<PAGE> 1
FORM 10-QSB - 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-QSB/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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)
<TABLE>
<S> <C>
DELAWARE 59-2101668
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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 - 37,163,182 shares at April 30, 1996.
1
<PAGE> 2
VIRAGEN, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
The Consolidated Condensed Statements of Operations (Unaudited) for the three
months ended and nine months ended March 31, 1996 and March 31, 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 and nine months ended March 31, 1996 and March 31, 1995.
2) The Consolidated Condensed Balance Sheets as of
March 31, 1996 and June 30, 1995.
3) Consolidated Condensed Statements of Cash Flows for the nine
months ended March 31, 1996 and March 31, 1995.
4) Notes to Consolidated Condensed Financial Statements as of
March 31, 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
27 - Financial Data Schedule (for SEC use only)
2
<PAGE> 3
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
INCOME 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 27,650 $ 121,550 $ 229,967 $ 454,902
Research subsidy 165,000 - 165,000 -
Interest and other income 32,853 46,019 74,918 89,400
------------ ----------- ----------- -----------
225,503 167,569 469,885 544,302
COSTS AND EXPENSES
Cost of goods sold 17,568 69,493 178,368 268,566
Inventory valuation
adjustment 788,000
Depreciation and amortization 52,589 30,168 150,127 60,503
Research and development cost 466,123 236,194 1,023,503 342,738
Selling, general and
administrative expenses 981,530 416,500 1,959,874 1,132,859
Contract termination fee 525,000
Directors & Officers Options
Granted 183,144
Interest expense 24,586 22,490 71,811 70,884
------------ ----------- ----------- -----------
1,542,396 774,845 3,566,827 3,188,550
------------ ----------- ----------- -----------
Loss before minority interest (1,316,893) (607,276) (3,096,942) (2,644,248)
Minority Interest in loss of
consolidated subsidiaries (6,427) - (6,427)
------------ ----------- ----------- -----------
NET LOSS (1,310,466) (607,276) (3,090,515) (2,644,248)
Deduct required dividends on
convertible preferred stock 863 863 2,588 2,588
------------ ----------- ----------- -----------
LOSS ATTRIBUTABLE TO COMMON
STOCK $ (1,311,329) $ (608,139) $(3,093,103) $(2,646,836)
============ =========== =========== ===========
LOSS PER COMMON SHARE,
after deduction for required
dividends on convertible
preferred stock $ (0.04) $ (0.02) $ (0.09) $ (0.09)
============ =========== =========== ===========
Weighted average
shares outstanding 36,418,422 35,355,532 35,813,679 30,637,957
============ =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995 (A)
---- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $5,443,356 $1,904,687
Accounts and notes receivable, less
allowance of $11,668 at
March 31, 1996 and $19,039 at
June 30, 1995 36,582 52,884
Inventory 211,200
Prepaid expenses 57,709 104,525
Other current assets 8,014 7,928
---------- ----------
TOTAL CURRENT ASSETS 5,545,661 2,281,224
PROPERTY, PLANT AND EQUIPMENT
Land, building and improvements 1,193,875 1,191,183
Equipment and furniture 1,586,728 1,353,068
---------- ----------
2,780,603 2,544,251
Less accumulated depreciation (1,660,910) (1,512,069)
---------- ----------
1,119,693 1,032,182
DEPOSIT AND OTHER ASSETS 13,858 16,300
--------- ----------
$6,679,212 $3,329,706
========== ==========
</TABLE>
4
<PAGE> 5
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995 (A)
--------------- --------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 54,916 $ 205,543
Accrued expenses and other liabilities 315,148 399,190
Current portion of long-term debt 707,915 62,728
----------- ------------
TOTAL CURRENT LIABILITIES 1,077,979 667,461
ROYALTIES PAYABLE,
Less Current Portion 107,866 107,866
Other Notes Payable 10,173
LONG TERM DEBT, Less Current Portion 110,034 856,593
MINORITY INTEREST IN SUBSIDIARIES 1,534,653
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
March 31, 1996 and June 30, 1995 3,450 3,450
Common stock, $.01 par value
Authorized 50,000,000 shares;
