As filed with the Securities and Exchange Commission on ,
1996.
Registration No. 333-09123
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM S-l
Registration Statement
Under
THE SECURITIES ACT OF 1933
CEL-SCI Corporation
(Exact name of registrant as specified in charter)
Colorado
283l
(State or other (Primary Standard Classi-
jurisdiction of fication Code Number)
incorporation)
66 Canal Center Plaza, Suite 510 Alexandria, Virginia
223l4
84-09l6344 (703) 549-5293
(IRS Employer (Address, including zip code, and
I.D. Number) telephone number including area of
principal executive offices)
Geert Kersten
66 Canal Center Plaza, Suite 510
Alexandria, Virginia 223l4
(703) 549-5293
(Name and address, including zip code, and telephone
number, including area code, of agent for
service)
Copies of all communications, including all communications
sent to the agent for service, should be sent to:
William T. Hart, Esq.
Hart & Trinen
1624 Washington
Street
Denver, Colorado
80203 (303)
8390061
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE
PUBLIC: As soon as practicable after the effective date
of this Registration Statement
Page 1 of Pages Exhibit
Index Begins on Page
CALCULATION OF REGISTRATION FEE
Title of each Proposed
Proposed
Class of Maximum
Maximum
Securities Securities Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Unit (1) Price Fee
Common Stock (2) 210,000 $8.00 $1,680,000 $580
Total $1,680,000 $580
(1) Offering price computed in accordance with Rule 457(c).
(2) Up to 115,000 shares of Common Stock are offered by the holders
of certain Sales Agent Warrants as a result of the exercise of
these warrants. The Sales Agent's Warrants were issued in
connection with the Company's September 1995 offering of 517,500
shares of Common Stock and 517,500 Common Stock Purchase
Warrants.
An additional 45,000 shares of common stock are offered by the
owner of certain technology which acquired these shares in
consideration for the transfer of this technology to the Company.
An additional 50,000 shares of Common Stock are offered by the
holder of an option granted by the Company.
The registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
l933 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a),
may determine.
CEL-SCI CORPORATION
CROSS REFERENCE SHEET
Item in Form S-l Location in
Prospectus
Item 1 Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus .............................. Facing Page;
Outside Front
Cover Page
Item 2 Inside Front and Outside Back Cover
Pages of Prospectus ..................... Inside Front
Cover Page;
Outside Back
Cover Page Item 3 Summary Information, Risk Factors and
Ratio of Earnings to Fixed Changes ...... Prospectus
Summary; Risk
Factors
Item 4 Use of Proceeds ......................... Not Applicable.
Item 5 Determination of Offering Price ......... Selling
Shareholders
Item 6 Dilution ................................ Dilution
Item 7 Selling Security Holders ................ Selling
Shareholders
Item 8 Plan of Distribution .................... Selling
Shareholders
Item 9 Description of Securities to be
Registered .............................. Description of
Securities
Item l0 Interest of Named Experts and Counsel ... Experts
Item 11 Information with Respect to the
Registrant
(a) Description of Business ................. Business
(b) Description of Property ................. Business
(c) Legal Proceedings ....................... Legal 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
PROSPECTUS CEL-SCI CORPORATION
160,000 Shares of Common Stock
This Prospectus relates to (i) the sale of up to 115,000 shares of
common stock issued as a result of the exercise of certain Sales Agent
Warrants, (ii) the sale of 45,000 shares of common stock originally
issued to Nippon Zeon Co., Ltd. ("Nippon Zeon") in exchange for the
cancellation of certain royalties payable by the Company to Nippon
Zeon and (iii) 50,000 shares of common stock offered by the holder of
an option granted by the Company.
The Sales Agent's Warrants were issued in connection with the
Company's June and September 1995 offerings of 1,150,000 shares of
Common Stock and 1,150,000 Common Stock Purchase Warrants. The option
was issued by the Company to a public relations consultant in
consideration for services provided to the Company. The option is
exercisable at a price of $3.25 per share.
The holders of the Sales Agent's Warrants and the option, to
the extent they exercise the Sales Agent's Warrants and the option and
receive shares of Common Stock, as well as Nippon Zeon, are sometimes
referred to in this Prospectus as the "Selling Shareholders". The
Selling Shareholders may resell the shares they acquire by means of
this Prospectus from time to time in the public market. The Company
will not receive any proceeds from the resale of the shares by the
Selling Shareholders. The Selling Shareholders have advised the
Company that they will offer the shares through broker/dealers at
market prices with customary commissions being paid by the Selling
Shareholders. The costs of registering the shares offered by the
Selling Shareholders are being paid by the Company. The Selling
Shareholders will pay all other costs of the sale of the shares
offered by them. See "Dilution and Comparative Share Data" and
"Selling Shareholders".
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR
ENTIRE INVESTMENT. FOR A DESCRIPTION OF CERTAIN IMPORTANT FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS"
BEGINNING ON PAGE 12 OF THIS PROSPECTUS AND "DILUTION". THESE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
On , 1996 the closing prices of the Company's Common
Stock and Warrants on the NASDAQ National Market System were $
and $ , respectively. See "Market Information".
The Date of this Prospectus is , 1996
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of l934 and in accordance therewith is
required to file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Copies of
any such reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facility
maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. and at the Commission's Regional offices in New York
(7 World Trade Center, Suite 1300, New York, New York 10048) and
Chicago (Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511). Copies of such material can be
obtained from the Public Reference Section of the Commission at its
office in Washington, D.C. 20549 at prescribed rates. The Company has
filed with the Commission a Registration Statement on Form S-1
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"),
with respect to the Units offered hereby. This Prospectus does not
contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. For further information,
reference is made to the Registration Statement.
PROSPECTUS SUMMARY
THIS SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND
FINANCIAL STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS.
The Company
CEL-SCI Corporation (the "Company") was formed as a
Colorado corporation in 1983. The Company is involved in the
research and development of certain drugs and vaccines. The
Company's first product, MULTIKINETM, manufactured using the
Company's proprietary cell culture technologies, is a
combination, or "cocktail", of natural human interleukin-2 ("IL-
2") and certain lymphokines and cytokines. MULTIKINE is being
tested to determine if it is effective in improving the immune
response of advanced cancer pantients. The Company's second
product, HGP-30, is being tested to determine if it is an
effective treatment/ vaccine against the AIDS virus. In
addition, the Company recently acquired a new patented T-cell
Modulation Process which uses "heteroconjugates" to direct the
body to chose a specific immune response. The Company intends
to use this new technology to improve the cellular immune
response of persons vaccinated with HGP-30 and to develop a
potential tuberculosis ("TB") treatment/vaccine.
Before human testing can begin with respect to a drug
or biological product, preclinical studies are conducted in
laboratory animals to evaluate the potential efficacy and the
safety of a product. Human clinical studies generally involve a
three-phase process. The initial clinical evaluation, Phase I,
consists of administering the product and testing for safe and
tolerable dosage levels. Phase II trials continue the
evaluation of immunogenicity and determine the appropriate
dosage for the product, identify possible side effects and risks
in a larger group of subjects, and provide preliminary
indications of efficacy. Phase III trials consist of testing
for actual clinical efficacy for safety within an expanded group
of patients at geographically dispersed test sites. See
"Business Government Regulation" for a more detailed description
of the foregoing.
Between 1983 and 1986 the Company was primarily involved in
funding pre-clinical and Phase I clinical trials of MULTIKINE. These
trials were conducted at St. Thomas's Hospital Medical School in
London, England pursuant to authority granted by England's Department
of Health and Social Security. In July, 1991 physicians at a southern
Florida medical institution began human clinical trials using
MULTIKINE. The focus of these trials was the treatment of metastatic
malignant melanoma and unresectable head and neck cancer using
MULTIKINE. The clinical trials in Florida were conducted pursuant to
approvals obtained by the medical institution from the Florida
Department of Health and Rehabilitative Services.
In March 1995, the Canadian Health Protection Branch, Health
and Welfare Ministry gave clearance to the Company to start a phase
I/II cancer study using Multikine. The study, which will enroll up
to 30 head and neck cancer patients who have failed conventional
treatments, will be conducted at several sites in the United States
and Canada and is designed to evaluate safety, tumor responses and
immune responses in patients treated with multiple courses of
Multikine. The length of time that each patient will remain on the
investigational treatment will depend on the patient's response to
treatment. In May l995, the U.S. Food and Drug Administration (FDA)
authorized the export of the Company's Multikine drug to Canada for
purposes of this study.
In February 1996 the FDA authorized the Company to conduct
two human clinical studies using MULTIKINE and focusing on prostate
and head and neck cancer. The prostate study is being conducted at
Jefferson Hospital in Philadelphia, Pennsylvania and will involve up
to 15 prostate cancer patients who have failed on hormonal therapy.
The head and neck cancer study will involve up to 30 cancer patients
who have failed using conventional therapies. The head and neck
cancer study in the U.S. is being conducted in conjunction with the
Company's Canadian head and neck cancer study.
In October 1995 Viral Technologies, Inc. ("VTI") became a
whollyowned subsidiary of the Company. VTI is engaged in the
development of a possible treatment/vaccine for AIDS. VTI's
technology may also have
application in the treatment of AIDS-infected individuals and the
diagnosis of AIDS. VTI's
AIDS treatment/vaccine, HGP-30, has completed certain Phase I human
clinical trials. In the Phase I trials, the vaccine was administered
to volunteers who were not infected with the HIV virus in an effort
to determine safe and tolerable dosage levels.
Product licensure in a foreign country or under state
authority does not mean that the product will be licensed by the FDA
and there are no assurances that the Company or VTI will receive any
approval of the FDA or any other governmental entity for the
manufacturing and/or marketing of a product. Consequently, the
commencement of the manufacturing and marketing by the Company or VTI
of any product is, in all likelihood, many years away. See
"Business".
The lack of government approval for the Company's or VTI's
products will prevent the Company and VTI from generally marketing
their products. Delays in obtaining government approval or the
failure to obtain government approval may have a material adverse
impact upon the Company's operations.
All of the Company's products are in the early stages of
development. The Company does not expect to develop commercial
products for several years, if at all. The Company has had operating
losses since its inception, has an accumulated deficit of
approximately $27,014,000 at March 31, 1996, and expects to incur
substantial losses for the foreseeable future.
The Company's executive offices are located at 66 Canal
Center Plaza, Suite 510, Alexandria, Virginia 22314, and its
telephone number is (703) 5495293.
THE OFFERING
Securities Offered: This Prospectus relates
to (i) the sale of up to 15,000 shares of
common stock issued as a result of the
exercise of certain Sales Agent Warrants,
(ii) the sale of 45,000 shares of common
stock originally issued to Nippon Zeon Co.,
Ltd. ("Nippon Zeon") in exchange for the
cancellation of certain royalties payable by
the Company to Nippon Zeon and (iii) 50,000
shares of common stock offered by the holder
of an option granted by the Company. The
Sales Agent's Warrants were issued in
connection with the Company's June and
September 1995 offerings of 1,150,000 shares
of Common Stock and 1,150,000 Common Stock
Purchase Warrants. The holders of the Sales
Agent's Warrant and the option, to the extent
they exercise the Warrants, as well as Nippon
Zeon, may sell the shares of Common Stock
they receive upon exercise from time to time
in the public market. The holders of the
Sales Agent's Warrant, the holder of the
option and Nippon Zeon are sometimes referred
to in this Prospectus as the "Selling
Shareholders". The Company will not receive
any proceeds from the sale of the shares
offered by the Selling Shareholders. See
"Selling Shareholders".
Common Stock Outstand-
ing Prior To and After
Offering: As of the date of this Prospectus,
the Company had 7,131,902 shares of Common
Stock issued and outstanding. Assuming all
Warrants and options to which this Prospectus
relates are exercised, there will be
7,341,902 shares of Common Stock issued and
outstanding. The number of outstanding
shares before and after this Offering does
not give effect to shares which may be issued
upon the exercise and/or conversion of
options, warrants or other convertible
securities previously issued by the Company.
See "Dilution and Comparative Share Data",
"Selling Shareholders" and "Description of
Securities".
Risk Factors: The purchase of the Securities offered by
this Prospectus involves a high degree of risk. Risk
factors include the following: lack of revenues and
history of loss, need for additional capital,
government regulation, \need for FDA approval, and
dilution. See "Risk Factors."
NASDAQ Symbols: Common Stock: CELI
Warrants: CELIW
Summary Financial Data
For the Years Ended September 30,
1995 1994 1993 1992 1991
Investment Income &
Other Revenues $423,765 $624,670 $997,964 $434,180 $35,972
Expenses:
Research and
Development 1,824,661 2,896,l09 1,307,042 481,697 108,771
Depreciation
and
Amortization 262,705 138,755 55,372 33,536 32,582
General and
Adminis-
trative 1,713,912 1,621,990 1,696,119 1,309,475 795,015
Equity in loss
of joint
venture 501,125 394,692 344,423 260,388 290,166
Net
Loss $(3,878,638)$(4,426,876)$(2,404,992)$(1,650,916)$(1,190,562)
Loss per
common share $(0.89) $(1.06) $(0.58) $(0.42) $(0.35)
Weighted average
common shares
outstanding 4,342,628 4,185,240 4,155,431 3,953,233 3,400,546
Nine Months Ended June 30,
1996 1995
Investment Income & Other Revenues $ 188,256 $ 313,005
Expenses:
Research and Development 2,350,600 1,383,978
Depreciation and Amortization 208,912 201,197
General and Administrative 2,113,884 1,268,677
Equity in loss of joint venture 3,772 395,224Net
Loss $(4,488,912) $(3,249,076)
Loss per common share $(0.74) $(0.70)
Weighted average common shares
outstanding 6,086,492 4,194,563
Balance Sheet Data:
September 30,
1995 1994 1993 1992 1991
Working Capital $3,983,699 $5,795,191 $10,296,472 $13,043,012$ 682,831
Total Assets 6,359,011 8,086,670 11,633,090 13,769,504 1,611,899
Total
Liabilities 1,516,978 1,407,602 688,231 467,086 672,595
Shareholders'
Equity 4,842,033 6,679,068 10,944,859 13,302,4l8 939,304
June 30,
1996
Working Capital $6,979,975
Total Assets $8,723,934
Total Liabilities $1,191,000
Shareholders' Equity $7,532,934
No dividends have been declared by the Company since its inception.
GLOSSARY OF TECHNICAL TERMS
AIDS. Acquired Immune Deficiency Syndrome. A severe
viral
disease of the immune system leading to other
lethal infections and malignancies.
Amino acids. Building blocks of proteins.
Antibody. A protein produced by certain white blood cells in
humans
and animals in response to a substance seen as non-
self, that is a foreign antigen (such as a virus
or bacteria). An antibody binds specifically to a
single antigen.
Antigen. Any substance seen as foreign by the immune system
and
which triggers an antibody or cell-mediated
response from the body's immune system.
B-Cells. A type of lymphocyte which produces antibodies in
response
to antigens.
Cytokines. Peptides which regulate the functions and/or
growth of
other cells. Lymphokines are a type of cytokine.
HIV. Human Immunodeficiency Virus. The virus
responsible for
AIDS and related diseases.
Lymphocytes. A type of white blood cells divided into two
classes,
B-cells and T-cells.
Lymphyokine. A specific group of hormones which regulate and
modify the various functions of both T-cells and B-cells.
There are many lymphokines, each of which is thought to
have distinctive chemical and functional
properties. IL-2 is but one of these lymphokines.
Macrophage. A cell found in the body that has the ability to
kill
viruses, bacteria, fungi and cancer cells, often
by engulfing the targeted organism or cell.
Peptide. Two or more amino acids joined by a linkage called
a
peptide bond.
Proteins. A molecule composed of amino acids. There are
many types
of proteins, all carrying out a number of
different functions essential for cell growth.
T-Cells. A type of lymphocyte which will amplify or
suppress
antibody formation by B-cells, and can also
directly destroy "foreign" cells by activating
"killer cells".
Virus. A submicroscopic organism that contains
genetic
information
but cannot reproduce itself. To replicate,
it must invade another cell and use parts of
that cell's reproductive machinery.
RISK FACTORS
An investment in the Company's Securities involves a high
degree of risk. Prospective investors are advised that they may lose
all or part of their investment. Prospective investors should
carefully review the following risk factors.
Lack of Revenues and History of Loss. The Company has had
only limited revenues since it was formed in 1983. Since the date of
its formation and through June 30, 1996, the Company has incurred net
losses of approximately $28,500,000. During the years ended
September 30, 1993, 1994 and 1995 the Company suffered losses of
$2,404,992, $4,426,876 and $3,878,638 respectively. The Company has
relied principally upon the proceeds of public and private sales of
securities to finance its activities to date. See "Management's
Discussion and Analysis". All of the Company's potential products
are in the early stages of development, and any commercial sale of
these products will be many years away. Accordingly, the Company
expects to incur substantial losses for the foreseeable future.
Need for Additional Capital. Clinical and other studies
necessary to obtain approval of a new drug can be time consuming and
costly, especially in the United States, but also in foreign
countries. The different steps necessary to obtain regulatory
approval, especially that of the Food and Drug Administration
("FDA"), involve significant costs. The Company expects that it will
need additional financing in order to fund the costs of future
clinical trials, related research, and general and administrative
expenses. The Company may be forced to delay or postpone development
and research expenditures if the Company is unable to secure adequate
sources of funds. These delays in development may have an adverse
effect on the Company's ability to produce a timely and competitive
product. There can be no assurance that the Company will be able to
obtain additional funding from other sources. See "Management's
Discussion and Analysis".
Viral Technologies, Inc. ("VTI"), a wholly-owned subsididary
of the Company, is dependent upon funding from the Company for its
operations and research programs. See "Business Viral Technologies,
Inc.".
Cost Estimates. The Company's estimates of the costs
associated with future clinical trials and research may be
substantially lower than the actual costs of these activities. If
the Company's cost estimates are incorrect, the Company will need
additional funding for its research efforts. See "Management's
Discussion and Analysis".
Government Regulation - FDA Approval. Products which may be
developed by the Company or Viral Technologies, Inc. (or which may be
developed by affiliates or licensees) will require regulatory
approvals prior to sale. In particular, therapeutic agents and
diagnostic products are subject to approval, prior to general
marketing, by the FDA in the United States and by comparable agencies
in most foreign countries. The process of obtaining FDA and
corresponding foreign approvals is costly and time consuming,
particularly for pharmaceutical products such as those which might
ultimately be developed by the Company, Viral Technologies, Inc. or
its licensees, and there can be no assurance that such approvals will
be granted. Any failure to obtain or any delay in obtaining such
approvals may adversely affect the ability of potential licensees or
the Company to successfully market any products developed. Also, the
extent of adverse government regulations which might arise from
future legislative or administrative action cannot be predicted. The
clinical trial which the Company's affiliate, Viral Technologies,
Inc., is conducting in California is regulated by government agencies
in California and obtaining approvals from states for
clinical trials is likewise expensive and time consuming. See
"Business Government Regulation."
Dependence on Others to Manufacture Product. The Company
has an agreement with an unrelated corporation for the production,
until 1997, of MULTIKINE for research and testing purposes. At
present, this is the Company's only source of MULTIKINE. If this
corporation could not, for any reason, supply the Company with
MULTIKINE, the Company estimates that it would take approximately six
to ten months to obtain supplies of MULTIKINE under an alternative
manufacturing arrangement. The Company does not know what cost it
would incur to obtain this alternative source of supply.
Licensed Technology - Potential Conflicts of Interest. The
Company's clinical studies and research have been focused on
compounds, compositions and processes which were licensed to the
Company by Sittona Company, B.V. ("Sittona") in 1983. Maximilian de
Clara, the Company's president and a director, acquired control of
Sittona in 1985. Any commercial products developed by the Company
and based upon the technology licensed by Sittona will belong to
Sittona, subject to the Company's right to manufacture and sell such
products in accordance with the terms of the licensing agreement.
The Company's license remains in effect until the expiration or
abandonment of all patent rights or until the compounds, compositions
and processes subject to the license enter into the public domain,
whichever is later. The license may be terminated earlier for other
reasons, including the insolvency of the Company. Accordingly, a
conflict of interest may arise between the Company and Mr. de Clara
concerning the Company's continued rights to the licensed technology.
Any future transactions between the Company and Sittona will be
subject to the review and approval by a majority of the Company's
disinterested directors. See "Business Compounds and Processes
Licensed to the Company", and "Management Transactions with Related
Parties".
Technological Change. The biomedical field in which the
Company is involved is undergoing rapid and significant technological
change. The successful development of therapeutic agents and
diagnostic products from the compounds, compositions and processes
licensed to the Company, through Company financed research or as a
result of possible licensing arrangements with
pharmaceutical or other companies, will depend on its ability to be
in the technological forefront of this field. There can be no
assurance that the Company will achieve or maintain such a
competitive position or that other technological developments will
not cause the Company's proprietary technologies to become
uneconomical or obsolete.
