NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2021 AND 2020 (UNAUDITED)
A. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed financial statements of CEL-SCI Corporation (the Company) are unaudited and certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. While management of the Company believes that the disclosures presented are adequate to make the information presented not misleading, these interim condensed financial statements should be read in conjunction with the financial statements and notes included in the Company’s annual report on Form 10-K for the year ended September 30, 2020.
In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments necessary for a fair presentation of the Company’s financial position as of March 31, 2021 and the results of its operations for the six and three months then ended. The condensed balance sheet as of September 30, 2020 is derived from the September 30, 2020 audited financial statements. All accounting policies have been consistently applied in the interim financial statements and the annual financial statements. The results of operations for the six and three months ended March 31, 2021 and 2020 are not necessarily indicative of the results to be expected for the entire year.
The financial statements have been prepared assuming that the Company will continue as a going concern, but due to 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. Refer to discussion in Note B.
Summary of Significant Accounting Policies:
U.S. Treasury Bills- U.S. Treasury Bills (“T-bills”) are highly liquid short-term investments with maturity dates of greater than 3 months, but less than one year. These investments are recorded at fair value.
Property and Equipment – Property and 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 fixed assets are reviewed on a quarterly basis to determine if any of the assets are impaired.
Patents - Patent expenditures are capitalized and amortized using the straight-line method over the shorter of the expected useful life or the legal life of the patent (17 years). In the event changes in technology or other circumstances impair the value or life of the patent, appropriate adjustment in the asset value and period of amortization is made. An impairment loss is recognized when estimated future undiscounted cash flows expected to result from the use of the asset, and from its disposition, is less than the carrying value of the asset. The amount of the impairment loss would be the difference between the estimated fair value of the asset and its carrying value.
Research and Development Costs - Research and development costs are expensed as incurred. Management accrues Clinical Research Organization (“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.
Leases – The Company accounts for contracts that convey the right to control the use of identified property, plant or equipment, over a period of time, in exchange for consideration, as leases upon inception. The Company leases certain real estate, machinery, laboratory equipment and office equipment over varying periods. Many of these leases include an option to either renew or terminate the lease. For purposes of calculating lease liabilities, these options are included in the lease term when it is reasonably certain that the Company will exercise such options. The incremental borrowing rate utilized to calculate the lease liabilities is based on the information available at commencement date, as most of the leases do not provide an implicit borrowing rate. Short-term leases, defined as leases with initial terms of 12 months or less, are not reflected on the balance sheet. Lease expense for such short-term leases is not material. For purposes of calculating lease liabilities, lease and non-lease components are combined.
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 March 31, 2021 and September 30, 2020.
Derivative Instruments – The Company has financing arrangements that consist of freestanding derivative instruments that contain embedded derivative features. 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 in the balance sheet and are measured at fair value with gains or losses recognized in earnings or other comprehensive income depending on the nature of the derivative or hybrid instruments. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation models considering all the rights and obligations of each instrument. The derivative liabilities are re-measured at fair value at the end of each interim reporting period.
Stock-Based Compensation – Compensation cost for stock-based awards to employees and non-employees 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.
The Company has Incentive Stock Option Plans, Non-Qualified Stock Option Plans, Stock Compensation Plans, 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 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 common stock. The risk-free interest rate assumption was based on the U.S. Treasury rate at date of the grant with the term equal to the expected life of the option. Forfeitures are accounted for when they occur. The expected term of options represents the period 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 and options granted under the 2020 Non-Qualified Stock Option Plan are subject to service, performance and market conditions and meet the classification of equity awards. These awards were measured at market value on the grant-dates for issuances where the attainment of performance criteria is likely 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.
Newly Adopted Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820).” Under the new standard, the amount and reason for a transfer between Level 1 and Level 2 of the fair value hierarchy is no longer required to be disclosed, but public companies are required to disclose a range and weighted average of significant unobservable inputs for Level 3 fair value measurements. The Company adopted the new standard on July 1, 2020 with no impact to the Company’s financial statements.
New Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in this Update simplify and clarify the guidance in Subtopic 815-40 and are effective for the Company for the fiscal year ending September 30, 2025, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on the financial statements, but plans to early adopt the guidance and does not expect significant impact to the financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new standard includes several provisions that simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and increasing consistency and clarity for the users of financial statements. This standard will be effective for the Company on October 1, 2021. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on the financial statements.
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.
B. OPERATIONS AND FINANCING
On May 4, 2020, the Company announced that the pivotal Phase 3 head and neck cancer study of Multikine immunotherapy had reached the targeted threshold of 298 events (deaths) required to conduct the data evaluation. Database lock has been completed and the Phase 3 study is now in the final statistical analysis phase. The Company will continue to remain blinded to the study results throughout this process. The Company will be advised of the results when the analysis is completed, and the study results will be announced to the public at that time.
