<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB-A2
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-10252
VIRAGEN, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 59-2101668
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
2343 West 76th Street, Hialeah, Florida 33016
---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(305) 557-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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
Common Stock Outstanding: --- ---
Common Stock, $.01 par value - - 35,355,532 shares as of January 31, 1995.
<PAGE> 2
VIRAGEN, INC. AND SUBSIDIARY
INDEX
PART I - FINANCIAL INFORMATION
The Consolidated Condensed Statements of Operations (Unaudited) for
the three months ended and six months ended December 31, 1994 and
December 31, 1993 include the accounts of the Registrant and its
subsidiary.
Item 1. Financial Statements
1) Consolidated Condensed Statements of Operations for
the three months ended and six months ended December
31, 1994 and December 31, 1993.
2) Consolidated Condensed Balance Sheets as of December
31, 1994 and June 30, 1994.
3) Consolidated Condensed Statements of Cash Flows for
the six months ended December 31, 1994 and December
31, 1993.
4) Notes to Consolidated Condensed Financial Statements
as of December 31, 1994.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
ITEM 1. FINANCIAL STATEMENT
VIRAGEN, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
INCOME
Revenue $ 183,174 $ 43,575 $ 333,352 $ 82,725
Interest and
other income 29,515 18,948 43,381 26,491
----------- ---------- ----------- -----------
212,689 62,523 376,733 109,216
COSTS AND EXPENSES
Cost of goods sold 109,357 19,290 199,073 42,780
Inventory valuation adjustment 788,000 788,000
Depreciation and
amortization 15,167 11,884 30,335 23,484
Research and
development cost 55,620 106,544 2,128
Selling, general
and administrative
expenses 435,330 313,770 716,359 558,526
Contract termination expense 525,000
Interest expense 22,652 22,804 48,394 41,169
----------- ---------- ----------- -----------
1,426,126 367,748 2,413,705 668,087
----------- ---------- ------------ -----------
NET LOSS 1,213,437 (305,225) 2,036,972 (558,871)
Deduct required
dividends on
convertible
preferred stock 863 933 1,725 1,865
----------- ---------- ----------- -----------
LOSS ATTRIBUTABLE TO
COMMON STOCK $(1,214,300) $ (306,158) $(2,038,697) $ (560,736)
=========== ========== =========== ===========
LOSS PER COMMON SHARE,
after deduction for
required dividends on
convertible preferred
stock $ (0.04) $ (0.02) $ (0.07) $ (0.03)
=========== ========== =========== ===========
Weighted average
shares outstanding 31,739,414 17,960,379 28,879,146 17,917,024
=========== ========== =========== ===========
</TABLE>
See Notes to consolidated condensed financial statements.
<PAGE> 4
VIRAGEN, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UANUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994 (A)
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,467,280 $ 879,926
Accounts receivable, less
allowance of $15,000 69,675 22,785
Subscriptions receivable from
private placement 102,500
Inventory 340,318 766,471
Prepaid expenses 67,262 36,189
Other current assets 13,220 9,653
----------- -----------
TOTAL CURRENT ASSETS 3,957,755 1,817,524
NOTES RECEIVABLE
less allowance of $5,600 66,326 74,189
PROPERTY, PLANT AND EQUIPMENT
Land, building and improvements 1,178,003 1,170,855
Equipment and furniture 1,216,355 1,049,072
----------- -----------
2,394,358 2,219,927
Less accumulated depreciation (1,442,932) (1,377,454)
----------- -----------
951,426 842,473
DEPOSITS AND OTHER ASSETS 9,449 10,308
----------- -----------
$ 4,984,956 $ 2,744,494
=========== ===========
</TABLE>
<PAGE> 5
VIRAGEN, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1994 (A)
------------ ------------
UNAUDITED
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 285,540 $ 420,049
Current portion of amounts
payable to Medicore Inc. 35,599 52,153
Accrued expenses and
other liabilities 334,352 520,723
Current portion of notes payable 30,000 30,000
------------ ------------
TOTAL CURRENT LIABILITIES 685,491 1,022,925
CONVERTIBLE DEBENTURES PAYABLE 200,000
MORTGAGE NOTE PAYABLE
less current portion 468,439 483,439
AMOUNTS PAYABLE TO MEDICORE, INC.