Patents. Since 1983 the Company, on behalf of the owners of
the compounds, compositions and processes licensed to the Company,
has filed applications for United States and foreign patents covering
certain aspects of the technology. Although the Company has paid the
costs of applying for and obtaining patents, the technology covered
by the patents is not owned by the Company, but by an affiliated
party which has licensed the technology to the Company. As of the
date of this Prospectus nine patents have been issued in the United
States and three patents have been issued in Europe. There is no
assurance that the applications still pending or which may be filed
in the future will result in the issuance of any patents.
Furthermore, there is no assurance as to the breadth and degree of
protection any issued patents might afford the owners of the patents
and the Company. Disputes may arise between the owners of the
patents or the Company and others as to the scope, validity and
ownership rights of these or other patents. Any defense of the
patents could prove costly and time consuming and there can be no
assurance that the Company or the owners of the patents will be in a
position, or will deem it advisable, to carry on such a defense.
Other private and public concerns, including universities, may have
filed applications for, or may have been issued, patents and are
expected to obtain additional patents and other proprietary rights to
technology potentially useful or necessary to the Company. The scope
and validity of such patents, if any, the extent to which the Company
or the owners of the patents may wish or need to acquire the
rights to such patents, and the cost and availability of such rights
are presently unknown. Also, as far as the Company relies upon
unpatented proprietary technology, there is no assurance that others
may not acquire or independently develop the same or similar
technology. The first patent licensed to the Company will expire in
the year 2000. Since the Company's Investigational New Drug
application relating to MULTIKINE has only recently been cleared by
the FDA, and since the Company does not know if it will ever be able
to sell Multikine on a commercial basis, the Company cannot predict
what effect the expiration of this patent will have on the Company.
Notwithstanding the above, the Company believes that later issued
patents will protect the technology associated with Multikine past
the year 2000. See "Business Compounds and Processes Licensed
to the Company".
Product Liability Insurance. Although the Company has product
liability insurance for MULTIKINE and its HGP-30 vaccine, the
successful prosecution of a product liability case against the
Company could have a materially adverse effect upon its business if
the amount of any judgment exceeds the Company's insurance coverage.
Dependence on Management and Scientific Personnel. The
Company is dependent for its success on the continued availability
of its executive officers. The loss of the services of any of the
Company's executive
officers could have an adverse effect on the Company's business. The
Company does not carry key man life insurance on any of its officers.
The Company's future suc-
cess will also depend upon its ability to attract and retain
qualified scientific personnel. There can be no assurance that the
Company will be able to hire and retain such necessary personnel.
See "Management".
Options, Warrants and Convertible Securities. The Company
has issued options, warrants and other convertible securities
("Derivative Securities") which allow the holders to acquire
additional shares of the Company's Common Stock. In some cases the
Company has agreed that, at its expense, it will make appropriate
filings with the Securities and Exchange Commission so that the
securities underlying certain Derivative Securities will be available
for public sale. Such filings could result in substantial expense to
the Company and could hinder future financings by the Company.
For the terms of these Derivative Securities, the holders
thereof will have an opportunity to profit from any increase in the
market price of the Company's Common Stock without assuming the risks
of ownership. Holders of such Derivative Securities may exercise
and/or convert them at a time when the Company could obtain
additional capital on terms more favorable than those provided by the
Derivative Securities. The exercise or conversion of the Derivative
Securities will dilute the voting interest of the owners of presently
outstanding shares of the Company's Common Stock and may adversely
affect the ability of the Company to obtain additional capital in the
future. The sale of the shares of Common Stock issuable upon the
exercise or conversion of the Derivative Securities could adversely
affect the market price of the Company's stock. See "Dilution and
Comparative Share Data".
Competition. The competition in the research, development
and commercialization of products which may be used in the prevention
or treatment of cancer and AIDS is intense. Major pharmaceutical and
chemical companies, as well as specialized genetic engineering firms,
are developing products for these diseases. Many of these companies
have substantial financial, research and development, and marketing
resources and are capable of providing significant 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 the Company
will be profitable. At the present time, the Company intends to use
available funds to finance the Company's operations. Accordingly,
while payment of dividends rests within the discretion of the Board
of Directors, no dividends have been declared or paid by the Company.
The Company does not presently intend to pay dividends and there can
be no assurance that dividends will ever be paid. Pursuant to the
terms of a loan agreement with a bank, the Company may not pay any
dividends without the consent of the bank.
Dilution. Persons purchasing the securities offered by this
Prospectus will suffer an immediate dilution in the per share net
tangible book value of their Common Stock. See "Dilution and
Comparative Share Data."
Preferred Stock. The Company's Articles of Incorporation
authorizethe Company's Board of Directors to issue up to 200,000
shares of Preferred Stock. The provisions in the Company's Articles
of Incorporation relating to the Preferred Stock allow the Company's
directors to issue Preferred Stock with multiple votes per share and
dividends rights which would have priority over any dividends paid
with respect to the Company's Common Stock. The issuance of
Preferred Stock with such rights may make the removal of management
difficult even if such removal would be considered beneficial to
shareholders generally, and will have the effect of limiting
shareholder participation in certain transactions such as mergers or
tender offers if such transactions are not favored by incumbent
management.
DILUTION AND COMPARATIVE SHARE DATA
As of the date of this Prospectus, the present shareholders of the
Company owned 7,131,902 shares of Common Stock, which had a net
tangible book value of approximately $l.00 per share. The following
table illustrates the comparative stock ownership of the other
stockholders of the Company, as compared to the investors in this
Offering, assuming all shares offered are sold.
Shares outstanding (1) 7,131,902
Shares offered as a result of the
exercise of Sales Agent's Warrants 115,000
Shares offered by Nippon Zeon Co., Ltd. 45,000
Shares offered by Option Holder 50,000
Shares outstanding (pro forma basis) (1) 7,341,902
Net tangible book value per share $l.00
Equity ownership by present shareholders
after this offering 97.8%
Equity ownership by investors in this
Offering 2.2%
(1) Amount excludes shares which may be issued upon the exercise
and/or conversion of options, warrants and other convertible
securities previously issued by the Company. See table
below.
The purchasers of the securities offered by this
Prospectus will suffer an immediate dilution if the price paid
for the securities offered is greater than the net tangible book
value of the Company's Common Stock.
"Net tangible book value" is the amount that results
from
subtracting the total liabilities and intangible assets of the
Company from its total assets. "Dilution" is the difference
between the offering price and the net tangible book value of
shares immediately after the Offering.
As of the date of this Prospectus the Company had 7,131,902 shares
of Common Stock issued and outstanding. The following table
reflects the additional shares which may be issued as the result of
the exercise of
outstanding options and warrants or the conversion of other
securities issued by the Company.
Number of Note
Shares Reference
Outstanding as of July 31, 1996 7,131,902
Shares Subject to this Offering:
Shares issued as a result of the
exercise of Sales Agent's Warrants 115,000 A
Shares offered by Nippon Zeon Co., Ltd. 45,000 B
Shares offered by Option Holder 50,000 C
Adjusted number of shares outstanding 7,341,902
Other Shares Which May Be Issued:
Shares issuable upon conversion of
Series A Preferred Stock, based on
closing price of the Company's
Common Stock on July 25, 1996 ($8.00) 437,500 D
Shares issuable upon exercise of
warrants sold in Company's 1992
Public Offering 517,500 E
Shares issuable upon exercise of
warrants sold to Underwriter in
connection with Company's 1992
Public Offering 90,000 F
Shares issuable upon exercise of
options granted to Company's officers,
directors, employees and consultants 981,926 G
9,368,828
A. In connection with the Company's June and September Private
Offerings, Neidiger/Tucker/Bruner, Inc., the Sales Agent for
these offerings, received a commission, a non-accountable expense
allowance and warrants to purchase (i) 57,500 shares of the
Company's Common Stock at $2.00 per share, (ii) 57,500 shares at
$2.40 per share, and (ii) an additional 115,000 shares at $3.25
per share. Prior to the date of this Prospectus the Sales Agent
(and/or its assigns) collectively exercised Warrants pertaining
to 115,000 shares of the Company's Common Stock. The shares of
Common Stock issued upon the exercise of the remaining
Warrants are being offered by means of this Prospectus.
See "Selling Shareholders".
B. In December l987, VTI signed a licensing agreement with Nippon
Zeon Co., Ltd. ("Nippon Zeon"), a Japanese chemical manufacturer,
granting Nippon Zeon exclusive rights to VTI's prototype AIDS
vaccine and improvements in the Pacific Area. Under the
agreement, VTI received an initial licensing payment, as well as
a pre-commercialization payment, and was also entitled to receive
additional pre-commercialization payments dependent upon receipt
of certain regulatory approvals. In l995 Nippon Zeon released
its rights to VTI's technology in consideration for VTI's
agreement to pay Nippon Zeon a royalty on sales of products made
with VTI's technology in the licensed area. In July l996 Nippon
Zeon agreed to surrender its royalty rights, as well as any other
rights it may have had to VTI's technology, in exchange for
45,000 shares of the Company's common stock, which shares are
being offered by means of this prospectus. See "Selling
Shareholders".
C. In February 1996 the Company issued an option to Landon Barretto
in partial consideration for public relations services provided
to the Company. The option allows Mr. Barretto to purchase
50,000 shares of the Company's common stock at a price of $3.25
per share. The shares acquired by Mr. Barretto upon the exercise
of this option are being offered to the public by means of this
Prospectus.
D. In May 1996 the Company sold, in a private transaction, 3,500
shares of its Series A Preferred Stock (the "Preferred Shares")
for $3,500,000 or $1,000 per share. At the purchasers' option,
up to 1,750 Preferred Shares are convertible, on or after 60 days
from the closing date of the purchase of such shares (the
"Closing"), into shares of the Company's Common Stock on the
basis of one share of Preferred Stock for shares of Common Stock
equal in number to the amount determined by dividing $1,000 by
85% of the Closing Price of the Company's Common Stock. All
Preferred Shares are convertible, on or after 90 days from the
Closing, on the basis of one share of Preferred Stock for shares
of the Company's Common Stock equal in number to the amount
determined by dividing $1,000 by 83% of the Closing Price of the
Company's Common Stock. The term "Closing Price" is defined as
the average closing bid price of the Company's Common Stock over
the five-day trading period ending on the day prior to the
conversion of the Preferred Stock. Notwithstanding the above,
the conversion price may not be less than $3.00 nor more than
$8.00, except that if the Closing Price is less than $3.00, then
the conversion price will be equal to the Closing Price. The
Preferred Shares are entitled to a quarterly dividend of $17.50
per share. Any Preferred Shares which are outstanding on the
second anniversary of the Closing will be automatically converted
into shares of the Company's Common Stock. The Preferred Shares
have a liquidation preference over the Company's Common Stock.
By means of a separate Registration Statement, the shares
issuable upon the conversion of the Series A Preferred Stock have
been registered for public sale.
E. See "Description of Securities".
F. 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.
G. The options are exercisable at prices ranging from $2.87 to
$19.70 per share. The Company may also grant options to purchase
1,117,407 additional shares under its Incentive Stock Option and
Non-Qualified Stock Option Plans. See "Management Stock Option
and Bonus Plans".
MARKET INFORMATION
As of July 31, 1996, there were approximately 3,000 record
holders of the Company's Common Stock and approximately 100 record
holders of the Company's Warrants. The Company has not issued any
shares of preferred stock. The Company's Common Stock and Warrants
are traded on the National Association of Securities Dealers
Automatic Quotation ("NASDAQ") System. Set forth below are the range
of high and low bid quotations for the periods indicated as reported
by NASDAQ, and as adjusted for the 10 for 1 reverse stock split which
was approved by the Company's shareholders on April 28, 1995 and
became effective on May 1, 1995. The market quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commissions and
may not necessarily represent actual transactions.
Quarter
Ending Common Stock Warrants
High Low High Low
12/31/93 $20.00 $13.40 $0.94 $0.41
3/31/94 $18.10 $10.30 $0.75 $0.28
6/30/94 $10.90 $ 8.10$0.31 $0.19
9/30/94 $10.30 $ 5.60 $0.21 $0.12
12/31/94 $ 7.50 $ 3.40 $0.25 $0.09
3/31/95 $ 4.00 $ 3.75 $0.22 $0.13
6/30/95 $ 5.30 $ 2.78 $0.15 $0.06
9/30/95 $ 5.46 $ 3.56 $0.28 $0.09
12/31/95 $ 4.75 $ 2.28 $0.25 $0.09
3/31/96 $ 7.12 $ 2.68 $0.28 $0.03
6/30/96 $14.38 $ 4.56 $0.41 $0.16
Holders of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds
legally available therefor and, in the event of liquidation, to share
pro rata in any distribution of the Company's assets after payment of
liabilities. The Board of Directors is not obligated to declare a
dividend. The Company has not paid any dividends and the Company
does not have any current plans to pay any dividends. Pursuant to
the terms of a loan agreement with a bank, the Company may not pay
any dividends without the consent of the bank. See Note 5 to the
Company's September 30, 1995 financial statements.
The provisions in the Company's Articles of Incorporation
relating to the Company's Preferred Stock would allow the Company's
directors to issue Preferred Stock with rights to multiple votes per
share and dividends rights which would have priority over any
dividends paid with respect to the Company's Common Stock. The
issuance of Preferred Stock with such rights may make more difficult
the removal of management even if such removal would be considered
beneficial to shareholders generally, and will have the effect of
limiting shareholder participation in certain transactions such as
mergers or tender offers if such transactions are not favored by
incumbent management.
SELECTED FINANCIAL DATA
The following selected financial data should be read in
conjunction with the more detailed financial statements, related
notes and other financial information included herein. See also
"Management's Discussion and Analysis".
For the Years Ended September
30,
1995 1994 1993 1992 1991
Investment Income &
Other Revenues $423,765 $ 624,670 $ 997,964 $ 434,180 $35,972
Expenses:
Research and
Development 1,824,661 2,896,l09 1,307,042 481,697 108,771
Depreciation
and Amortization 262,705 138,755 55,372 33,536 32,582
General and
Administrative 1,713,912 1,621,990 1,696,119 1,309,475 795,015
Equity in loss of
joint venture 501,125 394,692 344,423 260,388 290,166
Net Loss $(3,878,638)$(4,426,876)$(2,404,992)$(1,650,916)(1,190,562)
Loss per common share $(0.89) $(1.06) $(0.58) $(0.42) $(0.35)
Weighted average
common shares
outstanding 4,342,628 4,185,240 4,155,431 3,953,233 3,400,546
Nine Months Ended June
30,
l996 1995
Investment Income & Other Revenues $ 188,256 $313,005
Expenses:
Research and Development 2,350,600 1,383,978
Depreciation and Amortization 208,912 201,197
General and Administrative 2,113,884 1,268,677
Equity in loss of joint venture 3,772 395,224
Net Loss $(4,488,912) $(3,249,076)
Loss per common share $(0.74) $(0.70)
Weighted average common shares
outstanding 6,086,492 4,194,563
Balance Sheet Data:
September 30,
1995 1994 1993 1992 1991
Working Capital $3,983,699 $5,795,191 $10,296,472 $13,043,012 $682,831
Total Assets 6,359,011 8,086,670 11,633,090 13,769,504 1,611,899
Total Liabilities 1,516,978 l,407,602 688,231 467,086 672,595
Shareholders'
Equity 4,842,033 6,679,068 10,944,859 13,302,4l8 939,304
June 30, 1996
Working Capital $6,979,975
Total Assets $8,723,934
Total Liabilities $1,191,000
Shareholders' Equity $7,532,934
No dividends have been declared by the Company since its inception.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Nine Months Ended June 30, 1996
Interest income during the nine months ending June 30, l996
reflects interest accrued on investments.
Prior to October 30, 1995, VTI was owned 50% by the Company
and 50% by Alpha 1 Biomedicals, Inc. Effective October 30, 1995 the
Company acquired Alpha 1's interest in VTI in exchange for 159,170
shares of the Company's common stock. Prior to this acquisition the
Company accounted for its investment in VTI using the equity method
of accounting. Following the acquisition of the remaining 50%
interest in VTI on October 30, 1995, the financial statements of VTI
have been consolidated with those of the Company.
The acquisition of VTI was accounted for under the purchase
method of accounting. Since the acquisition represented primarily
research and development costs, the purchase price for the remaining
50% interest in VTI was expensed and caused research and development
expense for the three months ended December 31, 1995 to increase
significantly.
The consolidation of VTI's financial statements with those
of the Company also had the following effects:
1. Interest income declined from the comparable period in
the previous year since interest income associated with the Company's
loans to VTI was eliminated upon consolidation.
2. Current research and development expenses increased due
to the inclusion of VTI's research and development expenses with
those of the Company (the Company's research and development costs,
separate from those of VTI's, decreased by approximately $100,000 due
to cost savings achieved from using the Company's laboratory which
became operational in January 1995).
3. General and administrative expenses increased due to the
inclusion of VTI's general and administrative expenses.
4. Capitalized patent costs increased significantly.
Fiscal 1995
Revenues for the year ended September 30, 1995 consisted
primarily of interest earned on funds received from the Company's
February 1992 public offering. The interest income and investment
balances have declined from the previous year as funds were used for
ongoing expenses and equipping the Company's new laboratory.
Research and development expenses decreased due to the use of the
Company's laboratory for research programs and the completion of a
research and development project relating to the Company's
manufacturing process. General and administrative expenses increased
as the result of the expenses (approximately $100,000) associated
with the Company's 1995 annual meeting of shareholders. The Company
did not have any meetings of its shareholders during fiscal 1994.
Significant components of general and administrative expenses during
this year were salaries and employee benefits ($341,000), automobile,
travel and expense reimbursements ($271,000), shareholder
communications and investor relations ($245,000), legal and
accounting ($134,000), and officers and directors liability insurance
($138,000). Losses associated with the Company's joint venture
interest in VTI increased due to an increase in VTI's research and
development expenditures.
Fiscal 1994
Interest income during the year ending September 30, 1994
decreased from the prior year as a portion of the Company's
investments were sold to pay for operating expenses. Research and
development expenses increased due to the commencement of several new
research projects, all of which pertained to the Company's MULTIKINE
product. Significant components of general and administrative
expenses during this year were salaries and employee benefits
($442,039), travel and expense reimbursements ($294,217), shareholder
communications and investor relations ($267,070), legal and
accounting ($151,879), and officers and directors liability insurance
($147,564). Fiscal 1993
Investment income during the year ending September 30, 1993
increased as the Company had use of the funds from its February, 1992
public offering for twelve months in fiscal 1993 as opposed to six
months in fiscal 1992. Research and development expenses increased
due to the commencement of several new research projects, all of
which pertained to the Company's MULTIKINE drug. General and
administrative expenses increased due to an increase in the cost of
Directors and Officers insurance, the implementation of an employee
401(K) plan, and the addition of new employees during the year.
Significant components of general and administrative expenses during
this year were salaries and employee benefits ($342,150), travel and
expense reimbursements ($266,007), shareholder communications and
investor relations ($341,024), legal and accounting ($107,254),
officers and directors liability insurance ($113,690), and the cost
of indemnifying an officer and director for losses sustained as the
result of actions taken on behalf of the Company ($202,500). Losses
associated with the Company's joint venture interest in VTI increased
due to an increase in VTI's research and development expenditures.
Liquidity and Capital Resources
The Company has had only limited revenues from operations
since its inception in March l983. The Company has relied upon
proceeds realized from the public and private sale of its Common
Stock to meet its funding requirements. Funds raised by the Company
have been expended primarily in connection with the acquisition of an
exclusive worldwide license to certain
patented and unpatented proprietary technology and know-how relating
to the human immunological defense system, the funding of VTI's
research and development program, patent applications, the repayment
of debt, the continuation of Company-sponsored research and
development, administrative costs and construction of laboratory
facilities. Inasmuch as the Company does not anticipate realizing
revenues until such time as it enters into licensing arrangements
regarding the technology and know-how licensed to it (which could
take a number of years), the Company is mostly dependent upon the
proceeds from the sale of its securities to meet all of its liquidity
and capital resource requirements.
In June and September, l995, the Company completed private
offerings whereby it sold a total of 1,150,000 units at $2.00 per
unit. Each unit consisted of one share of Common Stock and one
Warrant. Each Warrant entitles the holder to purchase one additional
share of Common Stock at a price of $3.25 per share at any time prior
to June 30, 1997. The net proceeds to the Company from these
offerings, after the payment of Sales Agent's commissions and other
offering expenses, were approximately $2,000,000. On November 30,
1995 the Company and the investors in these Private Offerings agreed
to reduce the exercise price of the Warrants to $1.60 per share in
return for the commitment on the part of the investors to exercise
312,500 Warrants ($500,000) prior to December 23, 1995 and an
additional 312,500 Warrants ($500,000) prior to January 31, 1996. As
of July 31, l996 all of the Warrants had been exercised.
In March 1996 the Company sold $l,250,000 of Convertible Notes
("Notes") to two persons. The Notes were convertible from time to
time in whole or in part, into shares of the Company's Common Stock.
