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 March 31, 2002 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 31,618,777 May 8, 2002 Page 1 of 19 pages
TABLE OF CONTENTS PART I FINANCIAL INFORMATION Item 1. Page ---- Condensed Consolidated Balance Sheets (unaudited) 3-4 Condensed Consolidated Statements of Operations (unaudited) 5-6 Condensed Consolidated Statements of Comprehensive Loss (unaudited) 7 Condensed Consolidated Statements of Cash Flow (unaudited) 8-9 Notes to Condensed Consolidated Financial Statements (unaudited) 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3. Quantitative and Qualitative Disclosures about Market Risks 16 PART II Item 2. Changes in Securities and Use of Proceeds 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 19 Signatures 20
Item 1. FINANCIAL STATEMENTS CEL-SCI CORPORATION ------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------ ASSETS (unaudited) March 31, September 30, 2002 2001 -------------------------------- CURRENT ASSETS: Cash and cash equivalents $ 2,206,192 $ 1,783,990 Investments, net - 593,384 Interest and other receivables 47,565 40,376 Prepaid expenses 388,665 866,058 Current portion of deferred financing costs 176,440 - -------------------------------- Total Current Assets 2,818,862 3,283,808 RESEARCH AND OFFICE EQUIPMENT- Less accumulated depreciation of $1,945,600 and $1,864,182 553,795 620,608 DEPOSITS 139,828 139,828 PATENT COSTS- less accumulated amortization of $652,251 and $623,235 445,397 464,676 -------------------------------- $ 3,957,882 $ 4,508,920 ================================ See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION ------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------ (continued) LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) March 31, September 30, 2002 2001 ------------------------------- CURRENT LIABILITIES: Accounts payable $ 773,558 $ 476,509 Accrued interest on convertible notes 23,308 - Accrued dividends 97,211 - ------------------------------- Total current liabilities 894,077 476,509 NOTE PAYABLE (See Note C) 971,500 - CONVERTIBLE NOTES (See Note C) 146,327 - DEFERRED RENT 27,883 31,218 ------------------------------- Total liabilities 2,039,787 507,727 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Series E cumulative convertible redeemable preferred stock $.01 par value, $1,000 liquidation value - authorized 6,288; issued and outstanding,3,476 and 5,863 shares at March 31, 2002 and September 30,2001, respectively 35 59 Common stock, $.01 par value; authorized, 100,000,000 shares; issued and outstanding, 26,631,195 and 21,952,082 shares at March 31, 2002 and September 30, 2001, respectively 266,312 219,521 Additional paid-in capital 78,351,589 75,641,365 Unearned compensation (1,402) (19,636) Net unrealized loss on investments - (210) Accumulated deficit (76,698,439) (71,839,906) ----------------------------------- TOTAL STOCKHOLDERS' EQUITY 1,918,095 4,001,193 ----------------------------------- $3,957,882 $4,508,920 =================================== See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION ------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS --------------------------------- (unaudited) Six Months Ended March 31, 2002 2001 ----------------------------------- REVENUES: Interest income $ 47,643 $ 218,231 Other income 221,651 119,465 ----------------------------------- TOTAL INCOME 269,294 337,696 EXPENSES: Research and development 3,371,336 4,928,761 Depreciation and amortization 112,858 99,934 General and administrative 817,264 1,486,433 ----------------------------------- TOTAL OPERATING EXPENSES 4,301,458 6,515,128 ----------------------------------- OPERATING LOSS 4,032,164 6,177,432 INTEREST EXPENSE 826,368 - ----------------------------------- NET LOSS 4,858,532 6,177,432 ACCRUED DIVIDENDS ON PREFERRED STOCK 143,439 - ACCRETION OF BENEFICIAL CONVERSION FEATURE ON PREFERRED STOCK 1,008,465 - ----------------------------------- NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 6,010,436 $ 6,177,432 =================================== LOSS PER COMMON SHARE (BASIC) $ 0.25 $ 0.30 =================================== LOSS PER COMMON SHARE (DILUTED) $ 0.25 $ 0.30 =================================== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 23,975,508 20,563,439 =================================== See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION ------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS --------------------------------- (unaudited) Six Months Ended March 31, 2002 2001 ----------------------------------- REVENUES: Interest income $ 22,306 $ 35,020 Other income 70,744 52,868 ----------------------------------- TOTAL INCOME 93,050 87,888 EXPENSES: Research and development 933,120 2,857,654 Depreciation and amortization 56,332 50,855 General and administrative 252,642 813,322 ----------------------------------- TOTAL OPERATING EXPENSES 1,242,094 3,721,831 ----------------------------------- OPERATING LOSS 1,149,044 3,633,943 INTEREST EXPENSE 788,868 - ----------------------------------- NET LOSS 1,937,912 3,633,943 ACCRUED DIVIDENDS ON PREFERRED STOCK 62,023 - ACCRETION OF BENEFICIAL CONVERSION FEATURE ON PREFERRED STOCK 428,770 - ----------------------------------- NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 2,428,705 $ 3,633,943 =================================== LOSS PER COMMON SHARE (BASIC) $ 0.10 $ 0.18 =================================== LOSS PER COMMON SHARE (DILUTED) $ 0.10 $ 0.18 =================================== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 25,178,159 20,669,266 =================================== See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION ------------------- CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS --------------------------------- (unaudited) Six Months Ended March 31, 2002 2001 NET LOSS $ (4,858,532) $ (6,177,432) OTHER COMPREHENSIVE LOSS - Unrealized gain on investments 210 87,454 -------------- -------------- COMPREHENSIVE LOSS $ (4,858,322) $ (6,089,978) ============== ============== Three Months Ended March 31, 2002 2001 NET LOSS $ (1,937,912) $ (3,633,943) OTHER COMPREHENSIVE LOSS - Unrealized loss on investments - (58,838) -------------- -------------- COMPREHENSIVE LOSS $ (1,937,912) $ (3,692,781) ============== ============== See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION ------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW --------------------------------- (unaudited) Six Months Ended March 31, 2002 2001 ------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: NET LOSS $ (4,858,532) $ (6,177,432) Adjustments to reconcile net loss to net cash used in operating activities: - Depreciation and amortization 112,858 99,934 Issuance of common stock for services 216,641 - Stock issued to 401(k) 42,761 51,802 Stock bonus granted to officer 75,071 - Repriced options (593,472) - Amortization of discount on note payable 112,500 - R&D expenses paid with note payable 859,000 - Amortization of discount associated with convertible notes 589,824 - Amortization of deferred financing costs 99,970 - Impairment of patents 5,816 - Realized (gain) loss on investments (2,758) 15,932 Increase in receivables (7,189) (15,070) Decrease in prepaid expenses 477,393 1,127,860 Decrease in advances - 728 Decrease in deferred rent (3,335) - Increase in current liabilities 23,309 - Increase (decrease) in accounts payable 284,112 (437,640) ------------------------------------- NET CASH USED IN OPERATING ACTIVITIES (2,566,031) (5,333,886) ------------------------------------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Sales of investments 593,594 696,499 Purchase of research and office equipment (14,606) (101,431) Patent costs (5,039) (24,944) ------------------------------------- NET CASH PROVIDED BY INVESTING ACTIVITIES 573,949 570,124 ------------------------------------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Cash proceeds from issuance of common stock 150,000 - Cash proceeds from drawdown on equity line, net of costs 940,694 - Cash proceeds from exercise of warrants - 274 Proceeds from convertible notes 1,600,000 - Transaction costs related to convertible notes (276,410) - ------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,414,284 274 -------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 422,202 (4,763,488) CASH AND CASH EQUIVALENTS: Beginning of period 1,783,990 6,909,263 ------------------------------------- End of period $ 2,206,192 $ 2,145,775 ===================================== (continued) See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION ------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW --------------------------------- (unaudited) (continued) Six Months Ended March 31, 2002 2001 -------------------------------- SUPPLEMENTAL INFORMATION ON NONCASH TRANSACTIONS Accrual of dividends on preferred stock: Increase in current liabilities $ 143,439 $ - Decrease in additional paid-in capital (143,439) - -------------------------------- $ - $ - ================================ Common stock issued in lieu of cash dividends: Decrease in other current liabilities $ (46,229) $ - Increase in common stock 426 Increase in additional paid-in capital 45,803 - -------------------------------- $ - $ - ================================ Conversion of preferred stock to common stock: Decrease in preferred stock $ (24) $ - Increase in common stock 21,929 - Decrease in additional paid-in capital (21,905) - -------------------------------- $ - $ - ================================ Conversion of convertible notes into common stock: Decrease in convertible notes $ (443,497) $ - Increase in common stock 8,332 - Increase in additional paid-in capital 435,165 - -------------------------------- $ - $ - ================================ Changes in unearned compensation for variable options: Decrease in additional paid-in capital $ 18,234 $ - Decrease in unearned compensation (18,234) - -------------------------------- $ - $ - ================================ Accretion for the beneficial conversion on preferred stock Increase in additional paid-in capital $ 1,008,465 $ - Decrease in additional paid-in capital (1,008,465) - -------------------------------- $ - $ - ================================ Patents costs included in accounts payable: Increase in accounts payable $ 12,937 $ - Increase in patent costs (12,937) - -------------------------------- $ - $ - ================================ concluded See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (unaudited) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Basis of Presentation The accompanying condensed consolidated financial statements of CEL-SCI Corporation and subsidiary (the Company) are unaudited and certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. While management of the Company believes that the disclosures presented are adequate to make the information presented not misleading, interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's annual report on Form 10-K for the year ended September 30, 2001. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain 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, 2002 and the results of operations for the three and six-month periods then ended. The condensed consolidated balance sheet as of September 30, 2001 is derived from the September 30, 2001 audited consolidated financial statements. Significant accounting policies have been consistently applied in the interim financial statements and the annual financial statements. The results of operations for the three and six-month periods ended March 31, 2002 are not necessarily indicative of the results to be expected for the entire year. 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
CEL-SCI CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (unaudited) (continued) 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. 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 six months ended March 31, 2002, the Company recorded patent impairment charges of $5,816 for the net book value of patents abandoned during the period and such amount is included in general and administrative expenses. There were no impairment charges for the corresponding period of 2001. 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. Potentially dilutive common shares, 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 bulk purchases of laboratory supplies to be consumed in the manufacturing of the Company's product for clinical studies.
CEL-SCI CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (unaudited) (continued) 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. Reclassifications Certain reclassifications have been made to the March 31, 2001 financial statements to conform with the current period presentation. B. STOCKHOLDERS' EQUITY During the six months ended March 31, 2002, 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 six month period, 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 six month period ended March 31, 2002, 2,387 preferred shares were converted into 2,192,936 shares of common stock at prices ranging from $1.08 to $1.16 per share. In addition, 42,575 shares of common stock were issued at the same price in lieu of cash for dividends on the preferred stock. As of March 31, 2002, 3,476 shares of Preferred stock remained outstanding. On May 1, 2002, 2,422 shares of Preferred Stock remained outstanding.
CEL-SCI CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (unaudited) (continued) 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 total transaction costs of $276,410 of which $176,440 is included in deferred financing costs in the accompanying balance sheet as of March 31, 2002 and is being amortized to interest expense over a two-year period. Additional deferred financing costs associated with converted notes are amortized to interest expense at the time the notes are converted. 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. At March 31, 2002, $23,308 in interest on the notes was carried on the balance sheet as an other current liability and was charged to interest expense. 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 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. On April 17, 2002, the price was adjusted to $0.24. The warrant exercise price will be adjusted every three months 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 was initially offset by a discount of $1,600,000 which represents the relative fair value of the Series F warrants of $763,000 and a beneficial conversion discount of $837,000. The discount on outstanding convertible notes will be amortized to interest expense over a two-year period. Any unamortized discount associated with the convertible notes is fully amortized to interest expense upon redemption. As of March 31, 2002, $443,497 of the notes had been converted into 833,239 shares of common stock. Also as of March 31, 2002, $589,824 of the discount had been amortized to interest expense. On November 15, 2001, the Company signed an agreement with Cambrex Bioscience, Inc. ("Cambrex") 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. As shown in the condensed consolidated balance sheet, this liability is recorded at March 31, 2002 along with an unamortized discount of $187,500 representing imputed interest. 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
CEL-SCI CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (unaudited) (continued) 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. During the six month period ended March 31, 2002, 1,072,311 shares of common stock were sold to Paul Revere Capital Partners for a total of $940,694, net of financing costs of $2,210.
