SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 23, 1996
VIMRx Pharmaceuticals Inc.
(Exact name of registrant as specified in charter)
Delaware 0-19153 06-1192468
(State or other juris- (Commission (IRS Employer
diction of incorp- File Number) Identification No.)
oration)
2751 Centerville Road, Wilmington, Delaware 19808
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (302) 998-1734
1200 High Ridge Road, Stamford, Connecticut 06905 (Former name
or former address, if changed since last report)
<PAGE>
This Form 8-K/A is being filed by VIMRx Pharmaceuticals Inc. (the "Registrant")
to provide the required financial statements for Innovir Laboratories, Inc., a
controlling interest of which was acquired by the Registrant, as reported by the
Registrant on a Current Report on Form 8-K dated December 30, 1996.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
Financial Statements of Innovir Laboratories, Inc.
1. Report of Independent Auditors.
2. Balance Sheets for each of the years in the two-year
period ended September 30, 1996.
3. Statements of Operations and Deficits for each of
the three years in the three-year period ended
September 30, 1996 and for the period October 1, 1996
to December 22, 1996, and cumulative from September
1, 1989 (inception) to September 30, 1996.
4. Statements of Stockholders' Equity (Deficit).
5. Statements of Cash Flows for each of the three years
in the three-year period ended September 30, 1996 and
for the period October 1, 1996 to December 22, 1996,
and cumulative from September 1, 1989 (inception) to
September 30, 1996.
(b) Unaudited Pro Forma Condensed Financial Statements of VIMRx
Pharmaceuticals Inc.
1. Description of Pro Forma Condensed Financial Information.
2. Pro Forma Condensed Combined Balance Sheet as at
September 30, 1996.
3. Pro Forma Condensed Combined Statement of Income for the
year ended December 31, 1996.
(c) Exhibits.
2.2a Agreement dated November 21, 1996 (the "Aries
Agreement") by and among the Registrant and The Aries
Fund and The Aries Domestic Fund, L.P.*
2.2b Amendment to the Aries Agreement dated December 23,
1996 by and among the Registrant and the Aries Fund
and The Aries Domestic Fund, L.P.*
2.3 Agreement dated November 21, 1996 by and between the
Registrant and Innovir Laboratories, Inc.*
<PAGE>
10.17 Registration Rights Agreement dated December 23,
1996 by and among the Registrant and The Aries Fund
and The Aries Domestic Fund, L.P.*
23.1 Consent of Coopers & Lybrand, L.L.P.
------------------------------
*Previously filed.
<PAGE>
SIGNATURE
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 hereunto duly authorized.
VIMRx PHARMACEUTICALS INC.
(Registrant)
By:
Francis M. O'Connell
Chief Financial Officer
Dated : March 10,1997
<PAGE>
Report Of Independent Accountants
To the Board of Directors and Stockholders of
Innovir Laboratories, Inc.:
We have audited the accompanying balance sheets of INNOVIR LABORATORIES, INC.
("Innovir") (a development stage enterprise) as of September 30, 1996 and 1995,
and the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended September 30, 1996,
and for the periods from October 1, 1996 to December 22, 1996 and September 1,
1989 (inception) to December 22, 1996. These financial statements are the
responsibility of Innovir's management. Our responsibility is to express an
opinion on these financial statements.
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Innovir as of September 30,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended September 30, 1996, and for the periods from
October 1, 1996 to December 22, 1996 and from September 1, 1989 (inception) to
December 22, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
March 4, 1997.
<PAGE>
Balance Sheets
September 30, 1995 and 1996
<TABLE>
<CAPTION>
ASSETS: 1995 1996
<S> <C> <C>
------------------ -----------------
Current assets:
Cash and cash equivalents $ 1,836,984 $ 1,404,873
Prepaid expenses and other current assets 178,833 149,891
------------------ -----------------
Total current assets 2,015,817 1,554,764
Fixed assets, less accumulated depreciation and amortization 846,344 1,649,783
Other assets 342,724 256,667
------------------ -----------------
Total assets $ 3,204,885 $ 3,461,214
================== =================
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 660,256 $ 1,104,982
Accrued interest - warrantholder 13,003 5,000
Capital leases - current portion 173,627 390,685
Term note payable - warrantholder; current portion 62,500
------------------ -----------------
Total current liabilities 909,386 1,500,667
Term note payable - warrantholder; includes accrued interest
of $37,845 in 1995 and $40,345 in 1996 225,345 259,095
Capital leases 458,435 622,425
------------------ -----------------
Total liabilities 1,593,166 2,382,187
------------------ -----------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.06; 15,000,000 shares authorized:
Class B Convertible Preferred Stock; 2,500,000 shares designated; 427,500
shares issued and outstanding at September 30, 1995 (liquidation value,
$2,137,500); 297,000 shares issued and outstanding at September 30,
1996
(liquidation value, $1,485,000) 25,650 17,820
Class C Convertible Preferred Stock; 1,000,000 shares designated; 40,000
shares issued and outstanding at
September 30, 1996 (liquidation value, $217,231) 2,400
Common stock, par value $.013; 35,000,000 shares authorized;
3,986,339 shares issued and outstanding at September 30, 1995;
11,526,316 issued and outstanding at September 30, 1996 51,822 149,842
Additional paid-in capital 17,628,038 26,520,403
Unearned compensation (177,083) (303,125)
Deficit accumulated during the development stage (15,916,708) (25,308,313)
------------------ -----------------
Total stockholders' equity 1,611,719 1,079,027
------------------ -----------------
Total liabilities and stockholders' equity $ 3,204,885 $ 3,461,214
================== =================
</TABLE>
<PAGE>
Statements of Operations
<TABLE>
<CAPTION>
For the Cumulative
period
October 1, Since
1996 to September 1,
For the years ended September 30, December 22, 1989
------------------------------------------
1994 1995 1996 1996 (Inception)
------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income $ 118,583 $ 102,623 $ 115,022 $ 9,610 $ 371,821
------------ ------------ ------------ -------------- -------------
Expenses:
Research and development 2,066,938 2,893,543 3,930,401 914,503 13,336,328
General and administrative (includes a non-
cash charge of approximately $3
million
incurred in connection with the
issuance
of warrants and stock options in 1996) 1,450,852 2,093,440 5,405,574 526,066 12,062,443
Interest 64,671 105,614 170,652 50,260 1,355,420
------------ ------------ ------------ -------------- -------------
Total expenses 3,582,461 5,092,597 9,506,627 1,490,829 26,754,191
------------ ------------ ------------ -------------- -------------
Loss before extraordinary item (3,463,878) (4,989,974) (9,391,605) (1,481,219) (26,382,370)
Extraordinary item: loss on early
extinguishment
of debt (407,162)
------------ ------------ ------------ -------------- -------------
Net loss $ (3,463,878) $ (4,989,974) $(9,391,605) $ (1,481,219) $(26,789,532)
============ ============ ============ ============== =============
Loss-per-share data:
Weighted average number of common
shares outstanding 3,089,090 3,510,047 5,671,248 11,736,178
============ ============ ============ ==============
Net loss per share $ (1.12) $ (1.42 ) $ (1.66) $ (0.13)
============ ============ ============ ==============
</TABLE>
<PAGE>
INNOVIR LABORATORIES, INC.
