<PAGE> 1
FORM 10-Q - QUARTERLY OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
( ) 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 0-10252
VIRAGEN, INC.
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-2101668
------------------------------ -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2343 West 76th Street - Hialeah, FL 33016
------------------------------------------
(Address of principal executive offices)
(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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE
PRECEDING FIVE YEARS Check whether the registrant filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Exchange Act
after the distribution of securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of
each of the issuer's classes of common equity, as of the latest practicable
date:
Common Stock, par value $ .01 - 38,254,239 shares at November 11, 1996.
1
<PAGE> 2
VIRAGEN, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
The Consolidated Condensed Statements of Operations (Unaudited) for the three
month periods ended September 30, 1996 and September 30, 1995 include the
accounts of the Registrant and all its subsidiaries.
Item 1. Financial Statements
1) Consolidated Condensed Statements of Operations for the three months ended
September 30, 1996 and September 30, 1995.
2) The Consolidated Condensed Balance Sheets as of September 30, 1996 and
June 30, 1996.
3) Consolidated Condensed Statements of Cash Flows for the three months ended
September 30, 1996 and September 30, 1995.
4) Notes to Consolidated Condensed Financial Statement as of September 30,
1996.
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
Exhibit 27 - Financial Data Schedule (for SEC use only)
2
<PAGE> 3
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITIED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
------------------------------
1996 1995
------------ -----------
<S> <C> <C>
INCOME
Revenues $ - $ 104,225
Interest and other income 227,958 26,191
------------ -----------
227,958 130,416
COSTS AND EXPENSES
Cost of goods sold - 83,808
Depreciation and amortization 53,801 48,209
Research and development costs 427,085 287,284
Selling, general and administrative expenses 617,434 440,560
Directors & Officers Options Granted - 183,144
Interest Expense 11,688 22,960
------------ -----------
1,110,008 1,065,965
------------ -----------
Loss before minority interest (882,050) (935,549)
Minority interest in loss of consolidated
subsidiaries 27,809 -
------------ -----------
NET LOSS (854,241) (935,549)
Deduct required dividends on convertible
preferred stock, Series A 663 863
Deduct required dividends on convertible
preferred stock, Series B 187,500 -
------------ -----------
LOSS ATTRIBUTABLE TO COMMON STOCK $(1,042,404) $ (936,412)
============ ===========
LOSS PER COMMON SHARE,
after deduction for required dividends on
convertible preferred stock $ (0.03) $ (0.03)
============ ===========
Weighted average shares outstanding 38,018,217 35,416,738
============ ===========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1995 (A)
------------- ------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $18,149,015 $19,449,059
Accounts and notes receivable, less
allowance of $11,750 and $11,668 at
September 30, 1996 and June 30,
1996, respectively. 16,012 26,086
Prepaid expenses 136,598 87,765
Due from employees 51,747 97,340
Other current assets 114,348 104,269
----------- -----------
TOTAL CURRENT ASSETS 18,467,720 19,764,519
PROPERTY, PLANT AND EQUIPMENT
Land, building and improvements 1,195,209 1,195,209
Equipment and furniture 1,678,587 1,647,762
Construction in progress 110,895 21,811
----------- -----------
2,984,691 2,864,782
Less accumulated depreciation (2,080,631) (2,026,830)
----------- -----------
904,060 837,952
DEPOSITS AND OTHER ASSETS 22,066 14,955
----------- -----------
$19,393,846 $20,617,426
=========== ===========
</TABLE>
4
<PAGE> 5
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996 (A)
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 249,830 $ 310,039
Accrued expenses and other liabilities 402,407 503,340
Current portion of long-term debt 39,783 685,211
------------ ------------
TOTAL CURRENT LIABILITIES 692,020 1,498,590
ROYALTIES PAYABLE 107,866 107,866
LONG TERM DEBT, less current portion 102,296 115,563
MINORITY INTEREST IN SUBSIDIARIES 1,686,829 1,620,222
STOCKHOLDERS' EQUITY
Convertible 10% Series A cumulative
preferred stock, $1.00 par value.
Authorized 375,000 shares; issued and
outstanding 2,650 shares. Liquidation
preference value: $10 per share
aggregating $26,500 at September 30,
1996 and June 30, 1996 2,650 2,650
Convertible 5% Series B Cumulative
preferred stock, $1.00 par value.
