UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

      

(Mark One)

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020

OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934

    

For the transition period from _______________ to ______________.

   

Commission File Number 001-11889

  

CEL-SCI CORPORATION

 

 Colorado

 

 84-0916344

 State or other jurisdiction incorporation

 

 (IRS) Employer Identification Number

 

 8229 Boone Boulevard, Suite 802

 Vienna, Virginia 22182 

Address of principal executive offices

         

 (703) 506-9460

 Registrant’s telephone number, including area code

 

 Securities registered pursuant to Section 12(b) of the Act:

   

Title of Each Class

 

Trading Symbol(s)  

 

Name of Each Exchange on Which Registered

Common Stock

 

CVM

 

NYSE American

   

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) had been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒     No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act). Yes      No ☒

 

Class of Stock

 

 No. Shares Outstanding

 

Date

Common

 

38,624,084

 

August 5, 2020

  

 
 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION

 

Item 1.

 

 

Page

 

 

 

 

 

 

 

 

Condensed Balance Sheets at June 30, 2020 and September 30, 2019 (unaudited)

 

 

3

 

 

 

 

 

 

Condensed Statements of Operations for the nine months ended June 30, 2020 and 2019 (unaudited)

 

 

4

 

 

 

 

 

 

Condensed Statements of Operations for the three months ended June 30, 2020 and 2019 (unaudited)

 

 

5

 

 

 

 

 

 

Condensed Statements of Cash Flows for the nine months ended June 30, 2020 and 2019 (unaudited)

 

 

8

 

 

 

 

 

 

 

Condensed Statement of Stockholders’ Equity for the nine months ended June 30, 2020 and 2019 (unaudited)

 

 

6

 

 

 

 

 

 

 

 

Notes to Condensed Financial Statements (unaudited)

 

 

10

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

24

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risks

 

 

27

 

 

 

 

 

Item 4.

Controls and Procedures

 

 

27

 

 

 

 

 

 

PART II

 

 

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

29

 

 

 

 

 

 

Item 6.

Exhibits

 

 

29

 

 

 

 

 

 

 

Signatures

 

 

30

 

    

 
2
Table of Contents

 

CEL-SCI CORPORATION

CONDENSED BALANCE SHEETS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

JUNE 30,

 

 

SEPTEMBER 30,

 

ASSETS

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$ 20,136,789

 

 

$ 8,444,774

 

Receivables

 

 

255,007

 

 

 

62,765

 

Prepaid expenses

 

 

1,505,878

 

 

 

524,953

 

Supplies used for R&D and manufacturing

 

 

787,011

 

 

 

782,363

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

22,684,685

 

 

 

9,814,855

 

 

 

 

 

 

 

 

 

 

Finance lease right of use assets

 

 

12,367,947

 

 

 

-

 

Operating lease right of use assets

 

 

1,237,339

 

 

 

-

 

Property and equipment, net

 

 

3,762,633

 

 

 

15,825,636

 

Patent costs, net

 

 

311,346

 

 

 

311,586

 

Deposits

 

 

1,670,917

 

 

 

1,670,917

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$ 42,034,867

 

 

$ 27,622,994

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$ 943,821

 

 

$ 1,586,478

 

Accrued expenses

 

 

232,252

 

 

 

34,432

 

Due to employees

 

 

543,132

 

 

 

709,442

 

Derivative instruments, current portion

 

 

1,924,160

 

 

 

674,442

 

Lease liabilities, current portion

 

 

1,007,868

 

 

 

-

 

Other current liabilities

 

 

-

 

 

 

14,956

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

4,651,233

 

 

 

3,019,750

 

 

 

 

 

 

 

 

 

 

Derivative instruments, net of current portion

 

 

5,094,172

 

 

 

5,813,868

 

Finance lease obligations, net of current portion

 

 

11,995,197

 

 

 

13,508,156

 

Operating lease obligations, net of current portion

 

 

1,154,325

 

 

 

-

 

Other liabilities

 

 

125,000

 

 

 

147,553

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

23,019,927

 

 

 

22,489,327

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Preferred stock, $.01 par value-200,000 shares authorized;

 

 

 

 

 

 

 

 

-0- shares issued and outstanding

 

 

-

 

 

 

-

 

Common stock, $.01 par value - 600,000,000 shares authorized;

 

 

 

 

 

 

 

 

38,522,236 and 35,231,776 shares issued and outstanding

 

 

 

 

 

 

 

 

at June 30, 2020 and September 30, 2019, respectively

 

 

385,223

 

 

 

352,318

 

Additional paid-in capital

 

 

396,959,284

 

 

 

358,507,603

 

Accumulated deficit

 

 

(378,329,567 )

 

 

(353,726,254 )

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

19,014,940

 

 

 

5,133,667

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$ 42,034,867

 

 

$ 27,622,994

 

 

 

 

 

 

 

 

 

 

See notes to condensed financial statements.

   

 
3
Table of Contents

  

CEL-SCI CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED JUNE 30, 2020 and 2019

(UNAUDITED)

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Grant income

 

$ 530,106

 

 

$ 386,121

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

12,511,830

 

 

 

9,269,772

 

General and administrative

 

 

8,389,821

 

 

 

5,667,510

 

Total operating expenses

 

 

20,901,651

 

 

 

14,937,282

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(20,371,545 )

 

 

(14,551,161 )

 

 

 

 

 

 

 

 

 

Other income

 

 

38,741

 

 

 

54,575

 

Loss on derivative instruments

 

 

(3,565,347 )

 

 

(3,316,384 )

Warrant inducement expense

 

 

(805,753 )

 

 

-

 

Other non-operating gains

 

 

774,245

 

 

 

1,877,197

 

Interest expense, net

 

 

(777,898 )

 

 

(1,350,774 )

Net loss

 

 

(24,707,557 )

 

 

(17,286,547 )

 

 

 

 

 

 

 

 

 

Modification of warrants

 

 

(21,734 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Net loss available to common shareholders

 

$ (24,729,291 )

 

$ (17,286,547 )

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$ (0.68 )

 

$ (0.58 )

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

36,230,092

 

 

 

30,046,241

 

 

 

 

 

 

 

 

 

 

See notes to condensed financial statements.

