As filed with the Securities and Exchange Commission on ,
1996. Registration
No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-l
Registration Statement
Under
THE SECURITIES ACT OF 1933
CEL-SCI Corporation
(Exact name of registrant as specified in
charter)
Colorado 283l
(State or other (Primary Standard
Classi-
jurisdiction of fication Code
Number)
incorporation)
66 Canal Center
Plaza, Suite 510
Alexandria,
Virginia 223l4
84-09l6344
(703)
549-5293
(IRS Employer (Address, including
zip code,
and
I.D. Number) telephone number
including area
of
principal executive
offices)
Geert Kersten
66 Canal Center Plaza, Suite 510
Alexandria, Virginia 223l4
(703) 549-5293
(Name and address, including zip code, and
telephone number, including area code, of
agent for service)
Copies of all communications, including all
communications sent to the agent for
service, should be sent to:
William T. Hart, Esq.
Hart & Trinen 1624 Washington Street
Denver, Colorado 80203 (303) 839-0061
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE
PUBLIC: As soon as practicable after the effective date of
this Registration Statement
Page 1 of Pages Exhibit Index Begins on Page
CALCULATION OF REGISTRATION FEE
Title of each
Proposed
Proposed
Class of
Maximum
Maximum
Securities Securities Offering Aggregate
Amount
of
to be to be Price Per Offering
Registration
Registered Registered Unit (1)
Price
Fee
Common Stock (2) 160,000 $8.00 $1,280,000 $442
Total $1,280,000 $442
(1) Offering price computed in accordance with Rule 457(c).
(2) Up to ll5,000 shares of Common Stock are offered to the
holders of certain Sales Agent Warrants. The Sales Agent's
Warrants were issued in connection with the Company's
September 1995 offering of 517,500 shares of Common Stock and
517,500 Common Stock Purchase Warrants.
An additional 45,000 shares of common stock are offered to the
owner of certain technology which is being acquired by the
Company for shates of common 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 ........ Principal
Shareholders
(m) Certain Relationships and Related Transactions
............................ Management
Item l2. Disclosure of Commission Position
on Indemnification for Securities Act
Liabilities ............................. Not applicable
PROSPECTUS CEL-SCI CORPORATION
160,000 Shares of Common Stock
This Prospectus relates to the sale by the Company of up to
115,000 shares of Common Stock issuable upon the exercise of Sales
Agent Warrants, and 45,000 shares of common stock issuable to
Nippon Zeon Co., Ltd. ("Nippon Zeon") in exchange for the
cancellation of certain royalties payable by the Company to Nippon
Zeon.
The Sales Agent's Warrants were issued in connection with
the Company's June and September 1995 offerings of 1,150,000
shares of Common Stock and 1,150,000 Common Stock Purchase
Warrants.
The holders of the Sales Agent's Warrants, to the extent they
exercise the Sales Agent's Warrants and receive shares of Common
Stock, as well as Nippon Zeon, are sometimes referred to in this
Prospectus as the "Selling Shareholders". The Selling Shareholders
may resell the shares they acquire by means of this Prospectus
from time to time in the public market. The Company will not
receive any proceeds from the resale of the shares by
the Selling Shareholders. The Selling Shareholders have advised
the
Company that they will offer the shares through broker/dealers at
market prices with customary commissions being paid by the Selling
Shareholders. The costs of registering the shares offered by the
Selling Shareholders are being paid by the Company. The Selling
Shareholders will pay all other costs of the sale of the shares
offered by them. See "Dilution and Comparative Share Data" and
"Selling Shareholders".
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN
AFFORD TO LOSE THEIR ENTIRE INVESTMENT. FOR A DESCRIPTION OF
CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS
PROSPECTUS AND "DILUTION". THESE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS
THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
On , 1996 the closing prices of the Company's
Common Stock and Warrants on the NASDAQ National Market System
were $
and $ , respectively. See "Market Information".
The Date of this Prospectus is , 1996
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of l934 and in accordance therewith is
required to file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission").
Copies of any such reports, proxy statements and other information
filed by the Company can be inspected and copied at the public
reference facility maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. and at the Commission's
Regional offices in New York (7 World Trade Center, Suite 1300,
New York, New York 10048) and Chicago (Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511). Copies of such material can be obtained from the Public
Reference Section of the Commission at its office in Washington,
D.C. 20549 at prescribed rates. The Company has filed with the
Commission a Registration Statement on Form S-1 (together with all
amendments and exhibits thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Act"), with
respect to the Units offered hereby. This Prospectus does not
contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement.
PROSPECTUS SUMMARY
THIS SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
The Company
CEL-SCI Corporation (the "Company") was formed as a Colorado
corporation in 1983. The Company is involved in the research and
development of certain drugs and vaccines. The Company's first
product, MULTIKINETM, manufactured using the Company's proprietary
cell culture technologies, is a combination, or "cocktail", of
natural human interleukin-2 ("IL-2") and certain lymphokines and
cytokines. MULTIKINE is being tested to determine if it is
effective in improving the immune response of advanced cancer
pantients. The Company's second product, HGP-30, is being tested
to determine if it is an effective treatment/ vaccine against the
AIDS virus. In addition, the Company recently acquired a new
patented T-cell Modulation Process which uses "heteroconjugates"
to direct the body to chose a specific immune response. The
Company intends to use
this new technology to improve the cellular immune response of
persons vaccinated with HGP-30 and to develop a potential
tuberculosis ("TB") treatment/vaccine.
Before human testing can begin with respect to a drug or
biological product, preclinical studies are conducted in
laboratory animals to evaluate the potential efficacy and the
safety of a product. Human clinical studies generally involve a
three-phase process. The initial clinical evaluation, Phase I,
consists of administering the product and testing for safe and
tolerable dosage levels. Phase II trials continue the evaluation
of immunogenicity and determine the appropriate dosage for the
product, identify possible side effects and risks in a larger
group of subjects, and provide preliminary indications of
efficacy. Phase III trials consist of testing for actual clinical
efficacy for safety within an expanded
group of patients at geographically dispersed test sites. See
"Business Government Regulation" for a more detailed description
of the foregoing.
Between 1983 and 1986 the Company was primarily involved in
funding pre-clinical and Phase I clinical trials of MULTIKINE.
These trials were conducted at St. Thomas's Hospital Medical
School in London, England pursuant to authority granted by
England's Department of Health and Social Security. In July, 1991
physicians at a southern Florida medical institution began human
clinical trials using MULTIKINE. The focus of these trials was
the treatment of metastatic malignant melanoma and unresectable
head and neck cancer using MULTIKINE. The clinical trials in
Florida were conducted pursuant to approvals obtained by the
medical institution from the Florida Department of Health and
Rehabilitative Services.
In March 1995, the Canadian Health Protection Branch, Health and
Welfare Ministry gave clearance to the Company to start a phase
I/II cancer study using Multikine. The study, which will enroll
up to 30 head and neck cancer patients who have failed
conventional treatments, will be conducted at several sites in the
United States and Canada and is designed to evaluate safety, tumor
responses and immune responses in patients treated with multiple
courses of Multikine. The length of time that each patient will
remain on the investigational treatment will depend on the
patient's response to treatment. In May l995, the U.S. Food and
Drug Administration (FDA) authorized the export of the Company's
Multikine drug to Canada for purposes of this study.
In February 1996 the FDA authorized the Company to conduct two
human clinical studies using MULTIKINE and focusing on prostate
and head and neck cancer. The prostate study is being conducted at
Jefferson Hospital in Philadelphia, Pennsylvania and will involve
up to 15 prostate cancer patients who have failed on hormonal
therapy. The head and neck cancer study will involve up to 30
cancer patients who have failed using conventional therapies. The
head and neck cancer study in the U.S. is being conducted in
conjunction with the Company's Canadian head and neck cancer
study.
In October 1995 Viral Technologies, Inc. ("VTI") became a
whollyowned subsidiary of the Company. VTI is engaged in the
development of a possible treatment/vaccine for AIDS. VTI's
technology may also have application in the treatment of AIDS
infected individuals and the diagnosis of AIDS. VTI's AIDS
treatment/vaccine, HGP-30, has completed certain Phase I human
clinical trials. In the Phase I trials, the vaccine was
administered to volunteers who were not infected with the HIV
virus in an effort to determine safe and tolerable dosage levels.
Product licensure in a foreign country or under state authority
does not mean that the product will be licensed by the FDA and
there are no assurances that the Company or VTI will receive any
approval of the FDA or any other governmental entity for the
manufacturing and/or marketing of a product. Consequently, the
commencement of the manufacturing and marketing by the Company or
VTI of any product is, in all likelihood, many years away. See
"Business".
The lack of government approval for the Company's or VTI's
products will prevent the Company and VTI from generally marketing
their products. Delays in obtaining government approval or the
failure to obtain government approval may have a material adverse
impact upon the Company's operations.
All of the Company's products are in the early stages of
development. The Company does not expect to develop commercial
products for several years, if at all. The Company has had
operating losses since its inception, has an accumulated deficit
of approximately $27,014,000 at March 31, 1996, and expects to
incur substantial losses for the foreseeable future.
The Company's executive offices are located at 66 Canal Center
Plaza, Suite 510, Alexandria, Virginia 22314, and its telephone
number is (703) 5495293.
THE OFFERING
Securities Offered: This Prospectus relates to the sale by the
Company of up to 115,000 shares of Common
Stock issuable upon the exercise of Sales
Agent Warrants, and 45,000 shares of
common stock issuable to Nippon Zeon Co.,
Ltd. ("Nippon Zeon") in exchange for the
cancellation of certain royalties payable
by the Company to Nippon Zeon. The Sales
Agent's Warrants were issued in connection
with the Company's June and September 1995
offerings of 1,150,000 shares of Common
Stock and 1,150,000 Common Stock Purchase
Warrants. The holders of the Sales Agent's
Warrant, to the extent they exercise the
Warrants, as well as Nippon Zeon, may
resell the shares of Common Stock they
receive upon exercise from time to time in
the public market. The holders of the
Sales Agent's Warrant and Nippon Zeon are
sometimes referred to in this Prospectus
as the "Selling Shareholders". The Company
will not receive any proceeds from the
sale of the shares offered by the Selling
Shareholders. See "Selling Shareholders".
Common Stock Outstand-
ing Prior To and After
Offering: As of the date of this Prospectus, the
Company had 7,131,902 shares of Common
Stock issued and outstanding. Assuming
all of the remaining Sales Agent's
Warrants are exercised, there will be
7,291,902 shares of Common Stock issued
and outstanding. The number of
outstanding shares before and after this
Offering does not give effect to shares
which may be issued upon the exercise
and/or conversion of options, warrants or
other convertible securities previously
issued by the Company. See "Dilution and
Comparative Share Data", "Selling
Shareholders" and "Description of
Securities".
Risk Factors: The purchase of the Securities offered
by
this Prospectus involves a high degree
of risk. Risk factors include the
following: lack of revenues and history
of loss, need for additional capital,
government regulation, need for FDA
approval, and dilution. See "Risk
Factors."
NASDAQ Symbols: Common Stock: CELI
Warrants: CELIW
Summary Financial Data
For the Years Ended September 30,
1995 1994 1993
1992
1991
Investment Income &
Other Revenues $423,765 $624,670 $997,964
$434,180
$35,972
Expenses:
Research and
Development 1,824,661 2,896,l09 1,307,042 481,697
108,771 Depreciation
and Amortization 262,705 138,755 55,372 33,536
32,582
General and
Adminis-
trative 1,713,912 1,621,990 1,696,119 1,309,475
795,015
Equity in loss
of joint
venture 501,125 394,692 344,423 260,388
290,166
Net Loss $(3,878,638)$(4,426,876)$(2,404,992)$(1,650,916)
$(1,190,562) Loss per
common share $(0.89) $(1.06) $(0.58) $(0.42)
$(0.35)
Weighted average
common shares
outstanding 4,342,628 4,185,240 4,155,431 3,953,233 3,400,546
Nine Months Ended June 30,
1996 1995
Investment Income & Other Revenues $ 188,256 $ 313,005
Expenses:
Research and Development 2,350,600 1,383,978
Depreciation and Amortization 208,912 201,197
General and Administrative 2,113,884 1,268,677
Equity in loss of joint venture 3,772 395,224
Net Loss $(4,488,912)
$(3,249,076)
Loss per common share $(0.74)
$(0.70) Weighted average common shares
outstanding 6,086,492
4,194,563
Balance Sheet Data:
September 30,
1995 1994 1993 1992
1991
Working Capital $3,983,699 $5,795,191 $10,296,472 $13,043,012
$682,831 Total Assets 6,359,011 8,086,670 11,633,090
13,769,504 1,611,899 Total
Liabilities 1,516,978 1,407,602 688,231 467,086
672,595
Shareholders'
Equity 4,842,033 6,679,068 10,944,859 13,302,4l8
939,304
June 30, 1996
Working Capital $6,979,975
Total Assets $8,723,934
Total Liabilities $1,191,000
Shareholders' Equity $7,532,934
No dividends have been declared by the Company since its
inception.
GLOSSARY OF TECHNICAL TERMS
AIDS. Acquired Immune Deficiency Syndrome. A severe viral
disease of the immune system leading to other lethal
infections and malignancies.
Amino acids. Building blocks of proteins.
Antibody. A protein produced by certain white blood cells
in
humans and animals in response to a substance
seen
as non-self, that is a foreign antigen (such as
a virus or bacteria). An antibody binds
specifically to a single antigen.
Antigen. Any substance seen as foreign by the immune
system
and which triggers an antibody or cell-mediated
response from the body's immune system.
B-Cells. A type of lymphocyte which produces antibodies
in
response to antigens.
Cytokines. Peptides which regulate the functions and/or
growth
of other cells. Lymphokines are a type of
cytokine.
HIV. Human Immunodeficiency Virus. The virus
responsible for AIDS and related diseases.
Lymphocytes. A type of white blood cells divided into two
classes, B-cells and T-cells.
Lymphyokine. A specific group of hormones which regulate
and
modify the various functions of both T-cells
and B-cells. There are many lymphokines, each
of which
is thought to have distinctive chemical and
functional properties. IL-2 is but one of these
lymphokines.
Macrophage. A cell found in the body that has the ability
to
kill viruses, bacteria, fungi and cancer cells,
often by engulfing the targeted organism or cell.
Peptide. Two or more amino acids joined by a linkage
called
a peptide bond.
Proteins. A molecule composed of amino acids. There
are
many
types of proteins, all carrying out a number of
different functions essential for cell growth.
T-Cells. A type of lymphocyte which will amplify or
suppress
antibody formation by B-cells, and can also
directly destroy "foreign" cells by activating
"killer cells".
Virus. A submicroscopic organism that contains
genetic
information but cannot reproduce itself. To
replicate, it must invade another cell and use
parts of that cell's reproductive machinery.
RISK FACTORS
An investment in the Company's Securities involves a high degree
of risk. Prospective investors are advised that they may lose all
or part of their investment. Prospective investors should
carefully review the following risk factors.
Lack of Revenues and History of Loss. The Company has had
only limited revenues since it was formed in 1983. Since the date
of its formation and through June 30, 1996, the Company has
incurred net losses of approximately $28,500,000. During the
years ended September 30, 1993, 1994 and 1995 the Company suffered
losses of $2,404,992, $4,426,876 and $3,878,638 respectively. The
Company has relied principally upon the proceeds of public and
private sales of securities to finance its activities to date.
See "Management's Discussion and Analysis". All of the Company's
potential products are in the early stages of development, and any
commercial sale of these
products will be many years away. Accordingly, the Company expects
to incur substantial losses for the foreseeable future.
Need for Additional Capital. Clinical and other studies
necessary to obtain approval of a new drug can be time consuming
and costly, especially in the United States, but also in foreign
countries. The different steps necessary to obtain regulatory
approval, especially that of the Food and Drug Administration
("FDA"), involve significant costs. The Company expects that it
will need additional financing in order to fund the costs of
future clinical trials, related research, and general and
administrative expenses. The Company may be forced to delay or
postpone development and research expenditures if the Company is
unable to secure adequate sources of funds. These delays in
development may have an adverse effect on the Company's ability to
produce a timely and competitive product. There can be no
assurance that the Company will be able to obtain additional
funding from other sources. See "Management's Discussion and
Analysis".
Viral Technologies, Inc. ("VTI"), a wholly-owned subsididary of
the Company, is dependent upon funding from the Company for its
operations and research programs. See "Business Viral
Technologies, Inc.".
Cost Estimates. The Company's estimates of the costs associated
with future clinical trials and research may be substantially
lower than the actual costs of these activities. If the Company's
cost estimates are incorrect, the Company will need additional
funding for its research efforts. See "Management's Discussion and
Analysis".
