As filed with the Securities and Exchange Commission on , 1995.
Registration No. 33-95032
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 1 TO
FORM S-l
Registration Statement
Under
THE SECURITIES ACT OF 1933
CEL-SCI Corporation
(Exact name of registrant as specified in charter)
Colorado 283l
(State or other (Primary Standard Classi-
jurisdiction of fication Code Number)
incorporation)
66 Canal Center Plaza, Suite 510
Alexandria, Virginia 223l4
84-09l6344 (703) 549-5293
(IRS Employer (Address, including zip code, and
I.D. Number) telephone number including area 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 Price Fee
Common Stock offered by
Selling Shareholders (1) 1,150,000 $3.75 $4,312,500 $1,487
Common Stock offered by
Selling Shareholders 1,150,000 $1.60 $1,840,000 $ 635
Common Stock issuable
upon exercise of Sales
Agent's Warrants (2) 115,000 $3.75 $ 431,250 $ 149
Total $6,583,750 $2,271
(1) Offering price computed in accordance with Rule 457(c).
(2) The shares of Common Stock issuable upon the exercise of the
Warrants are subject to adjustment in accordance with the anti
dilution provisions of such warrant.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of l933 or until
the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
CEL-SCI CORPORATION
CROSS REFERENCE SHEET
Item in Form S-1 Location
in Prospectus
(S) (C)
(C)
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 (/TABLE)
PROSPECTUS CEL-SCI CORPORATION
1,044,006 Shares of Common Stock
This Prospectus relates to the offer and sale of up to 731,506
shares of Common Stock by certain selling shareholders (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" AT PAGE 7 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 28, 1995, the shareholders of the Company approved a ten
for one reverse split of the Company's Common Stock. All
information in this Prospectus relating to shares of the
Company's Common Stock has been adjusted to reflect this reverse
stock split. On January 24, 1996
the closing prices of the Company's Common Stock and Warrants on
the NASDAQ National Market System were $2.68 and $0.09,
respectively. See "Market Information".
The Date of this Prospectus is , 1996
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of l934 and in accordance therewith is
required to file
reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Copies of
any such reports, proxy statements and other information filed by
the Company can be inspected and copied at the public reference
facility maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. and at the Commission's Regional
offices in New York (Room 1028, 26 Federal Plaza, New York, New
York 10278) and Chicago (Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 606612511). Copies
of such material can be obtained from the Public Reference
Section of the Commission at its office in Washington, D.C. 20549
at prescribed rates. The Company has filed with the Commission a
Registration Statement on Form S-1 (together with all amendments
and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), with respect to
the Securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules
and regulations of the Commission. For further information,
reference is made to the Registration Statement.
PROSPECTUS SUMMARY
THIS SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
CEL-SCI Corporation (the "Company") was formed as a Colorado
corporation in l983 to acquire and finance research and
development of natural human interleukin-2 ("IL-2") and related
products and processes using the Company's proprietary cell
culture technologies. The Company's proprietary product, which
is a combination, or "cocktail", of IL-2 and certain lymphokines
and cytokines, is sometimes referred to by the Company as
MULTIKINE(Trademark). The Company was initially formed under the
name Interleukin-2, Inc. and changed its name to CELSCI
Corporation in March, 1988. The compounds, compositions and
processes, to which the Company has acquired an exclusive world-
wide license, are being tested to determine if they are effective
in improving the immune response of advanced cancer patients.
Before human testing can begin with respect to a drug or
biological product,
preclinical studies are conducted in laboratory animals to
evaluate the potential efficacy and the safety of a product.
Human clinical studies generally involve a three-phase process.
The initial clinical evaluation, Phase I, consists of
administering the product and testing
for safe and tolerable dosage levels. Phase II trials continue
the evaluation of immunogenicity and determine the appropriate
dosage for the product, identify possible side effects and risks
in a larger group of subjects, and provide preliminary
indications of efficacy. Phase III trials consist of testing for
actual clinical efficacy for safety within an expanded group of
patients at geographically dispersed test sites. See "Business-
Government Regulation" for a more detailed description of
the foregoing.
Between 1983 and 1986 the Company was primarily involved in
funding pre clinical and Phase I clinical trials of MULTIKINE.
These trials were conducted at St. Thomas's Hospital Medical
School in London, England pursuant to authority granted by
England's Department of Health and Social Security. In July, 1991
physicians at a southern Florida medical institution began human
clinical trials using MULTIKINE. The focus of these trials was
the treatment of metastatic malignant melanoma and unresectable
head and neck cancer using MULTIKINE. The clinical trials in
Florida were conducted pursuant to approvals obtained by the
medical institution from the Florida Department of Health and
Rehabilitative Services. In July, 1994, the Company filed an
Investigational New Drug Application ("IND") with the U.S. Food
and Drug Administration. See "Business-Research and
Development". In December l994 the FDA notified the Company that
the Company's IND application was placed on clinical hold pending
receipt of additional data and modifications to the Company's
manufacturing process. The Company plans to meet with the FDA to
discuss the issues raised by the FDA.
In March 1995, the Canadian Health Protection Branch, Health and
Welfare Ministry gave clearance to the Company to start a phase
I/II cancer study using Multikine. The study, which will enroll
up to 30 head and neck cancer patients who have failed
conventional treatments, is expected to be conducted at the
Ottawa Regional Cancer Center and Hotel-Dieu de Montreal
Hospital. The study is designed to evaluate safety, tumor
responses and immune responses in patients treated with multiple
courses of Multikine. The length of time that each patient will
remain on the investigational treatment will depend on the
patient's response to treatment. In May l995, the U.S. Food and
Drug Administration (FDA) authorized the export of the Company's
Multikine drug to Canada for purposes of this study.
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.
None of the Company's or VTI's clinical trials to date have been
conducted under the approval of the FDA and there are no
assurances that clinical trials conducted under approvals from
state authorities or conducted in foreign countries will be
accepted by the FDA. Product licensure in a foreign country or
under state authority does not mean that the product will be
licensed by the FDA and there are no assurances that the Company
or VTI will receive any approval of the FDA or any other
governmental entity for the manufacturing and/or marketing of a
product. Consequently, the commencement of the manufacturing and
marketing by the Company or VTI of any product is, in all
likelihood, many years away. See "Business".
The lack of government approval for the Company's or VTI's
products will prevent the Company and VTI from generally
marketing their products. Delays in obtaining government approval
or the failure to obtain government approval may have a material
adverse impact upon the Company's operations.
All of the Company's products are in the early stages of
development. The Company does not expect to develop commercial
products for several years, if at all. The Company has had
operating losses since its
inception, has an accumulated deficit of approximately
$24,010,000 at September 30, 1995, and expects to incur
substantial losses for the foreseeable future. The Company's
executive offices are located at 66 Canal Center Plaza, Suite
510, Alexandria, Virginia 22314, and its telephone number is
(703) 5495293.
THE OFFERING
Securities Offered by
the Selling Shareholders: Up to 1,044,066 shares of
Common Stock. The Company will not
receive any proceeds from the sale of
the shares offered by the Selling
Shareholders. See "Selling
Shareholders".
Common Stock Outstanding
Prior To and After
Offering:
As of the date of this Prospectus, the
Company had 6,122,414 shares of Common
Stock issued and outstanding. Assuming
the Selling Shareholders exercise
Warrants to purchase an additional
525,000 shares of Common Stock from
the Company, there will be 6,647,414
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 of
options and warrants previously issued
by the Company. See "Management",
"Selling Shareholders" and
"Description of Securities".
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 ,896,l09 1,307,042 481,697 108,771
Depreciation
and
Amortization 262,705 138,755 55,372 33,536 32,582
General and
Administrative 1,713,912 1,621,990 1,696,119 1,309,475
795,015 Equity in loss
of joint
venture 501,125 394,692 344,423 260,388 290,166
Net
Loss $(3,878,638)$(4,426,876)$(2,404,992)$(1,650,916)$(1,190,562)
Loss per
common share $(0.89) $(1.06) $(0.58) $(0.42) $(0.35)
Weighted average
common shares
outstanding 4,342,628 4,185,240 4,155,431 3,953,233 3,400,546
Balance Sheet Data:
September 30,
1995 1994 1993 1992 1991
Working
Capital $3,983,699 $5,795,191 $10,296,472 $13,043,012 $682,831
Total
Assets 6,359,011 8,086,670 11,633,090 13,769,504 1,611,899
Total
Liabilities 1,516,978 l,407,602 688,231 467,086 672,595
Shareholders'
Equity 4,842,033 6,679,068 10,944,859 13,302,4l8 939,304
No dividends have been declared by the Company since its inception.
GLOSSARY OF TECHNICAL TERMS
AIDS. Acquired Immune Deficiency Syndrome. A severe
viral
disease of the immune system leading to other
lethal infections and malignancies.
Amino acids. Building blocks of proteins.
Antibody. A protein produced by certain white blood cells in
humans
and animals in response to a substance seen as non
self, that is a foreign antigen (such as a virus
or bacteria). An antibody binds specifically to a
single antigen.
Antigen. Any substance seen as foreign by the immune system
and
which triggers an antibody or cell-mediated
response from the body's immune system.
B-Cells. A type of lymphocyte which produces antibodies in
response
to antigens.
Cytokines. Peptides which regulate the functions and/or
growth
of
other cells. Lymphokines are a type of cytokine.
HIV. Human Immunodeficiency Virus. The virus
responsible
for
AIDS and related diseases.
Lymphocytes. A type of white blood cells divided into two
classes,
B-cells and T-cells.
Lymphyokine. A specific group of hormones which regulate and
modify
the
various functions of both T-cells and B-cells.
There are many lymphokines, each of which is
thought to have distinctive chemical and
functional properties. IL-2 is but one of these
lymphokines.
Macrophage. A cell found in the body that has the ability to
kill
viruses, bacteria, fungi and cancer cells, often
by engulfing the targeted organism or cell.
Peptide. Two or more amino acids joined by a linkage called
a
peptide bond.
Proteins. A molecule composed of amino acids. There are
many
types
of proteins, all carrying out a number of
different functions essential for cell growth.
T-Cells. A type of lymphocyte which will amplify or
suppress
antibody formation by B-cells, and can also
directly destroy "foreign" cells by activating
"killer cells".
Virus. A submicroscopic organism that contains genetic
information
but cannot reproduce itself. To replicate, it must
invade another cell and use parts of that cell's
reproductive machinery.
RISK FACTORS
An investment in the Company's Securities involves a high degree of
risk. Prospective investors are advised that they may lose all or
part of their investment. Prospective investors should carefully
review the following risk factors.
OFFERING PROCEEDS. This Offering is being made by certain
Selling Shareholders. The Company will not receive any proceeds from
the sale of the shares by the Selling Shareholders.
LACK OF REVENUES AND HISTORY OF LOSS. The Company has had
only limited revenues since it was formed in 1983. Since the date of
its formation and through September 30, 1995, the Company has
incurred net losses of approximately $24,010,000. During the years
ended September 30, 1993, 1994 and 1995 the Company suffered losses
of $2,404,992, $4,426,876 and $3,878,638 respectively. The Company
has relied principally upon the proceeds of public and private sales
of
securities to finance its activities to date. See "Management's
Discussion and Analysis". All of the Company's potential products
are in the early stages of development, and any commercial sale of
these products will be many years away. Accordingly, the Company
expects to incur substantial losses for the foreseeable future.
NEED FOR ADDITIONAL CAPITAL. Clinical and other studies
necessary to obtain approval of a new drug can be time consuming and
costly, especially in the United States, but also in foreign
countries. The different steps necessary to obtain regulatory
approval, especially that of the Food and Drug Administration
("FDA"), involve significant costs. The Company expects that it will
need additional financing in order to fund the costs of future
clinical trials, related research, and general and administrative
expenses. The Company may be forced to delay or postpone development
and research expenditures if the Company is unable to secure adequate
sources of funds. These delays in development may have an adverse
effect on the Company's ability to produce a timely and competitive
product. There can be no assurance that the Company will be able to
obtain additional funding from other sources. See
"Management's Discussion and Analysis".
Viral Technologies, Inc. ("VTI"), a wholly-owned subsididary
of the Company, is dependent upon funding from the Company for its
operations and
research programs. See "Business-Viral Technologies, Inc.".
COST ESTIMATES. The Company's estimates of the costs
associated with future clinical trials and research may be
substantially lower than the actual costs of these activities. If
the Company's cost estimates are incorrect, the Company will need
additional funding for its research efforts. See "Management's
Discussion and Analysis".
GOVERNMENT REGULATION FDA APPROVAL. Products which may be
developed by the Company or Viral Technologies, Inc. (or which may be
developed by affiliates or licensees) will require regulatory
approvals prior to sale. In particular, therapeutic agents and
diagnostic products are subject to approval, prior to general
marketing, by the FDA in the United States and by comparable agencies
in most foreign countries. The process of obtaining FDA and
corresponding foreign approvals is costly and time consuming,
particularly for pharmaceutical products such as those which might
ultimately be developed by the Company, Viral Technologies, Inc. or
its licensees, and there can be no assurance that such approvals
will be granted. Any failure to obtain or any delay in obtaining such
approvals may adversely affect the ability of potential licensees or
the Company to successfully market any products developed. Also, the
extent of adverse government regulations which might arise from
future legislative or administrative action cannot be predicted. The
clinical trial which the Company's affiliate, Viral Technologies,
Inc., is conducting in California is regulated by government agencies
in California and obtaining approvals from states for clinical trials
is likewise expensive and time consuming. None of the Company's
clinical trials have been approved by the FDA and there can be no
assurance that the results of such trials will be accepted for any
purpose by the FDA. See "Business-Government Regulation."
