As filed with the Securities and Exchange Commission on , 1995.
Registration No. 33-98892
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
(703) 549-5293
(Name and address, including zip code, and
telephone number, including area code, of
agent for service)
Copies of all communications, including all
communications sent to the agent for
service, should be sent to:
William T. Hart, Esq. John G. Herbert, P.C.
Hart & Trinen One Barclay Plaza
1624 Washington Street 1675 Larimer Street
Denver, Colorado 80203 Denver, CO 80202
(303) 839-0061 (303) 534-0522
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration
Statement
Page 1 of Pages Exhibit Index Begins on
Page
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 4l5 under the
Securities Act
of 1933, check the following box. / X /
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Share (1) Price Fee
Common Stock (1) 517,5000 $4.50 (3) $1,940,625 $670
Series B Warrants (1)517,500 $0.01 $5,175 $2
Common Stock Issuable
upon Exercise of
Series B Warrants (2)517,500 $4.50 $1,940,625 $670
Total $3,886,425 $1,342
(1) Shares and Series B Warrants issuable upon the exchange of the
Company's outstanding Warrants.
(2) Each Warrant entitles the holder to purchase one additional share
of Common Stock.
(3) Based upon the closing price of the Company's Common Stock on
October 25, 1995.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of l933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
CEL-SCI CORPORATION
CROSS REFERENCE SHEET
Item in Form S-1 Location in
Prospectus
Item 1 Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus .............................. 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 ......................... Use of Proceeds
Item 5 Determination of Offering Price ......... Exchange
Offer
Item 6 Dilution ................................ Dilution
Item 7 Selling Security Holders ................ Not
Applicable
Item 8 Plan of Distribution .................... Exchange
Offer
Item 9 Description of Securities to be
Registered .............................. Description of
Securities Item l0 Interest of
Named
Experts and Counsel ... Experts
Item 11 Information with Respect to the
Registrant
(a) Description of Business ................. Business (b)
Description of Property ................. Business
Legal Proceedings ....................... Legal Proceedings (d)
Certain Market Information .............. 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
PRELIMINARY PROSPECTUS DATED OCTOBER, 1995
SUBJECT TO COMPLETION
PROSPECTUS CEL-SCI CORPORATION
Offer to Exchange Units (Consisting of One Share of Common Stock
and One Series B Warrant) for One Warrant and $ in Cash
THE OFFER TO EXCHANGE AND WITHDRAWAL RIGHTS WILL EXPIRE AT 6:00
P.M. (DENVER, COLORADO TIME), ON , 1995 UNLESS
EXTENDED
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF WARRANTS
BEING TENDERED, BUT IS SUBJECT TO CERTAIN OTHER CONDITIONS.
CEL-SCI Corporation (the "Company") hereby offers, upon the terms
and subject to the conditions set forth in this Prospectus and
Offer to Exchange (the "Offer to Exchange" or the "Exchange
Offer"), to
exchange one Unit for $
in cash and the tender of ten common stock purchase warrants (the
"Warrant"). The Warrants were originally issued by the Company in
connection with its February, 1992 public offering. The exchange
Offer will expire on , 1995 (the "Expiration Date") and is
only
being made to holders of the Company's outstanding Warrants.
Each Unit consists of one share of the Company's Common Stock (the
"Common Stock") and one Series B Warrant. Each Series B Warrant
entitles the holder to purchase one share of the Company's Common
Stock at a price of $ at any time prior to . The
expiration date of the Series B Warrants may be accelerated under
certain conditions. The shares of Common Stock and Series B
Warrants comprising the Units will be separately transferable
immediately upon issuance. See "Exchange Offer" and "Description of
Securities".
As of the date of this Prospectus, there were 5,175,000 Warrants and
5,497,414 shares of Common Stock outstanding. On October , 1995,
the prices on the NASDAQ system for the Company's Common Stock and
Warrants were $ and $ , respectively.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE
INVESTMENT. FOR A DESCRIPTION OF CERTAIN IMPORTANT FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS"
AND "DILUTION AND COMPARATIVE SHARE DATA".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARYIS A CRIMINAL
OFFENSE. The Date of this Prospectus is , 1995
Underwriting
Price to Discounts and
Proceeds to Public Commissions
(1) Company
Per Unit $ $
$
Total $ $
$
(1) The Company does not intend to pay any commissions, solicitation
fees or other forms of remuneration to any person in connection with
this offering.
Tenders of Warrants and cash in the Exchange Offer will be revocable
until the Expiration Date and, if not yet accepted by the Company, after
the expiration of forty days from the commencement of the Offer to
Exchange. The Company intends to accept all tenders timely submitted to
the Company in proper
form.
Warrants that are not tendered pursuant to the Offer to Exchange, or are
tendered and timely withdrawn, may be exercised until February 7, 1996
(the "Warrant Expiration Date"). Every ten Warrants entitles the holder
to purchase one share of the Company's Common Stock for $46.50 at any
time prior to the Warrant Expiration Date. Any Warrants not exercised
or tendered pursuant to the Offer to Exchange will be of no value after
the Warrant Expiration Date. See "Description of Securities".
Any holder of the Warrants desiring to tender all or any portion of the
Warrants should either (1) complete and sign the Letter of Transmittal
(or facsimile thereof) in accoradnce with the instructions in the Letter
of Transmittal and mail it or deliver it with the certificate
representing such Warrants together with the required cash payment to
the Exchange Agent or (2) request his broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for such
holder. A Warrant holder having Warrants registered in the name of a
broker, dealer, commercial bank, trust company or other nominee must
contact such person if he desires to tender Warrants.
This Company will attempt to qualify this offering in each state in
which a Warrant holder resides. However, no assurance can be given that
the Company will be able to meet the qualification standards for
securities offerings established by various state regulatory
authorities. No sales will be made in any state until clearance of this
offering has been received from the securities commissioner of that
state.
[The following statement will be printed in red ink and will
appear on the left-hand margin of the outside front cover page.]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be
sold nor may offers to buy be accepted prior to the time the
registration statement
becomes effective. This Prospectus shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under the
securities laws of any such state.
(INSIDE FRONT COVER OF PROSPECTUS)
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of l934 and in accordance therewith is required
to file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Copies of any
such reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facility
maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. and at the Commission's Regional offices in New York
(Room 1028, 26 Federal Plaza, New York, New York 10278) and Chicago
(Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 606612511). Copies of such material can be obtained
from the Public Reference Section of the Commission at its office in
Washington, D.C. 20549 at prescribed rates. The Company has filed with
the Commission a Registration Statement on Form S-1 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), with respect to the
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 l983 to acquire and finance research and development of natural human
interleukin-2 ("IL-2") and related products and processes using the
Company's proprietary cell culture technologies. The Company's
proprietary product, which is a combination, or "cocktail", of IL-2 and
certain lymphokines and cytokines, is sometimes referred to by the
Company as MULTIKINE(Trademark) The Company was initially formed under
the name Interleukin-2, Inc. and changed its name to CEL-SCI Corporation
in March, 1988. The compounds, compositions and processes, to which the
Company has acquired an exclusive world-wide license, are being tested
to determine if they are effective in improving the immune response of
advanced cancer patients.
Before human testing can begin with respect to a drug or biological
product, preclinical studies are conducted in laboratory animals to
evaluate the potential efficacy and the safety of a product. Human
clinical studies generally involve a three-phase process. The initial
clinical evaluation, Phase I, consists of administering the product and
testing for safe and tolerable dosage levels. Phase II trials continue
the evaluation of immunogenicity and determine the appropriate dosage
for the product, identify possible side effects and risks in a larger
group of subjects, and provide preliminary indications of efficacy.
Phase III trials consist of testing for actual clinical efficacy for
safety within an expanded group of patients at geographically dispersed
test sites. See "Business - Government Regulation" for a more detailed
description of the foregoing.
Between 1983 and 1986 the Company was primarily involved in funding pre
clinical and Phase I clinical trials of MULTIKINE. These trials were
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 July, 1994, the Company filed an Investigational New Drug
Application ("IND") with the U.S. Food and Drug Administration. See
"Business - Research and Development". In December
l994 the FDA notified the Company that the Company's IND application was
placed on clinical hold pending receipt of additional data and
modifications to the Company's manufacturing process. The Company plans
to meet with the FDA to discuss the issues raised by the FDA.
In March 1995, the Canadian Health Protection Branch, Health and Welfare
Ministry gave clearance to the Company to start a phase I/II cancer
study using Multikine. The study, which will enroll up to 30 head and
neck cancer patients who have failed conventional treatments, is
expected to be conducted at the Hotel-Dieu de Montreal Hospital. The
study is designed to evaluate safety, tumor responses and immune
responses in patients treated with multiple courses of Multikine. The
length of time that each patient will remain on the investigational
treatment will depend on the patient's response to treatment. In May
l995, the U.S. Food and Drug Administration (FDA) authorized the export
of the Company's Multikine drug to Canada for purposes of this study.
The Company also owns Viral Technologies, Inc., ("VTI") a Delaware
corporation. VTI owns the rights to certain biomedical technology which
is being tested to determine its effectiveness in the development of a
vaccine against, treatment for and a diagnostic test to detect evidence
of the Acquired Immune Deficiency Syndrome ("AIDS") virus. In 1993, VTI
completed its Phase I clinical trials in California using VTI's
prototype
AIDS vaccine. In April 1995 VTI started a new clinical study with the
HGP30 AIDS vaccine. The study involves ten HIV-negative volunteers who
participated in the 1993 Phase I study. No assurance can be given that
the vaccine being developed by VTI will be effective in treating the
AIDS virus or that if effective, that it will be effective as to all
persons. VTI's Phase I clinical trials were conducted pursuant to
approvals
obtained from the California Department of Health Services Food and
Drug Branch. See "Business - Viral Technologies, Inc.".
None of the Company's or VTI's clinical trials to date have been
conducted under the approval of the FDA and there are no assurances
that clinical trials conducted under approvals from state authorities
or conducted in foreign countries will be accepted by the FDA. Product
licensure in a foreign country or under state authority does not mean
that the product will be licensed by the FDA and there are no
assurances that the Company or VTI will receive any approval of the FDA
or any other governmental entity for the manufacturing and/or marketing
of a product. Consequently, the commencement of the manufacturing and
marketing by the Company or VTI of any product is, in all likelihood,
many years away. See "Business".
The lack of FDA approval for the Company's or VTI's products will
prevent the Company and VTI from generally marketing their products on
an interstate basis in the United States. Delays in obtaining FDA
approval or the failure to obtain FDA approval may have a material
adverse impact upon the Company's operations.
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 $23,098,000
through June 30, 1995, and expects to incur substantial losses for the
foreseeable future.
The Company's new research laboratory (PRAL Laboratories, Inc.) was
opened in the first quarter of 1995 and conducts research for the
Company. The Company also began limited marketing of the laboratory's
services to third parties in early 1995. Although the laboratory has,
as of September 30, 1995, performed only limited commercial work for
third parties, any revenues generated by the laboratory for services to
third parties will serve to offset the Company's other expenses.
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
A holder of the Warrants may, until the Exchange Offer Expiration Date
(unless extended), exchange ten Warrants plus $ in cash for a
Unit consisting of one share of the Company's Common Stock and one
Series B Warrant.
Securities Offered: Units, with each Unit consisting of one share
of
Common Stock and one Series B Warrant. Each
Series B Warrant entitles the holder to
purchase one additional share of Common Stock
at a price of $ per share during a period
beginning
months and
ending months after the date of this Prospectus.
Record Date: This offering is made to each Warrant holder of record as
of 5:00 P.M., Eastern time on (the "Record
Date").
Expiration Date: The Exchange Offer will terminate on (the
"Expiration Date"). The Expiration Date may be
extended for an additional days by the Company.
Securities Outstanding
Shares of Common Stock
outstanding: 5,497,414
Warrants outstanding: 5,175,000 (each ten Warrants allows the
holder
to
purchase one share of Common Stock)
Securities to be outstanding
assuming all Warrants are
exchanged: 6,014,914 shares of Common Stock, plus
517,500
Series B Warrants
In addition to the securities described above, the Company has also
granted options to various persons which options collectively allow
for the purchase of up to 2,216,051 shares of the Company's Common
stock. See "Management" and "Principal Shareholders".
NASDAQ Symbols: Common Stock: CELI
Warrants: CELIW
Series B Warrants:
Use of Proceeds
The Company intends to use the net proceeds of this offering to (1)
finance clinical trials and other research into its proprietary
technologies, (ii) provide funding for the Company's subsidiary,
Viral Technologies, Inc., and (iii) fund general and administrative
expenses. See "USE OF PROCEEDS".
Summary Financial Data
The following sets forth certain financial data with respect to the
Company and is qualified in its entirety by reference to the more
detailed
financial statements and notes thereto included elsewhere in this
Prospectus.
Balance Sheet Data
June 30, September
30, 1995 1994
1993
Working Capital $4,048,923 $5,809,149
$10,296,472
Total Assets 6,184,492 8,086,670
11,633,090
Total Liabilities 1,394,786 1,407,602
688,231
Shareholders' Equity 4,789,706 6,679,068
10,944,859
No dividends have been declared
by the Company since its inception.
Statement of Operations Data:
Nine Months Ended
June 30, Years Ended
September 30, 1995 1994
1994 1993
Investment Income and
Other Revenues $ 313,005 $ 629,034 $ 624,670 $
997,964
Expenses:
Research and Development 1,378,005 2,192,645 2,896,l09
1,307,042 Depreciation and
Amortization 201,197 76,494 138,755
55,372
General and
Administrative 1,304,585 1,184,716 1,62l,990
1,696,119
Equity in loss of
joint venture 395,224 335,416 394,692
344,423
Net Loss $(2,966,006) $(3,160,237) $(4,426,876)
$(2,404,992)
Net Loss per Common Share $(0.70) $(0.75) $(1.06)
$(0.58)
Weighted average common
shares outstanding 4,194,563 4,184,634 4,185,240
4,155,431
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 Bcells. There are many lymphokines, each
of which is thought to have distinctive
chemical and functional properties. IL-2 is
but one of these lymphokines.
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, 1995, the Company has incurred net
losses of approximately $23,098,000. During the years ended September
30, 1992, 1993 and 1994, the Company suffered losses of $1,650,916,
$2,404,992 and $4,426,876 respectively. During the nine months ended
June 30, 1995 the Company lost $2,966,006. 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".
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. None of
the Company's clinical trials have been approved by the FDA and there
can be no assurance that the results of such trials will be accepted
for any purpose by the FDA. See "Business - Government Regulation."
DEPENDENCE ON OTHERS TO MANUFACTURE PRODUCT. The Company has
an agreement with an unrelated corporation for the production, until
1997, of MULTIKINE for research and testing purposes. If this
corporation was unable to supply the Company with MULTIKINE, the
Company would be unable
to obtain supplies of MULTIKINE until alternative manufacturing
arrangements were secured.
