NOTES TO FINANCIAL STATEMENTS
1.
ORGANIZATION
CEL-SCI
Corporation (the Company) was incorporated on March 22, 1983, in
the state of Colorado, to finance research and development in
biomedical science and ultimately to engage in marketing and
selling products.
The
Company is focused on finding the best way to activate the immune
system to fight cancer and infectious diseases. Its lead
investigational therapy, Multikine® (Leukocyte Interleukin,
Injection), is currently in a pivotal Phase 3 clinical trial
involving head and neck cancer, for which the Company has received
Orphan Drug Status from the United States Food and Drug
Administration (FDA). If the primary endpoint of this global study
is achieved, the results will be used to support applications to
regulatory agencies around the world for worldwide commercial
marketing approvals as a first line cancer therapy.
The
Company’s immune therapy, Multikine, is being used in a
different way than immune therapy is usually used. It is given
before any other therapy has been administered because that is when
the immune system is thought to be strongest.
It is also administered locally to
treat tumors or infections
.
For
example,
i
n the Phase 3
clinical trial, Multikine is given locally at the site of the tumor
as a first line treatment before surgery, radiation and/or
chemotherapy. The goal is to help the intact immune system kill the
micro metastases that usually cause recurrence of the cancer. In
short, CEL-SCI believes that local administration and
administration before weakening of the immune system by
chemotherapy and radiation will result in higher efficacy with less
or no toxicity.
Multikine
(Leukocyte Interleukin, Injection) is the full name of this
investigational therapy, which, for simplicity, is referred to in
the remainder of this document as Multikine. Multikine is the
trademark that the Company has registered for this investigational
therapy, and this proprietary name is subject to FDA review in
connection with the Company’s future anticipated regulatory
submission for approval. Multikine has not been licensed or
approved by the FDA or any other regulatory agency. Neither has its
safety or efficacy been established for any use. Further research
is required, and early-phase clinical trial results must be
confirmed in the Phase 3 clinical trial of this investigational
therapy that is in progress.
Multikine has been
cleared by the regulators in twenty four countries around the
world, including the U.S. FDA, for a global Phase 3 clinical trial
in advanced primary (not yet treated) head and neck cancer
patients. On September 26, 2016, the Company received verbal notice
from the FDA that the Phase 3 clinical trial has been placed on
clinical hold.
On August 10, 2017, the
Company received a letter from the FDA stating that the clinical
hold that had been imposed on the Phase 3 cancer study with
Multikine has been removed and that all clinical trial activities
for the Phase 3 study may resume.
On December 7, 2017, the Company announced that
the Independent Data Monitoring Committee (IDMC) has completed its
review of the Phase 3 study data. The data from all 928 enrolled
patients were provided to the IDMC by the Clinical Research
Organization (CRO) responsible for data management of this Phase 3
study. The IDMC made the following observation and recommendation:
a) the IDMC saw no evidence of any significant safety questions and
b) the IDMC recommends continuing the study. On December 11, 2017,
the Company announced that the Phase 3 study was fully enrolled.
The activities in the Phase 3 study are now focused on the
follow-up of the patients enrolled to determine if there is a
survival benefit in favor of Multikine.
2.
OPERATIONS AND 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 from loans and the public and private sale of
its securities. 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. As a
result, the Company has been dependent upon the proceeds from the
sale of its securities to meet all of its liquidity and capital
requirements and anticipates having to do so in the future. During
fiscal year 2017 and 2016, the Company raised net proceeds of
approximately $13.3 million and $21.4 million, respectively,
through the sale of stock and the issuance of convertible notes.
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. 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 is currently running a large multi-national Phase 3
clinical trial for head and neck cancer with its partners TEVA
Pharmaceuticals and Orient Europharma. To finance the study beyond
the next twelve months, the Company plans to raise additional
capital in the form of corporate partnerships, debt and/or equity
financings. The Company believes that it will be able to obtain
additional financing because it has done so consistently in the
past and because Multikine is a product in the Phase 3 clinical
trial stage. However, there can be no assurance that the Company
will be successful in raising additional funds on a timely basis or
that the funds will be available to the Company on acceptable terms
or at all. If the Company does not raise the necessary
amounts of money, it may have to curtail its operations until such
time as it is able to raise the required funding.
The
financial statements have been prepared assuming that the Company
will continue as a going concern, but due to the Company's negative
working capital, stockholders' deficit, recurring losses from
operations and future liquidity needs, there is substantial doubt
about the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Since
the Company launched its Phase 3 clinical trial for Multikine, the
Company has incurred expenses of approximately $45.9 million as of
September 30, 2017 on direct costs for the Phase 3 clinical trial.
The Company estimates it will incur additional expenses of
approximately $13.0 million for the remainder of the Phase 3
clinical trial. It should be noted that this estimate is
based only on the information currently available in the
Company’s contracts with the Clinical Research Organizations
responsible for managing the Phase 3 clinical trial and does not
include other related costs, e.g., the manufacturing of the
drug.
This number can be
affected by the speed of enrollment, foreign currency exchange
rates and many other factors, some of which cannot be
foreseen.
Nine
hundred twenty-eight (928) head and neck cancer patients have been
enrolled and have completed treatment in the Phase 3 study. The
study endpoint is a 10% increase in overall survival of patients
between the two main comparator groups in favor of the group
receiving the Multikine treatment regimen. The determination if the
study end point is met will occur when there are a total of 298
deaths in those two groups.
On June
12, 2017, the Company’s shareholders approved a reverse split
of the Company’s common stock which became effective on the
NYSE American on June 15, 2017. On that date, every twenty five
issued and outstanding shares of the Company’s common stock
automatically converted into one outstanding share. As a result of
the reverse stock split, the number of the Company’s
outstanding shares of common stock decreased from 230,127,331
(pre-split) shares to 9,201,645 (post-split) shares. In addition,
by reducing the number of the Company’s outstanding shares,
the Company’s loss per share in all prior periods increased
by a factor of twenty five. The reverse stock split affected all
stockholders of the Company’s common stock uniformly, and did
not affect any stockholder’s percentage of ownership
interest. The par value of the Company’s stock remained
unchanged at $0.01 per share and the number of authorized shares of
common stock remained the same after the reverse stock
split.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
– For
purposes of the statements of cash flows, cash and cash equivalents
consist principally of unrestricted cash on deposit and short-term
money market funds. The Company considers all highly liquid
investments with a maturity when purchased of less than three
months as cash and cash equivalents.
Prepaid Expenses
– Prepaid
expenses are payments for future services to be rendered and are
expensed over the time period for which the service is rendered.
Prepaid expenses may also include payment for goods to be received
within one year of the payment date.
Inventory
– Inventory consists of
manufacturing production advances and bulk purchases of laboratory
supplies to be consumed in the manufacturing of the Company’s
product for clinical studies. Inventories are stated at the lower
of cost or market, where cost is determined using the first-in,
first out method applied on a consistent basis.
Deposits
– The deposits are
required by the lease agreement for the manufacturing facility and
by the clinical research organization (CRO)
agreements.
Plant, property and equipment
–
The leased manufacturing facility is recorded at total project
costs incurred and is depreciated over the 20-year useful life of
the building. 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. The
plant, property and equipment are reviewed on a quarterly basis to
assess impairment, if any.
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 to 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, are 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.
Leases –
Leases are categorized
as either operating or capital leases at inception. Operating lease
costs are recognized on a straight-line basis over the term of the
lease. An asset and a corresponding liability for the capital lease
obligation are established for the cost of capital leases. The
capital lease obligation is amortized over the life of the lease.
For build-to-suit leases, the Company establishes an asset and
liability for the estimated construction costs incurred to the
extent that it is involved in the construction of structural
improvements or takes construction risk prior to the commencement
of the lease. Upon occupancy of facilities under build-to-suit
leases, the Company assesses whether these arrangements qualify for
sales recognition under the sale-leaseback accounting guidance. If
a lease does not meet the criteria to qualify for a sale-leaseback
transaction, the established asset and liability remain on the
Company's balance sheet. See Note 11.
Deferred Rent
– Certain of the
Company’s operating leases provide for minimum annual
payments that adjust over the life of the lease. The
aggregate minimum annual payments are expensed on a straight-line
basis over the minimum lease term. The Company recognizes a
deferred rent liability for rent escalations when the amount of
straight-line rent exceeds the lease payments, and reduces the
deferred rent liability when the lease payments exceed the
straight-line rent expense. For tenant improvement allowances
and rent holidays, the Company records a deferred rent liability
and amortizes the deferred rent over the lease term as a reduction
to rent expense.
Derivative Instruments
- The Company
has entered into financing arrangements that consist of
freestanding derivative instruments that contain embedded
derivative features, specifically, the settlement provisions in the
warrant agreements preclude the warrants from being treated as
equity. The Company accounts for these arrangements in accordance
with Accounting Standards Codification (ASC) 815, “Accounting
for Derivative Instruments and Hedging Activities”. In
accordance with accounting principles generally accepted in the
United States (U.S. GAAP), derivative instruments and hybrid
instruments are recognized as either assets or liabilities on 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 reporting period as
long as they are outstanding.
Grant Income
– The Company's
grant arrangements are handled on a reimbursement basis. Grant
income under the arrangements is recognized when costs are
incurred.
Research and Development Costs
–
Research and development expenditures are expensed as incurred.
Management accrues CRO expenses and clinical trial study expenses
based on services performed and relies on the CROs to provide
estimates of those costs applicable to the completion stage of a
study. Estimated accrued CRO costs are subject to revisions as such
studies progress to completion. The Company charges revisions to
estimated expense in the period in which the facts that give rise
to the revision become known.
Net Loss Per Common Share
– The
Company calculates net loss per common share in accordance with ASC
260 “Earnings Per Share” (ASC 260). Basic and diluted
net loss per common share was determined by dividing net loss
applicable to common shareholders by the weighted average number of
common shares outstanding during the period. The Company’s
potentially dilutive shares, which include outstanding common stock
options, restricted stock units, convertible preferred stock and
common stock warrants, have not been included in the computation of
diluted net loss per share for all periods as the result would be
anti-dilutive.
Concentration of Credit Risk
–
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist of cash and cash
equivalents. The Company maintains its cash and cash
equivalents with high quality financial institutions. At
times, these accounts may exceed federally insured limits.
The Company has not experienced any losses in such bank
accounts. The Company believes it is not exposed to
significant credit risk related to cash and cash equivalents. All
non-interest bearing cash balances were fully insured
up to
$250,000 at September 30, 2017.
