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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark One)

OR

Commission File Number 001-15823

VIRAGEN, INC.

865 SW 78th Avenue, Suite 100, Plantation, Florida 33324

(954) 233-8746

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 Par Value

Securities registered pursuant to Section 12(g) of the Act:
None

         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    o

         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 25, 2002 was approximately $22,505,000.

         As of September 25, 2002, there were 111,540,798 shares of the issuer’s common stock outstanding, par value $0.01.

DOCUMENTS INCORPORATED BY REFERENCE

Risk Factors included in Form S-3, File No. 333-82452, filed on February 11, 2002, incorporated by reference into Part II Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

VIRAGEN, INC. AND SUBSIDIARIES

INDEX TO ANNUAL REPORT ON FORM 10-K
Year Ended June 30, 2002

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PART I

Item 1. Business

Introduction

         Viragen, Inc. (which may be referred to as we, us or our) is a Delaware corporation organized in 1980. We are a biotechnology company engaged in the business of researching, developing and manufacturing innovative technologies for the treatment of life-threatening illnesses. We are also in the business of developing innovative technologies aimed at improving the manufacturing processes used to manufacture certain medical therapies. Specifically, we are primarily focused on three fields of research and development:

	•		human leukocyte derived interferon;
	•		avian transgenics technologies; and
	•		oncological therapies.

         We operate through:

	•		Viragen, Inc.—parent company;
	•		ViraGenics, Inc.—100% owned by Viragen, Inc.;
	•		Viragen International, Inc. (formerly Viragen (Europe) Ltd.) –70.2% owned by Viragen, Inc.;
	•		Viragen (Scotland) Ltd.—100% owned by Viragen International, Inc.; and
	•		ViraNative AB—100% owned by Viragen International, Inc.

         You can learn more about us by visiting our web site at www.viragen.com. The information on our website is neither incorporated into, nor a part of, this report.

Recent Developments

Interferon

         In January 2002, the Medical Products Agency (MPA) in Sweden approved an extended indication for Multiferon™, to include second-line treatment for any and all those patients failing previous interferon therapies, probably due to neutralizing antibodies. This approval broadens the use of the product for all indications of the recombinant interferons, where patients have not responded or have had breakthrough response and later relapsed. Main indications include hepatitis B and C, malignant melanoma, hairy cell leukemia, myeloid leukemia, multiple sclerosis and other types of cancer.

         In January 2002, regulatory authorities in Mexico approved an application filed by our strategic partner, Laboratorios Pisa, S.A. de C.V., a leading Mexican pharmaceutical company, which holds the exclusive right to distribute our natural interferon in Mexico. This marketing authorization allows for the treatment of patients in Mexico with hairy cell leukemia and chronic myeloid leukemia who did not respond to recombinant (synthetic) interferon regimens. An application has been filed with Mexico’s Ministry of Health to broaden the products approved indications, based upon the recent approval from the MPA in Sweden, the country of origin of Multiferon.

         In September 2002, negotiations were finalized to appoint Harvester Trading Co., a leading healthcare distributor in Taiwan, Republic of China, as our exclusive distributor for Multiferon in that country, following

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the termination of an agreement with Tradeway Incorporated. Under this agreement, Harvester is responsible for obtaining all regulatory approvals for the sale of Multiferon in Taiwan. In connection with the regulatory approval process, Harvester is required, at its expense, to initiate a clinical evaluation of Multiferon which will be used to support licensure. This clinical trial is expected to take 6 to 12 months to complete and is scheduled to commence by calendar year end 2002. The initial term of the distribution agreement is five years, with an initial three year renewal term, and two additional three year renewal terms subject to six months’ written notice of termination by either party prior to the end of the initial term or a renewal term.

         A Phase-III registration clinical trial in hepatitis C is planned to be initiated by Harvester in November 2002, using our standard protocol, in 50 patients who have failed previous recombinant interferon therapies. A pre-license sales program is planned to initiate treatment of patients with Multiferon, on a patient-name basis.

         In addition to Mexico and Taiwan, other countries where Multiferon marketing programs are active and/or under negotiation to start in the near future include: Indonesia, Thailand, Egypt, Turkey, Pakistan, Oman, United Arab Emirates, Philippines, South Korea, South Africa, Spain, Brazil and other Latin American countries.

Oncology

         In July 2002, Viragen entered into an agreement with the University of Miami’s Sylvester Comprehensive Cancer Center to develop anti-cancer technology. The joint project is designed to develop a novel form of an immune enhancing drug that has shown promise by inhibiting tumor growth in rats for a broad range of cancers. Additionally, the agreement provides Viragen with an option to acquire an exclusive worldwide license in order to commercialize the technology. The University of Miami has filed United States and foreign patent applications relative to this technology.

Operations

Interferon

         We produce a natural alpha interferon product named Multiferon® from human white blood cells, also known as leukocytes. Natural interferon stimulates and modulates the human immune system. In addition, interferon inhibits the growth of various viruses including those associated with diseases like hepatitis, cancer, multiple sclerosis, and HIV/AIDS.

         On September 28, 2001, Viragen International, Inc., our majority owned subsidiary, acquired all of the outstanding shares of BioNative AB (“BioNative”), a privately-held biotechnology company located in Umeå, Sweden. BioNative manufactured a human leukocyte interferon (alpha) product called Alfanative®. Subsequent to the acquisition, BioNative was renamed ViraNative AB and Alfanative was further developed into our new product, Multiferon®. Multiferon is approved in Sweden for the treatment of chronic myeloid leukemia (CML), hairy cell leukemia (HCL) and for the treatment of any and all diseases for which recombinant interferon therapy failed or the patient was unable to tolerate the regimen. This broad second line approval is expected to follow in countries in which Multiferon is currently approved as a second line therapy for CML and HCL. The product is also approved for sale in the Czech Republic, Hong Kong, Indonesia, Mexico, Myanmar, Thailand, and as purified bulk in Egypt.

         During our first fiscal quarter of 2002, following our acquisition of ViraNative, we suspended our clinical trials of Omniferon in the EU, our previous generation human leukocyte interferon, and focused our scientific and financial resources on the commercialization of Multiferon. Through ViraNative, we have recently concluded a Phase III clinical trial of our Multiferon product in Germany for the adjuvant treatment of malignant melanoma, which may position Multiferon as a product of choice for this indication.

