FORM 10-K/A
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, 1998.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to_____.
Commission file number 0-11503
CEL-SCI CORPORATION
(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
15, 1998, as quoted on the American Stock Exchange, was approximately
$23,600,000. 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 15, 1998, the Registrant had 12,715,529 shares of Common
Stock issued and outstanding.
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,
1998 1997 1996 1995 1994
---- ---- ------ ------ ----
Investment Income and
Other Revenues $792,994 $ 438,145 $ 322,370 $423,765 $624,670
Expenses:
Research and
Development 3,833,854 6,011,670 3,471,477 1,824,661 2,896,109
Depreciation
and Amortization 295,331 313,547 290,829 262,705 138,755
General and
Administrative 3,106,492 2,302,386 2,882,958 1,713,912 1,621,990
Equity in loss of
joint venture -- -- 3,772 501,125 394,692
--------------------------- ----- ------- -------
Net Loss $(6,442,683) $(8,189,458) $(6,326,666) $(3,878,638) $(4,426,876)
=================================== ========================
Loss per common share
(basic and diluted) $(0.74) $(1.00) $(1.16) $(0.89) $(1.06)
Weighted average common
Shares outstandin 11,379,437 9,329,419 6,425,316 4,342,628 4,185,240
Balance Sheet Data:
September 30,
1998 1997 1996 1995 1994
---- ----- ----- ---- ----
Working Capital $12,926,014 $4,581,247 $10,266,104 $3,983,699 $5,795,191
Total Assets 14,431,813 6,334,397 11,878,370 6,359,011 8,086,670
Total Liabilities 456,529 508,617 294,048 1,516,978 1,407,602
Shareholders'
Equity 13,975,284 5,825,780 11,584,322 4,842,033 6,679,068
No dividends have been declared on the Company's common stock.
CEL-SCI CORPORATION
Consolidated Financial Statements for the Years Ended
September 30, 1998, 1997 (Restated), and 1996 (Restated),
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, 1998, 1997 (RESTATED), AND
1996 (RESTATED):
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-7 - F-21
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 subsidiary (the Company) as of September 30, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended September 30, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CEL-SCI Corporation
and its subsidiary as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1998, in conformity with generally accepted accounting principles.
As discussed in Note 14, the 1997 and 1996 consolidated financial statements
have been restated.
DELOITTE & TOUCHE LLP
Washington, DC
December 11, 1998
CEL-SCI CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
- ---------------------------------------------------------------------
ASSETS 1998 1997
CURRENT ASSETS:
Cash and cash equivalents
$2,813,225 $3,508,606
Investment securities available for 745,216
sale 9,675,311
Interest and other receivables 106,443
69,809
Prepaid expenses 410,788
723,834
Advances to officer/shareholder and 291,781
employees 70,982
----------------------------
Total current 13,353,161 5,062,834
assets
RESEARCH AND OFFICE EQUIPMENT - Less
accumulated depreciation of
$1,352,165 and $1,128,410 619,496 791,964
DEPOSITS 14,828 18,178
PATENT COSTS - Less accumulated
amortization
of $454,328 and $402,025 444,328 461,421
----------------------------
$14,431,813 $6,334,397
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued $427,147 $481,587
expenses ----------------------------
Total current liabilities 427,147 481,587
DEFERRED RENT 29,382 27,030
----------------------------
Total liabilities 456,529 508,617
----------------------------
STOCKHOLDERS' EQUITY:
Series D Preferred stock, $0.01 par 90 -
value - authorized, 10,000
shares; issued and outstanding,
9,002 shares
Common stock, $.01 par value -
authorized, 100,000,000 shares;
issued and outstanding, 119,726 104,457
11,972,695 and 10,445,691 shares
Additional paid-in capital
59,040,864 44,419,244
Net unrealized loss on marketable (48,291) (3,499)
equity securities
Accumulated deficit (45,137,105) (38,694,422)
----------------------------
Total stockholders' equity 13,975,284 5,825,780
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $14,431,813 $6,334,397
============================
See notes to consolidated financial statements.
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
- -------------------------------------------------------------------------
1998 1997 1996
(As restated, (As restated,
see Note 14) see Note 14)
INVESTMENT INCOME $728,421
$386,547 $255,053
OTHER INCOME 64,573
51,598 67,317
---------------------------------------
Total income 792,994 438,145 322,370
---------------------------------------
OPERATING EXPENSES:
Research and development 3,833,854 6,011,670 3,471,477
Depreciation and amortization 295,331 313,547 290,829
General and administrative 3,106,492 2,302,386 2,882,958
-----------------------------------------
Total operating expenses 7,235,677 8,627,603 6,645,264
-----------------------------------------
EQUITY IN LOSS OF
JOINT VENTURE
- - (3,772)
---------------------------------------
NET LOSS
$6,442,683 $8,189,458 $6,326,666
==============================================
ACCRETION OF PREFERRED
STOCK 1,980,000 1,062,482 1,039,679
PREFERRED STOCK DIVIDENDS
- 108,957 58,794
-------------------------------------------
NET LOSS ATTRIBUTABLE TO
COMMON
STOCKHOLDERS
$8,422,683 $9,360,897 $7,425,139
==========================================
LOSS PER COMMON SHARE
(BASIC) $0.74 $1.00 $1.16
============================================
LOSS PER COMMON SHARE $0.74 $1.00 $1.16
(DILUTED) ============================================
Weighted average common shares 11,379,437 9,329,419 6,425,316
outstanding ========== ========= =========
See notes to
consolidated financial
statements.
