-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, W1KYkqzDk6tXLeoiqcxitd/F2v7Gt58p3HvnzFClucnhCR+KeE+rsmeUhvINCJ89 ZtwusPix7Rdui3TfjiWr1Q== 0001004878-00-000017.txt : 20000209 0001004878-00-000017.hdr.sgml : 20000209 ACCESSION NUMBER: 0001004878-00-000017 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 20000208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CEL SCI CORP CENTRAL INDEX KEY: 0000725363 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 840916344 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 333-72415 FILM NUMBER: 527453 BUSINESS ADDRESS: STREET 1: 8229 BOONE BLVD STE 510 CITY: VIENNA STATE: VA ZIP: 22182 BUSINESS PHONE: 7035495293 MAIL ADDRESS: STREET 1: 8229 BOONE BLVD STE 802 CITY: VIENNA STATE: VA ZIP: 22182 FORMER COMPANY: FORMER CONFORMED NAME: INTERLEUKIN 2 INC DATE OF NAME CHANGE: 19880317 10-K/A 1 FORM 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1998. 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 (Exact name of registrant as specified in its charter) COLORADO 84-0916344 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8229 Boone Blvd., Suite 802 Vienna, Virginia 22182 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (703) 506-9460 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports 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) has been subject to such filing requirements for the past 90 days. Yes X No ___ The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on December 15, 1998, as quoted on the American Stock Exchange, was approximately $23,600,000. Shares of Common Stock held by each officer, director and principal shareholder have been excluded in that such persons may be deemed to be affiliates of the Registrant. Documents Incorporated by Reference: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of December 15, 1998, the Registrant had 12,715,529 shares of Common Stock issued and outstanding. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the more detailed financial statements, related notes and other financial information included herein. For the Years Ended September 30, 1998 1997 1996 1995 1994 ---- ---- ------ ------ ---- Investment Income and Other Revenues $792,994 $ 438,145 $ 322,370 $423,765 $624,670 Expenses: Research and Development 3,833,854 6,011,670 3,471,477 1,824,661 2,896,109 Depreciation and Amortization 295,331 313,547 290,829 262,705 138,755 General and Administrative 3,106,492 2,302,386 2,882,958 1,713,912 1,621,990 Equity in loss of joint venture -- -- 3,772 501,125 394,692 --------------------------- ----- ------- ------- Net Loss $(6,442,683) $(8,189,458) $(6,326,666) $(3,878,638) $(4,426,876) =================================== ======================== Loss per common share (basic and diluted) $(0.74) $(1.00) $(1.16) $(0.89) $(1.06) Weighted average common Shares outstandin 11,379,437 9,329,419 6,425,316 4,342,628 4,185,240 Balance Sheet Data: September 30, 1998 1997 1996 1995 1994 ---- ----- ----- ---- ---- Working Capital $12,926,014 $4,581,247 $10,266,104 $3,983,699 $5,795,191 Total Assets 14,431,813 6,334,397 11,878,370 6,359,011 8,086,670 Total Liabilities 456,529 508,617 294,048 1,516,978 1,407,602 Shareholders' Equity 13,975,284 5,825,780 11,584,322 4,842,033 6,679,068 No dividends have been declared on the Company's common stock. CEL-SCI CORPORATION Consolidated Financial Statements for the Years Ended September 30, 1998, 1997 (Restated), and 1996 (Restated), and Independent Auditors' Report CEL-SCI CORPORATION TABLE OF CONTENTS - ------------------------------------------------------------------------------- Page INDEPENDENT AUDITORS' REPORT F-1 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 (RESTATED), AND 1996 (RESTATED): Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Stockholders' Equity F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-7 - F-21 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of CEL-SCI Corporation: We have audited the accompanying consolidated balance sheets of CEL-SCI Corporation and subsidiary (the Company) as of September 30, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1998. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of CEL-SCI Corporation and its subsidiary as of September 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1998, in conformity with generally accepted accounting principles. As discussed in Note 14, the 1997 and 1996 consolidated financial statements have been restated. DELOITTE & TOUCHE LLP Washington, DC December 11, 1998 CEL-SCI CORPORATION CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1998 AND 1997 - --------------------------------------------------------------------- ASSETS 1998 1997 CURRENT ASSETS: Cash and cash equivalents $2,813,225 $3,508,606 Investment securities available for 745,216 sale 9,675,311 Interest and other receivables 106,443 69,809 Prepaid expenses 410,788 723,834 Advances to officer/shareholder and 291,781 employees 70,982 ---------------------------- Total current 13,353,161 5,062,834 assets RESEARCH AND OFFICE EQUIPMENT - Less accumulated depreciation of $1,352,165 and $1,128,410 619,496 791,964 DEPOSITS 14,828 18,178 PATENT COSTS - Less accumulated amortization of $454,328 and $402,025 444,328 461,421 ---------------------------- $14,431,813 $6,334,397 ============================ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued $427,147 $481,587 expenses ---------------------------- Total current liabilities 427,147 481,587 DEFERRED RENT 29,382 27,030 ---------------------------- Total liabilities 456,529 508,617 ---------------------------- STOCKHOLDERS' EQUITY: Series D Preferred stock, $0.01 par 90 - value - authorized, 10,000 shares; issued and outstanding, 9,002 shares Common stock, $.01 par value - authorized, 100,000,000 shares; issued and outstanding, 119,726 104,457 11,972,695 and 10,445,691 shares Additional paid-in capital 59,040,864 44,419,244 Net unrealized loss on marketable (48,291) (3,499) equity securities Accumulated deficit (45,137,105) (38,694,422) ---------------------------- Total stockholders' equity 13,975,284 5,825,780 ---------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,431,813 $6,334,397 ============================ See notes to consolidated financial statements. CEL-SCI CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996 - ------------------------------------------------------------------------- 1998 1997 1996 (As restated, (As restated, see Note 14) see Note 14) INVESTMENT INCOME $728,421 $386,547 $255,053 OTHER INCOME 64,573 51,598 67,317 --------------------------------------- Total income 792,994 438,145 322,370 --------------------------------------- OPERATING EXPENSES: Research and development 3,833,854 6,011,670 3,471,477 Depreciation and amortization 295,331 313,547 290,829 General and administrative 3,106,492 2,302,386 2,882,958 ----------------------------------------- Total operating expenses 7,235,677 8,627,603 6,645,264 ----------------------------------------- EQUITY IN LOSS OF JOINT VENTURE - - (3,772) --------------------------------------- NET