Blueprint
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-Q/A
(Amendment No. 1)
(Mark
One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly
period ended December 31, 2016
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
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84-0916344
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State or other
jurisdiction incorporation
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(IRS)
Employer Identification
Number
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8229 Boone
Boulevard, Suite 802
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Vienna, Virginia
22182
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Address of
principal executive offices
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(703) 506-9460
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Registrant's
telephone number, including area code
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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 and posted
on its corporate Web site, if any, 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, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act. (Check
One):
Large accelerated filer
|
☐
|
Accelerated filer
|
☒
|
Non-accelerated
filer
|
☐ (Do not check if a smaller reporting
company)
|
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
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Common
|
7,638,618
|
February 3, 2017
|
EXPLANATORY NOTE
In October 2008, the Company entered into an
agreement whereby the Company leased a building owned by a third
party. The Company accounted for the arrangement as an operating
lease under ASC 840, Accounting for
Leases.
In
November 2017, the Company determined that the lease should have
been treated as a financing obligation rather than an operating
lease.
Accordingly, this amended 10-Q is filed to correct
the manner in which the Company accounted for the lease. See
Note I.
Restatement, to the accompanying financial statements,
for further
information.
In
addition, per share data, including earnings per share amounts, in
this amended 10-Q have been adjusted to reflect a 1 for 25 reverse
stock split which became effective on the NYSE American on June 15,
2017.
As
a result of the error described above, management has concluded
that the Company’s internal control over financial reporting
and its disclosure controls and procedures were not effective as of
the end of this reporting period. The effects of the material
weaknesses are discussed in more detail in Item 4, Controls and
Procedures.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1.
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Page
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Condensed Balance Sheets at December 31, 2016 and
September
30, 2016 (unaudited)
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3
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Condensed Statements of Operations for the three months
Ended
December 31, 2016 and 2015 (unaudited)
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4
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Condensed Statements of Cash Flows for the three months
Ended
December 31, 2016 and 2015 (unaudited)
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5
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Notes to Condensed Financial Statements (unaudited)
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7
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Item 2.
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Management's Discussion and Analysis of Financial Condition
and
Results of Operations
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22
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Item 3.
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Quantitative and Qualitative Disclosures about Market
Risks
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28
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8
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Item 4.
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Controls and Procedures
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28
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PART II
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Item 2.
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Unregistered Sales of Equity Securities and Use of
Proceeds
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29
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Item 6.
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Exhibits
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29
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Signatures
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30
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CEL-SCI CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
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RESTATED
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DECEMBER 31,
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SEPTEMBER 30,
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ASSETS
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2016
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2016
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CURRENT
ASSETS:
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Cash
and cash equivalents
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$2,386,673
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$2,917,996
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Receivables
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4,128
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394,515
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Prepaid
expenses
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866,987
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981,677
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Deposits
- current portion
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154,995
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154,995
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Inventory
used for R&D and manufacturing
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694,504
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1,008,642
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Total
current assets
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4,107,287
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5,457,825
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PROPERTY AND EQUIPMENT, net
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17,225,860
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17,350,836
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PATENT
COSTS, net
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247,267
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256,547
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DEPOSITS
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1,670,917
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1,820,917
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TOTAL
ASSETS
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$ 23,251,331
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$ 24,886,125
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LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
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CURRENT
LIABILITIES:
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Accounts
payable
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$2,741,353
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$3,091,512
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Accrued
expenses
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319,476
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378,672
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Due
to employees
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476,413
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538,278
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Derivative
instruments, current portion
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249,157
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-
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Other
current liabilities
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7,203
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3,310
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Total
current liabilities
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3,793,602
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4,011,772
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Derivative
instruments - net of current portion
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1,533,549
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8,394,934
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Lease
liability
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13,062,236
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13,011,023
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Deferred
revenue
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125,000
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125,000
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Other
Liabilities
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42,447
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22,609
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Total
liabilities
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18,556,834
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25,565,338
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COMMITMENTS
AND CONTINGENCIES
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STOCKHOLDERS'
EQUITY (DEFICIT)
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Preferred
stock, $.01 par value-200,000 shares authorized;
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-0-
shares issued and outstanding
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-
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-
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Common
stock, $.01 par value - 600,000,000 shares authorized;
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7,633,803
and 6,235,035 shares issued and outstanding
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at
December 31, 2016 and September 30, 2016, respectively
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76,338
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62,350
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Additional
paid-in capital
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286,488,128
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284,649,559
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Accumulated
deficit
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(281,869,969)
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(285,391,122)
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Total
stockholders' equity (deficit)
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4,694,497
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(679,213)
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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$ 23,251,331
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$ 24,886,125
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See notes to condensed financial
statements
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CEL-SCI
CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2016 and 2015
(UNAUDITED)
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RESTATED
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2016
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2015
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GRANT
INCOME AND OTHER
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$17,258
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$20,976
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OPERATING
EXPENSES:
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Research
and development
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3,548,257
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4,692,908
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General
& administrative
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1,407,009
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634,601
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Total
operating expenses
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4,955,266
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5,327,509
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OPERATING
LOSS
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(4,938,008)
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(5,306,533)
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GAIN
ON DERIVATIVE INSTRUMENTS
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8,928,312
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8,122,960
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INTEREST
EXPENSE, NET
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(469,151)
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(483,693)
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NET
INCOME AVAILABLE TO COMMON SHAREHOLDERS
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$ 3,521,153
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$ 2,332,734
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NET
INCOME PER COMMON SHARE
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BASIC
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$ 0.59
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$ 0.53
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DILUTED
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$ 0.32
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$ 0.53
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WEIGHTED
AVERAGE COMMON SHARES
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OUTSTANDING
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BASIC
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5,994,431
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4,390,740
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DILUTED
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6,084,708
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4,465,591
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See notes to condensed financial
statements
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CEL-SCI CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 2016 and 2015
(UNAUDITED)
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RESTATED
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2016
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2015
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
income
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$ 3,521,153
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$ 2,332,734
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Adjustments
to reconcile net income to
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net
cash used in operating activities:
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Depreciation
and amortization
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159,173
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170,177
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Issuance
of common stock and options for services
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78,553
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329,195
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Equity
based compensation
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312,375
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427,910
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Common
stock contributed to 401(k) plan
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38,372
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40,995
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Loss
on retired equipment
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1,187
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115
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Gain
on derivative instruments
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(8,928,312)
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(8,122,960)
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Capital lease interest
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51,213
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57,468
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(Increase)/decrease
in assets:
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Receivables
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85,046
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75,206
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Prepaid
expenses
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96,507
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51,628
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Inventory
used for R&D and manufacturing
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314,138
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58,798
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Deposits
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150,000
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150,000
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Increase/(decrease)
in liabilities:
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Accounts
payable
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(75,029)
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(1,666,792)
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Accrued
expenses
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(59,196)
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280,032
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Deferred
revenue
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-
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(1,639)
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Due
to employees
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17,110
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(25,056)
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Deferred
rent liability
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(1,496)
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4,245
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Net
cash used in operating activities
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(4,239,206)
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(5,837,944)
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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Purchases
of equipment
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-
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(14,831)
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Net
cash used in investing activities
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-
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(14,831)
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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Proceeds
from issuance of common stock and warrants
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3,709,931
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10,550,538
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Payments
on obligations under capital lease
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(2,048)
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(2,194)
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Net
cash provided by financing activities
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3,707,883
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10,548,344
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NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
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(531,323)
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4,695,569
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CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
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2,917,996
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5,726,682
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CASH
AND CASH EQUIVALENTS, END OF PERIOD
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$2,386,673
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$10,422,251
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See notes to condensed financial
statements.
