<PAGE> 1
Filing Pursuant to Rule 424(b)(2)
Registration Statement No. 333-32306
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 21, 2000)
1,000,000 shares
Viragen, Inc.
Common Stock
-----------------------
You should read this prospectus supplement and the accompanying
prospectus carefully before you invest. Both documents contain information you
should consider when making your investment decision.
INVESTING IN VIRAGEN, INC. COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF OUR PROSPECTUS DATED MARCH 21, 2000 TO
READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
PLAN OF DISTRIBUTION
We are offering 1,000,000 shares of our common stock to one
institutional investor under the terms of this prospectus supplement. The common
stock will be purchased at a negotiated purchase price of $1,550,000. In
addition, we will pay $77,500 in commissions on the sale of our common stock to
Ladenburg Thalmann & Co., Inc. as placement agent in connection with this
transaction. We will also issue the placement agent a three (3) year warrant to
purchase 35,000 shares of our common stock at an exercise price per share of
$1.70. The investor will also receive a three-year warrant to purchase 35,000
shares of common stock at $1.70. We expect this transaction to close following
this filing. We will not pay any other compensation in conjunction with this
sale of our common stock in addition to the arrangements discussed in our
prospectus dated March 21, 2000. We have agreed to indemnify the placement agent
against liabilities, including liabilities under the Securities Act of 1933.
USE OF PROCEEDS
The net proceeds to us from this offering will be $1,472,500. We plan
to use the net proceeds for general corporate purposes, including:
<PAGE> 2
o funding of clinical trials of our Omniferon(TM) product;
o financing capital expenditures; and
o working capital.
Pending use of the net proceeds for any of these purposes, we may
invest the net proceeds in short-term investment grade instruments,
interest-bearing bank accounts, certificates of deposit, money market
securities, U.S. government securities or mortgage-backed securities guaranteed
by federal agencies.
MARKET FOR OUR COMMON STOCK
On April 5, 2000, the last reported sales price of our common shares on
the OTC Bulletin Board was $2.00 per share. Our common stock is listed under the
symbol "VRGN".
As of April 5, 2000 and before the issuance of shares pursuant to this
prospectus supplement, we had 82,701,483 shares of common stock outstanding.
GENERAL
You should rely only on the information provided or incorporated by
reference in this prospectus supplement and the prospectus. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus supplement is accurate as of any
date other than the date on the front of these documents.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this supplemental prospectus that are not
purely historical are forward-looking statements within in the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities and
Exchange Act of 1934. These include statements regarding Viragen's expectations,
hopes, intentions, beliefs, or strategies regarding the future. Forward-looking
statements include our statements regarding liquidity, anticipated cash needs
and availability, and anticipated expense levels, 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 or documents incorporated by reference are
based on information available on this date, and we assume no obligation to
update any of our forward-looking statements. You should note that actual
results could differ materially from those contained in forward-looking
statements. Among the factors that may cause our actual results to differ
materially are the risks discussed in the "Risk Factors" section included in
this prospectus.
-------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------------
The date of this prospectus supplement is April 6, 2000.
2
<PAGE> 3
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Plan of Distribution ........................................... 1
Use of Proceeds................................................. 1
Market for our Common Stock .................................... 2
General ........................................................ 2
Disclosure Regarding Forward-Looking
Statements.................................................... 2
PROSPECTUS
About This Prospectus .......................................... 3
Where You Can Find More Information ............................ 3
About Viragen................................................... 5
Risk Factors.................................................... 6
Use of Proceeds................................................. 13
Dividend Policy................................................. 13
Plan of Distribution ........................................... 13
Legal Matters................................................... 14
Experts......................................................... 14
3
<PAGE> 4
Prospectus
VIRAGEN, INC.
$60,000,000
Common Stock
This prospectus is part of the registration statement we filed with the
Securities and Exchange Commission using a "shelf" registration process. This
means:
o We may issue up to $60,000,000 of our common stock or common shares
underlying warrants from time to time.
o We will circulate a prospectus supplement each time we plan to issue
our common stock.
o The prospectus supplement will inform you about the specific terms
of that offering and also may add, update or change information
contained in this prospectus.
o You should read this prospectus and any prospectus supplement
carefully before you invest.