Authorized 15,000 shares; issued and
outstanding 15,000 shares 15,000 15,000
Common stock, $.01 par value
Authorized 50,000,000 shares; issued
and outstanding 38,094,239 at
September 30, 1996 and 37,896,072 at
June 30, 1996 380,942 378,959
Capital in excess of par value 39,002,156 38,618,391
Deficit (22,637,113) (21,782,872)
Foreign currency transaction adjustment 41,200 43,057
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 16,804,835 17,275,185
------------ ------------
$ 19,393,846 $ 20,617,426
============ ============
</TABLE>
(A) Reference is made to the Company's Annual Report on Form 10K for the year
ended June 30, 1996 filed with the Securities and Exchange Commission.
See notes to consolidate condensed financial statements.
5
<PAGE> 6
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
-------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss (854,241) $(935,549)
Adjustments to reconcile net loss
net cash used in operating activities:
Depreciation and amortization 53,801 48,209
Compensation expense on stock options 12,227 183,144
Minority interest in loss of subsidiary (27,809) -
Increase (decrease) relating to operating
activities from:
Accounts and notes receivable 10,074 (40,121)
Inventory - 106,272
Prepaid expenses (48,833) 24,972
Due from employees 45,593 -
Other current assets (10,079) (1,729)
Deposit and other assets (7,111) 814
Accounts payable (60,209) (150,906)
Accrued expenses and other liabilities (100,933) (60,962)
--------- ----------
Net cash used in
operating activities (987,520) (825,856)
--------- ----------
INVESTING ACTIVITIES
Additions to property, plant and equipment, net (119,909) (37,099)
--------- ----------
Net cash used in investing activities (119,909) (37,099)
--------- ----------
</TABLE>
6
<PAGE> 7
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
FINANCING ACTIVITIES 1996 1995
----------- -----------
<S> <C> <C>
Payments on long-term debt $ (658,695) $ (13,970)
Proceeds from exercise of warrants 167,707 25,750
Proceeds from exercise of options 4,230 -
Proceeds from exercise of subsidiary warrants 296,000 -
----------- ----------
Net cash provided by (used in) financing (190,758) 11,780
activities
Effect of exchange rate fluctuations on cash (1,857) -
----------- ----------
Increase (Decrease) in cash (1,300,044) (851,175)
Cash and cash equivalents at beginning of period 19,449,059 1,904,687
----------- ----------
Cash and cash equivalents at end of period $18,149,015 $1,053,512
=========== ==========
</TABLE>
7
<PAGE> 8
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE - A - ORGANIZATION AND CONSOLIDATION
Viragen, Inc. and subsidiaries 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 subsidiaries, Vira-Tech, Inc., Viragen USA, Inc., and Viragen
Technology, Inc., and its majority owned subsidiaries Viragen (Europe) Ltd.,
including its wholly-owned subsidiary, Viragen (Scotland) Ltd., collectively
known as the Company. All material intercompany accounts and transactions have
been eliminated in consolidation.
Certain reclassifications have been made to the fiscal 1996 Financial Statements
to conform to the September 30, 1996 interim presentation.
NOTE - B - INTERIM ADJUSTMENTS AND USE OF ESTIMATES
The financial summaries for the three months ended September 30, 1996 and
September 30, 1995 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, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending June 30, 1997.
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, 1996.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
NOTE C - CAPITAL STOCK
Shares of the Company's common stock reserved at September 30, 1996 and June 30,
1996 for possible future issuance are as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- ----------
<S> <C> <C>
Warrants - consultants 508,062 924,729
Convertible preferred stock, Series A 11,289 11,289
Convertible preferred stock, Series B 6,050,000 3,000,000
Employee option plans 222,500 500,000
Officers and directors 4,760,000 4,385,000
Warrants - private placement 631,821 633,821
---------- ---------
12,183,672 9,454,839
========== =========
</TABLE>
8
<PAGE> 9
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT -CONTINUED
SEPTEMBER 30, 1996
On May 15, 1995, as amended in September 1995, the Company adopted its 1995
Stock Option Plan under which 4,000,000 shares of Common Stock were reserved for
issuance to officers, directors, employees and consultants of the Company for
stock options designated as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code.
During the quarter ended September 30, 1996, 166,667 warrants issued to a
financial consultant having an exercise price of $1.00 per share and 2,000
warrants issued in connection with the Company's August 1994 Private Placement
offering with an exercise price of $.52 per share were exercised into common
stock of the Company. Also during the quarter, employees exercised 129,500
options at exercise prices ranging from $.30 to $.94 per share. The Company
also issued 2,000 options to an employee with an exercise price of $3.69 per
share which vest over a two year period.
