FORM 10-K\A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-11503
CEL-SCI CORPORATION
(Exact name of registrant as specified in its charter)
COLORADO 84-0916344
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
66 Canal Center Plaza, Suite 510
Alexandria, Virginia 22314
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 549-5293
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports 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
The aggregate market value of the voting stock held by non-
affiliates of the Registrant, based upon the closing sale price of
the Common Stock on December 15, 1994, as quoted on the NASDAQ
System, was approximately $19,000,000. Shares of Common Stock held
by each officer, director and principal shareholder have been ex
cluded in that such persons may be deemed to be affiliates of the
Registrant.
Documents Incorporated by Reference: None
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]
As of December 15, 1994, the Registrant had 41,882,443 shares of
Common Stock issued and outstanding.
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PART I
ITEM 1. BUSINESS
CEL-SCI Corporation (the "Company") was formed as a
Colorado corporation during March l983, to acquire and
finance research and development of natural human
interleukin-2 ("IL-2") and lymphokine related products and
processes using the Company's proprietary cell culture
technologies. The Company's proprietary product is
sometimes referred to as MULTIKINETM, or buffy-coat
interleukins, which is a combination, or "cocktail" of IL-2
and certain lymphokines and cytokines. MULTIKINE is a trade
name of the Company. The Company was initially formed under
the name Interleukin-2, Inc. and changed its name to CEL-SCI
Corporation in March, 1988. The compounds, compositions and
processes, to which the Company has acquired an exclusive
world-wide license, are being tested to determine if they
are effective in improving the immune response of advanced
cancer patients.
Since its inception the focus of the Company's product
development efforts has been on conducting clinical trials
to test its proprietary technologies. The Company intends
to continue testing its MULTIKINE product in clinical trials
with the objective of establishing its efficacy as a
treatment for solid tumors and possibly other diseases. An
additional aim of the Company is to further corroborate the
present data (obtained in connection with the Company's
research programs and human clinical trials) in regard to
the ability of MULTIKINE to restore the immune system of
people suffering from certain illnesses.
The cost of acquiring its exclusive license and the
costs associated with the clinical trials relating to the
Company's MULTIKINE technologies, the cost of research at
various institutions and the Company's administrative
expenses have been funded with the public and private sales
of shares of the Company's Common Stock and borrowings from
third parties, including affiliates of the Company.
In October 1995 Viral Technologies, Inc. ("VTI") became a
whollyowned subsidiary of the Company. VTI is engaged in
the development of a possible vaccine for AIDS. VTI's
technology may also have application in the treatment of
AIDS-infected individuals and the diagnosis of AIDS. VTI's
AIDS vaccine, HGP-30, has completed certain Phase I human
clinical trials. In the Phase I trials, the vaccine was
administered to volunteers who were not infected with the
HIV virus in an effort to determine safe and tolerable
dosage levels.
PRODUCT DEVELOPMENT PLAN
In March l995, the Canadian Health Protection
Branch, Health and Welfare Ministry gave clearance to the
Company to start a phase I/II cancer study using Multikine.
The study, which will enroll up to 30 head and neck cancer
patients who have failed conventional treatments, is
expected to be conducted at the Hotel-Dieu de Montreal
Hospital, as well as other medical centers in Canada. The
study is designed to evaluate safety, tumor responses and
immune responses in patients treated with multiple courses
of Multikine. The length of time that each patient will
remain on the investigational treatment will depend on the
patient's response to treatment. In May l995, the U.S. Food
and Drug Administration (FDA) authorized the export of the
Company's Multikine drug to Canada for purposes of this
study.
Viral Technologies, Inc. ("VTI") completed its
Phase I trials in California and in April 1995 started a new
clinical study with the HGP-30 AIDS vaccine. The study
involves ten HIV-negative volunteers who participated in the
1993 Phase I study. Following vaccinations with HGP 30,
certain volunteers will be asked to donate blood for a SCID
mouse HIV challenge study. In November 1995 VTI received
permission from the California Food and Drug Branch ("FDB")
to begin Phase I human clinical trials with HIV-infected
volunteers. These trials began in December 1995. See "Viral
Technologies, Inc." below for additional information
concerning VTI's product development plan.
The Company filed an Investigational New Drug
("IND") Application for MULTIKINE with the FDA in late July,
1994. In December 1994 the FDA
notified the Company that the Company's IND application was
placed on clinical hold pending receipt of additional data
and modifications to the Company's manufacturing process.
The Company plans to meet with the FDA to discuss the issues
raised by the FDA. If the Company's IND application is
approved by the FDA (of which there is no assurance), the
Company will begin human clinical trials in accordance with
protocols approved by the FDA. The Company does not know
when the FDA will approve or reject the Company's IND
application.
There can be no assurance that either the Company
or VTI will be successful in obtaining approvals from any
regulatory authority to conduct further clinical trials or
to manufacture and sell their products. The lack of
regulatory approval for the Company's or VTI's products will
prevent the Company and VTI from generally marketing their
products. Delays in obtaining regulatory approval or the
failure to obtain regulatory approval in one or more
countries may have a material adverse impact upon the
Company's operations.
BACKGROUND OF HUMAN IMMUNOLOGICAL SYSTEM
The function of the immunological system is to
protect the body against infectious agents, including
viruses, bacteria, parasites and malignant (cancer) cells.
An individual's ability to respond to infectious agents and
to other substances (antigens) recognized as foreign by the
body's immune system is critical to health and survival.
When the immune response is adequate, infection is usually
combatted effectively and recovery follows. Severe infection
can occur when the immune response is inadequate. Such
immune deficiency can be present from birth but, in adult
life, it is frequently acquired as a result of intense
sickness or as a result of the administration of
chemotherapeutic drugs and/or radiation. It is also
recognized that, as people reach middle age and thereafter,
the immune system grows weaker.
Two classes of white blood cells, macrophages and
lymphocytes,
are believed to be primarily responsible for immunity.
Macrophages are large cells whose principal immune activity
is to digest and destroy infectious agents. Lymphocytes are
divided into two sub-classes. One sub-class of lymphocytes,
B-cells, produces antibodies in response to antigens.
Antibodies have unique combining sites (specificities) that
recognize the shape of particular antigens and bind with
them. The combination of an antibody with an antigen sets
in motion a chain of events which may neutralize the effects
of the foreign substance. The other sub-class of
lymphocytes, T-cells, regulates immune responses. T cells,
for example, amplify or suppress antibody formation by
Bcells, and can also directly destroy "foreign" cells by
activating "killer cells."
It is generally recognized that the interplay among
T-cells, B cells and the macrophages determines the strength
and breadth of the body's response to infection. It is
believed that the activities of T cells, B cells and
macrophages are controlled, to a large extent, by a specific
group of hormones called lymphokines. Lymphokines regulate
and modify the various functions of both T-cells and Bcells.
There are many lymphokines, each of which is thought to have
distinctive chemical and functional properties. IL2 is but
one of these lymphokines and it is on IL-2 and its synergy
with other lymphokines that the Company has focused its
attention. Scientific and medical investigation has
established that IL-2 enhances immune responses by causing
activated Tcells to proliferate. Without such proliferation
no immune response can be mounted. Other lymphokines and
cytokines support Tcell and B-cell proliferation. However,
IL-2 is the only known lymphokine or cytokine which causes
the proliferation of Tcells. IL-2 is also known to activate
B-cells in the absence of B-cell growth factors.
Although IL-2 is one of the best characterized
lymphokines with anticancer potential, the Company is of the
opinion that to have optimum therapeutic value, IL-2 should
be administered not as a single substance but rather as a
mixture of IL-2 and certain lymphokines and cytokines, i.e.
as a "cocktail". This approach, which was pioneered by the
Company, makes use of the synergism between these
lymphokines. It should be noted however that neither the
FDA nor any other agency has determined that the Company's
MULTIKINE product will be effective against any form
of cancer.
It has been reported by researchers in the field of
lymphokine research that IL-2 can increase the number of
killer T-cells produced by the body, which improves the
body's capacity to selectively destroy specific tumor cells.
Research and human clinical trials sponsored by the Company
have indicated a correlation between administration of
MULTIKINE to advanced cancer patients and immunological
responses. On the basis of these experimental results, the
Company believes that MULTIKINE may have application for the
treatment of solid tumors in humans.
The Company foresees three potential anti-cancer
therapeutic uses for MULTIKINE: (i) direct administration
into the human body (in vivo) as a modulator of the immune
system, (ii) activation of a patient's white blood cells
outside the body with MULTIKINE, followed by returning these
activated cells to the patient; and (iii) a combination of
(i) and (ii).
RESEARCH AND DEVELOPMENT
In the past, the Company conducted its research
pursuant to arrangements with various universities and
research organizations. The Company provided grants to
these institutions for the conduct of specific research
projects as suggested by the Company's scientists based upon
the results of previously completed projects.
More recently the Company has decided to
consolidate its research activities in a Company-owned
laboratory. The Company believes that this new approach
will be more effective in terms of both cost and
performance.
Between 1983 and 1986 the Company was primarily
involved in funding pre-clinical and Phase I clinical trials
of its proprietary MULTIKINE technologies. These trials were
conducted at St. Thomas's Hospital Medical School located in
London, England under the direction of Dudley C. Dumonde,
M.D., PhD., a former member of the SAB, and pursuant to
approvals obtained from England's Department of Health and
Social Security.
In the Phase I trial in England (completed in
1987), forty-nine patients suffering with various forms of
solid cancers, including malignant melanoma, breast cancer,
colon cancer, and other solid tumor types were treated with
MULTIKINE. The product was administered directly into the
lymphatic system in a number of patients. Significant and
lasting lymphnode responses, which are considered to be an
indication of improvement in the patient's immune responses,
were observed in these patients. A principal conclusion of
the Phase I trials was that the side effects of the
Company's products in forty-nine patients were not severe,
the treatment was well tolerated and there was no long-term
toxicity.
The results of the Phase I clinical study were
encouraging, and as a result the Company, through members of
its SAB and consulting experts, established protocols for
future clinical trials. In November, 1990, the Florida
Department of Health and Rehabilitative Services ("DHRS")
gave the physicians at a southern Florida medical
institution approval to start a clinical cancer trial in
Florida using the Company's MULTIKINE product. The focus of
the trial was unresectable head and neck cancer (which is
presently untreatable) and was the first time that the
natural MULTIKINE was administered to cancer patients in a
clinical trial in the United States.
Four patients with regionally advanced squamous
cell cancer of the head and neck were treated with the
Company's MULTIKINE product. The patients had previously
received radical surgery followed by x-ray therapy but
developed recurrent tumors at multiple sites in the neck and
were
diagnosed with terminal cancer. The patients had low levels
of lymphocytes and evidence of immune deficiency (generally
a characteristic of this type of cancer).
Three of the four patients treated with the
Company's MULTIKINE
product generated significant biological responses as a
result of the treatment. Negligible side effects were
observed and the patients were treated as outpatients.
Notwithstanding the above, it should be noted that these
trials were only preliminary and were only conducted on a
small number of patients. It remains to be seen if MULTIKINE
will be effective in treating any form of cancer.
See "Product Development Plan" above for
information concerning the Company's future research and
development plans.
Proof of efficacy for anti-cancer drugs is a lengthy and
complex process. At this early stage of clinical
investigation, it remains to be proven that MULTIKINE will
be effective against any form of cancer. Even if some form
of MULTIKINE is found to be effective in the treatment of
cancer, commercial use of MULTIKINE may be several years
away due to extensive safety and effectiveness tests that
would be necessary before required government approvals are
obtained. It should be noted that other companies and
research teams are actively involved in developing
treatments and/or cures for cancer, and accordingly, there
can be no assurance that the Company's research efforts,
even if successful from a medical standpoint, can be
completed before those of its competitors.
Since 1983, and through September 30, 1995, approximately
$9,505,000 has been expended on Company-sponsored research
and development, including approximately $1,825,000,
$2,896,000 and $1,307,000 during the years ended September
30, 1995, 1994 and 1993, respectively. The foregoing
amounts do not include amounts spent by Viral Technologies,
Inc. on research and development. Since May, 1986 (the
inception of VTI) and through September 30, 1995, VTI has
spent approximately $3,365,000 on research and development.
The Company has established a Scientific Advisory
Board ("SAB") comprised of scientists distinguished in
biomedical research in the field of lymphokines and related
areas. From time to time, members of the SAB advise the
Company on its research activities. Institutions with which
members of the SAB are affiliated have and may in the future
conduct Company-sponsored research. The SAB has in the past
and may in the future, at its discretion, invite other
scientists to opine in confidence on the merits of the
Companysponsored research. Members of the SAB receive $500
per month from the Company and have also been granted
options (for serving as members of the SAB) which
collectively allow for the purchase of up to 15,000 shares
of the Company's Common Stock. The options are exercisable
at prices ranging from $13.80 to $19.70 per share.
The members of the Company's SAB are:
Dr. Michael Chirigos former head of the Virus and Disease
Modification Section, National Institutes of Health (NIH),
National Cancer Institute (NCI) from 1966-1981 and the
Immuno Pharmacology Section, NHI, NCI, Biological Response
Modifier Program until 1985.
Dr. Evan M. Hersh Vice-Chairman, Department of
Internal
Medicine, Chief, Section of Hematology/Oncology, Department
of Internal Medicine, Tucson, AZ. Director of Clinical
Research, Arizona Cancer Center, Tucson.
Dr. Michael J. Mastrangelo Director, Division of Medical
Oncology, and Professor of Medicine, Jefferson Medical
College, Philadelphia, Pennsylvania.
Dr. Alan B. Morris, PhD. Professor, Department of Biological
Sciences, University of Warwick, Coventry, U.K.
VIRAL TECHNOLOGIES, INC.
Prior to November 1995, Viral Technologies, Inc.
("VTI"), a Delaware corporation, was 50% owned by the
Company and 50% owned by Alpha 1 Biomedicals, Inc. VTI is
developing a vaccine technology that may prove of commercial
value in the prevention, diagnosis and treatment of AIDS.
VTI holds the proprietary rights to certain synthesized
components of the p17 gag protein, which is the outer core
region of the AIDS virus (HIV-1). In October 1995, the
Company acquired Alpha 1's interest in VTI in exchange for
159,170 shares of the Company's common stock.
VTI is involved in the development of a prototype
preventive and therapeutic vaccine against AIDS that is
based on HGP-30, a thirty amino acid synthetic peptide
derived from the p17 region of the AIDS virus. Evidence
compiled by scientists at George Washington University from
toxicology studies with different animal species indicates
that the HGP-
30 prototype vaccine does not appear to be toxic in animals.
