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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2000.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 0-11503
CEL-SCI CORPORATION
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(Exact name of registrant as specified in its charter)
COLORADO 84-0916344
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8229 Boone Blvd., Suite 802
Vienna, Virginia 22182
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 506-9460
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
--
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on
December 22, 2000, as quoted on the American Stock Exchange, was approximately
$21,000,000. Shares of Common Stock held by each officer, director and principal
shareholder have been excluded in that such persons may be deemed to be
affiliates of the Registrant.
Documents Incorporated by Reference: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 22, 2000, the Registrant had 20,459,700 issued and
outstanding shares of Common Stock.
PART I
ITEM 1. BUSINESS
CEL-SCI Corporation (the "Company") was formed as a Colorado corporation in
1983. The Company is involved in the research and development of the drugs and
vaccines described below.
MULTIKINE
The Company's first, and main, product, MULTIKINE(TM), manufactured using
the Company's proprietary cell culture technologies, is a combination, or
"cocktail", of natural human interleukin-2 ("IL-2") and certain lymphokines and
cytokines. MULTIKINE is being tested to determine if it is effective in
improving the immune response of cancer patients.
MULTIKINE has been tested in over 140 patients in the past few years in
clinical trials conducted in the U.S., Canada, Europe and Israel. Most of these
patients were head and neck cancer patients, but some studies were also
conducted in prostate cancer patients and HIV-infected patients. The safety
profile was found to be very good and the Company believes that the tumor
response data suggest that further studies are warranted.
The Company's primary focus for the development of MULTIKINE is to prove
its usefulness in the treatment of head and neck cancer, which constitutes about
6% of all cancer worldwide. The Company is currently conducting three additional
head and neck cancer studies to determine the best regimen for treating the
patients.
With a secondary focus, the Company is also conducting studies with
MULTIKINE in prostate cancer patients and is planning to start a cervical cancer
study by the first quarter of 2001. Although the Company has the approval to
start a 20 patient breast cancer study in Israel, given the current problems in
that region, the Company may not pursue this study at the present time.
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 combated effectively and recovery follows. Severe infection can occur
when the immune response is inadequate. Such immune deficiency can be present
from birth but, in adult life, it is frequently acquired as a result of intense
sickness or as a result of the administration of chemotherapeutic drugs and/or
radiation. It is also recognized that, as people reach middle age and
thereafter, the immune system grows weaker.
Two classes of white blood cells, macrophages and lymphocytes, are
believed to be primarily responsible for immunity. Macrophages are large cells
whose principal immune activity is to digest and destroy infectious agents.
Lymphocytes are divided into two sub-classes. One sub-class of lymphocytes,
B-cells, produces antibodies in response to antigens. Antibodies have
unique combining sites (specificities) that recognize the shape of particular
antigens and bind with them. The combination of an antibody with an antigen sets
in motion a chain of events which may neutralize the effects of the foreign
substance. The other sub-class of lymphocytes, T-cells, regulates immune
responses. T-cells, for example, amplify or suppress antibody formation by
B-cells, and can also directly destroy "foreign" cells by activating "killer
cells."
It is generally recognized that the interplay among T-cells, B-cells and
the macrophages determines the strength and breadth of the body's response to
infection. It is believed that the activities of T-cells, B-cells and
macrophages are controlled, to a large extent, by a specific group of hormones
called cytokines. Cytokines regulate and modify the various functions of both
T-cells and B-cells. There are many cytokines, each of which is thought to have
distinctive chemical and functional properties. IL-2 is but one of these
cytokines and it is on IL-2 and its synergy with other cytokines 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
cytokines support T-cell and B-cell proliferation. However, IL-2 is the only
known 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 cytokines 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 cytokines, i.e. as a "cocktail". This approach, which was
pioneered by the Company, makes use of the synergism between these cytokines. 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 cytokine 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 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.
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.
In 1991, 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 occurred 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.
These results caused the Company to embark on a major manufacturing
program for MULTIKINE with the goal of being able to produce a drug that would
meet the stringent regulatory requirements for advanced human studies. This
program included building a pilot scale manufacturing facility.
Since that time, MULTIKINE has been well tolerated in clinical studies
involving more than 140 patients. Some of the more recent clinical data were
presented at the 5th International Congress on Head and Neck Cancer in San
Francisco in August, 2000. The study enrolled advanced primary head and neck
cancer patients who were treated prior to surgery and/or radiation for 2 weeks.
Dr. Dudkevitch from the Department of Otolaryngology at the Rabin Medical
Center, Israel, presented data showing that, of the 12 patients treated, two
patients had a complete tumor response (100% tumor reduction) following the
2-week treatment with the MULTIKINE regimen. He also noted that upon
histopathological examination of the tissue removed during surgery, no tumor
residues were found in those patients. Another 4 patients showed a partial
(greater than 50%) tumor reduction and six patients had tumor reductions of less
than 50%. Two patients refused surgery after treatment with MULTIKINE.
The researcher also reported that several of the patients had increased
tongue mobility and/or reduction or elimination of local pain. These are
considered to be important indicators for the patient's quality of life. There
were no tumor progressions or adverse local changes, nor was there evidence of
toxicity from MULTIKINE. Both recovery after operation and wound healing were
normal.
A substantial part of the oral presentation was spent on a discussion of
the pathology findings. The researchers reported that from biopsy samples of 10
patients analyzed before and after treatment, an increase in the degree of
lymphocytic infiltration was noted in 5 patients. Of special interest was the
new post-treatment appearance of multinucleated histiocytes in 5 patients with
significant tumor reductions. The multinucleated histiocytes were detected in
two specific locations, namely around the keratin debris and in the tumor-stroma
interface, and they appear to be actively engulfing the tumor cells.
Promising results were also seen in other clinical studies, most of which
tested different dosages and routes of administration, although tumor reductions
were not as significant as those noted in the Israeli study. The focus of three
new studies involving an additional 60 patients is to define the best treatment
regimen for Multikine.
The Company also plans to start a Phase I clinical trial with Edmund
Tramont, M.D., of the University of Maryland Biotechnology Institute's (UMBI) in
the first quarter of 2001 in HIV and HPV (Human Papilloma Virus) co-infected
women with cervical cancer. The goal of the study is to obtain safety and
preliminary efficacy data on Multikine as a treatment for pre-cancerous lesions
of the cervix (dysplasia) and human cancer/neoplasia. Most cervical dysplasia
and cancer is due to infection with HPV. The rationale for using MULTIKINE in
the treatment of cervical cancer is that MULTIKINE will help correct this defect
and safely boost the patients'
immune systems to a point where their immune systems can fight and eliminate the
virally induced cancer.
Similar efforts are underway in prostate and breast cancer. However, due
to the size of the Company's clinical department, the Company has been unable to
move aggressively in these areas.
In November 2000, the Company concluded a development, supply and
distribution agreement with Orient Europharma of Taiwan. The agreement gives
Orient Europharma the exclusive marketing rights to Multikine for all cancer
indications in Taiwan, Singapore, Hong Kong and Malaysia. The agreement provides
for Orient Europharma to fund the clinical trials needed to obtain marketing
approvals in the four countries for head and neck cancer, nasal pharyngeal
cancer and potentially cervical cancer, which are very prevalent in Far East
Asia. The Company may use the clinical data generated in these trials to support
applications for marketing approvals for Multikine in other parts of the world.
Under the agreement, the Company will manufacture Multikine and Orient
Europharma will purchase the product from the Company for distribution in the
territory. Both parties will share in the revenue from the sale of Multikine.
Head and neck cancer is the sixth most frequently occurring cancer
worldwide, with an incidence of 500,000 annually. Recent statistics show no
reduction in head and neck cancer mortality, but rather a dramatic increase of
the disease in certain segments of the population. This cancer is most
frequently found in men in their 50's or early 60's with a history of smoking
and alcohol consumption. Conventional treatment calls for either surgery, which
can be extremely disfiguring, or radiation and chemotherapy, both of which are
associated with very unpleasant side-effects.
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.
The Company uses an unrelated corporation for certain aspects of the
production of MULTIKINE for research and testing purposes. The agreement with
this corporation expires in 2006.
T-CELL MODULATION PROCESS
In January 1997, the Company acquired a new patented T-cell Modulation
Process which uses "heteroconjugates" to direct the body to choose a specific
immune response. The
heteroconjugate technology, referred to as L.E.A.P.S. (Ligand Epitope Antigen
Presentation System), is intended to selectively stimulate the human immune
system to more effectively fight bacterial, viral and parasitic infections and
cancer, when it cannot do so on its own. Administered like vaccines, L.E.A.P.S.
combines T-cell binding ligands with small, disease associated, peptide antigens
and may provide a new method to treat and prevent certain diseases.
The ability to generate a specific immune response is important because
many diseases are often not combated 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 technology to develop potential treatments
and/or vaccines against various diseases. Present target diseases are herpes
simplex, AIDS, prostate cancer and breast cancer.
In August 1996, the Company signed a Cooperative Research and Development
Agreement ("CRADA") with the Naval Medical Research Institute of the U.S. Navy
to jointly develop a potential malaria vaccine using the Company's L.E.A.P.S.
technology. This agreement was extended in 1998 and again in 2000. Malaria
affects about 300-500 million people per year and is responsible for about 2.7
million deaths annually. It is a parasitic disease transmitted by mosquitoes. As
with tuberculosis, the emergence of drug resistant strains is a major problem,
as is the emergence of mosquitoes which are resistant to traditional
insecticides. While at present the number of malaria cases is not a major
problem in the continental U.S., there are an increasing number of cases
involving Americans bringing the disease home from overseas travels. Currently,
there is no approved malaria vaccine anywhere in the world.
The large majority of the malaria studies were conducted in outbred CD-1
mice, which may be more representative of a human population than inbred mice.
Protection against rodent malaria in those experiments was observed in 62-70% of
the vaccinated animals compared to protection levels between 0-30% observed in
the control groups.
The L.E.A.P.S. construct used in this study was a combination of a peptide
representing a mouse malaria epitope linked to another peptide, called the
T-cell binding ligand, which was designed to specifically stimulate the immune
system. Each of these two peptides was given individually as a control. In all
experiments, the level of protection achieved after immunization with the
L.E.A.P.S. construct was significantly higher than when the two peptides were
given individually.
The studies showed that the protective immune responses required the
presence of T- cells having a marker called CD4, typically found on helper T-
cells, as well as the presence of gamma Interferon, which suggests that a
cellular immune response may be involved in protection.
