<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 - March 31, 1999
( ) 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 Identification No.)
incorporation or organization)
865 SW 78th Avenue, Suite 100, Plantation, Florida 33324
--------------------------------------------------------
(Address of principal executive offices)
(954) 233-8377
----------------------------------------------------
(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 - 16,067,153 shares at May 12, 1999.
1
<PAGE> 2
VIRAGEN (EUROPE) LTD. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
The Consolidated Condensed Statements of Operations (Unaudited) for the
three-month and nine-month periods ended March 31, 1999 and 1998 include the
accounts of the Registrant and its subsidiaries.
Item 1. Financial Statements
1) Consolidated Condensed Statements of Operations for the three months
and nine months ended March 31, 1999 and 1998.
2) The Consolidated Condensed Balance Sheets as of March 31, 1999 and June
30, 1998.
3) Consolidated Condensed Statements of Cash Flows for the nine months
ended March 31, 1999 and 1998.
4) Notes to Consolidated Condensed Financial Statements as of March 31,
1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II - OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule (for SEC use only)
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VIRAGEN (EUROPE) LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------------------------- ----------------------------------------
1999 1998 1999 1998
------------------ -------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
INCOME
Interest and other income $ 8,387 $ 6,297 $ 16,743 $ 35,768
------------------ -------------------- ------------------ -----------------
8,387 6,297 16,743 35,768
COST AND EXPENSES
Research and development costs 945,430 390,973 1,803,138 885,225
General and administrative expenses 208,679 278,310 606,575 733,620
Licensing fee 500,000 -- 833,333 2,000,000
Interest expense 4,039 3,534 12,929 10,592
------------------ -------------------- ------------------ ----------------
1,658,148 672,817 3,255,975 3,629,437
------------------ -------------------- ------------------ ----------------
NET LOSS $(1,649,761) $(666,520) $(3,239,232) $(3,593,669)
================== ==================== ================== =================
Net loss per common share $ (0.14) $ (0.09) $ (0.37) $ (0.51)
================== ==================== ================== =================
Weighted average common shares
outstanding 12,180,239 7,116,059 8,794,114 7,116,059
================== ==================== ================== =================
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE> 4
VIRAGEN (EUROPE) LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
-------------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 153,409 $ 656,139
Due from parent 1,731,438 -
Other current assets 118,055 312,282
-------------------- ------------------
Total current assets 2,002,902 968,421
Property, Plant and Equipment
Leasehold improvements 1,927,960 1,947,310
Equipment and furniture 2,525,212 2,342,273
Construction in progress 140,984 48,655
-------------------- ------------------
4,594,156 4,338,238
Less accumulated depreciation (487,899) (253,387)
-------------------- ------------------
4,106,257 4,084,851
-------------------- ------------------
$6,109,159 $5,053,272
==================== ==================
Current Liabilities
Accounts payable and accrued expenses $852,534 $ 752,312
Current portion of long-term debt 2,863 2,863
-------------------- ------------------
Total current liabilities 855,397 755,175
Licensing fee payable 833,333 --
Long-term debt, less current portion 157,531 160,043
Advances from parent and affiliates -- 2,314,431
Commitments and Contingencies
Stockholders' Equity
Common stock, $.01 par value. Authorized
20,000,000 shares; issued and outstanding
16,067,153 and 7,116,059 shares at March 31,
1999 and June 30, 1998, respectively 160,672 71,160
Additional paid-in capital 13,179,595 7,441,447
Retained deficit (9,215,298) (5,976,065)
Accumulated other comprehensive income 137,929 287,081
-------------------- ------------------
Total stockholders' equity 4,262,898 1,823,623
-------------------- ------------------
$6,109,159 $5,053,272
==================== ==================
</TABLE>
See notes to consolidated condensed financial tatements.
