CEL-SCI CORPORATION
Financial Statements for the Years Ended September 30, 1995, 1994,
and 1993, and Independent Auditors' Report
To the Board of Directors and Shareholders of
CEL-SCI Corporation:
We have audited the accompanying balance sheets of CEL-SCI
Corporation as of September 30, 1995 and 1994, and the related
statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CEL-
SCI Corporation as of September 30, 1995 and 1994, and the results
of its operations and its cash flows for each of the three years
in the period ended September 30, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, as of
September 30, 1994, the Company changed its method of accounting
for certain investments in debt and equity securities to conform
with Statement of Financial Accounting Standards No. 115.
Washington, DC
November 29, 1995, except for Note 14, as to
which the date is December 23, 1995
Page F-2
F - 3
Page F-3
Page F-4
Page F-5
CEL-SCI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994, AND 1993
2
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
CEL-SCI Corporation (the Company) was
incorporated
on March 22, 1983, in the State of
Colorado, to finance research and
development in biomedical science
and ultimately to engage in
marketing products.
Significant accounting policies are as
follows: Investments -
Effective September 30,
1994, the Company adopted, on a
prospective basis, Statement of
Financial Accounting Standard No.
115, "Accounting for Certain Debt
and Equity Securities" (SFAS 115)
and revised its policy for
investments. Investments that may
be sold as part of the liquidity
management of the Company or for other
factors are classified as available-for
sale and are carried at fair market
value. Unrealized gains and losses on
such securities are reported as a
separate component of stockholders'
equity. Realized gains and losses on
sales of securities are reported in
earnings and computed using the specific
identified cost basis. The adoption of
SFAS 115, which has not been applied
retroactively to prior years' financial
statements, resulted in a decrease in
stockholders' equity of $85,753 for the
net unrealized losses on investments
available forsale at September 30, 1994.
As of
September 30, 1995, all debt and
equity securities had been
disposed of and any unrealized
gains or losses were recognized
during the year ended September
30, 1995 (see Note 2).
Prior to September 30, 1994,
all investments available-for-sale
were carried at the lower of
aggregate amortized cost or market
value.
Research and Office Equipment -
Research and
office equipment is recorded at
cost and depreciated using the
straightline method over five and
seven years estimated useful
lives.
Research and Development Costs
Research and development
expenditures are expensed as
incurred.
Patents - Patent expenditures
are capitalized and amortized
using the straight line method
over 17 years. In the event
changes in technology or other
circumstances impair the value or
life of the patent, appropriate
adjustment in the asset value and
period of amortization will be
made.
Net Loss Per Share - Net loss
per common share is based on the
weighted average number of common
shares outstanding during the
period. Common stock equivalents,
including options to purchase
common stock, are excluded from
the calculation as they are
antidilutive.
Investment in Joint Venture
Investment in joint venture is
accounted for by the equity
method. The Company's
proportionate share of the net
loss of the joint venture is
included in the respective
statements of operations.
Statement of Cash Flows - For
purposes
of the statements of cash flows,
cash consists principally of
unrestricted cash on deposit, and
short-term money market funds.
The Company considers all highly
liquid investments with a maturity
of less than three months to be
cash equivalents.
Prepaid Expenses - The majority
of prepaid expenses consist of
bulk purchases of laboratory
supplies to be consumed in the
manufacturing of the Company's
product for clinical studies and
for its further development.
Income Taxes - Effective
October 1,
1993, the Company adopted
Statement of Financial Accounting
Standard No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109
requires an asset and
liability approach for reporting income
taxes. Implementation of SFAS 109 in
1994 did not have any effect on the
Company's net earnings and reported
financial position and prior financial
statements have not been restated.
Reclassifications - Certain
reclassifications have been made
for 1994 and 1993 for comparative
purposes.
2. INVESTMENTS
The carrying values and estimated
market values of investments available
for-sale at September 30, 1995, are as
follows:
Note2a
The carrying values and estimated
market values of investment
securities at September 30, 1994, are
as follows:
Note2b
The gross realized gains and losses
of sales of investments available-for-
sale for the years ended September
30, 1995, 1994, and 1993, are as
follows:
Note 2c
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30,
1995 and 1994, consist of the
following:
Note3a
4. JOINT VENTURE
In April 1986, the Company paid
$200,000 cash
and issued 500,000 shares of its $.01
par value common stock to acquire
half the rights to technology which
may be useful in the diagnosis,
prevention and treatment of Acquired
Immune Deficiency Syndrome (AIDS)
from Alpha I Biomedicals, Inc. The
Company's stock was valued at $1.50
per share on the basis of arm's
length negotiations. At the time
the transaction took place, the
stock was trading at $2.42. Because
the cost of these rights to
technology is considered research
and development, the $950,000
purchase price was expensed.
The Company and Alpha 1 Biomedicals,
Inc. (Alpha 1)
contributed their respective
interests in the technology and
$10,000 each to capitalize a joint
venture, Viral Technologies, Inc.
(VTI). VTI is wholly owned by the
Company and Alpha 1, each having a
50% ownership interest. The total
loaned or advanced to VTI by CELSCI
Corporation through September 30,
1995, was $1,592,584 (see Note 13).
