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 CELSCI 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-forsale 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 IncentivePlan) 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 NonQualified 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 16,733
Prepaid expenses 341,295 67,648
Advances to officer/shareholder
and employees 13,234 17,381
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 liabilities 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 4,188,244 shares 53,382 41,882
4,188,244 shares
Additional paid-in capital 28,799,198 26,854,848
Net unrealized loss on marketable equity
securities (Note 1) - (85,753)
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
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 Stock Paid-In
Shares Amount Capital Other Deficit Total
BALANCE,
OCTOBER 1,
1992 4,148,980 $41,490 $26,560,96 $ - $(13,300,041)$13,302,418
Common stock
issued for:
Cash 7,333 73 27,260 - - 27,333
Reim-
bursement
of expenses 3,000 30 20,070 - - 20,100
Net loss - - - - (2,404,992)(2,404,992)
BALANCE,
SEPTEMBER 30,
1993 4,159,313 41,593 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 lawsuit 25,000 250 202,250 - - 202,500
Net unrealized
loss on
marketable
securities
(Note 1) - - - (85,753) - (85,753)
Net loss - - - - (4,426,876)(4,426,876)
BALANCE,
SEPTEMBER 30,
1994 4,188,244 41,882 26,854,848 (85,753) (20,131,909)6,679,068
Common stock
issued for
cash 1,150,000 11,500 1,944,350 - - 1,955,850
Change in
market
value
of
marketable
securities
available
for sale
(Note 1) - - - 85,753 - 85,753
Net loss - - - - (3,878,638) (3,878,638)
BALANCE,
SEPTEMBER 30,
1995 $5,338,244 $53,382 $28,799,19 $ - $(24,010,547)$4,842,033
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 $(3,878,638) $(4,426,876) $(2,404,992)
Adjustments to reconcile
net loss to
net cash used in operating activities:
Stock issued in payment
of expenses - 207,450
20,100
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 of securities 42,490 (76,774) -
Amortization of premium 6,407 25,683
18,762
Changes in assets and
liabilities:
Decrease (increase) in
advances ` 4,147 (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
deferred rent (68,330) (111,552) 143,919 Decrease
in payable to
officer and shareholder - (52,370) (43,448)
Net cash used in operating
activities (3,526,799) (3,950,206) (2,158,046)
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Purchases of investments (389,688) (1,467,818) (5,993,310)
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 1,955,850 39,388 27,333
Repayment of note payable (162,253) - -
Net cash provided by financing
activities 1,978,512 827,989 27,333
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 $3,886,950 $3,370,713 $2,261,282
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
During 1994, the net unrealized
loss on investments available-forsale 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.
Note 2a
September 30, 1995
Gross Gross Market Value
Amortized Unrealized Unrealized at September 30,
Cost Gains Losses 1995
Certificates of
Deposit $170,00 $- $- $170,00
Note 2b
September 30, 1994
Gross Gross Market Value
Amortize Unrealized Unrealized at September 30,
Cost Gains Losses 1994
U.S. Government
Securities $1,471,096 $- $46,362 $1,424,734
Corporate Debt
Securities 1,108,581 2,442 41,833 1,069,190
Certificates of
Deposit 200,832 - - 200,832
$2,780,509 $2,442 $88,195 $2,694,756
Note 2c
1995 1994 1993
Realized gains $17,839 $128,205 $ -
Realized losses 60,329 51,431 -
Net realized gain (loss) $(42,490) $76,774 $ -
Note 3
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
Note 4a
Years
Ended
September
30,
1995 1994 1993
Income $- $- $-
Expenses 1,002,250 789,384 688,846
Net Income (Loss) $(1,002,250) $(789,384) $(688,846)
Note 4b
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) $(4,056,773) $(3,084,918)
Note8
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 $- $-
Note 9a
Option
Price
Per Outstanding Exercisable
1987 Stock Option and Bonus
Plan
Balance, September 30, 1992 $3.40-20.90 189,250 31,000
Became exercisable $4.00 - 77,999
Exercised $4.00 (6,000) (6,000)
Balance, September 30, 1993 $3.40-19.60 183,250 102,999
Became exercisable - 40,250
Balance, September 30, 1994 $3.40-20.90 183,250 143,249
Canceled $3.40-20.90 176,250 136,249
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 42,000 4,166
Canceled $6.80-15.60 (42,000) (4,166)
Granted $2.87-3.87 57,550 20,917
Balance, September 30, 1995 $2.87-3.87 57,550 20,917
1992 Nonqualified Stock Option
Plan
Balance, September 30, 1992 $13.40 2,500 -
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 18,000
Canceled $8.70-13.40 (7,500) -
Granted $2.87 31,500 -
Became Exercisable 42,000
Balance, September 30, 1995 $2.87-15.60 60,000 60,000
Note 9b
Option
Price
Per Outstanding Exercisable
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 $2.87 100,000 61,000
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-$3.87 329,251 -
Became exercisable - 70,000
Balance, September 30, 1995 329,251 70,000
Note 11a
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
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 atfair 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 Longlived 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 CelSci 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
Technologies, Inc. 515,617
Amortization of premium on
investments - 60,954
Realized loss on sale of
investments 13,422
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
ACTIVITIES (3,997,580) (2,800,017)
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
employee/shareholder (114,800)
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,
CELSCI 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.