DEPENDENCE ON OTHERS TO MANUFACTURE PRODUCT. The Company
has an agreement with an unrelated corporation for the production,
until 1997, of MULTIKINE for research and testing purposes. If this
corporation was unable to supply the Company with MULTIKINE, the
Company would be unable to obtain supplies of MULTIKINE until
alternative manufacturing arrangements were secured.
LICENSED TECHNOLOGY POTENTIAL CONFLICTS OF INTEREST. The
Company's clinical studies and research have been focused on
compounds, compositions and processes which were licensed to the
Company by Sittona Company, B.V. ("Sittona") in 1983. Maximilian de
Clara, the Company's president and a director, acquired control of
Sittona in 1985. Any commercial products developed by the Company
and based upon the technology licensed by Sittona will belong to
Sittona, subject to the Company's right to manufacture and sell such
products in accordance with the terms of the licensing agreement.
The Company's license remains in effect until the expiration or
abandonment of all patent rights or until the compounds, compositions
and processes subject to the license enter into the public domain,
whichever is later. The license may be terminated earlier for other
reasons, including the insolvency of the Company. Accordingly, a
conflict of interest may arise between the Company and Mr. de Clara
concerning the Company's continued rights to the licensed technology.
Any future transactions between the Company and Sittona will be
subject to the review and approval by a majority of the Company's
disinterested directors. See "Business-Compounds and Processes
Licensed to the Company", and "Management Transactions with Related
Parties".
TECHNOLOGICAL CHANGE. The biomedical field in which the
Company
is involved is undergoing rapid and significant technological change.
The successful development of therapeutic agents and diagnostic
products from the compounds, compositions and processes licensed to
the Company, through Company financed research or as a result of
possible licensing arrangements with pharmaceutical or other
companies, will depend on its
ability to be in the technological forefront of this field. There
can be no assurance that the Company will achieve or maintain such a
competitive position or that other technological developments will
not cause the Company's proprietary technologies to become
uneconomical or obsolete.
PATENTS. Since 1983 the Company, on behalf of the owners of
the compounds, compositions and processes licensed to the Company,
has filed applications for United States and foreign patents covering
certain aspects of the technology. Although the Company has paid the
costs of applying for and obtaining patents, the technology covered
by the patents is not owned by the Company, but by an affiliated
party which has licensed the technology to the Company. As of the
date of this Prospectus nine patents have been issued in the United
States and three patents have been issued in Europe. There is no
assurance that the applications still pending or which may be filed
in the future will result in the issuance of any patents.
Furthermore, there is no assurance as to the breadth and degree of
protection any issued patents might afford the owners of the patents
and the Company. Disputes may arise between the owners of the
patents or the Company and others as to the scope, validity and
ownership rights of these or other patents. Any defense of the
patents could prove costly and time consuming and there can be no
assurance that the Company or the owners of
the patents will be in a position, or will deem it advisable, to
carry on such a defense. Other private and public concerns,
including universities, may have filed applications for, or may have
been issued, patents and are expected to obtain additional patents
and other proprietary rights to technology potentially useful or
necessary to the Company. The scope and validity of such patents, if
any, the extent to which the Company or the owners of the patents may
wish or need to acquire the rights to such patents, and the cost and
availability of such rights are presently unknown. Also, as far as
the Company relies upon unpatented proprietary technology, there is
no assurance that others may not acquire or independently develop the
same or similar technology. The first patent licensed to the Company
will expire in the year 2000. See "BusinessCompounds and Processes
Licensed to the Company".
PRODUCT LIABILITY AND LACK OF INSURANCE. At the present
time, the Company does not have product liability insurance for
MULTIKINE. The successful prosecution of a product liability case
against the Company could have a materially adverse effect upon its
business.
DEPENDENCE ON MANAGEMENT. The Company is dependent for its
success on the continued availability of its executive officers. The
loss of the services of any of the Company's executive officers could
have an adverse effect on the Company's business. The Company does
not carry key man life insurance on any of its officers. See
"Management".
SHARES AVAILABLE FOR RESALE. As of January 31, 1996, there
were 6,122,414 shares of the Company's Common Stock issued and
outstanding. Approximately 200,000 of these shares have not been
registered under the Securities Act of l933, as amended (the "Act"),
and are "restricted securities" as defined by Rule l44 of the Act.
Rule l44 provides, in essence, that shareholders, after holding
restricted securities for a period of two years may, every three
months, sell in ordinary brokerage transactions an amount equal to
the greater of l% of the Company's then outstanding Common stock or
the average weekly trading volume, if any, of the stock during the
four calendar weeks preceding the sale. Nonaffiliates of the Company
who hold restricted securities for a period of three years may, under
certain prescribed conditions, sell their securities without regard
to any of the requirements of the Rule. As of the date of this
Offering Memorandum, substantially all shares of
restricted stock were available for resale pursuant to Rule l44.
Sales of restricted stock may have a depressive effect on the market
price of the Company's Common Stock. Such sales might also impede
future financing by the Company.
OPTIONS AND WARRANTS. In March, 1991 the Company granted a
financial public relations consultant an option to purchase 50,000
shares of the Company's Common Stock. The option is exercisable at
$13.80 per share and expires in March, l996. The holder of the
option has the right to have the shares issuable upon the exercise of
the option included in any registration statement filed by the
Company. In connection with the Company's l992 Public Offering, the
Company issued Underwriter's Warrants that entitle the holders of the
Warrants to purchase 45,000 shares of the Company's Common Stock plus
Warrants which allow for the purchase of an additional 90,000 shares
of the Company's Common Stock. The Underwriter's Warrants provide
that the Company, at its expense, will make appropriate filings with
the Securities and Exchange Commission so that the securities
underlying the Underwriter's Warrants will be available for public
sale. Such filings could result in substantial expense to the Company
and could hinder future financings by the Company. See "Description
of Securities" for information relating to the Company's publicly
traded warrants.
In connection with the Company's June and September 1995
Private Offerings, the Company issued warrants which allow the
holders to purchase up to 1,150,000 shares of Common Stock at any
time prior to June 30, l997 at a price of $1.60 per share. The
remaining shares issuable upon the exercise of these warrants, as
well as other shares owned by the Selling
Shareholders, are being offered by means of this Prospectus.
As part of these same Private Offerings, the Company issued to
Neidiger/Tucker/Bruner, Inc., the sales agent for that offering,
warrants to purchase 57,500 shares of the Company's Common Stock at
$2.00 per share, 57,500 shares at $2.40 per share and an additional
115,000 shares at $3.25 per share. The Warrants issued to the Sales
Agent provide that the Company, at its expense, will make appropriate
filings with the Securities and Exchange Commission so that the
securities underlying these Warrants will be available for public
sale. Such filings could result in substantial expense to the Company
and could hinder future financings by the Company.
In addition to the foregoing, the Company has granted other
options and warrants to the Company's officers, directors, employees
and certain persons which would allow such persons to purchase up to
645,093 shares of Common Stock at prices ranging from $2.87 to $19.70
per share. The Company may also grant options to purchase 121,907
additional shares under its Incentive Stock Option and Non-Qualified
Stock Option Plans.
For the terms of the options and warrants referred to above,
the
holders thereof will have an opportunity to profit from any increase
in the market price of the Company's Common Stock without assuming
the risks of ownership. Holders of such options and warrants may
exercise them at a time when the Company could obtain additional
capital on terms more favorable than those provided by the options
and warrants which may adversely affect the ability of the Company to
obtain additional capital in the future. The exercise of the options
and warrants and the sale of the underlying shares of Common Stock
could adversely affect the market price of the Company's stock.
COMPETITION. The competition in the research, development
and
commercialization of products which may be used in the prevention or
treatment of cancer and AIDS is intense. Major pharmaceutical and
chemical companies, as well as specialized genetic engineering firms,
are developing products for these diseases. Many of these companies
have substantial financial, research and development, and marketing
resources and are capable of providing significant long-term
competition either by establishing inhouse research groups or by
forming collaborative ventures with other entities. In addition,
both smaller companies and non-profit
institutions are active in research relating to cancer and AIDS and
are expected to become more active in the future.
The clinical trials sponsored to date by the Company and VTI
have not been approved by the FDA, but rather have been conducted
pursuant to approvals obtained from regulatory agencies in England,
Canada and certain states. Since the results of these clinical
trials may not be accepted by the FDA, companies which are conducting
clinical trials approved by the FDA may have a competitive advantage
in that the products of such companies are further advanced in the
regulatory process than those of the Company or VTI.
LACK OF DIVIDENDS. There can be no assurance that the operations
of the Company will result in any revenues or will be profitable. At
the present time, the Company intends to use available funds to
finance any possible growth of the Company's business. Accordingly,
while payment of dividends rests within the discretion of the Board
of Directors, no dividends have been declared or paid by the Company.
The Company does not presently intend to pay dividends and there can
be no assurance that dividends will ever be paid. Pursuant to the
terms of a loan agreement with a bank, the Company may not pay any
dividends without the consent of the bank.
DILUTION. Persons purchasing the securities offered by this
Prospectus will suffer an immediate dilution in the per share net
tangible book value of their Common Stock. See "Dilution and
Comparative Share Data."
PREFERRED STOCK. The Company's Articles of Incorporation
authorize the Company's Board of Directors to issue up to 200,000
shares of Preferred Stock. Although no Preferred Stock has been
issued to date, the provisions in the Company's Articles of
Incorporation relating to the Preferred Stock would allow the
Company's directors to issue Preferred Stock with multiple votes per
share and dividends rights which would have priority over any
dividends paid with respect to the Company's Common Stock. The
issuance of Preferred Stock with such rights may make the removal of
management difficult even if such removal would be considered
beneficial to shareholders generally, and will have the effect of
limiting shareholder participation in certain transactions such as
mergers or tender offers if such transactions are not favored by
incumbent management. DILUTION AND COMPARATIVE SHARE DATA
As of January 31,1996, the present shareholders of the Company owned
6,122,414 shares of Common Stock, which had a net tangible book value
of approximately $0.62 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) 6,122,414
Shares to be issued, assuming Selling Share-
holders exercise remaining Warrants to purchase 525,000 additional
shares of Common
Stock from Company 525,000
Shares outstanding (pro forma basis) 6,647,414
Net tangible book value per share
at January 31, 1996 $0.62
Equity ownership by present shareholders
after this offering 88%
Equity ownership by investors in this
Offering 12%
(1) Amount excludes shares which may be issued upon the exercise of
other options and warrants previously issued by the Company. See
"Management".
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.
MARKET INFORMATION
As of January 31, 1996, there were approximately 3,000 record holders
of the Company's Common Stock and approximately 100 record holders of
the Company's Warrants. The Company has not issued any shares of
preferred stock. The Company's Common Stock and Warrants are traded
on the National Association of Securities Dealers Automatic Quotation
("NASDAQ") System. Set forth below are the range of high and low bid
quotations for the periods indicated as reported by NASDAQ, and as
adjusted for the 10 for 1 reverse stock split which was approved by
the Company's shareholders on April 28, 1995 and became effective on
May 1, 1995. The market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not
necessarily represent actual transactions.
Quarter
Ending Common Stock Warrants
High Low High Low
12/31/93 $20.00 $13.40 $0.94 $0.41
3/31/94 $18.10 $10.30 $0.75 $0.28
6/30/94 $10.90 $ 8.10 $0.31 $0.19
9/30/94 $10.30 $ 5.60 $0.21 $0.12
12/31/94 $ 7.50 $ 3.40 $0.25 $0.09
3/31/95 $ 4.00 $ 3.75 $0.22 $0.13
6/30/95 $ 5.30 $ 2.78 $0.15 $0.06
9/30/95 $ 5.46 $ 3.56 $0.28 $0.09
0Holders 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
dividend 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
Balance Sheet Data:
September 30,
1995 1994 1993 1992 1991
Working Capital$3,983,699 $5,795,191 $10,296,472 $13,043,012 $682,831
Total Assets 6,359,011 8,086,670 11,633,090 13,769,504 1,611,899
Total
Liabilities 1,516,978 l,407,602 688,231 467,086 672,595
Shareholders'
Equity 4,842,033 6,679,068 10,944,859 13,302,4l8 939,304
No dividends have been declared by the Company since its
inception.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Fiscal 1995
Revenues for the year ended September 30, 1995 consisted primarily of
interest earned on funds received from the Company's February 1992
public 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 associated with the Company's 1995 annual meeting of
shareholders. Significant components of general and administrative
expenses during this year were salaries and employee benefits
($341,000), automobile, travel
and expense reimbursements ($271,000), shareholder communications and
investor relations ($245,000), legal and accounting ($134,000), and
officers and directors liability insurance ($138,000). Losses
associated with the Company's joint 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 knowhow 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.
The Company filed an Investigational New Drug ("IND") Application
with the FDA in July, 1994. In connection with this filing the
Company has been funding a research program designed to refine the
manufacturing process for the Company's MULTIKINE product so that
MULTIKINE will meet anticipated regulatory requirements. During
fiscal 1996 the Company also plans to provide VTI with the funding
needed to continue VTI's clinical trials. It should be noted that
substantial additional funds will be needed for more extensive
clinical trials which will be necessary before the Company or VTI
will be able to apply to the FDA for approval to sell any products
which may be developed on a commercial basis throughout the United
States.
