CALCULATION OF REGISTRATION FEE
Title of each Proposed
Proposed
Class of Maximum
Maximum
Securities Securities Offering Aggregate Amount
of
to be to be Price Per Offering
Registration
Registered Registered Unit (1) Price Fee
Common Stock (2) 437,500 $9.38 $4,103,750
$1,415
Total $4,103,750
$1,415
(1) Offering price computed in accordance with Rule 457(c).
(2) The shares of Common Stock are offered to the holders of the
Company's Series A Preferred Stock if and when the holders of the
Series A Preferred Stock elect to convert the Preferred Stock into
shares of the Company's Common Stock. The shares of Common Stock are
subject to adjustment in accordance with the terms of the Series A
Preferred Stock.
The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter
become effective in accordance with Section 8(a) of the Securities
Act of l933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
CEL-SCI CORPORATION
CROSS REFERENCE SHEET
Item in Form S-l
Location
in
Prospectus
Item 1 Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus .............................. Facing Page;
Outside Front
Cover Page
Item 2 Inside Front and Outside Back Cover
Pages of Prospectus ..................... Inside Front
Cover Page;
Outside Back
Cover Page
Item 3 Summary Information, Risk Factors and
Ratio of Earnings to Fixed Changes ...... Prospectus
Summary; Risk
Factors
Item 4 Use of Proceeds ......................... Not
Applicable.
Item 5 Determination of Offering Price ......... Selling
Shareholders
Item 6 Dilution ................................ Dilution
Item 7 Selling Security Holders ................
Selling
Shareholders
Item 8 Plan of Distribution .................... Selling
Shareholders
Item 9 Description of Securities to be
Registered .............................. Description of
Securities
Item l0 Interest of Named Experts and Counsel ... Experts
Item 11 Information with Respect to the
Registrant
(a) Description of Business .................
Business
(b) Description of Property .................
Business
(c) Legal Proceedings ....................... Legal Proceedings
(d) Certain Market Information .............. Market
Information,
Description of
Securities
(e) Financial Statements .................... Financial
Statements
(f) Selected Financial Data ................. Selected
Financial
Data
(g) Supplementary Financial Information ..... Not applicable
(h)
Management's Discussion and Analysis .... Management's
Discussion and
Analysis of Financial Condition and Results of Operation
(i) Disagreements with Accountants .......... Not applicable
(j) Directors and Executive Officers ........ Management
(k) Executive Compensation ..................
Management
(l) Security Ownership of Certain
Beneficial Owners and Management ........ Principa
l
Sharehol
de rs
(m) Certain Relationships and Related
Transactions ............................
Management Item l2.
Disclosure of Commission Position
on Indemnification for Securities Act
Liabilities ............................. Not applicable
PROSPECTUS CEL-SCI CORPORATION
437,500 Shares of Common Stock
This Prospectus relates to the offer and sale of up to
437,500 shares of Common Stock to the holders of the Company's Series
A Preferred Stock (the "Preferred Stock") if and when the holders of
the Preferred Stock elect to convert the Preferred Stock into shares
of the Company's Common Stock. The holders of the Preferred Stock may
resell the shares they receive upon conversion from time to time in
the public market. The holders of the Preferred Stock, to the extent
they convert the Preferred Stock into shares of Common Stock, are
sometimes referred to in this Prospectus as the "Selling
Shareholders". The Company will not receive any proceeds from the
resale of the shares by the Selling Shareholders. The Selling
Shareholders have advised the Company that they will offer the shares
through broker/dealers at market prices with customary commissions
being paid by the Selling Shareholders. The costs of registering the
shares offered by the Selling Shareholders are being paid by the
Company. The Selling Shareholders will pay all other costs of the
sale of the shares offered by them. See "Selling Shareholders".
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO
LOSE THEIR ENTIRE INVESTMENT. FOR A DESCRIPTION OF CERTAIN IMPORTANT
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK
FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS AND "DILUTION".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
On May 30, 1996 the closing prices of the Company's Common
Stock
and Warrants on the NASDAQ National Market System were $11.37 and
$0.63,
respectively. See "Market Information".
The Date of this Prospectus is , 1996
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of l934 and in accordance therewith is
required to file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Copies of
any such reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facility
maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. and at the Commission's Regional offices in New York
(7 World Trade Center, Suite 1300, New York, New York 10048) and
Chicago (Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511). Copies of such material can be obtained from the Public
Reference Section of the Commission at its office in Washington, D.C.
20549 at prescribed rates. The Company has filed with the Commission
a Registration Statement on Form S-1 (together with all amendments
and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), with respect to the
Units offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the
Registration Statement.
PROSPECTUS SUMMARY
THIS SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND
FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
The Company
CEL-SCI Corporation (the "Company") was formed as a Colorado
corporation in 1983. The Company is involved in the research and
development
of certain drugs and vaccines. The Company's first product,
MULTIKINETM, manufactured using the Company's proprietary cell
culture technologies, is a combination, or "cocktail", of natural
human interleukin-2 ("IL-2") and certain lymphokines and cytokines.
MULTIKINE is being tested to determine if it is effective in
improving
the immune response of advanced cancer pantients. The Company's
second product, HGP-30, is being tested to determine if it is an
effective treatment/vaccine against the AIDS virus. In addition, the
Company recently acquired a new patented T-cell Modulation Process
which uses "heteroconjugates" to direct the body to chose a specific
immune response. The Company intends to use this new technology to
improve the cellular immune response of persons vaccinated with HGP-
30.
Before human testing can begin with respect to a drug or
biological product, preclinical studies are conducted in laboratory
animals to evaluate the potential efficacy and the safety of a
product. Human clinical studies generally involve a three-phase
process. The initial clinical evaluation, Phase I, consists of
administering the product and testing for safe and tolerable dosage
levels. Phase II trials continue the evaluation of immunogenicity
and determine the appropriate dosage for the product, identify
possible side effects and risks in a larger group of subjects, and
provide preliminary indications of efficacy. Phase III trials
consist of testing for actual clinical efficacy for safety within an
expanded group of patients at geographically dispersed test sites.
See "Business Government Regulation" for a more detailed description
of the foregoing.
Between 1983 and 1986 the Company was primarily involved in
funding pre-clinical and Phase I clinical trials of MULTIKINE. These
trials were conducted at St. Thomas's Hospital Medical School in
London, England pursuant to authority granted by England's Department
of Health and Social Security. In July, 1991 physicians at a southern
Florida medical institution began human clinical trials using
MULTIKINE. The focus of these trials was the treatment of metastatic
malignant melanoma and unresectable head and neck cancer using
MULTIKINE. The clinical trials in Florida were conducted pursuant to
approvals obtained by the medical institution from the Florida
Department of Health and Rehabilitative Services.
In March 1995, the Canadian Health Protection Branch, Health
and Welfare Ministry gave clearance to the Company to start a phase
I/II cancer study using Multikine. The study, which will enroll up
to
30 head and neck cancer patients who have failed conventional
treatments, is expected to be conducted at the Ottawa Regional Cancer
Center and HotelDieu de Montreal Hospital. The study is designed to
evaluate safety, tumor responses and immune responses in patients
treated with multiple courses of Multikine. The length of time that
each patient will remain on the investigational treatment will depend
on the patient's response to treatment. In May l995, the U.S. Food
and Drug Administration (FDA)
authorized the export of the Company's Multikine drug to Canada for
purposes of this study.
In February 1996 the FDA authorized the Company to conduct
two human clinical studies using MULTIKINE and focusing on prostate
and head and neck cancer. The prostate study is being conducted at
Jefferson Hospital in Philadelphia, Pennsylvania and will involve up
to 15 prostate cancer patients who have failed on hormonal therapy.
The head and neck cancer study will involve up to 30 cancer patients
who have failed using conventional therapies. The head and neck
cancer study in the U.S. is being conducted in conjunction with the
Company's Canadian head and neck cancer study.
In October 1995 Viral Technologies, Inc. ("VTI") became a
whollyowned subsidiary of the Company. VTI is engaged in the
development of a possible treatment/vaccine for AIDS. VTI's
technology may also have application in the treatment of AIDS-
infected individuals and the diagnosis
of AIDS. VTI's AIDS treatment/vaccine, HGP-30, has completed certain
Phase I human clinical trials. In the Phase I trials, the vaccine
was administered to volunteers who were not infected with the HIV
virus in an effort to determine safe and tolerable dosage levels.
Product licensure in a foreign country or under state
authority does not mean that the product will be licensed by the FDA
and there are no assurances that the Company or VTI will receive any
approval of the FDA or any other governmental entity for the
manufacturing and/or marketing of a product. Consequently, the
commencement of the manufacturing and marketing by the Company or VTI
of any product is, in all likelihood, many years away. See
"Business".
The lack of government approval for the Company's or VTI's
products will prevent the Company and VTI from generally marketing
their products. Delays in obtaining government approval or the
failure to obtain government approval may have a material adverse
impact upon the Company's operations.
All of the Company's products are in the early stages of
development. The Company does not expect to develop commercial
products for several years, if at all. The Company has had operating
losses since its inception, has an accumulated deficit of
approximately $27,014,000 at March 31, 1996, and expects to incur
substantial losses for the foreseeable future.
The Company's executive offices are located at 66 Canal
Center Plaza, Suite 510, Alexandria, Virginia 22314, and its
telephone number is (703) 5495293.
THE OFFERING
Securities Offered: Up to 437,500 shares of Common Stock are
offered
to
the holders of the Company's Series A
Preferred Stock if and when the holders of
the Preferred Stock elect to convert the
Preferred Stock into shares of the Company's
Common Stock. The holders of the Preferred
Stock, to the extent they convert the
Preferred Stock into Common Stock, may resell
the shares they receive upon conversion from
time to time in the public market. The
holders of the Preferred Stock are sometimes
referred to in this Prospectus as the
"Selling Shareholders". The Company will not
receive any proceeds from the sale of the
shares offered by the Selling Shareholders.
See
"Selling
Shareholders".
Common Stock Outstand-
ing Prior To and After
Offering: As of the date of this Prospectus, the Company
had
6,328,581 shares of Common Stock issued and
outstanding. Assuming all of the shares of the
Series A Preferred Stock are converted to shares
of the Company's Common Stock, there will be
6,766,081 shares of Common Stock issued and
outstanding. The number of outstanding shares
before and after this Offering does not give
effect to shares which may be issued upon the
exercise and/or conversion of options, warrants or other convertible
securities previously issued by the Company. See "Dilution and
Comparative Share Data", "Selling Shareholders" and "Description of
Securities".
Risk Factors: The purchase of the Securities offered by this
Pros
pectus involves a high degree of risk. Risk
factors include the following: lack of revenues
and history of loss, need for additional
capital, government regulation, need for FDA
approval, and dilution. See "Risk Factors."
NASDAQ Symbols: Common Stock: CELI
Warrants: CELIW
Summary Financial Data
For the Years Ended September 30,
1995 1994 1993 1992 1991
Investment Income &
Other Revenues $ 423,765 $ 624,670 $ 997,964 $ 434,180
$35,972
Expenses:
Research and
Development 1,824,661 2,896,l09 1,307,042 481,697
108,771 Depreciation
and Amortization 262,705 138,755 55,372 33,536
32,582
General and
Administrative 1,713,912 1,621,990 1,696,119 1,309,475
795,015
Equity in loss of
joint venture 501,125 394,692 344,423 260,388
290,166
Net Loss $(3,878,638) $(4,426,876) $(2,404,992) $(1,650,916)
$(1,190,562) Loss per common
share $(0.89) $(1.06) $(0.58) $(0.42)
$(0.35) Weighted average
common shares
outstanding 4,342,628 4,185,240 4,155,431 3,953,233
3,400,546
Six Months Ended March
31, 1996
1995
Investment Income & Other Revenues $ 110,320 $
207,917
Expenses:
Research and Development 1,750,694
1,149,943
Depreciation and Amortization 139,962
133,986
General and Administrative 1,219,719
778,248
Equity in loss of joint venture 3,772
290,340
Net Loss $(3,003,827)
$(2,144,600)
Loss per common share $(0.52)
$(0.51)
Weighted average common shares
outstanding 5,825,011
4,188,244
Balance Sheet Data:
September 30,
1995 1994 1993 1992
1991
Working Capital $3,983,699 $5,795,191 $10,296,472 $13,043,012
$682,831 Total Assets 6,359,011 8,086,6 11,633,090 13,769,504
1,611,899
Total Liabilities 1,516,978 l,407,602 688,231 467,086
672,595
Shareholders'
Equity 4,842,033 6,679,068 10,944,859 13,302,4l8
939,304
March 31,
1996
Working Capital $4,136,693
Total Assets
$5,861,027
Total Liabilities
$2,022,319
Shareholders' Equity
$3,838,708
No dividends have been declared by the Company since its inception.
GLOSSARY OF TECHNICAL TERMS
AIDS. Acquired Immune Deficiency Syndrome.
A severe viral disease of the immune system
leading to other lethal infections and
malignancies.
Amino acids. Building blocks of proteins.
Antibody. A protein produced by certain white blood cells in
humans
and animals in response to a substance seen as non
self, that is a foreign antigen (such as a virus
or bacteria). An antibody binds specifically to a
single antigen.
Antigen. Any substance seen as foreign by the immune system
and
which triggers an antibody or cell-mediated
response from the body's immune system.
B-Cells. A type of lymphocyte which produces antibodies in
response to antigens.
Cytokines. Peptides which regulate the functions and/or
growth
of
other cells. Lymphokines are a type of cytokine.
HIV. Human Immunodeficiency Virus. The virus
responsible
for
AIDS and related diseases.
Lymphocytes. A type of white blood cells divided into two
classes,
B-cells and T-cells.
Lymphyokine. A specific group of hormones which regulate and
modify
the
various functions of both T-cells and B-cells.
There are many lymphokines, each of which is
thought to have distinctive chemical and
functional properties. IL-2 is but one of these
lymphokines.
Macrophage. A cell found in the body that has the ability to
kill
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 to holders
of the Company's Series A Preferred Stock. The Company previously
sold 3,500 shares of its Series A Preferred Stock for $3,500,000 (or
$1,000 per share) to certain private investors. The holders of the
Preferred Stock have the right to convert the Preferred Stock into
shares of the Company's Common Stock upon certain terms, and without
any additional payment to the Company. See "Description of
Securities." Accordingly, the Company will
not receive any proceeds from the issuance of the shares if the
Preferred Stock are converted into shares of the Company's Common
Stock.
Lack of Revenues and History of Loss. The Company has had
only limited revenues since it was formed in 1983. Since the date of
its formation and through March 31, 1996, the Company has incurred
net losses of approximately $27,014,000. During the years ended
September 30, 1993, 1994 and 1995 the Company suffered losses of
$2,404,992, $4,426,876 and $3,878,638 respectively. The Company has
relied principally upon the proceeds of public and private sales of
securities
to finance its activities to date. See "Management's Discussion and
Analysis". All of the Company's potential products are in the early
stages of development, and any commercial sale of these products will
be many years away. Accordingly, the Company expects to incur
substantial losses for the foreseeable future.
Need for Additional Capital. Clinical and other studies
necessary to obtain approval of a new drug can be time consuming and
costly, especially in the United States, but also in foreign
countries. The different steps necessary to obtain regulatory
approval, especially that of the Food and Drug Administration
("FDA"), involve significant costs. The Company expects that it will
need additional financing in order to fund the costs of future
clinical trials, related research, and general and administrative
expenses. The Company may be forced to delay or postpone development
and research expenditures if the Company is unable to secure adequate
sources of funds. These delays in development may have an adverse
effect on the Company's ability to produce a timely
and competitive product. There can be no assurance that the Company
will be able to obtain additional funding from other sources. See
"Management's Discussion and Analysis".
Viral Technologies, Inc. ("VTI"), a wholly-owned subsididary
of the Company, is dependent upon funding from the Company for its
operations and research programs. See "Business Viral Technologies,
Inc.".
Cost Estimates. The Company's estimates of the costs
associated with future clinical trials and research may be
substantially lower than the actual costs of these activities. If
the Company's cost estimates are incorrect, the Company will need
additional funding for its research efforts. See "Management's
Discussion and Analysis".
Government Regulation FDA Approval. Products which may be
developed by the Company or Viral Technologies, Inc. (or which may be
developed by affiliates or licensees) will require regulatory
approvals prior to sale. In particular, therapeutic agents and
diagnostic products are subject to approval, prior to general
marketing, by the FDA in the United States and by comparable agencies
in most foreign countries. The process of obtaining FDA and
corresponding foreign approvals is costly and time consuming,
particularly for pharmaceutical products such as those which might
ultimately be developed by the Company, Viral Technologies, Inc. or
its licensees, and there can be no assurance that such approvals will
be granted. Any failure to obtain or any delay in obtaining such
approvals may adversely affect the ability of potential licensees or
the Company to successfully market any products developed. Also, the
extent of adverse government regulations which might arise from
future legislative or administrative action cannot be predicted. The
clinical trial which the Company's affiliate, Viral Technologies,
Inc., is conducting in California is regulated by government agencies
in California and obtaining approvals from states for clinical trials
is likewise expensive and time consuming. See "Business Government
Regulation."
Dependence on Others to Manufacture Product. The Company
has an agreement with an unrelated corporation for the production,
until 1997, of MULTIKINE for research and testing purposes. At
present, this is the Company's only source of MULTIKINE. If this
corporation could not, for any reason, supply the Company with
MULTIKINE, the Company estimates that it
would take approximately six to ten months to obtain supplies of
MULTIKINE under an alternative manufacturing arrangement. The
Company does not know what cost it would incur to obtain this
alternative source of supply.
Licensed Technology Potential Conflicts of Interest. The
Company's clinical studies and research have been focused on
compounds, compositions and processes which were licensed to the
Company by Sittona Company, B.V. ("Sittona") in 1983. Maximilian de
Clara, the Company's president and a director, acquired control of
Sittona in 1985. Any commercial products developed by the Company
and based upon the technology licensed by Sittona will belong to
Sittona, subject to the Company's right to manufacture and sell such
products in accordance with the terms of the licensing agreement. The
Company's license remains in effect until the expiration or
abandonment of all patent rights or until the compounds, compositions
and processes subject to the license enter into the public domain,
whichever is later. The license may be terminated earlier for other
reasons, including the insolvency of the Company. Accordingly, a
conflict of interest may arise between the Company and Mr. de Clara
concerning the Company's continued rights to the licensed technology.
Any future transactions between the Company and Sittona will be
subject to the review and approval by a majority of the Company's
disinterested directors. See "Business Compounds and Processes
Licensed to the Company", and "Management Transactions with Related
Parties".
Technological Change. The biomedical field in which the
Company is involved is undergoing rapid and significant technological
change. The successful development of therapeutic agents and
diagnostic products from the compounds, compositions and processes
licensed to the Company, through Company financed research or as a
result of possible licensing arrangements with pharmaceutical or
other companies, will depend on its ability to be in the
technological forefront of this field. There can be no assurance
that the Company will achieve or maintain such a competitive position
or that other technological developments will not cause the Company's
proprietary technologies to become uneconomical or obsolete.
Patents. Since 1983 the Company, on behalf of the owners of
the compounds, compositions and processes licensed to the Company,
has filed applications for United States and foreign patents covering
certain aspects of the technology. Although the Company has paid the
costs of applying for and obtaining patents, the technology covered
by the patents is not owned by the Company, but by an affiliated
party which has licensed the technology to the Company. As of the
date of this Prospectus nine patents have been issued in the United
States and three patents have been issued in Europe. There is no
assurance that the applications still pending or which may be filed
in the future will result in the issuance of any patents.
Furthermore, there is no assurance as to the breadth and degree of
protection any issued patents might afford the owners of the patents
and the Company. Disputes may arise between the owners of the
patents or the Company and others as to the scope, validity and
ownership rights of these or other patents. Any defense of the
patents could prove costly and time consuming and there can be no
assurance that the Company or the owners of the patents will be in a
position, or will deem it advisable, to carry on such a defense.
Other private and public concerns, including universities, may have
filed applications for, or may have been issued, patents and are
expected to obtain additional patents and other proprietary rights to
technology potentially useful or necessary to the Company. The scope
and validity of such patents, if any, the extent to which the Company
or the owners of the patents may wish or need to acquire the rights
to such patents, and the cost and availability of such rights are
presently unknown. Also, as far as the Company relies upon
unpatented proprietary technology, there is no assurance that others
may not acquire or independently develop the same or similar
technology. The first patent licensed to the Company will expire in
the year 2000. Since the Company's Investigational New Drug
application relating to MULTIKINE has only recently been cleared by
the FDA, and since the Company does not know if it will ever be able
to sell Multikine on a
commercial basis, the Company
cannot predict what effect the expiration of this patent will have on
the Company. Notwithstanding the above, the Company believes that
later issued patents will protect the technology associated with
Multikine past the year 2000. See "Business Compounds and Processes
Licensed to the Company".
Product Liability Insurance. Although the Company has
product liability insurance for MULTIKINE and its HGP-30 vaccine, the
successful prosecution of a product liability case against the
Company could have a materially adverse effect upon its business if
the amount of any judgment exceeds the Company's insurance coverage.