The HGP-30 vaccine being tested differs from most other
vaccines candidates in that its active component, the HGP-30
peptide, is derived from the p17 core protein particles of
the virus. Since HGP-30 is a totally synthetic molecule
containing no live virus, it cannot cause infection. Unlike
the envelope (i.e. outside) proteins, the p17 region of the
AIDS virus appears to be relatively nonchanging. In
January, 1991, VTI was issued a United States patent
covering the production, use and sale of HGP-30. HGP-30 may
also be effective in treating persons infected with the AIDS
virus.
Approval to start Phase I human clinical trials in
Great Britain using VTI's prototype AIDS vaccine HGP-30 was
granted in April 1988. The trial, the first in the European
common market, began in May 1989 with 18 healthy
(HIVnegative) volunteers given three different dosages and
was completed in December 1990. The trial results indicated
that five of eight volunteers vaccinated with HGP-30, and
whose blood samples were able to be tested, produced
"killer" T-cell responses. The vaccine also elicited
proliferative responses in 7 out of 9 vaccinated volunteers
and antibody responses in 15 out of 18 vaccinated
volunteers.
In March, 1990, the California Department of Health
Services
Food and Drug Branch (FDB) approved the first human testing
(Phase I trials) in
the United States of HGP-30. The trials were conducted by
scientists at the University of Southern California and San
Francisco General Hospital. Twentyone healthy HIV-negative
volunteers at medical centers in Los Angeles and San
Francisco received escalating doses of HGP-30 with no
clinically significant adverse side effects. The clinical
studies confirmed earlier clinical trials in London.
In April 1995 VTI began another clinical trial using
volunteers who will receive two vaccinations. In November
l995, VTI received permission from the California Food and
Drug Branch ("FDB") to begin Phase I human clinical trials
with HIV-infected volunteers. In December l995 VTI started
this clinical trial using the HGP-30 HIV immunogen. The
study is being conducted at the clinic of AIDS RESEARCH
Alliance, a non-profit AIDS research organization located in
West Hollywood, California. The Phase I trial with HGP-30
will evaluate safety and HIV1 directed immune responses in
HIV infected individuals. The trial will include 22 HIV
patients with CD4 counts between 50 and 600. Each patient
will receive three immunizations of the HGP-30 HIV immunogen
during the course of six months. Previous clinical Phase I
studies with HGP-30 in 38 non-infected volunteers were
successfully concluded in the United Kingdom and California.
No assurance can be given that approvals to conduct
additional
clinical trials will be obtained in a timely fashion, if at
all. In addition, VTI's AIDS vaccine/treatment is only in
the initial stages of testing and it remains to be seen if
the vaccine/treatment will be effective against the AIDS
virus.
Although there has been important independent
research showing the possible significance of the p17 region
of HIV-1, there can be no assurance that any of VTI's
technology will be effective in the prevention, diagnosis or
treatment of AIDS. There can be no assurance that other
companies will not develop a product that is more effective
or that VTI ultimately will be able to develop and bring a
product to market in a timely manner that would enable it to
derive commercial benefits.
VTI's research and development efforts are
presently focused on the evaluation of second generation
formulations and delivery systems for HGP-30 and related
peptides to enhance HIV-specific cellular immune responses.
T-CELL MODULATION PROCESS
In January 1996 the Company acquired a new patented Tcell
Modulation Process which uses "heteroconjugates" to
direct the body to chose a specific immune response.
The ability to generate a specific immune response is
important because many diseases are often not combatted
effectively due to the body's selection of the "inappropriate"
immune response. The capability to specifically reprogram an
immune response may offer a more effective approach than
existing vaccines and drugs in attacking an underlying disease.
The Company intends to use this new technology to
improve the cellular immune response of VTI's HIV HGP-30
immunogen which is currently in two clinical studies. In
addition, the Company intends to use the technology to develop a
potential Tuberculosis (TB) vaccine/treatment. TB is the largest
killer of all infectious diseases worldwide and new strains of
drug resistant TB are emerging daily.
The technology is also a potential platform technology which
could also work with many other peptides. Using this new
technology, the Company is currently conducting in vitro
laboratory and in vivo animal studies that have defined a
combination of components that appear to modulate Tcells
identified with specific diseases.
COMPOUNDS AND PROCESSES LICENSED TO THE COMPANY
The Company has acquired from Sittona Company, B.V., a
Netherlands corporation ("Sittona"), the exclusive worldwide
rights to patented IL-2 compounds, compositions and other
processes and other lymphokine-related com pounds, compositions
and processes which are the subject of various patents, patent
applications and disclosure documents filed with the United
States Patent and Trademark Office as well as similar agencies
of various foreign countries. Sittona acquired its rights in
the foregoing products and technology from Hooper Trading
Company N.V., and Shanksville Corporation N.V., both Netherland
Antilles corporations. Pursuant to the terms of the license,
the Company must pay to Sittona a royalty of l0% of all net
sales received by the Company in connection with the
manufacture, use or sale of the licensed compounds, compositions
and processes and a royalty of l5% of all license fees and
royalties received by the Company in connection with the grant
by the Company of any sublicenses for the manufacture, use or
sale of the licensed compounds, compositions and processes. On
November 30, l983, a $l.4 million advance royalty was paid by
the Company to Sittona to acquire the license. The license also
requires the Company to bear the expense of preparing, filing
and processing patent applications and to obtain and maintain
patents in the United States and foreign countries on all
inventions, developments and improvements made by or on behalf
of the Company relating to the licensed compounds, compositions
and processes. In this regard the Company has caused patent
applications to be filed in several foreign countries and has
undertaken the processing of previously filed patent
applications. The exclusive license is to remain in effect until
the expiration or abandonment of all patent rights or until the
compounds, compositions and processes enter into the public
domain, whichever is later. Sittona may also terminate the
license for breach of the agreement, fraud on the part of the
Company, or the bankruptcy or insolvency of the Company.
Sittona, Hooper Trading Company and Shanksville Corporation are
all controlled by Maximilian de Clara, the Company's President.
See Item 13 of this report.
In 1987 a German company filed an opposition with the
European Patent Office with respect to one of the Company's
European patents, alleging that certain aspects of the patent in
question were previously disclosed by the inventors during a
conference held in Germany. A hearing on the opposition was
held and on October 12, 1990 the European Patent
Office rejected the opposition. The German company filing the
opposition has appealed the decision of the European Patent
Office. In 1992 the Company's process claims in the patent were
upheld, while two minor claims were denied. The Company does not
believe that the European Patent Office denial of these two
minor claims impairs the value of this patent in any significant
degree.
Process for the Production of IL-2 and IL-2 Product The
Company's exclusive license includes processes for theproduction
in high yields of natural human IL-2 using cell culture
techniques applied to normal human cells. The Company believes
that these production methods have advantages to those currently
in use. Based upon the results of the Company's research and
human clinical trials, the Company believes that "natural" IL-2
produced by cell culture technologies, such as the Company's
proprietary products, may have advantages over genetically
engineered, bacteria-produced IL-2 ("recombinant IL-2")
manufactured by other companies. There are basically two ways to
produce IL2 on a commercial scale: (1) applying genesplicing
techniques using bacteria or other microorganisms to produce
recombinant IL-2; or, (2) applying cell culture technology using
mammalian cells. Substantive differences exist between
recombinant IL-2 and IL-2 produced through cell culture
technology. For example: (1) cell cultured IL-2 is glycosylated
(has sugars attached). Sugar attachments play a crucial role in
cell recognition and have a significant effect on how fast a
body clears out proteins. Proteins produced through bacteria
have no sugar attachments and while recombinant IL-2 products
produced from recombinant yeast or insect cells are
glycosylated, they are not so to the right degree, or at the
right locations. Cell cultured IL-2 has the "right" sugar
attachments at the right places; (2) there are also structural
differences related to folding (the way human proteins work
depends on their sequence folding); and (3) the cell cultured IL-
2 "cocktail" is administered in small dosages as pioneered by
Company researchers. This formulation and dosage mimics the way
immune regulators are naturally found and function within the
body. This stands in stark contrast to the huge dosages required
when recombinant IL-2 is administered to patients. In addition,
patients treated with recombinant IL-2 usually suffer severe
side effects.
Although mammalian cells (other than human cells) could
be genetically engineered to produce glycosylated IL-2 in larger
quantities than are produced by the Company's method, such
mammalian cells could not be genetically engineered to produce
the combination of human lymphokines and cytokines, which
together with human glycosylated IL-2 form the MULTIKINE product
used by the Company. The Company is of the opinion that
glycosylated IL-2 genetically produced from mammalian cells must
be administered in large dosages before any benefits are
observed. Even then, the Company believes that only a small
percentage of patients will benefit from treatments consisting
only of glycosylated IL-2. In addition, large dosages of
glycosylated IL-2 can, as with recombinant IL 2, result in
severe toxic reactions. In contrast, the Company believes the
synergy between glycosylated IL2 and certain other lymphokines/
cytokines allows MULTIKINE to be administered in low dosages,
thereby avoiding the severe toxic reactions which often result
when IL-2 is administered in large dosages.
The technology licensed to the Company includes the basic
production method employing the use of normal white blood cells,
an improved production method based in part on this basic
production method, a serum-free and mitogenfree IL-2 product,
and a method for using this product in humans. Mitogens are used
to stimulate cells to produce specific materials (in this case,
IL2). Mitogens remaining in the product of cell stimulation can
cause allergic and anaphylactic reactions if not removed from
the cell product prior to introduction into the body.
The Company's license also pertains to a cell culture
process for producing interleukin-2 and another type of cell
process for producing serumfree and mitogen-free interleukin-2
preparations which avoids a mitogen stimulation step and uses
interleukin-1 and white blood cells.
The Company's license further includes a process for
suppressing graft rejection in organ transplantation. This
process employs the use of an agent which blocks the activity
of IL-2 in proliferating T-cells which would otherwise destroy
the transplanted organ. The Company regards further research
and development of this process to involve a financial
commitment beyond its present ability; thus, while the Company
intends to attempt to enter into licensing arrangements with third
parties concerning this process, it does not presently intend to
conduct further research into, or development of, this process.
Patent Position of Viral Technologies, Inc.'s HGP-30. In
January, 1991, VTI was awarded a U.S. patent covering the exclusive
production, use and sale of HGP-30. This patent is thought to be
the first U.S. patent for a portion of a "core" protein of the HIV
virus. In February, 1993, VTI was awarded a European patent covering
HGP-30 and certain other peptides.
GOVERNMENT REGULATION
The investigational agents and future products of the
Company are regulated in the United States under the Federal Food,
Drug and Cosmetic Act, the Public Health Service Act, and the laws
of certain states. The Federal Food and Drug Administration
(FDA) exercises
significant regulatory control over the clinical investigation and
manufacture of pharmaceutical products.
Prior to the time a pharmaceutical product can be marketed
in the United States for therapeutic use, approval of the FDA must
normally be obtained. Certain states, however, have passed laws
which allow a state agency having functions similar to the FDA to
approve the testing and use of pharmaceutical products within the
state. In the case of either FDA or state regulation, preclinical
testing programs on animals, followed by three phases of clinical
testing on humans, are typically required in order to establish
product safety and efficacy.
The first stage of evaluation, preclinical testing, must be
conducted in animals. After lack of toxicity has been demonstrated,
the test results are submitted to the FDA (or state regulatory
agency) along with a request for approval for further testing which
includes the protocol that will be followed in the initial human
clinical evaluation. If the applicable regulatory authority does not
object to the proposed experiments, the investigator can proceed
with Phase I trials. Phase I trials consist of
pharmacological studies on a
relatively few number of humans under rigidly controlled conditions
in order to establish lack of toxicity and a safe dosage range.
After Phase I testing is completed, one or more Phase II
trials are conducted in a limited number of patients to test the
product's ability to treat or prevent a specific disease, and the
results are analyzed for clinical efficacy and safety. If the
results appear to warrant confirmatory studies, the data is
submitted to the applicable regulatory authority along with the
protocol for a Phase III trial. Phase III trials consist of
extensive studies in large populations designed to assess the safety
of the product and the most desirable dosage in the treatment or
prevention of a specific disease. The results of the clinical trials
for a new biological drug are submitted to the FDA as part of a
product license application ("PLA").
In addition to obtaining FDA approval for a product, a
biologics establishment license application ("ELA") must be filed in
order to obtain FDA approval of the testing and manufacturing
facilities in which the product is produced. To the extent all or a
portion of the manufacturing process for a product is handled by an
entity other than the Company, the Company must similarly receive
FDA approval for the other entity's participation in the
manufacturing process. Domestic manufacturing establishments are
subject to inspections by the FDA and by other Federal, state and
local agencies
and must comply with Good Manufacturing Practices ("GMP") as
appropriate for production. In
complying with GMP regulations, manufacturers must continue to
expend time, money and effort in the area of production and quality
control to ensure full technical compliance.
The process of drug development and regulatory approval
requires substantial resources and many years. There can be no
assurance that regulatory approval will ever be obtained for
products developed by the Company. Approval of drugs and
biologicals by regulatory authorities of most foreign countries must
also be obtained prior to initiation of marketing in those
countries. The approval process varies from country to country and
the time period required in each foreign country to obtain approval
may be longer or shorter than that required for regulatory approval
in the United States.
The human clinical trials in Florida were authorized
pursuant to applications filed by physicians at a southern Florida
medical institution with the Florida Department of Health and
Rehabilitative Services ("DHRS"). VTI's Phase I clinical trials were
conducted pursuant to approvals obtained from the California
Department of Health Services Food and Drug Branch. None of the
clinical trials involving the Company's MULTIKINE product (including
the prior trials conducted in London, England) have been conducted
under the approval of the FDA and there are no assurances that
clinical trials conducted under approval from state authorities or
conducted in foreign countries will be accepted by the FDA. Product
licensure in a foreign country or under state authority does not
mean that the product will be licensed by the FDA and there are no
assurances that the Company will receive any approval of the FDA or
any other governmental entity for the manufacturing and/or marketing
of a product. Consequently, the commencement of the manufacturing
and marketing of any Company product is, in all likelihood, many
years away.
COMPETITION AND MARKETING
Many companies, nonprofit organizations and governmental
institutions are conducting research on lymphokines. Competition in
the development of therapeutic agents and diagnostic products
incorporating lymphokines is intense. Large, well-established
pharmaceutical companies are engaged in lymphokine research and
development and have considerably greater resources than the Company
has to develop products. The establishment by these large companies
of in-house research groups and of joint research ventures with
other entities is already occurring in these areas and will probably
become even more prevalent. In addition, licensing and other
collaborative arrangements between governmental and other nonprofit
institutions and commercial enterprises, as well as the seeking of
patent protection of inventions by nonprofit institutions and
researchers, could result in strong competition for the Company. Any
new developments made by such organizations may render the Company's
licensed technology and knowhow obsolete.
