SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________ to_____________
-------------------
INNOVIR LABORATORIES, INC.
(Exact name of Registrant as specified in its Charter)
Commission File Number 0-21972
Delaware 13-3536290
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
510 East 73rd Street (212) 249-4703
New York, NY 10021 (Registrant's telephone number)
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
The number of shares of the Registrant's common stock outstanding as of August
9, 1996 was: 5,956,559.
Table of contents is located on page 2.
<PAGE>
INNOVIR LABORATORIES, INC.
CONTENTS
- --------
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements:
Condensed Balance Sheets as of June 30, 1996 and
September 30, 1995 ............................................ 3
Condensed Statements of Operations for the three
months and the nine months ended June 30, 1996 and
1995 and for the period from September 1, 1989
(inception) to June 30, 1996 .................................. 5
Condensed Statement of Stockholders' Equity for the
nine months ended June 30, 1996 ............................... 6
Condensed Statements of Cash Flows for the nine
months ended June 30, 1996 and 1995 and for the
period from September 1, 1989 (inception) to June 30, 1996 .... 7
Notes to Condensed Financial Statements ....................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................. 18
Item 6. Exhibits and Reports on Form 8-K .............................. 19
2
<PAGE>
INNOVIR LABORATORIES, INC.
(a development stage enterprise)
CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents ...................................... $ 1,013,056 $ 1,836,984
Prepaid expenses and other current assets ...................... 75,452 178,833
------------ ------------
Total current assets ......................................... 1,088,508 2,015,817
Fixed assets, less accumulated depreciation and
amortization of $906,318 at June 30, 1996 and
$575,864 at September 30, 1995 ................................. 1,433,480 846,344
Other assets ..................................................... 296,930 342,724
------------ ------------
Total assets ................................................ $ 2,818,918 $ 3,204,885
============ ============
</TABLE>
(continued)
3
<PAGE>
INNOVIR LABORATORIES, INC.
(a development stage enterprise)
CONDENSED BALANCE SHEETS (continued)
(unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses .......................... $ 658,785 $ 660,256
Accrued interest -- warrantholder .............................. 10,920 13,003
Term note payable -- warrantholder; current portion ............ 125,000 62,500
Capital leases -- current portion .............................. 257,416 173,627
------------ ------------
Total current liabilities .................................... 1,052,121 909,386
Term note payable -- warrantholder; includes accrued interest .... 131,595 225,345
Capital leases ................................................... 563,293 458,435
------------ ------------
Total liabilities ............................................ 1,747,009 1,593,166
------------ ------------
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; shares issued and outstanding -- 297,000 at
June 30, 1996 and 427,500 at September 30, 1995
(liquidation value, $1,485,000 and $2,137,500, respectively) . 17,820 25,650
Class C Convertible Preferred Stock; 1,000,000 shares
designated; shares issued and outstanding -- 320,000 at
June 30, 1996 (liquidation value, $1,697,508) ............... 19,200
Common stock, par value $.013; 35,000,000 shares
authorized; shares issued and outstanding -- 5,874,510 at
June 30, 1996 and 3,986,339 at September 30, 1995 ........... 76,369 51,822
Additional paid-in capital ..................................... 24,108,186 17,628,038
Unearned compensation .......................................... (109,062) (177,083)
Deficit accumulated during the development stage ............... (23,040,604) (15,916,708)
------------ ------------
Total stockholders' equity ................................. 1,071,909 1,611,719
------------ ------------
Total liabilities and stockholders' equity ................. $ 2,818,918 $ 3,204,885
============ ============
</TABLE>
See accompanying notes to the financial statements
4
<PAGE>
INNOVIR LABORATORIES, INC.
(a development stage enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Cumulative
For the three months ended For the nine months ended Since
June 30: June 30: September 1,
--------------------------- --------------------------- 1989
1996 1995 1996 1995 (inception)
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income ................................. $ 22,559 $ 37,564 $ 102,232 $ 67,089 $ 349,421
----------- ----------- ----------- ----------- ------------
Expenses:
Research and development ........................ 942,023 699,614 2,773,318 2,077,785 11,264,742
General and administrative ...................... 652,972 614,383 1,766,574 1,477,575 7,824,460
Compensation expense incurred in
connection with the issuance of
warrants and stock options (non-cash charge) . 1,756,153 43,750 2,565,146 43,750 2,638,063
Interest ........................................ 44,531 24,050 121,090 74,996 1,255,598
----------- ----------- ----------- ----------- ------------
Total expenses ................................ 3,395,679 1,381,797 7,226,128 3,674,106 22,982,863
----------- ----------- ----------- ----------- ------------
Loss before extraordinary item ..................... (3,373,120) (1,344,233) (7,123,896) (3,607,017) (22,633,442)
Extraordinary item: loss on early
extinguishment of debt ........................... (407,162)
----------- ----------- ----------- ----------- ------------
Net loss ........................................... ($3,373,120) ($1,344,233) ($7,123,896) ($3,607,017) ($23,040,604)
=========== =========== =========== =========== ============
Loss per share data:
Weighted average number of common shares
outstanding .................................... 5,740,638 3,589,496 4,908,179 3,423,807
=========== =========== =========== ===========
Net loss per share ............................... ($0.59) ($0.37) ($1.45) ($1.05)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the financial statements
5
<PAGE>
INNOVIR LABORATORIES, INC.
(a development stage enterprise)
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
For the nine months ended June 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Class B Convertible Class C Convertible
Preferred Stock Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
-------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995 ................................... 427,500 $25,650 3,986,339 $51,822
Exercise of warrants ($.05 per share) ......................... 625,000 8,125
Sale of Class C Convertible Preferred Stock in
November and December 1995 for cash ($5.00 per
preferred share) ............................................ 960,000 $57,600
Costs incurred in connection with issuances of equity
securities
Issuance of warrants in November 1995 and January 1996
in connection with consulting agreements and finders'
fee arrangements
Amortization of unearned compensation
Compensation expense in connection with the issuance
of stock options ............................................
Conversions of Class B Preferred Stock into common stock ...... (130,500) (7,830) 164,871 2,144
Conversions of Class C Preferred Stock into common stock ...... (640,000) (38,400) 1,098,300 14,278
Net loss for the nine months ended June 30, 1996 ..............
-------- -------- -------- -------- ---------- --------
Balance, June 30, 1996 ........................................ 297,000 $17,820 320,000 $19,200 5,874,510 $76,369
======== ======== ======== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Unearned During the
Paid-in Compen- Development
Capital sation Stage Total
----------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Balance, September 30, 1995 ................................... $17,628,038 ($177,083) ($15,916,708) $1,611,719
Exercise of warrants ($.05 per share) ......................... 23,125 31,250
Sale of Class C Convertible Preferred Stock in
November and December 1995 for cash ($5.00 per
preferred share) ............................................ 4,742,400 4,800,000
Costs incurred in connection with issuances of equity
securities .................................................. (812,310) (812,310)
Issuance of warrants in November 1995 and January 1996
in connection with consulting agreements and finders'
fee arrangements ........................................... 2,443,125 (2,443,125)
Amortization of unearned compensation ......................... 2,511,146 2,511,146
Compensation expense in connection with the issuance
of stock options ............................................ 54,000 54,000
Conversions of Class B Preferred Stock into common stock ...... 5,686
Conversions of Class C Preferred Stock into common stock ...... 24,122
Net loss for the nine months ended June 30, 1996 .............. (7,123,896) (7,123,896)
----------- --------- ------------ ----------
Balance, June 30, 1996 ........................................ $24,108,186 ($109,062) ($23,040,604) $1,071,909
=========== ========= ============ ==========
</TABLE>
See accompanying notes to the financial statements
6
<PAGE>
INNOVIR LABORATORIES, INC.
