As filed with the Securities and Exchange Commission on
, 1996.
Registration No. 333-09123
SECURITIES AND EXCHANGE
COMMISSION Washington, D.C.
20549
FORM S-l
Registration Statement
Under
THE SECURITIES ACT OF 1933
CEL-SCI Corporation
(Exact name of registrant as specified in
charter)
Colorado
283l
(State or other (Primary Standard
Classi-
jurisdiction of fication
Code
Number)
incorporation)
66 Canal
Center
Plaza, Suite
510
Alexandria,
Virginia
223l4
84-09l6344
(703)
549-5293
(IRS Employer (Address,
including
zip code,
and
I.D. Number) telephone number
including area
of
principal executive offices)
Geert Kersten
66 Canal Center Plaza, Suite 510
Alexandria, Virginia 223l4
(703) 549-5293
(Name and address, including zip code, and
telephone number, including area
code, of agent for service)
Copies of all communications, including all
communications sent to the agent
for service, should be sent to:
William T. Hart, Esq.
Hart & Trinen 1624
Washington Street Denver,
Colorado 80203 (303) 839-
0061
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 Unit (1)
Price
Fee
Common Stock (2) 160,000 $8.00 $1,280,000
$442
Total $1,280,000
$442
(1) Offering price computed in accordance with Rule 457(c).
(2) Up to ll5,000 shares of Common Stock are offered to the
holders of certain Sales Agent Warrants. The Sales
Agent's Warrants were issued in connection with the
Company's September 1995 offering of 517,500 shares of
Common Stock and 517,500 Common Stock Purchase Warrants.
An additional 45,000 shares of common stock are offered to
the owner of certain technology which is being acquired
by the Company for shates of common stock.
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 .........
Selling
Shareholders
Item 6 Dilution ................................
Dilution
Item 7 Selling Security Holders ................
Selling
Shareholders
Item 8 Plan of Distribution ....................
Selling
Shareholders
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
Proceed
in gs
(d)
Certain
Market
Informa
ti on
.......
..
..
..
.
Market
Information,
Description of Securities
(e) Financial Statements ....................
Financial Statements (f) Selected Financial Data
................. Selected Financial
Data
(g) Supplementary Financial Information ..... Not
applicable (h) Management's Discussion and Analysis
.... Management's
Discussion and Analysis of Financial Condition and Results
of Operation (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
160,000 Shares of Common Stock
This Prospectus relates to the sale by the Company of up to
115,000 shares of Common Stock issuable upon the exercise of
Sales Agent Warrants, and 45,000 shares of common stock
issuable to Nippon Zeon Co., Ltd. ("Nippon Zeon") in
exchange for the cancellation of certain royalties payable
by the Company to Nippon Zeon.
The Sales Agent's Warrants were issued in connection with
the Company's June and September 1995 offerings of 1,150,000
shares of Common Stock and 1,150,000 Common Stock Purchase
Warrants.
The holders of the Sales Agent's Warrants, to the extent
they exercise the Sales Agent's Warrants and receive shares
of Common Stock, as well as Nippon Zeon, are sometimes
referred to in this Prospectus as the "Selling
Shareholders". The Selling Shareholders may resell the
shares they acquire by means of this Prospectus from time to
time in the public market. The Company will not receive any
proceeds from the resale of the shares by the Selling
Shareholders. The Selling Shareholders have advised the
Company that they will offer the shares through
broker/dealers at market prices with customary commissions
being paid by the Selling Shareholders. The costs of
registering the shares offered by the Selling Shareholders
are being paid by the Company. The Selling
Shareholders will pay all other costs of
the sale of the shares offered by them. See "Dilution and
Comparative Share Data" and "Selling Shareholders".
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK AND SHOULD BE PURCHASED ONLY BY PERSONS WHO
CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. FOR A
DESCRIPTION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS"
BEGINNING ON PAGE 12 OF THIS PROSPECTUS AND "DILUTION".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
On , 1996 the closing prices of the Company's
Common Stock and Warrants on the NASDAQ National Market
System were $
and $ , respectively. See "Market Information".
The Date of this Prospectus is , 1996
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of l934 and in accordance
therewith is required to file reports, proxy statements and
other information with the Securities and Exchange
Commission (the "Commission"). Copies of any such reports,
proxy statements and other information filed by the Company
can be inspected and copied at the public reference facility
maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. and at the Commission's Regional
offices in New York (7 World Trade Center, Suite 1300, New
York, New York 10048) 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 Units 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 1983. The Company is involved in
the research and development of certain drugs and vaccines.
The Company's first product, MULTIKINETM, manufactured using
the Company's proprietary cell culture technologies, is a
combination, or "cocktail", of natural human interleukin-2
("IL-2") and certain lymphokines and cytokines. MULTIKINE is
being tested to determine if it is effective in improving
the immune response of advanced cancer pantients. The
Company's second product, HGP30, is being tested to
determine if it is an effective treatment/ vaccine against
the AIDS virus. In addition, the Company recently acquired a
new patented T-cell Modulation Process which uses
"heteroconjugates" to direct the body to chose a specific
immune response. The Company intends to use this new
technology to improve the cellular immune response of
persons vaccinated with HGP-30 and to develop a potential
tuberculosis ("TB") treatment/vaccine.
Before human testing can begin with respect to a drug or
biological product, preclinical studies are conducted in
laboratory animals to evaluate the potential efficacy and
the safety of a product. Human clinical studies generally
involve a three-phase process. The initial clinical
evaluation, Phase I, consists of administering the product
and testing for safe and tolerable dosage levels. Phase II
trials continue the evaluation of immunogenicity and
determine the appropriate dosage for the product, identify
possible side effects and risks in a larger group of
subjects, and provide preliminary indications of efficacy.
Phase III trials consist of testing for actual clinical
efficacy for safety within an expanded group of patients at
geographically dispersed test sites. See "Business
Government Regulation" for a more detailed description of
the foregoing.
Between 1983 and 1986 the Company was primarily involved
in funding pre-clinical and Phase I clinical trials of
MULTIKINE. These trials were conducted at St. Thomas's
Hospital Medical School in London, England pursuant to
authority granted by England's Department of Health and
Social Security. In July, 1991 physicians at a southern
Florida medical institution began human clinical trials
using MULTIKINE. The focus of these trials was the
treatment of metastatic malignant melanoma and unresectable
head and neck cancer using MULTIKINE. The clinical trials
in Florida were conducted pursuant to approvals obtained by
the medical institution from the Florida Department of
Health and Rehabilitative Services.
In March 1995, the Canadian Health Protection Branch, Health
and Welfare Ministry gave clearance to the Company to start
a phase I/II cancer study using Multikine. The study, which
will enroll up to 30 head and neck cancer patients who have
failed conventional treatments, will be conducted at several
sites in the United States and Canada and is designed to
evaluate safety, tumor responses and immune responses in
patients treated with multiple courses of Multikine. The
length of time that each patient will remain on the
investigational treatment will depend
on the patient's response to treatment. In May l995, the
U.S. Food and
Drug Administration (FDA) authorized the export of the
Company's Multikine drug to Canada for purposes of this
study.
In February 1996 the FDA authorized the Company to conduct
two human clinical studies using MULTIKINE and focusing on
prostate and head and neck cancer. The prostate study is
being conducted at Jefferson Hospital in Philadelphia,
Pennsylvania and will involve up to 15 prostate cancer
patients who have failed on hormonal therapy. The head and
neck cancer study will involve up to 30 cancer patients who
have failed using conventional therapies. The head and neck
cancer study in the U.S. is being conducted in conjunction
with the Company's Canadian head and neck cancer study.
In October 1995 Viral Technologies, Inc. ("VTI") became a
whollyowned subsidiary of the Company. VTI is engaged in
the development of a possible treatment/vaccine for AIDS.
VTI's technology may also have application in the treatment
of AIDS infected individuals and the diagnosis of AIDS.
VTI's AIDS treatment/vaccine, HGP-30, has completed certain
Phase I human clinical trials. In the Phase I trials, the
vaccine was administered to volunteers who were not infected
with the HIV virus in an effort to determine safe and
tolerable dosage levels.
Product licensure in a foreign country or under state
authority does not mean that the product will be licensed by
the FDA and there are no assurances that the Company or VTI
will receive any approval of the FDA or any other
governmental entity for the manufacturing and/or marketing
of a product. Consequently, the commencement of the
manufacturing and marketing by the Company or VTI of any
product is, in all likelihood, many years away. See
"Business".
The lack of government approval for the Company's or VTI's
products will prevent the Company and VTI from generally
marketing their products. Delays in obtaining government
approval or the failure to obtain government approval may
have a material adverse impact upon the
Company's operations.
All of the Company's products are in the early stages of
development. The Company does not expect to develop
commercial products for several years, if at all. The
Company has had operating losses since its inception, has an
accumulated deficit of approximately $27,014,000 at March
31, 1996, 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: This Prospectus relates to the sale
by
the
Company of up to 115,000 shares of
Common Stock issuable upon the
exercise of Sales Agent Warrants,
and 45,000 shares of common stock
issuable to Nippon Zeon Co., Ltd.
("Nippon
Zeon") in exchange for the
cancellation of certain royalties
payable by the Company to Nippon
Zeon. The Sales Agent's Warrants
were issued in connection with the
Company's June and September 1995
offerings of 1,150,000 shares of
Common Stock and 1,150,000 Common
Stock Purchase Warrants. The holders
of the
Sales Agent's Warrant, to the
extent they exercise the Warrants,
as well as Nippon Zeon, may resell
the shares of Common Stock they
receive upon exercise from time to
time in
the public market. The holders of
the Sales Agent's Warrant and
Nippon Zeon are sometimes referred
to in this Prospectus as the
"Selling Shareholders". The Company
will not receive any proceeds from
the sale of the shares offered by
the Selling Shareholders. See
"Selling Shareholders".
Common Stock Outstand-
ing Prior To and After
Offering: As of the date of this Prospectus,
the
Company had 7,131,902 shares of
Common Stock issued and
outstanding. Assuming all of the
remaining Sales Agent's Warrants
are exercised, there will be
7,291,902 shares of Common Stock
issued and outstanding. The number
of outstanding shares before and
after this Offering does not give
effect to shares which may be
issued upon the exercise and/or
conversion of options, warrants or
other convertible securities
previously issued by the Company.
See "Dilution and Comparative Share
Data", "Selling Shareholders" and
"Description of Securities".
Risk Factors: The purchase of the Securities
offered
by
this Prospectus involves a high
degree of risk. Risk factors
include the following: lack of
revenues and history of loss, need
for additional capital, government
regulation, need for FDA approval,
and dilution. See "Risk Factors."
NASDAQ Symbols: Common Stock: CELI
Warrants: CELIW
Summary Financial Data
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
Adminis-
trative 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
Nine Months
Ended June 30,
1996 1995
Investment Income & Other Revenues $ 188,256 $
313,005 Expenses:
Research and Development 2,350,600
1,383,978 Depreciation and Amortization 208,912
201,197
General and Administrative 2,113,884
1,268,677 Equity in loss of joint venture 3,772
395,224
Net Loss $(4,488,912)
$(3,249,076)
Loss per common share $(0.74)
$(0.70) Weighted average common shares
outstanding 6,086,492
4,194,563
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 1,407,602 688,231
467,086
672,595
Shareholders'
Equity 4,842,033 6,679,068 10,944,859
13,302,4l8
939,304
June 30,
1996 Working Capital
$6,979,975
Total Assets
$8,723,934
Total Liabilities
$1,191,000
Shareholders' Equity
$7,532,934
No dividends have been declared by the Company since its
inception.
GLOSSARY OF TECHNICAL TERMS
AIDS. Acquired Immune Deficiency Syndrome. A
severe
viral
disease of the immune system leading to other
lethal infections and malignancies.
Amino acids. Building blocks of proteins.
Antibody. A protein produced by certain white
blood
cells
in
humans and animals in response to a
substance seen
as non-self, that is a foreign antigen
(such as a virus or bacteria). An antibody binds
specifically to a single antigen.
Antigen. Any substance seen as foreign by the
immune
system
and which triggers an antibody or cell
mediated response from the body's immune
system.
B-Cells. A type of lymphocyte which produces
antibodies
in
response to antigens.
Cytokines. Peptides which regulate the functions
and/or
growth
of other cells. Lymphokines are a type
of cytokine.
HIV. Human Immunodeficiency Virus. The
virus
responsible for AIDS and related
diseases. Lymphocytes. A type of white
blood cells divided into
two
classes, B-cells and T-cells.
Lymphyokine. A specific group of hormones which
regulate
and
modify the various functions of both T
cells and B-cells. There are many
lymphokines, each of which
is thought to have distinctive chemical and
functional properties. IL-2 is but one of these
lymphokines.
Macrophage. A cell found in the body that
has
the
ability
to
kill viruses, bacteria, fungi and cancer cells,
often by engulfing the targeted organism or cell.
Peptide. Two or more amino acids joined
by
a
linkage
called
a peptide bond.
Proteins. A molecule composed of
amino
acids.
There
are
many
types of proteins, all carrying out a number
of different functions essential for cell
growth.
T-Cells. A type of lymphocyte which will amplify
or
suppress
antibody formation by B-cells, and can
also directly destroy "foreign" cells by activating
"killer cells".
Virus. A submicroscopic organism that contains
genetic
information but cannot reproduce itself.
To replicate, it must invade another cell and use
parts of that cell's reproductive machinery.
RISK FACTORS
An investment in the Company's Securities involves a high
degree of risk. Prospective investors are advised that they
may
lose all or part of their investment. Prospective investors
should carefully review the following risk factors.
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 June 30, 1996, the
Company has incurred net losses of approximately
$28,500,000. 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 developed by the Company or Viral Technologies, Inc.
(or which may be developed by affiliates or licensees) will
require regulatory approvals prior to sale. In particular,
therapeutic agents and diagnostic products are subject to
approval, prior to general marketing, by the FDA in the
United States and by comparable agencies in most foreign
countries. The process of obtaining FDA and corresponding
foreign approvals is costly and time consuming, particularly
for pharmaceutical products such as those which might
ultimately be developed by the Company, Viral Technologies,
Inc. or its licensees, and there can be no assurance that
such approvals will be granted. Any failure to obtain or
any delay in obtaining such approvals may adversely affect
the ability of potential licensees or the Company to
successfully market any products developed. Also, the
extent of adverse government regulations which might arise
from future legislative or administrative action cannot be
predicted. The clinical trial which the Company's
affiliate, Viral Technologies, Inc., is conducting in
California is regulated by government agencies in California
and obtaining approvals from
states for clinical trials is likewise expensive and time
consuming. See "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. At present, this is the Company's only
source of MULTIKINE. If this corporation could not, for any
reason, supply the Company with MULTIKINE, the Company
estimates that it would take approximately six to ten months
to obtain supplies of MULTIKINE under an alternative
manufacturing arrangement. The Company does not know what
cost it would incur to obtain this alternative source of
supply.
Licensed Technology - Potential Conflicts of Interest.
The Company's clinical studies and research have been
focused on compounds, compositions and processes which were
licensed to the Company by Sittona Company, B.V. ("Sittona")
in 1983. Maximilian
de Clara, the Company's president and a director, acquired
control of Sittona in 1985. Any commercial products
developed by the Company and based upon the technology
licensed by Sittona will belong to Sittona, subject to the
Company's right to manufacture and sell such products in
accordance with the terms of the licensing agreement. The
Company's license remains in effect until the expiration or
abandonment of all patent rights or until the compounds,
compositions and processes subject to the license enter into
the public domain, whichever is later. The license may be
terminated earlier for other reasons, including the
insolvency of the Company. Accordingly, a conflict of
interest may arise between the Company and Mr. de Clara
concerning the Company's continued rights to the licensed
technology. Any future transactions between the Company and
Sittona will be subject to the review and approval by a
majority of the Company's disinterested directors. See
"Business Compounds and Processes Licensed to the Company",
and "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. Since
the Company's Investigational New Drug application relating
to MULTIKINE has only recently been cleared by the FDA, and
since the Company does not know if it will ever be able to
sell Multikine on a commercial basis, the Company cannot
predict what effect the expiration of this patent will have
on the Company. Notwithstanding the above, the Company
believes that later issued patents will protect the
technology associated with Multikine past the year 2000. See
"Business Compounds and Processes Licensed
to the Company".
Product Liability Insurance. Although the Company has
product liability insurance for MULTIKINE and its HGP-30
vaccine, the successful prosecution of a product liability
case against the Company could have a materially adverse
effect upon its business if the amount of any judgment
exceeds the Company's insurance coverage.
Dependence on Management and Scientific Personnel.
The Company is dependent for its success on the continued
availability of its executive officers. The loss of the
services of any of the Company's executive officers could
have an adverse effect on the Company's business. The
Company does not carry key man life insurance on any of its
officers. The
Company's future success will also depend upon its ability
to attract and retain qualified scientific personnel. There
can be no assurance that the Company will be able to hire
and retain such necessary personnel. See "Management".
Options, Warrants and Convertible Securities. The
Company has issued options, warrants and other convertible
securities ("Derivative Securities") which allow the holders
to acquire additional shares of the Company's Common Stock.
