424(b)(3)
File # 333-44383
PROSPECTUS CEL-SCI CORPORATION
Common Stock
This Prospectus relates to: 1. The sale of shares of the Common Stock of
Cel-Sci Corporation (the "Company") by holders of the Company's Series D
Preferred Stock (the "Preferred Stock") if and when the holders of the Series D
Preferred Stock elect to convert the Preferred Stock into shares of the
Company's Common Stock. The holders of the Preferred Stock may resell the shares
they receive upon conversion from time to time in the public market.
2. The sale of up to 1,100,000 shares of common stock issuable upon the
exercise of certain Warrants. The Warrants were issued in connection with the
sale of the Company's Series D Preferred Stock. As part of this sale, the
Company issued 550,000 Series A Warrants and 550,000 Series B Warrants
(collectively, the "Warrants"). Each Series A warrant entitles the holder to
purchase one share of the Company's common Stock at a price of $8.62 per share
at any time prior to December 22, 2001. Each Series B Warrant entitles the
holder to purchase one share of the Company's Common Stock at a price of $9.31
per share at any time prior to December 22, 2001.
3. The sale of up to 50,000 shares of common stock issuable upon the
exercise of Sales Agent Warrants.
4. The sale of up to 145,000 additional shares of Common Stock issuable upon
the exercise of an options granted to certain investor relations consultants.
The holders of the Series D Preferred Stock, the Warrants, the Sales Agent
Warrants and the shares and options referred to above, to the extent they
convert the Preferred Stock into shares of Common Stock or exercise the
Warrants, the Sales Agent Warrants or options and receive shares of the
Company's Common Stock, are referred to in this Prospectus as the "Selling
Shareholders". For further information concerning the terms of the Preferred
Stock, Warrants and options described above, see "Comparative Share Data".
The Company will not receive any proceeds from the sale of the shares by the
Selling Shareholders. The Selling Shareholders have advised the Company that
they may from time to time sell the shares covered by this Prospectus on the
American Stock Exchange and in ordinary brokerage transactions, in negotiated
transactions or otherwise, at prevailing market prices at the time of sale or at
negotiated prices. The costs of registering the shares offered by the Selling
Shareholders are being paid by the Company. The Selling Shareholders will pay
all other costs of the sale of the shares offered by them. See "Selling
Shareholders".
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE
INVESTMENT. FOR A DESCRIPTION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" AND "COMPARATIVE SHARE
DATA". 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.
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On December , 1998 the closing prices of the Company's Common Stock and
Warrants on the American Stock Exchange were $ and $ , respectively.
The Date of this Prospectus is December , 1998
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. Certain information concerning the Company is also available
at the Internet Web Site maintained by the Securities and Exchange Commission at
www.sec.gov. The Company's securities are listed on the American Stock Exchange
and copies of the reports, proxy statements and other information filed with the
Commission can be inspected at such exchange. The Company has filed with the
Commission a Registration Statement on Form S-3 (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.
DOCUMENTS INCORPORATED BY REFERENCE
The Company will provide, without charge, to each person to whom a copy
of this Prospectus is delivered, including any beneficial owner, upon the
written or oral request of such person, a copy of any or all of the documents
incorporated by reference herein (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into this Prospectus).
Requests should be directed to:
CEL-SCI Corporation
8229 Boone Blvd., #802
Vienna, Virginia 22182
(703) 506-9460
Attention: Secretary
The following documents filed with the Commission by the Company
(Commission File No. 0-11503) are hereby incorporated by reference into this
Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997.
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(2) The Company's Proxy Statement relating to the May 29, 1998 Annual Meeting
of Shareholders.
(3) The Company's quarterly reports on Form 10-Q for the quarters ending
December 31, 1997, March 31, 1998 and June 30, 1998.