Government Regulation - FDA Approval. Products which may be
developed by the Company or Viral Technologies, Inc. (or which may
be developed by affiliates or licensees) will require regulatory
approvals prior to sale. In particular, therapeutic agents and
diagnostic products are subject to approval, prior to general
marketing, by the FDA in the United States and by comparable
agencies in most foreign countries. The process of obtaining FDA
and corresponding foreign approvals is costly and time consuming,
particularly for pharmaceutical products such as those which might
ultimately be developed by the Company, Viral Technologies, Inc.
or its licensees, and there can be no assurance that such
approvals will be granted. Any failure to obtain or any delay in
obtaining such approvals may adversely affect the ability of
potential licensees or the Company to successfully market any
products developed. Also, the extent of adverse government
regulations which might arise from future legislative or
administrative action cannot be predicted. The clinical trial
which the Company's affiliate, Viral Technologies, Inc., is
conducting in California is regulated by government agencies in
California and obtaining approvals from states for clinical trials
is likewise expensive and time consuming. See "Business Government
Regulation."
Dependence on Others to Manufacture Product. The Company has
an agreement with an unrelated corporation for the production,
until 1997, of MULTIKINE for research and testing purposes. At
present, this is the Company's only source of MULTIKINE. If this
corporation could not, for any reason, supply the Company with
MULTIKINE, the Company estimates that it would take approximately
six to ten months to obtain supplies of MULTIKINE under an
alternative manufacturing arrangement. The Company does not know
what cost it would incur to obtain this alternative source of
supply.
Licensed Technology - Potential Conflicts of Interest. The
Company's clinical studies and research have been focused on
compounds, compositions and processes which were licensed to the
Company by Sittona Company, B.V. ("Sittona") in 1983. Maximilian
de Clara, the Company's president and a director, acquired control
of Sittona in 1985. Any commercial products developed by the
Company and based upon the technology licensed by Sittona will
belong to Sittona, subject to the Company's right to manufacture
and sell such products in accordance with the terms of the
licensing agreement. The Company's license remains in effect until
the expiration or abandonment of all patent rights or until the
compounds, compositions and processes subject to the license enter
into the public domain, whichever is later. The license may be
terminated earlier for other reasons, including the insolvency of
the Company. Accordingly, a conflict of interest may arise between
the Company and Mr. de Clara concerning the Company's continued
rights to the licensed technology. Any future transactions between
the Company and Sittona will be subject to the review and approval
by a majority of the Company's disinterested directors. See
"Business Compounds and Processes Licensed to the Company", and
"Management Transactions with Related Parties".
Technological Change. The biomedical field in which the
Company is involved is undergoing rapid and significant
technological change. The successful development of therapeutic
agents and diagnostic products from the compounds, compositions
and processes licensed to the Company, through Company financed
research or as a result of possible licensing arrangements with
pharmaceutical or other companies, will depend on its ability to
be in the technological forefront of this field. There can be no
assurance that the Company will achieve or maintain such a
competitive position or that other technological developments will
not cause the Company's proprietary technologies to become
uneconomical or obsolete.
Patents. Since 1983 the Company, on behalf of the owners of
the compounds, compositions and processes licensed to the Company,
has filed applications for United States and foreign patents
covering certain aspects of the technology. Although the Company
has paid the costs of applying for and obtaining patents, the
technology
covered by the patents is not owned by the Company, but by an
affiliated party which has licensed the technology to the Company.
As of the date of this Prospectus nine patents have been issued in
the United States and three patents have been issued in Europe.
There is no assurance that the applications still pending or which
may be filed in the future will result in the issuance of any
patents. Furthermore, there is no assurance as to the breadth and
degree of protection any issued patents might afford the owners of
the patents and the Company. Disputes may arise between the owners
of the patents or the Company and others as to the scope, validity
and ownership rights of these or other patents. Any defense of
the patents could prove costly and time consuming and there can be
no assurance that the Company or the owners of the patents will be
in a position, or will deem it advisable, to carry on such a
defense. Other private and public concerns, including
universities, may have filed applications for, or may have been
issued, patents and are expected to obtain additional patents and
other proprietary rights to technology potentially useful or
necessary to the Company. The scope and validity of such patents,
if any, the extent to which the Company or the owners of the
patents may wish or need to acquire the rights to such patents,
and the cost and availability of such rights are presently
unknown. Also, as far as the Company relies upon unpatented
proprietary technology, there is no assurance that others may not
acquire or independently develop the same or similar technology.
The first patent licensed to the Company will expire in the year
2000. Since the Company's Investigational New Drug application
relating to MULTIKINE has only recently been cleared by the FDA,
and since the Company does not know if it will ever be able to
sell Multikine on a commercial basis, the Company cannot predict
what effect the expiration of this patent will have on the
Company. Notwithstanding the above, the Company believes that
later issued patents will protect the technology associated with
Multikine past the year 2000. See "Business Compounds and
Processes Licensed
to the Company".
Product Liability Insurance. Although the Company has product
liability insurance for MULTIKINE and its HGP-30 vaccine, the
successful prosecution of a product liability case against the
Company could have a materially adverse effect upon its business
if the amount of any judgment exceeds the Company's insurance
coverage.
Dependence on Management and Scientific Personnel. The
Company is dependent for its success on the continued availability
of its executive officers. The loss of the services of any of the
Company's executive officers could have an adverse effect on the
Company's business. The Company does not carry key man life
insurance on any of its officers. The Company's future 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".
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
longterm 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 the date of this Prospectus, the present shareholders of
the Company owned 7,131,902 shares of Common Stock, which had a
net tangible book value of approximately $l.00 per share. The
following table illustrates the comparative stock ownership of the
other stockholders of the Company, as compared to the investors in
this Offering, assuming all shares offered are sold.
Shares outstanding (1) 7,131,902
Shares to be issued upon exercise of
Sales Agent's Warrants 115,000
Shares to be issued to Nippon Zeon Co., Ltd.
45,000 Shares outstanding (pro forma basis) (1) 7,291,902
Net tangible book value per share $l.00 Equity
ownership by present shareholders
after this offering 97.8%
Equity ownership by investors in this
Offering 2.2%
(1) Amount excludes shares which may be issued upon the exercise
and/or conversion of options, warrants and other convertible
securities previously issued by the Company. See table below.
The purchasers of the securities offered by this Prospectus will
suffer an immediate dilution if the price paid for the securities
offered is greater than the net tangible book value of the
Company's Common Stock. "Net tangible book value" is the amount
that results from subtracting the total liabilities and intangible
assets of the Company from its total assets. "Dilution" is the
difference between the offering price and the net tangible book
value of shares immediately after the Offering.
As of the date of this Prospectus the Company had
7,131,902 shares of Common Stock issued and outstanding. The
following table reflects the additional shares which may be issued
as the result of the exercise of outstanding options and warrants
or the conversion of other securities issued by the Company.
Number of
Note
Share
Reference
Outstanding as of July 31, 19967,131,902
Shares Subject to this Offering:
Shares issuable upon exercise of
Sales Agent's Warrants 115,000 A
Shares to be issued to Nippon
Zeon Co., Ltd. 45,000
Shares outstanding upon the completion of
this Offering (assuming all shares
offered are sold)
7,292,902
Other Shares Which May Be Issued:
Shares issuable upon conversion of
Series A Preferred Stock, based on closing
price of the Company's
Common Stock on July 25, 1996 ($8.00) 437,500
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
9,318,828
A. In connection with the Company's June and September Private
Offerings, Neidiger/Tucker/Bruner, Inc., the Sales Agent for these
offerings, received a commission, a non-accountable expense
allowance and
warrants to purchase (i) 57,500 shares of the Company's Common Stock
at $2.00 per share, (ii) 57,500 shares at $2.40 per share, and (ii)
an additional 115,000 shares at $3.25 per share. Prior to the date
of this Prospectus the Sales Agent (and/or its assigns) collectively
exercised Warrants pertaining to 115,000 shares of the Company's
Common Stock. The shares of Common Stock issuable upon the exercise
of the remaining Warrants issued to the Sales Agent are being
offered by means of this Prospectus. See "Selling Shareholders".
B. In December l987, VTI signed a licensing agreement with Nippon
Zeon Co., Ltd. ("Nippon Zeon"), a Japanese chemical manufacturer,
granting Nippon Zeon exclusive rights to VTI's prototype AIDS
vaccine and improvements in the Pacific Area. Under the agreement,
VTI received an initial licensing payment, as well as a pre
commercialization payment, and was also entitled to receive
additional pre-commercialization payments dependent upon receipt of
certain regulatory approvals. In l995 Nippon Zeon released its
rights to VTI's technology in consideration for VTI's agreement to
pay Nippon Zeon a royalty on sales of products made with VTI's
technology in the licensed area. In July l996 Nippon Zeon agreed to
surrender its royalty rights, as well as any other rights it may
have had to VTI's
technology, in exchange for 45,000 shares of the Company's common
stock, which shares are being offered by means of this prospectus.
See "Selling Shareholders".
C. In May 1996 the Company sold, in a private transaction, 3,500
shares of its Series A Preferred Stock (the "Preferred Shares") for
$3,500,000 or $1,000 per share. At the purchasers' option, up to
1,750 Preferred Shares are convertible, on or after 60 days from the
closing date of the purchase of such shares (the "Closing"), into
shares of the Company's Common Stock on the basis of one share of
Preferred Stock for shares of Common Stock equal in number to the
amount determined by dividing $1,000 by 85% of the Closing Price of
the Company's Common Stock. All Preferred Shares are convertible,
on or after 90 days from the Closing, on the basis of one share of
Preferred Stock for shares of the Company's Common Stock equal in
number to the amount determined by dividing $1,000 by 83% of the
Closing Price of the Company's Common Stock. The term "Closing
Price" is defined as the average closing bid price of the Company's
Common Stock over the five-day trading period ending on the day
prior to the conversion of the Preferred Stock. Notwithstanding the
above, the conversion price may not be less than $3.00 nor more than
$8.00, except that if the Closing Price is less than $3.00, then the
conversion price will be equal to the Closing Price. The Preferred
Shares are entitled to a quarterly dividend of $17.50 per share.
Any Preferred Shares which are outstanding on the second anniversary
of the Closing will be automatically converted into shares of the
Company's Common Stock. The Preferred Shares have a liquidation
preference over the Company's Common Stock. By means of a separate
Registration Statement, the shares issuable upon the conversion of
the Series A Preferred Stock have been registered for public sale.
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
1,117,407 additional shares under its Incentive Stock Option and Non-
Qualified Stock Option Plans. See "Management Stock Option and
Bonus Plans".
MARKET INFORMATION
As of July 31, 1996, there were approximately 3,000 record
holders of the Company's Common Stock and approximately 100 record
holders of the Company's Warrants. The Company has not issued any
shares of preferred stock. The Company's Common Stock and Warrants
are traded on the National Association of Securities Dealers
Automatic Quotation ("NASDAQ") System. Set forth below are the
range of high and low bid quotations for the periods indicated as
reported by NASDAQ, and as adjusted for the 10 for 1 reverse stock
split which was approved by the Company's shareholders on April 28,
1995 and became effective on May 1, 1995. The market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
Quarter
Ending Common Stock Warrants
High Low High Low
12/31/93 $20.00 $13.40 $0.94 $0.41
3/31/94 $18.10 $10.30 $0.75 $0.28
6/30/94 $10.90 $ 8.10 $0.31 $0.19
9/30/94 $10.30 $ 5.60 $0.21 $0.12
12/31/94 $ 7.50 $ 3.40 $0.25 $0.09
3/31/95 $ 4.00 $ 3.75 $0.22 $0.13
6/30/95 $ 5.30 $ 2.78 $0.15 $0.06
9/30/95 $ 5.46 $ 3.56 $0.28 $0.09
12/31/95 $ 4.75 $ 2.28 $0.25 $0.09
3/31/96 $ 7.12 $ 2.68 $0.28 $0.03
6/30/96 $14.38 $ 4.56 $0.41 $0.16
Holders of Common Stock are entitled to receive such dividends as
may be declared by the Board of Directors out of funds legally
available therefor and, in the event of liquidation, to share pro
rata in any distribution of the Company's assets after payment of
liabilities. The Board of Directors is not obligated to declare a
dividend. The Company has not paid any dividends and the Company
does not have any current plans to pay any dividends. Pursuant to
the terms of a loan agreement with a bank, the Company may not pay
any dividends without the consent of the bank. See Note 5 to
the
Company's September 30, 1995 financial statements.
The provisions in the Company's Articles of Incorporation
relating to the Company's Preferred Stock would allow the Company's
directors to issue Preferred Stock with rights to multiple votes per
share and dividends rights which would have priority over any
dividends paid with respect to the Company's Common Stock. The
issuance of Preferred Stock with such rights may make more difficult
the removal of management even if such removal would be considered
beneficial to shareholders generally, and will have the effect of
limiting shareholder participation in certain transactions such as
mergers or tender offers if such transactions are not favored by
incumbent management.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the more detailed financial statements, related notes and other
financial information included herein. See also "Management's
Discussion and Analysis".
For the Years Ended September 30,
1995 1994 1993 1992 1991
Investment Income &
Other Revenues $423,765 $ 624,670 $ 997,964 $ 434,180
$35,972 Expenses:
Research and
Development 1,824,661 2,896,l09 1,307,042 481,697
108,771
Depreciation
and Amortization 262,705 138,755 55,372 33,536
32,582
General and
Administrative 1,713,912 1,621,990 1,696,119 1,309,475
795,015
Equity in loss of
joint venture 501,125 394,692 344,423 260,388
290,166
Net Loss
$(3,878,638)$(4,426,876)$(2,404,992)$(1,650,916)$(1,190,562)
Loss per common share $(0.89) $(1.06) $(0.58) $(0.42)
$(0.35)
Weighted average
common shares
outstanding 4,342,628 4,185,240 4,155,431 3,953,233
3,400,546
Nine Months Ended June 30,
l996 1995
Investment Income & Other Revenues $ 188,256 $ 313,005
Expenses:
Research and Development 2,350,600 1,383,978
Depreciation and Amortization 208,912 201,197
General and Administrative 2,113,884 1,268,677
Equity in loss of joint venture 3,772 395,224
Net Loss $(4,488,912)
$(3,249,076)
Loss per common share $(0.74) $(0.70)
Weighted average common shares
outstanding 6,086,492
4,194,563
Balance Sheet Data:
September 30,
1995 1994 1993 1992
1991
Working Capital $3,983,699 $5,795,191 $10,296,472 $13,043,012
$682,831
Total Assets 6,359,011 8,086,670 11,633,090 13,769,504
1,611,899 Total Liabilities 1,516,978 l,407,602 688,231
467,086 672,595
Shareholders'
Equity 4,842,033 6,679,068 10,944,859 13,302,4l8
939,304
June 30, 1996
Working Capital $6,979,975
Total Assets
$8,723,934
Total Liabilities
$1,191,000
Shareholders' Equity
$7,532,934
No dividends have been declared by the Company since its inception.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Nine Months Ended June 30, 1996
Interest income during the nine months ending June 30, l996
reflects interest accrued on investments.
Prior to October 30, 1995, VTI was owned 50% by the Company and
50% by Alpha 1 Biomedicals, Inc. Effective October 30, 1995 the
Company acquired Alpha 1's interest in VTI in exchange for 159,170
shares of the Company's common stock. Prior to this acquisition
the Company accounted for its investment in VTI using the equity
method of accounting. Following the acquisition of the remaining
50% interest in VTI on October 30, 1995, the financial statements
of VTI have been consolidated with those of the Company.
The acquisition of VTI was accounted for under the purchase
method of accounting. Since the acquisition represented primarily
research and development costs, the purchase price for the
remaining 50% interest in VTI was expensed and caused research and
development expense for the three months ended December 31, 1995 to
increase significantly.
The consolidation of VTI's financial statements with those of the
Company also had the following effects:
1. Interest income declined from the comparable period in the
previous year since interest income associated with the Company's
loans to VTI was eliminated upon consolidation.
2. Current research and development expenses increased due to
the inclusion of VTI's research and development expenses with those
of the Company (the Company's research and development costs,
separate from those of VTI's, decreased by approximately $100,000
due to cost savings achieved from using the Company's laboratory
which became operational in January 1995).
3. General and administrative expenses increased due to the
inclusion of VTI's general and administrative expenses.
4. Capitalized patent costs increased significantly.
Fiscal 1995
Revenues for the year ended September 30, 1995 consisted
primarily of interest earned on funds received from the Company's
February 1992 public offering. The interest income and investment
balances have declined from the previous year as funds were used
for ongoing expenses and equipping the Company's new laboratory.
Research and development expenses decreased due to the use of the
Company's laboratory for research programs and the completion of a
research and development project relating to the Company's
manufacturing process. General and administrative expenses
increased as the result of the expenses (approximately $100,000)
associated with the Company's 1995 annual meeting of shareholders.
