<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, 1997
( ) 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)
DELAWARE 11-2788282
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
865 SW 78TH AVENUE, SUITE 100, PLANTATION, FLORIDA 33324
---------------------------------------------------------------
(Address of principal executive offices)
(954) 233-8377
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
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 - 7,116,059 shares at November 10, 1997.
<PAGE> 2
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
INDEX
PART I - FINANCIAL INFORMATION
The Consolidated Condensed Statements of Operations (Unaudited) for the
three-month periods ended September 30, 1997 and September 30, 1996 include the
accounts of the Registrant and its subsidiary.
Item 1. Financial Statements
1) Consolidated Condensed Statements of Operations for the three months
ended September 30, 1997 and September 30, 1996.
2) The Consolidated Condensed Balance Sheets as of September 30, 1997 and
June 30, 1997.
3) Consolidated Condensed Statements of Cash Flows for the three months
ended September 30, 1997 and September 30, 1996.
4) Notes to Consolidated Condensed Financial Statement as of September
30, 1997.
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 (EUROPE) LTD. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
----------- -----------
<S> <C> <C>
INCOME
Interest and other income $ 20,283 $ 59,585
----------- -----------
20,283 59,585
COST AND EXPENSES
Research and development costs 94,499 41,960
General and administrative expenses 127,765 116,196
Depreciation and amortization 122,747 748
Interest expense 3,493 --
----------- -----------
348,504 158,904
----------- -----------
Net (loss) $ (328,221) $ (99,319)
=========== ===========
Net (loss) per common share $ (.05) $ (.01)
=========== ===========
Weighted average common shares outstanding 7,116,059 6,932,710
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,495,539 $ 2,144,271
Prepaid royalty 2,000,000 2,000,000
Other current assets 170,462 193,908
----------- -----------
Total current assets 3,666,001 4,338,179
PROPERTY, PLANT AND EQUIPMENT 3,452,024 3,421,815
Less accumulated depreciation (131,751) (9,257)
----------- -----------
3,320,273 3,412,558
----------- -----------
$ 6,986,274 $ 7,750,737
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 367,543 $ 679,514
Current Portion of long-term debt 6,050 6,225
Advances from parent 455,982 455,175
----------- -----------
Total current liabilities 829,575 1,140,914
Long-term debt, less current portion 153,260 157,686
Stockholders' Equity
Common stock, $.01 par value. Authorized 20,000,000
shares; issued and outstanding 7,116,059 share 71,160 71,160
Additional paid-in capital 7,441,447 7,441,447
Retained deficit (1,662,161) (1,333,939)
Foreign currency translation adjustment 152,993 273,469
----------- -----------
Total Stockholders' Equity 6,003,439 6,452,137
----------- -----------
$ 6,986,274 $ 7,750,737
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (328,221) $ (99,319)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation expense 122,747 748
Increase (decrease) relating to operating activities
from:
Other current assets 23,446 16,512
Other assets - 6,166
Accounts payable and accrued expenses (311,971) (39,043)
Increase in advances to parent 807 (231,001)
----------- -----------
Net cash used in operating activities (493,192) (345,937)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property plant and equipment, net (30,209) (92,116)
----------- -----------
Net cash used in investing activities (30,209) (92,116)
CASH FLOWS FROM FINANCING
ACTIVITIES
Exercise of warrants - 296,000
----------- -----------
Net cash provided by financing activities - 296,000
Effect of foreign currency translation (125,331) (1,857)
----------- -----------
Net decrease in cash (648,732) (143,910)
Cash - Beginning of Period 2,144,271 4,985,897
----------- -----------
Cash - End of Period $ 1,495,539 $ 4,841,987
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE - A - ORGANIZATION AND CONSOLIDATION
Viragen (Europe) Ltd. ("VEL") and its subsidiary are engaged in the
research, development and manufacture of certain immunological products for
commercial application. The consolidated financial statements include the
accounts of VEL and its wholly owned subsidiary, Viragen (Scotland) Ltd.
("VSL"), collectively known as the Company. VSL is a private Scottish company.
All material intercompany accounts and transactions have been eliminated in
consolidation. VEL is a majority-owned subsidiary of Viragen, Inc.
NOTE B - INTERIM ADJUSTMENTS AND USE OF ESTIMATES
The financial summaries for the three months ended September 30, 1997
and September 30, 1996 included, 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, 1997 are not
necessary indicatives of the results that may be expected for the entire fiscal
year ending June 30, 1998.
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, 1997.
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.
6
<PAGE> 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION 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 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
declared effective by the Securities and Exchange Commission on July 12, 1996
and related Post-Effective Amendment dated April 18, 1997. 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 Shareholders.
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 and 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 future 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.
