VIRAGEN INC, 10-K405/A, 1999-04-07

VIRAGEN INC
10-K405/A, 1999-04-07
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K/A

<TABLE>
<C> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>

COMMISSION FILE NUMBER 0-10252

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VIRAGEN, INC.
(Exact name of registrant as specified in its charter)

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<S> <C>
DELAWARE 59-2101668
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)

865 SW 78TH AVENUE, SUITE 100,
PLANTATION, FLORIDA 33324
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code:
(954) 233-8746

Securities registered pursuant to Section 12(b) of the Act:
NONE

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing price of the common stock on September 16,
1998 was approximately $79,302,000.

As of September 16, 1998, the Company had outstanding 54,425,121 shares of
common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Registration Statement on Form S-3, File No. 333-50429, dated April 17,
1998.
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VIRAGEN, INC. AND SUBSIDIARIES

INDEX TO ANNUAL REPORT ON FORM 10-K
YEAR ENDED JUNE 30, 1998

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PART I

Item 1. Business.................................................... 1

Item 2. Properties.................................................. 11

Item 3. Legal Proceedings........................................... 11

Item 4. Submission of Matters to a Vote of Security Holders......... 12

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 12

Item 6. Selected Financial Data..................................... 13

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13

Item 8. Financial Statements and Supplementary Data................. 21

Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................... 21

PART III

Item 10. Directors and Executive Officers of the Registrant.......... 21

Item 11. Executive Compensation and Employment Agreements............ 24

Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 29

Item 13. Certain Relationships and Related Transactions.............. 31

PART IV

Item 14. Exhibits and Reports on Form 8-K............................ 32
</TABLE>

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PART I

ITEM 1. BUSINESS

INTRODUCTION

Viragen, Inc., (the "Company" or "Viragen") was organized in December 1980
to engage in the research, development and manufacture of certain immunological
products for commercial application, particularly human leukocyte interferon,
for antiviral and therapeutic applications.

Viragen, Inc. has five subsidiaries: Viragen (Europe), Ltd. ("VEL"),
Vira-Tech, Inc. ("Vira-Tech"), Viragen Technology, Inc. ("Viragen Technology"),
Viragen, U.S.A., Inc. ("VUSA") and Viragen Reagents, Inc. ("Viragen Reagents").
VEL is a majority-owned publicly traded subsidiary of which Viragen holds 70.3%
of the outstanding Common Stock. VEL (NASDAQ Small Cap: "VERP"), owns all of the
Common Stock of Viragen (Scotland) Limited, ("VSL"), and Viragen (Germany) GmbH.
Viragen, VEL, Vira-Tech, Viragen Technology, VUSA, Viragen Reagents and VSL are
hereinafter referred to collectively as the "Company," unless the context
otherwise requires.

The Company's operations focus on the development of immunological products
developed from human blood derivatives. The Company's first product is a
multi-species, human leukocyte-derived alpha interferon ("Natural Interferon").
Natural Interferon is a protein substance that stimulates and modulates the
human immune system inhibiting malignant cell growth. In addition Natural
Interferon impedes the growth and propagation of various viruses. The Company's
second generation Natural Interferon, trade named Omniferon(TM), is currently
under development in its injectable form for the potential treatment of
Hepatitis B & C, Multiple Sclerosis ("MS"), HIV/AIDS and other autoimmune
disorders. Omniferon has not been approved by the United States Food and Drug
Administration ("FDA") nor the European Union ("EU") regulatory authorities, and
there can be no assurance that such approvals will be obtained at any time in
the future. In August 1998, the Company acquired a 10% equity interest, with an
option to acquire up to an 80% interest, in Inflammatics Inc. ("Inflammatics").
Inflammatics obtained a license to the rights to LeukoVAX(TM), a human blood
derived natural product for the treatment of rheumatoid arthritis. LeukoVAX is
currently in FDA, Phase I/II clinical trials. (The Company's Omniferon and
LeukoVAX products are sometime collectively referred to as the "Products" or
individually as a "Product.")

The Company intends to obtain FDA and EU approvals for various uses of its
Omniferon and LeukoVAX products in the future. Such approvals are expected to
require several years of clinical trials and substantial additional funding. To
date, Viragen has not commercially distributed either product. Vira-Tech has
previously manufactured Alpha Leukoferon(TM), the Company's first generation
Natural Interferon product. This product was distributed for research purposes
pursuant to a limited Florida investigatory license and protocols program which
was discontinued in August 1995 (with the exception of certain limited
enrollments approved by the Florida HRS for humanitarian purposes under an
HIV/AIDS study protocol conducted at no charge to patients). Viragen is
concentrating its efforts on preparing, filing and processing its applications
and obtaining approvals for Omniferon, initially within the EU, and
subsequently, in the United States. The Company commenced preclinical studies
with Omniferon in March 1998 and plans to commence clinical trials during the
first calendar quarter of 1999.

The Company has assembled an advisory committee consisting of scientists,
medical researchers and clinicians to assist the Company in its applications to
the FDA and the EU regulatory authorities.

The Company's majority-owned subsidiary, Viragen (Europe) Ltd., acting
through its wholly-owned subsidiary VSL, entered into a License and
Manufacturing Agreement with The Common Services Agency of Scotland (the
"Agency"), an agency acting on behalf of the Scottish National Blood Transfusion
Service ("SNBTS"). Pursuant to such Licensing and Manufacturing Agreement,
SNBTS, on behalf of VSL, will assist in the manufacture of VSL's Omniferon
product for exclusive distribution within the EU and non-exclusively worldwide
in return for certain royalties and preferential access to the Product for
Scottish Agency patients at preferential prices. The Agency has committed to
assist in the manufacture of Omniferon in sufficient scale to accommodate the EU
clinical trials and, subsequently, for commercial sales in amounts to

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be agreed upon by the parties. The Agency will also work with the Company in
conducting studies relevant to Omniferon and cooperate with the Company to
enable it to comply with the laws and regulations of the EU in connection with
production, clinical trials and commercial distribution of Omniferon.

RECENT DEVELOPMENTS

In furtherance of the Company's strategic plan to secure reliable and safe
sources of human white blood cells ("leukocytes" or "buffy coats") critical to
the production of both Omniferon and LeukoVAX, the Company has entered into a
series of strategic alliance and supply agreements with major worldwide
suppliers of blood products. During 1998, Viragen consummated agreements with
the American Red Cross and America's Blood Centers, which between them annually
collect a substantial majority of the U.S. blood supply, and a series of
agreements covering a majority of the blood supply in Germany, a major European
supplier.

In July 1998, the Company and VUSA entered into a strategic alliance and
supply agreement with America's Blood Centers ("ABC") for the supply of human
white blood cells (leukocytes). ABC is a national network of non-profit,
independent community blood centers operating in 45 states. ABC members annually
collect in excess of 45% of the U.S. blood supply through its member blood
donation centers and mobile collection facilities. Under the terms of the ABC
Agreement, the Company was granted first and preferential access to all
leukocytes produced by ABC members who have elected to participate in the
program. The Company has agreed to pay a fixed cost per buffy coat provided
during the first two years of the ABC Agreement. Thereafter, the price may vary
based upon incremental costs incurred by participating ABC members.

In addition to cost reimbursement for buffy coats provided, the ABC
Agreement provides for a royalty payment to be paid for each buffy coat provided
under this Agreement. The royalty to be paid is based on the higher of: (i) a
percentage of net revenues realized by the Company, (ii) the estimated net
revenues that could have been realized, based on the sale of Omniferon,
utilizing the buffy coats provided, or (iii) a fixed dollar amount per buffy
coat. No minimum order requirement exists under the ABC Agreement, however, the
parties have agreed that prior to the date that a New Drug Approval application
becomes approved by the FDA, the parties will negotiate in good faith to reach
an Agreement on a minimum buffy coat purchase commitment.

In August 1998, the Company and its majority owned subsidiary VUSA, Inc.
entered into a fifteen year Agreement with the American Red Cross ("ARC") for
the supply of human white blood cells. ARC collects approximately half of the
U.S. blood supply. The ARC Agreement provides for the Company's purchase of
buffy coats, consistent with agreed upon specifications, based on quarterly
forecasts provided by the Company. Buffy coats may be paid for in cash or Common
Stock of the Company at the option of ARC, with the valuation of shares paid
determined by the average closing price of the Company's shares for the five
days prior to the payment due date less a discount. The ARC Agreement further
contains an initial price per buffy coat modified by a volume discount pricing
schedule and rebate program, subject to periodic renegotiation. Upon execution
of the Agreement, ARC received a Warrant to purchase up to 500,000 shares of
Common Stock of the Company at exercise prices ranging from $5.50 to $11.00 per
share and entered into a Stockholder's Agreement and Registration Rights
Agreement relating to shares underlying the Warrant and shares received, if any,
in lieu of cash for buffy coat purchases.

In August 1998, the Company entered into a strategic alliance concurrent
with the purchase of a 10% equity interest in Inflammatics, Inc., a private drug
development company, headquartered in Philadelphia, PA. Inflammatics has focused
on the development of therapeutic drugs for autoimmune disorders. Its lead
product is LeukoVAX, an immunomodulating therapy derived from leukocytes
currently in FDA Phase I/II clinical trials for rheumatoid arthritis.

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Additional funding, if any, will be made based upon the Company's evaluation of
LeukoVAX clinical trial data and would be utilized to underwrite a FDA Phase III
clinical trial. As part of these options, the Company may issue up to 3 million
shares of its Common Stock and 300,000 additional warrants to purchase Common
Stock of the Company in exchange for additional Series A Convertible shares of
Inflammatics bringing the Company's total equity position in Inflammatics to
80%.

On September 22, 1998 the Company entered into an Equity Line Financing
Agreement ("Equity Line Agreement") for a maximum offering amount of $20 million
over three years. Provisions of the Equity Line Agreement provide that the
Company, at its option, may "Put" shares of Common Stock to the investor,
following an effective Registration Statement, at a "Put Share Price" equal to
the lesser of (a) 87.5% of the Market Price for such Put or (b) the difference
of (i) the Market Price of such Put minus (ii) $0.225 where the Market Price is
defined as the lowest Closing Bid Price during the 10 to 20 trading days
(depending upon the size of the Put) following each Put.

The amount of Common Stock that may be Put in any 30 day period, is limited
to one half ( 1/2) of the aggregate daily reported trading volume in the
outstanding Common Stock reported during the 10 trading days preceding the Put
date. In addition, on each six month anniversary of the Subscription Agreement
date, the Company shall issue to the Subscriber a Purchase Warrant to purchase a
number of shares of Common Stock equal to 10% of the number of Put Shares issued
to the Subscriber during the preceding 6 calendar months. Each Purchase Warrant
shall be exercisable at 108% of the lowest closing bid price for the 10 trading
days immediately preceding each six month anniversary.

In connection with the Equity Line Agreement, the Company also entered into
a Placement Agent Agreement which provides for a Cash Placement Fee on the gross
proceeds from the sale of the securities in any Put of: 7% on the first $5
million; 6% from $5 million to $10 million; and 3.5% for amounts in excess of
$10 million. If the Company were to Put securities for the entire $20 million
available under the Equity Line Agreement, the Cash Placement Fee would total 5%
of the total gross proceeds derived. In addition, the Placement Agent Agreement
provides for the issuance of Placement Agent Warrants to the Placement Agent
equal to: (i) 7%, 6% and 3.5%, respectively, on all shares issued in connection
with Put Shares at the same thresholds as the Cash Placement Fee, exercisable at
125% of the average Put Share Price of all Put Shares issued during the
preceding six calendar months; and (ii) a warrant to purchase a number of Common
Shares in the same percentages as above for which the subscriber has been issued
a Purchase Warrant, exercisable at 108% of the lowest closing bid price for the
10 trading days immediately preceding the applicable six month anniversary.

As of the closing of the Equity Line Agreement, the Company had
approximately 1,900,000 shares of Common Stock available from total authorized
shares. Accordingly, to utilize the total funding available under the Equity
Line Agreement, the Company must obtain Stockholder approval to increase the
number of authorized shares in the Company. In addition, to comply with NASDAQ
National Market regulations regarding potential dilution limitations, the
Company intends to seek Shareholder's approval of the Equity Line Financing
Agreement.

OPERATIONS

In March 1998, the Company commenced safety and preclinical trials in
Europe of its multi-species, human leukocyte-derived alpha interferon,
Omniferon. The Company anticipates the commencement of clinical trials in the
first calendar quarter of 1999.

Viragen initially obtained approval for use of Alpha Leukoferon 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 (the "499 Program"), was amended to include the Company's
protocols and Florida Statute 402.36 was repealed. In 1986, the Company received
approval from the Florida HRS under the 499 Program, to distribute Alpha
Leukoferon under specific investigative clinical study protocols through
hospitals, pharmacies and Florida licensed physicians for the treatment of
patients within the State of Florida. The Company subsequently received State of
Florida regulatory approval for the investigational use of Alpha Leukoferon in
the treatment of Multiple Sclerosis ("MS"), HIV/AIDS, AIDS Related Complex,
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AIDS/Kaposi Sarcoma, 32 types of cancers, hepatitis and certain other viral
diseases. In December 1994, the Company discontinued enrollment of new patients
in its Multiple Sclerosis Study 499 Program. In August 1995, the Company
negotiated an agreement with the Florida Department of Health and Rehabilitative
Services ("HRS") which provided for the elimination of the enrollment of new
patients in its existing 499 Program (with the exception of certain limited
enrollments approved by the Florida HRS in 1996 for humanitarian purposes
including the Company's HIV/AIDS study conducted at no charge to patients), the
continued participation by previously enrolled patients in the 499 Program and
resolution of other issues. The Company believes, while there can be no
assurance as to future regulatory approvals, if any, the discontinuation of the
Company 499 Program will facilitate efforts in obtaining FDA and EU approvals
for Omniferon. This is based on management's concern that the continuation of
the 499 Program, which involved the ongoing distribution of Alpha Leukoferon and
receipt of limited revenues, was an impediment to obtaining such approvals. All
other previously approved indications and protocols for the use of Alpha
Leukoferon are inactive.

The Company will require additional financing to conduct and complete
clinical trials for the purpose of obtaining FDA and/or EU approvals for
Omniferon or LeukoVAX (if the Company exercises its right to acquire a
controlling interest in Inflammatics). Clinical testing toward FDA and/or EU
approval is an expensive process, which is expected to take several years to
accomplish with no assurance such approvals will eventually be obtained.

THE PRODUCTS

The Company derives its Omniferon from human white cells (leukocytes).
Natural Interferon is one of the body's natural defensive responses to foreign
substances such as viruses, and is so named because it "interferes" with viral
growth. Natural 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, differentiated primarily by their
method of manufacture and resultant composition. The first, as produced by the
Company, is multi-species natural, human leukocyte-derived alpha interferon
produced by cultivated human white blood cells, which are stimulated by the
introduction of a harmless agent. This process induces the cells to produce
natural interferon. Natural interferon is then separated from other natural
proteins and purified to produce a highly concentrated product for clinical use.
The second, recombinant interferon (alpha or beta), is a genetically engineered
synthetic interferon generally produced from a single human gene in bacterial
cells by recombinant DNA techniques ("Synthetic Interferon").

Clinical studies suggest that there may be significant therapeutic
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 (the production
by the human immune system of neutralizing and/or binding antibodies) that
reduces the effectiveness of the treatment or which may cause adverse side
effects. 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 biological differences, the side
effects of treatment with Natural Interferon, in certain instances, may be less
severe than with Synthetic Interferon.

THE INTERFERON INDUSTRY

Prior to 1985, Natural Interferon was the only type of interferon
available. Research institutions and other biomedical companies like the Company
were working to solve the problem of the high cost related to the
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 FDA approval to produce and market their respective
recombinant alpha interferon products for the treatment of hairy-cell leukemia,
hepatitis and Kaposi's Sarcoma, an AIDS-related skin cancer. See "Regulation"
and "Competition" below.

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After the emergence of recombinant alpha interferon, the medical
community's interest in Natural Interferon diminished due primarily to its
limited availability and its higher cost of production, and most clinical
studies thereafter utilized a synthetic product.

Hoffman-LaRoche, Inc. and Schering-Plough Corporation continue to actively
market their products and promote the therapeutic benefits of their respective
Synthetic Interferon products. In 1993 Chiron Corp. received FDA approval of
BetaSeron(TM), its recombinant beta interferon for the treatment of
relapsing/remitting MS. In 1996, Biogen, Inc. received FDA approval for
Avonex(TM) its recombinant beta interferon for relapsing/remitting MS. In 1997,
Teva Pharmaceuticals received FDA approval of its peptide chemical compound,
Copaxone(TM), for relapsing/remitting MS. In addition to the manufacturers of
Synthetic Interferons, a domestic manufacturer of natural interferon-alpha,
Interferon Sciences, Inc., received FDA approval in 1989 to sell, in injectable
form, Alferon(TM) their natural interferon product for genital warts. They
continue to conduct FDA sanctioned clinical trials for additional indications.

APPLICATIONS OF INTERFERON

Human leukocyte interferon is a naturally occurring protein, which serves
to enhance the body's immune response to certain viral infections. The Company
believes interferons can arrest the progress of certain viral based infections,
reducing symptoms and disease related complications with a minimum of side
effects.

Hepatitis C

The hepatitis C virus (HCV) is a major worldwide cause of acute and chronic
hepatitis. Hepatitis C, previously known as "non-A, non-B hepatitis", affects an
estimated 4 million Americans with approximately 30,000 new cases diagnosed each
year and is responsible for an estimated 8,000 deaths annually. Hepatitis C is
currently the leading cause of liver transplantation in the United States. Based
on a review of published literature and evaluation by the Company's scientific
staff and advisors, the Company believes that its Omniferon product may prove
efficacious in the treatment of this indication.

Hepatitis B

Approximately 45% of the world population live in areas with a high
prevalence of hepatitis B ("HBV") infection where the lifetime risk of infection
can exceed 60%. Most infections in these areas are acquired at birth or during
early childhood where the risk of developing chronic infection is highest. In
the United States, which is not in a high prevalence area, approximately 300,000
cases of acute HBV are diagnosed annually with 2% to 10% of these patients
developing chronic infections, putting the patients at risk of progressive liver
disease possibly leading to cirrhosis and/or hepatocellar carcinoma.

Synthetic Interferon alpha is the only FDA approved drug for HBV and has
been found to be an efficacious treatment in some cases. The Company believes
that Omniferon may also prove effective in the treatment of HBV.

Multiple Sclerosis

In 1988, following State of Florida regulatory approval for use of the
Company's product by HRS for the treatment of multiple sclerosis, the Company,
entered into a research agreement with the University of Miami School of
Medicine, Department of Neurology Multiple Sclerosis Center. Pursuant to the 499
Program this study was a patient funded, multi-phase clinical trial for the
treatment of multiple sclerosis with Alpha Leukoferon. The study was conducted
on a double-blind basis with certain patients receiving different dosage levels
of that product and certain patients receiving a placebo. The study terminated
in mid-1992. Published information on these trials indicated that, in many
cases, the Company's interferon product provided favorable results in the
treatment of patients afflicted with relapsing/remitting, relapsing progressive
and chronic progressive MS.

The Principal Investigator for this study authored, together with other
investigators, an abstract of the favorable results achieved in many cases with
the use of the Company's Alpha Leukoferon product in the

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treatment of various types of multiple sclerosis. The abstract titled
Stabilization of Relapsing-Remitting and Progression Multiple Sclerosis with
Natural Interferon Alpha: A Preliminary Trial was published in the Annals of
Neurology, the official journal of the American Neurological Association in
1994. An additional article was published by the investigators and the Company
titled Natural Alpha Interferon in Multiple Sclerosis: Results of Three
Preliminary Series appearing in the Journal of International Medical Research in
1996.

Chronic Myelogenous Leukemia

Chronic Myelogenous Leukemia ("CML") is one of a group of diseases called
myeloproliferative disorders and is usually recognized by a distinctive
cytogenetic abnormality, the Philadelphia Chromosome. The current treatment for
CML is high dose chemotherapy with bone marrow transplantation. Interferon
therapy has emerged as a possible effective initial treatment in this disease
affecting both the presence of Leukemia cells as well as the number of bone
marrow cells having the Philadelphia Chromosome.

HIV/AIDS

In July 1990, the Company received approval from the Florida HRS for an
HIV/AIDS treatment protocol using Alpha Leukoferon in injectable form. In
September 1993, the Company initiated distribution on a limited basis of its
Product under this 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 had
satisfied HRS regarding compliance with FDA promulgated current Good
Manufacturing Practice ("cGMP") requirements. In July 1995, the Company
discontinued enrollment of new patients in its 499 Program and in August 1995,
reached a settlement agreement with the Florida HRS which provided for the
elimination of the enrollment of new patients in its 499 Program (with the
possible exception of certain limited enrollments approved by the Florida HRS
for humanitarian purposes), the continued participation by previously enrolled
patients in the 499 Program and the resolution of other issues.

In March 1996, the Company in collaboration with Biodoron, a Hollywood,
Florida based clinic, received approval from HRS under Florida's Investigational
Drug Program to conduct an investigational study in Florida of Viragen's natural
human alpha interferon product, Alpha Leukoferon, for the treatment of HIV/ AIDS
in hemophiliacs. The Company entered into an agreement with Quantum Health
Resources, Inc., ("Quantum") which provided to the Company $330,000 toward to
the cost of the study. Quantum, a subsidiary of Olsten Services Corp., is a
national provider of alternate site therapies and support services for people
affected by chronic disorders, including hemophilia. The study commenced in
March 1996, pursuant to which 35 patients enrolled to receive Alpha Leukoferon
for a minimum of six months in combination with a comprehensive HIV/AIDS
treatment program. A report by a contract research organization detailing the
final results of this study is expected in April 1999.

MANUFACTURE OF INTERFERON

Human white blood cells (leukocytes) and a stimulating agent, raw materials
which are readily available to the Company, are needed to produce human
interferon. An FDA approved stimulating agent, which is harmless to humans, is
introduced into the white blood cell, which induces the cell to produce
interferon. The interferon is then separated from other proteins, extracted and
purified.

The Company's Omniferon product is currently being manufactured in its
Scottish facility for use in ongoing animal safety and preclinical studies in
the EU commenced in March 1998, and for human clinical testing anticipated to
commence in the first quarter of calendar 1999. The Company's first generation
of Natural Interferon was manufactured and distributed in Florida under the 499
Program under the name Alpha Leukoferon. Production of Alpha Leukoferon was
discontinued in January 1995.

Production methods developed by the Company, as well as enhanced methods
currently under development (see "Research and Development", below) could serve
to reduce the Company's costs of production and, therefore, the market price.
However, there can be no assurance that such new manufacturing
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technology will enable the Company to achieve the level of manufacturing
proficiency and product improvement anticipated by management.

RESEARCH AND DEVELOPMENT

The entire process of research, development and FDA and/or EU approvals, if
obtained, of a new pharmaceutical takes several years and requires substantial
funding. The Company is currently engaged in animal safety and preclinical
studies of Omniferon and, through its equity investment in Inflammatics, FDA
Phase I/II clinical trials of LeukoVAX. The completion of requisite clinical
studies for either Product prior to marketing approval is dependent upon
obtaining significant additional funding. The Company's present focus is the
continued research and development of Omniferon for the treatment of hepatitis B
and C, Multiple Sclerosis, CML, Herpes and HIV/AIDS.

The Company has expended a substantial amount of time and resources towards
the research and development of improved cell stimulation and purification
techniques of its Omniferon Product. These processes are believed to enhance the
purity of the product while increasing production yields. It is believed that
efforts focused on increased production yields, if successful, would
significantly lower related costs of production, ultimately allowing a lower
more competitive sales price of the Product.

In 1991, the Company, due to its then absence of available funds, suspended
its research and development activities. In 1993, following receipt of new
equity financing and the election of new management, the Company recommenced
limited research efforts focusing on improving production techniques. Following
receipt of additional funding from private placement offerings which were
completed in August and December 1994, respectively, research efforts and
related costs increased and can be expected to continue to increase as the
Company continues its development of Omniferon.

Research and development costs totaled $3,866,267, $2,168,914, and
$1,503,434 for fiscal years ended June 30, 1998, 1997 and 1996, respectively.

ROYALTY AGREEMENT

The Company and Medicore, a former affiliate of the Company, have a Royalty
Agreement that provides for a maximum cap on royalties to be paid to Medicore of
$2,400,000, with a schedule of royalty payments 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 until the total of $2,400,000 royalty is
paid. The agreement further provided that royalties of approximately $108,000
previously accrued as payable to Medicore will be the final payment due under
the agreement.

The Company recognized royalty expense of $11,901 for the year ended June
30, 1996.

PATENTS

The Company believes its production techniques are unique and are capable
of yielding a superior quality product while reducing production costs which may
enable the Company, subject to regulatory approval, to offer Omniferon at a
price competitive with the recombinant interferons currently being marketed. The
Company recently filed two patent applications relative to certain production
techniques currently under development. The Company has also submitted several
foreign patent applications relating to Natural Interferon for topical use,
several of which have been granted.

Under a License Agreement between the Company and its majority owned
subsidiary, Viragen (Europe) Ltd. ("VEL") (initially with VEL's wholly owned
subsidiary Viragen (Scotland) Ltd.) dated July 12, 1995, VEL was granted
exclusive rights to the Company's proprietary technologies, including those
technologies covered by patent, for all countries comprising the European Union.
In addition, the Agreement granted VEL the non-exclusive rights to the Company's
technology throughout the world, excluding the United States and its
territories. The Agreement provides that VEL will pay the Company a royalty
ranging from 10% to 5% sales, with a minimum of $2 million per year,
subsequently modified to $167,000 per month. The minimum royalty payment has
been deferred by the Company until such time as VEL has the necessary cash flow
to
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meet this payment. This Agreement has an initial term of 15 years, which
automatically renews for two successive 15-year periods.

United States patents have been issued to others with respect to
genetically engineered and human-derived interferon. 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. The
Company believes that it does not infringe upon any current patent.

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
obtained in the future will be of substantial protection or commercial benefit
to the Company. (See "Competition" below).

REGULATION

United States and European Union

The Company's activities and the Products and processes resulting from such
activities are subject to substantial government regulation in the United States
at both state and federal levels and within the EU member nations. The
manufacturing, advertising and sale of biologic substances and pharmaceutical
products are regulated by, and requires the approval of, the FDA, EU, state and
local agencies. The Company followed strict production and distribution
procedures under State of Florida HRS guidelines relating to its limited
distribution of its Alpha Leukoferon within the State of Florida. The FDA has
established mandatory procedures and standards which apply to the clinical
testing, marketing and manufacture of the Products. Obtaining FDA and/or EU
approval for commercialization of any new product can take significant time and
capital since it involves extensive testing procedures and often lengthy
clinical trials including the measurement of product safety, toxicity, and
efficacy, if any, under specific protocols. The process of obtaining FDA and/or
EU regulatory approval initially includes extensive animal testing to
demonstrate product safety and preferred dosages. Subsequent human tests are
then undertaken to show the same and to document such findings as effectiveness,
toxicity and side effects. Biostatistical analysis of data is then gathered in
such studies, followed by the submission of all information and data to the
regulatory authorities.

At the present time, the Company is in preclinical studies of its Omniferon
product in the EU with no pending clinical trial application relative to
Omniferon before the EU regulatory authorities or the FDA for the treatment of
any disease indications, although the Company intends to commence clinical
trials in the EU during the first calendar quarter of 1999 and eventually submit
an Investigative New Drug Application to the FDA. For these purposes, 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 applications to be filed initially with
the EU and eventually FDA regulatory authorities.

In the United States and Europe, 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 regulatory agencies. If
Phase II evaluations indicate that a product demonstrated potential
effectiveness and has an acceptable safety profile, Phase III trials are
undertaken to conclusively demonstrate clinical efficacy and safety within an
expanded patient population from multiple clinical study sites. Regulatory
authorities may also require Phase IV studies to track patients after a product
is approved for commercial sale.

Regulatory approvals of a new pharmaceutical product can often take five
years or longer (unless accelerated in certain instances for life-threatening
diseases) and involves the utilization and 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.

8
<PAGE> 11

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, labeling and
distribution to third parties residing in approved foreign countries, subject to
such laws as apply in those countries. The Company must comply with all FDA
rules and regulations as well as those of the country to which the Company
intends to ship the Product before it would be permitted to export crude or
finished interferon products outside the United States.

License and Manufacturing Agreement

In certain instances, EU regulations may require less stringent preclinical
studies for naturally occurring substances such as the Company's Omniferon
product than for genetically engineered products. Accordingly, while there can
be no assurance, the Company expects to possibly receive a more expeditious
review of the various EU processes and clinical trials prerequisite to market
approval in the EU.

In July 1995, Viragen (Scotland) Limited ("VSL"), a company incorporated
under the laws of Scotland, entered into a License and Manufacturing Agreement
with the Common Services Agency of Scotland to secure a sufficient source of
needed raw materials as well as expertise in the area of blood-derived products
and the regulatory approval process. The Agency is an adjunct of the Scottish
Government which acts on behalf of the National Health Service in Scotland and
the Scottish National Blood Transfusion Service. The Agency owns and operates a
blood fractionation facility in Edinburgh, Scotland, and has the physical and
technical capacity to supply leukocytes and manufacture alpha interferon from
human leukocytes employing the Company's processes. Securing a sufficient
qualified source of blood-derived raw materials within the EU was considered
critical to enable the Company to conduct EU clinical trials as well as
providing a sufficient source of raw materials necessary for subsequent
commercial manufacturing.

During fiscal 1998, the Company was notified that due to concerns over the
possible presence of New Varient Creutzfeld-Jacob disease ("nvCJD") also known
as Mad Cow disease, in the UK blood supply, human leukocytes collected in
Scotland, including those intended to be supplied under the Scottish Agreement,
would not be approved for use in the Company's planned clinical trials or
potential commercial production until the European regulatory authorities were
satisfied that the risk of nvCJD contamination had been minimized. The Company
has received approval from Scottish and U.K. regulatory authorities for it to
proceed using blood supply collected in Germany. The Company intends to utilize
leukocytes produced in Germany under its German Red Cross contractual
arrangements as well as other approved sources to continue with its planned
clinical trials and possibly the commencement of commercial scale production if
needed.

Under the terms of the agreement with the German Red Cross, the Company's
subsidiary, Viragen (Germany) GmbH ("VGG"), will have the right to receive on a
preferential basis leukocytes produced by the German Red Cross in Germany. VGG
has a right to receive on such a preferential basis 1,000,000 buffycoats per
year with deliveries to be ordered on a quarterly basis. During the initial
two-year period of the agreement, VGG may determine its annual order quantity up
to 1,000,000 buffycoats. After the initial two-year period, the annual order
quantity will be 1,000,000 buffycoats plus or minus 15 %. In consideration for
providing such buffycoats, the German Red Cross will be compensated based on a
percentage of sales of Omniferon attributable to VGG buffycoats. The German Red
Cross will also be entitled to receive priority distributions of Omniferon from
German sourced leukocytes. Leukocytes provided by the German Red Cross may be
used at the Company's Scottish facility, while processing to separate the
leukocytes from whole blood donations will be undertaken in Germany at the
facilities of the German Red Cross.

Prior to the commencement of clinical trials, the Company's Scottish
manufacturing facility must be licensed by EU regulatory authorities to conduct
such trials. The Company has engaged professionally recognized consultants
familiar with the EU regulatory process to assist in the manufacturing and
product submissions prerequisite to EU approvals. In addition, the SNBTS has a
full-time regulatory department that has obtained approval in the EU of numerous
EU blood-derived products. The SNBTS will provide its best efforts, working in
conjunction with the Company, to obtain a manufacturing license and subsequent
product approvals at the conclusion of the EU clinical studies. At such time as
a manufacturing license is obtained for Omniferon, the Company intends to seek
FDA manufacturing approval of the Scottish manufacturing facility.

9
<PAGE> 12

There can be no assurance that the EU regulatory authorities will approve the
manufacturing or permit clinical testing and distribution of Omniferon within
the EU, or that the FDA will license or approve the Scottish manufacturing
facility or the Company's Product for clinical trials and subsequent
distribution in the United States.

VSL has been organized by the Company to manufacture and distribute
Omniferon and related products in the EU and other countries outside the United
States. Through Viragen Technology Inc., Viragen has transferred patent and
proprietary rights associated with the production of its Product and related
technology to VSL under a grant of license. VSL has provided the SNBTS with an
exclusive license to use the proprietary rights covered by the License and
Manufacturing Agreement for the manufacture and distribution of Omniferon within
the EU. SNBTS has committed to participate with the Company in the manufacture
of Omniferon in sufficient scale to accommodate the EU clinical trials and also
to conduct certain studies relevant to the Product and cooperate with VSL and
the Company in complying with the laws and regulations of the EU in connection
with the production of Omniferon.

Pursuant to the License and Manufacturing Agreement, VSL, VEL and the
Company are providing SNBTS with full access to the proprietary technology and
specialized equipment, providing suitable training as needed to SNBTS personnel
and defraying all costs associated with securing permits and regulatory
approvals, augmenting SNBTS facilities, if necessary, to participate in the
manufacture of Omniferon and securing documentation substantiating compliance
with EU regulatory requirements. SNBTS will receive compensation for Product
manufactured for use in clinical trials in the EU, for Product manufactured for
sales prior to obtaining new drug application approval, and for sales following
such approval, at varying percentages in relation to costs. For products
manufactured for use in clinical trials, SNBTS is entitled to cost plus 25 %,
for sales prior to obtaining new drug application approval, cost plus 40%, and
for sales following such approval, cost plus 50%. Products manufactured and
utilized for humanitarian purposes or for medical use by patients of the
Scottish National Health Services or the United Kingdom National Health Services
will involve either no payments to the Agency or payments at substantially
discounted prices. The Company has further agreed to compensate SNBTS for the
provision of process documentation for further production facilities established
by the Company.

The term of the License and Manufacturing Agreement is for a five-year
period with two additional five-year extension terms at the option of VSL. The
Agreement also contains provisions protecting the proprietary rights of VSL and
the Company and the preclusion of certain competitive activities by SNBTS.

As a result of the completion of the private placements undertaken in March
1996, VEL received net proceeds of $5,102,000 which is being used for (i) the
leasing and improvement of production facilities in Edinburgh, Scotland,
utilized in the manufacture of Omniferon; (ii) the purchase of equipment for use
of VSL's Scottish facilities; (iii) the payment of royalties to Viragen
Technology, commenced in calendar 1997 and (iv) for working capital purposes.
VSL is currently engaged in animal safety and preclinical studies and will
require significant additional financing to complete clinical trials required to
obtain EU regulatory approval for distribution of the Product. Clinical testing
toward EU approval is an expensive process, which is expected to take several
years to accomplish with no assurance that such approval will eventually be
obtained.

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, Glaxo-Wellcome, Biogen, Inc., Chiron Corp., Berlex
Laboratories and Ares-Serono are producing, selling and conducting clinical
trials with recombinant interferons (alpha and beta) and other immunological
products for the treatment of certain cancers, viral infections, MS, HIV/IDS, KS
and hepatitis.

10
<PAGE> 13

In addition to the manufacturers of Synthetic Interferons, Interferon
Sciences, Inc. a domestic manufacturer of Natural Interferon 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 for
additional indications.

The Company believes that competition is also based on production ability,
technological superiority and administrative and regulatory expertise in
obtaining governmental approvals for testing, manufacturing and marketing of the
Product.

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 approvals in the past had been hampered by a lack of adequate
capital. The Company is not presently a competitive factor in revenue
participation in the biopharmaceutical industry.

EMPLOYEES

As of September 21, 1998, the Company has 41 employees, of which 23 are
Research and Development and Quality Assurance/Quality Control personnel. The
remaining 18 employees are management, regulatory and/or administrative.

ITEM 2. PROPERTIES

In November 1996, the Company entered into a ten year lease for 14,800
square feet in Plantation, Florida. This location houses the Company's
administrative and executive offices as well as potential laboratory expansion
space. The lease contains an option for up to two additional five year terms.
Base lease payments on the facility total $15,700 per month. The Company's
administrative offices are located at 865 SW. 78th Avenue, Suite 100,
Plantation, Florida 33324; phone (954) 233-8746.

The Company owns a 14,000 square foot building in Hialeah, Florida. This
facility includes a laboratory for biomedical research and development
activities. The Company refinanced its building through a $600,000 borrowing
with a Florida bank under a five year note and mortgage in August 1991. The loan
was reduced in equal monthly principal payments of $2,500 with interest at 2% in
excess of the prime rate. The mortgage was on the land, building and
improvements, equipment and fixtures used in connection with the realty. A
balloon payment of $450,000, due in August 1996 was paid-in-full at maturity.

In November 1996, the Company, through VSL, entered into a five year lease
agreement in a biotechnology park in the Edinburgh area of Scotland. This
facility, comprised of approximately 12,000 sq. ft., contains the Company's
European laboratory and production facilities. This location will augment other
productive assets located within the SNBTS facility, which are available to the
Company under the Scottish Agreement. The annual base lease rate for the
facility is 71,700 UK pounds or approximately US$120,000 plus adjustment for
common area maintenance charges. The Company has the right to renew the lease
for four additional five year terms.

The Company considers that its properties are generally in good condition,
well-maintained and 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.

ITEM 3. LEGAL PROCEEDINGS

In May 1997, the Company, through its majority owned subsidiary Viragen
(Europe) Ltd. (formerly Sector Associates, Ltd. -- "Sector"), was named as a
defendant in an action brought in the United States Bankruptcy Court, Southern
District of Florida by the bankruptcy trustee for Florida West Airlines, Inc.
The suit alleged that during the period from December 1993 to May 1994, prior to
the Company's reverse acquisition of Sector, Sector received preferential
transfers of approximately $2.1 million. The Company denied that such transfers
were preferential and vigorously defended the claims. This litigation was
settled for

11
<PAGE> 14

$25,000 in July 1998, which amount the Company believed represented less than
its anticipated costs of further litigation.

In October 1997, the Company, the Company's President and Cytoferon Corp.,
a former affiliate of the President, were named as defendants in a civil action
brought in the United States District Court for the Southern District of Florida
(Walter L Smith v Cytoferon Corp. et al; Case No: 97-3187-CIV-MARCUS) by a
stockholder of the Company and investor in Cytoferon Corp. The suit alleged the
defendants violated federal and state securities laws, federal and state RICO
statutes, fraud, conspiracy, breach of fiduciary duties and breach of contract.
The plaintiff was seeking an unspecified monetary judgement and the delivery of
441,368 shares of Common Stock. The Company filed a Motion to Dismiss denying
the allegations and requesting reimbursement of its costs.

In November 1997, the plaintiff in this litigation filed a Notice of
Voluntary Dismissal with the Federal Court concurrently notifying the Company of
his intent to refile a complaint in Circuit Court in the State of Florida. The
plaintiff subsequently filed a complaint in the Circuit Court of the 11th
Judicial Circuit for Miami-Dade County, Florida (Case No: 97-25587 CA30) naming
the same defendants. The suit alleges breach of contract, fraud, violation of
Florida's RICO statute and breach of fiduciary duties and seeks a judgement
similar to that of the dismissed Federal suit. The plaintiff is claiming that he
is entitled to additional shares of Common Stock of the Company under a
consulting agreement, that the Company's President breached his fiduciary duty
to Cytoferon Corp. by not achieving sufficient financing for the Company which
would have entitled Cytoferon Corp. to additional shares and for
misrepresentations in connection with the previous Cytoferon financings. In
March 1998 the Circuit Court granted the Company's Motion to Dismiss the
complaint. Subsequently, the plaintiff filed an Amended Complaint alleging
similar claims and seeking comparable remedies. In April 1998, the Company filed
a Motion to Dismiss plaintiff's amended complaint which was denied by the Court.
The Company has filed its answer denying the plaintiff's claims and discovery is
proceeding.