The Company did not have any meetings of its shareholders during
fiscal 1994. Significant components of general and administrative
expenses during this year were salaries and employee benefits
($341,000), automobile, travel and expense reimbursements
($271,000), shareholder communications and investor relations
($245,000), legal and accounting ($134,000), and officers and
directors liability insurance ($138,000). Losses associated with
the Company's joint venture interest in VTI increased due to an
increase in VTI's research and
development expenditures.
Fiscal 1994
Interest income during the year ending September 30, 1994
decreased from the prior year as a portion of the Company's
investments were sold to pay for operating expenses. Research and
development expenses increased due to the commencement of several
new research projects, all of which pertained to the Company's
MULTIKINE product. Significant components of general and
administrative expenses during this year were salaries and employee
benefits ($442,039), travel and expense reimbursements ($294,217),
shareholder communications and investor relations ($267,070), legal
and accounting ($151,879), and officers and directors liability
insurance ($147,564). Fiscal 1993
Investment income during the year ending September 30, 1993
increased as the Company had use of the funds from its February,
1992 public offering for twelve months in fiscal 1993 as opposed to
six months in fiscal 1992. Research and development expenses
increased due to the commencement of several new research projects,
all of which pertained to the Company's MULTIKINE drug. General and
administrative expenses increased due to an increase in the cost of
Directors and Officers insurance, the implementation of an employee
401(K) plan, and the addition of new employees during the year.
Significant components of general and administrative expenses
during this year were salaries and employee benefits ($342,150),
travel and expense reimbursements ($266,007), shareholder
communications and investor relations ($341,024), legal and
accounting ($107,254), officers and directors liability insurance
($113,690), and the cost of indemnifying an officer and director
for losses sustained as the result of actions taken on behalf of
the Company ($202,500). Losses associated with the Company's joint
venture interest in VTI increased due to an increase in VTI's
research and development expenditures.
Liquidity and Capital Resources
The Company has had only limited revenues from operations
since its inception in March l983. The Company has relied upon
proceeds realized from the public and private sale of its Common
Stock to meet its funding requirements. Funds raised by the
Company have been expended primarily in connection with the
acquisition of an exclusive worldwide license to certain patented
and unpatented proprietary technology and know-how relating to the
human immunological defense system, the funding of VTI's research
and development program, patent applications, the repayment of
debt, the continuation of Company-sponsored research and
development, administrative costs and construction of laboratory
facilities. Inasmuch as the Company does not anticipate realizing
revenues until such time as it enters into licensing arrangements
regarding the technology and know-how licensed to it (which could
take a number of years), the Company is mostly dependent upon the
proceeds from the sale of its securities to meet all of its
liquidity and capital resource requirements.
In June and September, l995, the Company completed private
offerings whereby it sold a total of 1,150,000 units at $2.00 per
unit. Each unit consisted of one share of Common Stock and one
Warrant. Each Warrant entitles the holder to purchase one
additional share of Common Stock at a price of $3.25 per share at
any time prior to June 30, 1997. The net proceeds to the Company
from these offerings, after the payment of Sales Agent's
commissions and other offering expenses, were approximately
$2,000,000. On November 30, 1995 the Company and the investors in
these Private Offerings agreed to reduce the exercise price of the
Warrants to $1.60 per share in return for the commitment on the
part of the investors to exercise 312,500 Warrants ($500,000) prior
to December 23, 1995 and an
additional 312,500 Warrants ($500,000) prior to January 31, 1996.
As of July 31, l996 all of the Warrants had been exercised.
In March 1996 the Company sold $l,250,000 of Convertible Notes
("Notes") to two persons. The Notes were convertible from time to
time in whole or in part, into shares of the Company's Common
Stock. The conversion price is the lesser of (i) $5 per share or
(ii) 80% of the average closing bid price of the Company's Common
Stock during the five trading days immediately preceding the date
of such conversion. Prior to July 31, l996 the Notes were converted
into 250,000 shares of the Company's common stock.
In May 1996 the Company sold 3,500 shares of its Series A
Preferred Stock (the "Preferred Shares") for $3,500,000 or $1,000
per share. At the purchasers' option, up to 1,750 Preferred Shares
are convertible, on or after 60 days from the closing date of the
purchase of such shares (the "Closing"), into shares of the
Company's Common Stock on the basis of one share of Preferred Stock
for shares of Common Stock equal in number to the amount determined
by dividing $1,000 by 85% of the Closing Price of the Company's
Common Stock. All Preferred Shares are convertible, on or after 90
days from the Closing, on the basis of one share of Preferred Stock
for shares of the Company's Common Stock equal in number to the
amount determined by dividing $1,000 by 83% of the Closing Price
of the Company's Common Stock. The term "Closing Price" is defined
as the average closing bid price of the Company's Common Stock over
the five-day trading period ending on the day prior to the
conversion of the Preferred Stock. Notwithstanding the above, the
conversion price may not be less than $3.00 nor more than $8.00,
except that if the Closing Price is less than $3.00, then the
conversion price will be equal to the Closing Price. The Preferred
Shares, if issued, are entitled to a quarterly dividend of $17.50
per share. Any Preferred Shares which are outstanding on the
second anniversary of the Closing will be automatically converted
into shares of the Company's Common Stock. The Preferred Shares
have a liquidation preference over the Company's Common Stock.
During fiscal 1996 the Company plans to fund its U.S. and
Canadian clinical trials involving MULTIKINE. During fiscal 1996
the Company also plans to provide VTI with the funding needed to
continue VTI's clinical trials. It should be noted that
substantial additional funds will be needed for more extensive
clinical trials which will be
necessary before the Company or VTI will be able to apply to the
FDA for approval to sell any products which may be developed on a
commercial basis throughout the United States. In October, 1994,
the Company completed the construction of its own research
laboratory in a facility leased by the Company. The cost of
modifying the leased space and providing the equipment for the
research laboratory was approximately $1,200,000. In August 1994
the Company obtained a loan to fund the majority of the costs for
the research laboratory. As of June 30, 1996 the Company owed
approximately $628,000 on this loan. Principal and interest on the
loan is due monthly. The loan matures in 1999 and bears interest
at 2% plus the prime lending rate.
The Company expects that it will spend approximately $2,500,000
on research and development during the twelve month period ending
September 30, 1996. This amount includes VTI's estimated research
and development expenses during fiscal 1996. Prior to October
1995, VTI's research and development expenses were shared 50% by
the Company and 50% by Alpha 1 Biomedicals, Inc. VTI became a
whollyowned subsidiary of the Company in October 1995 when the
Company purchased Alpha 1's 50% interest in VTI. The Company plans
to use its existing financial resources to fund its research and
development program during this period.
Other than funding its research and development program and the
costs associated with its research laboratory, the Company does not
have any material capital commitments.
The Company expects that its existing financial resources will
satisfy the Company's capital requirements at least through October
l997. In the absence of revenues, the Company will be required to
raise additional funds through the sale of securities, debt
financing or other arrangements in order to continue with its
research efforts after that date. However, there can be no
assurance that such financing will be available or be available on
favorable terms.
BUSINESS
CEL-SCI Corporation (the "Company") was formed as a Colorado
corporation in 1983. The Company is involved in the research and
development of certain drugs and vaccines. The Company's first
product, MULTIKINETM, manufactured using the Company's proprietary
cell culture technologies, is a combination, or "cocktail", of
natural human interleukin-2 ("IL-2") and certain lymphokines and
cytokines. MULTIKINE is being tested to determine if it is
effective in improving the immune response of advanced cancer
pantients. The Company's second product, HGP-30, is being tested
to determine if it is an effective treatment/vaccine against the
AIDS virus. In addition, the Company recently acquired a new
patented T-cell Modulation Process which uses "heteroconjugates" to
direct the body to chose a specific immune response. The Company
intends to use this new technology to improve the cellular immune
response of persons vaccinated with HGP30.
Since its inception the focus of the Company's product
development efforts has been on conducting clinical trials to test
its proprietary technologies. The Company intends to continue
testing its MULTIKINE product in clinical trials with the objective
of establishing its efficacy as a treatment for solid tumors and
possibly other diseases. An additional aim of the Company is to
further corroborate the present data (obtained in connection with
the Company's research programs and human clinical trials) in
regard to the ability of MULTIKINE to restore the immune system of
people suffering from certain illnesses.
The cost of acquiring its exclusive license and the costs
associated with the clinical trials relating to the Company's
MULTIKINE technologies, the cost of research at various
institutions and the Company's administrative expenses have been
funded with the public and private sales of shares of the Company's
Common Stock and borrowings from third parties, including
affiliates of the Company.
In October 1995 Viral Technologies, Inc. ("VTI") became a
whollyowned subsidiary of the Company. VTI is engaged in the
development of a possible vaccine for AIDS. VTI's technology may
also have application in the treatment of AIDS-infected individuals
and the diagnosis of AIDS. VTI's AIDS vaccine, HGP-30, has
completed certain Phase I human clinical trials. In the Phase I
trials, the vaccine was administered to volunteers who were not
infected with the HIV virus in an effort to determine safe and
tolerable dosage levels.
PRODUCT DEVELOPMENT PLAN
In March l995, the Canadian Health Protection Branch, Health and
Welfare Ministry gave clearance to the Company to start a phase
I/II cancer study using Multikine. The study, which will enroll up
to 30 head and neck cancer patients who have failed conventional
treatments, will be conducted at several sites in the United States
and Canada and is designed to evaluate safety, tumor responses and
immune responses in patients treated with multiple courses of
Multikine. The length of time that each patient will remain on the
investigational treatment will depend on the patient's response to
treatment. In May l995, the U.S. Food and Drug Administration
(FDA) authorized the export of the Company's Multikine drug to
Canada for purposes of this study.
In February 1996 the FDA authorized the Company to conduct two
human clinical studies using MULTIKINE. The studies will focus on
prostate and head and neck cancer. The prostate study will be
conducted at Jefferson Hospital in Philadelphia, Pennsylvania and
will involve up to 15 prostate cancer patients who have failed on
hormonal therapy. The head and neck cancer study will involve up
to 30 cancer patients who have failed using conventional therapies.
The Company is currently evaluating clinical centers in the U.S.
for purposes of the study. The head and neck cancer study in the
U.S. will be conducted in conjunction with the Company's Canadian
head and neck cancer study.
Viral Technologies, Inc. ("VTI") completed its Phase I trials
in California and in April 1995, with the approval of the
California Food and Drug Branch ("FDB"), started a new clinical
study with the HGP-30 AIDS vaccine. The study involves HIV-
negative volunteers who participated in the 1993 Phase I study.
Following vaccinations with HGP-30, certain volunteers donated
blood for a SCID mouse HIV challenge study. Infection in the SCID
mice by virus was determined and confirmed by two different assays.
Approximately 78% of the SCID mice given blood from vaccinated
volunteers showed no HIV infection after virus challenge as
compared to 13% of the mice given blood from unvaccinated donors.
In December 1995 VTI, with permission from the FDB, began Phase I
human clinical trials with HIV-infected volunteers. See "Viral
Technologies, Inc." below for additional information concerning
VTI.
There can be no assurance that either the Company or VTI will be
successful in obtaining approvals from any regulatory authority to
conduct further clinical trials or to manufacture and sell their
products. The lack of regulatory approval for the Company's or
VTI's products will prevent the Company and VTI from generally
marketing their products. Delays in obtaining regulatory approval
or the failure to obtain regulatory approval in one or more
countries may have a material adverse impact upon the Company's
operations.
BACKGROUND OF HUMAN IMMUNOLOGICAL SYSTEM
The function of the immunological system is to protect the body
against infectious agents, including viruses, bacteria, parasites
and malignant (cancer) cells. An individual's ability to respond
to infectious agents and to other substances (antigens) recognized
as foreign by the body's immune system is critical to health and
survival. When the immune response is adequate, infection is
usually combatted effectively and recovery follows. Severe
infection can occur when the immune response is inadequate. Such
immune deficiency can be present from birth but, in adult life, it
is frequently acquired as a result of intense sickness or as a
result of the administration of chemotherapeutic drugs and/or
radiation. It is also recognized that, as people reach middle age
and thereafter, the immune system grows weaker.
Two classes of white blood cells, macrophages and
lymphocytes, are believed to be primarily responsible for immunity.
Macrophages are large cells whose principal immune activity is to
digest and destroy infectious agents. Lymphocytes are divided into
two sub classes. One sub-class of lymphocytes, B-cells, produces
antibodies in response to antigens. Antibodies have unique
combining sites (specificities) that recognize the shape of
particular antigens and bind with them. The combination of an
antibody with an antigen sets in motion a chain of events which may
neutralize the effects of the foreign substance. The other sub-
class of lymphocytes, T-cells, regulates immune responses. T-
cells, for example, amplify or suppress antibody formation by 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
Tcells, Bcells and macrophages are controlled, to a large extent,
by a specific group of hormones called lymphokines. Lymphokines
regulate and modify the various functions of both T-cells and B
cells. There are many lymphokines, each of which is thought to
have distinctive chemical and functional properties. IL2 is but
one of these lymphokines and it is on IL-2 and its synergy with
other lymphokines that the Company has focused its attention.
Scientific and medical investigation has established that IL-2
enhances immune responses by causing activated T-cells to
proliferate. Without such proliferation no immune response can be
mounted. Other lymphokines and cytokines support Tcell and B-cell
proliferation. However, IL-2 is the only known lymphokine or
cytokine which causes the proliferation of Tcells. IL-2 is also
known to activate B-cells in the absence of Bcell growth factors.
Although IL-2 is one of the best characterized lymphokines
with anticancer potential, the Company is of the opinion that to
have optimum therapeutic value, IL-2 should be administered not as
a single substance but rather as a mixture of IL-2 and certain
lymphokines and cytokines, i.e. as a "cocktail". This approach,
which was pioneered by the Company, makes use of the synergism
between these lymphokines. It should be noted however that neither
the FDA nor any other agency has determined that the Company's
MULTIKINE product will be effective against any form of cancer.
It has been reported by researchers in the field of lymphokine
research that IL-2 can increase the number of killer T-cells
produced by the body, which improves the body's capacity to
selectively destroy specific tumor cells. Research and human
clinical trials sponsored by the Company have indicated a
correlation between administration of MULTIKINE to advanced cancer
patients and immunological responses. On the basis of these
experimental results, the Company believes that MULTIKINE may have
application for the treatment of solid tumors in humans.
The Company foresees three potential anti-cancer
therapeutic uses for MULTIKINE: (i) direct administration into the
human body (in vivo) as a modulator of the immune system, (ii)
activation of a patient's white blood cells outside the body with
MULTIKINE, followed by returning these activated cells to the
patient; and (iii) a combination of (i) and (ii).
RESEARCH AND DEVELOPMENT
In the past, the Company conducted its research pursuant to
arrangements with various universities and research organizations.
The Company provided grants to these institutions for the conduct
of specific research projects as suggested by the Company's
scientists based upon the results of previously completed projects.
More recently the Company has decided to consolidate its
research activities in a Company-owned laboratory. The Company
believes that this new approach will be more effective in terms of
both cost and performance.
Between 1983 and 1986 the Company was primarily involved in
funding pre-clinical and Phase I clinical trials of its proprietary
MULTIKINE technologies. These trials were conducted at St. Thomas's
Hospital Medical School located in London, England under the
direction of Dudley C. Dumonde, M.D., PhD., a former member of the
SAB, and pursuant to approvals obtained from England's Department
of Health and Social Security.
In the Phase I trial in England (completed in 1987), forty-nine
patients suffering with various forms of solid cancers, including
malignant melanoma, breast cancer, colon cancer, and other solid
tumor types were treated with MULTIKINE. The product was
administered directly into the lymphatic system in a number of
patients. Significant and lasting lymphnode responses, which are
considered to be an indication of improvement in the patient's
immune responses, were observed in these patients. A principal
conclusion of the Phase I trials was that the side effects of the
Company's products in fortynine patients were not severe, the
treatment was well tolerated and there was no long-term toxicity.
The results of the Phase I clinical study were encouraging, and
as a result the Company 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 xray therapy but developed recurrent tumors at
multiple sites in the neck and were diagnosed with terminal
cancer. The patients had low levels of lymphocytes and evidence
of immune deficiency (generally a characteristic of this type of
cancer).
Significant tumor reduction occured in three of the four
patients as a result of the treatment with MULTIKINE. Negligible
side effects were observed and the patients were treated as
outpatients. Notwithstanding the above, it should be noted that
these trials were only preliminary and were only conducted on a
small number of patients. It remains to be seen if MULTIKINE will
be effective in treating any form of cancer.
See "Product Development Plan" above for information concerning
the Company's future research and development plans.
Proof of efficacy for anti-cancer drugs is a lengthy and
complex process. At this early stage of clinical investigation,
it remains to be proven that MULTIKINE will be effective against
any form of cancer. Even if some form of MULTIKINE is found to be
effective in the treatment of cancer, commercial use of MULTIKINE
may be several years away due to extensive safety and
effectiveness tests that would be necessary before required
government approvals are obtained. It should be noted that other
companies and research teams are actively involved in developing
treatments and/or cures for cancer, and accordingly, there can be
no assurance that the Company's research efforts, even if
successful from a medical standpoint, can be completed before
those of its competitors.
