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. 1 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
code
of
rincipal 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
allcommunications 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
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-l
Location
in
Prospectus
Item 1 Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus .............................. Facing Page;
Outside Front Cover Page
Item 2 Inside Front and Outside Back Cover
Pages of Prospectus ..................... Inside Front
Cover Page; Outside Back Cover Page
Item 3 Summary Information, Risk Factors and
Ratio of Earnings to Fixed Changes ...... Prospectus
Summary; Risk Factors
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
(c) Legal Proceedings ....................... Legal
Proceedings
(d) Certain Market Information .............. Market
Information,
Des-
cription 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
Discussion
and Analysis of Financial Condition and Results of Oper
ation (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 PUR CHASED 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." 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 April 28, l995, the shareholders of the Company approved a
ten for one reverse split of the Company's Common Stock. On
January 24, 1996 the closing prices of the Company's Common
Stock and Warrants on the NASDAQ National Market System were
$2.68 and $0.09, 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 Se curities 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
MULTIKINETM. The Company was initially formed under the name
Interleukin2, Inc. and changed its name to CEL-SCI Corporation
in March, 1988. The compounds, compositions and processes, to
which the Company has acquired an exclusive world-wide license,
are being tested to determine if they are effective in
improving the immune response of advanced cancer patients.
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 con ducted 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 July, 1994, the Company filed an
Investigational New Drug Application ("IND") with the U.S. Food
and Drug Administration. See "Business Research and
Development". In December l994 the FDA notified the Company
that the Company's IND application was placed on clinical hold
pending receipt of additional data and modifications to the
Company's manufacturing process. The Company plans to meet
with the FDA to discuss the issues raised by the FDA.
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 HotelDieu 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 October 1995 Viral Technologies, Inc. ("VTI") became a
wholly owned subsidiary of the Company. VTI is engaged in the
development of a pos sible 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.
None of the Company's or VTI's clinical trials to date
have been conducted under the approval of the FDA and there are
no assurances that clinical trials conducted under approvals
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 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 $24,010,000 at September
30, 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 Sharholder"). 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.
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
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, 467,086 672,595 Shareholders'
Equity 4,842,033 6,679,068 10,944,859 13,302,4l8
939,304
No dividends have been declared by the Company since its
inception.
GLOSSARY OF TECHNICAL TERMS
AIDS. Acquired Immune Deficiency Syndrome. A severe
viral
disease of the immune system leading to other
lethal infec tions 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 on 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 func tions 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
informationbut 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 September 30, 1995, the Company
has incurred net losses of approximately $24,010,000. 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
"Business Viral 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 de veloped 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. None of the Company's clinical trials have been
approved by the FDA and there can be no assurance that the
results of such trials will be accepted for any purpose by the
FDA. See "Business Government 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. If this corporation could not, for any reason,
supply the Company with MULTIKINE, the Company would be unable
to obtain supplies of MULTIKINE until alternative manufacturing
arrangements were secured.
Licensed Technology Potential Conflicts of Interest.
The Com pany'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
"Management Transactions 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. See "Business Compounds and
Processes Licensed to the Company".
Product Liability and Lack of Insurance. 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. 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 ef fect on the
Company's business. The Company does not carry key man life in
surance on any of its officers. 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 finan cial 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 Of ferings, 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 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 645,093 shares of Common Stock at
prices ranging from $2.87 to $19.70 per share. The Company may
also grant options to purchase 121,907 additional shares under
its Incentive
Stock Option and Non-Qualified Stock Option Plans. For the
terms of the options and warrants referred to above, the 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 and the sale of the underlying shares
of Common Stock could adversely affect the market price of the
Company's stock.
Competition. The competition in the research,
development
and com mercialization 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 in-house
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 Pros pectus 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 interdealer prices, without retail mark-up,
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
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
Balance Sheet Data:
September 30,
1995 1994 1993 1992
1991 Working Capital $3,983,699 $5,795,191 $10,296,472
$13,043,012 $682,831 Total Assets 6,359,011 8,086,670
11,633,090
13,769,504 1,611,899 Total Liabilities 1,516,978 l,407,602
688,231
467,086 672,595 Shareholders'
Equity 4,842,033 6,679,068 10,944,859 13,302,4l8 939,304
No dividends have been declared by the Company since its
inception.
Results of Operations
Fiscal 1995
Revenues for the year ended September 30, 1995
consisted primarily of interest earned on funds received from
the Company's February 1992 public of fering. The interest
income and investment balances have declined from the previous
year as funds were used for ongoing expenses and equipping the
Com pany'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 pro
cess. General and administrative
expenses increased as the result of the ex penses associated
with the Company's 1995 annual meeting of shareholders.
Significant components of general and administrative expenses
during this year were salaries and employee benefits ($341,000),
automobile, travel and expense reimbursements ($271,000),
shareholder communications and investor relations ($245,000),
legal and accounting ($134,000), and officers and directors
liability insurance ($138,000). Losses associated with the
Company's joint ven ture interest in VTI increased due to an
increase in VTI's research and devel opment expenditures.
Fiscal 1994
Interest income during the year ending September 30,
1994 decreased from the prior year as a portion of the Company's
investments were sold to pay for operating expenses. Research
and development expenses increased due to the commencement of
several new research projects, all of which pertained to the
Company's MULTIKINE product. Significant components of general
and administrative expenses during this year were salaries and
employee benefits ($442,039), travel and expense reimbursements
($294,217), shareholder communications and investor relations
($267,070), legal and accounting ($151,879), and officers and
directors liability insurance ($147,564).
Fiscal 1993
Investment income during the year ending September 30,
1993 increased as the Company had use of the funds from its
February, 1992 public offering for twelve months in fiscal 1993
as opposed to six
months in fiscal 1992. Research and development expenses
increased due to the commencement of several new research
projects, all of which pertained to the Company's MULTIKINE
drug. General and
administrative expenses increased due to an increase in the cost
of Directors and Officers insurance, the implementation of an
employee 401(K) plan, and the addition of new employees during
the year. Significant components of general and administrative
expenses during this year were salaries and employee benefits
($342,150), travel and expense reimbursements ($266,007),
shareholder communications and investor relations ($341,024),
legal and accounting ($107,254), officers and directors
liability insurance ($113,690), and the cost of indemnifying an
officer and director for losses sustained as the result of
actions taken on behalf of the Company ($202,500). Losses
associated with the Company's joint venture interest in VTI
increased due to an increase in VTI's research and development
expenditures. Liquidity and Capital Resources
The Company has had only limited revenues from
operations since its inception in March l983. The Company has
relied upon proceeds realized from the public and private sale
of its Common Stock to meet its funding requirements. Funds
raised by the Company have been expended primarily in connection
with the acquisition of an exclusive worldwide license to
certain patented and unpatented proprietary technology and know-
how relating to the human immunological defense system, the
acquisition of a 50% interest in Viral Technologies, Inc. (a
company engaged in the research and development of a possible
AIDS technology), patent applications, the repayment of debt,
the continuation of Companysponsored research and development,
administrative costs and construction of laboratory facilities.
Inasmuch as the Company does not anticipate realizing revenues
until such time as it enters into licensing arrangements
regarding the technology and know-how licensed to it (which
could take a number of years), the Company is mostly dependent
upon the proceeds from the sale of
its securities
to meet all of its liquidity and capital resource re quirements.
In February, 1992, the Company received net proceeds of
approximately $13,800,000 from the sale, in a public offering,
of 517,500 shares of Common Stock and 5,175,000 Warrants. Every
ten Warrants entitle the holder to purchase one additional share
of Common Stock at a price of $46.50 per share prior to February
7, 1997.
In June and September, l995, the Company completed
private offerings whereby it sold a total of 1,150,000 units at
$2.00 per unit. Each unit consisted of one share of Common
Stock and one Warrant. Each Warrant entitles the holder to
purchase one additional share of Common Stock at a price of
$3.25 per share at any time prior to June 30, 1997. The net
proceeds to the Company from these offerings, after the payment
of Sales Agent's commissions and other offering expenses, were
approximately $2,000,000. On November 30, 1995 the Company and
the investors in these Private Offerings agreed to reduce the
exercise price of the Warrants to $1.60 per share in return for
the commitment on the part of the investors to exercise 312,500
Warrants ($500,000) prior to December 23, 1995 and an additional
312,500 Warrants ($500,000) prior to January 31, 1996.
The Company filed an Investigational New Drug ("IND")
Application with the FDA in July, 1994. In connection with this
filing the Company has been funding a research program designed
to refine the manufacturing process for the Company's MULTIKINE
product so that MULTIKINE will meet anticipated regulatory
requirements. During fiscal 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. Funds required by VTI for its research and
development program will be supplied by the Company and Alpha l
Biomedicals, Inc. in accordance with their joint venture
agreement pertaining to VTI.
There can be no assurance that either the Company or VTI
will be suc cessful in obtaining approvals from any state, the
FDA or any foreign country to conduct further clinical trials or
to manufacture and sell their products. The lack of FDA approval
for the Company's or VTI's products will prevent the Company and
VTI from generally marketing their products on an interstate
basis in the United States. Delays in obtaining FDA approval or
the failure to obtain FDA approval may have a material adverse
impact upon the Company's operations. In October, 1994, the
Company completed the construction of its own research
laboratory in a facility leased by the Company. The cost of
modifying the leased space and providing the equipment for the
research laboratory was approximately $1,200,000. In August
1994 the Company obtained a loan to fund the majority of the
costs for the research laboratory. As of September 30, 1995 the
Company owed approximately $811,000 on this loan. Principal and
interest on the loan is due monthly. The loan matures in 1999
and bears interest at 2% plus the prime lending rate.
The Company expects that it will spend approximately
$2,500,000 on research and development during the twelve month
period ending September 30, 1996. This amount includes VTI's
estimated research and development expenses during fiscal 1996.
Prior to October 1995, VTI's research and development expenses
were shared 50% by the Company and 50% by Alpha 1 Biomedicals,
Inc. VTI became a wholly owned subsidiary of the Company in
October 1995 when the Company purchased Alpha 1's 50% interest
in VTI. The Company plans to use its existing financial
resources to fund its research and development program during
this period.
Other than funding its research and development program
and
the costs associated with its research laboratory, the Company
does not have any material capital commitments. The Company
expects that itsexisting 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 na tural human interleukin-2 ("IL-
2") and lymphokinerelated products and processes using the
Company's proprietary cell culture technologies. The Company's
proprietary product is sometimes referred to as MULTIKINETM, or
buffycoat interleukins, which is a combination, or "cocktail" of
IL2 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
whollyowned subsidiary of the Company. VTI is engaged in the
development of a possible vaccine for AIDS. VTI's technology may
also have application in the treatment of AIDS infected
individuals and the diagnosis of AIDS. VTI's AIDS vaccine, HGP-
30, has completed certain Phase I human clinical trials. In the
Phase I trials, the vaccine was administered to volunteers who
were not
infected with the HIV virus in an effort to determine safe and
tolerable dosage levels. PRODUCT DEVELOPMENT PLAN
In March l995, the Canadian Health Protection Branch,
Health and Welfare Ministry gave clearance to the Company to
start a phase I/II cancer study using Multikine. The study,
which will
enroll up to 30 head and neck cancer patients who have failed
conventional treatments, is expected to be conducted at the
HotelDieu de Montreal Hospital, as well as other medical centers
in
Canada. The study is designed to evaluate safety, tumor
responses and immune responses in patients treated with multiple
courses of Multikine. The length of time that each patient will
remain on the investigational treatment will depend on the
patient's response to treatment. In May l995, the U.S. Food and
Drug Administration (FDA) authorized the export of the Company's
Multikine drug to Canada for purposes of this study.