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CEL-SCI CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 2016 and 2015
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
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RESTATED
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2016
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2015
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Decrease
in receivable due under the litigation funding arrangement
offset
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by
the same amount payable to the legal firm providing the
services
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$305,341
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$366,267
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Research
and office equipment included in accounts payable
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-
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6,814
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Capital
lease payments included in accounts payable
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372
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739
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Property
and equipment acquired through capital lease
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26,104
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-
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Fair
value of warrants issued in connection with public
offering
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2,316,084
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5,060,771
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Financing
costs included in accounts payable
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77,987
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21,000
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Prepaid
consulting services paid with issuance of common stock
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(18,183)
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8,177
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Cash
paid for interest expense
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$ 469,366
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$ 504,798
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See notes to condensed financial
statements
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CEL-SCI CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2016 AND 2015
(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 have been omitted pursuant
to the rules and regulations of the Securities and Exchange
Commission. While management of the Company believes that the
disclosures presented are adequate to make the information
presented not misleading, these interim condensed financial
statements should be read in conjunction with the financial
statements and notes included in the Company’s annual report
on Form 10-K for the year ended September 30, 2016.
In the
opinion of management, the accompanying unaudited condensed
financial statements contain all accruals and adjustments (each of
which is of a normal recurring nature) necessary for a fair
presentation of the Company’s financial position as of
December 31, 2016 and the results of its operations for the three
months then ended. The condensed balance sheet as of September 30,
2016 is derived from the September 30, 2016 audited financial
statements. Significant accounting policies have been consistently
applied in the interim financial statements and the annual
financial statements. The results of operations for the three
months ended December 31, 2016 and 2015 are not necessarily
indicative of the results to be expected for the entire
year.
The
financial statements have been prepared assuming that the Company
will continue as a going concern, but due to recurring losses from
operations and future liquidity needs, there is substantial doubt
about the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. Refer to discussion in
Note B.
Summary of Significant Accounting Policies:
Research and Office Equipment and Leasehold
Improvements - Research and office equipment is recorded at
cost and depreciated using the straight-line method over estimated
useful lives of five to seven years. Leasehold improvements are
depreciated over the shorter of the estimated useful life of the
asset or the term of the lease. Repairs and maintenance which do
not extend the life of the asset are expensed when incurred. The
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.
Income Taxes - The Company uses the
asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred tax assets and liabilities
are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating and tax loss carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company
records a valuation allowance to reduce the deferred tax assets to
the amount that is more likely than not to be recognized.
A full valuation
allowance was recorded against the deferred tax assets as of
December 31, 2016 and September 30, 2016.
Derivative Instruments
– The Company has entered into
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, giving
consideration to all of the rights and obligations of each
instrument. The derivative liabilities are re-measured
at fair value at the end of each interim period as long as they are
outstanding.
Deferred
Rent– Certain of the
Company’s operating leases provide for minimum annual
payments that adjust over the life of the lease. The
aggregate minimum annual payments are expensed on a straight-line
basis over the minimum lease term. The Company recognizes a
deferred rent liability for rent escalations when the amount of
straight-line rent exceeds the lease payments, and reduces the
deferred rent liability when the lease payments exceed the
straight-line rent expense. For tenant improvement allowances
and rent holidays, the Company records a deferred rent liability
and amortizes the deferred rent over the lease term as a reduction
to rent expense.
Leases –
Leases are categorized as either
operating or capital leases at inception. Operating lease costs are
recognized on a straight-line basis over the term of the lease. An
asset and a corresponding liability for the capital lease
obligation are established for the cost of capital leases. The
capital lease obligation is amortized over the life of the lease.
For build-to-suit leases, the Company establishes an asset and
liability for the estimated construction costs incurred to the
extent that it is involved in the construction of structural
improvements or takes construction risk prior to the commencement
of the lease. Upon occupancy of facilities under build-to-suit
leases, the Company assesses whether these arrangements qualify for
sales recognition under the sale-leaseback accounting guidance. If
a lease does not meet the criteria to qualify for a sale-leaseback
transaction, the established asset and liability remain on the
Company's balance sheet.
Stock-Based Compensation –
Compensation cost for all stock-based awards is measured at fair
value as of the grant date in accordance with the provisions of ASC
718 “Compensation – Stock Compensation.” The fair
value of stock options is calculated using the Black-Scholes option
pricing model. The Black-Scholes model requires various judgmental
assumptions including volatility and expected option life. The
stock-based compensation cost is recognized on the straight line
allocation method as expense over the requisite service or vesting
period.
Equity
instruments issued to non-employees are accounted for in accordance
with ASC 505-50, “Equity-Based Payments to Non
Employees.” Accordingly, compensation is recognized when
goods or services are received and is measured using the
Black-Scholes valuation model. The Black-Scholes model requires
various judgmental assumptions regarding the fair value of the
equity instruments at the measurement date and the expected life of
the options.
The
Company has Incentive Stock Option Plans, Non-Qualified Stock
Option Plans, a Stock Compensation Plan, Stock Bonus Plans and an
Incentive Stock Bonus Plan. In some cases, these Plans are
collectively referred to as the "Plans". All Plans have been
approved by the stockholders.
The
Company’s stock options are not transferable, and the actual
value of the stock options that an employee may realize, if any,
will depend on the excess of the market price on the date of
exercise over the exercise price. The Company has based its
assumption for stock price volatility on the variance of daily
closing prices of the Company’s stock. The risk-free interest
rate assumption was based on the U.S. Treasury rate at date of the
grant with term equal to the expected life of the option.
Historical data was used to estimate option exercise and employee
termination within the valuation model. The expected term of
options represents the period of time that options granted are
expected to be outstanding and has been determined based on an
analysis of historical exercise behavior. If any of the assumptions
used in the Black-Scholes model change significantly, stock-based
compensation expense for new awards may differ materially in the
future from that recorded in the current period.
Vesting
of restricted stock granted under the Incentive Stock Bonus Plan is
subject to service, performance and market conditions and meets the
classification of equity awards. These awards were measured at
market value on the grant-dates for issuances where the attainment
of performance criteria is likely and at fair value on the
grant-dates, using a Monte Carlo simulation for issuances where the
attainment of performance criteria is uncertain. The total
compensation cost will be expensed over the estimated requisite
service period.
New Accounting Pronouncements
In
February 2016, the FASB issued ASU 2016-02, Leases, which will
require most leases (with the exception of leases with terms of
less than one year) to be recognized on the balance sheet as an
asset and a lease liability. Leases will be classified as an
operating lease or a financing lease. Operating leases are expensed
using the straight-line method whereas financing leases will be
treated similarly to a capital lease under the current standard.
The new standard will be effective for annual and interim periods,
within those fiscal years, beginning after December 15, 2018, but
early adoption is permitted. The new standard must be presented
using the modified retrospective method beginning with the earliest
comparative period presented. The Company is currently evaluating
the effect of the new standard on its financial statements and
related disclosures.
