As filed with the Securities and Exchange Commission on
,1995.
Registration No.
33-83732
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 2 TO
FORM S-l
Registration Statement
Under
THE SECURITIES ACT OF 1933
CEL-SCI Corporation
(Exact name of registrant as specified in charter)
Colorado 283l
(State or other (Primary Standard
Classi-
jurisdiction of fication Code Number)
incorporation)
66 Canal Center Plaza,
Suite 510
Alexandria, Virginia
223l4
84-09l6344 (703) 549-5293
(IRS Employer (Address, including zip
code,
and
I.D. Number) telephone number including
area
of
principal executive
offices)
Geert Kersten
66 Canal Center Plaza, Suite 510
(703) 549-5293
(Name and address, including zip code, and
telephone number, including area code, of
agent for service)
Copies of all communications, including all
communications sent to the agent for
service, should be sent to:
William T. Hart, Esq. John G. Herbert, P.C.
Hart & Trinen One Barclay Plaza
1624 Washington Street 1675
Larimer
Street
Denver, Colorado 80203 Denver, CO
80202
(303) 839-0061 (303)
534-
0522
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED
SALE TO THE PUBLIC: As soon as
practicable after the
effective date
of this Registration Statement
Page 1 of Pages Exhibit
Index Begins on Page
If any of the securities being registered on this Form
are to be offered on a delayed or continuous basis
pursuant to Rule 4l5 under the Securities Act of l933,
check the following box. / X /
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
Class of Maximum Maximum
Securities Securities Offering Aggregate
Amount
of
to be to be Price Per Offering
Registration
Registered Registered Share (1) Price
Fee
Common Stock 220,000 $6.90 $1,518,000
$524
Total 200,000 $1,518,000
$524
(1) Based upon the closing price of the Company's Common
Stock on March 7, 1995 and as adjusted for a ten for
one reverse split of the Company's Common Stock,
effective April 28, 1995.
The registrant hereby amends this Registration Statement
on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further
amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of l933 or until
the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section
8(a), may determine.
CEL-SCI CORPORATION
CROSS REFERENCE SHEET
Item in Form S-1
Location
in
Prospectus
Item 1 Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus .............................. F
a
c
i
n
g
P
a
g
e;
Ou
t
si
de
Fr
o
nt
Co
v
er
Pa
g
e
Item 2 Inside Front and Outside Back Cover
Pages of Prospectus .....................
Inside
Front
Co
ve
r
Pa
ge
;
Ou
ts
i
de
Ba
ck
Co
ve
r
Pa
ge
Item 3 Summary Information, Risk Factors and
Ratio of Earnings to Fixed Changes ...... Prospectus
Su
mm
ar
y;
Ri
sk
Fa
ct
or
s
Item 4 Use of Proceeds .........................
Not
Applicable.
Item 5 Determination of Offering Price .........
Underwriting
Item 6 Dilution ................................
Dilution
Item 7 Selling Security Holders ................
Selling
Shareholder
Item 8 Plan of Distribution ....................
Selling
Shareholder
Item 9 Description of Securities to be
Registered ..............................
Description of Securities
Item l0 Interest of Named Experts and Counsel ...
Experts
Item 11 Information with Respect to the
Registrant
(a) Description of Business .................
Business
(b) Description of Property .................
Business
Legal Proceedings ....................... Legal
Proceedings (d) Certain Market Information
..............
Ma
rk
et
Information, Description of Securities
(e) Financial Statements ....................
Financial Statements (f) Selected Financial Data
................. Selected Financial Data (g)
Supplementary Financial Information ..... Not
applicable (h) Management's Discussion and
Analysis .... Management's
Disc
us
si
on
and
Anal
ys
is
of
Fina
nc
ia l
Cond
it
io n
and
Resu
lt s
of
Oper
at
io n
(i) Disagreements with Accountants .......... Not
applicable (j) Directors and Executive Officers
........ Management (k) Executive Compensation
.................. Management (l) Security
Ownership
of
Certain Beneficial Owners and
Management ........
Principal Shareholders
(m) Certain Relationships and Related Transactions
............................ Management
Item l2. Disclosure of Commission Position
on Indemnification for Securities Act
Liabilities .............................
Not
applicable
PROSPECTUS CEL-SCI CORPORATION
20,000 Shares of Common Stock
THE SHARES OFFERED BY THIS PROSPECTUS ARE TO BE SOLD BY A
STOCKHOLDER OF THE COMPANY (THE "SELLING SHAREHOLDER"). THE
COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF
THE SHARES OFFERED BY THIS PROSPECTUS. SEE "SELLING
SHAREHOLDER". THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK
AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. FOR A DESCRIPTION OF CERTAIN
IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS
PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. The expenses of the offering, including
legal and accounting fees, filing fees, printing costs and
other expenses, are estimated to be $25,000. All expenses of
this offering, with the exception of any brokerage commissions
that will be payable directly by the Selling Shareholder, will
be paid by the Company. The shares of Common Stock offered by
the Selling Shareholder will be offered and sold in the over-
the-counter market at market prices prevailing on the dates of
sale.
On March , 1996 the closing prices of the Company's
Common Stock and Warrants on the NASDAQ National Market
System were $
and $ , respectively. See "Market Information".
The Date of this Prospectus is , 1996
(INSIDE FRONT COVER OF PROSPECTUS)
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of l934 and in accordance
therewith is required to file reports, proxy statements and
other information with the Securities and Exchange
Commission (the "Commission"). Copies of any such reports,
proxy statements and other
information filed by the Company can be inspected and
copied
at the public reference facility maintained by the
Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. and at the Commission's Regional offices
in New York (Room 1028, 26 Federal Plaza, New York, New
York 10278) and Chicago (Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois
606612511). Copies of such material can be obtained from
the Public Reference Section of the Commission at its
office in Washington, D.C. 20549 at prescribed rates. The
Company has filed with the Commission a Registration
Statement on Form S-1 (together with all amendments and
exhibits
thereto, the "Registration Statement") under the Securities
Act of 1933, as amended (the "Act"), with respect to the
Securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For
further information, reference is made to the Registration
Statement.
PROSPECTUS SUMMARY
THIS SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS.
THE COMPANY
CEL-SCI Corporation (the "Company") was formed as a
Colorado corporation in l983 to acquire and finance
research and development of natural human interleukin-2
("IL-2") and related products and processes using the
Company's proprietary cell culture technologies. The
Company's proprietary product, which is a combination, or
"cocktail", of IL-2 and certain lymphokines and cytokines,
is sometimes referred to by the Company as
MULTIKINE(Trademark). The Company was initially formed
under the name Interleukin-2, Inc. and changed its name to
CELSCI Corporation in March, 1988. The compounds,
compositions and processes, to which the Company has
acquired an exclusive worldwide license, are being tested
to determine if they are effective in improving the immune
response of advanced cancer patients.
Before human testing can begin with respect to a drug or
biological product, preclinical studies are conducted in
laboratory animals to evaluate the potential efficacy and
the safety of a product. Human clinical studies generally
involve a three-phase process. The initial clinical
evaluation, Phase I, consists of administering the product
and testing for safe and tolerable dosage levels. Phase II
trials continue the evaluation of immunogenicity and
determine the appropriate
dosage for the product, identify possible side effects and
risks in a larger group of subjects, and provide
preliminary indications of efficacy. Phase III trials
consist of testing for actual clinical efficacy for safety
within an expanded group of patients at geographically
dispersed test sites. See "Business Government Regulation"
for a more detailed description of the foregoing.
Between 1983 and 1986 the Company was primarily involved in
funding pre clinical and Phase I clinical trials of
MULTIKINE. These trials were conducted at St. Thomas's
Hospital Medical School in London, England pursuant to
authority granted by England's Department of Health and
Social Security. In July, 1991 physicians at a southern
Florida medical institution began human clinical trials
using MULTIKINE. The focus of these trials was
the treatment of metastatic malignant melanoma and
unresectable head and neck cancer using MULTIKINE. The
clinical trials in Florida were conducted pursuant to
approvals obtained by the medical institution from the
Florida Department of Health and Rehabilitative Services.
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 Ottawa Regional Cancer
Center and Hotel-Dieu de Montreal Hospital. 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.
In February 1996 the FDA authorized the Company to conduct
two human clinical studies using MULTIKINE. The studies
will focus on prostate and head and neck cancer. The
prostate study will be conducted at Jefferson Hospital in
Philadelphia, Pennsylvania and will involve up to 15
prostate cancer patients who have failed on hormonal
therapy. The head and neck cancer study will involve up to
30 cancer patients who have failed using conventional
therapies. The Company is currently evaluating clinical
centers in the U.S. for purposes of the study. The head
and neck cancer study in the U.S. will be conducted in
conjunction with the Company's Canadian head and neck
cancer study. In October 1995 Viral Technologies, Inc.
("VTI") became a wholly owned subsidiary of the Company.
VTI is engaged in the development of a possible
treatment/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 treatment/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 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 or VTI 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 by the Company or VTI of
any product is, in all likelihood, many years away. See
"Business".
The lack of government approval for the Company's or
VTI's products will prevent the Company and VTI from
generally
marketing their products. Delays in obtaining government
approval or the failure to obtain government approval may
have a material adverse impact upon the Company's
operations. All of the Company's products are in the early
stages of development. The Company does not expect to
develop commercial products for several years, if at all.
The Company has had operating losses since its inception,
has an accumulated deficit of approximately $25,745,000 at
December 31, 1995, and expects to incur substantial losses
for the foreseeable future. The Company's executive offices
are located at 66 Canal Center Plaza, Suite 510,
Alexandria, Virginia 22314, and its telephone number is
(703) 5495293. THE OFFERING
Securities Offered 20,000 Shares of Common Stock which are
being
offered by Pacaya, Ltd., a shareholder of the Company (the
"Selling Shareholder"). The shares to be sold by the
Selling Shareholder were acquired for $3.00 per share in
July 1994 from Geert R. Kersten, the Chief Executive
Officer and a director of the Company in a private
transaction. Pacaya, Ltd. is a company controlled by
Bernhard de Clara. Bernhard de Clara is the brother of
Maximilian de Clara, who is the President and a director of
the Company. Geert R. Kersten is the stepson of Maximilian
de Clara. Bernhard de Clara has in the past provided
capital to the Company at times when the Company had
difficulty in raising capital from other sources. As an
accomodation to Bernhard de Clara, the Company has
previously and is also at this time paying the costs of
registering for resale the shares of the Company's common
stock to be sold by Pacaya, Ltd. See "Selling Shareholder".
Shares Outstanding Prior
To and After Offering As of the date of this Prospectus,
the Company had 6,122,414 shares of
Common Stock issued and outstanding.
Risk Factors: The purchase of the Securities
offered
by this Prospectus involves a high
degree of risk. Risk factors
include the following: lack of
revenues and history of loss, need
for additional capital, government
regulation, FDA approval, and
dilution. See "Risk Factors."
NASDAQ Symbol Common Stock: CELI
Warrants: CELIW
SUMMARY FINANCIAL DATA
The following sets forth certain financial data with respect
to the Company and is qualified in its entirety by reference
to the more detailed financial statements and notes thereto
included elsewhere in this Prospectus.
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
Three Months
Ended
December 31,
1995 1994
Investment Income & Other Revenues $ 62,501
$116,701
Expenses:
Research and Development 1,238,197
618,636
Depreciation and Amortization 71,268
66,775
General and Administrative 477,888
398,281
Equity in loss of joint venture 3,772
181,578
Net Loss
$(1,728,624)$(1,148,569)
Loss per common share $(0.32)
$(0.27)
Weighted average
common shares
outstanding 5,457,431
4,188,244
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
December
31, 1995
Working Capital $3,280,004
Total Assets
5,069,641
Total Liabilities 839,448
Shareholders' Equity
4,230,193
No dividends have been declared by the Company since
its inception.
GLOSSARY OF TECHNICAL TERMS
AIDS. Acquired Immune Deficiency Syndrome. A
severe
viral
disease of the immune system leading to
other lethal infections and malignancies.
Amino acids. Building blocks of proteins.
Antibody. A protein produced by certain white blood
cells
in
humans
and animals in response to a substance
seen as non self, that is a foreign
antigen (such as a virus or bacteria). An
antibody binds specifically to a single
antigen.
Antigen. Any substance seen as foreign by the
immune
system
and
which triggers an antibody or cell
mediated response from the body's immune
system.
B-Cells. A type of lymphocyte which produces
antibodies
in
response
to antigens.
Cytokines. Peptides which regulate the functions
and/or
growth
of
other cells. Lymphokines are a type of
cytokine.
HIV. Human Immunodeficiency Virus. The virus
responsible
for
AIDS and related diseases.
Lymphocytes. A type of white blood cells divided into
two
classes,
B-cells and T-cells.
Lymphyokine. A specific group of hormones which
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. IL-
2 is but one of these lymphokines.
Macrophage. A cell found in the body that has the
ability
to
kill
viruses, bacteria, fungi and cancer
cells, often by engulfing the targeted
organism or cell.
Peptide. Two or more amino acids joined by a
linkage
called
a
peptide bond.
Proteins. A molecule composed of amino acids.
There
are
many
types
of proteins, all carrying out a number
of different functions essential for
cell growth.
T-Cells. A type of lymphocyte which will amplify
or
suppress
antibody formation by B-cells, and can
also directly destroy "foreign" cells by
activating "killer cells".
Virus. A submicroscopic organism that
contains
genetic
information
but cannot reproduce itself. To
replicate, it must invade another cell
and use parts of that cell's
reproductive machinery.