Dependence on Management and Scientific Personnel. The
Company is dependent for its success on the continued availability of
its executive officers. The loss of the services of any of the
Company's executive officers could have an adverse effect on the
Company's business. The Company does not carry key man life
insurance on any of its officers. The Company's future success will
also depend upon its ability to attract and retain qualified
scientific personnel. There can be no assurance that the Company will
be able to hire and retain such necessary personnel. See
"Management".
NASDAQ Listing. Since February, 1992, the Company's common
stock and warrants have been listed on the NASDAQ National Market
System. In May, 1996 the Company was advised by the NASD that the
Company's securities may be delisted from the National Market System.
In the event of a delisting, the Company's securities would not
automatically be eligible for trading on the NASDAQ SmallCap market.
Although the Company has requested the NASD to maintain the Company's
listing on the NASDAQ National Market System, the Company plans to
file an application to have the Company's common stock traded on the
NASDAQ SmallCap Market in the event the Company's securities were
removed from the NASDAQ National Market System. Among other
requirements for an initial listing on the NASDAQ SmallCap Market,
the NASD requires the bid price of a security be at least $3.00 per
share.
Although the Company believes that it meets all requirements
necessary to have the Company's securities listed on the NASDAQ
SmallCap Market, in the event the Company's securities were removed
from the National Market System, there can be no assurance that the
Company's listing application for the NASDAQ SmallCap Market will be
approved.
The NASD requires, for continued inclusion on NASDAQ, that
the Company must maintain $2,000,000 in assets, $200,000 market value
of the public float, $1,000,000 in net worth and that the bid price
of the Company's Common Stock, must be at least $1.00, or in the
alternative, that the Company have (i) a net worth of at least
$2,000,000 and (ii) that the public float be at least $1,000,000. As
the Company does not have any control over the market price of its
Common Stock, the Company cannot assure it will be able to comply
with the requirements concerning the market value of the Company's
publicly traded securities. If the Company's securities were
delisted from the NASDAQ system, the Company's securities would trade
in the unorganized interdealer over-the-counter market through the
OTC Bulletin Board which provides significantly less liquidity than
the NASDAQ system. Securities which are not traded on the NASDAQ
system may be more difficult to sell and may be subject to more price
volatility than NASDAQ listed securities.
If the Company's Common Stock and/or Warrants were delisted
from NASDAQ, trades in such securities may then be subject to Rule
15g9 under the Securities Exchange Act of 1934, which rule imposes
certain requirements on broker/dealers who sell securities subject to
the rule to persons other than established customers and accredited
investors.
For transactions covered by the rule, brokers/dealers must make a
special suitability determination for purchasers of the securities
and receive the purchaser's written agreement to the transaction
prior to sale. Rule 15g9, if applicable to sales of the Company's
securities, may affect the ability of broker/dealers to sell the
Company's securities and may also affect the ability of owners of the
Company's common stock or warrants to sell such securities in the
secondary market and may otherwise affect the trading market in the
Company's securities.
The Securities and Exchange Commission has also adopted
rules that regulate broker/dealer practices in connection with
transactions in "penny stocks". Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the
NASDAQ system. The penny stock rules require a broker/dealer, prior
to a transaction in a penny stock not otherwise exempt from the
rules, to deliver a standardized risk disclosure document prepared by
the Commission that provides information about penny stocks and the
nature and level of risks in the penny stock market. The
broker/dealer also must provide the customer with current bid and
offer quotations for the penny stock, the compensation of the
broker/dealer and its salesperson in the transaction, and monthly
account statements showing the market value of each penny stock held
in the customer's account. The bid and offer quotations, and the
broker/dealer and salesperson compensation information, must be given
to the customer
orally or in writing prior to effecting the transaction and must be
given to the customer in writing before or with the customer's
confirmation. These disclosure requirements may have the effect of
reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules. If the Company's
securities become subject to the penny stock rules, persons owning
the Company's common stock or warrants may find it more difficult to
sell the common stock or warrants.
Options, Warrants and Convertible Securities. The Company
has issued options, warrants and other convertible securities
("Derivative Securities") which allow the holders to acquire
additional shares of the Company's Common Stock. In some cases the
Company has agreed that, at its expense, it will make appropriate
filings with the Securities and Exchange Commission so that the
securities underlying certain Derivative Securities will be available
for public sale. Such filings could result in substantial expense to
the Company and could hinder future financings by the Company.
For the terms of these Derivative Securities, the holders
thereof will have an opportunity to profit from any increase in the
market price of the Company's Common Stock without assuming the risks
of ownership. Holders of such Derivative Securities may exercise
and/or convert them at a time when the Company could obtain
additional capital on terms more favorable than those provided by the
Derivative Securities. The exercise or conversion of the Derivative
Securities will dilute the voting interest of the owners of presently
outstanding shares of the Company's Common Stock and may adversely
affect the ability of the Company to obtain additional capital in the
future. The sale of the shares of Common Stock issuable upon the
exercise or conversion of the Derivative Securities could adversely
affect the market price of the Company's stock. See "Dilution and
Comparative Share Data".
Competition. The competition in the research, development
and commercialization of products which may be used in the prevention
or treatment of cancer and AIDS is intense. Major pharmaceutical and
chemical companies, as well as specialized genetic engineering firms,
are developing products for these diseases. Many of these companies
have substantial financial, research and development, and marketing
resources and are capable of providing significant long-term
competition either by establishing inhouse research groups or by
forming collaborative ventures with other entities. In addition,
both smaller companies and non-profit institutions are active in
research relating to cancer and AIDS and are expected to become more
active in the future.
The clinical trials sponsored to date by the Company and VTI
have not been approved by the FDA, but rather have been conducted
pursuant to
approvals obtained from regulatory agencies in England, Canada and
certain states. Since the results of these clinical trials may not
be accepted by the FDA, companies which are conducting clinical
trials approved by the FDA may have a competitive advantage in that
the products of such companies are further advanced in the regulatory
process than those of the Company or VTI.
Lack of Dividends. There can be no assurance the Company
will be profitable. At the present time, the Company intends to use
available funds to finance the Company's operations. Accordingly,
while payment of dividends rests within the discretion of the Board
of Directors, no dividends have been declared or paid by the Company.
The Company does not presently intend to pay dividends and there can
be no assurance that dividends will ever be paid. Pursuant to the
terms of a loan agreement with a bank, the Company may not
pay any dividends without the consent
of the
bank.
Dilution. Persons purchasing the securities offered by this
Prospectus will suffer an immediate dilution in the per share net
tangible book value of their Common Stock. See "Dilution and
Comparative Share Data."
Preferred Stock. The Company's Articles of Incorporation
authorize the Company's Board of Directors to issue up to 200,000
shares of Preferred Stock. The provisions in the Company's Articles
of Incorporation relating to the Preferred Stock allow the Company's
directors to issue Preferred Stock with multiple votes per share and
dividends rights which would have priority over any dividends paid
with respect to the Company's Common Stock. The issuance of
Preferred Stock with such rights may make the removal of management
difficult even if such removal would be considered beneficial to
shareholders generally, and will have the effect of limiting
shareholder participation in certain transactions such as mergers or
tender offers if such transactions are not favored by incumbent
management.
DILUTION AND COMPARATIVE SHARE DATA
As of March 31, 1996, the present shareholders of the
Company owned 6,328,581 shares of Common Stock, which had a net
tangible book value of approximately $0.42 per share. The following
table illustrates the comparative stock ownership of the other
stockholders of the Company as compared to the investors in this
Offering assuming all shares offered are sold.
Shares outstanding (1) 6,328,581
Shares to be issued upon conversion of
Series A Preferred Stock, based upon closing
price of the Company's common stock on
May 30, 1996 ($11.37) 437,500
Shares outstanding (pro forma basis) (1)
6,766,081
Net tangible book value per share
at March 31, 1996
$0.42 Equity ownership by present shareholders
after this offering 93.5%
Equity ownership by investors in this
Offering
6.5%
(1) Amount excludes shares which may be issued upon the
exercise
and/or conversion of options, warrants and other convertible
securities previously issued by the Company. See table below.
The purchasers of the securities offered by this
Prospectus
will suffer an immediate dilution if the price paid for the
securities offered is greater than the net tangible book value of
the Company's Common Stock.
"Net tangible book value" is the amount that results from
subtracting the total liabilities and intangible assets of the
Company from its total assets. "Dilution" is the difference between
the offering price and the net tangible book value of shares
immediately after the Offering.
As of March 31, 1996 the Company had 6,328,581 shares of
Common Stock issued and outstanding. The following table reflects
the additional shares which may be issued as the result of the
exercise of outstanding options and warrants or the conversion of
other securities issued by the Company.
Number of
Note Shares
Reference
Outstanding as of March 31, 1996 6,328,581
Shares Subject to this Offering:
Shares issuable upon conversion of
preferred stock 437,500
A
Shares outstanding upon the completion of this
Offering (assuming all shares
offered are sold)
6,766,081
Other Shares Which May Be Issued:
Shares issuable upon exercise of
warrants held by Investors in Company's
June and September 1995
Private Offerings 470,000
B
Shares issuable upon exercise of
warrants issued to Selling Agent, or its
assigns, in connection with the Company's
June and September 1995Private
Offerings
150,000 C
Shares issuable upon exercise of
warrants sold in Company's 1992
Public Offering
517,500
D
Shares issuable upon exercise of
warrants sold to Underwriter in connection with
Company's 1992 Public Offering
90,000
E
Shares issuable upon exercise of
options granted to Company's officers, directors,
employees and consultants
981,926
F
Shares issuable upon conversion of Notes, based on
closing price of the Company's
common stock on May 30, 1996 ($11.37) 250,000
G
9,225,507
A. In May 1996 the Company sold, in a private transaction, 3,500
shares of its Series A Preferred Stock (the "Preferred Shares")
for $3,500,000 or $1,000 per share. At the purchasers' option, up
to 1,750 Preferred Shares are convertible, on or after 60 days
from the closing date of the purchase of such shares (the
"Closing"), into shares of the Company's Common Stock on the basis
of one share of Preferred Stock for shares of Common Stock equal
in number to the amount determined by dividing $1,000 by 85% of
the Closing Price of the Company's Common Stock.
All Preferred Shares are convertible, on or after 90 days from
the Closing, on the basis of one share of Preferred Stock for
shares of the Company's Common Stock equal in number to the amount
determined by dividing $1,000 by 83% of the Closing Price of the
Company's Common Stock. The term "Closing Price" is defined as
the
average closing bid price of the Company's Common Stock over the
fiveday trading period ending on the day prior to the conversion of
the Preferred Stock. Notwithstanding the above, the conversion price
may not be less than $3.00 nor more than $8.00, except that if the
Closing Price is less than $3.00, then the conversion price will be
equal to the Closing Price. The Preferred Shares, if issued, are
entitled to a quarterly dividend of $17.50 per share. Any Preferred
Shares which are outstanding on the second anniversary of the Closing
will be automatically converted into shares of the Company's Common
Stock.
The Preferred Shares have a liquidation preference over the
Company's Common Stock. The shares issuable upon the conversion
of the Preferred Stock are offered by means of this Prospectus.
B. In June and September 1995 the Company sold, in private
offerings, 1,150,000 Units, at $2.00 per Unit, to five persons
(the "Private Investors"). Each Unit consisted of one share of
Common Stock and one Warrant. Each Warrant originally entitled
the holder to purchase one additional share of Common Stock at a
price of $3.25 per share at any time prior to June 30, 1997. The
Company agreed to register the shares of Common Stock sold in
these Private Offerings (1,150,000 shares), as well as the shares
of Common Stock issuable upon the exercise of the Warrants
(1,150,000 shares) and to pay all expenses in connection with
such registration, exclusive of commissions and the fees and
expenses of counsel for the Private Investors. On November 30,
1995 the Company and the Private Investors agreed to reduce the
exercise price of the Warrants to $1.60 per share in return for
the commitment on the part of the Private Investors to exercise
312,500 Warrants ($500,000) prior to December 23, 1995 and an
additional 312,500 Warrants ($500,000) prior to January 31, 1996.
Prior to March 31,1996 the Private Investors collectively sold
1,519,930 shares of Common Stock which they acquired in the
Private Offerings. By means of a separate Registration
Statement, the shares of Common Stock purchased by the Private
Investors in the Private Offerings, as well as the shares
issuable upon the exercise of the Warrants described above, have
been registered for public sale.
C. In connection with the Company's June and September Private
Offerings, Neidiger/Tucker/Bruner, Inc., the Sales Agent for
these offerings, received a commission, a non-accountable expense
allowance and warrants to purchase (i) 57,500 shares of the
Company's Common Stock at $2.00 per share, (ii) 57,500 shares at
$2.40 per share, and (ii) an additional 115,000 shares at $3.25
per share. Prior to March 3l, l995 the Sales Agent (and/or its
assigns) collectively exercised Warrants pertaining to 40,000
shares of the Company's Common Stock. By means of a separate
Registration Statement, 17,500 shares of Common Stock issuable
upon the exercise of the remaining Warrants issued to the Sales
Agent have been registered for public sale.
D. See "Description of Securities".
E. The Underwriter's Warrants provide that the Company, at its
expense, will make appropriate filings with the Securities and
Exchange Commission so that the securities underlying the
Underwriter's Warrants will be available for public sale.
F. The options are exercisable at prices ranging from $2.87 to
$19.70 per share. The Company may also grant options to purchase
117,407 additional shares under its Incentive Stock Option and
NonQualified Stock Option Plans. See "Management Stock Option
and Bonus Plans".
G. In March 1996 the Company sold $l,250,000 of Convertible Notes
("Notes") to two persons. The Notes are convertible from time to
time
in whole or in part, into shares of the Company's Common Stock.
The conversion price is the lesser of (i) $5 per share or (ii)
80% of the average closing bid price of the Company's Common
Stock
during the five trading days immediately preceding the date of such
conversion. Notwithstanding the above, the conversion price may not
be less than $2.40 per share. The Notes are payable on December 1,
1996 and accrue interest at 10% per annum. The Company has agreed to
make appropriate filings with the Securities and Exchange Commission
such that the shares issuable upon the conversion of the Notes will
be available for public sale. See "Risk Factors".
MARKET INFORMATION
As of March 31, 1996, there were approximately 3,000 record
holders of the Company's Common Stock and approximately 100 record
holders of the Company's Warrants. The Company has not issued any
shares
of preferred stock. The Company's Common Stock and Warrants are
traded on the National Association of Securities Dealers Automatic
Quotation ("NASDAQ") System. Set forth below are the range of high
and low bid quotations for the periods indicated as reported by
NASDAQ, and as adjusted for the 10 for 1 reverse stock split which
was approved by the Company's shareholders on April 28, 1995 and
became effective on May 1, 1995. The market quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commissions and
may not necessarily represent actual transactions.
Quarter
Ending Common Stock
Warrants
High Low
High
Low
12/31/93 $20.00 $13.40
$0.94
$0.41
3/31/94 $18.10 $10.30
$0.75
$0.28
6/30/94 $10.90 $ 8.10
$0.31
$0.19
9/30/94 $10.30 $ 5.60
$0.21
$0.12
12/31/94 $ 7.50 $ 3.40
$0.25
$0.09
3/31/95 $ 4.00 $ 3.75
$0.22
$0.13
6/30/95 $ 5.30 $ 2.78
$0.15
$0.06
9/30/95 $ 5.46 $ 3.56
$0.28
$0.09
12/31/95 $ 4.75 $ 2.28
$0.25
$0.09
3/31/96 $ 7.12 $ 2.68
$0.28
$0.03
Holders of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds
legally available therefor and, in the event of liquidation, to share
pro rata in any distribution of the Company's assets after payment of
liabilities. The Board of Directors is not obligated to declare a
dividend. The Company has not paid any dividends and the Company
does not have any current plans to pay any dividends. Pursuant to
the terms of a loan agreement with a bank, the Company may not pay
any dividends without the consent of the bank. See Note 5 to the
Company's September 30, 1995
financial statements.
The provisions in the Company's Articles of Incorporation
relating to the Company's Preferred Stock would allow the Company's
directors to issue Preferred Stock with rights to multiple votes per
share and dividends rights which would have priority over any
dividends paid with respect to the Company's Common Stock. The
issuance of Preferred Stock with such rights may make more difficult
the removal of management even if such removal would be considered
beneficial to shareholders generally, and will have the effect of
limiting shareholder participation in certain transactions such as
mergers or tender offers if such transactions are not favored by
incumbent management.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the more detailed financial statements, related notes and other
financial information included herein. See also "Management's
Discussion and Analysis".
For the Years Ended September
30, 1995 1994 1993 1992
1991
Investment Income &
Other Revenues $423,765 $ 624,670 $ 997,964 $ 434,180 $35,972
Expenses:
Research and
Development 1,824,661 2,896,l09 1,307,042 481,697 108,771
Depreciation
and Amortization 262,705 138,755 55,372 33,536
32,582
General and
Administrative 1,713,912 1,621,990 1,696,119 1,309,475 795,015
Equity in loss of
joint venture 501,125 394,692 344,423 260,388
290,166
Net Loss $(3,878,638) $(4,426,876) $(2,404,992) $(1,650,916)
$(1,190,562)
Loss per common
share $(0.89) $(1.06) $(0.58) $(0.42)
$(0.35)
Weighted average
common shares
outstanding 4,342,628 4,185,240 4,155,431 3,953,233
3,400,546
Six Months Ended March
31, 1996 1995
Investment Income & Other Revenues $ 110,320 $207,917
Expenses:
Research and Development 1,750,694 1,149,943
Depreciation and Amortization 139,962 133,986
General and Administrative 1,219,719 778,248
Equity in loss of joint venture 3,772 290,340
Net Loss $(3,003,827)
$(2,144,600)
Loss per common share $(0.52) $(0.51)
Weighted average common shares
outstanding 5,825,011 4,188,244
Balance Sheet Data:
September 30,
1995 1994 1993 1992
1991 Working Capital $3,983,699 $5,795,191 $10,296,472 $13,043,012
$ 682,831 Total Assets 6,359,011 8,086,670 11,633,090
13,769,504
1,611,899 Total
Liabilities 1,516,978 l,407,602 688,231 467,086
672,595
Shareholders'
Equity 4,842,033 6,679,068 10,944,859 13,302,4l8
939,304
March 31, 1996
Working Capital $4,136,693
Total Assets
$5,861,027
Total Liabilities
$2,022,319
Shareholders' Equity
$3,838,708
No dividends have been declared by the Company since its
inception. MANAGEMENT'S DISCUSSION AND
ANALYSIS
Results of Operations
Six Months Ended March 31, 1996
Interest income during the six months ending March 31, 1996
reflects interest accrued on investments.
Prior to October 30, 1995, VTI was owned 50% by the Company
and 50% by Alpha 1 Biomedicals, Inc. Effective October 30, 1995 the
Company acquired Alpha 1's interest in VTI in exchange for 159,170
shares of the Company's common stock. Prior to this acquisition the
Company accounted for its investment in VTI using the equity method
of accounting. Following the acquisition of the remaining 50%
interest in VTI on October 30, 1995, the financial statements of VTI
have been consolidated with those of the Company.
The acquisition of VTI was accounted for under the purchase
method of accounting. Since the acquisition represented primarily
research and development costs, the purchase price for the remaining
50% interest in VTI was expensed and caused research and development
expense for the three months ended December 31, 1995 to increase
significantly.
The consolidation of VTI's financial statements with those
of the Company also had the following effects:
1. Interest income declined from the comparable period in
the previous year since interest income associated with the
Company's
loans to VTI was eliminated upon consolidation.
2. Current research and development expenses increased due
to the inclusion of VTI's research and development expenses with
those of the Company (the Company's research and development costs,
separate from those of VTI's,
decreased by approximately $100,000 due to cost savings achieved from
using the Company's laboratory which became operational in January
1995).
3. General and administrative expenses increased due to the
inclusion of VTI's general and administrative expenses.
4. Capitalized patent costs increased significantly.
Fiscal 1995
Revenues for the year ended September 30, 1995 consisted
primarily of interest earned on funds received from the Company's
February 1992 public offering. The interest income and investment
balances have declined from the previous year as funds were used for
ongoing expenses and equipping the Company's new laboratory.
Research and development expenses decreased due to the use of the
Company's laboratory for research programs and the completion of a
research and development project relating to the Company's
manufacturing process. General and administrative expenses increased
as the result of the expenses (approximately $100,000) associated
with the Company's 1995 annual meeting of shareholders. The Company
did not have any meetings of its shareholders during fiscal 1994.
Significant components of general and administrative expenses during
this year were salaries and employee benefits ($341,000), automobile,
travel and expense reimbursements ($271,000), shareholder
communications and investor relations ($245,000), legal and
accounting ($134,000), and officers and directors liability insurance
($138,000). Losses associated with the Company's joint venture
interest in VTI increased due to an increase in VTI's research and
development expenditures.
Fiscal 1994
Interest income during the year ending September 30, 1994
decreased from the prior year as a portion of the Company's
investments were sold to pay for operating expenses. Research and
development expenses increased due to the commencement of several new
research projects, all of which pertained to the Company's MULTIKINE
product. Significant components of general and administrative
expenses during this year were salaries and employee benefits
($442,039), travel and expense reimbursements ($294,217), shareholder
communications and investor relations ($267,070), legal and
accounting ($151,879), and officers and directors liability insurance
($147,564).