Viral Technologies, Inc. ("VTI") completed its Phase I
trials in California and in April 1995 started a new clinical
study with the HGP-30 AIDS vaccine. The study involves ten HIV
negative volunteers who participated in the 1993 Phase I study.
Following vaccinations with HGP-30, certain volunteers will be
asked to donate blood for a SCID mouse HIV challenge study. In
November 1995 VTI received permission from the California Food
and Drug Branch ("FDB") to begin Phase I human clinical trials
with HIV-infected volunteers. These trials began in December
1995. See "Viral Technologies, Inc." below for additional
information concerning VTI's product development plan.
The Company filed anInvestigational New Drug ("IND")
Application for MULTIKINE with the FDA in late July, 1994. In
December 1994 the FDA notified the Company that the Company's
IND application was placed on clinical hold pending receipt of
additional data and modifications to the Company's manufac
turing process. The Company plans to meet with the FDA to
discuss the issues raised by the FDA. If the Company's IND
application is approved by the FDA (of which there is no
assurance), the Company will begin human clinical trials in
accordance with protocols approved by the FDA. The Company does
not know when the FDA will approve or reject the Company's IND
application.
There can be no assurance that either the Company or VTI will be
suc cessful in
obtaining approvals from any regulatory authority to conduct
further clinical trials or to manufacture and sell their
products. The lack of regulatory approval for the Company's or
VTI's products will prevent the Company and VTI from generally
marketing their products. Delays in obtaining regulatory
approval or the failure to obtain regulatory approval in one or
more countries may have a material adverse impact upon the
Company's operations. BACKGROUND OF HUMAN IMMUNOLOGICAL SYSTEM
The function of the immunological system is to protect
the body against infectious agents, including viruses, bacteria,
parasites and malignant (cancer) cells. An individual's ability
to respond to infectious agents and to other substances
(antigens) recognized as foreign by the body's immune system is
critical to health and survival. When the immune response is
adequate, infection is usually combatted effectively and
recovery follows. Severe infection can occur when the immune
response is inadequate. Such immune deficiency can be
present from birth but, in adult life, it is frequently acquired
as a result of intense sickness or as a result of the
administration of chemotherapeutic drugs and/or radiation. It is
also recognized that, as people reach middle age and thereafter,
the immune system grows weaker.
Two classes of white blood cells, macrophages and lymphocytes,
are believed to be primarily responsible for immunity.
Macrophages are large cells whose principal immune activity is
to digest and destroy infectious agents. Lymphocytes are divided
into two sub classes. One sub-class of lymphocytes, B-cells,
produces antibodies in response to antigens. Antibodies have
unique combining sites (specificities) that recognize the shape
of particular anti gens 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, T-cells, regulates immune re
sponses. 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
Tcells, B-cells and mac rophages 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 Bcells. There are many lymphokines, each of which is
thought to have distinctive chemical and functional properties.
IL-2 is but one of these lymphokines and it is on IL-2 and its
synergy with other lymphokines that the Company has focused its
attention. Scientific and medical investigation has established
that IL-2 enhances immune responses by causing activated T-
cells to proliferate. Without such proliferation no immune
response can be mounted. Other lymphokines and cytokines
support T-cell and B-cell proliferation. However, IL-2 is the
only known lymphokine or cytokine which causes the
proliferation of Tcells. IL-2 is also known to activate Bcells
in the absence of Bcell 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, IL2 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
re search that IL-2 can increase the number of killer Tcells
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 ac tivities in a Companyowned laboratory. The Company
believes that this new approach will be more effective in terms
of both cost and performance.
Between 1983 and 1986 theCompany 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).
Three of the four patients treated with the Company's
MULTIKINE pro duct generated significant biological responses
as a result of the treatment. Negligible side effects were
observed and the patients were treated as outpatients.
Notwithstanding the above, it should be noted that these trials
were only preliminary and were only conducted on a small number
of patients. It remains to be seen if MULTIKINE will be
effective in treating any form of cancer.
See "Product Development Plan" above for information concerning
the Company's future
research and development plans.
Proof of efficacy for anti cancer drugs is a lengthy
and complex process. At this early stage of clinical
investigation, it remains to be proven that MULTIKINE will be
effective against any form of cancer. Even if some form of
MULTIKINE is found to be effective in the treatment of cancer,
commercial use of MULTIKINE may be several years away due to
extensive safety and effectiveness tests that would be
necessary before required government approvals are obtained.
It should be noted that other companies and research teams are
actively involved in developing treatments and/or cures for
cancer, and accordingly, there can be no assurance that the
Company's research efforts, even if successful from a medical
standpoint, can be completed before those of its competitors.
Since 1983, and through September 30, 1995, approximately
$9,505,000 has been expended on Company sponsored research and
development, including approximately $1,825,000, $2,896,000 and
$1,307,000 during the years ended September 30, 1995, 1994 and
1993, respectively. The foregoing amounts do not include
amounts spent by Viral Technologies, Inc. on research and
development. Since May, 1986 (the inception of VTI) and through
September 30, 1995, VTI has spent approximately $3,365,000 on
research and development.
The Company has established a Scientific Advisory Board
("SAB") com prised of scientists distinguished in biomedical
research in the field of lym phokines 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
Companysponsored 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 ViceChairman, 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, Penn sylvania.
Dr. Alan B. Morris, PhD. Professor, Department of
Biological Sciences, University of Warwick, Coventry, U.K.
VIRAL TECHNOLOGIES, INC.
Prior to November 1995, Viral Technologies, Inc.
("VTI"), a Delaware corporation, was 50% owned by the Company
and 50% owned by Alpha 1 Biomedi cals, 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 HGP-30
prototype vaccine does not appear to be toxic in animals. The
HGP-30 vaccine being tested differs from most other vaccines
candidates in that its active component, the HGP-30 peptide, is
derived from the p17 core protein particles of the virus. Since
HGP30 is a totally synthetic molecule containing no live virus,
it cannot cause infection. Unlike the envelope (i.e. outside)
proteins, the p17 region of the AIDS virus appears to be
relatively nonchanging. In January, 1991, VTI was issued a
United States patent covering the production, use and sale of
HGP30. HGP-30 may
also be effective in treating persons infected with the AIDS
virus.
Approval to start Phase I human clinical trials in
Great Britain using VTI's prototype AIDS vaccine HGP-30 was
granted in April 1988. The trial, the first in the European
common market, began in May 1989 with 18 healthy (HIVnegative)
volunteers given three different dosages and was completed in
December 1990. The trial results indicated that five of eight
volunteers vaccinated with HGP-30, and whose blood samples
were able to be tested, produced "killer" T-cell responses.
The vaccine also elicited proliferative responses in 7 out of
9 vaccinated volunteers and antibody responses in 15 out of 18
vaccinated volunteers.
In March, 1990, the California Department of Health Services
Food and Drug Branch
(FDB) approved the first human testing (Phase I trials) in the
United States of HGP-30. The trials were conducted by
scientists at the University of Southern California and San
Francisco General Hospital. Twentyone healthy HIV negative
volunteers at medical centers in Los Angeles and San Francisco
received escalating doses of HGP-30 with no clinically
significant adverse side effects. The clinical studies
confirmed earlier clinical trials in London.
In April 1995 VTI began another clinical trial using
volunteers who will receive two vaccinations. The volunteers
receiving the two lowest dosage levels will then be asked to
donate blood for a SCID mouse HIV challenge study. In 1995, VTI
also plans to request regulatory approval for an HIV-positive
clinical trial. No assurance can be given that approvals to
conduct additional clinical trials will be obtained in a timely
fashion, if at all. In addition, VTI's AIDS vaccine/treatment
is only in the initial stages of testing and it remains to be
seen if the vaccine/treatment will be effective against the
AIDS virus.
Although there has been important independent research
showing the possible significance of the p17 region of HIV-1,
there can be no assurance that any of VTI's technology will be
effective in the prevention, diagnosis or treatment of AIDS.
There can be no assurance that other companies will not develop
a product that is more effective or that VTI ultimately will be
able to develop and bring a product to market in a timely
manner that would enable it to derive commercial benefits.
VTI's research and development efforts are presently
focused on the evaluation of second generation formulations and
delivery systems for HGP 30 and related peptides to enhance HIV
specific cellular immune responses.
TCELL 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.
COMPOUNDS AND PROCESSES LICENSED TO THE COMPANY
The Company has acquired fromSittona Company, B.V., a
Netherlands corporation
("Sittona"), the exclusive worldwide rights to patented IL-2 com
pounds, 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 Neth erland Antilles corporations.
Pursuant to the terms of the license, the Company must pay to
Sittona a royalty of l0% of all net sales received by the
Company in connection with the manufacture, use or sale of the
licensed compounds, compositions and processes and a royalty of
l5% of all license fees and royalties received by the Company in
connection with the grant by the Company of any sublicenses for
the manufacture, use or sale of the licensed compounds,
compositions and processes. On November 30, l983, a $l.4
million advance royalty was paid by the Company to Sittona to
acquire the license. The license also requires the Company to
bear the expense of preparing, filing and processing patent
applications and to obtain and maintain patents in the United
States and foreign countries on all inventions, developments and
improvements made by or on behalf of the Company relating to the
licensed compounds, compositions and processes. In this regard
the Company has caused patent applications to be filed in
several foreign countries and has undertaken the processing of
previously filed patent applications. The exclusive license is
to remain in effect until the expiration or abandonment of all
patent rights or until the compounds, compositions and
processes enter into the public domain, whichever is later.
Sittona may also terminate the license for breach of the
agreement, fraud on the part of the Company, or the bankruptcy
or insolvency of the Company. Sittona, Hooper Trading Company
and Shanksville Corporation are all controlled by Maximilian de
Clara, the Company's President. See Item 13 of this report. In
1987 a German company filed an opposition with the European
Patent Office with respect to one of the Company's European
patents, alleging that certain aspects of the patent in question
were previously disclosed by the inventors during a conference
held in
Germany. A hearing on the opposition was held and on October
12, 1990 the European Patent Office rejected the opposition. The
German
company filing the opposition has appealed the decision of the
European Patent Office. In 1992 the Company's process claims in
the patent were upheld, while two minor claims were denied. The
Company does not believe that the European Patent Office denial
of these two minor claims impairs the value of this patent in
any significant degree.
Process for the Production of IL-2 and IL-2 Product
The Company's exclusive license includes processes for
the production in high yields of natural human IL-2 using cell
culture techniques applied to normal human cells. The Company
believes that these production methods have advantages to those
currently in use. Based upon the results of the Company's
research and human clinical trials, the Company believes that
"natural" IL-2 produced by cell culture technologies, such as
the Company's proprietary products, may have advantages over
genetically engineered, bacteriaproduced IL-2 ("recombinant IL
2") manufactured by other companies. There are basically two
ways to produce IL-2 on a commercial scale: (1) applying
genesplicing techniques using bacteria or other microorganisms
to produce recombinant IL-2; or, (2) applying cell culture
technology using mammalian cells. Substantive differences exist
between recombinant IL-2 and IL-2 produced through cell culture
technology. For example: (1) cell cultured IL-2 is glycosylated
(has sugars attached). Sugar attachments play a crucial role in
cell recognition and have a significant effect on how fast a
body clears out proteins. Proteins produced through bacteria
have no sugar attachments and while recombinant IL-2 products
produced from recombinant yeast or insect cells are
glycosylated, they are not so to the right degree, or at the
right locations. Cell cultured IL2 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 IL2 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 IL-2 and certain other lymphokines/
cytokines allows MULTIKINE to be administered in low dosages,
thereby avoiding the severe toxic reactions which often result
when IL-2 is administered in large dosages.
