Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2009
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
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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 204,201,968 February 1, 2010
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Page
----
Condensed Consolidated Balance Sheet (unaudited) 3
Condensed Consolidated Statements of Operations (unaudited) 4
Condensed Consolidated Statements of Cash Flow (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2.
Management's Discussion and Analysis of Financial Condition 20
and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risks 23
Item 4.
Controls and Procedures 24
PART II
Item 6.
Exhibits 25
Signatures 26
2
CEL-SCI CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS December 31, September 30,
2009 2009
-------------- --------------
CURRENT ASSETS
Cash and cash equivalents $ 36,040,879 $ 33,567,516
Prepaid expenses 113,544 39,972
Inventory used for R&D and manufacturing 554,981 399,474
Deposits 1,585,090 1,585,064
-------------- --------------
Total current assets 38,294,494 35,592,026
RESEARCH AND OFFICE EQUIPMENT AND
LEASEHOLD IMPROVEMENTS--
Less accumulated depreciation of
$2,359,107 and $2,259,237 1,194,717 1,200,611
PATENT COSTS- less accumulated
amortization of $1,151,352 and $1,132,612 399,082 423,104
RESTRICTED CASH 21,295 68,552
DEFERRED RENT 8,596,046 8,743,305
-------------- --------------
TOTAL ASSETS $ 48,505,634 $ 46,027,598
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 690,431 $ 793,148
Accrued expenses 95,505 98,665
Due to employees 23,154 49,527
Derivative instruments - current portion 12,912,022 35,113,970
Deposits held 10,000 10,000
Related party loan 1,104,057 1,107,339
-------------- --------------
Total current liabilities 14,835,169 37,172,649
Deferred rent 14,326 14,305
-------------- --------------
Total liabilities 14,849,495 37,186,954
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized,
200,000 shares; no shares issued and outstanding - -
Common stock, $.01 par value; authorized,
450,000,000 shares; issued and outstanding,
203,535,189 and 191,972,021 shares at
December 31, 2009 and September 30, 2009,
respectively 2,035,352 1,919,720
Additional paid-in capital 184,744,667 173,017,978
Accumulated deficit (153,123,880) (166,097,054)
-------------- --------------
Total stockholders' equity 33,656,139 8,840,644
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 48,505,634 $ 46,027,598
============== ==============
See notes to condensed consolidated financial statements.
3
CEL-SCI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
December 31,
2009 2008
---------- ----------
REVENUE:
Rent income $ 30,000 $ -
-------------- --------------
Total revenue 30,000 -
EXPENSES:
Research and development, excluding
depreciation of $99,583 and $64,523
included below 2,805,127 1,410,753
Depreciation and amortization 119,581 85,944
General and administrative 1,358,141 1,055,126
-------------- --------------
Total expenses 4,282,849 2,551,823
-------------- --------------
LOSS FROM OPERATIONS (4,252,849) (2,551,823)
GAIN ON DERIVATIVE INSTRUMENTS 23,340,267 391,689
INTEREST INCOME 110,219 71,237
INTEREST EXPENSE (38,120) (84,616)
-------------- --------------
NET INCOME (LOSS) BEFORE INCOME TAXES 19,159,517 (2,173,513)
INCOME TAX PROVISION - -
-------------- --------------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS $ 19,159,517 $ (2,173,513)
============== ==============
NET INCOME (LOSS) PER COMMON SHARE-BASIC $ 0.10 $ (0.02)
============== ==============
NET INCOME (LOSS) PER COMMON SHARE-DILUTED $ 0.02 $ (0.02)
============== ==============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING-BASIC 194,959,814 122,215,334
============== ==============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING-DILUTED 256,198,162 122,215,334
============== ==============
See notes to condensed consolidated financial statements.