The conversion price is the lesser of (i) $5 per share or (ii) 80% of
the average closing bid price of the Company's Common Stock during
the five trading days immediately preceding the date of such
conversion. Prior to July 31, l996 the Notes were converted into
250,000 shares of the Company's common stock.
In May 1996 the Company sold 3,500 shares of its Series A
Preferred Stock (the "Preferred Shares") for $3,500,000 or $1,000 per
share. At the purchasers' option, up to 1,750 Preferred Shares are
convertible, on or after 60 days from the closing date of the
purchase of such shares (the "Closing"), into shares of the Company's
Common Stock on the basis of one share of Preferred Stock for shares
of Common Stock equal in number to the amount determined by dividing
$1,000 by 85% of the Closing Price of the Company's Common Stock.
All Preferred Shares are convertible, on or after 90 days from the
Closing, on the basis of one share of Preferred Stock for shares of
the Company's Common Stock equal in number to the amount determined
by dividing $1,000 by 83% of the Closing Price of the Company's
Common Stock. The term "Closing Price" is defined as the average
closing bid price of the Company's Common Stock over the five-day
trading period ending on the day prior to the conversion of the
Preferred Stock. Notwithstanding the above, the conversion price may
not be less than $3.00 nor more than $8.00, except that if the
Closing Price is less than $3.00, then the conversion price will be
equal to the Closing Price. The Preferred Shares, if issued, are
entitled to a quarterly dividend of $17.50 per share. Any Preferred
Shares which are outstanding on the second anniversary of the Closing
will be automatically converted into shares of the Company's Common
Stock. The Preferred Shares have a liquidation preference over the
Company's Common Stock.
During fiscal 1996 the Company plans to fund its U.S. and
Canadian clinical trials involving MULTIKINE. During fiscal 1996 the
Company also plans to provide VTI with the funding needed to continue
VTI's clinical trials. It should be noted that substantial
additional funds will be needed for more extensive clinical trials
which will be necessary before the Company or VTI will be able to
apply to the FDA for approval to sell any products which may be
developed on a commercial basis throughout the United States.
In October, 1994, the Company completed the construction of
its own
research laboratory in a facility leased by the Company. The cost of
modifying the leased space and providing the equipment for the
research laboratory was approximately $1,200,000. In August 1994 the
Company obtained a loan to fund the majority of the costs for the
research laboratory. As of June 30, 1996 the Company owed
approximately $628,000 on this loan. Principal and interest on the
loan is due monthly. The loan matures in 1999
and bears interest at 2% plus the prime lending rate.
The Company expects that it will spend approximately
$2,500,000 on research and development during the twelve month period
ending September 30, 1996. This amount includes VTI's estimated
research and development expenses during fiscal 1996. Prior to
October 1995, VTI's research and development expenses were shared 50%
by the Company and 50% by Alpha 1 Biomedicals, Inc. VTI became a
wholly-owned subsidiary of the Company in October 1995 when the
Company purchased Alpha 1's 50% interest in VTI. The Company plans
to use its existing financial resources to fund its research and
development program during this period.
Other than funding its research and development program and
the costs associated with its research laboratory, the Company does
not have any material capital commitments.
The Company expects that its existing financial resources
will satisfy the Company's capital requirements at least through
October l997. In the absence of revenues, the Company will be
required to raise additional funds through the sale of securities,
debt financing or other arrangements in order to continue with its
research efforts after that date. However, there can be no assurance
that such financing will be available or be available on favorable
terms.
BUSINESS
CEL-SCI Corporation (the "Company") was formed as a Colorado
corporation in 1983. The Company is involved in the research and
development of certain drugs and vaccines. The Company's first
product, MULTIKINETM, manufactured using the Company's proprietary
cell culture technologies, is a combination, or "cocktail", of
natural human interleukin-2 ("IL-2") and certain lymphokines and
cytokines. MULTIKINE is being tested to determine if it is effective
in improving the immune response of advanced cancer pantients. The
Company's second product, HGP-30, is being tested to determine if it
is an effective treatment/vaccine against the AIDS virus. In
addition, the Company recently acquired a new patented T-cell
Modulation Process which uses "heteroconjugates" to direct the body
to chose a specific immune response. The Company intends to use this
new technology to improve the cellular immune response of persons
vaccinated with HGP-30.
Since its inception the focus of the Company's product
development efforts has been on conducting clinical trials to test
its proprietary technologies. The Company intends to continue
testing its MULTIKINE product in clinical trials with the objective
of establishing its efficacy as a treatment for solid tumors and
possibly other diseases. An additional aim of the Company is to
further corroborate the present data (obtained in connection with the
Company's research programs and human clinical trials) in regard to
the ability of MULTIKINE to restore the immune system of people
suffering from certain illnesses.
The cost of acquiring its exclusive license and the costs
associated with the clinical trials relating to the Company's
MULTIKINE technologies, the cost of research at various institutions
and the Company's administrative expenses have been funded with the
public and private sales of shares of the Company's Common Stock and
borrowings from third parties, including affiliates of the Company.
In October 1995 Viral Technologies, Inc. ("VTI") became a
whollyowned subsidiary of the Company. VTI is engaged in the
development of a possible vaccine for AIDS. VTI's technology may also
have application in the treatment of AIDS-infected individuals and
the diagnosis of AIDS. VTI's AIDS vaccine, HGP-30, has completed
certain Phase I human clinical trials. In the Phase I trials, the
vaccine was administered to volunteers who were not infected with the
HIV virus in an effort to determine safe and tolerable dosage levels.
PRODUCT DEVELOPMENT PLAN
In March l995, the Canadian Health Protection Branch, Health
and Welfare Ministry gave clearance to the Company to start a phase
I/II cancer study using Multikine. The study, which will enroll up
to 30 head and neck
cancer patients who have failed conventional treatments, will be
conducted at several sites in the United States and Canada and is
designed to evaluate safety, tumor responses and immune responses in
patients treated with multiple courses of Multikine. The length of
time that each patient will remain on the investigational treatment
will depend on the patient's response to treatment. In May l995, the
U.S. Food
and Drug Administration (FDA) authorized the export of the Company's
Multikine drug to Canada for purposes of this study.
In February 1996 the FDA authorized the Company to conduct
two human clinical studies using MULTIKINE. The studies will focus
on prostate and head and neck cancer. The prostate study will be
conducted at Jefferson Hospital in Philadelphia, Pennsylvania and
will involve up to 15 prostate cancer
patients who have failed on hormonal therapy. The head and neck
cancer study will involve up to 30 cancer patients who have failed
using conventional therapies. The Company is currently evaluating
clinical centers in the U.S. for purposes of the study. The head and
neck cancer study in the U.S. will be conducted in conjunction with
the Company's Canadian head and neck cancer study.
Viral Technologies, Inc. ("VTI") completed its Phase I
trials in California and in April 1995, with the approval of the
California Food and Drug Branch ("FDB"), started a new clinical study
with the HGP-30 AIDS vaccine. The study involves HIV-negative
volunteers who participated in the 1993 Phase I study. Following
vaccinations with HGP-30, certain volunteers donated blood for a SCID
mouse HIV challenge study. Infection in the SCID mice by virus was
determined and confirmed by two different assays. Approximately 78%
of the SCID mice given blood from vaccinated volunteers showed no HIV
infection after virus challenge as compared to 13% of the mice given
blood from unvaccinated donors. In December 1995 VTI, with
permission from the FDB, began Phase I human clinical trials with HIV-
infected volunteers. See "Viral Technologies, Inc." below for
additional information concerning VTI.
There can be no assurance that either the Company or VTI
will be successful in obtaining approvals from any regulatory
authority to conduct further clinical trials or to manufacture and
sell their products. The lack of regulatory approval for the
Company's or VTI's products will prevent the Company and VTI from
generally marketing their products. Delays in obtaining regulatory
approval or the failure to obtain regulatory approval in one or more
countries may have a material adverse impact upon the Company's
operations.
BACKGROUND OF HUMAN IMMUNOLOGICAL SYSTEM
The function of the immunological system is to protect the
body against infectious agents, including viruses, bacteria,
parasites and malignant (cancer) cells. An individual's ability to
respond to infectious agents and to other substances (antigens)
recognized as foreign by the body's immune system is critical to
health and survival. When the immune response is adequate, infection
is usually combatted effectively and recovery follows. Severe
infection can occur when the immune response is inadequate. Such
immune deficiency can be present from birth but, in adult life, it is
frequently acquired as a result of intense sickness or as a result of
the administration of chemotherapeutic drugs and/or radiation. It is
also recognized that, as people reach middle age and thereafter, the
immune system grows weaker.
Two classes of white blood cells, macrophages and
lymphocytes, are believed to be primarily responsible for immunity.
Macrophages are large cells whose principal immune activity is to
digest and destroy infectious agents. Lymphocytes are divided into
two sub-classes. One sub-class of lymphocytes, B-cells, produces
antibodies in response to antigens. Antibodies have unique combining
sites (specificities) that recognize the shape of particular antigens
and bind with them. The combination of an
antibody with an antigen sets in motion a chain of events which may
neutralize the effects of the foreign
substance. The other sub-class of lymphocytes, T-cells, regulates
immune responses. T-cells, for example, amplify or suppress antibody
formation by Bcells, and can also directly destroy "foreign" cells by
activating "killer cells."
It is generally recognized that the interplay among T-cells,
B-cells and the macrophages determines the strength and breadth of
the body's response to infection. It is believed that the activities
of T-cells, Bcells and macrophages are controlled, to a large extent,
by a specific group of hormones called lymphokines. Lymphokines
regulate and modify the various functions of both T-cells and B-
cells. There are many lymphokines, each of which is thought to have
distinctive chemical and functional properties. IL2 is but one of
these lymphokines and it is on IL-2 and its synergy with other
lymphokines that the Company has focused its attention. Scientific
and medical investigation has established that IL-2 enhances immune
responses by causing activated T-cells to proliferate. Without such
proliferation no immune response can be mounted. Other lymphokines
and cytokines support Tcell and B-cell proliferation. However, IL-2
is the only known lymphokine or cytokine which causes the
proliferation of T-cells. IL-2 is also known to activate B-cells in
the absence of B-cell growth factors.
Although IL-2 is one of the best characterized lymphokines with
anticancer potential, the Company is of the opinion that to have
optimum therapeutic value, IL-2 should be administered not as a
single substance but rather as a mixture of IL-2 and certain
lymphokines and cytokines, i.e. as a "cocktail". This approach, which
was pioneered by the Company, makes use of the synergism between
these lymphokines. It should be noted however that neither the FDA
nor any other agency has determined that the Company's MULTIKINE
product will be effective against any form of cancer.
It has been reported by researchers in the field of lymphokine
research that IL-2 can increase the number of killer T-cells
produced by the body, which improves the body's capacity to
selectively destroy specific tumor cells. Research and human
clinical trials sponsored by the Company have indicated a
correlation between administration of MULTIKINE to advanced cancer
patients and immunological responses. On the basis of these
experimental results, the Company believes that MULTIKINE may have
application for the treatment of solid tumors in humans.
The Company foresees three potential anti-cancer
therapeutic uses for MULTIKINE: (i) direct administration into the
human body (in vivo) as a modulator of the immune system, (ii)
activation of a patient's white blood cells outside the body with
MULTIKINE, followed by returning these activated cells to the
patient; and (iii) a combination of (i) and (ii).
RESEARCH AND DEVELOPMENT
In the past, the Company conducted its research pursuant to
arrangements with various universities and research organizations.
The Company provided grants to these institutions for the conduct of
specific research projects as suggested by the Company's scientists
based upon the results of previously completed projects.
More recently the Company has decided to consolidate its
research activities in a Company-owned laboratory. The Company
believes that this new approach will be more effective in terms of
both cost and performance.
Between 1983 and 1986 the Company was primarily involved in
funding pre-clinical and Phase I clinical trials of its proprietary
MULTIKINE technologies. These trials were conducted at St. Thomas's
Hospital Medical School located in London, England under the
direction of Dudley C. Dumonde, M.D., PhD., a former member of the
SAB, and pursuant to approvals obtained from England's Department of
Health and Social Security.
In the Phase I trial in England (completed in 1987), forty-
nine patients suffering with various forms of solid cancers,
including malignant melanoma, breast cancer, colon cancer, and other
solid tumor types were treated with MULTIKINE. The product was
administered directly into the lymphatic system in a number of
patients. Significant and lasting lymphnode responses, which are
considered to be an indication of improvement in the patient's
immune responses, were observed in these patients. A principal
conclusion of the Phase I trials was that the side effects of the
Company's products in 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 established protocols for future
clinical trials. In November, 1990, the Florida Department of
Health and Rehabilitative Services ("DHRS") gave the physicians at a
southern Florida medical institution approval to start a clinical
cancer trial in Florida using the Company's MULTIKINE product. The
focus of the trial was unresectable head and neck cancer (which is
presently untreatable) and was the first time that the natural
MULTIKINE was administered to cancer patients in a clinical trial in
the United States.
Four patients with regionally advanced squamous cell cancer
of the head and neck were treated with the Company's MULTIKINE
product. The patients had previously received radical surgery
followed by x-ray therapy but developed recurrent tumors at multiple
sites in the neck and were diagnosed with terminal cancer. The
patients had low levels of lymphocytes and evidence of immune
deficiency (generally a characteristic of this type of cancer).
Significant tumor reduction occured in three of the four
patients as a result of the treatment with MULTIKINE. Negligible
side effects were observed and the patients were treated as
outpatients. Notwithstanding the above, it should be noted that
these trials were only preliminary and were only conducted on a
small number of patients. It remains to be seen if MULTIKINE will be
effective in treating any form of cancer.
See "Product Development Plan" above for information
concerning the Company's future research and development plans.
Proof of efficacy for anti-cancer drugs is a lengthy and
complex process. At this early stage of clinical investigation, it
remains to be proven that MULTIKINE will be effective against any
form of cancer. Even if some form of MULTIKINE is found to be
effective in the treatment of cancer, commercial use of MULTIKINE
may be several years away due to extensive safety and effectiveness
tests that would be necessary before required government approvals
are obtained. It should be noted that other companies and research
teams are actively involved in developing treatments and/or cures
for cancer, and accordingly, there can be no assurance that the
Company's research efforts, even if successful from a medical
standpoint, can be completed before those of its competitors.
Since 1983, and through September 30, 1995, approximately
$9,505,000 has been expended on Company-sponsored research and
development, including approximately $1,825,000, $2,896,000 and
$1,307,000 during the years ended September 30, 1995, 1994 and 1993,
respectively. The foregoing amounts do not include amounts spent by
Viral Technologies, Inc. on research and development. Since May,
1986 (the inception of VTI) and through September 30, 1995, VTI has
spent approximately $3,365,000 on research and development.
The Company has established a Scientific Advisory Board
("SAB") comprised of scientists distinguished in biomedical research
in the field of lymphokines and related areas. From time to time,
members of the SAB advise the Company on its research activities.
Institutions with which members of the SAB are affiliated have and
may in the future conduct Company-sponsored research. The SAB has
in the past and may in the future, at its discretion, invite other
scientists to opine in confidence on the merits of the
Companysponsored research. Members of the SAB receive $500 per
month from the Company and have also been granted options (for
serving as members of the SAB) which collectively allow for the
purchase of up to 15,000 shares of the Company's Common Stock. The
options are exercisable at prices ranging from $13.80 to $19.70 per
share.
The members of the Company's SAB are:
Dr. Michael Chirigos former head of the Virus and Disease
Modification Section, National Institutes of Health (NIH), National
Cancer Institute (NCI) from 1966-1981 and the Immuno Pharmacology
Section, NHI, NCI, Biological Response Modifier Program until 1985.
Dr. Evan M. Hersh Vice-Chairman, Department of Internal
Medicine, Chief, Section of Hematology/Oncology, Department of
Internal Medicine, Tucson, AZ. Director of Clinical Research,
Arizona Cancer Center, Tucson.
Dr. Michael J. Mastrangelo Director, Division of Medical
Oncology, and Professor of Medicine, Jefferson Medical College,
Philadelphia, Pennsylvania.
Dr. Alan B. Morris, PhD. Professor, Department of Biological
Sciences, University of Warwick, Coventry, U.K.
VIRAL TECHNOLOGIES, INC.
Prior to October 1995, Viral Technologies, Inc. ("VTI"), a
Delaware corporation, was 50% owned by the Company and 50% owned by
Alpha 1 Biomedicals, Inc. VTI is developing a vaccine technology
that may prove of commercial value in the prevention, diagnosis and
treatment of AIDS. VTI holds the proprietary rights to certain
synthesized components of the p17 gag protein, which is the outer
core region of the AIDS virus (HIV-1). In October 1995, the Company
acquired Alpha 1's interest in VTI in exchange for 159,170 shares of
the Company's common stock.
VTI is involved in the development of a prototype
preventive and therapeutic vaccine against AIDS that is based on HGP-
30, a thirty amino acid synthetic peptide derived from the p17
region of the AIDS virus. Evidence compiled by scientists at George
Washington University from toxicology studies with different animal
species indicates that the HGP-30 prototype vaccine does not appear
to be toxic in animals. The HGP-30 vaccine being tested differs
from most other vaccines candidates in that its active component,
the HGP-30 peptide, is derived from the p17 core protein particles
of the virus. Since HGP-30 is a totally synthetic molecule
containing no live virus, it cannot cause infection. Unlike the
envelope (i.e. outside) proteins, the p17 region of the AIDS virus
appears to be relatively nonchanging. In January, 1991, VTI was
issued a United States patent covering the production, use and sale
of HGP-30. HGP-30 may also be effective in treating persons
infected with the AIDS virus.
Approval to start Phase I human clinical trials in Great
Britain using VTI's prototype AIDS vaccine HGP-30 was granted in
April 1988. The trial, the first in the European common market,
began in May 1989 with 18 healthy (HIVnegative) volunteers given
three different dosages and was completed in December 1990. The
trial results indicated that five of eight volunteers vaccinated
with HGP-30, and whose blood samples were able to be tested,
produced "killer" T-cell responses. The vaccine also elicited cell
mediated immunity responses in 7 out of 9 vaccinated volunteers and
antibody responses in 15 out of 18 vaccinated volunteers.
In March, 1990, the California Department of Health
Services Food and Drug Branch (FDB) approved the first human testing
(Phase I trials) in the United States of HGP-30. The trials were
conducted by scientists at the
University of Southern California and San Francisco General Hospital.
Twentyone healthy HIV-negative volunteers at medical centers in Los
Angeles and San Francisco received escalating doses of HGP-30 with no
clinically significant
adverse side effects. The clinical studies confirmed earlier
clinical trials in London.
In April 1995 VTI, with the approval of the FDB, began another
clinical trial in California using volunteers who received two
vaccinations. The volunteers receiving the two lowest dosage levels
were asked to donate blood for a SCID mouse HIV challenge study. The
SCID mouse is considered to be the best available animal model for
HIV because it lacks its own immune system and therefore permits
human cell growth. White blood cells from the five (5) vaccinated
volunteers and from normal donors were injected into groups of SCID
mice. They were then challenged with high levels of a different
strain of the HIV virus than the one from which HGP-30 is derived.
Infection by virus was determined and confirmed by two different
assays, p24 antigen, a component of the virus core, and reverse
transcriptase activity, an enzyme critical to HIV replication.
Approximately 78% of the SCID mice given blood from vaccinated
volunteers showed no HIV infection after virus challenge as compared
to 13% of the mice given blood from unvaccinated donors.
In December 1995 VTI, with permission from the FDB, began
Phase I human clinical trials with HIV-infected volunteers. VTI's
AIDS vaccine/treatment is only in the initial stages of testing and
it remains to be seen if the vaccine/treatment will be effective
against the AIDS virus.
Although there has been important independent research
showing the possible significance of the p17 region of HIV-1, there
can be no assurance that any of VTI's technology will be effective in
the prevention, diagnosis or treatment of AIDS. There can be no
assurance that other companies will not develop a product that is
more effective or that VTI ultimately will be able to develop and
bring a product to market in a timely manner that would enable it to
derive commercial benefits.
VTI's research and development efforts are presently focused
on the evaluation of second generation formulations and delivery
systems for HGP-30 and related peptides to enhance HIV-specific
cellular immune responses.
In January 1991, VTI was awarded a U.S. patent covering the
exclusive production, use and sale of HGP-30. This patent is thought
to be the first U.S. patent for a portion of a "core" protein of the
HIV virus. In February 1993, VTI was awarded a European patent
covering HGP-30 and certain other peptides.