In October 1996, the Company and Northeastern Ohio University College of
Medicine signed a Collaborative Research Agreement to jointly identify and
evaluate Herpes Simplex Virus related peptides. This study made use of the
Company's LEAPS technology which combines T-cell binding ligands with small,
disease associated, peptide antigens. In the past, some vaccines
have worked simply by vaccination with viral proteins (e.g. hepatitis B) to
immunize patients. In the case of herpes simplex, that strategy has yet to be
proven successful. The purpose of adding the T-cell binding ligand was to
increase the effectiveness of the vaccine by directing the immune response to
react in the way most likely to eliminate or control the disease agent. To test
this hypothesis in herpes simplex, the researchers administered the vaccine with
a T-cell binding ligand to one group of mice in order to direct the immune
response to the cellular side, which is thought to be protective. The
researchers also administered the vaccine to a separate group of mice using a
different T-cell binding ligand to direct the immune response to the humoral
(antibody) side, which is thought to be non-protective. For both vaccines, the
herpes simplex peptide was kept the same. The results of the study indicated
that the immunizations allowed the mice to resolve the infection quicker and
more effectively resulting in minimal symptoms and mortality. The vaccine
inducing a cellular immune response was protective while the vaccine inducing a
humoral (antibody) immune response was not protective and actually accelerated
disease progression. Two studies with different herpes simplex peptides also
showed protection, confirming the results from the prior study. Research
conducted pursuant to this study may lead to the future development of a herpes
simplex vaccine.
In May 1998, the Company announced the receipt of a Phase I $100,000
research grant to fund further animal studies with its herpes simplex vaccine.
This grant was given pursuant to the Small Business Innovation Research Program
of the National Institute of Allergy and Infectious Diseases.
In October 2000, the Company received approval for funding of a Phase II
grant from the National Institute of Allergy and Infectious Diseases. This grant
was awarded following the successful completion of studies, funded by the Phase
I grant, which showed increased protection from death in an animal challenge
model of herpes simplex. The Phase II grant, worth about $764,000 over two
years, will support the further development of a herpes simplex virus vaccine
based on the Company's L.E.A.P.S. technology.
Conservative estimates of those individuals who have genital infections
are 30-40 million in the U.S. Oral herpetic infections are of a greater
frequency. In newborns or in immunosuppressed patients (e.g. AIDS), herpes can
lead to serious illness and death. Vaccination against herpes simplex virus may
prevent or treat herpes simplex infection. Unlike most other viruses, once
infected, a herpes virus remains in hiding within an individual and is
reactivated often by stress-inducing factors. For some individuals, recurrences
may take place on a monthly basis. Although there are antiviral drugs which are
used to prevent serious disease and lessen the symptoms, there is currently no
method to effectively prevent initial infection, to eliminate the virus from an
infected person, or to prevent recurrences.
Scientists at Northeastern Ohio University College of Medicine have been
working on methods of treating and detecting the herpes virus for over fifteen
years.
In November 1999, the Company announced a collaborative study for the
treatment, and possible prevention, of autoimmune myorcarditis with researchers
at the Department of Pathology, the Johns Hopkins Medical Institutions,
Baltimore, Maryland.
Myocarditis, an autoimmune disease affecting the heart muscle, is thought
to be caused by an attack on the patient's heart muscle by his/her own immune
cells and antibodies. Myocarditis is a precursor to dilated cardiomyopathy,
which is an end stage cardiac disease usually requiring a heart transplant. The
incidence of dilated cardiomyopathy is about 200,000 people in the United States
alone. The current treatments are not curative.
The study will use L.E.A.P.S.(TM) technology, as well as a technology
recently developed at the Company and called AdapT (Antigen Directed Apoptosis).
The AdapT technology is designed to lead to the removal, in an antigen specific
(highly targeted) manner, of only those immune system cells that cause the
disease, thereby leaving the remainder of the immune response intact and
subsequently able to defend against other diseases.
The goal of the first phase of this animal study is to establish the
animal model of autoimmune myocarditis, using the L.E.A.P.S technology. In the
second phase, AdapT and L.E.A.P.S. derived peptides may be used, in the case of
the L.E.AP.S., to divert immune responses away from the disease-causing immune
system cells or, in the case of AdapT, to remove the disease-causing immune
system cells.
If the L.E.A.P.S. or AdapT technologies are shown to work in the animal
model for myocarditis, additional studies may be started to test this new
approach for the treatment of other autoimmune diseases as well.
In November 1999, the Company also announced that it has entered into a
research collaboration agreement with research scientists at the Max-Delbruck
Center for Molecular Medicine in Berlin, Germany. The goal of the collaboration
is to develop a therapeutic vaccine for breast and/or colon cancer.
The collaboration will make use of the L.E.A.P.S. technology, in
combination with the specialized cancer antigen and animal testing model
knowledge of the team in Berlin. The work is being conducted under the umbrella
of the Biological Therapeutic Development Group of the European Office for
Research and Treatment of Cancer.
The L.E.A.P.S. technology was acquired from Cell-Med, Incorporated
("CELL-MED") in consideration for the Company's payment of $56,000 plus the
issuance, during 1997, of 33,378 shares of the Company's common stock. The
Company must pay CELL-MED additional payments of up to $600,000, depending upon
the Company's ability to obtain regulatory approval for clinical studies using
the technology. In addition, should the Company receive FDA approval for the
sale of any product incorporating the technology, the Company is obligated to
pay CELL-MED an advance royalty of $500,000, a royalty of 5% of the sales price
of any product using the technology, plus 15% of any amounts the Company
receives as a result of sublicensing the technology. So long as the Company
retains rights in the technology, the Company has also agreed to pay the future
costs associated with pursuing and/or maintaining CELL-MED's patents and patent
applications relating to the technology. The technology obtained from CELL-MED
is covered by several U.S. and European patents. Additional patent applications
are pending.
AIDS VACCINE
The Company is involved in the development of a preventive vaccine against
HIV infection. This vaccine has completed Phase II human clinical trials in the
Netherlands. The vaccine, which is derived from the Company's HGP-30 technology,
is primarily directed against HIV subtype C, the most prevalent HIV subtype in
Africa and other third world countries. Currently the Company is no longer
pursuing further development of an AIDS vaccine because of the political
position of certain African governments towards an AIDS vaccine.
HGP-30 is a thirty amino acid region of the p17 core protein of HIV. The
Company has decided to produce HGP-30 as a synthetic peptide because peptides
are inexpensive to manufacture and cannot infect a person with HIV. The Company
holds proprietary rights to certain synthesized components of the p17 core
protein.
The HGP-30 vaccine differs from most other vaccine 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. HGP-30 may also be effective in treating persons infected with the
AIDS virus.
The preventive HIV vaccine, HGP-30, was tested in London, England in
eighteen healthy HIV-negative volunteers at three different dosages.
Subsequently it was tested in twenty-one HIV-negative volunteers in San
Francisco and Los Angeles at four different dosages. Both tests showed the
vaccine to be safe and able to elicit cellular immune responses and antibody
responses in the majority of the volunteers.
In April 1995, eleven of the original twenty-one California volunteers
began another clinical trial. The volunteers received two booster vaccinations.
The volunteers, who had originally received the two lowest dosage levels, were
asked to donate blood for a SCID mouse HIV challenge study. The SCID mouse is
considered by many to be the best available animal model for HIV because it
lacks its own immune system and therefore permits human cell growth. White blood
cells from the five (5) vaccinated volunteers and from normal donors were
injected into groups of SCID mice. They were then challenged with high levels of
a different strain of the HIV virus than the one from which HGP-30 is derived.
Infection by virus was determined and confirmed by two different assays, p24
antigen, a component of the virus core, and reverse transcriptase activity, an
enzyme critical to HIV replication. Of the SCID mice given blood from vaccinated
volunteers, 78% showed no HIV infection after virus challenge as compared to 13%
of the mice given blood from unvaccinated donors.
In a study published in the September 1998 issue of AIDS Research and
Human Retroviruses, the Company revealed that the improved version (HPG-30W) of
the Company's HIV vaccine shows greater recognition of the most prevalent
subtypes of the virus, covering over 90% of the world's AIDS cases. In addition,
the article also provides additional evidence that the improved vaccine induces
a stronger cellular immune response, which many scientists believe to be very
important in fighting HIV infection.
In the AIDS Research and Human Retroviruses paper, Dr. Prem Sarin, the
Company's former Senior Vice President of Research, Infectious Diseases,
reported that the evaluation of blood obtained from mice immunized with HGP-30
AIDS vaccine, in the presence of the adjuvant alum, a material needed to
stimulate immune response to vaccines, showed recognition of the corresponding
regions of the HIV subtypes A, B, C and E. However, if alum was replaced with
newer adjuvants, the recognition of some HIV subtypes was improved and the
levels of antibody isotypes used as surrogate markers for cellular immune
response were increased 2 to 4 fold.
One major problem facing researchers involved in developing a vaccine
against HIV is the virus' substantial variability and continued mutation among
the different subtypes found around the world. Subtype A is found in Africa
whereas the B subtype is the dominant strain in the U.S. and Europe. Subtype C
is dominant in parts of Africa and Asia. Subtype E is primarily found in
Thailand.
In September 1997, the Company also completed a Phase I safety study of
the HGP-30 preventive AIDS vaccine in 24 HIV-infected patients. The study showed
that immunizations with this vaccine were safe in AIDS patients.
In June 1998, the Institute for Clinical Pharmacology, Pharma BioResearch,
Netherlands, started inoculating the first volunteers with the Company's HGP-30W
AIDS vaccine in the European Phase II AIDS vaccine study. In the trial, 29
healthy, HIV-negative volunteers received one of the three different dosages of
the vaccine. Preliminary results suggest that the vaccine is safe and induces
both cellular (i.e., T-cell) and humoral (i.e., antibody) immune responses.
Following the completion of the current Phase II study involving HPG-30W,
the Company will no longer commit its resources toward the further development
of this vaccine. Although the Company will attempt to continue the development
of HPG-30W by means of joint ventures or licensing arrangements with third
parties, the Company will focus its efforts on the further development of
MULTIKINE.
Although there has been important independent research showing the
possible significance of the p17 region of HIV-1, there can be no assurance that
the Company'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 the Company ultimately will be
able to develop and bring a product to market in a timely manner that would
enable it to derive commercial benefits.
In January 1991, the Company's wholly owned subsidiary, Viral
Technologies, Inc. ("VTI") was awarded a U.S. patent covering the exclusive
production, use and sale of HGP-30. In February 1993, VTI was awarded a European
patent covering HGP-30 and certain other peptides. Prior to October 1995, VTI
was 50% owned by the Company and 50% owned by Alpha 1 Biomedicals, Inc. In
October 1995, the Company acquired Alpha 1's interest in VTI in exchange for
159,170 shares of the Company's common stock.
