As filed with the Securities and Exchange Commission on , 1995.
Registration No. 333-4218
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-l
Registration Statement
Under
THE SECURITIES ACT OF 1933
CEL-SCI Corporation
(Exact name of registrant as specified in charter)
Colorado 283l
(State or other (Primary Standard Classi-
jurisdiction of fication Code Number)
incorporation)
66 Canal Center Plaza, Suite
510 Alexandria, Virginia
223l4
84-09l6344 (703) 549-5293
(IRS Employer (Address, including zip code,
and
I.D. Number) telephone number including area
of
principal executive offices)
Geert Kersten
66 Canal Center Plaza, Suite 510
(703) 549-5293
(Name and address, including zip code, and
telephone number, including area code, of
agent for service)
Copies of all communications, including all
communications sent to the agent for service,
should be sent to:
William T. Hart, Esq. John G. Herbert, P.C.
Hart & Trinen One Barclay Plaza
1624 Washington Street 1675 Larimer Street
Denver, Colorado 80203 Denver, CO 80202
(303) 839-0061 (303) 534-0522
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE
PUBLIC: As soon as practicable after the effective
date
of this Registration Statement
Page 1 of Pages Exhibit Index Begins on
Page
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) 255,310 $6.12 $1,562,498 $539
Total $1,562,498 $539
(1) Offering price computed in accordance with Rule 457(c).
(2) The shares of Common Stock are offered to the holders of the
Company's Convertible Notes if and when the holders of such Notes
elect to convert the Notes into shares of the Company's Common
Stock. The shares of Common Stock are subject to adjustment in
accordance with the terms of the Convertible Notes.
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
255,310 Shares of Common Stock
This Prospectus relates to the offer and sale of up to 255,310 shares of
Common Stock to the holders of the Company's Convertible Notes if and
when the holders of such Notes elect to convert the Notes into shares of
the Company's Common Stock. The holders of the Convertible Notes may
resell these shares from time to time in the public market. The holders
of the Convertible Notes, to the extent they convert their Notes into
shares of Common Stock, are sometimes referred to in this Prospectus as
the "Selling Shareholders". 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 "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 April , 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
Se curities Exchange Act of l934 and in accordance therewith is required
to file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Copies of any
such reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facility
maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. and at the Commission's Regional offices in New York
(Room 1028, 26 Federal Plaza, New York, New York 10278) and Chicago
(Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 606612511). Copies of such material can be obtained
from the Public Reference Section of the Commission at its office in
Washington, D.C. 20549 at prescribed rates. The Company has filed with
the Commission a Registration Statement on Form S-1 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), with respect to the
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
interleukin2 ("IL-2") and certain lymphokines and cytokines. MULTIKINE
is being tested to determine if it is effective in improving the immune
response of advanced cancer pantients. The Company's second product,
HGP30, is being tested to determine if it is an effective treatment/
vaccine against the AIDS virus. In addition, the Company recently
acquired a new patented T-cell Modulation Process which uses
"heteroconjugates" to direct the body to chose a specific immune
response. The Company intends to use this new technology to improve the
cellular immune response of persons vaccinated with HGP-30.
Before human testing can begin with respect to a drug or
biological product, preclinical studies are conducted in laboratory
animals to evaluate the potential efficacy and the safety of a product.
Human clinical studies generally involve a three-phase process. The
initial clinical evaluation, Phase I, consists of administering the
product and testing for safe and tolerable dosage levels. Phase II
trials continue the evaluation of immunogenicity and determine the
appropriate dosage for the product, identify possible side effects and
risks in a larger group of subjects, and provide preliminary indications
of efficacy. Phase III trials consist of testing for actual clinical
efficacy for safety within an expanded group of patients at
geographically dispersed test sites. See "Business Government
Regulation" for a more detailed description of the foregoing.
Between 1983 and 1986 the Company was primarily involved in
funding pre-clinical and Phase I clinical trials of MULTIKINE. These
trials were con ducted at St. Thomas's Hospital Medical School in
London, England pursuant to authority granted by England's Department of
Health and Social Security. In July, 1991 physicians at a southern
Florida medical institution began human clinical trials using MULTIKINE.
The focus of these trials was the treatment of metastatic malignant
melanoma and unresectable head and neck cancer using MULTIKINE. The
clinical trials in Florida were conducted pursuant to approvals obtained
by the medical institution from the Florida Department of Health and
Rehabilitative Services.
In March 1995, the Canadian Health Protection Branch, Health
and Welfare Ministry gave clearance to the Company to start a phase I/II
cancer study using Multikine. The study, which will enroll up to 30
head and neck cancer patients who have failed conventional treatments,
is expected to be conducted at the Ottawa Regional Cancer Center and
HotelDieu de Montreal Hospital. The study is designed to evaluate
safety, tumor responses and immune responses in
patients treated with multiple courses of Multikine. The length of time
that each patient will remain on the investigational treatment will
depend on the patient's response to treatment. In May l995, the U.S.
Food and Drug Administration (FDA) authorized the export of the
Company's Multikine drug to Canada for purposes of this study.
In February 1996 the FDA authorized the Company to conduct two
human clinical studies using MULTIKINE. The studies will focus on
prostate and head and neck cancer. The prostate study will be conducted
at Jefferson Hospital in Philadelphia, Pennsylvania and will involve up
to 15 prostate cancer patients who have failed on hormonal therapy. The
head and neck cancer study will involve up to 30 cancer patients who
have failed using conventional therapies. The Company is currently
evaluating clinical centers in the U.S. for purposes of the study. The
head and neck cancer study in the U.S. will be conducted in conjunction
with the Company's Canadian head and neck cancer study.
In October 1995 Viral Technologies, Inc. ("VTI") became a
wholly owned subsidiary of the Company. VTI is engaged in the
development of a pos sible treatment/vaccine for AIDS. VTI's technology
may also have application in the treatment of AIDS-infected individuals
and the diagnosis of AIDS. VTI's AIDS treatment/vaccine, HGP-30, has
completed certain Phase I human clinical trials. In the Phase I trials,
the vaccine was administered to volunteers who were not infected with
the HIV virus in an effort to determine safe and tolerable dosage
levels.
Product licensure in a foreign country or under state authority
does not mean that the product will be licensed by the FDA and there are
no assurances that the Company or VTI will receive any approval of the
FDA or any other governmental entity for the manufacturing and/or
marketing of a product. Consequently, the commencement of the
manufacturing and marketing by the Company or VTI of any product is, in
all likelihood, many years away. See "Business".
The lack of government approval for the Company's or VTI's
products will prevent the Company and VTI from generally marketing their
products. Delays in obtaining government approval or the failure to
obtain
government approval may have a material adverse impact upon the
Company's operations.
All of the Company's products are in the early stages of
development. The Company does not expect to develop commercial products
for several years, if at all. The Company has had operating losses
since its inception, has an accumulated deficit of approximately
$25,740,000 at December 31, 1995, and expects to incur substantial
losses for the foreseeable future.
The Company's executive offices are located at 66 Canal Center
Plaza, Suite 510, Alexandria, Virginia 22314, and its telephone number
is (703) 5495293.
THE OFFERING
Securities Offered: Up to 255,310 shares of Common Stock are offered
to
the holders of the Company's Convertible Notes
if and when the holders of such Notes elect to
convert the Notes into shares of the Company's
Common Stock. The
holders of the Convertible Notes, to the extent
they convert their notes into shares of Common
Stock, may resell these shares from time to time
in the public market. The holders of the
Convertible Notes 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 6,295,664 shares of Common Stock
issued and outstanding. Assuming all of the
Convertible Notes are converted to shares of the
Company's Common Stock, there will be 6,550,974
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
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
Six Months Ended March 31,
1995 1994
Investment Income &
Other Revenues $ 110,320 $207,917
Expenses:
Research and
Development 1,750,694 1,149,943
Depreciation
and Amortization 139,962 133,986
General and
Administrative 1,219,719 778,248
Equity in loss of
joint venture 3,772 290,340
Net Loss $(3,003,827) $(2,144,600)
Loss per common share $(0.52) $(0.51)
Weighted average
common shares
outstanding 5,825,011 4,188,244
Balance Sheet Data:
September 30,
1995 1994 1993 1992 1991
Working Capital $3,983,699 $5,795,191 $10,296,472 $13,043,012 $682,831
Total Assets 6,359,011 8,086,670 11,633,090 13,769,5041,611,899
Total Liabilities1,516,978 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
March 31, 1996
Working Capital $4,136,693
Total Assets 5,861,027
Total Liabilities 2,022,319
Shareholders' Equity 3,838,708
No dividends have been declared by the Company since its
inception.
GLOSSARY OF TECHNICAL TERMS
AIDS. Acquired Immune Deficiency Syndrome. A severe
viral
di-
sease of the immune system leading to other lethal
infec tions and malignancies.
Amino acids. Building blocks of proteins.
Antibody. A protein produced by certain white blood cells in
humans
and animals in response to a substance seen as 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
vir-
uses, 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
pep-
tide bond.
Proteins. A molecule composed of amino acids. There are many
types
of proteins, all carrying out a number of different
func tions essential for cell growth.
T-Cells. A type of lymphocyte which will amplify or suppress
anti-
body 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.
Offering Proceeds. This Offering is being made to holders of
Con vertible Notes previously sold by the Company for $1,250,000 to
certain pri
vate investors. The holders of the Notes have the right to convert the
Notes into shares of the Company's Common Stock upon certain terms, and
without any additional payment to the Company. See "Description of
Securities." Accordingly, the Company will not receive any proceeds
from the issuance of the shares if the Notes are converted into shares
of the Company's Common Stock.
Lack of Revenues and History of Loss. The Company has had only
limited revenues since it was formed in 1983. Since the date of its
formation and through December 31, 1995, the Company has incurred net
losses of approximately $25,740,000. During the years ended September
30, 1993, 1994 and 1995 the Company suffered losses of $2,404,992,
$4,426,876 and $3,878,638 respectively. The Company has relied
principally upon the proceeds of public and private sales of securities
to finance its activities to date. See "Management's Discussion and
Analysis". All of the Company's potential products are in the early
stages of development, and any commercial sale of these products will be
many years away. Accordingly, the Company expects to incur substantial
losses for the foreseeable future.
Need for Additional Capital. Clinical and other studies
necessary to obtain approval of a new drug can be time consuming and
costly, especially in the United States, but also in foreign countries.
The different steps necessary to obtain regulatory approval, especially
that of the Food and Drug Administration ("FDA"), involve significant
costs. The Company expects that it will need additional financing in
order to fund the costs of future clinical trials, related research, and
general and administrative expenses. The Company may be forced to delay
or postpone development and research expenditures if the Company is
unable to secure adequate sources of funds. These delays in development
may have an adverse effect on the Company's ability to produce a timely
and competitive product. There can be no assurance that the Company will
be able to obtain additional funding from other sources. See
"Management's Discussion and Analysis".
Viral Technologies, Inc. ("VTI"), a wholly-owned subsididary of
the Company, is dependent upon funding from the Company for its
operations and research programs. See "Business Viral Technologies,
Inc.".
Cost Estimates. The Company's estimates of the costs
associated with future clinical trials and research may be substantially
lower than the actual costs of these activities. If the Company's cost
estimates are incorrect, the Company will need additional funding for
its research efforts. See "Management's Discussion and Analysis".
Government Regulation FDA Approval. Products which may be de
veloped by the Company or Viral Technologies, Inc. (or which may be
developed by affiliates or licensees) will require regulatory approvals
prior to sale. In particular, therapeutic agents and diagnostic
products are subject to approval, prior to general marketing, by the
FDA in the United States and by comparable agencies in most foreign
countries. The process of obtaining FDA and corresponding foreign
approvals is costly and time consuming, particularly for pharmaceutical
products such as those which might ultimately be developed by the
Company, Viral Technologies, Inc. or its licensees, and there can be no
assurance that such approvals will be granted. Any failure to obtain
or any delay in obtaining such approvals may adversely affect the
ability of potential licensees or the Company to successfully market
any products developed. Also, the extent of adverse government
regulations which might arise from future legislative or administrative
action cannot be predicted. The clinical trial which the Company's
affiliate, Viral Technologies, Inc., is conducting in California is
regulated by government agencies in California and obtaining approvals
from states for clinical trials is likewise expensive and time
consuming. 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 Com
pany's clinical studies and research have been focused on compounds,
compositions and processes which were licensed to the Company by
Sittona Company, B.V. ("Sittona") in 1983. Maximilian de Clara, the
Company's president and a
director, acquired control of Sittona in 1985. Any commercial
products developed by the Company and based upon the technology
licensed by Sittona will belong to Sittona, subject to the Company's
right to manufacture and sell such products in accordance with the
terms of the licensing agreement. The Company's license remains in
effect until the expiration or abandonment of all patent rights or
until the compounds, compositions and processes subject to the
license enter into the public domain, whichever is later. The
license may be terminated earlier for other reasons, including the
insolvency of the Company. Accordingly, a conflict of interest may
arise between the Company and Mr. de Clara concerning the Company's
continued rights to the licensed technology. Any future transactions
between the
Company and Sittona will be subject to the review and approval by a
majority of the Company's disinterested directors. See "Business
Compounds and Processes Licensed to the Company", and "Management
Transactions with Related Parties".
