UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
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 __________
-
Indicate by check mark whether the Registrant is a large accelerated filer, and
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in
Exchange Act Rule 12b-2 of the Exchange Act).
Yes _________ No _____X____
-
Class of Stock No. Shares Outstanding Date
-------------- ---------------------- ----
Common 117,833,374 August 14, 2008
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Page
----
Condensed Consolidated Balance Sheet (unaudited) 3
Condensed Consolidated Statements of Operations (unaudited) 4-5
Condensed Consolidated Statement of Cash Flow (unaudited) 6
Notes to Condensed Consolidated Financial Statements (unaudited) 8
Item 2.
Management's Discussion and Analysis of Financial Condition 18
and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risks 21
Item 4.
Controls and Procedures 21
PART II
Item 2.
Changes in Securities and Use of Proceeds 23
Item 4.
Submission of Matters to a Vote of Security Holders 23
Item 5.
Other Information 24
Item 6.
Exhibits 25
Signatures 26
2
CEL-SCI CORPORATION
CONDENSED CONSOLIDATED
BALANCE SHEETS
(unaudited)
ASSETS
June 30, September 30,
2008 2007
------------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 3,161,442 $10,993,021
Interest and other receivables - 36,393
Prepaid expenses 34,909 34,578
Inventory used for R&D and manufacturing 281,670 385,650
Deposits 14,828 14,828
------------- -------------
Total current assets 3,492,849 11,464,470
RESEARCH AND OFFICE EQUIPMENT AND
LEASEHOLD IMPROVEMENTS--
Less accumulated depreciation of $1,904,036
and $1,859,644 1,854,754 233,876
PATENT COSTS- less accumulated
amortization of $1,074,645 and $896,407 569,743 541,380
RESTRICTED CASH 984,734 2,168,629
AVAILABLE-FOR-SALE SECURITIES 200,000 -
DEFERRED RENT 7,885,366 6,301,364
LONG-TERM INTEREST RECEIVABLE 228,822 21,083
------------- -------------
TOTAL ASSETS $15,216,268 $ 20,730,802
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 290,501 $ 248,120
Accrued expenses 110,014 98,603
Due to employees 38,506 26,735
Accrued interest on convertible debt 51,174 68,795
Derivative instruments - current portion 847,136 782,732
Deposits held - 3,000
------------- -------------
Total current liabilities 1,337,331 1,227,985
Deferred rent 5,864 1,466
Derivative instruments - noncurrent portion 4,166,192 4,831,252
------------- -------------
Total liabilities 5,509,387 6,060,703
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized,
100,000 shares; no shares issued and outstanding - -
Common stock, $.01 par value; authorized,
300,000,000 shares; issued and outstanding,
117,833,374 and 115,678,662 shares at June 30,
2008 and September 30, 2007, respectively 1,178,334 1,156,787
Additional paid-in capital 132,563,735 130,081,378
Accumulated deficit (124,035,188) (116,568,066)
------------- -------------
Total stockholders' equity 9,706,881 14,670,099
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY $15,216,268 $ 20,730,802
============= =============
See notes to condensed consolidated financial statements.
3
CEL-SCI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended
June 30,
2008 2007
------ ------
REVENUE:
Grant revenue $ 3,535 $ 31,779
Rent income 1,530 18,629
Other income - 1,556
------------ ------------
Total revenue 5,065 51,964
EXPENSES:
Research and development, excluding
depreciation of $101,005 and $62,364
included below 3,041,212 1,817,891
Depreciation and amortization 161,211 129,247
General and administrative 3,931,857 5,473,605
------------ ------------
Total expenses 7,134,280 7,420,743
------------ ------------
LOSS FROM OPERATIONS (7,129,215) (7,368,779)
GAIN (LOSS) ON DERIVATIVE INSTRUMENTS 35,157 (818,580)
INTEREST INCOME 430,320 362,777
INTEREST EXPENSE (378,569) (1,566,638)
------------ ------------
NET LOSS BEFORE INCOME TAXES (7,042,307) (9,391,220)
INCOME TAX PROVISION - -
------------ ------------
NET LOSS (7,042,307) (9,391,220)
DIVIDENDS (424,815) -
------------ ------------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $(7,467,122) $(9,391,220)
============ ============
NET LOSS PER COMMON SHARE (BASIC) $ (0.06) $ (0.10)
============ ============
NET LOSS PER COMMON SHARE (DILUTED) $ (0.06) $ (0.10)
============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING, BASIC & DILUTED 116,594,797 91,574,113
============ ============
See notes to condensed consolidated financial statements.
4
CEL-SCI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
June 30,
2008 2007
------ ------
REVENUE:
Grant revenue $ 3,535 $ -
Rent income - 5,734
Other income - 715
------------ ------------
Total revenue 3,535 6,449
EXPENSES:
Research and development, excluding
depreciation of $7,246 and $21,086
included below 975,183 632,868
Depreciation and amortization 27,743 45,089
General and administrative 1,177,288 3,104,755
------------ ------------
Total expenses 2,180,214 3,782,712
------------ ------------
LOSS FROM OPERATIONS (2,176,679) (3,776,263)
GAIN (LOSS) ON DERIVATIVE INSTRUMENTS 206,106 (1,090,471)
INTEREST INCOME 94,333 190,112
INTEREST EXPENSE (113,038) (878,354)
------------ ------------
NET LOSS BEFORE INCOME TAXES (1,989,278) (5,554,976)
INCOME TAX PROVISION - -
------------ ------------
NET LOSS (1,989,278) (5,554,976)
DIVIDENDS (424,815) -
------------ ------------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $(2,414,093) $(5,554,976)
============ ============
NET LOSS PER COMMON SHARE (BASIC) $ (0.02) $ (0.05)
============ ============
NET LOSS PER COMMON SHARE (DILUTED) $ (0.02) $ (0.05)
============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING, BASIC & DILUTED 117,773,569 108,526,680
============ ============
See notes to condensed consolidated financial statements.
