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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 MARCH 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 0-21972
INNOVIR LABORATORIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3536290
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
510 EAST 73RD STREET, NEW YORK, NEW YORK 10021
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(Address of principal executive offices)
(212) 249-4703
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(Registrant's telephone number, including area code)
FORMER ADDRESS: NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares of the registrant's common stock outstanding as of May 9,
1997 was 18,050,786.
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INDEX
INNOVIR LABORATORIES, INC.
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at
December 31, 1996 and March 31, 1997................. 2
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1997
and 1996 and for the period from January
6, 1995 (inception) to March 31, 1997................ 3
Condensed Consolidated Statement of Changes in
Stockholders' Equity for the three
months ended March 31, 1997 ......................... 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1997
and 1996 and for the period from January
6, 1995 (inception) to March 31, 1997................ 5
Notes to Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................... 10
-1-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INNOVIR LABORATORIES, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets (unaudited)
March 31, 1997 and December 31, 1996
1997 1996
----------- -----------
ASSETS:
Current assets:
Cash and cash equivalents ................................................................... $ 4,300,000 $ 6,412,000
Prepaid expenses and other current assets ................................................... 186,000 203,000
----------- -----------
Total current assets .................................................................. 4,486,000 6,615,000
Fixed assets less accumulated depreciation and amortization ................................... 2,804,000 2,439,000
Amount due from VIMRx Pharmaceuticals Inc. 535,000
Goodwill ...................................................................................... 1,133,000 1,236,000
Other assets .................................................................................. 242,000 249,000
----------- -----------
Total assets .......................................................................... 8,665,000 11,074,000
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued expenses ...................................................... $ 1,153,000 $ 1,319,000
Capital lease - current portion ............................................................ 472,000 472,000
Term note payable - warrantholder; current portion includes
accrued interest of $5,000 ............................................................... 36,000 36,000
Other current liabilities .................................................................. 108,000
----------- -----------
Total current liabilities ............................................................. 1,769,000 1,827,000
Amount due to VIMRx Pharmaceuticals Inc. ...................................................... 135,000
Term note payable - warrantholder; includes accrued interest of $39,000 ....................... 227,000 227,000
Capital leases ................................................................................ 379,000 463,000
----------- -----------
Total Liabilities ..................................................................... 2,510,000 2,517,000
----------- -----------
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;
295,000 shares issued and outstanding at March 31, 1997,
297,000 shares issued and outstanding at December 31, 1996
(liquidation value, $1,475,000 at March 31, 1997 and $1,485,000
at December 31, 1996) .................................................................. 18,000 18,000
Class D Convertible Preferred Stock; 8,667,000 shares designated,
issued and outstanding at March 31, 1997 and December 31, 1996,
(liquidation value, $13,000,000) ........................................................ 520,000 520,000
Common stock, par value $.013: 35,000,000 shares authorized;
18,050,000 shares issued and outstanding at March 31,1997,
17,946,000 shares issued and outstanding at December 31, 1996 ............................. 235,000 233,000
Additional paid-in capital .................................................................. 29,675,000 29,667,000
Cumulative translation adjustment ........................................................... (16,000) (8,000)
Unearned compensation ....................................................................... (88,000) (181,000)
Deficit accumulated during the development stage ............................................ (24,189,000) (21,692,000)
----------- -----------
Total stockholders' equity ............................................................ 6,155,000 8,557,000
----------- -----------
Total liabilities and stockholders' equity ............................................ $ 8,665,000 $11,074,000
=========== ===========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-2-
INNOVIR LABORATORIES,INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations (unaudited)
Period
Three months ended January 6, 1995
March 31, (inception)
-------------------------------- through
1997 1996 March 31, 1997
----------- --------- --------------
Revenue:
Interest income ............................... $ 73,000 $ 86,000
Other 151,000
----------- ------------
Total revenue ........................... 73,000 237,000
----------- ------------
Expenses:
Research and development ...................... $ 1,664,000 $ 228,000 $ 5,044,000
General and administrative .................... 766,000 96,000 1,840,000
Interest ...................................... 37,000 65,000
Purchased in process research
and development 225,000 17,374,000
Amortization of Goodwill ...................... 103,000 103,000
----------- --------- ------------
Total expenses .......................... 2,570,000 549,000 24,426,000
----------- --------- ------------
Net Loss ................................ $(2,497,000) $(549,000) $(24,189,000)
=========== ========= ============
Loss-per-share data:
Weighted average number of
common shares outstanding ................... 18,042,470 9,500,000
=========== =========
Net loss per share ........................ $(0.14) $(0.06)
=========== =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-3-
INNOVIR LABORATORIES, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
Condensed Consolidated Statement of Changes in Stockholders' Equity (unaudited)
For the Three Months Ended March 31, 1997
Class B Convertible Class D Convertible
Preferred Stock Preferred Stock Common Stock
------------------- ------------------- ---------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balance at December 31, 1996 .................... 297,000 $18,000 8,667,000 $520,000 17,946,000 $233,000
Exercise of options and warrants ..................... 120,000 2,000
Costs incurred in connection with issuance
of equity securities ................................
