UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________.
Commission File Number 0-11503
CEL-SCI CORPORATION
Colorado 84-0916344
--------------------------------------------- -----------
State or other jurisdiction (IRS) Employer
incorporation Identification Number
8229 Boone Boulevard, Suite 802
Vienna, Virginia 22182
Address of principal executive offices
(703) 506-9460
---------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) had been subject to such filing
requirements for the past 90 days.
Yes ____X_____ No __________
-
Class of Stock No. Shares Outstanding Date
Common 25,365,688 February 14, 2002
Page 1 of 18 pages
EXPLANATORY NOTE:
This amendment on Form 10-Q/A amends the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 2001, as filed by the Registrant on
February 19, 2002, and is being filed to reflect the restatement of the
Registrant's unaudited condensed consolidated financial statements (see Note D
to the unaudited condensed consolidated financial statements).
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Page
----
Condensed Consolidated Balance Sheets (unaudited) 3-4
Condensed Consolidated Statements of Operations (unaudited) 5
Condensed Consolidated Statements of Comprehensive Loss (unaudited) 6
Condensed Consolidated Statements of Cash Flow (unaudited) 7-8
Notes to Condensed Consolidated Financial Statements (unaudited) 9
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 17
Item 6.
Exhibits and Reports on Form 8-K 17
Signatures 18
Item 1. FINANCIAL STATEMENTS
CEL-SCI CORPORATION
-------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
------------------------
ASSETS
(unaudited)
December 31, September 30,
2001 2001
-------------- -------------
(AS RESTATED,
SEE NOTE D)
CURRENT ASSETS:
Cash and cash equivalents $ 2,475,572 $ 1,783,990
Investments, net -- 593,384
Interest and other receivables 25,918 40,376
Prepaid expenses 363,108 866,058
Current portion of deferred financing costs 474,305 --
--------- -----------
Total Current Assets 3,338,903 3,283,808
RESEARCH AND OFFICE EQUIPMENT-
Less accumulated depreciation
of $1,904,831 and $1,864,182 592,614 620,608
DEPOSITS 139,828 139,828
DEFERRED FINANCING COSTS 92,805 --
PATENT COSTS- less accumulated
amortization of $636,689 and $623,235 456,246 464,676
--------- -----------
$ 4,620,396 $ 4,508,920
============ ============
See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION
-------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
------------------------
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
(unaudited)
December 31, September 30,
2001 2001
----------- -------------
(AS RESTATED,
SEE NOTE D)
CURRENT LIABILITIES:
Accounts payable $ 1,114,155 $ 476,509
Other current liabilities 74,500 --
------------------------------------
Total current liabilities 1,188,655 476,509
NOTE PAYABLE (See Note C) 737,500 --
CONVERTIBLE NOTES (See Note C) -- --
DEFERRED RENT 29,818 31,218
------------ ----------
Total liabilities 1,955,973 507,727
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, 4,847 and 5,863
shares at December 31, 2001 and
September 30, 2001, respectively 48 59
Common stock, $.01 par value; authorized,
100,000,000 shares; issued and
outstanding, 23,525,080 and
21,952,082 shares at December
31, 2001 and September 30, 2001,
respectively 235,251 219,521
Additional paid-in capital 77,204,437 75,641,365
Unearned compensation (14,788) (19,636)
Net unrealized loss on investments -- (210)
Accumulated Deficit (74,760,525) (71,839,906)
-------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 2,664,423 4,001,193
--------------- ---------------
$ 4,620,396 $ 4,508,920
============== =============
See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION
-------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------
(unaudited)
Three Months Ended
December 31,
2001 2000
----- -----
(AS RESTATED,
SEE NOTE D)
REVENUES:
Interest income $ 25,337 $ 183,211
Other income 150,907 66,597
------------- ------------
TOTAL INCOME 176,244 249,808
EXPENSES:
Research and development 2,438,216 2,071,107
Depreciation and amortization 56,526 49,079
General and administrative 564,622 673,111
------------ -----------
TOTAL OPERATING EXPENSES 3,059,364 2,793,297
------------ ------------
OPERATING LOSS 2,883,120 2,543,489
INTEREST EXPENSE 37,500 --
---------------- ------------
NET LOSS 2,920,620 2,543,489
ACCRUED DIVIDENDS ON
PREFERRED STOCK 81,416 --
ACCRETION OF BENEFICIAL CONVERSION
FEATURE ON PREFERRED STOCK 579,695 --
--------------- -----------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS $ 3,581,731 $ 2,543,489
============ =============
LOSS PER COMMON SHARE (BASIC) $ 0.16 $ 0.12