Fiscal 1993
Investment income during the year ending September 30, 1993
increased as the Company had use of the funds from its February, 1992
public offering for twelve months in fiscal 1993 as opposed to six
months in fiscal 1992. Research and development expenses increased
due to the commencement of several new research projects, all of
which pertained to the Company's MULTIKINE drug. General and
administrative expenses increased due to an increase in the cost of
Directors and Officers insurance, the implementation of an employee
401(K) plan, and the addition of new employees during the year.
Significant components of general and administrative expenses during
this year were salaries and employee benefits ($342,150), travel and
expense reimbursements ($266,007), shareholder communications and
investor relations ($341,024), legal and accounting ($107,254),
officers and directors liability insurance ($113,690), and the cost
of indemnifying an officer and director for losses sustained as the
result of actions taken on behalf of the Company ($202,500). Losses
associated with the Company's joint venture interest in VTI increased
due to an increase in VTI's research and development expenditures.
Liquidity and Capital Resources
The Company has had only limited revenues from
operations since its inception in March l983. The Company has
relied upon
proceeds realized from the public and private sale of its Common Stock
to meet its funding requirements. Funds raised by the Company have
been expended primarily in connection with the acquisition of an
exclusive worldwide license to certain patented and unpatented
proprietary technology and know-how relating to the human
immunological defense system, the funding of VTI's research and
development program,
patent applications, the repayment of debt, the continuation of
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, 1997.
In June and September, l995, the Company completed private
offerings whereby it sold a total of 1,150,000 units at $2.00 per unit.
Each unit consisted of one share of Common Stock and one Warrant. Each
Warrant entitles the holder to purchase one additional share of Common
Stock at a price of $3.25 per share at any time prior to June 30, 1997.
The net proceeds to the Company from these offerings, after the payment
of Sales Agent's commissions and other offering expenses, were
approximately $2,000,000. On November 30, 1995 the Company and the
investors in these Private Offerings agreed to reduce the exercise
price of the Warrants to $1.60 per share in return for the commitment
on the part of the investors to exercise 312,500 Warrants ($500,000)
prior to December 23, 1995 and an additional 312,500 Warrants
($500,000) prior to January 31, 1996.
In March 1996 the Company sold $l,250,000 of Convertible Notes
("Notes") to two persons. The Notes are convertible from time to time
in whole or in part, into shares of the Company's Common Stock. The
conversion price is the lesser of (i) $5 per share or (ii) 80% of the
average closing bid price of the Company's Common Stock during the five
trading days immediately preceding the date of such conversion.
Notwithstanding the above, the conversion price may not be less than
$2.40 per share. The Notes are payable on December 1, 1996 and accrue
interest at 10% per annum.
In May 1996 the Company sold 3,500 shares of its Series A
Preferred Stock (the "Preferred Shares") for $3,500,000 or $1,000 per
share. At the purchasers' option, up to 1,750 Preferred Shares are
convertible, on or after 60 days from the closing date of the purchase
of such shares (the "Closing"), into shares of the Company's Common
Stock on the basis of one share of Preferred Stock for shares of Common
Stock equal in number to the amount determined by dividing $1,000 by
85% of the Closing Price of the Company's Common Stock. All Preferred
Shares are convertible, on or after 90 days from the Closing, on the
basis of one share of Preferred Stock for shares of the Company's
Common Stock equal in number to the amount determined by dividing
$1,000 by 83% of the Closing Price of the Company's Common Stock. The
term "Closing Price" is defined as the average closing bid price of the
Company's Common Stock over the five-day trading period ending on the
day prior to the conversion of the Preferred Stock. Notwithstanding
the above, the conversion price may not be less than $3.00 nor more
than $8.00, except that if the Closing Price is less than $3.00, then
the conversion price will be equal to the Closing Price. The Preferred
Shares, if issued, are entitled to a quarterly dividend of $17.50 per
share. Any Preferred Shares which are outstanding on the second
anniversary of the Closing will be automatically converted into shares
of the Company's Common Stock. The Preferred Shares have a liquidation
preference over the Company's Common Stock. The shares issuable upon
the conversion of the Preferred Shares are being offered by means of
this Prospectus. See "Selling Shareholders".
During fiscal 1996 the Company plans to fund its U.S. and
Canadian clinical trials involving MULTIKINE. During fiscal 1996 the
Company also plans to provide VTI with the funding needed to continue
VTI's clinical trials. It should be noted that substantial additional
funds will be needed for more extensive clinical trials which will be
necessary before the Company or VTI will be able to apply to the FDA
for approval to sell any products which may be developed on a
commercial basis throughout the United States.
In October, 1994, the Company completed the construction of
its own research laboratory in a facility leased by the Company. The
cost of modifying the leased space and providing the equipment for the
research laboratory was approximately $1,200,000. In August 1994 the
Company obtained a loan to fund the majority of the costs for the
research laboratory. As of September 30, 1995 the Company owed
approximately $811,000 on this loan. Principal and interest on the loan
is due monthly. The loan matures in 1999 and bears interest at 2% plus
the prime lending rate.
The Company expects that it will spend approximately
$2,500,000 on research and development during the twelve month period
ending September 30, 1996. This amount includes VTI's estimated
research and development expenses during fiscal 1996. Prior to October
1995, VTI's research and development expenses were shared 50% by the
Company and 50% by Alpha 1 Biomedicals, Inc. VTI became a wholly-owned
subsidiary of the Company in October 1995 when the Company purchased
Alpha 1's 50% interest in VTI. The Company plans to use its existing
financial resources to fund its research and development program during
this period.
Other than funding its research and development program and
the costs associated with its research laboratory, the Company does not
have any material capital commitments.
The Company expects that its existing financial resources will
satisfy the Company's capital requirements at least through December
1996. In the absence of revenues, the Company will be required to raise
additional funds through the sale of securities, debt financing or
other arrangements in order to continue with its research efforts after
that date. However, there can be no assurance that such financing will
be available or be available on favorable terms.
BUSINESS
CEL-SCI Corporation (the "Company") was formed as a Colorado
corporation in 1983. The Company is involved in the research and
development of certain drugs and vaccines. The Company's first
product, MULTIKINETM, manufactured using the Company's proprietary cell
culture technologies, is a combination, or "cocktail", of natural human
interleukin2 ("IL-2") and certain lymphokines and cytokines. MULTIKINE
is being tested to determine if it is effective in improving the immune
response of advanced cancer pantients. The Company's second product,
HGP30, is being tested to determine if it is an effective
treatment/vaccine against the AIDS virus. In addition, the Company
recently acquired a new patented Tcell Modulation Process which uses
"heteroconjugates" to direct the body to chose a specific immune
response. The Company intends to use this new technology to improve
the cellular immune response of persons vaccinated with HGP-30.
Since its inception the focus of the Company's product
development efforts has been on conducting clinical trials to test its
proprietary technologies. The Company intends to continue testing its
MULTIKINE product in clinical trials with the objective of establishing
its efficacy as a treatment for solid tumors and possibly other
diseases. An additional aim of the Company is to further corroborate
the present data (obtained in connection with the Company's research
programs and human clinical trials) in regard to the ability of
MULTIKINE to restore the immune system of people suffering from certain
illnesses.
The cost of acquiring its exclusive license and the costs
associated with the clinical trials relating to the Company's MULTIKINE
technologies, the cost of research at various institutions and the
Company's administrative expenses have been funded with the public and
private sales of shares of the Company's Common Stock and borrowings
from third parties, including affiliates of the Company.
In October 1995 Viral Technologies, Inc. ("VTI") became a
whollyowned subsidiary of the Company. VTI is engaged in the
development of a possible vaccine for AIDS. VTI's technology may also
have application in the treatment of AIDS-infected individuals and the
diagnosis of AIDS. VTI's AIDS vaccine, HGP-30, has completed certain
Phase I human clinical trials. In the Phase I trials, the vaccine was
administered to volunteers who were not infected with the HIV virus in
an effort to determine safe and tolerable dosage levels.
PRODUCT DEVELOPMENT PLAN
In March l995, the Canadian Health Protection Branch, Health
and Welfare Ministry gave clearance to the Company to start a phase
I/II cancer study using Multikine. The study, which will enroll up to
30 head and neck cancer patients who have failed conventional
treatments, is expected to be conducted at the Ottowa Regional Cancer
Center and the Hotel-Dieu de Montreal Hospital in Canada. The study is
designed to evaluate safety, tumor responses and immune responses in
patients treated with multiple courses of Multikine. The length of
time that each patient will remain on the investigational treatment
will depend on the patient's response to treatment. In May l995, the
U.S. Food and Drug Administration (FDA) authorized the export of the
Company's Multikine drug to Canada for purposes of this study.
In February 1996 the FDA authorized the Company to conduct two
human clinical studies using MULTIKINE. The studies will focus on
prostate and head and neck cancer. The prostate study will be
conducted at Jefferson Hospital in Philadelphia, Pennsylvania and will
involve up to 15 prostate cancer patients who have failed on hormonal
therapy. The head and neck cancer study will involve up to 30 cancer
patients who have failed using conventional therapies. The Company is
currently evaluating clinical centers in the U.S. for purposes of the
study. The head and neck cancer study in the U.S. will be conducted in
conjunction with the Company's Canadian head and neck cancer study.
Viral Technologies, Inc. ("VTI") completed its Phase I trials
in California and in April 1995, with the approval of the California
Food and Drug Branch ("FDB"), started a new clinical study with the HGP
30 AIDS vaccine. The study involves HIV-negative volunteers who
participated in the 1993 Phase I study. Following vaccinations with
HGP 30, certain volunteers donated blood for a SCID mouse HIV challenge
study. Infection in the SCID mice by virus was determined and
confirmed by two different assays. Approximately 78% of the SCID mice
given blood from vaccinated volunteers showed no HIV infection after
virus challenge as compared to 13% of the mice given blood from
unvaccinated donors. In December 1995 VTI, with permission from the
FDB, began Phase I human clinical trials with HIVinfected volunteers.
See "Viral Technologies, Inc." below for additional information
concerning VTI.
There can be no assurance that either the Company or VTI will
be successful in obtaining approvals from any regulatory authority to
conduct further clinical trials or to manufacture and sell their
products. The lack of regulatory approval for the Company's or VTI's
products will prevent the Company and VTI from generally marketing
their products. Delays in obtaining regulatory approval or the failure
to obtain regulatory approval in one or more countries may have a
material adverse impact upon the Company's operations.
BACKGROUND OF HUMAN IMMUNOLOGICAL SYSTEM
The function of the immunological system is to protect the
body against infectious agents, including viruses, bacteria, parasites
and malignant (cancer) cells. An individual's ability to respond to
infectious agents and to other substances (antigens) recognized as
foreign by the body's immune system is critical to health and survival.
When the immune response is adequate, infection is usually combatted
effectively and recovery follows. Severe infection can occur when the
immune response is inadequate. Such immune deficiency can be present
from birth but, in adult life, it is frequently acquired as a result of
intense sickness or as a result of the administration of
chemotherapeutic drugs and/or radiation. It is also recognized that, as
people reach middle age and thereafter, the immune system grows weaker.
Two classes of white blood cells, macrophages and lymphocytes,
are believed to be primarily responsible for immunity. Macrophages are
large cells whose principal immune activity is to digest and destroy
infectious agents. Lymphocytes are divided into two sub-classes. One
sub-class of lymphocytes, B-cells, produces antibodies in response to
antigens. Antibodies have unique combining sites (specificities) that
recognize the shape of particular antigens and bind with them. The
combination of an antibody with an antigen sets in motion a chain of
events which may neutralize the effects of the foreign substance. The
other sub-class of lymphocytes, T-cells, regulates immune responses. T
cells, for example, amplify or suppress antibody formation by B-cells,
and can also directly destroy "foreign" cells by activating "killer
cells."
It is generally recognized that the interplay among T-cells, B
cells and the macrophages determines the strength and breadth of the
body's
response to infection. It is believed that the activities of T-cells,
B cells and macrophages are controlled, to a large extent, by a
specific group of hormones called lymphokines. Lymphokines regulate
and modify the various functions of both T-cells and B-cells. There
are many lymphokines, each of which is thought to have distinctive
chemical and functional properties. IL2 is but one of these
lymphokines and it is on IL-2 and its synergy with other lymphokines
that the Company has focused its attention. Scientific and medical
investigation has established that IL-2 enhances immune responses by
causing activated T-cells to proliferate. Without such proliferation
no immune response can be mounted. Other lymphokines and cytokines
support Tcell and B-cell proliferation. However, IL-2 is the only
known lymphokine or cytokine which causes the proliferation of Tcells.
IL-2 is also known to activate B-cells in the absence of B-cell growth
factors.
Although IL-2 is one of the best characterized lymphokines
with anticancer potential, the Company is of the opinion that to have
optimum therapeutic value, IL-2 should be administered not as a single
substance but rather as a mixture of IL-2 and certain lymphokines and
cytokines, i.e. as a "cocktail". This approach, which was pioneered by
the Company, makes use of the synergism between these lymphokines. It
should be noted however that neither the FDA nor any other agency has
determined that the Company's MULTIKINE product will be effective
against any form of cancer.
It has been reported by researchers in the field of lymphokine
research that IL-2 can increase the number of killer T-cells produced
by the body, which improves the body's capacity to selectively destroy
specific tumor cells. Research and human clinical trials sponsored by
the Company have indicated a correlation between administration of
MULTIKINE to advanced cancer patients and immunological responses. On
the basis of these experimental results, the Company believes that
MULTIKINE may have application for the treatment of solid tumors in
humans.
The Company foresees three potential anti-cancer therapeutic
uses for MULTIKINE: (i) direct administration into the human body (in
vivo) as a modulator of the immune system, (ii) activation of a
patient's white blood cells outside the body with MULTIKINE, followed
by returning these activated cells to the patient; and (iii) a
combination of (i) and (ii).
RESEARCH AND DEVELOPMENT
In the past, the Company conducted its research pursuant to
arrangements with various universities and research organizations. The
Company provided grants to these institutions for the conduct of
specific research projects as suggested by the Company's scientists
based upon the results of previously completed projects.
More recently the Company has decided to consolidate its
research activities in a Company-owned laboratory. The Company
believes that this new approach will be more effective in terms of both
cost and performance.
Between 1983 and 1986 the Company was primarily involved in
funding pre-clinical and Phase I clinical trials of its proprietary
MULTIKINE technologies. These trials were conducted at St. Thomas's
Hospital Medical School located in London, England under the direction
of Dudley C. Dumonde, M.D., PhD., a former member of the SAB, and
pursuant to approvals obtained from England's Department of Health and
Social Security.
In the Phase I trial in England (completed in 1987), forty-
nine patients suffering with various forms of solid cancers, including
malignant melanoma, breast cancer, colon cancer, and other solid tumor
types were treated with MULTIKINE. The product was administered
directly into the lymphatic system in a number of patients.
Significant and lasting lymphnode responses, which are considered to be
an indication of improvement in the patient's immune responses, were
observed in these patients. A principal conclusion of the Phase I
trials was that the side effects of the Company's products in forty-
nine patients were not severe, the treatment was well tolerated and
there was no long-term toxicity.
The results of the Phase I clinical study were encouraging,
and as a result the Company established protocols for future clinical
trials. In November, 1990, the Florida Department of Health and
Rehabilitative Services ("DHRS") gave the physicians at a southern
Florida medical institution approval to start a clinical cancer trial
in Florida using the Company's MULTIKINE product. The focus of the
trial was unresectable
head and neck cancer (which is presently untreatable) and was the first
time that the natural MULTIKINE was administered to cancer patients in
a clinical trial in the United States.
Four patients with regionally advanced squamous cell cancer of
the head and neck were treated with the Company's MULTIKINE product.
The patients had previously received radical surgery followed by x-ray
therapy but developed recurrent tumors at multiple sites in the neck
and were diagnosed with terminal cancer. The patients had low levels
of lymphocytes and evidence of immune deficiency (generally a
characteristic of this type of cancer).
Significant tumor reduction occured in three of the four
patients as a result of the treatment with MULTIKINE. Negligible side
effects were observed and the patients were treated as outpatients.
Notwithstanding the above, it should be noted that these trials were
only preliminary and were only conducted on a small number of patients.
It remains to be seen if MULTIKINE will be effective in treating any
form of cancer.
See "Product Development Plan" above for information
concerning the Company's future research and development plans.
Proof of efficacy for anti-cancer drugs is a lengthy and
complex process. At this early stage of clinical investigation, it
remains to be proven that MULTIKINE will be effective against any form
of cancer. Even if some form of MULTIKINE is found to be effective in
the treatment of cancer, commercial use of MULTIKINE may be several
years away due to extensive safety and effectiveness tests that would
be necessary before required government approvals are obtained. It
should be noted that other companies and research teams are actively
involved in developing treatments and/or cures for cancer, and
accordingly, there can be no assurance that the Company's research
efforts, even if successful from a medical standpoint, can be completed
before those of its competitors.
Since 1983, and through September 30, 1995, approximately
$9,505,000 has been expended on Company-sponsored research and
development, including approximately $1,825,000, $2,896,000 and
$1,307,000 during the years ended September 30, 1995, 1994 and 1993,
respectively. The foregoing amounts do not include amounts spent by
Viral Technologies, Inc. on research and development. Since May, 1986
(the inception of VTI) and through September 30, 1995, VTI has spent
approximately $3,365,000 on research and development.
The Company has established a Scientific Advisory Board
("SAB")
comprised of scientists distinguished in biomedical research in the
field of lymphokines and related areas. From time to time, members of
the SAB advise the Company on its research activities. Institutions
with which members of the SAB are affiliated have and may in the future
conduct Company-sponsored research. The SAB has in the past and may in
the future, at its discretion, invite other scientists to opine in
confidence on the merits of the Companysponsored research. Members of
the SAB receive $500 per month from the Company and have also been
granted options (for serving as members of the SAB) which collectively
allow for the purchase of up to 15,000 shares of the Company's Common
Stock. The options are exercisable at prices ranging from $13.80 to
$19.70 per share.
The members of the Company's SAB are:
Dr. Michael Chirigos former head of the Virus and Disease
Modification Section, National Institutes of Health (NIH), National
Cancer Institute (NCI) from 1966-1981 and the Immuno Pharmacology
Section, NHI, NCI, Biological Response Modifier Program until 1985.
Dr. Evan M. Hersh Vice-Chairman, Department of Internal
Medicine, Chief, Section of Hematology/Oncology, Department of Internal
Medicine, Tucson, AZ. Director of Clinical Research, Arizona Cancer
Center, Tucson.
Dr. Michael J. Mastrangelo Director, Division of Medical
Oncology, and Professor of Medicine, Jefferson Medical College,
Philadelphia, Pennsylvania.
Dr. Alan B. Morris, PhD. Professor, Department of Biological
Sciences, University of Warwick, Coventry, U.K.
VIRAL TECHNOLOGIES, INC.
Prior to October 1995, Viral Technologies, Inc. ("VTI"), a
Delaware corporation, was 50% owned by the Company and 50% owned by
Alpha 1 Biomedicals, Inc. VTI is developing a vaccine technology that
may prove of commercial value in the prevention, diagnosis and
treatment of AIDS. VTI holds the proprietary rights to certain
synthesized components of the p17 gag protein, which is the outer core
region of the AIDS virus (HIV-1). In October 1995, the Company
acquired Alpha 1's interest in VTI in exchange for 159,170 shares of
the Company's common stock.
VTI is involved in the development of a prototype preventive
and therapeutic vaccine against AIDS that is based on HGP-30, a thirty
amino acid synthetic peptide derived from the p17 region of the AIDS
virus. Evidence compiled by scientists at George Washington University
from toxicology studies with different animal species indicates that
the
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 HGP-30 is a totally
synthetic molecule containing no live virus, it cannot cause infection.
Unlike the envelope (i.e. outside) proteins, the p17 region of the AIDS
virus appears to be relatively nonchanging. In January, 1991, VTI was
issued a United States patent covering the production, use and sale of
HGP-30. HGP-30 may also be effective in treating persons infected with
the AIDS virus.
Approval to start Phase I human clinical trials in Great
Britain using VTI's prototype AIDS vaccine HGP-30 was granted in April
1988. The trial, the first in the European common market, began in May
1989 with 18 healthy (HIVnegative) volunteers given three different
dosages and was completed in December 1990. The trial results
indicated that five of eight volunteers vaccinated with HGP-30, and
whose blood samples were able to be tested, produced "killer" T-cell
responses. The
vaccine also elicited cellmediated immunity responses in 7 out of 9
vaccinated volunteers and antibody responses in 15 out of 18
vaccinated volunteers.
In March, 1990, the California Department of Health Services
Food and Drug Branch (FDB) approved the first human testing (Phase I
trials) in
the United States of HGP-30. The trials were conducted by scientists
at the University of Southern California and San Francisco General
Hospital. Twentyone healthy HIV-negative volunteers at medical centers
in Los Angeles and San Francisco received escalating doses of HGP-30
with no clinically significant adverse side effects. The clinical
studies confirmed earlier clinical trials in London.