RISK FACTORS
The securities offered hereby represent a speculative
investment and involve a high degree of risk of a loss of
part or all of the investment. Therefore, prospective
investors should read this entire Prospectus and carefully
consider, among others, the following risk factors in
addition to the other information set forth in this
Prospectus prior to making an investment.
OFFERING PROCEEDS. This Offering is being made by
certain Selling Shareholders. The Company will not receive
any proceeds from the sale of the shares by the Selling
Shareholders.
LACK OF REVENUES AND HISTORY OF LOSS. The Company
has had only limited revenues since it was formed in 1983.
Since the date of its formation and through December 31,
1995, the Company has incurred net losses of approximately
$25,740,000. During the years ended September 30, 1993,
1994 and 1995 the Company suffered losses of $2,404,992,
$4,426,876 and $3,878,638 respectively. The Company has
relied principally upon the proceeds of public and private
sales of securities to finance its activities to date. See
"Management's Discussion and Analysis". All of the
Company's potential products are in the early stages of
development, and any commercial sale of these products will
be many years away. Accordingly, the Company expects to
incur substantial losses for the foreseeable future.
NEED FOR ADDITIONAL CAPITAL. Clinical and other
studies necessary to obtain approval of a new drug can be
time consuming and costly, especially in the United States,
but also in foreign countries. The different steps
necessary to obtain regulatory approval, especially that of
the Food and Drug Administration ("FDA"), involve
significant costs. The Company expects that it will need
additional financing in order to fund the costs of future
clinical trials, related research, and general and
administrative expenses. The Company may be forced to delay
or postpone development and research expenditures if the
Company is unable to secure adequate sources of funds.
These delays in development may have an adverse effect on
the Company's ability to produce a timely and competitive
product. There can be no assurance that the Company will be
able to obtain additional funding from other sources. See
"Management's Discussion and Analysis".
Viral Technologies, Inc. ("VTI"), a wholly-owned
subsididary of the Company, is dependent upon funding from
the Company for its operations and research programs. See
"BusinessViral Technologies, Inc.".
COST ESTIMATES. The Company's estimates of the costs
associated with future clinical trials and research may be
substantially lower than the actual costs of these
activities. If the Company's cost estimates are incorrect,
the Company will need additional funding for its research
efforts. See "Management's Discussion and Analysis".
GOVERNMENT REGULATION - FDA APPROVAL. Products
which may be developed by the Company or Viral
Technologies, Inc. (or which may be developed by affiliates
or licensees) will require regulatory approvals prior to
sale. In particular, therapeutic agents and diagnostic
products are subject to approval, prior to general
marketing, by the FDA in the United
States and by comparable agencies in most foreign
countries.
The process of obtaining FDA and corresponding foreign
approvals is costly and time consuming, particularly for
pharmaceutical products such as those which might
ultimately be developed by the Company, Viral Technologies,
Inc. or its licensees, and there can be no assurance that
such approvals will be granted. Any failure to obtain or
any delay in obtaining such approvals may adversely affect
the ability of potential licensees or the Company to
successfully market any products developed. Also, the
extent of adverse government regulations which might arise
from future legislative or administrative action cannot be
predicted.
The clinical trial which the Company's affiliate, Viral
Technologies, Inc., is conducting in California is
regulated by government agencies in California and
obtaining approvals from states for clinical trials is
likewise expensive and time consuming. See
"BusinessGovernment Regulation."
DEPENDENCE ON OTHERS TO MANUFACTURE PRODUCT. The
Company has an agreement with an unrelated corporation for
the production, until 1997, of MULTIKINE for research and
testing purposes. At present, this is the Company's only
source of MULTIKINE. If this corporation could not, for
any reason, supply the Company with MULTIKINE, the Company
estimates that it would take approximately six to ten
months to obtain supplies of MULTIKINE under an alternative
manufacturing arrangement.
The Company does not know what cost it would incur to
obtain this alternative source of supply.
LICENSED TECHNOLOGY - POTENTIAL CONFLICTS OF
INTERESS. The Company's clinical studies and research have
been focused on compounds, compositions and processes which
were licensed to the Company by Sittona Company, B.V.
("Sittona") in 1983. Maximilian de Clara, the Company's
president and a director, acquired control of Sittona in
1985. Any commercial products developed by the Company and
based upon the technology licensed by Sittona will belong
to Sittona, subject to the Company's right to manufacture
and sell such products in accordance with the terms of the
licensing agreement. The Company's license remains in
effect until the expiration or abandonment of all patent
rights or until the compounds, compositions and processes
subject to the license enter into the public domain,
whichever is later. The license may be terminated earlier
for other reasons, including the insolvency of the Company.
Accordingly, a conflict of interest may arise between the
Company and Mr. de Clara concerning the Company's continued
rights to the licensed technology. Any future transactions
between the Company and Sittona will be subject to the
review and approval by a majority of the
Company's disinterested directors. See "Business-Compounds
and Processes Licensed to the Company", and
"ManagementTransactions with Related Parties".
TECHNOLOGICAL CHANGE. The biomedical field in
which the Company is involved is undergoing rapid and
significant technological change. The successful
development of therapeutic agents and diagnostic products
from the compounds, compositions and processes licensed to
the Company, through Company financed research or as a
result of possible licensing arrangements with
pharmaceutical or other companies, will depend on its
ability to be in the technological forefront of this field.
There can be no assurance that the Company will achieve or
maintain such a competitive position or that other
technological developments will not cause the Company's
proprietary technologies to become uneconomical or
obsolete.
PATENTS. Since 1983 the Company, on behalf of the
owners of the compounds, compositions and processes
licensed to the Company, has filed applications for United
States and foreign patents covering certain aspects of the
technology. Although the Company has paid the costs of
applying for and obtaining patents, the technology covered
by the patents is not owned by the Company, but by an
affiliated party which has licensed the technology to the
Company. As of the date of this Prospectus nine patents
have been issued in the United States and three patents
have been issued in Europe. There is no assurance that the
applications still pending or which may be filed
in the future will result in the issuance of any patents.
Furthermore, there is no assurance as to the breadth and
degree of protection any issued patents might afford the
owners of the patents and the Company. Disputes may arise
between the owners of the patents or the Company and others
as to the scope, validity and ownership rights of these or
other patents. Any defense of the patents could prove
costly and time consuming and there can be no assurance
that the Company or the owners of the patents will be in a
position, or will deem it advisable, to carry on such a
defense. Other private and public concerns, including
universities, may have filed applications for, or may have
been issued, patents and are expected to obtain additional
patents and other proprietary rights to technology
potentially useful or necessary to the Company. The scope
and validity of such patents, if any, the extent to which
the Company or the owners of the patents may wish or need
to acquire the rights to such patents, and the cost and
availability of such rights are presently unknown. Also, as
far as the Company relies upon unpatented proprietary
technology, there is no assurance that others may not
acquire or independently develop the same or similar
technology. The first patent
licensed to the Company will expire in the year 2000.
Since the Company's IND application relating to MULTIKINE
has only recently been cleared by the FDA, and since the
Company does not know if it will ever be able to sell
Multikine on a commercial basis, the Company cannot predict
what effect the expiration of this patent will have on the
Company. Notwithstanding the above, the Company believes
that later issued patents will protect the technology
associated with Multikine past the year 2000. Since the
Company's IND application relating to MULTIKINE has only
recently been cleared by the FDA, and since the Company
does not know if it will ever be able to sell Multikine on
a commercial basis, the Company cannot predict what effect
the expiration of this patent will have on the Company.
Notwithstanding the above, the Company believes that later
issued patents will protect the technology associated with
Multikine past the year 2000. See "Business Compounds and
Processes Licensed to the Company".
PRODUCT LIABILITY AND LACK OF INSURANCE. Although
the Company has product liability insurance for its HGP-30
vaccine, at the present time, the Company does not have
product liability insurance for MULTIKINE. The successful
prosecution
of a product liability case against the Company could have
a materially adverse effect upon its business.
DEPENDENCE ON MANAGEMENT AND SCIENTIFIC PERSONNEL.
The Company is dependent for its success on the continued
availability of its executive officers. The loss of the
services of any of the
Company's executive officers could have an adverse effect
on the Company's business. The Company does not carry key
man life insurance on any of its officers. The Company's
future
success will also depend upon its ability to attract and
retain qualified scientific personnel. There can be no
assurance that the Company will be able to hire and retain
such necessary personnel. See "Management".
SHARES AVAILABLE FOR RESALE. As of January 31,
1996, there were 6,122,414 shares of the Company's Common
Stock issued and outstanding. Approximately 200,000 of
these shares (excluding the shares offered by this
prospectus) have not been registered under the Securities
Act of l933, as amended (the "Act"), and are "restricted
securities" as defined by Rule l44 of the Act. Rule l44
provides, in essence, that shareholders, after holding
restricted securities for a period of two years may, every
three months, sell in ordinary brokerage transactions an
amount equal to the greater of l% of the Company's then
outstanding Common stock or the average weekly trading
volume, if any, of the stock during the four calendar weeks
preceding the sale. Nonaffiliates
of the Company who hold restricted securities
for a period of three years may, under certain prescribed
conditions, sell their securities without regard to any of
the requirements of the Rule. As of the date of this
Prospectus, substantially all shares of restricted stock
were available for resale pursuant to Rule l44. Sales of
restricted stock may have a depressive effect on the market
price of the Company's Common Stock. Such sales might also
impede future financing by the Company.
OPTIONS AND WARRANTS. In March, 1991 the Company
granted a financial public 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, l996. 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. In connection with the Company's l992 Public
Offering, the Company issued Underwriter's Warrants that
entitle the holders of the Warrants to purchase 45,000
shares of the Company's Common Stock plus Warrants which
allow for the purchase of an additional 90,000 shares of
the Company's Common Stock. The Underwriter's Warrants
provide that the Company, at its expense, will make
appropriate filings with the Securities and Exchange
Commission so that the securities underlying the
Underwriter's Warrants will be available for public sale.
Such filings could result in substantial expense to the
Company and could
hinder future financings by the Company. See "Description
of Securities" for information relating to the Company's
publicly traded warrants.
In connection with the Company's June and September 1995
Private
Offerings, the Company issued warrants which allow the
holders to purchase up to 1,150,000 shares of Common Stock
at any time prior to June 30, l997 at a price of $1.60 per
share. As of February 29, 1996 warrants to purchase
625,000 shares of Common Stock had been exercised.
As part of these same Private Offerings, the Company
issued to Neidiger/Tucker/Bruner, Inc., the sales agent for
that offering, warrants to purchase 57,500 shares of the
Company's Common Stock at $2.00 per share, 57,500 shares at
$2.40 per share and an additional 115,000 shares at $3.25
per share. The Warrants issued to the Sales Agent provide
that the Company, at its expense, will make appropriate
filings with the Securities and Exchange Commission so that
the securities underlying these Warrants will be available
for public sale. Such filings could result in substantial
expense
to the Company and could hinder future financings by the
Company.
In addition to the foregoing, the Company has
granted other options and warrants to the Company's
officers, directors, employees and certain persons which
would allow such persons to purchase up to 1,017,093 shares
of Common Stock at prices ranging from $2.87 to $19.70 per
share. The Company may also grant options to purchase
149,907 additional shares under its Incentive Stock Option
and NonQualified Stock Option Plans.
For the terms of the options and warrants referred
to
above, the holders thereof will have an opportunity to
profit from any increase in the market price of the
Company's Common Stock without assuming the risks of
ownership. Holders of such options and warrants may
exercise them at a time when the Company could obtain
additional capital on terms more favorable than those
provided by the options and warrants which may adversely
affect the ability of the Company to obtain additional
capital in the future. The exercise of the options and
warrants will dilute the voting interest of the presently
outstanding shares of the Company's Common Stock. The sale
of the shares of Common Stock
issuable upon the exercise of the options and warrants
could adversely affect the market price of the Company's
stock.
COMPETITION. The competition in the research,
development and commercialization of products which may be
used in the prevention or treatment of cancer and AIDS is
intense. Major pharmaceutical and chemical companies, as
well as specialized genetic engineering firms, are
developing products for these diseases. Many of these
companies have substantial financial, research and
development, and marketing resources and are capable of
providing significant long-term competition either by
establishing inhouse research groups or by forming
collaborative ventures with other entities. In addition,
both smaller companies and non-profit institutions are
active in research relating to cancer and AIDS and are
expected to become more active in the future.
The clinical trials sponsored 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.
LACK OF DIVIDENDS. There can be no assurance that the
operations
of the Company will result in any revenues or will be
profitable. At the present time, the Company intends to use
available funds to finance any possible growth of the
Company's business. Accordingly, while
payment of dividends rests within the discretion of the
Board of Directors, no dividends have been declared or paid
by the Company. The Company does not presently intend to
pay dividends and there can be no assurance that dividends
will ever be paid. Pursuant to the terms of a loan
agreement with a bank, the Company may not pay any
dividends without the consent of the bank.
DILUTION. Persons purchasing the securities
offered by this Prospectus will suffer an immediate
dilution in the per share net tangible book value of their
Common Stock. See "Dilution."
