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 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 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
64,080 116,733
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
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, September
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