In December l987, VTI signed a licensing agreement with
Nippon Zeon Co., Ltd. ("Nippon Zeon"), a Japanese chemical
manufacturer, granting Nippon Zeon exclusive rights to VTI's
prototype AIDS vaccine and improvements in the Pacific Area. Under
the agreement, VTI received an initial licensing payment, as well as
a pre-commercialization payment, and was also entitled to receive
additional pre-commercialization payments dependent upon receipt of
certain regulatory approvals. In l995 Nippon Zeon released its
rights to VTI's technology in consideration for VTI's agreement to
pay Nippon Zeon a royalty on sales of products made with VTI's
technology in the licensed area. In July l996 Nippon Zeon agreed to
surrender its royalty rights, as well as any other rights it may have
had to VTI's technology, in exchange for 45,000 shares of the
Company's common stock, which shares are being offered by means of
this prospectus. See "Selling Shareholders".
T-CELL MODULATION PROCESS
In January 1996 the Company acquired a new patented T-cell
Modulation Process which uses "heteroconjugates" to direct the body
to chose a specific immune response.
The ability to generate a specific immune response is
important because many diseases are often not combatted effectively
due to the body's selection of the "inappropriate" immune response.
The capability to specifically reprogram an immune response may offer
a more effective approach
than existing vaccines and drugs in attacking an underlying disease.
The Company intends to use this new technology to improve
the cellular immune response of VTI's HIV HGP-30 immunogen which is
currently in two clinical studies. In addition, the Company intends
to use the technology to develop a potential Tuberculosis (TB)
vaccine/treatment. TB is the largest
killer of all infectious diseases worldwide and new strains of drug
resistant TB are emerging daily. The technology is also a potential
platform technology which could also work with many other peptides.
Using this new technology, the Company is currently conducting in
vitro laboratory and in vivo animal studies.
The technology was acquired from Cell-Med, Incorporated
("CELL-MED") in consideration for the Company's agreement to pay
certain liabilities of CELL-MED in the amount of approximately
$6,000. If the Company elects to retain ownership in the technology
after March 30, 1997, the Company must pay CELL-MED $200,000, plus
additional payments ranging between $100,000 and $600,000, depending
upon the Company's ability to obtain regulatory approval for clinical
studies using the technology. In addition, should the Company
receive FDA approval for the sale of any product incorporating the
technology, the Company is obligated to pay CELL-MED an advance
royalty of $500,000, a royalty of 5% of the sales price of any
product using the technology, plus 15% of any amounts the Company
receives as a result of sublicensing the technology. So long as the
Company retains rights in the technology, the Company has also agreed
to pay the future costs associated with pursuing and or maintaining
CELL-MED's patent and patent applications relating to the technology.
As of February 29, 1996, CELL-MED had been issued patents in
Australia and from the European Patent Office covering the technology
and had several U.S. and foreign patent applications pending.
COMPOUNDS AND PROCESSES LICENSED TO THE COMPANY
The Company has acquired from Sittona Company, B.V., a
Netherlands corporation ("Sittona"), the exclusive worldwide rights
to patented 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 "Management Transactions with
Related Parties".
In 1987 a German company filed an opposition with the
European
Patent Office with respect to one of the Company's European patents,
alleging that certain aspects of the patent in question were
previously disclosed to inventors during a conference held in
Germany. A hearing on the opposition was held and on October 12,
1990 the European Patent Office rejected the opposition. The German
company filing the opposition appealed the decision of the European
Patent Office. In 1992 the Appellate Tribunal of the European Patent
Office upheld the Company's process claims in the patent, while two
minor claims were denied. The Company does not believe that the
denial by the European Patent Office of these two minor process
patent claims impairs the value of this patent in any significant
degree.
In February 1996 the Company filed a lawsuit against
ImmunoRx and Dr. John Hadden for contract breach, tortious
interference of contract and patent infringement concerning the
Company's Multikine drug. The lawsuit, filed in the U.S. District
Court for the Middle District of Florida, seeks damages and the
termination of certain research and clinical studies being conducted
by ImmunoRx and Dr. Hadden. From 1984 to 1992, Dr. Hadden consulted
with the Company, performed research on Multikine and manufactured
Multikine for the Company's head and neck cancer study in Florida.
In early 1993, Dr. Hadden signed a separation agreement with the
Company acknowledging the Company's ownership of both Multikine and
the research results. The Company has learned that Dr. Hadden and
ImmunoRx are apparently making copies of Multikine, in contravention
of the separation agreement and the patents covering Multikine, and
have begun clinical studies in a foreign country using a copy of
Multikine.
Process for the Production of IL-2 and IL-2 Product
The Company's exclusive license includes processes for the
production in high yields of natural human IL-2 using cell culture
techniques applied to normal human cells. Based upon the results of
the Company's research and human clinical trials, the Company
believes that "natural" IL-2 produced by cell culture technologies,
such as the Company's proprietary products, may have advantages over
genetically engineered, bacteria-produced 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 IL-2 produced through cell culture technology. For example:
(1) cell cultured IL2 is glycosylated (has sugars attached). Sugar
attachments play a crucial role in cell recognition and have a
significant effect on how fast a body clears out proteins. Proteins
produced through bacteria have no sugar attachments and while
recombinant IL-2 products produced from recombinant yeast or insect
cells are glycosylated, they are not so to the right degree, or at
the right locations. Cell cultured IL-2 has the "right" sugar
attachments at the right places; (2) there are also structural
differences related to folding (the way human proteins work depends
on their sequence folding); and (3) the cell cultured IL-2 "cocktail"
is administered in small dosages as pioneered by
Company researchers. This formulation and dosage mimics the way
immune regulators are naturally found and function within the body.
This stands in stark contrast to the huge dosages required when
recombinant IL-2 is administered to patients. In addition, patients
treated with recombinant 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, IL-2). Mitogens remaining
in the product of cell stimulation can cause allergic and
anaphylactic reactions if not removed from the cell product prior to
introduction into the body.
The Company's license also pertains to a cell culture
process for producing interleukin-2 and another type of cell process
for producing serumfree and mitogen-free interleukin-2 preparations
which avoids a mitogen stimulation step and uses interleukin-1 and
white blood cells.
The Company's license further includes a process for
suppressing graft rejection in organ transplantation. This process
employs the use of an agent which blocks the activity of IL-2 in
proliferating T-cells which would otherwise destroy the transplanted
organ. The Company regards further research and development of this
process to involve a financial commitment beyond its present ability;
thus, while the Company intends to attempt to enter into licensing
arrangements with third parties concerning this process, it does not
presently intend to conduct further research into, or development of,
this process.
The Company has an agreement with an unrelated corporation
for the production, until 1997, of MULTIKINE for research and testing
purposes. At present, this is the Company's only source of
MULTIKINE. If this corporation could not, for any reason, supply the
Company with MULTIKINE, the Company estimates that it would take
approximately six to ten months to obtain supplies of MULTIKINE under
an alternative manufacturing arrangement. The Company does not know
what cost it would incur to obtain this alternative source of supply.
GOVERNMENT REGULATION
The investigational agents and future products of the
Company are regulated in the United States under the Federal Food,
Drug and Cosmetic Act, the Public Health Service Act, and the laws of
certain states. The Federal Food and Drug Administration (FDA)
exercises significant regulatory control over the clinical
investigation and manufacture of pharmaceutical products.
Prior to the time a pharmaceutical product can be marketed
in the United States for therapeutic use, approval of the FDA must
normally be obtained. Certain states, however, have passed laws
which allow a state agency having functions similar to the FDA to
approve the testing and use of pharmaceutical products within the
state. In the case of either FDA or state regulation, preclinical
testing programs on animals, followed by three phases of clinical
testing on humans, are typically required in order to establish
product safety and efficacy.
The first stage of evaluation, preclinical testing, must be
conducted in animals. After lack of toxicity has been demonstrated,
the test results are submitted to the FDA (or state regulatory
agency) along with a request for approval for further testing which
includes the protocol that will be followed in the initial human
clinical evaluation. If the applicable regulatory authority does not
object to the proposed experiments, the investigator can proceed with
Phase I trials. Phase I trials consist of pharmacological studies on
a relatively few number of humans under rigidly controlled conditions
in order to establish lack of toxicity and a safe dosage range.
After Phase I testing is completed, one or more Phase II
trials are conducted in a limited number of patients to test the
product's ability to treat or prevent a specific disease, and the
results are analyzed for clinical efficacy and safety. If the
results appear to warrant confirmatory studies, the data is submitted
to the applicable regulatory authority along with the protocol for a
Phase III trial. Phase III trials consist of extensive studies in
large populations designed to assess the safety of the product and
the most desirable dosage in the treatment or prevention of a
specific disease. The results of the clinical trials for a new
biological drug are submitted to the FDA as part of a product license
application ("PLA").
In addition to obtaining FDA approval for a product, a
biologics establishment license application ("ELA") must be filed in
order to obtain FDA approval of the testing and manufacturing
facilities in which the product is produced. To the extent all or a
portion of the manufacturing process for a product is handled by an
entity other than the Company, the Company must similarly receive FDA
approval for the other entity's participation in the manufacturing
process. Domestic manufacturing establishments are subject to
inspections by the FDA and by other Federal, state and local agencies
and must comply with Good Manufacturing Practices ("GMP") as
appropriate for production. In complying with GMP regulations,
manufacturers must continue to expend time, money and effort in the
area of production and quality control to ensure full technical
compliance.
The process of drug development and regulatory approval
requires substantial resources and many years. There can be no
assurance that regulatory approval will ever be obtained for products
developed by the Company. Approval of drugs and biologicals by
regulatory authorities of most foreign countries must also be
obtained prior to initiation of marketing in those countries. The
approval process varies from country to country and the time period
required in each foreign country to obtain approval may be longer or
shorter than that required for regulatory approval in the United
States.
The human clinical trials in Florida were authorized
pursuant to applications filed by physicians at a southern Florida
medical institution with the Florida Department of Health and
Rehabilitative Services ("DHRS"). VTI's Phase I clinical trials were
conducted pursuant to approvals obtained from the California
Department of Health Services Food and Drug Branch. None of the
clinical trials involving the Company's MULTIKINE product (including
the prior trials conducted in London, England) have been conducted
under the approval of the FDA and there are no assurances that
clinical trials conducted under approval from state authorities or
conducted in foreign countries will be accepted by the FDA. Product
licensure in a foreign country or under state authority does not mean
that the product will be licensed by the FDA and there are no
assurances that the Company will receive any approval of the FDA or
any other governmental entity for the manufacturing and/or marketing
of a product. Consequently, the commencement of the manufacturing
and marketing of any Company product is, in all likelihood, many
years away.
COMPETITION AND MARKETING
Many companies, nonprofit organizations and governmental
institutions are conducting research on lymphokines. Competition in
the development of therapeutic agents and diagnostic products
incorporating lymphokines is intense. Large, well-established
pharmaceutical companies are engaged in lymphokine research and
development and have considerably greater resources than the Company
has to develop products. The establishment by these large companies
of in-house research groups and of joint research ventures with other
entities is already occurring in these areas and will probably become
even more prevalent. In addition, licensing and other collaborative
arrangements between governmental and other nonprofit institutions
and commercial enterprises, as well as the seeking of patent
protection of inventions by nonprofit institutions and researchers,
could
result in strong competition for the Company. Any new developments
made by such organizations may render the Company's licensed
technology and know-how obsolete.
Several biotechnology companies are producing IL-2-like
compounds. The Company believes, however, that it is the only
producer of a patented IL2 product using a patented cell-culture
technology with normal human cells. The Company foresees that its
principle competition will come from producers of genetically-
engineered 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, IL-2-like
products, which lack sugar molecules and typically are not water
soluble, may be recognized by the immunological system as a foreign
agent, leading to a measurable antibody
build-up and thereby possibly voiding their therapeutic value.
Furthermore, the Company's research has established that to have
optimum therapeutic value IL-2 should be administered not as a single
substance but rather as an IL-2 rich mixture of certain lymphokines
and other proteins, i.e. as a "cocktail". If these differences prove
to be of importance, and if the therapeutic value of its MULTIKINE
product is conclusively established, the Company believes it will be
able to establish a strong competitive position in a future market.
The Company has not established a definitive plan for
marketing nor has it established a price structure for the Company's
saleable products. However, the Company intends, if the Company is in
a position to begin commercialization of its products, to enter into
written marketing agreements with various major pharmaceutical firms
with established sales forces. The sales forces in turn would
probably target the Company's products to cancer centers, physicians
and clinics involved in immunotherapy.
Competition to develop treatments for the control of AIDS is
intense. Many of the pharmaceutical and biotechnology companies
around the world are devoting substantial sums to the exploration and
development of technologies useful in these areas. VTI's development
of its experimental HGP-30 AIDS Vaccine, if successful, would likely
face intense competition from other companies seeking to find
alternative or better ways to prevent and treat AIDS.
Both the Company and VTI may encounter problems, delays and
additional expenses in developing marketing plans with outside firms.
In addition, the Company and VTI may experience other limitations
involving the proposed sale of their products, such as uncertainty of
third-party reimbursement. There is no assurance that the Company or
VTI can successfully market any products which they may develop or
market them at competitive prices.
The clinical trials funded to date by the Company and VTI
have not been approved by the FDA, but rather have been conducted
pursuant to approvals obtained from regulatory agencies in England,
Canada and certain states. Since the results of these clinical
trials may not be accepted by the FDA, companies which are conducting
clinical trials approved by the FDA may have a competitive advantage
in that the products of such companies are further advanced in the
regulatory process than those of the Company or VTI.
PROPERTIES
The Company's MULTIKINE product used in its pre-clinical and
Phase I clinical trials in England was manufactured at a pilot plant
at St. Thomas' Hospital Medical School using the Company's patented
production methods and equipment owned by the Company. The MULTIKINE
product used in the Florida clinical trials was manufactured in
Florida. In February, 1993, the Company signed an agreement with a
third party whereby the third party constructed a facility designed
to produce the Company's MULTIKINE product. The Company paid the
third party the cost of constructing this facility (approximately
$200,000) in accordance with the Company's specifications.
In October, 1994 the Company completed the construction of a
research laboratory in space leased by the Company. The cost of
modifying and equipping this space for the Company's purposes was
approximately $1,200,000.
The Company leases office space at 66 Canal Center Plaza,
Alexandria, Virginia at a monthly rental of approximately $8,200 per
month. The Company believes this arrangement is adequate for the
conduct of its present business.
EMPLOYEES
As of March 31, 1996 the Company, together with VTI,
employed 24 persons on a full-time basis.
MANAGEMENT
Officers and Directors
Name Age Position
Maximilian de Clara 66 Director and President
Geert R. Kersten, Esq. 37 Director, Chief Executive
Officer, Secretary and
Treasurer Patricia B. Prichep 43 Vice President of
Operations
M. Douglas Winship 45 Vice President of Regulatory
Affairs and Quality
Assurance Dr. Eyal Talor 40 Vice President of Research
and
Manufacturing
Dr. Prem S. Sarin 61 Vice President of Research
for
Viral
Technologies, Inc.
Dr. Daniel H. Zimmerman 54 Vice President of Cellular
Immunology
Mark V. Soresi 43 Director
F. Donald Hudson 62 Director
Edwin A. Shalloway 60 Director
The directors of the Company serve in such capacity until
the next annual meeting of the Company's shareholders and until
their successors have been duly elected and qualified. The officers
of the Company serve at the discretion of the Company's directors.
Mr. Maximilian de Clara, by virtue of his position as an
officer and director of the Company, may be deemed to be the
"parent" and "founder" of the Company as those terms are defined
under applicable rules and regulations of the Securities and
Exchange Commission.
The principal occupations of the Company's officers and
directors, during the past several years, are as follows:
Maximilian de Clara. Mr. de Clara has been a director of
the Company since its inception in March, l983, and has been
president of the Company since July, l983. Prior to his affiliation
with the Company, and since at least l978, Mr. de Clara was involved
in the management of his personal investments and personally funding
research in the fields of biotechnology and biomedicine. Mr. de
Clara attended the medical school of the University of Munich from
l949 to l955, but left before he received a medical degree. During
the summers of l954 and l955, he worked as a research assistant at
the University of Istanbul in the field of cancer research. For his
efforts and dedication to research and development in the fight
against cancer and AIDS, Mr. de Clara was awarded the "Pour le
Merit" honorary medal of the Austrian Military Order "Merito Navale"
as well as the honor cross of the Austrian Albert Schweitzer
Society.
Geert R. Kersten, Esq. Mr. Kersten was Director of
Corporate and Investment Relations for the Company between February,
1987 and October, 1987. In October of 1987, he was appointed Vice
President of Operations. In
December, 1988, Mr. Kersten was appointed director of the Company.
Mr. Kersten also became the Company's secretary and treasurer in
1989. In May, 1992, Mr. Kersten was appointed Chief Operating
Officer and in February, 1995, Mr. Kersten became the Company's
Chief Executive Officer. In previous years, Mr. Kersten worked as a
financial analyst with Source Capital, Ltd., an investment advising
firm in McLean, Virginia. Mr. Kersten is a stepson of Maximilian de
Clara, who is the President and a Director of the Company. Mr.
Kersten attended George Washington University in Washington, D.C.
where he earned a B.A. in Accounting and an M.B.A. with emphasis on
International Finance. He also attended law school at American
University in Washington, D.C. where he received a Juris Doctor
degree.
Patricia B. Prichep has been the Company's Vice President
of Operations since March, 1994. Between December, 1992 and March,
1994, Ms. Prichep was the Company's Director of Operations. From
June, 1990 to December, 1992, Ms. Prichep was the Manager of Quality
and Productivity for the NASD's Management, Systems and Support
Department. Between 1982 and 1990, Ms. Prichep was Vice President
and Operations Manager for Source Capital, Ltd.
M. Douglas Winship has been the Company's Vice President of
Regulatory Affairs and Quality Assurance since April, 1994. Between
1988 and April, 1994, Mr. Winship held various positions with
Curative Technologies, Inc., including Vice President of Regulatory
Affairs and Quality Assurance (1991-1994).
Dr. Eyal Talor has been the Company's Vice President of
Research and Manufacturing since March, 1994. From October, 1993
until March, 1994, Dr. Talor was Director of Research, Manufacturing
and Quality Control, as well as the Director of the Clinical
Laboratory, for Chesapeake Biological Laboratories, Inc. From 1991
to 1993, Dr. Talor was a scientist with SRA Technologies, Inc., as
well as the director of SRA's Flow Cytometry Laboratory (19911993)
and Clinical Laboratory (1992-1993). During 1992 and 1993, Dr.
Talor was also the Regulatory Affairs and Safety Officer For SRA.
Since 1987, Dr. Talor has held various positions with the John
Hopkins University, including course coordinator for the School of
Continuing Studies (1989-Present), research associate and lecturer
in the Department of
Immunology and Infectious Diseases (1987-1991), and associate
professor (1991Present).
Prem S. Sarin, Ph.D. has been the Vice President of Research
for Viral Technologies, Inc. (the Company's wholly-owned subsidiary)
since May 1, 1993. Dr. Sarin was an Adjunct Professor of
Biochemistry at the George Washington University School of Medicine,
Washington, D.C., from 1986-1992. From 1975-1991 Dr. Sarin held the
position of Deputy Chief, Laboratory of Tumor Cell Biology at the
National Cancer Institute (NCI), NIH, Bethesda, Maryland. Dr. Sarin
was a Senior Investigator (1974-1975) and a Visiting Scientist (1972-
1974) at the Laboratory of Tumor Cell Biology at NCI, NIH. From
19711972 Dr. Sarin held the position of Director, Department of
Molecular Biology, Bionetics Research Laboratory, Bethesda, Maryland.
Daniel H. Zimmerman, Ph.D. has been the Company's Vice
President of Cellular Immunology since January 1996. Dr. Zimmerman
founded CELL MED, Inc. and was its president from 1987-1995. From
1973 to 1987 Dr. Zimmerman served in various positions at
Electronucleonics, Inc. including Scientist, Senior Scientist,
Technical Director and Program Manager. From 1969-1973 Dr. Zimmerman
was a Senior Staff Fellow at NIH.
Mark V. Soresi. Mr. Soresi became a director of the Company in
July, 1989. In 1982, Mr. Soresi founded, and since that date has
been the president and Chief Executive Officer of REMAC(R), Inc.
REMAC(R) is involved in the clean-up of hazardous and toxic waste
dump sites. Mr. Soresi attended George Washington University in
Washington, D.C. where he earned a Bachelor of Science in Chemistry.
F. Donald Hudson. F. Donald Hudson has been a director of the
Company since May, 1992. From December 1994 to October 1995 Mr.
Hudson was President and Chief Executive Officer of VIMRx
Pharmaceuticals, Inc. Between 1990 and 1993, Mr. Hudson was
President and Chief Executive Officer of Neuromedica, Inc., a
development stage company engaged in neurological
research. Until January, 1989, Mr. Hudson served as Chairman and
Chief Executive Officer of Transgenic Sciences, Inc. (now TSI
Corporation), a publicly held biotechnology corporation which he
founded in January, 1987. From October, 1985 until January, 1987, Mr.
Hudson was a director of Organogenesis, Inc., a publicly held
biotechnology corporation of which he was a founder, and for five
years prior thereto was Executive Vice President and a director of
Integrated Genetics, Inc., a corporation also engaged in
biotechnology which he co-founded and which was publicly traded until
its acquisition in 1989 by Genzyme, Inc.