In some cases the Company has agreed that, at its expense,
it will make appropriate filings with the Securities and
Exchange Commission so that the securities underlying
certain Derivative Securities will be available for public
sale. Such filings could result in substantial expense to
the Company and could hinder future financings by the
Company.
For the terms of these Derivative Securities, the
holders thereof will have an opportunity to profit from any
increase in the market price of the Company's Common Stock
without assuming the risks of ownership. Holders of such
Derivative Securities may exercise and/or convert them at a
time when the Company could obtain additional capital on
terms more favorable than those provided by
the Derivative Securities. The exercise or conversion of
the Derivative Securities will dilute the voting interest of
the owners of presently outstanding shares of the Company's
Common Stock and may adversely affect the ability of the
Company to obtain additional capital in the future. The sale
of the shares of Common Stock issuable upon the exercise or
conversion of the Derivative Securities could adversely
affect the market price of the Company's stock. See
"Dilution and Comparative Share Data".
Competition. The competition in the research,
development and
commercialization of products which may be used in the
prevention or treatment of cancer and AIDS is intense.
Major pharmaceutical and chemical companies, as well as
specialized genetic engineering firms, are developing
products for these diseases. Many of these companies have
substantial financial, research and development, and
marketing resources and are capable of providing significant
longterm competition either by establishing inhouse research
groups or by forming collaborative ventures with other
entities. In addition, both smaller companies and non-profit
institutions are active in research relating to cancer and
AIDS and are expected to become more active in the future.
The clinical trials sponsored to date by the Company and
VTI have
not been approved by the FDA, but rather have been conducted
pursuant to approvals obtained from regulatory agencies in
England, Canada and certain states. Since the results of
these clinical trials may not be accepted by the FDA,
companies which are conducting clinical trials approved by
the FDA may have a competitive advantage in that the
products of such companies are further advanced in the
regulatory process than those of the Company or VTI.
Lack of Dividends. There can be no assurance the Company
will be
profitable. At the present time, the Company intends to use
available funds to finance the Company's operations.
Accordingly, while payment of dividends rests within the
discretion of the Board of Directors, no dividends have been
declared or paid by the Company. The Company does not
presently intend to pay dividends and there can be no
assurance that dividends will ever be paid. Pursuant to the
terms of a loan agreement with a bank, the Company may not
pay any dividends without the consent of the bank.
Dilution. Persons purchasing the securities
offered
by this Prospectus will suffer an immediate dilution in the
per share net tangible book value of their Common Stock.
See "Dilution and Comparative Share Data."
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. The
provisions in the Company's Articles of Incorporation
relating to the Preferred Stock 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 AND COMPARATIVE SHARE DATA
As of the date of this Prospectus, the present shareholders
of
the Company owned 7,131,902 shares of Common Stock, which
had a net tangible book value of approximately $l.00 per
share.
The following table illustrates the comparative stock
ownership of the other stockholders of the Company, as
compared to the investors in this Offering, assuming all
shares offered are sold.
Shares outstanding (1)
7,131,902
Shares to be issued upon exercise of
Sales Agent's Warrants
115,000
Shares to be issued to Nippon Zeon Co., Ltd.
45,000 Shares outstanding (pro forma basis)
(1) 7,291,902
Net tangible book value per share $l.00
Equity
ownership by present shareholders
after this offering
97.8%
Equity ownership by investors in this
Offering
2.2%
(1) Amount excludes shares which may be issued upon the
exercise and/or conversion of options, warrants and other
convertible securities previously issued by the Company.
See table below.
The purchasers of the securities offered by this Prospectus
will
suffer an immediate dilution if the price paid for the
securities offered is greater than the net tangible book
value of the Company's Common Stock. "Net tangible book
value" is the amount that results from subtracting the total
liabilities and intangible assets of the Company from its
total assets. "Dilution" is the difference between the
offering price and the net tangible book value of shares
immediately after the Offering.
As of the date of this Prospectus the Company had
7,131,902 shares of Common Stock issued and outstanding.
The following table reflects the additional shares which may
be issued as the result of the exercise of outstanding
options and warrants or the conversion of other securities
issued by the Company.
Numb
er
of
Note
Share Reference
Outstanding as of July 31, 19967,131,902
Shares Subject to this Offering:
Shares issuable upon exercise of
Sales Agent's Warrants 115,000
A Shares to be issued to Nippon
Zeon Co., Ltd. 45,000
Shares outstanding upon the completion of
this Offering (assuming all
shares offered are sold)
7,292,902
Other Shares Which May Be Issued:
Shares issuable upon conversion of
Series A Preferred Stock, based on
closing
price of the Company's
Common Stock on July 25, 1996 ($8.00)
437,500 C
Shares issuable upon exercise of
warrants sold in Company's 1992
Public Offering
517,500
D
Shares issuable upon exercise of
warrants sold to Underwriter in
connection with Company's 1992
Public Offering
90,000 E
Shares issuable upon exercise of
options granted to Company's officers,
directors, employees and consultants 981,926
F
9,318,828
A. In connection with the Company's June and September
Private Offerings, Neidiger/Tucker/Bruner, Inc., the Sales
Agent for these offerings, received a commission, a non-
accountable expense allowance and
warrants to purchase (i) 57,500 shares of the Company's Common
Stock at $2.00 per share, (ii) 57,500 shares at $2.40 per
share, and (ii) an additional 115,000 shares at $3.25 per
share. Prior to the date of this Prospectus the Sales Agent
(and/or its assigns) collectively exercised Warrants
pertaining to 115,000 shares of the Company's Common Stock.
The shares of Common Stock issuable upon the exercise of the
remaining Warrants issued to the Sales Agent are being offered
by means of this Prospectus. See "Selling Shareholders".
B. In December l987, VTI signed a licensing agreement with
Nippon Zeon Co., Ltd. ("Nippon Zeon"), a Japanese chemical
manufacturer, granting Nippon Zeon exclusive rights to VTI's
prototype AIDS vaccine and improvements in the Pacific Area.
Under the agreement, VTI received an initial licensing
payment, as well as a pre commercialization payment, and was
also entitled to receive additional pre-commercialization
payments dependent upon receipt of certain regulatory
approvals. In l995 Nippon Zeon released its rights to VTI's
technology in consideration for VTI's agreement to pay Nippon
Zeon a royalty on sales of products made with VTI's technology
in the licensed area. In July l996 Nippon Zeon agreed to
surrender its royalty rights, as well as any other rights it
may have had to VTI's technology, in exchange for 45,000
shares of the Company's
common stock, which shares are being offered by means of this
prospectus. See "Selling Shareholders".
C. In May 1996 the Company sold, in a private transaction,
3,500 shares of its Series A Preferred Stock (the "Preferred
Shares") for $3,500,000 or $1,000 per share. At the
purchasers' option, up to 1,750 Preferred Shares are
convertible, on or after 60 days from the closing date of the
purchase of such shares (the "Closing"), into shares of the
Company's Common Stock on the basis of one share of Preferred
Stock for shares of Common Stock equal in number to the amount
determined by dividing $1,000 by 85% of the Closing Price of
the Company's Common Stock. All Preferred Shares are
convertible, on or after 90 days from the Closing, on the
basis of one share of Preferred Stock for shares of the
Company's Common Stock equal in number to the amount
determined by dividing $1,000 by 83% of the Closing Price of
the Company's Common Stock. The term "Closing Price" is
defined as the average closing bid price of the Company's
Common Stock over the five-day trading period ending on the
day prior to the conversion of the Preferred Stock.
Notwithstanding the above, the conversion price may not be
less than $3.00 nor more than $8.00, except that if the
Closing Price is less than $3.00, then the conversion price
will be equal to the Closing Price. The Preferred Shares are
entitled to a quarterly dividend of $17.50 per share. Any
Preferred Shares which are outstanding on the second
anniversary of the Closing will be automatically converted
into shares of the Company's Common Stock. The Preferred
Shares have a liquidation preference over the Company's Common
Stock. By means of a separate Registration Statement, the
shares issuable upon the conversion of the Series A Preferred
Stock have been registered for public sale. D. See
"Description of Securities".
E. 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.
F. The options are exercisable at prices ranging from $2.87 to
$19.70 per share. The Company may also grant options to
purchase 1,117,407 additional shares under its Incentive Stock
Option and NonQualified Stock Option Plans. See "Management
Stock Option and Bonus Plans".
MARKET INFORMATION
As of July 31, 1996, there were approximately 3,000 record
holders of the Company's Common Stock and approximately 100
record holders of the Company's Warrants. The Company has not
issued any shares of preferred stock. The Company's Common
Stock and Warrants are traded on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System. Set
forth below are the range of high and low bid quotations for
the periods indicated as reported by NASDAQ, and as adjusted
for the 10 for 1 reverse stock split which was approved by the
Company's shareholders on April 28, 1995 and became effective
on May 1, 1995. The market quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and
may not necessarily represent actual transactions.
Quarter
Ending Common Stock Warrants
High Low High
Low 12/31/93 $20.00
$13.40 $0.94
$0.41
3/31/94 $18.10 $10.30 $0.75
$0.28
6/30/94 $10.90 $ 8.10 $0.31
$0.19
9/30/94 $10.30 $ 5.60 $0.21
$0.12
12/31/94 $ 7.50 $ 3.40 $0.25
$0.09
3/31/95 $ 4.00 $ 3.75 $0.22
$0.13
6/30/95 $ 5.30 $ 2.78 $0.15
$0.06
9/30/95 $ 5.46 $ 3.56 $0.28
$0.09
12/31/95 $ 4.75 $ 2.28 $0.25
$0.09
3/31/96 $ 7.12 $ 2.68 $0.28
$0.03
6/30/96 $14.38 $ 4.56 $0.41
$0.16
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 adividend. 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 selected financial data should be read in
conjunction with the more detailed financial statements,
related notes and other financial information included herein.
See also "Management's Discussion and Analysis".
For the Years Ended September 30,
1995 1994 1993 1992
1991
Investment Income &
Other Revenues $423,765 $ 624,670 $ 997,964 $ 434,180
$35,972 Expenses:
Research and
Development 1,824,661 2,896,l09 1,307,042 481,697
108,771
Depreciation
and Amortization 262,705 138,755 55,372 33,536
32,582
General and
Administrative 1,713,912 1,621,990 1,696,119 1,309,475
795,015
Equity in loss of
joint venture 501,125 394,692 344,423
260,388
290,166
Net Loss
$(3,878,638)$(4,426,876)$(2,404,992)$(1,650,916)$(1,190,562)
Loss per common share $(0.89) $(1.06) $(0.58) $(0.42)
$(0.35)
Weighted average
common shares
outstanding 4,342,628 4,185,240 4,155,431 3,953,233
3,400,546
Nine Months Ended June
30, l996
1995
Investment Income & Other Revenues $ 188,256 $ 313,005
Expenses:
Research and Development 2,350,600
1,383,978 Depreciation and Amortization 208,912
201,197 General and Administrative 2,113,884
1,268,677 Equity in loss of joint venture 3,772
395,224
Net Loss $(4,488,912)
$(3,249,076)
Loss per common share $(0.74)
$(0.70)
Weighted average common shares
outstanding 6,086,492
4,194,563
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
June 30, 1996
Working Capital $6,979,975
Total Assets
$8,723,934
Total Liabilities
$1,191,000
Shareholders' Equity
$7,532,934
No dividends have been declared by the Company since its
inception.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Nine Months Ended June 30, 1996
Interest income during the nine months ending June 30, l996
reflects interest accrued on investments.
Prior to October 30, 1995, VTI was owned 50% by the Company
and 50% by Alpha 1 Biomedicals, Inc. Effective October 30,
1995 the Company acquired Alpha 1's interest in VTI in
exchange for 159,170 shares of the Company's common stock.
Prior to this acquisition the Company accounted for its
investment in VTI using the equity method of accounting.
Following the acquisition of the remaining 50% interest in
VTI on October 30, 1995, the financial statements of VTI
have been consolidated with those of the Company.
The acquisition of VTI was accounted for under the purchase
method of accounting. Since the acquisition represented
primarily research and development costs, the purchase price
for the remaining 50% interest in VTI was expensed and
caused research and development expense for the three months
ended December 31, 1995 to increase significantly.
The consolidation of VTI's financial statements with those
of the
Company also had the following effects:
1. Interest income declined from the comparable period in
the previous year since interest income associated with the
Company's
loans to VTI was eliminated upon consolidation.
2. Current research and development expenses increased due
to the inclusion of VTI's research and development expenses
with those of the Company (the Company's research and
development costs, separate from those of VTI's, decreased
by approximately $100,000 due to cost savings achieved from
using the Company's laboratory which became operational in
January 1995).
3. General and administrative expenses increased due to
the
inclusion of VTI's general and administrative expenses.
4. Capitalized patent costs increased significantly.
Fiscal 1995
Revenues for the year ended September 30, 1995 consisted
primarily of interest earned on funds received from the
Company's February 1992 public offering. The interest
income and investment balances have declined from the
previous year as funds were used for ongoing expenses and
equipping the Company's new laboratory. Research and
development expenses decreased due to the use of the
Company's laboratory for research programs and the
completion of a research and development project relating to
the Company's manufacturing process. General and
administrative expenses increased as the result of the
expenses (approximately $100,000) associated with the
Company's 1995 annual meeting of shareholders. The Company
did not have any meetings of its shareholders during fiscal
1994. Significant components of
general and administrative expenses during this year were
salaries and employee benefits ($341,000), automobile,
travel and expense reimbursements ($271,000), shareholder
communications and investor relations ($245,000), legal and
accounting ($134,000), and officers and directors liability
insurance ($138,000). Losses associated with the Company's
joint venture interest in VTI increased due to an increase
in VTI's research and
development expenditures.
Fiscal 1994
Interest income during the year ending September 30, 1994
decreased from the prior year as a portion of the Company's
investments were sold to pay for operating expenses. Research
and development expenses increased due to the commencement of
several new research projects, all of which
pertained to the Company's MULTIKINE product. Significant
components of general and administrative expenses during this
year were salaries and employee benefits ($442,039), travel
and expense reimbursements ($294,217), shareholder
communications and investor relations ($267,070), legal and
accounting ($151,879), and officers and directors liability
insurance ($147,564). Fiscal 1993
Investment income during the year ending September 30,
1993
increased as the Company had use of the funds from its
February, 1992 public offering for twelve months in fiscal
1993 as opposed to six months in fiscal 1992. Research and
development expenses increased due to the commencement of
several new research projects, all of which pertained to the
Company's MULTIKINE drug. General and administrative expenses
increased due to an increase in the cost of Directors and
Officers insurance, the implementation of an employee 401(K)
plan, and the addition of new employees during the year.
Significant components of general and administrative expenses
during this year were salaries and employee benefits
($342,150), travel and expense reimbursements ($266,007),
shareholder communications and investor relations ($341,024),
legal and accounting ($107,254), officers and directors
liability insurance ($113,690), and the cost of indemnifying
an officer and director for losses sustained as the result of
actions taken on behalf of the Company ($202,500). Losses
associated with the Company's joint venture interest in VTI
increased due to an increase in VTI's research and
development expenditures.
Liquidity and Capital Resources
The Company has had only limited revenues from
operations since its inception in March l983. The Company
has relied upon proceeds realized from the public and private
sale of its Common Stock to meet its funding requirements.
Funds raised by the Company have been expended primarily in
connection with the acquisition of an exclusive worldwide
license to certain patented and unpatented proprietary
technology and knowhow relating to the human immunological
defense system, the funding of VTI's research and development
program, patent
applications, the repayment of debt, the continuation of
Companysponsored research and development, administrative
costs and construction of laboratory facilities. Inasmuch as
the Company does not anticipate realizing revenues until such
time as it enters into licensing arrangements regarding the
technology and know-how licensed to it (which could take a
number of years), the Company is mostly dependent upon the
proceeds from the sale of its securities to meet all of its
liquidity and capital resource requirements.
In 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. As of July 31, l996 all
of the Warrants had been exercised.
In March 1996 the Company sold $l,250,000 of Convertible
Notes ("Notes") to two persons. The Notes were convertible
from time
to time in whole or in part, into shares of the Company's
Common Stock. The conversion price is the lesser of (i) $5
per share or (ii) 80% of the average closing bid price of
the Company's Common Stock during the five trading days
immediately preceding the date of such conversion. Prior to
July 31, l996 the Notes were converted into 250,000 shares
of the Company's common stock.
In May 1996 the Company sold 3,500 shares of its
Series A Preferred Stock (the "Preferred Shares") for
$3,500,000 or
$1,000 per share. At the purchasers' option, up to 1,750
Preferred Shares are convertible, on or after 60 days from
the closing date of the purchase of such shares (the
"Closing"), into shares of the Company's Common Stock on the
basis of one share of Preferred Stock for shares of Common
Stock equal in number to the amount determined by dividing
$1,000 by 85% of the Closing Price of the Company's Common
Stock. All Preferred Shares are convertible, on or after 90
days from the Closing, on the basis of one share of
Preferred Stock for shares of the Company's Common Stock
equal in number to the amount determined by dividing $1,000
by 83% of the Closing Price of the Company's Common Stock.
