<PAGE> 1
As filed with the Securities and Exchange Commission on May 26, 1995
Registration Statement No. 33-88070
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
VIRAGEN, INC.
(Name of Small Business Issuer in its Charter)
_______________
Delaware 2830 59-2101668
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorporation Industrial Classifi- Identification No.)
or organization) cation Code Number)
_______________
2343 West 76th Street
Hialeah, Florida 33016 2343 West 76th Street
(305) 557-6000 Hialeah, Florida 33016
(Address and telephone (Address of principal place
number of principal of business or intended principal
executive offices) place of business)
_______________
Gerald Smith
Viragen, Inc.
2343 West 76th Street
Hialeah, Florida 33016
(305) 557-6000
(Name, address and telephone number of agent for service)
_______________
With copies to:
Jim Schneider, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
New River Center
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33331
(305) 763-1200
_______________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [X]
_______________
<PAGE> 2
CALCULATION OF REGISTRATION FEE [UPDATE]
<TABLE>
<CAPTION>
============================================================================================================================
Title of Proposed Proposed
Each Class Maximum Maximum
of Securities Amount Offering Aggregate Amount of
to be to be price Offering Registration
Registered Registered per Unit(1) Price(1) Fee
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
(par value
$.01 per
share) 22,110,365(2) $1.34/.89(3)(6) $28,002,139(3) $9,656
Common Stock
issuable under
Consultants'
Warrants 480,340(4) $ .30/.60(5) $ 163,452 $ 56
Common Stock
issuable under
Placement Agent
Warrants 765,650(4) $ 0.52 $ 398,138 $ 137
============================================================================================================================
Total...................................................................................... $21,000(6)
============================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(b).
(2) Includes shares issued or issuable upon conversion or exercise of the
Company's Series A 10% Convertible Cumulative Preferred Stock and
Convertible Debentures of the Company, together with such additional
indeterminate number of shares as may be issued upon conversion or
exercise of such securities by reason of the anti-dilution provisions
contained therein.
(3) The price with respect to 18,621,198 shares was estimated and based on
the average of the closing bid and asked prices on December 23, 1994.
The price with respect to 3,426,667 shares additionally registered was
estimated and is based on the average of the closing bid and asked
prices on March 23, 1995.
(4) Includes such additional indeterminate number of shares as may be
issued under such Warrants by reason of the anti-dilution provisions
contained therein.
(5) Represents 415,840 Warrants exercisable at $.30 per share and 64,500
Warrants exercisable at $.60 per share.
(6) Amount reflected was previously paid.
ii
<PAGE> 3
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
iii
<PAGE> 4
VIRAGEN, INC.
_______________
Cross Reference Sheet for Prospectus Under Form SB-2
<TABLE>
<CAPTION>
Form SB-2 Item No. and Caption Caption or Location in Prospectus
------------------------------ ---------------------------------
<S> <C> <C>
1. Forepart of Registration Cover Page; Cross Reference
Statement and Outside Sheet; Outside Front Cover
Front Cover of Prospectus Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
3. Summary Information and Prospectus Summary; High Risk
Risk Factors Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Cover Page; High Risk Factors
Price
6. Dilution Not Applicable
7. Selling Security Holders Sales by Selling Security Holders
8. Plan of Distribution Outside Front Cover Page of
Prospectus; Sales by Selling Security Holders
9. Legal Proceedings Business
10. Directors, Executive Offi-
cers, Promoters and Control
Persons Management
11. Security Ownership of Cer-
tain Beneficial Owners and
Management Principal Stockholders
12. Description of Securities Description of Securities
13. Interest of Named Experts
and Counsel Legal Matters
14. Disclosure of Commission
Position on Indemnifica-
tion for Securities Act
Liabilities Undertakings
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C> <C>
15. Organization within Last
Five Years Not Applicable
16. Description of Business Business
17. Management's Discussion Management's Discussion and
and Analysis and Plan of Analysis of Financial Condition
Operation and Results of Operations
18. Description of Property Business - Properties
19. Certain Relationships and Management-Certain Relationships
Related Transactions and Related Transactions
20. Market for Common Equity Price Range for Common Stock;
and Related Stockholder Description of Securities;
Matters Shares Eligible for Future Sale
21. Executive Compensation Management - Executive Compen-sation
22. Financial Statements Financial Statements
23. Changes in and Disagree-
ments with Accountants on
Accounting and Financial
Disclosure Not Applicable
</TABLE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
v
<PAGE> 6
Preliminary Prospectus Dated May 26, 1995
Subject to Completion
PROSPECTUS
VIRAGEN, INC.
23,356,355 SHARES OF COMMON STOCK
There are 23,356,355 shares of Common Stock, par value $.01 per share
("Common Stock or "Shares") of Viragen, Inc. (the "Company" or "Viragen") being
offered by certain stockholders of the Company (the "Selling Security
Holders"), if at all, on a delayed basis, including shares previously issued
upon conversion of Convertible Debentures issued by the Company and its
affiliate, Cytoferon Corp. ("Cytoferon") (collectively referred to as the
"Debentures"), and to be issued upon conversion of the Company's Series A 10%
Convertible Cumulative Preferred Stock (the "Series A Preferred Stock") or upon
exercise of the Company's Common Stock Purchase Warrants (the "Warrants"). An
aggregate of 12,345,667 shares of Common Stock were acquired by Selling
Security Holders in separate private placements during the Company's 1995
fiscal year at either $.40 or $.60 per share. See "Sales by Selling Security
Holders" and "Description of Securities."
The Company's Common Stock is traded on a limited basis on the OTC
Bulletin Board under the symbol "VRGN," and on May 12, 1995, the closing bid
price for the Common Stock was $1.34. The Company intends to apply for
inclusion of its Common Stock on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") at such time as the price of the
Company's Common Stock satisfies the NASDAQ minimum bid requirements of $3.00,
but there can be no assurances that such securities will be accepted for
inclusion in the NASDAQ System. Furthermore, there can be no assurances that a
substantial trading market for its Common Stock will develop or be sustained in
the future. At March 31, 1995, the net tangible book value of the Company's
Common Stock was approximately $0.10 per share. Accordingly, it is likely that
the purchasers in this offering will incur an immediate and substantial
dilution from the purchase price of their shares of Common Stock. See "Price
Range of Common Stock."
The Company has been advised by the Selling Security Holders that they
may sell all or a portion of the Shares offered hereby from time to time in the
over-the-counter market, in negotiated transactions, directly or through
brokers or otherwise, and that such shares will be sold at market prices
prevailing at the time of such sales or at negotiated prices. The Company will
not receive any of the proceeds from the sale of the Shares offered hereby
except upon exercise of the Warrants. In connection with such sales, the
Selling Security Holders and any brokers participating in such sales may be
deemed to be underwriters within the meaning of the Securities Act of 1933.
See "Use of Proceeds" and "Sales by Selling Security Holders."
_______________
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. POTENTIAL
PURCHASERS SHOULD NOT INVEST IN THESE SECURITIES UNLESS THEY CAN
AFFORD A LOSS OF THEIR ENTIRE INVESTMENT HEREIN.
SEE "HIGH RISK FACTORS."
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This date of this Prospectus is _______________, 1995
1
<PAGE> 7
All costs, expenses and fees in connection with the registration of
the shares of Common Stock offered hereby will be borne by the Company.
Brokerage commissions, if any, directly attributable to the sale of the Shares
will be borne by the Selling Security Holders.
The Company has informed the Selling Security Holders that the
anti-manipulative rules under the Securities Exchange Act of 1934, Rules 10b-6
and 10b-7, may apply to their sales in the market and has furnished each of the
Selling Security Holders with a copy of these rules. The Company has also
informed the Selling Security Holders of the need for delivery of copies of
this Prospectus in connection with any sale of securities registered hereunder.
_______________
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
_______________
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and may distribute quarterly reports
containing unaudited summary financial information for each of the first three
quarters of each fiscal year.
The Company has filed with the Securities and Exchange Commission
("Commission") a Registration Statement on Form SB-2 (herein together with all
amendments and exhibits referred to as the "Registration Statement") under the
Securities Act of 1933. Reports and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center New York, New York
10048, Room 1204, Everett McKinley Dirksen Building, 219 South Dearborn Street,
Chicago, Illinois 60604, and Suite 500 East, 5757 Wilshire Boulevard, Los
Angeles, California 90036. Copies of such material can be obtained upon
written request addressed to the Commission, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
2
<PAGE> 8
PROSPECTUS SUMMARY
The following is intended to summarize more detailed information and
financial statements and notes thereto which are set forth more fully elsewhere
in this Prospectus or incorporated herein by reference and, accordingly, should
be read in conjunction with such information.
THE COMPANY
Viragen, Inc. was organized in December 1980 to engage in research,
development and manufacture of certain immunological products for commercial
application, particularly human leukocyte interferon, for antiviral and
therapeutic applications and as anticancer agents. Viragen's primary product
(the "Product") is a natural human leukocyte alpha interferon ("Natural
Interferon"). Natural Interferon is a protein substance that inhibits
malignant cell growth without materially interfering with normal cells.
Natural Interferon stimulates and modulates the human immune system and, in
addition, impedes the growth and propagation of various viruses. The Product
is a natural product produced from human white blood cells. Alpha
Leukoferon(TM) is the trade name for Viragen's Product in injectable form. The
Company's Product has not been approved by the United States Food and Drug
Administration ("FDA") and there can be no assurances that approval of the
Product will be obtained at any time in the future.
Viragen has been granted an investigatory license by the Florida
Department of Health and Rehabilitative Services ("HRS") under Florida Statute
499 of the Florida Drug and Cosmetic Act to conduct Investigation Study
Programs (hereinafter referred to as the "499 Program") and distribute the
Product to physicians for use in the treatment of Florida residents with
multiple sclerosis ("MS"), HIV/AIDS, AIDS-Related Complex ("ARC") and Kaposi's
Sarcoma. Viragen initially obtained approval for use of the Product through
approved investigational protocols in 1983 under Florida Statute 402.36 (Cancer
Therapeutic Act), the predecessor to Florida Statute 499. In 1984, Florida
Statute 499.018 was amended to include the Company's protocols and Florida
Statute 402.36 was repealed. Under its HRS investigatory license, Viragen has
been able to distribute the Product to authorized Florida physicians for use
in treating their Florida patients under approved study protocols. Presently,
the primary application for Viragen's Product is the treatment of MS. Through
March 31, 1995, the Company has received $1,083,317 in revenues under such HRS
investigatory license.
The Company intends to seek to obtain FDA approvals for various uses
of the Product in the future. Such approval is expected to require several
years of clinical trials and substantial additional funding. To date, Viragen
has not distributed the Product other than for research and pursuant to its
3
<PAGE> 9
investigatory license, and until May 1993, Viragen had not actively operated
due to insufficient funds. Viragen expects to concentrate its efforts in
preparing, filing and processing its applications and obtaining approvals for
its Product from the FDA and the European Union ("EU"). The Company has
assembled an advisory committee consisting of scientists, medical researchers
and clinicians to assist the Company in its application to the FDA and the EU.
In December 1994, the Company received notification from the Florida
Health and Rehabilitative Services ("HRS") to postpone enrollment of new
patients under its 499 Program until such time as the Company has provided
certain administrative reports to the HRS and satisfied certain FDA
inspection-related comments concerning the Company's manufacturing processes
and facility. On March 17, 1995, the Company received further notice from HRS
requesting that Viragen demonstrate that its production technology complies
with FDA current Good Manufacturing Practices ("cGMP") and for the Company to
postpone the enrollment of new patients under the 499 Program until the
Company has demonstrated such compliance. The HRS also proposes to require
that existing patients currently receiving treatment with the Company's Product
or enrolled in the Company's 499 Program acknowledge their recognition of
possible deficiencies relative to cGMP.
The Company is continuing to provide its Products to patients currently
receiving treatment or enrolled in the Company's 499 Program consistent with
existing treatment protocols and reporting procedures established for the 499
Program. The Company believes it has since obtained substantial compliance with
cGMP requirements (i.e., sufficient conformance with cGMP requirements to
permit continued distribution of the Product under the 499 Program) and has
requested a hearing from the HRS for purposes of substantiating its compliance,
which hearing is expected to be held prior to June 30, 1995. There can be no
assurances that the Company will be successful in substantiating that its 499
Program is in conformance with cGMP or that the Company will be authorized to
enroll new patients in its 499 Program as a result of its submissions at such
hearing. However, the Company does not believe that the results of the HRS
hearing will affect its capacity to provide its Product to patients currently
enrolled in its 499 Program. While management believes that the postponement of
enrollment of new patients will limit the revenues that it would currently be
eligible to receive under the 499 Program, such postponement will not affect
the undertaking of clinical trials and the approval process for the Company's
Product following submission to the FDA and the EU, which submission will
represent the focus of the Company's efforts at the present time. See
"Business."
Viragen's administrative office and manufacturing facilities are
located at 2343 West 76th Street, Hialeah, Florida 33016 (telephone no.
305/557-6000; telecopier no. 305/364-8158).
4
<PAGE> 10
THE OFFERING AND OUTSTANDING SECURITIES
<TABLE>
<S> <C>
Common Stock Outstanding 35,355,532 shares of Common
at May 12, 1995............. Stock
Common Stock Offered by 23,356,355 shares of Common
Selling Security Holders.... Stock
Common Stock issued in
private placements completed 12,345,667 shares of Common
in August and December 1994. Stock
Common Stock issued upon
conversion of Cytoferon 9,083,333 shares of Common
Securities.................. Stock
Common Stock issued upon
conversion of Viragen
Debentures................... 666,668 shares of Common Stock
Series A Preferred Stock
Outstanding at May 12, 3,450 shares of Series A
1995......................... Preferred Stock(1)
Shares underlying all Common
Stock Purchase Options and
Warrants Outstanding at 4,405,990 shares of Common
May 12, 1995................. Stock(2)
Proceeds to be received upon
Exercise of Warrants ....... $561,590
Risk Factors.................. Investment in these securities
involves a high degree of risk.
See "High Risk Factors."
OTC Bulletin Board Symbol... VRGN(3)
</TABLE>
- ----------------
1. Each share of Series A Preferred Stock is convertible into 4.26 shares
of Common Stock of the Company or an aggregate of 14,697 shares of
Common Stock.
2. Includes 1,245,990 shares of Common Stock underlying Warrants offered
hereby.
3. The Company intends to apply for inclusion of its Common Stock on
NASDAQ at such time as the price of the Company's Common Stock
satisfiesthe NASDAQ minimum bid requirement of $3.00 per share. The
Company's Common Stock does not presently qualify for inclusion based
on the current price of the Common Stock, and there can be no
assurances that the Common Stock will qualify for inclusion at any
time in the future.
5
<PAGE> 11
Inclusion on NASDAQ does not imply that an established trading market
will develop or be sustained for the Common Stock.
SUMMARY FINANCIAL INFORMATION
(Not covered by Accountant's Report)
SUMMARY OF SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information
concerning the Company and is qualified by reference to the audited
consolidated financial statements and notes thereto and unaudited quarterly
financial statements prepared by the Registrant incorporated herein by
reference in this Prospectus.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
(in thousands except per share amounts)
<TABLE>
<CAPTION>
For Period
Between For the Years Ended December 31
Year Ended Jan. 1, and --------------------------------------------------
June 30, 1994 June 30, 1993 1992 1991 1990 1989
------------- ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 677 $ 53 $ 52 $ 147 $ 355 $ 313
Loss before extra-
ordinary credit $ (1,083) $ (311) $ (563) $ (716) $(2,490) $(2,001)
Net income (loss) $ (1,083) $ (311) $ (563) $ (716) $(2,490) $ 403*
Income (loss)
attributable to
common stock $ (1,087) $ (313) $ (573) $ (730) $(2,504) $ 389*
Net income (loss)
per average
common share
outstanding $ (.06) $ (.02) $ (.05) $ (.07) $ (.23) $ .05*
Weighted average
shares outstanding 18,686,751 14,463,038 11,478,914 10,933,669 10,745,816 8,539,412
- ----------------
</TABLE>
*Includes extraordinary credit of $2,404,033 ($.28 per share) resulting from
the settlement of debt with Medicore.
<TABLE>
<CAPTION>
For the Nine Months
Ended March 31
--------------------------
1995 1994
---- ----
<S> <C> <C>
Operating revenues $ 544 $ 412
Net loss $ (1,331) $ (717)
Loss
attributable to
common stock $ (1,333) $ (720)
Net loss
per average
common share
outstanding $ (.04) $ (.04)
Weighted average
shares outstanding 30,637,957 18,559,724
</TABLE>
6
<PAGE> 12
CONSOLIDATED BALANCE SHEET DATA:
(in thousands)
<TABLE>
<CAPTION>
At March 31 At June 30 At December 31
------------------ ------------------- -----------------------------
1995 1994 1994 1993 1992 1991 1990
----- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital
(deficit) $2,889 $ 233 $ 795 $ 250 $(942) $(1,115) $ (624)
Total Assets $4,859 $1,988 $2,744 $1,642 $ 983 $ 1,070 $1,430
Long Term debt $ 937 $1,011 $ 976 $1,034 $ 529 $ 0 $ 9
Stockholders'
equity (deficit) $3,530 $ 132 $ 546 $ 101 $(588) $ (88) $ 565
</TABLE>
HIGH RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of
risk and is highly speculative in nature. Prospective investors should
carefully consider the following risks and speculative factors, among others,
inherent in and affecting both the business of the Company and the value of the
Common Stock, including, among other matters, the following risk factors:
HISTORY OF LOSSES AND RISKS OF NEWLY DEVELOPED BUSINESS
From its inception through March 31, 1995, the Company has incurred
operating losses. Losses for the nine months ended March 31, 1995 and fiscal
year ended June 30, 1994 were $1,331,248 and $1,083,346, respectively. At
March 31, 1995, the Company had an accumulated deficit of $14,490,010,
working capital of $2,889,385 and stockholders' equity of $3,529,947. Although
the Company has begun to expand its operations and has generated limited
revenues for its working capital and investing needs, there can be no assurance
that the Company will be able to obtain regulatory approvals necessary for the
distribution of its Product or be able to produce and market its Product on a
profitable basis in the future. Results of operations in the future will be
influenced by numerous factors including technological developments, regulatory
costs and impediments, increases in expenses associated with sales growth,
market acceptance of the Company's Product, the capacity of the Company to
expand and maintain the quality of its Product, competition and the ability of
the Company to control costs. There can be no assurance that revenue growth or
profitability on a quarterly or annual basis can be obtained. Additionally,
the Company will be subject to all the risks incident to a rapidly developing
business with only a limited history of active operations. Prospective
investors should consider the frequency with which relatively newly developed
and/or expanding businesses encounter unforeseen expenses, difficulties,
complications and delays, as well as other factors such as the possibility of
competition with larger companies. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
7
<PAGE> 13
ADDITIONAL FINANCING REQUIRED AND POSSIBLE LACK OF AVAILABILITY OF FUNDS
Viragen will require substantial financing in the future in order to
initiate and complete the clinical trials required to obtain FDA and European
Union approvals for the Product in the treatment of various viral and
immunological diseases, such as MS, HIV/AIDS and Hepatitis B and C. The
Company is substantially dependent upon the infusion of capital through private
placements, subsequent public financings or joint venture/strategic alliances
in order to initiate and complete the clinical trials necessary for FDA and EU
approvals. There is no assurance that such funding will be available upon
terms acceptable or feasible to the Company or its stockholders. Furthermore,
in the event the Company were precluded from enrolling new patients under its
499 Program, an additional source of funds would be eliminated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS THAT LICENSING UNDER 499 PROGRAM COULD BE CURTAILED; LOSS OF REVENUES
RESULTING FROM CURTAILMENT.
The Company is licensed by the State of Florida Department of Health
and Rehabilitative Services to produce Natural Interferon within the State of
Florida and distribute it on a limited basis to Florida physicians for
investigatory use under approved protocols on Florida patients exclusively
within the State of Florida. Viragen is not permitted to advertise its Product
to the general public under its Florida license, although it may distribute its
Product as a prescription medication pursuant to approval protocols to
physicians in Florida. The Company has recently applied for renewal of its
Florida license to manufacture which expired April 30, 1995. The Company's
license for product distribution was previously renewed through December 31,
1995. Recently, however, the Company received notification from HRS to
postpone enrollment of new patients under its 499 Program until such time as
the Company has provided certain administrative reports to the HRS and
corrected to their satisfaction certain FDA inspection-related comments
concerning the Company's manufacturing processes and facility. The
postponement of enrollment of new patients under the 499 Program will cause the
loss of certain additional revenues until the Company has been able to satisfy
HRS that its manufacturing process complies with cGMP, which revenues would
have offset, in part, the significant costs of obtaining regulatory approvals
for its Product. The Company has requested a hearing with the HRS for purposes
of substantiating its compliance with cGMP, which hearing is expected to occur
prior to June 30, 1995. There can be no assurances that the Company will be
successful in substantiating that its 499 Program is in conformance with cGMP
or that the Company will be authorized to enroll new patients in its 499
Program as a result of such hearing. See "Business - Regulation."
8
<PAGE> 14
LACK OF FDA AND EU APPROVAL; ADDITIONAL FUNDING NEEDED
The Product has not been approved by the FDA or EU for use in the
treatment of patients, and the Company may not presently manufacture or
distribute the Product except pursuant to its Florida license under Florida
Statute Section 499.018, which could be curtailed in respect to the enrollment
of new patients as a result of actions by the HRS if the Company does not
demonstrate its compliance with cGMP. The Company intends to seek FDA and EU
approval of the Product for use in treating certain diseases. The Company will
require additional clinical trials in order to obtain FDA and EU approvals.
The FDA and EU approval processes are unpredictable, and the process may take
several years to obtain either FDA or EU approval. There is, however, no
assurance that any FDA or EU approvals will be received at any time in the
future. Further trials will also require significant additional funding in
addition to the proceeds obtained from the financings previously undertaken.
There is no assurance that such funding can be obtained on a cost feasible
basis to the Company. See "Business - Regulation."
COMPETITION
Competition in the immunological and pharmaceutical products industry
is intense. Competitors include major pharmaceutical, chemical, energy and
food companies, some of which are already marketing genetically engineered
alpha and beta interferon products for MS, cancer and viral treatments, and
many of which are expanding into modern biotechnology. Competition is expected
to increase in the future based upon the perceived potential commercial
applications for such products. Various of Viragen's competitors have existing
programs, FDA approved and commercially marketed products or products in the
FDA clinical trial process, more experience in research, development and
clinical testing of pharmaceutical and biomedical products, and substantially
greater financial, marketing and human resources than the Company. See
"Business - Competition."
RISK OF TECHNOLOGICAL OBSOLESCENCE
The research and development of new biomedical products is
characterized by rapid technological change, which can severely alter the
production methods, cost, marketing and acceptance of biomedical products.
There is no assurance that the Company will have the resources to keep pace
with technological changes or that products developed by others will not
adversely affect the commercial feasibility of products that Viragen may
distribute. See "Business - Research and Development."
9
<PAGE> 15
GOVERNMENT REGULATION MAY AFFECT DEVELOPMENT AND DISTRIBUTION OF PRODUCT
All pharmaceutical manufacturers are subject to extensive state and
federal rules and regulations, and are required to maintain current Good
Manufacturing Practices as promulgated under FDA guidelines. In that respect,
the Company received notification in December 1994 from the HRS that its 499
Program does not satisfy FDA promulgated cGMP requirements, and the Company
will be required to demonstrate compliance with such requirements in order to
continue enrolling new patients in its 499 Program. Additional rules and
regulations are imposed by the EU. These rules and regulations are constantly
changing and may serve to restrict in whole or in part the ability of the
Company to produce and distribute its Product. If Viragen were not ultimately
to achieve compliance with these rules and regulations, it would likely have a
material adverse effect on the Company's activities and delay or preclude the
development of commercially viable operations. See "Business - Regulation."
UNCERTAINTY OF HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT
The Company's ability to successfully commercialize its products may
depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health coverage insurers and other
organizations. In September 1993, President Clinton announced a series of
legislative and regulatory proposals aimed at reforming the health care system.
While the legislative and regulatory proposals have been tabled temporarily and
while the Company cannot predict whether any such future legislative or
regulatory proposals will be adopted, the pendency of such proposals could have
a material adverse effect on the Company's ability to raise capital. Any such
reform measures, if adopted, could adversely affect the pricing of therapeutic
products in the United States or the amount of reimbursement available from
United States governmental agencies or third party insurers and could
materially adversely affect the Company in general.
In both domestic and foreign markets, sales of the Company's Product
will depend in part on the availability of reimbursement from third-party
payors such as government health administration authorities, private health
insurers and other organizations. Third-party payors are increasingly
challenging the price and cost effectiveness of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products. There can be no assurance that the Company's Product
will be considered cost effective or that adequate third-party reimbursement
will be available to enable the Company to maintain price levels sufficient to
realize an appropriate return
10
<PAGE> 16
on its investment in product development. Legislation and regulations
affecting the pricing of pharmaceuticals may change before the Company's
Product is approved for marketing. Adoption of such legislation or regulations
could further limit reimbursement for medical products and services.
RISK THAT PATENTS AND PROPRIETARY TECHNOLOGY MAY NOT PROVIDE PROPRIETARY
PROTECTION
The Company has pending a U.S. Patent application relating to
interferon manufacturing technology and processes. Viragen intends to rely in
part on certain proprietary technology in the production of the Product. The
Company anticipates filing additional patents relating to its new technology
during the 1995 calendar year. There can be no assurances that such
proprietary technology will enable the Company to manufacture its Product more
efficiently and with greater efficacy so as to enable Viragen to compete
effectively with other manufacturers of competitive immunological and
pharmaceutical products. In addition, there is no assurance that others may not
independently develop the same or superior technology to Viragen's technology.
Furthermore, to the extent that Viragen's production of the Product is alleged
to breach a third party's patents or proprietary technology, it could have an
adverse impact on the Company, even if the Company were ultimately determined
not to have breached such party's patents or proprietary technology. There can
be no assurance that Viragen's pending patent applications will be approved,
and if granted, whether such patents will provide substantial protection to the
Company. See "Business - Patents."
RISKS OF TECHNOLOGY TRANSFERS
One of the Company's proposed marketing strategies is to sell the
right to use Viragen's technology and manufacturing protocols to third parties
who will use them to produce the Product outside the United States. There can
be no assurance that the Company's marketing program or the efforts of any
brokers engaged to assist the Company will be commercially successful. See
"Business - Marketing."
PRODUCT LIABILITY AND LIMITATIONS OF PRODUCT LIABILITY INSURANCE
The Company may be subject to claims for personal injuries or other
damages resulting from the Product. A successful claim could have a materially
adverse effect on the Company. The Company maintains product liability
insurance in the amount of $1,000,000, but there can be no assurance that such
insurance will be available in the future at commercially acceptable rates or
that such coverage will be adequate for the Company's purposes.
11
<PAGE> 17
EXISTENCE OF OPTIONS AND WARRANTS; POSSIBLE DILUTION
Assuming the exercise of the Warrants and conversion of the Series A
Preferred Stock, there will still be outstanding options and warrants to
purchase up to 3,160,000 shares of Common Stock of the Company exercisable at
prices ranging from $0.30 to $1.00 per share. These options and warrants may
have certain dilutive effects because the holders will be given the opportunity
to profit from a rise in the market price of the underlying shares. The terms
on which the Company could obtain additional capital during the life of such
options and warrants may be adversely affected because the holders may be
expected to exercise them at a time when the Company might otherwise be able to
obtain comparable additional capital in a new offering of securities at a price
per share greater than the exercise price of such options and warrants. See
"Description of Securities."
CONTROL BY INSIDERS AND POSSIBLE LACK OF INFLUENCE BY OUTSIDE STOCKHOLDERS
As of May 12, 1995, the executive officers and directors of the Company
and their affiliates own or control 3,151,944 shares of Common Stock, or 8.9%
of the outstanding shares, as well as options to purchase an additional
2,700,000 shares of Viragen's Common Stock. Upon completion of this offering
and assuming conversion and exercise of the aforementioned securities, members
of management may be able to control in significant respects, through election
of directors and otherwise, the conduct of operations of the Company. See
"Principal Stockholders."
RISK OF DEPENDENCE ON KEY PERSONNEL
The Company's day-to-day operations are managed by its Chairman of the
Board and President, Mr. Gerald Smith, its Chief Executive Officer, Robert H.
Zeiger and its Executive Vice President and Chief Financial Officer, Mr.
Dennis W. Healey. The Company has entered into employment agreements with
Messrs. Smith, Zeiger and Healey which restrict competitive activities by them
during the term of their agreements and for a two-year period thereafter.
Although the Company intends to apply for "key man" life insurance on the lives
of Messrs. Smith, Zeiger and Healey for its benefit in the amount of $1,000,000
each, the loss of their services would adversely affect the conduct of the
Company's business. The Company's future success will depend in significant
part on its ability to attract and retain additional skilled personnel in
various phases of its operations. See "Management."
NO DIVIDENDS ANTICIPATED TO BE PAID
The Company has not paid any cash dividends on its Common Stock since
its inception and does not anticipate paying cash dividends in the foreseeable
future. The future payment of
12
<PAGE> 18
dividends is directly dependent upon future earnings of the Company, the
capital requirements of the Company, its financial requirements and other
factors to be determined by the Company's Board of Directors. For the
foreseeable future, it is anticipated that earnings, if any, which may be
generated from the Company's operations will be used to finance the growth of
the Company, and that cash dividends will not be paid to common stockholders.
See "Dividend Policy."
IMMEDIATE SUBSTANTIAL DILUTION TO PURCHASERS IN THIS OFFERING
Initial purchasers of the Common Stock of the Company offered hereby
will incur an immediate and substantial dilution from the purchase price of
their shares. As of March 31, 1995, the net tangible book value of the
Company's Common Stock was approximately $0.10 per share.
POSSIBLE RESALES OF SECURITIES BY CURRENT STOCKHOLDERS AND DEPRESSIVE EFFECT ON
MARKET
As of May 12, 1995, there were 24,541,053 shares of the Company's
Common Stock outstanding which were "restricted securities" as that term is
defined by Rule 144 under the Securities Act of 1933 as amended, (the
"Securities Act"), inclusive of shares being registered pursuant to this
Registration Statement of which this Prospectus is a part. Such shares will be
eligible for public sale only if registered under the Securities Act or if sold
in accordance with Rule 144. Under Rule 144, a person who has held restricted
securities for a period of two years may sell a limited number of shares to the
public in ordinary brokerage transactions. Sales under Rule 144 may have a
depressive effect on the market price of the Company's Common Stock due to the
potential increased number of publicly held securities. The timing and amount
of sales of Common Stock covered by the Registration Statement of which this
Prospectus is a part, as well as such subsequently filed registration
statement, could also have a depressive effect on the market price of the
Company's Common Stock. See "Shares Eligible for Future Sales."
USE OF PREFERRED STOCK TO RESIST TAKEOVERS; POTENTIAL ADDITIONAL DILUTION
The Company's Certificate of Incorporation authorizes 375,000 shares
of Preferred Stock, of which 3,450 shares of Series A Preferred Stock are
presently issued and outstanding. As provided in the Company's Certificate of
Incorporation, Preferred Stock may be issued by resolutions of the Company's
Board of Directors from time to time without any action of the stockholders.
Such resolutions may authorize issuance of the Preferred Stock in one or more
series and may fix and determine dividend and liquidation preferences, voting
rights, conversion privileges, redemption terms and other privileges and rights
of the shares of each authorized
13
<PAGE> 19
series. While the Company includes such Preferred Stock in its capitalization
in order to enhance its financial flexibility, such Preferred Stock could
possibly be used by the Company as a means to preserve control by present
management in the event of a potential hostile takeover of the Company. In
addition, the issuance of large blocks of Preferred Stock could possibly have a
dilutive effect with respect to existing holders of Common Stock of the
Company. See "Description of Securities."
LIMITED MARKET FOR THE COMPANY'S COMMON STOCK; POSSIBLE VOLATILITY OF
SECURITIES PRICES
There is currently only a limited trading market for the Common Stock
of the Company. The Common Stock of the Company trades on the OTC Bulletin
Board under the symbol "VRGN," which is a limited market and subject to
substantial restrictions and limitations in comparison to the NASDAQ System.
There can be no assurance that a substantial trading market will develop (or be
sustained, if developed) for the Common Stock upon completion of this offering,
or that purchasers will be able to resell their securities or otherwise
liquidate their investment without considerable delay, if at all. Recent
history relating to the market prices of newly public or recently listed
companies indicates that, from time to time, there may be significant
volatility in the market price of the Company's securities because of factors
unrelated, as well as related, to the Company's operating performance. There
can be no assurances that the Company's Common Stock will ever qualify for
inclusion within the NASDAQ System or that more than a limited market will ever
develop for its Common Stock. See "Price Range of Common Stock."