Technological Change. The biomedical field in which the
Company is involved is undergoing rapid and significant
technological change. The suc cessful 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 technologi-
cal 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 and Lack of Insurance. Although the
Company has product liability insurance for its HGP-30 vaccine, at the
present time, the
Company does not have product liability insurance for MULTIKINE. The
successful prosecution of a product liability case against the Company
could have a materially adverse effect upon its business.
Dependence on Management and Scientific Personnel. The
Company is dependent for its success on the continued availability of
its executive officers. The loss of the services of any of the
Company's executive officers could have an adverse effect on the
Company's business. The Company does not carry key man life insurance
on any of its officers. The Company's future success will also depend
upon its ability to attract and retain qualified scientific personnel.
There can be no assurance that the Company will be able to hire and
retain such necessary personnel. See "Management".
Shares Available for Resale. As of March 31, 1996, there were
6,295,664 shares of the Company's Common Stock issued and outstanding.
Approximately 200,000 of these shares have not been registered under
the Securities Act of l933, as amended (the "Act"), and are
"restricted securities" as defined by Rule l44 of the Act. Rule l44
provides, in essence, that shareholders, after holding restricted
securities for a period of two years may, every three months, sell in
ordinary brokerage transactions an amount equal to the greater of 1%
of the Company's then outstanding Common stock or the average weekly
trading volume, if any, of the stock during the four calendar weeks
preceding the sale. Nonaffiliates of the Company who hold restricted
securities for a period of three years may, under certain prescribed
conditions, sell their securities without regard to any of the
requirements of the Rule. As of the date of this Offering
Memorandum, substantially all shares of restricted stock were
available for
resale pursuant to Rule l44. Sales of restricted stock may have a
depressive effect on the market price of the Company's Common Stock.
Such sales might also impede future financing by the Company.
Options, Warrants and Convertible Securities. The Company
has
is sued options, warrants and other convertible securities
("Derivative Securi ties") 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, 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
com mercialization of products which may be used in the prevention or
treatment of cancer and AIDS is intense. Major pharmaceutical and
chemical companies, as well as specialized genetic engineering firms,
are developing products for these diseases. Many of these companies
have substantial financial, research
and development, and marketing resources and are capable of providing
significant long-term competition either by establishing in-house
research groups or by forming collaborative ventures with other
entities. In addition, both smaller companies and non-profit
institutions are active in research relating to cancer and AIDS and
are expected to become more active in the future.
The clinical trials sponsored to date by the Company and VTI
have not been approved by the FDA, but rather have been conducted
pursuant to approvals obtained from regulatory agencies in England,
Canada and certain states. Since the results of these clinical trials
may not be accepted by the FDA, companies which are conducting
clinical trials approved by the FDA may have a competitive advantage
in that the products of such companies are
further advanced in the regulatory process than those of the
Company or VTI. Lack of Dividends. There can be no assurance
that the operations of
the Company will result in any revenues or will be profitable. At the
pre sent 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
Pros pectus will suffer an immediate dilution in the per share net
tangible book value of their Common Stock. See "Dilution and
Comparative Share Data."
Preferred Stock. The Company's Articles of Incorporation
authorize
the Company's Board of Directors to issue up to 200,000 shares of
Preferred Stock. Although no Preferred Stock has been issued to date,
the provisions in the Company's Articles of Incorporation relating to
the Preferred Stock would allow the Company's directors to issue
Preferred Stock with multiple
votes per share and dividends rights which would have priority over
any dividends paid with respect to the Company's Common Stock. The
issuance of Preferred Stock with such rights may make the removal of
management difficult even if such removal would be considered
beneficial to shareholders
generally, and will have the effect of limiting shareholder
participation in certain transactions such as mergers or tender offers
if such transactions are not favored by incumbent management.
DILUTION AND COMPARATIVE SHARE DATA
As of March 31, 1996, the present shareholders of the Company
owned 6,295,664 shares of Common Stock, which had a net tangible book
value of approximately $0.42 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) 6,295,664
Shares to be issued upon conversion of
Convertible Notes based on closing price
of the Company's common stock on
April 10, 1996 ($6.12) 255,310
Shares outstanding (pro forma basis) (1) 6,550,974
Net tangible book value per share
at March 31, 1996 $0.42
Equity ownership by present shareholders
after this offering 96%
Equity ownership by investors in this
Offering 4%
(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 March 31, 1996 the Company had 6,295,664 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 March 31, 1996 6,295,664
Shares Subject to this Offering:
Shares issuable upon conversion of Notes 255,310 A
Shares outstanding upon the completion of
this Offering (assuming all shares
offered are sold) 6,550,974
Other Shares Which May Be Issued:
Shares issuable upon exercise of
warrants held by Investors in Company's
June and September 1995 Private Offerings 470,000 B
Shares issuable upon exercise of
warrants issued to Selling Agent, or its
assigns, in connection with the Company's
June and September 1995
Private Offerings 27,250 C
Shares issuable upon exercise of warrants
sold in Company's 1992
Public Offering 517,500 D
Shares issuable upon exercise of
warrants sold to Underwriter in connection
with Company's 1992
Public Offering 90,000 E
Shares issuable upon exercise of
options granted to Company's officers,
directors, employees and consultants 981,926 F
8,637,650
A. In March 1996 the Company sold $l,250,000 of Convertible Notes
("Notes") to two persons. The Notes are 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. Notwithstanding the above, the conversion
price may not be less than $2.40 per share. The Notes are
payable on December 1, 1996 and accrue interest at 10% per annum.
The shares issuable upon the conversion of these Notes are
offered by means of this Prospectus. See "Selling Shareholders".
B. In June and September 1995 the Company sold, in private
offerings, 1,150,000 Units, at $2.00 per Unit, to five persons
(the "Private Inves tors"). Each Unit consisted of one share of
Common Stock and one Warrant. Each Warrant originally entitled
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
Company agreed to register the shares of Common Stock sold in
these Private Offerings (1,150,000 shares), as well as the shares
of Common Stock issuable upon the exercise of the Warrants
(1,150,000 shares) and to pay all expenses in connection with
such registration, exclusive of commissions and the fees and
expenses of counsel for the Private Investors. On November 30,
1995 the Company and the Private Investors agreed to reduce the
exercise price of the Warrants to $1.60 per share in return for
the commitment on the part of the Private 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.
Prior to March 31,1996 the Private Investors collectively sold
1,519,930 shares of Common Stock which they acquired in the
Private Offerings. By means of a separate Registration
Statement, the shares of Common Stock purchased by the Private
Investors in the Private Offerings, as well as the shares
issuable upon the exercise of the Warrants described above, have
been registered for public sale.
C. In connection with the Company's June and September Private
Offerings, Neidiger/Tucker/Bruner, Inc., the Sales Agent for these
offerings, re ceived 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 March 3l, l995 the Sales Agent (and/or its
assigns) collectively exercised Warrants pertaining to 40,000
shares of the Company's Common Stock. By means of a separate
Registration Statement, the shares of Common Stock issuable upon
the exercise of the Warrants issued to the Sales Agent have been
registered for public sale.
D. See "Description of Securities".
E. The Underwriter's Warrants provide that the Company, at its
expense,
will make appropriate filings with the Securities and Exchange
Commission so that the securities underlying the Underwriter's
Warrants will be available for public sale.
F. The options are exercisable at prices ranging from $2.87 to $19.70
per share. The Company may also grant options to purchase 111,374
additional shares under its Incentive Stock Option and Non-
Qualified Stock Option Plans. See "Management Stock Option and
Bonus Plans".
MARKET INFORMATION
As of March 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, markdown or commissions and may not
necessarily represent actual transactions.
Quarter
Ending Common Stock Warrants
High Low High Low
12/31/93 $20.00 $13.40 $0.94 $0.41
3/31/94 $18.10 $10.30 $0.75 $0.28
6/30/94 $10.90 $8.10 $0.31 $0.19
9/30/94 $10.30 $5.60 $0.21 $0.12
12/31/94 $7.50 $3.40 $0.25 $0.09
3/31/95 $4.00 $3.75 $0.22 $0.13
6/30/95 $5.30 $2.78 $0.15 $0.06
9/30/95 $5.46 $3.56 $0.28 $0.09
12/31/95 $4.75 $2.28 $0.25 $0.09
3/31/96 $7.12 $2.68 $0.28 $0.03
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
Six Months Ended March 31,
1995 1994
Investment Income &
Other Revenues $ 110,320 $207,917
Expenses:
Research and
Development 1,750,694 1,149,943
Depreciation
and Amortization 139,962 133,986
General and
Administrative 1,219,719 778,248
Equity in loss of
joint venture 3,772 290,340
Net Loss $(3,003,827) $(2,144,600)
Loss per common share $(0.52) $(0.51)
Weighted average
common shares
outstanding 5,825,011 4,188,244
Balance Sheet Data:
September 30,
1995 1994 1993 1992 1991
Working Capital $3,983,699 $5,795,191 $10,296,472 $13,043,012 $682,831
Total Assets 6,359,011 8,086,670 1,633,090 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
March 31, 1996
Working Capital $4,136,693
Total Assets 5,861,027
Total Liabilities 2,022,319
Shareholders' Equity $3,838,708
No dividends have been declared by the Company since its inception.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended December 31, 1995
Interest income during the three months ending December 31,
1995 re
flects 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 pre vious 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 February, 1992, the Company received net proceeds of
approximately $13,800,000 from the sale, in a public offering, of
517,500 shares of Common Stock and 5,175,000 Warrants. Every ten
Warrants entitle the holder to purchase one additional share of Common
Stock at a price of $46.50 per share prior to February 7, 1997.
In June and September, l995, the Company completed private
offerings whereby it sold a total of 1,150,000 units at $2.00 per unit.
Each unit consisted of one share of Common Stock and one Warrant. Each
Warrant entitles the holder to purchase one additional share of Common
Stock at a price of $3.25 per share at any time prior to June 30, 1997.
The net proceeds to the Company from these offerings, after the payment
of Sales Agent's commissions and other offering expenses, were
approximately $2,000,000. On November 30, 1995 the
Company and the investors in these Private Offerings agreed to reduce
the exercise price of the Warrants to $1.60 per share in return for the
commitment on the part of the investors to exercise 312,500 Warrants
($500,000) prior to December 23, 1995 and an additional 312,500
Warrants ($500,000) prior to January 31, 1996.
In March 1996 the Company sold $l,250,000 of Convertible Notes
("Notes") to two persons. The Notes are 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.
Notwithstanding the above, the conversion price may not be less than
$2.40 per share. The Notes are payable on December 1, 1996 and accrue
interest at 10% per annum. The shares issuable upon the conversion of
the Notes are being offered by means of this Prospectus. See "Selling
Shareholders".
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 modify ing the leased space and providing the equipment for the
research laboratory was approximately $1,200,000. In August 1994 the
Company obtained a loan to fund the majority of the costs for the
research laboratory. As of September 30, 1995 the Company owed
approximately $811,000 on this loan. Principal and interest on the
loan is due monthly. The loan matures in 1999 and bears interest at 2%
plus the prime lending rate.
The Company expects that it will spend approximately
$2,500,000 on research and development during the twelve month period
ending
September 30, 1996. This amount includes VTI's estimated research and
development expenses during fiscal 1996. Prior to October 1995, VTI's
research and development expenses were shared 50% by the Company and
50% by Alpha 1 Biomedicals, Inc. VTI became a wholly-owned subsidiary
of the Company in October 1995 when the Company purchased Alpha 1's 50%
interest in VTI. The Company plans to use its existing financial
resources to fund its research and development program during this
period.
Other than funding its research and development program and
the costs associated with its research laboratory, the Company does not
have any material capital commitments.
The Company expects that its existing financial resources will
satisfy the Company's capital requirements at least through December
1996. In the absence of revenues, the Company will be required to raise
additional funds through the sale of securities, debt financing or
other arrangements in order
to continue with its research efforts after that date. However, there
can be no assurance that such financing will be available or be
available on favorable terms.
BUSINESS
CEL-SCI Corporation (the "Company") was formed as a Colorado
corporation 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
interleukin2 ("IL-2") and certain lymphokines and cytokines. MULTIKINE
is being tested to determine if it is effective in improving the immune
response of advanced cancer pantients. The Company's second product,
HGP30, is being tested to determine if it is an effective treatment/
vaccine against the AIDS virus. In addition, the Company recently
acquired a new patented T-cell Modulation Process which uses
"heteroconjugates" to direct the body to chose a specific immune
response. The Company intends to use this new technology to improve
the cellular immune response of persons vaccinated with HGP-30.