LICENSED TECHNOLOGY - POTENTIAL CONFLICTS OF INTEREST. The
Company's clinical studies and research on MULTIKINE 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, and including patents issued to VTI, ten patents have
been issued in the United States and four patents have been issued in
Europe. There is no assurance that the applications still pending or
which may be filed in the future will result in the issuance of any
patents. Furthermore, there is no assurance as to the breadth and
degree of protection any issued patents might afford the owners of the
patents and the Company. Disputes may arise between the owners of the
patents or the Company and others as to the scope, validity and
ownership rights of these or other patents. Any defense of the patents
could prove costly and time consuming and there can be no assurance
that the Company or the owners of the patents will be in a position, or
will deem it advisable, to carry on such a defense. Other private and
public concerns, including universities, may have filed applications
for, or may have been issued, patents and are expected to obtain
additional patents and other proprietary rights to technology
potentially useful or necessary to the Company. The scope and validity
of such patents, if any, the extent to which the Company or the owners
of the patents may wish or need to acquire the rights to such patents,
and the cost and availability of such rights are presently unknown.
Also, as far as the Company relies upon unpatented proprietary
technology, there is no assurance that others may not acquire or
independently develop the same or similar technology. The first patent
licensed to the Company will expire in the year 2000. See "Business -
Compounds and Processes
Licensed to the Company".
PRODUCT LIABILITY AND LACK OF INSURANCE. At the present time,
the Company does not have product liability insurance for MULTIKINE.
The successful prosecution of a product liability case against the
Company could have a materially adverse effect upon its business.
DEPENDENCE ON MANAGEMENT. The Company is dependent for its
success on the continued availability of its executive officers. The
loss of the services of any of the Company's executive officers could
have an adverse effect on the Company's business. The Company does not
carry key man life insurance on any of its officers. See "Management".
SHARES AVAILABLE FOR RESALE. As of September 30, 1995, there
were 5,497,414 shares of the Company's Common Stock issued and
outstanding. Approximately 200,000 of these shares have not been
registered under the Securities Act of l933, as amended (the "Act"),
and are "restricted securities" as defined by Rule l44 of the Act.
Rule l44 provides, in essence, that shareholders, after holding
restricted securities for a period of two years may, every three
months, sell in ordinary brokerage transactions an amount equal to the
greater of l% of the Company's then outstanding Common stock or the
average weekly trading volume, if any, of the stock during the four
calendar weeks preceding the sale. Nonaffiliates of the Company who
hold restricted securities for a period of three years may, under
certain prescribed conditions, sell their securities without regard to
any of the requirements of the Rule. As of the date of this Offering
Memorandum, substantially all shares of restricted stock were available
for resale pursuant to Rule l44. Sales of restricted stock may have a
depressive effect on the market price of the Company's Common Stock.
Such sales might also impede future financing by the Company.
OPTIONS AND WARRANTS. In March, 1991 the Company granted a
financial public relations consultant an option to purchase 50,000
shares of the Company's Common Stock. The option is exercisable at
$13.80 per share and expires in March, l996. The holder of the option
has the right to have the shares issuable upon the exercise of the
option included in any registration statement filed by the Company. In
connection with the Company's l992 Public Offering, the Company issued
(i) Warrants which allow the holders to purchase up to 517,500 shares
of the Company's Common Stock at $46.50 per share, and (ii)
Underwriter's Warrants that entitle the holders of the Warrants to
purchase up to 135,000 shares of the Company's Common Stock. The
Underwriter's Warrants provide that the Company, at its expense, will
make appropriate filings with the Securities and Exchange Commission so
that the securities underlying the Underwriter's Warrants will be
available for public sale. Such filings could result in substantial
expense to the Company and could hinder future financings by the
Company.
In connection with the Company's June and September l995
Private Offerings, the Company issued warrants which allow the holders
to purchase up to 1,150,000 shares of Common Stock at any time prior to
June 30, l997 at a price of $3.25 per share. As part of these same
offerings, the Company issued to Neidiger/Tucker/ Bruner, Inc., the
sales agent for that offering, warrants to purchase 115,000 shares of
the Company's Common Stock at $2.00 per share and an additional 115,000
shares at $3.25 per share. The Warrants issued to the Sales Agent
provide that the Company, at its expense, will make appropriate filings
with the Securities and Exchange Commission so that the securities
underlying these Warrants will be available for public sale. Such
filings could result in substantial expense to the Company and could
hinder future financings by the Company.
In addition to the foregoing, the Company has granted other
options and warrants to certain persons which would allow such persons
to purchase up to 651,051 shares of Common Stock at prices ranging from
$2.87 to $19.70 per share. The Company may also grant options to
purchase approximately 98,750 additional shares under its Incentive
Stock Option and Non-Qualified Stock Option Plans.
For the terms of the options and warrants referred to above,
the holders thereof will have an opportunity to profit from any
increase in the market price of the Company's Common Stock without
assuming the risks of ownership. Holders of such options and warrants
may exercise them at a time when the Company could obtain additional
capital on terms more favorable than those provided by the options and
warrants which may adversely affect the ability of the Company to
obtain additional capital in the future. The exercise of the options
and warrants and the sale of the underlying shares of Common Stock
could adversely affect the market price of the Company's stock.
COMPETITION. The competition in the research, development and
commercialization of products which may be used in the prevention or
treatment of cancer and AIDS is intense. Major pharmaceutical and
chemical companies, as well as specialized genetic engineering firms,
are developing products for these diseases. Many of these companies
have substantial financial, research and development, and marketing
resources and are capable of providing significant long-term
competition either by establishing inhouse research groups or by
forming collaborative ventures with other entities. In addition, both
smaller companies and non-profit institutions are active in research
relating to cancer and AIDS and are expected to become more active in
the future.
The clinical trials sponsored to date by the Company and VTI
have not been approved by the FDA, but rather have been conducted
pursuant to approvals obtained from regulatory agencies in England,
Canada and certain states. Since the results of these clinical trials
may not be accepted by the FDA, companies which are conducting clinical
trials approved by the FDA may have a competitive advantage in that the
products of such companies are further advanced in the regulatory
process than those of the Company or VTI.
LACK OF DIVIDENDS. There can be no assurance that the
operations of the Company will result in any revenues or will be
profitable. At the present time, the Company intends to use available
funds to finance any possible growth of the Company's business.
Accordingly, while payment of dividends rests within the discretion of
the Board of Directors, no dividends have been declared or paid by the
Company. The Company does not
presently intend to pay dividends and there can be no assurance that
dividends will ever be paid. Pursuant to the terms of a loan agreement
with a bank, the Company may not pay any dividends without the consent
of the bank.
DILUTION. Persons purchasing the securities offered by this
Prospectus will suffer an immediate dilution in the per share net
tangible book value of their Common Stock. See "Dilution 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. Although no Preferred Stock has been issued
to date, the provisions in the Company's Articles of Incorporation
relating to the Preferred Stock would allow the Company's directors to
issue Preferred Stock with multiple votes per share and dividends
rights which would have priority over any dividends paid with respect
to the Company's Common Stock. The issuance of Preferred Stock with
such rights may make the removal of management difficult even if such
removal would be considered beneficial to shareholders generally, and
will have the effect of limiting shareholder participation in certain
transactions such as mergers or tender offers if such transactions are
not favored by incumbent management. DILUTION AND COMPARATIVE SHARE
DATA
As of June 30, 1995, the Company had 5,497,414 shares of its Common
Stock issued and outstanding with a net tangible book value (total
assets less total liabilities and intangible assets) of approximately
$0.67 per share. If all Warrants are tendered in the Exchange Offer
(and assuming none of the Series B Warrants are exercised) the former
Warrant Holders will own 517,500 shares or approximately 9% of the
Company's Common Stock for which they will
have paid $ in addition to the surrender of their Warrants.
The following table illustrates dilution and other comparative data.
The dilution is primarily due to the lower net tangible book value of
the shares outstanding prior to this offering. For purposes of the
dilution computation, it is assumed that the holders of the Company's
outstanding Warrants have exchanged all of their Warrants for Units
pursuant to the terms of the Exchange Offer and that none of the Series
B Warrants are exercised. If less than all Warrants are exchanged, the
dilution to the investors in this offering will be greater.
Shares presently outstanding
5,497,414 Shares to be outstanding upon
completion of offering
6,014,914 Net tangible book value per share prior
to offering $0.67 Net tangible book value per
share after offering
$ Cash paid for each Unit (public offering
price)
$ Dilution per share to exchanging Warrant
holders
$ Increase per share attributable to payments
made by exchanging Warrant holders $
Equity ownership by present shareholders
following offering
91% Equity ownership by exchanging Warrant holders
9%
"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 public offering
price and the net tangible book value of the Company's Common Stock
immediately after the offering.
"Net tangible book value after the offering" gives effect to the
commissions payable to the Solicitation Agents as well as other
expenses related to this offering.
USE OF PROCEEDS
The net proceeds from this offering, assuming all Warrants are tendered
in the Exchange Offer and after payment of the estimated expenses of
the offering, will be approximately $ .
The Company intends to use the net proceeds of this offering to (1)
finance clinical trials and other research into its proprietary
technologies, (ii) provide funding for the Company's subsidiary, Viral
Technologies, Inc., and (iii) fund general and administrative expenses.
In the event that less than all of the Warrants are exchanged, the net
proceeds of this offering will be allocated between the aforementioned
purposes as determined by the Company with the primary consideration
being the continuation of the clinical trials.
The proceeds from this offering alone will not satisfy all of the
Company's cash requirements. See "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Reuslts of
Operations".
Pending expenditure of the proceeds of this offering, the Company may
make temporary investments in government securities and other
securities which will not subject the Company to the requirements of
the Investment Company Act of 1940.
MARKET INFORMATION
As of September 30, 1995, there were approximately 3,000 record holders
of the Company's Common Stock. The Company has not issued any shares
of preferred stock. The Company's Common Stock and Warrants are traded
on the National Association of Securities Dealers Automatic Quotation
("NASDAQ") System. Set forth below are the range of high and low bid
quotations for the periods indicated as reported by NASDAQ, and as
adjusted for the 10 for 1 reverse stock split which was approved by the
Company's shareholders on April 28, 1995. The market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
Quarter
Ending Common Stock
Warrants
High Low High
Low
12/31/92 $12.80 $12.50 $0.93
$0.53
3/31/93 $20.60 $13.70 $0.81
$0.50
6/30/93 $18.10 $12.50 $0.75
$0.47
9/30/93 $15.60 $12.20 $0.63
$0.38
12/31/93 $20.00 $13.40 $0.94
$0.41
3/31/94 $18.10 $10.30 $0.75
$0.28
6/30/94 $10.90 $ 8.10 $0.31
$0.19
9/30/94 $10.30 $ 5.60 $0.21
$0.12
12/31/94 $ 7.50 $ 3.40 $0.25
$0.09
3/31/95 $ 4.00 $ 3.75 $0.22
$0.13
6/30/95 $ 5.30 $ 2.78 $0.15
$0.06
9/30/95 $ 5.46 $ 3.56 $0.28
$0.09
Holders of Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors out of funds legally available
therefor and, in the event of liquidation, to share pro rata in any
distribution of the Company's assets after payment of liabilities. The
Board of Directors is not obligated to declare a dividend. The Company
has not paid any dividends and the Company does not have any current
plans to pay any dividends. Pursuant to the terms of a loan agreement
with a bank, the Company may not pay any dividends without the consent
of the bank. See Note 5 to the Company's September 30, 1994 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,
1994 1993 1992 1991 1990
Investment
Income &
Other Revenues $ 624,670 $ 997,964 $ 434,180 $ 35,972 $ 13,208
Expenses:
Research and
Development 2,896,l09 1,307,042 481,697 108,771
96,489
Depreciation
& Amortization 138,755 55,372 33,536 32,582
30,664
General and
Administrative 1,621,990 1,696,119 1,309,475 795,015
646,157 Equity in loss
of joint
venture 394,692 344,423 260,38 290,166 170,676
Net Loss $(4,426,876) $(2,404,992) $(1,650,916) $(1,190,562)
$(931,078) Loss per
common share $(1.06) $(0.58) $(0.42) $(0.35)
$(0.29)
Weighted
average
common shares
outstanding 4,185,240 4,155,431 3,953,233 3,400,546 3,162,393
Nine Months Ended
June 30,
1995
1994 Investment Income and Other Revenues $ 313,005
$ 629,034
Expenses:
Research and Development 1,378,005
2,192,645
Depreciation and Amortization 201,197
76,494
General and Administrative 1,304,585
1,184,716
Equity in loss of joint venture 395,224
335,416
Net Loss $(2,966,006)
$(3,160,237)
Net Loss per Common Share $(0.70) $(0.75)
Weighted average common shares outstanding 4,194,563
4,184,634
Balance Sheet Data:
September 30,
1994 1993 1992 1991
1990
Working Capital
(Deficiency) $5,809,149 $10,296,472 $13,043,012 $ 682,831
$(295,930) Total Assets 8,086,670 11,633,090 13,769,504
1,611,899 515,740
Total Liabilities l,407,602 688,231 467,086 672,595
493,650
Shareholders' Equity6,679,068 10,944,859 13,302,4l8 939,304
22,090
No dividends have been declared by the Company since its inception.
June 30, 1995
Working Capital
$4,048,923 Total Assets 6,184,492
Total Liabilities 1,394,786
Shareholders' Equity 4,789,706
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Nine Months Ended June 30, 1995
Revenues for the nine months ended June 30, 1995 consisted of
interest accrued on loans made by the Company to VTI and interest
earned on funds received from the February 1992 public offering
($273,417) as well as revenues earned by the Company's new research
laboratory ($39,588), which began offering laboratory services to
third parties in early 1995. 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
completion of a research and development project relating to the
Company's manufacturing process. General and administrative
expenses increased as the result of more employees.
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.
Fiscal 1992
Investment income increased as the result of income earned on funds
received from the Company's February, 1992 public offering.
Research and Development expenses reflect the costs associated with
the Florida human clinical trials (see Notes to Financial
Statements) and the Company's new research program with a New
England hospital. General and administrative expenses increased by
approximately $500,000 due to (i) legal fees associated with
defending the Company's European patent, (ii) an initial fee of
$5l,200 paid for the inclusion of the Company's securities on the
NASDAQ National Market System, (iii) expenses associated with the
Company's September 30, l992 meeting of shareholders, (iv)
additional employees and consultants, and (v) a $200,000 payment
made to Maximilian de Clara to indemnify him for losses
incurred as a result of actions taken on behalf of the Company.
Significant categories of general and administrative expenses during
this fiscal year were salaries and employee benefits ($l68,000),
travel and expense reimbursements ($l47,000), shareholder
communications, annual meeting, and investor relations expenses
($258,000), legal and accounting fees ($l88,000), and the
indemnification payment made to Mr. de Clara ($200,000).