BROKER-DEALER SALES OF COMMON STOCK AND LIMITATION ON MARKETABILITY
The Company's Common Stock is not presently included for trading on
the NASDAQ System, and there can be no assurances that the Company will
ultimately qualify for inclusion within that system. In order for an issuer to
be included in the NASDAQ System, it is required to have total assets of at
least $4,000,000, capital and surplus of at least $2,000,000, a minimum price
per share of not less than $3.00, have publicly held shares with a market value
of at least $1,000,000 as well as certain other criteria. No assurance can be
given that the Common Stock of the Company will ever qualify for inclusion on
the NASDAQ System. Until the Company's shares qualify for inclusion in the
NASDAQ system, the Company's Common Stock will be traded in the
over-the-counter markets on the OTC Bulletin Board. As a result, the Company's
Common Stock is covered by a Securities and Exchange Commission rule that
imposes additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding
14
<PAGE> 20
$200,000 or $300,000 jointly with their spouse). For transactions covered by
the rule, the broker-dealer must make a special suitability determination for
the purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. Consequently, the rule may affect the ability of
broker-dealers to sell the Company's securities and may also affect the ability
of stockholders to sell their shares in the secondary market. See "Description
of Securities."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the OTC Bulletin Board under
the symbol "VRGN." The following table sets forth the high and low bid
quotations for the Common Stock for the periods indicated. These quotations
reflect prices between dealers, do not include retail mark-ups, mark-downs or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Period High Low
- ------ ---- ---
<S> <C> <C>
First Quarter ended 09/30/92 $ 7/16 $ 5/32
Second Quarter ended 12/31/92 $ 13/32 $ 1/16
Third Quarter ended 03/31/93 $ 5/8 $ 1/16
Fourth Quarter ended 06/30/93 $ 1 $ 1/4
First Quarter ended 09/30/93 $ 7/8 $ 5/16
Second Quarter ended 12/21/93 $ 7/8 $ 5/16
Third Quarter ended 03/31/94 $ 27/32 $ 5/16
Fourth Quarter ended 06/30/94 $ 3/4 $13/32
First Quarter ended 09/30/94 $1 13/16 $ 3/8
Second Quarter ended 12/31/94 $1 13/16 $ 1/2
Third Quarter ended 03/31/95 $1 7/16 $ 1/2
Period 04/01/95 - 04/30/95 $1 7/32 $ 3/8
</TABLE>
On May 12, 1995, the closing bid price for the Common Stock was $1.34.
As of March 31, 1995, the approximate number of record holders of the
Company's Common Stock was 3,095.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since
its incorporation in December 1980. Since the Company had been in the
development stage, has experienced losses since inception, and has significant
capital requirements in the future, it is not anticipated that funds will be
available for the issuance of dividends in the foreseeable future. The Company
presently intends to retain future earnings, if any, to finance the expansion
of its business and does not anticipate that any cash dividends will be paid in
the foreseeable future. Future dividend policy will depend on the Company's
earnings, capital requirements, expansion plans, financial condition and other
relevant factors.
15
<PAGE> 21
The Company has 3,450 shares of 10% Series A Preferred Stock
outstanding which are listed in the "pink sheets" published by the National
Quotation Bureau, Inc. (not trading on the OTC Bulletin Board). Each share of
Series A Preferred Stock is immediately convertible into 4.26 shares of Common
Stock. Dividends on the Series A Preferred Stock are cumulative, have priority
in relation to the Common Stock and are payable in either cash or Common Stock
at the option of the Company. The Series A Preferred Stock has voting rights
only if dividends are in arrears for five annual dividends. Upon such
occurrence, the voting would be limited to the election of two directors.
Voting rights terminate upon payment of the requisite cumulative dividends.
CAPITALIZATION
The following table sets forth the actual capitalization of the
Company at March 31, 1995, and as adjusted to give effect to the conversion
of the Series A Preferred Stock and the exercise of Warrants. All of the
Warrants are exercisable at exercise prices below the current market prices of
the Company's Common Stock.
<TABLE>
<CAPTION>
March 31, 1995
---------------------------------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Notes Payable, less current portion(1)... $ 937,374 $ 937,374
Stockholders' equity:
Series A Preferred Stock, $1.00 par
value per share; 375,000 shares
authorized; 3,450 shares issued
and outstanding; no shares to be
outstanding............................ $ 3,450 $ -0-
Common Stock, $.01 par value per
share; 50,000,000 shares author-
ized; 35,355,532 shares issued
and outstanding; 36,616,219
shares to be outstanding............... $ 353,555 $ 366,162
Additional paid-in capital............... $ 17,989,202 $ 18,538,185
Accumulated deficit...................... $(14,490,010) $(14,490,010)
Notes due from officers.................. $ (326,250) $ (326,250)
------------ ------------
Total stockholders' equity.......... $ 3,529,947 $ 4,088,087
Notes payable and
total stockholders'
equity............................ $ 4,467,321 $ 5,025,461
============ ============
- ---------------
</TABLE>
(1) See Notes to Consolidated Financial Statements included elsewhere
herein for a description of terms of the Company's promissory notes,
long term obligations and capital lease obligations.
16
<PAGE> 22
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common
Stock for the accounts of the Selling Security Holders. There is included in
the Registration Statement of which this Prospectus is a part 480,340 shares
of Common Stock underlying warrants issued to consultants and 765,650 shares
underlying warrants issued to the placement agent and its designees in
connection with the Company's recently completed private placement. If all of
the warrants sold to consultants were exercised at $.30/.60 per share, the
Company would receive proceeds of approximately $163,452, and if the warrants
issued to the Company's placement agent and designees were exercised in their
entirety at an exercise price of $.52 per Share, the Company would receive
proceeds of approximately $398,138. Inasmuch as the Holders of all of the
aforementioned Warrants have no obligation to exercise such Warrants, the
Company is not in a position to evaluate when and if such derivative securities
will ever be exercised and the amount of proceeds that may be realized
therefrom. Accordingly, the Company is not able to allocate at this time the
proceeds that may be received from the exercise of such derivative securities,
and any proceeds realized will be utilized for working capital purposes, and
the development of FDA and EU protocols and clinical trial programs. To the
extent the proceeds of such exercise are not used immediately, they will be
invested in certificates of deposit, savings deposits, other interest bearing
instruments or will be left in the checking accounts of the Company.
SELECTED CONSOLIDATED FINANCIAL DATA
The financial data included in the following table has been selected
by the Company and has been derived from the consolidated financial statements
for the periods indicated. The following financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere herein.
17
<PAGE> 23
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
(in thousands except per share amounts)
<TABLE>
<CAPTION>
For Period
Between For the Years Ended December 31
Year Ended Jan. 1, and -------------------------------------------------------
June 30, 1994 June 30, 1993 1992 1991 1990 1989
------------- ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 677 $ 53 $ 52 $ 147 $ 355 $ 313
Loss before extra-
ordinary credit $ (1,083) $ (311) $ (563) $ (716) $ (2,490) $ (2,001)
Net income (loss) $ (1,083) $ (311) $ (563) $ (716) $ (2,490) $ 403*
Income (loss)
attributable to
common stock $ (1,087) $ (313) $ (573) $ (730) $ (2,504) $ 389*
Net income (loss)
per average
common share
outstanding $ (.06) $ (.02) $ (.05) $ (.07) $ (.23) $ .05*
Weighted average
shares outstanding 18,686,751 14,463,038 11,478,914 10,933,669 10,745,816 8,539,412
- ----------------
</TABLE>
*Includes extraordinary credit of $2,404,033 ($.28 per share) resulting from
the settlement of debt with Medicore.
<TABLE>
<CAPTION>
For the Nine Months
Ended March 31
---------------------------------
1995 1994
---- ----
<S> <C> <C>
Operating revenues $ 544 $ 412
Net loss $ (1,331) $ (717)
Loss
attributable to
common stock $ (1,333) $ (720)
Net loss
per average
common share
outstanding $ (.04) $ (.04)
Weighted average
shares outstanding 30,637,957 18,559,724
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
(in thousands)
<TABLE>
<CAPTION>
At March 31 At June 30 At December 31
------------------- ------------------- -----------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital
(deficit) $2,889 $ 233 $ 795 $ 250 $(942) $(1,115) $ (624)
Total Assets $4,859 $1,988 $2,744 $1,642 $ 983 $ 1,070 $1,430
Long Term debt $ 937 $1,011 $ 976 $1,034 $ 529 $ 0 $ 9
Stockholders'
equity (deficit) $3,530 $ 132 $ 546 $ 101 $(588) $ (88) $ 565
</TABLE>
18
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company has incurred operational losses and operated with a
negative cash flow since its inception in December 1980. Losses have totalled
approximately $607,000 and $1,331,000 for the three months ended and nine
months ended March 31, 1995 and $1,083,000, $311,000 and $264,000 (unaudited)
for the year ended June 30, 1994, and the six months periods ended June 30,
1993 and 1992, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totalled $2,889,000 at March 31, 1995, an increase
of $2,094,000 over the year end balance of $795,000 at June 30, 1994. This
increase was attributable to the receipt during the fiscal 1995 first quarter
of approximately $2,275,000, representing the balance of the proceeds, net of
expenses, of the Company's $3.5 million private placement offering completed in
August 1994 and net proceeds of approximately $1,980,000, net of expenses, from
the Company's second private placement completed by December 31, 1994.
Approximately $911,000 in proceeds of the first private offering were received
prior to June 30, 1994. Working capital totalled approximately $795,000 at
June 30, 1994, an increase of $442,000 (178%) over the previous year. This
increase was primarily attributable to the receipt, prior to year end, of
partial proceeds of approximately $911,000, from the Company's private
placement offering completed in August 1994, the sale of Common Stock for
$400,000 in the first calendar quarter to its affiliate, Cytoferon Corp., and
the receipt of proceeds from the issuance of $200,000 in Convertible Debentures
in November 1993, such financings being offset to a large extent by operational
losses.
Certain components of working capital changed significantly between
the March 31, 1995 and June 30, 1994 periods, most notably cash
balances, which increased from $880,000 to $2,549,000 reflecting the completion
of two private placements of the Company's Common Stock in August and December,
1994. In addition, certain components increased reflecting the recommencement
of manufacturing operations commencing in May 1993. Total inventory balances
increased from approximately $766,000 at June 30, 1994 to approximately
$1,079,000 at March 31, 1995 inclusive of $500,000 classified as non-current
based on revised sales projections. Projected annual sales were adjusted
downward as a result of State of Florida HRS placing a moratorium on the
Company's enrollment of new patients under the State's 499 Program.
On February 5, 1993, the Company entered into the Stock Agreement
("Stock Agreement") with Cytoferon, pursuant to which Cytoferon had the right
to purchase up to 11,640,000 shares of the Company's Common Stock, which would
have constituted approximately 49.5% of the then to-be-outstanding Common Stock
of the Company. Within the terms of the contract period, which ended May 31,
1993, Cytoferon invested $1,000,000 in the Company in exchange for 6,000,000
shares of Common Stock. In November 1993, the Company
19
<PAGE> 25
negotiated and executed an Additional Stock Purchase Agreement ("Additional
Stock Agreement") which provided Cytoferon the right to invest directly or
otherwise obtain additional investments of $500,000 within 60 days of execution
of the Additional Stock Agreement for 1,667,000 shares of the Company's Common
Stock. The investment threshold was subsequently met in part through the
purchase of $200,000 in Convertible Debentures of the Company.
Using the capital invested by Cytoferon, the Company recommenced the
production of its Alpha Leukoferon(TM) product in May 1993, and began limited
distribution of the Product in September 1993 for the treatment of MS and
HIV/AIDS patients residing in Florida through physicians specializing in the
treatment of those diseases. The Company is seeking to have its Product
embraced as a standard treatment for both intermittent and progressive multiple
sclerosis and further believes its Alpha Leukoferon(TM) product may be of
benefit for those suffering from HIV/AIDS and related illnesses.
In August 1994, the Company completed its $3.5 million private
placement offering of its Common Stock to accredited investors at $.40 per
share, resulting in the issuance of 8,919,000 shares. The net proceeds of the
offering were approximately $3,185,000, which are being utilized for the
acquisition of laboratory production equipment at an estimated cost of up to
$750,000, purchase of a Company-wide computer system, development of FDA study
protocols, employment of additional operating and administrative personnel and
working capital.
In December 1994, the Company completed a second private placement,
solely to accredited investors, of Common Stock at $.60 per share, which
enabled the Company to realize by December 31, 1994, gross proceeds of
$2,056,000 in consideration for the issuance of 3,426,667 shares. The proceeds
are intended to be utilized for implementation of the initial phase of the
Company's European market strategy, which includes the establishment of a
research and manufacturing facility in Europe during the first half of the 1995
calendar year. It is the Company's intention to commence European clinical
trials and seek the necessary approvals for the sale of its
Alpha-Leukoferon(TM) product in the EU subject to receipt of additional funding
necessary to conduct such trials.
Previously, the Company was being funded by Medicore, Inc.
("Medicore"), its former parent, and during 1992 received advances in the
amount of $301,000 to finance its minimal operations during this period.
Aggregate indebtedness due Medicore (inclusive of $108,000 in royalties due
under a previous agreement which is payable as the final payment under the
$2,400,000 total royalty to be paid) was $508,000 and $545,000 at March 31,
1995 and June 30, 1994, respectively. This indebtedness is secured by a
$429,000 note and mortgage on the realty and personal property of the Company.
20
<PAGE> 26
While subject to significant limitations, the Company has available
net tax operating loss carryforwards of approximately $10,800,000, expiring
between 1995 and 2009, which may be used to offset in part taxable income
during those periods.
In December, 1994, the Company received notification from HRS to
postpone enrollment of new patients under its 499 Program until such time as
the Company has provided certain administrative reports to the HRS and
corrected to their satisfaction certain FDA inspection-related comments
concerning the Company's manufacturing processes and facility. The
postponement of enrollment of new patients under the 499 Program will cause the
loss of certain additional revenues until the Company has been able to satisfy
HRS that its manufacturing process and facility complies with cGMP, which
revenues could have offset, in part, the significant cost of conducting
clinical trials and obtaining regulatory approvals for its Product. While the
Company believes that any loss of such revenues under its 499 Program can be
limited through sales of its Product to various pharmaceutical concerns and
other distributors for use in treating topical conditions and for cosmetic
purposes, since such applications require more limited regulatory approvals,
there can be no assurances that such commercial arrangements will be concluded.
Currently, the Company has 29 patients using its interferon product.
Completion of their course of treatment, already commenced, will require
product with a cost basis of approximately $329,000. In addition, the Company
has an additional 20 patients enrolled by the State of Florida for treatment
under the State's 499 Program. These patients are in various stages of making
the necessary financial and residency arrangements and were enrolled prior to
the State's moratorium on new enrollments. If, conservatively, one-half of the
se patients are ultimately treated with the Product, this would represent an
additional $130,000 in product costs. These facts, coupled with a projected
number of patients who will request/require an ongoing maintenance program,
indicate that the portion of the inventory carried as current is reasonable in
light of information currently available, and is based upon projected product
requirements of patients approved for treatment prior to the HRS' moratorium on
new enrollment.
With regards to the non-current portion of the inventory, the Company
has requested an informal hearing with the HRS to address the issue of the
immediate lifting of the moratorium on new enrollments. Based on information
currently available, the Company expects this hearing to take place prior to
June 30, 1995. All preliminary information has been provided to HRS and, while
there can be no assurances, the Company anticipates a favorable outcome
resulting from such hearing.
Once the manufactured product is bottled, i.e., placed in a final
container, it carries a two year expiration. Currently, the Company is
shipping product with an expiration date of June 1996. Accordingly, an
inventory valuation adjustment stemming from product expiration is currently
considered unlikely. Additionally, given the Company's industry knowledge
related to human leukocyte interferon, particularly in the areas of efficacy
and minimal side effects (much of which information was received from the
Company's sponsored and state sanctioned clinical trial with the University of
Miami using the Company's proprietary technology), the Company believes
technological obsolescence for the foreseeable future will not impact the
marketability of the Product.
Management believes that the Company's improved Alpha-Leukoferon(TM)
product can be manufactured in sufficient quantity and will be priced at a
level to offer patients an attractive alternative treatment to the recombinant
or synthetic interferon. Management further believes that working capital
currently on-hand, as well as the continued distribution of the Product under
the 499 Program to existing patients (as well as to new patients once the
Company has satisfied HRS that the Company's manufacturing process complies
with cGMP) as well as other commercial sales, will provide the Company with the
funds necessary to continue its current level of operations at least through
June 30, 1996.
RESULTS OF OPERATIONS
For the past several years, the majority of the Company's limited
revenues have been derived from sales of the Company's Natural Interferon
product, Alpha Leukoferon(TM), through Florida physicians (primarily
neurologists) for the treatment of Multiple Sclerosis in accordance with
Florida Statute 499. Distribution of the Company's Product is limited to the
State of Florida and is sanctioned by, and subject to, the provisions of
Florida Statute 499.018. This statute permits controlled distribution of the
Product in a clinical trial environment only within the State.
Commercialization of products under this statute is not permitted. An increase
in revenues under this program is dependent upon expanded clinical studies
utilizing the improved Product, which cannot be assured.
21
<PAGE> 27
Losses from operations have been incurred since inception and totalled
approximately $607,000 and $1,331,000 for the three months ended and nine
months ended March 31, 1995, $1,083,000 for the year ended June 30, 1994,
$313,000 and $271,000 (unaudited) for the six-month periods ended June 30,
1993, and 1992, $563,000 and $716,000 for the years ended December 31, 1992 and
1991, respectively.
Sales for the year ended June 30, 1994 totalled $625,000, and were
derived almost entirely from distribution of the Company's Alpha Leukoferon(TM)
Product for the clinical study treatment of MS. As the Company was essentially
dormant due to the lack of working capital and depletion of its inventories in
the prior year, sales during the comparable period totalled only $9,000.
Management believes, based upon preliminary market analysis, that the Company
will be able to continue to attract Florida MS patients and HIV/AIDS patients
to participate in the Company's statewide studies pursuant to Florida Statute
499.018, subject to continued regulatory approval and substantiation that the
Product, facilities and related manufacturing processes complies with FDA
promulgated cGMP requirements. Through March 31, 1995, the Company has
received $1,083,317 in revenues under its HRS investigatory license. Management
further believes that the Company's Alpha Leukoferon(TM) product can be
manufactured in sufficient quantity and will be priced at a level to offer
patients a cost effective alternative treatment to treatments utilizing
synthetic interferon and other drugs.
Cost of sales as a percentage of sales revenues totalled 52% for the
year ended June 30, 1994 and are expected to significantly increase as a
percentage of sales revenues during the 1995 fiscal year. This increase is due
to a significant drop (approximately 44%) in the selling price of the Company's
Alpha Leukoferon(TM) product. This sharp price reduction reflects the
Company's efforts to make the Product more price competitive with the synthetic
interferons, and accordingly, a more viable alternative patient treatment.
However, the Company anticipates implementation during the next year of
improved purification techniques which are expected to significantly reduce its
costs of production. While the actual production cost savings cannot yet be
accurately quantified, it is believed, although there can be no assurances,
that such reduction in production costs will yield savings at least sufficient
to recoup the gross profit margins lost through the price reduction.
Selling, general and administrative expenses increased significantly
between the most recent June 30 periods reflecting the recommencement of
manufacturing operations in May 1993 and related sales commencing in September
1993. Prior to recommencement of manufacturing operations, the Company was
essentially dormant. Included in these expenses were fees related to the
Cytoferon Management and Marketing Services Agreement of $173,000, product
liability insurance premiums of $74,000, sales
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commissions of $28,000 and royalty fees of $28,000. In addition the Company
incurred a substantial increase in legal fees including those associated with
litigation settled in January 1994 of approximately $120,000, fees associated
with a patent application and general corporate fees relating to the increase
in the overall level of operations. The increase also includes approximately
$117,000 charged to operations due to options granted to directors and officers
during the period, the payment of executive salaries for the entire period
commencing May 1993, which increase totalled $68,000 over the previous period,
as well as an increase in administrative staffing including related taxes and
benefits primarily consisting of group health insurance.
Research and development costs increased significantly over the prior
year reflecting the lack of research capital in 1993. The Company's research
efforts are focused primarily on improved production techniques for the
Company's Alpha Leukoferon(TM) product. These costs are expected to continue
to increase over future periods as the Company continues to seek improved
methods of manufacturing aimed at maintaining or improving product quality and
manufacturing efficiencies.
Human leukocyte interferon, manufactured for sale to the public, has
been capitalized as inventory since the Company's inception. Such inventory
has been expended as cost of sales upon sale or expended as research and
development upon allocation to or consumption in research and development
projects. At June 30, 1994, inventory on hand totalled approximately $766,000,
of which approximately $100,000 was in the work-in-process stage, while at
March 31, 1995, such inventory amounted to $1,079,000, of which approximately
$253,000 was in the work-in-process stage. During the quarter ended December
31, 1994, $500,000 in inventory was reclassified as non-current based on
modified sales projections for the ensuing twelve-month period.
SIX MONTHS ENDED JUNE 30, 1993 COMPARED TO SIX MONTHS ENDED JUNE 30, 1992
For the six month period ended June 30, 1993 all revenues were derived
from interest income, rents received and reimbursement from insurance. The
Company depleted its Alpha Leukoferon inventory in July 1992, and did not
reinitiate manufacturing until May 1993, after receiving the necessary funds
through the sale of Common Stock. Accordingly, as no Product was available,
the Company recorded no sales during the six-month period ended June 30, 1993.
Sales of Natural Interferon for the six months ended June 30, 1992 were
$41,686, of which $16,200 or 39% of total sales, were from sales to the
University of Miami for the multiple sclerosis clinical trial program which
concluded in July 1992.
The decrease in depreciation and amortization is due primarily to
plant equipment used in product manufacturing reaching a fully
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depreciated status in 1992. Additionally, due to the recommence-ment of
production, a portion of the depreciation attributable to productive assets was
allocated to the cost of the related product manufactured.
Selling, general and administrative costs increased 59% when compared
to June 1992 primarily due to the rehiring of employees and related costs in
connection with the recommencement of production. At June 30, 1993 the Company
had nine employees in the manufacturing and quality control areas and four
employees in administration and support functions. For the same period in 1992
the Company had just one paid employee, its Controller.
Interest expense increased in 1993 as the result of increased
borrowings from Medicore, primarily during the period from July through
December, 1992 under a promissory note covering advances and loans at 1% over
prime.
1992 COMPARED TO 1991
Revenues declined approximately 65% during 1992 fiscal year compared
to the 1991 fiscal year, primarily due to a decline in the number of patients
enrolled in the MS study (conducted at the University of Miami) utilizing the
Company's Alpha Leukoferon(TM) product as the study neared its conclusion. MS
related sales accounted for 45% and 65% of interferon sales for the years ended
December 31, 1992 and 1991, respectively. This program was concluded in July
1992. Also at the end of the second quarter of 1992, the Company's interferon
inventory on hand had been depleted.
Cost of goods sold as a percentage of related revenues declined to 45%
during the 1992 fiscal year compared to 158% in 1991. This decline reflected
the sale in the 1992 fiscal year of certain inventoried items written down in
1991 due to questionable future value given the Company's financial condition
and lack of current operations at that time.
Research and development and selling, general and administrative
expenses dropped significantly in the 1992 fiscal year. The substantial
decline reflects significant cost cutting measures implemented to conserve
working capital and the suspension of research and development programs.
Selling, general and administrative expenses for the 1992 fiscal year includes
$63,792 attributable to a distribution of Common Stock to directors, employees
and others.
Interest expense increased 24% in the 1992 fiscal year when compared
with the 1991 fiscal year, primarily as the result of increased borrowings from
Medicore, based on a promissory note covering advances and loans at 1% over
prime.
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NINE MONTHS ENDED MARCH 31, 1995 COMPARED TO NINE MONTHS ENDED MARCH 31, 1994
Losses from operations totalled approximately $1,331,000 for the nine
months ended March 31, 1995, and $607,000 for the nine months ended March 31,
1994, an increase of $724,000 or 119%. The increase in losses reflects an
increase in various operating, developmental and administrative expenses
described hereafter offset to a limited extent by increased revenues as the
Company recommenced production and sales activities.
Sales for the nine months ended March 31, 1995 and 1994 totaled
$455,000 and $35,000, respectively and were derived almost entirely from
distribution of the Company's Alpha Leukoferon(TM) product for the clinical
study treatment of multiple sclerosis. As the Company was essentially dormant
prior to the receipt of investment capital (see Liquidity and Capital
Resources, above) due to the then lack of working capital and depletion of its
inventories in the prior year, sales of the Company's Alpha Leukoferon(TM)
product essentially commenced during the second quarter of fiscal 1994. Sales
for the third quarter of the prior year totaled $271,000 compared with the
$122,000 during the third quarter of the current year. This decrease was due
to the moratorium on the enrollment of new patients placed on the Company by
the Florida HRS.
In December 1994, the Company received notification from the Florida
Health and Rehabilitative Services to postpone enrollment of new patients under
its 499 Program until such time as the Company has provided certain
administrative reports to the HRS and satisfied certain FDA inspection-related
comments concerning the Company's manufacturing processes and facility. On
March 17, 1995, the Company received further notice from HRS requesting that
Viragen demonstrate that its production technology complies with FDA
promulgated cGMP and for the Company to continue the postponement of the
enrollment of new patients under the 400 Program until the Company has
demonstrated such compliance. The Company is continuing to provide its
Products to patients currently receiving treatment or enrolled in the Company's
499 Program consistent with existing treatment protocols and reporting
procedures established for the 499 Program. The Company believes it has since
obtained substantial compliance with cGMP requirements and has requested a
hearing from the HRS for purposes of substantiating its compliance, which
hearing is expected to be held prior to June 30, 1995. Management believes
that the postponement of enrollment of new patients will limit the revenues
that it would currently be eligible to receive under the 499 Program and
concomitantly will also limit nominal marketing efforts previously undertaken
by Viragen within the medical community. However, such postponement will not
affect the undertaking of clinical trials and the approval process from the
Company's Product following submission to the FDA and EU, which submission will
represent the focus of the Company's effort at the present time.
Cost of sales as a percentage of sales revenues totalled 59% for the
nine months ended March 31, 1995, and are expected to increase as a percentage
of sales revenues during the remainder of the current fiscal year. This
increase is due to a significant (44%) drop in the selling price of the
Company's Alpha Leukoferon(TM) product. This sharp price reduction reflects
the Company's efforts to make the Product more price competitive with the
synthetic interferons, and accordingly, a more viable alternative patient
treatment. However, the Company anticipates implementation during calendar 1995
of improved purification techniques which are expected to significantly reduce
its costs of production. While the actual production cost savings cannot yet
be accurately quantified, management believes, although there can be no
assurances, that such savings will at least be sufficient to recoup the gross
profit margins lost through the price reduction.
Research and development costs increased significantly over the prior
year reflecting the lack of research capital earlier in fiscal 1994. The
Company's research efforts are focused primarily on improved production
techniques for the Company's Alpha Leukoferon(TM) product. These costs are
expected to continue to increase over future periods as the Company continues
to seek improved methods of manufacturing aimed at maintaining or improving
product quality and manufacturing efficiencies.
The 33% increase in selling general and administrative expenses from
$854,000 for the nine months ended March 31, 1994, to $1,133,000 for the nine
months ended March 31, 1995, reflects the overall increase in the level of
production and sales activities including the addition of administrative
personnel with related benefit costs. During the bulk of the comparable
periods of the proceeding years, the Company was essentially dormant with
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limited distribution of the Company's product not commencing until September
1993. Included in those components, which increased as a direct result of
recent recommencement of sales, were fees relating to product liabilities
insurance coverage, sales and royalty fees.
The increase in interest expense resulted from the increase in the
bank prime rate between the periods. The Company has two mortgages on its
production facility, both of which are tied to the prime rate. The prime rate
was 9.0% and 8.5% as of March 31, 1995 and 1994, respectively.
INFLATION
Inflationary factors have not had a significant effect on the
Company's operations during any periods presented.
BUSINESS
GENERAL
Viragen, Inc. was organized in December 1980 to engage in research,
development and manufacture of certain immunological products for commercial
application, particularly human leukocyte interferon, for antiviral and
therapeutic applications and as anticancer agents. Viragen's primary product
is a natural human leukocyte alpha interferon. Natural Interferon is a protein
substance that inhibits malignant cell growth without materially interfering
with normal cells. Natural Interferon stimulates and modulates the human
immune system and, in addition, impedes the growth and propagation of various
viruses. The Product is a natural product produced from human white blood
cells. Alpha Leukoferon(TM) is the trade name for Viragen's Product in
injectable form. The Company's Product has not been approved by the United
States Food and Drug Administration and there can be no assurances that
approval of the Product will be obtained at any time in the future.
Viragen has been granted an investigatory license by the Florida
Department of Health and Rehabilitative Services under Florida Statute 499 of
the Florida Drug and Cosmetic Act to conduct Investigation Study Programs and
distribute the Product to physicians for use in the treatment of Florida
residents with Multiple Sclerosis, HIV/AIDS, AIDS-Related Complex and Kaposi's
Sarcoma. Viragen initially obtained approval for use of the Product through
approved investigational protocols in 1983 under Florida Statute 402.36 (Cancer
Therapeutic Act), the predecessor to Florida Statute 499. In 1984, Florida
Statute 499.018 was amended to include the Company's protocols and Florida
Statute 402.36 was repealed. Under its HRS investigatory license, Viragen has
been able to distribute the Product to authorized Florida physicians
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for use in treating their Florida patients under approved study protocols.
Presently, the primary application for Viragen's Product is the treatment of
MS. Through March 31, 1995, the Company has received $1,083,317 in revenues
under such HRS investigatory license.
The Company intends to seek to obtain FDA approvals for various uses
of the Product in the future. Such approval is expected to require several
years of clinical trials and substantial additional funding. To date, Viragen
has not distributed the Product other than for research and pursuant to its
investigatory license, and until May 1993, Viragen had not actively operated
due to insufficient funds. Viragen expects to concentrate its efforts in
preparing, filing and processing its applications and obtaining approvals for
its Product from the FDA and the European Union. The Company has assembled an
advisory committee consisting of scientists, medical researchers and clinicians
to assist the Company in its application to the FDA.
In December 1994, the Company received notification from the Florida
Health and Rehabilitative Services to postpone enrollment of new patients under
its 499 Program until such time as the Company has provided certain
administrative reports to the HRS and satisfied certain FDA inspection-related
comments concerning the Company's manufacturing processes and facility. On
March 17, 1995, the Company received further notice from HRS requesting that
Viragen demonstrate that its production technology complies with FDA current
Good Manufacturing Practices, and for the Company postpone the enrollment of
new patients under the 499 Program until the Company has demonstrated such
compliance. The HRS also proposes to require that existing patients current
receiving treatment with the Company's Product or enrolled in the Company's 499
Program acknowledge their recognition of possible deficiencies relative to
cGMP.
The Company is continuing to provide its Products to patients currently
receiving treatment or enrolled in the Company's 499 Program consistent with
existing treatment protocols and reporting procedures established for the 499
Program. The Company believes it has since obtained substantial compliance
with cGMP requirements (i.e., sufficient conformance with cGMP requirements to
permit continued distribution of the Product under the 499 Program) and has
requested a hearing from the HRS for purposes of substantiating its compliance,
which hearing is expected to be held prior to June 30, 1995. There can be no
assurances that the Company will be successful in substantiating that its 499
Program is in conformance with cGMP or that the Company will be authorized to
enroll new patients in its 499 Program as a result of its submissions at such
hearing. However, the Company does not believe that the results of the HRS
hearing will affect its capacity to provide its Product to patients currently
enrolled in its 499 Program. While management believes that the postponement
of enrollment of new patients will limit the revenues that it would currently
be eligible to receive under the 499 Program, such
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postponement will not affect the approval process for the Company's Product
following submission to the FDA and the EU, which submission will represent the
focus of the Company's efforts at the present time.
RECENT DEVELOPMENTS AND CHANGE OF CONTROL
In August 1994, the Company completed a $3.5 million private placement
offering of its Common Stock. Net proceeds of the Offering of approximately
$3,185,000 are being utilized for the acquisition of laboratory production
equipment, purchase of a company-wide computer system, development of FDA study
protocols, employment of additional operating and administrative personnel and
working capital.
On February 5, 1993, the Company entered into an Agreement for Sale of
Stock, as amended on May 4, 1993 (the "Stock Agreement"), with Cytoferon Corp.,
a privately owned Florida corporation, which provided for Cytoferon to acquire
in various stages of investment up to 11,640,000 shares of the Company's Common
Stock for an aggregate consideration of $1,500,000. Mr. Gerald Smith, who
subsequently became the Company's Chairman and President, is the principal
shareholder and chief executive officer of Cytoferon. By May 31, 1993, the
expiration of the initial investment period, Cytoferon had invested $1,000,000
for 6,000,000 shares of the Company's Common Stock for an effective acquisition
price of $.167 per share. On May 11, 1993, stockholders of the Company
approved an amendment to the Certificate of Incorporation to increase the
Company's authorized capital to provide sufficient shares for Cytoferon's
investment. The initial $1,000,000 infusion of capital enabled the Company in
May 1993, to reinitiate production (which had been suspended in 1990) and
distribution of its Alpha Leukoferon(TM) product. In connection with
Cytoferon's investments, the Company entered into a Marketing and Management
Services Agreement ("MMS Agreement") with Cytoferon pursuant to which agreement
Cytoferon became consultant to and exclusive distributor of products of the
Company not approved by the FDA for national distribution in exchange for
certain fees and commissions. The Company does not own, manufacture or
distribute any products currently approved by the FDA for national use or
distribution.