         In the event management decides to continue or expand European clinical trials, we will require significant additional financing to continue to conduct and complete clinical trials for the purpose of obtaining additional European Union and/or U.S. Food and Drug Administration approvals of any product. Clinical testing toward expanded European

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Union and/or U.S. Food and Drug Administration approvals is an expensive process that is expected to take many years to complete, with no assurance that regulatory approvals for new therapies or new countries will eventually be obtained.

Avian Transgenics

         Our avian transgenic project is designed to enable Viragen to produce protein-based drugs, including monoclonal antibodies, inside the egg whites of transgenic developed chickens. Our goal is to develop a technology which will enable us to meet the large-scale production requirements for our own therapeutic protein products. We also believe that this technology will allow us to offer to others in the biopharmaceutical industry an alternate faster method of production of their protein-based products with a higher capacity and at a lower cost.

         Avian transgenics offers a potential solution to the production bottleneck currently limiting the growth and contributing to the high cost of protein drugs. Existing protein production technologies are often inefficient and costly. In addition, the anticipated explosion in protein drug approvals together with protein-based drugs in pre-clinical and Phase I or Phase II clinical trials has created a worldwide shortage of production capacity for these protein-based products.

         We believe our avian transgenics project will offer a rapid and cost effective way to produce large volumes of therapeutic proteins. In addition to meeting the current and future alternative production demands of the biopharmaceutical industry and generating significant revenue for Viragen, this project could also accelerate the progress of several life-saving drugs to the market at an affordable cost.

Oncology Therapies

         Viragen believes that no single approach or method is likely to treat all cancers effectively. We have approached the treatment of targeted cancers from several directions which we believe will increase our likelihood of clinical success.

         In collaboration with the Memorial Sloan-Kettering Cancer Center, we have initiated the research on monoclonal antibodies targeting ganglioside GD3 for the treatment of melanoma and possibly certain other cancers.

         In collaboration with the UK’s Cancer Research Campaign Technology, we are developing DNA vaccines and monoclonal antibodies to block the protective effect of the protein CD55 on the surface of tumor cells. The protein CD55 is one of a number of proteins which protect normal healthy cells from being destroyed by the complement system. The problem arises when cancer cells also express this control protein to camouflage themselves from the immune system at levels up to 100 fold greater than normal. Under a worldwide exclusive commercial license granted to us, we are researching a vaccine and developing an antibody to remove this protection from tumor cells. A successful vaccine could also offer protection against cancer spreading. We believe this technology may be useful in the treatment of colorectal, breast, ovarian and certain bone cancers.

         Under a worldwide exclusive license from the U.S. National Institute of Health, we are researching the clinical applications of a monoclonal antibody that recognizes the Notch-1 protein. Binding of the antibody to the protein signals the immune response to activate lymphocytes, modulating immunity. The antibodies may also be useful in adjuvant therapies.

         In collaboration with the University of Miami’s Sylvester Comprehensive Cancer Center we are researching and developing a specific anti-cancer technology. The joint project is designed to develop a novel form of an immune enhancing drug that has shown promise by inhibiting tumor growth in rats for a broad range of cancers. The drug is a novel 11 amino acid peptide called IEP 11, which was derived from a tumor transmembrane glycoprotein. It possesses anti-cancer vaccine properties both prophylactically and therapeutically.

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Strategic Alliances and Supply Agreements

Interferon

         In April 2002, we signed an exclusive supply and distribution agreement with AGC, a Pakistan-based, multinational conglomerate. This agreement supersedes the original agreement signed with AGC in November 1998. The agreement provides for the purchase and distribution of our human leukocyte interferon product, Multiferon. AGC’s designated territories include: India, Pakistan, Saudi Arabia, Kuwait, Yemen, Oman, UAE, Sri Lanka, Bangladesh, Nepal, Brunei, and other Middle Eastern countries. Regulatory approval procedures have been initiated in Pakistan, Oman and UAE.

         AGC must purchase a minimum of $20 million of product over five years increasing from $2 million the first year to $3 million the second year and $5 million for three years. The purchase minimums become binding on AGC if and when:

	•		AGC receives the required regulatory approvals for product commercialization in all of the above territories, and
	•		we receive the regulatory approvals to export our product to AGC’s territories.

         AGC has agreed to provide us with its projected annual requirements to be updated quarterly. Projected requirements in excess of agreed purchase minimums are binding on AGC. The purchase minimums, if contractually triggered, will be secured by a $1 million irrevocable revolving letter of credit. AGC, Viragen International and Viragen have agreed that if and when we obtain regulatory approval for commercialization of the product in the United States and/or Europe, all parties will negotiate in good faith an amendment to the agreement which could modify the purchase minimums and selling price.

         Under the AGC agreement, AGC is responsible for clinical and regulatory costs to obtain approvals for commercialization of the product in their designated territories. AGC is also responsible for all subsequent sales, marketing and distribution activities. AGC is required to build, own and operate, at their expense, a pharmaceutical distribution facility in a mutually agreeable location within the territories. AGC has informed us that they initially intend to focus on distribution for the treatment of hepatitis B and C. These diseases are at epidemic proportions in the designated territories. In light of the current political climate, this agreement may be modified or substantially changed in accordance with any new laws, rules or regulations.

         In September 2002, we entered into an exclusive agreement with Drogsan Healthcare Ltd. to exclusively distribute Multiferon in Turkey following the notification from MetDem, our prior distributor, of their intent to exit the healthcare market. Drogsan Healthcare is a leading pharmaceutical company in Turkey, with experience in the distribution of pharmaceutical products. Regulatory documentations to start registration approval procedure have been provided to Drogsan Healthcare and the agreement provides that Drogsan will obtain and maintain the appropriate regulatory approval in Turkey, including responsibility for all associated costs.

         In January 2002, regulatory authorities in Mexico approved an application filed by our strategic partner, Laboratorios Pisa, S.A. de C.V., a leading pharmaceutical company in Mexico, which holds the exclusive right to distribute our natural interferon in Mexico. This marketing authorization allows for the treatment of patients in Mexico with hairy cell leukemia and chronic myeloid leukemia who did not respond to recombinant (synthetic) interferon regimens. An application has been filed with Mexico’s Ministry of Health to broaden the products approved indications, based upon the recent approval from the MPA in Sweden, the country of origin of Multiferon.