PREFERRED STOCK. The Company's Articles of
Incorporation authorize the Company's Board of Directors to
issue up to 200,000 shares of Preferred Stock. Although no
Preferred Stock has been issued to date, the provisions in
the Company's Articles of Incorporation relating to the
Preferred Stock would allow the Company's directors to
issue Preferred Stock with multiple votes per share and
dividends 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
the removal of management difficult 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. DILUTION
As of January 31, 1996, the Company had 6,122,414 shares of
its Common Stock issued and outstanding with a net tangible
book value (total assets less total liabilities and
intangible assets) of approximately $0.85 per share. The
net tangible book value of a share of the Company's Common
Stock is substantially less than the price which investors
will pay for the shares offered by this Prospectus. The
difference between the public offering price and the net
tangible book value of the Company's Common Stock is the
dilution which will be experienced by investors in this
offering. "Net tangible book value per share" is the amount
that results from subtracting the total liabilities and
intangible assets of
the Company from its total assets and dividing such amount
by the shares of Common Stock then outstanding.
MARKET INFORMATION
As of January 15, 1996, there were approximately 3,000
record holders of the Company's Common Stock. 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. See "Risk Factors". 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.
The market quotations reflect inter-dealer prices, without
retail markup, markdown 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
12/31/95 $4.75 $2.28 $0.25
$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 dividends 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.
SELECTED FINANCIAL DATA The following table summarizes
certain selected financial data and is qualified in its
entirety by the more detailed financial statements included
elsewhere 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
Three Months Ended
December 31,
1995 1994
Investment Income & Other Revenues $ 62,501
$116,701
Expenses:
Research and Development 1,238,197
618,636
Depreciation and Amortization 71,268
66,775
General and Administrative 477,888
398,281
Equity in loss of joint venture 3,772
181,578
Net Loss
$(1,728,624)$(1,148,569)
Loss per common share $(0.32)
$(0.27)
Weighted average
common shares
outstanding 5,457,431
4,188,244
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
December 31,
1995
Working Capital $3,280,004
Total Assets `5,069,641
Total Liabilities 839,448
Shareholders' Equity 4,230,193
No dividends have been declared by the Company since its
inception. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995
Interest income during the three months ending December 31,
1995 reflects interest accrued on investments.
Prior to October 30, 1995, VTI was owned 50% by the Company
and 50% by Alpha 1 Biomedicals, Inc. Effective October
30, 1995 the Company acquired Alpha
1's
interest in VTI in exchange for 159,170 shares of the
Company's common stock. Prior to this acquisition the Company
accounted for its investment
in VTI using the equity method of accounting. Following the
acquisition of the remaining 50% interest in VTI on October
30, 1995, the financial statements of VTI have been
consolidated with those of the Company.
The acquisition of VTI was accounted for under the purchase
method of accounting. Since the acquisition represented
primarily research and development costs, the purchase price
for the remaining 50% interest in VTI was expensed and caused
research and
development expense for the three months ended December 31,
1995 to increase significantly.
The consolidation of VTI's financial statements with those of
the Company also had the following effects:
1. Interest income declined from the comparable
period in the
previous year since interest income associated with the
Company's loans to VTI was eliminated upon consolidation.
2. Current research and development expenses
increased due to the inclusion of VTI's research and
development expenses with those of the Company (the Company's
research and development costs, separate from those of VTI's,
decreased by approximately $100,000 due to cost savings
achieved from using the Company's laboratory which became
operational in January 1995).
3. General and administrative expenses increased due to the
inclusion of VTI's general and administrative expenses.
4. Capitalized patent costs increased significantly.
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 (approximately $100,000) associated
with the Company's 1995 annual meeting of
shareholders. The Company did not have any meetings of its
shareholders during fiscal 1994. 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 funding of VTI's
research and development program, patent applications, the
repayment of debt, the continuation of Companysponsored
research and development, administrative costs and
construction of laboratory facilities. Inasmuch as the
Company does not anticipate realizing revenues until such
time as it enters into licensing arrangements regarding the
technology and knowhow 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.
During fiscal 1996 the Company plans to fund its U.S. and
Canadian clinical trials involving MULTIKINE. During fiscal
1996 the Company also plans to provide VTI with the funding
needed to continue VTI's clinical trials. 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.
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.
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 worldwide
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 l995, the Canadian Health Protection Branch, Health
and Welfare Ministry gave clearance to the Company to start
a phase I/II cancer study using Multikine. The study, which
will enroll up to 30 head and neck cancer
patients who have failed conventional treatments, is
expected to be conducted at the Hotel-Dieu de Montreal
Hospital, as well as other medical centers in Canada. The
study is designed to evaluate safety, tumor responses and
immune responses in patients treated with multiple courses
of Multikine. The length of time that each patient will
remain on the investigational treatment will depend on the
patient's response to treatment. In May l995, the U.S. Food
and Drug Administration (FDA) authorized the export of the
Company's Multikine drug to Canada for purposes of this
study.
In February 1996 the FDA authorized the Company to conduct
two human clinical studies using MULTIKINE. The studies
will focus on prostate and head and neck cancer. The
prostate study will be conducted at Jefferson Hospital in
Philadelphia, Pennsylvania and will involve up to 15
prostate cancer patients who have failed on hormonal
therapy. The head and
neck cancer study will involve up to 30 cancer patients who
have failed using conventional therapies. The Company is
currently evaluating clinical centers in the U.S. for
purposes of the study. The head and neck cancer study in
the U.S. will be conducted in conjunction with the Company's
Canadian head and neck cancer 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 eleven HIV negative volunteers who participated in
the 1993 Phase I study. Following vaccinations with HGP30,
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.
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 subclasses. 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
subclass of lymphocytes, Tcells, 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 Tcells 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 IL2 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 or any other agency has
determined that the Company's MULTIKINE product will be
effective against any form of cancer.
It has been reported by researchers in the field of
lymphokine research that IL-2 can increase the number of
killer T-cells produced by the body, which improves the
body's capacity to selectively destroy specific tumor cells.
Research and human clinical trials sponsored by the Company
have indicated a correlation between administration of
MULTIKINE to advanced cancer patients and immunological
responses.
On the basis of these experimental results, the Company
believes that MULTIKINE may have application for the
treatment of solid tumors in humans.
The Company foresees three potential anti-cancer therapeutic
uses for MULTIKINE: (i) direct administration into the human
body (in vivo) as a modulator of the immune system, (ii)
activation of a patient's white blood cells outside the body
with MULTIKINE, followed by returning these activated cells
to the patient; and (iii) a combination of (i) and (ii).
RESEARCH AND DEVELOPMENT
In the past, the Company conducted its research pursuant to
arrangements with various universities and research
organizations. The Company provided grants to these
institutions for the conduct of specific research projects as
suggested by the Company's scientists based upon the results
of previously completed projects.
More recently the Company has decided to consolidate its
research activities in a Company-owned laboratory. The
Company believes that this new approach will be more
effective in terms of both cost and performance.
Between 1983 and 1986 the Company was primarily involved in
funding pre clinical and Phase I clinical trials of its
proprietary MULTIKINE technologies. These trials were
conducted at St. Thomas's Hospital Medical School located in
London, England under the direction of Dudley C. Dumonde,
M.D., PhD., a
former member of the SAB, and pursuant to approvals obtained
from England's Department of Health and Social Security.
In the Phase I trial in England (completed in 1987), forty-
nine patients
suffering with various forms of solid cancers, including
malignant melanoma, breast cancer, colon cancer, and other
solid tumor types were treated with MULTIKINE. The product
was administered directly into the lymphatic system in a
number of patients. Significant and lasting lymphnode
responses, which are considered to be an indication of
improvement in the patient's immune
responses, were observed in these patients. A principal
conclusion of the Phase I trials was that the side effects of
the Company's products in forty nine patients were not
severe, the treatment was well tolerated and there was no
long-term toxicity.
The results of the Phase I clinical study were encouraging,
and as a result the Company, through members of its SAB and
consulting experts, established protocols for future clinical
trials. In November, 1990, the Florida Department of Health
and Rehabilitative Services ("DHRS") gave the physicians at a
southern Florida medical institution approval to start a
clinical cancer trial in Florida using the Company's
MULTIKINE product. The focus of the trial was unresectable
head and neck cancer (which is presently untreatable) and was
the first time that the natural MULTIKINE was administered to
cancer patients in a clinical trial in the United States.
Four patients with regionally advanced squamous cell cancer
of the head and neck were treated with the Company's
MULTIKINE product. The patients had previously received
radical surgery followed by xray 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).
Significant tumor reduction occurred in three of the four
patients treated with MULTIKINE 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 October 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 (HIV1). 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. HGP30 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 HGP30, and whose blood
samples were able to be tested, produced "killer" T-cell
responses. The vaccine also elicited cellmediated immunity
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, with the approval of the FDB, began
another clinical trial in California using volunteers who
received two vaccinations. The volunteers receiving the two
lowest dosage levels were asked to donate blood for a SCID
mouse HIV
challenge study. In November 1995 VTI re ceived 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. VTI's AIDS vaccine/treatment is only in the
initial stages of testing and it remains to be seen if the
vaccine/treatment will be effective against the AIDS virus.
Although there has been important independent research
showing the possible significance of the p17 region of HIV-1,
there can be no assurance that any of VTI's technology will
be effective in the prevention, diagnosis or treatment of
AIDS. There can be no assurance that other companies will
not develop a product that is more effective or that VTI
ultimately will be able to develop and bring a product to
market in a timely manner that would enable it to derive
commercial benefits.
VTI's research and development efforts are presently focused
on the evaluation of second generation formulations and
delivery systems for HGP 30 and related peptides to enhance
HIV-specific cellular immune responses.
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.
T-CELL MODULATION PROCESS
In January 1996 the Company acquired a new patented T-cell
Modulation Process which uses "heteroconjugates" to direct
the body to chose a specific immune response.
The ability to generate a specific immune response is
important because many diseases are often not combatted
effectively due to the body's selection of the
"inappropriate" immune response. The capability to
specifically reprogram an immune response may offer a more
effective approach than existing vaccines and drugs in
attacking an underlying disease.
The Company intends to use this new technology to improve the
cellular immune response of VTI's HIV HGP-30 immunogen which
is currently in two clinical studies. In addition, the
Company intends to use the technology to develop a potential
Tuberculosis (TB) vaccine/treatment. TB is the largest killer
of all infectious diseases worldwide and new strains of drug
resistant TB are emerging daily. The technology is also a
potential platform technology which could also work with many
other peptides. Using this new technology, the Company is
currently conducting in vitro laboratory and in vivo animal
studies that have defined a combination of components that
appear to modulate T-cells identified with specific diseases.
The technology was acquired from Cell-Med, Incorporated
("CELL MED") in consideration for the Company's agreement to
pay certain liabilities of CELLMED in the amount of
approximately $6,000. If the Company elects to retain
ownership in the technology after March 30, 1997, the Company
must pay CELLMED $200,000, plus additional payments ranging
between $100,000 and $600,000, depending upon the Company's
ability to obtain regulatory approval for clinical studies
using the technology. In addition, should the Company receive
FDA approval for the sale of any product incorporating the
technology, the Company is obligated to pay CELL MED an
advance royalty of $500,000, a royalty of 5% of the sales
price of any product using the technology, plus 15% of any
amounts the Company receives as a result of sublicensing the
technology. So long as the Company retains rights in the
technology, the Company has also agreed to pay the future
costs associated with pursuing and or maintaining CELLMED's
patent and patent applications relating to the technology. As
of February 29, 1996, CELL-MED had been issued patents in
Australia and from the European Patent Office covering the
technology and had several U.S. and foreign patent
applications pending.
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
IL2 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 "ManagementTransactions with Related
Parties". 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 to 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 appealed the decision of
the European Patent Office. In 1992 the Appellate Tribunal
upheld the Company's
process claims in the patent, while two minor claims were
denied. The Company does not believe that the denial by the
European Patent Office of these two minor process patent
claims impairs the value of this patent in any significant
degree. In February 1996 the Company filed a lawsuit against
ImmunoRx and Dr. John Hadden for contract breach, tortious
interference of contract and patent infringement concerning
the Company's Multikine drug. The lawsuit, filed in the U.S.
Distrit Court for the Middle District of Florida, seeks
damages and the termination of certain research and clinical
studies being conducted by ImmunoRx and Dr. Hadden. From
1984 to 1992, Dr. Hadden consulted with the Company,
performed research on Multikine and manufactured Multikine
for the Company's head and neck cancer study in Florida. In
early 1993, Dr. Hadden signed a separation agreement with the
Company acknowledging the Company's ownership of both
Multikine and the research results. The Company has learned
that Dr. Hadden and ImmunoRx are apparently making copies of
Multikine, in contravention of the separation agreement and
the patents covering Multikine, and have begun clinical
studies in a foreign country using a copy of Multikine.
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. 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 IL2 ("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 IL2 is glycosylated (has sugars attached).
Sugar attachments play a crucial role in cell recognition and
have a significant effect on how fast a body clears out
proteins. Proteins produced through bacteria have no sugar
attachments and while recombinant IL-2 products produced from
recombinant
yeast or insect cells are glycosylated, they are not so to
the right degree, or at the right locations. Cell cultured
IL-2 has the "right" sugar attachments at the right places;
(2) there are also structural differences related to folding
(the way human proteins work depends on their sequence
folding); and (3) the cell cultured IL-2 "cocktail" is
administered in small dosages as pioneered by
Company researchers. This formulation and dosage mimics the
way immune regulators are naturally found and function within
the body. This stands in stark contrast to the huge dosages
required when recombinant IL-2 is administered to patients.
In addition, patients treated with recombinant IL-2 usually
suffer severe side effects.