Upon execution of the Stock Agreement and Cytoferon's initial $100,000
investment in the Company in February 1993, Mr. Gerald Smith, became a
director of the Company. In May 1993, Mr. Smith was elected President of the
Company following infusion of the initial $1,000,000. In accordance with the
terms of the Stock Agreement, in April 1993, following Cytoferon's investment
exceeding $600,000, Thomas K. Langbein resigned as an officer and director of
the Company and Jesse Hwa, a Cytoferon representative, was appointed as a
director. Mr. Hwa resigned as a director on July 22, 1993. The Company
negotiated an Additional Stock Purchase Agreement with Cytoferon, executed in
November 1993, which
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provided Cytoferon the right to invest an additional $500,000 within 60 days of
execution of the Additional Stock Agreement for 1,667,000 shares of the
Company's Common Stock. Additionally, this agreement provided Cytoferon the
right to receive other compensation as well as an additional 1,750,000 shares
of Common Stock of Viragen over a 24-month period subject to a formula of gross
sales, based on not less than $2,000,000 in gross sales the first year and
$4,000,000 in gross sales the second year following the execution of the
Additional Stock Agreement. In March 1994, the $500,000 investment threshold
was met and Cytoferon began receiving the maximum consulting fee provided for
under the terms of the MMS Agreement.
The MMS Agreement provided for a management consulting fee of $240,000
per year, subject to Cytoferon meeting certain per year and aggregate initial
term and renewal term sales requirements. In addition, the MMS Agreement
provided that Cytoferon was to be the exclusive worldwide distributor, subject
to maintaining certain sales minimums for all of the Company's non - FDA
approved products, for three years with two automatically renewable successive
three year terms, a 4% sales commission on such sales, 50% of all fees received
by the Company from the sale of any foreign franchises, licenses, technology
transfer or joint venture agreements and 20% of any ongoing foreign royalty
payments.
In August 1994, the Board of Directors of the Company voted to enter
into a further modifying agreement (the "Subsequent Agreement") with Cytoferon,
terminating the MMS Agreement and related agreements concurrent with the
issuance of the 1,750,000 shares of Common Stock and subject to receipt of a
fairness opinion. The Company's management believes it was in the best
interest of the Company to unify and consolidate management functions and
efforts and eliminate potential conflicts that may arise by virtue of minimum
sales requirements that could be inconsistent with the Company's plans to
introduce new production technologies and refinement of related protocols.
Accordingly, the Company executed the Subsequent Agreement which, following
receipt of a fairness opinion, provided for the termination of the earlier
stock purchase agreements and the MMS Agreement and the issuance of the shares
previously contingently issuable under the Subsequent Agreement through
restoration of the concept of the original Stock Agreement concurrent with the
cancellation of the MMS Agreement, Stock Agreement and Additional Stock
Agreement. The fairness opinion was accepted by the Company on December 21,
1994, and the Company and Cytoferon consummated the Subsequent Agreement.
During the 1994 fiscal year, the Company applied for a second patent
relating to improved purification techniques for human leukocyte
interferon-alpha. The technique is believed to be unique and capable of
yielding a superior quality product at a reduced cost of production.
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OPERATIONS
As a result of Cytoferon's initial capital investment, in March 1993,
the Company commenced rehiring production personnel and in May 1993,
re-established production of its Alpha Leukoferon(TM) National Interferon
product. Due to its then strained financial condition and for the several
years prior to the recommencement of production in May 1993, the Company had
limited its operations to the sale of its then existing interferon inventory
and, to a lesser extent, enzyme inventories (the Company no longer manufactures
or markets enzymes).
Viragen initially obtained approval for use of the Product through
approved investigational protocols in 1983 under Florida Statute 402.36 (Cancer
Therapeutic Act), the predecessor to Florida Statute 499. In 1984, Florida
Statute 499.018 was amended to include the Company's protocols and Florida
Statute 402.36 was repealed. In 1986, the Company received approval from the
Florida Department of Health and Rehabilitative Services under the Florida
Statutes, Chapter 499, to distribute its Natural Interferon product under
specific investigative study protocols, through hospitals, pharmacies and
Florida licensed physicians for treatment within the State of Florida. The
Company eventually received state approval for use of its Alpha Leukoferon(TM)
product in the treatment of MS, HIV/AIDS, AIDS Related Complex and AIDS/Kaposi
Sarcoma and 32 types of cancers, hepatitis and certain viral diseases. Through
management's decision to focus the Company's efforts and resources, the Company
is currently manufacturing and providing product under the Florida Statutes
Chapter 499 for the treatment of MS and HIV/AIDS. However, enrollment of new
patients under the 499 Program has been postponed until the Company is able to
substantiate that the Company's facilities and manufacturing process satisfies
FDA promulgated cGMP requirements. See "Regulation" below. All other
previously approved indications for use of the Company's Alpha Leukoferon(TM)
Product are inactive and the previously approved protocols for such indications
would have to be reactivated by the State of Florida.
Although the recent capital investments have allowed the Company to
re-establish its interferon production and expand its Florida clinical studies,
the Company will require additional financing to engage in clinical trials for
the purpose of obtaining FDA and EU approval for its Natural Interferon
product. Clinical testing toward FDA and EU approval is an expensive process
which is expected to take several years to accomplish with no assurance such
approval would eventually be obtained.
THE PRODUCT
The Company has primarily been working with human leukocyte
interferon-alpha. Natural interferon is one of the body's natural defensive
responses to foreign substances such as viruses, and is
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so named because it "interferes" with viral growth. Interferon consists of
protein molecules that induce antiviral, antitumor and immunomodulatory
responses within the body. Medical studies have indicated that interferons may
inhibit malignant cell and tumor growth without affecting normal cell activity.
There are two basic types of interferon-alpha differentiated primarily
by their method of manufacture and resultant composition. The first, as
produced by the Company, is natural, human leukocyte alpha interferon produced
by stimulated human white blood cells. The human white blood cells are
cultivated and stimulated by the introduction of a harmless stimulating virus
that induces the cells to produce natural interferon. The natural interferon
is then extracted and purified by chemical and filtration processes to produce
a highly concentrated product for clinical use. The second, recombination
alpha interferon, is a genetically engineered synthetic interferon produced by
recombinant DNA techniques ("Synthetic Interferon").
Studies have indicated that there may be significant differences
between the use of Natural Interferon and Synthetic Interferon. The Company is
advised that studies have found that treatment with Synthetic Interferon in
certain cases may cause an immunological response ("neutralizing and/or binding
antibodies") that reduces the effectiveness of the treatment. The Company
believes that the production of neutralizing and/or binding antibodies is
virtually non-existent in patients treated with Natural Interferon.
Furthermore, primarily due to other differences including dosage requirements
(less of the natural product is apparently required to treat the subject
diseases), the side effects of treatment with Natural Interferon, in most
instances, may be less severe.
THE INDUSTRY
Prior to 1985, Natural Interferon was the only type of interferon
available. Research institutions and other biomedical companies similar to the
Company were working to solve the manufacturing problems associated with
industrial-scale production of Natural Interferon. In 1985, Hoffman-LaRoche,
Inc. and Schering Plough Corporation, two major pharmaceutical companies,
successfully developed synthetic interferon using DNA technology and
subsequently received licenses from the FDA to produce and market their alpha
interferon product for the treatment of hairy-cell leukemia, hepatitis and
Kaposi's Sarcoma, an AIDS-related cancer. After the development of recombinant
alpha interferon, the medical community's interest in Natural Interferon
diminished, and most clinical studies thereafter were based on the synthetic
product, due to its availability and substantially lower unit cost compared to
Natural Interferon.
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The medical community's enthusiasm over the potential positive
therapeutic results of "interferon" treatment began to dwindle as clinical
studies revealed an ever-increasing number of patients treated with Synthetic
Interferon were relapsing due to the development of neutralizing and/or binding
antibodies. Supposition grew that there may be significant differences between
Natural Interferon and Synthetic Interferon, or that there may be disease or
dosage related differences.
Hoffman-LaRoche, Inc., and Schering Plough Corporation continue to
actively market their products and continue to advertise and promote the
therapeutic benefits of their respective Synthetic Interferon products in
medical journals and through direct physician contact. In 1993 Chiron Corp
received FDA approval of its recombinant beta interferon for the treatment of
received relapsing/remitting MS. In addition to the manufacturers of Synthetic
Interferon, a domestic manufacturer of natural interferon-alpha, received FDA
approval in 1989 to sell, in injectable form, their natural interferon product
for genital warts. They continue to market their product for this approved
indication.
APPLICATION OF INTERFERON
Multiple Sclerosis Program
Following approval for use of the Company's Product by HRS for the
treatment of MS, the Company, in February 1990, entered into a research
agreement with the University of Miami School of Medicine, Department of
Neurology. This research program related to a state-approved, patient funded,
multi-phase clinical trial for the treatment of MS with human leukocyte
interferon produced by the Company. The study was conducted on a double blind
basis with certain patients receiving different dosage levels of the Company's
Alpha Leukoferon(TM) product and certain patients receiving a placebo. The
agreement expired January 30, 1991 and the program concluded by mid-1992.
Recently published information on these trials indicated that, in a majority of
cases, the Company's interferon product provided favorable results in the
treatment of patients afflicted with intermittent and progressive MS.
With the infusion of equity capital commenced in 1993 and continuing
through the offering completed in December 1994, the Company recommenced
research and production and revenue producing studies focusing on MS and
HIV/AIDS patients residing in Florida.
Cancer and Viral Diseases
The Company has distributed human leukocyte interferon-alpha in
Florida for cancer patients pursuant to a variety of protocols (specifically
delineated structures of treatment). Minimal revenues were obtained in 1991
and 1992 until the Company's
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interferon inventory was depleted in June 1992. Production recommenced in May
1993.
The Company received approval from HRS in January 1988 for the
intrastate distribution of interferon for the treatment of venereal warts,
herpes labialis and genital herpes with injectable human leukocyte interferon
in conformance with Florida Statute 499. Due to the Company's limited capital
and operations during the last few years, HRS placed the cancer, hepatitis and
viral protocols on an inactive status. Any indications for the use of
interferon for cancer treatment would require resubmission of the protocol for
HRS approval. The Company presently does not have plans to request
reactivation of these protocols.
In July 1990, the Company received approval from the Florida HRS for
an HIV/AIDS treatment protocol with its Alpha Leukoferon(TM) in injectable
form. The Company's product has been approved for treatment of patients, who
are eligible Florida residents, with HIV/AIDS, AIDS Related Complex and
AIDS/Kaposi Sarcoma. In September 1993, the Company initiated distribution on
a limited basis of its Product under this protocol. At the present time only
three individuals are participating in this treatment protocol. However, in
December 1994, HRS informed the Company that no new patients may be enrolled
under the 499 Program, including those patients with HIV/AIDs, ARC and Kaposi's
Sarcoma, until the Company has satisfied HRS regarding compliance with FDA
promulgated cGMP requirements. Patients currently receiving treatment for
these diseases, may, at their option, continue treatment with the Company's
Product from existing inventory.
MANUFACTURE OF INTERFERON
Human source leukocytes ("white blood cells") and a stimulating virus,
which raw materials are readily available to the Company, are needed to produce
human leukocyte interferon by conventional (non-recombinant) means. A
stimulating virus, harmless to humans, is introduced into the white blood cell
which induces the cell to produce interferon. The interferon is extracted and
purified by chemical and mechanical filtration processes. The Company's
natural human leukocyte interferon-alpha is distributed under the name Alpha
Leukoferon(TM).
Production methods developed by the Company as well as enhanced
methods currently under development have reduced the Company's costs of
production of Natural Interferon and accordingly, the differences in market
price between the natural and synthetic interferons. While production of the
natural product is still believed to be somewhat more costly on a per unit
basis, the Company believes that lower dosage requirements for the Natural
Interferon make it presently a cost effective alternative method of treatment.
The Company anticipates that it will be required to make capital expenditures
of between $750,000 and $1,500,000 in
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order to refine, acquire and install new manufacturing equipment associated
with its proprietary manufacturing process depending on the amount of equipment
and the number of locations in which such equipment will be installed. The
Company has also entered into an agreement with the University of Nebraska
Medical Center for purposes of refining certain aspects of such manufacturing
process which involves the payment of $100,000 over the term of such agreement,
which is expected to be completed by July 31, 1995. The Company believes that
its new proprietary manufacturing technology should significantly reduce the
cost of production which, in turn, will further reduce the price of the
Product, thereby enabling it to be more competitive with Synthetic Interferons.
There can be no assurances that such new manufacturing technology will enable
the Company to achieve the level of manufacturing proficiency and Product
improvement anticipated by management.
With sufficient inventory to meet current patient Product demand and
in conjunction with the development of the new proprietary manufacturing
technology, the Company discontinued production of the Product under its
previous manufacturing method in December 1994. Subsequently, in December,
Viragen also received notice from the HRS concerning production and facilities
deficiencies. Inventory on hand will permit the treatment of current patients
and a limited number of new patients currently enrolled in the Company's 499
Program. The Company has been advised by HRS that new patients may not be
enrolled that were not previously enrolled until the Company demonstrates that
it satisfies FDA promulgated cGMP guidelines.
RESEARCH AND DEVELOPMENT
The entire process of research, development and FDA approval (if
obtained), of a new pharmaceutical takes several years and requires substantial
funding. The Company is not currently engaged in any FDA clinical trials and,
while proposed for the future, commencement of such studies is dependent upon
obtaining significant additional funding. The Company was one of the first to
be licensed in 1983 under Florida law to manufacture and distribute interferon
in Florida for certain cancer protocols and for the treatment of viral
diseases. The Company's present focus is the distribution, manufacture and
continued research and development of Alpha Leukoferon(TM) for the treatment of
multiple sclerosis and HIV/AIDS.
In 1991, the Company, due to its then serious lack of financial
resources, suspended its research and development activities. In 1993,
following receipt of additional equity financing, the Company's technical
personnel recommenced limited research efforts focusing on improved production
techniques related to the Company's Alpha Leukoferon(TM) product. Following
the receipt of additional funding from the Company's private placement offering
completed in August 1994, research efforts and related costs
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<PAGE> 40
increased further and can be expected to continue to increase as the Company
continues its development efforts towards a new proprietary production
technology for its product. While limited, to the extent that sales revenues
exceed the related costs of such sales, gross profits would be available to
augment funds available for research and development costs as well as offset
selling general and administrative expenses. Research and development costs
totaled $342,738 and $34,743 for the nine-month periods ended March 31, 1995
and 1994 and $17,476 and $1,873 for the fiscal years ended June 30, 1994 and
1993, respectively.
Purification System
The Company has expended a substantial amount of research and
development time and resources towards the development of improved purification
techniques. These purification processes are believed to enhance the purity of
the product while increasing production yields thereby lowering production
costs and eventually the sales price of the product. In May 1992, and January
1994, the Company filed patent applications related to improved purification
processes. See "Patents" below.
Limited Partnership
In 1983 the Company contracted with Viragen Research Associates
Limited Partnership (the "Limited Partnership"), an unaffiliated entity, to
enable the Company to perform the research and development with respect to a
topical ointment utilizing transfer factor or interferon for the treatment of
herpes virus infections of the skin. The Company received $456,500 from the
Limited Partnership in 1984 for such research and assigned to the Limited
Partnership a worldwide licensing agreement to market any such topical ointment
product, and all patent rights to the processes and products developed in
connection with the research and development of the topical cream for the
treatment of herpes virus. The Limited Partnership is to receive 5% of the
gross revenues received by the Company from the sale of ointment products,
whether human leukocyte interferon or human lymphocyte transfer factor, used in
the topical treatment of herpes virus infections of the skin, until it has
received 200% of the money it paid to the Company for research and development
and thereafter 2% of the gross revenues. The Limited Partnership has been
inactive since 1984 and terminates June 30, 2002. All research and development
funds had been expended by the Limited Partnership without the
commercialization of any interferon or transfer factor ointment.
MARKETING
Florida legislation permits, on a limited and controlled basis, the
intrastate manufacture, distribution and use of certain investigational drugs,
including human leukocyte alpha interferon,
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for the treatment of patients within the State under protocols approved by HRS.
The Company was one of the first to be licensed in Florida in 1983 to produce
and distribute a product under such legislation.
In December 1994, the Company received notification from the Florida
Health and Rehabilitative Services to postpone enrollment of new patients under
its 499 Program until such time as the Company has provided certain
administrative reports to the HRS and satisfied certain FDA inspection-related
comments concerning the Company's manufacturing processes and facility. On
March 17, 1995, the Company received further notice from HRS requesting that
Viragen demonstrate that its production technology complies with FDA
promulgated cGMP and for the Company to continue the postponement of the
enrollment of new patients under the 499 Program until the Company has
demonstrated such compliance. The Company is continuing to provide its
Products to patients currently receiving treatment or enrolled in the Company's
499 Program consistent with existing treatment protocols and reporting
procedures established for the 499 Program. The Company believes it has since
obtained substantial compliance with cGMP requirements and have requested a
hearing from the HRS for purposes of substantiating its compliance, which
hearing is expected to be held prior to June 30, 1995. Management believes
that the postponement of enrollment of new patients will limit the revenues
that it would currently be eligible to receive under the 499 Program and
concomitantly will also limit nominal marketing efforts previously undertaken
by Viragen within the medical community. However, such postponement will not
affect the undertaking of clinical trials and the approval process for the
Company's Product following submission to the FDA and EU, which submission will
represent the focus of the Company's efforts at the present time.
Primary Applications
Multiple Sclerosis
The Principal Investigator for the Company's state sanctioned MS
clinical study at the Multiple Sclerosis Center, University of Miami School of
Medicine, recently authored, together with other investigators, an abstract of
the favorable results achieved in many cases with the use of the Company's
Product in the treatment of all types of MS. The Company's Medical Director
was co-author of this article. The abstract was published in the Annals of
Neurology, the official journal of the American Neurological Association. The
Company has distributed its Product to qualified MS patients wishing to
participate in the Florida Clinical Study through enrolled Florida physicians
pursuant to its investigational study protocols.
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Asymptomatic HIV, AIDS, ARC and AIDS/Kaposi's Sarcoma ("HIV/AIDS")
HIV/AIDS is a progressive, terminal disease for which there are few
therapeutic drugs available and no known cure. The Company's Florida
HRS-approved protocols permit interferon to be administered by itself or used
together with other drugs in the treatment of HIV/AIDS patients by enrolled
Florida physicians. To date, the Company has treated patients on a very
limited basis but believes its Product may prove efficacious in this area.
Reimbursement and Payments
The cost to patients for interferon treatment varies widely depending
upon the physician's fee, protocol, dosage and length of treatment. Revenues
from the distribution of interferon have been limited, due to the
investigational nature of the product, the cost, limited insurance coverage for
investigational new drugs, and the regulatory restrictions on advertising and
commercialization.
The current policy of both Medicare and State of Florida Medicaid is
not to reimburse for treatment until such time as a drug has been approved for
use by the FDA. As such, Medicare and Medicaid presently will not reimburse
patients for their costs in being treated with the Company's interferon for MS
or HIV/AIDS. Certain private insurers on a limited, case-by-case basis, have
in the past paid for treatments using the Company's interferon product.
Marketing and Management Services Agreement
A Marketing and Management Services Agreement with Cytoferon was
entered into effective May 12, 1993. The MMS Agreement provided that Cytoferon
will render advice to the Company relating to production, administration,
marketing and regulatory affairs. The maximum consulting fee payable to
Cytoferon was $204,000 for the first year and $240,000 per year for the next
two years of the three year term of the MMS Agreement, reduced on a pro-rata
basis based upon the extent of Cytoferon's investment in the Company. The
consulting fees are payable only if the Company meets certain annual sales
minimums and aggregates during the initial and renewal terms. The maximum
consulting fees were to be paid provided Cytoferon invested an additional
$500,000 in the Company under the terms of the Additional Stock Purchase
Agreement executed in November 1993. This additional investment was made by
Cytoferon in accordance with the terms of that agreement.
The MMS Agreement further provided that Cytoferon was to be the
exclusive worldwide distributor for all of the Company's non-FDA approved
products for three years with two automatically renewable successive three year
terms with a 4% sales commission on such sales. In order to have maintained
exclusivity, the Company's
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sales of such non-FDA approved products were to have been at least $2,000,000,
$4,000,000 and $7,000,000 for the first, second and third years of the initial
term of the MMS Agreement, respectively. The worldwide distribution aspect of
the MMS Agreement was initially renewable if the Company had $13,000,000 in
non-FDA approved product sales during the initial term and $24,000,000 of such
product sales for the first renewal period. Cytoferon had the non-exclusive
right to market, nationally and internationally, all FDA approved products of
the Company, none of which the Company presently has, at the same 4% sales
commission.
Cytoferon also had the exclusive right to create certain marketing
programs for implementation in foreign countries. An additional provision of
the MMS Agreement provided for the Company to pay Cytoferon 50% of all fees
that the Company received from the sale of any foreign franchise, license,
technology transfer or joint venture agreements. In order for Cytoferon to
have maintained such foreign marketing program exclusivity, the Company was to
have realized a minimum per year and aggregate term sales level set forth above
for Cytoferon's worldwide distribution exclusivity. Furthermore, if the
Company received continuing royalties pursuant to any such foreign agreement,
Cytoferon would have received 20% of all such royalties. In addition, the
Company was obligated to continue to pay Cytoferon royalties on such agreements
in accordance with the terms of such foreign agreements after the termination
of the MMS Agreement. In order to have maintained its exclusive international
licensing, Cytoferon was to have caused general license fees and royalties to
be paid net to the Company of $250,000 per year the first two years, $500,000
the third year and cumulative license fees of $1,500,000 net to the Company, at
no less than $500,000 per year, during the first and second renewal terms of
three years.
In August 1994, the Board of Directors of the Company voted to enter
into the Subsequent Agreement with Cytoferon terminating the MMS Agreement and
related agreements and provided for the issuance of 1,750,000 shares which were
contingently issuable subject to receipt of a fairness opinion. The Company's
management believed it was in the long-term best interest of the Company to
unify and consolidate management functions and efforts and eliminate conflicts
that may have arisen by virtue of minimum sales requirements that could have
been inconsistent with the Company's plans to introduce new production
technologies and refinement of related protocols. Accordingly, the Company
executed the Subsequent Agreement which, following receipt of the fairness
opinion, provided for the termination of the MMS Agreement and related stock
purchase agreements and issuance of the shares provided for under the November
1993 Additional Stock Agreement through restoration of the concept of the
original Stock Agreement. The fairness opinion was accepted by the Company on
December 21, 1994, and the Company consummated the Subsequent Agreement.
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Royalty Agreement
In consideration of Medicore, Inc., having financed the Company and
having deferred the payment of certain indebtedness (settled for stock in
November 1989), the Company modified its Royalty Agreement with Medicore
pursuant to which it was to pay Medicore a royalty of 12% of its net sales up
to $20,000,000 of interferon, transfer factor and products using such
substances, and a royalty of 7% for sales in excess of $20,000,000. The
royalty agreement was to expire on November 6, 2001.
Pursuant to the Stock Agreement with Cytoferon, the Company and
Medicore have further amended the royalty agreement to provide for a maximum
cap on royalties to be paid to Medicore of $2,400,000, with a schedule of
royalty payments due of 5% of the first $7,000,000 of sales of interferon and
related products, 4% of the next $10,000,000 of sales and 3% of the next
$55,000,000 of sales, with no royalties to be paid with respect to delivery and
payments of the Company's interferon and related products for six months
following May 12, 1993, the closing date of the Stock Agreement. This
amendment further provided that royalties of approximately $108,000 previously
accrued as payable to Medicore prior to amendment of the Royalty Agreement
would be payable as the final payment due under the total $2,400,000 royalty
obligation.
PATENTS
The Company has applied for a domestic patent relating to improved
purification processes of human leukocyte interferon-alpha. The Company
believes its purification techniques are unique and are capable of yielding a
superior quality product while reducing related production costs which will
enable the Company to eventually further lower the cost of the Product. The
Company intends to file an additional patent application relating to such
techniques during the 1995 calendar year. The Company has also submitted
several foreign patent applications for an interferon-based composition for the
skin.
United States patents have been issued to others with respect to
genetically engineered organisms and genes and human leukocyte interferon
purified to a certain degree. Subject to the extent of such existing patent
claims, the Company may have to negotiate license agreements with such patent
holders to use such processes and products in the Company's human leukocyte
interferon program.
The validity and enforceability of a patent can be challenged by
litigation after its issuance and if the outcome of such litigation is adverse
to the owner of the patent, other parties may be free to use the subject matter
covered by the patent. The degree of protection afforded by foreign patents
may be different than in the United States. There can be no assurance that
patents
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now held or obtained in the future will be of substantial protection or
commercial benefit to the Company.
REGULATION
Federal
The Company's activities and the products and processes resulting from
such activities are subject to substantial government regulation, both state
and federal. The interstate manufacturing, advertising and sale of biologic
substances and pharmaceutical products are regulated by, and require approval
of, the FDA and comparable state and local agencies. While currently not
subject to FDA regulation, the Company, under State of Florida HRS guidelines,
must follow strict production procedures and maintain certain standards,
generally known as current Good Manufacturing Practices established by the FDA.
The FDA has established mandatory procedures and standards which apply to the
clinical testing, marketing and manufacture of such products. Obtaining FDA
approval for commercialization of a new product can take significant time and
capital since it involves procedures and often lengthy clinical trials
measuring product safety, potential toxicity, and efficacy, if any, under
specific protocols. The process of obtaining FDA approval includes extensive
animal testing to demonstrate product safety, toxicity and side effects, if
any, and preferred dosages; human testing to show the same and to document such
findings as effectiveness, toxicity and side effects; and biostatistical
analysis of data gathered in such studies, followed by the submission of all
information and data.
At the present time, the Company has no pending applications relative
to its Alpha-Leukoferon(TM) Product before the FDA for the treatment of MS or
any other disease indications, although the Company intends to submit an
Investigative New Drug Application to the FDA during the Company's fiscal year
commencing July 1, 1995. For this purpose, the Company has assembled a
Clinical Advisory Committee comprised of scientists, medical researchers and
clinicians who will act in an advisory capacity in order to assist the Company
in developing the medical, scientific and clinical aspects in support of the
Company's anticipated Investigative New Drug Application to be filed with the
FDA for approval of its Natural Interferon product.
In the United States, human clinical trial programs generally involve
a three phase process. Typically, Phase I trials are conducted in healthy
volunteers to determine the early side effect profile and the pattern of drug
distribution and metabolism. Phase II trials are conducted in groups of
patients afflicted with the target disease to provide sufficient data for the
statistical proof of efficacy and safety required by federal regulatory
agencies. If Phase II evaluations indicate that a product has shown indications
of potential effectiveness and has an acceptable safety profile,
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Phase III trials are undertaken to conclusively demonstrate clinical efficacy
and safety within an expanded population at multiple clinical study sites.
Sometimes, the FDA requires Phase IV studies to track patients after a product
is approved for commercial sale to identify side effects that may occur in a
small number of patients.
Regulatory approval of a new pharmaceutical product often taken fives
years or more (unless accelerated for life-threatening diseases) and involves
the expenditure of substantial resources. Approval depends on a number of
factors, including the severity of the disease in question, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials.
American pharmaceutical manufacturers who sell outside of the United
States are also subject to FDA jurisdiction. Semi-finished drugs may be
shipped under certain controlled circumstances for further processing,
packaging, labelling and distribution to third parties residing in approved
foreign countries, subject to such laws as apply in those countries. The
Company will have to comply with FDA rules and regulations as well as those of
the country to which the Company intends to ship the Product before it will be
permitted to export crude or finished interferon products outside the United
States.
Florida
The Company is and was one of the first to be licensed, in 1983, to
manufacture and use investigational drugs in Florida pursuant to Section
499.018 of the Florida Drug and Cosmetic Act. Rules were adopted by Florida
HRS allowing certain investigational drugs to be used for the treatment of
cancer and viral diseases. The Company originally received approval from
Florida HRS to manufacture, distribute and use interferon in injectable form
for the treatment of cancers, hepatitis and viral diseases within the State of
Florida. The Company's cancer, hepatitis and herpes protocols have been placed
on inactive status by HRS. The Company's current license for the manufacture
and distribution of drugs or other immunological products under the Florida
regulations is for investigational purposes, not commercialization.
Investiga-tional products, such as the Company's Alpha Leukoferon(TM), may be
distributed to physicians for investigational use for patient treatment in
Florida, but under current Florida HRS regulations the product will not be
licensed for commercial sale within the state.
Florida physicians are required to inform the patient in writing that
therapy with the Company's product is not approved as a treatment or cure (for
each particular disease) by the FDA. The patient is required to sign a written
Informed Consent and authorization for the treatment.
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In March 1990, the Company received approval from HRS for the
intrastate distribution of its product, under Florida Statute 499.018 for its
multiple sclerosis investigational study protocol. In July, 1990, the Company
received approval from HRS for use of its product for HIV/AIDS treatment under
its investigational study protocols. With respect to HIV/AIDS, interferon
treatment is available to patients who are eligible Florida residents for the
entire treatment period and are afflicted with HIV, AIDS, ARC or AIDS/Kaposi's
Sarcoma. At the time that the Company's protocols were approved for MS and
HIV/AIDS, it did not have the sufficient funding to exploit the opportunities
available as a result of those approvals. Funding received during 1993 and
1994 enabled the Company to focus its product marketing in these areas.
In December 1994, the Company received a notice from the HRS citing
certain deficiencies in the Company'sHRS reporting, manufacturing and
distribution process and assessing a fine of $11,000. In respect to such fine
$5,000 related to HRS reporting deficiencies, $1,000 related to
labeling/distribution requirements and $5,000 related to cited manufacturing
violations. The fine was subsequently reduced by $5,000, which amount is to be
applied for payment to a consulting neurologist who is being retained by HRS to
evaluate the Company's 499 Program. The Company was requested to postpone
enrollment of new patients under its Florida Statute 499 Investigational Study
Program until such time as the Company has provided certain administrative
reports to the HRS and corrected to their satisfaction certain FDA inspection
related comments concerning the Company's manufacturing processes and facility
resulting from an FDA inspection of the Company's facility.
On March 17, 1995 and in response to various submissions of the
Company, Viragen received further notice from HRS relative to the distribution
of the Company's Product under the 499 Program. In such notice, HRS requested
that Viragen demonstrate that both its previous and new production technology
complies with cGMP and requested additional clarification as to the level of
compliance with cGMP necessary to satisfy FDA requirements. HRS further
required the Company to continue the postponement of the enrollment of new
patients under the 499 Program until the Company has demonstrated compliance
with cGMP. HRS also proposed to require that existing patients receiving the
Company's Product acknowledge recognition of the deficiencies relative to cGMP
through written affirmation as well as their intention to continue in the 499
Program through informed consent. HRS will also assign a neurologist from one
of the State's university medical schools with experience in treating patients
with MS to assist the department in evaluating whether or not patients with MS
who are currently enrolled in the Company's 499 Program are benefiting from the
Company's Product, which evaluation is expected to be completed prior to June
30, 1995. Finally, HRS raised a technical issue whether the prior receipt by
Viragen of FDA approval for its Natural Interferon product for limited topical
use as well as the
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contemplated submission of the Company's anticipated Investigative New Drug
Application to the FDA would affect its ability to distribute its Product under
the 499 Program. Finally, HRS expressed its willingness to reduce the proposed
fine from $11,000 to $6,000, with the $5,000 reduction being used to defray the
costs of the consulting neurologist.
The Company has requested a hearing from the HRS for purposes of
substantiating its compliance with FDA promulgated cGMP requirements, which
hearing is expected to occur prior to June 30, 1995. The Company believes that
it will be able to demonstrate at such hearing that its manufacturing processes
and facilities comply with cGMP and that it will be able to address any
deficiencies regarding product identify and purity to the satisfaction of
either HRS or the FDA. While the Company intends to challenge the need to
obtain affirmation from patients participating in its 499 Program, the Company
believes that it would be able to obtain affirmation by such patients to
continue their treatment under such Program based on the absence of complaints
and expressions of satisfaction from patients participating in the Company's
499 Program. Viragen further believes that the continuation of the Company's
499 Program during the pendency of its application before the FDA is consistent
with Section 499.018, Florida Statutes. The Company is continuing to provide
its Product to patients currently receiving treatment or enrolled in the
Company's 499 Program consistent with existing treatment protocols and
reporting procedures established for the 499 Program. There can be no
assurances, however, that the Company will be successful in substantiating that
its 499 Program is in conformance with cGMP or that the Company will be
authorized to enroll new patients in its 499 Program as a result of its
submissions at such hearing. However, the Company does not believe that the
results of the HRS hearing will affect its capacity to provide its Product to
patients currently enrolled in its 499 Program. Furthermore, while the Company
believes that the postponement of enrollment of new patients will limit
revenues that it would be eligible to receive under the 499 Program, such
postponement will not affect the approval process for the Company's Product
following submission of its application to the FDA and the EU or its financial
capacity to undertake the application process.
Legislation continually is proposed relating to the safety, efficacy,
pricing and labeling of biomedical and pharmaceutical products. The Company is
unable to predict what effect, if any, changes in governmental regulations will
increase the cost of research and development or affect the time required to
develop and introduce new products.