5
CEL-SCI CORPORATION
CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
Nine Months Ended
June 30, 2008
2008 2007
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (7,042,307) $ (9,391,220)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 161,211 129,247
Penalty shares issued to nonemployees - 156,350
Issuance of common stock and stock options
for services 1,486,054 2,465,039
Common stock contributed to 401(k) plan 79,837 66,779
Employee option cost 398,144 93,948
Consultant option extension 99,181 -
Correction of stock overpayment pricing 1,471 -
Loss (gain) on derivative instruments (35,157) 818,580
Amortization of discount on convertible debt 199,501 1,107,251
Impairment loss on retirement of equipment 595 -
Loss on abandonment of patents 1,974 -
Increase in deferred rent 4,398 -
Increase in receivables (171,346) (46,907)
(Increase) decrease in prepaid expenses (331) 473,187
Decrease in inventory for R&D and manufacturing 103,980 69,177
Increase in accounts payable 21,510 17,846
Increase in accrued expenses 11,411 21,908
Increase (decrease) in amount due to employees 11,771 (19,986)
Decrease in deposits held (3,000) -
(Decrease) increase in accrued interest on
convertible debt (17,621) 39,105
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (4,688,724) (3,999,696)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investment in manufacturing facility (2,102,792) -
Investment in available-for-sale securities (5,800,000) -
Sale of investments available-for-sale securities 5,600,000
Purchase of equipment (19,082) (60,105)
Patent costs (70,384) (107,324)
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (2,392,258) (167,429)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 14,403 924,866
Private placement proceeds - 15,032,500
Repayment of convertible notes (765,000) (407,500)
Proceeds from short term loan 656,340 -
Repayment of short term loan (656,340)
Financing costs - (10,170)
-------------- --------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (750,597) 15,539,696
-------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (7,831,579) 11,372,571
CASH AND CASH EQUIVALENTS:
Beginning of period 10,993,021 8,080,365
-------------- --------------
End of period $ 3,161,442 $ 19,452,936
============== ==============
(continued)
See notes to condensed consolidated financial statements.
6
CEL-SCI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
(continued)
Nine Months Ended
June 30, 2008
2008 2007
-------- --------
SUPPLEMENTAL INFORMATION ON NONCASH TRANSACTIONS:
Patent costs included in accounts payable:
Increase in accounts payable $ (20,159) $ (21,797)
Increase in patent costs 20,159 21,797
-------------- --------------
$ - $ -
============== ==============
Equipment costs included in accounts payable:
Increase in accounts payable $ (712) $ (44,136)
Increase in research and office equipment 712 44,136
-------------- --------------
$ - $ -
============== ==============
Repayment of convertible debt in common stock:
Decrease in convertible debt $ - $ 207,500
Increase in accounts receivable - 25,655
Increase in common stock - (3,431)
Increase in additional paid-in capital - (229,724)
-------------- --------------
$ - $ -
============== ==============
Conversion of convertible debt to common stock:
Decrease in convertible debt $ - $ 4,399,285
Decrease in accounts receivable - (18,558)
Increase in common stock - (57,448)
Increase in additional paid-in capital - (4,323,279)
-------------- --------------
$ - $ -
============== ==============
Equipment purchased with restricted cash:
Increase in research and office equipment $ 1,736,521 $ -
Decrease in restricted cash (1,736,521) -
-------------- --------------
$ - $ -
============== ==============
Cost of investor warrant extension:
Increase in accumulated deficit $ 424,815 $ -
Increase in additional paid-in capital (424,815) -
-------------- --------------
$ - $ -
============== ==============
NOTE:
Interest expense paid during the nine months ended June 30, 2008 and 2007
totaled $189,202 and $420,287, respectively.
See notes to condensed consolidated financial statements.
7
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
THREE AND NINE MONTHS ENDED JUNE 30, 2008 AND 2007
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,
2007.
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 June 30, 2008 and the results
of operations for the three-month and nine-month periods then ended. The
condensed consolidated balance sheet as of September 30, 2007 is derived
from the September 30, 2007 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 and nine-month periods ended
June 30, 2008 and 2007 are not necessarily indicative of the results to be
expected for the entire year.
Significant accounting policies are as follows:
Research and Office Equipment - Research and office equipment is recorded
at cost and depreciated using the straight-line method over estimated
useful lives of five to seven years. Leasehold improvements are
depreciated over the shorter of the estimated useful life of the asset or
the term of the lease. Repairs and maintenance which do not extend the
life of the asset are expensed when incurred. Depreciation expense for the
nine-month period ended June 30, 2008 and 2007 were $101,005 and $62,927,
respectively. Depreciation expense for the three-month period ended June
30, 2008 and 2007 were $7,246 and $21,134.
Patents - Patent expenditures are capitalized and amortized using the
straight-line method over the shorter of the expected useful life or the
legal life of the patent (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
8
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
THREE AND NINE MONTHS ENDED JUNE 30, 2008 AND 2007
and its carrying value. During the nine-month and three-month periods
ended June 30, 2008, the Company recorded patent impairment charges of
$1,974 and $0. For the nine-month period ended June 30, 2008 and 2007,
amortization of patent costs totaled $60,206 and $66,320, respectively.
For the three-month periods ended June 30, 2008 and 2007, amortization of
patent costs totaled $20,497 and $23,955 respectively. The Company
estimates that amortization expense will be $77,846 for each of the next
five years, totaling $389,230.
Research and Development Costs - Research and development expenditures are
expensed as incurred. Total research and development costs, excluding
depreciation, were $3,041,212 and $1,817,891 for the nine months ended
June 30, 2008 and 2007. For the three months ended June 30, 2008 and 2007,
total research and development costs were $975,183 and $632,868,
respectively.
Income Taxes - The Company uses the asset and liability method of
accounting for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating and tax loss carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date. The Company records a valuation allowance to
reduce the deferred tax assets to the amount that is more likely than not
to be recognized.