Although mammalian cells (other than human cells)
could be genetically engineered to produce glycosylated IL-2
in larger quantities than are produced by the Company's
method, such mammalian cells could not be genetically
engineered to produce the combination of human lymphokines
and cytokines, which together with human glycosylated IL-2
form the MULTIKINE product used by the Company. The Company
is of the opinion that glycosylated IL-2 genetically produced
from mammalian cells must be administered in large dosages
before any benefits are observed. Even then, the Company
believes that only a small percentage of patients will
benefit from treatments consisting only of glycosylated IL-2.
In addition, large dosages of glycosylated IL-2 can, as with
recombinant IL 2, result in severe toxic reactions. In
contrast, the Company believes the synergy between
glycosylated IL2 and certain other lymphokines/ cytokines
allows MULTIKINE to be administered in low dosages, thereby
avoiding the severe toxic reactions which often result when
IL-2 is administered in large dosages.
The technology licensed to the Company includes the basic
production method employing the use of normal white blood
cells, an improved production method based in part on this
basic production method, a serum-free and 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, IL2). Mitogens remaining in the
product of cell stimulation can cause allergic and
anaphylactic reactions if not removed from the cell product
prior to introduction into the body.
The Company's license also pertains to a cell
culture process for producing interleukin-2 and another type
of cell process for producing serumfree and mitogen-free
interleukin-2 preparations which avoids a mitogen stimulation
step and uses interleukin-1 and white blood cells.
The Company's license further includes a process for
suppressing graft rejection in organ transplantation. This
process employs the use of an agent which blocks the activity
of IL-2 in proliferating T-cells which would otherwise
destroy the transplanted organ. The Company regards further
research and development of this process to involve a
financial commitment beyond its present ability; thus while
the Company intends to attempt to enter into licensing
arrangements with third parties concerning this process,
it does not presently intend to conduct further research
into, or development of, this process.
The Company has an agreement with an unrelated corporation
for the production, until 1997, of MULTIKINE for research and
testing purposes. At present, this is the Company's only
source of MULTIKINE. If this corporation could not, for any
reason, supply the Company with MULTIKINE, the Company
estimates that it would take approximately six to ten months
to obtain supplies of MULTIKINE under an alternative
manufacturing arrangement. The Company does not know what
cost it would incur to obtain this alternative source of
supply.
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, non-profit organizations and governmental
institutions are conducting research on lymphokines.
Competition in the development of therapeutic agents and
diagnostic products
incorporating lymphokines is intense. Large, well-
established pharmaceutical companies are engaged in
lymphokine research and development and have considerably
greater resources than the Company has to develop products.
The establishment by these large companies of in-house
research groups and of joint research ventures with other
entities is already occurring in these areas and will
probably become even more prevalent. In addition, licensing
and other collaborative arrangements between governmental and
other nonprofit institutions and commercial enterprises, as
well as the seeking of patent protection of inventions by
nonprofit institutions and researchers, could result in
strong competition for the Company. Any new developments made
by such organizations may render the Company's licensed
technology and knowhow obsolete.
Several biotechnology companies are producing IL-2-like
compounds. The Company believes, however, that it is the only
producer of a patented 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 geneticallyengineered IL2 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 genetically engineered, IL2
like products, which lack sugar molecules and are typically
not water soluble, may be recognized by the immunological
system as a foreign agent, leading to a measurable antibody
build-up and thereby possibly voiding their therapeutic
value. Furthermore, the Company's research has established
that to have optimum therapeutic value IL-2 should be
administered not as a single substance but rather as an IL-2
rich mixture of certain lymphokines and other proteins, i.e.
as a "cocktail". If these differences prove to be of
importance, and if the therapeutic value of its MULTIKINE
product is conclusively established, the Company believes it
will be able to establish a strong competitive position in a
future market.
The Company has not established a definitive plan for
marketing
nor has it established a price structure for the Company's
saleable products. However, the Company intends, if the
Company is in a position to begin commercialization of its
products, to enter into written marketing agreements with
various major pharmaceutical firms with established sales
forces. The sales forces in turn would probably target the
Company's products to cancer centers, physicians and clinics
involved in immunotherapy. Competition to develop treatments
for the control of AIDS is intense. Virtually all of the
pharmaceutical and biotechnology companies around the world
are devoting substantial sums to the exploration and
development of technologies useful in these areas. VTI's
development of its experimental HGP-30 AIDS Vaccine, if
successful, would likely face intense competition from other
companies seeking to find alternative or better ways to
prevent and treat AIDS.
Both the Company and VTI may encounter problems, delays and
additional expenses in developing marketing plans with
outside firms. In addition, the Company and VTI may
experience other limitations involving the
proposed sale of their products, such as uncertainty of third
party reimbursement. There
is no assurance that the Company or VTI can successfully
market any products which they may develop or market them at
competitive prices. The clinical trials funded to date by the
Company and VTI have not been approved by the FDA, but rather
have been conducted pursuant to approvals obtained from
regulatory agencies in England 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. PROPERTIES The Company's MULTIKINE
product used in its preclinical 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. EMPLOYEES
As of February 29, 1996 the Company, together with VTI,
employed 24 persons on a full-time basis.
MANAGEMENT
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 40 Vice President of Research
and
Manufacturing
Mark V. Soresi 43 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 (1989Present), 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.
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
Compensati
on Re-
All
Other stricOther
Annual ted
LTIP
Com-
Compen- Stock
Options Pay pensaName 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 noncash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized
as salary or bonus, including perquisites and other
personal benefits, securities or property. Amounts in
the table represent automobile, parking and other
transportation expenses.
(4) During the period covered by the Table, no shares of
restricted stock were issued as compensation for
services to the persons listed in the
table. As of September 30, 1995, the number of shares of
the Company's common stock, owned by the officers included
in the table above, and the value of such shares at such
date, based upon the market price of the Company's common
stock were:
.Name Shares
Value
Maximilian de Clara 5,000
$23,100 Geert R. Kersten 84,940
$392,423
Dividends may be paid on shares of restricted stock
owned by the Company's officers and directors, although
the Company has no plans to pay dividends. Mr. Winship
and Ms. Beckner did not own any shares of the Company's
Common Stock at September 30,
1995.
(5) The shares of Common Stock to be received upon the
exercise of all stock options granted during the period
covered by the Table. The amounts in this table include
options granted in prior years but which were repriced
during the year ending September 30, 1995. See "Ten
Year Option/SAR Repricings" table below.
(6) "LTIP" is an abbreviation for "Long-Term Incentive
Plan". An
LTIP is any plan that is intended to serve as an
incentive for performance to occur over a period longer
than one fiscal year. Amounts reported in this column
represent payments received 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 "Transactions witih Related Parties"
below 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
(3)
Name Granted (#) Fiscal Year Share (1) Date
5% 10%
Maximilian 15,000 $2.87 3/19/01
$
14,550
$
30,750
de Clara 70,000 $2.87 11/1/01
$
67,900
$176,400
70,000 $2.87 7/29/04
$272,300
$272,300
70,000 $3.87 7/31/05
$240,100
$501,200
225,000 32%
Geert R. 50,000 (2) $2.87 1/10/98
$
20,500
$
42,000
Kersten 750 $2.87 3/28/98
$
287
$
705
4,000 $2.87 10/31/99
$
2,440
$
5,320
10,000 $2.87 10/31/00
$
7,900
$
17,500
10,000 $2.87 3/19/01
$
9,700
$
22,100
50,000 $2.87 11/01/01
$
48,500
$110,700
50,000 $2.87 7/29/04
$
79,000
$194,500
50,000 $3.87 7/31/05
$171,500
$358,000
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 Unexe r ci se d
Number of
Inthe-
Money
Unexercised
Options
at
Shares Options
Fiscal
Year-
Acquired Value (3)
End
(4)
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;
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 960,000 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 capitalraising 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 non employee 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 February 29, 1996, concerning the stock
options granted by the Company. Each option represents the
right to purchase one share of the Company's Common Stock.
Total
Shares Shares
Reserved for
Remaining Reserved
Outstanding Options
Name of Plan Under Plan Options
Under Plan 1987 Stock Option and Bonus Plan 200,000
7,000 (1)
1992 Incentive Stock Option Plan 100,000 52,217
47,783
1992 Non-Qualified Stock Option Plan 60,000 60,000
- -
1994 Incentive Stock Option Plan 100,000 100,000
- -
1994 Non-Qualified Stock Option Plan 100,000 97,250
2,750
1995 Non-Qualified Stock Option Plan 800,000 700,626
99,374
TOTAL: 1,017,093
(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 February 29, 1996, 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.
TRANSACTIONS WITH RELATED PARTIES
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 knowhow 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 1985, 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.
LEGAL MATTERS
During the year ended September 30, 1993, the Company paid
Mr. de Clara approximately $23,000 for legal expenses
incurred by Mr. de Clara in defending a legal action
brought against Mr. de Clara by an
unrelated third party who claimed that Mr. de Clara owed
the third party 25,000 shares of the Company's Common
Stock as a fee for introducing the Company (in 1985) to
persons who allegedly were willing to (but did not)
provide funds to the Company. Although the Company was
not a party to this proceeding, the Company's Board of
Directors has determined, based upon information supplied
by Mr. de Clara, that the third party's claims against
Mr. de Clara arose as a result of Mr. de Clara's efforts
to obtain funding for the Company. Accordingly, the Board
of Directors determined that Mr. de Clara was entitled by
law to indemnification and in October, 1993, the Company
issued 25,000 shares of its common stock to the third
party claiming the shares from Mr. de Clara.
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.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of December 31, 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
Dalton 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
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
May
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
See "Management" 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.
SELLING SHAREHOLDER
A total of 20,000 shares are being offered by this
Prospectus on
behalf
of
a
shareholder of the Company (the "Selling Shareholder").
The Company will not receive any proceeds from the sale of
the shares offered by the Selling Shareholder. The
following sets forth certain information concerning the
Selling Shareholder:
Number of Number of
Shares Owned Number of Shares
Percentage
Selling Prior To Shares to Owned After
Owned
After
Shareholder Offering Be Sold Offering
Offering
Pacaya, Ltd. 20,000 20,000 -
- -
The shares to be sold by the Selling Shareholder were
acquired for $3.00 per share in July 1994 from Geert R.
Kersten, the Chief Executive Officer and a director of the
Company in a private transaction. Pacaya, Ltd. is a company
controlled by Bernhard de Clara.
Bernhard de Clara is the
brother of Maximilian de Clara, who is the President and a
director of the Company. Geert R. Kersten is the stepson of
Maximilian de Clara. Bernhard de Clara has in the past
provided capital to the Company at times when the Company
had difficulty in raising capital from other sources. As
an accomodation to Bernhard de Clara, the Company has
previously and is also at this time paying the costs of
registering for resale the shares of the Company's common
stock to be sold by Pacaya, Ltd.
The Selling Shareholder may sell the Shares offered by this
Prospectus from time to time in negotiated transactions in
the over the-counter market at fixed prices which may be
changed from time to time, at market prices prevailing at
the time of sale, at prices related to such prevailing
market prices or at negotiated prices. The Selling
Shareholder may effect such transactions by selling the
Shares to or through broker/dealers, and such
broker/dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling
Shareholder and/or the purchasers of the Shares for which
such broker/dealers may act as agent or to whom they may
sell, as principal, or both (which compensation as to a
particular broker/dealer may be in excess of customary
compensation).
The Selling Shareholder and any broker/dealers who act in
connection with the sale of the Shares hereunder may be
deemed to be "underwriters" within the meaning of 2(11) of
the Securities Acts of 1933, and any commissions received
by them and profit on any resale
of the Shares as principal might be deemed to be
underwriting discounts and commissions under the Securities
Act.
The Company has advised the Selling Shareholder that it and
any securities broker/dealers or others who may be deemed
to be statutory underwriters will be subject to the
Prospectus delivery requirements under the Securities Act
of 1933. The Company has also advised the Selling
Shareholder that in the event of a "distribution" of the
shares owned by the Selling Shareholder, such Selling
Shareholder, any "affiliated purchasers", and any broker/
dealer or other person who participates in such
distribution may be subject to Rule 10b6 under the
Securities Exchange Act of 1934 ("1934 Act")
until their participation in that distribution is
completed. A "distribution" is defined in Rule 10b-6 as
an offering of
securities "that is distinguished from ordinary trading
transactions by the magnitude of the offering and the
presence
of special selling efforts and selling methods". The
Company
has also advised the Selling Shareholder that Rule 10b-7
under the 1934 Act prohibits any "stabilizing bid" or
"stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of the Common Stock in connection
with this offering.
Rule 10b-6 makes it unlawful for any person who is
participating in a distribution to bid for or purchase
stock of the same class as is the subject of the
distribution. If Rule 10b-6 applies to the offer and sale
of any of the Shares, then participating broker/dealers
will be obligated to cease marketmaking activities nine
business days prior to their participation in the offer and
sale of such Shares and may not recommence marketmaking
activities until their participation in the distribution
has been completed. If Rule 10b-6 applies to one or more of
the principal market-makers in the Company's Common Stock,
the market price of such stock could be adversely affected.
No underwriter has been engaged in connection with the sale
of the
Shares by the Selling Shareholder. The Company will not
receive any proceeds from the sale of such shares by the
Selling Shareholder.
The expenses of the offering, including legal and
accounting fees, filing fees, printing costs and other
expenses, are estimated to be $25,000. All expenses of this
offering, with the exception of any brokerage commissions
that will be payable directly by the Selling Shareholder,
will be paid by the Company.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue l00,000,000 shares of
Common Stock, (the "Common Stock"), and 200,000 shares of
preferred stock, (the "Preferred Stock").