============ =============
LOSS PER COMMON SHARE (DILUTED) $ 0.16 $ 0.12
============ =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 22,799,002 20,459,913
========== ==========
See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION
-------------------
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
---------------------------------
(unaudited)
Three Months Ended
December 31,
2001 2000
----- -----
(AS RESTATED,
SEE NOTE D)
NET LOSS $ (2,920,620) $ (2,543,489)
OTHER COMPREHENSIVE LOSS -
Unrealized gain (loss) on investments -- (28,617)
-----------------------------
COMPREHENSIVE LOSS $ (2,920,620) $ (2,572,106)
=============================
See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION
-------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
---------------------------------
(unaudited)
Three Months Ended
December 31,
2001 2000
---- ----
(AS RESTATED,
SEE NOTE D)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(2,920,620) $(2,543,489)
Adjustments to reconcile net loss to
net cash used in operating activities: --
Depreciation and amortization 56,526 49,079
Issuance of common stock for services 105,877 --
Stock issued to 401(k) 22,431 27,391
Stock bonus granted to officer 75,071 --
Repriced options (206,568) --
Amortization of discount on note payable 37,500 --
R&D expenses paid with note payable 700,000 --
Issuance of stock options for services 24,513 --
Impairment of patents 5,816
Realized loss on investments 2,710 --
Decrease in receivables 14,458 9,606
Decrease (increase) in prepaid expenses 502,950 (603,713)
Increase in advances -- (20,204)
Increase in other current liabilities 74,500 --
Decrease in deferred rent (1,400) --
Increase (decrease) in accounts payable 480,535 (57,569)
--------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,025,701) (3,138,899)
----------- -----------
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITY:
Sales of investments 590,885 --
Purchase of research and office equipment (1,218) (38,813)
Patent costs (6,779) (18,524)
------------ ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITY 582,888 (57,337)
------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES:
Cash proceeds from issuance of common stock 150,000 --
Cash proceeds from drawdown on equity line 298,895 --
Proceeds from convertible notes 800,000 --
Transaction costs related to convertible notes (114,500) --
------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,134,395 --
------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: 691,582 (3,196,236)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,783,990 6,909,263
-------------- --------------
End of period $ 2,475,572 $ 3,713,027
============= ==============
See notes to condensed consolidated financial statements. (continued)
CEL-SCI CORPORATION
-------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
---------------------------------
(unaudited)
(continued)
Three Months Ended
December 31,
2001 2000
---- ----
(AS RESTATED,
SEE NOTE D)
SUPPLEMENTAL INFORMATION ON NONCASH
TRANSACTIONS:
Conversion of preferred stock to common stock
Decrease in Preferred Stock $ (10) $ --
Decrease in additional paid-in capital (9,265) --
Increase in common stock 9,275 --
------------ --------------
$ -- $ --
================ =============
Accrual of dividends on preferred stock
Increase in accounts payable $ 81,416 $ --
Decrease in additional paid-in capital (81,416) --
------------- --------------
$ -- $ --
================ =============
Common stock issued in lieu of cash dividends
Decrease in accounts payable $ (13,336) $ --
Increase in common stock 1,222 --
Increase in additional paid-in capital 12,114 $ --
----------- -------------
$ -- $ --
================= =============
Changes in unearned compensation for
variable options
Decrease in additional paid-in capital $ 4,848 $ --
Decrease in unearned compensation (4,848) --
-------------- --------------
$ -- $ --
=============== =============
Accretion for the beneficial conversion
on the preferred stock
Increase in additional paid-in capital $ 579,695 $ --
Decrease in additional paid-in capital (579,695) --
------------ --------------
$ -- $ --
================= =============
Purchase of research and office
equipment, patent costs and costs for
convertible notes included in accounts
payable
Increase in accounts payable $ 89,031 $ --
Increase in research and office equipment (11,437) --
Increase in patents (6,484) --
Increase in deferred financing costs (71,110) --
------------- --------------
$ -- $ --
================= =============
(concluded)
See notes to condensed consolidated financial statements.