4
CEL-SCI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
Three Months Ended
December 31,
2009 2008
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 19,159,517 $ (2,173,513)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 119,581 85,944
Issuance of common stock, warrants and stock
options for services 309,594 516,886
Common stock contributed to 401(k) plan 22,252 16,247
Employee option cost 305,001 155,272
Gain on derivative instruments (23,340,267) (391,689)
Amortization of discount on convertible debt - 43,649
Amortization of loan premium (3,282) -
Amortization of deferred rent 202,944 222,527
Loss on abandonment of patents 5,381 -
(Increase) decrease in prepaid expenses (73,572) 7,236
(Increase) in inventory for R&D and manufacturing (155,507) (57,603)
(Increase) decrease in deposits (26) 5,433
(Decrease) increase in accounts payable (145,202) 272,689
(Decrease) increase in accrued expenses (3,160) 176,407
(Decrease) increase in amount due to employees (26,373) 28,270
Decrease in accrued interest on convertible debt - (5,404)
Increase in deferred rent liability 21 6,163
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (3,623,098) (1,091,486)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash 47,257 862,368
Increase in deferred rent asset (55,685) (573,539)
Sale of investments available-for-sale securities - 200,000
Purchase of equipment (51,491) (115,963)
Patent costs (1,070) (8,613)
-------------- --------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (60,989) 364,253
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options
and warrants 6,157,450 -
Licensing proceeds (Note D) - 499,982
Repayment of convertible notes - (270,000)
Proceeds from short term loan-related party - 100,000
Repayment of short term loan - (200,000)
Financing costs - (15,060)
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,157,450 114,922
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,473,363 (612,311)
CASH AND CASH EQUIVALENTS:
Beginning of period 33,567,516 711,258
-------------- --------------
End of period $ 36,040,879 $ 98,947
============== ==============
(continued)
See notes to condensed consolidated financial statements.
5
CEL-SCI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
(continued)
Three Months Ended
December 31,
2009 2008
---------- ----------
SUPPLEMENTAL INFORMATION ON NONCASH TRANSACTIONS:
Equipment costs included in accounts payable:
Increase in accounts payable $ (42,485) $ (13,967)
Increase in research and office equipment 42,485 13,967
-------------- --------------
$ - $ -
============== ==============
Payment of convertible debt principal with
common stock:
Decrease in convertible debt $ - $ 95,000
Increase in common stock - (4,056)
Increase in additional paid-in capital - (90,944)
-------------- --------------
$ - $ -
============== ==============
Conversion of interest on convertible
debt into common stock:
Decrease in accrued interest on
convertible debt $ - $ 40,154
Increase in common stock - (1,706)
Increase in additional paid-in capital - (38,448)
-------------- --------------
$ - $ -
============== ==============
Exercise of derivative liability warrants:
Decrease in derivative liabilities $ 5,048,024 $ -
Increase in additional paid-in capital (5,048,024) -
-------------- --------------
$ - $ -
============== ==============
Conversion of warrants from additional paid
in capital to derivative liabilities:
Increase in derivative liabilities (6,186,343) -
Increase in accumulated deficit 6,186,343 -
-------------- --------------
$ - $ -
============== ==============
NOTE:
Cash expenditures for interest expense $ 38,120 $ 45,058
============== ==============
See notes to condensed consolidated financial statements.
6
CEL-SCI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008
(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 country-regionplaceUnited 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 condensed consolidated financial statements should be
read in conjunction with the condensed consolidated financial statements
and notes included in the Company's annual report on Form 10-K for the year
ended September 30, 2009.
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, 2009 and the
results of operations for the three-month period then ended. The condensed
consolidated balance sheet as of September 30, 2009 is derived from the
September 30, 2009 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 periods ended December 31, 2009 and 2008
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 does not extend the
life of the asset is expensed when incurred. Depreciation expense for the
three-month periods ended December 31, 2009 and 2008 was $99,870 and
$64,672, respectively.
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 and its carrying value. During the three-month periods ended
December 31, 2009 and 2008, the Company recorded patent impairment charges
of $5,381 and $-0-, respectively. For the three-month periods ended
December 31, 2009 and 2008, amortization of patent costs totaled $19,711
and $21,272, respectively. The Company estimates that amortization expense
will be $85,000 for each of the next five years, totaling $425,000.
7
Research and Development Costs - Research and development expenditures are
expensed as incurred. Total research and development costs, excluding
depreciation, were $2,805,127 and $1,410,753, respectively, for the three
months ended December 31, 2009 and 2008.
Income Taxes - The Company has net operating loss carryforwards of
approximately $108 million. 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 those 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.
Derivative Instruments - The Company has entered into financing
arrangements that consist of freestanding derivative instruments or are
hybrid instruments that contain embedded derivative features. The Company
has also issued warrants to various parties in connection with work done by
these parties. The Company accounts for these arrangements in accordance
with Codification 815-10-50, "Accounting for Derivative Instruments and
Hedging Activities". The Company also accounts for warrants in accordance
with Codification 815-40-15, "Determining Whether an Instrument (or
Embedded Feature) is Indexed to an Entity's Own Stock". In accordance with
accounting principles generally accepted in the United States ("GAAP"),
derivative instruments and hybrid instruments are recognized as either
assets or liabilities in the balance sheet and are measured at fair value
with gains or losses recognized in earnings or other comprehensive income
depending on the nature of the derivative or hybrid instruments. The
Company determines the fair value of derivative instruments and hybrid
instruments based on available market data using appropriate valuation
models, giving consideration to all of the rights and obligations of each
instrument. The derivative liabilities are remeasured at fair value at the
end of each interim period as long as they are outstanding.