     

 
4
Table of Contents

     

CEL-SCI CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2020 and 2019

(UNAUDITED)

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Grant income

 

$ 195,874

 

 

$ 108,938

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

3,912,870

 

 

 

2,965,512

 

General and administrative

 

 

3,192,403

 

 

 

2,353,525

 

Total operating expenses

 

 

7,105,273

 

 

 

5,319,037

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(6,909,399 )

 

 

(5,210,099 )

 

 

 

 

 

 

 

 

 

Other income

 

 

1,845

 

 

 

18,448

 

Loss on derivative instruments

 

 

(1,282,829 )

 

 

(7,905,519 )

Warrant inducement expense

 

 

(805,753 )

 

 

-

 

Other non-operating (losses) gains

 

 

(950,935 )

 

 

1,455,844

 

Interest expense, net

 

 

(273,708 )

 

 

(443,442 )

 

 

 

 

 

 

 

 

 

Net loss available to common shareholders

 

$ (10,220,779 )

 

$ (12,084,768 )

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$ (0.27 )

 

$ (0.37 )

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

37,453,539

 

 

 

33,051,888

 

 

 

 

 

 

 

 

 

 

See notes to condensed financial statements.

     

 
5
Table of Contents

   

CEL-SCI CORPORATION

STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common

 

 

Stock

 

 

Paid-In

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT OCTOBER 1, 2019

 

 

35,231,776

 

 

$ 352,318

 

 

$ 358,507,603

 

 

$ (353,726,254 )

 

$ 5,133,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adoption of new accounting standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

104,244

 

 

 

104,244

 

Issuance of common stock

 

 

606,395

 

 

 

6,064

 

 

 

5,043,939

 

 

 

-

 

 

 

5,050,003

 

Warrant exercises

 

 

132,900

 

 

 

1,329

 

 

 

295,772

 

 

 

-

 

 

 

297,101

 

Equity based compensation - employees

 

 

-

 

 

 

-

 

 

 

1,800,225

 

 

 

 

 

 

 

1,800,225

 

401(k) contributions paid in common stock

 

 

4,474

 

 

 

45

 

 

 

40,892

 

 

 

-

 

 

 

40,937

 

Stock issued to nonemployees for service

 

 

15,819

 

 

 

158

 

 

 

84,289

 

 

 

-

 

 

 

84,447

 

Purchase of stock by officer

 

 

3,725

 

 

 

37

 

 

 

24,963

 

 

 

-

 

 

 

25,000

 

Share issuance costs

 

 

-

 

 

 

-

 

 

 

(92,150 )

 

 

-

 

 

 

(92,150 )

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,475,160 )

 

 

(5,475,160 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT DECEMBER 31, 2019

 

 

35,995,089

 

 

 

359,951

 

 

 

365,705,533

 

 

 

(359,097,170 )

 

 

6,968,314

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from the sale of common stock

 

 

721,459

 

 

 

7,215

 

 

 

7,860,414

 

 

 

-

 

 

 

7,867,629

 

Warrant exercises

 

 

562,100

 

 

 

5,621

 

 

 

4,313,085

 

 

 

-

 

 

 

4,318,706

 

Equity based compensation - employees

 

 

-

 

 

 

-

 

 

 

1,780,979

 

 

 

-

 

 

 

1,780,979

 

401(k) contributions paid in common stock

 

 

3,376

 

 

 

34

 

 

 

38,925

 

 

 

-

 

 

 

38,959

 

Stock issued to nonemployees for service

 

 

17,120

 

 

 

171

 

 

 

234,853

 

 

 

-

 

 

 

235,024

 

Purchase of stock by officers and directors

 

 

16,787

 

 

 

168

 

 

 

159,822

 

 

 

-

 

 

 

159,990

 

Option exercises

 

 

20,480

 

 

 

205

 

 

 

49,693

 

 

 

-

 

 

 

49,898

 

Share issuance costs

 

 

-

 

 

 

-

 

 

 

(199,372 )

 

 

-

 

 

 

(199,372 )

Net loss

 

 

-

 

 

 

-

 

 

 

 

 

 

 

(9,011,618 )

 

 

(9,011,618 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT MARCH 31, 2020

 

 

37,336,411

 

 

 

373,365

 

 

 

379,943,932

 

 

 

(368,108,788 )

 

 

12,208,509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from the sale of common stock

 

 

94,575

 

 

 

946

 

 

 

1,073,861

 

 

 

-

 

 

 

1,074,807

 

Warrant exercises

 

 

849,845

 

 

 

8,498

 

 

 

10,147,777

 

 

 

-

 

 

 

10,156,275

 

Equity based compensation - employees

 

 

-

 

 

 

-

 

 

 

3,109,127

 

 

 

-

 

 

 

3,109,127

 

401(k) contributions paid in common stock

 

 

2,875

 

 

 

29

 

 

 

42,866

 

 

 

-

 

 

 

42,895

 

Stock issued to nonemployees for service

 

 

14,811

 

 

 

148

 

 

 

205,233

 

 

 

-

 

 

 

205,381

 

Shares issued for settlement of clinical research costs

 

 

150,000

 

 

 

1,500

 

 

 

1,768,000

 

 

 

-

 

 

 

1,769,500

 

Option exercises

 

 

73,719

 

 

 

737

 

 

 

275,678

 

 

 

-

 

 

 

276,415

 

Modification of warrants

 

 

-

 

 

 

-

 

 

 

5,554

 

 

 

-

 

 

 

5,554

 

Warrant issuances

 

 

-

 

 

 

-

 

 

 

805,753

 

 

 

-

 

 

 

805,753

 

Share issuance costs

 