The Company adopted the provisions of FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes" ("FIN 48") effective January
1, 2007. FIN 48 provides a comprehensive model for how a company should
recognize, measure, present and disclose in its financial statements
uncertain tax positions that the company has taken or expects to take on a
tax return. The Company did not have any unrecognized tax benefits and
there was no effect on its financial condition or results of operations as
a result of implementing FIN 48. The Company elected to continue to report
any interest and penalties as income taxes. No interest or penalties were
accrued as a result of the adoption of FIN 48.
Stock-Based Compensation - In December 2004, the FASB issued SFAS No.
123R, "Share-Based Payment". SFAS No. 123R requires companies to recognize
expense associated with share based compensation arrangements, including
employee stock options, using a fair value-based option pricing model.
SFAS No. 123R applies to all transactions involving issuance of equity by
a company in exchange for goods and services, including employees.
Compensation expense has been recognized for awards that were granted,
modified, repurchased or cancelled on or after October 1, 2005 as well as
for the portion of awards previously granted that vested during the period
ended June 30, 2008. For the nine months ended June 30, 2008 and 2007, the
Company recorded $398,144 and $93,948, respectively in general and
9
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
THREE AND NINE MONTHS ENDED JUNE 30, 2008 AND 2007
administrative expense for the cost of employee options. The Company's
options vest over a three-year period from the date of grant. After one
year, the stock is one-third vested, with an additional one-third vesting
after two years and the final one-third vesting at the end of the
three-year period. There were 1,335,000 and -0- options granted to
employees during the nine-month periods ended June 30, 2008 and 2007.
Options are granted with an exercise price equal to the closing price of
the Company's stock on the day before the grant. The Company determines
the fair value of the employee compensation using the Black Scholes method
of valuation.
During the nine months ended June 30, 2008, no options from the
non-qualified plan vested. During the nine months ended June 30, 2008, no
options from the incentive stock option plan vested.
The Company has Incentive Stock Option Plans, Non-Qualified Stock Option
Plans, a Stock Compensation Plan and Stock Bonus Plans. All Stock Option
and Bonus Plans have been approved by the stockholders. A summary
description of these Plans follows. In some cases these Plans are
collectively referred to as the "Plans".
Incentive Stock Option Plan. The Incentive Stock Option Plans authorize
the issuance of shares of the Company's common stock to persons who
exercise options granted pursuant to the Plan. Only Company employees may
be granted options pursuant to the Incentive Stock Option Plan.
To be classified as incentive stock options under the Internal Revenue
Code, options granted pursuant to the Plans must be exercised prior to the
following dates:
(a) The expiration of three months after the date on which an option
holder's employment by the Company is terminated (except if such
termination is due to death or permanent and total disability);
(b) The expiration of 12 months after the date on which an option holder's
employment by the Company is terminated, if such termination is due to
the Employee's permanent and total disability;
(c) In the event of an option holder's death while in the employ of the
Company, his executors or administrators may exercise, within three
months following the date of his death, the option as to any of the
shares not previously exercised;
The total fair market value of the shares of common stock (determined at
the time of the grant of the option) for which any employee may be granted
options which are first exercisable in any calendar year may not exceed
$100,000.
Options may not be exercised until one year following the date of grant.
Options granted to an employee then owning more than 10% of the common
stock of the Company may not be exercisable by its terms after five years
10
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
THREE AND NINE MONTHS ENDED JUNE 30, 2008 AND 2007
from the date of grant. Any other option granted pursuant to the Plan may
not be exercisable by its terms after ten years from the date of grant.
The purchase price per share of common stock purchasable under an option
is determined by the Committee but cannot be less than the fair market
value of the common stock on the date of the grant of the option (or 110%
of the fair market value in the case of a person owning more than 10% of
the Company's outstanding shares).
Non-Qualified Stock Option Plans. The Non-Qualified Stock Option Plans
authorize the issuance of shares of the Company's common stock to persons
that exercise options granted pursuant to the Plans. The Company's
employees, directors, officers, consultants and advisors are eligible to
be granted options pursuant to the Plans, provided however that bona fide
services must be rendered by such consultants or advisors and such
services must not be in connection with the offer or sale of securities in
a capital-raising transaction. The option exercise price is determined by
the Committee but cannot be less than the market price of the Company's
common stock on the date the option is granted.
During the nine months ended June 30, 2008 and 2007, 50,467 and 564,966
options were exercised. All options exercised were from the non-qualified
plans. The total intrinsic value of options exercised during the nine
months ended June 30, 2008 and 2007 was $17,691 and $294,081,
respectively. The total intrinsic value of options exercised during the
three months ended June 30, 2008 and 2007 was $0 and $83,521,
respectively.
Options to non-employees are accounted for in accordance with FASB's
Emerging Issues Task Force (EITF) Issue 96-18 Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. Accordingly, compensation is
recognized when goods or services are received and is measured using the
Black-Scholes valuation model. The Black-Scholes model requires management
to make assumptions regarding the fair value of the options at the date of
grant and the expected life of the options. There were no options granted
to non-employees during the nine months ended June 30, 2008. There were
516,000 shares of common stock issued to consultants during the nine
months ended June 30, 2008 at a cost for the nine months ended June 30,
2008 of $92,986. During the nine months ended June 30, 2008, 2,016,176
options to non-employees were extended. See note D. For the nine months
ended June 30, 2007, common stock and options with a value of $2,187,039
were issued for services.
B. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, FASB issued SFAS No. 157, "Fair Value Measurements".
The statement defines fair value, establishes a framework for measuring
fair value in GAAP and expands disclosures about fair value measurements.
The statement is effective for financial statements issued for fiscal
years beginning after November 15, 2007 and interim periods within those
11
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
THREE AND NINE MONTHS ENDED JUNE 30, 2008 AND 2007
fiscal years. In September 2007, the FASB provided a one-year deferral for
the implementation of SFAS 157 with regard to nonfinancial assets and
liabilities. The Company is evaluating whether this statement will affect
its current practice in valuing fair value of its derivatives each
quarter.