RESEARCH AND DEVELOPMENT
Since 1983, and through September 30, 2000, approximately $32,245,000 has
been expended on Company-sponsored research and development, including
approximately $4,982,000, $4,461,000 and $3,834,000, respectively during the
years ended September 30, 2000, 1999 and 1998.
The costs associated with the clinical trials relating to the Company's
technologies, research expenditures and the Company's administrative expenses
have been funded with the public and private sales of shares of the Company's
common stock and borrowings from third parties, including affiliates of the
Company.
The Company has a Scientific Advisory Board ("SAB") comprised of
scientists distinguished in biomedical research in the field of cytokines 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 in the past conducted 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
Company-sponsored research. Members of the SAB receive $500 per month from the
Company.
The members of the Company's SAB are:
Evan M. Hersh, M.D. - Professor of Medicine, Microbiology and Immunology,
Assistant Director of Experimental Therapeutics and Translational Research,
Arizona Cancer Center, Tucson.
Michael J. Mastrangelo, M.D. - Professor of Medicine, Jefferson Medical
College, Philadelphia, Pennsylvania; and Associate Clinical Director, Jefferson
Cancer Center, Philadelphia, Pennsylvania.
Alan B. Morris, Ph.D. - Professor, Department of Biological Sciences,
University of Warwick, Coventry, U.K.
Edmond C. Tramont, M.D. - Associate Director of The Institute of Human
Virology, University of Maryland Biotechnology Institute.
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, manufacture and marketing of pharmaceutical and
biological 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
clearance to conduct clinical 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 study, 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"), a New Drug Application ("NDA") or Biologics
License Application ("BLA"), depending on the type or derivation of the product
being studied.
In addition to obtaining FDA approval for a product, a biologics
establishment license application ("ELA") may need to be filed in the case of
biological products derived from blood, or not considered to be sufficiently
well characterized, 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, quality control and quality assurance to ensure full
technical compliance.
The process of drug development and regulatory approval requires
substantial resources and many years. Approval of drugs and biologicals by
regulatory authorities of most foreign countries must also be obtained prior to
initiation of clinical studies and 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.
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 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 marketing of any Company product is, in all likelihood, many years away.
There can be no assurance that the Company will be successful in obtaining
approvals from any regulatory authority to conduct further clinical trials or to
manufacture and sell its products. The lack of regulatory approval for the
Company's products will prevent the Company from generally marketing its
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.
COMPETITION AND MARKETING
Many companies, nonprofit organizations and governmental institutions are
conducting research on cytokines. Competition in the development of therapeutic
agents incorporating cytokines is intense. Large, well-established
pharmaceutical companies are engaged in cytokine research and development and
have considerably greater resources than the Company has to develop products.
The establishment by these large companies of in-house research groups and of
joint research ventures with other entities is already occurring in these areas
and will probably become even more prevalent. In addition, licensing and other
collaborative arrangements between governmental and other nonprofit institutions
and commercial enterprises, as well as the seeking of patent protection of
inventions by nonprofit institutions and researchers, could result in strong
competition for the Company. Any new developments made by such organizations may
render the Company's licensed technology and know-how obsolete.
Several biotechnology companies are producing IL-2-like compounds. The
Company believes, however, that it is the only producer of a patented IL-2
product using a patented cell-culture technology with normal human cells. The
Company foresees that its principle competition will come from producers of
genetically-engineered IL-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 cytokines 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 or vaccines for the control of AIDS is
intense. Many of the pharmaceutical and biotechnology companies around the world
are devoting substantial sums to the research and development of technologies
useful in these areas. The Company's 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.
The Company may encounter problems, delays and additional expenses in
developing marketing plans with outside firms. In addition, the Company may
experience other limitations involving the proposed sale of its products, such
as uncertainty of third-party reimbursement. There is no assurance that the
Company can successfully market any products which they may develop or market
them at competitive prices.
Some of the clinical trials funded to date by the Company have not been
approved by the FDA, but rather have been conducted pursuant to approvals
obtained from certain states and foreign countries. Conducting clinical studies
in foreign countries is normal industry practice since these studies can often
be completed in less time and are less expensive than studies conducted in the
U.S. Conducting clinical studies in foreign countries is also beneficial since
the Company will need the approval from a foreign country prior to the time the
Company can market any of its drugs in the foreign country. However, since the
results of these clinical trials may not be accepted by the FDA, competitors
which are conducting clinical trials approved by the FDA may have an advantage
in that the products of such competitors are further advanced in the regulatory
process than those of the Company. The Company is conducting its trials in
compliance with internationally recognized standards, which by following the
Company anticipates obtaining acceptance from world regulatory bodies, including
the FDA.
ITEM 2. PROPERTIES
The Company leases office space at 8229 Boone Blvd., Suite 802, Vienna,
Virginia at a monthly rental of approximately $7,600. The Company believes this
arrangement is adequate for the conduct of its present business.
In October 2000, the Company expanded its fully-equipped laboratory
facilities by 6,200 square feet to 17,900 square feet. This space is leased by
the Company for approximately $10,450 per month. The laboratory lease expires in
2004, with extensions available until 2014.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of December 22, 2000 there were approximately 2,600 record holders of
the Company's common stock. The Company's common stock is traded on the American
Stock Exchange. Set forth below are the range of high and low quotations for the
Company's common stock for the periods indicated as reported the American Stock
Exchange. The market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions.
Quarter Ending High Low
-------------- ---- ---
12/31/98 $ 3.50 $1.50
3/31/99 $ 2.75 $1.63
6/30/99 $ 3.38 $1.81
9/30/99 $ 3.81 $1.88
12/31/99 $ 3.06 $2.18
3/31/00 $ 9.87 $2.25
6/30/00 $ 6.37 $2.75
9/30/00 $ 3.56 $2.20
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 on its
common stock and the Company does not have any current plans to pay any common
stock dividends.
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 dividend 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.
The market price of the Company's common stock, as well as the securities
of other biopharmaceutical and biotechnology companies, have historically been
highly volatile, and the market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. Factors such as fluctuations in the Company's operating
results, announcements of technological innovations or new therapeutic products
by the Company or its competitors, governmental regulation, developments in
patent or other proprietary rights, public concern as to the safety of products
developed by the Company or
other biotechnology and pharmaceutical companies, and general market conditions
may have a significant effect on the market price of the Company's Common Stock.
ITEM 6. 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.
For the Years Ended September 30,
-----------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Investment Income and
Other Revenues: $442,551 $469,518 $792,994 $438,145 $ 322,370
Expenses:
Research and
Development 4,978,714 4,461,051 3,833,854 6,011,670 3,471,477
Depreciation and
Amortization 220,994 268,210 295,331 313,547 290,829
General and
Administrative 3,721,240 3,230,982 3,106,492 2,302,386 2,882,958
Equity in loss of
joint venture -- -- -- -- 3,772
---------------------------------------------------------
Net Loss $(8,478,397)$(7,490,725)$(6,442,683)$(8,189,458)$(6,326,666)
=========== =========== ========== =========== ===========
Loss per common share
(basic and diluted) $(0.44) $(0.52) $(0.74) $(1.00) $(1.16)
Weighted average common
Shares outstanding 19,259,190 14,484,352 11,379,437 9,329,419 6,425,316
Balance Sheet Data:
- ------------------
September 30,
------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Working Capital $11,725,940 $6,152,715 $12,926,014 $4,581,247 $10,266,104
Total Assets 13,808,882 7,559,772 14,431,813 6,334,397 11,878,370
Total Liabilities 847,423 461,586 456,529 508,617 294,048
Shareholders' Equity 12,961,459 7,098,186 13,975,284 5,825,780 11,584,322
No dividends have been declared on the Company's common stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Fiscal 2000
Interest income during the year ended September 30, 2000 reflects interest
received and accrued on investments. Research and development expense in 2000 is
higher than in 1999 because the Company is running more and larger clinical
trials. General and administrative expenses have increased due to the lawsuit
brought by former directors which was settled in May of 2000.
Fiscal 1999
Interest income during the year ending September 30, 1999 reflects
interest received and accrued on investments. Interest income decreased as the
Company used the proceeds of the sale of the Series D Preferred Stock. Research
and development expense in 1999 was higher than in 1998 because the Company is
running more and larger clinical trials. General and administrative expenses
have increased due to the addition of more employees needed for the increased
activity level.
Fiscal 1998
Interest income during the year ending September 30, 1998 reflects
interest accrued on investments. Interest income increased from fiscal 1997 due
to the investment of the proceeds of the sale of the Series D Preferred Stock.
Research and development expenses in 1998 are substantially less then the prior
period since the costs of acquiring the MULTIKINE license and the L.E.A.P.S.
technology were expensed in fiscal 1997. General and administrative expenses
increased due to additional employees needed for the Company's increased
activity level and charges ($587,377) for options granted to persons other than
employees with exercise prices equal to prevailing market prices at the time of
grant.
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, 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 August 1996, the Company sold, in a private transaction, 5,000 shares
of its Series B Convertible Preferred Stock for $5,000,000 or $1,000 per share.
Prior to December 20, 1996, 1,900 Series B Preferred Shares were converted into
527,774 shares of the Company's common stock. In December 1996 the Company
repurchased 2,850 Series B Preferred Shares for $2,850,000 plus warrants which
allowed the holders to purchase up to 99,750 shares of the Company's common
stock for $4.25 per share at any time prior to December 15, 1999. The Company
raised funds required for this repurchase from the sale of its Series C
Preferred Stock. In May 1997 all remaining 250 shares of the Series B Preferred
Stock were converted into 69,444 shares of common stock. In October 1997 17,500
warrants were exercised at $4.25 per share. On December 15, 1999 the remaining
82,250 warrants expired.
In December 1996, the Company authorized the issuance of 3,500 shares of
Series C Preferred Stock with a par value of $.01 per share. Subsequent to the
establishment of the Series C Preferred Stock the Company raised $2,850,000 from
the sale of units consisting of 2,850 shares of the Company's Series C
Convertible Preferred Stock, 379,763 Series A Warrants and 379,763 Series B
Warrants. Each Series A Warrant entitled the holder to purchase one share of the
Company's common stock at a price of $4.50 per share at any time prior to March
15, 1998. Each Series B Warrant entitled the holder to purchase one share of the
Company's common stock at a price of $4.50 per share at any time prior to March
15, 1999. By June 30, 1997 all Series C Preferred Shares had been converted into
915,271 shares of the Company's common stock and all Series A Warrants and
253,175 Series B Warrants had been exercised. The remaining Series B Warrants
expired in March 1999.