(a development stage enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended Cumulative
June 30 Since
----------------------------- September 1,
1996 1995 1989
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss during development stage ....................................... ($7,123,896) ($3,607,017) ($23,040,604)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ....................................... 447,454 217,671 1,149,391
Amortization of deferred financing costs ............................ 22,600 11,538 283,750
Amortization of note payable discounts .............................. 79,947
Other non-cash expenses including compensation expense .............. 2,565,146 68,750 3,184,540
Loss on early extinguishment of debt ................................ 407,162
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses and other current assets .. 103,381 60,019 (75,452)
(Increase) in other assets ........................................ (95,694) (787) (212,059)
(Decrease) increase in accounts payable and accrued expenses ...... (71,844) 125,852 945,053
----------- ----------- ------------
Net cash used in operating activities .......................... (4,152,853) (3,123,974) (17,278,272)
----------- ----------- ------------
Cash flows from investing activities:
Capital expenditures .................................................... (524,710) (101,976) (1,437,122)
----------- ----------- ------------
Net cash used in investing activities ........................... (524,710) (101,976) (1,437,122)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from notes payable ............................................. (72,224) 5,755,205
Principal payments under capital lease obligations ...................... (144,657) (11,100) (287,824)
Increase in deferred financing costs .................................... (6,823) (553,689)
Repayment of notes payable .............................................. (31,250) (2,628,466)
Proceeds from issuance of equity securities, less offering expenses ..... 4,036,365 4,652,877 17,444,675
Purchase of treasury stock .............................................. (1,451)
----------- ----------- ------------
Net cash provided by financing activities ....................... 3,853,635 4,569,553 19,728,450
----------- ----------- ------------
Net (decrease) increase in cash and cash equivalents ........... (823,928) 1,343,603 1,013,056
Cash and cash equivalents, beginning of period ............................ 1,836,984 1,908,983
----------- ----------- ------------
Cash and cash equivalents, end of period ........................ $1,013,056 $3,252,586 $ 1,013,056
=========== =========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest ................................................. $123,173 $78,846 $396,757
=========== =========== ============
</TABLE>
See accompanying notes to the financial statements
7
<PAGE>
INNOVIR LABORATORIES, INC.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The condensed interim financial statements of Innovir Laboratories, Inc. (the
"Company") reflect all adjustments, consisting only of normal recurring
accruals, which are, in the opinion of the Company's management, necessary
for a fair presentation of the Company's results of operations for the
respective periods presented. Operating results for any interim period are
not necessarily indicative of results for a full year. These notes do not
include all the information required by Generally Accepted Accounting
Principles. The condensed interim financial statements should be read in
conjunction with the audited financial statements included in the Company's
annual report on Form 10-K for the fiscal year ended September 30, 1995.
Certain reclassifications have been made to the financial statements for 1995
and the cumulative period since September 1, 1989 (inception) to June 30,
1996 in order to conform with the current period's presentation.
2. Statements of Cash Flows - Supplemental schedule of noncash activities:
Included in accounts payable were approximately $63,000 and $47,000 of costs
incurred in connection with the Company's issuance of equity securities, and
approximately $66,000 and $22,000 of fixed assets, at June 30, 1996 and 1995,
respectively.
Capital lease obligations of approximately $333,000 and $84,000 were incurred
during the nine months ended June 30, 1996 and 1995, respectively, when the
Company leased new equipment.
During the nine months ended June 30, 1996, the Company amended 250,000
previously issued warrants, and issued an additional 915,000 warrants, to
purchase common stock in connection with various consulting agreements and
finders' fee arrangements entered into by the Company. The fair market value
of such warrants at the date of amendment or issuance was approximately
$2,443,000.
3. In November 1995, the Company commenced a private placement of its securities
to raise equity financing (the "95 Offering"). In connection with the 95
Offering, the Company's Board of Directors 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 down of the Company,
equal to the sum of $5.00 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 a
parity with the Class B Convertible Preferred Stockholders. The C Preferred
Stock's conversion feature provides for each share of C Preferred Stock to be
converted into shares of the Company's common stock at a floating rate equal
to the result of dividing: (i) the sum of the C Issue
8
<PAGE>
INNOVIR LABORATORIES, INC.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Continued)
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) the average closing bid price of the Company's common stock for the
five trading days ending on November 17, 1995 (which was $3.4375), or (b) 85%
of the average closing bid price of the Company's common stock for the five
trading days immediately preceding the date of conversion, as defined. Each
share of C Preferred Stock that remains outstanding on November 17, 1997 will
automatically be converted to common stock in accordance with the formula
above. The Company has the right to redeem, in whole or in part, any C
Preferred Stock submitted for conversion, in cash, in accordance with a
defined formula. During November and December 1995, the Company raised
approximately $4 million, after expenses, from the sale of 960,000 shares of
C Preferred Stock at $5 per share.
In connection with the 95 Offering, the Company paid fees to a Placement
Agent and issued 139,636 warrants (the "Placement Warrants") to purchase an
equal number of shares of the Company'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.
4. In March 1995, the Company entered into a two year consulting agreement (the
"Baron Agreement") with Baron Financial Services, Inc. ("Baron"), an
affiliate of A.R. Baron & Co., Inc., the Company's underwriter and former
principal market maker, to provide financial and other advisory services. As
compensation for the Baron Agreement, the Company 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, the Company 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, all of the amended Baron Warrants
and the New Baron Warrants were exercised.
In addition, during January 1996, the Company entered into a second
consulting agreement with Baron. Pursuant to this agreement, Baron agreed to
provide certain business development advice to the Company. In consideration
for these services, the Company made a $400,000 non-interest bearing loan to
Baron (the "Loan") and issued a warrant to purchase 250,000 shares of the
Company'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.
9
<PAGE>
INNOVIR LABORATORIES, INC.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Continued)
The Company was recognizing the fair market value of the Baron Warrants, the
amended Baron Warrants, the New Baron Warrants and the January Baron Warrant
(collectively, "Baron FMV") 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 the Company under the consulting agreements with Baron
terminated. As a result, the unamortized balance of Baron FMV was expensed
during the quarter ended June 30, 1996.
5. In November 1995, the Company 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, the Company issued warrants (the "Investment Warrants")
to purchase 500,000 shares of the Company's common stock at per share prices
of $2.80 or $3.00. 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, the Company issued to the investment banking company
warrants (the "New Investment Warrants") to purchase 25,000 shares of the
Company'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 the Company's common stock at $2.80 per share were cancelled.
In connection with the Investment Agreements, the Company issued 40,000
warrants (the "Finders' Warrants") as finders' fees to two individuals. Each
Finders' Warrant entitles the holder to purchase an equal number of shares of
the Company's common stock at per share prices of $2.80 or $3.00. 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 vested at various dates
through May 1996 and expire on November 9, 2000. The Finders' Warrants
contain antidilution provisions, as defined. One of the recipients of the
Finders' Warrants is an insurance broker for the Company, who is also a
shareholder and warrantholder.
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 July 1996, the Company entered into a consulting agreement with another
investment
10
<PAGE>
INNOVIR LABORATORIES, INC.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Continued)
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 the Company's common stock at per
share prices of $.05 and $5.00, 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.
6. The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123") in October 1995. FAS 123 requires companies to estimate the fair value
of common stock, stock options, or other equity instruments ("Equity
Instruments") issued to employees using pricing models which take into
account various factors such as current price of the common stock, volatility
and expected life of the Equity Instrument. FAS 123 permits companies to
either provide proforma note disclosure or adjust operating results for the
amortization of the estimated value of the Equity Instrument, as compensation
expense, over the vesting period of the Equity Instrument. The Company has
elected to provide pro forma note disclosure which will appear in its
financial statements for the year ending September 30, 1997 and, therefore,
there will be no effect on the Company's financial position or results of
operations.
7. As part of the Company's private placement in November 1995, the Company sold
90,000 shares of C Preferred Stock to an investor. On February 1, 1996, the
investor delivered to the Company a notice (the "Notice of Conversion")
requesting that the Company convert 60,000 shares of C Preferred Stock into
147,594 shares of the Company's common stock, in accordance with the formula
as defined by the C Preferred Stock. The Company declined to comply with the
Notice of Conversion on the grounds, among others, that the Company believed
the investor was seeking to deliver the shares of common stock to be obtained
upon such conversion to cover a short position in direct violation of the
subscription agreement with the Company executed by the investor at the time
it acquired the C Preferred Stock. On February 28, 1996, the Company was
named as a defendant in an action filed by the investor alleging that the
Company wrongfully refused to honor the investor's Notice of Conversion,
demanding conversion of the C Preferred Stock held by the investor and
seeking damages which the investor alleges may be in excess of $1,000,000. On
March 20, 1996, the Company and the investor agreed that the Company would
honor the Notice of Conversion and a second notice of conversion for the
remaining 30,000 shares of C Preferred Stock held by the investor and convert
all 90,000 shares of C Preferred Stock into 192,557 shares of common stock,
54,000 shares of which would be held in escrow pending further agreement
between the parties or a final
11
<PAGE>
INNOVIR LABORATORIES, INC.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Continued)
adjudication of the investor's claim. In accordance with a stipulation and
order entered by the court on that date, the Company delivered to the
plaintiff 138,557 shares of common stock and delivered into escrow 54,000
shares of common stock. On April 10, 1996, the Company filed an answer to
the investor's complaint, denying liability, asserting affirmative defenses
and asserting a counterclaim for damages suffered as a result of the
investor's actions. The investor has moved for summary judgement and the
Company has filed its response. The ultimate resolution of this matter
cannot presently be determined. Accordingly, no provision for any liability
that may result upon the resolution of this matter has been made in the
accompanying financial statements.
8. Effective July 1, 1996, a financial covenant associated with an existing
capital leasing agreement between the Company and a finance company, was
amended (the "Amended Covenant") to decrease the minimum cash level, as
defined, that the Company must maintain to $250,000 during the term of the
leases. As partial consideration for the Amended Covenant, the Company
issued a warrant to purchase 2,500 shares of the Company's common stock at
$2.00 per share. The warrant is fully exercisable, expires on July 1, 2001,
and is subject to antidilution provisions, as defined.