Liquidity and Capital Resources
The Company has had only limited revenues from operations since its
inception in March l983. The Company has relied upon proceeds
realized from the public and private sale of its Common Stock to
meet its funding requirements. Funds raised by the Company have
been expended primarily in connection with the acquisition of an
exclusive worldwide license to certain patented and unpatented
proprietary technology and know-how relating to the human
immunological defense system, the acquisition of a 50% interest in
Viral Technologies, Inc. (a company engaged in the research and
development of a possible AIDS technology),
patent applications, the repayment of debt, the continuation of
Companysponsored research and development, administrative costs and
construction of laboratory facilities. Inasmuch as the Company does
not anticipate realizing revenues until such time as it enters into
licensing arrangements regarding the technology and know-how
licensed to it (which could take a number of years), the Company is
mostly dependent upon the proceeds from the sale of its securities
to meet all of its liquidity and capital resource requirements.
In February, 1992, the Company received net proceeds of
approximately $13,800,000 from the sale, in a public offering, of
517,500 shares of Common Stock and 5,175,000 Warrants. Every ten
Warrants entitle the holder to purchase one additional share of
Common Stock at a price of $46.50 per share prior to February 7,
1996.
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.
The Company filed an Investigational New Drug ("IND") Application
with the FDA in July, 1994. In connection with this filing the
Company has been funding a research program designed to refine the
manufacturing process for the Company's MULTIKINE product so that
MULTIKINE will meet anticipated regulatory requirements. During
fiscal 1995 the Company also plans to provide VTI with the funding
needed to extend VTI's Phase I trials involving HIV-negative
volunteers. It
should be noted that substantial additional funds will be needed for
more extensive clinical trials which will be necessary before the
Company or VTI will be able to apply to the FDA for approval to sell
any products which may be developed on a commercial basis throughout
the United States.
There can be no assurance that either the Company or VTI will be
successful in obtaining approvals from any state, the FDA or any
foreign country to conduct further clinical trials or to manufacture
and sell their products. The lack of FDA approval for the Company's
or VTI's products will prevent the Company and VTI from generally
marketing their products on an interstate basis in the United
States. Delays in obtaining FDA approval or the failure to obtain
FDA approval may have a material adverse impact upon the Company's
operations.
In October, 1994, the Company completed the construction of its own
research laboratory in a facility leased by the Company. The cost
of modifying the leased space and providing the equipment for the
research laboratory was approximately $1,200,000. In August 1994
the Company
obtained a credit line in the principal amount of $1,000,000 to fund
the majority of the costs for the research laboratory. As of June
30, 1995 the Company had borrowed approximately $872,000 against
this credit line. The loan is due in 1999 and bears interest at 2%
plus the prime lending rate.
The Company's research laboratory (PRAL Laboratories, Inc.) will be
used to conduct research for the Company and third parties. The
Company began marketing the laboratory's services to third parties
in early 1995. Although the laboratory has, as of June 30, 1995,
performed only limited commercial work for third parties, any
revenues generated by the laboratory for services to third parties
will serve to offset the Company's other expenses.
The Company expects that it will spend approximately $2,000,000 on
research and development during the twelve month period ending
September 30, 1996. 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
September 1996. In the absence of revenues, the Company will be
required to raise additional funds through the sale of securities,
debt financing or other arrangements in order to continue with its
research efforts after that date. However, there can be no
assurance that such financing will be available or be available on
favorable terms.
The Company has the ability to significantly control the amount and
timing of its research and development expenditures. In general,
the Company attempts to coordinate its research projects so as to
match expenditures with available funding. The Company has in the
past and may in the future delay or postpone development and
research expenditures if the Company is unable to secure adequate
sources of funds from internal and external sources. These delays
in development may have an adverse effect on the Company's ability
to produce a timely and competitive product. The Company plans to
continue its research projects on a scale consistent with funds
available to the Company.
BUSINESS
CEL-SCI Corporation (the "Company") was formed as a Colorado
corporation during March l983, to acquire and finance research and
development of natural human interleukin-2 ("IL-2") and lymphokine
related products and processes using the Company's proprietary cell
culture technologies. The Company's proprietary product is
sometimes referred to as MULTIKINE(Trademark), or buffy-coat
interleukins, which is a combination, or "cocktail" of IL-2 and
certain lymphokines and cytokines. MULTIKINE is a trade name of the
Company. The Company was initially formed under the name
Interleukin-2, Inc. and changed its name to CEL-SCI Corporation in
March, 1988. The compounds, compositions and processes, to which
the Company has acquired an exclusive world-wide license, are being
tested to determine if they are effective in improving the immune
response of advanced cancer patients.
Since its inception the focus of the Company's product development
efforts has been on conducting clinical trials to test its
proprietary technologies. The Company intends to continue testing
its MULTIKINE product in clinical trials with the objective of
establishing its efficacy as a treatment for solid tumors and
possibly other diseases. An additional aim of the Company is to
further corroborate the present data (obtained in connection with
the Company's research programs and human clinical trials) in regard
to the ability of MULTIKINE to restore the immune system of people
suffering from certain illnesses.
The cost of acquiring its exclusive license and the costs associated
with the clinical trials relating to the Company's MULTIKINE
technologies, the cost of research at various institutions and the
Company's administrative expenses have been funded with the public
and private sales of shares of the Company's Common Stock and
borrowings from third parties, including affiliates of the Company.
Viral Technologies, Inc. ("VTI"), a wholly-owned subsidiary of the
Company, is engaged in the development of a possible vaccine for
AIDS. VTI's
technology may also have application in the treatment of AIDS-
infected
individuals and the diagnosis of AIDS. VTI's AIDS vaccine, HGP-30,
has completed Phase I human clinical testing. 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
The Company filed an Investigational New Drug ("IND") Application
for MULTIKINE with the FDA in late July, 1994. In December 1994 the
FDA notified the Company that the Company's IND application was
placed on clinical hold pending receipt of additional data and
modifications to the Company's manufacturing process. The Company
plans to meet with the FDA to discuss the issues raised by the FDA.
If the Company's IND application is approved by the FDA (of which
there is no assurance), the Company will begin human clinical trials
in accordance with protocols approved by the FDA. The Company does
not know when the FDA will approve or reject the Company's IND
application.
In March l995, the Canadian Health Protection Branch, Health and
Welfare Ministry gave clearance to the Company to start a phase I/II
cancer study using Multikine. The study, which will enroll up to 30
head and neck cancer patients who have failed conventional
treatments, is expected to be conducted at the Hotel-Dieu de
Montreal Hospital. The study is designed to evaluate safety, tumor
responses and immune responses in patients treated with multiple
courses of Multikine. The length of time that each patient will
remain on the investigational treatment will depend on the patient's
response to treatment. In May l995, the U.S. Food and Drug
Administration (FDA) authorized the export of the Company's
Multikine drug to Canada for purposes of this study.
Viral Technologies, Inc. ("VTI") completed its Phase I trials in
California and in April 1995 started a new clinical study with the
HGP 30 AIDS vaccine. The study involves ten HIV-negative volunteers
who participated in the 1993 Phase I study. Following vaccinations
with HGP-30, certain volunteers will be asked to donate blood for a
SCID mouse HIV challenge study. VTI also plans to request
permission from the California Food and Drug Branch ("FDB") or one
or more foreign countries (none of which have been selected) to
begin Phase I/II human clinical trials with HIV-infected volunteers.
See "Interest in Viral Technologies" in this section of the
Prospectus for additional information concerning VTI's product
development plan.
There can be no assurance that either the Company or VTI will be
successful in obtaining approvals from the FDA or any foreign
country to conduct further clinical trials or to manufacture and
sell their products. The lack of FDA approval for the
Company's or VTI's products will prevent the Company and VTI from
generally marketing their products on an interstate basis in the
United States. Delays in obtaining FDA approval or the failure to
obtain FDA approval may have a material adverse impact upon the
Company's operations.
BACKGROUND OF HUMAN IMMUNOLOGICAL SYSTEM
The function of the immunological system is to protect the body
against infectious agents, including viruses, bacteria, parasites
and malignant (cancer) cells. An individual's ability to respond to
infectious agents and to other substances (antigens) recognized as
foreign by the body's immune system is critical to health and
survival. When the immune response is adequate, infection is
usually combatted effectively and recovery follows. Severe
infection can occur when the immune response is inadequate. Such
immune deficiency can be present from birth but, in adult life, it
is frequently acquired as a result of intense sickness or as a
result of the
administration of chemotherapeutic drugs and/or radiation. It is
also recognized that, as people reach middle age and thereafter, the
immune system grows weaker.
Two classes of white blood cells, macrophages and lymphocytes, are
believed to be primarily responsible for immunity. Macrophages are
large cells whose principal immune activity is to digest and destroy
infectious agents. Lymphocytes are divided into two sub-classes.
One sub-class of lymphocytes, B-cells, produces antibodies in
response to antigens. Antibodies have unique combining sites
(specificities) that recognize the shape of particular antigens and
bind with them. The combination of an antibody with an antigen sets
in motion a chain of events which may neutralize the effects of the
foreign substance. The other sub-class of lymphocytes, T-cells,
regulates immune responses. Tcells, for example, amplify or suppress
antibody formation by Bcells, and can also directly destroy
"foreign" cells by activating "killer cells."
It is generally recognized that the interplay among T-cells, B-cells
and the macrophages determines the strength and breadth of the
body's response to infection. It is believed that the activities of
T-cells, B-cells and macrophages are controlled, to a large extent,
by a specific group of hormones called lymphokines. Lymphokines
regulate and modify the various functions of both T-cells and 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 and it is on IL-2 and its synergy with other
lymphokines that the Company has focused its attention. Scientific
and medical investigation has established that IL-2 enhances immune
responses by causing activated T-cells to proliferate. Without such
proliferation no immune response can be mounted. Other lymphokines
and cytokines support T-cell and B-cell proliferation.
However, IL-2 is the only known lymphokine or cytokine which causes
the proliferation of Tcells. IL-2 is also known to activate B-cells
in the absence of B-cell growth factors.
Although IL-2 is one of the best characterized lymphokines with
anticancer potential, the Company is of the opinion that to have
optimum therapeutic value, IL-2 should be administered not as a
single substance but rather as a
mixture of IL-2 and certain lymphokines and cytokines, i.e. as a
"cocktail". This approach, which was pioneered by the Company, makes
use of the synergism between these lymphokines. It should be noted
however that neither the FDA or any other agency has determined that
the Company's MULTIKINE product will be effective against any form
of cancer.
It has been reported by researchers in the field of lymphokine
research that IL-2 can increase the number of killer T-cells
produced by the body, which improves the body's capacity to
selectively destroy specific tumor cells. Research and human
clinical trials sponsored by the Company have indicated a
correlation between administration of MULTIKINE to advanced cancer
patients and immunological responses. On the basis of these
experimental results, the Company believes that MULTIKINE may have
application for the treatment of solid tumors in humans.
The Company foresees three potential anti-cancer therapeutic uses
for MULTIKINE: (i) direct administration into the human body (in
vivo) as a modulator of the immune system, (ii) activation of a
patient's white blood cells outside the body with MULTIKINE,
followed by returning these activated cells to the patient; and
(iii) a combination of (i) and (ii).
RESEARCH AND DEVELOPMENT
In the past, the Company conducted its research pursuant to
arrangements with various universities and research organizations.
The Company provided grants to these institutions for the conduct of
specific research projects as suggested by the
Company's scientists based upon the results of previously completed
projects.
More recently the Company has decided to consolidate its research
activities in a Companyowned 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
preclinical and Phase I clinical trials of its proprietary MULTIKINE
technologies. These trials were conducted at St. Thomas's Hospital
Medical School located in London, England under the direction of
Dudley C. Dumonde, M.D., PhD., a former member of the SAB, and
pursuant to approvals obtained from England's Department of Health
and Social Security.
In the Phase I trial in England (completed in 1987), forty-nine
patients suffering with various forms of solid cancers, including
malignant melanoma, breast cancer, colon cancer, and other solid
tumor types were treated with MULTIKINE. The product was
administered directly into the lymphatic system in a number of
patients. Significant and lasting lymphnode responses, which are
considered to be an indication of improvement in the patient's
immune responses, were observed in these patients. A principal
conclusion of the Phase I trials was that the side effects of the
Company's products in forty nine patients were not severe, the
treatment was well tolerated and there was no long-term toxicity.
The results of the Phase I clinical study were encouraging, and as a
result the Company, through members of its SAB and consulting
experts, established protocols for future clinical trials. In
November, 1990, the Florida Department of Health and Rehabilitative
Services ("DHRS") gave the physicians at a southern Florida medical
institution approval to start a clinical cancer trial in Florida
using the Company's MULTIKINE product. The focus of the trial was
unresectable head and neck cancer (which is presently untreatable)
and was the first time that the natural MULTIKINE was administered
to cancer patients in a clinical trial in the United States.
Four patients with regionally advanced squamous cell cancer of the
head and neck were treated with the Company's MULTIKINE product.
The patients had previously received radical surgery followed by
xray therapy but developed recurrent tumors at multiple sites in the
neck and were diagnosed with terminal cancer. The patients had low
levels of lymphocytes and evidence of
immune deficiency (generally a characteristic of this type of
cancer).
Three of the four patients treated with the Company's MULTIKINE
product generated significant biological responses as a result of
the treatment. Negligible side effects were observed and the
patients were treated as out-patients. 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 the nine months ended June 30, 1995,
approximately $9,058,000 has been expended on Company-sponsored
research and development, including approximately $2,896,000,
$1,307,000, and $48l,700 during the years ended September 30,
1994, 1993 and 1992, 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
June 30, 1995, VTI has spent approximately $3,000,000 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
and keep the Company informed of current developments in the area
of lymphokine research. 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 $16.50 per share.
The members of the Company's SAB are:
DR. MICHAEL CHIRIGOS - former head of the Virus and Disease
Modification Section, National Institutes of Health (NIH),
National Cancer Institute (NCI) from 1966-1981 and the Immuno
Pharmacology Section, NHI, NCI, Biological Response Modifier
Program until 1985.
DR. EVAN M. HERSH - Vice-Chairman, Department of Internal
Medicine, Chief, Section of Hematology/Oncology, Department of
Internal Medicine, Tucson, AZ. Director of Clinical Research,
Arizona Cancer Center, Tucson.
DR. MICHAEL J. MASTRANGELO - Director, Division of Medical
Oncology, and Professor of Medicine, Jefferson Medical College,
Philadelphia, Pennsylvania.
DR. ALAN B. MORRIS, PhD. - Professor, Department of Biological
Sciences, University of Warwick, Coventry, U.K.
VIRAL TECHNOLOGIES, INC.
Prior to November 1995, Viral Technologies, Inc. ("VTI"), a
Delaware corporation, was 50% owned by the Company and 50% owned
by Alpha 1 Biomedicals, Inc. VTI is developing a vaccine
technology that may prove of commercial value in the prevention,
diagnosis and treatment of AIDS. VTI holds the proprietary rights
to certain synthesized components of the p17 gag protein, which is
the outer core region of the AIDS virus (HIV1). In October 1995,
the Company acquired Alpha 1's interest in VTI in exchange for
159,170 shares of the Company's common stock.
