<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
(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 0-17827
VIRAGEN (EUROPE) LTD.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 11-2788282
- ------------------------------- ----------------------------------
(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) 823-0269
----------------------------------------------------
(Registrant's telephone number, including area code)
SECTOR ASSOCIATES, LTD.
- --------------------------------------------------------------------------
(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:
May 10, 1996:
Common Stock, par value $.01 - 6,727,830
<PAGE> 2
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
INDEX
PART I - FINANCIAL INFORMATION
The Consolidated Condensed Statements of Operations (Unaudited) for the three
months and nine months ended March 31, 1996 and March 31, 1995 include the
accounts of the Registrant and its subsidiary.
Item 1. Financial Statements
1) Consolidated Condensed Statements of Operations for the three months
ended and 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
2
<PAGE> 3
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
--------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $5,293,166 $ 50,226
Due from affiliates 627,487 -
---------- --------
5,920,653 50,226
OTHER ASSETS
Deferred Expenses 6,551 7,701
---------- --------
TOTAL ASSETS $5,927,204 $ 57,933
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable & accrued expense $ 40,895 $ 7,307
Due to affiliates - 48,386
---------- --------
TOTAL LIABILITIES 40,895 55,693
STOCKHOLDERS' EQUITY
COMMON STOCK, par value; $.10 per share
50,000,000 shares authorized;
5,037,617 shares issued and outstanding 503,762
COMMON STOCK, par value $1.61; 100 shares 161
authorized, issued and outstanding
CONVERTIBLE PREFERRED SERIES B, par value 20,000
$.01 per share; 2,000,000 shares issued
and outstanding
ADDITIONAL PAID-IN CAPITAL 343,839 1,453
COMMON STOCK SUBSCRIBED 5,156,416
ACCUMULATED EARNINGS (LOSS) (121,508)
FOREIGN CURRENCY TRANSLATIONS (16,200) -
---------- --------
TOTAL STOCKHOLDERS' EQUITY 5,886,309 2,240
---------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $5,927,204 $ 57,933
========== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
3
<PAGE> 4
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
CONDENSED STATEMENT OF OPERATIONS & ACCUMULATED DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income $ 18,310 $ - $ 27,105 $ -
--------- ------ --------- ------
TOTAL INCOME 18,310 - 27,105 -
OPERATING EXPENSES 72,463 - 232,291 -
--------- ------ --------- ------
NET LOSS (54,153) (205,186) -
Accumulated Earnings (Deficit)
Beginning of period (67,355) - 83,678 -
--------- ------ --------- ------
Accumulated Earnings (Deficit)
End of period $(121,508) $ - $(121,508) $ -
========= ====== ========= ======
Net Loss per common share $ (0.00) $ - $ (0.00) $ -
========= ====== ========= ======
Weighted average common
shares outstanding 83,437,620 - 12,567,246 -
========== ======= ========== ======
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 5
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss $ (205,186) $ -
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortized of deferred expenses 1,156 -
Changes in assets and liabilities
Increases in accounts payable 33,588 -
----------
Net cash used in operating activities (170,442) -
CASH FLOW FROM INVESTING ACTIVITIES:
Net proceeds to/from affiliates (675,873) -
---------- ------
Net cash provided by investing activities (675,873)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from private placements, net of related expenses
5,156,416 -
Proceeds from purchase of business 916,239 -
Contribution from Officers 400 -
---------- ------
6,073,055
Effect of exchange rate fluctuations
on cash balances 16,200 -
Net increase in cash 5,242,940 -
Cash and cash equivalents
at beginning of period 50,226 -
---------- ------
Cash and cash equivalents
at end of period $5,293,166 $ -
========== ======
SUPPLEMENTAL DISCLOSURE ON NON-CASH
FINANCING ACTIVITIES:
In conjunction with the reverse
acquisition the following occurred:
Assets acquired $ 917,769
Liabilities assumed (50,167)
----------
Cash received $ 867,202
==========
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1996
NOTE A - CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -
BASIS OF PRESENTATION
On December 8, 1995, Sector Associates, Ltd. ("Sector" or "Company") acquired
100% of the outstanding common stock of Viragen (Scotland) Ltd. ("VSL") in
exchange for 2,000,000 shares of Series B Preferred Stock, convertible into
78,400,000 shares of common stock representing a 94% equity interest in Sector.
As the shareholders of VSL gained voting control of Sector in this transaction,
VSL became the acquiring entity and accounting services. Accordingly, the
acquisition of VSL was accounted for as a reverse acquisition whereby the
historical financial statements contained herein reflect those of the
accounting acquirer, VSL not the historical financial statements of the legal
acquirer, Viragen (Europe) Ltd. The Statement of Operations for the three
month and nine month periods ended March 31, 1996 reflects the activities of
VSL for those periods as well as the operations of Sector from the acquisition
date to March 31, 1996.