During the three years ended
September 30, 1995, VTI had no
sales. The operations of VTI were as
follows:
Note4a
The balance sheets of VTI at September
30, 1995 and
1994, are summarized as follows:
Note4b
On December 17, 1987, Viral
Technologies, Inc., entered into a
licensing agreement with Nippon Zeon
Company, Ltd., a Japanese company.
Under the agreement, Nippon Zeon
will
engage in the development and
testing and, if development is
successful, the marketing of the
potential AIDS vaccine in the
Pacific Rim area. As a result,
Viral Technologies, Inc., received
precommercialization payments of
$850,000 during the year ended
September 30, 1988.
During the year ended September 30,
1995, VTI purchased back from Nippon
Zeon the licensing agreement. No
cash or stock was exchanged;
however, Nippon Zeon retains a
royalty on any future sales of the
drug HGP30 in its former exclusive
licensed territories.
5. CREDIT ARRANGEMENTS
At September 30, 1995, the Company
had a promissory
note outstanding with a bank in the
amount
of $811,263. This promissory note
was converted in November 1994 from
a prior line of credit. The line of
credit outstanding at September 30,
1994, was $788,601, and the Company
subsequently drew down additional
amounts during the year ended
September 30, 1995, prior to
converting the line of credit to a
promissory note. The principal is
being repaid over forty-eight
consecutive months beginning
February 5, 1995. Interest on the
outstanding balance is calculated at
the Bank's prime rate plus two
percent, which is 10.75% at
September 30, 1995, and is to be
paid monthly with the principal
payments. The promissory note is
secured by all corporate assets and
requires the Company to hold a
certificate of deposit equal to 20%
of the outstanding balance of the
line of credit with the Bank. Under
the promissory note the Company is
also subject to certain minimum
equity, liquidity, and operating
covenants.
6. COMMITMENTS AND CONTINGENCIES
In 1993, an officer and director of the
Company was involved in legal
proceedings concerning shares of the
Company's common stock. The officer
and director was acting on behalf of
the Company in trying to secure
financing, and the Company paid
legal fees in connection with these
proceedings and indemnified the
officer for any loss he suffered
upon the settlement of these
matters. During 1992, one of the
matters was settled by the officer
and director delivering 3,000 shares
of the Company's common stock to one
plantiff and paying this plantiff
$200,000. In the other matter, a
European Court awarded a different
plantiff 25,000 shares of the
Company's common stock owned by the
officer and director. In October
1993, the Company issued 25,000
shares of common stock to the
plaintiff to satisfy the judgment
and in lieu of reimbursement to the
officer and director for this claim.
The value of the shares issued,
$202,500, was expensed during 1993
and was included in accrued expenses
at September 30, 1993.
7. RELATED-PARTY TRANSACTIONS
The technology and know-how licensed to
the Company was developed by a group
of researchers under the direction
of Dr. Hans Ake Fabricius and was
assigned during 1980 and 1981 to
Hooper Trading Company, N.V., a
Netherlands Antilles corporation
(Hooper) and Shanksville
Corporation, also a Netherlands
Antilles corporation (Shanksville).
Maximillian de Clara, an officer and
director
in the Company, and Dr. Fabricius own
50% and 30%, respectively, of each of
these companies. The technology and
knowhow assigned to Hooper and
Shanksville was licensed to Sittona
Company, B.V., a Netherlands
corporation (Sittona), effective
September, 1982 pursuant to a
licensing agreement which requires
Sittona to pay to Hooper and
Shanksville royalties on income
received by Sittona respecting the
technology and know-how licensed to
Sittona. In 1983, Sittona licensed
this technology to the Company. At
such time as the Company generates
revenues from the sale or sublicense
of this technology, the Company will
be required to pay royalties to
Sittona equal to 10% of net sales
and 15% of licensing royalties
received from third parties. In
that event, Sittona, pursuant to its
licensing agreements with Hooper and
Shanksville, will be required to pay
to those companies a minimum of 10%
of any royalty payments received
from the Company. In 1985 Mr. de
Clara acquired 100% of the issued
and outstanding stock of Sittona.
Mr. de Clara and Dr. Fabricius,
because of their ownership interests
in Hooper and Shanksville, could
receive approximately 50% and 30%
respectively, of any royalties paid
by Sittona to Hooper and
Shanksville, and Mr. de Clara,
through his interest in all three
companies
(Hooper, Shanksville, and Sittona),
will receive up to 95% of any
royalties paid by the Company.
During 1992, the Company reimbursed
an officer and director for legal
fees incurred in connection with
certain legal proceedings as
discussed in Note 6. In addition,
during 1992 the Company paid the
officer and director $200,000,
representing the amount that he paid
in connection with one of the legal
proceedings discussed in Note 6 and,
in 1993, issued 3,000 shares of
common stock to the officer and
director as reimbursement for shares
he delivered in connection with the
proceeding. The $200,000 payment
was expensed in 1992, and the value
of the 3,000 shares, $20,100 was
expensed in 1993.
