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) 2,300,000 $3.75
$8,625,000
2,974
Common Stock
issuable
upon exercise
of Sales Agent's
Warrants (2) 115,000 $3.75 $ 431,250
$
149
Total
$9,056,250
$3,123
(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-l
Location
in
Prospectus
Item 1 Forepart of the Registration Statement
and Outside Front Cover Page of
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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 ...... P
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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
I
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f
o
r
m
a
t
i
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,
Descriptio n of
Securities
(e) Financial Statements .................... Financial
Statements
(f) Selected Financial Data ................. Selected
F
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a
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c
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D
a
t
a
(g) Supplementary Financial Information ..... Not
applicable (h) Management's Discussion and
Analysis .... Management's
Discussion
and
Analysi
s of
Financi
al
Conditi
on and
Results
of
Opera
ti on
(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
Sharehold
e rs
(m) Certain Relationships and Related
Transactions
............................ Management
Item l2. Disclosure of Commission Position
on Indemnification for Securities Act
Liabilities .............................
Not
applicable PRELIMINARY PROSPECTUS DATED
SEPTEMBER , 1995
SUBJECT TO COMPLETION
PROSPECTUS CEL-SCI CORPORATION
2,300,000 Shares of Common Stock
This Prospectus relates to the offer and sale of
up
to 2,300,000 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" 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 September 12, 1995 the closing prices of the
Company's Common Stock and Warrants on the NASDAQ
National Market System were $
and $ , respectively. See "Market
Information".
The Date of this Prospectus is , 1995
[The following statement will be printed
in
red ink and will appear on the left-hand
margin of the outside front cover page.]
Information contained herein is subject to
completion or amendment. A
registration statement relating to these securities
has been filed with the Securities and Exchange
Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the
registration statement becomes effective. This
Prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful
prior to registration or qualification under the
securities laws of any such state.
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 60661 2511). Copies of such material can
be obtained from the Public
Reference Section of the Commission at its office
in Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission a
Registration Statement on Form S-1 (together with
all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act
of 1933, as amended (the "Act"), with respect to
the Units offered hereby. This Prospectus does not
contain all of the information set forth in the
Registration Statement, certain parts of which are
omitted in accordance with the rules and
regulations of the Commission. For further
information, reference is made to the Registration
Statement.
PROSPECTUS SUMMARY
THIS SUMMARY SHOULD BE READ IN CONJUNCTION WITH,
AND IS QUALIFIED IN ITS ENTIRETY BY, THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS. The
Company
CEL-SCI Corporation (the "Company") was formed as
a
Colorado corporation in l983 to acquire and
finance research and development of natural human
interleukin2 ("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 MULTIKINETM. The Company was initially
formed under the name Interleukin2, Inc. and
changed its name to CEL-SCI Corporation in March,
1988. The compounds, compositions and processes,
to which the Company has acquired an exclusive
world wide license, are being tested to determine
if they are effective in improving the immune
response of
advanced cancer patients.
Before human testing can begin with respect to
a drug or biological product, preclinical studies
are conducted in laboratory animals to evaluate
the potential efficacy and the safety of a
product. Human clinical studies generally involve
a threephase 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 HotelDieu de Montreal Hospital.
The study is designed to evaluate safety, tumor
responses and immune responses in patients treated
with multiple courses of Multikine. The length of
time that each patient will remain on the
investigational treatment will depend on the
patient's response to treatment. In May l995, the
U.S.
Food and Drug Administration (FDA) authorized the
export of the Company's Multikine drug to Canada
for purposes of this study.
The Company is also a fifty-percent shareholder in
Viral Technologies, Inc. ("VTI"), a corporation
which owns the rights to certain biomedical
technology which is being tested to determine its
effectiveness in the development of a vaccine
against, treatment for and a diagnostic test to
detect evidence of the Acquired Immune Deficiency
Syndrome ("AIDS") virus. In 1993, VTI completed
its Phase I clinical trials in California using
VTI's prototype AIDS vaccine. In
April 1995 VTI started a new clinical study with
the HGP 30 AIDS vaccine. The study will involve
approximately fifteen HIV negative volunteers who
participated in the 1993 Phase I study. No
assurance can be given that the vaccine being
developed by VTI will be effective in treating the
AIDS virus or that if effective, that it will be
effective as to all persons. VTI's Phase I
clinical trials were conducted pursuant to
approvals obtained from the California Department
of Health Services Food and Drug Branch. See
"Business Interest in Viral Technologies, Inc.".
None of the Company's or VTI's clinical trials to
date have been conducted under the approval of the
FDA and there are no assurances that clinical
trials conducted under approvals from state
authorities or conducted in foreign countries will
be accepted by the FDA. Product licensure in a
foreign country or under state authority does not
mean that the product will be licensed by the FDA
and there are no assurances that the Company or
VTI will receive any approval of the FDA or any
other governmental entity for the manufacturing
and/or marketing of a
product. Consequently, the commencement of the
manufacturing and marketing by the Company or VTI
of any product is, in all likelihood, many years
away. See "Business".
The lack of FDA approval for the Company's or
VTI's products will prevent the Company and VTI
from generally marketing their products on an
interstate basis in the United States. Delays in
obtaining FDA approval or the failure to obtain
FDA approval may have a material adverse impact
upon the Company's operations.
All of the Company's products are in the early
stages of development. The Company does not expect
to develop commercial products for several years,
if at all. The Company has had operating losses
since its inception, has an accumulated deficit of
approximately $22,277,000
through March 31, 1995, and expects to incur
substantial losses for the foreseeable future.
The Company's new research laboratory (PRAL
Laboratories, Inc.)
was completed in October 1994 and will be used to
conduct research for the Company and third
parties. The Company began marketing the
laboratory's services to third parties in early
1995. Although the laboratory has, as of May 31,
1995, performed only limited commercial work for
third parties, any revenues generated by the
laboratory for services to third parties will
serve to offset the Company's other expenses.
The Company's
executive offices
are located at 66
Canal Center Plaza,
Suite 510, Alexandria, Virginia 22314, and its
telephone number is (703) 5495293.
THE OFFERING
Securities Offered
by the Selling
Shareholders: Up to 2,300,000 shares
of
Common
Stock.
The
Company
will not receive any
proceeds from the sale
of the shares offered
by the Selling
Shareholders. See "Sell
ing
Shareholders".
Common Stock Outstanding
Prior To and After
Offering: As of the date of this
Prospectus,
the
Company
had
4,763,244 shares of
Common Stock issued and
outstanding. Following
this offering, there will
be 5,338,244 shares of
Common Stock issued and
outstanding, assuming the Selling Shareholders
exercise an option to purchase 575,000 shares of
Common Stock and 575,000 Warrants from the
Company. The number of outstanding shares before
and after this Offering does not give effect to
the issuance of up to 1,150,000 shares of Common
Stock upon the exercise of Warrants held by the
Selling Shareholders; 230,000 shares of Common
Stock issuable upon the exercise of warrants
issued to the Company's
Sales Agent and the
warrants included
therein, and 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
The following sets forth certain financial
data with respect to the Company and is qualified
in its entirety by reference to the more detailed
financial statements and notes thereto included
elsewhere in this Prospectus. Balance Sheet Data
June 30,
September 30,
1995 1994
1993
Working Capital $4,048,923
$5,809,149
$10,296,472
Total Assets 6,184,492
8,086,670
11,633,090
Total Liabilities 1,394,786
1,407,602
688,231
Shareholders' Equity 4,789,706
6,679,068
10,944,859
No dividends have been declared by the
Company since its inception.
Statement of Operations Data:
Nine Months Ended
June 30,
Years Ended
September 30,
1995 1994 1994
1993
Investment Income and
Other Revenues $ 313,005 $
629,034
$
624,670
$
997,964
Expenses:
Research and Development 1,378,005
2,192,645 2,896,l09 1,307,042 Depreciation and
Amortization 201,197
76,494
138,755
55,372
General and
Administrative 1,304,585
1,184,716
1,62l,990
1,696,119
Equity in loss of
joint venture 395,224
335,416
394,692
344,423
Net Loss $(2,966,006)
$(3,160,237)
$(4,426,876)
$(2,404,992)
Net Loss per Common Share $(0.70)
$(0.75) $(1.06) $(0.58)
Weighted average common
shares outstanding 4,194,563 4,184,634
4,185,240
4,155,431
GLOSSARY OF TECHNICAL TERMS
AIDS. Acquired Immune Deficiency
Syndrome.
A
severe
viral
di
sease 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. IL2 is but one
of these lymphokines.
Macrophage. A cell found in the body that
has
the
ability
to
kill
vir
uses, bacteria, fungi and cancer
cells, often by engulfing the
targeted organism or cell.
Peptide. Two or more amino acids joined
by
a
linkage
called
a
pep
tide bond.
Proteins. A molecule composed of amino
acids.
There
are
many
types
of proteins, all carrying out a
number of different functions
essential for cell growth.
T-Cells. A type of lymphocyte which will
amplify
or
suppress
anti
body formation by B-cells, and
can also directly destroy
"foreign"
cells by activating "killer cells".
Virus. A submicroscopic organism that
contains
genetic
information
but cannot reproduce itself. To
replicate, it must invade
another cell and use parts of
that cell's reproductive
machinery.
RISK FACTORS
An investment in the Company's Securities involves
a high degree of risk. Prospective investors are
advised that they may lose all or part of their
investment. Prospective investors should carefully
review the following risk factors.
Offering Proceeds. This Offering is being
made 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 June 30, 1995, the Company has
incurred net losses of approximately $23,097,914.
During the years ended September 30, 1992, 1993 and
1994, the Company suffered losses of $1,650,916,
$2,404,992 and $4,426,876 respectively. During the
nine months ended June 30, 1995 the Company lost
$2,966,006. The Company has relied principally upon
the proceeds of public and private sales of
securities to finance its activities to date. See
"Management's Discussion and Analysis". All of the
Company's potential products are in the early
stages of development, and any commercial sale of
these products will be many years away.
Accordingly, the Company expects to incur
substantial losses for the foreseeable future.
Need for Additional Capital. Clinical and
other studies
necessary to obtain approval of a new drug can be
time consuming and costly, especially in the United
States, but also in foreign countries. The
different steps necessary to obtain regulatory
approval, especially that
of the Food and Drug Administration ("FDA"),
involve significant costs. The Company expects that
it will need additional financing in order to fund
the costs of future clinical trials, related
research, and general and administrative expenses.
The Company may be forced to delay or postpone
development and research expenditures if the
Company is unable to secure adequate sources of
funds. These delays in development may have an
adverse effect on the Company's ability to produce
a timely and competitive product. There can be no
assurance that the Company will be able to obtain
additional funding from other sources. See
"Management's Discussion and Analysis".
Viral Technologies, Inc. ("VTI"), a
corporation which
is owned equally by the Company and Alpha I
Biomedicals, Inc. ("Alpha") is dependent upon
funding from the Company
and Alpha I for its operations and research
programs. The ability of Alpha I to provide its
share of funds needed by VTI is not within the
control of the Company. The inability of Alpha I to
provide funding to VTI may require the Company to
loan VTI additional
funds or in the
alternative, may cause VTI to postpone its
research programs and clinical trials. See "Use of
Proceeds" and "Business Interest in 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
appli cations 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 "Business
Compounds and Processes Licensed to the Company".
Product Liability and Lack of Insurance.
At the present time, the Company does not have
product liability insurance for MULTIKINE. The
successful prosecution of a product liability case
against the Company could have a materially adverse
effect upon its business.
Dependence on Management. The Company is
dependent for
its success on the continued availability of its
executive officers. The loss of the services of any
of the Company's executive officers could have an
adverse effect on the Company's business. The
Company does not carry key man life insurance on
any of its
officers. See "Management".
Shares Available for Resale. As of June 30,
1995, there were 4,763,244 shares of the Company's
Common Stock issued and outstanding. Approx imately
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.
In connection with the Company's June l995
Private Offering, the Company issued warrants which
allow the holders to purchase up to 575,000 shares
of Common Stock at any time prior to June 30, l997
at a price of $3.25 per share. The shares
issuable upon the exercise of these
warrants are being offered by means of this
Prospectus by the Selling Shareholders.
As part of this same offering, the Comany 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
and an additional 57,500 shares at $3.25 per share.
The Warrants issued to the Sales Agent provide that
the Company, at its expense, will make appropriate
filings with the Securities and Exchange Commission
so that the securities underlying these Warrants
will be
available for public sale. Such filings could
result in substantial expense to the Company and
could hinder future financings by the Company.
In addition to the foregoing, the Company has
granted other options and warrants to certain
persons which would allow such persons to purchase
up to 531,250 shares of Common Stock at prices
ranging from $2.87 to $19.70 per share. The
Company may
also grant options to purchase approximately 98,750
additional shares under its
Incentive Stock Option and Non-Qualified Stock
Option Plans.
For the terms of the options and warrants
referred to above, the holders thereof will have an
opportunity to profit from any increase in the
market price of the Company's Common Stock without
assuming the risks of ownership. Holders of such
options and warrants may exercise them at a time
when the Company could obtain additional capital on
terms more favorable than those provided by the
options and
warrants which may adversely affect the ability of
the Company to obtain additional capital in the
future. The exercise of the options and warrants
and the sale of the underlying shares of Common
Stock could adversely affect the market price of
the Company's stock.