(a Development Stage Enterprise)
Statements of Stockholders' Equity (Deficit), Continued
For the period from September 1, 1989 (inception) to December 22, 1996,
including the years ended September 30, 1994, 1995 and 1996
and the period from October 1, 1996 to December 22, 1996
<TABLE>
<CAPTION>
Class B Class C
Series A Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
---------------------- ------------------- -----------------
Shares Amount Shares Amount Shares Amount
--------- ----------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock during
September
for cash ($.47 per share)
Exchange of common stock during
September for patent rights
at
Estimated value ($2.73 per
share)
Net loss for the month ended
September 30, 1989
--------- ----------- -------- --------- ------- --------
Balance, September 30,
1989
Sale of common stock during
October for cash ($2.73 per
share)
Net loss for the year ended
September 30, 1990
--------- ----------- -------- --------- ------- --------
Balance, September 30,
1990
Sale of common stock during
January
for cash ($2.73 per share)
Purchase of treasury stock
during July
for cash ($4.92 per share)
Net loss for the year ended
September 30, 1991
--------- ----------- -------- --------- ------- --------
Balance, September 30,
1991
Sale of common stock during
April and
May for cash of $4,466 and
services
at estimated value ($.99 per
share)
Transfer of common stock by
stockholders and the issuance
of a warrant during June in
connection with services
Conversion of note payable and
accrued interest during
April into
Series A Convertible
Preferred Stock
($17.21 per share) 36,895 $ 2,214
Sale of Series A Convertible
Preferred Stock
during April for cash 11,068 664
($13.55 per share)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-in Unearned Development
Common Stock Capital Compensation Stage
---------------------- ------------- ----------- ------------
Shares Amount Total
--------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock during
September
for cash ($.47 per share) 220 $ 2 $ 101 103
Exchange of common stock during
September for patent rights
at
Estimated value ($2.73 per 1,611 21 4,379 4,400
share)
Net loss for the month ended $ (1,089) (1,089)
September 30, 1989
--------- ----------- ------------- ----------- ------------ ------------
Balance, September 30, 1,831 23 4,480 (1,089) 3,414
1989
Sale of common stock during
October for cash ($2.73 per 3,661 48 9,952 10,000
share)
Net loss for the year ended (432,075) (432,075)
September 30, 1990
--------- ----------- ------------- ----------- ------------ ------------
Balance, September 30, 5,492 71 14,432 (433,164) (418,661)
1990
Sale of common stock during
January
for cash ($2.73 per share) 3,661 48 9,952 10,000
Purchase of treasury stock
during July
for cash ($4.92 per share) (183) (2) (898) (900)
Net loss for the year ended (1,165,808) (1,165,808)
September 30, 1991
--------- ----------- ------------- ----------- ------------ ------------
Balance, September 30, 8,970 117 23,486 (1,598,972) (1,575,369)
1991
Sale of common stock during
April and
May for cash of $4,466 and
services
at estimated value ($.99 per 55,096 716 54,351 55,067
share)
Transfer of common stock by
stockholders and the issuance
of a warrant during June in
connection with services 67,865 67,865
Conversion of note payable and
accrued interest during
April into
Series A Convertible
Preferred Stock
($17.21 per share) 632,784 634,998
Sale of Series A Convertible
Preferred Stock
during April for cash 149,336 150,000
($13.55 per share)
</TABLE>
<TABLE>
<CAPTION>
Class B Class C
Series A Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
---------------------- ------------------- -----------------
Shares Amount Shares Amount Shares Amount
--------- ----------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Sale of warrants during April
for cash ($.3125 per warrant)
Purchase of treasury stock
during July for
cash ($.068 per share)
Net loss for the year ended
September 30, 1992
--------- ----------- -------- --------- ------- --------
Balance, September 30, 47,963 $ 2,878
1992
Sale of warrants during October
for
cash ($.3125 per warrant)
Sale of 562,660 warrants in
connection
with bridge financing during
February
for cash ($.1563 per warrant)
Conversion of note payable,
accrued
interest, warrants and stock
acquisi-
tion rights during February
into Series
A Convertible Preferred
Stock and
common stock ($10.63 per
Series A
preferred share; $.99 per 206,698 12,402
common share)
Sale of Series A Convertible
Preferred Stock
during February for cash,
net of expenses
($1.31 per share before 654,972 39,298
expenses)
Issuance of common stock in
connection
with bridge financing during
February
in consideration for
services rendered
at estimated value ($1.05
per share)
Conversion of a warrant during
March
into common stock ($.13 per
share)
Sale of Series A Convertible
Preferred Stock
during May for cash ($1.25 800 48
per share)
Issuance of common stock during
May in
consideration for services
rendered at
estimated value ($2.50 per
share)
Sale of 81,546 warrants in
connection
with bridge financing during
August
for cash ($.1563 per warrant)
Compensation recognized in
connection
with a stock option
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-in Unearned Development
Common Stock Capital Compensation Stage
---------------------- ------------- ----------- ------------
Shares Amount Total
--------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sale of warrants during April
for cash ($.3125 per warrant) $ 42,648 $ 42,648
Purchase of treasury stock
during July for
cash ($.068 per share) (8,067) $ (105) (446) (551)
Net loss for the year ended $ (2,524,116) (2,524,116)
September 30, 1992
--------- ----------- ------------- ----------- ------------ ------------
Balance, September 30, 55,999 728 970,024 (4,123,088) (3,149,458)
1992
Sale of warrants during October
for
cash ($.3125 per warrant) 9,500 9,500
Sale of 562,660 warrants in
connection
with bridge financing during
February
for cash ($.1563 per warrant) 87,916 87,916
Conversion of note payable,
accrued
interest, warrants and stock
acquisi-
tion rights during February
into Series
A Convertible Preferred
Stock and
common stock ($10.63 per
Series A
preferred share; $.99 per 30,000 390 2,213,898 2,226,690
common share)
Sale of Series A Convertible
Preferred Stock
during February for cash,
net of expenses
($1.31 per share before 607,483 646,871
expenses)
Issuance of common stock in
connection
with bridge financing during
February
in consideration for
services rendered
at estimated value ($1.05 24,375 317 25,301 25,618
per share)
Conversion of a warrant during
March
into common stock ($.13 per 15,625 203 (203)
share)
Sale of Series A Convertible
Preferred Stock
during May for cash ($1.25 952 1,000
per share)
Issuance of common stock during
May in
consideration for services
rendered at
estimated value ($2.50 per 100,000 1,300 248,700 250,000
share)
Sale of 81,546 warrants in
connection
with bridge financing during
August
for cash ($.1563 per warrant) 12,721 12,721
Compensation recognized in
connection
with a stock option 2,800 2,800
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class B Class C
Series A Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
---------------------- ------------------- -----------------
Shares Amount Shares Amount Shares Amount
--------- ----------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Conversion of preferred stock
to common
stock at the effective date
of the
Company's Initial Public (910,433) $ (54,626)
Offering
Sale of units, each unit
consisting of one
share of common stock, one
Class A
warrant and one Class B
warrant, in
September for cash, net of
expenses
($5.25 per unit before
expenses)
Sale of unit purchase option in
September
Fractional share adjustment in
connection
with stock split
Net loss for the year ended
September 30, 1993
--------- ----------- -------- --------- ------- --------
Balance, September 30,
1993
Exercise of bridge financing
warrants into
common stock, net of expenses
($3.125 per share)
Exercise of employee stock
options
($2.25 to $6 per share)
Issuance of warrants in January
in connection
with equipment financing
Net loss for the year ended
September 30, 1994
--------- ----------- -------- --------- ------- --------
Balance, September 30,
1994
Exercise of bridge financing
warrants into
common stock and issuance of
567,122 Class B warrants,
net of
expenses ($3.125 per share)
Exercise of employee stock
options
($2.25 to $9 per share)
Issuance of common stock in
October as
compensation for services
rendered
($8.57 per share)
Issuance of warrants in March
in connection
with a consulting agreement
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-in Unearned Development
Common Stock Capital Compensation Stage
---------------------- ------------- ----------- ------------
Shares Amount Total
--------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Conversion of preferred stock
to common
stock at the effective date
of the
Company's Initial Public 910,433 $ 11,836 $ 42,790
Offering
Sale of units, each unit
consisting of one
share of common stock, one
Class A
warrant and one Class B
warrant, in
September for cash, net of
expenses
($5.25 per unit before 1,799,750 23,397 7,761,592 $ 7,784,989
expenses)
Sale of unit purchase option in 100 100
September
Fractional share adjustment in
connection
with stock split (6)
Net loss for the year ended $ (3,339,768) (3,339,768)
September 30, 1993
--------- ----------- ------------- ----------- ------------ ------------
Balance, September 30, 2,936,176 38,171 11,983,574 (7,462,856) 4,558,889
1993
Exercise of bridge financing
warrants into
common stock, net of expenses
($3.125 per share) 236,482 3,074 692,743 695,817
Exercise of employee stock
options
($2.25 to $6 per share) 27,894 362 67,199 67,561
Issuance of warrants in January
in connection
with equipment financing 50,000 50,000
Net loss for the year ended (3,463,878) 3,463,878
September 30, 1994
--------- ----------- ------------- ----------- ------------ ------------
Balance, September 30, 3,200,552 41,607 12,793,516 (10,926,734) 1,908,389
1994
Exercise of bridge financing
warrants into
common stock and issuance of
567,122 Class B warrants,
net of
expenses ($3.125 per share) 350,643 4,558 1,044,057 1,048,615
Exercise of employee stock
options
($2.25 to $9 per share) 75,745 985 331,835 332,820
Issuance of common stock in
October as
compensation for services
rendered
($8.57 per share) 2,916 38 24,962 25,000
Issuance of warrants in March
in connection
with a consulting agreement 250,000 $ (250,000)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Series A Convertible Class C
Preferred Stock Class B Convertible Convertible
Preferred Stock Preferred Stock
--------------------- ---------------------- ------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- ---------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Compensation for consulting
services
Sale of 164.8 units, each unit
consisting of
5,000 shares of Class B
Convertible
Preferred Stock and either
4,203 or 3,803
Class B warrants, during
April and May in a
private placement for cash,
net of expenses
($25,000 per unit before 824,000 $ 49,440
expenses)
Conversions of preferred stock
into common stock (396,500) (23,790)
Issuance of warrants in August
in connection with equipment
financing
Net loss for the year ended
September 30, 1995
-------- ---------- ---------- ----------- ------- ---------
Balance, September 30, 427,500 25,650
1995
Exercise of warrants ($.05 per
share)
Sale of Class C Convertible
Preferred Stock
during November and December
for cash
($5 per share) 960,000 $ 57,600
Issuance of warrants during
November,
January and August in
connection with
consulting agreements and
finders' fee
Arrangements
Issuance of warrants during
July and August in
connection with the
amendment of a licensing
agreement and a lease
agreement
Issuance of common stock in
August in
exchange for leasehold
improvements
Sale of common stock in a
private placement in
August ($.50 per share)
Costs incurred in connection
with issuances of
equity securities
Amortization of unearned
compensation
Compensation expense in
connection with the
issuance of stock options
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-in Unearned Development
Common Stock Capital Compensation Stage
--------------------- ----------- ----------- -----------
Shares Amount Total
--------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Compensation for consulting $ 72,917 $ 72,917
services
Sale of 164.8 units, each unit
consisting of
5,000 shares of Class B
Convertible
Preferred Stock and either
4,203 or 3,803
Class B warrants, during
April and May in a
private placement for cash,
net of expenses
($25,000 per unit before $ 3,140,512 3,189,952
expenses)
Conversions of preferred stock
into common stock 356,483 $ 4,634 19,156
Issuance of warrants in August
in connection with equipment 24,000 24,000
financing
Net loss for the year ended $ (4,989,974)(4,989,974)
September 30, 1995
--------- ---------- ----------- ----------- ----------- -------------
Balance, September 30, 3,986,339 51,822 17,628,038 (177,083) (15,916,708) 1,611,719
1995
Exercise of warrants ($.05 per 625,000 8,125 23,125 31,250
share)
Sale of Class C Convertible
Preferred Stock
during November and December
for cash
($5 per share) 4,742,400 4,800,000
Issuance of warrants during
November,
January and August in
connection with
consulting agreements and
finders' fee
Arrangements 2,795,625 (2,795,625)
Issuance of warrants during
July and August in
connection with the 270,000 270,000
amendment of a licensing
agreement and a lease
agreement
Issuance of common stock in
August in
exchange for leasehold 23,301 303 29,697 30,000
improvements
Sale of common stock in a
private placement in
August ($.50 per share) 4,000,000 52,000 1,948,000 2,000,000
Costs incurred in connection
with issuances of
equity securities (1,016,374) (1,016,374)
Amortization of unearned 2,669,583 2,669,583
compensation
Compensation expense in
connection with the
issuance of stock options 74,454 74,454
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Series A Convertible Class C
Preferred Stock Class B Convertible Convertible
Preferred Stock Preferred Stock
--------------------- ---------------------- ------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- ---------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Conversions of Class B
Preferred Stock into
common stock (130,500) $ (7,830)
Conversions of Class C
Preferred Stock into
common stock (92,000) $ (55,200)
Net loss for the year ended
September 30, 1996
-------- ---------- ---------- ----------- ------- ---------
Balance, September 30, 297,000 17,820 40,000 2,400
1996
Exercise of warrants ($.05 per
share)
Conversions of Class C
Preferred Stock into
common stock (40,000) (2,400)
Exercise of warrants and
options ($.50 per share)
Compensation expense in
connection with
the issuance of stock options
Amortization of unearned
compensation
Net loss for the period October
1, 1996
through December 22, 1996
-------- ---------- ---------- ----------- ------- ---------
Balance, December 22, 297,000 $ 17,820
1996
======== ========== ========== =========== ======= =========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-in Unearned Development
Common Stock Capital Compensation Stage
--------------------- ----------- ----------- -----------
Shares Amount Total
--------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Conversions of Class B
Preferred Stock into
common stock 164,871 $ 2,144 $ 5,686
Conversions of Class C
Preferred Stock into
common stock 2,726,805 35,448 19,752
Net loss for the year ended $ (9,391,60$)(9,391,605)
September 30, 1996
--------- ---------- ----------- ----------- ----------- -------------
Balance, September 30, 11,526,316 149,842 26,520,403 (303,125) (25,308,313) 1,079,027
1996
Exercise of warrants ($.05 per 78,000 1,014 2,886 3,900
share)
Conversions of Class C
Preferred Stock into
common stock 342,060 4,447 (2,047)
Exercise of warrants and 6,000,000 78,000 2,922,000 3,000,000
options ($.50 per share)
Compensation expense in
connection with
the issuance of stock options 19,500 19,500
Amortization of unearned 121,771 121,771
compensation
Net loss for the period October
1, 1996
through December 22, 1996 (1,481,219)(1,481,219)
--------- ---------- ----------- ----------- ----------- -------------
Balance, December 22, 17,946,376 $ 233,303 $ 29,462,742 $ (181,354) $ (26,789,5$2) 2,742,979
1996
========= ========== =========== =========== =========== =============
</TABLE>
<PAGE>
INNOVIR LABORATORIES, INC.