Several biotechnology companies are producing IL-2-like
compounds. The Company believes, however, that it is the only
producer of a patented IL2 product using a patented cell-culture
technology with normal human cells. The Company foresees that its
principle competition will come from producers of genetically
engineered IL-2like products. However, it is the Company's belief,
based upon growing scientific evidence, that its
natural IL-2 products have advantages over the genetically
engineered, IL2-like products. Evidence indicates that genetically
engineered, IL2 like products, which lack sugar molecules and
typically are not water soluble, may be recognized by the
immunological system as a foreign agent, leading to a measurable
antibody build-up and thereby possibly voiding their therapeutic
value. Furthermore, the Company's research has established that to
have optimum therapeutic value IL-2 should be administered not as a
single substance but rather as an IL-2 rich mixture of certain
lymphokines and other proteins, i.e. as a "cocktail". If these
differences prove to be of importance, and if the therapeutic value
of its MULTIKINE product is conclusively
established, the Company believes it will be able to establish a
strong competitive position in a future market.
The Company has not established a definitive plan for
marketing nor has it established a price structure for the Company's
saleable products. However, the Company intends, if the Company is
in a position to begin commercialization of its products, to enter
into written marketing agreements with various major pharmaceutical
firms with established sales forces. The sales forces in turn would
probably target the Company's products to cancer centers, physicians
and clinics involved in immunotherapy.
Competition to develop treatments for the control of AIDS
is intense. Many of the pharmaceutical and biotechnology companies
around the world are devoting substantial sums to the exploration
and development of technologies useful in these areas. VTI's
development of its experimental HGP-30 AIDS Vaccine, if successful,
would likely face intense competition from other companies seeking
to find alternative or better ways to prevent and treat AIDS.
Both the Company and VTI may encounter problems, delays and
additional expenses in developing marketing plans with outside
firms. In addition, the Company and VTI may experience other
limitations involving the proposed sale of their products, such as
uncertainty of third-party reimbursement. There is no assurance
that the Company or VTI can successfully market any products which
they may develop or market them at competitive prices.
The clinical trials funded to date by the Company and VTI
have not been approved by the FDA, but rather have been conducted
pursuant to approvals obtained from regulatory agencies in England,
Canada and certain states. Since the results of these clinical
trials may not be accepted by the FDA, companies which are
conducting clinical trials approved by the FDA may have a
competitive advantage in that the products of such companies are
further advanced in the regulatory process than those of the Company
or VTI.
ITEM 2. PROPERTIES
The Company's MULTIKINE product used in its pre-clinical
and Phase I clinical trials in England was manufactured at a pilot
plant at St. Thomas' Hospital Medical School using the Company's
patented production methods and equipment owned by the Company. The
MULTIKINE product used in the Florida clinical trials was
manufactured in Florida. In February, 1993, the Company signed an
agreement with a third party whereby the third party constructed a
facility designed to produce the Company's MULTIKINE product. The
Company paid the third party the cost of constructing this facility
(approximately $200,000) in accordance with the Company's
specifications.
In October, 1994 the Company completed the construction of a
research laboratory in space leased by the Company. The cost of
modifying and equipping this space for the Company's purposes was
approximately $1,200,000.
The Company leases office space at 66 Canal Center Plaza,
Alexandria, Virginia at a monthly rental of approximately $8,200 per
month. The Company believes this arrangement is adequate for the
conduct of its present business.
ITEM 3. LEGAL PROCEEDINGS
In February 1996 the Company filed a lawsuit against
ImmunoRx and Dr. John Hadden for contract breach, tortious
interference of contract and patent infringement concerning the
Company's Multikine drug. The lawsuit, filed in the U.S. Distrit
Court for the Middle District of Florida, seeks damages and the
termination of certain research and clinical studies being conducted
by ImmunoRx and Dr. Hadden. From 1984 to 1992, Dr. Hadden consulted
with the Company, performed research on Multikine and manufactured
Multikine for the Company's head and neck
cancer study in Florida. In early 1993, Dr. Hadden signed a
separation agreement with the Company acknowledging the Company's
ownership of both Multikine and the research results. The Company
has learned that Dr. Hadden and ImmunoRx are apparently making
copies of Multikine, in contravention of the separation agreement
and the patents covering Multikine, and have begun clinical studies
in a foreign country using a copy of Multikine.
Other than the foregoing, the Company is not a party to any
pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
As of November 30, 1995, there were approximately 3,000 record
holders of the Company's Common Stock and approximately 100 record
holders of the Company's Warrants. The Company has not issued any
shares of preferred stock. The Company's Common Stock and Warrants
are traded on the National Association of Securities Dealers
Automatic Quotation ("NASDAQ") System. Set forth below are the range
of high and low bid quotations for the periods indicated as reported
by NASDAQ, and as adjusted for the 10 for 1 reverse stock split
which was approved by the Company's shareholders on April 28, 1995
and became effective on May 1, 1995. The market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
Quarter
Ending Common Stock Warrants
High Low High Low
12/31/93 $20.00 $13.40 $0.94 $0.41
3/31/94 $18.10 $10.30 $0.75 $0.28
6/30/94 $10.90 $8.10 $0.31 $0.19
9/30/94 $10.30 $5.60 $0.21 $0.12
12/31/94 $7.50 $3.40 $0.25 $0.09
3/31/95 $4.00 $3.75 $0.22 $0.13
6/30/95 $5.30 $2.78 $0.15 $0.06
9/30/95 $5.46 $3.56 $0.28 $0.09
Holders of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds
legally available therefor and, in the event of liquidation, to
share pro rata in any distribution of the Company's assets after
payment of liabilities. The Board of Directors is not obligated to
declare a dividend. The Company has not paid any dividends and the
Company does not have any current plans to pay any dividends.
Pursuant to the terms of a loan agreement with a bank, the Company
may not pay any dividends without the consent of the bank. See Note
5 to the
Company's September 30, 1995 financial statements.
The provisions in the Company's Articles of Incorporation
relating to the Company's Preferred Stock would allow the Company's
directors to issue Preferred Stock with rights to multiple votes per
share and dividend rights which would have priority over any
dividends paid with respect to the Company's Common Stock. The
issuance of Preferred Stock with such rights may make more difficult
the removal of management even if such removal would be considered
beneficial to shareholders generally, and will have the effect of
limiting shareholder participation in certain transactions such as
mergers or tender offers if such transactions are not favored by
incumbent management.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in
conjunction with the more detailed financial statements, related
notes and other financial information included herein. See also
"Management's Discussion and Analysis".
For the Years Ended September 30,
1995 1994 1993 1992 1991
Investment Income &
Other Revenues $ 423,765 $ 624,670 $ 997,964 $ 434,180 $ 35,972
Expenses:
Research and
Development 1,824,661 2,896,l09 1307,042 481,697 108,771
Depreciation
and Amortization 262,705 138,755 55,372 33,536 32,582
General and
Administrative 1,713,912 1,621,990 1,696,119 1,309,475 795,015
Equity in loss of
joint venture 501,125 394,692 344,423 260,388 290,166
Net
Loss $(3,878,638)$(4,426,876)$(2,404,992)$(1,650,916)$(1,190,562)
Loss per common
share $(0.89) $(1.06) $(0.58) $(0.42) $(0.35)
Weighted average
common shares
outstanding 4,342,628 4,185,240 4,155,431 3,953,233 3,400,546
Balance Sheet Data:
September 30,
1995 1994 1993 1992 1991
Working
Capital $3,983,699 $5,795,191 $10,296,472 $13,043,012 $682,831
Total
Assets 6,359,011 8,086,670 11,633,090 13,769,504 1,611,899
Total
Liabilities 1,516,978 l,407,602 688,231 467,086 672,595
Shareholders'
Equity 4,842,033 6,679,068 10,944,859 13,302,4l8 939,304
No dividends have been declared by the Company since its inception.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Fiscal 1995
Revenues for the year ended September 30, 1995 consisted
primarily of interest earned on funds received from the Company's
February 1992 public offering. The interest income and investment
balances have declined from the previous year as funds were used
for ongoing expenses
and equipping the Company's new laboratory. Research and
development expenses decreased due to the use of the Company's
laboratory for research programs and the completion of a research
and development project relating to the Company's manufacturing
process. General and administrative expenses increased as the
result of the expenses associated with the Company's 1995 annual
meeting of shareholders. Significant components of general and
administrative expenses during this year were salaries and employee
benefits ($341,000), automobile, travel and expense reimbursements
($271,000), shareholder communications and investor relations
($245,000), legal and accounting ($134,000), and officers and
directors liability insurance ($138,000). Losses associated with
the Company's joint venture interest in VTI increased due to an
increase in VTI's research and development expenditures.
Fiscal 1994
Interest income during the year ending September 30, 1994
decreased from the prior year as a portion of the Company's
investments were sold to pay for operating expenses. Research and
development expenses increased due to the commencement of several
new research projects, all of which pertained to the Company's
MULTIKINE product. Significant components of general and
administrative expenses during this year were salaries and
employee benefits ($442,039), travel and expense reimbursements
($294,217), shareholder communi cations and investor relations
($267,070), legal and accounting ($151,879), and officers and
directors liability insurance ($147,564).
Fiscal 1993
Investment income during the year ending September 30,
1993 increased as the Company had use of the funds from its
February, 1992 public offering for twelve months in fiscal 1993
as opposed to six months in fiscal 1992. Research and
development expenses increased due to the commencement of
several new research projects, all of which pertained to the
Company's MULTIKINE drug. General and administrative expenses
increased due to an increase in the cost of Directors and
Officers insurance, the implementation of an employee 401(K)
plan, and the addition of new employees during the year.
Significant components of general and administrative expenses
during this year were salaries and employee benefits ($342,150),
travel and expense reimbursements ($266,007), shareholder
communications and investor relations ($341,024), legal and
accounting ($107,254), officers and directors liability
insurance ($113,690), and the cost of indemnifying an officer
and director for losses sustained as the result of actions taken
on behalf of the Company ($202,500). Losses associated with the
Company's joint venture interest in VTI increased due to an
increase in VTI's research and development expenditures.
Liquidity and Capital Resources
The Company has had only limited revenues from
operations since its inception in March l983. The Company has
relied upon proceeds realized from the public and private sale
of its Common Stock to meet its funding requirements. Funds
raised by the Company have been expended primarily in connection
with the acquisition of an exclusive worldwide license to
certain patented
and unpatented proprietary technology and know-how relating to
the human immunological defense system, the funding of VTI's
research and development program,
patent applications, the repayment of debt, the continuation of
Companysponsored research and development, administrative costs
and construction of laboratory facilities. Inasmuch as the
Company does not anticipate realizing revenues until such time
as it enters into licensing arrangements regarding the
technology and know-how licensed to it (which could take a
number of years), the Company is mostly dependent upon the
proceeds from the sale of its securities to meet all of its
liquidity and capital resource requirements.
In February, 1992, the Company received net proceeds of
approximately $13,800,000 from the sale, in a public offering,
of 517,500 shares of Common Stock and 5,175,000 Warrants. Every
ten Warrants entitle the holder to purchase one additional share
of Common Stock at a price of $46.50 per share prior to February
7, 1997.
In June and September, l995, the Company completed private
offerings whereby it sold a total of 1,150,000 units at $2.00
per unit. Each unit consisted of one share of Common Stock and
one Warrant. Each Warrant entitles the holder to purchase one
additional share of Common Stock at a price of $3.25 per share
at any time prior to June 30, 1997. The net proceeds to the
Company from these offerings, after the payment of Sales Agent's
commissions and other offering expenses, were approximately
$2,000,000. On November 30, 1995 the Company and the investors
in these Private Offerings agreed to reduce the exer-
cise price of the Warrants to $1.60 per share in return for the
commitment on the part of the investors to exercise 312,500
Warrants ($500,000) prior
to December 23, 1995 and an additional 312,500 Warrants
($500,000) prior to January 31, 1996.
The Company filed an Investigational New Drug ("IND")
Application with the FDA in July, 1994. In connection with
this filing the Company has been funding a research program
designed to refine the manufacturing process for the Company's
MULTIKINE product so that MULTIKINE will meet anticipated
regulatory requirements. During fiscal 1995 the Company also
plans to provide VTI with the funding needed to extend VTI's
Phase I trials involving HIV-negative volunteers. It should be
noted that substantial additional funds
will be needed for more extensive clinical trials which will be
necessary before the Company or VTI will be able to apply to
the FDA for approval to sell any products which may be
developed on a commercial basis throughout the United States.
There can be no assurance that either the Company or
VTI will be successful in obtaining approvals from any state,
the FDA or any foreign country to conduct further clinical
trials or to manufacture and sell their products. The lack of
FDA approval for the Company's or VTI's products will prevent
the Company and VTI from generally marketing their products on
an interstate basis in the United States. Delays in obtaining
FDA approval or the failure to obtain FDA approval may have a
material adverse impact upon the Company's operations.
In October, 1994, the Company completed the
construction of its own research laboratory in a facility
leased by the Company. The cost of modifying the leased space
and providing the equipment for the research laboratory was
approximately $1,200,000. In August 1994 the Company obtained
a loan to fund the majority of the costs for the research
laboratory. As of September 30, 1995 the Company owed
approximately $811,000 on this loan. Principal and interest on
the loan is due monthly. The loan matures in 1999 and bears
interest at 2% plus the prime lending rate.
The Company expects that it will spend approximately
$2,500,000 on research and development during the twelve month
period ending September 30, 1996. This amount includes VTI's
estimated research and development expenses during fiscal 1996.
Prior to October 1995, VTI's research and development expenses
were shared 50% by the Company and 50% by Alpha 1 Biomedicals,
Inc. VTI became a wholly-owned subsidiary of the Company in
October 1995 when the Company purchased Alpha 1's 50% interest
in VTI. The Company plans to use its existing financial
resources to fund its research and development program during
this period.
Other than funding its research and development program
and the costs associated with its research laboratory, the
Company does not have any material capital commitments.
The Company expects that its existing financial
resources will satisfy the Company's capital requirements at
least through
December 1996. In the absence of revenues, the Company will
be required to raise additional funds through the sale of
securities, debt financing or other arrangements in order
to continue with its research efforts after that date.
However, there can be no assurance that such financing
will be available or be available on
favorable terms.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements included with this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Officers and Directors
Name Age Position
Maximilian de Clara 65 Director and President
Geert R. Kersten, Esq. 37 Director, Chief Executive
Officer, Secretary and
Treasurer
Patricia B. Prichep 43 Vice President of Operations
M. Douglas Winship 45 Vice President of Regulatory
Affairs and Quality Assurance
Dr. Eyal Talor 37 Vice President of Research
and Manufacturing
Mark V. Soresi 41 Director
F. Donald Hudson 62 Director
Edwin A. Shalloway 60 Director
The directors of the Company serve in such capacity
until the next annual meeting of the Company's shareholders and
until
their successors have been duly elected and qualified. The
officers of the Company serve at the discretion of the Company's
directors.