The Company has incurred significant costs since its inception for the acquisition of certain proprietary technology and scientific knowledge 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 primarily 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 to continue with its research efforts. The ability to raise capital may be dependent upon market conditions that are outside the control of the Company. 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 believes there is a high likelihood that it will continue to receive funds from private and public offerings and warrant exercises similar to the way it has substantially funded operations for the past 12 months. However, there can be no assurance that the Company will be able to raise sufficient capital to support its operations.
To finance the Company, Management plans to raise additional capital in the form of warrant exercises, corporate partnerships, and 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 the Multikine Phase 3 study has ended and is only awaiting final data readout. 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 it is able to raise the required funding.
Impact of COVID-19 Pandemic
In response to the global outbreak of COVID-19 and the World Health Organization’s classification of the outbreak as a pandemic, the Company continues to take the necessary precautions to ensure the safety of its employees and to minimize interruptions to its operations. Management follows the Centers for Disease Control and Prevention’s (“CDC”) guidance and the recommendations and restrictions provided by state and local authorities. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude of impact the pandemic will have on the Company’s financial condition, liquidity and future results of operations. Management is actively monitoring the risks to public health and the impact of overall global business activity on its financial condition, liquidity, operations, suppliers, industry, and workforce.
The financial statements have been prepared assuming the Company will continue as a going concern, but due to the Company’s 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.
C. STOCKHOLDERS’ EQUITY
Proceeds from the Sale of Common Stock
In December 2020, the Company sold 1,000,000 shares of common stock at a public offering price of $14.65 per share and received aggregate proceeds of approximately $13.6 million.
In March 2020, the Company sold 630,500 shares of common stock at a public offering price of $12.22 per share and received aggregate net proceeds of approximately $7.1 million. Under the terms of the Underwriting Agreement the Company granted the Underwriters a 45-day option to purchase up to an additional 94,575 shares of common stock solely to cover over-allotments. The underwriter fully exercised this option in May 2020 resulting in additional net proceeds to the Company of approximately $1.1 million.
In December 2019, the Company sold 606,395 shares of common stock at a public offering price of $9.07 per share and received aggregate net proceeds of approximately $5.0 million. In January 2020, the underwriters of that offering fully exercised the option to purchase 90,959 additional shares of common stock at the public offering price of $9.07 per share for aggregate net proceeds to the Company of approximately $0.8 million.
Equity Compensation
Underlying share information for equity compensation plans as of March 31, 2021 is as follows:
|
Name of Plan
|
|
Total Shares Reserved
Under Plans
|
|
|
Shares Reserved for Outstanding Options
|
|
|
Shares
Issued
|
|
|
Remaining Options/Shares
Under Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Stock Options Plans
|
|
|
138,400
|
|
|
|
85,895
|
|
|
|
N/A
|
|
|
|
213
|
|
|
Non-Qualified Stock Option Plans
|
|
|
9,987,200
|
|
|
|
8,479,430
|
|
|
|
N/A
|
|
|
|
1,200,326
|
|
|
Stock Bonus Plans
|
|
|
783,760
|
|
|
|
N/A
|
|
|
|
352,007
|
|
|
|
431,720
|
|
|
Stock Compensation Plans
|
|
|
634,000
|
|
|
|
N/A
|
|
|
|
150,695
|
|
|
|
464,895
|
|
|
Incentive Stock Bonus Plan
|
|
|
640,000
|
|
|
|
N/A
|
|
|
|
614,500
|
|
|
|
25,500
|
|
Stock option activity:
|
|
|
Six Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Options granted
|
|
|
8,000
|
|
|
|
2,500
|
|
|
Options exercised
|
|
|
54,145
|
|
|
|
20,480
|
|
|
Options forfeited
|
|
|
42,165
|
|
|
|
1,000
|
|
|
Options expired
|
|
|
67
|
|
|
|
1,168
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Options granted
|
|
|
500
|
|
|
|
1,500
|
|
|
Options exercised
|
|
|
48,845
|
|
|
|
20,480
|
|
|
Options forfeited
|
|
|
-
|
|
|
|
1,000
|
|
|
Options expired
|
|
|
12
|
|
|
|
1,132
|
|
Stock-Based Compensation Expense
|
|
|
Six months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Employees
|
|
$
|
6,579,051
|
|
|
$
|
3,581,204
|
|
|
Non-employees
|
|
$
|
552,664
|
|
|
$
|
347,227
|
|
|
|
|
Three months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Employees
|
|
$
|
3,282,742
|
|
|
$
|
1,780,979
|
|
|
Non-employees
|
|
$
|
304,004
|
|
|
$
|
191,487
|
|
Employee compensation expense includes the expense related to options and restricted stock expensed over their vesting period. Non-employee expense includes the expense related to options and stock issued to consultants expensed over the period of the related service contracts.