issued and outstanding 35,355,532
at June 30, 1995 and 36,947,182
shares at March 31, 1996 369,472 353,555
Capital in excess of par value 23,972,901 18,406,086
Common Stock subscribed - 45,296
Deficit (20,201,116) (17,110,601)
Foreign currency transaction adjustment (16,200)
Notes due from officers (290,000)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 3,838,507 1,697,786
----------- ------------
$ 6,679,212 $ 3,329,706
=========== ============
</TABLE>
(A) Reference is made to the Company's Annual Report on Form 10KSB for the year
ended June 30, 1995 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>
NINE MONTHS ENDED
MARCH 31,
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,090,515) $(2,644,248)
Adjustments to reconcile net loss
net cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 150,127 98,217
Issuance of common stock to officers . . . . . . . . . . . . . . . 10,000
Consulting fees paid through issuance of
stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . 316,300
Compensation expense on stock options . . . . . . . . . . . . . . 183,144
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . (6,426)
Loss due to write-down of inventory . . . . . . . . . . . . . . . . -- 788,000
Provisions for bad debt expense . . . . . . . . . . . . . . . . . 53,970 35,000
Contract termination fees paid in common stock . . . . . . . . . . -- 525,000
Increase (decrease) relating to operating
activities from:
Accounts and notes receivable . . . . . . . . . . . . . . . . (37,668) (97,213)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 211,200 (312,857)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 54,744 (38,763)
Other current assets . . . . . . . . . . . . . . . . . . . . 186,986
Deposit and other assets . . . . . . . . . . . . . . . . . . 2,442 1,287
Accounts payable . . . . . . . . . . . . . . . . . . . . . . (196,197) (278,660)
Accrued expenses and other liabilities . . . . . . . . . . . (84,042) (352,556)
---------- ----------
Net cash used in operating activities . . . . . . . . . . . (2,245,935) (2,276,793)
INVESTING ACTIVITIES
Additions to property, plant and equipment, net . . . . . . . . . . . (237,638) (233,987)
---------- ----------
Net cash used in investing activities . . . . . . . . . . . (237,638) (233,987)
</TABLE>
6
<PAGE> 7
VIRAGEN, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
FINANCING ACTIVITIES
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . (173,600) (38,602)
Proceeds from borrowing . . . . . . . . . . . . . . . . . . . . . . . 82,401
Sale (repurchase) of warrants . . . . . . . . . . . . . . . . . . . . -- (14,604)
Proceeds from exercise of warrants. . . . . . . . . . . . . . . . . . . 40,750 --
Proceeds from exercise of options . . . . . . . . . . . . . . . . . . 131,252
Proceeds from subsidiary offering . . . . . . . . . . . . . . . . . . 5,156,416
Proceeds from sale of common stock, net . . . . . . . . . . . . . . . 4,232,706
Proceeds from Investment in Sector . . . . . . . . . . . . . . . . . . 768,823
---------- -----------
Net cash provided by financing . . . . . . . . . . . . . . . 6,006,042 4,179,500
activities . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate fluctuations on cash . . . . . . . . . . . . . . 16,200
Increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,538,669 1,668,720
Cash and cash equivalents at beginning of period . . . . . . . . . . . . 1,904,687 879,926
---------- -----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $5,443,356 $ 2,548,646
========== ===========
</TABLE>
Supplemental Cash Flow Information:
During the nine months ended March 31, 1996 and 1995 the Company had the
following non-cash financing and other disclosable activity:
<TABLE>
<CAPTION>
Supplemental Cash Flow Information: 1996 1995
---- ----
<S> <C> <C>
Issuance of Common Stock for Convertible Debentures $200,000
Interest Paid $ 71,742 70,884
Issuance of Notes for purchase of Common Stock 290,000
Other receivables acquired through reverse acquisition of Sector
Associates, Ltd. 195,000 --
Liabilities assumed through reverse acquisition of Sector
Associates, Ltd. 47,341 --
</TABLE>
See notes to consolidated condensed financial statements.
