CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been
prepared in accordance with rules established by the
Securities and Exchange Commission for Form 10-Q. Not all
financial disclosures required to present the financial
position and results of operations in accordance with
generally accepted accounting principles are included
herein. The reader is referred to the Company's Financial
Statements 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 March 31,
1996 and the results of operations for the six-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 March 31, 1996,
there is no effect on the Company's financial statements.
Loss per Share
Net loss per common share is based on the weighted average
number of common shares outstanding during the period.
Common stock equivalents, including options to purchase
common stock, are excluded from the calculation as they
are antidilutive.
Long-lived Assets
Statement of Accounting Standards No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of" is effective for financial
statements for fiscal years beginning after December 15,
1995. It is the Company's opinion that the adoption of the
statement would have no material effect on its Financial
Statements.
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
(continued)
B. JOINT VENTURE
On October 30, 1995, the Company announced it had acquired
Alpha 1 Biomedical's interest in Viral Technologies, Inc.
("VTI"). VTI was formed by the two companies in 1986.
This transaction gives CEL-SCI 100% ownership of VTI.
Under the terms of the agreement, CEL-SCI gave Alpha 1
Biomedicals, Inc. 159,170 shares of CEL-SCI common stock as
the purchase price for net assets with a fair value of
approximately $170,000. The acquisition was accounted for
under the purchase method of accounting; and as the
acquisition represents primarily research and development
costs, the purchase price was expensed and is included as
research and development expense for the six months ended
March 31, 1996.
Effective October 31, 1995, the Company has consolidated
CELSCI's and VTI's financial statements and the
consolidated financial statements reflect the results of
VTI's operations since the date of acquisition. This
results in a significant increase in patent costs on the
consolidated balance sheet. Intercompany accounts are
eliminated upon consolidation.
C. CONSTRUCTION OF NEW LABORATORY AND FUNDING
On January 31, 1994, the Company entered into a leasing
agreement with a non-affiliated landlord for 7,800 square
feet in Baltimore, Maryland. In the spring of 1994 the
Company commenced construction of the new laboratory. The
cost of the laboratory buildout and equipment was
approximately $1,100,000. To fund this laboratory, the
Company borrowed funds from a bank at a rate of prime plus
2%. The outstanding loan balance at March 31, 1996 is
$689,573.
CONVERTIBLE DEBENTURES
On March 28, 1996, the Company raised $1,250,000 in a
private placement. The placement was structured as a
convertible debenture. It is convertible into Cel-Sci
common stock prior to December 1, 1996. The money will be
used for research and development and clinical trials with
the Company's cancer and HIV products.
CEL-SCI CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company has had only limited revenues from
operations since its inception in March 1983. The Company
has relied upon proceeds realized from the public and
private sale of its Common Stock and short-term borrowings
to meet its funding requirements. Funds raised by the
Company have been expended primarily in connection with
the acquisition of an exclusive worldwide license to
certain patented and unpatented proprietary technology and
know-how relating to the human immunological defense
system, the funding of VTI's research and development
program, patent applications, the repayment of debt, the
continuation of Company-sponsored research and development
and administrative costs, and the construction of
laboratory facilities. Inasmuch as the Company does not
anticipate realizing significant revenues until such time
as it enters into licensing arrangements regarding the
technology and know-how licensed to it or until such time
it receives permission to sell its product (which could
take a number of years), the Company is mostly dependent
upon short-term borrowings and the proceeds from the sale
of its securities to meet all of its liquidity and capital
resource requirements.
In February, 1992, the Company sold 1,035,000 Units
at $15.50 per Unit in a public offering. Each unit
consisted of five shares of Common Stock and five Common
Stock Purchase Warrants. Ten Warrants entitle the holder
to purchase one additional share of Common Stock at a
price of $46.50 per share prior to February 7, 1997.
In June and September, 1995, the Company completed
private offerings whereby it sold a total of 1,150,000
units at $2.00 per unit. Each unit consisted of one share
of Common Stock and one Warrant. Each Warrant entitles
the holder to purchase one additional share of Common
Stock at a price of $3.25 per share at any time prior to
June 30, 1997.
