<PAGE> 1
FORM 10-Q/A1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
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VIRAGEN, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 59-2101668
------------------------------- ------------------------------
State or other jurisdiction of (I.R.S.Employer Identification
incorporation or organization) No.)
2343 West 76th Street, Hialeah, Florida 33016
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(Address of principal executive offices) (Zip Code)
(305) 557-6000
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(Registrant's telephone number, including area code)
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
----- -----
Common Stock Outstanding:
Common Stock, $.01 par value - - 31,262,197 shares as of October 31,
1994.
<PAGE> 2
VIRAGEN, INC. AND SUBSIDIARY
INDEX
PART I - FINANCIAL INFORMATION
The Consolidated Condensed Statements of Operations (Unaudited) for
the three months ended September 30, 1994 and September 30, 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 September 30, 1994 and
September 30, 1993.
2) Consolidated Condensed Balance Sheets as of September
30, 1994 and June 30, 1994.
3) Consolidated Condensed Statements of Cash Flows for
the three months ended September 30, 1994 and
September 30, 1993.
4) Notes to Consolidated Condensed Financial Statements
as of September 30, 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
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
VIRAGEN, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1994 1993
---- ----
<S> <C> <C>
INCOME
Revenues $ 150,178 $ 39,150
Interest and other income 13,866 7,543
---------- -----------
164,044 46,693
COSTS AND EXPENSES
Cost of goods sold 89,716 23,490
Depreciation and amortization 15,168 11,600
Research and development
costs 50,924 2,128
Selling, general and
administrative expenses 281,028 244,756
Contract termination fee 525,000
Interest expense 25,742 18,365
---------- -----------
987,578 300,339
---------- -----------
NET LOSS (823,534) (253,646)
Deduct required dividends on
convertible preferred stock 863 933
---------- -----------
LOSS ATTRIBUTABLE TO COMMON
STOCK $ (824,397) $ (254,579)
=========== ===========
LOSS PER COMMON SHARE,
after deduction for required
dividends on convertible
preferred stock $ (.03) $ (.01)
=========== ===========
Weighted average shares outstanding 26,018,878 17,873,669
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 4
VIRAGEN, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1994 1994 (A)
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,106,203 $ 879,926
Accounts receivable, less
allowance of $15,000 60,529 22,785
Subscriptions receivable from
private placement 102,500
Inventory 982,817 766,471
Prepaid expenses 87,210 36,189
Other current assets 1,500 9,653
----------- -----------
TOTAL CURRENT ASSETS 3,238,259 1,817,524
NOTES RECEIVABLE, less allowance
of $5,600 44,866 74,189
PROPERTY, PLANT AND EQUIPMENT
Land, building and improvements 1,171,992 1,170,855
Equipment and furniture 1,119,685 1,049,072
----------- -----------
2,291,677 2,219,927
Less accumulated depreciation (1,410,193) (1,377,454)
----------- -----------
881,484 842,473
DEPOSITS AND OTHER ASSETS 9,878 10,308
__
----------- -----------
$ 4,174,487 $ 2,744,494
=========== ===========
</TABLE>
<PAGE> 5
VIRAGEN, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
September 30, June 30,
1994 1994 (A)
------------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 225,649 $ 420,049
Current portion of amounts
payable to Medicore Inc. 35,122 52,153
Accrued expenses and other liabilities 316,936 520,723
Current portion of notes payable 30,000 30,000
------------ ------------
TOTAL CURRENT LIABILITIES 607,707 1,022,925
CONVERTIBLE DEBENTURES PAYABLE 200,000 200,000
MORTGAGE NOTE PAYABLE, less current
portion 475,939 483,439
AMOUNTS PAYABLE TO MEDICORE, INC.
less current portion 487,169 492,537
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 September 30, 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 31,262,197 shares at
September 30, 1994. 312,622 202,182
Capital in excess of par value 16,396,146 12,698,723
Common stock subscribed 1,126,250
Retained earnings (deficit) (13,982,296) (13,158,762)
Notes due from officers (326,250) (326,250)
------------ ------------
TOTAL STOCKHOLDERS EQUITY 2,403,672 545,593
------------ -------------
$ 4,174,487 $ 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.
See notes to consolidated condensed financial statements.