In April 1995 VTI, with the approval of the FDB, began another
clinical trial in California using volunteers who received two
vaccinations. The volunteers receiving the two lowest dosage levels
were asked to donate blood for a SCID mouse HIV challenge study. The
SCID mouse is considered to be
the best available animal model for HIV because it lacks its own
immune system and therefore permits human cell growth. White blood
cells from the five (5) vaccinated volunteers and from normal donors
were injected into groups of SCID mice. They were then challenged
with high levels of a different strain of the HIV virus than the one
from which HGP-30 is derived. Infection by virus was determined and
confirmed by two different assays, p24 antigen, a component of the
virus core, and reverse transcriptase activity, an enzyme critical to
HIV replication. Approximately 78% of the SCID mice given blood from
vaccinated volunteers showed no HIV infection after virus challenge as
compared to 13% of the
mice given blood from unvaccinated donors.
In December 1995 VTI, with permission from the FDB, began
Phase I human clinical trials with HIV-infected volunteers. VTI's
AIDS vaccine/treatment is only in the initial stages of testing and it
remains to be seen if the vaccine/treatment will be effective against
the AIDS virus.
Although there has been important independent research
showing the possible significance of the p17 region of HIV-1, there
can be no assurance that any of VTI's technology will be effective in
the prevention, diagnosis or treatment of AIDS. There can be no
assurance that other companies will not develop a product that is more
effective or that VTI ultimately will be able to develop and bring a
product to market in a timely manner that would enable it to derive
commercial benefits.
VTI's research and development efforts are presently focused
on the evaluation of second generation formulations and delivery
systems for HGP-30 and related peptides to enhance HIV-specific
cellular immune responses.
In January 1991, VTI was awarded a U.S. patent covering the
exclusive production, use and sale of HGP-30. This patent is thought
to be the first U.S. patent for a portion of a "core" protein of the
HIV virus. In February 1993, VTI was awarded a European patent
covering HGP30 and certain other peptides.
T-CELL MODULATION PROCESS
In January 1996 the Company acquired a new patented T-cell
Modulation Process which uses "heteroconjugates" to direct the body to
chose a specific immune response.
The ability to generate a specific immune response is important
because many diseases are often not combatted effectively due to the
body's selection of the "inappropriate" immune response. The
capability to specifically reprogram an immune response may offer a
more effective approach than existing vaccines and drugs in attacking
an underlying disease.
The Company intends to use this new technology to improve the
cellular immune response of VTI's HIV HGP-30 immunogen which is
currently in two clinical studies. In addition, the Company intends
to
use the technology to develop a potential Tuberculosis (TB)
vaccine/treatment. TB is the largest killer of all infectious
diseases worldwide and new strains of drug resistant TB are emerging
daily. The technology is also a potential platform technology which
could also work with many other peptides. Using this new technology,
the Company is currently conducting in vitro laboratory and in vivo
animal studies.
The technology was acquired from Cell-Med, Incorporated
("CELL MED") in consideration for the Company's agreement to pay
certain liabilities of CELL-MED in the amount of approximately $6,000.
If the Company elects to retain ownership in the technology after
March 30, 1997, the Company must pay CELL-MED $200,000, plus
additional payments ranging between $100,000 and $600,000, depending
upon the Company's ability to obtain regulatory approval for clinical
studies using the technology. In addition, should the Company receive
FDA approval for the sale of any product incorporating the technology,
the Company is obligated to pay CELLMED an advance royalty of
$500,000, a royalty of 5% of the sales price of any product using the
technology, plus 15% of any amounts the Company receives as a result
of sublicensing the technology. So long as the Company retains rights
in the technology, the Company has also agreed to pay the future costs
associated with pursuing and or maintaining CELLMED's patent and
patent applications relating to the technology. As of February 29,
1996, CELL-MED had been issued patents in Australia and from the
European Patent Office covering the technology and had several U.S.
and foreign patent applications pending. COMPOUNDS AND PROCESSES
LICENSED TO THE COMPANY
The Company has acquired from Sittona Company, B.V., a
Netherlands corporation ("Sittona"), the exclusive worldwide rights to
patented IL-2 compounds, compositions and other processes and other
lymphokine-related compounds, compositions and processes which are the
subject of various patents, patent applications and disclosure
documents
filed with the United States Patent and Trademark Office as well as
similar agencies of various foreign countries. Sittona acquired its
rights in the foregoing products and technology from Hooper Trading
Company N.V., and Shanksville Corporation N.V., both Netherland
Antilles corporations. Pursuant to the terms of the license, the
Company must pay to Sittona a royalty of l0% of all net sales received
by the Company in connection with the manufacture, use or sale of the
licensed compounds, compositions and processes and a royalty of l5% of
all license fees and royalties received by the Company in connection
with the grant by the Company of any sublicenses for the manufacture,
use or sale of the licensed compounds, compositions and processes. On
November 30, l983, a $l.4 million advance royalty was paid by the
Company to Sittona to acquire the license. The license also requires
the Company to bear the expense of preparing, filing and processing
patent applications and to obtain and maintain patents in the United
States and foreign countries on all inventions, developments and
improvements made by or on behalf of the Company relating to the
licensed compounds, compositions and processes. In this regard the
Company has caused patent applications to be filed in several foreign
countries and has undertaken the processing of previously filed patent
applications. The exclusive license is to remain in effect until the
expiration or abandonment of all patent rights or until the compounds,
compositions and processes enter into the public domain, whichever is
later. Sittona may also terminate the license for breach of the
agreement, fraud on the part of the Company, or the bankruptcy or
insolvency of the Company. Sittona, Hooper Trading Company and
Shanksville Corporation are all controlled by Maximilian de Clara, the
Company's President. See "Management Transactions with Related
Parties".
In 1987 a German company filed an opposition with the
European Patent Office with respect to one of the Company's European
patents, alleging that certain aspects of the patent in question were
previously disclosed to inventors during a conference held in Germany.
A hearing on the opposition was held and on October 12, 1990 the
European Patent
Office rejected the opposition. The German company filing the
opposition appealed the decision of the European Patent Office. In
1992 the Appellate Tribunal of the European Patent Office upheld the
Company's process claims in the patent, while two minor claims were
denied. The Company does not believe that the denial by the European
Patent Office of these two minor process patent claims impairs the
value of this patent in any significant degree.
In February 1996 the Company filed a lawsuit against
ImmunoRx and Dr. John Hadden for contract breach, tortious
interference of contract and patent infringement concerning the
Company's Multikine drug. The lawsuit, filed in the U.S. District
Court for the Middle District of Florida, seeks damages and the
termination of certain research and clinical studies being conducted
by ImmunoRx and Dr. Hadden. From 1984 to 1992, Dr. Hadden consulted
with the Company, performed research on Multikine and manufactured
Multikine for the Company's head and neck cancer study in
Florida. In early 1993, Dr. Hadden signed a separation agreement
with the Company acknowledging the Company's ownership of both
Multikine and the research results. The Company has learned that Dr.
Hadden and ImmunoRx are apparently making copies of Multikine, in
contravention of the separation agreement and the patents covering
Multikine, and have begun clinical studies in a foreign country using
a copy of Multikine.
Process for the Production of IL-2 and IL-2 Product
The Company's exclusive license includes processes for the
production in high yields of natural human IL-2 using cell culture
techniques applied to normal human cells. Based upon the results of
the Company's research and human clinical trials, the Company
believes that "natural" IL-2 produced by cell culture technologies,
such as the Company's proprietary products, may have advantages over
genetically engineered, bacteria-produced IL-2 ("recombinant IL-2")
manufactured by other companies. There are basically two ways to
produce IL-2 on a commercial scale: (1) applying genesplicing
techniques using bacteria or
other microorganisms to produce recombinant IL-2; or, (2) applying
cell culture technology using mammalian cells. Substantive
differences exist between recombinant IL-2 and IL-2 produced through
cell culture technology. For example: (1) cell cultured IL2 is
glycosylated (has sugars attached). Sugar attachments play a crucial
role in cell recognition and have a significant effect on how fast a
body clears out proteins. Proteins produced through bacteria have no
sugar attachments and while recombinant IL-2 products produced from
recombinant yeast or insect cells are glycosylated, they are not so
to the right degree, or at the right locations. Cell cultured IL-2
has the "right" sugar attachments at the right places; (2) there are
also structural differences related to folding (the way human
proteins work depends on their sequence folding); and (3) the cell
cultured IL-2 "cocktail" is administered in small dosages as
pioneered by Company researchers. This formulation and dosage mimics
the way immune regulators are naturally found and function within the
body. This stands in stark contrast to the huge dosages required when
recombinant IL-2 is administered to patients. In addition, patients
treated with recombinant IL-2 usually suffer severe side effects.
Although mammalian cells (other than human cells) could be
genetically engineered to produce glycosylated IL-2 in larger
quantities than are produced by the Company's method, such mammalian
cells could not be genetically engineered to produce the combination
of human lymphokines and cytokines, which together with human
glycosylated IL-2 form the MULTIKINE product used by the Company.
The Company is of the opinion that glycosylated IL-2 genetically
produced from mammalian cells must be administered in large dosages
before any benefits are observed. Even then, the Company believes
that only a small percentage of patients will benefit from treatments
consisting only of glycosylated IL-2. In addition, large dosages of
glycosylated IL-2 can, as with recombinant IL2, result in severe
toxic reactions. In
contrast, the Company believes the synergy between glycosylated IL-2
and certain other lymphokines/ cytokines allows MULTIKINE to be
administered in low dosages, thereby avoiding the severe toxic
reactions which often result when IL-2 is administered in large
dosages.
The technology licensed to the Company includes the basic
production method employing the use of normal white blood cells, an
improved production method based in part on this basic production
method, a serum-free and mitogenfree IL-2 product, and a method for
using this product in humans. Mitogens are used to stimulate cells to
produce specific materials (in this case, IL-2). Mitogens remaining
in the product of cell stimulation can cause allergic and
anaphylactic reactions if not removed from the cell product prior to
introduction into the body.
The Company's license also pertains to a cell culture
process for producing interleukin-2 and another type of cell process
for producing serumfree and mitogen-free interleukin-2 preparations
which avoids a
mitogen stimulation step and uses interleukin-1 and white blood
cells.
The Company's license further includes a process for
suppressing graft rejection in organ transplantation. This process
employs the use of an agent which blocks the activity of IL-2 in
proliferating T-cells which would otherwise destroy the transplanted
organ. The Company regards further research and development of this
process to involve a financial commitment beyond its present ability;
thus, while the Company intends to attempt to enter into licensing
arrangements with third parties concerning this process, it does not
presently intend to conduct further research into, or development of,
this process.
The Company has an agreement with an unrelated corporation
for the production, until 1997, of MULTIKINE for research and testing
purposes. At present, this is the Company's only source of
MULTIKINE. If this corporation could not, for any reason, supply the
Company with MULTIKINE, the Company estimates that it would take
approximately six to ten months to obtain supplies of MULTIKINE under
an alternative manufacturing arrangement. The Company does not know
what cost it would incur to obtain this alternative source of supply.
GOVERNMENT REGULATION
The investigational agents and future products of the
Company are regulated in the United States under the Federal Food,
Drug and Cosmetic Act, the Public Health Service Act, and the laws of
certain states. The Federal Food and Drug Administration (FDA)
exercises significant regulatory control over the clinical
investigation and manufacture of pharmaceutical products.
Prior to the time a pharmaceutical product can be marketed
in the United States for therapeutic use, approval of the FDA must
normally be obtained. Certain states, however, have passed laws
which allow a state agency having functions similar to the FDA to
approve the testing and use of pharmaceutical products within the
state. In the case of either FDA or state regulation, preclinical
testing programs on animals, followed by three phases of clinical
testing on humans, are typically required in order to establish
product safety and efficacy.
The first stage of evaluation, preclinical testing, must be
conducted in animals. After lack of toxicity has been demonstrated,
the test results are submitted to the FDA (or state regulatory
agency) along with a request for approval for further testing which
includes the protocol that will be followed in the initial human
clinical evaluation. If the applicable regulatory authority does not
object to the proposed experiments, the investigator can proceed with
Phase I trials. Phase I trials consist of pharmacological studies on
a relatively few number of humans under rigidly controlled conditions
in order to establish lack of toxicity and a safe dosage range.
After Phase I testing is completed, one or more Phase II
trials are conducted in a limited number of patients to test the
product's ability to treat or prevent a specific disease, and the
results are analyzed for clinical efficacy and safety. If the results
appear to warrant confirmatory studies, the data is submitted to the
applicable regulatory authority along with the protocol for a Phase III
trial. Phase III trials consist of extensive studies in large
populations designed to assess the safety of the product and the most
desirable
dosage in the treatment or prevention of a specific disease. The
results of the clinical trials for a new biological drug are submitted
to the FDA as part of a product license application ("PLA").
In addition to obtaining FDA approval for a product, a
biologics establishment license application ("ELA") must be filed in
order to obtain FDA approval of the testing and manufacturing
facilities in which the product is produced. To the extent all or a
portion of the manufacturing
process for a product is handled by an entity other than the Company,
the Company must similarly receive FDA approval for the other entity's
participation in the manufacturing process. Domestic manufacturing
establishments are subject to inspections by the FDA and by other
Federal, state and local agencies and must comply with Good
Manufacturing Practices ("GMP") as appropriate for production. In
complying with GMP regulations, manufacturers must continue to expend
time, money and effort in the area of production and quality control to
ensure full technical compliance.
The process of drug development and regulatory approval
requires substantial resources and many years. There can be no
assurance that regulatory approval will ever be obtained for products
developed by the Company. Approval of drugs and biologicals by
regulatory authorities of most foreign countries must also be obtained
prior to initiation of
marketing in those countries. The approval process varies from country
to country and the time period required in each foreign country to
obtain approval may be longer or shorter than that required for
regulatory approval in the United States.
The human clinical trials in Florida were authorized pursuant
to applications filed by physicians at a southern Florida medical
institution with the Florida Department of Health and Rehabilitative
Services ("DHRS"). VTI's Phase I clinical trials were conducted
pursuant to approvals obtained from the California Department of Health
Services Food and Drug Branch. None of the clinical trials involving
the Company's MULTIKINE product (including the prior trials conducted
in London, England) have been conducted under the approval of the FDA
and there are no assurances that clinical trials conducted under
approval from state authorities or conducted in foreign countries will
be accepted by the FDA. Product licensure in a foreign country or
under state authority does not mean that the product will be licensed
by the FDA and there are no assurances that the Company will receive
any approval of the FDA or any other governmental entity for the
manufacturing and/or marketing of a product. Consequently, the
commencement of the manufacturing and marketing of any Company product
is, in all likelihood, many years away.
COMPETITION AND MARKETING
Many companies, nonprofit organizations and governmental
institutions are conducting research on lymphokines. Competition in
the development of therapeutic agents and diagnostic products
incorporating lymphokines is intense. Large, well-established
pharmaceutical companies are engaged in lymphokine research and
development and have considerably greater resources than the Company
has to develop products. The establishment by these large companies of
in-house research groups and of joint research ventures with other
entities is already occurring in these areas and will probably become
even more prevalent. In addition, licensing and other collaborative
arrangements between governmental and other nonprofit institutions and
commercial enterprises, as well as the seeking of patent protection of
inventions by nonprofit institutions and researchers, could result in
strong competition for the Company. Any new developments made by such
organizations may render the Company's licensed technology and know-how
obsolete.
Several biotechnology companies are producing IL-2-like
compounds. The Company believes, however, that it is the only producer
of a patented IL2 product using a patented cell-culture technology with
normal human cells. The Company foresees that its principle competition
will come from producers of genetically-engineered IL-2-like products.
However, it is the Company's belief, based upon growing scientific
evidence, that its natural IL-2 products have advantages over the
genetically engineered, IL-2-like products. Evidence indicates that
genetically engineered, IL-2-like products, which lack sugar molecules
and typically are not water soluble, may be recognized by the
immunological system as a foreign agent, leading to a measurable
antibody build-up and thereby possibly voiding their therapeutic value.
Furthermore, the Com
pany'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. Many of the pharmaceutical and biotechnology companies around
the world are devoting substantial sums to the exploration and
development of technologies useful in these areas. VTI's development
of its experimental HGP-30 AIDS Vaccine, if successful, would likely
face intense competition from other companies seeking to find
alternative or better ways to prevent and treat AIDS.
Both the Company and VTI may encounter problems, delays and
additional expenses in developing marketing plans with outside firms.
In addition, the Company and VTI may experience other limitations
involving the proposed sale of their products, such as uncertainty of
third-party reimbursement. There is no assurance that the Company or
VTI can successfully market any products which they may develop or
market them at competitive prices.
The clinical trials funded to date by the Company and VTI have
not been approved by the FDA, but rather have been conducted pursuant
to approvals obtained from regulatory agencies in England, Canada and
certain states. Since the results of these clinical trials may not be
accepted by the FDA, companies which are conducting clinical trials
approved by the FDA may have a competitive advantage in that the
products of such companies are further advanced in the regulatory
process than those of the Company or VTI.
PROPERTIES
The Company's MULTIKINE product used in its pre-clinical and
Phase I clinical trials in England was manufactured at a pilot plant at
St. Thomas' Hospital Medical School using the Company's patented
production methods and equipment owned by the Company. The MULTIKINE
product used in the Florida clinical trials was manufactured in
Florida. In February, 1993, the Company signed an agreement with a
third party whereby the third party constructed a facility designed to
produce the Company's MULTIKINE product. The Company paid the third
party the cost of constructing this facility (approximately $200,000)
in accordance with the Company's specifications.
In October, 1994 the Company completed the construction of a
research laboratory in space leased by the Company. The cost of
modifying and equipping this space for the Company's purposes was
approximately $1,200,000.
The Company leases office space at 66 Canal Center Plaza,
Alexandria, Virginia at a monthly rental of approximately $8,200 per
month. The Company believes this arrangement is adequate for the
conduct of its present business.
EMPLOYEES
As of March 31, 1996 the Company, together with VTI,
employed 24 persons on a full-time basis.
MANAGEMENT
Officers and Directors
Name Age Position
Maximilian de Clara 66 Director and President
Geert R. Kersten, Esq. 37 Director, Chief Executive
Officer, Secretary and
Treasurer Patricia B. Prichep 43 Vice President
of
Operations
M. Douglas Winship 45 Vice President of
Regulatory
Affairs and Quality
Assurance Dr. Eyal Talor 40 Vice President of Research
and
Manufacturing
Dr. Prem S. Sarin 61 Vice President of Research
for
Viral
Technologies, Inc.
Dr. Daniel H. Zimmerman 54 Vice President of
Cellular Immunology
Mark V. Soresi 43 Director
F. Donald Hudson 62 Director
Edwin A. Shalloway 60 Director
The directors of the Company serve in such capacity until
the next annual meeting of the Company's shareholders and until
their successors have been duly elected and qualified. The officers
of the Company serve at the discretion of the Company's directors.
Mr. Maximilian de Clara, by virtue of his position as an
officer and director of the Company, may be deemed to be the
"parent" and "founder" of the Company as those terms are defined
under applicable rules and regulations of the Securities and
Exchange Commission.
The principal occupations of the Company's officers and
directors, during the past several years, are as follows:
Maximilian de Clara. Mr. de Clara has been a director of
the Company since its inception in March, l983, and has been
president of the Company since July, l983. Prior to his affiliation
with the Company, and since at least l978, Mr. de Clara was involved
in the management of his personal investments and personally funding
research in the fields of biotechnology and biomedicine. Mr. de
Clara attended the medical school of the University of Munich from
l949 to l955, but left before he received a medical degree. During
the summers of l954 and l955, he worked as a research assistant at
the University of Istanbul in the field of cancer research. For his
efforts and dedication to research and development in the fight
against cancer and AIDS, Mr. de Clara was awarded the "Pour le
Merit" honorary medal of the Austrian Military Order "Merito Navale"
as well as the honor cross of the Austrian Albert Schweitzer
Society.
Geert R. Kersten, Esq. Mr. Kersten was Director of
Corporate and Investment Relations for the Company between February,
1987 and October, 1987. In October of 1987, he was appointed Vice
President of Operations. In December, 1988, Mr. Kersten was appointed
director of the Company. Mr. Kersten also became the Company's
secretary and treasurer in 1989. In May, 1992, Mr. Kersten was
appointed Chief Operating Officer and in February, 1995, Mr. Kersten
became the Company's Chief Executive Officer. In previous years, Mr.
Kersten worked as a financial analyst with Source Capital, Ltd., an
investment advising firm in McLean, Virginia. Mr. Kersten is a
stepson of Maximilian de Clara, who is the President and a Director
of the Company. Mr. Kersten attended George Washington University in
Washington, D.C. where he earned a B.A. in Accounting and an M.B.A.
with
emphasis on International Finance. He also attended law school at
American University in Washington, D.C. where he received a Juris
Doctor degree.
Patricia B. Prichep has been the Company's Vice President of
Operations since March, 1994. Between December, 1992 and March,
1994, Ms. Prichep was the Company's Director of Operations. From
June, 1990 to December, 1992, Ms. Prichep was the Manager of Quality
and Productivity for the NASD's Management, Systems and Support
Department. Between 1982 and 1990, Ms. Prichep was Vice President and
Operations Manager for Source Capital, Ltd.
M. Douglas Winship has been the Company's Vice President of
Regulatory Affairs and Quality Assurance since April, 1994. Between
1988 and April, 1994, Mr. Winship held various positions with
Curative Technologies, Inc., including Vice President of Regulatory
Affairs and Quality Assurance (1991-1994).