less current portion 481,802 492,537
STOCKHOLDERS' EQUITY
Convertible 10% Series A cumulative
preferred stock, $1.00 par value
Authorized 375,000 shares; issued
and outstanding 3,450 shares
Liquidation preference value:
$10 per share, aggregating
$34,500 at December 31, 1994
and June 30, 1994 3,450 3,450
Common stock, $.01 par value
Authorized 50,000,000 shares;
issued and outstanding 20,218,197
at June 30, 1994 and 35,355,532
shares at December 31, 1994 353,555 202,182
Capital in excess of par value 18,514,202 12,698,723
Common Stock subscribed 1,126,250
Retained earnings (deficit) (15,195,733) (13,158,762)
Notes due from officers (326,250) (326,250)
------------ ------------
TOTAL STOCKHOLDERS EQUITY 3,349,224 545,593
------------ ------------
$ 4,984,956 $ 2,744,494
============ ============
</TABLE>
(A) Reference is made to the Company's Annual Report on Form 10K for the year
ended June 30, 1994 filed with the Securities and Exchange Commission.
<PAGE> 6
VIRAGEN, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1994 1993
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<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (2,036,972) $(558,871)
Adjustments to reconcile net
loss to net cash used in
operating activities
Depreciation and amortization
Contract termination fee paid in stock 30,335 32,814
Stock Options granted to directors 525,000
Net gain in sale of fixed assets 27,500
Increase (decrease) relating (11,392)
to operating activities from:
Escrow Account 48,384
Accounts receivable (46,890) (37,602)
Note Receivables 7,863
Inventories 426,153 (453,506)
Prepaid expenses and other
current assets (34,639) (50,060)
Deferred expenses and
other assets 859 (4,998)
Accounts payable (134,509) 123,198
Accounts payable to
Medicore, Inc. (16,554) 38,415
Accrued expenses and other
liabilities (185,747) 194,051
----------- ---------
Net cash used in
operating activities (1,465,102) (652,067)
INVESTING ACTIVITIES:
Proceeds from sale of equipment 20,000
Additions to property, plant and
equipment, net of minor disposals (174,431) (23,726)
----------- ---------
Net cash used in investing
activities (174,431) (3,726)
----------- ---------
FINANCING ACTIVITIES:
Proceeds from sale of common stock
net of related expenses 4,252,621
Proceeds from debentures 200,000
Payments on long-term debt (15,000) (15,000)
Payments to Medicore (10,735) (73,116)
----------- ---------
Net cash provided by (used)
in financing activities 4,226,886 111,884
----------- ---------
Increase (decrease) in cash
and cash equivalents 2,587,354 (543,909)
Cash and cash equivalents
at beginning of period 879,926 579,906
----------- ---------
Cash and cash equivalents
at end of period $ 3,467,280 $ 35,997
=========== =========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 7
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation: Viragen, Inc. and subsidiary have been engaged
in the research, development and manufacture of certain immunological products
for prospective commercial application. The consolidated financial statements
include the accounts of Viragen, Inc. and its wholly-owned subsidiary,
Vira-Tech, Inc. All material intercompany accounts and transactions have been
eliminated in consolidation.
Change in Fiscal Year-End: Effective January 1, 1993, the Company changed its
year-end from December 31st to June 30th.
Inventory: The Company has capitalized the human leukocyte interferon
manufactured in its laboratories at the lower of average cost or market. The
timing of the realization of the interferon inventory is dependent upon future
events. In July 1995, as part of an ongoing negotiation and determination by
management to focus efforts on obtaining regulatory approvals, the Company has
determined to discontinue new patient enrollments under the State of Florida
499 Program. Accordingly, the Company recorded as write-down of its interferon
inventory, effective December 1994, of $788,000.
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
----------- ----------
<S> <C> <C>
Supplies $ 5,000
Work in Process $143,490 99,864
Finished goods 196,828 661,607
-------- --------
340,318 766,471
======== ========
</TABLE>
Property, Plant and Equipment: Property, plant and equipment is stated at the
lower of cost or net realizable value. Depreciation was computed using the
straight-line method over the estimated useful life for financial reporting
purposes and using accelerated methods for income tax purposes.
Accounting Change: Effective in January 1, 1993, the Company changed its
method of accounting for income taxes and implemented Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". This change had
no effect on results of operations or financial position as presented in the
accompanying financial statements.
