UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ______________. Commission File Number 0-11503 CEL-SCI CORPORATION Colorado 84-0916344 - ---------------------------- --------------------- State or other jurisdiction (IRS) Employer incorporation Identification Number 8229 Boone Boulevard, Suite 802 Vienna, Virginia 22182 ----------------------------- Address of principal executive offices (703) 506-9460 ----------------------------- Registrant's telephone number, including area code Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) had been subject to such filing requirements for the past 90 days. Yes ____X_____ No __________ - Class of Stock No. Shares Outstanding Date - -------------- ---------------------- ---- Common 25,365,688 February 14, 2002
TABLE OF CONTENTS PART I FINANCIAL INFORMATION Item 1. Balance Sheets Statements of Operations Statements of Comprehensive Loss Statements of Cash Flow Notes to Financial Statements Item 2. Management's Discussion and Analysis PART II Item 6. Exhibits and Reports on Form 8-K Signatures
Item 1. FINANCIAL STATEMENTS CEL-SCI CORPORATION ------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------ ASSETS (unaudited) <TABLE> <S> <C> <C> December 31, September 30, 2001 2001 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 2,475,572 $ 1,783,990 Investments, net - 593,384 Interest and other receivables 25,918 40,376 Prepaid expenses 663,108 866,058 Current portion of deferred financing costs 474,305 - ---------- ---------- Total Current Assets 3,638,903 3,283,808 RESEARCH AND OFFICE EQUIPMENT- Less accumulated depreciation of $1,904,831 and $1,864,182 592,614 620,608 DEPOSITS 139,828 139,828 DEFERRED FINANCING COSTS 92,805 - PATENT COSTS- less accumulated amortization of $636,689 and $623,235 456,246 464,676 ---------- ----------- $ 4,920,396 $ 4,508,920 ========== =========== </TABLE> See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION ------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------ (continued) LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) <TABLE> <S> <C> <C> December 31, September 30, 2001 2001 --------------------------------------- CURRENT LIABILITIES: Accounts payable $ 1,114,155 $ 476,509 Other current liabilities 74,500 - --------------------------------------- Total current liabilities 1,188,655 476,509 NOTE PAYABLE (See Note C) 1,000,000 - CONVERTIBLE NOTES (See Note C) - - DEFERRED RENT 29,818 31,218 -------------------------------------- Total liabilities 2,218,473 507,727 STOCKHOLDERS' EQUITY Preferred stock, $.01 par value; authorized 200,000 shares; issued and outstanding, 4,847 and 5,863 shares 48 59 Common stock, $.01 par value; authorized, 100,000,000 shares; issued and outstanding, 23,525,080 and 21,952,082 shares 235,251 219,521 Additional paid-in capital 77,204,437 75,641,365 Unearned compensation (14,788) (19,636) Net unrealized gain/(loss) on investments - (210) Deficit (74,723,025) (71,839,906) --------------------------------------- TOTAL STOCKHOLDERS' EQUITY 2,701,923 4,001,193 --------------------------------------- $ 4,920,396 $ 4,508,920 ======================================= </TABLE> See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION ------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS --------------------------------- (unaudited) Three Months Ended December 31, 2001 2000 ----------------------- REVENUES: Interest income $ 25,337 $ 183,211 Other income 150,907 66,597 ------------------------- TOTAL INCOME 176,244 249,808 EXPENSES: Research and development 2,438,216 2,071,107 Depreciation and amortization 56,526 49,079 General and administrative 564,622 673,111 ------------------------- TOTAL OPERATING EXPENSES 3,059,364 2,793,297 ------------------------- NET LOSS 2,883,120 2,543,489 ACCRUED DIVIDENDS ON PREFERRED STOCK 68,080 - ACCRETION OF BENEFICIAL CONVERSION FEATURE ON PREFERRED STOCK 579,695 - ------------------------- NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 3,530,895 $ 2,543,489 ============================ LOSS PER COMMON SHARE (BASIC) $ 0.15 $ 0.12 ============================ LOSS PER COMMON SHARE (DILUTED) $ 0.15 $ 0.12 ============================ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 