The net proceeds to the Company from these offerings,
after the payment of Sales Agent's commissions and other
offering expenses, were approximately $2,000,000. On
November 30, 1995 the Company and the investors in these
Private Offerings agreed to reduce the exercise price of
the Warrants to $1.60 per share in return for the
commitment on the part of the investors to exercise
312,500 Warrants ($500,000) prior to December 23, 1995 and
an additional 312,500 Warrants ($500,000) prior to January
31, 1996. All of these warrants were exercised.
Results of Operations
Interest income during the six months ending March
31, 1996 reflects interest accrued on investments. The
interest income has declined from the previous year
because the interest income from the loans to VTI is
eliminated upon consolidation. Research and development
expenses increased because of the consolidation of Cel-Sci
and Viral Technologies research and development expenses.
In addition, the purchase of the second 50% of VTI from
Alpha 1 was expensed as research and development cost.
(See Note B.) Research and development expenses have also
increased due to new research on the TB vaccine. (See
Item 5.) General and administrative expenses increased
due to interest expense on the note and due to the
consolidation of Cel-Sci and Viral Technologies general
and administrative expenses and increased expenses related
to corporate development and money raising.
PART II
Item 5. Other Information
In December, 1995, Cel-Sci's subsidiary, Viral
Technologies, (VTI) began phase I human testing in HIV-
positive individuals in a clinical trial in California.
The trial will involve injecting 22 HIV-infected
individuals with VTI's HGP-30 HIV immunogen in a series
of three injections over a period of six months.
On January 4, 1996, the Company announced that it had
acquired a new patented medical technology which directs
the body to chose a specific immune response. This new T-
cell Modulation Process using "heteroconjugates" was
acquired from CELL MED, Inc. of Columbia, Maryland. On
April 30, the Company announced that a report of results
obtained with its Tuberculosis (TB) vaccine product has
been accepted for presentation at the American Society of
Microbiology meeting. The meeting will be held in New
Orleans in late May. The results showed that the
proprietary heteroconjugate technology is able to induce
an important cellular immune response against a TB
antigen. In addition, the results also showed that the
antibodies produced by CelSci's technology are much better
able to recognize various TB strains than antibodies
produced by conventional technology.
The U.S. Food and Drug Administration (FDA) cleared two
human clinical studies with Cel-Sci's investigational
immunotherapy drug, MultikineTM on February 27, 1996. The
studies focus on prostate cancer and head and neck cancer.
The prostate cancer study will be conducted in
Philadelphia, Pennsylvania and the head and neck cancer
study will be conducted in both the U.S. and Canada.
On March 13, 1996, Cel-Sci and the University of Nebraska
Medical Center announced promising results from a booster
immunization clinical study with the HGP-30 AIDS
Immunogen. All five of the volunteers tested who had been
vaccinated with Cel-Sci's Immunogen showed significantly
increased levels of protection against AIDS virus
challenge in SCID (Severe Combined Immunodeficient) mice.
Item 6.
(a) Exhibits
No exhibits are filed with this document.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fiscal
quarter ended March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
CEL-SCI Corporation
Date:_______________, 1996 By: Geert R. Kersten
Chief Executive Officer*
*Also signing in the capacity of the Chief Accounting
Officer and Principal Financial Officer.