Warrants and Non-Employee Options
The following chart represents the warrants and non-employee options outstanding at March 31, 2021:
|
Warrant/Options
|
|
Issue Date
|
|
Shares Issuable upon Exercise
of Warrants/ Options
|
|
|
Exercise Price
|
|
|
Expiration Date
|
|
|
Reference
|
|
|
Series N
|
|
8/18/2008
|
|
|
85,339
|
|
|
$
|
3.00
|
|
|
8/18/2021
|
|
|
*
|
|
|
Series UU
|
|
6/11/2018
|
|
|
93,603
|
|
|
$
|
2.80
|
|
|
6/30/2021
|
|
|
*
|
|
|
Series X
|
|
1/13/2016
|
|
|
120,000
|
|
|
$
|
9.25
|
|
|
7/13/2021
|
|
|
*
|
|
|
Series Y
|
|
2/15/2016
|
|
|
26,000
|
|
|
$
|
12.00
|
|
|
8/15/2021
|
|
|
*
|
|
|
Series ZZ
|
|
5/23/2016
|
|
|
19,200
|
|
|
$
|
13.75
|
|
|
5/18/2021
|
|
|
1
|
|
|
Series BB
|
|
8/26/2016
|
|
|
16,000
|
|
|
$
|
13.75
|
|
|
8/22/2021
|
|
|
*
|
|
|
Series Z
|
|
5/23/2016
|
|
|
184,800
|
|
|
$
|
13.75
|
|
|
11/23/2021
|
|
|
1
|
|
|
Series FF
|
|
12/8/2016
|
|
|
68,048
|
|
|
$
|
3.91
|
|
|
12/1/2021
|
|
|
*
|
|
|
Series CC
|
|
12/8/2016
|
|
|
46,345
|
|
|
$
|
5.00
|
|
|
12/8/2021
|
|
|
1
|
|
|
Series HH
|
|
2/23/2017
|
|
|
200
|
|
|
$
|
3.13
|
|
|
2/16/2022
|
|
|
*
|
|
|
Series AA
|
|
8/26/2016
|
|
|
100,000
|
|
|
$
|
13.75
|
|
|
2/22/2022
|
|
|
1
|
|
|
Series MM
|
|
6/22/2017
|
|
|
481,361
|
|
|
$
|
1.86
|
|
|
6/22/2022
|
|
|
2
|
|
|
Series NN
|
|
7/24/2017
|
|
|
327,008
|
|
|
$
|
2.52
|
|
|
7/24/2022
|
|
|
2
|
|
|
Series RR
|
|
10/30/2017
|
|
|
347,560
|
|
|
$
|
1.65
|
|
|
10/30/2022
|
|
|
2
|
|
|
Series SS
|
|
12/19/2017
|
|
|
220,800
|
|
|
$
|
2.09
|
|
|
12/18/2022
|
|
|
2
|
|
|
Series TT
|
|
2/5/2018
|
|
|
161,082
|
|
|
$
|
2.24
|
|
|
2/5/2023
|
|
|
2
|
|
|
Consultants
|
|
7/28/2017 – 11/18/2020
|
|
|
15,000
|
|
|
$
|
2.18 - $11.61
|
|
|
11/17/2022 - 7/27/2027
|
|
|
3
|
|
* No current period changes to these warrants
1. Derivative Liabilities
The table below presents the fair value of the warrant liabilities at the balance sheet dates:
|
|
|
March 31,
2021
|
|
|
September 30,
2020
|
|
|
Series W warrants
|
|
$
|
-
|
|
|
$
|
73,570
|
|
|
Series Z warrants
|
|
|
1,013,400
|
|
|
|
1,207,902
|
|
|
Series ZZ warrants
|
|
|
77,574
|
|
|
|
75,044
|
|
|
Series AA warrants
|
|
|
619,033
|
|
|
|
1,082,212
|
|
|
Series BB warrants
|
|
|
81,374
|
|
|
|
65,173
|
|
|
Series CC warrants
|
|
|
488,784
|
|
|
|
1,259,712
|
|
|
Series HH warrants
|
|
|
2,444
|
|
|
|
2,000
|
|
|
Total warrant liabilities
|
|
$
|
2,282,609
|
|
|
$
|
3,765,613
|
|
The table below presents the losses on the warrant liabilities for the six months ended March 31:
|
|
|
2021
|
|
|
2020
|
|
|
Series V warrants
|
|
$
|
-
|
|
|
$
|
78,461
|
|
|
Series W warrants
|
|
|
73,570
|
|
|
|
(367,369
|
)
|
|
Series Z warrants
|
|
|
(696,498
|
)
|
|
|
(311,876
|
)
|
|
Series ZZ warrants
|
|
|
(11,530
|
)
|
|
|
(4,585
|
)
|
|
Series AA warrants
|
|
|
(661,821
|
)
|
|
|
(326,623
|
)
|
|
Series BB warrants
|
|
|
(16,201
|
)
|
|
|
(7,028
|
)
|
|
Series CC warrants
|
|
|
(795,257
|
)
|
|
|
(826,277
|
)
|
|
Series FF warrants
|
|
|
-
|
|
|
|
(319,706
|
)
|
|
Series HH warrants
|
|
|
(444
|
)
|
|
|
(34,457
|
)
|
|
Series JJ warrants
|
|
|
-
|
|
|
|
(64,992
|
)
|
|
Series LL warrants
|
|
|
-
|
|
|
|
(98,066
|
)
|
|
Net loss on warrant liabilities
|
|
$
|
(2,108,181
|
)
|
|
$
|
(2,282,518
|
)
|