22,799,002 20,459,913 ============================ See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION ------------------- CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS --------------------------------- (unaudited) Three Months Ended December 31, 2001 2000 ------------------------ NET LOSS (2,883,120) (2,543,489) OTHER COMPREHENSIVE LOSS - Unrealized gain (loss) on investments - (28,617) ------------------------------ COMPREHENSIVE LOSS $ (2,883,120) $ (2,572,106) ============================== See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION ------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW --------------------------------- (unaudited) Three Months Ended December 31, 2001 2000 ----------------------- CASH FLOWS FROM OPERATING ACTIVITIES: NET LOSS $ (2,883,120) $ (2,543,489) Adjustments to reconcile net loss to net cash used in operating activities: - Depreciation and amortization 56,526 49,079 Issuance of common stock for services 105,877 - Stock issued to 401(k) 22,431 27,391 Stock bonus granted to officer 75,071 - Repriced options (211,416) - Deferred financing costs 381,500 - Issuance of stock options for services 24,513 - Impairment of patents 5,816 Realized loss on investments 2,710 - Decrease in receivables 14,458 9,606 Decrease (increase) in prepaid expenses 202,950 (603,713) Increase in advances - (20,204) Increase in other current liabilities 74,500 - Decrease in deferred rent (1,400) - Increase (decrease) in accounts payable 637,646 (57,569) R&D expenses paid with note payable 1,000,000 - -------------------------------- NET CASH USED IN OPERATING ACTIVITIES (491,938) (3,138,899) -------------------------------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITY: Sales of investments 590,674 - Purchase of research and office equipment (12,655) (38,813) Patent costs (13,263) (18,524) -------------------------------- NET CASH PROVIDED BY(USED IN) INVESTING ACTIVITY 564,756 (57,337) -------------------------------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Cash proceeds from issuance of common stock 150,000 - Cash proceeds from drawdown on equity line 298,895 - Proceeds from convertible notes 800,000 - Discount on convertible notes (800,000) - Costs for equity related transactions 169,869 - ------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 618,764 - ------------------------------- NET INCREASE (DECREASE) IN CASH 691,582 (3,196,236)
CASH AND CASH EQUIVALENTS: Beginning of period 1,783,990 6,909,263 -------------------------------- End of period $ 2,475,572 $ 3,713,027 ================================ SUPPLEMENTAL DISCLOSURES: During the quarter ended December 31, 2001, 1,016 shares of preferred stock were converted into 927,501 shares of common stock. In addition 12,215 shares of common stock were issued in lieu of cash dividends of $13,336. The beneficial conversion accretion for the preferred stock for the quarter ended December 31, 2001 totalled $579,695. See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000 (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, results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America 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, 2001. 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, 2001 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. Principles of Consolidation The consolidated financial statements include the accounts of CEL-SCI Corporation and its wholly owned subsidiary, Viral Technologies, Inc. All significant intercompany transactions have been eliminated upon consolidation. 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. Research and Office Equipment Research and office equipment is recorded at cost and depreciated using the straight-line method over estimated useful lives of five to seven years. Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the terms of the lease. Repairs and maintenance are expensed when incurred. Research and Development Costs Research and development expenditures are expensed as incurred. The Company has an agreement with an unrelated corporation for the production of MULTIKINE, which is the Company's only product source.