Conversion of Class B Convertible Preferred Stock .... (2,000) 3,000
Adjustment for shares held in escrow in connection
with stockholder's litigation...................... (19,000)
Compensation expense incurred in connection with
the issuance of stock options
Amortization of unearned compensation ................
Cumulative translation adjustment ....................
Net Loss for the three months ended March 31,1997 ...
Balance at March 31, 1997 ...................... 295,000 $18,000 8,667,000 $520,000 18,050,000 $235,000
======= ======= ========= ======== ========== ========
Deficit
Accumulated
Additional Cumulative During The
Paid-in Translation Unearned Development
Capital Adjustment Compensation State Total
----------- ---------- ------------ ------------- -----------
Balance at December 31, 1996 .................... $29,667,000 $(8,000) $(181,000) $(21,692,000) $ 8,557,000
Exercise of options and warrants .................... 12,000 14,000
Costs incurred in connection with issuance
of equity securities .............................. (24,000) (24,000)
Conversion of Class B Convertible Preferred Stock ...
Adjustment for shares held in escrow in connection
with stockholder's litigation......................
Compensation expense incurred in connection with
the issuance of stock options ..................... 20,000 20,000
Amortization of unearned compensation ............... 93,000 93,000
Cumulative translation adjustment ................. (8,000) (8,000)
Net Loss for the three months ended March 31,1997 ... (2,497,000) (2,497,000)
Balance at March 31, 1997 ...................... $29,675,000 ($16,000) ($88,000) ($24,189,000) $ 6,155,000
=========== ======== ======== =========== ===========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-4-
INNOVIR LABORATORIES, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows (unaudited)
Period
Three months ended January 6, 1995
March 31, (inception)
-------------------------- through
1997 1996 March 31, 1997
----------- --------- ---------------
Cash flows from operating activities:
Net (loss) .......................................... $(2,497,000) $(549,000) $(24,189,000)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation .................................... 184,000 3,000 334,000
Amortization of goodwill ....................... 103,000 103,000
Amortization of unearned compensation .......... 93,000 93,000
Purchased in process research and
development ................................ 17,374,000
Provision for losses on notes receivable ....... 85,000
Non-cash compensation expense .................. 20,000 227,000
Changes in operating assets and liabilities:
Decrease (increase) in other current assets .... 17,000 (2,000) (23,000)
Decrease in other assets ....................... 7,000 7,000
Decrease (increase) in accounts payable and
and accrued expenses ....................... (166,000) (24,000) 417,000
Increase in other current liabilities .......... 108,000 108,000
----------- --------- ------------
Net cash (used in) operating activities .... (2,131,000) (572,000) (5,464,000)
----------- --------- ------------
Cash flows from investing activities:
Purchase of equipment .......................... (549,000) (1,000) (1,203,000)
Cash acquired in acquisitions .................. 3,532,000
----------- --------- ------------
Net cash (used in) provided by investing
activities ............................ (549,000) (1,000) 2,329,000
----------- --------- ------------
Cash flows from financing activities:
Proceeds from sales of common stock ............. 14,000 26,000
Advances and contributed capital from VIMRx
Pharmaceuticals, Inc. ...................... 670,000 490,000 7,536,000
Costs incurred in connection with issuance of
equity securities .......................... (24,000) (24,000)
Proceeds received from Ribonetics GmbH.......... 125,000
Repayment of capital leases ..................... (84,000) (84,000)
----------- --------- ------------
Net cash provided by financing activities 576,000 615,000 7,454,000
----------- --------- ------------
Effect of exchange rate changes on cash ............... (8,000) (19,000)
----------- --------- ------------
Net (decrease) increase in cash and cash
equivalents ........................... $(2,112,000) 42,000 $ 4,300,000
Cash and cash equivalents at beginning of period ...... 6,412,000 68,000
----------- --------- ------------
Cash and cash equivalents at end of period $ 4,300,000 $ 110,000 $ 4,300,000
=========== ========= ============
Supplemental disclosure of cash flow information:
Cash paid for interest .................... $ 37,000 $ 37,000
=========== ========= ============
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-5-
INNOVIR LABORATORIES, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed interim consolidated financial statements of Innovir
Laboratories, Inc. and Subsidiaries (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 consolidated 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 year ended September 30, 1996
and for the transition report for the transition period from October 1,
1996 to December 31, 1996, filed on Form 10-Q.