As a result of the Company's current financial condition, combined with
anticipated future capital needs, it is probable, in the event the Company
is unsuccessful in obtaining additional capital, that during the three
months ended September 30, 1996, it would be in violation of the Amended
Covenant and therefore, be in technical default of the terms of the leasing
agreement. Should this occur, all amounts due under the leasing agreement,
totaling approximately $285,000 at June 30, 1996, would become payable
immediately.
9. On August 9, 1996, the Company's Board of Directors approved a reduction in
the exercise price of outstanding warrants to purchase 256,666 shares of the
Company's common stock (exercise prices ranging from $2.80 to $4.0625 per
share). The exercise price will be reduced to $1.00 per share for a period
of fifteen days from the date that the Company issues written notification
of the reduction to the warrantholders.
10. The Company is currently in negotiations with a third party investor for the
investment of $2,000,000 relating to a private placement of the Company's
common stock and warrants to be conducted in accordance with Regulation D
promulgated under the Securities Act of 1933, as amended. The offering price
is expected to be at a substantial discount to the fair market value of the
Company's common stock.
12
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward looking statements which involve risks and
uncertainties. Such statements are subject to certain factors which may cause
the Company's plans to differ. Factors that may cause such differences include,
but are not limited to, the progress of the Company's research and development
programs, the Company's ability to obtain additional funds, the Company's
ability to compete successfully, the Company's ability to attract and retain
qualified personnel, the Company's ability to successfully enter into
collaborations with third parties, the Company's ability to enter into and
progress in clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in obtaining and enforcing patents and any
necessary licenses, the ability of the Company to establish development and
commercialization relationships, the cost of manufacturing, and those other
risks discussed under the heading "Risk Factors" included in the Company's
Post-Effective Amendment No. 3 to Form S-1 Registration Statement (Reg.
No. 33-63142).
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto contained herein.
RESULTS OF OPERATIONS
Since its inception, substantially all of the Company's resources have been
applied to research and development, patent and licensing matters and other
general and administrative matters. The Company has no commercially viable
products and does not anticipate having any for several years. The Company has
had no operating revenues to date and has sustained net losses since its
inception. In the future, the Company intends to increase its research and
development activities and, accordingly, its rate of operating losses and
expenditures. The Company expects losses to continue for the foreseeable
future.
The independent accountant's report on the Company's financial statements
for the year ended September 30, 1995, included in Form 10-K, contains
explanatory language with regard to substantial doubt about the Company's
ability to continue as a going concern.
THREE MONTHS ENDED JUNE 30, 1996 VS. JUNE 30, 1995
Interest income decreased from $37,564 in 1995 to $22,559 in 1996, a
decrease of $15,005 or 40%, resulting primarily from a reduced average cash
position in 1996 as the Company expended funds for operations.
Research and development costs increased from $699,614 in 1995 to $942,023
in 1996, an increase of $242,409 or 35%. This increase was principally due to
hiring additional research staff more sophisticated experiments involving higher
usage levels of reagents and laboratory supplies in 1996, additional
depreciation expense resulting from equipment purchased during 1995 and 1996,
additional rent and related costs resulting from expansion of the Company's
facilities in 1995 to accommodate the Company's increased level of research and
development activities, the
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<PAGE>
start of animal trials for Hepatitis B Virus in 1996, and increased
collaborative research.
General and administrative costs increased from $614,383 in 1995 to
$652,972 in 1996, an increase of $38,589 or 6%. This increase was principally
due to increased promotional efforts and other stockholder related expenses,
legal fees incurred in 1996 relating to litigation with a shareholder (see Note
7 to the Condensed Financial Statements included herein), additional expenses
incurred to protect intellectual property and higher insurance premiums, offset
by lower costs, incurred in 1995 only, associated with a severance package
allowed to a former officer who resigned in April 1995 and corporate development
of a potential strategic alliance which was subsequently abandoned.
The Company entered into consulting agreements with two investment banking
companies and Baron Financial Services, Inc., ("Baron") an affiliate of A.R.
Baron & Co. Inc., the Company's underwriter and former principal market maker,
to provide financial and other advisory services. As compensation for these
agreements, the Company issued warrants to purchase an equal number of shares of
the Company's common stock. The fair market value of these warrants is being
recognized as an expense as the services are rendered to the Company.
Compensation expense incurred in connection with the issuance of warrants and
stock options ("Compensation Expense") of $1,756,153 in 1996 and $43,750 in 1995
primarily results from expense recognition relating to these consulting
agreements. In addition, during June 1996, Baron ceased operations, and services
provided to the Company under the consulting agreements with Baron terminated.
As a result, the unamortized balance of the fair market value of warrants issued
to Baron, which totaled approximately $1.6 million at March 31, 1996, was
expensed during the quarter ended June 30, 1996; such amount is included in
Compensation Expense.
Interest expense increased from $24,050 in 1995 to $44,531 in 1996, an
increase of $20,481 or 85%. This increase was due to new equipment financed
under various leasing arrangements.
The Company's net loss for the three months ended June 30, 1996 was
$3,373,120, or $0.59 per share, compared to a net loss of $1,344,233, or $0.37
per share, for the same period in 1995.
NINE MONTHS ENDED JUNE 30, 1996 VS. JUNE 30, 1995
Interest income increased from $67,089 in 1995 to $102,232 in 1996, an
increase of 35,143 or 52%, resulting primarily from earnings on the cash
proceeds received during November and December 1995 from the Company's private
placement of Class C Convertible Preferred Stock.
Research and development costs increased from $2,077,785 in 1995 to
$2,773,318 in 1996, an increase of $695,533 or 33%. This increase was
principally due to hiring additional research staff, more sophisticated
experiments involving higher usage levels of reagents and laboratory supplies in
1996, additional depreciation expense resulting from equipment purchased during
1995 and 1996, additional rent and related costs resulting from expansion of the
Company's facilities in 1995 to accommodate the Company's increased level of
research and development activities, the start of animal trials for Hepatitis B
Virus in 1996 and increased collaborative research.
14
<PAGE>
General and administrative costs increased from $1,477,575 in 1995 to
$1,766,574 in 1996, an increase of $288,999 or 20%. This increase was
principally due to increased promotional efforts and other stockholder related
expenses, legal fees incurred in 1996 relating to litigation with a shareholder
(see Note 7 to the Condensed Financial Statements included herein), additional
expenses incurred to protect intellectual property and higher insurance
premiums, partially offset by costs, incurred in 1995 only, associated with a
severance package allowed to a former officer who resigned in April 1995 and
corporate development of a potential strategic alliance which was subsequently
abandoned.
The Company entered into consulting agreements with two investment banking
companies and Baron to provide financial and other advisory services. As
compensation for these agreements, the Company issued warrants to purchase an
equal number of shares of the Company's common stock. The fair market value of
these warrants is being recognized as an expense as the services are rendered to
the Company. Compensation Expense of $2,565,147 in 1996 and $43,750 in 1995
primarily results from expense recognition relating to these consulting
agreements. In addition, during June 1996, Baron ceased operations and services
provided to the Company under the consulting agreements with Baron terminated.
As a result, the unamortized balance of the fair market value of warrants issued
to Baron was expensed and is included in Compensation Expense for the nine
months ended June 30, 1996.
Interest expense increased from $74,996 in 1995 to $121,090 in 1996, an
increase of $46,094 or 61%. This increase was due to new equipment financed
under various leasing arrangements.
The Company's net loss for the nine months ended June 30, 1996 was
$7,123,896, or $1.45 per share, compared to a net loss of $3,607,017, or $1.05
per share, for the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash and cash equivalents of $1,013,056
as compared to $1,836,984 at September 30, 1995. The Company had working capital
of $36,387 at June 30, 1996, as compared to working capital of $1,106,431 at
September 30, 1995. The decreased cash and working capital positions result from
funding the Company's operations for the nine months ended June 30, 1996,
offset, in part, by net proceeds totaling approximately $4 million which were
received from a private placement completed in December 1995. The Company has
funded its operations to date primarily from the proceeds received from the
issuance of securities to private and public investors.
In November and December 1995, the Company completed a private placement of
its securities to raise equity financing (the "95 Offering"); the 95 Offering
was conducted pursuant to the provisions of Regulation S as promulgated under
the Securities Act of 1933, as amended. In connection with the 95 Offering, the
Company sold 960,000 shares of its Class C Convertible Preferred Stock ("C
Preferred Stock") and raised approximately $4 million, after expenses, from such
sale. 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,
15
<PAGE>
dissolution, or winding down of the Company, equal to the sum of $5.00 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 the dates of issuance to such
stockholders. The liquidation preference is on a parity with the holders of
Class B Convertible Preferred Stock. The C Preferred Stock's conversion feature
provides for each share of C Preferred Stock to be converted into shares of the
Company'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) the average closing bid price of the Company's common stock
for the five trading days ending on November 17, 1995 (which was $3.4375), or
(b) 85% of the average closing bid price of the Company's common stock for the
five trading days immediately preceding the date of conversion, as defined. Each
share of C Preferred Stock that remains outstanding on November 17, 1997 will
automatically be converted to common stock in accordance with the formula above.