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
Preferred Preferred Preferred Preferred
Series A Stock Series B Stock Series C Stock Series D Stock
Shares Amount Shares Amount Shares Amount Shares Amount
BALANCE, OCTOBER 1, 1995 -- $ -- -- $ -- -- $ -- -- $ --
Common stock issued for cash -- -- -- -- -- -- -- --
Exercise of stock options -- -- -- -- -- -- -- --
Exercise of warrants -- -- -- -- -- -- -- --
Conversion of convertible
debentures -- -- -- -- -- -- -- --
Stock issued for acquisition
of VTI and Nippon-Zeon rights -- -- -- -- -- -- -- --
Issuance - Series A preferred
stock 3,500 35 -- -- -- -- -- --
Issuance - Series B preferred
stock -- -- 5,000 50 -- -- -- --
Preferred Series A conversion (2,900) (29) -- -- -- -- -- --
Cash dividends on Series A and
Series B preferred stock -- -- -- -- -- -- -- --
Change in market value of
marketable securities available
for sale -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
------------------------ --------------------- -------------------- ------------------------
BALANCE, SEPTEMBER 30, 1996 600 6 5,000 50 -- -- -- --
Exercise of stock options -- -- -- -- -- -- -- --
Exercise of warrants -- -- -- -- -- -- -- --
Stock issued for acquisition of
Multikine and Cell-Med's
Heteroconjugate rights -- -- -- -- -- -- -- --
Stock options issued to nonemployees
for services -- -- -- -- -- -- -- --
Issuance - Series C preferred
stock -- -- -- -- 2,850 29 -- --
Preferred Preferred Preferred Preferred
Series A Stock Series B Stock Series C Stock Series D Stock
Shares Amount Shares Amount Shares Amount Shares Amount
Repurchase of Preferred B shares -- -- (2,850) (29) -- -- -- --
Preferred Series A conversion (600) (6) -- -- -- -- -- --
Preferred Series B conversion -- -- (2,150) (21) -- -- -- --
Preferred Series C conversio -- -- -- -- (2,850) (29) -- --
Cash dividends on Series A and B -- -- -- -- -- -- -- --
Change in market value of
marketable securities available
for sale -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
------------------- ------------------- -------------------- --------------------
BALANCE, SEPTEMBER 30, 1997 -- -- -- -- -- -- -- --
Exercise of stock options -- -- -- -- -- -- -- --
Exercise of warrants -- -- -- -- -- -- -- --
Stock options issued to non-
employees for services -- -- -- -- -- -- -- --
Issuance - Series D preferred
stock, net of offering costs -- -- -- -- -- -- 10,000.00 100.00
Preferred Series D conversion -- -- -- -- -- -- (998.00) (10.00)
401(k) contributions -- -- -- -- -- -- -- --
Change in market value of
marketable securities
available for sale -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
----------------------- --------------------- --------------------- --------------------
BALANCE, SEPTEMBER 30, 1998 -- $ -- -- $ -- -- $ -- 9,002.00 $ 90.00
======================= ===================== ==================== ======================
See notes to consolidated financial statements
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
- ------------------------------------------------------------------------
Common Stock Additional
------------------------- Paid-in
Shares Amount Capital Other Deficit Total
BALANCE, OCTOBER 1, 1995 5,338,244 $53,382 $28,799,198 $ -- $(24,010,547) $4,842,033
Common stock issued for cash 23,000 230 57,270 -- -- 57,500
Exercise of stock options 195,711 1,957 491,113 -- -- 492,830
Exercise of warrants 1,308,780 13,088 2,330,226 -- -- 2,343,554
Conversion of convertible
debentures 257,480 2,575 1,284,825 -- -- 1,287,400
Stock issued for acquisition
of VTI and Nippon-Zeon rights 204,170 2,042 834,117 -- -- 836,159
Issuance - Series A preferred
stock -- -- 3,326,349 -- -- 3,326,384
Issuance - Series B preferred
stock -- -- 4,799,950 -- -- 4,800,000
Preferred Series A conversion 504,096 5,041 (5,012) -- -- --
Cash dividends on Series A and
Series B preferred stock -- -- -- -- (58,794) (58,794)
Change in market value of
marketable securities
available for sale -- -- -- (16,078) -- (16,078)
Net loss -- -- -- -- (6,326,666) (6,326,666)
------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1996 7,831,481 78,315 41,918,036 (16,078) (30,396,007) 11,584,322
Exercise of stock options 127,500 1,275 427,650 -- -- 428,925
Exercise of warrants 61,220 612 168,084 -- -- 168,696
Stock issued for acquisition of
Multikine and Cell-Med's
Heteroconjugate rights 785,056 7,851 1,817,149 -- -- 1,825,000
Stock options issued to non-
employees for services -- -- 104,673 -- -- 104,673
Issuance - Series C preferred
stock -- -- 2,849,971 -- -- 2,850,000
Repurchase of Preferred B
shares -- -- (2,849,971) -- -- (2,850,000)
Preferred Series A conversion 127,945 1,279 (1,273) -- -- --
Preferred Series B conversion 597,218 5,972 (5,951) -- -- --
Common Stock Additional
------------------------- Paid-in
Shares Amount Capital Other Deficit Total
Preferred Series C conversion 915,271 9,153 (9,124) -- -- --
Cash dividends on Series A and B -- -- -- -- (108,957) (108,957)
Change in market value of
marketable securities -- -- -- 12,579 -- 12,579
available for sale
Net loss -- -- -- -- (8,189,458) (8,189,458)
-----------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997 10,445,691 104,457 44,419,24 (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 7,6820 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 -- -- 9,499,900 -- -- 9,500,000
Preferred Series D conversion 441,333 4,413 (4,403) -- -- --
401(k) contributions 17,380 174 57,976 -- -- 58,15
Change in market value of
marketable securities
available for sale -- -- -- (44,792) -- (44,792)
Net loss -- -- -- -- (6,442,683) (6,442,683)
--------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1998 11,972,695 $119,726 $59,040,864 $(48,291) $(45,137,105) $13,975,284
=================================================================================================
See notes to consolidated financial statements.