Since 1983, and through September 30, 1995, approximately
$9,505,000 has been expended on Company-sponsored research and
development, including approximately $1,825,000, $2,896,000 and
$1,307,000 during the years ended September 30, 1995, 1994 and
1993, respectively. The foregoing amounts do not include amounts
spent by Viral Technologies, Inc. on research and development.
Since May, 1986 (the inception of VTI) and through September 30,
1995, VTI has spent approximately $3,365,000 on research and
development.
The Company has established a Scientific Advisory Board
("SAB") comprised of scientists distinguished in biomedical
research in the field of lymphokines and related areas. From time
to time, members of the SAB advise the Company on its research
activities. Institutions with which members of the SAB are
affiliated have and may in the future conduct Company-sponsored
research. The SAB has in the past and may in the future, at its
discretion, invite other scientists to opine in confidence on the
merits of the Companysponsored research. Members of the SAB
receive $500 per month from the Company and have also been granted
options (for serving as
members of the SAB) which collectively allow for the purchase of
up to 15,000 shares of the Company's Common Stock. The options
are exercisable at prices ranging from $13.80 to $19.70 per share.
The members of the Company's SAB are:
Dr. Michael Chirigos former head of the Virus and Disease
Modification Section, National Institutes of Health (NIH),
National Cancer Institute (NCI) from 1966-1981 and the Immuno
Pharmacology Section, NHI, NCI, Biological Response Modifier
Program until 1985.
Dr. Evan M. Hersh Vice-Chairman, Department of Internal
Medicine, Chief, Section of Hematology/Oncology, Department of
Internal Medicine, Tucson, AZ. Director of Clinical Research,
Arizona Cancer Center, Tucson.
Dr. Michael J. Mastrangelo Director, Division of Medical
Oncology, and Professor of Medicine, Jefferson Medical College,
Philadelphia, Pennsylvania.
Dr. Alan B. Morris, PhD. Professor, Department of Biological
Sciences, University of Warwick, Coventry, U.K.
VIRAL TECHNOLOGIES, INC.
Prior to October 1995, Viral Technologies, Inc. ("VTI"), a
Delaware corporation, was 50% owned by the Company and 50% owned
by Alpha 1 Biomedicals, Inc. VTI is developing a vaccine
technology that may prove of commercial value in the prevention,
diagnosis and treatment of AIDS. VTI holds the proprietary rights
to certain synthesized components of the p17 gag protein, which is
the outer core region of the AIDS virus (HIV-1). In October 1995,
the Company acquired Alpha 1's interest in VTI in exchange for
159,170 shares of the Company's common stock.
VTI is involved in the development of a prototype preventive
and therapeutic vaccine against AIDS that is based on HGP-30, a
thirty amino acid synthetic peptide derived from the p17 region of
the AIDS virus. Evidence compiled by scientists at George
Washington University from toxicology studies with different
animal species indicates that the HGP-30 prototype vaccine does
not appear to be toxic in animals. The HGP-30 vaccine being
tested differs from most other vaccines candidates in that its
active component, the HGP-30 peptide, is derived from the p17 core
protein particles of the virus. Since HGP-30 is a totally
synthetic molecule containing no live virus, it cannot cause
infection. Unlike the envelope (i.e. outside) proteins, the p17
region of the AIDS virus appears to be relatively nonchanging. In
January, 1991, VTI was issued a United States patent covering the
production, use and sale of HGP-30. HGP-30 may also be effective
in treating persons infected with the AIDS virus.
Approval to start Phase I human clinical trials in Great
Britain using VTI's prototype AIDS vaccine HGP-30 was granted in
April 1988. The trial, the first in the European common market,
began in May 1989 with 18 healthy (HIVnegative) volunteers given
three different dosages and was completed in December 1990. The
trial results indicated that five of eight volunteers vaccinated
with HGP30, 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 HGP-30 and certain other peptides.
In December l987, VTI signed a licensing agreement with
Nippon Zeon Co., Ltd. ("Nippon Zeon"), a Japanese chemical
manufacturer, granting Nippon Zeon exclusive rights to VTI's
prototype AIDS vaccine and improvements in the Pacific Area. Under
the agreement, VTI received an initial licensing payment, as well
as a precommercialization payment, and was also entitled to receive
additional pre-commercialization payments dependent upon receipt of
certain regulatory approvals. In l995 Nippon Zeon released its
rights to VTI's technology in consideration for VTI's agreement to
pay Nippon Zeon a royalty on sales of products made with VTI's
technology in the licensed area. In July l996 Nippon Zeon agreed to
surrender its royalty rights, as well as any other rights it may
have had to VTI's technology, in exchange for 45,000 shares of the
Company's common stock, which shares are being offered by means of
this prospectus. See "Selling Shareholders".
T-CELL MODULATION PROCESS
In January 1996 the Company acquired a new patented T-cell
Modulation Process which uses "heteroconjugates" to direct the body
to chose a specific immune response.
The ability to generate a specific immune response is important
because many diseases are often not combatted effectively due to
the
body's selection of the "inappropriate" immune response. The
capability to specifically reprogram an immune response may offer a
more effective approach than existing vaccines and drugs in
attacking an underlying disease.
The Company intends to use this new technology to improve the
cellular immune response of VTI's HIV HGP-30 immunogen which is
currently in two clinical studies. In addition, the Company
intends to use the technology to develop a potential Tuberculosis
(TB) vaccine/treatment. TB is the largest killer of all infectious
diseases worldwide and new strains of drug resistant TB are
emerging daily. The technology is also a potential platform
technology which could also work with many other peptides. Using
this new technology, the Company is currently conducting in vitro
laboratory and in vivo animal studies.
The technology was acquired from Cell-Med, Incorporated ("CELL-
MED") in consideration for the Company's agreement to pay certain
liabilities of CELL-MED in the amount of approximately $6,000. If
the Company elects to retain ownership in the technology after
March 30, 1997, the Company must pay CELL-MED $200,000, plus
additional payments ranging between $100,000 and $600,000,
depending upon the Company's ability to obtain regulatory approval
for clinical studies using the technology. In addition, should the
Company receive FDA approval for the sale of any product
incorporating the technology, the Company is obligated to pay CELL-
MED an advance royalty of $500,000, a royalty of 5% of the sales
price of any product using the technology, plus 15% of any amounts
the Company receives as a result of sublicensing the
technology. So long as the Company retains rights in the
technology, the Company has also agreed to pay the future costs
associated with pursuing and or maintaining CELL-MED's patent and
patent applications relating to the technology. As of February 29,
1996, CELL-MED had been issued patents in Australia and from the
European Patent Office covering the technology and had several U.S.
and foreign patent applications pending.
COMPOUNDS AND PROCESSES LICENSED TO THE COMPANY
The Company has acquired from Sittona Company, B.V., a
Netherlands
corporation ("Sittona"), the exclusive worldwide rights to patented
IL2 compounds, compositions and other processes and other
lymphokine related compounds, compositions and processes which are
the subject of various patents, patent applications and disclosure
documents filed with the United States Patent and Trademark Office
as well as similar agencies of various foreign countries. Sittona
acquired its rights in the foregoing products and technology from
Hooper Trading Company N.V., and Shanksville Corporation N.V., both
Netherland Antilles corporations. Pursuant to the terms of the
license, the Company must pay to Sittona a royalty of l0% of all
net sales received by the Company in connection with the
manufacture, use or sale of the licensed compounds, compositions
and processes and a royalty of l5% of all license fees and
royalties received by the Company in connection with the grant by
the Company of any sublicenses for the manufacture, use or sale of
the licensed compounds, compositions and processes. On November
30, l983, a $l.4 million advance royalty was paid by the Company to
Sittona to acquire the license. The license also requires the
Company to bear the expense of preparing, filing and processing
patent applications and to obtain and maintain patents in the
United States and foreign countries on all inventions, developments
and improvements made by or on behalf of the Company relating to
the licensed compounds, compositions and processes. In this regard
the Company has caused patent applications to be filed in several
foreign countries and has undertaken the processing of previously
filed patent applications.
The exclusive license is to remain in effect until the expiration
or abandonment of all patent rights or until the compounds,
compositions and processes enter into the public domain, whichever
is later. Sittona may also terminate the license for breach of the
agreement, fraud on the part of the Company, or the bankruptcy or
insolvency of the Company. Sittona, Hooper Trading Company and
Shanksville Corporation are all controlled by Maximilian de Clara,
the Company's President. See "Management Transactions with Related
Parties".
In 1987 a German company filed an opposition with the European
Patent Office with respect to one of the Company's European
patents, alleging that certain aspects of the patent in question
were previously disclosed to inventors during a conference held in
Germany. A hearing on the opposition was held and on October 12,
1990 the European Patent Office rejected the opposition. The
German company filing the opposition appealed the decision of the
European Patent Office. In 1992 the Appellate Tribunal of the
European Patent Office upheld the Company's process claims in the
patent, while two minor claims were denied. The Company does not
believe that the denial by the European Patent Office of these two
minor process patent claims impairs the value of this patent in any
significant degree.
In February 1996 the Company filed a lawsuit against ImmunoRx and
Dr. John Hadden for contract breach, tortious interference of
contract and patent infringement concerning the Company's Multikine
drug. The lawsuit, filed in the U.S. District Court for the Middle
District of Florida, seeks damages and the termination of certain
research and clinical studies being conducted by ImmunoRx and Dr.
Hadden. From 1984 to 1992, Dr. Hadden consulted with the Company,
performed research on Multikine and manufactured Multikine for the
Company's
head and neck cancer study in Florida. In early 1993, Dr. Hadden
signed a separation agreement with the Company acknowledging the
Company's ownership of both Multikine and the research results.
The Company has learned that Dr. Hadden and ImmunoRx are apparently
making copies of Multikine, in contravention of the separation
agreement and the patents covering Multikine, and have begun
clinical studies in a foreign country using a copy of Multikine.
Process for the Production of IL-2 and IL-2 Product
The Company's exclusive license includes processes for the
production in high yields of natural human IL-2 using cell culture
techniques applied to normal human cells. Based upon the results
of the Company's research and human clinical trials, the Company
believes that "natural" IL-2 produced by cell culture technologies,
such as the Company's proprietary products, may have advantages
over genetically engineered, bacteria-produced IL-2 ("recombinant
IL-2") manufactured by other companies. There are basically two
ways to produce IL-2 on a commercial scale: (1) applying
genesplicing techniques using bacteria or other micro-organisms to
produce recombinant IL-2; or, (2) applying cell culture technology
using mammalian cells. Substantive differences exist between
recombinant IL-2 and IL-2 produced through cell culture technology.
For example: (1) cell cultured IL-2 is glycosylated (has sugars
attached). Sugar attachments play a crucial role in cell
recognition and have a significant effect on how fast a body clears
out proteins. Proteins produced through bacteria have no sugar
attachments and while recombinant IL-2 products produced from
recombinant yeast or insect cells are glycosylated, they are not so
to the right degree, or at the right locations. Cell cultured IL-2
has the "right" sugar attachments at the right places; (2) there
are also structural differences related to folding (the way human
proteins work depends on their sequence folding); and (3) the cell
cultured IL-2 "cocktail" is administered in small dosages as
pioneered by Company
researchers. This formulation and dosage mimics the way immune
regulators are naturally found and function within the body. This
stands in stark contrast to the huge dosages required when
recombinant IL-2 is administered to patients. In addition,
patients treated with recombinant IL-2 usually suffer severe side
effects.
Although mammalian cells (other than human cells) could be
genetically engineered to produce glycosylated IL-2 in larger
quantities than are produced by the Company's method, such
mammalian cells could not be genetically engineered to produce the
combination of human lymphokines and cytokines, which together
with human glycosylated IL-2 form the MULTIKINE product used by
the Company. The Company is of the opinion that glycosylated IL-2
genetically produced from mammalian cells must be administered in
large dosages before any benefits are observed. Even then, the
Company believes that only a small percentage of patients will
benefit from treatments consisting only of glycosylated IL-2. In
addition, large dosages of glycosylated IL-2 can, as with
recombinant IL-2, result in severe toxic reactions. In contrast,
the Company believes the synergy between glycosylated IL2 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 knowhow obsolete.
Several biotechnology companies are producing IL-2-like
compounds. The Company believes, however, that it is the only
producer of a patented IL2 product using a patented cell-culture
technology with
normal human cells. The Company foresees that its principle
competition will come from producers of genetically-engineered IL-
2 like products. However, it is the Company's belief, based upon
growing scientific evidence, that its natural IL-2 products have
advantages over the genetically engineered, IL-2-like products.
Evidence indicates that genetically engineered, IL-2-like
products, which lack sugar molecules and typically are not water
soluble, may be recognized by the immunological system as a
foreign agent, leading to a measurable antibody build-up and
thereby possibly voiding their therapeutic value. Furthermore, the
Company's research has established that to have optimum
therapeutic value IL-2 should be administered not as a single
substance but rather as an IL-2 rich mixture of certain
lymphokines and other proteins, i.e. as a "cocktail". If these
differences prove to be of importance, and if the therapeutic
value of its MULTIKINE product is conclusively established, the
Company believes it will be able to establish a strong competitive
position in a future market.
The Company has not established a definitive plan for marketing
nor has it established a price structure for the Company's
saleable products. However, the Company intends, if the Company is
in a position to begin commercialization of its products, to enter
into written marketing agreements with various major
pharmaceutical firms with established sales forces. The sales
forces in turn would probably target the Company's products to
cancer centers, physicians and clinics involved in immunotherapy.
Competition to develop treatments for the control of AIDS is
intense. Many of the pharmaceutical and biotechnology companies
around the world are devoting substantial sums to the exploration
and development of technologies useful in these areas. VTI's
development of its experimental HGP-30 AIDS Vaccine, if
successful, would likely face intense competition from other
companies seeking to find alternative or better ways to prevent
and treat AIDS.
Both the Company and VTI may encounter problems, delays and
additional expenses in developing marketing plans with outside
firms. In addition, the Company and VTI may experience other
limitations involving the proposed sale of their products, such as
uncertainty of third-party reimbursement. There is no assurance
that the Company or VTI can successfully market any products which
they may develop or market them at competitive prices.
The clinical trials funded to date by the Company and VTI have
not been approved by the FDA, but rather have been conducted
pursuant to approvals obtained from regulatory agencies in
England, Canada and certain states. Since the results of these
clinical trials may not be accepted by the FDA, companies which
are conducting clinical trials approved by the FDA may have a
competitive advantage in that the products of such companies are
further advanced in the regulatory process than those of the
Company or VTI.
PROPERTIES
The Company's MULTIKINE product used in its pre-clinical
and Phase I clinical trials in England was manufactured at a pilot
plant at St. Thomas' Hospital Medical School using the Company's
patented production methods and equipment owned by the Company.
The MULTIKINE product used in the Florida clinical trials was
manufactured in Florida. In February, 1993, the Company signed an
agreement with a third party whereby the third party constructed a
facility designed to produce the Company's MULTIKINE product. The
Company paid the third party the cost of constructing this
facility (approximately $200,000) in accordance with the Company's
specifications. In October, 1994 the Company completed the
construction of a research laboratory in space leased by the
Company. The cost of modifying and equipping this space
for the Company's purposes was approximately $1,200,000.
The Company leases office space at 66 Canal Center
Plaza, Alexandria, Virginia at a monthly rental of approximately
$8,200 per month. The Company believes this arrangement is
adequate for the conduct of its present business.
EMPLOYEES
As of March 31, 1996 the Company, together with VTI, employed
24 persons on a full-time basis.
MANAGEMENT
Officers and Directors
Name Age Position
Maximilian de Clara 66 Director and President
Geert R. Kersten, Esq. 37 Director, Chief Executive
Officer, Secretary and
Treasurer Patricia B. Prichep 43 Vice President of
Operations
M. Douglas Winship 45 Vice President of
Regulatory
Affairs and Quality
Assurance Dr. Eyal Talor 40 Vice President of Research
and
Manufacturing
Dr. Prem S. Sarin 61 Vice President of Research
for
Viral Technologies, Inc.
Dr. Daniel H. Zimmerman 54 Vice President of Cellular
Immunology
Mark V. Soresi 43 Director
F. Donald Hudson 62 Director Edwin A. Shalloway
60 Director
The directors of the Company serve in such capacity until
the next annual meeting of the Company's shareholders and until
their successors have been duly elected and qualified. The
officers of the Company serve at the discretion of the Company's
directors.
Mr. Maximilian de Clara, by virtue of his position as an
officer and director of the Company, may be deemed to be the
"parent" and "founder" of the Company as those terms are defined
under applicable rules and regulations of the Securities and
Exchange Commission.
