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, 2021

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:

 

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

 

43,028,150

 

August 9, 2021

 

 

 

  

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION

 

Item 1.

 

Page

 

 

 

 

Condensed Balance Sheets at June 30, 2021 (unaudited) and September 30, 2020

3

 

 

Condensed Statements of Operations for the nine months ended June 30, 2021 and 2020 (unaudited)

4

 

 

Condensed Statements of Operations for the three months ended June 30, 2021 and 2020 (unaudited)

5

 

 

Condensed Statements of Stockholders’ Equity for the nine months ended June 30, 2021 and 2020 (unaudited)

 

 

 

 

Condensed Statements of Cash Flows for the nine months ended June 30, 2021 and 2020 (unaudited)

8

 

 

 

 

Notes to Condensed Financial Statements (unaudited)

10

 

 

Item 2.

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

25

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risks

28

 

Item 4.

Controls and Procedures

28

 

 

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

 

 

 

 

 

 

 

 

 

JUNE 30,

 

 

SEPTEMBER 30,

 

ASSETS

 

2021

 

 

2020

 

 

 

(UNAUDITED)

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$ 35,957,715

 

 

$ 15,508,909

 

U.S. Treasury Bills

 

 

11,152,245

 

 

 

-

 

Receivables

 

 

54,922

 

 

 

54,922

 

Prepaid expenses

 

 

978,575

 

 

 

1,313,432

 

Supplies used for R&D and manufacturing

 

 

1,579,245

 

 

 

820,052

 

Deposits - current portion

 

 

8,712

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

49,731,414

 

 

 

17,697,315

 

 

 

 

 

 

 

 

 

 

Finance lease right of use assets

 

 

13,125,302

 

 

 

13,811,849

 

Operating lease right of use assets

 

 

1,046,648

 

 

 

1,198,958

 

Property and equipment, net

 

 

13,548,079

 

 

 

5,843,993

 

Patent costs, net

 

 

279,366

 

 

 

313,422

 

Deposits

 

 

1,910,917

 

 

 

1,670,917

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$ 79,641,726

 

 

$ 40,536,454

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$ 2,144,455

 

 

$ 2,023,067

 

Accrued expenses

 

 

868,443

 

 

 

510,515

 

Due to employees

 

 

532,620

 

 

 

448,022

 

Derivative instruments, current portion

 

 

918,704

 

 

 

213,787

 

Lease liabilities, current portion

 

 

692,478

 

 

 

1,070,123

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

5,156,700

 

 

 

4,265,514

 

 

 

 

 

 

 

 

 

 

Derivative instruments, net of current portion

 

 

-

 

 

 

3,551,826

 

Finance lease liabilities, net of current portion

 

 

13,603,297

 

 

 

11,753,100

 

Operating lease liabilities, net of current portion

 

 

962,985

 

 

 

1,114,340

 

Other liabilities

 

 

125,000

 

 

 

125,000

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

19,847,982

 

 

 

20,809,780

 

 

 

 

 

 

 

 

 

 

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;

 

 

 

 

 

 

 

 

42,963,391 and 38,730,150 shares issued and outstanding

 

 

 

 

 

 

 

 

at June 30, 2021 and September 30, 2020, respectively

 

 

429,634

 

 

 

387,302

 

Additional paid-in capital

 

 

469,355,665

 

 

 

401,174,675

 

Accumulated deficit

 

 

(409,991,555 )

 

 

(381,835,303 )

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

59,793,744

 

 

 

19,726,674

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$ 79,641,726

 

 

$ 40,536,454

 

 

 

 

 

 

 

 

 

 

See notes to condensed financial statements.

 

 
3

Table of Contents

 

CEL-SCI CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED JUNE 30, 2021 and 2020

(UNAUDITED)

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Grant income

 

$ -

 

 

$ 530,106

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

17,818,373

 

 

 

12,680,430

 

General and administrative

 

 

9,902,120

 

 

 

8,389,821

 

Total operating expenses

 

 

27,720,493

 

 

 

21,070,251

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(27,720,493 )

 

 

(20,540,145 )

 

 

 

 

 

 

 

 

 

Other (expense) income

 

 

(8,213 )

 

 

38,741

 

Loss on derivative instruments

 

 

(991,562 )

 

 

(3,565,347 )

Warrant inducement expense

 

 

-

 

 

 

(805,753 )

Other non-operating gains

 

 

1,436,473

 

 

 

774,245

 

Interest expense, net

 

 

(872,457 )

 

 

(777,898 )

 

 

 

 

 

 

 

 

 

Net loss

 

 

(28,156,252 )

 

 

(24,876,157 )

Modification of warrants

 

 

(350,861 )

 

 

(21,734 )

 

 

 

 

 

 

 

 

 

Net loss available to common shareholders

 

$ (28,507,113 )

 

$ (24,897,891 )

 

 

 

 

 

 

 

 

 

Net loss per common share - basic

 

$ (0.71 )

 

$ (0.69 )

Weighted average common shares outstanding - basic

 

 

39,907,624

 

 

 

36,230,092

 

 

 

 

 

 

 

 

 

 

Net loss per common share - diluted

 

$ (0.74 )

 

$ (0.69 )

Weighted average common shares outstanding - diluted

 

 

40,158,321

 

 

 

36,230,092

 

 

 

 

 

 

 

 

 

 

See notes to condensed financial statements.

 

 
4

Table of Contents

 

CEL-SCI CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2021 and 2020

(UNAUDITED)

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Grant income

 

$ -

 

 

$ 195,874

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

7,182,099

 

 

 

3,969,070

 

General and administrative

 

 

3,274,480

 

 

 

3,192,403

 

Total operating expenses

 

 

10,456,579

 

 

 

7,161,473

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(10,456,579 )

 

 

(6,965,599 )

 

 

 

 

 

 

 

 

 

Other (expense) income

 

 

(8,213 )

 

 

1,845

 

Gain (loss) on derivative instruments

 

 

1,116,619

 

 

 

(1,282,829 )

Warrant inducement expense

 

 

-

 

 

 

(805,753 )

Other non-operating gains (losses)

 

 

761,237

 

 

 

(950,935 )

Interest expense, net

 

 

(351,332 )

 

 

(273,708 )

 

 

 

 

 

 

 

 

 

Net loss

 

 

(8,938,268 )

 

 

(10,276,979 )

Modification of warrants

 

 

(265,082 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Net loss available to common shareholders

 

$ (9,203,350 )

 

$ (10,276,979 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic

 

$ (0.22 )

 

$ (0.27 )

Weighted average common shares outstanding - basic

 

 

41,020,485

 

 

 

37,453,539

 

 

 

 

 

 

 

 

 

 

Net loss per common share - diluted

 

$ (0.25 )

 

$ (0.27 )

Weighted average common shares outstanding - diluted

 

 

41,231,082

 

 

 

37,453,539

 

 

 

 

 

 

 

 

 

 

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, 2020

 

 

38,730,150

 

 

$ 387,302

 

 

$ 401,174,675

 

 

$ (381,835,303 )

 