CEL-SCI CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
- -------------------------------------------------------------------------------
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,442,683) $(8,189,458) $(6,326,666)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 295,331 313,547 290,829
Equity in loss of Joint Venture -- -- 3,772
Issuance of stock options for
services 564,031 104,673 --
Research and development expenses
related to stock purchase of
Cell-Med -- 75,000 --
Research and development expenses
related to stock purchase of
Multikine rights from Sittona -- 1,750,000 --
Research and development expenses
related to purchase of Viral
Technologies, Inc. -- -- 515,617
Research and development expenses
related to purchase of licensing
agreement from Nippon Zeon -- -- 219,375
Net realized loss on sale of
securities -- --
Amortization of investment premiums
and discounts -- (158,825) 22,558
Changes in assets and liabilities:
Decrease (increase) in advances 4,733 137,567 (129,739)
(Increase) decrease in prepaid
expenses, deposits, interest
receivable, and receivable from
joint venture (273,062) (168,312) 56,456
(Decrease) increase in accounts
payable, accrued expenses, and
deferred rent (52,088) 214,569 20,601
-------------------------------------
Net cash used in operating
activities (5,903,738) (5,921,239) (5,327,197)
-------------------------------------
CASH FLOWS (USED IN) PROVIDED BY
INVESTING ACTIVITIES:
Purchases of investments (13,480,816) (1,700,000) (6,492,955)
Sales and maturities of
investments 4,501,828 7,625,000 170,000
Repayment on note receivable from
shareholder 216,066 13,625 --
Issuance of note receivable to
shareholder -- (300,000) --
Expenditures for property and equipment (70,559) (184,543) (16,727)
Expenditures for patents (35,211) (62,762) (63,379)
-------------------------------------
Net cash (used in) provided by
Investing activities (8,868,692) 5,391,320 (6,403,061)
-------------------------------------
(Continued)
CEL-SCI CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
(cont'd)
- ------------------------------------------------------------------------------
1998 1997 1996
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES:
Issuance of convertible debentures -- -- 1,250,000
Issuance of preferred and common
stock and warrant conversion for
cash 14,077,049 597,672 10,927,075
Repayment of note receivable for
stock option exercise -- -- 86,100
Repayment of note payable -- -- (811,263)
Dividends paid -- (108,957) (58,794)
Net cash provided by financing
activities 14,077,049 488,715 11,393,118
NET DECREASE IN CASH (695,381) (41,204) (337,140)
CASH, BEGINNING OF YEAR 3,508,606 3,549,810 3,886,950
CASH, END OF YEAR $2,813,225 $3,508,606 $3,549,810
SUPPLEMENTAL DISCLOSURES:
In March 1996, a shareholder of the Company exercised options to purchase 40,000
shares of common stock. The shareholder signed a note for the stock, agreeing to
pay the note by the end of June 1996. The note was repaid in June 1996.
During 1996, $1,250,000 of the convertible debentures were converted into
250,000 shares of common stock.
During 1998, 1997, and 1996, the net unrealized loss on investments
available-for-sale was $48,291, $3,499, and $16,078, respectively.
During the quarter ended December 31, 1996 600 shares of Series A Preferred
Stock were converted into 127,945 shares of common stock and 1,900 shares of
Series B Preferred Stock were converted into 527,774 shares of common stock.
During the quarter ended March 31, 1997, 500 shares of Series C Preferred Stock
were converted into 125,000 shares of common stock.
During the quarter ended June 30, 1997, 250 shares of Series B Preferred Stock
was converted into 69,444 shares of common stock and 2,350 shares of Series C
Preferred Stock were converted into 790,271 shares of common stock.
In March 1997, Cel-Sci issued 751,678 shares of common stock as consideration
for the purchase of the rights to its Multikine technology. In addition, the
Company paid $500,000 in cash for the rights included in research and
development expenses.
In April 1997, Cel-Sci issued 33,378 shares of common stock to Cell-Med as a
payment for the Company's heteroconjugate technology. Cel-Sci also paid $50,000
in cash to Cell-Med, included in research and development expenses.
See notes to consolidated financial statements.
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
- -------------------------------------------------------------------------------
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.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles 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.
Significant accounting policies are as follows:
Principles of Consolidation - The consolidated financial statements
include the accounts of CEL-SCI Corporation and its wholly owned
subsidiary, Viral Technologies, Inc. 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, for research and testing
purposes, 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.
Investment in Joint Venture - Through October 1996, the investment in
joint venture was accounted for by the equity method. The Company's
proportionate share of the net loss of the joint venture has been
included in the respective statements of operations. In October 1996,
the Company purchased the remaining 50% interest in the joint venture,
and as of October 15, 1996, the operations of the joint venture are
consolidated in the financial statements of the Company.
Statement of Cash Flows - For purposes of the statements of cash flows,
cash consists principally of unrestricted cash on deposit, and
short-term money market funds. The Company considers all highly liquid
investments with a maturity of less than three months to be cash
equivalents.
Prepaid Expenses - The majority of prepaid expenses consist of bulk
purchases of laboratory supplies to be consumed in the manufacturing of
the Company's product for clinical studies and for its further
development, 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.
Reclassifications - Certain reclassifications have been made to the
1997 and 1996 financial statements for comparative purposes with the
1998 financial statements.
2. INVESTMENTS
The carrying values and estimated market values of investments
available-for-sale at September 30, 1998 and 1997, are as follows:
September 30, 1998
Gross Gross Market Value
Amortized Unrealized Unrealized at September
Cost Gains Losses 30, 1998
Fixed Income Mutual $9,723,602 $ 2,036 $ 50,327) $9,675,311
------------ ------- -------- --------
Funds
Total $9,723,602 $ 2,036 $(50,327) $9,675,311
================================================================
September 30, 1997
Gross Gross Market Value
Amortized Unrealized Unrealized at September
Cost Gains Losses 30, 1997
U. S. Government $249,713 $ -- $(213) $249,500
Securities
Corporate Debt 499,002 -- (3,286) 495,716
Securities Total
------------- --------- ----------- ------------
$748,715 $ -- $(3,499) $745,216
===============================================================
While management has classified investments as available-for-sale, management
intends to hold such securities to maturity for the foreseeable future.