CEL-SCI CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000 (unaudited) (continued) Research and Development Grant Revenues The Company's grant arrangements are handled on a reimbursement basis. Grant revenues under the arrangements are recognized as other income when costs are 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 is made. An impairment loss is recognized when estimated future undiscounted cash flows expected to result from the use of the asset, and from disposition, is less than the carrying value of the asset. The amount of the impairment loss would be the difference between the estimated fair value of the asset and its carrying value. During the quarter ended December 31, 2001, the Company recorded patent impairment charges of $5,816 for the net book value of patents abandoned during the quarter and such amount is included in general and administrative expenses. There were no impairment charges for the corresponding quarter of 2000. Loss per Share Net loss per common share is computed by dividing the net loss, after increasing the loss for the effect of any accrued dividends on the preferred stock and the accretion of the beneficial conversion feature related to the preferred stock, by the weighted average number of common shares outstanding during the period. Common stock equivalents, including convertible preferred stock and options to purchase common stock, were excluded from the calculation because they are antidilutive. Prepaid Expenses The majority of prepaid expenses consist of manufacturing production advances and bulk purchases of laboratory supplies to be consumed in the manufacturing of the Company's product for clinical studies. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CEL-SCI CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000 Reclassifications Certain reclassifications have been made to the December 31, 2000 financial statements to conform with the current year presentation. B. STOCKHOLDERS' EQUITY During the quarter ended December 31, 2001, the Company issued 150,000 units at $1.00 to a private investor. Each unit consists of one share of common stock and 1/2 warrant. Each warrant allows the holder to purchase one share of common stock at $1.50 per share at any time prior to October 5, 2004. Also during the quarter, 75,071 shares of common stock were issued to an employee from the Company's stock bonus plan. During August 2001, three private investors exchanged shares of the company's common stock and remaining Series D Warrants, which they owned, for 6,288 shares of the Company's Series E Preferred Stock. These investors also exchanged their Series A and Series C Warrants from prior offerings for new Series E Warrants. The preferred shares are entitled to receive cumulative annual dividends in an amount equal to $60 per share and have liquidation preferences equal to $1,000 per share. Each Series E Preferred share is convertible into shares of the Company's common stock on the basis of one Series E Preferred share for shares of common stock equal in number to the amount determined by dividing $1,000 by the lesser of $5 or 93% of the average closing bid prices (Conversion Price) of the Company's common stock for the five days prior to the date of each conversion notice. The lowest price at which the Series E Preferred stock can be converted is $1.08. The Series E Preferred stock has no voting rights and is redeemable at the Company's option at a price of 120% plus accrued dividends until August 2003 when the redemption price will be fixed at 100%. During the quarter, 1,016 preferred shares were converted into 927,501 shares of common stock at prices ranging from $1.08 to $1.16 per share. In addition, 12,215 shares of common stock were issued at the same prices in lieu of cash for dividends on the preferred stock. As of December 31, 2001, 4,847 shares of Preferred stock remained outstanding. As of February 15, 2002, 3,843 shares of Preferred stock remained outstanding. C. FINANCING TRANSACTIONS In December 2001, the Company agreed to sell redeemable convertible notes and Series F warrants, to a group of private investors for proceeds of $1,600,000. Pursuant to the agreement, the Company incurred transaction costs of $245,610 which are included in deferred financing cost in the accompanying balance sheet as of December 31, 2001 and are being amortized to interest expense over a two-year period. The notes will bear interest at 7% per year and will be due and payable December 31, 2003. Interest will be payable quarterly beginning July 1, 2002. The notes will be secured by substantially all of the Company's assets and contain certain restrictions, including limitations on such items as indebtedness, sales of common stock and
CEL-SCI CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000 (unaudited) (continued) payment of dividends. The notes will be convertible into shares of the Company's common stock at the holder's option determinable by dividing each $1,000 of note principal by 76% of the average of the three lowest daily trading prices of the Company's common stock on the American Stock Exchange during the twenty trading days immediately prior to the closing date. In addition, the notes are required to be redeemed by the Company at 130% upon certain occurrences. Proceeds of $800,000 were received on December 31, 2001 and the second half of the proceeds was received in January 2002. The Series F warrants initially allowed the holders to purchase up to 960,000 shares of the Company's common stock at a price of $0.95 per share at any time prior to December 31, 2008. In accordance with the terms of the warrants, the exercise price was adjusted to $0.65 per share on January 17, 2002. Every three months after January 17, 2002, the warrant exercise price will be adjusted to an amount equal to 110% of the conversion price on such date, provided that the adjusted price is lower than the warrant exercise price on that date. The entire balance of the convertible notes as of December 31, 2001 is offset by a discount of $800,000 which represents half of the relative fair value of the Series F warrants of $381,500 and a beneficial conversion discount of $418,500. The remaining half of the fair value of the warrants of $381,500 is included in deferred financing costs in the accompanying consolidated balance sheet as of December 31, 2001. The discount on convertible notes will be amortized to interest expense over a two-year period. The amount of warrants included in deferred financing costs will not be amortized and is expected to be reclassified to the discount on convertible notes upon receipt of the second half of the proceeds in January 2002, at which time it will be amortized to interest expense over a two-year period. On November 15, 2001, the Company signed an agreement with Cambrex Bioscience in which Cambrex provided manufacturing space and support to the Company during November and December 2001 and January 2002. In exchange, the Company has signed a note with Cambrex to pay a total of $1,159,000 to Cambrex. The note was payable on November 15, 2002. In December 2001, the note was amended to extend the due date to January 2, 2003. Unpaid principal will begin accruing interest on November 16, 2002 and carries an interest rate of the Prime Rate plus 3%. The note is collateralized by certain laboratory equipment. In April 2001, the Company signed an equity line of credit agreement with Paul Revere Capital Partners. Under the agreement, Paul Revere Capital Partners has agreed to provide the Company with up to $10,000,000 of funding prior to June 22, 2003. During this twenty-four month period, the Company may request a drawdown under the equity line of credit by selling shares of its common stock to Paul Revere Capital Partners and they will be obligated to purchase the shares. The Company may request a drawdown once every 22 trading days, although the Company is under no obligation to request any drawdowns under the equity line of credit.