Effective May 2, 1996, the Company's name was changed from Sector Associates,
Ltd. to Viragen (Europe) Ltd., the common 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 B - INTERIM ADJUSTMENTS
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 fiscal 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
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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.
NOTE C - ACQUISITION
On December 8, 1995, the Company (then named Sector Associates, Ltd. - See Note
A) (the "registrant") acquired 100% of the stock of VSL for which the
registrant issued 2,000,000 shares of Series B Convertible Preferred Stock
which upon conversion represent 78,400,000 shares of common stock or
approximately 94% of the then issued and outstanding shares of the Company. As
the shareholders of VSL gained voting control of the registrant in this
transaction, they became the acquiring entity and accounting survivor.
Accordingly, the acquisition of VSL was accounted for as a reverse acquisition
whereby the historical financial statements contained herein reflect those of
the accounting acquirer, VSL, not the financial statements of the legal
acquirer, the registrant. The historical financial statements for all periods
presented up December 8, 1995 included herein are therefore those of the
predecessor, or VSL, the accounting survivor of the reverse acquisition.
Moreover, since at the time of the acquisition the legal acquirer, the
registrant, was a shell corporation with no operations, the stockholder's
equity of the conformed entity was recapitalized to reflect the capital
structure of the surviving legal entity and the accumulated deficit of VSL.
Through a license granted by Viragen, Inc., VSL's former Parent, VSL secured
certain rights to engage in the research, development and manufacture of
certain proprietary products and technologies that relate to the therapeutic
application of human leukocyte interferon (the "Product") for various diseases
that affect the human immune system. Pursuant to these rights, on July 20,
1995, VSL entered into a License and Manufacturing Agreement with the Common
Services Agency ("Agency"), an agency acting on behalf of the Scottish National
Blood Transfusion Service ("SNBTS") pursuant to which SNBTS, on behalf of VSL,
will manufacture and supply VSL's Product to VSL for distribution in the
European Union in return for certain fees. SNBTS' services will be subject to
all governmental regulations and procedures pertaining to the manufacture and
distribution of the Product. It was considered critical to VSL's operations
and to planned clinical trials to secure a sufficient qualified source of human
source leukocytes, a critical components in the manufacture of the Product.
VSL was a newly formed corporation which
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<PAGE> 8
commenced operations concurrent with the execution of its agreement with SNBTS.
Pro forma financial statements reflecting the results of operations as if the
acquisition had taken place as of July 1, 1995 have been presented in a Form
8-K/A filed in March 1996.
NOTE D - COMMON STOCK
The Company initiated a series of Private Placement Offerings to raise the
agreed upon capital necessary to complete the planned reverse acquisition (see
Note C) and raise the necessary funding to complete the construction and
initial Product testing phases by VSL in Scotland, and provide working capital.
In December 1995, the Company completed a Private Placement Offering, raising
approximately $750,000 through the sale of 336,000 units for a purchase price
of $2.23 per Unit. Each Unit consists of 10 shares (per one for 14 reverse
split) of Common Stock and 35 Common Stock Purchase Warrants having an exercise
price of $.43 per share ($6.02 post reverse split). At March 31, 1996, there
were 11,760,000 (840,000 post reverse split) Common Stock Purchase Warrants
Outstanding.
NOTE E - ADDITIONAL PRIVATE PLACEMENT OFFERINGS
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. (See Part II, Item 5, Other Information)
NOTE F - NET LOSS PER COMMON SHARE AND COMMON EQUIVALENT SHARE
Net loss per share is based upon the weighted average number of shares
outstanding with the assumed conversion of the 2,000,000 shares of Series B -
Convertible Preferred stock into 78,400,000 shares of common stock on December
8, 1995.
NOTE G - 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
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<PAGE> 9
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 stockholder's 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.
9
<PAGE> 10
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On December 8, 1995, the Company (then named Sector Associates, Ltd. See Note
A to Notes to Consolidated Condensed Financial Statements and Part II, Item 5,
Other Information) (the "registrant") acquired 100% of the stock of VSL for
which the registrant issued 2,000,000 shares of Series B Convertible Preferred
Stock which upon conversion represented 78,400,000 shares of common stock or
approximately 94% of the then issued and outstanding shares of the Company. As
the shareholders of VSL gained voting control of the registrant in this
transaction, they became the acquiring entity and accounting survivor.
Accordingly, the acquisition of VSL was accounted for as a reverse acquisition
whereby the historical financial statements contained herein reflect those of
the accounting acquirer, VSL, not the financial statements of the legal
acquirer, the registrant. The historical financial statements for all periods
presented up to December 8, 1995 included herein are therefore those of the
predecessor, or VSL, the accounting survivor of the reverse acquisition.
Moreover, since at the time of the acquisition the legal acquirer, the
registrant, was a shell corporation with no operations, the stockholder's
equity of the conformed entity was recapitalized to reflect the capital
structure of the surviving legal entity and the accumulated deficit of VSL.