Dr. Eyal Talor has been the Company's Vice President of
Research and Manufacturing since March, 1994. From October, 1993
until March, 1994, Dr. Talor was Director of Research, Manufacturing
and Quality
Control, as well as the Director of the Clinical Laboratory, for
Chesapeake Biological Laboratories, Inc. From 1991 to 1993, Dr.
Talor was a scientist with SRA Technologies, Inc., as well as the
director of SRA's Flow Cytometry Laboratory (19911993) and Clinical
Laboratory (1992-1993). During 1992 and 1993, Dr. Talor was also the
Regulatory Affairs and Safety Officer For SRA. Since 1987, Dr. Talor
has held various positions with the John Hopkins University,
including course coordinator for the School of Continuing Studies
(1989-Present), research associate and lecturer in the Department of
Immunology and Infectious Diseases (1987-1991), and associate
professor (1991Present).
Prem S. Sarin, Ph.D. has been the Vice President of Research
for Viral Technologies, Inc. (the Company's wholly-owned subsidiary)
since May 1, 1993. Dr. Sarin was an Adjunct Professor of
Biochemistry at the George Washington University School of Medicine,
Washington, D.C., from 19861992. From 1975-1991 Dr. Sarin held the
position of Deputy Chief, Laboratory of Tumor Cell Biology at the
National Cancer Institute (NCI), NIH, Bethesda, Maryland. Dr. Sarin
was a Senior Investigator (1974-1975) and a Visiting Scientist (1972-
1974) at the Laboratory of Tumor Cell Biology at NCI, NIH. From
19711972 Dr. Sarin held the position of Director, Department of
Molecular Biology, Bionetics Research Laboratory, Bethesda, Maryland.
Daniel H. Zimmerman, Ph.D. has been the Company's Vice
President of Cellular Immunology since January 1996. Dr. Zimmerman
founded CELL MED, Inc. and was its president from 1987-1995. From
1973 to 1987 Dr. Zimmerman served in various positions at
Electronucleonics, Inc. including Scientist, Senior Scientist,
Technical Director and Program Manager. From 1969-1973 Dr. Zimmerman
was a Senior Staff Fellow at NIH.
Mark V. Soresi. Mr. Soresi became a director of the Company in
July, 1989. In 1982, Mr. Soresi founded, and since that date has
been the president and Chief Executive Officer of REMAC(R), Inc.
REMAC(R)
is involved in the clean-up of hazardous and toxic waste dump sites.
Mr. Soresi attended George Washington University in Washington, D.C.
where he earned a Bachelor of Science in Chemistry.
F. Donald Hudson. F. Donald Hudson has been a director of the
Company since May, 1992. From December 1994 to October 1995 Mr.
Hudson was President and Chief Executive Officer of VIMRx
Pharmaceuticals, Inc. Between 1990 and 1993, Mr. Hudson was President
and Chief Executive Officer of Neuromedica, Inc., a development stage
company engaged in neurological research. Until January, 1989, Mr.
Hudson served as Chairman and Chief Executive Officer of Transgenic
Sciences, Inc. (now TSI Corporation), a publicly held biotechnology
corporation which he founded in January, 1987. From October, 1985
until January, 1987, Mr. Hudson was a director of Organogenesis,
Inc., a publicly held biotechnology corporation of which he
was a founder, and for five years prior thereto was Executive Vice
President and a director of Integrated Genetics, Inc., a corporation
also engaged in biotechnology which he co-founded and which was
publicly traded until its acquisition in 1989 by Genzyme, Inc.
Edwin A. Shalloway, Esq. Mr. Shalloway has been a director
of the Company since May, 1992. Mr. Shalloway is and has been since
1964, a partner in the law firm of Sherman and Shalloway which
specializes in matters of patent law. Mr. Shalloway attended the
University of Georgia where he earned a Bachelor of Science and
Bachelor of Arts degrees. Mr. Shalloway received his law degree from
the American University in Washington, D.C. Mr. Shalloway is also
the President of the International Licensing Executive Society.
All of the Company's officers devote substantially all of
their time on the Company's business. Messrs. Soresi, Hudson and
Shalloway, as directors, devote only a minimal amount of time to the
Company.
The Company has an audit committee whose members are Geert R.
Kersten, F. Donald Hudson and Edwin A. Shalloway.
Executive Compensation
The following table sets forth in summary form the
compensation received by (i) the Chief Executive Officer of the
Company and (ii) by each other executive officer of the Company who
received in excess of $100,000 during the fiscal year ended September
30, 1995.
Annual Compensation Long Term
Compensation
Re-
All
Other stric-
Other
Annual ted
LTIP
Com-
Compen- Stock Options Pay- pensa-Name and Princi Fiscal Salary
Bonus
sation Awards Granted outs tion pal Position Year (1)
(2)
(3) (4) (5) (6) (7)
Maximilian de Clara, 1995 - - $95,181 - 225,000 -
- -
President 1994 - - $93,752 - 70,000 -
- -
1993 - - $59,376 - - -
- -
Geert R. Kersten, 1995 $164,801 - $ 9,426 - 224,750 -
$3,911
Chief Executive 1994 $182,539 - $ 8,183 - 50,000 -
$4,497
Officer, Secretary 1993 $163,204 - $ 6,046 - - -
$3,289
and Treasurer
M. Douglas Winship, 1995 $113,500 - $ 1,200 - 22,000
$2,100
Vice President of
Regulatory Affairs
Suzanne Beckner, 1995 $102,250 - -
25,000
$2,830
Vice President of
Clinical Development*
* Dr. Beckner resigned her position with the Company in
November 1995. (1) The dollar value of base salary (cash and
non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary
or bonus, including perquisites and other personal benefits,
securities or property. Amounts in the table represent automobile,
parking and other transportation expenses.
(4) During the period covered by the Table, no shares of restricted
stock were issued as compensation for services to the persons
listed in the table. As of September 30, 1995, the number of
shares of the Company's common stock, owned by the officers
included in the table above, and the value of such shares at such
date, based upon the market price of the Company's common stock
were:
Name Shares Value
Maximilian de Clara 5,000 $23,100 Geert
R. Kersten 84,940 $392,423
Dividends may be paid on shares of restricted stock owned by the
Company's officers and directors, although the Company has no
plans to pay dividends. Mr. Winship and Ms. Beckner did not own
any shares of the Company's Common Stock at September 30, 1995.
(5) The shares of Common Stock to be received upon the exercise of
all stock options granted during the period covered by the Table.
The amounts in this table include options granted in prior years
but which were repriced during the year ending September 30,
1995. See "Ten Year Option/SAR Repricings" table below.
(6) "LTIP" is an abbreviation for "Long-Term Incentive Plan". An
LTIP is any plan that is intended to serve as an incentive for
performance to occur over a period longer than one fiscal year.
Amounts reported in this column represent payments received
during the applicable fiscal year by the named officer pursuant
to an LTIP.
(7) All other compensation received that the Company could not
properly report in any other column of the Table including annual
Company contributions or other allocations to vested and unvested
defined contribution plans, and the dollar value of any insurance
premiums paid by, or on behalf of, the Company with respect to
term life
insurance for the benefit of the named executive officer, and
the full dollar value of the remainder of the premiums paid by,
or on behalf of, the Company. Amounts in the table represent
contributions made by the Company to a 401(k) pension plan on
behalf of persons named in the table.
Long Term Incentive Plans Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
During 1993 the Company implemented a defined contribution
retirement plan, qualifying under Section 401(k) of the Internal
Revenue Code and covering substantially all the Company's
employees. The Company's contribution is equal to the lesser of 3%
of each employee's salary, or 50% of the employee's contribution.
The 1995 expenses for this plan were $24,913. Other than the 401(k)
Plan, the Company does not have a defined benefit, pension plan,
profit sharing or other retirement plan.
Compensation of Directors
Standard Arrangements. The Company currently pays its
directors $1,500 per quarter, plus expenses. The Company has no
standard arrangement pursuant to which directors of the Company are
compensated for any services provided as a director or for
committee participation or special
assignments.
Other Arrangements. The Company has from time to time
granted options to its outside directors, Mr. Soresi, Mr. Hudson and
Mr. Shalloway. See Stock Options below for additional information
concerning options granted to the Company's directors.
Employment Contracts
Effective August 1, 1994, the Company entered into a three
year employment agreement with Mr. Kersten. The employment agreement
provides
that during the period between August 1, 1994 and July 31, 1995, the
Company will pay Mr. Kersten an annual salary of $198,985. During the
years ending August 31, 1996 and 1997, the Company will pay Mr.
Kersten a salary of $218,883 and $240,771 respectively. In the event
that there is a material reduction in Mr. Kersten's authority, duties
or activities, or in the event there is a change in the control of
the Company, then the agreement allows Mr. Kersten to resign from his
position at the Company and receive a lump-sum payment from the
Company equal to 18 months salary. For purposes of the employment
agreement, a change in the control of the Company means the sale of
more than 50% of the outstanding shares of the Company's Common
Stock, or a change in a majority of the Company's directors.
Pursuant to the agreement, the Company also agreed to grant Mr.
Kersten, in accordance with the Company's 1994 Incentive Stock Option
Plan, options to purchase 50,000 shares of the Company's Common
Stock. Compensation Committee Interlocks and Insider Participation
The Company has a compensation committee comprised of all of
the Company's directors, with the exception of Mr. Kersten. During
the year ended September 30, 1995, Mr. de Clara was the only officer
participating in deliberations of the Company's compensation
committee concerning executive officer compensation. See
"Transactions witih Related Parties" below for information concerning
transactions between the Company and Mr. de Clara.
During the year ended September 30, 1995, no director of the
Company was also an executive officer of another entity, which had an
executive officer of the Company serving as a director of such entity
or as a member of the compensation committee of such entity.
Stock Options
The following tables set forth information concerning the
options granted, during the fiscal year ended September 30, 1995, to
the persons named below, and the fiscal year-end value of all
unexercised options (regardless of when granted) held by these
persons.
Options Granted During Fiscal Year Ending September 30, l995
Potential Individual Grants (1)
Realizable Value at
% of Total Assumed Annual
Rates
Options of Stock
Price Granted to Exercise
Appreciation
for
Options Employees in Price Per Expiration Option
Term
(3)
Name Granted (#) Fiscal Year Share (1) Date 5%
10%
Maximilian 15,000 $2.87 3/19/01 $ 14,550
$30,750
de Clara 70,000 $2.87 11/1/01 $ 67,900
$176,400
70,000 $2.87 7/29/04 $272,300
$272,300
70,000 $3.87 7/31/05 $240,100
$501,200
225,000 32%
Geert R. 50,000 (2) $2.87 1/10/98 $ 20,500
$42,000
Kersten 750 $2.87 3/28/98 $ 287 $
705
4,000 $2.87 10/31/99 $ 2,440
$5,320
10,000 $2.87 10/31/00 $ 7,900
$17,500
10,000 $2.87 3/19/01 $ 9,700
$22,100
50,000 $2.87 11/01/01 $ 48,500
$110,700
50,000 $2.87 7/29/04 $ 79,000
$194,500
50,000 $3.87 7/31/05 $171,500
$358,000
224,750 32%
M. Douglas 2,000 (2) $2.87 1/10/98 $ 720
$1,660
Winship 15,000 $2.87 4/4/04 $ 23,700
$58,350
5,000 $3.87 7/31/05 $ 17,150
$35,800
22,000 3%
Suzanne 5,000 (2) $2.87 1/10/98 $ 1,750
$4,150
Beckner 8,000 $2.87 7/11/04 $ 12,640
$31,120
12,000 $3.87 7/31/05 $ 41,160
$85,920
25,000 3.5%
(1) Includes options granted in prior fiscal years but which were
repriced in June 1995. See "Ten-Year Option/SAR Repricings"
table below.
(2) Options were granted in accordance with the Company's 1995 salary
reduction plan. Pursuant to the salary reduction plan, any
employee of the Company was allowed to receive options in
exchange for a onetime reduction in such employee's salary.
(3) The potential realizable value of the options shown in the table
assuming the market price of the Company's Common Stock
appreciates in value from the date of the grant to the end of the
option term at 5% or 10%.
Option Exercises and Year End Option Values
Value
of
Unexer
ci se
d
IntheM
on ey
Number of
Options
Unexercised at
Fiscal
Options Year-
End
Shares (3) (4)
Acquired Value
on Exercise Realized Exercisable/
Exercisable/ Name (1) (2)
Unexercisable
Unexercisable
Maximilian de Clara 108,334/116,666
$189,584/$134,165
Geert R. Kersten 85,750/139,000
$150,062/$193,250
M. Douglas Winship - 5,000/ 17,000 $ 8,750/$
24,750
Suzanne Beckner - 2,667/ 22,333 $ 4,667/$
27,083
(1) The number of shares received upon exercise of options during the
fiscal year ended September 30, 1995.
(2) With respect to options exercised during the Company's fiscal
year ended September 30, 1995, the dollar value of the difference
between the option exercise price and the market value of the
option shares purchased on the date of the exercise of the
options.
(3) The total number of unexercised options held as of September 30,
1995, separated between those options that were exercisable and
those options that were not exercisable.
(4) For all unexercised options held as of September 30, 1995, the
aggregate dollar value of the excess of the market value of the
stock underlying those options (as of September 30, 1995) over
the exercise price of those unexercised options. Values are
shown separately for those options that were exercisable, and
those options that were not yet exercisable, on September 30,
1995.
Ten-Year Option/SAR Repricings
In June 1995 the Company lowered the exercise price on
options held by all of the Company's officers, directors and
employees to $2.87 per share. The options subject to this repricing
allowed for the purchase of up to 444,250 shares of the Company's
Common Stock and included options
previously granted to those persons listed below. The Company's
Board of Directors lowered the exercise of these options since at the
time of repricing (June 10, 1995), the options no longer provided a
benefit to the option holders due to the difference between the
exercise price of the options and the market price of the Company's
Common Stock. The following table provides more information
concerning the repricing of these options.
Number of
Length
of
Securities Market Exercise
Original
Op-
Underlying Price of Price at tion
Term
Options/ Stock at Time of
Remaining
at
SARs Re- Repricing Repricing New Date
of
Re-
priced or or Amend or Amend Exercise
pricing
or
Name Date Amended (#) ment ($) ment ($) Price ($)
Amendment
Maximilian 6/10/95 15,000 $2.87 $10.90 $2.87 63
mos.
de Clara 70,000 $2.87 $20.90 $2.87 70
mos.
70,000 $2.87 $8.70 $2.87 108
mos.
Geert R. 6/10/95 50,000 $2.87 $4.10 $2.87 30
mos.
Kersten 750 $2.87 $11.60 $2.87 33
mos.
4,000 $2.87 $4.00 $2.87 52
mos.
10,000 $2.87 $8.40 $2.87 64
mos.
10,000 $2.87 $10.90 $2.87 68
mos.
50,000 $2.87 $20.90 $2.87 76
mos.
50,000 $2.87 $8.70 $2.87 108
mos.
M. Douglas 6/10/95 2,000 $2.87 $4.10 $2.87 30
mos.
Winship 15,000 $2.87 $11.20 $2.87 105
mos.
Suzanne 6/10/95 5,000 $2.87 $4.10 $2.87 30
mos.
Beckner 8,000 $2.87 $6.80 $2.87 107
mos.
Stock Option and Bonus Plans
The Company has two Incentive Stock Option Plans, three Non
Qualified Stock Option Plans and a Stock Bonus Plan. A summary description
of these Plans follows. In some cases these Plans are collectively
referred to as
the "Plans".
Incentive Stock Option Plan. The two Incentive Stock
Option
Plans collectively authorize the issuance of up to 200,000 shares of
the Company's Common Stock to persons that exercise options granted
pursuant to the Plan. Only Company employees may be granted options
pursuant to the Incentive Stock Option Plan.
To be classified as incentive stock options under the
Internal 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
960,000 shares of the Company's Common Stock to persons that exercise
options granted pursuant to the Plans. The Company's employees,
directors, officers, consultants and advisors are eligible to be
granted options pursuant to the Plans, provided however that bona
fide services must be rendered by such consultants or advisors and
such services must not be in connection with the offer or sale of
securities in a capital-raising transaction. The option exercise
price is determined by the Committee but cannot be less than the
market price of the Company's Common Stock on the date the option is
granted.
Stock Bonus Plan. Up to 40,000 shares of Common Stock may
be granted under the Stock Bonus Plan. Such shares may consist, in
whole or in part, of authorized but unissued shares, or treasury
shares. Under the Stock Bonus Plan, the Company's employees,
directors, officers, consultants and advisors are eligible to receive
a grant of the Company's shares, provided however that bona fide
services must be rendered by consultants or advisors and such
services must not be in connection with the offer or sale of
securities in a capital-raising transaction.
Other Information Regarding the Plans. The Plans are
administered by the Company's Compensation Committee ("the
Committee"), each member of which is a director of the Company. The
members of the Committee were selected by the Company's Board of
Directors and serve for
a one-year tenure and until their successors are elected. A member
of the Committee may be removed at any time by action of the Board of
Directors. Any vacancies which may occur on the Committee will be
filled by the Board of Directors. The Committee is vested with the
authority to interpret the provisions of the Plans and supervise the
administration of the Plans. In addition, the Committee is empowered
to select those persons to whom shares or options are to be granted,
to determine the number of shares subject to each grant of a stock
bonus or an option and to determine when, and upon what conditions,
shares or options granted under the Plans will vest or otherwise be
subject to forfeiture and cancellation.
In the discretion of the Committee, any option granted
pursuant to the Plans may include installment exercise terms such
that the option becomes fully exercisable in a series of cumulating
portions. The Committee may also accelerate the date upon which any
option (or any part of any options) is first exercisable. Any shares
issued pursuant to the Stock Bonus Plan and any options granted
pursuant to the Incentive Stock Option Plan or the NonQualified Stock
Option Plan will be forfeited if the "vesting" schedule established
by the Committee administering the Plan at the time of the grant is
not met. For this purpose, vesting means the period during which the
employee must remain an employee of the Company or the period of time
a nonemployee must provide services to the Company. At the time an
employee ceases working for the Company (or at the time a nonemployee
ceases to perform services for the Company), any shares or options
not fully vested will be forfeited and cancelled. At the discretion
of the Committee payment for the shares of Common Stock underlying
options may be paid through the delivery of shares of the Company's
Common Stock having an aggregate fair market value equal to the
option price, provided such shares have been owned by the option
holder for at least one year prior to such exercise. A combination
of cash and shares of Common Stock may also be permitted at the
discretion of the Committee.
Options are generally non-transferable except upon death of
the option holder. Shares issued pursuant to the Stock Bonus Plan
will generally not be transferable until the person receiving the
shares satisfies the vesting requirements imposed by the Committee
when the shares were issued.
The Board of Directors of the Company may at any time, and
from time to time, amend, terminate, or suspend one or more of the
Plans in any manner they deem appropriate, provided that such
amendment, termination or suspension will not adversely affect rights
or obligations with respect to shares or options previously granted.
The Board of Directors may not, without shareholder approval: make
any amendment which would materially modify the eligibility
requirements for the Plans; increase or decrease the total number of
shares of Common Stock which may be issued pursuant to the Plans
except in the case of a reclassification of the Company's capital
stock or a consolidation or merger of the Company; reduce the minimum
option price per share; extend the period for granting options; or
materially increase in any other way the benefits accruing to
employees who are eligible to participate in the Plans.
Prior Stock Option and Bonus Plan. The Company previously had in
effect a Stock Option and Bonus Plan ("the 1987 Plan") which provided
for the grant to the Company's officers, directors, employees and
consultants of either (i) shares of the Company's Common Stock for
services rendered or (ii) options to purchase shares of Common Stock.
The 1987 Plan was terminated by the Company in 1992. Since the 1987
Plan was terminated, no further options will be granted and no
further bonus shares will be issued pursuant to the 1987 Plan.
However, options previously granted may nevertheless still be
exercised according to the terms of the options. Prior to the
termination of the 1987 Plan, the Company granted options to purchase
189,250 shares of the Company's Common Stock. To date, options to
purchase 6,000 shares have been exercised. In June, 1995 the Company
cancelled options to purchase 176,250 shares that had previously been
granted under this Plan and reissued options for the same number of
shares under the
Company's other stock option plans. See
"Option Summary" below.
Option Summary. The following sets forth certain
information, as of March 31, 1996, concerning the stock options
granted by the Company. Each option represents the right to purchase
one share of the Company's Common Stock.
Total Shares
Shares Reserved for
Remaining Reserved
Outstanding Options
Name of Plan Under Plan Options
Under Plan
1987 Stock Option and Bonus Plan 200,000 7,000
(1)
1992 Incentive Stock Option Plan 100,000 94,050
3,283
1992 Non-Qualified Stock Option Plan 60,000 45,000
- -
1994 Incentive Stock Option Plan 100,000 100,000
- -
1994 Non-Qualified Stock Option Plan 100,000 97,250
2,750
1995 Non-Qualified Stock Option Plan 800,000 638,626
111,374
TOTAL: 981,926
117,407
(1) This Plan was terminated in 1992 and as a result, no new options
will be granted pursuant to this Plan.