Our common stock is listed on the OTC Bulletin Board, under the symbol
"VRGN". On March 3, 2000, the last reported sale price for our common stock was
$2.50 per share.
We have engaged Ladenburg Thalmann & Co., Inc. as our exclusive
placement agent for this offering on a best efforts basis.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING AT
PAGE 5.
----------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is March 21, 2000.
<PAGE> 5
TABLE OF CONTENTS
PAGE
----
About This Prospectus ................................................ 3
Where You Can Find More Information................................... 3
About Viragen ........................................................ 5
Risk Factors ......................................................... 6
Use of Proceeds.......................................................13
Dividend Policy.......................................................13
Plan of Distribution .................................................13
Legal Matters ........................................................14
Experts ..............................................................14
You should rely only on the information contained in this document or
to which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information contained in this document may only be
accurate on the date of this document.
2
<PAGE> 6
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission using a "shelf" registration process.
Under this process, we may from time-to-time offer up to $60,000,000 in the
aggregate of shares of common stock, $0.01 par value of Viragen. The price to be
paid for the common shares will be determined at the time of sale. The common
stock may be referred to as "securities" in this prospectus and registration
statement.
Each time we offer securities, we will provide a supplement to this
prospectus detailing specific information about each proposed sale.
WHERE YOU CAN GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form S-3. This prospectus is a part of the
registration statement. It does not contain all of the information set forth in
the registration statement. For further information about Viragen, Inc. and its
common stock, you should refer to the registration statement. Statements
contained in this prospectus as to the contents of any contract or other
document referred to in this prospectus are not necessarily complete. Where a
contract or other document is an exhibit to the registration statement, each of
you should review the provisions of the exhibit, to which reference is made. You
may obtain these exhibits from the Securities and Exchange Commission, as
discussed below.
We are required to file annual, quarterly, and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy these filings at the Securities and Exchange Commission
public reference rooms in Washington, D.C.; New York, NY; and Chicago, IL. You
may request copies of these documents by writing to the Securities and Exchange
Commission and paying a fee for copying costs. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for more information about the operation
of their public reference rooms. Copies of our filings are also available at the
Securities and Exchange Commission web site at HTTP://WWW.SEC.GOV or through our
web site at HTTP://WWW.VIRAGEN.COM.
The Securities and Exchange Commission allows us to "incorporate by
reference" information that we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the Securities and Exchange Commission
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the Securities and Exchange Commission under Section 13(a), 14 or 15(d) of the
Securities Exchange Act of 1934:
o Quarterly report on Form 10-Q, for the quarterly period ended
December 31, 1999, filed February 14, 2000;
3
<PAGE> 7
o Quarterly report on Form 10-Q, for the quarterly period ended
September 30, 1999, filed November 15, 1999.
o Annual Report on Form 10-K/A for the fiscal year ended June 30,
1999, February 10, 2000;
o Registration statement on Form S-1/A (File No. 333-93425), filed
February 10, 2000;
o Registration statement on Form S-1/A (File No. 333-75749), filed
February 10, 2000; and
o Current report on Form 8-K, dated November 24, 1999, filed December
9, 1999;
You may obtain a copy of these filings at no cost by writing, telephoning,
faxing or visiting out website at the following address:
Dennis W. Healey
Viragen, Inc.
865 S.W. 78th Avenue, Suite 100
Plantation, FL 33324
Telephone No.: (954) 233-8746
Facsimile No.: (954) 233-1414
Web Site: http://www.viragen.com.
4
<PAGE> 8
ABOUT VIRAGEN
Viragen, Inc. is in the business of researching and developing products
which help the human immune system resist viral infections. We were organized in
1980. Our primary product is a natural interferon product named Omniferon(TM),
which we produce using human white blood cells. Natural interferon stimulates
and controls the human immune system. In addition, interferon may stem the
growth of various viruses including those involved with diseases like hepatitis,
multiple sclerosis, cancer and HIV/AIDS.