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VIRAGEN (EUROPE) LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,239,232) $(3,593,669)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation expense 249,251 260,325
Increase (decrease) relating to operating activities from:
Prepaid licensing fee -- 2,000,000
Other current assets 194,227 (88,117)
Other assets -- (31,251)
Accounts payable and accrued expenses 100,221 (410,853)
Licensing fee payable 833,333 --
-------------------- --------------------
Net cash used in operating activities (1,862,200) (1,863,565)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property plant and equipment, net (270,657) (772,781)
-------------------- --------------------
Net cash used in investing activities (270,657) (772,781)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from parent 1,781,791 1,459,692
Payments on long-term debt (2,512) --
-------------------- --------------------
Net cash provided by financing activities 1,779,279 1,459,692
Effect of foreign currency translation (149,152) 23,907
-------------------- --------------------
Net decrease in cash (502,730) (1,152,747)
Cash - Beginning of Period 656,139 2,144,271
-------------------- --------------------
Cash - End of Period $ 153,409 $ 991,524
==================== ====================
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
VIRAGEN (EUROPE) LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE A - ORGANIZATION AND CONSOLIDATION
Viragen (Europe) Ltd. ("VEL") and its subsidiaries 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 subsidiaries, Viragen (Scotland) Ltd.
("VSL") and Viragen (Germany) GmbH ("VGG"), collectively known as the Company.
VSL and VGG are private Scottish and German companies, respectively. All
material intercompany accounts and transactions have been eliminated in
consolidation. VEL is a majority-owned subsidiary of Viragen, Inc. ("Viragen").
Certain reclassifications have been made to the fiscal 1998 Financial
Statement to conform to the March 31, 1999 interim presentation.
NOTE B - INTERIM ADJUSTMENTS AND USE OF ESTIMATES
The financial summaries for the three months and nine months ended
March 31, 1999 and March 31, 1998 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 and nine months ended March 31,
1999 are not necessarily indicative of the results that may be expected for the
entire fiscal year ending June 30, 1999.
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/A for the year ended June 30, 1998.
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
On December 31, 1998, Viragen contributed to capital $3,509,701 in
intercompany advances to the Company for additional common shares of VEL. The
contribution resulted in the issuance of 4,011,087 shares to Viragen at $0.875
per share, the closing price on December 31, 1998, as reported by the NASDAQ
6
<PAGE> 7
Stock Market. On February 28, 1999, and on March 17, 1999, Viragen contributed
an additional $456,138 and $1,861,820 to capital, respectively. This resulted in
the issuance of an additional 4,940,007 common shares to Viragen. Viragen's
ownership interest in the Company increased to 87% following these capital
contributions.
NOTE D - COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------------- ---------------------------------------------
1999 1998 1999 1998
----------------- ------------------ ------------------ -----------------------
<S> <C> <C> <C> <C>
Net loss $(1,649,761) $(666,520) $(3,239,232) $(3,593,669)
Other comprehensive income (expense):
Currency translation adjustment (108,829) 56,328 (149,152) 22,278
----------------- ------------------ ------------------ -----------------------
Total comprehensive loss $(1,758,590) $(610,192) $(3,388,384) $(3,571,391)
================= ================== ================== =======================
</TABLE>
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 commencement dates, the cost of
planned clinical trials, 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 on Form SB-2 declared effective by the
Securities and Exchange Commission on July 12, 1996 and related Post-Effective
Amendment on Form S-3 (File No. 333-7303) dated April 18, 1997. You should also
consult the risk factors listed from time to time in the Company's Reports on
Forms 10-Q, 10-Q/A, 8-K, 10-K, 10-K/A and Annual Reports to the Stockholders.
The biopharmaceutical industry is highly competitive and subject to
rapid technological changes. Significant competitive factors in the
pharmaceutical and biopharmaceutical markets include competition for investment
capital in a sector which has shown a broad decline in stock prices in the last
12 month period, product efficacy, price and timing of new product
introductions. Increased competition from existing biopharmaceutical companies,
as well as the entry of new competitors into the market, could adversely affect
the Company's financial condition and results of operations.