LOSS $6,442,683 $8,189,458 $6,326,666 ============================================== ACCRETION OF PREFERRED STOCK 1,980,000 1,062,482 1,039,679 PREFERRED STOCK DIVIDENDS - 108,957 58,794 ------------------------------------------- NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $8,422,683 $9,360,897 $7,425,139 ========================================== LOSS PER COMMON SHARE (BASIC) $0.74 $1.00 $1.16 ============================================ LOSS PER COMMON SHARE $0.74 $1.00 $1.16 (DILUTED) ============================================ Weighted average common shares 11,379,437 9,329,419 6,425,316 outstanding ========== ========= ========= See notes to consolidated financial statements. CEL-SCI CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996 Preferred Preferred Preferred Preferred Series A Stock Series B Stock Series C Stock Series D Stock Shares Amount Shares Amount Shares Amount Shares Amount BALANCE, OCTOBER 1, 1995 -- $ -- -- $ -- -- $ -- -- $ -- Common stock issued for cash -- -- -- -- -- -- -- -- Exercise of stock options -- -- -- -- -- -- -- -- Exercise of warrants -- -- -- -- -- -- -- -- Conversion of convertible debentures -- -- -- -- -- -- -- -- Stock issued for acquisition of VTI and Nippon-Zeon rights -- -- -- -- -- -- -- -- Issuance - Series A preferred stock 3,500 35 -- -- -- -- -- -- Issuance - Series B preferred stock -- -- 5,000 50 -- -- -- -- Preferred Series A conversion (2,900) (29) -- -- -- -- -- -- Cash dividends on Series A and Series B preferred stock -- -- -- -- -- -- -- -- Change in market value of marketable securities available for sale -- -- -- -- -- -- -- -- Net loss -- -- -- -- -- -- -- -- ------------------------ --------------------- -------------------- ------------------------ BALANCE, SEPTEMBER 30, 1996 600 6 5,000 50 -- -- -- -- Exercise of stock options -- -- -- -- -- -- -- -- Exercise of warrants -- -- -- -- -- -- -- -- Stock issued for acquisition of Multikine and Cell-Med's Heteroconjugate rights -- -- -- -- -- -- -- -- Stock options issued to nonemployees for services -- -- -- -- -- -- -- -- Issuance - Series C preferred stock -- -- -- -- 2,850 29 -- --
Preferred Preferred Preferred Preferred Series A Stock Series B Stock Series C Stock Series D Stock Shares Amount Shares Amount Shares Amount Shares Amount Repurchase of Preferred B shares -- -- (2,850) (29) -- -- -- -- Preferred Series A conversion (600) (6) -- -- -- -- -- -- Preferred Series B conversion -- -- (2,150) (21) -- -- -- -- Preferred Series C conversio -- -- -- -- (2,850) (29) -- -- Cash dividends on Series A and B -- -- -- -- -- -- -- -- Change in market value of marketable securities available for sale -- -- -- -- -- -- -- -- Net loss -- -- -- -- -- -- -- -- ------------------- ------------------- -------------------- -------------------- BALANCE, SEPTEMBER 30, 1997 -- -- -- -- -- -- -- -- Exercise of stock options -- -- -- -- -- -- -- -- Exercise of warrants -- -- -- -- -- -- -- -- Stock options issued to non- employees for services -- -- -- -- -- -- -- -- Issuance - Series D preferred stock, net of offering costs -- -- -- -- -- -- 10,000.00 100.00 Preferred Series D conversion -- -- -- -- -- -- (998.00) (10.00) 401(k) contributions -- -- -- -- -- -- -- -- Change in market value of marketable securities available for sale -- -- -- -- -- -- -- -- Net loss -- -- -- -- -- -- -- -- ----------------------- --------------------- --------------------- -------------------- BALANCE, SEPTEMBER 30, 1998 -- $ -- -- $ -- -- $ -- 9,002.00 $ 90.00 ======================= ===================== ==================== ======================
See notes to consolidated financial statements CEL-SCI CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996 - ------------------------------------------------------------------------ Common Stock Additional ------------------------- Paid-in Shares Amount Capital Other Deficit Total BALANCE, OCTOBER 1, 1995 5,338,244 $53,382 $28,799,198 $ -- $(24,010,547) $4,842,033 Common stock issued for cash 23,000 230 57,270 -- -- 57,500 Exercise of stock options 195,711 1,957 491,113 -- -- 492,830 Exercise of warrants 1,308,780 13,088 2,330,226 -- -- 2,343,554 Conversion of convertible debentures 257,480 2,575 1,284,825 -- -- 1,287,400 Stock issued for acquisition of VTI and Nippon-Zeon rights 204,170 2,042 834,117 -- -- 836,159 Issuance - Series A preferred stock -- -- 3,326,349 -- -- 3,326,384 Issuance - Series B preferred stock -- -- 4,799,950 -- -- 4,800,000 Preferred Series A conversion 504,096 5,041 (5,012) -- -- -- Cash dividends on Series A and Series B preferred stock -- -- -- -- (58,794) (58,794) Change in market value of marketable securities available for sale -- -- -- (16,078) -- (16,078) Net loss -- -- -- -- (6,326,666) (6,326,666) ------------------------------------------------------------------------------------------------ BALANCE, SEPTEMBER 30, 1996 7,831,481 78,315 41,918,036 (16,078) (30,396,007) 11,584,322 Exercise of stock options 127,500 1,275 427,650 -- -- 428,925 Exercise of warrants 61,220 612 168,084 -- -- 168,696 Stock issued for acquisition of Multikine and Cell-Med's Heteroconjugate rights 785,056 7,851 1,817,149 -- -- 1,825,000 Stock options issued to non- employees for services -- -- 104,673 -- -- 104,673 Issuance - Series C preferred stock -- -- 2,849,971 -- -- 2,850,000 Repurchase of Preferred B shares -- -- (2,849,971) -- -- (2,850,000) Preferred Series A conversion 127,945 1,279 (1,273) -- -- -- Preferred Series B conversion 597,218 5,972 (5,951) -- -- --
Common Stock Additional ------------------------- Paid-in Shares Amount Capital Other Deficit Total Preferred Series C conversion 915,271 9,153 (9,124) -- -- -- Cash dividends on Series A and B -- -- -- -- (108,957) (108,957) Change in market value of marketable securities -- -- -- 12,579 -- 12,579 available for sale Net loss -- -- -- -- (8,189,458) (8,189,458) ----------------------------------------------------------------------------------------------- BALANCE, SEPTEMBER 30, 1997 10,445,691 104,457 44,419,24 (3,499) (38,694,422) 5,825,780 =================================================================================================== Exercise of stock options 300,048 3,000 882,372 -- -- 885,372 Exercise of warrants 768,243 7,6820 3,621,744 -- -- 3,629,426 Stock options issued to nonemployees for services -- -- 564,031 -- -- 564,031 Issuance - Series D preferred stock, net of offering costs -- -- 9,499,900 -- -- 9,500,000 Preferred Series D conversion 441,333 4,413 (4,403) -- -- -- 401(k) contributions 17,380 174 57,976 -- -- 58,15 Change in market value of marketable securities available for sale -- -- -- (44,792) -- (44,792) Net loss -- -- -- -- (6,442,683) (6,442,683) -------------------------------------------------------------------------------------------------------- BALANCE, SEPTEMBER 30, 1998 11,972,695 $119,726 $59,040,864 $(48,291) $(45,137,105) $13,975,284 =================================================================================================