COMMON STOCK
Holders of Common Stock are each entitled to cast one vote
for each share held of record on all matters presented to
shareholders. Cumulative voting is not allowed; hence, the
holders of a majority of the outstanding Common Stock can
elect all directors.
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 is
not obligated to declare a dividend. It is not anticipated
that dividends will be paid in the foreseeable future.
Holders of Common Stock do not have preemptive rights to
subscribe to
additional shares if issued by the Company. There are no
conversion, redemption, sinking fund or similar provisions
regarding the Common Stock. All of the outstanding shares
of Common Stock are fully paid and nonassessable and all of
the shares of Common Stock offered as a component of the
Units will be, upon issuance, fully paid and non
assessable.
PREFERRED STOCK
The Company's Articles of Incorporation provide that the
Board of Directors has the authority to divide the
Preferred Stock into series and, within the limitations
provided by Colorado statute, to fix by resolution the
voting power, designations, preferences, and relative
participation, special rights,
and the qualifications, limitations or restrictions of the
shares of any series so established. As the Board of
Directors has authority to establish the terms of, and to
issue, the Preferred Stock without shareholder approval,
the Preferred Stock could be issued to defend against any
attempted takeover of the Company.
The Company has no plans respecting the issuance of its
Preferred Stock.
WARRANTS
In connection with the Company's February, 1992 public
offering, the Company issued 5,175,000 Warrants. Every ten
Warrants entitle the holder to purchase one share of the
Company's Common Stock at a price of $46.50 per share prior
to February 7, 1997. The Company, upon 30 days notice, may
accelerate the expiration date of the Warrants, 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 any time 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. If the
expiration date is accelerated, all Warrants not exercised
within the 30-day period will expire.
Other provisions of the Warrants are set forth below. This
information is subject to the provisions of the Warrant
Certificate representing the Warrants.
1. Holders of the Warrants may sell the Warrants rather
than exercise them. However, there can be no assurance
that a market will develop or continue as to the Warrants.
2. Unless exercised within the time provided for
exercise, the Warrants will automatically expire.
3. The exercise price of the Warrants may not be
increased during the term of the Warrants, but the exercise
price may be decreased at the discretion of the Company's
Board of Directors by giving each Warrant holder notice of
such decrease. The exercise period for the Warrants may be
extended by the Company's Board of Directors giving notice
of such extension to each Warrant holder of record.
4. There is no minimum number of shares which must be
purchased upon exercise of the Warrants.
5. The holders of the Warrants in certain instances are
protected against dilution of their interests represented
by the underlying shares of Common Stock upon the
occurrence of stock dividends, stock splits,
reclassifications, and mergers.
6. The holders of the Warrants have no voting
power and are not entitled to dividends. In the event of a
liquidation, dissolution, or winding up of the Company,
holders of the Warrants will not be entitled to participate
in the
distribution of the Company's assets.
TRANSFER AND WARRANT AGENT
American Securities Transfer, Inc., of Denver, Colorado, is
the transfer agent of the Company's Common Stock and
Warrants.
LITIGATION
In February 1996 the Company filed a lawsuit against
ImmunoRx and Dr. John Hadden for contract breach, tortious
interference of contract and patent infringement concerning
the Company's Multikine drug. The lawsuit, filed in the
U.S. Distrit Court for the Middle District of Florida,
seeks damages and the termination of certain research and
clinical studies being conducted by ImmunoRx and Dr.
Hadden. From 1984 to 1992, Dr. Hadden consulted with the
Company, performed research on Multikine and manufactured
Multikine for the Company's head and neck cancer
study in Florida. In early 1993, Dr. Hadden signed a
separation agreement with the Company acknowledging the
Company's ownership of both Multikine and the research
results. The Company has learned that Dr. Hadden and
ImmunoRx are apparently making copies of Multikine, in
contravention of the separation agreement and the patents
covering Multikine, and have begun clinical studies in a
foreign country using a copy of Multikine. See "Business
Compounds and Processes Licensed to the Company".
INDEMNIFICATION
The Company's Bylaws authorize indemnification of a
director, officer, employee or agent of the Company against
expenses incurred by him in connection with any action,
suit, or proceeding to which he is named a party by reason
of his having acted or served in such capacity, except for
liabilities arising from his own misconduct or negligence
in performance of his duty. In addition, even a director,
officer, employee, or agent of the Company who was found
liable for misconduct or negligence in the performance of
his duty may obtain such indemnification if, in view of all
the circumstances in the case, a court of competent
jurisdiction determines
such person is fairly and reasonably entitled to
indemnification. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted
to directors, officers, or persons controlling the Company
pursuant to the foregoing provisions, the Company has been
informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy
as expressed in the Act and is therefore unenforceable.
LEGAL MATTERS
Hart and Trinen, Denver, Colorado, has acted as counsel to
the Company in connection with this Offering.
EXPERTS
The financial statements as of September 30, 1995 and 1994
and for each of the three years in the period ended
September 30, 1995 included in this prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are so
included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange
Commission, 450 5th Street, N.W., Washington, D.C. 20001, a
Registration Statement under the Securities and Exchange
Act of l933, as amended, with respect to the securities
offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement. For
further information with respect to the Company and such
securities, reference is made to the Registration Statement
and to Exhibits filed therewith. Statements contained in
this Prospectus as to the contents of any contract or other
documents are summaries which are not necessarily complete,
and in each instance reference is made to the copy of such
contract or other document filed as an Exhibit to the
Registration Statement, each such statement being qualified
in all respects by such reference. Copies of each document
may be inspected at the Commission's offices at 450 Fifth
Street, N.W., Washington, D.C., 20549, and copies may be
obtained at the Washington, D.C. office upon payment of the
charges prescribed by the Commission. No dealer, salesman
or other person has been authorized to give any information
or to make any representations, other than those contained
in this Prospectus. Any information or representation not
contained in this Prospectus must not be relied upon as
having been authorized by the Company. This Prospectus does
not constitute an offer to sell, or a solicitation of an
offer to buy, the securities offered hereby in any state
or other jurisdiction to any person to whom it is
unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus
nor any sale made hereunder shall, under any
circumstances, create an implication that there has been
no change in the affairs of the Company since the date
hereof.
TABLE OF CONTENTS
Prospectus Summary
................................................
Glossary of Technical Terms
....................................... Risk Factors
......................................................
Dilution
.......................................................
.. . Market Information
................................................
Selected Financial Data
...........................................
Management's Discussion and Analysis
.............................. Business
.......................................................
.. . Management
.......................................................
. Principal Shareholders
............................................ Selling
Shareholder
...............................................
Description of Securities
......................................... Litigation
.......................................................
. Indemnification
...................................................
Legal Matters
.....................................................
Experts
.......................................................
.. .. Additional Information
............................................ Financial
Statements
.............................................. 20,000
Shares of Common Stock
CEL-SCI CORPORATION
PROSPECTUS
PART II
Information Not Required in Prospectus Item 13. OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION.
Registration Fee . . . . $155
NASD Filing Fee . . .
548 Blue Sky Fees and
Expenses .300 Printing . .
. . . . . . 200
Legal Fees . .
. . . .20,000 Accounting
Fees
. . . . 2,000
Miscellaneous Expenses
and Contingency
1,797
$25,000
All expenses other than the S.E.C. and NASD filing fees are
estimated.
Item 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
It is provided in Section 7-3-101 of the Colorado
Corporation Law and Article I of the Registrant's Articles
of Incorporation, that the Registrant may indemnify any and
all of its officers, directors, employees or agents or
former officers, directors, employees or agents, against
expenses actually and necessarily incurred by them, in
connection with the defense of any legal proceeding or
threatened legal proceeding, except as to matters in which
such persons shall be determined to not have acted in good
faith and in the best interest of the Company.
Item 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information sets forth all Common Stock of
the Registrant which were sold by it within the past three
years and which securities were
not registered under the Securities Act of 1933, as
amended. No Underwriters were involved in connection with
the issuance of such shares and no underwriting discounts
or commissions were paid to any person.
Shares of
Common Date of
Security Holder Stock Sold Sale
Consideration
Daryl Strahl 2,431 11/1/93
8,038(1)
Isadore Klausner 25,000 11/1/93
(2)
Private Investors 575,000 6/22/95
$1,150,000
Private Investors 575,000 9/30/95
$1,150,000
Private Investors 312,500 12/23/95
$500,000
Private Investors 312,500 1/30/96
$500,000
Unless otherwise indicated, the consideration paid for the
shares was
cash.
(1) Surrender of options to Company. The options
surrendered were valued at $8,038.
(2) Settlement of claim against officer and director.
Officer and director was indemnified by Company for this
claim. Accordingly, shares were issued directly to Mr.
Klausner, the person asserting the claim against the
officer and director.
The sales of the Company's Common Stock described above were
exempt transactions under Section 4(2) of the Act as
transactions by an issuer not involving a public offering.
The shares of Common Stock sold subsequent to February 1995
were also exempt in accordance with Rule 505 of the
Securities and Exchange Commission. All of the shares of
Common
Stock were issued for investment purposes only and without a
view to distribution. All of the persons who acquired the
foregoing securities were fully informed and advised about
matters concerning the Company, including its business,
financial affairs and other matters. The purchasers of the
Company's Common Stock acquired the securities for their own
accounts. The certificates
evidencing the securities bear legends stating that they may
not be offered, sold or transferred other than pursuant to
an effective registration statement under the Securities Act
of 1933, or pursuant to an applicable exemption from
registration. No underwriters were involved with the sale of
the shares of Common Stock and no commissions or other forms
of remuneration were paid to
any person in connection with sales of the Company's
securities prior to June1995. The Company paid a commission
of $230,000, a non accountable
expense allowance of $69,000, and issued warrants for the
purchase of up to 230,000 shares of Common Stock, to
Neidiger/Tucker/Bruner, Inc. in connection with the sale of
the securities sold in June and September 1995. All of the
shares of Common Stock sold by the
Company
are "restricted" shares as defined in Rule 144 of the Rules
and Regulations of the Securities and Exchange Commmission.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
TABLE)
(a) Exhibits Page
Number
3(a) Articles of Incorporation Incorporated by
reference
to
Exhibit
3(a) of the Company's
combined Registration
Statement on Form S1 and PostEffective Amendment
("Registration Statement"), Registration Nos. 2-85547-D and
33 7531.
(b) Amended Articles Incorporated by
reference
to Exhibit 3(a) of
the Company's
Registration
Statement on Form S
1, Registration Nos. 2-85547-D, 337531 and 3395032.
Amended Articles Filed with initial
Registration
State (Name change only) ment (No. 33-34878).
(d) Bylaws Incorporated by
reference
to Exhibit 3(b) of the
Company's
Registration Statement
on Form S 1,
Registration Nos.
285547D and 33-7531.
4(a) Specimen copy of Incorporated by
reference
to
Exhibit
Stock Certificate 4(a) of the Company's
Registration
Statement on Form S-1,
Registration Nos. 2
85547D and 337531.
Form of Common Stock Incorporated by
reference
to
Exhibit
Purchase Warrant 4 filed as an exhibit
to
the
Company's Registration
Statement on Form S-1
(Registration No. 33
43281).
5. Opinion of Counsel Filed with initial
Registration
Statement.
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 of the Company's
Registration
May 3, 1983 Statement on Form S-1,
Registration
Nos. 2-85547-D and 33
7531.
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 Filed with
Amendment
Number
1
to
the
Geert Kersten Company's Registration
Statement
on
Form S-1 (Commission
File Number 3343281).
10(g) Agreement between Viral Filed with Amendment
Number
2
to
the
Technologies, Inc. and Company's Registration
Statement
on
Form
Nippon Zeon Co., Ltd. S-1 (Commission File
Number
33-
90230).
23(a) Consent of Hart & Trinen Filed with initial
Registration
Statement.
(b) Consent of Deloitte &
Touche LLP
24. Power of Attorney Included as part of
signature
page.
(b) Financial Statement Schedules
None.
Item l7. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement.
(i) To include any Prospectus required by Section
l0(a)(3) of
the Securities Act of l933;
(ii) To reflect in the Prospectus any facts or
events arising after the effective date of the
Registration Statement (or the most recent post
effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in
the information set forth in the Registration
Statement;
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the Registration Statement or any
material change to such information in the
Registration Statement, including (but not limited
to) any addition or deletion of a managing
underwriter.
(2) That, for the pupose of determining any liability
under the Securities Act of l933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(4) Insofar as indemnification for liabilities arising
under
the Securities Act of 1933 may be permitted to directors,
officers and controlling pesons of the registrant, the
registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by
such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Act and will be governed
by the final adjudication of such issue. POWER OF ATTORNEY
The registrant and each person whose signature appears
below hereby authorizes the agent for service named in
this Registration Statement, with full power to act alone,
to file one or more amendments (including post effective
amendments) to this Registration Statement, which
amendments may make such changes in this Registration
Statement as such agent for service deems appropriate, and
the Registrant and each such person hereby appoints such
agent for service as attorneyinfact, with full power to
act alone, to execute in the name and in behalf of the
Registrant and any such person, individually and in each
capacity stated below, any such amendments to this
Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of
l933, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto
duly authorized, in the City of Alexandria, State of
Virginia, on the 12th day of March, 1996.
CEL-SCI CORPORATION
By: /s/ Maximilian
de
Clara Pursuant to the requirements of the Securities Act
of l933, this Registration Statement has been signed by
the following persons in the capacities and on the dates
indicated. Signature Title
Date
/s/ Maximilian de Clara Director and President
March
12,
1996
/s/ Geert R. Kersten Director, Principal March
12,
1996
Financial Officer and
Chief Executive Officer
Mark V. Soresi Director
/s/ F. Donald Hudson Director
March
12,1996
/s/ Edwin A. Shalloway Director March
12,1996
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Post-Effective Amendment No.
