As filed with the Securities and Exchange Commission on , 1995.
Registration No. 33-95032
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 2 TO
FORM S-l
Registration Statement
Under
THE SECURITIES ACT OF 1933
CEL-SCI Corporation
(Exact name of registrant as specified in charter)
Colorado 283l
(State or other Primary Standard Classi-
jurisdiction of fication Code Number)
incorporation)
66 Canal Center Plaza, Suite
510 Alexandria, Virginia
223l4
84-09l6344 (703) 549-5293
(IRS Employer (Address, including zip code, and
I.D. Number) telephone number including area of
principal executive offices)
Geert Kersten
66 Canal Center Plaza, Suite 510
(703) 549-5293
(Name and address, including zip code, and
telephone number, including area code, of
agent for service)
Copies of all communications, including all
communications sent to the agent for
service, should be sent to:
William T. Hart, Esq. John G. Herbert, P.C.
Hart & Trinen One Barclay Plaza
1624 Washington Street 1675 Larimer Street
Denver, Colorado 80203 Denver, CO 80202
(303) 839-0061
(303) 534-
0522
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE
TO THE PUBLIC: As soon as practicable after
the effective date
of this Registration Statement
Page 1 of Pages Exhibit
Index Begins on Page
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
Class of Maximum Maximum
Securities Securities Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Unit Price Fee
Common Stock
offered by
Selling
Shareholders (1) 2,300,000 $3.75 $8,625,000 $2,974
Common Stock issuable
upon exercise of Sales
Agent's Warrants (2) 115,000 $3.75 $ 431,250 $ 149
Total $9,056,250 $3,123
(1) Offering price computed in accordance with Rule 457(c).
(2) The shares of Common Stock issuable upon the exercise of the
Warrants are subject to adjustment in accordance with the anti-
dilution provisions of such warrant.
The registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
l933 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
CEL-SCI CORPORATION
CROSS REFERENCE SHEET
Item in Form S-l Location
in
Prospectus
Item 1 Forepart of the Registration Statement
and Outside Front Cover Page of
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
708,070 Shares of Common Stock
This Prospectus relates to the offer and sale of up to 708,070
shares of Common Stock by certain selling shareholders (the "Selling
Shareholders"). The Company will not receive any proceeds from the
resale of the shares by the Selling Shareholders. The Selling
Shareholders have advised the Company that they will offer the shares
through broker/dealers at market prices with customary commissions
being paid by the Selling Shareholders. The costs of registering the
shares offered by the Selling Shareholders are being paid by the
Company. The Selling Shareholders will pay all other costs of the
sale of the shares offered by them. See "Selling Shareholders".
This Prospectus also relates to the sale by the Company of up
to 27,250 shares of Common Stock issuable upon the exercise of Warrants
issued to a Sales Agent, or its assigns. The Sales Agent's Warrants
were issued in connection with the Company's 1995 Private Offering of
Securities. See "Selling Shareholders Sales Agent".
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 ACCURACYOR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
On April , 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 (Room 1028, 26 Federal Plaza, New York,
New York 10278) and Chicago (Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511). Copies of
such material can be obtained from the Public Reference Section of the
Commission at its office in Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission a Registration Statement on
Form S-1 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended
(the "Act"), with respect to the Units offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. For further information,
reference is made to the Registration Statement.
PROSPECTUS SUMMARY
THIS SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND
FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
The Company
CEL-SCI Corporation (the "Company") was formed as a Colorado
corporation in 1983. The Company is involved in the research and
development of certain drugs and vaccines. The Company's first
product, MULTIKINETM, manufactured using the Company's proprietary cell
culture technologies, is a
combination, or "cocktail", of natural human interleukin-2 ("IL-2") and
certain lymphokines and cytokines. MULTIKINE is being tested to
determine if it is effective in improving the immune response of
advanced cancer pantients. The Company's second product, HGP-30, is
being tested to determine if it is an effective treatment/ vaccine
against the AIDS virus. In addition, the Company recently acquired a
new patented T-cell Modulation Process which uses "heteroconjugates" to
direct the body to chose a specific immune response. The Company
intends to use this new technology to improve the cellular immune
response of persons vaccinated with HGP-30.
Before human testing can begin with respect to a drug or
biological product, preclinical studies are conducted in laboratory
animals to evaluate the potential efficacy and the safety of a product.
Human clinical studies generally involve a three-phase process. The
initial clinical evaluation, Phase I, consists of administering the
product and testing for safe and tolerable dosage levels. Phase II
trials continue the evaluation of immunogenicity and determine the
appropriate dosage for the product, identify possible side effects and
risks in a larger group of subjects, and provide preliminary
indications of efficacy. Phase III trials consist of testing for
actual clinical efficacy for safety within an expanded group of
patients at geographically dispersed test sites. See "Business
Government Regulation" for a more detailed description of the
foregoing.
Between 1983 and 1986 the Company was primarily involved in
funding pre-clinical and Phase I clinical trials of MULTIKINE. These
trials were conducted at St. Thomas's Hospital Medical School in
London, England pursuant to authority granted by England's Department
of Health and Social Security. In July, 1991 physicians at a southern
Florida medical institution began human clinical trials using
MULTIKINE. The focus of these trials was the treatment of metastatic
malignant melanoma and unresectable head and neck cancer using
MULTIKINE. The clinical trials in Florida were conducted pursuant to
approvals obtained by the medical institution from the Florida
Department of Health and Rehabilitative Services.
In March 1995, the Canadian Health Protection Branch, Health
and Welfare Ministry gave clearance to the Company to start a phase
I/II cancer study using Multikine. The study, which will enroll up to
30 head and neck cancer patients who have failed conventional
treatments, is expected to be conducted at the Ottawa Regional Cancer
Center and HotelDieu de Montreal Hospital. The study is designed to
evaluate safety, tumor responses and immune responses in
patients treated with multiple courses of Multikine. The length of
time that each patient will remain on the investigational treatment
will depend on the patient's response to treatment. In May l995, the
U.S. Food and Drug Administration (FDA) authorized the export of the
Company's Multikine drug to Canada for purposes of this study.
In February 1996 the FDA authorized the Company to conduct
two human clinical studies using MULTIKINE. 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.
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
$25,740,000 at December 31, 1995, and expects to incur substantial
losses for the foreseeable future.
The Company's executive offices are located at 66 Canal Center
Plaza, Suite 510, Alexandria, Virginia 22314, and its telephone number
is (703) 5495293.
THE OFFERING
Shares Offered by
Company: 27,250 shares of Common Stock. See
"Selling
Shareholders Sales Agent".
Securities Offered by
the Selling Shareholders: Up to
708,070 shares of Common Stock. The
Company will not receive any proceeds
from the sale of the shares offered by
the Selling Shareholders. See "Selling
Shareholders".
Common Stock Outstanding
Prior To and After
Offering: As of the date of this Prospectus, the
Company had 6,295,664 shares of Common
Stock issued and outstanding. Assuming
the Selling Shareholders exercise Warrants
to purchase an additional 470,000 shares
of Common Stock from the Company, and
assuming the Sales Agent (or its assigns)
exercises Warrants to purchase an
additional 27,250 shares of Common Stock,
there will be 6,792,914 shares
of Common Stock issued and outstanding.
The number of outstanding shares before
and after this Offering does not give
effect to shares which may be issued upon
the exercise of options, warrants or other
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
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
Three Months Ended
December 31,
1995 1994
Investment Income &
Other Revenues $ 62,501 $116,701
Expenses:
Research and
Development 1,238,197 618,636
Depreciation
and Amortization 71,268 66,775
General and
Administrative 477,888 398,281
Equity in loss of
joint venture 3,772 181,578
Net Loss $(1,728,624) $(1,148,569)
Loss per common share $(0.32) $(0.27)
Weighted average
common shares
outstanding 5,457,431 4,188,244
Balance Sheet Data:
September 30,
1995 1994 1993 1992 1991
Working Capital $3,983,699 $5,795,191 $10,296,472 $13,043,012 $682,831
Total Assets 6,359,011 8,086,670 11,633,090 13,769,504 1,611,899
Total Liabilities 1,516,978 l,407,602 688,231 467,086 672,595
Shareholders'
Equity 4,842,033 6,679,068 10,944,859 13,302,4l8 939,304
No dividends have been declared by the Company since its inception.
December 31, 1995
Working Capital $3,280,004
Total Assets 5,069,641
Total Liabilities 839,448
Shareholders' Equity 4,230,193
No dividends have been declared by the Company since its
inception.
GLOSSARY OF TECHNICAL TERMS
AIDS. Acquired Immune Deficiency Syndrome. A severe viral
di
sease of the immune system leading to other lethal
infections and malignancies.
Amino acids. Building blocks of proteins.
Antibody. A protein produced by certain white blood cells in
humans
and animals in response to a substance seen as non
self, that is a foreign antigen (such as a virus or
bacteria). An antibody binds specifically to a
single antigen.
Antigen. Any substance seen as foreign by the immune system
and
which triggers an antibody or cell-mediated response
from the body's immune system.
B-Cells. A type of lymphocyte which produces antibodies in
response
to antigens.
Cytokines. Peptides which regulate the functions and/or growth
of
other cells. Lymphokines are a type of cytokine.
HIV. Human Immunodeficiency Virus. The virus responsible
for
AIDS and related diseases.
Lymphocytes. A type of white blood cells divided into two
classes,
B-cells and T-cells.
Lymphyokine. A specific group of hormones which regulate and
modify
the
various functions of both T-cells and B-cells.
There are many lymphokines, each of which is thought
to have distinctive chemical and functional
properties. IL-2 is but one of these lymphokines.
Macrophage. A cell found in the body that has the ability to
kill
vir
uses, bacteria, fungi and cancer cells, often by
engulfing the targeted organism or cell.
Peptide. Two or more amino acids joined by a linkage called a
pep
tide bond.
Proteins. A molecule composed of amino acids. There are many
types
of proteins, all carrying out a number of different
functions essential for cell growth.
T-Cells. A type of lymphocyte which will amplify or suppress
anti
body formation by B-cells, and can also directly
destroy "foreign" cells by activating "killer
cells".
Virus. A submicroscopic organism that contains genetic
information
but cannot reproduce itself. To replicate, it must
invade another cell and use parts of that cell's
reproductive machinery.
RISK FACTORS
An investment in the Company's Securities involves a high
degree of risk. Prospective investors are advised that they may lose
all or part of their investment. Prospective investors should
carefully review the following risk factors.
Offering Proceeds. This Offering is being made by certain
Selling Shareholders. The Company will not receive any proceeds from
the sale of the shares by the Selling Shareholders.
Lack of Revenues and History of Loss. The Company has had
only limited revenues since it was formed in 1983. Since the date of
its formation and through December 31, 1995, the Company has incurred
net losses of approximately $25,740,000. 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 ne cessary 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 IND 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 and Lack of Insurance. Although the
Company has product liability insurance for its HGP-30 vaccine, at the
present time, the Company does not have product liability insurance
for MULTIKINE. The successful prosecution of a product liability case
against the Company could have a materially adverse effect upon its
business.
Dependence on Management 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".
Shares Available for Resale. As of March 31, 1996, there
were 6,295,664 shares of the Company's Common Stock issued and
outstanding. Approximately 200,000 of these shares have not been
registered under the Securities Act of l933, as amended (the "Act"),
and are "restricted securities" as defined by Rule l44 of the Act.