Deferred rent (asset) - The deferred rent is discussed at Note J.
Long-term interest receivable on the deposit on the manufacturing facility
has been combined with the deferred rent (asset) for both periods for
comparability.
8
Stock-Based Compensation - The Company follows Codification 718-10-30-3,
"Share-Based Payment". This Codification applies to all transactions
involving issuance of equity by a company in exchange for goods and
services, including to employees. Compensation expense has been recognized
for awards that were granted, modified, repurchased or cancelled on or
after dateMonth10Day1Year2005October 1, 2005 as well as for the portion of
awards previously granted that vested during the period ended December 31,
2009. For the three months ended December 31, 2009 and 2008, the Company
recorded $305,001 and $155,272, respectively, in general and
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 110,000 and -0- options granted to employees
during the three-month periods ended December 31, 2009 and 2008,
respectively. 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.
The Company has Incentive Stock Option Plans, Non-Qualified Stock Option
Plans, a Stock Compensation Plan and Stock Bonus Plans. All Plans have
been approved by the stockholders. A summary description of the Stock
Option Plans follows. For further discussion of the Stock Compensation
Plan and Stock Bonus Plans, see Form 10-K for the year ended September 30,
2009. In some cases these Plans are collectively referred to as the
"Plans".
Incentive Stock Option Plans. 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 option holder'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;
9
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
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
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 Company's Board of Directors.
During the three months ended December 31, 2009, 32,625 options were
exercised. All options exercised were from the non-qualified plans. The
total intrinsic value of options exercised during the three months ended
December 31, 2009 was $6,806. There were no options exercised during the
three months ended December 31, 2008.
Options to non-employees are accounted for in accordance with Codification
505-50-05-5, "Equity Based Payments to Non-Employees". 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 three months ended December 31, 2009. There were
104,192 shares of common stock issued to consultants during the three
months ended December 31, 2009 at a cost for the three months of $134,999.
Additionally, a portion of the cost of common stock issued in previous
quarters was expensed. The cost for the three months ended December 31,
2009 was $174,595. There were no options granted to non-employees during
the three months ended December 31, 2008. There were 1,003,881 shares of
common stock issued to consultants during the three months ended December
31, 2008 at a cost for the three months ended December 31, 2008 of
$207,299. In addition, a portion of the cost of common stock issued in
previous quarters was expensed. This cost for the three months ended
December 31, 2008 was $309,587.
10
B. NEW ACCOUNTING PRONOUNCEMENTS
In March 2008, the FASB issued Codification 815-20-50-1, "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 has adopted this statement and the effect is immaterial.
In June 2008, the FASB finalized Codification 815-40-15, "Determining
Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own
Stock". The topic lays out a procedure to determine if the debt instrument
is indexed to its own common stock. The topic is effective for fiscal
years beginning after December 15, 2008. The Company has adopted this
topic and the effect was material. (See Note D).
In September 2008, the FASB staff issued Codification 815-10-50-1A,
"Disclosures about Credit Derivatives and Certain Guarantees: An Amendment
of FASB Statement No. 133 and FASB Interpretation No. 45; and
Clarification of the Effective Date of FASB Statement No. 161". This
applies to credit derivatives within the scope of Statement 133 and hybrid
instruments that have embedded credit derivatives. It deals with
disclosures related to these derivatives and is effective for reporting
periods ending after November 15, 2008. It also clarifies the effective
date of SFAS No. 161 as any reporting period beginning after November 15,
2008. The Company has adopted this statement and the effect was
immaterial.
In January 2010, the FASB amended Codification 820-10, "Improving
Disclosures about Fair Value Measurement", effective for interim periods
beginning after December 15, 2009. This amendment changes disclosures
required for interim and annual periods about fair value measurements. The
Company is evaluating the disclosure requirements, but does not expect
that there will be a significant impact from the adoption of the
amendment.
C. AVAILABLE-FOR-SALE SECURITIES
At September 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 were 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.
The Company carried the ARPs at par value until they were repaid in
November 2008. The loan that the Company had taken against these ARPs was
repaid at the same time.