In December 1997, the Company sold 10,000 shares of its Series D
Convertible Preferred Stock, 550,000 Series A Warrants and 550,000 Series B
Warrants, to ten institutional investors for $10,000,000. Each Series A Warrant
allows the holder to purchase one share of the Company's common stock for $8.62
at any time prior to December 22, 2001. Each Series B Warrant allows the holder
to purchase one share of the Company's Common Stock for $9.31 at any time prior
to December 22, 2001. The Company has filed a registration statement with the
Securities and Exchange Commission covering the sale of the common stock
issuable upon the conversion of the Series D Preferred Stock and/or the exercise
of the Series A and Series B Warrants. As of December 15, 1999 all Series D
Preferred Shares had been converted into 5,201,460 shares of the Company's
common stock. None of the Series A or Series B warrants have been exercised.
In December 1999 and January 2000, the Company sold 1,148,592 shares of
its common stock, plus warrants for the purchase of an additional 402,007 shares
of common stock to a group of private investors for $2,800,000. The warrants are
exercisable at a price of $2.925 per share at any time prior to December 8,
2002. The investors in this private offering also received warrants which allow
the investors, under certain circumstances, to acquire additional shares of the
Company's common stock at a nominal price in the event (i) the price of the
Company's common stock falls below $2.44 per share or (ii) the Company raises in
excess of $1,000,000 at a price which is below either the then prevailing market
price of the Company's common stock or $2.44 per share. As of December 31, 2000
the investors in the private offering were entitled to receive 213,834 shares of
common stock upon the exercise of the warrants.
In March 2000, the Company sold 1,026,666 shares of its common stock, plus
warrants for the purchase of an additional 413,334 shares of common stock, to
the same private investors referred to above for $7,700,000. The warrants are
exercisable at a price of $8.50 per share at any time prior to March 21, 2003.
The investors in this private offering also received warrants which allow the
investors, under certain circumstances, to acquire additional shares of the
Company's common stock at a nominal price in the event (i) the price of the
Company's common stock falls below $7.50 per share or (ii) the Company raises in
excess of $1,000,000 at a price which is below either the then prevailing market
price of the Company's common stock or $7.50 per share.
During fiscal 2001, the Company expects that it will spend approximately
$5,000,000 on research, development, and clinical trials. 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, the Company does
not have any material capital commitments.
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 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. However, there can be no assurance that such
financing will be available or be available on favorable terms.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements included with this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Officers and Directors
Name Age Position
Maximilian de Clara 70 Director and President
Geert R. Kersten, Esq. 41 Director, Chief Executive Officer, Secretary
and Treasurer
Patricia B. Prichep 49 Senior Vice President of Operations
M. Douglas Winship 51 Senior Vice President of Regulatory Affairs
and Quality Assurance
Dr. Eyal Talor 44 Senior Vice President of Research and
Manufacturing
Dr. Daniel H. Zimmerman 59 Senior Vice President of Research, Cellular
Immunology
Michael Luecke 58 Senior Vice President of Business Development
Alexander G. Esterhazy 56 Director
John M. Jacquemin 53 Director
F. Donald Hudson 67 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 Senior 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 Senior 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).
Eyal Talor, Ph.D. has been the Company's Senior 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 (1991-1993) and
Clinical Laboratory (1992-1993). During 1992 and 1993, Dr. Talor was also the
Regulatory Affairs and Safety Officer For SRA. Since 1987, Dr. Talor has held
various positions with the John Hopkins University, including course coordinator
for the School of Continuing Studies (1989-Present), research associate and
lecturer in the Department of Immunology and Infectious Diseases (1987-1991),
and associate professor (1991-Present).
Daniel H. Zimmerman, Ph.D. has been the Company's Senior 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.
Michael Luecke joined the Company as Senior Vice President of Business
Development in June 1998. Mr. Luecke has over 20 years of business experience in
pharmaceutical and biotechnology companies. He has held senior-level business
development/licensing positions with Bristol-Myers, SmithKline and Ciba-Geigy,
as well as several small biopharmaceutical companies.
Alexander G. Esterhazy has been an independent financial advisor since
November 1997. Between July 1991 and October 1997 Mr. Esterhazy was a senior
partner of Corpofina S.A. Geneva, a firm engaged in mergers, acquisitions and
portfolio management. Between January 1988 and July 1991 Mr. Esterhazy was a
managing director of DG Bank in Switzerland. During this period Mr. Esterhazy
was in charge of the Geneva, Switzerland branch of the DG Bank, founded and
served as vice president of DG Finance (Paris) and was the President and Chief
Executive officer of DG-Bourse, a securities brokerage firm.
John M. Jacquemin has, since 1982, been the President of Mooring Financial
Corporation, a company specializing in the origination, purchase and
administration of commercial loan portfolios, equipment leases and real estate
mortgages. Between 1977 and 1982 Mr. Jacquemin was Vice President of CFC
Corporation, a company involved in title insurance, fire and casualty insurance,
equipment leasing and real estate development.
F. Donald Hudson has been a director of the Company since May 19, 2000. Mr.
Hudson was previously a director of the Company between May 1992 and March 1999.
Since October 1995 Mr. Hudson has been a consultant in the biotechnology field.
From December 1994 to October 1995 Mr. Hudson was President and Chief Executive
Officer of VIMRx Pharmaceuticals, Inc. (now Nexell Corp.). Mr. Hudson was
reappointed as a director on May 19, 2000 in connection with the settlement of
litigation brought by Mr. Hudson and a former director of the Company
All of the Company's officers devote substantially all of their time to the
Company's business. Messrs. Esterhazy, Jacquemin and Hudson, as directors,
devote only a minimal amount of time to the Company.
The Company has an audit committee and compensation committee. The members
of the audit committee are Geert Kersten, Alexander G. Esterhazy and John
Jacquemin. The members of the compensation committee are Maximilian de Clara,
Alexander Esterhazy and John Jacquemin.
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, 2000.
All
Other Other
Annual Restric- Com-
Compen- ted Stock Options pensa-
Name and Princi- Fiscal Salary Bonus sation Awards Granted tion
pal Position Year (1) (2) (3) (4) (5) (6)
--------------- ------ ------ ----- ------ --------- ------- ------
Maximilian
de Clara, 2000 $345,583 -- $72,945 $550,000 60,000 $64
President 1999 $335,292 -- $72,945 $435,625 145,000 $63
1998 $315,021 -- $81,709 -- 164,000 $73
Geert R. Kersten, 2000 $303,049 -- $15,349 $10,375 60,000 $4,114
Chief Executive 1999 $268,480 $15,154 $10,000 145,000 $4,113
Officer, Secretary 1998 $229,533 -- $15,180 $ 7,500 164,000 $5,310
and Treasurer
Patricia B. Prichep 2000 $114,430 -- $3,000 $6,998 23,000 $63
Senior Vice 1999 $107,936 -- $3,000 $6,476 79,500 $63
President
of Operations
M. Douglas Winship, 2000 $154,658 -- $2,400 $9,280 20,000 $64
Senior Vice 1999 $146,609 -- $2,400 $8,797 27,500 $63
President of 1998 $136,918 -- $2,400 $6,240 -- $1,060
Regulatory Affairs
and Quality Assurance
Eyal Talor, Ph.D. 2000 $150,334 -- $3,000 $9,020 50,000 $63
Senior Vice 1999 $139,085 -- $3,000 $8,345 30,000 $63
President of 1998 $130,845 -- $3,000 $5,769 27,000 $958
Research and
Manufacturing
Daniel Zimmerman, 2000 $124,165 -- $3,000 $7,450 20,000 $64
Ph.D., 1999 $114,806 -- $3,000 $6,888 45,000 $63
Senior Vice 1998 $106,360 -- $3,000 $4,882 39,000 $822
President of
Cellular Immunology
Michael Luecke, 2000 $150,000 -- -- $9,000 -- $64
Senior Vice 1999 $150,000 -- -- $8,875 -- $63
President of
Business Development
(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, plus, in the case of Maximilian de Clara and Geert Kersten,
director's fees of $8,000.
(4) During the periods covered by the table, the value of the shares of
restricted stock issued as compensation for services to the persons listed
in the table. In the case of Mr. de Clara, the shares were issued in
consideration for past services rendered to the Company. In the case of all
other persons listed in the table, the shares were issued as the Company's
contribution on behalf of the named officer to the Company's 401(k)
retirement plan.
As of September 30, 2000, 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 -- --
Geert R. Kersten 137,088 $300,223
Patricia B. Prichep 12,791 $ 28,012
M. Douglas Winship 9,116 $ 19,964
Eyal Talor, Ph.D. 10,182 $ 22,299
Daniel Zimmerman, Ph.D. 27,207 $ 59,583
Michael Luecke 8,209 $ 17,978
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.
(5) The shares of Common Stock to be received upon the exercise of all stock
options granted during the periods covered by the Table. Includes certain
options issued in connection with the Company's Salary Reduction Plans as
well as certain options purchased from the Company. See "Options Granted
During Fiscal Year Ending September 30, 2000" below.
(6) 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 life insurance
premiums.
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. Prior to January 1, 1998 the
Company's contribution was equal to the lesser of 3% of each employee's salary,
or 50% of the employee's contribution. Effective January 1, 1998 the plan was
amended such that the Company's contribution is now made in shares of the
Company's common stock as opposed to cash. Each participant's contribution is
matched by the Company with shares of common stock which have a value equal to
100% of the participant's contribution, not to exceed the lesser of $1,000 or 6%
of the participant's total compensation. The Company's contribution of common
stock is valued each quarter based upon the closing price of the Company's
common stock. The fiscal 2000 expenses for this plan were $102,559. 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 $2,000 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. See Stock Options below for additional information
concerning options granted to the Company's directors.
Employment Contracts
Effective April 12, 1999, the Company entered into a three-year employment
agreement with Mr. de Clara. The employment agreement provides that the Company
will pay Mr. de Clara
an annual salary of $363,000 during the term of the agreement. In the event that
there is a material reduction in Mr. de Clara's authority, duties or activities,
or in the event there is a change in the control of the Company, then the
agreement allows Mr. de Clara 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.
Effective August 1, 2000, the Company entered into a three-year employment
agreement with Mr. Kersten. The employment agreement provides that during the
term of the employment agreement the Company will pay Mr. Kersten an annual
salary of $336,132, subject to the minimum annual increases of 5% per year. In
the event there is a change in the control of the Company, the agreement allows
Mr. Kersten to resign from his position at the Company and receive a lump-sum
payment from the Company equal to 24 months salary. For purposes of the
employment agreement a change in the control of the Company means: (1) the
merger of the Company with another entity if after such merger the shareholders
of the Company do not own at least 50% of voting capital stock of the surviving
corporation; (2) the sale of substantially all of the assets of the Company; (3)
the acquisition by any person of more than 50% of the Company's common stock; or
(4) a change in a majority of the Company's directors which has not been
approved by the incumbent directors.