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation
The accompanying 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 December 31, 2001 and the
results of operations for the three-month period 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-month period ended December 31, 2001 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
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(unaudited)
(continued)
depreciated over the shorter of the estimated useful life of the asset or
the terms of the lease. Repairs and maintenance are expensed when
incurred.
Research and Development Costs
Research and development expenditures are expensed as incurred. The
Company has an agreement with an unrelated corporation for the production
of MULTIKINE, which is the Company's only product source.
Research and Development Grant Revenues
The Company's grant arrangements are handled on a reimbursement basis.
Grant revenues under the arrangements are recognized as other income when
costs are incurred.
Patents
Patent expenditures are capitalized and amortized using the straight-line
method over 17 years. In the event changes in technology or other
circumstances impair the value or life of the patent, appropriate
adjustment in the asset value and period of amortization is made. An
impairment loss is recognized when estimated future undiscounted cash
flows expected to result from the use of the asset, and from disposition,
is less than the carrying value of the asset. The amount of the impairment
loss would be the difference between the estimated fair value of the asset
and its carrying value. During the quarter ended December 31, 2001, the
Company recorded patent impairment charges of $5,816 for the net book
value of patents abandoned during the quarter and such amount is included
in general and administrative expenses. There were no impairment charges
for the corresponding quarter of 2000.
Loss per Share
Net loss per common share is computed by dividing the net loss, after
increasing the loss for the effect of any accrued dividends on the
preferred stock and the accretion of the beneficial conversion feature
related to the preferred stock, by the weighted average number of common
shares outstanding during the period. 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 manufacturing production
advances and 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
THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(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 December 31, 2000
financial statements to conform with the current year presentation.
B. STOCKHOLDERS' EQUITY
During the quarter ended December 31, 2001, the Company issued 150,000
units at $1.00 to a private investor. Each unit consists of one share of
common stock and 1/2 warrant. Each warrant allows the holder to purchase
one share of common stock at $1.50 per share at any time prior to October
5, 2004. Also during the quarter, 75,071 shares of common stock were
issued to an employee from the Company's stock bonus plan.
During August 2001, three private investors exchanged shares of the
company's common stock and remaining Series D Warrants, which they owned,
for 6,288 shares of the Company's Series E Preferred Stock. These
investors also exchanged their Series A and Series C Warrants from prior
offerings for new Series E Warrants. The preferred shares are entitled to
receive cumulative annual dividends in an amount equal to $60 per share
and have liquidation preferences equal to $1,000 per share. Each Series E
Preferred share is convertible into shares of the Company's common stock
on the basis of one Series E Preferred share for shares of common stock
equal in number to the amount determined by dividing $1,000 by the lesser
of $5 or 93% of the average closing bid prices (Conversion Price) of the
Company's common stock for the five days prior to the date of each
conversion notice. The lowest price at which the Series E Preferred stock
can be converted is $1.08. The Series E Preferred stock has no voting
rights and is redeemable at the Company's option at a price of 120% plus
accrued dividends until August 2003 when the redemption price will be
fixed at 100%. During the quarter, 1,016 preferred shares were converted
into 927,501 shares of common stock at prices ranging from $1.08 to $1.16
per share. In addition, 12,215 shares of common stock were issued at the
same prices in lieu of cash for dividends on the preferred stock. As of
December 31, 2001, 4,847 shares of Preferred stock remained outstanding.
As of February 15, 2002, 3,843 shares of Preferred stock remained
outstanding.
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(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 $245,610 of which $185,610 is included in deferred
financing costs in the accompanying balance sheet as of December 31, 2001
and is being amortized to interest expense over a two-year period. The
notes bear interest at 7% per year and are due and payable on December 31,
2003. Interest is payable quarterly beginning July 1, 2002. The notes are
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 are 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% of the outstanding principal balance upon certain
occurrences. Proceeds of $800,000 were received on December 31, 2001 and
the second half of the proceeds was received in January 2002. The Series F
warrants initially allowed the holders to purchase up to 960,000 shares of
the Company's common stock at a price of $0.95 per share at any time prior
to December 31, 2008. In accordance with the terms of the warrants, the
exercise price was adjusted to $0.65 per share on January 17, 2002. Every
three months after January 17, 2002, the warrant exercise price will be
adjusted to an amount equal to 110% of the conversion price on such date,
provided that the adjusted price is lower than the warrant exercise price
on that date.