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 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. A full
valuation allowance was recorded against the deferred tax assets as
of September 30, 2017 and 2016.
Use of Estimates
– The
preparation of financial statements in conformity U.S. GAAP
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and the
accompanying disclosures.
These
estimates are based on management’s best knowledge of current
events and actions the Company may undertake in the future.
Estimates are used in accounting for, among other items, inventory
obsolescence, accruals, stock options, useful lives for
depreciation and amortization of long-lived assets, deferred tax
assets and the related valuation allowance, and the valuation of
derivative liabilities.
Actual results could differ from
estimates, although management does not generally believe such
differences would materially affect the financial statements in any
given year. However, in regard to the valuation of derivative
liabilities determined using various valuation techniques including
the Black-Scholes and binomial pricing methodologies, significant
fluctuations may materially affect the financial statements in a
given year. The Company considers such valuations to be significant
estimates.
Fair Value Measurements
– The
Company evaluates financial assets and liabilities subject to fair
value measurements in accordance with a fair value hierarchy to
prioritize the inputs used to measure fair value. A financial
instrument’s level within the fair value hierarchy is based
on the lowest level of input significant to the fair value
measurement, where Level 1 is the highest and Level 3 is the
lowest. See Note 14 for the definition of levels and the
classification of assets and liabilities in those
levels.
Stock-Based Compensation
–
Compensation cost for all stock-based awards is measured at fair
value as of the grant date in accordance with the provisions of ASC
718, “Compensation – Stock Compensation.” The
fair value of stock options is calculated using the Black-Scholes
option pricing model. The Black-Scholes model requires various
judgmental assumptions including volatility and expected option
life. The stock-based compensation cost is recognized on the
straight line allocation method as expense over the requisite
service or vesting period.
Equity
instruments issued to non-employees are accounted for in accordance
with ASC 505-50, “Equity-Based Payments to
Non-Employees.” Accordingly, compensation is recognized when
goods or services are received and may be measured using the
Black-Scholes valuation model, based on the type of award. The
Black-Scholes model requires various judgmental assumptions
regarding the fair value of the equity instruments at the
measurement date and the expected life of the options.
The
Company has Incentive Stock Option Plans, Non-Qualified Stock
Options Plans, a Stock Compensation Plan, Stock Bonus Plans and an
Incentive Stock Bonus Plan. In some cases, these Plans are
collectively referred to as the “Plans.” All Plans have
been approved by the Company’s stockholders.
The
Company’s stock options are not transferable, and the actual
value of the stock options that an employee may realize, if any,
will depend on the excess of the market price on the date of
exercise over the exercise price. The Company has based its
assumption for stock price volatility on the variance of daily
closing prices of the Company’s stock. The risk-free interest
rate assumption was based on the U.S. Treasury rate at date of the
grant with term equal to the expected life of the option.
Historical data was used to estimate option exercise and employee
termination within the valuation model. The expected term of
options represents the period of time that options granted are
expected to be outstanding and has been determined based on an
analysis of historical exercise behavior. If any of the assumptions
used in the Black-Scholes model change significantly, stock-based
compensation expense for new awards may differ materially in the
future from that recorded in the current period.
Vesting
of restricted stock granted under the Incentive Stock Bonus Plan is
subject to service, performance or market conditions and meets the
classification of equity awards. These awards were measured at fair
market value on the grant-dates for issuances where the attainment
of performance criteria is probable and at fair value on the
grant-dates, using a Monte Carlo simulation for issuances where the
attainment of performance criteria is uncertain. The total
compensation cost will be expensed over the estimated requisite
service period.
Recent Accounting
Pronouncements
–
In May 2017, the FASB issued ASU
2017-09,
Compensation – Stock
Compensation (Topic 718)
, which
affects any entity that changes the terms or conditions of a
share-based payment award. This Update amends the definition
of modification by qualifying that modification accounting does not
apply to changes to outstanding share-based payment awards that do
not affect the total fair value, vesting requirements, or
equity/liability classification of the awards. The amendments
in this Update are effective for all entities for annual periods,
and interim periods within those annual periods, beginning after
December 15, 2017. Early adoption is permitted, including adoption
in any interim period, for (1) public business entities for
reporting periods for which financial statements have not yet been
issued and (2) all other entities for reporting periods for which
financial statements have not yet been made available for issuance.
The amendments in this Update should be applied prospectively to an
award modified on or after the adoption date. The Company is
currently evaluating the impact the adoption of the standard will
have on the Company’s financial position or results of
operations.
In July 2017, the FASB issued ASU
2017-11,
Earnings Per Share (Topic
260), Distinguishing Liabilities from Equity (Topic 480), and
Derivative and Hedging (Topic 815)
. The amendments in Part I of this Update change
the classification analysis of certain equity-linked financial
instruments (or embedded features) with down-round features. When
determining whether certain financial instruments should be
classified as liabilities or equity instruments, a down-round
feature no longer precludes equity classification when assessing
whether the instrument is indexed to an entity’s own stock.
The amendments also clarify existing disclosure requirements for
equity-classified instruments. As a result, a freestanding
equity-linked financial instrument (or embedded conversion option)
no longer would be accounted for as a derivative liability at fair
value as a result of the existence of a down-round feature. For
freestanding equity classified financial instruments, the
amendments require entities that present earnings per share
(“EPS”) in accordance with Topic 260 to recognize the
effect of the down-round feature when it is triggered. That effect
is treated as a dividend and as a reduction of income available to
common shareholders in basic EPS. Convertible instruments with
embedded conversion options that have down- round features are now
subject to the specialized guidance for contingent beneficial
conversion features (in Subtopic 470-20,
Debt—Debt with
Conversion and Other Options
),
including related EPS guidance (in Topic 260). The amendments in
Part II of this Update recharacterize the indefinite deferral of
certain provisions of Topic 480 that now are presented as pending
content in the Accounting Standards Codification, to a scope
exception. Those amendments do not have an accounting
effect.
For
public business entities, the amendments in Part I of this Update
are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. For all other
entities, the amendments in Part I of this Update are effective for
fiscal years beginning after December 15, 2019, and interim periods
within fiscal years beginning after December 15, 2020. Early
adoption is permitted for all entities, including adoption in an
interim period. If an entity early adopts the amendments in an
interim period, any adjustments should be reflected as of the
beginning of the fiscal year that includes that interim period. The
amendments in Part I of this Update should be applied either
retrospectively to outstanding financial instruments with a
down-round feature by means of a cumulative-effect adjustment to
the statement of financial position as of the beginning of the
first fiscal year and interim period(s) in which the pending
content that links to this paragraph is effective or
retrospectively to outstanding financial instruments with a
down-round feature for each prior reporting period presented in
accordance with the guidance on accounting changes in paragraphs
250-10-45-5 through 45-10. The amendments in Part II of this Update
do not require any transition guidance because those amendments do
not have an accounting effect. The Company is currently
evaluating the impact the adoption of the standard will have on the
Company’s financial position or results of
operations.
In August 2017, the
FASB issued ASU 2017-12,
Derivatives and Hedging (Topic
850)
, the objective of which is
to improve the financial reporting of hedging relationships to
better portray the economic results of an entity’s risk
management activities in its financial statements. In addition, the
amendments in this Update make certain targeted improvements to
simplify the application and disclosure of the hedge accounting
guidance in current general accepted accounting
principles. For public business entities, the amendments
in this Update are effective for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years.
For all other entities, the amendments are effective for fiscal
years beginning after December 15, 2019, and interim periods
beginning after December 15, 2020. Early adoption is permitted in
any period after issuance. For cash flow and net
investment hedges existing at the date of adoption, an entity
should apply a cumulative-effect adjustment related to eliminating
the separate measurement of ineffectiveness to accumulated
other comprehensive income with a corresponding adjustment to the
opening balance of retained earnings as of the beginning of the
fiscal year that an entity adopts the amendments in this Update.
The amended presentation and disclosure guidance is required only
prospectively. The Company is currently evaluating the
impact the adoption of the standard will have on the
Company’s financial position or results of
operations.
In February 2016, the FASB issued
ASU
2016-02,
Leases
, which will require most leases (with the
exception of leases with terms of less than one year) to be
recognized on the balance sheet as an asset and a lease liability.
Leases will be classified as an operating lease or a financing
lease. Operating leases are expensed using the straight-line method
whereas financing leases will be treated similarly to a capital
lease under the current standard. The new standard will be
effective for annual and interim periods, within those fiscal
years, beginning after December 15, 2018, but early adoption is
permitted. The new standard must be presented using the modified
retrospective method beginning with the earliest comparative period
presented. The Company is currently evaluating the effect of the
new standard on its financial statements and related
disclosures.
Although the Company has not completed its
evaluation of the impact of the adoption of ASU 2016-02, because
the Company’s most significant operating lease is currently
on its balance sheet (see Note 11), the adoption of ASU 2016-02 is
not expected to have a material impact to the financial
statements.
In March 2016, the FASB issued ASU No.
2016-09,
Compensation - Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting.
ASU 2016-09
simplifies several aspects of the accounting for share-based
payment award transactions, including income tax consequences,
classification of awards as either equity or liabilities and
classification on the statement of cash flows. The new standard
will be effective for annual and interim periods, within those
fiscal years, beginning after December 15, 2016 but early adoption
is permitted. The Company does not expect the adoption of this new
amendment to have a material impact on its financial statements and
related disclosures. The estimated forfeiture rate is based on
historical information, however, the Company will no longer
estimate the forfeiture rate on share based payments, but rather
recognize forfeitures as they occur.
The
Company has considered all other recently issued accounting
pronouncements and does not believe the adoption of such
pronouncements will have a material impact on its financial
statements.
4.