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, 2000, Mr. de Clara was the only officer participating in deliberations of
the Company's compensation committee concerning executive officer compensation.
During the year ended September 30, 2000, 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, 2000, 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, 2000
------------------------------------------------------------
Individual Grants
- --------------------------------------------------------------------------------
Potential
Realizable
Value at Assumed
% of Total Annual Rates of
Options Stock Price
Granted to Exercise Appreciation
Options Employees in Price Per Expiration for Option
Name Granted (#) Fiscal Year Share Date Term (1)
- ------ ----------- ------------ --------- ---------- -------------
5% 10%
--- ---
Maximilian
de Clara 60,000 15% $3.06 4/19/10 $115,200 $292,611
Geert R. Kersten 60,000 15% $3.06 4/19/10 $115,200 $292,611
Patricia B. Prichep 23,000 5.8% $4.00 2/02/10 $ 57,858 $146,510
Eyal Talor, Ph.D. 50,000 12.6% $2.56 11/27/09 $ 80,000 $204,000
M. Douglas Winship 20,000 5% $5.37 4/03/10 $ 67,543 $171,160
Daniel Zimmerman,
Ph.D. 20,000 5% $4.00 2/02/10 $ 50,300 $127,400
(1) 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 (in $) of
Unexercised
Number of In-the-Money
Unexercised Options at Fiscal
Shares Options (3) Year-End (4)
------------ -----------------
Acquired On Value Exercisable/ Exercisable/
Name Exercise (1) Realized (2) Unexercisable Unexercisable
- ---- ------------ ------------ ------------- -----------------
Maximilian de Clara 373,667 $1,436,548 295,000/109,999 25,916/4,333
Geert R. Kersten 50,750 $137,310 1,020,001/109,999 25,916/4,333
Patricia Prichep 23,000 $89,900 190,834/38,666 12,525/1,300
M. Douglas Winship 2,000 $4,510 82,500/30,000 3,775/1,300
Eyal Talor 91,334 $274,626 70,833/18,333 3,366/1,733
Daniel Zimmerman 24,000 $141,120 91,000/35,000 8,150/1,300
Michael Luecke 10,000 $44,425 40,000/50,000 --/--
(1) The number of shares received upon exercise of options during the fiscal
year ended September 30, 2000.
(2) With respect to options exercised during the Company's fiscal year ended
September 30, 2000, 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, 2000,
separated between those options that were exercisable and those options
that were not exercisable.
(4) For all unexercised options held as of September 30, 2000, the market value
of the stock underlying those options as of September 30, 2000.
Stock Option and Bonus Plans
The Company has Incentive Stock Option Plans, Non-Qualified Stock Option
Plans and Stock Bonus Plans. A summary description of these Plans follows. In
some cases these Plans are collectively referred to as the "Plans".
Incentive Stock Option Plan. The Incentive Stock Option Plans collectively
authorize the issuance of up to 1,600,000 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 death or permanent and total disability);
(b) The expiration of 12 months after the date on which an option
holder's employment by the Company is terminated, if such
termination is due to the Employee's permanent and total disability;
(c) In the event of an option holder's death while in the employ of the
Company, his executors or administrators may exercise, within three
months following the date of his death, the option as to any of the
shares not previously exercised;
The total fair market value of the shares of Common Stock (determined at
the time of the grant of the option) for which any employee may be granted
options which are first exercisable in any calendar year may not exceed
$100,000.
Options may not be exercised until one year following the date of grant.
Options granted to an employee then owning more than 10% of the Common Stock of
the Company may not be exercisable by its terms after five years from the date
of grant. Any other option granted pursuant to the Plan may not be exercisable
by its terms after ten years from the date of grant.
The purchase price per share of Common Stock purchasable under an option
is determined by the Committee but cannot be less than the fair market value of
the Common Stock on the date of the grant of the option (or 110% of the fair
market value in the case of a person owning more than 10% of the Company's
outstanding shares).
Non-Qualified Stock Option Plan. The Non-Qualified Stock Option Plans
collectively authorize the issuance of up to 3,260,000 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 840,000 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 Non-Qualified Stock
Option Plan will be forfeited if the "vesting" schedule established by the
Committee administering the Plan at the time of the grant is not met. For this
purpose, vesting means the period during which the employee must remain an
employee of the Company or the period of time a non-employee must provide
services to the Company. At the time an employee ceases working for the Company
(or at the time a non-employee ceases to perform services for the Company), any
shares or options not fully vested will be forfeited and cancelled. At the
discretion of the Committee payment for the shares of Common Stock underlying
options may be paid through the delivery of shares of the Company's Common Stock
having an aggregate fair market value equal to the option price,
provided such shares have been owned by the option holder for at least one year
prior to such exercise. A combination of cash and shares of Common Stock may
also be permitted at the discretion of the Committee.
Options are generally non-transferable except upon death of the option
holder. Shares issued pursuant to the Stock Bonus Plan will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Committee when the shares were issued.
The Board of Directors of the Company may at any time, and from time to
time, amend, terminate, or suspend one or more of the Plans in any manner they
deem appropriate, provided that such amendment, termination or suspension will
not adversely affect rights or obligations with respect to shares or options
previously granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the eligibility
requirements for the Plans; increase or decrease the total number of shares of
Common Stock which may be issued pursuant to the Plans except in the case of a
reclassification of the Company's capital stock or a consolidation or merger of
the Company; reduce the minimum option price per share; extend the period for
granting options; or materially increase in any other way the benefits accruing
to employees who are eligible to participate in the Plans.
Summary. The following sets forth certain information, as of November 30,
2000, concerning the stock options and stock bonuses granted by the Company.
Each option represents the right to purchase one share of the Company's Common
Stock.
Total Shares
Shares Reserved for Shares Remaining
Reserved Outstanding Issued as Options/Shares
Name of Plan Under Plans Options Stock Bonus Under Plans
- ------------ ----------- ----------- ----------- --------------
Incentive Stock
Option Plans 1,600,000 1,046,766 N/A 466,649
Non-Qualified Stock
Option Plans 3,260,000 1,839,806 N/A 272,733
Stock Bonus Plans 840,000 N/A 496,293 343,707
Of the shares issued pursuant to the Company's Stock Bonus Plans 92,889
shares were issued as part of the Company's contribution to its 401(k) plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 30, 2000, 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.
Name and Address Number of Shares (1) Percent of Class (4)
- ---------------- ----------------- ----------------
Maximilian de Clara 295,000 *
Bergstrasse 79
6078 Lungern,
Obwalden, Switzerland
Geert R. Kersten 1,157,089 (2) 5.4%
8229 Boone Blvd., Suite 802
Vienna, VA 22182
Patricia B. Prichep 203,625 *
8229 Boone Blvd., Suite 802
Vienna, VA 22182
M. Douglas Winship 91,616 *
8229 Boone Blvd., Suite 802
Vienna, VA 22182
Eyal Talor, Ph.D. 81,015 *
8229 Boone Blvd., Suite 802
Vienna, VA 22182
Daniel H. Zimmerman, Ph.D. 118,207 *
8229 Boone Blvd., Suite 802
Vienna, VA 22182
Michael Luecke 58,209 *
8229 Boone Blvd., Suite 802
Vienna, VA 22182
Alexander G. Esterhazy 20,000 *
20 Chemin du Pre-Poiset
CH- 1253 Vandoeuvres
Geneve, Switzerland
John M. Jacquemin 424,894 (3) *
8614 Westwood Center Drive
Vienna, VA 22182
F. Donald Hudson 127,200 *
40 Moorings Road
Marion, MA 02738
All Officers and Directors 2,576,855 11.4%
as a Group (10 persons)
* Less than 1%
(1) Includes shares issuable prior to February 28, 2001 upon the exercise of
options or warrants granted to the following persons:
Options or Warrants Exercisable
Name Prior to February 28, 2001
---- -----------------------------------
Maximilian de Clara 295,000
Geert R. Kersten 1,020,001
Patricia B. Prichep 198,501
M. Douglas Winship 82,500
Eyal Talor, Ph.D. 70,833
Daniel H. Zimmerman, Ph.D. 102,667
Michael Luecke 50,000
Alexander G. Esterhazy 20,000
John M. Jacquemin 140,610
F. Donald Hudson 127,000
See Item 11 of this report for information concerning outstanding stock
options.
(2) 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.
(3) Includes shares held by Mooring Capital, a company controlled by Mr.
Jacquemin
(4) Amount includes shares referred to in (1) above but excludes shares which
may be issued upon the exercise or conversion of other options, warrants and
other convertible securities previously issued by the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) See the Financial Statements attached to this Report.
(b) The Company did not file any reports on Form 8-K during the quarter
ended September 30, 2000.
(c) Exhibits Page Number
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.
(b) Amended Articles Incorporated by reference to Exhibit
3(a) of the Company's Registration
Statement on Form S-1, Registration
Nos. 2-85547-D and 33-7531.
(c) Amended Articles Incorporated by reference to Exhibit
(Name change only) 3(c) filed with
Registration Statement on Form S-1
(No. 33-34878).
(d) Bylaws Incorporated by reference to Exhibit
3(b) of the Company's Registration
Statement on Form S-1, Registration
Nos. 2-85547-D and 33-7531.
4(a) Specimen copy of Stock Certificate Incorporated by reference to Exhibit
4(a) of the Company's Registration
Statement on Form S-1, Registration
Nos. 2-85547-D and 33-7531.
4(c) Form of Common Stock Incorporated by reference to Exhibit
Purchase Warrant 4(c) filed as an
exhibit to the Company's Registration
Statement on Form S-1 (Registration
No. 33-43281).
10(e) Employment Agreement with _______________________________
Geert Kersten
10(i) Securities Purchase Agreement Incorporated by reference to Exhibit
(with schedule) 10(i) to Cel-Sci Registration Statement
on Form S-3 (Commission File Number
333-94675).
10(j) Form of Callable (Series A) Warrant
Incorporated by reference to Exhibit
10(j) to Cel-Sci Registration
Statement on Form S-3 (Commission File
Number 333-94675).
10(k) Form of Adjustable (Series B) Incorporated by reference to Exhibit
Warrant 10(k) to Cel-Sci Registration Statement
on Form S-3 (Commission File Number
333-94675).