All documents filed with the Commission by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering registered hereby shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of the filing of such documents. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for the purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
<PAGE>
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 and is involved in the research and development of certain
drugs and vaccines. The Company's first product, MULTIKINE(TM), 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 cancer patients. The Company's second product,
HGP-30, is being tested by the Company's wholly-owned subsidiary, Viral
Technologies, Inc. (VTI), to determine if it is an effective vaccine/treatment
against the AIDS virus. The third technology the Company is developing,
L.E.A.P.S. (Ligand Epitope Antigen Presentation System) is a T-cell modulation
technology which can be used to direct a specific immune response and which is
thought to be particularly important in the case of diseases which have no
approved vaccinations (e.g. herpes simplex, malaria, AIDS, etc.) The Company
intends to use this new technology to improve the cellular immune response of
persons vaccinated with HGP-30 and to develop potential treatments and/or
vaccines against various diseases. Present target diseases are AIDS, herpes
simplex, malaria, tuberculosis, prostate cancer and breast cancer.
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.
The costs associated with the clinical trials relating to the Company's
technologies, research expenditures 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.
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, had an
accumulated deficit of approximately $43,000,000 at June 30, 1998, and expects
to incur substantial losses for the foreseeable future.
The Company's executive offices are located at 8229 Boone Blvd., #802,
Vienna, Virginia 22182, and its telephone number is (703) 506-9460.
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THE OFFERING
Securities Offered:
Shares of Common Stock are offered for public sale by the holders of the
Company's Series D Preferred Stock if and when the holders of the Preferred
Stock elect to convert the Preferred Stock into shares of the Company's Common
Stock. Up to 1,100,000 additional shares of Common Stock are offered for public
sale upon the exercise of Warrants which were issued in connection with the sale
of the Series D Preferred Stock.
Up to 50,000 shares of Common Stock are offered by the holders of Sales
Agent Warrants issued by the Company in connection with the sale of the Series D
Preferred Stock and Warrants.
Up to 145,000 shares are offered by certain investor relations
consultants upon the exercise of options granted to such consultants.
The holders of the Preferred Stock, Warrants, Sales Agent Warrants and
shares and options referred to above, to the extent they convert the Preferred
Stock into Common Stock or exercise the Warrants, Sales Agent Warrants or
options, may resell the shares they receive upon conversion or exercise from
time to time in the public market. The holders of the Preferred Stock, Warrants,
Sales Agent Warrants and shares and options 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
"Comparative Share Data" and "Selling Shareholders".
Common Stock Outstand-
ing Prior To and After
Offering: As of November 30, 1998, the Company had
12,715,529 shares of Common Stock issued and
outstanding. Assuming all shares of the Series D
Preferred Stock are converted to 4,000,000 shares of
the Company's Common Stock (assuming a conversion
price of $2.30 per share) and all Warrants and
options described above are exercised, there will be
16,978,236 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
"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."
AMEX Symbol: HIV
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Summary Financial Data
Nine Months Ended For the Years Ended September
30,
June 30, 1998 1997 1996 1995
----------------------- ---- ---- ----
Investment Income and
Other Revenues $482,708 $438,145 $ 322,370 $ 423,765
Expenses:
Research and
Development 2,729,982 6,011,670 3,471,477 1,824,661
Depreciation
and
Amortization 221,861 313,547 290,829 262,705
General and
Administrative 1,983,089 2,302,386 2,882,958 1,713,912
Equity in loss
of joint venture -- -- 3,772 501,125
------------------ --------- --------- ---------
Net Loss $(4,452,224) $(8,189,458)$(6,326,666) $(3,878,638)
============ ========== ========== ==========
Loss per
common share (0.39) $(0.88) $(0.98) $(0.89)
Weighted average
common shares
outstanding 11,330,998 9,329,419 6,425,316 4,342,628
Balance Sheet Data
September 30,
June 30, 1998 1997 1996 1995
----------------------- ---- ---- ----
Working Capital $14,397,935 $4,581,247 $10,266,104 $3,983,699
Total Assets 15,787,021 6,334,397 11,878,370 6,359,011
Current Liabilities 259,180 481,587 274,410 491,860
Long Term and Other
Liabilities -- 27,030 19,638 1,025,118
Total Liabilities 259,180 508,617 294,048 1,516,978
Shareholders'
Equity 15,787,021 5,825,780 11,584,322 4,842,033
No common stock dividends have been declared by the Company since its inception.