See notes to consolidated financial statements. CEL-SCI CORPORATION STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996 - ------------------------------------------------------------------------------- 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(6,442,683) $(8,189,458) $(6,326,666) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 295,331 313,547 290,829 Equity in loss of Joint Venture -- -- 3,772 Issuance of stock options for services 564,031 104,673 -- Research and development expenses related to stock purchase of Cell-Med -- 75,000 -- Research and development expenses related to stock purchase of Multikine rights from Sittona -- 1,750,000 -- Research and development expenses related to purchase of Viral Technologies, Inc. -- -- 515,617 Research and development expenses related to purchase of licensing agreement from Nippon Zeon -- -- 219,375 Net realized loss on sale of securities -- -- Amortization of investment premiums and discounts -- (158,825) 22,558 Changes in assets and liabilities: Decrease (increase) in advances 4,733 137,567 (129,739) (Increase) decrease in prepaid expenses, deposits, interest receivable, and receivable from joint venture (273,062) (168,312) 56,456 (Decrease) increase in accounts payable, accrued expenses, and deferred rent (52,088) 214,569 20,601 ------------------------------------- Net cash used in operating activities (5,903,738) (5,921,239) (5,327,197) ------------------------------------- CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES: Purchases of investments (13,480,816) (1,700,000) (6,492,955) Sales and maturities of investments 4,501,828 7,625,000 170,000 Repayment on note receivable from shareholder 216,066 13,625 -- Issuance of note receivable to shareholder -- (300,000) -- Expenditures for property and equipment (70,559) (184,543) (16,727) Expenditures for patents (35,211) (62,762) (63,379) ------------------------------------- Net cash (used in) provided by Investing activities (8,868,692) 5,391,320 (6,403,061) ------------------------------------- (Continued) CEL-SCI CORPORATION STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996 (cont'd) - ------------------------------------------------------------------------------ 1998 1997 1996 CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: Issuance of convertible debentures -- -- 1,250,000 Issuance of preferred and common stock and warrant conversion for cash 14,077,049 597,672 10,927,075 Repayment of note receivable for stock option exercise -- -- 86,100 Repayment of note payable -- -- (811,263) Dividends paid -- (108,957) (58,794) Net cash provided by financing activities 14,077,049 488,715 11,393,118 NET DECREASE IN CASH (695,381) (41,204) (337,140) CASH, BEGINNING OF YEAR 3,508,606 3,549,810 3,886,950 CASH, END OF YEAR $2,813,225 $3,508,606 $3,549,810 SUPPLEMENTAL DISCLOSURES: In March 1996, a shareholder of the Company 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. The note was repaid in June 1996. During 1996, $1,250,000 of the convertible debentures were converted into 250,000 shares of common stock. During 1998, 1997, and 1996, the net unrealized loss on investments available-for-sale was $48,291, $3,499, and $16,078, respectively. During the quarter ended December 31, 1996 600 shares of Series A Preferred Stock were converted into 127,945 shares of common stock and 1,900 shares of Series B Preferred Stock were converted into 527,774 shares of common stock. During the quarter ended March 31, 1997, 500 shares of Series C Preferred Stock were converted into 125,000 shares of common stock. During the quarter ended June 30, 1997, 250 shares of Series B Preferred Stock was converted into 69,444 shares of common stock and 2,350 shares of Series C Preferred Stock were converted into 790,271 shares of common stock. In March 1997, Cel-Sci issued 751,678 shares of common stock as consideration for the purchase of the rights to its Multikine technology. In addition, the Company paid $500,000 in cash for the rights included in research and development expenses. In April 1997, Cel-Sci issued 33,378 shares of common stock to Cell-Med as a payment for the Company's heteroconjugate technology. Cel-Sci also paid $50,000 in cash to Cell-Med, included in research and development expenses. See notes to consolidated financial statements. CEL-SCI CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996 - ------------------------------------------------------------------------------- 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. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles 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. Significant accounting policies are as follows: 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. 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, for research and testing purposes, which is the Company's only product source. Research and Development Grant Revenues - The Company's grant arrangements are handled on a reimbursement basis. Costs incurred under the arrangements are expensed as incurred. Subsequent reimbursements from the granting agency are applied against such expenses. 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. Net Loss Per Share - Net loss per common share is computed by dividing the net loss, after increasing the loss for the effect of any preferred stock dividends, by the weighted average number of common shares outstanding during the period. Common stock equivalents, including options to purchase common stock, were excluded from the calculation for all periods presented as they were antidilutive. Investment in Joint Venture - Through October 1996, the investment in joint venture was accounted for by the equity method. The Company's proportionate share of the net loss of the joint venture has been included in the respective statements of operations. In October 1996, the Company purchased the remaining 50% interest in the joint venture, and as of October 15, 1996, the operations of the joint venture are consolidated in the financial statements of the Company. 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, and the cost of options for nonemployee services. Income Taxes - Income taxes are accounted for using the liability method under which deferred tax liabilities or assets are determined based on the difference between the financial statement and tax bases of assets and liabilities (i.e., temporary differences) and are measured at the enacted tax rates. Deferred tax expense is determined by the change in the liability or asset for deferred taxes. Reclassifications - Certain reclassifications have been made to the 1997 and 1996 financial statements for comparative purposes with the 1998 financial statements. 