7
<PAGE> 8
The Company's future success depends in part upon its intellectual
property, including trade secrets, know-how and continuing technology
innovation. There can be no assurance that the steps taken by the Company or
Viragen to protect its intellectual property will be adequate to prevent
misappropriation or that others will not develop competitive or medically
superior technologies or products. There can be no assurance that any future
patent, if any, owned by the Company or Viragen 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 or Viragen'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
owned, if any, by the Company or Viragen.
LIQUIDITY AND CAPITAL RESOURCES
Through a fifteen-year license (the "License Agreement") 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 relate to the therapeutic application of human leukocyte
derived multi-species interferon for various diseases that affect the human
immune system. The License Agreement provides for two, automatic fifteen-year
extensions. 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, would assist in the manufacture of
VSL's product and upon regulatory approval with the distribution of the Product
in the EU, in return for certain fees and additional rights (the "Scottish
Agreement").
SNBTS has committed to assist in the manufacture of OMNIFERON(TM), the
Company's natural, human-leukocyte derived, alpha-interferon (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 is also to provide human leukocytes and
cooperate with the Company in studies relevant to the Product and with clinical
trials, as well as eventual production and distribution. VSL commenced
operations concurrent with the execution of its agreement with SNBTS.
Management considers it critical to the Company's operations and to
planned clinical trials to have secured a sufficient qualified source of human
leukocytes, a critical component in the manufacture of the Product. During
fiscal 1998, the Company received notification that due to concerns over the
possible presence of New Variant Creutzfelt-Jacob Disease ("nvCJD"), also known
as Mad Cow Disease, in the UK blood supply, human leukocytes collected in
Scotland, including those intended to be supplied under the Scottish Agreement,
would not be approved for use in the Company's planned clinical trials or
potential commercial production until the European regulatory authorities are
satisfied that the risk of nvCJD contamination of any product using these
leukocytes had been minimized. The Company intends to utilize leukocytes
produced in Germany under Viragen's German contractual arrangements, as well as
other approved sources to continue with its planned clinical trials and possibly
the commencement of commercial scale production, if needed.
8
<PAGE> 9
The Company's German subsidiary, VGG, was established during fiscal
1998, to facilitate possible future expansion into Germany. Currently, VGG has
no operations.
Currently, the Company believes that its foreign currency risk is not
material. At the present time, the Company does not have sales revenue or
related receivables. Also, the Company does not purchase foreign currencies on a
regular basis. Transfers of funds to its foreign subsidiaries are performed
infrequently, in large sums, at the then-current exchange rates.
The Company was not impacted by the EU's adoption of the "Euro"
currency. The Company's foreign operations are located in Edinburgh, Scotland,
and the United Kingdom did not participate in the adoption of the Euro. The
United Kingdom does not have a scheduled date for the eventual adoption of the
Euro.
Pursuant to the provisions of the License Agreement between VSL and
Viragen, a $2,000,000 Initial 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 License Agreement was
modified such that the $2,000,000 Initial Prepayment would represent the
contractual prepayment for the one year period commencing November 1, 1997. The
License Agreement was further modified to provide that in the event the
proprietary technology was not transferred pursuant to the provisions of the
License Agreement, the Initial Prepayment would have been refunded to VSL. The
transfer of technology was deemed complete on November 1, 1997, and the Company
expensed the entire prepayment on that date. The License Agreement has been
further amended making the minimum annual licensing fee of $2,000,000 payable in
monthly installments of $166,667, commencing on November 1, 1998.
The Company commenced safety and preclinical trials of the Product in
March 1998. These trials were concluded in December 1998. The Company received
the final preclinical study results in April 1999. Results of the study
indicated no unexpected toxicity. The Company's present focus is the continued
development of the Company's Product , initially for the treatment of hepatitis
C. The entire process of research, development and EU regulatory approvals, if
obtained, of a new biopharmaceutical product takes several years and requires
substantial funding.