There can be no assurance that either the Company or VTI will be
successful in obtaining approvals from any state, the FDA or any
foreign country to conduct further clinical trials or to manufacture
and sell their products. The lack of FDA approval for the Company's
or VTI's products will prevent the Company and VTI from generally
marketing their products on an interstate basis in the United States.
Delays in obtaining FDA approval or the failure to obtain FDA
approval may have a material adverse impact upon the Company's
operations.
In October, 1994, the Company completed the construction of its own
research laboratory in a facility leased by the Company. The cost of
modifying the leased space and providing the equipment for the
research laboratory was approximately $1,200,000. In August 1994 the
Company obtained a 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 during March l983, to acquire and finance research and
development of na tural human interleukin-2 ("IL-2") and lymphokine
related products and processes using the Company's proprietary cell
culture technologies. The Company's proprietary product is sometimes
referred to as MULTIKINE(Trademark), or buffy-coat interleukins,
which is a combination, or "cocktail" of IL-2 and certain lymphokines
and cytokines. MULTIKINE is a trade name of the Company. The
Company was initially formed under the name Interleukin-2, Inc. and
changed its name to CEL-SCI Corporation in March, 1988. The
compounds, compositions and processes, to which the Company has
acquired an exclusive world-wide license, are being tested to
determine if they are effective in improving the immune response of
advanced cancer patients.
Since its inception the focus of the Company's product development
efforts has been on conducting clinical trials to test its
proprietary technologies. The Company intends to continue testing its
MULTIKINE product in clinical trials with the objective of
establishing its efficacy as a treatment for solid tumors and
possibly other diseases. An additional aim of the Company is to
further corroborate the present data (obtained in connection with the
Company's research programs and human clinical trials) in regard to
the ability of MULTIKINE to restore the immune system of people
suffering from certain illnesses.
The cost of acquiring its exclusive license and the costs associated
with the clinical trials relating to the Company's MULTIKINE
technologies, the cost of research at various institutions and the
Company's administrative expenses have been funded with the public
and private sales of shares of the Company's Common Stock and
borrowings from third parties, including affiliates of the Company.
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 Hotel-Dieu de Montreal
Hospital, as well as other medical centers in Canada. The study is
designed to evaluate safety, tumor responses and immune responses in
patients treated with multiple courses of Multikine. The length of
time that each patient will remain
on the investigational treatment will depend on the patient's
response to treatment. In May l995, the U.S. Food and Drug
Administration (FDA) authorized the export of the Company's Multikine
drug to Canada for purposes of this study.
Viral Technologies, Inc. ("VTI") completed its Phase I trials in
California and in April 1995 started a new clinical study with the
HGP30 AIDS vaccine. The study involves ten HIV-negative volunteers
who participated in the 1993 Phase I study. Following vaccinations
with HGP30, certain volunteers will be asked to donate blood for a
SCID mouse HIV challenge study. In November 1995 VTI received
permission from the California Food and Drug Branch ("FDB") to begin
Phase I human clinical trials with HIVinfected volunteers. These
trials began in December 1995. See "Viral Technologies, Inc." below
for additional information concerning VTI's product development plan.
The Company filed an Investigational New Drug ("IND") Application for
MULTIKINE with the FDA in late July, 1994. In December 1994 the FDA
notified the Company that the Company's IND application was placed on
clinical hold pending receipt of additional data and modifications to
the Company's manufacturing process. The Company plans to meet with
the FDA to discuss the issues raised by the FDA. If the Company's
IND application is approved by the FDA (of which there is no
assurance), the Company will begin human clinical trials in
accordance with protocols approved by the FDA. The Company does not
know when the FDA will approve or reject the Company's IND
application.
There can be no assurance that either the Company or VTI will be
successful in obtaining approvals from any regulatory authority to
conduct further clinical trials or to manufacture and sell their
products. The lack of regulatory approval for the Company's or VTI's
products will prevent the Company and VTI from generally marketing
their products. Delays in obtaining regulatory approval or the
failure to obtain regulatory approval in one or more countries may
have a material adverse impact upon the Company's operations.
BACKGROUND OF HUMAN IMMUNOLOGICAL SYSTEM
The function of the immunological system is to protect the body
against infectious agents, including viruses, bacteria, parasites and
malignant (cancer) cells. An individual's ability to respond to
infectious agents and to other substances (antigens) recognized as
foreign by the body's immune system is critical to health and
survival. When the immune response is adequate, infection is usually
combatted effectively and recovery follows. Severe infection can
occur when the immune response is inadequate. Such immune deficiency
can be present from birth but, in adult life, it is frequently
acquired as a result of intense sickness or as a result of the
administration of chemotherapeutic drugs and/or radiation. It is
also recognized that, as people reach middle age and thereafter, the
immune system grows weaker.
Two classes of white blood cells, macrophages and
lymphocytes, are believed to be primarily responsible for immunity.
Macrophages are large cells whose principal immune activity is to
digest and destroy infectious
agents. Lymphocytes are divided into two sub-classes. One sub-class
of lymphocytes, B-cells, produces antibodies in response to antigens.
Antibodies have unique combining sites (specificities) that recognize
the shape of particular antigens and bind with them. The combination
of an antibody with an antigen sets in motion a chain of events which
may neutralize the effects of the foreign substance. The other sub
class of lymphocytes, T-cells, regulates immune responses. T-cells,
for example, amplify or suppress antibody formation by Bcells, and
can also directly destroy "foreign" cells by activating "killer
cells." It is generally recognized that the interplay among T-cells,
B-cells and the macrophages determines the strength and breadth of
the body's response to infection. It is believed that the activities
of T-cells, Bcells and macrophages are controlled, to a large extent,
by a specific group of hormones called lymphokines. Lymphokines
regulate and modify the various functions of both T-cells and B-
cells. There are many lymphokines, each of which is thought to have
distinctive chemical and functional properties. IL2 is but one of
these lymphokines and it is on IL-2 and its synergy with other
lymphokines that the Company has focused its attention. Scientific
and medical investigation has established that IL-2 enhances immune
responses by causing activated Tcells to proliferate. Without such
proliferation no immune response can be mounted. Other lymphokines
and cytokines support Tcell and Bcell 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 research that IL-2 can increase the number of
killer T-cells produced by the body, which improves the body's
capacity to selectively destroy specific tumor cells. Research and
human clinical trials sponsored by the Company have indicated a
correlation between administration of MULTIKINE to advanced cancer
patients and immunological responses. On the basis of these
experimental results, the Company believes that MULTIKINE may have
application for the treatment of solid tumors in humans. The
Company foresees three potential anti-cancer therapeutic uses for
MULTIKINE: (i) direct administration into the human body (in vivo) as
a modulator of the immune system, (ii) activation of a patient's
white blood cells outside the body with MULTIKINE, followed by
returning these activated cells to the patient; and (iii) a
combination of (i) and (ii).
RESEARCH AND DEVELOPMENT
In the past, the Company conducted its research pursuant to
arrangements with various universities and research organizations.
The Company provided grants to these institutions for the conduct of
specific research projects as suggested by the Company's scientists
based upon the results of previously completed projects.
More recently the Company has decided to consolidate its research
activities in a Company-owned laboratory. The Company believes that
this new approach will be more effective in terms of both cost and
performance.
Between 1983 and 1986 the Company was primarily involved in funding
pre clinical and Phase I clinical trials of its proprietary MULTIKINE
technologies. These trials were conducted at St. Thomas's Hospital
Medical School located in London, England under the direction of
Dudley C. Dumonde, M.D., PhD., a former member of the SAB, and
pursuant to approvals obtained from England's Department of Health
and Social Security.
In the Phase I trial in England (completed in 1987), forty-nine
patients suffering with various forms of solid cancers, including
malignant melanoma, breast cancer, colon cancer, and other solid
tumor types were treated with MULTIKINE. The product was
administered directly into the lymphatic system in a number of
patients. Significant and lasting lymphnode responses, which are
considered to be an indication of improvement in the patient's immune
responses, were observed in these patients. A principal conclusion
of the Phase I trials was that the side effects of the Company's
products in fortynine patients were not severe, the treatment was
well tolerated and there was no long-term toxicity.
The results of the Phase I clinical study were encouraging, and as a
result the Company, through members of its SAB and consulting
experts, established protocols for future clinical trials. In
November, 1990, the Florida Department of Health and Rehabilitative
Services ("DHRS") gave
the physicians at a southern Florida medical institution approval to
start a clinical cancer trial in Florida using the Company's
MULTIKINE product. The focus of the trial was unresectable head and
neck cancer (which is presently untreatable) and was the first time
that the natural MULTIKINE was administered to cancer patients in a
clinical trial in the United States.
Four patients with regionally advanced squamous cell cancer of the
head and neck were treated with the Company's MULTIKINE product. The
patients had previously received radical surgery followed by 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).
Three of the four patients treated with the Company's MULTIKINE
product generated significant biological responses as a result of the
treatment. Negligible side effects were observed and the patients
were treated as outpatients. Notwithstanding the above, it should be
noted that these trials were only preliminary and were only conducted
on a small number of patients. It remains to be seen if MULTIKINE
will be effective in treating any form of cancer.
See "Product Development Plan" above for information concerning the
Company's future research and development plans.
Proof of efficacy for anti-cancer drugs is a lengthy and complex
process. At this early stage of clinical investigation, it remains to
be proven that MULTIKINE will be effective against any form of
cancer. Even if some form of MULTIKINE is found to be effective in
the treatment of cancer, commercial use of MULTIKINE may be several
years away due to extensive safety and effectiveness tests that would
be necessary before required government approvals are obtained. It
should be noted that other companies and research teams are actively
involved in developing treatments and/or cures for cancer, and
accordingly, there can be no assurance that the Company's research
efforts, even if successful from a medical standpoint, can be
completed before those of its competitors. Since 1983, and through
September 30, 1995, approximately $9,505,000 has been expended on
Company-sponsored research and development, including approximately
$1,825,000, $2,896,000 and $1,307,000 during the years ended
September 30, 1995, 1994 and 1993, respectively. The foregoing
amounts do not include amounts spent by Viral Technologies, Inc. on
research and development. Since May, 1986 (the inception of VTI) and
through September 30, 1995, VTI has spent approximately $3,365,000 on
research and development. The Company has established a Scientific
Advisory Board ("SAB") comprised of scientists distinguished in
biomedical research in the field of lymphokines and related areas.
From time to time, members of the SAB advise the Company on its
research activities. Institutions with which members of the SAB are
affiliated have and may in the future conduct Company-sponsored
research. The SAB has in the past and may in the future, at its
discretion, invite other scientists to opine in confidence on the
merits of the Companysponsored research. Members of the SAB receive
$500 per month from the Company and have also been granted options
(for serving
as members of the SAB) which collectively allow for the purchase of
up to 15,000 shares of the Company's Common Stock. The options are
exercisable at prices ranging from $13.80
to $19.70 per share.
The members of the Company's SAB are:
DR. MICHAEL CHIRIGOS, former head of the Virus and Disease
Modification Section, National Institutes of Health (NIH), National
Cancer Institute (NCI) from 1966-1981 and the Immuno Pharmacology
Section, NHI, NCI, Biological Response Modifier Program until 1985.
DR. EVAN M. HERSH, Vice-Chairman, Department of Internal
Medicine, Chief, Section of Hematology/Oncology, Department of
Internal Medicine, Tucson, AZ. Director of Clinical Research,
Arizona Cancer Center, Tucson.
DR. MICHAEL J. MASTRANGELO, Director, Division of Medical
Oncology, and Professor of Medicine, Jefferson Medical College,
Philadelphia, Pennsylvania.
DR. ALAN B. MORRIS, PHD. Professor, Department of Biological
Sciences, University of Warwick, Coventry, U.K.
VIRAL TECHNOLOGIES, INC.
Prior to November 1995, Viral Technologies, Inc. ("VTI"), a Delaware
corporation, was 50% owned by the Company and 50% owned by Alpha 1
Biomedicals, Inc. VTI is developing a vaccine technology that may
prove of commercial value in the prevention, diagnosis and treatment
of AIDS. VTI holds the proprietary rights to certain synthesized
components of the p17 gag protein, which is the outer core region of
the AIDS virus (HIV1). In October 1995, the Company acquired Alpha
1's interest in VTI in exchange for 159,170 shares of the Company's
common stock.
VTI is involved in the development of a prototype preventive and
therapeutic vaccine against AIDS that is based on HGP-30, a thirty
amino acid synthetic peptide derived from the p17 region of the AIDS
virus. Evidence compiled by scientists at George Washington
University from toxicology studies with different animal species
indicates that the HGP30 prototype vaccine does not appear to be
toxic in animals. The HGP-30 vaccine being tested differs from most
other vaccines candidates in that its active component, the HGP-30
peptide, is derived from the p17 core protein particles of the virus.
Since HGP-30 is a totally synthetic molecule containing no live
virus, it cannot cause infection. Unlike the envelope (i.e. outside)
proteins, the p17 region of the AIDS virus appears to be relatively
non-changing. 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 proliferative responses in 7
out of 9 vaccinated volunteers and antibody responses in 15 out of 18
vaccinated volunteers.
In March, 1990, the California Department of Health Services Food and
Drug Branch (FDB) approved the first human testing (Phase I trials)
in the United States of HGP-30. The trials were conducted by
scientists at the University of Southern California and San Francisco
General Hospital. Twenty-one healthy HIV-negative volunteers at
medical centers in Los Angeles and San Francisco received escalating
doses of HGP-30 with no clinically significant adverse side effects.