Edwin A. Shalloway, Esq. Mr. Shalloway has been a director
of the Company since May, 1992. Mr. Shalloway is and has been since
1964, a partner in the law firm of Sherman and Shalloway which
specializes in matters of patent law. Mr. Shalloway attended the
University of Georgia where he earned a Bachelor of Science and
Bachelor of Arts degrees. Mr. Shalloway received his law degree from
the American University in Washington, D.C. Mr. Shalloway is also
the President of the International Licensing Executive Society.
All of the Company's officers devote substantially all of
their time on the Company's business. Messrs. Soresi, Hudson and
Shalloway, as directors, devote only a minimal amount of time to the
Company.
The Company has an audit committee whose members are Geert R.
Kersten, F. Donald Hudson and Edwin A. Shalloway.
Executive Compensation
The following table sets forth in summary form the compensation
received by (i) the Chief Executive Officer of the Company and (ii)
by each other executive officer of the Company who received in excess
of $100,000 during the fiscal year ended September 30, 1995.
Annual Compensation Long Term
Compensation
Re-
All
Other stric-
Other
Annual ted
LTIP Com-
Compen- Stock Options Pay-
pensa-
Name and Princi- Fiscal Salary Bonus sation Awards Granted
outs tion pal Position Year (1) (2)
(3) (4) (5) (6) (7)
Maximilian de Clara, 1995 - - $95,181 - 225,000
- - -
President 1994 - - $93,752 - 70,000
- - -
1993 - - $59,376 - -
- - -
Geert R. Kersten, 1995 $164,801 - $ 9,426 - 224,750
- - $3,911
Chief Executive 1994 $182,539 - $ 8,183 - 50,000
- - $4,497
Officer, Secretary 1993 $163,204 - $ 6,046 - -
- $3,289
and Treasurer
M. Douglas Winship, 1995 $113,500 - $ 1,200 - 22,000 - $2,100
Vice President of
Regulatory Affairs
Suzanne Beckner, 1995 $102,250 - - - 25,000 -
$2,830
Vice President of
Clinical Development*
* Dr. Beckner resigned her position with the Company in November
1995.
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary
or bonus, including perquisites and other personal benefits,
securities or property. Amounts in the table represent automobile,
parking and other transportation expenses.
(4) During the period covered by the Table, no shares of restricted
stock were issued as compensation for services to the persons
listed in the table. As of September 30, 1995, the number of
shares of the Company's common stock, owned by the officers
included in the table above, and the value of such shares at such
date, based upon the market price of the Company's common stock
were:
Name Shares Value
Maximilian de Clara 5,000 $23,100
Geert R. Kersten 84,940 $392,423
Dividends may be paid on shares of restricted stock owned by the
Company's officers and directors, although the Company has no
plans to pay dividends. Mr. Winship and Ms. Beckner did not own
any shares of the Company's Common Stock at September 30, 1995.
(5) The shares of Common Stock to be received upon the exercise of
all stock options granted during the period covered by the Table.
The amounts in this table include options granted in prior years
but which were repriced during the year ending September 30,
1995. See "Ten Year Option/SAR Repricings" table below.
(6) "LTIP" is an abbreviation for "Long-Term Incentive Plan". An
LTIP is any plan that is intended to serve as an incentive for
performance to occur over a period longer than one fiscal year.
Amounts reported in this column represent payments received
during the applicable fiscal year by the named officer pursuant
to an LTIP.
(7) All other compensation received that the Company could not
properly report in any other column of the Table including annual
Company contributions or other allocations to vested and unvested
defined contribution plans, and the dollar value of any insurance
premiums paid by, or on behalf of, the Company with respect to
term life insurance for the benefit of the named executive
officer, and the full dollar value of the remainder of the
premiums paid by, or on behalf of, the Company. Amounts in the
table represent contributions made by the Company to a 401(k)
pension plan on behalf of persons named in the table.
Long Term Incentive Plans - Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
During 1993 the Company implemented a defined contribution
retirement plan, qualifying under Section 401(k) of the Internal
Revenue Code and covering substantially all the Company's employees.
The Company's contribution is equal to the lesser of 3% of each
employee's salary, or 50%
of the employee's contribution. The 1995 expenses for this plan were
$24,913. Other than the 401(k) Plan, the Company does not have a
defined benefit, pension plan, profit sharing or other retirement
plan.
Compensation of Directors
Standard Arrangements. The Company currently pays its
directors $1,500 per quarter, plus expenses. The Company has no
standard arrangement pursuant to which directors of the Company are
compensated for any services provided as a director or for committee
participation or special assignments.
Other Arrangements. The Company has from time to time
granted options to its outside directors, Mr. Soresi, Mr. Hudson and
Mr. Shalloway. See Stock Options below for additional information
concerning options granted to the Company's directors.
Employment Contracts
Effective August 1, 1994, the Company entered into a three-
year employment agreement with Mr. Kersten. The employment agreement
provides that during the period between August 1, 1994 and July 31,
1995, the Company will pay Mr. Kersten an annual salary of $198,985.
During the years ending August 31, 1996 and 1997, the Company will
pay Mr. Kersten a salary of $218,883 and $240,771 respectively. In
the event that there is a material reduction in Mr. Kersten's
authority, duties or activities, or in the event there is a change in
the control of the Company, then the agreement allows Mr. Kersten to
resign from his position at the Company and receive a lump-sum
payment from the Company equal to 18 months salary. For purposes of
the employment agreement, a change in the control of the Company
means the sale of more than 50% of the outstanding shares of the
Company's Common Stock, or a change in a majority of the Company's
directors. Pursuant to the agreement, the Company also agreed to
grant Mr. Kersten, in accordance with the Company's 1994 Incentive
Stock Option Plan, options to purchase 50,000 shares of the Company's
Common Stock.
Compensation Committee Interlocks and Insider Participation
The Company has a compensation committee comprised of all of
the Company's directors, with the exception of Mr. Kersten. During
the year ended September 30, 1995, Mr. de Clara was the only officer
participating in deliberations of the Company's compensation
committee concerning executive officer compensation. See
"Transactions witih Related Parties" below for information concerning
transactions between the Company and Mr. de Clara.
During the year ended September 30, 1995, no director of the
Company
was also an executive officer of another entity, which had an
executive officer of the Company serving as a director of such entity
or as a member of the compensation committee of such entity.
Stock Options
The following tables set forth information concerning the
options granted, during the fiscal year ended September 30, 1995, to
the persons named below, and the fiscal year-end value of all
unexercised options (regardless of when granted) held by these
persons.
Options Granted During Fiscal Year Ending September 30, l995
Potential Individual Grants (1) Realizable
Value at
% of Total Assumed Annual Rates
Options of Stock
Price Granted to Exercise ppreciation for
Options Employees in Price Per Expiration tion Term (3)
Name Granted (#) Fiscal Year Share (1) Date 5% 10%
Maximilian 15,000 $2.87 3/19/01 $ 14,550 $
30,750
de Clara 70,000 $2.87 11/1/01$ 67,900
$176,400
70,000 $2.87 7/29/04 $272,300
$272,300
70,000 $3.87 7/31/05 $240,100
$501,200
225,000 32%
Geert R. 50,000 (2) $2.87 1/10/98 $ 20,500
$
42,000
Kersten 750 $2.87 3/28/98 $ 287
$
705
4,000 $2.87 10/31/99 $ 2,440
$
5,320
10,000 $2.87 10/31/00 $ 7,900
$
17,500
10,000 $2.87 3/19/01 $ 9,700
$
22,100
50,000 $2.87 11/01/01 $ 48,500
$110,700
50,000 $2.87 7/29/04 $ 79,000
$194,500
50,000 $3.87 7/31/05 $171,500
$358,000
224,750 32%
M. Douglas 2,000 (2) $2.87 1/10/98 $ 720
$
1,660
Winship 15,000 $2.87 4/4/04 $ 23,700
$
58,350
5,000 $3.87 7/31/05 $ 17,150
$
35,800
22,000 3%
Suzanne 5,000 (2) $2.87 1/10/98 $ 1,750
$
4,150
Beckner 8,000 $2.87 7/11/04 $ 12,640
$
31,120
12,000 $3.87 7/31/05 $ 41,160
$
85,920
25,000 3.5%
(1) Includes options granted in prior fiscal years but which were
repriced in June 1995. See "Ten-Year Option/SAR
Repricings" table below.
(2) Options were granted in accordance with the Company's 1995 salary
reduction plan. Pursuant to the salary reduction plan, any
employee of the Company was allowed to receive options in
exchange for a one-time reduction in such employee's salary.
(3) The potential realizable value of the options shown in the table
assuming the market price of the Company's Common Stock
appreciates in value from the date of the grant to the end of the
option term at 5% or 10%.
Option Exercises and Year End Option Values
Number of Value of
UnexerUnexercised
cised In-the-
Money
Options Options at
Fiscal
Shares (3) Year-End
(4)
Acquired Value
on Exercise Realized Exercisable/
Exercisable/ Name (1) (2)
Unexercisable Unexercisable
Maximilian de Clara - - 108,334/116,666 $189,584/$134,165
Geert R. Kersten - - 85,750/139,000 $150,062/$193,250
M. Douglas Winship - - 5,000/ 17,000 $ 8,750/$ 24,750
Suzanne Beckner - - 2,667/ 22,333 $ 4,667/$ 27,083
(1) The number of shares received upon exercise of options
during the fiscal year ended September 30, 1995.
(2) With respect to options exercised during the Company's
fiscal year ended September 30, 1995, the dollar value of the
difference between the option exercise price and the market
value of the option shares purchased on the date of the exercise
of the options.
(3) The total number of unexercised options held as of September
30, 1995, separated between those options that were
exercisable and those options that were not exercisable.
(4) For all unexercised options held as of September 30, 1995,
the aggregate dollar value of the excess of the market value
of the stock underlying those options (as of September 30,
1995) over the exercise price of those unexercised options.
Values are shown separately for those options that were
exercisable, and those options that were not yet
exercisable, on September 30, 1995.
Ten-Year Option/SAR Repricings
In June 1995 the Company lowered the exercise price on
options held by all of the Company's officers, directors and
employees to $2.87 per share. The options subject to this repricing
allowed for the purchase of up to 444,250 shares of the Company's
Common Stock and included options previously granted to those persons
listed below. The Company's Board of Directors lowered the exercise
of these options since at the time of repricing (June 10, 1995), the
options no longer provided a benefit to the option holders due to the
difference between the exercise price of the options and the market
price of the Company's Common Stock. The following table provides
more information concerning the repricing of these options.
Number of
Length of
Securities Market Exercise
Original
Op-
Underlying Price of Price at
tion Term
Options/ Stock at Time of
Remaining
at
SARs Re- Repricing Repricing New Date of Re-
priced or r Amend- or Amend- Exercise pricing
or
Name Date Amended (#) ment ($) ment ($) Price ($)
mendment
Maximilian 6/10/95 15,000 $2.87 $10.90 $2.87 63 mos.
de Clara 70,000 $2.87 $20.90 $2.87 70 mos.
70,000 $2.87 $8.70 $2.87 108 mos.
Geert R. 6/10/95 50,000 $2.87 $4.10 $2.87 30 mos.
Kersten 750 $2.87 $11.60 $2.87 33 mos.
4,000 $2.87 $4.00 $2.87 52 mos.
10,000 $2.87 $8.40 $2.87 64 mos.
10,000 $2.87 $10.90 $2.87 68 mos.
50,000 $2.87 $20.90 $2.87 76 mos.
50,000 $2.87 $8.70 $2.87 108 mos.
M. Douglas 6/10/95 2,000 $2.87 $4.10 $2.87 30 mos.
Winship 15,000 $2.87 $11.20 $2.87 105 mos.
Suzanne 6/10/95 5,000 $2.87 $4.10 $2.87 30 mos.
Beckner 8,000 $2.87 $6.80 $2.87 107 mos.
Stock Option and Bonus Plans
The Company has Incentive Stock Option Plans, Non-Qualified
Stock Option Plans and a Stock Bonus Plan. A summary description of
these Plans follows. In some cases these Plans are collectively
referred to as the "Plans".
Incentive Stock Option Plan. The Incentive Stock Option
Plans collectively authorize the issuance of up to 800,000 shares of
the Company's Common Stock to persons that exercise options granted
pursuant to the Plan. Only Company employees may be granted options
pursuant to the Incentive Stock Option Plan.
To be classified as incentive stock options under the
Internal Revenue Code, options granted pursuant to the Plans must be
exercised prior to the following dates:
(a) The expiration of three months after the date on which
an option holder's employment by the Company is
terminated (except if such termination is due to the
death or permanent and total disability);
(b) The expiration of 12 months after the date on which an
option holder's employment by the Company is
terminated, if such termination is due to the
Employee's permanent and total disability;
(c) In the event of an option holder's death while in the
employ of the Company, his executors or administrators
may exercise, within three months following the date
of his death, the option as to any of the shares not
previously exercised;
The total fair market value of the shares of Common Stock
(determined at the time of the grant of the option) for which any
employee may be granted options which are first exercisable in any
calendar year may not exceed $100,000.
Options may not be exercised until one year following the
date of grant. Options granted to an employee then owning more than
10% of the Common Stock of the Company may not be exercisable by its
terms after five years from the date of grant. Any other option
granted pursuant to the Plan may not be exercisable by its terms
after ten years from the date of grant.
The purchase price per share of Common Stock purchasable
under an option is determined by the Committee but cannot be less
than the fair market value of the Common Stock on the date of the
grant of the option (or 110% of the fair market value in the case of
a person owning more than 10% of the Company's outstanding shares).
Non-Qualified Stock Option Plan. The Non-Qualified Stock
Option Plans collectively authorize the issuance of up to 1,360,000
shares of the Company's Common Stock to persons that exercise
options granted pursuant to the Plans. The Company's employees,
directors, officers, consultants and advisors are eligible to be
granted options pursuant to the Plans, provided however that bona
fide services must be rendered by such consultants or advisors and
such services must not be in connection with the offer or sale of
securities in a 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 Non
Qualified Stock Option Plan will be forfeited if the "vesting"
schedule established by the Committee administering the Plan at the
time of the grant is not met. For this purpose, vesting means the
period during which the employee must remain an employee of the
Company or the period of time a nonemployee must provide services to
the Company. At the time an employee ceases working for the Company
(or at the time a non-employee ceases to perform services for the
Company), any shares or options not fully vested will be forfeited
and cancelled. At the discretion of the Committee payment for the
shares of Common Stock underlying options may be paid through the
delivery of shares of the Company's Common Stock having an aggregate
fair market value equal to the option price, provided such shares
have been owned by the option holder for at least one year prior to
such exercise. A combination of cash and shares of Common Stock may
also be permitted at the discretion of the Committee.
Options are generally non-transferable except upon death of
the option holder. Shares issued pursuant to the Stock Bonus Plan
will generally not be transferable until the person receiving the
shares satisfies the vesting requirements imposed by the Committee
when the shares were issued.
The Board of Directors of the Company may at any time, and
from time to time, amend, terminate, or suspend one or more of the
Plans in any manner they deem appropriate, provided that such
amendment, termination or suspension will not adversely affect
rights or obligations with respect to shares or options previously
granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the
eligibility requirements for the Plans; increase or decrease the
total number of shares of Common Stock which may be issued pursuant
to the Plans except in the case of a reclassification of the
Company's capital stock or a consolidation or merger of the Company;
reduce the minimum option price per share; extend the period for
granting options; or materially increase in any other way the
benefits accruing to employees who are eligible to participate in
the Plans.
Prior Stock Option and Bonus Plan. The Company previously
had in effect a Stock Option and Bonus Plan ("the 1987 Plan") which
provided for the grant to the Company's officers, directors,
employees and consultants of either (i) shares of the Company's
Common Stock for services rendered or (ii) options to purchase
shares of Common Stock. The 1987 Plan was terminated by the Company
in 1992. Since the 1987 Plan was terminated, no further options
will be granted and no further bonus shares will be issued pursuant
to the 1987 Plan. However, options previously granted may
nevertheless still be exercised according to the terms of the
options. Prior to the termination of the 1987 Plan, the Company
granted options to purchase 189,250 shares of the
Company's Common Stock. To date, options to purchase 6,000 shares
have been exercised. In June, 1995 the Company cancelled options to
purchase 176,250 shares that had previously been granted under this
Plan and reissued options for the same number of shares under the
Company's other stock option plans. See "Option Summary" below.
Option Summary. The following sets forth certain
information, as of June 30, 1996, concerning the stock options
granted by the Company. Each option represents the right to
purchase one share of the Company's Common Stock.
Total Shares
Shares Reserved for Remaining
Reserved Outstanding Options
Name of Plan Under Plan Options Under Plan
1987 Stock Option and Bonus Plan 200,000 7,000 (1)
1992 Incentive Stock Option Plan 100,000 94,050 3,283
1992 Non-Qualified Stock Option
Plan 60,000 45,000 -
1994 Incentive Stock Option Plan 100,000 100,000 -
1994 Non-Qualified Stock Option
Plan 100,000 97,250 2,750
1995 Non-Qualified Stock Option
Plan 800,000 638,626 111,374
1996 Incentive Stock Option Plan 600,000 - 600,000
1996 Non-Qualified Stock Option
Plan 400,000 - 400,000
TOTAL: 981,926 1,117,407
(1) This Plan was terminated in 1992 and as a result, no new options
will be granted pursuant to this Plan.
As of June 30, 1996, 1,500 shares had been issued pursuant
to the Company's 1992 Stock Bonus Plan. All of these shares were
issued during the fiscal year ending September 30, 1994.
Transactions with Related Parties
The technology and know-how licensed to the Company was
developed by a group of researchers under the direction of Dr. 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.
Legal Matters
During the year ended September 30, 1993, the Company paid
Mr. de Clara approximately $23,000 for legal expenses incurred by
Mr. de Clara in defending a legal action brought against Mr. de
Clara by an unrelated third party who claimed that Mr. de Clara owed
the third party 25,000 shares of the
Company's Common Stock as a fee for introducing the Company (in
1985) to persons who allegedly were willing to (but did not) provide
funds to the Company. Although the Company was not a party to this
proceeding, the Company's Board of Directors has determined, based
upon information supplied by Mr. de Clara, that the third party's
claims against Mr. de Clara arose as a result of Mr. de Clara's
efforts to obtain funding for the Company. Accordingly, the Board of
Directors determined that Mr. de Clara was entitled by law to
indemnification and in October, 1993, the Company issued 25,000
shares of its common stock to the third party claiming the shares
from Mr. de Clara.
The Securities and Exchange Commission found that between
1988 and 1991 Mr. de Clara failed to timely file reports of
beneficial ownership required by the Securities Exchange Act of
1934. In May, 1992, the Commission entered an order requiring Mr.
de Clara to file reports of beneficial ownership on a timely basis.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of July 31, 1996,
information with respect to the only persons owning beneficially 5%
or more of the outstanding Common Stock and the number and
percentage of outstanding shares owned by each director and officer
and by the officers and directors as a group. Unless otherwise
indicated, each owner has sole voting and investment powers over his
shares of Common Stock.
Number of Percent of
Name and Address Shares (1) Class (4)
Maximilian de Clara 46,667 (2) *
Bergstrasse 79
6078 Lungern,
Obwalden, Switzerland
Geert R. Kersten 268,357 (3) 4.1%
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Patricia B. Prichep 21,197 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
M. Douglas Winship 13,667 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Eyal Talor 14,501 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Prem Sarin 10,834 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 22314
Mark Soresi 19,375 *
l0l0 Wayne Ave., 8th Floor
Silver Spring, MD 209l0
F. Donald Hudson 15,500 *
53 Mt. Vernon Street
Boston, MA 02108
Edwin A. Shalloway 15,500 *
413 North Washington Street
Alexandria, VA 22314
All Officers and Directors
as a Group (10 persons) 425,598
6.0%
*Less than 1%
(1) Includes shares issuable prior to August 31, 1996 upon the
exercise of options or warrants granted to the following
persons:
Options or Warrants
Exercisable Name Prior to August 31,
1996
Maximilian de Clara 46,667
Geert R. Kersten 163,417
Patricia B. Prichep 18,167
M. Douglas Winship 13,667
Dr. Eyal Talor 13,001
Dr. Prem Sarin 10,834
Mark Soresi 17,500
F. Donald Hudson 15,500
Edwin A. Shalloway 15,500
See "Management" for information concerning outstanding stock
options.
(2) All shares are held of record by Milford Trading, Ltd., a
corporation organized pursuant to the laws of Liberia. All of
the issued and outstanding shares of Milford Trading, Ltd. are
owned beneficially by Mr. de Clara.
(3) Amount includes shares held in trust for the benefit of Mr.
Kersten's minor children. Geert R. Kersten is the stepson of
Maximilian de Clara.
(4) Amount excludes shares which may be issued upon the exercise
and/or conversion of options, warrants and other convertible
securities previously issued by the Company. See "Dilution and
Comparative Share Data".