2. INVESTMENTS The carrying values and estimated market values of investments available-for-sale at September 30, 1998 and 1997, are as follows: September 30, 1998 Gross Gross Market Value Amortized Unrealized Unrealized at September Cost Gains Losses 30, 1998 Fixed Income Mutual $9,723,602 $ 2,036 $ 50,327) $9,675,311 ------------ ------- -------- -------- Funds Total $9,723,602 $ 2,036 $(50,327) $9,675,311 ================================================================ September 30, 1997 Gross Gross Market Value Amortized Unrealized Unrealized at September Cost Gains Losses 30, 1997 U. S. Government $249,713 $ -- $(213) $249,500 Securities Corporate Debt 499,002 -- (3,286) 495,716 Securities Total ------------- --------- ----------- ------------ $748,715 $ -- $(3,499) $745,216 =============================================================== While management has classified investments as available-for-sale, management intends to hold such securities to maturity for the foreseeable future. The gross realized gains and losses of sales of investments available-for-sale for the years ended September 30, 1998, 1997, and 1996 are as follows: 1998 1997 1996 Realized gains $1,485 $ - $ - Realized losses 1,494 - - ---------------------------------------------- Net realized (loss) gain $(9) $ - $ - ============================================== 3. RESEARCH AND OFFICE EQUIPMENT Research and office equipment at September 30, 1998 and 1997, consist of the following: 1998 1997 Research equipment $1,728,968 $1,700,173 Furniture and equipment 237,579 200,929 Leasehold improvements 5,114 19,272 ---------------------------------------- 1,971,661 1,920,374 Less accumulated depreciation (1,352,165) (1,128,410) and amortization ---------------------------------------- Net research and office $619,496 $791,964 equipment ======================================== 4. JOINT VENTURE In October 1996, the Company purchased the remaining 50 percent interest in VTI from Alpha 1. Prior to this date, VTI was wholly owned by the Company and Alpha 1, each having a 50% ownership interest. The Company conveyed 159,170 shares of CEL-SCI common stock as the consideration for the net assets of VTI with a fair value of approximately $170,000. The acquisition was accounted for under the purchase method of accounting with substantially all of the value of the purchase price being expensed as research and development expense for the year ended September 30, 1997, as the acquisition represents primarily research and development costs. Effective October 31, 1995, the Company 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. In July 1996, VTI purchased all of the remaining rights to HGP-30 from a former Japanese partner in return for 45,000 shares of the Company's common stock which was charged to expense as purchased research and development. 5. CREDIT ARRANGEMENTS As of September 30, 1998, the Company had a line of credit outstanding with a bank in the total amount of $500,000, which can be used through January 5, 1999. Interest on the line of credit is based on the bank's prime rate plus two percent. No amounts have been borrowed under this agreement for the years ended September 30, 1998 and 1997. 6. RELATED-PARTY TRANSACTIONS On March 10, 1997, the Company purchased from Sittona Company, B.V., Netherlands, all rights to its MULTIKINE technology, including all patents and trade secrets. The previous agreement with Sittona required CEL-SCI to pay a 10% royalty on sales and a 15% royalty on sublicenses for the use of the technology, know-how, and trade secrets. The Company purchased these rights with $500,000 in cash and 751,678 shares of its common stock. The total purchase price of $2,250,000 was charged to expense as purchased research and development. The technology and know-how licensed to the Company, called MULTIKINE, 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). Maximilian de Clara, an officer and director in the Company, and Dr. Fabricius owned 50% and 30%, respectively, of each of these companies. The technology and know-how 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 required 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 was 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, would have been 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. In this arrangement Mr. de Clara and Dr. Fabricius, because of their ownership interests in Hooper and Shanksville, would have received 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), could have received up to 95% of any royalties paid by the Company. Between 1985 and October 1996, Mr. de Clara owned all of the issued and outstanding stock of Sittona. In October 1996 Mr. de Clara disposed of his interest in Sittona. During the year ended September 30, 1996, a shareholder and officer of the Company borrowed $86,100 from the Company to exercise the purchase of 40,000 shares of common stock, which was evidenced by a short-term promissory note. The note was subsequently repaid during the year. In October 1996, the Company loaned $300,000 to an officer and shareholder. The loan carried an interest rate of 5% and was due on December 31, 1996. At that time, the loan was extended and the balance was due in full as of March 31, 1998. Payments have been made on the note, and the balance outstanding on September 30, 1998, was $70,809. 7. INCOME TAXES The approximate tax effect of each type of temporary differences and carry forward that gave rise to the Company's deferred tax assets and liabilities at September 30, 1998 and 1997, is as follows: 1998 1997 Depreciation $(17,089) $(18,258) Prepaid expenses (227,795) (91,186) Net operating loss carry 17,346,440 forward 14,811,39 Other 8,347 10,261 Less: Valuation allowance (17,109,902) (14,712,216) ------------------------------------ Net deferred $ -- $ -- ==================================== The Company has available for income tax purposes net operating loss carry forwards of approximately $45,589,000, expiring from 1998 through 2013. In the event of a significant change in the ownership of the Company, the utilization of such carry forwards could be substantially limited. The difference in the Company's U.S. federal statutory income tax rate and the Company's effective rate is primarily attributed to the recording of a valuation allowance due to the uncertainty of the amount of future tax benefits that is more likely than not to be realized. 8. STOCK OPTIONS, WARRANTS, AND BONUS PLAN 1998 Plans: During the year ended September 30, 1998, the shareholders of the Company approved the adoption of three new Plans, the 1998 Incentive Stock Option Plan (1998 Incentive Plan), the 1998 Non-Qualified Stock Option Plan (1998 Non-Qualified Plan), and the 1998 Stock Bonus Plan. Shares are reserved under each plan and total 300,000, 300,000 and 100,000 shares, respectively. 