WARRANTS AND NON-EMPLOYEE OPTIONS
The
following chart represents the warrants and non-employee options
outstanding at September 30, 2017:
Warrant
|
Issue Date
|
Shares Issuable upon
Exercise of
Warrants
|
Exercise
Price
|
Expiration Date
|
Refer-ence
|
|
|
|
|
|
|
Series
U
|
4/17/2014
|
17,821
|
$43.75
|
10/17/2017
|
1
|
Series
DD
|
12/8/2016
|
1,360,960
|
$4.50
|
12/1/2017
|
1
|
Series
EE
|
12/8/2016
|
1,360,960
|
$4.50
|
12/1/2017
|
1
|
Series
N
|
8/18/2008
|
85,339
|
$3.00
|
8/18/2018
|
2
|
Series
S
|
10/11/13-
10/24/14
|
1,037,120
|
$31.25
|
10/11/2018
|
1
|
Series
V
|
5/28/2015
|
810,127
|
$19.75
|
5/28/2020
|
1
|
Series
W
|
10/28/2015
|
688,930
|
$16.75
|
10/28/2020
|
1
|
Series
X
|
1/13/2016
|
120,000
|
$9.25
|
1/13/2021
|
2
|
Series
Y
|
2/15/2016
|
26,000
|
$12.00
|
2/15/2021
|
2
|
Series
ZZ
|
5/23/2016
|
20,000
|
$13.75
|
5/18/2021
|
1
|
Series
BB
|
8/26/2016
|
16,000
|
$13.75
|
8/22/2021
|
1
|
Series
Z
|
5/23/2016
|
264,000
|
$13.75
|
11/23/2021
|
1
|
Series
FF
|
12/8/2016
|
68,048
|
$3.91
|
12/1/2021
|
1
|
Series
CC
|
12/8/2016
|
680,480
|
$5.00
|
12/8/2021
|
1
|
Series
HH
|
2/23/2017
|
20,000
|
$3.13
|
2/16/2022
|
1
|
Series
AA
|
8/26/2016
|
200,000
|
$13.75
|
2/22/2022
|
1
|
Series
JJ
|
3/14/2017
|
30,000
|
$3.13
|
3/8/2022
|
1
|
Series
LL
|
4/30/2017
|
26,398
|
$3.59
|
4/30/2022
|
1
|
Series
MM
|
6/22/2017
|
893,491
|
$1.86
|
6/22/2022
|
2
|
Series
NN
|
7/24/2017
|
539,300
|
$2.52
|
7/24/2022
|
2
|
Series
OO
|
7/31/2017
|
60,000
|
$2.52
|
7/31/2022
|
2
|
Series
QQ
|
8/22/2017
|
87,500
|
$2.50
|
8/22/2022
|
2
|
Series
GG
|
2/23/2017
|
400,000
|
$3.00
|
8/23/2022
|
1
|
Series
II
|
3/14/2017
|
600,000
|
$3.00
|
9/14/2022
|
1
|
Series
KK
|
5/3/2017
|
395,970
|
$3.04
|
11/3/2022
|
1
|
Series
PP
|
8/28/2017
|
1,750,000
|
$2.30
|
2/28/2023
|
2
|
Consultants
|
12/28/12-
7/28/17
|
42,000
|
$2.18-
$70.00
|
12/27/17- 7/27/27
|
3
|
The
following chart represents the warrants and non-employee options
outstanding at September 30, 2016:
Warrant
|
Issue
Date
|
Shares Issuable
upon Exercise of Warrants
|
Exercise
Price
|
Expiration
Date
|
Refer-ence
|
|
|
|
|
|
|
Series
N
|
8/18/08
|
113,785
|
$13.18
|
8/18/17
|
2
|
Series
R
|
12/6/12
|
105,000
|
$100.00
|
12/6/16
|
1
|
Series
U
|
4/17/14
|
17,821
|
$43.75
|
10/17/17
|
1
|
Series
S
|
10/11/13
-10/24/14
|
1,037,120
|
$31.25
|
10/11/18
|
1
|
Series
V
|
5/28/15
|
810,127
|
$19.75
|
5/28/20
|
1
|
Series
W
|
10/28/15
|
688,930
|
$16.75
|
10/28/20
|
1
|
Series
X
|
1/13/16
|
120,000
|
$9.25
|
1/13/21
|
2
|
Series
Y
|
2/15/16
|
26,000
|
$12.00
|
2/15/21
|
2
|
Series
ZZ
|
5/23/16
|
20,000
|
$13.75
|
5/18/21
|
1
|
Series
Z
|
5/23/16
|
264,000
|
$13.75
|
11/23/21
|
1
|
Series
AA
|
8/26/16
|
200,000
|
$13.75
|
2/22/22
|
1
|
Series
BB
|
8/26/16
|
16,000
|
$13.75
|
8/22/21
|
1
|
|
|
|
|
|
|
Series
P
|
2/10/12
|
23,600
|
$112.50
|
3/6/17
|
2
|
Consultants
|
12/2/11-
7/1/16
|
25,600
|
$9.25-
$87.50
|
10/27/16-
6/30/19
|
3
|
The
table below presents the warrant liabilities and their respective
balances at September 30:
|
2017
|
2016
|
Series S
warrants
|
$
32,773
|
$
3,111,361
|
Series U
warrants
|
-
|
-
|
Series V
warrants
|
72,912
|
1,620,253
|
Series W
warrants
|
83,754
|
1,799,858
|
Series Z
warrants
|
77,216
|
970,604
|
Series ZZ
warrants
|
4,753
|
70,609
|
Series AA
warrants
|
65,087
|
763,661
|
Series BB
warrants
|
4,322
|
58,588
|
Series CC
warrants
|
394,220
|
-
|
Series DD
warrants
|
5,492
|
-
|
Series EE
warrants
|
5,492
|
-
|
Series FF
warrants
|
47,154
|
-
|
Series GG
warrants
|
342,173
|
-
|
Series HH
warrants
|
16,014
|
-
|
Series II
warrants
|
511,636
|
-
|
Series JJ
warrants
|
24,203
|
-
|
Series KK
warrants
|
345,720
|
-
|
Series LL
warrants
|
20,481
|
-
|
|
|
|
Total warrant
liabilities
|
$
2,053,402
|
$
8,394,934
|
The
table below presents the gains on the warrant liabilities for the
years ended September 30:
|
2017
|
2016
|
Series S
Warrants
|
$
3,078,588
|
$
4,252,193
|
Series U
warrants
|
-
|
44,552
|
Series V
warrants
|
1,547,341
|
4,658,228
|
Series W
warrants
|
1,716,104
|
3,260,913
|
Series Z
warrants
|
893,388
|
997,226
|
Series ZZ
warrants
|
65,856
|
75,229
|
Series AA
warrants
|
698,574
|
672,246
|
Series BB
warrants
|
54,266
|
53,139
|
Series CC
warrants
|
666,203
|
-
|
Series DD
warrants
|
437,780
|
-
|
Series EE
warrants
|
685,915
|
-
|
Series FF
warrants
|
73,828
|
-
|
Series GG
warrants
|
272,464
|
-
|
Series HH
warrants
|
13,616
|
-
|
Series II
warrants
|
404,823
|
-
|
Series JJ
warrants
|
20,410
|
-
|
Series KK
warrants
|
25,564
|
-
|
Series LL
warrants
|
352,495
|
-
|
Net gain on warrant
liabilities
|
$
11,007,215
|
$
14,013,726
|
The
Company reviews all outstanding warrants in accordance with the
requirements of ASC 815. 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 agreements provide
for adjustments to the exercise price for certain dilutive events.
Under the provisions of ASC 815, 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.
In
accordance with ASC 815, derivative liabilities must be measured at
fair value upon issuance and re-valued at the end of each reporting
period through expiration. Any change in fair value between the
respective reporting periods is recognized as a gain or loss in the
statement of operations.
Issuance of Fiscal 2017 Warrant Liabilities
On
April 30, 2017, the Company entered into a securities purchase
agreement with an institutional investor whereby it sold 527,960
shares of its common stock for net proceeds of approximately $1.4
million, or $2.875 per share, in a registered direct offering. In a
concurrent private placement, the Company also issued to the
purchaser of the Company’s common stock Series KK warrants to
purchase 395,970 shares of common stock. The warrants can be
exercised at a price of $3.04 per share at any time on or after
November 3, 2017 and expire on November 3, 2022. In addition, the
Company issued 26,398 Series LL warrants to the placement agent as
part of its compensation. The Series LL warrants are exercisable on
October 30, 2017 at a price of $3.59 per share and expire on April
30, 2022. The fair value of the Series KK and LL warrants of
approximately $0.7 million on the date of issuance was recorded as
a warrant liability.
On
March 14, 2017, the Company sold 600,000 registered shares of
common stock and 600,000 Series II warrants to purchase 600,000
unregistered shares of common stock at combined offering price of
$2.50 per share. The Series II warrants have an exercise
price of $3.00 per share and expire September 14, 2022.
In addition, the Company issued 30,000
Series JJ warrants to purchase 30,000 shares of unregistered common
stock to the placement agent. The Series JJ warrants have an
exercise price $3.13 and expire on March 8, 2022.
The net proceeds from this
offering were approximately $1.3 million.
The
fair value of the Series II and JJ warrants of approximately $1.0
million on the date of issuance was recorded as a warrant
liability.
On
February 23, 2017, the Company sold 400,000 registered shares of
common stock and 400,000 Series GG warrants to purchase 400,000
unregistered shares of common stock at a combined price of $2.50
per share. The Series GG warrants have an exercise price of
$3.00 per share and expire August 23, 2022.
In addition, the Company issued to the placement
agent 20,000 Series HH warrants to purchase 20,000 shares of
unregistered common stock. The Series HH warrants have an exercise
price $3.13 and expire on February 16, 2022.
The net proceeds from this
offering were approximately $0.8 million.
The
fair value of the Series GG and HH warrants of approximately $0.6
million on the date of issuance was recorded as a warrant
liability.
On December 8, 2016, the Company sold 1,360,960
shares of common stock and warrants to purchase common stock at a
price of $3.13 in a public offering. The warrants consist of
680,480 Series CC warrants to purchase 680,480 shares of common
stock, 1,360,960 Series DD warrants to purchase 1,360,960 shares of
common stock and 1,360,960 Series EE warrants to purchase 1,360,960
shares of common stock. The Series CC warrants were immediately
exercisable, expire in five-years from the offering date and have
an exercise price of $5.00 per share. The Series DD warrants were
immediately exercisable and have an exercise price of $4.50 per
share. On June 5, 2017 and June 29, 2017, the expiration date of
the Series DD warrants was extended from June 8, 2017 to July 10,
2017 and then to August 10, 2017. On August 29, 2017, the
expiration date of the Series DD warrants was extended to December
1, 2017. The Series EE warrants are immediately exercisable and
have an exercise price of $4.50 per share. On August 29, 2017, the
initial expiration date of the Series EE warrants was extended from
September 8, 2017 to December 1, 2017. In addition, the Company
issued 68,048 Series FF warrants to purchase 68,048 shares of
common stock to the placement agent. The FF warrants expire on
December 1, 2021 and have an exercise price $3.91.