SELLING SHAREHOLDERS
This Prospectus relates to the sale by certain Warrant
Holders of up to 115,000 shares of Common Stock, which shares were
issued upon the exercise of Sales Agent Warrants, the sale of 45,000
shares of common stock by Nippon Zeon Co., Ltd. ("Nippon Zeon"),
which shares were issued in exchange for the cancellation of certain
royalties payable by the Company to Nippon Zeon, and the sale of
50,000 shares of common stock acquired by a consultant upon the
exercise of an option.
In connection with the Company's June and September
offerings of 1,150,000 shares of Common Stock and 1,150,000 Common
Stock Purchase Warrants, Neidiger/Tucker/ Bruner, Inc., the Sales
Agent for these offerings, received a commission, a non-accountable
expense allowance and warrants to purchase (i) 57,500 shares of the
Company's Common Stock at $2.00 per share, (ii) 57,500 shares at
$2.40 per share, and (ii) an additional 115,000 shares at $3.25 per
share. Neidiger/Tucker/Bruner, Inc. subsequently assigned the
Sales Agent's Warrants to the persons named below. Prior to the date
of this Prospectus, the holders of the Sales Agent's Warrants
collectively exercised Warrants pertaining to 115,000 shares of the
Company's Common Stock. The shares issued to the Warrant Holders
as a result of the exercise of the Warrants are being offered for
public sale by means of this Prospectus.
In December l987, VTI signed a licensing agreement with
Nippon Zeon Co., Ltd. ("Nippon Zeon"), a Japanese chemical
manufacturer, granting Nippon Zeon exclusive rights to VTI's
prototype AIDS vaccine and improvements in the Pacific Area. Under
the agreement, VTI received an initial licensing payment, as well as
a pre-commercialization payment, and was also entitled to receive
additional pre-commercialization payments dependent upon receipt of
certain regulatory approvals. In l995 Nippon Zeon released its
rights to VTI's technology in consideration for VTI's agreement to
pay Nippon Zeon a royalty on sales products made with VTI's
technology in the licensed area. In July 1996 Nippon Zeon agreed to
surrender its royalty rights, as well as any other rights it may have
had to VTI's technology, in exchange for 45,000 shares of the
Company's common stock, which shares are being offered for public
sale by means of this Prospectus.
In February 1996 the Company issued an option to Landon
Barretto in partial consideration for public relations services
provided to the Company. The option allows Mr. Barretto to purchase
50,000 shares of the Company's common stock at a price of $3.25 per
share. The shares acquired by Mr. Barretto upon the exercise of this
option are being offered to the public by means of this
Prospectus.
The holders of the Sales Agent's Warrants and Mr. Barretto,
in the event they exercise their Warrants and option and receive
shares of the Company's Common Stock, as well as Nippon Zeon, are
sometimes referred to in this Prospectus as the "Selling
Shareholders". The Company will not receive any proceeds from the
sale of the shares by the Selling Shareholders.
The names of the Selling Shareholders are:
Shares to Share
Shares be Sold in Owner-
Presently This ship
After
Name Owned Offering (1)
Offering
Eugene Neidiger - 12,280 -
Michael McCaffrey - 46,500 -
George McCaffrey - 31,500 -
Robert Parrish - 6,120 -
J. Henry Morgan - 6,760 -
Anthony Petrelli - 9,940 -
Charles Bruner - 10,900 -
John Turk - 6,000 -
Nippon Zeon - 45,000 -
Landon Baretto - 50,000 -
210,000
The address of each Selling Shareholder, with the exception of Nippon
Zeon, is:
c/o Neidiger/Tucker/Bruner, Inc.
5990 S. Greenwood Plaza
Blvd. Suite 125
Englewood, CO
80111
The address of Nippon Zeon is:
Nippon Zeon Co.,
Ltd. Furukawa Sogo
Building
2-6-1 Marunduchi
Chiyoda-Ku, Tokyo
l00 Japan
The address of Landon Barretto is:
224-1152 Mainland
Street Vancouver, BC,
Canada V6B 4X2
(1) In the case of all persons except Nippon Zeon and Landon Baretto,
represents shares issuable as a result of the exercise of the
Sales Agent's Warrants. In the case of Mr. Barretto, represents
shares acquired by Mr. Barretto as a result of an option granted
to Mr. Baretto. See "Dilution and Comparative Share Data."
Amounts in table assume all shares which may be acquired upon the
exercise of the Sales Agent's Warrants are sold to the public by
means of this Prospectus.
Manner of Sale. The shares of Common Stock owned, or which
may be acquired, by the Selling Shareholders may be offered and sold
by means of
this Prospectus from time to time as market conditions permit in the
over-thecounter market, or otherwise, at prices and terms then
prevailing or at prices related to the then-current market price, or
in negotiated transactions. These shares may be sold by one or more
of the following methods, without limitation: (a) a block trade in
which a broker or dealer so engaged will attempt to sell the shares as
agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant
to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) face-to-
face transactions between sellers and purchasers without a
broker/dealer. In effecting sales, brokers or dealers engaged by the
Selling Shareholders may arrange for other brokers or dealers to
participate. Such brokers or dealers may receive commissions or
discounts from Selling Shareholders in amounts to be negotiated.
The Selling Shareholders and any broker/dealers who act in
connection with the sale of the Shares hereunder may be deemed to be
"underwriters" within the meaning of 2(11) of the Securities Acts of
1933, and any commissions received by them and profit on any resale of
the Shares as principal might be deemed to be underwriting discounts
and commissions under the Securities Act. The Company has agreed to
indemnify the Selling Shareholders and any securities broker/dealers
who may be deemed to be underwriters against certain liabilities,
including liabilities under the Securities Act as underwriters or
otherwise.
The Company has advised the Selling Shareholders that they
and any securities broker/dealers or others who may be deemed to be
statutory underwriters will be subject to the Prospectus delivery
requirements under the Securities Act of 1933. The Company has also
advised each Selling Shareholder
that in the event of a "distribution" of the shares owned by the
Selling Shareholder, such Selling Shareholder, any "affiliated
purchasers", and any broker/ dealer or other person who participates
in such distribution may be subject to Rule 10b-6 under the Securities
Exchange Act of 1934 ("1934 Act") until their participation in that
distribution is completed. A "distribution" is defined in Rule 10b-6
as an offering of securities "that is distinguished from ordinary
trading transactions by the magnitude of the offering and the presence
of special selling efforts and selling methods". The Company has also
advised the Selling Shareholders that Rule 10b-7 under the 1934 Act
prohibits any "stabilizing bid" or "stabilizing purchase" for the
purpose of pegging, fixing or stabilizing the price of the Common
Stock in connection with this offering.
Rule 10b-6 makes it unlawful for any person who is
participating in a distribution to bid for or purchase stock of the
same class as is the subject of the distribution. If Rule 10b-6
applies to the offer and sale of any of the Shares, then participating
broker/dealers will be obligated to cease market-making activities
nine business days prior to their participation in the offer and sale
of such Shares and may not recommence market-making activities until
their participation in the distribution has been completed. If Rule
10b-6 applies to one or more of the principal marketmakers in the
Company's Common Stock, the market price of such stock could be
adversely affected.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 100,000,000 shares
of Common Stock, (the "Common Stock"). Holders of Common Stock
are each entitled to cast one vote for each share held of record
on all matters presented to shareholders. Cumulative voting is
not allowed; hence, the holders of a majority of the outstanding
Common Stock can elect all directors.
Holders of Common Stock are entitled to receive such dividends
as
may be declared by the Board of Directors out of funds legally
available therefor and, in the event of liquidation, to share
pro rata in any distribution of the Company's assets after
payment of liabilities. The board is not obligated to declare a
dividend. It is not anticipated that dividends will be paid in
the foreseeable future.
Holders of Common Stock do not have preemptive rights to
subscribe to additional shares if issued by the Company. There are
no conversion, redemption, sinking fund or similar provisions
regarding the Common Stock. All of the outstanding shares of Common
Stock are fully paid and nonassessable and all of the shares of
Common Stock offered as a component of the Units will be, upon
issuance, fully paid and 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 voting power, designations,
preferences, and relative participation, special rights, and the
qualifications, limitations or restrictions of the shares of any
series so established. As the Board of Directors has authority to
establish the terms of, and to issue, the Preferred Stock without
shareholder approval, the Preferred Stock could be issued to defend
against any attempted takeover of the Company.
In May 1996 the Company sold 3,500 shares of its Series A
Preferred Stock (the "Preferred Shares") for $3,500,000 or $1,000 per
share. At the purchasers' option, up to 1,750 Preferred Shares are
convertible, on or after 60 days from the closing date of the
purchase of such shares (the "Closing"), into shares of the Company's
Common Stock on the basis of one share of Preferred Stock for shares
of Common Stock equal in number to the amount determined by dividing
$1,000 by 85% of the Closing Price of the Company's Common Stock.
All Preferred Shares are convertible, on or after 90 days from the
Closing, on the basis of one share of Preferred Stock for shares of
the Company's Common Stock equal in number to the amount determined
by dividing $1,000 by 83% of the Closing Price of the Company's
Common Stock. The term "Closing Price" is defined as the average
closing bid price of the Company's Common Stock over the five-day
trading period ending on the day prior to the conversion of the
Preferred Stock. Notwithstanding the above, the conversion price may
not be less than $3.00 nor more than $8.00, except that if the
Closing Price is less than $3.00, then the conversion price will be
equal to the Closing Price. The Preferred Shares are entitled to a
quarterly dividend of $17.50 per share. Any Preferred Shares which
are outstanding on the second anniversary of the Closing will be
automatically converted into shares of the Company's Common Stock.
The Preferred Shares have a liquidation preference over the Company's
Common Stock. The shares issuable upon the conversion of the
Preferred Shares have been registered for sales pursuant to a
separate Registration Statement. See "Risk Factors" and "Dilution
and Comparative Share Data."
Publicly Traded Warrants
In connection with the Company's February, 1992 public
offering, the Company issued 5,175,000 Warrants. Every ten Warrants
entitle the holder to purchase one share of the Company's Common
Stock at a price of $15.00 per share prior to February 7, 1997. The
Company, upon 30-days notice, may accelerate the expiration date of
the Warrants, provided, however, that at the time the Company gives
such notice of acceleration (1) the Company has in effect a current
registration statement covering the shares of Common Stock issuable
upon the exercise of the Warrants and (2) at any time during the 30
day period preceding such notice, the average closing bid price of
the
Company's Common Stock has been at least 20% higher than the warrant
exercise price for 15 consecutive trading days. If the expiration
date is accelerated, all Warrants not exercised within the 30-day
period will expire.
Other provisions of the Warrants are set forth below. This
information is subject to the provisions of the Warrant Certificate
representing the Warrants.
1. Holders of the Warrants may sell the Warrants rather than
exercise them. However, there can be no assurance that a market will
develop or continue as to the Warrants.
2. Unless exercised within the time provided for exercise,
the Warrants will automatically expire.
3. The exercise price of the Warrants may not be increased
during the term of the Warrants, but the exercise price may be
decreased at the discretion of the Company's Board of Directors by
giving each Warrant holder notice of such decrease. The exercise
period for the Warrants may be extended by the Company's Board of
Directors giving notice of such extension to each Warrant holder of
record.
4. There is no minimum number of shares which must be
purchased upon exercise of the Warrants.
5. The holders of the Warrants in certain instances are
protected against dilution of their interests represented by the
underlying shares of Common Stock upon the occurrence of stock
dividends, stock splits, reclassifications, and mergers.
6. The holders of the Warrants have no voting power and
are not entitled to dividends. In the event of a liquidation,
dissolution, or winding up of the Company, holders of the Warrants
will not be entitled to participate in the distribution of the
Company's assets.
Convertible Notes
In March 1996 the Company sold $l,250,000 of Convertible Notes
("Notes") to two persons. The Notes were convertible from time to
time in whole or in part, into shares of the Company's Common Stock.
The conversion price was the lesser of (i) $5 per share or (ii) 80%
of the average closing bid price of the Company's Common Stock during
the five trading days immediately preceding the date of such
conversion. Prior to July 31, l996, all of the Notes were converted
into 250,000 shares of the Company's common stock. The Company has
made appropriate filings with the Securities and Exchange Commission
such that the shares issuable upon the conversion of the Notes are
available for public sale.
Transfer Agent
American Securities Transfer, Inc., of Denver, Colorado, is
the transfer agent for the Company's Common Stock.
LITIGATION
In February 1996 the Company filed a lawsuit against
ImmunoRx and Dr. John Hadden for contract breach, tortious
interference of contract and patent infringement concerning the
Company's Multikine drug. The lawsuit, filed in the U.S. District
Court for the Middle District of Florida, seeks damages and the
termination of certain research and clinical studies being conducted
by ImmunoRx and Dr. Hadden. From 1984 to 1992, Dr. Hadden consulted
with the Company, performed research on Multikine and manufactured
Multikine for the Company's head and neck cancer study in Florida.
In early 1993, Dr. Hadden signed a separation agreement with the
Company acknowledging the Company's
ownership of both Multikine and the research results. The Company
has learned that Dr. Hadden and ImmunoRx are apparently making copies
of Multikine, in contravention of the separation agreement and the
patents covering Multikine, and have begun clinical studies in a
foreign country using a copy of Multikine. See "Business Compounds
and Processes Licensed to the Company".
EXPERTS
The financial statements as of September 30, 1995 and 1994
and for each of the three years in the period ended September 30,
1995 included in this prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing
herein, and are so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
INDEMNIFICATION
The Company's Bylaws authorize indemnification of a
director, officer, employee or agent of the Company against expenses
incurred by him in connection with any action, suit, or proceeding to
which he is named a party by reason of his having acted or served in
such capacity, except for liabilities arising from his own misconduct
or negligence in performance of his duty. In addition, even a
director, officer, employee, or agent of the Company who was found
liable for misconduct or negligence in the performance of his duty
may obtain such indemnification if, in view of all the circumstances
in the case, a court of competent jurisdiction determines such person
is fairly and reasonably entitled to indemnification. Insofar as
indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, or persons controlling
the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange
Commission, 450 5th Street, N.W., Washington, D.C. 20001, a
Registration Statement under the Securities Act of l933, as amended,
with respect to the securities offered hereby. This Prospectus does
not contain all of the information set forth in the Registration
Statement. For further information with respect to the Company and
such securities, reference is made to the Registration Statement and
to the Exhibits filed therewith. Statements contained in this
Prospectus as to the contents of any contract or other documents are
summaries which 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.
2259D
No dealer, salesman or other person has been authorized to
give any information or to make any representations, other than those
contained in this Prospectus. Any information or representation not
contained in this Prospectus must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, the securities
offered hereby in any state or other jurisdiction to any person to
whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create an implication that there has been no
change in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
Page Prospectus Summary ...........................................
Glossary of Technical Terms
.................................. Risk Factors
................................................. Dilution
and Comparative Share Data .......................... Use
of Proceeds
..............................................
Market Information
........................................... Selected
Financial Data ......................................
Management's Discussion and Analysis
......................... Business
.....................................................
Management
...................................................
Principal Shareholders
....................................... Selling
Shareholders .........................................
Description of Securities
.................................... Litigation
................................................... Legal
Matters ................................................
Experts
......................................................
Indemnification
.............................................. Additional
Information .......................................
Financial Statements
.........................................
210,000 Shares of Common Stock
CELSCI CORPORATION
PROSPECTUS
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Officers and Directors.
It is provided by Section 7-l09-l02 of the Colorado Revised
Statutes and the Company's Bylaws that the Company may indemnify any and
all of its officers, directors, employees or agents or former officers,
directors, employees or agents, against expenses actually and necessarily
incurred by them, in connection with the defense of any legal proceeding
or threatened legal proceeding, except as to matters in which such persons
shall be determined to not have acted in good faith and in the best
interest of the Company.
Item 25. Other Expenses of Issuance and Distribution.
SEC Filing Fee $ 442
NASD Filing Fee
652
Blue Sky Fees and Expenses
1,000
Printing and Engraving Expenses
1,000 Legal Fees and Expenses
25,000
Accounting Fees and Expenses 5,000 Transfer Agent Fees
100
Miscellaneous Expenses
1,806
TOTAL
$35,000
All expenses other than the S.E.C. and NASD filing fees are
estimated. Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all securities of the
Company which have been sold during the past three years and which
securities were not registered under the Securities Act of 1933, as
amended.
Shares of
Common Date of
Security Holder Stock Sold Sale
Consideration
Daryl Strahl 2,431 11/1/93
8,038(1)
Isadore Klausner 25,000 11/1/93
(2)
Private Investors 575,000 6/22/95 $1,150,000
Private Investors 575,000 9/30/95 $1,150,000
Unless otherwise indicated, the consideration paid for the
shares was cash.
(1) Surrender of options to Company. The options surrendered were
valued at $8,038.
II-1
(2) Settlement of claim against officer and director. Officer and
director was indemnified by Company for this claim. Accordingly,
shares were issued directly to Mr. Klausner, the person asserting
the claim against the officer and director.
The sales of the Company's Common Stock described above were
exempt transactions under Section 4(2) of the Act as transactions by
an issuer not involving a public offering. The shares of Common Stock
sold subsequent to February 1995 were also exempt in accordance with
Rule 505 of the Securities and Exchange Commission. All of the shares
of Common Stock were issued for investment purposes only and without a
view to distribution. All of the persons who acquired the foregoing
securities were fully informed and advised about matters concerning
the Company, including its business, financial affairs and other
matters. The purchasers of the Company's Common Stock acquired the
securities for their own accounts. The certificates evidencing the
securities bear legends stating that they may not be offered, sold or
transferred other than pursuant to an effective registration statement
under the Securities Act of 1933, or pursuant to an applicable
exemption from registration. No underwriters were involved with the
sale of the shares of Common Stock and no commissions or other forms
of remuneration were paid to any person in connection with sales of
the Company's securities prior to June 1995. The Company paid a
commission of $230,000, a non-accountable expense allowance of
$69,000, and issued warrants for the purchase of up to 230,000 shares
of Common Stock, to Neidiger/Tucker/Bruner, Inc. in connection with
the sale of the securities sold in June and September 1995. All of
the
shares of Common Stock sold by the Company are "restricted" shares as
defined in Rule 144 of the Rules and Regulations of the Securities and
Exchange Commission.
Item 27. Exhibits and Financial Statement Schedules
Exhibits Page Number
1(c) Form of Common Stock Purchase Filed with initial
Registration State
Warrant ment.
3(a) Articles of Incorporation Incorporated by reference to
Exhibit
3(a) of the Company's combined
Registration Statement on Form
S-1 and Post-Effective
Amendment ("Registration
Statement"), Registration Nos.
2-85547-D and 337531.
Filed with Amendment No. 1 to
this Registration Statement.
(b) Amended Articles Incorporated by reference to
Exhibit
3(a) of the Company's
Registration Statement on Form
S-1, Registration Nos. 2-85547-
D and 33-7531.
II-2
(c) Amended Articles Filed with initial Registration
State-
(Name change only) ment (No. 33-34878).
(d) Bylaws Incorporated by reference to
Exhibit
3(b) of the Company's
Registration Statement on Form
S-1, Registration Nos. 2-85547-
D and 33-7531.
4(a) Specimen copy of Incorporated by reference to
Exhibit
Stock Certificate 4(a) of the Company's
Registration
Statement on Form S-1,
Registration Nos. 2-85547-D
and 33-7531.
(c) Form of Common Stock Incorporated by reference to
Exhibit
Purchase Warrant 4(c) filed as an exhibit to
the
Company's Registration
Statement on Form S-1
(Registration No. 33-43281).
5. Opinion of Counsel
10(a) Purchase Agreement Incorporated by reference to
Exhibit
dated April 21, 1986 10(a) of the Company's
Registration
with Alpha I Biomedical
Statement on Form S-1, Registration
Nos. 2-85547-D and 33-7531.
(b) Agreement with Sittona
Incorporated by reference to Exhibit
Company B.V. dated
10(c) of the Company's Registration
May 3, 1983
Statement on Form S-1, Registration
Nos. 2-85547-D and 33-7531.
(c) Addendum effective May 3,
Incorporated by reference to Exhibit
1983 to Licensing Agree-
10(e) of the Company's Registration
ment with Sittona Company,
Statement on Form S-1, Registration
B.V.
Nos. 2-85547-D and 33-7531.
(d) Addendum effective October
Incorporated by reference to
Exhibit 13, 1989 to Licensing
Agree- 10(d) of Company's
Annual Report on ment with
Sittona Company, Form 10-
K for the year ended September
B.V.
30, 1989.
10(e) Employment Agreement with Filed with Amendment Number 1
to the
Geert Kersten Company's Registration
Statement on
Form S-1 (Commission File
Number 3343281).
10(g) Agreement between Viral
Filed with Amendment Number 2 to the
Technologies, Inc. and
Company's Registration Statement on
Nippon Zeon Co., Ltd.