Neither the United States Food and Drug Administration nor the
European Union regulatory authorities has approved our product. When we refer to
"product" later in this prospectus, we do not intend to imply that our product
has regulatory approvals that will allow it to be marketed currently. Viragen
will seek Food and Drug Administration and European Union regulatory authority
approval for various uses of its Omniferon product in the future. This approval
requires several years of clinical trials and substantial additional funds. We
are concentrating our efforts on obtaining the necessary regulatory approvals
for our Omniferon product so that we may market our product. This will be
initially in the European Union and eventually from the Food and Drug
Administration for the United States.
Our affiliate, Viragen (Scotland) Ltd., has entered into a license and
manufacturing agreement with the Common Services Agency of Scotland, and the
Scottish National Blood Transfusion Service. As a result of this agreement, the
Scottish National Blood Transfusion Service will help in the manufacture of our
natural interferon product for exclusive distribution in the European Union and
on a non-exclusive basis worldwide. The Scottish National Blood Transfusion
Service will receive royalties and special access to our Omniferon product. We
have also entered into agreements with the American Red Cross, America's Blood
Centers and the German Red Cross for supplies of white blood cells. These
sources of white blood cells will enable us to manufacture Omniferon in
sufficient quantities to conduct planned European Union and United States
clinical trials. Subject to regulatory approvals, these sources will also
provide sufficient quantities of white blood cells for commercial manufacturing
in the future.
Our executive offices are located at 865 SW 78th Avenue, Suite 100,
Plantation, FL 33324. Our telephone number is (954) 233-8746; our facsimile
number is (954) 233-1414.
5
<PAGE> 9
RISK FACTORS
An investment in our common stock is very risky. You should be aware
you could lose the entire amount of your investment. Prior to making an
investment decision, you should carefully read this entire prospectus and
consider the following risk factors.
WE HAVE A HISTORY OF LOSSES DUE TO LACK OF SALES AND REGULATORY APPROVALS. IF WE
DO NOT RECEIVE NECESSARY REGULATORY APPROVALS AND DEVELOP PROFITABLE OPERATIONS,
WE WILL NEED TO TERMINATE OUR OPERATIONS. AS A RESULT, INVESTORS MAY LOSE THEIR
ENTIRE INVESTMENT.
Since the organization of Viragen, we have incurred operating losses.
Losses have totaled:
o $5,372,099 for the six month period ended December 31, 1999,
o $10,650,832 for the fiscal year ended June 30, 1999,
o $7,856,136 for the fiscal year ended June 30, 1998, and
o $4,775,245 for the fiscal year ended June 30, 1997.
At December 31, 1999, we had a total deficit since organization of $55,897,150
and a working capital deficit of $2,786,876.
We presently produce a single product known as Omniferon(TM), a natural
human leukocyte derived alpha interferon. However, because the United States
Food and Drug Administration and the European Union regulatory authorities have
not yet approved our natural interferon product, we cannot sell this product. As
a result, we have no current source of income from operations.
We will not be able to reduce our losses or operate profitably, until
we obtain the necessary approvals to sell natural interferon. While we currently
have a 10% interest in a company that is developing a product for the treatment
of rheumatoid arthritis, we expect sales of natural interferon to be our primary
source of income. Investors must understand that our natural interferon product
may never receive the necessary approvals from regulatory authorities. In
addition, even if the product is approved, we may not be able to recover
sufficient profit from the sale of natural interferon. If we do not obtain the
required approvals or we do not profit from the sale of natural interferon or
other products, Viragen most likely will terminate its operations. In that case,
those who have invested in Viragen will likely lose their entire investment.
As a result of these conditions, our independent certified public
accountants included an explanatory paragraph in their report dated September
17, 1999. Their report indicated that these conditions raised substantial doubt
about our ability to continue as a going concern. As of March 3, 2000, our
financial condition has not improved.
6
<PAGE> 10
VIRAGEN'S COMMON STOCK IS TRADED ON THE OTC BULLETIN BOARD. IF THE PENNY STOCK
RULES BECOME APPLICABLE TO OUR STOCK, IT MAY BECOME MORE DIFFICULT TO SELL OUR
STOCK.
Our common stock is traded on the OTC Bulletin Board, which is a more
limited market than the NASDAQ Stock Market and the national and regional stock
exchanges. Stocks quoted in this market generally do not have the same following
as stocks traded on the NASDAQ Stock Market or the national and regional
exchanges. In general, local and national newspapers do not quote OTC Bulletin
Board stocks in the stock market tables. In addition, our common stock could
become subject to the penny stock rules under the Securities Exchange Act of
1934, if we do not maintain a minimum tangible net worth of at least $2 million.