Net proceeds from this offering were approximately
$3.7 million.
The fair value of the Series CC, DD, EE
and FF warrants of approximately $2.3 million on the date of
issuance was recorded as a warrant liability.
.
Series AA and BB Warrants
On August 26, 2016, the Company closed a
registered direct offering of 400,000 shares of common stock
and 200,000 Series AA warrants to purchase 200,000 shares of common
stock. The common stock and warrants were sold at a combined per
unit price of $12.50 for proceeds of approximately $4.5 million,
net of placement agent’s commissions and offering expenses.
The Series AA warrants may be exercised at any time after February
22, 2017 and on or before February 22, 2022 at a price of $13.75
per share.
The Company also issued 16,000 Series BB warrants
to the placement agent as part of its compensation. The Series BB
warrants may be exercised at any time on or after February 22, 2017
and on or before August 22, 2021 at a price of $13.75 per share.
The fair value of the Series AA and Series BB warrants of
approximately $1.5 million on the date of issuance was recorded as
a warrant liability.
Series Z and ZZ Warrants
On May
23, 2016, the Company closed a registered direct offering of
400,000 shares of common stock and 264,000 Series Z warrants to
purchase shares of common stock. The common stock and warrants were
sold at a combined per unit price of $12.50 for net proceeds of
approximately $4.6 million, net of placement agent’s
commissions and offering expenses. The Series Z warrants may be
exercised at any time on or after November 23, 2016 and on or
before November 23, 2021 at a price of $13.75 per share. The
Company also issued 20,000 Series ZZ warrants to the placement
agent as part of its compensation. The Series ZZ warrants may be
exercised at any time on or after November 23, 2016 and on or
before May 18, 2021 at a price of $13.75 per share. The fair value
of the Series Z and Series ZZ warrants of approximately $2.1
million on the date of issuance was recorded as a warrant
liability.
Series W Warrants
On
October 28, 2015, the Company closed an underwritten public
offering of 688,930 shares of common stock and 688,930 Series W
warrants to purchase shares of common stock. The common stock and
warrants were sold at a combined per unit price of $16.75 for net
proceeds of approximately $10.5 million, net of underwriting
discounts and commissions and offering expenses. The Series W
warrants are immediately exercisable at a price of $16.75 and
expire on October 28, 2020. The fair value at issuance of the
Series W warrants of approximately $5.1 million was recorded as
warrant liability.
Expiration of Warrants
On
March 16, 2017, 23,600 Series P warrants, with an exercise price of
$112.50, expired. The fair value of the Series P warrants was $0 on
the date of expiration.
On
December 6, 2016, 105,000 Series R warrants, with an exercise price
of $100.00, expired. The fair value of the Series R warrants was $0
on the date of expiration.
On
December 22, 2015, 48,000 Series Q warrants, with an exercise price
of $125.00, expired. The fair value of the Series Q warrants was $0
on the date of expiration.
Series PP and Series QQ Warrants
On
August 22, 2017, the Company entered into a securities purchase
agreement with institutional investors whereby it sold 1,750,000
shares of its common stock for net proceeds of approximately $3.2
million, or $2.00 per share, in a registered direct offering. In a
concurrent private placement, the Company also issued to the
purchasers of the Company’s common stock Series PP warrants
to purchase 1,750,000 shares of common stock. The warrants can be
exercised at a price of $2.30 per share at any time on or after
February 28, 2018 and expire on February 28, 2023. In addition, the
Company issued 87,500 Series QQ warrants to the placement agent as
part of its compensation. The Series QQ warrants are exercisable on
February 22, 2018 at a price of $2.50 per share and expire on
August 22, 2022. The Series PP and Series QQ warrants qualify for
equity treatment in accordance with ASC 815. The relative fair
value of the warrants was approximately $1.4 million.
Series OO Warrants
On July
26, 2017, the Company entered into a securities purchase agreement
with an investor whereby it sold 100,000 shares of its common stock
for gross proceeds of $229,000, or $2.29 per share, in a registered
offering. In a concurrent private placement, the Company also
issued to the purchaser of the common stock Series OO warrants to
purchase 60,000 shares of the Company’s common stock. The
warrants can be exercised at a price of $2.52 per share, commencing
six months after the date of issuance and ending five years after
the date of issuance. The Series OO warrants qualify for equity
treatment in accordance with ASC 815. The relative fair value of
the warrants was approximately $62,000.
Series NN Warrants
On July
24, 2017, in connection with the issuances of convertible notes
(See Note 7), the Company issued the note holders Series NN
warrants which entitle the purchasers to acquire up to an aggregate
of 539,300 shares of the Company’s common stock. The warrants
are exercisable at a fixed price of $2.52 per share and expire on
July 24, 2022. Shares issuable upon the exercise of the notes and
warrants were restricted securities unless registered. The shares
were registered effective September 1, 2017. Proceeds from the sale
of notes payable and the issuance of the warrants were
approximately $1.2 million.
The
Company allocated the proceeds received to the notes and the Series
NN warrants on a relative fair value basis. As a result of such
allocation, the Company determined the initial carrying value of
the Series NN warrants to be approximately $0.5 million. The Series
NN warrants qualify for equity treatment in accordance with ASC
815.
Series MM Warrants
On June
22, 2017, in connection with the issuance of convertible notes (see
Note 7), the Company issued the note holders Series MM warrants,
which entitle the purchasers to acquire up to an aggregate of
893,491 shares of the Company’s common stock. The Series MM
warrants are exercisable at a price of $1.86 per share and expire
on June 22, 2022. Shares issuable upon the exercise of the notes
and warrants were restricted securities unless registered. The
shares were registered effective August 8, 2017. Proceeds from the
sale of notes payable and the issuance of the warrants were $1.5
million.
The Company allocated
proceeds received to the Notes and the Series MM warrants on a
relative fair value basis. As a result of such allocation, the
Company determined the initial carrying value of the Series MM
warrants to be approximately $0.6 million. The Series MM warrants
qualify for equity treatment in accordance with ASC
815.
Series X Warrants
In
January 2016, the Company sold 120,000 shares of its common stock
and 120,000 Series X warrants to the de Clara Trust for
approximately $1.1 million. The de Clara Trust is controlled by
Geert Kersten, the Company's Chief Executive Officer and a
director. Each Series X warrant allows the de Clara Trust to
purchase one share of the Company's common stock at a price of
$9.25 per share at any time on or before January 13, 2021. The
Series X warrants qualify for equity treatment in accordance with
ASC 815. The relative fair value of the warrants was approximately
$417,000.
Series Y Warrants
On
February 15, 2016, the Company sold 52,000 shares of its common
stock and 26,000 Series Y warrants to a private investor for
$624,000. Each Series Y warrant allows the holder to purchase one
share of the Company's common stock at a price of $12.00 per share
at any time on or before February 15, 2021. The Series Y warrants
qualify for equity treatment in accordance with ASC 815. The
relative fair value on the date of issuance of the warrants was
approximately $144,000.
Series N Warrants
Series
N warrants were previously issued in connection with a financing
and were subsequently transferred to the de Clara Trust, of which
the Company’s CEO, Geert Kersten, is a
beneficiary.
On July
17, 2017, the Series N warrants held in the de Clara Trust were
modified. The modification extended the expiration date by one year
to expire on August 18, 2018; the 113,785 warrants outstanding were
reduced by 25% to 85,339 warrants outstanding; and the exercise
price was reduced to $3.00 per share. The incremental cost of this
modification was approximately $64,000, which was recorded as a
deemed dividend.
3.
Options and Shares Issued to Consultants
The
Company typically enters into consulting arrangements in exchange
for common stock or stock options. During the years ended September
30, 2017 and 2016 the Company issued 76,551 and 49,954 shares,
respectively, of common stock to consultants of which 68,352 and
31,360 shares, respectively, were restricted shares. Under these
arrangements, the common stock was issued with stock prices ranging
between $1.73 and $7.25 per share.
Additionally,
during the years ended September 30, 2017 and 2016 the Company
issued to consultants 20,000 and 16,400 options, respectively, to
purchase common stock with an exercise price of $2.18 per share and
a fair value of $1.87 per share. The aggregate values of the
issuances of restricted common stock and common stock options are
recorded as prepaid expenses and are charged to general and
administrative expenses over the periods of service.
During
the years ended September 30, 2017 and 2016, the Company recorded
total expense of approximately $233,000 and $752,000, respectively,
relating to these consulting agreements. At September 30, 2017 and
2016, approximately $45,000 and $48,000, respectively, are included
in prepaid expenses. As of September 30, 2017, 42,000 options
issued to consultants as payment for services remained outstanding,
all of which were issued from the Non-Qualified Stock Option plans
and are fully vested.
5.
PLANT, PROPERTY AND EQUIPMENT
Plant,
property and equipment consisted of the following at September
30:
|
2017
|
2016
|
Leased
manufacturing facility
|
$
21,183,756
|
$
21,183,756
|
Research
equipment
|
3,169,158
|
3,158,633
|
Furniture
and equipment
|
124,369
|
133,499
|
Leasehold
improvements
|
131,910
|
131,910
|
|
24,609,193
|
24,607,798
|
|
|
|
Accumulated
depreciation and amortization
|
(7,815,973
)
|
(7,256,962
)
|
|
|
|
Net
plant, property and equipment
|
$
16,793,220
|
$
17,350,836
|
The
Company is not the legal owner of the manufacturing building, but
is deemed to be the owner for accounting purposes, based on the
accounting guidance for build-to-suit leases. See Note 11,
Commitments and Contingencies–Lease Obligations, for
additional information.
As of
September 30, 2017 and 2016, accumulated depreciation on the
manufacturing building is approximately $4.6 million and $4.1
million, respectively. Depreciation expense for the years ended
September 30, 2017 and 2016 totaled approximately $593,000 and,
$626,000, respectively. Depreciation expense includes depreciation
on the leased manufacturing building of approximately $514,000,
which is included in research and development costs on the
Statements of Operations. During the year ended September 30, 2017,
the Company purchased an asset under a lease classified as a
capital lease. That asset has a net book value of approximately
$21,000 on September 30, 2017. Amortization of the capital lease
asset is included in general and administrative expenses on the
Statements of Operations.
6.