B.
OPERATIONS AND FINANCING
The
Company has incurred significant costs since its inception in
connection with the acquisition of certain patented and unpatented
proprietary technology and know-how relating to the human
immunological defense system, patent applications, research and
development, administrative costs, construction of laboratory
facilities, and clinical trials. The Company has funded such
costs with proceeds from loans and the public and private sale of
its common stock. The Company will be required to raise
additional capital or find additional long-term financing in order
to continue with its research efforts. Currently, the partial
clinical hold has had a significant impact on the Company’s
market capital, and as such, may impact the Company’s ability
to attract new capital. To date, the Company has not generated any
revenue from product sales. The ability of the Company to
complete the necessary clinical trials and obtain US Food &
Drug Administration (FDA) approval for the sale of products to be
developed on a commercial basis is uncertain. Ultimately, the
Company must complete the development of its products, obtain the
appropriate regulatory approvals and obtain sufficient revenues to
support its cost structure.
The
Company is currently running a large multi-national Phase 3
clinical trial for head and neck cancer with its partners TEVA
Pharmaceuticals and Orient Europharma. During the three months
ended December 31, 2016, the Company raised approximately $3.7
million net proceeds from a public offering. To finance the study
beyond the next twelve months, the Company plans to raise
additional capital in the form of corporate partnerships, debt
and/or equity financings. The Company believes that it will be able
to obtain additional financing because it has done so consistently
in the past and because Multikine is a product in the Phase 3
clinical trial stage. However, there can be no assurance that the
Company will be successful in raising additional funds on a timely
basis or that the funds will be available to the Company on
acceptable terms or at all. If the Company does not raise the
necessary amounts of money, it will either have to slow or delay
the Phase 3 clinical trial or even significantly curtail its
operations until such time as it is able to raise the required
funding. The Phase 3 study is currently on partial clinical hold by
the FDA. The financial statements have been prepared assuming that
the Company will continue as a going concern, but due to recurring
losses from operations and future liquidity needs, there is
substantial doubt about the Company’s ability to continue as
a going concern. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Since
the Company launched its Phase 3 clinical trial for Multikine, the
Company has spent approximately $36.0 million as of December 31,
2016 on direct costs for the Phase 3 clinical trial. The
total remaining cash cost of the clinical trial is estimated to be
approximately $13.5 million. It should be noted that this
estimate is based only on the information currently available in
the Company’s contracts with the Clinical Research
Organizations responsible for managing the Phase 3 clinical trial
and does not include other related costs, e.g. the manufacturing of
the drug. This number can be affected by the speed of
enrollment, foreign currency exchange rates and many other factors,
some of which cannot be foreseen. The Company has filed an
amendment to the original Phase 3 protocol for it head and neck
cancer study with the FDA to allow for this expansion in patient
enrollment. Should the FDA allow the amended protocol filed with
them to proceed, the remaining cost of the Phase 3 clinical trial
will be higher. It is therefore possible that the cost of the Phase
3 clinical trial will be higher than currently
estimated.
As of
December 31, 2016, the Phase 3 clinical trial for Multikine was on
a partial clinical hold.
If the
partial clinical hold is not lifted, the Phase 3 study will not be
able to be completed to its prespecified endpoints in a timely
manner, if at all, and, if the Phase 3 study cannot be completed to
its prespecified endpoints, the study would not be able to be used
as the pivotal study supporting a marketing application in the
United States, and at least one entirely new Phase 3 pivotal study
would need to be conducted to provide the pivotal study supporting
a marketing application in the United States. Even if the partial
clinical hold is lifted, if it is not lifted in a timely fashion,
the nature and duration of the partial clinical hold could
irreparably harm the data from the Phase 3 study such that it may
no longer be able to be used as the pivotal study supporting a
marketing application in the United States. Even if the partial
clinical hold is lifted in a timely fashion, it remains possible
that the regulatory authorities could determine that the Phase 3
study is not sufficient to be used as a single pivotal study
supporting a marketing application in the United
States.
Stock
options, stock bonuses and compensation granted by the Company as
of December 31, 2016 are 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
|
65,959
|
N/A
|
60,453
|
Non-Qualified Stock
Option Plans
|
387,200
|
262,531
|
N/A
|
95,564
|
Stock Bonus
Plans
|
223,760
|
N/A
|
160,157
|
63,570
|
Stock Compensation
Plan
|
134,000
|
N/A
|
83,490
|
49,188
|
Incentive Stock
Bonus Plan
|
640,000
|
N/A
|
624,000
|
16,000
|
Stock
options, stock bonuses and compensation granted by the Company as
of September 30, 2016 are as follows:
Name of
Plan
|
Total Shares Reserved Under Plans
|
Shares Reserved for Outstanding
Options
|
Shares Issued
|
Remaining Options/Shares Under
Plans
|
|
|
|
|
|
Incentive Stock
Option Plans
|
138,400
|
65,959
|
N/A
|
60,453
|
Non-Qualified Stock
Option Plans
|
387,200
|
277,613
|
N/A
|
82,370
|
Bonus
Plans
|
223,760
|
N/A
|
26,448
|
97,278
|
Stock Compensation
Plan
|
134,000
|
N/A
|
79,401
|
53,276
|
Incentive Stock
Bonus Plan
|
640,000
|
N/A
|
624,000
|
16,000
|
Stock option
activity:
|
Three Months Ended December 31,
|
|
2016
|
2015
|
Granted
|
-
|
-
|
Expired
|
15,081
|
-
|
Forfeited
|
-
|
919
|
Stock-Based Compensation Expense
|
Three months Ended December 31,
|
|
2016
|
2015
|
Employees
|
$312,375
|
$427,910
|
Non-employees
|
$78,553
|
$329,195
|
Employee
compensation expense includes the expense related to options issued
or vested and restricted stock. Non-employee expense includes the
expense related to options and stock issued to consultants expensed
over the period of their service contracts.
Warrants and Non-employee Options
The
following chart presents the outstanding warrants and non-employee
options, listed by expiration date at December 31,
2016:
Warrant
|
|
Issue
Date
|
Shares Issuable upon Exercise of
Warrant
|
Exercise Price
|
Expiration
Date
|
Refer-ence
|
|
|
|
|
|
|
|
Series
P
|
|
2/10/12
|
23,600
|
$ 112.50
|
3/6/17
|
|
Series
DD
|
|
12/8/16
|
1,360,960
|
$ 4.50
|
6/8/17
|
1
|
Series
EE
|
|
12/8/16
|
1,360,960
|
$ 4.50
|
9/8/17
|
1
|
Series
N
|
|
8/18/08
|
113,785
|
$ 13.18
|
8/18/17
|
|
Series
U
|
|
4/17/14
|
17,821
|
$ 43.75
|
10/17/17
|
1
|
Series
S
|
|
10/11/13
-10/24/14
|
1,037,120
|
$ 31.25
|
10/11/18
|
1
|
Series
V
|
|
5/28/15
|
810,127
|
$ 19.75
|
5/28/20
|
1
|
Series
W
|
|
10/28/15
|
688,930
|
$ 16.75
|
10/28/20
|
1
|
Series
X
|
|
1/13/16
|
120,000
|
$ 9.25
|
1/13/21
|
|
Series
Y
|
|
2/15/16
|
26,000
|
$ 12.00
|
2/15/21
|
|
Series
Z
|
|
5/23/16
|
264,000
|
$ 13.75
|
11/23/21
|
1
|
Series
ZZ
|
|
5/23/16
|
20,000
|
$ 13.75
|
5/18/21
|
1
|
Series
BB
|
|
8/26/16
|
16,000
|
$ 13.75
|
8/22/21
|
1
|
Series
FF
|
|
12/8/16
|
68,048
|
$ 4.00
|
12/1/21
|
1
|
Series
CC
|
|
12/8/16
|
680,480
|
$ 5.00
|
12/8/21
|
1
|
Series
AA
|
|
8/26/16
|
200,000
|
$ 13.75
|
2/22/22
|
1
|
Consultants
|
|
3/6/12-
7/1/16
|
23,000
|
$ 9.25- $87.50
|
3/5/17-
6/30/19
|
2
|
1.