The clinical studies confirmed earlier clinical trials in London.
In April 1995 VTI began another clinical trial using volunteers who
will receive two vaccinations. In November l995, VTI received
permission from the California Food and Drug Branch ("FDB") to begin
Phase I human clinical trials with HIV-infected volunteers. In
December l995 VTI started this clinical trial using the HGP-30 HIV
immunogen. The study is being conducted at the clinic of AIDS
RESEARCH Alliance, a non-profit AIDS research organization located in
West Hollywood, California. The Phase I trial with HGP-30 will
evaluate safety and HIV-1 directed immune responses in HIV infected
individuals. The trial will include 22 HIV patients with CD4 counts
between 50 and 600. Each patient will receive three immunizations of
the
HGP30 HIV immunogen during the course of six months. Previous
clinical Phase I studies with HGP-30 in 38 non-infected volunteers
were successfully concluded in the United Kingdom and California.
No assurance can be given that approvals to conduct additional
clinical trials will be obtained in a timely fashion, if at all. In
addition, VTI's AIDS vaccine/treatment is only in the initial stages
of testing and it remains to be seen if the vaccine/treatment will be
effective against the AIDS virus.
Although there has been important independent research showing the
possible significance of the p17 region of HIV-1, there can be no
assurance that any of VTI's technology will be effective in the
prevention, diagnosis or treatment of AIDS. There can be no assurance
that other companies will not
develop a product that is more effective or that VTI ultimately will
be able to develop and bring a product to market in a timely manner
that would enable it to derive commercial benefits.
VTI's research and development efforts are presently focused on the
evaluation of second generation formulations and delivery systems for
HGP30 and related peptides to enhance HIV-specific cellular immune
responses.
T-CELL MODULATION PROCESS
In January 1996 the Company acquired a new patented T-cell Modulation
Process which uses "heteroconjugates" to direct the body to chose a
specific immune response.
The ability to generate a specific immune response is important
because many diseases are often not combatted effectively due to the
body's selection of the "inappropriate" immune response. The
capability to specifically reprogram an immune response may offer a
more effective approach than existing vaccines and drugs in attacking
an underlying disease.
The Company intends to use this new technology to improve the cellular
immune response of VTI's HIV HGP-30 immunogen which is currently in
two clinical studies. In addition, the Company intends to use the
technology to develop a potential Tuberculosis (TB) vaccine/treatment.
TB is the largest killer of all infectious diseases worldwide and new
strains of drug resistant TB are emerging daily. The technology is
also a potential platform technology which could also work with many
other peptides. Using this new technology, the Company is currently
conducting in vitro laboratory and in vivo animal studies that have
defined a combination of components that appear to modulate T-cells
identified with specific diseases.
COMPOUNDS AND PROCESSES LICENSED TO THE COMPANY
The Company has acquired from Sittona Company, B.V., a Netherlands
corporation ("Sittona"), the exclusive worldwide rights to patented IL-
2 compounds, compositions and other processes and other lymphokine-
related compounds, compositions and processes which are the subject of
various patents, patent applications and disclosure documents filed
with the United States Patent and Trademark Office as well as similar
agencies of various foreign countries. Sittona acquired its rights in
the foregoing products and technology from Hooper Trading Company
N.V., and Shanksville Corporation N.V., both Netherland Antilles
corporations. Pursuant to the terms of the license, the Company must
pay to Sittona a royalty of l0% of all net sales received by the
Company in connection with the manufacture, use or sale of the
licensed compounds, compositions and processes and a royalty of l5% of
all license fees and royalties received by the Company in connection
with the grant by the Company of any sublicenses for the manufacture,
use or sale of the licensed compounds, compositions and processes. On
November 30, l983, a $l.4 million advance royalty was paid
by the Company to Sittona to acquire the license. The license also
requires the Company to bear the expense of preparing, filing and
processing patent applications and to obtain and maintain patents in
the United States and foreign countries on all inventions,
developments and improvements made by or on behalf of the Company
relating to the licensed compounds, compositions and processes. In
this regard the Company has caused patent applications to be filed in
several foreign countries and has undertaken the processing of
previously filed patent applications. The exclusive license is to
remain in effect until the
expiration or abandonment of all patent rights or until the
compounds, compositions and processes enter into the public domain,
whichever is later. Sittona may also terminate the license for breach
of the agreement, fraud on the part of the Company, or the bankruptcy
or insolvency of the Company. Sittona, Hooper Trading Company and
Shanksville Corporation are all controlled by Maximilian de Clara,
the Company's President. See Item 13 of this report.
In 1987 a German company filed an opposition with the European Patent
Office with respect to one of the Company's European patents,
alleging that certain aspects of the patent in question were
previously disclosed by the inventors during a conference held in
Germany. A hearing on the opposition was held and on October 12,
1990 the European Patent Office rejected the opposition. The German
company filing the opposition has appealed the decision of the
European Patent Office. In 1992 the Company's process claims in the
patent were upheld, while two minor claims were denied. The Company
does not believe that the European Patent Office denial of these two
minor claims impairs the value of this patent in any significant
degree.
Process for the Production of IL-2 and IL-2 Product
The Company's exclusive license includes processes for the
production in high yields of natural human IL-2 using cell culture
techniques applied to normal human cells. The Company believes that
these production methods have advantages to those currently in use.
Based upon the results of the Company's research and human clinical
trials, the Company believes that "natural" IL-2 produced by cell
culture technologies, such as the Company's proprietary products, may
have advantages over genetically engineered, bacteria-produced IL-2
("recombinant IL-2") manufactured by other companies. There are
basically two ways to produce IL-2 on a commercial scale: (1)
applying genesplicing techniques using bacteria or other micro-
organisms to produce recombinant IL-2; or, (2) applying cell culture
technology using mammalian cells. Substantive differences exist
between recombinant IL-2 and IL-2 produced through cell culture
technology. For example: (1) cell cultured IL2 is glycosylated (has
sugars attached). Sugar attachments play a crucial role in cell
recognition and have a significant effect on how fast a body clears
out proteins. Proteins produced through bacteria have no sugar
attachments and while recombinant IL-2 products produced from
recombinant yeast or insect cells are glycosylated, they are not so
to the right degree, or at the right locations. Cell cultured IL-2
has the "right" sugar attachments at the right places; (2) there are
also structural differences related to folding (the way human
proteins work depends on their sequence folding); and (3) the cell
cultured IL-2 "cocktail" is administered in small dosages as
pioneered by Company researchers. This formulation and dosage mimics
the way immune regulators are naturally found and function within the
body. This stands in stark contrast to the huge dosages required
when recombinant IL-2 is administered to patients. In addition,
patients treated with recombinant 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 IL2, result in severe toxic reactions. In contrast, the
Company believes the synergy between glycosylated IL-2 and certain
other lymphokines/cytokines allows MULTIKINE to be administered in
low dosages, thereby avoiding the severe toxic reactions which often
result
when IL-2 is administered in large dosages.
The technology licensed to the Company includes the basic
production method employing the use of normal white blood cells, an
improved production method based in part on this basic production
method, a serum-free and mitogen-free IL-2 product, and a method for
using this product in humans. Mitogens are used to stimulate cells to
produce specific materials (in this case, IL-2). Mitogens remaining
in the product of cell stimulation can cause allergic and
anaphylactic reactions if not removed from the cell product prior to
introduction into the body.
The Company's license also pertains to a cell culture
process for producing interleukin-2 and another type of cell process
for producing serumfree and mitogen-free interleukin-2 preparations
which avoids a mitogen stimulation step and uses interleukin-1 and
white blood cells.
The Company's license further includes a process for
suppressing graft rejection in organ transplantation. This process
employs the use of an agent which blocks the activity of IL-2 in
proliferating T-cells which would otherwise destroy the transplanted
organ. The Company regards further research and development of this
process to involve a financial commitment beyond its present ability;
thus, while the Company intends to attempt to enter into licensing
arrangements with third parties concerning this process, it does not
presently intend to conduct further research into, or development of,
this process.
Patent Position of Viral Technologies, Inc.'s HGP-30. In
January, 1991, VTI was awarded a U.S. patent covering the exclusive
production, use and sale of HGP-30. This patent is thought to be the
first U.S. patent for a portion of a "core" protein of the HIV virus.
In February, 1993, VTI was awarded a European patent covering HGP-30
and certain other peptides.
GOVERNMENT REGULATION
The investigational agents and future products of the Company are
regulated in the United States under the Federal Food, Drug and
Cosmetic Act, the Public Health Service Act, and the laws of certain
states. The Federal Food and Drug Administration (FDA) exercises
significant regulatory control over the clinical investigation and
manufacture of pharmaceutical products.
Prior to the time a pharmaceutical product can be marketed in the
United States for therapeutic use, approval of the FDA must normally
be obtained. Certain states, however, have passed laws which allow a
state agency having functions similar to the FDA to approve the
testing and use of pharmaceutical products within the state. In the
case of either FDA or state regulation, preclinical testing programs
on animals, followed by three phases of clinical testing on humans,
are typically required in order to establish product safety and
efficacy.
The first stage of evaluation, preclinical testing, must be conducted
in animals. After lack of toxicity has been demonstrated, the test
results are submitted to the FDA (or state regulatory agency) along
with a request for approval for further testing which includes the
protocol that will be followed in the initial human clinical
evaluation. If the applicable regulatory authority does not object
to the proposed experiments, the investigator can proceed with Phase
I trials. Phase I
trials consist of pharmacological studies on a relatively few number
of humans under rigidly controlled conditions in order to establish
lack of toxicity and a safe dosage range.
After Phase I testing is completed, one or more Phase II trials are
conducted in a limited number of patients to test the product's
ability to treat or prevent a specific disease, and the results are
analyzed
for clinical efficacy and safety. If the results appear to warrant
confirmatory studies, the data is submitted to the applicable
regulatory authority along with the protocol for a Phase III trial.
Phase III trials consist of extensive studies in large populations
designed to assess the safety of the product and the most desirable
dosage in the treatment or prevention of a specific disease. The
results of the clinical trials for a new biological drug are
submitted to the FDA as part of a product license application
("PLA").
In addition to obtaining FDA approval for a product, a biologics
establishment license application ("ELA") must be filed in order to
obtain FDA approval of the testing and manufacturing facilities in
which the product is produced. To the extent all or a portion of the
manufacturing process for a product is handled by an entity other
than the Company, the Company must similarly receive FDA approval for
the other entity's participation in the manufacturing process.
Domestic manufacturing establishments are subject to inspections by
the FDA and by other Federal, state and local agencies and must
comply with Good Manufacturing Practices ("GMP") as appropriate for
production. In complying with GMP regulations, manufacturers must
continue to expend time, money and effort in the area of production
and quality control to ensure full technical compliance.
The process of drug development and regulatory approval requires
substantial resources and many years. There can be no assurance that
regulatory approval will ever be obtained for products developed by
the Company. Approval of drugs and biologicals by regulatory
authorities of most foreign countries must also be obtained prior to
initiation of marketing in those countries. The approval process
varies from country to country and the time period required in each
foreign country to obtain approval may be longer or shorter than that
required for regulatory approval in the United States.
The human clinical trials in Florida were authorized pursuant to
applications filed by physicians at a southern Florida medical
institution with the Florida Department of Health and Rehabilitative
Services ("DHRS"). VTI's Phase I clinical trials were conducted
pursuant to approvals obtained from the California Department of
Health Services Food and Drug Branch. None of the clinical trials
involving the Company's MULTIKINE product (including the prior trials
conducted in London, England) have been conducted under the approval
of the FDA and there are no assurances that clinical trials conducted
under approval from state authorities or conducted in foreign
countries will be accepted by the FDA. Product licensure in a
foreign country or under state authority does not mean that the
product will be licensed by the FDA and there are no assurances that
the Company will receive any approval of the FDA or any other
governmental entity for the manufacturing and/or marketing of a
product. Consequently, the commencement of the manufacturing and
marketing of any Company product is, in all likelihood, many years
away.
COMPETITION AND MARKETING
Many companies, non-profit 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 IL 2 product using a patented cell-culture technology with
normal human cells. The Company foresees that its principle
competition will come from producers of genetically-engineered IL-2-
like products. However, it is the Company's belief, based upon
growing scientific evidence, that its natural IL-2 products have
advantages over the genetically engineered, IL2-like products.
Evidence indicates that genetically engineered, IL-2like products,
which lack sugar molecules and typically are not water soluble, may be
recognized by the immunological system as a foreign agent, leading to
a measurable antibody build-up and thereby possibly voiding their
therapeutic value. Furthermore, the Company's research has established
that to have optimum therapeutic value IL-2 should be administered not
as a single substance but rather as an IL-2 rich mixture of certain
lymphokines and other proteins, i.e. as a "cocktail". If these
differences prove to be of importance, and if the therapeutic value of
its MULTIKINE product is conclusively established, the Company
believes it will be able to establish a strong competitive position in
a future market.
The Company has not established a definitive plan for marketing nor
has it established a price structure for the Company's saleable
products. However, the Company intends, if the Company is in a
position to begin commercialization of its products, to enter into
written marketing agreements with various major pharmaceutical firms
with established sales forces. The sales forces in turn would
probably target the Company's products to cancer centers, physicians
and clinics involved in immunotherapy.
Competition to develop treatments for the control of AIDS is intense.