<PAGE> 8
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Loss Per Share: Loss per share has been computed based on the weighted average
number of shares outstanding during each period. The effect of warrants and
stock options (common stock equivalents) are antidilutive. Fully diluted loss
per share data, which includes the assumed conversion of the convertible
preferred stock, has not been presented because it was not dilutive.
Cash Equivalents: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents. The
carrying amounts, reported in the balance sheets for cash and cash equivalents
approximate their fair values.
NOTE B--INTERIM ADJUSTMENTS
The financial summaries for the three months ended and six months ended
December 31, 1994 and December 31, 1993 are unaudited and include, in the
opinion of management of the Company, all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the three months ended and six months ended December 31, 1994 are
not necessarily indicative of the results that may be expected for the entire
year ending June 30, 1995.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these Consolidated
Condensed Financial Statements be read in conjunction with the financial
statements and notes included in the Company's latest annual report on Form
10-K for the year ended June 30, 1994.
NOTE C--CAPITAL STOCK
In August 1994, the Company concluded a Private Placement of its common stock
with the issuance of 8,919,000 shares at $.40 per share. At June 30, 1994,
2,534,375 shares had been recorded as subscribed. In connection with this
offering, the Company issued 765,650 common stock purchase warrants entitling
the holder to purchase one share of common stock at $.40 per share for a period
of five years from date of issuance. Subscriptions receivable of $102,500 at
June 30, 1994 related to this private placement and were received on July 16,
1994.
<PAGE> 9
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
NOTE C--CAPITAL STOCK--Continued
During fiscal 1994, Cytoferon Corporation purchased 1,333,333 shares of common
stock at $.30 per share under the terms of an Additional Stock Purchase
Agreement.
Also during that period, the Company entered into stock purchase and option
agreements with officers and directors totaling 2,250,000 shares obtainable at
$.30 per share, of which 1,125,000 shares were immediately exercisable and
1,125,000 shares were subject to certain performance criteria. During the
second quarter of fiscal 1994 the option related performance criteria were met
and the remaining 1,125,000 options became exercisable. During the year ended
June 30, 1994, $117,000 was charged to operations upon the issuance of the
officer and director options.
In November, 1994, the Company commenced a second Private Placement solely to
accredited investors to raise, through the sale of Common Stock at $.60 per
share, a maximum of $3,000,000. This offering was completed on December 31,
1994 with the Company having realized gross proceeds of $2,056,000 upon the
issuance of 3,426,667. The net proceeds of this offering of approximately
$1,980,000 are intended to be utilized for the establishment of a research and
manufacturing facility in Europe during fiscal 1995 and for general working
capital purposes. Subject to receipt of additional funding to conduct
European-based clinical trials, it is the Company's intention to commence
European clinical trails and seek the necessary approvals for the sale of its
Alpha Leukoferon(TM) product in Europe.
In April 1994, an officer purchased 750,000 shares of common stock at $.30 per
share, in accordance with the provisions of his employment agreement. The
amount due from the officer of $225,000 was offset by certain compensation due
to the officer of $7,500. Consequently, a note receivable of $217,500 for the
net balance and compensation expense of $7,500 were recorded.
In June 1994, two officers and an affiliate each purchased 125,000 shares of
common stock at $.30 per share. The aggregate amounts due from the parties of
$37,500 each was offset by compensation due to the officers and affiliate of
$3,750. Consequently, a note receivable of $36,250 and compensation expense of
$3,750 was recorded for each purchase. These notes, relating to the purchase
of common stock by officers and an affiliate, total $326,250 and are classified
as Notes due from officers in the Stockholders' Equity section at December 31,
1994 and June 30, 1994.
<PAGE> 10
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
NOTE C--CAPITAL STOCK--Continued
The Company has outstanding 1,190,875 Class A common stock purchase warrants
exercisable into 3,655,986 shares of common stock at $1.63 per share, 600,000
Class B common stock purchase warrants exercisable into 2,046,000 shares of
common stock at $2.93 per share, and 3,029,270 Class C common stock purchase
warrants exercisable into 9,845,128 shares of common stock at $2.08 per share.
These warrants are exercisable through March 31, 1995.
There are 3,450 shares of 10% Cumulative, Convertible Series A preferred stock
of the Company outstanding at December 31 and June 30, 1994. Each share of
preferred stock provides for a 10% cumulative dividend, payable at the option
of the Company, in either cash or common stock and is convertible into 4.26
shares of common stock.