The Company denies the allegations of the complaint and, while it cannot
predict the ultimate outcome, it intends to vigorously defend this action.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted during the fourth quarter of the fiscal year to a
vote of security holders through the solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock traded on the NASDAQ Small Cap Market between
June 4, 1996 and December 28, 1996 and on the NASDAQ National Market since
December 29, 1996 under the symbol "VRGN". The following table sets forth the
high and low bid quotations for the Common Stock since July 1, 1996.

<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1997-1998
First Quarter ended 09/30/97................................ $ 3 $2 5/32
Second Quarter ended 12/31/97............................... 2 1/4 1 3/32
Third Quarter ended 03/31/98................................ 2 3/4 12 3/32
Fourth Quarter ended 06/30/98............................... 2 3/4 12 5/32

1996-1997
First Quarter ended 09/30/96................................ 5 7/8 3 1/2
Second Quarter ended 12/31/96............................... 6 13/16 3 5/8
Third Quarter ended 03/31/97................................ 5 9/16 2 1/4
Fourth Quarter ended 06/30/97............................... 3 3/8 1 3/8
</TABLE>

12
<PAGE> 15

The above quotations represent prices between dealers, and do not include
retail mark-ups, markdowns or commissions, and may not necessarily represent
actual transactions.

As of September 21, 1998 there were approximately 2,700 stockholders of
record. At that date the closing price of the Common Stock was $1.50 per share.

The Company has not paid any dividends on its Common Stock since its
incorporation in 1980. Since the Company had been in the development stage, has
experienced losses since inception (see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations"), has significant
capital requirements in the future and presently intends to retain future
earnings, if any, to finance the expansion of its business, it is not
anticipated that any cash dividends will be paid in the foreseeable future.
Future dividend policy will depend on the Company's earnings, if any, capital
requirements, expansion plans, financial condition and other relevant factors.

ITEM 6. SELECTED FINANCIAL DATA

CONSOLIDATED STATEMENT OF OPERATIONS DATA

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 1,143 $ 1,404 $ 739 $ 722 $ 677
Net loss................ (7,856) (4,775) (4,672) (3,952) (1,083)
Loss attributable to
Common Stock.......... (10,354) (14,674) (5,570) (3,955) (1,087)
Loss per average Common
Share................. (.21) (.37) (.15) (.12) (.06)
Weighted average Shares
outstanding........... 50,502,503 39,134,631 36,198,302 32,137,693 18,686,751
</TABLE>

CONSOLIDATED BALANCE SHEET DATA

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Working capital............................ $ 7,842 $29,331 $18,266 $1,614 $ 795
Total assets............................... 15,895 37,462 20,617 3,330 2,744
Long-term debt............................. 7,466 239 116 857 976
Stockholder's equity....................... 5,887 32,144 17,275 1,698 546
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The statements contained in this report on Form 10-K that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions, beliefs, or strategies regarding the future. Forward looking
statements include the Company's statements regarding liquidity, anticipated
cash needs and availability, and anticipated expense levels in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
including expected Product clinical trial commencement dates, product
introductions, expected research and development expenditures and related
anticipated costs. All forward looking statements included in this document are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward looking statement. It
is important to note the Company's actual results could differ materially from
those in such forward looking statements. Among the factors that could cause
actual results to differ materially are the factors detailed below and the risks
discussed in the "Risk Factors" section included in the Company's Registration
Statement Form S-3, as filed with the Securities and Exchange Commission on

13
<PAGE> 16

April 17, 1998. You should also consult the risk factors listed from time to
time in the Company's Reports on Forms 10-Q, 8-K, S-3, 10-K and Annual Reports
to the Stockholders.

The biopharmaceutical industry is highly competitive and subject to rapid
technological change. Significant competitive factors in the pharmaceutical and
biopharmaceutical markets include product efficacy, price and timing of new
product introductions. Increased competition from existing biopharmaceutical
companies as well as the entry into the market of new competitors could
adversely affect the Company's financial condition or results of operations.

The Company's future success depends in part upon its intellectual
property, including patents, trade secrets, know-how and continuing
technological innovation. There can be no assurance that the steps taken by the
Company to protect its intellectual property will be adequate to prevent
misappropriation or that others will not develop competitive technologies or
products. There can be no assurance that any current or future patent, if any,
owned by the Company will not be invalidated, circumvented or challenged, that
the rights granted thereunder will provide competitive advantages to the Company
or that any of the Company's future patent applications will be issued with the
scope of the claims sought by the Company, if at all. Furthermore, there can be
no assurance that others will not develop technologies that are similar or
superior to the Company's technology, duplicate the Company's technology or
design around the patents, if any, owned by the Company.

The Company has incurred operational losses and operated with a negative
cash flows since its inception in December 1980. Losses have totaled $7,856,136,
$4,775,245, and $4,672,271 for the years ended June 30, 1998, 1997 and 1996,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

Working capital totaled approximately $7,842,000 on June 30, 1998, a
decrease of approximately $21,489,000 from the previous year end balance. This
decrease was due in part to the exchange of a Convertible Preferred Stock series
for a note payable totaling $9,720,241 which was paid in full during the year,
as well as additional cash redemptions, refunds and dividends in certain other
convertible preferred stock series totaling approximately $8,967,000, additions
to property, plant and equipment of approximately $1,623,000, and operational
losses of $7,856,136 being offset by the proceeds of two Convertible Stock
Offerings (Series H and Series I) during the period.

Commencing in June 1996 through February 1997, the Company completed four
Convertible Preferred Stock issuances with gross proceeds of $40,000,000: Series
B-$15,000,000; Series C-$5,000,000; Series D-$15,000,000 and Series
E-$5,000,000.

During July and August of 1997, the terms of the four series of preferred
stock were modified in order to limit or otherwise restrict the timing or number
of conversions of the preferred stock into Common Stock over a given period.
This restructuring was initiated in order to mitigate concerns of the Company
and the investment community concerning the "overhang" on the Company's Common
Stock represented by the potential conversion of these outstanding series of
preferred stock under their original terms.

In July 1997, the then remaining unconverted Series B Preferred Stock was
exchanged for a 10% Promissory Note in the amount of $9,720,241. The Note
provided for principal and interest payments over nine monthly installments
commencing in October 1997. The Note could be prepaid without penalty and was
not convertible into Common Stock of the Company. The Note was paid off during
fiscal 1998. Also in July 1997, the holders of the Series C Preferred Stock
agreed to modify their conversion price and limit conversions of their then
remaining 974 shares ($1,000 face value per share) over a minimum two month
period. The modified conversion price was the lower of (i) $2.20 per share or
(ii) the average closing price of the Company's Common Stock over the five day
period ending the day prior to the notice of conversion. The remaining shares of
Series C Preferred Stock were completely converted into Common Stock in December
1997.

In September 1997, the Company concluded two Exchange Agreements whereby
the terms of the Series D Preferred Stock and Series E Preferred Stock were
modified. The then remaining unconverted
14
<PAGE> 17

preferred shares ($1,000 face value per share) of Series D (7,950 Preferred
Shares) were exchanged for a like number of Series F Preferred Shares, and
Series E (4,000 Preferred Shares) was exchanged for a like number of Series G
Preferred Shares.

The Series F Preferred Stock provided for a limitation on the holder
limiting conversion during any two-week period of $800,000 including accrued and
unpaid dividends. The terms also provided the Company with a cash-out option at
the face amount being converted plus 12% if the Conversion Price is below $2.00
per share. In consideration for the holder of the Series D Preferred Stock
agreeing to a limitation on the speed of future conversion, the Company agreed
to increase the dividend rate from 6% for the Series D Preferred Stock to 10%
for the Series F Preferred Stock. During the third fiscal quarter of 1998, the
remaining Series F Preferred Stock outstanding totaling 4,200 shares
($4,200,000), was converted (1,750 shares) or redeemed through cash payments
(2,450 shares).

The terms of the Series G Preferred Stock provided that commencing in
September 1997, the holder was limited to converting 667 shares ($667,000) per
month over a 6-month period. The provisions further provided that the Company
would be required to redeem 667 shares ($667,000) per month less the number of
Series G Preferred Stock converted during the proceeding calendar month. In
addition, the holder was restricted from converting into Common Stock if the
market price of the Company's Common Stock was less than $2.50, subject to
adjustment, at the date of the conversion notice. In consideration for the
restrictions on conversion, the Company agreed to increase the dividend rate
from 5% for the Series E Preferred Stock to 10% for the Series G Preferred
Stock. No other material changes were made in the substantive terms from the
previously issued Series E Preferred Stock. The final redemption of the Series G
Preferred Stock occurred in February 1998.

During the third and fourth fiscal quarters of 1998, the Company closed $7
million in financings replacing a portion of the funds used to redeem previous
preferred stock issuances. In February 1998, the Company received net proceeds
of approximately $4,625,000 from the sale of 500 shares of its Series H
Convertible Preferred Stock (the "Series H Preferred Stock") with an aggregate
stated value of $5 million. In April 1998, the Company received net proceeds of
approximately $1,840,000 from the sale of 200 shares of its Series I Convertible
Preferred Stock (the "Series I Preferred Stock"). The Company incorporated
certain restrictions as part of the Series H and Series I Preferred Stock
designations which the Company believes will facilitate a more orderly market
relative to the underlying shares of its Common Stock. The Series H and Series I
Preferred Stock bear no dividends although, upon liquidation or conversion, an
8% accretion factor will be included in the calculation for purposes of
determining the liquidation and conversion amount.

Both the Series H and Series I Preferred Stock issuances were not
convertible until six months following the closing date for the Series H
transaction. The conversion price is the lower of (i) the fixed conversion
price, which will be equal to the lower of the average closing price per share
for the 5 days prior to closing ($2.15 per share) or the market price of Common
Stock six months following the final closing date ($1.94 per share), and (ii)
the variable conversion price which will be equal to 82% of the market price at
the date of conversion. The Company retained the right to redeem both issuances
of Preferred Stock at various prices upon receipt of a notice of conversion. In
addition, the right of conversion is further limited to a maximum of 15% of the
aggregate amount of the Series H and Series I Preferred Stock issued to each
holder for each one month period cumulatively to a maximum of not in excess of
25% for such month in the event the holder has converted less than 15% in any of
the preceding months. As of September 21, 1998 $1,045,000 in principal of the
Series H and Series I Preferred Stock issuances had been presented to the
Company for conversion into 1,064,486 shares of Common Stock.

The Series H Preferred Stock and Series I Preferred Stock have certain
events of default which include bankruptcy or the failure of the Company to (i)
remain qualified for trading; (ii) convert preferred shares to common stock; and
(iii) maintain an effective registration statement. Upon the occurrence of an
event of default, the holders of the Series H Preferred Stock and Series I
Preferred Stock have the right to redeem all or any portion of the then
outstanding amount. The amount outstanding is calculated as the greater of 1.3
times the value of the Preferred Stock for which demand is being made plus the
accreted but unpaid amounts (calculated at 8%) earned on the Preferred Stock
plus liquidated damages and other cash payments then due

15
<PAGE> 18

or the product of the highest price at which the Company's Common Stock is
traded on the date of an event of default divided by the conversion price as of
that date and the amount being redeemed. Since the 8% accretion is due upon
mandatory redemption, the Company has increased the carrying amount of the
Series H Preferred Stock and Series I Preferred Stock by this amount.

In April 1998, the Company entered into an option agreement with Southern
Health SDN.DHD ("Southern") a private Malaysian/Australian-based healthcare
investment group. The option agreement provides Southern the right to acquire,
through September 30, 1998, subsequently extended to December 31, 1998, an
exclusive private-label Manufacturing and Distribution License for the Company's
proprietary production process covering Malaysia, Indonesia, the Philippines,
Thailand, Taiwan, Korea, Singapore, Australia and New Zealand in exchange for an
initial cash licensing fee of $20 million and a continuing royalty of 12% of
Southern's related revenues. Southern has paid the Company a $200,000 option
fee, $100,000 of which is non refundable and intended to defer the costs of
related due diligence with the remaining $100,000 refundable if the Company
elects not to proceed with this transaction. There can be no assurance that this
transaction will ultimately be successfully concluded. Also, the Company
believes that this transaction may be negatively affected by instability in
Asian financial markets.

While subject to significant limitation, the Company at June 30, 1998 has
available approximately $26,424,000 in net tax operating loss carryforwards
expiring between 1999 and 2013, which may be used to offset taxable income, if
any, during those periods. The Company's ability to generate revenues during
future periods is dependent upon obtaining regulatory approvals of its Omniferon
and/or LeukoVAX products. As the Company cannot be assured as to its ultimate
success in obtaining the necessary regulatory approvals, the Company is unable
to conclude that realization of benefits from its deferred tax assets is more
likely than not, as prescribed by SFAS 109. Accordingly, the Company has
recognized a valuation allowance to offset 100% of the deferred tax assets
related to these carryforwards.

On September 22, 1998 the Company entered into an Equity Line Financing
Agreement ("Equity Line Agreement") for a maximum offering amount of $20 million
over three years. Provisions of the Equity Line Agreement provide that the
Company, at its option, may ("Put") shares of Common Stock to the investor,
following an effective Registration Statement, at a "Put Share Price" equal to
the lesser of (a) 87.5% of the Market Price for such Put or (b) the difference
of (i) the Market Price of such Put minus (ii) $0.225 where the Market Price is
defined as the lowest Closing Bid Price during the 10 to 20 trading days
(depending upon the size of the Put) following each Put.

In connection with the Equity Line Agreement, the Company also entered into
a Placement Agent Agreement which provides for a Cash Placement Fee on the gross
proceeds from the sale of the securities in any Put of: 7% on the first $5
million; 6% from $5 million to $10 million; and 3.5% for amounts in excess of
$10 million. If the Company were to Put securities for the entire $20 million
available under the Equity Line Agreement, the Cash Placement Fee would total 5%
of the total gross proceeds derived. Even if no Put rights are exercised, the
Company must pay the Placement Agent $100,000 during any Six Month Period. If
Put Rights are exercised during any Six Month Period but the Placement Agent
Fees for such period, calculated in accordance with the formula stated above, do
not equal $100,000, the Company must pay the Placement Agent the difference
between the amount of fees the Placement Agent receives during the Six Month
Period and $100,000. If the Company were to cancel the Equity Line Agreement,
without Putting any shares, the Company must pay the Placement Agent up to
$200,000. These amounts exclude any proceeds received from the exercise of the
Warrants. In addition, the Placement Agent Agreement provides for the issuance
of Placement Agent Warrants to the Placement Agent equal to: (i) 7%, 6% and
3.5%, respectively, on all shares

16
<PAGE> 19

issued in connection with Put Shares at the same thresholds as the Cash
Placement Fee, exercisable at 125% of the average Put Share Price of all Put
Shares issued during the preceding six calendar months; and (ii) a warrant to
purchase a number of Common Shares in the same percentages as above for which
the subscriber has been issued a Purchase Warrant, exercisable at 108% of the
lowest closing bid price for the 10 trading days immediately preceding the
applicable six month anniversary.

If a registration statement covering the Put Shares, the Warrant Shares or
the Placement agent Shares (collectively the "Registrable Securities") becomes
ineffective or does not cover a sufficient number of Registrable Securities (the
"Ineffective Period"), the Company is obligated to pay the holders of the
Registrable Securities at the holders' option either (i) a fee of between 1% and
5% of the amount calculated by multiplying the number of Registrable Securities
by the trading price of the Company's Common Stock the day before the
Ineffective Period for each month the registration statement is ineffective (the
"Ineffective Fee"), or (ii) a number of shares of the Company's Common Stock
equal to the amount of the cash purchase fee divided by the lowest Closing Bid
Price for the 10 trading days immediately preceding the last trading day of the
month in which the Ineffective Period began. The Company is also obligated to
issue the holders of the Registrable Securities additional shares of Common
Stock if the Closing Bid Price for the Company's Common Stock during the ten
trading days immediately after an Ineffective Period is less than the Closing
Bid Price before the Ineffective Period.

Management believes that the Company's Omniferon product currently under
development can be manufactured in sufficient quantity and will be priced at a
level to offer patients an attractive alternative treatment to the Synthetic
Interferons currently being marketed. Management further believes that working
capital currently on hand and available under its Equity Line Agreement will
provide the Company with the funds necessary for at least the next fiscal year
to continue its current level of operations, focused on current development and
production scale-up projects relating to Omniferon in the Company's laboratory
and manufacturing facility in Scotland, including EU preclinical trials
currently being conducted and the commencement of clinical trials. Clinical
trials in the EU are scheduled to commence in the first quarter of calendar
1999.

Additional funding will be required to complete the clinical trial process
relating to Omniferon both in the EU and domestically prior to receiving
regulatory approval to market the Product. Anticipated funding requirements
related to approval of the Company's Omniferon product for hepatitis C, the
first approval being sought by the Company, include: Phase I and Phase II
trials -- $3.2 million and Phase III studies -- $9.1 million. In addition,
anticipated funding requirements for U.S. operations include: the establishment
of domestic manufacturing capacity -- $6 million; and joint research and
development projects -- $4 million. Additional funding will be required to
complete Phase III studies in the U.S., such funding will also be utilized for
continued product development, general working capital purposes, including
administrative support functions, and possible equity investments in businesses
complementary to the Company's operations.

In August 1998, the Company entered into a strategic alliance concurrent
with the purchase of a 10% equity interest in Inflammatics, Inc. a private drug
development company, headquartered in Philadelphia, PA. Inflammatics has
focussed on the development of therapeutic drugs for autoimmune disorders. Its
lead product is LeukoVAX, an immunomodilating white blood cell (leukocyte)
preparation currently in FDA Phase I/II clinical trials for rheumatoid
arthritis.

Under the terms of the Inflammatics Agreement, the Company made an initial
investment in the form of Series A Convertible Preferred Stock of Inflammatics
for $1 million and warrants to purchase 200,000 shares of the Company's Common
Stock at $1.00 dollar per share. The Company further obtained two options to
acquire an additional 70% equity position in Inflammatics through two additional
fundings to be made at the
17
<PAGE> 20

sole option of the Company. The first additional funding, subject to the
Company's evaluation of the Phase I/II clinical trial results, provides for the
issuance of 1,000,000 shares of Common Stock, the issuance of 300,000 Common
Stock purchase warrants exercisable at $1.00 through August 14, 2003, and the
underwriting of Phase III clinical trials, in exchange for an additional 36.3%
equity interest. Preliminary estimates for the funding of Phase III clinical
trials of LeukoVAX range between $6.0 million and $10.0 million. The second
additional funding, subject to the Company's further evaluation of clinical
trial results, provides for the issuance of 2,000,000 shares of Common Stock in
exchange for an additional 33.3% equity interest.

Currently, the Company believes that its foreign currency risk is not
material. At the present time, the Company does not have sales revenue or
related receivables. Also, the Company does not purchase foreign currencies on a
regular basis. Transfers of funds to its foreign subsidiaries are performed
infrequently, in large sums, at the then-current exchange rates.

The Company commenced preclinical trials with Omniferon in the EU in March
1998 and intends to commence clinical trials in the EU during the second
calendar quarter of 1999, with plans to eventually submit an Investigational New
Drug Application to the US FDA. Following the successful completion of the Phase
I clinical trial, the Company believes it will be in a position to export its
Omniferon product on a limited basis to certain approved countries and commence
distribution under the AGS Agreement. In addition, successful completion of the
Phase I studies in the EU is expected to provide further opportunity for the
Company to attract intermediate and long-term financing or potential strategic
alliance partners. While the proposed funding under an Equity Line Agreement is
considered adequate to complete the clinical trial process in the EU, absent
near term sales revenues, for which there can be no assurance, additional
funding would be required to complete the clinical trial process in the U.S.

RESULTS OF OPERATIONS

No sales revenue or related costs of sales were recognized for the fiscal
years ended June 30, 1998 or 1997, respectively. The termination of sales
revenues was due to patients previously enrolled under the Company's State of
Florida HRS 499 program, the Company's only sources of sales revenue, completing
their course of treatments in fiscal 1996. The Company discontinued enrollment
of new patients in its 499 Program (with the exception of certain limited
enrollments approved by HRS for humanitarian purposes including an HIV/AIDS
study conducted at no charge to patients) and all revenues under this program
ceased in March 1996. The Company has no other source of revenues from the sale
of its products unless or until it receives the necessary regulatory approvals
from the U.S. Food and Drug Administration and/or comparable European
authorities. At the present time, the Company has no pending application
relative to Omniferon, the Company's multi-species, natural human
leukocyte-derived alpha interferon, before the EU regulatory authorities or the
FDA for the treatment of any disease indications, although the Company commenced
pre-clinical trials in the EU in March 1998 and intends to commence clinical
trials in the EU during the first calendar quarter of 1999 and eventually submit
an Investigational New Drug Application to the FDA. Such approvals cannot be
assured and are subject to the successful completion of clinical trials and the
Company's ability to raise significant additional investment capital to fund the
completion of such trials.

1998 COMPARED TO 1997

Interest and other income of $1,143,112 represented earnings on invested
cash balances during the year and reflects a 19% decline from the previous
fiscal year. As the Company's cash balances have declined significantly from the
previous year, due primarily to cash redemptions on Convertible Preferred Stock
issuances and operational losses (see "Liquidity and Capital Resources" above)
this trend is expected to continue into the next fiscal year.

Research and development costs totaled $3,866,267, for fiscal 1998 compared
to $2,168,914 for the previous year. This increase reflects the overall increase
in research activities being conducted between the periods both in the U.S. and
Scotland, related primarily to the scale-up of the Company's manufacturing
technology in its Scottish manufacturing facility. Components of this increase
included increases in laboratory supplies expense of $466,900, increases in
research related salaries and support fees of $440,100, an increase in research
related scientific professional fees paid to SNBTS of $200,100, increased
consulting and outside

18
<PAGE> 21

laboratory testing of $208,400, and increased travel related expenses associated
with the transfer of technology and process development between the Company's
Florida and Scottish facilities. Research and development costs associated with
Omniferon process development projects are expected to increase during the next
fiscal year as process scale-up research nears completion. While process
development costs are expected to decline in the following fiscal year, these
reductions will be offset by costs associated with clinical trial expenditures.
See Liquidity and Capital Resources above.

Selling, general and administrative expenses totaled $5,429,345 for fiscal
1998, reflecting an increase of $1,470,677 (37%) over the preceding year. This
increase included increases in administrative salaries and related taxes of
$599,400, due primarily to the addition of administrative staff in the Company's
Florida facility and domestic salary increases. The Company also recognized
increases in rent expense commencing in August 1997 related to its new
administrative facility in Plantation, Florida and the expansion of leased space
in its Scottish manufacturing facility. Rent expense for the Company's
facilities increased by $393,600 over the prior year. Legal fees between the
periods have increased by $559,000, due to increases in fees associated with
research of technology patents of $111,300, expanded efforts in collaborative
agreements and general contractual transactions both domestically and in Europe
of $211,200 and increased costs associated with litigation of $222,900. The
Company also recognized $109,900 in bad debt expense attributable to a Director
loan with related accrued interest (see Item 13 "Certain Relationships and
Related Transactions"). These increases were offset by compensation expense in
the prior year of $396,500 attributable to the issuance of options, which was
not incurred in fiscal 1998, and a decrease of $250,391 in losses on the
settlement of litigation. During the prior year, the Company settled threatened
litigation for $288,245. The potential litigation stemmed from allegations of a
former Cytoferon Corp. shareholder claiming compensation due under a consulting
agreement entered into with Cytoferon Corp. While Cytoferon Corp. and the
Company denied any wrong doing in this matter, it was believed that the
settlement, through the issuance of treasury shares, would prove less costly to
the Company. The Company has also experienced increased travel costs
attributable to administrative support functions related to the establishment of
the Company's Scottish facility. General and administration expenses are
expected to remain relatively stable or possibly decline over the next fiscal
year, as the Company has no plans to add to its administrative staff and related
costs. The Company also expects, while there can be no assurance, that legal
fees associated with litigation and due diligence efforts may decline.

Depreciation expense increased to $506,934, compared with $281,920 for the
preceding year. This increase was attributable primarily to the acquisition and
commencement of utilization of laboratory equipment in the Company's Scottish
laboratory and manufacturing facilities during fiscal 1997 and fiscal 1998. The
balance of the increase between the periods was primarily due to the utilization
of additional laboratory and research equipment in the Company's Florida
laboratory facility acquired during the same period. Depreciation expense will
continue to increase over comparable periods of the preceding year as the
Company continues its technology transfer and process development and scale-up
projects related to its Omniferon product and enters its clinical trial phases
scheduled to commence in the first quarter of calendar 1999.

Interest expense totaled $590,867 for fiscal 1998, reflecting a significant
increase over the preceding year. This increase was due primarily to interest
expense attributable to the 10%, $9,720,240 Note Payable issued in July 1997 in
exchange for the Company's Series B Convertible Stock then outstanding. This
Note was paid-in-full in April 1998. See "Liquidity and Capital Resources"
above.

1997 COMPARED TO 1996

Interest and other income, which totaled $1,404,000 for fiscal 1997,
reflected a sharp increase over the prior year. This increase was attributable
to interest income earned on the net proceeds of a series of Convertible
Preferred Stock Offerings made during June 1996 and fiscal 1997. See "Liquidity
and Capital Resources" above.

Research and development costs totaled $2,168,914 during the year compared
to $1,503,434 for fiscal 1996. This increase of $665,480 (44%) reflects an
overall increase in research activities and was primarily

19
<PAGE> 22

attributable to an increase in laboratory supplies expenses of approximately
$326,000, an increase in fees paid to SNBTS relating to contracted
reimbursements of $71,000, increased travel expenses associated with the
transfer of technology and process development between the Company's Florida and
Scottish facilities of $120,000, an increase in research related consulting fees
and increased salaries and related taxes for laboratory personnel.

Selling general and administrative expenses totaled $3,938,323 in fiscal
1997, an overall increase of approximately $438,000 from the prior year. This
increase reflects the net of changes in numerous components in general and
administrative expense items. Fiscal 1997 includes an increase in administrative
salaries and related taxes of approximately $351,500 due to the addition of
administrative staff in the Company's Scottish laboratory and manufacturing
facility, increased administrative staff in the Company's Miami facility and
domestic salary increases. During fiscal 1997, the Company also recognized
compensation expense of $450,000 associated with options granted during the
period compared to $426,000 in the previous year and recognized $288,000 in
expenses associated with the settlement, for treasury stock, of a potential
litigation claim.

The Company also recognized increases in insurance expenses associated with
employee related insurance coverage and increased liability coverages of
$128,000, increased travel related costs of $109,000, primarily attributable to
administrative support related to the establishment of the Company's Scottish
facility, increased building and equipment leasing costs of $105,000 and
additional fees associated with the Company's listing on the NASDAQ National
Market of approximately $73,000. These increases were offset by the reduction in
officer loans forgiven in the prior year of $282,000 and a loss recognized on
the valuation of the Company's Florida laboratory facilities of $316,000
pursuant to FAS 121 in fiscal 1996.

YEAR 2000

The Company recognizes the potential problem posed to its operations by its
dependence upon date sensitive computer systems and applications throughout its
business and the operations of third parties upon whom the Company is dependent.
The Company relies heavily on computerized laboratory equipment both for its
ongoing research and production scale-up projects as well as computer controlled
commercial scale manufacturing equipment in place in the Company's Scottish
facility. In addition, the Company, through strategic alliance and supply
agreements currently in place, is also dependent upon Year 2000 compliance by
third parties for the supply of critical raw materials as well as certain
manufacturing steps and storage of Products produced for planned clinical trials
and eventually for commercial scale production.

The Company will utilize both internal and external resources to isolate
and as necessary, reprogram, update or replace hardware or software found to be
non Year 2000 compliant. The evaluation phase of the Company's Year 2000
compliance program began in the fourth quarter of fiscal 1998. Due to the
limited size of the Company's administrative staff, it is expected that most of
this work will be performed by outside contractors retained specifically for
this project. The Company expects to complete its internal Year 2000 project by
March 1999. The total estimated cost to the Company to complete its internal
Year 2000 project is $50,000 to $70,000, including projected hardware
replacements indicated. Funding for the evaluation and corrective phases will be
provided from general working capital.

The Company has contacted certain external third parties, including raw
material vendors and scientific equipment manufacturers considered critical to
its current and planned future operations to discuss and evaluate their own
compliance programs. After evaluation of third party responses during the
quarter ended March 31, 1999, the Company will prepare a contingency plan to
mitigate third party Year 2000 issues, if necessary.

The costs and projected completion dates of the Company's Year 2000
compliance program is based on management's best estimates and is dependent in
large part upon compliance programs of external third parties or scientific
equipment and software vendors over whom the Company has no direct control.
Accordingly, the inability of the Company or critical vendors to meet Year 2000
compliance deadlines could have a material adverse impact on the Company's
operations from a product development, clinical trial or

20
<PAGE> 23

commercial manufacturing standpoint, negatively affecting its financial
condition, results of operations and cash flows.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted as a separate section to this
report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
SERVED AS
OFFICER AND/OR
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE CLASS
- ---- --- ------------------------- -------------- -----
<S> <C> <C> <C> <C>
Gerald Smith........... 68 Chairman of the Board and President 1994 C
1993
Robert Zeiger.......... 54 Chief Executive Officer and Director 1995 B
Dennis W. Healey....... 50 Chief Financial Officer and Treasurer 1980 B
Director, Executive Vice President And 1984
Secretary 1993
1994
Dr. Jay Sawardeker..... 60 Chief Operating Officer and Executive Vice- 1996
President -- Technical Affairs
Charles F. Fistel...... 37 Executive Vice President 1994
Dr. Joseph P. Morris... 45 Vice President -- Research and Development 1995
Robert C. Rech......... 34 Senior Vice President 1997
Carl N. Singer......... 80 Director 1997 C
Peter D. Fischbein..... 58 Director 1981 B
Sidney Dworkin,
Ph.D. ............... 77 Director 1994 A
Charles J. Simons...... 80 Director 1998 A
Jose I. Ortega......... 26 Controller 1996
</TABLE>

On February 28, 1997, the Company amended its Certificate of Incorporation
and established a classified Board of Directors commencing with the 1997 Annual
Meeting, pursuant to which the Directors of the Company were divided into three
subclasses consisting of Class A, Class B and Class C, respectively. The term of
the Class A Directors initially will expire after the 1998 Annual Meeting of
Stockholders; the term of the Class B Directors initially shall expire after the
1999 Annual Meeting of Stockholders; and the term of the Class C Directors
initially shall expire after the 2000 Annual Meeting of Stockholders. At each
Annual Meeting of Stockholders, Directors of the respective class whose term
expired shall be elected, and the Directors chosen to succeed those whose terms
shall have expired shall be elected to hold office for a term to expire at the
third ensuring Annual Meeting of Stockholders after their election, and until
their respective successors are elected and qualified.

Gerald Smith, In May 1993, Mr. Smith became President of the Company. Since
1982, Mr. Smith was a principal stockholder, President, Chief Executive Officer
and director of Business Development Corp. ("BDC"), which has served as a
managing entity and consultant to several high technology ventures including
Compupix Technology Joint Venture. From August 1991 to December 1991, Mr. Smith
was the Chief

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<PAGE> 24

Executive Officer of Electronic Imagery, Inc., 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., computer-oriented companies which developed database
technology using the personal computer for audio, video, animation and real time
communication.

Mr. Smith has discontinued BDC's operations in order to devote all of his
time to the Company. Mr. Smith is also Chairman of the Board and President of
Viragen (Europe) Ltd ("VEL") and its subsidiaries and Viragen U.S.A., Inc.

Robert H. Zeiger, was appointed Chief Executive Officer and Chief Operating
Officer and was elected as a Director in May 1995. Mr. Zeiger has served as a
pharmaceutical executive since 1971. 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
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, Inc., Coral Gables, Florida, from 1979 to 1985 and as National
Sales Manager to Knoll Pharmaceutical Company, Whipping, New Jersey from 1971 to
1979. Mr. Zeiger was also Chief Executive Officer and a Director of VEL. On July
31, 1998 Mr. Zeiger resigned for health reasons his position as Chief Executive
Officer of the Company and Director of VEL, effective September 30, 1998. He
will continue to serve as Vice Chairman and Senior Pharmaceutical Advisor to the
Board and a member of the Executive Committee of the Board of Directors.

Dennis W. Healey, is a Certified Public Accountant and was appointed
Chairman of the Board and Chief Executive Officer on April 13, 1993. In June
1994, Mr. Healey relinquished that 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 in May
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. Until his resignation in July 1996, Mr. Healy
served as Senior Vice President, Principal Financial Officer and Treasurer of
Medicore, Inc. a public company engaged primarily in electronics assembly and
ownership of dialysis centers ("Medicore") and Executive Vice President of its
Techdyne affiliate. He also served as Treasurer of most of Medicore's
subsidiaries and as a Vice President of Dialysis Corporation of America ("DCA"),
a subsidiary of Medicore and Secretary, Treasurer and director of other DCA
subsidiaries. Mr. Healey joined Medicore in 1976 as its Controller. Mr. Healey
is also Executive Vice President, Treasurer, Secretary and a Director of VEL and
VUSA.

Dr. Jay Sawardeker, the Company's Chief Operating Officer, joined the
Company in 1996 as Executive Vice President, Technical Affairs. For over 25
years, Dr. Sawardeker has served in various pharmaceutical senior technical
management capacities, primarily with the Glaxo Holdings organization. From 1991
to 1995, he served as Corporate Vice President -- Worldwide Quality Assurance
for Glaxo Holdings. Prior thereto, he served as Corporate Vice
President -- Technical Operations of Glaxo Latin America from 1989 to 1990; Vice
President -- Manufacturing of Glaxo, Inc. from 1987 to 1988; and Vice
President -- Quality Assurance of Glaxo, Inc. Dr. Sawardeker also previously
served as Director of QA for the Whitehall Laboratories division of American
Home Products from 1977 to 1981 and Group Manager of QA for the Ortho
Pharmaceutical division of Johnson & Johnson from 1967 to 1977.

Charles F. Fistel, was appointed Chief Executive Officer of the Company
upon his employment in July 1994, which position he relinquished to Mr. Robert
H. Zeiger in May 1995, becoming an Executive Vice President of the Company. Mr.
Fistel served as a Director of the Company from June 1996 to July 1998. 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 to 1992, he served as Executive Vice
President, Chief Financial Officer and a director of Tiger Direct, Inc., a
Miami, Florida-based publicly-traded computer technology development, marketing
and distribution company. From 1981 to 1986, Mr. Fistel, who is a Certified
Public Accountant, actively practiced public accounting. Mr. Fistel is also
Executive Vice President and a Director of VUSA.

Dr. Joseph Morris joined the Company as Director of Research & Development
in January 1995 and was appointed Vice President in March 1996. Prior to joining
the Company Dr. Morris served as Laboratory Head
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<PAGE> 25

of the Production Development Group of Genetics Institute, Inc. From 1991-1993
he was Senior Scientist and Head of Process Biochemistry at Biogen, Inc.,
working on process development of Avonex(TM), Biogen's recombinant
beta-interferon. He also served as Director of Bioprocess Development for
PerSeptive Biosystems, Inc. Dr. Morris has specific expertise in the areas of
biopharmaceutical protein characterization and purification, liquid phase
chromatography with cytokines, and interferon biochemistry. He received his
Ph.D. in Biochemistry and Biophysics in 1984 from the University of Notre Dame.

Robert Rech joined Viragen as Senior Vice President in May 1997. Mr. Rech
is responsible for the Company's relationships with the healthcare/life science
investment community and its acquisition and strategic alliance activities. From
1988 to 1997, Mr. Rech served in various capacities in the Investment Banking
Department at the Sumitomo Bank, Limited New York, NY, most recently as Vice
President and Deputy Head of North American Operations. Mr. Rech provided the
bank's clients with advisory services primarily relating to mergers,
acquisitions and strategic alliances in the biotechnology area. During his last
four years at Sumitomo, Mr. Rech advised North American life science and
Japanese pharmaceutical/ medical device companies with respect to cross-border
strategic alliances.

Carl N. Singer was elected a Director in August 1997 and also serves as
Chairman of the Executive Committee of the Board of Directors. Since 1981, Mr.
Singer has served as Chairman of Fundamental Management Corporation, a
Florida-based institutional investment fund. Mr. Singer has served as a
Director, President and CEO of Sealy, Inc., Scripto, Inc. and the BVD Company.

Peter D. Fischbein, is an attorney who has been practicing law for
approximately 33 years. Mr. Fischbein served as the Company's Secretary between
May and December 1994. His former law firm on occasion represented the Company,
Medicore and the Viragen Research Associates Limited Partnership which has
certain contracts with the Company. Mr. Fischbein is also a director of Medicore
(since 1984) and Techdyne (since 1985). Mr. Fischbein has been 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 Chairman of Stonegate
Trading, Inc., an importer and exporter of various health, beauty aids,
groceries and sundries. Between 1988 and the present, Dr. Dworkin has served as
Chairman of the Board of Advanced Modular Systems, which is engaged in the sale
of modular buildings. Between June 1993 and the present, Dr. Dworkin has also
served as Chairman of Comtrex Systems, Inc., which is engaged in development and
sale of programmable cash registers. Dr. Dworkin also serves on the Board of
Directors of CCA Industries, Inc., Interactive Technologies, Inc., Northern
Technologies International Corporation and Crager Industries, Inc., all of which
are publicly-traded companies.

Charles J. Simons was elected to the Board of Directors in July 1998 and
serves as Chairman of the Audit, Finance and Compensation Committee of the Board
of Directors. Mr. Simons has been a Director of Renex Corp. since its inception
in July 1993. Mr. Simons is the Chairman of the Board of G.W. Plastics, Inc., a
plastics manufacturer, and is an independent management and financial
consultant. From 1940 to 1981, he was employed by Eastern Airlines, last serving
as Vice Chairman, Executive Vice President and as a Director. Mr. Simons is a
Director of Arrow Air, Inc., a cargo air carrier; Bessemer Trust of Florida, an
investment management firm; Calspan Corporation, an aerospace company; and a
number of private companies. He was also a Director of Home Intensive Care, Inc.
from 1988 until July 1993. Mr. Simons is the Chairman of the Board of the
Matthew Thornton Health Plan. From 1985 until 1992, he was a Director of General
Development Corp., now known as Atlantic Gulf Development Corp., a real estate
development company, and became Chairman of the Board and Chief Executive
Officer just prior to that company's Chapter 11 bankruptcy filing in April 1990.
Mr. Simons resigned all positions prior to that company's emergence from
bankruptcy in 1991.

Jose I. Ortega is a Certified Public Accountant and joined the Company as
its Controller in June 1996. From 1993 until joining the Company, Mr. Ortega was
a member of the Audit Staff of Ernst & Young LLP, the Company's independent
audit firm.

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<PAGE> 26

There is no family relationship between any of the officers and directors.

During Fiscal 1998, the Company's Board of Directors met twice. The Company
has constituted an Executive Committee and an Audit, Finance and Compensation
Committee. The Executive Committee consists of Messrs. Singer (Chairman), Smith
and Zeiger. The Audit, Finance and Compensation Committee consists of Messrs.
Simons (Chairman), Healey, and Dworkin.