Since its inception the focus of the Company's product
development efforts has been on conducting clinical trials to test its
proprietary tech nologies. The Company intends to continue testing its
MULTIKINE product in clinical trials with the objective of establishing
its efficacy as a treatment for solid tumors and possibly other
diseases. An additional aim of the Company is to further corroborate
the present data (obtained in connection with the Company's research
programs and human clinical trials) in regard to the ability of
MULTIKINE to restore the immune system of people suffering from certain
illnesses.
The cost of acquiring its exclusive license and the costs
associated with the clinical trials relating to the Company's MULTIKINE
technologies, the cost of research at various institutions and the
Company's administrative expenses have been funded with the public and
private sales of shares of
the Company's Common Stock and borrowings from third parties, including
affiliates of the Company.
In October 1995 Viral Technologies, Inc. ("VTI") became a
wholly owned subsidiary of the Company. VTI is engaged in the
development of a possible vaccine for AIDS. VTI's technology may also
have application in the treatment of AIDS-infected individuals and the
diagnosis of AIDS. VTI's AIDS vaccine, HGP-30, has completed certain
Phase I human clinical trials. In the Phase I trials, the vaccine was
administered to volunteers who were not infected with the HIV virus in
an effort to determine safe
and tolerable
dosage levels.
PRODUCT DEVELOPMENT PLAN
In March l995, the Canadian Health Protection Branch, Health
and Welfare Ministry gave clearance to the Company to start a phase
I/II cancer study using Multikine. The study, which will enroll up to
30 head and neck cancer patients who have failed conventional
treatments,
is expected to be conducted at the Ottowa Regional Cancer Center and
the Hotel-Dieu de Montreal Hospital
in Canada. The study is designed to evaluate safety, tumor responses
and im mune 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
HGP30, 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. A significantly larger percentage
of SCID mice given blood from vaccinated volunteers showed no HIV
infection after virus challenge when compared to mice given blood from
unvaccinated donors. In November 1995 VTI received permission from the
FDB to begin Phase I human clinical trials with HIV infected
volunteers. These trials began in December 1995. See "Viral
Technologies, Inc." below for additional information concerning VTI.
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
malig nant (cancer) cells. An individual's ability to respond to
infectious agents and to other substances (antigens) recognized as
foreign by the body's immune system is critical to health and survival.
When the immune response is adequate, infection is usually combatted
effectively and recovery follows.
Severe infection can occur when the immune response is inadequate.
Such immune deficiency can be present from birth but, in adult life, it
is frequently acquired as a result of intense sickness or as a result
of the administration of chemotherapeutic drugs and/or radiation. It
is also recognized that, as people reach middle age and thereafter, the
immune system grows weaker.
Two classes of white blood cells, macrophages and lymphocytes,
are
believed to be primarily responsible for immunity. Macrophages are
large cells whose principal immune activity is to digest and destroy
infectious agents. Lymphocytes are divided into two sub-classes. One
sub-class of lymphocytes, B-cells, produces antibodies in response to
antigens. Antibodies have unique combining sites (specificities) that
recognize the shape of particular antigens and bind with them. The
combination of an antibody with an antigen sets in motion a chain of
events which may neutralize the effects of the foreign substance. The
other sub-class of lymphocytes, T-cells, regulates immune responses.
Tcells, for example, amplify or suppress antibody formation by Bcells,
and can also directly destroy "foreign" cells by activating "killer
cells."
It is generally recognized that the interplay among T-cells,
B cells and the macrophages determines the strength and breadth of the
body's response to infection. It is believed that the activities of T
cells, B cells and macrophages are controlled, to a large extent, by a
specific group of hormones called lymphokines. Lymphokines regulate
and modify the various functions of both T-cells and B-cells. There
are many lymphokines, each of which is thought to have distinctive
chemical and functional properties. IL-2 is but one of these
lymphokines and it is on IL-2 and its synergy with other lymphokines
that the Company has focused its attention. Scientific and medical
investigation has established that IL-2 enhances immune responses by
causing activated Tcells to proliferate. Without such proliferation
no immune response can be mounted. Other lymphokines and cytokines
support T-cell and B-cell proliferation. However, IL-2 is the only
known lymphokine or cytokine which causes the proliferation of Tcells.
IL-2 is also known to activate B-cells in the absence of B-cell growth
factors.
Although IL-2 is one of the best characterized lymphokines
with anticancer potential, the Company is of the opinion that to have
optimum therapeutic value, IL-2 should be administered not as a single
substance but rather as a mixture of IL-2 and certain lymphokines and
cytokines, i.e. as a "cocktail". This approach, which was pioneered by
the Company, makes use of the synergism between these lymphokines. It
should be noted however that neither the FDA 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 re search 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
arrange ments with various universities and research organizations.
The Company pro vided grants to these institutions for the conduct of
specific research projects as suggested by the Company's scientists
based upon the results of pre viously 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
tech nologies. 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 pa tients 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 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 ap-
proximately $1,825,000, $2,896,000 and $1,307,000 during the years
ended
September 30, 1995, 1994 and 1993, respectively. The foregoing
amounts do not include amounts spent by Viral Technologies, Inc. on
research and development. Since May, 1986 (the inception of VTI) and
through September
30, 1995, VTI has spent approximately $3,365,000 on research and
development.
The Company has established a Scientific Advisory Board
("SAB") com
prised of scientists distinguished in biomedical research in the field
of 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 Company sponsored research. Members
of the SAB receive $500 per month from the Com pany 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 Com pany'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
Modifi cation 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, Penn sylvania.
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 Biomedi cals, Inc. VTI is developing a vaccine technology
that may prove of commer cial 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. Twenty-one healthy HIV-negative volunteers at
medical centers in Los Angeles and San Francisco received escalating
doses of HGP-30 with no clinically significant adverse side effects.
The clinical studies confirmed earlier clinical trials in London.
In April 1995 VTI, with the approval of the FDB, began
another clinical trial in California using volunteers who received two
vaccinations. The volunteers receiving the two lowest dosage levels
were asked to donate blood for a SCID mouse HIV challenge study. 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.
A significantly larger percentage of SCID mice given blood from
vaccinated volunteers showed no HIV infection after virus challenge
when compared to mice given blood from unvaccinated donors.
In November 1995 VTI received permission from the California
Food and Drug Branch ("FDB") to begin Phase I human clinical trials
with HIV infected volunteers. These trials began in December 1995.
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 HGP30 and certain other peptides.
T-CELL MODULATION PROCESS
In January 1996 the Company acquired a new patented T-cell
Modulation Process which uses "heteroconjugates" to direct the body to
chose a specific immune response.
The ability to generate a specific immune response is
important be cause many diseases are often not combatted effectively
due to the body's selection of the "inappropriate" immune response.
The capability to specifi cally 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 CELLMED's patent and
patent applications relating to the technology. As of February 29,
1996, CELL-MED had been issued patents in Australia and from the
European Patent Office covering the technology and had several U.S.
and foreign patent applications pending. COMPOUNDS AND PROCESSES
LICENSED TO THE COMPANY
The Company has acquired from Sittona Company, B.V., a
Netherlands corporation ("Sittona"), the exclusive worldwide rights to
patented 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 Pa
tent 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. Distrit Court for the Middle
District of Florida, seeks damages and the termination of certain
research and clinical studies being conducted by ImmunoRx and Dr.
Hadden. From 1984 to 1992, Dr. Hadden consulted with the Company,
performed research on Multikine and manufactured Multikine for the
Company's head and neck cancer study in Florida. In early 1993, Dr.
Hadden signed a separation agreement with the Company acknowledging
the Company's ownership of both Multikine and the research results.
The Company has learned that Dr. Hadden and ImmunoRx are apparently
making copies of Multikine, in contravention of the separation
agreement and the patents covering Multikine, and have begun clinical
studies in a foreign country using a copy of Multikine.
Process for the Production of IL-2 and IL-2 Product
The Company's exclusive license includes processes for the
production in high yields of natural human IL-2 using cell culture
techniques applied to normal human cells. Based upon the results of
the Company's research and human clinical trials, the Company believes
that "natural" IL-2 produced by cell culture technologies, such as the
Company's proprietary products, may have advantages over genetically
engineered, bacteria-produced IL-2 ("recombinant IL-2") manufactured
by other companies. There are basically two ways to produce IL-2 on a
commercial scale: (1) applying genesplicing techniques using bacteria
or other microorganisms to produce recombinant IL-2; or, (2) applying
cell culture technology using mammalian cells. Substantive
differences exist between recombinant IL-2 and IL-2 produced through
cell culture technology. For example: (1) cell cultured IL-2 is
glycosylated (has sugars attached). Sugar attachments play a crucial
role in cell recognition and have a significant effect on how fast a
body clears out proteins. Proteins produced through bacteria have no
sugar attachments and while recombinant IL-2 products produced from
recombinant yeast or insect cells are glycosylated, they are not so to
the right degree, or at the right locations. Cell cultured IL-2 has
the "right" sugar attachments at the right places; (2) there are also
structural differences related to folding (the way human proteins work
depends on their sequence folding); and (3) the cell cultured IL-2
"cocktail" is administered in small dosages as pioneered by Company
researchers. This formulation and
dosage mimics the way immune regulators are naturally found and
function within the body. This stands in stark contrast to the huge
dosages required when recombinant IL-2 is administered to patients.
In addition,
patients treated with recombinant IL-2 usually suffer severe side
effects.
Although mammalian cells (other than human cells) could be
genetically engineered to produce glycosylated IL-2 in larger
quantities than are produced by the Company's method, such mammalian
cells could not be genetically engineered to produce the combination
of human lymphokines and cytokines, which together with human
glycosylated IL-2 form the MULTIKINE product used by the Company. The
Company is of the opinion that glycosylated IL-2 genetically produced
from mammalian cells must be administered in large dosages before any
benefits are observed. Even then, the Company believes that only a
small percentage of patients will
benefit from treatments consisting only of glycosylated IL-2. In
addition, large dosages of glycosylated IL-2 can, as with recombinant
IL 2, result in severe toxic
reactions. In contrast, the Company believes the synergy between
glycosylated IL-2 and certain other lymphokines/ cytokines allows
MULTIKINE
to be administered in low dosages, thereby avoiding the severe toxic
reactions which often result when IL-2 is administered in large
dosages.
The technology licensed to the Company includes the basic
production method employing the use of normal white blood cells, an
improved production method based in part on this basic production
method, a serum-free and mitogenfree IL-2 product, and a method for
using this product in humans. Mitogens are used to stimulate cells to
produce specific materials (in this case, 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 serum
free and mitogen-free interleukin-2 preparations which avoids a
mitogen stimulation step and uses interleukin-1 and white blood cells.
The Company's license further includes a process for
suppressing graft rejection in organ transplantation. This process
employs the use of an agent which blocks the activity of IL-2 in
proliferating T-cells which
would otherwise destroy the transplanted organ. The Company regards
further research and development of this process to involve a
financial commitment beyond its present ability; thus, while the
Company intends to
attempt to enter into licensing arrangements with third parties
concerning this process, it does not presently intend to conduct
further research into, or development of, this process.
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 ob tained. 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 ap plications filed by physicians at a southern Florida medical
institution with the Florida Department of Health and Rehabilitative
Services ("DHRS"). VTI's Phase I clinical trials were conducted
pursuant to approvals obtained from the California Department of
Health Services Food and Drug Branch. None of the clinical trials
involving the
Company's MULTIKINE product (including the prior trials conducted in
London, England) have been conducted under the approval of the FDA and
there are no assurances that clinical trials conducted under approval
from state authorities or conducted in foreign countries will be
accepted by the FDA. Product licensure in a foreign country or under
state authority does not mean that the product will be licensed by the
FDA and there are no assurances that the Company will receive any
approval of the FDA or any other governmental entity for the
manufacturing and/or marketing of a product. Consequently, the
commencement of the manufacturing and marketing of any Company product
is, in all likelihood, many years away.
COMPETITION AND MARKETING
Many companies, 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 Com pany'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 65 Director and President
Geert R. Kersten, Esq. 37 Director, Chief Executive
Officer, Secretary and
Treasurer Patricia B. Prichep 43 Vice President of
Operations
M. Douglas Winship 45 Vice President of Regulatory
Affairs and Quality Assurance
Dr. Eyal Talor 40 Vice President of Research
and Manufacturing
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
Com pany 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 Regula
tory Affairs and Quality Assurance since April, 1994. Between 1988
and April, 1994, Mr. Winship held various positions with Curative
Technologies, Inc., including Vice President of Regulatory Affairs and
Quality Assurance (1991-1994).
Dr. Eyal Talor has been the Company's Vice President of
Research and Manufacturing since March, 1994. From October, 1993
until March, 1994, Dr. Talor was Director of Research, Manufacturing
and
Quality Control, as well as the Director of the Clinical Laboratory,
for Chesapeake Biological Laboratories, Inc. From 1991 to 1993, Dr.