PATENTS
Patents
consisted of the following at September 30:
|
2017
|
2016
|
Patents
|
$
1,535,087
|
$
1,528,610
|
Accumulated
amortization
|
(1,311,920
)
|
(1,272,063
)
|
|
|
|
Patents,
net
|
$
223,167
|
$
256,547
|
During
the years ended September 30, 2017 and 2016,there was no impairment
of patent costs. Amortization expense for the years ended September
30, 2017 and 2016 totaled approximately $40,000 and $38,000,
respectively. The total estimated future amortization is as
follows:
Years
ending September 30,
|
|
2018
|
$
37,000
|
2019
|
35,000
|
2020
|
32,000
|
2021
|
28,000
|
2022
|
25,000
|
Thereafter
|
66,000
|
|
$
223,000
|
7. NOTES PAYABLE
On July
24, 2017, the Company issued Series NN convertible notes in the
aggregate principal amount of $1.2 million to 12 individual
investors. A trust in which Geert Kersten, the Company’s
Chief Executive Officer, holds a beneficial interest participated
in the offering and purchased a note in the principal amount of
$250,000. Patricia B. Prichep, the Company’s Senior Vice
President of Operations, participated in the offering and purchased
a note in the principal amount of $25,000. The Series NN Notes bear
interest at 4% per year and are due on December 22, 2017. At the
option of the note holders, the Series NN Notes can be converted
into shares of the Company’s common stock at a fixed
conversion rate of $2.29, the closing price on July 21, 2017. The
purchasers of the convertible notes also received Series NN
warrants which entitle the purchasers to acquire up to 539,300
shares of the Company’s common stock. The warrants are
exercisable at a price of $2.52 per share and expire on July 24,
2022. Shares issuable upon the exercise of the warrants were
restricted securities unless registered. The shares were registered
effective September 1, 2017.
The
Series NN Notes were issued together with Series NN warrants, as
discussed in the preceding section. Upon issuance of the Series NN
Notes and Series NN warrants, the Company allocated proceeds
received to the notes and warrants on a relative fair value basis.
As a result of such allocation, the Company determined the initial
carrying value of the Series NN Notes to be approximately $0.7
million, the initial carrying value of the Series NN warrants to be
approximately $0.5 million, and recorded a debt discount in the
amount of approximately $0.5 million.
On June 22, 2017, CEL-SCI issued Series MM
convertible notes in the aggregate principal amount of $1.5 million
to six individual investors.
The Series MM Notes bear
interest at 4% per year and are due on December 22, 2017. At the
option of the note holders, the Series MM Notes can be converted
into shares of the Company’s common stock at a fixed
conversion rate of $1.69. The number of shares of the
Company’s common stock issued upon conversion will be
determined by dividing the principal amount to be converted by
$1.69, which could result in the issuance of 893,491 shares of the
Company’s common stock. The purchasers of the convertible
notes also received Series MM warrants which entitle the purchasers
to acquire up to 893,491 shares of the Company’s common
stock. The warrants are exercisable at a price of $1.86 per share
and expire on June 22, 2022. Shares issuable upon the exercise of
the warrants were restricted securities unless registered. The
shares were registered effective August 8, 2017.
The
Series MM Notes were issued together with Series MM warrants, as
discussed in the preceding section. Upon issuance of the Series MM
Notes and Series MM warrants, the Company allocated proceeds
received to the notes and warrants on a relative fair value basis.
As a result of such allocation, the Company determined the initial
carrying value of the Series MM Notes to be approximately $0.9
million, the initial carrying value of the Series MM warrants to be
approximately $0.6 million, and recorded a debt discount in the
amount of approximately $0.6 million.
During
the quarter ended September 30, 2017, two note holders converted
their Series MM notes into shares of common stock. The face value
of the converted notes was $450,700. The unamortized debt discount
relating to the converted notes was charged to interest
expense.
Pursuant to the guidance in ASC 815-40,
Contracts in
Entity’s Own Equity
, the
Company evaluated whether the conversion feature of the note needed
to be bifurcated from the host instrument as a freestanding
financial instrument. Under ASC 815-40, to qualify for equity
classification (or non-bifurcation, if embedded) the instrument (or
embedded feature) must be both (1) indexed to the issuer’s
own stock and (2) meet the requirements of the equity
classification guidance. Based upon the Company’s analysis,
it was determined the conversion option is indexed to its own stock
and also met all the criteria for equity classification.
Accordingly, the conversion option is not required to be bifurcated
from the host instrument as a freestanding financial instrument.
Since the conversion feature meets the equity scope exception from
derivative accounting, the Company then evaluated whether the
conversion feature needed to be separately accounted for as an
equity component under ASC 470-20,
Debt with Conversion and Other
Options
. Based upon the
Company’s analysis, it was determined that a beneficial
conversion feature existed as a result of the reduction in the face
value of the Series MM and NN Notes, due to a portion of proceeds
being allocated to the related warrants, and thus the conversion
features needed to be separately accounted for as an equity
component. The Company recorded beneficial conversion features
relating to the Series MM and NN notes of approximately $603,000
and $506,000, respectively, which were also recorded as debt
discounts.
The
total debt discount on both Series MM and NN notes is being
amortized to interest expense using the effective interest method
over the expected term of the notes. At September 30, 2017, the
remaining debt discount is approximately $1.3 million.
During
the year ended September 30, 2017, the Company recorded
approximately $941,000 in interest expense related to the Series MM
and NN notes, of which approximately $23,000 was recorded as
accrued interest, and approximately $918,000 was recorded as
amortization of the debt discount.
The
Series MM and Series NN notes are secured by a first lien on all of
the Company’s assets.
8.
INCOME TAXES
At
September 30, 2017 and 2016, the Company had federal net operating
loss carryforwards of approximately $187.8 million and $169.7
million, respectively. The NOLs begin to expire during the fiscal
year ending September 30, 2019 and become fully expired by the end
of the fiscal year ended 2037. In addition, the Company has a
general business credit as a result of the credit for increasing
research activities (“R&D credit”) of approximately
$1.2 million at September 30, 2017 and 2016. The R&D credit
begins to expire during the fiscal year ending September 30, 2020
and is fully expired during the fiscal year ended 2029. Deferred
taxes consisted of the following at September 30:
|
2017
|
2016
|
|
|
|
Net
operating loss carryforwards
|
$
70,752,000
|
$
64,366,000
|
R&D
credit
|
1,221,000
|
1,221,000
|
Stock-based
compensation
|
6,292,000
|
6,379,000
|
Capitalized
R&D
|
21,160,000
|
18,508,000
|
Vacation
and other
|
121,000
|
179,000
|
Total
deferred tax assets
|
99,546,000
|
90,653,000
|
|
|
|
Fixed
assets and intangibles
|
(523,000
)
|
(49,000
)
|
Total
deferred tax liability
|
(523,000
)
|
(49,000
)
|
|
|
|
Net
deferred tax asset
|
99,023,000
|
90,604,000
|
Valuation
allowance
|
(99,023,000
)
|
(90,604,000
)
|
Ending
Balance
|
$
-
|
$
-
|
In
assessing the realization of deferred tax assets, management
considered whether it was more likely than not that some, or all,
of the deferred tax asset will be realized. The ultimate
realization of the deferred tax assets is dependent upon the
generation of future taxable income. Management has considered the
history of the Company’s operating losses and believes that
the realization of the benefit of the deferred tax assets cannot be
reasonably assured. In addition, under Internal Revenue Code
Section 382, the Company’s ability to utilize these net
operating loss carryforwards may be limited or eliminated in the
event of future changes in ownership.
The
Company has no federal or state current or deferred tax expense or
benefit. The Company’s effective tax rate differs from the
applicable federal statutory tax rate. The reconciliation of these
rates is as follows at September 30:
|
2017
|
2016
|
|
|
|
Federal
Rate
|
34.00
%
|
34.00
%
|
State
tax rate, net of federal benefit
|
6.44
|
3.92
|
State
tax rate change
|
(3.91
)
|
(22.00
)
|
Other
adjustments
|
(3.39
)
|
(0.03
)
|
Permanent differences
(1)
|
25.49
|
44.90
|
Change
in valuation allowance
|
(58.63
)
|
(60.79
)
|
|
|
|
Effective
tax rate
|
0.00
%
|
0.00
%
|
(1)
Primarily due to the approximate $11
million and $14 million gain on derivative instruments from the
change in fair value of the Company’s warrant liabilities
during the years ended September 30, 2017 and 2016,
respectively.
|
|
|
The
Company applies the provisions of ASC 740,
“Accounting for Uncertainty in Income
Taxes,”
which requires financial statement benefits to
be recognized for positions taken for tax return purposes when it
is more likely than not that the position will be sustained. The
Company has elected to reflect any tax penalties or interest
resulting from tax assessments on uncertain tax positions as a
component of tax expense. The Company has generated federal net
operating losses in tax years ending September 30, 1998 through
2016. These years remain open to examination by the major domestic
taxing jurisdictions to which the Company is subject.
9.
STOCK COMPENSATION
The
Company recognized the following expenses for options issued or
vested and restricted stock awarded during the year:
|
Year Ended September 30,
|
|
2017
|
2016
|
Employees
|
$
1,380,500
|
$
2,113,433
|
Non-employees
|
$
232,847
|
$
751,651
|
Stock
compensation expenses were recorded as general and administrative
expense. During the years ended September 30, 2017 and 2016,
non-employee stock compensation excluded approximately $45,000 and
$48,000, respectively, for future services to be performed (Note
12).
During
the years ended September 30, 2017 and 2016 the fair value of each
option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following
assumptions.
|
2017
|
|
2016
|
Expected
stock price volatility
|
88.54
– 90.67%
|
|
75.58
– 80.9%
|
Risk-free
interest rate
|
2.18
– 2.29%
|
|
0.71
– 1.56%
|
Expected
life of options
|
9.69
– 10 Years
|
|
3.0
– 9.69 Years
|
Expected
dividend yield
|
-
|
|
-
|
Non-Qualified Stock Option
Plans
– At September 30, 2017, the Company has
collectively authorized the issuance of 1,187,200 shares of common
stock under its Non-Qualified Stock Option Plans. Options typically
vest over a three-year period and expire no later than ten years
after the grant date. Terms of the options were determined by the
Company’s Compensation Committee, which administers the
plans. The Company’s employees, directors, officers, and
consultants or advisors are eligible to be granted options under
the Non-Qualified Stock Option Plans.