The table below presents the losses on the warrant liabilities for the three months ended March 31:
|
|
|
2021
|
|
|
2020
|
|
|
Series V warrants
|
|
$
|
-
|
|
|
$
|
(476,570
|
)
|
|
Series W warrants
|
|
|
-
|
|
|
|
(518,743
|
)
|
|
Series Z warrants
|
|
|
(974,861
|
)
|
|
|
(322,425
|
)
|
|
Series ZZ warrants
|
|
|
(63,397
|
)
|
|
|
(19,432
|
)
|
|
Series AA warrants
|
|
|
(995,629
|
)
|
|
|
(391,601
|
)
|
|
Series BB warrants
|
|
|
(46,833
|
)
|
|
|
(6,597
|
)
|
|
Series CC warrants
|
|
|
(959,602
|
)
|
|
|
(803,596
|
)
|
|
Series FF warrants
|
|
|
-
|
|
|
|
(312,517
|
)
|
|
Series HH warrants
|
|
|
(695
|
)
|
|
|
(34,375
|
)
|
|
Series JJ warrants
|
|
|
-
|
|
|
|
(64,862
|
)
|
|
Series LL warrants
|
|
|
-
|
|
|
|
(98,309
|
)
|
|
Net loss on warrant liabilities
|
|
$
|
(3,041,017
|
)
|
|
$
|
(3,049,027
|
)
|
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 dates is recognized as a gain or loss.
Changes in Warrant Liabilities
On October 28, 2020, 688,930 Series W warrants, with an exercise price of $16.75 expired.
Exercise of Warrant Liabilities
The following warrants recorded as liabilities were exercised during the periods ended March 31, 2021.
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Warrants
|
|
Warrants Exercised
|
|
|
Exercise
Price
|
|
|
Proceeds
|
|
|
Warrants Exercised
|
|
|
Exercise
Price
|
|
|
Proceeds
|
|
|
Series Z
|
|
|
79,200
|
|
|
$
|
13.75
|
|
|
$
|
1,089,000
|
|
|
|
79,200
|
|
|
$
|
13.75
|
|
|
$
|
1,089,000
|
|
|
Series ZZ
|
|
|
800
|
|
|
$
|
13.75
|
|
|
|
11,000
|
|
|
|
800
|
|
|
$
|
13.75
|
|
|
|
11,000
|
|
|
Series AA
|
|
|
100,000
|
|
|
$
|
13.75
|
|
|
|
1,375,000
|
|
|
|
100,000
|
|
|
$
|
13.75
|
|
|
|
1,375,000
|
|
|
Series CC
|
|
|
97,298
|
|
|
$
|
5.00
|
|
|
|
486,490
|
|
|
|
102,298
|
|
|
$
|
5.00
|
|
|
|
511,490
|
|
|
|
|
|
277,298
|
|
|
|
|
|
|
$
|
2,961,490
|
|
|
|
282,298
|
|
|
|
|
|
|
$
|
2,986,490
|
|
The following warrants recorded as liabilities were exercised during the periods ended March 31, 2020.
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Warrants
|
|
Warrants Exercised
|
|
|
Exercise
Price
|
|
|
Proceeds
|
|
|
Warrants Exercised
|
|
|
Exercise
Price
|
|
|
Proceeds
|
|
|
Series CC
|
|
|
123,820
|
|
|
$
|
5.00
|
|
|
$
|
619,100
|
|
|
|
123,820
|
|
|
$
|
5.00
|
|
|
$
|
619,100
|
|
|
Series FF
|
|
|
68,048
|
|
|
$
|
3.91
|
|
|
|
265,812
|
|
|
|
68,048
|
|
|
$
|
3.91
|
|
|
|
265,812
|
|
|
Series HH
|
|
|
6,300
|
|
|
$
|
3.13
|
|
|
|
19,687
|
|
|
|
6,300
|
|
|
$
|
3.13
|
|
|
|
19,687
|
|
|
Series JJ
|
|
|
9,450
|
|
|
$
|
3.13
|
|
|
|
29,531
|
|
|
|
9,450
|
|
|
$
|
3.13
|
|
|
|
29,531
|
|
|
Series LL
|
|
|
26,398
|
|
|
$
|
3.59
|
|
|
|
94,867
|
|
|
|
26,398
|
|
|
$
|
3.59
|
|
|
|
94,867
|
|
|
|
|
|
234,016
|
|
|
|
|
|
|
$
|
1,028,997
|
|
|
|
234,016
|
|
|
|
|
|
|
$
|
1,028,997
|
|
2. Equity Warrants
Changes in Equity Warrants
On December 7, 2020, the expiration date of the Series N warrants was extended six months from February 18, 2021 to August 18, 2021. The incremental cost of this extension was approximately $1,000, which was recorded as a deemed dividend in the financial statements for the six months ended March 31, 2021. The Series N warrants are held by the de Clara Trust, of which the Company’s CEO, Geert Kersten, is a beneficiary.