As of December 31, 1999, our tangible net worth totaled $3,236,067.
The penny stock rules require broker-dealers to deliver a standardized
risk disclosure document prepared by the Securities and Exchange Commission,
prior to a transaction in a penny stock. This document provides information
about penny stocks and the risks in the penny stock market. The broker-dealers
must also provide the customer the following:
o current bid and offer quotations for the penny stock,
o the compensation of the broker-dealer and its salesperson in the
transaction, and
o monthly account statements showing the market value of each penny
stock held in the customer's account.
The broker dealers must give the quotations and compensation
information to the customer, orally or in writing, prior to completing the
transaction. They must give this information to the customer, in writing, before
or with the customer's confirmation.
In addition, the penny stock rules require that, prior to a transaction
in a penny stock, the broker and/or dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser.
The broker and/or dealer must receive the purchaser's written agreement to the
transaction. These disclosure requirements may reduce the level of purchases in
our common stock and trading activity in the secondary market for Viragen's
common stock. If our common stock becomes subject to the penny stock rules, it
will be more difficult for you to sell the common stock. This may reduce the
value of your investment.
COMPETITIVE CONDITIONS IN THE PHARMACEUTICAL INDUSTRY MAY FORCE US TO TERMINATE
OPERATIONS.
Competition for investment capital and market share in the
immunological and pharmaceutical products industry is very strong. Our
competitors, which include major pharmaceutical companies, have more experience
in research, development and clinical testing of pharmaceutical and biomedical
products. We do not have, as yet, an immunological product that can be marketed.
Our competitors also have greater financial, marketing and human resources than
Viragen. Some of our competitors, including Hoffman-La Roche, Inc.,
Shering-Plough Corporation, Biogen, Inc., Chiron Corp., and Baxter Laboratories,
already have approvals for their synthetic interferons. They have been marketing
7
<PAGE> 11
their products, since 1986. These companies have received wide acceptance from
the medical community and the patient population for their products. This will
make it more difficult for us to introduce our product, if and when we receive
the necessary regulatory approval. We only expect competition to increase in the
future. In addition, technological advances made by our competitors may make
synthetic products more effective, less costly and with less harmful side
effects. Viragen may not be able to keep pace with technological advances by
others, either because we do not have sufficient resources or because we cannot
achieve greater improvements in our technology. If we are unable to compete with
our larger, more experienced competitors, we may terminate operations.
Competition for funding in the pharmaceutical industry is also intense.
As explained above, we have no source of income, as yet. We may not have
sufficient sources of income or investment capital for a significant period of
time, if ever. We need additional funds to conduct clinical trials so we can
receive regulatory approvals. We must obtain additional funding from outside
sources to conduct these trials. If we are unable to locate funding or obtain
funding on reasonable terms, we will most likely terminate operations. In that
case, any investment in Viragen could be lost.
GOVERNMENT REGULATION MAY AFFECT VIRAGEN'S ABILITY TO DEVELOP AND DISTRIBUTE
NATURAL INTERFERON.
All pharmaceutical manufacturers are subject to state and federal rules
and regulations. In particular, we must comply with the United States Food and
Drug Administration guidelines governing production, testing and marketing.
European Union regulatory authorities also impose similar regulations. These
rules and regulations are constantly changing. These changes could extend the
period of clinical trials, involve costly compliance measures and may restrict
our ability to produce and distribute our natural interferon product based on
the results of testing. It is possible that we may never receive these
regulatory approvals for any specific illness or range of illnesses that we are
attempting to treat with our natural interferon product.
IF PATIENTS HAVE PROBLEMS RECEIVING THIRD PARTY REIMBURSEMENTS OF OUR PRODUCT,
IT WILL BE MORE DIFFICULT TO MARKET OUR PRODUCT. IN ADDITION, OUR MARKETING
COSTS WOULD INCREASE.