The term "Closing Price" is defined as the average closing
bid price of the Company's Common Stock over the five-day
trading period ending on the day prior to the conversion of
the Preferred Stock. Notwithstanding the above, the
conversion price may not be less than $3.00 nor more than
$8.00, except that if the Closing Price is less than $3.00,
then the conversion price will be equal to the Closing
Price. The Preferred Shares, if issued, are entitled to a
quarterly dividend of $17.50 per share. Any Preferred
Shares which are outstanding on the second anniversary of
the Closing will be automatically converted into shares of
the Company's Common Stock. The Preferred Shares have a
liquidation preference over the Company's Common Stock.
During fiscal 1996 the Company plans to fund its
U.S. and
Canadian clinical trials involving MULTIKINE. During fiscal
1996 the Company also plans to provide VTI with the funding
needed to continue VTI's clinical trials. It should be
noted that substantial additional funds will be needed for
more extensive clinical trials which will be
necessary before the Company or VTI will be able to apply to
the FDA for approval to sell any products which may be
developed on a commercial basis throughout the United
States. In October,
1994, the Company completed the construction of its own
research laboratory in a facility leased by the Company.
The cost of modifying the leased space and providing the
equipment for the research laboratory was approximately
$1,200,000. In August 1994 the Company obtained a loan to
fund the majority of the costs for the research laboratory.
As of June 30, 1996 the Company owed approximately $628,000
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 whollyowned
subsidiary of the Company in October 1995 when the Company
purchased Alpha 1's
50% interest in VTI. The Company plans to use its existing
financial resources to fund its research and development
program during this period.
Other than funding its research and development program
and the costs associated with its research laboratory, the
Company does not have any material capital commitments.
The Company expects that its existing financial resources
will satisfy the Company's capital requirements at least
through October l997. 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 in 1983. The Company is involved in the
research and development of certain drugs and vaccines. The
Company's first product, MULTIKINETM, manufactured using the
Company's proprietary cell culture technologies, is a
combination, or "cocktail", of natural human interleukin-2
("IL-2") and certain lymphokines and cytokines. MULTIKINE is
being tested to determine if it is effective in improving the
immune response of advanced cancer pantients. The Company's
second product, HGP30, is being tested to determine if it is
an effective treatment/vaccine against the AIDS virus. In
addition, the Company recently acquired a new patented T-cell
Modulation Process which uses "heteroconjugates" to direct the
body to chose a specific immune response. The Company intends
to use this new technology to improve the cellular immune
response of persons vaccinated with HGP30.
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,
HGP30, 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, will be conducted at several
sites in the United States and Canada and is designed to
evaluate safety, tumor responses and immune responses in
patients treated with multiple courses of Multikine. The
length of time that each patient will remain on the
investigational treatment will depend on the patient's
response to treatment. In May l995, the U.S. Food and Drug
Administration (FDA) authorized the export of the Company's
Multikine drug to Canada for purposes of this study.
In February 1996 the FDA authorized the Company to conduct two
human clinical studies using MULTIKINE. The studies will
focus on prostate and head and neck cancer. The prostate
study will be conducted at Jefferson Hospital in Philadelphia,
Pennsylvania and will involve up to 15 prostate cancer
patients who have failed on hormonal therapy. The head and
neck cancer study will involve up to 30 cancer patients who
have failed using conventional therapies. The Company is
currently evaluating clinical centers in the U.S. for purposes
of the study. The head and neck cancer study in the U.S. will
be conducted in conjunction with the Company's Canadian head
and neck cancer study.
Viral Technologies, Inc. ("VTI") completed its Phase I trials
in California and in April 1995, with the approval of the
California Food and Drug Branch ("FDB"), started a new
clinical study with the HGP-30 AIDS vaccine. The study
involves HIV negative volunteers who participated in the 1993
Phase I study. Following vaccinations with HGP-30, certain
volunteers donated blood for a SCID mouse HIV challenge study.
Infection in the SCID mice by virus was determined and
confirmed by two different assays. Approximately 78% of the
SCID mice given blood from vaccinated volunteers showed no HIV
infection after virus challenge as compared to 13% of the mice
given blood from unvaccinated donors. In December 1995 VTI,
with permission from the FDB, began Phase I human clinical
trials with HIV-infected volunteers. See "Viral Technologies,
Inc." below for additional information concerning VTI.
There can be no assurance that either the Company or VTI will
be successful in obtaining approvals from any regulatory
authority to conduct further clinical trials or to manufacture
and sell their products. The lack of regulatory approval for
the Company's or VTI's products will prevent the Company and
VTI from generally marketing their products. Delays in
obtaining regulatory approval or the failure to obtain
regulatory approval in one or more countries may have a
material adverse impact upon the Company's operations.
BACKGROUND OF HUMAN IMMUNOLOGICAL SYSTEM
The function of the immunological system is to protect the
body against infectious agents, including viruses, bacteria,
parasites and malignant (cancer) cells. An individual's
ability to respond to infectious agents and to other
substances (antigens) recognized as foreign by the body's
immune system is critical to health and survival. When the
immune response is adequate, infection is usually combatted
effectively and recovery follows. Severe infection can occur
when the immune response is inadequate. Such immune
deficiency can be present from birth but, in adult life, it is
frequently acquired as a result of intense sickness or as a
result of the administration of chemotherapeutic drugs and/or
radiation. It is also recognized that, as people reach middle
age and thereafter, the immune system grows weaker.
Two classes of white blood cells, macrophages and
lymphocytes, are believed to be primarily responsible for
immunity. Macrophages are large cells whose principal immune
activity is to digest and destroy infectious agents.
Lymphocytes are divided into two sub classes. One sub-class
of
lymphocytes, B-cells, produces antibodies in response to
antigens. Antibodies have unique combining sites
(specificities) that recognize the shape of particular
antigens and bind with them. The combination of an antibody
with an antigen sets in motion a chain of events which may
neutralize the effects of the foreign substance. The other
subclass of lymphocytes, T-cells, regulates immune responses.
Tcells, for example, amplify or suppress antibody formation by
Bcells, and can also directly destroy "foreign" cells by
activating "killer cells."
It is generally recognized that the interplay among T
cells, B cells and the macrophages determines the strength and
breadth of the body's response to infection. It is believed
that the activities of
Tcells, Bcells and macrophages are controlled, to a large
extent, by a specific group of hormones called lymphokines.
Lymphokines regulate and modify the various functions of both
T cells and B cells. There are many lymphokines, each of
which is thought to have distinctive chemical and functional
properties. IL2 is but one of these lymphokines and it is on
IL2 and its synergy with other lymphokines that the Company
has focused its attention. Scientific and medical
investigation has established that IL-2 enhances immune
responses by causing activated T-cells to proliferate.
Without such proliferation no immune response can be mounted.
Other lymphokines and cytokines support Tcell and B-cell
proliferation. However, IL2 is the only known lymphokine or
cytokine which causes the proliferation of Tcells. IL-2 is
also known to activate B-cells in the absence of 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, IL-2 should be administered
not as a single substance but rather as a mixture of IL-2 and
certain lymphokines and cytokines, i.e. as a "cocktail". This
approach, which was pioneered by the Company, makes use of the
synergism between these lymphokines. It should be noted
however that neither the FDA nor any other agency has
determined that the Company's MULTIKINE product will be
effective against any form of cancer.
It has been reported by researchers in the field of lymphokine
research that IL-2 can increase the number of killer T-cells
produced by the body, which improves the body's capacity to
selectively destroy specific tumor cells. Research and human
clinical trials sponsored by the Company have indicated a
correlation between administration of MULTIKINE to advanced
cancer patients and immunological responses. On the basis of
these experimental results, the Company believes that
MULTIKINE may have application for the treatment of solid
tumors in humans.
The Company foresees three potential anti-cancer
therapeutic uses for MULTIKINE: (i) direct administration into
the
human body (in vivo) as a modulator of the immune system, (ii)
activation of a patient's white blood cells outside the body
with MULTIKINE, followed by returning these activated cells to
the patient; and (iii) a combination of (i) and (ii).
RESEARCH AND DEVELOPMENT
In the past, the Company conducted its research
pursuant to arrangements with various universities and
research organizations. The Company provided grants to these
institutions for the conduct of specific research projects as
suggested by the Company's scientists based upon the results
of previously
completed projects.
More recently the Company has decided to consolidate its
research activities in a Company-owned laboratory. The
Company believes that this new approach will be more
effective in terms of both cost and performance.
Between 1983 and 1986 the Company was primarily involved in
funding pre-clinical and Phase I clinical trials of its
proprietary MULTIKINE technologies. These trials were
conducted at St. Thomas's Hospital Medical School located in
London, England under the direction of Dudley C. Dumonde,
M.D., PhD., a former member of the SAB, and pursuant to
approvals obtained from England's Department of Health and
Social Security.
In the Phase I trial in England (completed in 1987), forty-
nine patients suffering with various forms of solid cancers,
including malignant melanoma, breast cancer, colon cancer,
and other solid tumor types were treated with MULTIKINE. The
product was administered directly into the lymphatic system
in a number of patients. Significant and lasting lymphnode
responses, which are considered to be an indication of
improvement in the patient's immune responses, were observed
in these patients. A principal conclusion of the Phase I
trials was that the side effects of the Company's products in
fortynine patients were not severe, the treatment was well
tolerated and there was no long-term toxicity.
The results of the Phase I clinical study were encouraging,
and
as a result the Company established protocols for future
clinical trials. In November, 1990, the Florida Department of
Health and Rehabilitative Services ("DHRS") gave the
physicians at a southern Florida medical institution approval
to start a clinical cancer trial in Florida using the
Company's MULTIKINE product. The focus of the trial was
unresectable head and neck cancer (which is presently
untreatable) and was the first time that the natural
MULTIKINE was administered to cancer patients in a clinical
trial in the United States.
Four patients with regionally advanced squamous cell cancer
of the head and neck were treated with the Company's
MULTIKINE product. The patients had previously received
radical surgery followed by xray therapy but developed
recurrent tumors at multiple sites in the neck and were
diagnosed with terminal cancer. The patients had low levels
of lymphocytes and evidence of immune deficiency (generally a
characteristic of this type of cancer).
Significant tumor reduction occured in three of the four
patients as a result of the treatment with MULTIKINE.
Negligible side effects were observed and the patients were
treated as outpatients. Notwithstanding the above, it should
be noted that these trials were only preliminary and were
only conducted on a small number of patients. It remains to
be seen if MULTIKINE will be effective in treating any form
of cancer. See "Product Development Plan" above for
information concerning the Company's future research and
development plans.
Proof of efficacy for anti-cancer drugs is a lengthy and
complex process. At this early stage of clinical
investigation, it remains to be proven that MULTIKINE will be
effective against any form of cancer. Even if some form of
MULTIKINE is found to be effective in the treatment of
cancer, commercial use of MULTIKINE may be several years away
due to extensive safety and effectiveness tests that would be
necessary before required government approvals are obtained.
It should be noted that other companies and research teams
are actively involved in developing treatments and/or cures
for cancer, and accordingly, there can be no assurance that
the Company's research efforts, even if successful from a
medical standpoint, can be completed before those of its
competitors.
Since 1983, and through September 30, 1995, approximately
$9,505,000 has been expended on Company-sponsored research
and development, including approximately $1,825,000,
$2,896,000 and $1,307,000 during the years ended September
30, 1995, 1994 and 1993, respectively. The foregoing amounts
do not include amounts spent by Viral Technologies, Inc. on
research and development. Since May, 1986 (the inception of
VTI) and through September 30, 1995, VTI has spent
approximately $3,365,000 on research and development.
The Company has established a Scientific Advisory Board
("SAB") comprised of scientists distinguished in biomedical
research in the field of lymphokines and related areas. From
time to time, members of the SAB advise the Company on its
research activities. Institutions with which members of the
SAB are affiliated have and may in the future conduct Company
sponsored research. The SAB has in the past and may in the
future, at its discretion, invite other scientists to opine
in confidence on the merits of the Companysponsored research.
Members of the SAB receive $500 per month from the Company
and have also been granted options (for serving as
members of the SAB) which collectively allow for the purchase
of up to 15,000 shares of the Company's Common Stock. The
options are exercisable at prices ranging from $13.80 to
$19.70 per share.
The members of the Company's SAB are:
Dr. Michael Chirigos former head of the Virus and Disease
Modification Section, National Institutes of Health (NIH),
National Cancer Institute (NCI) from 1966-1981 and the Immuno
Pharmacology Section, NHI, NCI, Biological Response Modifier
Program until 1985.
Dr. Evan M. Hersh Vice-Chairman, Department of Internal
Medicine, Chief, Section of Hematology/Oncology, Department
of Internal Medicine, Tucson, AZ. Director of Clinical
Research, Arizona Cancer Center, Tucson.
Dr. Michael J. Mastrangelo Director, Division of Medical
Oncology, and Professor of Medicine, Jefferson Medical
College, Philadelphia, Pennsylvania.
Dr. Alan B. Morris, PhD. Professor, Department of Biological
Sciences, University of Warwick, Coventry, U.K.
VIRAL TECHNOLOGIES, INC.
Prior to October 1995, Viral Technologies, Inc.
("VTI"), a Delaware corporation, was 50% owned by the Company
and 50% owned by Alpha 1 Biomedicals, Inc. VTI is developing
a vaccine technology that may prove of commercial value in
the prevention, diagnosis and treatment of AIDS. VTI holds
the proprietary rights to certain synthesized components of
the p17 gag protein, which is the outer core region of the
AIDS virus (HIV-1). In October 1995, the Company acquired
Alpha 1's interest in VTI in exchange for 159,170 shares of
the Company's common stock.
VTI is involved in the development of a prototype
preventive and therapeutic vaccine against AIDS that is based
on HGP-30, a thirty amino acid synthetic peptide derived from
the p17 region of the AIDS virus. Evidence compiled by
scientists at George Washington University from toxicology
studies with different animal species indicates that the HGP-
30 prototype vaccine does not appear to be toxic in animals.
The HGP-30 vaccine being tested differs from most other
vaccines candidates in that its active component, the HGP-30
peptide, is derived from the p17 core protein particles of
the virus. Since HGP-30 is a totally synthetic molecule
containing no live virus, it cannot cause infection. Unlike
the envelope (i.e. outside) proteins, the p17 region of the
AIDS virus appears to be relatively nonchanging. In January,
1991, VTI was issued a
United States patent covering the production, use and sale of
HGP-30. HGP-30
may also be effective in treating persons infected with the
AIDS virus.
Approval to start Phase I human clinical trials in
Great Britain using VTI's prototype AIDS vaccine HGP-30 was
granted in April 1988. The trial, the first in the European
common market, began in May 1989 with 18 healthy
(HIVnegative) volunteers given three different dosages and
was completed in December 1990. The trial results indicated
that five of eight volunteers vaccinated with HGP30, and
whose blood samples were able to be tested, produced "killer"
T-cell responses. The vaccine also elicited cellmediated
immunity responses in 7 out of 9 vaccinated volunteers and
antibody responses in 15 out of 18 vaccinated volunteers.
In March, 1990, the California Department of Health
Services Food and Drug Branch (FDB) approved the first human
testing (Phase I trials) in the United States of HGP-30. The
trials were conducted by scientists at the University of
Southern California and San Francisco General Hospital.
Twentyone healthy HIV-negative volunteers at medical centers
in Los Angeles and San Francisco received escalating doses of
HGP30 with no clinically significant adverse side effects.
The clinical studies confirmed earlier
clinical trials in London.
In April 1995 VTI, with the approval of the FDB, began
another clinical trial in California using volunteers who
received two vaccinations. The volunteers receiving the two
lowest dosage levels were asked to donate blood for a SCID
mouse HIV challenge study. The SCID mouse is considered to be
the best available animal model
for HIV because it lacks its own immune system and therefore
permits human cell growth. White blood cells from the five
(5) vaccinated volunteers and from normal donors were
injected into groups of SCID mice. They were then challenged
with high levels of a different strain of the HIV virus than
the one from which HGP30 is derived. Infection by virus was
determined and confirmed by two different assays, p24
antigen, a component of the virus core, and reverse
transcriptase activity, an enzyme critical to HIV
replication. Approximately 78% of the SCID mice given blood
from vaccinated volunteers showed no HIV infection after
virus challenge as compared to 13% of the mice given blood
from unvaccinated donors.
In December 1995 VTI, with permission from the FDB,
began Phase I human clinical trials with HIV-infected
volunteers. VTI's AIDS vaccine/treatment is only in the
initial stages of testing and it remains to be seen if the
vaccine/treatment will be effective against the AIDS virus.
Although there has been important independent
research
showing the possible significance of the p17 region of HIV-1,
there can be no assurance that any of VTI's technology will
be effective in the prevention, diagnosis or treatment of
AIDS. There can be no assurance that other companies will not
develop a product that is more effective or that VTI
ultimately will be able to develop and bring a
product to market in a timely manner that would enable it to
derive commercial benefits.
VTI's research and development efforts are presently
focused on the evaluation of second generation formulations
and delivery systems for HGP-30 and related peptides to
enhance HIV specific cellular immune responses.
In January 1991, VTI was awarded a U.S. patent
covering the exclusive production, use and sale of HGP-30.
This patent is thought to be the first U.S. patent for a
portion of a "core" protein of the HIV virus. In February
1993, VTI was awarded a European patent covering HGP-30 and
certain other peptides.