8. INCOME TAXES
The approximate tax effect of each type
of temporary differences and
carryforward that gave rise to the
Company's tax assets and liabilities
at September 30, 1995 and 1994, is
as follows:
Note8a
The Company has available for income
tax purposes net operating loss
carryforwards of approximately
$24,370,937, expiring from 1998
through 2007.
In the event of a significant change
in the ownership of the Company, the
utilization of such carryforwards
could be substantially limited.
9. STOCK OPTIONS, WARRANTS, AND BONUS
PLAN
During the year ended September 30,
1995, the Board of Directors
canceled certain options under the
various stock option plans and
replaced them with new options.
Under this conversion the number of
options outstanding did not increase
or decrease as the conversion was an
exchange of options within the plans
to maximize reserved shares in the
Plans with the options granted.
The shareholders of the Company
approved the adoption of the 1995 Non
Qualified Stock Option Plan (1995 Non
Qualified Plan) and reserved 400,000
shares under the plan. Terms of the
options are to be determined by the
Company's Compensation Committee, but
in no event are options to be granted
for shares at a price below fair market
value at the date of grant.
On February 23, 1988, the shareholders
of the Company adopted the 1987
Nonqualified Stock Option and Stock
Bonus Plan (the 1987 Plan). This
plan reserved 200,000 shares of the
Company's previously unissued
common stock to be granted as
incentive stock options to
employees. The 1987 Plan reserved
50,000 shares of the Company's
previously unissued common stock to
be granted as stock bonuses to
employees. The exercise price of
the options could not be
established at less than fair
market value on the date of grant
and the option period could not be
greater than ten years. During
1993, the 1987 Plan was terminated
and no further options will be
granted and no further bonus shares
will be issued pursuant to the 1987
Plan.
On September 30, 1993, the
shareholders of the Company
approved the adoption of three new
plans, the 1993 Incentive Stock
Option Plan (1993 Incentive Plan),
the 1993 Non Qualified Stock Option
Plan (1993 Non Qualified Plan) and
the Stock Bonus Plan (1993 Bonus
Plan). Shares are reserved under
each plan and total 100,000, 60,000
and 40,000 shares, respectively.
Only employees of the Company are
eligible to receive options under
the Incentive Plan, while the
Company's employees, directors,
officers, and consultants or
advisors
are eligible to be granted options
under the NonQualified Plan or
issued shares under the Bonus Plan.
Terms of the options are to be
determined by the Company's
Compensation Committee, which will
administer all of the plans, but in
no event are options to be granted
for shares at a price below fair
market value at date of grant.
Options granted under the option
plans must be granted, or
shares issued under the bonus plan
issued, before August 20, 2002.
On July 29, 1994, the Board of
Directors approved the adoption of
two new plans, the 1994 Incentive
Stock Option Plan (1994 Incentive
Plan) and the 1994 NonQualified
Stock Option Plan (1994
NonQualified). Shares are reserved
under each plan and total 100,000
shares for each plan. Only
employees of the Company are
eligible to receive options under
the 1994 Incentive Plan, while the
Company's employees, directors,
officers, and consultants or
advisors are eligible to be granted
options under the 1994 Non-
Qualified Plan. Terms of the
options are to be determined by the
Company's Compensation Committee,
which will administer all of the
plans, but in no event are options
to be granted for shares at a price
below fair market value at date of
grant. Options granted under the
option plans must be granted, or
shares issued under the bonus plan
issued, before July 29, 2004.
Information regarding the Company's
stock
option plan is summarized as follows:
Note9a
Note9b
During 1991, the Company granted a
consultant an option to purchase 50,000
shares of the Company's common stock.
The option is exercisable at $13.80 per
share and expires in March 1996. The
holder of the option has the right to
have the shares issuable upon the
exercise of the option included in any
registration statement filed by the
Company.
Also during 1991, the Company granted
another consultant options to purchase
6,000 shares of the Company's common stock.
Options to purchase 667 shares expired in
April 1993. Options to purchase 1,333
shares at $2.50 per share were exercised in
April 1994. At September 30, 1995, options
to purchase 4,000 shares were outstanding
and exercisable at prices ranging from
$2.50 to $15.00 per share.
In connection with the 1992 public
offering, 5,175,000 common stock purchase
warrants
were issued and are outstanding at
September 30, 1995. Every ten warrants
entitle the holder to purchase one share
of common stock at a price of $46.50 per
share. During 1995, the expiration of
these
warrants was extended to February 1996.
The Company may accelerate the expiration
date of the warrants by giving 30 days
notice to the warrant holders, provided,
however, that at the time the Company gives
such notice of acceleration (1) the Company
has in effect a current registration
statement covering the shares of common
stock issuable upon the exercise of the
warrants and (2) at anytime during the 30
day period preceding such
notice, the average closing bid price of
the Company's common stock has been at
least 20% higher than the warrant
exercise price for 15 consecutive trading
days.
Also in connection with the 1992 offering,
the Company issued to the underwriter
warrants to purchase 9,000 equity units,
each unit consisting of 5 shares of
common stock and 5 warrants entitling the
holder to purchase one additional share of
common stock. The equity unit warrants are
outstanding at September 30, 1995 and are
exercisable through February 8, 1997, at a
price of $255.70 per unit. The common stock
warrants included in the units are
exercisable at a price of $76.70 per share.