The entire balance of the convertible notes as of December 31, 2001 is
offset by a discount of $800,000 which represents half of the relative
fair value of the Series F warrants of $381,500 and a beneficial
conversion discount of $418,500. The remaining half of the fair value of
the warrants of $381,500 is included in deferred financing costs in the
accompanying consolidated balance sheet as of December 31, 2001. The
discount on convertible notes will be amortized to interest expense over a
two-year period. The amount of warrants included in deferred financing
costs will not be amortized and is expected to be reclassified to the
discount on convertible notes upon receipt of the second half of the
proceeds in January 2002, at which time it will be amortized to interest
expense over a two-year period.
On November 15, 2001, the Company signed an agreement with Cambrex
Bioscience, 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, $1,000,000 of this liability was recorded at December 31,
2001 along with an unamortized discount of $262,500 representing imputed
interest. The
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(unaudited)
(continued)
balance will be recorded when incurred in January 2002. The note was
payable on November 15, 2002. In December 2001, the note was amended to
extend the due date to January 2, 2003. Unpaid principal will begin
accruing interest on November 16, 2002 and carries an interest rate of the
Prime Rate plus 3%. The note is collateralized by certain laboratory
equipment.
In April 2001, the Company signed an equity line of credit agreement with
Paul Revere Capital Partners. Under the agreement, Paul Revere Capital
Partners has agreed to provide the Company with up to $10,000,000 of
funding prior to June 22, 2003. During this twenty-four month period, the
Company may request a drawdown under the equity line of credit by selling
shares of its common stock to Paul Revere Capital Partners and they will
be obligated to purchase the shares. The Company may request a drawdown
once every 22 trading days, although the Company is under no obligation to
request any drawdowns under the equity line of credit.
D. RESTATEMENT
-----------
Subsequent to the issuance of its condensed consolidated financial
statements for the three-month period ended December 31, 2001, the Company
determined that it had incorrectly accounted for imputed interest in
relation to the note payable to Cambrex Bioscience and accrued dividends
on preferred stock during the period ended December 31, 2001. In addition,
the Company identified preparation errors related to the condensed
consolidated statement of cash flows for the three-month period ended
December 31, 2001. These transactions are discussed in the following
paragraphs.
Note Payable to Cambrex - The Company originally recorded imputed interest
related to the note payable to Cambrex in prepaid expenses. The Company
also originally recorded the note payable at face value. The Company has
subsequently determined that the imputed interest should have been
recorded as a discount on the note payable and amortized to interest
expense over the life of the note payable.
Statements of Cash Flow - The Company originally included noncash
transactions in the statements of cash flow relating to the fair value of
warrants included in deferred financing costs and the discount on
convertible debt. The Company also included certain noncash investing and
financing activities in adjustments to reconcile net cash used in
operating activities. The Company subsequently determined that these
noncash items should not have been included in the condensed consolidated
statements of cash flow. See supplemental disclosures on noncash
transactions on page 8.