The principal occupations of the Company's officers and
directors, during the past several years, are as follows:
Maximilian de Clara. Mr. de Clara has been a director of the
Company since its inception in March, l983, and has been president
of the Company since July, l983. Prior to his affiliation with the
Company, and since at least l978, Mr. de Clara was involved in the
management of his personal investments and personally funding
research in the fields of biotechnology and biomedicine. Mr. de
Clara attended the medical school of the University of Munich from
l949 to l955, but left before he received a medical degree. During
the summers of l954 and l955, he worked as a research assistant at
the University of Istanbul in the field of cancer research. For
his efforts and dedication to research and development in the fight
against cancer and AIDS, Mr. de Clara was awarded the "Pour le
Merit" honorary medal of the Austrian Military Order "Merito
Navale" as well as the honor cross of the Austrian Albert
Schweitzer Society.
Geert R. Kersten, Esq. Mr. Kersten was Director of Corporate and
Investment Relations for the Company between February, 1987 and
October, 1987. In October of 1987, he was appointed Vice President
of Operations. In December, 1988, Mr. Kersten was appointed
director of
the Company. Mr. Kersten also became the Company's secretary and
treasurer in 1989. In May, 1992, Mr. Kersten was appointed Chief
Operating Officer and in February, 1995, Mr. Kersten became the
Company's Chief Executive Officer. In previous years, Mr. Kersten
worked as a financial analyst with Source Capital, Ltd., an
investment advising firm in McLean, Virginia. Mr. Kersten is a
stepson of Maximilian de Clara, who is the President and a Director
of the Company. Mr. Kersten attended George Washington University
in Washington, D.C. where he earned a B.A. in Accounting and an
M.B.A. with emphasis on International Finance. He also attended
law school at American University in Washington, D.C. where he
received a Juris Doctor degree.
Patricia B. Prichep has been the Company's Vice President of
Operations since March, 1994. Between December, 1992 and March,
1994, Ms. Prichep was the Company's Director of Operations. From
June, 1990 to December, 1992, Ms. Prichep was the Manager of
Quality and Productivity for the NASD's Management, Systems and
Support Department. Between 1982 and 1990, Ms. Prichep was Vice
President and Operations Manager for Source Capital, Ltd.
M. Douglas Winship has been the Company's Vice President of
Regulatory Affairs and Quality Assurance since April, 1994.
Between 1988 and April, 1994, Mr. Winship held various positions
with Curative Technologies, Inc., including Vice President of
Regulatory Affairs and Quality Assurance (1991-1994).
Dr. Eyal Talor has been the Company's Vice President of
Research and Manufacturing since March, 1994. From October, 1993
until March, 1994, Dr. Talor was Director of Research,
Manufacturing and Quality Control, as well as the Director of the
Clinical Laboratory,
for Chesapeake Biological Laboratories, Inc. From 1991 to 1993,
Dr. Talor was a scientist with SRA Technologies, Inc., as well as
the director of SRA's Flow Cytometry Laboratory (19911993) and
Clinical Laboratory (1992-1993). During 1992 and 1993, Dr. Talor
was also the Regulatory Affairs and Safety Officer For SRA. Since
1987, Dr. Talor has held various positions with the John Hopkins
University, including course coordinator for the School of
Continuing Studies (1989-Present), research associate and lecturer
in the Department of Immunology and Infectious Diseases (1987-
1991), and associate professor (1991Present).
Prem S. Sarin, Ph.D. has been the Vice President of Research
for Viral Technologies, Inc. (the Company's wholly-owned
subsidiary) since May 1, 1993. Dr. Sarin was an Adjunct Professor
of Biochemistry at the George Washington University School of
Medicine, Washington, D.C., from 1986-1992. From 1975-1991 Dr.
Sarin held the position of Deputy Chief, Laboratory of Tumor Cell
Biology at the National Cancer Institute (NCI), NIH, Bethesda,
Maryland. Dr. Sarin
was a Senior Investigator (1974-1975) and a Visiting Scientist
(19721974) 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-
Name and Compen- Stock Options Pay-
pensa-
Principal Fiscal Salary Bonus sation Awards Granted outs
tion 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
Potent
ia l
Individual Grants (1) Realizable Value
at % of Total Assumed
Annual Rates
Options of Stock Price
Granted to Exercise
Appreciation
for
Options Employees in Price Per Expiration Option
Term (3)
Name Granted(#) Fiscal Year Share (1) Date 5%
10%
Maximilian 15,000 $2.87 3/19/01 $14,550
$30,750
de Clara 70,000 $2.87 11/1/01 $ 67,900
$176,400
70,000 $2.87 7/29/04 $272,300
$272,300
70,000 $3.87 7/31/05 $240,100
$501,200
225,000 32%
Geert R. 50,000 (2) $2.87 1/10/98 $ 20,500
$42,000
Kersten 750 $2.87 3/28/98 $ 287 $
705
4,000 $2.87 10/31/99 $ 2,440
$5,320
10,000 $2.87 10/31/00 $ 7,900
$17,500
10,000 $2.87 3/19/01 $ 9,700
$22,100
50,000 $2.87 11/01/01 $ 48,500
$110,700
50,000 $2.87 7/29/04 $ 79,000
$194,500
50,000 $3.87 7/31/05 $171,500
$358,000
224,750 32%
M. Douglas 2,000 (2) $2.87 1/10/98 $ 720
$1,660
Winship 15,000 $2.87 4/4/04 $ 23,700
$58,350
5,000 $3.87 7/31/05 $ 17,150
$35,800
22,000 3%
Suzanne 5,000 (2) $2.87 1/10/98 $ 1,750
$4,150
Beckner 8,000 $2.87 7/11/04 $ 12,640
$31,120
12,000 $3.87 7/31/05 $ 41,160
$85,920
25,000 3.5%
(1) Includes options granted in prior fiscal years but which were
repriced in June 1995. See "Ten-Year Option/SAR Repricings" table
below.
(2) Options were granted in accordance with the Company's 1995
salary reduction plan. Pursuant to the salary reduction plan, any
employee of the Company was allowed to receive options in exchange
for a one time reduction in such employee's salary.
(3) The potential realizable value of the options shown in the
table assuming the market price of the Company's Common Stock
appreciates in value from the date of the grant to the end of the
option term at 5% or 10%.
Option Exercises and Year End Option Values
Number of Value of Unexer-
Unexercised cised In-the
Money Options
Options
at Fiscal
Shares (3) Year-End (4)
Acquired Value
on Exercise Realized Exercisable/
Exercisable/
Name (1) (2) Unexercisable Unexercisable
Maximilian de Clara - - 108,334/116,666
$189,584/$134,165
Geert R. Kersten - - 85,750/139,000
$150,062/$193,250
M. Douglas Winship - - 5,000/ 17,000 $
8,750/$24,750
Suzanne Beckner - - 2,667/ 22,333 $
4,667/$27,083
(1) The number of shares received upon exercise of options during
the fiscal year ended September 30, 1995.
(2) With respect to options exercised during the Company's fiscal
year ended September 30, 1995, the dollar value of the difference
between the option exercise price and the market value of the option
shares purchased on the date of the exercise of the options.
(3) The total number of unexercised options held as of September 30,
1995, separated between those options that were exercisable and
those
options that were not exercisable.
(4) For all unexercised options held as of September 30, 1995, the
aggregate dollar value of the excess of the market value of the
stock underlying those options (as of September 30, 1995) over the
exercise price of those unexercised options. Values are shown
separately for those options that were exercisable, and those
options that were not yet exercisable, on September 30, 1995.
Ten-Year Option/SAR Repricings
In June 1995 the Company lowered the exercise price on
options held by all of the Company's officers, directors and
employees to $2.87 per share. The options subject to this
repricing allowed for the purchase of up to 444,250 shares of the
Company's Common Stock and included options previously granted to
those persons listed below. The Company's Board of Directors
lowered the exercise of these options since at the time of
repricing (June 10, 1995), the options no longer provided a
benefit to the option holders due to the difference between the
exercise price of the options and the market price of the
Company's Common Stock. The following table provides more
information concerning the repricing of these options.
Number of
Length
of
Securities Market Exercise
Original Op-
Underlying Price of Price at
tion
Term
Options/ Stock at Time of
Remaining at
SARs Re- Repricing Repricing New
Date of Re-
priced or or Amend- or Amend- Exercise
pricing or Name Date Amended (#) ment ($) 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 Incentive Stock Option Plans, Non-
Qualified Stock Option Plans and a Stock Bonus Plan. A summary
description of these Plans follows. In some cases these Plans
are collectively
referred to as the "Plans".
Incentive Stock Option Plan. The Incentive Stock Option Plans
collectively authorize the issuance of up to 800,000 shares of the
Company's Common Stock to persons that exercise options granted
pursuant to the Plan. Only Company employees may be granted
options pursuant to the Incentive Stock Option Plan.
To be classified as incentive stock options under the
Internal Revenue Code, options granted pursuant to the Plans must
be exercised prior to the following dates:
(a) The expiration of three months after the date on which an
option holder's employment by the Company is terminated (except if
such termination is due to the death or permanent and total
disability);
(b) The expiration of 12 months after the date on which an option
holder's employment by the Company is terminated, if such
termination is due to the Employee's permanent and total
disability;
(c) In the event of an option holder's death while in the employ
of the Company, his executors or administrators may exercise,
within three months following the date of his death, the option as
to any of the shares not previously exercised;
The total fair market value of the shares of Common Stock
(determined at the time of the grant of the option) for which any
employee may be granted options which are first exercisable in any
calendar year may not exceed $100,000.
Options may not be exercised until one year following the
date of grant. Options granted to an employee then owning more
than 10% of the Common Stock of the Company may not be exercisable
by its terms after five years from the date of grant. Any other
option granted pursuant to the Plan may not be exercisable by its
terms after ten years from the date of grant.
The purchase price per share of Common Stock purchasable
under an option is determined by the Committee but cannot be less
than the fair market value of the Common Stock on the date of the
grant of the option (or 110% of the fair market value in the case
of a person owning more than 10% of the Company's outstanding
shares).
Non-Qualified Stock Option Plan. The Non-Qualified Stock
Option Plans collectively authorize the issuance of up to
1,360,000 shares of the Company's Common Stock to persons that
exercise options granted pursuant to the Plans. The Company's
employees, directors, officers, consultants and advisors are
eligible to be granted options pursuant to the Plans, provided
however that bona fide services must be rendered by such
consultants or advisors and such services must not be in
connection with the offer or sale of securities in a
capitalraising transaction. The option exercise price is
determined by the Committee but cannot be less than the market
price of the Company's Common Stock on the date the option is
granted.
Stock Bonus Plan. Up to 40,000 shares of Common Stock may be
granted under the Stock Bonus Plan. Such shares may consist, in
whole or in part, of authorized but unissued shares, or treasury
shares. Under the Stock Bonus Plan, the Company's employees,
directors, officers, consultants and advisors are eligible to
receive a grant of the Company's shares, provided however that
bona fide services must be rendered by consultants or advisors and
such services must not be in connection with the offer or sale of
securities in a capital-raising transaction.
Other Information Regarding the Plans. The Plans are
administered by the Company's Compensation Committee ("the
Committee"), each member of which is a director of the Company.
The members of the Committee were selected by the Company's Board
of Directors and serve for a oneyear tenure and until their
successors are elected. A member of the Committee may be removed
at any time
by action of the Board of Directors. Any vacancies which may
occur on the Committee will be
filled by the Board of Directors. The Committee is vested with
the authority to interpret the provisions of the Plans and
supervise the administration of the Plans. In addition, the
Committee is empowered to select those persons to whom shares or
options are to be granted, to determine the number of shares
subject to each grant of a stock bonus or an option and to
determine when, and upon what conditions, shares or options
granted under the Plans will vest or otherwise be subject to
forfeiture and cancellation.
In the discretion of the Committee, any option granted pursuant
to the Plans may include installment exercise terms such that the
option becomes fully exercisable in a series of cumulating
portions. The Committee may also accelerate the date upon which
any option (or any part of any options) is first exercisable. Any
shares issued pursuant to the Stock Bonus Plan and any options
granted pursuant to the Incentive Stock Option Plan or the
NonQualified Stock Option Plan will be forfeited if the "vesting"
schedule established
by the Committee administering the Plan at the time of the grant
is not met. For this purpose, vesting means the period during
which the employee must remain an employee of the Company or the
period of time a non-employee must provide services to the
Company. At the time an employee ceases working for the Company
(or at the time a non-employee ceases to perform services for the
Company), any shares or options not fully vested will be forfeited
and cancelled. At the discretion of the Committee payment for the
shares of Common Stock underlying options may be paid through the
delivery of shares of the Company's Common Stock having an
aggregate fair market value equal to the option price, provided
such shares have been owned by the option holder for at least one
year prior to such exercise. A combination of cash and shares of
Common Stock may also be permitted at the discretion of the
Committee.
Options are generally non-transferable except upon death of
the option holder. Shares issued pursuant to the Stock Bonus Plan
will generally not be transferable until the person receiving the
shares satisfies the vesting requirements imposed by the Committee
when the shares were issued.
The Board of Directors of the Company may at any time, and from
time to time, amend, terminate, or suspend one or more of the
Plans in any manner they deem appropriate, provided that such
amendment, termination or suspension will not adversely affect
rights or obligations with respect to shares or options previously
granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the
eligibility requirements for the Plans; increase or decrease the
total number of shares of Common Stock which may be issued
pursuant to the Plans except in the case of a reclassification of
the Company's capital stock or a consolidation or merger of the
Company; reduce the minimum option price per share; extend the
period for granting options; or materially increase in any other
way the benefits accruing to employees who are eligible to
participate in the Plans.
Prior Stock Option and Bonus Plan. The Company previously had
in effect a Stock Option and Bonus Plan ("the 1987 Plan") which
provided for the grant to the Company's officers, directors,
employees and consultants of either (i) shares of the Company's
Common Stock for services rendered or (ii) options to purchase
shares of Common Stock. The 1987 Plan was terminated by the
Company in 1992. Since the 1987 Plan was terminated, no further
options will be granted and no further bonus shares will be issued
pursuant to the 1987 Plan. However, options previously granted
may nevertheless still be exercised according to the terms of the
options. Prior to the termination of the 1987 Plan, the Company
granted options to purchase 189,250 shares of the Company's
Common Stock. To date, options to purchase 6,000 shares have
been exercised. In June, 1995 the Company cancelled options to
purchase 176,250 shares that had previously been granted
under this Plan and reissued options for the same number of
shares under the Company's other stock option plans. See "Option
Summary" below.
Option Summary. The following sets forth certain
information, as of June 30, 1996, concerning the stock options
granted by the Company. Each option represents the right to
purchase one share of the Company's Common Stock.
Total Shares
Shares Reserved
for
Remaining
Reserved Outstanding
Options
Name of Plan Under Plan Options Under
Plan
1987 Stock Option and Bonus Plan 200,000 7,000 (1)
1992 Incentive Stock Option Plan 100,000 94,050
3,283
1992 Non-Qualified Stock Option Plan 60,000 45,000 -
1994 Incentive Stock Option Plan 100,000 100,000 -
1994 Non-Qualified Stock Option Plan 100,000 97,250
2,750
1995 Non-Qualified Stock Option Plan 800,000 638,626 111,374
1996 Incentive Stock Option Plan 600,000 - 600,000
1996 Non-Qualified Stock Option Plan 400,000 - 400,000
TOTAL: 981,926
1,117,407
(1) This Plan was terminated in 1992 and as a result, no new options
will be granted pursuant to this Plan.
As of June 30, 1996, 1,500 shares had been issued pursuant
to the Company's 1992 Stock Bonus Plan. All of these shares were
issued during the fiscal year ending September 30, 1994.
Transactions with Related Parties
The technology and know-how licensed to the Company was
developed by a group of researchers under the direction of Dr.
HansAke Fabricius and was assigned, during l980 and l98l, to Hooper
Trading Company, N.V., a Netherlands Antilles' corporation
("Hooper"), and Shanksville Corporation, also a Netherlands
Antilles corporation ("Shanksville"). Mr. de Clara and Dr.
Fabricius own 50% and 30%, respectively, of each of these
companies. The technology and know-how assigned to Hooper and
Shanksville was licensed to Sittona Company, B.V., a Netherlands
corporation ("Sittona"), effective September, l982 pursuant to a
licensing agreement which requires Sittona to pay to Hooper and
Shanksville royalties on income received by Sittona respecting the
technology and know-how licensed to Sittona. In l983, Sittona
licensed this technology to the Company and received from the
Company a $1,400,000 advance royalty payment. At such time as the
Company generates revenues from the sale or sublicense of this
technology, the Company will be required to pay royalties to
Sittona equal to l0% of net sales and l5% of the licensing
royalties received from third parties. In that event, Sittona,
pursuant to its licensing agreements with Hooper and Shanksville,
will be required to pay to those companies a minimum of l0% of any
royalty payments received from the Company.