During 1995, the Company granted another
consultant options to purchase 17,858
shares of the Company's common stock.
These shares became exercisable on
November 2, 1995, and will expire
November 1, 1999. These options are
exercisable at $5.60 per share.
10.EMPLOYEE BENEFIT PLAN
During 1993 the Company implemented a
defined contribution retirement plan,
qualifying under Section 401(k) of the
Internal Revenue Code, subject to the
Employee Retirement Income Security Act
of 1974, as amended, and covering
substantially all CEL-SCI employees. The
employer contributes an amount equal to
50% of each employee's contribution not
to exceed 6% of the participant's
salary. The expense for the year ended
September 30, 1995 and 1994, in
connection with this plan was
approximately $24,913 and $16,160,
respectively.
11.LEASE COMMITMENTS
Operating Leases - The future minimum
annual rental payments due under
noncancelable operating leases for
office and laboratory space are as
follows:
Note11a
Rent expense for the year ended September
30, 1995,
1994, and 1993, was approximately
$124,059, $122,369, and $55,000,
respectively.
12.STOCKHOLDERS' EQUITY
On April 28, 1995 the stockholders of
the Company approved a 10-for-1 reverse
split
of the Company's outstanding common
stock, which became effective on May 1,
1995. All shares and per-share amounts
have been restated to reflect the stock
split.
The Company also participated in a private
offering
during 1995. This offering allowed for
the purchase of one share of common
stock and one warrant (a unit) for the
price of $2.00 per unit. All 1,150,000
shares authorized for the offering were
purchased during the year ended
September 30, 1995. Warrants
outstanding are exercisable at $3.25 and
expire on June 30, 1997. Cash of
$2,300,000 was received in June and
September 1995. Commissions of $344,150
were paid or payable relative to the
offering at September 30, 1995. During
1994, the Company granted 1,500 shares
of common stock to an officer as a bonus
award. The Company also issued 25,000
shares to satisfy the judgment against
an officer and director. The issuance
was to the plantiff in lieu of
reimbursement to the officer and
director. The judgment was settled in
1993 and the expense of the issuance was
recorded in 1993.
During 1993, the Company received $27,333
cash for
7,333 shares of common stock.
13.SUBSEQUENT EVENTS - JOINT VENTURE
In October 1995, the Company purchased
Alpha 1's 50
percent interest in VTI. The Company
conveyed 159,170 shares of common stock
as full consideration for all of the VTI
capital stock owned by Alpha 1. The
acquisition of Alpha 1's interest will
be accounted for as purchase with
substantially all of the value of the
purchase price being expensed as
research and development costs.
14.SUBSEQUENT EVENTS - OTHER
On December 8, 1995, the Board of
Directors authorized the extension of
the Company's warrants issued in
connection with the 1992 public offering
from February 6, 1996, to February 6,
1997. On December 23, 1995, the Company
entered into an agreement with investors
to reduce the exercise price of warrants
to purchase shares of the Company's
common
stock issued in a 1995 private offering
from $3.25 to
$1.60 per shares (Note 12). Shares which
may be acquired under this agreement
with exercise of the
warrants total 1,150,000. In connection
with modifying the warrant exercise
price, 312,500 warrants were exercised
for $500,000 in exchange for 312,500
shares of common stock on December 23,
1995. An additional 312,500
warrants are required to be exercised
prior to January 31, 1996 with the
remaining warrants outstanding through
June 30, 1997.
15.NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting
Standards Board issued Statement No. 121
regarding accounting for the impairment
of long-lived assets. This statement is
required to be adopted by the Company in
fiscal 1997. At the present time the
Company does not believe that adoption
of this statement will have a material
effect on its financial position or
results of its operations.