7
<PAGE> 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
Through a license granted by Viragen, VSL's ultimate parent, VSL
secured certain rights to engage in the development, manufacture and
distribution of certain proprietary products and technologies that related to
the therapeutic application of human leukocyte interferon 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 assist in
the manufacture of VSL's Product and upon regulatory approval, for distribution
in the EU in return for certain fees and additional rights. SNBTS' services will
be subject to all governmental regulations and procedures pertaining to the
manufacture and distribution of the Product. SNBTS has committed to assist in
the manufacture of the Product in sufficient scale to accommodate the EU
clinical trials and may simultaneously engage in commercial sales in amounts to
be agreed upon by the parties and the European regulatory authorities. SNBTS
will also cooperate with the Company in studies relevant to the Product and with
eventual production, clinical trials and distribution. Management considers it
critical to the Company's operation and to planned clinical trials to have
secured a sufficient qualified source of human leukocytes, a critical component
in the manufacture of the Product. VSL was a newly formed company, which
commenced operations concurrent with the execution of its agreement with SNBTS.
Pursuant to the provisions of the License Agreement between VSL and
Viragen, a $2,000,000 Initial Royalty Prepayment and Deposit was paid to Viragen
in June 1997. In September 1997, VSL and Viragen mutually agreed to extend the
technology transfer completion dates. Accordingly, the agreement was modified
such that the $2,000,000 Initial Royalty Prepayment would represent the
contractual prepayment for the one year period commencing November 1, 1997. The
agreement was further modified to provide that in the event the proprietary
technology was not transferred pursuant to the provisions of the agreement,
which is not anticipated, the Initial Royalty Prepayment would be refunded to
VSL.
In November 1996, the Company executed a five-year lease agreement in a
biotechnology park in the Edinburgh area of Scotland. This facility, comprised
of approximately 10,000 sq. ft., contains the Company's European laboratory and
production facilities. Monthly rental for the facility is 7,109 UK Pounds or
approximately US$11,500 subject to adjustment for common area maintenance
charges. The lease provides for four-five year extensions at the option of the
Company. Other augmenting productive assets located within the SNBTS facility is
available to the Company under the Scottish Agreement.
Management believes that the working capital currently on-hand is
adequate to maintain its research and product development operations for the
foreseeable future and provide the administrative support associated with the
preclinical trial phase of the
8
<PAGE> 9
Product's development and the commencement of clinical trials. Additional
funding will be required to complete the clinical trials and administrative
filings necessary to obtain final EU regulatory approvals.
RESULTS OF OPERATIONS
Income for the quarter ended September 30, 1997 of $20,283 represents
interest earned on the investment of proceeds from a series of private
placements completed during fiscal 1996. The decline in interest income compared
to the same quarter of the previous year reflects the reduction in principal
invested between the periods resulting primarily from operational losses and
expenditures associated with the establishment of the Company's laboratory and
manufacturing facility in Scotland.
Research and development costs for the first quarter of fiscal 1998
totaled $94,499, an increase of $52,539 (125%) over the same period of the
preceding year. This increase reflects increased costs associated with
development and scale-up projects relating to the transfer of technology from
the Company's parent, Viragen, Inc. relating to the Company's Omniferon(TM)
product. Components of this increase include an increase of $21,000 in
scientific salaries, increases in laboratory supplies expenses of $9,300 and
increased travel expenditures by scientific personnel associated with travel
between Viragen, Inc.'s Florida facility and the Company's Scottish facility.
General and administrative expenses totaled $127,765 for the
quarter ended September 30, 1997 compared with $116,196 for the same period of
the preceding year. This increase, representing a 10% increase between the
periods, reflects the increase in administrative support functions associated
with the Company's establishment of its laboratory and manufacturing facility in
Scotland and related technology transfer activities.
The sharp increase in depreciation expense reflects the acquisition and
utilization of laboratory equipment in the Company's Scottish laboratory and
manufacturing facility during fiscal 1997 and the first quarter of fiscal 1998.
Depreciation expense will continue to increase over comparable periods of the
preceding year as the Company continues its process development projects related
to its Omniferon product.
The Company anticipates no significant financial impact to its
operational or financial data processing systems as a result of the "Year 2000"
change.
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
9
<PAGE> 10
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 (EUROPE) LTD.
By: /s/ DENNIS W. HEALEY
---------------------------
Dennis W. Healey
Executive Vice President
Principal Financial Officer
By: /s/ JOSE ORTEGA
---------------------------
Jose I. Ortega
Controller
Chief Accounting Officer
Dated: November 14, 1997
10
<PAGE> 1
VIRAGEN (EUROPE) LTD. AND SUBSIDIARY
EXHIBIT 11 - COMPUTATION OF LOSS PER COMMON SHARE
(UNAUDITED)
Three Months Ended
September 30,
1997 1996
---------- -----------
PRIMARY AND FULLY DILUTED
Weighted average shares outstanding 7,116,059 6,932,710
========== ===========
Net Loss $ (328,221) $ (99,319)
========== ===========
Net loss per common share $ (.05) $ (.01)
========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,495,539
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,666,001
<PP&E> 3,452,024
<DEPRECIATION> 131,751
<TOTAL-ASSETS> 6,986,274
<CURRENT-LIABILITIES> 829,575
<BONDS> 0
0
0
<COMMON> 71,160
<OTHER-SE> 5,932,279
<TOTAL-LIABILITY-AND-EQUITY> 6,986,274
<SALES> 0
<TOTAL-REVENUES> 20,283
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 345,011
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,493
<INCOME-PRETAX> (328,221)
<INCOME-TAX> 0
<INCOME-CONTINUING> (328,221)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (328,221)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0
</TABLE>