Sales Agent Warrants. The Company has
agreed to issue to the
Sales Agent, for nominal consideration, warrants
(the "Sales Agent's Warrants") to purchase shares
of Common Stock and Warrants equivalent to 10% of
the number of shares of Common Stock and Warrants
which may be sold to
the Selling Shareholders subsequent to the date of
this Prospectus. The Sales Agent's Warrants grant
to the holders thereof certain registration rights,
beginning one year from the date of this
Prospectus, for the securities issuable upon
exercise of
the Sales Agent's Warrants. Sales of these
securities could depress the market price for the
Company's Common Stock and the Warrants. See
"Selling Shareholders".
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
nonprofit 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 the date of this Prospectus,
the
present shareholders of the Company owned
4,763,244 shares of Common Stock, which had a net
tangible book value of approximately $0.67 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)(2) 5,338,244 Shares to be
sold by Selling
Shareholders (1) 1,150,000
Net tangible book value per share
at June 30, 1995
$0.85
Equity ownership by present
shareholders
after this
offering
78.5%
Equity ownership by investors in this
Offering
21.5%
(1) Assumes Selling Shareholders purchase 575,000
shares of Common Stock from Company. See "Selling
Shareholders".
(2) Amount excludes (i) up to 1,150,000 shares
issuable upon the exercise of warrants held by
the Selling Shareholders, (ii) 230,000 shares of
Common Stock issuable upon the exercise of the
Sales Agent's warrants and the warrants included
therein, and (iii) shares which may be issued
upon the exercise of other options and warrants
previously issued by the Company. See "Selling
Shareholders".
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 June 30, 1995, there were
approximately 3,000 record holders of the Company's
Common Stock. The Company has not issued any shares
of preferred stock. The Company's Common Stock and
Warrants are traded on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ")
System. See "Risk Factors". Set forth below are the
range of high and low bid quotations for the periods
indicated as reported by NASDAQ, and as adjusted for
the 10 for 1 reverse stock split which was approved
by the Company's shareholders on April 28, 1995. The
market quotations reflect interdealer prices,
without retail markup, mark-down or commissions and
may not necessarily represent actual transactions.
Quarter
Ending Common
Stock
Warrants
High
Low High
Low
12/31/92 $12.80
$12.50
$
0.93
$
0.53
3/31/93 $20.60
$13.70
$
0.81
$
0.50
6/30/93 $18.10
$12.50
$
0.75
$
0.47
9/30/93 $15.60
$12.20
$
0.63
$
0.38
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
Holders of Common Stock are entitled to
receive such dividends as may be declared by the
Board of Directors out of funds
legally available therefor and, in the event of
liquidation, to share pro rata in any distribution
of the Company's assets after payment of
liabilities. The Board of Directors is not obligated
to declare a dividend. The Company has not paid any
dividends and the Company does not have any current
plans to pay any dividends. Pursuant to the terms of
a loan agreement with a bank, the Company may not
pay any dividends without the consent of the bank.
See Note 5 to the Company's September 30, 1994
financial statements.
The provisions in the Company's Articles of
Incorporation relating to the Company's Preferred
Stock would allow the Company's directors to issue
Preferred
Stock with rights to multiple votes per share and
dividends rights which would have priority over any
dividends paid with respect to the Company's Common
Stock. The issuance of Preferred Stock with such
rights may make more difficult the removal of
management even if such removal would be considered
beneficial to shareholders generally,
and will have the effect of limiting shareholder
participation in certain transactions such as
mergers or tender offers if such transactions are
not favored by incumbent management.
SELECTED FINANCIAL DATA
The following selected financial data should
be
read in
conjunction
with the more detailed financial statements, related notes
and other
financial information included herein. See also
"Management's Discussion and Analysis".
For the Years
Ended September 30, 1994
1993
1992
1991
1990
Investment Income and
Other Revenues $ 624,670 $ 997,964 $
434,180 $
35,972 $
13,208
Expenses:
Research and
Development 2,896,l09 1,307,042
481,697
108,771 96,489
Depreciation
and Amortization 138,755 55,372
33,536
32,582
30,664
General and
Administrative 1,621,990 1,696,119
1,309,475
795,015 646,157
Equity in loss of
joint venture 394,692 344,423
260,388
290,166
170,976
Net Loss $(4,426,876) $(2,404,992)
$(1,650,916)
$(1,190,562) $(931,078)
Loss per common share $(1.06) $(0.58)
$(0.42)
$(0.35)
$(0.29)
Weighted average
common shares
outstanding 4,185,240 4,155,431 3,953,233
3,400,546
3,162,393
Nine
M
o
n
t
h
s
E
n
d
e
d
J
u
n
e
3
0
,
199
5
199
4
Investment Income and Other Revenues $
313,005 $
629,034
Expenses:
Research and Development
1,378,005 2,192,645
Depreciation and Amortization
201,197
76,494
General and Administrative
1,304,585 1,184,716
Equity in loss of joint venture
395,224
335,416
Net Loss
$(2,966,006)
$(3,160,237)
Net Loss per Common Share
$(0.70)
$(0.75)
Weighted average common shares outstanding
4,194,563
4,184,634
Balance Sheet Data:
September 30, 1994
1993
1992
1991
1990
Working Capital
(Deficiency) $5,809,149 $10,296,472
$13,043,012 $ 682,831
$(295,930) Total Assets 8,086,670
11,633,090
13,769,504
1,611,899
515,740 Total Liabilities l,407,602 688,231
467,086
672,595 493,650
Shareholders' Equity 6,679,068 10,944,859
13,302,4l8 939,304 22,090
No dividends have been declared by the Company since
its inception.
June 30,
1995 Working Capital
$4,048,923
Total Assets
6,184,492
Total Liabilities
1,394,786
Shareholders' Equity
4,789,706
MANAGEMENT'S DISCUSSION AND
ANALYSIS Results of
Operations
Nine Months Ended June 30, 1995
Interest income during the nine months
ending June 30, 1995 reflects interest accrued on
loans made by the Company to VTI and interest earned
on funds received from the 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 completion of a
research and development project relating to the
Company's manufacturing process. General and
administrative expenses increased as the result of
more employees. Fiscal 1994
Interest income during the year ending September 30,
1994 decreased
from the prior year as a portion of the Company's
investments were sold to pay for operating expenses.
Research and development expenses increased due to
the commencement of several new research projects,
all of which pertained to the Company's MULTIKINE
product. Significant components of general and
administrative expenses during this year were
salaries and employee benefits ($442,039), travel
and expense reimbursements ($294,217), shareholder
communications and investor relations ($267,070),
legal and accounting ($151,879), and officers and
directors liability insurance ($147,564).
Fiscal 1993
Investment income during the year ending
September 30, 1993 increased as the Company had use
of the funds from its February, 1992 public offering
for twelve months in fiscal 1993 as opposed to six
months in fiscal
1992. Research and development expenses increased
due to the commencement of several new research
projects, all of which pertained to the Company's
MULTIKINE drug. General and administrative expenses
increased due to an increase in the cost of
Directors and Officers insurance, the implementation
of an employee 401(K) plan, and the addition of new
employees during the year. Significant components of
general and administrative expenses during this year
were salaries and employee benefits ($342,150),
travel and expense reimbursements ($266,007),
shareholder communications
and investor relations ($341,024), legal and
accounting ($107,254), officers and directors
liability insurance ($113,690), and the cost of
indemnifying an officer and director for losses
sustained as the result of actions taken on behalf
of the Company ($202,500). Losses associated with
the Company's joint venture interest in VTI
increased due to an increase in VTI's research and
development expenditures. Fiscal 1992
Investment income increased as the result
of
income earned on funds received from the Company's
February, 1992 public offering. Research and
Development expenses reflect the costs associated
with the Florida human clinical trials (see Notes to
Financial Statements) and the Company's new research
program with a New England
hospital. General and administrative expenses
increased by approximately $500,000 due to (i) legal
fees associated with defending the Company's
European patent, (ii) an initial fee of $5l,200 paid
for the inclusion of the Company's securities on the
NASDAQ National Market System, (iii) expenses
associated with the Company's September 30, l992
meeting of shareholders, (iv) additional employees
and consultants, and (v) a $200,000 payment made to
Maximilian de Clara to indemnify him for losses
incurred as a result of actions taken on behalf of
the Company. Significant categories of general and
administrative expenses during this fiscal year were
salaries and employee benefits ($l68,000), travel
and expense reimbursements ($l47,000), shareholder
communications, annual meeting, and investor
relations expenses ($258,000), legal and accounting
fees ($l88,000), and the indemnification payment
made to Mr. de Clara ($200,000). Liquidity and
Capital Resources
The Company has had only limited revenues
from operations since its inception in March l983.
The Company has relied upon proceeds realized from
the public and private sale of its Common Stock to
meet its funding requirements. Funds raised by the
Company have been expended primarily in connection
with the acquisition of an exclusive worldwide
license to certain patented and unpatented
proprietary technology and knowhow relating to the
human immunological defense system, the acquisition
of a 50% interest in Viral Technologies, Inc. (a
company engaged in the research and development of a
possible AIDS technology), patent applications, the
repayment of debt, the continuation of
Companysponsored research and development,
administrative costs and construction of laboratory
facilities. Inasmuch as the Company does not
anticipate realizing revenues until such time as it
enters into licensing arrangements regarding the
technology and know-how licensed to it (which could
take a number of
years), the Company is mostly dependent upon the
proceeds from the sale of its securities to meet all
of its liquidity and capital resource requirements.
In February, 1992, the Company received net
proceeds of approximately $13,800,000 from the sale,
in a public offering,
of 517,500 shares of Common Stock and 5,175,000
Warrants. Every ten Warrants entitle the holder to
purchase one additional share of Common Stock at a
price of $46.50 per share prior to February 7, 1996.
In June, l995, the Company
completed a private offering
whereby it sold 575,000 units at $2.00 per unit.
Each unit consisted of one share of Common Stock and
one Warrant. Each Warrant entitles the holder to
purchase one additional share of Common Stock at a
price of $3.25 per share at any time
prior to June 30, 1997. See "Selling Shareholders".
The Company filed an Investigational New Drug
("IND") Application with the FDA in July, 1994. In
connection with this filing the Company has been
funding a research program designed to refine the
manufacturing process for the Company's MULTIKINE
product so that MULTIKINE will meet anticipated
regulatory requirements. During fiscal 1995 the
Company also plans to provide VTI with the Company's
50% share of the funding needed
to extend VTI's Phase I trials involving HIV-
negative volunteers. It should be noted that
substantial additional funds will be needed for more
extensive clinical trials which will be necessary
before the Company or VTI will be able to apply to
the FDA for approval to sell any products which may
be developed on a commercial basis throughout the
United States. Funds required by VTI for its
research and development program will be supplied by
the Company and Alpha l Biomedicals, Inc. in
accordance with their joint venture agreement
pertaining to VTI.
There can be no assurance that either the
Company or VTI will be successful in obtaining
approvals from any state, the FDA or any foreign
country to conduct further clinical trials or to
manufacture and sell their products. The lack of FDA
approval for the Company's or VTI's products will
prevent the Company and VTI from generally marketing
their products on an interstate basis in the United
States. Delays in obtaining FDA approval or the
failure to obtain FDA approval may have a material
adverse impact upon the Company's operations.
In October, 1994, the Company completed the
construction of its own research laboratory in a
facility leased by the Company. The cost of
modifying the leased space and providing the
equipment for the research laboratory was
approximately $1,200,000. In August 1994 the
Company obtained a credit line in the principal
amount of $1,000,000 to fund the majority of
the costs for the research laboratory. As of March
31, 1995 the Company had borrowed approximately
$933,000 against this credit line. The loan is due
in 1999 and bears interest at 2% plus the prime
lending rate. The
Company's research laboratory (PRAL
Laboratories,
Inc.) will be used to conduct research for the
Company and third parties. The Company began
marketing the laboratory's services to third parties
in early 1995. Although the laboratory has, as of
March 31, 1995, performed only limited commercial
work for third parties, any revenues generated by
the laboratory for services to third parties will
serve to offset the Company's other expenses.
The Company expects that it will spend
approximately $2,500,000 on research and development
in fiscal 1995. The Company plans to use its
existing financial resources to fund its research
and development program through December 31, 1995.
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 through March 31, 1996. In the
absence of revenues, the Company will be required to
raise additional funds through the sale of
securities, debt financing or other arrangements in
order to continue with its research efforts after
that date. However, there can be no assurance that
such financing will be available or be available on
favorable terms.
The Company has the ability to significantly
control
the amount and timing of its research and
development expenditures. In general, the Company
attempts to coordinate its research projects so as
to match expenditures with available funding. The
Company has in the past and may in the future delay
or postpone development and research expenditures if
the Company is unable to secure adequate sources of
funds from internal and external sources. These
delays in development may have an adverse effect on
the Company's ability to produce a timely and
competitive product. The Company plans to continue
its research projects on a scale consistent with
funds available to the Company.
BUSINESS
CEL-SCI Corporation (the "Company") was
formed as a Colorado corporation during March l983,
to acquire and finance research and development of
natural human interleukin2 ("IL2") and
lymphokine related
products and processes using
the Company's proprietary cell culture technologies.
The Company's proprietary product is sometimes
referred to as MULTIKINETM, 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.
The Company also owns 50% of Viral
Technologies, Inc. ("VTI"), a privately-held
company engaged in the development of a possible
vaccine for AIDS. VTI's technology may also have
application in the treatment of AIDS infected
individuals and the diagnosis of AIDS. VTI's AIDS
vaccine, HGP30, has completed Phase I human
clinical testing. In the Phase I trials, the
vaccine was administered to volunteers
who were not infected with the HIV virus in an
effort to determine safe and tolerable dosage
levels. PRODUCT DEVELOPMENT PLAN
The Company filed an Investigational New
Drug ("IND") Application for MULTIKINE with the
FDA in late July, 1994. In December 1994 the FDA
notified the Company that the Company's IND
application was placed on clinical hold pending
receipt of additional data and modifications to
the Company's manufacturing process. The Company
plans to meet with the FDA to discuss the issues
raised by the FDA. If the Company's IND
application is approved by the FDA (of which there
is no assurance), the Company will begin human
clinical trials in accordance with protocols
approved by the FDA. The Company does not know
when the FDA will approve or reject the Company's
IND application.