Through September 30, 1996, 3,716,500 options have been granted pursuant to the
1995 Stock Option Plan.
NOTE D - LONG TERM DEBT
Long-term debt at September 30, 1996 and June 30, 1996 is as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------ ----------
<S> <C> <C>
First mortgage note secured by land, building and
equipment with a net book value of and $837,952 at
June 30, 1996. Monthly principal payments of
$2,500 plus interest at prime plus 2% with the
unpaid balance paid August 1, 1996 $ ----- $453,439
Second mortgage secured by land building, equipment
and accounts receivable. Monthly principal payments
of $1,789 plus interest at prime plus 1% with the unpaid
balance paid August 1, 1996 ----- 196,048
Capital lease obligations resulting from
acquisition of equipment, with a cost totaling
$213,130 at September 30, 1996 and
June 30, 1996, capitalized from three to five years 142,079 151,287
-------- --------
142,079 800,774
Less current portion 39,783 685,211
-------- --------
$102,296 $115,563
</TABLE>
The prime rate was 8.25% at September 30, 1996 and June 30, 1996.
Interest payment on debt totaled $11,668 and $21,967 for the three month periods
ended September 30, 1996 and 1995, respectively.
9
<PAGE> 10
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT - CONTINUED
SEPTEMBER 30, 1996
During the fiscal 1997 the Company acquired no additional equipment under
capital lease agreements.
Future minimum lease payments under capital lease obligations at September 30,
1996 are: 1997 - $40,500; 1998 - $49,944; 1999 - $48,629; 2000 - $35,987 and
2001 $6,380.
In August 1996, the Company paid-in-full its first and second mortgages on its
Florida research and manufacturing facility upon the maturity of these
obligations.
NOTE E - FOREIGN CURRENCY TRANSACTION
The financial statements of the Company's foreign subsidiary Viragen (Scotland)
Ltd. have been translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards No. 52. All balance sheets accounts have been
translated using the current exchange rates at the balance sheet dates.
Statement of Operations accounts have been translated using the average exchange
rate for the periods. The translation adjustments resulting from the change in
exchange rates from period to period have been reported separately as a
component of stockholders' equity. Foreign currency transaction gains and
losses, which are not material, are included in results of operations. These
gains and losses result from exchange rate changes between the time transactions
are recorded and settled and, for unsettled transactions, exchange rate changes
between the time transactions are recorded and the balance sheet date.
NOTE F - STOCK BASED COMPENSATION
In fiscal 1997, the Company has adopted the provisions of FAS 123-Accounting for
Stock-Based Compensation. The Company will continue to account for stock-based
compensation plans under the provisions of ABP 25 - Accounting for Stock Issued
to Employees. The Company will disclose the pro forma information required for
stock-based compensation plans in its annual financial statements in accordance
with FAS 123.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The statements contained in this Report on Form 10-Q that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions, beliefs, or strategies regarding the future. Forward looking
statements include the Company's statements regarding liquidity, anticipated
cash needs and availability, and anticipated expense levels in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
including expected product clinical trial introductions, expected research and
development expenditures, new facility completion data and related anticipated
costs. All forward looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward looking statement. It is important to
note that the Company's actual results could differ materially from those in
such forward looking statements. Among the factors that could cause actual
results to differ materially are the factors detailed below and the risks
discussed in the "Risk Factors" section included in the Company's Registration
Statement Form SB-2, as filed with the Securities and Exchange Commission
(effective on August 14, 1995 with related Post-Effective Amendment effective
May 30, 1996). You should also consult the risk factors listed from time to
time in the Company's Reports on Form 10-Q, 8-K, 10-K and Annual Reports to the
Stockholders.
The biopharmaceutical industry is highly competitive and subject to rapid
technological change. Significant competitive factors in the pharmaceutical and
biopharmaceutical markets include product efficacy, price and timing of new
product introductions. Increased competition from existing biopharmaceutical
companies as well as the entry into the market of new competitors could
adversely affect the Company's financial condition or results of operations.
The Company's future success depends in part upon its intellectual property,
including patents, trade secrets, know-how and continuing technology innovation.