Item 1. FINANCIAL STATEMENTS
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
(unaudited)
March 31,
September
30,
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $3,803,786
$3,886,950
Investments, net 170,000
170,000
Interest receivable 86,610
64,080
Prepaid expenses 242,812
341,295
Advances to officer/shareholder
and employees 134,644
13,234
4,437,852
4,475,559
RECEIVABLE FROM JOINT VENTURE 0
522,695
RESEARCH AND OFFICE EQUIPMENT-
Less accumulated depreciation
of $740,239 and $589,897 981,823
1,102,038
DEPOSITS 18,178
18,178
PATENT COSTS- less accumulated
amortization of
$325,782 and $239,490 423,174
240,541
$5,861,027
$6,359,011
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS'
EQUITY
(unaudited)
March 31,
September
30,
1996 1995
CURRENT LIABILITIES:
Accounts payable $57,787
$248,488
Current portion note payable 243,372
243,372
Total current liabilities 301,159
491,860
NOTE PAYABLE 446,201
567,891
CONVERTIBLE DEBENTURE 1,250,000
-
DEFERRED RENT 24,959
24,959
EQUITY IN SUBSIDIARY 0
432,268
Total liabilities 2,022,319
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,
6,328,581 and
5,338,244 shares 63,286
53,382
Additional paid-in capital 30,904,595
28,799,198
Deficit (27,014,373)
(24,010,547)
Short-term note receivable from (114,800)
shareholder -
TOTAL STOCKHOLDERS'
EQUITY 3,838,708
4,842,033
$5,861,027
$6,359,011
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
(unaudited)
Six Months
Ended
March 31,
1996 1995
REVENUES:
Interest income $84,914
$190,306
Other income 25,406
17,611
TOTAL INCOME 110,320
207,917
EXPENSES:
Research and development 1,750,694
1,149,943
Depreciation and
amortization 139,962
133,986
General and administrative 1,219,719
778,248
TOTAL OPERATING EXPENSES 3,110,375
2,062,177
EQUITY IN LOSS OF JOINT VENTURE (3,772)
(290,340)
3,114,147
2,352,517
NET LOSS $3,003,827
$2,144,600
LOSS PER COMMON SHARE $0.52
$0.51
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,825,011
4,188,244
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
(unaudited)
Three Months
Ended
March 31,
1996 1995
REVENUES:
Other income $7,326
$17,611
Interest Income 40,493
73,605
TOTAL INCOME 47,819
91,216
EXPENSES:
Research and development 512,497
531,307
Depreciation and
amortization 68,694
67,211
General and administrative 741,831
379,968
TOTAL OPERATING EXPENSES 1,323,022
978,486
EQUITY IN LOSS OF JOINT VENTURE 0
(108,761)
1,323,022
1,087,247
NET LOSS $1,275,203
$996,031
LOSS PER COMMON SHARE $ $
0.21 0.24
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,196,630
4,188,244
See notes to condensed financial statements.
CEL-SCI CORPORATION
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOW
(unaudited)
Six Months
Ended
March 31,
1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS
$(3,003,827)
$(2,144,600) Adjustments to reconcile net loss
to
net cash used in operating
activities:
Depreciation and amortization 139,962
133,986
Equity in loss of joint venture 3,772
290,340
Research and development
expense related
to purchase of Viral 515,617
Technologies, Inc.
Amortization of premium on -
18,722
investments
Realized loss on sale of
12,965
investments
Changes in assets and
liabilities, net of effect from
purchase
of Viral Technologies, Inc.:
Decrease (increase) in interest (22,530)
6,449
receivable
Decrease (increase) in prepaid 98,483
(19,924)
expenses
Decrease (increase) in advances (121,409)
(9,356)
Decrease (increase) in
receivable from
joint venture -
(79,128)
Increase (decrease) in accounts (190,701)
(177,918)
payable
NET CASH USED IN OPERATING (2,580,633)
(1,968,464)
ACTIVITIES
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITY:
Sales of investments -
1,487,866
Advance to Joint Venture -
(208,655)
Payment on note (121,690)
(60,845)
Purchase of research and office (2,907)
(120,932)
equipment
Patent costs (11,651)
- -
NET CASH USED IN INVESTING (136,248)
1,097,434
ACTIVITY
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Issuance of convertible 1,250,000
205,195
debenture
Issuance of common stock 1,383,717
- -
NET CASH PROVIDED BY FINANCING 2,633,717
205,195
ACTIVITIES
NET (DECREASE) INCREASE IN CASH (83,164)
(665,835)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,886,950
3,370,713
End of period $3,803,786
$2,704,878
NON-CASH TRANSACTION: In October
1995, Cel-Sci issued 159,170
shares of common stock as consideration for
the purchase of the remaining 50%
of Viral Technology, Inc. In
conjunction with the acquisition,
CEL-SCI obtained
net assets with a fair value of
approximately $170,000.
NON-CASH TRANSACTION: In March,
1996, a shareholder of the
corporation exercised options to
purchase
40,000 shares of common stock.
The shareholder signed a note for
the stock, agreeing to pay the
note by the
end of June, 1996.
See notes to condensed financial statements.