 

-

 

 

 

-

 

 

 

(418,497 )

 

 

-

 

 

 

(418,497 )

Net loss

 

 

-

 

 

 

-

 

 

 

 

 

 

 

(10,220,779 )

 

 

(10,220,779 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT JUNE 30, 2020

 

 

38,522,236

 

 

$ 385,223

 

 

$ 396,959,284

 

 

$ (378,329,567 )

 

$ 19,014,940

 

      

 
6
Table of Contents

 

CEL-SCI CORPORATION

STATEMENTS OF STOCKHOLDERS’ EQUITY continued

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Common

 

 

Stock

 

 

Paid-In

 

 

Accumulated

 

 

 

 

 

 Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT OCTOBER 1, 2018

 

 

28,034,487

 

 

$ 280,346

 

 

$ 331,312,184

 

 

$ (331,591,614 )

 

$ 916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant exercises

 

 

298,682

 

 

 

2,987

 

 

 

646,766

 

 

 

 

 

 

 

649,753

 

401(k) contributions paid in common stock

 

 

12,279

 

 

 

123

 

 

 

35,118

 

 

 

-

 

 

 

35,241

 

Stock issued to nonemployees for service

 

 

62,784

 

 

 

628

 

 

 

201,752

 

 

 

-

 

 

 

202,380

 

Shares returned for settlement of clinical research costs

 

 

(564,905 )

 

 

(5,649 )

 

 

5,649

 

 

 

-

 

 

 

-

 

Equity based compensation - employees

 

 

-

 

 

 

-

 

 

 

573,660

 

 

 

-

 

 

 

573,660

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,245,902

 

 

 

1,245,902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT DECEMBER 31, 2018

 

 

27,843,327

 

 

 

278,435

 

 

 

332,775,129

 

 

 

(330,345,712 )

 

 

2,707,852

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant exercises

 

 

1,523,933

 

 

 

15,239

 

 

 

2,640,395

 

 

 

-

 

 

 

2,655,634

 

401(k) contributions paid in common stock

 

 

10,419

 

 

 

104

 

 

 

36,779

 

 

 

-

 

 

 

36,883

 

Stock issued to nonemployees for service

 

 

77,449

 

 

 

774

 

 

 

224,855

 

 

 

-

 

 

 

225,629

 

Equity based compensation - employees

 

 

(3,500 )

 

 

(35 )

 

 

530,865

 

 

 

-

 

 

 

530,830

 

Shares issued for settlement of clinical research costs

 

 

500,000

 

 

 

5,000

 

 

 

1,285,000

 

 

 

-

 

 

 

1,290,000

 

Share issuance costs

 

 

-

 

 

 

-

 

 

 

(43,625 )

 

 

-

 

 

 

(43,625 )

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,447,681 )

 

 

(6,447,681 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT MARCH 31, 2019

 

 

29,951,628

 

 

 

299,517

 

 

 

337,449,398

 

 

 

(336,793,393 )

 

 

955,522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant exercises

 

 

4,014,109

 

 

 

40,141

 

 

 

10,212,680

 

 

 

-

 

 

 

10,252,821

 

401(k) contributions paid in common stock

 

 

4,339

 

 

 

43

 

 

 

36,318

 

 

 

-

 

 

 

36,361

 

Stock issued to nonemployees for service

 

 

20,825

 

 

 

208

 

 

 

140,062

 

 

 

-

 

 

 

140,270

 

Equity based compensation - employees

 

 

(4,000 )

 

 

(40 )

 

 

1,521,861

 

 

 

-

 

 

 

1,521,821

 

Purchase of stock by officers and directors

 

 

37,243

 

 

 

372

 

 

 

234,625

 

 

 

-

 

 

 

234,997

 

Option exercises

 

 

42,770

 

 

 

428

 

 

 

96,862

 

 

 

-

 

 

 

97,290

 

Share issuance costs

 

 

 

 

 

 

 

 

 

 

(8,010 )

 

 

-

 

 

 

(8,010 )

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,084,768 )

 

 

(12,084,768 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT JUNE 30, 2019

 

 

34,066,914

 

 

$ 340,669

 

 

$ 349,683,796

 

 

$ (348,878,161 )

 

$ 1,146,304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed financial statements.

    

 
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CEL-SCI CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED JUNE 30, 2020 and 2019

(UNAUDITED)

 

 

 

 

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Net loss

 

$ (24,707,557 )

 

$ (17,286,547 )

Adjustments to reconcile net loss to

 

 

 

 

 

 

 

 

net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,442,255

 

 

 

513,028

 

Share-based payments for services

 

 

623,146

 

 

 

688,070

 

Equity based compensation

 

 

6,690,331

 

 

 

2,626,311

 

Common stock contributed to 401(k) plan

 

 

122,791

 

 

 

108,485

 

Shares issued for settlement of clinical research costs

 

 

1,769,500

 

 

 

1,290,000

 

Loss on derivative instruments

 

 

3,565,347

 

 

 

3,316,384

 

Warrants inducement expense

 

 

805,753

 

 

 

-

 

Warrant modification expense

 

 

 5,554

 

 

 

-

 

Capitalized lease interest

 

 

-

 

 

 

95,742

 

(Increase)/decrease in assets:

 

 

 

 

 

 

 

 

Receivables

 

 

(192,242 )

 

 

393

 

Prepaid expenses

 

 

(969,219 )

 

 

11,047

 

Supplies used for R&D and manufacturing

 

 

(4,648 )

 

 

(109,587 )

Increase/(decrease) in liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

(761,675 )

 

 

(3,567,182 )

Accrued expenses

 

 

87,820

 

 

 

(113,280 )

Due to employees

 

 

(166,310 )

 

 

(3,914 )

Other liabilities

 

 

(815 )

 

 

(2,544 )

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(11,689,969 )

 

 

(12,433,594 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,530,327 )

 

 

(171,321 )

Expenditures for patent costs

 