1996 Plans: During the year ended September 30, 1996, the shareholders of the Company approved the adoption of two new Plans, the 1996 Incentive Stock Option Plan (1996 Incentive Plan) and the 1996 Non-Qualified Stock Option Plan (1996 Non-Qualified Plan). Shares are reserved under each plan and total 600,000 and 400,000 shares, respectively. In August 1997, the 1996 Non-Qualified Plan was amended to provide for 1,500,000 shares to be reserved under the 1996 Non-Qualified Plan. 1995 Plans: 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. In December 1995, the 1995 Non-Qualified Plan was amended to provide for 800,000 shares to be reserved under the 1995 Non-Qualified Plan. 1994 Plans: Shares are reserved under the 1994 Incentive Stock Option Plan (1994 Incentive Plan) and the 1994 Non-Qualified Stock Option Plan (1994 Non-Qualified) and total 100,000 shares in each plan. Only employees of the Company are eligible to receive options under the 1994 Incentive Plan, while the Company's employees, directors, officers, and consultants or advisors are eligible to be granted options under the 1994 Non-Qualified Plan. Terms of the options are to be determined by the Company's Compensation Committee, which will administer all of the plans, but in no event are options to be granted for shares at a price below fair market value at date of grant. Options granted under the option plans must be granted before July 29, 2004. 1992 Plans: The 1992 Incentive Stock Option Plan (1992 Incentive Plan), the 1992 Non-Qualified Stock Option Plan (1992 Non-Qualified Plan), and the Stock Bonus Plan (1992 Bonus Plan) include shares that 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 Non-Qualified 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. 1987 Plan: The 1987 Nonqualified Stock Option and Stock Bonus Plan (the 1987 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. In June 1997, all options outstanding under the 1987 Plan expired. Information regarding the Company's stock option plans are summarized as follows: Outstanding Exercisable ---------------- ---------------- Range Weighted Weighted of Average Average Option Exercise Exercise Prices Shares Prices Shares Prices 1987 Stock Option and Bonus Plan: Balance, September 30, 1995 and 1996 $16.50 - $19.70 7,000 $17.41 7,000 $17.41 Forfeitures $16.50 - $19.70 7,000 17.41 7,000 17.41 ---------------- -------------- Balance, September 30, 1997 -- -- -- -- ====================================== 1992 Incentive Stock Option Plan: ======================================= Balance, October 1, 1995 $2.87 - 3.87 57,550 $3.01 20,917 $2.87 Forfeitures $2.94 - 3.44 (5,833) 2.96 -- -- Granted $2.87 - 3.87 45,500 3.23 -- -- Exercised $2.87 (14,001) 2.87 (14,001) 2.87 Became exercisable $2.87 - 3.87 -- -- 39,102 3.13 --------------------------------------- Balance, September30, 1996 $2.87 - 3.87 83,216 3.16 46,018 3.12 Forfeitures $2.87 (500) 2.87 -- -- Exercised $2.87 (1,000) 2.87 (1,000) 2.87 Became exercisable $2.87 - 3.87 -- -- 19,516 3.12 --------------------------------------- Balance, September 30, 1997 81,716 3.16 64,534 3.13 Exercised $2.87 (3,166) 2.87 (3,166) 2.87 Became exercisable $2.94 - 3.87 -- -- 9,848 3.38 -------------------------------------- Balance, September 30, 1998 78,550 $3.17 71,216 $3.17 ====================================== 1992 Nonqualified Stock Option Plan: Balance, October 1, 1995 $2.87 - 15.60 60,000 $4.92 60,000 $4.92 Granted -- -- -- -- Exercised $2.87 (25,500) 2.87 (25,500) 2.87 -------------------------------------- Balance, September 30, 1996 $2.87 - 15.60 34,500 6.44 34,500 6.44 Forfeitures $13.40 (2,500) 13.40 (2,500) 13.40 Exercised $2.87 (11,500) 2.87 (11,500) 2.87 --------------------------------------- Balance, September 30, 1997 $2.87 - 15.60 20,500 7.59 20,500 7.59 Forfeitures $13.80 - 15.60 (8,000) 14.96 (8,000) 14.96 Exercised $2.87 (9,000) 2.87 (9,000) 2.87 --------------------------------------- Balance, September 30, 1998 3,500 $2.88 3,500 $2.88 ====================================== Outstanding Exercisable ------------------- ---------------- Range Weighted Weighted of Average Average Option Exercise Exercise Prices Shares Prices Shares Prices 1994 Incentive Stock Option Plan: ========================================= Balance, October 1, $2.87 - 3.87 100,000 $2.87 61,000 $2.87 1995 Became exercisable $2.87 -- -- 11,000 2.87 ------------------------------------------- Balance, September 30, $2.87 100,000 2.87 72,000 2.8 1996 Became exercisable $2.87 -- -- 11,000 2.87 ------------------------------------------- Balance, September 30, 1997 100,000 2.87 83,000 2.87 ------------------------------------------- Became exercisable $2.87 -- -- 11,000 2.87 ------------------------------------------- Balance, September 30, 1998 100,000 $2.87 94,000 $2.87 =========================================== 1994 Nonqualified Stock Option Plan: Balance, October 1, 1995 $2.87 - 3.87 97,250 $2.90 48,084 $2.94 Exercised $2.87 (46,667) 2.87 (46,667) 2.87 Became exercisable $2.87 -- -- 24,167 2.87 -------------------------------------- Balance, September 30, 1996 $2.87 - 3.87 50,583 2.92 25,584 2.90 Became exercisable $2.87 - 3.87 -- -- 24,166 2.90 ------------------------------------- Balance, September 30, 1997 50,583 2.92 49,750 2.90 Exercised $2.87 (23,333) 2.87 (23,333) 2.87 Became exercisable -- -- 833 2.87 ------------------------------------------- Balance, September 30, 1998 27,250 $2.96 27,250 $2.92 ========================================= 1995 Nonqualified Stock Option: Balance, October 1, 1995 $2.87 - 3.87 329,251 $3.26 70,000 $2.87 Forfeitures $2.87 (12,625) 2.87 -- -- Granted $2.38 - 5.62 419,500 2.75 -- -- Exercised $2.87 - 3.87 (85,375) 2.88 (85,375) 2.88 Became exercisable $2.87 - 3.87 -- -- 146,628 3.32 ------------------------------------------- Balance, September 30, 1996 $2.38 - 5.62 650,751 2.97 31,253 2.75 Granted $5.25 20,000 5.50 -- -- Exercised $2.38 - 3.87 (19,000) 3.56 (19,000) 3.56 Became exerciable $2.38 - 5.62 -- -- 449,501 2.74 ---------------------- --------------- Balance, September 30, 1997 651,751 3.02 561,754 2.72 Forfeitures $5.62 (7,500) 5.62 (7,500) 5.62 Exercised $2.38 - 3.87 (121,334) 2.89 (121,334) 2.88 Became exercisable $3.87 - 5.62 -- -- 79,997 4.48 ---------------------------------------- alance, September 30, 1998 521,917 $3.01 82,416 $2.92 ====================================== Outstanding Exercisable ----------------- --------------- Range Weighted Weighted of Average Average Option Exercise Exercise Prices Shares Prices Shares Prices 1996 Incentive Stock Option Plan: Granted in 1996 $5.62 - 11.00 65,700 $5.70 -- $ -- ------------------------------------ Balance, September 30, 1996 $5.62 - 11.00 65,700 5.70 -- -- Forfeitures $3.25 - 6.88 (5,500) 4.08 -- -- Granted $3.25 - 5.18 331,800 3.89 -- -- Became exercisable $5.62 - 11.00 -- -- 21,234 5.57 ------------------------------------ Balance, September 30, 1997 392,000 4.19 21,234 5.57 Granted $3.31 - 5.12 205,000 4.76 -- -- Forfeitures $3.62 - 7.12 (3,666) 5.34 (3,666) 5.34 Became exercisable -- -- 128,838 4.19 ----------------- ---------------- Balance, September 30, 1998 593,334 $4.38 146,406 $4.36 ========================================= 1996 Nonqualified Stock Option Plan: Granted in 1996 $5.62 70,000 $5.62 -- $ -- ----------------------------------------- Balance, September 30, 1996 $5.62 70,000 5.62 -- -- Granted $3.12 - 5.25 880,000 3.52 -- -- Became exercisable $5.62 -- -- 23,334 5.62 ------------------------------------- Balance, September 30, 1997 950,000 3.67 23,334 5.62 Granted $2.50 - 8.13 474,700 2.98 -- Exercised $3.25 (16,667) 3.25 (16,667) 3.25 Forfeitures (2,000) 3.12 -- -- Became exercisable $3.12 - 5.62 -- -- 528,000 3.13 ----------------- ----------------- Balance, September 30, 1998 1,406,033 $3.44 534,667 $3.23 ================= ================= No options have been granted as of September 31, 1998, under Incentive Plan, the 1998 Non-Qualified Plan, or the 1998 Stock Bonus Plan. The weighted average remaining contractual life for options outstanding at September 30, 1998, is as follows: Plan Weighted Average Remaining Contractual Life (Years) 1992 Incentive Stock Option Plan 4.35 1992 Nonqualified Stock Option 5.75 Plan 1994 Incentive Stock Option Plan 4.33 1994 Nonqualified Stock Option Plan 2.85 1995 Nonqualified Stock Option Plan 3.20 1996 Incentive Stock Option Plan 8.96 1996 Nonqualified Stock Option Plan 4.32 Other Options and Warrants - During 1991, the Company granted a consultant an option to purchase 50,000 shares of the Company's common stock. The options were exercisable at $13.80 per share and expired in March 1996. The holder of the option had the right to have the shares issuable upon the exercise of the option included in any registration statement filed by the Company. In connection with the 1992 public offering, 5,175,000 common stock purchase warrants (the public warrants) were issued and were outstanding at September 30, 1997. Every ten public warrants entitled the holder to purchase one share of common stock at a price of $15.00 per share. Subsequently, the expiration date of the public warrants was extended to February 1998. Effective June 1, 1997, the exercise price of the public warrants was lowered from $15 to $6 and only five public warrants rather than 10 public warrants were required to purchase one share of common stock. Subsequent to September 30, 1997, warrant holders who tendered five public warrants and $6.00 between January 9, 1998, and February 17, 1998, would receive one share of the Company's common stock and one new Series A Warrant. The new Series A Warrants would permit the holder to purchase one share of the Company's common stock at a price of $10.00 per share prior to February 7, 2000. During 1998, the expiration date of the public warrants was extended to July 31, 1998, and 582,025 public warrants were tendered for 116,405 common shares. As of September 30, 1998, the remaining 4,592,975 public warrants had expired. 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 were outstanding at September 30, 1996, and were exercisable through February 8, 1997, at a price of $255.70 per unit. The common stock warrants included in the units were exercisable at a price of $76.70 per share. As of September 30, 1997, all warrants have expired. 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 and as of September 30, 1998, 17,858 options remain outstanding. 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. All Warrants sold in this Offering were exercised during 1996. Additionally, the Company issued to the underwriter warrants to purchase 230,000 equity units. Each unit consisted of one share of the Company's common stock. For the June 1995 private placement, 57,500 equity units were issued at $2.00 per unit and another 57,500 equity units were issued at $3.25 per unit. All units issued in the June 1995 private placement were exercised at September 30, 1996. For the September 1995 private placement, 57,500 equity units were issued at $2.40 per unit and another 57,500 equity units were issued at $3.25 per unit. As of September 30, 1996, 21,890 equity units had been exercised at $3.25 per unit and 21,890 equity units had been exercised at $2.40 per unit. As of September 30, 1997, 35,610 equity units had been exercised at $2.40 per unit and 25,610 equity units were exercised at $3.25 per unit. All remaining 10,000 equity units will expire on March 31, 1999. During 1996, the Company granted two consultants options to purchase a total of 70,000 shares of the Company's common stock. The fair value of the options is expensed over the life of the consultants' contracts. The 50,000 options became exercisable on August 21, 1996, at $3.25. Of the 50,000 options, 24,000 shares were exercised in August 1996 and 26,000 were exercised in February of 1997. An additional 20,000 options became exercisable at August 31, 1997, at $3.25 and were exercised in February of 1997. During 1997, the Company granted four consultants options to purchase a total of 268,000 shares of the Company's common stock. The fair value of the options is expensed over the life of the consultants' contracts. Of the 268,000 options, 218,000 options became exercisable during 1997 at prices ranging from $3.50 to $4.50. During 1997, 50,000 options were exercised at $3.50. During 1998, 114,500 options were exercised at prices ranging from $3.50 to $4.50. At September 30, 1998, 103,500 options related to the four consultants remained outstanding. During 1998, the Company granted seven consultants options to purchase a total of 282,000 shares of the Company's common stock. The fair value of the options is expensed over the life of the consultants' contracts. All options became exercisable during 1998 that were exercisable at prices ranging from $3.50 to $7.31. During 1998, 10,048 options were exercised at prices ranging from $3.50 to $4.50. At September 30, 1998, 271,952 options related to the consultants remain outstanding. In connection with the December 1997 private offering, the Company issued to the underwriters warrants to purchase 50,000 shares of common stock at $8.63 per share. The warrants are exercisable at any time prior to December 22, 2000. At September 30, 1998, all warrants remained outstanding. In October 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). This statement encourages but does not require companies to account for employee stock compensation awards based on their estimated fair value at the grant date with the resulting cost charged to operations. The Company has elected to continue to account for its employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. If the Company had elected to recognize compensation expense based on the fair value of the awards granted in 1998, 1997, and 1996, consistent with the provisions of SFAS 123, the Company's net loss and net loss per common share would have been increased to the pro forma amounts indicated below: Year Ended September 30, ----------------------------------------------- 1998 1997 1996 Net loss As reported $(6,442,638) $(8,189,458) $(6,326,666) Pro forma (7,018,634) (9,687,999) (7,032,936 Loss per common share: As reported $0.74 $1.00 $1.16 Pro forma 0.79 1.17 1.27 The weighted average fair value at the date of grant for options granted during 1998, 1997, and 1996, was $2.17, $1.16 and $1.18 per option, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: 1998 1997 1996 Expected stock price volatility 79% 74% 91% Risk-free interest rate 5.49% 5.36% 5.82% Expected life options 2.00 2.00 2.00 Expected dividend yield 0 0 0 The effects of applying SFAS 123 in this pro forma disclosure are not necessarily indicative of the effect on future amounts. SFAS 123 does not apply to awards granted prior to fiscal 1996. The Company's stock options are not transferable, and the actual value of the stock options that an employee may realize, if any, will depend on the excess of the market price on the date of exercise over the exercise price. The Company has based its assumption for stock price volatility on the variance of monthly closing prices of the Company's stock from its initial offering date to the present. The risk-free rate of return used equals the yield on one to three year zero-coupon U.S. Treasury issues on the grant date. No discount was applied to the value of the grants for nontransferability or risk of forfeiture. 