The technology licensed to the Company includes the basic
production method employing
the use of normal white blood cells, an improved production
method based in part on this basic production method, a serum
free and mitogenfree IL-2 product, and a method for using this
product in humans. Mitogens are used to stimulate cells to
produce specific materials (in this case, IL2). Mitogens
remaining in the product of cell stimulation can cause allergic
and anaphylactic reactions if not removed from the cell product
prior to introduction into the body.
The Company's license also pertains to a cell culture
process for producing interleukin2 and another type of cell
process for producing serumfree and mitogen-free interleukin2
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 Tcells which would other wise destroy the
transplanted organ. The Company regards further research and
development of this process to involve a financial commitment
beyond its present ability; thus while the Company intends to
attempt to enter into licensing arrangements with third parties
concerning this process, it does not presently intend to conduct
further research into, or development of, this process.
Patent Position of Viral Technologies, Inc.'s HGP-30. In
January, 1991, VTI was awarded a U.S. patent covering the
exclusive production, use and sale of HGP-30. This patent is
thought to be the first U.S. patent for a portion of a "core"
protein of the HIV virus. In February, 1993, VTI was awarded a
European patent covering HGP-30 and certain other peptides.
GOVERNMENT REGULATION
The investigational agents and future products of the
Company are regulated in the United States under the Federal
Food, Drug and Cosmetic Act, the Public Health Service Act, and
the laws of certain states. The Federal Food and Drug
Administration (FDA) exercises significant regulatory control
over the clinical investigation and manufacture of
pharmaceutical products.
Prior to the time a pharmaceutical product can be marketed
in the United States for therapeutic use, approval of the FDA
must normally be obtained. Certain states however have passed
laws which allow a state agency having functions similar to the
FDA to approve the testing and use of pharmaceutical products
within the state. In the case of either FDA or state regulation,
preclinical testing programs on animals, followed by three
phases of clinical testing on humans, are typically required in
order to establish product safety and efficacy. The first stage
of evaluation, preclinical testing, must be conducted in
animals. After lack of toxicity has been demonstrated, the test
results are submitted to the FDA (or state regulatory agency)
along with a request for approval for further testing which
includes the protocol that will be followed in the initial human
clinical evaluation. If the applicable regulatory authority
does not object to the proposed experiments, the investigator
can proceed with Phase I trials. Phase I trials consist of
pharmacological studies on a relatively few number of humans
under rigidly controlled conditions in order to establish lack
of toxicity and a safe dosage range.
After Phase I testing is completed, one or more Phase II
trials are conducted in a limited number of patients to test the
product's ability to treat or prevent a specific disease, and
the results are analyzed for clinical efficacy and safety. If
the results appear to warrant confirmatory studies, the data is
submitted to the applicable regulatory authority along with the
protocol for a Phase III trial. Phase III trials consist of
extensive studies in large populations designed to assess the
safety of the product and the most desirable dosage in the
treatment or prevention of a specific disease. The results of
the clinical trials for a new biological drug are submitted to
the FDA as part of a product license application ("PLA").
In addition to obtaining FDA approval for a product, a biologics
es tablishment 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
ap plications 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, nonprofitorganizations 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 cellculture technology with normal human
cells. The Company foresees that its principle
competition will come from producers of genetically
engineered IL-2like products. However, it is the
Company's belief, based upon growing scientific
evidence, that its natural IL-2 products have
advantages over the genetically engineered, IL-2-like
products. Evidence indicates that
genetically engineered, IL-2like 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
buildup 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 addition al
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 pre-
clinical and Phase I clinical trials in England was
manufactured at a pilot plant at St. Thomas' Hospital
Medical School using the Company's patented production
methods and equipment owned by the Company. The
MULTIKINE product used in the Florida clinical trials
was manufactured in Florida. In February, 1993, the
Company signed an agreement with a third party whereby
the third party constructed a facility designed to
produce the Company's MULTIKINE product. The Company
paid the third party the cost of constructing this
facility (approximately $200,000) in accordance with
the Company's specifications. In October, 1994 the
Company completed the construction of a research
laboratory in space leased by the Company. The cost
of modifying and equipping this space for the
Company's purposes was approximately $1,200,000.
The Company leases office space at 66 Canal
Center Plaza, Alexandria, Virginia at a monthly
rental of approximately $8,200 per month. The
Company believes this arrangement is adequate for
the conduct of its present business.
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 37 Vice President of Research
and Manufacturing
Mark V. Soresi 41 Director
F. Donald Hudson 62 Director
Edwin A. Shalloway 60 Director
The directors of the Company serve in such capacity until
the next annual meeting of the Company's shareholders and until
their successors have been duly elected and qualified. The
officers of the Company serve at the discretion of the Company's
directors.
Mr. Maximilian de Clara, by virtue of his position as an
officer and director of the Company, may be deemed to be the
"parent" and "founder" of the Company as those terms are defined
under applicable rules and regulations of the Securities and
Exchange Commission.
The principal occupations of the Company's officers and
directors, during the past several years, are as follows:
Maximilian de Clara. Mr. de Clara has been a director of the
Company since its inception in March, l983, and has been president
of the Company since July, l983. Prior to his affiliation with
the Company, and since at least l978, Mr. de Clara was involved in
the management of his personal investments and personally funding
research in the fields of biotechnology and biomedicine. Mr. de
Clara attended the medical school of the University of Munich from
l949 to l955, but left before he received a medical degree.
During the summers of l954 and l955, he worked as a research
assistant at the University of Istanbul in the field of cancer
research. For his efforts and dedication to research and
development in the fight against cancer and AIDS, Mr. de Clara was
awarded the "Pour le Merit" honorary medal of the Austrian
Military Order "Merito Navale" as well as the honor cross of the
Austrian Albert Schweitzer Society.
Geert R. Kersten, Esq. Mr. Kersten was Director of
Corporate and Investment Relations for the Company between
February, 1987 and October, 1987. In October of 1987, he was
appointed Vice President of Operations. In December, 1988, Mr.
Kersten was appointed director of the Company. Mr. Kersten also
became the Company's secretary and treasurer in 1989. In May,
1992, Mr. Kersten was appointed Chief Operating Officer and in
February, 1995, Mr. Kersten became the
Company's Chief Executive Officer. In previous years, Mr. Kersten
worked as a financial analyst with Source Capital, Ltd., an
investment advising firm in McLean, Virginia. Mr. Kersten is a
stepson of Maximilian de Clara, who is the President and a
Director of the Company. Mr. Kersten attended George Washington
University in Washington, D.C. where he earned a B.A. in
Accounting and an M.B.A. with emphasis on International Finance.
He also attended law school at American University in Washington,
D.C. where he received a Juris Doctor degree.
Patricia B. Prichep has been the Company's Vice President
of Operations since March, 1994. Between December, 1992 and
March, 1994, Ms. Prichep was the Company's Director of Operations.
From June, 1990 to December, 1992, Ms. Prichep was the Manager of
Quality and
Productivity for the NASD's Management, Systems and Support
Department. Between 1982 and 1990, Ms. Prichep was Vice President
and Operations Manager for Source Capital, Ltd. M. Douglas Winship
has been the Company's Vice President of Regulatory Affairs and
Quality Assurance since April, 1994. Between 1988 and April,
1994, Mr. Winship held various positions with Curative
Technologies, Inc., including Vice President of Regulatory Affairs
and Quality Assurance (1991-1994).
Dr. Eyal Talor has been the Company's Vice President of
Research and Manufacturing since March,1994. From October, 1993
until March, 1994, Dr. Talor was Director of Research,
Manufacturing and Quality Control, as well as the Director of the
Clinical Laboratory, for Chesapeake Biological Laboratories, Inc.
From 1991 to 1993, Dr. Talor was a scientist with SRA
Technologies, Inc., as well as the director of SRA's Flow
Cytometry Laboratory (19911993) and Clinical Laboratory
(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(R), Inc.
REMAC(R) is in volved 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 re ceived by (i) the Chief Executive Officer of the
Company and (ii) by each other executive officer of the Company
who
received in excess of $100,000 during the fiscal year ended September
30, 1995.
Annual Compensation Long Term Compensation
Re-
All Other stric-
Other Annual ted LTIP
Com Compen Stock Options Pay
pensa-
Name and Princi Fiscal Salary Bonus sation Awards Granted outs
tion
pal Position Year(1) (2) (3) (4) (5) (6) (7)
Maximilian de Clara, 1995 $95,181 225,000
President 1994 $93,752 70,000 -
1993 - $59,376
Geert R.
Kersten, 1995 $164,801 $ 9,426 224,750 - 3,911
Chief Executive 1994 $182,539 $ 8,183
50,000
- -
$4,497
Officer, Secretary 1993 $163,204 $ 6,046
$3,289 and Treasurer
M. Douglas Winship, 1995 $113,500 $ 1,200
22,000 -
$2,100 Vice President of
Regulatory Affairs
Suzanne Beckner, 1995 $102,250
- -
25,000
$2,830
Vice President of
Clinical Development*
* Dr. Beckner resigned her position with the Company in November
1995. (1) The dollar
value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary or
bonus, including perquisites and other personal
benefits, securities or property. Amounts in the table represent
automobile, parking and other transportation expenses.
(4) During the period covered by the Table, no shares of restricted
stock were issued as compensation for services to the persons listed in
the table. As of September 30, 1995, the number of shares of the
Company's common stock, owned by the officers included in the table
above, and the value of such shares at such date, based upon the market
price of the Company's common stock were:
Name Shares Value
Maximilian de Clara 5,000 $23,100
Geert R. Kersten 84,940 $392,423
Dividends may be paid on shares of restricted stock owned by the
Company's officers and directors, although the Company has no
plans to pay dividends. Mr. Winship and Ms. Beckner did not own
any shares of the Company's Common Stock at September 30, 1995.
(5) The shares of Common Stock to be received upon the exercise
of all stock options granted during the period covered by the
Table. The amounts in this table include options granted in prior
years but which were repriced during the year ending September
30, 1995. See "Ten Year Option/SAR
Repricings" table below.
(6) "LTIP" is an abbreviation for "Long-Term Incentive Plan". An
LTIP is any plan that is intended to serve as an incentive for
performance to occur over a period longer than one fiscal year.
Amounts reported in this column represent payments received
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 retire ment 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 em ployment 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 lumpsum 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 offi cer of the Company serving as a director of
such entity or as a
member of the compensation committee of such entity.
Stock Options
The following tables set forth information concerning the
options
granted, during the fiscal year ended September 30, 1995, to the
persons named below, and the fiscal year-end value of all
unexercised options (regardless of when granted) held by these
persons.
Options Granted During Fiscal Year Ending September 30, l995
Potential
Individual Grants (1) Realizable Value at
% of Total Assumed Annual Rates
Options of Stock Price
Granted to Exercise Appreciation for
Options Employees in Price Per Expiration Option Term (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 one time
reduction in such employee's salary.
(3) The potential realizable value of the options shown in the table
assuming the market price of the Company's Common Stock appreciates in
value from the date of the grant to the end of the option term at 5%
or 10%.
Option Exercises and Year End Option Values
Value of
Unexercised
Number of In-the-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 30mos.