In March l995, the Canadian Health Protection
Branch, Health and Welfare Ministry gave clearance
to the Company to start a phase I/II cancer study
using Multikine. The study, which will enroll up
to 30 head and neck cancer patients who have
failed conventional treatments, is expected to be
conducted at the Ottawa Regional Cancer Center and
HotelDieu de Montreal Hospital. The study is
designed to evaluate safety, tumor responses and
immune responses in patients treated with multiple
courses of Multikine. The length of time that each
patient will remain on the investigational
treatment will depend on the patient's response to
treatment. In May l995, the U.S. Food and Drug
Administration (FDA) authorized the export of the
Company's Multikine drug to Canada for purposes of
this study.
Viral Technologies, Inc. ("VTI")
completed
its Phase I trials in Cali fornia and in April
1995 started a new clinical study with the HGP30
AIDS vaccine. The study will involve
approximately fifteen 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. VTI also plans to request
permission from the California Food
and Drug Branch ("FDB") or one or more foreign
countries (none of which have been selected) to
begin Phase I/II human clinical trials with
HIVinfected volunteers. See "Interest in Viral
Technologies" in this section of the Prospectus
for additional information concerning VTI's
product development plan.
There can be no assurance that either the
Company or VTI will
be successful in obtaining approvals from the FDA
or any
foreign country
to conduct further clinical trials or to
manufacture
and sell their products.
The lack of FDA approval for the Company's or
VTI's products will prevent the Company and VTI
from generally marketing their products on an
interstate basis in the United States. Delays in
obtaining FDA approval or the failure to obtain
FDA approval may have a material adverse impact
upon the Company's operations. BACKGROUND OF HUMAN
IMMUNOLOGICAL SYSTEM
The function of the immunological system is to
protect the
body against infectious agents, including viruses,
bacteria, parasites and malignant (cancer) cells.
An individual's ability to respond to infectious
agents and to other substances (antigens)
recognized as foreign by the body's immune system
is critical to health and survival. When the
immune response is adequate, infection is usually
combatted effectively and recovery follows. Severe
infection can occur when the immune response is
inadequate. Such immune deficiency can be present
from birth but, in adult life, it is frequently
acquired as a result of intense sickness or as a
result of the administration of chemotherapeutic
drugs and/or radiation. It is also recognized
that, as people reach middle age and thereafter,
the immune system grows weaker.
Two classes of white blood cells, macrophages and
lymphocytes, are believed to be primarily
responsible for immunity. Macrophages are
large cells whose principal immune activity is to
digest and destroy infectious agents. Lymphocytes
are divided into two
sub classes. One sub-class of lymphocytes, B-
cells, produces antibodies in response to
antigens. Antibodies have unique combining sites
(specificities) that recognize the shape of
particular antigens and bind with them. The
combination of an antibody with an antigen sets in
motion a chain of events which may neutralize the
effects of the foreign substance. The other
subclass 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 Bcells. There are
many lymphokines, each of which is thought to have
distinctive chemical and functional properties.
IL-2 is but one of these lymphokines 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 B-cell
proliferation. However, IL2 is the only known
lymphokine or cytokine which causes the
proliferation of Tcells. IL-2 is also known to
activate B-cells in the absence of B-cell growth
factors.
Although IL-2 is one of the best
characterized lymphokines with anticancer
potential, the Company is of the opinion that to
have optimum therapeutic value, IL-2 should be
administered not as a single substance
but rather as a mixture of IL-2 and certain
lymphokines and cytokines, i.e. as a "cocktail". This
approach, which was pioneered by the Company, makes
use of the synergism between these lymphokines. It
should be noted however that neither the FDA or any
other agency has determined that the Company's
MULTIKINE product will be effective against any form
of cancer.
It has been reported by researchers in the field of
lymphokine
research that IL-2 can increase the number of killer
T cells produced by the body, which improves the
body's capacity to selectively destroy specific tumor
cells. Research and human clinical trials sponsored
by the Company have indicated a correlation between
administration of MULTIKINE to advanced cancer
patients and immunological responses. On the basis
of these experimental results, the Company believes
that MULTIKINE may have application for the treatment
of solid tumors in humans.
The Company foresees three potential anti
cancer therapeutic uses for MULTIKINE: (i) direct
administration into the human body (in vivo) as a
modulator of the immune system, (ii) activation of a
patient's white blood cells outside the body with
MULTIKINE, followed by returning these activated
cells to the patient; and (iii) a combination of
(i) and (ii). RESEARCH AND DEVELOPMENT
In the past, the Company conducted its research
pursuant to arrangements with various universities
and research organizations. The Company provided
grants to these institutions for the conduct of
specific research projects as suggested by the
Company's scientists based upon the results of
previously completed projects.
More recently the Company has decided to
consolidate its research activities in a Company-
owned laboratory. The Company believes that this new
approach will be more effective in terms of both cost
and performance.
Between 1983 and 1986 the Company was primarily
involved in funding pre-clinical and Phase I clinical
trials of its proprietary MULTIKINE technologies.
These trials were conducted at St. Thomas's Hospital
Medical School located in London, England under the
direction of Dudley C. Dumonde, M.D., PhD., a former
member of the SAB, and pursuant
to approvals obtained from England's Department of
Health and Social Security.
In the Phase I trial in England (completed in
1987), forty
nine patients suffering with various forms of solid
cancers, including malignant melanoma, breast cancer,
colon cancer, and other solid tumor types were
treated with MULTIKINE. The product was administered
directly into the lymphatic system in a number of
patients. Significant and lasting lymphnode
responses, which are
considered to be an indication of improvement in the
patient's immune responses, were observed in these
patients. A principal conclusion of the Phase I
trials was
that the side effects of the Company's products in
forty nine patients were not severe, the treatment
was well tolerated and there was no long-term
toxicity.
The results of the Phase I clinical study were
encouraging, and as a result the Company, 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, approximately $8,830,000 has been
expended
on Companysponsored research and development,
including approximately $2,896,000, $1,307,000, and
$48l,700
during the years ended September 30, 1994, 1993 and
1992, respectively. The foregoing amounts do not
include amounts spent by Viral Technologies, Inc. on
research and development. Since May, 1986 (the
inception of VTI) through September 30, 1994, VTI has
spent approximately
$2,363,000 on research and development.
The Company has established a Scientific Advisory
Board ("SAB") comprised of scientists distinguished
in biomedical research in the field
of lymphokines and related areas. From time to time,
members of the SAB advise the Company on its research
activities and keep the Company informed of current
developments in the area of lymphokine research.
Institutions with which members of the SAB are
affiliated have and may in the future conduct
Companysponsored research. The SAB has in the past
and may in the future, at its discretion, invite
other scientists to opine in confidence on the merits
of the Companysponsored research. Members of the SAB
receive $500 per month from the Company and have also
been granted options (for serving as members of the
SAB) which collectively allow for the purchase of up
to 15,000 shares of the Company's Common Stock. The
options are exercisable at prices ranging from $13.80
to $16.50 per share.
The Company has reached an understanding with
its SAB members which permits them to publish in
scientific publications the results of research
sponsored by the Company. Members of the SAB have
agreed to bring to the attention of the Company
potentially patentable aspects of technology and
knowhow developed from the Companysponsored research
and to consult with the Company prior to publishing
results of such research. The Company in turn has
agreed, if it is determined to be beneficial to do
so, to apply for patent protection as promptly as
practicable so as to avoid or keep to a minimum any
delay in publishing material of scientific
importance.
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.
INTEREST IN VIRAL TECHNOLOGIES, INC.
Viral Technologies, Inc., ("VTI") a Delaware
corporation 50% owned by the Company and 50% owned by
Alpha 1 Biomedicals,
Inc.,is developing a vaccine technology, originally
developed by Alpha 1 Biomedicals, that may prove of
commercial value in the prevention, diagnosis and
treatment of AIDS. VTI holds the proprietary rights
to certain synthesized components of the p17 gag
protein,
which is the outer core region of the AIDS
virus (HIV-1). 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 com piled 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 HGP30 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
HGP30 is a totally synthetic molecule containing no
live virus, it cannot cause infection. Unlike the
envelope (i.e. outside) proteins, the p17 region of
the AIDS virus appears to be relatively nonchanging.
As a result, and as reported in the May, 1986 issue
of Science magazine, the development of an AIDS
vaccine that would protect against all strains may be
possible. In
January, 1991, VTI was issued a United States patent
covering the production, use and sale of HGP-30. HGP
30 may also be effective in treating persons infected
with the AIDS virus.
Approval to start Phase I human clinical
trials in Great Britain using VTI's prototype AIDS
vaccine HGP30 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 HGP30. The trials were conducted by
scientists at the University of Southern California
and San Francisco General Hospital. Twentyone healthy
HIV-negative volunteers at medical centers in Los
Angeles and San Francisco received escalating doses
of HGP30 with no clinically significant adverse side
effects. The clinical studies confirmed earlier
clinical trials in London. Further, in a pilot
experiment in a SCID mouse model (a genetically
engineered mouse able to accept a human immune
system, e.g., blood),
animals given blood cells from one vaccinated
volunteer showed that 75% of the SCID mice were
protected from live HIV virus challenge compared to
25% of the mice receiving cells from a normal donor.
While this is a promising observation, more studies
need to be conducted before any conclusions can be
drawn from this test.
In April 1995 VTI began another clinical trial using
volunteers who will receive two vaccinations. The
volunteers who originally received the two lowest
dosage levels will be asked to donate blood for a
SCID mouse HIV challenge study.
In 1995, VTI also plans to request regulatory
approval for an HIVpositive clinical trial. No
assurance can be given that approvals to conduct
additional clinical trials will be obtained in a
timely fashion, if at all. In addition, VTI's AIDS
vaccine/treatment is only in the initial stages of
testing and it remains to be seen if the
vaccine/treatment will be effective against the AIDS
virus.
Although there has been important
independent research showing the possible
significance of the p17 region of HIV-1, there can be
no assurance that any of VTI's technology will be
effective in the prevention, diagnosis or treatment
of AIDS. There can be no assurance that other
companies will
not develop a product that is more effective or that
VTI ultimately will be able to develop and bring a
product to market in a timely manner that
would enable it to derive commercial benefits.
VTI's research and development efforts are
presently focused on the evaluation of second
generation formulations and delivery systems for HGP
30 and related peptides to enhance HIV specific
cellular immune responses.
Pursuant to agreement between the parties,
the Company and Alpha 1 are each entitled to appoint
two of VTI's four directors. Maximilian de Clara and
Geert Kersten, the Company's President and Chief
Operating Officer, respectively, serve as two of the
four directors of VTI. The other two directors are
representatives of Alpha 1. In May, 1994, Mr.
Kersten was appointed the President of VTI. The
Company and Alpha 1 each have a first right-of-
refusal to purchase the other party's shares should
such other party elect to sell such shares. As VTI is
a Delaware corporation, matters pertaining to VTI's
research program and other operations are determined
by VTI's board of directors, subject to shareholder
approval when necessary. The parties have also agreed
that certain disputes involving the operations of
VTI, if such disputes cannot be resolved between the
parties, will be settled by arbitration. Matters
which are subject to arbitration include the merger,
consolidation, or dissolution of VTI, the payment of
dividends, or the sale or licensing of VTI's
technology. As of the date of this prospectus, no
arbitration proceedings have been held.
In August 1995 the Company and Alpha 1 reached a
tentative agreement whereby the Company would acquire
Alpha 1's interest in VTI in consideration for shares
of the Company's Common Stock. The completion of this
transaction is subject to a number of conditions,
including the execution of a definitive agreement
among the parties. 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
lymphokinerelated 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,
bacteriaproduced IL-2 ("recombinant IL-2")
manufactured by other companies. There are basically
two ways to produce IL-2 on a commercial scale: (1)
applying genesplicing techniques using bacteria or
other micro organisms to produce recombinant IL-2;
or, (2) applying cell culture technology using
mammalian cells. Substantive differences exist
between recombinant IL-2 and IL-2 produced through
cell culture technology. For example: (1) cell
cultured IL2 is glycosylated (has sugars attached).
Sugar
attachments play a crucial role in cell recognition
and have a significant effect on how fast a body
clears out proteins. Proteins produced through
bacteria have no sugar attachments and while
recombinant IL-2 products produced from recombinant
yeast or insect cells are glycosylated, they are not
so to the right degree, or at the right locations.
