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 Incentive Plan) and the 1994 Non-
Qualified 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 30day 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 fiscal1997. 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
PaidIn
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
Option Price
Per
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
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS THREE MONTHS ENDED DECEMBER 31,
1995 AND 1994
(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 included in the
registrant's Annual Report on Form 10-K for the year
ended September 30, 1995. 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 December
31, 1995 and the results of operations for the three
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 December 31, 1995, 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
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(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 three months ended December 31, 1995. The
contract also contains
provisions allowing for the repurchase of the shares by CEL
SCI and limits the amount of shares that can be sold in the
open market at any given time. Effective October 31, 1995,
the
Company has consolidated CEL-SCI's and VTI's financial
statements and the consolidated financial statements reflect
the results of VTI's operations since the date of
acquisition. 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 non affiliated landlord for 7,800 square feet at 4820 Seton Drive,
Baltimore, Maryland. In the spring of 1994 the 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 December 31, 1995 is $750,418.
Item 1. FINANCIAL STATEMENTS
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED BALANCE
SHEETS
- ------------------------
ASSETS
(unaudited)
December 31, September
30,
1995 1995
CURRENT ASSETS:
Cash and cash equivalents $3,040,412 $3,886,950
Investments, net 170,000
170,000
Interest receivable 66,143
64,080
Prepaid expenses 303,962
341,295
Advances to officer/shareholder
and employees 6,930
13,234
3,587,447
4,475,559 RECEIVABLE FROM JOINT VENTURE
0 522,695
RESEARCH AND OFFICE EQUIPMENT-
Less accumulated depreciation
of $678,605 and $589,897
1,040,549
1,102,038
DEPOSITS
18,178
18,178
PATENT COSTS- less accumulated
amortization of
$318,723 and $239,490 423,467
240,541
$5,069,641
$6,359,011
See notes to
condensed financial statements.
3
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED BALANCE
SHEETS
- ------------------------
(continued)
LIABILITIES AND STOCKHOLDERS'
EQUITY
(unaudited)
December 31, Septemb
er
30,
1995 1995
CURRENT LIABILITIES:
Accounts payable $64,071.00
$248,488.00
Current portion note payable 243,372
243,372
Total current liabilities 307,443
491,860
NOTE PAYABLE 507,046
567,891
DEFERRED RENT 24,959
24,959
EQUITY IN SUBSIDIARY 0
432,268
Total liabilities 839,448
1,516,978
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,
5,809,914 and
5,338,244 shares
58,099
53,382
Additional paid-in capital
29,911,265
28,799,198
Deficit
(25,739,171)
(24,010,547)
TOTAL STOCKHOLDERS'
EQUITY 4,230,193
4,842,033
$5,069,641
$6,359,011 See notes to
condensed financial statements.
4
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
- ---------------------------------
(unaudited)
Three Months
Ended
December 31,
1995
1994 REVENUES:
Interest income $44,421
$116,701
Other income 18,080
- -
TOTAL INCOME 62,501
116,701
EXPENSES:
Research and development 1,238,197
618,636
Depreciation and
amortization 71,268
66,775
General and administrative 477,888
398,281
TOTAL OPERATING EXPENSES 1,787,353
1,083,692
EQUITY IN LOSS OF JOINT VENTURE (3,772)
(181,578)
1,791,125
1,265,270
NET LOSS $1,728,624
$1,148,569
LOSS PER COMMON SHARE $0.32
$0.27
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,457,431
4,188,244
See notes to
condensed financial statements.
5
CEL-SCI CORPORATION
- -------------------
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOW
- ---------------------------------
(unaudited)
Three Months
Ended
December 31,
1995
1994 CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS
$(1,728,624)
$(1,148,569) Adjustments to reconcile net loss
to
net cash used in operating
activities:
Depreciation and amortization 71,268
66,775
Equity in loss of joint venture 3,772
181,578
Amortization of premium on -
- -
investments
Realized loss on sale of
5,962
investments
Changes in assets and
liabilities:
Decrease (increase) in interest (2,063)
23,999
receivable
Decrease (increase) in prepaid 37,333
78
expenses
Decrease (increase) in advances 6,304
(844)
Decrease (increase) in
receivable from
joint venture -
(38,292)
Increase (decrease) in equity 432,268
in subsidiary
Increase (decrease) in accounts (184,417)
(255,546)
payable
NET CASH USED IN OPERATING (1,364,159)
(1,164,859)
ACTIVITIES
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITY:
Purchase of 50% of Viral
(533,433)
- -
Technologies from Alpha 1
Sales of investments
- -
690,900
Advance to Joint Venture
- -
(34,455)
Payment on note
(60,845)
(797)
Purchase of research and office
- -
(112,211)
equipment
Patent costs
(4,885)
- -
NET CASH USED IN INVESTING
(599,163)
543,437
ACTIVITY
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Issuance of common stock
1,116,784
- -
NET CASH PROVIDED BY FINANCING
1,116,784
- -
ACTIVITIES
NET INCREASE IN CASH
(846,538)
(621,422)
CASH AND CASH EQUIVALENTS:
Beginning of period
3,886,950
3,370,713
End of period
$3,040,412
$2,749,291
See notes to
condensed financial statements.
6