The gross realized gains and losses of sales of investments
available-for-sale for the years ended September 30, 1998, 1997, and 1996 are as
follows:
1998 1997 1996
Realized gains
$1,485 $ - $ -
Realized losses 1,494
- -
----------------------------------------------
Net realized (loss) gain $(9) $ - $ -
==============================================
3. RESEARCH AND OFFICE EQUIPMENT
Research and office equipment at September 30, 1998 and 1997, consist of
the following:
1998 1997
Research equipment $1,728,968 $1,700,173
Furniture and equipment 237,579 200,929
Leasehold improvements 5,114 19,272
----------------------------------------
1,971,661 1,920,374
Less accumulated depreciation (1,352,165) (1,128,410)
and amortization
----------------------------------------
Net research and office $619,496 $791,964
equipment ========================================
4. JOINT VENTURE
In October 1996, the Company purchased the remaining 50 percent interest in VTI
from Alpha 1. Prior to this date, VTI was wholly owned by the Company and Alpha
1, each having a 50% ownership interest. The Company conveyed 159,170 shares of
CEL-SCI common stock as the consideration for the net assets of VTI with a fair
value of approximately $170,000. The acquisition was accounted for under the
purchase method of accounting with substantially all of the value of the
purchase price being expensed as research and development expense for the year
ended September 30, 1997, as the acquisition represents primarily research and
development costs. Effective October 31, 1995, the Company consolidated
CEL-SCI's and VTI's financial statements, and the consolidated financial
statements reflect the results of VTI's operations since the date of
acquisition.
In July 1996, VTI purchased all of the remaining rights to HGP-30 from a former
Japanese partner in return for 45,000 shares of the Company's common stock which
was charged to expense as purchased research and development.
5. CREDIT ARRANGEMENTS
As of September 30, 1998, the Company had a line of credit outstanding with a
bank in the total amount of $500,000, which can be used through January 5, 1999.
Interest on the line of credit is based on the bank's prime rate plus two
percent. No amounts have been borrowed under this agreement for the years ended
September 30, 1998 and 1997.
6. RELATED-PARTY TRANSACTIONS
On March 10, 1997, the Company purchased from Sittona Company, B.V.,
Netherlands, all rights to its MULTIKINE technology, including all patents and
trade secrets. The previous agreement with Sittona required CEL-SCI to pay a 10%
royalty on sales and a 15% royalty on sublicenses for the use of the technology,
know-how, and trade secrets. The Company purchased these rights with $500,000 in
cash and 751,678 shares of its common stock. The total purchase price of
$2,250,000 was charged to expense as purchased research and development.
The technology and know-how licensed to the Company, called MULTIKINE, was
developed by a group of researchers under the direction of Dr. Hans-Ake
Fabricius and was assigned during 1980 and 1981 to Hooper Trading Company, N.V.,
a Netherlands Antilles corporation (Hooper) and Shanksville Corporation, also a
Netherlands Antilles corporation (Shanksville). Maximilian de Clara, an officer
and director in the Company, and Dr. Fabricius owned 50% and 30%, respectively,
of each of these companies. The technology and know-how assigned to Hooper and
Shanksville was licensed to Sittona Company, B.V., a Netherlands corporation
(Sittona), effective September, 1982 pursuant to a licensing agreement which
required Sittona to pay to Hooper and Shanksville royalties on income received
by Sittona respecting the technology and know-how licensed to Sittona. In 1983,
Sittona licensed this technology to the Company. At such time as the Company
generates revenues from the sale or sublicense of this technology, the Company
was to pay royalties to Sittona equal to 10% of net sales and 15% of licensing
royalties received from third parties. In that event, Sittona, pursuant to its
licensing agreements with Hooper and Shanksville, would have been required to
pay to those companies a minimum of 10% of any royalty payments received from
the Company.
In 1985 Mr. de Clara acquired 100% of the issued and outstanding stock of
Sittona. In this arrangement Mr. de Clara and Dr. Fabricius, because of their
ownership interests in Hooper and Shanksville, would have received approximately
50% and 30%, respectively, of any royalties paid by Sittona to Hooper and
Shanksville; and Mr. de Clara, through his interest in all three companies
(Hooper, Shanksville, and Sittona), could have received up to 95% of any
royalties paid by the Company.
Between 1985 and October 1996, Mr. de Clara owned all of the issued and
outstanding stock of Sittona. In October 1996 Mr. de Clara disposed of his
interest in Sittona.
During the year ended September 30, 1996, a shareholder and officer of the
Company borrowed $86,100 from the Company to exercise the purchase of 40,000
shares of common stock, which was evidenced by a short-term promissory note. The
note was subsequently repaid during the year.
In October 1996, the Company loaned $300,000 to an officer and shareholder. The
loan carried an interest rate of 5% and was due on December 31, 1996. At that
time, the loan was extended and the balance was due in full as of March 31,
1998. Payments have been made on the note, and the balance outstanding on
September 30, 1998, was $70,809.
7. INCOME TAXES
The approximate tax effect of each type of temporary differences and carry
forward that gave rise to the Company's deferred tax assets and liabilities at
September 30, 1998 and 1997, is as follows:
1998 1997
Depreciation $(17,089)
$(18,258)
Prepaid expenses (227,795) (91,186)
Net operating loss carry 17,346,440
forward 14,811,39
Other 8,347 10,261
Less: Valuation allowance (17,109,902) (14,712,216)
------------------------------------
Net deferred $ -- $ --
====================================
The Company has available for income tax purposes net operating loss carry
forwards of approximately $45,589,000, expiring from 1998 through 2013. In the
event of a significant change in the ownership of the Company, the utilization
of such carry forwards 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 is
more likely than not to be realized.