Many of the pharmaceutical and biotechnology companies around the
world are devoting substantial sums to the exploration and development
of technologies useful in these areas. VTI's development of its
experimental HGP-30 AIDS Vaccine, if successful, would likely face
intense competition from other companies seeking to find alternative
or better ways to prevent and treat AIDS.
Both the Company and VTI may encounter problems, delays and additional
expenses in developing marketing plans with outside firms. In
addition, the Company and VTI may experience other limitations
involving the proposed sale of their products, such as uncertainty of
third-party reimbursement. There is no assurance that the Company or
VTI can successfully market any products which they may develop or
market them at competitive prices.
The clinical trials funded to date by the Company and VTI have not
been approved by the FDA, but rather have been conducted pursuant to
approvals obtained from regulatory agencies in England, Canada and
certain states. Since the results of these clinical trials may not be
accepted by the FDA, companies which are conducting clinical trials
approved by the FDA may have a competitive advantage in that the
products of such companies are further advanced in the regulatory
process than those of the Company or VTI.
PROPERTIES
The Company's MULTIKINE product used in its pre-clinical and Phase I
clinical trials in England was manufactured at a pilot plant at St.
Thomas' Hospital Medical School using the Company's patented
production methods and equipment owned by the Company. The MULTIKINE
product used in the Florida clinical trials was manufactured in
Florida. In February, 1993, the Company signed an agreement with a
third party
whereby the third party constructed a facility designed to produce
the Company's MULTIKINE product. The Company paid the third party
the cost of constructing this facility (approximately $200,000) in
accordance with the Company's specifications. In October, 1994 the
Company completed the construction of a research laboratory in space
leased by the Company. The cost of modifying and equipping this
space for the Company's purposes was approximately $1,200,000.
The Company leases office space at 66 Canal Center Plaza,
Alexandria, Virginia at a monthly rental of approximately $8,200 per
month. The Company believes this arrangement is adequate for the
conduct of its present business.
MANAGEMENT
Officers and Directors
Name Age Position
Maximilian de Clara 65 Director and President
Geert R. Kersten, Esq. 37 Director, Chief
Executive
Officer, Secretary and
Treasurer
Patricia B. Prichep 43 Vice President of
Operations
M. Douglas Winship 45 Vice President of
Regulatory
Affairs and
Quality Assurance Dr. Eyal Talor 37
Vice President of
Research
and
Manufacturing
Mark V. Soresi 41 Director
F. Donald Hudson 62 Director
Edwin A. Shalloway 60 Director
The directors of the Company serve in such capacity until the next
annual meeting of the Company's shareholders and until their
successors have been duly elected and qualified. The officers of
the Company serve at the discretion of the Company's directors.
Mr. Maximilian de Clara, by virtue of his position as an officer and
director of the Company, may be deemed to be the "parent" and
"founder" of the Company as those terms are defined under applicable
rules and regulations of the Securities and Exchange Commission.
The principal occupations of the Company's officers and directors,
during the past several years, are as follows:
MAXIMILIAN DE CLARA. Mr. de Clara has been a director of
the Company since its inception in March, l983, and has been
president of the Company since July, l983. Prior to his affiliation
with the Company, and since at
least l978, Mr. de Clara was involved in the management of his
personal investments and personally funding research in the fields
of biotechnology and biomedicine. Mr. de Clara attended the medical
school of the University of Munich from l949 to l955, but left
before he received a medical degree. During the summers of l954 and
l955, he worked as a research assistant at the University of
Istanbul in the field of cancer research. For his efforts and
dedication to research and development in the fight against cancer
and AIDS, Mr. de Clara was awarded the "Pour le
Merit" honorary medal of the Austrian Military Order "Merito Navale"
as
well as the honor cross of the Austrian Albert Schweitzer Society.
GEERT R. KERSTEN, ESQ. Mr. Kersten was Director of Corporate and
Investment Relations for the Company between February, 1987 and
October,
1987. In October of 1987, he was appointed Vice President of
Operations. In December, 1988, Mr. Kersten was appointed director of
the Company. Mr.
Kersten also became the Company's secretary and treasurer in 1989. In
May, 1992, Mr. Kersten was appointed Chief Operating Officer and in
February, 1995, Mr. Kersten became the Company's Chief Executive
Officer. In previous years, Mr. Kersten worked as a financial analyst
with Source Capital, Ltd., an investment advising firm in McLean,
Virginia. Mr. Kersten is a stepson of Maximilian de Clara, who is the
President and a Director of the Company. Mr. Kersten attended George
Washington University in Washington, D.C. where he earned a B.A. in
Accounting and an M.B.A. with emphasis on International Finance. He
also attended law school at American University in Washington, D.C.
where he received a Juris Doctor degree.
PATRICIA B. PRICHEP has been the Company's Vice President of
Operations since March, 1994. Between December, 1992 and March, 1994,
Ms. Prichep was the Company's Director of Operations. From June, 1990
to December, 1992, Ms. Prichep was the Manager of Quality and
Productivity for the NASD's Management, Systems and Support
Department. Between 1982 and 1990, Ms. Prichep was Vice President and
Operations Manager for Source Capital, Ltd.
M. DOUGLAS WINSHIP has been the Company's Vice President of
Regulatory Affairs and Quality Assurance since April, 1994. Between
1988 and April, 1994, Mr. Winship held various positions with Curative
Technologies, Inc., including Vice President of Regulatory Affairs and
Quality Assurance (1991-1994).
DR. EYAL TALOR has been the Company's Vice President of
Research and Manufacturing since March, 1994. From October, 1993
until March, 1994, Dr. Talor was Director of Research, Manufacturing
and Quality Control, as well as the Director of the Clinical
Laboratory, for Chesapeake Biological Laboratories, Inc. From 1991 to
1993, Dr. Talor was a scientist with SRA Technologies, Inc., as well
as the director of SRA's Flow Cytometry Laboratory (19911993) and
Clinical Laboratory (1992 1993). During 1992 and 1993, Dr. Talor was
also the Regulatory Affairs and Safety Officer For SRA. Since 1987,
Dr. Talor has held various positions with the John Hopkins University,
including course coordinator for the School of Continuing
Studies (1989-Present), research associate and lecturer in the
Department
of Immunology and Infectious Diseases (1987-1991), and associate
professor (1991Present).
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(Registered), Inc.
REMAC(Registered) is involved in the clean-up of hazardous and toxic
waste dump sites. Mr. Soresi attended George Washington University in
Washington, D.C. where he earned a Bachelor of Science in Chemistry.
F. DONALD HUDSON. F. Donald Hudson has been a director of the Company
since May, 1992. From December 1994 to October 1995 Mr. Hudson was
President and Chief Executive Officer of VIMRx Pharmaceuticals, Inc.
Between 1990 and 1993, Mr. Hudson was President and Chief Executive
Officer of Neuromedica, Inc., a development stage company engaged in
neurological research. Until January, 1989, Mr. Hudson served as
Chairman and Chief Executive Officer of Transgenic Sciences, Inc. (now
TSI Corporation), a publicly held biotechnology corporation which he
founded in January, 1987. From October, 1985 until January, 1987, Mr.
Hudson was a director of Organogenesis, Inc., a publicly held
biotechnology corporation of which he was a founder, and for five
years prior thereto was Executive Vice President and a director of
Integrated Genetics, Inc., a corporation also engaged in biotechnology
which he cofounded and which was publicly traded until its acquisition
in 1989 by Genzyme, Inc.
EDWIN A. SHALLOWAY, ESQ. Mr. Shalloway has been a director
of the Company since May, 1992. Mr. Shalloway is and has been since
1964, a partner in the law firm of Sherman and Shalloway which
specializes in matters of patent law. Mr. Shalloway attended the
University of
Georgia where he earned a Bachelor of Science and Bachelor of Arts
degrees. Mr. Shalloway received his law degree from the American
University in Washington, D.C. Mr. Shalloway is also the President
of the International Licensing Executive Society. All of the
Company's officers devote substantially all of their time on the
Company's business. Messrs. Soresi, Hudson and Shalloway, as
directors, devote only a minimal amount of time to the Company.
The Company has an audit committee whose members are Geert R.
Kersten, F. Donald Hudson and Edwin A. Shalloway.
Executive Compensation
The following table sets forth in summary form the compensation
received by (i) the Chief Executive Officer of the Company and (ii)
by each other executive officer of the Company who received in
excess of $100,000 during the fiscal year ended September 30, 1995.
Annual Compensation Long Term
Compensation Re- All
Other stric-
Other Annual ted
LTIP Com
Compen Stock Options Pay- pensa-
Name and Princi Fiscal Salary Bonus sation Awards Granted
outs
tion
pal Position Year (1) (2) (3) (4) (5)
(6)
(7)
Maximilian de Clara, 1995 - $95,181 225,000
- -
President 1994 - $93,752 70,000
- -
1993 - $59,376 -
- -
Geert R. Kersten, 1995 $164,801 $ 9,426 224,750
$3,911
Chief Executive 1994 $182,539 $ 8,183 50,000
$4,497
Officer, Secretary 1993 $163,204 $ 6,046 -
$3,289
and Treasurer
M. Douglas Winship, 1995 $113,500 $ 1,200 22,000
$2,100
Vice President of
Regulatory Affairs
Suzanne Beckner, 1995 $102,250 - -
25,000
- -
$2,830
Vice President of
Clinical Development*
* Dr. Beckner resigned her position with the Company in November
1995.
(1) The dollar value of base salary (cash and non-cash) received. (2)
The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary
or bonus, including perquisites and other personal benefits,
securities or property.
Amounts in the table represent automobile, parking and other
transportation expenses.
(4) During the period covered by the Table, no shares of restricted
stock were issued as compensation for services to the persons listed
in the table. As of September 30, 1995, the number of shares of the
Company's common stock, owned by the officers included in the table
above, and the value of such shares at such date, based upon the
market price of the Company's common stock were:
Name Shares Value
Maximilian de Clara 5,000 $23,100
Geert R. Kersten 84,940 $392,423
Dividends may be paid on shares of restricted stock owned by the
Company's officers and directors, although the Company has no plans
to pay dividends. Mr. Winship and Ms. Beckner did not own any
shares of
the Company's Common Stock at September 30, 1995.
(5) The shares of Common Stock to be received upon the exercise of
all stock options granted during the period covered by the Table.
The amounts in this table include options granted in prior years
but which were repriced during the year ending September 30,
1995. See "Ten Year Option/SAR Repricings" table below.
(6) "LTIP" is an abbreviation for "Long-Term Incentive Plan". An
LTIP is any plan that is intended to serve as an incentive for
performance to occur over a period longer than one fiscal year.
Amounts reported in this column represent payments received
during the applicable fiscal year by the named officer pursuant
to an LTIP.
(7) All other compensation received that the Company could not
properly report in any other column of the Table including annual
Company contributions or other allocations to vested and unvested
defined contribution plans, and the dollar value of any insurance
premiums paid by, or on behalf of, the Company with respect to
term life insurance for the benefit of the named executive
officer, and the full dollar value of the remainder of the
premiums paid by, or on behalf of, the Company. Amounts in the
table represent contributions made by the Company to a 401(k)
pension plan on behalf of persons named in the table.
Long Term Incentive Plans Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
During 1993 the Company implemented a defined contribution retirement
plan, qualifying under Section 401(k) of the Internal Revenue Code
and covering substantially all the Company's employees. The Company's
contribution is equal to the lesser of 3% of each employee's salary,
or 50% of the employee's contribution. The 1995 expenses for this
plan
were $24,913. Other than the 401(k) Plan, the Company does not have a
defined benefit, pension plan, profit sharing or other retirement
plan.
Compensation of Directors
Standard Arrangements. The Company currently pays its
directors
$1,500 per quarter, plus expenses. The Company has no standard
arrangement pursuant to which directors of the Company are
compensated for any services provided as a director or for committee
participation or special assignments.
Other Arrangements. The Company has from time to time
granted options to its outside directors, Mr. Soresi, Mr. Hudson and
Mr. Shalloway. See "Stock Options" below for additional information
concerning options granted to the Company's directors.
Employment Contracts
Effective August 1, 1994, the Company entered into a three-year
employment
agreement with Mr. Kersten. The employment agreement provides that
during the period between August 1, 1994 and July 31, 1995, the
Company will pay Mr. Kersten an annual salary of $198,985. During the
years ending August 31, 1996 and 1997, the Company will pay Mr.
Kersten a salary of $218,883 and $240,771 respectively. In the event
that there is a material reduction in Mr. Kersten's authority, duties
or activities, or in the event there is a change in the control of
the Company, then the agreement allows Mr. Kersten to resign from his
position at the Company and receive a lump-sum payment from the
Company equal to 18 months salary. For purposes of the employment
agreement, a change in the control of the Company means the sale of
more than 50% of the outstanding shares of the Company's Common
Stock, or a change in a majority of the Company's directors.
Pursuant to the agreement, the Company also agreed to grant Mr.
Kersten, in accordance with the Company's 1994 Incentive Stock Option
Plan, options to purchase 50,000 shares of the Company's Common
Stock.
Compensation Committee Interlocks and Insider Participation
The Company has a compensation committee comprised of all of the
Company's directors, with the exception of Mr. Kersten. During the
year ended September 30, 1995, Mr. de Clara was the only officer
participating in deliberations of the Company's compensation
committee concerning executive officer compensation. See
"Transactions witih Related Parties" below for information concerning
transactions between the Company and Mr. de Clara.
During the year ended September 30, 1995, no director of the Company
was also an executive officer of another entity, which had an
executive officer of the Company serving as a director of such entity
or as a member of the compensation committee of such entity.