Cell cultured IL-2 has the "right" sugar attachments
at the right places; (2) there are also structural
differences related to folding (the way human
proteins work depends on their sequence folding); and
(3) the cell cultured IL-2 "cocktail" is administered
in small dosages as pioneered
by Company researchers. This formulation and dosage
mimics the way immune regulators are naturally found
and function within the body. This stands in stark
contrast to the huge
dosages required when recombinant IL-2 is
administered to patients. In addition, patients
treated with recombinant IL2 usually suffer severe
side effects. Although mammalian cells (other than
human cells) could be genetically engineered to
produce glycosylated IL-2 in larger quantities than
are produced by the Company's method, such mammalian
cells could not be genetically engineered to produce
the combination of human lymphokines and cytokines,
which together with human glycosylated IL-2 form the
MULTIKINE product used by the Company. The Company is
of the opinion that glycosylated IL-2 genetically
produced from mammalian cells must be administered in
large dosages before any benefits are observed. Even
then, the Company believes that only a small
percentage of patients will benefit from treatments
consisting only of glycosylated IL-2. In addition,
large dosages of glycosylated IL-2 can, as with
recombinant 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, nonprofit organizations and
governmental institutions are conducting research on
lymphokines. Competition in the development of
therapeutic agents and diagnostic products
incorporating lymphokines is intense. Large, well
established pharmaceutical companies are
engaged in lymphokine research and development and
have considerably greater resources than the Company
has to develop products. The establishment by these
large companies of in house research groups and of
joint research ventures with other entities is
already occurring in these areas and will probably
become even more prevalent. In addition, licensing
and other collaborative arrangements between
governmental and other nonprofit institutions and
commercial enterprises, as well as the seeking of
patent protection of inventions by nonprofit
institutions and researchers, could result in strong
competition for the Company. Any new developments
made by such organizations may render the Company's
licensed technology and know-how obsolete.
Several biotechnology companies are
producing IL 2 like compounds. The Company believes,
however, that it is the only producer of a patented
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-2like
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 are typically not water
soluble, may be recognized by the immunological
system as a foreign agent, leading to a measurable
antibody build up and thereby possibly voiding their
therapeutic value. Furthermore, the Company's
research has
established that to have optimum therapeutic value
IL2 should be administered not as a single substance
but rather as an IL2 rich mixture of certain
lymphokines and other proteins, i.e. as a
"cocktail". If these differences
prove to be of importance, and if the therapeutic
value of its MULTIKINE product is conclusively
established, the Company believes it will be able to
establish a strong competitive position in a future
market.
The Company has not established a
definitive plan for marketing nor has it established
a price structure for the Company's saleable
products. However, the Company intends, if the
Company is in a position to begin commercialization
of its products, to enter into written marketing
agreements with various major pharmaceutical firms
with established sales forces. The sales forces in
turn would probably target
the Company's products to cancer centers, physicians
and clinics involved in immunotherapy.
Competition to develop treatments for the
control of AIDS is intense. Virtually all of the
pharmaceutical and biotechnology companies around
the world are devoting substantial sums to the
exploration and development of tech nologies useful
in these areas. VTI's development of its
experimental HGP-30 AIDS Vaccine, if successful,
would likely face intense competition from other
companies seeking to find alternative or better ways
to prevent and treat AIDS.
Both the Company and VTI may encounter
problems,
delays and additional expenses in developing
marketing plans with outside firms. In addition,
the Company and VTI may experience other
limitations involving the proposed sale of their
products, such
as uncertainty of third-party reimbursement. There
is no assurance that the Company or VTI can
successfully market any products which they may
develop or market them at competitive prices.
The clinical trials funded to date by the
Company
and VTI have not been approved by the FDA, but
rather have been conducted pursuant to approvals
obtained from regulatory agencies in England and
certain states. Since the results of these
clinical trials may not be accepted by the FDA,
companies which are conducting clinical trials
approved by the FDA may have a competitive
advantage in that the products of such companies
are further advanced in the regulatory process
than those of the Company or VTI. PROPERTIES
The Company's MULTIKINE product used in its 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 $8,000 per
month. The Company believes this arrangement
is adequate for the conduct of its present
business. MANAGEMENT
Officers and Directors
Name Age
Position
Maximilian de Clara 65
Director
and President
Geert R. Kersten, Esq. 36 Director,
Chief Executive
Officer, Secretary
and Treasurer Patricia B. Prichep 42 Vice
President of
Operations
M. Douglas Winship 45 Vice
President
of
Regulatory
Affairs and
Quality Assurance Dr. Eyal Talor 37 Vice
President of
Research
and
Manufacturing
Dr. Suzanne Beckner 44 Vice
President
of
Clinical
Development
Mark V. Soresi 41 Director
F. Donald Hudson 61
Director
Edwin A. Shalloway 60
Director
The directors of the Company serve in such
capacity until the next annual meeting of the
Company's shareholders and until their successors
have been duly elected and qualified. The officers
of the Company serve at the discretion of the
Company's directors.
Mr. Maximilian de Clara, by virtue of his
position as an officer and director of the Company
and his stock ownership,
may be deemed to be the "parent" and "founder" of
the Company as those terms are defined under
applicable rules and regulations of the Securities
and Exchange Commission.
The principal occupations of the Company's officers
and
directors, during the past several years, are as
follows:
Maximilian de Clara. Mr. de Clara has been
a director of the Company since its inception in
March, l983, and has been president of
the Company since July, l983. Prior to his
affiliation with the Company, and since at least
l978, Mr. de Clara was involved in the management of
his personal
investments and personally funding research in the
fields of biotechnology and biomedicine. Mr. de
Clara attended the medical school of the University
of Munich from l949 to l955, but left before he
received a medical degree. During the summers of
l954 and l955,
he worked as a research assistant at the University
of Istanbul in the field of cancer research. For
his efforts and dedication to research and
development in the fight against cancer and AIDS,
Mr. de Clara was awarded the "Pour le Merit"
honorary medal of the Austrian Military Order
"Merito Navale" as well as the honor cross of the
Austrian Albert Schweitzer Society.
Geert R. Kersten, Esq. Mr. Kersten was
Director
of Corporate and Investment Relations for the
Company between February, 1987 and October, 1987. In
October of 1987, he was appointed Vice President of
Operations. In December, 1988, Mr. Kersten was
appointed director of the Company. Mr. Kersten also
became the Company's secretary and treasurer in
1989. In May, 1992, Mr. Kersten was appointed Chief
Operating Officer and in February, 1995, Mr. Kersten
became the Company's Chief Executive Officer. In
previous years, Mr. Kersten worked as a financial
analyst with Source Capital, Ltd., an investment
advising firm in McLean, Virginia. Mr. Kersten is a
stepson
of Maximilian de Clara, who is the President and a
Director of the Company.
Mr. Kersten attended George Washington University in
Washington, D.C. where he earned a B.A. in
Accounting and an M.B.A. with emphasis on
International Finance. He also attended law school
at American University in Washington, D.C. where he
received a Juris Doctor degree.
Patricia B. Prichep has been the Company's
Vice President of Operations since March, 1994.
Between December, 1992 and March, 1994, Ms. Prichep
was the Company's Director of Operations. From June,
1990 to December, 1992, Ms. Prichep was the Manager
of Quality and Productivity for the NASD's
Management, Systems and Support Department. Between
1982 and 1990, Ms. Prichep was Vice President and
Operations Manager for Source Capital, Ltd.
M. Douglas Winship has been the Company's Vice
President of Regulatory Affairs and Quality
Assurance since April, 1994. Between 1988 and April,
1994, Mr. Winship held various positions with
Curative Technologies, Inc., including Vice
President of Regulatory Affairs and Quality
Assurance (1991 1994).
Dr. Eyal Talor has been the Company's Vice
President
of Research and Manufacturing since March, 1994.
From October, 1993 until March, 1994, Dr. Talor was
Director of Research, Manufacturing and Quality
Control, as well as the Director of the Clinical
Laboratory, for Chesapeake Biological Laboratories,
Inc. From 1991 to 1993, Dr. Talor was a scientist
with SRA Technologies, Inc., as well as the director
of SRA's Flow Cytometry Laboratory (19911993) and
Clinical Laboratory (19921993). During 1992 and
1993, Dr. Talor was also the Regulatory Affairs and
Safety Officer For SRA. Since 1987, Dr. Talor has
held various positions with the John Hopkins
University, including course coordinator for the
School of Continuing Studies (1989Present), research
associate and lecturer in the Department of
Immunology and Infectious Diseases (19871991), and
associate professor (1991 Present).
Dr. Suzanne Beckner has been the Company's
Vice President of Clinical Development since July
1994. From 1993 until joining the Company Dr.
Beckner served as Vice President of Development at
Alpha I Biomedical. From 1989 to 1992, she held
positions with Life Technologies, Inc. as Research
Director and then as Business
Director of the Cellular Biochemistry Products
business segment. From 1988 to 1989, she held a
research management position with Biotherapeutics,
Inc.
Mark V. Soresi. Mr. Soresi became a
director of the Company in July, 1989. In 1982, Mr.
Soresi founded, and since that date has
been the president of the Soresi Chemical Group,
Inc., operating as Eastern Chemical Waste Systems.
Eastern Chemical Waste Systems is involved in the
clean-up of hazardous and toxic waste dump sites.
Mr. Soresi attended
George Washington University in Washington, D.C.
where he earned a Bachelor of Science in Chemistry.
F. Donald Hudson. F. Donald Hudson has been a
director of the Company since May, 1992. Between
1990 and 1993, Mr. Hudson was President and Chief
Executive Officer of Neuromedica, Inc., a
development stage company engaged in neurological
research. Until January, 1989, Mr. Hudson served as
Chairman and Chief Executive Officer of Transgenic
Sciences, Inc. (now TSI Corporation), a publicly
held biotechnology corporation which he founded in
January, 1987. From October, 1985 until January,
1987, Mr. Hudson was a director of Organogenesis,
Inc., a publicly held biotechnology corporation of
which he
was a founder, and for five years
prior thereto was Executive Vice President and a
director of Integrated Genetics, Inc., a corporation
also engaged in biotechnology which he co-founded
and which was publicly traded until its acquisition
in 1989 by Genzyme, Inc. Mr. Hudson is also a
director of VIMRx Pharmaceuticals, Inc.
Edwin A. Shalloway, Esq. Mr. Shalloway has
been a
director of the Company since May, 1992. Mr.
Shalloway is and has been since 1964, a partner in
the law firm of Sherman and Shalloway which
specializes in matters of patent law. Mr. Shalloway
attended the University of Georgia where he earned a
Bachelor of Science and Bachelor of Arts degrees.
Mr. Shalloway received his law degree from the
American University in Washington, D.C. Mr.
Shalloway is also the President of the International
Licensing Society.
All of the Company's
officers devote
substantially all of
their
timeon the Company's business. Messrs. Soresi,
Hudson and Shalloway, as directors, devote only a
minimal amount of time to the Company.
The Company has an audit committee whose members are
Geert R.
Kersten, F. Donald Hudson and Edwin A. Shalloway.
Executive Compensation
The following table sets forth in summary form the
compensation received by (i) the Chief Executive
Officer of the
Company and (ii) by each other executive officer of
the Company who received in excess of $100,000
during the fiscal year ended September 30, 1994.
Annual Compensation
Long
Term
Compensation
ReAll
Other stric- Other
Annual ted
LTIP Com Compen
Stock Options Pay-
pensa Name and Princi-Fiscal Salary Bonus sation
Awards Granted outs tion pal Position Year (1)
(2)
(3) (4)
(5)
(6) 7)
Maximilian de
Clara, 1994 $93,752
70,000
- -
- -
President 1993 - $59,376
- -
- -
- -
1992 - $21,791
70,000
- -
Geert R. Kersten,1994 $182,539 - $ 8,183
50,000
$4,497
Chief Operating 1993 $163,204 - $ 6,046
$3,289
Officer, Secretary 1992 $126,304 $ 6,133
50,000
- -
and Treasurer
(1) The dollar value of base salary (cash and non
cash) received. (2) The dollar value of bonus (cash
and non cash) received.
(3) Any other annual compensation not properly
categorized as salary or bonus, including
perquisites and other personal benefits,
securities or property. Amounts in the table
represent automobile, parking and other
transportation expenses.
(4) During the period covered by the Table, no
shares of restricted
stock were issued as compensation for services
to the persons listed in the table. As of
September 30, 1994, the number of shares of the
Company's common stock, owned by the officers
included in the table above, and the value of
such shares at such date, based upon the market
price of the Company's common stock were:
Name Shares
Value Maximilian de Clara 30,370
$ 200,500
Geert R. Kersten 161,536 $1,066,000
(5) The shares of Common Stock to be received upon
the exercise of all stock options granted
during the period
covered by the Table.
(6) "LTIP" is an abbreviation for "Long-Term
Incentive Plan". An LTIP is any plan that is
intended to serve as an incentive for
performance to occur over a period longer than one
fiscal year. Amounts reported in this column
represent payments received during the applicable
fiscal year by the named officer pursuant to an
LTIP.
(7) All other compensation received that the Company
could not properly report in any other column of
the Table including annual Company contributions
or other allocations to vested and unvested
defined contribution plans, andthe 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
namedexecutive officer, and the full dollar value
of the remainder of the premiums paid by, or on
behalf of, the Company. Amounts in the table
represent contributions made by the Company to a
401(k) pension plan on behalf
of Mr. Kersten.
Long Term Incentive Plans Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement
Plans
During 1993 the Company implemented a defined
contribution retirement plan, qualifying under
Section 401(k) of the Internal Revenue Code and
covering substantially all the Company's employees.
The employer contribution per year is equal to the
lesser of up to 3% of each participant's salary or
50% of the employee's contribution. The 1994
expenses for this
plan were $16,160. Other than the 401(k) Plan, the
Company does not have a defined benefit, pension
plan, profit sharing or other retirement
plan.
Compensation of Directors
Standard Arrangements. The Company
currently pays its directors $1,000, plus expenses,
for each meeting of the Board of Directors which
they attended. The Company has no standard
arrangement pursuant to which directors of the
Company are compensated for any services provided as
a director or for committee participation or special
assignments.
Other Arrangements. The Company has from
time to time granted options to its outside
directors, Mr. Soresi, Mr. Hudson and Mr. Shalloway.
