FORM 10-K
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 22, 1995, as quoted on the NASDAQ System, was approximately
$13,910,000. Shares of Common Stock held by each officer, director and
principal shareholder have been excluded 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 22, 1995, the Registrant had 5,338,244 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 MULTIKINE(Trademark), 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 wholly-owned
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 1995, 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 HIVinfected 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.
Tcells, 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,
Bcells 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 B-cells. 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 Bcell 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 fortynine 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 HGP30 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
non-changing. 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. Twenty-one 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 HIV-1 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 HGP30 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
HGP30 and related peptides to enhance HIV-specific cellular immune
responses.
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 compounds, 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 the production
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 IL-2 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 IL2, result in severe toxic reactions. In contrast, the
Company believes the synergy between glycosylated IL-2 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
mitogen-free 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, IL-2). 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
serum-free 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 non-profit 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 know-how obsolete.
Several biotechnology companies are producing IL-2-like compounds.
The Company believes, however, that it is the only producer of a
patented IL 2 product using a patented cell-culture technology with
normal human cells. The Company foresees that its principle
competition will come from producers of genethcally-engineered IL-2-
like 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 gentically
engineered, IL-2 like products, which lack sugar molecules and
typically are not water soluble, may be recognized by theimunological
system as a foreign agent, leading to a measurable antibody build-up
and therebypossibly 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 lumphokines
and other proteins, i.e., as a "cocktail". If these differences
prove to be of importance, and if the therapeutic valueof 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, physicans
andclinics involved in immunotherapy.
Competition to develop treatments for the control of AIDS is
intense. Many of thepharmaceutical and biotechnology companies
around the world are devoting substantialsums 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 encounyer problems, delays and
additional expenses in developing marketingplans 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
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 $35,972
Expenses:
Research and
Development 1,824,661 2,896,l09 1,307,042 481,697 108,771
Depreciation
and Amortization 262,705 138,755 55,372 33,536 32,582
General and
Administrative 1,713,912 1,621,990 1,696,119 1,309,475 795,015
Equity in
loss of
joint
venture 501,125 394,692 344,423 260,388 290,166
Net Loss$(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.
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 communications 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 acquisition of a 50% interest in Viral Technologies, Inc.
(a company engaged in the research and development of a possible AIDS
technology), patent applications, the repayment of debt, the
continuation of Company sponsored 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
exercise 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 (1991-1993) and
Clinical Laboratory (19921993). 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(Registered), Inc.
REMAC(Registered) 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
andother transportation.
(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 anincentive for performance to
occur over a period longer than one fiscal year. Amounts reported in
this column represent payments received during the 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, 1995
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
10,0000 $2.87 10/31/00 $ 7,900 $17,500
10,000 $2.87 3/19/01 $ 9,700 $22,100
50,0000 $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
224,750 32%
M. Douglas 2,000 (2) $2.87 1/10/98 $ 720 $1,660
Winship 15,000 $2.87 4/4/04 $ 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
onetime 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. Douglas 6/10/95 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 Non-Qualified
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
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 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.
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
Alexandria, VA 223l4
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 8K
(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
S 1 and Post-Effective
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
S1, Registration Nos. 2-85547-
D 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
S1, Registration Nos. 2-85547-
D 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 33-7531.
4(c) Form of Common Stock Incorporated by reference to
Exhibit
Purchase Warrant 4(c) filed as an exhibit to
the
Company'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
Company'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: December 23, 1995 By: /s/ Maximilian de Clara
Maximilian de Clara,
President
By: /s/ Geert R. Kersten
Geert R. Kersten, Chief
Operating 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 December
23,
1995
MAXIMILIAN DE CLARA Executive Officer
/s/ Geert R. Kersten Director, Principal December
23,
1995
GEERT R. KERSTEN Financial Officer
and Chief Executive
Officer
Director
MARK V. SORESI
/s/ F. Donald Hudson Director December
,
1995
F. DONALD HUDSON
/s/ Edwin A. Shalloway Director December
23,
1995
EDWIN A. SHALLOWAY
2056D
CEL-SCI CORPORATION
Financial Statements for the Years
Ended September 30, 1995, 1994, and
1993, and Independent Auditors' Report
CEL-SCI CORPORATION
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT
F1
FINANCIAL STATEMENTS FOR THE YEARS
ENDED
SEPTEMBER 30, 1995, 1994, AND 1993:
Balance Sheets F-
2
Statements of Operations F-
3
Statements of Stockholders' Equity F-
4
Statements of Cash Flows F-
5
Notes to Financial Statements F-6 F-
16
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
CEL-SCI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994, AND 1993
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-for-sale 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 straight-line
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:
The carrying values and estimated market values of investment
securities at September 30, 1994, are as follows:
The gross realized gains and losses of sales of investments
availablefor-sale for the years ended September 30, 1995, 1994,
and 1993, are as follows:
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1995 and 1994, consist
of the
following:
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:
The balance sheets of VTI at September 30, 1995 and 1994, are
summarized as follows:
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 HGP-30 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 know-how 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, is as follows:
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
NonQualified 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 Non-Qualified 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, subject to shareholder approval, the 1994 Incentive
Stock Option Plan (1994 Incentive Plan) and the 1994 Non-Qualified
Stock Option Plan (1994 Non-Qualified). 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:
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:
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-
for1 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. 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
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.
On December 8, 1995, the Board of Directors authorized the
extension of the Company's warrants from February 6, 1996, to
February 6, 1997.
14.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
September 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 September 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 $- $-
Option
Price
Per 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 -
19.60 183,25 102,99
0 9
Became exercisable -
40,250
Balance, September 30, 1994 $3.40 -
20.90 183,25 143,24
0 9
Canceled $3.40 -
20.90 176,25 1 136,24
0 3 9
6,249
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
20, 000
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
20,000
1992 Nonqualified Stock Option
Plan
Balance, September 30, 1992 $13.40 -
4 2,500
20,000
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
80
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
Option
Price
Per 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