Incentive Stock Option Plans
– At September 30, 2017, the Company had collectively
authorized the issuance of 138,400 shares of common stock under its
Incentive Stock Option Plans. Options typically vest over a
three-year period and expire no later than ten years after the
grant date. Terms of the options were determined by the
Company’s Compensation Committee, which administers the
plans. Only the Company’s employees are eligible to be
granted options under the Incentive Stock Option
Plans.
Activity in the
Company’s Non-Qualified and Incentive Stock Option Plans for
the two years ended September 30, 2017 is summarized as
follows:
Non-Qualified and Incentive Stock Option Plans
|
Outstanding
|
Exercisable
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
Ave
|
Aggregate
|
|
Weighted
|
Ave
|
Aggregate
|
|
Number of
|
Average
|
Remaining Contractual
|
Intrinsic
|
Number of
|
Average
|
Remaining Contractual
|
Intrinsic
|
|
Shares
|
Exercise Price
|
Term (Years)
|
Value
|
Shares
|
Exercise Price
|
Term (Years)
|
Value
|
Outstanding
at October 1, 2015
|
301,511
|
$
67.75
|
5.98
|
$
50
|
181,102
|
$
78.75
|
5.01
|
$
0
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
56,069
|
$
31.75
|
|
|
Granted
(a)
|
48,544
|
$
12.00
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited
|
2,240
|
$
21.50
|
|
|
|
|
|
|
Expired
|
4,240
|
$
145.00
|
|
|
4,240
|
$
145.00
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2016
|
343,575
|
$
59.22
|
5.35
|
$
0
|
232,931
|
$
66.28
|
4.76
|
$
0
|
Vested
|
|
|
|
|
63,812
|
$
18.45
|
|
|
Granted
(b)
|
932,825
|
$
2.17
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited
|
15,795
|
$
9.46
|
|
|
|
|
|
|
Expired
|
20,761
|
$
88.80
|
|
|
20,761
|
$
88.80
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2017
|
1,239,844
|
$
16.44
|
8.50
|
$
1,400
|
275,982
|
$
53.53
|
4.91
|
$
0
|
(a)
Includes 16,400
stock options granted to consultants
(b)
Includes 20,000
stock options granted to consultants
A
summary of the status of the Company’s non-vested options for
the two years ended September 30, 2017 is presented
below:
|
Number of Options
|
Weighted Average Grant Date Fair
Value
|
|
|
|
Unvested
at October 1, 2015
|
120,409
|
$
43.09
|
Vested
|
(56,069
)
|
|
Granted
|
48,544
|
|
Forfeited
|
(2,240
)
|
|
Unvested
at September 30, 2016
|
110,644
|
$
36.96
|
Vested
|
(63,812
)
|
|
Granted
|
932,825
|
|
Forfeited
|
(15,795
)
|
|
Unvested
at September 30, 2017
|
963,862
|
$
4.91
|
Incentive Stock Bonus Plan
– Up to 640,000 shares are authorized under the 2014
Incentive Stock Bonus Plan. The shares will only be earned upon the
achievement of certain milestones leading to the commercialization
of the Company’s Multikine technology, or specified increases
in the market price of the Company’s stock
.
If the performance or market criteria
are not met as specified in the Incentive Stock Bonus Plan, all or
a portion of the awarded shares will be forfeited. The fair value
of the shares on the grant date was calculated using the market
value on the grant-date for issuances where the attainment of
performance criteria is likely and using a Monte Carlo simulation
for issuances where the attainment of performance criteria is
uncertain. The grant date fair value of shares issued that remain
outstanding as of September 30, 2017 was approximately $8.6
million. The total value of the shares, if earned, is being
expensed over the requisite service periods for each milestone,
provided the requisite service periods are rendered, regardless of
whether the market conditions are met. No compensation cost is
recognized for awards where the requisite service period is not
rendered. During the years ended September 30, 2017 and 2016, the
Company recorded expense relating to the issuance of restricted
stock pursuant to the plan of approximately $633,000 and $634,000,
respectively. At September 30, 2017, the Company has unrecognized
compensation expense of approximately $2.5 million which is
expected to be recognized over a weighted average period of four
years.
A
summary of the status of the Company’s restricted common
stock issued from the Incentive Stock Bonus Plan for the two years
ended September 30, 2017 is presented below:
|
Number of Shares
|
Weighted Average Grant Date Fair
Value
|
|
|
|
Unvested at
September 30, 2015
|
604,000
|
$
13.75
|
Vested
|
-
|
|
Unvested at
September 30, 2016
|
604,000
|
$
13.75
|
Vested
|
(136,000
)
|
|
Unvested at
September 30, 2017
|
468,000
|
$
13.75
|
Stock Bonus Plans
– At
September 30, 2017, the Company was authorized to issue up to
383,760 shares of common stock under its Stock Bonus Plans. All
employees, directors, officers, consultants, and advisors are
eligible to be granted shares. During the year ended September 30,
2017, 79,941 shares were issued to the Company’s 401(k) plan
for a cost of approximately $151,000. During the year ended
September 30, 2016, 16,340 shares were issued to the
Company’s 401(k) plan for a cost of approximately $162,000.
As of September 30, 2017, the Company has issued a total of 206,390
shares of common stock from the Stock Bonus Plans.
Stock Compensation Plans
– At September 30, 2017, 134,000 shares were authorized for
use in the Company’s Stock Compensation Plans. During the
years ended September 30, 2017, and 2016, 23,202 and 18,593 shares,
respectively, were issued from the Stock Compensation Plans to
consultants for payment of services at a cost of approximately
$60,000 and $234,000, respectively. During the year ended September
30, 2017 and 2016, 13,000 and 3,837 shares, respectively, were
issued to employees from the Stock Compensation Plans as part of
their compensation at a cost of approximately $24,000 and $45,000,
respectively. As of September 30, 2017, the Company has issued
115,590 shares of common stock from the Stock Compensation
Plans.
10.
EMPLOYEE BENEFIT PLAN
The
Company maintains a defined contribution retirement plan,
qualifying under Section 401(k) of the Internal Revenue Code,
subject to the Employee Retirement Income Security Act of 1974, as
amended, and covering substantially all Company employees. Each
participant’s contribution is matched by the Company with
shares of common stock that have a value equal to 100% of the
participant’s contribution, not to exceed the lesser of
$10,000 or 6% of the participant’s total compensation. The
Company’s contribution of common stock is valued each quarter
based upon the closing bid price of the Company’s common
stock. Total expense, including plan maintenance, for the years
ended September 30, 2017 and 2016, in connection with this Plan was
approximately $163,000 and $168,000, respectively.
11.
COMMITMENTS AND CONTINGENCIES
Clinical Research Agreements
In
March 2013, the Company entered into an agreement with Aptiv
Solutions to provide certain clinical research services in
accordance with a master service agreement. The Company will
reimburse Aptiv for costs incurred. The agreement required the
Company to make $600,000 in advance payments which are being
credited against future invoices in $150,000 annual increments
through December 2017. As of September 30, 2017, the total balance
advanced is $150,000 and is classified as a current
asset.
In April 2013, the Company entered into a
co-development and revenue sharing agreement with Ergomed. Under
the agreement, Ergomed will contribute up to $10 million towards
the study in the form of offering discounted clinical services in
exchange for a single digit percentage of milestone and royalty
payments, up to a specific maximum amount
. In October 2015,
the Company entered into a second
co-development and revenue sharing agreement with
Ergomed
for an additional $2 million, for a total of $12
million. The Company accounted for the co-development and revenue
sharing agreement in accordance with ASC 808 “Collaborative
Arrangements”. The Company determined the payments to Ergomed
are within the scope of ASC 730 “Research and
Development.” Therefore, the Company records the discount on
the clinical services as a credit to research and development
expense on its Statements of Operations. Since the Company entered
into the co-development and revenue sharing agreement with Ergomed,
it has incurred research and development expenses of approximately
$25.0 million related to Ergomed’s services. This amount is
net of Ergomed’s discount of approximately $8.4 million.
During the years ended September 30, 2017 and 2016, the Company
recorded, approximately $5.8 million and $7.2 million,
respectively, as research and development expense related to
Ergomed’s services. These amounts were net of Ergomed’s
discount of approximately $2.1 million in each of the periods
presented.
In
October 2013, the Company entered into two co-development and
profit sharing agreements with Ergomed. One agreement
supports the Phase 1 study being conducted at UCSF for the
development of Multikine as a potential treatment for peri-anal
warts in HIV/HPV co-infected men and women. The other
agreement focuses on the development of Multikine as a potential
treatment for cervical dysplasia in HIV/HPV co-infected women.
Ergomed will assume up to $3 million in clinical and regulatory
costs for each study.
The
Company is currently involved in a pending arbitration proceeding,
CEL-SCI Corporation v. inVentiv Health Clinical, LLC (f/k/a
PharmaNet LLC) and PharmaNet GmbH (f/k/a PharmaNet AG).
T
he Company initiated the proceedings
against inVentiv Health Clinical, LLC, or inVentiv, the former
third-party CRO, and is seeking payment for damages related to
inVentiv’s prior involvement in the ongoing Phase 3 clinical
trial of Multikine. The arbitration claim, initiated under the
Commercial Rules of the American Arbitration Association, alleges
(i) breach of contract, (ii) fraud in the inducement, and (iii)
common law fraud. Currently, the Company is seeking at least $50
million in damages in its amended statement of
claim.
In an
amended statement of claim, the Company asserted the claims set
forth above as well as an additional claim for professional
malpractice. The arbitrator subsequently granted
inVentiv’s motion to dismiss the professional malpractice
claim based on the “economic loss doctrine” which,
under New Jersey law, is a legal doctrine that, under certain
circumstances, prohibits bringing a negligence-based claim
alongside a claim for breach of contract. The arbitrator
denied the remainder of inVentiv’s motion, which had sought
to dismiss certain other aspects of the amended statement of
claim. In particular, the arbitrator rejected
inVentiv’s argument that several aspects of the amended
statement of claim were beyond the arbitrator’s
jurisdiction.
In
connection with the pending arbitration proceedings, inVentiv has
asserted counterclaims against the Company for (i) breach of
contract, seeking at least $2 million in damages for services
allegedly performed by inVentiv; (ii) breach of contract, seeking
at least $1 million in damages for the Company’s alleged use
of inVentiv’s name in connection with publications and
promotions in violation of the parties’ contract; (iii)
opportunistic breach, restitution and unjust enrichment, seeking at
least $20 million in disgorgement of alleged unjust profits
allegedly made by the Company as a result of the purported breaches
referenced in subsection (ii); and (iv) defamation, seeking at
least $1 million in damages for allegedly defamatory statements
made about inVentiv. The Company believes inVentiv’s
counterclaims are meritless. However, if inVentiv successfully
asserts any of its counterclaims, such an adverse determination
could have a material adverse effect on the Company’s
business, results, financial condition and liquidity.