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
Reve nue Code, options granted pursuant to the Plans must be
exercised
prior to the following dates:
(a) The expiration of three months after the date on which an
option holder's employment by the Company is terminated (except
if such termination is due to the death or permanent and total
disability);
(b) The expiration of 12 months after the date on which an
option holder's employment
by the Company is terminated, if such termination is due to the
Employee's permanent and total disability;
(c) In the event of an option holder's death while in the
employ of the Company, his executors or administrators may
exercise, within three months following the date of his death,
the
option as to any of the shares not previously exercised; The
total fair market value of the shares of Common Stock
(determined at the time of the grant of the option) for which any
employee may be granted options which are first exercisable in any
calendar year may not exceed $100,000.
Options may not be exercised until one year following the date
of grant. Options granted to an employee then owning more than
10% of the Common
Stock of the Company may not be exercisable by its terms after five
years from the date of grant. Any other option granted pursuant to
the Plan may not be exercisable by its terms after ten years from the
date of grant.
The purchase price per share of Common Stock purchasable under
an option is determined by the Committee but cannot be less than the
fair market value of the Common Stock on the date of the grant of the
option (or 110% of the fair market value in the case of a person
owning more than 10% of the Company's outstanding shares).
Non-Qualified Stock Option Plan. The three Non-Qualified Stock Op
tion
Plans collectively authorize the issuance of up to 560,000 shares of
the Company's Common Stock to persons that exercise options granted
pursuant to the Plans. The Company's employees, directors, officers,
consultants and advisors are eligible to be granted options pursuant
to the Plans, provided however that bona fide services must be
rendered by such consultants or ad visors and such services must not
be in connection with the offer or sale of securities in a capital-
raising transaction. The option exercise price is determined by the
Committee but cannot be less than the market price of the Company's
Common Stock on the date the option is granted.
Stock Bonus Plan. Up to 40,000 shares of Common Stock may be
granted under
the Stock Bonus Plan. Such shares may consist, in whole or in part,
of authorized but unissued shares, or treasury shares. Under the Stock
Bonus Plan, the Company's employees, directors, officers, consultants
and advisors are eligible to receive a grant of the Company's shares,
provided however that bona fide services must be rendered by
consultants or advisors and such services must not be in connection
with the offer or sale of securities in a capital-raising transaction.
Other Information Regarding the Plans. The Plans are
administered by the Company's Compensation Committee ("the
Committee"), each member of which is a director of the Company. The
members of the Committee were selec ted 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 re main an employee of the Company or the period of time a non
employee 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 op
tion
holder. Shares issued pursuant to the Stock
Bonus Plan will generally not be transferable
until the person receiving the shares satisfies
the vest
ing requirements imposed by the Committee when
the shares were issued.
The Board of Directors of the Company may at any
time, and from time to
time, amend, terminate, or suspend one or more of
the Plans in any manner they deem appropriate,
provided that such amendment, termination or
suspension will not adversely affect rights or
obligations with respect to shares or options
previously granted. The Board of Directors may
not, without shareholder approval: make any
amendment which would materially modify the
eligibility requirements for the Plans; increase
or decrease the total number of shares of Common
Stock which may be issued pursuant to the Plans
except in the case of a reclassification of the
Company's capital stock or a consolidation or
merger of the Company; reduce the minimum option
price per share; extend the period for granting
options; or materially increase in any other way
the benefits accruing to employees who are
eligible to participate in the Plans.
Prior Stock Option and Bonus Plan. The
Company previously had in effect a Stock Option
and Bonus Plan ("the 1987 Plan") which provided
for the grant to the Company's officers,
directors, employees and consultants of either
(i) shares of the Company's Common Stock for
services rendered or (ii) options to purchase
shares of Common Stock. The 1987 Plan was
terminated by the Company in 1992. Since the 1987
Plan was terminated, no further options will be
granted and no further
bonus shares will be issued pursuant to the 1987
Plan. However, options previously granted may
nevertheless still be exercised according to the
terms of the options. Prior to the termination of
the 1987 Plan, the Company granted options to
purchase 189,250 shares of the Company's Common
Stock. To date, options to purchase 6,000 shares
have been exercised. In June, 1995 the Company
cancelled options to purchase 176,250 shares that
had previously been granted under this Plan and
reissued options for the same number of shares
under the Company's other stock option plans. See
"Option Summary" below.
Option Summary. The following sets
forth certain information, as of November 30,
1995, concerning the stock options granted by the
Company. Each option represents the right to
purchase one share of the Company's Common Stock.
Total Shares
Shares Reserved for Remaining
Reserved Outstanding Options
Name of Plan Under Plan Options Under Plan
1987 Stock Option and
Bonus Plan 200,000 7,000 (1)
1992 Incentive Stock
Option Plan 100,000 52,217 47,783
1992 Non-Qualified Stock
Option Plan 60,000 60,000 -
1994 Incentive Stock
Option Plan 100,000 100,000 -
1994 Non-Qualified Stock
Option Plan 100,000 97,250 2,750
1995 Non-Qualified Stock
Option Plan 400,000 328,626 71,374
TOTAL: 645,093
(1) This Plan was terminated in 1992 and as a result, no new
options will be granted pursuant to this Plan.
In March, 1991 the Company granted a financial relations
consultant an option to purchase 50,000 shares of the Company's
common stock. The option is exercisable at $13.80 per share and
expires in March, 1996. The holder of the option has the right
to have the shares issuable upon the exercise of the option
included in any registration statement filed by the Company.
As of November 30, 1995, 1,500 shares had been issued
pursuant to the Company's 1992 Stock Bonus Plan. All of these
shares were issued during the fiscal year ending September 30,
1994.
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 know-how assigned to Hooper and
Shanksville was licensed to Sittona Company, B.V., a Netherlands
corporation ("Sittona"), effective September, l982 pursuant to a
licensing agreement which requires Sittona to pay to Hooper and
Shanksville royalties on income received by Sittona respecting
the technology and know-how licensed to Sittona. In l983,
Sittona licensed this technology to the Company and received from
the Company a $1,400,000 advance royalty payment. At such time as
the Company generates revenues from the sale or sublicense of
this technology, the Company will be required to pay royalties to
Sittona equal to l0% of net sales and l5% of the licensing
royalties received from third parties. In that event, Sittona,
pursuant to its licensing agreements with Hooper and Shanksville,
will be required to pay to those companies a minimum of l0% of
any royalty payments received from the Company.
In l985, Mr. de Clara acquired all of the issued and
outstanding stock of Sittona. Mr. de Clara and Dr. Fabricius,
because of their ownership interests in Hooper and Shanksville,
could receive approximately 50% and 30% respectively of any
royalties paid by Sittona to Hooper and Shanksville, and Mr.
de Clara, through his interest in all three companies (Hooper,
Shanksville and Sittona), will receive up to 95% of any
royalties paid by the Company.
Legal Matters
The Company is not a party to any pending legal
proceedings. Maxi milian de Clara, the president and a director
of the Company, has been in volved in legal proceedings
concerning shares of the Company's Common Stock.
The Securities and Exchange Commission found that
between 1988 and 1991 Mr. de Clara failed to timely file reports
of beneficial ownership re quired 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
Delton Trading SA 379,335 6.6%
15 Market Square
Belize City, Belize
Mueller Trading, Limited 379,334 6.6%
120 Madison Avenue
Lakewood, NJ
Laura Huberfeld 343,932 6.2%
250 Longwood Crossing
Lawrence, NY 11559
All Officers and Directors
as a Group (8 persons) 406,195 6.7%
*Less than 1%
(1) Includes shares issuable prior to March 1, 1996 upon the
exercise of options or warrants granted to the following persons:
Options or Warrants Exercisable
Name Prior to March 1, 1996
Maximilian de Clara 108,333
Geert R. Kersten 146,750
Patricia B. Prichep
14,500
M. Douglas Winship
7,000
Dr. Eyal Talor
7,167
Mark Soresi
12,500
F. Donald Hudson
10,500 Edwin A. Shalloway
10,500 Delton Trading SA
379,334 Mueller Trading,
Limited 379,334 Laura
Huberfeld
189,666
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 10b-6
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
10b6 applies to the offer and sale of any of the Shares, then
participating broker/dealers will be obligated to cease market
making activities nine
business days prior to their participation in the offer and sale
of such Shares and may
not recommence market making activities until their
participation in the distribution has been completed. If Rule
10b-6 applies to one or more of the principal marketmakers 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 The Company is not a party to any pending legal
proceedings.
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.
1785D
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
Page
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 Regis
trant 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 is sued 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 June 1995. The
Company paid a
commission of $230,000, a
nonaccountable 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 Commission. Item 16. Exhibits and
Financial Statement Schedules
(a) Exhibits Page Number
3(a) Articles of Incorporation Incorporated by reference
to
Exhibit
3(a) of the Company's combined Regi stration
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 S1, Registration
Nos. 2-85547-D, 33-7531 and 33 95032.
(c) Amended Articles Filed with initial
Registration State(Name
change only) ment (No. 3334878).
(d) Bylaws Incorporated by reference
to Exhibit 3(b)
of
the
Company's Registration Statement on Form S-1, Registration4(a)
Specimen copy of Incorporated by reference to
Exhibit
Stock Certificate 4(a) of the Company's
Registration
Statement on Form S-1, Registration Nos. 2-85547-D and 337531.
(c) Form of Common Stock Incorporated by reference
to
Exhibit
Purchase Warrant 4(c) filed as an exhibit to
the
Com-
pany's Registration Statement on Form S-1 (Registration No. 33
43281).
5. Opinion of Counsel Filed with initial
Registration
State-
ment.
10(a) Purchase Agreement Incorporated by reference to
Exhibit
dated April 21, 1986 10(a) of the Company's
Registration
with Alpha I Biomedical Statement on Form S-1,
Registration
Nos. 2-85547-D and 33-7531.
(b) Agreement with Sittona Incorporated by reference
to
Exhibit
Company B.V. dated 10(c) of the Company's
Registration
May 3, 1983 Statement on Form S-1,
Registration
Nos. 2-85547-D and 33-7531.
(c) Addendum effective May 3, Incorporated by reference
to Exhibit 1983
to
Licensing Agree- 10(e) of the Company's Registration
ment with Sittona Company, Statement on Form S-1,
Registration
B.V. Nos. 2-85547-D and 33-7531.
(d) Addendum effective October Incorporated by reference
to Exhibit 13,
1989
to
Licensing Agree 10(d) of Company's Annual Report on ment with Sittona
Company, Form 10-K for the year ended
September
B.V. 30, 1989.
10(e) Employment Agreement with Filed with Amendment
Number
1
to
the
Geert Kersten Company's Registration
Statement
on
Form S-1 (Commission File Number 33 43281).
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
State-
ment.
(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:
(l) 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 af
ter 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
there in, 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 amend ment 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.
II-4
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
posteffective 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 attorneyin-fact, 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 Reg
istrant 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 24th day of January, 1996.
CEL-SCI CORPORATION
By: /s/ Maximilian de Clara MAXIMILIAN DE CLARA, PRESIDENT
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
January 24,
1996
MAXIMILIAN DE CLARA
/s/ Geert R. Kersten Director, Principal
January
24,
1996
GEERT R. KERSTEN Financial Officer and
Chief Executive Officer
Director
MARK V. SORESI
/s/ F. Donald Hudson Director
January
24,
1996
F. DONALD HUDSON
/s/ Edwin A. Shalloway Director
January 24,
1996
EDWIN A. SHALLOWAY
INDEPENDENT AUDITORS' CONSENT
We consent to the usein this Post-Effective Amendment No. 1 to
Registration Statement No. 33-83732 of CEL-SCI Corporation on
Form S-1 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
hearing "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Washington D.C.