10(l) Registration Rights Agreement Incorporated by reference to Exhibit
10(l) to Cel-Sci Registration Statement
on Form S-3 (Commission File Number
333-34604).
10(m) Securities Purchase Agreement, Incorporated by reference to Exhibit
together with Schedule required 10(m) to Cel-Sci Registration
by Instruction 2 to Item 601 of Statement on Form S-3 (Commission
Regulation S-K File Number 333-34604)
10(n) Form of Callable (Series C) Warrant
Incorporated by reference to Exhibit
10(n) to Cel-Sci Registration
Statement on Form S-3 (Commission File
Number 333-34604).
10(o) Form of Adjustable (Series D) Warrant
Incorporated by reference to Exhibit
10(o) to Cel-Sci Registration
Statement on Form S-3 (Commission File
Number 333-34604).
10(p) Registration Rights Agreement Incorporated by reference to Exhibit
10(p) to Cel-Sci Registration
Statement on Form S-3 (Commission File
Number 333-34604).
23 Consent of accountants ________________________________
27 Financial data schedule ________________________________
(d) Financial statement schedules. None
CEL-SCI CORPORATION
Consolidated Financial Statements for the Years
Ended September 30, 2000, 1999, and 1998,
and Independent Auditors' Report
CEL-SCI CORPORATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998:
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Comprehensive Loss F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of CEL-SCI Corporation:
We have audited the accompanying consolidated balance sheets of CEL-SCI
Corporation and subsidiaries (the Company) as of September 30, 2000 and 1999,
and the related consolidated statements of operations, comprehensive loss,
stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CEL-SCI Corporation
and its subsidiaries as of September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000, in conformity with generally accepted accounting principles
in the United States of America.
Deloitte & Touche LLP
McLean, Virginia
November 17, 2000
CEL-SCI CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
- --------------------------------------------------------------------------------
ASSETS 2000 1999
CURRENT ASSETS:
Cash and cash equivalents $6,909,263 $2,747,644
Investment securities available for sale 3,760,922 3,191,491
Interest and other receivables 39,252 62,825
Prepaid expenses 1,838,376 514,572
Advances to officer/shareholder and employees 728 69,448
Total current assets 12,548,541 6,585,980
RESEARCH AND OFFICE EQUIPMENT - Less accumulated
depreciation of $1,721,336 and $1,563,586 594,919 468,627
DEPOSITS 139,828 14,828
PATENT COSTS - Less accumulated amortization
of $574,362 and $511,118 525,594 490,337
---------- ---------
$13,808,882 $7,559,772
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 822,601 $ 433,265
---------- ---------
Total current liabilities 822,601 433,265
DEFERRED RENT 24,822 28,321
---------- ---------
Total liabilities 847,423 461,586
---------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value - authorized,
100,000,000 shares;
issued and outstanding, 20,459,700 and
17,002,341 shares 204,597 170,023
Additional paid-in capital 73,924,653 59,672,652
Accumulated other comprehensive loss (61,564) (116,659)
Accumulated deficit (61,106,227) (52,627,830)
----------- ------------
Total stockholders' equity 12,961,459 7,098,186
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,808,882 $ 7,559,772
============ ============
See notes to consolidated financial statements.
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
INVESTMENT INCOME $ 402,011 $ 402,831 $ 728,421
OTHER INCOME 40,540 66,687 64,573
-------- -------- --------
Total income 442,551 469,518 792,994
-------- -------- --------
OPERATING EXPENSES:
Research and development 4,978,714 4,461,051 3,833,854
Depreciation and amortization 220,994 268,210 295,331
General and administrative 3,721,240 3,230,982 3,106,492
--------- --------- ----------
Total operating expenses 8,920,948 7,960,243 7,235,677
--------- --------- ----------
NET LOSS 8,478,397 7,490,725 6,442,683
ACCRETION OF PREFERRED STOCK - - 1,980,000
--------- --------- ----------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS $8,478,397 $7,490,725 $8,422,683
========== ========== ===========
LOSS PER COMMON SHARE (BASIC) $ 0.44 $ 0.52 $ 0.74
========== ========== ===========
LOSS PER COMMON SHARE (DILUTED) $ 0.44 $ 0.52 $ 0.74
========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 19,259,190 14,484,352 11,379,437
========== ========== ===========
See notes to consolidated financial statements.
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS $8,478,397 $7,490,725 $8,422,683
OTHER COMPREHENSIVE LOSS - Unrealized (gain)
loss on investments (55,095) 68,368 44,792
----------- ---------- -----------
COMPREHENSIVE LOSS 8,423,302 7,559,093 8,467,475
=========== ========== ===========
See notes to consolidated financial statements.
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
YEARS ENDED SEPTEMBER 30, 2000, 1999, AND
1998
- --------------------------------------------------------------------------------
Accumulated
Preferred Additional Other
Series D Stock Common Stock Paid-In Comprehensive Accumulated
Shares Amount Shares Amount Capital (Loss) Income Deficit Total
BALANCE, OCTOBER 1, 1997 - - 10,445,691 $104,457 $44,419,244 $(3,499) $(38,694,422) $5,825,780
Exercise of stock options - - 300,048 3,000 882,372 - - 885,372
Exercise of warrants - - 768,243 7,682 3,621,744 - - 3,629,426
Stock options issued to
nonemployees for services - - - - 564,031 - - 564,031
Issuance - Series D
preferred stock, net of
offering costs 10,000 100 - - 9,499,900 - - 9,500,000
Preferred Series D
conversion (998) (10) 441,333 4,413 (4,403) - - -
401(k) contributions - - 17,380 174 57,976 - - 58,150
Change in unrealized
gain (loss) of
marketable securities
available for sale - - - - - (44,792) - (44,792)
Net loss - - - - - - (6,442,683) (6,442,683)
------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1998 9,002 90 11,972,695 119,726 59,040,864 (48,291) (45,137,105) 13,975,284
Exercise of stock options - - 28,500 285 70,965 - - 71,250
Stock options issued to
nonemployees
for services - - - - 88,166 - - 88,166
Preferred Series D
conversion (9,002) (90) 4,760,126 47,602 (47,512) - - -
401(k) contributions - - 41,020 410 86,544 - - 86,954
Stock bonus to officer - - 200,000 2,000 433,625 - - 435,625
Change in unrealized gain
(loss) of marketable
securities available
for sale - - - - - (68,368) - (68,368)
Net loss - - - - - - (7,490,725) (7,490,725)
-------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1999 - - 17,002,341 170,023 59,672,652 (116,659) (52,627,830) 7,098,186
Exercise of stock options - - 1,047,612 10,476 3,646,991 - - 3,657,467
Issuance - common stock - - 2,175,258 21,753 9,958,247 - - 9,980,000
401(k) contributions - - 34,489 345 98,762 - - 99,107
Stock bonus to officer - - 200,000 2,000 548,000 - - 550,000
Change in unrealized gain
(loss) of marketable
securities available
for sale - - - - - 55,095 - 55,095
Net loss - - - - - - (8,478,397) (8,478,397)
-------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2000 - $- 20,459,700 $204,597 $73,924,653 $(61,564) $(61,106,227) $12,961,459
=======================================================================================================
See notes to consolidated financial statements.
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(8,478,396) (7,490,725)(6,442,683)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 220,994 268,210 295,331
Issuance of stock options for services - 88,166 564,031
Stock bonus granted to officer 550,000 435,625 -
Stock contributed to 401(k) plan 99,107 86,954 58,150
Net realized loss on sale of
securities 49,962 151,349 9
Changes in assets and liabilities:
Increase in interest and other
receivables 23,573 6,984 36,625
(Increase) decrease in prepaid
expenses (1,323,804) 209,262 (313,046)
Decrease (increase) in advances 68,720 (69,275) 4,733
(Increase) decrease in deposits (125,000) - 3,350
Decrease (increase) in accounts
payable and accrued expenses 389,336 6,118 (54,440)
(Increase) decrease in deferred
rent (3,499) (1,061) 2,352
-------- -------- -----
Net cash used in
operating activities (8,529,007) (6,308,393)(5,845,588)
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Purchases of investments (2,000,587) (235,698) (13,480,816)
Sales and maturities of investments 1,436,289 6,499,801 4,501,828
Repayment on note receivable from
shareholder - 70,809 216,066
Expenditures for property and equipment (284,043) (60,552) (70,559)
Expenditures for patents (98,500) (102,798) (35,211)
--------- ---------- --------
Net cash (used in) provided by
investing activities (946,841) 6,171,562 (8,868,692)
--------- --------- -----------
(Continued)
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES:
Cash proceeds from issuance of preferred
and common stock and warrant conversion
for cash 13,637,467 71,250 14,018,899
------------ -------- ----------
Net cash provided by
financing activities 13,637,467 71,250 14,018,899
------------ -------- ----------
NET INCREASE (DECREASE) IN CASH 4,161,619 (65,581) (695,381)
CASH, BEGINNING OF YEAR 2,747,644 2,813,225 3,508,606
--------- --------- -----------
CASH, END OF YEAR $6,909,263 $2,747,644 $2,813,225
========== ========== ==========
SUPPLEMENTAL DISCLOSURES:
At September 30, 2000, 1999, and 1998, the net unrealized gain (loss) on
investments available-for-sale was $61,564, $(116,659), and (48,291),
respectively.
During the year ended September 30, 1999, 9,002 shares of Series D Preferred
Stock were converted into 4,760,126 shares of common stock.
(Concluded)
See notes to consolidated financial statements.
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CEL-SCI Corporation (the Company) was incorporated on March 22, 1983, in the
State of Colorado, to finance research and development in biomedical science and
ultimately to engage in marketing products.
Significant accounting policies are as follows:
Principles of Consolidation - The consolidated financial statements
include the accounts of CEL-SCI Corporation and its wholly owned
subsidiaries, Viral Technologies, Inc., and MaxPharma AG. All
significant intercompany transactions have been eliminated upon
consolidation.
Investments - Investments that may be sold as part of the liquidity
management of the Company or for other factors are classified as
available-for-sale and are carried at fair market value. Unrealized
gains and losses on such securities are reported as a separate component
of stockholders' equity. Realized gains and losses on sales of
securities are reported in earnings and computed using the specific
identified cost basis.
Research and Office Equipment - Research and office equipment is
recorded at cost and depreciated using the straight-line method over
estimated useful lives of five to seven years.
Research and Development Costs - Research and development expenditures
are expensed as incurred. The Company has an agreement with an unrelated
corporation for the production of MULTIKINE, which is the Company's only
product source.
Research and Development Grant Revenues - The Company's grant
arrangements are handled on a reimbursement basis. Costs incurred under
the arrangements are expensed as incurred. Subsequent reimbursements
from the granting agency are applied against such expenses.