On December 7, 2020, the expiration date of the Series X warrants was extended six months from January 13, 2021 to July 13, 2021. The incremental cost of this extension was approximately $85,000, which was recorded as a deemed dividend in the financial statements for the six months ended March 31, 2021. The Series X warrants are held by the de Clara Trust, of which the Company’s CEO, Geert Kersten, is a beneficiary.
On December 7, 2020, the expiration date of the Series Y warrants, which were issued in connection with a financing, was extended six months from February 15, 2021 to August 15, 2021. The incremental cost of this extension was approximately $41,000 and was recorded as additional paid-in capital.
On December 7, 2020, the expiration date of Series UU warrants were extended six months from December 31, 2020 to June 30, 2021. These warrants were previously issued as an inducement to convert notes payable into shares of common stock. The incremental cost of this extension was $192 and was recorded as interest expense for the six months ended March 31, 2021. The Series UU warrants are held by Geert Kersten, Patricia Prichep (current Officers of the Company) and the de Clara Trust, of which the Company’s CEO, Geert Kersten, is a beneficiary.
On January 23, 2020, the expiration date of the Series N warrants was extended to February 18, 2021. The incremental cost of this extension was approximately $22,000, which was recorded as a deemed dividend in the financial statements for the six and three months ended March 31, 2020. The Series N warrants are held by the de Clara Trust, of which the Company’s CEO, Geert Kersten, is a beneficiary.
Exercise of Equity Warrants
The following warrants recorded as equity were exercised during the periods ended March 31, 2021.
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Warrants
|
|
Warrants Exercised
|
|
|
Exercise
Price
|
|
|
Proceeds
|
|
|
Warrants Exercised
|
|
|
Exercise
Price
|
|
|
Proceeds
|
|
|
Series MM
|
|
|
316,272
|
|
|
$
|
1.86
|
|
|
$
|
588,265
|
|
|
|
316,272
|
|
|
$
|
1.86
|
|
|
$
|
588,265
|
|
|
Series NN
|
|
|
21,834
|
|
|
$
|
2.52
|
|
|
|
55,022
|
|
|
|
21,834
|
|
|
$
|
2.52
|
|
|
|
55,022
|
|
|
Series RR
|
|
|
70,089
|
|
|
$
|
1.65
|
|
|
|
115,647
|
|
|
|
70,089
|
|
|
$
|
1.65
|
|
|
|
115,647
|
|
|
Series SS
|
|
|
105,264
|
|
|
$
|
2.09
|
|
|
|
220,002
|
|
|
|
105,264
|
|
|
$
|
2.09
|
|
|
|
220,002
|
|
|
Series TT
|
|
|
200,482
|
|
|
$
|
2.24
|
|
|
|
449,080
|
|
|
|
210,482
|
|
|
$
|
2.24
|
|
|
|
471,480
|
|
|
|
|
|
713,941
|
|
|
|
|
|
|
$
|
1,428,016
|
|
|
|
723,941
|
|
|
|
|
|
|
$
|
1,450,416
|
|
The following warrants recorded as equity were exercised during the periods ended March 31, 2020.