See Stock Options below for additional information
concerning options granted to the Company's
directors. Employment Contracts
Effective August 1, 1994, the Company entered into
a three year employment agreement with Mr. Kersten.
The employment
agreement provides
that during the period between August 1, 1994 and
July 31, 1995, the Company will pay
Mr. Kersten an annual salary of $198,985. During the
years ending August 31, 1996 and 1997, the Company
will pay Mr. Kersten a salary of $218,883 and
$240,771 respectively. In the event that there is a
material reduction in Mr. Kersten's authority,
duties or activities, or in the
event there is a change in the control of the
Company, then the agreement allows Mr. Kersten to
resign from his position at the Company and receive
a lump-sum payment from the Company equal to 18
months salary. For purposes of the employment
agreement, a change in the control of the Company
means the sale of more than 50% of the outstanding
shares of the Company's Common Stock, or a change in
a majority of the Company's directors.
Pursuant to the agreement, the Company also agreed
to grant Mr. Kersten, in accordance with the
Company's 1994 Incentive Stock Option Plan, options
to purchase 50,000 shares of the Company's Common
Stock. Compensation Committee Interlocks and Insider
Participation
The Company has a compensation committee comprised
of all
of the Company's directors, with the exception of
Mr. Kersten. During the year ended September 30,
1994, Mr. de Clara was the only officer
participating in deliberations of the Company's
compensation committee concerning executive officer
compensation. See "Transactions with Related
Parties" in this section of the Prospectus for
information concerning transactions between the
Company and Mr. de Clara.
During the year ended September 30, 1994, no
director of the Company was also an executive
officer of another entity, which had an executive
officer of the Company serving as a director of such
entity or as a member of the
compensation committee of such entity.
Stock Options
The following tables set forth information
concerning the
options granted, during the fiscal year ended
September 30, 1994, to the
Company's President and Chief Operating Officer, and
the fiscal year end
value of all unexercised options (regardless of when
granted) held by these persons.
Options Granted During Fiscal Year Ending September
30, l994
Potential
Individual Grants
Realizable
Value
at
% of Total
Assumed
Annual
Rates
Options of Stock Price
Granted to Exercise
Appreciation
for Options Employees in Price Per Expiration
Option Term (2) Name Granted (#)
Fiscal Year Share (1)
Date 5%
10% Maximilian
de Clara 70,000 44% $2.87
7/29/04
$110,600
$272,811
Geert R.
Kersten 50,000 32% $2.87
7/29/04
$ 79,000
$194,865
(1) In June 1995 the Company's directors lowered the
exercise price of these options from $8.70 per share
to $2.87 per share. (2) The potential realizable
value of the options shown in the table assuming the
market price of the Company's Common Stock
appreciates in value from the date of the grant to
the end of the option term at 5% or 10%.
Option Exercises and Year End
Option Values
Value
of
Unexer
cised
In
th
e
Mo
ne
y
Nu
mb
er
of
Op
ti
on
s
Unexercised at
Fiscal
Options YearEnd
Shares
(3)
(4)
Acquired Value
on Exercise Realized
Exercisable/ Exercisable/ Name
(1)
(2)
Unexercisable
nexercisable
Maximilian de Clara
85,000/70,000 $313,650/$258,300
Geert R. Kersten
108,250/66,500
$399,442/$245,385
(1) The number of shares received upon exercise of
options during the fiscal year ended September 30,
1994. (2) With respect to options exercised during
the Company's
fiscal year ended September 30, 1994, the dollar
value of the difference between the option exercise
price and the market value of the option shares
purchased on the date of the exercise of the
options.
(3) The total number of unexercised options held as
of September 30, 1994, separated between those
options that were exercisable and those options that
were not exercisable.
(4) For all unexercised options held as of September
30, 1994, the aggregate dollar value of the excess
of the market value of the stock underlying those
options (as of September 30, 1994) over the exercise
price of those unexercised options. Values are shown
separately for those options that were exercisable,
and those options that were not yet exercisable, on
September 30, 1994. In June 1995 the Company lowered
the exercise price on all options granted to Mr. de
Clara and Mr. Kersten to $2.87 per share. The
amounts in this column have been computed using the
assumption that the $2.87 exercise price was in
effect at September 30, 1994. Stock Option and Bonus
Plans
The Company has two Incentive Stock Option
Plans, three Non Qualified Stock Option Plans and a
Stock Bonus Plan. A summary description of these
Plans follows. In some cases these Plans are
collectively referred to as the "Plans".
Incentive Stock Option Plan. The two
Incentive Stock
Option Plans collectively authorize the issuance of
up to 200,000 shares of the Company's Common Stock
to persons that
exercise options granted pursuant to the Plan. Only
Company employees may be granted options pursuant to
the Incentive Stock Option Plan.
To be classified as incentive stock options under
the Internal Revenue Code, options granted pursuant
to the Plans must be exercised prior to the
following dates: (a) The expiration of three months
after the date on which an option holder's
employment by the Company is terminated (except if
such termination is due
to the death or permanent and total disability);
(b) The expiration of 12 months after the date on
which an option holder's employment by the Company
is terminated, if such termination is due to the
Employee's permanent and total disability;
(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 360,000 shares of the
Company's Common Stock to persons that exercise
options granted pursuant to the Plans. The
Company's employees, directors, officers,
consultants and advisors are eligible to be granted
options pursuant to the Plans, provided however that
bona fide services must be rendered by such
consultants or advisors and such services must not
be in connection with the offer or sale of
securities in a capital raising transaction. The
option exercise price is determined by the Committee
but cannot be less than the market price of the
Company's Common Stock on the date the option is
granted.
Stock Bonus Plan. Up to 40,000 shares
of Common Stock may be granted under the Stock Bonus
Plan. Such shares may consist, in whole or in part,
of authorized but unissued shares, or treasury
shares. Under the Stock Bonus Plan, the Company's
employees, directors, officers, consultants and
advisors are eligible to receive a grant of the
Company's shares, provided however that bona fide
services must be rendered by consultants or advisors
and such services must not be in connection with the
offer or sale of securities in a capital-raising
transaction. Other Information Regarding the Plans.
The Plans are administered by the Company's
Compensation Committee ("the Committee"), each
member of which is a director of the Company. The
members of the Committee were selected
by the Company's Board of Directors and serve for a
oneyear tenure and until their successors are
elected. A member of the Committee may be removed at
any time by action of the Board of Directors. Any
vacancies which may occur on the Committee will be
filled by the Board of Directors. The Committee is
vested with the authority to interpret the
provisions of the Plans and supervise the
administration of the Plans. In addition, the
Committee is empowered
to select those persons to whom shares or options
are to be granted, to determine the number of shares
subject to each grant of a stock bonus or an option
and to determine when, and upon what conditions,
shares or options granted under the Plans will vest
or otherwise be subject to forfeiture and
cancellation.
In the discretion of the Committee, any option
granted pursuant to the Plans may include
installment exercise terms such that the option
becomes fully exercisable in a series of cumulating
portions. The Committee may also accelerate the date
upon which any option (or any part of any options)
is first exercisable. Any shares issued pursuant to
the Stock Bonus Plan and any options granted
pursuant to the Incentive Stock Option Plan or the
NonQualified Stock Option Plan will be forfeited if
the "vesting" schedule established by the Committee
administering the Plan at the time of the grant is
not met. For this purpose, vesting means the period
during which the employee must remain an employee of
the Company or the period of time a nonemployee must
provide services
to the Company. At the time an employee ceases
working for the Company (or at the time a non-
employee ceases to perform services for the
Company), any shares or options not fully vested
will be forfeited and cancelled. At the discretion
of the Committee payment for the shares of Common
Stock underlying options may be paid through the
delivery of shares of the Company's Common Stock
having an aggregate fair market value equal to the
option price, provided such shares have been owned
by the option holder for at least one year prior to
such exercise. A combination of cash and shares of
Common Stock may also be permitted at the discretion
of the Committee.
Options are generally non-transferable except
upon death of the option holder. Shares issued
pursuant to the Stock Bonus Plan will generally not
be transferable until the person receiving the
shares satisfies the vesting requirements imposed by
the Committee when the shares were issued.
The Board of Directors of the Company may at any
time, and from time to time, amend, terminate, or
suspend one or more of the Plans in any
manner they deem appropriate, provided that such
amendment, termination or suspension will not
adversely affect rights or obligations with respect
to shares or options previously granted. The Board
of Directors may not, without shareholder approval:
make any amendment which would materially modify the
eligibility requirements for the Plans; increase or
decrease the total number of shares of Common Stock
which may be issued pursuant to the Plans except in
the case of a reclassification of the Company's
capital stock or a consolidation or merger of the
Company; reduce the minimum option price per share;
extend the period for granting options; or
materially increase in any other
way the
benefits accruing to employees who are eligible to
participate in the Plans.
Prior Stock Option and Bonus Plan. The Company
previously had in
effect a Stock Option and Bonus Plan ("the 1987
Plan") which provided for the grant to the Company's
officers, directors, employees and consultants of
either (i) shares of the Company's Common Stock for
services rendered or (ii) options to purchase shares
of Common Stock. The 1987 Plan was terminated by the
Company in 1992. Since the 1987 Plan was
terminated,
no further options will be granted and no further
bonus shares will be issued pursuant to the 1987
Plan. However, options previously granted may
nevertheless still be exercised according to the
terms of the options. Prior to the termination of
the 1987 Plan, the Company granted options to
purchase 189,250 shares of the Company's Common
Stock. To date, options to purchase 6,000 shares
have been exercised. In June, 1995 the Company
cancelled options to purchase 113,250 shares that
had previously been granted under this Plan and
reissued options for the same number of shares under
the Company's other stock option plans. See "Option
Summary" below.
Option Summary. The following sets forth certain
information, as of
June 15, 1995, concerning the stock options granted
by the Company. Each option represents the right to
purchase one share of the Company's Common Stock.
Total
Shares Shares
Reserved for
Remaining
Reserved
Outstandin
g Options
Name of Plan Under Plan
Options
Under
Plan
1987 Stock Option and Bonus Plan 200,000
70,000
(1)
1992 Incentive Stock Option Plan 100,000
49,500
50,500
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
94,750
5,250
1995 Non-Qualified Stock Option Plan 200,000
157,000
43,000
TOTAL:
531,250
(1) This Plan was terminated in 1992 and as a
result, no new options will be granted pursuant to
this Plan.
In June 1995 the Company (i) cancelled options to
purchase 113,250 shares that were previously granted
under the Company's 1987 Stock Option and Bonus
Plans, (ii) reissued options for the same number of
shares under the Com pany's other stock option
plans, and (iii) lowered the exercise price on
options previously granted to the Company's
officers, directors and employees to $2.87 per
share.
In March, 1991 the Company granted a financial
relations consultant an option to purchase 50,000
shares of the Company's common stock. The option is
exercisable at $13.80 per share and expires in
March,
1996. The holder of the option has the right to have
the shares issuable upon the exercise of the option
included in any registration statement filed by the
Company.
As of May 15, 1995, 1,500 shares had been issued
pursuant to the Company's 1992 Stock Bonus Plan. All
of these
shares were
issued during the fiscal year ending September 30,
l994. Transactions with Related Parties
The technology and know-how licensed to the
Company was developed by a group of researchers under
the direction of Dr. Hans Ake Fabricius and
was assigned, during l980 and l98l, to Hooper Trading
Company, N.V., a Netherlands Antilles' corporation
("Hooper"), and Shanksville Corporation, also a
Netherlands Antilles corporation ("Shanksville"). Mr.
de Clara and Dr. Fabricius own 50% and 30%,
respectively, of each of these companies. The
technology and know how assigned to Hooper and
Shanksville was licensed to Sittona Company, B.V., a
Netherlands corporation ("Sittona"), effective
September, l982 pursuant to a licensing agreement
which requires Sittona to pay to Hooper and
Shanksville royalties on
income received by Sittona respecting the technology
and know-how licensed to Sittona. In l983, Sittona
licensed this technology to the Company and received
from the Company a $1,400,000 advance royalty
payment. At such time as the Company generates
revenues from the sale or sublicense of this
technology, the Company will be required to pay
royalties to Sittona equal to l0% of net sales and
l5% of the licensing royalties received from third
parties. In that event, Sittona, pursuant to its
licensing agreements with Hooper and Shanksville,
will be required to pay to those companies a minimum
of l0% of any royalty payments received from the
Company.
In l985, Mr. de Clara acquired all of the issued and
outstanding
stock of Sittona. Mr. de Clara and Dr. Fabricius,
because of their ownership
interests in Hooper and Shanksville, could receive
approximately 50% and 30% respectively of any
royalties paid by Sittona to Hooper and Shanksville,
and Mr. de Clara, through his interest in all three
companies (Hooper, Shanksville and Sittona), will
receive up to 95% of any royalties paid by the
Company.
The Company has a 50% interest in Viral Technologies,
Inc. and certain
officers and directors of the Company are officers
and/or directors of Viral Technologies, Inc. See
"Business Interest in Viral Technologies, Inc."
See "Legal Matters" below for information concerning
expenses incurred by the Company in indemnifying an
officer and director. Legal Matters
The Company is not a party to any pending legal
proceedings. Maximilian de Clara, the president and a
director of the Company, has been involved in legal
proceedings concerning shares of the Company's Common
Stock. During the three year period ended September
30, 1993, the Companypaid Mr. de Clara approximately
$96,000 for legal expenses incurred by Mr. de
Clara in defending a legal action brought
against Mr. de Clara by an unrelated third
party who claimed that Mr. de Clara owed the third
party 25,000 shares of the Company's Common Stock as
a
fee for introducing the Company (in 1985) to persons
who allegedly were willing to (but did not) provide
funds to the Company. Although the Company was not a
party to this proceeding, the Company's Board of
Directors has determined, based upon information
supplied by Mr. de Clara, that the third party's
claims against Mr. de Clara arose as a result of Mr.
de Clara's efforts to obtain funding for the Company.