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COMPETITION
Competition in the research, development and production of interferon,
and other immunological products is intense and involves major, well
established and abundantly financed pharmaceutical and commercial entities as
well as major educational and scientific institutions. Many researchers, some
of whom have substantial private and government funding, are involved with
interferon production, including production of interferon through recombinant
DNA technology. A number of large companies including Hoffman-LaRoche, Inc.,
Schering Plough Corporation, Biogen, Inc., Chiron Corp., and Berlex
Laboratories are producing, selling, and/or conducting clinical trials with
recombinant interferons (alpha and beta) and other immunological products for
the treatment of cancer and viruses, including MS, HIV/AIDS/KS and Hepatitis.
In addition to the manufacturers of Synthetic Interferons, a domestic
manufacturer of natural interferon-alpha received FDA approval in 1989 to sell,
in injectable form, their natural interferon product for genital warts. They
continue to conduct FDA sanctioned clinical trials and to market their product
for their approved indication. The Company believes that competition is also
based on production ability, technological superiority, and ability to obtain
governmental approval for testing, manufacturing and marketing of the product.
The Company is not aware of any other drug manufacturer in Florida which is
actively marketing products on a large scale under Florida Statute 499.018.
The timing of the entry of a new pharmaceutical product into the
market is an important factor in determining that product's eventual success.
Early marketing has advantages in gaining product acceptance and market share.
The Company's ability to develop products, complete clinical studies and obtain
governmental approval in the past have been hampered by serious lack of
adequate capital. The Company re-initiated production and marketing operations
in May 1993 and is not presently a competitive factor in revenue volume in the
biopharmaceutical industry.
EMPLOYEES
In 1990, based upon its operational losses and limited liquidity, the
Company suspended manufacturing operations and reduced its staff to a minimum,
which in 1992 consisted of one paid employee, exclusive of executive officers
who received no cash compensation. Since its receipt of funding, the Company,
in March 1993, commenced rehiring personnel to re-initiate production of
interferon. As of May 12, 1995, the Company has 18 full-time employees and one
part time employee, of which ten are production, research and quality
assurance/quality control personnel. The remaining eight employees are
administrative.
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PROPERTIES
The Company owns a 14,000 square foot building at 2343 West 76th
Street, Hialeah, Florida. The facility includes executive offices, a
laboratory for biomedical research and production and related facilities. The
Company refinanced its building through a $600,000 borrowing with a Florida
bank under a five year note and mortgage. The loan is reduced in equal monthly
principal payments of $2,500 with interest at 2% in excess of the prime rate.
A balloon payment of $450,000 is due August 1, 1996. The mortgage is on the
land, building and improvements, equipment and fixtures used in connection with
the realty. Medicore has guaranteed the principal and interest on this loan
together with expenses and fees upon any default. Medicore has an Acquisition
Agreement with the Company giving Medicore the right to cure defaults and
assume the mortgage and take title to the property. From the date of any such
default, the Company has the right, for a period of six months, to sell the
building for the greater of $600,000 or all sums due under the note and
mortgage and to Medicore, all of which aggregate approximately $906,700 at
September 30, 1994.
Prior to the receipt of equity capital in 1993, the Company received
advances from Medicore for operating capital. Aggregate indebtedness due
Medicore resulting from such advances was $398,220 at December 31, 1994, and
$453,612 and $483,510 at June 30, 1994 and 1993, respectively. This
indebtedness is secured by a $429,400 note and mortgage on the realty and
personal property of the Company.
The Company has leased 2,800 square feet in this building to Medicore
for the latter's administrative offices. The lease is for five years through
December 31, 1997, with two five-year renewals, at an annual rental of $19,600
plus taxes and utilities.
The Company considers that its property is generally in good
condition, well maintained and is generally suitable and adequate to carry on
the Company's business. The Company further believes that it maintains
sufficient insurance coverage on the Company's real and personal property.
LEGAL PROCEEDINGS
The Company knows of no material litigation or claims pending,
threatened or contemplated to which the Company is or may become a party.
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MANAGEMENT
The names and ages of the Company's directors and executive officers
are as follows:
<TABLE>
<CAPTION>
Served as
Position with Officer and/or
Name Age the Company Director Since
- ---- --- ----------- --------------
<S> <C> <C> <C>
Gerald Smith 64 Chairman of
the Board and 1994
President 1993
Robert H. Zeiger 51 Chief Executive 1995
Officer, Chief
Operating Officer
and Director
Dennis W. Healey 46 Executive Vice
President, 1993
Chief Financial
Officer, Treasurer, 1981
Secretary and 1989
Director 1994
Charles F. Fistel 34 Executive Vice
President 1994
Peter D. Fischbein 54 Director 1981
Sidney Dworkin, Ph.D. 72 Director 1994
Jay M. Haft 59 Director 1994
William B. Saeger 42 Director 1994
</TABLE>
The Company's directors are collectively elected at the annual meeting
of stockholders and hold office for one year and until their successors are
elected and qualified. The Company's officers are appointed by the Board of
Directors and serve at the pleasure of the Board.
Set forth below is a biographical description of each director and
executive officer of the Company.
GERALD SMITH, in accordance with the February 1993 Stock Agreement,
became a director on February 5, 1993, the date of Cytoferon's initial stock
purchase. On May 12, 1993, Mr. Smith became President of the Company. In
June, 1994 Mr. Healey relinquished his position as Chairman of the Board of
Directors in favor of Mr. Smith. Mr. Smith is Chairman of the Board, Chief
Executive Officer and President of Cytoferon. Since 1982, he was a principal
stockholder, president, chief executive officer and director of Business
Development Corp. ("BDC") of Miami, Florida, which has served as a managing
entity and consultant to several high technology ventures including Compupix
Technology Joint
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Venture of Boca Raton, Florida. In 1988, Mr. Smith was the founder, president
and a director of Club-Theatre Network, Inc. of Boca Raton, Florida, an
audience-interactive private video theater. Mr. Smith sold his interest in
that company in March 1989. From August 1991 to December 1991, Mr. Smith was
the chief executive officer of Electronic Imagery, Inc. located in Pompano,
Florida, a company engaged in the development of imaging software. Mr. Smith
is also the president, chief executive officer and a director of Cinescopic
Corporation and International Database Service, Inc. located in Palm Beach
Gardens, Florida, computer-oriented companies which developed database
technology using the personal computer for audio, video, animation and real
time communication. Mr. Smith has wound down BDC's operations in order to
devote substantially all of his time to the Company. Mr. Smith has advised
that his services to these companies will not materially affect his ability to
render services to Cytoferon and the Company.
ROBERT H. ZEIGER, was appointed Chief Executive Officer and Chief
Operating Officer and was elected as a director in May 1995. Mr. Zeiger is a
pharmaceutical executive. From 1985 to 1994, Mr. Zeiger was employed by
Glaxo, Inc., Research Triangle Park, North Carolina, serving as Vice President
and General Manager of their Dermatological Division from 1985 to 1988, Vice
President and General Manager of Alan & Hansburgs from 1988 to 1991, and Vice
President and General Manager of Glaxo Pharmaceuticals from 1991 to 1994. Mr
Zeiger also served as Vice President, Marketing and Sales with Stiefel
Laboratories, Coral Gables, Florida, Inc. from 1979 to 1985, as National Sales
Manager of Knoll Pharmaceutical Company of Whipping New Jersey from 1971 to
1979 and as a Hospital Sales Representative of Warner-Chilcott Laboratories of
Morris Plains, New Jersey from 1968 to 1969.
DENNIS W. HEALEY was appointed Chairman of the Board and Chief
Executive Officer on April 13, 1993 upon the resignation of Thomas K. Langbein
from those positions pursuant to the Stock Agreement with Cytoferon. In June
1994, Mr. Healey relinquished his position as Chairman of the Board to Mr.
Smith and in July 1994 relinquished the position of Chief Executive Officer
upon the employment of Mr. Fistel. Upon Gerald Smith becoming President on May
12, 1993, Mr. Healey became Executive Vice President and has served as Chief
Financial Officer and Treasurer of the Company since 1980. Mr. Healey was
appointed Secretary in 1994. Mr. Healey, Chief Financial Officer and Treasurer
of Medicore and was appointed Executive Vice President of its Techdyne
affiliate in November 1991. Mr. Healey is a Certified Public Accountant and
joined Medicore in 1976 as its controller. He is also Treasurer of most of
Medicore subsidiaries and serves as Vice President of Dialysis Corporation of
America ("DCA"), a subsidiary of Medicore, and Secretary-Treasurer and director
of other DCA subsidiaries. Mr. Healey devotes approximately 75% of his
business time to the affairs of the Company.
CHARLES F. FISTEL was appointed Chief Executive Officer of the Company
upon his employment in July 1994, which position he relinguished to Mr. Robert
H. Zeiger in May 1995, becoming an Executive Vice President of the Company.
Mr. Fistel will be assuming the position of President of the Company's
dermatological division, once formed. Mr. Fistel, prior to joining the Company,
served for two years as an independent financial advisor to publicly-traded and
privately-held emerging growth companies. Prior thereto, between 1986 and
1992, he served as Executive Vice President, Chief Financial Officer and a
director of Tiger Direct, Inc. (formerly BLOC Development Corporation), a
Miami, Florida-based publicly-traded computer technology development,
marketing and distribution company. From 1981 to 1986, Mr. Fistel, who is also
a Certified Public Accountant, actively practiced public accounting.
PETER D. FISCHBEIN is an attorney who has been practicing law for
approximately 29 years. Mr. Fischbein served as the Company's Secretary
between May and December, 1994. From 1971 through
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<PAGE> 53
January 1990, Mr. Fischbein was a partner in the law firm of Rosenfeld,
Fischbein, Bernstein and Tannenhauser, of New York, New York which on occasion
represented the Company, Medicore and the Viragen Research Limited Partnership
which has certain contracts with the Company. Since January, 1990, Mr.
Fischbein has practiced law as an individual practitioner specializing in
corporate and business law. Mr. Fischbein is also a director of Medicore
(since 1984) and Techdyne (since 1985). Mr. Fischbein has been a general
partner of several limited partnerships engaged in oil exploration and real
estate development.
SIDNEY DWORKIN, Ph.D., elected a director in August 1994, was a
founder, former President, Chief Executive Officer and Chairman of Revco, Inc.
Between 1987 and the present, Dr. Dworkin has also served as chief executive
officer of Stonegate Trading, Inc., Hudson, Ohio, an importer and exporter of
various health, beauty aids, groceries and sundries. Between 1988 and the
present, Mr. Dworkin has served as Chairman of the Board of Advanced Modular
Systems, Hudson, Ohio, which is engaged in the sale of modular buildings.
Between June 1993 and the present, Dr. Dworkin has also served as Chairman of
Global International, Inc., Boca Raton, Florida, which is involved in the sale
and leasing of modular buildings to hospitals and radiology groups. Between
1990 and the present, Dr. Dworkin has also served as Chairman of the Board of
Comtrex Systems, Newark, New Jersey, which is engaged in the provision of data
processing services. In addition, between July 1988 and the present, Dr.
Dworkin has served as Chairman of the Board of General Computer Corp., Hudson,
Ohio, which is engaged in the marketing of data processing equipment. Dr.
Dworkin also serves on the Board of Directors of CCA Industries, Inc.,
Interactive Technologies, Inc. and Northern Technologies International
Corporation, all of which are publicly traded companies.
JAY M. HAFT, elected a director in August 1994, is an attorney and of
counsel to Parker Duryee Rosoff & Haft, New York, N.Y and Ruden, Barnett,
McCloskey, Smith, Schuster & Russell, Fort Lauderdale, Florida and a practicing
lawyer since 1959. Mr. Haft is also temporary President and CEO and a director
of Noise Cancellation Technologies, Inc. (OTC), as well as a director of
Extech, Inc. (OTC), CAS Medical Systems, Inc. (OTC), Nova Technologies, Inc.
(OTC), NFS, Inc. (OTC), Oryx Technology Corp. (OTC) and RVSI, Inc. (OTC), all
of which are publicly-traded concerns.
WILLIAM B. SAEGER, elected a director in August 1994, is a Certified
Public Accountant with fifteen years experience in corporate strategic
planning, financial and tax planning, acquisitions, corporate capitalizations,
and analysis and management of financial assets. Mr. Saeger has served as a
portfolio manager and analyst and since November, 1987 has served as Vice
President of Fundamental Management. Mr. Saeger has served
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<PAGE> 54
as a Director of Telemac Cellular Corp. since May, 1993. Mr. Saeger has also
written for financial publications on federal taxation and investment portfolio
management.
There is no family relationship between any of the officers and
directors.
On August 15, 1994, the Company expanded its Board of Directors to
include Messrs. Sidney Dworkin, Jay M. Haft and William B. Saeger. At that
time, the Company constituted its Audit, Executive and Compensation Committees.
The audit committee consists of Messrs. Healey, Dworkin and Saeger. The
Executive Committee consists of Messrs. Smith, Healey and Fistel. The
Compensation Committee consists of Messrs. Haft and Dworkin. Inasmuch as
these Committees have only been recently constituted, other than the Executive
Committee which meets monthly, no meetings have occurred following the initial
organizational meeting of each of these committees.
The Audit Committee oversees the Company's audit activities to protect
against improper and unsound practices and to furnish adequate protection to
all assets and records. The Audit Committee also acts as liaison to the
Company's independent certified public accountants, and conducts such work as
is necessary and receives written reports, supplemented by such oral reports as
it deems necessary, from the audit firm. The Executive Committee is empowered
to act for the full Board in intervals between Board meetings, with the
exception of certain matters which by law may not be delegated. The Executive
Committee will meet, as necessary, and all actions by the Committee are to be
reported at the next Board of Directors meeting. The Compensation Committee
provides overall guidance for officer compensation programs, including salaries
and other forms of compensation.
EXECUTIVE COMPENSATION
During 1992 the Company had one employee, its controller, who was paid
a salary. Neither Thomas K. Langbein, who was then Chairman of the Board of
Directors and Chief Executive Officer until April 13, 1993, when he resigned
under the terms of the Stock Agreement, nor Dennis W. Healey, the individual
who succeeded to Mr. Langbein's positions and currently holds other executive
positions with the Company, received any cash consideration from the Company in
1991 or through most of 1992 due to the severely strained financial condition
of the Company during these periods. Mr. Healey began receiving an annual
salary of $75,000 in May 1993. Mr. Smith did not receive any salary during the
fiscal periods described below.
Based on the understanding of the parties prior to the investment by
Cytoferon and the execution of the Stock Agreement, there were to be no
employment agreements or employee benefits
49
<PAGE> 55
between the Company and any of its employees. In accordance therewith, in June
1992, the Company issued 400,000 shares and 200,000 shares of its Common Stock,
respectively to Messrs. Langbein and Healey in consideration of termination of
their employment agreements.
The Summary Compensation Table below sets forth compensation paid by
the Company and its subsidiary for the year ended June 30, 1994. No executive
officer had a total annual salary and bonus exceeding $100,000 nor did any
other executive officer, other than Mr. Healey, receive any salary.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other All
Name and Annual Restricted Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation* Award(s) SARs(#) Payouts sation
--------- ---- ------ ----- ------- ---------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald Smith, 1994 $ 0 $7,500 $0 0 0 0 0
Chairman of Board 1993 $ 0 $ 0 $0 0 0 0 0
and President(1) 1992 $ 0 $ 0 $0 0 0 0 0
Dennis W. Healey, 1994 $75,000 $ 0 $0 0 0 0 0
Exec. V.P., Treas., 1993 $ 7,200 $ 0 $0 0 0 0 0
CFO and Director(2) 1992 $ 0 $ 0 $0 200,000 0 0 0
Thomas K. Langbein 1992 $ 0 $ 0 $0 400,000 0 0 0
Chairman of Board
and CEO
</TABLE>
- --------------
(1) Mr. Smith is Chairman of the Board, Chief Executive Officer and sole
shareholder of Cytoferon, a former active affiliate of the Compan.
Cytoferon previously had a consulting and marketing agreement with the
Company pursuant to which Cytoferon was entitled to receive consulting
fees, commissions, fees for certain foreign transactions and foreign
royalties.
In November 1993, as modified on December 15, 1994, Mr. Smith entered
into a two-year employment agreement expiring November 18, 1995 with
the Company at no salary. The agreement provided for the sale at the
inception of the employment agreement of 750,000 shares of Common
Stock at $.30 per share, payable through the issuance of a promissory
note with the shares being issued into escrow pending cash payments
reflecting the shares to be released from escrow in increments of no
less than $3,000. These shares were purchased through the issuance of
a note in the principal amount of $217,500 in April 1994 with Mr.
Smith receiving a bonus equal to the par value ($7,500) of shares
purchased. On May 15, 1995, the Company forgave Mr. Smith's note in
lieu of bonus for the 1995 fiscal year, following unanimous approval of
the independent members of the Board of Directors. The agreement also
provided for the issuance of 750,000 options to purchase Common Stock
subject to meeting
50
<PAGE> 56
certain production related or capital raising criteria. The criteria
were successfully met with the closing of the Company's $3.5 million
private placement in August 1994 and, accordingly, these options
became exercisable.
Mr. Smith had an employment agreement with Cytoferon effective June 2,
1992 for a term ending June 30, 1995. He was provided with an annual
salary of $120,000 the first year, $130,000 the second year and
$140,000 the third year. The salary for the period prior to May 12,
1993, the completion of the Stock Agreement, was accrued and was
payable from available cash. Mr. Smith is entitled to participate in
any Cytoferon benefit plans of which there presently are none. The
Cytoferon employment agreement further provided Mr. Smith with certain
severance arrangements if there is a change in control of Cytoferon or
the Company. In August 1994, the Board of Directors of the Company
voted to enter into the Subsequent Agreement and terminate the
Management and Marketing Services Agreement and related stock purchase
agreements with Cytoferon, terminating all fees payable thereunder,
concurrent with the issuance of 1,750,000 shares of the Company's
Common Stock, subject to receipt of a fairness opinion which was
subsequently received. In connection with this transaction, the
Company agreed to assume the obligations of Mr. Smith's employment
agreement with Cytoferon through November 18, 1995.
(2) In April 1994, as modified on December 15, 1994, Mr. Healey entered
into a two-year employment agreement expiring April 8, 1996 with the
Company at an annual salary of $75,000. The agreement provides for
health, life and similar employee benefits generally made available to
other employees of the Company, an automobile and related expenses.
The agreement further provided for the sale of 125,000 shares of
Common Stock at $.30 per share payable through the issuance of a
promissory note with the shares being issued into escrow pending cash
payments reflecting the shares to be released from escrow in
increments of no less than 10,000 shares. These shares were purchased
in June 1994 through the issuance of a note in the principal amount
of $36,250, with Mr. Healey receiving a bonus equal to the par value
($1,250) of the shares purchased. On May 15, 1995, the Company
forgave Mr. Healey's note in lieu of bonus for the 1995 fiscal year,
following unanimous approval of the independent members of the Board
of Directors. The agreement also provides for the issuance of 125,000
options to purchase common shares at $.30 per share subject to the
Company reaching certain production levels or raising certain minimums
in capital during the employment contract period, consistent with
similar provisions contained in Mr. Smith's November 1993 employment
agreement. These criteria were met in August 1994 and, according,
these options became exercisable.
On July 1, 1994, as modified on December 15, 1994, the Company entered
into a two-year employment agreement
51
<PAGE> 57
expiring July 1, 1996 with Charles Fistel to serve as Chief Executive
Officer (which position he relinquished to Mr. Robert H. Zeiger in May
1995, assuming the position of Executive Vice President) at an annual
salary of $110,000. The agreement provides for health, life, and
similar employee benefits generally made available to other employees
of the Company, use of an automobile and related maintenance expenses
and reimbursement for expenses incurred in fulfilling his normal
responsibilities to the Company. The agreement provides for the
issuance of options to purchase the aggregate of 300,000 shares of
Common Stock of the Company at an exercise price of $.30 per share,
exercisable with respect to 150,000 shares commencing June 30, 1995
through July 1, 1999, and exercisable for the remaining 150,000 shares
commencing June 30, 1996 through July 1, 2,000. The right to exercise
such options have accelerated based on the Company having raised
certain minimums in capital referred to above. The options are
terminable prior to the lapse of their respective terms only if Mr.
Fistel's employment should be terminated for cause and, in that event,
the options must be exercised, to the extent that they have
theretofore accrued, within 90 days of such termination.
On May 9, 1995, the Company entered into a two-year employment
agreement expiring May 9, 1997 with Robert H. Zeiger to serve as Chief
Executive Officer and Chief Operating Officer of the Company at an annual
salary of $120,000. The agreement provides for health, life and similar
employee benefits generally made available to other employees of the Company,
use of an automobile and related maintenance expenses and reimbursement for
expenses incurred in fulfilling his normal responsibilities to the Company.
The agreement provides for the issuance of options to purchase the aggregate of
1,000,000 shares of Common Stock of the Company at an exercise price of $.96
per share, exercisable with respect to 500,000 shares commencing May 8, 1996
through May 8, 2000 and exercisable for the remaining 500,000 shares commencing
May 8, 1997 through May 8, 2001. The right to exercise such options may be
accelerated upon the occurrence of certain material corporate transactions.
The options are terminable prior to the lapse of their respective terms only if
Mr. Zeiger's employment should be terminated for cause, and, in that event, the
options must be exercised to the extent that they have theretofore accrued
within 90 days of such termination.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the grant
of options to purchase shares of Common Stock during the fiscal year ended June
30, 1994 to each person named in the Summary Compensation Table. The exercise
price of each option is equal to the fair market value of a share of Common
Stock on the date of grant.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARS Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Share) Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gerald Smith 750,000 59.0 $0.30 08/12/99
Dennis W. Healey 125,000 10.0 $0.30 08/12/99
</TABLE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the
exercise of options to purchase shares of Common Stock during the fiscal year
ended June 30, 1994 to each person named in the Summary Compensation Table and
the unexercised options held as of the end of the 1994 fiscal year:
52
<PAGE> 58
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND 1994 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Less Exercise Value of Unexercised
Value Realized In the Money
(Market Price) Number of Unexercised Options at FY-End (Based on
Shares at Exercise Less Options at FY-End FY-End Price of $0.66/Share
Acquired on Exercise Price ------------------------------ -------------------------------
Name Exercise Price Exercisable Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gerald Smith - - - 750,000 - $270,000
Dennis W. Healey - - - 125,000 - $ 45,000
</TABLE>
ADDITIONAL STOCK OPTIONS
On May 15, 1995, the Company adopted its 1995 Stock Option Plan (the
"Plan") under which 4,000,000 shares of Common Stock have been reserved for
issuance to officers, directors, employees and consultants of the Company upon
exercise of options designated as "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986 or upon exercise of
nonstatutory options. The primary purpose of the Plan is to attract and retain
capable executives, employees, directors, advisory board members and other
consultants by offering such individuals a greater personal interest in the
Company's business by encouraging stock ownership. The Plan will be
administered by the Compensation Committee of the Company's Board of Directors
which will determine, among other things, the persons to be granted options,
the number of shares subject to each option and the option price. The Plan
terminates on May 15, 2005.
The exercise price of any incentive stock option granted under the Plan
to an eligible employee must be equal to the fair market value of the shares on
the date of grant, and with respect to persons owning more than 10% of the
outstanding capital stock, the exercise price may not be less than 110% of the
fair market value of the shares underlying such option on the date of grant.
The Board of Directors or Compensation Committee will determine the term of
each option and the manner in which it may be exercised provided that no
incentive stock option may be exercisable more than ten years after the date of
grant, except for optionees who own more than 10% of the Company's capital
stock, in which case the option may not be for more than five years. Further,
no director of the Company or other person who is not an employee of the
Company will be eligible to receive incentive stock options. From the date of
grant until 30 days prior to the exercise, the optionee must be an employee of
the Company in order to exercise any options, except in the case of disability
or death of the employee. Options are not transferable except upon the death
of the optionee. In the event of disability, options must be exercised within
twelve months of termination of employment as determined by the Board of
Directors or the Compensation Committee. Nonqualified options will have
similar terms except the exercise price therefor may be determined by the Board
of Directors or the Compensation Committee, and the term of such nonqualified
options may not extend beyond ten years and one day. The Board of Directors or
the Compensation Committee has the power to impose additional limitations,
conditions and restrictions in connection with the grant of any option.
No options have been granted as yet under the recently enacted Plan.
In August 1994, the Company issued five-year options to purchase an
aggregate of 350,000 shares exercisable at $1.00 per share which were divided
equally among the seven directors of the Company (one of whom subsequently
resigned). In addition, between
53
<PAGE> 59
May 1994 and March 1995, the Company issued five-year options to purchase an
aggregate of 570,000 shares of Common Stock at exercise prices ranging from
$.62 to $1.00 per share to six key employees.
In May 1995, the Company issued 1,000,000 Common Stock purchase
options to Mr. Robert H. Zeiger, Chief Executive Officer, Chief Operating
Officer and a director, pursuant to an Employment Agreement. Under the terms
of the Agreement, 500,000 options become exercisable May, 1996 and 500,000
options become exercisable May, 1997. The options carry a five year term and
are exercisable at $.96 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Medicore, the former parent of the Company, over several years
invested in and loaned substantial sums to the Company which ultimately
resulted in Medicore, after having spun-off the Company as a subsidiary in
1986, then owning 1,500,000 shares of Common Stock and holding a second
mortgage on the Company's property securing a promissory note of $429,400,
representing the loans and advances by Medicore up through the closing of the
Cytoferon investment in May 1993, less a $50,000 partial payment of principal
the Company made to Medicore. The Medicore note carries interest at 1% over
prime and is amortizable over 20 years with equal monthly payments of principal
of $1,790 plus interest with a balloon payment of $361,412 due on August 1,
1996. As of March 31, 1995, the principal amount owing on stock note was
$390,038. The note, evidenced by a loan agreement, in addition to the mortgage
on the Company's building, is also secured with the Company's equipment,
fixtures, accounts receivable and contract rights. The security interest in
the building which the Company has granted to Medicore is second to the
security interest held by the Equitable Bank which holds a first mortgage on
the Company's property, securing a promissory note to Equitable Bank from the
Company of $600,000, which is being amortized over 20 years with equal monthly
installments of principal of $2,500 plus interest at prime plus 2% per month,
with a balloon payment of $450,000 due on August 1, 1996. Medicore has
guaranteed the Equitable Bank mortgage and has an agreement to acquire the
Company's property if Medicore assumes the Equitable mortgage. The bank may
not make any further loans or advances to the Company without the prior written
consent of Medicore. The Equitable loan and mortgage were in default for
failure to satisfy covenants other than the payment of principal and interest,
but have since been brought current.
In conjunction with Medicore spin-off of the Company in 1986, several
agreements were entered into with Medicore to administratively deal with the
separation of the companies. These agreements included employment agreements
with Messrs. Langbein and Healey (Mr. Langbein resigned as Chief Executive
Officer and Chairman of the Board of Directors of the Company under the terms
of the Stock Agreement) which employment agreements were terminated in
consideration for stock of the Company. Also as part of the spin-off, the
Company entered into a Royalty Agreement with Medicore to pay to Medicore
royalties on net sales of interferon and related products. Pursuant to the
Stock Agreement, the Company and Medicore further amended the royalty agreement
providing for a cap of $2,400,000 in royalty payments and installment payments
of royalties based upon percentages of sales.
54
<PAGE> 60
Gerald Smith, Chairman of the Board of Directors, President and
director of the Company, is the sole shareholder of Cytoferon, a former active
affiliate of the Company.
The Company shares one officer and one director with Medicore and its
subsidiaries. Dennis W. Healey, Executive Vice President, Treasurer and
Principal Financial Officer of the Company, is Senior Vice President and
Treasurer of Medicore, Executive Vice President of Techdyne and an officer
and/or director of their subsidiaries. Peter D. Fischbein, director of the
Company, is a director of Medicore and Techdyne. Lawrence E. Jaffe, former
Secretary and corporate counsel to the Company holds these positions with
Medicore and Techdyne. Mr. Jaffe resigned all positions with the Company in
May 1994, being replaced by Peter Fischbein, a Director of the Company.
During 1990 and 1991 the Company borrowed $60,000 from Seymour Friend,
an officer and director of Medicore and former director of the Company, to meet
then current operating expenses. The borrowing was represented by a demand
promissory note dated May 31, 1991 bearing interest of 11% per annum. The
principal and interest was converted into capital of the Company in June, 1991,
with Mr. Friend receiving 200,000 shares of the Company's Common Stock. From
January, 1992 to April 10, 1992, Mr. Friend made additional loans to the
Company which the Company repaid in part, with a balance due to Mr. Friend of
$66,700 evidenced by a demand convertible promissory note at 10% interest per
annum. This note with related interest accrued was satisfied in January 1994
through the issuance of 260,130 shares of the Company's Common Stock. In June
1994, the Company borrowed an additional $25,000 from Mr. Friend which was
repaid in July 1994, with related interest at 10%.
Peter D. Fischbein, director of the Company, and a director of Medicore
and Techdyne, was a member of a law firm, now dissolved, which firm acted as
counsel to the Company, and Medicore from time to time. Mr. Fischbein's firm
also handled the legal work for the Limited Partnership which has licensing
agreements with the Company. In December 1994, Mr. Fischbein resigned as
Secretary of the Company. In July 1994, Mr. Fischbein, in recognition for
several years' services as a director of the Company, was provided the right to
purchase 125,000 shares of Common Stock at $.30 per share (market price at that
time was approximately $.53 per share), payable through the issuance of a note
in the principal amount of $36,250, with Mr. Fischbein receiving a bonus equal
to the par value ($1,250) of the shares purchased. On May 15, 1995, the
Company forgave Mr. Fischbein's note in lieu of bonus for the 1995 fiscal year,
following unanimous approval of the independent members of the Board of
Directors.
Lawrence E. Jaffe former Secretary and counsel to the Company resigned
these positions in May 1994. Mr. Jaffe is also corporate counsel to Medicore
and its majority owned subsidiary Techdyne. Mr. Jaffe received $30,410 and
$14,434 in fees from the Company in 1992 and for the six months ended June 30,
1993, respectively, and received substantially all of the balance of his
professional fees for fiscal 1992 and for the six months ended and year ended
June 30, 1993 and 1994 from Medicore and Techdyne.
On February 5, 1993, the Stock Agreement with Cytoferon was executed,
the initial $100,000 investment was made by Cytoferon and Gerald Smith, chief
executive officer, director and principal of
55
<PAGE> 61
Cytoferon, became a director of the Company. Under the terms of the Stock
Agreement, upon further Cytoferon investments, Thomas K. Langbein an executive
of the Company since its inception in 1980 and Chairman of the Board, resigned
and Jesse Hwa, a Cytoferon appointee, filled the vacancy on the Board in April
1993. Mr. Hwa resigned on July 22, 1993 and was one of the plaintiffs in the
Cytoferon Debenture holders suit against Cytoferon and the Company. Upon
Cytoferon's additional investment in May 1993, pursuant to which Cytoferon had
invested $1,000,000 for 6,000,000 shares of Common Stock of the Company, Mr.
Seymour Friend resigned as director. In May, Cytoferon moved its offices to
the Company's facilities in Hialeah, Florida. In November 1993 the Company
entered into the Additional Stock Purchase Agreement with Cytoferon and
thereafter, issued 1,333,333 shares of Common Stock to Cytoferon for an
additional investment of $400,000.
In connection with Cytoferon's investments, the Company entered into a
Marketing and Management Services Agreement with Cytoferon pursuant to which
agreement Cytoferon became consultant to and exclusive distributor of products
of the Company not approved by the U.S. Food and Drug Administration for
national distribution in exchange for certain fees and commissions. The MMS
Agreement provided for a management consulting fee of $240,000 per year subject
to Cytoferon meeting certain per year and aggregate initial term and renewal
term sales requirements. In addition, the MMS Agreement provided that
Cytoferon was to have been the exclusive worldwide distributor, subject to
maintaining certain sales minimums for all of the Company's non-FDA approved
products for three years, a 4% sales commission on such sales, 50% of all fees
received by the Company from the sale of any foreign franchises, licenses,
technology transfer or joint venture agreements and 20% of any ongoing foreign
royalty payments.
The Company's management believed it was in the long-term best
interest of the Company to unify and consolidate management functions and
efforts and eliminate conflicts that could arise by virtue of minimum sales
requirements that could be inconsistent with the Company's plans to introduce
new production technologies and refinement of related protocols. Accordingly,
the Company executed the Subsequent Agreement, subject to receipt of a fairness
opinion received in December 1994, which terminated the MMS Agreement, the
Stock Purchase Agreement and Additional Stock Purchase Agreement and restored
the concept of the original Stock Purchase Agreement by accelerating the
issuance of the 1,750,000 shares previously contingently issuable under the
Additional Stock Agreement concurrent with the cancellation of the
aforementioned agreements.
Messrs. Sydney Dworkin, Jay M. Haft, and William B. Saeger, Directors
of the Company, Mr. Jerome E. Treisman, a former Director, and Charles F.
Fistel, an Executive Vice President of the Company, purchased Cytoferon 8 1/2%
Convertible Debentures in the respective principal
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<PAGE> 62
amounts of $50,000, $62,500, $150,000, $22,500 and $50,000 which are
convertible into Common Stock of the Company. The principal amount of such
Debentures together with accrued interest were converted, effective September
30, 1994 at $.30 per share and accrued interest into 175,244 shares, 220,744
shares, 533,766 shares, 78,668 and 177,922 shares of Common Stock of the
Company.
In November, 1993, the Company issued $200,000 in 8 1/2%, three-year
convertible debentures. These debentures were converted at $.30 per share into
666,668 shares of Common Stock on October 31, 1994. These shares are held by
Fundamental Management Corp. and Hedge Fund Management, which are investment
funds managed by William B. Saeger, a director of the Company.