Through a license granted by Viragen, Inc., VSL's former Parent, VSL secured
certain rights to engage in the research, development and manufacture of
certain proprietary products and technologies that relate to the therapeutic
application of human leukocyte interferon (the "Product") for various diseases
that affect the human immune system. Pursuant to these rights, on July 20,
1995, VSL entered into a License and Manufacturing Agreement with the Common
Services Agency, an agency acting on behalf of the Scottish National Blood
Transfusion Services ("SNBTS") pursuant to which SNBTS, on behalf of VSL, will
manufacture and supply VSL's product to VSL for distribution in the European
Union in return for certain fees. SNBTS' services will be subject to all
governmental regulations and procedures pertaining to the manufacture and
distribution of the Product. It is considered critical to VSL's operation and
to planned clinical trials to secure a sufficient qualified source of human
source leukocytes, a critical components in the manufacture of the Product.
VSL was a newly formed corporation which commenced operations concurrent with
the execution of its agreements with SNBTS.
The Company initiated a series of Private Placement Offerings to raise the
agreed upon capital necessary to complete the planned reverse acquisition (see
Note C to Notes to Consolidated Condensed Financial Statements) and raise the
necessary funding to complete the construction and initial Product testing
phases by VSL in Scotland, and provide working capital.
10
<PAGE> 11
In December 1995, the Company completed a private Placement Offering, raising
approximately $750,000 through the sale of 336,000 units for a purchase price
of $2.23 per Unit. Each Unit consists of 10 shares of Common Stock and 35
Common Stock Purchase Warrants having an exercise price of $.43 ($6.00 post
reverse split) per share. At March 31, 1996, there were 840,000 (post revenue
split) Common Stock Purchase Warrants Outstanding.
In March 1996, the Company completed an additional two Private Placement
Offerings, issuing 768,000 shares of Common Stock (post reverse split) 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
$5,156,000 after related expenses of $317,500. (See Part II, Item 5, Other
Information).
Current period expenses consisted mainly on management consulting fees of
$24,000, legal fees of $9,000 and travel expenses of $10,000.
Management believes that the working capital currently on-hand is adequate to
complete the planned construction phase of its Edinburgh based production
facility and maintain its research and Product development operations at least
through March 31, 1997.
PART II - OTHER INFORMATION
Item 5. Other Information
The Company's Board of Directors on January 4, 1996, approved an Amendment to
the Certificate of Incorporation, (the "Amendment") which would (i) change the
par value of the Company's Common Stock from $.10 par value to $.01 par value;
(ii) change the name of the Company from Sector Associates, Ltd., to Viragen
(Europe) Ltd., and (iii) effectuate a one-for-fourteen (1 for 14) reverse
stock split of the Company's outstanding shares of Common Stock. The Company's
majority stockholder, Viragen, Inc., indicated its intention to approve the
proposed Amendment following circulation of the Company's Information Statement
to the stockholders of the Company. The Company's Information Statement was
distributed to all shareholders in April 1996 and the provisions of the
Amendment became effective May 2, 1996.
As a result of the reverse stock split, the outstanding Common Stock of the
Company at May 2, 1996 the effective date of the Amendment, was reduced from
94,189,620 shares to 6,727,830 shares of Common Stock, inclusive of the
2,000,000 shares of Series B Convertible Preferred Stock of the Company owned
by Viragen, Inc., which was convertible into 78,400,000 shares of Common Stock
representing 5,600,000 shares of Common Stock following the reverse split. The
Company's outstanding options and
11
<PAGE> 12
warrants to purchase an aggregate of 15,551,424 shares were reduced to
1,110,816 shares of Common Stock following the reverse stock split with the
exercise prices of outstanding options and warrants ranging from $6.00 to
$105.00 per share.
12
<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re: computation of per share earnings (loss)
(27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
(1) Form 8-K/A dated March 23, 1996 Amendment to Form 8-K dated
December 18, 1995 to include Item 7. Pro Forma Financial
Information.
13
<PAGE> 14
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 (EUROPE) LTD.
By: /s/ Dennis W. Healey
- -----------------------------
DENNIS W. HEALEY, Executive
Vice President, Treasurer and
Principal Financial Officer
Dated: March 11, 1996
14
<PAGE> 1
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
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 83,437,620 - 12,576,246 -
=========== ===== =========== ====
Weighted average shares
outstanding
Net Loss $ (29,316) $ - $ (67,355) $ -
========== ===== =========== ====
Net loss per Common Share
and Common Stock Equivalents $ (0.00) $ - $ (0.00) $ -
========== ===== =========== ====
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,293,166
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,920,653
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,927,204
<CURRENT-LIABILITIES> 40,895
<BONDS> 0
20,000
0
<COMMON> 503,762
<OTHER-SE> 5,362,547
<TOTAL-LIABILITY-AND-EQUITY> 5,927,204
<SALES> 0
<TOTAL-REVENUES> 18,310
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 72,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (54,153)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,153)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