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Warrants
|
|
Warrants Exercised
|
|
|
Exercise
Price
|
|
|
Proceeds
|
|
|
Warrants Exercised
|
|
|
Exercise
Price
|
|
|
Proceeds
|
|
|
Series NN
|
|
|
98,253
|
|
|
$
|
2.52
|
|
|
$
|
247,598
|
|
|
|
98,253
|
|
|
$
|
2.52
|
|
|
$
|
247,598
|
|
|
Series OO
|
|
|
30,000
|
|
|
$
|
2.52
|
|
|
|
75,600
|
|
|
|
40,000
|
|
|
$
|
2.52
|
|
|
|
100,800
|
|
|
Series SS
|
|
|
94,474
|
|
|
$
|
2.09
|
|
|
|
197,451
|
|
|
|
117,106
|
|
|
$
|
2.09
|
|
|
|
244,752
|
|
|
Series TT
|
|
|
77,857
|
|
|
$
|
2.24
|
|
|
|
174,400
|
|
|
|
178,125
|
|
|
$
|
2.24
|
|
|
|
399,000
|
|
|
Series VV
|
|
|
27,500
|
|
|
$
|
1.75
|
|
|
|
48,125
|
|
|
|
27,500
|
|
|
$
|
1.75
|
|
|
|
48,125
|
|
|
|
|
|
328,084
|
|
|
|
|
|
|
$
|
743,174
|
|
|
|
460,984
|
|
|
|
|
|
|
$
|
1,040,275
|
|
3. Options and Shares Issued to Consultants
During the six months ended March 31, 2021 and 2020, the Company issued 28,530 and 32,939 shares, respectively, of restricted common stock to consultants for services. The weighted average grant date fair value of the shares issued to consultants was $17.66 and $9.44 during the six months ended March 31, 2021 and 2020, respectively. During the three months ended March 31, 2021 and 2020, the Company issued 13,486 and 17,120 shares, respectively, of restricted common stock to consultants for services. The weighted average grant date fair value of the shares issued to consultants was $23.47 and $11.53, respectively, during the three months ended March 31, 2021 and 2020.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.
Additionally, during the six months ended March 31, 2021, the Company issued to a consultant 5,000 options to purchase common stock with an exercise price of $11.61. The options are exercisable beginning May 18, 2021 and expire on November 17, 2022. The options are being expensed on a straight-line basis over the six-month vesting period at a fair value of approximately $28,000 or $5.65 per option. No options were issued to consultants during the three months ended March 31, 2021. No options were issued to consultants during the six and three months ended March 31, 2020.
As of March 31, 2021 and September 30, 2020, respectively, 15,000 and 10,000 options issued to consultants remained outstanding, all of which were issued from the Non-Qualified Stock Option plans and of which 10,000 are vested as of the balance sheet dates.
During the six months ended March 31, 2021 and 2020, the Company recorded total expense of approximately $553,000 and $347,000, respectively, relating to these consulting agreements. At March 31, 2021 and September 30, 2020, consulting fees of approximately $484,000 and $395,000, respectively, are included in prepaid expenses.
4. Securities Purchase Agreement
The Company entered into a Securities Purchase Agreement (SPA) with Ergomed plc, one of the Company’s Clinical Research Organizations responsible for managing the Company’s Phase 3 clinical trial, to facilitate payment of amounts due to Ergomed. Under the Agreement, the Company issued Ergomed shares of common stock and the net proceeds from the sales of those shares reduces outstanding amounts due Ergomed. Upon issuance, the Company expenses the full value of the shares as Other non-operating gain/loss and subsequently offsets the expense as amounts are realized through the sale by Ergomed and reduces accounts payable to Ergomed. No shares were issued during the periods presented. The following amounts were realized through the resale of shares and are included in Other non-operating gains for the periods noted.
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
|
3/31/2021
|
|
|
3/31/2020
|
|
|
3/31/2021
|
|
|
3/31/2020
|
|
|
Amount realized through the resale of shares
|
|
$
|
675,236
|
|
|
$
|
1,720,680
|
|
|
$
|
553,630
|
|
|
$
|
934,511
|
|
As of March 31, 2021, Ergomed held 63,021 shares for resale.
D. FAIR VALUE MEASUREMENTS
In accordance with ASC 820-10, “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 with respect to those future amounts.
ASC 820-10 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to active markets for identical assets and liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company classifies fair value balances based on the observability of those inputs. The three levels of the fair value hierarchy are as follows:
|
|
·
|
Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities
|
|
|
|
|
|
|
·
|
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
|
|
|
|
|
|
|
·
|
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 an input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels.
The Company purchased short-term T-bills during the quarter ended March 31, 2021 that are classified as trading securities. Quoted market prices were applied to determine the fair value of short-term investments, therefore they were categorized as Level 1 on the fair value hierarchy. The T-bills were recorded at fair market value, which includes an unrealized gain of approximately $7,000. The T-bills have maturity dates ranging from April through December 2021 and yield a weighted average interest rate of 0.09%.
The Company measures its warrant liabilities at fair value. At March 31, 2021 and September 30, 2020, all warrant liabilities were measured using unobservable inputs, i.e. Level 3 measurement.
The following sets forth the reconciliation of beginning and ending balances related to fair value measurements using significant unobservable inputs (Level 3) for the six months ended March 31, 2021 and the year ended September 30, 2020:
|
|
|
Six months ended
|
|
|
Twelve months ended
|
|
|
|
|
March 31,
2021
|
|
|
September 30,
2020
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
3,765,613
|
|
|
$
|
6,488,310
|
|
|
Issuances
|
|
|
-
|
|
|
|
-
|
|
|
Exercises
|
|
|
(3,591,185
|
)
|
|
|
(3,071,775
|
)
|
|
Realized and unrealized net loss
|
|
|
2,108,181
|
|
|
|
349,078
|
|
|
Ending balance
|
|
$
|
2,282,609
|
|
|
$
|
3,765,613
|
|
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.