(a Development Stage Enterprise)
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
For the period
October 1, Cumulative
1996 to Since
For the years ended September 30, December 22, September 1,
---------------------------------------
1994 1995 1996 1996 1989
------------ ----------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,463,878) $(4,989,974) $(9,391,605) $ (1,481,219) $(26,789,532)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 123,530 251,049 492,651 69,206 1,137,721
Amortization of deferred financing costs 11,538 16,684 30,100 7,500 298,750
Other non-cash expenses including compensation 14,546 183,727 3,164,568 141,271 4,538,415
expenses
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses and
other current assets (14,737) (90,145) 28,942 11,360 (138,531)
(Increase) in other assets (7,694) (76,754) (96,461) (212,826)
(Decrease) increase in accounts payable and
accrued expenses (54,813) 275,272 290,455 (507,909) 799,443
------------ -------------------------- --------------- --------------
Net cash used in operating activities (3,391,508) (4,430,141) (5,481,350) (1,759,791) (20,366,560)
------------ -------------------------- --------------- --------------
Cash flows used in investing activities:
Capital expenditures (229,543) (136,980) (559,132) (101,157) (572,701)
------------ -------------------------- --------------- --------------
Cash flows from financing activities:
Proceeds from notes payable 1,000,000 6,755,205
Principal payments under capital lease obligations (34,767) (108,400) (230,919) (77,989) (452,075)
Cash paid for deferred financing costs (7,670) (13,670) (6,823) (553,689)
Repayment of notes payable (31,250) (1,250) (2,629,716)
Proceeds from issuance of equity securities, less
offering expenses 565,399 4,617,192 5,877,363 2,949,234 22,234,907
Purchase of treasury stock (1,451)
------------ -------------------------- --------------- --------------
Net cash provided by financing activities 522,962 4,495,122 5,608,371 3,869,995 25,353,181
------------ -------------------------- --------------- --------------
Net (decrease) increase in cash and cash (3,098,089) (71,999) (432,111) 2,009,047 3,413,920
equivalents
Cash and cash equivalents, beginning of period 5,007,072 1,908,983 1,836,984 1,404,873
------------ -------------------------- --------------- --------------
Cash and cash equivalents, end of period $ 1,908,983 $ 1,836,984 $ 1,404,873 $ 3,413,920 $ 3,413,920
============ ========================== =============== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 45,630 $ 93,930 $ 145,136 $ 38,121 $ 456,841
============ ========================== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
Supplemental disclosure of noncash investing and financing activities:
Equity securities issued in exchange for services and
<S> <C> <C> <C> <C> <C>
consummation of agreements $ 50,000 $ 299,000 $ 3,095,625 $ 3,775,244
Debt exchanged for equity securities 3,574,188
Capital lease obligations incurred 462,158 313,071 611,967 1,387,196
Financing and investing amounts included in accounts 36,743 61,286 210,054 $ 9,572 9,572
payable
</TABLE>
The accompanying notes are an integral part of the
financial statements.
<PAGE>
INNOVIR LABORATORIES, INC.
(a Development Stage Enterprise)
Notes to Financial Statements
1. Organization and Business:
Innovir Laboratories, Inc. ("Innovir") was incorporated in Delaware on
September 1, 1989. Innovir is a biotechnology company developing a new
class of therapeutic agents based on proprietary technology. As a
development stage enterprise, all of the Innovir's efforts, to date, have
been devoted to research and development, raising capital, acquiring
equipment, setting up a research laboratory, and financial planning.
Innovir has no product sales to date, and has limited capital resources
and recurring net operating losses. Innovir is dependent upon receipt of
additional capital investment or other financing to fund its planned
research activities. Assuming that Innovir can obtain sufficient
financing to complete development of marketable products, Innovir may
ultimately need to enter into collaborative agreements with others (if
available) to obtain regulatory approvals, fund early operating losses
and, if deemed appropriate, establish a manufacturing, sales and
marketing capability. In addition to the normal risks associated with a
new business venture, there can be no assurance that Innovir's research
and development will be successfully completed, that any products
developed will obtain necessary government regulatory approval or that
any approved product will be commercially viable. In addition, Innovir
operates in an environment of rapid change in technology, and is
dependent upon the services of its employees and its consultants.
On December 23, 1996, Innovir, VIMRx Pharmaceuticals Inc. ("VIMRx") and
certain stockholders of Innovir (the "Aries Funds") entered into a series
of agreements (the "Transaction") whereby VIMRx acquired 68% of Innovir
and Innovir acquired all of the issued and outstanding shares of VIMRx
Holdings, Ltd. ("VHL"), a subsidiary of VIMRx. The Transaction is further
discussed in Note 2; however, for accounting purposes, VHL is deemed to
be the acquirer and surviving company. In addition, during February 1997
Innovir elected to change its fiscal year from the twelve months ended
September 30 to the twelve months ended December 31.
Innovir has sustained operating losses and negative cash flows from
operations since its inception and expects these conditions to continue
for the foreseeable future. Management believes that existing liquid
assets combined with commitments from VIMRx and a warrantholder to
exercise additional outstanding warrants, will enable Innovir to continue
to operate through March 31, 1998. After March 31, 1998, Innovir will
need to raise additional financing through public or private equity
financings or other arrangements to finance operations. In the event the
Innovir is unable to raise additional capital, operations after March 31,
1998 will need to be scaled back or discontinued.
<PAGE>
2. Change in Control/Reverse Acquisition:
During November 1996 Innovir reached agreement with VIMRx to acquire all
the issued and outstanding shares of capital stock of VHL. VHL is a
development stage biotechnology company devoting substantially all of its
attention to the research and development of its proprietary technology.
VHL has had no product revenues to date. In consideration for the
acquisition of VHL, Innovir, on December 23, 1996, issued 8,666,666
shares of a newly designated series of preferred stock, Class D
Convertible Preferred Stock (see below), and warrants to purchase two
million shares of Innovir's common stock. The warrants expire after five
years. The exercise price for one million warrants is $1 per share; the
remaining one million warrants have an exercise price of $2 per share.
Simultaneously with Innovir's acquisition of VHL, (i) the Aries Funds
exercised four million Class C Warrants and the Funds Option (see Note
12) for aggregate consideration of $3 million and, as a result, acquired
six million shares of Innovir's common stock and two million Class C
Warrants, and (ii) VIMRx, in exchange for $3 million and 3 million shares
of VIMRx's common stock, acquired 9.5 million shares of Innovir's common
stock from the Aries Funds. In addition, VIMRx and the Aries Funds
entered into an agreement whereby VIMRx obtained the right to vote
500,000 shares of Innovir's common stock held by the Aries Funds, thereby
effectively giving VIMRx voting control of an aggregate of 18,666,666
shares of Innovir's stock.
The Transaction will be accounted for in accordance with APB Opinion No.
16, "Business Combinations" ("APB No. 16") and Emerging Issues Task Force
Issue No. 90-13, "Accounting for Simultaneous Common Control Mergers"
("EITF No. 90-13"). Under APB No. 16 and EITF No. 90-13, VHL is deemed to
be the acquirer (for accounting purposes) and surviving company, Innovir
must fair value its assets and liabilities, to the extent acquired by
VIMRx, and the assets and liabilities of VHL will be carried at VHL's
historic cost. A significant portion of the fair value of Innovir's
assets was assigned to acquired in-process research and development and
was expensed upon the closing of the Transaction. Prior to the
Transaction, VIMRx advanced the Company $1 million.