VTI is involved in the development of a prototype preventive and
therapeutic vaccine against AIDS that is based on HGP-30, a thirty
amino acid synthetic peptide derived from the p17 region of the
AIDS virus. Evidence compiled by scientists at George Washington
University from toxicology studies with different animal species
indicates that the HGP-30 prototype vaccine does not appear to be
toxic in animals. The HGP-30 vaccine being tested differs from
most other vaccines candidates in that its active component, the
HGP-30 peptide, is derived from the p17 core protein particles of
the virus. Since HGP-30 is a totally synthetic molecule containing
no live virus, it cannot cause infection. Unlike the envelope
(i.e. outside) proteins, the p17 region of the AIDS virus appears
to be relatively non-changing. As a result, and as reported in
the May, 1986 issue of Science magazine, the development of an
AIDS vaccine that would protect against all strains may be
possible. 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 (HIV-negative) volunteers given three
different dosages and was completed in December 1990. The trial
results indicated that five of eight volunteers vaccinated with
HGP-30, and whose blood samples were able to be tested, produced
"killer" T-cell responses. The vaccine also elicited
proliferative responses in 7 out of 9 vaccinated volunteers and
antibody responses in 15 out of 18 vaccinated volunteers.
In March, 1990, the California Department of Health
Services Food and Drug Branch (FDB) approved the first human
testing (Phase I trials) in the United States of HGP-30. The
trials were conducted by scientists at the University of Southern
California and San Francisco General Hospital. Twenty-one healthy
HIV-negative volunteers at medical centers in Los Angeles and San
Francisco received escalating doses of HGP-30 with no clinically
significant adverse side effects. The clinical studies confirmed
earlier clinical trials in London. Further, in a pilot experiment
in a SCID mouse model (a genetically engineered mouse able to
accept a human immune
system, e.g., blood), animals given blood cells from one
vaccinated volunteer showed that 75% of the SCID mice were
protected from live HIV virus challenge compared to 25% of the
mice receiving cells from a normal donor. While this is a
promising observation, more studies need to be conducted before
any conclusions can be drawn from this test.
In April 1995 VTI began another clinical trial using
volunteers who will receive two vaccinations. The volunteers who
originally received the two lowest dosage levels will be asked to
donate blood for a SCID mouse HIV challenge study. In 1995, VTI
also plans to request regulatory approval for an HIV-positive
clinical trial. No assurance can be given that approvals to
conduct additional clinical trials will be obtained in a timely
fashion, if at all. In addition, VTI's AIDS vaccine/treatment is
only in the initial stages of testing and it remains to be seen if
the vaccine/treatment will be effective against the AIDS virus.
Although there has been important
independent research showing the possible significance of the p17
region of HIV-1, there can be no assurance that any of VTI's
technology will be effective in the prevention, diagnosis or
treatment of AIDS. There can be no assurance that other
companies will not develop a product that is more effective or
that VTI ultimately will be able to develop and bring a product
to market in a timely manner that would enable it to derive
commercial benefits.
VTI's research and development efforts are presently
focused on the evaluation of second generation formulations and
delivery systems for HGP-30 and related peptides to enhance
HIVspecific cellular immune responses.
COMPOUNDS AND PROCESSES LICENSED TO THE COMPANY
The Company has acquired from Sittona Company, B.V., a
Netherlands corporation ("Sittona"), the exclusive worldwide rights
to patented IL-2 compounds, compositions and other processes and
other lymphokine-related compounds, compositions and processes
which are the subject of various patents, patent applications and
disclosure documents filed with the United States Patent and
Trademark Office as well as similar agencies of various foreign
countries. Sittona acquired its rights in the foregoing products
and technology from Hooper Trading Company N.V., and Shanksville
Corporation N.V., both Netherland Antilles corporations. Pursuant
to the terms of the license, the Company must pay to Sittona a
royalty of l0% of all net sales received by the Company in
connection with the manufacture, use or sale of the licensed
compounds, compositions and processes and a royalty of l5% of all
license fees and royalties received by the Company in connection
with the grant by the Company of any sublicenses for the
manufacture, use or sale of the licensed compounds, compositions
and processes. On November 30, l983, a $l.4 million advance
royalty was paid by the Company to Sittona to acquire the license.
The license also requires the Company to bear the expense of
preparing, filing and processing patent applications and to obtain
and maintain patents in the United States and foreign countries on
all inventions, developments and improvements made by or on behalf
of the Company relating to the licensed compounds, compositions and
processes. In this regard the Company has caused patent
applications to be filed in several foreign countries and has
undertaken the processing of previously filed patent applications.
The exclusive license is to remain in effect until the expiration
or abandonment of all patent rights or until the compounds,
compositions and processes enter into the public domain, whichever
is later. Sittona may also terminate the license for breach of the
agreement, fraud on the part of the Company, or the bankruptcy or
insolvency of the Company. Sittona, Hooper Trading Company and
Shanksville Corporation are all controlled by Maximilian de Clara,
the Company's President. See Item 13 of this report.
In 1987 a German company filed an
opposition with the European Patent Office with respect to one of
the Company's European patents, alleging that certain aspects of
the patent in question were previously disclosed by the inventors
during a conference held in Germany. A hearing on the opposition
was held and on October 12, 1990 the European Patent Office
rejected the opposition. The German company filing the opposition
has appealed the decision of the European Patent Office. In 1992
the Company's process claims in the patent were upheld, while two
minor claims were denied. The Company does not believe that the
European Patent Office denial of these two minor claims impairs the
value of this patent in any significant degree.
PROCESS FOR THE PRODUCTION OF IL-2 AND IL2 PRODUCT
The Company's exclusive license includes processes for the
production in high yields of natural human IL-2 using cell culture
techniques applied to normal human cells. The Company believes
that these production methods have advantages to those currently in
use. Based upon the results of the Company's research and human
clinical trials, the Company believes that "natural" IL-2 produced
by cell
culture technologies, such as the Company's proprietary products,
may have advantages over genetically engineered, bacteria-produced
IL-2 ("recombinant IL-2") manufactured by other companies. There
are basically two ways to produce IL-2 on a commercial scale: (1)
applying genesplicing techniques using bacteria or other micro-
organisms to produce recombinant IL-2; or, (2) applying cell
culture technology using mammalian cells. Substantive differences
exist between recombinant IL-2 and IL2 produced through cell
culture technology. For example: (1) cell cultured IL-2
is glycosylated (has sugars attached). Sugar
attachments play a crucial role in cell recognition and have a
significant effect on how fast a body clears out proteins.
Proteins produced through bacteria have no sugar attachments and
while recombinant IL-2 products produced from recombinant yeast or
insect cells are glycosylated, they are not so to the right degree,
or at the right locations. Cell cultured IL-2 has the "right"
sugar attachments at the right places; (2) there are also
structural differences related to folding (the way human proteins
work depends on their sequence folding); and (3) the cell cultured
IL-2 "cocktail" is administered in small dosages as pioneered by
Company researchers. This formulation and dosage mimics the way
immune regulators are naturally found and function within the body.
This stands in stark contrast to the huge dosages required when
recombinant IL-2 is administered to patients. In addition, patients
treated with recombinant IL2 usually suffer severe side effects.
Although mammalian cells (other than human cells) could be
genetically engineered to produce glycosylated IL-2 in larger
quantities than are produced by the Company's method, such
mammalian cells could not be genetically engineered to produce the
combination of human lymphokines and cytokines, which together with
human glycosylated IL-2 form the MULTIKINE product used by the
Company. The Company is of the opinion that glycosylated IL-2
genetically produced from mammalian cells must be administered in
large dosages before any benefits are observed. Even then, the
Company believes that only a small percentage of patients will
benefit from treatments consisting only of glycosylated IL-2. In
addition, large dosages of glycosylated IL-2 can, as with
recombinant IL-2, result in severe toxic reactions. In contrast,
the Company believes the synergy between glycosylated IL-2 and
certain other lymphokines/cytokines allows MULTIKINE to be
administered in low dosages, thereby avoiding the severe toxic
reactions which often result when IL-2 is administered in large
dosages.
The technology licensed to the Company includes the basic
production method employing the use of normal white blood cells, an
improved production method based in part on this basic production
method, a serum-free and mitogen-free IL-2 product, and a method
for using this product in humans. Mitogens are used to stimulate
cells to produce specific materials (in this case, IL2). Mitogens
remaining in the product of cell stimulation can cause allergic and
anaphylactic reactions if not removed from the cell product prior
to introduction into the body.
The Company's license also pertains to a cell culture
process for producing interleukin-2 and another type of cell
process for producing serum-free and mitogen-free interleukin-2
preparations which avoids a mitogen stimulation step and uses
interleukin-1 and white blood cells.
The Company's license further includes a process for
suppressing graft rejection in organ transplantation. This process
employs the use of an agent which blocks the activity of IL-2 in
proliferating T-cells which would otherwise destroy the
transplanted organ. The Company regards further research and
development of this process to involve a financial commitment
beyond its present ability; thus while the Company intends to
attempt to enter into licensing arrangements with third parties
concerning this process, it does not presently intend to conduct
further research into, or development of, this process.
PATENT POSITION OF VIRAL TECHNOLOGIES, INC.'S HGP-30. In
January, 1991, VTI was awarded a U.S. patent covering the exclusive
production, use and sale of HGP-30. This patent is thought to be
the
first U.S. patent for a portion of a "core" protein of the HIV
virus. In February, 1993, VTI was awarded a European patent
covering HGP-30 and certain other peptides.
GOVERNMENT REGULATION
The investigational agents and future products of the Company are
regulated in the United States under the Federal Food, Drug and
Cosmetic Act, the Public Health Service Act, and the laws of
certain states. The Federal Food and Drug Administration (FDA)
exercises significant regulatory control over the clinical
investigation and manufacture of pharmaceutical products.
Prior to the time a pharmaceutical product can be marketed in the
United States for therapeutic use, approval of the FDA must
normally be obtained. Certain states however have passed laws which
allow a state agency having functions similar to the FDA to approve
the testing and use of pharmaceutical products within the state.
In the case of either FDA or state regulation, preclinical testing
programs on animals, followed by three phases of clinical testing
on humans, are typically required in order to establish product
safety and efficacy.
The first stage of evaluation, preclinical testing, must be
conducted in animals. After lack of toxicity has been
demonstrated, the test results are submitted to the FDA (or state
regulatory agency) along with a request for approval for further
testing which includes the protocol that will be followed in the
initial human clinical evaluation. If the applicable regulatory
authority does not object to the proposed experiments, the
investigator can proceed with Phase I trials. Phase I trials
consist of pharmacological studies on a relatively few number of
humans under rigidly controlled conditions in order to establish
lack of toxicity and a safe dosage range.
After Phase I testing is completed, one or more
Phase II trials are conducted in a limited number of patients to
test the product's ability to treat or prevent a specific disease,
and the results are analyzed for clinical efficacy and safety. If
the results appear to warrant confirmatory studies, the data is
submitted to the applicable regulatory authority along with the
protocol for a Phase III trial. Phase III trials consist of
extensive studies in large populations designed to assess the
safety of the product and the most desirable dosage in the
treatment or prevention of a specific disease. The results of the
clinical trials for a new biological drug are submitted to the FDA
as part of a product license application ("PLA").
In addition to obtaining FDA approval for a product, a biologics
establishment license application ("ELA") must be filed in order to
obtain FDA approval of the testing and manufacturing facilities in
which the product is produced. To the extent all or a portion of
the manufacturing process for a product is handled by an entity
other than the Company, the Company must similarly receive FDA
approval for the other entity's participation in the manufacturing
process. Domestic manufacturing establishments are subject to
inspections by the FDA and by other Federal, state and local
agencies and must comply with Good
Manufacturing Practices ("GMP") as appropriate for production. In
complying with GMP regulations, manufacturers must continue to
expend time, money and effort in the area of production and quality
control to ensure full technical compliance.
The process of drug development and regulatory approval requires
substantial resources and many years. There can be no assurance
that regulatory approval will ever be obtained for products
developed by the Company. Approval of drugs and biologicals by
regulatory
authorities of most foreign countries must also be obtained prior
to initiation of marketing in those countries. The approval
process varies from country to country and the time period required
in each foreign country to obtain approval may be longer or shorter
than that required for regulatory approval in the United States.
The human clinical trials in Florida were authorized pursuant to
applications filed by physicians at a southern Florida medical
institution with the Florida Department of Health and
Rehabilitative Services ("DHRS"). VTI's Phase I clinical trials
were conducted pursuant to approvals obtained from the California
Department of Health Services Food and Drug Branch. None of the
clinical trials involving the Company's MULTIKINE product
(including the prior trials conducted in London, England) have been
conducted under the approval of the FDA and there are no assurances
that clinical trials conducted under approval from state
authorities or conducted in foreign countries will be accepted by
the FDA. Product licensure in a foreign country or under state
authority does not mean that the product will be licensed by the
FDA and there
are no assurances that the Company will receive any approval of the
FDA or any other governmental entity for the manufacturing and/or
marketing of a product. Consequently, the commencement of the
manufacturing and marketing of any Company product is, in all
likelihood, many years away.
COMPETITION AND MARKETING
Many companies, nonprofit organizations and governmental
institutions are conducting research on lymphokines. Competition
in the development of therapeutic agents and diagnostic products
incorporating lymphokines is intense. Large, wellestablished
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-2like compounds.
The Company believes, however, that it is the only producer of a
patented IL-2 product using a patented cell-culture technology with
normal human cells. The Company foresees that its principle
competition will come from producers of genetically-engineered IL-2
like products. However, it is the Company's belief, based upon
growing scientific evidence, that its natural IL-2 products have
advantages over the genetically engineered, IL-2-like products.
Evidence indicates that genetically engineered, IL2-like products,
which lack sugar molecules and are typically not water soluble, may
be recognized by the immunological system as a foreign agent,
leading to a measurable antibody build-up and thereby possibly
voiding their therapeutic value. Furthermore, the Company's
research has established that to have optimum therapeutic
value IL-2 should be administered not as a single substance but
rather as an IL-2 rich mixture of certain lymphokines and other
proteins, i.e. as a "cocktail". If these differences prove to be
of importance, and if the therapeutic value of its MULTIKINE
product is conclusively established, the Company believes it will
be able to establish a strong competitive position in a future
market.
The Company has not established a definitive plan for marketing nor
has it established a price structure for the Company's saleable
products. However, the Company intends, if the Company is in
a position to begin commercialization of its products, to enter
into written marketing agreements with various major pharmaceutical
firms with established sales forces. The sales forces in turn
would probably target the Company's products to cancer centers,
physicians and clinics involved in immunotherapy.
Competition to develop treatments for the control of AIDS is
intense. Virtually all of the pharmaceutical and biotechnology
companies around the world are devoting substantial sums to the
exploration and development of technologies useful in these areas.
VTI's development of its experimental HGP-30 AIDS Vaccine, if
successful, would likely face intense competition from other
companies seeking to find alternative or better ways to prevent and
treat AIDS.