In December l987, VTI signed a licensing agreement with
Nippon Zeon Co., Ltd. ("Nippon Zeon"), a Japanese chemical
manufacturer, granting Nippon Zeon exclusive rights to VTI's
prototype AIDS vaccine and improvements in the Pacific Area.
Under the agreement, VTI received an initial licensing
payment, as well as a precommercialization payment, and was
also entitled to receive additional pre-commercialization
payments dependent upon receipt of certain regulatory
approvals. In l995 Nippon Zeon released its rights to VTI's
technology in consideration for VTI's agreement to pay Nippon
Zeon a royalty on sales of products made with VTI's
technology in the licensed area. In July l996 Nippon Zeon
agreed to surrender its royalty rights, as well as any other
rights it may have had to VTI's technology, in exchange for
45,000 shares of the Company's common stock, which shares are
being offered by means of this prospectus. See "Selling
Shareholders".
T-CELL MODULATION PROCESS
In January 1996 the Company acquired a new patented T-cell
Modulation Process which uses "heteroconjugates" to direct
the body to chose a specific immune response.
The ability to generate a specific immune response is
important because many diseases are often not combatted
effectively due to the
body's selection of the "inappropriate" immune response. The
capability to specifically reprogram an immune response may
offer a more effective approach than existing vaccines and
drugs in
attacking an underlying disease.
The Company intends to use this new technology to improve
the cellular immune response of VTI's HIV HGP-30 immunogen
which is currently in two clinical studies. In addition, the
Company intends to use the technology to develop a potential
Tuberculosis (TB) vaccine/treatment. TB is the largest
killer of all infectious diseases worldwide and new strains
of drug resistant TB are emerging daily. The technology is
also a potential platform technology which could also work
with many other peptides. Using this new technology, the
Company is currently conducting in vitro laboratory and in
vivo animal studies.
The technology was acquired from Cell-Med, Incorporated
("CELL MED") in consideration for the Company's agreement to
pay certain liabilities of CELL-MED in the amount of
approximately $6,000. If the Company elects to retain
ownership in the technology after March 30, 1997, the Company
must pay CELL-MED $200,000, plus additional payments ranging
between $100,000 and $600,000, depending upon the Company's
ability to obtain regulatory approval for clinical studies
using the technology. In addition, should the Company
receive FDA approval for the sale of any product
incorporating the technology, the Company is obligated to pay
CELLMED an advance royalty of $500,000, a royalty of 5% of
the sales price of any product using the technology, plus 15%
of any amounts
the Company receives as a result of sublicensing the
technology. So long as the Company retains rights in the
technology, the Company has also agreed to pay the future
costs associated with pursuing and or maintaining CELL-MED's
patent and patent applications relating to the technology.
As of February 29, 1996, CELL-MED had been issued patents in
Australia and from the European Patent Office covering the
technology and had several U.S. and foreign patent
applications pending.
COMPOUNDS AND PROCESSES LICENSED TO THE COMPANY
The Company has acquired from Sittona Company, B.V., a
Netherlands
corporation ("Sittona"), the exclusive worldwide rights to
patented IL2 compounds, compositions and other processes and
other lymphokine related compounds, compositions and
processes which are the subject of various patents, patent
applications and disclosure documents filed with the United
States Patent and Trademark Office as well as similar
agencies of various foreign countries. Sittona acquired its
rights in the foregoing products and technology from Hooper
Trading Company N.V., and Shanksville Corporation N.V., both
Netherland Antilles corporations. Pursuant to the terms of
the license, the Company must pay to Sittona a royalty of l0%
of all net sales received by the Company in connection with
the manufacture, use or sale of the licensed compounds,
compositions and processes and a royalty of l5% of all
license fees and royalties received by the Company in
connection with the grant by the Company of any sublicenses
for the manufacture, use or sale of the licensed compounds,
compositions and processes. On November 30, l983, a $l.4
million advance royalty was paid by the Company to Sittona to
acquire the license. The license also requires the Company
to bear the expense of preparing, filing and processing
patent applications and to obtain and maintain patents in the
United States and foreign countries on all inventions,
developments and improvements made by or on behalf of the
Company relating to the licensed compounds, compositions and
processes. In this regard the Company has caused patent
applications to be filed in several foreign countries and has
undertaken the processing of previously filed patent
applications.
The exclusive license is to remain in effect until the
expiration or abandonment of all patent rights or until the
compounds, compositions and processes enter into the public
domain, whichever is later. Sittona may also terminate the
license for breach of the agreement, fraud on the part of the
Company, or the bankruptcy or insolvency of the Company.
Sittona, Hooper Trading Company and Shanksville Corporation
are all controlled by Maximilian de Clara, the Company's
President. See "Management Transactions with Related
Parties".
In 1987 a German company filed an opposition with the
European Patent Office with respect to one of the Company's
European patents, alleging that certain aspects of the patent
in question were previously disclosed to inventors during a
conference held in Germany. A hearing on the opposition was
held and on October 12, 1990 the European Patent Office
rejected the opposition. The German company filing the
opposition appealed the decision of the European Patent
Office. In 1992 the Appellate Tribunal of the European Patent
Office upheld the Company's process claims in the patent,
while two minor claims were denied. The Company does not
believe that the denial by the European Patent Office of
these two minor process patent claims impairs the value of
this patent in any significant degree.
In February 1996 the Company filed a lawsuit against ImmunoRx
and Dr. John Hadden for contract breach, tortious
interference of contract and patent infringement concerning
the Company's Multikine drug. The lawsuit, filed in the U.S.
District Court for the Middle District of Florida, seeks
damages and the termination of certain
research and clinical studies being conducted by ImmunoRx and
Dr. Hadden. From 1984 to 1992, Dr. Hadden consulted with the
Company, performed research on Multikine and manufactured
Multikine for the Company's
head and neck cancer study in Florida. In early 1993, Dr.
Hadden signed a separation agreement with the Company
acknowledging the Company's ownership of both Multikine and
the research results. The Company has learned that Dr. Hadden
and ImmunoRx are apparently making copies of Multikine, in
contravention of the separation agreement and the patents
covering Multikine, and have
begun clinical studies in a foreign country using a copy of
Multikine.
Process for the Production of IL-2 and IL-2 Product
The Company's exclusive license includes processes for the
production in high yields of natural human IL-2 using cell
culture techniques applied to normal human cells. Based upon
the results of the Company's research and human clinical
trials, the Company believes that "natural" IL-2 produced by
cell culture technologies, such as the Company's proprietary
products, may
have advantages over genetically engineered, bacteria-
produced IL2 ("recombinant IL-2") manufactured by other
companies. There are basically two ways to produce IL-2 on a
commercial scale: (1) applying genesplicing techniques using
bacteria or other micro-organisms to produce recombinant IL-
2; or, (2) applying cell culture technology using mammalian
cells. Substantive differences exist between recombinant IL-2
and IL-2 produced through cell culture technology. For
example: (1) cell cultured IL-2 is glycosylated (has sugars
attached). Sugar attachments play a crucial role in cell
recognition and have a significant effect on how fast a body
clears out proteins. Proteins produced through bacteria have
no sugar attachments and while recombinant
IL-2 products produced from recombinant yeast or insect cells
are glycosylated, they are not so to the right degree, or at
the right locations. Cell cultured IL-2 has the "right" sugar
attachments at the right places; (2) there are also
structural differences related to folding (the way human
proteins work depends on their sequence folding); and (3) the
cell cultured IL2 "cocktail" is administered in small dosages
as pioneered by Company
researchers. This formulation and dosage mimics the way
immune regulators are naturally found and function within the
body. This stands in stark contrast to the huge dosages
required when recombinant IL-2 is administered to patients.
In addition, patients treated with recombinant IL-2 usually
suffer severe side effects.
Although mammalian cells (other than human cells) could
be genetically engineered to produce glycosylated IL-2 in
larger quantities than are produced by the Company's method,
such mammalian cells could not be genetically engineered to
produce the combination of human lymphokines and cytokines,
which together with human glycosylated IL-2 form the
MULTIKINE product used by the Company. The Company is of the
opinion that glycosylated IL-2 genetically produced from
mammalian cells must be administered in large dosages before
any benefits are observed. Even then, the Company believes
that only a small percentage of patients will benefit from
treatments consisting only of glycosylated IL-2. In
addition, large dosages of glycosylated IL-2 can, as with
recombinant IL-2, result in severe toxic reactions. In
contrast, the Company believes the synergy between
glycosylated IL2 and certain other lymphokines/ cytokines
allows MULTIKINE to be administered in low dosages, thereby
avoiding the severe toxic reactions which often result when
IL-2 is administered in large dosages.
The technology licensed to the Company includes the basic
production method employing the use of normal white blood
cells, an improved production method based in part on this
basic production method, a serum-free and mitogenfree IL-2
product, and a method for using this product in humans.
Mitogens are used to
stimulate cells to produce specific materials (in this case,
IL 2). Mitogens remaining in the product of cell stimulation
can cause allergic and anaphylactic reactions if not removed
from the cell product prior to introduction into the body.
The Company's license also pertains to a cell culture
process for producing interleukin-2 and another type of cell
process for producing serumfree and mitogen-free interleukin-
2 preparations which avoids a mitogen stimulation step and
uses interleukin-1 and white blood cells.
The Company's license further includes a process for
suppressing graft rejection in organ transplantation. This
process employs the use of an agent which blocks the activity
of IL-2 in proliferating T cells which would otherwise
destroy the transplanted organ. The Company regards further
research and development of this process to involve a
financial commitment beyond its present ability; thus, while
the Company intends to attempt to enter into licensing
arrangements with third parties concerning this process, it
does not presently intend to conduct further research into,
or development of, this process.
The Company has an agreement with an unrelated corporation
for the production, until 1997, of MULTIKINE for research and
testing purposes. At present, this is the Company's only
source of MULTIKINE. If this corporation could not, for any
reason, supply the Company with MULTIKINE, the Company
estimates that it would take approximately six to ten months
to obtain supplies of MULTIKINE under an alternative
manufacturing arrangement. The Company does not know what
cost it would incur to obtain this alternative source of
supply.
GOVERNMENT REGULATION
The investigational agents and future products of the
Company are
regulated in the United States under the Federal Food, Drug
and Cosmetic Act, the Public Health Service Act, and the laws
of certain
states. The Federal Food and Drug Administration (FDA)
exercises significant regulatory control over the clinical
investigation and manufacture of pharmaceutical products.
Prior to the time a pharmaceutical product can be marketed
in the United States for therapeutic use, approval of the FDA
must normally be obtained. Certain states, however, have
passed laws which allow a state agency having functions
similar to the FDA to approve the testing and use of
pharmaceutical products within the state. In the case of
either FDA or state regulation, preclinical testing programs
on animals, followed by three phases of clinical testing on
humans, are typically required in order to establish product
safety and efficacy.
The first stage of evaluation, preclinical testing, must be
conducted in animals. After lack of toxicity has been
demonstrated, the test results are submitted to the FDA (or
state regulatory agency) along with a request for approval
for further testing which includes the protocol that will be
followed in the initial human clinical evaluation. If the
applicable regulatory authority does not object to the
proposed experiments, the investigator can proceed with
Phase I trials. Phase I trials consist of pharmacological
studies on a relatively few number of humans under rigidly
controlled conditions in order to establish
lack of toxicity and a safe dosage range.
After Phase I testing is completed, one or more Phase II
trials are conducted in a limited number of patients to test
the product's ability to treat or prevent a specific
disease, and the results are analyzed for clinical efficacy
and safety. If the results appear to warrant confirmatory
studies, the data is
submitted to the applicable regulatory authority along with
the protocol for a Phase III trial. Phase III trials consist
of extensive studies in large populations designed to assess
the safety of the product and the most desirable dosage in
the treatment or prevention of a specific disease. The
results of the clinical trials for a new biological drug are
submitted to the FDA as part of a product license
application ("PLA").
In addition to obtaining FDA approval for a product, a
biologics establishment license application ("ELA") must be
filed in order to obtain FDA approval of the testing and
manufacturing facilities in which the product is produced.
To the extent all or a portion of the manufacturing process
for a product is handled by an entity other than the
Company, the Company must similarly receive FDA approval for
the other entity's participation in the manufacturing
process. Domestic manufacturing establishments are subject
to inspections by the FDA and by other Federal, state and
local agencies and must comply with Good Manufacturing
Practices ("GMP") as appropriate for production. In
complying with GMP regulations, manufacturers must continue
to expend time, money and effort in the area of production
and quality control to ensure full technical compliance.
The process of drug development and regulatory approval
requires substantial resources and many years. There can be
no assurance that regulatory approval will ever be obtained
for products developed by the Company. Approval of drugs
and biologicals by regulatory authorities of most foreign
countries must also be obtained prior to initiation of
marketing in those countries. The approval process varies
from country to country and the time period required in each
foreign country to obtain approval may be longer or shorter
than that required for regulatory approval in the United
States.
The human clinical trials in Florida were authorized
pursuant to applications filed by physicians at a southern
Florida medical institution with the Florida Department of
Health and Rehabilitative Services ("DHRS"). VTI's Phase I
clinical trials were conducted pursuant to approvals
obtained from the California Department of Health Services
Food and Drug Branch. None of the clinical trials involving
the Company's MULTIKINE product (including the prior trials
conducted in London, England) have been conducted under the
approval of the FDA and there are no assurances that
clinical trials conducted under approval from state
authorities or conducted in foreign countries will be
accepted by the FDA. Product licensure in a foreign country
or under state authority does not mean that the product will
be licensed by the FDA and there are no assurances that the
Company will receive any approval of the FDA or any other
governmental entity for the manufacturing and/or marketing
of a product. Consequently, the commencement of the
manufacturing and marketing of any Company product is, in
all likelihood, many years away. COMPETITION AND MARKETING
Many companies, nonprofit organizations and governmental
institutions are conducting research on lymphokines.
Competition in the development of therapeutic agents and
diagnostic products incorporating lymphokines is intense.
Large, well-established pharmaceutical companies are
engaged in lymphokine research and development and have
considerably greater resources than the
Company has to develop products. The establishment by
these large companies of in-house research groups and of
joint research ventures with other entities is already
occurring in these areas and will probably become even more
prevalent. In addition, licensing and other collaborative
arrangements between
governmental and other nonprofit institutions and
commercial enterprises, as well as the seeking of patent
protection of inventions by nonprofit institutions and
researchers, could result in strong competition for the
Company. Any new developments made by such organizations
may render the Company's licensed technology and knowhow
obsolete.
Several biotechnology companies are producing IL-2-like
compounds. The Company believes, however, that it is the only
producer of a patented IL2 product using a patented cell
culture technology with
normal human cells. The Company foresees that its principle
competition will come from producers of genetically-
engineered IL2 like products. However, it is the Company's
belief, based upon
growing scientific evidence, that its natural IL-2 products
have advantages over the genetically engineered, IL-2-like
products. Evidence indicates that genetically engineered, IL-
2like products, which lack sugar molecules and typically are
not water soluble, may be recognized by the immunological
system as a foreign agent, leading to a measurable antibody
build-up and thereby possibly voiding their therapeutic
value. Furthermore, the Company's research has established
that to have optimum therapeutic value IL-2 should be
administered not as a single substance but rather as an IL-2
rich mixture of certain lymphokines and other proteins, i.e.
as a "cocktail". If these differences prove to be of
importance, and if the therapeutic value of its MULTIKINE
product is conclusively established, the Company believes it
will be able to establish a strong competitive position in a
future market.
The Company has not established a definitive plan for
marketing
nor has it established a price structure for the Company's
saleable products. However, the Company intends, if the
Company is in a position to begin commercialization of its
products, to enter into written marketing agreements with
various major pharmaceutical firms with established sales
forces. The sales forces in turn would probably target the
Company's products to cancer centers, physicians and clinics
involved in immunotherapy.
Competition to develop treatments for the control of AIDS
is intense. Many of the pharmaceutical and biotechnology
companies around the world are devoting substantial sums to
the exploration and development of technologies useful in
these areas. VTI's development of its experimental HGP-30
AIDS Vaccine, if successful, would likely face intense
competition from other companies seeking to find alternative
or better ways to prevent and treat AIDS.
Both the Company and VTI may encounter problems, delays
and additional expenses in developing marketing plans with
outside firms. In addition, the Company and VTI may
experience other limitations involving the proposed sale of
their products, such as uncertainty of third-party
reimbursement. There is no assurance that the Company or VTI
can successfully market any products which they may develop
or market them at competitive
prices.
The clinical trials funded to date by the Company and VTI
have not been approved by the FDA, but rather have been
conducted pursuant to approvals obtained from regulatory
agencies in England, Canada and certain states. Since the
results of these clinical trials may not be accepted by the
FDA, companies which are conducting clinical trials approved
by the FDA may have a competitive advantage in that the
products of such companies are further advanced in the
regulatory process than those of the Company or VTI.
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.
EMPLOYEES
As of March 31, 1996 the Company, together with VTI, employed
24 persons on a full-time basis.