Our ability to successfully market our products depends in part on the
receipt of reimbursements from government health administration authorities,
private health coverage insurers and other organizations. The pricing of
products similar to ours or the amount of reimbursement available to patients
may affect our ability to market our product at a profit. Third party
reimbursement limitations could restrict the patient population that will make
use of our product. If we have difficulty in getting third party payors to allow
reimbursement for our product, this could also require us to increase our
marketing efforts. This will involve greater expenses.
8
<PAGE> 12
OUR PROPRIETARY TECHNOLOGY AND ANY FUTURE PATENTS THAT WE RECEIVE MAY NOT
PROVIDE SUFFICIENT PROTECTION TO US.
We intend to rely, in part, on technology developed by Viragen's
scientists for the efficient and safe production of natural interferon. We
believe that this technology allows us to produce our natural interferon more
efficiently and with less possible contaminants. Viragen recently filed two
patent applications relating to our Omniferon production technology. If we are
not successful in obtaining patents or demonstrating that our production process
is proprietary under trade secret law, we will have limited protection against
those who might copy our technology. In addition, we may be damaged if we are
accused of misappropriating a competitor's proprietary technology, even if these
claims are untrue. We cannot assure you that our patent applications will be
approved. Even if granted, we cannot assure you that these patents or any future
patent applications or our other proprietary rights will provide necessary
protection to us.
TECHNOLOGY TRANSFERS BY VIRAGEN TO THIRD PARTIES MAY NOT RESULT IN REVENUE TO
US.
One of our proposed marketing strategies is to license our
manufacturing technology to third parties. They, in turn, will use our
technology to produce natural human leukocyte alpha interferon outside the
United States. We cannot guarantee that these third parties will be able to
successfully market the product or that we will receive revenue from their
efforts.
WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS, AND OUR PRODUCT LIABILITY
INSURANCE MAY NOT BE SUFFICIENT TO COVER ALL CLAIMS OR CONTINUE TO BE AVAILABLE
TO US.
Persons, who claim to be injured from use of our natural interferon,
may file claims for personal injuries or other damages against us. In order to
protect Viragen against these claims, we maintain product liability insurance in
the amount of $1,000,000 per occurrence and $2,000,000 in total. We cannot be
sure that this insurance will be adequate to cover any liabilities that may
result from the use of our natural interferon. Also, we may not be able to
afford this form of insurance in the future.
OUR RELIANCE ON FOREIGN THIRD PARTY MANUFACTURER MAY DISRUPT OPERATIONS.
Viragen (Scotland) Ltd., a wholly-owned subsidiary of Viragen (Europe)
Ltd., our majority-owned subsidiary, entered into a manufacturing agreement with
the Common Services Agency of Scotland for the production of Omniferon. Under
this agreement, Viragen (Scotland) and the Common Services Agency will jointly
manufacture Omniferon. Our decision to use an offshore manufacturer could expose
us to risks involved with fluctuations in exchange rates of foreign currencies.
In addition, relying on the Common Services Agency exposes us to all the risks
of dealing with a foreign manufacturing source. These risks include:
o local governmental regulations,
o tariffs,
o import and export restrictions,
9
<PAGE> 13
o transportation,
o taxes, and
o foreign health and safety regulations.
Foreign manufacturing arrangements will limit our control. For
instance, the Common Services Agency has limited our access to portions of their
facility, when introducing stimulating agents during production. This may lead
to the disruption of our operations. This could negatively affect our operations
and your investment in us.
WE ARE DEPENDENT ON KEY EXECUTIVES AND THEIR LOSS WOULD BE DAMAGING TO VIRAGEN.
Mr. Gerald Smith, our chairman of the board and president, Mr. Dennis
W. Healey, our executive vice president, treasurer and chief financial officer,
and Dr. D. Magnus Nicolson, the managing director of Viragen (Scotland) Ltd.,
manage our day-to-day operations. We have employment agreements with Messrs.
Smith, Healey and Nicolson which restrict competitive activities by them.
However, the loss of their services would have a negative effect on our ability
to conduct business. Our future success will greatly depend on our ability to
attract and retain additional skilled personnel in various phases of our
operations.
WE WILL REQUIRE ADDITIONAL FUNDING TO CONDUCT OPERATIONS. THE FUNDING MAY NOT BE
AVAILABLE AND CAUSE US TO TERMINATE OUR OPERATIONS.