In February 2007, FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of
FASB Statement No. 15". The Statement permits companies to choose to
measure many financial instruments and certain other items at fair value.
The statement is effective for fiscal years that begin after November 15,
2007, but early adoption is permitted. The Company is evaluating the
effect of the adoption of this statement.
In December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141 (revised
2007), Business Combinations, which replaces SFAS No. 141R. The statement
retains the purchase method of accounting for acquisitions, but requires a
number of changes, including changes in the way assets and liabilities are
recognized in the purchase accounting. It also changes the recognition of
assets acquired and liabilities assumed arising from contingencies,
requires the capitalization of in-process research and development at fair
value, and requires the expensing of acquisition-related costs as
incurred. SFAS No. 141R is effective beginning October 1, 2009 and will
apply prospectively to business combinations completed on or after that
date.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB 51, which
changes the accounting and reporting for minority interests. Minority
interests will be recharacterized as noncontrolling interests and will be
reported as a component of equity separate from the parent's equity, and
purchases or sales of equity interests that do not result in a change in
control will be accounted for as equity transactions. In addition, net
income attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement and, upon a
loss of control, the interest sold, as well as any interest retained, will
be recorded at fair value with any gain or loss recognized in earnings.
SFAS No. 160 is effective beginning October 1, 2009 and will apply
prospectively, except for the presentation and disclosure requirements,
which will apply retrospectively. The Company is currently assessing the
potential impact that adoption of SFAS No. 160 would have on its
consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No.
133, which changes disclosure requirements for derivative instruments and
hedging activities. The statement is effective for periods ending on or
after November 15, 2008, with early application encouraged. The Company is
currently assessing the additional requirements of this statement.
12
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
THREE AND NINE MONTHS ENDED JUNE 30, 2008 AND 2007
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles, which redirects the GAAP hierarchy to
entities instead of auditors. It is not expected to change the way in
which the Company applies GAAP standards to its financial statements.
In April 2008, the FASB staff issued FSP FAS 142-3, Determination of the
Useful Life of Intangible Assets, which amends the factors that should be
considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB
Statement No. 142, Goodwill and Other Intangible Assets. The staff
position is intended to improve the consistency between the useful life of
a recognized intangible asset under Statement 142 and the period of
expected cash flows used to measure the fair value of the asset under FASB
Statement No. 141, Business Combinations, and other U.S. generally
accepted accounting principles (GAAP). The Company is currently assessing
the potential impact of this staff position on its consolidated financial
statements.
C. AVAILABLE-FOR-SALE SECURITIES
At June 30, 2008, the Company had $200,000 in face value of Auction Rate
Cumulative Preferred Shares (ARPs), liquidation preference of $25,000 per
share, of an income mutual fund. The ARPs are invested primarily in a
globally diversified portfolio of convertible instruments, common and
preferred stocks, and income producing securities such as investment grade
and below investment grade (high yield/high risk) debt securities. All of
the ARPs had credit ratings of AAA when purchased and still have the AAA
rating today. None of the ARPs are mortgage-backed debt. Historically,
ARPs have been highly liquid, using a Dutch auction process that resets
the applicable interest rates weekly to provide liquidity at par. However,
as a result of liquidity issues experienced in the global credit and
capital markets, the auctions for all of our remaining ARPs since February
29, 2008 have failed. As a result thereof we are now collecting interest
at a higher rate, pursuant to the ARPs agreement. The failures of these
auctions do not affect the value of the collateral underlying the ARPs and
we will continue to earn and receive interest at contractually set rates.
On May 6, 2008, the fund company announced the redemption of $300 million
or, 85.7% of the ARPs on various dates between May 19, 2008 and May 23,
2008 subject to the investment fund lottery system. All of the Company's
ARPs, except for the currently held $200,000, were redeemed. Until
redemption or when these remaining ARPs are completely refinanced, the
Company has the ability to borrow against 100% of the ARPs (see Note F).
The fund holding the Auction Rate Preferred Shares must maintain, 1) asset
coverage of the Preferred Shares as required by the rating agency or
agencies rating the Preferred Shares; and 2) asset coverage of at least
200% with respect to senior securities that are stock, including the
Preferred Shares. In the event that the Fund does not maintain or cure
failures to maintain these coverage tests, some or all of the Preferred
Shares will be subject to mandatory redemptions. Based on the composition
of the Fund's portfolio as of August 31, 2007, the asset coverage of the
13
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
THREE AND NINE MONTHS ENDED JUNE 30, 2008 AND 2007
Preferred Shares as measured pursuant to the 1940 Act was approximately
336%. There have been no defaults of the underlying collateral and
interest continues to be paid at the contractual rate and in a timely
manner.
The Company continues to carry the ARPs at par value as the Company
believes that it will be able to collect all amounts due. This conclusion
is supported by the fact that the issuer has already refinanced $300
million of the $350 million outstanding ARPs at full value. During the
quarter ended June 30, 2008, the Company redeemed $5.6 million of these
ARPs at full value.
D. STOCKHOLDERS' EQUITY
In November and December 2007, the Company extended 1,905,633 employee
options and 2,016,176 investor and consultant warrants. The options and
warrants were due to expire from December 1, 2007 through December 31,
2008. All options and warrants were extended for an additional five years
from the original expiration date. The cost of the extension of employee
options of $465,008 was recorded as a debit to general and administrative
expense and a credit to additional paid-in capital. The cost of the
extension of investor warrants of $424,815 was recorded as a debit to
accumulated deficit (dividend) and a credit to additional paid-in capital.
The cost of the extension of the consultant warrants of $99,181 is
recorded as a debit to general and administrative expense and a credit to
additional paid-in capital. The additional cost of the extension of
employee options and investor and consultant warrants was determined using
the Black Scholes method.
In January and March, 2008, the Company issued 1,116,020 shares of
restricted common stock to employees. The stock was valued at prices
ranging from $0.52 to $0.62. The total cost of the stock issued to
employees was $687,830. The cost of the stock for the nine months ended
June 30, 2008 of $49,101 was expensed to research and development ($18,171)
and general and administrative expense ($30,930). In addition, on February
26, 2008, the Company issued a total of 258,000 shares of restricted common
stock to two consultants at $0.52 per share for a total cost of $134,160.