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 convertible notes as well as short-term borrowings to meet its funding requirements. Funds raised by the Company have been expended primarily in connection with the acquisition of exclusive rights 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 its technology and know-how 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 June 2000, the Company entered into an agreement with Cambrex Bioscience whereby Cambrex agreed to provide the Company with a facility which will allow the Company to manufacture Multikine in accordance with the Good Manufacturing Practices regulations of the FDA. Company personnel will staff this facility. The Company has the right to extend the term of its agreement with Cambrex until December 31, 2006. In November 2001, the Company gave a promissory note to Cambrex Bio Sciences, Inc. The promissory note is in the principal amount of $1,159,000 and represents the cost of the Company's use of the Cambrex manufacturing facility for the three months ended January 10,2002. As shown in the condensed consolidated balance sheet, $1,000,000 of this liability was recorded at December 31, 2001. The balance will be recorded when incurred in January 2002. The Company expects that its short-term need for MULTIKINE will be complete by January 10, 2002 and as a result the Company will not incur the expense associated with the use of the Cambrex facility after that date. The amount borrowed from Cambrex is due and payable on January 2, 2003. Beginning November 16, 2002, the note will bear interest at the prime interest rate plus 3%, is adjusted monthly, and is secured by the equipment used by the Company to manufacture MULTIKINE. In April, 2001, the Company signed an equity line of credit agreement that allows the Company at its discretion to draw up to $10 million of funding prior to June 22, 2003. During this period, the Company may request a drawdown under the equity line of credit by selling shares of its common stock to Paul Revere Capital Partners and Paul Revere Capital Partners will be obligated to purchase the shares. The Company may request a drawdown once every 22 trading days, although the Company is under no obligation to request drawdowns under the equity line of credit. During the 22 trading days following a drawdown request, the Company will calculate the number of shares it will sell to Paul Revere Capital Partners and the purchase price per share. The purchase price per share of common stock will be based on the daily volume weighted average price of the Company's common stock during each of the 22 trading days immediately following the drawdown date, less a discount of 11%. Results of Operations Interest income during the three months ending December 31, 2001 was less than it was during the same quarter in 2000 as a result of the Company's smaller cash position. Other income was higher due to the receipt of grant money. Research and development expenses were $367,000 higher because of the expenses incurred in the continuation of production at Cambrex (see above).
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company's cash flow and earnings are subject to fluctuations due to changes in interest rates in its investment portfolio of debt securities, to the fair value of equity instruments held, and, to an immaterial extent, to foreign currency exchange rates. The Company maintains an investment portfolio of various issuers, types and maturities. These securities are generally classified as available-for-sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of stockholders' equity. Other-than-temporary losses are recorded against earnings in the same period the loss was deemed to have occurred. The Company does not currently hedge this exposure and there can be no assurance that other-than-temporary losses will not have a material adverse impact on the Company's results of operations in the future.
PART II Item 2. Changes in Securities and Use of Proceeds During the quarter ended December 31, 2001, 24,650 shares of stock were issued by the Company for its contribution to the 401K. Item 6. (a) Exhibits No exhibits are filed with this report. (b) Reports on Form 8-K The Company filed one report on Form 8-K during the quarter ended December 31, 2001.
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 /s/ Geert Kersten Date:February 19, 2002 ____________________________ Geert Kersten Chief Executive Officer* *Also signing in the capacity of the Chief Accounting Officer and Principal Financial Officer.