In January 1994, the Company sold 1,000,000 Common Stock purchase
warrants to Northlea Partners, Ltd., a medical consultant to the Company, for
$20,000, exercisable at $.30 per share for a term of five years, concurrent
with the execution of an independent Management Consulting Agreement.
Provisions of the Management Consulting Agreement provide the purchaser the
right to purchase up to 300,000 shares commencing six months from the date of
the agreement with purchase rights on the balance of 700,000 vesting uniformly
over a three-year period. The Company had the right to repurchase any warrants
at its option for $.025 per share. The Company repurchased 584,160 warrants
and terminated the Management Consulting Agreement in July 1994, resulting in
warrants to purchase 415,850 shares remaining outstanding, which are presently
exercisable although none have been exercised to date.
In connection with the Company's $3.5 million private placement,
completed in August 1994, the Company issued 765,650 Common Stock purchase
warrants exercisable presently at $.52 per share to the placement agent and its
designees for such offering. These warrants are exercisable through August
1999. In March 1995, the Company issued 64,500 Common Stock purchase warrants
to Mr. Moty Hermon and designees in consideration for financial consulting
services to be undertaken on behalf of the Company. The warrants are for a
five year term and are exercisable presently at $.60 per share, although none
have been exercised to date.
CLINICAL ADVISORY COMMITTEE
The Company formed a Clinical Advisory Committee in February, 1995
comprised of scientists, medical researchers and clinicians who have expertise
primarily in areas of relevance to the Company's research and development
activities. All of the members of the Clinical Advisory Committee participated
in a full day conference and program to evaluate procedures and to recommend a
course of action for obtaining FDA and EU approvals of the Company's Natural
Interferon product, which program was held in February immediately
57
<PAGE> 63
following the organization of the Clinical Advisory Committee. The Clinical
Advisory Committee is expected to assist the Company in developing the medical,
scientific and clinical aspects of formal Multiple Sclerosis clinical protocols
and trials for its investigational, natural human interferon-alpha product.
The Company views this as its initial step towards seeking FDA and EU approvals
of its Product.
KENNETH JOHNSON, M.D., who serves as Chairman of the Clinical Advisory
Committee, is Professor and Chairman of the Department of Neurology for the
University of Maryland School of Medicine. Among previous appointments, Dr.
Johnson has been Professor of Neurology at the University of California and
Associate Professor at Case Western Reserve University. Dr. Johnson is listed
in the publication "Best Doctors in America". He is currently on the Editorial
Board for the Archives of Neurology and the Journal of Neuroimmunology. Dr.
Johnson is an Ad Hoc reviewer for various medical journals including,
Neurology, Annals of Neurology, Annals of Internal Medicine, New England
Journal of Medicine, the American Journal of Virology as well as for other
publications. Dr. Johnson has lectured extensively on the subject of
Interferon therapy in Multiple Sclerosis as well as on Copolymer-I and Beta
Interferon. Dr. Johnson was a co-author in the Landmark 1983 medical article
on "New Diagnostic Criteria for Multiple Sclerosis" which became the seminal
source for diagnostic typing within Multiple Sclerosis. In addition, Dr.
Johnson has published in excess of twenty articles regarding the use of
Interferon in Multiple Sclerosis. Dr. Johnson has also received research
support from Schering Plough relative to a 1982-1985 trial of Alpha Interferon,
from the Kroc Foundation and from Sandoz Pharmaceutical for 1981-1985 study of
cyclosporine therapy, from the Triton Viro Science Corporation for the study of
Beta Interferon and from the National Multiple Sclerosis Society for the study
of Copolymer-I.
JEFFREY A. COHEN, M.D., is currently the Director of the Experimental
Therapeutics Program at the Mellen Center for Multiple Sclerosis Treatment and
Research for the Cleveland Clinic Foundation. Dr. Cohen is also presently a
member of the staff of the Department of Neurology of the Cleveland Clinic. He
is currently a reviewer for ten Neurology Journals, including Annals of
Neurology, Archives of Neurology and Neurology. Dr. Cohen has been a
consultant for the R.W. Johnson Pharmaceutical Research Institute, and Ortho
Pharmaceutical Corporation and participated in the standardization of the
clinical rating scales for the Cladribine clinical trial and has been a
participant in the Copolomer-1 studies. Dr. Cohen has been a recipient of
grants for various clinical studies including the Tizanidine Study. Dr. Cohen
is a frequent contributor to various publications on the subject of
Neurovirology.
58
<PAGE> 64
GEORGE W. ELLISON, M.D., is currently Professor In-residence of
Neurology at the University of California, Los Angeles. Prior thereto, Dr.
Ellison was Adjunct Professor of Neurology at the University of California, Los
Angeles. Dr. Ellison has served since 1971 as a director of the Multiple
Sclerosis Research Clinic and Treatment Center at the Reed Neurological
Research Center at the University of California, Los Angeles. Dr. Ellison also
has served through hospital appointments and teaching activities at various
medical institutions and hospitals and has functioned as a consultant to
various professional societies and governmental agencies. Dr. Ellison has also
been a frequent participant in various lecture programs, has published
extensively in the area of Neuroviology and the treatment of Multiple Sclerosis
and has been the recipient of several research grants in the field.
ROBERT HERNDON, M.D., was a full Professor of Neurology at the Oregon
Health Sciences University and the Chairman of the Combined Neurology Services
Department at the Legacy Health System which is the combined departments of
Neurology, Neurosurgery, Psychiatry, and Rehabilitation at the University of
Oregon in Portland. Prior thereto, Dr. Herndon was full professor at the
University of Rochester, an Associate Professor at John Hopkins Medical School
and Chief of the Neurology Service at the Veteran's Administration in Palo
Alto, California. Dr. Herndon is a Board Member of the Portland Chapter of the
National Multiple Sclerosis Society and is on the Editorial Board of the Annals
of Neurology, Neurology and the Journal of Neuropathology, and Experimental
Neurology. In addition, Dr. Herndon has been extensively involved with the
National Multiple Sclerosis Society and was a co-investigator for the Beta
Interferon trial conducted on behalf of Biogenic, Inc. Dr. Herndon has
published extensively on research issues in Vironeurologic diseases and has
also published on the immunopathologic aspects of Multiple Sclerosis.
Specifically in the clinical area, Dr. Herndon was the third author on the
Jacobs study on intrathecal administration of Human Fibroblast Interferon. He
is also published on MRI imagining in the treatment of Multiple Sclerosis and
is the first of two authors on the cerebrospinal fluid. Dr. Herndon has also
participated in various clinical trials including the DATATOP trial in
Parkinson's Diseases, and Cyclophosphamide Pulse Therapy trial in Multiple
Sclerosis, and most recently was a member of the Optic Neuritis Study Group
which presented a number of articles in the New England Journal of Medicine
regarding the relationship between Multiple Sclerosis and Optic Neuritis.
WILLIAM SHEREMATA, M.D., is currently Associate Professor of Neurology
and Immunology at the University of Miami, and prior thereto was Assistant
Professor of Neurology at McGill University in Montreal. Dr. Sheremata is an
Ad Hoc reviewer for Neurology, New England Journal of Medicine, Archives of
Neurology and Archives of Opthalmology. He is an active participant through
counsel membership in organizations involved with Multiple Sclerosis
59
<PAGE> 65
including the National Multiple Sclerosis Society, and has received various
grants in connection with the treatment and evaluation of Multiple Sclerosis.
Dr. Sheremata has been an active participant in various lectureship programs
and has published extensively in the area of Multiple Sclerosis and Neurology.
JERRY WOLINSKY, M.D., is a full professor of Neurology at the
University of Texas, and at the Houston Health Science Center, School of
Medicine. Dr. Wolinsky has held appointments at the University of California
in San Francisco and from John Hopkins University. Previously, Dr. Wolinsky
worked for Carter Wallace between 1991 and 1992 and Elan Pharmaceuticals from
1992 to the present. Dr. Wolinsky is presently on the Medical Advisory Board
for Multiple Sclerosis for Sandoz Pharmaceuticals and is listed in the
publication "Best Doctors in America". Dr. Wolinsky has been a participant on
the Executive Board of the National Multiple Sclerosis Society and is on the
Editorial Board for the Annals of Neurology and Critical Reviews in Clinical
Neurobiology. He is an Ad Hoc reviewer for most of the neurologic journals as
well as for the New England Journal of Medicine. Dr. Wolinsky has been a
participant in various studies for which grants have been awarded and has been
published extensively in the area of immunovirology. Dr. Wolinsky has also
worked for Sandoz Pharmaceuticals as a participant in their cyclosporine
studies and has published extensively on the Herpes Simplex Virus.
Each member of the Clinical Advisory Committee has entered into an
agreement with the Company which requires the member to maintain the
confidentiality of the Company's trade secrets and other proprietary data
derived by the member during the course of his relationship with the Company.
The agreements also provide that all discoveries and trade secrets conceived
and developed by such members in conjunction with their services to the Company
will become the proprietary property of the Company. The Company expects to
structure compensation arrangements with each of the members, based on the
level of their involvement with the Company, which may include cash payments
and/or a combination of securities.
Since the date of the initial organization of the Clinical Advisory
Committee, Dr. Johnson has been active in advising the Company as to procedures
for the preparation of clinical trials and Dr. Sheremata has continued to
advise the Company on clinical aspects of its 499 Program. As Chairman of the
Clinical Advisory Committee, Dr. Johnson is expected to assign to the members
in forthcoming months various responsibilities relative to developing the
Company's Multiple Sclerosis clinical protocols and trials.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
Company's Common Stock beneficially owned at May 12, 1995 (i) by each person who
is known by the Company to own beneficially or
60
<PAGE> 66
exercise voting or dispositive control over 5% or more of the Company's Common
Stock, (ii) by each of the Company's directors, and Chief Executive Officer and
(iii) by all officers and directors as a group. A person is deemed to be a
beneficial owner of any securities of which the person has the right to acquire
beneficial ownership within sixty days. At May 12, 1995, there were 35,355,532
shares of Common Stock of the Company outstanding.
<TABLE>
<CAPTION>
Amount
Nature of Percent
Name and Address Beneficial of
of Beneficial Owner Ownership (1) Class (2)
------------------- ------------- ---------
<S> <C> <C>
Gerald Smith 1,162,847(3) 3.2%
Robert H. Zeiger 1,000,000(4) 2.7%
Dennis W. Healey 600,000(5) 1.7%
Peter D. Fischbein 300,000(6) 0.8%
Sidney Dworkin, Ph.D. 225,244(7) 0.6%
Jay M. Haft 320,744(8) 0.9%
William B. Saeger 1,631,854(9) 4.6%
Officers and Directors
as a Group 8 persons) 5,801,944 16.1%
</TABLE>
- ---------------
(1) Based upon information furnished to the Company by the principal
security holders or obtained from the stock transfer books of the
Company. Other than indicated in the notes, the Company has been
informed that such persons have sole voting and dispositive power with
respect to their shares. All of the individuals listed are officers
and/or directors of the Company whose address is 2343 West 76th
Street, Hialeah, Florida 33016.
(2) Based on 35,355,532 shares of Common Stock outstanding at May 12, 1995.
Exclusive of (i) 14,697 shares of Common Stock reserved for issuance
pursuant to conversion of 3,450 outstanding shares of preferred stock
each convertible into 4.26 shares of Common Stock; and (ii) 3,380,990
shares of Common Stock reserved for issuance pursuant to the exercise
of warrants and options of the Company.
(3) Mr. Smith is Chairman of the Board of Directors and President of the
Company. Includes (i) 362,847 shares owned directly by Mr. Smith;
(ii) 750,000 Common Stock purchase options exercisable at $.30 per
share pursuant to Mr. Smith's Employment Agreement; and (iii) 50,000
Common Stock purchase options exercisable at $1.00 per share granted
to all Directors in August 1994.
(4) Mr. Zeiger is Chief Executive Officer, Chief Operating Officer and a
Director of the Company. Includes 1,000,000 Common Stock purchase
options exercisable at $.96 per share pursuant to Mr. Zeiger's
Employment Agreement.
61
<PAGE> 67
(5) Mr. Healey is Executive Vice President, Treasurer, Chief Financial
Officer, Secretary and a Director of the Company. Includes (i)
425,000 shares owned directly by Mr. Healey; (ii) 125,000 Common Stock
purchase options exercisable at $.30 per share pursuant to Mr.
Healey's Employment Agreement; and (iii) 50,000 Common Stock purchase
options exercisable at $1.00 per share granted to all Directors in
August 1994.
(6) Mr. Fischbein is a Director of the Company. Includes (i) 125,000
shares owned directly by Mr. Fischbein; (ii) 125,000 Common Stock
purchase options exercisable at $.30 per share pursuant to a Sale of
Stock and Stock Option Agreement and (iii) 50,000 Common Stock
purchase options exercisable at $1.00 per share granted to all
Directors in August 1994. Mr. Fischbein disclaims any beneficial
ownership of 388,400 shares of Common Stock held by his daughter, who
is of majority age and lives independently of her father. Mr.
Fischbein's daughter has piggy-back registration rights to 107,400
shares.
(7) Dr. Dworkin is a Director of the Company. Includes (i) 175,244 shares
owned directly by Mr. Dworkin and his wife; (ii) 50,000 Common Stock
purchase options exercisable at $1.00 per share granted to all
Directors in August 1994.
(8) Mr. Haft is a Director of the Company. Includes (i) 220,744 shares
owned directly by Mr. Haft; (ii) 50,000 Common Stock purchase options
exercisable at $.30 per share and (iii) 50,000 Common Stock purchase
options exercisable at $1.00 per share granted to all Directors in
August 1994.
(9) Mr. Saeger is a Director the Company. Includes (i) 26,100 shares
owned directly by Mr. Saeger; (ii) 1,555,755 shares held by
Fundamental Management Corp. and Hedge Fund Management. Mr. Saeger
holds a controlling position as Fund Manager of the Fundamental Fund
Group, holder of these shares and is considered a beneficial owner
and; (iii) 50,000 Common Stock purchase options exercisable at $1.00
per share granted to all Directors in August 1994.
SALES BY SELLING SECURITY HOLDERS
The following table sets forth the name of each Selling Security
Holder, the amount of shares of Common Stock held directly
62
<PAGE> 68
or indirectly by each holder on January 31, 1995, the amount of shares of
Common Stock to be offered by each such holder, the amount of Common Stock to
be owned by each such holder following sale of such shares of Common Stock and
the percentage of shares of Common Stock to be owned by each such holder
following completion of such offering. On May 12, 1995, there were 35,555,532
shares of Common Stock of the Company outstanding.
<TABLE>
<CAPTION>
Shares to Percentage
Number Shares be Owned to be
Name of Selling of Shares to be After Owned After
Security Holder Owned Offered Offering Offering
- --------------- ------- ------- -------- ---------
<S> <C> <C> <C> <C>
Tom Payne 848,997 848,997 0 *
Northlea Partners 813,846 813,846 0 *
SASCO Marketing Inc. 712,500 712,500 0 *
Broad & Cassel, PA 523,548 523,548 0 *
Penfield Partners 500,000 500,000 0 *
Harry Schwartz 425,749 425,749 0 *
Laboratorios Andromaco 355,845 355,845 0 *
Feron, Inc. 355,845 355,845 0 *
Fundamental Growth Partners, Ltd. 344,589 344,589 0 *
Fundamental Resources, Ltd 344,589 344,589 0 *
Hedge Fund Partners, Ltd. 344,589 344,589 0 *
Eugene DeBlasio 338,333 338,333 0 *
The Jaymee Company 325,127 325,127 0 *
MDA Financial, Inc. 313,756 313,756 0 *
Laidlaw Equities, Inc. 313,567 313,567 0 *
W. Richard Lueck 305,903 305,903 0 *
Charles F. Fistel 261,255 261,255 0 *
Susan Kaufman Trustee 258,750 258,750 0 *
Avi & Irma Samuel, JTWROS 250,000 250,000 0 *
Frederick Adler 250,000 250,000 0 *
Katheryn Eckstein 250,000 250,000 0 *
Peters Securities 250,000 250,000 0 *
Roger D. Benson 250,000 250,000 0 *
Moty Hermon 248,584 248,584 0 *
Richard M. Lilly/RM Lilly Trust 228,061 228,061 0 *
Jay Haft 220,744 220,744 0 *
Jaswant & Debra Pannu 211,255 211,255 0 *
Wisdom Tree Associates LP 208,333 208,333 0 *
Marvin Kogod 191,906 191,906 0 *
Rueben Peters 180,310 180,310 0 *
Avtar Sandhu 177,922 177,922 0 *
Martin Kartagener 177,922 177,922 0 *
Charles Evans 175,355 175,355 0 *
James Warner and Keelin Hayden 173,769 173,769 0 *
Melvin Gershman 168,811 168,811 0 *
Fundamental Associates, Ltd. 166,667 166,667 0 *
Uri Elias 166,667 166,667 0 *
Wellington Hill Financial, Inc. 166,667 166,667 0 *
Felix and Joyce Campos 159,005 159,005 0 *
Arthur Gottman 156,831 156,831 0 *
Kenneth M. Reichle, Jr. 150,239 150,239 0 *
Irving Davies 150,122 150,122 0 *
Eugene & Nazeli DeBlasio, JTWROS 150,000 150,000 0 *
Herbert F. Holin 150,000 150,000 0 *
Robert M. Rosin 146,072 146,072 0 *
Joel Friedman 133,750 133,750 0 *
Robert W. Hill/RW Hill Trust 133,333 133,333 0 *
Aaron Priest 125,000 125,000 0 *
Edward R. Falkner Profit Sharing Trust 125,000 125,000 0 *
Intergalactic Growth Fund, Inc. 125,000 125,000 0 *
LEF Investments, Inc. 125,000 125,000 0 *
R & J Trust DTD: 7/1/93 125,000 125,000 0 *
Sidelmar 125,000 125,000 0 *
Uzi Zucker 125,000 125,000 0 *
Vincent R. Keating 125,000 125,000 0 *
Wesley Wood 125,000 125,000 0 *
Leonard Berke 112,736 112,736 0 *
Tina D. and Richard M. Lilly 112,431 112,431 0 *
Walter Smith & Kathleen King JTWROS 110,586 110,586 0 *
Gerald Richter 106,282 106,282 0 *
Barry Shemaria 104,167 104,167 0 *
</TABLE>
63
<PAGE> 69
<TABLE>
<S> <C> <C> <C> <C>
Rozel International Holdings, Ltd 104,167 104,167 0 *
Steven Zenker 102,500 102,500 0 *
Oscar Zimmerman 101,875 101,875 0 *
Gary Waxman IRA 100,000 100,000 0 *
James & Janet Jordan JTWROS 100,000 100,000 0 *
Kevin J. Wiltz 100,000 100,000 0 *
Eugene Mascarenhas 96,169 96,169 0 *
Eric & Florence Stein, JTWROS 93,333 93,333 0 *
Hilaire & Sandra Fernandez 88,961 88,961 0 *
Ritchie Jacobs 88,961 88,961 0 *
Edward Falkner 87,855 87,855 0 *
Michael & Martha Bushey, JTWROS 87,816 87,816 0 *
Edward Rosenthal 87,739 87,739 0 *
Lee Hartzmark 87,739 87,739 0 *
Dorris R. Dworkin 87,622 87,622 0 *
Sidney Dworkin 87,622 87,622 0 *
Phyllis Froimson 87,622 87,622 0 *
James Shoke 87,428 87,428 0 *
Tina Lilly 84,347 84,347 0 *
Marc Berman 83,334 83,334 0 *
Dale R. Warren 83,333 83,333 0 *
Donald E. Kaplan 83,333 83,333 0 *
Gary & Carolyn Bodzin, TITE 83,333 83,333 0 *
George Gayle Darville 83,333 83,333 0 *
Heinz Gisin 83,333 83,333 0 *
Mark S. Block 83,333 83,333 0 *
Nell A. Ramo 83,333 83,333 0 *
Radix Associates 83,333 83,333 0 *
Ronald C. Smith 83,333 83,333 0 *
Sandra & Jose Yglesias, JTWROS 83,333 83,333 0 *
Willoughby Holin and Rentner PSP 83,333 83,333 0 *
Amtech Services Defined Benefit Plan 81,250 81,250 0 *
Jerome Treisman 78,668 78,668 0 *
Gilbert & Cristi Shapiro, JTWROS 77,814 77,814 0 *
Raymond & Margaret McKnight, JTWROS 77,814 77,814 0 *
Hymie Akst 75,236 75,236 0 *
Suzanne Schiller 75,000 75,000 0 *
Jeffrey & Martha Pearl 71,753 71,753 0 *
Christopher Rosman 70,734 70,734 0 *
David Nuelle 70,734 70,734 0 *
Robert Peters 70,734 70,734 0 *
Steven Helms 70,719 70,719 0 *
Ray A. Eckstein 62,847 62,847 0 *
Elizabeth A. Krause 62,551 62,551 0 *
1520 Family Partners Ltd 62,500 62,500 0 *
Adam L. Henick 62,500 62,500 0 *
Anthony C. & Marilyn Dalessio, JTWROS 62,500 62,500 0 *
David T. Atkins IRA Plan #2 62,500 62,500 0 *
G.R.P. Industries Inc. 62,500 62,500 0 *
Glen Lebowitz 62,500 62,500 0 *
H. James Catlin, Jr. 62,500 62,500 0 *
James A. Schoke, ADMIN. 62,500 62,500 0 *
James Blanchard 62,500 62,500 0 *
Joan F. Forshew 62,500 62,500 0 *
Josef & Shelley Patadis, JTWROS 62,500 62,500 0 *
Lawrence W. Mullman 62,500 62,500 0 *
Michael E. & Martha L. Bushey, JTWROS 62,500 62,500 0 *
Michael G. Lucci - Revocable Living Trust 62,500 62,500 0 *
Michael Lilly 62,500 62,500 0 *
Miller Advisory Corp. P/P/T 62,500 62,500 0 *
Nannette Wasserman 62,500 62,500 0 *
Robert G. Gottesman 62,500 62,500 0 *
Ronald G. & Ellen Caravello, JTWROS 62,500 62,500 0 *
Sallie Felzen 62,500 62,500 0 *
Sidelman, A Partnership 62,500 62,500 0 *
Victor J. Scaravilli 62,500 62,500 0 *
John & Vivian Scarmadella, JTWROS 60,000 60,000 0 *
Westin Investors PSP 60,000 60,000 0 *
Garry Friedberg 57,307 57,307 0 *
Ruth S. Russ 53,750 53,750 0 *
Manuel Iribar 53,377 53,377 0 *
Dacia Marie Lueck 52,638 52,638 0 *
Tiara Lynn Lueck 52,638 52,638 0 *
Beverly Segal 52,550 52,550 0 *
Roger H. Willoughby 52,083 52,083 0 *
Francine Rodin 50,000 50,000 0 *
Frank Merklein 50,000 50,000 0 *
Hermina Rosenberg 50,000 50,000 0 *
</TABLE>
64
<PAGE> 70
<TABLE>
<S> <C> <C> <C> <C>
Louise Bassano 50,000 50,000 0 *
Michael W. Pure 50,000 50,000 0 *
Muriel Gottesman 50,000 50,000 0 *
Phillip J. Schiller 50,000 50,000 0 *
Than M. Jain 50,000 50,000 0 *
Vinod & Manju Joshi, JTWROS 50,000 50,000 0 *
James D. & Judith A. Rentner, JTWROS 47,792 47,792 0 *
Beatrice Murphy & Kathy Griffin JTWROS 45,842 45,842 0 *
Harvey Polly 43,801 43,801 0 *
Ramchandra & Rashmi Jakhotias, JTWROS 43,750 43,750 0 *
Cabell & Joyce Payne, JTWROS 41,667 41,667 0 *
Dean Cundey, Trustee 41,667 41,667 0 *
Donald Lipsy S. 41,667 41,667 0 *
Gale K. Sostek 41,667 41,667 0 *
Howard & Jill Schwartz, TITE 41,667 41,667 0 *
Jose Luis Ferriz 41,667 41,667 0 *
Nagia Elias 41,667 41,667 0 *
Patrick & Dawn Kearney Trustees 41,667 41,667 0 *
Larry Griffin 41,666 41,666 0 *
Lawrence Hurwitz, MD Trustee 41,666 41,666 0 *
Dolores Hartzmark 37,500 37,500 0 *
Rolando & Maria Del Rio 35,584 35,584 0 *
Kathy Griffin 35,176 35,176 0 *
David & Adele Hast, JTWROS 35,000 35,000 0 *
Michel Beno 35,000 35,000 0 *
Russel Anmuth 33,334 33,334 0 *
Herbert & Marlia Josephart, TTEES 33,333 33,333 0 *
Max Silkowitz 33,333 33,333 0 *
Charles and Patricia Goldsmith ,TITE 31,250 31,250 0 *
Daniel Abramson 31,250 31,250 0 *
Elaine Schwartz 31,250 31,250 0 *
James M. Goldfarb 31,250 31,250 0 *
John C. & Joan C. Levine, JTWROS 31,250 31,250 0 *
Joseph & Hermina Rosenberg, JTWROS 31,250 31,250 0 *
Julius Krammer 31,250 31,250 0 *
Michael G. & Eileen P. Smith, JTWROS 31,250 31,250 0 *
RFD Associates 31,250 31,250 0 *
Richard & Robin Alman , JTWROS 31,250 31,250 0 *
Samuel A. & Carol Cassell, JTWROS 31,250 31,250 0 *
Steven & Kim Silvers, JTWROS 31,250 31,250 0 *
Steven Silvers D.O., P.A. Pension Plan 31,250 31,250 0 *
Irwin H. Blau 30,000 30,000 0 *
Kevin E. Potter 30,000 30,000 0 *
Alan Hartzmark Revocable Trust 25,000 25,000 0 *
Allan E. Glickman 25,000 25,000 0 *
Barbara Akst 25,000 25,000 0 *
Brent Adamson 25,000 25,000 0 *
Elliot Dworkin 25,000 25,000 0 *
Izhr & Nitza Shy 25,000 25,000 0 *
Lee Kaplan 25,000 25,000 0 *
Mark Schwartz 25,000 25,000 0 *
Marvin Pastor 25,000 25,000 0 *
Renee Nadel Trust 25,000 25,000 0 *
Ritchie and Estelle Jacobs 25,000 25,000 0 *
Rosemary Valente, IRA 25,000 25,000 0 *
Stanley & Marilyn Boyle, Trustees 25,000 25,000 0 *
Theodore J. & Edith Wins, JTWROS 25,000 25,000 0 *
Miriam J. Pearl, Trustee 25,000 25,000 0 *
Timothy & Bryan Reed, JTWROS 25,000 25,000 0 *
Varda & Moshe Yalon, JTWROS 25,000 25,000 0 *
Hans Pojer 23,724 23,724 0 *
Janine P. Gia 21,901 21,901 0 *
Jeffrey Polly 21,901 21,901 0 *
Alfred B. Schuler 20,833 20,833 0 *
Howard Gross PNCIRA Custodian 20,833 20,833 0 *
Peter & Bettle Kuzmick, JTWROS 20,833 20,833 0 *
Scott & Lisa Goldberg TITE 20,833 20,833 0 *
Leonard R. Schenker 20,000 20,000 0 *
Marian Heiser 20,000 20,000 0 *
Seth Kaufman, Trustee 20,000 20,000 0 *
Mark Alan Rosenberg 18,000 18,000 0 *
Lee Collins 17,513 17,513 0 *
Andrew Sostek 16,667 16,667 0 *
Bernard & Estelle Jacobs JTWROS 16,667 16,667 0 *
Jerry F. Nichols 16,667 16,667 0 *
June Busby 16,667 16,667 0 *
Kenneth D & Janice B. Lent U/T/D 16,667 16,667 0 *
Richard Burack 16,667 16,667 0 *
</TABLE>
65
<PAGE> 71
<TABLE>
<S> <C> <C> <C> <C>
Sidney & Alene Workman, JTWROS 16,667 16,667 0 *
William Herbst, IRA 16,667 16,667 0 *
Steven Sanders 15,979 15,979 0 *
Michael Smith 15,000 15,000 0 *
Phyllis Cohen 15,000 15,000 0 *
Roberta Lamb 13,653 13,653 0 *
James R. Postinpack 13,500 13,500 0 *
Anand V. Khandelwal 12,500 12,500 0 *
Claude Memmi 12,500 12,500 0 *
Claude Wall 12,500 12,500 0 *
Daniel Shek 12,500 12,500 0 *
David & Muriel Kaufman, JTWROS 12,500 12,500 0 *
Michael G. & Susan A. Green, JTWROS 12,500 12,500 0 *
Mukesh & HemaxiBhatt, JTWROS 12,500 12,500 0 *
Natwara Jethva 12,500 12,500 0 *
Betty Smith 12,480 12,480 0 *
Donald Hagen 11,860 11,860 0 *
Carlson & Bales, P.A. 11,738 11,738 0 *
Paul Abbey 10,861 10,861 0 *
Amanda B. Pearl 10,000 10,000 0 *
Andrew Sroka 10,000 10,000 0 *
Govind K. Mehta 10,000 10,000 0 *
James A. Baker 10,000 10,000 0 *
Manuel V. Fernandez 10,000 10,000 0 *
Martin Scharf 10,000 10,000 0 *
Melvin Waxman 10,000 10,000 0 *
Allen & Joan VanWinkle, TITE 8,333 8,333 0 *
Ilyne Kobrin, SEP-IRA 8,333 8,333 0 *
Lazlo Szekely 7,500 7,500 0 *
Mark Kogod 6,667 6,667 0 *
Bruce Hartzmark 6,250 6,250 0 *
Hershel Krasnow 6,250 6,250 0 *
Lal C. Jagetia 6,250 6,250 0 *
Louis A. Horwitz 6,250 6,250 0 *
Steven L. Wasserman 6,000 6,000 0 *
Anil Jagetta 5,000 5,000 0 *
Ceaser Fraschilla 3,000 3,000 0 *
Jeffrey Buick 2,083 2,083 0 *
Ann Greene 2,000 2,000 0 *
Bruce Kogod 1,667 1,667 0 *
Karen Kogod 1,667 1,667 0 *
----- -----
Total 23,356,355 23,356,355
========== ==========
</TABLE>
_______________
*Denotes less than 1% ownership.
An aggregate of 14,697 shares of Common Stock included in the shares
of Common Stock listed above to be sold by Selling Security Holders are
issuable upon exercise of 3,450 shares of Series A Preferred Stock of the
Company issued in January 1984. See "Description of Securities - Preferred
Stock."
An aggregate of 7,716,213 shares of Common Stock were received upon
conversion of convertible subordinated debentures and accrued interest of
Cytoferon and are included in the shares of Common Stock listed above to be
sold by the Selling Security Holders. These debentures were issued by
Cytoferon in separate transactions between February 1993 and March 1994 and
were convertible into Common Stock of the Company at a conversion price of $.30
per share. On September 30, 1994, these debentures together with related
accrued interest were converted into Common Stock of the Company. Between
February 1993 and August 1994, the Company and Cytoferon entered into a series
of stock purchase and management and marketing agreements which were
subsequently terminated as a result of the Subsequent Agreement entered into in
August 1994. See previous discussion under
66
<PAGE> 72
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business - Marketing and Management Services Agreement."
In January 1994, the Company sold 1,000,000 Common Stock purchase
warrants to Northlea Partners, Ltd. for $20,000 exercisable at $.30 per share
as previously described. Under the terms of the agreement with Northlea
Partners, Ltd., the Company repurchased 584,160 warrants resulting in warrants
to purchase 415,850 shares of Common Stock remaining outstanding, all of which
are currently exercisable. All of the shares underlying such warrants are
included in the shares of Common Stock listed above to be sold by the Selling
Security Holders. See previous discussion under "Management - Certain
Relationships and Related Transactions."
In August 1994, the Company completed its $3.5 million private
placement offering of its Common Stock to accredited investors at $.40 per
share resulting in the issuance of 8,919,000 shares. The offering was
conducted by Laidlaw Equities, Inc. ("Laidlaw") which acted as the placement
agent for the offering. In connection therewith, Laidlaw, in consideration for
serving as the placement agent for such offering, received warrants to purchase
765,650 shares of Common Stock exercisable at $.52 per share. The purchase
price for the Common Stock and the exercise price of the warrants issued to
Laidlaw and its designees were the result of arms-length bargaining and
represented approximately a 39% discount from the market price of the Common
Stock at the time of agreement but in excess of the offering price of the
Common Stock in such private offering. All of the shares of Common Stock
included in such private offering and underlying the aforementioned warrants
are included in the shares of Common Stock listed above to be sold by the
Selling Security Holders. See previous discussion under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Management - Certain Relationships and Related Transactions."
In December 1994, the Company completed a second private placement
during its 1995 fiscal year of Common Stock at $.60 per share which enabled the
Company to realize gross proceeds of $2,056,000 in consideration for the
issuance of 3,426,667 shares of Common Stock. The offering price for the
shares was determined by management of the Company and represented a discount
of approximately 31% from the market price of the Company's Common Stock at the
date of determination in October, 1994. All of the shares of Common Stock
issued in such private offering are included in the shares of Common Stock
listed above to be sold by the Selling Security Holders. See previous
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
In March 1995, the Company issued 64,500 Common Stock purchase
warrants to Mr. Moty Hermon and designees in consideration for financial
consulting services to be undertaken on behalf of the Company. The warrants
are exercisable at $.60 per share and the
67
<PAGE> 73
exercise price was determined through arms-length negotiations with the
consultant and represented a discount of approximately 34% from the market
price of the Company's Common Stock at the date of the transaction. The shares
of Common Stock underlying such warrants are listed above in the shares of
Common Stock to be sold by the Selling Security Holders. See previous
discussion under "Management - Certain Relationships and Related Transactions."