Mr. Maximilian de Clara, by virtue of his position as an
officer and director of the Company, may be deemed to be the
"parent" and "founder" of the Company as those terms are defined
under applicable rules and regulations of the Securities and
Exchange Commission.
The principal occupations of the Company's officers and
directors, during the past several years, are as follows:
Maximilian de Clara. Mr. de Clara has been a director of
the Company since its inception in March, l983, and has been
president of the Company since July, l983. Prior to his
affiliation with the Company, and since at least l978, Mr. de
Clara was involved in the management of his personal investments
and personally funding research in the fields of biotechnology and
biomedicine. Mr. de Clara attended the medical school of the
University of Munich from l949 to l955, but left before he
received a medical degree. During the summers of l954
and l955, he worked as a research assistant at the University of
Istanbul in the field of cancer research. For his efforts and
dedication to research and development in the fight against cancer
and AIDS, Mr. de Clara was awarded the "Pour le Merit" honorary
medal of the Austrian Military Order "Merito Navale" as well as
the honor cross of the Austrian Albert Schweitzer Society.
Geert R. Kersten, Esq. Mr. Kersten was Director of
Corporate and Investment Relations for the Company between
February, 1987 and October, 1987. In October of 1987, he was
appointed Vice President of Operations. In December, 1988, Mr.
Kersten was appointed director of the Company. Mr. Kersten also
became the Company's secretary and treasurer in 1989. In May,
1992, Mr. Kersten was appointed Chief Operating Officer
and in February, 1995, Mr. Kersten became the Company's Chief
Executive Officer. In previous years, Mr. Kersten worked as a
financial analyst with Source Capital, Ltd., an investment
advising firm in McLean, Virginia. Mr.
Kersten is a stepson of Maximilian de Clara, who is the President
and a Director of the Company. Mr. Kersten attended George
Washington University in Washington, D.C. where he earned a B.A.
in Accounting and an M.B.A. with emphasis on International
Finance. He also attended law school at American University in
Washington, D.C. where he received a Juris Doctor degree.
Patricia B. Prichep has been the Company's Vice President
of Operations since March, 1994. Between December, 1992 and
March, 1994, Ms. Prichep was the Company's Director of Operations.
From June, 1990 to December, 1992, Ms. Prichep was the Manager of
Quality and Productivity for the NASD's Management, Systems and
Support Department. Between 1982 and 1990, Ms. Prichep was Vice
President and Operations Manager for Source Capital, Ltd.
M. Douglas Winship has been the Company's Vice President of
Regulatory Affairs and Quality Assurance since April, 1994.
Between 1988 and April, 1994, Mr. Winship held various positions
with Curative Technologies, Inc., including Vice President of
Regulatory Affairs and Quality Assurance (1991-1994).
Dr. Eyal Talor has been the Company's Vice President of
Research and Manufacturing since March, 1994. From October, 1993
until March, 1994, Dr. Talor was Director of Research,
Manufacturing and Quality Control, as well as the Director of the
Clinical Laboratory, for Chesapeake Biological Laboratories, Inc.
From 1991 to 1993, Dr. Talor was a scientist with SRA
Technologies, Inc., as well as the director of SRA's Flow
Cytometry Laboratory (19911993) and Clinical Laboratory (1992
1993). During 1992 and 1993, Dr. Talor was also the Regulatory
Affairs and Safety Officer For SRA. Since 1987, Dr. Talor has held
various positions with the John
Hopkins University, including course coordinator for the School of
Continuing Studies (1989-Present), research associate and lecturer
in the Department of Immunology and Infectious Diseases (1987-
1991), and associate professor (1991Present).
Mark V. Soresi. Mr. Soresi became a director of the Company
in July, 1989. In 1982, Mr. Soresi founded, and since that date
has been the president and Chief Executive Officer of REMAC(R),
Inc. REMAC(R) is involved in the clean-up of hazardous and toxic
waste dump sites. Mr. Soresi attended George Washington University
in Washington, D.C. where he earned a Bachelor of Science in
Chemistry.
F. Donald Hudson. F. Donald Hudson has been a director of the
Company since May, 1992. From December 1994 to October 1995 Mr.
Hudson was President and Chief Executive Officer of VIMRx
Pharmaceuticals, Inc. Between 1990 and 1993, Mr. Hudson was
President and Chief Executive Officer of Neuromedica, Inc., a
development stage company engaged in neurological research. Until
January, 1989, Mr. Hudson served as Chairman and Chief Executive
Officer of Transgenic Sciences, Inc. (now TSI Corporation), a
publicly held biotechnology corporation which he founded in
January, 1987. From October, 1985 until January, 1987, Mr.
Hudson was a director of Organogenesis, Inc., a publicly held
biotechnology corporation of which he
was a founder, and for five years prior thereto was Executive Vice
President and a director of Integrated Genetics, Inc., a
corporation also engaged in biotechnology which he co-founded and
which was publicly traded until its acquisition in 1989 by
Genzyme, Inc. Edwin A. Shalloway, Esq. Mr. Shalloway has been a
director
of the Company since May, 1992. Mr. Shalloway is and has been
since 1964, a partner in the law firm of Sherman and Shalloway
which specializes in matters of patent law. Mr. Shalloway
attended the University of Georgia where he earned a Bachelor of
Science and Bachelor of Arts degrees. Mr. Shalloway received his
law degree from the American University in Washington, D.C. Mr.
Shalloway is also the President of the International Licensing
Executive Society.
All of the Company's officers devote substantially all of
their time on the Company's business. Messrs. Soresi, Hudson and
Shalloway, as directors, devote only a minimal amount of time to
the Company.
The Company has an audit committee whose members are Geert R.
Kersten, F. Donald Hudson and Edwin A. Shalloway.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth in summary form the
compensation received by (i) the Chief Executive Officer of the
Company and (ii) by each other executive officer of the Company
who received in excess of $100,000 during the fiscal year ended
September 30, 1995.
Annual Compensation Long Term Compensation
Re All
Other stric- Other
Annual ted LTIP Com
Compen- Stock Options Pay pensa-
Name and Princi Fiscal Salary Bonus sation Awards Granted outs
tion pal Position Year (1) (2) (3) (4) (5) (6)(7)
Maximilian de Clara, 1995 - - $95,181 225,000
- -
President 1994 - - $93,752 70,000
- -
1993 - - $59,376 -
Geert R. Kersten, 1995 $164,801 - $ 9,426 224,750
$3,911
Chief Executive 1994 $182,539 - $ 8,183 50,000
$4,497
Officer, Secretary 1993 $163,204 - $ 6,046
$3,289
and Treasurer
M. Douglas Winship, 1995 $113,500 $ 1,200 22,000
$2,100
Vice President of
Regulatory Affairs
Suzanne Beckner, 1995 $102,250
- -
25,000
$2,830
Vice President of
Clinical Development*
* Dr. Beckner resigned her position with the Company in
November 1995. (1) The dollar value of base salary (cash and
non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly
categorized as salary or bonus, including perquisites
and other personal benefits, securities or property.
Amounts in the table represent automobile, parking and
other transportation expenses.
(4) During the period covered by the Table, no shares of
restricted stock were issued as compensation for services to
the persons listed in the table. As of September 30, 1995,
the number of shares of the Company's common stock, owned by
the officers included in the table above, and the value of
such shares at such date, based upon the market price of the
Company's common stock were:
Name Shares Value
Maximilian de Clara 5,000 $23,100
Geert R. Kersten 84,940 $392,423
Dividends may be paid on shares of restricted stock owned by
the Company's officers and directors, although the Company has
no plans to pay dividends. Mr. Winship and Ms. Beckner did not
own any shares of the Company's Common Stock at September 30,
1995.
(5) The shares of Common Stock to be received upon the exercise
of all stock options granted during the period covered by
the Table. The amounts in this table include options granted
in prior years but which were repriced during the year
ending September 30, 1995. See "Ten Year Option/SAR
Repricings" table below.
(6) "LTIP" is an abbreviation for "Long-Term Incentive Plan".
An LTIP is any plan that is intended to serve as an incentive
for performance to occur over a period longer than one fiscal
year. Amounts reported in this column represent payments
received duringthe applicable fiscal year by the named officer
pursuant to an LTIP. (7) All other compensation received that
the Company could not properly report in any other column of the
Table including annual Company contributions or other
allocations to vested and unvested defined contribution plans,
and the dollar value of any insurance premiums paid by, or on
behalf of, the Company with respect to term life insurance for
the benefit of the named executive officer, and the full dollar
value of the remainder of the premiums paid by, or on behalf of,
the Company. Amounts in the table represent contributions made
by the Company to a 401(k) pension plan on behalf of persons
named in the table.
Long Term Incentive Plans Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
During 1993 the Company implemented a defined
contribution retirement plan, qualifying under Section 401(k) of
the Internal Revenue Code and covering substantially all the
Company's employees. The Company's contribution is equal to the
lesser of 3% of each employee's salary, or 50% of the employee's
contribution. The 1995 expenses for this plan were $24,913.
Other than the 401(k) Plan, the Company does not have a defined
benefit,
pension plan, profit sharing
or other retirement plan.
Compensation of Directors
Standard Arrangements. The Company currently pays its
directors $1,500 per quarter, plus expenses. The Company has no
standard arrangement pursuant to which directors of the Company are
compensated for any services provided as a director or for committee
participation or special assignments.
Other Arrangements. The Company has from time to time
granted options to its outside directors, Mr. Soresi, Mr. Hudson and
Mr. Shalloway. See Stock Options below for additional information
concerning options granted to the Company's directors. Employment
Contracts
Effective August 1, 1994, the Company entered into a three
year employment agreement with Mr. Kersten. The employment agreement
provides that during the period between August 1, 1994 and July 31,
1995, the Company will pay Mr. Kersten an annual salary of $198,985.
During the years ending August 31, 1996 and 1997, the Company will pay
Mr. Kersten a salary of $218,883 and $240,771 respectively. In the
event that there is a material reduction in Mr. Kersten's authority,
duties or activities, or in the event there is a change in the control
of the Company, then the agreement allows Mr. Kersten to resign from
his position at the Company and receive a
lump sum payment from the Company equal to 18 months salary. For
purposes of the employment agreement, a change in the control of the
Company means the sale of more than 50% of the
outstanding shares of the Company's Common Stock, or a change in a
majority of the Company's directors. Pursuant to the agreement, the
Company also agreed to grant Mr. Kersten, in accordance with the
Company's 1994 Incentive Stock Option Plan, options to purchase 50,000
shares of the Company's Common Stock. Compensation Committee
Interlocks and Insider Participation
The Company has a compensation committee comprised of all of
the Company's directors, with the exception of Mr. Kersten. During the
year ended September 30, 1995, Mr. de Clara was the only officer
participating in deliberations of the Company's compensation committee
concerning executive officer compensation. See Item 13 of this report
for information concerning transactions between the Company and Mr. de
Clara.
During the year ended September 30, 1995, no director of the
Company was also an executive officer of another entity, which had an
executive officer of the Company serving as a director of such entity
or as a member of the compensation committee of such entity.
Stock Options
The following tables set forth information concerning the options
granted, during the fiscal year ended September 30, 1995, to the persons named
below, and the fiscal year-end value of all unexercised options (regardless of
when granted) held by these persons.
Options Granted During Fiscal Year Ending September 30, l995
Potential
Individual Grants (1) Realizable Value at
% of Total Assumed Annual Rates
Options of Stock Price
Granted to Exercise Appreciation for
Options Employees in Price Per Expiration Option Term(2)
Name Granted (#) Fiscal Year Share (1) Date 5% 10%
Maximilian 15,000 $2.87 3/19/01 $14,550 $30,750
de Clara 70,000 $2.87 11/1/01 $67,900 $176,400
70,000 $2.87 7/29/04 $272,300 $272,300
70,000 $3.87 7/31/05 $240,100 $501,200
225,000 32%
Geert R. 50,000 (2) $2.87 1/10/98 $20,500 $42,000
Kersten 750 $2.87 3/28/98 $287 $ 705
4,000 $2.87 10/31/99 $2,440 $5,320
10,000 $2.87 10/31/00 $7,900 $17,500
10,000 $2.87 3/19/01 $9,700 $22,100
50,000 $2.87 11/01/01 $48,500 $110,700
50,000 $2.87 7/29/04 $79,000 $194,500
50,000 $3.87 7/31/05 $171,500 $358,000
M. Douglas 2,000 (2) $2.87 1/10/98 $720 $1,660
Winship 15,000 $2.87 4/04 $23,700 $58,350
5,000 $3.87 7/31/05 $17,150 $35,800
22,000 3%
Suzanne 5,000 (2) $2.87 1/10/98 $1,750 $4,150
Beckner 8,000 $2.87 7/11/04 $12,640 $31,120
12,000 $3.87 7/31/05 $41,160 $85,920
25,000 3.5%
(1) Includes options granted in prior fiscal years but which were repriced in
June 1995.
See "Ten-Year Option/SAR Repricings" table below.
(2) Options were granted in accordance with the Company's 1995 salary
reduction plan. Pursuant to the salary reduction plan, any
employee of the Company was allowed to receive options in exchange
for a one time reduction in such employee's salary.
(3) The potential realizable value of the options shown in the table
assuming the market price of the Company's Common Stock
appreciates in value from the date of the grant to the end of the
option term at 5% or 10%.
Option Exercises and Year End Option Values
Value of
Unexer
cised In-
the Money
Number of Options
Unexercised at Fiscal
Options Year-End
Shares (3) (4)
Acquired Value
on Exercise Realized Exercisable/ Exercisable/
Name (1) (2) Unexercisable Unexercisable
Maximilian
de Clara - - 108,334/116,666 $189,584/$134,165
Geert R. Kersten - - 85,750/139,000 $150,062/$193,250
M. Douglas
Winship - - 5,000/ 17,000 $8,750/$24,750
Suzanne Beckner - - 2,667/ 22,333 $4,667/$27,083
(1) The number of shares received upon exercise of options during the
fiscal year ended September 30, 1995.
(2) With respect to options exercised during the Company's fiscal year
ended September 30, 1995, the dollar value of the difference
between the option exercise price and the market value of the
option shares purchased on the date of the exercise of the
options.
(3) The total number of unexercised options held as of
September 30, 1995, separated between those options that
were exercisable and those options that were not
exercisable.
(4) For all unexercised options held as of September 30, 1995,
the aggregate dollar value of the excess of the market
value of the stock underlying those options (as of
September 30, 1995) over the exercise price of those
unexercised options. Values are shown separately for
those options that were exercisable, and those options
that were not yet exercisable, on September 30, 1995.