Rule l44 provides, in essence, that shareholders, after holding
restricted securities for a period of two years may, every three
months, sell in ordinary brokerage transactions an amount equal to the
greater of 1% of the Company's then outstanding Common stock or the
average weekly trading volume, if any, of the stock during the four
calendar weeks preceding the sale. Nonaffiliates of the Company who
hold restricted securities for a period of three years may, under
certain prescribed conditions, sell their securities without regard to
any of the requirements of the Rule. As of the date of this Offering
Memorandum, substantially all shares of restricted stock were
available for resale pursuant to Rule l44. Sales of restricted stock
may have a depressive effect on the market price of the Company's
Common Stock. Such sales might also impede future financing by the
Company.
Options, 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, will make appropriate filings
with the Securities and Exchange Commission so that the securities
underlying certain Derivative Securities will be available for public
sale. Such filings could result in substantial expense to the Company
and could hinder future financings by the Company.
For the terms of these Derivative Securities, the holders
thereof will have an opportunity to profit from any increase in the
market price of the Company's Common Stock without assuming the risks
of ownership. Holders of such Derivative Securities may exercise
and/or convert them at a time when the Company could obtain additional
capital on terms more favorable than those provided by the Derivative
Securities. The exercise or conversion of the Derivative Securities
will dilute the voting interest of the owners of presently outstanding
shares of the Company's Common Stock and may adversely affect the
ability of the Company to obtain additional capital in the future. The
sale of the shares of Common Stock issuable upon the exercise or
conversion of the Derivative Securities could adversely affect the
market price of the Company's stock. See "Dilution and Comparative
Share Data".
Competition. The competition in the research, development
and commercialization of products which may be used in the prevention
or treatment of cancer and AIDS is intense. Major pharmaceutical and
chemical companies, as well as specialized genetic engineering firms,
are developing products for these diseases. Many of these companies
have substantial financial, research and development, and marketing
resources and are capable of providing significant long-term
competition either by establishing inhouse research groups or by
forming collaborative ventures with other entities. In addition, both
smaller companies and non-profit institutions are active in research
relating to cancer and AIDS and are expected to become more active in
the future.
The clinical trials sponsored to date by the Company and VTI
have not been approved by the FDA, but rather have been conducted
pursuant to approvals obtained from regulatory agencies in England,
Canada and certain states. Since the results of these clinical trials
may not be accepted by the FDA, companies which are conducting
clinical trials approved by the FDA may have a competitive advantage
in that the products of such companies are further advanced in the
regulatory process than those of the Company or VTI.
Lack of Dividends. There can be no assurance that the
Company will be profitable. At the present time, the Company intends
to use available funds to finance the Company's operations.
Accordingly, while payment of dividends rests within the discretion of
the Board of Directors, no dividends have been declared or paid by the
Company. The Company does not presently intend to pay dividends and
there can be no assurance that dividends will ever be paid. Pursuant
to the terms of a loan agreement with a bank, the Company may not pay
any dividends without the consent of the bank.
Dilution. Persons purchasing the securities offered by this
Prospectus will suffer an immediate dilution in the per share net
tangible book value of their Common Stock. See "Dilution and
Comparative Share Data."
Preferred Stock. The Company's Articles of Incorporation
authorize the Company's Board of Directors to issue up to 200,000
shares of Preferred Stock. The provisions in the Company's Articles
of Incorporation relating to the Preferred Stock allow the Company's
directors to issue Preferred Stock with multiple votes per share and
dividends rights which would have priority over any dividends paid
with respect to the Company's Common Stock. The issuance of Preferred
Stock with such rights may make the removal of management
difficult even if such removal would be considered beneficial to
shareholders generally, and will have the effect of limiting
shareholder participation in certain transactions such as mergers or
tender offers if such transactions are not favored by incumbent
management.
DILUTION AND COMPARATIVE SHARE DATA
As of March 31, 1996, the present shareholders of the Company
owned 6,295,664 shares of Common Stock, which had a net tangible book
value of approximately $0.42 per share. The following table
illustrates the comparative stock ownership of the other stockholders
of the Company as compared to the investors in this Offering assuming
all shares offered are sold.
Shares outstanding (1) 6,295,664
Shares to be issued, assuming (i) Selling Share-
holders exercise Warrants to purchase 470,000
additional shares of Common Stock from Company
and (ii) the Sales Agent (or its assigns)
exercises Warrants to purchase an additional
27,250 shares of Common Stock 497,250
Shares outstanding (pro forma basis) 6,792,914
Net tangible book value per share
at March 31, 1996 $0.42
Equity ownership by present shareholders
after this offering 93%
Equity ownership by investors in this
Offering 7%
(1) Amount excludes shares which may be issued upon the exercise of
other
options and warrants previously issued by the Company. See
"Management". The purchasers of the securities offered by
this Prospectus will
suffer an immediate dilution if the price paid for the securities
offered is greater than the net tangible book value of the Company's
Common Stock.
"Net tangible book value" is the amount that results from
subtracting the total liabilities and intangible assets of the Company
from its total assets. "Dilution" is the difference between the
offering price and the net tangible book value of shares immediately
after the Offering.
As of March 31, 1996 the Company had 6,295,664 shares of
Common Stock issued and outstanding. The following table reflects the
additional shares which may be issued as the result of the exercise of
outstanding options and warrants or the conversion of other securities
issued by the Company.
Number of Note
Shares Reference
Outstanding as of March 31, 1996 6,295,664
Shares Offered By This Prospectus:
Shares issuable upon exercise of
warrants held by Investors in Company's
June and September 1995
Private Offerings 470,000 A
Shares issuable upon exercise of
warrants issued to Selling Agent,
or its assigns, in connection with
the Company's June and September 1995
Private Offerings 27,250 B
Shares outstanding after this Offering
(assuming all shares offered are sold) 6,792,914
Other Shares Which May Be Issued:
Shares issuable upon exercise of
warrants sold in Company's 1992
Public Offering 517,500 C
Shares issuable upon exercise of
warrants sold to Underwriter in connection with
Company's 1992
Public Offering
90,000
D
Shares issuable upon exercise of
options granted to Company's officers,
directors, employees and consultants 981,926
E
Shares issuable upon conversion of notes, based on closing
price of the Company's
common stock on April 10, 1996 ($6.12) 255,310 F
8,637,650
A. These shares are being offered by means of this Prospectus. See
"Selling Shareholders".
B. These shares are being offered by means of this Prospectus. See
"Prospectus Summary".
C. See "Description of Securities".
D. 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.
E. The options are exercisable at prices ranging from $2.87 to $19.70
per share. The Company may also grant options to purchase 111,374
additional shares under its Incentive Stock Option and Non-
Qualified Stock Option Plans. See "Management Stock Option and
Bonus Plans".
F. In March 1996 the Company sold $l,250,000 of Convertible Notes
("Notes") to two persons. The Notes are convertible from time to
time in whole or in part, into shares of the Company's Common
Stock. The conversion price is the lesser of (i) $5 per share or
(ii) 80% of the average closing bid price of the Company's Common
Stock during the five trading days immediately preceding the date
of such conversion. Notwithstanding the above, the conversion
price may not be less than $2.40 per share. The Notes are payable
on December 1, 1996 and accrue interest at 10% per annum. The
Company has agreed to make appropriate filings with the Securities
and Exchange Commission such that the shares issuable upon the
conversion of the Notes will be available for public sale. See
"Risk Factors".
MARKET INFORMATION
As of March 31, 1996, there were approximately 3,000 record
holders of the Company's Common Stock and approximately 100 record
holders of the Company's Warrants. The Company has not issued any
shares of preferred stock. The Company's Common Stock and Warrants are
traded on the National Association of Securities Dealers Automatic
Quotation ("NASDAQ") System. Set forth below are the range of high and
low bid quotations for the periods indicated as reported by NASDAQ, and
as adjusted for the 10 for 1 reverse stock split which was approved by
the Company's shareholders on April 28, 1995 and became effective on
May 1, 1995. The market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not
necessarily represent actual transactions.
Quarter
Ending Common Stock Warrants
High Low High Low
12/31/93 $20.00 $13.40 $0.94 $0.41
3/31/94 $18.10 $10.30 $0.75 $0.28
6/30/94 $10.90 $ 8.10 $0.31 $0.19
9/30/94 $10.30 $ 5.60 $0.21 $0.12
12/31/94 $ 7.50 $ 3.40 $0.25 $0.09
3/31/95 $ 4.00 $ 3.75 $0.22 $0.13
6/30/95 $ 5.30 $ 2.78 $0.15 $0.06
9/30/95 $ 5.46 $ 3.56 $0.28 $0.09
12/31/95 $ 4.75 $ 2.28 $0.25 $0.09
3/31/96 $ 7.12 $ 2.68 $0.28 $0.03
Holders of Common Stock are entitled to receive such dividends
as may be declared by the Board of Directors out of funds legally
available therefor and, in the event of liquidation, to share pro
rata in any distribution of the Company's assets after payment of
liabilities. The Board of Directors is not obligated to declare a
dividend. The Company has not paid any dividends and the Company
does not have any current plans to pay any dividends. Pursuant to
the terms of a loan agreement with a bank, the Company may not pay
any dividends without the consent of the bank. See Note 5 to the
Company's September 30, 1995 financial statements.
The provisions in the Company's Articles of Incorporation
relating to the Company's Preferred Stock would allow the Company's
directors to issue Preferred Stock with rights to multiple votes per
share and dividends rights which would have priority over any dividends
paid with respect to the Company's Common Stock. The issuance of
Preferred Stock with such rights may make more difficult the removal of
management even if such removal would be considered beneficial to
shareholders generally, and will have the effect of limiting
shareholder participation in certain transactions such as mergers or
tender offers if such transactions are not favored by incumbent
management.
SELECTED FINANCIAL DATA
The following selected financial data should be read in
conjunction with the more detailed financial statements, related notes
and other financial information included herein. See also
"Management's Discussion and Analysis".
For the Years Ended September 30,
1995 1994 1993 1992 1991
Investment Income &
Other Revenues $423,765 $ 624,670 $ 997,964 $ 434,180 $35,972
Expenses:
Research and
Development 1,824,661 2,896,l09 1,307,042 481,697 108,771
Depreciation
and Amortization 262,705 138,755 55,372 33,536 32,582
General and
Administrative 1,713,912 1,621,990 1,696,119 1,309,475 795,015
Equity in loss of
joint venture 501,125 394,692 344,423 260,388 290,166
Net Loss$(3,878,638) $(4,426,876) $(2,404,992)$(1,650,916)$(1,190,562)
Loss per common share $(0.89) $(1.06) $(0.58) $(0.42) $(0.35)
Weighted average
common shares
outstanding 4,342,628 4,185,240 4,155,431 3,953,233
3,400,546
Three Months Ended
December 31,
1995 1994
Investment Income & Other Revenues $ 62,501 $116,701
Expenses:
Research and Development 1,238,197 618,636
Depreciation and Amortization 71,268 66,775
General and Administrative 477,888 398,281
Equity in loss of joint venture 3,772 181,578
Net Loss $(1,728,624) (1,148,569)
Loss per common share $(0.32) $(0.27)
Weighted average common shares
outstanding 5,457,431 4,188,244
Balance Sheet Data:
September 30,
1995 1994 1993 1992 1991
Working
Capital $3,983,699 $5,795,191 $10,296,472 $13,043,012 $ 682,831
Total Assets 6,359,011 8,086,670 11,633,090 13,769,504 1,611,899
Total Liabilities 1,516,978 l,407,602 688,231 467,086 672,595
Shareholders'
Equity 4,842,033 6,679,068 10,944,859 13,302,4l8 939,304
December 31, 1995
Working Capital $3,280,004
Total Assets 5,069,641
Total Liabilities 839,448
Shareholders' Equity 4,230,193
No dividends have been declared by the Company since its
inception.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended December 31, 1995
Interest income during the three months ending December 31,
1995 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 February, 1992, the Company received net proceeds of
approximately $13,800,000 from the sale, in a public offering, of
517,500 shares of Common Stock and 5,175,000 Warrants. Every ten
Warrants entitle the holder to purchase one additional share of Common
Stock at a price of $46.50 per share prior to February 7, 1997.