7
<PAGE> 8
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE - A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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., and Viragen Technology, Inc. and its majority owned
subsidiary Viragen (Europe) Ltd. All material intercompany accounts and
transactions have been eliminated in consolidation.
Inventory: The Company had capitalized the human leukocyte interferon
manufactured in its laboratories at the lower of average cost or market. At
June 30, 1995, the interferon inventory was comprised of finished goods.
Reclassifications: Certain reclassifications have been made to the fiscal 1995
Financial Statements to conform to the March 31, 1996 interim presentations.
NOTE B -- INTERIM ADJUSTMENTS AND USE OF ESTIMATES
The financial summaries for the three months ended and nine months ended March
31, 1996 and March 31, 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 and nine months ended March 31,
1996 are not necessarily indicative of the results that may be expected for the
entire year ending June 30, 1996.
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-KSB for the year ended June 30, 1995.
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.
8
<PAGE> 9
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT -- Continued
March 31, 1996
NOTE C--CAPITAL STOCK
Shares of the Company's common stock reserved at March 31, 1996 for possible
future issuance are as follows:
Warrants - consultants 1,253,000
Convertible preferred stock 14,697
Option plans - employees, officers & directors 5,086,500
Warrants - private placement 684,400
---------
7,038,597
=========
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 fiscal 1995, 33,000 options
were granted at the market price at the respective date of grant. In September
1995, the Board of Directors granted 2,935,000 non-statutory options to
directors, officers and key employees of the Company under the provision of the
1995 Stock Option Plan. The options granted have an exercise price of $.50 per
share and are exercisable for a period of five years. The Company recognized
compensation expense of $183,144 as a result of these grants.
During September 1995, 75,000 warrants issued to a financial consultant having
an exercise price of $.30 per share and 6,250 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. In
December 1995, a Director of the Company exercised 50,000 options with an
exercise price of $.30 per share.
In March 1996, the Company issued 586,000 Common Stock Purchase Warrants,
300,000 of which were associated with the Company's Florida HIV Study, with the
balance issued for financial consulting services. The Company recognized
expense during the quarter resulting from these issuances of $316,300.
During the third quarter of fiscal 1996, officers and directors exercised
1,000,000 options granted in June 1994, at $.30 per share through the issuance
of promissory notes secured by the related stock which is held in escrow
pending payment of the related promissory notes.
9
<PAGE> 10
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT -- Continued
March 31, 1996
NOTE D-LONG TERM DEBT
Long-term debt at March 31, 1996 is as follows:
<TABLE>
<CAPTION>
March 31 June 30,
1996 1995
-------- --------
<S> <C> <C>
Mortgage note secured by land, building and
equipment with a net book value of $1,119,693
at March 31, 1996
Monthly principal payments of $2,500 plus
interest at prime plus 2% with the
unpaid balance due August 1, 1996 . . . . . . . . . . . . $460,939 $483,439
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 due August 1, 1996 . . . . . . . . . . . . 203,568 384,671
Capital lease obligations resulting from
acquisition of equipment, with a cost of
$207,067, capitalized from three to five years . . . . . . 153,442 51,211
------- -------
817,949 919,321
Less current portion of capital lease obligations . . . . . . 707,915 62,728
------- -------
$110,034 $856,593
======= =======
</TABLE>
The prime rate was 8.75% at March 31, 1996 and 9.00% at June 30, 1995.
At June 30, 1995, the Company was in default of certain non financial covenants
on its mortgage note. The lender waived these defaults and waived compliance
with these covenants through July 1, 1996.
Interest payment on debt totaled $24,586 and $22,490 for the three month
periods ended March 31, 1996 and 1995 respectively, and $71,811 and $70,884 for
the nine month periods ended March 31, 1996 and 1995, respectively.
During fiscal 1995, the Company acquired equipment under capital lease
agreements at a cost of $207,067 with a carrying value of $189,920 net of
related depreciation at March 31, 1996. Depreciation expense for this
equipment totaled $8,047 and $14,297 for the three months ended and nine months
ended March 31, 1996, respectively.