January 23, 1996
CEL-SCI CORPORATION
Financial Statements for the Years
Ended September 30, 1995, 1994, and
1993, and Independent Auditors' Report
CELSCI CORPORATION
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT
F1
FINANCIAL STATEMENTS FOR THE YEARS
ENDED
SEPTEMBER 30, 1995, 1994, AND 1993: Balance
Sheets
F2 Statements of Operations
F-3 Statements of Stockholders' Equity
F-4 Statements of Cash Flows F-
5 Notes to Financial Statements
F-6 F-
16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
CEL-SCI Corporation:
We have audited the accompanying balance sheets of CEL-SCI
Corporation as of September 30, 1995 and 1994, and the related
statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended September 30,
1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of CEL-SCI Corporation as of September 30, 1995 and 1994, and the
results of its operations and its cash flows for each of the
three years in the period ended September 30, 1995, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, as of
September 30, 1994, the Company changed its method of accounting
for certain investments in debt and equity securities to conform
with Statement of Financial Accounting Standards No. 115.
Washington, DC
November 29, 1995
CEL-SCI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994, AND 1993
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CEL-SCI Corporation (the Company) was incorporated on March 22, 1983,
in the State of Colorado, to finance
research and development in biomedical science and ultimately to
engage in marketing products. Significant accounting policies are as
follows: Investments Effective September 30, 1994, the Company
adopted, on a prospective basis, Statement of Financial Accounting
Standard No. 115, "Accounting for
Certain Debt and Equity Securities" (SFAS 115) and revised its policy
for investments. Investments that may be sold as part of the liquidity
management of the Company or for other factors are classified as
available for-sale and are carried at fair market value. Unrealized
gains and losses on such securities are reported as a separate
component of stockholders' equity. Realized gains and losses on sales
of securities are reported in earnings and computed using the specific
identified cost basis. The adoption of SFAS 115, which has not been
applied
retroactively to prior years' financial statements, resulted in a
decrease in stockholders' equity of $85,753 for
the net unrealized losses on investments availableforsale at September
30, 1994. As of
September 30, 1995, all debt and equity securities had been disposed
of and any unrealized gains or losses were recognized during the year
ended September 30, 1995 (see Note 2).
Prior to September 30, 1994, all investments available-
for sale
were carried at the lower of aggregate amortized
cost or market value.
Research and Office Equipment Research and office equipment
is recorded at cost and depreciated using the straight line method
over five and seven years
estimated useful lives.
Research and Development Costs Research and development
expenditures are expensed as incurred.
Patents Patent expenditures are capitalized and
amortized using
the straight-line method over 17 years. In the
event changes in technology or other circumstances impair the value
or life of the patent, appropriate adjustment in the asset value and
period of amortization will be made.
Net Loss Per Share Net loss per common share is based on
the weighted average number of common shares outstanding during the
period. Common stock
equivalents, including options to purchase common stock, are excluded
from the calculation as they are antidilutive.
Investment in Joint Venture Investment in joint venture is accounted
for by the equity method.
The Company's proportionate share of the net loss
of the joint
venture is included in the respective statements
of operations.
Statement of Cash Flows For purposes of the statements of cash
flows, cash consists principally of unrestricted cash on deposit, and
shortterm money market funds. The Company considers all highly
liquid investments with a maturity of less than three months to be
cash equivalents.
Prepaid Expenses The majority of prepaid expenses consist of bulk
purchases of laboratory supplies to be
consumed in the manufacturing of the Company's product for clinical
studies and for its further development.
Income Taxes Effective October 1, 1993, the Company adopted Statement
of Financial Accounting Standard No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109 requires an asset and liability approach
for reporting income taxes. Implementation of SFAS 109 in 1994 did
not have any effect on the Company's net earnings and reported
financial position and prior financial statements have not been
restated.
Reclassifications Certain reclassifications have been made for 1994
and 1993 for comparative purposes.
2. INVESTMENTS
The carrying values and estimated market values of investments
available for-sale at September 30, 1995, are as follows:
The carrying values and estimated market
values of investment securities at
September 30, 1994, are as follows:
The gross realized gains and losses of
sales of investments available-for-sale
for the years
ended September 30, 1995, 1994, and 1993, are as follows:
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1995 and 1994, consist of
the following:
4. JOINT VENTURE
In April 1986, the Company paid $200,000 cash and issued 500,000
shares of its $.01 par value common stock to acquire half the
rights to technology which may be useful in the diagnosis,
prevention and treatment of Acquired Immune Deficiency Syndrome
(AIDS) from Alpha I Biomedicals, Inc. The Company's stock was
valued at $1.50 per share on the basis of arm'slength
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 CEL-SCI
Corporation through September 30, 1995, was $1,592,584 (see Note
13).
During the three years ended September 30, 1995, VTI had no sales.
The operations of VTI were as follows:
The balance sheets of VTI at September 30, 1995 and 1994, are
summarized as follows:
On December 17, 1987, Viral Technologies, Inc., entered into a
licensing agreement with Nippon Zeon Company, Ltd., a Japanese
company. Under the agreement, Nippon Zeon will engage in the
development and testing and, if development is successful, the
marketing of the potential AIDS vaccine in the Pacific Rim area.
As a result,
Viral Technologies, Inc., received precommercialization payments
of $850,000 during the year ended September 30, 1988.
During the year ended September 30, 1995, VTI purchased back from
Nippon Zeon the licensing agreement. No cash or
stock was exchanged; however, Nippon Zeon retains a royalty on
any future sales of the drug HGP-30 in its former exclusive
licensed territories.
5. CREDIT ARRANGEMENTS
At September 30, 1995, the Company had a promissory note
outstanding with a bank in the amount of $811,263. This
promissory note was converted in November
1994 from a prior line of credit. The line of credit
outstanding at September 30, 1994, was $788,601, and the
Company subsequently drew down
additional amounts during the year ended September 30, 1995,
prior to converting the line of credit to a promissory note.
The principal is being repaid over forty-eight consecutive
months beginning February 5, 1995. Interest on the
outstanding balance is calculated at the Bank's prime rate
plus two percent, which is 10.75% at September 30, 1995, and
is to be paid monthly with the principal payments. The
promissory note is secured by all corporate assets and
requires the Company to hold a certificate of deposit equal
to 20% of the outstanding balance of the line of credit with
the Bank. Under the promissory note the Company is also
subject to certain minimum equity, liquidity, and operating
covenants.
6. COMMITMENTS AND CONTINGENCIES
In 1993, an officer and director of the Company was involved
in legal proceedings concerning shares of the
Company's common stock. The officer and director was acting
on behalf of the Company in trying to secure financing, and
the Company paid legal fees in connection with these
proceedings and indemnified the officer for any loss he
suffered upon the settlement of these matters.
During 1992, one of the matters was settled by the officer
and director delivering 3,000 shares of the Company's common
stock to one plantiff and paying this plantiff $200,000. In
the other matter, a European Court awarded a different
plantiff 25,000 shares of the Company's common stock owned by
the officer and director. In October 1993, the Company issued
25,000 shares of common stock to the plaintiff to satisfy the
judgment and in lieu of reimbursement to the officer and
director for this claim. The value of the shares issued,
$202,500, was expensed during 1993 and was included in
accrued expenses at September 30, 1993.
7. RELATED-PARTY TRANSACTIONS
The technology and know-how licensed to the Company was
developed by a group of researchers under the direction of
Dr. Hans-Ake Fabricius and was assigned during 1980 and 1981
to Hooper Trading Company, N.V., a Netherlands Antilles
corporation (Hooper) and Shanksville Corporation, also a
Netherlands Antilles corporation (Shanksville). Maximillian
de Clara, an officer and director in the Company, and Dr.
Fabricius own 50% and 30%, respectively, of each of these
companies. The technology and know how assigned to Hooper and
Shanksville was licensed to Sittona Company, B.V., a
Netherlands corporation (Sittona), effective September, 1982
pursuant to a licensing agreement which requires Sittona to
pay to Hooper and Shanksville royalties on income received by
Sittona respecting the technology and knowhow licensed to
Sittona. In 1983, Sittona licensed this technology to the
Company. At such time as the
Company generates revenues from the sale or sublicense of
this
technology, the Company will be required to pay royalties to
Sittona equal to 10% of net sales and 15% of licensing
royalties received from third parties. In that event,
Sittona, pursuant to
its licensing agreements with
Hooper and Shanksville, will be required to pay to those
companies a minimum of 10% of any royalty payments received
from the Company.
In 1985 Mr. de Clara acquired 100% of the issued and
outstanding stock of Sittona. Mr. de Clara and Dr. Fabricius,
because of their ownership interests in Hooper and
Shanksville, could receive approximately 50% and 30%
respectively, of any royalties paid by Sittona to Hooper and
Shanksville, and Mr. de Clara, through his interest in all
three companies (Hooper, Shanksville, and Sittona), will
receive up to 95% of any royalties paid by the Company.
During 1992, the Company reimbursed an officer and director
for legal fees incurred in connection with certain legal
proceedings as discussed in Note 6. In addition, during 1992
the Company paid the officer and director $200,000,
representing the amount that he paid in connection with one
of the legal proceedings discussed in Note 6 and, in 1993,
issued 3,000 shares of common stock to the officer and
director as reimbursement for shares he delivered in
connection with the proceeding. The $200,000 payment was
expensed in 1992, and the value of the 3,000 shares, $20,100
was expensed in 1993.
8. INCOME TAXES
The approximate tax effect of each type of temporary
differences and carryforward that gave rise to the Company's
tax assets and liabilities at September 30, 1995,
is as follows:
The Company has available for income tax purposes net
operating loss carryforwards of approximately $24,370,937,
expiring from 1998 through 2007.
In the event of a significant change in the ownership of the
Company, the utilization of such carryforwards could be
substantially limited.
9. STOCK OPTIONS, WARRANTS, AND BONUS PLAN
During the year ended September 30, 1995, the Board of Directors
canceled certain options under the various stock option plans and
replaced them with new options. Under this conversion the number of
options outstanding did not increase or decrease as the conversion
was an exchange of options within the plans to maximize reserved
shares in the Plans with the options granted.
The shareholders of the Company approved the adoption of the 1995
Non Qualified Stock Option Plan (1995 NonQualified 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 NonQualified Stock Option Plan (1993
NonQualified 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, subject to shareholder approval, the 1994 Incentive
Stock Option Plan (1994 Incentive Plan) and the 1994 Non-Qualified
Stock Option Plan (1994 Non-Qualified). Shares are reserved under
each plan and total 100,000 shares for each plan. Only employees of
the Company are eligible to receive options under the 1994 Incentive
Plan, while the Company's employees, directors, officers, and
consultants or advisors are eligible to be granted options under the
1994 NonQualified Plan. Terms of the options are to be determined
by the Company's Compensation Committee, which will administer all
of the plans, but in no event are options to be granted for shares
at a price below fair market value at date of grant. Options granted
under the option plans must be granted, or shares issued under the
bonus plan issued, before July 29, 2004.
Information regarding the Company's stock option plan is summarized
as follows:
During 1991, the Company granted a consultant an option to purchase
50,000 shares of the Company's common stock. The option is
exercisable at $13.80 per share
and expires in March 1996. The holder of the option has the right
to have the shares issuable upon the exercise of the option included
in any registration statement filed by the Company.
Also during 1991, the Company granted another consultant options to
purchase 6,000 shares of the Company's common stock. Options to
purchase 667 shares expired in April 1993. Options to purchase
1,333 shares at $2.50 per share were exercised in April 1994. At
September 30, 1995, options to purchase 4,000 shares were
outstanding and exercisable at prices ranging from $2.50 to $15.00
per share.