MANAGEMENT
Officers and Directors
Name Age Position
Maximilian de Clara 66 Director and President
Geert R. Kersten, Esq. 37 Director, Chief
Executive
Officer, Secretary
and Treasurer Patricia B. Prichep 43 Vice President of
Operations
M. Douglas Winship 45 Vice President of
Regulatory
Affairs and Quality
Assurance Dr. Eyal Talor 40 Vice President of
Research
and
Manufacturing
Dr. Prem S. Sarin 61 Vice President of
Research
for
Viral Technologies,
Inc. Dr. Daniel H. Zimmerman 54 Vice President of
Cellular
Immunology
Mark V. Soresi 43 Director
F. Donald Hudson 62 Director Edwin A.
Shalloway
60 Director
The directors of the Company serve in such capacity
until the next annual meeting of the Company's shareholders
and
until their successors have been duly elected and qualified.
The officers of the Company serve at the discretion of the
Company's directors.
Mr. Maximilian de Clara, by virtue of his position
as an officer and director of the Company, may be deemed to
be the "parent" and "founder" of the Company as those terms
are defined under applicable rules and regulations of the
Securities and Exchange Commission.
The principal occupations of the Company's officers and
directors, during the past several years, are as follows:
Maximilian de Clara. Mr. de Clara has been a director of
the Company since its inception in March, l983, and has been
president of the Company since July, l983. Prior to his
affiliation with the Company, and since at least l978, Mr. de
Clara was involved in the management of his personal
investments and personally funding research in the fields of
biotechnology and biomedicine. Mr. de Clara attended the
medical school of the University of Munich from
l949 to l955, but left before he received a medical degree.
During the summers of l954 and l955, he worked as a research
assistant at the University of Istanbul in the field of
cancer research. For his efforts and dedication to research
and development in the fight against cancer and AIDS, Mr. de
Clara was awarded the "Pour le Merit" honorary medal of the
Austrian Military Order "Merito Navale" as well as the honor
cross of the Austrian Albert Schweitzer Society.
Geert R. Kersten, Esq. Mr. Kersten was Director of
Corporate and Investment Relations for the Company between
February, 1987 and October, 1987. In October of 1987, he was
appointed Vice President of Operations. In December, 1988,
Mr. Kersten was appointed director of
the Company. Mr. Kersten also became the Company's secretary
and treasurer in 1989. In May, 1992, Mr. Kersten was
appointed Chief Operating Officer and in February, 1995, Mr.
Kersten became the Company's Chief Executive Officer. In
previous years, Mr. Kersten worked as a financial analyst
with Source Capital, Ltd., an investment advising firm in
McLean, Virginia. Mr. Kersten is a stepson of Maximilian
de Clara, who is the President and a
Director of the Company. Mr. Kersten attended George
Washington University in Washington, D.C. where he earned a
B.A. in Accounting and an M.B.A. with emphasis on
International Finance. He also attended law school at
American University in Washington, D.C. where he received a
Juris Doctor degree.
Patricia B. Prichep has been the Company's Vice President
of Operations since March, 1994. Between December, 1992 and
March, 1994, Ms. Prichep was the Company's Director of
Operations. From June, 1990 to December, 1992, Ms. Prichep
was the Manager of Quality and Productivity for the NASD's
Management, Systems and Support Department. Between 1982 and
1990, Ms. Prichep was Vice President and Operations Manager
for Source Capital, Ltd.
M. Douglas Winship has been the Company's Vice President of
Regulatory Affairs and Quality Assurance since April, 1994.
Between 1988 and April, 1994, Mr. Winship held various
positions with Curative Technologies, Inc., including Vice
President of Regulatory Affairs and Quality Assurance (1991
1994).
Dr. Eyal Talor has been the Company's Vice President of
Research and Manufacturing since March, 1994. From October,
1993 until March, 1994, Dr. Talor was Director of Research,
Manufacturing and Quality Control, as well as the Director of
the Clinical Laboratory,
for Chesapeake Biological Laboratories, Inc. From 1991 to
1993, Dr. Talor was a scientist with SRA Technologies, Inc.,
as well as the director of SRA's Flow Cytometry Laboratory
(19911993) and Clinical Laboratory (1992-1993). During 1992
and 1993, Dr. Talor was also the Regulatory Affairs and
Safety Officer For SRA. Since 1987, Dr. Talor has held
various positions with the John Hopkins University,
including course coordinator for the School of Continuing
Studies (1989Present), research associate and lecturer in
the Department of Immunology and Infectious Diseases
(19871991), and associate professor (1991Present).
Prem S. Sarin, Ph.D. has been the Vice President of Research
for Viral Technologies, Inc. (the Company's wholly-owned
subsidiary) since May 1, 1993. Dr. Sarin was an Adjunct
Professor of Biochemistry at the George Washington
University School of Medicine, Washington, D.C., from 1986-
1992. From 19751991 Dr. Sarin held the position of Deputy
Chief, Laboratory of Tumor Cell Biology at the National
Cancer Institute (NCI), NIH, Bethesda, Maryland. Dr. Sarin
was a Senior Investigator (1974-1975) and a Visiting
Scientist (19721974) at the Laboratory of Tumor Cell Biology
at NCI, NIH. From 19711972 Dr. Sarin held the position of
Director, Department of Molecular Biology, Bionetics Research
Laboratory, Bethesda, Maryland.
Daniel H. Zimmerman, Ph.D. has been the Company's Vice
President of Cellular Immunology since January 1996. Dr.
Zimmerman founded CELL MED, Inc. and was its president from
19871995. From 1973 to 1987 Dr. Zimmerman served in various
positions at Electronucleonics, Inc. including Scientist,
Senior Scientist, Technical Director and Program Manager.
From 19691973 Dr. Zimmerman was a Senior Staff Fellow at NIH.
Mark V. Soresi. Mr. Soresi became a director of the
Company in July, 1989. In 1982, Mr. Soresi founded, and
since that
date has been the president and Chief Executive Officer of
REMAC(R), Inc. REMAC(R) is involved in the clean-up of
hazardous and toxic waste dump
sites. Mr. Soresi attended George Washington University in
Washington, D.C. where he earned a Bachelor of Science in
Chemistry.
F. Donald Hudson. F. Donald Hudson has been a director of
the
Company since May, 1992. From December 1994 to October 1995
Mr. Hudson was President and Chief Executive Officer of VIMRx
Pharmaceuticals, Inc. Between 1990 and 1993, Mr. Hudson was
President and Chief Executive Officer of Neuromedica, Inc., a
development stage company engaged in neurological research.
Until January, 1989, Mr. Hudson served as Chairman and Chief
Executive Officer of Transgenic Sciences, Inc. (now TSI
Corporation), a publicly held biotechnology corporation which
he
founded in January, 1987. From October, 1985 until January,
1987, Mr. Hudson was a director of Organogenesis, Inc., a
publicly held
biotechnology corporation of which he was a founder,
and for five years prior thereto was Executive Vice President
and a director of Integrated Genetics, Inc., a corporation
also
engaged in biotechnology which he co-founded and which was
publicly traded until its acquisition in 1989 by Genzyme,
Inc.
Edwin A. Shalloway, Esq. Mr. Shalloway has been a
director of the Company since May, 1992. Mr. Shalloway is
and has been since 1964, a partner in the law firm of Sherman
and Shalloway which specializes in matters of patent law.
Mr. Shalloway attended the University of Georgia where he
earned a Bachelor of Science and Bachelor of Arts degrees.
Mr. Shalloway received his law degree from the American
University in Washington, D.C. Mr. Shalloway is also the
President of the
International Licensing Executive Society.
All of the Company's officers devote substantially
all of their time on the Company's business. Messrs. Soresi,
Hudson and Shalloway, as directors, devote only a minimal
amount of time to the Company.
The Company has an audit committee whose members are Geert R.
Kersten, F. Donald Hudson and Edwin A. Shalloway.
Executive Compensation
The following table sets forth in summary form the
compensation received by (i) the Chief Executive Officer of
the Company and (ii) by each other
executive officer of the Company who received in excess of
$100,000 during the fiscal year ended September 30, 1995.
Annual Compensation Long Term
Compensation
Re-
All Other stricOther
Annual ted LTIP Com-
Name and Compen- Stock Options
Pay-
pensa-
Principal Fiscal Salary Bonus sation Awards Granted
outs
tion Position Year (1) (2) (3) (4)
(5)
(6) (7)
Maximilian
de Clara, 1995 - - $95,181 - 225,000
- -
- -
President 1994 - - $93,752 - 70,000
- -
- -
1993 - $59,376 - -
- -
- -
Geert R.
Kersten, 1995 $164,801 - $ 9,426 - 224,750
$3,911
Chief
Executive 1994 $182,539 - $ 8,183 - 50,000
- -
$4,497
Officer,
Secretary 1993 $163,204 - $ 6,046 -
$3,289
and Treasurer
M. Douglas
Winship, 1995 $113,500 - $ 1,200 -
22,000
- -
$2,100
Vice President of
Regulatory Affairs
Suzanne
Beckner, 1995 $102,250 -
- -
25,000
$2,830
Vice President of
Clinical Development*
* Dr. Beckner resigned her position with the Company in
November 1995. (1) The dollar value of base salary (cash
and noncash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as
salary or bonus, including perquisites and other personal
benefits, securities or property. Amounts in the table
represent automobile, parking and other transportation
expenses.
(4) During the period covered by the Table, no shares of
restricted stock were issued as compensation for services to
the persons listed in the table. As of September 30, 1995,
the number of shares of the Company's common stock, owned by
the officers included in the table
above, and the value of such shares at such date, based upon
the market price of the Company's common stock were:
Name Shares Value
Maximilian de Clara 5,000 $23,100
Geert R. Kersten 84,940 $392,423
Dividends may be paid on shares of restricted stock owned by
the Company's officers and directors, although the Company has
no plans to pay dividends. Mr. Winship and Ms. Beckner did
not own any shares of the Company's Common Stock at September
30, 1995.
(5) The shares of Common Stock to be received upon the
exercise of all stock options granted during the period
covered by the Table. The amounts in this table include
options granted in prior years but which were repriced during
the year ending September 30, 1995. See "Ten Year Option/SAR
Repricings" table below.
(6) "LTIP" is an abbreviation for "Long-Term Incentive Plan".
An LTIP is any plan that is intended to serve as an incentive
for performance to occur over a period longer than one fiscal
year.
Amounts reported in this column represent payments received
during the applicable fiscal year by the named officer
pursuant to an LTIP. (7) All other compensation received that
the Company could not properly report in any other column of
the Table including annual Company contributions or other
allocations to vested and unvested defined contribution plans,
and the dollar value of any insurance premiums paid by, or on
behalf of, the Company with respect to term life insurance for
the benefit of the named executive officer, and the full
dollar value of the remainder of the premiums paid by, or on
behalf of, the Company. Amounts in the table represent
contributions made by the Company to a 401(k) pension plan on
behalf of persons named in the table.
Long Term Incentive Plans - Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
During 1993 the Company implemented a defined
contribution retirement plan, qualifying under Section 401(k)
of the Internal Revenue Code and covering substantially all
the Company's employees. The Company's contribution is equal
to the lesser of 3% of each employee's salary, or 50% of the
employee's contribution. The 1995 expenses for this plan were
$24,913. Other than the 401(k) Plan, the Company does not have
a defined benefit, pension plan, profit sharing or other
retirement plan. Compensation of Directors
Standard Arrangements. The Company currently pays
its directors $1,500 per quarter, plus expenses. The Company
has no standard arrangement pursuant to which directors of the
Company are compensated for any services provided as a
director or for committee participation or special
assignments.
Other Arrangements. The Company has from time to
time granted options to its outside directors, Mr. Soresi, Mr.
Hudson
and Mr. Shalloway. See Stock Options below for additional
information concerning options granted to the Company's
directors. Employment Contracts
Effective August 1, 1994, the Company entered into a
three year employment agreement with Mr. Kersten. The
employment agreement provides that during the period between
August 1, 1994 and July 31, 1995, the Company will pay Mr.
Kersten an annual salary of $198,985. During the years ending
August 31, 1996 and 1997, the
Company will pay Mr. Kersten a salary of $218,883 and $240,771
respectively. In the event that there is a material reduction
in Mr. Kersten's authority, duties or activities, or in the
event there is a change in the control of the Company, then
the agreement allows Mr. Kersten to resign from his position
at the Company and receive a lump-sum payment from the Company
equal to 18 months salary. For purposes of the employment
agreement, a change in the control of the Company means the
sale of more than 50% of the outstanding shares of the
Company's Common Stock, or a
change in a majority of the Company's directors. Pursuant to
the agreement, the Company also agreed to grant Mr. Kersten,
in accordance with the Company's 1994 Incentive Stock Option
Plan, options to purchase 50,000 shares of the Company's
Common Stock. Compensation Committee Interlocks and Insider
Participation
The Company has a compensation committee comprised of
all of the Company's directors, with the exception of Mr.
Kersten. During the year ended September 30, 1995, Mr. de
Clara was the only officer participating in deliberations of
the Company's compensation committee concerning executive
officer compensation. See "Transactions witih Related Parties"
below for information concerning transactions between the
Company and Mr. de Clara.
During the year ended September 30, 1995, no director of the
Company was also an executive officer of another entity, which
had an executive officer of the Company serving as a director
of such entity or as a member of the compensation committee of
such entity.
Stock Options
The following tables set forth information concerning
the options granted, during the fiscal year ended September
30, 1995, to the persons named below, and the fiscal year-end
value of all unexercised options (regardless of when granted)
held by these persons.
Options Granted During Fiscal Year Ending September 30, l995
Po
te
nt
ia
l
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
Number of Value of
UnexerUnexercised cised In-the
Money Options
Options
at Fiscal
Shares (3) Year-End
(4)
Acquired Value
on Exercise Realized Exercisable/
Exercisable/
Name (1) (2) Unexercisable
Unexercisable
Maximilian de Clara - - 108,334/116,666
$189,584/$134,165
Geert R. Kersten - - 85,750/139,000
$150,062/$193,250
M. Douglas Winship - - 5,000/ 17,000 $
8,750/$24,750
Suzanne Beckner - - 2,667/ 22,333 $
4,667/$27,083
(1) The number of shares received upon exercise of options
during the fiscal year ended September 30, 1995.
(2) With respect to options exercised during the Company's
fiscal year ended September 30, 1995, the dollar value of the
difference between the option exercise price and the market
value of the option shares purchased on the date of the
exercise of the options.
(3) The total number of unexercised options held as of
September 30, 1995, separated between those options that were
exercisable and those
options that were not exercisable.
(4) For all unexercised options held as of September 30, 1995,
the
aggregate dollar value of the excess of the market value of
the stock underlying those options (as of September 30, 1995)
over the exercise price of those unexercised options. Values
are shown separately for those options that were exercisable,
and those options that were not yet exercisable, on September
30, 1995.
Ten-Year Option/SAR Repricings
In June 1995 the Company lowered the exercise price
on options held by all of the Company's officers, directors
and employees to $2.87 per share. The options subject to
this repricing allowed for the purchase of up to 444,250
shares of the Company's Common Stock and included options
previously granted to those persons listed below. The
Company's Board of Directors lowered the exercise of these
options since at the time of repricing (June 10, 1995), the
options no longer provided a benefit to the option holders
due to
the difference
between the exercise price of the options and the market
price of the Company's Common Stock. The following table
provides more
information concerning the repricing of these options.
Number of
Length
of
Securities Market Exercise
Original Op-
Underlying Price of Price at tion
Term
Options/ Stock at Time of Remaining
at
SARs Re- Repricing Repricing New
Date of Re-
priced or or Amend- or Amend
Exercise pricing or Name Date Amended (#)
ment ($) ment ($)
Price
($)
Amendment
Maximilian 6/10/95 15,000 $2.87 $10.90 $2.87
63
mos.
de Clara 70,000 $2.87 $20.90 $2.87
70
mos.
70,000 $2.87 $8.70
$2.87 108 mos.
Geert R. 6/10/95 50,000 $2.87 $4.10 $2.87
30
mos.
Kersten 750 $2.87 $11.60 $2.87
33
mos.
4,000 $2.87 $4.00 $2.87
52
mos.
10,000 $2.87 $8.40 $2.87
64
mos.
10,000 $2.87 $10.90 $2.87
68
mos.
50,000 $2.87 $20.90 $2.87
76
mos.
50,000 $2.87 $8.70 $2.87
108
mos.
M. Douglas 6/10/95 2,000 $2.87 $4.10 $2.87
30
mos.
Winship 15,000 $2.87 $11.20 $2.87
105
mos.
Suzanne 6/10/95 5,000 $2.87 $4.10 $2.87
30
mos.
Beckner 8,000 $2.87 $6.80 $2.87
107
mos.
Stock Option and Bonus Plans
The Company has Incentive Stock Option Plans, 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 Incentive Stock Option
Plans collectively authorize the issuance of up to 800,000
shares of the Company's Common Stock to persons that
exercise options granted pursuant to the Plan. Only Company
employees may be granted options pursuant to the Incentive
Stock Option Plan.