Both the Company and VTI may encounter problems, delays and
additional expenses in developing marketing plans with outside
firms. In addition, the Company and VTI may experience other
limitations involving the proposed sale of their products, such as
uncertainty of third-party reimbursement. There is no assurance
that the Company or VTI can successfully market any products which
they may develop or market them at competitive prices.
The clinical trials funded to date by the Company and VTI have not
been approved by the FDA, but rather have been conducted pursuant
to approvals obtained from regulatory agencies in England and
certain states. Since the
results of these clinical trials may not be accepted by the FDA,
companies which are conducting clinical trials approved by the FDA
may have a competitive advantage in that the products of such
companies are further advanced in the regulatory process than those
of the Company or VTI.
PROPERTIES
The Company's MULTIKINE product used in its preclinical and Phase I
clinical trials in England was manufactured at a pilot plant at St.
Thomas' Hospital Medical School using the Company's patented
production methods and equipment owned by the Company. The
MULTIKINE product used in the Florida clinical trials was
manufactured in Florida. In February, 1993, the Company signed an
agreement with a third party whereby the third party constructed a
facility designed to produce the Company's MULTIKINE product. The
Company paid the third party the cost of constructing this facility
(approximately $200,000) in accordance with the Company's
specifications.
In October, 1994 the Company completed the construction of a
research laboratory in space leased by the Company. The cost of
modifying and equipping this space for the Company's purposes was
approximately $1,200,000.
The Company leases office space at 66 Canal Center Plaza,
Alexandria, Virginia at a monthly rental of approximately $8,000
per month. The Company believes this arrangement is adequate for
the conduct of its present business.
MANAGEMENT
Officers and Directors
Name Age Position
Maximilian de Clara 65 Director and
President
Geert R. Kersten, Esq. 36 Director, Chief
Executive
Officer, Secretary
and Treasurer Patricia B. Prichep 42 Vice President
of Operations
M. Douglas Winship 45 Vice President of
Regulatory
Affairs and Quality
Assurance Dr. Eyal Talor 37 Vice President of
Research
and
Manufacturing
Dr. Suzanne Beckner 44 Vice President of
Clinical
Development
Mark V. Soresi 41 Director
F. Donald Hudson 61 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 and his stock ownership, may be deemed to be the
"parent" and "founder" of the Company as those terms are defined under
applicable rules and regulations of the Securities and Exchange
Commission.
The principal occupations of the Company's officers and directors,
during the past several years, are as follows:
MAXIMILIAN DE CLARA. Mr. de Clara has been a director of
the Company since its inception in March, l983, and has been president
of the Company since July, l983. Prior to his affiliation with the
Company, and since at least l978, Mr. de Clara was involved in the
management of his personal investments and personally funding research
in the fields of biotechnology and biomedicine. Mr. de Clara attended
the medical school of the University of Munich from l949 to l955, but
left before he received a medical degree. During the summers of l954 and
l955, he worked as a research assistant at the University of Istanbul in
the field of cancer research. For his efforts and dedication to
research and development in the fight against cancer and AIDS, Mr. de
Clara was awarded the "Pour le Merit" honorary medal of the Austrian
Military Order "Merito Navale" as well as the honor cross of the
Austrian Albert Schweitzer Society.
GEERT R. KERSTEN, ESQ. Mr. Kersten was Director of Corporate
and Investment Relations for the Company between February, 1987 and
October, 1987. In October of 1987, he was appointed Vice President of
Operations. In December, 1988, Mr. Kersten was appointed director of the
Company. Mr.
Kersten also became the Company's secretary and treasurer in 1989. In
May, 1992, Mr. Kersten was appointed Chief Operating Officer and in
February, 1995, Mr. Kersten became the Company's Chief Executive
Officer. In previous years, Mr. Kersten worked as a financial analyst
with Source Capital, Ltd., an investment advising firm in McLean,
Virginia. Mr. Kersten is a stepson of Maximilian de Clara, who is the
President and a Director of the Company. Mr. Kersten attended George
Washington University in Washington, D.C. where he earned a B.A. in
Accounting and an M.B.A. with emphasis on International Finance. He
also attended law school at American University in Washington, D.C.
where he received a Juris Doctor degree.
PATRICIA B. PRICHEP has been the Company's Vice President of
Operations since March, 1994. Between December, 1992 and March, 1994,
Ms. Prichep was the Company's Director of Operations. From June, 1990
to December, 1992, Ms. Prichep was the Manager of Quality and
Productivity for the NASD's Management, Systems and Support Department.
Between 1982 and 1990, Ms. Prichep was Vice President and Operations
Manager for Source Capital, Ltd.
M. DOUGLAS WINSHIP has been the Company's Vice President of
Regulatory Affairs and Quality Assurance since April, 1994. Between
1988 and April, 1994, Mr. Winship held various positions with Curative
Technologies, Inc., including Vice President of Regulatory Affairs and
Quality Assurance (1991-1994).
DR. EYAL TALOR has been the Company's Vice President of
Research and Manufacturing since March, 1994. From October, 1993 until
March, 1994, Dr. Talor was Director of Research, Manufacturing and
Quality Control, as well as the Director of the Clinical Laboratory, for
Chesapeake Biological Laboratories, Inc. From 1991 to 1993, Dr. Talor
was a scientist with SRA Technologies, Inc., as well as the director of
SRA's Flow Cytometry Laboratory (1991-1993) and Clinical Laboratory
(19921993). During 1992 and 1993, Dr. Talor was also the Regulatory
Affairs and Safety Officer For SRA. Since 1987, Dr. Talor has held
various positions with the John Hopkins University, including course
coordinator for the School of Continuing Studies (1989-Present),
research associate and lecturer in the Department of
Immunology and Infectious Diseases (1987-1991), and associate professor
(1991Present).
DR. SUZANNE BECKNER has been the Company's Vice President of
Clinical Development since July 1994. From 1993 until joining the
Company Dr. Beckner served as Vice President of Development at Alpha I
Biomedical. From 1989 to 1992, she held positions with Life
Technologies, Inc. as
Research Director and then as Business Director of the Cellular
Biochemistry Products business segment. From 1988 to 1989, she held a
research management position with Biotherapeutics, Inc.
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 of the Soresi Chemical Group, Inc., operating as Eastern
Chemical Waste Systems. Eastern Chemical Waste Systems 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. 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. Mr. Hudson is also a director of VIMRx Pharmaceuticals,
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 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, 1994.
Annual Compensation Long Term
Compensation
Re-
All Other stric-
Other Annual ted LTIP
Com Compen- Stock Options
Pay-
pensa-
Name and Princi- Fiscal Salary Bonus sation Awards Granted
outs tion pal Position Year (1) (2) (3) (4)
(5) (6)
(7)
Maximilian de Clara, 1994 - - $93,752 - 70,000
- -
- -
President 1993 - - $59,376 - -
- -
- -
1992 - - $21,791 - 70,000
- -
- -
Geert R. Kersten, 1994 $182,539 - $ 8,183 - 50,000
- -
4,497
Chief Operating 1993 $163,204 - $ 6,046 - -
- -
3,289
Officer, Secretary 1992 $126,304 - $ 6,133 - 50,000
- -
- -
and Treasurer
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary or
bonus, including perquisites and other personal benefits, securities or
property. Amounts in the table represent automobile, parking and other
transportation expenses.
(4) During the period covered by the Table, no shares of restricted stock
were issued as compensation for services to the persons listed in the
table. As of September 30, 1994, 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 30,370 $ 200,500 Geert R.
Kersten 161,536 $1,066,000
(5) The shares of Common Stock to be received upon the exercise of all
stock options granted during the period covered by the Table.
(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 Mr.
Kersten.
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 employer contribution
per year is equal to the lesser of up to 3% of each participant's
salary or 50% of the employee's contribution. The 1994 expenses for
this plan were $16,160. 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 $1,000, plus expenses, for each meeting of the Board of
Directors which they attended. 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, 1994, Mr. de Clara was the only officer participating in
deliberations of the Company's compensation committee concerning
executive officer compensation. See "Transactions with Related
Parties" in this section of the Prospectus for information concerning
transactions between the Company and Mr. de Clara.
During the year ended September 30, 1994, 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, 1994, to the
Company's President and Chief Operating Officer, 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, 1994
Potential Individual Grants
Realizable
Value at
% of Total Assumed
Annual
Rates
Options of Stock
Price Granted to Exercise
Appreciation
for
Options Employees in Price Per Expiration Option
Term
(2)
Name Granted (#) Fiscal Year Share (1) Date 5%
10%
Maximilian
de Clara 70,000 44% $2.87 7/29/04 $110,600
$272,811
Geert R.
Kersten 50,000 32% $2.87 7/29/04 $ 79,000
$194,865
(1) In June 1995 the Company's directors lowered the exercise price of
these options from $8.70 per share to $2.87 per share.
(2) The potential realizable value of the options shown in the table
assuming the market price of the Company's Common Stock appreciates
in value from the date of the grant to the end of the option term
at 5% or 10%.
Option Exercises and Year End Option Values
Value
of
Unexerc
is ed
IntheMo
ne y
Number of Options
Unexercised at
Fiscal
Options Year-
End
Shares (3) (4)
Acquired Value
on Exercise Realized Exercisable/
Exercisable/ Name (1) (2)
Unexercisable Unexercisable
Maximilian de Clara - - 85,000/70,000
$313,650/$258,300
Geert R. Kersten - - 108,250/66,500
$399,442/$245,385
(1) The number of shares received upon exercise of options during the
fiscal year ended September 30, 1994.
(2) With respect to options exercised during the Company's fiscal year
ended September 30, 1994, 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,
1994, separated between those options that were exercisable and
those options that were not exercisable.
(4) For all unexercised options held as of September 30, 1994, the
aggregate dollar value of the excess of the market value of the
stock
underlying those options (as of September 30, 1994) 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, 1994. In
June 1995 the Company lowered the exercise price on all options
granted to Mr. de Clara and Mr. Kersten to $2.87 per share. The
amounts in this column have been computed using the assumption that
the $2.87 exercise price was in effect at September 30, 1994.
Stock Option and Bonus Plans
The Company has two Incentive Stock Option Plans, three Non-Qualified
Stock Option Plans and a Stock Bonus Plan. A summary description of
these Plans follows. In some cases these Plans are collectively
referred to as the "Plans".
INCENTIVE STOCK OPTION PLAN. The two Incentive Stock Option
Plans collectively authorize the issuance of up to 200,000 shares of
the Company's Common Stock to persons that exercise options granted
pursuant to the Plan. Only Company employees may be granted options
pursuant to the Incentive Stock Option Plan.
To be classified as incentive stock options under the Internal
Revenue Code, options granted pursuant to the Plans must be exercised
prior to the following dates:
(a) The expiration of three months after the date on which an
option holder's employment by the Company is terminated
(except if such termination is due to the death or
permanent and total disability);
(b) The expiration of 12 months after the date on which an
option holder's employment by the Company is terminated,
if such termination is due to the Employee's permanent
and total disability;
In the event of an option holder's death while in the employ
of the Company, his executors or administrators may
exercise, within three months following the date of his
death, the option as to any of the shares not previously
exercised;
The total fair market value of the shares of Common Stock
(determined at the time of the grant of the option) for which any
employee may be granted options which are first exercisable in any
calendar year may not exceed $100,000.
Options may not be exercised until one year following the date
of grant. Options granted to an employee then owning more than 10% of
the Common Stock of the Company may not be exercisable by its terms
after five years from the date of grant. Any other option granted
pursuant to the Plan may not be exercisable by its terms after ten
years from the date of grant.
The purchase price per share of Common Stock purchasable under
an option is determined by the Committee but cannot be less than the
fair market value of the Common Stock on the date of the grant of the
option (or 110% of the fair market value in the case of a person owning
more than 10% of the Company's outstanding shares).
NON-QUALIFIED STOCK OPTION PLAN. The three Non-Qualified
Stock Option Plans collectively authorize the issuance of up to 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 capital-raising
transaction. The option exercise price is determined by the Committee
but cannot be less than the market price of the Company's Common Stock
on the date the option is granted.
STOCK BONUS PLAN. Up to 40,000 shares of Common Stock may be
granted under the Stock Bonus Plan. Such shares may consist, in whole
or
in part, of authorized but unissued shares, or treasury shares. Under
the Stock Bonus Plan, the Company's employees, directors, officers,
consultants and advisors are eligible to receive a grant of the
Company's shares, provided however that bona fide services must be
rendered by consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction.
OTHER INFORMATION REGARDING THE PLANS. The Plans are
administered by the Company's Compensation Committee ("the Committee"),
each member of which is a director of the Company. The members of the
Committee were selected by the Company's Board of Directors and serve
for a one-year tenure and until their successors are elected. A member
of the Committee may be removed at any time by action of the Board of
Directors. Any vacancies which may occur on the Committee will be
filled by the Board of Directors. The Committee is vested with the
authority to interpret the provisions of the Plans and supervise the
administration of the Plans. In addition, the Committee is empowered
to select those persons to whom shares or options are to be granted, to
determine the number of shares subject to each grant of a stock bonus
or an option and to determine when, and upon what conditions, shares or
options granted under the Plans will vest or otherwise be subject to
forfeiture and cancellation.
In the discretion of the Committee, any option granted
pursuant to the Plans may include installment exercise terms such that
the option becomes fully exercisable in a series of cumulating
portions. The Committee may also accelerate the date upon which any
option (or any part of any options) is first exercisable. Any shares
issued pursuant to the Stock Bonus Plan and any options granted
pursuant to the Incentive Stock Option Plan or the NonQualified Stock
Option Plan will be forfeited if the "vesting" schedule established by
the Committee administering the Plan at the time of the grant is not
met. For this purpose, vesting means the period during which the
employee must remain an employee of the Company or the period of time a
nonemployee must provide services to the Company. At the time an
employee ceases working for the Company (or at the time a nonemployee
ceases to perform services for the Company), any shares or options not
fully vested will be forfeited and cancelled. At the discretion of the
Committee payment for the shares of Common Stock underlying options may
be paid through the delivery of shares of the Company's Common Stock
having an aggregate fair market value equal to the option price,
provided such shares have been owned by the option holder for at least
one year prior to such exercise. A combination of cash and shares of
Common Stock may also be permitted at the discretion of the Committee.
Options are generally non-transferable except upon death of
the option holder. Shares issued pursuant to the Stock Bonus Plan will
generally not be transferable until the person receiving the shares
satisfies the vesting requirements imposed by the Committee when the
shares were issued.
The Board of Directors of the Company may at any time, and
from time
to time, amend, terminate, or suspend one or more of the Plans in any
manner they deem appropriate, provided that such amendment, termination
or suspension will not adversely affect rights or obligations with
respect to shares or options previously granted. The Board of
Directors may not, without shareholder approval: make any amendment
which would materially modify the eligibility requirements for the
Plans; increase or decrease the total number of shares of Common Stock
which may be issued pursuant to the Plans except in the case of a
reclassification of the Company's capital stock or a consolidation or
merger of the Company; reduce the minimum option price per share;
extend the period for granting options; or materially increase in any
other way the benefits accruing to employees who are eligible to
participate in the Plans.