<PAGE>
RISK FACTORS
Investors should be aware that ownership of the Common Stock of the
Company involves certain risks, including those described below, which could
adversely affect the value of their holdings of Common Stock. The Company does
not make, nor has it authorized any other person to make, any representation
about the future market value of the Company's Common Stock. In addition to the
other information contained in this Prospectus, the following factors should be
considered carefully in evaluating an investment in the Shares offered by this
Prospectus
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, 1998 the Company incurred net losses of approximately
$43,000,000. During the years ended September 30, 1995, 1996 and 1997 the
Company suffered losses of $3,878,638, $6,326,666 and $8,189,458 respectively.
During the nine months ended June 30, 1998 the Company had a loss of $4,452,224.
The Company has relied principally upon the proceeds of public and private sales
of securities to finance its activities to date. 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.
Viral Technologies, Inc. ("VTI"), a wholly-owned subsidiary of the
Company, is dependent upon funding from the Company for its operations and
research programs.
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.
Offering Proceeds. The Company will not receive any funds from the
sale of the shares offered by this prospectus. See "Selling Shareholders".
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, VTI 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
<PAGE>
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 VTI was
conducting in California is regulated by government agencies in California and
obtaining approvals from states for clinical trials is likewise expensive and
time consuming.
Dependence on Others to Manufacture Product. The Company has an
agreement with an unrelated corporation for the production, until August 2000,
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.
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. Certain aspects of the Company's technologies are covered by
U.S. and foreign patents. In addition, the Company has a number of patent
applications pending. 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 Company. Disputes may arise between the
Company and others as to the scope and validity 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 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 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 Company's
first MULTIKINE patent will expire in the year 2000. 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 trade secrets
and later issued patents will protect the technology associated with MULTIKINE
past the year 2000.
Product Liability Insurance. Although the Company has product liability
insurance for MULTIKINE and its HGP-30 vaccine, the successful prosecution of a
<PAGE>
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.
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 "Comparative Share Data".
Competition. Competition in the research, development and
commercialization of products which may be used in the prevention or treatment
of cancer and AIDS is intense. Major pharmaceutical and chemical companies, as
well as specialized genetic engineering firms, are developing products for these
diseases. Many of these companies have substantial financial, research and
development, and marketing resources and are capable of providing significant
long-term competition either by establishing in-house research groups or by
forming collaborative ventures with other entities. In addition, both smaller
companies and non-profit institutions are active in research relating to cancer
and AIDS and are expected to become more active in the future.
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 common stock dividends have
been declared or paid by the Company. The Company does not presently intend to
pay dividends on its common stock and there can be no assurance that common
stock dividends will ever be paid.
Market Price for Common Stock. The market price of the Company's common
stock, as well as the securities of other biopharmaceutical and biotechnology
<PAGE>
companies, have historically been highly volatile, and the market has from time
to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. Factors such as
fluctuations in the Company's operating results, announcements of technological
innovations or new therapeutic products by the Company or its competitors,
governmental regulation, developments in patent or other proprietary rights,
public concern as to the safety of products developed by the Company or other
biotechnology and pharmaceutical companies, and general market conditions may
have a significant effect on the market price of the Company's Common Stock.
Dilution. Persons purchasing the securities offered by this Prospectus
will suffer immediate dilution since the price paid for the securities offered
will likely be more than the net tangible book value of the Company's Common
Stock.
Substantially all of the Company's outstanding shares of common stock
are eligible for sale in the public market. In addition, the Common Stock
issuable upon the conversion of the Series D Preferred Stock and/or the exercise
of the Series A and Series B Warrants are being offered for public sale by means
of this prospectus. The issuance of Common Stock upon the conversion of the
Series D Preferred Stock and/or the exercise of the Warrants, as well as future
sales of such Common Stock or of shares of Common Stock held by existing
stockholders, or the perception that such sales could occur, could adversely
affect the market price of the Company's Common Stock. In addition, investors
could experience substantial dilution upon the conversion of the Series D
Preferred Stock into Common Stock as a result of either (i) a decline in the
market price of the Company's Common Stock prior to conversion, or (ii) an event
triggering the antidilution rights of any outstanding shares of the Series D
Preferred Stock. See "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.