$ 19,726,674

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from the sale of common stock

 

 

1,000,000

 

 

 

10,000

 

 

 

13,549,500

 

 

 

-

 

 

 

13,559,500

 

Warrant exercises

 

 

15,000

 

 

 

150

 

 

 

89,100

 

 

 

-

 

 

 

89,250

 

Equity based compensation - employees

 

 

(2,000 )

 

 

(20 )

 

 

3,296,329

 

 

 

-

 

 

 

3,296,309

 

401(k) contributions paid in common stock

 

 

3,564

 

 

 

36

 

 

 

41,635

 

 

 

-

 

 

 

41,671

 

Stock and options issued to nonemployees for service

 

 

15,044

 

 

 

150

 

 

 

152,300

 

 

 

-

 

 

 

152,450

 

Option exercises

 

 

5,300

 

 

 

53

 

 

 

23,458

 

 

 

-

 

 

 

23,511

 

Modification of warrants

 

 

-

 

 

 

-

 

 

 

192

 

 

 

-

 

 

 

192

 

Share issuance costs

 

 

-

 

 

 

-

 

 

 

(117,021 )

 

 

-

 

 

 

(117,021 )

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,936,864 )

 

 

(7,936,864 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT DECEMBER 31, 2020

 

 

39,767,058

 

 

 

397,671

 

 

 

418,210,168

 

 

 

(389,772,167 )

 

 

28,835,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant exercises

 

 

991,239

 

 

 

9,912

 

 

 

7,928,929

 

 

 

-

 

 

 

7,938,841

 

Equity based compensation - employees

 

 

-

 

 

 

-

 

 

 

3,282,742

 

 

 

-

 

 

 

3,282,742

 

401(k) contributions paid in common stock

 

 

3,347

 

 

 

33

 

 

 

51,387

 

 

 

-

 

 

 

51,420

 

Stock and options issued to nonemployees for service

 

 

13,486

 

 

 

135

 

 

 

379,142

 

 

 

-

 

 

 

379,277

 

Option exercises

 

 

48,845

 

 

 

489

 

 

 

138,299

 

 

 

-

 

 

 

138,788

 

Share issuance costs

 

 

-

 

 

 

-

 

 

 

(13,828 )

 

 

-

 

 

 

(13,828 )

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(11,281,120 )

 

 

(11,281,120 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT MARCH 31, 2021

 

 

40,823,975

 

 

 

408,240

 

 

 

429,976,839

 

 

 

(401,053,287 )

 

 

29,331,792

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from the sale of common stock

 

 

1,610,000

 

 

 

16,100

 

 

 

33,787,826

 

 

 

-

 

 

 

33,803,926

 

Warrant exercises

 

 

437,312

 

 

 

4,373

 

 

 

1,375,117

 

 

 

-

 

 

 

1,379,490

 

Equity based compensation - employees

 

 

-

 

 

 

-

 

 

 

3,511,359

 

 

 

-

 

 

 

3,511,359

 

401(k) contributions paid in common stock

 

 

6,111

 

 

 

61

 

 

 

53,144

 

 

 

-

 

 

 

53,205

 

Stock and options issued to nonemployees for service

 

 

13,184

 

 

 

132

 

 

 

266,936

 

 

 

-

 

 

 

267,068

 

Option exercises

 

 

72,809

 

 

 

728

 

 

 

463,434

 

 

 

-

 

 

 

464,162

 

Modification of warrants

 

 

-

 

 

 

-

 

 

 

24,195

 

 

 

-

 

 

 

24,195

 

Share issuance costs

 

 

-

 

 

 

-

 

 

 

(103,185 )

 

 

-

 

 

 

(103,185 )

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,938,268 )

 

 

(8,938,268 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT JUNE 30, 2021

 

 

42,963,391

 

 

$ 429,634

 

 

$ 469,355,665

 

 

$ (409,991,555 )

 

$ 59,793,744

 

 

 
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, 2019

 

 

35,231,776

 

 

$ 352,318

 

 

$ 358,507,603

 

 

$ (353,726,254 )

 

$ 5,133,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adoption of new accounting standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,146,195

 

 

 

2,146,195

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,531,360 )

 

 

(5,531,360 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT DECEMBER 31, 2019

 

 

35,995,089

 

 

 

359,951

 

 

 

365,705,533

 

 

 

(357,111,419 )

 

 

8,954,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,067,818 )

 

 

(9,067,818 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT MARCH 31, 2020

 

 

37,336,411

 

 

 

373,365

 

 

 

379,943,932

 

 

 

(366,179,237 )

 

 

14,138,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,276,979 )

 

 

(10,276,979 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT JUNE 30, 2020

 

 

38,522,236

 

 

$ 385,223

 

 

$ 396,959,284

 

 

$ (376,456,216 )

 

$ 20,888,291

 

 

 
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CEL-SCI CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED JUNE 30, 2021 and 2020

(UNAUDITED)

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Net loss

 

$ (28,156,252 )

 

$ (24,876,157 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,649,699

 

 

 

1,610,855

 

Share-based payments for services

 

 

955,900

 

 

 

623,146

 

Equity based compensation

 

 

10,090,410

 

 

 

6,690,331

 

Common stock contributed to 401(k) plan

 

 

146,296

 

 

 

122,791

 

Shares issued for settlement of clinical research costs

 

 

-

 

 

 

1,769,500

 

Gain on short-term investments

 

 

(6,578 )

 

 

-

 

Loss on derivative instruments

 

 

991,562

 

 

 

3,565,347

 

Warrant inducement expense

 

 

-

 

 

 

805,753

 

Modification of warrants

 

 

24,387

 

 

 

5,554

 

(Increase)/decrease in assets:

 

 

 

 

 

 

 

 

Receivables

 

 

-

 

 

 

(192,242 )

Prepaid expenses

 

 

232,752

 

 

 

(969,219 )

Supplies used for R&D and manufacturing

 

 

(759,193 )

 

 

(4,648 )

Deposits

 

 

(248,712 )

 

 

-

 

Increase/(decrease) in liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

689,812

 

 

 

(761,675 )

Accrued expenses

 

 

297,928

 

 

 

87,820

 

Due to employees

 

 

84,598

 

 

 

(166,310 )

Other liabilities

 

 

22,459

 

 

 

(815 )

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(13,984,932 )

 

 

(11,689,969 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Net purchases of U.S. Treasury Bills

 

 

(11,145,667 )

 

 

-

 

Purchases of property and equipment

 

 

(8,628,648 )

 

 

(1,530,327 )

Expenditures for patent costs

 

 

-

 

 

 

(39,975 )

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(19,774,315 )

 

 

(1,570,302 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

47,363,426

 

 

 

13,992,439

 

Payments of stock issuance costs

 

 

(207,673 )

 

 

(695,447 )

Proceeds from the purchase of stock by officer

 

 

-

 

 

 

184,990

 

Proceeds from exercises of warrants and options

 

 

6,195,571

 

 

 

12,063,070

 

Proceeds from landlord funding of leasehold improvements

 

 

1,613,546

 

 

 

-

 

Payments on obligations under finance lease

 

 

(756,817 )

 

 

(592,766 )

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

54,208,053

 

 

 

24,952,286

 

 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

20,448,806

 

 

 

11,692,015

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

15,508,909

 

 

 

8,444,774

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$ 35,957,715

 

 

$ 20,136,789

 

 

 

 

 

 

 

 

 

 

See notes to condensed financial statements.