The Company has undertaken to maintain the Registration Statement
current for a period of not less than nine months from the effective date of
the Registration Statement of which this Prospectus is a part in order that
sales of shares of Common Stock may be made by the Selling Security Holders.
The Company has agreed to pay for all costs and expenses incident to the
issuance, offer, sale and delivery of the Common Stock, including, but not
limited to, all expenses and fees of preparing, filing and printing the
Registration Statement and Prospectus and related exhibits, amendments and
supplements thereto and mailing of such items. The Company will not pay
selling commissions and expenses associated with any such sales by the Selling
Security Holders. The Company has agreed to indemnify the Selling Security
Holders against civil liabilities including liabilities under the Securities
Act of 1933. The Selling Security Holders have advised the Company that sales
of shares of their Common Stock may be made from time to time by or for the
accounts of the Selling Security Holders in one or more transactions in the
over-the-counter market, in negotiated transactions or otherwise, at prices
related to the prevailing market prices or at negotiated prices.
DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 50,000,000 shares
of Common Stock, par value $.01 per share, of which 35,355,532 shares were
outstanding as of May 12, 1995. The Company is also authorized to issue up to
375,000 shares of Preferred Stock, par value $1.00 per share, of which 3,450
shares of Series A Preferred Stock were outstanding as of May 12, 1995.
COMMON STOCK
Subject to the dividend rights of the holders of Preferred Stock,
holders of shares of Common Stock are entitled to share, on a ratable basis,
such dividends as may be declared by the Board of Directors out of funds,
legally available therefor. Upon liquidation, dissolution or winding up of the
Company, after payment to creditors and holders of Preferred Stock that may be
outstanding, the assets of the Company will be divided pro rata on a per share
basis among the holders of the Common Stock.
Each share of Common Stock entitles the holders thereof to one vote.
Holders of Common Stock do not have cumulative voting rights which means that
the holders of more than 50% of the shares voting
68
<PAGE> 74
for the election of Directors can elect all of the Directors if they choose to
do so, and, in such event, the holders of the remaining shares will not be able
to elect any Directors. The By-Laws of the Company require that only a
majority of the issued and outstanding shares of Common Stock of the Company
need be represented to constitute a quorum and to transact business at a
stockholders' meeting. The Common Stock has no preemptive, subscription or
conversion rights and is not redeemable by the Company.
PREFERRED STOCK
The Company is authorized to issue 375,000 shares of Preferred Stock,
par value $1.00 per share. The Company currently has 3,450 shares of Series A
Preferred Stock outstanding. The Preferred Stock may be issued by resolutions
of the Company's Board of Directors from time to time without any action of the
stockholders. Such resolutions may authorize issuances of such Preferred Stock
in one or more series and may fix and determine dividend and liquidation
preferences, voting rights, conversion privileges, redemption terms and other
privileges and rights of the shares of each authorized series. The Company has
no present intention to issue any additional shares of its Preferred Stock for
any purpose. While the Company includes such Preferred Stock in its
capitalization in order to enhance its financial flexibility, such Preferred
Stock could possibly be used by the Company as a means to preserve control by
present management in the event of a potential hostile takeover of the Company.
In addition, the issuance of large blocks of Preferred Stock could possibly
have a dilutive effect with respect to the existing holders of Common Stock of
the Company.
The Series A Preferred Stock was established by the Board of Directors
January 1984. Each share of Series A Preferred Stock is immediately
convertible into 4.26 shares of Common Stock. Dividends on the preferred stock
are cumulative, have priority to the Common Stock and are payable in either
cash or Common Stock, at the option of the Company. The Company anticipates
approval by its Board of Directors of a preferred stock dividend during the
second fiscal quarter of 1995.
The Series A Preferred Stock has voting rights only if dividends are
in arrears for five annual dividends. Upon such occurrence, the voting would
be limited to the election of two directors. Voting rights terminate upon
payment of the cumulative dividends. The Series A Preferred Stock is
redeemable at the option of the Company at any time after expiration of ten
consecutive business days during which the bid or last sale price for the
Common Stock is $6.00 per share or higher. There is no mandatory redemption or
sinking fund obligation with respect to the preferred stock.
Owners of the Series A Preferred Stock of which there are eight record
holders, will be entitled to receive $10.00 per share (plus accrued and unpaid
dividends) before any distribution or payment is
69
<PAGE> 75
made to holders of the Common Stock or other stock of the Company junior to the
Series A Preferred Stock upon liquidation, dissolution or winding up of the
Company. If in any such event the assets of the Company distributable among
the holders of Series A Preferred Stock or any stock of the Company ranking on
a par with the Series A Preferred Stock upon liquidation, dissolution or
winding up are insufficient to permit such payment, the holders of the Series A
Preferred Stock and of such other stock will be entitled to ratable
distribution of the available assets in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid
in full.
The resale of the Common Stock issuable upon conversion of the Series
A Preferred Stock is included as part of the Registration Statement of which
this Prospectus is a part.
CONVERTIBLE DEBENTURES
In November 1993, the Company issued $200,000 principal amount of its
8 1/2% three-year convertible debentures. These debentures were converted into
666,668 shares of Common Stock of the Company at a conversion price of $.30 per
share on October 31, 1994. These shares are included in the Registration
Statement of which this prospectus is a part.
COMMON STOCK PURCHASE WARRANTS
In connection with the completion of the Company's $3.5 private
placement offering in August 1994, the Company issued to the placement agent
and its designees Common Stock Purchase Warrants to purchase 765,650 shares of
Common Stock. These warrants are exercisable at $.52 per share on/or prior to
August 15, 1999. The shares of Common Stock underlying these warrants are
included in the Registration Statement of which this Prospectus is a part.
In January 1994, the Company sold 1,000,000 Common Stock purchase
warrants to Northlea Partners, Ltd. for $20,000, exercisable at $.30 per share
on or prior to January 6, 1999. The Company repurchased warrants to acquire
584,160 shares of Common Stock at the time of the termination of the Management
Consulting Agreement with Northlea Partners, Ltd. in July 1994, leaving 415,840
warrants, all of which are currently exercisable. In March 1995, the Company
issued 64,500 Common Stock purchase warrants to Mr. Moty Hermon and designees
in consideration for financial consulting services to be undertaken on behalf
of the Company. The warrants are for a five year term and are exercisable
currently at $.60 per share. The shares underlying these warrants are included
in the Registration Statement of which this Prospectus is a part.
70
<PAGE> 76
OVER-THE-COUNTER MARKET
The Company's Common Stock is traded on the OTC Bulletin Board under
the symbol "VRGN." The Company intends to apply for inclusion of its Common
Stock on the NASDAQ System at such time as the price of the Company's Common
Stock satisfies NASDAQ minimum bid requirements of $3.00 per share. If for any
reason the Common Stock is not accepted for inclusion on the NASDAQ System,
then in such case the Company's Common Stock would be expected to continue to
be traded in the over-the-counter markets through the "pink sheets" or the
NASD's OTC Bulletin Board. In the event the Common Stock were not included in
the NASDAQ System, the Company's Common Stock would be covered by a Securities
and Exchange Commission rule that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouse). For transactions covered by the rule, the broker-dealer must make a
special suitability determination for the purchaser and receive the purchaser's
written agreement to the transaction prior to the sale. Consequently, the rule
may affect the ability of broker-dealers to sell the Company's securities and
also may affect the ability of purchasers in this offering to sell their shares
in the secondary market. The ability of the Company to secure a symbol on the
NASDAQ System does not imply that a meaningful trading market in its Common
Stock will ever develop.
TRANSFER AGENT
The Transfer Agent for the shares of Common Stock is Continental Stock
Transfer & Trust Company, Two Broadway, New York, New York 10004.
CERTAIN MARKET INFORMATION
As of May 12, 1995, 35,355,532 shares of the Company's Common Stock are
outstanding of which 24,541,053 shares will be "restricted securities," as such
term is defined under the Securities Act of 1933, exclusive of the Common Stock
to be sold pursuant to the Registration Statement of which this Prospectus is a
part.
In general, Rule 144 (as presently in effect), promulgated under the
Act, permits a stockholder of the Company who has beneficially owned restricted
shares of Common Stock for at least two years to sell without registration,
within any three-month period, such number of shares not exceeding the greater
of 1% of the then outstanding shares of Common Stock or, if the Common Stock is
quoted on NASDAQ, the average weekly trading volume over a defined period of
time, assuming compliance by the Company with certain reporting requirements of
Rule 144. Furthermore, if the restricted shares of
71
<PAGE> 77
Common Stock are held for at least three years by a person not affiliated with
the Company (in general, a person who is not an executive officer, director or
principal stockholder of the Company during the three-month period prior to
resale), such restricted shares can be sold without any volume limitation. Any
sales of shares by stockholders pursuant to Rule 144 may have a depressive
effect on the price of the Company's Common Stock.
LEGAL MATTERS
Legal matters in connection with the securities being offered hereby
will be passed upon for the Company by Atlas, Pearlman & Trop, P.A., 3200 North
Military Trail, Suite 205, Boca Raton, Florida 33431.
EXPERTS
The consolidated financial statements of Viragen, Inc. at June 30,
1994 and for the year ended June 30, 1994, six months ended June 30, 1993 and
year ended December 31, 1992 appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, 450
Fifth Street, Washington, D.C., a Registration Statement on Form SB-2 under the
Securities Act of 1933 with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. For further information about
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the exhibits filed as a part thereof. The
statements contained in this Prospectus as to the contents of any contract or
other document identified as exhibits in this Prospectus are not necessarily
complete, and in each instance, reference is made to a copy of such contract or
document filed as an exhibit to the Registration Statement. The Registration
Statement, including exhibits, may be inspected without charge at the principal
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
upon payment of fees prescribed by the Commission from the Public Reference
Section of the Commission at its principal office in Washington, D.C. set forth
above.
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<PAGE> 78
FORM SB-2--ITEM 22
VIRAGEN, INC. AND SUBSIDIARY
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Viragen, Inc. and subsidiary
are included:
Consolidated balance sheets -- March 31, 1995 (unaudited) and June 30,
1994.
Consolidated statements of operations -- Nine months ended March 31,
1995 and 1994 (unaudited), year ended June 30, 1994, six months ended
June 30, 1993 and year ended December 31, 1992.
Consolidated statements of stockholders' equity (deficit) -- Nine
months ended March 31, 1995 (unaudited), year ended June 30, 1994, six
months ended June 30, 1993 and year ended December 31, 1992.
Consolidated statement of cash flows -- Nine months ended March 31,
1995 and 1994 (unaudited), year ended June 30, 1994, six months ended
June 30, 1993, and year ended December 31, 1992.
Notes to consolidated financial statements -- March 31, 1995
(unaudited) and June 30, 1994.
F-1
<PAGE> 79
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Viragen, Inc.
We have audited the accompanying consolidated balance sheet of Viragen, Inc.
and subsidiary as of June 30, 1994 and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year ended
June 30, 1994, six months ended June 30, 1993 and year ended December 31, 1992.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Viragen, Inc. and subsidiary at June 30, 1994 and the consolidated results of
their operations and their cash flows for the year ended June 30, 1994, six
months ended June 30, 1993 and year ended December 31, 1992, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
October 7, 1994
Miami, Florida
F-2
<PAGE> 80
CONSOLIDATED BALANCE SHEETS
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,548,646 $ 879,926
Accounts receivable, less
allowance of $40,000 at
March 31, 1995 and $15,000 68,515 22,785
at June 30, 1994.
Subscriptions receivable from
private placement 102,500
Inventory 579,328 766,471
Prepaid expenses 75,673 36,189
Other current assets 8,932 9,653
--------- ---------
TOTAL CURRENT ASSETS 3,281,094 1,817,524
Inventory 500,000
NOTES RECEIVABLE, less allowance
of $15,600 at March 31, 1995
and $5,600 at June 30, 1994. 90,672 74,189
PROPERTY, PLANT AND EQUIPMENT
Land, building and improvements 1,184,629 1,170,855
Equipment and furniture 1,269,285 1,049,072
--------- ---------
2,453,914 2,219,927
Less accumulated depreciation (1,475,671) (1,377,454)
--------- ---------
978,243 842,473
DEPOSITS AND OTHER ASSETS 9,021 10,308
---------- ---------
$ 4,859,030 $2,744,494
========== =========
</TABLE>
F-3
<PAGE> 81
CONSOLIDATED BALANCE SHEETS--Continued
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
-------- ---------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 161,950 $ 420,049
Current portion of amounts
payable to Medicore, Inc. 31,592 52,153
Accrued expenses and other
liabilities 168,167 520,723
Current portion of notes payable 30,000 30,000
---------- ----------
TOTAL CURRENT LIABILITIES 391,709 1,022,925
CONVERTIBLE DEBENTURES PAYABLE 200,000
MORTGAGE NOTE PAYABLE, less current
portion 460,939 483,439
AMOUNTS PAYABLE TO MEDICORE, INC.,
less current portion 476,435 492,537
STOCKHOLDERS' EQUITY
Convertible 10% Series A cumulative
preferred stock, $1.00 par value.
Authorized 375,000 shares; issued
and outstanding 3,450 shares at
March 31, 1995 and June 30, 1994.
Liquidation preference value: $10
per share, aggregating $34,500 at
March 31, 1995 and June 30, 1994. 3,450 3,450
Common stock, $.01 par value.
Authorized 50,000,000 shares;
issued and outstanding 35,355,532
shares at March 31, 1995 and
20,218,197 shares at June 30 1994. 353,555 202,182
Capital in excess of par value 17,989,202 12,698,723
Common stock subscribed 1,126,250
Retained earnings (deficit) (14,490,010) (13,158,762)
Notes due from officers (326,250) (326,250)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 3,529,947 545,593
----------- ----------
$ 4,859,030 $ 2,744,494
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 82
CONSOLIDATED STATEMENTS OF OPERATIONS
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Six
Nine Months Months
Ended Year Ended Ended
March 31, June 30, June 30,
1995 1994 1994 1993
------- ------- -------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INCOME
Revenues $454,902 $354,050 $624,814
Interest and other income 89,400 58,428 51,807 $53,562
------- -------- -------- ------
544,302 412,478 676,621 53,562
COST AND EXPENSES
Cost of goods sold 268,566 144,178 322,262
Depreciation and amortization 60,503 35,371 47,257 39,644
Research and development costs 342,738 34,743 17,476 1,873
Bad debt expense 35,000 20,600
Selling, general and admin-
istrative expenses 1,097,859 854,396 1,264,334 280,137
Interest expense 70,884 60,968 88,038 43,351
--------- --------- --------- -------
1,875,550 1,129,656 1,759,967 365,005
--------- --------- --------- -------
NET LOSS (1,331,248) (717,178) (1,083,346) (311,443)
Deduct required dividends on
convertible preferred stock 2,588 2,799 3,450 1,835
--------- --------- --------- -------
LOSS ATTRIBUTABLE TO COMMON
STOCK $(1,333,836) $(719,977) $(1,086,796) $(313,278)
========= ======== ========= =======
LOSS PER COMMON SHARE,
after deduction for required
dividends on convertible
preferred stock $(.04) $(.04) $(.06) $(.02)
==== ===== ===== =====
Weighted average shares
outstanding 30,637,957 18,559,724 18,686,751 14,463,038
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 83
CONSOLIDATED STATEMENT OF OPERATIONS
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Year Ended
December 31,
1992
------------
<S> <C>
INCOME
Revenues $ 41,274
Interest and other income 10,551
51,825
COST AND EXPENSES
Cost of goods sold 18,474
Depreciation and amortization 146,276
Research and development costs 342
Bad debt expense
Selling, general and admin-
istratative expenses 364,034
Interest expense 85,853
--------
614,979
--------
NET LOSS (563,154)
--------
Deduct required dividends on
convertible preferred stock 9,545
--------
LOSS ATTRIBUTABLE TO COMMON
STOCK $ (572,699)
========
LOSS PER COMMON SHARE,
after deduction for required
dividends on convertible
preferred stock $ (.05)
========
Weighted average shares
outstanding 11,478,914
==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 84
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Capital
in Excess Common Retained
Preferred Common of Par Stock Earnings
Stock Stock Value Subscribed (Deficit)
--------- -------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December $13,700 $110,337 $10,988,555 $ - $(11,200,819)
31, 1991
Common stock issued to
employees and directors
(797,400 shares) 7,974 55,818
Conversion of 10,000
preferred shares into
42,600 common shares (10,000) 426 9,574
Net loss (563,154)
--------- -------- ----------- ----------- ------------
Balance at December
31, 1992 3,700 118,737 11,053,947 (11,763,973)
Sale of common stock
(6,000,000 shares) 60,000 940,000
Net loss (311,443)
--------- -------- ----------- ----------- ------------
Balance at June
30, 1993 3,700 178,737 11,993,947 (12,075,416)
Options granted to
directors 117,033
Conversion of note
payable to stockholder
(260,130 shares) 2,601 75,437
Purchase of
stock warrants 20,000
Purchase of stock
by Cytoferon
(1,333,333 shares) 13,333 386,667
Stock purchase by
officer
(750,000 shares) 7,500 217,500
Stock purchases by
officer, director and
affiliate (375,000 shares) $ 112,500
</TABLE>
F-7
<PAGE> 85
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
VIRAGEN, INC. AND SUBSIDIARY--Continued
<TABLE>
<CAPTION>
Capital
in Excess Common Retained
Preferred Common of Par Stock Earnings
Stock Stock Value Subscribed (Deficit)
--------- ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Conversion of series A
preferred stock $ (250) $ 11 $ 239 $ $
Private placement of
common stock
(2,534,375 shares) 1,013,750
Private placement
issuance costs (112,100)
Net loss (1,083,346)
-------- -------- ----------- ---------- -----------
Balance at June 30,
1994 3,450 202,182 12,698,723 1,126,250 (13,158,762)
Repurchase of warrants (14,604)
Conversions of debentures 6,667 193,333
Purchase of stock by
officers and affiliates 3,750 108,750 (112,500)
Shares to Cytoferon from
modification of agreement 17,500 (17,500)
Private placement #1
of common stock 89,189 3,478,411 (1,013,750)
Private placement #1
issuance costs (382,633)
Private placement #2
of common stock 34,267 2,021,733
Private placement #2
issuance costs (77,096)
Registration of
Form SB-2 (19,915)
Net loss (1,331,248)
-------- -------- ----------- ---------- -----------
Balance at March 31,
1995 (unaudited) $ 3,450 $353,555 $17,989,202 $ -0- $14,490,010
======== ======== =========== ========== ===========
</TABLE>
F-8
<PAGE> 86
CONSOLIDATED STATEMENTS OF CASH FLOWS
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Six
Nine Months Months
Ended Year Ended Ended
March 31, June 30, June 30,
1995 1994 1994 1993
---------- ----------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,331,248) $(717,178) $(1,083,346) $(311,443)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 98,218 35,371 47,257 43,311
Interest paid through stock
issue 11,438
Bad Debt Expense 35,000 20,600
Stock Options granted to directors 27,500
Net gain in Sale of Fixed Assets (11,392)
Issuance of common stock to
officers, employees and others 11,250
Compensation expense on stock
options 117,033
Increase (decrease) relating
to operating activities from:
Escrow account 62,752 68,535
Accounts receivable (70,730) (79,923) (43,385) 204
Inventory (312,857) (585,231) (676,345) (90,126)
Notes receivable (26,483) (101,237)
Prepaid expenses and other
current assets (38,763) (46,269) (9,141)
Deferred expenses and other
assets 1,287 (2,375) (3,573) (1,785)
Accounts payable (258,099) 56,520 224,792 32,697
Accounts payable to
Medicore (20,561) (27,926) (19,523) 18,168
Accrued expenses and other
liabilities (352,556) 175,390 376,741 (5,452)
---------- ---------- ---------- --------
Net cash used in
operating activities (2,276,792) (1,112,761) (1,049,763) (323,567)
INVESTING ACTIVITIES
Proceeds from sale of equipment 45,992
Additions to property, plant and
equipment, net (233,987) (34,627) (11,643) (42,547)
---------- ---------- ---------- ---------
Net cash provided by
investing activities (233,987) 11,365 (11,643) (42,547)
</TABLE>
F-9
<PAGE> 87
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Six
Nine Months Months
Ended Year Ended Ended
March 31, June 30, June 30,
1995 1994 1994 1993
------------ ---------- --------- --------
(Unaudited) (Unaudited)
FINANCING ACTIVITIES
<S> <C> <C> <C> <C>
Payments on long-term debt $ (38,602) $(25,000) $(57,724) $ (15,000)
Proceeds from long-term debt
Payments to Medicore, Inc. (82,202)
Proceeds from sale of common
stock, net of related expenses 4,232,705 400,000 911,250 1,000,000
Proceeds from sale of warrants 20,000 20,000
Repurchase of Warrants (14,604)
Proceeds from sale of common
stock to Cytoferon 400,000
Proceeds from issuance of
convertible debentures 200,000 200,000
Proceeds from issuance of
convertible debentures Advances
from Medicore 74,034
Private Placement issuance
costs (112,100)
Advances from Medicore, Inc. 22,427
Payments to Medicore, Inc. (98,636)
---------- --------- ---------- ---------
Net cash provided by
financing activities 4,179,499 570,398 1,361,426 925,225
--------- --------- ---------- ---------
Increase (decrease) in cash 1,668,720 (530,998) 300,020 559,111
Cash and cash equivalents
at beginning of period 879,926 579,906 579,906 20,795
--------- --------- --------- ---------
Cash and cash equivalents
at end of period $2,548,646 $ 48,908 $ 879,926 $ 579,906
========== ========= ========= =========
</TABLE>
Supplemental Cash Flow Information:
During the nine months ended March 31,1995 and 1994 (unaudited), year ended
June 30, 1994 and six months ended June 30, 1993, the Company had the
following noncash financing activity:
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1995 1994 1994 1993
--------- ---------- --------- --------
<S> <C> <C> <C> <C>
Issuance of common stock to
directors and officers $326,250
Issuance of common stock
purchase warrants to
directors and officers $123,750
Issuance of common stock for
convertible debentures $200,000
Issuance of common stock to
stockholder in payment of note $66,600 66,600 78,039
payable
Stock subscriptions receivable 102,500
Interest paid $ 79,528 $56,939 $ 86,369 $ 39,998
======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 88
CONSOLIDATED STATEMENT OF CASH FLOWS
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Year ended
December 31,
1992
------------
<S> <C>
OPERATING ACTIVITIES
Net loss $(563,154)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 146,276
Interest paid through stock
issue
Bad Debt Expense
Stock Options granted to
directors, issuance of common stock
to officers, employees and
others 63,792
Compensation expense on stock
options
Write off of unusable equipment 9,383
Net gain on sale of fixed assets (1,648)
Increase (decrease) relating
to operating activities from:
Escrow account (68,535)
Accounts receivable 12,014
Inventory 19,476
Notes receivable
Prepaid expenses and other
current assets 2,133
Deferred expenses and other
assets 3,475
Accounts payable 23,588
Accounts payable to
Medicore 37,423
Accrued expenses and other
liabilities 23,876
-------
Net cash used in
operating activities (291,901)
INVESTING ACTIVITIES
Proceeds from sale of equipment 5,762
Additions to property, plant and
equipment, net (20,156)
-------
Net cash provided by
investing activities (14,394)
</TABLE>
F-11
<PAGE> 89
CONSOLIDATED STATEMENT OF CASH FLOWS
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Year Ended
December 31,
1992
----------
<S> <C>
FINANCING ACTIVITIES
Payments on long-term debt $ (40,516)
Payments on note payable to
and advances from stockholders (3,000)
Advances from Medicore, Inc. 300,946
Proceeds from notes payable
to and advances from
stockholders 69,600
---------
Net cash provided by
financing activities 327,030
---------
Increase in cash 20,735
Cash and cash equivalents 60
at beginning of period ---------
Cash and cash equivalents $ 20,795
at end of period ========
Supplemental Cash Flow Information:
During year end December 31, 1992, the company had the following noncash finance activities:
Issuance of common stock to directors $ 63,792
Interest paid $ 48,319
=========
</TABLE>
F-12
<PAGE> 90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
MARCH 31, 1995 (UNAUDITED) and JUNE 30, 1994
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation: Viragen, Inc. and subsidiary have been
engaged in the research, development and manufacture of certain
immunological products for commercial application. The consolidated
financial statements include the accounts of Viragen, Inc. and its
wholly-owned subsidiary, Vira-Tech, Inc. All material intercompany
accounts and transactions have been eliminated in consolidation.
Change in Fiscal Year End: The Company has changed its year end from
December 31 to June 30 effective January 1, 1993. Accordingly, the
accompanying financial statements include financial statements for the
year ended June 30, 1994, the six month transition period from January 1
through June 30, 1993, the nine months ended March 31, 1995 and 1994, and
year ended December 31, 1992.
Inventory: The Company has capitalized the human leukocyte interferon
manufactured in its laboratories at the lower of average cost or market.
The timing of the realization of the interferon inventory is dependent
upon future events, such as the success of the Company's intrastate
marketing program. A portion of the inventory has been classified as
non-current at March 31, 1995 based on sales projections by the Company.
Inventory is comprised of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
--------- ---------
<S> <C> <C>
Supplies $ 5,000
Work in Process $ 252,604 99,864
Finished goods 826,724 661,607
---------- ----------
1,079,328 766,471
Less:
Non - Current Portion 500,000 --
---------- ----------
$ 579,328 $ 766,471
========== ==========
</TABLE>
Property, Plant and Equipment: Property, plant and equipment is stated at
the lower of cost or net realizable value. Depreciation was computed
using the straight-line method over the estimated useful life for
financial reporting purposes and using accelerated methods for income tax
purposes.
Accounting Change: Effective in January 1, 1993, the Company changed its
method of accounting for income taxes and implemented Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
This change had no effect on results of operations or financial position
as presented in the accompanying financial statements. See NOTE E to
"Notes to Consolidated Financial Statements".
F-13
<PAGE> 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Loss Per Share: Loss per share has been computed based on the weighted
average number of shares outstanding during each period. The effect of
warrants and stock options (common stock equivalents) are antidilutive.
Fully diluted loss per share data, which includes the assumed conversion
of the convertible preferred stock, has not been presented because it was
not dilutive.
Interim Adjustments: The financial summaries for the nine months ended
March 31, 1995 and March 31, 1994 are unaudited and 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 nine months ended March 31, 1995 are not
necessarily indicative of the results that may be expected for the entire
year ending June 30, 1995.
While the company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that Financial
Statements for the nine months ended March 31, 1995 be read in conjunction
with the financial statements and notes included in the Company's annual
report on Form 10-K for the year ended June 30, 1994.
NOTE B--CAPITAL STOCK
In August 1994, the Company concluded a Private Placement of its common
stock which concluded subsequent to year end with the issuance of
8,919,000 shares at $.40 per share. At June 30, 1994, 2,534,375 shares
had been recorded as subscribed. In connection with this offering, the
Company has issued 765,650 common stock purchase warrants entitling the
holder to purchase one share of common stock at $.40 per share for a
period of five years from date of issuance. Subscriptions receivable of
$102,500 at June 30, 1994 related to this private placement were paid on
July 16, 1994.
During fiscal 1994, Cytoferon Corporation purchased 1,333,333 shares of
common stock at $.30 per share under the terms of an additional stock
purchase agreement. Also during the period, the Company entered into
stock purchase and option agreements with officers and directors totaling
2,250,000 shares obtainable at $.30 per share, of which 1,125,000 shares
were immediately exercisable and 1,125,000 shares were subject to certain
performance criteria. Subsequent to year end, the option related
performance criteria were met and the remaining 1,125,000 options became
exercisable. During the year ended June 30, 1994, $117,000 was charged to
operations upon the issuance of the officer and director options.
In April 1994, an officer purchased 750,000 shares of common stock at $.30
per share, in accordance with the provisions of his employment agreement,
$7,500, the par value of the stock, was treated as compensation expense
and a note receivable was recorded on the remaining balance of $217,500.
F-14
<PAGE> 92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE B--CAPITAL STOCK -- Continued
In June 1994, two officers and an affiliate each purchased 125,000 shares
of common stock at $.30 per share. $3,750 the par value of the stock, was
treated as compensation expense and a note receivable from each
individual/entity was recorded on the remaining balance of $36,250.
In November 1994, the Company commenced a second Private Placement solely
to accredited investors to raise through the sale of Common Stock at $.60
per share, a maximum of $3,000,000. This offering was completed on
December 31, 1994 with the Company having realized gross proceeds of
$2,056,000 upon the issuance of 3,426,667 shares. The net proceeds of this
offering of approximately $1,980,000 are intended to be utilized for the
establishment of a research and manufacturing facility in Europe during
fiscal 1995 and for general working capital purposes. Subject to receipt
of additional funding to conduct European-based clinical trials, it is the
Company's intention to commence European clinical trails and seek the
necessary approvals for the sale of its Alpha Leukoferon(TM) product in
Europe.
In December 1993, a stockholder and former director converted a
convertible promissory note payable of $66,600 with related accrued
interest of $11,439 into 260,130 shares of common stock.
The Company had outstanding 1,190,875 Class A common stock purchase
warrants exercisable at $1.63 per share, 600,000 Class B common stock
purchase warrants exercisable at $2.93 per share, and 3,029,270 Class C
common stock purchase warrants exercisable at $2.08 per share. These
warrants expired on their terms March 31, 1995 with no options being
exercised.
There are 3,450 shares of 10% Cumulative, Convertible Series A preferred
stock of the Company outstanding at March 31, 1995 and June 30, 1994.
Each share of preferred stock provides for a 10% cumulative dividend,
payable at the option of the Company, in either cash or common stock and
is convertible into 4.26 shares of common stock.
In 1994 and 1992, 250 shares and 10,000 shares of the convertible 10%
series A cumulative preferred stock were converted into 1,065 and 42,600
shares respectively, of the Company's common stock.
On June 17, 1992 the Company issued 797,400 shares of common stock to
officers and directors of the Company. The fair value of the shares on the
date of grant $(63,792) was charged to selling, general and administrative
expenses.
The holders of the preferred stock are not entitled to vote unless
dividends are in arrears for five annual dividend periods. The Company
has the right to call the preferred stock for redemption, in whole or in
part, if the closing bid for common stock is $6.00 per share or higher for
a period of ten consecutive business days ("Redemption Trigger Date").
F-15
<PAGE> 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE B--CAPITAL STOCK -- Continued
The preferred stock is redeemable at $11.00 per share for a period of five
years from the Redemption Trigger Date, and thereafter at $10.00 per
share. Shares of the Company's common stock reserved at March 31, 1995
for possible future issuance are as follows:
<TABLE>
<S> <C>
Warrants - former consultant 480,340
Convertible preferred stock 14,697
Option plans 2,510,000
Directors options 650,000
Warrants - private placement 765,650
----------
4,420,687
==========
</TABLE>
In October 1994, the $200,000 of Convertible Debentures outstanding at
September 30 and June 30, 1994 were converted into 666,668 share of common
stock.
The Company has the authority to issue 1,000,000 shares of preferred
stock, of which 375,000 shares have been designated as Series A. No other
classes of preferred stock have been designated.
In a special meeting held on May 11, 1993, shareholders of the Company
approved an amendment to the certificate of incorporation to increase the
Company's authorized capital to provide sufficient shares for Cytoferon's
investment; therefore the authorized shares of the Company's common stock
were increased from 20,000,000, $.01 par value, to 50,000,000, $.01 par
value.
NOTE C--TRANSACTIONS WITH MEDICORE, INC.
In August 1993, the Company renegotiated its promissory note and second
mortgage with Medicore, Inc. for a total of $429,400. The second mortgage
is secured by the Company's land, building, equipment, and accounts
receivable. The note is being amortized over a 20 year term in equal
installments with a balloon payment for the remaining balance due on
August 1, 1996. The note incurs interest at 1% over prime. Principal
payments on the outstanding balance at June 30, 1994 of $406,140 are as
follows: $21,470 in 1995, $21,470 in 1996, and $363,201 in 1997.
Interest incurred during 1994 and 1993 totaled $30,832 and $21,830,
respectively, of which $2,792 and $56,864 remained unpaid at June 30, 1994
and 1993, respectively.
In May 1993, the Company renegotiated its royalty agreement with Medicore.
Under the new terms, the Company will pay Medicore 5% of sales to
$7,000,000, 4% of the next $10,000,000, and 3% on the next $55,000,000 to
a maximum of $2,400,000 in royalty payments. Royalties incurred in prior
years under the previous agreement, totaling $108,000 are included in
amounts payable to Medicore, Inc. This amount will be paid as the final
payment under the $2,400,000 total royalty agreement. Royalties expense
incurred in 1994 totaled $28,000.
F-16
<PAGE> 94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE C--TRANSACTIONS WITH MEDICORE, INC. -- Continued
Medicore leased office space from the Company for a total of $15,655 for
the nine months ended March 31, 1995 and, $20,874 and $10,434 during 1994
and 1993, respectively.