This stock will be expensed over the period of the contracts with the
consultants. The expense from the time of issuance through June 30, 2008
was $45,580. In April 2008, an additional 258,000 shares of restricted
common stock to two consultants were issued at $0.69 and $0.53 for a total
cost of $158,020. The stock will be expensed over the remaining period of
the contracts with the consultants. The expense from the time of issuance
through June 30, 2008 was $47,406.
E. SERIES K CONVERTIBLE DEBT
In August 2006, the Company issued $8,300,000 in aggregate principal
amount of convertible notes (the "Series K Notes") together with warrants
to purchase 4,825,581 shares of the Company's common stock (the Series K
Warrants"). Additionally, in connection with issuance of the Series K
Notes and Series K Warrants, the placement agent received a fee of
$498,000 and 386,047 fully vested warrants (the "Placement Agent
14
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
THREE AND NINE MONTHS ENDED JUNE 30, 2008 AND 2007
Warrants") to purchase shares of the Company's common stock. Net proceeds
were $7,731,290, net of $568,710 in direct transaction costs, including
the placement agent fee.
The Series K Notes were convertible into 10,480,000 shares of the
Company's common stock at the option of the holder at any time prior to
maturity at a conversion price of $0.75 per share, subject to adjustment
for certain events. The Series K Warrants are exercisable over a five-year
period from February 4, 2007 through February 4, 2012 at $0.75 per share.
The Series K Notes bear interest at the greater of 8% or the six month
LIBOR plus 300 basis points, and are required to be repaid in thirty equal
monthly installments of $207,500 beginning on March 4, 2007 and continuing
through September 4, 2010. Any remaining principal balance is required to
be repaid on August 4, 2011; however, holders of the Series K Notes may
require repayment of the entire remaining principal balance at any time
after August 4, 2010. Interest is payable quarterly beginning September
30, 2006. Each payment of principal and accrued interest may be settled in
cash or in shares of common stock at the option of the Company. The number
of shares deliverable under the share-settlement option is determined
based on the lower of (a) $0.75 per share, as adjusted pursuant to the
terms of the Series K Notes or (b) 90% applied to the arithmetic average
of the volume-weighted-average trading prices for the twenty day period
immediately preceding each share settlement. The Company may not make
payments in shares if such payments would result in the cumulative
issuance of shares of its common stock exceeding 19.999% of the shares
outstanding on the day immediately preceding the issuance date of the
Series K Notes, unless prior approval is given by vote of at least a
majority of the shares outstanding. The Company received such approval on
November 17, 2006.
The Company is accounting for the Series K Warrants as derivative
liabilities in accordance with SFAS No. 133. A debt discount of $1,734,472
is being amortized to interest expense using the effective interest method
over the expected term of the Series K Notes. During the nine-month
periods ended June 30, 2008 and 2007, the Company recorded interest
expense of $199,501 and $764,776, respectively, in amortization of the
debt discount. As of June 30, 2008, the fair value of the Series K notes
is $2,622,639 and the fair value of the investor and placement agent
warrants is $2,390,689. The Company recorded a gain on derivative
instruments of $35,157 and a loss of $818,580 during the nine months ended
June 30, 2008 and 2007, respectively. For the three months ended June 30,
2008 and 2007, the Company recorded a gain on derivative instruments of
$206,106 and a loss of $1,090,471, respectively.
During the nine months ended June 30, 2008, no Series K notes were
converted into shares of common stock. During the nine months ended June
30, 2007, $4,399,285 in Series K notes were converted into 5,744,764
shares of common stock. During the nine months ended June 30, 2008,
principal payments of $765,000 were made to the holders of the Series K
notes. As of June 30, 2008, $2,520,716 of the Series K Notes remained.
15
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
THREE AND NINE MONTHS ENDED JUNE 30, 2008 AND 2007
The following summary comprises the total of the fair value of the
convertible debt and related derivative instruments at June 30, 2008 and
September 30, 2007:
June 30, September 30,
2008 2007
------- ------------
Face value of debt $2,520,715 $3,285,715
Discount on debt (243,585) (443,086)
Investor warrants 1,734,472 1,734,472
Placement agent warrants 177,088 192,826
Fair value adjustment-convertible debt 345,509 168,207
Fair value adjustment-investor warrants 479,129 675,850
----------- -----------
Total fair value $5,013,328 $5,613,984
=========== ===========
F. SHORT-TERM LOAN
The Company has a line of credit through its bank to borrow up to 100% of
the ARPs (see Note C) at an interest rate of prime minus 1% (5% at June
30, 2008). As of March 31, 2008, the Company had borrowed $656,340, but
the loan was paid back during the quarter ended June 30, 2008. During the
nine and three months ended June 30, 2008, the Company had paid $7,486 and
$6,947 in interest on the line of credit. The line of credit is secured by
the ARPs. The line of credit will not expire as long as the Company holds
the ARPs.
G. OPERATIONS AND FINANCING
The Company has incurred significant costs since its inception in
connection with the acquisition of an exclusive worldwide license to and
later acquisition of the technology of certain patented and unpatented
proprietary technology and know-how relating to the human immunological
defense system, patent applications, research and development,
administrative costs, construction of laboratory facilities and clinical
trials. The Company has funded such costs with proceeds realized from the
public and private sale of its common and preferred stock. The Company will
be required to raise additional capital or find additional long-term
financing in order to continue with its research efforts and to stay in
business. To date, the Company has not generated any revenue from product
sales. The ability of the Company to complete the necessary clinical trials
and obtain FDA approval for the sale of products to be developed on a
commercial basis is uncertain. The Company plans to seek continued funding
of the Company's development by raising additional capital. Management
feels that it is in a good position to raise the necessary funds for the
development of Multikine during the course of the next 12 months. Now that
16
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
THREE AND NINE MONTHS ENDED JUNE 30, 2008 AND 2007
the Company is a Phase III company with an almost completed manufacturing
facility, the Company is significantly more attractive to pharmaceutical
partners and/or investors and management believes that partnering
activities and/or financing activities will fund the expenditures of the
Company. This belief is supported by the Company's recent (August 2008)
licensing agreement with Teva Pharmaceutical Industries Ltd. (Teva), a
leading global pharmaceutical company. The Company is currently in
partnering discussions with various parties for other licensing agreements.