<PAGE> 6
VIRAGEN, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (823,534) $(253,646)
Adjustments to reconcile net
loss to net cash used
in operating activities:
Depreciation and amortization 33,168 21,620
Contract termination fee paid in stock 525,000
Increase (decrease) relating to
operating activities from:
Accounts receivable (37,744) (11,638)
Interferon inventory (216,346) (246,896)
Inventory 539
Prepaid expenses and other
current assets (42,868) (72,403)
Deferred expenses and other
assets 430 (5,000)
Accounts payable (194,400) 78,408
Accounts payable to Medicore, Inc. (17,031) 7,775
Accrued expenses and other
liabilities (189,495) 85,345
---------- ---------
Net cash used in operating
activities (962,820) (395,896)
INVESTING ACTIVITIES:
Additions to property, plant and
equipment, net of minor disposals (71,751) (26,502)
---------- ---------
Net cash used in investing
activities (71,751) (26,502)
---------- ---------
FINANCING ACTIVITIES:
Proceeds from sale of common stock
net of related expenses 2,248,716
Payments on long-term debt (7,500) (7,500)
Payments to Medicore (5,368) (67,084)
---------- ----------
Net cash provided by (used)
in financing activities 2,235,848 (74,584)
---------- ---------
Increase (decrease) in cash and cash
equivalents 1,201,277 (496,982)
Cash and cash equivalents
at beginning of period 879,926 579,906
---------- ---------
Cash and cash equivalents
at end of period $2,081,203 $ 82,924
========== =========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 7
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
September 30, 1994
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidated: Viragen, Inc. and subsidiary have been engaged
in the research, development and manufacture of certain immunological products
for 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.
Inventory is comprised of the following.
<TABLE>
<CAPTION>
September 30 June 30
1994 1994
--------------- -----------------
<S> <C> <C>
Supplies 5,000 $ 5,000
Work in Process 156,335 99,864
Finished Goods 821,482 661,607
-------- --------
$982,817 $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.
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.
<PAGE> 8
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
September 30, 1994
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
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 September 30, 1994 and
September 30, 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 September 30, 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 8,856,500 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 has agreed to issue 885,650 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 were
paid on July 16, 1994.
<PAGE> 9
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
September 30, 1994
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 purchases
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 quarter ended September 30, 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 April 1994, an officer purchased 750,000 shares of common stock at $.30 per
share, in accordance with the provisions of his employment agreement. $7,500,
the par value of the stock, was treated as compensation expense and a note
receivable was recorded on the remaining balance of $217,500. In June 1994,
two officers and an affiliate each purchased 125,000 shares of common stock at
$.30 per share. $3,750, the par value of the stock, was treated as
compensation expense and a note receivable from each individual/entity was
recorded on the remaining balance of $36,250. 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
September 30, 1994 and June 30, 1994.
The Company has outstanding 1,190,875 Class A common stock purchase warrants
exercisable into 3,274,906 shares of common stock at $1.82 per share, 600,000
Class B common stock purchase warrants exercisable into 1,800,000 shares of
common stock at $3.33 per share, and 3,029,270 Class C common stock purchase
warrants exercisable into 8,724,298 shares of common stock at $2.34 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 September 30 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.
<PAGE> 10
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
September 30, 1994
NOTE C--CAPITAL STOCK--Continued
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 June 30, 1994 for possible
future issuance are as follows:
<TABLE>
<S> <C>
Warrants (Class A, B and C) 13,799,204
Warrants - former consultant 415,840
Convertible preferred stock 14,697
Option plans 1,000,000
Directors options 1,525,000
Warrants - private placement 885,650
Convertible debentures 666,667
----------
18,307,058
==========
</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.
The Company has commenced a second Private Placement to raise through the sale
of common stock at $.60 per share, up to a maximum of $3,000,000. This
offering has no minimum which must be raised and is scheduled for termination
on November 30, 1994 unless extended at the option of the Company until
December 31, 1994. While there can be no assurance as to the successful
conclusion of this Offering, the proceeds, if any, are intended to be utilized
for the establishment of a research and manufacturing facility in Europe during
the first half of 1995 and for working capital. Subject to receipt of the
maximum proceeds of the second placement and 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.
<PAGE> 11
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
September 30, 1994
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. 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 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.
<PAGE> 12
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
September 30, 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.
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 marketing 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 has approved the Management
and Marketing Services Agreement ("MMS Agreement") subject to certain
modifications, which appoints Cytoferon as consultant to the Company relating
to production, administration, marketing and regulatory affairs for which
Cytoferon is to receive a consulting fee of $204,000 the first year and
$240,000 the next two years provided certain minimum sales requirements are
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 provides 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 provides for the Company to pay Cytoferon 50% fees for
foreign licensing, franchising and transfer of technology plus 20% royalties
the Company may receive from foreign agreements. All such fees and commissions
are subject to the Company generating certain minimum sales under the MMS
Agreement. For the three month periods ended September 30, 1994 and 1993, the
Company incurred management fees and sales commissions expenses of $60,000 and
$6,007, and $34,000 and $1,566 for 1994 and 1993, respectively.
<PAGE> 13
VIRAGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--Continued
September 30, 1994
NOTE F--AGREEMENT FOR SALE OF STOCK--Continued
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 believes that since it is
probable that such additional shares would have been earned, that it is,
therefore, in the long-term best interest of the Company to unify and
consolidate management functions and efforts and eliminate conflicts that may
arise by virtue of minimum sales requirements that could be inconsistent with
the Company's plans to introduce new production technologies and refinement or
related protocols.
The Company has recognized contract termination expenses of $525,000 in August
1994, reflecting the termination of the contractural 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.