NOTE D--MORTGAGE AND NOTES PAYABLE
Mortgage and notes payable are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
-------- --------
(Unaudited)
<S> <C> <C>
Mortgage note secured by land,
building and equipment with a
net book value of $878,000 at
June 30, 1994.
Monthly principal payments of
$2,500 plus interest at prime
plus 2% with the unpaid balance
due August 1, 1996. $490,939 $513,439
-------- --------
Less current portion 30,000 30,000
-------- --------
$460,939 $483,439
======== ========
</TABLE>
The prime rate was 7.25% as of June 30, 1994 and 9.00% at March 31, 1995.
Scheduled maturities of mortgage and notes payable outstanding at March
31, 1995 are: 1995 - $30,000; 1996 - $460,939.
At June 30, 1994 the Company was in default of certain covenants on its
mortgage note. The lender waived these defaults and waived compliance
with these covenants through July 1, 1995.
Medicore has guaranteed the principal and interest on the mortgage and
expenses and fees upon any default. Medicore has the right to cure
defaults and has an Acquisition Agreement with the Company giving Medicore
the right to assume the mortgage.
Interest payments on debt totaled $79,528 and $56,939 for the nine months
ended March 31, 1995 and 1994 respectively; and $84,777 for the year ended
June 30, 1994, and $39,998 for the six months ended June 30, 1993.
NOTE E--INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting
for income taxes and implemented Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Statement 109 changes
the method of accounting for income taxes from the deferred to the
liability method. Under the liability method, deferred income taxes at
the end of each period are determined by applying enacted tax rates
applicable, to future periods in which the taxes are expected to be paid
or recovered to differences between financial accounting and tax bases of
assets.
F-17
<PAGE> 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE E--INCOME TAXES -- Continued
Under the deferred method, deferred income taxes are recognized using the
tax rates in effect when the tax is first recorded and are not adjusted
for subsequent changes in tax rates until paid or recovered.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and
assets as of June 30, 1994 are as follows:
<TABLE>
<CAPTION>
June 30,
1994
----------
<S> <C>
Deferred tax liabilities:
Tax over book depreciation $ 75,000
Other 10,000
Total deferred tax liabilities 85,000
Deferred tax assets
Net operating loss carryforwards 3,349,000
Research and development credit 230,000
Investment tax credit 40,000
Other 107,000
----------
Total deferred tax assets 3,726,000
Valuation allowance for deferred
tax assets 3,641,000
----------
85,000
----------
Net deferred tax assets $ -0-
==========
</TABLE>
NOTE F--TRANSACTIONS WITH OTHER RELATED PARTIES
In November 1993, the Company issued $200,000 in 8 1/2%, three year
convertible debentures. The debentures, at the holders option are
immediately convertible into common stock of the Company at $.30 per
share. These debentures are held by a fund managed by a director of the
Company. In October 1994, these debentures were converted into 666,668
shares of common stock. These shares are held by Fundamental Growth
Partners, Ltd., Fundamental Associates, Ltd., Hedge Fund Partners, Ltd.
and Fundamental Resources, Ltd., which are investment funds managed by
William B. Saeger, a director of the Company.
In December 1993, the Company issued 260,130 shares of common stock to a
stockholder and former director in payment of a 10% convertible promissory
note in the amount of $66,600 and related accrued interest of $11,439. At
June 30, 1994, the Company had outstanding a note payable in the amount of
$25,000 to this stockholder. The note with related interest was repaid in
July 1994.
F-18
<PAGE> 96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE F--TRANSACTIONS WITH OTHER RELATED PARTIES -- Continued
Legal fees of $38,118 during the year ended June 30, 1994 and $14,434
during the six months ended June 30, 1993 and $5,500 for the year ended
December 31, 1992 were paid to the former secretary of the Company.
During the fourth quarter 1994, the Company made a series of short-term
borrowings from Cytoferon represented by notes payable bearing interest at
10%. At June 30, 1994 such notes totalled $60,000 and were repaid in July
1994.
NOTE G--AGREEMENT FOR SALE OF STOCK
On February 5, 1993, the Company entered into a Stock Agreement with
Cytoferon to purchase up to 11,640,000 shares of the Company's common
stock for consideration of $1,500,000 ("Maximum Investment"). By May 31,
1993, the expiration of the investment period, the Company had received
the Minimum Purchase under the terms of the stock agreement, $1,000,000,
in exchange for 6,000,000 shares of common stock at $.167 per share. This
price reflects the receipt, by Cytoferon, of a 20% bonus of common stock
due upon having reached the Minimum Purchase.
On November 19, 1994, the Company entered into an Additional Stock
Purchase Agreement under which terms Cytoferon purchased an additional
1,333,333 common shares at $.30 per share.
The funds invested enabled the Company to reinitiate production of its
interferon product, Alpha Leukoferon(TM), and to reinitiate the marketing
of the product through physicians specializing in the treatment of
Multiple Sclerosis and HIV/AIDS patients residing in the state of Florida.
Under the terms of the Stock Agreement, the Company had approved the
Management and Marketing Services Agreement ("MMS Agreement") subject to
certain modifications, which appointed Cytoferon as consultant to the
Company relating to production, administration, marketing and regulatory
affairs for which Cytoferon was to receive a consulting fee of $204,000
the first year and $240,000 the next two years provided certain minimum
sales requirements were met. To the extent Cytoferon's investment in the
Company was less than the Maximum Investment, the consulting fee was
reduced pro-rata. The MMS Agreement also provided a 4% gross sales
commission for exclusive distributorship for non-FDA approved products and
non- exclusive marketing of FDA approved products, none of which the
Company presently has. The MMS Agreement further provides for the Company
to pay Cytoferon 50% fees for foreign licensing, franchising and transfer
of technology plus 20% royalties the Company may receive from foreign
agreements resulting from Cytoferon's efforts.
All such fees and commissions were subject to the Company generating
certain minimum sales under the MMS Agreement. The Company incurred
management fees of $140,000 and $120,133, and sales commission expenses of
$12,067 and $13,272 for the nine months ended March 31, 1995 and 1994,
respectively.
F-19
<PAGE> 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE G--AGREEMENT FOR SALE OF STOCK -- Continued
In August 1994, the Board of Directors of the Company voted to terminate
the MMS Agreement with Cytoferon, subject to receipt of a fairness
opinion, and issue the 1,750,000 shares contingently issuable under the
Additional Stock Purchase Agreement.
The Company's management believes that since it is probable that such
additional shares would have been earned, that it is, therefore, in the
long-term best interest of the Company to unify and consolidate management
functions and efforts and eliminate conflicts that may arise by virtue of
minimum sales requirements that could be inconsistent with the Company's
plans to introduce new production technologies and refinement of related
protocols. Accordingly, the Company executed a Subsequent Agreement which,
subject to receipt of a fairness opinion received in December 1994,
terminated the MMS Agreement and accelerated the issuance of the 1,750,000
shares contingently issuable under the November 1993 Additional Stock
Agreement concurrent with the cancellation of the MMS Agreement and
related contractual obligations.
NOTE H--RESEARCH AND DEVELOPMENT AGREEMENTS
In 1983, the Company contracted with Viragen Research Associates Limited
Partnership ("Limited Partnership") for the Company to perform the
research and development with respect to two therapeutic products for the
treatment of herpes virus infections. The Company received $456,500 from
the Limited Partnership and assigned all of its patent rights to the
processes and products to the Limited Partnership for $5,000 and an
exclusive worldwide licensing agreement. The Limited Partnership is to
receive 5% of the gross revenues of such products until it has received
approximately $900,000 and thereafter it is to receive 2% of the gross
revenues of such products. Approval to sell these products commercially
has not yet been received.
NOTE I--SUBSEQUENT EVENTS
In August 1994, the Company completed a $3.5 million Private Placement
offering of unregistered common stock at $.40 per share. In connection
with this Private Placement, an Agreement was executed with Laidlaw
Equities, Inc. ("Laidlaw") utilizing that firm as placement agent. This
Agreement provided for Laidlaw to receive a 9.25% commission on capital
raised and reimbursement of Laidlaw's out-of-pocket expenses not to exceed
$65,000.
F-20
<PAGE> 98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIRAGEN, INC. AND SUBSIDIARY
NOTE I--SUBSEQUENT EVENTS -- Continued
The Agreement further provided for the issuance of five year common stock
purchase warrants with an exercise price of $.40 per share equal to ten
percent (10%) of the number of shares issued during the Offering. The
Company agreed to file a Registration Statement within six (6) months from
the closing date registering the common shares sold pursuant to the
Offering and would be subject to a substantial dilutive penalty if such
Registration did not occur on a timely basis. The Company also agreed to
use its best efforts to file a Registration Statement for the underwriter
warrants within one year of such warrants issuance.
Net proceeds of the Private Placement of approximately $3,150,000 are
being utilized for the acquisition of laboratory production equipment,
purchase of a company-wide computer system, development of FDA study
protocols, employment of additional operating and administrative personnel
and working capital.
In November 1994, the Company commenced a second Private Placement solely
to accredited investors to raise through the sale of Common Stock at $.60
per share, a maximum of $3,000,000. This offering was completed on
December 31, 1994 with the Company having realized gross proceeds of
$2,056,000 upon the issuance of 3,426,667. The net proceeds of this
offering of approximately $1,980,000 are intended to be utilized for the
establishment of a research and manufacturing facility in Europe during
fiscal 1995 and for general working capital purposes. Subject to receipt
of additional funding to conduct European-based clinical trials, it is the
Company's intention to commence European clinical trails and seek the
necessary approvals for the sale of its Alpha Leukoferon(TM) product in
Europe.
In May 1995, the Company forgave notes receivable due from officers,
directors, and an affiliate related to the purchase of the Company s
common stock totaling $326,250. Repayment of the note was waived in lieu
of bonuses for the 1995 fiscal year, following unanimous approval of the
independent members of the Board of Directors.
F-21
<PAGE> 99
EXHIBIT 11 -- COMPUTATION OF LOSS PER COMMON SHARE
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Nine Months Year Six Months
Ended Ended Ended
March 31, June 30, June 30,
1995 1994 1994 1993
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
PRIMARY AND FULLY DILUTED
Weighted average shares
outstanding 30,637,957 18,559,724 18,686,751 14,463,038
=========== ========== =========== ==========
Net Loss $(1,331,248) $ (717,178) $(1,083,346) $ (311,443)
Deduct required dividends
on convertible
preferred stock 2,588 2,799 3,450 1,835
----------- ---------- ----------- ----------
Net loss attributable
to common stock $(1,333,836) $ (719,977) $(1,086,796) $ (313,278)
============ =========== =========== ==========
Loss per common
share after deduction
for required dividends
on convertible
preferred stock $ (.04) $ (.04) $ (.06) $ (.02)
============ =========== =========== ==========
</TABLE>
F-22
<PAGE> 100
EXHIBIT 11 -- COMPUTATION OF LOSS PER COMMON SHARE
VIRAGEN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Year Ended
December 31,
1992
-----------
<S> <C>
PRIMARY AND FULLY DILUTED
Weighted average shares
outstanding 11,478,914
============
Net loss $ (563,154)
Deduct required dividends
on convertible
preferred stock 9,545
-----------
Net loss attributable
to common stock $ (572,699)
===========
Loss per common
share after deduction
for required dividends
on convertible preferred
stock $ (.05)
===========
</TABLE>
F-23
<PAGE> 101
(22) Subsidiary of the Registrant
<TABLE>
<CAPTION>
Percent Owned State of
Name by Registrant Incorporation
---- ------------- -------------
<S> <C> <C>
Vira-Tech, Inc. 100% Florida
</TABLE>
F-24
<PAGE> 102
<TABLE>
<S> <C>
No person has been authorized to give any
information or to make any representations other
than those contained in this Prospectus in
connection with this offering, and any information
or representations not contained herein must not
be relied upon as having been authorized by the
Company or any other person. This Prospectus does
not constitute an offer to sell or a solicitation VIRAGEN, INC.
of an offer to buy any securities other than the
securities to which it relates, or any offer to or 23,356,355 SHARES
solicitation of any person in any jurisdiction in
which such offer or solicitation would be COMMON STOCK
unlawful. Neither the delivery of this Prospec-
tus nor any offer or sale made hereunder shall,
under any circumstances, create an implication
that information herein is correct at any time
subsequent to the date hereof.
------------------------------
PROSPECTUS
-----------
------------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.........
High Risk Factors..........
Price Range of
Common Stock.............
Dividend Policy............
Capitalization.............
Use of Proceeds............
Selected Consolidated
Financial Data...........
Management's Discussion and
Analysis of Financial Con- , 1995
ditions and Results of -------------
Operations...............
Business...................
Management.................
Clinical Advisory Committee
Principal Stockholders.....
Sales by Selling Security
Holders..................
Description of Securities..
Certain Market
Information..............
Legal Matters..............
Experts....................
Additional Information.....
Financial Statements.......
</TABLE>
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
Section 145 of the General Corporation Law of Delaware, under which
jurisdiction the Company is incorporated, empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he or she
is or was a director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation or enterprise. A corporation may indemnify
against expenses (including attorneys' fees) and, other than in respect of an
action by or in the right of the corporation, against judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or in the right of the corporation, no
indemnification of expenses may be made in respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action was brought shall determine that, despite the
adjudication of liability, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145 of
the General Corporation Law of Delaware further provides that to the extent a
director, officer, employee or agent of the corporation has been successful in
the defense of any action, suit or proceeding referred to above or in the
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him or her in connection therewith.
Article VII of the By-Laws of the Company require the Company to
indemnify its Directors and officers as follows:
"The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including any action or suit by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement
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<PAGE> 104
actually and reasonably incurred by him in connection with such suit, action or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful, provided, however, that in the case of an
action or suit by or in the right of the corporation, (a) such person shall be
indemnified only to the extent of his expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement thereof and not for any judgments, fines or amounts paid in
settlement and (b) no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the corporation
unless, and only to the extent that, the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Any indemnification hereunder (unless required by law or ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in this Article. Such determination shall be made (1) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders of the corporation.
The indemnification provided herein shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under any statute,
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of the State of Delaware or of
these By-Laws.
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<PAGE> 105
The corporation's indemnity of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
reduced by any amounts such person may collect as indemnification (i) under any
policy of insurance purchased and maintained on his behalf by the corporation
or (ii) from such other corporation, partnership, joint venture, trust or other
enterprise.
Nothing contained in this Article VII, or elsewhere in these By-Laws,
shall operate to indemnify any director or officer of such indemnification is
for any reason contrary to law, either as a matter of public policy, or under
the provisions of the Federal Securities Act of 1933, the Securities Exchange
Act of 1934, or any other applicable state or federal law.
For the purposes of this Article, references to "the corporation"
include all constituent corporations absorbed in a consolidation or merger as
well as the resulting or surviving corporations so that any person who is or
was a director, officer, employee or agent of such a constituent corporation or
is or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as he
would if he had served the resulting or surviving corporation in the same
capacity."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred
in connection with the issuance and resale of the securities offered hereby.
The Company is responsible for the payment of all expenses in connection with
the Offering.
<TABLE>
<S> <C>
Registration fee under
the Securities Act of 1933.................. $ 21,000
Blue Sky filing fees and expenses............ 2,000.00*
Printing and engraving expenses.............. 10,000.00*
Legal fees and expenses...................... 15,000.00*
Accounting fees and expenses................. 15,000.00*
Miscellaneous................................ 2,000,00*
----------
Total................................ $65,000,00*
==========
</TABLE>
- ---------------
*Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In June 1992, the Company issued 797,400 shares of Common Stock to
officers, directors and a consultant to the Company. An aggregate of 600,000
of such shares were issued to Mr. Tom Langbein and Mr.
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<PAGE> 106
Dennis Healey in consideration for cancellation of their employment contracts
with the Company and the remaining 197,400 shares were issued to employees and
a consultant in lieu of cash payments and bonuses owing to such persons.
Inasmuch as such persons had a pre-existing relationship with the Company and
had access to relevant information concerning the Company, the issuance of such
shares was exempt from the registration requirements of the Securities Act of
1933 (the "Act"), pursuant to the exemption set forth in Section 4(2) of the
Act.
In May 1993, the Company issued 6,000,000 shares of Common Stock to
Cytoferon Corp. ("Cytoferon") for an investment of $1,000,000 and in November
1993, the Company issued 1,333,333 shares of Common Stock for a cash investment
of $400,000. In December 1994, following receipt of a fairness opinion, the
Company consummated an additional agreement with Cytoferon terminating all
prior agreements and compensation to be paid to Cytoferon, in consideration for
which the Company agreed to issue 1,750,000 shares of Common Stock to
Cytoferon. Inasmuch as Cytoferon had adequate financial resources to bear the
economic risk of the transaction, had a pre-existing relationship with the
Company and had access to relevant information concerning the Company, the
issuance of such shares was exempt from the registration requirements of the
Act of 1933, pursuant to the exemption set forth in Section 4(2) of the Act.
In November 1993, the Company issued 750,000 shares of its Common
Stock for prior services (equal to the par value) and a promissory note and an
option to purchase 750,000 shares of Common Stock at an exercise price of $.30
per share to Mr. Gerald Smith as part of his employment agreement with the
Company. Inasmuch as Mr. Smith had a preexisting relationship with the Company
and had access to relevant information concerning the Company, the issuance of
such securities was exempt from the registration requirements of the Act
pursuant to the exemption set forth in Section 4(2) of the Act.
In November 1993, the Company issued $200,000 principal amount of its
convertible debentures to four investment funds managed by a director of the
Company for a consideration of $200,000. Inasmuch as such accredited investors
had adequate financial resources to bear the economic risk of the transaction,
had knowledge and experiences in investments of this type and had access to
relevant information concerning the Company, the issuance of such securities
was exempt from the registration requirements of the Act pursuant to the
exemptions set forth in Sections 4(2) and 4(6) of the Act.
In January 1994, the Company issued 260,130 shares of Common Stock to
Mr. Seymour Friend in satisfaction of a demand note in the principal amount of
$66,700 and related interest. Inasmuch as Mr. Friend, a former director of the
Company, had a pre-existing relationship with the Company and had access to
relevant information concerning the Company, the issuance of such shares was
exempt from
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<PAGE> 107
the registration requirements of the Act pursuant to the exemption set forth in
Section 4(2) of the Act.
In January 1994, the Company issued warrants to purchase 415,850
shares of Common Stock exercisable at $.30 per share to a medical consultant in
connection with a consulting agreement with the latter involving the issuance
of warrants to purchase 1,000,000 shares of Common Stock at an exercise price
of $.30 per share for $20,000 to Northlea Partners Ltd. The Company
subsequently repurchased 584,160 warrants under the terms of the issuing
agreement. Inasmuch as the consultant was an accredited investor and had
access to relevant information concerning the Company, the issuance of such
securities was exempt from the registration requirements of the Act pursuant to
the exemptions set forth in Sections 4(2) and 4(6) of the Act.
Between April 1994 and July 1994, the Company issued (i) 125,000
shares of Common Stock to Mr. Dennis Healey in consideration for prior services
as a director (equal to the par value) and a promissory note and options to
purchase an additional 125,000 shares of Common Stock exercisable at $.30 per
share; (ii) 125,000 shares of Common Stock to Mr. Peter Fischbein in
consideration for prior services as a director (equal to the par value) and a
promissory note and options to purchase an additional 125,000 shares of Common
Stock exercisable at $.30 per share; (iii) options to purchase 125,000 shares
of Common Stock to Mr. Gerald Smith or his designee exercisable at $.30 per
share; and (iv) options to purchase 300,000 shares to Mr. Charles Fistel at an
exercise price of $.30 per share. All of the aforementioned securities were
issued to officers and/or directors of the Company as part of their service as
a director, employment contracts or compensation arrangements with the Company.
Inasmuch as each of these individuals had a preexisting relationship with the
Company and had access to relevant information concerning the Company, the
issuance of such securities was exempt from the registration requirements of
the Act pursuant to the exemptions set forth in Section 4(2) of the Act.
In August 1994, the Company issued 8,856,500 shares of its Common
Stock for an aggregate consideration of $3,500,000 to an aggregate of 140
accredited investors in a private placement of such securities undertaken
pursuant to Rule 505 of Regulation D and Section 4(6) of the Act. The offering
was conducted by Laidlaw Equities, Inc. ("Laidlaw") which acted as the
placement agent for the offering. In connection therewith, Laidlaw, in
consideration for serving as the placement agent for such offering, received
warrants to purchase 765,650, shares of Common Stock exercisable at $.52 per
share. Each of the investors executed subscription agreements verifying their
personal financial resources, their qualifications as accredited investors and
knowledge of investments. In addition, each of the investors was provided with
information and had access to relevant additional information concerning the
Company. Accordingly, the issuance of the aforementioned securities was exempt
from the registration requirements of the Act pursuant to the exemptions set
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<PAGE> 108
forth in Section 4(6) of the Act and Rule 504 under Regulation D and Section
4(2) of the Act.
Between May 1994 and March 1995, the Company issued five-year warrants
to purchase an aggregate of 570,000 shares of Common Stock at exercise prices
ranging from $.62 to $1.00 per share to six key employees. In August 1994,
the Company issued options to purchase an aggregate of 350,000 shares
exercisable at $1.00 per share which were divided equally among the then seven
directors of the Company. Inasmuch as each of the directors had a pre-existing
relationship with the Company and had access to relevant information concerning
the Company, the issuance of such securities was exempt from the registration
requirements of the Act pursuant to the exemption set forth in Section 4(2) of
the Act.
In December 1994, the Company issued 3,426,667 shares of its Common
Stock in consideration of $2,056,000 to an aggregate of 77 accredited investors
in a private placement of such securities undertaken pursuant to Rule 506 of
Regulation D and Section 4(6) of the Act. Each of the investors executed
subscription agreements verifying their personal financial resources, their
qualifications as accredited investors and knowledge of investments. In
addition, each of the investors was provided with information and had access to
relevant additional information concerning the Company. Accordingly, the
issuance of the aforementioned securities was exempt from the registration
requirements of the Act pursuant to the exemption set forth in Section 4(6) of
the Act and Rule 506 under Regulation D and Section 4(2) of the Act.
In March 1995, the Company issued 64,500 Common Stock purchase
warrants to a consultant and his designees in consideration for financial
consulting services to be undertaken on behalf of the Company. The warrants
are for a five year term and are exercisable at $.60 per share. Inasmuch as the
consultant was an accredited investor and had access to relevant information
concerning the Company, the issuance of such securities was exempt from the
registration requirements of the Act pursuant to the exemptions set forth in
Sections 4(2) and 4(6) of the Act.
In May 1995, the Company issued 1,000,000 Common Stock purchase
options to Mr. Robert H. Zeiger pursuant to the terms of his Employment
Agreement. Under the terms of his Agreement, 500,000 options become
exercisable May, 1996 and 500,000 options become exercisable May, 1997. The
options remain exercisable for a five year term and are exercisable at $.96
per share. Mr. Zeiger was also elected to the Board of Directors in May,
1995. Inasmuch as Mr. Zeiger had access to relevant information concerning the
Company, the issuance of such securities was exempt from registration
requirements of the Act pursuant to the exemption set forth in Section 4(2) of
the Act.
Except with respect to the private placement completed in July 1994
and described above, no underwriters were involved in any of the transactions
described above, nor were any commissions paid in connection therewith.
<TABLE>
<CAPTION>
ITEM 27. EXHIBITS.
Exhibit No. Description of Exhibits
- ----------- -----------------------
<S> <C>
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
</TABLE>
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<PAGE> 109
<TABLE>
<S> <C>
(2)(i) Plan of Merger between Florida Immunological Institute, Inc. and Vira-Tech, Inc., dated September 30, 1986
(incorporated by reference to the Company's registration statement on Form S-2, dated October 24, 1986, as amended
File No. 33-9714 ("1986 Form S-2"), Part II, Item 16, 2.1)
(2)(ii) Articles of Merger of Florida Immunological Institute into Vira-Tech, Inc., dated September 30, 1986 (incorporated
by reference to 1986 Form S-2, Part II, Item 16, 2.2)
(3)(i) Articles of Incorporation and By-Laws (incorporated by reference to the Company's registration statement on Form
S-1, dated June 8, 1981, as amended, File No. 2-72691, "Form S-1", Part II, Item 30(b) 3.1 and 3.2)
(3)(ii) Amended Certificate of Incorporation (incorporated by reference to 1986 Form S-2, Part II, Item 16, 4.2)
(4) Instruments defining the rights of security holders, including indentures
(4)(i) Certificate of Designation for Series A Preferred Stock, as amended (incorporated by reference to 1986 Form S-2,
Part II, Item 16, 4.4)
(4)(ii) Specimen Certificate for Unit (Series A Preferred Stock and Class A Warrant) (incorporated by reference to 1986
Form S-2, Part II, Item 16, 4.5)
(4)(iii) Specimen Certificate for Class B Warrant (incorporated by reference to 1986 Form S-2, Part II, Item 16, 4.6)
(4)(iv) Specimen Certificate for Class C Warrant (incorporated by reference to the Company's Annual Report on Form 10-K,
December 31, 1986 ("1986 Form 10-K"), Part IV, Item 14(a)(4) (vii))
(4)(v) Amended and Restated Warrant Agreement between the Company and Continental Stock Transfer & Trust Company
(incorporated by reference to 1986 Form S-2, Part II, Item 16, 4.12)
(4)(vi) Addendum to the Amended and Restated Warrant Agreement between the Company and Continental Stock Transfer & Trust
Company dated March 24, 1987 (incorporated by reference to the 1986 Form 10-K, Part IV, Item 14(a) (4) (ix))
(4)(vii) Amendment No. 1 to the Addendum to and to the Amended and Restated Warrant Agreement (incorporated by
</TABLE>
II-7
<PAGE> 110
<TABLE>
<S> <C>
reference to the Company's Annual Report on Form 10-K, December 31, 1991 ("1991 Form 10-K"), Part IV, Item
14(a)(10)(xxiv))
(4)(viii) Form of three year 8.5% Convertible Subordinated Debenture (incorporated by reference to the Company's Current
Report on Form 8-K dated November 17, 1993)
(4)(ix) Form of Stock Option Agreement dated November 19, 1993, issued to Messrs. Dennis W. Healey and Peter D. Fischbein
(incorporated by reference to the Company's Current Report on Form 8-K dated November 17, 1993)
(4)(x) 1995 Stock Option Plan(2)
(5) Opinion of Atlas, Pearlman, Trop & Borkson, P.A. as to the validity of the securities being registered(2)
(10) Material contracts
(10)(i) Research Agreement between the Registrant and Viragen Research Associates Limited Partnership dated December 29,
1983 (incorporated by reference to Medicore S-1, File No. 2-89390, dated February 10, 1984 ("Medicore S-1"), Part
II, Item 16(a)(10)(xxxiii))
(10)(ii) License Agreement between the Registrant and Viragen Research Associates Limited Partnership dated December 29,
1983 (incorporated by reference to Medicore S-1, Part II, Item 16 (a)(10)(xxxiv))
(10)(iii) Novation Agreement between the Company, Medicore, Inc. and Immuno International AG, dated October 27, 1986
(incorporated by reference to the Company's Current Report on Form 8-K, dated November 14, 1986 ("November 1986
Form 8-K"), Item 7(c)(iv))
(10)(iv) Royalty Agreement between the Company and Medicore, Inc. dated November 7, 1986 (incorporated by reference to the
November 1986 Form 8-K, Item 7(c)(i))
(10)(v) Amendment to Royalty Agreement between the Company and Medicore, Inc. dated November 21, 1989 (incorporated by
reference to the Company's Current Report on Form 8-K dated December 6, 1989, Item 7 (c)(i))
(10)(vi) Promissory Note from the Company to Medicore, Inc. dated August 6, 1991 (incorporated by reference to the Company's
1991 Form 10-K, Part IV, Item 10(a)(10)(xx))
(10)(vii) Loan Agreement between the Company and Medicore, Inc. dated January 31, 1991 (incorporated by reference to the
Company's Current Report on Form 8-K dated February 26, 1991, Item 7 (c)(ii))
</TABLE>
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<PAGE> 111
<TABLE>
<S> <C>
(10)(viii) Amendment to Loan Agreement between the Company and Medicore, Inc. dated August 6, 1991 (incorporated by reference
to the Company's 1991 Form 10-K, Part IV, Item 14(a)(10)(xxi))
(10)(ix) Florida Real Estate Mortgage and Security Agreement from the Company to Medicore, Inc. dated August 6, 1991
(incorporated by reference to the Company's 1991 Form 10-K, Part IV, Item 14(a)(10)(xxii))
(10)(x) Human Source Leukocyte Agreement among the Company, Orlando Plasma Corporation and Immuno International AG dated
December 4, 1986 (incorporated by reference to 1986 Form S-2, Part II, Item 16, 10.15)
(10)(xi) Research Agreement between the Company and the University of Miami dated January 31, 1990 (incorporated by
reference to the Company's Current Report on Form 8-K dated March 7, 1990 ("March Form 8-K"), Item 7 (c)(i))
(10)(xii) Promissory Note to Equitable Bank dated August 2, 1991 (incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the second quarter ended June 30, 1991 ("June, 1991 Form 10-Q"), Part II, Item 6(a)(28)(i))
(10)(xiii) Mortgage and Security Agreement issued to the Equitable Bank dated August 2, 1991 (incorporated by reference to the
Company's June, 1991 Form 10-Q, Part II, Item 6 (a) (28) (ii))
(10)(xiv) Acquisition Agreement between the Company and Medicore, Inc. dated August 2, 1991 (incorporated by reference to the
Company's 1991 Form 10-K, Part IV, Item 14(a)(10)(xxiii))
(10)(xv) Lease between the Company and Medicore, Inc. dated December 8, 1992 (incorporated by reference to the Company's
Current Report on Form 8-K, dated January 21, 1993 ("January 1993 Form 8-K"), Item 7(c)(10)(i))
(10)(xvi) Addendum to Lease between the Company and Medicore, Inc. dated January 15, 1993 (incorporated by reference to the
Company's January 1993 Form 8-K, Item 7(c)(10)(ii))
(10)(xvii) Agreement for Sale of Stock between the Company and Cytoferon Corp. dated February 5, 1993 (incorporated by
reference to the Company's Current Report on Form 8-K, dated February 11, 1993, Item 7(c)(28))
</TABLE>
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<PAGE> 112
<TABLE>
<S> <C>
(10)(xviii) Addendum to Agreement for Sale of Stock between the Company and Cytoferon Corp. dated May 4, 1993 (incorporated by
reference to the Company's Current Report on Form 8-K dated May 5, 1993, Item 7(c)(28)(i))
(10)(xix) Amendment No. 2 to the Royalty Agreement between the Company and Medicore, Inc. dated May 11, 1993 (incorporated by
reference to the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a)(10)(xix))
(10)(xx) Note and Mortgage Modification Agreement between the Company and Medicore, Inc. dated August 18, 1993 (incorporated
by reference to the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a)(10)(xx))
(10)(xxi) Amendment No. 2 to the Loan Agreement between the Company and Medicore, Inc. dated August 18, 1993 (incorporated by
reference to the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a)(10)(xxi))
(10)(xxii) Amendment to Acquisition Agreement between the Company and Medicore, Inc. dated August 18, 1993 (incorporated by
reference to the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a)(10)(xxii))
(10)(xxiii) Marketing and Management Services Agreement between the Company and Cytoferon Corp. dated August 18, 1993
(incorporated by reference to the Company's June 30, 1993 Form 10-K, Part IV, Item 14(a)(10)(xxiii))
(10)(xxiv) Agreement for Sale of Stock between Cytoferon and the Company dated November 19, 1993 (incorporated by reference to
the Company's current report on Form 8-K, dated November 12, 1993)
(10)(xxv) Employment Agreement between Gerald Smith and the Company dated November 19, 1993 (incorporated by reference to the
Company's current report on Form 8-K, dated November 12, 1993) as amended by Modified Employment Agreement dated
December 15, 19941
(10)(xxvi) Common Stock Purchase Warrant Agreement between Northlea Partners Ltd. and the Company dated January 6, 1994
(incorporated by reference to the Company's Current Report on Form 8-K, dated November 17, 1993)
(10)(xxvii) Management Consulting Agreement between the Company, Medvest, Inc. and Dr. John Abeles dated January 6, 1994
(incorporated by reference to the Company's Current Report on Form 8-K, dated November 17, 1993)
</TABLE>
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<PAGE> 113
<TABLE>
<S> <C>
(10)(xxviii) Employment Agreement between Dennis W. Healey and the Company dated April 8, 1994 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994) as amended by Modified Employment Agreement
dated December 15, 1994(1)
(10)(xxx) Employment Agreement between Charles F. Fistel and the Company dated July 1, 1994 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994) as amended by Modified Employment Agreement
dated December 15, 1994(1)
(10)(xxxi) Placement Agent Agreement and Common Stock Purchase Warrant issued to Laidlaw Equities, Inc. and designees(1)
(10)(xxxii) Amendment No. 1 to Agreement for Sale of Stock with Cytoferon(1)
(10) (xxxiii) Modified Sale of Stock and Stock Option Agreement with Peter D. Fischbein(1)
(10)(xxxiv) Agreement with Moty Hermon(1)
(10)(xxxxv) Agreement with University of Nebraska Medical Center(2)
(21) Subsidiaries of the Registrant(1)
(23)(i) Consent of Ernst & Young, LLP(2)
(23)(ii) Consent of Atlas, Pearlman, Trop & Borkson, P.A. (included as part of Exhibit (5))
</TABLE>
- --------------------
1. Previously filed.
2. Filed herewith.
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or
sells securities being made, a post-effective amendment to this Registration
Statement:
(i) To include any Prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events which, individually or together, represent a fundamental change in the
information set forth in the Registration Statement;
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<PAGE> 114
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(2) For determining any liability under the Securities
Act of 1933, as amended, treat each post-effective amendment as a new
registration statement relating to the securities offered, and the offering of
the securities at that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove any of
the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
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<PAGE> 115
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Amendment to
its Registration Statement to be signed on its behalf by the undersigned in the
City of Hialeah, State of Florida, on May 25, 1995.