PRIOR STOCK OPTION AND BONUS PLAN. The Company previously had
in effect a Stock Option and Bonus Plan ("the 1987 Plan") which
provided for the grant to the Company's officers, directors, employees
and consultants of either (i) shares of the Company's Common Stock for
services rendered or (ii) options to purchase shares of Common Stock.
The 1987 Plan was terminated by the Company in 1992. Since the 1987
Plan was terminated, no further options will be granted and no further
bonus shares will be issued pursuant to the 1987 Plan. However,
options previously granted may nevertheless still be exercised
according to the terms of the options. Prior to the termination of the
1987 Plan, the Company granted options to purchase 189,250 shares of
the Company's Common Stock. To date, options to purchase 6,000 shares
have been exercised. In June, 1995 the Company cancelled options to
purchase 176,250 shares that had previously been granted under this
Plan and reissued options for the same number of shares under the
Company's other stock option plans. See "Option Summary" below.
OPTION SUMMARY. The following sets forth certain information,
as
of September 30, 1995, concerning the stock options granted by the
Company. Each option represents the right to purchase one share of the
Company's Common Stock.
Total Shares
Shares Reserved for
Remaining Reserved
Outstanding Options
Name of Plan Under Plan Options Under
Plan 1987 Stock Option and Bonus Plan 200,000 7,000
(1)
1992 Incentive Stock Option Plan 100,000 57,550
42,450
1992 Non-Qualified Stock Option Plan 60,000 60,000
- -
1994 Incentive Stock Option Plan 100,000 100,000
1994 Non-Qualified Stock Option Plan 100,000 97,250
2,750
1995 Non-Qualified Stock Option Plan 400,000 329,251
70,749
TOTAL: 651,051
(1) This Plan was terminated in 1992 and as a result, no new options
will be granted pursuant to this Plan.
In June 1995 the Company (i) cancelled options to purchase
113,250 shares that were previously granted under the Company's 1987
Stock Option and Bonus Plans, (ii) reissued options for the same number
of shares under the Company's other stock option plans, and (iii)
lowered the exercise price on options previously granted to the
Company's officers, directors and employees to $2.87 per share.
In March, 1991 the Company granted a financial relations
consultant an option to purchase 50,000 shares of the Company's common
stock. The option is exercisable at $13.80 per share and expires in
March, 1996. The holder of the option has the right to have the shares
issuable upon the exercise of the option included in any registration
statement filed by the Company.
As of May 15, 1995, 1,500 shares had been issued pursuant to
the Company's 1992 Stock Bonus Plan. All of these shares were issued
during the fiscal year ending September 30, l994.
Transactions with Related Parties
The technology and know-how licensed to the Company was developed by a
group of researchers under the direction of Dr. Hans-Ake Fabricius and
was assigned, during l980 and l98l, to Hooper Trading Company, N.V., a
Netherlands Antilles' corporation ("Hooper"), and Shanksville
Corporation, also a Netherlands Antilles corporation ("Shanksville").
Mr. de Clara and Dr. Fabricius own 50% and 30%, respectively, of each
of these companies. The technology and know-how assigned to Hooper and
Shanksville was licensed to Sittona Company, B.V., a Netherlands
corporation ("Sittona"), effective September, l982 pursuant to a
licensing agreement which requires Sittona to pay to Hooper and
Shanksville royalties on income received by Sittona respecting the
technology and know-how licensed to Sittona. In l983, Sittona licensed
this technology to the Company and received from the Company a
$1,400,000 advance royalty payment. At such time as the Company
generates revenues from the sale or sublicense of this technology, the
Company will be required to pay royalties to Sittona equal to l0% of
net sales and l5% of
the licensing royalties received from third parties. In that event,
Sittona, pursuant to its licensing agreements with Hooper and
Shanksville, will be required to pay to those companies a minimum of
l0% of any royalty payments received from the Company.
In 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.
See "Legal Matters" below for information concerning expenses incurred
by the
Company in indemnifying an officer and director.
Legal Matters
The Company is not a party to any pending legal proceedings.
Maximilian de Clara, the president and a director of the Company, has
been involved in legal proceedings concerning shares of the Company's
Common Stock. During the three year period ended September 30, 1993,
the Company paid Mr. de Clara approximately $96,000 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.
In a separate matter, Milford Trading, Ltd. ("Milford Trading"), a
corporation controlled by Mr. de Clara, filed a lawsuit against an
unrelated third party
seeking the recovery of 40,000 shares of the Company's Common Stock
which were registered in the name of Milford Trading but which are held
by the third party. The third party filed a counterclaim against
Milford Trading and a crossclaim against Mr. de Clara seeking title to
the 40,000 shares and other damages. Although Mr. de Clara denied the
claim of the third party, the case was settled by Mr. de Clara paying
$200,000 and delivering 3,000 shares to the third party. The Company's
Board of Directors 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 in
1985 and that Mr. de Clara was therefore entitled by law to
indemnification. Accordingly, during fiscal 1992 the Company paid Mr.
de Clara's legal fees in connection with this matter (approximately
$28,000), reimbursed Mr. de Clara the $200,000 paid to the third party,
and during fiscal 1993 issued 3,000 shares of the Company's common
stock to Mr. de Clara to replace the shares which Mr. de Clara issued
to the third party.
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 September 30, 1995, information
with respect to the only persons owning beneficially 5% or more of
the outstanding Common Stock and the number and percentage of
outstanding shares owned by each director and officer and by the
officers and directors as a group. Unless otherwise indicated, each
owner has sole voting and investment powers over his shares of Common
Stock.
Number of Percent
of Name and Address Shares (1) Class
(4)
Maximilian de Clara 90,000 (2) 1.4%
Bergstrasse 79
6078 Lungern,
Obwalden, Switzerland
Geert R. Kersten 193,186 (3) 3.5%
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Patricia B. Prichep 4,530 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
M. Douglas Winship 5,000 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Eyal Talor 4,667 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Suzanne Beckner 2,667
* 66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Mark Soresi 14,375
* l0l0 Wayne Ave., 8th Floor
Silver Spring, MD 209l0
F. Donald Hudson 10,500
*
53 Mt. Vernon Street
Boston, MA 02108
Edwin A. Shalloway 10,500
* 413 North Washington Street
Alexandria, VA 22314
Delton Trading SA 758,668
13.3% 15 Market Square
Belize City, Belize
Mueller Trading, Limited 758,668
13.3%
120 Madison Avenue
Lakewood, NJ
All Officers and Directors
as a Group (9 persons) 335,425
6.0%
*Less than 1%
(1) Includes shares issuable prior to November 30, 1995 upon
the exercise of options granted to the following persons:
Options or Warrants
Exercisable Name Prior to November
30,
1995
Maximilian de Clara 85,000
Geert R. Kersten
108,250
Patricia B. Prichep
4,500
M. Douglas Winship
5,000
Dr. Eyal Talor
3,167
Dr. Suzanne Beckner
2,667
Mark Soresi
12,500
F. Donald Hudson
10,500
Edwin A. Shalloway
10,500
Delton Trading SA
379,334
Mueller Trading, Limited
379,334
See "Management" for information concerning outstanding stock
options.
(2) All shares are held of record by Milford Trading, Ltd., a
corporation organized pursuant to the laws of Liberia. All of the
issued and outstanding shares of Milford Trading, Ltd. are owned
beneficially by Mr. de Clara.
(3) Amount includes shares held in trust for the benefit of Mr.
Kersten's minor children. Geert R. Kersten is the stepson of
Maximilian de Clara.
(4) Amount excludes shares which may be issued upon the exercise of
options
and warrants previously issued by the Company.
EXCHANGE OFFER
Purpose and Effects
The purpose of the Exchange Offer is to provide an incentive for the
exchange of the Company's outstanding Warrants. To the extent that
Warrants are exchanged pursuant to this Exchange Offer, the Company
will benefit from the receipt of the cash received in conjunction with
the exchange. See "Use of Proceeds." Any Warrants tendered, upon
acceptance, will be retired.
Terms
Subject to the terms and conditions set forth in the Letter of
Transmittal, the Company is making the following offer to the holders
of its outstanding Warrants:
ANY WARRANT HOLDER WHO TENDERS A PROPERLY COMPLETED LETTER OF
TRANSMITTAL, AND TEN WARRANTS AND PAYS A TOTAL OF $ IN CASH,
WILL RECEIVE ONE SHARE OF COMMON STOCK AND ONE SERIES B WARRANT.
THE COMPANY WILL ACCEPT ALL WARRANTS PROPERLY TENDERED BY THE WARRANT
HOLDERS PRIOR TO THE EXPIRATION DATE.
See "Description of Securities."
There are presently 5,175,000 Warrants outstanding. The Warrants were
issued in connection with the Company's February, 1992 public offering.
Subject to the terms and conditions as set forth herein and in the
Letter of Transmittal, the Company will accept all Warrants which are
timely and properly tendered to American Securities Transfer, Inc., as
exchange agent (the "Exchange Agent") under the terms of this Exchange
Offer prior to 6:00 p.m. Denver, Colorado Time on (the
"Expiration Date"). The Company at its sole option may extend the
Exchange Offer for an additional period of time by giving written or
oral notification of such extension to the Exchange Agent and by
causing notice of any extension of the Exchange Offer to be mailed to
all Warrant holders of record, and to be published in The New York
Times, the Wall Street Journal or any other newspaper of national
circulation selected by the Company. The Company has no present
intention to extend the Exchange Offer beyond the Expiration Date.
The Company reserves the right to withdraw, cancel, modify or terminate
this Exchange Offer at any time prior to the Expiration Date (by
written or oral notice to the Exchange Agent and by causing notice
thereof to be given to all Warrant Holders of record) if, in the
opinion of counsel for the Company, there exists any actual or
threatened legal impediment to the Exchange Offer, including any
material legal action or administrative proceeding instituted or
threatened against the Company or the Exchange Agent with respect to
the Exchange Offer. No such impediments are presently known by the
Company to exist. Upon any such termination of the Exchange Offer, the
Company will return all such Warrants and cash payments without
interest thereon or deduction therefrom, and have no further obligation
or liability with respect
to the Exchange Offer.
Should any funds of any tendering Warrant holder whose exchange has not
been accepted by the Company be left on deposit with the Exchange Agent
for any reason including, but not limited to, termination of the
Exchange Offer, the Exchange Agent will promptly refund such funds
without interest thereon or deduction therefrom.
No variation in the terms of the Exchange Offer is presently
contemplated. However, if for any reason the terms should be changed,
the revised terms will apply for all tendering Warrant holders whether
they tendered before or after such change.
Requests for additional copies of this Prospectus or the Letter of
Transmittal or assistance in completing an exchange should be made by
mail or telephone to any of the following:
EXCHANGE AGENT:
American Securities Transfer, Inc.
938 Quail St., Suite l0l
Lakewood, Colorado 802l5
Telephone: (303) 534-5300
Attention:
THE COMPANY:
CEL-SCI Corporation
66 Canal Center Plaza
Suite 510
Alexandria, Virginia 22314
Telephone: (703) 549-5293
Attention: Patricia B. Prichep
Vice President of Operations
The Warrant certificates, Letter of Transmittal and the cash payment
should NOT be sent to the Company.
If a holder of Warrants does not tender Warrants pursuant to the terms
of this Exchange Offer, such holder may exercise the Warrants in
accordance with the terms of the Warrants. Every ten Warrants entitle
the holder to purchase one (1) share of Common Stock at a price of
$46.50 at any time prior to February 7, 1996 (the "Warrant Expiration
Date").
Procedure for Exchange Offer
Except as otherwise stated below, to be properly tendered pursuant to
this Exchange Offer, the Warrant Certificates together with a properly
completed and executed Letter of Transmittal, the applicable cash
payment and any other documents required by the Letter of Transmittal
must be received by American Securities Transfer, Inc. as Exchange
Agent, 938 Quail St., Suite l0l, Lakewood, Colorado 802l5, prior to the
Expiration Date. The certificates, Letter of Transmittal and the cash
payment should not be sent to the Company. The method of delivery of the
Warrants, the cash payment and other documents forwarded to the Exchange
Agent is at the election and risk of the holder, but if such delivery is
by mail it is suggested that registered mail with return receipt
requested be used. The applicable cash payment accompanying the
Warrants must be made by check or bank draft or postal or express money
order payable in United States dollars to American Securities Transfer,
Inc. as Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of the Warrants or cash payments tendered will
be determined by the Company, which determination shall be final and
binding. The Company reserves the absolute right to reject any or all
tenders of any Warrants and cash payments not properly tendered or the
acceptance of which would, in the opinion of the Company, be unlawful.
The Company also reserves the right to waive any irregularities or
conditions of tender as to any
particular Warrants, and the Company's interpretation of the terms and
conditions of this Exchange Offer (including the instructions and Letter
of Transmittal) shall be final and binding. Any irregularities in
connection with the tenders, unless waived, must be cured within such
time as the Company shall determine, which time may be extended beyond
the Expiration
Date. Neither the Company nor the Exchange Agent shall be under any
duty to give notification of defects in such tenders or incur any
liability for failure to give such notification. Tenders of the
Warrants and cash payments received by the Exchange Agent that are not
properly tendered and as to which the irregularities have not been cured
or waived will be returned (without interest on the cash payment or
deduction therefrom) by the Exchange Agent to the appropriate Warrant
holder as soon as practicable.
Procedure for Late Delivery of Warrants or Letters of Transmittal
If the Exchange Agent receives, prior to the Expiration Date, the
applicable cash payment with respect to the number of Warrants being
tendered, together with a letter, telex or telegram from a commercial
bank or trust company in the United States, a member of the National
Association of Securities Dealers,
Inc. or a member firm of a national securities exchange stating the
number of Warrants being exchanged, the name of the exchanging holder of
the Warrants and guaranteeing that the Warrants and/or Letter of
Transmittal, as the case may be, and any other documents required in the
exchange will be received by the Exchange Agent within eight (8)
business days of the Expiration Date, such tender will be accepted
subject to the receipt by the Exchange Agent of the guaranteed items
within the specified period. The guarantee of delivery of Warrants may
also be effected by executing and delivering to the Exchange Agent prior
to the Expiration Date, the applicable cash payment and a Letter of
Transmittal with the guarantee of delivery contained therein separately
executed by
one of the aforementioned institutions.
Withdrawal Rights
Tenders of Warrants and cash payments may be withdrawn at any time
prior to the termination of the Exchange Offer and, if not yet accepted
for exchange, after (40 business days after commencement
of the Exchange Offer).
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the
Exchange Agent at its address as set forth above. Such notice of
withdrawal must set forth the name of the tendering Warrant holder, the
name of the registered holder if different from that of the Warrant
holder, the number of Warrants (and, if available, the certificate
numbers) and the amount of the cash payment to be withdrawn. All
questions as to the validity (including time of receipt) or notices of
withdrawal will be determined by the Company, whose determination shall
be final and binding. All Warrants and cash payments withdrawn in the
manner specified above will not be considered to have been duly
tendered.