2 to the Registration Statement No. 33-83732 of CEL-SCI
Corporation on Form S1 of our report dated November 29,
1995, except for Note 14, as to which the date is
December 23, 1995, appearing in the Prospectus, which is
part of such Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Washington, D.C.
March 8, 1996
March 13, 1996
Susan Helfrick
Mail Stop 3-10
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Re: CEL-SCI Corporation
Post-Effective Amendment No. 2 to
Registration Statement on Form S
1
Commission File No. 33-83732
Dear Ms. Helfrick:
On behalf of CEL-SCI Corporation (the "Company"),
enclosed herewith please find:
1. Three copies of Post-Effective Amendment No. 2 to
the
Registration
Statement on Form S-1. The manually signed copy has been
marked near the top of the page for ease of
identification.
2. Eight additional copies of Post-Effective
Amendment No. 2. Five copies have been marked to show
changes that have been made to the Registration
Statement.
The following are the Company's responses to the Staff's
comment letter dated February 22, 1996:
C-1 We have added disclosure to the prospectus
concerning
the
lawsuit
which is the subject of this comment.
C-2 Pacaya, Ltd. has sold 200,000 shares of the
Company's
common
stock
which were registered by means of this Registration
Statement.
C-3 The total expenses related to this offering is set
forth
on
the
cover
page of the prospectus. There is no distribution
table since the shares offered will be sold from
time to time at varying prices.
C-4 Comment complied with.
C-5 We have updated the disclosure concerning the
Company's
IND
application with the FDA.
C-6 We have included a listing of material risks
pertaining
to
this
offering in the prospectus summary.
C-7 The risk factor headings in this Registration
Statement
are
identical
to those in the Company's Registration Statement on
Form S1 (Commission File No. 33-90230) which was
reviewed by Paul Swegle and declared effective by
the Commission on July 12, 1995. Since (i) the
Staff did not have any problems with the risk
factor headings in this previous Registration
Statement
and (ii) the nature of the risk factors in this
Registration Statement are virtually identical to
those in the prior Registration Statement, we see
no reason why the Risk Factor headings in this
Registration Statement should change.
C-8 Comment complied with.
C-9 Comment complied with.
C-10 We have added disclosure concerning the
potential
dilution
of
the
shareholders' voting interest as a result of the
exercise of any options or warrants. Since the
Company does not have any earnings, we did not
mention the potential dilution of earnings.
C-11 Comment complied with.
C-12 As a result of the acquisition of VTI and the
technology
from
CELL-
MED,
the Company is no longer dependent on the development of a
single product.
C-13 We have expanded the management risk factor to
include
a
reference
to
scientific personnel. The Company did not lose
any employees as a result of the opening of its
laboratory. Any restrictions imposed by financing
covenants relating to the Company's bank loan are
discussed under the risk factor "Dividends".
C-14 Since (i) the Company's products are not yet
available
for
commercial
sale and (ii) such products, once available for
sale, are likely to have sales potential
throughout the world, the Company is not at this
time able to discuss issues involving third party
reimbursement or health care reform initiatives in
the United States.
C-15 Comment complied with.
C-16 The sentence which is the subject of this comment
has
been
removed
from the Company's Registration Statement.
C-17 We have clarified the meaning of the terms
"significant
biological
responses" and "proliferate". The terms "killer T-
cells" and "anti body"
are defined in the "Definition" section of the prospectus.
C-18 The English trials provided data needed for the
Florida
trials,
and
the Florida trials provided data needed for the
Company's IND application. Nevertheless, the
Company's rationale in this regard is not material
to investors given the recent clearance by the FDA
of the Company's IND application.
C-19 Comment complied with.
C-20
& C-21 Comments complied with.
C-22 The Company has clarified certain portions of the
disclosure
relating
to the opposition filed by a German company with
the European patent office. Since 1992 there have
been no further proceedings relating to this
patent. Accordingly, the Company is not able to
provide any further information concerning this
matter other than that which is presently
disclosed in Amendment No. 2.
C-23 Comment complied with.
C-24 The disclosure which is the subject of this
comment
has
been
removed
from the prospectus.
C-25 Maximilian de Clara is not a director, executive
officer
or
shareholder of Pacaya, Ltd. and will not receive
any of the proceeds from the sale of the shares
offered by Pacaya, Ltd.
C-26 We have added disclosures to the Registration
Statement
pertaining
to
legal matters which took place within the
Company's last three fiscal years and which are
above the threshhold provided by Rule 404 of
Regulation S-K.
C-27 VTI, at the time of its acquisition, did not have
(i)
an
office,
(ii)
a listed telephone number, (iii) any products to
sell, (iv) any customers, (v) any revenues, or
(vi) any marketing organization. VTI, although
organized as a corporation, was in reality a joint
venture formed by the Company and Alpha l
Biomedicals, Inc. to develop certain technology.
At the time the Company acquired the remaining 50%
interest in VTI, this technology was still in the
development stage. Accordingly, the Company's
unaudited financial statements at December 31,
1995 expensed the acquisition cost of VTI as
research and development expense. Based upon the
foregoing, it is our opinion that VTI is not a
"business", as that term is defined by Rule 11-
01(d) of Regulation S-X and the financial
statements requested by this comment are not
required by Regulation S-X.
C-28 The exercise price of the warrants was reduced
from
$3.25
to
$1.60
in
consideration for the agreement from the warrant
holders to exercise certain of the warrants prior
to January 31, 1996. The Company does not believe
that any adjustment to its financial statements
are required as a result of the change to the
warrant exercise price.
C-29 Comment complied with.
C-30 Comment complied with.
If you should have any further questions regarding the
Company's Registration Statement, please do not hesitate
to contact the undersigned. Thank you for your time and
cooperation with respect to this filing.
Very truly yours,
HART & TRINEN
William T. Hart
CEL-SCI CORPORATION
Financial Statements for the Years Ended September 30,
1995, 1994, and 1993, and Independent Auditors' Report
To the Board of Directors and Shareholders of
CEL-SCI Corporation:
We have audited the accompanying balance sheets of CEL-SCI
Corporation as of September 30, 1995 and 1994, and the
related
statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended
September 30, 1995. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of CELSCI Corporation as of September 30, 1995
and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, as of
September 30, 1994, the Company changed its method of
accounting for certain investments in debt and equity
securities to conform with Statement of Financial
Accounting Standards No. 115. Washington, DC
November 29, 1995, except for Note 14, as to which
the date is December 23, 1995
Page F-2
F - 3
Page F-3
Page F-4
Page F-5
CEL-SCI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994, AND
1993 2
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
CEL-SCI Corporation (the Company) was
incorporated on March 22, 1983, in the
State of Colorado,
to finance research and development
in biomedical science and ultimately
to engage in marketing products.
Significant accounting policies are as
follows: Investments -
Effective September 30,
1994, the Company adopted, on a
prospective basis, Statement of
Financial Accounting Standard No.
115, "Accounting for Certain Debt
and Equity Securities" (SFAS 115)
and revised its policy for
investments. Investments that may
be sold as part of the liquidity
management of the Company or for other
factors are classified as available-for
sale and are carried at fair market
value. Unrealized gains and losses on
such securities are reported as a
separate component of stockholders'
equity. Realized gains and losses on
sales of securities are reported in
earnings and computed using the
specific identified cost basis. The
adoption of SFAS 115, which has not
been applied retroactively to prior
years' financial statements, resulted
in a decrease in stockholders' equity
of $85,753 for the net unrealized
losses on investments available forsale
at September 30, 1994. As of
September 30, 1995, all debt and
equity securities had been
disposed of and any unrealized
gains or losses were recognized
during the year ended September
30, 1995 (see Note 2).
Prior to September 30, 1994,
all investments available-for-
sale were carried at the lower of
aggregate amortized cost or
market value.
Research and Office Equipment
Research and
office equipment is recorded at
cost and depreciated using the
straightline method over five and
seven years estimated useful
lives.
Research and Development
Costs Research and development
expenditures are expensed as
incurred.
Patents - Patent expenditures
are capitalized and amortized
using the straight line method
over 17 years. In the event
changes in technology or other
circumstances impair the value
or life of the patent,
appropriate adjustment in the
asset value and period of
amortization will be made.
Net Loss Per Share - Net loss
per
common share is based on the
weighted average number of
common shares outstanding during
the period. Common stock
equivalents, including options
to purchase common stock, are
excluded from
the calculation as they are
antidilutive.
Investment in Joint Venture
Investment in joint venture is
accounted for by the equity
method. The Company's
proportionate share of the net
loss of the joint venture is
included in the respective
statements of operations.
Statement of Cash Flows - For
purposes
of the statements of cash flows,
cash consists principally of
unrestricted cash on deposit,
and short-term money market
funds. The Company considers all
highly liquid investments with a
maturity of less than three
months to be cash equivalents.
Prepaid Expenses - The
majority of prepaid expenses
consist of bulk purchases of
laboratory supplies to be
consumed in the manufacturing of
the Company's product for
clinical studies and for its
further development.
Income Taxes - Effective
October 1,
1993, the Company adopted
Statement of Financial
Accounting Standard No. 109,
"Accounting for Income Taxes"
(SFAS 109). SFAS 109 requires an
asset and liability approach for
reporting income taxes.
Implementation of SFAS 109 in
1994 did not have any effect on
the Company's net earnings and
reported financial position and
prior financial statements have
not been restated.
Reclassifications - Certain
reclassifications have been made
for 1994 and 1993 for
comparative purposes.
2. INVESTMENTS
The carrying values and estimated
market values of investments available
for-sale at September 30, 1995, are as
follows:
Note2a
The carrying values and estimated
market values of investment
securities at September 30, 1994,
are as follows:
Note2b
The gross realized gains and losses of
sales of investments available
forsale for the years ended
September 30, 1995, 1994, and 1993,
are as follows:
Note 2c
3. PROPERTY AND EQUIPMENT
Property and equipment at September
30, 1995 and 1994, consist of the
following:
Note3a
4. JOINT VENTURE
In April 1986, the Company paid
$200,000 cash and issued 500,000
shares of its $.01 par value common
stock to acquire half the rights to
technology which may be useful in
the diagnosis, prevention and
treatment of Acquired Immune
Deficiency Syndrome (AIDS) from
Alpha I Biomedicals, Inc. The
Company's stock was valued at $1.50
per share on the basis of arm's
length negotiations. At the time
the transaction took place, the
stock was trading at $2.42. Because
the cost of these rights to
technology is considered research
and development, the $950,000
purchase price was expensed.
The Company and Alpha 1 Biomedicals,
Inc. (Alpha 1)
contributed their respective
interests in the technology and
$10,000 each to capitalize a joint
venture, Viral Technologies, Inc.
(VTI). VTI is wholly owned by the
Company and Alpha 1, each having a
50% ownership interest. The total
loaned or advanced to VTI by CELSCI
Corporation through September 30,
1995, was $1,592,584 (see Note 13).
During the three years ended
September 30, 1995, VTI had no
sales. The operations of VTI were
as follows:
Note4a
The balance sheets of VTI at
September 30,
1995 and
1994, are summarized as follows:
Note4b
On December 17, 1987, Viral
Technologies, Inc., entered into a
licensing agreement with Nippon
Zeon Company, Ltd., a Japanese
company. Under the agreement,
Nippon Zeon will engage in the
development and testing and, if
development is successful, the
marketing of the potential AIDS
vaccine in the Pacific Rim area.
As a result, Viral Technologies,
Inc., received precommercialization
payments of $850,000 during the
year ended September 30, 1988.
During the year ended September 30,
1995, VTI purchased back from
Nippon Zeon the licensing
agreement. No cash or stock was
exchanged; however, Nippon Zeon
retains a royalty on any future
sales of the drug HGP30 in its
former exclusive licensed
territories.
5. CREDIT ARRANGEMENTS
At September 30, 1995, the Company
had a promissory
note outstanding with a bank in the
amount of $811,263. This
promissory note was converted in
November 1994 from a prior line of
credit. The line of credit
outstanding at September 30, 1994,
was $788,601, and the Company
subsequently drew down additional
amounts during the year ended
September 30, 1995, prior to
converting the line of credit to a
promissory note. The principal is
being repaid over forty-eight
consecutive months beginning
February 5, 1995. Interest on the
outstanding balance is calculated
at the Bank's prime rate plus two
percent, which is 10.75% at
September 30, 1995, and is to be
paid monthly with the principal
payments. The promissory note is
secured by all corporate assets and
requires the
Company to hold a certificate of
deposit equal to 20% of the
outstanding balance of the line of
credit with the Bank. Under the
promissory note the Company is also
subject to certain minimum equity,
liquidity, and operating covenants.
6. COMMITMENTS AND CONTINGENCIES
In 1993, an officer and director of
the Company was involved in legal
proceedings concerning shares of
the Company's common stock. The
officer and director was acting on
behalf of the Company in trying to
secure financing, and the Company
paid legal fees in connection with
these proceedings and indemnified
the officer for any loss he
suffered upon the settlement of
these matters. During 1992, one of
the matters was settled by the
officer and director delivering
3,000 shares of the Company's
common stock to one plantiff and
paying this plantiff $200,000. In
the other matter, a European Court
awarded a different plantiff 25,000
shares of the Company's common
stock owned by the officer and
director. In October 1993, the
Company issued 25,000 shares of
common stock to the plaintiff to
satisfy the judgment and in lieu of
reimbursement to the officer and
director for this claim. The value
of the shares issued, $202,500, was
expensed during 1993 and was
included in accrued expenses at
September 30, 1993.