 

 
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CEL-SCI CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED JUNE 30, 2021 and 2020

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

Property and equipment included in current liabilities

 

$ 589,400

 

 

$ 121,441

 

Capitalizable patent costs included in current liabilities

 

$ 20,000

 

 

$ -

 

Changes to right of use assets and liabilities

 

$ 551,444

 

 

$ 399,032

 

Finance lease obligation included in accounts payable

 

$ 1,328

 

 

$ 775

 

Prepaid consulting services paid with issuance of common stock

 

$ 292,792

 

 

$ 11,706

 

Accrued consulting services to be paid with issuance of common stock

 

$ 110,000

 

 

$ 110,000

 

Fair value of warrants liabilities on date of exercise

 

$ 3,838,471

 

 

$ 3,035,325

 

Financing costs included in current liabilities

 

$ 76,860

 

 

$ 30,152

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ 876,779

 

 

$ 872,710

 

 

 

 

 

 

 

 

 

 

See notes to condensed financial statements.

 

 
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Table of Contents

  

CEL-SCI CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

NINE MONTHS ENDED JUNE 30, 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 footnotes 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 June 30, 2021 and the results of its operations for the nine 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 nine and three months ended June 30, 2021 and 2020 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 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.

 

 
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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 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, 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 and annual 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 time vested 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 2021 and 2020 Non-Qualified Stock Option Plans 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 or the market condition is uncertain. The total compensation cost will be expensed over the estimated requisite service period.

 

 
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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 June 28, 2021, the Company announced results from its 9.5 year pivotal Phase 3 study for its immunotherapy Multikine® (Leukocyte Interleukin, Injection) in the treatment of advanced (stages III and IV) primary (previously untreated) squamous cell carcinoma of the head and neck (SCCHN). The Phase 3 results showed a long-term 5-year overall survival (OS) benefit in the treatment arm that received Multikine treatment followed by surgery and radiation. This survival benefit was robust and durable, with no safety issues, something not commonly seen with cancer drugs. In fact, the survival benefit increased over time and at 5-years the overall survival benefit reached an absolute 14.1% advantage for the Multikine treated arm over control (n=380, total study patients treated with surgery plus radiation), which is about a 29% improvement, control arm 48.6%, Multikine arm 62.7% survival.

 

The study used the standard of care treatment for advanced primary head and neck cancer patients as a comparison. The patients received surgery followed by either radiation or chemoradiation (chemotherapy and radiation at the same time), as determined by the physician. This means that there were 2 treatment arms, 1) surgery plus radiation or 2) surgery plus chemoradiation. The arm that received Multikine treatment followed by surgery and radiation showed great survival benefit, but when chemotherapy was added in the second treatment arm, the immunological effect of Multikine was negated. Therefore when the two treatment arms were combined the study did not achieve its primary endpoint of a 10% improvement in overall survival.

 

However, the analysis of the separate treatment arms was prespecified in the protocol and carried out prior to the Company becoming unblinded. The OS benefit of 14.1% at 5 years for this treatment arm exceeded the 10% OS benefit set out for the study population as a whole. The OS results for this treatment arm are significant (two-sided p=0.0236, HR=0.68) and the effect is robust, durable and increasing over time. The results from the Phase 3 cancer study proved that Multikine met all of the protocol required benefits stated in the study protocol in patients in the treatment arm receiving surgery and radiation as their standard therapies. Based on this the Company will be filing for and seeking FDA approval for the use of Multikine in the treatment of advanced primary head and neck cancer in this patient population of about 210,000 patients annually worldwide.

 

 
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Table of Contents

 

Multikine (Leukocyte Interleukin, Injection) is the full name of this investigational therapy, which, for simplicity, is referred to in this report as Multikine. Multikine is the trademark that the Company has registered for this investigational therapy, and this proprietary name is subject to FDA review under the Company’s future anticipated regulatory submission for approval. Multikine has not been licensed or approved by the FDA or any other regulatory agency. Neither has its safety or efficacy been established for any use.

 

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 and upgrade 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 may be required to raise additional capital or find additional long-term financing to continue with its efforts to bring Multikine to market. 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 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 in the past. However, there can be no assurance that the Company will be able to raise sufficient capital to support its operations.

 

If the Company needs to raise capital, 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 it showed great survival benefit in one of the two treatment arms for advanced primary head and neck cancer. 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 June 2021, the Company sold 1,400,000 shares of common stock at a public offering price of $22.62 per share and received aggregate net proceeds of approximately $29.4 million. The Company also granted the underwriters a 30-day option to purchase up to 210,000 additional shares of common stock to cover over-allotments. The underwriters fully exercised this option in June 2021, resulting in additional net proceeds to the Company of approximately $4.4 million.

 

 
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Table of Contents

 

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 June 30, 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

 

 

 

76,829

 

 

 

N/A

 

 

 

213

 

Non-Qualified Stock Option Plans

 

 

11,787,200

 

 

 

11,001,880

 

 

 

N/A

 

 

 

404,826

 

Stock Bonus Plans

 

 

783,760

 

 

 

N/A

 

 

 

358,118

 

 

 

425,609

 

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:

 

 

Nine Months Ended June 30,

 

 

 

2021

 

 

2020

 

Options granted

 

 

2,603,500

 

 

 

2,561,200

 

Options exercised

 

 

126,954

 

 

 

94,199

 

Options forfeited

 

 

42,166

 

 

 

1,000

 

Options expired

 

 

9,374

 

 

 

1,180

 

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

Options granted

 

 

2,595,500

 

 

 

2,559,000

 

Options exercised

 

 

72,809

 

 

 

73,719

 

Options forfeited

 

 

-

 

 

 

16

 

Options expired

 

 

9,307

 

 

 

-

 

 

During the quarter ended June 30, 2021, the Company adopted the 2021 Non-Qualified Stock Option Plan, which provides for the issuance of up to 1,800,000 options to purchase shares of common stock. On May 14, 2021, the Company granted 1,800,000 performance-based stock options from the 2021 Non-Qualified Stock Option Plan and 72,000 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 $20.61 per share, the fair value on the date of issuance. The stock options will vest 100% upon the achievement of the following performance goal: (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 $42.00. None of the options will be exercisable before May 13, 2022. All options which have not vested as of May 13, 2031, will be canceled and will no longer be exercisable. The options were recorded in permanent equity 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 $0.34 and an aggregate value of $636,480 on the grant date. The aggregate value will be expensed over the requisite service period of the options, which was determined to be 1.3 years. This resulted in compensation expense of approximately $64,000 recorded during the nine and three months ended June 30, 2021.