10
<PAGE> 11
VIRAGEN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT -- Continued
March 31, 1996
NOTE D - LONG TERM DEBT
Future minimum lease payments under capital lease obligations and the present
value of the minimum lease payments as of March 31, 1996 are as follows:
<TABLE>
<S> <C>
1996 $ 35,873
1997 50,529
1998 46,581
1999 46,581
2000 12,905
--------
Total minium lease payments 192,469
Less amount representing
estimated executory costs (12,510)
--------
Net minimum lease payments 179,959
Less: amount representing
interest (26,517)
Present value of minimum --------
lease payments $153,442
========
</TABLE>
NOTE E - ADDITIONAL PRIVATE PLACEMENT OFFERINGS
On December 8, 1995, the Company finalized an agreement and Plan Reorganization
("Agreement") with Sector Associates, Ltd. ("Sector"), a Delaware corporation.
Under the terms of the Agreement, the Company acquired a 94% interest in
Sector, a publicly traded corporation which contained net cash assets of
$800,000 at the transaction closing date. Upon the completion of this
transaction, the Company recognized the minority interest position in Sector.
Following the March 1996 Private Placement Offerings, the minority interest
position in Sector represented 28% and totalled $1,534,653 at March 31, 1996.
On November 7, 1995, the Agreement was amended to provide for an interim loan
of $500,000 by Sector to Viragen (Scotland) Limited, the filing of certain
financial reports by Sector prior to closing, an additional capital
contribution of $300,000 into Sector within thirty days, and the modification
of a related investment banking agreement. The $500,000 loan was funded
November 9, 1995, bearing interest at 4% per annum, secured by a 3.77% equity
interest in Viragen (Scotland) Limited, and was guaranteed by Viragen, Inc.
Upon the closing of the Agreement on December 8, 1995, the principal amount of
the note was deemed contributed capital to Sector.
In March 1996, Sector completed two additional Private Placement Offerings,
issuing 768,000 shares of Common Stock and 216,500 Common Stock Purchase
Warrants having an exercise price of $12.00 (post reverse split) per share.
These two Offerings yielded net proceeds of approximately $5,156,000 after
related expenses of $317,500. The company intends to use these proceeds to
undertake domestic and European research and clinical
11
<PAGE> 12
trial activities including the construction of a laboratory and manufacturing
facility in Scotland.
Effective May 2, 1996, Sector's name was changed to Viragen (Europe) Ltd., the
stock was reverse split one share for fourteen (1:14) and the par value was
changed from $.10 per share to $.01 per share.
NOTE F - 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 sheet 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 period. 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 G - STOCK BASED COMPENSATION
In 1996, 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 APB 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.
12
<PAGE> 13
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 totaled $1,310,466 and
$607,276 and $3,090,515 and $2,644,248 for the three months ended and nine
months ended March 31, 1996, and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled approximately $4,468,000 at March 31, 1996, an increase
of $2,854,000 over the year end balance. This increase was attributable
primarily to the receipt during the third quarter of approximately $5,156,000
in net proceeds from a series of Private Placement Offerings completed in March
1996 after related expenses of $317,500. See Note E to Notes to Consolidated
Financial Statements.
While subject to significant limitation, the Company has available net tax
operating loss carryforwards of approximately $16,000,000 expiring between 1996
and 2010, which may be used to offset taxable income, if any, during those
periods.
On September 20, 1995, the Company entered into an Agreement and Plan
Reorganization ("Agreement") with Sector Associated, Ltd. ("Sector"), a
Delaware corporation. Under the terms of the Agreement, the Company acquired a
94% interest in Sector in a reverse acquisition transaction. Sector is a
publicly traded corporation which contained net cash assets of $800,000 at the
transaction closing date.
On November 7, 1995, the Agreement was amended to provide for an interim loan
of $500,000 by Sector to Viragen (Scotland) Limited, the filing of certain
financial reports by Sector prior to closing, the contribution of an additional
$300,000 in capital into Sector within thirty days of the amendment, and the
modification of a related investment banking agreement. The loan was funded
November 9, 1995 bearing interest at 4% per annum, secured by a 3.77% equity
interest in Viragen (Scotland) Limited and was guaranteed by Viragen, Inc.