Accordingly, the Board of Directors determined that
Mr. de Clara was entitled by law to indemnification
and in October, 1993, the Company issued 25,000
shares of its common stock to the third party
claiming the shares from Mr. de Clara.
In a separate matter, Milford Trading, Ltd.
("Milford Trading"), a corporation controlled by Mr.
de Clara, filed a lawsuit against
an unrelated third party seeking the recovery of
40,000 shares of the Company's Common Stock which
were registered in the name of Milford Trading but
which are held by the third party. The third party
filed a counterclaim against Milford Trad ing and a
crossclaim against Mr. de Clara seeking title to the
40,000 shares and other damages. Although Mr. de
Clara denied the claim of the third party, the case
was settled by Mr. de Clara paying $200,000 and
delivering 3,000 shares to the third party. The
Company's
Board of Directors determined, based upon information
supplied by Mr. de Clara, that the third party's
claims against Mr. de Clara arose as a result of Mr.
de Clara's efforts to obtain funding for
the Company in 1985 and that Mr. de Clara was
therefore entitled by law to indemnification.
Accordingly, during fiscal 1992 the Company paid Mr.
de Clara's legal fees in connection with this matter
(approximately $28,000), reimbursed Mr. de Clara the
$200,000 paid to the third party, and during fiscal
1993 issued 3,000 shares of the Company's common
stock to Mr. de Clara to replace the shares which Mr.
de Clara issued to the third party. The Securities
and Exchange Commission found that between 1988 and
1991 Mr. de Clara failed to timely file reports of
beneficial ownership required by the Securities
Exchange Act of 1934. In May, 1992, the Commission
entered an order requiring Mr. de Clara to file
reports of beneficial ownership on a timely basis.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of August 31,
1995, information
with
respect to the only persons owning beneficially 5% or
more of the outstanding Common Stock and the number
and percentage of outstanding shares owned by each
director and officer and by the officers and
directors as a group. Unless otherwise indicated,
each owner has sole voting and investment powers over
his shares of Common Stock.
Number of
Percent of Name and Address Shares
(1)
Class
(4)
Maximilian de Clara 90,000
(2) 1.4% Bergstrasse 79
6078 Lungern,
Obwalden, Switzerland
Geert R. Kersten 193,186
(3) 3.5% 66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Patricia B. Prichep
4,530 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
M. Douglas Winship
5,000 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Eyal Talor
4,667 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Suzanne Beckner
2,667 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Mark Soresi
14,375
*
l0l0 Wayne Ave., 8th Floor
Silver Spring, MD 209l0
F. Donald Hudson
10,500
*
53 Mt. Vernon Street
Boston, MA 02108
Edwin A. Shalloway
10,500
*
413 North Washington Street
Alexandria, VA 22314
All Officers and Directors
as a Group (9 persons)
335,425 6.0%
*Less than 1%
(1) Includes shares issuable prior to
October 31, 1995 upon the exercise of
options granted to the following persons:
Options Exercisable
Name
Prior
to
October
31,
1995
Maximilian de Clara
85,000
Geert R. Kersten
108,250
Patricia B. Prichep
4,500
M. Douglas Winship
5,000
Dr. Eyal Talor
3,167
Dr. Suzanne Beckner
2,667
Mark Soresi
12,500
F. Donald Hudson
10,500
Edwin A. Shalloway
10,500
242,084 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) Assumes Selling
Shareholders purchase an additional 575,000 shares
of Common Stock from the Company. Amount excludes
(i) up to 1,150,000 shares issuable upon the
exercise of Warrants held by the Selling
Shareholders, (ii) 130,000 shares of Common Stock
issuable upon the exercise of Warrants issued or
issuable to the Company's Sales Agent and the
warrants included therein, and (iii) shares which
may be issued upon the exercise of other options
and warrants
previously issued by the Company. See "Selling
Shareholders". See "Selling Shareholders" for
information concerning share
ownership of the Selling Shareholders.
SELLING SHAREHOLDERS
In June 1995 the Company sold 575,000
Units, at $2.00 per Unit, to five persons. 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 investors in the June 1995 Private
Offering are sometimes referred to as the "Selling
Shareholders". The Company agreed to
register the shares of Common Stock sold in this
Private Offering (575,000 shares), as well as the
shares of Common Stock issuable upon the exercise
of the Warrants included as part of the Units sold
in the Private Offering (575,000 shares) and to
pay all expenses in connection
therewith, exclusive of commissions and the fees
and expenses of counsel for the Selling
Shareholders. By means of this Prospectus, the
575,000 shares of Common Stock purchased by the
Selling Shareholders in the June 1995 Private
Offering, as well as the 575,000 shares issuable
upon the exercise of the
Warrants described above are being offered to the
public by the Selling Shareholders.
Each Selling Shareholder was given an
option to purchase from the Company, for $2.00 per
Unit, the same number and
kind of Units as the Selling Shareholder purchased
in the
Private Offering. The option must be exercised
within twenty days after the date of this
Prospectus. Assuming this option is exercised, the
shares of Common Stock included as a component
of these Units (575,000
shares) and the shares
of Common Stock issuable upon the exercise of the
Warrants (575,000 shares) are also being offered
for sale by the Selling Shareholders. The Company
has entered into an agreement with
Neidiger/Tucker/ Bruner, Inc. (the "Sales Agent")
pursuant to which the Sales Agent is engaged as
the Company's exclusive agent to conduct the
offering of the 575,000 Units to the Selling
Shareholders. See "Sales Agent" below.
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 (1) Option
(2) Offering
(3)
Offering
Laura Huberfeld 189,666
189,666 379,332
- -
250 Longwood Crossing
Lawrence, NY 11559
Naomi Bodner 189,666
189,666
379,332
16 Grosser Lane
Monsey, NY 10952
Delton Trading SA 379,334
379,334
758,668
15 Market Square
Belize City, Belize
Mueller Trading,
Limited 379,334
379,334
758,668
Lakewood, NJ
Rita Folger 12,000
12,000
24,000-
c/o Oscar Folger
521 Fifth Avenue,
24th Floor
New York, NY 10175
(1) In each case, 50% of the number of shares in this
column represents shares purchased in the June 1995
Private Offering and 50% of the number of shares
represents shares issuable upon the exercise of
Warrants included as part of the Units sold in the
June 1995 Private Offering.
(2) In each case, 50% of the number of shares in this
column
represents
shares included as a component of the Units which may
be purchased from the Company by the Selling
Shareholder and 50% of the number
of shares represents shares issuable upon the
exercise of Warrants included as a component of the
Units. The number of shares in this column assumes
the particular Selling Shareholder purchases all
Units to which Selling Shareholder is entitled. (3)
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 over thecounter market, or otherwise,
at prices and terms then prevailing or at prices
related to the then current market price, or in
negotiated transactions. These shares may be sold by
one or more of the following methods, without
limitation: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion
of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the
broker solicits purchasers; and (d) face-toface
transactions between sellers and purchasers without a
broker/ dealer. In effecting sales, brokers or
dealers engaged by the Selling Shareholders may
arrange for other brokers or dealers to participate.
Such brokers or dealers may receive commissions or
discounts from Selling Shareholders in amounts to be
negotiated. Such brokers and dealers and any other
participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities
Act in connection with such sales.
Sales Agent. The Company has agreed to pay the
Sales Agent a commission equal to 10% of the gross
amount raised by the Company from the sale of 575,000
Units to the Selling Shareholders. The Company also
has agreed to pay the Sales Agent a non-accountable
expense allowance in the amount of 3% of the gross
proceeds from the sale of the Units. The Sales Agent
will bear all expenses in excess of that amount. To
the extent the actual expenses of the Sales Agent
equals an amount
less than the nonaccountable expense allowance, the
difference may
constitute additional compensation to the Sales
Agent. The Sales Agent will also be issued, for a
nominal sum, warrants to purchase up to 57,500 Units.
See "Sales Agent's Warrants" below.
The Company has 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.
Sales Agent's Warrants. The Company has agreed to
sell to the Sales Agent, for $100, Warrants (the
"Sales Agent's Warrants") to purchase one Unit for
each ten Units sold to the Selling Shareholders. The
Sales Agent's Warrants are exercisable for a period
of four years commencing one year after the date of
this Prospectus at a price of $2.40 per Unit.
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 under writers, 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. The foregoing is a summary, which does
not purport to be complete, of the principal terms of
the Agreement.
In June 1995 the Company sold 575,000 Units at $2.00
per Unit
in a Private Offering. In connection with this
Offering the Sales
Agent received a commission of $57,500 plus warrants
to purchase (i) 57,500 shares of the Company's Common
Stock at $2.00 per share and (ii) an additional
57,500 shares at $3.25 per share.
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, 1996.
The Company, upon 30 days notice, may accelerate the
expiration date of the Warrants, provided, however,
that at the time the Company gives such notice of
acceleration (1) the Company has in effect a current
registration statement covering the shares of Common
Stock issuable upon the exercise of the
Warrants and (2) at any time during the 30 day period
preceding such notice, the average closing bid price
of the Company's Common Stock has been at least 20%
higher than the warrant exercise
price for 15 consecutive trading days.
If the expiration date is accelerated, all Warrants
not exercised within the 30-day period will expire.
Other provisions of the Warrants are set forth
below. This information is subject to the provisions
of the Warrant Certificate representing the Warrants.
1. Holders of the Warrants may sell the Warrants
rather than
exercise them. However, there can be no assurance
that a market will develop or continue as to the
Warrants. 2. Unless exercised within the
time provided
for exercise, the Warrants
will automatically expire.
3. The exercise price of the Warrants may not be
increased during
the term of the Warrants, but the exercise price may
be decreased at the discretion of the Company's
Board of Directors by giving each Warrant holder no
tice of such decrease. The exercise period for the
Warrants may be extended by the Company's Board of
Directors giving notice of such extension to each
Warrant holder of record. 4. There is no minimum
number of shares which must be purchased upon
exercise of the Warrants.
5. The holders of the Warrants in certain
instances
are
protected
against dilution of their interests represented by
the underlying shares of Common Stock upon the
occurrence of stock dividends, stock splits,
reclassifications, and mergers.
6. The holders of the Warrants have no voting
power
and are not entitled to dividends. In the event of
a liquidation, dissolution, or winding up of the
Company, holders of the Warrants will not be
entitled to participate in the distribution of the
Company's assets.
Transfer Agent
American Securities Transfer, Inc., of Denver,
Colorado, is the trans fer
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'soffices 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. 1928D
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 .........................................
2,300,000 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. 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
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
$115,000 (and issued warrants for the purchase of up
to 115,000 shares of Common Stock) to
Neidiger/Tucker/Bruner, Inc. in connection with the
sale of the securities sold in June 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 PostEffective Amendment
("Registration Statement"), Registration Nos. 2
85547D 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
S1, 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
S 1, Registration Nos. 2 85547-D and 33-7531.
4(a) Specimen copy of
Incorporated
by reference
to
Exhibit
Stock Certificate 4(a) of the
Company's
Registration
Statement on Form S-1, Registration Nos. 2-85547-D
and 33 7531. (c) Form of Common Stock
Incorporated by reference
to
Exhibit
Purchase Warrant 4(c)
filed
as
an exhibit
to
the
Com
pany's Registration Statement on Form S1
(Registration No. 33 43281). 5. Opinion of
Counsel
10(a) Purchase Agreement
Incorporated
by
reference
to
Exhibit
dated April 21, 1986 10(a) of
the
Company's
Registration
with Alpha I Biomedical Statement
on
Form
S-
1,
Registration
Nos. 2-85547-D
and 33 7531. (b) Agreement with Sittona
Incorporated
by
reference
to
Exhibit
Company B.V. dated 10(c) of
the
Company's
Registration
May 3, 1983 Statement
on
Form
S-
1,
Registration
Nos. 2-85547-D
and 33 7531. (c) Addendum
effective
May 3, Incorporated by reference to
Exhibit
1983
to Licensing Agree- 10(e) of the
Company's
Registration
ment with Sittona Company, Statement on
Form
S-
1,
Registration
B.V. Nos. 2-85547-D
and
33-
7531.
(d) Addendum effective October Incorporated by
reference
to
Exhibit
13,
1989 to Licensing Agree 10(d) of Company's Annual
Report on ment with Sittona Company, Form 10-K for
the
year
ended
September
B.V. 30, 1989.
10(e) Employment Agreement with Filed with
Amendment
Number
1
to
the
Geert Kersten Company's
Registration
Statement
on
Form S-1 (Commission File Number 3343281).
10(g) Agreement between Viral Filed with
Amendment
Number
2
to
the
Technologies, Inc. and Company's
Registration
Statement
on
Nippon Zeon Co., Ltd. Form S-1
(Commission
File
Number
33-
90230).
23(a) Consent of Hart & Trinen
(b) Consent of Deloitte & Filed with
initial
Registration
State-
Touche LLP ment.
24. Power of Attorney Included
as
part
of
signature page.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to
this Registration Statement.
(I) To include any Prospectus required by Section
l0(a)(3) of the Securities Act of l933;
(ii) To reflect in the Prospectus any facts or events
arising after
the effective date of the Registration Statement (or
the most recent post effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement,
including (but not limited to) any addition or deletion
of a managing underwriter.