There can be no assurance that the steps taken by the Company to protect its
intellectual property will be adequate to prevent misappropriation or that
others will not develop competitive technologies or products. There can be no
assurance that any patent owned by the Company will not be invalidated,
circumvented or challenged, that the rights granted thereunder will provide
competitive advantages to the Company or that any of the Company's future patent
applications will be issued with the scope of the claims sought by the Company,
if at all. Furthermore, there can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology, duplicate
the Company's technology or design around the patents, if any, owned by the
Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred operational losses and operated with a negative cash
flow since its inception in December, 1980. Losses totaled $854,241 and
$935,549 for the three month periods ended September 30, 1996 and September 30,
1995, respectively.
Working capital totaled approximately $17,776,000 at September 30, 1996, a
decrease of $490,000 from the year end balance. This decrease was primarily
attributed to operation losses of $854,241 being offset by the exercise of
Common Stock Purchase Warrants of the Company and its majority owned subsidiary,
Viragen (Europe) Ltd.
11
<PAGE> 12
VIRAGEN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
In June 1996, the Company entered into a Securities Purchase Agreement (the
"Agreement") with GFL Performance Ltd., GFL Advantage Fund Ltd. and Proton
Global Asset Management, LDC (collectively the "Purchaser") pursuant to which
the Purchaser acquired 15,000 shares of the Company's then newly established 5%
Cumulative Convertible Preferred Rock, Series B ("the Series B Preferred Stock")
for $15,000,000. The sale of the Series B Preferred Stock represented the
completion of the first stage of a $50 million financing commitment. The
Company anticipates completing the balance of the financings, with the initial
investors or other investor groups, subject to market and other conditions,
representing an additional $20 million prior to December 31, 1996 and $15
million prior to April 30, 1997.
Under the terms of the Series B Preferred Stock, the Purchaser is entitled to
receive a cash dividend equal to 5% of the stated value of the Series B
Preferred Stock payable quarterly commencing September 7, 1996, although the
Company has the option to utilize shares of its Common Stock, under certain
conditions, to satisfy the dividend requirement. The Purchaser has the right to
convert the Series B preferred Stock commencing August 21, 1996 into shares of
Common Stock of the Company at a conversion price equal to the lesser of 85% of
the average market price for the Company's Common Stock, as described in the
Agreement, prior to the conversion date or $8.74. The Company also has a right
to require the Purchaser, under certain terms and conditions, to convert the
Series B Preferred Stock commencing 180 days following the effective date of a
Registration Statement registering the resale of the shares of Common Stock of
the Company underlying the Series B Preferred Stock. The Series B Preferred
Stock does not carry any voting rights except as required under the Delaware
General Corporation Law.
In September 1995, the Company entered into an Agreement and Plan Reorganization
("Agreement") with Sector Associated, Ltd. ("Sector"). Under the terms of the
Agreement, the Company acquired a 94% interest in Sector in a reverse
acquisition transaction. Sector was a publicly traded corporation which
contained net cash assets of $800,000 at the transaction closing date. This
transaction closed on December 8, 1995.
In March 1996, Sector completed two Private Placement Offerings, issuing 768,000
shares of its Common Stock and 216,500 Common Stock purchase Warrants having an
exercise price of $12.00 per share. These two Offerings yielded net proceeds of
approximately $5,102,000 after related expenses of $317,500. The company is
using these proceeds to undertake European research clinical trial activities
including the related establishment of a laboratory and manufacturing facility
in Edinburgh Scotland, currently under construction, the purchase of laboratory
equipment and related working capital. On May 2, 1996, Sector changed its name
to Viragen (Europe) Ltd.
The construction and equiping of the Company's Scottish laboratory and
production facility is expected to be completed during the first quarter of
calendar 1997. Estimated costs to complete the facilities, including equipment,
total approximately $3,700,000.
While subject to significant limitation, the Company at September 30, 1996 has
available net tax operating loss carryforwards of approximately $19,000,000
expiring between 1996 and 2010, which may be used to offset taxable income, if
any, during those periods.