 

(39,975 )

 

 

(115,476 )

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(1,570,302 )

 

 

(286,797 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

13,992,439

 

 

 

-

 

Payments of stock issuance costs

 

 

(695,447 )

 

 

(90,224 )

Proceeds from the purchase of stock by officers and directors

 

 

184,990

 

 

 

234,997

 

Proceeds from exercises of warrants

 

 

11,736,757

 

 

 

11,657,590

 

Proceeds from exercises of options

 

 

326,313

 

 

 

97,290

 

Payments on obligations under finance lease

 

 

(592,766 )

 

 

(3,811 )

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

24,952,286

 

 

 

11,895,842

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

11,692,015

 

 

 

(824,549 )

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

8,444,774

 

 

 

10,310,044

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$ 20,136,789

 

 

$ 9,485,495

 

 

 

 

 

 

 

 

 

 

See notes to condensed financial statements.

     

 
8
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CEL-SCI CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED JUNE 30, 2020 and 2019

 

 

 

 

 

 

 

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

Property and equipment included in current liabilities

 

$ 121,441

 

 

$ -

 

Capitalizable patent costs included in current liabilities

 

$ -

 

 

$ 30,000

 

Right of use asset acquired and liability incurred

 

$ 399,032

 

 

$ -

 

Finance lease obligation included in accounts payable

 

$ 775

 

 

$ 434

 

Prepaid consulting services paid with issuance of common stock

 

$ 11,706

 

 

$ (119,791 )

Accrued consulting services to be paid with common stock

 

$ 110,000

 

 

$ -

 

Fair value of warrant liabilities on date of exercise

 

$ 3,035,325

 

 

$ 1,900,618

 

Stock issuance costs included in current liabilities

 

$ 30,152

 

 

$ 8,010

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ 872,710

 

 

$ 1,355,676

 

  

 
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CEL-SCI CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

NINE MONTHS ENDED JUNE 30, 2020 AND 2019 (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/A for the year ended September 30, 2019.

 

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 June 30, 2020 and the results of its operations for the nine and three months then ended. The condensed balance sheet as of September 30, 2019 is derived from the September 30, 2019 audited financial statements. On October 1, 2019, the Company adopted Accounting Standards Update (ASU) No. 2016-02, “Leases” and its related amendments (collectively referred to as Topic 842 and codified as Accounting Standards Codification 842, or ASC 842) using the modified retrospective transition approach. In accordance with this adoption method, results for the reporting period ended June 30, 2020 are presented under the new standard, while prior period results continue to be reported under the previous standard. All other significant accounting policies have been consistently applied in the interim financial statements and the annual financial statements. The results of operations for the nine and three months ended June 30, 2020 and 2019 are not necessarily indicative of the results to be expected for the entire year.

 

The financial statements have been prepared assuming the Company will continue as a going concern, but due to recurring losses from operations and the Company’s necessity to continue to raise capital for future liquidity needs, raises 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:

 

Property 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.

    

 
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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 June 30, 2020 and September 30, 2019.

 

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 ASC 815, “Accounting for Derivative Instruments and Hedging Activities.” In accordance with ASC 815, 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 period.

 

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.

 

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 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 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 is subject to service, performance and market conditions and meets 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

 

Effective October 1, 2019, the Company adopted ASC 842. ASC 842 requires that lessees recognize right-of-use assets and lease liabilities that are measured at the present value of the future lease payments at the lease commencement date. Subsequent measurement, including the presentation of expenses and cash flows, depends on the classification of the lease as either a finance lease or an operating lease. The Company elected the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and did not restate prior periods. The Company also elected the transition package of three practical expedients which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. Further, the Company elected a short-term lease exception policy permitting the option to not apply the recognition requirements of this standard to short-term leases (i.e., leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component. The Company’s lease portfolio includes both finance and operating leases. The impact of adopting ASC 842 was to increase long term assets by approximately $1.0 million, decrease total liabilities by approximately $0.9 million and record a cumulative effect adjustment of approximately $0.1 million to opening accumulated deficit.

   

 
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In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, Compensation—Stock Compensation (Topic 718), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, and thus, the accounting for share-based payments to non-employees will be substantially aligned. The Company adopted ASU 2018-07 as of October 1, 2019 with no impact on its financial statements and related disclosures.

 

New Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement - Disclosure Framework (Topic 820)”. The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance becomes effective for the Company on October 1, 2021. Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the timing and impact of adopting the updated provisions.

 

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 January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, because of the rapid increase in exposure globally, the WHO classified the COVID-19 outbreak as a pandemic. 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 that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2020. Although the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak, if the pandemic continues, it may have an adverse effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2020.

 

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The Cares Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions which are expected to impact the Company’s financial statements include removal of certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act. The Company does not expect the enactment of the CARES Act to directly impact its financial position, results of operations or cash flows. The Company did not apply for a PPP loan under the CARES Act because it is able to access funds, if needed, in other ways.

 

On May 4, 2020, the Company announced that the pivotal Phase 3 head and neck cancer study of Multikine (Leukocyte Interleukin, Inj.) immunotherapy had reached the targeted threshold of 298 events (deaths) required to conduct the data evaluation. The Phase 3 study is now in the phase that involves database lock and final analysis of the trial results. Given that the contract research organizations (CROs), not the Company, are running these activities and the uncertainties surrounding COVID-19 and its effect on various countries and their rules regarding travel and hospitals, the Company cannot give a reliable timeline. 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.

 

 
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The Company has incurred significant costs since its inception for 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 common stock. 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 similarly 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.

 

The Company is currently in the final stages of its 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, warrant exercises, debt issuances 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 it can raise the required funding.

 

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 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.