In October 1995, the Financial
Accounting Standards
Board issued Statement No. 123, Accounting
for Stock Based Compensation. This
statement is required to be adopted by the
Company in fiscal 1997. The Company has
not yet determined the impact of the
adoption of this statement on its financial
position or results of its operations. * *
* * * *
CEL-SCI CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
ASSETS
1995 1994
CURRENT ASSETS:
Cash and cash equivalents
$3,886,950 $3,370,713
Investments, net
170,000 2,694,756
Interest receivable
64,080 116,733
Prepaid expenses
341,295 67,648
Advances to officer/shareholder
and 13,234 17,381
employees
Total current assets
4,475,559 6,267,231
RECEIVABLE FROM JOINT VENTURE
522,695 351,204
RESEARCH AND OFFICE EQUIPMENT - Less
accumulated
depreciation of $589,897 and
$355,430 1,102,038 1,185,499
DEPOSITS
18,178 13,958
PATENT COSTS - Less accumulated
amortization of $239,490 and
$211,253
240,541 268,778
$6,359,011 $8,086,670
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
$248,488 $324,179
Current portion of note payable
243,372 147,861
Total current
491,860 472,040
liabilities
NOTE PAYABLE
567,891 640,740
DEFERRED RENT
24,959 17,598
EQUITY IN LOSS OF SUBSIDIARY
432,268 277,224
Total liabilities
1,516,978 1,407,602
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
authorized, 200,000 shares;
none issued
- - -
Common stock, $.01 par value -
authorized, 100,000,000 shares;
issued and outstanding,
5,338,244 and 53,382
41,882
4,188,244 shares
Additional paid-in capital
28,799,198 26,854,848
Net unrealized loss on marketable
equity - (85,753)
securities (Note 1)
Accumulated deficit
(24,010,547 (20,131,909
) )
Total stockholders'
equity 4,842,033 6,679,068
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $6,359,011 $8,086,670
See notes to financial statements. CEL-
SCI CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1995,
1994, AND 1993
1995 1994 1993
INVESTMENT INCOME
$365,049 $624,670 $997,964
OTHER INCOME
58,716
- - -
Total income
423,765
624,670 997,964
OPERATING EXPENSES:
Research and development
1,824,661 2,896,109 1,307,042 Depreciation
and amortization
262,705
138,755 55,372
General and administrative 1,713,912
1,621,990 1,696,119
Total
operating expenses
3,801,278
4,656,854 3,058,533
EQUITY IN LOSS OF
JOINT VENTURE (Note 2)
(501,125) (394,692) (344,423)
NET LOSS
$3,878,63 $4,426,87 $2,404,99
8
6 2 LOSS PER COMMON SHARE
$0.89
$1.06 $0.58
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
4,342,628 4,185,240 4,155,431
See notes to financial statements.
CEL-SCI CORPORATION
STATEMENTS OF STOCKHOLDERS'
EQUITY
YEARS ENDED SEPTEMBER 30,
1995, 1994, AND 1993
Additional
Common
Paid-In
Stock
Shares
Amount Capital Other Deficit
Total BALANCE, OCTOBER 1, 1992
$-
4,148,980 $41,490 $26,560,96
$(13,300,04
$13,302,41
9 1) 8
Common stock issued for:
Cash 7,333
73
27,260 - - 27,333
Reimbursement of 3,000
30
20,070 - - 20,100
expenses
Net loss -
- -
- - -
(2,404,992) (2,404,992
)
BALANCE, SEPTEMBER 30, 1993
41,593
4,159,313
26,608,299 (15,705,033
10,944,859
)
Common stock issued for:
Cash 2,431
24
39,364 - - 39,388
Stock bonus plan 1,500
15
4,935 - - 4,950
Settlement of 25,000
250
202,250 - -
202,500
lawsuit
Net unrealized loss on
marketable
securities (Note 1) -
- -
- - - (85,753)
(85,753) Net loss -
- -
- - -
(4,426,876) (4,426,876
)
BALANCE, SEPTEMBER 30, 1994
41,882
4,188,244
26,854,848 (85,753) (20,131,909
6,679,068 )
Common stock issued for
11,500 - -
cash 1,150,000
1,944,350
1,955,850
Change in market value
of marketable
securities available -
85,753 - 85,753
for sale (Note 1)
Net loss -
- -
- - -
(3,878,638) (3,878,638
)
BALANCE, SEPTEMBER 30, 1995
$-
5,338,244 $53,382 $28,799,19
$(24,010,54 $4,842,033
8 7)
See notes to financial
statements.
CEL-SCI CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1995,
1994, AND 1993
1995 1994
1993
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss
$(3,878,6 $(4,426,8 $(2,404,9
38) 76) 92)
Adjustments to reconcile net
loss to
net cash used in operating
activities:
Stock issued in payment of
- -
207,450 20,100
expenses
Depreciation and amortization
262,705
138,755 55,372
Equity in loss of Joint Venture
501,125 394,692 344,423
Net realized loss (gain) on sale
42,490
- -
of securities
(76,774)
Amortization of premium
6,407
25,683 18,762
Changes in assets and
liabilities:
Decrease (increase) in
4,147
- -
advances
(17,381)
Increase in prepaid
expenses, deposits, interest
receivable, and
receivable from joint venture
(396,705) (31,833) (292,182)
(Decrease) increase in
accounts payable,
accrued expenses, and
143,919
deferred rent
(68,330)
(111,552)
Decrease in payable to
- -
officer and shareholder
(52,370) (43,448)
Net cash used
in operating activities
(3,526,79
(3,950,20 (2,158,04
9) 6) 6)
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Purchases of investments
(389,688) (1,467,81 (5,993,31
8) 0)
Sales and maturities of investments
2,951,299
6,999,273 7,745,943
Advances to Joint Venture
(346,081) (300,000) (223,750)
Expenditures for property and
equipment
(151,006)
(999,807) (318,556)
Expenditures for patents
- -
- - (8,777)
Net cash
provided by investing activities
2,064,524 4,231,648 1,201,550
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Issuance of note payable
184,915
788,601 -
Issuance of common stock
39,388 27,333
1,955,850 Repayment of note payable
- - -
(162,253)
Net cash
827,989 27,333
provided by financing activities
1,978,512
NET INCREASE (DECREASE) IN CASH
516,237
1,109,431 (929,163)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR
3,370,713
2,261,282 3,190,445
CASH AND CASH EQUIVALENTS, END OF
YEAR
$3,886,95
$3,370,71 $2,261,28
0
3 2 SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITY:
During 1994, the net unrealized
loss on investments available-for-
sale was $85,753.