In connection with the acquisition of VHL, Innovir's Board designated
8,666,666 shares of preferred stock as Class D Convertible Preferred
Stock ("D Preferred Stock"). Each share of D Preferred Stock converts
into one share of Innovir's common stock at the option of the holder, or
automatically on June 30, 1997. D Preferred Stockholders have
anti-dilution rights in the event of a stock dividend, stock split or
other capital transaction, as defined. In the event that there are
insufficient shares of common stock authorized, as of June 30, 1997, to
allow for the conversion of all outstanding shares of D Preferred Stock
into shares of common stock, the conversion ratio is increased to one and
one-half shares of common stock for each share of
<PAGE>
D Preferred Stock. D Preferred Stock has a liquidation value of $1.50 per
share and a liquidation preference on parity with B Preferred
Stockholders. D Preferred Stockholders vote with common stockholders on
an as if converted basis.
3. Summary of Significant Accounting Policies:
Fixed Assets:
Fixed assets consist of equipment and leasehold improvements stated at
cost. Equipment is depreciated on a straight-line basis over its
estimated useful life of five years. Leasehold improvements are amortized
over the life of the lease or of the improvement, whichever is shorter.
Expenditures for maintenance and repairs which do not materially extend
the useful lives of the assets are charged to operations as incurred. The
cost and related accumulated depreciation or amortization of assets
retired or sold are removed from the respective accounts, and any gain or
loss is recognized in operations.
Deferred Financing Costs:
Direct costs associated with obtaining debt financing have been
capitalized and are being amortized on a basis which approximates the
interest method, over the terms of the respective loans.
Cash and Cash Equivalents:
Innovir considers all highly liquid debt instruments which have
maturities of three months or less when acquired to be cash equivalents.
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates its fair value (also see Note 7). Cash and cash
equivalents subject Innovir to concentrations of credit risk. At
September 30, 1996 Innovir had invested approximately $506,000 in a money
market fund with an investment company and held approximately $899,000 of
commercial paper issued by two entities, with maturities not in excess of
three months. At September 30, 1995, Innovir had invested approximately
$990,000 in a money market fund with an investment company and held
approximately $800,000 of commercial paper issued by three entities with
maturities not in excess of three months. Innovir holds no collateral for
these financial instruments.
Net Loss Per Share:
Net loss per share is computed on the basis of the net loss for the
period divided by the weighted average number of shares of common stock
outstanding during the period. The net loss per share for all periods
excludes the number of shares issuable upon exercise of outstanding
options and warrants and the conversion of preferred stock since such
inclusion would be anti-dilutive.
<PAGE>
Risks and Uncertainties:
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. Actual results could differ from those estimates.
(See also Note 8).
Income Taxes:
Innovir accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("FAS 109"). FAS 109 requires recognition of deferred tax liabilities and
assets for the 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 on the basis of the
differences between the tax bases of assets and liabilities and their
respective financial-reporting amounts ("temporary differences") at
enacted tax rates in effect for the year in which the temporary
differences are expected to reverse (see Note 10).
Recapitalization and Bridge Financing:
During 1993, Innovir converted certain convertible notes payable to
stockholders totaling $1,890,000, plus accrued and unpaid interest of
approximately $337,000, into 206,698 and 30,000 shares of Innovir's
Series A Convertible Preferred Stock ("A Preferred Stock") and common
stock, respectively. (See Note 6(a)).
In addition, during the year ended September 30, 1993, Innovir issued a
total of 655,772 shares of A Preferred Stock, additional notes payable
with a face value of approximately $2.8 million ("New Notes") and 644,206
warrants ("Bridge Warrants") to purchase shares of Innovir's common
stock. The New Notes accrued interest at 9% per annum. The New Notes,
plus accrued interest, were repaid at the consummation of Innovir's
public offering. The Bridge Warrants entitle the holders to purchase a
total of 644,206 shares of Innovir's common stock at a per-share price of
approximately $3.12. The Bridge Warrants contain anti-dilution provisions
and expire during 1998. During the year ended September 30, 1994, 236,482
Bridge Warrants were exercised. In January 1995, Innovir offered holders
of Bridge Warrants two Class B Warrants in exchange for each Bridge
Warrant exercised before January 25, 1995 (the "Bridge Offer"). Pursuant
to the Bridge Offer, 283,561 Bridge Warrants were exercised. The 567,122
Class B warrants so issued have terms and provisions identical to the
Class B warrants issued as part of Innovir's Initial Public Offering
("IPO") (see Note 12). During the year ended September 30, 1995, 350,643
Bridge Warrants were exercised, including those exercised in the Bridge
Offer noted above. No Bridge Warrants were exercised during the year
ended September 30, 1996 or during the period from October 1, 1996 to
December 22, 1996 and, as of December 22, 1996, 57,081 Bridge Warrants
were outstanding and fully exercisable.
<PAGE>
Stock-based Employee Compensation:
The accompanying financial position and results of operations of the
Company have been prepared in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees ("APB No. 25"). Under APB No.
25, generally, no compensation expense is recognized in the accompanying
financial statements in connection with the awarding of stock option
grants to employees provided that, as of the grant date, all terms
associated with the award are fixed and the quoted market price of the
Company's stock, as of the grant date, is not more than the amount an
employee must pay to acquire the stock as defined; however, to the extent
that stock options are granted to nonemployees for goods or services, the
fair value of these options are included in operating results as an
expense.
Disclosures required by Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123"), including
pro forma operating results had the Company prepared its financial
statements in accordance with the fair value based method of accounting
for stock-based compensation, have been included in Note 11.
Reclassifications:
Certain reclassifications have been made to the financial statements for
1994 and 1995 in order to conform with the current year's presentation.
4. Fixed Assets:
Fixed assets as of September 30, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------------- ----------------
<S> <C> <C>
Office and laboratory equipment $ 990,126 $ 1,626,511
Leasehold improvements 432,082 1,091,787
---------------- ----------------
1,422,208 2,718,298
Less, Accumulated depreciation
and amortization 575,864 1,068,515
---------------- ----------------
$ 846,344 $ 1,649,783
================ ================
</TABLE>
Depreciation and amortization expense on fixed assets for the years ended
September 30, 1994, 1995 and 1996 and for the periods from October 1,
1996 to December 22, 1996 and from September 1, 1989 (inception) to
December 22, 1996 was $123,530, $251,049, $492,651, $69,206 and
$1,137,721, respectively.
<PAGE>
5. Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses as of September 30, 1995 and 1996
consist of the following:
<TABLE>
<CAPTION>
1995 1996
-------------- ----------------
<S> <C> <C>
Accounts payable $ 375,636 $ 777,214
Fees payable to
Science Advisory Board members 27,000 24,000
Accrued payroll and related costs 129,029 133,368
Legal and accounting fees payable 128,591 170,400
-------------- ----------------
$ 660,256 $ 1,104,982
============== ================
</TABLE>
6. Related-party Transactions:
(a) Notes Payable - Stockholders:
Innovir, as of September 30, 1992, had outstanding convertible
promissory notes to certain stockholders totaling $2,100,000. During
the year ended September 30, 1993, all notes were either repaid or
exchanged for common stock or A Preferred Stock. Interest expense,
which accrued at a rate of 12% per annum, on these notes for the
period from September 1, 1989 (inception) to December 22, 1996 was
$471,688.
(b) Employment Agreement:
Innovir has an employment agreement with an officer/stockholder
("officer"), expiring November 30, 1999, whereby the officer has
agreed to devote his full business time to Innovir to further
develop certain technology. The terms of the agreement provide for a
base salary, adjusted annually, plus a key performance bonus, as
determined by Innovir's Board of Directors (the "Board"). In
addition, the agreement provides for the officer to supply certain
equipment to Innovir to be used during his term of employment. At
the conclusion of employment, the equipment will be returned to the
officer.
(c) Consulting Agreements:
Innovir has several agreements with consultants, two of whom are
stockholders ("stockholders/consultants"). The consultants perform
services for Innovir in consideration for certain fees. The
consultants have also agreed to assign to Innovir any inventions,
ideas, patents, and copyrights conceived if related to Innovir's
business and provide other services as defined in the agreements. In
consideration for these services, such stockholders/consultants
received fees totaling $145,000, $185,000, $167,500, $42,000 and
$896,000 during the years ended September 30, 1994, 1995 and 1996,
and for the periods from October 1, 1996 through December 22, 1996
and from September 1, 1989 (inception) through December 22, 1996,
respectively. Future minimum quarterly payments to the
stockholders/consultants are approximately $46,000 through March 31,
1998 and $24,000 thereafter through March 31, 2000. Under certain
conditions, Innovir may have to pay additional amounts ("patent
award"), as defined, in the event the research performed by one of
the consultants leads to the issuance of a patent. Patent awards
paid to one consultant for the year ended September 30, 1995 and for
the period from September 1, 1989 (inception) to December 22, 1996
were $20,000 and $60,000, respectively.
<PAGE>
In addition, Innovir is a party to a collaborative research project
("project") with an educational institution ("institution") which
employs one of the stockholder/consultants noted above. The project
requires Innovir to fund certain research and development costs of
the institution. Innovir has paid and expensed approximately
$93,000, $37,000, $50,000 and $180,000 for the years ended September
30, 1994, 1995 and 1996 and for the period from September 1, 1989
(inception) to December 22, 1996, respectively. No payments were
made for the period October 1, 1996 through December 22, 1996. As of
December 22, 1996, the outstanding commitment to the project totaled
approximately $44,000, which is payable through April 1, 1997.
7. Term Note Payable - Warrantholder:
The term note provides for interest, payable quarterly, at a rate of 8%
per annum. The noteholder holds a lien on all the assets of Innovir. In
connection with the issuance of the term note, Innovir issued a warrant
which provides the holder with the right to acquire an aggregate of
40,000 shares of Innovir's common stock at $6.25 per share. Any accrued
and unpaid interest ($45,345 as of September 30, 1996) related to the
term note may also be used to acquire additional shares of common stock
at a price of $6.25 per share. The warrant expires on February 10, 1998
and contains anti-dilution provisions and other defined adjustments in
the event of a merger or reorganization, as defined. As of December 22,
1996, the warrant was exercisable and outstanding. The estimated fair
value of the term note at September 30, 1996 was approximately $200,000.
The fair value was estimated based on the current rate offered to Innovir
for debt with similar terms. (Also See Note 3.)