12
<PAGE> 13
VIRAGEN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Management believes that the Company's Omniferon product currently under
development can be manufactured in significant quantity and will be priced at a
level to offer patients an attractive alternative treatment to the Synthetic
Interferons currently being marketed. Management further believes that working
capital currently on hand will provide the Company with the funds necessary for
the foreseeable future to continue its current level of operations, focused on
current research projects, the establishment of a research and manufacturing
facility in Scotland and the commencement of EU clinical trials. In addition,
the Company expects to be able to draw upon its remaining $35 million in
financing available through the issuance of additional 5% Series B Convertible
Preferred Stock by April 1997 under its June Agreement or similar amounts from
other investor groups during the same period. The additional funding raised
will be used to supplement funding of EU clinical trials as needed, commence
clinical trial studies in the U.S. of its Omniferon product, the establishment
of one or more domestic production facilities, the possible acquisition of one
or more business complimentary to the Company's operations and for general
working capital.
RESULTS OF OPERATIONS
For the past several years, the Company's limited revenues have been derived
from the sales of the Company's Alpha Leukoferon(TM) product ("Product") through
Florida physicians (primarily Neurologists) for the treatment of Multiple
Sclerosis. Distribution of the Company's Product was limited to the State of
Florida and was sanctioned by, and subject to, the provisions of Florida Statute
499.018. This statute permitted controlled distribution of the Product in a
clinical trial environment only within the State. Commercialization of products
under this statute is not permitted. In an Agreement reached with the State of
Florida, the Company in March 1996, discontinued enrollment of new patients in
its 499 program, and all revenues under this program ceased in March 1996.
Following the final shipments of Product under 499 Program in March 1996, the
Company has no approved source of sales revenue until it receives the necessary
regulatory approvals from the U.S. Food and Drug Administration and/or
comparable European Union authorities. Such approvals cannot be assured and are
subject to successful completion of lengthy clinical trials and the Company's
ability to raise significant additional capital to fund such trials.
Losses from operations have been incurred since inception and totaled $854,241
and $935,549 for the three month periods ended September 30, 1996 and 1995,
respectively.
No sales revenues or cost of sales were recorded during the quarter ending
September 30, 1996 with sales revenues of $104,225 being recorded during the
same period of the previous year. The termination of the revenues was due to
patients previously enrolled under the 499 Program completing their course of
treatment coupled with the discontinuance of new enrollments as discussed above.
13
<PAGE> 14
VIRAGEN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Research and development costs totaled $427,085 and $287,284 for the three month
periods ended September 30, 1996 and 1995, respectively. This sharp increase
was attributed to expanded research efforts associated with the Company's newly
developed Natural Interferon (alpha) product Omniferon(TM). These costs are
expected to continue to significantly increase at least through fiscal 1997. The
Company intends to continue its process development refinement efforts and work
towards regulatory submissions in the EU to conduct clinical trials on the
Company's Omniferon(TM) product. The expanded research efforts are focused on
improved methods of manufacturing aimed at maintaining or improving product
quality, production yields and manufacturing efficiencies. Components of the
overall increase between the periods of $139,800 include increase of laboratory
supplies expense of approximately $91,000 and the hiring of additional research
personnel with salaries and related taxes and benefits. The increases also
reflect an increase in consulting fees, travel and equipment rentals associated
with the overall increases in the level of research activities.
Selling and general administration expenses totaled $617,434 for the first three
months of fiscal 1997 compared to $440,560 for the same period of the preceding
year. Components of this increase included administrative salaries with related
taxes and benefits of approximately $132,000. Additionally, the quarter ended
September 30, 1996 reflected an increase in accounting and legal expenses of
approximately $30,000. Also, the fiscal 1997 figures reflect increased travel
associated with the planning and establishment of the European production
facility with related corporate development efforts.
14
<PAGE> 15
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 and 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
Principal Financial Officer
By: /s/ Jose Ortega
-----------------------------
Jose Ortega
Chief Accounting Officer
Dated: November 11, 1996
15
<PAGE> 1
VIRAGEN, INC. AND SUBSIDIARIES
EXHIBIT 11 COMPUTATION OF LOSS PER COMMON SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---------- -----------
<S> <C> <C>
PRIMARY AND FULLY DILUTED
Weighted average shares outstanding 38,018,217 35,416,738
=========== ===========
Net Loss $ (854,241) $ (935,549)
Deduct required dividends on convertible preferred stock,
Series A 663 863
Deduct required dividends on convertible preferred stock,
Series B 187,500 -
----------- -----------
Loss attributed to common stock $(1,042,404) $ (936,412)
=========== ===========
Net loss per common share after deduction for required
dividends on convertible preferred stock $ (0.03) $ (0.03)
=========== ===========
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 18,149,015
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0
17,650
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</TABLE>