         In September 2002, negotiations were finalized to appoint Harvester Trading Co., a leading healthcare distributor in Taiwan, Republic of China, as our exclusive distributor for Multiferon in that country, following the termination of an agreement with Tradeway Incorporated. Under this agreement, Harvester is responsible for obtaining all regulatory approvals for the sale of Multiferon in Taiwan. In connection with the regulatory approval process, Harvester is required, at its expense, to initiate a clinical evaluation of Multiferon which will be used to support licensure. This clinical trial is expected to take 6 to 12 months to complete and is scheduled to commence

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by calendar year end 2002. The initial term of the distribution agreement is five years, with an initial three year renewal term, and two additional three year renewal terms subject to six months’ written notice of termination by either party prior to the end of the initial term or a renewal term. During the original five-year term, Harvester has agreed to purchase a minimum of $4 million worth of product.

         A Phase-III registration clinical trial for hepatitis C is scheduled to be initiated in Taiwan in November 2002, comprised of 50 patients who have failed previous recombinant interferon therapies. A pre-license sales program is planned for the treatment of patients with Multiferon, on a patient-named basis, subject to regulatory approval.

         In addition to Mexico and Taiwan, other countries where Multiferon marketing programs are active and/or under negotiation to start in the near future include: Indonesia, Thailand, Egypt, Turkey, Pakistan, Oman, United Arab Emirates, Philippines, South Korea, South Africa, Spain, Brazil and other Latin American countries.

         In July 1998, we entered into a ten year strategic alliance and supply agreement with America’s Blood Centers for the supply of human white blood cells. America’s Blood Centers is a national network of non-profit, independent community blood centers operating in 45 states. America’s Blood Centers’ members annually collect over 45% of the U.S. blood supply through member blood donation centers and mobile collection facilities. Under the America’s Blood Centers agreement, we had first and preferential access to all leukocytes produced by America’s Blood Centers members who have elected to participate in the program. We paid a fixed cost for the leukocytes provided during the first two years of the agreement. After the first two years, the price varied based upon increased costs incurred by participating America’s Blood Centers members. In September 2000, the initial two-year term of the agreement was extended for a third year under the same terms. The parties continue to operate under the same terms.

         The America’s Blood Centers agreement provided for a royalty payment to be paid for each leukocyte provided under this agreement. The royalty was based on the higher of:

	•		a percentage of net revenue realized by Viragen,
	•		the estimated net revenue that could have been realized, based on the sale of Multiferon, using the America’s Blood Centers leukocytes provided, or
	•		a fixed dollar amount for the leukocytes.

         No minimum order requirement exists under this agreement. However, we have agreed that, prior to the date that a New Drug Approval Application becomes approved by the Food and Drug Administration, we will negotiate in good faith to reach an agreement on a minimum leukocyte purchase commitment.

         In August 1998, we entered into a fifteen-year agreement with the American Red Cross for the supply of leukocytes. The American Red Cross collects approximately half of the U.S. blood supply. The American Red Cross agreement provides for us to purchase leukocytes, consistent with agreed upon specifications, based on quarterly forecasts. We may pay for the leukocytes in cash or our common stock at the option of the American Red Cross. The valuation of shares will be based on the average closing price of our shares for the five days prior to the payment due date less a discount. The American Red Cross agreement also contains an initial price per leukocyte modified by a volume discount pricing schedule and rebate program. This pricing schedule may change based on periodic renegotiations. Upon execution of the agreement we issued a warrant to the American Red Cross to purchase up to 500,000 shares of our common stock with exercise prices ranging from $5.50 to $11.00 per share. We also entered into a stockholder’s agreement and registration rights agreement. These agreements relate to shares underlying the warrant and shares received in lieu of cash for leukocyte purchases.

Avian Transgenics

         On November 15, 2000, Viragen entered into a development, license and collaboration agreement with the Roslin Institute (Edinburgh). The agreement provides for joint continued development of transgenics technology in

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chickens. The technology will be used to create chickens which produce eggs containing targeted new drugs in the egg white to treat many serious diseases, including cancer. We believe this technology promises a much faster and cost effective method of production for many promising biopharmaceutical products. Also, this technology is capable of producing the larger quantities of protein-based drugs required for clinical and commercial applications.

         On May 14, 2001, we entered into an option agreement with Geron Corporation. This agreement provides Viragen the option to enter into a license agreement with Geron, during the three-year option period ending May 14, 2004. The license, if entered into, would be for rights to certain nuclear transfer and transgenesis technology owned by Geron. Though September 2002, we have not as yet exercised our option on the Geron technology.

Oncological Therapies

         In July 2002, Viragen entered into an agreement with the University of Miami’s Sylvester Comprehensive Cancer Center to develop anti-cancer technology. The joint project is designed to develop a novel form of an immune enhancing drug that has shown promise by inhibiting tumor growth in rats for a broad range of cancers. This drug is a novel 11 amino acid peptide called IEP 11, which was derived from a tumor transmembrane glycoprotein. It possesses anti-cancer vaccine properties both prophylactically and therapeutically. Additionally, the agreement provides Viragen with an option to acquire an exclusive worldwide license in order to commercialize the technology. The University of Miami has filed United States and foreign patent applications relative to this technology.

         In September 2000, we obtained an exclusive worldwide license from the U.S. National Institute of Health to use and further develop a monoclonal antibody potentially useful in immune modulation. The antibody or antibody fragment recognizes the Notch-1 protein. The Notch-1 protein is over-expressed in certain tumors including cervical, breast and lung cancers. This project centers on the development of a drug that may be used in adjuvant therapy. We have scheduled additional discussions with the NIH to explore alternative applications for this technology other than the original programmed cell death antibody.

         In July 2000, Viragen entered into an agreement with the United Kingdom’s Cancer Research Campaign Trust and the University of Nottingham to develop a new cancer vaccine and antibody therapy for the treatment of several indications including breast, ovarian and colorectal cancers. The development work is taking place primarily at the Cancer Research Campaign’s Department of Clinical Oncology at the University of Nottingham in England.

         Under the Cancer Research Campaign Agreement, we were granted an exclusive worldwide commercial license by the Cancer Research Campaign to develop, manufacture and commercialize their patent pending technology based on a tumor-associated antigen. The licensed technology covers the tumor-associated antigen, CD55, the method of its isolation and its potential medical uses, including cancer vaccines and antibodies.