Upon the closing of the Agreement on December 8, 1995, the principal amount of
the note was deemed contributed capital to Sector.
Effective May 2, 1996, Sector's name was changed to Viragen (Europe) Ltd., the
stock was reverse split one share for fourteen (1:14) and the par value was
changed from $.10 per share to $.01 per share.
In March 1996, the Company completed an additional two Private Placement
Offerings, issuing 768,000 shares of Common Stock and 216,500 Common Stock
purchase Warrants having an exercise price of $12.00 (post reverse split) per
share. These two Offerings yielded net proceeds of approximately $5,156,000
after related expenses of $317,500. The company intends to use these proceeds
to undertake domestic and European research and clinical trial activities
including the construction of a laboratory and manufacturing facility in
Scotland.
13
<PAGE> 14
The Company has a first and second mortgage on its Florida laboratory facility
which total $460,939 and $203,568, respectively, at March 31, 1996. These
mortgages become due and payable on their terms in August 1996. The Company
has entered into refinancing discussions on the first mortgage with the current
first mortgage holder and intends to repay the second mortgage when due from
available cash balances.
Management believes that the Company's Omniferon(TM) product currently under
development can be manufactured in sufficient 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 to
continue its current level of operations, focused on current research projects
and establishment of its Scottish facility, at least through March 31, 1997.
RESULTS OF OPERATIONS
For the past several years, the Company's Limited revenues have been derived
from 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 the successful completion of lengthy clinical trials and the
Company's ability to raise significant additional investment capital to fund
such trials.
Losses from operations have been incurred since inception and totaled
$1,310,466 and $3,090,515 for the three months ended and nine months ended
March 31, 1996 respectively; and $607,276 and $2,644,248 for the three months
ended and nine month period ended March 31, 1995, respectively.
Sales for the quarter ended and nine months ended March 31, 1996 totaled
$27,650 and $229,967 respectively, and were derived from distribution of the
Company's Alpha Leukoferon(TM) product for the clinical study treatment of
multiple sclerosis. Sales during the comparable periods of the preceding year
totaled $121,550 and $454,902. These declines were due to patients previously
enrolled under the 499 Program completing their course of treatment coupled
with the discontinuance of new enrollments as discussed above.
The fiscal 1996 figures reflect the receipt of a research grant of $165,000
during the third quarter from a natural healthcare company in partial support
of the Company's HIV study being conducted in Florida under Florida
Statute 499.
Cost of sales as a percentage of sales revenues totaled 63% and 77%
respectively for the three months and nine months ended March 31, 1996
14
<PAGE> 15
compared to 57% and 59%, respectively, for the comparable periods of the
preceding year. This increase was due to a significant (44%) drop in the
selling price of the Company's Alpha Leukoferon(TM) which commenced for
patients enrolling during fiscal 1994. This sharp price reduction reflected the
Company's efforts to make the Product more price competitive with the synthetic
interferons, and accordingly, a more viable alternative patient treatment.
Research and development costs totaled $466,123 and $1,023,503 respectively,
for the three months ended and nine months ended March 31, 1996 compared to
$236,194 and $342,738 for the same periods of the preceding year. These sharp
increases were attributable 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 for at least the
next three quarters, as the Company continues its process development
refinement efforts and works 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 and manufacturing efficiencies.
Components of the overall increases of approximately $230,000 and $681,000 for
the three months ended and nine months ended March 31, 1996 include the hiring
of additional research personnel with salaries and related taxes and benefits.
Additionally, research laboratory supplies expense increases approximately
$10,000 and $176,000 for the three months and nine months ended March 31, 1996
over the comparable periods of the preceding year. 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 administrative expenses totalled $981,530 and
$1,959,874 for the three months and nine months ended March 31, 1996 compared
to $416,500 and $1,132,859 for the same periods of the preceding year.