Form S-1 (Commission File Number 33-
90230).
23(a) Consent of Hart & Trinen
II-3
(b) Consent of Deloitte &
Touche LLP
24. Power of Attorney
Included as part of signature page.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement.
(i) To include any Prospectus required by Section
l0(a)(3) of the Securities Act of l933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement; (iii) To include
any material information with respect to the plan of
distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement, including
(but not limited to) any addition or deletion of a
managing underwriter.
(2) That, for the purpose of determining any liability under
the Securities Act of l933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4) To provide to the Underwriter at the closing specified
in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriter to permit
prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising under
the Securities Act of l933 may be permitted to directors, officers and
controlling persons of the Registrant, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-4
POWER OF ATTORNEY
The registrant and each person whose signature appears below
hereby authorizes the agent for service named in this Registration
Statement, with full power to act alone, to file one or more
amendments (including posteffective amendments) to this Registration
Statement, which amendments may make such changes in this Registration
Statement as such agent for service deems appropriate, and the
Registrant and each such person hereby appoints such agent for service
as 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 16th day of August,
1996.
CEL-SCI CORPORATION
By: /s/ Maximilian de Clara
MAXIMILIAN DE CLARA,
PRESIDENT
Pursuant to the requirements of the Securities Act of l933,
this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
Signature Title Date
/s/ Maximilian de Clara Director and Principal August 16, 1996
MAXIMILIAN DE CLARA Executive Officer
/s/ Geert R. Kersten Director, Principal August 16, 1996
GEERT R. KERSTEN Financial Officer
and Chief Executive
Officer
Director August 16, 1996
MARK V. SORESI
Director August 16, 1996
F. DONALD HUDSON
/s/ Edwin A. Shalloway Director August 16, 1996
EDWIN A. SHALLOWAY
August 15, 1996
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 2000l
Re: CEL-SCI Corporation
Amendment No. 2 to Registration Statement on Form S-1
File No 333-90123
Gentlemen:
On behalf of CEL-SCI Corporation, enclosed herewith please find
Amendment No. 2 to the Registration Statement on Form S-1.
On behalf of CEL-SCI Corporation, we request that the effectiveness of
the above-captioned Registration Statement be accelerated to August
19, 1996, or as soon as practical thereafter. Thank you for your time
and cooperation in this matter.
Very truly yours,
HART & TRINEN
William T. Hart
August 16, l996
CEL-SCI Corporation
66 Canal Center Plaza
Suite 510
Alexandria, Virginia 223l4
Gentlemen:
This letter will constitute an opinion upon the legality of the sale by
CELSCI Corporation, a Colorado corporation ("the Company"), of up to
210,000 shares of Common Stock, all as referred to in the Registration
Statement on Form S-1 filed by the Company with the Securities and
Exchange Commission.
We have examined the Articles of Incorporation, the Bylaws and the
minutes of the Board of Directors of the Company and the applicable
laws of the State of Colorado, and a copy of the Registration
Statement. In our opinion, the Company is authorized to issue the
shares of stock mentioned above and such shares, when issued, will
represent fully paid and nonassessable shares of the Company's Common
Stock.
Very truly yours,
HART & TRINEN
William T. Hart
CONSENT OF ATTORNEYS
Reference is made to the Registration Statement of CEL-SCI
Corporation, whereby the Company proposes to sell up to 210,000 shares
of the Company's Common Stock. Reference is also made to Exhibit 5
included in the Registration Statement relating to the validity of the
securities proposed to be sold.
We hereby consent to the use of our opinion concerning the validity of
the securities proposed to be issued and sold.
Very truly yours,
HART & TRINEN
William T. Hart
Denver, Colorado
August 16, l996
CEL-SCI CORPORATION
Financial Statements for the Years Ended September 30,
1995, 1994, and 1993, and Independent Auditors' Report
To the Board of Directors and Shareholders of
CEL-SCI Corporation:
We have audited the accompanying balance sheets of CEL-SCI
Corporation as of September 30, 1995 and 1994, and the
related statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended
September 30, 1995. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion. In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of CELSCI Corporation as of September 30, 1995 and
1994, and the results of its operations and its cash flows for
each of the three years in the period ended September 30,
1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, as of
September 30, 1994, the Company changed its method of
accounting for certain investments in debt and equity
securities to conform with Statement of Financial Accounting
Standards No. 115. Washington, DC
November 29, 1995, except for Note 14, as to
which the date is December 23, 1995
Page F-2
F-3
Page F-3
Page F-4
Page F-5
CEL-SCI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994, AND 1993
2
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
CEL-SCI Corporation (the Company) was incorporated on March
22,
1983, in the State of Colorado, to finance research and
development in biomedical science and ultimately to engage in
marketing products. Significant accounting policies are as
follows: Investments Effective September 30, 1994, the Company
adopted, on a prospective basis, Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Debt and
Equity Securities" (SFAS 115) and revised its policy for
investments. Investments that may be sold as part of the
liquidity management of the Company or for other factors are
classified as available-for sale and are carried at fair
market value. Unrealized gains and losses on such securities
are reported as a separate component of stockholders' equity.
Realized gains and losses on sales of securities are reported
in earnings and computed using the specific identified cost
basis. The adoption of SFAS 115, which has not been applied
retroactively to prior years' financial statements, resulted
in a decrease in stockholders' equity of $85,753 for the net
unrealized losses on investments available forsale at
September 30, 1994. As of September 30, 1995, all debt and
equity securities had been disposed of and any
unrealized gains or losses were recognized during the year
ended September 30, 1995 (see Note 2).
Prior to September 30, 1994, all investments available-for
sale were carried at the lower of aggregate amortized cost or
market value.
Research and Office Equipment Research and office equipment
is recorded at cost and depreciated using the straightline
method over five and seven years estimated useful lives.
Research and Development Costs Research and development
expenditures are expensed as incurred.
Patents - Patent expenditures are capitalized and amortized
using the straight line method over 17 years. In the event
changes in technology or other circumstances impair the value
or life of the patent, appropriate adjustment in the asset
value and period of amortization will be made.
Net Loss Per Share - Net loss per common share is based on
the weighted average number of common shares outstanding
during the period. Common stock equivalents, including options
to purchase common stock, are excluded from the calculation as
they are antidilutive.
Investment in Joint Venture Investment in joint venture is
accounted for by the equity method. The Company's
proportionate share of the net loss of the joint venture is
included in the respective statements of operations. Statement
of Cash Flows For purposes of the statements of cash flows,
cash consists principally of unrestricted cash on deposit, and
short-term money market funds. The Company considers all
highly liquid investments with a maturity of less than three
months to be cash equivalents.
Prepaid Expenses - The majority of prepaid expenses consist
of bulk purchases of laboratory supplies to be consumed in the
manufacturing of the Company's product for clinical studies
and for its further development.
Income Taxes - Effective October 1, 1993, the Company
adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires an
asset and liability approach for reporting income taxes.
Implementation of SFAS 109 in 1994 did not have any effect on
the Company's net earnings and reported financial position and
prior financial statements have not been restated.
Reclassifications - Certain reclassifications have been made
for 1994 and 1993 for comparative purposes.
2. INVESTMENTS
The carrying values and estimated market values of
investments available for-sale at September 30, 1995, are as
follows:
Note2a
The carrying values and estimated market values of investment
securities at September 30, 1994, are as follows:
Note2b
The gross realized gains and losses of sales of investments
available-forsale for the years ended September 30, 1995,
1994, and 1993, are as follows:
Note 2c
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1995 and 1994, consist
of the following:
Note3a
4. JOINT VENTURE
In April 1986, the Company paid $200,000 cash and issued
500,000 shares of its $.01 par value common stock to
acquire half the rights to technology which may be useful
in the diagnosis, prevention and treatment of Acquired
Immune Deficiency Syndrome (AIDS) from Alpha I Biomedicals,
Inc. The Company's stock was valued at $1.50 per share on
the basis of arm's length negotiations. At the time the
transaction took place, the stock was trading at $2.42.
Because the cost of these rights to technology is
considered research and development, the $950,000 purchase
price was expensed. The Company and Alpha 1 Biomedicals,
Inc. (Alpha 1) contributed their respective interests in
the technology and $10,000 each to capitalize a joint
venture, Viral Technologies, Inc. (VTI). VTI is wholly
owned by the Company and Alpha 1, each having a 50%
ownership interest. The total loaned or advanced to VTI by
CELSCI Corporation through September 30, 1995, was
$1,592,584 (see Note 13).
During the three years ended September 30, 1995, VTI had no
sales. The operations of VTI were as follows:
Note4a
The balance sheets of VTI at September 30, 1995 and 1994, are
summarized as follows:
Note4b
On December 17, 1987, Viral Technologies, Inc., entered into
a licensing agreement with Nippon Zeon Company, Ltd., a
Japanese company. Under the agreement, Nippon Zeon will
engage in the development and testing and, if development is
successful, the marketing of the potential AIDS vaccine in
the Pacific Rim area. As a result, Viral Technologies, Inc.,
received precommercialization payments of $850,000 during
the year ended September 30, 1988. During the year ended
September 30, 1995, VTI purchased back from Nippon Zeon the
licensing agreement. No cash or stock was exchanged;
however, Nippon Zeon retains a royalty on any future sales
of the drug HGP30 in its former exclusive licensed
territories.
5. CREDIT ARRANGEMENTS
At September 30, 1995, the Company had a promissory note
outstanding with a bank in the amount of $811,263. This
promissory note was converted in November 1994 from a prior
line of credit. The line of credit outstanding at September
30, 1994, was $788,601, and the Company subsequently drew
down additional amounts during the year ended September 30,
1995, prior to converting the line of credit to a promissory
note. The principal is being repaid over forty-eight
consecutive months beginning February 5, 1995. Interest
on the outstanding balance is
calculated at the Bank's prime rate plus two percent, which
is 10.75% at September 30, 1995, and is to be paid monthly
with the principal payments. The promissory note is secured
by all corporate assets and requires the Company to hold a
certificate of deposit equal to 20% of the outstanding
balance of the line of credit with the Bank. Under the
promissory note the Company is also subject to certain
minimum equity, liquidity, and operating
covenants.
6. COMMITMENTS AND CONTINGENCIES
In 1993, an officer and director of the Company was
involved in legal proceedings concerning shares of the
Company's common
stock. The officer and director was acting on behalf of the
Company in trying to secure financing, and the Company paid
legal fees in connection with these proceedings and
indemnified the officer for any loss he suffered upon the
settlement of these matters. During 1992, one of the matters
was settled by the officer and director delivering 3,000
shares of the Company's common stock to one plantiff and
paying this plantiff $200,000. In the other matter, a European
Court awarded a different plantiff 25,000 shares of the
Company's common stock owned by the officer and director. In
October 1993, the Company issued 25,000 shares of common stock
to the plaintiff to satisfy the judgment and in lieu of
reimbursement to the officer and director for this claim. The
value of the shares issued, $202,500, was expensed during 1993
and was included in accrued expenses at September 30, 1993.
7. RELATED-PARTY TRANSACTIONS
The technology and know-how licensed to the Company was
developed by a group of researchers under the direction of Dr.
Hans Ake Fabricius and was assigned during 1980 and 1981 to
Hooper Trading Company, N.V., a Netherlands Antilles
corporation (Hooper) and Shanksville Corporation, also a
Netherlands Antilles corporation (Shanksville). Maximillian de
Clara, an officer and director in the Company, and Dr.
Fabricius own 50% and 30%, respectively, of each of these
companies. The technology and knowhow assigned to Hooper and
Shanksville was licensed to Sittona Company, B.V., a
Netherlands corporation (Sittona), effective September, 1982
pursuant to a licensing agreement which requires Sittona to
pay to Hooper and Shanksville royalties on income received by
Sittona respecting the technology and know-how licensed to
Sittona. In 1983, Sittona licensed this technology to the
Company. At such time as the Company generates revenues from
the sale or sublicense of this technology, the Company will be
required to pay royalties to Sittona equal to 10% of net sales
and 15% of licensing royalties received from third parties. In
that event, Sittona, pursuant to its licensing agreements with
Hooper and Shanksville, will be required to pay to those
companies a minimum of 10% of any royalty payments received
from the
Company. In 1985 Mr. de Clara acquired 100% of the issued and
outstanding stock of Sittona. Mr. de Clara and Dr. Fabricius,
because of their ownership interests in Hooper and
Shanksville, could receive approximately 50% and 30%
respectively, of any royalties paid by Sittona to Hooper and
Shanksville, and Mr. de Clara, through his interest in all
three companies (Hooper, Shanksville, and Sittona), will
receive up to 95% of any royalties paid by the Company. During
1992, the Company reimbursed an officer and director for legal
fees incurred in connection with certain legal proceedings as
discussed in Note 6. In addition, during 1992 the Company paid
the officer and director $200,000, representing the amount
that he paid in connection with one of the legal proceedings
discussed in Note 6 and, in 1993, issued 3,000 shares of
common stock to the officer and director as reimbursement for
shares he delivered in connection with the proceeding. The
$200,000 payment was expensed in 1992, and the value of the
3,000 shares, $20,100 was expensed in 1993.
8. INCOME TAXES
The approximate tax effect of each type of temporary
differences and carryforward that gave rise to the Company's
tax assets and liabilities at September 30, 1995 and 1994, is
as follows:
Note8a
The Company has available for income tax purposes net
operating loss carryforwards of approximately $24,370,937,
expiring from 1998 through 2007.
In the event of a significant change in the ownership of the
Company, the utilization of such carryforwards could be
substantially limited.
9. STOCK OPTIONS, WARRANTS, AND BONUS PLAN
During the year ended September 30, 1995, the Board of
Directors canceled certain options under the various stock
option plans and replaced them with new options. Under this
conversion the number of options outstanding did not increase
or decrease as the conversion was an exchange of options
within the plans to maximize reserved shares in the Plans with
the options granted.
The shareholders of the Company approved the adoption of the
1995
Non Qualified Stock Option Plan (1995 Non-Qualified Plan) and
reserved 400,000 shares under the plan. Terms of the options
are to be determined by the Company's Compensation Committee,
but in no event are options to be granted for shares at a
price below fair market value at the date of grant. On
February 23, 1988, the shareholders of the Company adopted the
1987 Nonqualified Stock Option and Stock Bonus Plan (the 1987
Plan). This plan reserved 200,000 shares of the Company's
previously unissued common stock to be granted as incentive
stock options to employees. The 1987 Plan reserved 50,000
shares of the Company's previously unissued common stock to be
granted as stock bonuses to employees. The exercise price of
the options could not be established at less than fair market
value on the date of grant and the option period could not be
greater than ten years. During 1993, the 1987 Plan was
terminated and no further options will be granted and no
further bonus shares will be issued pursuant to the 1987 Plan.
On September 30, 1993, the shareholders of the Company
approved the adoption of three new plans, the 1993 Incentive
Stock Option Plan (1993 Incentive
Plan), the 1993 Non Qualified Stock Option Plan (1993 Non
Qualified Plan) and the Stock Bonus Plan (1993 Bonus Plan).
Shares are reserved under each plan and total 100,000, 60,000
and 40,000 shares, respectively. Only employees of the Company
are eligible to receive options under the Incentive Plan,
while the Company's employees, directors, officers, and
consultants or advisors are eligible to be granted options
under the NonQualified Plan or issued shares under the Bonus
Plan. Terms of the options are to be determined by the
Company's Compensation Committee, which will administer all of
the plans, but in no event are options to be granted for
shares at a price below fair market value at date of grant.
Options granted under the option plans must be granted, or
shares issued under the bonus plan issued, before August 20,
2002. On July 29, 1994, the Board of Directors approved the
adoption of two new plans, the 1994 Incentive Stock Option
Plan (1994 IncentivePlan) and the 1994 NonQualified Stock
Option Plan (1994 NonQualified). Shares are reserved under
each plan and total 100,000 shares for each plan. Only
employees of the Company are eligible to receive options under
the 1994 Incentive Plan, while the Company's employees,
directors, officers, and consultants or advisors are eligible
to be granted options under the 1994 NonQualified Plan. Terms
of the options are to be determined by the Company's
Compensation Committee, which will administer all of the
plans, but in no event are options to be granted for shares at
a price below fair market value at date
of grant. Options granted under the option plans must be
granted, or shares issued under the
bonus plan issued, before July 29, 2004. Information
regarding the Company's stock option plan is summarized as
follows:
Note9a
Note9b
During 1991, the Company granted a consultant an option to
purchase 50,000 shares of the Company's common stock. The
option is exercisable at $13.80 per share and expires in March
1996. The holder of the option has the right to have the
shares issuable upon the exercise of the option included in
any registration statement filed by the Company. Also during
1991, the Company granted another consultant options to
purchase 6,000 shares of the Company's common stock. Options
to purchase 667 shares expired in April 1993. Options to
purchase 1,333 shares at $2.50 per share were exercised in
April 1994. At September 30, 1995, options to purchase 4,000
shares were outstanding and exercisable at prices ranging from
$2.50 to $15.00 per share. In connection with the 1992 public
offering, 5,175,000 common stock purchase warrants were issued
and are outstanding at September 30, 1995. Every ten warrants
entitle the holder to purchase one share of common stock at a
price of $46.50 per share. During 1995, the expiration of
these warrants was extended to February 1996. The Company may
accelerate the expiration date of the warrants by giving 30
days notice to the warrant holders, provided, however, that at
the time the Company gives such notice of acceleration (1) the
Company has in effect a current registration statement
covering the shares of common stock issuable upon the
exercise of the warrants and (2) at anytime during the 30 day
period preceding such notice, the average closing bid price of
the Company's common stock has been at least 20% higher than
the warrant exercise price for 15 consecutive trading days.
Also in connection with the 1992 offering, the Company issued
to the underwriter warrants to purchase 9,000 equity units,
each unit consisting of 5 shares of common stock and 5
warrants entitling the holder to purchase one additional share
of common stock. The equity unit warrants are outstanding at
September 30, 1995 and are exercisable through February 8,
1997, at a price of $255.70 per unit. The common stock
warrants included in the units are exercisable at a price of
$76.70 per share. During 1995, the Company granted another
consultant options to purchase 17,858 shares of the Company's
common stock. These shares became exercisable on November 2,
1995, and will expire November 1, 1999. These options are
exercisable at $5.60 per share. 10.EMPLOYEE BENEFIT PLAN
During 1993 the Company implemented a defined contribution
retirement plan, qualifying under Section 401(k) of the
Internal Revenue Code, subject to the Employee Retirement
Income Security Act of 1974, as amended, and covering
substantially all CEL-SCI employees. The employer contributes
an amount equal to 50% of each employee's contribution not to
exceed 6% of the
participant's salary. The expense for the year ended September
30, 1995 and 1994, in connection with this plan was
approximately $24,913 and $16,160, respectively.
11.LEASE COMMITMENTS
Operating Leases - The future minimum annual rental payments
due under noncancelable operating leases for office and
laboratory space are as follows:
Note11a
Rent expense for the year ended September 30, 1995, 1994, and
1993, was approximately $124,059, $122,369, and $55,000,
respectively.
12.STOCKHOLDERS' EQUITY
On April 28, 1995 the stockholders of the Company approved a
10for-1 reverse split of the Company's outstanding common
stock, which became effective on May 1, 1995. All shares and
per-share amounts have been restated to reflect the stock
split. The Company also participated in a private offering
during 1995. This offering allowed for the purchase of one
share of common stock and one warrant (a unit) for the price
of $2.00 per unit. All 1,150,000 shares authorized for the
offering were purchased during the year ended September 30,
1995. Warrants outstanding are exercisable at $3.25 and expire
on June 30, 1997. Cash of $2,300,000 was received in June and
September
1995. Commissions of $344,150 were paid or payable relative to
the offering at September 30, 1995. During 1994, the Company
granted 1,500 shares of common stock to an officer as a bonus
award. The Company also issued 25,000 shares to satisfy the
judgment against an officer and director. The issuance was to
the plantiff in lieu of reimbursement to the officer and
director. The judgment was settled in 1993 and the expense of
the issuance was recorded in 1993. During 1993, the Company
received $27,333 cash for 7,333 shares of common stock.
13.SUBSEQUENT EVENTS - JOINT VENTURE
In October 1995, the Company purchased Alpha 1's 50 percent
interest in VTI. The Company conveyed 159,170 shares of
common stock as full consideration for all of the VTI capital
stock owned by Alpha 1. The acquisition of Alpha 1's interest
will be accounted for as purchase with substantially all of
the value of the purchase price being expensed as research and
development costs.
14.SUBSEQUENT EVENTS - OTHER
On December 8, 1995, the Board of Directors authorized the
extension of the Company's warrants issued in connection with
the 1992 public offering from February 6, 1996, to February 6,
1997. On December 23, 1995, the Company entered into an
agreement with investors to reduce the exercise price of
warrants to purchase shares of the Company's common stock
issued in a 1995 private offering from $3.25 to $1.60 per
shares (Note 12). Shares which may be acquired under this
agreement with exercise of the warrants total 1,150,000. In
connection with modifying the warrant exercise price, 312,500
warrants were exercised for $500,000 in exchange for 312,500
shares of common stock on December 23, 1995. An additional
312,500 warrants are required to be exercised prior to January
31, 1996 with the
remaining warrants outstanding through June 30, 1997.
