<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 - December 31, 1998
( ) 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 - 11,127,146 shares at February 12, 1999.
<PAGE> 2
VIRAGEN (EUROPE) LTD. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
The Consolidated Condensed Statements of Operations (Unaudited) for the three
month and six month periods ended December 31, 1998 and 1997 include the
accounts of the Registrant and its subsidiaries.
Item 1. Financial Statements
1) Consolidated Condensed Statements of Operations for the three months
and six months ended December 31, 1998 and 1997.
2) The Consolidated Condensed Balance Sheets as of December 31, 1998 and
June 30, 1998.
3) Consolidated Condensed Statements of Cash Flows for the three months
and six months ended December 31, 1998 and 1997.
4) Notes to Consolidated Condensed Financial Statements as of December 31,
1998.
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)
2
<PAGE> 3
VIRAGEN (EUROPE) LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------------------- ------------------------------------------
1998 1997 1998 1997
------------------ -------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
INCOME
Interest and other income $ 4,137 $ 9,188 $ 8,356 $ 29,471
------------------ -------------------- ------------------ -------------------
4,137 9,188 8,356 29,471
COST AND EXPENSES
Research and development costs 509,074 285,598 857,708 494,252
General and administrative expenses 205,771 318,953 397,896 455,310
Licensing fee 333,333 2,000,000 333,333 2,000,000
Interest expense 3,684 3,565 8,890 7,058
------------------ -------------------- ------------------ -------------------
1,051,862 2,608,116 1,597,827 2,956,620
------------------ -------------------- ------------------ -------------------
NET LOSS $(1,047,725) $(2,598,928) $(1,589,471) $(2,927,149)
================== ==================== ================== ===================
Basic and diluted loss per common
share $ (0.15) $ (0.37) $ (0.22) $ (0.41)
================== ==================== ================== ===================
Weighted average common shares
outstanding 7,159,658 7,116,059 7,137,858 7,116,059
================== ==================== ================== ===================
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
VIRAGEN (EUROPE) LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
-------------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 594,837 $ 656,139
Other current assets 241,439 312,282
-------------------- ------------------
Total current assets 836,276 968,421
Property, Plant and Equipment
Leasehold improvements 1,976,274 1,947,310
Equipment and furniture 2,469,428 2,342,273
Construction in progress 145,049 48,655
-------------------- ------------------
4,590,751 4,338,238
Less accumulated depreciation (417,003) (253,387)
-------------------- ------------------
4,173,748 4,084,851
-------------------- ------------------
$5,010,024 $5,053,272
==================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 523,241 $ 752,312
Current portion of long-term debt 2,863 2,863
-------------------- ------------------
Total current liabilities 526,104 755,175
Licensing fee payable 333,333 --
Long-term debt, less current portion 157,531 160,043
Advances from parent and affiliates 289,527 2,314,431
Commitments and Contingencies
Stockholders' Equity
Common stock, $.01 par value. Authorized
20,000,000 shares; issued and outstanding
11,127,146 and 7,116,059 shares at December 31,
1998 and June 30, 1998, respectively 111,271 71,160
Additional paid-in capital 10,911,037 7,441,447
Retained deficit (7,565,537) (5,976,065)
Accumulated other comprehensive income 246,758 287,081
-------------------- ------------------
Total stockholders' equity 3,703,529 1,823,623
-------------------- ------------------
$5,010,024 $5,053,272
==================== ==================
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
VIRAGEN (EUROPE) LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-------------------------------------------------
1998 1997
-------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,589,471) $(2,927,149)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation expense 165,807 164,151
Increase (decrease) relating to operating activities
from:
Prepaid licensing fee -- 2,000,000
Other current assets 70,843 (34,786)
Other assets -- (9,819)
Accounts payable and accrued expenses (229,072) (503,851)
Licensing fee payable 333,333 --
-------------------- --------------------
Net cash used in operating activities (1,248,560) (1,311,454)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property plant and equipment, net (254,704) (447,697)
-------------------- --------------------
Net cash used in investing activities (254,704) (447,697)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (2,512) --
Advances from parent and affiliates 1,484,797 335,533
-------------------- --------------------
Net cash provided by financing activities 1,482,285 335,533
Effect of foreign currency translation (40,323) (35,078)
-------------------- --------------------
Net decrease in cash (61,302) (1,458,696)
Cash - Beginning of Period 656,139 2,144,271
-------------------- --------------------
Cash - End of Period $ 594,837 $ 685,575
==================== ====================
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
VIRAGEN (EUROPE) LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 December 31, 1998 interim presentation.
NOTE B - INTERIM ADJUSTMENTS AND USE OF ESTIMATES
The financial summaries for the three months and six months ended
December 31, 1998 and December 31, 1997 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 six months ended December
31, 1998 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
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
6
<PAGE> 7
31, 1998, as reported by the NASDAQ Stock Market. Viragen's ownership interest
in the Company was increased to 81% following the capital contribution.