 

 
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Table of Contents

 

Equity Compensation

 

Underlying share information for equity compensation plans as of June 30, 2020 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

 

 

 

89,895

 

 

 

N/A

 

 

 

213

 

Non-Qualified Stock Option Plans

 

 

9,987,200

 

 

 

8,593,438

 

 

 

N/A

 

 

 

1,151,666

 

Stock Bonus Plans

 

 

783,760

 

 

 

N/A

 

 

 

341,951

 

 

 

441,776

 

Stock Compensation Plans

 

 

634,000

 

 

 

N/A

 

 

 

150,695

 

 

 

464,895

 

Incentive Stock Bonus Plan

 

 

640,000

 

 

 

N/A

 

 

 

616,500

 

 

 

23,500

 

 

Underlying share information for equity compensation plans as of September 30, 2019 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 Option Plans

 

 

138,400

 

 

 

89,895

 

 

 

N/A

 

 

 

213

 

Non-Qualified Stock Option Plans

 

 

6,387,200

 

 

 

6,128,321

 

 

 

N/A

 

 

 

112,166

 

Stock Bonus Plans

 

 

783,760

 

 

 

N/A

 

 

 

331,226

 

 

 

452,501

 

Stock Compensation Plans

 

 

634,000

 

 

 

N/A

 

 

 

130,183

 

 

 

485,407

 

Incentive Stock Bonus Plan

 

 

640,000

 

 

 

N/A

 

 

 

616,500

 

 

 

23,500

 

 

Stock option activity:

  

 

 

Nine Months Ended June 30,

 

 

 

 2020

 

 

2019

 

Granted

 

 

2,561,500

 

 

 

3,268,862

 

Exercised

 

 

94,199

 

 

 

42,770

 

Expired

 

 

1,000

 

 

 

29,322

 

Forfeited

 

 

1,180

 

 

 

63,698

 

 

 

 

Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

Granted

 

 

2,559,000

 

 

 

3,268,362

 

Exercised

 

 

73,719

 

 

 

42,770

 

Expired

 

 

16

 

 

 

26,922

 

Forfeited

 

 

-

 

 

 

39,505

 

 

During the quarter ended June 30, 2020, the Company adopted the 2020 Non-Qualified Stock Option Plan, which provides for the issuance of up to 3,600,000 options to purchase shares of common stock. On April 20, 2020, the Company granted 1,872,000 performance-based stock options from the 2020 Non-Qualified Stock Option Plan to officers and directors. Each option entitles the holder to purchase one share of the Company’s common stock at a price of $10.93 per share, the fair value on the date of issuance. The stock options vest upon the achievement of the following performance goals: i) 25% of the options will vest when the closing price of the Company’s common stock exceeds $20.00 for ten consecutive trading days; ii) 50% of the options will vest when the closing price of the Company’s common stock exceeds $25.00 for ten consecutive trading days; iii) 75% of the options will vest when the closing price of the Company’s common stock exceeds $30.00 for ten consecutive trading days; and iv) 100% of the options will vest when either (a) the filing of the first marketing application for any pharmaceutical based upon the Company’s Multikine technology, in the US, Canada, UK, Germany, France, Italy, Spain, Japan, or Australia or (b) the closing price of the Company’s common stock exceeds $40.00 for ten consecutive trading days. All Options which have not vested as of April 19, 2030, will be canceled and will no longer be exercisable. The options were recorded as equity based warrants in accordance with ASC 718, Compensation – Stock Compensation. On the grant date, the options were valued using a Monte Carlo Simulation approach. Monte Carlo Simulation is a statistical technique that is used to model probabilistic systems and establish the probabilities for a variety of outcomes. That valuation resulted in a per share fair value of $4.12 and an aggregate value of $7,881,120 on the grant date, April 20, 2020. The aggregate value will be expensed over the implicit life of the options, which was determined to be 1.7 years. This resulted in compensation expense of approximately $901,000 recorded during the nine and three months ended June 30, 2020.

  

 
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Stock-Based Compensation Expense

 

 

 

Nine months Ended June 30,

 

 

 

2020

 

 

2019

 

Employees

 

$ 6,690,331

 

 

$ 2,626,311

 

Non-employees

 

$ 623,146

 

 

$ 688,070

 

 

 

 

Three months Ended June 30,

 

 

 

2020

 

 

2019

 

Employees

 

$ 3,109,127

 

 

$ 1,521,821

 

Non-employees

 

$ 275,919

 

 

$ 176,646

 

 

Employee compensation expense includes the expense related to options issued or vested and restricted stock granted. Non-employee expense includes the expense related to options and stock issued to consultants expensed over the period of their service contracts.

 

Warrants and Non-Employee Options

 

The following chart represents the warrants and non-employee options outstanding at June 30, 2020:

 

 

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

 

 

2/18/2021

 

 

2

 

Series XX

 

6/11/2020

 

 

461,953

 

 

$ 18.00

 

 

9/10/2020

 

 

2

 

Series YY

 

6/26/2020

 

 

101,839

 

 

$ 20.00

 

 

9/25/2020

 

 

2

 

Series UU

 

6/11/2018

 

 

93,603

 

 

$ 2.80

 

 

12/31/2020

 

 

2

 

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

 

*

 

Series Y

 

2/15/2016

 

 

26,000

 

 

$ 12.00

 

 

2/15/2021

 

*

 

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 CC

 

12/8/2016

 

 

153,643

 

 

$ 5.00

 

 

12/8/2021

 

 

1

 

Series HH

 

2/23/2017

 

 

200

 

 

$ 3.13

 

 

2/16/2022

 

 

1

 

Series AA

 

8/26/2016

 

 

200,000

 

 

$ 13.75

 

 

2/22/2022

 

 

1

 

Series MM

 

6/22/2017

 

 

893,491

 

 

$ 1.86

 

 

6/22/2022

 

*

 

Series NN

 

7/24/2017

 

 

375,545

 

 

$ 2.52

 

 

7/24/2022

 

 

2

 

Series OO

 

7/31/2017

 

 

-

 

 

$ 2.52

 

 

7/31/2022

 

 

2

 

Series RR

 

10/30/2017

 

 

457,116

 

 

$ 1.65

 

 

10/30/2022

 

 

2

 

Series SS

 

12/19/2017

 

 

326,064

 

 

$ 2.09

 

 

12/18/2022

 

 

2

 

Series TT

 

2/5/2018

 

 

371,564

 

 

$ 2.24

 

 

2/5/2023

 

 

2

 

Series VV

 

7/2/2018

 

 

-

 

 

$ 1.75

 

 

1/2/2024

 

 

2

 

Consultants

 

7/28/17

 

 

10,000

 

 

$ 2.18

 

 

7/27/2027

 

*

 

 

* No current period changes to these warrants and non-employee options.