The Company has the right to redeem, in whole or in part, any C Preferred Stock
submitted for conversion, in cash, in accordance with a defined formula. As of
June 30, 1996, based on a conversion price at such date of $1.6576, the Company
has reserved approximately 1,024,000 shares of common stock for issuance upon
conversion of the issued and outstanding C Preferred Stock; in the event the
price of the Company's common stock decreases, the number of shares held in
reserve with respect to the C Preferred Stock would increase.
On January 26, 1996, the Company and Baron entered into an agreement
pursuant to which Baron agreed to provide certain business development services
to the Company. As consideration for these services, the Company made an
interest-free loan of $400,000 to Baron, which loan was guaranteed by a
principal of Baron, and issued to Baron a warrant to purchase 250,000 shares of
the Company's common stock at an exercise price of $.05 per share. On February
13, 1996, Baron repaid the loan and exercised the warrant.
In August 1995, the Company was granted a leasing commitment (the "Lease
Line") by a finance company which provides for up to $300,000 to finance
laboratory equipment acquisitions. The Company may utilize the Lease Line in
increments ("Leases"). The Leases are for 36-month periods with a purchase
option at the end of each lease or an option to extend the lease for a one-year
term. The Company must provide security deposits of 35% of the cost of the
equipment financed. As of June 30, 1996, the Company had fully utilized the
Lease Line. In connection with the Lease Line, the Company issued to the lessor
a seven-year warrant to purchase 2,526 shares of the Company's common stock at
$9.50 per share. The fair market value of such warrant on the date of issuance
was deemed to be $24,000.
Effective July 1, 1996, a financial covenant associated with an existing
capital leasing agreement between the Company and a finance company, was amended
(the "Amended Covenant") to decrease the minimum cash level, as defined, that
the Company must maintain to $250,000 during the term of the leases. As partial
consideration for the Amended Covenant, the Company issued a warrant to purchase
2,500 shares of the Company's common stock at $2.00 per share.
Planned operations for 1996 currently contemplate expenditures for capital
assets of approximately $850,000, mainly consisting of laboratory equipment and
leasehold improvements
16
<PAGE>
as the Company expands into, and renovates, additional office and laboratory
space which it has leased effective in December 1995. As a result of the
Company's intention to continue increasing its research and development
activities, the Company expects that more office and laboratory space will
eventually be necessary, for which renovations may be required, and an
additional lease line may need to be negotiated. The Company will finalize plans
for such additional capital expenditures when, and if, these leasing
arrangements are consummated. However, there can be no assurance that the
Company will successfully enter into such new arrangements.
The Company expects to incur substantial expenditures in the foreseeable
future for the research and development and commercialization of its proposed
products and the upgrading of its laboratory facilities. As of August 12, 1996,
the Company had cash and cash equivalents of approximately $434,000. The
Company's management believes that this will be sufficient to fund the Company's
operations into late August 1996. Thereafter, the Company will require
additional funds, which it is seeking to raise through public or private equity
or debt financings, collaborative or other arrangements with corporate sources,
or through other sources of financing. The Company is currently in negotiations
with a third party investor for the investment of $2,000,000 relating to a
private placement of the Company's common stock and warrants to be conducted in
accordance with Regulation D promulgated under the Securities Act of 1933, as
amended. The offering price is expected to be at a substantial discount to the
fair market value of the Company's common stock as quoted on NASDAQ. This
transaction, if consummated, would cause current stockholders to incur immediate
and substantial dilution. While the Company believes that this transaction will
be consummated in the near future, there can be no assurance that such
transaction will be successfully consummated. No other sources of financing are
currently available to the Company. Further, even if such financing is
successfully consummated, the Company will thereafter need to seek additional
sources of financing. There can be no assurance that any additional financing
can be obtained on terms reasonable to the Company, if at all. In the event the
Company is unable to raise any additional capital, planned operations would need
to be discontinued by the end of August 1996.
In addition, the Company has been named as a defendant in an action
alleging that the Company wrongfully declined to honor the plaintiff's notice of
conversion with respect to the C Preferred Stock held by the plaintiff. The
plaintiff is seeking damages which the plaintiff alleges may be in excess of
$1,000,000. While the Company believes that the litigation will ultimately be
resolved without a materially adverse effect on the Company's business or
financial position, no assurances can be given as to the ultimate outcome of or
the costs incurred in defending this litigation. Such costs and monetary damages
awarded to the plaintiff, if any, would accelerate the exhaustion of the
Company's cash and cash equivalents.
IMPACT OF THE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123") in October 1995. FAS 123 requires companies to estimate the fair value of
common stock, stock options, or other equity instruments ("Equity Instruments")
issued to employees using pricing models which take into account various factors
such as current price of the common stock, volatility and expected life of the
Equity Instrument. FAS 123 permits companies to either provide proforma note
disclosure or adjust operating results for the amortization of the estimated
value of the Equity Instrument, as compensation expense, over the vesting period
of the Equity Instrument. The Company has elected to provide pro forma note
disclosure which will appear in its financial statements for the year ending
September 30, 1997 and therefore, there will be no effect on the Company's
financial position or results of operations.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In connection with the action captioned Mifal Klita v. Innovir
Laboratories, Inc., Swartz Investments, LLC f/k/a Swartz Investments, Inc., and
Registrar and Transfer Company, on April 10, 1996, the Company filed an answer
to the plaintiff's complaint, denying liability, asserting affirmative defenses
and asserting a counterclaim for damages suffered as a result of plaintiff's
actions. Plaintiff has moved for summary judgement, and the Company has filed
its response. While the Company believes that the litigation will be resolved
without a materially adverse effect on the Company's business or financial
position, no assurances can be given as to the ultimate outcome of or the costs
in defending this litigation. See Note 7 of Notes to Condensed Financial
Statements and the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1996.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 10.1: Amendment No. 1 to Employment Agreement by and between
the Registrant and Allan R. Goldberg, dated as of April 1, 1996.
(b) Exhibit 10.2: Form of Research Collaboration Agreement by and between
the Registrant and Scripps Research Institute, effective as of April 6,
1996.
(c) Exhibit 11.1: Statement of Computation of Per Share Data for the three
months ended June 30, 1996 and 1995.
(d) Exhibit 11.2: Statement of Computation of Per Share Data for the nine
months ended June 30, 1996 and 1995.
(e) Exhibit 27: Financial Data Schedule.
(f) No reports on Form 8-K were filed during the quarter ended June 30,
1996.
All other Items of this report are inapplicable.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: August 14, 1996
INNOVIR LABORATORIES, INC.
By: /s/ ALLAN R. GOLDBERG
------------------------------------------------
Allan R. Goldberg
Chairman and Chief Executive Officer
(Principal executive officer)
By: /s/ GARY POKRASSA
------------------------------------------------
Gary Pokrassa
Vice President - Finance
(Principal financial and accounting officer)
20
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No. 1 to Employment Agreement, dated as of April 1, 1996, by and
between Innovir Laboratories, Inc., a Delaware corporation ("Innovir"), and Dr.
Allan R. Goldberg ("Employee").
WHEREAS, Innovir and Employee hereby wish to amend and extend the terms
of the Employment Agreement, dated as of April 1, 1992, between Innovir and
Employee (the "Employment Agreement").
NOW, THEREFORE, it is hereby agreed as follows:
1. Definitions. Capitalized terms used herein that are not otherwise
defined shall have the meanings assigned to such terms in the Employment
Agreement.
2. The first sentence of Section 1.(A) of the Employment Agreement is
hereby deleted and replaced in its entirety with the following sentence:
"(A) "Services" -- Employee shall act in the capacity of Chairman of the
Board and Chief Executive Officer of Employer and shall be elected as a member
of the Board of Directors."
3. Section 4 of the Employment Agreement is hereby deleted and replaced in
its entirety with the following new Section 4:
"4. Term. Employee's term of employment shall end on March 31, 1998, unless
sooner terminated in accordance with this Agreement. The parties agree to
commence negotiations in good faith for renewal of this Agreement on the
one-year anniversary of this Agreement. Employee's last day of employment,
regardless of how terminated pursuant to this Agreement, shall be the
"Termination Date."
4. Section 5 of the Employment Agreement is hereby deleted and replaced in
its entirety with the following new Section 5:
"5. Compensation.