11
D. STOCKHOLDERS' EQUITY
In November 2008, the Company extended its licensing agreement for
Multikine with Orient Europharma. The new agreement extends the Multikine
collaboration to also cover South Korea, the Philippines, Australia and
New Zealand. The licensing agreement initially focuses on the areas of
head and neck cancer, nasopharyngeal cancer and potentially cervical
cancer. The agreement expires 15 years after the commencement date which
is defined as the date of the first commercial sale of Multikine in any
country within their territory. As a result of the agreement, Orient
Europharma purchased 1,282,051 shares of common stock at a cost of $0.39
per share, for a total to the Company, after expenses, of $499,982.
During the three months ended December 31, 2008, 1,003,881 shares of
common stock were issued in payment of invoices totaling $207,299. Common
stock was also issued to pay interest and principal on the Series K
convertible debt. (See Note E.)
On December 30, 2008, the Company entered into an Equity Line of Credit
agreement as a source of funding for the Company. For a two-year period,
the agreement allows the Company, at its discretion, to sell up to $5
million of the Company's common stock at the volume weighted average price
of the day minus 9%. The Company may request a drawdown once every ten
trading days, although the Company is under no obligation to request any
drawdowns under the equity line of credit. The equity line of credit
expires on January 6, 2011. There were no drawdowns during the three
months ended December 31, 2009 or 2008.
During the three months ended December 31, 2009, the Company issued
104,192 shares of stock to consultants. The prices ranged from $1.25 to
$1.60. The total cost of the shares issued was $134,999 and is included in
research and development costs.
During the three months ended December 31, 2009, there were 11,434,253
warrants and options exercised for 11,434,253 shares of common stock at
prices ranging from $0.25 to $1.05. The Company received a total of
$6,157,450 from the exercise of warrants and options during the quarter
ended December 31, 2009.
Included in the warrants and options exercised during the quarter were
1,015,454 Series K warrants (See Note E), on which the Company recognized
a gain on conversion of $428,769 and 8,375,000 Series A warrants, on which
the Company recognized a total gain of $8,291,250. Both the Series K
warrants and the Series A warrants were accounted for as derivative
liabilities. Series A warrants were issued in connection with the June
2009 financing. When the warrants were exercised, the value of these
warrants was converted from derivative liabilities to equity. Series K
warrants transferred to equity totaled $944,274 and Series A warrants
transferred to equity totaled $4,103,750. The remaining Series A through E
warrants were valued at $8,021,451 at December 31, 2009, a gain on
derivative instruments during the quarter of $9,324,921.
12
On October 1, 2009, the Company reviewed all outstanding warrants in
accordance with the requirements of Codification 815-40, "Determining
Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own
Stock". This topic provides that an entity should use a two-step approach
to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including evaluating the instrument's
contingent exercise and settlement provisions. The warrant agreement
provides for adjustments to the purchase price for certain dilutive events,
which includes an adjustment to the conversion ratio in the event that the
Company makes certain equity offerings in the future at a price lower than
the conversion prices of the warrant instruments. Under the provisions of
Codification 815-40, the warrants are not considered indexed to the
Company's stock because future equity offerings or sales of the Company's
stock are not an input to the fair value of a "fixed-for-fixed" option on
equity shares, and equity classification is therefore precluded.
Accordingly, effective October 1, 2009, 3,890,782 warrants issued in August
2008 were determined to be subject to the requirements of this topic and
were valued using the Black-Scholes formula as of October 1, 2009 at
$6,186,343. Effective October 1, 2009, the warrants are recognized as a
liability in the Company's condensed consolidated balance sheet at fair
value with a corresponding adjustment to accumulated deficit and will be
marked-to-market each reporting period. The warrants were revalued on
December 31, 2009 at $2,879,179, which resulted in a gain on derivatives
and a reduction in derivative liabilities of $3,307,164 due to the decline
in the Company's stock price since October 1, 2009. The assumptions used in
the fair value calculation for the warrants as of October 1, 2009 and
December 31, 2009 are as follows:
October 1, December 31,
2009 2009
----------- ------------
Expected stock price volatility 95% 95%
Risk-free interest rate 2.151% 2.508%
Expected life of warrant 4.88 years 4.63 years
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
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 Company accounted for the Series K Warrants as derivative liabilities
in accordance with Codification 815-10. A debt discount of $1,734,472 was
amortized to interest expense using the effective interest method over the
expected term of the Series K Notes. During the three-month periods ended
13
December 31, 2009 and 2008, the Company recorded interest expense of $-0-
and $43,649, respectively, in amortization of the debt discount. During
the fiscal year ended September 30, 2009, the balance of the debt was
either repaid or converted into shares of common stock. The Company
recorded a gain on derivative instruments of $391,689 during the three
months ended December 31, 2008.