Ten-Year Option/SAR Repricings
In June 1995 the Company lowered the exercise price on
options held by all of the Company's officers, directors and
employees to $2.87 per share. The options subject to this
repricing allowed for the purchase of up to 444,250 shares of
the Company's Common Stock and included options previously
granted to those persons listed below. The Company's Board of
Directors lowered the exercise of these options since at the
time of repricing (June 10, 1995), the options no longer
provided a benefit to the
option holders due to the difference between the exercise price
of the options and the market price of the Company's Common
Stock. The following table provides more information concerning
the repricing of these options.
Number of Length of
Securities Market Exercise Original Op-
Underlying Price of Price at tion Term
Options/ Stock at Time of Remaining at
SARs Re- Repricing Repricing New Date of Re-
priced or or Amend or Amend Exercise pricing or
Name Date Amended (#) ment ($) ment($) Price($) Amendment
Maximilian 6/10/95 15,000 $2.87 $10.90 $2.87 63 mos.
de Clara 70,000 $2.87 $20.90 $2.87 70 mos.
70,000 $2.87 $8.70 $2.87 108 mos.
Geert R. 6/10/95 50,000 $2.87 $4.10 $2.87 30 mos.
Kersten 750 $2.87 $11.60 $2.87 33 mos.
4,000 $2.87 $4.00 $2.87 52 mos.
10,000 $2.87 $8.40 $2.87 64 mos.
10,000 $2.87 $10.90 $2.87 68 mos.
50,000 $2.87 $20.90 $2.87 76 mos.
50,000 $2.87 $8.70 $2.87 108 mos.
M. Douglas6/10/95 2,000 $2.87 $4.10 $2.87 30 mos.
Winship 15,000 $2.87 $11.20 $2.87 105 mos.
Suzanne 6/10/95 5,000 $2.87 $4.10 $2.87 30 mos.
Beckner 8,000 $2.87 $6.80 $2.87 107 mos.
Stock Option and Bonus Plans
The Company has two Incentive Stock Option Plans, three
Non Qualified Stock Option Plans and a Stock Bonus Plan. A
summary description of these Plans follows. In some cases these
Plans are collectively referred to as the "Plans".
Incentive Stock Option Plan. The two Incentive Stock
Option Plans collectively authorize the issuance of up to 200,000
shares of the Company's Common Stock to persons that exercise
options granted pursuant to the Plan. Only Company employees may
be
granted options pursuant to the Incentive Stock
Option Plan.
To be classified as incentive stock options under the
Internal Revenue Code, options granted pursuant to the Plans must
be exercised prior to the following dates:
(a) The expiration of three months after the date on
which an option holder's employment by the Company
is terminated (except if such termination is due to
the death or permanent and total disability);
(b) The expiration of 12 months after the date on which
an option holder's employment by the Company is
terminated, if such termination is due to the
Employee's permanent and total disability;
(c) In the event of an option holder's death while in the
employ of the Company, his executors or administrators may
exercise, within three months following the date of his death,
the option as to any of the shares not previously exercised;
The total fair market value of the shares of Common Stock
(determined at the time of the grant of the option) for which
any employee may be granted options which are first exercisable
in any calendar year may not exceed $100,000.
Options may not be exercised until one year following the
date of grant. Options granted to an employee then owning more
than 10% of the Common Stock of the Company may not be
exercisable by its terms after five years from the date of
grant. Any other option granted pursuant to the Plan may not be
exercisable by its terms after ten years from the date of
grant.
The purchase price per share of Common Stock purchasable
under an option is determined by the Committee but cannot be
less than the fair market value of the Common Stock on the date
of the grant of the option (or 110% of the fair market value in
the case of a person owning more than 10% of the Company's
outstanding shares).
Non-Qualified Stock Option Plan. The three NonQualified
Stock Option Plans collectively authorize the issuance of up to
560,000 shares of the Company's Common Stock to persons that
exercise options granted pursuant to the Plans. The Company's
employees, directors, officers, consultants and advisors are
eligible to be granted options pursuant to the Plans, provided
however that bona fide services must be rendered by such
consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital
raising transaction. The option exercise price is determined by
the Committee but cannot be less than the market price of the
Company's Common Stock on the date the option is granted.
Stock Bonus Plan. Up to 40,000 shares of Common Stock
may be granted under the Stock Bonus Plan. Such shares may
consist, in whole or in part, of authorized but unissued
shares, or treasury shares. Under the Stock Bonus Plan, the
Company's employees, directors, officers, consultants and
advisors are eligible to receive a grant of the Company's
shares, provided however that bona fide services must be
rendered by consultants or advisors and such services must not
be in connection with the offer or sale of securities in a
capital-raising transaction.
Other Information Regarding the Plans. The Plans are
administered by the Company's Compensation Committee ("the
Committee"), each member of which is a director of the Company.
The members of the Committee were selected by the Company's
Board of Directors and serve for a one-year tenure and until
their successors are elected. A member of the Committee may be
removed at any time by action of the Board of Directors. Any
vacancies which may occur on the Committee will be filled by
the Board of Directors. The Committee is vested with the
authority to interpret the provisions of the Plans and
supervise the administration of the Plans. In addition, the
Committee is empowered to select those persons to whom shares
or options are to be granted, to determine the number of shares
subject to each grant of a stock bonus or an option and to
determine when, and upon what conditions, shares or options
granted under the Plans will vest or otherwise be subject to
forfeiture and cancellation.
In the discretion of the Committee, any option granted
pursuant to the Plans may include installment exercise terms
such that the option becomes fully exercisable in a series of
cumulating portions. The Committee may also accelerate the
date upon which any option (or any part of any options) is
first exercisable. Any shares issued pursuant to the Stock
Bonus Plan and any options granted pursuant to the Incentive
Stock Option Plan or the NonQualified Stock Option Plan will be
forfeited if the "vesting" schedule established by the
Committee administering the Plan at the time of the grant is
not met. For this purpose, vesting means the period during
which the employee must remain an employee of the Company or
the period of time a nonemployee must provide services to the
Company. At the time an employee ceases working for the
Company (or at the time a nonemployee ceases to perform
services for the Company), any shares or options not fully
vested will be forfeited and cancelled. At the discretion of
the Committee payment for the shares of Common Stock underlying
options may be paid through the delivery of shares of the
Company's Common Stock having an aggregate fair market value
equal to the option price, provided such shares have been owned
by the option holder for at least one year prior to such
exercise. A combination of cash and shares of Common Stock may
also be permitted at the discretion of the Committee.
Options are generally non-transferable except upon
death of the option holder. Shares issued pursuant to the
Stock Bonus Plan will generally not be transferable until the
person receiving the shares satisfies the vesting requirements
imposed by the Committee when the shares were issued.
The Board of Directors of the Company may at any time,
and from time to time, amend, terminate, or suspend one or more
of the Plans in any manner they deem appropriate, provided that
such amendment, termination or suspension will not adversely
affect rights or obligations with respect to shares or options
previously granted. The Board of Directors may not, without
shareholder approval: make any amendment which would materially
modify the eligibility requirements for the Plans; increase or
decrease the total number of shares of Common Stock which may
be issued pursuant to the Plans except in the case of a
reclassification of the Company's capital stock or a
consolidation or merger of the Company; reduce the minimum
option price per share; extend the period for granting options;
or materially increase in any other way the benefits accruing
to employees who are eligible to participate in the Plans.
Prior Stock Option and Bonus Plan. The Company
previously had in effect a Stock Option and Bonus Plan ("the
1987 Plan") which provided for the grant to the Company's
officers, directors, employees and consultants of either (i)
shares of the Company's Common Stock for services rendered or
(ii) options to purchase shares of Common Stock. The 1987 Plan
was terminated by the Company in 1992. Since the 1987 Plan was
terminated, no further options will be granted and no further
bonus shares will be issued pursuant to the 1987 Plan.
However, options previously granted may nevertheless still be
exercised according to the terms of the options. Prior to the
termination of the 1987 Plan, the Company granted options to
purchase 189,250 shares of the Company's Common Stock. To
date, options to purchase 6,000 shares have been exercised. In
June, 1995 the Company cancelled options to purchase 176,250
shares that had previously been granted under this Plan and
reissued options for the same number of shares under the
Company's other stock option plans. See "Option Summary" below.
Option Summary. The following sets forth certain
information, as of November 30, 1995, concerning the stock
options granted by the Company. Each option represents the
right to purchase one share of the Company's Common Stock.
Total Shares
Shares Reserved for Remaining
Reserved Outstanding Options
Name of Plan Under Plan Options Under Plan
1987 Stock Option and Bonus Plan 200,000 7,000 (1)
1992 Incentive Stock Option Plan 100,000 52,217 47,783
1992 Non-Qualified Stock
Option Plan 60,000 60,000 -
1994 Incentive Stock Option
Plan 100,000 100,000 -
1994 Non-Qualified Stock
Option Plan 100,000 97,250 2,750
1995 Non-Qualified Stock
Option Plan 400,000 328,626 71,374
TOTAL: 645,093
(1) This Plan was terminated in 1992 and as a result, no new
options will be granted pursuant to this Plan.
In March, 1991 the Company granted a financial
relations consultant an option to purchase 50,000 shares of the
Company's common stock. The op tion is exercisable at $13.80
per share and expires in March, 1996. The holder of the option
has the right to have the shares issuable upon the exercise of
the option included in any registration statement filed by the
Company.
As of November 30, 1995, 1,500 shares had been issued
pursuant to the Company's 1992 Stock Bonus Plan. All of these
shares
were issued during the fiscal year ending September 30, 1994.
Other Matters.
The Securities and Exchange Commission found that
between 1988 and 1991 Mr. de Clara failed to timely file
reports of beneficial ownership required by the Securities
Exchange Act of 1934. In May, 1992, the Commission entered an
order requiring Mr. de Clara to file reports of beneficial
ownership on a timely basis.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of November 30, 1995,
information with respect to the only persons owning
beneficially 5% or more of the outstanding Common Stock and
the number and percentage of outstanding shares owned by each
director and officer and by the officers and directors as a
group. Unless otherwise indicated, each owner has sole voting
and investment powers over his shares of Common Stock.
Number of Percent of
Name and Address Shares (1) Class
(4)
Maximilian de Clara 113,333 (2) 2.0%
Bergstrasse 79
6078 Lungern,
Obwalden, Switzerland
Geert R. Kersten 227,290 (3) 4.1%
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Patricia B. Prichep 14,530 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
M. Douglas Winship 7,000 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Eyal Talor 8,667 *
66 Canal Center Plaza
Suite 510
Mark Soresi 14,375 *
l0l0 Wayne Ave., 8th Floor
Silver Spring, MD 209l0
F. Donald Hudson 10,500 *
53 Mt. Vernon Street
Boston, MA 02108
Edwin A. Shalloway 10,500 *
413 North Washington Street
Alexandria, VA 22314
Delton Trading SA 379,335 6.6%
15 Market Square
Belize City, Belize
Mueller Trading, Limited 379,334 6.6%
120 Madison Avenue
Lakewood, NJ
Laura Huberfeld 343,932 6.2%
250 Longwood Crossing
Lawrence, NY 11559
Naomi Bodner 285,832 5.2%
16 Grosser Lane
Monsey, NY 10952
All Officers and Directors
as a Group (8 persons) 406,195 6.7%
*Less than 1%
(1) Includes shares issuable prior to March 1, 1996
upon the exercise of options or warrants granted
to the following persons:
Options or Warrants Exercisable
Name Prior to March 1,1996
Maximilian de Clara 108,333
Geert R. Kersten 146,750
Patricia B. Prichep 14,500
M. Douglas Winship 7,000
Dr. Eyal Talor 7,167
Mark Soresi 12,500
F. Donald Hudson 10,500
Edwin A. Shalloway 10,500
Delton Trading SA 379,334
Mueller Trading, Limited 379,334
Laura Huberfeld 189,666
Naomi Bodner 189,666
See Item 11 of this report for information concerning
outstanding stock options.
(2) All shares are held of record by Milford Trading, Ltd., a
corporation organized pursuant to the laws of Liberia. All
of the issued and outstanding shares of Milford Trading, Ltd.
are owned beneficially by Mr. de Clara.
(3) Amount includes shares held in trust for the benefit of Mr.
Kersten's minor children. Geert R. Kersten is the stepson of
Maximilian de
Clara.
(4) Amount excludes shares which may be issued upon the exercise
of options and warrants previously issued by the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The technology and know-how licensed to the Company was
developed by a group of researchers under the direction of Dr.
Hans Ake Fabricius and was assigned, during l980 and l98l, to
Hooper Trading Company, N.V., a Netherlands Antilles' corporation
("Hooper"), and Shanksville Corporation, also a Netherlands
Antilles corporation ("Shanksville"). Mr. de Clara and Dr.
Fabricius own 50% and 30%, respectively, of each of these
companies. The technology and know-how assigned to Hooper and
Shanksville was licensed to Sittona Company, B.V., a Netherlands
corporation ("Sittona"), effective September, l982 pursuant to a
licensing agreement which requires Sittona to pay to Hooper and
Shanksville royalties on income received by Sittona respecting
the technology and know-how licensed to Sittona. In l983,
Sittona licensed this technology to the Company and received from
the Company a $1,400,000 advance royalty payment. At such time as
the Company generates revenues from the sale or sublicense of
this technology, the Company will be required to pay royalties to
Sittona equal to l0% of net sales and l5% of the licensing
royalties received from third parties. In that event, Sittona,
pursuant to its licensing agreements with Hooper and Shanksville,
will be required to pay to those companies a minimum of l0% of
any royalty payments received from the Company.
In l985, Mr. de Clara acquired all of the issued and
outstanding stock of Sittona. Mr. de Clara and Dr. Fabricius,
because
of their ownership interests in Hooper and Shanksville, could
receive approximately 50% and 30% respectively of any royalties
paid by Sittona to Hooper and Shanksville, and Mr. de Clara,
through his interest in all
three companies (Hooper, Shanksville and Sittona), will receive
up to 95% of any royalties paid by the Company.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8 K (a) See the Financial Statements attached to this
Report.
(b) The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1995.
(c) Exhibits Page Number
3(a) Articles of Incorporation Incorporated by reference
to
Exhibit
3(a) of the Company's
combined Registration
Statement on Form S1 and PostEffective Amendment ("Registration
Statement"), Registration Nos. 2-85547-D and 33 7531.
(b) Amended Articles Incorporated by reference
to
Exhibit 3(a) of the
Company's Registration
Statement on Form S 1,
Registration Nos. 285547D
and 33-7531.