Components of this increase included $298,000 in consulting expense resulting
from the issuance of 336,000 common stock purchase options and an increase in
administrative salaries with related taxes and benefits of approximately
$291,000. Additionally, the nine months period ended March 31, 1996 reflected
an increase in accounting and legal expenses of approximately $185,000. Also,
the increase in the overall level of administrative activity included European
travel associated with the establishment of the European production facility
and related corporate development and marketing efforts.
In September 1995, the Board of Directors granted 2,935,000 non-statutory
options to directors, officers and key employees of the Company under the
provision of the 1995 Stock Option Plan. The options granted have an exercise
price of $.50 per share and are exercisable for a period of five years. During
September 1995, the Company recognized compensation expense of $183,144 as a
result of these options.
In March 1996, the Company issued 586,000 Common Stock Purchase Warrants,
300,000 of which were associated with the Company's Florida HIV study, with
the balance issued for financial consulting
15
<PAGE> 16
services. The Company recognized expense during the quarter resulting from
these issuances of $316,300.
During the third quarter, 1,000,000 options were exercised by the
Officers/Directors of the Company at $.30 per share pursuant to their
Employment and Stock Option Agreements. The shares underlying the Options were
purchased through a bonus for the par value of the shares purchased ($.01 per
share) and a promissory note for the balance of the purchase price secured by
the optioned shares purchased. Accrued interest on the promissory notes
totaled $2,114.58 at March 31, 1996.
16
<PAGE> 17
PART II. 0THER INFORMATION
Item 3. Defaults Upon Senior Securities
The Company has outstanding at March 31, 1996 and June 30, 1995, 3,450 shares
of 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 shareholders for 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 dividends 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.
Item 4. Results of Votes of Security Holders
On December 15, 1995, the Company held a shareholders meeting in Miami Lakes,
Florida to vote on: (i) the election of directors, (ii) the proposal to adopt
the 1995 Amended Stock Option Plan and (iii) the proposal to ratify the
appointment of independent auditors. With 70% of the outstanding shares voting
either by proxy or in person, the nominated directors were elected and
proposals were passed with the following votes:
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR AGAINST ABSTAIN NO VOTES
---------------- --- ------- ------- --------
<S> <C> <C> <C> <C>
Gerald Smith 24,549,475 145,097
Robert H. Zeiger 24,551,475 143,097
Dennis W. Healey 24,547,789 146,783
Peter D. Fischbein 24,548,822 145,750
Sidney Dworkin, Ph.D. 24,549,815 144,757
Jay M. Haft 24,551,475 143,097
William B. Saeger 24,551,125 143,447
Proposed to adopt the 1995
Amended Stock Option Plan 15,485,042 751,827 153,996 8,303,707
Proposal to ratify the
Appointment of Independent
Auditors 24,615,678 37,650 41,244
</TABLE>
17
<PAGE> 18
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)
(99) Additional Exhibits
(i) Press release
Viragen, Inc. to Conduct HIV/AIDS Study
with Natural Human Interferon dated
March 4, 1996.
(ii) Press release
Viragen, Inc. Closes $6 million
Financing for European Subsidiary dated
March 18, 1996.
(iii) Press release
Former Glaxo Senior Executive to join
Viragen, Inc. dated April 23, 1996.