         In December 1999, through Viragen (Scotland) Ltd., we entered into a collaborative agreement with the Memorial Sloan-Kettering Cancer Center in New York City. The agreement is for the development of a human monoclonal antibody targeting ganglioside GD3, which may be used alone or in combination with our Multiferon product, for the treatment of melanoma, a potentially fatal skin cancer. This technology could also prove useful in the treatment of certain other cancers. In February 2002, the agreement was extended to February 2005. We expect to make a decision regarding future clinical trials of this technology, if any, by calendar 2002 year end.

The Interferon Industry

         Prior to 1985, natural interferon was the only type of interferon available. Research institutions and other biomedical companies, including Viragen, Inc., were working to solve the problem of the high cost related to the industrial-scale production of natural interferon. In 1985, Hoffmann-La Roche, Inc. and Schering-Plough Corporation, two major pharmaceutical companies, successfully developed synthetic interferon using recombinant DNA technology. These companies subsequently received U.S. Food and Drug Administration approval to produce and market their recombinant alpha interferon products for numerous indications.

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         After the emergence of recombinant or synthetic alpha interferon, the medical community’s interest in natural interferon diminished. This was due primarily to the limited availability and higher cost of production of natural interferon. Most clinical studies thereafter utilized a synthetic product.

         Hoffmann-La Roche, Inc. and Schering-Plough Corporation, producers of Intron A™ and Roferon™ respectively, continue to actively market their products for a wide range of indications and promote the therapeutic benefits of their synthetic interferon products. In 1993, Chiron Corp. received U.S. Food and Drug Administration approval of BetaSeron™, its recombinant beta interferon, for the treatment of relapsing/remitting multiple sclerosis. In 1996, Biogen, Inc. received U.S. Food and Drug Administration approval for Avonex™, its recombinant beta interferon, for relapsing/remitting multiple sclerosis. In 1997, Teva Pharmaceuticals received U.S. Food and Drug Administration approval of its peptide chemical compound, Copaxone™, for relapsing/remitting multiple sclerosis.

         The current worldwide market for interferon, which is dominated by the recombinant interferons, is estimated to be approximately $3 billion. Pegylated versions of the drug have been produced to enable certain patients to receive treatment who otherwise could not tolerate the recombinant (synthetic) therapy.

The Product

         We derive our human leukocyte interferon from human white blood cells also known as leukocytes. Natural interferon is one of the body’s natural defensive responses to foreign substances like viruses. It is so named because it “interferes” with viral growth. Natural interferons are naturally-produced proteins that induce anti-viral, anti-tumor and immunomodulatory responses within the body. Clinical studies indicate that interferons may also inhibit malignant cell and tumor growth without affecting normal cell activity.

         There are two industrial sources of interferon for medical use. They are differentiated primarily by their source products, methods of manufacture and resulting composition. The first, the type we produce, is a multi-species natural, human leukocyte-derived alpha interferon. This is produced by incubated human white blood cells. The introduction of an agent that is not normally pathogenic in humans induces the cells to produce natural interferon as the body’s mechanism of defense. Natural interferon is then separated from other natural proteins and purified to produce a highly concentrated product for clinical use. The second type of interferon is recombinant or synthetic interferon (alpha or beta). This is a genetically engineered interferon. Generally, it is produced from a single human gene in bacterial cells by recombinant DNA techniques.

         Currently, approximately 90% of the interferon market is dominated by recombinant products. This is mainly due to the high cost and complexity of producing natural interferon. We believe that there are certain advantages to the natural interferon products, especially in terms of tolerability by the body.

         Clinical studies indicate that there may be significant therapeutic differences between the use of natural interferon and synthetic interferon. We believe that treatment with synthetic interferon may cause an immunological response through the production by the human immune system of neutralizing and/or binding antibodies. These antibodies reduce the effectiveness of the treatment or may cause adverse side effects. We believe that the production of neutralizing and/or binding antibodies may be essentially non-existent in patients treated with natural interferon. Furthermore, primarily due to biological differences, the side effects of treatment with natural interferon may be milder than those caused by a recombinant or synthetic interferon.

Applications of Interferon

         Human leukocyte interferon is a naturally occurring protein which serves to enhance the body’s immune response to viral infections. It has been clinically proven that interferons can arrest the progress of many viral based infections, reducing adverse symptoms and disease related complications.

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Hepatitis

         The hepatitis C virus 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 and 5 million Europeans. Approximately 30,000 new cases of hepatitis C are diagnosed each year in the U.S. and it is responsible for an estimated 8,000 deaths annually. Hepatitis C is currently a leading cause of liver transplantation in the United States. Based on a review of published literature and evaluation by our scientific staff and advisors, we believe that our natural interferon product may prove effective in the treatment of this indication. The U.S. Food and Drug Administration has approved certain interferons for the treatment of hepatitis C including:

	•		Hoffmann-La Roche’s Roferon™,
	•		Schering-Plough’s Intron A™, and Peg Intron A™ — used in conjunction with Ribotrol™, and
	•		Amgen’s Infergen™.

         Following our acquisition of ViraNative in September 2001, we terminated our clinical trials in the EU for hepatitis C with our Omniferon product. This decision reflected our intention to focus our scientific and financial resources on our Multiferon product. Local Phase III/IV clinical trials are expected to be required to register the drug in various foreign countries. The costs of these clinical studies are expected to be underwritten by the local exclusive distributors.

         Approximately 45% of the world population lives in areas with a high prevalence of hepatitis B infection. In these areas, the lifetime risk of infection can exceed 60%. Most infections in these areas are acquired at birth or during early childhood, when the risk of developing chronic infection is highest. The United States is not in a high prevalence area. In the U.S., approximately 300,000 cases of acute hepatitis B are diagnosed annually. Between 2% and 10% of these patients develop chronic infections. These infections put the patients at risk of progressive liver disease possibly leading to cirrhosis and/or hepatocellar carcinoma.

         Synthetic interferon alpha is the only U.S. Food and Drug Administration approved drug for hepatitis B. It has proven to be effective in the treatment of some cases. We believe that our human leukocyte interferon may also prove effective in the treatment of hepatitis B. However, prior to approval extensive clinical trials costing many millions of dollars would be required. These studies could take several years to complete. A U.S. based manufacturing facility would also be required.