Stock Options
The following tables set forth information concerning the options
granted, during the fiscal year ended September 30, 1995, to the
persons named below, and the fiscal year-end value of all unexercised
options (regardless of when granted) held by these persons.
(CAPTION)
Options Granted During Fiscal Year Ending September 30, 1995
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 onetime 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
Unexe
rc is
ed
Number of In-the
Money Unexercised
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 $2.87
per share.
The options subject to this repricing allowed for the purchase of up
to 444,250 shares of the Company's Common Stock and included options
previously granted to those persons listed below. The Company's
Board of Directors lowered the exercise of these options since at the
time of
repricing (June 10, 1995), the options no longer provided a
benefit to the option holders due to the difference between
the exercise price of the options and the market price of the
Company's Common Stock. The following table provides more
information concerning the repricing of these options.
Number of Length
of
Securities Market Exercise
OriginalOp-
Underlying Price of Price at tion
Term
Options/ Stock at Time of Remaining
at
SARs Re Repricing Repricing
New Date of
Repriced or or Amend or Amend
Exercise pricing
or
Name Date Amended (#) ment ($) 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
Revenue Code, options granted pursuant to the Plans must be
exercised
prior to the following dates:
(a) The expiration of three months after the date on which
an
option holder's employment by the Company is
terminated
(except if such termination is due to the death or
permanent and total disability);
(b) The expiration of 12 months after the date on which an
option holder's employment by the Company is terminated,
if such termination is due to the Employee's permanent
and total disability;
(c) In the event of an option holder's death while in the
employ of the Company, his executors or administrators
may exercise, within three months following the date of
his death, the option as to any of the shares not
previously exercised;
The total fair market value of the shares of Common Stock
(determined at the time of the grant of the option) for which any
employee may be granted options which are first exercisable in any
calendar year may not exceed $100,000.
Options may not be exercised until one year following the date
of grant. Options granted to an employee then owning more than 10% of
the Common Stock of the Company may not be exercisable by its terms
after five years from the date of grant. Any other option granted
pursuant to the Plan may not be exercisable by its terms after ten
years from the date of grant.
The purchase price per share of Common Stock purchasable under
an option is determined by the Committee but cannot be less than the
fair market value of the Common Stock on the date of the grant of the
option (or 110% of the fair market value in the case of a person owning
more than 10% of the Company's outstanding shares).
NON-QUALIFIED STOCK OPTION PLAN. The three Non-Qualified
Stock Option Plans collectively authorize the issuance of up to 560,000
shares of the Company's Common Stock to persons that exercise options
granted pursuant to the Plans. The Company's employees, directors,
officers, consultants and advisors are eligible to be granted options
pursuant to the Plans, provided however that bona fide services must be
rendered by such consultants or advisors and such services must not be
in connection with the offer or sale of securities in a capital-raising
transaction. The option exercise price is determined by the Committee
but cannot be less than the market price of the Company's Common Stock
on the date the option is granted.
STOCK BONUS PLAN. Up to 40,000 shares of Common Stock may be
granted under the Stock Bonus Plan. Such shares may consist, in whole
or in part, of authorized but unissued shares, or treasury shares.
Under the Stock Bonus Plan, the Company's employees, directors,
officers, consultants and advisors are eligible to receive a grant of
the Company's shares, provided however that bona fide services must be
rendered by consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction.
OTHER INFORMATION REGARDING THE PLANS. The Plans are
administered by the Company's Compensation Committee ("the Committee"),
each member of which is a director of the Company. The members of the
Committee were selected by the Company's Board of Directors and serve
for a one-year tenure and until their successors are elected. A member
of the Committee may be removed at any time by action of the Board of
Directors. Any vacancies which may occur on the Committee will be
filled by the Board of Directors. The Committee is vested with the
authority to interpret the provisions of the Plans and supervise the
administration of the Plans. In addition, the Committee is empowered
to select those persons to whom shares or options are to be granted, to
determine the number of shares subject to each grant of a stock bonus
or an option and to determine when, and upon what conditions, shares or
options granted under the Plans will vest or otherwise be subject to
forfeiture and cancellation.
In the discretion of the Committee, any option granted
pursuant to the Plans may include installment exercise terms such that
the option becomes fully exercisable in a series of cumulating
portions. The Committee may also accelerate the date upon which any
option (or any part of any options) is first exercisable. Any shares
issued pursuant to the Stock Bonus Plan and any options granted
pursuant to the Incentive Stock Option Plan or the NonQualified Stock
Option Plan will be forfeited if the "vesting" schedule established
by the Committee administering the Plan at the time of the grant is
not met. For this purpose, vesting means the period during which the
employee must remain an employee of the Company or the period of time
a nonemployee must provide services to the Company. At
the time an employee ceases working for the Company (or at the time a
non employee ceases to perform services for the Company), any shares
or options not fully vested will be forfeited and cancelled. At the
discretion of the Committee payment for the shares of Common Stock
underlying options may be paid through the delivery of shares of the
Company's Common Stock having an aggregate fair market value equal to
the option price, provided such shares have been owned by the option
holder for at least one year prior to such exercise. A combination
of cash and shares of Common Stock may also be permitted at the
discretion of the Committee.
Options are generally non-transferable except upon death of
the option holder. Shares issued pursuant to the Stock Bonus Plan
will generally not be transferable until the person receiving the
shares satisfies the vesting requirements imposed by the Committee
when the shares were issued.
The Board of Directors of the Company may at any time, and
from time to time, amend, terminate, or suspend one or more of the
Plans in any manner they deem appropriate, provided that such
amendment, termination or suspension will not adversely affect rights
or obligations with respect to shares or options previously granted.
The Board of
Directors may not, without shareholder approval: make any amendment
which would materially modify the eligibility requirements for the
Plans; increase or decrease the total number of shares of Common
Stock which may be issued pursuant to the Plans except in the case of
a reclassification of the Company's capital stock or a consolidation
or merger of the Company; reduce the minimum option price per share;
extend the period for granting options; or materially increase in any
other way the benefits accruing to employees who are eligible to
participate in the Plans.
PRIOR STOCK OPTION AND BONUS PLANS. 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 December 31, 1995, concerning the stock options granted by the
Company. Each option represents the right to purchase one share of
the Company's Common Stock.
(TABLE)
(CAPTION)
Total Shares
Shares Reserved for
Remaining Reserved
Outstanding Options
Name of Plan Under Plan Options Under
Plan
1987 Stock Option and Bonus Plan 200,000 7,000
(1)
1992 Incentive Stock Option Plan 100,000 52,217
47,783
1992 Non-Qualified Stock Option Plan 60,000 60,000
- -
1994 Incentive Stock Option Plan 100,000 100,000
- -
1994 Non-Qualified Stock Option Plan 100,000 97,250
2,750
1995 Non-Qualified Stock Option Plan 400,000 328,626
71,374
TOTAL: 645,093
(1) This Plan was terminated in 1992 and as a result, no new options
will be granted pursuant to this Plan.
In March, 1991 the Company granted a financial relations consultant
an option to purchase 50,000 shares of the Company's common stock.
The option is
exercisable at $13.80 per share and expires in March, 1996. The
holder of the option has the right to have the shares issuable upon
the exercise of the option included in any registration statement
filed by the Company.
As of December 31, 1995, 1,500 shares had been issued pursuant to the
Company's 1992 Stock Bonus Plan. All of these shares were issued
during the fiscal year ending September 30, 1994.
Transactions with Related Parties
The technology and know-how licensed to the Company was developed by
a group of researchers under the direction of Dr. Hans-Ake Fabricius
and was assigned, during l980 and l98l, to Hooper Trading Company,
N.V., a Netherlands Antilles' corporation ("Hooper"), and Shanksville
Corporation, also a Netherlands Antilles corporation ("Shanksville").
Mr. de Clara and Dr. Fabricius own 50% and 30%, respectively, of each
of these companies.
The technology and know-how assigned to Hooper and Shanksville was
licensed to Sittona Company, B.V., a Netherlands corporation
("Sittona"), effective September, l982 pursuant to a licensing
agreement which requires Sittona to pay to Hooper and Shanksville
royalties on income received by Sittona respecting the technology and
know-how licensed to Sittona. In l983, Sittona licensed this
technology to the Company and received from the Company a $1,400,000
advance royalty payment. At such time as the Company generates
revenues from the sale or sublicense of this technology, the Company
will be required to pay royalties
to Sittona equal to l0% of net sales and l5% of the licensing
royalties received from third parties. In that event, Sittona,
pursuant to its licensing agreements with Hooper and Shanksville,
will be required to pay to those companies a minimum of l0% of any
royalty payments received from the Company.
In 1985, Mr. de Clara acquired all of the issued and outstanding
stock of Sittona. Mr. de Clara and Dr. Fabricius, because of their
ownership interests in Hooper and Shanksville, could receive
approximately 50% and 30% respectively of any royalties paid by
Sittona to Hooper and Shanksville, and Mr. de Clara, through his
interest in all three companies (Hooper, Shanksville and Sittona),
will receive up to 95% of any royalties paid by the Company.
Legal Matters
The Company is not a party to any pending legal proceedings.
Maximilian de Clara, the president and a director of the Company, has
been involved in legal proceedings concerning shares of the Company's
Common Stock. The Securities and Exchange Commission found that
between 1988 and 1991 Mr. de Clara failed to timely file reports of
beneficial ownership required by the Securities Exchange Act of 1934.
In May, 1992, the Commission entered an order requiring Mr. de Clara
to file reports of beneficial ownership on a timely basis.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of January 31, 1996, information
with respect to the only persons owning beneficially 5% or more of
the outstanding Common Stock and the number and percentage of
outstanding shares owned
by each director and officer and by the officers and directors as a
group. Unless otherwise indicated, each owner has sole voting and
investment powers over his shares of Common Stock.
Number of Percent
of Name and Address Shares (1) Class (4)
Maximilian de Clara 113,333 (2)
1.9% Bergstrasse 79
6078 Lungern,
Obwalden, Switzerland
Geert R. Kersten 227,290 (3)
3.7% 66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Patricia B. Prichep 14,530 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
M. Douglas Winship 7,000
* 66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Eyal Talor 8,667
* 66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Mark Soresi 14,375
* l0l0 Wayne Ave., 8th Floor
Silver Spring, MD 209l0
F. Donald Hudson 10,500 *
53 Mt. Vernon Street
Boston, MA 02108
Edwin A. Shalloway 10,500 *
413 North Washington Street
Alexandria, VA 22314
All Officers and Directors
as a Group (8 persons) 406,195
6.6% *Less than 1%
(1) Includes shares issuable prior to March 1, 1996 upon the
exercise of options or warrants granted to the following
persons:
Options or
Warrants Exercisable Name Prior to March
1,
1996
Maximilian de Clara 108,333
Geert R. Kersten
146,750
Patricia B. Prichep
14,500
M. Douglas Winship
7,000
Dr. Eyal Talor
7,167
Mark Soresi
12,500
F. Donald Hudson
10,500
Edwin A. Shalloway
10,500
See "Management" for information concerning outstanding stock
options.
(2) All shares are held of record by Milford Trading, Ltd., a
corporation organized pursuant to the laws of Liberia. All of
the issued and outstanding shares of Milford Trading, Ltd. are
owned beneficially by Mr. de Clara.
(3) Amount includes shares held in trust for the benefit of Mr.
Kersten's minor children. Geert R. Kersten is the stepson of
Maximilian de Clara.
(4) Amount excludes shares which may be issued upon the exercise of
options and warrants previously issued by the Company.
SELLING SHAREHOLDERS
In June and September 1995 the Company sold, in private offerings,
1,150,000 Units, at $2.00 per Unit, to five persons. 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 investors in these Private Offerings are sometimes
referred to as the "Selling Shareholders". 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 Selling
Shareholders. 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. Prior to January 31,1996 the Selling
Shareholders collectively sold 1,255,994 shares of Common Stock which
they acquired in the Private Offerings and upon the exercise of their
warrants. By means of this Prospectus, the remaining shares of Common
Stock purchased by the Selling Shareholders in the Private Offerings,
as well as the remaining shares issuable upon the exercise of the
Warrants described above are being offered to the public by the
Selling Shareholders.
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 Exercise of This ship
After
Name and Address Owned Warrants (1) Offering (2)
Offering
Laura Huberfeld 146,373 86,586 232,959
250 Longwood Crossing
Lawrence, NY 11559
Naomi Bodner 52,873
86,586 139,459
- -
16 Grosser Lane
Monsey, NY 10952
Delton Trading SA 206,160
173,174 379,334
- -
15 Market Square
Belize City, Belize
Mueller Trading, Limited 107,080
173,174 280,254
- -
120 Madison Avenue
Lakewood, NJ
Rita Folger 6,520
5,480 12,000
- -
c/o Oscar Folger
521 Fifth Avenue,
24th Floor
New York, NY 10175
1,044,006
(1) Represents remaining shares issuable upon the exercise of
Warrants included as part of the Units sold in the June
and September 1995
Private Offerings.
(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-to-face transactions between sellers and
purchasers without a broker/ dealer. In effecting sales, brokers or
dealers engaged by the Selling Shareholders may arrange for other
brokers or dealers to participate. Such brokers or dealers may receive
commissions or discounts from Selling Shareholders in amounts to be
negotiated. Such brokers and dealers and any other participating
brokers o dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales.