 

 
14

Table of Contents

 

Stock-Based Compensation Expense

 

 

Nine months Ended June 30,

 

 

 

2021

 

 

2020

 

Employees

 

$ 10,090,410

 

 

$ 6,690,331

 

Non-employees

 

$ 955,900

 

 

$ 623,146

 

 

 

 

Three months Ended June 30,

 

 

 

2021

 

 

2020

 

Employees

 

$ 3,511,359

 

 

$ 3,109,127

 

Non-employees

 

$ 403,236

 

 

$ 275,919

 

 

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 June 30, 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

 

 

8/18/2022

 

 

2

 

Series UU

 

6/11/2018

 

 

93,603

 

 

$ 2.80

 

 

6/30/2022

 

 

2

 

Series X

 

1/13/2016

 

 

120,000

 

 

$ 9.25

 

 

7/13/2022

 

 

2

 

Series Y

 

2/15/2016

 

 

26,000

 

 

$ 12.00

 

 

8/15/2022

 

 

2

 

Series BB

 

8/26/2016

 

 

16,000

 

 

$ 13.75

 

 

8/22/2021

 

*

 

Series Z

 

5/23/2016

 

 

184,800

 

 

$ 13.75

 

 

11/23/2021

 

*

 

Series CC

 

12/8/2016

 

 

41,345

 

 

$ 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

 

*

 

Series MM

 

6/22/2017

 

 

333,432

 

 

$ 1.86

 

 

6/22/2022

 

 

2

 

Series NN

 

7/24/2017

 

 

217,838

 

 

$ 2.52

 

 

7/24/2022

 

 

2

 

Series RR

 

10/30/2017

 

 

251,761

 

 

$ 1.65

 

 

10/30/2022

 

 

2

 

Series SS

 

12/19/2017

 

 

220,800

 

 

$ 2.09

 

 

12/18/2022

 

*

 

Series TT

 

2/5/2018

 

 

100,868

 

 

$ 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

 

 
15

Table of Contents

 

1. Derivative Liabilities

 

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

 

 

 

June 30,

2021

 

 

September 30,

2020

 

Series W warrants

 

$ -

 

 

$ 73,570

 

Series Z warrants

 

 

429,996

 

 

 

1,207,902

 

Series ZZ warrants

 

 

-

 

 

 

75,044

 

Series AA warrants

 

 

263,818

 

 

 

1,082,212

 

Series BB warrants

 

 

16,696

 

 

 

65,173

 

Series CC warrants

 

 

206,978

 

 

 

1,259,712

 

Series HH warrants

 

 

1,216

 

 

 

2,000

 

Total warrant liabilities

 

$ 918,704

 

 

$ 3,765,613

 

 

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

 

 

 

2021

 

 

2020

 

Series V warrants

 

$ -

 

 

$ 185,652

 

Series W warrants

 

 

73,570

 

 

 

(614,696 )

Series Z warrants

 

 

(113,094 )

 

 

(742,495 )

Series ZZ warrants

 

 

(98,692 )

 

 

(38,319 )

Series AA warrants

 

 

(306,606 )

 

 

(547,454 )

Series BB warrants

 

 

48,477

 

 

 

(44,620 )

Series CC warrants

 

 

(596,001 )

 

 

(1,245,627 )

Series FF warrants

 

 

-

 

 

 

(319,706 )

Series HH warrants

 

 

784

 

 

 

(35,024 )

Series JJ warrants

 

 

-

 

 

 

(64,992 )

Series LL warrants

 

 

-

 

 

 

(98,066 )

Net loss on warrant liabilities

 

$ (991,562 )

 

$ (3,565,347 )

 

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

 

 

 

2021

 

 

2020

 

Series V warrants

 

$ -

 

 

$ 107,191

 

Series W warrants

 

 

-

 

 

 

(247,327 )

Series Z warrants

 

 

583,404

 

 

 

(430,619 )

Series ZZ warrants

 

 

(87,162 )

 

 

(33,734 )

Series AA warrants

 

 

355,215

 

 

 

(220,831 )

Series BB warrants

 

 

64,678

 

 

 

(37,592 )

Series CC warrants

 

 

199,256

 

 

 

(419,350 )

Series HH warrants

 

 

1,228

 

 

 

(567 )

Net (gain) loss on warrant liabilities

 

$ 1,116,619

 

 

$ (1,282,829 )

 

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.

 

 
16

Table of Contents

 

Changes in Warrant Liabilities

 

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 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 combined with the mark-to-market gain recorded upon exercise of certain warrants and the expiration of the remaining warrants, resulted in a net gain of approximately $107,000 for the nine and three months ended June 30, 2020.

 

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 June 30, 2021.

 

 

 

Three Months

 

 

Nine Months

 

Warrants

 

Warrants Exercised

 

 

Exercise

Price

 

 

Proceeds

 

 

Warrants Exercised

 

 

Exercise

Price

 

 

Proceeds

 

Series Z

 

 

-

 

 

 

-

 

 

$ -

 

 

 

79,200

 

 

$ 13.75

 

 

$ 1,089,000

 

Series ZZ

 

 

19,200

 

 

$ 13.75

 

 

 

264,000

 

 

 

20,000

 

 

$ 13.75

 

 

 

275,000

 

Series AA

 

 

-

 

 

 

-

 

 

 

-

 

 

 

100,000

 

 

$ 13.75

 

 

 

1,375,000

 

Series CC

 

 

5,000

 

 

$ 5.00

 

 

 

25,000

 

 

 

107,298

 

 

$ 5.00

 

 

 

536,490

 

 

 

 

24,200

 

 

 

 

 

 

$ 289,000

 

 

 

306,498

 

 

 

 

 

 

$ 3,275,490

 

 

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

 

 

2. Equity Warrants

 

Changes in Equity Warrants

 

On June 28, 2021, the expiration dates of the Series N, Series X, Series Y and Series UU warrants were extended one year. On December 7, 2020, the expiration dates were extended six months. The incremental costs of the warrant extensions were recorded consistent with the accounting for the initial warrant issuances. The incremental costs of the Series N and Series X warrant extensions were recorded as a deemed dividend and totaled approximately $351,000and $265,000 for the nine and three months ended June 30, 2021, respectively. The Series N and Series X warrants are held by the de Clara Trust, of which the Company’s CEO, Geert Kersten, is a beneficiary. The incremental cost of the Series Y warrants extension was recorded as additional paid in capital and totaled approximately $103,000 and $62,000 for the nine and three months ended June 30,2021. The incremental cost of the Series UU warrant extension was recorded as interest expense, because these warrants were initially issued as an inducement to convert notes payable into common stock, and totaled approximately $24,000for the nine and three months ended June 30,2021. The Series UU warrants are held by Geert Kersten, Patricia Prichep (current Officers of the Company) and the de Clara Trust.

 

 
17

Table of Contents

 

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 by six months. 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. As noted above, the Series UU warrants are held by current officers of the Company and the de Clara Trust.

 

On January 23, 2020, the expiration date of the Series N warrants was extended by six months. The incremental cost of this extension was approximately $22,000 and 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 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 June 30, 2021.