The Company expects to obtain the necessary funding through direct
investor capital contributions or through contributions from the Parent,
Viragen, Inc. Management believes that following the submission of its Clinical
Trial Exemption Application and completion of the Phase I Clinical Studies,
scheduled to commence in the third calendar quarter of 1999, additional
financing is expected to be more readily available. Viragen, Inc. is also in the
process of raising additional capital, which will also be available to fund
operations of the Company. No assurances can be provided, however, that
financing will be available on terms favorable to the Company and its
stockholders.
9
<PAGE> 10
Additional funding will be required to complete the clinical trial
process relating to OMNIFERON both in the EU and the US prior to receiving
regulatory approvals to market the Product. Estimated funding requirements
related to the approval of the Company's OMNIFERON product for hepatitis C, the
first approval being sought by the Company, include: Phase I and Phase II trials
- -- $3.2 million and Phase III studies -- $9.1 million.
In November 1998, the Company signed an exclusive supply and
distribution agreement with AGC, a Pakistan-based, multinational conglomerate,
(the "AGC Agreement") for OMNIFERON. AGC's designated territories include Saudi
Arabia, Kuwait, Yemen, Oman, UAE, Brunei and other Middle Eastern countries, as
well as India and Pakistan. The AGC Agreement calls for AGC to purchase a
minimum of $20 million of OMNIFERON over five years commencing with, and subject
to, AGC's receipt of the required regulatory approvals for product
commercialization in the designated territories, and the Company's receipt of
the requisite regulatory approval, following successful completion of Phase I
Clinical Studies, to export OMNIFERON from its commercial manufacturing facility
in Edinburgh, Scotland. The purchase minimums will be secured by a $1 million
irrevocable revolving letter of credit. These minimums increase significantly
upon the Company and Viragen obtaining regulatory approval for commercialization
of OMNIFERON in the United States and/or Europe. The AGC Agreement has been
approved by the Boards of Directors of AGC, Viragen, and the Company.
Under the terms of the AGC Agreement, AGC is responsible for clinical
and regulatory costs to obtain approvals for commercialization of OMNIFERON in
its designated territories and all subsequent sales, marketing and distribution
activities. The AGC Agreement also calls for AGC to build, own and operate, at
its own expense, a GMP pharmaceutical distribution facility in a mutually
agreeable location within the territory. It is expected that AGC will initially
focus on the Company's natural alpha interferon for hepatitis B and C, diseases
that are at epidemic proportions in the designated territories.
During the nine months ended March 31, 1999 and the fiscal years ended
June 30, 1998 and 1997 respectively, the Company expended approximately
$271,000, $914,000 and $3,400,000, respectively, in property, plant and
equipment primarily related to the continued development of its Scottish
manufacturing facility. The Company had commitments for additional equipment
purchases of approximately $100,000 at March 31, 1999.
The Company anticipates additional future losses as it enters the
clinical trial phase scheduled to commence in the third calendar quarter of
1999. Accordingly, Viragen has agreed to provide the Company the working capital
necessary to fund operations at least through calendar 1999. Advances from
parent and affiliates at March 31, 1999 and June 30, 1998 represent cash
advanced by Viragen and its subsidiaries. Viragen has contributed to capital all
intercompany advances made by Viragen through March 31, 1999. During fiscal
1999, Viragen has contributed to capital approximately $5,828,000 in
10
<PAGE> 11
intercompany advances in exchange for additional equity (8,951,094 Common
Shares) in the Company. Viragen has additionally agreed to defer the $166,667
minimum monthly payments due under the Licensing Agreement that began November
1, 1998 until the Company is able to fund this obligation. Accordingly,
management believes that its working capital currently on-hand and the
additional capital to be provided by Viragen is adequate to maintain its Product
development operations. Significant additional funding will be required to
complete the clinical trials and administrative filings necessary to apply for
final EU regulatory approvals. Management believes that such additional funding
will be more readily available as the Company completes various phases of its
clinical trials.