During 1994, 25,000 shares were
issued as settlement of a lawsuit at
a cost of $202,500 (see Note 6).
See notes to financial statements.
Year Ending
September 30,
Amount
1996
$135,123
1997
140,335
1998
56,160
1999
59,573
2000
62,010
Thereafter
162,728
Total minimum lease payments
$615,929
Septemb
er 30,
1995
Gross Gross Market
Value
Amortiz Unreal
Unreal at
ed
ized
ized Septemb
er 30,
Cost
Gains
Losses 1995
Certificates of
$-
$-
Deposit $170,00
$170,00
0
0
September 30,
1994
Gross Gross Market
Value
Amortize
Unreal
Unreali at
d
ized
zed Septembe
r 30,
Cost
Gains
Losses 1994
U.S. Government
$-
Securities $1,471,0
$46,362 $1,424,7
96
34
Corporate Debt
Securities 1,108,58
2,442
41,833 1,069,19
1
0
Certificates of
- -
- -
Deposit 200,832
200,832
$2,780,5
$2,442 $88,195 $2,694,7
09
56
1995
1994 1993
Realized gains
$-
$17,839 $128,205
Realized losses
60,329
51,431 -
Net realized gain (loss)
$-
$(42,490 $76,774
)
1995 1994
Research equipment
$979,048 $843,187
Furniture and equipment
136,486 120,185
Leasehold improvements
576,401 577,557
1,691,935 1,540,929
Less accumulated depreciation and
amortization
(589,897) (355,430)
Net property and equipment
$1,102,03 $1,185,49
8 9
Years
Ended
Septemb
er
30,
199
5
1994 1993
Income $-
$-
$ -
Expenses
789,384 688,846
1,002,250
Net Income (Loss)
$(1,002,25 $(789,384 $(688,846
0) ) )
September
30,
1995 1994
Current assets
$30,484 $24,403
Noncurrent assets
$187,821 $87,822
Current liabilities
$4,275,078 $3,197,143
Equity (deficit - net of initial
capitalization)
$(4,056,77 $(3,084,91
3) 8)
1995 1994
Depreciation
$(16,660) $(27,325)
Prepaid expenses
(14,413) (25,680)
Net operating loss carryforward
9,251,208 7,675,907
Other
9,474 6,680
Less: Valuation allowance
(9,229,609 (7,630,772
) )
Net deferred
$- $-
Opti
on
Pri
ce
Pe
r
Outsta Exerci
Share nding sable
1987 Stock Option and Bonus
Plan
Balance, September 30, 1992
$3.40
- -
20.90 189,25 31,000
0
Became exercisable
- -
77,999
Exercised
$4.00 (6,000
(6,000
) )
Balance, September 30, 1993
$3.40
1
9
.
6
0 183,25 102,99
0 9
Became exercisable
- -
40,250
Balance, September 30, 1994
$3.40
2
0
.
9
0 183,25 143,24
0 9
Canceled
$3.40
2
0
.
9
0 176,25 1 136,24
0 3 9
6
,
2
4
9
Balance, September 30, 1995 $19.70
16. 50
7,000 7,000
1992 Incentive Stock Option
Plan
Balance, September 30, 1992
$13.40
500 -
Granted $13.80 -
- -
15.60 12,000
Balance, September 30, 1993 $13.40
15. 60
12,500
Granted $6.80 -
11.90 29,500
Became exercisable
- -
4,166
Balance, September 30, 1994 $6.80
15. 60
4
42,000
4,166
2
0
,
0
0
0
Canceled $6.80
-
15.60
(42,00 (4,166
0) )
Granted $2.87 -
3.87
57,550 20,917
Balance, September 30, 1995 $2.87 -
3.87
4
57,550 20,917
2
0
,
0
0
0
1992 Nonqualified Stock Option
Plan
Balance, September 30, 1992 $13.40
- -
4
2,500 2 0
, 0
0
0
Granted $13.80 -
- -
15.60 15,500
Balance, September 30, 1993 $13.40
- -
18,000
Granted $8.70 -
- -
13.80 18,000
Became exercisable
- -
18,000
Balance, September 30, 1994 $8.70 -
13.80
36,000 1 18,000
8
,
0
0
0
Canceled $8.70
- -
- -
13.40 (7,500 -
)
Granted
$2.87
- -
31,500
Became Exercisable
- -
4 42,000
2
,
0
0
0
Balance, September 30, 1995
$2.87
- -
15.60 60,000 6 60,000
0
,
0
0
0
Opti
on
Pri
ce
Pe
r
Outsta Exerci
Share nding sable
1992 Stock Bonus Plan
Granted during 1994
$8.70 1,500 1,500
Exercised
$8.70
(1,500 (1,500
) )
Balance, September 30, 1994 and
- - -
1995
1994 Incentive Stock Option
Plan
Granted
- -
$2.87
50,000
Balance, September 30, 1994
- -
$2.87 50,000 -
Granted
$2.87 50,000
Became Exercisabe
- -
$2.87 61,000
Balance, September 30, 1995
$2.87 100,00 61,000
0
1994 Nonqualified Stock Option
Plan
Granted
- -
$2.87 70,000 -
Balance, September 30, 1995
$2.87 70,000 -
Granted
$2.87 -
3.87
27,250 -
Became exercisable
- -
48,084
Balance, September 30, 1995
$2.87 -
3.87
97,250 48,084
1995 Nonqualified Stock Option
Granted in 1995
$2.87 -
$3.87 329,25
1
Became exercisable
- -
70,000
Balance, September 30, 1995
329,251 70,000
10
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1996 AND
1995 (unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared
in accordance with rules established by the Securities and
Exchange Commission for Form 10-Q. Not all financial
disclosures required to present the financial position and
results of operations in accordance with generally accepted
accounting principles are included herein. The reader is
referred to the Company's Financial Statements for theyear
ended September 30,1995 included elsewhere in this Prospectus.