(a) Salary. As compensation for the Services rendered by Employee under
this Agreement, Employer shall pay Employee a salary at the annual rate of
$200,000 ("Salary"). Employee's Salary shall be payable in arrears in equal
monthly installments, subject to such deductions and withholding as may be
required by law or by agreement of Employee. Employee's Salary shall be reviewed
annually and shall be subject to upward adjustment as shall be determined by the
Board of Directors.
(b) Expenses. Employer shall reimburse Employee for all reasonable, proper
and necessary out-of-pocket expenses that Employee may incur in connection
<PAGE>
with the performance of Services, upon submission to Employer of itemized
statements supported by documentation specified by Employer.
(c) Fringe Benefits. Employee shall be entitled to all rights and benefits
generally provided to executive employees as decided by the Board of Directors
from time to time, including, without limitation, vacation, medical, accident
and disability insurance, life insurance (provided that Employee and Employer
are joint beneficiaries), pension, vehicle use and related expenses.
(d) Facilities. Employer shall provide Employee with appropriate research
facilities, office space, equipment, furniture, supplies and clerical staff.
(e) Equity Participation. Employer and Employee shall negotiate in good
faith to determine the vesting schedule of TARSOPs previously granted to
Employee.
(f) Key Performance Bonus. A cash bonus may be paid to Employee at the
reasonable discretion of Employer's Board of Directors upon the achievement of
specific and reasonable key performance objectives to be established and
measured by the Board of Directors. These objectives will be a set of specific
critical tasks prepared by Employee and recommended by Employee to the Board of
Directors for review and approval. At a minimum, each set of critical tasks will
be prepared by Employee and authorized by the Board of Directors once each
fiscal year, or more frequently as may be appropriate."
5. Subsection (c) of Section 6 is hereby deleted and replaced in its
entirety with the following subsection:
"(c) Effect of Termination. Upon any termination pursuant to this Section
6, all rights of Employee hereunder shall cease to be effective as of the
Termination Date, Employee shall be removed or resign from any position held
hereunder, and, except to the extent otherwise provided by law or mutually
agreed to, Employee shall have no rights to receive any payments or benefits
hereunder, except for:
i) Salary payable pursuant to Subsection 5(a) up to the Termination Date;
ii) reimbursement of expenses incurred in accordance with Subsection 5(b)
prior to the Termination Date;
iii) in the case of termination for death or Permanent Disability, an
amount equal to the Salary which would have been payable herewith up to a
maximum of eighteen months following the Termination Date;
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iv) in the case of any Termination Not For Cause, the balance of the bonus
due to the Employee pursuant to subparagraph 5(f) notwithstanding his
termination of employment;
v) notwithstanding subsection (iv) above, if a merger, acquisition or
change in the majority ownership of the stock of the Employer occurs, Employee
shall be entitled to a lump sum severance payment, in consideration of past
services, paid to Employee no later than the fifth day following the termination
date, equal to one year's salary.
vi) Other Events. In the event of the earlier of (i) any termination in
connection with a liquidation of Employer as a result of any merger or
acquisition of the Employer with or by another company or firm, wherein the
shareholders of the Corporation do not own fifty percent (50%) of the shares of
the surviving corporation after the merger; (ii) a public offering of the
securities of the Employer wherein the Employer receives proceeds in the amount
of $20,000,000 or more; all restricted stock and stock options and rights held
by the Employee shall immediately accelerate and irrevocably vest in their
entirety.
vii) In the event of any termination Not For Cause, 100% of Employee's
non-vested shares will vest, unless termination results from a determination by
the Board of Directors that Employee has failed to perform his duties in a
manner reasonably consistent with the best interests of the Corporation, which
determination has been based on facts and circumstances set forth in a written
communication to Employee affording a reasonable period of at least 15 days, but
not more than 30 days, for Employee to rectify the specified shortcomings.
viii) Notwithstanding anything to the contrary herein, in the case of
Employee's termination hereunder For Cause or Not For Cause, and in
consideration of Employee's agreement contained in Section 9 hereof, the Company
shall pay Employee an amount equal to the Salary for eighteen months following
the Termination Date during which time the Employee shall serve as a consultant
to the Company and perform such duties as may reasonably be determined by the
Company."
6. Subsection (1) of Section 13 of the Employment Agreement is hereby
deleted and replaced in its entirety with the following new Subsection (1):
"(i) If to Employer:
Innovir Laboratories, Inc.
510 E. 73rd St.
New York, New York 10021
Attn: Gary Pokrassa
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<PAGE>
With a copy to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Attn: Merrill M. Kraines, Esq."
7. All other sections of the Employment Agreement not hereby amended shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
as of the date first above written.
INNOVIR LABORATORIES, INC.
By: /s/ GARY POKRASSA
------------------------------
/s/ ALLAN R. GOLDBERG
-------------------------------
Dr. Allan R. Goldberg
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RESEARCH COLLABORATION
This Research Collaboration (the "Agreement") is effective on this 6th day
of April, 1996 (the "Effective Date"),
SCRIPPS RESEARCH INSTITUTE, a California nonprofit public benefit
corporation located at 10666 North Torrey Pines Road, La Jolla, California
92037, (hereinafter "Scripps") and
INNOVIR LABORATORIES, INC., a Delaware corporation having its principal
place of business at 510 East 73rd Street, New York, New York 10021 (hereinafter
"Innovir"),
in consideration of the mutual covenants contained herein, AGREE AS
FOLLOWS:
ARTICLE 1
BACKGROUND AND DEFINITIONS
1.1 Scripps possesses proprietary materials, know-how, information and
expertise regarding the Research and wishes to perform collaborative
research with Innovir; and
1.2 Principal Investigator (as defined herein) has developed a unique
transgenic mouse model which expresses fully assembled HBV particles.
1.3 Innovir has proprietary oligonucleotide-based anti-HBV compounds called
external guide sequences ("EGSs") which have been shown to inhibit HBV
replication in hepatoma cells producing human HBV.
1.4 Innovir desires to undertake a research collaboration with Scripps.
1.5 Scripps has the exclusive right to grant a license in and to any
technology developed in performance of the Research program described
herein, subject to any rights of the U.S. Government, resulting from
the receipt by Scripps of U.S. Government funding, to use such
technology for its own purposes, and subject to any agreement with
third parties that prevent license of the technology for agricultural
uses.
1.6 The parties wish to collaborate in the of Research under terms and
conditions of this agreement.
<PAGE>
ARTICLE 2
DESCRIPTION OF THE RESEARCH
2.1 The Research to be conducted hereunder is fully described in Schedule
and relates to the use of EGSs to inhibit HBV replication.
ARTICLE 3
SCRIPPS STAFF AND FACILITIES
3.1 The Research shall be carried out at Scripps under the direction of Dr.
Francis V. Chisari ("Principal Investigator"), and any additional
personnel assigned by the Principal Investigator and listed on Schedule
3 ("Researcher(s)") to the Research and will notify Innovir of the
selection. If the Principal Investigator is unable to continue the
Research, Innovir in its sole discretion shall (i) consult with Scripps
to select a mutually acceptable replacement or replacements from the
Scripps staff to direct and conduct the Research, and/or (ii) terminate
the Research.
3.2 Scripps hereby agrees to conduct the Research as expressly set forth on
Schedule 1 attached hereto.
ARTICLE 4
REPORTS AND TANGIBLE TECHNICAL INFORMATION
4.1 Principal Investigator shall keep Innovir informed of the progress of
the Research it conducts hereunder on a regular basis as mutually
agreed to by both parties. Principal Investigator shall provide Innovir
with bimonthly reports of progress and a complete written report at the
end of the Term.
4.2 Innovir shall have the right to use the reports submitted by Principal
Investigator as it sees fit, however, Innovir may not make any
reference to the Scripps Research Institute or any affiliate
institution without first obtaining written consent from Scripps, which
consent will not be unreasonably withheld; provided however, and upon
notification to Scripps, Innovir may make such reference if Innovir's
counsel deems it necessary or appropriate to comply with statute, court
order or government regulation, for filing with a regulatory agency or
for filing a patent application.
4.3 Scripps and Dr. Chisari shall to the best of their ability in a timely
fashion permit Innovir full access to all information, inventions,
improvements, designs and know-how which may be conceived, invented or
reduced to practice in performance of the Research conducted hereunder.
At the request of Innovir, Scripps and Dr. Chisari shall to the best of
their ability deliver to Innovir copies of all laboratory notebooks and
other technical and research data including
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<PAGE>
documents or computer stored data and formulations of any compounds
associated with or prepared in performance of the Research; provided,
however, such obligation shall terminate on the first anniversary of
the termination or expiration of this Agreement and further provided,
that if Innovir requests such information after the first anniversary
and Scripps or Dr. Chisari still have such information they will
provide such information to Innovir.