In 1994 and 1992, 250 shares and 10,000 shares of the convertible 10% series A
cumulative preferred stock were converted into 1,065 and 42,600 shares
respectively, of the Company's common stock.
Shares of the Company's common stock reserved at December 31, 1994 (unaudited)
for possible future issuance are as follows:
<TABLE>
<S> <C>
Warrants (Class A, B and C) 15,547,114
Warrants - former consultant 415,840
Convertible preferred stock 14,697
Option plans 1,000,000
Directors options 1,525,000
Warrants - private placement 765,650
----------
19,268,301
==========
</TABLE>
In October 1994, the $200,000 of Convertible Debentures outstanding at
September 30 and June 30, 1994 were converted into 666,667 shares of common
stock.
NOTE D--INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes and implemented Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Statement 109 changes the method of
accounting for income taxes from the deferred to the liability method.
<PAGE> 11
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
NOTE D--INCOME TAXES--Continued
Under the liability method, deferred income taxes at the end of each period are
determined by applying enacted tax rates applicable, to future periods in which
the taxes are expected to be paid or recovered to differences between financial
accounting and tax bases of assets. Under the deferred method, deferred income
taxes are recognized using the tax rates in effect when the tax is first
recorded and are not adjusted for subsequent changes in tax rates until paid or
recovered.
NOTE E--TRANSACTIONS WITH OTHER RELATED PARTIES
In November, 1993, the Company issued $200,000 in 8 1/2%, three year
convertible debentures. The debentures, at the holders option were immediately
convertible into common stock of the Company at $.30 per share. These
debentures were held by a fund managed by a director of the Company. In
October, 1994, these debentures were converted into 666,667 shares of common
stock.
In December 1993, the Company issued 260,130 shares of common stock to a
stockholder and former director in payment of a 10% convertible promissory note
in the amount of $66,600 and related accrued interest of $11,439. At June 30,
1994, the Company had outstanding a note payable in the amount of $25,000 to
this stockholder. The note with related interest was repaid in July 1994.
During the fourth quarter of fiscal 1994, the Company made a series of
short-term borrowings from Cytoferon represented by notes payable bearing
interest at 10%. At June 30, 1994 such notes totalled $60,000 and were repaid
in July 1994.
NOTE F--AGREEMENT FOR SALE OF STOCK
On February 5, 1993, the Company entered into a Stock Agreement with Cytoferon
to purchase up to 11,640,000 shares of the Company's common stock for
consideration of $1,500,000 ("Maximum Investment"). By May 31, 1993, the
expiration of the investment period, the Company had received the Minimum
Purchase under the terms of the stock agreement, $1,000,000, in exchange for
6,000,000 shares of common stock at $.167 per share. This price reflects the
receipt, by Cytoferon, of a 20% bonus of common stock due upon having reached
the Minimum Purchase.
<PAGE> 12
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
NOTE F--AGREEMENT FOR SALE OF STOCK--Continued
On November 19, 1993, the Company entered into an Additional Stock Purchase
Agreement under which terms Cytoferon purchased an additional 1,333,333 common
shares at $.30 per share.
The funds invested enabled the Company to reinitiate production of its
interferon product, Alpha Leukoferon(TM), and to reinitiate the distribution of
the product through physicians specializing in the treatment of multiple
sclerosis and HIV/AIDS patients residing in the state of Florida.
Under the terms of the Stock Agreement, the Company had approved the Management
and Marketing Services Agreement ("MMS Agreement") subject to certain
modifications, which appointed Cytoferon as consultant to the Company relating
to production, administration, marketing and regulatory affairs for which
Cytoferon was to receive a consulting fee of $204,000 the first year and
$240,000 the next two years provided certain minimum sales requirements were
met. To the extent Cytoferon's investment in the Company was less than the
Maximum Investment, the consulting fee was reduced pro- rata. The MMS
Agreement also provided a 4% gross sales commission for exclusive
distributorship for non-FDA approved products and non-exclusive marketing of
FDA approved products, none of which the Company presently has. The MMS
Agreement further provided for the Company to pay Cytoferon 50% of any fees for
foreign licensing, franchising and transfer of technology plus a 20% royalty on
any revenues the Company may receive from foreign agreements resulting from
Cytoferons efforts.