9. EMPLOYEE BENEFIT PLAN The Company maintains 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. Prior to January 1, 1998, the employer contributed an amount equal to 50% of each employee's contribution not to exceed 3% of the participant's salary. Effective January 1, 1998, the plan was amended such that the Company's contribution is now made in shares of the Company's common stock as opposed to cash. Each participant's contribution is matched by the Company with shares of common stock that have a value equal to 100% of the participant's contribution, not to exceed the lesser of $10,000 or 6% of the participant's total compensation. The Company's contribution of common stock is valued each quarter based upon the closing price of the Company's common stock. The expense for the years ended September 30, 1998, 1997, and 1996, in connection with this plan was approximately $70,519, $35,800, and $29,800, respectively. 10. LEASE COMMITMENTS Operating Leases - The future minimum annual rental payments due under noncancelable operating leases for office and laboratory space are as follows: Year Ending September 30, 1999 $131,196.00 2000 133,892.00 2001 139,175.00 2002 143,818 2003 112,390 Thereafter 7,605 ----------------- Total minimum lease payments $668,076 ================= Rent expense for the years ended September 30, 1998, 1997, and 1996, was approximately $165,067, $185,776, and $177,858, respectively. 11.STOCKHOLDERS' EQUITY On December 17, 1996, the Company authorized 3,600 shares of Series C Preferred Stock (Series C Stock) with a par value of $.01 per share and sold 2,850 shares of Series C for $1,000 per share. The issuance of the Series C Stock resulted in a beneficial conversion feature of $502,941, which was accreted over 180 days from the date of issuance. Series C Stock is convertible into shares of the Company's common stock on the basis of one share of Series C Stock for shares of common stock equal in number to the amount determined by dividing $1,000 by 85% of the average closing price of the Company's common stock over the five-day trading period ending on the day prior to the conversion of the Series C Stock. The conversion price may not be more than $4.00. Beginning 90 days after December 17, 1996, one-half of the Series C Stock is convertible into shares of the Company's common stock. All preferred shares are convertible into shares of the Company's common stock beginning 180 days after December 17, 1996 provided that, if the Company's common stock trades for more than $8.00 at any time, then all shares of the Series C Stock will thereafter be immediately convertible into shares of the Company's common stock. During the year ended September 30, 1997, 2,850 shares of Series C stock were converted into 915,271 shares of the Company's common stock. In addition, 379,793 Series A warrants and 379,763 Series B warrants were sold with the Series C Preferred Stock. The Series A warrants entitle the holder to purchase one share of the Company's common stock at a price of $4.50 per share at any time prior to March 15, 1998. Each Series B warrant entitles the holder to purchase one share of the Company's common stock at a price of $4.50 per share at any time prior to March 15, 1999. During 1998, all 379,765 Series A warrants were exercised and 272,073 Series B warrants were exercised. In April 1997, the Company purchased the rights to Cell-Med's LEAPS technology for consideration of $50,000 in cash and 33,378 shares of the Company's common stock. The total purchase price of $125,000 was expensed as research and development expense. Additional payments to Cell-Med for such rights of up to $600,000 are contingent upon the development and viability of the technology. In addition, royalty payments of 5% of the sales price of technology using the product plus 15% of any amounts for sublicensing are. In March 1996 the Company sold $1,250,000 of Convertible Notes (the Notes) to two persons. The Notes were convertible from time to time, in whole or in part, into shares of the Company's Common Stock. The conversion price was the lesser of (i) $5 per share or (ii) 80% of the average closing bid price of the Company's Common Stock during the five trading days immediately preceding the date of such conversion. The Notes were payable on December 1, 1996, and accrued interest at 10% per annum. All of the Notes have since been converted into 257,480 shares of the Company's Common Stock. The Company authorized 3,500 shares of Series A Preferred Stock (Series A Stock) with a par value of $.01 per share on May 13, 1996. The Company also authorized 5,000 shares of Series B Preferred Stock (Series B Stock) with a par value of $.01 per share on August 11, 1996. Holders of Series A Stock and Series B Stock are entitled to dividends, payable quarterly if declared, at the rate of $17.50 per quarter. Dividends which are not declared will not accrue nor be cumulative. During 1996, the Company issued 3,500 shares of Series A Stock for cash consideration of $3,500,000 and 5,000 shares of Series B Stock for cash consideration of $5,000,000. Commissions of $375,000 were paid relative to the preferred stock offerings and were recorded as a reduction of additional paid-in capital on the transaction. Each share of Series A Stock was convertible into shares of common stock equal in number to the amount determined by dividing $1,000 by 85% of the closing price of the Company's common stock on or after 60 days from issuance, and 83% of the closing price on or after 90 days from issuance, with the conversion price not less than $3.00 nor more than $8.00. Each share of Series B Stock was convertible into shares of common stock equal in number to the amount determined by dividing $1,000 by 87% of the closing price of the Company's common stock on or after 10 days from the effective registration date of the common shares, and 85% of the closing price on or after 40 days from the effective date, with the conversion price not less than $3.60 nor more than $14.75. The issuance of the Series A Stock and Series B Stock resulted in beneficial conversion features of $716,857 and $882,353, respectively, which were accreted over 90 days and 123 days, respectively, from the date of issuance. Also during 1996, 