In connection with the 1992 public offering, 5,175,000 common stock
purchase warrants were issued and are outstanding at September 30,
1995. Every ten warrants entitle the holder to purchase one share of
common stock at a price of $46.50 per share. During 1995, the
expiration of these warrants was extended to February 1996. The
Company may accelerate the expiration date of the warrants by giving
30 days notice to the warrant holders, provided, however, that at
the time the Company gives such notice of acceleration (1) the
Company has in effect a current registration statement covering the
shares of common stock
issuable upon the exercise of the warrants and (2) at anytime during
the 30-day period preceding such notice, the average closing bid
price of the Company's common stock has been at least 20% higher
than the warrant exercise price for 15 consecutive trading days.
Also in connection with the 1992 offering, the Company issued to the
underwriter warrants to purchase 9,000 equity units, each unit
consisting of 5 shares of common
stock and 5 warrants entitling the
holder to purchase one additional share of common
stock. The equity unit warrants are outstanding at
September 30, 1995 and are exercisable through
February 8, 1997, at a price of $255.70 per unit.
The common stock warrants included in the units are
exercisable at a price of $76.70 per share.
During 1995, the Company granted another consultant
options to purchase 17,858 shares of the Company's
common stock. These shares became exercisable on
November 2, 1995, and will expire November 1, 1999.
These options are exercisable at $5.60 per share.
10.EMPLOYEE BENEFIT PLAN
During 1993 the Company implemented a defined
contribution retirement plan,
qualifying under Section 401(k)
of the Internal Revenue Code, subject to the
Employee Retirement Income Security Act of 1974, as
amended, and covering substantially all CELSCI
employees. The employer contributes an amount
equal to 50% of each employee's contribution not to
exceed 6% of the participant's salary. The expense
for the year ended September 30, 1995 and 1994, in
connection with this plan was approximately $24,913
and $16,160, respectively.
11.LEASE COMMITMENTS
Operating Leases The future minimum
annual rental payments due under
noncancelable operating leases for
office and laboratory space are as
follows:
Rent expense for the year ended September 30, 1995, 1994, and
1993, was approximately $124,059, $122,369, and $55,000,
respectively.
12.STOCKHOLDERS' EQUITY
On April 28, 1995 the stockholders of the Company approved a
10for1 reverse split of the Company's outstanding common stock,
which became effective on May 1, 1995. All shares and per-share
amounts have been restated to reflect the stock split.
The Company also participated in a private offering during 1995.
This offering allowed for the purchase of one share of common
stock
and one warrant (a unit) for the
price of $2.00 per unit. All 1,150,000 shares authorized for
the offering were purchased during the year ended September 30,
1995. Cash of $2,300,000 was received in June and September
1995. Commissions of $344,150 were paid or payable relative to
the offering at September 30, 1995.
During 1994, the Company granted 1,500 shares of common stock
to an officer as a bonus award. The Company also issued 25,000
shares to satisfy the judgment against an officer and
director. The issuance was to the
plantiff in lieu of reimbursement to
the
officer and director. The judgment was
settled in 1993 and the expense of the
issuance was
recorded in 1993.
During 1993, the Company received $27,333 cash for 7,333
shares of common stock.
13.SUBSEQUENT EVENTS
In October 1995, the Company purchased Alpha 1's 50 percent
interest in VTI. The Company conveyed 159,170 shares of
common stock as full consideration for all of the VTI capital
stock owned by Alpha 1. The acquisition of Alpha 1's
interest will be accounted for as purchase with substantially
all of the value of the purchase price being expensed as
research and development costs.
On December 8, 1995, the Board of Directors authorized the
extension of the Company's warrants from
February 6, 1996, to February 6, 1997.
14.NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board
issued Statement No. 121 regarding accounting for the
impairment of long lived assets. This statement is required
to be adopted by the Company in fiscal 1997. At the present
time the Company does not believe that adoption of this
statement will have a material effect on its financial
position or results of its operations.
In October 1995, the Financial Accounting Standards Board
issued Statement No. 123, Accounting for Stock Based
Compensation. This statement is required to be adopted by
the Company in fiscal 1997. The Company has not yet
determined the impact of the adoption
of this statement on its financial
position or results of its operations.
CEL-SCI CORPORATION
Financial Statements for the Years Ended September 30, 1995,
1994, and 1993, and Independent Auditors' Report
To the Board of Directors and Shareholders of
CEL-SCI Corporation:
We have audited the accompanying balance sheets of CEL-SCI
Corporation as of September 30, 1995 and 1994, and the
related statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended
September 30, 1995. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of CEL-SCI Corporation as of September 30, 1995 and
1994, and the results of its operations and its cash flows
for each of the three years in the period ended September 30,
1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, as of
September 30, 1994, the Company changed its method of
accounting for certain investments in debt and equity
securities to conform with Statement of Financial Accounting
Standards No. 115.
Washington, DC
November 29, 1995, except for Note 14, as to
which the date is December 23, 1995
Page F-2
F - 3
Page F-3
Page F-4
Page F-5
CEL-SCI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994, AND 1993
2
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
CEL-SCI Corporation (the Company) was
incorporated
on March 22, 1983, in the State of
Colorado, to finance research and
development in biomedical science
and ultimately to engage in
marketing products.
Significant accounting policies are as
follows: Investments - Effective
September 30,
1994, the Company adopted, on a
prospective basis, Statement of
Financial Accounting Standard No.
115, "Accounting for Certain Debt
and Equity Securities" (SFAS 115)
and revised its policy for
investments. Investments that may
be sold as part of the liquidity
management of the Company or for other
factors are classified as available-for-
sale and are carried at fair market
value. Unrealized gains and losses on
such securities are reported as a
separate component of stockholders'
equity. Realized gains and losses on
sales of securities are reported in
earnings and computed using the specific
identified cost basis. The adoption of
SFAS 115, which has not been applied
retroactively to prior years' financial
statements, resulted in a decrease in
stockholders' equity of $85,753 for the
net unrealized losses on investments
available forsale at September 30, 1994.
As of
September 30, 1995, all debt and
equity securities had been disposed
of and any unrealized gains or
losses were recognized during the
year ended September 30, 1995 (see
Note 2).
Prior to September 30, 1994, all
investments available-for-sale were
carried at the lower of aggregate
amortized cost or market value.
Research and Office Equipment -
Research and
office equipment is recorded at
cost and depreciated using the
straightline method over five and
seven years estimated useful lives.
Research and Development Costs
Research and development
expenditures are expensed as
incurred.
Patents - Patent expenditures
are capitalized and amortized using
the straight line method over 17
years. In the event changes in
technology or other circumstances
impair the value or life of the
patent, appropriate adjustment in
the asset value and period of
amortization will be made.
Net Loss Per Share - Net loss
per common share is based on the
weighted average number of common
shares outstanding during the
period. Common stock equivalents,
including options to purchase
common stock, are excluded from the
calculation as they are
antidilutive.
Investment in Joint Venture
Investment in joint venture is
accounted for by the equity method.
The Company's proportionate share
of the net loss of the joint
venture is included in the
respective statements of
operations.
Statement of Cash Flows - For
purposes
of the statements of cash flows,
cash consists principally of
unrestricted cash on deposit, and
short-term money market funds. The
Company considers all highly liquid
investments with a maturity of less
than three months to be cash
equivalents.
Prepaid Expenses - The majority
of prepaid expenses consist of bulk
purchases of laboratory supplies to
be consumed in the manufacturing of
the Company's product for clinical
studies and for its further
development.
Income Taxes - Effective October
1,
1993, the Company adopted Statement
of Financial Accounting Standard
No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109
requires an asset and
liability approach for reporting income
taxes. Implementation of SFAS 109 in 1994
did not have any effect on the Company's
net earnings and reported financial
position and prior financial statements
have not been restated.
Reclassifications - Certain
reclassifications have been made
for 1994 and 1993 for comparative
purposes.
2. INVESTMENTS
The carrying values and estimated
market values of investments available-
for-sale at September 30, 1995, are as
follows:
Note2a
The carrying values and estimated market
values of investment securities at
September 30, 1994, are as follows:
Note2b
The gross realized gains and losses of
sales of investments available-for-
sale for the years ended September 30,
1995, 1994, and 1993, are as follows:
Note 2c
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30,
1995 and 1994, consist of the
following:
Note3a
4. JOINT VENTURE
In April 1986, the Company paid
$200,000 cash
and issued 500,000 shares of its $.01
par value common stock to acquire
half the rights to technology which
may be useful in the diagnosis,
prevention and treatment of Acquired
Immune Deficiency Syndrome (AIDS)
from Alpha I Biomedicals, Inc. The
Company's stock was valued at $1.50
per share on the basis of arm's-
length negotiations. At the time the
transaction took place, the stock was
trading at $2.42. Because the cost of
these rights to technology is
considered research and development,
the $950,000 purchase price was
expensed.
The Company and Alpha 1 Biomedicals,
Inc. (Alpha 1)
contributed their respective
interests in the technology and
$10,000 each to capitalize a joint
venture, Viral Technologies, Inc.
(VTI). VTI is wholly owned by the
Company and Alpha 1, each having a
50% ownership interest. The total
loaned or advanced to VTI by CELSCI
Corporation through September 30,
1995, was $1,592,584 (see Note 13).
During the three years ended
September 30, 1995, VTI had no sales.
The operations of VTI were as
follows:
Note4a
The balance sheets of VTI at September
30, 1995 and
1994, are summarized as follows:
Note4b
On December 17, 1987, Viral
Technologies, Inc., entered into a
licensing agreement with Nippon Zeon
Company, Ltd., a Japanese company.
Under the agreement, Nippon Zeon will
engage in the development and testing
and, if development is successful,
the marketing of the potential AIDS
vaccine in the Pacific Rim area. As
a result, Viral Technologies, Inc.,
received precommercialization
payments of $850,000 during the year
ended September 30, 1988.
During the year ended September 30,
1995, VTI purchased back from Nippon
Zeon the licensing agreement. No
cash or stock was exchanged; however,
Nippon Zeon retains a royalty on any
future sales of the drug HGP30 in
its former exclusive licensed
territories.
5. CREDIT ARRANGEMENTS
At September 30, 1995, the Company
had a promissory
note outstanding with a bank in the
amount
of $811,263. This promissory note
was converted in November 1994 from
a prior line of credit. The line of
credit outstanding at September 30,
1994, was $788,601, and the Company
subsequently drew down additional
amounts during the year ended
September 30, 1995, prior to
converting the line of credit to a
promissory note. The principal is
being repaid over forty-eight
consecutive months beginning
February 5, 1995. Interest on the
outstanding balance is calculated at
the Bank's prime rate plus two
percent, which is 10.75% at
September 30, 1995, and is to be
paid monthly with the principal
payments. The promissory note is
secured by all corporate assets and
requires the Company to hold a
certificate of deposit equal to 20%
of the outstanding balance of the
line of credit with the Bank. Under
the promissory note the Company is
also subject to certain minimum
equity, liquidity, and operating
covenants.
6. COMMITMENTS AND CONTINGENCIES
In 1993, an officer and director of the
Company was involved in legal
proceedings concerning shares of the
Company's common stock. The officer
and director was acting on behalf of
the Company in trying to secure
financing, and the Company paid
legal fees in connection with these
proceedings and indemnified the
officer for any loss he suffered
upon the settlement of these
matters. During 1992, one of the
matters was settled by the officer
and director delivering 3,000 shares
of the Company's common stock to one
plantiff and paying this plantiff
$200,000. In the other matter, a
European Court awarded a different
plantiff 25,000 shares of the
Company's common stock owned by the
officer and director. In October
1993, the Company issued 25,000
shares of common stock to the
plaintiff to satisfy the judgment
and in lieu of reimbursement to the
officer and director for this claim.