In the opinion of management, all accruals and adjustments
(each of which is of a normal recurring nature) necessary for
a fair presentation of the financial position as of June 30,
1996 and the results of operations for the nine-month period
then ended have been made. Significant accounting policies
have been consistently applied in the interim financial
statements and the annual financial statements.
Investments
Effective September 30, 1994, the Company adopted, on a
prospective basis, Statement of Financial Accounting
Standard No. 115, "Accounting for Certain Debt and
Equity Securities" (SFAS 115) and revised its policy for
investments. Investments that may be sold as part of the
liquidity management of the Company or for other factors
are classified as available-for-sale and are carried at
fair market value. Unrealized gains and losses on such
securities are reported as a separate component of
stockholders' equity. Realized gains and losses on sales
of securities are reported in earnings and computed using
the specific identified cost basis. As of June 30, 1996,
there is no effect on the Company's financial statements.
Loss per Share
Net loss per common share is based on the weighted
average number of common shares outstanding during the
period. Common stock equivalents, including options to
purchase common stock, are excluded from the calculation
as they are antidilutive.
Long-lived Assets
Statement of Accounting Standards No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-
lived Assets to be Disposed of" is effective for
financial statements for fiscal years beginning after
December 15, 1995. It is the Company's opinion that the
adoption of the statement would have no material effect
on its Financial Statements.
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
(continued)
B. JOINT VENTURE
On October 30, 1995, the Company announced it had
acquired Alpha 1 Biomedical's interest in Viral
Technologies, Inc. ("VTI"). VTI was formed by the two
companies in 1986. This transaction gives CEL-SCI 100%
ownership of VTI. Under the terms of the agreement,
CEL-SCI gave Alpha 1 Biomedicals, Inc. 159,170 shares of
CEL-SCI common stock as the purchase price for net
assets with a fair value of approximately $170,000. The
acquisition was accounted for under the purchase
method of accounting; and as the acquisition
represents primarily research and development costs,
the purchase price was expensed and is included as
research and development expense for the nine months
ended June 30, 1996. Effective October 31, 1995, the
Company has consolidated CELSCI's and VTI's financial
statements and the consolidated financial statements
reflect the results of VTI's operations since the date
of acquisition. This results in a significant
increase in patent costs on the consolidated balance
sheet. Intercompany accounts are eliminated upon
consolidation.
C. CONSTRUCTION OF NEW LABORATORY AND FUNDING
On January 31, 1994, the Company entered into a leasing
agreement with a nonaffiliated landlord for 7,800 square
feet in Baltimore, Maryland. In the spring of 1994 the
Company commenced construction of the new laboratory.
The cost of the laboratory buildout and equipment
was approximately $1,100,000. To fund this
laboratory, the Company borrowed funds from a bank
at a rate of
prime plus 2%. The outstanding loan balance at June
30,
1996 is $628,729.
D. CONVERTIBLE DEBENTURES
On March 28, 1996, the Company raised $1,250,000
in a private placement. The placement was
structured as a convertible debenture. It is
convertible into Cel-Sci common stock prior to
December 1, 1996. The money will be used for
research and development and clinical trials with the
Company's cancer and HIV products. As of June 30,
1996, $825,000 of the debentures were converted
into 165,000 shares of the Company's common stock.