Delivery of Common Stock and Series B Warrants
Upon the terms and subject to the conditions of this Exchange Offer,
delivery of the Common Stock and Series B Warrants in exchange for the
Warrants and cash payments validly tendered and accepted by the Company
will be made as soon as practicable after the Expiration Date. It is
anticipated that the certificates for the Shares of Common Stock and
Series B Warrants will be mailed within l0 business days of the
Expiration Date. All deliveries will be made through the Exchange
Agent.
Position of the Board of Directors
The Board of Directors of the Company believes the Exchange Offer is in
the best interests of the Company and that the Company will benefit
from the receipt of cash proceeds, if any, received pursuant to the
Exchange Offer. However, the Board of Directors is not making any
recommendations to the holders of the Warrants as to whether they
should exchange or refrain from exchanging any or all of their
Warrants. Each Warrant holder must make his
or her own decision as to whether to exchange all or any portion of the
Warrants owned by such person.
Federal Income Tax Consequences
For federal income tax purposes, the exchange of Warrants and cash for
the Units may be treated as the exercise of the Warrants and the
simultaneous purchase of the Units with the result that the Warrant
holders will not recognize gain or loss. However, there is no
authority directly supporting this conclusion, and the Internal Revenue
Service (the "IRS") may take other positions which, if sustained, could
result in adverse tax consequences. For example, the IRS could take
the position that the transaction represents, at least in part, a
taxable exchange of Warrants and cash for the Units. If this position
is sustained, the holder of a Warrant may recognize gain or loss. A
gain would be recognized if the fair market value of the securities
received is greater than the basis of the Warrants and cash given up.
The maximum amount of such gain should be equal to the fair market
value of the Units received. Similarly, if the fair market value of
the securities received is less than the basis of the Warrants and cash
exchanged therefor, a loss could be recognized. If the transaction is
treated simply as a purchase of the Units and not as a taxable
transaction, basis will be allocated between the Common Stock and Class
B Warrants comprising the Units in proportion to their relative fair
market values on the date of exchange.
The principles set forth above apply equally to those Warrant holders
who elect not to tender pursuant to the Exchange Offer but instead
exercise their Warrants pursuant to their original terms. The Warrant
holder's basis for the Common Stock will be equal to the sum of the
cash paid plus the basis in the Warrants increased by any income, or
decreased by any loss, which is recognized by reason of the transaction
being treated as a taxable transaction.
Generally, a corporation does not recognize gain for federal income tax
purposes upon the exercise of its warrantand a corporation does not
recognize gain or loss upon the issuance, lapse or repurchase of
options to buy or sell its stock.
The foregoing discussion, which is not based upon any legal opinion or
ruling from the Internal Revenue Service, does not necessarily deal
with all federal income tax considerations relevant to every Warrant
holder. BECAUSE THE MATTERS DISCUSSED ABOVE ARE NOT, AS A MATTER OF
FEDERAL INCOME TAX LAW, FREE FROM DOUBT, WARRANT HOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO
THEM OF EXCHANGING THEIR WARRANTS, AS WELL AS WITH RESPECT TO OTHER
FEDERAL, STATE AND LOCAL TAX CONSIDERATIONS WHICH MAY BE RELEVANT TO
THEIR SITUATIONS
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 non
assessable.
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 vot- ing power, designations, preferences, and
relative participation, special rights, and the qualifications,
limitations or restrictions of the shares of any series so established.
As the Board of Directors has authority to establish the terms of, and
to issue, the Preferred Stock without shareholder approval, the
Preferred Stock could be issued to defend against any attempted
takeover of the Company.
The Company has no plans respecting the issuance of its Preferred
Stock.
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 $46.50 per share prior to February 7, 1996. The Company, upon 30-
days notice, may accelerate the expiration date of the Warrants,
provided, however, that at the time the Company gives such notice of
acceleration (1) the Company has in effect a current registration
statement covering the shares of Common Stock issuable upon the
exercise of the Warrants and (2) at any time during the 30 day period
preceding such notice, the average closing bid price of the Company's
Common Stock has been at least 20% higher than the warrant exercise
price for 15 consecutive trading days. If the expiration date is
accelerated, all Warrants not exercised within the 30-day period will
expire.
Other provisions of the Warrants are set forth below. This information
is subject to the provisions of the Warrant Certificate representing
the Warrants.
1. Holders of the Warrants may sell the Warrants rather than
exercise them. However, there can be no assurance that a market will
develop or continue as to the Warrants.
2. Unless exercised within the time provided for exercise,
the
Warrants will automatically expire.
3. The exercise price of the Warrants may not be increased
during the term of the Warrants, but the exercise price may be
decreased at the discretion of the Company's Board of Directors by
giving each Warrant holder notice of such decrease. The exercise
period for the Warrants may be extended by the Company's Board of
Directors giving notice of such extension to each Warrant holder of
record.
4. There is no minimum number of shares which must be
purchased upon exercise of the Warrants.
5. The holders of the Warrants in certain instances are
protected against dilution of their interests represented by the
underlying shares of Common Stock upon the occurrence of stock
dividends, stock splits, reclassifications, and mergers.
6. The holders of the Warrants have no voting power and are
not entitled to dividends. In the event of a liquidation, dissolution,
or winding up of the Company, holders of the Warrants will not be
entitled to
participate in the distribution of the Company's assets.
Transfer Agent
American Securities Transfer, Inc., of Denver, Colorado, is the
transfer agent for the Company's Common Stock.
LITIGATION
The Company is not a party to any pending legal proceedings.
INDEMNIFICATION
The Company's Bylaws authorize indemnification of a director, officer,
employee or agent of the Company against expenses incurred by him in
connection with any action, suit, or proceeding to which he is named a
party by reason of his having acted or served in such capacity, except
for liabilities arising from his own misconduct or negligence in
performance of his duty. In addition, even a director, officer,
employee, or agent of the Company who was found liable for misconduct
or negligence in the performance of his duty may obtain such
indemnification
if, in view of all the circumstances in the case, a court of competent
jurisdiction determines such person is fairly and reasonably entitled
to indemnification. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers, or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is therefore unenforceable.
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 are not
necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an Exhibit to the
Registration Statement, each such statement being qualified in all
respects by such reference. Copies of each document may be inspected
at the Commission's offices at 450 Fifth Street, N.W., Washington,
D.C., 20549, and 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 60681-
2511. Copies may be obtained at the Washington, D.C. office upon
payment of the charges prescribed by the Commission.
No dealer, salesman or other person has been authorized to
give
any information or to make any representations, other than those
contained in this Prospectus. Any information or representation not
contained in this Prospectus must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the securities offered
hereby in any state or other jurisdiction to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in
the af- fairs 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 ....................................... Exchange Offer
............................................... Description of
Securities .................................... Litigation
................................................... Indemnification
..............................................
Additional Information
....................................... Financial
Statements .........................................
517,500 Shares of Common Stock
and
517,500 Series B Warrants
CEL-SCI 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 $1,608
NASD Filing Fee 966
Blue Sky Fees and Expenses 500
Printing and Engraving Expenses 5,000
Legal Fees and Expenses 25,000
Accounting Fees and Expenses 5,000
Transfer Agent Fees 1,000
Miscellaneous Expenses 10,926
TOTAL $50,000
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 9/29/95
$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 (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
Exhibits Page Number
3(a) Articles of Incorporation Incorporated by reference to
Exhibit
3(a) of the Company's combined
Regi stration Statement on Form
S1 and Post-Effective Amendment
("Registra tion Statement"),
Registration Nos. 2-85547-D and
33-7531.
(b) Amended Articles Incorporated by reference to
Exhibit
3(a) of the Company's
Registration Statement on Form S
1, Registration Nos. 2-85547-D
and 33-7531.
Amended Articles Filed as exhibit to Company's Regis
(Name change only) tration Statement on Form S-1
(No.
33-34878).
(d) Bylaws Incorporated by reference to
Exhibit 3(b) of the Company's
Registration Statement on Form S
1, Registration Nos. 2-85547-D
and 33-7531.
4(a) Specimen copy of Incorporated by reference to
Exhibit
Stock Certificate 4(a) of the Company's
Registration
Statement on Form S-1,
Registration Nos. 2-85547-D and
337531.
Form of Common Stock Incorporated by reference to
Exhibit
Purchase Warrant 4 filed as an exhibit to the
Com-
pany'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 of the Company's
Registration
May 3, 1983 Statement on Form S-1,
Registration
Nos. 2-85547-D and 33-7531.
Addendum effective May 3, Incorporated by reference to Exhibit
1983 to Licensing Agree- 10(e) of the Company's
Registration
ment with Sittona Company, Statement on Form S-1,
Registration
B.V. Nos. 2-85547-D and 33-7531.
(d) Addendum effective October Incorporated by reference to
Exhibit 13, 1989 to Licensing Agree- 10(d) of Company's
Annual Report on
ment with Sittona Company, Form 10-K for the year ended
September
B.V. 30, 1989.
10(e) Employment Agreement with Filed with Amendment Number 1
to
the
Geert Kersten Company's Registration
Statement
on
Form S-1 (Commission File
Number 3343281).
10(g) Agreement between Viral Filed with Amendment Number 2
to
the
Technologies, Inc. and Company's Registration
Statement
on
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.
99 Additional Exhibits - Letter
of Transmittal
No Financial Statement Schedules are filed with this Registration
Statement.
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) 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
post effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as such
agent for service deems appropriate, and the Registrant and each such
person hereby appoints
such agent for service as attorney-in-fact, with full power to act
alone, to execute in the name and in behalf of the Registrant and any
such person, individually and in each capacity stated below, any such
amendments to this Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of l933, the
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 24th day of October, 1995. 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 October 24, 1995
MAXIMILIAN DE CLARA Executive Officer
/s/ Geert R. Kersten Director, Principal October 24, 1995
GEERT R. KERSTEN Financial Officer
and Chief Executive
Officer
Director October 24, 1995
MARK V. SORESI
/s/ F. Donald Hudson Director October 24, 1995
F. DONALD HUDSON
/s/ Edwin A. Shalloway Director October 24, 1995
EDWIN A. SHALLOWAY
CEL-SCI Corporation
66 Canal Center Plaza
Suite 5l0
Alexandria, Virginia 22314
This letter will constitute an opinion upon the legality of the sale
by CELSCI Corporation, a Colorado corporation (the "Company") of up to
517,500 shares of Common Stock and 517,500 Common Stock Purchase
Warrants, 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 of common stock and warrants mentioned above and such shares of
Common Stock, when issued, will represent full paid and non-assessable
shares of the Company's Common Stock. It is our further opinion that
upon the exercise of the warrants in accordance with the terms of the
warrants, that the shares of Common Stock issuable upon the execise of
the warrants will have been duly authorized and will represent fully
paid and nonassessable shares of the Company's Common Stock.
Reference is made to the Registration Statement of CEL-SCI Corporation
(the "Company") whereby the Company proposes to sell up to 517,500
shares of the Company's Common Stock and up to 517,500 Common Stock
Purchase Warrants. 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.
Denver, Colorado
October 25, 1996
Very truly yours,
HART & TRINEN
By: William T. Hart
(/TEXT)
CEL-SCI CORPORATION
Financial Statements for the Years Ended September 30, 1994, 1993,
and 1992, and Independent Auditors' Report
CEL-SCI CORPORATION
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
SEPTEMBER 30, 1994, 1993, AND 1992:
Balance Sheets F-
2
Statements of Operations F-
3
Statements of Stockholders' Equity F-
4
Statements of Cash Flows F-
5
Notes to Financial Statements F-7
F-
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, 1994 and 1993, and the related
statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended September 30,
1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of CEL-SCI Corporation as of September 30, 1994 and 1993, and the
results of its operations and its cash flows for each of the
three years in the period ended September 30, 1994, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, as of October
1, 1993, the Company changed its method of accounting for income
taxes to conform with Statement of Financial Accounting Standards
No. 109. Also, 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. Deloitte & Touche llp
Washington, DC
December 5, 1994
CEL-SCI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993, AND 1992
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CEL-SCI Corporation (the Company) was incorporated on March 22,
1983 in the State of Colorado, to finance research and
development in biomedical science and ultimately to engage in
marketing products.
Significant accounting policies are as follows:
Investments Effective September 30, 1994, the Company
adopted, on a prospective basis, Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Debt
and Equity Securities" (SFAS 115) and revised its policy
for
investments. Investments that may be sold as part of the
liquidity management of the Company or for other factors
are classified as available-for-sale and are carried at
fair market value. Unrealized gains and losses on such
securities are reported as a separate component of
stockholders' equity. Realized gains and losses on sales
of securities are reported in earnings and computed using
the specific identified cost basis. The adoption of SFAS
115, which has not been applied retroactively to prior
years' financial statements, resulted in a decrease in
stockholders' equity of $85,753 for the net unrealized
losses on investments available-for-sale at September 30,
1994.
Prior to September 30, 1994, all investments available-
forsale
were carried at the lower of aggregate amortized cost or
market value.
Research and Office Equipment Research and office
equipment is recorded at cost and depreciated using the
straight-line method over five and seven years estimated
useful lives. Research and Development Costs Research and
development expenditures are expensed as incurred.
Patents Patent expenditures are capitalized and amortized
using the straight-line method over 17 years. In the
event changes in technology or other circumstances impair
the value or life of the patent, appropriate adjustment in
the asset value and period of amortization will be made.
Net Loss Per Share Net loss per common share is based on
the weighted average number of common shares outstanding
during the period. Common stock equivalents, including
options to purchase common stock, are excluded from the
calculation as they are antidilutive.
Investment in Joint Venture Investment in joint venture is
accounted for by the equity method. The Company's
proportionate share of the net loss of the joint venture
is included in the respective statements of operations.
Statement of Cash Flows For purposes of the statements of
cash flows, cash consists principally of unrestricted cash
on deposit, and short-term money market funds. The
Company considers all highly liquid investments with a
maturity of less than three months to be cash equivalents.
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
1993 and 1992 for comparative purposes.
2. INVESTMENTS
The carrying values and estimated market values of
investments available-for-sale at September 30, 1994, are
as follows:
The carrying values and estimated market values of investment
securities at September 30, 1993, are as follows:
The maturities of investments at September 30, 1994, are as
follows:
The gross realized gains and losses of sales of investments
available-for-sale for the year ended September 30, 1994, are
$154,732 and $77,958, respectively.
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1994 and 1993, consist
of the following:
4. JOINT VENTURE
In April 1986, the Company paid $200,000 cash and issued
500,000 shares of its $.001 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 I)
contributed their respective interests in the technology and
$10,000 each to capitalize a joint venture, Viral
Technologies, Inc. (VTI). VTI is wholly owned by the Company
and Alpha 1, each having a 50% ownership interest. The total
loaned or advanced to VTI by Cel Sci Corporation through
September 30, 1994, was $1,246,503.