    

 
15
Table of Contents

 

 

1.                 Warrant Liabilities

 

The table below presents the fair value of the warrant liabilities at the balance sheet dates:

 

 

 

June 30,

2020

 

 

September 30,

2019

 

Series V warrants

 

$ -

 

 

$ 674,442

 

Series W warrants

 

 

1,808,203

 

 

 

1,193,507

 

Series Z warrants

 

 

1,852,040

 

 

 

1,109,545

 

Series ZZ warrants

 

 

115,957

 

 

 

77,638

 

Series AA warrants

 

 

1,464,362

 

 

 

916,908

 

Series BB warrants

 

 

108,586

 

 

 

63,966

 

Series CC warrants

 

 

1,666,749

 

 

 

1,710,898

 

Series FF warrants

 

 

-

 

 

 

446,185

 

Series HH warrants

 

 

2,435

 

 

 

45,657

 

Series JJ warrants

 

 

-

 

 

 

66,599

 

Series LL warrants

 

 

-

 

 

 

182,965

 

Total warrant liabilities

 

$ 7,018,332

 

 

$ 6,488,310

 

   

The table below presents the gains/(losses) on the warrant liabilities for the nine months ended June 30:

 

 

 

 2020

 

 

2019

 

Series S warrants

 

$ -

 

 

$ 33

 

Series V warrants

 

 

185,652

 

 

 

(479,399 )

Series W warrants

 

 

(614,696 )

 

 

(1,132,156 )

Series Z warrants

 

 

(742,495 )

 

 

(684,859 )

Series ZZ warrants

 

 

(38,319 )

 

 

(37,970 )

Series AA warrants

 

 

(547,454 )

 

 

(583,516 )

Series BB warrants

 

 

(44,620 )

 

 

(35,800 )

Series CC warrants

 

 

(1,245,627 )

 

 

(2,007,287 )

Series DD warrants

 

 

-

 

 

 

1,249,287

 

Series EE warrants

 

 

-

 

 

 

1,249,287

 

Series FF warrants

 

 

(319,706 )

 

 

(244,170 )

Series GG warrants

 

 

-

 

 

 

195,228

 

Series HH warrants

 

 

(35,024 )

 

 

(22,859 )

Series II warrants

 

 

-

 

 

 

(593,960 )

Series JJ warrants

 

 

(64,992 )

 

 

(32,954 )

Series KK warrants

 

 

-

 

 

 

(55,622 )

Series LL warrants

 

 

(98,066 )

 

 

(99,667 )

Net loss on warrant liabilities

 

$ (3,565,347 )

 

$ (3,316,384 )

  

The table below presents the gains/(losses) on the warrant liabilities for the three months ended June 30:

   

 

 

 2020

 

 

 2019

 

Series V warrants

 

$ 107,191

 

 

$ (974,251 )

Series W warrants

 

 

(247,327 )

 

 

(1,748,184 )

Series Z warrants

 

 

(430,619 )

 

 

(799,690 )

Series ZZ warrants

 

 

(33,734 )

 

 

(50,608 )

Series AA warrants

 

 

(220,831 )

 

 

(676,784 )

Series BB warrants

 

 

(37,592 )

 

 

(43,536 )

Series CC warrants

 

 

(419,350 )

 

 

(2,346,985 )

Series FF warrants

 

 

-

 

 

 

(278,773 )

Series GG warrants

 

 

-

 

 

 

88,478

 

Series HH warrants

 

 

(567 )

 

 

(33,501 )

Series II warrants

 

 

-

 

 

 

(709,303 )

Series JJ warrants

 

 

-

 

 

 

(48,880 )

Series KK warrants

 

 

-

 

 

 

(169,089 )

Series LL warrants

 

 

-

 

 

 

(114,413 )

Net loss on warrant liabilities

 

$ (1,282,829 )

 

$ (7,905,519 )

     

 
16
Table of Contents

  

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 May 26, 2020, the Company lowered the exercise price of 810,127 Series V warrants from $19.75 to $13.75 per share and extended the expiration date of the Series V warrants from May 28, 2020 to June 25, 2020. The incremental cost of this modification was approximately $664,000, which was included within the net loss on derivatives for the nine and three months ended June 30, 2020. Additionally, upon the exercise of 674,164 Series V warrants the Company recognized a final mark-to-market adjustment for a gain of approximately $560,000, which was included within the net loss on derivatives for the nine and three months ended June 30, 2020.

 

 On June 25, 2020, 135,963 Series V warrants, with an exercise price of $13.75 expired. The warrants were valued at approximately $211,000 on the date of expiration.

 

On December 10, 2018, 1,360,960 Series DD and 1,360,960 Series EE warrants, with an exercise price of $4.50 expired.

 

On October 11, 2018, 327,729 Series S warrants, with an exercise price of $31.25 expired.

 

Exercise of Warrant Liabilities

 

The following warrants recorded as liabilities were exercised during the periods ended June 30, 2020.