E. RELATED PARTY TRANSACTIONS
On December 7, 2020, the expiration dates of the Series N and Series X warrants held by the de Clara Trust, of which the Company’s CEO, Geert Kersten, is a beneficiary, were extended by six months (Note C). The incremental cost of these modifications was approximately $86,000 and was recorded as a deemed dividend in the financial statements for the six months ended March 31, 2021.
On December 7, 2020, the expiration date of 93,603 Series UU warrants was extended from December 31, 2020 to June 30, 2021. The incremental cost of this extension was $192 and was recorded as interest expense for the six months ended March 31, 2021. The Series UU warrants are held by certain officers of the Company and were originally issued with convertible debt.
During the six months ended March 31, 2020, officers and directors of the Company purchased 20,512 shares of restricted common stock at an aggregate fair market value of approximately $185,000. This include 16,787 shares purchased during the three months ended March 31, 2020 with an aggregate fair market value of approximately $160,000.
On January 23, 2020, the expiration date of the Series N warrants was extended to February 18, 2021. The incremental cost of this extension was approximately $22,000, which was recorded as a deemed dividend in the financial statements for the six and three months ended March 31, 2020. The Series N warrants are held by the de Clara Trust, of which the Company’s CEO, Geert Kersten, is a beneficiary.
F. COMMITMENTS AND CONTINGENCIES
Clinical Research Agreements
Under co-development and revenue sharing agreements with Ergomed, Ergomed agreed to contribute up to $12 million towards the Company’s Phase 3 Clinical Trial in the form of discounted clinical services in exchange for a single digit percentage of milestone and royalty payments, up to a specific maximum amount. The Company accounted for the co-development and revenue sharing agreements 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 inception of the agreement with Ergomed, the Company has incurred research and development expenses of approximately $34.5 million for Ergomed’s services. This amount is net of Ergomed’s discount of approximately $11.4 million. During the six months ended March 31, 2021 and 2020, the Company recorded, net of Ergomed’s discount, approximately $1.0 million and $1.6 million, respectively, as research and development expense related to Ergomed’s services. During the three months ended March 31, 2021 and 2020, the Company recorded, net of Ergomed’s discount, approximately $0.4 million and $0.8 million, respectively, as research and development expense related to Ergomed’s services.
Lease Agreements
The Company leases a manufacturing facility near Baltimore, Maryland (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, which expires in October 2028.
In August 2020, the Company entered into an amendment to the San Tomas lease agreement under which the landlord agreed to allow the Company to substantially upgrade the manufacturing facility in preparation for the potential commercial production of Multikine. The estimated cost of the upgrades is $10.6 million, of which approximately $9.5 million has been incurred as of March 31, 2021. The landlord agreed to finance the final $2.4 million of the costs incurred which will be repaid through increased lease payments over the remaining lease term starting on March 1, 2021. The repayment will include a base rent which escalates at 3% each year plus interest that accrues at 13.75% per year. The Company remeasured the right of use liability to account for the modified payments using a 10% implicit interest rate. This resulted in a decrease of approximately $140,000 to both the right of use asset and liability. Additionally, this financing is considered to be a lease incentive from the landlord and has been included in the calculation of the lease liability. The total value of the leasehold improvements will be recorded in property and equipment and will be amortized over the remaining lease term when the assets are placed in service.
At March 31, 2021 and September 30, 2020, the net book value of the finance lease right of use asset is approximately $12.8 million and $13.8 million, respectively and the balance of the finance lease liability is approximately $12.1 million and $12.7 million, respectively, most of which is current as of March 31, 2021, and approximately $0.9 million of which is current as of September 30, 2020. These amounts include the San Tomas lease as well as several other smaller finance leases for office equipment. The finance right of use assets are being depreciated using a straight-line method over the underlying lease terms. Total cash paid related to finance leases during the six months ended March 31, 2021 and 2020 was approximately $1.0 million, of which approximately $0.6 million was for interest. The weighted average discount rate of the Company’s finance leases is 10.0% and the weighted average time to maturity is 7.6 years.
The Company was required to deposit the equivalent of one year of base rent in accordance with the 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 at March 31, 2021 and September 30, 2020.