ARTICLE 5
CONFIDENTIAL INFORMATION
5.1 All proprietary information and data supplied or generated under this
Agreement (including biological materials) by either party which is
marked "Confidential" shall be considered confidential (hereinafter
"Confidential Information") and, for a period of three (3) years from
the Effective Date, shall not be disclosed or given by the recipient to
any third party without the prior approval of the disclosing party. The
foregoing shall not apply when and to the extent the Confidential
Information disclosed:
(a) becomes generally available to the public through no
fault of the receiving party;
(b) was already known to the receiving party at the time of
disclosure as evidenced by written records in the
possession of the receiving party prior to such time or;
(c) is subsequently received by the receiving party in good
faith from a third party without breaching any
confidential obligation between the third party and the
disclosing party;
(d) is required to be disclosed by the receiving party to
comply with judicial, statutory or regulatory
requirements; provided that the receiving party provides
prior written notice of such disclosure to the
disclosing party and takes reasonable and lawful actions
to avoid or minimize the degree of such disclosure;
(e) is inherent in any product which is sold by Innovir; or
(f) is developed independently by employees of the receiving
party and the receiving party shall have the burden to
prove it was developed independently.
5.2 Except as expressly provided in this Agreement, no rights are provided
to Scripps, the Principal Investigator or Researchers under any patents,
patent applications, trade secrets or other proprietary rights of
Innovir. In particular, no rights are provided to use the materials or
modifications or any related patents of Innovir for profit making or
commercial purposes, such as sale of the materials or modifications used
in manufacturing, provision of a service to a third party in exchange
for consideration, or use in research or consulting for a for-profit or
non-profit entity under which the entity obtains rights to research
results; provided, however, Scripps is entitled to use the materials for
the
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<PAGE>
Research hereunder even though the U.S. government may be entitled to
certain rights to the results of the Research.
ARTICLE 6
PUBLICATION
6.1 To protect Innovir's proprietary and patent rights in the Confidential
Information, Scripps agrees to provide Innovir with an advance copy of
any proposed publication that makes reference to the Confidential
Information. Innovir agrees to review proposed publications and to
inform Scripps of any comments within forty-five (45) days. Innovir
shall have the right to remove any of Innovir's Confidential Information
from any publication. If the publication contains patentable material,
Scripps agrees to delay publication after the review period for up to
forty-five (45) days to allow patent protection to be obtained. If a
publication does result from Research, authorship shall be jointly
decided by Innovir and Scripps based on accepted scientific practice.
6.2 Innovir shall have the right to use the data generated in the Research
in filing patent applications, in filing for regulatory approvals and
for other internal research purposes.
ARTICLE 7
INVENTIONS
7.1 Intellectual Property shall mean any discoveries, inventions,
improvements and/or commercially useful products or processes, whether
patentable or not, developed or made in performance of this Agreement.
Scripps will promptly notify Innovir of any Intellectual Property
conceived and/or made during the term of this Agreement in performance
of the Research. Inventorship on any invention shall be determined in
accordance with United States patent law.
7.2 Results of the Research shall be owned as follows:
(a) If all inventors are employees of Innovir, by Innovir, and such
Intellectual Property will not be subject to this Agreement.
(b) If all inventors are employees of Scripps, by Scripps.
(c) If Intellectual Property is invented jointly by at least one
person employed by Innovir and at least one person employed by
Scripps, jointly by both Innovir and Scripps and each party
shall have an undivided interest to make, have made, use and
sell such Intellectual Property subject only to Innovir's option
under Section 7.4.
-4-
<PAGE>
7.3 If Intellectual Property is solely owned by Scripps, Section 7.2(b),
Scripps shall as soon as reasonably possible, either upon conception or
reduction to practice, as the case may be, for each and every
application of such Intellectual Property, disclose the same in writing
to Innovir. Such disclosure shall contain sufficient detail to enable
Innovir to evaluate the advisability of exercising the option granted
hereunder with respect to such application. All such disclosures shall
be maintained in confidence by Innovir. If Scripps shall file a patent
application before the expiration of the Option Period, Scripps shall
bear all costs incurred in connection with such preparation, filing,
prosecution and maintenance of U.S. and foreign application(s) directed
to said Intellectual Property. During the Option Period and prior to
filing such application, Scripps shall take reasonable efforts to
consult with Innovir and shall attempt to assure that such
application(s), will cover, to the best of Scripps' and Innovir's
combined knowledge, all items of commercial interest and importance;
provided, however, Scripps shall, in its sole discretion, be
responsible for making all decisions regarding scope and content of
application(s) to be filed and prosecution thereof, Innovir shall be
given an opportunity to review and provide input thereto. During the
Option Period, Scripps shall keep Innovir advised as to all
developments with respect to such application(s) and shall promptly
supply to Innovir copies of all papers received and filed in connection
with the prosecution thereof in sufficient time for Innovir to comment
thereon.
7.4 If Intellectual Property is jointly owned by Scripps and Innovir,
Section each party, as soon as reasonably feasible, either upon
conception or reduction to practice, as the case may be, of each and
every such application, shall disclose the same in writing to the other
party. Such disclosure shall contain sufficient detail to enable each
party to evaluate whether such technology is, in fact, jointly
developed technology. Scripps shall deliver to Innovir a written notice
describing the jointly developed technology and Scripps' intent to
exclusively license its rights to the same to Innovir. If during the
Option Period, Innovir directs that a patent application or other
intellectual property protection be filed, Innovir shall promptly take
action to have prepared, filed, and prosecuted such U.S. and foreign
application. Innovir shall pay all costs incurred in connection with
such preparation, filing, prosecution and maintenance of U.S. and
foreign application(s) directed to said Intellectual Property. Innovir
shall cooperate with Scripps to assure that such application(s) will
cover, to the best of their combined knowledge, all items of commercial
interest and importance. While Innovir shall be responsible for making
decisions regarding scope and content of application(s) to be filed and
prosecution thereof, Scripps shall be given an opportunity to review
and provide input thereto. Innovir shall keep Scripps advised as to all
developments with respect to such application(s) and shall promptly
supply to Scripps copies of all papers received and filed in connection
with the prosecution thereof in sufficient time for Scripps to comment
thereon. Further, Innovir shall promptly notify Scripps in writing of
any matter which has been patented under this Section 7.4.
-5-
<PAGE>
7.5 If Innovir elects to discontinue the financial support of the
prosecution or maintenance of the protection of Intellectual Property
under Section 7.4, Scripps shall be free to file or continue
prosecution or maintain any such application(s), and to maintain any
protection issuing thereon in the U.S., and in any foreign country at
its sole expense. Any discontinuance of financial support shall not
affect Innovir's rights to Intellectual Property under Section 7.4.
7.6 If Innovir wants an exclusive license to make, have made use or sell
products, methods or services under any Intellectual Property conceived
or made, at least in part, by Scripps in performance and the Research
during the term of this Agreement, it shall have an option to obtain an
exclusive, worldwide license to such Intellectual Property or any
interest therein under the specific terms hereof, on an
application-by-application basis, where each application is with
respect to a specific field. It is the further intention of the parties
hereto that Innovir shall elect to exercise its option from time to
time and at multiple times during the term hereof, as and when Scripps
makes the disclosure of each application of Intellectual Property. This
option shall expire four (4) months from the date of receipt by Innovir
of each disclosure described in Section 7.3 and 7.4 (the "Option
Period").
7.7 Innovir shall exercise its option to obtain a license hereunder by
delivering to Scripps a written notice within the Option Period which
specifies the particular application of Intellectual Property for which
the option is being exercised. Innovir and Scripps shall have a period
of sixty (60) days from the date of exercise of the option by Innovir
within which to agree upon the license terms. Scripps and Innovir shall
negotiate in good faith to reach the terms of the exclusive, worldwide
license; provided, however, if Scripps and Innovir do not reach
agreement, Scripps, for two (2) years, will provide Innovir a right of
first refusal to any license of such Intellectual Property offered to a
third party where such license is on terms less favorable in material
respects than the terms offered Innovir under this Section 7.7. Innovir
shall have thirty (30) days from receipt of any such license to
exercise its rights of first refusal. Such license shall include a
reasonable royalty based on the respective party's contributions and
relevant university and industry standards and, shall include such
other terms as are typical in licenses of similar technology from
nonprofit organizations to for-profit organizations.
7.8 Scripps reserves the right to use any Intellectual Property owned
solely or jointly by Scripps that may be subject to an option pursuant
to this Agreement or covered by a license granted hereunder solely for
Scripps' own educational and non-commercial research purposes and the
educational and non-commercial research purposes of any other nonprofit
organization, without Scripps or such other nonprofit organization
being obligated to pay Innovir any royalties or other compensation
related thereto.