As of March 31, 1996, 1,500 shares had been issued pursuant
to the
Company's 1992 Stock Bonus Plan. All of these shares were issued
during the fiscal year ending September 30, 1994.
Transactions with Related Parties
The technology and know-how licensed to the Company was
developed by a group of researchers under the direction of Dr. Hans-
Ake Fabricius and was assigned, during l980 and l98l, to Hooper
Trading Company, N.V., a Netherlands Antilles' corporation
("Hooper"), and Shanksville Corporation, also a Netherlands Antilles
corporation ("Shanksville"). Mr. de Clara and Dr. Fabricius own 50%
and 30%, respectively, of each of these companies. The technology and
know-how assigned to Hooper and Shanksville was licensed to Sittona
Company, B.V., a Netherlands corporation ("Sittona"), effective
September, l982 pursuant to a licensing agreement which requires
Sittona to pay to Hooper and Shanksville royalties on income received
by Sittona respecting the technology and know-how licensed to
Sittona. In l983, Sittona licensed this technology to the Company
and received from the Company a $1,400,000 advance royalty payment.
At such time as the Company generates revenues from the sale or
sublicense of this technology, the Company will be required to pay
royalties to Sittona equal to l0% of net sales and l5% of the
licensing royalties received from third parties. In that event,
Sittona, pursuant to its licensing agreements with Hooper and
Shanksville, will be required to pay to those companies a minimum of
l0% of any royalty payments received from the Company.
In l985, Mr. de Clara acquired all of the issued and
outstanding stock of Sittona. Mr. de Clara and Dr. Fabricius,
because of their ownership interests in Hooper and Shanksville, could
receive approximately 50% and 30% respectively of any royalties paid
by Sittona to Hooper and Shanksville, and Mr. de Clara, through his
interest in all three companies (Hooper, Shanksville and Sittona),
will receive up to 95% of any royalties paid by the Company.
Legal Matters
During the year ended September 30, 1993,
the Company paid Mr. de Clara approximately $23,000 for legal
expenses incurred by Mr. de Clara in defending a legal action brought
against Mr. de Clara by an unrelated third party who claimed that Mr.
de Clara owed the third party 25,000 shares of the Company's Common
Stock as a fee for introducing the Company (in 1985) to persons who
allegedly were willing to (but did not) provide funds to the Company.
Although the Company was not a party to this proceeding, the
Company's Board of Directors has
determined, based upon information supplied by Mr. de Clara, that the
third party's claims against Mr. de Clara arose as a result of Mr. de
Clara's efforts to obtain funding for the Company. Accordingly, the
Board of Directors determined that Mr. de Clara was entitled by law
to indemnification and in October, 1993, the Company issued 25,000
shares of its common stock to the third party claiming the shares
from Mr. de Clara.
The Securities and Exchange Commission found that between
1988 and 1991 Mr. de Clara failed to timely file reports of
beneficial ownership 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 May 31, 1996,
information with respect to the only persons owning beneficially 5%
or more of the outstanding Common Stock and the number and percentage
of outstanding shares owned by each director and officer and by the
officers and directors as a group. Unless otherwise indicated, each
owner has sole voting and investment powers over his shares of Common
Stock.
Number of Percent
of Name and Address Shares (1) Class
(4)
Maximilian de Clara 48,334 (2) *
Bergstrasse 79
6078 Lungern,
Obwalden, Switzerland
Geert R. Kersten 251,690 (3) 4.1%
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Patricia B. Prichep 18,030 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
M. Douglas Winship 12,000 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Eyal Talor 9,334 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Prem Sarin 10,000 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 22314
Mark Soresi 14,375 *
l0l0 Wayne Ave., 8th Floor
Silver Spring, MD 209l0
F. Donald Hudson 10,500
*
53 Mt. Vernon Street
Boston, MA 02108
Edwin A. Shalloway 10,500
*
413 North Washington Street
Alexandria, VA 22314
All Officers and Directors
as a Group (10 persons) 384,763
6.0%
*Less than 1%
(1) Includes shares issuable prior to August 1, 1996 upon the exercise
of options or warrants granted to the following persons:
Options or Warrants Exercisable
Name Prior to August 1,
1996
Maximilian de Clara 43,334
Geert R. Kersten
146,750
Patricia B. Prichep
15,000
M. Douglas Winship
12,000
Dr. Eyal Talor
7,834
Mark Soresi
12,500
F. Donald Hudson
10,500
Edwin A. Shalloway
10,500
Dr. Prem Sarin
10,000
See "Management" for information concerning outstanding stock
options.
(2) All shares are held of record by Milford Trading, Ltd., a
corporation organized pursuant to the laws of Liberia. All of the
issued and outstanding shares of Milford Trading, Ltd. are owned
beneficially by Mr. de Clara.
(3) Amount includes shares held in trust for the benefit of Mr.
Kersten's minor children. Geert R. Kersten is the stepson of
Maximilian de Clara.
(4) Amount excludes shares issuable upon the conversion of the Series
A Preferred Stock as well as shares which may be issued upon the
exercise and/ or conversion of options, warrants and other
convertible securities previously issued by the Company. See
"Dilution and Comparative Share Data".
SELLING SHAREHOLDERS
In May 1996 the Company sold 3,500 shares of its Series A
Preferred Stock (the "Preferred Shares") for $3,500,000 or $1,000 per
share. At the purchasers' option, the Preferred Shares are
convertible from time to time, in whole or in part, into shares of the
Company's Common Stock upon certain terms. See "Description of
Securities". The holders of the Preferred Shares, to the event they
convert their Preferred Shares into shares of Common Stock, are
sometimes referred to in this Prospectus as the "Selling Shareholders"
and the shares issuable upon the conversion of the Preferred Shares
are being offered by means of this Prospectus. The Company will not
receive any proceeds from the sale of the shares by the Selling
Shareholders.
The names and addresses of the Selling Shareholders are:
Shares Which
may be Acquired Shares to
Share
Shares Upon Conver be Sold in Owner-
Presently sion of Pre- This
ship
After
Name and Address Owned ferred Shares(1)Offering (2)
Offering
Magnum Financial Corp. - 37,500 37,500
- -
221 Owen Boulevard
North York, Ontario
M2P 1G9 CANADA
Professional Edge -
62,500
62,500
Fund L.P.
1900 Market Street #702
Philadelphia, PA 19103
AG Super Fund Inter- -
12,500
12,500
- -
national Partners,
L.P.
Citbank London, 11
Old Jewry
London EC2 R824 ENGLAND
GAM Arbitrage, Inc. -
18,750
18,750
- -
Citbank London, 11
Old Jewry
London EC2 R824 ENGLAND
Leonardo, L.P. -
106,250
106,250
- -
Citbank London, 11
Old Jewry
London EC2 R824 ENGLAND
Raphael, L.P. -
18,750
18,750
- -
Citibank London, 11
Old Jewry London EC2 R824 ENGLAND
Berckley Investment -
62,500
62,500
- -
Group, Ltd.
50 Shirley Street
2nd Floor
P.O. Box CB 13937
Nassau, Bahamas
Privatinvest Bank AG -
87,500
87,500
- -
Griesgasse 11
Salzburg A-501l0
AUSTRIA
LAKE Management LDC -
31,250
31,250
- -
c/o Field Secretary
(Cayman) Limited
P.O. Box 705 G.T.
Butterfield House,
Fort Street
Grand Cayman,
Cayman Islands
- 437,500 437,500
(1) Represents shares issuable upon the conversion of the
Series A Preferred Stock based upon the closing price of
the Company's Common Stock on May 30, 1996 ($11.37). The
actual number of shares to be issued upon the conversion of
the Preferred Shares will depend upon the price of the
Company's Common Stock at the time of conversion. See
"Description of Securities."
(2) Assumes all shares owned, or which may be acquired, by the
Selling Shareholders, are sold to the public by means of
this Prospectus.
Manner of Sale. The shares of Common Stock owned, or which
may be acquired, by the Selling Shareholders may be offered and
sold by means of this Prospectus from time to time as market
conditions permit in the 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. The Selling Shareholders and any broker/dealers who
act in connection with the sale of the Shares hereunder may be
deemed to be "underwriters" within the meaning of 2(11) of the
Securities Acts of 1933, and any commissions received by them and
profit on any resale of the Shares as principal might be deemed
to be underwriting discounts
and commissions under the Securities Act. The Company has agreed
to indemnify the Selling Shareholders and any securities
broker/dealers who may be deemed to be underwriters against
certain liabilities, including liabilities under the Securities
Act as underwriters or otherwise.
The Company has advised the Selling Shareholders that
they and any securities broker/dealers or others who may be
deemed to be statutory underwriters will be subject to the
Prospectus delivery requirements under the Securities Act of
1933. The Company has
also advised each Selling Shareholder that in the event of a
"distribution" of the shares owned by the Selling Shareholder,
such Selling Shareholder, any "affiliated purchasers", and any
broker/ dealer or other person who participates in such
distribution may be subject to Rule 10b-6 under the Securities
Exchange Act of 1934 ("1934 Act") until their participation in
that distribution is completed. A "distribution" is defined in
Rule 10b-6 as an offering of securities "that is distinguished
from ordinary trading transactions by the magnitude of the
offering and the presence of special selling efforts and selling
methods". The Company has also advised the Selling Shareholders
that Rule 10b-7 under the 1934 Act prohibits any "stabilizing
bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of the Common Stock in connection with
this offering.
Rule 10b-6 makes it unlawful for any person who is
participating in a distribution to bid for or purchase stock of
the same class as is the subject of the distribution. If Rule
10b-6 applies to the offer and sale of any of the Shares, then
participating broker/dealers will be obligated to cease market
making activities nine business days prior to their participation
in the offer and sale of such Shares and may not recommence
marketmaking
activities until their participation in the distribution has been
completed. If Rule 10b-6 applies to one or more of the principal
marketmakers in the Company's Common Stock, the market price of
such stock could be adversely affected.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 100,000,000 shares of
Common Stock, (the "Common Stock"). Holders of Common Stock are
each entitled to cast one vote for each share held of record on
all matters presented to shareholders. Cumulative voting is not
allowed; hence, the holders of a majority of the outstanding
Common Stock can elect all directors. Holders of Common Stock
are entitled to receive such dividends as may be declared by the
Board of Directors out of funds legally available therefor and,
in the event of liquidation, to share pro rata in any
distribution of the Company's assets after payment of
liabilities. The board is not obligated to declare a dividend.
It is not anticipated that dividends will be paid in the
foreseeable future.
Holders of Common Stock do not have preemptive rights to
subscribe to additional shares if issued by the Company. There
are no conversion, redemption, sinking fund or similar provisions
regarding the Common Stock. All of the outstanding shares of
Common Stock are fully paid and nonassessable and all of the
shares of Common Stock offered as a component of the Units will
be, upon issuance, fully paid and non-assessable.
Preferred Stock
The Company is authorized to issue up to 200,000 shares
of Preferred Stock. The Company's Articles of Incorporation
provide that the Board of Directors has the authority to divide
the Preferred Stock into series and, within the limitations
provided by Colorado statute, to fix by resolution the voting
power, designations, preferences, and relative participation,
special rights, and the qualifications,
limitations or restrictions of the shares of any series so
established. As the Board of Directors has authority to establish
the terms of, and to issue, the Preferred Stock without
shareholder approval, the Preferred Stock could be issued to
defend against any attempted takeover of the Company.
In May 1996 the Company sold 3,500 shares of its Series
A Preferred Stock (the "Preferred Shares") for $3,500,000 or
$1,000
per share. At the purchasers' option, up to 1,750 Preferred
Shares are convertible, on or after 60 days from the closing date
of the purchase of such shares (the "Closing"), into shares of
the Company's Common Stock on the basis of one share of Preferred
Stock for shares of Common Stock equal in number to the amount
determined by dividing $1,000 by 85% of the Closing Price of the
Company's Common Stock. All Preferred Shares are convertible, on
or after 90 days from the Closing, on the basis of one share of
Preferred Stock for shares of the Company's Common Stock equal in
number to the amount determined by dividing $1,000 by 83% of the
Closing Price of the Company's Common Stock. The term "Closing
Price" is defined as the average closing bid price of the
Company's Common Stock over the five-day trading period ending on
the day prior to the conversion of the Preferred Stock.
Notwithstanding the above, the conversion price may not be less
than $3.00 nor more than $8.00, except that if the Closing Price
is less than $3.00, then the conversion price will be equal to
the Closing Price. The Preferred Shares, if issued, are entitled
to a quarterly dividend of $17.50 per share. Any Preferred
Shares which are outstanding on the second anniversary of the
Closing will be automatically converted into shares of the
Company's Common Stock. The Preferred Shares have a liquidation
preference over the
Company's Common Stock. The shares issuable upon the conversion
of the Preferred Shares are being offered by means of this
Prospectus. See "Selling Shareholders".
Publicly Traded Warrants
In connection with the Company's February, 1992 public
offering, the Company issued 5,175,000 Warrants. Every ten
Warrants entitle the holder to purchase one share of the
Company's Common Stock at a price of $46.50 per share prior to
February 7, 1997. The Company, upon 30-days notice, may
accelerate the expiration date of the Warrants, provided,
however, that at the time the Company gives such notice of
acceleration (1) the Company has in effect a current registration
statement covering the shares of Common Stock issuable upon the
exercise of the Warrants and (2) at any time during the 30 day
period preceding such notice, the average closing bid price of
the Company's Common Stock has been at least 20% higher than the
warrant exercise price for 15 consecutive trading days. If the
expiration date is accelerated, all Warrants not exercised within
the 30-day period will expire.
Other provisions of the Warrants are set forth below. This
information is subject to the provisions of the Warrant
Certificate representing the Warrants.
1. Holders of the Warrants may sell the Warrants
rather than exercise them. However, there can be no assurance
that a market will develop or continue as to the Warrants.
2. Unless exercised within the time provided for
exercise, the Warrants will automatically expire.
3. The exercise price of the Warrants may not be
increased during the term of the Warrants, but the exercise price
may be decreased at the discretion of the Company's Board of
Directors by giving each Warrant holder notice of such decrease.
The exercise period for the Warrants may be extended by the
Company's Board of Directors giving notice of such extension to
each Warrant holder of record.
4. There is no minimum number of shares which must be
purchased upon exercise of the Warrants.
5. The holders of the Warrants in certain instances
are protected against dilution of their interests represented by
the underlying shares of Common Stock upon the occurrence of
stock dividends, stock splits, reclassifications, and mergers.
6. The holders of the Warrants have no voting power
and are not entitled to dividends. In the event of a
liquidation, dissolution, or winding up of the Company, holders
of the Warrants will not be entitled to participate in the
distribution of the Company's assets. Convertible Notes
In March 1996 the Company sold $l,250,000 of Convertible
Notes ("Notes") to two persons. The Notes are convertible from
time to time in whole or in part, into shares of the Company's
Common Stock. The conversion price is the lesser of (i) $5 per
share or (ii) 80% of the average closing bid price of the
Company's Common Stock during the five trading days immediately
preceding the date of such conversion. Notwithstanding the above,
the conversion price may not be less than $2.40 per share. The
Notes are payable on December 1, 1996 and accrue interest at 10%
per annum. The Company has agreed to make appropriate filings
with the Securities and Exchange Commission such that the shares
issuable upon the conversion of the Notes will be available for
public sale. See "Risk Factors".
Transfer Agent
American Securities Transfer, Inc., of Denver, Colorado,
is
the transfer agent for the Company's Common Stock.
LITIGATION
In February 1996 the Company filed a lawsuit against
ImmunoRx and Dr. John Hadden for contract breach, tortious
interference of contract and patent infringement concerning the
Company's Multikine drug. The lawsuit, filed in the U.S.
District Court for the Middle District of Florida, seeks damages
and the termination of certain research and clinical studies
being conducted by ImmunoRx and Dr. Hadden. From 1984 to 1992,
Dr. Hadden consulted with the Company, performed research on
Multikine and manufactured Multikine for the Company's head and
neck cancer study in Florida. In early 1993, Dr. Hadden signed a
separation agreement with the Company acknowledging the Company's
ownership of both Multikine and the research results. The
Company has learned that Dr. Hadden and ImmunoRx are apparently
making copies of Multikine, in contravention of the separation
agreement and the patents covering Multikine, and have begun
clinical studies in a foreign country using a copy of Multikine.
See "Business Compounds and Processes Licensed to the Company".
EXPERTS
The financial statements as of September 30, 1995 and
1994 and for each of the three years in the period ended
September 30, 1995 included in this prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and are so included in reliance
upon the report of such firm given upon their authority as
experts in accounting and auditing.
INDEMNIFICATION
The Company's Bylaws authorize indemnification of a
director, officer, employee or agent of the Company against
expenses incurred by him in connection with any action, suit, or
proceeding to which he is named a party by reason of his having
acted or served in such capacity, except for liabilities arising
from his own misconduct or negligence in performance of his duty.
In addition, even a director, officer,
employee, or agent of the Company who was found liable for
misconduct or negligence in the performance of his duty may
obtain such indemnification if, in view of all the circumstances
in the case, a court of competent jurisdiction determines such
person is fairly and reasonably entitled to indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers,
or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange
Commission, 450 5th Street, N.W., Washington, D.C. 20001, a
Registration Statement under the Securities Act of l933, as
amended, with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in
the Registration Statement. For further information with respect
to the Company and such securities, reference is made to the
Registration Statement and to the Exhibits filed therewith.
Statements contained in this Prospectus as to the contents of any
contract or other documents are summaries which are not
necessarily complete, and in each instance
reference is made to the copy of such contract or other document
filed as an Exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
Copies of each document may be inspected at the Commission's
offices at 450 Fifth Street, N.W., Washington, D.C., 20549, and
at the Northeast Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048 and the Midwest Regional Office,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60681-
2511. Copies may be obtained at the Washington, D.C. office upon
payment of the charges prescribed by the Commission.
2155D
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
437,500 Shares of Common Stock CELSCI
CORPORATION
PROSPECTUS
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Officers and Directors.
It is provided by Section 7-l09-l02 of the Colorado
Revised Statutes and the Company's Bylaws that the Company may
indemnify any and all of its officers, directors, employees or
agents or former officers, directors, employees or agents, against
expenses actually and necessarily incurred by them, in connection
with the defense of any legal proceeding or threatened legal
proceeding, except as to matters in which such persons shall be
determined to not have acted in good faith and in the best
interest of the Company.
Item 25. Other Expenses of Issuance and Distribution.
SEC Filing Fee
$1,415
NASD Filing Fee
910
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
575 TOTAL
$35,000
All expenses other than the S.E.C. and NASD filing fees are
estimated.
Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all securities
of the Company which have been sold during the past three
years and which securities were not registered under the
Securities Act of 1933, as amended.
Shares of
Common Date of
Security Holder Stock Sold Sale
Consideration
Daryl Strahl 2,431 11/1/93
8,038(1)
Isadore Klausner 25,000 11/1/93
(2)
Private Investors 575,000 6/22/95
$1,150,000
Private Investors 575,000 9/30/95
$1,150,000
Unless otherwise indicated, the consideration paid for
the shares was cash.
(1) Surrender of options to Company. The options surrendered were
valued at $8,038.
(2) Settlement of claim against officer and director. Officer and
director was indemnified by Company for this claim.
Accordingly, shares were issued directly to Mr. Klausner, the
person asserting the claim against the officer and director.
The sales of the Company's Common Stock described above
were exempt transactions under Section 4(2) of the Act as
transactions by an issuer not involving a public offering. The
shares of Common Stock sold subsequent to February 1995 were also
exempt in accordance with Rule 505 of the Securities and Exchange
Commission. All of the shares of Common Stock were issued for
investment purposes only and without a view to distribution. All
of the persons who acquired the foregoing securities were fully
informed and advised about matters concerning the Company,
including its business, financial affairs and other matters. The
purchasers of the Company's Common Stock acquired the securities
for their own accounts. The certificates evidencing the
securities bear legends stating that they may not be offered, sold
or transferred other than pursuant to an effective registration
statement
under the Securities Act of 1933, or pursuant to an applicable
exemption from registration. No underwriters were involved with
the sale of the shares of Common Stock and no commissions or other
forms of remuneration were
paid to any person in connection with sales of the Company's
securities prior to June 1995. The Company paid a commission of
$230,000, a nonaccountable expense allowance of $69,000, and
issued warrants for the purchase of up to 230,000 shares of Common
Stock, to Neidiger/Tucker/Bruner, Inc. in connection with the sale
of the securities sold in June and September 1995. All of the
shares of Common Stock sold by the Company are "restricted" shares
as defined in Rule 144 of the Rules and Regulations of the
Securities and Exchange Commission. Item 27. Exhibits and
Financial Statement Schedules
Exhibits Page Number
1(c) Form of Common Stock Purchase Filed with initial
Registration
Warrant Statement.
3(a) Articles of Incorporation Incorporated by reference
to
Exhibit 3(a) of the Company's combined
Registration Statement on Form S-1 and
PostEffective Amendment ("Registration
Statement"), Registration Nos. 285547D
and 337531.
Filed with Amendment No. 1
to this Registration
Statement.
(b) Amended Articles Incorporated by reference to
Exhibit
3(a) of the Company's
Registration Statement on
Form S1, Registration Nos.
285547-D and 33-7531.