Significant Effects of Restatement - As a result, the accompanying
condensed consolidated financial statements as of December 31, 2001 and
for the three-month period then ended have been restated from previously
reported amounts to correct the recording of these items. A summary of the
significant effects of the restatement is as follows:
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(unaudited)
(continued)
Condensed Consolidated Balance Sheet
As of December 31, 2001
AS PREVIOUSLY
REPORTED AS RESTATED
Prepaid expenses $ 663,108 $ 363,108
Total current assets 3,638,903 3,338,903
Total assets 4,920,396 4,620,396
Note payable 1,000,000 737,500
Total liabilities 2,218,473 1,955,973
Accumulated deficit (74,723,025) (74,760,525)
Condensed Consolidated Balance Sheet
As of December 31, 2001, continued
Total stockholders' equity 2,701,923 2,664,423
Total liabilities and stockholders'
equity 4,920,396 4,620,396
Condensed Consolidated Statements of Operation
For the period ended December 31, 2001
AS PREVIOUSLY
REPORTED AS RESTATED
Interest expense $ - $ 37,500
Net loss 2,883,120 2,920,620
Accrued dividends on preferred stock 68,080 81,416
Net loss attributable to common stockholders 3,530,895 3,581,731
Basic and diluted net loss per common share 0.15 0.16
Condensed Consolidated Statement of Comprehensive Loss
For the period ended December 31, 2001
AS PREVIOUSLY
REPORTED AS RESTATED
Comprehensive loss
$ 2,883,120 $ 2,920,620
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(unaudited)
(continued)
Condensed Consolidated Statements of Cash Flow
For the period ended December 31, 2001
AS PREVIOUSLY
REPORTED AS RESTATED
Amortization of discount on note payable $ - $ 37,500
Deferred financing costs 381,500 -
Repriced options (211,416) (206,568)
R&D expenses paid with note payable 1,000,000 700,000
Decrease (increase) in prepaid expenses 202,950 502,950
Increase (decrease) in accounts payable 637,646 480,535
Net cash used in operating activities (491,938) (1,025,701)
Sales of investments 590,674 590,885
Purchase of research and office equipment (12,655) (1,218)
Patent costs (13,263) (6,779)
Net cash provided by investing activities 564,756 582,888
Discount on convertible notes (800,000) -
Transaction costs related to convertible notes 169,869 (114,500)
Net cash provided by financing activities 618,764 1,134,395
CEL-SCI CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
As discussed in Note D to the condensed consolidated financial statements, the
condensed consolidated financial statements as of and for the three months ended
December 31, 2001 have been restated. As discussed in Note D, the following
discussion and analysis gives effect to the restatement.
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, $1,000,000 of this
liability was recorded at December 31, 2001, along with an unamortized discount
of $262,500 representing imputed interest. The balance will be recorded when
incurred in January 2002. The Company expects that its short-term need for
MULTIKINE will be complete by January 10, 2002 and as a result the Company will
not incur the expense associated with the use of the Cambrex facility after that
date. The amount borrowed from Cambrex is due and payable on January 2, 2003.
Beginning November 16, 2002, the note will bear interest at the prime interest
rate plus 3%, is adjusted monthly, and is secured by the equipment used by the
Company to manufacture MULTIKINE.
In April, 2001, the Company signed an equity line of credit agreement that
allows the Company at its discretion to draw up to $10 million of funding prior
to June 22, 2003. During this period, the Company may request a drawdown under
the equity line of credit by selling shares of its common stock to Paul Revere
Capital Partners and Paul Revere Capital Partners will be obligated to purchase
the shares. The Company may request a drawdown once every 22 trading days,
although the Company is under no obligation to request drawdowns under the
equity line of credit. During the 22 trading days following a drawdown request,
the Company will calculate the number of shares it will sell to Paul Revere
Capital Partners and the purchase price per share. The purchase price per share
of common stock will be based on the daily volume weighted average price of the
Company's common stock during each of the 22 trading days immediately following
the drawdown date, less a discount of 11%.
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 three months ending December 31, 2001 was less
than it was during the same quarter in 2000 as a result of the Company's smaller
cash position. Other income was higher due to the receipt of grant money.
Research and development expenses were approximately $367,000 higher because of
the expenses incurred in the continuation of production at Cambrex (see above).
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's cash flow and earnings are subject to fluctuations due to
changes in interest rates in its investment portfolio of debt securities, to the
fair value of equity instruments held, and, to an immaterial extent, to foreign
currency exchange rates. The Company maintains an investment portfolio of
various issuers, types and maturities. These securities are generally classified
as available-for-sale and, consequently, are recorded on the balance sheet at
fair value with unrealized gains or losses reported as a separate component of
stockholders' equity. Other-than-temporary losses are recorded against earnings
in the same period the loss was deemed to have occurred. The Company does not
currently hedge this exposure and there can be no assurance that
other-than-temporary losses will not have a material adverse impact on the
Company's results of operations in the future.
PART II
Item 6.
(a) Exhibits
No exhibits are filed with this report.
(b) Reports on Form 8-K
The Company filed one report on Form 8-K during the quarter ended December 31,
2001. The 8-K report disclosed new clinical data relating to Multikine, the
Company's Immunotherapy drug.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CEL-SCI Corporation
/s/ Geert Kersten
Date:February 27, 2002 ____________________________
Geert Kersten
Chief Executive Officer*
*Also signing in the capacity of the Chief Accounting Officer and Principal
Financial Officer.