 

 

 

Three Months

 

 

Nine Months

 

Warrants

 

Warrants Exercised

 

 

Exercise

Price

 

 

Proceeds

 

 

Warrants Exercised

 

 

Exercise

Price

 

 

Proceeds

 

Series MM

 

 

147,929

 

 

$ 1.86

 

 

$ 275,148

 

 

 

464,201

 

 

$ 1.86

 

 

$ 863,414

 

Series NN

 

 

109,170

 

 

$ 2.52

 

 

 

275,108

 

 

 

131,004

 

 

$ 2.52

 

 

 

330,130

 

Series RR

 

 

95,799

 

 

$ 1.65

 

 

 

158,068

 

 

 

165,888

 

 

$ 1.65

 

 

 

273,715

 

Series SS

 

 

-

 

 

 

-

 

 

 

-

 

 

 

105,264

 

 

$ 2.09

 

 

 

220,002

 

Series TT

 

 

60,214

 

 

$ 2.24

 

 

 

134,879

 

 

 

270,696

 

 

$ 2.24

 

 

 

606,359

 

 

 

 

413,112

 

 

 

 

 

 

$ 843,204

 

 

 

1,137,053

 

 

 

 

 

 

$ 2,293,620

 

 

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

 

3. Options and Shares Issued to Consultants

 

During the nine months ended June 30, 2021 and 2020, the Company issued 41,714 and 47,750 shares, respectively, of restricted common stock to consultants for services. The weighted average grant date fair value of the shares issued to consultants was $19.47 and $11.60 during the nine months ended June 30, 2021 and 2020, respectively. During the three months ended June 30, 2021 and 2020, the Company issued 13,184 and 14,811 shares, respectively, of restricted common stock to consultants for services. The weighted average grant date fair value of the shares issued to consultants was $23.39 and $16.41, respectively, during the three months ended June 30, 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 nine months ended June 30, 2021, the Company issued to a consultant 5,000 options to purchase common stock with an exercise price of $11.61. The options were 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 June 30, 2021. No options were issued to consultants during the nine months ended June 30, 2020.

 

As of June 30, 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 nine months ended June 30, 2021 and 2020, the Company recorded total expense of approximately $956,000 and $623,000, respectively, relating to these consulting agreements. At June 30, 2021 and September 30, 2020, consulting fees of approximately $293,000 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 (“Ergomed”), 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.

 

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

 

June 30, 2021

 

 

June 30, 2020

 

Realized through the resale of shares

 

$ 1,436,473

 

 

$ 2,539,245

 

 

$ 761,237

 

 

$ 818,565

 

Fair value of shares upon issuance

 

 

-

 

 

 

1,769,500

 

 

 

-

 

 

 

1,769,500

 

Other non-operating gain (loss)

 

$ 1,436,473

 

 

$ 769,745

 

 

$ 761,237

 

 

$ (950,935 )

 

As of June 30, 2021, Ergomed held 27,021 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.

 

 
19

Table of Contents

 

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 nine months ended June 30, 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 $2,000. The T-bills have maturity dates ranging from July through December 2021 and yield a weighted average interest rate of 0.09%.

 

The Company measures its warrant liabilities at fair value. At June 30, 2021 and September 30, 2020, all warrant liabilities were measured using unobservable inputs, and therefore were categorized as a  Level 3 to the fair value hierarchy.

 

The following sets forth the reconciliation of beginning and ending balances related to fair value measurements using significant unobservable inputs (Level 3) for the nine months ended June 30, 2021 and the year ended September 30, 2020:

 

 

Nine months

ended

 

 

Twelve months

ended

 

 

 

June 30,

2021

 

 

September 30,

2020

 

 

 

 

 

 

 

 

Beginning balance

 

$ 3,765,613

 

 

$ 6,488,310

 

Issuances

 

 

-

 

 

 

-

 

Exercises

 

 

(3,838,471 )

 

 

3,071,775 )

Realized and unrealized net loss

 

 

991,562

 

 

 

349,078

 

Ending balance

 

$ 918,704

 

 

$ 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 June 28, 2021, 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 twelve months (Note C). The incremental cost of these modifications was approximately $265,000 and was recorded as a deemed dividend in the financial statements for the nine and three months ended June 30, 2021.

 

 
20

Table of Contents

 

On June 28, 2021, the expiration date of 93,603 Series UU warrants was extended by twelve months (Note C). The incremental cost of this extension was $24,000 and was recorded as interest expense for the nine and three months ended June 30, 2021. The Series UU warrants are held by certain officers of the Company and the de Clara Trust and were originally issued with convertible debt.

 

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 nine months ended June 30, 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 nine months ended June 30, 2021. The Series UU warrants are held by certain officers of the Company and were originally issued with convertible debt.

 

During the nine months ended June 30, 2020, certain officers and directors of the Company purchased 20,512 shares of restricted common stock at an aggregate fair market value of approximately $185,000. No shares were purchased during the three months ended June 30, 2020.

 

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 months ended June 30, 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 $34.8 million for Ergomed’s services. This amount is net of Ergomed’s discount of approximately $11.7 million. During the nine months ended June 30, 2021 and 2020, the Company recorded, net of Ergomed’s discount, approximately $1.4 million and $1.3 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 $10.7 million, of which approximately $10.5 million has been incurred as of June 30, 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 8.45% implicit interest rate. Additionally, this financing is considered to be a lease incentive from the landlord and has been included in the calculation of the lease liability as it is realized. Approximately $1.6 million was received as of June 30, 2021. 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.

 

 
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During June 2021, CEL-SCI determined that it used an incorrect discount rate to calculate the opening ROU asset and lease liability balances upon adoption of ASC 842. In addition, CEL-SCI determined that the discount rate used to calculate the modification of a finance lease during the quarter ended March 31, 2021 was also incorrect. CEL-SCI engaged an outside valuation specialist to perform a synthetic credit rating analysis to determine an appropriate rate for both the discount rate upon adoption, and the rate used for the lease modification. The revised rate upon adoption of ASC 842 was calculated to be 10.19% compared to the previously used rate of 8.80%, and the revised rate for the lease modification was calculated to be 8.45% compared to the previous rate of 10.00%. CEL-SCI performed an assessment and determined that the impact in the change of interest rates at September 30, 2020 is not material and would have decreased the right of use assets by $712,000 and the related lease liability by $683,000 and increased the net loss by $29,000. As a result, the error was corrected in the quarterly period ended June 30, 2021 as an out of period adjustment.

 

The net impact of correcting these errors resulted in an increase of approximately $0.5 million to the right of use assets and lease liabilities as of June 30, 2021. For the nine months ended June 30, 2021, this resulted in an increase of expense of approximately $27,000, which is recorded as expense in the nine and three months ended June 30, 2021. There is no impact to the Company’s cash flows as a result of the adjustment.