-6-
<PAGE>
7.9 Innovir and Scripps acknowledge that Scripps has received and expects
to continue to receive funding from the United States Government in
support of Scripps' research activities. Innovir acknowledges and
agrees that its rights and obligations pursuant to this Agreement with
respect to Intellectual Property owned solely or jointly by Scripps,
shall be subject to Scripps' obligations and the rights of the United
States Government, if any, which arise or result from Scripps' receipt
of research support from the United States Government.
ARTICLE 8
WARRANTIES AND REPRESENTATION
8.1 Scripps hereby warrants and represents that it has the full right and
power to enter into this Agreement.
8.2 NEITHER PARTY MAKES ANY WARRANTIES CONCERNING THE RESEARCH PROGRAM OR
ANY INTELLECTUAL PROPERTY WHICH MAY BE SUBJECT TO THIS AGREEMENT.
WITHOUT LIMITING THE FOREGOING, NEITHER PARTY REPRESENTS OR WARRANTS
THAT IT WILL SUCCESSFULLY COMPLETE THE RESEARCH PROGRAM OR THAT, IF
COMPLETED, THE RESEARCH PROGRAM WILL RESULT IN INTELLECTUAL PROPERTY
WHICH WILL BE SUBJECT TO AN OPTION HEREUNDER OR WHICH INNOVIR WILL
DESIRE TO LICENSE. NEITHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTY,
INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE, AS TO ANY INTELLECTUAL PROPERTY. NEITHER
PARTY MAKES ANY WARRANTY OR REPRESENTATION AS TO THE VALIDITY OR SCOPE
OF ANY PATENT RIGHTS OR THAT ANY INTELLECTUAL PROPERTY WILL BE FREE
FROM ANY INFRINGEMENT OF PATENTS OF THIRD PARTIES, OR THAT NO THIRD
PARTIES ARE IN ANY WAY INFRINGING ANY PATENT RIGHTS.
8.3 Scripps represents that neither Scripps and to its best knowledge nor
Dr. Chisari or the Researcher(s) have obligations or commitments which
are inconsistent with the research to be conducted hereunder. Further,
during the term of this Agreement, Scripps agrees not to approve any
agreement involving Dr. Chisari and Dr. Chisari agrees not to enter
into any relationships which involve research on ribozyme therapeutic
related to the research conducted under this Agreement.
8.4 Innovir hereby warrants and represents that it has the full right and
power to enter into this agreement.
-7-
<PAGE>
ARTICLE 9
COMPENSATION
9.1 In support of the Research to be conducted at Scripps, Innovir shall pay
Scripps according to the amounts specified and under the terms shown in
Schedule 2
9.2 Within the thirty (30) days after the end of each year during the Term,
Scripps shall provide an expenditure report, a financial accounting
detailing actual expenditures for that year to Innovir.
9.3 Scripps shall maintain written records with respect to its operations
pursuant to this Agreement in sufficient detail to enable Innovir to
obtain an accounting of how the compensation has been spent by Scripps
in performance of the research. In this regard, Scripps agrees that upon
ten (10) days notice Innovir may, at its expense, send an auditor to
examine during normal business hours the books of Scripps solely for the
purpose of performing the accounting. Innovir's right to audit the
records of Scripps shall continue for two (2) years after termination of
the Agreement.
ARTICLE 10
TERM AND TERMINATION
10.1 This Agreement shall commence the on Effective Date and shall continue
for a two (2) year period (the Term); provided, however, any license
granted to Innovir pursuant to Article hereof and the terms of this
Agreement applicable to such license shall continue through the life of
such license.
10.2 In the event that Innovir determines that it has an interest in the
continued funding of the Research beyond the end of the Term, and upon
mutual agreement of the parties Innovir shall have the option to fund
the Research for an additional time period of agreed-upon length,
whereupon the Term shall be renewed and extended for such additional
time period. It is agreed that said option shall be exercised in writing
by Innovir at least sixty (60) days prior to expiration of the Term then
in affect, and it is further agreed that if the option to fund the
Research is exercised by Innovir, the conditions governing the rights of
the parties for the results of the Research and any additional Terms
shall be identical to those detailed in this Agreement, the level of
funding for any additional years will be negotiated to reflect the
research to be conducted under the Research by the parties to this
Agreement during any renewal and extended Term.
10.3 Innovir may terminate this Agreement by giving at least sixty (60) days
prior notice in writing to Scripps. If Innovir terminates under this
Section 10.3, Scripps shall be reimbursed for expenses incurred with
Innovir's consent up to and including the day of termination and any
reasonable expense incurred in
-8-
<PAGE>
terminating the Research, and any unexpended funds shall be returned to
Innovir.
10.4 Scripps may terminate this Agreement by giving at least sixty (60) days
prior notice to Innovir. If Scripps terminates under this Section 10.4,
Innovir shall not be required to make any additional payments and
Scripps shall return all money not expended before notice of termination
is given; provided, however, termination under this Section 10.4 shall
not terminate Innovir rights under Article 7.
10.5 If Scripps, the Principal Investigator, or the Researcher(s) is in
breach of this Agreement and (where the breach is remediable) fails to
remedy the breach within twenty (20) days of being requested to do so by
Innovir, Innovir shall be entitled to terminate this Agreement at any
time by notice in writing to Scripps. Termination shall be without
prejudice to Innovir's other rights in respect of the breach of the
Agreement.
10.6 If Innovir is in breach of this Agreement and (where the breach is
remediable) fails to remedy the breach within twenty (20) days of being
requested to do so by Scripps, Scripps shall be entitled to terminate
this Agreement at any time by notice in writing to Innovir. Termination
shall be without prejudice to Scripps' other rights in respect of the
breach of the Agreement.
10.7 Articles 4, 5, 6, 7, 11 and 12 shall survive the termination of this
Agreement.
ARTICLE 11
RETURN OF DOCUMENTS AND MATERIALS
11.1 Upon termination of this Agreement, or at any time during the course of
this Agreement, either party may request the return of all papers,
records and other documents including any materials such as reagents,
that it supplied to the other party, which are then in the possession of
the other party, except:
(a) each party may retain one copy for archival purposes;
(b) Scripps shall not require Innovir to return any documents or
materials which Innovir requires to make an evaluation of its
interest in exercising its license option pursuant to Section
hereof, until after the conclusion of said license option
period;
(c) Scripps shall not require Innovir to return the written reports
and tangible technical information made by Scripps pursuant to
Article 4; and
(d) Innovir may retain materials required for government approval.
-9-
<PAGE>
ARTICLE 12
GENERAL PROVISIONS
12.1 Both parties shall, at all times during the performance of this
Agreement, remain as independent contractors and the Agreement shall
not make the parties partners, joint venturers, or agents of one
another. No party to this Agreement shall have the power to bind or
obligate the other party.
12.2 None of the materials supplied under this Agreement by either party to
the other, shall be used in human subjects without obtaining
appropriate government approvals.
12.3 Neither party assumes responsibility or liability for the nature,
conduct, or results of any research, testing or other work performed by
the other party.
12.4 This Agreement may not be assigned by either party without the prior
written consent of the other party; provided, however, Innovir may
assign its interest to a successor of all or substantially all of its
business associated with this Agreement.
12.5 Any notice, report or communication to be given under this Agreement
may be delivered personally, sent by registered or certified mail,
return receipt requested, or transmitted by facsimile copy or
electronic mail to the parties at the addresses given below or such
other addresses may be notified from time to time. Any notice, report
or communication so sent shall not be deemed to have been given until
it has been received by the party to whom it has been addressed.
The Scripps Research Institute
Office of Technology Transfer
10666 North Torrey Pines Road; TPC-9
La Jolla, California 92037
Attention: Vice President
Telephone 619-554-8496
Facsimile 619-554-9910
Innovir Laboratories, Inc.
510 East 73rd Street
New York, NY 10021
Attention: Allan R. Goldberg, Ph.D.
Telephone 212-249-4703
Facsimile 212-249-4513
-10-
<PAGE>
12.6 The terms and conditions herein contained constitute the entire
agreement between the parties and supersede all previous
communications, whether oral or written, between the parties hereto
with respect to the subject matters hereof, and no previous agreement
or understanding varying or extending the same shall be binding upon
either party hereto.
12.7 No amendment or modification of this Agreement shall be effective
unless it is in writing and signed by duly authorized representatives
of all parties.
12.8 The parties covenant and agree that, if either party fails or neglects
for any reason to take advantage of any of the terms provided for the
termination of this Agreement, or if either party, having the right to
declare this Agreement terminated shall fail to do so, any such failure
or neglect by either party shall not be a waiver or be deemed or be
construed to be a waiver of any cause for the termination of this
Agreement subsequently arising or as a waiver of any of the terms,
covenants or conditions of this Agreement, or the performance thereof.
None of the terms, covenants or conditions of this Agreement may be
waived by either party except by its written consent.