All such fees and commissions were subject to the Company generating certain
minimum sales under the MMS Agreement. For the six month periods ended
December 31, 1994 and 1993, the Company incurred management fees and sales
commissions expenses of $120,000, and $13,000, and $73,000, and $2,423 for 1994
and 1993, respectively.
In August 1994, the Board of Directors of the Company voted to terminate the
MMS Agreement with Cytoferon, subject to receipt of a fairness opinion, and
issue the 1,750,000 shares contingently issuable under the Additional Stock
Purchase Agreement. The Company's management believed it was in the long-term
best interest of the Company to unify and consolidate management functions and
efforts and eliminate conflicts that could arise by virtue of minimum sales
requirements that could be inconsistent
<PAGE> 13
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
NOTE F--AGREEMENT FOR SALE OF STOCK--Continued
with the Company's plans to introduce new production technologies and
refinement of related protocols. Accordingly, the Company executed a Subsequent
Agreement which, subject to receipt of a fairness opinion received in December
1994, terminated the MMS Agreement and accelerated the issuance of the
1,750,000 shares contingently issuable under the November 1993 Additional Stock
Agreement concurrent with the cancellation of the MMS Agreement and related
contractual obligations. As a result of this transaction, the Company has
recognized contract termination fee expense of $558,000 in August 1994.
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company has incurred operational losses and operated with a
negative cash flow since its inception in December, 1980. Losses have totalled
approximately $1,213,000 and $2,037,000 for the three months ended and six
months ended December 31, 1994 and $1,083,000, $313,000 and $271,000
(unaudited) for the year ended June 30, 1994, and the six month periods ended
June 30, 1993 and 1992, respectively. See "Results of Operations" below.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totalled approximately $3,272,000 at December 31,
1994, an increase of $2,478,000 over the year end balance. This increase was
attributable to the receipt during the first quarter of approximately
$2,275,000, representing the proceeds, net of expenses, of the Company's $3.5
million Private Placement Offering completed in August 1994 and net proceeds of
approximately 1,980,000 from the Company's second Private Placement completed
as of December 31, 1994 such financing being offset to a large extent by the
write-down of inventory by $788,000 based upon revised sales projections. See
Results of Operations, below. Approximately $911,000 in proceeds of the first
quarter offering were received prior to June 30, 1994.
Certain components of working capital changed significantly between
the June 30, 1994 and December 31, 1994 periods, reflecting the recommencement
and scale-up of manufacturing operations in 1993.
On February 5, 1993 the Company entered into the Stock Agreement with
Cytoferon, pursuant to which Cytoferon had the right to purchase up to
11,640,000 shares of the Company's common stock, $.01 par value, which would
have constituted approximately 49.5% of the then to-be-outstanding common stock
of the Company. Within the terms of the contract period, which ended May 31,
1993, Cytoferon invested $1,000,000 in the Company in exchange for 6,000,000
shares of common stock. In November 1993, the Company negotiated and executed
an Additional Stock Purchase Agreement ("Additional Stock Agreement") which
provided Cytoferon the right to invest directly or otherwise obtain additional
investment of $500,000 within 60 days of execution of the Additional Stock
Agreement for 1,667,000 shares of the Company's common stock. The investment
threshold was subsequently met in part through the purchase of $200,000 in
convertible subordinated debentures with Cytoferon being issued 1,333,333
shares.
<PAGE> 15
Using the capital invested by Cytoferon, the Company recommenced the
production of its Alpha Leukoferon(TM) product ("product") in May, 1993 and
began limited distribution of the product in September 1993, for the treatment
of multiple sclerosis and HIV/AIDS patients residing in Florida through
physicians specializing in the treatment of those diseases.
The Company hopes that its product will be embraced as a standard
treatment for both intermittent and progressive multiple sclerosis and further
believes its Alpha Leukoferon(TM) product may be of benefit for those suffering
from HIV/AIDS and related illnesses.
In August 1994, the Company completed a 3.5 million Private Placement
Offering ("Offering") of its common stock at $.40 per share, issuing 8,919,000
shares. In connection with this Private Placement, an Agreement was executed
with Laidlaw Equities, Inc. ("Laidlaw") utilizing that firm as placement agent.