Melanoma

         Melanoma is a type of cancer which originates in the melanocytes, the cells responsible for pigmentation. Over 30,000 cases per year are diagnosed in the United States alone. Melanoma has one of the fastest growing occurrence rates, increasing at a rate in excess of 4% per year. Lifetime risk of developing melanoma in an average American is currently about one in 75 and it is the most commonly occurring cancer in women between the ages of 25 and 29. Melanoma is second only to breast cancer in women ages 30 to 34.

         We have now available the data derived from the Phase III clinical trial in Germany with Alfanative (Multiferon) for the treatment of malignant melanoma, which show promising results. The study involved 235 patients with malignant melanoma in 20 centers, who were randomized to receive either Alfanative with dacarbazine or no adjuvant therapy.

         The results obtained in this study showed that adjuvant treatment with low doses of our product, preceded by dacarbazine, significantly increases relapse-free survival in high-risk resected cutaneous melanoma patients. The results suggest a survival benefit which is at least similar to that obtained with high-dose recombinant interferon regimen. Two findings in the study suggest that adjuvant treatment chosen in this study will have a long-term beneficial effect on overall survival. First, the proportion of patients who were alive without distant metastases was significantly higher in the treated patients (55%) than in the untreated patients (37%). Second, patients who had withdrawn from the observation group (and received other types of treatment) retrospectively were found to have

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had a higher mortality rate than those who had been subject to regular follow up. A major advantage of the type of adjuvant therapy used in this study is its relative lack of toxicity. The tolerability of the regimen contrasts to the frequent, often severe adverse effects found with the high-dose recombinant interferon alpha regimen. The regimen used in the study was well tolerated. This was not surprising in view of earlier reports showing that 3 million units three times per week of natural interferon alpha usually can be administered for several years without any major discomfort to the patient and that the adverse effects caused by natural interferon alpha are equal to or less pronounced than those associated with the identical dosage of recombinant alpha treatment.

Chronic Myeloid Leukemia

         Chronic myeloid leukemia is one of a group of diseases called myeloproliferative disorders. It is usually recognized by a distinctive cytogenetic abnormality, known as the Philadelphia chromosome. The current treatment for chronic myeloid leukemia is high dose chemotherapy with bone marrow transplantation. Interferon therapy has emerged as a possible effective initial treatment in this disease. This kind of therapy affects both the presence of leukemia cells and the number of bone marrow cells having the Philadelphia chromosome.

         Through ViraNative we are approved in Sweden to manufacture and distribute Multiferon for the treatment of patients with chronic myeloid leukemia and hairy cell leukemia, who did not respond to treatment with recombinant interferon.

Multiple Sclerosis

         Multiple sclerosis (MS) is a chronic, often disabling disease of the central nervous system. This disease often attacks young adults. It is estimated that there are approximately 350,000 patients in the U.S. and a similar number in Europe.

         Multiple sclerosis has been an important potential market for recombinant interferon beta preparations and this is a growing segment worldwide, valued at almost $2 billion in 2001. Natural interferon alpha has shown beneficial effects in multiple sclerosis. Clinical studies have shown that neutralizing antibodies to interferon alpha and interferon beta are not cross reactive in MS patients, which means that Multiferon could be of therapeutic benefit to overcome relapse due to antibody formation in MS patients treated with a recombinant interferon beta preparation.

         No application has been submitted in the U.K. or U.S. for the treatment of multiple sclerosis utilizing Multiferon Completion of clinical trials for multiple sclerosis, if commenced, is expected to take several years and require significant additional funding.

Manufacture of Interferon

         Human white blood cells, also known as leukocytes, and a stimulating agent are needed to produce human leukocyte derived interferon. These raw materials are readily available to us. A virus, which is not normally pathogenic to humans, is introduced into the white blood cell culture and it induces the cell to produce interferon. The interferon is then separated from other proteins, extracted and purified. Currently, we are manufacturing our human leukocyte interferon, Multiferon, in our Swedish facilities.

         We believe that production methods we have developed, as well as enhanced methods currently under development, will continue to reduce our costs of production and, ultimately, the market price of human leukocyte derived interferon to patients. However, we cannot assure you that any new manufacturing technology will achieve the level of manufacturing proficiency and product improvement hoped for.

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Research and Development

         The entire process of research, development and the approval by any governmental regulatory agency including the European Union and/or U.S. Food Drug Administration of a new biopharmaceutical drug takes many years. It also requires substantial funding and clinical support.

         During the first fiscal quarter of 2002 and following our acquisition of ViraNative, we suspended our clinical trials of Omniferon. The Company elected to focus its scientific and financial resources on Multiferon.

         We have now available the data derived from the Phase III clinical trial in Germany with Alfanative (Multiferon) for the treatment of malignant melanoma, which show promising results. The study involved 235 patients with malignant melanoma in 20 centers, who were randomized to receive either Alfanative with dacarbazine or no adjuvant therapy.

         Research and development costs totaled $4,931,959, $7,069,432, and $4,836,753 for the fiscal years ended June 30, 2002, 2001 and 2000, respectively.

Intellectual Property

         We believe our natural alpha interferon production techniques are unique and are capable of yielding a superior quality product and will allow us to offer the drug at a price competitive with the recombinant interferons.

         In August 2002, Viragen was granted an additional patent (#6,433,144 B1) from the United States Patent & Trademark Office for a process relating to the manufacture of human natural alpha interferon from human white blood cells. This invention also relates to methods for isolating highly-purified mixtures of natural type I interferons from white blood cells and also to highly-purified mixtures of natural type I interferons which resemble natural type I interferon in that it includes 9 subtypes and specifically protects certain novel purification steps in it manufacture that increases purity to 95-98%.

         In February 2002, Viragen was granted a patent (#6,350,589 B1) from the United States Patent & Trademark Office for a process relating to the manufacture of human natural alpha interferon from human white blood cells. The patent, “Compositions of Highly-Purified Natural Mixtures of Type 1 Interferon Derived from Leukocytes and Methods” relates to methods for isolating highly-purified mixtures of natural type I interferons from white blood cells and also to highly-purified mixtures of natural type I interferons which resemble natural type I interferon in that it includes 9 subtypes.

         ViraNative has filed 4 patents relating to human leukocyte interferon and related production processes. Viragen also submitted several foreign patent applications relating to natural interferon for topical use. Several of these patents have been granted. During fiscal 1999, a Japanese company challenged Viragen’s patent issued in Japan for the topical use of interferon. This patent was successfully defended.