Talor was a scientist with SRA Technologies, Inc., as well as the
director of SRA's Flow Cytometry Laboratory (19911993) and Clinical
Laboratory (19921993). During 1992 and 1993, Dr. Talor was also the
Regulatory Affairs and Safety Officer For SRA. Since 1987, Dr. Talor
has held various positions with the John Hopkins University, including
course coordinator for the School of Continuing Studies (1989-Present),
research associate and lecturer in the Department of Immunology and
Infectious Diseases (1987-1991), and associate professor (1991-
Present).
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 19861992. 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 in volved in the clean-up of hazardous and toxic waste dump sites.
Mr. Soresi attended George Washington University in Washington, D.C.
where he earned a Bachelor of Science in Chemistry.
F. Donald Hudson. F. Donald Hudson has been a director of the
Com
pany since May, 1992. From December 1994 to October 1995 Mr. Hudson
was President and Chief Executive Officer of VIMRx Pharmaceuticals,
Inc. Between 1990 and 1993, Mr. Hudson was President and Chief
Executive Officer of Neuromedica, Inc., a development stage company
engaged in neurological research. Until January, 1989, Mr. Hudson
served as Chairman and Chief Executive Officer of Transgenic Sciences,
Inc. (now TSI Corporation), a publicly held biotechnology corporation
which he founded in January, 1987. From October, 1985 until January,
1987, Mr. Hudson was a director of Organogenesis, Inc., a publicly held
biotechnology corporation of which he was a founder, and for five years
prior thereto was Executive Vice President and a director of Integrated
Genetics, Inc., a corporation also engaged in biotechnology which he co
founded and which was publicly traded until its acquisition in 1989 by
Genzyme, Inc.
Edwin A. Shalloway, Esq. Mr. Shalloway has been a director of
the Company since May, 1992. Mr. Shalloway is and has been since 1964,
a partner in the law firm of Sherman and Shalloway which specializes in
matters of patent law. Mr. Shalloway attended the University of
Georgia where he earned a Bachelor of Science and Bachelor of Arts
degrees. Mr. Shalloway received his law degree from the American
University in Washington, D.C. Mr. Shalloway is also the President of
the International Licensing Executive Society.
All of the Company's officers devote substantially all of
their time on the Company's business. Messrs. Soresi, Hudson and
Shalloway, as directors, devote only a minimal amount of time to the
Company.
The Company has an audit committee whose members are Geert
R. Kersten, F. Donald Hudson and Edwin A. Shalloway.
Executive Compensation
The following table sets forth in summary form the compensation
re ceived by (i) the Chief Executive Officer of the Company and (ii) by
each other executive officer of the Company who received in excess of
$100,000 during the fiscal year ended September 30, 1995.
Annual Compensation Long Term
Compensation Re- All
Other stric-
Other
Annual ted LTIP
Com Compen- Stock Options
Pay pensa-
Name and Princi Fiscal Salary Bonus sation Awards Granted outs
tion pal Position Year (1) (2) (3) (4) (5) (6)
(7)
Maximilian de Clara, 1995 - $95,181
225,000
- -
President 1994 - $93,752
70,000
- -
1993 - $59,376
- -
- -
Geert R. Kersten, 1995 $164,801 $ 9,426
224,750
$3,911
Chief Executive 1994 $182,539 $ 8,183
50,000
$4,497
Officer, Secretary 1993 $163,204 $ 6,046
- -
$3,289
and Treasurer
M. Douglas Winship, 1995 $113,500 $ 1,200
22,000
$2,100
Vice President of
Regulatory Affairs
Suzanne Beckner, 1995 $102,250 - -
25,000
- -
$2,830
Vice President of
Clinical Development*
* Dr. Beckner resigned her position with the Company in November
1995.
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as
salary or bonus, including perquisites and other personal
benefits, securities or
property. Amounts in the table represent automobile, parking and
other transportation expenses.
(4) During the period covered by the Table, no shares of
restricted stock were issued as compensation for services to
the persons listed in the table. As of September 30, 1995,
the number of
shares of the Company's common stock, owned by the officers
included in the table above, and the value of such shares at
such date, based upon the market price of the Company's common
stock were:
Name Shares Value
Maximilian de Clara 5,000 $23,100
Geert R. Kersten 84,940 $392,423
Dividends may be paid on shares of restricted stock owned by the
Company's officers and directors, although the Company has no
plans to pay dividends. Mr. Winship and Ms. Beckner did not own
any shares of the Company's Common Stock at September 30, 1995.
(5) The shares of Common Stock to be received upon the exercise of
all stock options granted during the period covered by the Table.
The amounts in this table include options granted in prior years
but which were repriced during the year ending September 30,
1995. See "Ten Year Option/SAR Repricings" table below.
(6) "LTIP" is an abbreviation for "Long-Term Incentive Plan". An
LTIP is any plan that is intended to serve as an incentive for
performance to
occur over a period longer than one fiscal year. Amounts
reported in this column represent payments received during the
applicable fiscal year by the named officer pursuant to an LTIP.
(7) All other compensation received that the Company could not
properly report in any other column of the Table including annual
Company contributions or other allocations to vested and unvested
defined contribution plans, and the dollar value of any insurance
premiums paid by, or on behalf of, the Company with respect to
term life insurance for the benefit of the named executive
officer, and the full dollar value of the remainder of the
premiums paid by, or on behalf of, the Company. Amounts in the
table represent contributions made by the Company to a 401(k)
pension plan on behalf of persons named in the table.
Long Term Incentive Plans Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
During 1993 the Company implemented a defined contribution
retire ment plan, qualifying under Section 401(k) of the Internal
Revenue Code and covering substantially all the Company's employees.
The Company's contribution is equal to the lesser of 3% of each
employee's salary, or 50% of the employee's contribution. The 1995
expenses for this plan were $24,913. Other than the 401(k) Plan, the
Company does not have a defined benefit, pension plan, profit sharing
or other retirement plan.
Compensation of Directors
Standard Arrangements. The Company currently pays its
directors $1,500 per quarter, plus expenses. The Company has no
standard arrangement pursuant to which directors of the Company are
compensated for any services provided as a director or for committee
participation or special assignments.
Other Arrangements. The Company has from time to time
granted options to its outside directors, Mr. Soresi, Mr. Hudson and
Mr. Shalloway. See Stock Options below for additional information
concerning options granted to the Company's directors.
Employment Contracts
Effective August 1, 1994, the Company entered into a three
year em ployment agreement with Mr. Kersten. The employment agreement
provides that during the period between August 1, 1994 and July 31,
1995, the Company will pay Mr. Kersten an annual salary of $198,985.
During the years ending August 31, 1996 and 1997, the Company will pay
Mr. Kersten a salary of $218,883 and $240,771 respectively. In the
event that there is a material reduction in Mr. Kersten's authority,
duties or activities, or in the event there is a change in the control
of the Company, then the agreement allows Mr. Kersten to resign from
his position at the Company and receive a 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 offi cer of the Company serving as a director of such entity
or as a member of the compensation committee of such entity.
Stock Options
The following tables set forth information concerning the
options granted, during the fiscal year ended September 30, 1995, to
the persons named below, and the fiscal year-end value of all
unexercised options (regardless of when granted) held by these
persons.
Options Granted During Fiscal Year Ending September 30, l995
Potential Individual Grants (1)
Realizable Value at
% of Total Assumed
Annual Rates Options of
Stock
Price
Granted to Exercise
Appreciation for Options Employees in Price Per
Expiration Option
Term
(3)
Name Granted (#) Fiscal Year Share (1) Date 5%
10%
Maximilian 15,000 $2.87 3/19/01 $ 14,550
$30,750
de Clara 70,000 $2.87 11/1/01 $ 67,900
$176,400
70,000 $2.87 7/29/04 $272,300
$272,300
70,000 $3.87 7/31/05 $240,100
$501,200
225,000 32%
Geert R. 50,000 (2) $2.87 1/10/98 $ 20,500
$42,000
Kersten 750 $2.87 3/28/98 $ 287
$705
4,000 $2.87 10/31/99 $ 2,440 $
5,320
10,000 $2.87 10/31/00 $ 7,900
$17,500
10,000 $2.87 3/19/01 $ 9,700
$22,100
50,000 $2.87 11/01/01 $ 48,500
$110,700
50,000 $2.87 7/29/04 $ 79,000
$194,500
50,000 $3.87 7/31/05 $171,500
$358,000
224,750 32%
M. Douglas 2,000 (2) $2.87 1/10/98 $ 720
$1,660
Winship 15,000 $2.87 4/4/04 $ 23,700
$58,350
5,000 $3.87 7/31/05 $ 17,150
$35,800
22,000 3%
Suzanne 5,000 (2) $2.87 1/10/98 $ 1,750
$4,150
Beckner 8,000 $2.87 7/11/04 $ 12,640
$31,120
12,000 $3.87 7/31/05 $ 41,160
$85,920
25,000 3.5%
(1) Includes options granted in prior fiscal years but which were
repriced in June 1995. See "Ten-Year Option/SAR
Repricings" table below.
(2) Options were granted in accordance with the Company's 1995 salary
reduction plan. Pursuant to the salary reduction plan, any
employee of
the Company was allowed to receive options in exchange for a one-time
reduction in such employee's salary.
(3) The potential realizable value of the options shown in the table
assuming the market price of the Company's Common Stock appreciates
in value from the date of the grant to the end of the option term
at 5% or 10%.
Option Exercises and Year End Option Values
Value of
Unex Number of ercised
Inthe
Unexercised Money
Options at
Options Fiscal
Year-
End
Shares (3)
(4) Acquired Value
on Exercise Realized Exercisable/
Exercisable/
Name (1) (2) Unexercisable
Unexercisable
Maximilian de Clara - - 108,334/116,666
$189,584/$134,165
Geert R. Kersten - - 85,750/139,000
$150,062/$193,250
M. Douglas Winship - - 5,000/ 17,000 $
8,750/$24,750
Suzanne Beckner - - 2,667/ 22,333 $
4,667/$27,083
(1) The number of shares received upon exercise of options during the
fiscal year ended September 30, 1995.
(2) With respect to options exercised during the Company's fiscal year
ended September 30, 1995, the dollar value of the difference
between the
option exercise price and the market value of the option shares
purchased on the date of the exercise of the options.
(3) The total number of unexercised options held as of September 30,
1995, separated between those options that were exercisable and
those options that were not exercisable.
(4) For all unexercised options held as of September 30, 1995, the
aggregate dollar value of the excess of the market value of the
stock underlying those options (as of September 30, 1995) over the
exercise price of those unexercised options. Values are shown
separately for those options that were exercisable, and those
options that were not yet exercisable, on September 30, 1995.
Ten-Year Option/SAR Repricings
In June 1995 the Company lowered the exercise price on options
held by all of the Company's officers, directors and employees to $2.87
per share. The options subject to this repricing allowed for the
purchase of up to 444,250 shares of the Company's Common Stock and
included options previously granted to those persons listed below. The
Company's Board of Directors lowered the exercise of these options
since at the time of repricing (June 10, 1995), the options no longer
provided a benefit to the option holders due to the difference between
the exercise price of the options and the market price of the Company's
Common Stock. The following table provides more information concerning
the repricing of these options. Number of
Length of
Securities Market Exercise
Original
Op-
Underlying Price of Price at
tion
Term
Options/ Stock at Time of
Remaining
at
SARs Re Repricing Repricing New
Date of
Re-
priced or or Amend or Amend Exercise
pricing or Name Date Amended (#) ment ($) ment
($)
Price ($)
Amendment
Maximilian 6/10/95 15,000 $2.87 $10.90 $2.87 63
mos.
de Clara 70,000 $2.87 $20.90 $2.87
70
mos.
70,000 $2.87 $8.70 $2.87
108
mos.
Geert R. 6/10/95 50,000 $2.87 $4.10 $2.87
30
mos.
Kersten 750 $2.87 $11.60 $2.87
33
mos.
4,000 $2.87 $4.00 $2.87
52
mos.
10,000 $2.87 $8.40 $2.87
64
mos.
10,000 $2.87 $10.90 $2.87
68
mos.
50,000 $2.87 $20.90 $2.87
76
mos.
50,000 $2.87 $8.70 $2.87
108
mos.
M. Douglas 6/10/95 2,000 $2.87 $4.10 $2.87
30
mos.
Winship 15,000 $2.87 $11.20 $2.87
105
mos.
Suzanne 6/10/95 5,000 $2.87 $4.10 $2.87
30
mos.
Beckner 8,000 $2.87 $6.80 $2.87
107
mos.
Stock Option and Bonus Plans
The Company has two Incentive Stock Option Plans, three Non-
Qualified Stock Option Plans and a Stock Bonus Plan. A summary
description of these Plans follows. In some cases these Plans are
collectively referred to as the "Plans".
Incentive Stock Option Plan. The two Incentive Stock Option
Plans collectively authorize the issuance of up to 200,000 shares of
the Company's Common Stock to persons that exercise options granted
pursuant to the Plan. Only Company employees may be granted options
pursuant to the Incentive Stock Option Plan.