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 Audit, Finance and Compensation 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, Finance and
Compensation 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 Audit, Finance and Compensation Committee
also provides overall guidance for officer compensation programs, including
salaries and other forms of compensation, and for implementation of the
Company's budget process. Prior to fiscal 1998, the Company's Board of Directors
acted as a whole as the Audit, Finance and Compensation Committee. During fiscal
1998, the Audit, Finance and Compensation Committee met three times with all
Committee members present.

AUDIT, FINANCE AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
IN COMPENSATION DECISIONS

Currently, there are three members of the Audit, Finance and Compensation
Committee, which was reorganized in February 1998, two of whom are outside
Directors and one is an inside Director. The one inside Director is Dennis W.
Healey, an Executive Vice President, Treasurer, Chief Financial Officer, and
Secretary of the Company. Mr. Healey also serves in a similar capacity for one
or more of the Company's subsidiaries. Mr. Healey abstains from any discussions
or votes concerning his salary and other forms of compensation received from the
Company.

ITEM 11. EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS

The following table sets forth information concerning the compensation and
employment agreements of the Chief Executive Officers of the Company and four
other most highly compensated executive officers as of June 30, 1998.

<TABLE>
<CAPTION>
ALL
OTHER RESTRICTED OTHER
NAME AND PRINCIPAL ANNUAL STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS (#) PAYOUTS SATION
------------------ ---- -------- -------- ------------ ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald Smith.................. 1998 $263,000
Chairman of 1997 175,885 1,050,000
Board and President(1) 1996 154,615 $225,000 $14,000 1,600,000
Robert H. Zeiger.............. 1998 111,347
CEO and Director(2) 1997 65,250 12,500 5,000 50,000
1996 66,653 100,000
Dennis W. Healey.............. 1998 240,500
Exec. V.P., Treas., 1997 163,345 350,000
CFO and Director(3) 1996 78,653 37,500 8,500 500,000
Charles F. Fistel............. 1998 150,000
Exec. V.P. and Director(4) 1997 138,886 300,000
1996 110,000 6,000 110,000
Jay Sawardeker................ 1998 148,470
Exec. V.P., and Director (5) 1997 113,462 200,000
1996 250,000
</TABLE>

- ---------------

(1) The Company entered into a two-year employment agreement with Mr. Smith,
effective October 6, 1995 providing for an annual salary of $160,000 and
$170,000 for the first and second years, respectively. The

24
<PAGE> 27

agreement provided for health, life insurance and similar employee benefits
generally available to other employees of the Company, use of an automobile
and related maintenance expenses and reimbursement of expenses incurred in
fulfilling his normal responsibilities to the Company. In January 1996, Mr.
Smith exercised options to purchase 750,000 shares of Common Stock through
the issuance of a note in the principal amount of $217,500 with the shares
being issued into escrow pending cash payments further providing the shares
may be released from escrow in increments of no less than $3,000. Mr. Smith
received a bonus equal to the par value ($7,500) of the shares purchased. On
June 6, 1996, the Company forgave Mr. Smith's note in lieu of bonus for the
1996 fiscal year, following unanimous approval of the independent members of
the Board of Directors. On March 1, 1997 Mr. Smith entered into a two-year
employment agreement, superceding all previous agreements, under terms
similar to his previous employment agreement. The agreement provided for a
salary of $190,000 and $200,000 for the first and second years,
respectively, and further provided for options to purchase 1,000,000 shares
of common stock at $3.22 per share, exercisable over five years. See Item
13, "Certain Relationships and Related Transactions."

On March 1, 1997 Viragen (Europe) Ltd. entered into a two-year employment
agreement with Mr. Smith under terms similar to his employment agreement
with the Company, providing for an annual salary of $10,000 and $20,000 for
the first and second years, respectively. This agreement was amended on July
3, 1997, providing for an annual salary of $72,000 for the period July 1,
1997 through June 30, 1998 and $82,000 for the period from July 1, 1998
through February 28, 1999. Mr. Smith serves as the President and Chairman of
Viragen (Europe) Ltd.
(2) On May 9, 1995, the Company entered into a two-year employment agreement
expiring May 1, 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 provided 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 provided 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, 2001 and exercisable for the remaining 500,000 shares
commencing May 8, 1997 through May 8, 2002. 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 vested within 90 days of such
termination. On August 1, 1997 Mr. Zeiger entered into a one year employment
agreement under terms similar to his previous agreement except for certain
notice of termination provisions. This agreement provided for a salary of
$120,000 per year with an additional $5,000 per month, payable monthly, for
the first six months of the contract term. In July 1998, Mr. Zeiger resigned
for health reasons his position as Chief Executive Officer of the Company
and Director of VEL, effective September 30, 1998. Mr. Zeiger will continue
to serve as Vice Chairman and as Senior Pharmaceutical Advisor to the Board
and a member of the Executive Committee of the Board of Directors.
(3) The Company entered into a two-year employment agreement with Mr. Healey,
effective October 6, 1995, providing for an annual salary of $80,000 and
$85,000 for the first and second years, respectively. In July 1996, Mr.
Healey entered into an additional employment agreement with Viragen (Europe)
Ltd. This agreement provided for a salary of $85,000 per year and expired in
September 1997. In January 1996, Mr. Healey exercised options to purchase
125,000 shares of Common Stock though the issuance of a note in the
principal amount of $36,250 with the shares being issued into escrow pending
cash payments further providing the shares may be released from escrow in
increments of no less than $3,000. Mr. Healey received a bonus equal to the
par value ($1,250) of the shares purchased. On June 6, 1996, the Company
forgave Mr. Healey's note in lieu of bonus for the 1996 fiscal year,
following unanimous approval of the independent members of the Board of
Directors. On March 1, 1997 Mr. Healey entered into two-year employment
agreement, superceding all previous agreements, under terms similar to his
previous employment agreements. The agreement as amended July 1, 1997,
provided for a salary $190,000 and $195,000 for the first and second years,
respectively, and further provided for

25
<PAGE> 28

options to purchase 300,000 shares of common stock at $3.22 per share,
exercisable over five years.

On July 30, 1996 Viragen (Europe) Ltd. entered into a two-year employment
agreement with Mr. Healey under the terms similar to his employment
agreement with the Company, providing for a salary of $14,200 for the two
month period ending September 30, 1996 and $85,000 for the year ended
September 30, 1997. On March 1, 1997 Mr. Healey entered into a two-year
employment agreement subsequently amended on July 3, 1997, to run concurrent
with Mr. Smith's and superceding all previous agreements. This agreement
provided for a salary of $31,700 for the four month period ending June 30,
1997, $52,000 for the year ended June 30, 1998 and $38,000 for the eight
month period ending February 28, 1998. Mr. Healey serves as Executive Vice
President, Chief Financial Officer, Secretary and Director of Viragen
(Europe) Ltd.
(4) On July 1, 1996, the Company entered into a two-year employment agreement
with Charles Fistel to serve as Executive Vice President, providing for an
annual salary of $140,000 and $150,000 for the first and second years,
respectively. The agreement provided for health and life insurance, and
similar employee benefits generally made available to other employees of the
Company, use of an automobile and related expenses. In February 1997, the
Company issued to Mr. Fistel five-year options to purchase 250,000 shares at
$2.75 per share. The Company recognized $218,750 in compensation expenses as
a result of the issuance of these options. On July 1, 1998, upon the
expiration of Mr. Fistel's 1996 agreement, the Company entered into a two
year employment agreement with Mr. Fistel under terms similar to his
previous employment, modified to increase his salary to $172,500 during the
two year term.
(5) From March 1996 to May 1996, Dr. Sawardeker served as an consultant to the
Company in scientific affairs. On May 6, 1996, Dr. Sawardeker entered into
two year employment agreement effective July 1, 1996, providing for a salary
of $100,000 for the first and second years, respectively, and the issuance
of a five year option to acquire 250,000 shares of Common Stock, exercisable
at $1.80 per share, with one third of the options vesting on the effective
date of the employment agreement and an additional one third vesting on the
first and second anniversary dates, respectively. Dr. Sawardeker's
employment agreement was subsequently amended and extended through June 30,
1999, providing for an annual salary of $150,000 for the period from
February 10, 1997 to February 9, 1998 and $160,000 for the period from
February 10, 1998 to June 30, 1999. Dr. Sawardeker's amended employment
agreement also provided for the grant of an option to acquire 200,000 shares
of Common Stock, exercisable at $1.59 per share with all options vesting
June 30, 1999.

In November 1995, VSL, a wholly-owned subsidiary of VEL issued an aggregate
of 7.144 shares of VSL common stock at $56.00 per share to individuals serving
as officers and directors of VEL and one employee of the Company. Pursuant to
the Agreement and Plan of Reorganization, these shares were exchangeable into an
aggregate of 400,000 shares of VEL. Of these options, 100,000 were granted each
to (i) Mr. Gerald Smith, (ii) Mr. Robert H. Zeiger, and (iii) Mr. Dennis W.
Healey, all serving as officers and directors of VEL, and one employee of the
Company. All options on VSL were exercised and the related shares exchanged for
VEL common stock. The Company recognized $243,000 in compensation expense in
fiscal 1996 as a result of the issuance of these shares.

26
<PAGE> 29

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,
1998 to each person named in the Summary Compensation Table.

<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 ($/SHARES) DATE
- ---- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Gerald Smith......................... -- -- -- --
Robert H. Zeiger..................... -- -- -- --
Dennis W. Healey..................... -- -- -- --
Charles F. Fistel.................... -- -- -- --
Jay Sawardeker....................... -- -- -- --
</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,
1998 to each person named in the Summary Compensation Table and the unexercised
options held as of the end of the 1998 fiscal year.

AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR
AND 1998 FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
VALUE REALIZED IN THE MONEY OPTIONS AT
MARKET PRICE NUMBER OF UNEXERCISED FY-END (BASED ON FY-
SHARES AT EXERCISE OPTIONS AT FY-END PRICE OF $1.87 END/SHARE)
ACQUIRED LESS PRICE --------------------------- ---------------------------
NAME ON EXERCISE EXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald Smith.............. -- $-- 2,700,000 $2,235,500 $
Robert H. Zeiger.......... -- -- 1,050,000 910,000
Dennis W. Healey.......... -- -- 900,000 728,500
Charles F. Fistel......... -- -- 710,000 621,700
Jay Sawardeker............ -- -- 250,000 200,000 17,500 56,000
</TABLE>

1997 AMENDED STOCK OPTION PLAN AND 1995 AMENDED STOCK OPTION PLAN

On May 15, 1995 the Board of Directors adopted, subject to approval by the
stockholders, a stock option plan subsequently amended, called the "1995 Stock
Option Plan." On September 22, 1995, the Board of Directors amended the 1995
Stock Option Plan (collectively the "95 Plan") to define certain terms and
clarify the minimum exercise price of the Non-Qualified Options, described
herein, as not less than 55% of the fair market value. The 95 Plan was submitted
to the stockholders of the Company at the Annual Meeting of Stockholders held on
December 15, 1995, and the Stockholders ratified the Plan at that time.

On January 27, 1997 the Board of Directors adopted, subject to approval by
the stockholders, a stock option plan called the "1997 Stock Option Plan" (the
"97 Plan"), containing terms and provisions similar to the 95 Plan. The 97 Plan
was submitted to the Stockholders for approval at the Annual Meeting of
Stockholders held on February 28, 1997 at which time the Plan was ratified. On
April 24, 1998 the Board of Directors adopted, subject to ratification by the
stockholders, an amendment to the 1997 Plan reserving an additional 1,000,000
shares of Common Stock for issuance under the 1997 Plan, thereby reserving an
aggregate of 4,000,000 shares of Common Stock for issuance pursuant to options
granted under the 1997 Plan. On July 31, 1998, the stockholders ratified this
amendment to the 1997 Plan.

27
<PAGE> 30

Under both the 95 Plan and the 97 Plan (collectively the "Plans"), the
Company has reserved 8,000,000 shares (4,000,000 shares -- 95 Plan and 4,000,000
shares -- 97 Plan) of Common Stock for issuance pursuant to options granted
under the Plans ("Plan Options"). The Audit, Finance and Compensation Committee
of the Board of Directors (the "Committee") and the Board of Directors currently
administer the Plans including, without limitation, the selection of the persons
who will be granted Plan Options under the Plans, the type of Plan Options to be
granted, the number of shares subject to each Plan Options and the Plan Options
price.

Plan Options granted under the Plans may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). In addition, the Plans also allow for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of Common Stock owned
by the eligible person and receive a new Plan Option to purchase shares of
Common Stock equal in number to the tendered shares. Any Incentive Option
granted under the Plan must provide for an exercise price of not less than 100%
of the fair market value of the underlying shares on the date of such grant, but
the exercise price of any Incentive Option granted to an eligible employee
owning more than 10% of the Company's Common Stock must be at least 110% of such
fair market value as determined on the date of the grant. The term of each Plan
Option and the manner in which it may be exercised is determined by the Board of
Directors or the Committee, provided that no Plan Option may be exercisable more
than 10 years after the date of its grant and, in the case of an Incentive
Option granted to an eligible employee owning more than 10% of the Company's
Common Stock, no more than five years after the date of the grant.

The exercise price of Non-Qualified Options shall be determined by the
Board of Directors or the Committee.

The per share purchase price of shares subject to Plan Options granted
under the Plans may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plans.

Officers, directors, key employees and consultants of the Company and its
subsidiaries are eligible to receive Non-Qualified Options under the Plans. Only
officers, directors and employees of the Company who are employed by the Company
or by any subsidiary thereof are eligible to receive Incentive Options.

Incentives Options are nonassignable and nontransferable, except by will or
by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. Under a recent amendment to
the 1997 Plan, Non-qualified Options may be transferable under limited
circumstances to facilitate estate planning if authorized by the Board of
Directors or the Committee. If an optionee's employment is terminated for any
reason, other than his death or disability or termination for cause, or if an
optionee is not an employee of the Company but is a member of the Company's
Board of Directors and his service as a director is terminated for any reason,
other then death or disability, the Plan Option granted to him shall lapse to
the extent unexercised on the earlier of the expiration date or 30 days
following the date of termination unless otherwise extended by the Board. If the
optionee dies during the term of his employment, the Plan Option granted to him
shall lapse to the extent unexercised on the earlier of the expiration date of
the Plan Option or the date one year following the date of the optionee's death.
If the optionee is permanently and totally disabled within the meaning of
Section 22(c) (3) of the Internal Revenue Code of 1986, the Plan Option granted
to him lapses to the extent unexercised on the earlier of the expiration date of
the option or one year following the date of such disability.

The Board of Directors or Committee may amend, suspend or terminate the
Plans at any time, except that no amendment shall be made which (i) changes the
minimum purchase price therefor (except in either case in the event of
adjustments due to changes in the Company's capitalization), (ii) affects
outstanding Plan Options or any exercise right thereunder, (iii) extends the
term of any Plan Option beyond ten years, or (iv) extends the termination date
of the Plans. Unless the Plans shall theretofore have been suspended or
terminated by the Board of Directors, the 95 Plan shall terminate on May 15,
2005 and the 97 Plan shall

28
<PAGE> 31

terminate on January 27, 2007. Any such termination of either Plan shall not
affect the validity of any Plan Options previously granted thereunder.

As of September 21, 1998, 3,991,500 options have been issued under the 1995
Amended Stock Option Plan and 2,987,000 options have been issued under the 1997
Stock Option Plan.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the Company's
Common Stock beneficially owned at September 21, 1998, (i) by each person who is
known by the Company to own beneficially or exercise voting or dispositive
control over 5% or more of the Company's Common Stock, (ii) by each of the
Company's directors, 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 60 days. At September 21,
1998, there were 54,425,121 shares of Common Stock of the Company outstanding.

<TABLE>
<CAPTION>
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
- ------------------------------------ ------------ ----------
<S> <C> <C>
Gerald Smith................................................ 3,000,000(3) 5.3%
Robert H. Zeiger............................................ 1,050,000(4) 1.9
Carl N. Singer.............................................. 1,664,541(5) 3.1
Dennis W. Healey............................................ 1,025,000(6) 1.9
Peter D. Fischbein.......................................... 450,000(7) 0.8
Sidney Dworkin, Ph.D........................................ 375,244(8) 0.7
Charles J. Simons........................................... 35,000 0.1
Officers & Directors as a Group (12 persons)................ 9,580,240 15.7
</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.
(2) Based on 54,425,121 shares of Common Stock outstanding as of September 21,
1998. Exclusive of (i) 11,289 shares of Common Stock reserved for issuance
pursuant to conversion of 2,650 outstanding shares of Preferred Stock each
convertible into 4.26 shares of Common Stock; and (ii) 12,429,674 shares of
Common Stock reserved for issuance pursuant to exercise of options and
warrants of the Company.
(3) Mr. Smith is Chairman of the Board of Directors and President of the
Company. Includes (i) 550,000 shares owned directly by Mr. Smith; (ii)
1,400,000 options exercisable at $.50 per share granted pursuant to Mr.
Smith's October 6, 1995 Employment Agreement; (iii) 1,000,000 options
exercisable at $3.22 per share granted pursuant to Mr. Smith's March 1, 1997
Employment Agreement and (iv) 50,000 options exercisable at $3.22 granted to
all Directors in February 1997.
(4) Mr. Zeiger is Chief Executive Officer and a Director of the Company.
Includes (i) 1,000,000 Common Stock purchase options exercisable at $.96 per
share pursuant to Mr. Zeiger's May 9 1995 Employment Agreement and (ii)
50,000 options exercisable at $3.22 granted to all Directors in February
1997.
(5) Mr. Singer is a director of the Company. Includes (i) 23,500 shares owned
directly by Mr. Singer (ii)1,591,041 shares held by Fundamental Management
Corporation, an institutional investment fund for which Mr. Singer serves as
Chairman and (iii) 50,000 options exercisable at $1.19 granted on January 7,
1998.
(6) Mr. Healey is Executive Vice President, Treasurer, Chief Financial Officer,
Secretary and a Director of the Company. Includes (i) 375,000 shares held in
Mr. Healey's name; (ii) 300,000 options exercisable at $.50 per share
granted pursuant to Mr. Healey's October 6, 1995 Employment Agreement; (iii)
300,000 options exercisable at $3.22 per share granted pursuant to Mr.
Healey's March 1, 1997 Employment Agreement and (iv) 50,000 options
exercisable at $3.22 granted to all Directors in February 1997.
(7) Mr. Fischbein is a Director of the Company. Includes (i) 125,000 shares held
in Mr. Fischbein's name; (ii) 50,000 options exercisable at $1.00 per share
granted to all Directors in August 1994; (iii) 225,000

29
<PAGE> 32

options exercisable at $.50 per share granted in October 1995; (iv) and
50,000 options exercisable at $3.22 granted to all Directors in February
1997.
(8) Mr. Dworkin is a Director of the Company. Includes (i) 175,244 shares owned
directly by Mr. Dworkin and his wife; (ii) 50,000 options exercisable at
$1.00 per share granted to all Directors in August 1994; (iii) 100,000
options exercisable at $.50 per share granted in October 1995; and (iv)
50,000 options exercisable at $3.22 granted to all Directors in February
1997.
(9) Mr. Simons was elected a Director of the Company in July 1998. Includes (i)
10,000 shares owned directly by Mr. Simons and (ii) 25,000 options
exercisable at $1.88 granted on July 31, 1998.

On April 27, 1998, Viragen U.S.A. Inc., entered into a two year Employment
Agreement with Mr. Melvin Rothberg to serve as its Chief Executive Officer. The
Employment Agreement provided for an annual salary of $150,000 and options to
purchase 125,000 shares of VUSA Common Stock, exercisable at $.22 per share,
vesting 50,000 shares and 75,000 shares on the first and second anniversaries,
respectively. The Stock Option Agreement further provided that if VUSA did not
complete an Initial Public Offering of its stock within two years of the
effective date of the Employment Agreement, the Company and Mr. Rothberg will
negotiate an exchange of his VUSA options into options of the Company or a
publicly traded subsidiary with equal value to Mr. Rothberg's VUSA options.

During fiscal 1998, the Company issued 449,500 options to purchase Common
Stock to a consultant and employees of the Company exercisable at prices varying
from $ 1.00 to $2.50 per share during the five-year term of the option.

In February 1997, the Board of Directors awarded options to purchase
1,750,000 shares of Common Stock to officers and directors of the Company
exercisable over five years at an exercise price of $3.22 per share. The options
were granted to the following individuals: Gerald Smith (1,050,000), Robert H.
Zeiger (50,000), Dennis W. Healey (350,000), Charles F. Fistel (50,000), Peter
D. Fischbein (50,000), Sidney Dworkin (50,000), and former Directors; Jay Haft
(50,000), William B. Saeger (50,000) and Fred D. Hirt (50,000). In addition,
between August 1996 and June 1997, the Company awarded options to purchase up to
459,500 shares of Common Stock to other employees of the Company (inclusive of
250,000 of Charles F. Fistel), which options are exercisable at prices ranging
from $1.97 to $3.69 per share during the five year term of the options.

On October 6, 1995, the Board of Directors awarded options to purchase
2,935,000 shares of Common Stock to the officers and directors of the Company
exercisable of $0.50 per share at any time on or prior to October 6, 2000. The
options were granted to the following individuals: Gerald Smith (1,600,000),
Robert H. Zeiger (100,000), Dennis W. Healey (500,000), Charles F. Fistel
(110,000), Peter D. Fischbein (225,000), Sidney Dworkin (100,000), and former
Directors; Jay M. Haft (100,000) and William B. Saeger (100,000). In addition,
between October 1995 and June 1996, the Company awarded options to purchase up
to 500,500 shares of Common Stock to other employees of the Company, which
options are exercisable at prices ranging from $0.50 to $5.90 per share during
the five-year term of the options.

BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent (10%) stockholders are required by Commission regulation to furnish
the Company with copies of all Section 16(a) forms they file.

To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent (10%) beneficial owners were completed and timely filed.

30
<PAGE> 33

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On December 8, 1995, the Company consummated an Agreement and Plan of
Reorganization with Sector Associates, Ltd. (the former name for Viragen
(Europe), Ltd.) ("VEL") pursuant to which VEL acquired 100% of the outstanding
capital stock of Viragen (Scotland) Ltd. in exchange for which Viragen received
newly issued shares of convertible securities of VEL which represented
approximately 94% of the then issued and outstanding capital of VEL. Prior
thereto, on July 12, 1995, Viragen Technology, Inc., a wholly-owned subsidiary
of the Company, entered into a License Agreement with VSL pursuant to which VSL
obtained certain exclusive rights applicable to the EU countries and
none-exclusive rights throughout the world (except within the United States and
its territories) to engage in the manufacture and distribution of certain
proprietary products and technologies relating to the therapeutic application of
human leukocyte interferon. The term of the license is for 15 years, which is
automatically renewed for successive 15-year periods. At the present time, the
Company maintains at 70.3% capital stock interest in VEL, which in turn owns all
of the capital stock of VSL.

Messrs. Gerald Smith, Robert H. Zeiger and Dennis W. Healey, who are
principal executive officers with the Company, also serve as the principal
executive officers of VEL. Messrs. Smith, Healey and Fistel also serve as
principal executive officers of the Company's majority-owned subsidiary Viragen
U.S.A., Inc. Commencing in July 1996, following his resignation from Medicore
and subsidiaries, Mr. Healey who is serving as VEL's Executive Vice President,
Treasurer and Secretary, began receiving an annual salary of $85,000 per year
from VEL. On March 1, 1997, Messrs. Smith and Healey entered into two year
employment agreements, subsequently amended, with VEL until terms similar to
their employment agreements with the Company. The Agreements provide for annual
salaries of $72,000 and $52,000, respectively. In November 1995, VSL issued
options to purchase 100,000 share of each of its Common Stock to Messrs. Smith,
Zeiger and Healey, which following the consummation of the Sector reorganization
agreements, were converted into options to purchase and aggregate of 300,000
shares of Common Stock of VEL exercised at $.001 per share. All of such options
were exercised on January 31, 1996.

On April 25, 1997, the Company loaned William Saeger, a former Director
$100,000, receiving a one year Promissory Note bearing interest at 8 1/2%. In
April 1998, Mr. Saeger defaulted on the Note. Due to a subsequent deterioration
in Mr. Saeger's health and financial condition, the Company was unable to
ascertain the amounts, if any, which could ultimately be realized on the
Promissory Note. Accordingly, the entire amount due under the Note with related
accrued interest of approximately $10,000 was written-off as uncollectable at
year end. The Company intends to pursue collection efforts relative to this
transaction.

On September 1, 1998, Messrs. Smith and Healey each exercised 250,000
options to purchase Common Stock of the Company. The options were exercised
through the issuance of Promissory Notes payable to the Company totaling
$300,000, and related Pledge and Escrow Agreements. The Promissory Notes bear
interest at the greater of (i) 3.5% or (ii) the Mid-Term Applicable Federal Rate
(as defined in Section 1274 of the Internal Revenue Code of 1986), payable
semi-annually and are secured by the underlying Common Stock purchased, which
shares are being held in escrow pending payment of the related Notes pursuant to
the provisions of the Pledge and Escrow Agreements.

31
<PAGE> 34

PART IV

ITEM 14. EXHIBIT AND REPORTS ON FORM 8-K

(a) THE FOLLOWING IS A LIST OF DOCUMENTS FILED AS PART OF THIS ANNUAL
REPORT.

1. All financial statements See Index to Consolidated Financial
Statements

2. Exhibits

(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession

(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)

(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 (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

(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)

(ii) Specimen Certificate for Unit (Series A Preferred Stock and Class
A Warrant) (incorporated by reference to 1986 Form S-2, Part II, Item 15,
4.5)

(iii) Omitted

(iv) Omitted

(v) Omitted

(vi) Omitted

(vii) Omitted

(viii) Form of three years 8.5% Convertible Subordinated Debenture
(incorporated by reference to the Company's Current Report on Form 8-K
dated November 17, 1993)

(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)

(x) 1995 Stock Option Plan (incorporated by reference to the Company's
Registration Statement on Form S-8 filed June 9, 1995)

(xi) Certificate of Designation of Series B Preferred Stock
(incorporated by reference to the Company's Current Report on Form 8-K
dated June 7, 1996)

(10) Material contracts

(i) Research Agreement between the Registrant and Viragen Research
Associates Limited Partnership dated December 29, 1983 (incorporated by
reference to Medicore's S-1, File No. 2-89390, dated February 10, 1984
("Medicore's S-1"), Part II, Item 16(a) (10) (xxxiii))

32
<PAGE> 35

(ii) License Agreement between the Registrant and Viragen Research
Associates Limited Partnership dated December 29, 1983 (incorporated by
reference to Medicore's S-1, Part II, Item 16 (a) (10) (xxxiv))

(iii) Omitted

(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))

(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))

(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))

(vii) Loan Agreement between the Company and Medicore, Inc. dated
January 31, 1991 (incorporated by reference to the Company's Current Report
of Form 8-K dated February 26, 1991, Item 79c) (ii))

(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))

(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))

(x) Omitted

(xi) Omitted

(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))

(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))

(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 II, Item 14(a) (10) (xxiii))

(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))

(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))

(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))

(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))

(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))

33
<PAGE> 36

(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))

(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))

(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))

(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))

(xxiv) Agreement for Sale of Stock between Cytoferon and the Company
dated November 19, 1993 (incorporated by reference to the Company's June
30, 1994 Form 10-K, Part IV, Item 14(a)(10)(xxiv))

(xxv) Employment Agreement between Gerald Smith and the Company dated
November 19, 1993 (incorporated by reference to the Company's June 30, 1994
Form 10-K, Part IV, Item 14(a)(10)(xxv)) as amended by modified Employment
Agreement dated December 15, 1994 (incorporated by reference to the
Company's 1995 Form SB-2, Part II, Item 27(10)(xxv))

(xxvi) Common Stock Purchase Warrant Agreement between Northlea
Partners Ltd. and the Company dated January 6, 1994 (incorporated by
reference to the Company's June 30, 1994 Form 10-K, Part IV, Item
14(a)(10)(xxvi))

(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)

(xxviii) Employment Agreement between Dennis W. Healey and the Company
dated April 8, 1994 (incorporated by reference to the Company's June 30,
1994 Form 10-K, Part IV, Item 14(a)(10) (xxvii) as amended by Modified
Employment Agreement dated December 15, 1994 (incorporated by reference to
the Company's 1995 SB-2, Part II, Item 27(10)(xxvii))

(xxix) Promissory Note between the Company and Gerald Smith dated
April 18, 1994 (incorporated by reference to the Company's June 30, 1994
Form 10-K, Part IV, Item 14(a)(10)(xxviii))

(xxx) Employment Agreement between Charles F. Fistel and the Company
dated July 1, 1994 (incorporated by reference to the Company's June 30,
1994 Form 10-K, Part V, Item 14(a)(10) (xxix)) as amended by Modified
Employment Agreement dated December 15, 1994 (incorporated by reference to
the Company's 1995 Form SB-2, Part II, Item 27(10)(xxix))

(xxxi) Placement Agent Agreement and Common Stock Purchase Warrant
issued to Laidlaw Equities, Inc. and designees (incorporated by reference
to the Company's 1995 Form SB-2, Part II, Item 27(10)(xxxi))

(xxxii) Amendment No. 1 to Agreement for Sale of Stock with Cytoferon
(incorporated by reference to the Company's 1995 Form SB-2, Part II, Item
27(10)(xxxii))

(xxxiii) Modified Sale of Stock and Stock Option Agreement with Peter
D. Fischbein (incorporated by reference to the Company's 1995 Form SB-2,
Part II, Item 27(10)(xxxiii))

(xxxiv) Agreement with Moty Hermon (incorporated by reference to the
Company's 1995 Form SB-2, Part II, Item 27(10)(xxxiv))

34
<PAGE> 37

(xxxv) Agreement with University of Nebraska-Medical Center
(incorporated by reference to the Company's 1995 Form SB-2, Part II, Item
27(10)(xxxv))

(xxxvi) License and Manufacturing Agreement with Common Services
Agency (incorporated by reference to the Company's 1995 Form SB-2, Part II,
Item 27(10)(xxxvi))

(xxxvii) Agreed Motion for Consent Final Order and Settlement
Agreement dated August 29, 1995 (incorporated by reference to the Company's
June 30, 1995 Form 10-KSB)

(xxxviii) Agreement and Plan of Reorganization dated November 8, 1995
and Amendment thereto (incorporated by reference to the Company's
Post-Effective Amendment No. 1 to Registration Statement on Form SB-2)

(xxxix) Securities Purchase Agreement dated June 7, 1996 (incorporated
by references to the Company's current report on Form 8-K dated June 7,
1996).

(xl) Employment Agreement between Charles F. Fistel and the Company
dated July 1, 1996 (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996)

(xli) Stock Option Agreement between the Company and Fred D. Hirt
dated August 2, 1996 (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996)

(xlii) Form of Private Securities Subscription Agreement dated
November 27, 1996 and related Registration Rights Agreement and Common
Stock Purchase Warrant (incorporated by reference to the Company's Current
Report on Form 8-K dated February 14, 1997)

(xliii) Private Securities Subscription Agreement dated February 3,1
997 and related Regulation Rights Agreement, Common Stock Purchase Warrant
and related agreements (incorporated by reference to the Company's Current
Report on Form 8-K dated February 14, 1997)

(xliv) Securities Purchase Agreement dated as of December 31, 1996 and
related Registration Rights Agreement (incorporated by reference to the
Company's Current Report on Form 8-K dated March 6, 1997)

(xlv) Employment Agreement between Gerald Smith and the Company dated
March 1, 1997 (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended June 30, 1997)

(xlvi) Employment Agreement between Dennis W. Healey and the Company
dated March 1, 1997 (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 1997)

(xlvii) Employment Agreement between Robert C. Rech and the Company
dated May 19, 1997 (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 1997)

(xlviii) 11 month 10% Promissory Note dated July 1, 1997 (incorporated
by reference to the Company's Current Report on Form 8-K dated August 28,
1997)

(xlix) Employment Agreement between Robert H. Zeiger and the Company
dated August 1, 1997 (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 1997)

(l) Certificate of Designations, Preferences and Rights of the Series
F Convertible Preferred Shares (incorporated by reference to the Company's
Current Report on Form 8-K dated August 28, 1997)

(li) Certificate of Designations, Preferences and Rights of 10%
Cumulative Convertible Preferred Stock, Series G (incorporated by reference
to the Company's Current Report on Form 8-K dated August 28, 1997)
35
<PAGE> 38

(lii) Series F Convertible Preferred Stock Exchange Agreement, dated
July 23, 1997 (incorporated by reference to the Company's Current Report on
Form 8-K dated August 28, 1997)

(liii) Series G Convertible Preferred Stock Exchange Agreement, dated
August 27, 1997 (incorporated by reference to the Company's Current Report
on Form 8-K dated August 28, 1997)

(liv) 10% Promissory Note to Clearwater Fund IV, Ltd. (incorporated by
reference to the Company's current Report on Form 8-K dated September 22,
1997, Item 7 (c)1)

(lv) Omitted.

(lvi) Series H Convertible Preferred Stock, Form of Subscription
Agreement dated February 17, 1998 and related Registration Agreement and
Common Stock Purchase Warrants (incorporated by reference to the Company's
Registration Statement on Form S-3 dated April 17, 1998)

(lvii) Series I Convertible Preferred Stock, Form of Subscription
Agreement dated April 2, 1998 and related Registration Rights Agreement and
Common Stock Purchase Warrants (incorporated by reference to the Company's
Registration Statement on Form S-3 dated April 17, 1998)

(lviii) Cooperation and Supply Agreement between the Company, Viragen
Deutschland GmbH and German Red Cross dated March 19, 1998 (incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended
June 30, 1998, except for related exhibits filed herein) (Certain portions
of this exhibit have been redacted pursuant to a Confidentiality Request
submitted to the Securities and Exchange Commission)

(lix) Buffycoat Supply Agreement between America's Blood Centers and
the Company dated July 15, 1998 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1998) (Certain
portions of this exhibit have been redacted pursuant to a Confidentiality
Request submitted to the Securities and Exchange Commission)

(lx) Agreement between the Company and the American Red Cross dated
August 18, 1998 (incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended June 30, 1998, except for related exhibits
filed herein) (Certain portions of this exhibit have been redacted pursuant
to a Confidentiality Request submitted to the Securities and Exchange
Commission)

(lxi) Strategic Alliance Agreement between the Company and
Inflammatics, Inc. and Inflammatics Inc. Series A Convertible Preferred
Stock Purchase Agreement (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 1998)

(lxii) Common Stock Private Equity Line Subscription Agreement,
Registration Rights Agreement, Private Placement Agreement, Placement Agent
Warrant and Investor Warrant dated September 22, 1998 (incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended
June 30, 1998)

(lxiii) Gerald Smith Pledge and Escrow Agreement for 200,000 shares
dated September 1, 1998.

(lxiv) Gerald Smith Pledge and Escrow Agreement for 50,000 shares
dated September 1, 1998.

(lxv) Dennis W. Healey Pledge and Escrow Agreement for 200,000 shares
dated September 1, 1998.

(lxvi) Dennis W. Healey Pledge and Escrow Agreement for 50,000 shares
dated September 1, 1998.

(lxvii) Southern Health SDN. BHD Option to Purchase Master License
dated March 23, 1998.

(11) Statement re computation of loss per share

(21) Subsidiaries of the registrant

(23) Consent of Independent Certified Public Accountants.

(27) Financial Data Schedule (for SEC use only)

(b) Reports on Form 8-K filed during the fourth quarter

None

36
<PAGE> 39

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

VIRAGEN, INC.

By: /s/ DENNIS W. HEALEY
------------------------------------
Dennis W. Healey
Executive Vice President, Treasurer
Principal Financial Officer

Dated: April 5, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>

/s/ GERALD SMITH Chairman of the Board of April 5, 1999
- ------------------------------------------------ Directors, Principal Executive
Gerald Smith Officer and President

Chief Executive Officer and April 5, 1999
- ------------------------------------------------ Director
Robert H. Zeiger

/s/ CARL N. SINGER Director and Chairman of the April 5, 1999
- ------------------------------------------------ Executive Committee
Carl N. Singer

/s/ DENNIS W. HEALEY Executive Vice President, April 5, 1999
- ------------------------------------------------ Treasurer, Principal Financial
Dennis W. Healey Officer and Director

/s/ CHARLES J. SIMONS Director and Chairman of the April 5, 1999
- ------------------------------------------------ Audit, Finance and
Charles J. Simons Compensation Committee

/s/ PETER D. FISCHBEIN Director April 5, 1999
- ------------------------------------------------
Peter D. Fischbein

/s/ SIDNEY DWORKIN Director April 5, 1999
- ------------------------------------------------
Sidney Dworkin

/s/ JOSE I. ORTEGA Controller and Principal April 5, 1999
- ------------------------------------------------ Accounting Officer
Jose I. Ortega
</TABLE>

37
<PAGE> 40

FORM 10-K -- ITEM 8

VIRAGEN, INC. AND SUBSIDIARIES

LIST OF FINANCIAL STATEMENTS

The following consolidated financial statements of Viragen, Inc. and
subsidiaries are included:

<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.......... F-1
Consolidated balance sheets -- June 30, 1998 and 1997....... F-2
Consolidated statements of operations -- Years ended June
30, 1998, 1997 and 1996................................... F-3
Consolidated statements of stockholders' equity -- Years
ended June 30, 1998, 1997 and 1996........................ F-4
Consolidated statements of cash flows -- Years ended June
30, 1998, 1997 and 1996................................... F-9
Notes to consolidated financial statements.................. F-11
</TABLE>

All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
<PAGE> 41

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Shareholders and Board of Directors
Viragen, Inc.

We have audited the accompanying consolidated balance sheets of Viragen,
Inc. and subsidiaries as of June 30, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1998. 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 subsidiaries at June 30, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally accepted accounting
principles.

/s/ ERNST & YOUNG LLP

Miami, Florida
September 18, 1998

F-1
<PAGE> 42

VIRAGEN, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 2,708,317 $12,873,301
Marketable securities, available-for-sale................. 6,105,076 18,541,616
Prepaid expenses.......................................... 206,995 237,569
Due from employees........................................ 60,597 53,980
Other current assets...................................... 470,353 674,992
----------- -----------
Total Current Assets............................... 9,551,338 32,381,458
PROPERTY, PLANT AND EQUIPMENT
Land, building and improvements........................... 3,538,926 3,011,044
Equipment and furniture................................... 5,311,327 3,909,182
Construction in progress.................................. 48,655 370,364
----------- -----------
8,898,908 7,290,590
Less accumulated depreciation............................. (2,744,827) (2,252,392)
----------- -----------
6,154,081 5,038,198
DEPOSITS AND OTHER ASSETS................................... 189,806 41,887
----------- -----------
$15,895,225 $37,461,543
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 829,661 $ 1,431,211
Accrued expenses and other liabilities.................... 708,005 1,573,464
Current portion of long-term debt......................... 171,277 45,703
----------- -----------
Total Current Liabilities.......................... 1,708,943 3,050,378
ROYALTIES PAYABLE........................................... 107,866 107,866
DEFERRED INCOME............................................. 200,000 --
LONG-TERM DEBT, less current portion........................ 280,094 238,895
MINORITY INTEREST........................................... 525,936 1,920,100
Series H cumulative convertible preferred stock, $1.00 par
value. Authorized 500 shares; issued and outstanding 500
shares at June 30, 1998................................... 5,146,851 --
Series I cumulative convertible preferred stock, $1.00 par
value. Authorized 200 shares; issued and outstanding 200
shares at June 30, 1998................................... 2,039,014 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible 10% Series A cumulative preferred stock, $1.00
par value. Authorized 375,000 shares; issued and
outstanding 2,650 shares Liquidation preference value: $10
per share, aggregating $26,500............................ 2,650 2,650
Convertible 5% Series B cumulative preferred stock, $1.00
par value. Authorized 15,000 shares; issued and
outstanding 7,445 at June 30, 1997........................ -- 7,445
Convertible Series C preferred stock, $1.00 par value.
Authorized 5,000 shares; issued and outstanding 974 shares
at June 30, 1997.......................................... -- 974
Convertible 6% Series D cumulative preferred stock, $1.00
par value. Authorized 15,000 shares; issued and
outstanding 10,200 shares at June 30, 1997................ -- 10,200
Convertible 5% Series E cumulative preferred stock, $1.00
par value. Authorized, issued and outstanding 5,000 shares
at June 30, 1997.......................................... -- 5,000
Common stock, $.01 par value. Authorized 75,000,000 shares;
issued 53,416,912 and 46,260,360 shares at June 30, 1998
and 1997, respectively, of which 606,277 shares and
386,777 shares are held as treasury stock at June 30, 1998
and 1997, respectively.................................... 534,168 462,601
Capital in excess of par value.............................. 45,686,143 59,995,768
Treasury stock.............................................. (996,541) (699,150)
Retained deficit............................................ (39,624,889) (27,802,624)
Foreign currency translation adjustment..................... 287,081 273,469
Note due from director...................................... -- (101,417)
Unrealized loss on marketable securities,
available-for-sale........................................ (2,091) (10,612)
----------- -----------
Total Stockholders' Equity......................... 5,886,521 32,144,304
----------- -----------
$15,895,225 $37,461,543
=========== ===========
</TABLE>

See notes to consolidated financial statements.