To be classified as incentive stock options under the
Internal Revenue Code, options granted pursuant to the Plans
must be exercised prior to the following dates:
(a) The expiration of three months after the date on which
an option holder's employment by the Company is terminated
(except if such termination is due to the death or permanent
and total disability);
(b) The expiration of 12 months after the date on which an
option holder's employment by the Company is terminated, if
such termination is due to the Employee's permanent and
total disability;
(c) In the event of an option holder's death while in the
employ of the Company, his executors or administrators may
exercise, within three months following the date of his
death, the option as to any of the shares not previously
exercised;
The total fair market value of the shares of Common
Stock
(determined at the time of the grant of the option) for
which any employee may be granted options which are first
exercisable in any calendar year may not exceed $100,000.
Options may not be exercised until one year
following
the date of grant. Options granted to an employee then
owning more than 10% of the Common Stock of the Company may
not be exercisable by its terms after five years from the
date of grant. Any other option granted pursuant to the
Plan may not be exercisable by its terms after ten years
from the date of grant.
The purchase price per share of Common Stock
purchasable under an option is determined by the Committee
but cannot be less than the fair market value of the Common
Stock on the date of the grant of the option (or 110% of the
fair market value in the case of a person owning more than
10% of the Company's outstanding shares).
Non-Qualified Stock Option Plan. The Non-Qualified
Stock Option Plans collectively authorize the issuance of up
to 1,360,000 shares of the Company's Common Stock to persons
that exercise options granted pursuant to the Plans. The
Company's employees, directors, officers, consultants and
advisors are eligible to be granted options pursuant to the
Plans, provided however that bona fide services must be
rendered by such consultants or advisors and such services
must not be in connection with the offer or sale of
securities in a capitalraising transaction. The option
exercise price is determined by the Committee but cannot be
less than the market price of the Company's Common Stock on
the date the option is granted.
Stock Bonus Plan. Up to 40,000 shares of Common Stock
may be granted under the Stock Bonus Plan. Such shares may
consist, in whole or in part, of authorized but unissued
shares, or treasury shares. Under the Stock Bonus Plan, the
Company's employees, directors, officers, consultants and
advisors are
eligible to receive a grant of the Company's shares,
provided however that bona fide services must be rendered by
consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital
raising transaction.
Other Information Regarding the Plans. The Plans are
administered by the Company's Compensation Committee ("the
Committee"), each member of which is a director of the
Company. The members of the Committee were selected by the
Company's Board of Directors and serve for a oneyear tenure
and until their successors are elected. A member of the
Committee may be removed at any time
by action of the Board of Directors. Any vacancies which
may occur on the Committee will be
filled by the Board of Directors. The Committee is vested
with the authority to interpret the provisions of the Plans
and supervise the administration of the Plans. In addition,
the Committee is empowered to select those persons to whom
shares or options are to be granted, to determine the number
of shares subject to each grant of a stock bonus or an
option and to determine when, and upon what conditions,
shares or options granted under the Plans will vest or
otherwise be subject to forfeiture and cancellation.
In the discretion of the Committee, any option granted
pursuant to the Plans may include installment exercise terms
such that the option becomes fully exercisable in a series
of cumulating portions. The Committee may also accelerate
the date upon which any option (or any part of any options)
is first exercisable. Any shares issued pursuant to the
Stock Bonus Plan and any options granted pursuant to the
Incentive Stock Option Plan or the NonQualified Stock Option
Plan will be forfeited if the "vesting" schedule established
by the Committee administering the Plan at the time of the
grant is not met. For this purpose, vesting means the period
during which the employee must remain an employee of the
Company or the period of time a 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 option holder. Shares issued pursuant to the Stock
Bonus Plan will generally not be transferable until the
person receiving the shares satisfies the vesting
requirements imposed by the Committee when the shares were
issued.
The Board of Directors of the Company may at any time, and
from
time to time, amend, terminate, or suspend one or more of
the Plans in any manner they deem appropriate, provided that
such amendment, termination or suspension will not adversely
affect rights or obligations with respect to shares or
options previously granted. The Board of Directors may not,
without shareholder approval: make any amendment which would
materially modify the eligibility requirements for the
Plans; increase or decrease the total number of shares of
Common Stock which may be issued pursuant to the Plans
except in the case of a reclassification of the Company's
capital stock or a consolidation or merger of the Company;
reduce the minimum option price per share; extend the period
for granting options; or materially increase in any other
way the benefits accruing to
employees who are eligible to participate in the Plans.
Prior Stock Option and Bonus Plan. The Company previously
had in effect a Stock Option and Bonus Plan ("the 1987
Plan") which provided for the grant to the Company's
officers, directors, employees and consultants of either (i)
shares of the Company's Common Stock for services rendered
or (ii) options to purchase shares of Common Stock. The 1987
Plan was terminated by the Company in 1992. Since the 1987
Plan was terminated, no further options will be granted and
no further bonus shares will be issued pursuant to the 1987
Plan. However, options previously granted may nevertheless
still be exercised according to the terms of the options.
Prior to the termination of the 1987 Plan, the Company
granted options to purchase 189,250 shares of the Company's
Common Stock. To date, options to purchase 6,000 shares
have been exercised. In June, 1995 the Company cancelled
options to purchase 176,250 shares that had previously been
granted
under this Plan and reissued options for the same number of
shares under the Company's other stock option plans. See
"Option Summary" below.
Option Summary. The following sets forth certain
information, as of June 30, 1996, concerning the stock
options granted by the Company. Each option represents the
right to purchase one share of the Company's Common Stock.
Total
Shares Shares
Reserved for
Remaining
Reserved
Outstanding Options
Name of Plan Under Plan Options
Under
Plan
1987 Stock Option and Bonus Plan 200,000 7,000
(1)
1992 Incentive Stock Option Plan 100,000 94,050
3,283
1992 Non-Qualified Stock Option Plan 60,000 45,000
- -
1994 Incentive Stock Option Plan 100,000 100,000
- -
1994 Non-Qualified Stock Option Plan 100,000 97,250
2,750
1995 Non-Qualified Stock Option Plan 800,000 638,626
111,374
1996 Incentive Stock Option Plan 600,000 -
600,000
1996 Non-Qualified Stock Option Plan 400,000 -
400,000
TOTAL: 981,926
1,117,407
(1) This Plan was terminated in 1992 and as a result, no new
options will be granted pursuant to this Plan.
As of June 30, 1996, 1,500 shares had been issued
pursuant to the Company's 1992 Stock Bonus Plan. All of
these shares were issued during the fiscal year ending
September 30, 1994.
Transactions with Related Parties
The technology and know-how licensed to the Company was
developed by a group of researchers under the direction of
Dr. HansAke 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 1985, Mr. de Clara acquired all of the issued and
outstanding stock of Sittona. Mr. de Clara and Dr.
Fabricius, because of their ownership interests in Hooper
and Shanksville, could receive approximately 50% and 30%
respectively of any royalties paid by Sittona to Hooper and
Shanksville, and Mr. de Clara, through his interest in all
three companies (Hooper, Shanksville and Sittona), will
receive up to 95% of any royalties paid by the Company.
Legal Matters
During the year ended September 30, 1993, the Company paid
Mr. de Clara approximately $23,000 for legal expenses
incurred by Mr. de Clara in defending a legal action brought
against
Mr. de Clara by an unrelated third party who claimed that
Mr. de Clara owed the third party 25,000 shares of the
Company's Common Stock as a fee for introducing the Company
(in 1985) to persons who allegedly were willing to (but did
not) provide funds to the Company. Although the Company was
not a party to this proceeding, the Company's Board of
Directors has determined, based upon information supplied by
Mr. de Clara, that the third party's claims against Mr. de
Clara arose as a result of Mr. de Clara's efforts to obtain
funding for the Company. Accordingly, the Board of Directors
determined that Mr. de Clara was entitled by law to
indemnification and in October, 1993, the Company issued
25,000 shares of its common stock to the third party
claiming the shares from Mr. de Clara.
The Securities and Exchange Commission found that between
1988 and 1991 Mr. de Clara failed to timely file reports of
beneficial ownership required by the Securities Exchange Act
of 1934. In May, 1992, the Commission entered an order
requiring Mr. de Clara to file reports of beneficial
ownership on a timely basis.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of July 31, 1996,
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 46,667 (2) *
Bergstrasse 79
6078 Lungern,
Obwalden, Switzerland
Geert R. Kersten 268,357 (3) 4.1%
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Patricia B. Prichep 21,197
*
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
M. Douglas Winship 13,667
*
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Eyal Talor 14,501
*
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Prem Sarin 10,834
*
66 Canal Center Plaza
Suite 510
Alexandria, VA 22314
Mark Soresi 19,375
*
l0l0 Wayne Ave., 8th Floor
Silver Spring, MD 209l0
F. Donald Hudson 15,500 *
53 Mt. Vernon Street
Boston, MA 02108
Edwin A. Shalloway 15,500 *
413 North Washington Street
Alexandria, VA 22314
All Officers and Directors
as a Group (10 persons) 425,598 6.0%
*Less than 1%
(1) Includes shares issuable prior to August 31, 1996 upon
the exercise of options or warrants granted to the
following persons:
Options or Warrants Exercisable
Name Prior to August
31,
1996
Maximilian de Clara 46,667
Geert R. Kersten
163,417
Patricia B. Prichep
18,167
M. Douglas Winship
13,667
Dr. Eyal Talor
13,001
Dr. Prem Sarin
10,834
Mark Soresi
17,500
F. Donald Hudson
15,500
Edwin A. Shalloway
15,500
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 and/or conversion of options, warrants and other
convertible securities previously issued by the Company. See
"Dilution and Comparative Share Data".
SELLING SHAREHOLDERS
This Prospectus relates to the sale by the Company of
up to 115,000 shares of Common Stock issuable upon the
exercise of Sales Agent Warrants, and 45,000 shares of common
stock issuable to Nippon Zeon Co., Ltd. ("Nippon Zeon") in
exchange for the cancellation of certain royalties payable by
the Company
to Nippon Zeon.
In connection with the Company's June and September
offerings of 1,150,000 shares of Common Stock and 1,150,000
Common Stock Purchase Warrants, Neidiger/Tucker/ Bruner, Inc.,
the Sales Agent for these offerings, received a commission, a
nonaccountable expense allowance and warrants to purchase (i)
57,500 shares of the Company's Common Stock at $2.00 per
share, (ii) 57,500 shares at $2.40 per share, and (ii) an
additional 115,000 shares at $3.25 per share.
Neidiger/Tucker/Bruner, Inc. subsequently assigned the Sales
Agent's Warrants to the persons named below. Prior to the
date of this Prospectus, the holders of the Sales Agent's
Warrants collectively exercised Warrants pertaining to 115,000
shares of the Company's Common Stock. The shares issuable
upon the exercise of the Warrants are also being offered by
means of this Prospectus.
In December l987, VTI signed a licensing agreement with
Nippon Zeon Co., Ltd. ("Nippon Zeon"), a Japanese chemical
manufacturer, granting Nippon Zeon exclusive rights to VTI's
prototype AIDS vaccine and improvements in the Pacific Area.
Under the
agreement, VTI received an initial licensing payment, as well
as a precommercialization payment, and was also entitled to
receive additional pre-commercialization payments dependent
upon receipt of certain regulatory approvals. In l995 Nippon
Zeon released its rights to VTI's technology in consideration
for VTI's agreement to pay Nippon Zeon a royalty on sales
products made with VTI's technology in the licensed area. In
July l996 Nippon Zeon agreed to surrender its royalty rights,
as well as any other rights it may have had to VTI's
technology, in exchange for 45,000 shares of the Company's
common stock, which shares are being offered by means of this
prospectus.
The holders of the Sales Agent's Warrants, to the
event they exercise their Warrants and receive shares of the
Company's Common Stock, as well as Nippon Zeon, are sometimes
referred to in this Prospectus as the "Selling Shareholders".
The Company will not receive any proceeds from the sale of the
shares by the Selling Shareholders.
The names of the Selling Shareholders are:
Shares to
Share
Shares be Sold in
Owner-
Presently This ship
After Name
Owned
Offering (1) Offering
Eugene Neidiger - 12,280 -
Michael McCaffrey - 46,500 -
George McCaffrey - 31,500 -
Robert Parrish - 6,120 -
J. Henry Morgan - 6,760 -
Anthony Petrelli - 9,940 -
Charles Bruner - 10,900 -
John Turk - 6,000
- -
Nippon Zeon - 45,000
- -
160,000
The address of each Selling Shareholder, with the
exception of Nippon Zeon, is:
c/o Neidiger/Tucker/Bruner, Inc.
5990 S. Greenwood Plaza
Blvd. Suite 125
Englewood, CO 80111
The address of Nippon Zeon is:
Nippon Zeon Co., Ltd.
Furukawa Sogo Building 2-6
1 Marunduchi
Chiyoda-Ku, Tokyo
l00 Japan
(1) In the case of all persons except Nippon
Zeon, represents
shares
issuable upon the exercise of the Sales Agent's Warrants.
See "Description of Securities." Amounts in table assume
all shares which may be acquired upon the exercise of the
Sales Agent's Warrants are sold to the public by means of
this Prospectus. Manner of Sale. The shares of Common Stock
owned, or which
may be acquired, by the Selling Shareholders may be offered
and sold by means of this Prospectus from time to time as
market conditions permit in the over-thecounter market, or
otherwise, at prices and terms then prevailing or at prices
related to the then current market price, or in negotiated
transactions. These shares may be sold by one or more of
the following methods, without limitation: (a) a block trade
in which a broker or dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this
Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and
(d) face-to-face transactions between sellers and purchasers
without a broker/dealer. In effecting sales, brokers or
dealers engaged by the Selling Shareholders may arrange for
other brokers or dealers to participate. Such brokers or
dealers may receive commissions or discounts from Selling
Shareholders in amounts to be negotiated.
The Selling Shareholders 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 agreed to
indemnify the Selling Shareholders and any securities
broker/dealers who may be deemed to be underwriters against
certain liabilities, including liabilities under the
Securities Act as underwriters or otherwise.
The Company has advised the Selling Shareholders
that they 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 each 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 Shareholders 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.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 100,000,000 shares of
Common Stock, (the "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 nonassessable. Preferred Stock
The Company is authorized to issue up to 200,000
shares of 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.
In May 1996 the Company sold 3,500 shares of its Series A
Preferred Stock (the "Preferred Shares") for $3,500,000 or
$1,000 per share. At the purchasers' option, up to 1,750
Preferred Shares are convertible, on or after 60 days from
the closing date of the purchase of such shares (the
"Closing"), into shares of the Company's Common Stock on the
basis of one share of Preferred Stock for shares of Common
Stock equal in number to the amount determined by dividing
$1,000 by 85% of the
Closing Price of the Company's Common Stock. All Preferred
Shares are convertible, on or after 90 days from the
Closing, on the basis of one share of Preferred Stock for
shares of the Company's Common Stock equal in number to the
amount determined by dividing $1,000 by 83% of the Closing
Price of
the Company's Common Stock. The term "Closing Price" is
defined as the average closing bid price of the Company's
Common Stock over the five-day trading period ending on the
day prior to the conversion of the Preferred Stock.
Notwithstanding the above, the conversion price may not be
less than $3.00 nor more than $8.00, except that if the
Closing Price is less than $3.00, then the conversion price
will be
equal to the Closing Price. The Preferred Shares are
entitled to a quarterly dividend of $17.50 per share. Any
Preferred Shares which are outstanding on the second
anniversary of the Closing
will be automatically converted into shares of the Company's
Common Stock. The Preferred Shares have a liquidation
preference over the Company's Common Stock. The shares
issuable upon the conversion of the Preferred Shares have
been registered for sales pursuant to a separate
Registration Statement. See "Risk Factors" and "Dilution and
Comparative Share Data."
Publicly Traded 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 $15.00 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.
Convertible Notes
In March 1996 the Company sold $l,250,000 of Convertible
Notes ("Notes") to two persons. The Notes were convertible
from time to time in whole or in part, into shares of the
Company's Common Stock. The conversion price was the lesser
of (i) $5 per share or (ii) 80% of the average closing bid
price of the Company's Common Stock during the five trading
days immediately preceding the date of such conversion.
Prior to July 31, l996, all of the Notes were converted into
250,000 shares of the Company's common stock. The Company
has made appropriate filings with the Securities and
Exchange Commission such that the shares issuable upon the
conversion of the Notes are available for public sale.
Transfer Agent
American Securities Transfer, Inc., of Denver,
Colorado, is the transfer agent for the Company's Common
Stock.
LITIGATION
In February 1996 the Company filed a lawsuit against
ImmunoRx and Dr. John Hadden for contract breach, tortious
interference of contract and patent infringement concerning
the Company's Multikine drug. The lawsuit, filed in the
U.S. District Court for the Middle District of Florida,
seeks damages and the termination of certain research and
clinical studies being conducted by ImmunoRx and Dr. Hadden.
From 1984 to 1992, Dr. Hadden consulted with the Company,
performed research on Multikine and manufactured Multikine
for the Company's head and neck cancer study in Florida. In
early 1993, Dr. Hadden signed a separation agreement with
the Company acknowledging the Company's ownership of both
Multikine and the research results. The Company has learned
that Dr. Hadden and ImmunoRx are apparently making copies of
Multikine, in contravention of the separation agreement and
the patents covering Multikine, and have begun clinical
studies in a foreign country using a copy of Multikine. See
"Business Compounds and Processes Licensed to the Company".
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.
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.