Patents - Patent expenditures are capitalized and amortized using the
straight-line method over 17 years. In the event changes in technology
or other circumstances impair the value or life of the patent,
appropriate adjustment in the asset value and period of amortization is
made.
Net Loss Per Share - Net loss per common share is computed by dividing
the net loss, after increasing the loss for the effect of any preferred
stock dividends, by the weighted average number of common shares
outstanding during the period. Common stock equivalents, including
options to purchase common stock, were excluded from the calculation for
all periods presented as they were antidilutive.
Prepaid Expenses - The majority of prepaid expenses consist of
manufacturing production advances, bulk purchases of laboratory supplies
to be consumed in the manufacturing of the Company's product for
clinical studies and the cost of options for nonemployee services.
Income Taxes - Income taxes are accounted for using the liability method
under which deferred tax liabilities or assets are determined based on
the difference between the financial statement and tax bases of assets
and liabilities (i.e., temporary differences) and are measured at the
enacted tax rates. Deferred tax expense is determined by the change in
the liability or asset for deferred taxes.
Statement of Cash Flows - For purposes of the statements of cash flows,
cash consists principally of unrestricted cash on deposit, and
short-term money market funds. The Company considers all highly liquid
investments with a maturity of less than three months to be cash
equivalents.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications - Certain reclassifications have been made to the 1999
and 1998 financial statements to conform with the current-year
presentation.
2. INVESTMENTS
The carrying values and estimated market values of investments
available-for-sale at September 30, 2000 and 1999, are as follows:
September 30, 2000
Gross Gross Market Value
Amortized Unrealized Unrealized at September 30,
Cost Gains Losses 2000
Bonds $ 2,000,000 $4,720 $- $ 2,004,720
Fixed income mutual
funds 1,822,486 - (66,284) 1,756,202
---------- -- --------- ---------
Total $3,822,486 $4,720 $(66,284) $3,760,922
========== ====== ========= ==========
September 30, 1999
Gross Gross Market Value
Amortized Unrealized Unrealized at September 30,
Cost Gains Losses 1999
Fixed income
mutual funds $3,308,150 $ - $(116,659) $3,191,491
---------- -- ---------- ---------
Total $3,308,150 $ - $(116,659) $3,191,491
============ ======== =========== ==========
The gross realized gains and losses of sales of investments available-for-sale
for the years ended September 30, 2000, 1999, and 1998, are as follows:
2000 1999 1998
---- ---- ----
Realized gains $ - $ - $1,485
Realized losses 49,962 151,349 1,494
------ -------- -------
Net realized loss $(49,962) $(151,349) $ (9)
========= ========== ===
3. RESEARCH AND OFFICE EQUIPMENT
Research and office equipment at September 30, 2000 and 1999, consist of the
following:
2000 1999
Research equipment $ 2,052,082 $ 1,781,666
Furniture and equipment 258,780 245,154
Leasehold improvements 5,393 5,393
----------- ----------
2,316,255 2,032,213
Less accumulated depreciation and
amortization (1,721,336) (1,563,586)
------------ -----------
Net research and office equipment $ 594,919 $ 468,627
============ ==========
4. INCOME TAXES
The approximate tax effect of each type of temporary difference and carryforward
that gave rise to the Company's deferred tax assets and liabilities at September
30, 2000 and 1999, is as follows:
2000 1999
Depreciation $ (28,964) $(18,536)
Prepaid expenses (697,848) (101,769)
Net operating loss carryforward 22,905,872 17,082,000
Other 9,422 10,751
Less: Valuation allowance (22,188,482) (16,972,446)
--------------------------
Net deferred - -
==========================
The Company has available for income tax purposes net operating loss
carryforwards of approximately $50,242,000, expiring from 2001 through 2020.
In the event of a significant change in the ownership of the Company, the
utilization of such carryforwards could be substantially limited.
The difference in the Company's U.S. Federal statutory income tax rate and the
Company's effective rate is primarily attributed to the recording of a valuation
allowance due to the uncertainty of the amount of future tax benefits that will
be realized because it is more likely than not that future taxable income will
not be sufficient to realize such tax benefits.
5. STOCK OPTIONS, BONUS PLAN, AND WARRANTS
Non-Qualified Stock Option Plan - At September 30, 2000, the Company has
collectively authorized the issuance of 3,260,000 shares of common stock under
the Non-Qualified Plan. Options typically vest over a three-year period and
expire no later than ten years after the grant date. Terms of the options are to
be determined by the Company's Compensation Committee, which administers all of
the plans. The Company's employees, directors, officers, and consultants or
advisors are eligible to be granted options under the Non-Qualified Plan.
Information regarding the Company's Non-Qualified Stock Option Plan is
summarized as follows:
Outstanding Exercisable
------------------- ------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
Options outstanding,
October 1, 1997 1,672,834 $3.44
Options granted 474,700 2.98
Options exercised (170,334) 2.92
Options forfeited (17,500) 6.23
---------
Options outstanding,
September 30, 1998 1,959,700 3.32 1,315,002 $3.10
Options granted 470,959 2.02
Options forfeited (56,602) 4.78
-----------
Options outstanding,
September 30, 1999 2,374,057 2.80 1,595,934 3.09
Options granted 262,500 3.09
Options exercised (789,085) 3.41
Options forfeited (46,266) 2.34
----------
Options outstanding,
September 30, 2000 1,801,206 3.18 1,547,445 3.19
==========
At September 30, 2000, options outstanding and exercisable were as follows:
Weighted Average Weighted Average Weighted Average
Range of Number Exercise Price- Remaining Number Exercise Price-
Exercise Prices Outstanding Outstanding Contractual Life Exercisable Exerciseble
$1.87-$2.50 688,327 $2.11 3.0 years 633,263 $2.15
$2.56-$3.75 793,246 3.07 3.4 years 625,015 3.06
$3.87-$4.68 174,833 4.13 5.9 years 146,667 4.07
$5.00-$7.25 144,800 5.50 4.3 years 142,500 5.49
During 1999, the Company extended the expiration date on 35,000 options at $2.87
from the Non-qualified Stock Option Plan. The options were to expire March 30,
1999, and were extended to March 30, 2000. The options had originally been
granted in December 1994. As of March 30, 2000, all options had been exercised.
During 1999, the Company extended the expiration date on 750 options at $2.87
from the Non-qualified Stock Option Plan. The options were to expire March 31,
1999, and were extended to March 31, 2000. The options had originally been
granted in March 1988. As of March 31, 2000, all options had been exercised.
During March 2000, the Company agreed to restore and vest 40,000 options at
prices ranging from $5.25 to $5.62, to one former Director and one Director as
part of a settlement agreement. The options will expire on September 25, 2006.
As of September 30, 2000, 20,000 options had been exercised.
Incentive Stock Option Plan - At September 30, 2000, the Company has
collectively authorized the issuance of 1,600,000 shares of common stock under
the Incentive Stock Option Plan. Options vest after one year to three-year
period and expire no later than ten years after the grant date. Terms of the
options are to be determined by the Company's Compensation Committee, which
administers all of the plans. Only the Company's employees are eligible to be
granted options under the Incentive Plan.
Information regarding the Company's Incentive Stock Option Plan is summarized as
follows:
Outstanding Exercisable
----------------- ----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
Options outstanding, October 1, 1997 573,716 $3.81
Options granted 205,500 4.76
Options exercised (3,166) 2.87
Options forfeited (3,666) 5.34
----------
Options outstanding, September 30, 1998 772,384 4.06 311,622 $3.64
Options granted 206,500 2.14
Options forfeited (2,034) 3.70
----------
Options outstanding, September 30, 1999 976,850 3.71 520,688 3.86
Options granted 140,000 3.77
Options exercised (68,418) 4.47
Options forfeited (1,666) 3.38
----------
Options outstanding, September 30, 2000 1,046,766 3.62 722,435 3.98
==========
At September 30, 2000, options outstanding and exercisable were as follows:
Weighted Weighted Weighted
Average Average Average
Range of Number Exercise Remaining Number Exercise
Price - Price -
Exercise OutstandinOutstanding Contractual ExercisabExercisable
Prices Life
------------ --------------------- ----------- --------------------
$1.94 - $2.39 5.4 years $2.51
$2.87 322,500 223,168
$2.94 - 3.45 7.4 years 3.47
$4.31 406,900 290,567
$4.50 - 5.07 7.3 years 5.11
$6.00 316,766 208,100
$11.00 600 11.00 5.7 years 600 11.00
During 1999, the Company extended the expiration date on 23,000 options at $3.25
from the Incentive Stock Option Plan. The options were to expire February 21,
1999, and were extended to February 21, 2000. The options had originally been
granted in February 1996. All options were exercised as of September 30, 2000.
Stock Bonus Plan - At September 30, 2000, the Company has authorized the
issuance of 840,000 shares of common stock under the Stock Bonus Plan. All
employees, directors, officers, consultants, and advisors are eligible to be
granted options.
Other Options and Warrants - In connection with the 1992 public offering,
5,175,000 common stock purchase warrants were issued and outstanding at
September 30, 1997. Every ten warrants entitled the holder to purchase one share
of common stock at a price of $15.00 per share. Subsequently, the expiration
date of the warrants was extended to February 1998. Effective June 1, 1997, the
exercise price of warrants was lowered from $15 to $6 and only five warrants,
rather than 10 warrants, were required to purchase one share of common stock.
Subsequent to September 30, 1997, warrant-holders who tendered five warrants and
$6.00 between January 9, 1998, and February 7, 1998, would receive one share of
the Company's common stock and one new warrant. The new warrants would permit
the holder to purchase one share of the Company's common stock at a price of
$10.00 per share prior to February 7, 2000. During 1998, the expiration date of
the original warrants was extended to July 31, 1998, and 582,025 original
warrants were tendered for 116,405 common shares. As of September 30, 1998, the
remaining 4,592,975 original warrants had expired.
During 1995, the Company granted a consultant options to purchase 17,858 shares
of the Company's common stock. These shares became exercisable on November 2,
1995, and were to expire November 1, 1999. In February 2000, the Company
extended the expiration date on the
options by one year to February 6, 2001. These options are exercisable at $5.60
per share and as of September 30, 2000, all 17,858 options remain outstanding.