To be classified as incentive stock options under the
Internal Reve nue Code, options granted pursuant to the Plans must be
exercised prior to the following dates:
(a) The expiration of three months after the date on which an
option holder's employment by the Company is terminated
(except if such termination is due to the death or
permanent and total disability);
(b) The expiration of 12 months after the date on which an
option holder's employment by the Company is terminated,
if such termination is due to the Employee's permanent
and total disability;
(c) In the event of an option holder's death while in the
employ of the Company, his executors or administrators
may exercise, within three months following the date of
his death, the option as to any of the shares not
previously exercised;
The total fair market value of the shares of Common Stock
(determined at the time of the grant of the option) for which any
employee may be granted options which are first exercisable in any
calendar year may not exceed $100,000.
Options may not be exercised until one year following the
date of grant. Options granted to an employee then owning more than
10% of the Common
Stock of the Company may not be exercisable by its terms after five
years from the date of grant. Any other option granted pursuant to
the Plan may not be exercisable by its terms after ten years from the
date of grant.
The purchase price per share of Common Stock purchasable
under an option is determined by the Committee but cannot be less than
the fair market value of the Common Stock on the date of the grant of
the option (or 110% of the fair market value in the case of a person
owning more than 10% of the Company's outstanding shares).
Non-Qualified Stock Option Plan. The three Non-Qualified
Stock Op tion Plans collectively authorize the issuance of up to
960,000 shares of the Company's Common Stock to persons that exercise
options granted pursuant to the Plans. The Company's employees,
directors, officers, consultants and advisors are eligible to be
granted options pursuant to the Plans, provided however that bona fide
services must be rendered by such consultants or advisors and such
services must not be in connection with the offer or sale of
securities in a capital-raising transaction. The option exercise price
is determined by the Committee but cannot be less than the market
price of the Company's Common Stock on the date the option is granted.
Stock Bonus Plan. Up to 40,000 shares of Common Stock may be
granted under the Stock Bonus Plan. Such shares may consist, in whole
or in part, of authorized but unissued shares, or treasury shares.
Under the Stock Bonus Plan, the Company's employees, directors,
officers, consultants and advisors are eligible to receive a grant of
the Company's shares, provided however that bona fide services must be
rendered by consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction.
Other Information Regarding the Plans. The Plans are
administered by the Company's Compensation Committee ("the
Committee"), each member of
which is a director of the Company. The members of the Committee were
selec ted by the Company's Board of Directors and serve for a one-year
tenure and until their successors are elected. A member of the
Committee may be removed at any time by action of the Board of
Directors. Any vacancies which may occur on the Committee will be
filled by the Board of Directors. The Committee is vested with the
authority to interpret the
provisions of the Plans and supervise the administration of the Plans.
In addition, the Committee is empowered to select those persons to
whom shares or options are to be granted, to determine the number of
shares subject to each grant of a stock bonus or an option and to
determine when, and upon what conditions, shares or options granted
under the Plans will vest or otherwise be subject
to forfeiture and cancellation.
In the discretion of the Committee, any option granted
pursuant to the Plans may include installment exercise terms such that
the option becomes fully exercisable in a series of cumulating
portions. The Committee may also accelerate the date upon which any
option (or any part of any options) is first exercisable. Any shares
issued pursuant to the Stock Bonus Plan and any options granted
pursuant to the Incentive Stock Option Plan or the NonQualified Stock
Option Plan will be forfeited if the "vesting" schedule established by
the Committee administering the Plan at the time of the grant is not
met.
For this purpose, vesting means the period during which the employee
must re main an employee of the Company or the period of time a non
employee must provide services to the Company. At the time an
employee ceases working for the Company (or at the time a non-employee
ceases to perform services for the Company), any shares or options not
fully vested will be forfeited and cancelled. At the discretion of the
Committee payment for the shares of Common Stock underlying options
may be paid through the delivery of shares of the Company's Common
Stock having an aggregate fair market value equal to the option price,
provided such shares have been owned by the option holder for at least
one year prior to such exercise. A combination of cash and shares of
Common Stock may also be permitted at the discretion of the Committee.
Options are generally non-transferable except upon death of
the op tion holder. Shares issued pursuant to the Stock Bonus Plan
will generally not be transferable until the person receiving the
shares satisfies the vest ing requirements imposed by the Committee
when the shares were issued.
The Board of Directors of the Company may at any time, and
from time to time, amend, terminate, or suspend one or more of the
Plans in any manner they deem appropriate, provided that such
amendment, termination or suspension will not adversely affect rights
or obligations with respect to shares or options previously granted.
The Board of Directors may not, without shareholder approval: make any
amendment which would materially modify the eligibility requirements
for the Plans; increase or decrease the total number of shares of
Common Stock which may be issued pursuant to the Plans except in the
case of a reclassification of the Company's capital stock or a
consolidation or merger of the Company; reduce the minimum option
price per share; extend the period for granting options; or materially
increase in any other way the benefits accruing to employees who are
eligible to participate in the Plans.
Prior Stock Option and Bonus Plan. The Company previously
had in effect a Stock Option and Bonus Plan ("the 1987 Plan") which
provided for the grant to the Company's officers, directors, employees
and consultants of either (i) shares of the Company's Common Stock for
services rendered or (ii) options to purchase shares of Common Stock.
The 1987 Plan was terminated by the Company in 1992. Since the 1987
Plan was terminated, no further options will be granted and no further
bonus shares will be issued pursuant to the 1987 Plan. However,
options previously granted may nevertheless still be exercised
according to the terms of the options. Prior to the termination of the
1987 Plan, the Company granted options to purchase 189,250 shares of
the Company's Common Stock. To date, options to purchase 6,000 shares
have been exercised. In June, 1995 the Company cancelled options to
purchase 176,250 shares that had previously been granted under this
Plan and reissued options for the same number of shares under the
Company's other stock option plans. See "Option Summary" below.
Option Summary. The following sets forth certain
information, as
of March 31, 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
TOTAL: 981,926
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 March 31, 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 l985, Mr. de Clara acquired all of the issued and
outstanding stock of Sittona. Mr. de Clara and Dr. Fabricius, because
of their ownership interests in Hooper and Shanksville, could receive
approximately 50% and 30% respectively of any royalties paid by
Sittona to Hooper and Shanksville, and Mr. de Clara, through his
interest in all three companies (Hooper, Shanksville and Sittona),
will receive up to 95% of any royalties paid by the Company.
Legal Matters
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 re quired by the Securities Exchange Act of 1934. In May,
1992, the Commission entered an order requiring Mr. de Clara to file
reports of beneficial owner ship on a timely basis.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of March 31, 1996,
information with respect to the only persons owning beneficially 5% or
more of the out standing 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 48,334 (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 18,030 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
M. Douglas Winship 8,667 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Eyal Talor 14,500 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Number of
Percent of Name and Address Shares (1)
Class
(4)
Dr. Prem Sarin 5,000 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 22314
Mark Soresi 14,375 *
l0l0 Wayne Ave., 8th Floor
Silver Spring, MD 209l0
F. Donald Hudson 10,500 *
53 Mt. Vernon Street
Boston, MA 02108
Edwin A. Shalloway 10,500 *
413 North Washington Street
Alexandria, VA 22314
All Officers and Directors
as a Group (10 persons) 398,263 6.0%
*Less than 1%
(1) Includes shares issuable prior to July 1, 1996 upon the exercise
of options or warrants granted to the following persons:
Options or Warrants Exercisable
Name Prior to July 1, 1996
Maximilian de Clara 43,334
Geert R. Kersten 163,417
Patricia B. Prichep 15,000
M. Douglas Winship 8,667
Dr. Eyal Talor 13,000
Mark Soresi 12,500
F. Donald Hudson 10,500
Edwin A. Shalloway 10,500
Dr. Prem Sarin 5,000
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 issuable upon the conversion of the
Company's Convertible Notes as well as shares which may be issued
upon the exercise and/or conversion of other options, warrants
and convertible securities previously issued by the Company. See
"Dilution and Comparative Share Data".
SELLING SHAREHOLDERS
In March l996 the Company sold $l,250,000 of Convertible Notes
("Notes") to two persons. The Notes are convertible from time to
time, in
whole or in part, into shares of the Company's Common Stock upon
certain terms. See "Description of Securities". The holders of the
Convertible Notes, to the event they convert their Notes into shares
of Common Stock, are sometimes referred to in this Prospectus as the
"Selling Shareholders" and the shares issuable upon the conversion of
the Notes are being offered by means of this Prospectus. The
Company will not receive any
proceeds from the
sale of the shares by the Selling Shareholders.
The names and addresses of the Selling Shareholders are:
Shares Which
may be Ac Shares to
Share Shares quired Upon be Sold in
Owner-
Presently Conversion This ship
After
Name and Address Owned of Notes (1) Offering (2)
Offering
Killeba Holdings, S.A. - 245,098 245,098
- -
102 Langeherr Entalse
Street
Antwerp, 2018 BELGIUM
Rita Folger - 10,212 10,212
- -
c/o Oscar Folger
521 Fifth Avenue
24th Floor
New York, NY 10175
(1) Represents shares issuable upon the conversion of the Notes based
upon the closing price of the Company's Common Stock on April 10,
1996 ($6.12). The actual number of shares to be issued upon the
conversion of the Notes will depend upon the price of the
Company's Common Stock at the time of conversion.
(2) Assumes all shares owned, or which may be acquired, by the
Selling Shareholders, 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 overthecounter 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-toface 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. Such brokers and dealers and any other participating
brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales.
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.
Publicly Traded Warrants
In connection with the Company's February, 1992 public
offering, the Company issued 5,175,000 Warrants. Every ten Warrants
entitle the holder to purchase one share of the Company's Common Stock
at a price of $46.50 per share prior to February 7, 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 exer cise 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 dis cretion of the Company's Board of Directors by
giving each Warrant holder no tice 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 are 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. Notwithstanding the above, the conversion price may not
be less than $2.40 per share. The Notes are payable on December 1,
1996 and accrue interest at 10% per annum. The shares issuable upon
the conversion of the Notes are being offered by means of this
Prospectus.
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. Distrit
Court for the Middle District of Florida, seeks damages and the
termination of certain research and clinical studies being conducted
by ImmunoRx and Dr. Hadden. From 1984 to 1992, Dr. Hadden consulted
with the Company, performed research on Multikine and manufactured
Multikine for the Company's head and neck cancer study in Florida.
In early 1993, Dr. Hadden signed a separation agreement with the
Company acknowledging the Company's ownership of both Multikine and
the research results. The Company has learned that Dr. Hadden and
ImmunoRx are apparently making copies of Multikine, in contravention
of the separation agreement and the patents covering Multikine, and
have begun clinical studies in a foreign country using a copy of
Multikine. See "Business Compounds and Processes Licensed to the
Company".
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.
2153D
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 .........................................
255,310 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 $
539
NASD Filing Fee
505
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
1,856
TOTAL
$35,000
All expenses other than the S.E.C. and NASD filing fees are
estimated. Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all securities
of the Company which have been sold during the past three
years and which securities were not registered under the
Securities Act of 1933, as amended.
Shares of
Common Date of
Security Holder Stock Sold Sale
Consideration
Daryl Strahl 2,431 11/1/93 8,038(1)
Isadore Klausner 25,000 11/1/93
(2)
Private Investors 575,000 6/22/95
$1,150,000
Private Investors 575,000 9/30/95
$1,150,000
Unless otherwise indicated, the consideration paid for the
shares was cash.
(1) Surrender of options to Company. The options surrendered were
valued at $8,038.
(2) Settlement of claim against officer and director. Officer and
director was indemnified by Company for this claim. Accordingly,
shares were issued directly to Mr. Klausner, the person asserting
the claim against the officer and director.
The sales of the Company's Common Stock described above were exempt
transactions under Section 4(2) of the Act as transactions by an
issuer not involving a public offering. The shares of Common Stock
sold subsequent to February 1995 were also exempt in accordance with
Rule 505 of the Securities and Exchange Commission. All of the shares
of Common Stock were issued for investment purposes only and without a
view to distribution. All of the persons who acquired the foregoing
securities were fully informed and advised about matters concerning
the Company, including its business, financial affairs and other
matters. The purchasers of the Company's Common Stock acquired the
securities for their own accounts. The certificates evidencing the
securities bear legends stating that they may not be offered, sold or
transferred other than pursuant to an effective registration statement
under the Securities Act of 1933, or pursuant to an applicable
exemption from registration. No underwriters were involved with the
sale of the shares of Common Stock and no commissions or other forms
of remuneration were paid to any person in connection with sales of
the Company's securities prior to June 1995. The Company paid a
commission of $230,000, a nonaccountable
expense allowance of $69,000, and issued warrants for the purchase of
up to 230,000 shares of Common Stock, to Neidiger/Tucker/Bruner, Inc.
in connection with the sale of the securities sold in June and
September 1995. All of the shares of Common Stock sold by the Company
are "restricted" shares as defined in Rule 144 of the Rules and
Regulations of the Securities and Exchange Commission.