In addition the Company has in place a $10 million shelf registration.
The Company has invested in ARPs (See Note C). Because of liquidity issues
with these ARPs, the Company borrowed $656,340 on a line of credit which
was paid off when the $5.6 million in ARPs were sold in May 2008. The
Company now holds only $200,000 in ARPs. In the meantime, the Company has
access to 100% of the invested assets through a line of credit with the
Company's bank.
H. DIVIDENDS
The Company has paid no dividends to shareholders since inception. The
cost of the extension of investor warrants during the nine months ended
June 30, 2008 of $424,815 is recorded as a dividend, and increases the
accumulated deficit.
I. COMMITMENTS AND CONTINGENCIES
Lease Agreement - In August 2007, the Company leased a building near
Baltimore, Maryland. The building, which consists of approximately 73,000
square feet, will be remodeled in accordance with the Company's
specifications so that it can be used by the Company to manufacture
Multikine for the Company's Phase III clinical trial and sales of the drug
if approved by the FDA. The lease is for a term of twenty years and
requires annual base rent payments of $1,575,000 during the first year of
the lease. The annual base rent escalates each year at 3%. The Company is
also required to pay all real and personal property taxes, insurance
premiums, maintenance expenses, repair costs and utilities. The lease
allows the Company, at its election, to extend the lease for two ten-year
periods or to purchase the building at the end of the 20-year lease. The
lease requires the Company to pay $3,150,000 towards the remodeling costs,
which will be recouped by reductions in the annual base rent of $303,228
in years six through twenty of the lease. On January 24, 2008, a second
amendment to the lease for the manufacturing facility was signed. In
accordance with the amendment, the Company is required to pay the
following: 1) an additional $518,790 for movable equipment, which will
increase restricted cash, and 2) an additional $1,295,528 into an escrow
account to cover additional costs, which will increase deferred rent.
These funds were transferred in early February 2008. In April 2008, an
additional $288,474 was paid toward the completion of the manufacturing
facility.
J. SUBSEQUENT EVENTS
On August 18, 2008, the Company signed legally binding documentation for a
$1,037,500 financing. Shares were sold at $0.75, a significant premium
17
over the closing price of the Company's common stock. The shares are
accompanied by 2,075,084 warrants with an exercise price of $0.75. The
shares have no registration rights. Upon approval of this transaction by
the American Stock Exchange, the Company will issue the shares and
warrants and will receive the funds.
18
CEL-SCI CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Company has had only limited revenues from operations since its inception in
March 1983. The Company has relied upon proceeds realized from the public and
private sale of its Common Stock and convertible notes as well as short-term
borrowings to meet its funding requirements. Funds raised by the Company have
been expended primarily in connection with the acquisition of an exclusive
worldwide license to, and later purchase of, certain patented and unpatented
proprietary technology and know-how relating to the human immunological defense
system, 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 has been dependent upon the proceeds from the sale of its securities
to meet all of its liquidity and capital resource requirements and will have to
continue doing so in the future.
During the nine-month period ended June 30, 2008 and 2007, the Company used cash
totaling $7,831,579 and had a net increase in cash of $11,372,571, respectively.
For the nine months ended June 30, 2008 and 2007, cash used in operating
activities totaled $4,688,724 and $3,999,696. For the nine months ended June 30,
2008 and 2007, cash used by financing activities totaled $750,597 and cash
provided by financing activities totaled $15,539,696, respectively. Repayment of
convertible notes ($765,000) was used in financing activities and cash was
provided by the exercise of employee options ($14,403) during the nine months
ended June 30, 2008. For the nine months ended June 30, 2007, cash provided by
financing activities of $15,539,696 was from the exercise of employee options
(924,866) and private placement proceeds ($15,032,500), partially offset by
financing costs of $10,170. Cash used in investing activities was $2,392,258 and
$167,429 for the nine months ended June 30, 2008 and 2007. This consisted of
purchases of equipment and legal costs incurred in patent applications and, for
the nine months ended June 30, 2008, an additional investment in the
manufacturing facility of $2,102,792 and an increase in available for sale
securities of $5,800,000 offset by the sale of securities totaling $5,600,000.
The Company has invested in ARPs (See Note C). Because of liquidity issues with
these ARPs, the Company borrowed $656,340 on a line of credit which was paid off
in May. The Company has access to 100% of the invested assets through a line of
credit with the Company's bank. The Company holds $200,000 in ARPs at June 30,
2008.
Results of Operations and Financial Condition
Grant revenue decreased by $28,244 during the nine months ended June 30, 2008,
compared to the same period of the previous year, due to the completion of the
work funded by the grants. The final grant ended on March 31, 2007. A training
grant from the State of Maryland was received during the nine months ended June
30, 2008. Grant revenue increased by $3,535 during the three months
19
ended June 30, 2008 compared to the same period of the previous year because the
training grant was received.
During the nine-month period ended June 30, 2008, research and development
expenses increased by $1,223,321 compared to the nine month-month period ended
June 30, 2007. This increase was due to expenses relating to the preparation for
the Phase III clinical trial on Multikine. The Company is preparing for the
opening of the manufacturing facility. During the three months ended June 30,
2008, research and development expenses increased by $342,315 over the three
months ended June 30, 2008 for the same reason.
During the nine-month period ended June 30, 2008, general and administrative
expenses decreased by $1,541,748 compared to the nine-month period ended June
30, 2007. This change was primarily due to stock issued to consultants in 2007.