In June and September, l995, the Company completed private
offerings whereby it sold a total of 1,150,000 units at $2.00 per unit.
Each unit consisted of one share of Common Stock and one Warrant. Each
Warrant entitles the holder to purchase one additional share of Common
Stock at a price of $3.25 per share at any time prior to June 30, 1997.
The net proceeds to the Company from these offerings, after the payment
of Sales Agent's commissions and other offering expenses, were
approximately $2,000,000. On November 30, 1995 the Company and the
investors in these Private Offerings agreed to reduce the exercise
price of the Warrants to $1.60 per share in return for the commitment
on the part of the investors to exercise 312,500 Warrants ($500,000)
prior to December 23, 1995 and an additional 312,500 Warrants
($500,000) prior to January 31, 1996.
In March 1996 the Company sold $l,250,000 of Convertible Notes
("Notes") to two persons. The Notes are convertible from time to time
in whole or in part, into shares of the Company's Common Stock. The
conversion price is the lesser of (i) $5 per share or (ii) 80% of the
average closing bid price of the Company's Common Stock during the five
trading days immediately preceding the date of such conversion.
Notwithstanding the above, the conversion price may not be less than
$2.40 per share. The Notes are payable on December 1, 1996 and accrue
interest at 10% per annum.
During fiscal 1996 the Company plans to fund its U.S. and
Canadian clinical trials involving MULTIKINE. During fiscal 1996 the
Company also plans to provide VTI with the funding needed to continue
VTI's clinical trials. It should be noted that substantial additional
funds will be needed for more extensive clinical trials which will be
necessary before the Company or VTI will be able to apply to the FDA
for approval to sell any products which may be developed on a
commercial basis throughout the United States.
In October, 1994, the Company completed the construction of
its own
research laboratory in a facility leased by the Company. The cost of
modifying the leased space and providing the equipment for the research
laboratory was approximately $1,200,000. In August 1994 the Company
obtained a loan to fund the majority of the costs for the research
laboratory. As of September 30, 1995 the Company owed approximately
$811,000 on this loan. Principal and interest on the loan is due
monthly. The loan matures in 1999 and bears interest at 2% plus the
prime lending rate.
The Company expects that it will spend approximately
$2,500,000 on research and development during the twelve month period
ending September 30, 1996. This amount includes VTI's estimated
research and development expenses during fiscal 1996. Prior to October
1995, VTI's research and development expenses were shared 50% by the
Company and 50% by Alpha 1
Biomedicals, Inc.
VTI became a wholly-owned subsidiary of the Company in October 1995
when the Company purchased Alpha 1's 50% interest in VTI. The Company
plans to use its existing financial resources to fund its research and
development program during this period.
Other than funding its research and development program and
the costs associated with its research laboratory, the Company does
not have any material capital commitments.
The Company expects that its existing financial resources
will satisfy the Company's capital requirements at least through
December 1996. In the absence of revenues, the Company will be
required to raise additional funds through the sale of securities,
debt financing or other arrangements in order to continue with its
research efforts after that date. However, there can be no assurance
that such financing will be
available or be available on favorable terms.
BUSINESS
CEL-SCI Corporation (the "Company") was formed as a Colorado
corporation in 1983. The Company is involved in the research and
development of certain drugs and vaccines. The Company's first
product, MULTIKINETM, manufactured using the Company's proprietary
cell culture technologies, is a combination, or "cocktail", of natural
human interleukin2 ("IL-2") and certain lymphokines and cytokines.
MULTIKINE is being tested to determine if it is effective in improving
the immune response of advanced cancer pantients. The Company's
second product, HGP30, is being tested to determine if it is an
effective treatment/ vaccine against the AIDS virus. In addition, the
Company recently acquired a new patented Tcell Modulation Process
which uses "heteroconjugates" to direct the body to chose a specific
immune response. The Company intends to use this new technology to
improve the cellular immune response of persons vaccinated with HGP-
30.
Since its inception the focus of the Company's product
development efforts has been on conducting clinical trials to test its
proprietary technologies. The Company intends to continue testing its
MULTIKINE product in clinical trials with the objective of
establishing its efficacy as a treatment for solid tumors and possibly
other diseases. An additional aim of the Company is to further
corroborate the present data (obtained in connection with the
Company's research programs and human clinical trials) in regard to
the ability of MULTIKINE to restore the immune system of people
suffering from certain illnesses.
The cost of acquiring its exclusive license and the costs
associated with the clinical trials relating to the Company's
MULTIKINE technologies, the cost of research at various institutions
and the Company's administrative expenses have been funded with the
public and private sales of shares of the Company's Common Stock and
borrowings from third parties, including affiliates of the Company.
In October 1995 Viral Technologies, Inc. ("VTI") became a
whollyowned subsidiary of the Company. VTI is engaged in the
development of a possible vaccine for AIDS. VTI's technology may also
have application in the treatment of AIDS-infected individuals and the
diagnosis of AIDS. VTI's AIDS vaccine, HGP-30, has completed certain
Phase I human clinical trials. In the Phase I trials, the vaccine was
administered to volunteers who were not infected with the HIV virus in
an effort to determine safe and tolerable dosage levels.
PRODUCT DEVELOPMENT PLAN
In March l995, the Canadian Health Protection Branch, Health
and Welfare Ministry gave clearance to the Company to start a phase
I/II cancer study using Multikine. The study, which will enroll up to
30 head and neck cancer patients who have failed conventional
treatments, is expected to be conducted at the Hotel-Dieu de Montreal
Hospital, as well as other medical centers in Canada. The study is
designed to evaluate safety, tumor responses and immune responses in
patients treated with multiple courses of
Multikine. The length of time that each patient will remain on the
investigational treatment will depend on the patient's response to
treatment. In May l995,
the U.S. Food and Drug Administration (FDA) authorized the export of
the Company's Multikine drug to Canada for purposes of this study.
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 involved HIV-negative volunteers who
participated in the 1993 Phase I study. Following vaccinations with
HGP30, 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. A significantly larger percentage
of SCID mice given blood from vaccinated volunteers showed no HIV
infection after virus challenge when compared to mice given blood from
unvaccinated donors. In November 1995 VTI received permission from
the California FDB to begin Phase I human clinical trials with HIV-
infected volunteers. These trials began in December 1995. 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. Tcells, for example,
amplify or suppress antibody formation by Bcells, and can also
directly destroy "foreign" cells by activating "killer cells."
It is generally recognized that the interplay among T-cells,
B cells
and the macrophages determines the strength and breadth of the body's
response to infection. It is believed that the activities of T-cells,
B cells and macrophages are controlled, to a large extent, by a
specific group of hormones called lymphokines. Lymphokines regulate
and modify the various functions of
both T-cells and B-cells. There are many lymphokines, each of which
is thought to have distinctive chemical and functional properties. IL-
2 is but one of these lymphokines and it is on IL-2 and its synergy
with other
lymphokines that the Company has focused its attention. Scientific
and medical investigation has established that IL-2 enhances immune
responses by causing activated T-cells to proliferate. Without such
proliferation no immune response can be mounted. Other lymphokines
and cytokines support T cell and B-cell proliferation. However, IL-2
is the only known lymphokine or cytokine which causes the
proliferation of T-cells. IL-2 is also known to activate B-cells in
the absence of B-cell growth factors.
Although IL-2 is one of the best characterized lymphokines
with anticancer potential, the Company is of the opinion that to have
optimum therapeutic value, IL-2 should be administered not as a single
substance but rather as a mixture of IL-2 and certain lymphokines and
cytokines, i.e. as a "cocktail". This approach, which was pioneered by
the Company, makes use of the synergism between these lymphokines. It
should be noted however that neither the FDA nor any other agency has
determined that the Company's MULTIKINE product will be effective
against any form of cancer.
It has been reported by researchers in the field of lymphokine
research that IL-2 can increase the number of killer T-cells produced
by the body, which improves the body's capacity to selectively destroy
specific tumor cells. Research and human clinical trials sponsored by
the Company have indicated a correlation between administration of
MULTIKINE to advanced cancer patients and immunological responses. On
the basis of these experimental results, the Company believes that
MULTIKINE may have application for the treatment of solid tumors in
humans.
The Company foresees three potential anti-cancer therapeutic
uses for MULTIKINE: (i) direct administration into the human body (in
vivo) as a modulator of the immune system, (ii) activation of a
patient's white blood cells outside the body with MULTIKINE, followed
by returning these activated cells to the patient; and (iii) a
combination of (i) and (ii).
RESEARCH AND DEVELOPMENT
In the past, the Company conducted its research pursuant to
arrangements with various universities and research organizations. The
Company provided grants to these institutions for the conduct of
specific research projects as suggested by the Company's scientists
based upon the results of previously completed projects.
More recently the Company has decided to consolidate its
research activities in a Company-owned laboratory. The Company
believes that this new approach will be more effective in terms of both
cost and performance.
Between 1983 and 1986 the Company was primarily involved in
funding pre-clinical and Phase I clinical trials of its proprietary
MULTIKINE technologies. These trials were conducted at St. Thomas's
Hospital Medical School located in London, England under the direction
of Dudley C. Dumonde, M.D., PhD., a former member of the SAB, and
pursuant to approvals obtained from England's Department of Health and
Social Security.
In the Phase I trial in England (completed in 1987), forty-
nine patients suffering with various forms of solid cancers, including
malignant
melanoma, breast cancer, colon cancer, and other solid tumor types were
treated with MULTIKINE. The product was administered directly into the
lymphatic system in a number of patients. Significant and lasting
lymphnode responses, which are considered to be an indication of
improvement in the patient's immune responses, were observed in these
patients. A principal
conclusion of the Phase I trials was that the side effects of the
Company's products in forty-nine patients were not severe, the
treatment was well tolerated and there was no long-term toxicity.
The results of the Phase I clinical study were encouraging,
and as a result the Company, through members of its SAB and consulting
experts, established protocols for future clinical trials. In
November, 1990, the Florida Department of Health and Rehabilitative
Services ("DHRS") gave the physicians at a southern Florida medical
institution approval to start a clinical cancer trial in Florida using
the Company's MULTIKINE product. The focus of the trial was
unresectable head and neck cancer (which is presently untreatable) and
was the first time that the natural MULTIKINE was administered to
cancer patients in a clinical trial in the United States.
Four patients with regionally advanced squamous cell cancer of
the head and neck were treated with the Company's MULTIKINE product.
The patients had previously received radical surgery followed by x-ray
therapy but developed recurrent tumors at multiple sites in the neck
and were diagnosed with terminal cancer. The patients had low levels
of lymphocytes and evidence of immune deficiency (generally a
characteristic of this type of cancer).
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 Sep
tember 30, 1995, 1994 and 1993, respectively. The foregoing amounts do
not include amounts spent by Viral Technologies, Inc. on research and
development. Since May, 1986 (the inception of VTI) and through
September 30, 1995, VTI has spent approximately $3,365,000 on research
and development.
The Company has established a Scientific Advisory Board
("SAB") comprised of scientists distinguished in biomedical research in
the field of lymphokines and related areas. From time to time, members
of the SAB advise the Company on its research activities. Institutions
with which members of the SAB are affiliated have and may in the future
conduct Company-sponsored research. The SAB has in the past and may in
the future, at its discretion, invite other scientists to opine in
confidence on the merits of the Companysponsored research. Members of
the SAB receive $500 per month from the Company and have also been
granted options (for serving as members of the SAB) which collectively
allow for the purchase of up to 15,000 shares of the Company's Common
Stock. The options are exercisable at prices ranging from $13.80 to
$19.70 per share.