(b) Reports on Form 8-k
Form 8-K dated March 29, 1996
Item 5. Other Events
Item 7. Pro Forma Financial Information
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: October 21, 1996
18
<PAGE> 1
VIRAGEN, INC. AND SUBSIDIARIES
EXHIBIT 11 COMPUTATION OF LOSS PER COMMON SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY AND FULLY DILUTED 36,418,422 35,355,532 35,813,679 30,637,957
========== ========== ========== ==========
Weighted average shares
outstanding
Net Loss $(1,310,466) $ (607,276) $(3,090,515) $(2,644,248)
Deduct required dividends on convertible
preferred stock 863 863 2,588 2,588
----------- ----------- ----------- -----------
Loss attributable to common stock $(1,311,329) $ (608,139) $(3,093,103) $(2,646,836)
=========== =========== =========== ===========
Net loss per common share after deduction for
required dividends on convertible preferred
stock
$ (0.04) $ (0.02) $ (0.09) $ (0.09)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 5,443,356
<SECURITIES> 0
<RECEIVABLES> 36,582
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,545,661
<PP&E> 2,780,603
<DEPRECIATION> 1,660,910
<TOTAL-ASSETS> 6,679,212
<CURRENT-LIABILITIES> 1,077,979
<BONDS> 0
0
3,450
<COMMON> 369,472
<OTHER-SE> 3,465,585
<TOTAL-LIABILITY-AND-EQUITY> 6,679,212
<SALES> 229,967
<TOTAL-REVENUES> 469,885
<CGS> 178,368
<TOTAL-COSTS> 178,368
<OTHER-EXPENSES> 3,316,648
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,811
<INCOME-PRETAX> (3,090,515)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,090,515)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99(i)
FOR IMMEDIATE RELEASE
CONTACT:
Charles F. Fistel
Executive Vice President
Viragen, Inc.
(305) 557-6000
VIRAGEN, INC. TO CONDUCT HIV/AIDS STUDY
WITH NATURAL HUMAN INTERFERON
COMPANY ALSO FORMS ALLIANCE WITH LEADING HEALTHCARE PROVIDER
MIAMI, FLORIDA, MARCH 4, 1996 -- VIRAGEN, INC. (NASDAQ BULLETIN BOARD: VRGN)
today announced that it will conduct an investigational study in Florida, in
collaboration with Biodoron, of Viragen's natural human alpha interferon
product Alpha Leukoferon(TM) for the treatment of HIV/AIDS in hemophiliacs.
Charles F. Fistel, Viragen's Executive Vice President, also announced that in
connection with the investigational study, the Company has entered into a
relationship with Quantum Health Resources, Inc. (NASDAQ: QHRI), who is
providing financial support for this study conducted under Florida's
Investigational Drug Program. Quantum is a leading national provider of
alternate site therapies and support services for people affected by chronic
disorders, including hemophilia.
John McIlwraith, Quantum's Senior Vice President, Strategic Planning and
General Counsel, stated, "Supporting this study is consistent with our
patient-focused mission statement, as well as our goal of developing
relationships with pharmaceutical and biotechnology companies that are working
on products and therapies suitable for our distribution capabilities. Support
of this project puts us in a favorable position to further develop our
relationship with Viragen and gain access to products that may be of real value
to our patients."
According to Gerald Smith, Viragen's President, of the 90 patients to be
enrolled in the study commencing this month, 60 patients will receive Alpha
Leukoferon for a minimum of six months in combination with a comprehensive HIV
treatment program. The program was developed by R.H. Keller, M.D., F.A.C.P.,
Medical Director of Biodoron and CEO of its affiliate, Immune Balance
Technologies, Inc.
PLEASE TURN OVER
<PAGE> 2
The remaining 30 patients will make up the study's control group. In addition,
many of the study participants may also suffer from hepatitis B and/or C.
Dr. Keller, a nationally prominent hemophilia and HIV/AIDS specialist and the
study's Principal Investigator, stated, "I firmly believe that the employment
of Viragen's natural human interferon, with its immunomodulatory and anti-viral
effects, could become an important component in the successful long-term
treatment of HIV/AIDS."
Jonathan Wadleigh, Founder of The Committee of Ten Thousand, a national
advocacy group for hemophiliacs and persons afflicted with HIV/AIDS, stated,
"We are very grateful that this study is being conducted. We recognize what
the potential results of this study could mean to the hemophilia and HIV/AIDS
community. We wholly endorse Dr. Keller's efforts and appreciate Viragen's and
Quantum's contributions in supporting this study, and hope that the study will
generate positive results so that further HIV/AIDS trials may be undertaken."
"We are most pleased to learn of the commencement of this important study and
look forward to the study's results with a great deal of optimism," added
Calvin Dawson, Executive Director of the Florida Chapter, National Hemophilia
Foundation.