The value of the shares issued,
$202,500, was expensed during 1993
and was included in accrued expenses
at September 30, 1993.
7. RELATED-PARTY TRANSACTIONS
The technology and know-how licensed to
the Company was developed by a group
of researchers under the direction
of Dr. Hans Ake Fabricius and was
assigned during 1980 and 1981 to
Hooper Trading Company, N.V., a
Netherlands Antilles corporation
(Hooper) and Shanksville
Corporation, also a Netherlands
Antilles corporation (Shanksville).
Maximillian de Clara, an officer and
director
in the Company, and Dr. Fabricius own
50% and 30%, respectively, of each of
these companies. The technology and
knowhow assigned to Hooper and
Shanksville was licensed to Sittona
Company, B.V., a Netherlands
corporation (Sittona), effective
September, 1982 pursuant to a
licensing agreement which requires
Sittona to pay to Hooper and
Shanksville royalties on income
received by Sittona respecting the
technology and know-how licensed to
Sittona. In 1983, Sittona licensed
this technology to the Company. At
such time as the Company generates
revenues from the sale or sublicense
of this technology, the Company will
be required to pay royalties to
Sittona equal to 10% of net sales and
15% of licensing royalties received
from third parties. In that event,
Sittona, pursuant to its licensing
agreements with Hooper and
Shanksville, will be required to pay
to those companies a minimum of 10%
of any royalty payments received from
the Company. In 1985 Mr. de Clara
acquired 100% of the issued and
outstanding stock of Sittona. Mr. de
Clara and Dr. Fabricius, because of
their ownership interests in Hooper
and Shanksville, could receive
approximately 50% and 30%
respectively, of any royalties paid
by Sittona to Hooper and Shanksville,
and Mr. de Clara, through his
interest in all three companies
(Hooper, Shanksville, and Sittona),
will receive up to 95% of any
royalties paid by the Company.
During 1992, the Company reimbursed an
officer and director for legal fees
incurred in connection with certain
legal proceedings as discussed in
Note 6. In addition, during 1992 the
Company paid the officer and director
$200,000, representing the amount
that he paid in connection with one
of the legal proceedings discussed in
Note 6 and, in 1993, issued 3,000
shares of common stock to the officer
and director as reimbursement for
shares he delivered in connection
with the proceeding. The $200,000
payment was expensed in 1992, and the
value of the 3,000 shares, $20,100
was expensed in 1993.
8. INCOME TAXES
The approximate tax effect of each type
of temporary differences and
carryforward that gave rise to the
Company's tax assets and liabilities
at September 30, 1995 and 1994, is as
follows:
Note8a
The Company has available for income tax
purposes net operating loss
carryforwards of approximately
$24,370,937, expiring from 1998
through 2007.
In the event of a significant change in
the ownership of the Company, the
utilization of such carryforwards
could be substantially limited.
9. STOCK OPTIONS, WARRANTS, AND BONUS
PLAN
During the year ended September 30,
1995, the Board of Directors canceled
certain options under the various
stock option plans and replaced them
with new options. Under this
conversion the number of options
outstanding did not increase or
decrease as the conversion was an
exchange of options within the plans
to maximize reserved shares in the
Plans with the options granted.
The shareholders of the Company
approved the adoption of the 1995 Non-
Qualified Stock Option Plan (1995 Non-
Qualified Plan) and reserved 400,000
shares under the plan. Terms of the
options are to be determined by the
Company's Compensation Committee, but
in no event are options to be granted
for shares at a price below fair
market value at the date of grant.
On February 23, 1988, the shareholders
of the Company adopted the 1987
Nonqualified Stock Option and Stock
Bonus Plan (the 1987 Plan). This plan
reserved 200,000 shares of the
Company's previously unissued common
stock to be granted as incentive
stock options to employees. The 1987
Plan reserved 50,000 shares of the
Company's previously unissued common
stock to be granted as stock bonuses
to employees. The exercise price of
the options could not be established
at less than fair market value on the
date of grant and the option period
could not be greater than ten years.
During 1993, the 1987 Plan was
terminated and no further options
will be granted and no further bonus
shares will be issued pursuant to the
1987
Plan.
On September 30, 1993, the
shareholders of the Company approved
the adoption of three new plans, the
1993 Incentive Stock Option Plan
(1993 Incentive Plan), the 1993 Non
Qualified Stock Option Plan (1993
Non Qualified Plan) and the Stock
Bonus Plan (1993 Bonus Plan). Shares
are reserved under each plan and
total 100,000, 60,000 and 40,000
shares, respectively. Only
employees of the Company are
eligible to receive options under
the Incentive Plan, while the
Company's employees, directors,
officers, and consultants or
advisors
are eligible to be granted options
under the NonQualified Plan or
issued shares under the Bonus Plan.
Terms of the options are to be
determined by the Company's
Compensation Committee, which will
administer all of the plans, but in
no event are options to be granted
for shares at a price below fair
market value at date of grant.
Options granted under the option
plans must be granted, or
shares issued under the bonus plan
issued, before August 20, 2002.
On July 29, 1994, the Board of
Directors approved the adoption of
two new plans, the 1994 Incentive
Stock Option Plan (1994 Incentive
Plan) and the 1994 NonQualified
Stock Option Plan (1994
NonQualified). Shares are reserved
under each plan and total 100,000
shares for each plan. Only
employees of the Company are
eligible to receive options under
the 1994 Incentive Plan, while the
Company's employees, directors,
officers, and consultants or
advisors are eligible to be granted
options under the 1994 Non-Qualified
Plan. Terms of the options are to be
determined by the Company's
Compensation Committee, which will
administer all of the plans, but in
no event are options to be granted
for shares at a price below fair
market value at date of grant.
Options granted under the option
plans must be granted, or shares
issued under the bonus plan issued,
before July 29, 2004.
Information regarding the Company's
stock
option plan is summarized as follows:
Note9a
Note9b
During 1991, the Company granted a
consultant an option to purchase 50,000
shares of the Company's common stock. The
option is exercisable at $13.80 per share
and expires in March 1996. The holder of
the option has the right to have the
shares issuable upon the exercise of the
option included in any registration
statement filed by the Company.
Also during 1991, the Company granted
another consultant options to purchase
6,000 shares of the Company's common
stock. Options to purchase 667 shares
expired in April 1993. Options to
purchase 1,333 shares at $2.50 per share
were exercised in April 1994. At
September 30, 1995, options to purchase
4,000 shares were outstanding and
exercisable at prices ranging from $2.50
to $15.00 per share.
In connection with the 1992 public
offering, 5,175,000 common stock purchase
warrants
were issued and are outstanding at
September 30, 1995. Every ten warrants
entitle the holder to purchase one share of
common stock at a price of $46.50 per
share. During 1995, the expiration of these
warrants was extended to February 1996.
The Company may accelerate the expiration
date of the warrants by giving 30 days
notice to the warrant holders, provided,
however, that at the time the Company gives
such notice of acceleration (1) the Company
has in effect a current registration
statement covering the shares of common
stock issuable upon the exercise of the
warrants and (2) at anytime during the 30-
day period preceding such
notice, the average closing bid price of
the Company's common stock has been at
least 20% higher than the warrant exercise
price for 15 consecutive trading days.
Also in connection with the 1992 offering,
the Company issued to the underwriter
warrants to purchase 9,000 equity units,
each unit consisting of 5 shares of
common stock and 5 warrants entitling the
holder to purchase one additional share of
common stock. The equity unit warrants are
outstanding at September 30, 1995 and are
exercisable through February 8, 1997, at a
price of $255.70 per unit. The common stock
warrants included in the units are
exercisable at a price of $76.70 per share.
During 1995, the Company granted another
consultant options to purchase 17,858
shares of the Company's common stock.
These shares became exercisable on
November 2, 1995, and will expire November
1, 1999. These options are exercisable at
$5.60 per share.
10.EMPLOYEE BENEFIT PLAN
During 1993 the Company implemented a
defined contribution retirement plan,
qualifying under Section 401(k) of the
Internal Revenue Code, subject to the
Employee Retirement Income Security Act of
1974, as amended, and covering
substantially all CEL-SCI employees. The
employer contributes an amount equal to
50% of each employee's contribution not to
exceed 6% of the participant's salary. The
expense for the year ended September 30,
1995 and 1994, in connection with this
plan was approximately $24,913 and
$16,160, respectively.
11.LEASE COMMITMENTS
Operating Leases - The future minimum
annual rental payments due under
noncancelable operating leases for office
and laboratory space are as follows:
Note11a
Rent expense for the year ended September
30, 1995,
1994, and 1993, was approximately $124,059,
$122,369, and $55,000, respectively.
12.STOCKHOLDERS' EQUITY
On April 28, 1995 the stockholders of the
Company approved a 10-for-1 reverse split
of the Company's outstanding common stock,
which became effective on May 1, 1995. All
shares and per-share amounts have been
restated to reflect the stock split.
The Company also participated in a private
offering
during 1995. This offering allowed for
the purchase of one share of common stock
and one warrant (a unit) for the
price of $2.00 per unit. All 1,150,000
shares authorized for the offering were
purchased during the year ended September
30, 1995. Warrants outstanding are
exercisable at $3.25 and expire on June
30, 1997. Cash of $2,300,000 was received
in June and September 1995. Commissions of
$344,150 were paid or payable relative to
the offering at September 30, 1995.
During 1994, the Company granted 1,500
shares of common stock to an officer as a
bonus award. The Company also issued
25,000 shares to satisfy the judgment
against an officer and director. The
issuance was to the plantiff in lieu of
reimbursement to the officer and director.
The judgment was settled in 1993 and the
expense of the issuance was recorded in
1993.
During 1993, the Company received $27,333
cash for
7,333 shares of common stock.
13.SUBSEQUENT EVENTS - JOINT VENTURE
In October 1995, the Company purchased Alpha
1's 50
percent interest in VTI. The Company
conveyed 159,170 shares of common stock as
full consideration for all of the VTI
capital stock owned by Alpha 1. The
acquisition of Alpha 1's interest will be
accounted for as purchase with
substantially all of the value of the
purchase price being expensed as research
and development costs.
14.SUBSEQUENT EVENTS - OTHER
On December 8, 1995, the Board of
Directors authorized the extension of the
Company's warrants issued in connection
with the 1992 public offering from
February 6, 1996, to February 6, 1997. On
December 23, 1995, the Company entered
into an agreement with investors to reduce
the exercise price of warrants to purchase
shares of the Company's common
stock issued in a 1995 private offering
from $3.25 to
$1.60 per shares (Note 12). Shares which
may be acquired under this agreement with
exercise of the
warrants total 1,150,000. In connection
with modifying the warrant exercise price,
312,500 warrants were exercised for
$500,000 in exchange for 312,500 shares of
common stock on December 23, 1995. An
additional 312,500
warrants are required to be exercised
prior to January 31, 1996 with the
remaining warrants outstanding through
June 30, 1997.
15.NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting
Standards Board issued Statement No. 121
regarding accounting for the impairment of
long-lived assets. This statement is
required to be adopted by the Company in
fiscal 1997. At the present time the
Company does not believe that adoption of
this statement will have a material effect
on its financial position or results of
its operations.