2,900 shares of Series A Stock were converted into 504,096 shares of the Company's common stock. In August 1996, the Board of Directors declared dividends on Series A Stock ($17.50 per quarter) and cash dividends of $58,794 were paid as of September 30, 1996. In November 1996, the Board of Directors declared dividends on Series A Stock ($17.50 per quarter) and Series B Stock ($17.50 per quarter) and cash dividends of $108,957 were paid. In December 1996, the Company repurchased 2,850 shares of Series B Preferred Shares for $2,850,000 plus warrants which allow the holders to purchase up to 99,750 shares of the Company's common stock for $4.25 per share prior to December 15, 1999. During 1997, the remaining 2,150 and 600 shares, respectively, of Series B and A stock were converted into 597,218 and 127,945 shares of the Company's common stock, respectively. During December 1997, the Company issued 10,000 shares of Series D Preferred Stock for $10,000,000. The issuance included 550,000 Series A Warrants and 550,000 Series B Warrants. The number of common shares issuable upon conversion of the Preferred Shares is determinable by dividing $1,000 by $8.28 prior to September 19, 1998, or at any time at which the Company's common stock is $3.45 or less for five consecutive days. On or after September 19, 1998, the number of common shares to be issued upon conversion is determined by dividing $1,000 by the lesser of (1) $8.28 or (2) the average price of the stock for any two trading days during the ten trading days preceding the conversion date. The Series A Warrants are exercisable at any time for $8.62 prior to December 22, 2001, and the Series B Warrants are exercisable at any time for $9.31 prior to December 22, 2001. Each warrant converts into one share of common stock. At September 30, 1998, 998 shares of Series D Preferred Stock had been converted into 441,333 shares of common stock. All Series A and Series B Warrants issued remain outstanding at September 30, 1998. In connection with the Company's December 1997 $10,000,000 Series D Preferred Stock offering, the Series A and Series B warrants were assigned a relative fair value of $1,980,000 in accordance with APB No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, and have been recorded as additional paid-in capital. The $1,980,000 allocated to the warrants was accreted immediately. 12. LOSS PER SHARE In March 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share" (EPS), which simplifies the standards for computing EPS previously found in Accounting Principles Board Opinion (APB) No. 15 and makes them comparable to international EPS standards. Basic EPS excludes dilution and is computed by dividing net income or loss attributable to common stockholders by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (convertible preferred stock, warrants to purchase common stock and common stock options using the treasury stock method) were exercised or converted into common stock. Potential common shares in the diluted EPS computation are excluded in net loss periods as their effect would be antidilutive. The loss attributable to common stockholders includes the impact of the accretion of Series A, Series B and Series C Preferred Stock beneficial conversion features, the accretion of Series D Preferred Stock warrants and preferred stock dividends. The statement is effective for financial statements issued for periods ending after December 15, 1997. The Company adopted this statement during the year ended September 30, 1998. EPS for all periods have been computed in accordance with SFAS No. 128. 1998 1997 1996 Loss per common share (basic and diluted) $0.74 $1.00 $1.16 13.RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standard Boards issued Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. These standards are effective for the Company beginning in fiscal 1999. SFAS 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) and requires that items of other comprehensive income be classified by their nature in the financial statements and that the accumulated balance of other comprehensive income be displayed separately from retained earnings and additional paid-in capital in the equity section. SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. In February 1998, FASB issued SFAS No. 132, Employers' Disclosures about Pensions and Other Post-retirement Benefits, an Amendment of SFAS Nos. 87, 88, and 106. SFAS No. 132 revises employers' disclosure about pension and other post-retirement benefit plans. In June 1998, FASB issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. The Company does not believe that the adoption of SFAS 130, SFAS 131, SFAS 132, and SFAS 133 will have a material effect on its financial position or results of operation. 14.RESTATEMENT Subsequent to the issuance of the Company's 1997 consolidated financial statements, the Company determined that the application of a technical accounting treatment required the 1997 and 1996 loss per share calculations to include the impact of $1,062,482 and $1,039,679, respectively, for the accretion of the assumed beneficial conversion features, and $108,957 and $58,794, respectively, for preferred stock dividends, of the Series A, Series B and Series C Preferred Stock issued during fiscal 1997 and 1996. The effect of the accretion is a non-cash charge to additional paid-in capital and does not impact the previously reported net loss for the years ended September 30, 1997 and 1996, nor does it result in a net change to stockholders' equity at September 30, 1997 and 1996. The effect of the restatement was to increase net loss per share by $0.12 to $1.00 for the year ended September 30, 1997, and $0.18 to $1.16 for the year ended September 30, 1996. A summary of the significant effects of the restatement is as follows (in thousands, except net income (loss) per share amounts): 1997 1996 --------------------- --------------------- As As Previously As Previously As Reported Restated Reported Restated FOR THE YEAR ENDED SEPTEMBER 30: Net loss attributable to common stockholders $8,189,458 $9,360,897 $6,326,666 $7,425,139 Loss per common share (basic $ 0.88 $ 1.00 $ 0.98 $ 1.16 Loss per common share (diluted)$ 0.88 $ 1.00 $ 0.98 $ 1.16 * * * * * * SIGNATURES Pursuant to the requirements of Section 13 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 Dated: January 10, 2000 By: /s/ Maximilian de Clara ----------------------------------- Maximilian de Clara, President By: /s/ Geert R. Kersten ---------------------------------- Geert R. Kersten, Chief Executive Officer Pursuant to the requirements of the Securities Act of l934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Maximillian de Clara Director and Principal January 10, 2000 MAXIMILIAN DE CLARA Executive Officer /s/ Geert R. Kersten Director, Principal January 10, 2000 GEERT R. KERSTEN Financial Officer and Chief Executive Officer Director ALEXANDER G. ESTERHAZY /s/ John M. Jacquemin Director January 10, 2000 JOHN M. JACQUEMIN -----END PRIVACY-ENHANCED MESSAGE-----