In 1985, Mr. de Clara acquired all of the issued and
outstanding
stock of Sittona. Mr. de Clara and Dr. Fabricius, because of
their
ownership interests in Hooper and Shanksville, could receive
approximately 50% and 30% respectively of any royalties paid by
Sittona to Hooper and Shanksville, and Mr. de Clara, through his
interest in all three companies (Hooper, Shanksville and Sittona),
will receive up to 95% of any royalties paid by the Company. Legal
Matters
During the year ended September 30, 1993, the Company paid Mr.
de Clara approximately $23,000 for legal expenses incurred by Mr.
de Clara in defending a legal action brought against Mr. de Clara
by an unrelated third party who claimed that Mr. de Clara owed the
third party 25,000 shares of the Company's Common Stock as a fee
for introducing the Company (in 1985) to persons who allegedly
were willing to (but did not) provide funds to the Company.
Although the Company was not a party to this proceeding, the
Company's Board of Directors has determined, based upon
information supplied by Mr. de Clara, that the third party's
claims against Mr. de Clara arose as a result of Mr. de Clara's
efforts to obtain funding for the Company. Accordingly, the Board
of Directors determined that Mr. de Clara was entitled by law to
indemnification and in October, 1993, the Company issued 25,000
shares of its common stock to the third party claiming the shares
from Mr. de Clara.
The Securities and Exchange Commission found that between 1988
and 1991 Mr. de Clara failed to timely file reports of beneficial
ownership required by the Securities Exchange Act of 1934. In
May, 1992, the Commission entered an order requiring Mr. de Clara
to file reports of beneficial ownership on a timely basis.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of July 31, 1996,
information with respect to the only persons owning beneficially
5% or more of the outstanding Common Stock and the number and
percentage of outstanding shares owned by each director and
officer and by the officers and directors as a group. Unless
otherwise indicated, each owner has sole voting and investment
powers over his shares of Common Stock.
Number of Percent of
Name and Address Shares (1) Class (4)
Maximilian de Clara 46,667 (2) *
Bergstrasse 79
6078 Lungern,
Obwalden, Switzerland
Geert R. Kersten 268,357 (3) 4.1%
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Patricia B. Prichep 21,197 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
M. Douglas Winship 13,667 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Eyal Talor 14,501 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Prem Sarin 10,834 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 22314
Mark Soresi 19,375
*
l0l0 Wayne Ave., 8th Floor
Silver Spring, MD 209l0
F. Donald Hudson 15,500 *
53 Mt. Vernon Street
Boston, MA 02108
Edwin A. Shalloway 15,500 *
413 North Washington Street
Alexandria, VA 22314
All Officers and Directors
as a Group (10 persons) 425,598 6.0%
*Less than 1%
(1) Includes shares issuable prior to August 31, 1996 upon the
exercise of options or warrants granted to the following
persons:
Options or Warrants
Exercisable
Name Prior to August
31,
1996
Maximilian de Clara 46,667
Geert R. Kersten
163,417
Patricia B. Prichep
18,167
M. Douglas Winship
13,667
Dr. Eyal Talor
13,001
Dr. Prem Sarin
10,834
Mark Soresi
17,500
F. Donald Hudson
15,500
Edwin A. Shalloway
15,500
See "Management" for information concerning outstanding stock
options.
(2) All shares are held of record by Milford Trading, Ltd., a
corporation organized pursuant to the laws of Liberia. All of the
issued and outstanding shares of Milford Trading, Ltd. are owned
beneficially by Mr. de Clara.
(3) Amount includes shares held in trust for the benefit of Mr.
Kersten's minor children. Geert R. Kersten is the stepson of
Maximilian de Clara.
(4) Amount excludes shares which may be issued upon the exercise
and/or conversion of options, warrants and other convertible
securities previously issued by the Company. See "Dilution and
Comparative Share Data".
SELLING SHAREHOLDERS
This Prospectus relates to the sale by the Company of up to
115,000 shares of Common Stock issuable upon the exercise of Sales
Agent Warrants, and 45,000 shares of common stock issuable to Nippon
Zeon Co., Ltd. ("Nippon Zeon") in exchange for the cancellation of
certain royalties payable by the Company to Nippon Zeon.
In connection with the Company's June and September
offerings of 1,150,000 shares of Common Stock and 1,150,000 Common
Stock Purchase Warrants, Neidiger/Tucker/ Bruner, Inc., the Sales
Agent for these offerings, received a commission, a non-accountable
expense allowance and warrants to purchase (i) 57,500 shares of the
Company's Common Stock at $2.00 per share, (ii) 57,500 shares at
$2.40 per share, and (ii) an additional 115,000 shares at $3.25 per
share. Neidiger/Tucker/Bruner, Inc. subsequently assigned the Sales
Agent's Warrants to the persons named below. Prior to the date of
this Prospectus, the holders of the Sales Agent's Warrants
collectively exercised Warrants pertaining to 115,000 shares of the
Company's Common Stock. The shares issuable upon the exercise of
the Warrants are also being offered by means of this Prospectus.
In December l987, VTI signed a licensing agreement with
Nippon Zeon Co., Ltd. ("Nippon Zeon"), a Japanese chemical
manufacturer, granting Nippon Zeon exclusive rights to VTI's
prototype AIDS vaccine and improvements in the Pacific Area. Under
the
agreement, VTI received an initial licensing payment, as well as a
precommercialization payment, and was also entitled to receive
additional pre-commercialization payments dependent upon receipt of
certain regulatory approvals. In l995 Nippon Zeon released its
rights to VTI's technology in consideration for VTI's agreement to
pay Nippon Zeon a royalty on sales products made with VTI's
technology in the licensed area. In July l996 Nippon Zeon agreed to
surrender its royalty rights, as well as any other rights it may
have had to VTI's technology, in exchange for 45,000 shares of the
Company's common stock, which shares are being offered by means of
this prospectus.
The holders of the Sales Agent's Warrants, to the event
they exercise their Warrants and receive shares of the Company's
Common Stock, as well as Nippon Zeon, are sometimes referred to in
this Prospectus as the "Selling Shareholders". The Company will not
receive any proceeds from the sale of the shares by the Selling
Shareholders.
The names of the Selling Shareholders are:
Shares to Share
Shares be Sold in Owner-
Presently This ship After
Name Owned Offering (1) Offering
Eugene Neidiger - 12,280 -
Michael McCaffrey - 46,500 -
George McCaffrey - 31,500 -
Robert Parrish - 6,120 -
J. Henry Morgan - 6,760 -
Anthony Petrelli - 9,940 -
Charles Bruner - 10,900 -
John Turk - 6,000 -
Nippon Zeon - 45,000 -
160,000
The address of each Selling Shareholder, with the exception
of Nippon Zeon, is:
c/o Neidiger/Tucker/Bruner, Inc.
5990 S. Greenwood Plaza
Blvd. Suite 125
Englewood, CO 80111
The address of Nippon Zeon is:
Nippon Zeon Co., Ltd. Furukawa
Sogo Building 2-6-1 Marunduchi
Chiyoda-Ku, Tokyo l00
Japan
(1) In the case of all persons except Nippon Zeon, represents
shares
issuable upon the exercise of the Sales Agent's Warrants. See
"Description of Securities." Amounts in table assume all shares
which may be acquired upon the exercise of the Sales Agent's
Warrants are sold to the public by means of this Prospectus.
Manner of Sale. The shares of Common Stock owned, or which
may be acquired, by the Selling Shareholders may be offered and
sold by means of this Prospectus from time to time as market
conditions permit in the over-thecounter market, or otherwise, at
prices and terms then prevailing or at prices related to the then-
current market price, or in negotiated transactions. These shares
may be sold by one or more of the following methods, without
limitation: (a) a block trade in which a broker or dealer so
engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this
Prospectus; (c) ordinary brokerage transactions and transactions
in which the broker solicits purchasers; and (d) face-to-face
transactions between sellers and purchasers without a
broker/dealer. In effecting sales, brokers or dealers engaged by
the Selling Shareholders may arrange for other brokers or dealers
to participate. Such brokers or dealers may receive commissions
or discounts from Selling Shareholders in amounts to be
negotiated.
The Selling Shareholders and any broker/dealers who act in
connection with the sale of the Shares hereunder may be deemed to
be "underwriters" within the meaning of 2(11) of the Securities
Acts of 1933, and any commissions received by them and profit on
any resale of the Shares as principal might be deemed to be
underwriting discounts and commissions under the Securities Act.
The Company has agreed to indemnify the Selling Shareholders and
any securities broker/dealers who may be deemed to be underwriters
against certain liabilities, including liabilities under the
Securities Act as underwriters or otherwise.
The Company has advised the Selling Shareholders that
they and any securities broker/dealers or others who may be deemed
to be statutory underwriters will be subject to the Prospectus
delivery requirements under the Securities Act of 1933. The
Company has also advised each Selling Shareholder that in the
event of a "distribution" of the shares owned by the Selling
Shareholder, such Selling Shareholder, any "affiliated
purchasers", and any broker/ dealer or other person who
participates in such distribution may be subject to Rule 10b-6
under the Securities Exchange Act of 1934 ("1934 Act") until their
participation in that distribution is completed. A "distribution"
is defined in Rule 10b-6 as an offering of securities "that is
distinguished from ordinary trading transactions by the magnitude
of the offering and the presence of special selling efforts and
selling methods". The Company has also advised the Selling
Shareholders that Rule 10b-7 under the 1934 Act prohibits any
"stabilizing bid" or "stabilizing purchase" for the purpose of
pegging, fixing or stabilizing the price of the Common Stock in
connection with this offering.
Rule 10b-6 makes it unlawful for any person who is
participating in a distribution to bid for or purchase stock of
the same class as is the subject of the distribution. If Rule 10b-
6
applies to the offer and sale of any of the Shares, then
participating broker/dealers will be obligated to cease market
making activities nine business days prior to their participation
in the offer and sale of such Shares and may not recommence market
making activities until their participation in the distribution
has been completed. If Rule 10b-6 applies to one or more of the
principal marketmakers in the Company's Common Stock, the market
price of such stock could be adversely affected.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 100,000,000 shares of Common
Stock, (the "Common Stock"). Holders of Common Stock are each
entitled to cast one vote for each share held of record on all
matters presented to shareholders. Cumulative voting is not
allowed; hence, the holders of a majority of the outstanding
Common Stock can elect all directors.
Holders of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of
funds legally available therefor and, in the event of liquidation,
to share pro rata in any distribution of the Company's assets
after payment of liabilities. The board is not obligated to
declare a dividend. It is not anticipated that dividends will be
paid in the foreseeable future.
Holders of Common Stock do not have preemptive rights to
subscribe to additional shares if issued by the Company. There
are no conversion, redemption, sinking fund or similar provisions
regarding the Common Stock. All of the outstanding shares of
Common Stock are fully paid and nonassessable and all of the
shares of Common Stock offered as a component of the Units will
be, upon issuance, fully paid and non-assessable.
Preferred Stock
The Company is authorized to issue up to 200,000 shares of
Preferred Stock. The Company's Articles of Incorporation provide
that the Board of Directors has the authority to divide the
Preferred Stock into series and, within the limitations provided
by Colorado statute, to fix by resolution the voting power,
designations, preferences, and relative participation, special
rights, and the qualifications, limitations or restrictions of the
shares of any series so established. As the Board of Directors
has authority to establish the terms of, and to issue, the
Preferred Stock without shareholder approval, the Preferred Stock
could be issued to defend against any attempted takeover of the
Company.
In May 1996 the Company sold 3,500 shares of its Series A
Preferred Stock (the "Preferred Shares") for $3,500,000 or $1,000
per share. At the purchasers' option, up to 1,750 Preferred
Shares are convertible, on or after 60 days from the closing date
of the purchase of such shares (the "Closing"), into shares of the
Company's Common Stock on the basis of one share of Preferred
Stock for shares of Common Stock equal in number to the amount
determined by dividing $1,000 by 85% of the Closing Price of the
Company's Common Stock. All Preferred Shares are convertible, on
or after 90 days from the Closing, on the basis of one share of
Preferred Stock for shares of the Company's Common Stock equal in
number to the amount determined by dividing $1,000 by 83% of the
Closing Price of the Company's Common Stock. The term "Closing
Price" is defined as the average closing bid price of the
Company's Common Stock over the five-day trading period ending on
the day prior to the conversion of the Preferred Stock.
Notwithstanding the above, the conversion price may not be less
than $3.00 nor more than $8.00, except that if the Closing Price
is less than $3.00, then the conversion price will be
equal to the Closing Price. The Preferred Shares are entitled to
a quarterly dividend of $17.50 per share. Any Preferred Shares
which are outstanding on the second anniversary of the Closing
will be automatically converted into shares of the Company's
Common Stock. The Preferred Shares have a liquidation preference
over the Company's Common Stock. The shares issuable upon the
conversion of the Preferred Shares have been registered for sales
pursuant to a separate Registration Statement. See "Risk Factors"
and "Dilution and Comparative Share Data."
Publicly Traded Warrants
In connection with the Company's February, 1992 public
offering, the Company issued 5,175,000 Warrants. Every ten
Warrants entitle the holder to purchase one share of the Company's
Common Stock at a price of $15.00 per share prior to February 7,
1997. The Company, upon 30-days notice, may accelerate the
expiration date of the Warrants, provided, however, that at the
time the Company gives such notice of acceleration (1) the Company
has in effect a current registration statement covering the shares
of Common Stock issuable upon the exercise of the Warrants and (2)
at any time during the 30 day period preceding such notice, the
average closing bid price of the Company's Common Stock has been
at least 20% higher than the warrant exercise price for 15
consecutive trading days. If the expiration date is accelerated,
all Warrants not exercised within the 30-day period will expire.
Other provisions of the Warrants are set forth below. This
information is subject to the provisions of the Warrant
Certificate representing the Warrants.
1. Holders of the Warrants may sell the Warrants rather
than exercise them. However, there can be no assurance that a
market will develop or continue as to the Warrants.
2. Unless exercised within the time provided for
exercise, the Warrants will automatically expire.
3. The exercise price of the Warrants may not be
increased during the term of the Warrants, but the exercise price
may be decreased at the discretion of the Company's Board of
Directors by giving each Warrant holder notice of such decrease.
The exercise period for the Warrants may be extended by the
Company's Board of Directors giving notice of such extension to
each Warrant holder of record.
4. There is no minimum number of shares which must be
purchased upon exercise of the Warrants.
5. The holders of the Warrants in certain instances are
protected against dilution of their interests represented by the
underlying shares of Common Stock upon the occurrence of stock
dividends, stock splits, reclassifications, and mergers.
6. The holders of the Warrants have no voting power and
are not entitled to dividends. In the event of a liquidation,
dissolution, or winding up of the Company, holders of the Warrants
will not be entitled to participate in the distribution of the
Company's assets.
Convertible Notes
In March 1996 the Company sold $l,250,000 of Convertible Notes
("Notes") to two persons. The Notes were convertible from time to
time in whole or in part, into shares of the Company's Common
Stock. The conversion price was the lesser of (i) $5 per share or
(ii) 80% of the average closing bid price of the Company's Common
Stock during the five trading days immediately preceding the date
of such conversion. Prior to July 31, l996, all of the Notes were
converted into 250,000 shares of the Company's common stock. The
Company has made appropriate filings with the Securities and
Exchange Commission such that the shares issuable upon the
conversion of the Notes are available for public sale.
Transfer Agent
American Securities Transfer, Inc., of Denver, Colorado,
is the transfer agent for the Company's Common Stock.
LITIGATION
In February 1996 the Company filed a lawsuit against
ImmunoRx and Dr. John Hadden for contract breach, tortious
interference of contract and patent infringement concerning the
Company's Multikine drug. The lawsuit, filed in the U.S. District
Court for the Middle District of Florida, seeks damages and the
termination of certain research and clinical studies being
conducted by ImmunoRx and Dr. Hadden. From 1984 to 1992, Dr.
Hadden consulted with the Company, performed research on Multikine
and manufactured Multikine for the Company's head and neck cancer
study in Florida. In early
1993, Dr. Hadden signed a separation agreement with the Company
acknowledging the Company's ownership of both Multikine and the
research results. The Company has learned that Dr. Hadden and
ImmunoRx are apparently making copies of Multikine, in
contravention of the separation agreement and the patents covering
Multikine, and have begun clinical studies in a foreign country
using a copy of Multikine. See "Business Compounds and Processes
Licensed to the Company".
EXPERTS
The financial statements as of September 30, 1995 and
1994 and for each of the three years in the period ended September
30, 1995 included in this prospectus have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report
appearing herein, and are so included in reliance upon the report
of such firm given upon their authority as experts in accounting
and auditing.
INDEMNIFICATION
The Company's Bylaws authorize indemnification of a
director, officer, employee or agent of the Company against
expenses incurred by him in connection with any action, suit, or
proceeding to which he is named a party by reason of his having
acted or served in such capacity, except for liabilities arising
from his own misconduct or negligence in performance of his duty.