COMPARATIVE SHARE DATA
As of November 30, 1998, the present shareholders of the Company owned
12,715,529 shares of Common Stock, which had a net tangible book value of
approximately $1.34 per share. The following table illustrates the comparative
stock ownership of the present shareholders of the Company, as compared to the
investors in this Offering, assuming all shares offered are sold.
Number of Note
Shares Reference
Shares outstanding as of November 30, 1998 (1)12,715,529
<PAGE>
Shares to be issued upon conversion of
Series D Preferred Stock, assuming
conversion price of $2.30 per share 3,136,521 A
Shares issuable upon exercise of
Series A and Series B Warrants 1,100,000 A
Shares issuable upon exercise of
Sales Agent Warrants 50,000 B
Shares issuable upon exercise
of options granted to financial consultants 145,000 C
-------
Shares outstanding (pro forma basis) (1) 17,147,050
Net tangible book value per share as of
November 30, 1998 $0.87
Equity ownership by present shareholders
after this offering 26%
Equity ownership by investors in this Offering 74%
(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. Tangible assets exclude deposits and patent costs. "Dilution" to
investors in this offering will be the difference between the price at which the
Preferred Shares are converted into Common Stock and the net tangible book value
of the Company's Common Stock at the time of such conversion.
Other Shares Which May Be Issued:
The following table lists additional shares of the Company's Common
Stock which may be issued as the result of the exercise of outstanding options,
warrants or the conversion of other securities issued by the Company:
Number of Note
Shares Reference
Shares issuable upon exercise of
Class A and Class B Warrants 233,188 D
Shares issuable upon exercise of warrants
held by former holders of the
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Company's Series B Preferred Stock. 82,250 E
Shares issuable upon exercise
of options and warrants granted to
Company's officers, directors,
employees, consultants, and third
parties 2,772,275 F
A. In December 1997, the Company sold 10,000 shares of its Series D
Preferred Stock, 550,000 Series A Warrants and 550,000 Series B Warrants,
to ten institutional investors for $10,000,000. Each Series D Preferred
Share is convertible into shares of the Company's Common Stock equal in
number to the amount determined by dividing $1,000 by the lower of (i)
$8.28, or (ii) the average price of the Company's common stock for any
two trading days during the ten trading days preceding the conversion
date. Each Series A Warrant allows the holder to purchase one share of
the Company's common stock for $8.62 at any time prior to December 22,
2001. As of November 30, 1998 2,786 shares of the Series D Preferred
Stock had been converted into 1,167,812 shares of the Company's common
stock. Each Series B Warrant allows the holder to purchase one share of
the Company's Common Stock for $9.31 at any time prior to December 22,
2001. The shares issuable upon the conversion of the Series D Preferred
Shares and or the exercise of Series A and Series B Warrants are being
offered for sale to the public by means of this prospectus. See "Selling
Shareholders".
B. In connection with the Company's December l997 sale of Series D Preferred
Shares and Warrants Shoreline Pacific Institutional Finance, the Sales
Agent for such offering, received a commission plus warrants to purchase
50,000 shares of the Company's Common Stock (the "Sales Agent
Warrants"). The Sales Agent Warrants are exercisable at a price of $8.62
per share at any time prior to December 22, 2001. The shares issuable
upon the exercise of the Sales Agent Warrants are being offered for sale
to the public by means of this prospectus. See "Selling Shareholders".
C. The Company has granted options for the purchase of an additional 145,000
shares of common stock to certain financial consultants in consideration for
services provided to the Company. The options are exercisable at prices
ranging between $5.00 and $7.31 per share and expire between October 1998
and September 2002. The 145,000 shares issuable upon the exercise of these
options are being offered for sale to the public by means of this
prospectus. See "Selling Shareholders".