Derivative Liabilities
The
table below presents the warrant liabilities and their respective
balances at the balance sheet dates:
|
December 31, 2016
|
September 30, 2016
|
Series S
warrants
|
$490,040
|
$3,111,361
|
Series U
warrants
|
-
|
-
|
Series V
warrants
|
202,532
|
1,620,253
|
Series W
warrants
|
132,254
|
1,799,858
|
Series Z
warrants
|
101,817
|
970,604
|
Series ZZ
warrants
|
6,725
|
70,609
|
Series AA
warrants
|
84,092
|
763,661
|
Series BB
warrants
|
5,916
|
58,588
|
Series CC
warrants
|
455,931
|
-
|
Series DD
warrants
|
72,353
|
-
|
Series EE
warrants
|
176,804
|
-
|
Series FF
warrants
|
54,242
|
-
|
|
|
|
Total warrant
liabilities
|
$1,782,706
|
$8,394,934
|
The
table below presents the gains on the warrant liabilities for the
three months ended December 31:
|
2016
|
2015
|
Series S
warrants
|
$2,621,321
|
$2,826,153
|
Series U
warrants
|
-
|
31,186
|
Series V
warrants
|
1,417,721
|
3,240,506
|
Series W
warrants
|
1,667,604
|
2,025,115
|
Series Z
warrants
|
868,787
|
-
|
Series ZZ
warrants
|
63,884
|
-
|
Series AA
warrants
|
679,569
|
-
|
Series BB
warrants
|
52,672
|
-
|
Series CC
warrants
|
604,492
|
-
|
Series DD
warrants
|
370,919
|
-
|
Series EE
warrants
|
514,603
|
-
|
Series FF
warrants
|
66,740
|
-
|
|
|
|
Net gain on warrant
liabilities
|
$8,928,312
|
$8,122,960
|
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.
Issuance of additional Warrants
On December 8, 2016, the Company sold
1,360,960 shares of
common stock and warrants to purchase common stock at a price of
$3.13 in a public offering. The warrants consist of
680,480 Series CC warrants to purchase 680,480 shares
of common stock, 1,360,960
Series DD warrants to purchase 1,360,960 shares of common stock and
1,360,960 Series EE
warrants to purchase 1,360,960 shares of common stock.
The Series CC warrants are immediately exercisable, expire in
five-years from the offering date and have an exercise price of
$5.00 per share. The Series DD warrants are
immediately exercisable, expire in six-months from the offering
date and have an exercise price of $4.50 per share.
The Series EE warrants are immediately exercisable, expire in
nine-months from the offering date and have an exercise price of
$4.50 per share. In addition, the Company issued
68,048 Series FF warrants to purchase
68,048 shares of common stock to the placement agent.
The FF warrants are exercisable at any time on or after June 8,
2017 and expire on December 1, 2021 and have an exercise price
$3.91. The net proceeds from this
offering was approximately $3.7 million. The
fair value of the Series CC, DD, EE and FF warrants of
approximately $2.3 million on the date of issuance was recorded as
a warrant liability.
Expiration of Warrants
On
December 6, 2016, 105,000 Series R warrants, with an
exercise price of $100.00, expired. The fair value of
the Series R warrants was $0 on the date of
expiration.
On
December 22, 2015, 48,000 Series Q warrants, with an
exercise price of $125.00, expired. The fair value of
the Series Q warrants was $0 on the date of
expiration.
2.
Options and shares issued to Consultants
The
Company typically enters into consulting arrangements in exchange
for common stock or stock options. During the three months ended
December 31, 2016, the Company issued 14,900 shares of
common stock, of which 10,800 were restricted shares.
The common stock was issued with stock prices ranging between
$2.25 and $7.25 per share. During the
three months ended December 31, 2015, the Company issued
17,700 shares of common stock, of which
13,600 were restricted shares. The common stock was
issued with stock prices ranging between $10.25 and
$18.00 per share. Additionally, during the three
months ended December 31, 2015, the Company issued a consultant
6,000 options to purchase common stock at
$15.00 per share and a fair value of
$7.50 per share. The aggregate values of the issuances
of restricted common stock and common stock options are recorded as
prepaid expenses and are charged to general and administrative
expenses over the periods of service.
During
the three months ended December 31, 2016 and 2015, the Company
recorded total expense of approximately $79,000 and $329,000,
respectively, relating to these consulting agreements. At December
31, 2016 and September 30, 2016, approximately $30,000 and $48,000,
respectively, are included in prepaid expenses. As of December 31,
2016, the Company had 23,000 options outstanding,
which were issued to consultants as payment for services. Of these
23,000 outstanding options, 19,000 were
vested, all of which were issued from the Non-Qualified Stock
Option plans.
D.
FAIR VALUE MEASUREMENTS
In
accordance with ASC 820-10, “Fair Value Measurements,”
the Company determines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date. The Company generally applies the income approach to
determine fair value. This method uses valuation techniques to
convert future amounts to a single present amount. The measurement
is based on the value indicated by current market expectations with
respect to those future amounts.
ASC
820-10 establishes a fair value hierarchy that prioritizes the
inputs used to measure fair value. The hierarchy gives the highest
priority to active markets for identical assets and liabilities
(Level 1 measurement) and the lowest priority to unobservable
inputs (Level 3 measurement). The Company classifies fair value
balances based on the observability of those inputs. The three
levels of the fair value hierarchy are as follows:
●
Level 1 –
Observable inputs such as quoted prices in active markets for
identical assets or liabilities
●
Level 2 –
Inputs other than quoted prices that are observable for the asset
or liability, either directly or indirectly. These include quoted
prices for similar assets or liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets
that are not active and amounts derived from valuation models where
all significant inputs are observable in active
markets
●
Level 3 –
Unobservable inputs that reflect management’s
assumptions
For
disclosure purposes, assets and liabilities are classified in their
entirety in the fair value hierarchy level based on the lowest
level of input that is significant to the overall fair value
measurement. The Company’s assessment of the significance of
a particular input to the fair value measurement requires judgment
and may affect the placement within the fair value hierarchy
levels.