During November 1996, the payment terms of the term note were amended
(the "Amended Note") and related accrued and unpaid interest as of that
date was deferred. In consideration for such amendment, Innovir issued a
warrant to the noteholder to purchase 20,000 shares of Innovir's common
stock at $1.50 per share. The accompanying financial statements reflect
this.
<PAGE>
Pursuant to the Amended Note, future payments of principal and deferred
interest are as follows:
<TABLE>
<CAPTION>
Years Ending Future
September 30, Payments
<S> <C>
1998 $ 130,000
1999 129,095
-----------
$ 259,095
============
</TABLE>
Interest expense was approximately $20,000 on the Term Note for each of
the years ended September 30, 1994, 1995 and 1996 and $4,000 and $112,000
for the periods from October 1, 1996 through December 22, 1996 and from
September 1, 1989 (inception) to December 22, 1996, respectively.
8. Commitments:
(a) Licensing Agreements:
Innovir (as licensee) has entered into an exclusive worldwide
licensing agreement with a university whereby Innovir has the
exclusive right to use certain technology owned by the university.
According to the terms of the agreement, as amended, Innovir will
be required to pay royalties which commence one year after the
first sale of a product developed from the licensed technology.
Such royalties are based upon the greater of annual minimum
royalties, as defined, or a percentage of net sales of licensed
products and a portion of sublicensing income, as defined. Annual
minimum royalties are not material. The licensing agreement expires
on a country by country basis as the underlying patents expire in
such country. In addition, the license may be terminated in the
event that Innovir fails to implement a plan directed at
development and commercialization of products based on the licensed
technology or if Innovir fails to satisfy certain other contractual
obligations. In the event of termination, all licensing rights
under the agreement would revert to the university. The termination
of the license would have a material adverse effect on the business
of Innovir. Although Innovir intends to use its best efforts to
comply with the terms of the license, there can be no assurance
that the licensing agreement will not be terminated. In
consideration for an amendment to the agreement, Innovir, during
August 1996, issued to the university a warrant (the "University
Warrant") to purchase 500,000 shares of common stock at an exercise
price of $1.50 per share. The University Warrant expires on August
30, 2006 and is subject to anti-dilution provisions, as defined. As
of December 22, 1996, the University Warrant was exercisable and
outstanding. The estimated fair market value of the University
Warrant was recognized as an expense on the date of issuance.
Innovir believes, based on the opinion of counsel, that the use of
this licensed technology does not infringe on a patent held by a
third party. Nevertheless, there can be no assurance that
infringement proceedings will not be brought against Innovir.
<PAGE>
In April 1994, Innovir (as licensee) entered into another
non-exclusive licensing agreement with a university whereby Innovir
has the non-exclusive, non-transferable right to use certain
technology owned by the university. According to the terms of this
agreement, Innovir will be required to remit royalties on a
quarterly basis, at various rates, as defined, beginning after the
first commercial sale of a licensed product, as defined. In
addition, commencing on February 1, 1995, Innovir is required to
pay a minimum annual advance on earned royalties ("Advance") of
$10,000, which is nonrefundable, but may be credited, as defined,
against future royalties due the university. Such Advances were
paid by Innovir during the years ended September 30, 1995 and 1996.
No advances were due for the period October 1, 1996 to December 22,
1996. Royalties shall continue to be payable, irrespective of the
termination of this license agreement, until such time as all sales
of licensed products shall have ceased.
(b) Research Agreements:
Innovir has entered into research fellowships and other agreements
with universities and institutions ("Institutions"). Future
payments aggregate approximately $300,000 payable at various dates
through 1998. Under certain conditions Innovir or the Institutions
may terminate the respective agreements with 30 or 60 days notice.
(c) Lease Commitments:
Operating Leases:
Innovir leases office and laboratory space under an amended
noncancelable operating sublease (the "amended sublease") expiring
May 31, 1999. The amended sublease provides for escalations of the
minimum rent during the lease term.
Innovir also leases automobiles and office equipment under
noncancelable operating leases. The leases expire at various times
through June 2001.
<PAGE>
Future minimum rental payments under all operating leases are as
follows:
Minimum
Years Ending Annual
September 30, Rentals
----------------
1997 $ 349,853
1998 361,159
1999 250,013
2000 15,691
2001 10,883
----------------
$ 987,599
================
Rent expense totaled approximately $151,000, $155,000, $306,000,
$84,000, and $1,039,000 for the years ended September 30, 1994,
1995 and 1996, and for the periods from October 1, 1996 through
December 22, 1996 and from September 1, 1989 (inception) to
December 22, 1996, respectively.
Innovir may be considered to be in violation of the terms of the
amended lease by not obtaining the required approval from the
lessor prior to the consummation of the Transaction discussed in
Note 2. Accordingly, Innovir may be considered to be in violation
of the terms of the amended lease which would also trigger certain
cross default provisions contained in capital lease obligations.
The present value of the long-term portion of the capital lease
obligations which may be considered to be in technical default
total approximately $45,000. The accompanying financial statements
reflect such amount as a current liability
Capital Leases:
Innovir leases certain equipment under various noncancelable
capital lease agreements. Lease terms range from three to five
years, after which Innovir has the option to purchase the equipment
at amounts defined by the respective lease agreements. In lieu of
purchasing the equipment, certain leases may be extended for
specified periods, at defined monthly payments. Upon expiration of
the extended lease terms, Innovir may purchase the equipment for
one dollar or must return the equipment to the lessor.
Certain capital leases, as amended (the "Amended Leases"), contain
various covenants which include maintaining a minimum cash level,
as defined, of $250,000 during the term of the leases. This
covenant indirectly restricts Innovir's ability to pay dividends.
In connection with entering into, or amending, certain lease
agreements, Innovir issued warrants to the lessors to purchase
16,666, 2,526 and 2,500 shares of Innovir's common stock at
$4.0625, $9.50 and $2 per share, respectively. The warrants expire
on January 21, 1999, August 31, 2002 and July 1, 2001,
respectively, and contain antidilution provisions and other defined
adjustments in the event of a merger or reorganization, as defined.
The estimated fair market value of such warrants at their dates of
issuance was $50,000, $24,000 and $5,000, respectively. As of
December 22, 1996, the warrants were exercisable and outstanding.
<PAGE>
At September 30, 1996, minimum rental payments under all capital
leases, including payments to acquire leased equipment, are as
follows:
Minimum
Year Ending Rental
September 30, Payments
-----------------
1997 $ 463,263
1998 454,058
1999 231,979
2000 59,593
2001 47,612
-----------------
$ 1,256,505
Less, Amounts representing interest 243,395
-----------------
Present value of net minimum capital
lease payments $ 1,013,110
=================
Leased equipment included as a component of fixed assets was
approximately $775,000 and $1,387,000 at September 30, 1995 and
1996, respectively; related accumulated depreciation was
approximately $146,000 and $335,000 respectively.
9. 401(k) Retirement Plan:
Innovir, effective January 20, 1994, adopted the provisions of a 401(k)
retirement plan (the "Plan"). The terms of the Plan, among other things,
allow eligible employees who have met certain age and service
requirements to participate in the Plan by electing to contribute to the
Plan a percentage of their compensation to be set aside to pay their
future retirement benefits as defined by the Plan. Innovir has agreed to
match up to 50% of the first 6% of compensation that eligible employees
contribute to the Plan ("Matching Contribution"). In addition, based upon
Innovir's profitability, Innovir may also make a discretionary
contribution to the Plan. For the years ended September 30, 1994, 1995
and 1996, and for the periods from October 1, 1996 to December 22, 1996
and from September 1, 1989 (inception) to December 22, 1996, Innovir's
Matching Contribution totaled approximately $14,000, $34,000, $42,000,
$11,000 and $101,000, respectively.
<PAGE>
10. Income Taxes:
There is no provision (benefit) for federal, state or local income taxes
for all periods presented, since Innovir has incurred operating losses
since inception and has established a valuation allowance equal to the
total deferred tax asset.
The tax effect of net operating loss carryforwards, temporary differences
and research and experimental tax credit carryforwards as of September
30, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
---------------- ------------------
<S> <C> <C>
Deferred tax assets and valuation allowance:
Net operating loss carryforwards $ 7,168,199 $ 11,390,508
Deferred liabilities 20,958 45,730
Deferred costs 32,892 62,849
Research and experimental tax credit carryforwards 447,514 509,495
Valuation allowance (7,669,563) (12,008,582)
---------------- ------------------
$ - $ -
================ ==================
</TABLE>
As of September 30, 1996, Innovir has available, for tax purposes, unused
net operating loss carryforwards of approximately $24.3 million which
will expire in various years from 2004 to 2011. Innovir's research and
experimental tax credit carryforwards expire in various years from 2005
to 2011. Certain ownership changes will limit the future utilization of
these net operating loss and research and experimental tax credit
carryforwards as defined by the federal tax code.
11. Stock Option Plans:
(a) Employee Stock Option Plan:
During 1993, and as amended in 1994, the Board and Innovir's
stockholders approved the adoption of the 1993 Stock Option Plan
(the "93 Plan") whereby employees, directors, advisors, and
consultants ("participants") to Innovir may be granted options which
entitle holders to purchase shares of Innovir's common stock. Under
the 93 Plan, two million shares of Innovir's common stock have been
reserved for stock option awards. Such amount is subject to
adjustment for stock splits, stock dividends and other capital
adjustments, as defined. The options will be awarded by the Board or
a committee that will determine the option price and the vesting
period, which cannot exceed ten years. Awards generally vest on a
pro rata basis over a two to five year period, have a term of ten
years and option exercise prices equal to the market price of
Innovir's common stock on the date of grant. The 93 Plan terminates
during March 2003.