During the three months ended December 31, 2008, principal payments of
$270,000 were made in cash to the holders of the Series K Notes. In
addition, 405,634 shares of common stock were issued in December for the
principal payment due on January 4, 2009 of $95,000. The Company also paid
the interest expense through December 31, 2008 with 170,577 shares of
common stock.
During the three months ended December 31, 2009, the Company recorded a
gain on remaining Series K warrants of $1,988,163. In addition, a gain of
$428,769 on the exercise of 1,015,454 Series K warrants was recorded as of
December 31, 2009.
The following summary comprises the total of the fair value of the
convertible debt and related derivative instruments at December 31, 2009
and September 30, 2009:
December 31, September 30,
2009 2009
---- ----
Investor warrants $ 414,110 $1,734,472
Fair value adjustment-investor
warrants 1,597,282 3,638,126
----------- -----------
Total fair value $2,011,392 $5,372,598
=========== ===========
F. FAIR VALUE MEASUREMENTS
Effective October 1, 2008, the Company adopted the provisions of
Codification 820-10, "Fair Value Measurements", which defines fair value,
establishes a framework for measuring fair value and expands disclosures
about such measurements that are permitted or required under other
accounting pronouncements. While Codification 820-10 may change the method
of calculating fair value, it does not require any new fair value
measurements. The new effective date is for fiscal years beginning after
November 15, 2008 and the interim periods within the fiscal year. The
adoption of Codification 820-10 did not have a material impact on the
Company's results of operations, financial position or cash flows.
In accordance with Codification 820-10, the Company determines fair value
as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. The Company generally applies the income approach to
determine fair value. This method uses valuation techniques to convert
future amounts to a single present amount. The measurement is based on the
value indicated by current market expectations with respect to those
future amounts.
14
Codification 820-10 establishes a fair value hierarchy that prioritizes
the inputs used to measure fair value. The hierarchy gives the highest
priority to active markets for identical assets and liabilities (Level 1
measurement) and the lowest priority to unobservable inputs (Level 3
measurement). The Company classifies fair value balances based on the
observability of those inputs. The three levels of the fair value
hierarchy are as follows:
o Level 1 - Observable inputs such as quoted prices in active markets
for identical assets or liabilities
o Level 2 - Inputs other than quoted prices that are observable for the
asset or liability, either directly or indirectly. These include
quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in
markets that are not active and amounts derived from valuation models
where all significant inputs are observable in active markets
o Level 3 - Unobservable inputs that reflect management's assumptions
For disclosure purposes, assets and liabilities are classified in their
entirety in the fair value hierarchy level based on the lowest level of
input that is significant to the overall fair value measurement. The
Company's assessment of the significance of a particular input to the fair
value measurement requires judgment and may affect the placement within
the fair value hierarchy levels.
The table below sets forth the assets and liabilities measured at fair
value on a recurring basis, by input level, in the condensed consolidated
balance sheet at December 31, 2009:
Quoted Prices in Significant
Active Markets for Other Significant
Identical Assets or Observable Unobservable
Liabilities (Level 1) Inputs (Level 2) Inputs (Level 3) Total
--------------------- ---------------- ---------------- -------
Derivative instruments $ - $12,912,022 $ - $12,912,022
============= =========== =========== ===========
The fair values of the Company's derivative instruments disclosed above
are primarily derived from valuation models where significant inputs such
as historical price and volatility of the Company's stock as well as U.S.
Treasury Bill rates are observable in active markets.
G. DERIVATIVE LIABILITIES
The Company has several groups of warrants that require classification in
the balance sheet as derivative liabilities. These derivative liabilities
have been discussed above. Below is a summary of the derivative
liabilities at December 31, 2009 and September 30, 2009:
15
December 31, 2009 September 30, 2009
----------------- ------------------
Series K warrants (Note E) $ 2,011,392 $ 5,372,598
2009 financings warrants (Note D) 8,021,451 29,741,372
2008 warrants reclassified from
equity to derivative liabilities
on October 1, 2009 (Note D) 2,879,179 -
----------- -----------
Total derivative liabilities $12,912,022 $35,113,970
=========== ===========
H. SHORT-TERM LOANS
The Company had a line of credit with its bank to borrow up to 100% of the
ARPs (See Note C) at an interest rate of prime minus 1%. As of September
30, 2008, the Company had borrowed $200,000, which was repaid in November
2008. During the three months ended December 31, 2008, the Company had
paid $813 in interest on the line of credit.