Item 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
Regi stration Statement on Form S1 and Post-Effective Amendment
("Registra tion Statement"), Registration Nos. 285547-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
S1, Registration Nos. 2-85547-
D and 337531.
(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
S1, Registration Nos. 2-85547-
D and 337531.
4(a) Specimen copy of Incorporated by reference to
Exhibit
Stock Certificate 4(a) of the Company's
Registration
Statement on Form S-1,
Registration Nos. 2-85547-D
and 337531.
(c) Form of Common Stock Incorporated by reference to
Exhibit
Purchase Warrant 4(c) filed as an exhibit to
the
Com-
pany's Registration Statement
on Form S-1 (Registration No.
33 43281).
5. Opinion of Counsel
10(a) Purchase Agreement Incorporated by reference to
Exhibit
dated April 21, 1986 10(a) of the Company's
Registration
with Alpha I Biomedical Statement on Form S-1,
Registration
Nos. 2-85547-D and 33-7531.
(b) Agreement with Sittona Incorporated by reference to
Exhibit
Company B.V. dated 10(c) of the Company's
Registration
May 3, 1983 Statement on Form S-1,
Registration
Nos. 2-85547-D and 33-7531.
(c) Addendum effective May 3, Incorporated by reference to
Exhibit
1983 to Licensing Agree- 10(e) of the Company's
Registration
ment with Sittona Company, Statement on Form S-1,
Registration
B.V. Nos. 2-85547-D and 33-7531.
(d) Addendum effective October Incorporated by reference to
Exhibit 13, 1989 to Licensing Agree 10(d) of Company's Annual
Report on ment with Sittona Company, Form 10-K for the
year ended
September
B.V. 30, 1989.
10(e) Employment Agreement with Filed with Amendment Number 1
to
the
Geert Kersten Company's Registration
Statement
on
Form S-1 (Commission File
Number 33 43281).
10(g) Agreement between Viral Filed with Amendment Number 2
to
the
Technologies, Inc. and Company's Registration
Statement
on
Nippon Zeon Co., Ltd. Form S-1 (Commission File
Number
33-
90230).
23(a) Consent of Hart & Trinen
(b) Consent of Deloitte &
Touche LLP
24. Power of Attorney Included as part of signature
page.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement.
(i) To include any Prospectus required by Section
l0(a)(3) of the Securities Act of l933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in
the Registra tion 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
amend ment any of the securities being registered which remain unsold
at the termi nation of the offering.
(4) To provide to the Underwriter at the closing specified
in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriter to permit
prompt
delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising under
the Securities Act of l933 may be permitted to directors, officers and
controlling persons of the Registrant, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
POWER OF ATTORNEY
The registrant and each person whose signature appears below
hereby authorizes the agent for service named in this Registration
Statement, with full power to act alone, to file one or more
amendments (including posteffective amendments) to this Registration
Statement,
which amendments may make such changes in this Registration Statement
as such agent for service deems appropriate, and the Registrant and
each such person hereby appoints such agent for service as attorney-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 25th day of April,
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 April 25,
1996
MAXIMILIAN DE CLARA Executive Officer
/s/ Geert R. Kersten Director, Principal April 25,
1996
GEERT R. KERSTEN Financial Officer
and Chief Executive
Officer
/s/ Mark V. Soresi Director April 25,
1996
MARK V. SORESI
Director April ,
1996
F. DONALD HUDSON
/s/ Edwin A. Shalloway Director April 25,
1996
EDWIN A. SHALLOWAY
CEL-SCI Corporation
66 Canal Center Plaza
Suite 510
Alexandria, VA 22314
Gentlemen:
This letter will consitute an opinion upon the legality of the
issuance by CEL-SCI Corporation, a Colorado corporation, of shares
of common stock issuable upon the conversion of certain Convertible
Notes and 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 Incorporationl, the Bylaws and the
minutes of the Board of Directors of the Company and the applicable
laws of the State of Colorado,and a copy of the Registration
Statement. In our opinion,the Company is authorized to issue the
shares mentioned above and, when issued in accordance with the terms
and conditions set out in the Registration Statement, such shares of
common stock will be legally issued,fully paid and non-assessable.
Very truly yours,
HART & TRINEN
By William T. Hart
CONSENT OF ATTORNEYS
Reference is made to the Registration Statement of CEL-SCI
Corporation whereby it propospes to sell shares of Common Stock
issuable upon the conversion of Convertible Notes. Reference is
also made to the validity of the securities proposed to be issued
and sold.
We hereby consent to the use of our opinion concerning the validity
of the securities proposed to be issued and sold.
Very truly yours,
HART & TRINEN
William T. Hart
Denver, Colorado
April 25, 1996
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement, relating to
255,310 shares of Common Stock of CEL-SCI Corporation on Form S-1,
of our report dated November 29, 1995, except for Note 14, as to
which the date is December 23, 1995, appearing in the prospectus,
which is part of such Registration Statement, and to the reference
to us under the hearing "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Washington, D.C.
April 23, 1996
CEL-SCI CORPORATION
Financial Statements for the Years Ended September 30, 1995, 1994,
and 1993, and Independent Auditors' Report
To the Board of Directors and Shareholders of
CEL-SCI Corporation:
We have audited the accompanying balance sheets of CEL-SCI
Corporation as of September 30, 1995 and 1994, and the related
statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CEL-SCI
Corporation as of September 30, 1995 and 1994, and the results of
its operations and its cash flows for each of the three years in the
period ended September 30, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, as of September
30, 1994, the Company changed its method of accounting for certain
investments in debt and equity securities to conform with Statement
of Financial Accounting Standards No. 115.
Washington, DC
November 29, 1995, except for Note 14, as to which the date is
December 23, 1995
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
availablefor-sale for the years ended September 30, 1995, 1994,
and 1993, are as follows:
Note 2c
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1995 and 1994, consist of the
following:
Note3a
4. JOINT VENTURE
In April 1986, the Company paid $200,000 cash
and issued 500,000 shares of its $.01 par value common stock to
acquire half the rights to technology which may be useful in the
diagnosis, prevention and treatment of Acquired Immune Deficiency
Syndrome (AIDS) from Alpha I Biomedicals, Inc. The Company's
stock was valued at $1.50 per share on the basis of arm's-length
negotiations. At the time the transaction took place, the stock
was trading at $2.42. Because the cost of these rights to
technology is considered research and development, the $950,000
purchase price was expensed.
The Company and Alpha 1 Biomedicals, Inc. (Alpha 1)
contributed their respective interests in the technology and
$10,000 each to capitalize a joint venture, Viral Technologies,
Inc. (VTI). VTI is wholly owned by the Company and Alpha 1, each
having a 50% ownership interest. The total loaned or advanced to
VTI by CELSCI Corporation through September 30, 1995, was
$1,592,584 (see Note 13).
During the three years ended September
30, 1995, VTI had no sales. The operations of VTI were as follows:
Note4a
The balance sheets of VTI at September 30, 1995 and
1994, are summarized as follows:
Note4b
On December 17, 1987, Viral Technologies, Inc., entered into a
licensing agreement with Nippon Zeon Company, Ltd., a Japanese
company. Under the agreement, Nippon Zeon will engage in the
development and testing and, if development is successful, the
marketing of the potential AIDS vaccine in the Pacific Rim area.
As a result, Viral Technologies, Inc., received
precommercialization payments of $850,000 during the year ended
September 30, 1988.
During the year ended September 30, 1995, VTI purchased back from
Nippon Zeon the licensing agreement. No cash or stock was
exchanged; however, Nippon Zeon retains a royalty on any future
sales of the drug HGP30 in its former exclusive licensed
territories.
5. CREDIT ARRANGEMENTS
At September 30, 1995, the Company
had a promissory note outstanding with a bank
in the
amount
of $811,263. This promissory note was converted in November
1994 from a prior line of credit. The line of credit
outstanding at September 30, 1994, was $788,601, and the
Company subsequently drew down additional amounts during the
year ended September 30, 1995,
prior to converting the line of credit to a promissory note.
The principal is being repaid over forty-eight consecutive
months beginning February 5, 1995. Interest on the outstanding
balance is calculated at the Bank's prime rate plus two
percent, which is 10.75% at September 30, 1995, and is to be
paid monthly with the principal payments. The promissory note
is secured by all corporate assets and requires the Company to
hold a certificate of deposit equal to 20% of the outstanding
balance of the line of credit with the Bank. Under the
promissory note the Company is also subject to certain minimum
equity, liquidity, and operating covenants.
6. COMMITMENTS AND CONTINGENCIES
In 1993, an officer and director of the
Company was involved in legal proceedings concerning shares of
the Company's common stock. The officer and director was
acting on behalf of the Company in trying to secure financing,
and the Company paid legal fees in connection with these
proceedings and indemnified the officer for any loss he
suffered upon the settlement of these matters. During 1992, one
of the matters was settled by the officer and director
delivering 3,000 shares of the Company's common stock to one
plantiff and paying this plantiff $200,000. In the other
matter, a European Court awarded a different plantiff 25,000
shares of the Company's common stock owned by the officer and
director. In October 1993, the Company issued 25,000 shares of
common stock to the plaintiff to satisfy the judgment and in
lieu of reimbursement to the officer and director for this
claim. The value of the shares issued, $202,500, was expensed
during 1993 and was included in accrued expenses at September
30, 1993.
7. RELATED-PARTY TRANSACTIONS
The technology and know-how licensed to the Company was developed
by a group of researchers under the direction of Dr. Hans Ake
Fabricius and was assigned during 1980 and 1981 to Hooper
Trading Company, N.V., a Netherlands Antilles corporation
(Hooper) and Shanksville Corporation, also a Netherlands
Antilles corporation (Shanksville). Maximillian de Clara, an
officer and director
in the Company, and Dr. Fabricius own
50% and 30%, respectively, of each of these companies. The
technology and knowhow assigned to Hooper and Shanksville was
licensed to Sittona Company, B.V., a Netherlands corporation
(Sittona), effective September, 1982 pursuant to a licensing
agreement which requires Sittona to pay to Hooper and
Shanksville royalties on income received by Sittona respecting
the technology and know-how licensed to Sittona. In 1983,
Sittona licensed this technology to the Company. At such time as
the Company generates revenues from the sale or sublicense of
this technology, the Company will be required to pay royalties
to Sittona equal to 10% of net sales and 15% of licensing
royalties received from third parties. In that event, Sittona,
pursuant to its licensing agreements with Hooper and
Shanksville, will be required to pay to those companies a
minimum of 10% of any royalty payments received from the
Company. In 1985 Mr. de Clara acquired 100% of the issued and
outstanding stock of Sittona. Mr. de Clara and Dr. Fabricius,
because of their ownership interests in Hooper and Shanksville,
could receive approximately 50% and 30% respectively, of any
royalties paid by
Sittona to Hooper and Shanksville, and Mr. de Clara, through his
interest in all three companies (Hooper, Shanksville, and
Sittona), will receive up to 95% of any royalties paid by the
Company.
During 1992, the Company reimbursed an officer and director for
legal fees incurred in connection with certain legal proceedings
as discussed in Note 6. In addition, during 1992 the Company
paid the officer and director $200,000, representing the amount
that he paid in connection with one of the legal proceedings
discussed in Note 6 and, in 1993, issued 3,000 shares of common
stock to the officer and director as reimbursement for shares he
delivered in connection with the proceeding. The $200,000
payment was expensed in 1992, and the value of the 3,000 shares,
$20,100 was expensed in 1993.
8. INCOME TAXES
The approximate tax effect of each type
of temporary differences and carryforward that gave rise to the
Company's tax assets and liabilities at September 30, 1995 and
1994, is as follows:
Note8a
The Company has available for income tax
purposes net operating loss carryforwards of approximately
$24,370,937, expiring from 1998 through 2007.
In the event of a significant change in the ownership of the
Company, the utilization of such carryforwards could be
substantially
limited.
9. STOCK OPTIONS, WARRANTS, AND BONUS
PLAN
During the year ended September 30, 1995, the Board of Directors
canceled certain options under the various stock option plans
and replaced them with new options. Under this conversion the
number of options outstanding did not increase or decrease as
the conversion was an exchange of options within the plans to
maximize reserved shares in the Plans with the options granted.
The shareholders of the Company approved the adoption of the 1995
Non Qualified Stock Option Plan (1995 Non-Qualified Plan) and
reserved 400,000 shares under the plan. Terms of the options are
to be determined by the Company's Compensation Committee, but in
no event are options to be granted for shares at a price below
fair market value at the date of grant.