D. In December 1996 the Company raised $2,850,000 from the sale of units
consisting of 2,850 shares of the Company's Series C Preferred Stock,
379,763 Class A Warrants and 379,763 Class B Warrants. The Series C
Preferred Shares were convertible 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 the
85% of Closing Price of the Company's Common Stock (the "Conversion
Price"). The term "Closing Price" was 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 could not be more than
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$4.00. Each Class A Warrant entitles the holder to purchase one share of
the Company's common stock at a price of $4.50 per share at any time
prior to March 15, 1998. Each Class B Warrant entitles the holder to
purchase one share of the Company's common stock at a price of $4.50 per
share at any time prior to March 15, 1999. By means of a separate
Registration Statement, the shares issuable upon the conversion of the
Series C Preferred Shares and the exercise of the Class A Warrants and
Class B Warrants are being offered for public sale. As of November 30,
1998 all shares of the Series C Preferred Stock had been converted into
9l5,27l shares of the Company's Common Stock, 273,163 Series A Warrants
had been exercised and 253,175 Series B Warrants had been exercised.
E. In August 1996 the Company sold, in a private transaction, 5,000 shares
of its Series B Preferred Stock (the "Preferred Shares") for $5,000,000
or $1,000 per share. At the purchasers' option, up to 2,500 Preferred
Shares were convertible, on or after November 7, 1996 (the "Effective
Date"), 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 were convertible, on
or after 40 days from the Effective Date, on the basis of one share of
Preferred Stock for shares of the Company's Common Stock equal in number
of the amount determined by dividing $1,000 by 85% of the Closing Price
of the Company's Common Stock. The term "Closing Price" was 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 could
not be less than $3.60 nor more than $14.75. The Preferred Shares were
entitled to a quarterly dividend of $17.50 per share. By means of a
separate Registration Statement filed with the Securities and Exchange
Commission, the shares issued upon the conversion of the Series B
Preferred Shares were registered for public sale. Prior to December 20,
1996 1,900 Series B Preferred Shares were converted into 527,774 shares
of the Company's common stock. In December 1996 the Company repurchased
2,850 Series B Preferred Shares for $2,850,000 plus warrants which allow
the holders to purchase up to 99,750 shares of the Company's common stock
for $4.25 per share at any time prior to December 15, 1999. The Company
raised the funds required for this repurchase from the sale of its Series
C Preferred Stock. In May 1997 all remaining 250 shares of the Series B
Preferred Stock were converted into 69,444 shares of common stock. As of
November 30, l998 Warrants for the purchase of 17,500 shares of common
stock had been exercised.
F. The options are exercisable at prices ranging from $2.38 to $11.00 per
share. The Company may also grant options to purchase additional shares
under its Incentive Stock Option and Non-Qualified Stock Option Plans.
SELLING SHAREHOLDERS
In December 1997 the Company raised $10,000,000 from the sale of 10,000
shares of the Company's Series D Preferred Stock, 550,000 Series A Warrants and
550,000 Series B Warrants. At the purchasers' option, the Preferred Shares are
convertible from time to time, in whole or in part, into shares of the Company's
Common Stock upon certain terms. See "Comparative Share Data". The shares
issuable upon the conversion of the Series D Preferred Shares and/or the
exercise of the Series A and Series B Warrants are being offered to the public
by means of this Prospectus.
<PAGE>
In connection with the Company's December 1997 offering of Series D
Preferred Stock and Warrants, Shoreline Pacific Institutional Finance, the Sales
Agent for such offering, received a commission as well as warrants to purchase
50,000 shares of the Company's Common Stock at $8.62 per share. The shares
issuable upon the exercise of the Sales Agent's Warrants are also being offered
for public sale by means of this Prospectus.
This Prospectus also relates to the sale of shares of common stock
issuable upon the exercise of certain options granted by the Company to certain
investor relations consultants. The options for the purchase of the additional
310,000 shares of common stock were issued by the Company to the investor
relations consultants in consideration for services provided to the Company. The
options are exercisable at prices ranging between $3.50 and $7.31 per share and
expire between October 1998 and June 2003.