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 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 the
Exhibits filed therewith. Statements contained in this
Prospectus as to the contents of any contract or other
documents are summaries which arenot 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 at the Northeast Regional Office, 7 World
Trade Center, 13th Floor, New York, New York 10048 and the
Midwest Regional Office, Suite 1400, 500 West Madison
Street, Chicago, Illinois 606812511. Copies may be obtained
at the Washington, D.C. office upon payment of the charges
prescribed by the Commission. 2259D
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
and Comparative Share Data
Use of Proceeds
Market Information
........................................... Selected
Financial Data ......................................
Management's Discussion and Analysis
......................... Business
.....................................................
Management
...................................................
Principal Shareholders
Selling Shareholders
Description of Securities
Litigation
Legal Matters
Experts
Indemnification
Additional Information
Financial Statements
160,000 Shares of Common Stock CELSCI CORPORATION
PROSPECTUS
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Officers and Directors.
It is provided by Section 7-l09-l02 of the Colorado Revised
Statutes and the Company's Bylaws that the Company 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 25. Other Expenses of Issuance and Distribution.
SEC Filing Fee
$
442
NASD Filing Fee
652
Blue Sky Fees and Expenses
1,000 Printing and Engraving
Expenses 1,000 Legal Fees and
Expenses 25,000
Accounting Fees and Expenses
5,000 Transfer Agent Fees
100
Miscellaneous Expenses
1,806
TOTAL
$35,000
All expenses other than the S.E.C. and NASD filing fees are
estimated.
Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all securities
of the Company which have been sold during the past three
years and which securities were not registered under the
Securities Act of 1933, as amended.
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
Unless otherwise indicated, the consideration paid
for the shares was cash.
(1) Surrender of options to Company. The options surrendered
were valued
at $8,038.
(2) Settlement of claim against officer and director.
Officer and director was indemnified by Company for this
claim. Accordingly, shares were issued directly to Mr.
Klausner, the person asserting the claim against the officer
and director.
The sales of the Company's Common Stock described above were
exempt transactions under Section 4(2) of the Act as
transactions by an issuer not involving a public offering.
The shares of Common Stock sold subsequent to February 1995
were also exempt in accordance with Rule 505 of the
Securities and Exchange Commission. All of the shares of
Common Stock were issued for investment purposes only and
without a view to distribution. All of the persons who
acquired the foregoing securities were fully informed and
advised about matters
concerning the Company, including its business, financial
affairs and other matters. The purchasers of the Company's
Common Stock acquired the securities for their own accounts.
The certificates evidencing the securities bear legends
stating that they may not be offered,
sold or transferred other than pursuant to an effective
registration statement under the Securities Act of 1933, or
pursuant to an applicable exemption from registration. No
underwriters were involved with the sale of the shares of
Common Stock and no commissions or other forms of
remuneration were paid to any person in connection with sales
of the Company's securities prior to June 1995. The Company
paid a commission of $230,000, a non-accountable expense
allowance of $69,000, and issued warrants for the purchase of
up to 230,000 shares of Common Stock, to
Neidiger/Tucker/Bruner, Inc. in connection with the sale of
the securities sold in June and September 1995. All of the
shares of Common Stock sold by the Company are "restricted"
shares as defined in Rule 144 of the Rules and Regulations of
the Securities and Exchange Commission.
Item 27. Exhibits and Financial Statement Schedules
Exhibits Page
Number
1(c) Form of Common Stock Purchase Filed with initial
Registration
Warrant Statement.
3(a) Articles of Incorporation Incorporated by
reference to Exhibit
3(a) of the Company's
combined Registration Statement on Form S-1
and Post Effective Amendment
("Registration Statement"),
Registration Nos. 2-85547-D and 33
7531.
Filed with Amendment No. 1
to this Registration Statement.
(b) Amended Articles Incorporated by reference
to
Exhibit
3(a) of the Company's
Registration Statement on Form S-1, Registration
Nos. 2-85547D and 33-7531.
(c) Amended Articles Filed with initial
Registration
(Name change only) Statement (No. 33-34878).
(d) Bylaws Incorporated by reference
to
Exhibit
3(b) of the Company's
Registration Statement on Form S-1, Registration
Nos. 2-85547D and 33-7531.
4(a) Specimen copy of Incorporated by reference
to
Exhibit
Stock Certificate 4(a) of the Company's
Registration
Statement on Form S-1,
Registration Nos. 2-85547-D and 33-7531.
(c) Form of Common Stock Incorporated by reference
to
Exhibit
Purchase Warrant 4(c) filed as an exhibit to
the
Company's Registration
Statement on Form S-1 (Registration No. 33-
43281).
5. Opinion of Counsel
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 3343281).
10(g) Agreement between Viral Filed with Amendment
Number
2
to
the
Technologies, Inc. and Company's Registration
Statement
on
Nippon Zeon Co., Ltd. Form S-1 (Commission File
Number
33-
90230).
23(a) Consent of Hart & Trinen
(b) Consent of Deloitte &
Touche LLP
24. Power of Attorney Included as part of
signature
page. Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
Registration Statement. (i) To include any Prospectus
required by Section l0(a)(3) of the Securities Act of l933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change
in the information set forth in the Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement, including (but
not limited to) any addition or deletion of a managing
underwriter.
(2) That, for the purpose of determining any liability
under the Securities Act of l933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(4) To provide to the Underwriter at the closing specified
in the underwriting agreement certificates in such
denominations and registered in such names as required by
the Underwriter to permit
prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising
under
the Securities Act of l933 may be permitted to directors,
officers and
controlling persons 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 of whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
POWER OF ATTORNEY
The registrant and each person whose signature appears below
hereby authorizes the agent for service named in this
Registration Statement, with full power to act alone, to
file one or more amendments (including 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
attorney-infact, with full power to act alone, to execute in
the
name and in behalf of the Registrant and any such person,
individually and in each capacity stated below, any such
amendments to this Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of
l933, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Alexandria, State
of Virginia, on the 29th day of July, 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 Principal July
29,
1996
MAXIMILIAN DE CLARA Executive Officer
/s/ Geert R. Kersten Director, Principal July
29,
1996
GEERT R. KERSTEN Financial Officer
and Chief Executive
Officer
MARK V. SORESI Director
F. DONALD HUDSON
/s/ Edwin A. Shalloway Director July
29, 1996
EDWIN A. SHALLOWAY
June 11, 1996
CEL-SCI Corporation
66 Canal Center Plaza
Suite 510
Alexandria, Virginia 223l4
Gentlemen:
This letter will constitute an opinion upon the legality
of the issuance by CEL-SCI Corporation, a Colorado
corporation, of 160,000 shares of common stock, all as
referred to in the Registration Statement on Form S-1 filed
by the Company with the Securities and Exchange Commission.
We have examined the Articles of Incorporation, the Bylaws
and the minutes of the Board of Directors of the Company and
the applicable laws of the State of Colorado, and a copy of
the Registration Statement. In our opinion, the Company is
authorized to issue the shares mentioned above and, when
issued in accordance with the terms and conditions set out
in the Registration Statement, such shares of common stock
will be legally issued, fully paid and non-assessable.
Very truly yours,
HART & TRINEN
By William T. Hart
CONSENT OF ATTORNEYS
Reference is made to the Registration Statement of CEL
SCI Corporation whereby the Company proposes to sell
160,000 shares of the Company's Common Stock. Reference
is also made to Exhibit 5 included in the Registration
Statement relating to the validity of the securities
proposed to be issued and sold.
We hereby consent to the use of our opinion concerning the
validity of the securities proposed to be issued and
sold.
Very truly yours,
HART & TRINEN
By William T. Hart
Denver, Colorado
July 19, 1996
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement 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 this Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCH LLP
Washington, D.C.
July 24, 1996
CEL-SCI CORPORATION
Financial Statements for the Years Ended September 30, 1995,
1994, and 1993,
and Independent Auditors' Report
To the Board of Directors and Shareholders of
CEL-SCI Corporation:
We have audited the accompanying balance sheets of CEL-SCI
Corporation as of September 30, 1995 and 1994, and the
related statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended
September 30, 1995. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of CELSCI Corporation as of September 30, 1995 and
1994, and the results of its operations and its cash flows
for each of the three years in the period ended September 30,
1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, as of
September 30, 1994, the Company changed its method of accounting
for certain investments in debt and equity securities to conform
with Statement of Financial Accounting Standards No. 115.
Washington, DC
November 29, 1995, except for Note 14, as to
which the date is December 23, 1995
Page F-2
F-3
Page F-3
Page F-4
Page F-5
CEL-SCI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994, AND 1993
2
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
CEL-SCI Corporation (the Company) was incorporated on March 22,
1983, in the State of Colorado, to finance research and
development in biomedical science and ultimately to engage in
marketing products. Significant accounting policies are as
follows: Investments Effective September 30,
1994, the Company adopted, on a prospective basis, Statement of
Financial Accounting Standard No. 115, "Accounting for Certain
Debt and Equity Securities" (SFAS 115) and revised its policy for
investments. Investments that may be sold as part of the liquidity
management of the Company or for other factors are classified as
available-for sale and are carried at fair market value.
Unrealized gains and losses on such securities are reported as a
separate component of stockholders' equity. Realized gains and
losses on sales of securities are reported in earnings and
computed using the specific identified cost basis. The adoption of
SFAS 115, which has not been applied retroactively to prior years'
financial statements, resulted in a decrease in stockholders'
equity of $85,753 for the net unrealized losses on investments
available forsale at September 30, 1994. As of September 30, 1995,
all debt and equity securities had been disposed of and any
unrealized gains or losses were recognized during the year ended
September 30, 1995 (see Note 2).
Prior to September 30, 1994, all investments available-for-
sale were carried at the lower of aggregate amortized cost or
market value.
Research and Office Equipment Research and office equipment is
recorded at cost and depreciated using the straightline method
over five and seven years estimated useful lives.
Research and Development Costs Research and development
expenditures are expensed as incurred.
Patents - Patent expenditures are capitalized and amortized
using the straight line method over 17 years. In the event
changes in technology or other circumstances impair the value or
life of the patent, appropriate adjustment in the asset value
and period of amortization will be made.
Net Loss Per Share - Net loss per common share is based on
the weighted average number of common shares outstanding during
the period. Common stock equivalents, including options to
purchase common stock, are excluded from the calculation as they
are antidilutive.
Investment in Joint Venture Investment in joint venture is
accounted for by the equity method. The Company's proportionate
share of the net loss of the joint venture is included in the
respective statements of operations. Statement of Cash Flows For
purposes of the statements of cash flows, cash consists
principally of unrestricted cash on deposit, and short-term
money market funds. The Company considers all highly liquid
investments with a maturity of less than three months to be cash
equivalents.
Prepaid Expenses - The majority of prepaid expenses consist
of
bulk purchases of laboratory supplies to be consumed in the
manufacturing of the Company's product for clinical studies and
for its further development.
Income Taxes - Effective October 1, 1993, the Company
adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires an
asset and liability approach for reporting income taxes.
Implementation of SFAS 109 in 1994 did not have any effect on
the Company's net earnings and reported financial position and
prior financial statements have not been restated.
Reclassifications - Certain reclassifications have been made for
1994 and 1993 for comparative purposes.
2. INVESTMENTS
The carrying values and estimated market values of
investments available for-sale at September 30, 1995, are as
follows:
Note2a
The carrying values and estimated market values of investment
securities at September 30, 1994, are as follows:
Note2b
The gross realized gains and losses of sales of investments
available-forsale for the years ended September 30, 1995, 1994,
and 1993, are as follows:
Note 2c
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1995 and 1994, consist
of the following:
Note3a
4. JOINT VENTURE
In April 1986, the Company paid $200,000 cash and issued 500,000
shares of its $.01 par value common stock to acquire half the
rights to technology which may be useful in the diagnosis,
prevention and treatment of Acquired Immune Deficiency Syndrome
(AIDS) from Alpha I Biomedicals, Inc. The Company's stock was
valued at $1.50 per share on the basis of arm's length
negotiations. At the time the transaction took place, the
stock was trading at $2.42. Because the cost of these rights to
technology is considered research and development, the $950,000
purchase price was expensed. The Company and Alpha 1
Biomedicals, Inc. (Alpha 1) contributed their respective
interests in the technology and $10,000 each to capitalize a
joint venture, Viral Technologies, Inc. (VTI). VTI is wholly
owned by the Company and Alpha 1, each having a 50% ownership
interest. The total loaned or advanced to VTI by CELSCI
Corporation through September 30, 1995, was $1,592,584 (see
Note 13).
During the three years ended September 30, 1995, VTI had no
sales. The operations of VTI were as follows:
Note4a
The balance sheets of VTI at September 30, 1995 and 1994, are
summarized as follows:
Note4b
On December 17, 1987, Viral Technologies, Inc., entered into a
licensing agreement with Nippon Zeon Company, Ltd., a Japanese
company. Under the agreement, Nippon Zeon will engage in the
development and testing and, if development is successful, the
marketing of the potential AIDS vaccine in the Pacific Rim area.
As a result, Viral Technologies, Inc., received
precommercialization payments of $850,000 during the year ended
September 30, 1988. During the year ended September 30, 1995,
VTI purchased back from Nippon Zeon the licensing agreement. No
cash or stock was exchanged; however, Nippon Zeon retains a
royalty on any future sales of the drug HGP30 in its former
exclusive licensed territories.
5. CREDIT ARRANGEMENTS
At September 30, 1995, the Company had a promissory note
outstanding with a bank in the amount of $811,263. This
promissory note was converted in November 1994 from a prior line
of credit. The line of credit outstanding at September 30, 1994,
was $788,601, and the Company subsequently drew down additional
amounts during the year ended September 30, 1995, prior to
converting the line of credit to a promissory note. The
principal is being repaid over forty-eight consecutive months
beginning February 5, 1995. Interest on the outstanding
balance is
calculated at the Bank's prime rate plus two percent, which is
10.75% at September 30, 1995, and is to be paid monthly with the
principal payments. The promissory note is secured by all
corporate assets and requires the Company to hold a certificate
of deposit equal to 20% of the outstanding balance of the line
of credit with the Bank. Under the promissory note the Company
is also subject to certain minimum equity, liquidity, and
operating
covenants.
6. COMMITMENTS AND CONTINGENCIES
In 1993, an officer and director of the Company was involved
in legal proceedings concerning shares of the Company's
common
stock. The officer and director was acting on behalf of the
Company in trying to secure financing, and the Company paid
legal fees in connection with these proceedings and indemnified
the officer for any loss he suffered upon the settlement of
these matters. During 1992, one of the matters was settled by
the officer and director delivering 3,000 shares of the
Company's common stock to one plantiff and paying this plantiff
$200,000. In the other matter, a European Court awarded a
different plantiff 25,000 shares of the Company's common stock
owned by the officer and director. In October 1993, the Company
issued 25,000 shares of common stock to the plaintiff to satisfy
the judgment and in lieu of reimbursement to the officer and
director for this claim. The value of the shares issued,
$202,500, was expensed during 1993 and was included in accrued
expenses at September 30, 1993.
7. RELATED-PARTY TRANSACTIONS
The technology and know-how licensed to the Company was
developed by a group of researchers under the direction of Dr.
Hans Ake Fabricius and was assigned during 1980 and 1981 to
Hooper Trading Company, N.V., a Netherlands Antilles corporation
(Hooper) and Shanksville Corporation, also a Netherlands
Antilles corporation (Shanksville). Maximillian de Clara, an
officer and director in the Company, and Dr. Fabricius own 50%
and 30%, respectively, of each of these companies. The
technology and knowhow assigned to Hooper and Shanksville was
licensed to Sittona Company, B.V., a Netherlands corporation
(Sittona), effective September, 1982 pursuant to a licensing
agreement which requires Sittona to pay to Hooper and
Shanksville royalties on income received by Sittona respecting
the technology and know-how licensed to Sittona. In 1983,
Sittona licensed this technology to the Company. At such time as
the Company generates revenues from the sale or sublicense of
this technology, the Company will be required to pay royalties
to Sittona equal to 10% of net sales and 15% of licensing
royalties received from third parties. In that event, Sittona,
pursuant to its licensing agreements with Hooper and
Shanksville, will be required to pay to those companies a
minimum of 10% of any royalty payments received from the
Company. In 1985 Mr. de Clara acquired 100% of the issued and
outstanding stock of Sittona. Mr. de Clara and Dr. Fabricius,
because of their ownership interests in Hooper and Shanksville,
could receive approximately 50% and 30% respectively, of any
royalties paid by Sittona to Hooper and Shanksville, and Mr. de
Clara, through his interest in all three companies (Hooper,
Shanksville, and Sittona), will receive up to 95% of any
royalties paid by the Company. During 1992, the Company
reimbursed an officer and director for legal fees incurred in
connection with certain legal proceedings as discussed in Note
6. In addition, during 1992 the Company paid the officer and
director $200,000, representing the amount that he paid in
connection with one of the legal proceedings discussed in Note 6
and, in 1993, issued 3,000 shares of common stock to the officer
and director as reimbursement for shares he delivered in
connection with the proceeding. The $200,000 payment was
expensed in 1992, and the value of the 3,000 shares, $20,100 was
expensed in 1993.