(c) Amended Articles Incorporated by reference
to
Exhibit (Name change only) 3(c) filed with
Registration
Statement
on Form S-1 (No. 33-34878)
. (d) Bylaws Incorporated by reference
to Exhibit 3(b) of the Company's
Registration Statement
on Form S 1,
Registration Nos. 285547D and 33-
7531.
4(a) Specimen copy of Incorporated by reference
to
Exhibit
Stock Certificate 4(a) of the Company's
Registration
Statement on Form S-1,
Registration Nos. 2-85547-
D and 337531.
4(c) Form of Common Stock Incorporated by reference
to
Exhibit
Purchase Warrant 4(c) filed as an exhibit
to
the
Com
pany's Registration
Statement on Form S-1
(Registration No. 33
43281).
10(a) Purchase Agreement Incorporated by reference
to
Exhibit
dated April 21, 1986 10(a) of the Company's
Registration
with Alpha I Biomedical Statement on Form S-1,
Registration
Nos. 2-85547-D and 33-
7531.
(b) Agreement with Sittona Incorporated by
reference
to
Exhibit
Company B.V. dated 10(c) of the Company's
Registration
May 3, 1983 Statement on Form S-1,
Registration
Nos. 2-85547-D and 33-
7531. (c) Addendum effective May 3, Incorporated by
reference to
Exhibit 1983 to Licensing Agree- 10(e) of the Company's
Registration
ment with Sittona Company, Statement on Form S-1,
Registration
B.V. Nos. 2-85547-D and 33-
7531.
(d) Addendum effective October Incorporated by reference
to Exhibit 13, 1989 to Licensing Agree 10(d) of
Company's Annual Report on ment with Sittona Company,
Form 10 K for the year ended
September
B.V. 30, 1989.
10(e) Employment Agreement with Incorporated by reference
to
Exhibit
Geert Kersten 10(e) filed as an exhibit
to
the
Com
pany's Registration
Statement on Form S-1
(Registration No. 33
43281).
l0(f) Research Agreement between Incorporated by reference
to
Exhibit
Viral Technologies, Inc. 10(f) filed as an exhibit
to
the
Com-
and the George Washington pany's Registration
Statement
on
Form
University S-1 (Registration No. 33-
43281).
l0(g) Agreement between Viral Incorporated by reference
to
Exhibit
Technologies, Inc. and 10(g) filed as an exhibit
to
the
Com-
Nippon Zeon Co., Ltd. pany's Registration
Statement
on
Form
S-1 (Registration No.
33 43281).
23 Consents of Experts and
Counsel
(d) Financial statement schedules.
None
SIGNATURES
Pursuant to the requirements of Section 13 of the
Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CEL-SCI CORPORATION
Dated: February 9, 1996 By: /s/ Maximilian de
Clara
Maximilian de Clara,
President By: /s/ Geert
R. Kersten
Geert R. Kersten,
Chief Executive
Officer
Pursuant to the requirements of the Securities Act of l934,
this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Maximilian de Clara Director and Principal February 9, 1996
MAXIMILIAN DE CLARA Executive Officer
/s/ Geert R. Kersten Director, Principal February 9, 1996
GEERT R. KERSTEN Financial Officer
and Chief Executive Officer
/s/ Mark V. Soresi Director February 9, 1996
MARK V. SORESI
/s/ F. Donald Hudson Director February 9, 1996
F. DONALD HUDSON
/s/ Edwin A. Shalloway Director February 9, 1996
EDWIN A. SHALLOWAY
</TEXT?
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statement No. 33-55966 of CEL-SCI Corporation on Form S-8 of our
report dated November 29,1995, except for Note 14, as to which the
date is December 23,1995, appearing in this Annual Report onForm 10-
KA of CELSCI Corporation for the year ended September 30, 1995.
Deloitte & Touche LLP
January 23, 1996
Washington, D.C.
CEL-SCI CORPORATION
Financial Statements for the Years
Ended September 30, 1995, 1994, and
1993, and Independent Auditors' Report
To the Board of Directors and
Shareholders of
CEL-SCI Corporation:
We have audited the accompanying
balance sheets of CEL-SCI Corporation
as of September 30, 1995 and 1994, and
the related statements of operations,
stockholders' equity, and cash flows
for each of the three years in the
period ended September 30, 1995. These
financial statements are the
responsibility of the Company's
management. Our responsibility is to
express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance
with generally accepted auditing
standards. Those standards require
that we plan and perform the audit to
obtain reasonable assurance about
whether the financial statements are
free of material misstatement. An
audit includes examining, on a test
basis, evidence supporting the amounts
and disclosures in the financial
statements. An audit also includes
assessing the accounting principles
used and significant estimates made by
management, as well as evaluating the
overall financial statement
presentation. We believe that our
audits provide a reasonable basis for
our opinion.
In our opinion, the financial
statements referred to above present
fairly, in all material respects, the
financial position of CEL-SCI
Corporation as of September 30, 1995
and 1994, and the results of its
operations and its cash flows for each
of the three years in the period ended
September 30, 1995, in conformity with
generally accepted accounting
principles.
As discussed in Note 1 to the
financial statements, as of September
30, 1994, the Company changed its
method of accounting for certain
investments in debt and equity
securities to conform with Statement
of Financial Accounting Standards No.
115.
Washington, DC
November 29, 1995, except for Note 14,
as to
which the date is December 23, 1995
Page F-2
F - 3
Page F-3
Page F-4
Page F-5
CEL-SCI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994,
AND 1993
2
1. ORGANIZATION AND SUMMARY OF
SIGNIFICANT
ACCOUNTING POLICIES
CEL-SCI Corporation (the
Company) was
incorporated
on March 22, 1983, in the State of
Colorado, to finance research and
development in biomedical science
and ultimately to engage in
marketing products.
Significant accounting policies are as
follows: Investments - Effective
September 30,
1994, the Company adopted, on a
prospective basis, Statement of
Financial Accounting Standard No.
115, "Accounting for Certain Debt
and Equity Securities" (SFAS 115)
and revised its policy for
investments. Investments that may
be sold as part of the liquidity
management of the Company or for other
factors are classified as available-for-
sale and are carried at fair market
value. Unrealized gains and losses on
such securities are reported as a
separate component of stockholders'
equity. Realized gains and losses on
sales of securities are reported in
earnings and computed using the specific
identified cost basis. The adoption of
SFAS 115, which has not been applied
retroactively to prior years' financial
statements, resulted in a decrease in
stockholders' equity of $85,753 for the
net unrealized losses on investments
available forsale at September 30, 1994.
As of
September 30, 1995, all debt and
equity securities had been disposed
of and any unrealized gains or
losses were recognized during the
year ended September 30, 1995 (see
Note 2).
Prior to September 30, 1994, all
investments available-for-sale were
carried at the lower of aggregate
amortized cost or market value.
Research and Office Equipment -
Research and
office equipment is recorded at
cost and depreciated using the
straightline method over five and
seven years estimated useful lives.
Research and Development Costs
Research and development
expenditures are expensed as
incurred.
Patents - Patent expenditures
are capitalized and amortized using
the straight line method over 17
years. In the event changes in
technology or other circumstances
impair the value or life of the
patent, appropriate adjustment in
the asset value and period of
amortization will be made.
Net Loss Per Share - Net loss
per common share is based on the
weighted average number of common
shares outstanding during the
period. Common stock equivalents,
including options to purchase
common stock, are excluded from the
calculation as they are
antidilutive.
Investment in Joint Venture
Investment in joint venture is
accounted for by the equity method.
The Company's proportionate share
of the net loss of the joint
venture is included in the
respective statements of
operations.
Statement of Cash Flows - For
purposes
of the statements of cash flows,
cash consists principally of
unrestricted cash on deposit, and
short-term money market funds. The
Company considers all highly liquid
investments with a maturity of less
than three months to be cash
equivalents.
Prepaid Expenses - The majority
of prepaid expenses consist of bulk
purchases of laboratory supplies to
be consumed in the manufacturing of
the Company's product for clinical
studies and for its further
development.
Income Taxes - Effective October
1,
1993, the Company adopted Statement
of Financial Accounting Standard
No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109
requires an asset and
liability approach for reporting income
taxes. Implementation of SFAS 109 in 1994
did not have any effect on the Company's
net earnings and reported financial
position and prior financial statements
have not been restated.
Reclassifications - Certain
reclassifications have been made
for 1994 and 1993 for comparative
purposes.
2. INVESTMENTS
The carrying values and estimated
market values of investments available-
for-sale at September 30, 1995, are as
follows:
Note2a
The carrying values and estimated market
values of investment securities at
September 30, 1994, are as follows:
Note2b
The gross realized gains and losses of
sales of investments available-for-
sale for the years ended September 30,
1995, 1994, and 1993, are as follows:
Note 2c
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30,
1995 and 1994, consist of the
following:
Note3a
4. JOINT VENTURE
In April 1986, the Company paid
$200,000 cash
and issued 500,000 shares of its $.01
par value common stock to acquire
half the rights to technology which
may be useful in the diagnosis,
prevention and treatment of Acquired
Immune Deficiency Syndrome (AIDS)
from Alpha I Biomedicals, Inc. The
Company's stock was valued at $1.50
per share on the basis of arm's-
length negotiations. At the time the
transaction took place, the stock was
trading at $2.42. Because the cost of
these rights to technology is
considered research and development,
the $950,000 purchase price was
expensed.
The Company and Alpha 1 Biomedicals,
Inc. (Alpha 1)
contributed their respective
interests in the technology and
$10,000 each to capitalize a joint
venture, Viral Technologies, Inc.
(VTI). VTI is wholly owned by the
Company and Alpha 1, each having a
50% ownership interest. The total
loaned or advanced to VTI by CELSCI
Corporation through September 30,
1995, was $1,592,584 (see Note 13).
During the three years ended
September 30, 1995, VTI had no sales.
The operations of VTI were as
follows:
Note4a
The balance sheets of VTI at September
30, 1995 and
1994, are summarized as follows:
Note4b
On December 17, 1987, Viral
Technologies, Inc., entered into a
licensing agreement with Nippon Zeon
Company, Ltd., a Japanese company.
Under the agreement, Nippon Zeon will
engage in the development and testing
and, if development is successful,
the marketing of the potential AIDS
vaccine in the Pacific Rim area. As
a result, Viral Technologies, Inc.,
received precommercialization
payments of $850,000 during the year
ended September 30, 1988.
During the year ended September 30,
1995, VTI purchased back from Nippon
Zeon the licensing agreement. No
cash or stock was exchanged; however,
Nippon Zeon retains a royalty on any
future sales of the drug HGP30 in
its former exclusive licensed
territories.
5. CREDIT ARRANGEMENTS
At September 30, 1995, the Company
had a promissory
note outstanding with a bank in the
amount
of $811,263. This promissory note
was converted in November 1994 from
a prior line of credit. The line of
credit outstanding at September 30,
1994, was $788,601, and the Company
subsequently drew down additional
amounts during the year ended
September 30, 1995, prior to
converting the line of credit to a
promissory note. The principal is
being repaid over forty-eight
consecutive months beginning
February 5, 1995. Interest on the
outstanding balance is calculated at
the Bank's prime rate plus two
percent, which is 10.75% at
September 30, 1995, and is to be
paid monthly with the principal
payments. The promissory note is
secured by all corporate assets and
requires the Company to hold a
certificate of deposit equal to 20%
of the outstanding balance of the
line of credit with the Bank. Under
the promissory note the Company is
also subject to certain minimum
equity, liquidity, and operating
covenants.
6. COMMITMENTS AND CONTINGENCIES
In 1993, an officer and director of the
Company was involved in legal
proceedings concerning shares of the
Company's common stock. The officer
and director was acting on behalf of
the Company in trying to secure
financing, and the Company paid
legal fees in connection with these
proceedings and indemnified the
officer for any loss he suffered
upon the settlement of these
matters. During 1992, one of the
matters was settled by the officer
and director delivering 3,000 shares
of the Company's common stock to one
plantiff and paying this plantiff
$200,000. In the other matter, a
European Court awarded a different
plantiff 25,000 shares of the
Company's common stock owned by the
officer and director. In October
1993, the Company issued 25,000
shares of common stock to the
plaintiff to satisfy the judgment
and in lieu of reimbursement to the
officer and director for this claim.
The value of the shares issued,
$202,500, was expensed during 1993
and was included in accrued expenses
at September 30, 1993.
7. RELATED-PARTY TRANSACTIONS
The technology and know-how licensed to
the Company was developed by a group
of researchers under the direction
of Dr. Hans Ake Fabricius and was
assigned during 1980 and 1981 to
Hooper Trading Company, N.V., a
Netherlands Antilles corporation
(Hooper) and Shanksville
Corporation, also a Netherlands
Antilles corporation (Shanksville).
Maximillian de Clara, an officer and
director
in the Company, and Dr. Fabricius own
50% and 30%, respectively, of each of
these companies. The technology and
knowhow assigned to Hooper and
Shanksville was licensed to Sittona
Company, B.V., a Netherlands
corporation (Sittona), effective
September, 1982 pursuant to a
licensing agreement which requires
Sittona to pay to Hooper and
Shanksville royalties on income
received by Sittona respecting the
technology and know-how licensed to
Sittona. In 1983, Sittona licensed
this technology to the Company. At
such time as the Company generates
revenues from the sale or sublicense
of this technology, the Company will
be required to pay royalties to
Sittona equal to 10% of net sales and
15% of licensing royalties received
from third parties. In that event,
Sittona, pursuant to its licensing
agreements with Hooper and
Shanksville, will be required to pay
to those companies a minimum of 10%
of any royalty payments received from
the Company. In 1985 Mr. de Clara
acquired 100% of the issued and
outstanding stock of Sittona. Mr. de
Clara and Dr. Fabricius, because of
their ownership interests in Hooper
and Shanksville, could receive
approximately 50% and 30%
respectively, of any royalties paid
by Sittona to Hooper and Shanksville,
and Mr. de Clara, through his
interest in all three companies
(Hooper, Shanksville, and Sittona),
will receive up to 95% of any
royalties paid by the Company.
During 1992, the Company reimbursed an
officer and director for legal fees
incurred in connection with certain
legal proceedings as discussed in
Note 6. In addition, during 1992 the
Company paid the officer and director
$200,000, representing the amount
that he paid in connection with one
of the legal proceedings discussed in
Note 6 and, in 1993, issued 3,000
shares of common stock to the officer
and director as reimbursement for
shares he delivered in connection
with the proceeding. The $200,000
payment was expensed in 1992, and the
value of the 3,000 shares, $20,100
was expensed in 1993.
8. INCOME TAXES
The approximate tax effect of each type
of temporary differences and
carryforward that gave rise to the
Company's tax assets and liabilities
at September 30, 1995 and 1994, is as
follows:
Note8a
The Company has available for income tax
purposes net operating loss
carryforwards of approximately
$24,370,937, expiring from 1998
through 2007.