7. RELATED-PARTY TRANSACTIONS
The technology and know-how licensed
to
the Company was developed by a group
of researchers under the direction
of Dr. Hans Ake Fabricius and was
assigned during 1980 and 1981 to
Hooper Trading Company, N.V., a
Netherlands Antilles corporation
(Hooper) and Shanksville
Corporation, also a Netherlands
Antilles corporation (Shanksville).
Maximillian de Clara, an officer and
director
in the Company, and Dr. Fabricius own
50% and 30%, respectively, of each of
these companies. The technology and
knowhow assigned to Hooper and
Shanksville was licensed to Sittona
Company, B.V., a Netherlands
corporation (Sittona), effective
September, 1982 pursuant to a
licensing agreement which requires
Sittona to pay to Hooper and
Shanksville royalties on income
received by Sittona respecting the
technology and know-how licensed to
Sittona. In 1983, Sittona licensed
this
technology to the Company. At such
time as the Company generates revenues
from the sale or sublicense of this
technology, the Company will be
required to pay royalties to Sittona
equal to 10% of net sales and 15% of
licensing royalties received from
third parties. In that event,
Sittona, pursuant to its licensing
agreements with Hooper and
Shanksville, will be required to pay
to those companies a minimum of 10% of
any royalty payments received from the
Company. In 1985 Mr. de Clara acquired
100% of the issued and outstanding
stock of Sittona. Mr. de Clara and Dr.
Fabricius, because of their ownership
interests in Hooper and Shanksville,
could receive approximately 50% and
30% respectively, of any royalties
paid by Sittona to Hooper and
Shanksville, and Mr. de Clara, through
his interest in all three companies
(Hooper, Shanksville, and Sittona),
will receive up to 95% of any
royalties paid by the Company. During
1992, the Company reimbursed an
officer and director for legal fees
incurred in connection with certain
legal proceedings as discussed in
Note
6. In addition, during 1992 the
Company paid the officer and director
$200,000, representing the amount
that
he paid in connection with one of the
legal proceedings discussed in Note 6
and, in 1993, issued 3,000 shares of
common stock to the officer and
director as reimbursement for shares
he delivered in connection with the
proceeding. The $200,000
payment was expensed in 1992, and the
value of the 3,000 shares, $20,100 was
expensed in 1993.
8. INCOME TAXES
The approximate tax effect of each type
of temporary differences and
carryforward that gave rise to the
Company's tax assets and liabilities
at September 30, 1995 and 1994, is as
follows:
Note8a
The Company has available for income
tax purposes net operating loss
carryforwards of approximately
$24,370,937, expiring from 1998
through 2007.
In the event of a significant change in
the ownership of the Company, the
utilization of such carryforwards
could be substantially limited.
9. STOCK OPTIONS, WARRANTS, AND BONUS
PLAN
During the year ended September 30, 1995,
the Board of Directors canceled certain
options under the various stock option
plans and replaced them with new
options.
Under this conversion the number of
options outstanding did not increase or
decrease as the conversion was an
exchange of options within the plans to
maximize reserved shares in the Plans
with the options granted.
The shareholders of the Company approved
the adoption of the 1995 Non-Qualified
Stock Option Plan (1995 Non-Qualified
Plan) and reserved 400,000 shares under
the plan. Terms of the options are to
be determined by the Company's
Compensation Committee, but in no event
are options to be granted for shares at
a price below fair market value at the
date of grant.
On February 23, 1988, the shareholders
of the Company adopted the 1987
Nonqualified Stock Option and Stock
Bonus Plan (the 1987 Plan). This plan
reserved 200,000 shares of the
Company's previously unissued common
stock to be granted as incentive stock
options to employees. The 1987 Plan
reserved 50,000 shares of the Company's
previously unissued common stock to be
granted as stock bonuses to employees.
The exercise price of the options could
not be established at less than fair
market value on the date of grant and
the option period could not be greater
than ten years. During 1993, the 1987
Plan was terminated and no further
options
will be granted and no further bonus
shares will be issued pursuant to the
1987 Plan.
On September 30, 1993, the shareholders
of the Company approved the adoption of
three new plans, the 1993 Incentive
Stock Option Plan (1993 Incentive
Plan), the 1993 Non Qualified Stock
Option Plan (1993 Non Qualified Plan)
and the Stock Bonus Plan
(1993 Bonus Plan). Shares are reserved
under each plan and total 100,000,
60,000 and 40,000 shares, respectively.
Only employees of the Company are
eligible to receive options under the
Incentive Plan, while the Company's
employees, directors, officers, and
consultants or advisors are eligible to
be granted options under the
NonQualified Plan or issued shares
under the Bonus Plan. Terms of the
options are to be determined by the
Company's Compensation Committee, which
will administer all of the plans, but
in no event are options to be granted
for shares at a price below fair market
value at date of grant. Options
granted under the option plans must be
granted, or
shares issued under the bonus plan
issued, before August 20, 2002.
On July 29, 1994, the Board of Directors
approved the adoption of two new plans,
the 1994 Incentive Stock Option Plan
(1994 Incentive Plan) and the 1994 Non-
Qualified Stock Option Plan (1994
NonQualified). Shares are reserved under
each plan and total 100,000 shares for
each plan. Only employees of the Company
are eligible to receive options under the
1994 Incentive Plan, while the Company's
employees, directors, officers, and
consultants or advisors are eligible to
be granted options under the 1994 Non-
Qualified Plan. Terms of the options are
to be determined by the Company's
Compensation Committee, which will
administer all of the plans, but in no
event are options to be granted for
shares at a price below fair market value
at date of grant. Options granted under
the option plans must be granted, or
shares issued under the bonus plan
issued, before July 29, 2004.
Information regarding the Company's stock
option plan is summarized as follows:
Note9a
Note9b
During 1991, the Company granted a
consultant an option to purchase 50,000
shares of the Company's common stock.
The option is exercisable at $13.80 per
share and expires in March 1996. The
holder of the option has the right to
have the shares issuable upon the
exercise of the option included in any
registration statement filed by the
Company.
Also during 1991, the Company granted
another consultant options to purchase
6,000 shares of the Company's common
stock. Options to purchase 667 shares
expired in April 1993. Options to
purchase 1,333 shares at $2.50 per share
were exercised in April 1994. At
September 30, 1995, options to purchase
4,000 shares were outstanding and
exercisable at prices ranging from $2.50
to $15.00 per share. In connection with
the 1992 public offering, 5,175,000
common stock purchase warrants were
issued and are outstanding at September
30, 1995. Every ten warrants entitle the
holder to purchase one share of common
stock at a price of $46.50 per share.
During 1995, the expiration of these
warrants was extended to February 1996.
The Company may accelerate the expiration
date of the warrants by giving 30 days
notice to the warrant holders, provided,
however, that at the time the Company
gives such notice of acceleration (1) the
Company has in effect a current
registration statement covering the
shares of common stock issuable upon the
exercise of the warrants and (2) at
anytime during the 30day period preceding
such notice, the average closing bid
price of the Company's common stock has
been at
least 20% higher than the warrant exercise
price for 15 consecutive trading
days.
Also in connection with the 1992 offering,
the Company issued to the underwriter
warrants to purchase 9,000 equity units,
each unit consisting of 5 shares of
common stock and 5 warrants entitling the
holder to purchase one additional share
of common stock. The equity unit
warrants are outstanding at September 30,
1995 and are exercisable through February
8, 1997, at a price of $255.70 per unit.
The common stock warrants included in the
units are exercisable at a price of
$76.70 per share. During 1995, the
Company granted another consultant
options to purchase 17,858 shares of the
Company's common stock. These shares
became exercisable on November 2, 1995,
and will expire November 1, 1999. These
options are exercisable at $5.60 per
share.
10.EMPLOYEE BENEFIT PLAN
During 1993 the Company implemented a
defined contribution retirement plan,
qualifying under Section 401(k) of the
Internal Revenue Code, subject to the
Employee Retirement Income Security Act
of 1974, as amended, and covering
substantially all CEL-SCI employees. The
employer contributes an amount equal to
50% of each employee's contribution not
to exceed 6% of the participant's salary.
The expense for the year ended September
30,
1995 and 1994, in connection with this plan
was approximately $24,913 and $16,160,
respectively.
11.LEASE COMMITMENTS
Operating Leases - The future minimum
annual rental payments due under
noncancelable operating leases for office
and laboratory space are as follows:
Note11a
Rent expense for the year ended September
30, 1995,
1994, and 1993, was approximately
$124,059, $122,369, and $55,000,
respectively.
12.STOCKHOLDERS' EQUITY
On April 28, 1995 the stockholders of the
Company approved a 10-for-1 reverse split
of the Company's outstanding common
stock, which became effective on May 1,
1995. All shares and per-share amounts
have been restated to reflect the stock
split.
The Company also participated in a private
offering
during 1995. This offering allowed for
the purchase of one share of common stock
and one warrant (a unit) for the price of
$2.00 per unit. All 1,150,000 shares
authorized for the offering were
purchased during the year ended September
30, 1995. Warrants outstanding are
exercisable at $3.25 and expire on June
30, 1997. Cash of $2,300,000 was
received in June and September 1995.
Commissions of $344,150 were paid or
payable
relative to the offering at September 30,
1995.
During 1994, the Company granted 1,500
shares of common stock to an officer as a
bonus award. The Company also issued
25,000 shares to satisfy the judgment
against an officer and director. The
issuance was to the plantiff in lieu of
reimbursement to the officer and
director. The judgment was settled in
1993 and the expense of the issuance was
recorded in 1993.
During 1993, the Company received $27,333
cash for
7,333 shares of common stock. 13.SUBSEQUENT
EVENTS - JOINT VENTURE
In October 1995, the Company purchased Alpha
1's 50
percent interest in VTI. The Company
conveyed 159,170 shares of common stock
as full consideration for all of the VTI
capital stock owned by Alpha 1. The
acquisition of Alpha 1's interest will be
accounted for as purchase with
substantially all of the value of the
purchase price being expensed as research
and development costs.
14.SUBSEQUENT EVENTS - OTHER
On December 8, 1995, the Board of
Directors authorized the extension of the
Company's warrants issued in connection
with the 1992 public offering from
February 6, 1996, to February 6, 1997.
On December 23, 1995, the Company entered
into an agreement with investors to
reduce the exercise price of warrants to
purchase shares of the Company's common
stock issued in a 1995 private offering
from $3.25 to $1.60 per shares (Note 12).
Shares which may be acquired under this
agreement with exercise of the
warrants total 1,150,000. In connection
with modifying the warrant exercise
price, 312,500 warrants were exercised
for $500,000 in exchange for 312,500
shares of common stock on December 23,
1995. An additional 312,500
warrants are required to be exercised
prior to January 31, 1996 with the
remaining warrants outstanding through
June 30, 1997.
15.NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting
Standards Board issued Statement No. 121
regarding accounting for the impairment
of long-lived assets. This statement is
required to be adopted by the Company in
fiscal 1997. At the present time the
Company does not believe that adoption of
this statement will have a material
effect on its financial position or
results of its operations.
In October 1995, the Financial Accounting
Standards Board issued Statement No. 123,
Accounting for Stock Based Compensation.
This statement is required to be adopted by
the Company in fiscal1997. 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
PaidIn
Stock
Shares Amount Capital Other Deficit
Total BALANCE, OCTOBER 1, 1992
$-
4,148,980
$41,490 $26,560,96 $(13,300,04
$13,302,41
9 1) 8
Common stock issued for:
Cash 7,333
73
27,260 - - 27,333
Reimbursement of 3,000
30
20,070 - - 20,100
expenses
Net loss -
- -
- - -
(2,404,992) (2,404,992
)
BALANCE, SEPTEMBER 30, 1993
41,593
4,159,313
26,608,299 (15,705,033
10,944,859 )
Common stock issued for:
Cash 2,431
24
39,364 - - 39,388
Stock bonus plan 1,500
15
4,935 - - 4,950
Settlement of 25,000
250
202,250 - -
202,500
lawsuit
Net unrealized loss on
marketable
securities (Note 1) -
- -
- - - (85,753)
(85,753) Net loss
-
- -
- - -
(4,426,876) (4,426,876
)
BALANCE, SEPTEMBER 30, 1994
41,882
4,188,244
26,854,848 (85,753) (20,131,909
6,679,068 )
Common stock issued for
11,500 - -
cash 1,150,000
1,944,350
1,955,850
Change in market value
of marketable
securities available -
- -
- - 85,753 - 85,753
for sale (Note 1)
Net loss
- -
- -
- - -
(3,878,638) (3,878,638
)
BALANCE, SEPTEMBER 30, 1995
$-
5,338,244 $53,382 $28,799,19
$(24,010,54 $4,842,033
8 7)
See notes to financial
statements.