RESULTS OF OPERATIONS
Income for the nine months ended March 31, 1999 of $16,743 represents
interest earned on cash investments. The decline in interest income compared to
the same period of the previous year reflects the reduction in principal
invested between the periods resulting primarily from operational loses and
expenditures associated with the expansion of the Company's laboratory and
manufacturing facility in Scotland.
Research and development costs for the first nine months of fiscal 1999
totaled $1,803,138, an increase of approximately $918,000 (104%) over the same
period of the preceding year. This increase reflects increased costs associated
with development and scale-up projects associated with the transfer of
technology from the Company's parent, Viragen, relating to the Company's
OMNIFERON(TM) product. Components of this increase include an increase of
$352,500 in scientific salaries and support fees, increases in laboratory
supplies expense of $292,800 and increases in repairs and maintenance expenses
associated with plant equipment totaling $111,000.
Research and development costs for the quarter ended March 31, 1999
totaled $945,430 compared with $390,973 for the same period of the preceding
year. This increase, reflecting a 142% increase between the periods, was due
primarily to an increase in process scale-up efforts being conducted in the
Company's Scottish manufacturing facility. Components of this increase include
an increase in laboratory supplies expense of $135,800, increased scientific
salaried and related fees of $296,900 and an increase in related equipment
maintenance fees of $51,700.
General and administrative expenses totaled $606,575 for the nine
months ended March 31, 1999 compared with $733,620 for the same period of the
preceding year. This decrease of $127,000 (17%) was attributable primarily to
negotiated decreases in property taxes relating to the Company's Scottish
facility. Property taxes were $59,500 lower during the nine months ended March
31, 1999, than the same period in the preceding year. The Company also realized
a decrease in legal fees totaling $71,500 during the first nine months of fiscal
1999. This decrease is attributable to the settlement of litigation during the
prior year. These decreases were offset by increases of approximately $49,900 in
salaries and accounting fees.
General and administrative expenses totaled $208,679 for the third
quarter of the current year, decreasing $69,600 (25%) from the third quarter of
the prior year. This decrease reflected a decrease in legal and consulting fees
of $22,000 and $40,000, respectively, reflecting the settlement of certain
litigation active in the prior year and a decrease in contract negotiations.
11
<PAGE> 12
YEAR 2000
The Company recognizes the potential problem posed to its operations by
its dependence upon date sensitive computer systems and applications throughout
its business, as well as the operations of third parties upon which the Company
is dependent. The Company relies heavily on computerized laboratory equipment
both for its ongoing research and production scale-up projects as well as
computer controlled commercial scale manufacturing equipment in place in the
Company's Scottish facility. In addition, the Company, through strategic
alliance and supply agreements currently in place, is also dependent upon Year
2000 compliance by third parties for the supply of critical raw materials as
well as certain manufacturing steps and storage of Product produced for planned
clinical trials and, subject to regulatory approval, for commercial scale
production.
The Company will utilize both internal and external resources to
isolate and, as necessary, reprogram, update or replace hardware or software
found to be non-Year 2000 compliant. The evaluation phase of the Company's Year
2000 compliance program began in the fourth fiscal quarter of 1998. After
evaluation of the third party responses, the Company will prepare a contingency
plan to mitigate third party Year 2000 issues, if necessary. Due to the limited
size of the Company's administrative staff, it is expected that most of this
work will be performed by outside contractors retained specifically for this
project. The Company expects to complete its internal Year 2000 project by July
1999. The total estimated cost to the Company to complete its internal Year 2000
project is $30,000 to $40,000, including projected hardware replacements
indicated. Funding for the evaluation and correction phases will be provided
from general working capital.