 

At June 30, 2021 and September 30, 2020, the net book value of the finance lease right of use asset is approximately $13.1 million and $13.8 million, respectively and the balance of the finance lease liability is approximately $14.1 million and $12.7 million, respectively, of which approximately $0.5 million and $0.9 million is current as of June 30, 2021, and September 30, 2020, respectively. 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 nine months ended June 30, 2021 and 2020 was approximately $1.6 million, of which approximately $0.9 million was for interest. The weighted average discount rate of the Company’s finance leases is 8.45% and the weighted average time to maturity is 7.3 years.

 

The Company was required to deposit the equivalent of one year of base rent in accordance with the original lease. Under the landlord’s $2.4 million financing arrangement, the Company was required to deposit an additional $0.2 million during the quarter ended June 30, 2021. As of June 30, 2021 and September 30, 2020, respectively, the approximate $1.9 million and $1.7 million deposit is included in non-current assets.

 

Approximate future minimum lease payments under finance leases as of June 30, 2021 are as follows:

 

Nine months ending September 30, 2021 (1)

 

$ (182,000 )

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

 

 

19,264,000

 

Less: imputed interest on financing lease obligation

 

 

(5,126,000 )

Net present value of financing lease obligation

 

$ 14,138,000

 

 

 

 

 

 

(1) Amount is net of landlord incentive of $0.8 million expected to be received in 2021

 

 
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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 nine and three months ended June 30, 2020 was approximately $39,000 and $2,000, 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 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 June 30, 2021 and September 30, 2020, the net book value of the operating lease right of use assets is approximately $1.0 million and $1.2 million, respectively. As of June 30, 2021 and September 30, 2020, the balance of the operating lease liabilities is approximately $1.1 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 $0.2 million for the nine months ended June 30, 2021 and 2020. The Company incurred lease expense for operating leases of approximately $66,000 and $67,000, respectively, for the three months ended June 30, 2021 and 2020. Total cash paid related to operating leases during the nine months ended June 30, 2021 and 2020 was approximately $176,000 and $198,000 respectively. Total cash paid related to operating leases during the three months ended June 30, 2021 and 2020 was approximately $64,000 and $66,000 respectively. The weighted average discount rate of the Company’s operating leases is 10.2% and the weighted average time to maturity is 5.9 years.

 

As of June 30, 2021, future minimum lease payments on operating leases are as follows:

 

Three months ending September 30, 2021

 

$ 66,000

 

Year ending September 30,

 

 

 

 

2022

 

 

267,000

 

2022

 

 

275,000

 

2024

 

 

281,000

 

2025

 

 

288,000

 

2026

 

 

207,000

 

Thereafter

 

 

80,000

 

Total future minimum lease obligation

 

 

1,464,000

 

Less imputed interest on operating lease obligation

 

 

(344,000 )

Net present value of operating lease obligation

 

$ 1,120,000

 

 

G. PATENTS

 

During the nine months ended June 30, 2021 and 2020, no patent impairment charges were recorded. For the nine months ended June 30, 2021 and 2020, amortization of patent costs totaled approximately $39,000 and $40,000, respectively. For the three months ended June 30, 2021 and 2020, amortization of patent costs totaled approximately $13,000 and $14,000, respectively. Approximate estimated future amortization expense is as follows:

 

Three months ending September 30, 2021

 

$ 13,000

 

Year ending September 30,

 

 

 

 

2022

 

 

48,000

 

2023

 

 

38,000

 

2024

 

 

31,000

 

2025

 

 

28,000

 

2026

 

 

24,000

 

Thereafter

 

 

97,000

 

Total

 

$ 279,000

 

 

 
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H. LOSS PER COMMON SHARE

 

The following tables provide the details of the basic and diluted loss per-share computations:

 

 

 

Nine months ended June 30,

 

 

Three months ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Loss per share - basic

 

 

 

 

 

 

 

 

 

 

 

 

Net loss available to common shareholders - basic

 

$ (28,507,113 )

 

$ (24,897,891 )

 

$ (9,203,350 )

 

$ (10,276,979 )

Weighted average shares outstanding - basic

 

 

39,907,624

 

 

 

36,230,992

 

 

 

41,020,485

 

 

 

37,453,539

 

Basic loss per common share

 

$ (0.71 )

 

$ (0.69 )

 

$ (0.22 )

 

$ (0.27 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share - diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss available to common shareholders - basic

 

$ (28,507,113 )

 

$ (24,897,891 )

 

$ (9,203,350 )

 

$ (10,276,979 )

Unrealized gain on derivatives (1)

 

 

(1,236,514 )

 

 

-

 

 

 

(1,233,597 )

 

 

-

 

Net loss available to common shareholders - diluted

 

$ (29,743,627 )

 

$ (24,897,891 )

 

$ (10,436,947 )

 

$ (10,276,979 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

 

39,907,624

 

 

 

36,230,992

 

 

 

41,020,485

 

 

 

37,453,539

 

Incremental shares underlying dilutive “in the money” warrants (1)

 

 

250,697

 

 

 

-

 

 

 

210,597

 

 

 

-

 

Weighted average shares outstanding - diluted

 

 

40,158,321

 

 

 

36,230,992

 

 

 

41,231,082

 

 

 

37,453,539

 

Diluted loss per common share

 

$ (0.74 )

 

$ (0.69 )

 

$ (0.25 )

 

$ (0.27 )

 

(1) Includes shares issuable upon the exercise of the Series Z, AA, BB, CC and HH warrants for the nine and three months ended June 30, 2021.

 

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 June 30:

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Options and Warrants

 

 

6,979,170

 

 

 

7,651,718

 

Unvested Restricted Stock

 

 

166,500

 

 

 

311,873

 

Total

 

 

7,145,670

 

 

 

7,963,591

 

 

J. SUBSEQUENT EVENTS

 

On July 7, 2021, the Company received security purchase agreements for the purchase of 27,500 restricted shares of the Company’s common stock at the closing price on July 6, 2021 of $8.00. The de Clara Trust, of which the Company’s CEO, Geert Kersten, is a beneficiary invested $200,000 and two directors of the Company invested $10,000 each.

 

 
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Liquidity and Capital Resources

 

On June 28, 2021, the Company announced results from its 9.5 year pivotal Phase 3 study for its immunotherapy Multikine® (Leukocyte Interleukin, Injection) in the treatment of advanced (stages III and IV) primary (previously untreated) squamous cell carcinoma of the head and neck (SCCHN). The Phase 3 results showed a long-term 5-year overall survival (OS) benefit in the treatment arm that received Multikine treatment followed by surgery and radiation. This survival benefit was robust and durable, with no safety issues, something not commonly seen with cancer drugs. In fact, the survival benefit increased over time and at 5-years the overall survival benefit reached an absolute 14.1% advantage for the Multikine treated arm over control (n=380, total study patients treated with surgery plus radiation), which is about a 29% improvement, control arm 48.6%, Multikine arm 62.7% survival.

 

The study used the standard of care treatment for advanced primary head and neck cancer patients as a comparison. The patients received surgery followed by either radiation or chemoradiation (chemotherapy and radiation at the same time), as determined by the physician. This means that there were 2 treatment arms, 1) surgery plus radiation or 2) surgery plus chemoradiation. The arm that received Multikine treatment followed by surgery and radiation showed great survival benefit, but when chemotherapy was added in the second treatment arm, the immunological effect of Multikine was negated. Therefore when the two treatment arms were combined the study did not achieve its primary endpoint of a 10% improvement in overall survival.