The
table below sets forth the assets and liabilities measured at fair
value on a recurring basis, by input level, in the condensed
balance sheet at December 31, 2016:
|
Quoted Prices in Active Markets for Identical Assets
or Liabilities (Level 1)
|
Significant Other Observable Inputs (Level
2)
|
Significant Unobservable Inputs (Level
3)
|
Total
|
|
|
|
|
|
Derivative
instruments
|
$490,040
|
$-
|
$1,292,666
|
$1,782,706
|
The
table below sets forth the assets and liabilities measured at fair
value on a recurring basis, by input level, in the condensed
balance sheet at September 30, 2016:
|
Quoted Prices in Active Markets for Identical Assets
or Liabilities (Level 1)
|
Significant Other Observable Inputs (Level
2)
|
Significant Unobservable Inputs (Level
3)
|
Total
|
|
|
|
|
|
Derivative
instruments
|
$3,111,361
|
$-
|
$5,283,573
|
$8,394,934
|
The
following sets forth the reconciliation of beginning and ending
balances related to fair value measurements using significant
unobservable inputs (Level 3) for the three months ended December
31, 2016 and the year ended September 30, 2016:
|
(3 months ended)
|
(12 months ended)
|
|
December 31, 2016
|
September 30, 2016
|
|
|
|
Beginning
balance
|
$5,283,573
|
$6,323,032
|
Issuances
|
2,316,084
|
8,722,073
|
Realized and
unrealized gains
|
(6,306,991)
|
(9,761,532)
|
Ending
balance
|
$1,292,666
|
$5,283,573
|
|
|
|
The
fair values of the Company’s derivative instruments disclosed
above under Level 3 are primarily derived from valuation models
where significant inputs such as historical price and volatility of
the Company’s stock, as well as U.S. Treasury Bill rates, are
observable in active markets.
E.
RELATED PARTY TRANSACTIONS
Effective August
31, 2016, Maximilian de Clara, the Company’s then President
and a director, resigned for health reasons. In payment for past
services, the Company agreed to issue Mr. de Clara
26,000 shares of restricted stock; 13,000
shares upon his resignation and 13,000 on August 31,
2017. At December 31, 2016 and September 30, 2016, the fair value
accrued for unissued shares was approximately $22,000 and $101,000,
respectively.
On
January 13, 2016, the de Clara Trust demanded payment on a note
payable, of which the balance, including accrued and unpaid
interest, was approximately $1.1 million. The de Clara Trust was
established by Maximilian de Clara, the Company’s former
President and a director. The Company’s Chief Executive
Officer, Geert Kersten, is the trustee and a beneficiary. When the
de Clara Trust demanded payment on the note, the Company sold
120,000 shares of its common stock and
120,000 Series X warrants to the de Clara Trust for
approximately $1.1 million. Each warrant allows the de Clara Trust
to purchase one share of the Company's common stock at a price of
$9.25 per share at any time on or before January 13,
2021.
During
the three months ended December 31, 2016 and 2015, the Company paid
approximately $0 and $33,000, respectively, in interest expense to
Mr. de Clara.
F.
COMMITMENTS AND CONTINGENCIES
Clinical Research Agreements
In
March 2013, the Company entered into an agreement with Aptiv
Solutions, Inc. (which was subsequently acquired by ICON Inc.) to
provide certain clinical research services in accordance with a
master service agreement. The Company will reimburse ICON for costs
incurred. The agreement required the Company to make $600,000 in
advance payments which are being credited against future invoices
in $150,000 annual increments through December 2017. As of December
31, 2016, the total balance advanced is $150,000, which is
classified as a current asset.
In April 2013, the Company entered into a
co-development and revenue sharing agreement with Ergomed. Under
the agreement, Ergomed will contribute up to $10 million towards
the study in the form of offering discounted clinical services in
exchange for a single digit percentage of milestone and royalty
payments, up to a specific maximum amount. In October 2015,
the Company entered into a second co-development and revenue sharing agreement with
Ergomed for an additional $2 million, for a total of $12
million. The Company accounted for the co-development and revenue
sharing agreement in accordance with ASC 808 “Collaborative
Arrangements”. The Company determined the payments to Ergomed
are within the scope of ASC 730 “Research and
Development.” Therefore, the Company records the discount on
the clinical services as a credit to research and development
expense on its Statements of Operations. Since the Company entered
into the co-development and revenue sharing agreement with Ergomed,
it has incurred research and development expenses of approximately
$20.4 million related to Ergomed’s services. This amount is
net of Ergomed’s discount of approximately $6.6 million.
During the three months ended December 31, 2016 and 2015, the
Company recorded, net of Ergomed’s discount, approximately
$1.3 million and $2.0 million, respectively, as research and
development expense related to Ergomed’s
services.
In
October 2013, the Company entered into two co-development and
profit sharing agreements with Ergomed. One agreement
supports the Phase 1 study being conducted at the University of
California, San Francisco, or UCSF, for the development of
Multikine as a potential treatment for peri-anal warts in HIV/HPV
co-infected men and women. The Phase 1 study originally
started after the Company signed a cooperative research and
development agreement with the U.S. Naval Medical Center, San
Diego. In August 2016, the U.S. Navy discontinued this Phase 1
study because of difficulties in enrolling patients. The other
agreement focuses on the development of Multikine as a potential
treatment for cervical dysplasia in HIV/HPV co-infected women.
Ergomed will assume up to $3 million in clinical and regulatory
costs for each study.
The
Company is currently involved in a pending arbitration proceeding,
CEL-SCI Corporation v. inVentiv Health Clinical, LLC (f/k/a
PharmaNet LLC) and PharmaNet GmbH (f/k/a PharmaNet AG).
The Company initiated the proceedings
against inVentiv Health Clinical, LLC, or inVentiv, the former
third-party CRO, and are seeking payment for damages related to
inVentiv’s prior involvement in the Phase 3 clinical trial of
Multikine. The arbitration claim, initiated under the Commercial
Rules of the American Arbitration Association, alleges (i) breach
of contract, (ii) fraud in the inducement, and (iii) common law
fraud. Currently, the Company is seeking at least $50 million in
damages in its amended statement of claim.
In an
amended statement of claim, the Company asserted the claims set
forth above as well as an additional claim for professional
malpractice. The arbitrator subsequently granted
inVentiv’s motion to dismiss the professional malpractice
claim based on the “economic loss doctrine” which,
under New Jersey law, is a legal doctrine that, under certain
circumstances, prohibits bringing a negligence-based claim
alongside a claim for breach of contract. The arbitrator
denied the remainder of inVentiv’s motion, which had sought
to dismiss certain other aspects of the amended statement of
claim. In particular, the arbitrator rejected
inVentiv’s argument that several aspects of the amended
statement of claim were beyond the arbitrator’s
jurisdiction.
In
connection with the pending arbitration proceedings, inVentiv has
asserted counterclaims against the Company for (i) breach of
contract, seeking at least $2 million in damages for services
allegedly performed by inVentiv; (ii) breach of contract, seeking
at least $1 million in damages for the alleged use of
inVentiv’s name in connection with publications and
promotions in violation of the parties’ contract; (iii)
opportunistic breach, restitution and unjust enrichment, seeking at
least $20 million in disgorgement of alleged unjust profits
allegedly made by the Company as a result of the purported breaches
referenced in subsection (ii); and (iv) defamation, seeking at
least $1 million in damages for allegedly defamatory statements
made about inVentiv. The Company believes inVentiv’s
counterclaims are meritless and
intends to vigorously defend against them. However, if such defense
is unsuccessful, and inVentiv successfully asserts any of its
counterclaims, such an adverse determination could have a material
adverse effect on the Company’s business, results, financial
condition and liquidity.