 

 

 

Three Months

 

 

Nine Months

 

Warrants

 

Warrants Exercised

 

 

Exercise Price

 

 

Proceeds

 

 

Warrants Exercised

 

 

Exercise Price

 

 

Proceeds

 

Series V

 

 

674,164

 

 

$ 13.75

 

 

$ 9,269,755

 

 

 

674,164

 

 

$ 13.75

 

 

$ 9,269,755

 

Series CC

 

 

-

 

 

 

-

 

 

 

-

 

 

 

123,820

 

 

$ 5.00

 

 

 

619,100

 

Series FF

 

 

-

 

 

 

-

 

 

 

-

 

 

 

68,048

 

 

$ 3.91

 

 

 

265,812

 

Series HH

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,300

 

 

$ 3.13

 

 

 

19,687

 

Series JJ

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,450

 

 

$ 3.13

 

 

 

29,531

 

Series LL

 

 

-

 

 

 

-

 

 

 

-

 

 

 

26,398

 

 

$ 3.59

 

 

 

94,867

 

 

 

 

674,164

 

 

 

 

 

 

$ 9,269,755

 

 

 

908,180

 

 

 

 

 

 

$ 10,298,752

 

     

 
17
Table of Contents

 

The following warrants recorded as liabilities were exercised during the periods ended June 30, 2019.

 

 

 

Three Months

 

 

Nine Months

 

 

 

Warrants

 

 

Exercise

 

 

 

 

 

Warrants

 

 

Exercise

 

 

 

 

Warrants

 

Exercised

 

 

Price

 

 

Proceeds

 

 

Exercised

 

 

Price

 

 

Proceeds

 

Series CC

 

 

69,017

 

 

$

5.00

 

 

$

345,085

 

 

 

69,017

 

 

$

5.00

 

 

$

345,085

 

Series GG

 

 

200,000

 

 

$

3.00

 

 

 

600,000

 

 

 

200,000

 

 

$

3.00

 

 

 

600,000

 

Series HH

 

 

13,500

 

 

$

3.13

 

 

 

42,188

 

 

 

13,500

 

 

$

3.13

 

 

 

42,188

 

Series II

 

 

121,500

 

 

$

3.00

 

 

 

364,500

 

 

 

121,500

 

 

$

3.00

 

 

 

364,500

 

Series JJ

 

 

20,550

 

 

$

3.13

 

 

 

64,219

 

 

 

20,550

 

 

$

3.13

 

 

 

64,219

 

Series KK

 

 

213,870

 

 

$

3.04

 

 

 

649,095

 

 

 

213,870

 

 

$

3.04

 

 

 

649,095

 

 

 

 

638,437

 

 

 

 

 

 

$

2,065,087

 

 

 

638,437

 

 

 

 

 

 

$

2,065,087

 

 2.                 Equity Warrants

 

Changes in Equity Warrants

 

On May 26, 2020, the Company provided that for each Series V warrant exercised by an accredited investor on or before June 10, 2020 the former holder of the Series V warrant received one Series XX warrant. Every Series XX warrant will allow the holder to purchase one share of the Company’s common stock at a price of $18.00 per share at any time on or before September 10, 2020. For every two Series V warrant exercised by an accredited investor after June 10, 2020 but on or before June 25, 2020 the former holder of the Series V warrant received one Series YY warrant. Every Series YY warrants will allow the holder to purchase one share of the Company’s common stock at a price of $20.00 per share at any time on or before September 25, 2020. In June 2020, 461,953 Series XX warrants and 101,839 Series YY warrants were issued to the former holders of the Series V warrants. The Company recognized an inducement expense equal to the fair value of the Series XX and Series YY warrants issued as of the date the inducement offers were accepted. The fair values of the Series XX and Series YY warrants were calculated to be approximately $629,000 and $177,000, respectively, and are included as inducement expense in the statements of operations for the nine and three months ended June 30, 2020. The Series XX and YY warrants qualify for equity treatment in accordance with ASC 815.

 

On May 8, 2020, the expiration date of 93,593 Series UU warrants were extended from June 11, 2020 to December 31, 2020. These warrants were previously issued as an inducement to convert notes payable into shares of common stock. The incremental cost of this extension was approximately $6,000 and was recorded as interest expense for the nine and three months ended June 30, 2020. 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 nine and three months ended June 30, 2020. The Series N warrants are held by the de Clara Trust, of which Geert Kersten, is a beneficiary.

 

Exercise of Equity Warrants

 

The following warrants recorded as equity were exercised during the periods ended June 30, 2020.

 

 

 

 

Three Months

 

 

Nine Months

 

Warrants

 

Warrants Exercised

 

 

Exercise Price

 

 

Proceeds

 

 

Warrants Exercised

 

 

Exercise Price

 

 

Proceeds

 

Series NN

 

 

-

 

 

 

-

 

 

$ -

 

 

 

98,253

 

 

$ 2.52

 

 

$ 247,598

 

Series OO

 

 

10,000

 

 

$ 2.52

 

 

 

25,200

 

 

 

50,000

 

 

$ 2.52

 

 

 

126,000

 

Series SS

 

 

39,474

 

 

$ 2.09

 

 

 

82,500

 

 

 

156,580

 

 

$ 2.09

 

 

 

327,252

 

Series TT

 

 

10,000

 

 

$ 2.24

 

 

 

22,400

 

 

 

188,125

 

 

$ 2.24

 

 

 

421,400

 

Series UU

 

 

61,207

 

 

$ 2.80

 

 

 

171,380

 

 

 

61,207

 

 

$ 2.80

 

 

 

171,380

 

Series VV

 

 

55,000

 

 

$ 1.75

 

 

 

96,250

 

 

 

82,500

 

 

$ 1.75

 

 

 

144,375

 

 

 

 

175,681

 

 

 

 

 

 

$ 397,730

 

 

 

636,665

 

 

 

 

 

 

$ 1,438,005

 

    

 
18
Table of Contents

 

The following warrants recorded as equity were exercised during the periods ended June 30, 2019.