During the three years ended September 30, 1994, VTI had no
sales. The operations of VTI were as follows:
The balance sheets of VTI at September 30, 1994 and 1993, are
summarized as follows:
On December 17, 1987, Viral Technologies, Inc., entered into
a licensing agreement with Nippon Zeon Company, Ltd., a
Japanese company. Under the agreement, Nippon Zeon will
engage in the development and testing and, if development is
successful, the marketing of the potential AIDS vaccine in
the Pacific area. As a result, Viral Technologies, Inc.,
received precommercialization payments of $850,000 during the
year ended
September 30, 1988. Additional precommercialization payments
are due upon the meeting of certain agreed-upon milestones,
during the development, clinical testing, and regulatory
process. If the product is sold in any of the licensed
countries, Viral
Technologies, Inc., will be entitled to royalties.
5. CREDIT ARRANGEMENTS
At September 30, 1994, the Company had draws against a line
of credit in the amount of $788,601. Subsequent to year-end
this amount was converted to a promissory note. The
principal is to be 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 9.5% at September 30, 1994, and is to be
paid monthly with the principal payments. The line of credit
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 line of credit, the Company is also subject to
certain minimum equity, liquidity and operating covenants.
6. COMMITMENTS AND CONTINGENCIES
An officer and director of the Company has been 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 30,000 shares of the Company's common
stock to one plaintiff, and paying this plaintiff $200,000.
In the other matter, a European Court awarded a different
plaintiff 250,000 shares of the Company's common stock owned
by the officer and director. In October 1993, the Company
issued 250,000 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.
During 1992, the Company reimbursed the officer and director
for legal fees of approximately $60,000, incurred in
connection with the two legal proceedings.
During 1992, the Company decided to terminate its clinical
and pre-clinical studies arrangement with the University of
South Florida and accrued and expensed costs to terminate of
$200,000. During 1993, the termination was completed at an
actual cost of $200,700.
7. RELATED-PARTY TRANSACTIONS
The technology and know-how licensed to the Company was
developed by a group of researchers under the direction of
Dr. Hans-Ake Fabricius and was assigned during 1980 and 1981
to Hooper Trading Company, N.V., a Netherlands Antilles
corporation (Hooper) and Shanksville Corporation, also a
Netherlands Antilles corporation (Shanksville). Maximillian
de Clara, an officer and director in the Company, and Dr.
Fabricius own 50% and 30%, respectively, of each of these
companies. The technology and know-how assigned to Hooper
and Shanksville was licensed to Sittona Company, B.V., a
Netherlands corporation (Sittona), effective September, 1982
pursuant to a licensing agreement which requires Sittona to
pay to Hooper and Shanksville royalties on income received by
Sittona respecting the technology and know-how licensed to
Sittona. In 1983,
Sittona licensed this technology to the Company. At such
time as the Company generates revenues from the sale or
sublicense of this technology, the Company will be required
to pay royalties to Sittona equal to 10% of net sales and 15%
of licensing royalties received from third parties. In that
event, Sittona, pursuant to its licensing agreements with
Hooper and Shanksville, will be required to pay to those
companies a minimum of 10% of any royalty payments received
from the Company.
In 1985 Mr. de Clara acquired 100% of the issued and
outstanding stock of Sittona. Mr. de Clara and Dr.
Fabricius, because of their ownership interests in Hooper and
Shanksville, could receive approximately 50% and 30%
respectively, of any royalties paid by Sittona to Hooper and
Shanksville, and Mr. de Clara, through his interest in all
three companies (Hooper, Shanksville, and Sittona), will
receive up to 95% of any royalties paid by the Company.
During 1992, the Company reimbursed an officer and director for
legal fees incurred in connection with certain legal
proceedings as discussed in Note 6. In addition, during 1992
the Company paid the officer and director $200,000
representing the amount which he paid in connection with one
of the legal proceedings discussed in Note 6, and, in 1993,
issued 30,000 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 30,000 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, 1994, is as
follows:
The Company has available for income tax purposes net
operating loss carryforwards of approximately $20,219,000,
expiring from 1998 through 2006.
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
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 2,000,000 shares of the
Company's previously unissued common stock to be granted as
incentive stock options to employees. The 1987 Plan reserved
500,000 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
1992, 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, 1992, the shareholders of the Company approved
the adoption of three new plans, the 1992 Incentive Stock Option
Plan (1992 Incentive Plan), the 1992 Non-Qualified Stock Option
Plan (1992 Non-Qualified Plan) and the Stock Bonus Plan (1992
Bonus Plan). Shares are reserved under each plan and total
1,000,000, 600,000 and 400,000 shares, respectively. Only
employees of the Company are eligible to receive options
under the Incentive Plan, while the Company's employees,
directors, officers, and consultants or advisors are eligible
to be granted options under the Non-Qualified Plan or issued
shares under the Bonus Plan. Terms of the options are to be
determined by the Company's Compensation Committee which will
administer all of the plans, but in no event are options to
be granted for shares at a price below fair market value at
date of grant. Options granted under the option plans must
be granted, or shares issued under the bonus plan, issued,
before August 20, 2002.
On July 29, 1994, the Board of Directors approved the
adoption of two new plans, subject to shareholder approval,
the 1994 Incentive Stock Option Plan (1994 Incentive Plan)
and the 1994 Non-Qualified Stock Option Plan (1994 Non-
Qualified). Shares are reserved under each plan and total
1,000,000 shares for each plan. Only employees of the
Company are eligible to receive
options under the 1994 Incentive Plan, while the Company's
employees, directors, officers, and consultants or advisors
are eligible to be granted options under the 1994 Non-
Qualified Plan. Terms of the options are to be determined by
the Company's Compensation Committee, which will administer
all of the plans, but in no event are options to be granted
for shares at a price below fair market value at date of
grant. Options granted under the option plans must be
granted, or shares issued under the bonus plan issued before
July 29, 2004.
Information regarding the Company's stock option plan is
summarized as follows:
During 1991, the Company granted a consultant an option to
purchase 500,000 shares of the Company's common stock. The
option is exercisable at $1.38 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 60,000 shares of the Company's common
stock. Options to purchase 6,667 shares expired in April
1992. Options to purchase 13,333 shares at $0.25 per share
were exercised in April 1993. At September 30, 1994, options
to purchase 40,000 shares were outstanding and exercisable at
prices ranging from $.25 to $1.50 per share.
In connection with the 1992 public offering discussed in Note
11, 5,175,000 common stock purchase warrants were issued and
are outstanding at September 30, 1994. Each warrant entitles
the holder to purchase one share of common stock at a price
of $4.65 per share. Subsequent to September 30, 1994, 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 90,000 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, 1994 and are exercisable through
February 8, 1997, at a price of $25.57 per unit. The common
stock warrants included in the units are exercisable at a
price of $7.67 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
contribution is equal to 50% of each employee's contribution
to a maximum of 6% of the participant's salary. The expense
for the year ended September 30, 1994 and 1993 in connection
with this plan was approximately $16,160 and $7,700,
respectively.
11.LEASE COMMITMENTS
Operating Leases The future minimum annual rental payments
due under noncancelable operating leases for office and
laboratory space are as follows:
Rent expense for the year ended September 30, 1994, 1993, and
1992, was approximately $122,369, $55,000, and $32,000,
respectively.
12.STOCKHOLDERS' EQUITY
During 1994, the Company granted 15,000 shares of common
stock to an officer as a bonus award. The Company also
issued 250,000 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 73,333 shares
of common stock.
During 1992, the Company issued common stock to investors for
cash pursuant to a public offering. Net proceeds of
$13,852,780 were received for 5,175,000 shares of common
stock. In September 1991, the Company received subscriptions
for 1,275,000 shares of its common stock from eleven persons
for $1.00 per share or a total of $1,275,000. Cash of
$250,000 was received in September 1991 and the remainder in
October 1991. Commissions payable of $161,250 at September
30, 1991, relative to the offering were paid in October 1991
by the issuance of 161,250 shares of stock.
CEL-SCI CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1995 AND 1994 (unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance
with rules established by the Securities and Exchange Commission for
interim
financial statements. 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 the
years ended September 30, 1994 and 1993 which are 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, 1995
and the results of operations for the ninemonth periods ended June 30,
1995 and 1994 have been made.
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 availablefor-sale and are carried at fair market value.
Unrealized gains
and losses on such securities are reported as a separate component of
stockholders' equity. Realized gains and losses on sales of
securities are reported in earnings and computed using the specific
identified cost basis. The adoption of SFAS 115, which has not been
applied retroactively to prior years' financial statements, resulted
in a decrease in stockholders' equity of $85,753 for the net
unrealized losses on investments available-for-sale at September 30,
1994. This unrealized loss declined to -0at June 30, 1995, as all
investments in bonds were sold prior to such date.
CEL-SCI CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1995 AND 1994
(unaudited)
(continued)
Loss per Share
Net loss per common share is based on the weighted average number of
common shares outstanding during the period. Common stock
equivalents, including options to purchase common stock, are excluded
from the calculation as they are antidilutive.
Long-lived Assets
Statement of Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of" is effective for financial statements for fiscal years
beginning after December 15, 1995. It is the Company's opinion that
the adoption of the statement would have no material effect on its
Financial Statements.
B. JOINT VENTURE LICENSING AGREEMENT
The operations of VTI for the nine months ended June 30, 1995 and
1994 are summarized as follows:
1995 1994
Income $ 0 $ 0
Expenses $ 794,446 $
670,834
NET LOSS $ (794,446) $
(670,834)
The balance sheets of VTI at June 30, 1995 and September
30,
1994 are summarized as follows:
June 30 September 30
Current Assets $ 27,889 $ 24,403
Non-current Assets $ 151,183 $ 87,822
Current Liabilities $ 4,054,438 $ 3,197,143
Equity (deficit net of
initial capitalization) $(3,875,366) $(3,084,918)
CEL-SCI CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1995 AND 1994
(unaudited) (continued)
C. CONSTRUCTION OF NEW LABORATORY AND FUNDING
On January 31, 1994, the Company entered into a leasing
agreement with a non-affiliated landlord for 7,800 square
feet of space at 4820 Seton Drive, Baltimore, Maryland. In
the spring of 1994 the Company commenced construction of the new
laboratory at the leased space. 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,
1995 is $872,107.
The Company's note payable is to be repaid over forty-eight
consecutive months beginning February 5, 1995. Interest on
the outstanding balance is to be paid monthly with the
principal payments. The note is secured by all corporate
assets and requires the Company to maintain a certificate of
deposit with the bank equal to 20% of the outstanding
principal balance of the note. Under the terms of the loan
agreement, the Company is also subject to certain minimum
equity, liquidity and operating covenants. The Company may
not pay any dividends without the consent of the bank.
D. SUBSEQUENT EVENTS
On May 1, 1995 the Company's stock underwent a 1-for-10
reverse stock split. This split was approved by a majority
of the shareholders at the April 28, 1995 Annual Meeting of
Shareholders.
In June 1995 the Company sold 575,000 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 the Company's Common Stock for $3.25
per share at any time prior to June 30, 1997.
CEL-SCI CORPORATION
CONDENSED STATEMENTS OF CASH FLOW
(unaudited)
Nine Months
Ended June
30, 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(2,966,006)
$(3,160,237)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 201,197
76,494
Equity in loss of joint venture 395,224
335,416
Amortization of premium on investments 60,954 0
Realized loss on sale of investments 13,422 0
Changes in assets and liabilities:
Decrease (increase) in inventory ( 207,397)
Decrease (increase) in interest receivable ( 341,206)
40,204
Decrease (increase) in prepaid expenses ( 18,456) (
7,984)
Decrease (increase) in advances 10,463 0
Increase (decrease) in payable to
officer and shareholder 0 (
38,228)
Decrease (increase) in receivable from
joint venture ( 123,952) 0
Increase (decrease) in accrued expenses 0 (
22,500)
Increase (decrease) in accounts payable ( 203,594)
76,975
NET CASH USED IN OPERATING ACTIVITIES (3,179,351)
(2,899,860)
CASH FLOWS PROVIDED BY (USED IN) INVESTING
ACTIVITY:
Purchases of investments ( 400,000)
(650,000)
Sales of investments 2,906,132
4,344,117
Advance to Joint Venture ( 287,952)
(250,000)
Laboratory construction ( 10,135)
(326,896)
Purchase of research and office equipment ( 128,750) (
37,794)
NET CASH USED IN INVESTING ACTIVITIES: 2,079,295
3,079,427
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Issuance of note payable 205,195
0
Payment on note ( 121,689)
0
Issuance of common stock 990,890
241,889
NET CASH PROVIDED BY FINANCING ACTIVITIES: 1,074,396
241,889
NET INCREASE IN CASH ( 25,660)
421,456
CASH AND CASH EQUIVALENTS:
Beginning of period 3,370,713
2,156,179
End of period $ 3,345,053 $
2,577,635
See notes to condensed financial statements.
CEL-SCI CORPORATION CONDENSED BALANCE
SHEETS ASSETS
(unaudited)
June 30,
September 30, 1995
1994
CURRENT ASSETS:
Cash and cash equivalents $3,345,053
$3,370,713
Investments, net 200,000
2,694,756
Inventory 207,397
0
Accounts receivable 457,939
116,733
Prepaid expenses 100,062
81,606
Advances to officer/employees 6,918
17,381
4,317,369
6,281,189 INTEREST RECEIVABLE FROM JOINT VENTURE
475,156 351,204
RESEARCH AND OFFICE EQUIPMENT -
Less accumulated depreciation of
$535,448 and $355,430 1,144,366
1,185,499
PATENT COSTS less accumulated
amortization of $232,431
and $211,253 247,601
268,778
$6,184,492
$8,086,670
See notes to condensed financial statements.
CEL-SCI CORPORATION CONDENSED BALANCE
SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
(unaudited)
June 30,
September 30,
1995 1994
CURRENT LIABILITIES:
Accounts payable $ 120,585 $324,179
Current portion note payable 147,861 147,861
Total current liabilities 268,446 472,040
NOTE PAYABLE 724,246
640,740
DEFERRED RENT 17,598
17,598
EQUITY IN SUBSIDIARY 384,496
277,224
Total Liabilities 1,394,786
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,
4,763,244 and 4,188,244 shares 47,632
41,882
Additional paid-in capital 27,839,988
26,854,848
Net unrealized loss on marketable
equity securities 0 (
85,753)
Deficit (23,097,914)
(20,131,909)
TOTAL STOCKHOLDERS' EQUITY 4,789,706
6,679,068
$ 6,184,492 $
8,086,670
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months
Ended June
30,
1995
1994 REVENUES:
Gross Sales $ 39,588 $
0
Interest Income 273,417
629,034
Other 0
0
TOTAL INCOME 313,005
629,034
EXPENSES:
Research and Development 1,378,005
2,192,645
Depreciation and
Amortization 201,197
76,494
General and Administrative 1,304,585
1,184,716
TOTAL OPERATING EXPENSES 2,883,787
3,453,855
EQUITY IN LOSS OF JOINT VENTURE (395,224)
(335,416)
3,279,011
3,789,271
NET LOSS $2,966,006
$3,160,247
LOSS PER COMMON SHARE $0.70
$0.75
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,194,563
4,184,634
See notes to condensed financial statements.
