's Common Stock
at an exercise price of $.01 per share. The seller also received a ten
percent equity interest in VIMRx Holdings, Ltd.
The acquisition was accounted for as a purchase. Substantially all of
the selling price ($3,062,200) was allocated to purchased research and
development costs and charged to operations.
(7) Investment in Epoch Pharmaceuticals, Inc.
Subsequent to September 30, 1996, the Company purchased for $800,000 an
aggregate of 457,143 shares of the common stock of Epoch
Pharmaceuticals Inc. ("Epoch"),warrants to purchase 450,000 shares of
Epoch's common stock at $2.00 per share and warrants to purchase an
additional 450,000 common shares at $3.00 per share, which warrants
expire on October 1, 1997 and October 1, 1998, respectively. In
connection therewith, Epoch released the Company and its affiliates
from any claims Epoch might have with respect to the Company's
subsidiary, Ribonetics GmbH.
(8) Reclassification
Certain balances at December 31, 1995 have been reclassified to conform
with current presentation.
7
<PAGE>
VIMRx PHARMACEUTICALS INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Quarterly Report on Form 10-Q and with the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995. The Company is in the
development stage and has had no operating revenues since its organization in
December 1986. This discussion and analysis contains forward-looking statements
within the meaning of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, which are not historical facts,
and involve risks and uncertainties that could cause actual results to differ
from those expected and projected.
Three Months Ended September 30, 1996 and 1995
Operating expenses for the three months ended September 30, 1996 increased
by 23%, or $313,000, from the same period in 1995, due to a 39%, or $219,000,
increase in general and administrative expenses, a $163,000 upward adjustment to
the purchased research and development charge which resulted from the
acquisition of Ribonetics GmbH on May 23, 1996, offset by a 9%, or $69,000,
decrease in research and development expenses.
The $219,000 increase in general and administrative expenses resulted
primarily from (1) a $73,000 increase in expenses related to shareholder
relations and stock transfers, (2) a $65,000 increase in consulting fees, (3) a
$57,000 increase in salaries and benefits, and (4) $33,000 in expenses related
to relocating the Company's executive offices to Wilmington, Delaware, offset by
a $9,000 reduction in other expenses.
The $69,000 decrease in research and development expenses resulted from
(1) a $452,000 increase in expenses related to the Company's European
operations, and (2) $90,000 of costs related to the Phase I/II clinical trials
of VIMRxyn, offset by a $551,000 reduction in costs related to the research and
development agreement with Ribonetics and a $60,000 decrease in miscellaneous
other expenses.
The foregoing, together with a $703,000 increase in interest income
resulting primarily from increased funds available for investment (see Liquidity
and Capital Resources) and a $47,000 increase in other income resulted in a 33%
, or $438,000, decrease in the net loss for the three-month period.
Nine Months Ended September 30, 1996 and 1995
Operating expenses for the nine months ended September 30, 1996 increased
by 92%, or $3,509,000, from the comparable period in 1995, due to a $3,105,000
purchased research and development charge and a $1,109,000 (62%) increase in
general and administrative expenses, offset by a $464,000 termination of
agreement credit and a $240,000 (13%) decrease in research and development
expenses.
8
<PAGE>
The $3,105,000 purchased research and development charge resulted from the
acquisition of Ribonetics GmbH on May 23, 1996. See Note 6 of Notes to
Consolidated Financial Statements.
The $1,109,000 increase in general and administrative expenses resulted
primarily from (1) $304,000 in fees and expenses related to the $2,000,000
bridge loan obtained by the Company in December 1995, which were expensed upon
repayment of the loan in June 1996, (2) a $197,000 increase in costs related to
directors, (3) a $153,000 increase in legal fees related to patents and general
corporate matters, (4) $153,000 in increased expenses relating to shareholder
relations (resulting principally from the hiring of a public relations firm) and
increased transfer agent expenses (resulting principally from the redemption of
the Company's Redeemable Class A Warrants and Redeemable Class B Warrants), (5)
a $125,000 increase in recruiting expenses as a result of recruiting the Chief
Executive Officer and two senior management personnel, (6) a $73,000 increase in
travel expenses, and (7) a $104,000 net increase in miscellaneous expenses
The $464,000 termination of agreement credit resulted from the termination
of the research and development agreement with Ribonetics GmbH in January 1996.
See Note 5 of Notes to Consolidated Financial Statements.
The $240,000 decrease in research and development expenses resulted from
(1) a $678,000 increase in expenses related to the Company's operations in the
United Kingdom and Germany, (2) a $49,000 increase in travel expenses related to
research and development activities, and (3) a $65,000 increase in miscellaneous
research and development expenses, offset by (4) a $858,000 decrease in costs
related to the research and development agreement with Ribonetics GmbH, (5) an
$80,000 decrease in drug production expenses, and (6) a $94,000 decrease in
consulting fees.
Interest income increased by $684,000 in the first nine months of 1996
from the comparable period in 1995 due to an increase in funds available for
investment of approxi mately $50,000,000 (see Liquidity and Capital Resources).
Interest expense of $319,000 for the nine-month period of 1996 related to the
December 1996 $2,000,000 bridge loan repaid in June 1996.
The foregoing resulted in an 84%, or $3,096,000, increase in the net loss
for the nine months ended September 30, 1996.