The members of the Company's SAB are:
Dr. Michael Chirigos former head of the Virus and Disease
Modification Section, National Institutes of Health (NIH), National
Cancer Institute (NCI) from 1966-1981 and the Immuno Pharmacology
Section, NHI, NCI, Biological Response Modifier Program until
1985.
Dr. Evan M. Hersh Vice-Chairman, Department of Internal
Medicine, Chief, Section of Hematology/Oncology, Department of Internal
Medicine, Tucson, AZ. Director of Clinical Research, Arizona Cancer
Center, Tucson.
Dr. Michael J. Mastrangelo Director, Division of Medical
Oncology,
and Professor of Medicine, Jefferson Medical College, Philadelphia,
Pennsylvania.
Dr. Alan B. Morris, PhD. Professor, Department of Biological
Sciences, University of Warwick, Coventry, U.K.
VIRAL TECHNOLOGIES, INC.
Prior to October 1995, Viral Technologies, Inc. ("VTI"), a
Delaware corporation, was 50% owned by the Company and 50% owned by
Alpha 1 Biomedicals, Inc. VTI is developing a vaccine technology that
may prove of commercial value in the prevention, diagnosis and
treatment of AIDS. VTI holds the proprietary rights to certain
synthesized components of the p17 gag protein, which is the outer core
region of the AIDS virus (HIV-1). In October 1995, the Company
acquired Alpha 1's interest in VTI in exchange for 159,170 shares of
the Company's common stock.
VTI is involved in the development of a prototype preventive
and therapeutic vaccine against AIDS that is based on HGP-30, a thirty
amino acid synthetic peptide derived from the p17 region of the AIDS
virus. Evidence compiled by scientists at George Washington University
from toxicology studies with different animal species indicates that
the HGP30 prototype vaccine does not appear to be toxic in animals.
The HGP-30 vaccine being tested differs
from most other vaccines candidates in that its active component, the
HGP 30 peptide, is derived from the p17 core protein particles of the
virus. Since HGP-30 is a totally synthetic molecule containing no live
virus, it cannot cause infection. Unlike the envelope (i.e. outside)
proteins, the p17 region of the AIDS virus appears to be relatively non-
changing. In January, 1991, VTI was issued a United States patent
covering the production, use and sale of HGP-30. HGP-30 may also be
effective in treating persons infected with the AIDS virus.
Approval to start Phase I human clinical trials in Great
Britain using VTI's prototype AIDS vaccine HGP-30 was granted in April
1988. The trial, the first in the European common market, began in May
1989 with 18 healthy (HIVnegative) volunteers given three different
dosages and was completed in December 1990. The trial results
indicated that five of eight volunteers vaccinated with HGP-30, and
whose blood samples were able to be tested, produced "killer" T-cell
responses. The vaccine also elicited cell mediated 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 HGP30 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. A significantly larger percentage of SCID mice given
blood from vaccinated volunteers showed no HIV infection after virus
challenge when compared to mice given blood from unvaccinated donors.
In November 1995 VTI received permission from the FDB to begin
Phase I human clinical trials with HIV-infected volunteers. These
trials began in December 1995. VTI's AIDS vaccine/treatment is only in
the initial stages of testing and it remains to be seen if the
vaccine/treatment will be effective against the AIDS virus.
Although there has been important independent research showing
the possible significance of the p17 region of HIV-1, there can be no
assurance that any of VTI's technology will be effective in the
prevention, diagnosis or treatment of AIDS. There can be no assurance
that other companies will not
develop a product that is more effective or that VTI ultimately will be
able to develop and bring a product to market in a timely manner that
would enable it to derive commercial benefits.
VTI's research and development efforts are presently focused
on the evaluation of second generation formulations and delivery
systems for HGP-30 and related peptides to enhance HIV-specific
cellular immune responses.
In January 1991, VTI was awarded a U.S. patent covering the
exclusive production, use and sale of HGP-30. This patent is thought
to be the first U.S. patent for a portion of a "core" protein of the
HIV virus. In February 1993, VTI was awarded a European patent covering
HGP30 and certain other peptides.
T-CELL MODULATION PROCESS
In January 1996 the Company acquired a new patented T-cell
Modulation Process which uses "heteroconjugates" to direct the body to
chose a specific immune response.
The ability to generate a specific immune response is
important because many diseases are often not combatted effectively due
to the body's selection of the "inappropriate" immune response. The
capability to specifically reprogram an immune response may offer a
more effective approach than existing vaccines and drugs in attacking
an underlying disease.
The Company intends to use this new technology to improve the
cellular immune response of VTI's HIV HGP-30 immunogen which is
currently in two clinical studies. In addition, the Company intends to
use the technology to develop a potential Tuberculosis (TB)
vaccine/treatment. TB is the largest killer of all infectious diseases
worldwide and new strains of drug resistant TB are emerging daily. The
technology is also a potential platform technology which could also
work with many other peptides. Using this new technology, the Company
is currently conducting in vitro laboratory and in vivo animal studies
that have defined a combination of components that appear to modulate T-
cells identified with specific diseases.
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
CELLMED's patent and patent applications relating to the technology.
As of February 29, 1996, CELL-MED had been issued patents in Australia
and from the European Patent Office covering the technology and had
several U.S. and foreign patent applications pending.
COMPOUNDS AND PROCESSES LICENSED TO THE COMPANY
The Company has acquired from Sittona Company, B.V., a
Netherlands corporation ("Sittona"), the exclusive worldwide rights to
patented IL-2 compounds, compositions and other processes and other
lymphokine-related compounds, compositions and processes which are the
subject of various patents, patent applications and disclosure
documents filed with the United States Patent and Trademark Office as
well as similar agencies of various foreign countries. Sittona
acquired its rights in the foregoing products and technology from
Hooper Trading Company N.V., and Shanksville Corporation N.V., both
Netherland Antilles corporations. Pursuant to the terms of the
license, the Company must pay to Sittona a royalty of l0% of all net
sales received by the Company in connection with the manufacture, use
or sale of the licensed compounds, compositions and processes and a
royalty of l5% of all license fees and royalties received by the
Company in connection with the grant by the Company of any sublicenses
for the manufacture, use or sale of the licensed compounds,
compositions and processes. On November 30, l983, a $l.4 million
advance royalty was paid by the Company to Sittona to acquire the
license. The license also requires the Company to bear the expense of
preparing, filing and processing patent applications and to obtain and
maintain patents in the United States and foreign countries on all
inventions, developments and improvements made by or on behalf of the
Company relating to the licensed compounds, compositions and processes.
In this regard the Company has caused patent applications to be filed
in several foreign countries and has undertaken the processing of
previously filed patent applications. The exclusive license is to
remain in effect until the expiration or abandonment of all patent
rights or until the compounds, compositions and processes enter into
the public domain, whichever is later. Sittona may also terminate the
license for breach of the agreement, fraud on the part of the Company,
or the bankruptcy or insolvency of the Company. Sittona, Hooper Trading
Company and Shanksville Corporation are all controlled by Maximilian de
Clara, the Company's President. See "Management Transactions with
Related Parties".
In 1987 a German company filed an opposition with the European
Patent Office with respect to one of the Company's European patents,
alleging that certain aspects of the patent in question were previously
disclosed to inventors during a conference held in Germany. A hearing
on the opposition was held and on October 12, 1990 the European Patent
Office rejected the opposition. The German company filing the
opposition appealed the decision of the European Patent Office. In
1992 the Appellate Tribunal of the European Patent Office upheld the
Company's process claims in the patent, while two minor claims were
denied. The Company does not believe
that the denial by the European Patent Office of these two minor
process patent claims impairs the value of this patent in any
significant degree.
In February 1996 the Company filed a lawsuit against ImmunoRx
and Dr. John Hadden for contract breach, tortious interference of
contract and patent infringement concerning the Company's Multikine
drug. The lawsuit, filed in the U.S. Distrit Court for the Middle
District of Florida, seeks damages and the termination of certain
research and clinical studies being conducted by ImmunoRx and Dr.
Hadden. From 1984
to 1992, Dr. Hadden consulted with the Company, performed research on
Multikine and manufactured Multikine for the Company's head and neck
cancer study in Florida. In early 1993, Dr. Hadden
signed a separation agreement with the Company acknowledging the
Company's ownership of both Multikine and the research results. The
Company has learned that Dr. Hadden and ImmunoRx are apparently making
copies of Multikine, in contravention of the separation agreement and
the patents covering Multikine, and have begun clinical studies in a
foreign country using a copy of Multikine.
Process for the Production of IL-2 and IL-2 Product
The Company's exclusive license includes processes for the
production in high yields of natural human IL-2 using cell culture
techniques applied to normal human cells. Based upon the results of
the Company's research and human clinical trials, the Company believes
that "natural" IL-2 produced by cell culture technologies, such as the
Company's proprietary products, may have advantages over genetically
engineered, bacteria-produced IL-2 ("recombinant IL-2") manufactured by
other companies. There are basically two ways to produce IL-2 on a
commercial scale: (1) applying genesplicing techniques using bacteria
or other microorganisms to produce recombinant IL-2; or, (2) applying
cell culture technology using mammalian cells. Substantive differences
exist between recombinant IL-2 and IL-2 produced through cell culture
technology. For example: (1) cell cultured IL2 is glycosylated (has
sugars attached). Sugar attachments play a crucial role in cell
recognition and have a significant effect on how fast a body clears out
proteins. Proteins produced through bacteria have no sugar attachments
and while recombinant IL-2 products produced from recombinant yeast or
insect cells are glycosylated, they are not so to the right degree, or
at the right locations. Cell cultured IL-2 has the "right" sugar
attachments at the right places; (2) there are also structural
differences related to folding (the way human proteins work depends on
their sequence folding); and (3) the cell cultured IL-2 "cocktail" is
administered in small dosages as pioneered by Company researchers.
This formulation and dosage mimics the way immune regulators are
naturally found and function within the body. This stands in stark
contrast to the huge dosages required when recombinant IL-2 is
administered to patients. In addition, patients treated with
recombinant IL-2 usually suffer severe side effects.
Although mammalian cells (other than human cells) could be
genetically engineered to produce glycosylated IL-2 in larger
quantities than are produced by the Company's method, such mammalian
cells could not be genetically engineered to produce the combination of
human lymphokines and cytokines, which together with human glycosylated
IL-2 form the MULTIKINE product used by the Company. The Company is of
the opinion that glycosylated IL-2 genetically produced from mammalian
cells must be administered in large dosages before any benefits are
observed. Even then, the Company believes that only a small percentage
of patients will benefit from treatments consisting only of
glycosylated IL-2. In addition, large dosages of glycosylated IL-2
can, as with recombinant IL2, result in severe toxic reactions. In
contrast, the Company believes the synergy between glycosylated IL-2
and certain other lymphokines/ cytokines allows MULTIKINE to be
administered in low dosages, thereby avoiding the severe toxic
reactions which often result when IL-2 is administered in large
dosages.
The technology licensed to the Company includes the basic
production method employing the use of normal white blood cells, an
improved production method based in part on this basic production
method, a serum-free and mitogen-
free IL-2 product, and a method for using this product in humans.
Mitogens are used to stimulate cells to produce specific materials (in
this case, IL 2). Mitogens remaining in the product of cell stimulation
can cause allergic and anaphylactic reactions if not removed from the
cell product prior to introduction into the body.
The Company's license also pertains to a cell culture process
for producing interleukin-2 and another type of cell process for
producing serumfree and mitogen-free interleukin-2 preparations which
avoids a mitogen stimulation step and uses interleukin-1 and white
blood cells.