 

 

 

Three Months

 

 

Nine Months

 

Warrants

 

Warrants Exercised

 

 

Exercise Price

 

 

Proceeds

 

 

Warrants Exercised

 

 

Exercise Price

 

 

Proceeds

 

Series NN

 

 

65,502

 

 

$ 2.52

 

 

$ 165,065

 

 

 

65,502

 

 

$ 2.52

 

 

$ 165,065

 

Series PP

 

 

-

 

 

 

-

 

 

 

-

 

 

 

60,000

 

 

$ 2.30

 

 

 

138,000

 

Series QQ

 

 

3,500

 

 

$ 2.50

 

 

 

8,750

 

 

 

3,500

 

 

$ 2.50

 

 

 

8,750

 

Series RR

 

 

60,044

 

 

$ 1.65

 

 

 

99,073

 

 

 

60,044

 

 

$ 1.65

 

 

 

99,073

 

Series SS

 

 

280,264

 

 

$ 2.09

 

 

 

585,752

 

 

 

446,054

 

 

$ 2.09

 

 

 

932,253

 

Series TT

 

 

450,069

 

 

$ 2.24

 

 

 

1,008,155

 

 

 

536,119

 

 

$ 2.24

 

 

 

1,200,907

 

Series UU

 

 

24,018

 

 

$ 2.80

 

 

 

67,250

 

 

 

24,018

 

 

$ 2.80

 

 

 

67,250

 

Series VV

 

 

2,425,000

 

 

$ 1.75

 

 

 

4,243,750

 

 

 

3,810,000

 

 

$ 1.75

 

 

 

6,667,500

 

Series WW

 

 

67,275

 

 

$ 1.63

 

 

 

109,321

 

 

 

193,050

 

 

$ 1.63

 

 

 

313,705

 

 

 

 

3,375,672

 

 

 

 

 

 

$ 6,287,116

 

 

 

5,198,287

 

 

 

 

 

 

$ 9,592,503

 

 

3.           Options and Shares Issued to Consultants

 

During the nine months ended June 30, 2020 and 2019, the Company issued 47,750 and 161,058 shares, respectively, of restricted common stock to consultants for services. The weighted average grant date fair value of the shares issued to consultants was $11.60 and $3.37, respectively, during the nine months ended June 30, 2020 and 2019, respectively. During the three months ended June 30, 2020 and 2019, the Company issued 14,811 and 20,825, respectively, shares of restricted common stock to consultants for services. The weighted average grant date fair value of the shares issued to consultants was $16.41 and $5.62, respectively, during the three months ended June 30, 2020 and 2019. 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 under the consulting arrangements.

 

During the nine months ended June 30, 2020 and 2019, the Company recorded total expense of approximately $623,000 and $688,000, respectively, relating to these consulting agreements. During the three months ended June 30, 2020 and 2019, the Company recorded total expense of approximately $276,000 and $177,000, respectively, relating to these consulting agreements. At June 30, 2020 and September 30, 2019, approximately $242,000 and $230,000, respectively, are included in prepaid expenses. At June 30, 2020, the Company has accrued $110,000 for shares to be issued. As of June 30, 2020, 10,000 options issued to consultants remained outstanding, all of which were issued from the Non-Qualified Stock Option plans and are fully vested.

 

4.           Securities Purchase Agreement

 

The Company has entered into Securities Purchase Agreements (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 Ergomed. Under the Agreements, 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.

 

On April 6, 2020 and June 29, 2020, the Company entered SPAs under which it issued Ergomed 100,000 and 50,000 restricted shares of the Company’s common stock valued at approximately $1.0 million and $0.8 million, respectively.

 

On January 9, 2019, the Company entered into a SPA under which it issued Ergomed 500,000 restricted shares of the Company’s common stock valued at approximately $1.3 million.

 

As of June 30, 2020, Ergomed held 110,521 shares for resale.

    

 
19
Table of Contents

   

The following table summarizes the Other non-operating gain (loss) for the nine and three months ended June 30, 2020 and 2019 relating to these agreements:

 

 

 

Nine Months Ended

Three Months Ended

 

 

 

June 30,2020

 

 

June 30, 2019

 

 

June 30, 2020

 

 

June 30, 2019

 

Amount realized through the resale of shares

 

$ 2,539,245

 

 

$ 3,167,197

 

 

$ 818,565

 

 

$ 1,455,844

 

Fair value of shares upon issuance

 

 

1,769,500

 

 

 

1,290,000

 

 

 

1,769,500

 

 

 

-

 

Other non-operating gain (loss)

 

$ 769,745

 

 

$ 1,877,197

 

 

$ (950,935 )

 

$ 1,455,844

 

 

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 table below sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the condensed balance sheet at June 30, 2020:

 

 

 

Quoted Prices in Active Markets for Identical Assets or Liabilities

 (Level 1)

 

 

Significant Other Observable Inputs

 (Level 2)

 

 

Significant Unobservable Inputs

 (Level 3)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$ -

 

 

$ -

 

 

$ 7,018,332

 

 

$ 7,018,332

 

  

 
20
Table of Contents

 

The table below sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the condensed balance sheet at September 30, 2019:

 

 

 

Quoted Prices in Active Markets for Identical Assets or Liabilities

(Level 1)

 

 

Significant Other Observable Inputs

(Level 2)

 

 

Significant Unobservable Inputs

(Level 3)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$ -

 

 

$ -

 

 

$ 6,488,310

 

 

$ 6,488,310

 

 

The following sets forth the reconciliation of beginning and ending balances related to fair value measurements using significant unobservable inputs (Level 3) for the three months ended June 30, 2020 and the year ended September 30, 2019:

 

 

 

Nine months ended

 

 

Twelve months ended

 

 

 

June 30,

2020

 

 

September 30, 2019

 

 

 

 

 

 

 

 

Beginning balance

 

$ 6,488,310

 

 

$ 9,317,031

 

Issuances

 

 

-

 

 

 

-

 

Exercises

 

 

(3,035,325 )

 

 

(3,589,357 )

Realized and unrealized losses

 

 

3,565,347

 

 

 

760,636

 

Ending balance

 

$ 7,018,332

 

 

$ 6,488,310