In
October 2015 the Company signed an arbitration funding agreement
with a company established by Lake Whillans Litigation Finance,
LLC, a firm specializing in funding litigation expenses. Pursuant
to the agreement, an affiliate of Lake Whillans provides the
Company with up to $5 million in funding for litigation expenses to
support its arbitration claims against inVentiv. The funding is
available to the Company to fund the expenses of the ongoing
arbitration and will only be repaid if the Company receives
proceeds from the arbitration. During the three months ended
December 31, 2015, the Company recognized a gain of approximately
$1.1 million on the derecognition of legal fees to record the
transfer of the liability that existed prior to the execution of
the financing agreement from the Company to Lake Whillans. The gain
on derecognition of legal fees is recorded as a reduction of
general and administration expenses on the Statement of Operations.
All related legal fees are directly billed to and paid by Lake
Whillans. As part of the agreement with Lake Whillans, the law firm
agreed to cap its fees and expenses for the arbitration at $5
million.
The
arbitration hearing on the merits began on September 26,
2016.
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. The Company
contributed approximately $9.3 million towards the tenant-directed
improvements, of which $3.2 million is being refunded during years
six through twenty through reduced rental payments. The landlord
paid approximately $11.9 million towards the purchase of the
building, land and the tenant-directed improvements. The Company
placed the building in service in October 2008.
The leased building is being depreciated using a straight line
method over the 20 year lease term to a residual value. The
landlord liability is being amortized over the 20 years using the
effective interest method. Lease payments allocated to the landlord
liability are accounted for as debt service payments on that
liability using the finance method of accounting per ASC
840-40-55.
The
Company was required to deposit the equivalent of one year of base
rent in accordance with the lease. When the Company meets the
minimum cash balance required by the lease, the deposit will be
returned to the Company. The approximate $1.7 million deposit is
included in non-current assets at December 31, 2016 and September
30, 2016.
Future
minimum lease payments under the San Tomas lease as of December 31,
2016 are as follows:
Nine months ending
September 30, 2017
|
$1,269,000
|
Year ending
September 30,
|
|
2018
|
1,747,000
|
2019
|
1,808,000
|
2020
|
1,872,000
|
2021
|
1,937,000
|
2022
|
2,004,000
|
|
13,758,000
|
Total future
minimum lease obligation
|
24,395,000
|
Less imputed
interest on financing obligation
|
(11,333,000)
|
Net present value
of lease financing obligation
|
13,062,000
|
The
Company subleases a portion of its rental space on a month-to-month
term lease, which requires a 30 day notice for termination. The
Company receives approximately $6,000 per month in rent for the
sub-leased space.
The
Company leases its research and development laboratory under a 60
month lease which expires February 28, 2017. In September 2016, the
lease was extended through February 28, 2022. The operating lease
includes escalating rental payments. The Company is recognizing the
related rent expense on a straight line basis over the full 60
month term of the lease at the rate of approximately $11,000 per
month. As of December 31, 2016 and September 30, 2016, the Company
has recorded a deferred rent liability of approximately $1,000 and
$2,000, respectively.
The
Company leases its office headquarters under a 60 month lease which
expires June 30, 2020. The operating lease includes escalating
rental payments. The Company is recognizing the related rent
expense on a straight line basis over the full 60 month term of the
lease at the rate approximately $8,000 per month. As of December
31, 2016 and September 30, 2016, the Company has recorded a
deferred rent liability of approximately $18,000.
As of December 31,
2016, material contractual obligations, excluding the San Tomas
lease, consisting of operating lease payments are as
follows:
Nine months ending
September 30, 2017
|
$183,000
|
Year ending
September 30,
|
|
2018
|
251,000
|
2019
|
258,000
|
2020
|
238,000
|
2021
|
163,000
|
2022
|
69,000
|
Total
|
$1,162,000
|
During
the three months ended December 31, 2016, the Company leased office
equipment under a capital lease arrangement. The term of the
capital lease is 60 months and expires on October 31, 2021. The
monthly lease payment is $505. The lease bears interest at
approximately 6.25% per annum. The Company’s previous
equipment lease expired on September 30, 2016.
During
the three months ended December 31, 2016 and 2015, no patent
impairment charges were recorded. For the three months ended
December 31, 2016 and 2015, amortization of patent costs totaled
approximately $9,000. The total estimated future amortization
expense is as follows:
Nine months ending
September 30, 2017
|
$27,433
|
Year ending
September 30,
|
|
2018
|
36,379
|
2019
|
34,676
|
2020
|
31,483
|
2021
|
28,183
|
2022
|
24,380
|
Thereafter
|
64,733
|
Total
|
$247,267
|
H.
EARNINGS PER COMMON SHARE
The
following table provides the details of the basic and diluted
earnings per-share computations:
|
Three Months Ended December 31,
2016
|
|
Net Income – Restated(1)
|
Weighted Average Shares
|
EPS
|
Basic
earnings per share
|
$ 3,521,153
|
5,994,431
|
$ 0.59
|
Gain on derivatives(2)
|
(1,556,754)
|
90,277
|
|
|
|
|
|
Dilutive
earnings per share
|
$ 1,964,399
|
6,084,708
|
$ 0.32
|
(1) See Note I -
Restatement
|
|
|
(2) Includes certain Series CC, DD, EE and FF
warrants
|
|
|
|
Three Months Ended December 31,
2015
|
|
Net Income – Restated(1)
|
Weighted Average Shares
|
EPS
|
Basic
earnings per share
|
$ 2,332,734
|
4,390,740
|
$ 0.53
|
Conversion
of note payable
|
24,841
|
74,851
|
|
|
|
|
|
Dilutive
earnings per share
|
$ 2,357,575
|
4,465,591
|
$ 0.53
|
(1)
See
Note I - Restatement
|
|
|
|
The
gain on derivatives priced lower than the average market price
during the period is excluded from the numerator and the related
shares are excluded from the denominator in calculating diluted
loss per share.
In
accordance with the contingently issuable shares guidance of FASB
ASC Topic 260, Earnings Per
Share, the calculation of diluted net earnings (loss) per
share excludes the following securities because their inclusion
would have been anti-dilutive as of December 31:
|
2016
|
2015
|
|
|
|
Options
and Warrants
|
6,946,179
|
2,991,061
|
Unvested
Restricted Stock
|
604,000
|
604,000
|
Total
|
7,550,179
|
3,595,061
|
In October 2008, the Company entered into a lease
arrangement whereby the Company leased a building owned by a third
party, but to which the owner made tenant-directed improvements.
Upon commencement of the lease, the Company accounted for the
arrangement as an operating lease under ASC 840,
Accounting for
Leases, whereby the total
minimum lease payment obligations under the leases were recognized
as monthly rent expense on a straight-line basis over the term of
the lease. The cost of the tenant improvements incurred were
capitalized as deferred rent and amortized over the 20-year lease
term.