         Under a license agreement between Viragen and Viragen International dated July 12, 1995, Viragen International had granted exclusive rights to Viragen’s interferon related technologies. These include technologies covered by patent for all countries in the European Union. In addition, we granted Viragen International the non-exclusive rights to Viragen’s technology throughout the world, excluding the United States and its territories. The agreement called for Viragen International to pay Viragen a licensing fee ranging from 10% to 5% of sales, with a minimum of $2 million per year, subsequently modified to $167,000 per month. Viragen had deferred the minimum licensing payment in cash until Viragen International had the necessary cash flow to meet this payment. In June 2001, accrued licensing fees of $5,333,333 owed to Viragen were paid by Viragen International through the issuance of 6,274,510 common shares. The initial term of this agreement was 15 years and automatically renewed for two successive 15-year periods.

         On September 28, 2001, following our acquisition of ViraNative, Viragen (Scotland) and Viragen executed a Termination Agreement, terminating the License Agreement between the parties. The License Agreement was terminated as we intend to commercially exploit our Multiferon technology following the ViraNative acquisition.

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This technology does not utilize the technology obtained through the License Agreement and accordingly, no additional royalties due under that agreement will be recognized after September 28, 2001. The Termination Agreement also provides for mutual ongoing obligations with regard to confidentiality and requires that the $500,000 licensing fee that accrued from July 1, 2001 through September 28, 2001 will bear interest at 6% per annum and must be paid in cash or stock within 12 months of the agreement date unless extended through mutual agreement of the parties.

         In August 2000, the World Intellectual Property Organization published our international patent application related to methods of isolating highly purified natural type 1 interferons.

         United States and foreign patents have been issued to others for genetically engineered and human-derived interferons. In the event of valid claims, we may have to negotiate license agreements with patent holders to use some processes and products. We believe that we do not infringe upon any current patent.

         Someone can challenge the validity and enforceability of a patent by litigation after its issuance. If the outcome is against the owner of the patent, other parties may be free to use the subject matter of the patent. Protection provided by foreign patents may be different than in the United States. The actual protection we receive from a foreign patent may vary from one country to another. Protection realized may also depend on the type of patent, scope of coverage granted and the legal remedies available in each country. We cannot assure you that any future patents will offer substantial protection or commercial benefit to us.

Regulation

         Our activities, products and processes are subject to substantial government regulation within the United States, the European Union (EU) and other foreign jurisdictions. The U.S. Food and Drug Administration, foreign jurisdictions and state and local agencies regulate the manufacturing, advertising, labeling and sale of biologic substances and pharmaceutical products. Regulatory authorities have stringent mandatory procedures and standards, which apply to the clinical testing, marketing and manufacture of any biologic products, including ours. Regulatory approvals for commercialization of any new product take significant time and capital, since it involves extensive testing procedures and lengthy clinical trials. These trials involve the measurement of product safety and efficacy under specific protocols. The process of obtaining approvals requires extensive prior animal testing to demonstrate product safety. Human tests are then performed to show and to document findings as to safety and effectiveness. Data is then gathered and evaluated, followed by the submission of all information and data to the regulatory authorities. This process takes many years and substantial funding.

         Beginning in 1998, approval of a new drug for use in the entire EU became possible though the European Medicine Evaluation Agency’s Mutual Recognition Procedure. The use of this process may allow for product approval across the EU member states. Subject to the successful completion of clinical trials, we believe this would be the most efficient way of achieving regulatory approval throughout the countries within the EU. The European Medicines Evaluation Agency does not, however, have jurisdiction over product pricing. Product pricing and patent reimbursement guidelines are dictated by the individual EU member states and are subject to change.

         In Europe and the United States, human clinical trial programs generally involve a three-phase process. Typically, Phase I trials are conducted in healthy volunteers to determine any early side effects and the pattern of drug distribution and metabolism. Phase II trials are conducted in groups of patients afflicted with the target disease to provide preliminary data on the effectiveness and safety of a new drug product. If Phase II evaluations indicate potential effectiveness with an acceptable safety profile, Phase III trials are performed. Phase III is performed to conclusively demonstrate clinical effectiveness 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.

         American pharmaceutical manufacturers who sell outside of the United States are also subject to U.S. Food and Drug Administration jurisdiction. Semi-finished drugs may be shipped, under controlled circumstances, for further processing, packaging, labeling and distribution to third parties in approved foreign countries. This controlled

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distribution is also subject to the laws that apply in the importing countries. For Viragen to conduct this type of sale, we must comply with all U.S. Food and Drug Administration rules and regulations.

         It is possible that foreign regulatory authorities or the U.S. Food and Drug Administration could modify or expand their approval criteria or reporting requirements. These changes could significantly increase the time and expense to develop a new product and bring that product to market.

Supply Agreements

         In July 1995, Viragen (Scotland) entered into a license and manufacturing agreement with the Common Services Agency of Scotland to secure a sufficient source of needed raw materials. We also wanted their 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.

         During fiscal 1998, we were notified that, due to concerns over the possible presence of Mad Cow disease in the UK blood supply, human leukocytes collected in Scotland would not be approved for use in our clinical trials or potential commercial production. This prohibition is still in place and will remain until the European regulatory authorities are satisfied that the risk of contamination has been minimized or eliminated. Due to this situation, we have been using leukocytes collected in Germany under our preferential access German Red Cross contractual arrangements, as well as other approved sources.

         In February 2001, we entered into a new agreement with the Common Services Agency of Scotland. This agreement replaced the July 1995 license and manufacturing agreement. Under the terms of the new agreement, the Common Services Agency, acting through the Scottish National Blood Transfusion Service, agreed to supply specific manufacturing and quality control and assurance services. The agreement provides for a pre-negotiated pricing structure for all services. Any or all services may be terminated with three months notice by either party except for dispensing, capping, coding and inspection which requires six months notice.

         In the event the restrictions on the UK blood supply are removed, the Scottish National Blood Transfusion Service has agreed to supply us exclusively with all available white cells collected by them at their cost. We have agreed to pay them $11,000 per year for this provision. We have the exclusive access to these white cells for the longer of seven years or the duration of our commitment to provide them with a portion of our Scottish-based production.