NOTE D - COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------------------- ---------------------------------------------
1998 1997 1998 1997
------------------- ------------------ ------------------ -----------------------
<S> <C> <C> <C> <C>
Net loss $(1,047,725) $(2,598,928) $(1,589,471) $(2,927,149)
Other comprehensive income (expense):
Currency translation adjustment (110,941) 86,426 (40,323) (34,050)
------------------- ------------------ ------------------ -----------------------
Total comprehensive loss $(1,158,666) $(2,512,502) $(1,629,794) $(2,961,199)
=================== ================== ================== =======================
</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, 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 (Registration 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, 8-K, 10-K 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 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.
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 to
protect its intellectual property will be adequate to prevent misappropriation
or that others will not develop competitive technologies or products. There can
7
<PAGE> 8
be no assurance that any future patent, if any, 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
owned, if any, by the Company.
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 will also provide human leukocytes and
cooperate with the Company in studies relevant to the Product and with
preclinical (recently completed) and 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.
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.
8
<PAGE> 9
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
anticipates receipt of the final preclinical study results in March 1999. The
Company's present focus is the continued development of the Company's Product
for the treatment of hepatitis B and C, Multiple Sclerosis, HIV/AIDS and Herpes.
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 completion of the Phase I
Clinical Studies, scheduled to commence in the second calendar quarter of 1999
and to be completed during the third quarter 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.
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. Anticipated funding requirements
related to the approval of the Company's OMNIFERON product for Hepatitus 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,
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 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.
Under the terms of the 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 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 which are
at epidemic proportions in the designated territories.
9
<PAGE> 10
During the first six months ended December 31, 1998 and the fiscal
years ended June 30, 1998 and 1997 respectively, the Company expended
approximately $255,000, $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 December 31, 1998.
The Company anticipates additional future losses as it enters the
clinical trial phase scheduled to commence in the second 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 December 31, 1998 and June 30, 1998 represent cash
advanced by Viragen and its subsidiaries. Viragen has agreed to defer repayment
of the intercompany advances through December 31, 1999. The amount is
non-interest bearing. On December 31, 1998, Viragen also contributed to capital
approximately $3,510,000 in intercompany advances in exchange for additional
equity (4,011,087 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 through December 31, 1999. 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 six months ended December 31, 1998 of $ 8,356 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 establishment and equipping of the Company's
laboratory and manufacturing facility in Scotland.
Research and development costs for the first half of fiscal 1999
totaled $857,708, an increase of approximately $363,456 (74 %) 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
OMNIFERONTM product. Components of this increase include an increase of $102,000
in scientific salaries and support fees, increases in laboratory supplies
expense of $158,000 and increases in repairs and maintenance expenses associated
with plant equipment totaling $60,000.
Research and development costs for the quarter ended December 31, 1998
totaled $509,074 compared with $285,598 for the same period of the preceding
year. This increase, reflecting a 78% 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 $84,000, increased scientific
salaries and related fees of $78,000 and an increase in related equipment
maintenance fees of $41,000.
General and administrative expenses totaled $397,896 for the six months
ended December 31, 1998 compared with $ 455,310 for the same period of the
preceding year. This decrease of $57,000 (12.6%) was attributable primarily to
negotiated decreases in property taxes relating to the Company's Scottish
facility. Property taxes were $59,000 lower during the six months ended
December 31, 1998, than the same period in the preceding year. The Company also
realized a decrease in legal fees totaling $21,000 during the first half of
fiscal 1999. This decrease is attributable to the settlement of litigation
during the prior year. These decreases were offset by increases of
approximately $10,000 in salaries and accounting fees.
General and administrative expenses totaled $205,771 for the second
quarter of the current year, decreasing $113,182 (35%) from the second quarter
of the prior year. This decrease reflected a negotiated reduction in property
taxes associated with the Company's Scottish facility of approximately $59,000,
a reduction in accounting fees of $13,000 and a decrease in legal fees of
$20,000 reflecting the settlement of certain litigation active in the prior
year and a decrease in contract negotiations.
10
<PAGE> 11
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 whom 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 March
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.
11
<PAGE> 12
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. 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 must meet a net tangible
asset minimum of $5.5 million, as reflected in an SEC filing, by March 15, 1999.
Also, the Company must 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 must meet or exceed $1.00 per share for a minimum of ten
consecutive trading days. While management of the Company believes it can meet
these conditions, there can be no assurance that these requirements can be met
or maintained for the periods required.
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
12
<PAGE> 13
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: February 12, 1999
13
<PAGE> 1
EXHIBIT 11
VIRAGEN (EUROPE) LTD. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------------- --------------------------------------
1998 1997 1998 1997
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
BASIC AND DILUTED
Weighted average shares outstanding 7,159,658 7,116,059 7,137,858 7,116,059
================= ================ ================ =================
Net Loss $(1,047,725) $(2,598,928) $(1,589,471) $(2,927,149)
================= ================ ================ =================
Basic and diluted loss per common share $ (0.15) $ (0.37) $ (0.22) $ (0.41)
================= ================ ================ =================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 594,837
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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