The Company's license further includes a process for
suppressing graft rejection in organ transplantation. This process
employs the use of an agent which blocks the activity of IL-2 in
proliferating T-cells which would otherwise destroy the transplanted
organ. The Company regards further research and development of this
process to involve a financial commitment beyond its present ability;
thus, while the Company intends to attempt to enter into licensing
arrangements with third parties concerning this process, it does not
presently intend to conduct further research into, or development of,
this process.
The Company has an agreement with an unrelated corporation for
the production, until 1997, of MULTIKINE for research and testing
purposes. At present, this is the Company's only source of MULTIKINE.
If this corporation could not, for any reason, supply the Company with
MULTIKINE, the Company estimates that it would take approximately six
to ten months to obtain supplies of MULTIKINE under an alternative
manufacturing arrangement. The Company does not know what cost it
would incur to obtain this alternative source of supply.
GOVERNMENT REGULATION
The investigational agents and future products of the Company
are regulated in the United States under the Federal Food, Drug and
Cosmetic Act, the Public Health Service Act, and the laws of certain
states. The Federal Food and Drug Administration (FDA) exercises
significant regulatory control over the clinical investigation and
manufacture of pharmaceutical products.
Prior to the time a pharmaceutical product can be marketed in
the United States for therapeutic use, approval of the FDA must
normally be obtained. Certain states, however, have passed laws which
allow a state agency having functions similar to the FDA to approve the
testing and use of pharmaceutical products within the state. In the
case of either FDA or state regulation, preclinical testing programs on
animals, followed by three phases of clinical testing on humans, are
typically required in order to establish product safety and efficacy.
The first stage of evaluation, preclinical testing, must be
conducted in animals. After lack of toxicity has been demonstrated,
the test results are submitted to the FDA (or state regulatory agency)
along with a request for approval for further testing which includes
the protocol that will be followed in the initial human clinical
evaluation. If the applicable regulatory authority does not object to
the proposed experiments, the investigator can proceed with Phase I
trials. Phase I trials consist of pharmacological studies
on a relatively few number of humans under rigidly controlled
conditions in order to establish lack of toxicity and a safe dosage
range.
After Phase I testing is completed, one or more Phase II
trials are conducted in a limited number of patients to test the
product's ability to treat or prevent a specific disease, and the
results are analyzed for
clinical efficacy and safety. If the results appear to warrant
confirmatory studies, the data is submitted to the applicable
regulatory authority along with the protocol for a Phase III trial.
Phase III trials consist of extensive studies in large populations
designed to assess the safety of the product and the most desirable
dosage in the treatment or prevention of a specific disease. The
results of the
clinical trials for a new biological drug are submitted to the FDA as
part of a product license application ("PLA").
In addition to obtaining FDA approval for a product, a
biologics establishment license application ("ELA") must be filed in
order to obtain FDA approval of the testing and manufacturing
facilities in which the product
is produced. To the extent all or a portion of the manufacturing
process for a product is handled by an entity other than the Company,
the Company must similarly receive FDA approval for the other entity's
participation in the manufacturing process. Domestic manufacturing
establishments are subject to inspections by the FDA and by other
Federal, state and local agencies and must comply with Good
Manufacturing Practices ("GMP") as appropriate for production. In
complying with GMP regulations, manufacturers must continue to expend
time, money and effort in the area of production and quality control to
ensure full technical compliance.
The process of drug development and regulatory approval
requires substantial resources and many years. There can be no
assurance that regulatory approval will ever be obtained for products
developed by the Company. Approval of drugs and biologicals by
regulatory authorities of most foreign countries must also be obtained
prior to initiation of marketing in those countries. The approval
process varies from country to country and the time period required in
each foreign country to obtain approval may be longer or shorter than
that required for regulatory approval in the United States.
The human clinical trials in Florida were authorized pursuant
to applications filed by physicians at a southern Florida medical
institution with the Florida Department of Health and Rehabilitative
Services ("DHRS"). VTI's Phase I clinical trials were conducted
pursuant to approvals obtained from the California Department of Health
Services Food and Drug Branch. None of the clinical trials involving
the Company's MULTIKINE product (including the prior trials conducted
in London, England) have been conducted under the approval of the FDA
and there are no assurances that clinical trials conducted under
approval from state authorities or conducted in foreign countries will
be accepted by the FDA. Product licensure in a foreign country or
under state authority does not mean that the product will be licensed
by the FDA and there are no assurances that the Company will receive
any approval of the FDA or any other governmental entity for the
manufacturing and/or marketing of a product. Consequently, the
commencement of the manufacturing and marketing of any Company product
is, in all likelihood, many years away.
COMPETITION AND MARKETING
Many companies, nonprofit organizations and governmental
institutions are conducting research on lymphokines. Competition in
the development of therapeutic agents and diagnostic products
incorporating lymphokines is intense. Large, well-established
pharmaceutical companies are engaged in lymphokine research and
development and have considerably greater resources than the Company
has to develop products. The establishment by these large companies of
in-house research groups and of joint research ventures with other
entities is already occurring in these areas and will probably become
even more prevalent. In addition, licensing and other collaborative
arrangements between governmental and other nonprofit institutions and
commercial enterprises, as well as the seeking of patent protection of
inventions by nonprofit institutions and researchers, could result in
strong competition for the Company. Any new developments made by such
organizations may render the Company's licensed technology and know-how
obsolete.
Several biotechnology companies are producing IL-2-like
compounds. The Company believes, however, that it is the only producer
of a patented IL2 product using a patented cell-culture technology with
normal human cells. The Company foresees that its principle competition
will come from producers of genetically-engineered IL-2-like products.
However, it is the Company's belief, based upon growing scientific
evidence, that its natural IL-2 products have advantages over the
genetically engineered, IL-2-like products. Evidence indicates that
genetically engineered, IL-2-like products, which lack sugar molecules
and typically are not water soluble, may be recognized by the
immunological system as a foreign agent, leading to a measurable
antibody build-up and thereby possibly voiding their therapeutic value.
Furthermore, the 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 65 Director and
President
Geert R. Kersten, Esq. 37 Director, Chief
Executive
Officer, Secretary and
Treasurer Patricia B. Prichep 43 Vice President of
Operations
M. Douglas Winship 45 Vice President of Regulatory
Affairs and Quality
Assurance Dr. Eyal Talor 40 Vice President of Research
and
Manufac
turing
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 (19921993). During 1992 and 1993, Dr. Talor was
also the Regulatory Affairs and Safety Officer For SRA. Since 1987,
Dr. Talor has held various positions with the John Hopkins University,
including course coordinator for the School of Continuing Studies
(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 (1972-1974) at the Laboratory of
Tumor Cell Biology at NCI, NIH. From 1971-1972 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 cofounded and which was publicly traded until its acquisition
in 1989 by Genzyme, Inc.
Edwin A. Shalloway, Esq. Mr. Shalloway has been a director
of the Company since May, 1992. Mr. Shalloway is and has been since
1964, a partner in the law firm of Sherman and Shalloway which
specializes in matters of patent law. Mr. Shalloway attended the
University of Georgia where he earned a Bachelor of Science and
Bachelor of Arts degrees. Mr. Shalloway received his law degree from
the American University in Washington, D.C. Mr. Shalloway is also the
President of the International Licensing Executive Society.
All of the Company's officers devote substantially all of
their time on the Company's business. Messrs. Soresi, Hudson and
Shalloway, as directors, devote only a minimal amount of time to the
Company.
The Company has an audit committee whose members are Geert R.
Kersten, F. Donald Hudson and Edwin A. Shalloway.
Executive Compensation
The following table sets forth in summary form the
compensation received by (i) the Chief Executive Officer of the
Company and (ii) by each other executive officer of the Company who
received in excess of $100,000 during the fiscal year ended September
30, 1995.
Annual Compensation Long Term
Compensation Re- All
Other stric-
Other
Annual ted
LTIP
ComCompen- Stock Options Pay pensa-
Name and Princi Fiscal Salary Bonus sation Awards Granted
outs
tion pal Position Year (1) (2) (3) (4) (5)
(6)
(7)
Maximilian de Clara, 1995 - $95,181 225,000
- -
President 1994 - $93,752 70,000
- -
1993 - $59,376 -
- -
Geert R. Kersten, 1995 $164,801 $ 9,426 224,750
$3,911
Chief Executive 1994 $182,539 $ 8,183 50,000
$4,497
Officer, Secretary 1993 $163,204 $ 6,046 -
$3,289
and Treasurer
M. Douglas Winship, 1995 $113,500 $ 1,200 22,000
$2,100
Vice President of
Regulatory Affairs
Suzanne Beckner, 1995 $102,250 -
- -
25,000
$2,830
Vice President of
Clinical Development*
* Dr. Beckner resigned her position with the Company in November 1995.
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary
or bonus, including perquisites and other personal benefits,
securities or property. Amounts in the table represent automobile,
parking and other transportation expenses.
(4) During the period covered by the Table, no shares of restricted
stock were issued as compensation for services to the persons
listed in the table. As of September 30, 1995, the number of
shares of the Company's common stock, owned by the officers
included in the table above, and the value of such shares at such
date, based upon the market price of the Company's common stock
were:
Name Shares Value Maximilian
de Clara 5,000 $23,100 Geert R. Kersten
84,940 $392,423
Dividends may be paid on shares of restricted stock owned by the
Company's officers and directors, although the Company has no
plans
to pay dividends. Mr. Winship and Ms. Beckner did not own any shares
of the Company's Common Stock at September 30, 1995.
(5) The shares of Common Stock to be received upon the exercise of all
stock options granted during the period covered by the Table. The
amounts in this table include options granted in prior years but
which were repriced during the year ending September 30, 1995.
See "Ten Year Option/SAR Repricings" table below.
(6) "LTIP" is an abbreviation for "Long-Term Incentive Plan". An LTIP
is any plan that is intended to serve as an incentive for
performance to occur over a period longer than one fiscal year.
Amounts reported in this
column represent payments received during the applicable fiscal year
by
the named officer pursuant to an LTIP.
(7) All other compensation received that the Company could not
properly report in any other column of the Table including annual
Company contributions or other allocations to vested and unvested
defined contribution plans, and the dollar value of any insurance
premiums paid by, or on behalf of, the Company with respect to
term life insurance for the benefit of the named executive
officer, and the full dollar value of the remainder of the
premiums paid by, or on behalf of, the Company. Amounts in the
table represent contributions made by the Company to a 401(k)
pension plan on behalf of persons named in the table.
Long Term Incentive Plans Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
During 1993 the Company implemented a defined contribution
retirement plan, qualifying under Section 401(k) of the Internal
Revenue Code and covering substantially all the Company's employees.
The Company's contribution is equal to the lesser of 3% of each
employee's salary, or 50% of the employee's contribution. The 1995
expenses for this plan were $24,913. Other than the 401(k) Plan, the
Company does not have a defined benefit, pension plan, profit sharing
or other retirement plan. Compensation of Directors
Standard Arrangements. The Company currently pays its
directors $1,500 per quarter, plus expenses. The Company has no
standard arrangement pursuant to which directors of the Company are
compensated for any services provided as a director or for committee
participation or special assignments.
Other Arrangements. The Company has from time to time granted
options to its outside directors, Mr. Soresi, Mr. Hudson and Mr.
Shalloway. See Stock Options below for additional information
concerning options granted to the Company's directors.
Employment Contracts
Effective August 1, 1994, the Company entered into a three-
year employment agreement with Mr. Kersten. The employment agreement
provides that during the period between August 1, 1994 and July 31,
1995, the Company will pay Mr. Kersten an annual salary of $198,985.