SALES AGENT. In connection with the Company's June and
September Private Offerings, Neidiger/Tucker/Bruner, Inc., the Sales
Agent for these offerings, received a commission of $230,000, a non
accountable expense allowance of $69,000 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. To the extent the actual expenses of the
Sales Agent were less than the non accountable expense allowance, the
difference may constitute additional compensation to the Sales Agent.
The Company also agreed to pay the Sales Agent a fee of 5% of
the aggregate exercise price of the Warrants sold to the Selling
Shareholders and exercised by them after the expiration of one year
from the date of this Prospectus (plus a non-accountable expense
allowance equal to 2% of the aggregate exercise price), if (i) the
market price of the Company's Common Stock on the date of exercise is
greater than the exercise price of the Warrants, (ii) the purchaser
has indicated in writing that the exercise of the Warrants was
solicited by the Sales Agent and has determined that the Selling Agent
receive the commission relating to the exercise of the warrants, (iii)
the Warrants exercised are not held in discretionary accounts, (iv)
disclosure of compensation arrangements has been made both at the time
of this offering and at the time of exercise, and (v) the
solicitation of the exercise of the Warrant is not in violation of
Rule l0b6 under the Securities Exchange Act of l934. Accordingly, it
will be a condition to the receipt by the Sales Agent of such fee that
it shall not, in the two or nine business days (depending upon the
market price of the Company's Common Stock) immediately preceding the
solicitation of the exercise or the date of such exercise, have bid
for or purchased the Common Stock of the Company (or any securities of
the Company convertible into, exercisable for the purchase of, or
exchangeable for, such Common Stock) or otherwise have engaged in any
activity that would be prohibited by Rule 10b6 by one engaged in a
distribution of the Company's securities. As a result, the Sales Agent
may be unable to provide a market for the Company's securities, should
it desire to do so, during certain periods while the Warrants are
exercisable.
The Company and the Sales Agent have agreed to indemnify each
other against certain liabilities including liabilities under the
Securities Act, and if such indemnification is unavailable or
insufficient, the Company and the Sales Agent have agreed to damage
contribution arrangements based upon relative benefits received from
this offering and relative fault resulting in such damages.
The Sales Agent is presently a market-maker in the Company's
securities.
The Sales Agent's Warrants expire between July and
September, 2000.
The Sales Agent's Warrants contain provisions for adjustment
of the exercise price to prevent dilution upon the occurrence of
certain events. The Sales Agent's Warrants will be non-transferable
for a period of one year from the date of this Prospectus except to
officers of the Sales Agent, other underwriters, selected dealers, or
their respective officers or partners. The holders of the Sales
Agent's Warrants will have no voting, dividend or other rights of
shareholders of the Company until such time as the Sales Agent's
Warrants are exercised. Any gain from the sale of the
Representative's Warrants or the securities issuable upon exercise
thereof may be deemed to be additional underwriting compensation.
At the request of a majority of the holders of the Sales
Agent's Warrants and/or underlying securities during the four year
period commencing one year after the date of this Prospectus, the
Company has agreed to file, at its expense and on one occasion, and
to use its best efforts to cause to become effective, a new
registration statement or prospectus required to permit the public
sale of the securities underlying the Sales Agent's Warrants. In
addition, if at any time during the four year period commencing one
year after the date of this Prospectus, the Company registers any of
its securities or exempts such securities from registration under the
provisions of Regulation A or any equivalent thereto, the holders of
the Sales Agent's Warrants will have the right, subject to certain
conditions, to include in such registration statement at the
Company's expense, all or any part of the securities underlying the
Sales Agent's Warrants.
A new registration statement will be required to be filed and
declared effective before distribution to the public of the
securities underlying the Sales Agent's Warrants. The Company will
be responsible for the cost of preparing such a registration
statement.
For the life of the Sales Agent's Warrants, the holders are
given the opportunity to profit from a rise in the market price of
the Company's securities, with a resultant dilution in the interest
of existing shareholders. In addition, the terms on which the
Company could obtain additional capital may be adversely affected,
and the Sales Agent's Warrants may be exercised at a time when the
Company would, in all likelihood, be able to obtain any needed
capital by a new offering of securities on terms more favorable than
those provided for by the Sales Agent's Warrants. The Sales Agent
and its transferees may be deemed to be "underwriters" under the
Securities Act with respect to the sale of Units, Common Shares and
Warrants to be received upon exercise of the Warrants, and any profit
realized upon such sale may be deemed to be additional compensation.
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.
The Company has no plans respecting the issuance of its Preferred
Stock.
Publicly Traded Warrants
In connection with the Company's February, 1992 public offering, the
Company issued 5,175,000 Warrants. Every ten Warrants entitle the
holder to purchase one share of the Company's Common Stock at a price
of $46.50 per share prior to February 7, 1997. The Company, upon 30
days notice, may accelerate the expiration date of the Warrants,
provided, however, that at the time the Company gives such notice of
acceleration (1) the Company has in effect a current registration
statement covering the shares of Common Stock issuable upon the
exercise of the Warrants and (2) at any time during the 30 day period
preceding such notice, the average closing bid price of the Company's
Common Stock has been at least 20% higher than the warrant exercise
price for 15 consecutive trading days. If the expiration date is
accelerated, all Warrants not exercised within the 30-day period will
expire.
Other provisions of the Warrants are set forth below. This
information is subject to the provisions of the Warrant Certificate
representing the Warrants.
1. Holders of the Warrants may sell the Warrants rather than
exercise them. However, there can be no assurance that a market will
develop or continue as to the Warrants.
2. Unless exercised within the time provided for exercise,
the Warrants will automatically expire.
3. The exercise price of the Warrants may not be increased
during the term of the Warrants, but the exercise price may be
decreased at the discretion of the Company's Board of Directors by
giving each Warrant holder notice of such decrease. The exercise
period for the Warrants may be extended by the Company's Board of
Directors giving notice of such extension to each Warrant holder of
record.
4. There is no minimum number of shares which must be
purchased upon exercise of the Warrants.
5. The holders of the Warrants in certain instances are
protected against dilution of their interests represented by the
underlying shares of Common Stock upon the occurrence of stock
dividends, stock splits, reclassifications, and mergers.
6. The holders of the Warrants have no voting power and
are not entitled to dividends. In the event of a liquidation,
dissolution, or winding up of the Company, holders of the Warrants
will not be entitled to participate in the distribution of the
Company's assets. Transfer Agent
American Securities Transfer, Inc., of Denver, Colorado, is the
transfer agent for the Company's Common Stock.
LITIGATION
The Company is not a party to any pending legal proceedings.
INDEMNIFICATION
The Company's Bylaws authorize indemnification of a director,
officer, employee or agent of the Company against expenses incurred
by him in connection with any action, suit, or proceeding to which he
is named a party by reason of his having acted or served in such
capacity, except for liabilities arising from his own misconduct or
negligence in performance of his duty. In addition, even a director,
officer, employee, or agent of the Company who was found liable for
misconduct or negligence in the performance of his duty may obtain
such
indemnification if, in view of all the circumstances in the case, a
court of competent jurisdiction determines such person is fairly and
reasonably entitled to indemnification. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers, or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and
is therefore unenforceable.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
450 5th Street, N.W., Washington, D.C. 20001, a Registration
Statement under the Securities Act of l933, as amended, with respect
to the securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement. For
further information with respect to the Company and such securities,
reference is made to the Registration Statement and to the Exhibits
filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other documents are summaries which are
not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an Exhibit to
the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of each document may be
inspected at the Commission's offices at 450 Fifth Street, N.W.,
Washington, D.C., 20549, and at the Northeast Regional Office, 7
World Trade Center, 13th Floor, New York, New York 10048 and the
Midwest Regional Office, Suite 1400, 500 West Madison Street,
Chicago, Illinois 606812511. Copies may be obtained at the
Washington, D.C. office upon payment of the charges prescribed by the
Commission.
2061D
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 .........................................
1,044,006 Shares of Common Stock
CEL-SCI CORPORATION
PROSPECTUS
PART II
Information Not Required in Prospectus
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
It is provided by Section 7-l09-l02 of the Colorado Revised Statutes
and the Company's Bylaws that the Company may indemnify any and all
of its officers, directors, employees or agents or former officers,
directors, employees or agents, against expenses actually and
necessarily incurred by them, in connection with the defense of any
legal proceeding or threatened legal proceeding, except as to
matters in which such persons shall be determined to not have acted
in good faith and in the best interest of the Company. ITEM 25.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
(TABLE)
SEC Filing Fee
$3,272
NASD Filing Fee
1,294
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
9,334
TOTAL
50,000
All expenses other than the S.E.C. and NASD filing fees are
estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information sets forth all securities of the Company
which have been sold during the past three years and which
securities were not registered under the Securities Act of 1933, as
amended.
Shares of
Common Date of
Security Holder Stock Sold Sale
Consideration
Daryl Strahl 2,431 11/1/93
$8,038(1)
Isadore Klausner 25,000 11/1/93
(2)
Private Investors 575,000 6/22/95
$1,150,000
Private Investors 575,000 9/30/95
$1,150,000
Private Investors 312,500 12/23/95
$500,000
Private Investors 312,500 1/30/96
$500,000
Unless otherwise indicated, the consideration paid for
the shares was cash.
(1) Surrender of options to Company. The options surrendered were
valued at $8,038.
(2) Settlement of claim against officer and director. Officer and
director was indemnified by Company for this claim.
Accordingly,
shares were 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 Registration
Statement on Form S1 and Post-
Effective Amendment
("Registration Statement"),
Registration Nos. 2-85547-D
and 33 7531.
Filed with Amendment No. 1 to
this Registration Statement.
(b) Amended Articles Incorporated by reference to
Exhibit
3(a) of the Company's
Registration Statement on
Form S-
1, Registration
Nos. 2-85547-D and 33-7531.
(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 33-7531.
4(a) Specimen copy of Incorporated by reference to
Exhibit
Stock Certificate 4(a) of the Company's
Registration
Statement on Form S-1,
Registration Nos. 2-85547-D
and 33-7531.
(c) Form of Common Stock Incorporated by reference to
Exhibit
Purchase Warrant 4(c) filed as an exhibit to
the
Company's Registration
Statement on Form S-1
(Registration No. 33 43281).
5. Opinion of Counsel Filed with Amendment No. 1 to
Registration Statement.
10(a) Purchase Agreement Incorporated by reference to
Exhibit
dated April 21, 1986 10(a) of the Company's
Registration
with Alpha I Biomedical Statement on Form S-1,
Registration
Nos. 2-85547-D and 33-7531.
(b) Agreement with Sittona Incorporated by reference to
Exhibit
Company B.V. dated 10(c) of the Company's
Registration
May 3, 1983 Statement on Form S-1,
Registration
Nos. 2-85547-D and 33-7531.
(c) Addendum effective May 3, Incorporated by reference to
Exhibit
1983 to Licensing Agree- 10(e) of the Company's
Registration
ment with Sittona Company Statement on Form S-1,
Registration
B.V. Nos. 2-85547-D and 33-7531.
(d) Addendum effective October Incorporated by reference to
Exhibit 13, 1989 to Licensing Agree 10(d) of Company's
Annual Report on ment with Sittona Company, Form 10-K for
the year ended
September
B.V. 30, 1989.
10(e) Employment Agreement with Filed with Amendment Number 1
to
the
Geert Kersten Company's Registration
Statement
on
Form S-1 (Commission File
Number 3343281).
10(g) Agreement between Viral Filed with Amendment Number 2
to
the
Technologies, Inc. and Company's Registration
Statement
on
Nippon Zeon Co., Ltd. Form S-1 (Commission File
Number
33-
90230).
23(a) Consent of Hart & Trinen Filed with Amendment No. 1 to
Registration Statement.
(b) Consent of Deloitte &
Touche LLP
24. Power of Attorney Included as part of signature
page.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement.
(i) To include any Prospectus required by Section
l0(a)(3) of the Securities Act of l933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement; (iii) To include
any material information with respect to the plan of
distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement, including
(but not limited to) any addition or deletion of a
managing underwriter.
(2) That, for the purpose of determining any liability
under the Securities Act of l933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4) To provide to the Underwriter at the closing specified
in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriter to permit
prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising
under the Securities Act of l933 may be permitted to directors,
officers and controlling persons of the Registrant, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue. POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
authorizes the agent for service named in this Registration
Statement, with full power to act alone, to file one or more
amendments (including post effective amendments) to this Registration
Statement, which amendments may make such changes in this
Registration Statement as such agent for service deems appropriate,
and the Registrant and each such person hereby appoints such agent
for service as attorney-in-fact, with
full power to act alone, to execute in the name and in behalf of the
Registrant and any such person, individually and in each capacity
stated below, any such amendments to this Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of l933, the
Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City
of Alexandria, State of Virginia, on the 25th day of January, 1996.
CELSCI 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 January
25,
1996
MAXIMILIAN DE CLARA Executive Officer
/s/ Geert R. Kersten Director, Principal January
25,
1996
GEERT R. KERSTEN Financial Officer
and Chief Executive
Officer
Director
MARK V. SORESI
/s/ F. Donald Hudson Director January
25,
1996
F. DONALD HUDSON
/s/ Edwin A. Shalloway Director January
25,
1996
EDWIN A. SHALLOWAY
CEL-SCI CORPORATION
Financial Statements for the Years Ended
September 30, 1995, 1994, and 1993,
and Independent Auditors' Report
CEL-SCI CORPORATION
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT F-
1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
SEPTEMBER 30, 1995, 1994, AND 1993:
Balance Sheets F-
2
Statements of Operations F-
3
Statements of Stockholders' Equity F-
4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-
16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
CEL-SCI Corporation:
We have audited the accompanying balance sheets of CEL-SCI
Corporation as of September 30, 1995 and 1994, and the related
statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of CEL-SCI Corporation as of September 30, 1995 and 1994, and the
results of its operations and its cash flows for each of the
three years in the period ended September 30, 1995, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, as of
September 30, 1994, the Company changed its method of accounting
for certain investments in debt and equity securities to conform
with Statement of Financial Accounting Standards No. 115.