However, in November 2017, the Company discovered
an error in the way it accounted for the lease for the building
since it was determined that, as the terms of the original lease
required the Company to be responsible for possible cost overruns,
(but of which there were none), the Company was deemed to be the
owner of the leased building for accounting purposes only under ASC
840-40-55. In addition to the costs it incurred and capitalized for
the tenant improvements, the Company should have reflected an asset
on its balance sheet for the costs paid by the lessor to purchase
and improve the building, as well as a corresponding liability.
Upon completion of the improvements, the Company did not meet the
“sale-leaseback” criteria under ASC 840-40-25,
Accounting for
Leases, Sale-Leaseback Transactions due to the Company’s significant continuing
involvement with the facility which is considered to be other than
a normal leaseback as defined in ASC 840-40-25 and therefore should
have treated the lease as a financing obligation and the asset and
corresponding liability should not be
derecognized.
The
corrections to the historical financial statements to apply ASC
840-40-25 do not affect the total cash payments the Company has
made or is obligated to make under the lease agreement, nor does it
change the total expense to be recognized over the lease term.
However, the timing and nature of expense is different under this
treatment as compared to operating lease treatment. Specifically,
the Company should have recognized depreciation, expense on the
building it is deemed to own and interest expense on the associated
lease financing obligation, instead of rental
expense.
The accompanying
financial statements for three months ended December 31, 2016 have
been restated to reflect the correction of the error for the lease
accounting. Accumulated deficit at September 30, 2016, was reduced
by $276,855. The following is a summary of the
restatements:
|
December 31, 2016
|
|
PREVIOUSLY REPORTED
|
ADJUSTMENT
|
RESTATED
|
Total
current assets
|
$4,522,290
|
$(415,003)
|
$4,107,287
|
Other
assets
|
5,405,599
|
13,738,445
|
19,144,044
|
Total
assets
|
9,927,889
|
13,323,442
|
23,251,331
|
Total
liabilities
|
5,494,598
|
13,062,236
|
18,556,834
|
Stockholders'
equity
|
4,433,291
|
261,206
|
4,694,497
|
|
September 30, 2016
|
|
PREVIOUSLY REPORTED
|
ADJUSTMENT
|
RESTATED
|
Total
current assets
|
$5,887,646
|
$(429,821)
|
$5,457,825
|
Other
assets
|
5,710,601
|
13,717,699
|
19,428,300
|
Total
assets
|
11,598,247
|
13,287,878
|
24,886,125
|
Total
liabilities
|
12,554,315
|
13,011,023
|
25,565,338
|
Stockholders'
deficit
|
(956,068)
|
276,855
|
(679,213)
|
|
Three Months Ended December 31,
2016
|
|
PREVIOUSLY REPORTED
|
ADJUSTMENT
|
RESTATED
|
Research
and development expenses
|
$4,024,856
|
$(476,599)
|
$3,548,257
|
Total
operating expenses
|
5,431,865
|
(476,599)
|
4,955,266
|
Operating
loss
|
(5,414,607)
|
476,599
|
(4,938,008)
|
Interest
income (expense), net
|
23,097
|
(492,248)
|
(469,151)
|
Net
income
|
3,536,802
|
(15,649)
|
3,521,153
|
|
|
|
|
Net
income per share - basic
|
$0.59
|
|
$0.59
|
Net
income per share - diluted
|
$0.33
|
|
$0.32
|
|
Three Months Ended December 31,
2015
|
|
PREVIOUSLY REPORTED
|
ADJUSTMENT
|
RESTATED
|
Research
and development expenses
|
$5,169,507
|
$(476,599)
|
$4,692,908
|
Total
operating expenses
|
5,804,108
|
(476,599)
|
5,327,509
|
Operating
loss
|
(5,783,132)
|
476,599
|
(5,306,533)
|
Interest
income (expense), net
|
1,985
|
(485,678)
|
(483,693)
|
Net
income
|
2,341,813
|
(9,079)
|
2,332,734
|
|
|
|
|
Net
income per share - basic and diluted
|
$0.53
|
|
$0.53
|
|
Accumulated Deficit
|
PREVIOUSLY
REPORTED, SEPTEMBER 30, 2016
|
$(285,667,977)
|
ADJUSTMENT
|
276,855
|
RESTATED
BALANCE, SEPTEMBER 30, 2016
|
(285,391,122)
|
|
|
Net
income - RESTATED
|
3,521,153
|
BALANCE,
DECEMBER 31, 2016
|
$(281,869,969)
|
The
Company has evaluated subsequent events through the date these
financial statements were filed and determined there are no
subsequent events that require disclosure.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Correction
of an Error
The
historical financial information in this report have been restated.
In November 2017, the Company discovered an error in the way it
accounted for the operating lease for its manufacturing facility.
In October 2008, the Company entered into a lease arrangement
whereby the Company leased a building owned by a third party, but
to which the owner made tenant-directed improvements. Upon
commencement of the lease, the Company accounted for the
arrangement as an operating lease under ASC 840, Accounting
forLeases, whereby the total minimum lease payment obligations
under the leases were recognized as monthly rent expense on a
straight-line basis over the term of the lease. The cost of the
tenant improvements incurred were capitalized as deferred rent and
amortized over the 20-year lease term.
In
November 2017, it was determined that because the terms of the
original lease agreement required the Company to be responsible for
possible cost overruns, if there were any, but of which there were
none, the Company was deemed to be the owner of the leased building
for accounting purposes only under ASC 840-40-55. In addition to
the costs it incurred and capitalized for the tenant improvements,
the Company should have reflected an asset on its balance sheet for
the costs paid by the lessor to purchase the building and improve
it, as well as a corresponding liability. Upon completion of the
improvements, the Company did not meet the
“sale-leaseback” criteria under ASC 840-40-25,
Accounting for Leases, Sale-Leaseback Transactions due to the
Company’s significant continuing involvement with the
facility which is considered to be other than a normal leaseback as
defined in ASC 840-40-25 and therefore should have treated the
lease as a financing obligation and the asset and corresponding
liability should not be derecognized.
The
correction to the historical financial statements to apply ASC
840-40-25 does not affect the total cash payments the Company has
made or is obligated to make under the lease agreement, nor does it
change the total expense to be recognized over the lease term.
However, the timing and nature of expense is different under this
treatment as compared to operating lease treatment. Specifically,
the Company should have recognized depreciation, expense on the
asset it is deemed to own and interest expense on the associated
lease financing obligation, instead of rental
expense.
The
accompanying Management's Discussion and Analysis of Financial
Condition and Results of Operations gives effect to the restatement
adjustments made to the previously reported financial statements
for the three months ended December 31, 2016 and 2015. For
additional information and a detailed discussion of the
restatement, see Note I of the financial statements included in
this Report.
Liquidity and Capital Resources
The
Company’s lead investigational therapy, Multikine® (Leukocyte
Interleukin, Injection), is cleared for a Phase 3 clinical trial in
advanced primary head and neck cancer. Multikine has been cleared
by the regulators in twenty four countries around the world,
including the U.S. FDA.
On
September 26, 2016, the Company received verbal notice from FDA
that the Phase 3 clinical trial in advanced primary head and neck
cancer has been placed on clinical hold. At such time, enrollment
in the Phase 3 study was 926 patients. Pursuant to this
communication from FDA, patients currently receiving study
treatments can continue to receive treatment, and patients already
enrolled in the study will continue to be followed.