F-2
<PAGE> 43

VIRAGEN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
INCOME
Revenues............................................ $ -- $ -- $ 229,967
Research subsidy.................................... -- -- 330,000
Interest and other income........................... 1,143,112 1,403,610 179,069
------------ ------------ -----------
1,143,112 1,403,610 739,036
COST AND EXPENSES
Cost of goods sold.................................. -- -- 178,368
Research and development costs...................... 3,866,267 2,168,914 1,503,434
Selling, general and administrative expenses........ 5,429,344 3,958,668 3,549,464
Depreciation and amortization....................... 506,934 281,920 200,209
Interest expense.................................... 590,867 30,713 92,576
------------ ------------ -----------
10,393,412 6,440,215 5,524,051
------------ ------------ -----------
Loss before minority interest......................... (9,250,300) (5,036,605) (4,785,015)
Minority interest in loss of consolidated
subsidiaries........................................ 1,394,164 261,360 112,744
------------ ------------ -----------
NET LOSS.................................... (7,856,136) (4,775,245) (4,672,271)
Deduct required dividends on convertible preferred
stock, Series A..................................... 2,823 20,760 2,650
Deduct required dividends on convertible preferred
stock, Series B..................................... -- 4,441,676 894,976
Deduct required dividends on convertible preferred
stock, Series C..................................... -- 844,960 --
Deduct required dividends on convertible preferred
stock, Series D..................................... 169,221 3,619,407 --
Deduct required dividends on convertible preferred
stock, Series E..................................... 127,918 971,936 --
Deduct required dividends on convertible preferred
stock, Series F..................................... 524,416 -- --
Deduct required dividends on convertible preferred
stock, Series G..................................... 708,139 -- --
Deduct required dividends on convertible preferred
stock, Series H..................................... 733,681 -- --
Deduct required dividends on convertible preferred
stock, Series I..................................... 232,154 -- --
------------ ------------ -----------
LOSS ATTRIBUTABLE TO COMMON STOCK..................... $(10,354,488) $(14,673,984) $(5,569,897)
============ ============ ===========
LOSS PER COMMON SHARE, after deduction for required
dividends on convertible preferred stock............ $ (0.21) $ (0.37) $ (0.15)
============ ============ ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............ 50,502,503 39,134,631 36,198,302
============ ============ ===========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 44

VIRAGEN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED CAPITAL IN
STOCK, STOCK, STOCK, STOCK, STOCK, STOCK, COMMON EXCESS OF
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F STOCK PAR VALUE
--------- --------- --------- --------- --------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1995...... $3,450 $ -- $ -- $ -- $ -- $ -- $353,555 $18,406,086
Issuance of common stock to
consultants (59,600
shares).................... 596 44,700
Exercise of warrants by
consultants (772,028
shares).................... 7,719 451,945
Compensation expense on
directors, officers, and
employees options.......... 183,144
Exercise of warrants from
private placement (358,912
shares).................... 3,589 183,212
Exercise of warrants by
directors (50,000
shares).................... 500 14,500
Exercise of warrants by
management, officers and
employees (1,293,500
shares).................... 12,935 445,437
Compensation expense on
consultants' options....... 316,300
Proceeds from subsidiary
offering................... 3,511,061
Proceeds from initial
investment in Sector
Associates Ltd............. 774,206
Issuance of Viragen (Europe)
Ltd. stock to directors and
affiliate of subsidiary.... 243,000
Officers' notes forgiven on
stock purchase.............
Conversion of Series A
preferred stock............ (800) 65 735
Sale of Series B preferred
stock, net of issuance
costs of $940,935.......... 15,000 14,044,065
Foreign currency translation
adjustment.................
Net loss.....................
------ ------- ------ ------- ------- ------- -------- -----------
Balance at June 30, 1996..... $2,650 $15,000 $ -- $ -- $ -- $ -- $378,959 $38,618,391

<CAPTION>
FOREIGN NOTES DUE
COMMON CURRENCY FROM
STOCK TREASURY RETAINED TRANSLATION OFFICERS/
SUBSCRIBED STOCK DEFICIT ADJUSTMENT DIRECTORS
---------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1995...... $ 45,296 $ -- $(17,110,601) $ -- $ --
Issuance of common stock to
consultants (59,600
shares).................... (45,296)
Exercise of warrants by
consultants (772,028
shares)....................
Compensation expense on
directors, officers, and
employees options..........
Exercise of warrants from
private placement (358,912
shares)....................
Exercise of warrants by
directors (50,000
shares)....................
Exercise of warrants by
management, officers and
employees (1,293,500
shares).................... (290,000)
Compensation expense on
consultants' options.......
Proceeds from subsidiary
offering...................
Proceeds from initial
investment in Sector
Associates Ltd.............
Issuance of Viragen (Europe)
Ltd. stock to directors and
affiliate of subsidiary....
Officers' notes forgiven on
stock purchase............. 290,000
Conversion of Series A
preferred stock............
Sale of Series B preferred
stock, net of issuance
costs of $940,935..........
Foreign currency translation
adjustment................. 43,057
Net loss..................... (4,672,271)
-------- --------- ------------ -------- ---------
Balance at June 30, 1996..... $ -- $ -- $(21,782,872) $ 43,057 $ --
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 45
<TABLE>
<CAPTION>

PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED CAPITAL IN
STOCK, STOCK, STOCK, STOCK, STOCK, STOCK, COMMON EXCESS OF
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F STOCK PAR VALUE
--------- --------- --------- --------- --------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996..... $2,650 $15,000 $ -- $ -- $ -- $ -- $378,959 $38,618,391
Exercise of options by
employees.................. 1,990 85,470
Exercise of warrants......... 3,193 293,184
Exercise of Viragen (Europe)
Ltd. warrants.............. 697,464
Exercise of Viragen U.S.A.,
Inc. options............... (4,128)
Additional issuance costs for
Series B convertible
preferred stock............ (24,996)
Sale of Series C convertible
preferred stock, net of
issuance costs............. 5,000 4,735,923
Sale of Series D convertible
preferred stock, net of
issuance costs............. 15,000 14,035,349
Sale of Series E convertible
preferred stock, net of
issuance costs............. 5,000 4,676,744
Conversion of Series D
convertible preferred
stock...................... (3,800) 24,425 (20,625)
Dividends on preferred stock,
paid in common stock....... 235 35,039
Forgiveness of officer
note.......................
Loan to director.............
Interest income on director
loan.......................
------ ------- ------ ------- ------- ------- -------- -----------
Subtotal..................... $2,650 $15,000 $5,000 $11,200 $ 5,000 $ -- $408,802 $63,127,815

<CAPTION>
FOREIGN NOTES DUE
COMMON CURRENCY FROM
STOCK TREASURY RETAINED TRANSLATION OFFICERS/
SUBSCRIBED STOCK DEFICIT ADJUSTMENT DIRECTORS
---------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996..... $ -- $ -- $(21,782,872) $ 43,057 $ --
Exercise of options by
employees.................. (12,500)
Exercise of warrants.........
Exercise of Viragen (Europe)
Ltd. warrants..............
Exercise of Viragen U.S.A.,
Inc. options...............
Additional issuance costs for
Series B convertible
preferred stock............
Sale of Series C convertible
preferred stock, net of
issuance costs.............
Sale of Series D convertible
preferred stock, net of
issuance costs.............
Sale of Series E convertible
preferred stock, net of
issuance costs.............
Conversion of Series D
convertible preferred
stock......................
Dividends on preferred stock,
paid in common stock....... (37,086)
Forgiveness of officer
note....................... 12,500
Loan to director............. (100,000)
Interest income on director
loan....................... (1,417)
-------- --------- ------------ -------- ---------
Subtotal..................... $ -- $ -- $(21,819,958) $ 43,057 $(101,417)
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 46
<TABLE>
<CAPTION>

PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED CAPITAL IN
STOCK, STOCK, STOCK, STOCK, STOCK, STOCK, COMMON EXCESS OF
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F STOCK PAR VALUE
--------- --------- --------- --------- --------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Forward.............. $2,650 $15,000 $5,000 $11,200 $ 5,000 $ -- $408,802 $63,127,815
Cash dividends on preferred
stock......................
Conversion of Series B
convertible preferred
stock...................... (7,555) 42,163 (34,608)
Conversion of Series C
convertible preferred
stock...................... (4,026) 11,636 (2,548,739)
Purchase of treasury stock...
Issuance of treasury stock
for settlement of
litigation.................
Exercise of cash-out option
on conversion of Series D
convertible preferred
stock...................... (1,000) (999,000)
Compensation expense on
options granted to
officers................... 287,550
Compensation expense on
options granted to
employee................... 162,750
Foreign currency translation
adjustment.................
Net loss.....................
------ ------- ------ ------- ------- ------- -------- -----------
Balance at June 30, 1997..... $2,650 $ 7,445 $ 974 $10,200 $ 5,000 $ -- $462,601 $59,995,768

<CAPTION>
FOREIGN NOTES DUE
COMMON CURRENCY FROM
STOCK TREASURY RETAINED TRANSLATION OFFICERS/
SUBSCRIBED STOCK DEFICIT ADJUSTMENT DIRECTORS
---------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance Forward.............. $ -- $ -- $(21,819,958) $ 43,057 $(101,417)
Cash dividends on preferred
stock...................... (1,095,257)
Conversion of Series B
convertible preferred
stock......................
Conversion of Series C
convertible preferred
stock......................
Purchase of treasury stock... (987,395)
Issuance of treasury stock
for settlement of
litigation................. 288,245
Exercise of cash-out option
on conversion of Series D
convertible preferred
stock...................... (112,164)
Compensation expense on
options granted to
officers...................
Compensation expense on
options granted to
employee...................
Foreign currency translation
adjustment................. 230,412
Net loss..................... (4,775,245)
-------- --------- ------------ -------- ---------
Balance at June 30, 1997..... $ -- $(699,150) $(27,802,624) $273,469 $(101,417)
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE> 47
<TABLE>
<CAPTION>

PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED CAPITAL IN
STOCK, STOCK, STOCK, STOCK, STOCK, STOCK, COMMON EXCESS OF
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F STOCK PAR VALUE
--------- --------- --------- --------- --------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997..... $2,650 $ 7,445 $ 974 $10,200 $ 5,000 $ -- $462,601 $59,995,768
Exercise of options and
warrants................... 2,305 115,583
Compensation expense on stock
options and warrants
granted.................... 57,530
Cost of issuance of Series H
convertible preferred
stock, net................. (374,520)
Cost of issuance of Series I
convertible preferred
stock, net................. (159,689)
Exchange of Series B
preferred stock for a
promissory note............ (7,445) (7,437,555)
Exchange of Series D
preferred stock for Series
F preferred stock.......... (7,950) 7,950
Exchange of Series E
preferred stock for Series
G redeemable preferred
stock...................... (4,000) (3,996,000)
Purchase of treasury stock...
Exercise of cash-out option
on conversion of Series F
preferred stock............ (2,450) (2,447,550)
Conversion of Series C
preferred stock............ (974) 2,814 (554,881)
Conversion of Series D
preferred stock............ (2,250) 13,903 (11,653)
Conversion of Series E
preferred stock............ (1,000) 5,060 (4,060)
Conversion of Series F
preferred stock............ (5,500) 43,377 (37,877)
Conversion of Series G
redeemable preferred
stock...................... 3,511 454,489
------ ------- ------ ------- ------- ------- -------- -----------
Sub-Total.................... $2,650 $ -- $ -- $ -- $ -- $ -- $533,571 $45,599,585

<CAPTION>
FOREIGN NOTES DUE
COMMON CURRENCY FROM
STOCK TREASURY RETAINED TRANSLATION OFFICERS/
SUBSCRIBED STOCK DEFICIT ADJUSTMENT DIRECTORS
---------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997..... $ -- $(699,150) $(27,802,624) $273,469 $(101,417)
Exercise of options and
warrants...................
Compensation expense on stock
options and warrants
granted....................
Cost of issuance of Series H
convertible preferred
stock, net.................
Cost of issuance of Series I
convertible preferred
stock, net.................
Exchange of Series B
preferred stock for a
promissory note............ (2,247,748)
Exchange of Series D
preferred stock for Series
F preferred stock..........
Exchange of Series E
preferred stock for Series
G redeemable preferred
stock......................
Purchase of treasury stock... (297,391)
Exercise of cash-out option
on conversion of Series F
preferred stock............ (294,000)
Conversion of Series C
preferred stock............
Conversion of Series D
preferred stock............
Conversion of Series E
preferred stock............
Conversion of Series F
preferred stock............
Conversion of Series G
redeemable preferred
stock......................
-------- --------- ------------ -------- ---------
Sub-Total.................... $ -- $(996,541) $(30,344,372) $273,469 $(101,417)
</TABLE>

See notes to consolidated financial statements.

F-7
<PAGE> 48
<TABLE>
<CAPTION>

<CAPTION>
FOREIGN NOTES DUE
COMMON CURRENCY FROM
STOCK TREASURY RETAINED TRANSLATION OFFICERS/
SUBSCRIBED STOCK DEFICIT ADJUSTMENT DIRECTORS
---------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance Forward.............. $ -- $(996,541) $(30,344,372) $273,469 $(101,417)
Cash dividends on preferred
stock...................... (521,725)
Dividends on preferred stock,
paid in common stock....... (91,732)
Accretion of Series H and
Series I preferred stock... (185,865)
Redemption of Series G
redeemable preferred
stock...................... (625,059)
Interest income on director
loan....................... (8,500)
Bad debt expense on
director's loan............ 109,917
Foreign currency translation
adjustment................. 13,612
Net loss..................... (7,856,136)
-------- --------- ------------ -------- ---------
Balance at June 30, 1998..... $ -- $(996,541) $(39,624,889) $287,081 $ --
</TABLE>

See notes to consolidated financial statements.

F-8
<PAGE> 49

VIRAGEN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Net Loss.................................................... $ (7,856,136) $ (4,775,245) $(4,672,271)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 506,934 281,920 200,209
Issuance of treasury stock for expenses................... -- 288,245 --
Consulting fees paid in stock warrants.................... -- -- 316,300
Compensation expense on stock options..................... 57,530 450,300 183,144
Officers and directors notes forgiven on stock
purchases............................................... -- 12,500 294,652
Minority interest in loss of subsidiary................... (1,394,164) (261,360) (112,744)
Loss due to write-down of land, building and
improvements............................................ -- -- 316,267
Issuance of Viragen (Europe) Ltd. stock to Directors and
affiliate of subsidiary................................. -- -- 243,000
Bad debt expense on Director Note......................... 109,917 -- --
Accrued interest income on Director Note.................. (8,500) (1,417) --
Increase (decrease) relating to operating activities from:
Inventory................................................. -- -- 211,200
Prepaid expenses.......................................... 73,097 (149,804) 16,760
Other current assets...................................... 198,022 (501,277) 120,805
Deposit and other assets.................................. 19,705 (26,932) 1,345
Accounts payable.......................................... (601,550) 1,121,172 57,155
Accrued expenses and other liabilities.................... 133,663 49,053 104,150
Deferred income........................................... 200,000 -- --
------------ ------------ -----------
Net cash used in operating activities..................... (8,561,482) (3,512,845) (2,720,028)
INVESTING ACTIVITIES
Sale of marketable securities, available-for-sale........... 27,347,892 8,915,872 --
Purchase of marketable securities, available-for-sale....... (14,897,903) (27,468,100) --
Additions to property, plant and equipment, net............. (1,622,817) (4,482,166) (163,316)
------------ ------------ -----------
Net cash provided by (used in) investing activities......... 10,827,172 (23,034,394) (163,316)
FINANCING ACTIVITIES
Payments on long-term debt.................................. (43,374) (682,176) (277,477)
Proceeds from long-term debt................................ -- 166,000 --
Proceeds from sale of preferred stock Series B, C, D and E,
net....................................................... -- 23,448,020 14,059,065
Proceeds from sale of preferred stock Series H and I, net... 6,465,791 -- --
Proceeds from exercise of options and warrants.............. 117,888 371,337 732,496
Preferred dividends paid to preferred stock Series A, B,
D,E, F and G.............................................. (664,702) (914,764) --
Payments on promissory note................................. (9,720,241) -- --
Refund of capital investment to preferred stock Series C
investors................................................. (1,391,198) (1,702,971) --
Exercise of cash-out option on conversion of preferred stock
Series D.................................................. -- (1,111,556) --
Exercise of cash-out option on conversion of preferred stock
Series F.................................................. (2,744,000) -- --
Redemption of redeemable preferred stock Series G........... (4,167,059) -- --
Purchase of treasury stock.................................. (297,391) (987,395) --
Loan to Director............................................ -- (100,000) --
Proceeds from exercise of subsidiaries' options and
warrants.................................................. -- 1,254,574 --
Cash acquired through reverse acquisition of Sector
Associates, Ltd........................................... -- -- 768,823
Proceeds from subsidiary's sale of common stock, net........ -- -- 5,101,752
------------ ------------ -----------
Net cash (used in) provided by financing activities......... (12,444,286) 19,741,069 20,384,659
Effect of exchange rate fluctuations on cash................ 13,612 230,412 43,057
------------ ------------ -----------
(Decrease) increase in cash................................. (10,164,984) (6,575,758) 17,544,372
Cash and cash equivalents at beginning of period............ 12,873,301 19,449,059 1,904,687
------------ ------------ -----------
Cash and cash equivalents at end of period.................. $ 2,708,317 $ 12,873,301 $19,449,059
============ ============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................... $ 580,271 $ 31,172 $ 91,194
Income taxes paid........................................... -- 13,840 --
</TABLE>

See notes to consolidated financial statements.

F-9
<PAGE> 50

During the years ended June 30, 1998, 1997 and 1996, the Company had the
following non-cash investing and financing activities:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Preferred dividends paid in common stock.............. $ 91,732 $ 35,274 $ --
Conversion of preferred stock into common shares...... 467,724 78,224 --
Conversion of preferred stock Series B principal and
accrued dividends to a short-term note payable...... 9,720,241 -- --
Modification of preferred stock Series D terms into
preferred stock Series F............................ 7,950 -- --
Modification of preferred stock Series E terms into
redeemable preferred stock Series G................. 4,000,000 -- --
Accretion of Series H and Series I preferred stock.... 185,865 -- --
Purchase of Directors & Officers insurance with notes
payable............................................. 210,147 -- --
Issuance of treasury stock for settlement of
litigation.......................................... -- 288,245 --
Issuance of notes for purchase of common stock........ -- -- 290,000
Equipment acquired through capital leases............. -- -- 158,930
Issuance of Viragen (Europe) Ltd. stock to directors
and affiliate....................................... -- -- 243,000
Other receivables acquired through reverse acquisition
of Sector Associates, Ltd........................... -- -- 195,000
Liabilities assumed through reverse acquisition of
Sector Associates, Ltd.............................. -- -- 47,341
</TABLE>

See notes to consolidated financial statements.

F-10
<PAGE> 51

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Consolidation: Viragen, Inc. and its subsidiaries are
engaged in the research, development and manufacture of certain immunological
products for commercial application. The consolidated financial statements
include the accounts of Viragen, Inc. and its wholly-owned subsidiaries,
Vira-Tech, Inc., Viragen Reagents, Inc. and Viragen Technology, Inc., and its
majority-owned subsidiaries Viragen U.S.A., Inc. ("VUSA") and Viragen (Europe)
Ltd. ("VEL"), including its wholly-owned subsidiaries, Viragen (Scotland) Ltd.
("VSL") and Viragen (Germany) GmbH ("VGG"), collectively known as the Company.
All material intercompany accounts and transactions have been eliminated in
consolidation.

Cash and Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.

Property, Plant and Equipment: Property, plant and equipment is stated at
the lower of cost or net realizable value. Depreciation was computed by using
the straight-line method over the estimated useful life for financial reporting
purposes and using accelerated methods for income tax purposes.

FAS 121 -- Accounting for the Impairment of Long-Lived Assets, requires
impairment losses to be recorded on long-lived assets when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less then the assets' carrying amount. The Company believes
no impairment indicators exist at June 30, 1998.

Sale of Stock By Subsidiaries: The Company accounts for sales of stock by
its subsidiaries as capital transactions for financial reporting purposes.

Loss Per Common Share: Loss per common 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.
Diluted loss per share data, which includes the assumed conversion of the
convertible preferred stock, has not been presented because it is not dilutive.
Loss attributable to common stock reflects adjustments for cumulative preferred
dividends, as well as, embedded dividends arising from discounted conversion
terms on the Company's Convertible Preferred Stocks and related Warrants.

Effective during the quarter ended December 31, 1997, the Company adopted
FAS 128 -- Earnings per Common Share. All periods presented reflect the adoption
of FAS 128.

Financial Instruments: The carrying amount of financial instruments
including cash and cash equivalents, marketable securities, and accounts payable
approximate fair value as of June 30, 1998. The Company's long- term unsecured
note with the Scottish Regional Development Authority approximates fair value as
it had been recently negotiated at June 30, 1997.

Marketable securities, available-for-sale: The Company has invested in
debt securities, rated A or better, issued by the U.S. Treasury, other U.S.
government agencies and corporations. These investments are classified as
current assets, in accordance with ARB No. 43, at their fair market value based
upon published quotations. Amortized cost of the Company's investment in
marketable securities, available-for-sale totaled $6,108,503 and $18,559,013 at
June 30, 1998 and 1997, respectively. Realized gains and losses are computed
based on the cost of securities sold using the specific identification method.

Reclassification: Certain reclassifications have been made to June 30,
1997 and 1996 financial statement amounts to conform to the presentation for the
June 30, 1998 financial statements.

Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

F-11
<PAGE> 52

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accrued Expenses and Other Liabilities: Accrued expenses and other
liabilities consisted of the following at June 30, 1998 and 1997:

<TABLE>
<CAPTION>
JUNE 30,
---------------------
1998 1997
-------- ----------
<S> <C> <C>
Accrued salaries............................................ $150,389 $ 78,860
Accrued rent expense........................................ 97,163 --
Accrued accounting fees..................................... 80,000 93,660
Accrued legal fees.......................................... 77,243 12,784
Accrued capital refunds..................................... -- 838,157
Insurance contract payable.................................. -- 145,400
Accrued preferred dividends on preferred stock, Series D.... -- 153,000
Other accrued expenses...................................... 303,210 251,603
-------- ----------
$708,005 $1,573,464
======== ==========
</TABLE>

Deferred Income: The Company has deferred the recognition of income from
an option fee until the period in which it is earned.

Income Taxes: 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 basis of assets and liabilities.

Foreign Currency Translation: The financial statements of VSL have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52. All balance sheet accounts have been translated
using the current exchange rates at the balance sheet date. Income statement
amounts have been translated using the average exchange rate for the reporting
period. The translation adjustments resulting from the change in exchange rates
from year to year have been reported separately as a component of stockholders'
equity. Foreign currency transaction gains and losses, which are not material,
are included in results of operations. These gains and losses result from
exchange rate changes between the time transactions are recorded and settled
and, for unsettled transactions, exchange rate changes between the time
transactions are recorded and the balance sheet date.

Stock Based Compensation: The Company accounts for stock-based
compensation plans under the provisions of APB 25-Accounting for Stock Issued to
Employees and, accordingly, recognizes no compensation expense for stock option
grants where the exercise price equals or exceeds fair market value at date of
grant. The Company provided supplemental disclosures as required by the
provisions of FAS 123 -- Accounting for Stock-Based Compensation.

Recent Pronouncements: In 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) which establishes standards for reporting
and displaying comprehensive income. SFAS No. 130 will be adopted by the Company
in the first quarter of fiscal 1999.

In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131), which is effective for years
beginning after December 15, 1997. SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore the
Company will adopt the new requirements July 1, 1998.

F-12
<PAGE> 53

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management believes that the impact of SFAS No. 130 and SFAS No. 131 will
not be significant to the Company.

NOTE B -- REDEEMABLE PREFERRED STOCK

SERIES G CONVERTIBLE PREFERRED STOCK

In September 1997, the Company concluded an Exchange Agreement whereby
4,000 of the outstanding shares of Series E Preferred Stock were exchanged for a
like number of Series G Preferred Shares. The terms of the Series G Preferred
Stock provided that commencing in September 1997, the holder was limited to
converting 667 preferred shares ($667,000) per month over a 6 month period. The
provisions further provided that the Company was required to redeem 667 shares
($667,000) per month less the number of Series G Preferred Stock shares
converted during the preceding calendar month. In addition, the holder was
restricted from converting into common stock if the market price of the
Company's common stock was less than $2.50, subject to adjustment, at the date
of the conversion notice. In consideration for the restrictions on conversion,
the Company agreed to increase the dividend rate from 5% for the Series E
Preferred Stock to 10% for the Series G Preferred Stock.

The monthly redemption amount of the Series G Preferred Stock was
calculated by dividing the number of shares to be redeemed by the preferential
conversion rate of 85%. As a result, the maximum aggregate redemption could have
totaled $4,705,882, if all 4,000 shares of Series G Preferred Stock were
redeemed by the holder. This cash redemption amount would have been reduced to
account for conversions of the preferred shares during the redemption period.
All shares of Series G Preferred Stock were redeemed for cash or converted into
Common Stock by February 28, 1998.

SERIES H AND I CONVERTIBLE PREFERRED STOCK

During the third and fourth fiscal quarters of 1998, the Company closed $7
million of financing replacing a portion of the funds used to redeem previous
preferred stock issuances. In February 1998, the Company received net proceeds
of approximately $4,625,000 from the sale of 500 shares of its Series H
Convertible Preferred Stock (the "Series H Preferred Stock") with an aggregate
stated value of $5 million. In April 1998, the Company received net proceeds of
approximately $1,840,000 from the sale of 200 shares of its Series I Convertible
Preferred Stock (the "Series I Preferred Stock"). The Company incorporated
certain restrictions as part of the Series H and Series I Preferred Stock
designations which the Company believes will facilitate a more orderly market
relative to the underlying shares of its Common Stock. The Series H and Series I
Preferred Stock bear no dividends although, upon liquidation or conversion, an
8% accretion factor will be included in the calculation for purposes of
determining the liquidation and conversion amount.

Neither the Series H Preferred Stock nor the Series I Preferred Stock
issuances were convertible until August 19, 1998, the six month anniversary of
the Series H closing. The conversion price is the lower of (i) the fixed
conversion price, which was equal to the lower of the average closing price per
share for the 5 days prior to closing ($2.15 per share) or the market price of
the Common Stock six months following the closing date ($1.59 per share), and
(ii) the variable conversion price which will be equal to 82% of the market
price at the date of conversion. The Company retained the right to redeem both
issuances of Preferred Stock at various prices upon receipt of a notice of
conversion.

In addition, the right of conversion is further limited to a maximum of 15%
of the aggregate principal amount of the Series H and Series I Preferred Stock
issued to each holder for each one month period cumulatively to a maximum of not
in excess of 25% for such month in the event the holder has converted less than
15% in any of the preceding months.

F-13
<PAGE> 54

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock; and (iii) maintain an effective registration statement. Upon the
occurrence of an event of default, the holders of the Series H Preferred Stock
and Series I Preferred Stock have the right to redeem all or any portion of the
then outstanding amount. The amount outstanding is calculated as the greater of
1.3 times the value of the Preferred Stock for which demand is being made plus
the accreted but unpaid amounts (calculated at 8%) earned on the preferred stock
plus liquidated damages and other cash payments then due or the product of the
highest price at which the Company's Common Stock is traded on the date of an
event of default divided by the conversion price as of that date and the amount
being redeemed. Since the 8% accretion is due upon mandatory redemption, the
Company has increased the carrying amount of the Series H Preferred Stock and
Series I Preferred Stock by this amount.

Pursuant to the terms of the Subscription Agreements, the holders of the
Series H Preferred Stock and Series I Preferred Stock also received Nine Month
Warrants, Twelve Month Warrants and Fifteen Month Warrants to purchase shares of
Common Stock of the Company.

The Nine Month Warrants are exercisable from November 19, 1998 to February
19, 2003 and entitle the holders to purchase Common Stock at an exercise price
calculated by averaging the 2 lowest closing bid prices during the 20 trading
days of the Common Stock prior to November 19, 1998. The number of Shares the
Nine Month Warrants may be converted into will be calculated at 10% of the
quotient obtained by dividing the stated amount of preferred stock purchased by
the exercising holder less any preferred stock of that series transferred or
converted by the holder by the Nine Month Market Price.

The Twelve Month Warrants and the Fifteen Month Warrants are identical in
all respects to the Nine Month Warrants with the exception of the calculation of
exercise prices, and the Twelve Months Warrants and the Fifteen Months Warrants
may not be exercisable prior to February 19, 1999 and May 19, 1999,
respectively. The Twelve Month Warrants entitle the holders to purchase Common
Stock at an exercise price calculated by averaging the 2 lowest closing bid
prices during the 20 trading days of the Common Stock prior to February 19,
1999. The number of shares the Twelve Month Warrants may be converted into will
be calculated at 15% of the quotient obtained by dividing the stated amount of
preferred stock purchase by the exercising holder less any preferred stock of
that series transferred or converted by the Holder by the Twelve Month Market
Price. The Fifteen Month Warrants entitle the holders to purchase Common Stock
at an exercise price calculated by averaging the 2 lowest closing bid prices
during the twenty (20) trading days of the Common Stock prior to May 19, 1999.
The number of shares the Fifteen Month Warrants may be converted into will be
calculated as 20% of the quotient obtained by dividing the principal amount of
preferred stock purchased by the exercising holder less any preferred stock of
that series transferred or converted by the holder by the Fifteen Month Market
Price.

Pursuant to the Series H and Series I Placement Agent Agreements between
the Company and the Placement Agent, the Placement Agent received a commission
of $490,000 for the placement of the Series H Preferred Stock and H Warrants and
Series I Preferred Stock and I Warrants. In addition, the Placement Agent
received the Placement Agent Warrants to purchase an aggregate of 402,052 shares
of Common Stock of the Company, which were subsequently transferred to
affiliates and employees of the Placement Agent. The Placement Agent Warrants
entitle the holders thereof to exercise the Placement Agent Warrants at an
exercise price of $1.684 per share ("Initial Exercise Price") at any time
between the date of their respective issuances and February 19, 2003; provided
that if the date of exercise occurs after February 19, 1999, the exercise price
of the Placement Agent Warrants will be the lesser of the Initial Exercise Price
or the lowest reset price as calculated on each one year anniversary of the Date
of Issuance during the Warrant Term.

F-14
<PAGE> 55

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- CAPITAL STOCK

PREFERRED STOCK

The Series A 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. The holders of the Series A
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"). 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.

In fiscal 1996, 800 shares of Series A Preferred Stock, including dividends
in arrears, were converted into 6,500 shares of Common Stock.

On June 7, 1996, the Company entered into a Securities Purchase Agreement
(the "Agreement") with GFL Performance Ltd., GFL Advantage Fund Ltd. and Proton
Global Asset Management, LDC (collectively the "Purchaser") pursuant to which
the Purchaser acquired 15,000 shares of the Company's 5% Cumulative Convertible
Preferred Stock, Series B (the "Series B Preferred Stock") for $15 million.

In connection with the sale and issuance of the Series B Preferred Stock,
the Company issued warrants to purchase 225,000 shares of Common Stock of the
Company at $10.59 per share for a period of 3 years from date of issuance along
with approximately $900,000 in cash fees to certain finders and an investor
representative who participated in the transaction plus certain additional
expenses. These costs were netted against the proceeds of the sale.

The Series B Preferred Stock provided for a cash dividend equal to 5% of
the stated value of the Series B Preferred Stock, payable quarterly commencing
September 7, 1996, although the Company had the option to utilize shares of its
Common Stock, under certain conditions, to satisfy the dividend requirement. The
Purchaser had the right to convert the Series B Preferred Stock commencing
August 21, 1996 into shares of Common Stock of the Company at a conversion price
equal to the lesser of 85% of the average market price (reduced by an additional
2% per month commencing the 90th day following the closing date, until the
related Registration Statement was declared effective by the SEC) for the
Company's Common Stock, as described in the Agreement, prior to the conversion
date or $8.74. The final conversion rate was set at 76.8% of the average market
price. In July 1997, the unconverted Series B Preferred Stock was exchanged for
a Promissory Note in the amount of $9,720,241. The Note provided for interest at
10% per annum with principal and interest payable over nine monthly installments
commencing in October 1997. The Note could be prepaid without penalty and was
not convertible into common stock of the Company. The principal value of the
Note was comprised of the following components: 1) face value of Series B
preferred stock outstanding at July 1, 1997; 2) preferred dividends earned
through the date of the Note; and 3) an amount reflecting the preferential
conversion terms. The Note was paid-in-full in April 1998.

In December 1996, the Company issued 5,000 shares of its Series C
Convertible Preferred Stock (the "Series C Preferred Stock") in consideration
for $4,740,923 (net of issuance costs totaling $259,077). The purchases were
made by Strome Hedgecap Limited, Strome Offshore Limited, Strome Partners, L.P.
and Strome Susskind Hedgecap, L.P. (collectively the "Series C Purchasers"),
pursuant to separate Securities Purchase Agreements. In addition, warrants to
purchase an aggregate of 214,593 shares of Common Stock, exercisable at $2.00
per share on or prior to December 9, 1999, were issued to the Series C
Purchasers.

The terms of the Series C Preferred Stock provided that up to 25% of the
Series C Preferred Stock could be converted into Common Stock of the Company on
or after 10 days from the date the registration statement registering the
underlying shares is deemed effective by the Securities and Exchange Commission.
Thereafter 25% could be converted on or after the 30th, 60th and 90th day on a
cumulative basis. The Preferred Stock

F-15
<PAGE> 56

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
was convertible into a number of Common Shares determined by dividing the stated
value of the Preferred Stock ($1,000 per share) by the closing price of the
Company's Common Stock over the five day period preceding notice of conversion
("conversion price"). The conversion price could not be less than $3.46 nor more
than $7.00. In the event the conversion price fell below $3.46, the difference
between $3.46 and the conversion price would be paid to the holder in cash. Any
shares of Series C Preferred Stock which were outstanding on December 5, 1997
would be automatically converted into shares of Common Stock based on the
conversion price at that time in accordance with the above procedures.

In July 1997, the holders of the Series C Preferred Stock agreed to modify
their conversion price and limit conversions of their remaining 974 shares
($1,000 face value per share) over a two month period. The modified conversion
price was the lower of (i) $2.20 per share or (ii) the average closing price of
the Company's Common Stock over the five day period ending the day prior to the
notice of conversion. The terms addressing conversions below $3.46 contained in
the original agreement were not modified. As a result, the Company was committed
to refund a minimum of $354,694 to the Series C Purchasers, upon conversion of
the remaining Series C Preferred Stock. The refund amount would increase if
conversions occurred below $2.20. All shares of Series C Preferred Stock were
converted into Common Stock by December 31, 1997. During fiscal 1998, the
Company paid $1,391,198 in capital refunds to the Series C Purchasers. Of the
total refunds, $553,041 were related to conversions, occurring under the
modified terms, during fiscal 1998. The balance of $838,157 related to
conversions, under the original terms, during the end of fiscal 1997.

In February 1997, the Company issued 15,000 shares of its 6% Series D
Convertible Preferred Stock (the "Series D Preferred Stock") to P.R.I.F., L.P.
in consideration for $14,050,349 (net of issuance costs totaling $949,651). The
Series D Preferred Stock was convertible into a number of shares of Common Stock
of the Company determined by dividing the five day trading average price of the
Company's Common Stock prior to conversion, discounted by 18%, into the stated
value of the Preferred Shares being converted. In connection with the issuance
of the Series D Preferred Stock, the Company also issued 375,000 Common Stock
Purchase warrants, exercisable at $6.00 per share.

In September 1997, the Company concluded an Exchange agreement whereby the
Series D Preferred Stock were exchanged for Series F Preferred Shares. The
Series F Preferred Stock provided for a limitation on the holder limiting
conversion during any two week period to 800 preferred shares ($800,000). The
terms also provided the Company with a cash-out option at the face amount being
converted plus 12%. In consideration for the holder of the Series D Preferred
Stock agreeing to a limitation on future conversions, the Company agreed to
increase the dividend rate from 6% for the Series D Preferred Stock to 10% for
the Series F Preferred Stock. All shares of Series F Preferred Stock were
redeemed for cash or converted into Common Stock by March 31, 1998. During
fiscal 1998, the Company paid $2,744,000 to the Series F holder upon exercise of
the cash-out option on conversions.

In February 1997, the Company also issued 5,000 shares of its 5% Series E
Convertible Preferred Stock (the "Series E Preferred Stock") in consideration
for $4,681,744 (net of issuance costs totaling $318,256). Dividends on the
Series E Preferred accrued from the date of issuance and were payable quarterly
commencing April 1, 1997 and were payable in cash or, at the Company's option
and subject to certain other conditions, in shares of Common Stock of the
Company.

The Series E Preferred Stock was convertible into shares of Common Stock of
the Company commencing May 11, 1997 at a conversion price of the lesser of (i)
the Average Market Price for the five trading days prior to the Notice of
Conversion multiplied by 85%, subject to adjustment, or (ii) $7.00, subject to
adjustment.

F-16
<PAGE> 57

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMMON STOCK

Shares of the Company's common stock reserved at June 30, 1998 for possible
future issuance are as follows:

<TABLE>
<S> <C>
Convertible preferred stock, series A....................... 11,289
Convertible preferred stock, series H....................... 5,194,805
Convertible preferred stock, series I....................... 2,077,922
Warrants -- consultants (exercisable through June 2003)..... 359,000
Employee option plans (exercisable through June 2005)....... 763,000
Officers and directors options (exercisable through June
2004)..................................................... 7,450,000
Warrants -- private placements (exercisable through February
2003)..................................................... 3,845,174
----------
19,701,190
==========
</TABLE>

As further discussed in Note O -- Subsequent Events, the Company has closed
an Equity Line Agreement to provide additional funding through the issuance of
common stock. As a result of this transaction, the Company intends to seek
Stockholder approval to increase the number of authorized shares. The Company
intends to reserve 15,000,000 shares of Common Stock for possible future
issuance related to the Equity Line Agreement and related warrants.