In
October 2015 the Company signed an arbitration funding agreement
with a company established by Lake Whillans Litigation Finance,
LLC, a firm specializing in funding litigation expenses. Pursuant
to the agreement, an affiliate of Lake Whillans provides the
Company with funding for litigation expenses to support its
arbitration claims against inVentiv. The funding is available to
the Company to fund the expenses of the ongoing arbitration and
will only be repaid when the Company receives proceeds from the
arbitration. During the year ended September 30, 2016, the Company
recognized a gain of approximately $1.1 million on the
derecognition of legal fees to record the transfer of the liability
that existed prior to the execution of the financing agreement from
the Company to Lake Whillans. The gain on derecognition of legal
fees is recorded as a reduction of general and administration
expenses on the Statement of Operations. All related legal fees are
directly billed to and paid by Lake Whillans. As part of the
agreement with Lake Whillans, the law firm agreed to cap its fees
and expenses for the arbitration at $5 million.
The
arbitration has been going on longer than expected, but it is
finally nearing its end. The hearing (the “trial”)
started on September 26, 2016. The last witness in the arbitration
hearing testified on Wednesday, November 8, 2017, and no further
witnesses or testimony are expected. With that final witness, the
testimony phase of the arbitration concluded. All that remains at
the trial level are closing statements and post-trial
submissions.
Lease Agreements
The
Company leases a manufacturing facility near Baltimore, Maryland
under an operating lease (the San Tomas lease). The building 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 3 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 to escalate each year at 3%. The Company
is required to pay all real estate 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 Company contributed approximately
$9.3 million towards the tenant-directed improvements, of which
$3.2 million is being refunded during years six through twenty
through reduced rental payments. The landlord paid approximately
$11.9 million towards the purchase of the building, land and the
tenant-directed improvements. The asset was placed in service in
October 2008.
Because the terms of the original lease agreements
required the Company to be responsible for cost overruns, if there
had been any, but of which there were none, the Company was deemed
to be the owner of the building for accounting purposes under the
build-to-suit guidance in ASC 840-40-55. In addition to the tenant
improvements the Company incurred and capitalized on its balance
sheet, the Company recorded an asset for tenant-directed
improvements and for the costs paid by the lessor to purchase the
building and to perform improvements, as well as a corresponding
liability for the landlord costs. Upon completion of the
improvements, the Company did not meet the
“sale-leaseback” criteria under ASC 840-40-25,
Accounting for
Leases, Sale-Leaseback Transactions,
and therefore, treated the lease as a financing
obligation. Therefore, the asset and corresponding liability were
not be derecognized.
As
of September 30, 2017 and 2016, the leased building asset has a net
book value of approximately $16.6 million and $17.1 million and the
landlord liability as a balance of $13.2 million and $13.0 million.
The leased asset is being depreciated using a straight line method
of the 20 year lease term to a residual value. The landlord
liability is being amortized over the 20 years using the effective
interest method.
The
Company was required to deposit the equivalent of one year of base
rent in accordance with the San Tomas lease. When the Company meets
the minimum cash balance required by the lease, the deposit will be
returned to the Company. The approximate $1.7 million deposit is
included in non-current assets on September 30, 2017 and
2016.
Approximate future
minimum lease payments under the San Tomas lease as of September
30, 2017 are as follows:
Years
ending September 30,
|
|
2018
|
$
1,747,000
|
2019
|
1,808,000
|
2020
|
1,872,000
|
2021
|
1,937,000
|
2022
|
2,004,000
|
Thereafter
|
13,758,000
|
Total
future minimum lease obligation
|
23,126,000
|
Less:
imputed interest on financing obligation
|
(9,914,000
)
|
Net
present value of lease financing obligation
|
$
13,212,000
|
The
Company subleases a portion of its rental space on a month to month
term lease, which requires a 30 day notice for termination. The
sublease rent for the years ended September 30, 2017 and 2016 was
approximately $69,000 and $67,000, respectively, and is recorded in
grant income and other in the statements of
operations.
The
Company leases its research and development laboratory under a 60
month lease which expires February 28, 2017. In September 2016, the
lease was extended through February 28, 2022. The operating lease
includes escalating rental payments. The Company is recognizing the
related rent expense on a straight line basis over the full 60
month term of the lease at the rate of approximately $13,000 per
month. As of September 30, 2017 and 2016, the Company has recorded
a deferred rent liability of approximately $5,000 and $2,000,
respectively.
The
Company leases its office headquarters under a 60 month lease which
expires June 30, 2020. The operating lease includes escalating
rental payments. The Company is recognizing the related rent
expense on a straight line basis over the full 60 month term of the
lease at the rate approximately $8,000 per month. As of September
30, 2017 and 2016, the Company has recorded a deferred rent
liability of approximately $18,000.
The
Company leases office equipment under a capital lease arrangement.
The terms of the capital lease is 60 months and expires on October
31, 2021. The monthly lease payment is $505. The lease bears
interest at approximately 6.25% per annum. The Company’s
previous equipment lease expired on September 30,
2016.
Approximate
future minimum annual lease payments due under non-cancelable
operating leases, excluding the San Tomas lease, for the years
ending after September 30, 2017 are as follows:
Years
ending September 30,
|
|
2018
|
$
251,000
|
2019
|
258,000
|
2020
|
238,000
|
2021
|
163,000
|
2022
|
69,000
|
Thereafter
|
-
|
Total
future minimum lease obligation
|
$
979,000
|
Rent
expense, for the years ended September 30, 2017 and 2016, excluding
the rent paid on the San Tomas lease, was approximately $245,000
and $234,000, respectively. The Company’s three leases expire
between June 2020 and October 2028.
Vendor Obligations
Further, the
Company has contingent obligations with other vendors for work that
will be completed in relation to the Phase 3 trial. The timing of
these obligations cannot be determined at this time. CEL-SCI
estimates it will incur additional expenses of approximately $13.0
million for the remainder of the Phase 3 clinical trial. It should
be noted that this estimate is based only on the information
currently available in CEL-SCI’s contracts with the Clinical
Research Organizations responsible for managing the Phase 3
clinical trial and does not include other related costs, e.g. the
manufacturing of the drug.
12.
RELATED PARTY TRANSACTIONS
On July
24, 2017, the Company issued convertible notes (Series NN Notes) in
the aggregate principal amount of $1.2 million to 12 individual
investors. A trust in which Geert Kersten, the Company’s
Chief Executive Officer, holds a beneficial interest participated
in the offering and purchased a note in the principal amount of
$250,000. Patricia B. Prichep, the Company’s Senior Vice
President of Operations, participated in the offering and purchased
a note in the principal amount of $25,000. The terms of the
trust’s Note and Ms. Prichep’s Note were identical to
the other participants. The number of shares of the Company’s
common stock issued upon conversion will be determined by dividing
the principal amount to be converted by $2.29, which would result
in the issuance of 109,170 shares to the trust and 10,917 shares to
Ms. Prichep upon conversion. Along with the other purchasers of the
convertible notes, the trust and Ms. Prichep also received Series
NN warrants to purchase up to 109,170 and 10,917 shares,
respectively, of the Company’s common stock. The Series NN
warrants are exercisable at a fixed price of $2.52 per share and
expire on July 24, 2022. Shares issuable upon the exercise of the
notes and warrants were restricted securities unless registered.
The shares were registered effective September 1,
2017.
On June 22, 2017, CEL-SCI issued convertible notes
(Series MM Notes) in the aggregate principal amount of $1.5 million
to six individual investors.
Geert Kersten, the
Company’s Chief Executive Officer, participated in the
offering and purchased notes in the principal amount of $250,000.
The terms of Mr. Kersten’s Note were identical to the other
participants. The number of shares of the Company’s common
stock issued upon conversion will be determined by dividing the
principal amount to be converted by $1.69, which would result in
the issuance of 147,929 shares to Mr. Kersten upon conversion.
Along with the other purchasers of the convertible notes, Mr.
Kersten also received Series MM warrants to purchase up to 147,929
shares of the Company’s common stock. The Series MM warrants
are exercisable at a fixed price of $1.86 per share and expire on
June 22, 2022. Shares issuable upon the exercise of the notes and
warrants were restricted securities unless registered. The shares
were registered effective August 8, 2017.
No
interest payments were made to officers during the year ended
September 30, 2017.
Effective August
31, 2016, the Company issued Maximilian de Clara, the
Company’s then President and a director, through the de Clara
Trust, 26,000 shares of restricted stock in payment of past
services. The de Clara Trust was established by Maximilian de
Clara, the Company’s former President and a director. The
shares were issued as follows; 13,000 shares upon his resignation
on August 31, 2016 and 13,000 on August 31, 2017. The total value
of the shares issued was approximately $176,000, of which
approximately $24,000 was expensed during the year ended September
30, 2017 and $152,000 was expensed during the year ended September
30, 2016. On September 30, 2016, the fair value accrued for
unissued shares was approximately $101,000.
On
January 13, 2016, the de Clara Trust demanded payment on a note
payable, of which the balance, including accrued and unpaid
interest, was approximately $1.1 million. The Company’s Chief
Executive Officer, Geert Kersten, is a beneficiary of the de Clara
Trust. When the de Clara Trust demanded payment on the note, the
Company sold 120,000 shares of its common stock and 120,000 Series
X warrants to the de Clara Trust for approximately $1.1 million.
Each warrant allows the de Clara Trust to purchase one share of the
Company's common stock at a price of $9.25 per share at any time on
or before January 13, 2021.
No
interest payments were made to Mr. de Clara or the de Clara Trust
during the year ended September 30, 2017. During the year ended
September 30, 2016, the Company paid approximately $43,000 interest
expense to Mr. de Clara.
13.
STOCKHOLDERS’ EQUITY
On
August 22, 2017, the Company entered into a securities purchase
agreement with institutional investors whereby it sold 1,750,000
shares of its common stock for net proceeds of approximately $3.2
million, or $2.00 per share, in a registered direct offering. In a
concurrent private placement, the Company also issued to the
purchasers of the Company’s common stock Series PP warrants
to purchase 1,750,000 shares of common stock. In addition, the
Company issued 87,500 Series QQ warrants to the placement agent as
part of its compensation. See Note 4 for more information with
respect to the Series PP & QQ warrants.