The holders of the Preferred Shares, the Sales Agent Warrants and the
shares and options referred to above, to the extent they convert their Preferred
Shares into shares of Common Stock or exercise the Sales Agent Warrants or
options, are 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
Which Shares
May Be Which
Acquired May be
Upon Con- Acquired Share
version of Upon Ex- Shares to Owner-
Shares Series D ercise of be Sold ship
Beneficially Preferred Warrants in this
After
Name Owned (1) Shares (2) or Options Offering (6) Offering
- ---------------- ----------- ---------- ---------- ------------ --------
KA Investments
LDC -- 435,000 220,000 (3) 655,000 --
Olympus Securities, -- 984,405 330,000 (3)(5)1,314,405 --
Ltd.
AG Super Fund -- 43,500 11,000 (3) 54,500 --
International
Partners, L.P.
Raphael, L.P. -- 62,250 16,500 (3) 78,750 --
Baldwin Enterprises, -- 130,500 33,000 (3) 163,500 --
Inc.
Nelson Partners -- 689,475 220,000 (3)(5 909,475 --
Leonardo, L.P. -- 304,500 115,500 (3) 420,000 --
<PAGE>
Ramius Fund, Ltd. -- 130,500 33,000 (3) 163,500 --
AGR Halifax Fund, -- 354,960 110,000 (3) 464,960 --
Ltd.
Shoreline Pacific -- -- 50,000 (4) 50,000 --
Institutional Finance
The Fulton Group -- -- 50,000 (4) 50,000 --
Glenn Michael -- -- 50,000 (4) 50,000 --
Financial, Inc.
Cooke Capital -- -- 40,000 (4) 40,000 --
Management
Daryll Strahll -- -- 5,000 (4) 5,000 --
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities and includes any securities
which the shareholder has the right to acquire within 60 days through the
conversion or exercise of any security or other right.
(2) Represents shares issuable upon the conversion of the Series D Preferred
Stock assuming conversion price of $2.30 per share. The actual number of
shares to be issued upon the conversion of the Series D Preferred Shares
will depend upon the price of the Company's Common Stock at the time of
conversion. See "Comparative Share Data".
(3) Represents shares issuable upon the exercise of the Series A and Series B
Warrants.
(4) Represents shares issuable upon the exercise of the Sales Agent's Warrants.
(5) Citadel Limited Partnership is the managing general partner of Nelson
Partners ("Nelson") and the trading manager of Olympus Securities, Ltd.
("Olympus") and consequently has voting control and investment discretion
over securities held by both Nelson and Olympus. The ownership information
for Nelson does not include the shares owned by Olympus and the ownership
information for Olympus does not include the shares owned by Nelson. The
Company, Olympus Securities, Ltd., and Nelson Partners have agreed that no
more than 4.9% of the outstanding shares of the Company's common stock may
be issued to Olympus Securities and Nelson Partners, on a combined basis,
during any 30 day period as a result of the conversion of the Series D
Preferred Shares and/or the exercise of the Warrants.
(6) Assumes all shares owned, or which may be acquired, by the Selling
Shareholders, are sold to the public by means of this Prospectus.
Manner of Sale. The shares of Common Stock owned, or which may be
acquired, by the Selling Shareholders may be offered and sold by means of this
Prospectus from time to time as market conditions permit in the over-the-counter
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
<PAGE>
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.
From time to time one or more of the Selling Shareholders may transfer,
pledge, donate or assign the shares received upon the conversion of the Series D
Preferred Stock (the "Conversion Shares") to lenders or others and each of such
persons will be deemed to be a Selling Shareholder for purposes of this
Prospectus. The number of Conversion Shares beneficially owned by those Selling
Shareholders will decrease as and when they transfer, pledge, donate or assign
the Conversion Shares. The plan of distribution for the Conversion Shares sold
by means of this Prospectus will otherwise remain unchanged, except that the
transferees, pledgees, donees or other successors will be Selling Shareholders
for purposes of this Prospectus .