8. STOCK OPTIONS, WARRANTS, AND BONUS PLAN
1998 Plans: During the year ended September 30, 1998, the shareholders of the
Company approved the adoption of three new Plans, the 1998 Incentive Stock
Option Plan (1998 Incentive Plan), the 1998 Non-Qualified Stock Option Plan
(1998 Non-Qualified Plan), and the 1998 Stock Bonus Plan. Shares are reserved
under each plan and total 300,000, 300,000 and 100,000 shares, respectively.
1996 Plans: During the year ended September 30, 1996, the shareholders of the
Company approved the adoption of two new Plans, the 1996 Incentive Stock Option
Plan (1996 Incentive Plan) and the 1996 Non-Qualified Stock Option Plan (1996
Non-Qualified Plan). Shares are reserved under each plan and total 600,000 and
400,000 shares, respectively. In August 1997, the 1996 Non-Qualified Plan was
amended to provide for 1,500,000 shares to be reserved under the 1996
Non-Qualified Plan.
1995 Plans: The shareholders of the Company approved the adoption of the 1995
Non-Qualified Stock Option Plan (1995 Non-Qualified Plan) and reserved 400,000
shares under the plan. Terms of the options are to be determined by the
Company's Compensation Committee, but in no event are options to be granted for
shares at a price below fair market value at the date of grant. In December
1995, the 1995 Non-Qualified Plan was amended to provide for 800,000 shares to
be reserved under the 1995 Non-Qualified Plan.
1994 Plans: Shares are reserved under the 1994 Incentive Stock Option Plan (1994
Incentive Plan) and the 1994 Non-Qualified Stock Option Plan (1994
Non-Qualified) and total 100,000 shares in each plan. Only employees of the
Company are eligible to receive options under the 1994 Incentive Plan, while the
Company's employees, directors, officers, and consultants or advisors are
eligible to be granted options under the 1994 Non-Qualified Plan. Terms of the
options are to be determined by the Company's Compensation Committee, which will
administer all of the plans, but in no event are options to be granted for
shares at a price below fair market value at date of grant. Options granted
under the option plans must be granted before July 29, 2004.
1992 Plans: The 1992 Incentive Stock Option Plan (1992 Incentive Plan), the 1992
Non-Qualified Stock Option Plan (1992 Non-Qualified Plan), and the Stock Bonus
Plan (1992 Bonus Plan) include shares that are reserved under each plan and
total 100,000, 60,000, and 40,000 shares, respectively. Only employees of the
Company are eligible to receive options under the Incentive Plan, while the
Company's employees, directors, officers, and consultants or advisors are
eligible to be granted options under the Non-Qualified Plan or issued shares
under the Bonus Plan. Terms of the options are to be determined by the Company's
Compensation Committee, which will administer all of the plans, but in no event
are options to be granted for shares at a price below fair market value at date
of grant. Options granted under the option plans must be granted, or shares
issued under the bonus plan issued, before August 20, 2002.
1987 Plan: The 1987 Nonqualified Stock Option and Stock Bonus Plan (the 1987
Plan) reserved 200,000 shares of the Company's previously unissued common stock
to be granted as incentive stock options to employees. The 1987 Plan reserved
50,000 shares of the Company's previously unissued common stock to be granted as
stock bonuses to employees. The exercise price of the options could not be
established at less than fair market value on the date of grant and the option
period could not be greater than ten years. During 1993, the 1987 Plan was
terminated and no further options will be granted and no further bonus shares
will be issued pursuant to the 1987 Plan. In June 1997, all options outstanding
under the 1987 Plan expired.
Information regarding the Company's stock option plans are summarized as
follows:
Outstanding Exercisable
---------------- ----------------
Range Weighted Weighted
of Average Average
Option Exercise Exercise
Prices Shares Prices Shares Prices
1987 Stock Option and
Bonus Plan:
Balance, September 30,
1995 and 1996 $16.50 - $19.70 7,000 $17.41 7,000 $17.41
Forfeitures $16.50 - $19.70 7,000 17.41 7,000 17.41
---------------- --------------
Balance, September 30,
1997 -- -- -- --
======================================
1992 Incentive Stock
Option Plan: =======================================
Balance, October 1,
1995 $2.87 - 3.87 57,550 $3.01 20,917 $2.87
Forfeitures $2.94 - 3.44 (5,833) 2.96 -- --
Granted $2.87 - 3.87 45,500 3.23 -- --
Exercised $2.87 (14,001) 2.87 (14,001) 2.87
Became exercisable $2.87 - 3.87 -- -- 39,102 3.13
---------------------------------------
Balance, September30,
1996 $2.87 - 3.87 83,216 3.16 46,018 3.12
Forfeitures $2.87 (500) 2.87 -- --
Exercised $2.87 (1,000) 2.87 (1,000) 2.87
Became exercisable $2.87 - 3.87 -- -- 19,516 3.12
---------------------------------------
Balance, September 30,
1997 81,716 3.16 64,534 3.13
Exercised $2.87 (3,166) 2.87 (3,166) 2.87
Became exercisable $2.94 - 3.87 -- -- 9,848 3.38
--------------------------------------
Balance, September 30,
1998 78,550 $3.17 71,216 $3.17
======================================
1992 Nonqualified Stock
Option Plan:
Balance, October 1,
1995 $2.87 - 15.60 60,000 $4.92 60,000 $4.92
Granted -- -- -- --