On
August 15, 2017, the Company entered into a Securities Purchase
Agreement with Ergomed plc, the Company’s Clinical Research
Provider, to facilitate the payment of some of the accounts payable
balances due Ergomed. Under the Agreement, the Company issued
Ergomed 480,000 shares, with a fair market value of approximately
$1.3 million, as a forbearance fee in exchange for Ergomed’s
agreement to provisionally forbear collection of the payables. In
an amount equal to the net proceeds from the resales of the shares
issued to Ergomed. The Company recorded the full amount of the
expense upon issuance and will credit any amounts realized through
reduction of the payables. During the quarter ended September 30,
2017, 64,792 shares were resold and the Company reduced the expense
by approximately $107,000. The net expense of $1.2 million recorded
during the quarter is included in interest expense.
On July
26, 2017, the Company entered into a securities purchase agreement
with an investor whereby it sold 100,000 shares of its common stock
for gross proceeds of $229,000, or $2.29 per share, in a registered
offering. In a concurrent private placement, the Company also
issued to the purchaser of that common stock Series OO warrants to
purchase 60,000 shares of the Company’s common stock. See
Note 4 for more information with respect to the Series OO
warrants.
On
April 30, 2017, the Company entered into a securities purchase
agreement with an institutional investor whereby it sold 527,960
shares of its common stock for net proceeds of approximately $1.4
million, or $2.875 per share, in a registered direct offering. In a
concurrent private placement, the Company also issued to the
purchaser of the Company’s common stock, Series KK warrants
to purchase 395,970 shares of common stock. In addition, the
Company issued 26,398 Series LL warrants to the Placement Agent as
part of its compensation. See Note 4 for more information with
respect to the Series KK and LL warrants.
On
March 14, 2017, the Company sold 600,000 registered shares of
common stock and 600,000 Series II warrants to purchase 600,000
unregistered shares of common stock at combined offering price of
$2.50 per share.
In addition,
the Company issued 30,000 Series JJ warrants to purchase 30,000
shares of unregistered common stock to the placement agent.
The net proceeds from this
offering were approximately $1.3 million.
See
Note 4 for more information with respect to the Series II and JJ
warrants.
On
February 23, 2017, the Company sold 400,000 registered shares of
common stock and 400,000 Series GG warrants to purchase 400,000
unregistered shares of common stock at a combined price of $2.50
per share.
In addition, the
Company issued to the placement agent, 20,000 Series HH warrants to
purchase 20,000 shares of unregistered common stock.
The net proceeds from this
offering were approximately $0.8 million.
See
Note 4 for more information with respect to the Series GG and HH
warrants.
On December 8, 2016, the Company sold 1,360,960
shares of common stock and warrants to purchase common stock at a
price of $3.13 in a public offering. The warrants consist of
680,480 Series CC warrants to purchase 680,480 shares of common
stock, 1,360,960 Series DD warrants to purchase 1,360,960 shares of
common stock and 1,360,960 Series EE warrants to purchase 1,360,960
shares of common stock. In addition, the Company issued 68,048
Series FF warrants to purchase 68,048 shares of common stock to the
placement agent. Net proceeds from this
offering were approximately $3.7 million.
See
Note 4 for more information with respect to the Series CC, DD, EE
and FF warrants.
On August 26, 2016, the Company closed a
registered direct offering of 400,000 shares of common stock
and Series AA warrants to purchase up to 200,000 shares of common
stock. Each share of common stock was sold together with a Series
AA warrant to purchase one-half of a share of common stock for the
combined purchase price of $13.75.
The Company also issued
16,000 Series BB warrants to the placement agent as part of its
compensation. The Company received proceeds from the sale of Series
AA and Series BB shares and warrants of approximately $4.5 million,
net of placement agent’s commissions and offering expenses.
See Note 4 for more information with respect to the Series AA and
BB warrants.
On May
23, 2016, the Company closed a registered direct offering of
400,000 shares of common stock and 264,000 Series Z warrants to
purchase shares of common stock. The common stock and warrants were
sold at a combined per unit price of $13.75 for net proceeds of
approximately $4.6 million, net of placement agent’s
commissions and offering expenses. The Company also issued 20,000
Series ZZ warrants to the placement agent as part of its
compensation. The Series ZZ warrants may be exercised at any time
on or after November 23, 2016 and on or before May 18, 2021 at a
price of $13.75 per share. See Note 4 for more information with
respect to the Series Z and ZZ warrants.
On
October 28, 2015, the Company closed an underwritten public
offering of 688,930 shares of common stock and 688,930 Series W
warrants to purchase shares of common stock. The common stock and
warrants were sold at a combined price of $16.75 for net proceeds
of approximately $10.5 million, net of underwriting commissions and
offering expenses. See Note 4 for more information with respect to
the Series W warrants.
14.
FAIR VALUE MEASUREMENTS
In
accordance with the provisions of ASC 820, “
Fair Value Measurements
,” 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 about those future
amounts.
ASC 820
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 liabilities measured at fair value on a
recurring basis, by input level, on the balance sheet at September
30, 2017:
|
Quoted Prices in Active Markets for Identical
Liabilities (Level 1)
|
Significant Other Observable Inputs (Level
2)
|
Significant Unobservable Inputs (Level
3)
|
Total
|
Derivative
Instruments
|
$
32,773
|
$
-
|
$
2,020,629
|
$
2,053,402
|
The
table below sets forth the liabilities measured at fair value on a
recurring basis, by input level, on the balance sheet at September
30, 2016:
|
Quoted Prices in Active Markets for Identical
Liabilities (Level 1)
|
Significant Other Observable Inputs (Level
2)
|
Significant Unobservable Inputs (Level
3)
|
Total
|
Derivative
Instruments
|
$
3,111,361
|
$
-
|
$
5,283,573
|
$
8,394,934
|
The
following sets forth the reconciliation of beginning and ending
balances related to fair value measurements using significant
unobservable inputs (Level 3), as of September 30:
|
2017
|
2016
|
|
|
|
Beginning
balance
|
$
5,283,573
|
$
6,323,032
|
Issuances
|
4,665,683
|
8,722,073
|
Net realized and
unrealized derivative gain
|
(7,928,627
)
|
(9,761,532
)
|
Ending
balance
|
$
2,029,629
|
$
5,283,573
|
The
fair values of the Company’s derivative instruments disclosed
above under Level 3 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. At September 30, 2017, the
Company’s Level 3 derivative instruments have a weighted
average fair value of $0.29 per share and a weighted average
exercise price of $5.41 per share. Fair values were determined
using a weighted average risk free interest rate of 1.85% and 80%
volatility. The instruments have a weighted average time to
maturity of 4.55 years. At September 30, 2016, the Company’s
Level 3 derivative instruments have a weighted average fair value
of $2.50 per share and a weighted average exercise price of $21.50
per share. Fair values were determined using a weighted average
risk free interest rate of 1.04% and 75% volatility.
15. NET LOSS PER COMMON SHARE
Basic
loss per share is computed by dividing net loss available to common
shareholders by the weighted average number of common shares
outstanding during the period. The Company’s potentially
dilutive shares, which include outstanding common stock options,
common stock warrants, restricted stock and shares issuable on
convertible debt, have not been included in the computation of
diluted net loss per share for all periods presented, as the result
would be anti-dilutive. For the years presented, the gain on
derivative instruments is not included in net loss available to
common shareholders for purposes of computing dilutive loss per
share because its effect is anti-dilutive.
The
following table provides a reconciliation of the numerators and
denominators of the basic and diluted per-share
computations:
|
Year Ended September 30, 2017
|
|
Net Loss
|
Weighted Average Shares
|
LPS
|
|
|
|
|
Basic
loss per share
|
$
(14,427,055
)
|
7,891,843
|
$
(1.83
)
|
Less: gain on derivatives
(1)
|
(677,287
)
|
10,804
|
|
|
|
|
|
Dilutive
loss per share
|
$
(15,104,342
)
|
7,902,647
|
$
(1.91
)
|
(1)
Includes series GG
and II warrants
|
Year Ended September 30, 2016
|
|
Net Loss
|
Weighted Average Shares
|
LPS
|
|
|
|
|
Basic
and dilutive loss per share
|
$
(11,512,492
)
|
4,866,204
|
$
(2.37
)
|
The
gain on derivative instruments that contain exercise prices lower
than the average market share price during the period is excluded
from the numerator and the related shares are excluded from the
denominator in calculating diluted loss per share.
In
accordance with the contingently issuable shares guidance of FASB
ASC Topic 260,
Earnings Per
Share
, the calculation of diluted net loss per share
excludes the following dilutive securities because their inclusion
would have been anti-dilutive as of September 30:
|
2017
|
2016
|
|
|
|
Options and
Warrants
|
2,538,130
|
3,675,281
|
Convertible
Debt
|
1,166,106
|
-
|
Unvested Restricted
Stock
|
604,000
|
604,000
|
Total
|
4,308,236
|
4,279,281
|
16. SUBSEQUENT EVENTS
In
accordance with ASC 855, “
Subsequent Events
”, the Company
has reviewed subsequent events through the date of the
filing.
On
December 19, 2017 the Company received subscription agreements for
the purchase of 1,289,478 shares of CEL-SCI common stock at a price
of $1.90 in the principal amount of $2,450,000 from 19 investors.
The common stock will be restricted unless registered. The
purchasers of the common stock also received warrants which entitle
the purchasers to acquire up to 1,289,478 shares of the
Company’s common stock. The warrants are exercisable at a
fixed price of $2.09 per share, will not be exercisable for 6
months and one day and will expire on December 18, 2022. Shares
issuable upon the exercise of the warrants will be restricted
securities unless registered.
On
December 18, 2017 CEL-SCI Corporation appointed Robert Watson to
its Board of Directors.
On November 2, 2017, holders of convertible notes
in the principal amount of $1.1 million sold in June 2017 and
holders of convertible notes in the principal amount of $1.2
million sold in July 2017 agreed to extend the maturity date of
these notes to September 21, 2018. In consideration for the
extension of the maturity date of the convertible notes, the
Company issued a total of 716,400 Series RR warrants to the
convertible note holders that agreed to the extension. Each Series
RR warrant entitles the holder to purchase one share of the
Company’s common stock. The Series RR warrants may be
exercised at any time on or before October 30, 2022 at an exercise
price of $1.65 per share.