Approximate future minimum lease payments under finance leases as of March 31, 2021 are as follows:
|
Six months ending September 30, 2021 (1)
|
|
$
|
(1,192,000
|
)
|
|
Years ending September 30,
|
|
|
|
|
|
2022
|
|
|
2,486,000
|
|
|
2023
|
|
|
2,569,000
|
|
|
2024
|
|
|
2,648,000
|
|
|
2025
|
|
|
2,733,000
|
|
|
2026
|
|
|
2,824,000
|
|
|
Thereafter
|
|
|
6,186,000
|
|
|
Total future minimum finance lease obligation
|
|
|
18,254,000
|
|
|
Less: imputed interest on financing lease obligation
|
|
|
(6,188,000
|
)
|
|
Net present value of financing lease obligation
|
|
$
|
12,066,000
|
|
|
|
|
|
|
|
|
(1) Amount is net of landlord incentive of $2.4 million to be received in second half of fiscal year 2021
|
Effective April 30, 2020, the Company terminated a month-to-month arrangement with a sub-lessee as the sub-leased space is needed to prepare the facility to produce Multikine for commercial purposes and before the Company’s Biologics License Application (BLA) can be submitted to the FDA. The sublease rental income for the six and three months ended March 31, 2020 was approximately $37,000 and $18,000, respectively.
The Company leases two facilities under 60-month operating leases. The lease for its research and development laboratory expires February 28, 2022 and the lease for its office headquarters was renewed on July 1, 2020 and expires on November 30, 2025. The operating leases include escalating rental payments. The Company is recognizing the related rent expense on a straight-line basis over the full 60-month terms of the leases. As of March 31, 2021 and September 30, 2020, the net book value of the operating lease right of use assets is approximately $1.1 million and $1.2 million, respectively. As of March 31, 2021 and September 30, 2020, the balance of the operating lease liabilities is approximately $1.2 million and $1.3 million, of which approximately $200,000 and $100,000, respectively, is current. The Company incurred lease expense for operating leases of approximately $132,000 and $135,000, respectively, for the six months ended March 31, 2021 and 2020. The Company incurred lease expense for operating leases of approximately $66,000 and $68,000, respectively, for the three months ended March 31, 2021 and 2020. Total cash paid related to operating leases during the six months ended March 31, 2021 and 2020 was approximately $111,000 and $132,000, respectively. Total cash paid related to operating leases during the three months ended March 31, 2021 and 2020 was approximately $63,000 and $66,000, respectively.
As of March 31, 2021, future minimum lease payments on operating leases are as follows:
|
Six months ending September 30, 2021
|
|
$
|
129,000
|
|
|
Year ending September 30,
|
|
|
|
|
|
2022
|
|
|
264,000
|
|
|
2022
|
|
|
272,000
|
|
|
2024
|
|
|
280,000
|
|
|
2025
|
|
|
288,000
|
|
|
2026
|
|
|
207,000
|
|
|
Thereafter
|
|
|
80,000
|
|
|
Total future minimum lease obligation
|
|
|
1,520,000
|
|
|
Less imputed interest on operating lease obligation
|
|
|
(327,000
|
)
|
|
Net present value of operating lease obligation
|
|
$
|
1,193,000
|
|
G. PATENTS
During the six months ended March 31, 2021 and 2020, no patent impairment charges were recorded. For the six months ended March 31, 2021 and 2020, amortization of patent costs totaled approximately $26,000 and $27,000, respectively. For the three months ended March 31, 2021 and 2020, amortization of patent costs totaled approximately $13,000 and $14,000, respectively. Approximate estimated future amortization expense is as follows:
|
Six months ending September 30, 2021
|
|
$
|
26,000
|
|
|
Year ending September 30,
|
|
|
|
|
|
2022
|
|
|
48,000
|
|
|
2023
|
|
|
38,000
|
|
|
2024
|
|
|
31,000
|
|
|
2025
|
|
|
28,000
|
|
|
2026
|
|
|
24,000
|
|
|
Thereafter
|
|
|
97,000
|
|
|
Total
|
|
$
|
292,000
|
|
H. LOSS PER COMMON SHARE
The following tables provide the details of the basic and diluted loss per-share computations:
|
|
|
Six months ended March 31,
|
|
|
Three months ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Loss per share – basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders - basic
|
|
$
|
(19,303,763
|
)
|
|
$
|
(14,620,912
|
)
|
|
$
|
(11,281,120
|
)
|
|
$
|
(9,089,552
|
)
|
|
Weighted average shares outstanding - basic
|
|
|
39,351,194
|
|
|
|
35,621,711
|
|
|
|
40,047,273
|
|
|
|
36,165,050
|
|
|
Basic and diluted loss per common share
|
|
$
|
(0.49
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.25
|
)
|
In accordance with the contingently issuable shares guidance of FASB ASC Topic 260, Earnings Per Share, the calculation of diluted net earnings (loss) per share excludes the following securities because their inclusion would have been anti-dilutive as of March 31:
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Options and Warrants
|
|
|
5,945,064
|
|
|
|
6,452,645
|
|
|
Unvested Restricted Stock
|
|
|
302,500
|
|
|
|
318,798
|
|
|
Total
|
|
|
6,247,564
|
|
|
|
6,771,443
|
|
J. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date these financial statements were filed and determined there are no subsequent events that require disclosure.