In addition, even a director, officer, employee, or agent of the
Company who was found liable for misconduct or negligence in the
performance of his duty may obtain such indemnification if, in
view of all the circumstances in the case, a court of competent
jurisdiction determines such person is fairly and reasonably
entitled to indemnification. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers, or persons controlling the
Company pursuant to the foregoing provisions, the Company has been
informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange
Commission, 450 5th Street, N.W., Washington, D.C. 20001, a
Registration Statement under the Securities Act of l933, as
amended, with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in
the Registration Statement. For further information with respect
to the Company and such securities, reference is made to the
Registration Statement and to the Exhibits filed therewith.
Statements contained in this Prospectus as to the contents of any
contract or other documents are summaries which arenot necessarily
complete, and in each instance reference is made to the copy of
such contract or other document filed as an Exhibit to the
Registration Statement, each such
statement being qualified in all respects by such reference.
Copies of each document may be inspected at the Commission's
offices at 450 Fifth Street, N.W., Washington,
D.C., 20549, and at the Northeast Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10048 and the Midwest
Regional Office, Suite 1400, 500 West Madison Street, Chicago,
Illinois 606812511. Copies may be obtained at the Washington,
D.C. office upon payment of the charges prescribed by the
Commission. 2259D
No dealer, salesman or other person has been authorized to give
any information or to make any representations, other than those
contained in this Prospectus. Any information or representation
not contained in this Prospectus must not be relied upon as having
been authorized by the Company. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy,
the securities offered hereby in any state or other jurisdiction
to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of the
Company since the date hereof.
TABLE OF CONTENTS
Page
Prospectus Summary ...........................................
Glossary of Technical Terms
Risk Factors .................................................
Dilution and Comparative Share Data
Use of Proceeds
Market Information ...........................................
Selected Financial Data ......................................
Management's Discussion and Analysis .........................
Business .....................................................
Management ...................................................
Principal Shareholders
Selling Shareholders
Description of Securities
Litigation
Legal Matters
Experts
Indemnification
Additional Information
Financial Statements
160,000 Shares of Common Stock CELSCI CORPORATION
PROSPECTUS
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Officers and Directors.
It is provided by Section 7-l09-l02 of the Colorado Revised
Statutes and the Company's Bylaws that the Company may indemnify
any and all of its officers, directors, employees or agents or
former officers, directors, employees or agents, against expenses
actually and necessarily incurred by them, in connection with the
defense of any legal proceeding or threatened legal proceeding,
except as to matters in which such persons shall be determined to
not have acted in good faith and in the best interest of the
Company.
Item 25. Other Expenses of Issuance and Distribution.
SEC Filing Fee
$
442
NASD Filing Fee
652
Blue Sky Fees and Expenses
1,000 Printing and Engraving Expenses
1,000 Legal Fees and Expenses
25,000
Accounting Fees and Expenses 5,000
Transfer Agent Fees 100
Miscellaneous Expenses
1,806
TOTAL $35,000
All expenses other than the S.E.C. and NASD filing fees are
estimated.
Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all securities of
the Company which have been sold during the past three years and
which securities were not registered under the Securities Act of
1933, as amended.
Shares of
Common Date of
Security Holder Stock Sold Sale
Consideration
Daryl Strahl 2,431 11/1/93 8,038(1)
Isadore Klausner 25,000 11/1/93 (2)
Private Investors 575,000 6/22/95 $1,150,000
Private Investors 575,000 9/30/95 $1,150,000
Unless otherwise indicated, the consideration paid for
the shares was cash.
(1) Surrender of options to Company. The options surrendered
were valued
at $8,038.
(2) Settlement of claim against officer and director. Officer and
director was indemnified by Company for this claim. Accordingly,
shares were issued directly to Mr. Klausner, the person asserting
the claim against the officer and director.
The sales of the Company's Common Stock described above were exempt
transactions under Section 4(2) of the Act as transactions by an
issuer not involving a public offering. The shares of Common Stock
sold subsequent to February 1995 were also exempt in accordance
with Rule 505 of the Securities and Exchange Commission. All of
the shares of Common Stock were issued for investment purposes only
and without a view to distribution. All of the persons who
acquired the foregoing securities were fully informed and advised
about matters concerning the Company, including its business,
financial affairs and other matters. The purchasers of the
Company's Common Stock acquired the securities for their own
accounts. The certificates evidencing the securities bear legends
stating that they may not be offered, sold or transferred other
than pursuant to an effective registration statement under the
Securities Act of 1933, or pursuant to an applicable exemption from
registration. No underwriters were involved with the sale of the
shares of Common Stock and no commissions or other forms of
remuneration were paid to any person in connection with sales of
the Company's securities prior to June 1995. The Company paid a
commission of $230,000, a non-accountable expense allowance of
$69,000, and issued warrants for the purchase of up to 230,000
shares of Common Stock, to Neidiger/Tucker/Bruner, Inc. in
connection with the sale of the securities sold in June and
September 1995. All of the shares of Common Stock sold by the
Company are "restricted" shares as defined in Rule 144 of the Rules
and Regulations of the Securities and Exchange Commission.
Item 27. Exhibits and Financial Statement Schedules
Exhibits Page Number
1(c) Form of Common Stock Purchase Filed with initial
Registration
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
Post Effective Amendment
("Registration Statement"),
Registration Nos. 2-85547-D and 33 7531.
Filed with Amendment No. 1 to
this Registration Statement.
(b) Amended Articles Incorporated by reference to
Exhibit
3(a) of the Company's
Registration Statement on Form S-1, Registration
Nos. 2-85547D and 33-7531.
(c) Amended Articles Filed with initial Registration
(Name change only) Statement (No. 33-34878).
(d) Bylaws Incorporated by reference to
Exhibit
3(b) of the Company's
Registration Statement on Form S-1, Registration
Nos. 2-85547D and 33-7531.
4(a) Specimen copy of Incorporated by reference to
Exhibit
Stock Certificate 4(a) of the Company's
Registration
Statement on Form S-1,
Registration Nos. 2-85547-D and 33-7531.
(c) Form of Common Stock Incorporated by reference to
Exhibit
Purchase Warrant 4(c) filed as an exhibit to the
Company's Registration Statement
on Form S-1 (Registration No. 33-
43281).
5. Opinion of Counsel
10(a) Purchase Agreement Incorporated by reference to
Exhibit
dated April 21, 1986 10(a) of the Company's
Registration
with Alpha I Biomedical Statement on Form S-1,
Registration
Nos. 2-85547-D and 33-7531.
(b) Agreement with Sittona Incorporated by reference to
Exhibit
Company B.V. dated 10(c) of the Company's
Registration
May 3, 1983 Statement on Form S-1,
Registration
Nos. 2-85547-D and 33-7531.
(c) Addendum effective May 3, Incorporated by reference
to Exhibit 1983 to Licensing Agree- 10(e) of the Company's
Registration ment with Sittona Company, Statement on Form S-1,
Registration
B.V. Nos. 2-85547-D and 33-
7531.
(d) Addendum effective October Incorporated by reference to
Exhibit 13, 1989 to Licensing Agree- 10(d) of Company's Annual
Report on
ment with Sittona Company, Form 10-K for the year ended
September B.V. 30, 1989.
10(e) Employment Agreement with Filed with Amendment Number 1 to
the
Geert Kersten Company's Registration Statement
on
Form S-1 (Commission File Number
3343281).
10(g) Agreement between Viral Filed with Amendment Number 2 to
the
Technologies, Inc. and Company's Registration Statement
on
Nippon Zeon Co., Ltd. Form S-1 (Commission File Number
33-
90230).
23(a) Consent of Hart & Trinen
(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-in-fact, with full
power to act alone, to execute in the
name and in behalf of the Registrant and any such person,
individually and in each capacity stated below, any such
amendments to this Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of l933,
the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Alexandria, State of Virginia, on the
29th day of July, 1996.
CEL-SCI CORPORATION
By: /s/ Maximilian de Clara
MAXIMILIAN DE CLARA, PRESIDENT
Pursuant to the requirements of the Securities Act of l933,
this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Maximilian de Clara Director and Principal July 29,
1996
MAXIMILIAN DE CLARA Executive Officer
/s/ Geert R. Kersten Director, Principal July 29,
1996
GEERT R. KERSTEN Financial Officer
and Chief Executive
Officer
MARK V. SORESI Director
F. DONALD HUDSON
/s/ Edwin A. Shalloway Director July 29,
1996
EDWIN A. SHALLOWAY
June 11, 1996
CEL-SCI Corporation
66 Canal Center Plaza
Suite 510
Alexandria, Virginia 223l4
Gentlemen:
This letter will constitute an opinion upon the legality of
the issuance by CEL-SCI Corporation, a Colorado corporation, of
160,000 shares of common stock, all as referred to in the
Registration Statement on Form S-1 filed by the Company with the
Securities and Exchange Commission.
We have examined the Articles of Incorporation, the Bylaws and
the minutes of the Board of Directors of the Company and the
applicable laws of the State of Colorado, and a copy of the
Registration Statement. In our opinion, the Company is authorized
to issue the shares 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 the Company proposes to sell 160,000 shares
of the Company's Common Stock. Reference is also made to
Exhibit 5 included in the Registration Statement relating to the
validity of the securities proposed to be issued and sold.
We hereby consent to the use of our opinion concerning the
validity of the securities proposed to be issued and sold.
Very truly yours,
HART & TRINEN
By William T. Hart
Denver, Colorado
July 19, 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 this Registration
Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
DELOITTE & TOUCH LLP
Washington, D.C.
July 24, 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
straightline method over five and
seven years estimated useful
lives.
Research and Development Costs
Research and development
expenditures are expensed as
incurred.
Patents - Patent expenditures
are capitalized and amortized
using the straight line method
over 17 years. In the event
changes in technology or other
circumstances impair the value or
life of the patent, appropriate
adjustment in the asset value and
period of amortization will be
made.
Net Loss Per Share - Net loss
per common share is based on the
weighted average number of common
shares outstanding during the
period. Common stock equivalents,
including options to purchase
common stock, are excluded from
the calculation as they are
antidilutive.
Investment in Joint Venture
Investment in joint venture is
accounted for by the equity
method. The Company's
proportionate share of the net
loss of the joint venture is
included in the respective
statements of operations.
Statement of Cash Flows - For
purposes
of the statements of cash flows,
cash consists principally of
unrestricted cash on deposit, and
short-term money market funds.
The Company considers all highly
liquid investments with a maturity
of less than three months to be
cash equivalents.
Prepaid Expenses - The majority
of prepaid expenses consist of
bulk purchases of laboratory
supplies to be consumed in the
manufacturing of the Company's
product for clinical studies and
for its further development.
Income Taxes - Effective
October 1,
1993, the Company adopted
Statement of Financial Accounting
Standard No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109
requires an asset and
liability approach for reporting income
taxes. Implementation of SFAS 109 in
1994 did not have any effect on the
Company's net earnings and reported
financial position and prior financial
statements have not been restated.
Reclassifications - Certain
reclassifications have been made
for 1994 and 1993 for comparative
purposes.
2. INVESTMENTS
The carrying values and estimated
market values of investments available
for-sale at September 30, 1995, are as
follows:
Note2a
The carrying values and estimated
market values of investment
securities at September 30, 1994, are
as follows:
Note2b
The gross realized gains and losses
of sales of investments available-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 CELSCI
Corporation through September 30,
1995, was $1,592,584 (see Note 13).
During the three years ended
September 30, 1995, VTI had no
sales. The operations of VTI were as
follows:
Note4a
The balance sheets of VTI at September
30, 1995 and
1994, are summarized as follows:
Note4b
On December 17, 1987, Viral
Technologies, Inc., entered into a
licensing agreement with Nippon Zeon
Company, Ltd., a Japanese company.
Under the agreement, Nippon Zeon
will
engage in the development and
testing and, if development is
successful, the marketing of the
potential AIDS vaccine in the
Pacific Rim area. As a result,
Viral Technologies, Inc., received
precommercialization payments of
$850,000 during the year ended
September 30, 1988.
During the year ended September 30,
1995, VTI purchased back from Nippon
Zeon the licensing agreement. No
cash or stock was exchanged;
however, Nippon Zeon retains a
royalty on any future sales of the
drug HGP30 in its former exclusive
licensed territories.
5. CREDIT ARRANGEMENTS
At September 30, 1995, the Company
had a promissory
note outstanding with a bank in the
amount
of $811,263. This promissory note
was converted in November 1994 from
a prior line of credit. The line of
credit outstanding at September 30,
1994, was $788,601, and the Company
subsequently drew down additional
amounts during the year ended
September 30, 1995, prior to
converting the line of credit to a
promissory note. The principal is
being repaid over forty-eight
consecutive months beginning
February 5, 1995. Interest on the
outstanding balance is calculated at
the Bank's prime rate plus two
percent, which is 10.75% at
September 30, 1995, and is to be
paid monthly with the principal
payments. The promissory note is
secured by all corporate assets and
requires the Company to hold a
certificate of deposit equal to 20%
of the outstanding balance of the
line of credit with the Bank. Under
the promissory note the Company is
also subject to certain minimum
equity, liquidity, and operating
covenants.
6. COMMITMENTS AND CONTINGENCIES
In 1993, an officer and director of the
Company was involved in legal
proceedings concerning shares of the
Company's common stock. The officer
and director was acting on behalf of
the Company in trying to secure
financing, and the Company paid
legal fees in connection with these
proceedings and indemnified the
officer for any loss he suffered
upon the settlement of these
matters. During 1992, one of the
matters was settled by the officer
and director delivering 3,000 shares
of the Company's common stock to one
plantiff and paying this plantiff
$200,000. In the other matter, a
European Court awarded a different
plantiff 25,000 shares of the
Company's common stock owned by the
officer and director. In October
1993, the Company issued 25,000
shares of common stock to the
plaintiff to satisfy the judgment
and in lieu of reimbursement to the
officer and director for this claim.
The value of the shares issued,
$202,500, was expensed during 1993
and was included in accrued expenses
at September 30, 1993.
7. RELATED-PARTY TRANSACTIONS
The technology and know-how licensed to
the Company was developed by a group
of researchers under the direction
of Dr. Hans Ake Fabricius and was
assigned during 1980 and 1981 to
Hooper Trading Company, N.V., a
Netherlands Antilles corporation
(Hooper) and Shanksville
Corporation, also a Netherlands
Antilles corporation (Shanksville).
Maximillian de Clara, an officer and
director
in the Company, and Dr. Fabricius own
50% and 30%, respectively, of each of
these companies. The technology and
knowhow assigned to Hooper and
Shanksville was licensed to Sittona
Company, B.V., a Netherlands
corporation (Sittona), effective
September, 1982 pursuant to a
licensing agreement which requires
Sittona to pay to Hooper and
Shanksville royalties on income
received by Sittona respecting the
technology and know-how licensed to
Sittona. In 1983, Sittona licensed
this technology to the Company. At
such time as the Company generates
revenues from the sale or sublicense
of this technology, the Company will
be required to pay royalties to
Sittona equal to 10% of net sales
and 15% of licensing royalties
received from third parties. In
that event, Sittona, pursuant to its
licensing agreements with Hooper and
Shanksville, will be required to pay
to those companies a minimum of 10%
of any royalty payments received
from the Company. In 1985 Mr. de
Clara acquired 100% of the issued
and outstanding stock of Sittona.
Mr. de Clara and Dr. Fabricius,
because of their ownership interests
in Hooper and Shanksville, could
receive approximately 50% and 30%
respectively, of any royalties paid
by Sittona to Hooper and
Shanksville, and Mr. de Clara,
through his interest in all three
companies
(Hooper, Shanksville, and Sittona),
will receive up to 95% of any
royalties paid by the Company.
During 1992, the Company reimbursed
an officer and director for legal
fees incurred in connection with
certain legal proceedings as
discussed in Note 6. In addition,
during 1992 the Company paid the
officer and director $200,000,
representing the amount that he paid
in connection with one of the legal
proceedings discussed in Note 6 and,
in 1993, issued 3,000 shares of
common stock to the officer and
director as reimbursement for shares
he delivered in connection with the
proceeding. The $200,000 payment
was expensed in 1992, and the value
of the 3,000 shares, $20,100 was
expensed in 1993.
8. INCOME TAXES
The approximate tax effect of each type
of temporary differences and
carryforward that gave rise to the
Company's tax assets and liabilities
at September 30, 1995 and 1994, is
as follows:
Note8a
The Company has available for income
tax purposes net operating loss
carryforwards of approximately
$24,370,937, expiring from 1998
through 2007.
In the event of a significant change
in the ownership of the Company, the
utilization of such carryforwards
could be substantially limited.
9. STOCK OPTIONS, WARRANTS, AND BONUS
PLAN
During the year ended September 30,
1995, the Board of Directors
canceled certain options under the
various stock option plans and
replaced them with new options.