On February 23, 1988, the shareholders
of the Company adopted the 1987 Nonqualified Stock Option and
Stock Bonus Plan (the 1987 Plan). This plan reserved 200,000
shares of the Company's previously unissued common stock to be
granted as incentive stock options to employees. The 1987 Plan
reserved 50,000 shares of the Company's previously unissued
common stock to be granted as stock bonuses to employees. The
exercise price of the options could not be established at less
than fair market value on the date of grant and the option
period could not be greater than ten years. During 1993, the
1987 Plan was terminated and no further options will be granted
and no further bonus shares will be issued pursuant to the 1987
Plan.
On September 30, 1993, the shareholders of the Company approved
the adoption of three new plans, the 1993 Incentive Stock Option
Plan (1993 Incentive Plan), the 1993 Non Qualified Stock Option
Plan (1993 Non Qualified Plan) and the Stock Bonus Plan (1993
Bonus Plan). Shares are reserved under each plan and total
100,000, 60,000 and 40,000 shares, respectively. Only employees
of the Company are eligible to receive options under the
Incentive Plan, while the Company's employees, directors,
officers, and consultants or advisors
are eligible to be granted options under the NonQualified Plan
or issued shares under the Bonus Plan. Terms of the options are
to be determined by the Company's Compensation Committee, which
will administer all of the plans, but in no event are options to
be granted for shares at a price below fair
market value at date of grant.
Options granted under the option plans must be granted, or shares
issued under the bonus plan issued, before August 20, 2002.
On July 29, 1994, the Board of Directors approved the adoption of
two new plans, the 1994 Incentive Stock
Option Plan (1994 Incentive Plan) and the 1994 NonQualified Stock
Option Plan (1994 NonQualified). Shares are reserved under each
plan and total 100,000 shares for each plan. Only employees of
the Company are eligible to receive options under the 1994
Incentive Plan, while the Company's employees, directors,
officers, and consultants or advisors are eligible to be granted
options under the 1994 Non-Qualified Plan. Terms of the options
are to be determined by the Company's Compensation Committee,
which will administer all of the plans, but in no event are
options to be granted for shares at a price below fair market
value at date of grant. Options granted under the option plans
must be granted, or shares issued under the bonus plan issued,
before July 29, 2004.
Information regarding the Company's stock option plan is summarized
as
follows:
Note9a
Note9b
During 1991, the Company granted a consultant an option to purchase
50,000 shares of the Company's common stock. The option is
exercisable at $13.80 per share and expires in March 1996. The
holder of the option has the right to have the shares issuable
upon the exercise of the option included in any registration
statement filed by the Company.
Also during 1991, the Company granted
another consultant options to purchase 6,000 shares of the
Company's common stock. Options to purchase 667 shares expired in
April 1993. Options to purchase 1,333 shares at $2.50 per share
were exercised in April 1994. At September 30, 1995, options to
purchase 4,000 shares were outstanding and exercisable at prices
ranging from $2.50 to $15.00 per share.
In connection with the 1992 public offering, 5,175,000 common stock
purchase warrants
were issued and are outstanding at September 30, 1995. Every ten
warrants entitle the holder to purchase one share of common stock
at a price of $46.50 per share. During 1995, the expiration of
these warrants was extended to February 1996. The Company may
accelerate the expiration date of the warrants by giving 30 days
notice to the warrant holders, provided, however, that at the
time
the Company gives such notice of acceleration (1) the Company has
in effect a current registration statement covering the shares of
common stock issuable upon the exercise of the warrants and (2)
at anytime during the 30-day period preceding such
notice, the average closing bid price of the Company's common
stock has been at least 20% higher than the warrant exercise
price for 15 consecutive trading days.
Also in connection with the 1992 offering, the Company issued to
the underwriter warrants to purchase 9,000 equity units, each
unit consisting of 5 shares of
common stock and 5 warrants entitling the holder to purchase one
additional share of common stock. The equity unit warrants are
outstanding at September 30, 1995 and are exercisable through
February 8, 1997, at a price of $255.70 per unit.
The common stock warrants included in the units are exercisable at
a price of $76.70 per share.
During 1995, the Company granted another consultant options to
purchase 17,858 shares of the Company's common stock. These
shares became exercisable on November 2, 1995, and will expire
November 1, 1999. These options are exercisable at $5.60 per
share.
10.EMPLOYEE BENEFIT PLAN
During 1993 the Company implemented a defined contribution
retirement plan, qualifying under Section 401(k) of the Internal
Revenue Code, subject to the Employee Retirement Income Security
Act of 1974, as amended, and covering substantially all CEL-SCI
employees. The employer contributes an amount equal to 50% of
each employee's contribution not to exceed 6% of the
participant's salary. The expense for the year ended September
30, 1995 and 1994, in connection with this plan was
approximately $24,913 and $16,160, respectively.
11.LEASE COMMITMENTS
Operating Leases - The future minimum annual rental payments due
under noncancelable operating leases for office and laboratory
space are as follows:
Note11a
Rent expense for the year ended September
30, 1995,
1994, and 1993, was approximately $124,059, $122,369, and $55,000,
respectively.
12.STOCKHOLDERS' EQUITY
On April 28, 1995 the stockholders of the Company approved a 10-
for1 reverse split of the Company's outstanding common stock,
which became effective on May 1, 1995. All shares and per-share
amounts have been restated to reflect the stock split.
The Company also participated in a private offering
during 1995. This offering allowed for the purchase of one share
of common stock and one warrant (a unit) for the
price of $2.00 per unit. All 1,150,000 shares authorized for the
offering were purchased during the year ended September 30,
1995. Warrants outstanding are exercisable at $3.25 and expire
on June 30, 1997. Cash of $2,300,000 was received in June and
September 1995. Commissions of $344,150 were paid or payable
relative to the offering at September 30, 1995.
During 1994, the Company granted 1,500 shares of common stock to
an officer as a bonus award. The Company also issued 25,000
shares to satisfy the judgment against an officer and director.
The issuance was to the plantiff in lieu of reimbursement to the
officer and director. The judgment was settled in 1993 and the
expense of the issuance was recorded in 1993.
During 1993, the Company received $27,333
cash for
7,333 shares of common stock. 13.SUBSEQUENT EVENTS - JOINT VENTURE
In October 1995, the Company purchased Alpha 1's 50
percent interest in VTI. The Company conveyed 159,170
shares of common stock as full consideration for all of
the VTI capital stock owned by Alpha 1. The
acquisition of Alpha 1's interest will be accounted for
as purchase with substantially all of the value of the
purchase price being expensed as research and
development costs.
14.SUBSEQUENT EVENTS - OTHER
On December 8, 1995, the Board of Directors authorized
the extension of the Company's warrants issued in
connection with the 1992 public offering from February
6, 1996, to February 6, 1997. On December 23, 1995, the
Company entered into an agreement with investors to
reduce the exercise price of warrants to purchase
shares of the Company's common stock issued in a 1995
private offering from $3.25 to
$1.60 per shares (Note 12). Shares which may be acquired
under this
agreement with exercise of the
warrants total 1,150,000. In connection with modifying
the warrant exercise price, 312,500 warrants were
exercised for $500,000 in
exchange for 312,500 shares of common stock on December
23, 1995.
An additional 312,500
warrants are required to be exercised prior to January
31, 1996 with the remaining warrants outstanding
through June 30, 1997.
15.NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board
issued Statement No. 121 regarding accounting for the
impairment of long lived assets. This statement is
required to be adopted by the Company in fiscal 1997.
At the present time the Company does not believe that
adoption of this statement will have a material effect
on its financial position or results of its operations.
In October 1995, the Financial
Accounting Standards Board issued Statement
No. 123,
Accounting for Stock Based Compensation. This statement
is required to be adopted by the Company in fiscal 1997.
The Company has not yet determined the impact of the
adoption of this statement on its financial position or
results of its operations. * * * * * * CEL-SCI CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
ASSETS
1995 1994
CURRENT ASSETS:
Cash and cash equivalents
$3,886,950 $3,370,713
Investments, net
170,000 2,694,756
Interest receivable
64,080 116,733
Prepaid expenses
341,295 67,648
Advances to officer/shareholder
and 13,234 17,381
employees
Total current assets 4,475,559 6,267,231
RECEIVABLE FROM JOINT VENTURE
522,695 351,204
RESEARCH AND OFFICE EQUIPMENT - Less
accumulated
depreciation of $589,897 and $355,430 1,102,038
1,185,499
DEPOSITS
18,178 13,958
PATENT COSTS - Less accumulated amortization of $239,490
and $211,253 240,541 268,778
$6,359,011 $8,086,670
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES:
Accounts payable
$248,488 $324,179
Current portion of note payable
243,372 147,861
Total current
491,860 472,040
liabilities
NOTE PAYABLE
567,891 640,740
DEFERRED RENT
24,959 17,598
EQUITY IN LOSS OF SUBSIDIARY
432,268 277,224
Total liabilities 1,516,978
1,407,602
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
authorized, 200,000 shares;
none issued
- - -
Common stock, $.01 par value -
authorized, 100,000,000 shares;
issued and outstanding,
5,338,244 and 53,382
41,882
4,188,244 shares
Additional paid-in capital
28,799,198 26,854,848
Net unrealized loss on marketable
equity (85,753)
securities (Note 1)
Accumulated deficit
(24,010,547 (20,131,909
) )
Total stockholders' equity
4,842,033 6,679,068
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$6,359,011 $8,086,670 See notes to financial
statements. CEL-SCI CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1995,
1994, AND 1993
1995 1994 1993
INVESTMENT INCOME
$365,049 $624,670 $997,964
OTHER INCOME
58,716
- - -
Total income
423,765
624,670 997,964
OPERATING EXPENSES:
Research and development
1,824,661 2,896,109 1,307,042 Depreciation and
amortization 262,705
138,755 55,372
General and administrative 1,713,912
1,621,990 1,696,119
Total
operating expenses
3,801,278
4,656,854 3,058,533
EQUITY IN LOSS OF
JOINT VENTURE (Note 2)
(501,125) (394,692) (344,423)
NET LOSS
$3,878,63 $4,426,87 $2,404,99
8 6 2 LOSS PER COMMON
SHARE $0.89
$1.06 $0.58
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
4,342,628 4,185,240 4,155,431
See notes to financial statements.
CEL-SCI CORPORATION
STATEMENTS OF STOCKHOLDERS'
EQUITY
YEARS ENDED SEPTEMBER 30,
1995, 1994, AND 1993
Additional
Common
Paid-In
Stock
Shares
Amount Capital Other Deficit
Total
BALANCE, OCTOBER 1, 1992
$-
4,148,980 $41,490
$26,560,96 $(13,300,04 $13,302,41
9 1) 8
Common stock issued for:
Cash 7,333
73
27,260 - - 27,333
Reimbursement of 3,000
30
20,070 - - 20,100
expenses
Net loss
- -
- -
- - -
(2,404,992) (2,404,992
)
BALANCE, SEPTEMBER 30, 1993
41,593
4,159,313 26,608,299 (15,705,033
10,944,859
)
Common stock issued for:
Cash 2,431
24
39,364 - - 39,388
Stock bonus plan 1,500
15
4,935 - - 4,950
Settlement of 25,000
250
202,250 - - 202,500
lawsuit
Net unrealized loss on
marketable
securities (Note 1) -
- -
- - - (85,753)
(85,753)
Net loss -
- -
- - -
(4,426,876) (4,426,876)
BALANCE, SEPTEMBER 30, 1994
41,882
4,188,244 26,854,848 (85,753)
(20,131,909 6,679,068 )
Common stock issued for
11,500 - -
cash 1,150,000
1,944,350
1,955,850
Change in market value
of marketable
securities available -
- - 85,753 - 85,753
for sale (Note 1)
Net loss -
- -
- - -
(3,878,638) (3,878,638
)
BALANCE, SEPTEMBER 30, 1995
$-
5,338,244
$53,382 $28,799,19 $(24,010,54
$4,842,033
8 7)
See notes to financial
statements.
CEL-SCI CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1995,
1994, AND 1993
1995 1994
1993
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss
$(3,878,6 $(4,426,8 $(2,404,9
38) 76) 92)
Adjustments to reconcile net
loss to
net cash used in operating
activities:
Stock issued in payment of
- -
207,450 20,100
expenses
Depreciation and amortization
262,705
138,755 55,372
Equity in loss of Joint Venture
501,125 394,692 344,423
Net realized loss (gain) on sale
42,490
- -
of securities
(76,774)
Amortization of premium
6,407
25,683 18,762
Changes in assets and
liabilities:
Decrease (increase) in
4,147
- -
advances
(17,381)
Increase in prepaid
expenses, deposits, interest receivable,
and
receivable from joint venture (396,705)
(31,833) (292,182)
(Decrease) increase in
accounts payable,
accrued expenses, and
143,919
deferred rent
(68,330)
(111,552)
Decrease in payable to
- -
officer and shareholder
(52,370) (43,448)
Net cash used
in operating activities
(3,526,79
(3,950,20 (2,158,04
9) 6) 6)
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Purchases of investments
(389,688) (1,467,81 (5,993,31
8) 0)
Sales and maturities of investments
2,951,299
6,999,273 7,745,943
Advances to Joint Venture
(346,081) (300,000) (223,750)
Expenditures for property and
equipment
(151,006)
(999,807) (318,556)
Expenditures for patents
- -
- - (8,777)
Net cash provided
by investing activities 2,064,524
4,231,648 1,201,550
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Issuance of note payable
184,915
788,601 -
Issuance of common stock
39,388 27,333
1,955,850 Repayment of note payable
- - -
(162,253)
Net cash 827,989
27,333
provided by financing activities
1,978,512
NET INCREASE (DECREASE) IN CASH 516,237
1,109,431 (929,163)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR
3,370,713
2,261,282 3,190,445
CASH AND CASH EQUIVALENTS, END OF
YEAR
$3,886,95
$3,370,71 $2,261,28
0 3 2 SUPPLEMENTAL
DISCLOSURE OF NON-CASH ACTIVITY:
During 1994, the net unrealized
loss on investments available-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.