 

However, the analysis of the separate treatment arms was prespecified in the protocol and carried out prior to the Company becoming unblinded. The OS benefit of 14.1% at 5 years for this treatment arm exceeded the 10% OS benefit set out for the study population as a whole. The OS results for this treatment arm are significant (two-sided p=0.0236, HR=0.68) and the effect is robust, durable and increasing over time. The results from the Phase 3 cancer study proved that Multikine met all of the protocol required benefits stated in the study protocol in patients in the treatment arm receiving surgery and radiation as their standard therapies. Based on this the Company will be filing for and seeking FDA approval for the use of Multikine in the treatment of advanced primary head and neck cancer in this patient population of about 210,000 patients annually worldwide.

 

Multikine (Leukocyte Interleukin, Injection) is the full name of this investigational therapy, which, for simplicity, is referred to in this report as Multikine. Multikine is the trademark that the Company has registered for this investigational therapy, and this proprietary name is subject to FDA review under the Company’s future anticipated regulatory submission for approval. Multikine has not been licensed or approved by the FDA or any other regulatory agency. Neither has its safety or efficacy been established for any use.

 

The Company also owns and is developing a pre-clinical technology called LEAPS (Ligand Epitope Antigen Presentation System). The Company has product candidates under development for the potential treatment of rheumatoid arthritis and to potentially treat the COVID-19 coronavirus.

 

All the Company’s projects are under development. Consequently, the Company cannot predict when it will be able to generate any revenue from the sale of any of its products.

 

Since inception, the Company has financed its operations through the sale of equity securities, convertible notes, loans and certain research grants. The Company’s expenses will continue to exceed its revenues as it continues the development of Multikine and brings other drug candidates into clinical trials. Until the Company becomes profitable, any or all of these financing vehicles or others may be utilized to assist in funding the Company’s capital requirements.

 

Capital raised by the Company has been expended primarily for patent applications, research and development, administrative costs, and the construction and upgrade of the Company’s manufacturing and laboratory facilities. The Company does not anticipate realizing significant revenues until it receives regulatory approval to sell its products and enters into licensing arrangements for its technology and know-how (which could take several years). Thus, the Company has been dependent upon the proceeds from the sale of its securities to meet all its liquidity and capital requirements and anticipates having to do so in the future.

 

The Company may be required to raise additional capital or find additional long-term financing to continue with its efforts to bring Multikine to market. 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 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 in the past. However, there can be no assurance that the Company will be able to raise sufficient capital to support its operations.

 

 
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Since the Company launched its Phase 3 clinical trial for Multikine, the Company has incurred expenses of approximately $62.6 million as of June 30, 2021 on direct costs for the Phase 3 clinical trial. The Company estimates it will incur additional expenses of approximately $4.3 million for the remainder of the Phase 3 clinical trial and the filing of the clinical study report to the FDA. It should be noted that this estimate is based only on the information currently available from the Clinical Research Organizations responsible for managing the Phase 3 clinical trial and does not include other related costs, e.g., the manufacturing of the drug. This number may be affected by foreign currency exchange rates and many other factors, some of which cannot be foreseen today. It is therefore possible that the cost of the Phase 3 clinical trial will be higher than currently estimated.

 

The Company uses two CRO’s to manage the global Phase 3 study; ICON and Ergomed, which are both international leaders in managing oncology trials.

 

Under a co-development agreement, Ergomed agreed to contribute up to $12 million towards the study where it will perform clinical services in exchange for a single digit percentage of milestone and royalty payments, up to a specified maximum amount. Approximately $11.6 million of these credits were realized as of June 30, 2021.

 

During the nine months ended June 30, 2021, the Company’s cash increased by approximately $20.4 million after the purchase of $11.1 million of U.S. Treasury bills (T-bills). Net of the purchase of the T-bills, cash increased by approximately $31.6 million. Significant components of the increase include approximately $47.2 million in net proceeds from the sale of common stock through public offerings, approximately $6.2 million in proceeds from the exercise of warrants and options, and receipt of approximately $1.6 million in lease incentives , offset by net cash used to fund the Company’s operations, including its Phase 3 clinical trial, of approximately $14.0 million, approximately $8.6 million of equipment and leasehold improvement expenditures and approximately $0.8 million in lease payments. During the nine months ended June 30, 2020, the Company’s cash increased by approximately $11.7 million. Significant components of this increase include approximately $14.0 million in net proceeds from the sale of common stock through public offerings, approximately $12.1 million in proceeds from the exercise of warrants and options and employee stock purchases of approximately $0.2 million, offset by net cash used to fund the Company’s regular operations, including its Phase 3 clinical trial, of approximately $11.7 million, approximately $1.6 million of equipment and leasehold improvement expenditures, approximately $0.7 million for payments of stock issuance costs and approximately $0.6 million in lease payments.

 

During the nine months ended June 30, 2021, 1,443,551 warrants were exercised at a weighted average exercise price of $3.86 for total proceeds of approximately $5.6 million. These exercises include 437,312 warrants exercised during three months ended June 30, 2021 for proceeds of approximately $1.1 million and a weighted average exercise price of $2.59. During the nine months ended June 30, 2020, 1,544,845 warrants were exercised at a weighted average exercise price of $7.60 for total proceeds of approximately $11.7 million. These exercises include 849,845 warrants exercised during three months ended June 30, 2020 for proceeds of approximately $9.7 million and a weighted average exercise price of $11.38.

 

The Company entered into a Securities Purchase Agreement with Ergomed plc, one of the Company’s Clinical Research Organizations responsible for managing the Company’s Phase 3 clinical trial, to facilitate a payment of amounts due 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 or loss and subsequently offsets the expense as amounts are realized through the sale of the Company’s shares by Ergomed and reduces accounts payable to Ergomed. During the nine months ended June 30, 2021 and 2020, the Company realized approximately $1.4 million and $2.5 million, respectively, through the sale by Ergomed of 75,500 and 237,479 shares of the Company’s common stock, and the Company reduced accounts payable to Ergomed and credited Other operating gains by those amounts. (As disclosed in Item 4 under Note C). During the nine months ended June 30, 2020, the Company issued Ergomed 150,000 shares of common stock valued at approximately $1.8 million.

 

Prepaid expenses decreased by approximately $0.3 million during the nine months ended June 30, 2021 as compared to September 30, 2020 primarily due to the timing of payments and recognition of related expenses relating to the Company’s Phase 3 clinical trial status.

 

 
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Supplies are purchased for use in the Company’s manufacturing and R&D efforts and vary with the study requirements. During the nine months ended June 30, 2021, the supplies increased by approximately $0.8 million in support of the work on modifications of the manufacturing facility 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.