OPTIONS AND WARRANTS

On May 15, 1995, as amended in September 1995, the Company adopted its 1995
Stock Option plan under which 4,000,000 shares of Common Stock were reserved for
issuance to officers, directors, employees and consultants of the Company for
stock options designated as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code. Options granted under the plan have
various vest dates and all options granted have five-year terms from the vesting
date.

In September 1995, the Board of Directors granted 2,935,000 non-statutory
options to directors, officers and key employees of the Company under the
provisions of the 1995 Stock Option Plan. The options granted have an exercise
price of a $.50 per share and are exercisable for a period of five years. The
Company recognized compensation expense of $183,144 in fiscal 1996 as a result
of these grants.

During September 1995, 75,000 warrants issued to a financial consultant
having an exercise price of $.30 per share and 6,250 warrants issued in
connection with the Company's August 1994 Private Placement offering with an
exercise price of $.52 per share were exercised into common stock of the
Company. In December 1995, a Director of the Company exercised 50,000 options
with an exercise price of $.30 per share.

In March 1996, the Company issued 636,000 Common Stock Purchase Warrants,
300,000 of which were associated with the Company's Florida HIV Study with the
balance issued for financial consulting services. The Company recognized expense
during fiscal 1996 resulting from this issuance of $316,300.

During the third quarter of fiscal 1996, officers and directors exercised
1,000,000 options granted in June 1994, at $.30 per share through the issuance
of promissory notes totaling $290,000 secured by the related stock which was
held in escrow pending payment of the related promissory notes. The notes and
related interest due were forgiven by the Company during the fourth quarter of
fiscal 1996.

In June 1996, a new Director was elected into the Board of Directors. The
Director was granted 25,000 common stock options upon election to the Board. The
options are exercisable at $3.96 per share for a period of five years.

The Company's 1997 Incentive Stock Option Plan (the "1997 Plan"), adopted
February 1997, authorized the grant of options to management personnel,
directors and employees for up to 3,000,000 shares

F-17
<PAGE> 58

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Company's common stock. In April 1998, the 1997 Plan was amended
increasing the number of common shares authorized to 4,000,000 shares. Options
granted under the plan have various vest dates and all options granted have 5
year terms from the vesting date.

During fiscal 1997, the Company granted a total of 2,941,500 options to
purchase common stock of the Company. Of these, 1,750,000 were granted to the
directors of the Company. The options vested immediately and are exercisable for
a period of five years. The exercise price on these options is $3.22, which was
market price at the date of grant.

During fiscal 1997, the Company also granted options to an officer and an
employee, with exercise prices below market price. The total options granted
were for 400,000 shares. The Company recognized an expense of $381,500 related
to the granting of these options.

The Company issued 518,229 shares of common stock upon the conversion and
exercise of stock options and warrants during fiscal 1997. Proceeds from these
issuances totaled $371,337.

During fiscal year 1997, the Company issued 120,000 options that were not
part of the above Plans to an employee. The options vested immediately and have
a 5 year term from that date.

For the year ended 1997 the Company recognized $3,710 in compensation
expense on warrants granted to consultants.

In January 1998, the Company granted 50,000 options to a Director. The
options vested immediately and are exercisable at $1.19 per share, which was the
market price at the date of grant, for a period of five years.

During fiscal 1998, the Company granted a total of 367,500 options to
employees. The options vest over various dates and are exercisable for five
years from the vesting dates. The exercise prices of these options, which
represent the market price at the date of grant, range from $1.50 to $2.50 per
share.

The Company also issued 32,000 warrants during fiscal 1998 to a consultant
as compensation for services provided. The warrants are exercisable at $1.00 per
share for a period of five years. The Company recognized $57,530 in compensation
expense on warrants issued to consultants.

At June 30, 1998, 8,500 shares and 1,013,000 shares remain available under
the 1995 Stock Option Plan and the 1997 Stock Option Plan, respectively.

STOCK BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("Statement 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, the Company recognized
compensation expense in the amount of $-0-, $381,500 and $499,444 in 1998, 1997
and 1996, respectively, because the exercise price of a portion of the Company's
employee stock options and warrants was less than the market price of the
underlying stock on the date of grant. During 1998, the Company recognized
$57,530 in compensation expense on options and warrants granted to consultants
pursuant to FAS 123.

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options and warrants under the fair value
method of that Statement. The fair value for these options and warrants was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions: dividend yield of zero percent for
all periods; expected life of the option of 3 years; risk-free interest rates
within a range

F-18
<PAGE> 59

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of 5.60% to 6.00%; and a volatility factor of the expected market price of the
Company's common stock of .75, .64 and .60 for 1998, 1997 and 1996,
respectively.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options and warrants have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options and warrants.

For purposes of pro forma disclosures, the estimated fair value of the
options and warrants is amortized to expense over the option's or warrant's
vesting period. The effect of applying Statement 123 for providing pro forma
disclosure are not indicative of future amounts until the new rules are applied
to all nonvested awards. The Company's pro forma information follows:

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net loss.............................. $(8,897,455) $(8,267,089) $(7,420,592)
Pro forma net loss attributable to common
stock......................................... (11,395,807) (18,165,828) (8,318,218)
Pro forma loss per share........................ (.23) (.46) (.23)
</TABLE>

A summary of the Company's stock option activity, and related information
for the years ended June 30, follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at July 1, 1996................................. 5,135,000 $0.74
Options granted with exercise prices equal to market........ 2,559,500 3.02
Options granted with exercise prices less than market....... 400,000 2.07
Exercised................................................... (199,000) 0.50
Canceled.................................................... -- --
--------- -----
Outstanding at June 30, 1997................................ 7,895,500 $1.59
Granted..................................................... 417,500 2.08
Exercised................................................... (100,000) 0.50
Canceled.................................................... -- --
--------- -----
Outstanding at June 30, 1998................................ 8,213,000 $1.62
========= =====
</TABLE>

The following table summarizes information about stock options outstanding
at June 30, 1998:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER WEIGHTED WEIGHTED NUMBER EXERCISE PRICE
RANGE OF EXERCISE OUTSTANDING AVERAGE REMAINING AVERAGE EXERCISABLE OF EXERCISABLE
PRICE AS OF 6/30/98 CONTRACTUAL LIFE EXERCISE PRICE AS OF 6/30/98 OPTIONS
- ----------------- ------------- ----------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.30 -- $0.50 2,960,000 2.25 $0.48 2,960,000 $0.48
$0.81 -- $1.19 1,605,500 3.45 0.96 1,605,500 0.96
$1.50 -- $2.50 1,201,000 5.15 1.96 493,500 1.89
$2.75 -- $4.13 2,434,500 2.66 3.25 2,308,500 3.20
$7.13 12,000 3.55 7.13 12,000 7.13
--------- ---------
$0.30 -- $7.13 8,213,000 3.03 $1.62 7,379,500 $1.54
========= =========
</TABLE>

The weighted average fair value of each Viragen option granted in fiscal
1998 and 1997 was $1.10 and $1.51, respectively.

F-19
<PAGE> 60

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's warrant activity, excluding warrants issued in
conjunction with the Series B, C and D Preferred Stock offerings, and related
information for the years ended June 30, follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
WARRANTS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at July 1, 1996................................ 1,083,550 $0.99
Granted.................................................. 12,000 2.22
Exercised................................................ (319,229) 0.93
Canceled................................................. (30,000) 5.12
---------
Outstanding at June 30, 1997............................... 746,321 $0.87
Granted.................................................. 32,000 1.00
Exercised................................................ (130,565) 0.52
Canceled................................................. (12,500) 0.80
---------
Outstanding at June 30, 1998............................... 635,256 $1.06
</TABLE>

The following table summarizes information about stock warrants outstanding
at June 30, 1998:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF NUMBER WEIGHTED AVERAGE NUMBER EXERCISE PRICE OF
EXERCISE OUTSTANDING REMAINING WEIGHTED AVERAGE EXERCISABLE EXERCISABLE
PRICE AS OF 6/30/98 CONTRACTUAL LIFE EXERCISE PRICE AS OF 6/30/98 WARRANTS
-------- ------------- ---------------- ---------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
$0.52-$0.80 291,256 1.20 $0.53 291,256 $0.53
$1.00-$1.18 282,000 1.14 1.16 282,000 1.16
$1.81-$2.22 62,000 1.62 1.89 62,000 1.89
------- -------
$0.52-$2.22 635,256 1.22 $1.06 635,256 $1.06
======= =======
</TABLE>

The weighted-average fair value of each Viragen warrant granted in fiscal
1998 and 1997 was $1.52 and $1.05, respectively.

The fair value of VEL options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: dividend yield of zero percent for all periods; risk-free interest
rates of 6.09% for 1998 and 6.00% for 1996; volatility factor of the expected
market price of the Company's common stock of .723 for 1998 and .600 for 1996;
and an expected life of the options of 3 years.

A summary of VEL's stock option activity, and related information for the
years ended June 30 follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS OPTION PRICE EXERCISE PRICE
--------- ------------ ----------------
<S> <C> <C> <C>
Outstanding at July 1, 1996..................... 50,000 $ 7.00 $7.00
Granted....................................... --
Exercised..................................... --
Canceled...................................... --
-------
Outstanding at June 30, 1997.................... 50,000 $ 7.00 $7.00
Granted at market price....................... 75,000 5.72 5.72
Exercised..................................... -- -- --
Canceled...................................... -- -- --
------- ----------- -----
Outstanding at June 30, 1998.................... 125,000 $5.72-$7.00 $6.23
=======
Exercisable at June 30, 1998.................... 50,000
=======
Exercisable at June 30, 1997.................... 50,000
=======
</TABLE>

The weighted average remaining contractual life of options outstanding as
of June 30, 1998 is five years.

F-20
<PAGE> 61

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of VUSA options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for options granted: dividend yield of zero percent for all periods;
risk-free interest rates of 5.75% and 6.00% for 1998 and 1997, respectively;
volatility factors of .765 and .640 for 1998 and 1997, respectively; and an
expected life of the option of 3 years and .01 year for 1998 and 1997,
respectively.

A summary of VUSA's stock option activity, and related information for the
years ended June 30 follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at July 1, 1996................................. -- --
Granted below market price................................ 320,000 $ .01
Exercised................................................. (320,000) .01
Canceled.................................................. -- --
--------
Outstanding at June 30, 1997................................ --
Granted at market price 125,000 $ .22
Exercised................................................. --
Canceled.................................................. --
--------
Outstanding at June 30, 1998................................ 125,000 $ .22
</TABLE>

The weighted average fair value of each VUSA option granted in fiscal 1998
and 1997 was $0.05 and $0.22, respectively. There are no VUSA options
exercisable at June 30, 1998. The weighted average remaining contractual life of
options outstanding at June 30, 1998, is 6.77 years.

NOTE D -- LONG-TERM DEBT

Long-term debt at June 30, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
JUNE 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Notes payable resulting from purchase of Directors &
Officers Insurance. Notes range in term from 18 months to
24 months, with interest rates of 8.75% and 7.00%
respectively.............................................. $207,272 $ --
Unsecured loan from Scotland Regional Development Authority
Payable quarterly over 20 years, with an effective
interest rate of 8.68%. Note matures on August 28,
2017...................................................... 162,906 163,911
Capital lease obligations resulting from acquisition of
equipment, with a cost totaling $213,130 capitalized from
three to five years....................................... 81,193 120,687
-------- --------
451,371 284,598
Less current portion........................................ (171,277) (45,703)
-------- --------
$280,094 $238,895
======== ========
</TABLE>

Scheduled maturities of long-term debt at June 30, 1998 are:
1999 -- $171,277; 2000 -- $116,025; 2001 -- $7,658; 2002 -- $2,064; and 2003 and
thereafter -- $154,347.

NOTE E -- CORPORATE REORGANIZATION

On September 20, 1995, the Company entered into an agreement and Plan of
Reorganization ("Agreement") with Sector Associates, Ltd. ("Sector"), a Delaware
corporation. Under the terms of the Agreement, the Company acquired a 94%
interest in Sector, a publicly-traded corporation, in consideration for a 100%
interest in VSL. VSL was organized during April 1995, by Viragen, Inc. to
manufacture and distribute

F-21
<PAGE> 62

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Viragen's natural leukocyte-derived alpha interferon and related products in the
EU and other countries outside the United States. Viragen retained an 84%
ownership interest in Sector, as shares in Sector were disbursed to the new
Directors and to an affiliate. Shares were also disbursed as finders' fees.

On November 7, 1995, the Agreement was amended to provide for an interim
loan of $500,000 by Sector to VSL, the filing of certain financial reports by
Sector prior to closing, an additional capital contribution of $300,000 into
Sector within thirty days, and the modification of a related investment banking
agreement. The $500,000 loan was funded November 9, 1995, bearing interest at 4%
per annum, secured by a 3.77% equity interest in VSL, and was guaranteed by
Viragen, Inc. Upon the closing of the Agreement on December 8, 1995, the
principal amount of the note was deemed contributed capital to Sector.

The Agreement was finalized and became effective on December 8, 1995.

In March 1996, Sector completed two Private Placement Offerings, issuing
768,000 shares of Common Stock and 216,500 Common Stock Purchase Warrants having
an exercise price of $12.00 per share. These two Offerings yielded net proceeds
of approximately $5,102,000 after related cash expenses of $371,500. The Company
is using these proceeds to undertake European research and pre-clinical trials
activities including the construction of its laboratory and manufacturing
facility in Scotland.

Effective May 2, 1996, Sector's name was changed to Viragen (Europe) Ltd.

NOTE F -- INCOME TAXES

Viragen, Inc. and its majority-owned subsidiaries, as defined by the
Internal Revenue Code, ("Viragen") file consolidated federal and state income
tax returns.

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
Viragen's deferred tax liabilities and assets as of June 30, 1998 and 1997 are
as follows:

<TABLE>
<CAPTION>
JUNE 30,
------------------------
1998 1997
----------- ----------
<S> <C> <C>
Deferred tax liabilities
Tax over book depreciation................................ $ 118,000 $ 59,000
Other..................................................... 21,000 21,000
----------- ----------
Total deferred tax liabilities.................... 139,000 80,000
Deferred tax assets
Net operating loss carry forwards......................... 9,875,000 7,985,000
Research and development credit........................... 478,000 145,000
Other..................................................... 249,000 579,000
----------- ----------
Total deferred tax assets......................... 10,602,000 8,709,000
Valuation allowance for deferred tax assets................. 10,463,000 8,629,000
----------- ----------
139,000 80,000
----------- ----------
Net deferred taxes.......................................... $ -- $ --
=========== ==========
</TABLE>

The change in the valuation allowance was a net increase of $1,834,000 for
the year ended June 30, 1998.

Viragen has undergone two ownership changes, as defined by Internal Revenue
Code Section 382, which will cause the utilization of the net operating losses
and tax credits to be limited. The effects of these limitations have not been
calculated at this time.

F-22
<PAGE> 63

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Viragen has net operating loss carryforwards, with expiration dates, as
follows:

<TABLE>
<CAPTION>
AMOUNT EXPIRATION
- ------ ----------
<S> <C>
$ 780,000................................................. 1999
270,000................................................. 2000
2,870,000................................................. 2001--2003
3,120,000................................................. 2004--2006
19,384,000................................................. 2007--2013
- ------------
$26,424,000
- ------------
- ------------
</TABLE>

In addition, tax credits of $478,000 and $145,000 for income tax purposes
are being carried forward that expire in years 2001 through 2013, at June 30,
1998 and 1997, respectively. For financial reporting purposes, a valuation
allowance has been recognized to offset the deferred tax assets related to these
carryforwards.

The reconciliation of income tax computed at the U.S. federal statutory
rate applied to Viragen's net loss is as follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Tax at U.S. statutory rate.................................. (34.00)% (34.00)%
State taxes, net of federal benefit......................... (3.63) (3.63)
Non-deductible items........................................ (2.89) 4.46
Change in valuation allowance............................... 40.00 30.68
Other....................................................... 0.52 2.49
------- -------
--% --%
======= =======
</TABLE>

VEL was included in Viragen's consolidated federal and state income tax
returns for the period December 8, 1995 through March 15, 1996, as Viragen,
Inc.'s percentage ownership of VEL exceeded 80% only during this period. VSL
files separate income tax returns in the United Kingdom. VGG files separate
income tax returns in Germany.

Deferred tax assets of VEL's U.S. operations (which files a separate U.S.
tax return) at June 30, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
JUNE 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Total deferred tax assets................................... $1,164,700 $1,035,700
Valuation allowance for deferred tax assets................. 1,164,700 1,035,700
---------- ----------
$ -- $ --
========== ==========
</TABLE>

At June 30, 1998, VEL has net operating and capital losses totaling
approximately $3,100,000, expiring between 2000 and 2013. VSL has approximately
$5,280,000 in net operating losses available to carryforward at June 30, 1998.

F-23
<PAGE> 64

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For financial reporting purposes, net loss before income taxes includes the
following components:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
U.S. ..................................................... $(3,615,140) $(4,192,302)
Foreign................................................... (4,240,996) (582,943)
----------- -----------
$(7,856,136) $(4,775,245)
=========== ===========
</TABLE>

NOTE G -- TRANSACTIONS WITH RELATED PARITIES

In June 1996, the Company loaned $50,000 to an employee. The promissory
note is for a term of five years with an annual interest rate of 6.48% (the
Mid-Term Applicable Federal Rate in effect at that time). Interest is to be paid
semi-annually with the principal balance and unpaid interest payable on the
fifth anniversary of the note.

In November 1996, the Company forgave a $12,500 balance due to the Company
by its Chief Executive Officer.

In April 1997, the Company loaned $100,000 to a director of the Company.
The secured promissory note is for a term of one year with the principal and
interest payable upon maturity. The note bears interest at 8.50% per annum (the
Prime Interest Rate in effect at that time). In April 1998, the director
defaulted on the Note. The Company is unable to ascertain the amounts, if any,
which could ultimately be realized on the promissory note. Accordingly, the
entire amount due under the note with related accrued interest of approximately
$10,000 has been written-off as uncollectable at year end. The Company intends
to pursue collection efforts relative to this transaction.

On July 31, 1998, the Company held its 1997 Annual Shareholders Meeting.
Certain directors did not seek reelection to serve as Directors of the Company.
In appreciation of their past service, the Company waived the requirement to
exercise outstanding stock options within 90 days of their last day as
Directors. All outstanding stock options will expire under their normal terms.

Subsequent to June 30, 1998, certain officers and directors of the Company
exercised 750,000 stock options to purchase Common Stock of the Company. The
options were exercised through the issuance of Promissory Notes payable to the
Company with related Pledge and Escrow Agreements. The Promissory Notes bear
interest at the greater of (i) 3.5% or (ii) the Mid-Term Applicable Federal Rate
(as defined in Section 1274 of the Internal Revenue Code of 1986), payable
semi-annually and are secured by the underlying Common Stock purchased, which
shares are being held in escrow pending payment of the related notes pursuant to
the provisions of the Pledge and Escrow Agreements.

NOTE H -- IMPAIRMENT OF LONG-LIVED ASSETS

During fiscal 1997, the Company entered into negotiations with Medicore,
Inc. ("Medicore"), a former affiliate, for the sale of its land, building and
related improvements located in Hialeah, Florida. Preliminary negotiations
established the fair value of the land, building and improvements to be
$400,000. At June 30, 1996, the land, building and improvements had a net
carrying value of $716,267. In accordance with FAS 121, the Company recorded an
impairment loss of $316,267, which was included as part of selling, general and
administrative expenses for the year ended June 30, 1996.

The Company and Medicore terminated discussions relating to the sale of the
Company's Hialeah, Florida facilities during fiscal 1997. The Company intends to
maintain this location as a research facility for the foreseeable future.

F-24
<PAGE> 65

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- LICENSE AND MANUFACTURING AGREEMENTS

Through a fifteen-year License Agreement (the "License") granted by
Viragen, Inc., VEL and its wholly-owned subsidiary, VSL, secured certain rights
to engage in the research, development, and manufacture of certain proprietary
products and technologies that relate to the therapeutic application of human
leukocyte-derived interferon (the "Product") for various diseases that affect
the human immune system. Pursuant to these rights, on July 20, 1995, VSL entered
into a License and Manufacturing Agreement ("Scottish Agreement") with the
Common Services Agency ("Agency"), an agency acting on behalf of the Scottish
National Blood Transfusion Service ("SNBTS") pursuant to which SNBTS, on behalf
of VSL, will manufacture and supply VSL's Product to VSL for distribution in the
European Union in return for certain fees. It was considered critical to VSL's
operations and to planned clinical trials to secure a sufficient qualified
source of human source leukocyte, a critical component in the manufacture of the
Product. VSL commenced operations concurrent with the execution of its agreement
with SNBTS. The term of the Scottish Agreement is five years with two additional
five-year extension terms exercisable at the option of VSL.

Pursuant to the terms of the License, VSL was to prepay $2 million to VTI,
within six months of the Effective Date (July 12, 1995). Commencing one year
from the Effective Date, VSL is to pay to VTI fees, as follows: the greater of
$2 million annually or 10% of gross revenues until the sum of $18 million has
been paid; 8% of gross revenues until the sum of $25 million has been paid; and
5% of gross revenues thereafter. The License will renew automatically for two
consecutive fifteen-year terms.

Both parties modified the License deferring the initial payment until the
date when VTI transferred the processes and technology, as defined by the
License, to VSL. VTI had substantially transferred the processes and technology
to VSL by the end of May 1997. At that time, VTI required the initial royalty
payment be made. Completion of the transfer occurred on November 1, 1997.

The Company, through VTI, has executed an option for Southern Health
SDN.BHD ("Southern"), a private Malaysian/Australian-based healthcare investment
group to purchase a Manufacturing and Distribution License Agreement for
Viragen's natural alpha interferon product. Upon exercise of the option, the
Company is to receive a license fee of $20 million, payable in advance, and a
continuing royalty of 12% of gross revenues from the sale of the licensed
product. Southern has paid the Company a $200,000 option fee, $100,000 of which
is non-refundable and intended to deter the costs related to due diligence, with
the remaining $100,000 refundable, if the Company elects not to proceed with
this transaction. The Company has deferred recognition of revenue related to the
fee.

Within the first two years of the Manufacturing and Distribution License
Agreement, Southern would be required to commence construction of at least one
regulatory approved manufacturing facility within the defined territory, which
includes Australia, New Zealand and seven other Asian countries exclusive of
China and Japan. The manufacturing facility would be built and operated in
compliance with Viragen's specifications. In addition, Southern will be
responsible for funding and conducting any clinical trials necessary within the
defined territory.

Pursuant to an extension granted by the Company, Southern has until
December 31, 1998, to exercise the option. The Company believes that this
transaction may be negatively affected by instability in Asian financial
markets. Accordingly, there can be no assurance that this transaction will
ultimately be successfully concluded.

NOTE J -- RESEARCH AND DEVELOPMENT AGREEMENTS

The Company has a contract with Viragen Research Associated Limited
Partnership, ("Limited Partnership") for the Company to perform the research and
development with respect to two therapeutic products for the topical treatment
of herpes virus infections. Pursuant to the contract, the Company assigned all
of its patent rights to the processes and topical products to the Limited
Partnership in exchange for an
F-25
<PAGE> 66

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. The Company is not presently pursuing the development or
commercialization of a topically applied product.

NOTE K -- ROYALTY AGREEMENT

The Company has a royalty agreement with Medicore that will pay Medicore a
maximum of $2,400,000 in royalties. Royalties are to be paid as follows: 5% on
the first $7 million of sales of interferon and related products; 4% of the next
$10 million of sales; and 3% on the next $55 million of sales up to the maximum
of $2,400,000 in royalty payments. Royalties incurred in prior years under the
agreement, totaling approximately $108,000, are included in Royalties Payable.
This amount will be paid as the final payment under the royalty agreement.
Royalties expense incurred totaled $11,901 in 1996.

NOTE L -- COMMITMENTS

In November 1996, the Company executed a five-year lease on property
located in Edinburgh, Scotland that will serve as the Company's laboratory and
production facilities. Base monthly rental on the property is approximately
$9,975. In addition, the Company may extend the term of the lease at its option,
for four-five year periods.

In November 1996, the Company entered into a ten-year lease on property in
Plantation, Florida. This facility contains the executive and administrative
offices for the Company and VEL. Monthly rental on the property is approximately
$15,700. The lease contains provisions for two additional five-year periods at
the Company's option.

During the years ended June 30, 1998 and 1997, the Company recognized rent
expense and related charges of $290,000 and $47,000 for its Plantation, Florida
property lease and $202,000 and $29,000 attributable to its Edinburgh, Scotland
facility. Future minimum lease payments on the two facilities are:
1999 -- $290,009; 2000 -- $300,912; 2001 -- $307,255; 2002 -- $224,019; and 2003
and thereafter -- $1,018,252.

The Company has entered into Employment Agreements with officers of the
Company and its subsidiaries. These agreements represent a commitment by the
Company to pay an aggregate amount of approximately $1,483,000 per year in
salaries to these individuals.

NOTE M -- CONTINGENCIES

In May 1997, the Company in the name of Sector Associates, Ltd. (now VEL)
was named as a defendant in an action brought in the United States Bankruptcy
Court, Southern District of Florida by the bankruptcy trustee. The suit alleged
that during the period from December 1993 to May 1994, prior to the Company's
reverse acquisition of Sector, Sector received preferential transfers of
approximately $2.1 million. The suit was settled on July 8, 1998 for a total of
$25,000. The loss arising from settlement of the suit has been accrued at June
30, 1998.

In October 1997, the Company, the Company's President and Cytoferon Corp.,
a former affiliate of the President, were named as defendants in a civil action
brought in the United States District Court for the Southern District of Florida
(Case No: 97-3187-CIV-MARCUS) by a shareholder of the Company and investor in
Cytoferon Corp. The suit alleges the defendants violated federal and state
securities laws, federal and state RICO statutes, fraud, conspiracy, breach of
fiduciary duties and breach of contract. The plaintiff was seeking an
unspecified monetary judgement and the specific performance delivery of 441,368
shares of common stock. The Company filed a Motion to Dismiss denying the
allegations and requesting reimbursement of its costs.
F-26
<PAGE> 67

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1997, the plaintiff in this litigation filed a Notice of
Voluntary Dismissal with the Federal Court concurrently notifying the Company of
their intent to refile a complaint in Circuit Court in the State of Florida. The
plaintiff subsequently filed a complaint in the Circuit Court of the 11th
Judicial Circuit in and for Miami-Dade County, Florida (Case No: 97-25587 CA30)
naming the same defendants. The suit alleges breach of contract, fraud,
violation of Florida's RICO statute and breach of fiduciary duties and seeks a
judgement similar to that of the dismissed Federal suit.

In March 1998, the Circuit Court granted the Company's Motion to Dismiss in
this matter. Subsequently, the plaintiff filed an Amended Complaint alleging
similar claims and seeking a judgement similar to that of the dismissed Federal
and initial State of Florida suits. In April 1998, the Company filed a Motion to
Dismiss the Plaintiff's Amended Complaint which was denied by the Court. The
Company denies the allegations of the complaint and intends to vigorously defend
the claims with regard to this matter. The ultimate liability, if any, cannot be
determined at this time and no accrual for loss has been recorded.

NOTE N -- GEOGRAPHIC INFORMATION

In 1997, the Company completed a manufacturing facility in Edinburgh,
Scotland. Identifiable assets in Scotland totaled $4,745,000 and $7,178,000 at
June 30, 1998 and 1997, respectively. Identifiable assets represent those assets
used in the operations of the geographic area.

NOTE O -- SUBSEQUENT EVENTS

In August 1998, the Company and VUSA entered into a fifteen year Agreement
with the American Red Cross ("ARC") for the supply of human white blood cells.
ARC collects approximately half of the U.S. blood supply. The ARC Agreement
provides for the Company's purchase of buffy coats, consistent with agreed upon
specifications, based on quarterly forecasts provided by the Company. Buffy
coats may be paid for in cash or Common Stock of the Company at the option of
ARC, with the valuation of shares paid determined by the average closing price
of the Company's shares for the five days prior to the payment due date less a
discount. The ARC Agreement further contains an initial price per buffy coat
modified by a volume discount pricing schedule and rebate program, subject to
periodic renegotiation. Upon execution of the Agreement, ARC received a Warrant
to purchase 500,000 shares of Common Stock of the Company and entered into a
Stockholder's Agreement and Registration Rights Agreement relating to shares
underlying the Warrant and shares received, if any, in lieu of cash for buffy
coat purchases. The Warrant vests over a six year period with exercise prices
ranging between $5.50 per share and $11.00 per share.
F-27
<PAGE> 68

VIRAGEN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1998, the Company entered into a strategic alliance concurrent
with the purchase of a 10% equity interest in Inflammatics, Inc. a private drug
development company, headquartered in Philadelphia, PA. Inflammatics has focused
on the development of therapeutic drugs for autoimmune disorders. Its lead
product is LeukoVAX, an immunomodulating therapy derived from leukocytes
currently in FDA Phase I/II clinical trials for rheumatoid arthritis.

Under the terms of the Inflammatics Agreement, the Company made an initial
investment by purchasing Series A Convertible Preferred Stock of Inflammatics
for $1 million and warrants to purchase 200,000 shares of Common Stock of the
Company exercisable at $1.00 dollar per share, representing an initial 10%
equity interest in Inflammatics. The Company further obtained two options to
acquire up to an additional 70% equity position in Inflammatics through two
additional fundings to be made at the sole option of the Company. Additional
funding, if any, will be made based upon the Company's evaluation of LeukoVAX
clinical trial data and would be utilized to underwrite a FDA Phase III clinical
trial. As part of these options, the Company may issue up to 3 million shares of
its Common Stock and 300,000 additional warrants to purchase Common Stock of the
Company in exchange for additional Series A Convertible shares of Inflammatics
bringing the Company's total equity position in Inflammatics to 80%.

The amount of Common Stock that may be Put in any 30 day period, is limited
to one half (1/2) of the aggregate daily reported trading volume in the
outstanding Common Stock reported during the 10 trading days preceding the Put
date. In addition, on each six month anniversary of the Subscription Agreement
date, the Company shall issue to the Subscriber a Purchase Warrant to purchase a
number of shares of Common Stock equal to 10% of the number of Put Shares issued
to the Subscriber during the preceding 6 calendar months. Each Purchase Warrant
shall be exercisable at 108% of the lowest closing bid price for the 10 trading
days immediately preceding each six month anniversary.

As of the closing of the Equity Line Agreement, the Company had
approximately 1,900,000 shares of Common Stock available from authorized shares.
Accordingly, to utilize the total funding available under the Equity Line
Agreement, the Company must obtain Stockholder approval to increase the number
of authorized shares in the Company. In addition, to comply with NASDAQ National
Market regulations regarding potential dilution limitations, the Company intends
to seek Shareholder's approval of the Equity Line Financing Agreement.
F-28

<PAGE> 1
Exhibit-10(LVIII)(02)

Anlage 1
zum Kooperations- und Liefervertrag

RICHTLINIEN ZUR
BLUTGRUPPENBESTIMMUNG
UND BLUTTRANSFUSION
(HAMOTHERAPIE)

Aufgestellt vom Wissenschaftlichen Beirat
der Bundesarztekammer
und vom Paul-Ehrlich-Institut

Uberarbeitete Fassung 1996

Deutscher Arzte-Verlag

* The information redacted herefrom is the subject of a Confidentiality Request
submitted to the Securities and Exchange Commission.
<PAGE> 2

RICHTLINIEN ZUR BLUTGRUPPENBESTIMMUNG
UND BLUTTRANSFUSION (HAMOTHERAPIE)

ISBN 3-7691-0341-6

Der Wissenschaftliche Beirat der Bundesarztekammer hat gemeinsam mit Vertretern
aus 34 medizinisch-wissenschaftlichen Fachgesellschaften, Berufsverbanden, dem
Bundesministerium fur Gesundheit, der Arbeitsgemeinschaft der Leitenden
Medizinalbeamtinnen und -beam-ten der Lander und dem Paul-Ehrlich-Institut die
,,Richtlinien zur Blutgruppenbestimung und Bluttransfusion" uberarbeitet und
einige Kapitel erganzt. Diese Richtlinien gelten fur alle Arztinnen und Arzte in
der Bundesrepublik Deutschland.

Mit der Veroffentlichung im Bundesgesundheitsblatt Mitte Dezember 1996 werden
die bisherigen Richtlinien (veroffentlicht im Bundesgesundheitsblaff 35, Nr. 5,
Mai 1992) ungultig.

DIE IN DEN LETZTEN JAHREN ERZIELTEN FORTSCHRITTE IN DER TRANSFUSIONMEDIZIN UND
IN DER ARZNEIMITTELSICHERHEIT VON BLUTKOMPONENTEN UND PLASMADERIVATEN WURDEN IN
DEN RICHTLINIEN BESONDERS BERUCKSICHTIGT.

Deutscher Arzte-Verlag

AUS DEM INHALT:

o Allgemeine Hinweise zu Aufgaben und Geltungsbereich der Richtlinien,
zur Verantwortung des Arztes und zu Haftungsfragen
o Blutgruppenserologische Untersuchungen
o Blutspender und Spendebedingungen
o Praparative Hamapherese - Organisation, Ausstattung der Zentren,
Durchfuhrung (NEU)
o Herstellung, Lagerung und Transport von Blutkomponenten und
Plasmaderivaten
o Transfusion von Blutkomponenten und Plasmaderivaten - Aufgaben des
transfundierenden Arztes bei Identitatssicherung und Dokumentation
o Unerwunschte Wirkungen nach Transfusion von Blutkomponenten und
Plasmaderivaten - Dokumentation, Ruckverfolgung (look back) und
Meldewesen
o Autologe Hamotherapie - notwendige Voraussetzungen, Organisation,
Herstellung u. Lagerung, patientenspezifische Besonderheiten
o Therapeutische Hamapherese (NEU)
o Perinatale Transfusionsmedizin und ihre Besonderheiten - Diagnostik,
Behandlung und Prophylaxe fetomaternaler Inkompatilitaten (NEU)
o Qualitatsmanagement - Ziele und Aufgaben, Verantwortung und
Zustandigkeiten (NEU)
o Chargendokumentation
o Gesetze, Verordnungen und Vorschriften

<PAGE> 1
Exhibit 10(LVIII)(03)

Anlage 2
zum Kooperations- und Liefervertrag

QUALITATSMERKMALE DER BUFFY COATS

o Die Buffy Coats mussen innerhalb von [ * ] Stunden nach der
ursprunglichen Blutabnahme [ * ] an VGer geliefert worden sein;

o Buffy Coats werden aus Blutkonserven hergestellt, die den Anforderungen
fur die Verwendung fur Transfusionen nach deutschen und EU-Vorschriften
entsprechen. Sie mussen steril sein;

o Lagerung, Handhabung und Transport der Buffy Coats mussen bei einer
Temperatur von [ * ] Celsius [ * ] durchgefuhrt werden;

o [ * ] Hamatokrit pro Buffy-Coat-Beutel;

o Alle Tests auf ubertragbare Krankheiten und andere Tests, die von
deutschen und EU Behorden vorgeschrieben oder empfohlen werden, mussen
bereits durchgefuhrt worden und negativ ausgefallen sein;

o Ein Beutel Buffy Coat darf nicht weniger als [ * ] Milliarden
weiBe Blutkorperchen enthalten, die aus einer einzelnen, [ * ] ml
umfassenden Blutspende stammen;

o Die Beutel mussen den behordlichen Vorschriften entsprechend verpackt
und beschriftet sein;

o Soweit hier nicht anders festgelegt, werden Buffycoats in
Ubereinstimmung mit deutschen und EU Vorschriften und Empfehlungen zur
Herstellung von menschlichen Source Leukozyten, hergestellt
(einschlieBlich aller dazugehorigen Schritte wie zum Beispiel
Sammlung, Handhabung, Lagerung, Untersuchung (Qualitatssicherung),
Verpackung, Beschriftung, Versand und Dokumentation).

<PAGE> 1
Exhibit 10(LVIII)(05)

ANLAGE 4 ZUM KOOPERATIONS- UND LIEFERVERTRAG

DRK-Blutspendedienst Betriebshaftpflicht
- ---------------------------- ----------------------------------

Baden-Wurttemberg 10.000.000 DM Personenschaden
500.000 DM Sachschaden
40.000 DM Vermogensschaden

- ---------------------------- ----------------------------------

Nordrhein-Westfalen 5.000.000 DM Personenschaden
500.000 DM Sachschaden
100.000 DM Vermogensschaden

- ---------------------------- ----------------------------------

Hessen 20.000.000 DM Personenschaden
2.000.000 DM Sachschaden
100.000 DM Vermogensschaden

- ---------------------------- ----------------------------------

Bayern 5.000.000 DM Personenschaden
300.000 DM Sachschaden
100.000 DM Vermogensschaden

<PAGE> 1
EXHIBIT 10(LVIII)(07)

Anlage 6
zum Kooperations- und Liefervertrag

UNSER LEITBILD

<PAGE> 2

Im Zeichen
der Menschlichkeit

<PAGE> 3

UNSERE GRUNDSATZE
o Menschlichkeit
o Unparteilichkeit
o Neutralitat
o Unabhangigkeit
o Freiwilligkeit
o Einheit
o Universalitat

UNSER SELBSTVERSTANDNIS

o ss. 1 DRK-Satzung
o ss. 2 DRK-Satzung

UNSER LEITSATZ

UNSERE LEITLINIEN

UNSERE FUHRUNGSGRUNDSATZE

<PAGE> 4

UNSERE GRUNDSATZE

MENSCHLICHKEIT
UNPARTEILICHKEIT
NEUTRALITAT
UNABHANGIGKEIT
FREIWILLIGKEIT
EINHEIT
UNIVERSALIAT

<PAGE> 5

MENSCHLICHKEIT

Die Internationale Rotkreuz- und Rothalbmondbewegung, entstanden aus dem Willen,
den Verwundeten der Schlachtfelder unterschiedslos Hilfe zu leisten, bemuht sich
in ihrer nationalen und internationalen Tatigkeit, menschliches Leiden uberall
und jederzeit zu verhuten und zu lindern. Sie ist bestrebt, Leben und Gesundheit
zu schutzen und der Wurde des Menschen Achtung zu verschaffen. Sie fordert
gegenseitiges Verstandnis, Freundschaft, Zusammenarbeit und einen dauerhaften
Frieden unter den Volkern.

UNPARTEILICHKEIT

Die Rotkreuz- und Rothalbmondbewegung unterscheidet nicht nach Nationalitat,
Rasse, Religion, sozialer Stellung oder politischer Uberzeugung. Sie ist einzig
bemuht, den Menschen nach dem MaB ihrer Not zu helfen und dabei den
dringendsten FallenVorrang zu geben.

<PAGE> 6

NEUTRALITAT

Um sich das Vertrauen aller zu bewahren, enthalt sich die Rotkreuz- und
Rothalbmondbewegung der Teilnahme an Feindseligkeiten wie auch, zu jeder Zeit,
an politischen, rassischen, religiosen oder ideologischen Auseinandersetzungen.