Exercised $2.87 (25,500) 2.87 (25,500) 2.87
--------------------------------------
Balance, September 30,
1996 $2.87 - 15.60 34,500 6.44 34,500 6.44
Forfeitures $13.40 (2,500) 13.40 (2,500) 13.40
Exercised $2.87 (11,500) 2.87 (11,500) 2.87
---------------------------------------
Balance, September 30,
1997 $2.87 - 15.60 20,500 7.59 20,500 7.59
Forfeitures $13.80 - 15.60 (8,000) 14.96 (8,000) 14.96
Exercised $2.87 (9,000) 2.87 (9,000) 2.87
---------------------------------------
Balance, September 30, 1998 3,500 $2.88 3,500 $2.88
======================================
Outstanding Exercisable
------------------- ----------------
Range Weighted Weighted
of Average Average
Option Exercise Exercise
Prices Shares Prices Shares Prices
1994 Incentive Stock
Option Plan: =========================================
Balance, October 1, $2.87 - 3.87 100,000 $2.87 61,000 $2.87
1995
Became exercisable $2.87 -- -- 11,000 2.87
-------------------------------------------
Balance, September 30, $2.87 100,000 2.87 72,000 2.8
1996
Became exercisable $2.87 -- -- 11,000 2.87
-------------------------------------------
Balance, September 30,
1997 100,000 2.87 83,000 2.87
-------------------------------------------
Became exercisable $2.87 -- -- 11,000 2.87
-------------------------------------------
Balance, September 30,
1998 100,000 $2.87 94,000 $2.87
===========================================
1994 Nonqualified Stock
Option Plan:
Balance, October 1,
1995 $2.87 - 3.87 97,250 $2.90 48,084 $2.94
Exercised $2.87 (46,667) 2.87 (46,667) 2.87
Became exercisable $2.87 -- -- 24,167 2.87
--------------------------------------
Balance, September 30,
1996 $2.87 - 3.87 50,583 2.92 25,584 2.90
Became exercisable $2.87 - 3.87 -- -- 24,166 2.90
-------------------------------------
Balance, September 30,
1997 50,583 2.92 49,750 2.90
Exercised $2.87 (23,333) 2.87 (23,333) 2.87
Became exercisable -- -- 833 2.87
-------------------------------------------
Balance, September 30,
1998 27,250 $2.96 27,250 $2.92
=========================================
1995 Nonqualified Stock
Option:
Balance, October 1,
1995 $2.87 - 3.87 329,251 $3.26 70,000 $2.87
Forfeitures $2.87 (12,625) 2.87 -- --
Granted $2.38 - 5.62 419,500 2.75 -- --
Exercised $2.87 - 3.87 (85,375) 2.88 (85,375) 2.88
Became exercisable $2.87 - 3.87 -- -- 146,628 3.32
-------------------------------------------
Balance, September 30,
1996 $2.38 - 5.62 650,751 2.97 31,253 2.75
Granted $5.25 20,000 5.50 -- --
Exercised $2.38 - 3.87 (19,000) 3.56 (19,000) 3.56
Became exerciable $2.38 - 5.62 -- -- 449,501 2.74
---------------------- ---------------
Balance, September 30,
1997 651,751 3.02 561,754 2.72
Forfeitures $5.62 (7,500) 5.62 (7,500) 5.62
Exercised $2.38 - 3.87 (121,334) 2.89 (121,334) 2.88
Became exercisable $3.87 - 5.62 -- -- 79,997 4.48
----------------------------------------
alance, September 30, 1998 521,917 $3.01 82,416 $2.92
======================================
Outstanding Exercisable
----------------- ---------------
Range Weighted Weighted
of Average Average
Option Exercise Exercise
Prices Shares Prices Shares Prices
1996 Incentive Stock Option
Plan:
Granted in 1996 $5.62 - 11.00 65,700 $5.70 -- $ --
------------------------------------
Balance, September 30,
1996 $5.62 - 11.00 65,700 5.70 -- --
Forfeitures $3.25 - 6.88 (5,500) 4.08 -- --
Granted $3.25 - 5.18 331,800 3.89 -- --
Became exercisable $5.62 - 11.00 -- -- 21,234 5.57
------------------------------------
Balance, September 30,
1997 392,000 4.19 21,234 5.57
Granted $3.31 - 5.12 205,000 4.76 -- --
Forfeitures $3.62 - 7.12 (3,666) 5.34 (3,666) 5.34
Became exercisable -- -- 128,838 4.19
----------------- ----------------
Balance, September 30,
1998 593,334 $4.38 146,406 $4.36
=========================================
1996 Nonqualified Stock
Option Plan:
Granted in 1996 $5.62 70,000 $5.62 -- $ --
-----------------------------------------
Balance, September 30,
1996 $5.62 70,000 5.62 -- --
Granted $3.12 - 5.25 880,000 3.52 -- --
Became exercisable $5.62 -- -- 23,334 5.62
-------------------------------------
Balance, September 30,
1997 950,000 3.67 23,334 5.62
Granted $2.50 - 8.13 474,700 2.98 --
Exercised $3.25 (16,667) 3.25 (16,667) 3.25
Forfeitures (2,000) 3.12 -- --
Became exercisable $3.12 - 5.62 -- -- 528,000 3.13
----------------- -----------------
Balance, September 30,
1998 1,406,033 $3.44 534,667 $3.23
================= =================
No options have been granted as of September 31, 1998, under Incentive Plan, the
1998 Non-Qualified Plan, or the 1998 Stock Bonus Plan.
The weighted average remaining contractual life for options outstanding at
September 30, 1998, is as follows:
Plan Weighted Average
Remaining Contractual
Life (Years)
1992 Incentive Stock Option Plan 4.35
1992 Nonqualified Stock Option 5.75
Plan
1994 Incentive Stock Option Plan 4.33
1994 Nonqualified Stock Option
Plan 2.85
1995 Nonqualified Stock Option
Plan 3.20
1996 Incentive Stock Option Plan 8.96
1996 Nonqualified Stock Option
Plan 4.32
Other Options and Warrants - During 1991, the Company granted a consultant an
option to purchase 50,000 shares of the Company's common stock. The options were
exercisable at $13.80 per share and expired in March 1996. The holder of the
option had the right to have the shares issuable upon the exercise of the option
included in any registration statement filed by the Company.