2. Statements of Cash Flows - Supplemental schedule of noncash activities:
During the three months ended March 31, 1997, the Company converted 2,000
shares of Class B Convertible Preferred Stock into 3,000 shares of Common
Stock.
3. Contingency:
The Company may be considered to be in violation of the terms of its
office and laboratories sublease by not obtaining the required approval
from the owner of the property prior to the consummation of the
transactions with VIMRx Pharmaceuticals, Inc. ("VIMRx") whereby VIMRx
acquired 68% of Innovir Laboratories, Inc. ("Innovir"), and Innovir
acquired all of the issued and outstanding shares of VIMRx Holding, Ltd.
("VHL"), a wholly owned subsidiary of VIMRx, in December l996. In
addition, the owner of the property has alleged and the Company's
sublandlord disputes, that the sublandlord may also be in breach of its
lease with the owner of the property. If the sublandlord is evicted, the
Company would lose its right to occupy its current space. While the
Company believes these matters may be resolved without a materially
adverse effect on the Company's business or financial position, no
assurance can be given as to the ultimate outcome.
4. During February 1996, Innovir was named as defendant in an action filed
by an investor alleging that Innovir wrongfully refused to honor the
investor's request to convert certain shares of Innovir's preferred
stock into Innovir's common stock. During February 1997, the
investor and Innovir settled the action at no material cost to Innovir
or the Company. In connection with the settlement, 19,000 shares of
common stock which had been held in escrow pending the resolution of
the action were returned to the Company.
-6-
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 Form
S-3 Registration Statement (Reg. No. 333-12865).
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto contained herein and the Company's
Annual Report on Form 10-K for the year ended September 30, 1996 and the
transition report for the transition period from October 1, 1996 to December 31,
1996, filed on Form 10-Q.
BACKGROUND
On December 23, 1996, Innovir Laboratories, Inc. ("Innovir"), VIMRx
Pharmaceuticals Inc. ("VIMRx") and certain stockholders of Innovir ("The Aries
Funds") consummated a transaction (the "Transaction") whereby VIMRx acquired 68%
of the outstanding stock of Innovir and Innovir acquired all of the issued and
outstanding shares of VIMRx Holdings, Ltd. ("VHL"), a wholly-owned subsidiary of
VIMRx. Innovir's acquisition of VHL and VIMRx's partial acquisition of Innovir
have been accounted for as a purchase in accordance with APB Opinion No. 16,
Business Combinations and Emerging Issues Task Force Issue No. 90-13, Accounting
for Simultaneous Common Control Mergers (EITF No. 90-13"). The application of
APB No. 16 and EITF No. 90-13 requires that the Transaction be accounted for as
a reverse acquisition and accordingly, for accounting purposes, (i) VHL is
deemed to be the acquirer and surviving entity, (ii) because Innovir is deemed
to be the legal acquirer, VHL's historic capital accounts have been
retroactively restated (recapitalized) to reflect Innovir's capital accounts and
the equivalent number of shares received by VIMRx in the Transaction, (iii)
Innovir has fair valued its assets and liabilities to the extent acquired by
VIMRx (68%) and (iv) the assets and liabilities of VHL are carried at VHL's
historic cost. Since VHL is deemed to be the surviving entity, the statement of
operations includes the operations of VHL for the period from January 6, 1995
(inception) through March 31, 1997. The operations of Innovir are included only
since the date of acquisition, i.e., for the period from December 23, 1996 to
March 31, 1997. For accounting purposes, VHL assumed the name of Innovir
Laboratories, Inc. and Subsidiaries, and, for purposes of this Quarterly Report,
all references to the "Company" shall mean the consolidated entity consisting of
Innovir, VHL and subsidiaries.