VIRAGEN, INC.
By: /s/Gerald Smith
------------------------------
Gerald Smith, Chairman of
Board and President
In accordance with the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement was signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the
Board of Directors
/s/ Gerald Smith and President May 25, 1995
- --------------------------
Gerald Smith
Chief Executive Officer
/s/Robert H. Zeiger Chief Operating Officer May 25, 1995
- --------------------------
Robert H. Zeiger
Executive Vice
President, Trea-
surer and Princi-
pal Financial
/s/ Dennis W. Healey Officer and May 25, 1995
- -------------------------- Accounting Officer
Dennis W. Healey
Executive Vice
/s/ Charles F. Fistel President May 25, 1995
- --------------------------
Charles F. Fistel
/s/ Peter D. Fischbein Director May 25, 1995
- --------------------------
Peter D. Fischbein
/s/ Sidney Dworkin Director May 25, 1995
- --------------------------
Sidney Dworkin
</TABLE>
<PAGE> 116
<TABLE>
<S> <C> <C>
/s/ Jay M. Haft Director May 25, 1995
- --------------------------
Jay M. Haft
/s/ William B. Saeger Director May 25, 1995
- --------------------------
William B. Saeger
</TABLE>
<PAGE> 117
__________________________________________________
EXHIBITS
OF
VIRAGEN, INC.
FILED WITH
AMENDMENT NO. 1 TO
SB-2 REGISTRATION STATEMENT
FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
____________________________________________________
<PAGE> 118
EXHIBIT INDEX
VIRAGEN, INC.
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C> <C>
(4)(x) 1995 Stock Option Plan
(5) Opinion of Atlas, Pearlman, Trop & Borkson, P.A. as to the
validity of the securities being registered(2)
(10)(xxxxv) Agreement with University of Nebraska Medical Center(2)
(23)(i) Consent of Ernst & Young, LLP
</TABLE>
<PAGE> 1
EXHIBIT (4)(X)
1995 STOCK OPTION PLAN
VIRAGEN, INC.
1995 STOCK OPTION PLAN
1. GRANT OF OPTIONS; GENERALLY. In accordance with the
provisions hereinafter set forth in this stock option plan, the name of which
is the VIRAGEN, INC. 1995 STOCK OPTION PLAN (the "Plan"), the Board of
Directors (the "Board") or, the Compensation Committee (the "Stock Option
Committee") of Viragen, Inc. (the "Corporation") is hereby authorized to issue
from time to time on the Corporation's behalf to any one or more Eligible
Persons, as hereinafter defined, options to acquire shares of the Corporation's
$.01 par value common stock (the "Stock").
2. TYPE OF OPTIONS. The Board or the Stock Option Committee is
authorized to issue options which meet the requirements of Section Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), which options
are hereinafter referred to collectively as ISOs, or singularly as an ISO. The
Board or the Stock Option Committee is also, in its discretion, authorized to
issue options which are not ISOs, which options are hereinafter referred to
collectively as NSOs, or singularly as an NSO. The Board or the Stock Option
Committee is also authorized to issue "Reload Options" in accordance with
Paragraph 8 herein, which options are hereinafter referred to collectively as
Reload Options, or singularly as a Reload Option. Except where the context
indicates to the contrary, the term "Option" or "Options" means ISOs, NSOs and
Reload Options.
3. AMOUNT OF STOCK. The aggregate number of shares of Stock
which may be purchased pursuant to the exercise of Options shall be 4,000,000
shares. Of this amount, the Board or the Stock Option Committee shall have the
power and authority to designate whether any Options so issued shall be ISOs or
NSOs, subject to the restrictions on ISOs contained elsewhere herein. If an
Option ceases to be exercisable, in whole or in part, the shares of Stock
underlying such Option shall continue to be available under this Plan.
Further, if shares of Stock are delivered to the Corporation as payment for
shares of Stock purchased by the exercise of an Option granted under this Plan,
such shares of Stock shall also be available under this Plan. If there is any
change in the number of shares of Stock on account of the declaration of stock
dividends, recapitalization resulting in stock split-ups, or combinations or
exchanges of shares of Stock, or otherwise, the number of shares of Stock
available for purchase upon the exercise of Options, the shares of Stock
subject to any Option and the exercise price of any outstanding Option shall be
appropriately adjusted by the Board or the Stock Option Committee. The Board
or the Stock Option Committee shall give notice of any adjustments to each
Eligible Person granted an Option under this Plan, and such adjustments shall
be effective and binding on all Eligible Persons. If because
<PAGE> 2
of one or more recapitalizations, reorganizations or other corporate events,
the holders of outstanding Stock receive something other than shares of Stock
then, upon exercise of an Option, the Eligible Person will receive what the
holder would have owned if the holder had exercised the Option immediately
before the first such corporate event and not disposed of anything the holder
received as a result of the corporate event.
4. ELIGIBLE PERSONS.
(a) With respect to ISOs, an Eligible Person means any
individual who has been employed by the Corporation or by any subsidiary of the
Corporation, for a continuous period of at least sixty (60) days.
(b) With respect to NSOs, an Eligible Person means (i)
any individual who has been employed by the Corporation or by any subsidiary of
the Corporation, for a continuous period of at least sixty (60) days, (ii) any
director of the Corporation or by any subsidiary of the Corporation or (iii)
any consultant of the Corporation or by any subsidiary of the Corporation.
5. GRANT OF OPTIONS. The Board or the Stock Option Committee has
the right to issue the Options established by this Plan to Eligible Persons.
The Board or the Stock Option Committee shall follow the procedures prescribed
for it elsewhere in this Plan. A grant of Options shall be set forth in a
writing signed on behalf of the Corporation or by a majority of the members of
the Stock Option Committee. The writing shall identify whether the Option
being granted is an ISO or an NSO and shall set forth the terms which govern
the Option. The terms shall be determined by the Board or the Stock Option
Committee, and may include, among other terms, the number of shares of Stock
that may be acquired pursuant to the exercise of the Options, when the Options
may be exercised, the period for which the Option is granted and including the
expiration date, the effect on the Options if the Eligible Person terminates
employment and whether the Eligible Person may deliver shares of Stock to pay
for the shares of Stock to be purchased by the exercise of the Option.
However, no term shall be set forth in the writing which is inconsistent with
any of the terms of this Plan. The terms of an Option granted to an Eligible
Person may differ from the terms of an Option granted to another Eligible
Person, and may differ from the terms of an earlier Option granted to the same
Eligible Person.
6. OPTION PRICE. The option price per share shall be determined
by the Board or the Stock Option Committee at the time any Option is granted,
and shall be not less than (i) in the case of an ISO, the fair market value,
(ii) in the case of an ISO granted to a ten percent or greater stockholder, 110
percent of the fair market value, or (iii) in the case of an NSO, not less than
75% of the fair market value (but in no event less than the par
2
<PAGE> 3
value) of one share of Stock on the date the Option is granted, as determined
by the Board or the Stock Option Committee. Fair market value as used herein
shall be:
(a) If shares of Stock shall be traded on an exchange or
over-the-counter market, the mean between the high and low sales prices of
Stock on such exchange or over-the-counter market on which such shares shall be
traded on that date, or if such exchange or over-the-counter market is closed
or if no shares shall have traded on such date, on the last preceding date on
which such shares shall have traded.
(b) If shares of Stock shall not be traded on an exchange
or over-the-counter market, the value as determined by a recognized appraiser
as selected by the Board or the Stock Option Committee.
7. PURCHASE OF SHARES. An Option shall be exercised by the
tender to the Corporation of the full purchase price of the Stock with respect
to which the Option is exercised and written notice of the exercise. The
purchase price of the Stock shall be in United States dollars, payable in cash
or by check, or in property or Corporation stock, if so permitted by the Board
or the Stock Option Committee in accordance with the discretion granted in
Paragraph 5 hereof, having a value equal to such purchase price. The
Corporation shall not be required to issue or deliver any certificates for
shares of Stock purchased upon the exercise of an Option prior to (i) if
requested by the Corporation, the filing with the Corporation by the Eligible
Person of a representation in writing that it is the Eligible Person's then
present intention to acquire the Stock being purchased for investment and not
for resale, and/or (ii) the completion of any registration or other
qualification of such shares under any government regulatory body, which the
Corporation shall determine to be necessary or advisable.
8. GRANT OF RELOAD OPTIONS. In granting an Option under this
Plan, the Board or the Stock Option Committee may include a Reload Option
provision therein, subject to the provisions set forth in Paragraphs 20 and 21
herein. A Reload Option provision provides that if the Eligible Person pays
the exercise price of shares of Stock to be purchased by the exercise of an
ISO, NSO or another Reload Option (the "Original Option") by delivering to the
Corporation shares of Stock already owned by the Eligible Person (the "Tendered
Shares"), the Eligible Person shall receive a Reload Option which shall be a
new Option to purchase shares of Stock equal in number to the tendered shares.
The terms of any Reload Option shall be determined by the Board or the Stock
Option Committee consistent with the provisions of this Plan.
9. STOCK OPTION COMMITTEE. The Stock Option Committee may be
appointed from time to time by the Corporation's Board of Directors. The Board
may from time to time remove members from or
3
<PAGE> 4
add members to the Stock Option Committee. The Stock Option Committee shall be
constituted so as to permit the Plan to comply in all respects with the
provisions set forth in Paragraph 20 herein. The members of the Stock Option
Committee may elect one of its members as its chairman. The Stock Option
Committee shall hold its meetings at such times and places as its chairman
shall determine. A majority of the Stock Option Committee's members present in
person shall constitute a quorum for the transaction of business. All
determinations of the Stock Option Committee will be made by the majority vote
of the members constituting the quorum. The members may participate in a
meeting of the Stock Option Committee by conference telephone or similar
communications equipment by means of which all members participating in the
meeting can hear each other. Participation in a meeting in that manner will
constitute presence in person at the meeting. Any decision or determination
reduced to writing and signed by all members of the Stock Option Committee will
be effective as if it had been made by a majority vote of all members of the
Stock Option Committee at a meeting which is duly called and held.
10. ADMINISTRATION OF PLAN. In addition to granting Options and
to exercising the authority granted to it elsewhere in this Plan, the Board or
the Stock Option Committee is granted the full right and authority to interpret
and construe the provisions of this Plan, promulgate, amend and rescind rules
and procedures relating to the implementation of the Plan and to make all other
determinations necessary or advisable for the administration of the Plan,
consistent, however, with the intent of the Corporation that Options granted or
awarded pursuant to the Plan comply with the provisions of Paragraph 20 and 21
herein. All determinations made by the Board or the Stock Option Committee
shall be final, binding and conclusive on all persons including the Eligible
Person, the Corporation and its stockholders, employees, officers and directors
and consultants. No member of the Board or the Stock Option Committee will be
liable for any act or omission in connection with the administration of this
Plan unless it is attributable to that member's willful misconduct.
11. PROVISIONS APPLICABLE TO ISOS. The following provisions shall
apply to all ISOs granted by the Board or the Stock Option Committee and are
incorporated by reference into any writing granting an ISO:
(a) An ISO may only be granted within ten (10) years from
______________ 1995, the date that this Plan was originally adopted by the
Corporation's Board of Directors.
(b) An ISO may not be exercised after the expiration of
ten (10) years from the date the ISO is granted.
(c) The option price may not be less than the fair market
value of the Stock at the time the ISO is granted.
4
<PAGE> 5
(d) An ISO is not transferrable by the Eligible Person to
whom it is granted except by will, or the laws of descent and distribution, and
is exercisable during his or her lifetime only by the Eligible Person.
(e) If the Eligible Person receiving the ISO owns at the
time of the grant stock possessing more than ten (10%) percent of the total
combined voting power of all classes of stock of the employer corporation or of
its parent or subsidiary corporation (as those terms are defined in the Code),
then the option price shall be at least 110% of the fair market value of the
Stock, and the ISO shall not be exercisable after the expiration of five (5)
years from the date the ISO is granted.
(f) The aggregate fair market value (determined at the
time the ISO is granted) of the Stock with respect to which the ISO is first
exercisable by the Eligible Person during any calendar year (under this Plan
and any other incentive stock option plan of the Corporation) shall not exceed
$100,000.
(g) Even if the shares of Stock which are issued upon
exercise of an ISO are sold within one year following the exercise of such ISO
so that the sale constitutes a disqualifying disposition for ISO treatment
under the Code, no provision of this Plan shall be construed as prohibiting
such a sale.
(h) This Plan was adopted by the Corporation on May 15,
1995, by virtue of its approval by the Corporation's Board of Directors.
Approval by the stockholders of the Corporation is to occur prior to May 15,
1996.
12. DETERMINATION OF FAIR MARKET VALUE. In granting ISOs under
this Plan, the Board or the Stock Option Committee shall make a good faith
determination as to the fair market value of the Stock at the time of granting
the ISO.
13. RESTRICTIONS ON ISSUANCE OF STOCK. The Corporation shall not
be obligated to sell or issue any shares of Stock pursuant to the exercise of
an Option unless the Stock with respect to which the Option is being exercised
is at that time effectively registered or exempt from registration under the
Securities Act of 1933, as amended, and any other applicable laws, rules and
regulations. The Corporation may condition the exercise of an Option granted
in accordance herewith upon receipt from the Eligible Person, or any other
purchaser thereof, of a written representation that at the time of such
exercise it is his or her then present intention to acquire the shares of Stock
for investment and not with a view to, or for sale in connection with, any
distribution thereof; except that, in the case of a legal representative of an
Eligible Person, "distribution" shall be defined to exclude distribution by
will or under the laws of descent and distribution. Prior to issuing any
shares of Stock
5
<PAGE> 6
pursuant to the exercise of an Option, the Corporation shall take such steps as
it deems necessary to satisfy any withholding tax obligations imposed upon it
by any level of government.
14. EXERCISE IN THE EVENT OF DEATH OF TERMINATION OR EMPLOYMENT.
(a) If an optionee shall die (i) while an employee of the
Corporation or a Subsidiary or (ii) within three months after termination of
his employment with the Corporation or a Subsidiary because of his disability,
or retirement or otherwise, his Options may be exercised, to the extent that
the optionee shall have been entitled to do so on the date of his death or such
termination of employment, by the person or persons to whom the optionee's
right under the Option pass by will or applicable law, or if no such person has
such right, by his executors or administrators, at any time, or from time to
time. In the event of termination of employment because of his death while an
employee or because of disability, his Options may be exercised not later than
the expiration date specified in Paragraph 5 or one year after the optionee's
death, whichever date is earlier, or in the event of termination of employment
because of retirement or otherwise, not later than the expiration date
specified in Paragraph 5 hereof or one year after the optionee's death,
whichever date is earlier.
(b) If an optionee's employment by the Corporation or a
Subsidiary shall terminate because of his disability and such optionee has not
died within the following three months, he may exercise his Options, to the
extent that he shall have been entitled to do so at the date of the termination
of his employment, at any time, or from time to time, but not later than the
expiration date specified in Paragraph 5 hereof or one year after termination
of employment, whichever date is earlier.
(c) If an optionee's employment shall terminate by reason
of his retirement in accordance with the terms of the Corporation's
tax-qualified retirement plans or with the consent of the Board or the Stock
Option Committee or involuntarily other than by termination for cause, and such
optionee has not died within the following three months, he may exercise his
Option to the extent he shall have been entitled to do so at the date of the
termination of his employment, at any time and from to time, but not later than
the expiration date specified in Paragraph 5 hereof or thirty (30) days after
termination of employment, whichever date is earlier. For purposes of this
Paragraph 14, termination for cause shall mean termination of employment by
reason of the optionee's commission of a felony, fraud or willful misconduct
which has resulted, or is likely to result, in substantial and material damage
to the Corporation or a Subsidiary, all as the Board or the Stock Option
Committee in its sole discretion may determine.
6
<PAGE> 7
(d) If an optionee's employment shall terminate for any
reason other than death, disability, retirement or otherwise, all right to
exercise his Option shall terminate at the date of such termination of
employment.
15. CORPORATE EVENTS. In the event of the proposed dissolution or
liquidation of the Corporation, a proposed sale of all or substantially all of
the assets of the Corporation, a merger or tender for the Corporation's shares
of Common Stock the Board of Directors may declare that each Option granted
under this Plan shall terminate as of a date to be fixed by the Board of
Directors; provided that not less than thirty (30) days written notice of the
date so fixed shall be given to each Eligible Person holding an Option, and
each such Eligible Person shall have the right, during the period of thirty
(30) days preceding such termination, to exercise his Option as to all or any
part of the shares of Stock covered thereby, including shares of Stock as to
which such Option would not otherwise be exercisable. Nothing set forth herein
shall extend the term set for purchasing the shares of Stock set forth in the
Option.
16. NO GUARANTEE OF EMPLOYMENT. Nothing in this Plan or in any
writing granting an Option will confer upon any Eligible Person the right to
continue in the employ of the Eligible Person's employer, or will interfere
with or restrict in any way the right of the Eligible Person's employer to
discharge such Eligible Person at any time for any reason whatsoever, with or
without cause.
17. NONTRANSFERABILITY. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the optionee, an Option shall be exercisable only by
him.
18. NO RIGHTS AS STOCKHOLDER. No optionee shall have any rights
as a stockholder with respect to any shares subject to his Option prior to the
date of issuance to him of a certificate or certificates for such shares.
19. AMENDMENT AND DISCONTINUANCE OF PLAN. The Corporation's Board
of Directors may amend, suspend or discontinue this Plan at any time. However,
no such action may prejudice the rights of any Eligible Person who has prior
thereto been granted Options under this Plan. Further, no amendment to this
Plan which has the effect of (a) increasing the aggregate number of shares of
Stock subject to this Plan (except for adjustments pursuant to Paragraph 3
herein), or (b) changing the definition of Eligible Person under this Plan, may
be effective unless and until approval of the stockholders of the Corporation
is obtained in the same manner as approval of this Plan is required. The
Corporation's Board of Directors is authorized to seek the approval of the
Corporation's stockholders for any other changes it proposes to make to this
Plan which require such approval, however, the Board of Directors may
7
<PAGE> 8
modify the Plan, as necessary, to effectuate the intent of the Plan as a result
of any changes in the tax, accounting or securities laws treatment of Eligible
Persons and the Plan, subject to the provisions set forth in this Paragraph 19,
and Paragraphs 20 and 21.
20. COMPLIANCE WITH RULE 16B-3. This Plan is intended to comply
in all respects with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), with respect to participants who are subject to Section
16 of the Exchange Act, and any provision(s) herein that is/are contrary to
Rule 16b-3 shall be deemed null and void to the extent appropriate by either
the Stock Option Committee or the Corporation's Board of Directors.
21. COMPLIANCE WITH CODE. The aspects of this Plan on ISOs is
intended to comply in every respect with Section 422 of the Code and the
regulations promulgated thereunder. In the event any future statute or
regulation shall modify the existing statute, the aspects of this Plan on ISOs
shall be deemed to incorporate by reference such modification. Any stock
option agreement relating to any Option granted pursuant to this Plan
outstanding and unexercised at the time any modifying statute or regulation
becomes effective shall also be deemed to incorporate by reference such
modification and no notice of such modification need be given to optionee.
If any provision of the aspects of this Plan on ISOs is
determined to disqualify the shares purchasable pursuant to the Options granted
under this Plan from the special tax treatment provided by Code Section 422,
such provision shall be deemed null and void and to incorporate by reference
the modification required to qualify the shares for said tax treatment.
22. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the
grant and exercise of Options thereunder, and the obligation of the Corporation
to sell and deliver Stock under such options, shall be subject to all
applicable federal and state laws, rules, and regulations and to such approvals
by any government or regulatory agency as may be required. The Corporation
shall not be required to issue or deliver any certificates for shares of Stock
prior to (a) the listing of such shares on any stock exchange or
over-the-counter market on which the Stock may then be listed and (b) the
completion of any registration or qualification of such shares under any
federal or state law, or any ruling or regulation of any government body which
the Corporation shall, in its sole discretion, determine to be necessary or
advisable. Moreover, no Option may be exercised if its exercise or the receipt
of Stock pursuant thereto would be contrary to applicable laws.
23. DISPOSITION OF SHARES. In the event any share of Stock
acquired by an exercise of an Option granted under the Plan shall
8
<PAGE> 9
be transferable other than by will or by the laws of descent and distribution
within two years of the date such Option was granted or within one year after
the transfer of such Stock pursuant to such exercise, the optionee shall give
prompt written notice thereof to the Corporation or the Stock Option Committee.
24. NAME. The Plan shall be known as the "Viragen, Inc. 1995
Stock Option Plan."
25. NOTICES. Any notice hereunder shall be in writing and sent by
certified mail, return receipt requested or by facsimile transmission (with
electronic or written confirmation of receipt) and when addressed to the
Corporation shall be sent to it at its office, 2343 West 76th Street, Hialeah,
Florida 33016, and when addressed to the Committee shall be sent to it at 2343
West 76th Street, Hialeah, Florida 33016, subject to the right of either party
to designate at any time hereafter in writing some other address, facsimile
number or person to whose attention such notice shall be sent.
26. HEADINGS. The headings preceding the text of Sections and
subparagraphs hereof are inserted solely for convenience of reference, and
shall not constitute a part of this Plan nor shall they affect its meaning,
construction or effect.
27. EFFECTIVE DATE. This Plan, the Viragen, Inc. 1995 Stock
Option Plan, was adopted by the Board of Directors of the Corporation on
________________, 1995. The effective date of the Plan shall be the same
date.
Dated as of __________, 1995.
VIRAGEN, INC.
By:___________________________
Its: President
9
<PAGE> 1
EXHIBIT (5)
Opinion of Atlas, Pearlman, Trop & Borkson, P.A.
as to the validity of the securities being registered
<PAGE> 2
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
[LETTERHEAD]
May 25, 1995
Viragen, Inc.
2343 West 76th Street
Hialeah, Florida 33016
RE: AMENDMENT NO. 2 TO REGISTRATION STATEMENT ON FORM SB-2
VIRAGEN, INC. (THE "COMPANY") 23,356,355 SHARES OF
COMMON STOCK
Gentlemen:
This opinion is submitted pursuant to the applicable rules of the
Securities and Exchange Commission with respect to the registration by the
Company of 23,356,355 shares of Common Stock, par value $.01 per share (the
"Common Stock") to be sold by the various Selling Security Holders designated
in the Registration Statement. The shares of Common Stock to be sold consist
of (i) 22,095,668 shares of Common Stock currently outstanding; (ii) 14,697
shares of Common Stock underlying the Company's Series A 10% Convertible
Cumulative Preferred Stock (the "Series A Preferred Stock"); and (iii)
1,245,990 shares of Common Stock issuable upon exercise of certain of the
Company's Common Stock purchase warrants (the "Warrants").
In our capacity as counsel to the Company, we have examined the
original, certified, conformed, photostat or other copies of the Company's
Certificate of Incorporation (as Amended), By-Laws, instruments pertaining to
the Series A Preferred Stock, the Warrants, and corporate minutes provided to
us by the Company. In all such examinations, we have assumed the genuineness
of all signatures on original documents, and the conformity to originals or
certified documents of all copies submitted to us as conformed, photostat or
other copies. In passing upon certain corporate records and documents of the
Company, we have necessarily assumed the correctness and completeness of the
statements made or included therein by the Company, and we express no opinion
thereon.
Based upon and in reliance of the foregoing, we are of the opinion
that the Common Stock presently outstanding is, and the Common Stock to be
issued upon conversion of the
<PAGE> 3
Viragen, Inc.
May 12, 1995
Page 2
Series A Preferred Stock and upon exercise of the Warrants, when issued in
accordance with the terms of the Series A Preferred Stock and the Warrants,
will be validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion in the Registration
Statement on Form SB-2 to be filed with the Commission.
Very truly yours,
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
JMS/bb
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
ATTORNEYS AT LAW
<PAGE> 1
EXHIBIT (10)(xxxxv)
Agreement with University of Nebraska Medical Center
<PAGE> 2
VIRAGEN, INC.
RESEARCH AGREEMENT
Agreement made as of this 6th day of March, 1995, between and among
Howard E. Gendelman, M.D., Professor of Pathology and Microbiology,
(hereinafter referred to as PRINCIPAL INVESTIGATOR), and the Board of Regents
of the University of Nebraska, by and on behalf of its University of Nebraska
Medical Center, (hereinafter referred to UNIVERSITY), and Viragen, Inc., a
Delaware Corporation having its principal offices at Hialeah, Florida
(hereinafter called VI).
W I T N E S S E T H:
WHEREAS, VI has developed or acquired certain proprietary
materials and information. PRINCIPAL INVESTIGATOR and UNIVERSITY desire to
receive such proprietary materials and information from VI for the limited
purpose of carrying out research activities on behalf of VI, and
WHEREAS, PRINCIPAL INVESTIGATOR desires to render professional
research services to VI.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises and covenants herein contained, the parties hereto agree as follows:
1. The parties may from time to time provide to each other
certain biological materials including, but not limited to, Alpha
Leukoferon(TM), and certain related materials (such materials, together with
any biological or chemical substance derived therefrom, the "MATERIALS"). VI
may also provide certain Confidential Information (as such term is defined
below) to PRINCIPAL INVESTIGATOR from time to time related thereto. The
MATERIALS and Confidential Information are sometimes hereinafter referred to
as the "VI Property". PRINCIPAL INVESTIGATOR shall be authorized to accept and
preserve VI Property on behalf of the parties hereto as provided herein.
2. The term of this Agreement shall extend for a period of 90
days from the date of execution hereof and may be extended for an additional
period upon the mutual written agreement of the parties hereto.
3. The work under this Agreement shall be performed in accordance
with the protocol attached as Exhibit I incorporated as a time line (the "Time
Line") which efforts related thereto shall commence simultaneously upon the
execution of this Agreement.
4. UNIVERSITY will permit the VI Property to be used only by
PRINCIPAL INVESTIGATOR and employees working under the direction of PRINCIPAL
INVESTIGATOR. The VI Property shall be used only for the tasks as outlined in
the
<PAGE> 3
Time Line, or for other purposes which are approved in writing in advance by
VI's Executive Committee, and will not be used for any other purpose except as
expressly authorized in writing in advance by VI's Executive Committee. VI
Property shall not be transferred or disclosed to any other person or entity
without prior written approval of VI's Executive Committee.
UNIVERSITY agrees that it shall provide an adequate number of
employees and/or other qualified persons associated with the University of
Nebraska Medical Center in order to accomplish the tasks as set forth in the
Time Line. PRINCIPAL INVESTIGATOR may sub-contract certain aspects and/or
tasks to qualified third parties approved in writing in advance by VI's
Executive Committee in accordance with the Time Line.
5. As to scientific, medical and technical matters, UNIVERSITY
and PRINCIPAL INVESTIGATOR shall promptly disclose in writing to VI all results
of the research related to the VI Property including, without limitation, all
inventions, data, improvements, ideas, and/or methods arising from or made or
conceived in connection with or during the performance of services by PRINCIPAL
INVESTIGATOR (hereinafter referred to as the "Research"). VI shall own the
Research results and/or inventions made by the PRINCIPAL INVESTIGATOR and/or
all employees and/or sub-contractors engaged and/or relating to work performed
under this Agreement. PRINCIPAL INVESTIGATOR shall not publish any information
or results of Research without the advance written approval by the Company's
Executive Committee.
6. The parties executing this Agreement represent and warrant
that they have the authority to bind their respective entities. PRINCIPAL
INVESTIGATOR represents that he is under no obligation to any third party that
would interfere with his rendering to VI professional services as hereinafter
described. PRINCIPAL INVESTIGATOR and UNIVERSITY hereby irrevocably transfer
and assign any and all of their right, title, and interest in and to the
Research, including, but not limited to, all copyrights, patent rights, trade
secrets and trademarks, domestic and foreign, to VI. The Research will be the
sole property of VI and VI will have the sole right to determine the treatment
of any Research, including the right to keep it as trade secrets, to file and
execute patent applications on it, to use and disclose it without prior patent
application, to file registrations for copyright or trademark on it in its own
name, or to follow any other procedure that VI deems appropriate. PRINCIPAL
INVESTIGATOR and UNIVERSITY agree to (a) to disclose promptly in writing to VI
all Research including, but not limited to, the surrender of all original Lab
books and records; (b) to cooperate with and assist VI to apply for, and to
execute any applications and/or assignments reasonably necessary to obtain, any
patent, copyright, trademark or other statutory protection for the Research in
VI's name as VI deems appropriate; and (c) to otherwise treat all Research as
"Confidential Information", as defined below. These obligations to disclose,
assist, execute and keep confidential will survive any expiration or
termination of this Agreement.
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<PAGE> 4
7. As used in this Agreement, "Confidential Information" shall
mean all data, technical know how, scientific and economic information,
commercialization and research strategies, regulatory and research strategies,
trade secrets and know-how disclosed by VI to PRINCIPAL INVESTIGATOR, directly
or indirectly, whether in writing or orally, relating to the VI Property,
except for such information and know-how that (a) can be shown by
contemporaneous documentation of UNIVERSITY or PRINCIPAL INVESTIGATOR to have
been in its possession prior to disclosure to it by VI; (b) at the time of
disclosure hereunder is, or thereafter becomes, through no fault of UNIVERSITY
or PRINCIPAL INVESTIGATOR, generally and publicly known; or (c) is furnished to
PRINCIPAL INVESTIGATOR by a third party after the time of disclosure hereunder
without the breach of any duty to VI by such parties.
8. UNIVERSITY shall use its best efforts to provide the services
in accordance with the Time Line, to keep VI advised in writing of the progress
of the work, to permit any representative duly authorized in writing by VI to
inspect from time to time the results of said research, to timely provide VI,
as maybe requested periodically by VI, with such written reports,
specifications, drawings, models, documentation and the like, as are
appropriate to the nature of the services contemplated.
9. PRINCIPAL INVESTIGATOR shall use the VI Property in compliance
with applicable laws and regulations and acknowledges that the VI Property is
experimental, should be used with caution and shall not be used in humans. The
provision of the VI Property by VI to PRINCIPAL INVESTIGATOR hereunder shall
not be deemed to be the grant of any rights or license except as expressly set
forth therein.
10. VI makes no representations or warranties, express or implied,
related to the VI Property, including, without limitation, any warranty of
merchantability or fitness for a particular purpose. Without limiting the
foregoing VI makes no representation or warranty that the use of the VI
Property will not infringe any patent or other proprietary right.
11. To the extent permitted by governing law; UNIVERSITY shall
indemnify and hold harmless VI and VI's officers, directors, employees and
agents from any claims or liability arising from the use, handling or storage
of the VI Property by UNIVERSITY or its employees, agents or contractors,
including PRINCIPAL INVESTIGATOR.
12. This Agreement shall be governed by the State law of choice by
the party bringing an action and may only be amended by a writing signed by the
parties hereto. If any provision of this Agreement is held by a court to be
unenforceable, then such provision shall be enforced to the maximum extent
possible consistent with applicable law, and the remaining provisions of this
Agreement shall remain in full force and effect. This Agreement represents the
entire agreement between the parties relating to the subject matter hereof.
This Agreement may not be assigned without the written consent of VI. This
Agreement may not be modified except by written agreement between the parties.
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<PAGE> 5
13. VI agrees to pay UNIVERSITY the sum of US$85,000 as follows:
33% Upon execution of this Agreement by all of the parties
hereto;
33% Upon 45 days from date of Execution hereof, subject to
interim performance of the Time Line; and
34% Upon Termination of Agreement by its term and
fulfillment of all terms and conditions contained herein
and the Time Line.
The parties execute this Agreement on the date below as signed by an individual
authorized to obligate each respective party.
VIRAGEN, INC. BOARD OF REGENTS OF THE
UNIVERSITY OF NEBRASKA
BY: BY: Paul J. Gardner, Ph.D.
------------------------- --------------------------------
Charles F. Fistel Paul J. Gardner, Ph.D.
Chief Executive Officer Assistant Vice Chancellor
for Academic Affairs
TITLE: U.N.M.C.
------------------------------
DATE: DATE: 07-MAR-95
------------------------- ------------------------------
PRINCIPAL INVESTIGATOR
BY: Howard E. Gendelman, M.D.,
--------------------------------
Howard E. Gendelman, M.D.,
Individually
DATE: 3/7/95
-------------------------------
4
<PAGE> 1
EXHIBIT (23)(i)
CONSENT OF ERNST & YOUNG, LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated October 7, 1994, in Amendment No. 2 to the Registration
Statement (Form SB-2 No. 33-88070) and related Prospectus of Viragen, Inc., for
the Registration of 23,356,355 shares of its common stock.
/s/ ERNST & YOUNG LLP
May 22, 1995
Miami, Florida