Year Ending
September 30,
Amount
1996
$135,123
1997
140,335
1998
56,160
1999
59,573
2000
62,010
Thereafter
162,728
Total minimum lease payments
$615,929
Septemb
er 30,
1995
Gross Gross Market
Value
Amortiz Unreal Unreal at
ed
ized
ized Septemb
er 30,
Cost
Gains
Losses 1995
Certificates of
$-
$-
Deposit $170,00
$170,00
0
0
September 30,
1994
Gross Gross Market
Value
Amortize
Unreal
Unreali at
d
ized
zed Septembe
r 30,
Cost
Gains
Losses 1994
U.S. Government
$-
Securities $1,471,0
$46,362 $1,424,7
96
34
Corporate Debt
Securities 1,108,58
2,442
41,833 1,069,19
1
0
Certificates of
- -
- -
Deposit 200,832
200,832
$2,780,5
$2,442 $88,195 $2,694,7
09
56
1995
1994 1993
Realized gains
$-
$17,839 $128,205
Realized losses
60,329
51,431 -
Net realized gain (loss)
$-
$(42,490 $76,774
) 1995
1994 Research equipment
$979,048 $843,187
Furniture and equipment
136,486 120,185
Leasehold improvements
576,401 577,557
1,691,935 1,540,929
Less accumulated depreciation and
amortization
(589,897) (355,430)
Net property and equipment
$1,102,03 $1,185,49
8 9
Years Ended
Septemb er 30,
199 5
1994 1993
Income $-
$-
$ -
Expenses
789,384 688,846
1,002,250
Net Income (Loss)
$(1,002,25 $(789,384 $(688,846
0) ) )
September
30,
1995 1994
Current assets
$30,484 $24,403
Noncurrent assets
$187,821 $87,822
Current liabilities
$4,275,078 $3,197,143
Equity (deficit - net of initial capitalization)
$(4,056,77 $(3,084,91
3) 8)
1995 1994
Depreciation
$(16,660) $(27,325)
Prepaid expenses
(14,413) (25,680)
Net operating loss carryforward
9,251,208 7,675,907
Other
9,474 6,680
Less: Valuation allowance
(9,229,609 (7,630,772
) )
Net deferred
$- $-
Opti on Pri ce
Pe r
Outsta Exerci
Share nding sable
1987 Stock Option and Bonus
Plan
Balance, September 30, 1992
$3.40
- -
20.90 189,25 31,000
0
Became exercisable
- -
77,999
Exercised
$4.00 (6,000
(6,000
) )
Balance, September 30, 1993
$3.40
1 9 . 6
0 183,25 102,99
0 9
Became exercisable
- -
40,250
Balance, September 30, 1994
$3.40
2 0 . 9
0 183,25 143,24
0 9
Canceled
$3.40
2 0 . 9
0 176,25 1 136,24
0 3 9
6
,
2
4
9
Balance, September 30, 1995 $19.70 16. 50
7,000 7,000
1992 Incentive Stock Option
Plan
Balance, September 30, 1992
$13.40
500 -
Granted $13.80 -
- -
15.60 12,000
Balance, September 30, 1993 $13.40 15. 60
12,500 Granted $6.80 -
- -
11.90 29,500
Became exercisable
- -
4,166
Balance, September 30, 1994 $6.80
15. 60 4 42,000
4,166
2
0
,
0
0
0 Canceled $6.80
-
15.60 (42,00 (4,166
0) )
Granted $2.87 -
3.87 57,550 20,917
Balance, September 30, 1995 $2.87 -
3.87 4 57,550 20,917
2
0
,
0
0
0
1992 Nonqualified Stock Option
Plan
Balance, September 30, 1992 $13.40
- -
4 2,500 2 0 , 0
0
0
Granted $13.80 -
- -
15.60 15,500
Balance, September 30, 1993
$13.40 -
18,000
Granted $8.70
- -
13.80
18,000 Became exercisable
- -
18,000
Balance, September 30, 1994 $8.70
- -
13.80 36,000 1 18,000
8
,
0
0
0
Canceled $8.70
- -
- -
13.40 (7,500 -
)
Granted
$2.87
- -
31,500
Became Exercisable
- -
442,000
2
,
0
0
0
Balance, September 30, 1995
$2.87
- -
15.60 60,000 6 60,000
0
,
0
0
0
Opti on Pri ce
Pe r
Outsta Exerci
Share nding sable
1992 Stock Bonus Plan
Granted during 1994
$8.70 1,500 1,500
Exercised
$8.70
(1,500 (1,500
) )
Balance, September 30, 1994 and
- - -
1995
1994 Incentive Stock Option
Plan
Granted
- -
$2.87
50,000
Balance, September 30, 1994
- -
$2.87 50,000 -
Granted
$2.87 50,000
Became Exercisabe
- -
$2.87 61,000
Balance, September 30, 1995
$2.87 100,00 61,000
0
1994 Nonqualified Stock Option
Plan
Granted
- -
$2.87 70,000 -
Balance, September 30, 1995
$2.87 70,000 -
Granted
$2.87 -
3.87
27,250 -
Became exercisable
- -
48,084
Balance, September 30, 1995
$2.87 -
3.87
97,250 48,084
1995 Nonqualified Stock Option
Granted in 1995
$2.87 -
$3.87 329,25
1
Became exercisable
- -
70,000
Balance, September 30, 1995
329,25 70,000
1
Item 1. FINANCIAL STATEMENTS
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED BALANCE
SHEETS
- ------------------------
ASSETS
(unaudited)
March 31, Septemb er 30,
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $3,803,786
$3,886,950
Investments, net 170,000
170,000
Interest receivable 86,610
64,080
Prepaid expenses
242,812
341,295
Advances to officer/shareholder
and employees
134,644
13,234
4,437,852 4,475,559
RECEIVABLE FROM JOINT VENTURE
0
522,695
RESEARCH AND OFFICE EQUIPMENT-
Less accumulated depreciation
of $740,239 and $589,897 981,823
1,102,038
DEPOSITS 18,178
18,178
PATENT COSTS- less accumulated
amortization of
$325,782 and $239,490 423,174
240,541
$5,861,027 $6,359,011
See notes to
condensed financial statements.
3
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED BALANCE
SHEETS
- ------------------------
(continued)
LIABILITIES AND STOCKHOLDERS'
EQUITY
(unaudited)
March 31, Septemb er 30,
1996 1995
CURRENT LIABILITIES:
Accounts payable $57,787
$248,488
Current portion note payable 243,372
243,372
Total current liabilities 301,159
491,860
NOTE PAYABLE 446,201
567,891
CONVERTIBLE DEBENTURE 1,250,000
24,959
24,959
EQUITY IN SUBSIDIARY
0
432,268
Total liabilities
2,022,319
1,516,978
STOCKHOLDERS' EQUITY
Preferred stock, $.01
par value; authorized,
200,000 shares; none issued
-
Common stock, $.01 par
value; authorized,
100,000,000 shares;
issued and outstanding,
6,328,581 and
5,338,244 shares 63,286
53,382
Additional paid-in capital 30,904,595
28,799,198
Deficit (27,014,373)
(24,010,547)
Short-term note receivable from (114,800) shareholder
- -
TOTAL STOCKHOLDERS'
EQUITY 3,838,708
4,842,033
$5,861,027 $6,359,011 See notes to
condensed financial statements.
4
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
- ---------------------------------
(unaudited)
Six Months
Ended March 31, 1996
1995 REVENUES:
Interest income $84,914
$190,306
Other income 25,406
17,611
TOTAL INCOME 110,320
207,917
EXPENSES:
Research and development 1,750,694
1,149,943
Depreciation and
amortization 139,962
133,986
General and administrative 1,219,719
778,248
TOTAL OPERATING EXPENSES 3,110,375
2,062,177
EQUITY IN LOSS OF JOINT VENTURE (3,772)
(290,340)
3,114,147
2,352,517 NET LOSS
$3,003,827
$2,144,600
LOSS PER COMMON SHARE $0.52
$0.51
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,825,011
4,188,244
See notes to
condensed financial statements.
5
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
- ---------------------------------
- -
(unaudited)
Three Months Ended
March 31, 1996
1995 REVENUES:
Other income $7,326
$17,611
Interest Income 40,493
73,605
TOTAL INCOME 47,819
91,216
EXPENSES:
Research and development 512,497
531,307
Depreciation and
amortization 68,694
67,211
General and administrative 741,831
379,968
TOTAL OPERATING EXPENSES 1,323,022
978,486
EQUITY IN LOSS OF JOINT VENTURE 0
(108,761)
1,323,022 1,087,247 NET LOSS
$1,275,203
$996,031
LOSS PER COMMON SHARE $ $
0.21 0.24 WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,196,630
4,188,244
See notes to
condensed financial statements.
6
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOW
- ---------------------------------
(unaudited)
Six Months
Ended
March 31,
1996 1995 CASH FLOWS FROM
OPERATING
ACTIVITIES:
NET LOSS
$(3,003,827) $(2,144,600) Adjustments to
reconcile net loss
to
net cash used in operating
activities:
Depreciation and amortization 139,962
133,986
Equity in loss of joint venture 3,772
290,340
Research and development
expense related
to purchase of Viral 515,617
Technologies, Inc.
Amortization of premium on -
18,722
investments
Realized loss on sale of
12,965
investments
Changes in assets and
liabilities, net of effect from
purchase
of Viral Technologies, Inc.:
Decrease (increase) in interest (22,530) 6,449 receivable
Decrease (increase) in prepaid 98,483
(19,924)
expenses
Decrease (increase) in advances (121,409) (9,356) Decrease
(increase) in
receivable from
joint venture -
(79,128)
Increase (decrease) in accounts (190,701)
(177,918) payable
NET CASH USED IN OPERATING (2,580,633) (1,968,464)
ACTIVITIES
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITY:
Sales of investments -
1,487,866
Advance to Joint Venture -
(208,655)
Payment on note (121,690)
(60,845)
Purchase of research and office (2,907)
(120,932)
equipment
Patent costs (11,651)
- -
NET CASH USED IN INVESTING (136,248) 1,097,434
ACTIVITY
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Issuance of convertible 1,250,000 205,195 debenture
Issuance of common stock 1,383,717 NET CASH PROVIDED BY
FINANCING 2,633,717 205,195 ACTIVITIES
NET (DECREASE) INCREASE IN CASH (83,164) (665,835)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,886,950 3,370,713
End of period $3,803,786
$2,704,878
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,
CEL-SCI 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.
See notes to
condensed financial statements.
7
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1996 AND 1995 (unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance
with rules established by the Securities and Exchange Commission for
Form 10-Q. Not all financial disclosures required to present the
financial position and results of operations in accordance with
generally accepted accounting principles are included herein. The
reader is referred to the Company's Financial Statements included in
the registrant's Annual Report on Form 10K for the year ended
September 30, 1995. In
the opinion of management, all accruals and adjustments (each of which
is of a normal
recurring nature) necessary for a fair presentation of the financial
position as of March 31, 1996 and the results of operations for the
six-month period then ended have been made. Significant accounting
policies have been consistently applied in the interim financial
statements and the annual financial statements.
Investments
Effective September 30, 1994, the Company adopted, on a prospective
basis, Statement of Financial Accounting Standard No. 115, "Accounting
for Certain Debt and Equity Securities" (SFAS 115) and revised its
policy for investments. Investments that may be sold as part of the
liquidity management of the Company or for other factors are
classified as available-for-sale and are carried at fair market value.
Unrealized gains and losses on such securities are reported as a
separate component of stockholders' equity. Realized gains and losses
on sales of securities are reported in earnings and computed using the
specific identified cost basis. As of March 31, 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 Longlived Assets and for Long-lived Assets to be
Disposed of" is effective for financial statements for fiscal years
beginning after December 15, 1995. It is the Company's opinion that
the adoption of the statement would have no material effect on its
Financial Statements.
B. JOINT VENTURE
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, CELSCI 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
six months ended March 31, 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 non-affiliated 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 March 31, 1996 is $689,573.
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 Cel-Sci 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.