In the event of a significant change in
the ownership of the Company, the
utilization of such carryforwards
could be substantially limited.
9. STOCK OPTIONS, WARRANTS, AND BONUS
PLAN
During the year ended September 30,
1995, the Board of Directors canceled
certain options under the various
stock option plans and replaced them
with new options. Under this
conversion the number of options
outstanding did not increase or
decrease as the conversion was an
exchange of options within the plans
to maximize reserved shares in the
Plans with the options granted.
The shareholders of the Company
approved the adoption of the 1995 Non-
Qualified Stock Option Plan (1995 Non-
Qualified Plan) and reserved 400,000
shares under the plan. Terms of the
options are to be determined by the
Company's Compensation Committee, but
in no event are options to be granted
for shares at a price below fair
market value at the date of grant.
On February 23, 1988, the shareholders
of the Company adopted the 1987
Nonqualified Stock Option and Stock
Bonus Plan (the 1987 Plan). This plan
reserved 200,000 shares of the
Company's previously unissued common
stock to be granted as incentive
stock options to employees. The 1987
Plan reserved 50,000 shares of the
Company's previously unissued common
stock to be granted as stock bonuses
to employees. The exercise price of
the options could not be established
at less than fair market value on the
date of grant and the option period
could not be greater than ten years.
During 1993, the 1987 Plan was
terminated and no further options
will be granted and no further bonus
shares will be issued pursuant to the
1987
Plan.
On September 30, 1993, the
shareholders of the Company approved
the adoption of three new plans, the
1993 Incentive Stock Option Plan
(1993 Incentive Plan), the 1993 Non
Qualified Stock Option Plan (1993
Non Qualified Plan) and the Stock
Bonus Plan (1993 Bonus Plan). Shares
are reserved under each plan and
total 100,000, 60,000 and 40,000
shares, respectively. Only
employees of the Company are
eligible to receive options under
the Incentive Plan, while the
Company's employees, directors,
officers, and consultants or
advisors
are eligible to be granted options
under the NonQualified Plan or
issued shares under the Bonus Plan.
Terms of the options are to be
determined by the Company's
Compensation Committee, which will
administer all of the plans, but in
no event are options to be granted
for shares at a price below fair
market value at date of grant.
Options granted under the option
plans must be granted, or
shares issued under the bonus plan
issued, before August 20, 2002.
On July 29, 1994, the Board of
Directors approved the adoption of
two new plans, the 1994 Incentive
Stock Option Plan (1994 Incentive
Plan) and the 1994 NonQualified
Stock Option Plan (1994
NonQualified). Shares are reserved
under each plan and total 100,000
shares for each plan. Only
employees of the Company are
eligible to receive options under
the 1994 Incentive Plan, while the
Company's employees, directors,
officers, and consultants or
advisors are eligible to be granted
options under the 1994 Non-Qualified
Plan. Terms of the options are to be
determined by the Company's
Compensation Committee, which will
administer all of the plans, but in
no event are options to be granted
for shares at a price below fair
market value at date of grant.
Options granted under the option
plans must be granted, or shares
issued under the bonus plan issued,
before July 29, 2004.
Information regarding the Company's
stock
option plan is summarized as follows:
Note9a
Note9b
During 1991, the Company granted a
consultant an option to purchase 50,000
shares of the Company's common stock. The
option is exercisable at $13.80 per share
and expires in March 1996. The holder of
the option has the right to have the
shares issuable upon the exercise of the
option included in any registration
statement filed by the Company.
Also during 1991, the Company granted
another consultant options to purchase
6,000 shares of the Company's common
stock. Options to purchase 667 shares
expired in April 1993. Options to
purchase 1,333 shares at $2.50 per share
were exercised in April 1994. At
September 30, 1995, options to purchase
4,000 shares were outstanding and
exercisable at prices ranging from $2.50
to $15.00 per share.
In connection with the 1992 public
offering, 5,175,000 common stock purchase
warrants
were issued and are outstanding at
September 30, 1995. Every ten warrants
entitle the holder to purchase one share of
common stock at a price of $46.50 per
share. During 1995, the expiration of these
warrants was extended to February 1996.
The Company may accelerate the expiration
date of the warrants by giving 30 days
notice to the warrant holders, provided,
however, that at the time the Company gives
such notice of acceleration (1) the Company
has in effect a current registration
statement covering the shares of common
stock issuable upon the exercise of the
warrants and (2) at anytime during the 30-
day period preceding such
notice, the average closing bid price of
the Company's common stock has been at
least 20% higher than the warrant exercise
price for 15 consecutive trading days.
Also in connection with the 1992 offering,
the Company issued to the underwriter
warrants to purchase 9,000 equity units,
each unit consisting of 5 shares of
common stock and 5 warrants entitling the
holder to purchase one additional share of
common stock. The equity unit warrants are
outstanding at September 30, 1995 and are
exercisable through February 8, 1997, at a
price of $255.70 per unit. The common stock
warrants included in the units are
exercisable at a price of $76.70 per share.
During 1995, the Company granted another
consultant options to purchase 17,858
shares of the Company's common stock.
These shares became exercisable on
November 2, 1995, and will expire November
1, 1999. These options are exercisable at
$5.60 per share.
10.EMPLOYEE BENEFIT PLAN
During 1993 the Company implemented a
defined contribution retirement plan,
qualifying under Section 401(k) of the
Internal Revenue Code, subject to the
Employee Retirement Income Security Act of
1974, as amended, and covering
substantially all CEL-SCI employees. The
employer contributes an amount equal to
50% of each employee's contribution not to
exceed 6% of the participant's salary. The
expense for the year ended September 30,
1995 and 1994, in connection with this
plan was approximately $24,913 and
$16,160, respectively.
11.LEASE COMMITMENTS
Operating Leases - The future minimum
annual rental payments due under
noncancelable operating leases for office
and laboratory space are as follows:
Note11a
Rent expense for the year ended September
30, 1995,
1994, and 1993, was approximately $124,059,
$122,369, and $55,000, respectively.
12.STOCKHOLDERS' EQUITY
On April 28, 1995 the stockholders of the
Company approved a 10-for-1 reverse split
of the Company's outstanding common stock,
which became effective on May 1, 1995. All
shares and per-share amounts have been
restated to reflect the stock split.
The Company also participated in a private
offering
during 1995. This offering allowed for
the purchase of one share of common stock
and one warrant (a unit) for the
price of $2.00 per unit. All 1,150,000
shares authorized for the offering were
purchased during the year ended September
30, 1995. Warrants outstanding are
exercisable at $3.25 and expire on June
30, 1997. Cash of $2,300,000 was received
in June and September 1995. Commissions of
$344,150 were paid or payable relative to
the offering at September 30, 1995.
During 1994, the Company granted 1,500
shares of common stock to an officer as a
bonus award. The Company also issued
25,000 shares to satisfy the judgment
against an officer and director. The
issuance was to the plantiff in lieu of
reimbursement to the officer and director.
The judgment was settled in 1993 and the
expense of the issuance was recorded in
1993.
During 1993, the Company received $27,333
cash for
7,333 shares of common stock.
13.SUBSEQUENT EVENTS - JOINT VENTURE
In October 1995, the Company purchased Alpha
1's 50
percent interest in VTI. The Company
conveyed 159,170 shares of common stock as
full consideration for all of the VTI
capital stock owned by Alpha 1. The
acquisition of Alpha 1's interest will be
accounted for as purchase with
substantially all of the value of the
purchase price being expensed as research
and development costs.
14.SUBSEQUENT EVENTS - OTHER
On December 8, 1995, the Board of
Directors authorized the extension of the
Company's warrants issued in connection
with the 1992 public offering from
February 6, 1996, to February 6, 1997. On
December 23, 1995, the Company entered
into an agreement with investors to reduce
the exercise price of warrants to purchase
shares of the Company's common
stock issued in a 1995 private offering
from $3.25 to
$1.60 per shares (Note 12). Shares which
may be acquired under this agreement with
exercise of the
warrants total 1,150,000. In connection
with modifying the warrant exercise price,
312,500 warrants were exercised for
$500,000 in exchange for 312,500 shares of
common stock on December 23, 1995. An
additional 312,500
warrants are required to be exercised
prior to January 31, 1996 with the
remaining warrants outstanding through
June 30, 1997.
15.NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting
Standards Board issued Statement No. 121
regarding accounting for the impairment of
long-lived assets. This statement is
required to be adopted by the Company in
fiscal 1997. At the present time the
Company does not believe that adoption of
this statement will have a material effect
on its financial position or results of
its operations.
In October 1995, the Financial
Accounting Standards
Board issued Statement No. 123, Accounting
for Stock Based Compensation. This statement
is required to be adopted by the Company in
fiscal 1997. The Company has not yet
determined the impact of the adoption of this
statement on its financial position or
results of its operations. * * * * * *
CEL-SCI CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
ASSETS
1995 1994
CURRENT ASSETS:
Cash and cash equivalents
$3,886,950 $3,370,713
Investments, net
170,000 2,694,756
Interest receivable
64,080 116,733
Prepaid expenses
341,295 67,648
Advances to officer/shareholder
and 13,234 17,381
employees
Total current assets
4,475,559 6,267,231
RECEIVABLE FROM JOINT VENTURE
522,695 351,204
RESEARCH AND OFFICE EQUIPMENT - Less
accumulated
depreciation of $589,897 and $355,430
1,102,038 1,185,499
DEPOSITS
18,178 13,958
PATENT COSTS - Less accumulated
amortization of $239,490 and $211,253
240,541 268,778
$6,359,011 $8,086,670
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
$248,488 $324,179
Current portion of note payable
243,372 147,861
Total current
491,860 472,040
liabilities
NOTE PAYABLE
567,891 640,740
DEFERRED RENT
24,959 17,598
EQUITY IN LOSS OF SUBSIDIARY
432,268 277,224
Total liabilities
1,516,978 1,407,602
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
authorized, 200,000 shares;
none issued
- - -
Common stock, $.01 par value -
authorized, 100,000,000 shares;
issued and outstanding,
5,338,244 and 53,382
41,882
4,188,244 shares
Additional paid-in capital
28,799,198 26,854,848
Net unrealized loss on marketable equity
- - (85,753)
securities (Note 1)
Accumulated deficit
(24,010,547 (20,131,909
) )
Total stockholders'
equity 4,842,033 6,679,068
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$6,359,011 $8,086,670
See notes to financial statements. CEL-SCI
CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1995,
1994, AND 1993
1995 1994 1993
INVESTMENT INCOME
$365,049 $624,670 $997,964
OTHER INCOME
58,716
- - -
Total income
423,765
624,670 997,964
OPERATING EXPENSES:
Research and development
1,824,661 2,896,109 1,307,042 Depreciation
and amortization
262,705
138,755 55,372
General and administrative 1,713,912
1,621,990 1,696,119
Total
operating expenses
3,801,278
4,656,854 3,058,533
EQUITY IN LOSS OF
JOINT VENTURE (Note 2)
(501,125) (394,692) (344,423)
NET LOSS
$3,878,63 $4,426,87 $2,404,99
8 6
2 LOSS PER COMMON SHARE
$0.89
$1.06 $0.58
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
4,342,628 4,185,240 4,155,431
See notes to financial statements.
CEL-SCI CORPORATION
STATEMENTS OF STOCKHOLDERS'
EQUITY
YEARS ENDED SEPTEMBER 30,
1995, 1994, AND 1993
Additional
Common
Paid-In
Stock
Shares
Amount Capital Other Deficit Total
BALANCE, OCTOBER 1, 1992
$-
4,148,980
$41,490 $26,560,96 $(13,300,04
$13,302,41
9 1) 8
Common stock issued for:
Cash 7,333
73
27,260 - - 27,333
Reimbursement of 3,000
30
20,070 - - 20,100
expenses
Net loss -
- -
- - -
(2,404,992) (2,404,992
)
BALANCE, SEPTEMBER 30, 1993
41,593
4,159,313
26,608,299 (15,705,033
10,944,859
)
Common stock issued for:
Cash 2,431
24
39,364 - - 39,388
Stock bonus plan 1,500
15
4,935 - - 4,950
Settlement of 25,000
250
202,250 - - 202,500
lawsuit
Net unrealized loss on
marketable
securities (Note 1) -
- -
- - - (85,753)
(85,753)
Net loss -
- -
- - -
(4,426,876) (4,426,876
)
BALANCE, SEPTEMBER 30, 1994
41,882
4,188,244
26,854,848 (85,753) (20,131,909 6,679,068
)
Common stock issued for
11,500 - -
cash 1,150,000
1,944,350
1,955,850
Change in market value
of marketable
securities available -
85,753 - 85,753
for sale (Note 1)
Net loss -
- -
- - -
(3,878,638) (3,878,638
)
BALANCE, SEPTEMBER 30, 1995
$-
5,338,244
$53,382 $28,799,19 $(24,010,54
$4,842,033
8 7)
See notes to financial
statements.
CEL-SCI CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1995,
1994, AND 1993
1995 1994
1993
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss
$(3,878,6 $(4,426,8 $(2,404,9
38) 76) 92)
Adjustments to reconcile net
loss to
net cash used in operating
activities:
Stock issued in payment of
- -
207,450 20,100
expenses
Depreciation and amortization
262,705
138,755 55,372
Equity in loss of Joint Venture
501,125 394,692 344,423
Net realized loss (gain) on sale
42,490
- -
of securities
(76,774)
Amortization of premium
6,407
25,683 18,762
Changes in assets and
liabilities:
Decrease (increase) in
4,147
- -
advances
(17,381)
Increase in prepaid
expenses, deposits, interest receivable,
and
receivable from joint venture (396,705)
(31,833) (292,182)
(Decrease) increase in
accounts payable,
accrued expenses, and
143,919
deferred rent
(68,330)
(111,552)
Decrease in payable to
- -
officer and shareholder
(52,370) (43,448)
Net cash used
in operating activities
(3,526,79
(3,950,20 (2,158,04
9) 6) 6)
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Purchases of investments
(389,688) (1,467,81 (5,993,31
8) 0)
Sales and maturities of investments
2,951,299
6,999,273 7,745,943
Advances to Joint Venture
(346,081) (300,000) (223,750)
Expenditures for property and
equipment
(151,006)
(999,807) (318,556)
Expenditures for patents
- -
- - (8,777)
Net cash provided
by investing activities 2,064,524
4,231,648 1,201,550
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Issuance of note payable
184,915
788,601 -
Issuance of common stock
39,388 27,333
1,955,850 Repayment of note payable
- - -
(162,253)
Net cash
827,989 27,333
provided by financing activities
1,978,512
NET INCREASE (DECREASE) IN CASH
516,237
1,109,431 (929,163)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR
3,370,713
2,261,282 3,190,445
CASH AND CASH EQUIVALENTS, END OF
YEAR
$3,886,95
$3,370,71 $2,261,28
0 3
2 SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITY:
During 1994, the net unrealized
loss on investments available-for-
sale was $85,753.
