Message to shareholders from Vironova AB´s Chairman of the Board of Directors
Since many of you have asked for further information, an update following my letter on 26 February in advance of the Extraordinary General Meeting scheduled for 14 March 2023.
Context to the 2022 Restructuring:
Our services business continued to trade well, and this operation was able to continue, even though our collaboration with universities was put on halt and we could not use their microscopes which limited our capacity. EM Services revenues grew from SEK 20 million in 2020 to SEK 29 million in 2021, and to SEK 47 million in 2022. However, the group overall continued to lose significant amounts of money 2021 and into 2022. But the great news is that q4 2022 was cash neutral.
The company has been forced to reduced staff that were not directly involved in EM services as well as reduced office space, and sold subsidiaries to cut costs. Sadly, this meant we had to reduce the workforce from approximately 150 to less than 60 headcounts. However, ensuring a small but focused staff team remained to protect the core functions around Software, MiniTEM /ViroTEM service capability as well as deliver the EM services. The board raised 25M SEK in February 2022 at 50SEK/share in an emission of shares with preferential rights and raised an additional SEK 42 million in Q2 at a very low share price between SEK 1 and 2 per share from a group of investors in the form of short-term convertible loans, which aided with liquidity. Fundraising efforts continued.
Old loans came due in October 2022, the noteholders (“konsortiet)” elected not to convert the loans into equity and Vironova was unable to repay the note. New investors were thus reluctant by the existence of these debts. In addition, I had to take time out of the business, resulting in my resigning as CEO.
Josefina Nilsson became CEO of Vironova and Vironova BioAnalytics which now forms the core part of the business. She has been a key leader within Vironova since 2007 and continues to do a first-rate job with our staff, customers, and regulators. We are continuing to progress with the final remaining steps of the restructuring, hope to be completed in the next few weeks.
During the final months of 2022 Vironova delivered a breakeven result, which is a huge vindication of all the hard work put in by the team during 2022. However, Q1 sales have fallen short of the run-rate required to maintain breakeven, for a combination of reasons including seasonality, the loss of sales personnel and ill-health related absence of key personnel. However, early indicators for March order intake are encouraging.
Vironova AB faces several challenges which the board are working hard to resolve. The three key challenges are: 1) Legal action by some of the holders of the debt to enforce their claims. As indicated in my previous letter, this may result in a bankruptcy judgement against Vironova AB already on Monday March 6th by Holmsvanen AB. 2) The need to restore the negative balance sheet reserves in the company. Under Swedish corporate law, the company faces compulsory liquidation unless it can raise sufficient capital to restore its negative reserves by March 15th. 3) Near term cash liquidity.
One of the creditors has indicated willingness to delay bankruptcy proceedings but has not offered to provide additional capital. They have also offered to convert the loans, but this includes some terms that a shareholdert, and not Vironova, needs to agree to. The board takes the pursuit of bankruptcy proceedings extremely seriously and must act as if they are intended to be pursued. The board therefore continues to search for investors to protect the value of the business for creditors and shareholders. The primary concern is liquidity, without which the business would have to declare itself bankrupt in any case. Given the complex situation of the company, investors who have spoken to the board have several concerns about injecting fresh capital into the company in the current circumstances.
The board has received an expression of interest, not yet made formally in writing as an offer, from an interested party. The offeror has indicated it would provide a route to preserving the value of creditors’ claims, however subordinating them to new capital raised. They propose also to offer existing shareholders the right to subscribe for shares in the new company for a nominal amount and also the opportunity to participate in a future fund-raising round. The board is currently taking legal advice and obtaining an independent valuation to understand whether such an offer would be in the best interests of the creditors and shareholders in the current circumstances.
The board continues to have conversations with numerous buyers of Vironova subsidiaries or IP rights and other interested parties considering alternative investment structures, but no other proposals are as yet forthcoming in written form. We do expect to have a few written offers by the end of the day today Sunday March 5th. In the case we do not have a written agreement with Holmsvanen, we will go ahead and save the Company subsidiaries and IP rights from Holmsvanen forcing us into bankruptcy.
The board continues to pursue all avenues to secure the future of the company as well as defend itself with regard to legal action. I hope to see you at the EGM on March 14 and plan to keep you updated if there are any material developments before then.
Chairman of the Board
March 5th, 2023