15.NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121 regarding accounting for the impairment of
long lived assets. This statement is required to be adopted
by the Company in fiscal 1997. At the present time the Company
does not believe that adoption of this statement will have a
material effect on its financial position or results of its
operations. In October 1995, the Financial Accounting
Standards Board issued Statement No. 123, Accounting for Stock
Based Compensation. This statement is required to be adopted
by the Company in fiscal 1997. The Company has not yet
determined the impact of the adoption of this statement on its
financial position or results of its operations.
CEL-SCI CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994ASSETS
1995 1994
CURRENT ASSETS:
Cash and cash equivalents $3,886,950
$3,370,713
Investments, net 170,000
2,694,756
Interest receivable 64,080
16,733
Prepaid expenses 341,295 67,648
Advances to officer/shareholder
and employees 13,234 17,381
Total current assets 4,475,559
6,267,231
RECEIVABLE FROM JOINT VENTURE 522,695 351,204
RESEARCH AND OFFICE EQUIPMENT -
Less accumulated depreciation of $589,897
and $355,430 1,102,038 1,185,499
DEPOSITS 18,178 13,958
PATENT COSTS - Less accumulated
amortization of $239,490 and $211,253 240,541 268,778
$6,359,011
$8,086,670
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 248,488 $324,179
Current portion of note payable 243,372 147,861
Total current liabilities 491,860 472,040
liabilities
NOTE PAYABLE 567,891 640,740
DEFERRED RENT 24,959 17,598
EQUITY IN LOSS OF SUBSIDIARY 432,268 277,224
Total liabilities 1,516,978 1,407,602
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
authorized, 200,000 shares;
none issued -
- -
Common stock, $.01 par value
authorized, 100,000,000 shares;
issued and outstanding,
5,338,244 and 4,188,244 shares 53,382
41,882
4,188,244 shares
Additional paid-in capital 28,799,198
26,854,848
Net unrealized loss on marketable equity
securities (Note 1) -
(85,753)
Accumulated deficit (24,010,547)
(20,131,909)
Total stockholders' equity 4,842,033
6,679,068
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $6,359,011
$8,086,670
See notes to financial statements.
CEL-SCI CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1995,
1994, AND 1993
1995 1994 1993
INVESTMENT INCOME $365,049 $624,670
$997,964
OTHER INCOME 58,716 -
- -
Total income 423,765 624,670
997,964
OPERATING EXPENSES:
Research and development 1,824,661 2,896,109
1,307,042
Depreciation and amortization 262,705 138,755
55,372
General and administrative 1,713,912 1,621,990
1,696,119
Total operating expenses 3,801,278 4,656,854
3,058,533
EQUITY IN LOSS OF
JOINT VENTURE (Note 2) (501,125) (394,692)
(344,423)
NET LOSS $3,878,63 $4,426,87
$2,404,99
LOSS PER COMMON SHARE $0.89 $1.06 $0.58
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,342,628 4,185,240
4,155,431
See notes to financial statements.
CEL-SCI CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30,
1995, 1994, AND 1993
Additional
Common Stock Paid-In
Shares Amount Capital Other Deficit
Total
BALANCE,
OCTOBER 1,
1992 4,148,980 $41,490 $26,560,96 $ -
$(13,300,041)$13,302,418
Common stock
issued for:
Cash 7,333 73 27,260 - -
27,333
Reim-
bursement
of expenses 3,000 30 20,070 - - 20,100
Net loss - - - -
(2,404,992)(2,404,992)
BALANCE,
SEPTEMBER 30,
1993 4,159,313 41,593 26,608,299 (15,705,033) 10,944,859
Common stock issued for:
Cash 2,431 24 39,364 - - 39,388
Stock
bonus
plan 1,500 15 4,935 - - 4,950
Settlement
of lawsuit 25,000 250 202,250 - - 202,500
Net unrealized
loss on
marketable
securities
(Note 1) - - - (85,753) - (85,753)
Net loss - - - - (4,426,876)(4,426,876)
BALANCE,
SEPTEMBER 30,
1994 4,188,244 41,882 26,854,848 (85,753) (20,131,909)6,679,068
Common stock
issued for
cash 1,150,000 11,500 1,944,350 - - 1,955,850
Change in
market
value
of
marketable
securities
available
for sale
(Note 1) - - - 85,753 - 85,753
Net loss - - - - (3,878,638) (3,878,638)
BALANCE,
SEPTEMBER 30,
1995 $5,338,244 $53,382 $28,799,19 - $(24,010,547)$4,842,033
See notes to financial
statements.
CEL-SCI CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1995,
1994, AND 1993
1995 1994 1993
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(3,878,638) $(4,426,876) $(2,404,992)
Adjustments to reconcile
net loss to
net cash used in operating activities:
Stock issued in payment
of expenses - 207,450 20,100
Depreciation and
amortization 262,705 138,755 55,372
Equity in loss of
Joint Venture 501,125 394,692 344,423
Net realized loss (gain)
on sale of securities 42,490 (76,774)
Amortization of premium 6,407 25,683 18,762
Changes in assets and
liabilities:
Decrease (increase) in
advances ` 4,147 (17,381) -
Increase in prepaid
expenses, deposits,
interest receivable,
and receivable from
joint venture (396,705) (31,833)
(292,182)
(Decrease) increase in
accounts payable,
accrued expenses, and
deferred rent (68,330) (111,552) 143,919
Decrease in payable to
officer and shareholder - (52,370) (43,448)
Net cash used in operating
activities (3,526,799) (3,950,206)
(2,158,046)
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Purchases of investments (389,688) (1,467,818) (5,993,310)
Sales and maturities of
investments 2,951,299 6,999,273 7,745,943
Advances to Joint Venture (346,081) (300,000) (223,750)
Expenditures for property
and equipment (151,006) (999,807) (318,556)
Expenditures for patents - - (8,777)
Net cash provided by
investing activities 2,064,524 4,231,648 1,201,550
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Issuance of note payable 184,915 788,601 -
Issuance of common stock 1,955,850 39,388 27,333
Repayment of note payable (162,253) - -
Net cash provided by financing
activities 1,978,512 827,989 27,333
NET INCREASE (DECREASE) IN CASH 516,237 1,109,431 (929,163)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 3,370,713 2,261,282 3,190,445
CASH AND CASH EQUIVALENTS,
END OF YEAR $3,886,950 $3,370,713 $2,261,282
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
During 1994, the net unrealized
loss on investments available-forsale was $85,753.
During 1994, 25,000 shares were
issued as settlement of a lawsuit at
a cost of $202,500 (see Note 6).
See notes to financial statements.
Note 2a
September 30, 1995
Gross Gross Market
Value Amortized Unrealized Unrealized at
September 30,
Cost Gains Losses 1995
Certificates of
Deposit $170,00 $- $- $170,00
Note 2b
September 30, 1994
Gross Gross Market
Value
Amortize Unrealized Unrealized at
September
30,
Cost Gains Losses 1994
U.S. Government
Securities $1,471,096 $- $46,362
$1,424,734
Corporate Debt
Securities 1,108,581 2,442 41,833
1,069,190
Certificates of
Deposit 200,832 - -
200,832
$2,780,509 $2,442 $88,195
$2,694,756
Note 2c
1995 1994
1993
Realized gains $17,839 $128,205 $
- -
Realized losses 60,329 51,431
- -
Net realized gain (loss) $(42,490) $76,774 $
- -
Note 3
1995 1994
Research equipment $979,048 $843,187
Furniture and equipment 136,486 120,185
Leasehold improvements 576,401 577,557
1,691,935 1,540,929
Less accumulated depreciation
and amortization (589,897) (355,430)
Net property and equipment $1,102,03 $1,185,49
Note 4a
Years
Ended
September
30,
1995 1994 1993
Income $- $- $-
Expenses 1,002,250 789,384
688,846
Net Income (Loss) $(1,002,250) $(789,384)
$(688,846)
Note 4b
September 30,
1995 1994
Current assets $ 30,484 $24,403
Noncurrent assets $187,821 $87,822
Current liabilities $4,275,078 $3,197,143
Equity (deficit - net of
initial capitalization) $(4,056,773) $(3,084,918)
Note8
1995 1994
Depreciation $(16,660) $(27,325)
Prepaid expenses (14,413) (25,680)
Net operating loss carryforward 9,251,208
7,675,907
Other 9,474 6,680
Less: Valuation allowance (9,229,609) (7,630,772)
Net deferred $- $-
Note 9a
Option
Price
Per Outstanding
Exercisable
1987 Stock Option and Bonus
Plan
Balance, September 30, 1992 $3.40-20.90 189,250 31,000
Became exercisable $4.00 -
77,999
Exercised $4.00 (6,000)
(6,000)
Balance, September 30, 1993 $3.40-19.60 183,250
102,999
Became exercisable -
40,250
Balance, September 30, 1994 $3.40-20.90 183,250
143,249 Canceled $3.40-20.90 176,250
136,249
Balance, September 30, 1995 $19.70 16.50 7,000
7,000
1992 Incentive Stock Option
Plan
Balance, September 30, 1992 $13.40 500 -
Granted $13.80-15.60 12,000 -
Balance, September 30, 1993 $13.40-15.60 12,500 -
Granted $6.80-11.90 29,500 -
Became exercisable - 4,166
Balance, September 30, 1994 $6.80-15.60 42,000 4,166
Canceled $6.80-15.60 (42,000) (4,166)
Granted $2.87-3.87 57,550 20,917
Balance, September 30, 1995 $2.87-3.87 57,550 20,917
1992 Nonqualified Stock Option
Plan
Balance, September 30, 1992 $13.40 2,500 -
Granted $13.80-15.60 15,500 -
Balance, September 30, 1993 $13.40 18,000 -
Granted $8.70-13.80 18,000 -
Became exercisable - 18,000
Balance, September 30, 1994 $8.70-13.80 36,000 18,000
Canceled $8.70-13.40 (7,500) -
Granted $2.87 31,500 -
Became Exercisable 42,000
Balance, September 30, 1995 $2.87-15.60 60,000 60,000
Note 9b
Option
Price
Per Outstanding
Exercisable
1992 Stock Bonus Plan
Granted during 1994 $8.70 1,500 1,500
Exercised $8.70 (1,500 (1,500)
Balance, September 30, 1994
and 1995 - -
1994 Incentive Stock Option
Plan
Granted $2.87 50,000
- -
Balance, September 30, 1994 $2.87 50,000 -
Granted $2.87 50,000 -
Became Exercisabe $2.87 - 61,000
Balance, September 30, 1995 $2.87 100,000 61,000
1994 Nonqualified Stock
Option Plan
Granted $2.87 70,000 -
Balance, September 30, 1995 $2.87 70,000
Granted $2.87-3.87 27,250 -
Became exercisable -
48,084
Balance, September 30, 1995 $2.87-3.87 97,250 48,084
1995 Nonqualified Stock
Option
Granted in 1995 $2.87-$3.87 329,251 -
Became exercisable - 70,000
Balance, September 30, 1995 329,251 70,000
Note 11a
Year Ending
September 30, Amount
1996 $135,123
1997 140,335
1998 56,160
1999 59,573
2000 62,010
Thereafter 162,728
Total minimum lease payments $615,929
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been
prepared in accordance with rules established by the
Securities and Exchange Commission for Form 10Q. Not
all financial disclosures required to present the financial
position
and results of operations in accordance with generally
accepted accounting principles are included herein. The
reader is referred to the Company's Financial Statements
for theyear ended September 30,1995 included elsewhere in
this Prospectus. In the opinion of management, all
accruals and adjustments (each of which is of a normal
recurring nature) necessary for a fair presentation of the
financial position as of June 30, 1996 and the results of
operations for the nine-month period then ended have been
made. Significant accounting policies have been
consistently applied in the interim financial statements
and the annual financial statements.
Investments
Effective September 30, 1994, the Company adopted, on a
prospective basis, Statement of Financial Accounting
Standard No. 115, "Accounting for Certain Debt and Equity
Securities" (SFAS 115) and revised its policy for
investments.
Investments that may be sold as part of the liquidity
management of the Company or for other factors are
classified as available-for sale and are carried atfair
market value. Unrealized gains and losses on such
securities are reported as a separate component of
stockholders' equity. Realized gains and losses on sales
of securities are reported in earnings and computed using
the specific identified cost basis. As of June 30, 1996,
there is no effect on the Company's financial statements.
Loss per Share
Net loss per common share is based on the weighted average
number of common shares outstanding during the period.
Common stock equivalents, including options to purchase
common stock, are excluded from the calculation as they
are antidilutive.
Long-lived Assets
Statement of Accounting Standards No. 121, "Accounting for
the Impairment of Long-lived Assets and for Longlived
Assets to be Disposed of" is effective for financial
statements for fiscal years beginning after December 15,
1995. It is the Company's opinion that the adoption of the
statement would have no material effect on its Financial
Statements.
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1996 AND 1995 (unaudited)
(continued)
B. JOINT VENTURE
On October 30, 1995, the Company announced it had acquired Alpha 1
Biomedical's interest in Viral Technologies, Inc. ("VTI"). VTI was
formed by the two companies in 1986. This transaction gives CEL-SCI
100%
ownership of VTI. Under the terms of the agreement, CEL-SCI
gave Alpha 1 Biomedicals, Inc. 159,170 shares of CEL-SCI common
stock as the purchase price for net assets with a fair value of
approximately $170,000. The acquisition was accounted for under
the purchase method of accounting;
and as the acquisition represents primarily research and
development costs, the purchase price was expensed and is included
as research and development expense for the nine months ended June
30, 1996. Effective October 31, 1995, the Company has consolidated
CELSCI's and VTI's financial statements and the consolidated
financial statements reflect the results of VTI's operations since
the
date of acquisition. This results in a significant increase
in patent costs on the consolidated balance
sheet. Intercompany accounts are eliminated upon consolidation.
C. CONSTRUCTION OF NEW LABORATORY AND FUNDING
On January 31, 1994, the Company entered into a leasing agreement
with a nonaffiliated landlord for 7,800 square feet in Baltimore,
Maryland. In the spring of 1994 the Company commenced construction
of the new laboratory. The cost of the laboratory buildout and
equipment was approximately $1,100,000. To fund this laboratory,
the Company borrowed funds from a bank at a rate of prime plus 2%.
The outstanding loan balance at June 30, 1996 is $628,729.
D. CONVERTIBLE DEBENTURES
On March 28, 1996, the Company raised $1,250,000 in a private
placement. The placement was structured as a convertible
debenture. It is convertible into CelSci common stock prior to
December 1, 1996. The money will be used for research and
development and clinical trials with the Company's cancer and HIV
products. As of June 30, 1996, $825,000 of the debentures were
converted into 165,000 shares of the Company's common stock.
Item 1. FINANCIAL STATEMENTS
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS
ASSETS
(unaudited)
June 30, September
30,
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $6,646,257 $3,886,950
Investments, net 170,000 170,000
Interest receivable 75,405
64,080
Accounts receivable 46,342
Prepaid expenses 267,933
341,295
Advances to officer/shareholder
and employees 129,722
13,234
7,335,659
4,475,559
RECEIVABLE FROM JOINT VENTURE 0
522,695
RESEARCH AND OFFICE EQUIPMENT-
Less accumulated depreciation
of $801,874 and $589,897 935,090
1,102,038
DEPOSITS 18,178 18,178
PATENT COSTS- less accumulated
amortization of
$333,098 and $239,490 435,007 240,541
$8,723,934
$6,359,011
See notes to condensed financial
statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS'
EQUITY
(unaudited)
June 30,
September 30, 1996
1995
CURRENT LIABILITIES:
Accounts payable $112,312
$248,488
Current portion note payable 243,372
243,372
Total current liabilities 355,684
491,860
NOTE PAYABLE 385,357
567,891
CONVERTIBLE DEBENTURE (Note D) 425,000
- -
DEFERRED RENT 24,959 24,959
EQUITY IN SUBSIDIARY 0
432,268
Total liabilities 1,191,000 1,516,978
STOCKHOLDERS' EQUITY
Preferred stock, Series A 3,325,000 -
Common stock, $.01 par
value; authorized,
100,000,000 shares;
issued and outstanding,
7,046,902 and
5,338,244 shares 70,469 53,382
Additional paid-in capital 32,723,024 28,799,198
Deficit (28,499,459) (24,010,547)
Short-term note receivable from (86,100) -
shareholder
TOTAL STOCKHOLDERS'
EQUITY 7,532,934 4,842,033
$8,723,934 $6,359,011
See notes to condensed financial statements. CEL-
SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
(unaudited)
Nine Months Ended June
30, 1996 1995
REVENUES:
Gross Sales $51,605 $-
Interest income 136,651 273,417
Other income - 39,588
TOTAL INCOME 188,256 313,005
EXPENSES:
Research and development 2,350,600
1,383,978
Depreciation and
amortization 208,912 201,197
General and administrative 2,113,884
1,268,677
TOTAL OPERATING EXPENSES 4,673,396
2,853,852
EQUITY IN LOSS OF JOINT VENTURE (3,772)
(395,224)
4,677,168
3,249,076
NET LOSS $4,488,912
$2,936,071
LOSS PER COMMON SHARE $0.74 $0.70
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,086,492
4,194,563
See notes to condensed financial
statements
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
(unaudited)
Three Months Ended
June 30,
1996 1995
REVENUES:
Gross Sales $44,280 $-
Interest Income 51,737
83,111
Other Income -
21,977
TOTAL INCOME 96,017
105,088
EXPENSES:
Research and development 617,987
234,035
Depreciation and
amortization 68,950
67,211
General and administrative 894,165
490,429
TOTAL OPERATING EXPENSES 1,581,102
791,675
EQUITY IN LOSS OF JOINT VENTURE 0
(104,884)
1,581,102
896,559
NET LOSS $1,485,085
$791,471
LOSS PER COMMON SHARE $0.22 $0.19
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,612,293
4,207,200
See notes to condensed financial
statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOW
(unaudited)
Nine Months Ended
June 30, 1996
1995
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS
$(4,488,912)
$(2,936,071)
Adjustments to reconcile net loss
to
net cash used in operating
activities:
Depreciation and amortization 208,912 201,197
Equity in loss of joint venture 3,772 395,224
Research and development
expense related to purchase of Viral
Technologies, Inc. 515,617
Amortization of premium on
investments -
60,954
Realized loss on sale of
investments 13,422
Changes in assets and
liabilities, net of effect from
purchase
of Viral Technologies, Inc.:
Decrease (increase) in interest (11,325) -
receivable
Decrease (increase) in accounts (46,342)
38,128
receivable
Decrease (increase) in prepaid 73,362
(225,853)
expenses
Decrease (increase) in advances (116,488)
(19,472)
Decrease (increase) in receivable from
joint venture -
(123,952)
Increase (decrease) in accounts (136,176)
(203,594)
payable
NET CASH USED IN OPERATING
ACTIVITIES (3,997,580) (2,800,017)
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITY:
Sales of investments -
2,906,132
Purchase of investments -
(400,000)
Advance to Joint Venture -
(287,952)
Payment on note payable (182,534)
(121,689)
Note receivable from
employee/shareholder (114,800)
Payments received on note 28,700
receivable from
employee/shareholder
Laboratory construction - (10,135)
Purchase of research and office (17,808)
(128,750)
equipment
Patent costs (30,800) -
NET CASH USED IN INVESTING (317,242)
1,957,606
ACTIVITY
Continued on next page
CASH FLOW, CONTINUED FROM
PREVIOUS PAGE
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Issuance of convertible 1,250,000 -
debenture
Issuance of note payable -
205,195
Issuance of preferred stock 3,325,000 -
Issuance of common stock 2,499,129
990,890
NET CASH PROVIDED BY FINANCING 7,074,129
1,196,085
ACTIVITIES
NET (DECREASE) INCREASE IN CASH 2,759,307
353,674
CASH AND CASH EQUIVALENTS:
Beginning of period 3,886,950
3,370,713
End of period $6,646,257
$3,724,387
NON-CASH TRANSACTION: In October
1995, Cel-Sci issued 159,170
shares of common stock as
consideration for
the purchase of the remaining 50%
of Viral Technology, Inc. In conjunction with the
acquisition, CELSCI obtained net assets with a fair value
of approximately $170,000.
NON-CASH TRANSACTION: In March,
1996, a shareholder of the corporation exercised options
to
purchase 40,000 shares of common
stock. The shareholder signed a note
for
the stock, agreeing to pay the
note by the
end of June, 1996.
NON-CASH TRANSACTION: $825,000
of the convertible debenture was
converted into 165,000 shares of
common stock during
the three monts ended June 30,
1996.
See notes to
condensed financial statements.