8. INCOME TAXES
The approximate tax effect of each type of temporary differences
and carryforward that gave rise to the Company's tax assets and
liabilities at September 30, 1995 and 1994, is as follows:
Note8a
The Company has available for income tax purposes net operating
loss carryforwards of approximately $24,370,937, expiring from
1998 through 2007.
In the event of a significant change in the ownership of the
Company, the utilization of such carryforwards could be
substantially limited.
9. STOCK OPTIONS, WARRANTS, AND BONUS PLAN
During the year ended September 30, 1995, the Board of
Directors canceled certain options under the various stock
option plans and replaced them with new options. Under this
conversion the number of options outstanding did not increase or
decrease as the conversion was an exchange of options within the
plans to maximize reserved shares in the Plans with the options
granted.
The shareholders of the Company approved the adoption of the
1995
Non Qualified Stock Option Plan (1995 Non-Qualified Plan) and
reserved 400,000 shares under the plan. Terms of the options are
to be determined by the Company's Compensation Committee, but in
no event are options to be granted for shares at a price below
fair market value at the date of grant. On February 23, 1988,
the shareholders of the Company adopted the 1987 Nonqualified
Stock Option and Stock Bonus Plan (the 1987 Plan). This plan
reserved 200,000 shares of the Company's previously unissued
common stock to be granted as incentive stock options to
employees. The 1987 Plan reserved 50,000 shares of the Company's
previously unissued common stock to be granted as stock bonuses
to employees. The exercise price of the options could not be
established at less than fair market value on the date of grant
and the option period could not be greater than ten years.
During 1993, the 1987 Plan was terminated and no further options
will be granted and no further bonus shares will be issued
pursuant to the 1987 Plan. On September 30, 1993, the
shareholders of the Company approved the adoption of three new
plans, the 1993 Incentive Stock Option Plan (1993 Incentive
Plan), the 1993 Non Qualified Stock Option Plan (1993 Non
Qualified Plan) and the Stock Bonus Plan (1993 Bonus Plan).
Shares are reserved under each plan and total 100,000, 60,000
and 40,000 shares, respectively. Only employees of the Company
are eligible to receive options under the Incentive Plan, while
the Company's employees, directors, officers, and consultants or
advisors are eligible to be granted options under the
NonQualified Plan or issued shares under the Bonus Plan. Terms
of the options are to be determined by the Company's
Compensation Committee, which will administer all of the plans,
but in no event are options to be granted for shares at a price
below fair market value at date of grant. Options granted under
the option plans must be granted, or shares issued under the
bonus plan issued, before August 20, 2002. On July 29, 1994, the
Board of Directors approved the adoption of two new plans, the
1994 Incentive Stock Option Plan (1994 IncentivePlan) 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 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:
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 16,733
Prepaid expenses 341,295 67,648
Advances to officer/shareholder
and employees 13,234 17,381
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 liabilities 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 4,188,244 shares 53,382 41,882
4,188,244 shares
Additional paid-in capital 28,799,198 26,854,848
Net unrealized loss on marketable equity
securities (Note 1) - (85,753)
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
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 Stock Paid-In
Shares Amount Capital Other Deficit Total
BALANCE,
OCTOBER 1,
1992 4,148,980 $41,490 $26,560,96 $ - $(13,300,041)$13,302,418
Common stock
issued for:
Cash 7,333 73 27,260 - - 27,333
Reim-
bursement
of expenses 3,000 30 20,070 - - 20,100
Net loss - - - - (2,404,992)(2,404,992)
BALANCE,
SEPTEMBER 30,
1993 4,159,313 41,593 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 lawsuit 25,000 250 202,250 - - 202,500
Net unrealized
loss on
marketable
securities
(Note 1) - - - (85,753) - (85,753)
Net loss - - - - (4,426,876)(4,426,876)
BALANCE,
SEPTEMBER 30,
1994 4,188,244 41,882 26,854,848 (85,753) (20,131,909)6,679,068
Common stock
issued for
cash 1,150,000 11,500 1,944,350 - - 1,955,850
Change in
market
value
of
marketable
securities
available
for sale
(Note 1) - - - 85,753 - 85,753
Net loss - - - - (3,878,638) (3,878,638)
BALANCE,
SEPTEMBER 30,
1995 $5,338,244 $53,382 $28,799,19 $ - $(24,010,547)$4,842,033
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 $(3,878,638) $(4,426,876) $(2,404,992)
Adjustments to reconcile
net loss to
net cash used in operating activities:
Stock issued in payment
of expenses - 207,450
20,100
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 of securities 42,490 (76,774) -
Amortization of premium 6,407 25,683
18,762
Changes in assets and
liabilities:
Decrease (increase) in
advances ` 4,147 (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
deferred rent (68,330) (111,552) 143,919 Decrease
in payable to
officer and shareholder - (52,370) (43,448)
Net cash used in operating
activities (3,526,799) (3,950,206) (2,158,046)
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Purchases of investments (389,688) (1,467,818) (5,993,310)
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 1,955,850 39,388 27,333
Repayment of note payable (162,253) - -
Net cash provided by financing
activities 1,978,512 827,989 27,333
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 $3,886,950 $3,370,713 $2,261,282
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
During 1994, the net unrealized
loss on investments available-forsale 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.
Note 2a
September 30, 1995
Gross Gross Market Value
Amortized Unrealized Unrealized at September 30,
Cost Gains Losses 1995
Certificates of
Deposit $170,00 $- $- $170,00
Note 2b
September 30, 1994
Gross Gross Market Value
Amortize Unrealized Unrealized at September 30,
Cost Gains Losses 1994
U.S. Government
Securities $1,471,096 $- $46,362 $1,424,734
Corporate Debt
Securities 1,108,581 2,442 41,833 1,069,190
Certificates of
Deposit 200,832 - - 200,832
$2,780,509 $2,442 $88,195 $2,694,756
Note 2c
1995 1994 1993
Realized gains $17,839 $128,205 $ -
Realized losses 60,329 51,431 -
Net realized gain (loss) $(42,490) $76,774 $ -
Note 3
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
Note 4a
Years
Ended
September
30,
1995 1994 1993
Income $- $- $-
Expenses 1,002,250 789,384 688,846
Net Income (Loss) $(1,002,250) $(789,384) $(688,846)
Note 4b
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) $(4,056,773) $(3,084,918)
Note8
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 $- $-
Note 9a
Option
Price
Per Outstanding Exercisable
1987 Stock Option and Bonus
Plan
Balance, September 30, 1992 $3.40-20.90 189,250 31,000
Became exercisable $4.00 - 77,999
Exercised $4.00 (6,000) (6,000)
Balance, September 30, 1993 $3.40-19.60 183,250 102,999
Became exercisable - 40,250
Balance, September 30, 1994 $3.40-20.90 183,250 143,249
Canceled $3.40-20.90 176,250 136,249
Balance, September 30, 1995 $19.70 16.50 7,000 7,000
1992 Incentive Stock Option
Plan
Balance, September 30, 1992 $13.40 500 -
Granted $13.80-15.60 12,000 -
Balance, September 30, 1993 $13.40-15.60 12,500 -
Granted $6.80-11.90 29,500 -
Became exercisable - 4,166
Balance, September 30, 1994 $6.80-15.60 42,000 4,166
Canceled $6.80-15.60 (42,000) (4,166)
Granted $2.87-3.87 57,550 20,917
Balance, September 30, 1995 $2.87-3.87 57,550 20,917
1992 Nonqualified Stock Option
Plan
Balance, September 30, 1992 $13.40 2,500 -
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 18,000
Canceled $8.70-13.40 (7,500) -
Granted $2.87 31,500 -
Became Exercisable 42,000
Balance, September 30, 1995 $2.87-15.60 60,000 60,000
Note 9b
Option
Price
Per Outstanding Exercisable
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 $2.87 100,000 61,000
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-$3.87 329,251 -
Became exercisable - 70,000
Balance, September 30, 1995 329,251 70,000
Note 11a
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
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1996 AND 1995 (unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance
with rules established by the Securities and Exchange Commission for Form 10-
Q. Not all financial disclosures required to present the financial position
and results of operations in accordance with generally accepted accounting
principles are included herein. The reader is referred to the Company's
Financial Statements for theyear ended September 30,1995 included elsewhere in
this Prospectus. In the opinion of management, all accruals and adjustments
(each of which is of a normal recurring nature) necessary for a fair
presentation of the financial position as of June 30, 1996 and the results of
operations for the nine-month period then ended have been made. Significant
accounting policies have been consistently applied in the interim financial
statements and the annual financial
statements.
Investments
Effective September 30, 1994, the Company adopted, on a prospective basis,
Statement of Financial Accounting Standard No. 115, "Accounting for Certain
Debt and Equity Securities" (SFAS 115) and revised its policy for investments.
Investments that may be sold as part of the liquidity management of the
Company or for other factors are classified as available-for sale and are
carried atfair market value. Unrealized gains and losses on such securities
are reported as a separate component of stockholders' equity. Realized gains
and losses on sales of securities are reported in earnings and computed using
the specific identified cost basis. As of June 30, 1996, there is no effect on
the Company's financial statements.
Loss per Share
Net loss per common share is based on the weighted average number of common
shares outstanding during the period. Common stock equivalents, including
options to purchase common stock, are excluded from the calculation as they
are antidilutive.
Long-lived Assets
Statement of Accounting Standards No. 121, "Accounting for the Impairment of
Long-lived Assets and for Longlived Assets to be Disposed of" is effective for
financial statements for fiscal years beginning after December 15, 1995.
It is the Company's opinion that the adoption of the statement would have no
material effect on its Financial Statements.
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1996 AND 1995 (unaudited)
(continued)
B. JOINT VENTURE
On October 30, 1995, the Company announced it had acquired Alpha 1
Biomedical's interest in Viral Technologies, Inc. ("VTI"). VTI was formed
by the two companies in 1986. This transaction gives CEL-SCI 100%
ownership of VTI. Under the terms of the agreement, CEL-SCI gave Alpha 1
Biomedicals, Inc. 159,170 shares of CEL-SCI common stock as the purchase
price for net assets with a fair value of approximately $170,000. The
acquisition was accounted for under the purchase method of accounting;
and as the acquisition represents primarily research and development costs,
the purchase price was expensed and is included as research and development
expense for the nine months ended June 30, 1996. Effective October 31, 1995,
the Company has consolidated CELSCI's and VTI's financial statements and the
consolidated financial statements reflect the results of VTI's operations since
the date of acquisition. This results in a significant increase
in patent costs on the consolidated balance
sheet. Intercompany accounts are eliminated upon consolidation.
C. CONSTRUCTION OF NEW LABORATORY AND FUNDING
On January 31, 1994, the Company entered into a leasing agreement with a
nonaffiliated landlord for 7,800 square feet in Baltimore, Maryland. In the
spring of 1994 the Company commenced construction of the new laboratory. The
cost of the laboratory buildout and equipment was approximately $1,100,000.
To fund this laboratory, the Company borrowed funds from a bank at a rate of
prime plus 2%. The outstanding loan balance at
June 30, 1996 is $628,729.
D. CONVERTIBLE DEBENTURES
On March 28, 1996, the Company raised $1,250,000 in a private placement.
The placement was structured as a convertible debenture. It is
convertible into CelSci common stock prior to December 1, 1996. The money
will be used for research and development and clinical trials with the
Company's cancer and HIV products. As of June 30, 1996, $825,000 of the
debentures were converted into 165,000 shares of the Company's common stock.
Item 1. FINANCIAL STATEMENTS
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS
ASSETS
(unaudited)
June 30, September 30,
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $6,646,257 $3,886,950
Investments, net 170,000 170,000
Interest receivable 75,405 64,080
Accounts receivable 46,342
Prepaid expenses 267,933 341,295
Advances to officer/shareholder
and employees 129,722 13,234
7,335,659 4,475,559
RECEIVABLE FROM JOINT VENTURE 0 522,695
RESEARCH AND OFFICE EQUIPMENT-
Less accumulated depreciation
of $801,874 and $589,897 935,090 1,102,038
DEPOSITS 18,178 18,178
PATENT COSTS- less accumulated
amortization of
$333,098 and $239,490 435,007 240,541
$8,723,934 $6,359,011
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS'
EQUITY
(unaudited)
June 30, September 30,
1996 1995
CURRENT LIABILITIES:
Accounts payable $112,312 $248,488
Current portion note payable 243,372 243,372
Total current liabilities 355,684 491,860
NOTE PAYABLE 385,357 567,891
CONVERTIBLE DEBENTURE (Note D) 425,000 -
DEFERRED RENT 24,959 24,959
EQUITY IN SUBSIDIARY 0 432,268
Total liabilities 1,191,000 1,516,978
STOCKHOLDERS' EQUITY
Preferred stock, Series A 3,325,000 -
Common stock, $.01 par
value; authorized,
100,000,000 shares;
issued and outstanding,
7,046,902 and
5,338,244 shares 70,469 53,382
Additional paid-in capital 32,723,024 28,799,198
Deficit (28,499,459) (24,010,547)
Short-term note receivable from (86,100) -
shareholder
TOTAL STOCKHOLDERS'
EQUITY 7,532,934 4,842,033
$8,723,934 $6,359,011 See notes to condensed financial statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
(unaudited)
Nine Months Ended June 30,
1996 1995
REVENUES:
Gross Sales $51,605 $-
Interest income 136,651 273,417
Other income - 39,588
TOTAL INCOME 188,256 313,005
EXPENSES:
Research and development 2,350,600 1,383,978
Depreciation and
amortization 208,912 201,197
General and administrative 2,113,884 1,268,677
TOTAL OPERATING EXPENSES 4,673,396 2,853,852
EQUITY IN LOSS OF JOINT VENTURE (3,772) (395,224)
4,677,168 3,249,076
NET LOSS $4,488,912 $2,936,071
LOSS PER COMMON SHARE $0.74 $0.70
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,086,492 4,194,563
See notes to condensed financial statements
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
(unaudited)
Three Months Ended June 30,
1996 1995
REVENUES:
Gross Sales $44,280 $-
Interest Income 51,737 83,111
Other Income - 21,977
TOTAL INCOME 96,017 105,088
EXPENSES:
Research and development 617,987 234,035
Depreciation and
amortization 68,950 67,211
General and administrative 894,165 490,429
TOTAL OPERATING EXPENSES 1,581,102 791,675
EQUITY IN LOSS OF JOINT VENTURE 0 (104,884)
1,581,102 896,559
NET LOSS $1,485,085 $791,471
LOSS PER COMMON SHARE $0.22 $0.19
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,612,293 4,207,200
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOW
(unaudited)
Nine Months Ended June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS
$(4,488,912) $(2,936,071)
Adjustments to reconcile net loss
to
net cash used in operating
activities:
Depreciation and amortization 208,912 201,197
Equity in loss of joint venture 3,772 395,224
Research and development
expense related to purchase of Viral
Technologies, Inc. 515,617
Amortization of premium on
investments - 60,954
Realized loss on sale of
investments 13,422
Changes in assets and
liabilities, net of effect from
purchase
of Viral Technologies, Inc.:
Decrease (increase) in interest (11,325) -
receivable
Decrease (increase) in accounts (46,342) 38,128
receivable
Decrease (increase) in prepaid 73,362 (225,853)
expenses
Decrease (increase) in advances (116,488) (19,472)
Decrease (increase) in receivable from
joint venture - (123,952)
Increase (decrease) in accounts (136,176) (203,594)
payable
NET CASH USED IN OPERATING
ACTIVITIES (3,997,580) (2,800,017)
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITY:
Sales of investments - 2,906,132
Purchase of investments - (400,000)
Advance to Joint Venture - (287,952)
Payment on note payable (182,534) (121,689)
Note receivable from
employee/shareholder (114,800)
Payments received on note 28,700
receivable from
employee/shareholder
Laboratory construction - (10,135)
Purchase of research and office (17,808) (128,750)
equipment
Patent costs (30,800) -
NET CASH USED IN INVESTING (317,242) 1,957,606
ACTIVITY
Continued on next page
CASH FLOW, CONTINUED FROM
PREVIOUS PAGE
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Issuance of convertible 1,250,000 -
debenture
Issuance of note payable - 205,195
Issuance of preferred stock 3,325,000 -
Issuance of common stock 2,499,129 990,890
NET CASH PROVIDED BY FINANCING 7,074,129 1,196,085
ACTIVITIES
NET (DECREASE) INCREASE IN CASH 2,759,307 353,674
CASH AND CASH EQUIVALENTS:
Beginning of period 3,886,950 3,370,713
End of period $6,646,257 $3,724,387
NON-CASH TRANSACTION: In October
1995, Cel-Sci issued 159,170
shares of common stock as
consideration for
the purchase of the remaining 50%
of Viral Technology, Inc. In conjunction with the acquisition,
CELSCI obtained net assets with a fair value of approximately
$170,000.
NON-CASH TRANSACTION: In March,
1996, a shareholder of the corporation exercised options to
purchase 40,000 shares of common stock.
The shareholder signed a note for
the stock, agreeing to pay the
note by the
end of June, 1996.
NON-CASH TRANSACTION: $825,000
of the convertible debenture was converted into 165,000 shares of
common stock during
the three monts ended June 30,
1996.
See notes to condensed financial statements.