(2) That, for the purpose of determining any liability
under the Securities Act of l933, each such post
effective amendment shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post
effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(4) To provide to the Underwriter at the closing
specified in the underwriting agreement certificates in
such denominations and registered in such names as
required by the Underwriter to permit prompt delivery
to each purchaser. (5) Insofar as indemnification for
liabilities arising under the Securities Act of l933
may be permitted to directors, officers and controlling
persons of the Registrant, the Registrant has been
advised that in the opinion of the Securities and
Exchange Commission such indemnification is against
public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director,
officer or controlling person in connection with the
securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against public
policy as expressed in the Act and will be governed by
the final adjudication of such issue.
POWER OF ATTORNEY
The registrant and each person whose signature appears
below hereby
authorizes the agent for service named in this
Registration Statement, with full power to act alone,
to file one or more amendments (including posteffective
amendments) to this Registration Statement, which
amendments may make such changes in this Registration
Statement as such agent for service deems appropriate,
and the Registrant and each such person hereby appoints
such agent for service as attorney infact, with full
power to act alone, to execute in the name and in
behalf of the Registrant and any such person,
individually and in each capacity stated below, any
such amendments to this Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act
of l933, the Registrant has duly caused this
Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City
of Alexandria, State of Virginia, on the day of
September, 1995.
CEL-SCI
CORPORATION By:
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
Director and
Principal September 12, 1995 MAXIMILIAN DE
CLARA Executive Officer
Director, Principal
September
12, 1995 GEERT R. KERSTEN Financial Officer
and Chief Executive
Officer
Director
September
12, 1995
MARK V. SORESI
Director
September
12, 1995
F. DONALD HUDSON
Director
September 12, 1995
EDWIN A. SHALLOWAY
CEL-SCI Corporation
66 Canal Center Plaza, Suite 5l0
Alexandria, VA 22314
This letter will constitute an opinion upon the
legality of the sale by certain shareholders of upto
2,300,000 shares of the Company's Common Stock, all
as referred to in the Registration Statement on Form
S-1 filed by the Company with the Securities and
Exchange Commission.
We have examined the Articles of Incorporation, the
Bylaws and the minutes of the Board of Directors of
the Company and the applicable laws of the State of
Colorado, and a copy of the Registration Statement.
In our opinion, the 2,300,000 shares to be sold by
the shareholders are and will be legally issued,
fully paid and non-assessable.
Very truly yours,
HART & TRINEN
William T. Hart
Reference is made to the Registration Statement of
CELSCI Corporation (the "Company") whereby certain
shareholders of the Company propose to sell up to
2,300,000 shares of the Company's Common Stock.
Reference is also made to Exhibit 5 included in
the Registration Statement relating to the
validity of the securities proposed to be issued and
sold.
We hereby consent to the use of our opinion
concerning the validity of the securities proposed
to be issued and sold.
Very truly yours,
HART & TRINEN
William T. Hart
Denver, Colorado
September 12, 1995
CEL-SCI CORPORATION
Financial Statements for the Years
Ended September 30, 1994, 1993, and
1992, and Independent Auditors' Report
CEL-SCI CORPORATION
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT F-
1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
SEPTEMBER 30, 1994, 1993, AND 1992:
Balance Sheets F-
2
Statements of Operations F-
3
Statements of Stockholders' Equity F-
4
Statements of Cash Flows F-5
Notes to Financial Statements F-7 F-
15
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
CEL-SCI Corporation:
We have audited the accompanying balance sheets of CEL-SCI
Corporation as of September 30, 1994 and 1993, and the related
statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CEL-SCI
Corporation as of September 30, 1994 and 1993, and the results of
its operations and its cash flows for each of the three years in
the period ended September 30, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, as of October
1, 1993, the Company changed its method of accounting for income
taxes to conform with Statement of Financial Accounting Standards
No. 109. Also, as discussed in Note 1 to the financial statements,
as of September 30, 1994, the Company changed its method of
accounting for certain investments in debt and equity securities to
conform with Statement of Financial Accounting Standards No. 115.
Deloitte & Touche llp
Washington, DC
December 5, 1994
CEL-SCI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993, AND 1992
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CEL-SCI Corporation (the Company) was incorporated on March 22,
1983 in the State of Colorado, to finance research and
development in biomedical science and ultimately to engage in
marketing products.
Significant accounting policies are as follows:
Investments Effective September 30, 1994, the Company
adopted, on a prospective basis, Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Debt
and Equity Securities" (SFAS 115) and revised its policy
for investments. Investments that may be sold as part of
the liquidity management of the Company or for other
factors are classified as available-for-sale and are
carried at fair market value. Unrealized gains and losses
on such securities are reported as a separate component of
stockholders' equity. Realized gains and losses on sales
of securities are reported in earnings and computed using
the specific identified cost basis. The adoption of SFAS
115, which has not been applied retroactively to prior
years' financial statements, resulted in a decrease in
stockholders' equity of $85,753 for the net unrealized
losses on investments available-for-sale at September 30,
1994.
Prior to September 30, 1994, all investments available-for
sale were carried at the lower of aggregate amortized cost
or market value.
Research and Office Equipment Research and office
equipment is recorded at cost and depreciated using the
straight-line method over five and seven years estimated
useful lives.
Research and Development Costs Research and development
expenditures are expensed as incurred.
Patents Patent expenditures are capitalized and amortized
using the straight-line method over 17 years. In the
event changes in technology or other circumstances impair
the value or life of the patent, appropriate adjustment in
the asset value and period of amortization will be made.
Net Loss Per Share Net loss per common share is based on
the weighted average number of common shares outstanding
during the period. Common stock equivalents, including
options to purchase common stock, are excluded from the
calculation as they are antidilutive.
Investment in Joint Venture Investment in joint venture is
accounted for by the equity method. The Company's
proportionate share of the net loss of the joint venture
is included in the respective statements of operations.
Statement of Cash Flows For purposes of the statements of
cash flows, cash consists principally of unrestricted cash
on deposit, and short-term money market funds. The
Company considers all highly liquid investments with a
maturity of less than three months to be cash equivalents.
Income Taxes Effective October 1, 1993, the Company adopted
Statement of Financial Accounting Standard No. 109 "Accounting
for Income Taxes" (SFAS 109). SFAS 109 requires an asset and
liability approach for reporting income taxes. Implementation
of SFAS 109 in 1994 did not have any effect on the Company's
net earnings and reported financial position and prior
financial statements have not been restated.
Reclassifications Certain reclassifications have been made for
1993 and 1992 for comparative purposes.
2. INVESTMENTS
The carrying values and estimated market values of investments
available-for-sale at September 30, 1994, are as follows:
The carrying values and estimated market values of investment
securities at September 30, 1993, are as follows:
The maturities of investments at September 30, 1994, are as
follows:
The gross realized gains and losses of sales of investments
available-for-sale for the year ended September 30, 1994, are
$154,732 and $77,958, respectively.
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1994 and 1993, consist
of the following:
4. JOINT VENTURE
In April 1986, the Company paid $200,000 cash and issued
500,000 shares of its $.001 par value common stock to acquire
half the rights to technology which may be useful in the
diagnosis, prevention and treatment of Acquired Immune
Deficiency Syndrome (AIDS) from Alpha I Biomedicals, Inc. The
Company's stock was valued at $1.50 per share on the basis of
arm's-length negotiations. At the time the transaction took
place, the stock was trading at $2.42. Because the cost of
these rights to technology is considered research and
development, the $950,000 purchase price was expensed.
The Company and Alpha 1 Biomedicals, Inc. (Alpha I)
contributed their respective interests in the technology and
$10,000 each to capitalize a joint venture, Viral
Technologies, Inc. (VTI). VTI is wholly owned by the Company
and Alpha 1, each having a 50% ownership interest. The total
loaned or advanced to VTI by CelSci Corporation through
September 30, 1994, was $1,246,503.
During the three years ended September 30, 1994, VTI had no
sales. The operations of VTI were as follows:
The balance sheets of VTI at September 30, 1994 and 1993, are
summarized as follows:
On December 17, 1987, Viral Technologies, Inc., entered into a
licensing agreement with Nippon Zeon Company, Ltd., a Japanese
company. Under the agreement, Nippon Zeon will engage in the
development and testing and, if development is successful, the
marketing of the potential AIDS vaccine in the Pacific area.
As a result, Viral Technologies, Inc., received
precommercialization payments of $850,000 during the year
ended September 30, 1988. Additional precommercialization
payments are due upon the meeting of certain agreed-upon
milestones, during the development, clinical testing, and
regulatory process. If the product is sold in any of the
licensed countries, Viral Technologies, Inc., will be entitled
to royalties.
5. CREDIT ARRANGEMENTS
At September 30, 1994, the Company had draws against a line of
credit in the amount of $788,601. Subsequent to year-end this
amount was converted to a promissory note. The principal is
to be repaid over forty-eight consecutive months beginning
February 5, 1995. Interest on the outstanding balance is
calculated at the Bank's prime rate plus two percent, which is
9.5% at September 30, 1994, and is to be paid monthly with the
principal payments. The line of credit is secured by all
corporate assets and requires the Company to hold a
certificate of deposit equal to 20% of the outstanding balance
of the line of credit with the Bank. Under the line of
credit, the Company is also subject to certain minimum equity,
liquidity and operating covenants.
6. COMMITMENTS AND CONTINGENCIES
An officer and director of the Company has been involved in
legal proceedings concerning shares of the Company's common
stock. The officer and director was acting on behalf of the
Company in trying to secure financing, and the Company paid
legal fees in connection with these proceedings and
indemnified the officer for any loss he suffered upon the
settlement of these matters.
During 1992, one of the matters was settled by the officer and
director delivering 30,000 shares of the Company's common
stock to one plaintiff, and paying this plaintiff $200,000.
In the other matter, a European Court awarded a different
plaintiff 250,000 shares of the Company's common stock owned
by the officer and director. In October 1993, the Company
issued 250,000 shares of common stock to the plaintiff to
satisfy the judgment and in lieu of reimbursement to the
officer and director for this claim. The value of the shares
issued, $202,500, was expensed during 1993 and was included in
accrued expenses at September 30, 1993.
During 1992, the Company reimbursed the officer and director
for legal fees of approximately $60,000, incurred in
connection with the two legal proceedings.
During 1992, the Company decided to terminate its clinical and
pre-clinical studies arrangement with the University of South
Florida and accrued and expensed costs to terminate of
$200,000. During 1993, the termination was completed at an
actual cost of $200,700.
7. RELATED-PARTY TRANSACTIONS
The technology and know-how licensed to the Company was
developed by a group of researchers under the direction of Dr.
Hans-Ake Fabricius and was assigned during 1980 and 1981 to
Hooper Trading Company, N.V., a Netherlands Antilles
corporation (Hooper) and Shanksville Corporation, also a
Netherlands Antilles corporation (Shanksville). Maximillian
de Clara, an officer and director in the Company, and Dr.
Fabricius own 50% and 30%, respectively, of each of these
companies. The technology and know-how assigned to Hooper and
Shanksville was licensed to Sittona Company, B.V., a
Netherlands corporation (Sittona), effective September, 1982
pursuant to a licensing agreement which requires Sittona to
pay to Hooper and Shanksville royalties on income received by
Sittona respecting the technology and know-how licensed to
Sittona. In 1983, Sittona licensed this technology to the
Company. At such time as the Company generates revenues from
the sale or sublicense of this technology, the Company will be
required to pay royalties to Sittona equal to 10% of net sales
and 15% of licensing royalties received from third parties.
In that event, Sittona, pursuant to its licensing agreements
with Hooper and Shanksville, will be required to pay to those
companies a minimum of 10% of any royalty payments received
from the Company.
In 1985 Mr. de Clara acquired 100% of the issued and
outstanding stock of Sittona. Mr. de Clara and Dr. Fabricius,
because of their ownership interests in Hooper and
Shanksville, could receive approximately 50% and 30%
respectively, of any royalties paid by Sittona to Hooper and
Shanksville, and Mr. de Clara, through his interest in all
three companies (Hooper, Shanksville, and Sittona), will
receive up to 95% of any royalties paid by the Company.
During 1992, the Company reimbursed an officer and director
for legal fees incurred in connection with certain legal
proceedings as discussed in Note 6. In addition, during 1992
the Company paid the officer and director $200,000
representing the amount which he paid in connection with one
of the legal proceedings discussed in Note 6, and, in 1993,
issued 30,000 shares of common stock to the officer and
director as reimbursement for shares he delivered in
connection with the proceeding. The $200,000 payment was
expensed in 1992, and the value of the 30,000 shares, $20,100,
was expensed in 1993.
8. INCOME TAXES
The approximate tax effect of each type of temporary
differences and carryforward that gave rise to the Company's
tax assets and liabilities at September 30, 1994, is as
follows:
The Company has available for income tax purposes net
operating loss carryforwards of approximately $20,219,000,
expiring from 1998 through 2006.
In the event of a significant change in the ownership of the
Company, the utilization of such carryforwards could be
substantially limited.
9. STOCK OPTIONS, WARRANTS, AND BONUS PLAN
On February 23, 1988, the shareholders of the Company adopted
the 1987 Nonqualified Stock Option and Stock Bonus Plan (the
1987 Plan). This plan reserved 2,000,000 shares of the
Company's previously unissued common stock to be granted as
incentive stock options to employees. The 1987 Plan reserved
500,000 shares of the Company's previously unissued common
stock to be granted as stock bonuses to employees. The
exercise price of the options could not be established at less
than fair market value on the date of grant and the option
period could not be greater than ten years. During 1992, the
1987 Plan was terminated and no further options will be
granted and no further bonus shares will be issued pursuant to
the 1987 Plan.