Under this conversion the number of
options outstanding did not increase
or decrease as the conversion was an
exchange of options within the plans
to maximize reserved shares in the
Plans with the options granted.
The shareholders of the Company
approved the adoption of the 1995 Non
Qualified Stock Option Plan (1995 Non
Qualified Plan) and reserved 400,000
shares under the plan. Terms of the
options are to be determined by the
Company's Compensation Committee, but
in no event are options to be granted
for shares at a price below fair market
value at the date of grant.
On February 23, 1988, the shareholders
of the Company adopted the 1987
Nonqualified Stock Option and Stock
Bonus Plan (the 1987 Plan). This
plan reserved 200,000 shares of the
Company's previously unissued
common stock to be granted as
incentive stock options to
employees. The 1987 Plan reserved
50,000 shares of the Company's
previously unissued common stock to
be granted as stock bonuses to
employees. The exercise price of
the options could not be
established at less than fair
market value on the date of grant
and the option period could not be
greater than ten years. During
1993, the 1987 Plan was terminated
and no further options will be
granted and no further bonus shares
will be issued pursuant to the 1987
Plan.
On September 30, 1993, the
shareholders of the Company
approved the adoption of three new
plans, the 1993 Incentive Stock
Option Plan (1993 Incentive Plan),
the 1993 Non Qualified Stock Option
Plan (1993 Non Qualified Plan) and
the Stock Bonus Plan (1993 Bonus
Plan). Shares are reserved under
each plan and total 100,000, 60,000
and 40,000 shares, respectively.
Only employees of the Company are
eligible to receive options under
the Incentive Plan, while the
Company's employees, directors,
officers, and consultants or
advisors
are eligible to be granted options
under the NonQualified Plan or
issued shares under the Bonus Plan.
Terms of the options are to be
determined by the Company's
Compensation Committee, which will
administer all of the plans, but in
no event are options to be granted
for shares at a price below fair
market value at date of grant.
Options granted under the option
plans must be granted, or
shares issued under the bonus plan
issued, before August 20, 2002.
On July 29, 1994, the Board of
Directors approved the adoption of
two new plans, the 1994 Incentive
Stock Option Plan (1994 Incentive
Plan) and the 1994 NonQualified
Stock Option Plan (1994
NonQualified). Shares are reserved
under each plan and total 100,000
shares for each plan. Only
employees of the Company are
eligible to receive options under
the 1994 Incentive Plan, while the
Company's employees, directors,
officers, and consultants or
advisors are eligible to be granted
options under the 1994 Non-
Qualified Plan. Terms of the
options are to be determined by the
Company's Compensation Committee,
which will administer all of the
plans, but in no event are options
to be granted for shares at a price
below fair market value at date of
grant. Options granted under the
option plans must be granted, or
shares issued under the bonus plan
issued, before July 29, 2004.
Information regarding the Company's
stock
option plan is summarized as follows:
Note9a
Note9b
During 1991, the Company granted a
consultant an option to purchase 50,000
shares of the Company's common stock.
The option is exercisable at $13.80 per
share and expires in March 1996. The
holder of the option has the right to
have the shares issuable upon the
exercise of the option included in any
registration statement filed by the
Company.
Also during 1991, the Company granted
another consultant options to purchase
6,000 shares of the Company's common stock.
Options to purchase 667 shares expired in
April 1993. Options to purchase 1,333
shares at $2.50 per share were exercised in
April 1994. At September 30, 1995, options
to purchase 4,000 shares were outstanding
and exercisable at prices ranging from
$2.50 to $15.00 per share.
In connection with the 1992 public
offering, 5,175,000 common stock purchase
warrants
were issued and are outstanding at
September 30, 1995. Every ten warrants
entitle the holder to purchase one share
of common stock at a price of $46.50 per
share. During 1995, the expiration of
these
warrants was extended to February 1996.
The Company may accelerate the expiration
date of the warrants by giving 30 days
notice to the warrant holders, provided,
however, that at the time the Company gives
such notice of acceleration (1) the Company
has in effect a current registration
statement covering the shares of common
stock issuable upon the exercise of the
warrants and (2) at anytime during the 30
day period preceding such
notice, the average closing bid price of
the Company's common stock has been at
least 20% higher than the warrant
exercise price for 15 consecutive trading
days.
Also in connection with the 1992 offering,
the Company issued to the underwriter
warrants to purchase 9,000 equity units,
each unit consisting of 5 shares of
common stock and 5 warrants entitling the
holder to purchase one additional share of
common stock. The equity unit warrants are
outstanding at September 30, 1995 and are
exercisable through February 8, 1997, at a
price of $255.70 per unit. The common stock
warrants included in the units are
exercisable at a price of $76.70 per share.
During 1995, the Company granted another
consultant options to purchase 17,858
shares of the Company's common stock.
These shares became exercisable on
November 2, 1995, and will expire
November 1, 1999. These options are
exercisable at $5.60 per share.
10.EMPLOYEE BENEFIT PLAN
During 1993 the Company implemented a
defined contribution retirement plan,
qualifying under Section 401(k) of the
Internal Revenue Code, subject to the
Employee Retirement Income Security Act
of 1974, as amended, and covering
substantially all CEL-SCI employees. The
employer contributes an amount equal to
50% of each employee's contribution not
to exceed 6% of the participant's
salary. The expense for the year ended
September 30, 1995 and 1994, in
connection with this plan was
approximately $24,913 and $16,160,
respectively.
11.LEASE COMMITMENTS
Operating Leases - The future minimum
annual rental payments due under
noncancelable operating leases for
office and laboratory space are as
follows:
Note11a
Rent expense for the year ended September
30, 1995,
1994, and 1993, was approximately
$124,059, $122,369, and $55,000,
respectively.
12.STOCKHOLDERS' EQUITY
On April 28, 1995 the stockholders of
the Company approved a 10-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
Septemb
er
30,
199
5
1994 1993
Income $-
$-
$ -
Expenses
789,384 688,846
1,002,250
Net Income (Loss)
$(1,002,25 $(789,384 $(688,846
0) ) )
September
30,
1995 1994
Current assets
$30,484 $24,403
Noncurrent assets
$187,821 $87,822
Current liabilities
$4,275,078 $3,197,143
Equity (deficit - net of initial
capitalization)
$(4,056,77 $(3,084,91
3) 8)
1995 1994
Depreciation
$(16,660) $(27,325)
Prepaid expenses
(14,413) (25,680)
Net operating loss carryforward
9,251,208 7,675,907
Other
9,474 6,680
Less: Valuation allowance
(9,229,609 (7,630,772
) )
Net deferred
$- $-
Opti
on
Pri
ce
Pe
r
Outsta Exerci
Share nding sable
1987 Stock Option and Bonus
Plan
Balance, September 30, 1992
$3.40
- -
20.90 189,25 31,000
0
Became exercisable
- -
77,999
Exercised
$4.00 (6,000
(6,000
) )
Balance, September 30, 1993
$3.40
1
9
.
6
0 183,25 102,99
0 9
Became exercisable
- -
40,250
Balance, September 30, 1994
$3.40
2
0
.
9
0 183,25 143,24
0 9
Canceled
$3.40
2
0
.
9
0 176,25 1 136,24
0 3 9
6
,
2
4
9
Balance, September 30, 1995 $19.70
16. 50
7,000 7,000
1992 Incentive Stock Option
Plan
Balance, September 30, 1992
$13.40
500 -
Granted $13.80 -
- -
15.60 12,000
Balance, September 30, 1993 $13.40
15. 60
12,500
Granted $6.80 -
11.90 29,500
Became exercisable
- -
4,166
Balance, September 30, 1994 $6.80
15. 60
4
42,000
4,166
2
0
,
0
0
0
Canceled $6.80
-
15.60
(42,00 (4,166
0) )
Granted $2.87 -
3.87
57,550 20,917
Balance, September 30, 1995 $2.87 -
3.87
4
57,550 20,917
2
0
,
0
0
0
1992 Nonqualified Stock Option
Plan
Balance, September 30, 1992 $13.40
- -
4
2,500 2 0
, 0
0
0
Granted $13.80 -
- -
15.60 15,500
Balance, September 30, 1993 $13.40
- -
18,000
Granted $8.70 -
- -
13.80 18,000
Became exercisable
- -
18,000
Balance, September 30, 1994 $8.70 -
13.80
36,000 1 18,000
8
,
0
0
0
Canceled $8.70
- -
- -
13.40 (7,500 -
)
Granted
$2.87
- -
31,500
Became Exercisable
- -
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
329,251 70,000
10
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1996 AND
1995 (unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared
in accordance with rules established by the Securities and
Exchange Commission for Form 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 for theyear
ended September 30,1995 included elsewhere in this Prospectus.
In the opinion of management, all accruals and adjustments
(each of which is of a normal recurring nature) necessary for
a fair presentation of the financial position as of June 30,
1996 and the results of operations for the nine-month period
then ended have been made. Significant accounting policies
have been consistently applied in the interim financial
statements and the annual financial statements.
Investments
Effective September 30, 1994, the Company adopted, on a
prospective basis, Statement of Financial Accounting
Standard No. 115, "Accounting for Certain Debt and
Equity Securities" (SFAS 115) and revised its policy for
investments. Investments that may be sold as part of the
liquidity management of the Company or for other factors
are classified as available-for-sale and are carried 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 June 30, 1996,
there is no effect on the Company's financial statements.
Loss per Share
Net loss per common share is based on the weighted
average number of common shares outstanding during the
period. Common stock equivalents, including options to
purchase common stock, are excluded from the calculation
as they are antidilutive.
Long-lived Assets
Statement of Accounting Standards No. 121, "Accounting
for the Impairment of Long-lived Assets and for 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.
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
(continued)
B. JOINT VENTURE
On October 30, 1995, the Company announced it had
acquired Alpha 1 Biomedical's interest in Viral
Technologies, Inc. ("VTI"). VTI was formed by the two
companies in 1986. This transaction gives CEL-SCI 100%
ownership of VTI. Under the terms of the agreement,
CEL-SCI gave Alpha 1 Biomedicals, Inc. 159,170 shares of
CEL-SCI common stock as the purchase price for net
assets with a fair value of approximately $170,000. The
acquisition was accounted for under the purchase
method of accounting; and as the acquisition
represents primarily research and development costs,
the purchase price was expensed and is included as
research and development expense for the nine months
ended June 30, 1996. Effective October 31, 1995, the
Company has consolidated CELSCI's and VTI's financial
statements and the consolidated financial statements
reflect the results of VTI's operations since the date
of acquisition. This results in a significant
increase in patent costs on the consolidated balance
sheet. Intercompany accounts are eliminated upon
consolidation.
C. CONSTRUCTION OF NEW LABORATORY AND FUNDING
On January 31, 1994, the Company entered into a leasing
agreement with a nonaffiliated landlord for 7,800 square
feet in Baltimore, Maryland. In the spring of 1994 the
Company commenced construction of the new laboratory.
The cost of the laboratory buildout and equipment
was approximately $1,100,000. To fund this
laboratory, the Company borrowed funds from a bank
at a rate of
prime plus 2%. The outstanding loan balance at June
30,
1996 is $628,729.
D. CONVERTIBLE DEBENTURES
On March 28, 1996, the Company raised $1,250,000
in a private placement. The placement was
structured as a convertible debenture. It is
convertible into 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. As of June 30,
1996, $825,000 of the debentures were converted
into 165,000 shares of the Company's common stock.
Item 1. FINANCIAL STATEMENTS
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS
ASSETS
(unaudited)
June 30, September
30,
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $6,646,257
$3,886,950
Investments, net 170,000
170,000
Interest receivable 75,405
64,080
Accounts receivable 46,342
Prepaid expenses 267,933
341,295
Advances to officer/shareholder
and employees 129,722
13,234
7,335,659
4,475,559
RECEIVABLE FROM JOINT VENTURE 0
522,695
RESEARCH AND OFFICE EQUIPMENT-
Less accumulated depreciation
of $801,874 and $589,897 935,090
1,102,038
DEPOSITS 18,178
18,178
PATENT COSTS- less accumulated
amortization of
$333,098 and $239,490 435,007
240,541
$8,723,934
$6,359,011
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS'
EQUITY
(unaudited)
June 30, September
30, 1996 1995
CURRENT LIABILITIES:
Accounts payable $112,312
$248,488
Current portion note payable 243,372
243,372
Total current liabilities 355,684
491,860
NOTE PAYABLE 385,357
567,891
CONVERTIBLE DEBENTURE (Note D) 425,000
- -
DEFERRED RENT 24,959
24,959
EQUITY IN SUBSIDIARY 0
432,268
Total liabilities 1,191,000
1,516,978
STOCKHOLDERS' EQUITY
Preferred stock, Series A 3,325,000
- -
Common stock, $.01 par
value; authorized,
100,000,000 shares;
issued and outstanding,
7,046,902 and
5,338,244 shares 70,469
53,382
Additional paid-in capital 32,723,024
28,799,198
Deficit (28,499,459)
(24,010,547)
Short-term note receivable from (86,100)
- -
shareholder
TOTAL STOCKHOLDERS'
EQUITY 7,532,934
4,842,033
$8,723,934
$6,359,011 See notes to condensed financial
statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
(unaudited)
Nine Months
Ended June 30,
1996 1995
REVENUES:
Gross Sales $51,605
$-
Interest income 136,651
273,417
Other income -
39,588
TOTAL INCOME 188,256
313,005
EXPENSES:
Research and development 2,350,600
1,383,978
Depreciation and
amortization 208,912
201,197
General and administrative 2,113,884
1,268,677
TOTAL OPERATING EXPENSES 4,673,396
2,853,852
EQUITY IN LOSS OF JOINT VENTURE (3,772)
(395,224)
4,677,168
3,249,076
NET LOSS $4,488,912
$2,936,071
LOSS PER COMMON SHARE $0.74
$0.70
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,086,492
4,194,563
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
(unaudited)
Three Months
Ended June 30,
1996 1995
REVENUES:
Gross Sales $44,280
$-
Interest Income 51,737
83,111
Other Income -
21,977
TOTAL INCOME 96,017
105,088
EXPENSES:
Research and development 617,987
234,035
Depreciation and
amortization 68,950
67,211
General and administrative 894,165
490,429
TOTAL OPERATING EXPENSES 1,581,102
791,675
EQUITY IN LOSS OF JOINT VENTURE 0
(104,884)
1,581,102
896,559
NET LOSS $1,485,085
$791,471
LOSS PER COMMON SHARE $0.22
$0.19
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,612,293
4,207,200
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOW
(unaudited)
Nine Months
Ended June 30,
1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS
$(4,488,912)
$(2,936,071) Adjustments to reconcile net loss
to
net cash used in operating
activities:
Depreciation and amortization 208,912
201,197
Equity in loss of joint venture 3,772
395,224
Research and development
expense related
to purchase of Viral 515,617
Technologies, Inc.
Amortization of premium on -
60,954
investments
Realized loss on sale of
13,422
investments
Changes in assets and
liabilities, net of effect from
purchase
of Viral Technologies, Inc.:
Decrease (increase) in interest (11,325)
- -
receivable
Decrease (increase) in accounts (46,342)
38,128
receivable
Decrease (increase) in prepaid 73,362 (225,853)
expenses
Decrease (increase) in advances (116,488) (19,472)
Decrease (increase) in
receivable from
joint venture -
(123,952)
Increase (decrease) in accounts (136,176)
(203,594)
payable
NET CASH USED IN OPERATING (3,997,580)
(2,800,017) ACTIVITIES
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITY:
Sales of investments -
2,906,132
Purchase of investments -
(400,000)
Advance to Joint Venture -
(287,952)
Payment on note payable (182,534)
(121,689)
Note receivable from (114,800)
employee/shareholder
Payments received on note 28,700
receivable from
employee/shareholder
Laboratory construction -
(10,135)
Purchase of research and office (17,808)
(128,750)
equipment
Patent costs (30,800)
- -
NET CASH USED IN INVESTING (317,242)
1,957,606
ACTIVITY
Continued on next page
CASH FLOW, CONTINUED FROM
PREVIOUS PAGE
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Issuance of convertible 1,250,000
- -
debenture
Issuance of note payable -
205,195
Issuance of preferred stock 3,325,000
- -
Issuance of common stock 2,499,129
990,890
NET CASH PROVIDED BY FINANCING 7,074,129
1,196,085
ACTIVITIES
NET (DECREASE) INCREASE IN CASH 2,759,307
353,674
CASH AND CASH EQUIVALENTS:
Beginning of period 3,886,950
3,370,713
End of period $6,646,257
$3,724,387
NON-CASH TRANSACTION: In October
1995, Cel-Sci issued 159,170
shares of common stock as
consideration for
the purchase of the remaining 50%
of Viral Technology, Inc. In
conjunction with the acquisition,
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.
NON-CASH TRANSACTION: $825,000
of the convertible debenture was
converted into 165,000 shares of
common stock during
the three monts ended June 30,
1996.
See notes to
condensed financial statements.