The Agreement further provided for the issuance of five year common stock
purchase warrants with an exercise price of $.40 per share equal to ten (10%)
of the number of shares issued during the Offering. The Company agreed to file
a Registration Statement within six (6) months from the closing date
registering the common shares sold pursuant to the Offering. This Registration
was filed on a timely basis and is currently in the review and amendment
process. The Company also agreed to use its best efforts to file a Registration
Statement for the related warrants within one year of the issuance of such
warrants.
The net proceeds of the August Private Placement, approximately
$3,185,000, are being utilized for the acquisition of laboratory production
equipment, purchase of a company-wide computer system, development of FDA study
protocols, employment of additional operating and administrative personnel and
working capital.
In December 1994, the Company completed a second Private Placement
solely to accredited investors to raise, through the sale of Common stock at
$.60 per share, a maximum of $3,000,000. This offering was completed at
December 31, 1994 with the Company having realized gross proceeds of $2,056,000
upon the issuance of 3,426,667 shares. The net proceeds of this offering of
approximately 1,980,000 are intended to be utilized for implementation of the
initial phase of the Company's European market strategy, which includes the
establishment of a research and manufacturing facility in Europe during fiscal
1995 and for general working capital purposes. Subject to receipt of
additional funding to conduct European-based clinical trials, it is the
Company's intention to commence European clinical trials and seek the necessary
approvals for the sale of its Alpha-Leukoferon(TM) product in Europe.
<PAGE> 16
Previously, the Company was being funded by Medicore, Inc.
("Medicore"), its former parent, and during 1992 received advances in the
amount of $301,000 to finance its minimal operations during this period.
Aggregate indebtedness due Medicore (exclusive of $108,000 in royalties due
under a previous agreement which is payable as the final payment under the
$2,400,000 total royalty to be paid) was $517,000 and $545,000 at December 31,
1994 and June 30, 1994, respectively. This indebtedness is secured by a
$429,000 note and mortgage on the realty and personal property of the Company.
While subject to significant limitations, the Company has available
net tax operating loss carry forwards of approximately $10,300,000, expiring
between 1995 and 2009, which may be used to offset taxable income during those
periods.
Management believes that given the working capital currently, on-hand,
the Company will have the funds necessary to continue its current level of
operations and fund current research projects at least through December 31,
1995.
RESULTS OF OPERATIONS
For the past several years the vast majority of the Company's limited
revenues have been derived from sales of the Company's interferon product,
Alpha Leukoferon(TM), through Florida physicians (primarily neurologists) for
the treatment of Multiple Sclerosis. Distribution of the Company's interferon
product is limited to the State of Florida and is sanctioned by, and subject
to, the provisions of Florida Statute 499.018. This statute permits controlled
distribution of the product in a clinical trial environment only within the
State. Commercialization of products under this statute is not permitted.
In December 1994, the Company received notification from HRS to
postpone enrollment of new patients under its 499 program until such time as
the Company provided certain administrative reports to HRS and corrected to
their satisfaction certain FDA inspection related comments concerning the
Company's manufacturing processes and facility. In July 1995, as part of an
ongoing negotiation and determination by management to focus efforts on
obtaining regulatory approvals, the Company has determined to discontinue
future enrollments under its 499 Program, with the possible exception of a
limited program for humanitarian purposes, involving offering the Product on a
non-payment basis. Accordingly, the Company has recorded a $788,000 write-down
of its inventory balances to a level reflecting product on- hand needed to
<PAGE> 17
complete the course of treatment for patients actively receiving the product
and enrolled prior to the elimination of new enrollments. The last patient is
scheduled to complete their course of treatment in March 1996. This adjustment
was recognized in December 1994, the date the Company received the initial HRS
postponement notification.
Losses from operations have been incurred since inception and totalled
approximately $1,213,000 and $2,037,000 for the three months ended and six
months ended December 31, 1994 and $1,083,000 for the year ended June 30, 1994,
and $313,000 and $271,000 (unaudited) for the six month periods ended June 30,
1993, and 1992, respectively.
Sales for the quarter ended December 31, 1994 totalled $183,000 and
were derived almost entirely from distribution of the Company's Alpha
Leukoferon(TM) product for the clinical study treatment of multiple sclerosis.
As the Company was essentially dormant prior to the receipt of investment
capital (see Liquidity and Capital Resources, above) due to the then lack of
working capital and depletion of its inventories in the prior year, sales
during the comparable period totalled only $44,000.