During 1994, 25,000 shares were
issued as settlement of a lawsuit at
a cost of $202,500 (see Note 6).
See notes to financial statements.
Year Ending
September 30,
Amount
1996
$135,123
1997
140,335
1998
56,160
1999
59,573
2000
62,010
Thereafter
162,728
Total minimum lease payments
$615,929
Septemb
er 30,
1995
Gross Gross Market
Value
Amortiz Unreal
Unreal at
ed
ized
ized Septemb
er 30,
Cost
Gains
Losses 1995
Certificates of
$-
$-
Deposit $170,00
$170,00
0
0
September 30,
1994
Gross Gross Market
Value
Amortize
Unreal
Unreali at
d
ized
zed Septembe
r 30,
Cost
Gains
Losses 1994
U.S. Government
$-
Securities $1,471,0
$46,362 $1,424,7
96
34
Corporate Debt
Securities 1,108,58
2,442
41,833 1,069,19
1
0
Certificates of
- -
- -
Deposit 200,832
200,832
$2,780,5
$2,442 $88,195 $2,694,7
09
56
1995
1994 1993
Realized gains
$-
$17,839 $128,205
Realized losses
60,329
51,431 -
Net realized gain (loss)
$-
$(42,490 $76,774
)
1995 1994
Research equipment
$979,048 $843,187
Furniture and equipment
136,486 120,185
Leasehold improvements
576,401 577,557
1,691,935 1,540,929
Less accumulated depreciation and
amortization
(589,897) (355,430)
Net property and equipment
$1,102,03 $1,185,49
8 9
Years
Ended
September
30,
1995
1994 1993
Income $-
$-
$ -
Expenses
789,384 688,846
1,002,250
Net Income (Loss)
$(1,002,25 $(789,384 $(688,846
0) ) )
September
30,
1995 1994
Current assets
$30,484 $24,403
Noncurrent assets
$187,821 $87,822
Current liabilities
$4,275,078 $3,197,143
Equity (deficit - net of initial
capitalization)
$(4,056,77 $(3,084,91
3) 8)
1995 1994
Depreciation
$(16,660) $(27,325)
Prepaid expenses
(14,413) (25,680)
Net operating loss carryforward
9,251,208 7,675,907
Other
9,474 6,680
Less: Valuation allowance
(9,229,609 (7,630,772
) )
Net deferred
$- $-
Opti on
Pri ce
Pe r
Outsta Exerci
Share nding sable
1987 Stock Option and Bonus
Plan
Balance, September 30, 1992
$3.40
- -
20.90 189,25 31,000
0
Became exercisable
- -
77,999
Exercised
$4.00 (6,000
(6,000
) )
Balance, September 30, 1993
$3.40
1 9
.
6 0
183,25 102,99
0 9
Became exercisable
- -
40,250
Balance, September 30, 1994
$3.40
2 0
.
9 0
183,25 143,24
0 9
Canceled
$3.40
2 0
.
9 0
176,25 1 136,24
0 3 9
6
,
2
4
9
Balance, September 30, 1995 $19.70
16. 50
7,000 7,000
1992 Incentive Stock Option
Plan
Balance, September 30, 1992
$13.40
500 -
Granted $13.80 -
- -
15.60 12,000
Balance, September 30, 1993 $13.40
15. 60
12,500
Granted $6.80 -
11.90 29,500
Became exercisable
- -
4,166
Balance, September 30, 1994 $6.80
15. 60 4
42,000
4,166
2
0
,
0
0
0 Canceled
$6.80
-
15.60
(42,00 (4,166
0) )
Granted $2.87 -
3.87
57,550 20,917
Balance, September 30, 1995 $2.87 -
3.87 4
57,550 20,917
2
0
,
0
0
0
1992 Nonqualified Stock Option
Plan
Balance, September 30, 1992 $13.40
- -
4
2,500 2 0 ,
0
0
0
Granted $13.80 -
- -
15.60 15,500
Balance, September 30, 1993 $13.40
- -
18,000
Granted $8.70 -
- -
13.80 18,000
Became exercisable
- -
18,000
Balance, September 30, 1994 $8.70 -
13.80
36,000 1 18,000
8
,
0
0
0
Canceled $8.70
- -
- -
13.40 (7,500 -
)
Granted
$2.87
- -
31,500
Became Exercisable
- -
4 42,000
2
,
0
0
0
Balance, September 30, 1995
$2.87
- -
15.60 60,000 6 60,000
0
,
0
0
0
Opti on
Pri ce
Pe r
Outsta Exerci
Share nding sable
1992 Stock Bonus Plan
Granted during 1994
$8.70 1,500 1,500
Exercised
$8.70
(1,500 (1,500
) )
Balance, September 30, 1994 and
- - -
1995
1994 Incentive Stock Option
Plan
Granted
- -
$2.87
50,000
Balance, September 30, 1994
- -
$2.87 50,000 -
Granted
$2.87 50,000
Became Exercisabe
- -
$2.87 61,000
Balance, September 30, 1995
$2.87 100,00 61,000
0
1994 Nonqualified Stock Option
Plan
Granted
- -
$2.87 70,000 -
Balance, September 30, 1995
$2.87 70,000 -
Granted
$2.87 -
3.87
27,250 -
Became exercisable
- -
48,084
Balance, September 30, 1995
$2.87 -
3.87
97,250 48,084
1995 Nonqualified Stock Option
Granted in 1995
$2.87 -
$3.87 329,25
1
Became exercisable
- -
70,000
Balance, September 30, 1995
329,25 70,000
1
Item 1. FINANCIAL STATEMENTS
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED BALANCE
SHEETS
- ------------------------
ASSETS
(unaudited)
March 31, September
30,
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $3,803,786
$3,886,950
Investments, net 170,000
170,000
Interest receivable 86,610
64,080
Prepaid expenses 242,812
341,295
Advances to officer/shareholder
and employees 134,644
13,234
4,437,852
4,475,559
RECEIVABLE FROM JOINT VENTURE 0
522,695
RESEARCH AND OFFICE EQUIPMENT-
Less accumulated depreciation
of $740,239 and $589,897 981,823
1,102,038
DEPOSITS 18,178
18,178
PATENT COSTS- less accumulated
amortization of
$325,782 and $239,490 423,174
240,541
$5,861,027
$6,359,011
See notes to
condensed financial statements.
3
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED BALANCE
SHEETS
- ------------------------
(continued)
LIABILITIES AND STOCKHOLDERS'
EQUITY
(unaudited)
March 31, September
30,
1996 1995
CURRENT LIABILITIES:
Accounts payable $57,787
$248,488
Current portion note payable 243,372
243,372
Total current liabilities 301,159
491,860
NOTE PAYABLE 446,201
567,891
CONVERTIBLE DEBENTURE 1,250,000
24,959
24,959
EQUITY IN SUBSIDIARY 0
432,268
Total liabilities 2,022,319
1,516,978
STOCKHOLDERS' EQUITY
Preferred stock, $.01
par value; authorized,
200,000 shares; none issued
- -
Common stock, $.01 par
value; authorized,
100,000,000 shares;
issued and outstanding,
6,328,581 and
5,338,244 shares 63,286
53,382
Additional paid-in capital 30,904,595
28,799,198
Deficit (27,014,373)
(24,010,547)
Short-term note receivable from (114,800)
shareholder -
TOTAL STOCKHOLDERS'
EQUITY 3,838,708
4,842,033
$5,861,027 $6,359,011
See notes to
condensed financial statements.
4
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
- ---------------------------------
(unaudited)
Six Months
Ended
March 31,
1996 1995
REVENUES:
Interest income $84,914
$190,306
Other income 25,406
17,611
TOTAL INCOME 110,320
207,917
EXPENSES:
Research and development 1,750,694
1,149,943
Depreciation and
amortization 139,962
133,986
General and administrative 1,219,719
778,248
TOTAL OPERATING EXPENSES 3,110,375
2,062,177
EQUITY IN LOSS OF JOINT VENTURE (3,772)
(290,340)
3,114,147 2,352,517
NET LOSS $3,003,827
$2,144,600
LOSS PER COMMON SHARE $0.52
$0.51
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,825,011
4,188,244
See notes to
condensed financial statements.
5
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
- ---------------------------------
- -
(unaudited)
Three Months
Ended
March 31,
1996 1995
REVENUES:
Other income $7,326
$17,611
Interest Income 40,493
73,605
TOTAL INCOME 47,819
91,216
EXPENSES:
Research and development 512,497
531,307
Depreciation and
amortization 68,694
67,211
General and administrative 741,831
379,968
TOTAL OPERATING EXPENSES 1,323,022
978,486
EQUITY IN LOSS OF JOINT VENTURE 0
(108,761)
1,323,022 1,087,247
NET LOSS $1,275,203
$996,031
LOSS PER COMMON SHARE $ $
0.21 0.24
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,196,630
4,188,244
See notes to
condensed financial statements.
6
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOW
- ---------------------------------
(unaudited)
Six Months
Ended
March 31,
1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS
$(3,003,827)
$(2,144,600) Adjustments to reconcile net loss
to
net cash used in operating
activities:
Depreciation and amortization 139,962
133,986
Equity in loss of joint venture 3,772
290,340
Research and development
expense related
to purchase of Viral 515,617
Technologies, Inc.
Amortization of premium on -
18,722
investments
Realized loss on sale of
12,965
investments
Changes in assets and
liabilities, net of effect from
purchase
of Viral Technologies, Inc.:
Decrease (increase) in interest (22,530) 6,449
receivable
Decrease (increase) in prepaid 98,483
(19,924)
expenses
Decrease (increase) in advances (121,409) (9,356)
Decrease (increase) in
receivable from
joint venture -
(79,128)
Increase (decrease) in accounts (190,701)
(177,918) payable
NET CASH USED IN OPERATING (2,580,633)
(1,968,464)
ACTIVITIES
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITY:
Sales of investments -
1,487,866
Advance to Joint Venture -
(208,655)
Payment on note (121,690)
(60,845)
Purchase of research and office (2,907)
(120,932)
equipment
Patent costs (11,651)
- -
NET CASH USED IN INVESTING (136,248)
1,097,434
ACTIVITY
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Issuance of convertible 1,250,000 205,195
debenture
Issuance of common stock 1,383,717
NET CASH PROVIDED BY FINANCING 2,633,717
205,195 ACTIVITIES
NET (DECREASE) INCREASE IN CASH (83,164)
(665,835)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,886,950 3,370,713
End of period $3,803,786
$2,704,878
NON-CASH TRANSACTION: In October
1995, Cel-Sci issued 159,170
shares of common stock as
consideration for
the purchase of the remaining 50%
of Viral Technology, Inc. In
conjunction with the acquisition,
CEL-SCI obtained
net assets with a fair value of
approximately $170,000.
NON-CASH TRANSACTION: In March,
1996, a shareholder of the
corporation exercised options to
purchase
40,000 shares of common stock.
The shareholder signed a note for
the stock, agreeing to pay the
note by the
end of June, 1996.
See notes to
condensed financial statements.
7
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1996 AND 1995 (unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in
accordance with rules established by the Securities and Exchange
Commission for
Form 10-Q. Not all financial disclosures required to present the
financial position and results of operations in accordance with
generally accepted accounting principles are included herein. The
reader is referred to the Company's Financial Statements included in
the registrant's Annual Report on Form 10K for the year ended
September 30, 1995. In
the opinion of management, all accruals and adjustments (each of
which is of a normal
recurring nature) necessary for a fair presentation of the financial
position as of March 31, 1996 and the results of operations for the
six-month period then ended have been made. Significant accounting
policies have been consistently applied in the interim financial
statements and the annual financial statements.
Investments
Effective September 30, 1994, the Company adopted, on a prospective
basis, Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Debt and Equity Securities" (SFAS 115) and
revised its policy for investments. Investments that may be sold as
part of the liquidity management of the Company or for other factors
are classified as available-for-sale and are carried at fair market
value. Unrealized gains and losses on such securities are reported
as a separate component of stockholders' equity. Realized gains and
losses on sales of securities are reported in earnings and computed
using the specific identified cost basis. As of March 31, 1996,
there is no effect on the Company's financial statements.
Loss per Share
Net loss per common share is based on the weighted average number of
common shares outstanding during the period. Common stock
equivalents, including options to purchase common stock, are
excluded from the calculation as they are antidilutive.
Long-lived Assets
Statement of Accounting Standards No. 121, "Accounting for the
Impairment of Longlived Assets and for Long-lived Assets to be
Disposed of" is effective for financial statements for fiscal years
beginning after December 15, 1995. It is the Company's opinion that
the adoption of the statement would have no material effect on its
Financial Statements.
B. JOINT VENTURE
On October 30, 1995, the Company announced it had acquired Alpha 1
Biomedical's interest in Viral Technologies, Inc. ("VTI"). VTI was
formed by the two companies in 1986. This transaction gives CEL-SCI
100% ownership of VTI. Under the terms of the agreement, CELSCI gave
Alpha 1 Biomedicals, Inc. 159,170 shares of CEL-SCI common stock as
the purchase price for net assets with a fair value of approximately
$170,000. The acquisition was accounted for under the purchase
method of accounting; and as the acquisition represents primarily
research and development costs, the purchase price was
expensed and is included as research and development expense for the
six months ended March 31, 1996. Effective October 31, 1995, the
Company has consolidated CELSCI's and VTI's financial statements and
the consolidated financial statements reflect the results of VTI's
operations since the date of acquisition. This results in a
significant increase in patent costs on the consolidated balance
sheet. Intercompany accounts are eliminated upon consolidation.
C. CONSTRUCTION OF NEW LABORATORY AND
FUNDING
On January 31, 1994, the Company entered into a leasing agreement
with a non-affiliated landlord for 7,800 square feet in Baltimore,
Maryland. In the spring of 1994 the Company commenced
construction of the new laboratory. The cost of the laboratory
buildout and equipment was approximately $1,100,000. To fund this
laboratory, the Company borrowed funds from a bank at a rate of
prime plus 2%. The outstanding loan balance at March 31, 1996 is
$689,573.
CONVERTIBLE DEBENTURES
On March 28, 1996, the Company raised $1,250,000 in a private
placement. The placement was structured as a convertible debenture.
It is convertible into Cel-Sci common stock prior to December 1,
1996. The money will be used for research and development and
clinical trials with the Company's cancer and HIV products.