A Selling Shareholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the Company's
common stock in the course of hedging the positions they assume with such
Selling Shareholder, including, without limitation, in connection with the
distribution of the Company's common stock by such broker-dealers. A Selling
Shareholder may also enter into option or other transactions with broker-dealers
that involve the delivery of the common stock to the broker-dealers, who may
then resell or otherwise transfer such common stock. A Selling Shareholder may
also loan or pledge the common stock to a broker-dealer and the broker-dealer
may sell the common stock so loaned or upon default may sell or otherwise
transfer the pledged common stock.
Broker-dealers, underwriters or agents participating in the
distribution of the Company's common stock as agents may receive compensation in
the form of commissions, discounts or concessions from the Selling Shareholders
and/or purchasers of the common stock for whom such broker-dealers may act as
agent, or to whom they may sell as principal, or both (which compensation as to
a particular broker-dealer may be less than or in excess of customary
commissions). Selling Shareholders and any broker-dealers who act in connection
with the sale of common stock hereunder may be deemed to be "Underwriters"
within the meaning of the Securities Act, and any commissions they receive may
be deemed to be underwriting discounts and commissions under the Securities Act.
Neither the Company nor any Selling Shareholder can presently estimate the
amount of such compensation. The Company knows of no existing arrangements
between any Selling Shareholder, any other stockholder, broker, dealer,
underwriter or agent relating to the sale or distribution of the Company's
common stock.
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 ss.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.
<PAGE>
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 the Selling Shareholders
that in the event of a "distribution" of the shares owned by the Selling
Shareholder, such Selling Shareholders, any "affiliated purchasers", and any
broker/dealer or other person who participates in such distribution may be
subject to Rule 102
<PAGE>
under the Securities Exchange Act of 1934 ("1934 Act") until their participation
in that distribution is completed. A "distribution" is defined in Rule 102 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 102 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 101 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.
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 share- holders. 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 non-assessable 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 were 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 were 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
<PAGE>
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" was
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. All outstanding shares of the Series A Preferred Stock have
since been converted into 632,041 shares of the Company's Common Stock.
See "Comparative Share Data" for information concerning the
Company's Series B, Series C and Series D Preferred Stock.Transfer Agent
American Securities Transfer, Inc., of Denver, Colorado, is the
transfer agent for the Company's Common Stock.
EXPERTS
The financial statements as of September 30, 1997 and 1996 and for each
of the three years in the period ended September 30, 1997 incorporated by
reference in this prospectus from the Company's annual report on Form 10-K have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
INDEMNIFICATION
The Company's Bylaws authorize indemnification of a director, officer,
employee or agent of the Company against expenses incurred by him in connection
with any action, suit, or proceeding to which he is named a party by reason of
his having acted or served in such capacity, except for liabilities arising from
his own misconduct or negligence in performance of his duty. In addition, even a
director, officer, employee, or agent of the Company who was found liable for
misconduct or negligence in the performance of his duty may obtain such
indemnification if, in view of all the circumstances in the case, a court of
competent jurisdiction determines such person is fairly and reasonably entitled
to indemnification. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, 450
5th Street, N.W., Washington, D.C. 20001, a Registration Statement under the
Securities Act of l933, as amended, with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company and
such securities, reference is made to the Registration Statement and to the
Exhibits filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other documents are summaries which are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an Exhibit to the Registration Statement,
<PAGE>
each such statement being qualified in all respects by such reference. Copies of
each document may be inspected at the Commission's offices at 450 Fifth Street,
N.W., Washington, D.C., 20549, and at the Northeast Regional Office, 7 World
Trade Center, 13th Floor, New York, New York 10048 and the Midwest Regional
Office, Suite 1400, 500 West Madison Street, Chicago, Illinois 60681-2511. This
Registration Statement and the related exhibits may also be inspected at the
Internet Web Site maintained by the Securities and Exchange Commission at
www.sec.gov. Copies may be obtained at the Washington, D.C. office upon payment
of the charges prescribed by the Commission.