Between December 2008 and June 2009, Maximilian de Clara, the Company's
President and a director, loaned the Company $1,104,057. The loan was
initially payable at the end of March 2009, but was extended to the end of
June 2009. At the time the loan was due, and in accordance with the loan
agreement, the Company issued Mr. de Clara warrants which entitle Mr. de
Clara to purchase 1,648,244 shares of the Company's common stock at a
price of $0.40 per share. The warrants are exercisable at any time prior
to December 24, 2014. Pursuant to Codification paragraph 470-50-40-17, the
fair value of the warrants issuable under the first amendment was recorded
as a discount on the note payable with a credit recorded to additional
paid-in capital. The discount was amortized from April 30, 2009, through
June 27, 2009. Although the loan was to be repaid from the proceeds of the
Company's recent financing, the Company's Directors deemed it beneficial
not to repay the loan and negotiated a second extension of the loan with
Mr. de Clara on terms similar to the June 2009 financing. Pursuant to the
terms of the second extension the note is now due on July 6, 2014, but, at
Mr. de Clara's option, the loan can be converted into shares of the
Company's common stock. The number of shares which will be issued upon any
conversion will be determined by dividing the amount to be converted by
$0.40. As further consideration for the second extension, Mr. de Clara
received warrants which allow Mr. de Clara to purchase 1,849,295 shares of
the Company's common stock at a price of $0.50 per share at any time prior
to January 6, 2015. The loan from Mr. de Clara bears interest at 15% per
year and was secured by a second lien on substantially all of the
Company's assets. The Company does not have the right to prepay the loan
without Mr. de Clara's consent.
16
In accordance with Codification 470-50, the second amendment to the loan
was accounted for as an extinguishment of the first amendment debt. The
extinguishment of the loan required that the new loan be recorded at fair
value and a gain or loss must be recognized, including the warrants issued
in connection with the second amendment. This resulted in a premium of
$341,454, which was amortized over the period from July 6, 2009, the date
of the second amendment, to October 1, 2009, the date at which the loan
holder may demand payment of the loan. During the three months ended
December 31, 2009, the Company amortized the remaining $3,282 in premium
on the loan. As of December 31, 2009, the fair value and the face value of
the loan was $1,104,057.
I. OPERATIONS, FINANCING
The Company has incurred significant costs since its inception in
connection with the acquisition 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. 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 Federal
Drug Administration (FDA) approval for the sale of products to be
developed on a commercial basis is uncertain. Ultimately, the Company must
complete the development of its products, obtain the appropriate
regulatory approvals and obtain sufficient revenues to support its cost
structure. The Company believes that it has sufficient funds to support
its operations for more than the next twelve months.
The Company has two partners who have agreed to participate in and pay for
part of the Phase III clinical trial for Multikine. Since the Company was
able to raise substantial capital during 2009, the Company is currently
preparing the Phase III trial for Multikine. The net cost of the clinical
trial is estimated to be $20 million.
J. 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, was 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,
17
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, subject to the Company maintaining
compliance with the lease covenants. On January 24, 2008, a second
amendment to the lease for the manufacturing facility was signed. In
accordance with the amendment, the Company was 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 the 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. The Company took possession of the manufacturing facility in
October of 2008. An additional $505,225 was paid for the completion of the
work on the manufacturing facility in October 2008. During the three
months ended December 31, 2009, an additional $32,059 was paid for final
completion costs.
In December 2008, the Company was not in compliance with certain lease
requirements (i.e., failure to pay an installment of Base Annual Rent).
However, the landlord did not declare the Company formally in default
under the terms of the lease and has renegotiated the lease. In January
2009, as part of an amended lease agreement on the manufacturing facility,
the Company repriced the 3,000,000 warrants issued to the lessor in July
2007 at $1.25 per share and which were to expire on July 12, 2013. These
warrants are now repriced at $0.75 per share and expire on January 26,
2014. The cost of this repricing and extension of the warrants was $70,515
and was accounted for as a debit to the deferred rent asset and a credit
to additional paid-in capital. In addition, 787,500 additional warrants
were given to the lessor of the manufacturing facility on the same date.