In October 1995, the Financial
Accounting Standards
Board issued Statement No. 123, Accounting
for Stock Based Compensation. This statement
is required to be adopted by the Company in
fiscal 1997. The Company has not yet
determined the impact of the adoption of this
statement on its financial position or
results of its operations. * * * * * *
CEL-SCI CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
ASSETS
1995 1994
CURRENT ASSETS:
Cash and cash equivalents
$3,886,950 $3,370,713
Investments, net
170,000 2,694,756
Interest receivable
64,080 116,733
Prepaid expenses
341,295 67,648
Advances to officer/shareholder
and 13,234 17,381
employees
Total current assets
4,475,559 6,267,231
RECEIVABLE FROM JOINT VENTURE
522,695 351,204
RESEARCH AND OFFICE EQUIPMENT - Less
accumulated
depreciation of $589,897 and $355,430
1,102,038 1,185,499
DEPOSITS
18,178 13,958
PATENT COSTS - Less accumulated
amortization of $239,490 and $211,253
240,541 268,778
$6,359,011 $8,086,670
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
$248,488 $324,179
Current portion of note payable
243,372 147,861
Total current
491,860 472,040
liabilities
NOTE PAYABLE
567,891 640,740
DEFERRED RENT
24,959 17,598
EQUITY IN LOSS OF SUBSIDIARY
432,268 277,224
Total liabilities
1,516,978 1,407,602
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
authorized, 200,000 shares;
none issued
- - -
Common stock, $.01 par value -
authorized, 100,000,000 shares;
issued and outstanding,
5,338,244 and 53,382
41,882
4,188,244 shares
Additional paid-in capital
28,799,198 26,854,848
Net unrealized loss on marketable equity
- - (85,753)
securities (Note 1)
Accumulated deficit
(24,010,547 (20,131,909
) )
Total stockholders'
equity 4,842,033 6,679,068
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$6,359,011 $8,086,670
See notes to financial statements. CEL-SCI
CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1995,
1994, AND 1993
1995 1994 1993
INVESTMENT INCOME
$365,049 $624,670 $997,964
OTHER INCOME
58,716
- - -
Total income
423,765
624,670 997,964
OPERATING EXPENSES:
Research and development
1,824,661 2,896,109 1,307,042 Depreciation
and amortization
262,705
138,755 55,372
General and administrative 1,713,912
1,621,990 1,696,119
Total
operating expenses
3,801,278
4,656,854 3,058,533
EQUITY IN LOSS OF
JOINT VENTURE (Note 2)
(501,125) (394,692) (344,423)
NET LOSS
$3,878,63 $4,426,87 $2,404,99
8 6
2 LOSS PER COMMON SHARE
$0.89
$1.06 $0.58
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
4,342,628 4,185,240 4,155,431
See notes to financial statements.
CEL-SCI CORPORATION
STATEMENTS OF STOCKHOLDERS'
EQUITY
YEARS ENDED SEPTEMBER 30,
1995, 1994, AND 1993
Additional
Common
Paid-In
Stock
Shares
Amount Capital Other Deficit Total
BALANCE, OCTOBER 1, 1992
$-
4,148,980
$41,490 $26,560,96 $(13,300,04
$13,302,41
9 1) 8
Common stock issued for:
Cash 7,333
73
27,260 - - 27,333
Reimbursement of 3,000
30
20,070 - - 20,100
expenses
Net loss -
- -
- - -
(2,404,992) (2,404,992
)
BALANCE, SEPTEMBER 30, 1993
41,593
4,159,313
26,608,299 (15,705,033
10,944,859
)
Common stock issued for:
Cash 2,431
24
39,364 - - 39,388
Stock bonus plan 1,500
15
4,935 - - 4,950
Settlement of 25,000
250
202,250 - - 202,500
lawsuit
Net unrealized loss on
marketable
securities (Note 1) -
- -
- - - (85,753)
(85,753)
Net loss -
- -
- - -
(4,426,876) (4,426,876
)
BALANCE, SEPTEMBER 30, 1994
41,882
4,188,244
26,854,848 (85,753) (20,131,909 6,679,068
)
Common stock issued for
11,500 - -
cash 1,150,000
1,944,350
1,955,850
Change in market value
of marketable
securities available -
85,753 - 85,753
for sale (Note 1)
Net loss -
- -
- - -
(3,878,638) (3,878,638
)
BALANCE, SEPTEMBER 30, 1995
$-
5,338,244
$53,382 $28,799,19 $(24,010,54
$4,842,033
8 7)
See notes to financial
statements.
CEL-SCI CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1995,
1994, AND 1993
1995 1994
1993
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss
$(3,878,6 $(4,426,8 $(2,404,9
38) 76) 92)
Adjustments to reconcile net
loss to
net cash used in operating
activities:
Stock issued in payment of
- -
207,450 20,100
expenses
Depreciation and amortization
262,705
138,755 55,372
Equity in loss of Joint Venture
501,125 394,692 344,423
Net realized loss (gain) on sale
42,490
- -
of securities
(76,774)
Amortization of premium
6,407
25,683 18,762
Changes in assets and
liabilities:
Decrease (increase) in
4,147
- -
advances
(17,381)
Increase in prepaid
expenses, deposits, interest receivable,
and
receivable from joint venture (396,705)
(31,833) (292,182)
(Decrease) increase in
accounts payable,
accrued expenses, and
143,919
deferred rent
(68,330)
(111,552)
Decrease in payable to
- -
officer and shareholder
(52,370) (43,448)
Net cash used
in operating activities
(3,526,79
(3,950,20 (2,158,04
9) 6) 6)
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Purchases of investments
(389,688) (1,467,81 (5,993,31
8) 0)
Sales and maturities of investments
2,951,299
6,999,273 7,745,943
Advances to Joint Venture
(346,081) (300,000) (223,750)
Expenditures for property and
equipment
(151,006)
(999,807) (318,556)
Expenditures for patents
- -
- - (8,777)
Net cash provided
by investing activities 2,064,524
4,231,648 1,201,550
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Issuance of note payable
184,915
788,601 -
Issuance of common stock
39,388 27,333
1,955,850 Repayment of note payable
- - -
(162,253)
Net cash
827,989 27,333
provided by financing activities
1,978,512
NET INCREASE (DECREASE) IN CASH
516,237
1,109,431 (929,163)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR
3,370,713
2,261,282 3,190,445
CASH AND CASH EQUIVALENTS, END OF
YEAR
$3,886,95
$3,370,71 $2,261,28
0 3
2 SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITY:
During 1994, the net unrealized
loss on investments available-for-
sale was $85,753.
During 1994, 25,000 shares were
issued as settlement of a lawsuit at
a cost of $202,500 (see Note 6).
See notes to financial statements.
Year Ending
September 30,
Amount
1996
$135,123
1997
140,335
1998
56,160
1999
59,573
2000
62,010
Thereafter
162,728
Total minimum lease payments
$615,929
Septemb
er 30,
1995
Gross Gross Market
Value
Amortiz Unreal
Unreal at
ed
ized
ized Septemb
er 30,
Cost
Gains
Losses 1995
Certificates of
$-
$-
Deposit $170,00
$170,00
0
0
September 30,
1994
Gross Gross Market
Value
Amortize
Unreal
Unreali at
d
ized
zed Septembe
r 30,
Cost
Gains
Losses 1994
U.S. Government
$-
Securities $1,471,0
$46,362 $1,424,7
96
34
Corporate Debt
Securities 1,108,58
2,442
41,833 1,069,19
1
0
Certificates of
- -
- -
Deposit 200,832
200,832
$2,780,5
$2,442 $88,195 $2,694,7
09
56
1995
1994 1993
Realized gains
$-
$17,839 $128,205
Realized losses
60,329
51,431 -
Net realized gain (loss)
$-
$(42,490 $76,774
)
1995 1994
Research equipment
$979,048 $843,187
Furniture and equipment
136,486 120,185
Leasehold improvements
576,401 577,557
1,691,935 1,540,929
Less accumulated depreciation and
amortization
(589,897) (355,430)
Net property and equipment
$1,102,03 $1,185,49
8 9
Years
Ended
September
30,
1995
1994 1993
Income $-
$-
$ -
Expenses
789,384 688,846
1,002,250
Net Income (Loss)
$(1,002,25 $(789,384 $(688,846
0) ) )
September
30,
1995 1994
Current assets
$30,484 $24,403
Noncurrent assets
$187,821 $87,822
Current liabilities
$4,275,078 $3,197,143
Equity (deficit - net of initial
capitalization)
$(4,056,77 $(3,084,91
3) 8)
1995 1994
Depreciation
$(16,660) $(27,325)
Prepaid expenses
(14,413) (25,680)
Net operating loss carryforward
9,251,208 7,675,907
Other
9,474 6,680
Less: Valuation allowance
(9,229,609 (7,630,772
) )
Net deferred
$- $-
Opti on
Pri ce
Pe r
Outsta Exerci
Share nding sable
1987 Stock Option and Bonus
Plan
Balance, September 30, 1992
$3.40
- -
20.90 189,25 31,000
0
Became exercisable
- -
77,999
Exercised
$4.00 (6,000
(6,000
) )
Balance, September 30, 1993
$3.40
1 9
.
6 0
183,25 102,99
0 9
Became exercisable
- -
40,250
Balance, September 30, 1994
$3.40
2 0
.
9 0
183,25 143,24
0 9
Canceled
$3.40
2 0
.
9 0
176,25 1 136,24
0 3 9
6
,
2
4
9
Balance, September 30, 1995 $19.70
16. 50
7,000 7,000
1992 Incentive Stock Option
Plan
Balance, September 30, 1992
$13.40
500 -
Granted $13.80 -
- -
15.60 12,000
Balance, September 30, 1993 $13.40
15. 60
12,500
Granted $6.80 -
11.90 29,500
Became exercisable
- -
4,166
Balance, September 30, 1994 $6.80
15. 60 4
42,000
4,166
2
0
,
0
0
0 Canceled
$6.80
-
15.60
(42,00 (4,166
0) )
Granted $2.87 -
3.87
57,550 20,917
Balance, September 30, 1995 $2.87 -
3.87 4
57,550 20,917
2
0
,
0
0
0
1992 Nonqualified Stock Option
Plan
Balance, September 30, 1992 $13.40
- -
4
2,500 2 0 ,
0
0
0
Granted $13.80 -
- -
15.60 15,500
Balance, September 30, 1993 $13.40
- -
18,000
Granted $8.70 -
- -
13.80 18,000
Became exercisable
- -
18,000
Balance, September 30, 1994 $8.70 -
13.80
36,000 1 18,000
8
,
0
0
0
Canceled $8.70
- -
- -
13.40 (7,500 -
)
Granted
$2.87
- -
31,500
Became Exercisable
- -
4 42,000
2
,
0
0
0
Balance, September 30, 1995
$2.87
- -
15.60 60,000 6 60,000
0
,
0
0
0
Opti on
Pri ce
Pe r
Outsta Exerci
Share nding sable
1992 Stock Bonus Plan
Granted during 1994
$8.70 1,500 1,500
Exercised
$8.70
(1,500 (1,500
) )
Balance, September 30, 1994 and
- - -
1995
1994 Incentive Stock Option
Plan
Granted
- -
$2.87
50,000
Balance, September 30, 1994
- -
$2.87 50,000 -
Granted
$2.87 50,000
Became Exercisabe
- -
$2.87 61,000
Balance, September 30, 1995
$2.87 100,00 61,000
0
1994 Nonqualified Stock Option
Plan
Granted
- -
$2.87 70,000 -
Balance, September 30, 1995
$2.87 70,000 -
Granted
$2.87 -
3.87
27,250 -
Became exercisable
- -
48,084
Balance, September 30, 1995
$2.87 -
3.87
97,250 48,084
1995 Nonqualified Stock Option
Granted in 1995
$2.87 -
$3.87 329,25
1
Became exercisable
- -
70,000
Balance, September 30, 1995
329,25 70,000
1