Viragen will continue to require significant funding in the future to
continue its operations. We estimate that we will require funding of
approximately $30 million, over the next three years. These funds would be used
to fund operations including clinical trials. We cannot assume that any
additional financing will be available. If financing is not available, we may
have to sell, suspend, or terminate our operations.
THE SALE OF OUR COMMON STOCK UNDER THIS SHELF REGISTRATION AND OTHER FINANCINGS
MAY CAUSE SUBSTANTIAL DILUTION TO OUR STOCKHOLDERS.
As described in the preceding risk factor, we will need additional
funding to continue to conduct operations. In December 1999, we retained the
investment banking firm of Ladenburg Thalmann & Co., Inc. to aid us in
identifying and developing financing sources. They will serve as the exclusive
placement agent for offerings under this shelf registration, and have agreed to
assist us in raising up to $60,000,000 through equity transactions. In order to
raise the amount of funding needed, we may have to issue millions of common
shares.
Also, during February 2000, Viragen issued short-term convertible notes
to two investors. The notes totaled $2,000,000 in principal. Interest on one
$1,000,000 note is payable at 8% and the second $1,000,000 note bears an
interest rate of 9.5%. The notes are convertible into a total of 2,000,000
common shares, which are not currently registered.
Future transactions with other investors could further depress the
price of our stock because of additional stockholder dilution.
10
<PAGE> 14
WE MAY HAVE VIOLATED SECTION 5 OF THE SECURITIES ACT OF 1933 AND MAY HAVE A
CONTINGENT LIABILITY TO INVESTORS
In March 1999, we issued 8% convertible promissory notes in the amount
of $2,000,000 to two investors. In June 1999, we modified our agreements with
these investors to lower the conversion price of their promissory notes. We did
this in order to obtain a waiver from the investors for an interim financing. We
did the interim financing in May 1999 when we received $1,375,000 from three
other investors through the sale of our common stock. Since we had a pending
registration statement at the time of the June 1999 modification and the May
1999 interim financing, the Securities and Exchange Commission informed us that
we may have violated Section 5 of the Securities Act of 1933. If this is so, we
may have a contingent liability to the 8% convertible promissory note investors
and the three investors in the interim financing, since they may have the right
to rescind their transactions.
OUR OPERATIONS MAY SUFFER FROM COMPUTER PROBLEMS RELATING TO THE YEAR 2000.
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the year 2000. Some older
computer systems store dates with only a two-digit year with an assumed prefix
of "19." Consequently, this limits those systems to dates between 1900 and 1999.
If not corrected, many computer systems and applications could fail or create
erroneous results by or at the year 2000.
Because we rely heavily on computers to conduct our business, we are
subject to all the risks associated with the year 2000 condition. We have
assessed the scope of our risks related to problems these computer systems may
have experienced upon the arrival of the year 2000. We believe that we have
adequately addressed these risks. In addition, we have questioned our vendors
and business partners about their progress in identifying and addressing
problems related to the year 2000. However, we cannot assure you that all of
these third party systems or that our computer systems are fully year 2000
compliant.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We have never paid cash dividends on our common stock. We do not expect
to pay cash dividends on our common stock any time in the foreseeable future.
The future payment of dividends directly depends upon our future earnings,
capital requirements, financial requirements and other factors that our board of
directors will consider. For the foreseeable future, we will use earnings from
operations, if any, to finance our growth, and we will not pay dividends to our
common stockholders. Since we do not anticipate paying cash dividends on our
common stock, return on your investment, if any, will depend solely on an
increase in the market value of Viragen's common stock.
11
<PAGE> 15
POSSIBLE SALES OF SECURITIES BY CURRENT STOCKHOLDERS AND DEPRESSIVE EFFECT ON
MARKET VALUE OF OUR STOCK.
As of March 3, 2000, we had 7,172,120 shares of common stock
outstanding, which were "restricted securities," as defined by Rule 144 under
the Securities Act of 1933. Also, as of that date, we had short-term convertible
notes, convertible preferred stock, and common stock options and warrants
outstanding, which if converted or exercised, would result in 12,732,578
additional shares of our common stock outstanding. Under Rule 144, a person who
holds restricted securities for a period of one year may sell a limited number
of shares to the public in ordinary brokerage transactions. Sales under Rule 144
and sales of common stock covered by registration statements filed by us,
including shares covered by this prospectus, may reduce the market price of our
common stock and will increase the number of our publicly-held securities.