During the three months ended June 30, 2008, general and administrative expenses
decreased by $1,927,467 compared to the three months ended June 30, 2007 for the
same reason.
Interest income during the nine months ended June 30, 2008 increased by $67,543
compared to the nine-month period ended June 30, 2007. The increase was due to
interest earned on the funds received from the April 2007 financing. Interest
income decreased during the three months ended June 30, 2008 from the same
period ended June 30, 2007 by $95,779. The decrease was caused by the investment
in the manufacturing facility and equipment for the manufacturing facility which
resulted in a decrease in the funds available for investment.
The gain on derivative instruments of $35,157 for the nine months ended June 30,
2008, and for the three months ended June 30, 2008, of $206,106 was the result
of the change in fair value of the Series K Notes and Series K Warrants during
the period. These gains were caused by fluctuations in the share price of the
Company's common stock.
The interest expense of $378,569 for the nine months ended June 30, 2008 was
composed of three elements: 1) amortization of the Series K discount ($199,501),
2) interest paid and accrued on the Series K debt ($171,582) and 3) margin
interest ($7,486). This is a decline of approximately $1,188,069 from the nine
months ended June 30, 2007 because of the lower balance of Series K debt. During
the three months ended June 30, 2008, the interest expense was $113,038, a
decrease of $765,316 from the three months ended June 30, 2007. This decline is
due to the lower balance of the Series K debt. Amortization of the Series K
discount for the three months ended June 30, 2008 was $54,917 and interest
accrued on the series K debt totaled $51,174. Additional interest expense on the
short term loan totaled $6,947.
Research and Development Expenses
During the nine and three-month periods ended June 30, 2008 and 2007, the
Company's research and development efforts involved Multikine and
L.E.A.P.S.(TM). The table below shows the research and development expenses
associated with each project during the nine and three-month periods.
20
Nine Months Ended June 30, Three Months Ended June 30,
-------------------------- ---------------------------
2008 2007 2008 2007
----- ---- ---- ----
MULTIKINE $2,766,414 $1,583,032 $ 901,069 $ 550,896
L.E.A.P.S 274,798 234,859 74,114 81,972
------------ ------------ ------------ ------------
TOTAL $3,041,212 $1,817,891 $ 975,183 $ 632,868
============ ============ ============ ============
In January 2007, the Company received a "no objection" letter from the FDA
indicating that it could proceed with the Phase III protocol with Multikine in
head & neck cancer patients. The protocol for the Phase III clinical trial was
designed to develop conclusive evidence of the safety and efficacy of Multikine
in the treatment of advanced primary squamous cell carcinoma of the oral cavity.
The Company had previously received a "no objection" letter from the Canadian
Biologics and Genetic Therapies Directorate which enabled the Company to begin
its Phase III clinical trial in Canada.
As of June 30, 2008, the Company was involved in a number of pre-clinical
studies with respect to its L.E.A.P.S. technology. The Company does not know
what obstacles it will encounter in future pre-clinical and clinical studies
involving its L.E.A.P.S. technology. Consequently, the Company cannot predict
with any certainty the funds required for future research and clinical trials
and the timing of future research and development projects.
Clinical and other studies necessary to obtain regulatory approval of a new drug
involve significant costs and require several years to complete. The extent of
the Company's clinical trials and research programs are primarily based upon the
amount of capital available to the Company and the extent to which the Company
has received regulatory approvals for clinical trials. The inability of the
Company to conduct clinical trials or research, whether due to a lack of capital
or regulatory approval, will prevent the Company from completing the studies and
research required to obtain regulatory approval for any products which the
Company is developing. Without regulatory approval, the Company will be unable
to sell any of its products.
In August 2007, the Company leased a building near Baltimore, Maryland. The
building, which consists of approximately 73,000 square feet, will be remodeled
in accordance with the Company specifications so that it can be used by the
Company to manufacture Multikine for the Company's Phase III clinical trial and
sales of the drug if approved by the FDA. The lease is for a term of twenty
years and requires annual base rent payments of $1,575,000 during the first year
of the lease. The annual base rent escalates each year at 3%. the Company is
also required to pay all real and personal property taxes, insurance premiums,
maintenance expenses, repair costs and utilities. The lease allows the Company,
at its election, to extend the lease for two ten-year periods or to purchase the
building at the end of the 20-year lease. The lease required the Company to pay
$3,150,000 towards the remodeling costs, which will be recouped by reductions in
the annual base rent of $303,228 in years six through twenty of the lease. In
January 2008, the Company signed a second amendment to the lease. In accordance
with the lease, on February 8, 2008, the Company paid an additional $1,295,528
toward the remodeling costs and a further $518,790 to pay for lab equipment. In
addition, in April 2008, an additional $288,474 was paid for the completion of
the facility. The building is expected to be ready for occupancy late in the
third calendar quarter of 2008.
21
Regulatory authorities prefer to see biologics such as Multikine manufactured
for commercial sale in the same manufacturing facility for Phase III clinical
trials and the sale of the product since this arrangement helps to ensure that
the drug lots used to conduct the clinical trials will be consistent with those
that may be subsequently sold commercially. Although some biotech companies
outsource their manufacturing, this can be risky with biologics because they
require intense manufacturing and process control. With biologic products a
minor change in manufacturing and process control can result in a major change
in the final product. Good and consistent manufacturing and process control is
critical and is best assured if the product is manufactured and controlled in
the manufacturer's own facility by their own specially trained personnel. Since
all of the Company's projects are under development, the Company cannot predict
when it will be able to generate any revenue from the sale of any of its
products.