(c) Amended Articles Filed with initial
Registration State-
(Name change only) ment (No. 33-34878).
(d) Bylaws Incorporated by reference to
Exhibit
3(b) of the Company's
Registration Statement on
Form S1, Registration Nos.
285547-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 S-1
(Registration No. 3343281).
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
10K for the year ended
September
B.V. 30, 1989.
10(e) Employment Agreement with Filed with Amendment Number
1
to
the
Geert Kersten Company's Registration
Statement
on
Form S-1 (Commission File
Number 3343281).
10(g) Agreement between Viral Filed with Amendment Number
2
to
the
Technologies, Inc. and Company's Registration
Statement
on
Nippon Zeon Co., Ltd. Form S-1 (Commission File
Number
33-
90230)
23(a) Consent of Hart & Trinen
(b) Consent of Deloitte &
Touche LLP
24. Power of Attorney Included as part of
signature
page.
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 10th day of June, 1995.
CEL-SCI CORPORATION
By: /s/ Maximilian de Clara
MAXIMILIAN DE CLARA,
PRESIDENT
Pursuant to the requirements of the Securities Act of l933,
this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
Signature Title Date
/s/ Maximilian de Clara Director and Principal June 10,
1995
MAXIMILIAN DE CLARA Executive Officer
/s/ Geert R. Kersten Director, Principal June 10,
1995
GEERT R. KERSTEN Financial Officer
and Chief Executive
Officer
/s/ Mark V. Soresi Director June 10,
1995
MARK V. SORESI
/s/ F. Donald Hudson Director June 10,
1995
F. DONALD HUDSON
/s/ Edwin A. Shalloway Director June 10,
1995
EDWIN A. SHALLOWAY
CEL-SCI Corporation
66 Canal Center Plaza, Suite 5l0
Alexandria, VA 22314
Gentlemen:
This letter will constitute an opinion upon the legality of the
issuance by CEL-SCI Corporation, a Colorado corporation, of shares of
common stock issuable upon the conversion of Series A Preferred Stock
and referred to in the Registration Statement on Form S-1 filed by
the Company with the Securities and Exchange Commission.
We have examined the Articles of Incorporation, the Bylaws and the
minutes of the Board of Directors of the Company and the applicable
laws of the State of Colorado, and a copy of the Registration
Statement. In our opinion, the Company is authorized to issue the
shares mentioned above, and when issued in accordance with the
terms and conditions set out in the Registration Statement, such
shares of common stock will be legally issued, fully paid and non-
assessable.
Very truly yours,
HART & TRINEN
By William T. Hart
CONSENT OF ATTORNEYS
Reference is made to the Registration Statement of CEL-SCI
Corporation whereby it proposes to sell shares of Common Stock to
holders of the Company's Series A Preferred Stock atsuch time as the
holders of the Series A Preferred Stock elect to convert the
Preferred Stock into 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
By William T. Hart
Denver, Colorado
June 11, 1996
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of CEL-SCI
Corporation on Form S-1, of our report dated November 29, 1995,
except for Note 14, as to which the date is December 23, 1995,
appearing in the Prospectus, which is part of the Registration
Statement, and to the reference to us under the heading "Experts" in
such Prospectus.
DELOITTE & TOUCHE LLP
Washington, D.C.
June 10, 1996
CEL-SCI CORPORATION
Financial Statements for the Years Ended September 30, 1995, 1994,
and 1993, and Independent Auditors' Report
To the Board of Directors and Shareholders of
CEL-SCI Corporation:
We have audited the accompanying balance sheets of CEL-SCI
Corporation as of September 30, 1995 and 1994, and the related
statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CEL-SCI
Corporation as of September 30, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the
period ended September 30, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, as of September
30, 1994, the Company changed its method of accounting for certain
investments in debt and equity securities to conform with Statement
of Financial Accounting Standards No. 115.
Washington, DC
November 29, 1995, except for Note 14, as to
which the date is December 23, 1995
Page F-2
F - 3
Page F-3
Page F-4
Page F-5
CEL-SCI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994, AND 1993
2
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
CEL-SCI Corporation (the Company) was
incorporated
on March 22, 1983, in the State of Colorado,
to finance research and development in
biomedical science and ultimately to
engage in marketing products.
Significant accounting policies are as
follows: Investments - Effective
September 30,
1994, the Company adopted, on a
prospective basis, Statement of
Financial Accounting Standard No. 115,
"Accounting for Certain Debt and Equity
Securities" (SFAS 115) and revised its
policy for investments. Investments
that may
be sold as part of the liquidity management
of the Company or for other factors are
classified as available-for-sale and are
carried at fair market value. Unrealized
gains and losses on such securities are
reported as a separate component of
stockholders' equity. Realized gains and
losses on sales of securities are reported in
earnings and computed using the specific
identified cost basis. The adoption of SFAS
115, which has not been applied retroactively
to prior years' financial statements,
resulted in a decrease in stockholders'
equity of $85,753 for the net unrealized
losses on investments available forsale at
September 30, 1994. As of
September 30, 1995, all debt and equity
securities had been disposed of and any
unrealized gains or losses were
recognized during the year ended
September 30, 1995 (see Note 2).
Prior to September 30, 1994, all
investments available-for-sale were
carried at the lower of aggregate
amortized cost or market value.
Research and Office Equipment -
Research and
office equipment is recorded at cost
and depreciated using the straight-line
method over five and seven years
estimated useful lives.
Research and Development Costs
Research and development expenditures
are expensed as incurred.
Patents - Patent expenditures are
capitalized and amortized using the
straight line method over 17 years. In
the event changes in technology or
other circumstances impair the value or
life of the patent, appropriate
adjustment in the asset value and
period of amortization will be made.
Net Loss Per Share - Net loss per
common share is based on the weighted
average number of common shares
outstanding during the period. Common
stock equivalents, including options to
purchase common stock, are excluded
from the calculation as they are
antidilutive.
Investment in Joint Venture
Investment in joint venture is
accounted for by the equity method.
The Company's proportionate share of
the net loss of the joint venture is
included in the respective statements
of operations.
Statement of Cash Flows - For
purposes
of the statements of cash flows, cash
consists principally of unrestricted
cash on deposit, and short-term money
market funds. The Company considers
all highly liquid investments with a
maturity of less than three months to
be cash equivalents.
Prepaid Expenses - The majority of
prepaid expenses consist of bulk
purchases of laboratory supplies to be
consumed in the manufacturing of the
Company's product for clinical studies
and for its further development.
Income Taxes - Effective October 1,
1993, the Company adopted Statement of
Financial Accounting Standard No. 109,
"Accounting for Income Taxes" (SFAS
109). SFAS 109 requires an asset and
liability approach for reporting income
taxes. Implementation of SFAS 109 in
1994 did not have any effect on the
Company's net earnings and reported
financial position and prior financial
statements have not been restated.
Reclassifications - Certain
reclassifications have been made for
1994 and 1993 for comparative purposes.
2. INVESTMENTS
The carrying values and estimated market
values of investments available-for-sale
at September 30, 1995, are as follows:
Note2a
The carrying values and estimated market
values of investment securities at
September 30, 1994, are as follows:
Note2b
The gross realized gains and losses of
sales of investments available-for-sale
for the years ended September 30, 1995,
1994, and 1993, are as follows:
Note 2c
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1995
and 1994, consist of the following:
Note3a
4. JOINT VENTURE
In April 1986, the Company paid $200,000
cash
and issued 500,000 shares of its $.01
par value common stock to acquire half
the rights to technology which may be
useful in the diagnosis, prevention and
treatment of Acquired Immune Deficiency
Syndrome (AIDS) from Alpha I
Biomedicals, Inc. The Company's stock
was valued at $1.50 per share on the
basis of arm's-length negotiations. At
the time the transaction took place, the
stock was trading at $2.42. Because the
cost of these rights to technology is
considered research and development, the
$950,000 purchase price was expensed.
The Company and Alpha 1 Biomedicals, Inc.
(Alpha 1)
contributed their respective interests
in the technology and $10,000 each to
capitalize a joint venture, Viral
Technologies, Inc. (VTI). VTI is wholly
owned by the Company and Alpha 1, each
having a 50% ownership interest. The
total loaned or advanced to VTI by CEL-
SCI Corporation through September 30,
1995, was $1,592,584 (see Note 13).
During the three years ended September
30, 1995, VTI had no sales. The
operations of VTI were as follows:
Note4a
The balance sheets of VTI at September 30,
1995 and
1994, are summarized as follows:
Note4b
On December 17, 1987, Viral
Technologies, Inc., entered into a
licensing agreement with Nippon Zeon
Company, Ltd., a Japanese company. Under
the agreement, Nippon Zeon will engage
in the development and testing and, if
development is successful, the marketing
of the potential AIDS vaccine in the
Pacific Rim area. As a result, Viral
Technologies, Inc., received
precommercialization payments of
$850,000 during the year ended September
30, 1988.
During the year ended September 30,
1995, VTI purchased back from Nippon
Zeon the licensing agreement. No cash
or stock was exchanged; however, Nippon
Zeon retains a royalty on any future
sales of the drug HGP30 in its former
exclusive licensed territories.
5. CREDIT ARRANGEMENTS
At September 30, 1995, the Company had
a promissory
note outstanding with a bank in the amount
of $811,263. This promissory note was
converted in November 1994 from a prior
line of credit. The line of credit
outstanding at September 30, 1994, was
$788,601, and the Company subsequently
drew down additional amounts during the
year ended September 30, 1995, prior to
converting the line of credit to a
promissory note. The principal is being
repaid over forty-eight consecutive
months beginning February 5, 1995.
Interest on the outstanding balance is
calculated at the Bank's prime rate plus
two percent, which is 10.75% at
September 30, 1995, and is to be paid
monthly with the principal payments.
The promissory note is secured by all
corporate assets and requires the
Company to hold a certificate of deposit
equal to 20% of the outstanding balance
of the line of credit with the Bank.
Under the promissory note the Company is
also subject to certain minimum equity,
liquidity, and operating covenants.
6. COMMITMENTS AND CONTINGENCIES
In 1993, an officer and director of the
Company was involved in legal
proceedings concerning shares of the
Company's common stock. The officer and
director was acting on behalf of the
Company in trying to secure financing,
and the Company paid legal fees in
connection with these proceedings and
indemnified the officer for any loss he
suffered upon the settlement of these
matters.
During 1992, one of the matters was
settled by the officer and director
delivering 3,000 shares of the Company's
common stock to one plantiff and paying
this plantiff $200,000. In the other
matter, a European Court awarded a
different plantiff 25,000 shares of the
Company's common stock owned by the
officer and director. In October 1993,
the Company issued 25,000 shares of
common stock to the plaintiff to satisfy
the judgment and in lieu of
reimbursement to the officer and
director for this claim. The value of
the shares issued, $202,500, was
expensed during 1993 and was included in
accrued expenses at September 30, 1993.
7. RELATED-PARTY TRANSACTIONS
The technology and know-how licensed to the
Company was developed by a group of
researchers under the direction of Dr.
Hans Ake Fabricius and was assigned
during 1980 and 1981 to Hooper Trading
Company, N.V., a Netherlands Antilles
corporation (Hooper) and Shanksville
Corporation, also a Netherlands Antilles
corporation (Shanksville). Maximillian
de Clara, an officer and director
in the Company, and Dr. Fabricius own
50% and 30%, respectively, of each of
these companies. The technology and know-
how assigned to Hooper and Shanksville
was licensed to Sittona Company, B.V., a
Netherlands corporation (Sittona),
effective September, 1982 pursuant to a
licensing agreement which requires
Sittona to pay to Hooper and Shanksville
royalties on income received by Sittona
respecting the technology and know-how
licensed to Sittona. In 1983, Sittona
licensed this technology to the Company.
At such time as the Company generates
revenues from the sale or sublicense of
this technology, the Company will be
required to pay royalties to Sittona
equal to 10% of net sales and 15% of
licensing royalties received from third
parties. In that event, Sittona,
pursuant to its licensing agreements
with Hooper and Shanksville, will be
required to pay to those companies a
minimum of 10% of any royalty payments
received from the Company. In 1985 Mr.
de Clara acquired 100% of the issued and
outstanding stock of Sittona. Mr. de
Clara and Dr. Fabricius, because of
their ownership interests in Hooper and
Shanksville, could receive approximately
50% and 30% respectively, of any
royalties paid by Sittona to Hooper and
Shanksville, and Mr. de Clara, through
his interest in all three companies
(Hooper, Shanksville, and Sittona), will
receive up to 95% of any royalties paid
by the Company.
During 1992, the Company reimbursed an
officer and director for legal fees
incurred in connection with certain
legal proceedings as discussed in Note
6. In addition, during 1992 the Company
paid the officer and director $200,000,
representing the amount that he paid in
connection with one of the legal
proceedings discussed in Note 6 and, in
1993, issued 3,000 shares of common
stock to the officer and director as
reimbursement for shares he delivered in
connection with the proceeding. The
$200,000 payment was expensed in 1992,
and the value of the 3,000 shares,
$20,100 was expensed in 1993.
8. INCOME TAXES
The approximate tax effect of each type
of temporary differences and
carryforward that gave rise to the
Company's tax assets and liabilities at
September 30, 1995 and 1994, is as
follows:
Note8a
The Company has available for income tax
purposes net operating loss
carryforwards of approximately
$24,370,937, expiring from 1998
through 2007.
In the event of a significant change in
the ownership of the Company, the
utilization of such carryforwards could
be substantially limited.
9. STOCK OPTIONS, WARRANTS, AND BONUS
PLAN
During the year ended September 30,
1995, the Board of Directors canceled
certain options under the various stock
option plans and replaced them with new
options. Under this conversion the
number of options outstanding did not
increase or decrease as the conversion
was an exchange of options within the
plans to maximize reserved shares in the
Plans with the options granted.
The shareholders of the Company approved
the adoption of the 1995 Non-Qualified
Stock Option Plan (1995 Non-Qualified
Plan) and reserved 400,000 shares under
the plan. Terms of the options are to be
determined by the Company's Compensation
Committee, but in no event are options
to be granted for shares at a price
below fair market value at the date of
grant.
On February 23, 1988, the shareholders
of the Company adopted the 1987
Nonqualified Stock Option and Stock
Bonus Plan (the 1987 Plan). This plan
reserved 200,000 shares of the Company's
previously unissued common stock to be
granted as incentive stock options to
employees. The 1987 Plan reserved 50,000
shares of the Company's previously
unissued common stock to be granted as
stock bonuses to employees. The
exercise price of the options could not
be established at less than fair market
value on the date of grant and the
option period could not be greater than
ten years. During 1993, the 1987 Plan
was terminated and no further options
will be granted and no further bonus
shares will be issued pursuant to the
1987 Plan.
On September 30, 1993, the shareholders
of the Company approved the adoption of
three new plans, the 1993 Incentive
Stock Option Plan (1993 Incentive Plan),
the 1993 Non Qualified Stock Option Plan
(1993 Non Qualified Plan) and the Stock
Bonus Plan (1993 Bonus Plan). Shares are
reserved under each plan and total
100,000, 60,000 and 40,000 shares,
respectively. Only employees of the
Company are eligible to receive options
under the Incentive Plan, while the
Company's employees, directors,
officers, and consultants or advisors
are eligible to be granted options under
the NonQualified Plan or issued shares
under the Bonus Plan. Terms of the
options are to be determined by the
Company's Compensation Committee, which
will administer all of the plans, but in
no event are options to be granted for
shares at a price below fair
market value at date of grant. Options
granted under the option plans must be
granted, or
shares issued under the bonus plan issued,
before August 20, 2002.
On July 29, 1994, the Board of Directors
approved the adoption of two new plans,
the 1994 Incentive Stock Option Plan
(1994 Incentive Plan) and the 1994 Non-
Qualified Stock Option Plan (1994
NonQualified). Shares are reserved under
each plan and total 100,000 shares for
each plan. Only employees of the
Company are eligible to receive options
under the 1994 Incentive Plan, while the
Company's employees, directors,
officers, and consultants or advisors
are eligible to be granted options under
the 1994 Non-Qualified Plan. Terms of
the options are to be determined by the
Company's Compensation Committee, which
will administer all of the plans, but in
no event are options to be granted for
shares at a price below fair market
value at date of grant. Options granted
under the option plans must be granted,
or shares issued under the bonus plan
issued, before July 29, 2004.
Information regarding the Company's stock
option plan is summarized as follows:
Note9a
Note9b
During 1991, the Company granted a
consultant an option to purchase 50,000
shares of the Company's common stock.
The option is exercisable at $13.80 per
share and expires in March 1996. The
holder of the option has the right to
have the shares issuable upon the
exercise of the option included in any
registration statement filed by the
Company.
Also during 1991, the Company granted
another consultant options to purchase
6,000 shares of the Company's common
stock. Options to purchase 667 shares
expired in April 1993. Options to
purchase 1,333 shares at $2.50 per share
were exercised in April 1994. At
September 30, 1995, options to purchase
4,000 shares were outstanding and
exercisable at prices ranging from $2.50
to $15.00 per share.
In connection with the 1992 public
offering, 5,175,000 common stock
purchase warrants
were issued and are outstanding at
September 30, 1995. Every ten warrants
entitle the holder to purchase one share
of common stock at a price of $46.50 per
share. During 1995, the expiration of
these warrants was extended to February
1996. The Company may accelerate the
expiration date of the warrants by
giving 30 days notice to the warrant
holders, provided, however, that at the
time the Company gives such notice of
acceleration (1) the Company has in
effect a current registration statement
covering the shares of common stock
issuable upon the exercise of the
warrants and (2) at anytime during the
30-day period preceding such
notice, the average closing bid price of
the Company's common stock has been at
least 20% higher than the warrant
exercise price for 15 consecutive
trading days.
Also in connection with the 1992 offering,
the Company issued to the underwriter
warrants to purchase 9,000 equity units,
each unit consisting of 5 shares of
common stock and 5 warrants entitling
the holder to purchase one additional
share of common stock. The equity unit
warrants are outstanding at September
30, 1995 and are exercisable through
February 8, 1997, at a price of $255.70
per unit. The common stock warrants
included in the units are exercisable at
a price of $76.70 per share.
During 1995, the Company granted another
consultant options to purchase 17,858
shares of the Company's common stock.
These shares became exercisable on
November 2, 1995, and will expire
November 1, 1999. These options are
exercisable at $5.60 per share.
10.EMPLOYEE BENEFIT PLAN
During 1993 the Company implemented a
defined contribution retirement plan,
qualifying under Section 401(k) of the
Internal Revenue Code, subject to the
Employee Retirement Income Security Act
of 1974, as amended, and covering
substantially all CEL-SCI employees.
The employer contributes an amount equal
to 50% of each employee's contribution
not to exceed 6% of the participant's
salary. The expense for the year ended
September 30, 1995 and 1994, in
connection with this plan was
approximately $24,913 and $16,160,
respectively.
11.LEASE COMMITMENTS
Operating Leases - The future minimum
annual rental payments due under
noncancelable operating leases for
office and laboratory space are as
follows:
Note11a
Rent expense for the year ended September
30, 1995,
1994, and 1993, was approximately
$124,059, $122,369, and $55,000,
respectively.
12.STOCKHOLDERS' EQUITY
On April 28, 1995 the stockholders of
the Company approved a 10-for-1 reverse
split of the Company's outstanding
common stock, which became effective on
May 1, 1995. All shares and per-share
amounts have been restated to reflect
the stock split.
The Company also participated in a private
offering
during 1995. This offering allowed for
the purchase of one share of common
stock and one warrant (a unit) for the
price of $2.00 per unit. All 1,150,000
shares authorized for the offering were
purchased during the year ended
September 30, 1995. Warrants
outstanding are exercisable at $3.25 and
expire on June 30, 1997. Cash of
$2,300,000 was received in June and
September 1995. Commissions of $344,150
were paid or payable relative to the
offering at September 30, 1995.
During 1994, the Company granted 1,500
shares of common stock to an officer as
a bonus award. The Company also issued
25,000 shares to satisfy the judgment
against an officer and director. The
issuance was to the plantiff in lieu of
reimbursement to the officer and
director. The judgment was settled in
1993 and the expense of the issuance was
recorded in 1993.
During 1993, the Company received $27,333
cash for
7,333 shares of common stock.
13.SUBSEQUENT EVENTS - JOINT VENTURE
In October 1995, the Company purchased
Alpha 1's 50
percent interest in VTI. The Company
conveyed 159,170 shares of common stock
as full consideration for all of the VTI
capital stock owned by Alpha 1. The
acquisition of Alpha 1's interest will
be accounted for as purchase with
substantially all of the value of the
purchase price being expensed as
research and development costs.
14.SUBSEQUENT EVENTS - OTHER
On December 8, 1995, the Board of
Directors authorized the extension of
the Company's warrants issued in
connection with the 1992 public offering
from February 6, 1996, to February 6,
1997.
On December 23, 1995, the Company
entered into an agreement with investors
to reduce the exercise price of warrants
to purchase shares of the Company's
common stock issued in a 1995 private
offering from $3.25 to
$1.60 per shares (Note 12). Shares which
may be acquired under this agreement
with exercise of the
warrants total 1,150,000. In connection
with modifying the warrant exercise
price, 312,500 warrants were exercised
for $500,000 in exchange for 312,500
shares of common stock on December 23,
1995. An additional 312,500
warrants are required to be exercised
prior to January 31, 1996 with the
remaining warrants outstanding through
June 30, 1997.