<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 $824,000 for the three months ended September 30, 1994 and
$1,083,000, $313,000 and $271,000 (unaudited) for the year ended June 30, 1994,
and the six months periods ended June 30, 1993 and 1992, respectively. See
"Results of Operations" below.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totalled approximately $2,630,000 at September 30,
1994, an increase of $1,836,000 (231%) over the year end balance. This
increase was attributable to the receipt during the first quarter of
approximately $2,250,000, representing the balance of the proceeds, net of
expenses, of the Company's $3.5 million Private Placement Offering completed in
August 1994. Approximately $911,000 in proceeds of this offering were received
prior to June 30, 1994.
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.
Using the capital invested by Cytoferon, the Company recommenced the
production of its Alpha Leukoferon(TM) 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.
<PAGE> 15
In August 1994, the Company completed a 3.5 million Private Placement
Offering ("Offering") of its common stock at $.40 per share, issuing 8,856,500
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 and would be
subject to a substantial dilutive penalty if such Registration did not occur on
a timely basis. 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 Company intends to file the Registration Statements with
the time period specified.
The net proceeds of the Private Placement, approximately $3,160,000,
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.
The Company has commenced a second Private Placement to raise, through
the sale of common stock at $.60 per share, up to a maximum of $3,000,000.
This Offering has no minimum which must be raised and is presently scheduled
for termination on November 30, 1994 unless extended at the option of the
Company to December 31, 1994. While there can be no assurance as to the
successful conclusion of this Offering or as to the proceeds that will be
realized, if any, the net proceeds 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 the first half of 1995 and working capital. Subject to receipt
of the maximum proceeds of the second placement and 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.
While subject to significant limitations, the Company has available
net tax operating loss carryforwards of approximately $10,150,000, 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 at least through September 30, 1995.
<PAGE> 16
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 in accordance with Florida Statute 499.
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.
Losses from operations have been incurred since inception and totalled
approximately $824,000 for the three months ended September 30, 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 September 30, 1994 totalled $150,000 and
were derived almost entirely from distribution of the Company's Alpha
Leukoferon(R) 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 lack of working
capital and depletion of its inventories in the prior year, sales during the
comparable period totalled only $39,000.
Cost of sales as a percentage of sales revenues totalled 60% and are
expected to significantly increase as a percentage of sales revenues during the
first six to nine months of this year. This increase is due to a significant
(44%) drop in the selling price of the Company's Alpha Leukoferon(TM) 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 the second half of this year, of improved purification
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.
<PAGE> 17
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.
The 15% increase in selling general and administrative expenses
reflect the overall increase in the level of production and sales activities
including the addition of administrative personnel with related benefit costs.
The Company has recognized contract termination expenses of $525,000
in August, 1994, reflecting the termination of the contractural 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 prime rate was 7.75% and 6.00% as of September 30, 1994 and 1993,
respectively.
<PAGE> 18
PART II- OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
The Company has outstanding at September 30, 1994, and December 31,
1993, 3,450 shares of its preferred stock which provides for cumulative
dividends at an annual interest rate of 10% per share, when and as declared by
the Board of Directors, payable at the option of the Board, in common stock or
cash. A common stock dividend was paid to preferred share holders of record in
1989 for an aggregate dividend issuance of 36,579 shares of common stock. If
at any time dividends payable on the preferred stock are in arrears for five
annual dividend periods (which occurred in August, 1994), the holders of the
outstanding shares of preferred stock, have the exclusive right, voting as a
class, to elect two directors of the Company, which right will continue until
all accumulated dividends have been paid in full. The Company anticipates
approval by its Board of Directors of a preferred stock dividend during the
second fiscal quarter of 1995.
<PAGE> 19
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, Treasurer and
Principal 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
September 30,
1994 1993
---- ----
<S> <C> <C>
PRIMARY AND FULLY DILUTED
Weighted average shares
outstanding 26,018,878 17,873,669
=========== ===========
Net loss $ (824,397) $ (253,646)
Deduct required
dividends on convertible
preferred stock 863 933
----------- -----------
Loss attributable to
common stock $ 824,397 $ (254,579)
=========== ===========
Net loss per common
share after deduction
for required dividends
on convertible preferred
stock $(.03) $ (.01)
========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VIRAGEN, INC. FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-START> JUN-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 2,106,203
<SECURITIES> 0
<RECEIVABLES> 60,529
<ALLOWANCES> 0
<INVENTORY> 982,817
<CURRENT-ASSETS> 3,238,259
<PP&E> 2,291,677
<DEPRECIATION> 1,410,193
<TOTAL-ASSETS> 4,174,487
<CURRENT-LIABILITIES> 607,707
<BONDS> 0
<COMMON> 312,622
0
3,450
<OTHER-SE> 2,403,672
<TOTAL-LIABILITY-AND-EQUITY> 4,174,487
<SALES> 150,178
<TOTAL-REVENUES> 164,044
<CGS> 89,716
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 872,284
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,578
<INCOME-PRETAX> (823,534)
<INCOME-TAX> 0
<INCOME-CONTINUING> (823,534)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (823,534)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