Critical Accounting Estimates and Policies
Management's discussion and analysis of the Company's financial condition and
results of operations is based on its unaudited condensed consolidated financial
statements. The preparation of these financial statements is based on the
selection of accounting policies and the application of significant accounting
estimates, some of which require management to make judgments, estimates and
assumptions that affect the amounts reported in the financial statements and
notes. The Company believes some of the more critical estimates and policies
that affect its financial condition and results of operations are in the areas
of revenue recognition, operating leases, asset retirement obligations,
stock-based compensation and income taxes. For more information regarding the
Company's critical accounting estimates and policies, see Part II, Item 7, MD&A
"Critical Accounting Estimates and Policies" of the Company's 2007 10-K. We have
discussed the application of these critical accounting policies and estimates
with the Audit Committee of the Company's Board of Directors.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
As of June 30, 2008, the Company had outstanding Series K Notes and Series K
Warrants which were classified as derivative financial instruments. Interest on
the Series K Notes is tied to the 6-month LIBOR. Should the 6-month LIBOR
increase, interest payments on the Series K debt may increase as well.
The Company had available-for-sale securities totaling $200,000 as of June 30,
2008. The Company has the ability to borrow $200,000 on a line of credit secured
by these securities. Interest on the line of credit is at Prime minus 1%. If the
prime rate increases, interest payments on the line of credit would increase as
well.
Item 4.T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Geert Kersten, CEL-SCI's Chief Executive and Financial Officer, has evaluated
the effectiveness of CEL-SCI's disclosure controls and procedures as of June 30,
2008, and in his opinion CEL-SCI's disclosure controls and procedures are
effective and ensure that material information relating to CEL-SCI, including
CEL-SCI's consolidated subsidiary, is made known to him by others within those
entities, particularly during the period in which this report is being prepared,
22
so as to allow timely decisions regarding required disclosure. The Company has
determined that these controls and procedures are effective as of June 30, 2008.
Changes in Internal Control over Financial Reporting
To the knowledge of Mr. Kersten, there have been no significant changes in
CEL-SCI's internal controls or in other factors that could significantly affect
CEL-SCI's internal controls subsequent to the date of evaluation. The Company
continues to evaluate its internal controls.
23
PART II
Item 2. Changes in Securities and Use of Proceeds
In April 2008 CEL-SCI issued 258,000 shares of its common stock to
two consultants for services rendered. CEL-SCI relied upon the exemption
provided by Section 4(2) of the Securities Act of 1933 with respect to the
issuance of these shares. The persons who acquired these shares were
sophisticated investors and were provided full information regarding CEL-SCI.
There was no general solicitation in connection with the issuance of the shares.
The persons who acquired these shares acquired them for their own accounts. The
certificates representing the shares of common stock will bear a restricted
legend providing that they cannot be sold except pursuant to an effective
registration statement or an exemption from registration. No commission or other
form of remuneration was given to any person in connection with the issuance of
these shares.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of CEL-SCI's shareholders was held on March 3, 2008. At
the meeting the following persons were elected as directors for the upcoming
year:
Name Votes For Votes Withheld
Maximilian de Clara 77,883,141 3,911,418
Geert Kersten 78,836,734 2,957,825
Alexander Esterhazy 79,118,263 2,676,296
C. Richard Kinsolving 79,280,474 2,514,085
Peter R. Young 79,181,763 2,612,796
At the meeting the following proposals were ratified by the shareholders.
(1) to approve the adoption of CEL-SCI's 2008 Incentive Stock Option Plan which
provides that up to 1,000,000 shares of common stock may be issued upon the
exercise of options granted pursuant to the Incentive Stock Option Plan;
(2) to approve the adoption of CEL-SCI's 2008 Non-Qualified Stock Option Plan
which provides that up to 1,000,000 shares of common stock may be issued
upon the exercise of options granted pursuant to the Non-Qualified Stock
Option Plan;
(3) to approve the adoption of CEL-SCI's 2008 Stock Bonus Plan which provides
that up to 1,000,000 shares of common stock may be issued to persons
granted stock bonuses pursuant to the Stock Bonus Plan;
(4) to approve an amendment to CEL-SCI's Stock Compensation Plan to provide for
the issuance of up to 1,000,000 additional restricted shares of common
stock to CEL-SCI's directors, officers, employees and consultants for
services provided to the Company;
(5) subject to the determination of CEL-SCI's directors that a reverse split
would be in the best interest of CEL-SCI's shareholders, to approve a
reverse split of CEL-SCI's common stock;
24
(6) to ratify the appointment of BDO Seidman, LLP as CEL-SCI's independent
registered public accounting firm for the fiscal year ending September 30,
2008.
The following is a tabulation of votes cast with respect to these
proposals:
Votes
------------------------------------ Broker
Proposal For Against Abstain Non-Votes
1. 22,876,122 6,492,020 359,671 52,066,746
2. 23,134,557 6,157,452 435,804 52,066,746
3. 21,676,413 7,658,224 393,176 52,066,746
4. 21,376,495 7,973,363 377,922 52,066,746
5. 62,659,222 18,672,755 462,582 0
6. 79,208,863 1,057,206 1,528,490 0
Item 5. Other Information
On August 18, 2008 CEL-SCI sold 1,383,389 Units, at a price of $0.75 per
Unit, to two private investors. Each Unit consisted of one share of CEL-SCI's
common stock and 1.5 warrants. Each warrant allows the holder to purchase one
share of CEL-SCI's common stock for $0.75 at any time prior to August 25, 2014.
CEL-SCI relied upon the exemption provided by Section 4(2) of the Securities Act
of 1933 with respect to the sale of these securities. The persons who acquired
these securities were sophisticated investors and were provided full information
regarding CEL-SCI. There was no general solicitation in connection with the
offer or sale of the securities. The persons who acquired these securities
acquired them for their own accounts. The certificates representing the shares
of common stock and warrants will bear a restricted legend providing that they
cannot be sold except pursuant to an effective registration statement or an
exemption from registration. No commission or other form of remuneration was
given to any person in connection with the sale of these securities.
Item 6.(a) Exhibits
Number Exhibit
31 Rule 13a-14(a) Certifications
32 Section 1350 Certifications
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CEL-SCI CORPORATION
Date: August 19, 2008 /s/ Geert Kersten
------------------------------------
Geert Kersten, Chief Executive Officer*
* Also signing in the capacity of the Chief Accounting Officer and Principal
Financial Officer.