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
September
30,
1995
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
329,25 70,000
1