-7-
On February 11, 1997, Innovir elected to change its fiscal year end date
from September 30 to December 31 of each year, effective January 1, 1997. This
change was made to conform Innovir's fiscal year end date with that of VHL. This
Quarterly Report on Form 10-Q covers the first quarter of the new fiscal year,
that is January 1 to March 31, 1997.
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, which may increase, to continue for
the foreseeable future.
Three month period ended March 31, 1997 vs. March 31, 1996
- - -----------------------------------------------------------
Research and development expenses increased $1,436,000 or 630% due to the
acquisition of Innovir's operations in December 1996 ($1,046,000) and increased
efforts in VHL ($390,000).
General and administrative expenses increased $670,000 or 698% due to the
acquisition of Innovir ($725,000) and a decrease in VHL expenses related to the
European operations ($55,000).
Purchased in process research and development in the three months ended
March 31, 1996 relate to the write off of loans to Ribonetics GmbH.
Amortization of goodwill relates to the asset recorded in the transaction
with VIMRx described under "Background" above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had cash and cash equivalents of $4,300,000
as compared to $6,412,000 at December 31, 1996. The Company had working capital
of $2,717,000 at March 31, 1997, as compared to working capital of $4,788,000 at
December 31, 1996. The decrease in cash and working capital positions resulted
from cash expended for operations and capital assets.
The Company may be considered to be in violation of the terms of its
sublease by not obtaining the required approval from the owner of the property
prior to the consummation of the transactions with VIMRx in December 1996. See
the notes to the Company's financial statements. In addition, the owner of the
property has alleged, and the Company's sublandlord disputes, that the
sublandlord may also be in breach of its lease with the owner of the property.
If the sublandlord is evicted, the Company would lose its right to occupy its
current space. While the Company believes that these matters may be resolved
-8-
without a materially adverse effect on the Company's business or financial
position, no assurances can be given as to the ultimate outcome.
In addition, VIMRx has agreed to exercise two million warrants upon the
request of the Company specifying that the Company has insufficient funds to
continue operations beyond 30 days from the date of such request, which will
yield the Company aggregate proceeds of $3 million. In addition, The Aries Funds
have agreed to exercise their remaining two million warrants upon VIMRx's
exercise of its warrants, which will yield the Company aggregate proceeds of $1
million.
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 March 31, 1997,
the Company had cash and cash equivalents of approximately $4.3 million. Based
on current projections, which are subject to change (such change may be
significant), the Company's management believes that this, along with the
proceeds from the exercise of the warrants held by VIMRx and the remaining
warrants held by The Aries Funds, will be sufficient to fund its operations into
the second quarter of the year ended December 31, 1998. Thereafter, the Company
will require additional funds, which it may seek to raise through public or
private equity or debt financings, collaborative or other arrangements with
corporate sources, or through other sources of financing. There can be no
assurance that such additional financing can be obtained on terms reasonable to
the Company, if at all. In the event the Company is unable to raise additional
capital, planned operations would need to be scaled back or discontinued during
1998.
-9-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Amended and Restated Employment Agreement, made as of
December 1, 1996, between the Company and Allan R. Goldberg.
10.2 Form of Research Agreement, effective as of March 18,
1997, between the Company and Albert Einstein College of
Medicine of Yeshiva University.
11 Statement of Computation of Per Share Data.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
During the quarter for which this report is filed, the Company
filed the following reports on Form 8-K:
(i) Current Report on Form 8-K, dated December 23, 1996 as
filed on January 7, 1997, regarding the Transaction with
VIMRx and The Aries Funds, including the acquisition of
VHL (Items 1 & 2); no financial statements were filed in
connection with such report. See "Item 2 - Background."
(ii) Current Report on Form 8-K, dated February 11, 1997 as
filed on February 14, 1997, regarding the settlement of
a litigation (Item 4) and the change in the Company's
fiscal year to the 12-month period ended December 31
(Item 8); no financial statements were filed in
connection with such report.
(iii) Amendment No. 1 to Current Report on Form 8-K/A, dated
December 23, 1996 as filed on March 10, 1997, providing
certain audited financial statements and unaudited pro
forma financial information relating to the acquisition
of VHL (Item 7).
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 15, 1997
INNOVIR LABORATORIES, INC.
By: /s/ ALLAN R. GOLDBERG
----------------------------------------
Name: Allan R. Goldberg
Title: Chairman and Chief Executive
Officer (Principal executive
officer)
By: /s/ FRANCIS M. O'CONNELL
----------------------------------------
Name: Francis M. O'Connell
Title: Chief Financial Officer
(Principal financial and
accounting officer)
-11-