Item 1. FINANCIAL STATEMENTS
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS
ASSETS
(unaudited)
June 30, September
30,
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $6,646,257
$3,886,950
Investments, net 170,000
170,000
Interest receivable 75,405
64,080
Accounts receivable 46,342
Prepaid expenses 267,933
341,295
Advances to officer/shareholder
and employees 129,722
13,234
7,335,659
4,475,559
RECEIVABLE FROM JOINT VENTURE 0
522,695
RESEARCH AND OFFICE EQUIPMENT-
Less accumulated depreciation
of $801,874 and $589,897 935,090
1,102,038
DEPOSITS 18,178
18,178
PATENT COSTS- less accumulated
amortization of
$333,098 and $239,490 435,007
240,541
$8,723,934
$6,359,011
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS'
EQUITY
(unaudited)
June 30, September
30, 1996 1995
CURRENT LIABILITIES:
Accounts payable $112,312
$248,488
Current portion note payable 243,372
243,372
Total current liabilities 355,684
491,860
NOTE PAYABLE 385,357
567,891
CONVERTIBLE DEBENTURE (Note D) 425,000
- -
DEFERRED RENT 24,959
24,959
EQUITY IN SUBSIDIARY 0
432,268
Total liabilities 1,191,000
1,516,978
STOCKHOLDERS' EQUITY
Preferred stock, Series A 3,325,000
- -
Common stock, $.01 par
value; authorized,
100,000,000 shares;
issued and outstanding,
7,046,902 and
5,338,244 shares 70,469
53,382
Additional paid-in capital 32,723,024
28,799,198
Deficit (28,499,459)
(24,010,547)
Short-term note receivable from (86,100)
- -
shareholder
TOTAL STOCKHOLDERS'
EQUITY 7,532,934
4,842,033
$8,723,934
$6,359,011 See notes to condensed financial
statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
(unaudited)
Nine Months
Ended June 30,
1996 1995
REVENUES:
Gross Sales $51,605
$-
Interest income 136,651
273,417
Other income -
39,588
TOTAL INCOME 188,256
313,005
EXPENSES:
Research and development 2,350,600
1,383,978
Depreciation and
amortization 208,912
201,197
General and administrative 2,113,884
1,268,677
TOTAL OPERATING EXPENSES 4,673,396
2,853,852
EQUITY IN LOSS OF JOINT VENTURE (3,772)
(395,224)
4,677,168
3,249,076
NET LOSS $4,488,912
$2,936,071
LOSS PER COMMON SHARE $0.74
$0.70
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,086,492
4,194,563
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
(unaudited)
Three Months
Ended June 30,
1996 1995
REVENUES:
Gross Sales $44,280
$-
Interest Income 51,737
83,111
Other Income -
21,977
TOTAL INCOME 96,017
105,088
EXPENSES:
Research and development 617,987
234,035
Depreciation and
amortization 68,950
67,211
General and administrative 894,165
490,429
TOTAL OPERATING EXPENSES 1,581,102
791,675
EQUITY IN LOSS OF JOINT VENTURE 0
(104,884)
1,581,102
896,559
NET LOSS $1,485,085
$791,471
LOSS PER COMMON SHARE $0.22
$0.19
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,612,293
4,207,200
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOW
(unaudited)
Nine Months
Ended June 30,
1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS
$(4,488,912)
$(2,936,071) Adjustments to reconcile net loss
to
net cash used in operating
activities:
Depreciation and amortization 208,912
201,197
Equity in loss of joint venture 3,772
395,224
Research and development
expense related
to purchase of Viral 515,617
Technologies, Inc.
Amortization of premium on -
60,954
investments
Realized loss on sale of
13,422
investments
Changes in assets and
liabilities, net of effect from
purchase
of Viral Technologies, Inc.:
Decrease (increase) in interest (11,325)
- -
receivable
Decrease (increase) in accounts (46,342)
38,128
receivable
Decrease (increase) in prepaid 73,362 (225,853)
expenses
Decrease (increase) in advances (116,488) (19,472)
Decrease (increase) in
receivable from
joint venture -
(123,952)
Increase (decrease) in accounts (136,176)
(203,594)
payable
NET CASH USED IN OPERATING (3,997,580)
(2,800,017) ACTIVITIES
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITY:
Sales of investments -
2,906,132
Purchase of investments -
(400,000)
Advance to Joint Venture -
(287,952)
Payment on note payable (182,534)
(121,689)
Note receivable from (114,800)
employee/shareholder
Payments received on note 28,700
receivable from
employee/shareholder
Laboratory construction -
(10,135)
Purchase of research and office (17,808)
(128,750)
equipment
Patent costs (30,800)
- -
NET CASH USED IN INVESTING (317,242)
1,957,606
ACTIVITY
Continued on next page
CASH FLOW, CONTINUED FROM
PREVIOUS PAGE
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Issuance of convertible 1,250,000
- -
debenture
Issuance of note payable -
205,195
Issuance of preferred stock 3,325,000
- -
Issuance of common stock 2,499,129
990,890
NET CASH PROVIDED BY FINANCING 7,074,129
1,196,085
ACTIVITIES
NET (DECREASE) INCREASE IN CASH 2,759,307
353,674
CASH AND CASH EQUIVALENTS:
Beginning of period 3,886,950
3,370,713
End of period $6,646,257
$3,724,387
NON-CASH TRANSACTION: In October
1995, Cel-Sci issued 159,170
shares of common stock as
consideration for
the purchase of the remaining 50%
of Viral Technology, Inc. In
conjunction with the acquisition,
CEL-SCI obtained
net assets with a fair value of
approximately $170,000.
NON-CASH TRANSACTION: In March,
1996, a shareholder of the
corporation exercised options to
purchase
40,000 shares of common stock.
The shareholder signed a note for
the stock, agreeing to pay the
note by the
end of June, 1996.
NON-CASH TRANSACTION: $825,000
of the convertible debenture was
converted into 165,000 shares of
common stock during
the three monts ended June 30,
1996.
See notes to
condensed financial statements.