UNABHANGIGKEIT

Die Rotkreuz- und Rothalbmondbewegung ist unabhangig. Wenn auch die Nationalen
Gesellschaften den Behorden bei ihrer humanitaren Tatigkeit als
Hilfsgesellschaften zur Seite stehen und den jeweiligen Landesgesetzen
unterworfen sind, mussen sie dennoch eine Eigenstandigkeit bewahren, die ihnen
gestattet, jederzeit nach den Grundsatzen der Rotkreuz- und Rothalbmondbewegung
zu handeln.

<PAGE> 7

FREIWILLIGKEIT

Die Rotkreuz- und Rothalbmondbewegung verkorpert freiwillige und uneigennutzige
Hilfe ohne jedes Gewinnstreben.

EINHEIT

In jedem Land kann es nur eine einzige Nationale Rotkreuz- oder
Rothalbmondgesellschaft geben. Sie muB allen offenstehen und ihre
humanitare Tatigkeit im ganzen Gebiet ausuben.

UNIVERSALITAT

Die Rotkreuz- und Rothalbmondbewegung ist weltumfassend. In ihr haben alle
Nationalen Gesellschaften gleiche Rechte und die Pflicht, einander zu helfen.

<PAGE> 8

UNSER SELBSTVERSTANDNIS

SS.1 DRK-SATZUNG

[1] Das Deutsche Rote Kreuz ist die Gesamtheit aller Mitglieder, Verbande,
Vereinigungen und Einrichtungen des Roten Kreuzes in der Bundesrepublik
Deutschland. Die Mitgliedschaft im Deutschen Roten Kreuz steht ohne Unterschied
der Nationalitat, der Rasse, der ethnischen Zugehorigkeit, des Geschlechts, der
Religion und der politischen Uberzeugung allen offen, die gewillt sind, bei der
Erfullung der Aufgaben des Deutschen Roten Kreuzes mitzuwirken.

<PAGE> 9

[2] Das Deutsche Rote Kreuz ist die nationale Rotkreuzgesellschaft der
Bundesrepublik Deutschland. Es nimmt die Aufgaben wahr, die sich aus den Genfer
Rotkreuz-Abkommen, den Zusatzprotokollen und den Beschlussen der Internationalen
Rotkreuz- und Rothalbmond-Konferenzen ergeben. Es achtet auf deren Durchfuhrung
im Gebiet der Bundesrepublik Deutschland und vertritt in Wort, Schrift und Tat
die Ideen der Nachstenliebe, der Volkerverstandigung und des Friedens. Das
Deutsche Rote Kreuz ist von der Bundesregierung und vom Internationalen Komitee
vom Roten Kreuz als Nationale Rotkreuz-Gesellschaft im Sinne der Genfer
Rotkreuz-Abkommen anerkannt und wirkt im standigen Sanitatsdienst der Bundeswehr
unter der Verantwortung der Bundesregierung als freiwillige Hilfsgesellschaft
mit.

[3] Das Deutsche Rote Kreuz ist ein anerkannter Spitzenverband der Freien
Wohlfahrtspflege. Es nimmt die Interessen derjenigen wahr, die der Hilfe und
Unterstutzung bedurfen, um soziale Benachteiligung, Not und menschenunwurdige
Situationen zu beseitigen sowie auf die Verbesserung der individuellen,
familiaren und sozialen Lebensbedingungen hinzuwirken.

<PAGE> 10

[4] Das Jugendrotkreuz ist der anerkannte Jugendverband des Deutschen Roten
Kreuzes. Durch seine Erziehungsund Bildungsarbeit fuhrt das Jugendrotkreuz junge
Menschen an das Ideengut des Roten Kreuzes heran und tragt zur Verwirklichung
seiner Aufgaben bei. Das Jugendrotkreuz vertritt die Interessen der jungen
Menschen des Deutschen Roten Kreuzes.

[5] Das Deutsche Rote Kreuz bekennt sich zu den sieben Grundsatzen der
Internationalen Rotkreuz- und Rothalbmondbewegung:

o Menschlichkeit,
o Unparteilichkeit,
o Neutralitat,
o Unabhangigkeit,
o Freiwilligkeit,
o Einheit und
o Universalitat.

Diese Grundsatze sind fur alle Verbande, Vereinigungen und Einrichtungen des
Deutschen Roten Kreuzes verbindlich.

Das Deutsche Rote Kreuz ist mit dem Internationalen Komitee vom Roten Kreuz, der
Internationalen Foderation der Rotkreuz- und Rothalbmond-Gesellschaften sowie
den anderen nationalen Rotkreuz- und Rothalbmond-Gesellschaften ein Teil der
Internationalen Rotkreuz- und Rothalbmondbewegung.

<PAGE> 11

SS.2 DRK-SATZUNG

Das Deutsche Rote Kreuz stellt sich aufgrund seines Selbstverstandnisses und
seiner Moglichkeiten folgende Aufgaben:

o Verbreitung der Kenntnisse des humanitaren Volkerrechts sowie der
Grundsatze und Ideale der Internationalen Rotkreuz- und
Rothalbmondbewegung,

o Hilfe fur die Opfer von bewaffneten Konflikten, Naturkatastrophen und
anderen Notsituationen,

o Verhutung und Linderung menschlicher Leiden, die sich aus Krankheit,
Verletzung, Behinderung oder Benachteiligung ergeben,

o Forderung der Gesundheit, der Wohlfahrt und der Jugend,

Forderung der Entwicklung nationaler Rotkreuz- und Rothalbmond-Gesellschaften.

<PAGE> 12

UNSER LEITSATZ

Wir vom Roten Kreuz sind Teil einer weltweiten Gemeinschaft von Menschen in der
Internationalen Rotkreuz- und Rothalbmondbewegung, die Opfern von Konflikten und
Katastrophen sowie anderen hilfsbedurftigen Menschen unterschiedslos Hilfe
gewahrt, allein nach dem MaB ihrer Not.

Im Zeichen der Menschlichkeit setzen wir uns fur das Leben, die Gesundheit, das
Wohlergehen, den Schutz, das friedliche Zusammenleben und die Wurde aller
Menschen ein.

<PAGE> 13

UNSERE LEITLINIEN

1. DER HILFEBEDURFTIGE MENSCH

Wir schutzen und helfen dort, wo menschliches Leiden zu verhuten und zu lindern
ist.

2. DIE UNPARTEILICHE HILFELEISTUNG

Alle Hilfebedurftigen haben den gleichen Anspruch auf Hilfe, ohne Ansehen der
Nationalitat, der Rasse, der Religion, des Geschlechts, der sozialen Stellung
oder der politischen Uberzeugung. Wir setzen die verfugbaren Mittel allein nach
dem Ma(beta) der Not und der Dringlichkeit der Hilfe ein. Unsere freiwillige
Hilfeleistung soll die Selbsthilfekrafte der Hilfebedurftigen wiederherstellen.

3. NEUTRAL IM ZEICHEN DER MENSCHLICHKEIT

Wir sehen uns ausschlieBlich als Helfer und Anwalte der Hilfebedurftigen
und enthalten uns zu jeder Zeit der Teilnahme an politischen, rassischen oder
religiosen Auseinandersetzungen. Wir sind jedoch nicht bereit, Unmenschlichkeit
hinzunehmen, und erheben deshalb, wo geboten, unsere Stimme gegen ihre Ursachen.

<PAGE> 14

4. DIE MENSCHEN IM ROTEN KREUZ

Wir konnen unseren Auftrag nur erfullen, wenn wir Menschen, insbesondere als
unentgeltlich tatige Freiwillige, fur unsere Aufgaben gewinnen. Von ihnen wird
unsere Arbeit getragen, namlich von engagierten, fachlich und menschlich
qualifizierten, ehrenamtlichen, aber auch von gleichermaBen geeigneten
hauptamtlichen Mitarbeiterinnnen und Mitarbeitern, derenVerhaltnis untereinander
von Gleichwertigkeit und gegenseitigem Vertrauen gekennzeichnet ist.

5. UNSERE LEISTUNGEN

Wir bieten alle Leistungen an, die zur Erfullung unseres Auftrages erforderlich
sind. Sie sollen im Umfang und Qualitat hochsten Anforderungen genugen. Wir
konnen Aufgaben nur dann ubernehmen, wenn fachliches Konnen und finanzielle
Mittel ausreichend vorhanden sind.

<PAGE> 15

6. UNSERE STARKEN

Wir sind die Nationale Rotkreuzgesellschaft der Bundesrepublik Deutschland. Wir
treten unter einer weltweit wirksamen gemeinsamen Idee mit einheitlichem
Erscheinungsbild und in gleicher Struktur auf. Die foderalistische Struktur
unseres Verbandes ermoglicht Beweglichkeit und schnelles koordiniertes Handeln.
Doch nur die Bundelung unserer Erfahrungen und die gemeinsame Nutzung unserer
personellen und materiellen Mittel sichern unsere Leistungsstarke.

7. DAS VERHALTNIS ZU ANDEREN

Zur Erfullung unserer Aufgaben kooperieren wir mit allen Institutionen und
Organisationen aus Staat und Gesellschaft, die uns in Erfullung der
selbstgesteckten Ziele und Aufgaben behilflich oder nutzlich sein konnen
und/oder vergleichbare Zielsetzungen haben. Wir bewahren dabei unsere
Unabhangigkeit. Wir stellen uns dem Wettbewerb mit anderen, indem wir die
Qualitat unserer Hilfeleistung, aber auch ihre Wirtschaftlichkeit standig
verbessern.

<PAGE> 16

UNSERE FUHRUNGSGRUNDSATZE

1. FUHRUNG GEMAB UNSEREM LEITBILD

Als Fuhrungskrafte identifizieren wir uns vorbehaltlos mit den
Rotkreuzgrundsatzen. Der Dienst am Menschen steht fur uns im Mittelpunkt und ist
Ziel unseres Handelns.

<PAGE> 17

2. FUHRUNG

Fuhrung bedeutet, in Erfullung der Hilfsaufgabe des Roten Kreuzes
verantwortungsbewuBt zu planen, zu entscheiden und Auftrage zu erteilen,
dabei stets in gebotener Weise zu informieren, wo angebracht, zu delegieren und
unsere Aufgabenerfullung zu kontrollieren. Wir pflegen einen kooperativen
Fuhrungsstil, der verlangt, auf die unserer Leitung anvertrauten Menschen
eingehen und mit ihnen umgehen zu konnen.

3. WER FUHRT, IST VORBILD

Als Fuhrungskrafte zeigen wir ein hohes MaB an Einsatzfreude,
Leistungsbereitschaft und Eigeninitiative und konnen diese deshalb von allen
anderen Menschen verlangen, die zusammen mit uns an der Aufgabenerfullung des
DRK mitwirken. Offener, hoflicher, aber auch einfulsamer Ugang mit unseren
Helfern und Mitarbeitern schafft Glaubwurdigkeit und Vertrauen in die Fuhrung.

<PAGE> 18

4. DELEGATION

Als Fuhrungskrafte delegieren wir, soweit angemessen, Aufgaben und die damit
verbundene Teilverantwortung an unsere ehren- und hauptamtlichen Mitarbeiter,
wobei wir unsere Auftrage prazise und verstandlich zu formulieren und die zu
erreichenden Ziele zu definieren haben.

5. INFORMATION DER MITARBEITER

Als Fuhrungskrafte sind wir uns bewuBt, daB die unserer Fuhrung
anvertrauten Menschen sich nur dann mit unserer humanitaren Aufgabe
identifizieren und in Erfullung ihrer Auftrage selbstandig handeln werden, wenn
wir stets umfassend und sachbezogen informieren.

<PAGE> 19

6. KONFLIKTREGELUNG

Wir achten die unter unserer Fuhrung arbeitenden ehrenamtlichen Helfer und
hauptamtlichen Mitarbeiter nach dem Grundsatz der Gleichwertigkeit. Im Falle von
Auseinandersetzungen arbeiten wir die unterschiedlichen Standpunkte heraus,
bewerten sie mit sachgerechter Kritik und fuhren sie einer sachlichen
Verstandigung zu. Gebotene Kritik sollte offen, aber auch forderlich und
aufbauend sein; sie darf nicht Lob und Dank ersetzen, die Vorrang haben sollten.

7. FORDERUNG DER MITARBEITER

Zu unserer Aufgabe als Fuhrungskrafte gehort auch die gezielte Auswahl sowie die
systematische Qualifizierung unserer Helfer und Mitarbeiter im Rahmen unserer
Personalentwicklung. So wie wir uns selbst zu eigener Fortbildung verpflichten,
ermuntern wir sie zur Weiterentwicklung ihres Wissens und Konnens. Wir erkennen
ihre Leistungen an und zeigen ihnen Perspektiven auf. Wir fordern Teamarbeit,
Flexibilitat und Kreativitat sowie die Fahigkeit, uber die Grenzen der
Aufgabenbereiche hinaus zu denken und zu handeln.

<PAGE> 1
Exhibit 10.(LX)(02)

EXHIBIT 1

VUSA BUFFYCOAT SPECIFICATIONS

o Delivery of Buffycoat units to VUSA shall be in less than [*] hours
from the original time of blood donation (draw).

o Buffycoats shall be made from units satisfactory for transfusion use
under applicable FDA regulations and guidelines.

o Storage, handling and transport of Buffycoats units shall be at
[*.]

o Hematocrit of [*] per Buffycoat unit.

o All FDA required and recommended transmissible disease and other
testing on all blood samples (which currently includes testing for the
following infectious diseases: HIV-I/HIV-II, HTLV-I, HBsAg, HBc, HCV,
and Syphilis) and shown to be negative (e.g., non-reactive).

o VUSA recognizes that Buffycoats may from time to time be shipped before
test results are available, in which case they shipped with a
provisional certificate of analysis for the test results and other
information that is available at the time of shipment, and will be
promptly followed by a final certificate of analysis for all test data.

o A unit of Buffycoats will be derived from a unit of whole blood that
has a volume greater than or equal to [*], and the whole blood will
have an average of approximately [*] million white blood cells per ml,
and shall contain on average not less than [*] billion white blood
cells per delivered Buffycoat unit per [*] of whole blood source.

o Packaged and labeled for shipping (transport) per ARC standard
operating procedures.

o To the extent not specifically required otherwise herein, Buffycoats
will be manufactured (including all steps pertaining thereto, such as,
but not limited to, collection, handling, storage, testing, packaging,
labeling, shipment, and documentation) in compliance with (i) FDA cGMP
and other requirements and recommendations applicable to the
manufacture of blood for transfusion, and (ii) to the extent not in
conflict with such FDA requirements and recommendations, with ARC's
standard operating procedures.

Exhibit 1

* The information redacted herefrom is the subject of a Confidentiality Request
submitted to the Securities and Exchange Commission.
<PAGE> 2

EXHIBIT 2
VOLUME DISCOUNT PRICE SCHEDULE AND REBATE PROGRAM #1
(FOR THE PERIOD EXTENDING 24 MONTHS FROM THE DATE OF
EXECUTION HEREOF)

PAYMENT TERMS:

FOB VUSA 1% 10 Net 30 from date of invoice to VUSA (Payment
due date); with invoices delivered to VUSA once each month during the Term of
the Agreement.

BUFFYCOATS PER YEAR PRICE PER BUFFYCOAT
------------------------------------------- -------------------

0 - 10,000 [*]
10,000 - 100,000 [*]
100,000 - 250,000 [*]
250,000 - 500,000 [*]

VUSA REBATE PROGRAM ON BUFFYCOAT PURCHASES

VUSA shall be entitled to receive a rebate on Buffycoat purchases (in dollars),
up to a maximum of 20% of the ARC's net gain (appreciation minus selling
expenses) on the Company's shares from the Warrant, based on the percentage net
gain accrued by ARC through the receipt of the Warrant, as follows:

VUSA REBATE
ARC NET GAIN ON VIRAGEN SHARES ON BUFFYCOAT PURCHASES
------------------------------ ----------------------

0% to 10% No Discount
10% to 25% 4%
25% to 50% 8%
50% to 75% 12%
75% to 100% 16%
Greater than 100% 20%

The rebate on actual net gains resulting from the sale of the Company's
common stock received by ARC through the exercise of the Warrant shall be paid
to VUSA in the quarter following the sale of the stock.

The rebate on unrealized net gains resulting from the increase in the
Company's share price on shares purchased or vested under the Warrant shall be
as follows:

1. The rebate for each of the four blocks of common stock underlying the
Warrant will apply specifically to the two-year period of time to which
the shares are linked (through the volume discount price schedule). The
rebate on unrealized net gains will apply to each of the four blocks of
common stock under the Warrant only once, at the end of the two-year
period linked to the common stock through the price agreement. No
rebate for unrealized gains shall be due any shares for which a rebate
based on realized gains has been paid, and no rebate for realized gains
shall be due any shares for which a rebate based on unrealized gains
has been paid.

Exhibit 2 Page 1
<PAGE> 3

2. The net unrealized gain on the shares of common stock will be
calculated at the end of each two-year period linked to each of the
four blocks of common stock under the warrant.

3. The calculation of the net unrealized gain will be based on the
increase in the Company's share price over the stated exercise price.
The Company's share price will be defined as the average of the closing
price of its common stock for the four calendar quarters preceding the
end of the two-year period. Since the shares of common stock will not
have been sold, an estimate will be made of the future selling expenses
to calculate the net unrealized gain.

4. The rebate will be applied by VUSA to its ARC account on the later of
the dates that the shares linked to the two-year period are registered
with the SEC, or three (3) months after the end of the two-year period.

Exhibit 2 Page 2
<PAGE> 4

EXHIBIT 3
DISCOUNT ON SHARES OF COMMON STOCK AS PAYMENT FOR
BUFFYCOATS

Discount from Market Price - [*]

Exhibit 3
<PAGE> 5

EXHIBIT 4
WARRANTS AND REGISTRATION RIGHTS AGREEMENT

EXHIBIT 4A

The Warrant Agreement

EXHIBIT 4B

The Registration Rights Agreement

ATTACHED AND TO BE SEPARATELY EXECUTED BY THE COMPANY
AND ARC

Exhibit 4a & 4b

<PAGE> 1
Exhibit 10(LX)(03)

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES. ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, transferred
OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE
SECURITIES ACT OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY IS OBTAINED
STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM
SUCH REGISTRATION.

August 12, 1998

VIRAGEN, INC.
(INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE)

WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
--------------------------------------------------

ARC-1

FOR VALUE RECEIVED, VIRAGEN, INC. (the "Company"), a Delaware
corporation, having its principal offices at 865 S.W. 78th Avenue, Suite 100,
Plantation, Florida 33324, grants to THE AMERICAN NATIONAL RED CROSS, a
charitable and not-for-profit corporation having its principal offices in Falls
Church, Virginia 22042 (the "Holder"), the right to purchase from the Company up
to 500,000 fully paid and non-assessable shares of Common Stock at a price per
share (the "Exercise Price"), term and vesting schedule and conditions
hereinafter set forth.

This Warrant is issued pursuant to that certain Agreement made and
entered into as of August 12, 1998 by and among the Holder, Viragen U.S.A.,
Inc., ("VUSA") and the Company (the "Agreement"). Certain terms and conditions
pertaining to the vesting of the right to purchase shares of Common Stock of the
Company are predicated on the parties to the Agreement agreeing to certain
additional conditions as set forth in the Agreement. In addition, Section 1.2(b)
of the Agreement provides the Company or its affiliates or designees with a
right of first refusal under certain conditions as provided therein.

The term "Common Stock" means the Common Stock, par value $.01 per
share, of the Company. The number of shares of Common Stock to be received upon
the exercise of this Warrant may be adjusted from time to time as hereinafter
set forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter referred to as "Warrant Stock." The
term "Other Securities" means any other equity or debt securities that may be
issued by the Company in addition thereto or in substitution for the Warrant
Stock. The term "Company" means and includes the corporation named above as well
as (i) any immediate or more remote successor corporation resulting from the
merger or consolidation of such corporation (or any immediate or more remote
successor corporation of such corporation) with

1
<PAGE> 2

another corporation, or (ii) any corporation to which such corporation (or any
immediate or more remote successor corporation of such corporation) has
transferred its property or assets as an entirety or substantially as an
entirety.

The Holder agrees with the Company that this Warrant is issued, and all
the rights hereunder shall be held subject to, all of the conditions,
limitations and provisions of the Agreement to which this Warrant is attached
and as set forth herein.

1. WARRANT SCHEDULE AND EXERCISE PRICES. This Warrant shall vest for
the number of shares of Warrant Stock, for the term and at Exercise Prices set
forth as follows:

GRANT DATE VEST DATE # OF SHARES TERM EXERCISE PRICE
---------- --------- ----------- ---- --------------
<S> <C> <C> <C> <C>
August 12, 1998 August 12, 1998 50,000 2 years from vest $ 5.50/share
August 12, 1998 August 12, 2000 100,000 2 years from vest $ 7.50/share
August 12, 1998 August 12, 2002 150,000 3 years from vest $ 9.00/share
August 12, 1998 August 12, 2004 200,000 4 years from vest $11.00/share

</TABLE>

The vesting schedule for the above Warrant Stock in the Agreement is
contingent upon the Holder and VUSA executing mutually agreeable two-year
buffycoat pricing schedules and rebate program by the respective vesting dates
for the applicable Warrant Stock as provided for in Section 6.1(d) of the
Agreement. Specifically, the 100,000 block of Warrant Stock is conditioned upon
price agreement for the years (i.e. 24-month period) 2000-2002; the 150,000
block of Warrant Stock is conditioned upon price agreement by the parties for
the years 2002-2004; and the 200,000 block of Warrant Stock is conditioned upon
price agreement for the years 2004-2006. In addition, the 200,000 block of
Warrant Stock is further conditioned upon extension of the Agreement prior to
the end of year 7 as provided in Section 6.1(b) of the Agreement. The foregoing
notwithstanding, in the event the Holder and VUSA shall have failed to come to
an agreement with regard to the pricing schedule and rebate program for the
applicable two-year period supporting the vesting of the Warrant Stock by the
aforementioned vest date, then commencing with each of the respective vest dates
and for each three-month period following the vest date that the Holder and VUSA
have failed to reach such pricing and rebate agreement, one eighth (1/8) of the
proposed Warrants to be vested for that applicable two-year period shall become
null and void.

2. EXERCISE OF WARRANT. Following vesting, this Warrant may be
exercised as to the specified amount of Warrant Stock, in whole or in part, but
if in part, in minimum increments of 50,000 shares at any time, or from time to
time during the period commencing on the vesting date and expiring 5:00 p.m.
Eastern Time on the date of expiration or termination of the Agreement to which
this Warrant is attached (the "Expiration Date") or, if such day is a day on
which banking institutions in New York are authorized by law to close, then on
the next succeeding day that shall not be such a day, by presentation and
surrender of this Warrant to the Company at its principal office with the
Warrant Exercise Form attached hereto duly executed and accompanied by payment
(either in cash or by certified or official bank check, payable to the order of
the Company or by delivery of the Holder's Promissory Note in the form attached
as Exhibit A) of the Exercise Price for the number of shares specified in such
form and instruments of transfer, if appropriate, duly executed by the Holder or
its duly authorized attorney. If this Warrant should be exercised in part

2
<PAGE> 3

only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the shares purchasable hereunder. Upon receipt by the
Company of this Warrant, together with the payment of the Exercise Price at its
office in proper form for exercise, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder. The Company shall pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on exercise of this Warrant.

3. REGISTRATION RIGHTS. The Company has provided registration rights
with respect to the Warrant Stock as provided in that certain Registration
Rights Agreement dated even date herewith.

4. RESERVATION OF SHARES. The Company will at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Common Stock
or other shares of capital stock of the Company (and Other Securities) from time
to time receivable upon exercise of this Warrant. All such shares (and Other
Securities) shall be duly authorized and, when issued upon such exercise, shall
be validly issued, fully paid and non-assessable and free of all preemptive
rights.

5. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise Of this Warrant, but the
Company shall pay the holder an amount equal to the fair market value of such
fractional share of Common Stock in lieu of each fraction of a share otherwise
called for upon any exercise of this Warrant. For purposes of this Warrant, the
fair market value of a share of Common Stock shall be determined as follows:

(a) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or
listed for trading on the NASDAQ system, the current market value shall
be the last reported sale price of the Common Stock on such exchange or
system on the last business day prior to the date of exercise of this
Warrant or, if no such sale is made on such day, the average of the
closing bid and asked prices for such day on such exchange or system;
or

(b) if the Common Stock is not so listed or admitted to
unlisted trading privileges, the current market value shall be the mean
of the last reported bid and asked prices reported by the National
Quotation Bureau, Inc. on the last business day prior to the date of
the exercise of this Warrant; or

(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so
reported, the current market value shall be an amount, not less than
book value thereof as at the end of the most recent fiscal year of the
C6mpany ending prior to the date of the exercise of the Warrant,
determined in such reasonable manner as may be prescribed by the Board
of Directors of the Company.

6. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.

3
<PAGE> 4

7. ANTI-DILUTION PROVISIONS.

7.1 ADJUSTMENT FOR RECAPITALIZATION. If the Company shall at any time
subdivide its outstanding shares of Common Stock (or Other Securities at the
time receivable upon the exercise of the Warrant) by recapitalization,
reclassification or split-up thereof, or if the Company shall declare a stock
dividend or similar distribution of shares of Common Stock to its stockholders,
the number of shares of Common Stock subject to this Warrant immediately prior
to such subdivision shall be proportionately increased, and the Exercise Price
shall be proportionately decreased, and if the Company shall at any time combine
the outstanding shares of Common Stock by recapitalization, reclassification or
combination thereof, the number of shares of Common Stock subject to this
Warrant immediately prior to such combination shall be proportionately
decreased, and the Exercise Price shall be proportionately increased. Any such
adjustments pursuant to this Section 7.1 shall be effective at the close of
business on the effective date of such subdivision or combination, or if any
adjustment is the result of a stock dividend or distribution, then the effective
date for such adjustment based thereof shall be the record date therefor.

7.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case
of any reorganization of the Company (or any other a corporation, the securities
of which are at the time receivable on the exercise of this Warrant), or in case
after such date the Company (or any such other corporation) shall consolidate
with or merge into another corporation or convey all or substantially all of its
assets to another corporation, then, and in each such case, the Holder of this
Warrant upon the exercise thereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation, merger or conveyance shall
be entitled to receive, in lieu of the securities and property receivable upon
the exercise of this Warrant prior to such consummation, the securities or
property to which such Holder would have been entitled upon such consummation if
such Holder had exercised this Warrant immediately prior thereto; in each such
case, the terms of this Warrant shall be applicable to the securities or
property receivable upon the exercise of this Warrant after such consummation.

7.3 NOTIFICATION AS TO ADJUSTMENTS. In each case of an adjustment in
the number of shares of Common Stock receivable on the exercise of the Warrant,
the Company at its expense will promptly compute such adjustment in accordance
with the terms of the Warrant and will notify the Holder in writing of such
adjustment within 30 days of the effective date of such adjustment. When
appropriate, notice may be given in advance as part of notices required to be
mailed to the Holder pursuant to Section 7.5 hereof.

7.4 OTHER ISSUANCES. Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with a direct sale or upon the exercise of rights or warrants to
subscribe therefore, or upon conversions of shares or obligations of the Company
convertible into such shares or other securities, or as compensation or
otherwise, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of or the exercise price of the Shares that remain
unexercised under the Warrant.

4
<PAGE> 5

Without limiting the generality of the foregoing, the existence of
unexercised Shares under the Warrant shall not affect in any manner the right or
power of the Company to make, authorize or consummate (i) any issuances as
described above, (ii) any or all adjustments, recapitalizations, reorganizations
or other changes in the Company's capital structure or its business; (iii) any
merger or consolidation of the Company; (iv) any issue by the Company of debt
securities, or preferred or preference stock that would rank above the Shares
issuable upon exercise of the Warrant; (v) the dissolution or liquidation of the
Company; (vi) any sale, transfer or assignment of all or any part of the assets
or business of the Company; or (vii) any other corporate act or proceeding,
whether of a similar character or otherwise.

7.5 NOTICES OF RECORD DATE, ETC. In case:

(a) the Company shall take a record of the holders of its
Common Stock (or Other Securities at the time receivable upon the exercise of
the Warrant) for the purpose of entitling them to receive any dividend (other
than a cash dividend at the same rate as the rate of the last cash dividend
theretofore paid) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other securities,
or to receive any other right; or

(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation; or

(c) of any voluntary or involuntary dissolution, liquidation
or winding up of the Company, then, and in each such case, the Company shall
mail or cause to be mailed to each Holder of the Warrant at the time outstanding
a notice specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right, or (ii) the date
on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding up is to take place, and the
time, if any, is to be fixed, as to which the holders of record of Common Stock
(or such Other Securities at the time receivable upon the exercise of the
Warrant) shall be entitled to exchange their shares of Common Stock (or such
Other Securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger conveyance, dissolution,
liquidation or winding up. Such notice shall be mailed at least 20 days prior to
the date therein specified, and the Warrant may be exercised prior to said date
during the term of the Warrant.

8. TRANSFER TO COMPLY WITH THE SECURITIES ACT. The Warrant Stock or
Other Securities may not be sold, transferred, pledged, hypothecated or
otherwise disposed of except as follows: (a) in a transaction exempt from
registration under the Securities Act including pursuant to Rule 144 thereunder;
(b) to a person who, in the opinion of counsel to the Company, is a person to
whom this Warrant or the Warrant Stock or Other Securities may legally be
transferred without registration and without the delivery of a current
prospectus under the Securities Act with respect thereto and then only against
receipt of an agreement of such person to comply with the provisions of this

5
<PAGE> 6

Warrant with respect to any resale or other disposition of such securities; or
(c) to any person upon delivery of a prospectus then meeting the requirements of
the Securities Act relating to such securities and the offering thereof for such
sale or disposition.

9. LEGEND. Unless the shares of Warrant Stock or Other Securities have
been registered under the Securities Act, upon exercise of any of the Warrants
and the issuance of any of the shares of Warrant Stock, all certificates
representing shares will bear on the face thereof substantially the following
legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED
FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED
PURSUANT TO THE PROVISIONS OF THAT ACT OR UNLESS AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY IS OBTAINED STATING THAT SUCH DISPOSITION IS IN
COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.

10. NOTICES. All notices required hereunder shall be in writing and
shall be deemed given when telegraphed, delivered personally or within two days
after mailing when mailed by certified or registered mail, return receipt
requested, to the Company or the Holder, as the case may be, for whom such
notice is intended at the address of such party as set forth on the first page,
or at such other address of which the Company or the Holder has been advised by
notice hereunder.

11. APPLICABLE LAW. The Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the laws of the State
of Delaware.

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on
its behalf, in its corporate name, by its duly authorized officer, all as of the
day and year first above written.

VIRAGEN, INC.

By:
-------------------------------
Gerald Smith, President

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<PAGE> 7

WARRANT EXERCISE FORM

The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing __________ shares of Common Stock at an
exercise price of $_________ per share of Common Stock of Viragen, Inc., a
Delaware corporation, and hereby makes payment of $__________ in payment
therefor.

----------------------------------
Signature

----------------------------------
Date

INSTRUCTIONS FOR ISSUANCE OF STOCK
(If in a name other than to the registered holder of the within Warrant)

Name

- -------------------------------------------------------------------------------
(Please typewrite or print in block letters)

Address:

- -------------------------------------------------------------------------------

- -------------------------------------------------------------------------------
Social Security or
Taxpayer Identification Number:

- -------------------------------------------------------------------------------

7
<PAGE> 8

EXHIBIT A

PROMISSORY NOTE

$ _________________ [DATE]

FOR VALUE RECEIVED, THE AMERICAN NATIONAL RED CROSS, a District of
Columbia Corporation ("Maker"), having an address at 1616 N. Fort Myer Drive,
Arlington, Virginia 22209, hereby promises to pay to the order of VIRAGEN, INC.,
a Delaware corporation ("Holder"), having an address at 865 S.W. 78th Avenue,
Suite 100, Plantation, Florida 33324, the principal sum of
__________________________________ ($___________), together with simple interest
thereon at the annual rate equal to THE WALL STREET JOURNAL prime rate published
on the date hereof, at the address of Holder set forth above. The entire
principal amount of this Note, together with accrued interest thereon, shall be
payable one (1) year from the date hereof (the "Maturity Date").

Maker hereby waives presentment, demand, protest, notice of dishonor,
notice of nonpayment, notice of protest and diligence in collection. The
non-exercise by Holder of any of Holder's rights hereunder in any particular
instance shall not constitute a waiver thereof in that or any subsequent
instance. Any waiver of any right, term or condition hereby by Holder must be in
writing to be valid. Maker acknowledges that no oral waiver shall be binding,
nor shall Maker have the right to rely on any oral statement purporting to be a
waiver.

This Note shall inure to the benefit of Holder and Holder's successors
and assigns. This Note shall be binding upon Maker and Maker's successors and
assigns.

THE AMERICAN NATIONAL RED CROSS,
a District of Columbia corporation

By:
-------------------------------

Name:
------------------------------

Its:
-------------------------------

<PAGE> 1
Exhibit 10(LX)(04)

EXHIBIT 4B

REGISTRATION RIGHTS AGREEMENT

AGREEMENT, dated as of the 12th day of August, 1998, by and between THE
AMERICAN NATIONAL RED CROSS, a charitable and not-for-profit corporation having
its principal offices in Falls Church, Virginia 22042 ("ARC") and VIRAGEN, INC.,
a Delaware corporation having its principal offices at 865 SW. 78th Avenue,
Suite 100, Plantation, Florida 33324 (the "Company").

WHEREAS, simultaneously with the execution and delivery of this
Registration Rights Agreement, ARC, the Company and Viragen U.S.A., Inc.
("VUSA") are entering into an Agreement made and entered into as of August 12,
1998, (the "Agreement"), which provides, INTER ALIA, for ARC to have the right
to receive payments for ARC buffycoats in cash or shares of Common Stock of the
Company (such shares of Common Stock as may be issued pursuant to such election
by ARC is hereinafter be referred to as the "Shares"), and for the issuance of
up to 500,000 shares of Common Stock upon exercise of a warrant dated even date
therewith (the "Warrant") upon the terms and conditions set forth in the
Agreement and the Warrant (such shares of Common Stock as may be issued upon
exercise of the Warrant is hereinafter referred to as the "Warrant Stock"); and

WHEREAS, the Company desires to grant to ARC the registration rights
set forth here in with respect to the Shares and the Warrant Stock:

1. REQISTRABLE SECURITIES. As used herein the term "Registrable
Security" means collectively, the Shares and the Warrant Stock; provided,
however, that with respect to any particular Registrable Security, such security
shall cease to be a Registrable Security when, as of the date of determination,
(i) it has been effectively registered under the Securities Act of 1933, as
amended (the "Securities Act") and disposed of pursuant thereto, or (ii)
registration under the Securities Act is no longer required for the immediate
public distribution of such security. The term "Registrable Securities" means
any and/or all of the securities falling within the foregoing definition of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment shall be made in the definition of
"Registrable Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Article 1.

2. PIGGYBACK REGISTRATION. If, at any time, the Company proposes to
prepare and file with the Securities and Exchange Commission (the "Commission")
a registration statement covering equity or debt securities of the Company, or
any such securities of the Company held by its stockholders (in any such case,
other than in connection with a merger, acquisition or pursuant

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<PAGE> 2

to Form S-8 or successor form) (for purposes of this Article 2, collectively, a
"Registration Statement"), it will give written notice of its intention to do so
by registered mail ("Notice") at least thirty (30) days prior to the filing of
each such Registration Statement to ARC. Upon the written request of ARC, made
within twenty (20) days after receipt of the Notice, that the Company include
any of the Shares and/or Warrant Stock in the proposed Registration Statement
(provided in the case of a request with regard to the Shares that VUSA and ARC
have executed mutually agreeable two-year buffycoat pricing schedules and rebate
programs as contemplated in the Agreement), the Company shall use its best
efforts to effect the registration under the Securities Act of the resale of the
Shares and/or Warrant Stock which it has been so requested to register
("Piggyback Registration"), at the Company's sole cost and expense and at no
cost or expense to ARC except as provided in Section 4E) hereof.

Notwithstanding the provisions of this Article 2, (i) the Company shall
have the right at any time after it shall have given written notice pursuant to
this Article 2 (irrespective of whether any written request for inclusion of the
Shares shall have already been made) to elect not to file any such proposed
Registration Statement, or to withdraw the same after the filing but prior to
the effective date thereof; (ii) if the Company's managing underwriter, if any,
of the offering for which a Registration Statement has been filed so requests in
writing, the Shares shall not be offered or sold until the expiration of a date
not to exceed 90 days from the effective date of the offering that gave rise to
the Piggyback Registration, but any such request and deferral of the offer and
sale shall not affect the Company's obligation to register for resale under the
Securities Act the Shares.

In the event of the termination of the Agreement by the Company and/or
VUSA pursuant to Section 6.2 thereof, the registration rights provided by this
Article 2 shall simultaneously terminate; and in the event of suspension of the
Agreement pursuant to Section 6.1(d) thereof, such registration rights shall be
correspondingly suspended. The termination or suspension of this Agreement shall
not affect the Company's and/or VUSA's obligations hereunder with respect to (i)
Warrant Stock that ARC has a vested right to acquire and/or Shares or (ii)
Warrant Stock and/or Shares subject to a then effective Registration Statement.

3. DEMAND REGISTRATION. As set forth in the Warrant, there is provided
to ARC the right to purchase up to 500,000 Shares of Common Stock of the Company
which shall vest as to certain shares of Warrant Stock at various dates
commencing with August 12, 1998 through August 12, 2004. At the time of vesting
of each tranche of Warrant Stock as provided in the Warrant, ARC shall have the
right (which right is in addition to the Piggyback Registration provided for
under Article 2 hereof), exercisable by written notice to the Company (the
"Demand Registration Request"), to have the Company prepare and file with the
Commission on one occasion as to the Warrant Stock included in the tranche which
shall have vested, at the sole expense of the Company (except as provided in
Section 4(b)), a Registration Statement so as to permit a public offering and
sale of the Warrant Stock.

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<PAGE> 3

As set forth in the Agreement, ARC has the right to receive certain
payments for ARC buffycoats in Shares. ARC shall have the right upon each
election to receive such Shares (which right is in addition to the Piggyback
Registration provided for in Article 2 hereof), and in the event the Company has
not theretofore included the Shares in any other current Registration Statement,
to have the Company prepare and file with the Commission, at the sole expense of
the Company (except as provided in Section 4(b)), a Registration Statement so as
to permit a public offering and sale of the Shares.

Once effective, the Company will be required to maintain the
effectiveness of the Registration Statement with respect to each tranche of the
Warrant Stock or Shares registered in connection therewith until the earlier of
(i) the date that all of the Warrant Stock and/or the Shares have been sold, or
(ii) the date that all holders of Warrant Stock and/or Shares receive an opinion
of counsel to the Company that all of the Warrant Stock and/or Shares may be
freely traded without registration under the Securities Act, under Rule 144
promulgated under the Securities Act or otherwise. If ARC shall give notice to
the Company at any time of its desire to exercise the registration right granted
pursuant to this Article 3, then the Company shall use its best efforts to
effect, as soon as practicable and in any event within the time period specified
in Section 4(a)(i) hereof, the registration under the Securities Act of all
Warrant Stock and/or the Shares that ARC may request to be so registered.

If ARC indicates that it intends to distribute the Warrant Stock and/or
the Shares covered by its Demand Registration Request by means of an
underwriting, ARC shall so advise the Company as a part of the notice given
pursuant to this Section 3. In the event of any underwritten public offering,
the Company shall enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. The underwriter will be selected by ARC and shall be an underwriter
reasonably acceptable to the Company.