WE COULD USE PREFERRED STOCK TO RESIST TAKEOVERS AND MAY ALSO CAUSE POTENTIAL
ADDITIONAL DILUTION.
Our Certificate of Incorporation authorizes 1,000,000 shares of
preferred stock, of which at March 3, 2000, 2,650 shares of series A preferred
stock were issued and outstanding. Our Certificate of Incorporation gives our
board of directors the authority to issue preferred stock without approval of
our stockholders. We may issue additional shares of preferred stock to raise
money to finance our operations. We may authorize the issuance of the preferred
stock in one or more series. In addition, we may set the following terms:
o dividend and liquidation preferences,
o voting rights,
o conversion privileges,
o redemption terms, and
o other privileges and rights of the shares of each authorized series.
The issuance of large blocks of preferred stock could possibly have a dilutive
effect to our existing stockholders. It can also negatively impact our existing
stockholders' liquidation preferences. In addition, while we include preferred
stock in our capitalization to improve our financial flexibility, we could
possibly issue our preferred stock to friendly third parties to preserve control
by present management. This could occur if we become subject to a hostile
takeover that could ultimately benefit Viragen and Viragen's stockholders.
12
<PAGE> 16
USE OF PROCEEDS
Each time we sell our common stock, we will provide a prospectus
supplement that will contain information about how we intend to use the net
proceeds from each offering.
Unless otherwise indicated in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of our common stock for general
corporate purposes including the funding of clinical trials of our Omniferon
product, capital expenditures and general working capital.
DIVIDEND POLICY
We have never paid any dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future because:
o we have experienced losses since inception,
o we have significant capital requirements in the future, and
o we presently intend to retain future earnings, if any, to finance
the expansion of our business.
Future dividend policy will depend on:
o our earnings, if any,
o capital requirements,
o expansion plans,
o financial condition, and
o other relevant factors.
PLAN OF DISTRIBUTION
We have engaged Ladenburg Thalmann & Co., Inc. as our exclusive
placement agent for this offering on a best efforts basis. Ladenburg Thalmann
has agreed with us that it will seek to identify institutional investors who may
wish to purchase our common stock from time to time on specific terms to be
negotiated between us and such institutional investors. Ladenburg Thalmann is
not committed to purchase any of our securities, regardless of whether Ladenburg
Thalmann does or does not successfully identify others to purchase our
securities. Also, Ladenburg Thalmann has advised us that they will not purchase
any of our securities for their own account or for any discretionary accounts
managed by them.
We have agreed to pay Ladenburg Thalmann a placement fee equal to 5% of
the gross proceeds to Viragen from each such sale. We have also agreed to issue
Ladenburg Thalmann common stock purchase warrants at the closing of each
placement equal in number to 7% of the gross proceeds from each such placement
13
<PAGE> 17
divided by the sale price per share to the public in such transaction. The
exercise price of each such warrant shall be 110% of the offering price of the
common stock in such particular placement.
We have also given Ladenburg Thalmann a $35,000 non-accountable expense
allowance and a right of first refusal for a period of one year from the
conclusion of this offering (or until December 31, 2002 if this offering
continues beyond December 31, 2001) to provide additional financing to us. We
have also agreed to give Ladenburg customary underwriter's indemnification
against liabilities under the Securities Act.
Any variance from those underwriting terms will be disclosed in a
prospectus supplement.
LEGAL MATTERS
Atlas, Pearlman, Trop & Borkson, P.A. will review the validity of the
issuance of the shares of our common stock being offered. They are located at
350 East Las Olas Boulevard, Suite 1700, Fort Lauderdale, Florida 33301. Members
of that firm or members of their family own a total of 37,000 shares of our
common stock.
EXPERTS
Ernst & Young LLP, independent certified public accountants, have
audited our consolidated financial statements included in our Annual Report on
Form 10-K/A for the year ended June 30, 1999, as set forth in their report,
which is incorporated by reference in this prospectus and elsewhere in the
registration statement. Our financial statements are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
14
<PAGE> 18
Viragen, Inc.
Prospectus
March 21, 2000