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes the activity in the 93 Plan:
Exercise Price Weighted-Average Number of
Range Exercise Price Shares
--------------- ------------------- -------------
<S> <C> <C> <C>
Balance outstanding, September 30, 1993 $2.25 - $2.50 $2.30 890,329
Granted $4.75 - $8.75 $7.16 476,213
Canceled $2.25 - $8.63 $3.21 (69,200)
Exercised $2.25 - $6.00 $2.42 (27,894)
-------------
Balance outstanding, September 30, 1994 $2.25 - $8.75 $4.07 1,269,448
Granted $7.25 - $12.00 $9.32 154,000
Canceled $5.875 - $9.00 $7.38 (105,900)
Exercised $2.25 - $9.00 $4.40 (75,745)
-------------
Balance outstanding, September 30, 1995 $2.25 - $12.00 $4.42 1,241,803
Granted $3.50 - $4.31 $3.67 332,189
Canceled $2.50 - $9.00 $4.06 (72,367)
-------------
Balance outstanding, September 30, 1996
and December 22, 1996 $2.25 - $12.00 $4.27 1,501,625
=============
</TABLE>
As of September 30, 1996 and December 22, 1996, 662,841 options were
exercisable and 394,736 shares of the Company's common stock were
reserved for future awards.
The following table summarizes stock option information with regard
to the 93 Plan as of December 22, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- -------------------------------
Weighted-Average Weighted- Weighed-
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- --------------- --------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$2.25 - $3.50 984,154 7.0 years $2.60 442,958 $2.41
$4.25 - $6 179,233 7.9 years $5.23 80,233 $5.81
$7 - $9.75 295,638 7.8 years $8.30 126,500 $8.15
$10.75 - $12 42,600 8.6 years $10.86 13,150 $10.84
</TABLE>
(b) Non-Employee Director Stock Option Plan:
During 1994, Innovir adopted a Non-Employee Director Stock Option
Plan (the "Director's Plan"). Under the Director's Plan, as amended
by the Board during 1996, 270,000 shares of Innovir's common stock
have been reserved for stock option awards. Each new non-employee
director is automatically granted an option to purchase 30,000
shares of common stock on the date on which the Non-Employee
Director is initially appointed or elected as a director ("Initial
Option Grant"). Additionally, each Non-Employee Director who
continuously serves on the Board for a two year period following
their initial appointment or election is automatically granted, on
the Non-Employee Director's second anniversary and each anniversary
thereafter, an option to purchase an additional 10,000 shares of
common stock ("Anniversary Option Grant"). For each grant, the
exercise price is equal to the fair market value of Innovir's common
stock on the date of grant and the term is five years from the date
of grant. The Initial Option Grant vests ratably at six month
intervals over a three year period. The Anniversary Option Grant
vests 50% on the eighteenth month following the date of grant and
50% two years following the date of grant.
<PAGE>
The following table summarizes the activity in the Director's Plan:
<TABLE>
<CAPTION>
Exercise Price Weighted-Average Number of
Range Exercise Price Shares
--------------- ------------------- -------------
<S> <C> <C> <C>
Granted during the year ended September 30, 1994 $7.75 $7.75 60,000
-------------
Balance outstanding, September 30,
1994 and 1995 $7.75 $7.75 60,000
Granted $.97 - $3.88 $2.25 160,000
Canceled $1.69 - $7.75 $4.14 (75,000)
-------------
Balance outstanding, September 30, 1996
and December 22, 1996 $.97 - $7.75 $3.54 145,000
=============
</TABLE>
At September 30, 1996 and December 22, 1996, 35,000 options were
exercisable and 125,000 of Innovir's common stock were reserved for
future awards.
The following table summarizes stock option information with regards
to the Director's Plan as of December 22, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- -------------------------------
Weighted-Average Weighted- Weighed-
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- --------------- --------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$.97 - 3 100,000 4.6 years $1.65
$7.75 45,000 2.4 years $7.75 35,000 $7.75
<PAGE>
</TABLE>
The following table summarizes the pro forma operating results of
Innovir had compensation costs for the 93 Plan and the Director's Plan
been determined in accordance with the fair value based method of
accounting for stock based compensation as prescribed in SFAS No. 123.
Since option grants awarded during the year ended September 30, 1996
and for the period from October 1, 1996 through December 22, 1996 vest
over several years, the pro forma results noted below are not likely
to be representative of the effects on future years of the application
of the fair value based method.
<TABLE>
<CAPTION>
For the year ended For the period from
September 30, 1996 October 1, 1996 through
December 22, 1996
-------------------- ------------------------
<S> <C> <C>
Pro forma net loss $ (9,498,890) $ (1,490,159)
================= =====================
Pro forma net loss per share $ (1.67) $ (0.13)
================= =====================
</TABLE>
For the purposes of the above pro forma information, the fair value
of each option granted from the Incentive Plan during the year ended
September 30, 1996 and for the period from October 1, 1996 through
December 22, 1996 was estimated on the date of grant using the
Black-Scholes option pricing model. The weighted-average fair value
of the options granted during the year ended September 30, 1996 was
$3.21. There were no options granted for the period from October 1,
1996 through December 22, 1996. The following weighted-average
assumptions were used in computing the fair value of option grants
during the year ended September 30, 1996 and for the period from
October 1, 1996 through December 22, 1996: expected volatility of
83%; risk-free interest rate of 5.7%; expected lives of four years
and zero divided yield.
12. Stockholders' Equity:
During September 1993, Innovir raised approximately $7.8 million, after
expenses, from the sale of 1,799,750 Units in an IPO. Each Unit consists
of one share of common stock, one redeemable Class A warrant and one
redeemable Class B warrant. Each Class A and Class B warrant, as amended,
entitled the holder to purchase one share of common stock at a price per
share of $4.0625 and $5.70, respectively, subject to adjustment as
defined. Class A and Class B warrants can be exercised at any time on or
before August 12, 1998 and may be called early by Innovir under certain
circumstances. To date, none of these warrants have been exercised.
In connection with the sale of Units noted above, Innovir entered into an
underwriting agreement ("Underwriting Agreement") which, among other
things, allowed the underwriter ("A.R. Baron & Co., Inc.") to acquire,
for $100, a Unit Purchase Option ("UPO"). The terms of the UPO permit the
underwriter to purchase, for an aggregate consideration of approximately
$1.5 million, 179,975 Underwriter Units. Each Underwriter Unit consists
of one share of common stock, one redeemable Class A warrant and one
redeemable Class B warrant ("Underwriter Warrants"). Underwriter Warrants
have terms and provisions identical to the Class A and Class B warrants
issued as part of the IPO, except that the exercise prices of the Class A
and Class B warrants are $10.50 and $13.12, respectively. The underwriter
acquired the UPO during September 1993 and the UPO remains outstanding as
of December 22, 1996.
<PAGE>
The Underwriting Agreement also provided the underwriter with a right of
first refusal with regard to future public or private financings of
Innovir, as defined. In May 1994, Innovir repurchased the right of first
refusal from the underwriter in consideration for $94,486.
In March 1995, Innovir entered into a two-year consulting agreement (the
"Baron Agreement") with Baron Financial Services, Inc. ("Baron"), an
affiliate of A.R. Baron & Co., Inc., to provide financial and other
advisory services. As compensation for the Baron Agreement, Innovir
issued to Baron 250,000 warrants (the "Baron Warrants") to purchase an
equal number of shares of common stock at $7.38 per share. As
consideration for an extension of the term of the Baron Agreement, during
November 1995, Innovir amended the Baron Warrants to reduce the exercise
price to $.05 per share and issued to Baron 100,000 additional warrants
(the "New Baron Warrants") with terms and provisions substantially
identical to the amended Baron Warrants. On November 20, 1995 and April
2, 1996, respectively, the amended Baron Warrants and the New Baron
Warrants were exercised.
In addition, during January 1996, Innovir entered into a second
consulting agreement with Baron. Pursuant to this agreement, Baron agreed
to provide certain business development advice to Innovir. In
consideration for these services, Innovir made a $400,000 non-interest
bearing loan to Baron (the "Loan") and issued a warrant to purchase
250,000 shares of Innovir's common stock at $.05 per share (the "January
Baron Warrant"). On February 13, 1996, Baron repaid the loan and
exercised the January Baron Warrant.
Innovir was recognizing the fair market value of the Baron Warrants, the
amended Baron Warrants, the New Baron Warrants and the January Baron
Warrant (collectively, "BFS Warrants") as expense as services were
rendered, and the unamortized amount ("unearned compensation") was
included as a reduction of stockholders' equity. During June 1996, Baron
ceased operations and services provided to Innovir under the consulting
agreements with Baron terminated. As a result, the remaining unearned
compensation of BFS Warrants was expensed in June 1996.
In March 1995, Innovir commenced a private placement of its securities
("private placement") to raise equity financing. In connection with the
private placement, Innovir's Board of Directors designated 2,500,000
shares of Preferred Stock as Class B Convertible Preferred Stock ("B
Preferred Stock"). Holders of B Preferred Stock have no voting rights and
are entitled to receive dividends equal to common shareholders on a per
share basis as if the B Preferred Stock had been converted into common
stock. B Preferred Stockholders also have a liquidation preference of $5
per share, or such greater amount as determined by the Board of
Directors, in the event of a liquidation, dissolution, or winding up of
Innovir. The B Preferred Stock's conversion feature provides for each
share of B Preferred Stock to be converted into shares of common stock at
a floating rate equal to the result of dividing $5 by 65% of the average
of the closing bid prices of the common stock for the five days preceding
conversion, as defined. The average closing bid price to be used in the
calculation shall not be less than $5. The private placement provided for
the issuance of Units (the "95 Unit"). Each 95 Unit included 5,000 shares
of B Preferred Stock and a number of Class B warrants equal to the 95
Unit's selling price ($25,000), divided by 65% of the average closing
price of Innovir's common stock for five trading days prior to the
closing of the private placement. Class B warrants have terms and
provisions identical to the Class B warrants issued in connection with
Innovir's IPO. During April and May 1995, Innovir raised approximately
$3.2 million, after expenses, from the sale of 164.8 95 Units, which
included 824,000 shares of B Preferred Stock and 680,608 Class B
warrants.