During the years ending August 31, 1996 and 1997, the Company will pay
Mr. Kersten a salary of $218,883 and $240,771 respectively. In the
event that there is a material reduction in Mr. Kersten's authority,
duties or activities, or in the event there is a change in the control
of the Company, then the
agreement allows Mr. Kersten to resign from his position at the Company
and receive a lump-sum payment from the Company equal to 18 months
salary. For
purposes of the employment agreement, a change in the control of the
Company means the sale of more than 50% of the outstanding shares of
the Company's Common Stock, or a change in a majority of the Company's
directors. Pursuant to the agreement, the Company also agreed to grant
Mr. Kersten, in accordance with the Company's 1994 Incentive Stock
Option Plan, options to purchase 50,000 shares of the Company's Common
Stock. Compensation Committee Interlocks and Insider Participation
The Company has a compensation committee comprised of all of
the Company's directors, with the exception of Mr. Kersten. During the
year ended September 30, 1995, Mr. de Clara was the only officer
participating in deliberations of the Company's compensation committee
concerning executive officer compensation. See "Transactions witih
Related Parties" below for information concerning transactions between
the Company and Mr. de Clara.
During the year ended September 30, 1995, no director of the
Company
was also an executive officer of another entity, which had an
executive officer of the Company serving as a director of such entity
or as a member of the compensation committee of such entity.
Stock Options
The following tables set forth information concerning the
options granted, during the fiscal year ended September 30, 1995, to
the persons named below, and the fiscal year-end value of all
unexercised options (regardless of when granted) held by these
persons.
Options Granted During Fiscal Year Ending September 30, l995
Potential Individual Grants (1)
Realizable
Value
at
% of Total Assumed
Annual
Rates
Options of Stock
Price
Granted to Exercise
Appreciation
for
Options Employees in Price Per Expiration Option
Term
(3)
Name Granted (#) Fiscal Year Share (1) Date 5%
10%
Maximilian 15,000 $2.87 3/19/01 $ 14,550
$
30,750
de Clara 70,000 $2.87 11/1/01 $ 67,900
$176,400
70,000 $2.87 7/29/04 $272,300
$272,300
70,000 $3.87 7/31/05 $240,100
$501,200
225,000 32%
Geert R. 50,000 (2) $2.87 1/10/98 $ 20,500
$
42,000
Kersten 750 $2.87 3/28/98 $ 287
$
705
4,000 $2.87 10/31/99 $ 2,440
$
5,320
10,000 $2.87 10/31/00 $ 7,900
$
17,500
10,000 $2.87 3/19/01 $ 9,700
$
22,100
50,000 $2.87 11/01/01 $ 48,500
$110,700
50,000 $2.87 7/29/04 $ 79,000
$194,500
50,000 $3.87 7/31/05 $171,500
$358,000
224,750 32%
M. Douglas 2,000 (2) $2.87 1/10/98 $ 720
$
1,660
Winship 15,000 $2.87 4/4/04 $ 23,700
$
58,350
5,000 $3.87 7/31/05 $ 17,150
$
35,800
22,000 3%
Suzanne 5,000 (2) $2.87 1/10/98 $ 1,750
$
4,150
Beckner 8,000 $2.87 7/11/04 $ 12,640
$
31,120
12,000 $3.87 7/31/05 $ 41,160
$
85,920
25,000 3.5%
(1) Includes options granted in prior fiscal years but which were
repriced in June 1995. See "Ten-Year Option/SAR
Repricings" table below.
(2) Options were granted in accordance with the Company's 1995 salary
reduction plan. Pursuant to the salary reduction plan, any
employee of the Company was allowed to receive options in
exchange for a onetime reduction in such employee's salary.
(3) The potential realizable value of the options shown in the table
assuming the market price of the Company's Common Stock
appreciates in value from the date of the grant to the end of the
option term at 5% or 10%.
Option Exercises and Year End Option Values
Value
of
Unexerc
ise d
IntheMo
ney
Number of Options
Unexercised at
Fiscal
Options Year-
End
Shares (3) (4)
Acquired Value
on Exercise Realized Exercisable/
Exercisable/
Name (1) (2) Unexercisable
Unexercisable
Maximilian de Clara 108,334/116,666
$189,584/$134,165
Geert R. Kersten 85,750/139,000
$150,062/$193,250
M. Douglas Winship - 5,000/ 17,000 $ 8,750/$
24,750
Suzanne Beckner - 2,667/ 22,333 $ 4,667/$
27,083
(1) The number of shares received upon exercise of options during the
fiscal year ended September 30, 1995.
(2) With respect to options exercised during the Company's fiscal year
ended September 30, 1995, the dollar value of the difference
between the option exercise price and the market value of the
option shares purchased on the date of the exercise of the options.
(3) The total number of unexercised options held as of September 30,
1995, separated between those options that were exercisable and
those options that were not exercisable.
(4) For all unexercised options held as of September 30, 1995, the
aggregate dollar value of the excess of the market value of the
stock underlying those options (as of September 30, 1995) over the
exercise price of those unexercised options. Values are shown
separately for
those options that were exercisable, and those options that were
not yet exercisable, on September 30, 1995.
Ten-Year Option/SAR Repricings
In June 1995 the Company lowered the exercise price on options
held by all of the Company's officers, directors and employees to $2.87
per share. The options subject to this repricing allowed for the
purchase of up
to 444,250 shares of the Company's Common Stock and included options
previously granted to those persons listed below. The Company's Board
of Directors lowered the exercise of these options since at the time of
repricing (June 10, 1995), the options no longer provided a benefit to
the option holders due to the difference between the exercise price of
the options and the market price of the Company's Common Stock.
The
following table provides
more information con
cerning the repricing of these options.
Number of Length
of
Securities Market Exercise
Original
Op-
Underlying Price of Price at tion
Term
Options/ Stock at Time of
Remaining
at
SARs Re- Repricing Repricing New Date
of
Re-
priced or or Amend or Amend Exercise
pricing or Name Date Amended (#) ment ($) ment
($) Price ($)
Amendment
Maximilian 6/10/95 15,000 $2.87 $10.90 $2.87
63
mos.
de Clara 70,000 $2.87 $20.90 $2.87
70
mos.
70,000 $2.87 $8.70 $2.87
108
mos.
Geert R. 6/10/95 50,000 $2.87 $4.10 $2.87
30
mos.
Kersten 750 $2.87 $11.60 $2.87
33
mos.
4,000 $2.87 $4.00$2.87 52
mos.
10,000 $2.87 $8.40$2.87 64
mos.
10,000 $2.87 $10.90$2.87 68
mos.
50,000 $2.87 $20.90$2.87 76
mos.
50,000 $2.87 $8.70$2.87
108
mos.
M. Douglas 6/10/95 2,000 $2.87 $4.10$2.87 30
mos.
Winship 15,000 $2.87 $11.20 $2.87
105
mos.
Suzanne 6/10/95 5,000 $2.87 $4.10$2.87 30
mos.
Beckner 8,000 $2.87 $6.80 $2.87
107
mos.
Stock Option and Bonus Plans
The Company has two Incentive Stock Option Plans, three Non-
Qualified Stock Option Plans and a Stock Bonus Plan. A summary
description of these Plans follows. In some cases these Plans are
collectively referred to as the "Plans".
Incentive Stock Option Plan. The two Incentive Stock Option
Plans collectively authorize the issuance of up to 200,000 shares of
the Company's Common Stock to persons that exercise options granted
pursuant to the Plan. Only Company employees may be granted options
pursuant to the Incentive Stock Option Plan.
To be classified as incentive stock options under the Internal
Revenue Code, options granted pursuant to the Plans must be exercised
prior to the following dates:
(a) The expiration of three months after the date on which an
option holder's employment by the Company is terminated
(except if such termination is due to the death or
permanent and total disability);
(b) The expiration of 12 months after the date on which an
option holder's employment by the Company is terminated,
if such termination is due to the Employee's permanent
and total disability;
(c) In the event of an option holder's death while in the
employ of the Company, his executors or administrators
may exercise, within three months following the date of
his death, the option as to any of the shares not
previously exercised;
The total fair market value of the shares of Common Stock
(determined at the time of the grant of the option) for which any
employee may be granted options which are first exercisable in any
calendar year may not exceed $100,000.
Options may not be exercised until one year following the date
of grant. Options granted to an employee then owning more than 10% of
the Common Stock of the Company may not be exercisable by its terms
after five years from the date of grant. Any other option granted
pursuant to the Plan may not be exercisable by its terms after ten
years from the date of grant.
The purchase price per share of Common Stock purchasable under
an option is determined by the Committee but cannot be less than the
fair market value of the Common Stock on the date of the grant of the
option (or 110% of the fair market value in the case of a person owning
more than 10% of the Company's outstanding shares).
Non-Qualified Stock Option Plan. The three Non-Qualified
Stock Option Plans collectively authorize the issuance of up to 960,000
shares of the Company's Common Stock to persons that exercise options
granted pursuant to the Plans. The Company's employees, directors,
officers, consultants and advisors are eligible to be granted options
pursuant to the Plans, provided however that bona fide services must be
rendered by such consultants or advisors and such services must not be
in connection with the offer or sale of securities in a capital-raising
transaction. The option exercise price is determined by the Committee
but cannot be less than the market price of the Company's Common Stock
on the date the option is granted.
Stock Bonus Plan. Up to 40,000 shares of Common Stock may be
granted under the Stock Bonus Plan. Such shares may consist, in whole
or in part, of authorized but unissued shares, or treasury shares.
Under the Stock Bonus Plan, the Company's employees, directors,
officers, consultants and advisors are eligible to receive a grant of
the Company's shares, provided however that bona fide services must be
rendered by consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction.
Other Information Regarding the Plans. The Plans are
administered by the Company's Compensation Committee ("the Committee"),
each member of which is a director of the Company. The members of the
Committee were selected by the Company's Board of Directors and serve
for a one-year tenure and until their successors are elected. A member
of
the Committee may be removed at any time by action of the Board of
Directors. Any vacancies which may occur on the Committee will be
filled by the Board of Directors. The Committee is vested with the
authority to interpret the provisions of the Plans and supervise the
administration of the Plans. In addition, the Committee is empowered
to select those persons to whom shares or options are to be granted, to
determine the number of shares subject to each grant of a stock bonus
or an
option and to determine when, and upon what conditions, shares or
options granted under the Plans will vest or otherwise be subject to
forfeiture and cancellation.
In the discretion of the Committee, any option granted
pursuant to the Plans may include installment exercise terms such that
the option becomes fully exercisable in a series of cumulating
portions. The Committee may also accelerate the date upon which any
option (or any part of any options) is first exercisable. Any shares
issued pursuant to the Stock Bonus Plan and any options granted
pursuant to the Incentive Stock Option Plan or the NonQualified Stock
Option Plan will be forfeited if the "vesting" schedule established by
the Committee administering the Plan at the time of the grant is not
met. For this purpose, vesting means the period during which the
employee must remain an employee of the Company or the period of time
a nonemployee must provide services to the Company. At the time an
employee ceases working for the Company (or at the time a nonemployee
ceases to perform services for the Company), any shares or options not
fully vested will be forfeited and cancelled. At the discretion of the
Committee payment for the shares of Common Stock underlying options
may be paid through the delivery of shares of the Company's Common
Stock having an aggregate fair market value equal to the option price,
provided such shares have been owned by the option holder for at least
one year prior to such exercise. A combination of cash and shares of
Common Stock may also be permitted at the discretion of the Committee.
Options are generally non-transferable except upon death of
the option holder. Shares issued pursuant to the Stock Bonus Plan
will generally not be transferable until the person receiving the
shares satisfies the vesting requirements imposed by the Committee
when the shares were issued.