The Company has contacted certain external third parties, including raw
material vendors and scientific equipment manufacturers considered critical to
its ongoing operations to discuss and evaluate their own compliance programs.
After evaluation of third party responses during the quarter ended March 1999,
the Company will prepare a contingency plan to mitigate third party Year 2000
issues, if necessary.
The costs and projected completion dates of the Company's Year 2000
compliance program is based on management's best estimates and is dependant in
large part upon compliance programs of external third parties or scientific
equipment and software vendors over whom the Company has no direct control.
Accordingly, the inability of the Company or critical vendors to meet Year 2000
compliance deadlines could have a material adverse impact on the Company's
operations, product development, clinical trial or commercial manufacturing
standpoint, negatively affecting its financial condition, results of operations
and cash flows.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 5. Other Information
The Company had received notice from the Nasdaq Stock Market, Inc.
("NASDAQ") of its intention to delist the Company's Common Stock from the NASDAQ
SmallCap Market based on non-compliance with certain quantitative listing
criteria of Nasdaq. In particular, the Company did not have net tangible assets
of at least $2 million at June 30, 1998, as reported in its Annual Report on
Form 10-K/A. The Company had requested a hearing, and based on that hearing, was
granted a temporary exception from the minimum net tangible assets and minimum
bid requirements subject to certain conditions. The Company was required to meet
a net tangible asset minimum of $5.5 million, as reflected in a SEC filing, by
March 15, 1999. Also, the Company needed to have achieved a minimum closing bid
price of at least $1.00 per share by April 30, 1999 and immediately thereafter,
the Company's closing bid price needed to meet or exceed $1.00 per share for a
minimum of ten consecutive trading days.
Due to delays in closing a financing agreement by Viragen, Inc.,
the Company requested a seven-day extension of the March 15, 1999, deadline.
NASDAQ granted the extension, however, the Company was unable to meet the
required net tangible asset minimum of $5.5 million. Following the closing of
the financing agreement, Viragen contributed $1,861,820 to capital, in addition
to $3,965,839 contributed during the year. The Company's proforma balance sheet
dated February 28, 1999, reflected $5,055,000 in net tangible assets, as filed
in a Form 8-K filed on March 23, 1999, $445,000 below the NASDAQ required
minimum and accordingly, the Company was delisted from the NASDAQ SmallCap
Market on March 23, 1999. The Company is currently traded under the symbol
"VERP" on the over-the-counter market.
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
(i) Current Report on Form 8-K dated March 23, 1999
Re: Contribution of Capital by Viragen, Inc.
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<PAGE> 14
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 and
Principal Financial Officer
By: /s/ JOSE I. ORTEGA
-------------------------------
Jose I. Ortega
Controller and
Principal Accounting Officer
Dated: May 12, 1999
14
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EXHIBIT - 11
VIRAGEN (EUROPE) LTD. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------------- --------------------------------------
1999 1998 1999 1998
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
BASIC AND DILUTED
Weighted average shares outstanding 12,180,239 7,116,059 8,794,114 7,116,059
================= ================ ================ =================
Net Loss $(1,649,761) $(666,520) $(3,239,232) $(3,593,669)
================= ================ ================ =================
Basic and diluted loss per common share $ (0.14) $ (0.09) $ (0.37) $ (0.51)
================= ================ ================ =================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 153,409
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,002,902
<PP&E> 4,594,156
<DEPRECIATION> 487,899
<TOTAL-ASSETS> 6,109,159
<CURRENT-LIABILITIES> 855,397
<BONDS> 157,531
0
0
<COMMON> 160,672
<OTHER-SE> 4,102,226
<TOTAL-LIABILITY-AND-EQUITY> 6,109,159
<SALES> 0
<TOTAL-REVENUES> 16,743
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,243,046
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,929
<INCOME-PRETAX> (3,239,232)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,239,232)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,239,232)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