On September 30, 1992, the shareholders of the Company
approved the adoption of three new plans, the 1992 Incentive
Stock Option Plan (1992 Incentive Plan), the 1992 Non-
Qualified Stock Option Plan (1992 Non-Qualified Plan) and the
Stock Bonus Plan (1992 Bonus Plan). Shares are reserved under
each plan and total 1,000,000, 600,000 and 400,000 shares,
respectively. Only employees of the Company are eligible to
receive options under the Incentive Plan, while the Company's
employees, directors, officers, and consultants or advisors
are eligible to be granted options under the Non-Qualified
Plan or issued shares under the Bonus Plan. Terms of the
options are to be determined by the Company's Compensation
Committee which will administer all of the plans, but in no
event are options to be granted for shares at a price below
fair market value at date of grant. Options granted under the
option plans must be granted, or shares issued under the bonus
plan, issued, before August 20, 2002.
On July 29, 1994, the Board of Directors approved the adoption
of two new plans, subject to shareholder approval, the 1994
Incentive Stock Option Plan (1994 Incentive Plan) and the 1994
Non-Qualified Stock Option Plan (1994 Non-Qualified). Shares
are reserved under each plan and total 1,000,000 shares for
each plan. Only employees of the Company are eligible to
receive options under the 1994 Incentive Plan, while the
Company's employees, directors, officers, and consultants or
advisors are eligible to be granted options under the 1994 Non-
Qualified Plan. Terms of the options are to be determined by
the Company's Compensation Committee, which will administer
all of the plans, but in no event are options to be granted
for shares at a price below fair market value at date of
grant. Options granted under the option plans must be
granted, or shares issued under the bonus plan issued before
July 29, 2004.
Information regarding the Company's stock option plan is
summarized as follows:
During 1991, the Company granted a consultant an option to
purchase 500,000 shares of the Company's common stock. The
option is exercisable at $1.38 per share and expires in March
1996. The holder of the option has the right to have the
shares issuable upon the exercise of the option included in
any registration statement filed by the Company.
Also during 1991, the Company granted another consultant
options to purchase 60,000 shares of the Company's common
stock. Options to purchase 6,667 shares expired in April 1992.
Options to purchase 13,333 shares at $0.25 per share were
exercised in
April 1993. At September 30, 1994, options to purchase 40,000
shares were outstanding and exercisable at prices ranging from
$.25 to $1.50 per share.
In connection with the 1992 public offering discussed in Note
11, 5,175,000 common stock purchase warrants were issued and
are outstanding at September 30, 1994. Each warrant entitles
the holder to purchase one share of common stock at a price of
$4.65 per share. Subsequent to September 30, 1994, the
expiration of these warrants was extended to February 1996.
The Company may accelerate the expiration date of the warrants
by giving 30 days notice to the warrant holders, provided,
however, that at the time the Company gives such notice of
acceleration (1) the Company has in effect a current
registration statement covering the shares of common stock
issuable upon the exercise of the warrants and (2) at anytime
during the 30-day period preceding such notice, the average
closing bid price of the Company's common stock has been at
least 20% higher than the warrant exercise price for 15
consecutive trading days.
Also in connection with the 1992 offering, the Company issued
to the underwriter warrants to purchase 90,000 equity units,
each unit consisting of 5 shares of common stock and 5
warrants entitling the holder to purchase one additional share
of common stock. The equity unit warrants are outstanding at
September 30, 1994 and are exercisable through February 8,
1997, at a price of $25.57 per unit. The common stock
warrants included in the units are exercisable at a price of
$7.67 per share.
10.EMPLOYEE BENEFIT PLAN
During 1993 the Company implemented a defined contribution
retirement plan, qualifying under Section 401(k) of the
Internal Revenue Code, subject to the Employee Retirement
Income Security Act of 1974, as amended, and covering
substantially all CEL-SCI employees. The employer
contribution is equal to 50% of each employee's contribution
to a maximum of 6% of the participant's salary. The expense
for the year ended September 30, 1994 and 1993 in connection
with this plan was approximately $16,160 and $7,700,
respectively.
11.LEASE COMMITMENTS
Operating Leases The future minimum annual rental payments due
under noncancelable operating leases for office and laboratory
space are as follows:
Rent expense for the year ended September 30, 1994, 1993, and
1992, was approximately $122,369, $55,000, and $32,000,
respectively.
12.STOCKHOLDERS' EQUITY
During 1994, the Company granted 15,000 shares of common stock
to an officer as a bonus award. The Company also issued
250,000 shares to satisfy the judgment against an officer and
director. The issuance was to the plantiff in lieu of
reimbursement to the officer and director. The judgment was
settled in 1993 and the expense of the issuance was recorded
in 1993.
During 1993, the Company received $27,333 cash for 73,333
shares
of common stock.
During 1992, the Company issued common stock to investors for
cash pursuant to a public offering. Net proceeds of
$13,852,780 were received for 5,175,000 shares of common
stock.
In September 1991, the Company received subscriptions for
1,275,000 shares of its common stock from eleven persons for
$1.00 per share or a total of $1,275,000. Cash of $250,000
was received in September 1991 and the remainder in October
1991. Commissions payable of $161,250 at September 30, 1991,
relative to the offering were paid in October 1991 by the
issuance of 161,250 shares of stock.
CEL-SCI CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1995 AND 1994 (unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with
rules established by the Securities and Exchange Commission for interim
financial statements. Not all financial disclosures required to present
the financial position and results of operations in accordance with
generally accepted accounting principles are included herein. The reader
is referred to the Company's Financial Statements for the years ended
September 30, 1994 and 1993 which are included elsewhere in this
Prospectus. In the opinion of management, all accruals and adjustments
(each of which is of a normal recurring nature) necessary for a fair
presentation of the financial position as of June 30, 1995 and the results
of operations for the ninemonth periods ended June 30, 1995 and 1994 have
been made.
Investments
Effective September 30, 1994, the Company adopted, on a prospective basis,
Statement of Financial Accounting Standard No. 115, "Accounting for
Certain Debt and Equity Securities (SFAS 115) and revised its policy for
investments. Investments that may be sold as part of the liquidity
management of the Company or for other factors are classified as
availablefor-sale and are carried at fair market value. Unrealized gains
and losses on such securities are reported as a separate component of
stockholders' equity. Realized gains and losses on sales of securities
are reported in earnings and computed using the specific identified cost
basis. The adoption of SFAS 115, which has not been applied retroactively
to prior years' financial statements, resulted in a decrease in
stockholders' equity of $85,753 for the net unrealized losses on
investments available-for-sale at September 30, 1994. This unrealized
loss declined to -0at June 30, 1995, as all investments in bonds were sold
prior to such date.
CEL-SCI CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1995 AND 1994
(unaudited)
(continued)
Loss per Share
Net loss per common share is based on the weighted average number of
common shares outstanding during the period. Common stock equivalents,
including options to purchase common stock, are excluded from the
calculation as they are antidilutive.
Long-lived Assets
Statement of Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of" is effective for financial statements for fiscal years
beginning after December 15, 1995. It is the Company's opinion that
the adoption of the statement would have no material effect on its
Financial Statements.
B. JOINT VENTURE LICENSING AGREEMENT
The operations of VTI for the nine months ended June 30, 1995 and
1994 are summarized as follows:
1995 1994
Income $ 0 $ 0
Expenses $ 794,446 $ 670,834
NET LOSS $ (794,446) $ (670,834)
The balance sheets of VTI at June 30, 1995 and September 30,
1994 are summarized as follows:
June 30 September 30
Current Assets $ 27,889 $ 24,403
Non-current Assets $ 151,183 $ 87,822
Current Liabilities $ 4,054,438 $ 3,197,143
Equity (deficit net of
initial capitalization) $(3,875,366) $(3,084,918)
CEL-SCI CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1995 AND 1994
(unaudited) (continued)
C. CONSTRUCTION OF NEW LABORATORY AND FUNDING
On January 31, 1994, the Company entered into a leasing
agreement with a non-affiliated landlord for 7,800 square
feet of space at 4820 Seton Drive, Baltimore, Maryland. In
the spring of 1994 the Company commenced construction of the new
laboratory at the leased space. The cost of the laboratory
buildout and equipment was approximately $1,100,000. To fund
this laboratory, the Company borrowed funds from a bank at a rate
of prime plus 2%. The outstanding loan balance at June 30, 1995
is $872,107.
The Company's note payable is to be repaid over forty-eight
consecutive months beginning February 5, 1995. Interest on
the outstanding balance is to be paid monthly with the
principal payments. The note is secured by all corporate
assets and requires the Company to maintain a certificate of
deposit with the bank equal to 20% of the outstanding
principal balance of the note. Under the terms of the loan
agreement, the Company is also subject to certain minimum
equity, liquidity and operating covenants. The Company may
not pay any dividends without the consent of the bank.
D. SUBSEQUENT EVENTS
On May 1, 1995 the Company's stock underwent a 1-for-10
reverse stock split. This split was approved by a majority
of the shareholders at the April 28, 1995 Annual Meeting of
Shareholders.
In June 1995 the Company sold 575,000 Units at $2.00 per
Unit. Each Unit consisted of one share of Common Stock and
one Warrant. Each Warrant entitles the holder to purchase
one additional share of the Company's Common Stock for $3.25
per share at any time prior to June 30, 1997.
CEL-SCI CORPORATION
CONDENSED STATEMENTS OF CASH FLOW
(unaudited)
Nine Months Ended June
30, 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(2,966,006)
$(3,160,237)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 201,197 76,494
Equity in loss of joint venture 395,224
335,416
Amortization of premium on investments 60,954 0
Realized loss on sale of investments 13,422 0
Changes in assets and liabilities:
Decrease (increase) in inventory ( 207,397)
Decrease (increase) in interest receivable ( 341,206) 40,204
Decrease (increase) in prepaid expenses ( 18,456) (
7,984)
Decrease (increase) in advances 10,463 0
Increase (decrease) in payable to
officer and shareholder 0 (
38,228)
Decrease (increase) in receivable from
joint venture ( 123,952) 0
Increase (decrease) in accrued expenses 0 (
22,500)
Increase (decrease) in accounts payable ( 203,594) 76,975
NET CASH USED IN OPERATING ACTIVITIES (3,179,351)
(2,899,860)
CASH FLOWS PROVIDED BY (USED IN) INVESTING
ACTIVITY:
Purchases of investments ( 400,000)
(650,000)
Sales of investments 2,906,132
4,344,117
Advance to Joint Venture ( 287,952)
(250,000)
Laboratory construction ( 10,135)
(326,896)
Purchase of research and office equipment ( 128,750) (
37,794)
NET CASH USED IN INVESTING ACTIVITIES: 2,079,295
3,079,427
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Issuance of note payable 205,195
0
Payment on note ( 121,689)
0
Issuance of common stock 990,890
241,889
NET CASH PROVIDED BY FINANCING ACTIVITIES: 1,074,396 241,889
NET INCREASE IN CASH ( 25,660) 421,456
CASH AND CASH EQUIVALENTS:
Beginning of period 3,370,713
2,156,179
End of period $ 3,345,053 $
2,577,635
See notes to condensed financial statements.
CEL-SCI CORPORATION CONDENSED BALANCE
SHEETS
ASSETS
(unaudited)
June 30, September
30, 1995 1994
CURRENT ASSETS:
Cash and cash equivalents $3,345,053 $3,370,713
Investments, net 200,000 2,694,756
Inventory 207,397 0
Accounts receivable 457,939
116,733
Prepaid expenses 100,062 81,606
Advances to officer/employees 6,918 17,381
4,317,369 6,281,189
INTEREST RECEIVABLE FROM JOINT VENTURE 475,156 351,204
RESEARCH AND OFFICE EQUIPMENT -
Less accumulated depreciation of
$535,448 and $355,430 1,144,366 1,185,499
PATENT COSTS less accumulated
amortization of $232,431
and $211,253 247,601 268,778
$6,184,492 $8,086,670
See notes to condensed financial statements.
CEL-SCI CORPORATION CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
June 30, September
30, 1995 1994
CURRENT LIABILITIES:
Accounts payable $ 120,585 $324,179
Current portion note payable 147,861 147,861
Total current liabilities 268,446 472,040
NOTE PAYABLE 724,246
640,740
DEFERRED RENT 17,598
17,598
EQUITY IN SUBSIDIARY 384,496
277,224
Total Liabilities 1,394,786
1,407,602
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
authorized, 200,000 shares;
none issued -
- -
Common stock, $.01 par value;
authorized, 100,000,000 shares;
issued and outstanding,
4,763,244 and 4,188,244 shares 47,632 41,882
Additional paid-in capital 27,839,988
26,854,848
Net unrealized loss on marketable
equity securities 0 ( 85,753)
Deficit (23,097,914) (20,131,909)
TOTAL STOCKHOLDERS' EQUITY 4,789,706 6,679,068
$ 6,184,492 $ 8,086,670
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended
June 30,
1995 1994
REVENUES:
Gross Sales $ 39,588 $ 0
Interest Income 273,417 629,034
Other 0 0
TOTAL INCOME 313,005 629,034
EXPENSES:
Research and Development 1,378,005 2,192,645
Depreciation and
Amortization 201,197 76,494
General and Administrative 1,304,585 1,184,716
TOTAL OPERATING EXPENSES 2,883,787 3,453,855
EQUITY IN LOSS OF JOINT VENTURE (395,224) (335,416)
3,279,011 3,789,271
NET LOSS $2,966,006 $3,160,247
LOSS PER COMMON SHARE $0.70 $0.75
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,194,563 4,184,634
See notes to condensed financial statements.