Washington, DC
November 29, 1995
CEL-SCI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994, AND 1993
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
CEL-SCI Corporation (the Company) was incorporated on
March 22, 1983, in the State of Colorado, to finance
research and development in biomedical science and
ultimately to engage in marketing products.
Significant accounting policies are as follows:
Investments - Effective September 30, 1994, the Company
adopted, on a prospective basis, Statement of Financial
Accounting Standard No. 115, "Accounting for Certain
Debt and Equity Securities" (SFAS 115) and revised its
policy for investments. Investments that may be sold
as part of the liquidity management of the Company or
for other factors are classified as available-for-sale
and are carried at fair market value. Unrealized gains
and losses on such securities are reported as a
separate component of stockholders' equity. Realized
gains and losses on sales of securities are reported in
earnings and computed using the specific identified
cost basis. The adoption of SFAS 115, which has not
been applied retroactively to
prior years' financial statements, resulted in a decrease in
stockholders' equity of $85,753 for the net unrealized losses
on investments available-for-sale 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-
forsale were carried at the lower of aggregate amortized
cost or market value.
Research and Office Equipment - Research and office
equipment is recorded at cost and depreciated using the
straight-line method over five and seven years estimated
useful lives.
Research and Development Costs - Research and development
expenditures are expensed as incurred.
Patents - Patent expenditures are capitalized and
amortized using the straight-line method over 17 years.
In the event changes in technology or other circumstances
impair the value or life of the patent, appropriate
adjustment in the asset value and period of amortization
will be made.
Net Loss Per Share - Net loss per common share is based
on the weighted average number of common shares
outstanding during the period. Common stock
equivalents, including options to purchase common stock,
are excluded from the calculation as they are
antidilutive.
Investment in Joint Venture - Investment in joint
venture is accounted for by the equity method. The
Company's proportionate share of the net loss of the
joint venture is included in the respective statements
of operations.
Statement of Cash Flows - For purposes of the statements
of cash flows, cash consists principally of unrestricted
cash on deposit, and short-term money market funds. The
Company considers all highly liquid investments with a
maturity of less than three months to be cash
equivalents.
Prepaid Expenses - The majority of prepaid expenses
consist of bulk purchases of laboratory supplies to be
consumed in the manufacturing of the Company's product
for clinical studies and for its further development.
Income Taxes - Effective October 1, 1993, the Company
adopted Statement of Financial Accounting Standard No.
109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
requires an asset and liability approach for reporting
income taxes. Implementation of SFAS 109 in 1994 did
not have any effect on the Company's net earnings and
reported financial position and prior financial
statements have not been restated.
Reclassifications - Certain reclassifications have been
made for 1994 and 1993 for comparative purposes.
2. INVESTMENTS
The carrying values and estimated market values of
investments available-for-sale at September 30, 1995, are as
follows:
The carrying values and estimated market values of investment
securities at September 30, 1994, are as follows:
The gross realized gains and losses of sales of investments
available-for-sale for the years ended September 30, 1995,
1994, and 1993, are as follows:
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1995 and 1994,
consist of the following:
4. JOINT VENTURE
In April 1986, the Company paid $200,000 cash and issued
500,000 shares of its $.01 par value common stock to acquire
half the rights to technology which may be useful in the
diagnosis, prevention and treatment of Acquired Immune
Deficiency Syndrome (AIDS) from Alpha I Biomedicals, Inc.
The Company's stock was valued at $1.50 per share on the
basis of arm'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 CEL-SCI Corporation
through September 30, 1995, was $1,592,584 (see Note 13).
During the three years ended September 30, 1995, VTI had no
sales. The operations of VTI were as follows:
The balance sheets of VTI at September 30, 1995 and 1994,
are
summarized as follows:
On December 17, 1987, Viral Technologies, Inc., entered into
a licensing agreement with Nippon Zeon Company, Ltd., a
Japanese company. Under the agreement, Nippon Zeon will
engage in the development and testing and, if development is
successful, the marketing of the potential AIDS vaccine in
the Pacific Rim area. As a result, Viral Technologies,
Inc., received precommercialization payments of $850,000
during the year ended September 30, 1988.
During the year ended September 30, 1995, VTI purchased back
from Nippon Zeon the licensing agreement. No cash or stock
was exchanged; however, Nippon Zeon retains a royalty on any
future sales of the drug HGP-30 in its former exclusive
licensed territories.
5. CREDIT ARRANGEMENTS
At September 30, 1995, the Company had a promissory note
outstanding with a bank in the amount of $811,263. This
promissory note was converted in November 1994 from a prior
line of credit. The line of credit outstanding at
September 30, 1994, was $788,601, and the Company
subsequently drew down additional amounts during the year
ended
September 30, 1995, prior to converting the line of credit
to a promissory note. The principal is being repaid over
fortyeight consecutive months beginning February 5, 1995.
Interest on the outstanding balance is calculated at the
Bank's prime rate plus two percent, which is 10.75% at
September 30, 1995, and is to be paid monthly with the
principal payments. The promissory note is secured by all
corporate assets and requires the Company to hold a
certificate of deposit equal to 20% of the outstanding
balance of the line of credit with the Bank. Under the
promissory note the Company is also subject to certain
minimum equity, liquidity, and operating covenants.
6. COMMITMENTS AND CONTINGENCIES
In 1993, an officer and director of the Company was involved
in legal proceedings concerning shares of the Company's
common stock. The officer and director was acting on behalf
of the Company in trying to secure financing, and the
Company paid legal fees in connection with these proceedings
and indemnified the officer for any loss he suffered upon
the settlement of these matters.
During 1992, one of the matters was settled by the officer
and director delivering 3,000 shares of the Company's common
stock to one plantiff and paying this plantiff $200,000. In
the other matter, a European Court awarded a different
plantiff 25,000 shares of the Company's common stock owned
by the officer and director. In October 1993, the Company
issued 25,000 shares of common stock to the plaintiff to
satisfy the judgment and in lieu of reimbursement to the
officer and director for this claim. The value of the
shares issued,
$202,500, was expensed during 1993 and was included in
accrued expenses at September 30, 1993.
7. RELATED-PARTY TRANSACTIONS
The technology and know-how licensed to the Company was
developed by a group of researchers under the direction of
Dr. Hans-Ake Fabricius and was assigned during 1980 and 1981
to Hooper Trading Company, N.V., a Netherlands Antilles
corporation (Hooper) and Shanksville Corporation, also a
Netherlands Antilles corporation (Shanksville). Maximillian
de Clara, an officer and director in the Company, and Dr.
Fabricius own 50% and 30%, respectively, of each of these
companies. The technology and know-how assigned to Hooper
and Shanksville was licensed to Sittona Company, B.V., a
Netherlands corporation (Sittona), effective September, 1982
pursuant to a licensing agreement which requires Sittona to
pay to Hooper and Shanksville royalties on income received
by Sittona respecting the technology and 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, is as
follows:
The Company has available for income tax purposes net
operating loss carryforwards of approximately $24,370,937,
expiring from 1998 through 2007.
In the event of a significant change in the ownership of the
Company, the utilization of such carryforwards could be
substantially limited.
9. STOCK OPTIONS, WARRANTS, AND BONUS PLAN
During the year ended September 30, 1995, the Board of
Directors canceled certain options under the various stock
option plans and replaced them with new options. Under this
conversion the number of options outstanding did not
increase or decrease as the conversion was an exchange of
options within the plans to maximize reserved shares in the
Plans with the options granted.
The shareholders of the Company approved the adoption of the
1995 Non-Qualified Stock Option Plan (1995 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 Non-
Qualified Plan or issued shares under the Bonus Plan. Terms
of the options are to be determined by the Company's
Compensation Committee, which will administer all of the
plans, but in no event are options to be granted for shares
at a price below fair market value at date of grant.
Options granted under the option plans must be granted, or
shares issued under the bonus plan issued, before August 20,
2002.
On July 29, 1994, the Board of Directors approved the
adoption of two new plans, subject to shareholder approval,
the 1994 Incentive Stock Option Plan (1994 Incentive Plan)
and the 1994 Non-Qualified Stock Option Plan (1994 Non-
Qualified). Shares are reserved under each plan and total
100,000 shares for each plan. Only employees of the Company
are eligible to receive options under the 1994 Incentive
Plan, while the Company's employees, directors, officers,
and consultants or advisors are eligible to be granted
options under the 1994 NonQualified Plan. Terms of the
options are to be determined by the Company's Compensation
Committee, which will administer all of the plans, but in no
event are options to be granted for shares at a price below
fair market value at date of grant. Options granted under
the option plans must be granted, or shares issued under the
bonus plan issued, before
July 29, 2004.
Information regarding the Company's stock option plan is
summarized as follows:
During 1991, the Company granted a consultant an option to
purchase 50,000 shares of the Company's common stock. The
option is exercisable at $13.80 per share and expires in
March 1996. The holder of the option has the right to have
the shares issuable upon the exercise of the option included
in any registration statement filed by the Company.
Also during 1991, the Company granted another consultant
options to purchase 6,000 shares of the Company's common
stock. Options to purchase 667 shares expired in April
1993. Options to purchase 1,333 shares at $2.50 per share
were exercised in April 1994. At September 30, 1995,
options to purchase 4,000 shares were outstanding and
exercisable at prices ranging from $2.50 to $15.00 per
share.
In connection with the 1992 public offering, 5,175,000 common
stock purchase warrants were issued and are outstanding at
September 30, 1995. Every ten warrants entitle the holder
to purchase one share of common stock at a price of $46.50
per share. During 1995, the expiration of these warrants was
extended to February 1996. The Company may accelerate the
expiration date of the warrants by giving 30 days notice to
the warrant holders, provided, however, that at the time the
Company gives such notice of acceleration (1) the Company
has in effect a current registration statement covering the
shares of common stock issuable upon the exercise of the
warrants and (2) at anytime during the 30-day period
preceding such notice, the average closing bid price of the
Company's common stock has been at least 20% higher than the
warrant exercise price for 15 consecutive trading days.
Also in connection with the 1992 offering, the Company
issued to the underwriter warrants to purchase 9,000 equity
units, each unit consisting of 5 shares of common stock and
5 warrants entitling the holder to purchase one additional
share of common stock. The equity unit warrants are
outstanding at September 30, 1995 and are exercisable
through February 8, 1997, at a price of $255.70 per unit.
The common stock warrants included in the units are
exercisable at a price of $76.70 per share.
During 1995, the Company granted another consultant options
to purchase 17,858 shares of the Company's common stock.
These shares became exercisable on November 2, 1995, and
will expire November 1, 1999. These options are exercisable
at $5.60 per share.
10.EMPLOYEE BENEFIT PLAN
During 1993 the Company implemented a defined contribution
retirement plan, qualifying under Section 401(k) of the
Internal Revenue Code, subject to the Employee Retirement
Income Security Act of 1974, as amended, and covering
substantially all 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:
Rent expense for the year ended September 30, 1995, 1994, and
1993, was approximately $124,059, $122,369, and $55,000,
respectively.
12.STOCKHOLDERS' EQUITY
On April 28, 1995 the stockholders of the Company approved a
10-for-1 reverse split of the Company's outstanding common
stock, which became effective on May 1, 1995. All shares
and per-share amounts have been restated to reflect the
stock split.
The Company also participated in a private offering during
1995. This offering allowed for the purchase of one share
of common stock and one warrant (a unit) for the price of
$2.00 per unit. All 1,150,000 shares authorized for the
offering were purchased during the year ended September 30,
1995. Cash of $2,300,000 was received in June and September
1995. Commissions of $344,150 were paid or payable relative
to the offering at September 30, 1995.
During 1994, the Company granted 1,500 shares of common
stock to an officer as a bonus award. The Company also
issued 25,000 shares to satisfy the judgment against an
officer and director. The issuance was to the plantiff in
lieu of reimbursement to the officer and director. The
judgment was settled in 1993 and the expense of the issuance
was recorded in 1993.
During 1993, the Company received $27,333 cash for 7,333
shares of common stock.
13.SUBSEQUENT EVENTS
In October 1995, the Company purchased Alpha 1's 50 percent
interest in VTI. The Company conveyed 159,170 shares of
common stock as full consideration for all of the VTI
capital stock owned by Alpha 1. The acquisition of Alpha
1's interest will be accounted for as purchase with
substantially all of the value of the purchase price being
expensed as research and development costs.
On December 8, 1995, the Board of Directors authorized the
extension of the Company's warrants from February 6, 1996,
to February 6, 1997.
14.NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board
issued Statement No. 121 regarding accounting for the
impairment of long-lived assets. This statement is required
to be adopted by the Company in fiscal 1997. At the present
time the Company does not believe that adoption of this
statement will have a material effect on its financial
position or results of
its operations.
In October 1995, the Financial Accounting Standards Board
issued Statement No. 123, Accounting for Stock Based
Compensation. This statement is required to be adopted by
the Company in fiscal 1997. The Company has not yet
determined the impact of the adoption of this statement on
its financial position or results of its operations.
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