In November 1995, Innovir entered into consulting agreements with two
investment banking companies (the "Investment Agreements") to provide
financial and other advisory services through November 1997. In
consideration for these services, Innovir issued warrants (the
"Investment Warrants") to purchase 500,000 shares of Innovir's common
stock at per share prices of $2.80 or $3. The Investment Warrants vest at
various dates over the twelve months following their issuance and expire
on November 9, 2000. The Investment Warrants contain antidilution
provisions, as defined. In addition, as consideration for the extension
of the term of one Investment Agreement, during January 1996, Innovir
issued to the investment banking company additional warrants (the "New
Investment Warrants") to purchase 25,000 shares of Innovir's common stock
at $.05 per share. During February and March 1996, all of the New
Investment Warrants were exercised. In July 1996, one Investment
Agreement was terminated and Investment Warrants to purchase 300,000
shares of Innovir's common stock at $2.80 per share were canceled. In
connection with the Investment Agreements, Innovir, as finders' fees,
issued 40,000 warrants (the "Finders' Warrants") to two individuals. Each
Finders' Warrant entitles the holder to purchase an equal number of
shares of Innovir's common stock at per share prices of $2.80 or $3. The
number of shares issuable to one individual upon the exercise of their
warrants is subject to reduction, as defined, in the event the individual
elects a cashless exercise option. The Finders' Warrants vest at various
dates over six months and expire on November 9, 2000. The Finders'
Warrants contain antidilution provisions, as defined. The fair market
value of the Investment Warrants and the Finders' Warrants is being
recognized as an expense over the life of the related consulting
agreements. The unamortized amount (unearned compensation) has been
included as a reduction in stockholders' equity.
In November 1995, Innovir commenced a private placement of its securities
to raise equity financing (the "95 Offering"). In connection with the 95
Offering, Innovir's Board designated one million shares of preferred
stock as Class C Convertible Preferred Stock ("C Preferred Stock").
Holders of C Preferred Stock have no voting rights and are not entitled
to receive dividends. C Preferred Stockholders have a liquidation
preference, in the event of a liquidation, dissolution, or winding up of
Innovir, equal to the sum of $5 per share (the "C Issue Price") plus an
amount equal to 10% of the C Issue Price, per annum, for the period that
has passed since their respective date of issuance. The liquidation
preference is on parity with the B Preferred Stockholders. The C
Preferred Stock's conversion feature provides for each share of C
Preferred Stock to be converted into shares of Innovir's common stock at
a floating rate equal to the result of dividing: (i) the sum of the C
Issue Price plus an amount equal to 10% of the C Issue Price, per annum,
for the number of days between the date of issuance, as defined, and the
date of conversion, as defined, of each share of C Preferred Stock by
(ii) the lesser of: (a) $3.4375, or (b) 85% of the average closing bid
price of Innovir's common stock for the five trading days immediately
preceding the date of conversion, as defined. During November and
December 1995, Innovir sold 960,000 shares of C Preferred Stock at $5 per
share. During the year ended September 30, 1996, 920,000 shares of C
Preferred Stock were converted into Common Stock, and the balance
converted during November 1996.
<PAGE>
In connection with the 95 Offering, Innovir paid fees to a Placement
Agent and issued 139,636 warrants (the "Placement Warrants") to purchase
an equal number of shares of Innovir's common stock at $3.78 per share.
The number of shares of common stock to be issued upon exercise of the
Placement Warrants may be reduced, as defined, in the event the Placement
Agent elects a cashless exercise option. The Placement Warrants are fully
vested and expire on December 1, 2000. The Placement Warrants contain
antidilution and other defined adjustment provisions.
In July 1996, Innovir entered into a consulting agreement with another
investment banking company (the "July Investment Agreement") to provide
financial and other advisory services through July 1998. In consideration
for these services, the Company issued warrants (the "July Investment
Warrants") to purchase 200,000 and 100,000 shares of Innovir's common
stock at per share prices of $.05 and $5, respectively. The July
Investment Warrants vest at various dates over the six months following
their issuance and expire on July 1, 2001. The July Investment Warrants
contain antidilution provisions, as defined.
Innovir, on August 30, 1996 completed a private placement whereby the
Aries Fund purchased four million shares of Innovir's common stock and
four million Class C Warrants for $2 million. Each Class C Warrant
entitles the holder to purchase one share of common stock at a price of
$.50 per share. Class C Warrants can be exercised at any time on or
before August 30, 2006 and contain antidilution and other defined
adjustment provisions. All of the Class C Warrants were exercised during
December 1996. In addition, Innovir issued to the Aries Funds options
(the "Funds Option") to purchase an additional two million shares of
common stock and two million Class C Warrants for $1 million. During
December 1996, the Funds Option was exercised and the related two million
Class C warrants remain outstanding and exercisable.
The following table summarizes warrant activity for each of the three
years in the period ended September 30, 1996 and for the period from
October 1, 1996 to December 22, 1996:
<PAGE>
<TABLE>
<CAPTION>
Exercise Price Class A Class B Other Total
<S> <C> <C> <C> <C> <C>
--------------- ----------- ------------ ------------ -----------
Balance outstanding,
September 30, 1993 $ 1,799,750 1,799,750 1,224,131 4,823,631
Issued in connection with equipment
financing (Note 8(c)) $ 4.0625 16,666 16,666
Exercised (Note 3) $ 3.125 (236,482) (236,482)
----------- ------------ ------------ -----------
Balance outstanding,
September 30, 1994 1,816,416 1,799,750 987,649 4,603,815
Issued in connection with a Bridge Warrant
exchange offer (Note 3) $ 5.70 567,122 567,122
Issued in connection with the Baron $ 0.05 250,000 250,000
Agreement
Issued in a private placement (Note 12) $ 5.70 680,608 680,608
Issued in connection with equipment
financing
(Note 8(c)) $ 9.5 2,526 2,526
Exercised (Note 3) $ 3.125 (350,643) (350,643)
----------- ------------ ------------ -----------
Balance outstanding,
September 30, 1995 1,816,416 3,047,480 889,532 5,753,428
Issued in connection with equipment
financing
(Note 8(c)) $ 2 2,500 2,500
Issued in connection with amendment
of a licensing agreement (Note 8(a)) $ 1.50 500,000 500,000
Issued in a private placement (Note 12) $ .50 8,000,000 8,000,000
Issued to a Placement Agent (Note 12) $ 3.78 139,636 139,636
Issued in connection with consulting
agreements
and various finders fees (Note 12) $ .05 - $5 1,215,000 1,215,000
Exercised (Note 12) $ 0.05 (625,000) (625,000)
Canceled in connection with consulting
agreements (Note 12) $ 2.80 (300,000) (300,000)
----------- ------------ ------------ -----------
Balance outstanding,
September 30, 1996 1,816,416 3,047,480 9,821,668 14,685,564
Issued in connection with debt
restructuring (Note 7) $ 1.50 20,000 20,000
Issued in connection with a Purchase
Transaction (Note 2) $ 1 - $2 2,000,000 2,000,000
Exercised (Note 12) $ 0.05 - (6,078,000) (6,078,000)
$0.50
----------- ------------ ------------ -----------
Balance outstanding,
December 22, 1996 1,816,416 3,047,480 5,763,668 10,627,564
=========== ============ ============ ===========
</TABLE>
<PAGE>
13. Extraordinary Item:
The terms of certain notes payable ("Notes") of Innovir contained early
repayment provisions in the event Innovir completed an IPO. As a result
of Innovir's completing an IPO in September 1993, these notes were repaid
and related deferred financing costs and unamortized discounts (totaling
$407,162) were written off and recorded as an extraordinary item.
14. Litigation:
During February 1996, Innovir was named as a defendant in an action filed
by an investor alleging that Innovir wrongfully refused to honor the
investment's request to convert certain shares of Innovir's preferred
stock into Innovir's common stock. During February 1997, the investor and
Innovir settled the action at no material cost to Innovir.
<PAGE>
Exhibit 11.1
INNOVIR LABORATORIES, INC.
(a Development State Enterprise)
Statement of Computation of Per Share Data
<TABLE>
<CAPTION>
For the Period
For the year ended October 1, 1996 to
September 30, 1996 December 22, 1996
------------------------------------- ---------------------------------------
Primary Fully Diluted Primary Fully Diluted
----------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Net loss $ (9,391,605) $ (9,391,605) $ (1,481,219) $ (1,481,219)
================= ================= ================= ===================
Weighted average number of
Common shares outstanding 5,671,248 5,671,248 11,736,178 11,736,178
Shares issuable upon
Conversion of convertible
Equity securities 2,415,791 456,923
Shares issuable upon exercise
of outstanding options
and warrants 834,850 8,209,253
Shares assumed to be
Repurchased under the
Treasury stock method (116,356) (3,516,097)
----------------- ----------------- ----------------- -------------------
Number of common shares
used in computing per share
Data 5,671,248 8,805,533 11,736,178 16,886,257
================= ================= ================= ===================
Net loss per share $ (1.66) $ (1.07) $ (0.13) $ (0.09)
================= ================= ================= ===================
</TABLE>
<PAGE>
INNOVIR LABORATORIES, INC.
(a Development State Enterprise)
Statement of Computation of Per Share Data
For the years ended September 30, 1994 and 1995
<TABLE>
<CAPTION>
1994 1995
------------------------------------- ---------------------------------------
Primary Fully Diluted Primary Fully Diluted
----------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Net loss $ (3,463,878) $ (3,463,878) $ (4,989,974) $ (4,989,974)
Reduction of net loss assuming a portion
of the proceeds from the exercise of
options and warrants was used to repay
the Company's term note payable and
related accrued interest, and capital
lease obligations, and to invest in
short-term government securities in
accordance with the treasury stock
method 1,058,959 452,363
----------------- ----------------- ----------------- -------------------
Net loss $ (3,463,878) $ (2,404,919) $ (4,989,974) $ (4,537,611)
================= ================= ================= ===================
Weighted average number of
common shares outstanding 3,089,090 3,089,090 3,510,047 3,510,047
Shares issuable upon
conversion of convertible
equity securities 245,115
Shares issuable upon exercise
of outstanding options
And warrants 5,379,940 6,167,726
Shares assumed to be
Repurchased under the
Treasury stock method (640,110) (797,268)
----------------- ----------------- ----------------- -------------------
Number of common shares
Used in computing per share
Data 3,089,090 7,828,920 3,510,047 9,125,620
================= ================= ================= ===================
Net loss per share (1.12) (0.31) (1.42) (0.50)
================= ================= ================= ===================
</TABLE>
<PAGE>
F-38
Exhibit 23
CONSENT of INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to Current Report on Form
8-K/A of our report dated March 4, 1997 on our audits of the financial
statements of Innovir Laboratories, Inc.