The Board of Directors of the Company may at any time, and
from time to time, amend, terminate, or suspend one or more of the
Plans in any manner they deem appropriate, provided that such
amendment, termination or suspension will not adversely affect rights
or obligations with respect to shares or options previously granted.
The Board of Directors may not, without shareholder approval: make any
amendment which would materially modify the eligibility requirements
for the Plans; increase or decrease the total number of shares of
Common Stock which may be issued pursuant to the Plans except in the
case of a reclassification of the Company's capital stock or a
consolidation or merger of the Company; reduce the minimum option
price per share; extend the period for granting options; or materially
increase in any other way the benefits accruing to employees who are
eligible to participate in the Plans.
Prior Stock Option and Bonus Plan. The Company previously
had
in effect a Stock Option and Bonus Plan ("the 1987 Plan") which
provided for the grant to the Company's officers, directors, employees
and consultants of either (i) shares of the Company's Common Stock for
services rendered or (ii) options to purchase shares of Common Stock.
The 1987 Plan was terminated by the Company in 1992. Since the 1987
Plan was terminated, no further options will be granted and no further
bonus shares will be issued pursuant to the 1987 Plan. However,
options previously granted may nevertheless still be exercised
according to the terms of the options. Prior to the termination of the
1987 Plan, the Company granted options to purchase 189,250 shares of
the
Company's Common Stock. To date, options to purchase 6,000 shares have
been exercised. In June, 1995 the Company cancelled options to
purchase 176,250 shares that had previously been granted under this
Plan and reissued options for the same number of shares under the
Company's other stock option plans. See "Option Summary" below.
Option Summary. The following sets forth certain information,
as of March 31, 1996, concerning the stock options granted by the
Company. Each option represents the right to purchase one share of the
Company's Common Stock.
Total Shares
Shares Reserved for
Remaining Reserved
Outstanding Options
Name of Plan Under Plan Options Under Plan
1987 Stock Option and Bonus Plan 200,000 7,000
(1)
1992 Incentive Stock Option Plan 100,000 94,050
3,283
1992 Non-Qualified Stock Option Plan 60,000 45,000
- -
1994 Incentive Stock Option Plan 100,000 100,000
- -
1994 Non-Qualified Stock Option Plan 100,000 97,250
2,750
1995 Non-Qualified Stock Option Plan 800,000 638,626
111,374
TOTAL: 981,926
117,407
(1) This Plan was terminated in 1992 and as a result, no new options
will be granted pursuant to this Plan.
As of March 31, 1996, 1,500 shares had been issued pursuant
to the Company's 1992 Stock Bonus Plan. All of these shares were
issued during the fiscal year ending September 30, 1994.
Transactions with Related Parties
The technology and know-how licensed to the Company was
developed by a group of researchers under the direction of Dr. Hans-
Ake Fabricius and was assigned, during l980 and l98l, to Hooper
Trading Company, N.V., a Netherlands Antilles' corporation
("Hooper"), and Shanksville Corporation, also a Netherlands Antilles
corporation ("Shanksville"). Mr. de Clara and Dr. Fabricius own 50%
and 30%, respectively, of each of these companies. The technology and
know-how assigned to Hooper and Shanksville was licensed to Sittona
Company, B.V., a Netherlands corporation ("Sittona"), effective
September, l982 pursuant to a licensing agreement which requires
Sittona to pay to Hooper and Shanksville royalties on income received
by Sittona respecting the technology and know-how licensed to
Sittona. In l983, Sittona licensed this technology to the Company
and received from the Company a $1,400,000 advance royalty payment.
At such time as the Company generates revenues from the sale or
sublicense of this technology, the Company will be required to pay
royalties to Sittona equal to l0% of net sales and l5% of the
licensing royalties received from third parties. In that event,
Sittona, pursuant to its licensing agreements with Hooper and
Shanksville, will be required to pay to those companies a minimum of
l0% of any royalty payments received from the Company.
In 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 March 31, 1996,
information with respect to the only persons owning beneficially 5% or
more of the outstanding Common Stock and the number and percentage of
outstanding shares owned by each director and officer and by the
officers and directors as a group. Unless otherwise indicated, each
owner has sole voting and investment powers over his shares of Common
Stock.
Number of Percent
of
Name and Address Shares (1) Class
(4)
Maximilian de Clara 48,334 (2) *
Bergstrasse 79
6078 Lungern,
Obwalden, Switzerland
Geert R. Kersten 268,357 (3) 4.1%
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Patricia B. Prichep 18,030 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
M. Douglas Winship 8,667 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Eyal Talor 14,500 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 223l4
Dr. Prem Sarin 5,000 *
66 Canal Center Plaza
Suite 510
Alexandria, VA 22314
Mark Soresi 14,375 *
l0l0 Wayne Ave., 8th Floor
Silver Spring, MD 209l0
F. Donald Hudson 10,500 *
53 Mt. Vernon Street
Boston, MA 02108
Edwin A. Shalloway 10,500
*
413 North Washington Street
Alexandria, VA 22314
All Officers and Directors
as a Group (10 persons) 398,263
6.0%
*Less than 1%
(1) Includes shares issuable prior to May 1,
1996 upon the
exercise of options or warrants granted to
the
following persons:
Options or
Warrants Exercisable Name
Prior
to July
1, 1996
Maximilian de Clara
43,334
Geert R. Kersten
163,417
Patricia B. Prichep
15,000
M. Douglas Winship
8,667
Dr. Eyal Talor
13,000
Mark Soresi
12,500
F. Donald Hudson
10,500
Edwin A. Shalloway
10,500
Dr. Prem Sarin
5,000
See "Management" for information concerning
outstanding stock
options.
(2) All shares are held of record by Milford
Trading, Ltd., a corporation organized
pursuant to the laws of Liberia. All of
the issued and outstanding shares of
Milford Trading, Ltd. are owned
beneficially by Mr. de Clara.
(3) Amount includes shares held in trust for
the benefit of Mr. Kersten's minor
children. Geert R. Kersten is the stepson
of Maximilian de Clara.
(4) Amount excludes shares which may be issued
upon the exercise of options and warrants
previously issued by the Company.
SELLING SHAREHOLDERS
In June and September 1995 the Company sold, in private
offerings, 1,150,000 Units, at $2.00 per Unit, to five persons. Each
Unit consisted of one share of Common Stock and one Warrant. Each
Warrant originally entitled the holder to purchase one additional
share of Common Stock at a price of $3.25 per share at any time prior
to June 30, 1997. The investors in these Private Offerings are
sometimes referred to as the "Selling Shareholders". The Company
agreed to register the shares of Common Stock sold in these Private
Offerings (1,150,000 shares), as well as the shares of Common Stock
issuable upon the exercise of the Warrants (1,150,000 shares) and to
pay all expenses in connection with such registration, exclusive of
commissions and the fees and expenses of counsel for the Selling
Shareholders. On November 30, 1995 the Company and the investors in
these Private Offerings agreed to reduce the exercise price of the
Warrants to $1.60 per share in return for the commitment on the part
of the investors to exercise 312,500 Warrants
($500,000) prior to December 23, 1995 and an additional 312,500
Warrants ($500,000) prior to January 31, 1996. Prior to March
31,1996 the Selling Shareholders collectively sold 1,519,930 shares
of Common Stock which they acquired in the Private Offerings. By
means of this Prospectus, the shares of Common Stock purchased by the
Selling Shareholders in the Private Offerings, as well as the shares
issuable upon the exercise of the Warrants described above are being
offered to the public by the Selling Shareholders.
The Company will not receive any proceeds from the sale of
the shares by the Selling Shareholders.
The names and addresses of the Selling Shareholders are:
Shares Which
may be Ac Shares to
Share Shares quired Upon be Sold in
OwnerPresently Exercise of This
ship
After
Name and Address Owned Warrants (1) Offering (2)
Offering
Laura Huberfeld 74,657 86,586 161,243
- -
250 Longwood Crossing
Lawrence, NY 11559
Naomi Bodner 1,333 86,586
87,919
- -
16 Grosser Lane
Monsey, NY 10952
Delton Trading SA - 173,174
173,174
- -
15 Market Square
Belize City, Belize
Mueller Trading, Limited 162,080
118,174
280,254 120 Madison Avenue
Lakewood, NJ
Rita Folger -
5,480
5,480
- -
c/o Oscar Folger
521 Fifth Avenue,
24th Floor
New York, NY 10175
238,070 470,000 708,070
(1) Represents shares issuable upon the exercise of Warrants included
as part of the Units sold in the June and September 1995 Private
Offerings.
(2) Assumes all shares owned, or which may be acquired, by the Selling
Shareholders, are sold to the public by means of this Prospectus.
Manner of Sale. The shares of Common Stock owned, or which
may be
acquired, by the Selling Shareholders may be offered and sold by means
of this Prospectus from time to time as market conditions permit in the
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. Such brokers and dealers and any other participating
brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales.
Sales Agent. In connection with the Company's June and
September Private Offerings, Neidiger/Tucker/Bruner, Inc., the Sales
Agent for these offerings, received a commission of $230,000, a non-
accountable expense allowance of $69,000 and warrants to purchase (i)
57,500 shares of the Company's Common Stock at $2.00 per share, (ii)
57,500 shares at $2.40 per share, and (ii) an additional 115,000 shares
at $3.25 per share. To the extent the actual expenses of the Sales
Agent were less than the non accountable expense allowance, the
difference may constitute additional compensation to the Sales Agent.
The Company also agreed to pay the Sales Agent a fee of 5% of
the aggregate exercise price of the Warrants sold to the Selling
Shareholders and exercised by them after the expiration of one year
from the date of this Prospectus (plus a non-accountable expense
allowance equal to 2% of the aggregate exercise price), if (i) the
market price of the Company's Common Stock on the date of exercise is
greater than the exercise price of the Warrants, (ii) the purchaser has
indicated in writing that the exercise of the Warrants was solicited by
the Sales Agent and has determined that the Selling Agent receive the
commission relating to the exercise of the warrants, (iii) the Warrants
exercised are not held in discretionary accounts, (iv) disclosure of
compensation arrangements has been made both at the time of this
offering and at the time of exercise, and (v) the solicitation of the
exercise of the Warrant is not in violation of Rule l0b6 under the
Securities Exchange Act of l934. Accordingly, it will be a condition to
the receipt by the Sales Agent of such fee that it shall not, in the
two or nine business days (depending upon the market price of the
Company's Common Stock) immediately preceding the solicitation of the
exercise or the date of such exercise, have bid for or purchased the
Common Stock of the Company (or any securities of the Company
convertible into, exercisable for the purchase of, or exchangeable for,
such Common Stock) or otherwise have engaged in any activity that would
be prohibited by Rule 10b6 by one engaged in a distribution of the
Company's securities. As a result, the Sales Agent may be unable to
provide a market for the Company's securities, should it desire to do
so, during certain periods while the Warrants are exercisable.
The Company and the Sales Agent have agreed to indemnify each
other against certain liabilities including liabilities under the
Securities Act, and if such indemnification is unavailable or
insufficient, the Company and the Sales Agent have agreed to damage
contribution arrangements based upon relative benefits received from
this offering and relative fault resulting in such damages.
The Sales Agent is presently a market-maker in the Company's
securities.
The Sales Agent's Warrants expire between July and September,
2000. The Sales Agent's Warrants contain provisions for
adjustment of the
exercise price to prevent dilution upon the occurrence of certain
events. The Sales Agent's Warrants will be non-transferable for a
period of one year from the date of this Prospectus except to officers
of the Sales Agent, other underwriters, selected dealers, or their
respective officers or partners. The holders of the Sales Agent's
Warrants will have no voting, dividend or other rights of shareholders
of the Company until such time as the Sales Agent's Warrants are
exercised. Any gain from the sale of the Representative's Warrants or
the securities issuable upon exercise thereof may be deemed to be
additional underwriting compensation.