These warrants are exercisable at $0.75 per share and will expire on
January 26, 2014. The cost of these warrants was $45,207 and was accounted
for as a debit to the deferred rent asset and a credit to additional
paid-in capital. All back rent was paid to the landlord in early July
2009. During the three months ended June 30, 2009, the Company issued the
landlord an additional 2,296,875 warrants in accordance with an amendment
to the agreement. These warrants were valued at $251,172 using the Black
Scholes method. The Company is in compliance with the lease and expects to
receive a refund of the $1,575,000 deposited with the landlord in July
2008 before the end of the current fiscal year.
On January 28, 2009, the Company subleased a portion of the manufacturing
facility. The sublease commenced on February 2, 2009 and expires on
January 31, 2011. The Company receives $10,000 per month in rent for the
subleased space.
The Company began amortizing the deferred rent on the building on October
7, 2008, the day that the Company took possession of the building. The
amortization on the deferred rent for the three months ended December 31,
2009 was $202,944 and for the three months ended December 31, 2008 was
$222,527.
18
K. EARNINGS PER SHARE
The Company's diluted earnings per share (EPS) are as follows for
December 31, 2009. The December 31, 2008 diluted earnings per share was
the same as the basic earnings per share.
December 31, 2009
-----------------------------------------
Weighted
Net Income average Shares EPS
---------- -------------- ---
Basic Earnings per Share $19,159,517 194,959,814 $0.10
Note conversion 41,402 2,760,142
Warrants and options convertible
into share of common stock (14,620,248) 58,478,206
----------- -----------
Dilutive EPS $ 4,580,671 256,198,162 $ 0.02
=========== =========== =====
L. SUBSEQUENT EVENTS
The Company has reviewed its activities through February 12, 2010. There
are no subsequent events that require disclosure.
19
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.
The Company will be required to raise additional capital or find additional
long-term financing in order to continue with its research efforts. The ability
of the Company to complete the necessary clinical trials and obtain Federal Drug
Administration (FDA) approval for the sale of products to be developed on a
commercial basis is uncertain. Ultimately, the Company must complete the
development of its products, obtain the appropriate regulatory approvals and
obtain sufficient revenues to support its cost structure. The Company believes
that it has sufficient funds to support its operations for more than the next
twelve months.
The Company has two partners who have agreed to participate in and pay for part
of the Phase III clinical trial for Multikine. The Company also raised
significant funds through stock sales and the exercise of warrants and options
during 2009. In addition, the Company has a $5 million Equity Line of Credit in
place (See Note D). Since the Company was able to raise substantial capital
during 2009, the Company is currently preparing the Phase III trial for
Multikine. The net cost of the clinical trial is estimated to be $20 million.
During the three-month period ended December 31, 2009, the Company's cash
increased by $2,473,363 compared to a decrease in cash of $612,311 during the
three months ended December 31, 2008. For the three months ended December 31,
2009 and 2008, cash used in operating activities totaled $3,646,724 and
$1,159,800. For the three months ended December 31, 2009 and 2008, cash provided
by financing activities totaled $6,157,450 and $114,922, respectively. The
repayment of the Series K convertible notes ($270,000), financing costs
($15,060) and the repayment of the short-term loan ($200,000) was used in
financing activities during the three months ended December 31, 2008. For the
three months ended December 31, 2009, cash provided by financing was from the
exercise of warrants and options ($6,157,450). Cash (used in) provided by
investing activities was $(37,363) and $432,567, respectively, for the three
months ended December 31, 2009 and 2008, respectively. The use of cash in
investing activities consisted of purchases of equipment and legal costs
incurred in patent applications and, for the three months ended December 31,
2008, the sale of the final $200,000 in ARPs.
20
In August 2007, the Company leased a building near Baltimore, Maryland. The
building, which consists of approximately 73,000 square feet, was 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 for lab equipment. In
addition, in April 2008, an additional $288,474 was paid for the completion of
the facility. The Company took possession of the manufacturing facility in
October, 2008. The Company paid an additional $32,059 in expenses to complete
the manufacturing facility during the three months ended December 31, 2009.