Coopers & Lybrand L.L.P.
New York, New York
March 5, 1997.
<PAGE>
VIMRx Pharmaceuticals Inc.
Description of Pro Forma Financial Information:
On December 23, 1996, VIMRx Pharmaceuticals Inc. ("VIMRx"), Innovir
Laboratories, Inc. ("Innovir"), and the Aries Funds, entered into a series of
agreements (the "Transaction") whereby VIMRx effectively acquired 68% of Innovir
and Innovir acquired all of the issued and outstanding shares of VIMRx Holdings,
Ltd. ("VHL"), a wholly-owned subsidiary of VIMRx. For financial reporting
purposes, the Transaction has been accounted for as a partial sale of VHL to
Innovir and a partial acquisition of Innovir.
In addition, during 1996, VHL acquired 100% of the outstanding capital stock of
Ribonetics GmbH ("Ribonetics") in consideration for approximately $1.6 million
of cash and a warrant to purchase 365,000 shares of VIMRx's common stock at an
exercise price of $.01 per share (the "Acquisition"). The Acquisition has been
accounted for as a purchase and the historic operating results of the Company
include those of Ribonetics for the seven months ended December 31, 1996.
The following unaudited pro forma condensed statement of operations for the year
ended December 31, 1995 and the nine month period ended September 30, 1996 gives
effect to the Transaction and the Acquisition as if they had occurred on January
1, 1995. The following unaudited pro forma condensed balance sheet at September
30, 1996 gives effect to the Transaction and the Acquisition as if they had
occurred on September 30, 1996.
The unaudited pro forma condensed statement of operations for the year ended
December 31, 1995 is based upon the historical operating results of Innovir,
Ribonetics and VIMRx for such period. The unaudited pro forma condensed
statement of operations for the nine month period ended September 30, 1996 is
based upon the historical operating results of Innovir and VIMRx for such period
and Ribonetics for the five month period ended May 31, 1996. The pro forma
statement of operations excludes material non-recurring charges related to
purchased in-process research and development and the gain on the sale of 32% of
VHL to Innovir. Such amounts totaled approximately $14 million and $3 million,
respectively, at the acquisition date.
The pro forma condensed financial statements may not be indicative of the
results that actually would have been attained if the Transaction and
Acquisition had been in effect on the date indicated or which may be attained in
the future.
The pro forma adjustments are described in the accompanying notes to the pro
forma condensed financial information. The pro forma condensed information
should be read in conjunction with the notes thereto and the financial
statements of VIMRx and Innovir, included in VIMRx's Annual Report on Form 10-K
for the year ended December 31, 1995, the VIMRx Quarterly Report on Form 10-Q
for the nine month period ended September 30, 1996 and Innovir's Annual Report
on Form 10-K for the year ended September 30, 1996.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED BALANCE SHEET: September 30,1996
(unaudited)
Pro Forma Pro Forma
ASSETS VIMRx Innovir Adjustments Combined
----------------------- --------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $1,564,000 $1,405,000 $ 3,000,000 (3) $8,969,000
(3,000,000) (1)
Securities held for sale 48,488,000 48,488,000
Prepaid Expenses and Other 30,000 149,000 179,000
----------------------- --------------------- ----------------- --------------------
Total Current Assets 50,082,000 1,554,000 51,636,000
-
Equipment 662,000 1,650,000 2,312,000
Goodwill 1,236,000 1,236,000
Other assets 257,000 257,000
Investment in Innovir 12,000,000 (1) 12,000,000
(12,000,000)(4) (12,000,000)
======================= ===================== ================= ====================
TOTAL ASSETS 50,744,000 3,461,000 1,236,000 55,441,000
======================= ===================== ================= ====================
LIABILITES
Accounts payable and accrued
expenses $206,000 1,110,000 $ 1,316,000
Capital leases-current portion 391,000 391,000
----------------------- --------------------- ----------------- --------------------
Total Current Liabilities 206,000 1,501,000 1,707,000
Term note payable-warrantholders 259,000 259,000
Capital Leases 622,000 622,000
Other liabilities 18,000 18,000
----------------------- --------------------- ----------------- --------------------
Total Liabilites 224,000 2,382,000 - 2,606,000
----------------------- --------------------- ----------------- --------------------
Minority interest $2,713,000 (2) 2,713,000
----------------- --------------------
Shareholders equity
Preferred stock
Class B 18,000 (18,000) (4)
Class C 2,000 (2,000) (4)
Class D 520,000 (2)
(520,000) (4)
Common Stock 51,000 150,000 3,000 (1)
54,000
78,000 (3)
(228,000) (4)
Additional paid-in capital 80,404,000 26,520,000 8,997,000 (1)
89,404,000
12,000,000 (2)
2,922,000 (3)
(41,439,000) (4)
Unearned compensation (744,000) (303,000)
(1,047,000)
Unrealized gain on investment 102,000
102,000
Deficit accumulated during
development stage (29,293,000) (25,308,000) (14,000,000) (2)
(38,391,000)
25,308,000 (4)
4,902,000 (4)
----------------------- --------------------- ----------------- --------------------
Total shareholder's equity 50,520,000 1,079,000 (1,477,000) 50,122,000
----------------------- --------------------- ----------------- --------------------
Total liabilites and
======================= ===================== ================= ====================
shareholder's equity $50,744,000 $3,461,000 $ (1,477,000) $55,441,000
======================= ===================== ================= ====================
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
Year Ended December 31,
1995
Pro Forma Pro Forma
VIMRX INNOVIR RIBONETICS Adjustments Combined
------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues
Interest income $ 160,000 $ 122,000 $ 6,000 $ 288,000
Other income 1,232,000 (1,050,000) (5) 182,000
------------- -------------- -------------- -------------- ----------------
Total 160,000 122,000 1,238,000 (1,050,000) 470,000
------------- -------------- -------------- -------------- ----------------
Operating Expenses
Research and Development 2,840,000 3,046,000 1,213,000 (1,050,000) (5) 6,049,000
Royalty Expense 100,000 100,000
General and administrative 2,272,000 2,483,000 400,000 5,155,000
------------- -------------- -------------- -------------- ----------------
Total operating expenses 5,212,000 5,529,000 1,613,000 (1,050,000) 11,304,000
------------- -------------- -------------- -------------- ----------------
Other expenses:
Investment in and advances to research 185,000 185,000
and development entities charged to
expense
Amortization of goodwill 412,000 (2) 412,000
Interest expense 2,000 117,000 119,000
Other - net 1,000 1,000
------------- -------------- -------------- -------------- ----------------
Total other expenses 188,000 117,000 - 412,000 717,000
------------- -------------- -------------- -------------- ----------------
NET LOSS $5,240,000 $ 5,524,000 $ 375,000 $ 412,000 $ 11,551,000
============= ============== ============== ============== ================
Net Loss Per Share $ 0.27 $ 0.52
============= ================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September January 1, 1996 through May 31,
30, 1996 1996
------------------------------ ---------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Interest income $ 831,000 $ 80,000 911,000
Other income $ 197,000 $ (112,000) (5) 85,000
------------- -------------- -------------- -------------- ----------------
Total 831,000 80,000 197,000 (112,000) 996,000
------------- -------------- -------------- -------------- ----------------
Operating expenses
Research and development 1,694,000 3,083,000 402,000 (112,000) (5) 5,067,000
Purchased research and development 3,105,000 (3,105,000) (2) -
Royalty expense 100,000 100,000
Termination of agreement (464,000) (464,000)
General and administrative 2,906,000 4,571,000 94,000 7,571,000
------------- -------------- -------------- -------------- ------------
Total operating expenses 7,341,000 7,654,000 496,000 (3,217,000) 12,274,000
------------- -------------- -------------- -------------- ----------------
Other (income) expenses:
Amortization of goodwill 309,000 (2) 309,000
Interest expense 319,000 133,000 3,000 455,000
Other - Net (46,000) (46,000)
------------- -------------- -------------- -------------- ----------------
Total other (income) expenses 273,000 133,000 3,000 309,000 718,000
------------- -------------- -------------- -------------- ----------------
NET LOSS $6,783,000 $ 7,707,000 $302,000 $ (2,796,000) $ 11,996,000
============= ============== ============== ============== ================
NET LOSS PER SHARE $ 0.19 $ 0.32
============= ================
</TABLE>
<PAGE>
VIMRx Pharmaceuticals, Inc.
Notes to Pro Forma Financial Information
1. VIMRx issued 3,000,000 shares of Common Stock with a market value of
$3.00 per share and paid $3,000,000 to purchase 9,500,000 shares of
Innovir Laboratories, Inc. from the Aries Funds.
2. VIMRx sold its subsidiary, VIMRx Holdings, Ltd., to Innovir for 8,666,666
shares of Class D Convertible Preferred Stock. The purchase price was
allocated to net tangible assets, goodwill and purchased in-process
research and development which is charged to operations. The purchased
in-process research and development has been deemed to be non-recurring and
directly attributable to the Transaction and the Acquisition and
accordingly has been excluded or eliminated from the pro forma results of
operations. Goodwill is being amortized on a straight line basis over the
period of expected benefit of three years.
3. The Aries Funds exercised warrants to purchase 6,000,000 shares of
Innovir Common Stock in order to execute the sale of that stock to Innovir.
4. Innovir Preferred Stock and Common Stock is eliminated and minority
interest established.
5. During the period from March 1995 through January 1996, VIMRx funded
Ribonetics under a research and development agreement. The income and
expense related to that agreement has been eliminated from the statement of
operations.
6. The net loss per share is computed on the basis of the pro forma net loss
for the period, divided by the number of shares outstanding during the
period, assuming the Transaction and the Acquisition had occurred on
January 1, 1995.