         Under the terms of our contractual agreement with the German Red Cross, entered into in March 1998, our subsidiary, Viragen (Germany) GmbH, has the right to receive, on a preferential basis, leukocytes produced by the German Red Cross. Viragen (Germany) has a right to receive 1,000,000 leukocytes per year with deliveries to be ordered on a quarterly basis. During the initial two-year period of the agreement, Viragen (Germany) may determine its annual order quantity up to 1,000,000 leukocytes. After the initial two-year period, the annual order quantity will be 1,000,000 leukocytes plus or minus 15%. Under this agreement, we will pay the German Red Cross a percentage of sales of our interferon product attributable to Viragen (Germany) leukocytes. The German Red Cross will also be entitled to receive priority distributions of product from German sourced leukocytes. Leukocytes provided by the German Red Cross have been approved for use in our Swedish and Scottish facilities.

         ViraNative also has a separate supply agreement with the German Red Cross which was already in place at the time of our acquisition of ViraNative. Our Swedish facility continues to receive leukocytes under this agreement.

Competition

         Competition in the research, development and production of interferon, transgenic and oncological products and other immunological products is intense and growing. Our competition includes many major, well-established and well-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 synthetic DNA technology. A number of large companies, including

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Hoffman-LaRoche, Inc., Schering-Plough Corporation, Biogen, Inc., Chiron Corp., Berlex Laboratories and Ares-Serono are producing, selling and conducting clinical trials with their recombinant interferons (alpha and beta) and other immunological products. These relate to the treatment of cancer and viral infections, including hepatitis C. Alfa Wassermann is presently producing a natural alpha interferon product with distribution primarily in Italy.

         We believe 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. Our ability to develop products, complete clinical studies and obtain governmental approvals in the past had been hampered by a lack of adequate capital. We are not presently a competitive factor in the biopharmaceutical industry.

Employees

         As of September 25, 2002, we have 79 employees. Of these, 56 are research and development, manufacturing and quality assurance/quality control personnel. The remaining 23 employees are management, regulatory and/or administrative personnel. Our domestic and Scottish-based employees are not represented by any collective bargaining agreements. The majority of our Swedish-based employees are members of a Swedish union representing scientific personnel. We have never experienced a work stoppage. We believe our relations with our employees to be good.

Item 2. Properties

         In November 1996, Viragen entered into a ten year lease for 14,800 square feet in Plantation, Florida. This location contains our domestic administrative, international marketing and executive offices. The lease contains an option for up to two additional five-year terms. Current monthly rental on the property, including common area maintenance charges and applicable taxes, is approximately $27,300. Our administrative offices are located at 865 SW 78th Avenue, Suite 100, Plantation, Florida 33324; phone (954) 233-8746.

         In November 1996, Viragen (Scotland) executed a five year lease, subsequently modified for additional space, for a newly constructed laboratory and manufacturing facility located in the Pentlands Science Park in the Edinburgh area of Scotland. The facility consists of approximately 13,000 square feet with base monthly rental payments of approximately $25,000 plus common area and maintenance charges. The lease further provides for up to four five year extensions at our option. We exercised our first option to extend in October 2001. This extended our lease through October 2006.

         In April 2002, Viragen (Scotland) executed a one year lease agreement for office space in Glasgow, Scotland. The lease expires on March 2003 and is not expected to be extended. Base monthly rental payment is approximately $1,900.

         Through ViraNative, we lease approximately 22,800 square feet of laboratory, production and office facilities in Umeå, Sweden. This space is covered by three separate leases. The initial term of these leases has expired and each is renewable on a year-by-year basis in March of each year, cancelable with 12 months notice, at a total lease cost of approximately $25,000 per month. The leases were renewed in March of 2002 and it extends through March 2004.

         ViraNative also owns a 21,500 square foot building which is currently under renovation. This building was purchased to provide expanded production capacity and is intended to eventually house all of ViraNative’s research, production and administrative facilities. This facility carries a 25 year mortgage held by a Swedish bank for approximately $623,000.

         We believe our properties are in good condition, well-maintained and generally suitable and adequate to carry on our business. We also believe that we maintain sufficient insurance coverage on all of our real and personal property.

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Item 3. Legal Proceedings

         On August 15, 2002, we were named as a defendant in a lawsuit filed by Medicore, Inc. in Circuit Court, Broward County, Florida (Medicore, Inc. vs. Viragen, Inc., Case No. 02-0147812). Medicore, our former parent, is alleging breach of contract in relation to royalties it alleges are due from present and future sales of Viragen’s natural interferon product, which was independently developed by BioNative AB. BioNative was acquired by Viragen International, our majority owned subsidiary, in September 2001 and subsequently renamed ViraNative.

         Viragen and Medicore, Inc. entered into a royalty agreement with respect to interferon, transfer factor and products using interferon and transfer factor in November 1986. The agreement was subsequently amended in November 1989 and May 1993. The agreement provides for a maximum cap on royalties to be paid to Medicore of $2,400,000. It includes a schedule of royalty payments of:

	•		5% of the first $7,000,000 of sales,
	•		4% of the next $10,000,000, and
	•		3% of the next $55,000,000

These royalties are to be paid until the total of $2,400,000 is achieved. The agreement also states that royalties of approximately $108,000 previously accrued as payable to Medicore will be the final payment.

         Sales of our natural interferon product totaled approximately $1.3 million for the fiscal year ended June 30, 2002. If it is determined that payment of the royalties is to be made, the amount owed on these sales would be approximately $65,000. This amount has not been accrued as of June 30, 2002.

         We evaluated the complaint filed by Medicore and filed our response in September 2002. We intend to rigorously defend our position in this action.

         In January 2001, Viragen and its co-plaintiffs the Roslin Institute and Dr. Helen Sang filed suit against AviGenics, Inc. in the Superior Court of California for San Mateo County (Case No.: 415458). The lawsuit was brought in response to allegations by AviGenics that a restrictive covenant contained in a consulting agreement that Dr. Helen Sang, who works at the Roslin Institute, had entered into with AviGenics precluded her and Roslin from doing business with Viragen. In its lawsuit, Viragen sought a judicial declaration that (i) Dr. Sang’s restrictive covenant was void and unenforceable, (ii) Viragen, Roslin and Dr. Sang had the right to do business together, and (iii) no trade secret information belonging to AviGenics was implicated by Viragen’s business relationship with the Roslin Institute and Dr. Sang. The lawsuit also sought damages against AviGenics for tortuously interfering in Viragen’s business relationship with the Roslin Institute and Dr. Sang and for attempting to enforce an invalid restrictive covenant. By order dated March 30, 2001 that lawsuit was dismissed on forum non convenience grounds.