In connection with the 1992 public offering, 5,175,000 common stock purchase
warrants (the public warrants) were issued and were outstanding at September 30,
1997. Every ten public 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 public warrants was extended to February 1998. Effective June 1, 1997,
the exercise price of the public warrants was lowered from $15 to $6 and only
five public warrants rather than 10 public warrants were required to purchase
one share of common stock. Subsequent to September 30, 1997, warrant holders who
tendered five public warrants and $6.00 between January 9, 1998, and February
17, 1998, would receive one share of the Company's common stock and one new
Series A Warrant. The new Series A 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 public warrants was
extended to July 31, 1998, and 582,025 public warrants were tendered for 116,405
common shares. As of September 30, 1998, the remaining 4,592,975 public warrants
had expired.
Also in connection with the 1992 offering, the Company issued to the underwriter
warrants to purchase 9,000 equity units, each unit consisting of 5 shares of
common stock and 5 warrants entitling the holder to purchase one additional
share of common stock. The equity unit warrants were outstanding at September
30, 1996, and were exercisable through February 8, 1997, at a price of $255.70
per unit. The common stock warrants included in the units were exercisable at a
price of $76.70 per share. As of September 30, 1997, all warrants have expired.
During 1995, the Company granted another consultant options to purchase 17,858
shares of the Company's common stock. These shares became exercisable on
November 2, 1995, and will expire November 1, 1999. These options are
exercisable at $5.60 per share and as of September 30, 1998, 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 entitles the holder to
purchase one additional share of Common Stock at a price of $3.25 per share at
any time prior to June 30, 1997. 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 March 31, 1999.
During 1996, the Company granted two consultants options to purchase a total of
70,000 shares of the Company's common stock. The fair value of the options is
expensed over the life of the consultants' contracts. The 50,000 options became
exercisable on August 21, 1996, at $3.25. Of the 50,000 options, 24,000 shares
were exercised in August 1996 and 26,000 were exercised in February of 1997. An
additional 20,000 options became exercisable at August 31, 1997, at $3.25 and
were exercised in February of 1997.
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 $3.50 to
$4.50. 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. At September 30,
1998, 103,500 options related to the four consultants remained outstanding.
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, 10,048 options were exercised at prices ranging from $3.50
to $4.50. At September 30, 1998, 271,952 options related to the consultants
remain outstanding.
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, 1998, 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 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 in 1998,
1997, and 1996, consistent with the provisions of SFAS 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,
-----------------------------------------------
1998 1997 1996
Net loss
As reported $(6,442,638) $(8,189,458) $(6,326,666)
Pro forma (7,018,634) (9,687,999) (7,032,936
Loss per common share:
As reported $0.74 $1.00 $1.16
Pro forma 0.79 1.17 1.27
The weighted average fair value at the date of grant for options granted during
1998, 1997, and 1996, was $2.17, $1.16 and $1.18 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:
1998 1997 1996
Expected stock price volatility 79% 74% 91%
Risk-free interest rate 5.49% 5.36% 5.82%
Expected life options 2.00 2.00 2.00
Expected dividend yield 0 0 0
The effects of applying SFAS 123 in this pro forma disclosure are not
necessarily indicative of the effect on future amounts. SFAS 123 does not apply
to awards granted prior to fiscal 1996.
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.
9. 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, 1998, 1997, and 1996, in connection with this plan was
approximately $70,519, $35,800, and $29,800, respectively.
10. 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,
1999 $131,196.00
2000 133,892.00
2001 139,175.00
2002 143,818
2003 112,390
Thereafter 7,605
-----------------
Total minimum lease payments
$668,076
=================
Rent expense for the years ended September 30, 1998, 1997, and 1996, was
approximately $165,067, $185,776, and $177,858, respectively.
11.STOCKHOLDERS' EQUITY
On December 17, 1996, the Company authorized 3,600 shares of Series C Preferred
Stock (Series C Stock) with a par value of $.01 per share and sold 2,850 shares
of Series C for $1,000 per share.
The issuance of the Series C Stock resulted in a beneficial conversion feature
of $502,941, which was accreted over 180 days from the date of issuance.
Series C Stock is convertible into shares of the Company's common stock on the
basis of one share of Series C Stock for shares of common stock equal in number
to the amount determined by dividing $1,000 by 85% of the average closing price
of the Company's common stock over the five-day trading period ending on the day
prior to the conversion of the Series C Stock. The conversion price may not be
more than $4.00. Beginning 90 days after December 17, 1996, one-half of the
Series C Stock is convertible into shares of the Company's common stock. All
preferred shares are convertible into shares of the Company's common stock
beginning 180 days after December 17, 1996 provided that, if the Company's
common stock trades for more than $8.00 at any time, then all shares of the
Series C Stock will thereafter be immediately convertible into shares of the
Company's common stock. During the year ended September 30, 1997, 2,850 shares
of Series C stock were converted into 915,271 shares of the Company's common
stock.
In addition, 379,793 Series A warrants and 379,763 Series B warrants were sold
with the Series C Preferred Stock. The Series A warrants entitle 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 entitles the holder
to purchase one share of the Company's common stock at a price of $4.50 per
share at any time prior to March 15, 1999. During 1998, all 379,765 Series A
warrants were exercised and 272,073 Series B warrants were exercised.
In April 1997, the Company purchased the rights to Cell-Med's LEAPS technology
for consideration of $50,000 in cash and 33,378 shares of the Company's common
stock. The total purchase price of $125,000 was expensed as research and
development expense. Additional payments to Cell-Med for such rights of up to
$600,000 are contingent upon the development and viability of the technology. In
addition, royalty payments of 5% of the sales price of technology using the
product plus 15% of any amounts for sublicensing are.
In March 1996 the Company sold $1,250,000 of Convertible Notes (the Notes) to
two persons. The Notes were convertible from time to time, in whole or in part,
into shares of the Company's Common Stock. The conversion price was the lesser
of (i) $5 per share or (ii) 80% of the average closing bid price of the
Company's Common Stock during the five trading days immediately preceding the
date of such conversion. The Notes were payable on December 1, 1996, and accrued
interest at 10% per annum. All of the Notes have since been converted into
257,480 shares of the Company's Common Stock.