12.9 All parties hereby especially agree and contract that neither party
intends to violate any public policy, statutory or common law, rule or
regulation, treaty or decision of any government agency or executive
body thereof of any country or community or association of countries;
if any word, sentence, paragraph or clause or combination thereof of
this Agreement is found, by a court or executive body with judicial
powers having jurisdiction over this Agreement or any of its parties
hereto, in a final unappealed order to be in violation of any such
provision in any country or community or association of countries, such
words, sentences, paragraphs or clauses or combination shall be
inoperative in such country or community or association of countries
and the remainder of this Agreement shall remain binding upon the
parties hereto.
12.10 Neither party shall be liable for delays caused by bona fide labor
disputes, war, civil or military disturbances, acts or lack of action
of governments or governmental authorities, accidents, fires,
explosions, epidemics, forces of nature, acts of God or other causes
reasonably beyond its control, but each party shall use all reasonable
efforts to avoid such delays and to minimize the extent of any delays
that do occur.
12.11 This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and
permitted assigns.
12.12 This Agreement shall be deemed to have been made under, and shall be
construed and interpreted in accordance with the laws of the State of
New York, U.S.A.
-11-
<PAGE>
12.13 Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by binding
arbitration in accordance with the commercial arbitration Rules of the
American Arbitration Association ("AAA"), and the procedures set forth
below. In the event of any inconsistency between the Rules of AAA and
the procedures set forth below, the procedures set forth below shall
control. Judgment upon the award rendered by the arbitrators may be
enforced in any court having jurisdiction thereof.
(a) Location. Unless the parties agree otherwise, if Scripps invokes
the arbitration, the arbitration shall be held in New York, New
York and if Innovir invokes the arbitration, the arbitration
shall be held in the county of San Diego, California.
(b) Section of Arbitrations. The arbitration shall be conducted by a
panel of three neutral arbitrators who are independent and
disinterested with respect to the parties, this Agreement, and
the outcome of the arbitration. Each party shall appoint one
neutral arbitrator, and these two arbitrators so selected by the
parties shall then select the third arbitrator. If one party has
given written notice to the other party as to the identity of
the arbitrator appointed by the party, and the party hereafter
makes a written demand on the other party to appoint its
designated arbitrator within the next ten days, and the other
party fails to appoint its designated arbitrator within ten days
after receiving said written demand, then the arbitrator who has
already been designated shall appoint the other two arbitrators.
(c) Discovery. Unless the parties mutually agree in writing to some
additional and specific pre-hearing discovery, the only
pre-hearing discovery shall be (a) reasonably limited production
to relevant and non-privileged documents, and (b) the
identification of witnesses to be called at the hearing, which
identification shall give the witness's name, general
qualifications and position, and a brief statement as to the
general scope of the testimony to be given by the witness. The
arbitrators shall decide any disputes and shall control the
process concerning these pre-hearing discovery matters. Pursuant
to the rules of AAA, the parties may subpoena witnesses and
documents for presentation at the hearing.
(d) Case Management. Prompt resolution of any dispute is important
to both parties; and the parties agree that the arbitration of
any dispute shall be conducted expeditiously. The arbitrators
are instructed and directed to assume case management initiative
and control over the arbitration process (including scheduling
of events, pre-hearing discovery and activities, and the conduct
of the
-12-
<PAGE>
hearing), in order to complete the arbitration as expeditiously
as is reasonably practical for obtaining a just resolution of
the dispute.
(e) Remedies. The arbitrators may grant any legal or equitable
remedy or relief that the arbitrators deem just and equitable,
to the same extent that remedies or relief could be granted by a
state or federal court, provided however, that no punitive
damages may be awarded. No court action may be maintained
seeking punitive damages. The decision of any two of the three
arbitrators appointed shall be binding upon the parties.
(f) Expenses. The expenses of the arbitration, including the
arbitrators' fees, expert witness fees, and attorney's fees, may
be awarded to the prevailing party, in the discretion of the
arbitrators, or may be apportioned between the parties in the
manner deemed appropriate by the arbitrators. Unless and until
the arbitrators decide that one party is to pay for all (or a
share) of such expenses, both parties shall share equally in the
payment of the arbitrators' fees as and when billed by the
arbitrators.
(g) Confidentiality. Except as set forth below, the parties shall
keep confidential the fact of the arbitration, the dispute being
arbitrated, and the decision of the arbitrators. Notwithstanding
the foregoing, the parties may disclose information about the
arbitration to persons who have a need to know, such as
directors, trustees, management employees, witnesses, experts,
investors, attorneys, lenders, insurers, and others who may be
directly affected. Additionally, if a party has stock which is
publicly traded, the party may make such disclosures as are
required by applicable securities laws. Further, if a party is
expressly asked by a third party about the dispute or the
arbitration, the party may disclose and acknowledge in general
and limited terms that there is a dispute with the other party
which is being (or has been) arbitrated. Once the arbitration
award has become final, if the arbitration award is not promptly
satisfied, then these confidentiality provisions shall no longer
be applicable.
-13-
<PAGE>
IN WITNESS WHEREOF, Scripps and Innovir have caused this Agreement to
be executed in duplicate by their respective duly authorized officers.
INNOVIR LABORATORIES, INC. SCRIPPS RESEARCH INSTITUTE
By: /s/ ALLAN R. GOLDBERG By: /s/ ARNOLD LaGUARDIA
------------------------------- ----------------------
Allan R. Goldberg, Ph.D Arnold LaGuardia
Chairman and President Senior Vice President
Date: 6/3/96 Date: 5/31/96
--------------------------- ----------------------
I HAVE READ AND AGREED TO THE OBLIGATIONS AND RESPONSIBILITIES OF THE
PRINCIPAL INVESTIGATOR.
FRANCIS V. CHISARI Date: 5-31-96
- ------------------------------- ----------------------
Francis V. Chisari, Ph.D.
-14-
<TABLE>
Exhibit 11.1
INNOVIR LABORATORIES, INC.
STATEMENT OF COMPUTATION OF PER SHARE DATA
<CAPTION>
For the three months ended
June 30,
---------------------------------------------------------
1996 1995
---------------------------------------------------------
Fully Fully
Primary Diluted Primary Diluted
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss ............................................................... ($3,373,120) ($3,373,120) ($1,344,232) ($1,344,232)
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 withthe treasury stock method .............. 3,000 538,006
----------- ----------- ----------- -----------
Net loss ............................................................ ($3,373,120) ($3,370,120) ($1,344,232) ($ 806,226)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding ................................................... 5,740,638 5,740,638 3,589,496 3,589,496
Weighted average shares issuable upon
conversion of convertible equity securities .......................... 1,748,994 363,563
Shares issuable upon exercise of
outstanding options and warrants ..................................... 1,635,360 6,708,289
Shares assumed to be purchased under the
treasury stock method ................................................ (1,174,902) (728,205)
----------- ----------- ----------- -----------
Weighted average number of common
shares used in computing per share data .............................. 5,740,638 7,950,090 3,589,496 9,933,143
=========== =========== =========== ===========
Net loss per share ................................................... ($0.59) ($0.42) ($0.37) ($0.08)
=========== =========== =========== ===========
</TABLE>
Exhibit 11.2
<TABLE>
INNOVIR LABORATORIES, INC.
STATEMENT OF COMPUTATION OF PER SHARE DATA
<CAPTION>
For the nine months ended
June 30,
---------------------------------------------------------
1996 1995
---------------------------------------------------------
Fully Fully
Primary Diluted Primary Diluted
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss ............................................................... ($7,123,896) ($7,123,896) ($3,607,017) ($3,607,017)
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 ............. 1,369,953
----------- ----------- ----------- -----------
Net loss ............................................................ ($7,123,896) ($7,123,896) ($3,607,017) ($2,237,064)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding ................................................... 4,908,179 4,908,179 3,423,807 3,423,807
Weighted average shares issuable upon
conversion of convertible equity securities .......................... 2,101,716 121,187
Shares issuable upon exercise of
outstanding options and warrants ..................................... 1,694,019 6,187,023
Shares assumed to be purchased under the
treasury stock method ................................................ (1,174,902) (728,205)
----------- ----------- ----------- -----------
Weighted average number of common
shares used in computing per share data .............................. 4,908,179 7,529,012 3,423,807 9,003,812
=========== =========== =========== ===========
Net loss per share ................................................... ($1.45) ($0.95) ($1.05) ($0.25)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,013,056
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,088,508
<PP&E> 2,339,798
<DEPRECIATION> 906,318
<TOTAL-ASSETS> 2,818,918
<CURRENT-LIABILITIES> 1,052,121
<BONDS> 0
0
37,020
<COMMON> 76,369
<OTHER-SE> 958,520
<TOTAL-LIABILITY-AND-EQUITY> 2,818,918
<SALES> 0
<TOTAL-REVENUES> 102,232
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,105,038
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,090
<INCOME-PRETAX> (7,123,896)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,123,896)
<EPS-PRIMARY> ($1.45)
<EPS-DILUTED> .00
</TABLE>