If at any time the Company registers any Warrant Stock and/or the
Shares under the Securities Act pursuant to this Section 3, the sale or other
disposition of such Warrant Stock and/or the Shares by ARC may be made pursuant
to a Registration Statement on Form S-3 under the Securities Act as in effect on
the date hereof or any registration form under the Securities Act subsequently
adopted by the Commission that permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the
Commission, such Registration Statement shall be filed as a "shelf" registration
statement pursuant to Rule 415 under the Securities Act (or any successor rule).
Any such shelf registration shall cover the disposition of the Warrant Stock
and/or the Shares in one or more underwritten offerings, block transactions,
broker transactions, at-market transactions and in such other manner or manners
as may be specified by ARC. The Company shall use its best efforts to keep such
"shelf" registration continuously effective as long as the delivery of a
prospectus is required under the Securities Act in connection with the
disposition of the Warrant Stock and/or the Shares registered thereby and in
furtherance of such obligation, shall supplement or amend such Registration
Statement if, as and when required by the rules, regulations and instructions
applicable to the form used by the

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<PAGE> 4

Company for such registration or by the Securities Act or by any other rules and
regulations thereunder applicable to shelf registrations.

Nothing herein shall require the Company to undergo an audit, other
than in the ordinary course of business.

In the event of the termination of the Agreement by the Company and/or
VUSA pursuant to Section 6.2 thereof, or in the event of the early termination,
non-renewal or suspension of the Agreement pursuant to Section 6.1 thereof, the
registration rights provided by this Article 3 shall simultaneously terminate or
be suspended, as the case may be. The termination or suspension of this
Agreement shall not affect the Company's and/or VUSA's obligations hereunder
with respect to (i) Warrant Stock that ARC has a vested right to acquire and/or
Shares or (ii) Warrant Stock and/or Shares subject to a then effective
Registration Statement.

4. COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. The Company
covenants and agrees as follows:

(a) (i) In connection with any registration under Articles 2
and 3 hereof, the Company shall use its best efforts to file the Registration
Statement as expeditiously as possible, but in no event later than forty-five
(45) days following receipt of any Notice or Demand Registration Request
therefor. The Company shall use its best efforts to cause the Registration
Statement to become effective as promptly as possible and, if any stop order
shall be issued by the Commission or order suspending qualification or
registration in any state in connection therewith, to use its reasonable efforts
to obtain the removal of such order. Following the effective date of a
Registration Statement, the Company shall, upon the request of ARC, forthwith
supply such reasonable number of copies of the Registration Statement,
preliminary prospectus and prospectus meeting the requirements of the Securities
Act, any supplements or amendments thereto, and other documents necessary or
incidental to the public offering of the Registrable Securities, as shall be
reasonably requested by ARC to permit ARC to make a public distribution of ARC's
Registrable Securities. ARC shall furnish the Company in a timely manner with
all information required by the applicable rules and regulations of the
Commission concerning the proposed method of sale or other disposition of such
Registrable Securities and such other information as may be reasonably requested
by the Company in writing properly to prepare and file such Registration
Statement, or any prospectus, supplement or amendment thereto in accordance with
the applicable provisions of the Securities Act.

(ii) The Company shall prepare and file with the
Commission such amendments (including post-effective amendments) and supplements
to such Registration Statement and the prospectus used in connection with such
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement.

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<PAGE> 5

(iii) Prior to filing the Registration Statement or a
prospectus or any amendments or supplements thereto, the Company shall furnish
ARC with copies of all such documents proposed to be filed, which documents will
be made available, on a timely basis, for review by ARC and its counsel, and ARC
and its counsel shall furnish comments thereon, if any, within five business
days of receipt of such Registration Statement, prospectus, amendments or
supplements.

(iv) The Company shall promptly advise ARC and
confirm such advice in writing, (1) when such Registration Statement or the
prospectus included therein or any prospectus amendment or supplement or
post-effective amendment has been filed, and, with respect to such Registration
Statement or any post-effective amendment, when the same has become effective,
(2) of any comments by the Commission, by the National Association of Securities
Dealers, Inc. ("NASD"), and by the blue sky or securities commissioner or
regulator of any state with respect thereto or any request by any such entity
for amendments or supplements to such Registration Statement or prospectus or
for additional information, (3) of the issuance by the Commission of any stop
order suspending the effectiveness of such Registration Statement or the
initiation or threatening of any proceedings for that purpose, (4) if at any
time the representations and warranties of the Company contained herein cease to
be true and correct in all material respects, (5) of the receipt by the Company
of any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, or (6) at any time when a
prospectus is required to be delivered under the Securities Act, that such
Registration Statement, prospectus, prospectus amendment or supplement or
post-effective amendment, or any document incorporated by reference in any of
the foregoing, contains an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under which they are made, not
misleading.

(v) Notwithstanding the provision under Section
4(a)(i) hereof, if, at the time the Demand Registration Request is given to the
Company under Article 3 hereof, the Company is negotiating a merger,
consolidation, acquisition or sale of all or substantially all of its assets or
similar transaction and in the written opinion of counsel to the Company, the
Registration Statement would be required to include information concerning such
transactions or the parties thereto that is not available at the time, the
Company shall promptly so advise ARC and, at the Company's election, to be set
forth in such notice ("Notice of Postponement"), the filing of the Registration
Statement may be postponed for a period not to exceed ninety (90) days from the
date the Demand Registration Request is given to the Company under Article 3
hereof (notwithstanding the provisions of Section 4(a)(i) to the contrary);
provided, however, that the Company shall not be permitted to give any such
Notice of Postponement and to so postpone the filing of the Registration
Statement more than once in any 365 day period; and provided, further, that in
the event of such postponement, ARC may withdraw the notice of Demand
Registration during the 60-day period following the date Notice of Postponement
is given by the Company and will thereafter continue to be entitled to one (1)
Demand Registration Request pursuant to Article 3 hereof.

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<PAGE> 6

(b) The Company shall pay all costs, fees and expenses in
connection with all Registration Statements filed pursuant to Article 2 or
Article 3 hereof including, without limitation, the Company's legal and
accounting fees, printing expenses, and blue sky fees and expenses; provided,
however, that ARC shall be solely responsible for the fees of any counsel
retained by ARC in connection with such registration and any transfer taxes or
underwriting discounts, commissions or fees applicable to the Registrable
Securities sold by ARC pursuant thereto.

(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in a
Registration Statement for offering and sale under the securities or blue sky
laws of such states as are reasonably requested by the holders of such
securities, provided that the Company shall not be obligated to execute or file
any general consent to service of process or to qualify as a foreign corporation
to do business under the laws of any such jurisdiction.

(d) The Company shall cooperate with ARC to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold (in such denominations and registered in such names as ARC
may request) and not bearing any legends restricting the transfer thereof under
the Securities Act, except as may be required by law.

(e) The Company shall cause all Registrable Securities to be
listed or accepted for listing or quotation on each securities exchange or
interdealer quotation system on which the Company's Common Stock then trades.

(f) The Company shall provide a CUSIP number for all
Registrable Securities covered by the Registration Statement.

(g) Otherwise use best efforts to comply with all applicable
provisions of the Securities Act, and rules and regulations of the Commission,
and make available to its security holders, as soon as reasonably practicable,
an earnings statement covering a period of at least twelve months which shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.

5. INDEMNIFICATION.

(a) The Company shall indemnify and hold harmless ARC, any
underwriter (as defined in the Act) for ARC and each person, if any, who
controls ARC or underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "1934

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Act"), against any losses, claims, damages or liabilities joint or several) to
which they may become subject under the Securities Act, or the 1934 Act, or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such Registration Statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by me
Company of the Securities Act, the 1934 Act, any state securities law or any
rule or regulation promulgated under the Securities Act, or the 1934 Act or any
state securities law; and the Company will pay to ARC, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action, including without limitation any governmental
investigation relating to any such alleged Violation; provided however, that the
indemnity agreement contained in this Section 5 shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable to any indemnitee
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished by such indemnitee expressly for
use in connection with such registration.

(b) ARC will indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the Registration Statement,
each person, if any, who controls the Company within the meaning of the Act, any
underwriter, and any controlling person of any such underwriter against any
losses, claims, damages, or liabilities joint or several) to which any of the
foregoing persons may become subject, under the Securities Act, or the 1934 Act,
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by ARC expressly for use in connection with such registration; and ARC
will pay, as incurred, any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this Section 5, in connection with
investigating or defending any such loss, claim, damage, liability or action
provided however, that the indemnity agreement contained in this Section 5 shall
not apply to amounts paid in settlement of any such loss, claim damage,
liability or action if such settlement is effected without the consent of ARC,
which consent shall not be unreasonably withheld; provided, that, in no event
shall any indemnity obligation under this Section 5 (together with any
obligation to contribute under subsection (d) hereof) exceed the gross proceeds
from the offering received by ARC.

(c) Promptly after receipt by an indemnified party under this
Section 5 of notice of the commencement of any action (including any
governmental action or investigation), such indemnified party will, if a claim
in respect thereof is to be made against any indemnifying party under this
Section 5, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and to the extent the

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<PAGE> 8

indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
5, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 5.

(d) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 5 but is
found in a final judicial determination, not subject to further appeal, that
such indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Securities Act,
the Exchange Act or otherwise, then the Company (including for this purpose any
contribution made by or on behalf of any director of the Company, any officer of
the Company who signed any such Registration Statement and any controlling
person of the Company), as one entity, and ARC (including for this purpose any
contribution by or on behalf of an indemnified party), as a second entity, shall
contribute to the losses, liabilities, claims, damages, and expenses whatsoever
to which any of them may be subject, on the basis of relevant equitable
considerations such as the relative fault of the Company and ARC in connection
with the facts which resulted in such losses, liabilities, claims, damages, and
expenses - The relative fault, in the case of an untrue statement, alleged
untrue statement, omission, or alleged omission, shall be determined by, among
other things, whether such statement, alleged statement, omission, or alleged
omission relates to information supplied by the Company or by ARC, and the
parties' relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement, alleged statement, omission, or alleged
omission. The Company and ARC agree that it would be unjust and inequitable if
the respective obligations of the Company and ARC for contribution were
determined by pro rata or per capital allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if ARC and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations referred
to in this Section 5. In no case shall ARC be responsible for a portion of the
contribution obligation in excess of its pro rata share based on the number of
shares of Common Stock owned (or which would be owned upon exercise of all
Registrable Securities) by it and included in such registration as compared to
the number of shares of Common Stock owned (or which would be owned upon
exercise of all Registrable Securities) by all holders and included in such
registration. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. For purposes of
this Section 5, each person, if any, who controls any underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the 1934 Act and each
officer, director, partner, employee and agent of ARC, underwriter or control
person shall have the same rights to contribution as ARC, underwriter

8 of 12
<PAGE> 9

or control person and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the 1934 Act, each officer
of the Company who shall have signed any such Registration Statement, and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 5. Anything in
this Section 5 to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent, provided that such consent may not be unreasonably
withheld. This Section 5 is intended to supersede any right to contribution
under the Securities Act, the 1934 Act or otherwise.

(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in. the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in this Agreement
shall control.

(f) The obligations of the Company and ARC under this Section
5 shall survive the completion of any offering of Registrable Securities in a
Registration Statement or the termination or suspension of this Agreement.

6. 1934 ACT REGISTRATION; RULE 144 REPORTING. The Company covenants and
agrees that until such time as ARC no longer holds any Registrable Securities it
will:

(a) If required by law, use its best efforts to maintain an
effective Registration Statement (containing such information and documents as
the Commission shall specify) with respect to its Common Stock under Section 12
of the 1934 Act;

(b) Use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144 under the Act,
even if the Company subsequently ceases to be subject to such reporting
requirements;

(c) Use its best efforts to file with the Commission in a
timely manner all reports and documents required of the Company under the Act
and the 1934 Act;

(d) Furnish to ARC promptly upon request (i) a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 and of the Act and the 1934 Act, (ii) a copy of the most recent annual
or quarterly report of the Company, and (iii) such other reports and documents
of the Company and other information in the possession of or reasonably
attainable by the Company as ARC may reasonably request in availing itself of
any rule or regulation of the Commission allowing ARC to sell any such
Registrable Securities without registration.

9 of 12
<PAGE> 10

(e) The Company represents and warrants to ARC that any
information, document or report filed with the Commission in connection
therewith or any information so made public shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements contained therein
not misleading. The Company agrees to indemnify and hold harmless (or to the
extent the same is not enforceable, make contribution to) ARC, its partners,
officers, directors, employees and agents, each broker, dealer or underwriter
(within the meaning of the Act), if any, acting for ARC in connection with any
offering or sale of Registrable Securities or any person controlling (within the
meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act) ARC
and any such broker, dealer or underwriter from and against any and all losses,
claims, damages, liabilities or expenses (or actions in respect thereof) arising
out of or resulting from any breach of the foregoing representation or warranty,
all on terms and conditions comparable to those set forth in Section 5.

7. ADDITIONAL TERMS.

(a) Neither the filing of a Registration Statement by the
Company pursuant to this Agreement nor the making of any request for
prospectuses by ARC shall impose upon ARC any obligation to sell ARC's
Registrable Securities.

(b) ARC, upon receipt of notice from the Company that an event
has occurred which requires a Post-Effective Amendment to the Registration
Statement or a supplement to the prospectus included therein, shall promptly
discontinue the sale of Registrable Securities until ARC receives a copy of a
supplemented or amended prospectus from the Company, which the Company shall
provide as soon as practicable after such notice.

(c) If the Company fails to keep the Registration Statement
referred to in Article 2 and Article 3 above continuously effective during the
requisite period, then the Company shall, promptly upon the request of ARC, use
its best efforts to update the Registration Statement or file a new registration
statement covering the Registrable Securities remaining unsold, subject to the
terms and provisions hereof.

(d) ARC agrees to provide the Company with any information or
undertakings reasonably requested by the Company in order for the Company to
include any appropriate information concerning ARC in the Registration Statement
or in order to promote compliance by the Company or ARC with the Securities Act.

10 of 12
<PAGE> 11

8. GOVERNING LAW. This Registration Rights Agreement shall be governed
as to validity, interpretation, construction, effect and in all other respects
by the internal substantive laws of the State of Delaware, without giving effect
to the choice of law rules thereof.

9. AMENDMENT. This Registration Rights Agreement may only be amended by
a written instrument executed by the Company and ARC.

10. ENTIRE AGREEMENT. This Registration Rights Agreement constitutes
the entire agreement of the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings of the parties,
oral and written, with respect to the subject matter hereof.

11. EXECUTION IN COUNTERPARTS. This Registration Rights Agreement may
be executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same document.

12. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand or mailed by registered or certified mail, postage prepaid, return receipt
requested, as follows:

If to ARC, to its address set forth on the first page of this
Registration Rights Agreement.

If to the Company, to the address set forth on the first page of this
Registration Rights Agreement.

13. BINDING EFFECT; BENEFITS. This Registration Rights Agreement shall
inure to the benefit of, and be binding upon, the parties hereto and their
respective heirs, legal representatives and successors. Nothing herein.
contained, express or implied, is intended to confer upon any person other than
the parties hereto and their respective legal representatives and successors,
any rights or remedies under or by reason of this Registration Rights Agreement.

14. HEADINGS. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Registration Rights
Agreement.

15. SEVERABILITY. Any provision of this Registration Rights Agreement
which is held by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction(s) shall be, as

11 of 12
<PAGE> 12

to such jurisdiction(s), ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Registration Rights Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction.

IN WITNESS WHEREOF, this Registration Rights Agreement has been
executed and delivered by the parties hereto as of the date first above written.

VIRAGEN, INC.

By: /s/ Gerald Smith
---------------------------------
Gerald Smith, President

AMERICAN NATIONAL RED CROSS

By: /s/ Naill M. Conway
---------------------------------
Name: Naill M. Conway
------------------------------
Its: V.P. Manufacturing
------------------------------

12 of 12

<PAGE> 1
Exhibit-10(LX)(05)

TRANSMITTAL SHEET

APPROVALS/CONCURRENCES

AGREEMENT FOR THE VIRAGEN-ARC BUFFYCOAT SUPPLY AGREEMENT.

DATED AUGUST 12, 1998.

Using Office Review and Approval /s/ Niall Conway
------------------------------------------
(Signature)

NIALL CONWAY, VICE PRESIDENT, MANUFACTURING

8/13/98
-----------------
(Date)

Office of General Counsel Review /s/ Julia Soyars-Berman
and Approval ------------------------------------------
(Signature)

JULIA SOYARS-BERMAN, COUNSEL, OFFICE OF
GENERAL COUNSEL

8/12/98
--------------------
(Date)

Vice President, Finance Review /s/ Joel Polster
and Approval ------------------------------------------
(Signature)

JOEL POLSTER, ACTING VICE PRESIDENT,
BIOMEDICAL FINANCE

8/14/98
---------------------
(Date)

VIRAGEN, INC. VIRAGEN USA, INC.

--------------- -------- ---------------------- -------
By: Gerald Smith Date By: Charles F. Fistel Date
President Executive Vice President

<PAGE> 1
Exhibit 10.(lxiii)

PLEDGE AND ESCROW AGREEMENT

THIS PLEDGE AND ESCROW AGREEMENT (the "Agreement") made and entered
into as of this first day of September, 1998 by and among GERALD SMITH
(hereinafter referred to as "Pledgor"), Viragen, INC., a Delaware corporation
(hereinafter referred to as "Pledgee") and ATLAS, PEARLMAN, TROP & BORKSON, P.A.
(hereinafter referred to as "Escrow Agent").

W I T N E S S E T H:

WHEREAS, Gerald Smith (the Pledgor referred to in this Agreement) is
the President of Viragen, Inc (the Pledgee referred to in this Agreement) and
entered into a Stock Option Agreements with the Pledgee on October 6, 1995, a
copy of which is attached hereto as Exhibit A;

WHEREAS, pursuant to such Stock Option Agreements, Pledgor was afforded
the right to acquire 200,000 shares of Common Stock of the Pledgee at $.50 per
share for an aggregate purchase price of $100,000.

WHEREAS, the Pledgor has executed a five-year promissory note in the
principal amount of $100,000 (the "Note") in favor of Pledgee for the purchase
price payable in respect to the acquisition of the 200,000 shares of Common
Stock of the Pledgee, a copy of which is attached hereto as Exhibit B;

WHEREAS, to secure the payment of the Note, Pledgor has agreed to grant
Pledgee a security interest in all 200,000 shares of the Common Stock of the
Pledgee (the "Pledged Shares"); and

WHEREAS, the Pledgor and the Pledgee have requested the Escrow Agent to
act as escrow agent for the Pledged shares in accordance with the terms of this
Agreement;

NOW, THEREFORE, in consideration of the premises, covenants and
agreement hereinafter set forth, the parties mutually agree as follows:

1. SECURITY INTEREST. Pledgor hereby grants to Pledgee a first
lien security interest, superior to all other liens and
encumbrances, in and to the Pledged Shares. Copies of stock
powers representing the Pledged Shares, endorsed in blank, and
copies of the certificates representing the Pledged Shares,
are attached hereto as Exhibit "C". The Pledged Shares and
stock powers shall be held by

<PAGE> 2

Escrow Agent as collateral for the indebtedness owed by the
Pledgor to Pledgee pursuant to the Note.

2. REPRESENTATIONS, WARRANTIES AND COVENANTS. Pledgor hereby
represents, warrants and covenants that, except for the
security interest granted hereunder, and except that the
Pledged Shares are partially paid shares subject to assessment
for the balance of the purchase price as represented by the
principal amount of the Note, Pledgor is the legal and
equitable owner of the Pledged Sharon and holds same free and
clear of all liens, charges, encumbrances and security
interest of every kind and nature, and that Pledgor will make
no assignment, pledge, mortgage, hypothecation or transfer of
the Pledged Share; that Pledgor has good right and legal
authority to pledge the Pledged Shares in the manner hereby
done or contemplated and will defend Pledgor's title to the
Pledged Shares against the claim of all persona whomsoever;
that no consent or approval of any governmental body or
regulatory authority, or of any securities exchange, is
necessary to the validity of the pledge effected hereby,
except for any consents or approvals which have been obtained;
that the pledge of the Pledged Shares is effective to vest in
Pledgee the rights of the Pledgor in the Pledged shares set
forth herein; and that the Pledged Shares have been duly and
validly authorized.

3. RIGHT TO VOTE. Except as otherwise provided herein, during the
term of this Agreement and so long as Pledgor is not in
default in the performance of any of the terms of this
Agreement or in the payment of principal or interest under the
Note, the Pledgor shall be entitled to all rights of
ownership, including, but not limited to, the right to vote
the Pledged shares on all corporate questions.

4. ADJUSTMENTS. In the event that, during the term of this
Agreement, any stock dividend shall be declared an or with
respect to any 0(pound) the Pledged Shares, or there is a
reclassification, readjustment, merger, consolidation, stack
split or any other change is made in the capital structure of
the Pledgee which has issued the Pledged Shares or any
successor thereto, all hew, substituted and additional shares
or other securities issued by reason of such a change shall be
delivered and held by Escrow Agent under the terms of this
Agreement in the same manner as the Pledged Shares.

5. DEFAULT. In the event of default by the Pledgor under the
Note, in addition to any right or remedy which it may have
hereunder, the Pledgee shall have all of the rights and
remedies of a secured party under Article 9 of the Uniform
commercial Code as it is now or hereafter in effect in the
State of Florida, including without limitation the right to
retain or to sell or otherwise dispose at all or any portion
of the Pledged Shares. Upon the occurrence of a default under
the Note, the Pledgee shall, in its sole discretion, have the
right to cancel the Pledged Shares or to offer for sale, and
to sell, all or any of the Pledged Shares at any private or
public sale; provided, however, that the Pledge shall give to
the Pledgor at least ten (10) business days notice of the
time, date and place of any such private or public sale, which
provision for notice, the Pledgor hereby expressly agrees is
commercially reasonable. Furthermore, the Pledgor hereby
expressly agrees that the Pledgee may (1) sell all or any
portion of the Pledged Shares at any private or public sale
for cash, upon credit, or for other property, for immediate or
future delivery, and

<PAGE> 3

for such price or prices and on such terms as the Pledgee in
its sole discretion shall deem appropriate, (ii) bid on and
purchase the Pledged Shares at any private or public sale, and
(iii) hold any of the Pledged shares purchased by the Pledgee
at any private or public sale in its own right, free and clear
of any and all claims of the Pledgor. The Pledgee may, from
time to time, upon such default, sell all or any part of the
Pledged Shares. The Pledgor hereby appoints Pledgee an its
attorney-in-fact to execute such documents and take such
action as may be necessary to accomplish the provisions of
this Agreement, including, without limiting the generality of
the foregoing, the right to ask for, demand, sue for, collect,
receive and give acquittance for any and all monies due or to
become due with respect to or in connection with any of the
Pledged shares, to endorse checks, drafts, orders and other
instruments for the payment of money representing any interest
or dividend or other distribution with respect to or in
connection with the Pledged shares or any part thereof and to
give full discharge for the same, to settle, compromise,
prosecute or defend any action, claim or proceeding with
respect thereto and to sell, assign, endorse, pledge, transfer
and make any agreement respecting same, or otherwise deal with
the name. Such appointment in irrevocable and coupled with an
interest. Unless Pledgee retains the Pledged Shares in full
satisfaction or Pledgor's obligations under the Note as
provided herein, Pledgee shall apply the proceeds of
disposition of the Pledge shares in the manner provided by
Florida law. In lieu of any such sale, Pledgee may retain the
Pledged Shares in full satisfaction or Pledgor's obligations
under the Note.

6. ESCROW. Pledgor shall deposit with Escrow Agent the Plodded
shares, along with the aforesaid stock powers (all of which
items shall hereinafter be referred to as the "Pledged
Documents" including all stack assignments), to be held in
escrow for future delivery as follows:

a. Escrow Agent shall deliver the Pledged Documents to
Pledgee within ten (10) business days after receiving
an affidavit signed by Pledgee stating that:

(i) Pledgor is in default under the Note and all
periods of time within which to cure such
default have expired;

(ii) Pledgee is accelerating the entire unpaid
balance due under the Note; and

(iii) Pledgee demands delivery of the Pledged
Documents.

Pledgee shall simultaneously furnish Pledgor with a
copy of such affidavit. If Escrow Agent has not
received any protest or objection from Pledgor
within ten (10) business days of receipt of such
affidavit, the Pledged Documents shall be delivered
to the Pledgee. Upon such delivery of the Pledged
Documents, Escrow Agent's duties hereunder shall
terminate.

b. In the event Escrow Agent has received written
instructions signed by both Pledgor and Pledgee
notifying Escrow Agent of a sale of a portion of the
Pledged Shares pursuant to the Employment Agreement,
ESCROW Agent may release a portion or all of the
Pledged Shares, as provided in such written
instruction, and if Escrow Agent is designated to be
the recipient of the proceeds from the sale of all OR
a portion of the Pledged Shares, then

<PAGE> 4

Escrow Agent shall deliver any such proceeds received
in accordance with such written instructions.

c. In the event Escrow Agent has not delivered the
Pledged Documents pursuant to subparagraph a. above,
then Escrow Agent shall deliver the Pledged Document;
to Pledgor within ten (10) business day; after
receipt of the original of the Note marked. "Paid in
full", accompanied by instructions from Pledgor
indicating that the Note has been paid in full and
the Pledged documents shall be delivered to Pledgor
at the address specified therein. Upon ouch delivery
of the Pledged Documents, Escrow Agent's duties
hereunder shall terminate. Pledgee agrees to deliver
the Note to Pledgor marked "paid in full",
immediately upon satisfaction thereof.

7. DISPUTE. It is specifically understood and agreed that should
any dispute arise between the parties hereto concerning this
Agreement or its construction, or for any other reason, the
Escrow Agent in its sole discretion, shall have the right to
deposit the Pledged Documents held by it pursuant to this
Escrow Agreement and any documents relating thereto that may
have been delivered to the Escrow Agent, with the Clerk of the
Circuit Court of Broward County, Florida, and notify all
parties concerned, and whereupon, all liability hereunder on
the part of the Escrow Agent shall fully cease except to the
extent of accounting for the Pledged Documents and any other
documents that may have been delivered to it.

8. INTERPLEADER. In the event the Escrow Agent places the Pledged
Documents that have actually been delivered to Escrow Agent in
the registry of the Circuit Court in and for Broward County,
Florida, and files an action of interpleader naming Pledgor
and Pledgee, and other necessary parties, Escrow Agent shall
be released and relieved from any and all further obligations
and liabilities hereunder or in connection herewith. Pledgor
and Pledgee hereby, jointly and severally, indemnify and hold
Escrow Agent harmless from any damages OR losses arising
hereunder or in connection herewith, including, but not
limited to, all costs and expenses incurred by Escrow Agent in
connection with the filing at such action and reasonable
attorneys' teen and costs for Escrow Agent's attorney(s)
through and including all appeals.

9. NATURE OF ESCROW AGENT'S DUTIES. It is agreed that the duties
of Escrow Agent are only such as are herein specifically
provided and are purely ministerial in nature. Hence, Escrow
Agent shall not be held liable for any matter or thing except
for Escrow Agent's gross negligence or willful misconduct.
Pledgor and Pledgee shall at all times hereafter, jointly and
severally indemnify Escrow Agent and hold Escrow Agent
harmless from any claim assorted against it and tram any
damages, costs, expenses, liability and/or losses sustained by
Escrow Agent (except for Escrow Agent's gross negligence or
willful misconduct), including, but not limited to, reasonable
attorneys' fees and costs for Escrow Agent's attorney(s)
through and including all appeals and whether or not
litigation is instituted. The obligations and duties of the
Escrow Agent are confined to those specifically enumerated in
this Agreement. The Escrow Agent shall not be subject to nor
be under any obligation to ascertain or construe the terms and
conditions of any instrument whether or not now or hereafter
deposited with or delivered to the Escrow Agent or referred to
in this Agreement. Nor shall the Escrow Agent be obliged to
inquire as to the form, execution and sufficiency

<PAGE> 5

or validity or any instruments, or to inquire as to the
identity, authority or rights of any person executing or
delivering the same.

10. RETANTION OF LEGAL COUNSEL. It is agreed that Escrow Agent
shall have full discretion as to whom it may retain as legal
counsel to protect its interests (including retaining itself
ad a law firm) and same shall not affect or in any way
prejudice or limit Escrow Agent's entitlement to reasonable
attorneys' fees for the services of such attorneys as set
forth in this Escrow Agreement.

11. VENUE. It is recognized that this Escrow Agreement shall be
deemed to have been entered into by the parties hereto in
Broward County, Florida, and that the property which is the
subject of thin Escrow Agreement is located in Broward County,
Florida. Therefore, it is agreed that venue with respect to
any matter arising herefrom shall only lie in Broward County,
Florida, except to the extent, and only to the extent, that
thin provision with respect to venue is deemed in
contravention of any applicable law.

12. AMBIGUITY: CONFLICTING INSTRUCTIONS. In the event the Escrow
Agent shall be uncertain as to its duties or rights hereunder
or shall receive instructions, claims or demands from any of
the parties hereto or from third persons with respect to the
Pledged documents held hereunder, which in its sole opinion,
are in conflict with any provision of this Agreement, it shall
be entitled to refrain from taking any action until it shall
be directed otherwise in writing by all the parties hereto and
said third persons, if any, or by a final order or judgment of
a court of competent jurisdiction.

13. NOTICES. Notices and deliveries under this Agreement shall be
given or made by certified mail, return receipt requested, as
follows:

PLEDGOR:

GERALD SMITH
7314 Floranada Way
Delray Beach, FL 33446

PLEDGEE:

VIRAGEN, INC.
865 SW 78th Avenue
Suite 100
Plantation, FL 33324

ESCROW AGENT:

ATLAS, PEARLMAN, TROP & BORKSON, P.A.
New River Center, Suite 1900
200 East Las Olas Boulevard
Ft. Lauderdale, FL 33301

<PAGE> 6

Or such other address as any of the above-mentioned parties
shall have designated in writing to the other parties.

14. TERMINATION. All parties agree that the services of the Escrow
Agent may be terminated by the Escrow Agent or by the joinder
of both Pledgee and Pledgor upon thirty (30) days written
notice to the other. In the event of such termination, the
Pledgee and Pledgor shall mutually agree to a Successor Escrow
Agent. Failing such mutual agreement, application shall be
made to the appropriate court of Broward County, Florida, for
the appointment of a Successor Escrow Agent. Upon such
appointment, the Escrow Agent shall deliver all escrow in
accordance with the terms of this Agreement.

15. MISCELLANEOUS.

a. BENEFIT OF AGREEMENT. This Agreement shall be binding
upon the parties hereto and their heirs, successors,
assigns and personal or legal representatives.

b. MODIFICATION. The Escrow Agent shall not be bound by any
modification, cancellation or rescission of this
Agreement unless in writing and signed by the parties
hereto. In no event, however, shall any modification of
this agreement, which shall affect the rights OR duties
of the Escrow Agent, be binding upon Escrow Agent unless
it shall have given its prior written consent.

c. ATTORNEYS' FEES. In the event Pledgor or Pledgee shall
seek to enforce this Agreement, whether or not through
litigation, the prevailing party shall be entitled to
receive reasonable attorneys' fees and all Costa
incurred in connection with such enforcement, including
fees and costs of appeal.

d. FURTHER COOPERATION. From and after the date of this
Agreement, each of the parties hereto agrees to execute
whatever additional documentation or instruments as are
necessary to carry out the intent and purpose of this
Agreement.

e. WAIVER. No indulgences extended by any party hereto or
any other party shall be construed as a waiver of any
breach on the part of such other party, nor shall any
waiver of one breach be construed as a waiver of any
rights or remedies with respect to any subsequent
breach.

f. CONSTRUCTION. It is the intention of the parties that
the laws of the State of Florida shall govern the
validity of this Agreement, the construction of its
terms, and the interpretation of the rights and duties
of the parties. The parties agree and acknowledge that
each party has reviewed and revised this Agreement and
that the normal rule of construction to the effect that
any ambiguities are to be resolved against the drafting
parties shall not be employed in the interpretation of
this Agreement or any amendment or exhibits thereto.

<PAGE> 7

g. TRUTH OF RECITALS. The recitals and statements contained
on page 1 of this Agreement are true and correct and are
hereby incorporated into this Agreement.

h. ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement and understanding of the parties on the
subject matter hereof and supersedes all prior
agreements and understandings relating thereto.

i. SEVERABILITY. The invalidity or unenforceability
0(pound) any particular provision of this Agreement
shall not affect the other provisions hereof and this
Agreement shall be construed in all respects as if such
invalid or unenforceable provision was omitted.

j. GENDER. Wherever the context shall so require, all words
herein in any gender shall be deemed to include the
Masculine, feminine or neuter gender; all singular words
shall include the plural and all plural shall include
the singular.

k. HEADINGS. The headings used in this Agreement are used
for reference purposes only and are not to be deemed
controlling with respect to the contents thereof.

l. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and each such counterpart shall
for all purposes be deemed to be an original.

m. INCORPORATION BY REFERENCE. The Exhibits referred to in
this Agreement are hereby incorporated into this
Agreement by reference.

<PAGE> 8

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.

PLEDGOR:

/s/ Gerald Smith
------------------------------------
GERALD SMITH

PLEDGEE:

VIRAGEN, INC.

By: /s/ DENNIS W. HEALEY
--------------------------------
Executive Vice President

ESCROW AGENT:
ATLAS, PEARLMAN, TROP & BORKSON, P.A.

By: /s/ JAMES M. SCHNEIDER
--------------------------------
Authorized Person

<PAGE> 9

PROMISSORY NOTE

$100,000 September 1, 1998

FOR VALUE RECEIVED, DENNIS W. HEALEY ("Maker"), having an address at
7314 Floranada Way, Delray Beach, FL 33446, hereby promises to pay to the order
of VIRAGEN, INC., a Delaware corporation ("Holder"), having an address at 865 SW
78th Avenue, Suite 100, Plantation, FL 33324, the principal one hundred thousand
dollars ($100,000), together with simple interest thereon at the annual rate
equal to the greater of (i) 3.5% and (ii) the Mid-Term Applicable Federal Rate
(as defined in Section 1274 of the Internal Revenue Code of 1986, as amended
from time to time, or any successor provision of law) in effect on the date
hereof, at the address of Holder set forth above, payable as follows: Interest
accrued hereon shall be paid semi-annually on each six-month anniversary of the
date of this Note. The entire principal amount of this Note, together with any
then accrued and unpaid interest, shall be payable on the fifth (5th)
anniversary of the date of this Note (the "Maturity Date").

In the event that Holder incurs attorneys' fees and/or costs in
connection with the enforcement of this Note, Maker shall pay Holder,
immediately upon Holder's demand therefor, the amount of all reasonable
attorneys' fees and costs so incurred by Holder.

Each of the following shall constitute an event of default under this
Note ("Event of Default"):

(i) the failure of Maker to pay all sums owing to Holder hereunder
on or before the Maturity Date;

(ii) the failure of Maker to pay to Holder any installment of
interest when due;

(iii)the filing of a petition by Maker pursuant to which Maker
seeks to avail himself of the protection of any federal or state bankruptcy,
insolvency or similar law;

(iv) the initiation of any federal or state bankruptcy or
insolvency proceeding against Maker; or

(v) the making of a general assignment by Maker for the benefit of
Maker's creditors.

Upon the occurrence of an Event of Default (other than the Event of
Default described in subparagraph (i), which is inapplicable to the following
provision) or in the event of the sale, transfer, further pledging or
disposition of any common stock of Holder owned by Maker which

<PAGE> 10

secures this Note, unless concurrently with such sale, transfer, further pledge
or disposition, Maker prepays a portion of principal necessary to release the
stock being sold, transferred, further pledged or disposed of from said security
interest, Holder may, in Holder's sole and absolute discretion, accelerate this
Note by declaring in a written notice to Maker that the then entire outstanding
principal sum hereof; together with all then accrued and unpaid interest hereon,
is immediately due and payable. The entire amount accelerated (inclusive of any
accrued and unpaid interest) will, commencing the date notice of acceleration is
given, bear interest until paid at a rate equal to the lower of (a) 12% per
annum and (b) the highest rate then permitted by law (the "Default Rate"). In
the event that the Event of Default described in subparagraph (i) occurs,
interest shall then accrue at the Default Rate on the aggregate amount of all
sums which are then owing to Holder hereunder.

Maker may prepay this Note, in whole or in part, at any time or from
time to time, without premium or penalty; provided, however, that any prepayment
will be applied first to pay accrued and unpaid interest and then in reduction
of principal; and, provided further, that each partial prepayment of principal
shall be at least $9,000 or, if greater than $9,000, a multiple of $9,000.

This Note shall inure to the benefit of Holder and Holder's successors
and assigns. This Note shall be binding upon Maker and Maker's successors and
assigns.

In no contingency or event whatsoever shall the amount paid or agreed
to be paid to Holder or deemed advanced for the use, forbearance or detention of
any amount advanced hereunder exceed the highest lawful rate permissible under
any law which a court of competent jurisdiction may deem applicable hereto, and
any such excess shall automatically be credited to the principal amount hereof
so that at all times this Note is and remains a lawful instrument.

Maker shall reimburse Holder the amount of all-documentary stamp taxes
and similar taxes or fees which are payable by Holder or assessable in respect
of this Note.

This Note shall be governed by Florida law in all respects.

MAKER:

/s/ Gerald Smith
------------------------------
GERALD SMITH

<PAGE> 1
Exhibit 10.(lxiv)

PLEDGE AND ESCROW AGREEMENT

W I T N E S S E T H:

WHEREAS, Gerald Smith (the Pledgor referred to in this Agreement) is
the President of Viragen, Inc (the Pledgee referred to in this Agreement) and
entered into a Stock Option Agreements with the Pledgee on October 15, 1994, a
copy of which is attached hereto as Exhibit A;

WHEREAS, pursuant to such Stock Option Agreements, Pledgor was afforded
the right to acquire 50,000 shares of Common Stock of the Pledgee at $1.00 per
share for an aggregate purchase price of $50,000.

WHEREAS, the Pledgor has executed a five-year promissory note in the
principal amount of $50,000 (the "Note") in favor of Pledgee for the purchase
price payable in respect to the acquisition of the 50,000 shares of Common Stock
of the Pledgee, a copy of which is attached hereto as Exhibit B;

WHEREAS, to secure the payment of the Note, Pledgor has agreed to grant
Pledgee a security interest in all 50,000 shares of the Common Stock of the
Pledgee (the "Pledged Shares"); and

WHEREAS, the Pledgor and the Pledgee have requested the Escrow Agent to
act as escrow agent for the Pledged shares in accordance with the terms of this
Agreement;

NOW, THEREFORE, in consideration of the premises, covenants and
agreement hereinafter set forth, the parties mutually agree as follows:

<PAGE> 2

Escrow Agent as collateral for the indebtedness owed by the
Pledgor to Pledgee pursuant to the Note.

<PAGE> 3

a. Escrow Agent shall deliver the Pledged Documents to
Pledgee within ten (10) business days after receiving
an affidavit signed by Pledgee stating that:

(i) Pledgor is in default under the Note and all
periods of time within which to cure such
default have expired;

(ii) Pledgee is accelerating the entire unpaid
balance due under the Note; and

(iii) Pledgee demands delivery of the Pledged
Documents.

<PAGE> 4

Escrow Agent shall deliver any such proceeds received
in accordance with such written instructions.

<PAGE> 5

or validity or any instruments, or to inquire as to the
identity, authority or rights of any person executing or
delivering the same.