CEL-SCI CORPORATION Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 Viral Technologies, Inc.'s (VTI) 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, Inc. ("Cambrex") 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. 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 November and December 2001 and through January 10, 2002. As shown in the condensed consolidated balance sheet, $1,159,000 of this liability is recorded at March 31, 2002, along with an unamortized discount of $187,500 representing imputed interest. The Company's need for MULTIKINE was completed 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%. In December 2001 and January 2002, the Company sold convertible notes, plus Series F warrants, to a group of private investors for $1,600,000. The notes bear interest at 7% per year, are due and payable on December 31, 2003 and are secured by substantially all of the Company's assets. Interest is payable
quarterly except that the first interest payment is not due until July 1, 2002. If the Company fails to make any interest payment when due, the notes will become immediately due and payable. At the holder's option the notes are convertible into shares of the Company's common stock equal in number to the amount determined by dividing each $1,000 of note principal to be converted by the Conversion Price. The Conversion Price is 76% of the average of the three lowest daily trading prices of the Company's common stock on the American Stock Exchange during the 20 trading days immediately prior to the conversion date. The Conversion Price may not be less than $0.57. However, if the Company's common stock trades for less than $0.57 per share for a period of 20 consecutive trading days, the $0.57 minimum price will no longer be applicable. 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. On January 17, 2002, the warrant exercise price, in accordance with the terms of the warrants, was adjusted to $0.65 per share. 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. Results of Operations Interest income during the six months ending March 31, 2002 was less than it was during the same period in 2001 as a result of the Company's smaller cash position and lower interest rates on interest bearing accounts. Other income was higher due to the receipt of grant money. Research and development expenses were lower because of the conclusion of the manufacturing validation work at Cambrex (see above). General and administrative expenses were lower because of the Company's cost savings plan and the complete reversal of a fiscal year 2001 charge of $593,472 for variable options. The interest expense of $826,368 is a noncash item incurred to account for the issuance of the convertible debt and the Cambrex note. Interest income during the three months ending March 31, 2002 was less than it was during the same quarter in 2001 as a result of the Company's smaller cash position and lower rates on interest bearing accounts. Other income was higher due to the receipt of grant money. Research and development expenses were significantly lower because of the conclusion of the manufacturing validation work at Cambrex (see above). General and administrative expenses were significantly lower because of the Company's cost savings plan and the partial reversal ($386,904) of a fiscal year 2001 charge to general and administrative expense of $593,472 for variable options. The interest expense of $788,868 is a noncash item incurred to account for the issuance of the convertible debt and the Cambrex note. 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 None Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of the Company's shareholders was held on March 14, 2002. At the meeting the following persons were elected as directors for the upcoming year: Name Votes For Votes Withheld Maximilian de Clara 20,616,100 856,538 Geert R. Kersten 20,761,207 711,431 Alexander G. Esterhazy 20,761,523 704,115 C. Richard Kinsolving 20,807,418 665,220 At the meeting the following proposals were ratified by the shareholders. 1. An amendment to the Company's 2001 Non-Qualified Stock Option Plan, which amendment increased the shares of common stock that may be issued upon the exercise of options granted pursuant to the Non-Qualified Stock Option Plan from 500,000 shares to 2,500,000 shares. 2. The adoption of the Company's 2002 Stock Bonus Plan which provided that up to 400,000 shares of common stock may be issued to persons granted stock bonuses pursuant to the Stock Bonus Plan. 3. The approval of the issuance of such number of shares of common stock as may be required by the terms of the Company's Equity Line of Credit, Series E Preferred stock, Series E Warrants, Convertible Promissory Notes and Series F Warrants. 4. The appointment of Deloitte & Touche LLP as the Company's independent accountants for the fiscal year ending September 30, 2002. The following is a tabulation of votes cast with respect to these proposals: Votes ------------------------------------ Broker Proposal For Against Abstain Non-Votes 1. 2,579,924 1,155,931 292,701 17,444,082 2. 2,606,569 1,361,013 60,974 17,444,082 3. 2,826,287 1,127,947 74,322 17,444,082 4. 21,183,597 220,392 67,654 995
Item 6. (a) Exhibits No exhibits are filed with this report. (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the quarter ended March 31, 2002.
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:_______________, 2002 ____________________________ Geert Kersten Chief Executive Officer* *Also signing in the capacity of the Chief Accounting Officer and Principal Financial Officer.