CEL-SCI CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1995,
1994, AND 1993
1995 1994 1993
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss
$(3,878,6 $(4,426,8 $(2,404,9
38) 76) 92)
Adjustments to reconcile net
loss to
net cash used in operating
activities:
Stock issued in payment of
- -
207,450 20,100
expenses
Depreciation and amortization
262,705
138,755 55,372
Equity in loss of Joint Venture
501,125 394,692 344,423
Net realized loss (gain) on sale
42,490
- -
of securities
(76,774)
Amortization of premium
6,407
25,683 18,762
Changes in assets and
liabilities:
Decrease (increase) in
4,147
- -
advances
(17,381)
Increase in prepaid
expenses, deposits, interest
receivable, and
receivable from joint venture
(396,705) (31,833) (292,182)
(Decrease) increase in
accounts payable,
accrued expenses, and
143,919 deferred rent
(68,330)
(111,552)
Decrease in payable to
- -
officer and shareholder
(52,370) (43,448)
Net cash used
in operating activities
(3,526,79
(3,950,20 (2,158,04
9) 6) 6)
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Purchases of investments
(389,688) (1,467,81 (5,993,31
8) 0)
Sales and maturities of investments
2,951,299
6,999,273 7,745,943
Advances to Joint Venture
(346,081) (300,000) (223,750)
Expenditures for property and
equipment
(151,006)
(999,807) (318,556)
Expenditures for patents
- -
- - (8,777)
Net cash provided
by investing activities 2,064,524
4,231,648 1,201,550
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Issuance of note payable
184,915
788,601 -
Issuance of common stock
39,388 27,333
1,955,850 Repayment of note payable
- - -
(162,253)
Net cash
827,989 27,333
provided by financing activities
1,978,512
NET INCREASE (DECREASE) IN CASH
516,237 1,109,431 (929,163)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR
3,370,713
2,261,282 3,190,445
CASH AND CASH EQUIVALENTS, END OF
YEAR
$3,886,95
$3,370,71 $2,261,28
0
3 2 SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITY:
During 1994, the net unrealized
loss on investments available-for-
sale was $85,753.
During 1994, 25,000 shares were
issued as settlement of a lawsuit at
a cost of $202,500 (see Note 6).
See notes to financial statements.
Year Ending
September 30,
Amount
1996
$135,123
1997
140,335
1998
56,160
1999
59,573
2000
62,010
Thereafter
162,728
Total minimum lease payments
$615,929
Septemb
er 30,
1995
Gross Gross Market
Value
Amortiz
Unreal Unreal at
ed
ized
ized Septemb
er 30,
Cost
Gains
Losses 1995
Certificates of
$-
$-
Deposit $170,00
$170,00
0
0
September 30,
1994
Gross Gross Market
Value
Amortize
Unreal
Unreali at
d
ized
zed Septembe
r 30,
Cost
Gains
Losses 1994
U.S. Government
$-
Securities $1,471,0
$46,362 $1,424,7
96
34
Corporate Debt
Securities 1,108,58
2,442
41,833 1,069,19
1
0
Certificates of
- -
- -
Deposit 200,832
200,832
$2,780,5
$2,442 $88,195 $2,694,7
09
56
1995 1994 1993
Realized gains
$-
$17,839 $128,205
Realized losses
60,329
51,431 -
Net realized gain (loss)
$-
$(42,490 $76,774
) 1995
1994 Research equipment
$979,048 $843,187
Furniture and equipment
136,486 120,185
Leasehold improvements
576,401 577,557
1,691,935 1,540,929
Less accumulated depreciation and
amortization
(589,897) (355,430)
Net property and equipment
$1,102,03 $1,185,49
8 9
Years
Ended
Septemb
er
30,
199
5
1994 1993
Income $-
$-
$ -
Expenses
789,384 688,846
1,002,250
Net Income (Loss)
$(1,002,25 $(789,384 $(688,846
0) ) )
September
30,
1995 1994
Current assets
$30,484 $24,403
Noncurrent assets
$187,821 $87,822
Current liabilities
$4,275,078 $3,197,143
Equity (deficit - net of initial
capitalization)
$(4,056,77 $(3,084,91
3) 8)
1995 1994
Depreciation
$(16,660) $(27,325)
Prepaid expenses
(14,413) (25,680)
Net operating loss carryforward
9,251,208 7,675,907
Other
9,474 6,680
Less: Valuation allowance
(9,229,609 (7,630,772
) )
Net deferred
$- $-
Opti
on
Pri
ce
Pe
r
Outsta Exerci
Share nding sable
1987 Stock Option and Bonus
Plan
Balance, September 30, 1992
$3.40
- -
20.90 189,25 31,000
0
Became exercisable
- -
77,999
Exercised
$4.00 (6,000
(6,000
) )
Balance, September 30, 1993
$3.40
1
9
.
6
0 183,25 102,99
0 9
Became exercisable
- -
40,250
Balance, September 30, 1994
$3.40
2
0
.
9
0 183,25 143,24
0 9
Canceled
$3.40
2
0
.
9
0 176,25 1 136,24
0 3 9
6
,
2
4
9
Balance, September 30, 1995 $19.70
16.50
7,000 7,000
1992 Incentive Stock Option
Plan
Balance, September 30, 1992 $13.40
500 -
Granted $13.80 -
- -
15.60
12,000 Balance, September 30, 1993 $13.40
15.60
12,500 Granted $6.80
-
- -
11.90
29,500 Became exercisable
- -
4,166
Balance, September 30, 1994 $6.80
15.60
4
42,000 4,166
2
0
,
0
0
0
Canceled $6.80 -
15.60 (42,00
(4,166
0) )
Granted $2.87 -
3.87
57,550 20,917
Balance, September 30, 1995 $2.87 -
3.87
4 57,550 20,917
2
0
,
0
0
0
1992 Nonqualified Stock Option
Plan
Balance, September 30, 1992 $13.40
- -
4
2,500 2
0
,
0
0
0
Granted $13.80 -
- -
15.60 15,500
Balance, September 30, 1993 $13.40
- -
18,000
Granted $8.70 -
- -
13.80 18,000 Became
exercisable
- -
18,000
Balance, September 30, 1994 $8.70 -
13.80
36,000 1 18,000
8
,
0
0
0
Canceled $8.70 -
- -
13.40 (7,500
) Granted $2.87
- -
31,500
Became Exercisable
- -
4 42,000
2
,
0
0
0
Balance, September 30, 1995 $2.87 -
15.60 60,000
6 60,000 0
,
0
0
0
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
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS THREE MONTHS ENDED DECEMBER 31,
1995 AND 1994
(unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared
in accordance with rules established by the
Securities and Exchange Commission for Form 10-Q.
Not all financial disclosures required to present the
financial position and results of operations in
accordance with generally accepted accounting principles
are included herein. The reader is referred to the
Company's Financial Statements included in the
registrant's Annual Report on Form 10-K for the year
ended September 30, 1995. In the opinion of management,
all accruals and adjustments (each of which is of a
normal recurring nature) necessary for a fair
presentation of the financial position as of December
31, 1995 and the results of operations for the three
month period then ended have been made. Significant
accounting
policies have been consistently applied in the interim
financial statements and the annual financial statements.
Investments
Effective September 30, 1994, the Company adopted, on
a prospective basis, Statement of
Financial Accounting Standard No. 115, "Accounting
for Certain Debt and Equity Securities" (SFAS 115) and
revised its policy for investments. Investments that may
be sold as part of the liquidity management of the
Company or for other factors are classified as available-
for-sale and are carried at fair market value.
Unrealized gains and losses on such securities are
reported as a separate component of
stockholders' equity. Realized
gains and losses on sales of securities are reported in
earnings and computed using the specific identified
cost basis. As of December 31, 1995, there is no
effect on the Company's financial statements.
Loss per Share
Net loss per common share is based on the weighted
average number of common shares outstanding during
the period. Common stock equivalents, including
options to purchase common stock, are excluded from the
calculation as they are antidilutive.
Long-lived Assets
Statement of Accounting Standards No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of" is effective for financial
statements for
fiscal years beginning after December 15, 1995. It is
the
Company's opinion that the adoption of the statement
would have no material effect on its Financial Statements.
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(unaudited) (continued)
B. JOINT VENTURE
On October 30, 1995, the Company announced it had
acquired Alpha 1 Biomedical's interest in Viral
Technologies, Inc. ("VTI"). VTI was formed by the two
companies in 1986. This transaction gives CEL-SCI 100%
ownership of VTI. Under the terms of the agreement,
CEL-SCI gave Alpha 1 Biomedicals,
Inc. 159,170 shares of CEL-SCI common stock as the
purchase price for net
assets with a fair value of approximately $170,000. The
acquisition was accounted for under the purchase method of
accounting; and as the acquisition represents primarily
research and development costs, the purchase price was
expensed and is included as research and development expense
for the three months ended December 31, 1995. The
contract also contains
provisions allowing for the repurchase of the shares by CEL
SCI and limits the amount of shares that can be sold in the
open market at any given time. Effective October 31, 1995,
the
Company has consolidated CEL-SCI's and VTI's financial
statements and the consolidated financial statements reflect
the results of VTI's operations since the date of
acquisition. This results in a significant increase in patent
costs on the consolidated balance sheet. Intercompany
accounts are
eliminated upon consolidation.
C. CONSTRUCTION OF NEW LABORATORY AND FUNDING
On January 31, 1994, the Company entered into a leasing agreement with
a non affiliated landlord for 7,800 square feet at 4820 Seton Drive,
Baltimore, Maryland. In the spring of 1994 the commenced
construction of the new laboratory. The cost of the laboratory buildout
and equipment was approximately $1,100,000. To fund this laboratory,
the Company borrowed funds from a bank at a rate of prime plus 2%. The
outstanding loan balance at December 31, 1995 is $750,418.
Item 1. FINANCIAL STATEMENTS
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED BALANCE
SHEETS
- ------------------------
ASSETS
(unaudited)
December 31, September
30,
1995 1995
CURRENT ASSETS:
Cash and cash equivalents $3,040,412 $3,886,950
Investments, net 170,000
170,000
Interest receivable 66,143
64,080
Prepaid expenses 303,962
341,295
Advances to officer/shareholder
and employees 6,930
13,234
3,587,447
4,475,559 RECEIVABLE FROM JOINT VENTURE
0 522,695
RESEARCH AND OFFICE EQUIPMENT-
Less accumulated depreciation
of $678,605 and $589,897
1,040,549
1,102,038
DEPOSITS
18,178
18,178
PATENT COSTS- less accumulated
amortization of
$318,723 and $239,490 423,467
240,541
$5,069,641
$6,359,011
See notes to
condensed financial statements.
3
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED BALANCE
SHEETS
- ------------------------
(continued)
LIABILITIES AND STOCKHOLDERS'
EQUITY
(unaudited)
December 31, Septemb
er
30,
1995 1995
CURRENT LIABILITIES:
Accounts payable $64,071.00
$248,488.00
Current portion note payable 243,372
243,372
Total current liabilities 307,443
491,860
NOTE PAYABLE 507,046
567,891
DEFERRED RENT 24,959
24,959
EQUITY IN SUBSIDIARY 0
432,268
Total liabilities 839,448
1,516,978
STOCKHOLDERS' EQUITY
Preferred stock, $.01
par value; authorized,
200,000 shares; none issued
-
- -
Common stock, $.01 par
value; authorized,
100,000,000 shares;
issued and outstanding,
5,809,914 and
5,338,244 shares
58,099
53,382
Additional paid-in capital
29,911,265
28,799,198
Deficit
(25,739,171)
(24,010,547)
TOTAL STOCKHOLDERS'
EQUITY 4,230,193
4,842,033
$5,069,641
$6,359,011 See notes to
condensed financial statements.
4
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
- ---------------------------------
(unaudited)
Three Months
Ended
December 31,
1995
1994 REVENUES:
Interest income $44,421
$116,701
Other income 18,080
- -
TOTAL INCOME 62,501
116,701
EXPENSES:
Research and development 1,238,197
618,636
Depreciation and
amortization 71,268
66,775
General and administrative 477,888
398,281
TOTAL OPERATING EXPENSES 1,787,353
1,083,692
EQUITY IN LOSS OF JOINT VENTURE (3,772)
(181,578)
1,791,125
1,265,270
NET LOSS $1,728,624
$1,148,569
LOSS PER COMMON SHARE $0.32
$0.27
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,457,431
4,188,244
See notes to
condensed financial statements.
5
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOW
- ---------------------------------
(unaudited)
Three Months
Ended
December 31,
1995
1994 CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS
$(1,728,624)
$(1,148,569) Adjustments to reconcile net loss
to
net cash used in operating
activities:
Depreciation and amortization 71,268
66,775
Equity in loss of joint venture 3,772
181,578
Amortization of premium on -
- -
investments
Realized loss on sale of
5,962
investments
Changes in assets and
liabilities:
Decrease (increase) in interest (2,063)
23,999
receivable
Decrease (increase) in prepaid 37,333
78
expenses
Decrease (increase) in advances 6,304
(844)
Decrease (increase) in
receivable from
joint venture -
(38,292)
Increase (decrease) in equity 432,268
in subsidiary
Increase (decrease) in accounts (184,417)
(255,546)
payable
NET CASH USED IN OPERATING (1,364,159)
(1,164,859)
ACTIVITIES
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITY:
Purchase of 50% of Viral
(533,433)
- -
Technologies from Alpha 1
Sales of investments
- -
690,900
Advance to Joint Venture
- -
(34,455)
Payment on note
(60,845)
(797)
Purchase of research and office
- -
(112,211)
equipment
Patent costs
(4,885)
- -
NET CASH USED IN INVESTING
(599,163)
543,437
ACTIVITY
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Issuance of common stock
1,116,784
- -
NET CASH PROVIDED BY FINANCING
1,116,784
- -
ACTIVITIES
NET INCREASE IN CASH
(846,538)
(621,422)
CASH AND CASH EQUIVALENTS:
Beginning of period
3,886,950
3,370,713
End of period
$3,040,412
$2,749,291
See notes to
condensed financial statements.
6