13. NOTICES. Notices and deliveries under this Agreement shall be
given or made by certified mail, return receipt requested, as
follows:

PLEDGOR:

GERALD SMITH
7314 Floranada Way
Delray Beach, FL 33446

PLEDGEE:

VIRAGEN, INC.
865 SW 78th Avenue
Suite 100
Plantation, FL 33324

ESCROW AGENT:

ATLAS, PEARLMAN, TROP & BORKSON, P.A.
New River Center, Suite 1900
200 East Las Olas Boulevard
Ft. Lauderdale, FL 33301

<PAGE> 6

Or such other address as any of the above-mentioned parties
shall have designated in writing to the other parties.

15. MISCELLANEOUS.

a. BENEFIT OF AGREEMENT. This Agreement shall be binding
upon the parties hereto and their heirs, successors,
assigns and personal or legal representatives.

<PAGE> 7

g. TRUTH OF RECITALS. The recitals and statements contained
on page 1 of this Agreement are true and correct and are
hereby incorporated into this Agreement.

k. HEADINGS. The headings used in this Agreement are used
for reference purposes only and are not to be deemed
controlling with respect to the contents thereof.

l. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and each such counterpart shall
for all purposes be deemed to be an original.

m. INCORPORATION BY REFERENCE. The Exhibits referred to in
this Agreement are hereby incorporated into this
Agreement by reference.

<PAGE> 8

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.

PLEDGOR:

/s/ Gerald Smith
-------------------------------------
GERALD SMITH

PLEDGEE:

VIRAGEN, INC.

By: /s/ DENNIS W. HEALEY
----------------------------------
Executive Vice President

ESCROW AGENT:

ATLAS, PEARLMAN, TROP & BORKSON, P.A.

By: /s/ JAMES M. SCHNEIDER
----------------------------------
Authorized Person

<PAGE> 9

PROMISSORY NOTE

$50,000 September 1, 1998

FOR VALUE RECEIVED, GERALD SMITH ("Maker"), having an address at 7314
Floranada Way, Delray Beach, FL 33446, hereby promises to pay to the order of
VIRAGEN, INC., a Delaware corporation ("Holder"), having an address at 865 SW
78th Avenue, Suite 100, Plantation, FL 33324, the principal fifty thousand
dollars ($50,000), together with simple interest thereon at the annual rate
equal to the greater of (i) 3.5% and (ii) the Mid-Term Applicable Federal Rate
(as defined in Section 1274 of the Internal Revenue Code of 1986, as amended
from time to time, or any successor provision of law) in effect on the date
hereof, at the address of Holder set forth above, payable as follows: Interest
accrued hereon shall be paid semi-annually on each six-month anniversary of the
date of this Note. The entire principal amount of this Note, together with any
then accrued and unpaid interest, shall be payable on the fifth (5th)
anniversary of the date of this Note (the "Maturity Date").

Each of the following shall constitute an event of default under this
Note ("Event of Default"):

(i) the failure of Maker to pay all sums owing to Holder
hereunder on or before the Maturity Date;

(ii) the failure of Maker to pay to Holder any installment of
interest when due;

(iii) the filing of a petition by Maker pursuant to which
Maker seeks to avail himself of the protection of any
federal or state bankruptcy, insolvency or similar law;

(iv) the initiation of any federal or state bankruptcy or
insolvency proceeding against Maker; or

(v) the making of a general assignment by Maker for the
benefit of Maker's creditors.

<PAGE> 10

This Note shall inure to the benefit of Holder and Holder's successors
and assigns. This Note shall be binding upon Maker and Maker's successors and
assigns.

Maker shall reimburse Holder the amount of all-documentary stamp taxes
and similar taxes or fees which are payable by Holder or assessable in respect
of this Note.

This Note shall be governed by Florida law in all respects.

MAKER:

/s/ Gerald Smith
-------------------------
GERALD SMITH

<PAGE> 1
Exhibit 10.(lxv)

PLEDGE AND ESCROW AGREEMENT

THIS PLEDGE AND ESCROW AGREEMENT (the "Agreement") made and entered
into as of this first day of September, 1998 by and among DENNIS W. HEALEY
(hereinafter referred to as "Pledgor"), Viragen, INC., a Delaware corporation
(hereinafter referred to as "Pledgee") and ATLAS, PEARLMAN, TROP & BORKSON, P.A.
(hereinafter referred to as "Escrow Agent").

W I T N E S S E T H:

WHEREAS, Dennis W. Healey (the Pledgor referred to in this Agreement)
is the Executive Vice President of Viragen, Inc (the Pledgee referred to in this
Agreement) and entered into a Stock Option Agreements with the Pledgee on
October 6, 1995, a copy of which is attached hereto as Exhibit A;

WHEREAS, to secure the payment of the Note, Pledgor has agreed to grant
Pledgee a security interest in all 200,000 shares of the Common Stock of the
Pledgee (the "Pledged Shares"); and

WHEREAS, the Pledgor and the Pledgee have requested the Escrow Agent to
act as escrow agent for the Pledged shares in accordance with the terms of this
Agreement;

NOW, THEREFORE, in consideration of the premises, covenants and
agreement hereinafter set forth, the parties mutually agree as follows:

<PAGE> 2

Escrow Agent as collateral for the indebtedness owed by the
Pledgor to Pledgee pursuant to the Note.

<PAGE> 3

a. Escrow Agent shall deliver the Pledged Documents to
Pledgee within ten (10) business days after receiving an
affidavit signed by Pledgee stating that:

(i) Pledgor is in default under the Note and all
periods of time within which to cure such default
have expired;

(ii) Pledgee is accelerating the entire unpaid balance
due under the Note; and

(iii) Pledgee demands delivery of the Pledged Documents.

Pledgee shall simultaneously furnish Pledgor with a copy
of such affidavit. If Escrow Agent has not received any
protest or objection from Pledgor within ten (10)
business days of receipt of such affidavit, the Pledged
Documents shall be delivered to the Pledgee. Upon such
delivery of the Pledged Documents, Escrow Agent's duties
hereunder shall terminate.

b. In the event Escrow Agent has received written
instructions signed by both Pledgor and Pledgee
notifying Escrow Agent of a sale of a portion of the
Pledged Shares pursuant to the Employment Agreement,
ESCROW Agent may release a portion or all of the Pledged
Shares, as provided in such written instruction, and if
Escrow Agent is designated to be the recipient of the
proceeds from the sale of all OR a portion of the
Pledged Shares, then

<PAGE> 4

Escrow Agent shall deliver any such proceeds received in
accordance with such written instructions.

c. In the event Escrow Agent has not delivered the Pledged
Documents pursuant to subparagraph a. above, then Escrow
Agent shall deliver the Pledged Document; to Pledgor
within ten (10) business day; after receipt of the
original of the Note marked. "Paid in full", accompanied
by instructions from Pledgor indicating that the Note
has been paid in full and the Pledged documents shall be
delivered to Pledgor at the address specified therein.
Upon ouch delivery of the Pledged Documents, Escrow
Agent's duties hereunder shall terminate. Pledgee agrees
to deliver the Note to Pledgor marked "paid in full",
immediately upon satisfaction thereof.

<PAGE> 5

or validity or any instruments, or to inquire as to the
identity, authority or rights of any person executing or
delivering the same.

13. NOTICES. Notices and deliveries under this Agreement shall be
given or made by certified mail, return receipt requested, as
follows:

PLEDGOR:

DENNIS W. HEALEY
1920 Augusta Way
Coral Springs, FL 33071

PLEDGEE:

VIRAGEN, INC.
865 SW 78th Avenue
Suite 100
Plantation, FL 33324

ESCROW AGENT:

ATLAS, PEARLMAN, TROP & BORKSON, P.A.
New River Center, Suite 1900
200 East Las Olas Boulevard
Ft. Lauderdale, FL 33301

<PAGE> 6

Or such other address as any of the above-mentioned parties
shall have designated in writing to the other parties.

15. MISCELLANEOUS.

a. BENEFIT OF AGREEMENT. This Agreement shall be binding
upon the parties hereto and their heirs, successors,
assigns and personal or legal representatives.

<PAGE> 7

g. TRUTH OF RECITALS. The recitals and statements contained
on page 1 of this Agreement are true and correct and are
hereby incorporated into this Agreement.

k. HEADINGS. The headings used in this Agreement are used
for reference purposes only and are not to be deemed
controlling with respect to the contents thereof.

l. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and each such counterpart shall
for all purposes be deemed to be an original.

m. INCORPORATION BY REFERENCE. The Exhibits referred to in
this Agreement are hereby incorporated into this
Agreement by reference.

<PAGE> 8

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.

PLEDGOR:

/s/ Dennis W. Healey
-------------------------------------
DENNIS W. HEALEY

PLEDGEE:

VIRAGEN, INC.

By: /s/ Gerald Smith
---------------------------------
President

ESCROW AGENT:

ATLAS, PEARLMAN, TROP & BORKSON, P.A.

By: /s/ James M. Schneider
---------------------------------
Authorized Person

<PAGE> 9

PROMISSORY NOTE

$100,000 September 1, 1998

FOR VALUE RECEIVED, DENNIS W. HEALEY ("Maker"), having an address at
1920 Augusta Terrace, Coral Springs, FL 33071, hereby promises to pay to the
order of VIRAGEN, INC., a Delaware corporation ("Holder"), having an address at
865 SW 78th Avenue, Suite 100, Plantation, FL 33324, the principal sum one
hundred thousand dollars ($l00,000), together with simple interest thereon at
the annual rate equal to the greater of (i) 3.5% and (ii) the Mid-Term
Applicable Federal Rate (as defined in Section 1274 of the Internal Revenue Code
of 1986, as amended from time to time, or any successor provision of law) in
effect on the date hereof, at the address of Holder set forth above, payable as
follows: Interest accrued hereon shall be paid semi-annually on each six-month
anniversary of the date of this Note. The entire principal amount of this Note,
together with any then accrued and unpaid interest, shall be payable on the
fifth (5th) anniversary of the date of this Note (the "Maturity Date").

Each of the following shall constitute an event of default under this
Note ("Event of Default"):

(i) the failure of Maker to pay all sums owing to Holder
hereunder on or before the Maturity Date;

(ii) the failure of Maker to pay to Holder any installment of
interest when due;

(iii) the filing of a petition by Maker pursuant to which
Maker seeks to avail himself of the protection of any
federal or state bankruptcy, insolvency or similar law;

(iv) the initiation of any federal or state bankruptcy or
insolvency proceeding against Maker; or

(v) the making of a general assignment by Maker for the
benefit of Maker's creditors.

<PAGE> 10

This Note shall inure to the benefit of Holder and Holder's successors
and assigns. This Note shall be binding upon Maker and Maker's successors and
assigns.

Maker shall reimburse Holder the amount of all-documentary stamp taxes
and similar taxes or fees which are payable by Holder or assessable in respect
of this Note.

This Note shall be governed by Florida law in all respects.

MAKER:

/s/ Dennis W. Healey
--------------------------------
DENNIS W. HEALEY

<PAGE> 1
Exhibit 10.(lxvi)

PLEDGE AND ESCROW AGREEMENT

THIS PLEDGE AND ESCROW AGREEMENT (the "Agreement") made and entered into
as of this first day of September, 1998 by and among DENNIS W. HEALEY
(hereinafter referred to as "Pledgor"), Viragen, INC., a Delaware corporation
(hereinafter referred to as "Pledgee") and ATLAS, PEARLMAN, TROP & BORKSON, P.A.
(hereinafter referred to as "Escrow Agent").

W I T N E S S E T H:

WHEREAS, Dennis W. Healey (the Pledgor referred to in this Agreement) is
the Executive Vice President of Viragen, Inc (the Pledgee referred to in this
Agreement) and entered into a Stock Option Agreements with the Pledgee on
October 15, 1994, a copy of which is attached hereto as Exhibit A;

WHEREAS, to secure the payment of the Note, Pledgor has agreed to grant
Pledgee a security interest in all 50,000 shares of the Common Stock of the
Pledgee (the "Pledged Shares"); and

WHEREAS, the Pledgor and the Pledgee have requested the Escrow Agent to
act as escrow agent for the Pledged shares in accordance with the terms of this
Agreement;

NOW, THEREFORE, in consideration of the premises, covenants and agreement
hereinafter set forth, the parties mutually agree as follows:

1. SECURITY INTEREST. Pledgor hereby grants to Pledgee a first lien
security interest, superior to all other liens and encumbrances, in
and to the Pledged Shares. Copies of stock powers representing the
Pledged Shares, endorsed in blank, and copies of the certificates
representing the Pledged Shares, are attached hereto as Exhibit "C".
The Pledged Shares and stock powers shall be held by

<PAGE> 2

Escrow Agent as collateral for the indebtedness owed by the Pledgor
to Pledgee pursuant to the Note.

2. REPRESENTATIONS, WARRANTIES AND COVENANTS. Pledgor hereby
represents, warrants and covenants that, except for the security
interest granted hereunder, and except that the Pledged Shares are
partially paid shares subject to assessment for the balance of the
purchase price as represented by the principal amount of the Note,
Pledgor is the legal and equitable owner of the Pledged Sharon and
holds same free and clear of all liens, charges, encumbrances and
security interest of every kind and nature, and that Pledgor will
make no assignment, pledge, mortgage, hypothecation or transfer of
the Pledged Share; that Pledgor has good right and legal authority
to pledge the Pledged Shares in the manner hereby done or
contemplated and will defend Pledgor's title to the Pledged Shares
against the claim of all persona whomsoever; that no consent or
approval of any governmental body or regulatory authority, or of any
securities exchange, is necessary to the validity of the pledge
effected hereby, except for any consents or approvals which have
been obtained; that the pledge of the Pledged Shares is effective to
vest in Pledgee the rights of the Pledgor in the Pledged shares set
forth herein; and that the Pledged Shares have been duly and validly
authorized.

3. RIGHT TO VOTE. Except as otherwise provided herein, during the term
of this Agreement and so long as Pledgor is not in default in the
performance of any of the terms of this Agreement or in the payment
of principal or interest under the Note, the Pledgor shall be
entitled to all rights of ownership, including, but not limited to,
the right to vote the Pledged shares on all corporate questions.

4. ADJUSTMENTS. In the event that, during the term of this Agreement,
any stock dividend shall be declared an or with respect to any
0(pound) the Pledged Shares, or there is a reclassification,
readjustment, merger, consolidation, stack split or any other change
is made in the capital structure of the Pledgee which has issued the
Pledged Shares or any successor thereto, all hew, substituted and
additional shares or other securities issued by reason of such a
change shall be delivered and held by Escrow Agent under the terms
of this Agreement in the same manner as the Pledged Shares.

5. DEFAULT. In the event of default by the Pledgor under the Note, in
addition to any right or remedy which it may have hereunder, the
Pledgee shall have all of the rights and remedies of a secured party
under Article 9 of the Uniform commercial Code as it is now or
hereafter in effect in the State of Florida, including without
limitation the right to retain or to sell or otherwise dispose at
all or any portion of the Pledged Shares. Upon the occurrence of a
default under the Note, the Pledgee shall, in its sole discretion,
have the right to cancel the Pledged Shares or to offer for sale,
and to sell, all or any of the Pledged Shares at any private or
public sale; provided, however, that the Pledge shall give to the
Pledgor at least ten (10) business days notice of the time, date and
place of any such private or public sale, which provision for
notice, the Pledgor hereby expressly agrees is commercially
reasonable. Furthermore, the Pledgor hereby expressly agrees that
the Pledgee may (1) sell all or any portion of the Pledged Shares at
any private or public sale for cash, upon credit, or for other
property, for immediate or future delivery, and

<PAGE> 3

for such price or prices and on such terms as the Pledgee in its
sole discretion shall deem appropriate, (ii) bid on and purchase the
Pledged Shares at any private or public sale, and (iii) hold any of
the Pledged shares purchased by the Pledgee at any private or public
sale in its own right, free and clear of any and all claims of the
Pledgor. The Pledgee may, from time to time, upon such default, sell
all or any part of the Pledged Shares. The Pledgor hereby appoints
Pledgee an its attorney-in-fact to execute such documents and take
such action as may be necessary to accomplish the provisions of this
Agreement, including, without limiting the generality of the
foregoing, the right to ask for, demand, sue for, collect, receive
and give acquittance for any and all monies due or to become due
with respect to or in connection with any of the Pledged shares, to
endorse checks, drafts, orders and other instruments for the payment
of money representing any interest or dividend or other distribution
with respect to or in connection with the Pledged shares or any part
thereof and to give full discharge for the same, to settle,
compromise, prosecute or defend any action, claim or proceeding with
respect thereto and to sell, assign, endorse, pledge, transfer and
make any agreement respecting same, or otherwise deal with the name.
Such appointment in irrevocable and coupled with an interest. Unless
Pledgee retains the Pledged Shares in full satisfaction or Pledgor's
obligations under the Note as provided herein, Pledgee shall apply
the proceeds of disposition of the Pledge shares in the manner
provided by Florida law. In lieu of any such sale, Pledgee may
retain the Pledged Shares in full satisfaction or Pledgor's
obligations under the Note.

6. ESCROW. Pledgor shall deposit with Escrow Agent the Plodded shares,
along with the aforesaid stock powers (all of which items shall
hereinafter be referred to as the "Pledged Documents" including all
stack assignments), to be held in escrow for future delivery as
follows:

a. Escrow Agent shall deliver the Pledged Documents to Pledgee
within ten (10) business days after receiving an affidavit
signed by Pledgee stating that:

(i) Pledgor is in default under the Note and all periods of
time within which to cure such default have expired;

(ii) Pledgee is accelerating the entire unpaid balance due
under the Note; and

(iii) Pledgee demands delivery of the Pledged Documents.

Pledgee shall simultaneously furnish Pledgor with a copy of
such affidavit. If Escrow Agent has not received any protest
or objection from Pledgor within ten (10) business days of
receipt of such affidavit, the Pledged Documents shall be
delivered to the Pledgee. Upon such delivery of the Pledged
Documents, Escrow Agent's duties hereunder shall terminate.

b. In the event Escrow Agent has received written instructions
signed by both Pledgor and Pledgee notifying Escrow Agent of a
sale of a portion of the Pledged Shares pursuant to the
Employment Agreement, ESCROW Agent may release a portion or
all of the Pledged Shares, as provided in such written
instruction, and if Escrow Agent is designated to be the
recipient of the proceeds from the sale of all OR a portion of
the Pledged Shares, then

<PAGE> 4

Escrow Agent shall deliver any such proceeds received in
accordance with such written instructions.

c. In the event Escrow Agent has not delivered the Pledged
Documents pursuant to subparagraph a. above, then Escrow Agent
shall deliver the Pledged Document; to Pledgor within ten (10)
business day; after receipt of the original of the Note
marked. "Paid in full", accompanied by instructions from
Pledgor indicating that the Note has been paid in full and the
Pledged documents shall be delivered to Pledgor at the address
specified therein. Upon ouch delivery of the Pledged
Documents, Escrow Agent's duties hereunder shall terminate.
Pledgee agrees to deliver the Note to Pledgor marked "paid in
full", immediately upon satisfaction thereof.

7. DISPUTE. It is specifically understood and agreed that should
any dispute arise between the parties hereto concerning this
Agreement or its construction, or for any other reason, the Escrow
Agent in its sole discretion, shall have the right to deposit the
Pledged Documents held by it pursuant to this Escrow Agreement and
any documents relating thereto that may have been delivered to the
Escrow Agent, with the Clerk of the Circuit Court of Broward County,
Florida, and notify all parties concerned, and whereupon, all
liability hereunder on the part of the Escrow Agent shall fully
cease except to the extent of accounting for the Pledged Documents
and any other documents that may have been delivered to it.

8. INTERPLEADER. In the event the Escrow Agent places the Pledged
Documents that have actually been delivered to Escrow Agent in the
registry of the Circuit Court in and for Broward County, Florida,
and files an action of interpleader naming Pledgor and Pledgee, and
other necessary parties, Escrow Agent shall be released and relieved
from any and all further obligations and liabilities hereunder or in
connection herewith. Pledgor and Pledgee hereby, jointly and
severally, indemnify and hold Escrow Agent harmless from any damages
OR losses arising hereunder or in connection herewith, including,
but not limited to, all costs and expenses incurred by Escrow Agent
in connection with the filing at such action and reasonable
attorneys' teen and costs for Escrow Agent's attorney(s) through and
including all appeals.

9. NATURE OF ESCROW AGENT'S DUTIES. It is agreed that the duties
of Escrow Agent are only such as are herein specifically provided
and are purely ministerial in nature. Hence, Escrow Agent shall not
be held liable for any matter or thing except for Escrow Agent's
gross negligence or willful misconduct. Pledgor and Pledgee shall at
all times hereafter, jointly and severally indemnify Escrow Agent
and hold Escrow Agent harmless from any claim assorted against it
and tram any damages, costs, expenses, liability and/or losses
sustained by Escrow Agent (except for Escrow Agent's gross
negligence or willful misconduct), including, but not limited to,
reasonable attorneys' fees and costs for Escrow Agent's attorney(s)
through and including all appeals and whether or not litigation is
instituted. The obligations and duties of the Escrow Agent are
confined to those specifically enumerated in this Agreement. The
Escrow Agent shall not be subject to nor be under any obligation to
ascertain or construe the terms and conditions of any instrument
whether or not now or hereafter deposited with or delivered to the
Escrow Agent or referred to in this Agreement. Nor shall the Escrow
Agent be obliged to inquire as to the form, execution and
sufficiency

<PAGE> 5

or validity or any instruments, or to inquire as to the
identity, authority or rights of any person executing or
delivering the same.

13. NOTICES. Notices and deliveries under this Agreement shall be
given or made by certified mail, return receipt requested, as
follows:

PLEDGOR:

DENNIS W. HEALEY
1920 Augusta Way
Coral Springs, FL 33071

PLEDGEE:

VIRAGEN, INC.
865 SW 78th Avenue
Suite 100
Plantation, FL 33324

ESCROW AGENT:

ATLAS, PEARLMAN, TROP & BORKSON, P.A.
New River Center, Suite 1900
200 East Las Olas Boulevard
Ft. Lauderdale, FL 33301

<PAGE> 6

Or such other address as any of the above-mentioned parties
shall have designated in writing to the other parties.

15. MISCELLANEOUS.

a. BENEFIT OF AGREEMENT. This Agreement shall be binding
upon the parties hereto and their heirs, successors,
assigns and personal or legal representatives.

<PAGE> 7

g. TRUTH OF RECITALS. The recitals and statements contained
on page 1 of this Agreement are true and correct and are
hereby incorporated into this Agreement.

k. HEADINGS. The headings used in this Agreement are used
for reference purposes only and are not to be deemed
controlling with respect to the contents thereof.

l. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and each such counterpart shall
for all purposes be deemed to be an original.

m. INCORPORATION BY REFERENCE. The Exhibits referred to in
this Agreement are hereby incorporated into this
Agreement by reference.

<PAGE> 8

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.

PLEDGOR:

/s/ Dennis W. Healey
-------------------------------------
DENNIS W. HEALEY

PLEDGEE:

VIRAGEN, INC.

By: /s/ Gerald Smith
----------------------------------
President

ESCROW AGENT:

ATLAS, PEARLMAN, TROP & BORKSON, P.A.

By: /s/ JAMES M. SCHNEIDER
----------------------------------
Authorized Person

<PAGE> 9

PROMISSORY NOTE

$50,000 September 1, 1998

FOR VALUE RECEIVED, DENNIS W. HEALEY ("Maker"), having an address at
1920 Augusta Terrace, Coral Springs, FL 33071, hereby promises to pay to the
order of VIRAGEN, INC., a Delaware corporation ("Holder"), having an address at
865 SW 78th Avenue, Suite 100, Plantation, FL 33324, the principal sum fifty
thousand dollars ($50,000), together with simple interest thereon at the annual
rate equal to the greater of (i) 3.5% and (ii) the Mid-Term Applicable Federal
Rate (as defined in Section 1274 of the Internal Revenue Code of 1986, as
amended from time to time, or any successor provision of law) in effect on the
date hereof, at the address of Holder set forth above, payable as follows:
Interest accrued hereon shall be paid semi-annually on each six-month
anniversary of the date of this Note. The entire principal amount of this Note,
together with any then accrued and unpaid interest, shall be payable on the
fifth (5th) anniversary of the date of this Note (the "Maturity Date").

Each of the following shall constitute an event of default under this
Note ("Event of Default"):

(i) the failure of Maker to pay all sums owing to Holder hereunder
on or before the Maturity Date;

(ii) the failure of Maker to pay to Holder any installment of
interest when due;

(iii) the filing of a petition by Maker pursuant to which Maker
seeks to avail himself of the protection of any federal or
state bankruptcy, insolvency or similar law;

(iv) the initiation of any federal or state bankruptcy or
insolvency proceeding against Maker; or

(v) the making of a general assignment by Maker for the benefit of
Maker's creditors.

<PAGE> 10

This Note shall inure to the benefit of Holder and Holder's successors
and assigns. This Note shall be binding upon Maker and Maker's successors and
assigns.

Maker shall reimburse Holder the amount of all-documentary stamp taxes
and similar taxes or fees which are payable by Holder or assessable in respect
of this Note.

This Note shall be governed by Florida law in all respects.

MAKER:

/s/ DENNIS W. HEALEY
-----------------------------------
DENNIS W. HEALEY

<PAGE> 1
Exhibit 10.(lxvii)

Viragen, Inc. 865 SW 78th Avenue Suite 100
Plantation, Florida 33324-3212
954.233.VRGN FAX 954.233.1414
www.viragen.com

March 23, 1998

VIA FACSIMILE: 603-262-1333
VIA INTERNATIONAL FEDERAL EXPRESS
Managing Director-Southern Health SDN.BHD
12 Jalan P. Ramlee
Apt. 23C
Kuala Lumpur
MALAYSIA 50250

Dear Sir:

Thank you for your fax of January 5, 1998. This Letter of Agreement sets forth
the material terms and conditions to be contained in a Manufacturing and
Distribution License Agreement (the "Master License") by, between and among
Viragen, Inc., ("Viragen"), Viragen Technology, Inc. ("VTI") and Southern Health
SDN.BHD ("Southern"). The parties agree to use their best efforts to complete
the Master License in good faith as soon as is reasonably practicable, execute
confidentiality agreements and agree to incorporate, among other things, the
terms and conditions set forth herein:

1. GRANT OF OPTION

Viragen, through its wholly owned subsidiary, VTI ("the Licensor") hereby agrees
to grant to Southern an exclusive Option to purchase the Master License for the
countries listed below (the "Option"). This Option shall become effective and in
full force and effect upon Southern's execution of this Letter of Agreement and
payment to the Licensor of the non-refundable Option amount of TWO HUNDRED
THOUSAND U.S. DOLLARS (US$200,000) which shall be received by the Licensor in
cleared funds no later than April 3, 1998. In the event the parties do not
consummate the Master License for any reason prior to the expiration date, the
Licensor shall forthwith refund one-half of the Option amount (ONE HUNDRED
THOUSAND U.S. DOLLARS) (US$100,000) and, in that event, no party hereto shall
have any claim upon the other party.

2. OPTION TERM AND TERRITORIES

The Option shall extend until September 30, 1998, 5:00 p.m., EST (the
"Expiration Date") and shall be exclusive as to the following countries:
Malaysia, Indonesia, Philippines, Thailand, Taiwan, Korea, Singapore, Australia
and New Zealand, hereinafter referred to as "the Territory".

* The information redacted herefrom is the subject of a Confidentiality
Request submitted to the Securities and Exchange Commission.
<PAGE> 2

3. MASTER LICENSE FEE, TERM AND ROYALTY

Upon execution of the Master License and simultaneously therewith, Southern
shall pay in cleared funds to the Licensor the Master License Fee in the amount
of TWENTY MILLION U.S. DOLLARS (US$20,000,000) on or before the Option's
Expiration Date. Southern and/or its SUBLICENCEES shall additionally pay to the
Licensor a continuing Royalty of TWELVE PERCENT (12%) of gross revenues derived
by Southern or by or through its SUBLICENSEES from the sale of the Licensor's
natural alpha interferon product ("THE LICENSED PRODUCT"). Such Royalty shall be
paid to the Licensor by Southern and/or its SUBLICENSEES in U.S. dollars by wire
transfer by the fifteenth (15th) day of each month which amount shall represent
the preceding month's Royalty. Costs related to bank charges, wire transfers or
currency transactions and any taxes on Royalty payments shall be borne by
Southern which shall also stand liable for timely and accurate Royalty
collections from its SUBLICENSEES and payment thereof to the Licensor. The
Licensor shall have the right to access all books and records and appoint a
certified public accounting firm, or comparable, at the Licensor's expense, to
review Master Licensee's or subLicensee's books, records and inventory
facilities and equipment at any time during normal business hours by giving five
(5) days written notice. The term of the Master License shall extend for a
period of TWENTY-FIVE (25) YEARS from the date of its execution.

4. MASTER LICENSE KEY PROVISIONS AND TERM

OBLIGATIONS OF SOUTHERN. Among other provisions, the Master License shall
provide that Southern shall manufacture and distribute THE LICENSED PRODUCT in
accordance with all applicable laws, rules and regulations promulgated by the
appropriate regulatory agencies within the Territory in accordance with current
Good Manufacturing Practices (cGMP) as promulgated by the United Kingdom's
Medicine Control Agency ("MCA") or the United States' Food and Drug
Administration ("FDA") or comparable Tier I Country's regulatory agency.

Southern shall commence the building of at least one (1) manufacturing facility
at Southern's cost within two (2) years from the date of grant of the Master
License and such facility shall be built and operated in compliance with the
Licensor's specifications. Southern's manufacturing facility shall reach
commercial production levels within four (4) years from the date of execution of
the Master License. Southern agrees to follow all of the Licensor's
manufacturing procedures, including the Licensor's Standard Operating Practices
(SOPs), Protocols and Procedures. Southern shall cause to appear on or within
all advertising, instructional, informational, promotional or display material
either bearing or incorporating THE LICENSED PRODUCT, all required legal notices
pursuant to international copyright, trademark and patents laws and/or
regulatory requirements and/or as required from time to time by the Licensor.
Southern agrees that it shall, at its cost, register such patent, copyright,
trademark and/or service mark in the appropriate class, in the name of the
Licensor within the Territory.

Southern shall be responsible for arranging for and collecting human white blood
cells ("buffy coats") from qualified blood collection agencies within the
Territory according to the Licensor's specifications. Southern has been advised
that between 1 million to 2 million buffy coats (human white blood cell
collections or "leukocytes") are needed to support one (1) manufacturing
facility for THE LICENSED PRODUCT which is forecast to produce about
US$100,000,000 in annual gross retail

2
<PAGE> 3
sales assuming a [ * ] price per one million international units and comparable
manufacturing costs as experienced in Scotland and other commercial factors. The
cost of manufacturing one million international units can range between [ * ] to
[ * ]. Additionally, Southern shall have the exclusive right to distribute THE
LICENSED PRODUCT as defined in the Master License, within its Territory in
accordance with the rules, laws and regulations established by each
jurisdiction.

Southern recognizes that THE LICENSED PRODUCT is technically classified as an
experimental drug until clinical trials have been completed and the drug
approved for commercialization by the regulatory authorities either in the
United Kingdom, United States or other Tier I country. Southern may elect to
obtain regulatory or governmental approval within its Territory for the use of
THE LICENSED PRODUCT for any disease state at Southern's cost including, costs
relating to clinical trials that it may wish to undertake in its own behalf
within the Territory.

Southern may sublicense to qualified third parties within the Territory in
accordance with the terms and conditions contained in the Master License which
shall require the reasonable consent of the Licensor, in which event Southern
shall retain any and all sublicense fees derived therefrom. Southern shall
maintain complete control of all of the Licensor's proprietary manufacturing
technology and shall not disclose or transfer to any subLicensee or any third
party whomsoever any of the Licensor's Standard Operating Practices, Protocols
and Procedures and Confidential Information. Southern will operate any and all
manufacturing facilities within its Territory in compliance with the Licensor's
specifications.

Southern shall be responsible for the costs of policing and enforcing the
licensed patents, trade secret rights and sublicense agreements in the
Territory, including the costs of any patent prosecution or license
registration.

OBLIGATIONS OF THE LICENSOR. The Licensor shall provide Southern with the
"know-how and show-how" as to the Licensed Patent Rights, the Licensed
Manufacturing Protocols, Procedures and Processes and all related Confidential
Information and Data (which shall include information relating to the
manufacturing equipment). The Licensor shall disclose its proprietary
manufacturing technology to Southern (which shall include the training of
Southern's designated manufacturing personnel on site) at no additional cost to
Southern. The Licensor shall also provide continuing consultative and support
services as reasonably required exclusively to Southern for a period of two (2)
years from the date of execution of the Master License at no additional cost to
Southern except travel, room and board expenses for the Licensor's related
personnel. Further, the Licensor shall provide to Southern all clinical trial
protocols which it may have developed from time to time for specific disease
states for testing THE LICENSED PRODUCT so that Southern may elect to execute
clinical trials within its Territory.

5. PROVIDING THE LICENSED PRODUCT TO SOUTHERN

The Licensor shall use its best efforts in order to obtain THE LICENSED PRODUCT
from its manufacturing facility in Edinburgh, Scotland, at the earliest
opportunity. Any obligation to supply THE LICENSED PRODUCT to Southern shall
terminate at such time as Southern's first manufacturing facility becomes
operational. In this regard, a separate agreement would necessarily be
negotiated between Southern and Viragen (Europe) Ltd., ("VERP"), which would
provide for a preferred

3
<PAGE> 4

discounted price to Southern and would be subject to all laws, rules and
regulations of the United Kingdom. All Royalty payments arising from the sale of
THE LICENSED PRODUCT within the Territory from VERP-produced product will be
waived.

6. PROHIBITION AGAINST USE OF CORPORATE NAME, TRADENAMES, SERVICE MARKS AND
COPYRIGHTS

Southern shall be prohibited from using the words "Viragen" and/or OMNIFERON in
any form and in any way.

7. INSURANCE AND INDEMNITY

Southern shall fully indemnify Viragen and the Licensor against any and all
claims, damages, and losses including attorney fees and other costs arising in
connection with or in relation to the Master License or any actions taken
pursuant to it, and shall obtain sufficient insurance in forms and amounts
acceptable to the Licensor and Viragen to cover such liabilities.

8. GOVERNING LAW

This agreement shall be governed by and interpreted in accordance with the laws
of the State of Florida, U.S.A., and shall be enforceable in Florida courts
except for provisions pertaining to conflicts of laws.

9. INVESTMENT BANKING FEE

The Licensor agrees to pay an investment banking fee of SIX PERCENT (6%) of the
Master License Fee or ONE MILLION TWO HUNDRED THOUSAND U.S. DOLLARS
(US$1,200,000) to HPC Corporate Services upon receipt by the Licensor of the
Master License Fee in cleared funds on or before September 30, 1998 and receipt
of a fully executed Master License.

10. ASSIGNMENT OF MASTER LICENSE AND TERRITORIAL RESTRICTION

Southern has advised the Licensor that it intends to assign the Master License
to a newly-formed company, VIRAGEN ASIA (MALAYSIA) PLC. ("VASIA") which
assignment is contingent upon VASIA being listed on the Malaysian Stock Exchange
and/or Australian Stock Exchange (ASX) and being capitalized in the sum of not
less than FIFTY MILLION U.S. DOLLARS (US$50,000,000). The Licensor hereby agrees
to such assignment subject to the Licensor conducting reasonable due diligence
relating to both Southern and VASIA as long as Southern complies with paragraph
6 above. Southern, its assignees, nominees, designees, subsidiaries, joint
venturers, licensees and sublicensees and any and all entities which benefit
from THE LICENSED PRODUCT shall warrant and ensure that THE LICENSED PRODUCT
will not be manufactured, sold or distributed outside of the Territory.

By signing in the space provided below, the signatories represent that they have
the express authority to bind their respective entities.

<PAGE> 5

Yours very truly

ACCEPTED AND AGREED TO AS OF
THE ____DAY OF MARCH 23, 1998

VIRAGEN, INC. and SOUTHERN HEALTH SDN.HND
VIRAGEN TECHNOLOGY, INC.

BY: /s/ GERALD SMITH, PRES. BY: /s/ DAVID RIGOLL
--------------------------------- ------------------------------
Gerald Smith, President David Rigoll, Director (Title)

GS:js

cc: Management Committee

<PAGE> 1

EXHIBIT 11

COMPUTATION OF LOSS PER COMMON SHARE

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
PRIMARY AND FULLY DILUTED
Weighted average shares outstanding ......... 50,502,503 39,134,631 36,198,302
============ ============ ============
Net Loss .................................... $ (7,856,136) $ (4,775,245) $ (4,672,271)
Deduct required dividends on convertible
preferred stock, Series A ................. 2,823 20,760 2,650
Deduct required dividends on convertible
preferred stock, Series B ................. -- 4,441,676 894,976
Deduct required dividends on convertible
preferred stock, Series C ................. -- 844,960 --
Deduct required dividends on convertible
preferred stock, Series D ................. 169,221 3,619,407 --
Deduct required dividends on convertible
preferred stock, Series E ................. 127,918 971,936 --
Deduct required dividends on convertible
preferred stock, Series F ................. 524,416 -- --
Deduct required dividends on convertible
preferred stock, Series G ................. 708,139 -- --
Deduct required dividends on convertible
preferred stock, Series H ................. 733,681 -- --
Deduct required dividends on convertible
preferred stock, Series I ................. 232,154 -- --
------------ ------------ ------------
Net loss attributable to common stock ....... $(10,354,488) $(14,673,984) $ (5,569,897)
============ ============ ============
Loss per common share after deduction for
required dividends on convertible preferred
stock ..................................... $ (0.21) $ (0.37) $ (0.15)
============ ============ ============
</TABLE>

<PAGE> 1

EXHIBIT (21)

SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>
PERCENTAGE
JURISDICTION OF OWNED BY
INCORPORATION REGISTRANT
------------- ----------
<S> <C> <C>
Vira-Tech, Inc.(1)............ Florida 100%
Viragen Technology, Inc.(2)... Florida 100%
Viragen Reagents, Inc.(3)..... Florida 100%
Viragen U.S.A., Inc.(4)....... Delaware 94%
Viragen (Europe) Ltd.(5)...... Delaware 70%
Viragen (Scotland) Ltd.(6).... Scotland (UK) 70%
Viragen (Germany) GmbH(7)..... Germany 70%
</TABLE>
- ------------

(1) Incorporated January 12, 1981

(2) Incorporated January 13, 1995

(3) Incorporated July 14, 1997

(4) Incorporated April 4, 1996

(5) Acquired December 8, 1995

(6) Incorporated January 17, 1995; 100% owned by Viragen (Europe) Ltd.

(7) Acquired November 14, 1997; 100% owned by Viragen (Europe) Ltd.

<PAGE> 1
Exhibit 23

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-50403) pertaining to the Viragen, Inc. Amended 1997 Stock
Option Plan and (Form S-8 No. 33-60131) pertaining to the Viragen, Inc. 1995
Stock Option Plan, Employment Contracts with Key Executives and Stock Option
Agreements with Directors of Viragen, Inc. and (Form S-8 No. 333-18197)
pertaining to the Consulting Agreement with Girmon Investment Co., Limited and
Common Stock Purchase Option Granted to Key Employee, of our report dated
September 18, 1998, with respect to the consolidated financial statements of
Viragen, Inc., as amended, included in its Annual Report (Form 10-K/A) for the
year ended June 30, 1998.

/s/ Ernst & Young LLP

Miami, Florida
March 31, 1999