In December 2008, the Company was not in compliance with certain lease
requirements (i.e., failure to pay an installment of Base Annual Rent). However,
the landlord did not declare the Company formally in default under the terms of
the lease and renegotiated the lease. In January 2009, as part of an amended
lease agreement on the manufacturing facility, the Company repriced the
3,000,000 warrants issued to the landlord in July 2007 at $1.25 per share and
which were to expire on July 12, 2013. These warrants are now repriced at $0.75
per share and expire on January 26, 2014. The cost of this repricing and
extension of the warrants is $70,515 and was accounted for as a debit to the
deferred rent asset and a credit to additional paid-in capital. In addition,
787,500 additional warrants were given to the landlord on the same date. The
warrants are exercisable at a price of $0.75 per share and will expire on
January 26, 2014. The cost of these warrants was $45,207 and was accounted for
as a debit to the deferred rent asset and a credit to additional paid-in
capital. During the three months ended June 30, 2009, the Company issued the
landlord an additional 2,296,875 warrants in accordance with an amendment to the
agreement. These warrants were valued at $251,172 using the Black Scholes
method. The Company is in compliance with the lease and expects to receive a
refund of the $1,575,000 deposited with the landlord in July 2008 before the end
of the current fiscal year.
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.
On January 28, 2009, the Company subleased a portion of the manufacturing
facility. The lease commenced on February 2, 2009 and expires on January 31,
2011. The Company receives $10,000 per month in rent for the subleased space.
21
It should be noted that substantial funds will be needed for the clinical trial
which will be necessary before the Company will be able to apply to the FDA for
approval to sell any products which may be developed on a commercial basis
throughout the United States. Ultimately, the Company must complete the
development of its products, obtain appropriate regulatory approvals and obtain
sufficient revenues to support its cost structure. The Company estimates that
the Phase III clinical trial will cost $20 million.
The Company had invested in ARPs (See Note C). Because of liquidity issues with
these ARPs, the Company borrowed $200,000 on a line of credit which was repaid
in November of 2008.
Results of Operations and Financial Condition
During the three-month period ended December 31, 2009, research and development
expenses increased by $1,394,374 compared to the three-month period ended
December 31, 2008. This increase was due to continuing expenses relating to the
preparation for the Phase III clinical trial.
During the three-month period ended December 31, 2009, general and
administrative expenses increased by $303,015 compared to the three-month period
ended December 31, 2008. This increase was caused by higher costs for employee
options.
Interest income during the three months ended December 31, 2009 increased by
$38,982 compared to the three-month period ended December 31, 2008. The increase
was due to the increase in the funds available for investment.
The gain on derivative instruments of $23,340,267 for the three months ended
December 31, 2009, was the result of the change in fair value of the Series A
through E Warrants 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 $38,120 for the three months ended December 31, 2009 was
interest expense on the loan from the Company's president of $41,402, offset by
the amortization of the remaining premium on the loan of ($3,282). The interest
expense of $84,616 for the three months ended December 31, 2008 was composed of
three elements: 1) amortization of the Series K discount ($43,649), 2) interest
paid and accrued on the Series K debt ($40,154) and 3) margin interest ($813).
Research and Development Expenses
During the three-month periods ended December 31, 2009 and 2008, 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 three-month periods.
Three Months Ended December 31,
2009 2008
----- ----
MULTIKINE $2,296,333 $1,355,705
L.E.A.P.S 508,794 55,048
---------- ----------
TOTAL $2,805,127 $1,410,753
========== ==========
22
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. The Company is preparing for the start
of its Phase III clinical trial in the United States.
As of December 31, 2009, 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.
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. 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 operating leases, asset retirement obligations, and stock-based compensation.
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 2009 10-K report. The application of these critical accounting
policies and estimates have been discussed with the Audit Committee of the
Company's Board of Directors.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company has a loan from the president that bears interest at 15%. The
Company does not believe that it has any significant exposures to market risk.
23
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the direction and with the participation of the Company's management,
including the Company's Chief Executive and Chief Financial Officer, the Company
has conducted an evaluation of the effectiveness of the design and operation of
its disclosure controls and procedures as of December 31, 2009. The Company
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in its periodic reports with the Securities
and Exchange Commission is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and regulations, and that such
information is accumulated and communicated to the Company's management,
including its principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure. The
Company's disclosure controls and procedures are designed to provide a
reasonable level of assurance of reaching its desired disclosure control
objectives. Based on the evaluation, the Chief Executive and Chief Financial
Officer has concluded that the Company's disclosure controls and procedures were
effective as of December 31, 2009.
Changes in Internal Control over Financial Reporting
The Company's management, with the participation of the Chief Executive and
Chief Financial Officer, has evaluated whether any change in the Company's
internal control over financial reporting occurred during the first quarter of
fiscal year 2010. There was no change in the Company's internal control over
financial reporting during the quarter ended December 31, 2009.
24
PART II
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: February 12, 2010 /s/ Geert Kersten
--------------------------------------
Geert Kersten, Chief Executive Officer*
* Also signing in the capacity of the Chief Accounting Officer and Principal
Financial Officer.
26