 

During the nine and three months ended June 30, 2021, the Company incurred approximately $7.9 million and $1.0 million, respectively, in costs to upgrade its manufacturing facility to prepare for the potential commercial production of its products. Total estimated costs of this upgrade are approximately $10.6 million. The landlord of the property has agreed to finance the final $2.4 million of costs and allow for the repayment through increased lease payments beginning March 1, 2021. Approximately $1.6 million of the total funding was provided during the three months June 30, 2021. Because of the change in lease payments, the new financing arrangement was considered a lease modification. The modification along with the accounting for the landlord’s lease incentive resulted in an increase of approximately $0.5 million in the right of use asset and liability relating to this lease. The lease incentive is expected to be fully realized by September 2021.

 

Results of Operations and Financial Condition

 

During the nine and three months ended June 30, 2021, grant income decreased by approximately $0.5 million and $0.2 million, respectively, or 100%, compared to the nine and three months ended June 30, 2020. Prior year grant income included amounts earned on a Small Business Innovation Research (SBIR) grant, which was not received in the current year. The nature and amount of grants awarded depends on the timing and availability of such funds.

 

During the nine months ended June 30, 2021, research and development expenses increased by approximately $5.1 million, or 41%, compared to the nine months ended June 30, 2020. Major components of this increase include approximately $1.8 million increase in employee stock compensation expense and an increase of approximately $3.6 million in expenses related to the Company’s on-going Phase 3 clinical trial. These increases were offset by a decrease of approximately $0.3 million in other miscellaneous research and development expenses. During the three months ended June 30, 2021, research and development expenses increased by approximately $3.2 million, or 81%, compared to the three months ended June 30, 2020. Major components of this increase include approximately $2.8 million in expenses related to the Company’s on-going Phase 3 clinical trial and $0.5 million increase in employee stock compensation expense. These increases were offset by a $0.1 million decrease in other miscellaneous research and development expenses.

 

During the nine months ended June 30, 2021, general and administrative expenses increased by approximately $1.5 million, or 18%, compared to the nine months ended June 30, 2020. The increase primarily relates to an increase in employee stock compensation expense. During the three months ended June 30, 2021, general and administrative expenses increased by approximately $0.1million, or 3%, compared to the three months ended June 30, 2020, primarily relating to an increase in stock compensation expense.

 

The gain on derivatives instruments increased by approximately $2.6 million for the nine months ended June 30, 2021 as compared to the nine months ended June 30. 2020. The gain on derivative instruments increased by approximately $2.4 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The variance is the result of the change in fair value of the derivative liabilities at the respective period ends which is caused mainly by fluctuation in the share price of the Company’s common stock.

 

Other non-operating gain increased $0.7 million and $1.7 million, respectively, for the nine and three months ended June 30, 2021 as compared to the nine and three months ended June 30, 2020. This gain relates to the SPA described in Item 4 under Note C. The amount of the gain or loss is a result of the timing of shares issued to Ergomed and the subsequent re-sale of those shares. During the nine-month periods ended June 30, 2021 and 2020, the Company realized approximately $1.4 million and $2.5 million, respectively, in value upon the resale of shares. During the three-month periods ended June 30, 2021 and 2020, the Company realized approximately $0.8 million in value upon the resale of shares. Additionally, during the nine months ended June 30, 2020, the Company issued 150,000 shares to Ergomed and recorded a non-operating loss equal to the fair value of those shares of approximately $1.8 million.

 

 
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Research and Development Expenses

 

The Company’s research and development efforts involve Multikine and LEAPS. The table below shows the research and development expenses associated with each project.

 

 

 

Nine months ended June 30,

 

 

Three months ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

MULTIKINE

 

$ 16,582,740

 

 

$ 11,342,872

 

 

$ 6,849,923

 

 

$ 3,382,709

 

LEAPS

 

 

1,235,633

 

 

 

1,337,558

 

 

 

332,176

 

 

 

586,361

 

TOTAL

 

$ 17,818,373

 

 

$ 12,680,430

 

 

$ 7,182,099

 

 

$ 3,969,070

 

 

Clinical and other studies necessary to obtain regulatory approval of a new drug involve significant costs and require several years to complete. The extent of the Company’s clinical trials and research programs are primarily based upon the amount of capital available to the Company and the extent to which the Company has received regulatory approvals for clinical trials. The inability of the Company to conduct clinical trials or research, whether due to a lack of capital or regulatory approval, will prevent the Company from completing the studies and research required to obtain regulatory approval for any products which the Company is developing. Without regulatory approval, the Company will be unable to sell any of its products. Since all of the Company’s projects are under development, the Company cannot predict when it will be able to generate any revenue from the sale of any of its products.

 

Critical Accounting Estimates and Policies

 

Management’s discussion and analysis of the Company’s financial condition and results of operations is based on its unaudited condensed financial statements. The preparation of these financial statements is based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and notes. The Company believes some of the more critical estimates and policies that affect its financial condition and results of operations are in the areas of operating leases and stock-based compensation. For more information regarding the Company’s critical accounting estimates and policies, see Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended September 30, 2020. The application of these critical accounting policies and estimates has been discussed with the Audit Committee of the Company’s Board of Directors.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

 

The Company does not believe that it has any significant exposures to market risk.

 

Item 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the direction and with the participation of the Company’s management, including the Company’s Chief Executive and Chief Financial Officer, the Company has conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of June 30, 2021. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its periodic reports with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching its desired disclosure control objectives. Based on the evaluation, the Company’s Chief Executive and Principal Financial and Accounting Officer has concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2021.

 

Changes in Internal Control over Financial Reporting

 

In the first quarter of 2021, the Company implemented additional controls over financial reporting which include a thorough review of all leases and relevant accounting guidance such that the accounting for any leases complies with Generally Accepted Accounting Principles. The Company implemented additional controls during the current quarter and engaged an outside valuation specialist to perform a synthetic credit rating analysis to determine an appropriate rate to use in determining the lease liabilities recorded upon initial adoption and as leases are modified, if applicable.

 

There were no other changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 
28

Table of Contents

 

PART II

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the nine months ended June 30, 2021 the Company issued 41,714 restricted shares of common stock to consultants for investor relations services.

 

The Company relied upon the exemption provided by Section 4(a)(2) of the Securities Act of 1933 with respect to the issuance of these shares. The individuals who acquired these shares were sophisticated investors and were provided full information regarding the Company’s business and operations. There was no general solicitation in connection with the offer or sale of these securities. The individuals who acquired these shares acquired them for their own accounts. The certificates representing these shares bear a restricted legend which provides they cannot be sold except pursuant to an effective registration statement or an exemption from registration. No commission or other form of remuneration was given to any person in connection with the issuance of these shares.

 

Item 6. Exhibits

 

Number

 

Exhibit

31

 

Rule 13a-14(a) Certifications

32

 

Section 1350 Certifications

 

 
29

Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

CEL-SCI CORPORATION

 

 

 

 

 

Date: August 13, 2021

By:

/s/ Geert Kersten

 

 

 

Geert Kersten

 

 

 

Principal Executive Officer*

 

 

* Also signing in the capacity of the Principal Accounting and Financial Officer.

 

 
30

 

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