         In March 2001, AviGenics, Inc. filed suit against Viragen and its co-defendants Roslin Institute and Dr. Helen Sang in the Superior Court of Athens-Clarke County, Georgia (Case No.: SU-01-CV-0468-S). In its amended complaint, AviGenics alleged that Viragen and its co-defendants breached contractual duties of confidentiality, conspired to and did misappropriate AviGenics’ relationships with Dr. Sang and Roslin.

         Viragen believed the AviGenic’s lawsuit to be entirely without substantive merit, and Viragen possessed valid and significant legal defenses to AviGenic’s claims. In July 2002, the litigation was resolved with all parties dropping their claims against each other. Viragen is continuing its contractual relationship with both the Roslin Institute and Dr. Sang in the continuing development of transgenics technology. No accrual for loss had been recorded in this matter.

         In October 1997, Viragen, 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

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(Walter L. Smith v Cytoferon Corp. et al; Case No: 97-3187-CIV-MARCUS). The plaintiff is a former Viragen stockholder 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. Viragen filed a motion to dismiss denying the allegations and requesting reimbursement of its costs.

         In November 1997, the plaintiff filed a notice of voluntary dismissal with the federal court concurrently notifying Viragen of his intent to refile a complaint in circuit court in the state of Florida. In December 1998, the U.S. District Court awarded us reimbursement of attorneys’ fees and expenses under Rule 11 of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act. We recovered $31,000 during fiscal 2000.

         In November 1997, the plaintiff 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. It sought an unspecified monetary judgment and specific performance delivery of 441,368 shares of common stock. The plaintiff claimed that he was entitled to additional shares of common stock under a consulting agreement. He also claimed that Viragen’s president breached his fiduciary duty to Cytoferon Corp. by not achieving sufficient financing for Viragen, which would have entitled Cytoferon Corp. to additional shares. He also claimed misrepresentations in connection with the previous Cytoferon financings.

         In March 1998, the Circuit Court granted Viragen’s motion to dismiss the complaint. Subsequently, the plaintiff filed an amended complaint alleging breach of contract, fraud, violation of Florida’s RICO Act and breach of fiduciary duties and seeking an unspecified monetary judgment and specific performance delivery of 441,368 shares of Viragen common stock. In April 1998, Viragen filed a motion to dismiss plaintiff’s amended complaint which was denied by the court.

         In August 2000, counsel for plaintiff indicated that they desired to withdraw as counsel. In January 2001, the Circuit Court ruled in favor of Viragen on all counts related to the Circuit Court Case (No.: 97-25587 CA30). No further claims against Viragen are pending in this matter. Viragen has submitted to the Circuit Court a request for reimbursement of related litigation costs. While Viragen has prevailed as a defendant in this suit, Mr. Gerald Smith, Viragen’s president, and Cytoferon Corp. continue to be named as defendants. We have agreed to indemnify Mr. Smith for any losses that he may incur personally, as a result of this suit. Mr. Smith denies the allegations of the complaint and continues to vigorously defend the claims. Motions seeking summary judgment have been filed on behalf of Mr. Smith and Cytoferon and will be heard by the Court in the near future.

         We cannot determine at this point, the ultimate liability, if any, resulting from this litigation. No accrual for loss has been recorded.

         In February 2001, Viragen filed a lawsuit, (Viragen, Inc. v. Walter Larry Smith, W. Richard Leuck, Roland St. Louis, Jr., Esq., Juan C. Martinez, Esq., St. Louis, Guerra, Auslander, P.A. and John Does Nos. 1-10, Case No. 01-3842 CA 01) in a malicious prosecution and conspiracy action against the above mentioned parties in a attempt to recapture the losses incurred by Viragen, Inc. as a result of having to disclose the lawsuit Walter L. Smith v. Gerald Smith, Cytoferon Corp., Viragen, Inc. and John Does Nos. 1-10, Case No. 97-25587 CA (30) (“Smith Litigation”) as well as the attorneys’ fees and costs expended by Viragen, Inc. in defending this action. The Smith Litigation wrongfully alleged that Viragen, Inc. engaged in, among other things, fraud and RICO violations during the course of a 1992 stock offering done by Cytoferon, Corp. In the Smith Litigation, the Court granted final summary judgment in favor of Viragen, Inc., specifically finding that there was no evidence connecting Viragen, Inc. in any way to the allegations made against it in the complaint in that action.

         Due to the insolvency of the insurance carrier of certain defendants in this case, all related hearings in this matter have been postponed until the end of September 2002. Viragen intends to vigorously pursue its claims in this matter.

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

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

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PART II

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

         Viragen’s common stock traded on the over-the-counter bulletin board from June 29, 1999 through April 16, 2000, under the symbol “VRGN.” Our common stock began trading on the American Stock Exchange on April 17, 2000, under the symbol “VRA.” The following table lists the high and low closing quotations for our common stock since July 1, 2000.

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

         As of September 25, 2002, we had approximately 2,600 stockholders of record. On September 25, 2002, the closing price of the common stock was $0.21 per share.

         We have never paid any dividends on our common stock. We do not anticipate paying any cash dividends in the foreseeable future because:

	•		we have experienced losses since inception,
	•		we have significant capital requirements in the future, and
	•		we presently intend to retain future earnings, if any, to finance the expansion of our business.

         Future dividend policy will depend on:

	•		our earnings, if any,
	•		capital requirements,
	•		expansion plans,
	•		financial condition, and
	•		other relevant factors.

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Item 6. Selected Consolidated Financial Data

         The following selected financial data should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the consolidated financial statements and notes thereto and other financial information included elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations data set forth below of Viragen for the fiscal years ended June 30, 2002, 2001 and 2000 and the consolidated balance sheet data as of June 30, 2002 and 2001 have been derived from Viragen’s audited consolidated financial statements which are included elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations data set forth below for the fiscal years ended June 30, 1999 and 1998 and the consolidated balance sheet data as of June 30, 2000, 1999 and 1998 have been derived from Viragen’s audited consolidated financial statements which are not included in this Annual Report on Form 10-K.