Cost of sales as a percentage of sales revenues totalled 60% for the
three months ended and six months ended December 31, 1994, an increase from the
comparable periods of the proceeding year. This increase may be expected to
continue through the balance of fiscal 1995 due to a significant (44%) drop in
the selling price of the Company's product. This sharp price reduction
reflects the Company's efforts to make the product more price competitive with
the synthetic interferons, and accordingly, a more viable alternative patient
treatment. However, the Company anticipates implementation during fiscal 1995
of improved manufacturing techniques which are expected to significantly reduce
its costs of production. While the actual production cost savings can not yet
be accurately quantified, it is believed, but not assured, that such savings
will at least yield savings sufficient to recoup the gross profit margins lost
through the price reduction.
Research and development costs increased significantly over the prior
year reflecting the lack of research capital in 1993. The Company's research
efforts are focused primarily on improved production techniques for the
Company's Alpha Leukoferon(TM) product. These costs are expected to continue to
increase over future periods as the Company continues to seek improved methods
of manufacturing aimed at maintaining or improving product quality and
manufacturing efficiencies.
<PAGE> 18
The 28% increase in selling general and administrative expenses for
the comparative six month period reflect the overall increase in the level of
production and sales activities including the addition of administrative
personnel with related benefit costs. During the bulk of the comparable periods
of the proceeding year, the Company was essentially dormant with limited
distribution of the Company's product not commencing until September, 1993.
Included in those components, which increased as a direct result of the
recommencement of sales, were fees relating to product liabilities insurance
coverage, sales commissions and royalty fees.
The Company has recognized contract termination expense of $525,000 in
August 1994, reflecting the termination of the contractual relationship between
the Company and Cytoferon and related issuance of 1,750,000 shares of common
stock. The transaction was initially approved by the Company's Board of
Directors in August 1994, subject to receipt of a fairness opinion. Said
opinion was received in December 1994. See Note F to Notes to Consolidated
Condensed Financial Statements.
The increase in interest expense resulted from the increase in the
bank prime rate between the periods. The Company has two mortgages on its
production facility, both of which are tied to the prime rate.
The Company's bank prime rate was 7 1/2% and 6% as of December 31,
1994 and 1993, respectively.
<PAGE> 19
PART II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
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.
VIRAGEN, INC.
By: /s/ Dennis W. Healey
---------------------------
DENNIS W. HEALEY, Executive
Vice President, Chief
Financial Officer
Dated: August 11, 1995
<PAGE> 1
EXHIBIT 11 COMPUTATION OF LOSS PER COMMON SHARE
<PAGE> 2
VIRAGEN, INC. AND SUBSIDIARY
EXHIBIT 11 COMPUTATION OF LOSS PER COMMON SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
<C> <C> <C> <C>
PRIMARY AND FULLY DILUTED
Weighted average shares
outstanding 31,739,414 17,960,379 28,879,146 17,917,024
============ ============ ============ ============
Net Loss ($1,213,437) $ (305,225) $ (2,036,972) $ (558,871)
Deduct required dividends
on convertible preferred
stock 863 933 1,725 1,865
------------ ------------ ------------ ------------
Loss attributable to
common stock $ (1,214,300) $ (306,158) $ (2,038,697) $ (560,736)
Net loss per common
share after deduction
for required dividends
on convertible preferred
stock $ (0.04) $ (0.02) $ (0.07) $ (0.03)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VIRAGEN, INC. FOR THE SIX MONTHS ENDED DECEMBER 31, 1994
1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-START> JUN-30-1994
<PERIOD-END> DEC-31-1994
<CASH> 3,467,280
<SECURITIES> 0
<RECEIVABLES> 69,675
<ALLOWANCES> 0
<INVENTORY> 340,318
<CURRENT-ASSETS> 3,957,755
<PP&E> 2,394,358
<DEPRECIATION> 1,442,932
<TOTAL-ASSETS> 4,984,956
<CURRENT-LIABILITIES> 685,491
<BONDS> 0
<COMMON> 363,555
0
3,450
<OTHER-SE> 3,345,774
<TOTAL-LIABILITY-AND-EQUITY> 4,984,956
<SALES> 183,174
<TOTAL-REVENUES> 212,689
<CGS> 109,357
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,294,117
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,652
<INCOME-PRETAX> (1,213,437)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,213,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,213,437)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