_____________________
Viragen, Inc. is an emerging biopharmaceutical company engaged in the research,
manufacture and clinical study of natural human alpha interferons for the
treatment of various viral diseases and immune disorders, including HIV/AIDS,
hepatitis B & C and multiple sclerosis. Viragen manufactured Alpha Leukoferon
in its Florida facility and is currently constructing a new facility in the
United Kingdom to produce Omniferon(TM) in collaboration with Scottish
authorities.
2
<PAGE> 1
Exhibit 99(ii)
FOR IMMEDIATE RELEASE
CONTACT:
Dennis W. Healey
Executive Vice President
Viragen, Inc.
(305) 557-6000
VIRAGEN, INC. CLOSES $6 MILLION FINANCING
FOR EUROPEAN SUBSIDIARY
MIAMI, FLORIDA, MARCH 18, 1996 -- VIRAGEN, INC. (NASDAQ BULLETIN BOARD: VRGN)
today announced that it has closed a $6 million privately placed equity
financing of its majority-owned subsidiary, Sector Associates, Ltd., to be
renamed Viragen (Europe) Ltd.
A portion of these proceeds will be used to complete the Company's European
plant located in Edinburgh, Scotland. This state-of-the-art manufacturing
facility will produce Omniferon(TM), a natural human alpha interferon. The
Company plans to undertake clinical studies in Europe for testing Omniferon in
the treatment of such diseases as multiple sclerosis, HIV/AIDS, hepatitis B & C
and certain cancers.
The Edinburgh plant is the result of collaborative agreements between Scottish
governmental health agencies and the Company. Viragen has exclusively licensed
its subsidiary to produce Omniferon for production and testing within the
European Union.
Gerald Smith, Viragen's Chairman and President, stated, "This financing allows
us to proceed as scheduled in Europe. A portion of the proceeds will also be
used to fund continuing research and development here in the U.S."
_____________________
Viragen, Inc. is an emerging biopharmaceutical company engaged in the research,
development, manufacture and clinical study of natural human interferons for
the treatment of various viral diseases and immune disorders. The Company is
currently conducting an investigational study of its human alpha interferon for
the treatment of HIV/AIDS under Florida's Investigational Drug Program.
<PAGE> 1
Exhibit 99(iii)
FOR IMMEDIATE RELEASE
CONTACT:
Dennis W. Healey
CFO
Viragen, Inc.
(305) 557-6000
FORMER GLAXO SENIOR EXECUTIVE TO JOIN VIRAGEN, INC.
MIAMI, FLORIDA, APRIL 23, 1996 -- VIRAGEN, INC. (NASDAQ:VRGN) today announced
the appointment of Jay Sawardeker, Ph.D, as Executive Vice President-Technical
Affairs, effective July 1, 1996.
Dr. Sawardeker has served in various senior technical management capacities in
the pharmaceutical industry over the past 25 years. He served with Glaxo
Holdings PLC, most recently as Corporate Vice President - Worldwide Quality.
He has also served as Corporate Vice President - Technical Operations of Glaxo
Latin America and Glaxo Far East, and as Vice President - Manufacturing and
Vice President - Quality of Glaxo (U.S.), Inc. During his tenure with Glaxo,
Dr. Sawardeker also served on various subsidiary boards of directors and
operating committees.
Prior to joining Glaxo, Dr. Sawardeker served as Director of Quality for the
Whitehall Laboratories division of American Home Products and Group Manager of
Quality for the Ortho Pharmaceutical division of Johnson & Johnson.
Gerald Smith, Viragen's Chairman and President, stated, "We are extremely
fortunate to have attracted to our management team another world class expert
from the pharmaceutical industry. Dr. Sawardeker is an industry veteran who
brings with him a wealth of knowledge and experience to Viragen."
_____________________
Viragen, Inc. is an emerging biopharmaceutical company engaged in the research,
development, manufacture and clinical study of natural human interferons for
the treatment of various viral diseases and immune disorders, including
HIV/AIDS, hepatitis and multiple sclerosis. The Company is currently
conducting an investigational study of its natural human alpha interferon for
the treatment of HIV/AIDS under Florida's Investigational Drug Program.