At the request of a majority of the holders of the Sales
Agent's
Warrants and/or underlying securities during the four year period
commencing one year after the date of this Prospectus, the Company has
agreed to file, at its expense and on one occasion, and to use its best
efforts to cause to become effective, a new registration statement or
prospectus required to permit the public sale of the securities
underlying the Sales Agent's Warrants. In addition, if at any time
during the four year period commencing one year after the date of this
Prospectus, the Company registers any of its securities or exempts such
securities from registration under the provisions of Regulation A or
any equivalent thereto, the holders of the Sales Agent's Warrants will
have the right, subject to certain conditions, to include in such
registration statement at the Company's expense, all or any part of the
securities underlying the Sales Agent's Warrants.
A new registration statement will be required to be filed and
declared effective before distribution to the public of the securities
underlying the Sales Agent's Warrants. The Company will be responsible
for the cost of preparing such a registration statement.
For the life of the Sales Agent's Warrants, the holders are
given the opportunity to profit from a rise in the market price of the
Company's securities, with a resultant dilution in the interest of
existing shareholders. In addition, the terms on which the Company
could obtain additional capital may be adversely affected, and the
Sales Agent's Warrants may be exercised at a time when the Company
would, in all likelihood, be able to obtain any needed capital by a new
offering of securities on terms more favorable than those provided for
by the Sales Agent's Warrants. The Sales Agent and its transferees may
be deemed to be "underwriters" under the Securities Act with respect to
the sale of Units, Common Shares and Warrants
to be received upon exercise of the Warrants, and any profit realized
upon such sale may be deemed to be additional compensation.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 100,000,000 shares of
Common Stock, (the "Common Stock"). Holders of Common Stock are each
entitled to cast one vote for each share held of record on all matters
presented to shareholders. Cumulative voting is not allowed; hence,
the holders of a majority of the outstanding Common Stock can elect all
directors. Holders of Common Stock are entitled to receive such
dividends as
may be declared by the Board of Directors out of funds legally
available therefor and, in the event of liquidation, to share pro rata
in any distribution of the Company's assets after payment of
liabilities. The
board is not obligated to declare a dividend. It is not anticipated
that dividends will be paid in the foreseeable future.
Holders of Common Stock do not have preemptive rights to
subscribe to additional shares if issued by the Company. There are no
conversion, redemption, sinking fund or similar provisions regarding
the Common Stock. All of the outstanding shares of Common Stock are
fully paid and nonassessable and all of the shares of Common Stock
offered as a component of the Units will be, upon issuance, fully paid
and nonassessable.
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.
Publicly Traded Warrants
In connection with the Company's February, 1992 public
offering, the Company issued 5,175,000 Warrants. Every ten Warrants
entitle the holder to purchase one share of the Company's Common Stock
at a price of $46.50 per share prior to February 7, 1997. The Company,
upon 30-days notice, may accelerate the expiration date of the
Warrants, provided, however, that at the time the Company gives such
notice of acceleration (1) the Company has in effect a current
registration statement covering the shares of Common Stock issuable
upon the exercise of the Warrants and (2) at any time during the 30 day
period preceding such notice, the average closing bid price of the
Company's Common Stock has been at least 20% higher than the warrant
exercise price for 15 consecutive trading days. If the expiration date
is accelerated, all Warrants not exercised within the 30-day period
will expire.
Other provisions of the Warrants are set forth below. This
information is subject to the provisions of the Warrant Certificate
representing the Warrants.
1. Holders of the Warrants may sell the Warrants rather than
exercise them. However, there can be no assurance that a market will
develop or continue as to the Warrants.
2. Unless exercised within the time provided for exercise,
the Warrants will automatically expire.
3. The exercise price of the Warrants may not be increased
during the term of the Warrants, but the exercise price may be
decreased at the discretion of the Company's Board of Directors by
giving each Warrant holder notice of such decrease. The exercise
period for the Warrants may be extended by the Company's Board of
Directors giving notice of such extension
to each Warrant holder of record.
4. There is no minimum number of shares which must be
purchased upon exercise of the Warrants.
5. The holders of the Warrants in certain instances are
protected against dilution of their interests represented by the
underlying shares of Common Stock upon the occurrence of stock
dividends, stock splits, reclassifications, and mergers.
6. The holders of the Warrants have no voting power and are
not entitled to dividends. In the event of a liquidation, dissolution,
or winding up of the Company, holders of the Warrants will not be
entitled to participate in the distribution of the Company's assets.
Convertible Notes
In March 1996 the Company sold $l,250,000 of Convertible Notes
("Notes") to two persons. The Notes are convertible from time to time
in whole or in part, into shares of the Company's Common Stock. The
conversion price is the lesser of (i) $5 per share or (ii) 80% of the
average closing bid price of the Company's Common Stock during the five
trading days immediately preceding the date of such conversion.
Notwithstanding the above, the conversion price may not be less than
$2.40 per share. The Notes are payable on December 1, 1996 and accrue
interest at 10% per annum. The Company has agreed to make appropriate
filings with the Securities and Exchange Commission such that the
shares issuable upon the conversion of the Notes will be available for
public sale. See "Risk Factors".
Transfer Agent
American Securities Transfer, Inc., of Denver, Colorado, is
the transfer agent for the Company's Common Stock.
LITIGATION
In February 1996 the Company filed a lawsuit against ImmunoRx
and Dr. John Hadden for contract breach, tortious interference of
contract and patent infringement concerning the Company's Multikine
drug.
The lawsuit, filed in the U.S. Distrit Court for the Middle District of
Florida, seeks damages and the termination of certain research and
clinical studies being conducted by ImmunoRx and Dr. Hadden. From 1984
to 1992, Dr. Hadden consulted with the Company, performed research on
Multikine and manufactured Multikine for the Company's head and neck
cancer study in Florida. In early
1993, Dr. Hadden signed a separation agreement with the Company
acknowledging the Company's ownership of both Multikine and the
research results. The Company has learned that Dr. Hadden and ImmunoRx
are apparently making copies of Multikine, in contravention of the
separation agreement and the patents covering Multikine, and have begun
clinical studies in a foreign country using a copy of Multikine. See
"Business Compounds and Processes Licensed to the Company".
EXPERTS
The financial statements as of September 30, 1995 and 1994 and
for each of the three years in the period ended September 30, 1995
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and
are so included in reliance upon the report of such firm given upon
their authority as
experts in accounting and auditing.
INDEMNIFICATION
The Company's Bylaws authorize indemnification of a director,
officer, employee or agent of the Company against expenses incurred by
him in connection with any action, suit, or proceeding to which he is
named a party by reason of his having acted or served in such capacity,
except for liabilities arising from his own misconduct or negligence in
performance of his duty. In addition, even a director, officer,
employee, or agent of the Company who was found liable for misconduct
or negligence in the performance
of his duty may obtain such indemnification if, in view of all the
circumstances in the case, a court of competent jurisdiction determines
such person is fairly and reasonably entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange
Commission, 450 5th Street, N.W., Washington, D.C. 20001, a
Registration Statement under the Securities Act of l933, as amended,
with respect to the securities offered hereby. This Prospectus does
not contain all of the information set forth in the Registration
Statement. For further information with respect to the Company and
such securities, reference is made to the Registration Statement and to
the Exhibits filed therewith. Statements contained in this Prospectus
as to the contents of any contract or other documents are summaries
which are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an Exhibit
to the Registration Statement, each such statement being qualified in
all respects by such
reference. Copies of each document may be inspected at the
Commission's offices at 450 Fifth Street, N.W., Washington, D.C.,
20549, and at the Northeast Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048 and the Midwest Regional Office, Suite
1400, 500 West Madison Street, Chicago, Illinois 60681-2511. Copies
may be obtained at the Washington, D.C. office upon payment of the
charges prescribed by the Commission.
2152D
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 .........................................
708,070 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 $3,272
NASD Filing Fee 1,294
Blue Sky Fees and Expenses
1,000 Printing and Engraving Expenses
1,000 Legal Fees and Expenses
25,000 Accounting Fees and Expenses 5,000 Transfer
Agent Fees
100 Miscellaneous Expenses
9,334
TOTAL
50,000
All expenses other than the S.E.C. and NASD filing fees
are
estimated. Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all securities of
the Company which have been sold during the past three years and
which securities were not registered under the Securities Act of
1933, as amended.
Shares of
Common Date of
Security Holder Stock Sold Sale
Consideration
Daryl Strahl 2,431 11/1/93
8,038(1)
Isadore Klausner 25,000 11/1/93
(2)
Private Investors 575,000 6/22/95
$1,150,000
Private Investors 575,000 9/30/95
$1,150,000
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
State
Warrant ment.
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
S1, Registration Nos. 2-85547-D
and 33-7531.
II-2
(c) Amended Articles Filed with initial Registration
State-
(Name change only) ment (No. 33-34878).
(d) Bylaws Incorporated by reference to
Exhibit
3(b) of the Company's
Registration Statement on Form
S1, Registration Nos. 2-85547-D
and 33-7531.
4(a) Specimen copy of Incorporated by reference to
Exhibit
Stock Certificate 4(a) of the Company's
Registration
Statement on Form S-1,
Registration Nos. 2-85547-D and
33-7531.
(c) Form of Common Stock Incorporated by reference to
Exhibit
Purchase Warrant 4(c) filed as an exhibit to the
Com
pany's Registration Statement
on Form S-1 (Registration No.
33 43281).
5. Opinion of Counsel Filed with Amendment No. 1 to
Registra-
tion Statement.
10(a) Purchase Agreement Incorporated by reference to
Exhibit
dated April 21, 1986 10(a) of the Company's
Registration
with Alpha I Biomedical Statement on Form S-1,
Registration
Nos. 2-85547-D and 33-7531.
(b) Agreement with Sittona Incorporated by reference to
Exhibit
Company B.V. dated 10(c) of the Company's
Registration
May 3, 1983 Statement on Form S-1,
Registration
Nos. 2-85547-D and 33-7531.
(c) Addendum effective May 3, Incorporated by reference to
Exhibit
1983 to Licensing Agree- 10(e) of the Company's
Registration
ment with Sittona Company, Statement on Form S-1,
Registration
B.V. Nos. 2-85547-D and 33-7531.
(d) Addendum effective October Incorporated by reference to
Exhibit 13, 1989 to Licensing Agree 10(d) of Company's Annual
Report on ment
with Sittona Company, Form 10-K for the year ended
September
B.V. 30, 1989.
10(e) Employment Agreement with Filed with Amendment Number 1 to
the
Geert Kersten Company's Registration Statement
on
Form S-1 (Commission File Number
3343281).
10(g) Agreement between Viral Filed with Amendment Number 2 to
the
Technologies, Inc. and Company's Registration Statement
on
Nippon Zeon Co., Ltd. Form S-1 (Commission File Number
33-
90230).
23(a) Consent of Hart & Trinen Filed with Amendment No. 1 to
Registra
tion Statement.
II-3
(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.
II-4
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 25th day of April, 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 April
25,
1996
MAXIMILIAN DE CLARA Executive Officer
/s/ Geert R. Kersten Director, Principal April
25,
1996
GEERT R. KERSTEN Financial Officer
and Chief Executive
Officer
/s/ Mark V. Soresi Director April 25,
1996
MARK V. SORESI
/s/ F. Donald Hudson Director April 25,
1996
F. DONALD HUDSON
/s/ Edwin A. Shalloway Director April 25,
1996
EDWIN A. SHALLOWAY