9
<PAGE>
Liquidity and Capital Resources
The Company is in the development stage, has realized no operating
revenues, and has financed its operations through the sale of its securities and
from the exercise of options and warrants.
Between April 9, 1996 (the announcement date of the call for redemption of
the Company's Redeemable Class A Warrants) and June 14, 1996 (the redemption
date of the Company's Redeemable Class B Warrants), the Company received
approximately $18.0 million and $30.7 million, respectively, from the exercise
of its Redeemable Class A Warrants and Redeemable Class B Warrants.
On June 21, 1996, the Company received $4,199,987 in proceeds from
consummation of a private placement financing.
On June 28, 1996, the Company repaid the principal and interest on the
$2,000,000 principal amount senior bridge notes issued by the Company in
December 1995.
As a result of the foregoing events, at September 30, 1996, the Company
had $50,052,000 in cash and securities held for sale, a $47,833,000 increase
from December 31, 1995.
The Company has entered into various agreements with institutions and
individuals for research, toxicity studies and clinical trials, and is required
to make minimum payments under such agreements of approximately $100,000 during
the remainder of 1996. The Company anticipates entering into additional
agreements.
The Company intends to continue to operate research facilities in the
United Kingdom and Germany to develop the catalytic oligonucleotide (RILON)
technology. In addition, the Company intends to enter into agreements to perform
clinical trials for hypericin. The Company may also acquire and fund new
technology.
In October 1996, the Company purchased for $800,000 common stock and
warrants of Epoch Pharmaceuticals, Inc. (see Note 7 to Financial Statement).
The Company does not anticipate the receipt of significant operating
revenues in the foreseeable future and believes it has adequate funds to enable
it to operate at its present level of activity for at least twelve months.
10
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Between January and September 1996, human clinical trials were conducted
in Thailand by a Dutch company retained by the Company under a protocol
submitted to the U.S. Food and Drug Administration (the "FDA") under the
Company's existing investigational new drug application to identify a
potentially efficacious lower dose of VIMRxyn (the Company's principal product,
comprised of chemically synthesized hypericin), with minimal skin
photosensitivity, as a treatment for AIDS. Under the trial, VIMRxyn was
administered once daily for 28 days to 12 HIV-infected patients at a dosage
level of 0.05 mg/kg. Such dosage was well-tolerated by the patients and did not
result in untoward toxicity or skin photosensitivity and, based on the
measurement criteria used, produced evidence of anti-HIV activity in 10 out of
12 patients. The Company intends to utilize the safety and dosage data obtained
from such trials to assist in the design of a protocol for a Phase II human
clinical trail to test the efficacy of VIMRxyn as a treatment for AIDS.
Combination therapy, which utilities a multiple drug regimen, has become the
standard for AIDS treatment and the Phase II trial, anticipated to commence in
mid-1997, will test VIMRxyn in combination with other drug products and will
involve longer dosing regimens.
On October 1, 1996, the Company purchased for $800,000 an aggregate of
457,143 shares of the common stock of Epoch Pharmaceuticals, Inc. ("Epoch"),
warrants to purchase 450,000 shares of Epoch's common stock at $2.00 per share
and warrants to purchase an additional 450,000 shares of Epoch's common stock at
$3.00 per share, which warrants expire on October 1, 1997 and October 1, 1998,
respectively. In connection therewith, Epoch released the Company and its
affiliates from any claims Epoch might have with respect to the Company's
subsidiary, Ribonetics GmbH. Epoch (OTC Bulletin Board: EPPH) is engaged in
developing novel drugs consisting of oligonucleotides (short synthetic pieces of
DNA or RNA) with DNA modifying small chemicals attached to them.
11
<PAGE>
On November 6, 1996, the Company filed with the Securities and Exchange
Commission a Registration Statement on Form S-8 registering under the Securities
Act of 1933, as amended, 2,323,900 shares of the Company's Common Stock,
consisting of (i) 2,149,400 shares issuable upon exercise of stock options
granted or to be granted under the Company's Amended and Restated 1990 Incentive
and Non-Incentive Stock Option Plan (the "1990 Plan"), and (ii) 162,000 shares
being reoffered by two former directors and/or officers of the Company (who
acquired such shares upon exercise of stock options under the 1990 Plan).
Item 6. Exhibits and Reports on Form 8-K.
Not applicable.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated:November 13, 1996
VIMRx PHARMACEUTICALS INC.
a Delaware Corporation
(Registrant)
By: __/S/ RICHARD L. DUNNING
Richard L. Dunning
President and
Chief Executive Officer
By: __/S/ FRANCIS M. O'CONNELL
Francis M. O'Connell
Chief Financial Officer
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated:November 13, 1996
VIMRx PHARMACEUTICALS INC.
a Delaware Corporation
(Registrant)
By:
Richard L. Dunning
President and
Chief Executive Officer
By:
Franci M. O'Connells
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,564,060
<SECURITIES> 48,487,845
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,030
<PP&E> 661,964
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,744,899
<CURRENT-LIABILITIES> 206,377
<BONDS> 0
0
0
<COMMON> 51,431
<OTHER-SE> 642,513
<TOTAL-LIABILITY-AND-EQUITY> 50,744,899
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<PAGE>
</TABLE>