In June and September 1995, 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 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. All warrants sold in this Offering were
exercised during 1996. Additionally, the Company issued to the underwriter
warrants to purchase 230,000 equity units. Each unit consisted of one share of
the Company's common stock. For the June 1995 private placement, 57,500 equity
units were issued at $2.00 per unit and another 57,500 equity units were issued
at $3.25 per unit. All units issued in the June 1995 private placement were
exercised at September 30, 1996. For the September 1995 private placement,
57,500 equity units were issued at $2.40 per unit and another 57,500 equity
units were issued at $3.25 per unit. As of September 30, 1996, 21,890 equity
units had been exercised at $3.25 per unit and 21,890 equity units had been
exercised at $2.40 per unit. As of September 30, 1997, 35,610 equity units had
been exercised at $2.40 per unit and 25,610 equity units were exercised at $3.25
per unit. All remaining 10,000 equity units will expire on February 6, 2001.
During 1997, the Company granted four consultants options to purchase a total of
268,000 shares of the Company's common stock. The fair value of the options is
expensed over the life of the consultants' contracts. Of the 268,000 options,
218,000 options became exercisable during 1997 at prices ranging from $2.50 to
$4.50. The remaining 50,000 options became exercisable during 1998 at $5.00.
During 1997, 50,000 options were exercised at $3.50. During 1998, 114,500
options were exercised at prices ranging from $3.50 to $4.50. During 1999,
18,500 options were exercised at prices ranging from $3.50 to $4.50. In December
1999, the Company extended the expiration date on 10,000 options exercisable at
$3.25 per share to June 30, 2000. Subsequently, the expiration date was extended
to June 30, 2001. During 2000, 25,000 options were exercised at prices ranging
from $2.50 to $3.94. At September 30, 2000, 60,000 options related to the four
consultants remained outstanding at prices ranging from $3.50 to $5.00.
During 1998, the Company granted seven consultants options to purchase a total
of 282,000 shares of the Company's common stock. The fair value of the options
is expensed over the life of the consultants' contracts. All options became
exercisable during 1998 that were exercisable at prices ranging from $3.50 to
$7.31. During 1998, 22,000 options were exercised at prices ranging from $3.50
to $4.50. During 1999, 75,000 options expired ranging in price from $5.06 to
$7.31, and 10,000 options were exercised at a price of $2.50. In December 1999,
the Company extended the expiration date on 20,000 options exercisable at $3.94
per share and 10,000 options exercisable at $3.50 per share to June 30, 2000.
Subsequently, the expiration date was extended to June 30, 2001. During 2000,
165,000 options were exercised at prices ranging from $2.50 to $5.62. At
September 30, 2000, 5,000 options related to the consultants remained
outstanding at a price of $3.50 per common share.
During 1999, the Company granted one consultant options to purchase a total of
50,000 shares of the Company's common stock. The fair value of the options is
expensed over the life of the consultant's contract. All 50,000 options became
exercisable during 1999 at $2.50 per share. At September 30, 2000, all 50,000
options remained outstanding.
In January 1999, the Company revised the terms of 23,500 and 125,000 options
granted to consultants in 1997 and 1998, respectively. The terms of the
agreements set the exercise price of the 148,500 options at $4.00 and set the
expiration date of the options at December 31, 1999. During 1999, 28,500 options
to purchase shares were exercised at $2.50 per share. The options were further
revised in December 1999 to extend the expiration date to June 30, 2001. During
2000, all 120,000 options to purchase shares were exercised at $2.50 per share.
In connection with the December 1997 private offering, the Company issued to the
underwriters warrants to purchase 50,000 shares of common stock at $8.63 per
share. The warrants are exercisable at any time prior to December 22, 2000. At
September 30, 2000, all warrants remained outstanding.
In connection with the December 1999 private offering, the Company issued
402,007 common stock purchase warrants. Each warrant entitled the holder to
purchase one share of common stock at $2.925 per share, expiring December 2002.
The investors in this private offering also received warrants that allow
investors under certain circumstances to acquire additional shares of the
Company's common stock at a nominal price. At September 30, 2000, all warrants
remained outstanding.
In connection with the March 2000 private offering, the Company issued 413,334
common stock purchase warrants. Each warrant entitled the holder to purchase one
share of common stock at $8.50 per share, expiring March 2003. The investors in
this private offering also received warrants that allow investors under certain
circumstances to acquire additional shares of the Company's common stock at a
nominal price. At September 30, 2000, all warrants remained outstanding.
In October 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). This statement encourages but does not require
companies to account for employee stock compensation awards based on their
estimated fair value at the grant date with the resulting cost charged to
operations. The Company has elected to continue to account for its employee
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. If the Company had elected to recognize
compensation expense based on the fair value of the awards granted, consistent
with the provisions of SFAS No. 123, the Company's net loss and net loss per
common share would have been increased to the pro forma amounts indicated below:
Year Ended September 30,
--------------------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
Net loss:
As reported
$(8,478,396)$(7,490,725) $(6,442,638)
Pro forma
(8,908,999) (8,124,159) (7,018,634)
Loss per common share:
As reported $ 0.44 $ 0.52 $ 0.74
Pro forma
0.46 0.56 0.79
The weighted average fair value at the date of grant for options granted during
2000, 1999, and 1998, was $2.57, $1.21, and $2.17 per option, respectively.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
2000 1999 1998
---- ---- ----
Expected stock risk volatility 98 % 91 % 79 %
Risk-free interest rate
6.32 % 5.48 % 5.49 %
Expected life options 4.91 3.23 2
Expected dividend yield - - -
The effects of applying SFAS No. 123 in this pro forma disclosure are not
necessarily indicative of the effect on future amounts.
The Company's stock options are not transferable, and the actual value of the
stock options that an employee may realize, if any, will depend on the excess of
the market price on the date of exercise over the exercise price. The Company
has based its assumption for stock price volatility on the variance of monthly
closing prices of the Company's stock from its initial offering date to the
present. The risk-free rate of return used equals the yield on one- to
three-year zero-coupon U.S. Treasury issues on the grant date. No discount was
applied to the value of the grants for nontransferability or risk of forfeiture.
6. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution retirement plan, qualifying under
Section 401(k) of the Internal Revenue Code, subject to the Employee Retirement
Income Security Act of 1974, as amended, and covering substantially all CEL-SCI
employees. Prior to January 1, 1998, the employer contributed an amount equal to
50% of each employee's contribution not to exceed 3% of the participant's
salary. Effective January 1, 1998, the plan was amended such that the Company's
contribution is now made in shares of the Company's common stock as opposed to
cash. Each participant's contribution is matched by the Company with shares of
common stock that have a value equal to 100% of the participant's contribution,
not to exceed the lesser of $10,000 or 6% of the participant's total
compensation. The Company's contribution of common stock is valued each quarter
based upon the closing price of the Company's common stock. The expense for the
years ended September 30, 2000, 1999, and 1998, in connection with this plan was
$99,107, $86,954, and $70,519, respectively.
7. LEASE COMMITMENTS
Operating Leases - The future minimum annual rental payments due under
noncancelable operating leases for office and laboratory space are as follows:
Year Ending September 30,
2001
$202,934
2002
209,490
2003
180,035
2004
36,565
2005 -
Total minimum lease payments $629,024
========
Rent expense for the years ended September 30, 2000, 1999, and 1998, was
approximately $233,559, $214,205, and $165,067, respectively.
8. STOCKHOLDERS' EQUITY
During December 1997, the Company issued 10,000 shares of Series D Preferred
Stock for $10,000,000. The issuance included 550,000 Series A Warrants and
550,000 Series B Warrants. The number of common shares issuable upon conversion
of the Preferred Shares is determinable by dividing $1,000 by $8.28 prior to
September 19, 1998, or at any time at which the Company's common stock is $3.45
or less for five consecutive days. On or after September 19, 1998, the number of
common shares to be issued upon conversion is determined by dividing $1,000 by
the lesser of (1) $8.28 or (2) the average price of the stock for any two
trading days during the ten trading days preceding the conversion date. The
Series A Warrants are exercisable at any time for $8.62 prior to December 22,
2001, and the Series B Warrants are exercisable at any time for $9.31 prior to
December 22, 2001. Each warrant entitles the holder to purchase one share of
common stock. At September 30, 1998, 998 shares of Series D Preferred Stock had
been converted into 441,333 shares of common stock. At September 30, 1999, 9,002
shares of Series D Preferred Stock had been converted into 4,760,127 shares of
common stock. There are no remaining shares of Series D Preferred Stock. All
Series A and Series B Warrants issued remain outstanding at September 30, 2000.
In connection with the Company's December 1997 $10,000,000 Series D Preferred
Stock offering, the Series A and Series B warrants were assigned a relative fair
value of $1,980,000 in accordance with APB No. 14, Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants, and have been recorded as
additional paid-in capital. The $1,980,000 allocated to the warrants was
accredited immediately.
9. LOSS PER SHARE
Basic EPS excludes dilution and is computed by dividing net income or loss
attributable to common stockholders by the weighted average of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock (convertible
preferred stock, warrants to purchase common stock and common stock options
using the treasury stock method) were exercised or converted into common stock.
Potential common shares in the diluted EPS computation are excluded in net loss
periods as their effect would be antidilutive. The loss attributable to common
stockholders includes the impact of the accretion of Series D Preferred Stock
warrants and preferred stock dividends.
2000 1999 1998
---- ---- ----
Loss per common share (basic and diluted) $0.44 $0.52 $0.74
====== ====== =====
10. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. The Company
does not believe that the adoption of SFAS No. 133 will have a material effect
on its financial position or results of operation.
11. SEGMENT REPORTING
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of an Enterprise and Related Information (SFAS No.
131) in the fiscal year ended September 30, 1999. SFAS No. 131 establishes
standards for reporting information regarding operating segments in annual
financial statements and requires selected information for those segments to be
presented in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group, in
making decisions how to allocate resources and assess performance. The Company's
chief decision maker, as defined under SFAS No. 131, is the Chief Executive
Officer. To date, the Company has viewed its operations as principally one
segment, the research and development of certain drugs and vaccines. As a
result, the financial information disclosed herein, materially represents all of
the financial information related to the Company's principal operating segment.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CEL-SCI CORPORATION
Dated: December 22, 2000 By: /s/ Maximilian de Clara
-----------------------------------
Maximilian de Clara, President
By: /s/ Geert R. Kersten
-----------------------------------
Geert R. Kersten, Chief Executive
Officer
Pursuant to the requirements of the Securities Act of l934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/ Maximilian de Clara Director and Principal December 22, 2000
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Maximilian de Clara Executive Officer
/s/ Geert R. Kersten Director, Principal December 22, 2000
- ------------------------ Financial Officer and
Geert R. Kersten Chief Executive Officer
- ------------------------ Director
Alexander G. Esterhazy
/s/ John M. Jacquemin Director December 22, 2000
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John M. Jacquemin
/s/ Donald Hudson Director December 22, 2000
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F. Donald Hudson