15.NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting
Standards Board issued Statement No. 121
regarding accounting for the impairment
of long-lived assets. This statement is
required to be adopted by the Company in
fiscal 1997. At the present time the
Company does not believe that adoption
of this statement will have a material
effect on its financial position or
results of its operations.
In October 1995, the Financial
Accounting Standards
Board issued Statement No. 123, Accounting
for Stock Based Compensation. This
statement is required to be adopted by the
Company in fiscal 1997. The Company has
not yet determined the impact of the
adoption of this
statement on its financial position or
results of its operations. * * * * * *
CEL-SCI CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
ASSETS
1995 1994
CURRENT ASSETS:
Cash and cash equivalents
$3,886,950 $3,370,713
Investments, net
170,000 2,694,756
Interest receivable
64,080 116,733
Prepaid expenses
341,295 67,648
Advances to officer/shareholder
and 13,234 17,381
employees
Total current
assets 4,475,559 6,267,231
RECEIVABLE FROM JOINT VENTURE
522,695 351,204
RESEARCH AND OFFICE EQUIPMENT - Less
accumulated
depreciation of $589,897 and $355,430
1,102,038 1,185,499
DEPOSITS
18,178 13,958
PATENT COSTS - Less accumulated
amortization of $239,490 and
$211,253
240,541 268,778
$6,359,011 $8,086,670
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
$248,488 $324,179
Current portion of note payable
243,372 147,861
Total current
491,860 472,040
liabilities
NOTE PAYABLE
567,891 640,740
DEFERRED RENT
24,959 17,598
EQUITY IN LOSS OF SUBSIDIARY
432,268 277,224
Total liabilities
1,516,978 1,407,602
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
authorized, 200,000 shares;
none issued
- - -
Common stock, $.01 par value -
authorized, 100,000,000 shares;
issued and outstanding,
5,338,244 and 53,382
41,882
4,188,244 shares
Additional paid-in capital
28,799,198 26,854,848
Net unrealized loss on marketable equity
- - (85,753)
securities (Note 1)
Accumulated deficit
(24,010,547 (20,131,909
) )
Total stockholders'
equity 4,842,033 6,679,068
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$6,359,011 $8,086,670
See notes to financial statements.
CEL-SCI CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1995,
1994, AND 1993
1995 1994 1993
INVESTMENT INCOME
$365,049 $624,670 $997,964
OTHER INCOME
58,716
- - -
Total income
423,765
624,670 997,964
OPERATING EXPENSES:
Research and development
1,824,661 2,896,109 1,307,042
Depreciation and amortization
262,705
138,755 55,372
General and administrative
1,713,912 1,621,990 1,696,119
Total
operating expenses
3,801,278
4,656,854 3,058,533
EQUITY IN LOSS OF
JOINT VENTURE (Note 2)
(501,125) (394,692) (344,423)
NET LOSS
$3,878,63 $4,426,87 $2,404,99
8 6
2 LOSS PER COMMON SHARE
$0.89
$1.06 $0.58
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
4,342,628 4,185,240 4,155,431
See notes to financial statements.
CEL-SCI CORPORATION
STATEMENTS OF STOCKHOLDERS'
EQUITY
YEARS ENDED SEPTEMBER 30,
1995, 1994, AND 1993
Additional
Common
Paid-In
Stock
Shares
Amount Capital Other Deficit
Total
BALANCE, OCTOBER 1, 1992
$-
4,148,980
$41,490 $26,560,96 $(13,300,04
$13,302,41
9 1) 8
Common stock issued for:
Cash 7,333
73
27,260 - - 27,333
Reimbursement of 3,000
30
20,070 - - 20,100
expenses
Net loss -
- -
- - -
(2,404,992) (2,404,992
)
BALANCE, SEPTEMBER 30, 1993
41,593
4,159,313
26,608,299 (15,705,033
10,944,859
)
Common stock issued for:
Cash 2,431
24
39,364 - - 39,388
Stock bonus plan 1,500
15
4,935 - - 4,950
Settlement of 25,000
250
202,250 - - 202,500
lawsuit
Net unrealized loss on
marketable
securities (Note 1) -
- -
- - - (85,753)
(85,753)
Net loss -
- -
- - -
(4,426,876) (4,426,876
)
BALANCE, SEPTEMBER 30, 1994
41,882
4,188,244
26,854,848 (85,753) (20,131,909
6,679,068
)
Common stock issued for
11,500 - -
cash 1,150,000
1,944,350
1,955,850
Change in market value
of marketable
securities available -
- -
- - 85,753 - 85,753
for sale (Note 1)
Net loss -
- -
- - -
(3,878,638) (3,878,638
)
BALANCE, SEPTEMBER 30, 1995
$-
5,338,244
$53,382 $28,799,19 $(24,010,54
$4,842,033
8 7)
See notes to financial
statements.
CEL-SCI CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1995,
1994, AND 1993
1995 1994
1993
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss
$(3,878,6 $(4,426,8 $(2,404,9
38) 76) 92)
Adjustments to reconcile net
loss to
net cash used in operating
activities:
Stock issued in payment of
- -
207,450 20,100
expenses
Depreciation and amortization
262,705
138,755 55,372
Equity in loss of Joint Venture
501,125 394,692 344,423
Net realized loss (gain) on sale
42,490
- -
of securities
(76,774)
Amortization of premium
6,407
25,683 18,762
Changes in assets and
liabilities:
Decrease (increase) in
4,147
- -
advances
(17,381)
Increase in prepaid
expenses, deposits, interest
receivable, and
receivable from joint venture
(396,705)
(31,833) (292,182)
(Decrease) increase in
accounts payable,
accrued expenses, and
143,919
deferred rent
(68,330)
(111,552)
Decrease in payable to
- -
officer and shareholder
(52,370) (43,448)
Net cash used
in operating activities
(3,526,79
(3,950,20 (2,158,04
9) 6) 6)
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Purchases of investments
(389,688) (1,467,81 (5,993,31
8) 0)
Sales and maturities of
investments
2,951,299
6,999,273 7,745,943
Advances to Joint Venture
(346,081) (300,000) (223,750)
Expenditures for property and
equipment
(151,006)
(999,807) (318,556)
Expenditures for patents
- -
- - (8,777)
Net cash
provided by investing activities
2,064,524
4,231,648 1,201,550
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Issuance of note payable
184,915
788,601 -
Issuance of common stock
39,388 27,333
1,955,850 Repayment of note payable
- - -
(162,253)
Net cash
827,989 27,333
provided by financing activities
1,978,512
NET INCREASE (DECREASE) IN CASH
516,237
1,109,431 (929,163)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR
3,370,713
2,261,282 3,190,445
CASH AND CASH EQUIVALENTS, END OF
YEAR
$3,886,95
$3,370,71 $2,261,28
0 3
2 SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITY:
During 1994, the net unrealized
loss on investments available-for-
sale was $85,753.
During 1994, 25,000 shares were
issued as settlement of a lawsuit at
a cost of $202,500 (see Note 6).
See notes to financial statements.
Year Ending
September 30,
Amount
1996
$135,123
1997
140,335
1998
56,160
1999
59,573
2000
62,010
Thereafter
162,728
Total minimum lease payments
$615,929
Septemb
er 30,
1995
Gross Gross Market
Value
Amortiz
Unreal Unreal at
ed
ized
ized Septemb
er 30,
Cost
Gains
Losses 1995
Certificates of
$-
$-
Deposit $170,00
$170,00
0
0
September 30,
1994
Gross Gross Market
Value
Amortize
Unreal
Unreali at
d
ized
zed Septembe
r 30,
Cost
Gains
Losses 1994
U.S. Government
$-
Securities $1,471,0
$46,362 $1,424,7
96
34
Corporate Debt
Securities 1,108,58
2,442
41,833 1,069,19
1
0
Certificates of
- -
- -
Deposit 200,832
200,832
$2,780,5
$2,442 $88,195 $2,694,7
09
56
1995
1994 1993
Realized gains
$-
$17,839 $128,205
Realized losses
60,329
51,431 -
Net realized gain (loss)
$-
$(42,490 $76,774
)
1995 1994
Research equipment
$979,048 $843,187
Furniture and equipment
136,486 120,185
Leasehold improvements
576,401 577,557
1,691,935 1,540,929
Less accumulated depreciation and
amortization
(589,897) (355,430)
Net property and equipment
$1,102,03 $1,185,49
8 9
Years
Ended
September
30,
1995
1994 1993
Income $-
$-
$ -
Expenses
789,384 688,846
1,002,250
Net Income (Loss)
$(1,002,25 $(789,384 $(688,846
0) ) )
September
30,
1995 1994
Current assets
$30,484 $24,403
Noncurrent assets
$187,821 $87,822
Current liabilities
$4,275,078 $3,197,143
Equity (deficit - net of initial
capitalization)
$(4,056,77 $(3,084,91
3) 8)
1995 1994
Depreciation
$(16,660) $(27,325)
Prepaid expenses
(14,413) (25,680)
Net operating loss carryforward
9,251,208 7,675,907
Other
9,474 6,680
Less: Valuation allowance
(9,229,609 (7,630,772
) )
Net deferred
$- $-
Opti
on
Pri
ce
Pe
r
Outsta Exerci
Share nding sable
1987 Stock Option and Bonus
Plan
Balance, September 30, 1992
$3.40
- -
20.90 189,25 31,000
0
Became exercisable
- -
77,999
Exercised
$4.00 (6,000
(6,000
) )
Balance, September 30, 1993
$3.40
1
9
.
6
0
183,25 102,99
0 9
Became exercisable
- -
40,250
Balance, September 30, 1994
$3.40
2
0
.
9
0
183,25 143,24
0 9
Canceled
$3.40
2
0
.
9
0
176,25 1 136,24
0 3 9
6
,
2
4
9
Balance, September 30, 1995 $19.70
16.
50
7,000 7,000
1992 Incentive Stock Option
Plan
Balance, September 30, 1992
$13.40
500 -
Granted $13.80 -
- -
15.60 12,000
Balance, September 30, 1993 $13.40
15.
60
12,500
Granted $6.80 -
- -
11.90 29,500
Became exercisable
- -
4,166
Balance, September 30, 1994 $6.80
15.
60
4
42,000 4,166
2
0
,
0
0
0
Canceled $6.80
-
15.60
(42,00 (4,166
0) )
Granted $2.87 -
3.87
57,550 20,917
Balance, September 30, 1995 $2.87 -
3.87
4 57,550 20,917
2
0
,
0
0
0
1992 Nonqualified Stock Option
Plan
Balance, September 30, 1992 $13.40
- -
4
2,500 2
0
,
0
0
0
Granted $13.80 -
- -
15.60 15,500
Balance, September 30, 1993 $13.40
- -
18,000
Granted $8.70 -
- -
13.80 18,000
Became exercisable
- -
18,000
Balance, September 30, 1994 $8.70 -
13.80
36,000 1 18,000
8
,
0
0
0
Canceled $8.70
- -
- -
13.40 (7,500 -
)
Granted
$2.87
- -
31,500
Became Exercisable
- -
4 42,000
2
,
0
0
0
Balance, September 30, 1995
$2.87
- -
15.60 60,000 6 60,000
0
,
0
0
0
Opti
on
Pri
ce
Pe
r
Outsta Exerci
Share nding sable
1992 Stock Bonus Plan
Granted during 1994
$8.70 1,500 1,500
Exercised
$8.70
(1,500 (1,500
) )
Balance, September 30, 1994 and
- - -
1995
1994 Incentive Stock Option
Plan
Granted
- -
$2.87
50,000
Balance, September 30, 1994
- -
$2.87 50,000 -
Granted
$2.87 50,000
Became Exercisabe
- -
$2.87 61,000
Balance, September 30, 1995
$2.87 100,00 61,000
0
1994 Nonqualified Stock Option
Plan
Granted
- -
$2.87 70,000 -
Balance, September 30, 1995
$2.87 70,000 -
Granted
$2.87 -
3.87
27,250 -
Became exercisable
- -
48,084
Balance, September 30, 1995
$2.87 -
3.87
97,250 48,084
1995 Nonqualified Stock Option
Granted in 1995
$2.87 -
$3.87 329,25
1
Became exercisable
- -
70,000
Balance, September 30, 1995
329,25 70,000
1
Item 1. FINANCIAL STATEMENTS
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED BALANCE
SHEETS
- ------------------------
ASSETS
(unaudited)
March 31, September
30,
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $3,803,786
$3,886,950
Investments, net 170,000
170,000
Interest receivable 86,610
64,080
Prepaid expenses 242,812
341,295
Advances to officer/shareholder
and employees 134,644
13,234
4,437,852
4,475,559
RECEIVABLE FROM JOINT VENTURE 0
522,695
RESEARCH AND OFFICE EQUIPMENT-
Less accumulated depreciation
of $740,239 and $589,897 981,823
1,102,038
DEPOSITS 18,178
18,178
PATENT COSTS- less accumulated
amortization of
$325,782 and $239,490 423,174
240,541
$5,861,027
$6,359,011
See notes to
condensed financial statements.
3
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED BALANCE
SHEETS
- ------------------------
(continued)
LIABILITIES AND STOCKHOLDERS'
EQUITY
(unaudited)
March 31, September
30,
1996 1995
CURRENT LIABILITIES:
Accounts payable $57,787
$248,488
Current portion note payable 243,372
243,372
Total current liabilities 301,159
491,860
NOTE PAYABLE 446,201
567,891
CONVERTIBLE DEBENTURE 1,250,000
-
DEFERRED RENT 24,959
24,959
EQUITY IN SUBSIDIARY 0
432,268
Total liabilities 2,022,319
1,516,978
STOCKHOLDERS' EQUITY
Preferred stock, $.01
par value; authorized,
200,000 shares; none issued
- -
Common stock, $.01 par
value; authorized,
100,000,000 shares;
issued and outstanding,
6,328,581 and
5,338,244 shares 63,286
53,382
Additional paid-in capital 30,904,595
28,799,198
Deficit (27,014,373)
(24,010,547)
Short-term note receivable from (114,800)
shareholder -
TOTAL STOCKHOLDERS'
EQUITY 3,838,708
4,842,033
$5,861,027
$6,359,011
See notes to
condensed financial statements.
4
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
- ---------------------------------
(unaudited)
Six Months
Ended
March 31,
1996 1995
REVENUES:
Interest income $84,914
$190,306
Other income 25,406
17,611
TOTAL INCOME 110,320
207,917
EXPENSES:
Research and development 1,750,694
1,149,943
Depreciation and
amortization 139,962
133,986
General and administrative 1,219,719
778,248
TOTAL OPERATING EXPENSES 3,110,375
2,062,177
EQUITY IN LOSS OF JOINT VENTURE (3,772)
(290,340)
3,114,147
2,352,517
NET LOSS $3,003,827
$2,144,600
LOSS PER COMMON SHARE $0.52
$0.51
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,825,011
4,188,244
See notes to
condensed financial statements.
5
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
- ---------------------------------
- -
(unaudited)
Three Months
Ended
March 31,
1996 1995
REVENUES:
Other income $7,326
$17,611
Interest Income 40,493
73,605
TOTAL INCOME 47,819
91,216
EXPENSES:
Research and development 512,497
531,307
Depreciation and
amortization 68,694
67,211
General and administrative 741,831
379,968
TOTAL OPERATING EXPENSES 1,323,022
978,486
EQUITY IN LOSS OF JOINT VENTURE 0
(108,761)
1,323,022
1,087,247
NET LOSS $1,275,203
$996,031
LOSS PER COMMON SHARE $ $
0.21 0.24
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,196,630
4,188,244
See notes to
condensed financial statements.
6
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOW
- ---------------------------------
(unaudited)
Six Months
Ended
March 31,
1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS
$(3,003,827)
$(2,144,600) Adjustments to reconcile net loss
to
net cash used in operating
activities:
Depreciation and amortization 139,962
133,986
Equity in loss of joint venture 3,772
290,340
Research and development
expense related
to purchase of Viral 515,617
Technologies, Inc.
Amortization of premium on -
18,722
investments
Realized loss on sale of
12,965
investments
Changes in assets and
liabilities, net of effect from
purchase
of Viral Technologies, Inc.:
Decrease (increase) in interest (22,530) 6,449
receivable
Decrease (increase) in prepaid 98,483
(19,924)
expenses
Decrease (increase) in advances (121,409) (9,356)
Decrease (increase) in
receivable from
joint venture -
(79,128)
Increase (decrease) in accounts (190,701)
(177,918) payable
NET CASH USED IN OPERATING (2,580,633)
(1,968,464)
ACTIVITIES
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITY:
Sales of investments -
1,487,866
Advance to Joint Venture -
(208,655)
Payment on note (121,690)
(60,845)
Purchase of research and office (2,907)
(120,932)
equipment
Patent costs (11,651)
- -
NET CASH USED IN INVESTING (136,248)
1,097,434
ACTIVITY
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Issuance of convertible 1,250,000 205,195
debenture
Issuance of common stock 1,383,717
NET CASH PROVIDED BY FINANCING 2,633,717
205,195 ACTIVITIES
NET (DECREASE) INCREASE IN CASH (83,164)
(665,835)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,886,950 3,370,713
End of period $3,803,786
$2,704,878
NON-CASH TRANSACTION: In October
1995, Cel-Sci issued 159,170
shares of common stock as
consideration for
the purchase of the remaining 50%
of Viral Technology, Inc. In
conjunction with the acquisition,
CEL-SCI obtained
net assets with a fair value of
approximately $170,000.
NON-CASH TRANSACTION: In March,
1996, a shareholder of the
corporation exercised options to
purchase
40,000 shares of common stock.
The shareholder signed a note for
the stock, agreeing to pay the
note by the
end of June, 1996.
See notes to
condensed financial statements.
7
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1996 AND 1995 (unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in
accordance with rules established by the Securities and Exchange
Commission for
Form 10-Q. Not all financial disclosures required to present the
financial position and results of operations in accordance with
generally accepted accounting principles are included herein. The
reader is referred to the Company's Financial Statements included in
the registrant's Annual Report on Form 10K for the year ended
September 30, 1995. In
the opinion of management, all accruals and adjustments (each of
which is of a normal
recurring nature) necessary for a fair presentation of the financial
position as of March 31, 1996 and the results of operations for the
six-month period then ended have been made. Significant accounting
policies have been consistently applied in the interim financial
statements and the annual financial statements.
Investments
Effective September 30, 1994, the Company adopted, on a prospective
basis, Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Debt and Equity Securities" (SFAS 115) and
revised its policy for investments. Investments that may be sold as
part of the liquidity management of the Company or for other factors
are classified as available-for-sale and are carried at fair market
value. Unrealized gains and losses on such securities are reported
as a separate component of stockholders' equity. Realized gains and
losses on sales of securities are reported in earnings and computed
using the specific identified cost basis. As of March 31, 1996,
there is no effect on the Company's financial statements.
Loss per Share
Net loss per common share is based on the weighted average number of
common shares outstanding during the period. Common stock
equivalents, including options to purchase common stock, are
excluded from the calculation as they are antidilutive.
Long-lived Assets
Statement of Accounting Standards No. 121, "Accounting for the
Impairment of Longlived Assets and for Long-lived Assets to be
Disposed of" is effective for financial statements for fiscal years
beginning after December 15, 1995. It is the Company's opinion that
the adoption of the statement would have no material effect on its
Financial Statements.
B. JOINT VENTURE
On October 30, 1995, the Company announced it had acquired Alpha 1
Biomedical's interest in Viral Technologies, Inc. ("VTI"). VTI was
formed by the two companies in 1986. This transaction gives CEL-SCI
100% ownership of VTI. Under the terms of the agreement, CELSCI gave
Alpha 1 Biomedicals, Inc. 159,170 shares of CEL-SCI common stock as
the purchase price for net assets with a fair value of approximately
$170,000. The acquisition was accounted for under the purchase
method of accounting; and as the acquisition represents primarily
research and development costs, the purchase price was
expensed and is included as research and development expense for the
six months ended March 31, 1996. Effective October 31, 1995, the
Company has consolidated CELSCI's and VTI's financial statements and
the consolidated financial statements reflect the results of VTI's
operations since the date of acquisition. This results in a
significant increase in patent costs on the consolidated balance
sheet. Intercompany accounts are eliminated upon consolidation.
C. CONSTRUCTION OF NEW LABORATORY AND
FUNDING
On January 31, 1994, the Company entered into a leasing agreement
with a non-affiliated landlord for 7,800 square feet in Baltimore,
Maryland. In the spring of 1994 the Company commenced
construction of the new laboratory. The cost of the laboratory
buildout and equipment was approximately $1,100,000. To fund this
laboratory, the Company borrowed funds from a bank at a rate of
prime plus 2%. The outstanding loan balance at March 31, 1996 is
$689,573.
CONVERTIBLE DEBENTURES
On March 28, 1996, the Company raised $1,250,000 in a private
placement. The placement was structured as a convertible debenture.
It is convertible into Cel-Sci common stock prior to December 1,
1996. The money will be used for research and development and
clinical trials with the Company's cancer and HIV products.