The Company authorized 3,500 shares of Series A Preferred Stock (Series A Stock)
with a par value of $.01 per share on May 13, 1996. The Company also authorized
5,000 shares of Series B Preferred Stock (Series B Stock) with a par value of
$.01 per share on August 11, 1996. Holders of Series A Stock and Series B Stock
are entitled to dividends, payable quarterly if declared, at the rate of $17.50
per quarter. Dividends which are not declared will not accrue nor be cumulative.
During 1996, the Company issued 3,500 shares of Series A Stock for cash
consideration of $3,500,000 and 5,000 shares of Series B Stock for cash
consideration of $5,000,000. Commissions of $375,000 were paid relative to the
preferred stock offerings and were recorded as a reduction of additional paid-in
capital on the transaction.
Each share of Series A Stock was convertible into shares of common stock equal
in number to the amount determined by dividing $1,000 by 85% of the closing
price of the Company's common stock on or after 60 days from issuance, and 83%
of the closing price on or after 90 days from issuance, with the conversion
price not less than $3.00 nor more than $8.00. Each share of Series B Stock was
convertible into shares of common stock equal in number to the amount determined
by dividing $1,000 by 87% of the closing price of the Company's common stock on
or after 10 days from the effective registration date of the common shares, and
85% of the closing price on or after 40 days from the effective date, with the
conversion price not less than $3.60 nor more than $14.75.
The issuance of the Series A Stock and Series B Stock resulted in beneficial
conversion features of $716,857 and $882,353, respectively, which were accreted
over 90 days and 123 days, respectively, from the date of issuance.
Also during 1996, 2,900 shares of Series A Stock were converted into 504,096
shares of the Company's common stock. In August 1996, the Board of Directors
declared dividends on Series A Stock ($17.50 per quarter) and cash dividends of
$58,794 were paid as of September 30, 1996. In November 1996, the Board of
Directors declared dividends on Series A Stock ($17.50 per quarter) and Series B
Stock ($17.50 per quarter) and cash dividends of $108,957 were paid.
In December 1996, the Company repurchased 2,850 shares of Series B Preferred
Shares for $2,850,000 plus warrants which allow the holders to purchase up to
99,750 shares of the Company's common stock for $4.25 per share prior to
December 15, 1999. During 1997, the remaining 2,150 and 600 shares,
respectively, of Series B and A stock were converted into 597,218 and 127,945
shares of the Company's common stock, respectively.
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 converts into 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. All Series A and Series B Warrants issued
remain outstanding at September 30, 1998. 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 accreted immediately.
12. LOSS PER SHARE
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share" (EPS), which simplifies the standards for computing EPS
previously found in Accounting Principles Board Opinion (APB) No. 15 and makes
them comparable to international EPS standards. 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 A, Series B and Series C Preferred Stock
beneficial conversion features, the accretion of Series D Preferred Stock
warrants and preferred stock dividends. The statement is effective for financial
statements issued for periods ending after December 15, 1997. The Company
adopted this statement during the year ended September 30, 1998. EPS for all
periods have been computed in accordance with SFAS No. 128.
1998 1997 1996
Loss per common share (basic and diluted) $0.74 $1.00 $1.16
13.RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standard Boards issued Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income,
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. These standards are effective for the Company beginning in fiscal
1999.
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains, and losses) and requires that
items of other comprehensive income be classified by their nature in the
financial statements and that the accumulated balance of other comprehensive
income be displayed separately from retained earnings and additional paid-in
capital in the equity section. SFAS 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders.
In February 1998, FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Post-retirement Benefits, an Amendment of SFAS Nos. 87, 88,
and 106. SFAS No. 132 revises employers' disclosure about pension and other
post-retirement benefit plans.
In June 1998, FASB issued SFAS 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 130, SFAS 131, SFAS 132,
and SFAS 133 will have a material effect on its financial position or results of
operation.
14.RESTATEMENT
Subsequent to the issuance of the Company's 1997 consolidated financial
statements, the Company determined that the application of a technical
accounting treatment required the 1997 and 1996 loss per share calculations to
include the impact of $1,062,482 and $1,039,679, respectively, for the accretion
of the assumed beneficial conversion features, and $108,957 and $58,794,
respectively, for preferred stock dividends, of the Series A, Series B and
Series C Preferred Stock issued during fiscal 1997 and 1996. The effect of the
accretion is a non-cash charge to additional paid-in capital and does not impact
the previously reported net loss for the years ended September 30, 1997 and
1996, nor does it result in a net change to stockholders' equity at September
30, 1997 and 1996. The effect of the restatement was to increase net loss per
share by $0.12 to $1.00 for the year ended September 30, 1997, and $0.18 to
$1.16 for the year ended September 30, 1996.
A summary of the significant effects of the restatement is as follows (in
thousands, except net income (loss) per share amounts):
1997 1996
--------------------- ---------------------
As As
Previously As Previously As
Reported Restated Reported Restated
FOR THE YEAR ENDED
SEPTEMBER 30:
Net loss attributable to
common stockholders $8,189,458 $9,360,897 $6,326,666 $7,425,139
Loss per common share (basic $ 0.88 $ 1.00 $ 0.98 $ 1.16
Loss per common share (diluted)$ 0.88 $ 1.00 $ 0.98 $ 1.16
* * * * * *
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: January 10, 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/ Maximillian de Clara Director and Principal January 10, 2000
MAXIMILIAN DE CLARA Executive Officer
/s/ Geert R. Kersten Director, Principal January 10, 2000
GEERT R. KERSTEN Financial Officer
and Chief Executive Officer
Director
ALEXANDER G. ESTERHAZY
/s/ John M. Jacquemin Director January 10, 2000
JOHN M. JACQUEMIN