On
October 21, 2016, the Company received a partial clinical hold
letter from FDA and, on November 18, 2016, the Company submitted a
response to FDA’s partial clinical hold letter.
In its
partial clinical hold letter, FDA identified the following specific
deficiencies: a) FDA stated that there is an unreasonable and
significant risk of illness or injury to human subjects and cited
among other things the absence of prompt reports by the Company to
the FDA of IDMC recommendations to close the study entirely (made
in spring of 2014) or at least to close it to accrual of new
patients (made in spring of 2016); b) FDA stated that the
investigator brochure is misleading, erroneous, and materially
incomplete; and c) FDA stated that the plan or protocol is
deficient in design to meet its stated objectives. In its partial
clinical hold letter, FDA also identified the information needed to
resolve these deficiencies. In addition, FDA’s partial
clinical hold letter included two requests relating to quality
information regarding the Company’s investigational final
drug product, which were noted by FDA as non-hold issues. The
Company believes that its response submitted to FDA on November 18,
2016, addressed each of the deficiencies identified by FDA
including detailing its belief that, under the applicable FDA
guidance, there was no obligation to report the cited IDMC
recommendations to the FDA at the time they were issued, and it
also requested a face-to-face meeting with FDA, and outlined the
Company’s commitment to diligently work with FDA in an effort
to have the partial clinical hold for the study
lifted.
On
December 8, 2016, FDA advised us that the Agency was denying the
Company’s request for a meeting at that time because
FDA’s review of the Company’s November 18, 2016
response was ongoing. The Company also was advised that the Company
would be receiving a letter addressing its November 18, 2016
response by December 18, 2016.
On
December 16, 2016, FDA issued an Incomplete Response To Hold letter
to the Company indicating that based on the Agency’s
preliminary review of the Company’s November 18, 2016
submission, FDA has determined that it is not a complete response
to all of the issues listed in FDA’s clinical hold letter.
FDA identified the following specific deficiencies: a) FDA stated
that the Company did not provide the information identified as
necessary to address FDA’s statement that patients enrolled
in the study are exposed to unreasonable and significant risk of
illness or injury to human subjects; b) FDA stated that the Company
did not provide the information identified as necessary to address
FDA’s statement that continued enrollment of patients in the
study exposes the patients to unreasonable risks and FDA
furthermore stated that the study is unlikely to demonstrate that
the addition of the Company’s investigational drug Multikine
to the standard of care is superior to standard of care and thus
should be terminated for futility; (c) FDA stated that the Company
did not provide the information identified as necessary to address
FDA’s statement that the investigator brochure is misleading,
erroneous, and materially incomplete; (d) FDA stated that the
Company did not provide the information identified as necessary to
address FDA’s statement that the proposed revised clinical
protocol is inadequate in design to meet its stated objectives and
FDA furthermore stated that this deficiency cannot be addressed by
further revisions to the protocol. In its incomplete response to
hold letter, FDA also identified the steps the Company must take to
address these deficiencies. In addition, FDA’s incomplete
response to hold letter noted with respect to FDA’s two
requests relating to quality information regarding the
Company’s investigational final drug product, which the
Company had been instructed by FDA to submit separately from the
response to the partial clinical hold, which again were noted by
FDA as non-hold issues, that the Company’s November 18, 2016,
submission had not included the information addressing these two
requests.
The
Company is reviewing all of its options in response to FDA’s
incomplete response to hold letter. As an initial matter, the
Company plans to send FDA a request accompanied by the required
complete meeting package for an in person meeting with the Agency
to discuss all matters relating to the partial clinical hold,
because, among other things, the Company believes that there may be
some misunderstanding regarding its conduct of the Phase 3 clinical
trial as well as some misinterpretation of some of the information
contained in the response the Company submitted on November 18,
2016 to the partial clinical hold letter. Pending the scheduling of
that FDA meeting and resolution of the partial clinical hold
issues, the Company expects to prepare a comprehensive submission
to FDA detailing its belief, accompanied by what the Company
believes to be appropriate supporting data, records, and
information reflecting that the Company has taken the steps
necessary to address the specific deficiencies identified by FDA,
including: a) demonstrating that patients enrolled in the study are
not exposed to unreasonable and significant risk of illness or
injury; b) demonstrating that continued enrollment of patients in
the study does not expose the patients to unreasonable risks and
that the study should not be terminated for futility; (c)
demonstrating that a supplemented investigator brochure is not
misleading, erroneous, or materially incomplete; (d) demonstrating
that the proposed revised clinical protocol is adequate in design
to meet its stated objectives and that this deficiency can be
addressed by the proposed revisions to the protocol.
Subject
to the partial clinical hold, the Company’s estimate that the
total remaining cash cost of the Phase 3 clinical trial, excluding
any costs that will be paid by our partners, would be approximately
$13.5 million. Should FDA lift the partial clinical hold and allow
the amended protocol submitted to them to proceed, which requires
an enrollment of up to 1,273 subjects, the remaining cost of the
Phase 3 clinical trial will be higher than currently estimated.
This is in addition to the approximately $36.0 million that the
Company already had spent on the trial as of December 31, 2016.
This number may be affected by the rate of any future patient
enrollment, rate of death accumulation in the study, 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.
If FDA will only lift the partial clinical hold with termination of
the current study and initiation of a new clinical trial, any such
new trial can only be initiated if permitted by FDA and as
appropriate other regulatory authorities around the world after the
requisite submissions are made to them, and the additional duration
and costs of the Phase 3 clinical program would likely exceed those
already incurred in connection with the Phase 3 clinical trial. If
there is a need to conduct an additional Phase 3 pivotal study, any
such requirement would have significant and severe material
consequences for us and could impact our ability to continue as a
going concern.
The
Company will not be able to enroll any additional patients in the
Phase 3 study unless FDA lifts the partial clinical hold. In
addition, in the spring of 2016, the IDMC recommended to us that
new patient enrollment should stop in the Phase 3 study, but
patients already on study should continue to be treated and
followed. Although the Company had expected to work through the
concerns raised by the IDMC while the Company worked through the
partial clinical hold with FDA, the IDMC informed us on December
13, 2016, that because the study is on partial clinical hold
imposed by FDA, the IDMC has no formal recommendation regarding
continuation of the trial at this time. If the partial clinical
hold is not lifted by FDA or if it is determined by FDA that the
study has been compromised, the study may be terminated, or if the
partial clinical hold is lifted by FDA but the IDMC continues to
recommend that enrollment not be allowed to continue, the study may
be terminated by the Company.
If the
partial clinical hold is not lifted, the Phase 3 study will not be
able to be completed to its prespecified endpoints in a timely
manner, if at all, and, if the Phase 3 study cannot be completed to
its prespecified endpoints, the study would not be able to be used
as the pivotal study supporting a marketing application in the
United States, and at least one entirely new Phase 3 pivotal study
would need to be conducted to provide the pivotal study supporting
a marketing application in the United States. Even if the partial
clinical hold is lifted, if it is not lifted in a timely fashion,
the nature and duration of the partial clinical hold could
irreparably harm the data from the Phase 3 study such that it may
no longer be able to be used as the pivotal study supporting a
marketing application in the United States. Even if the partial
clinical hold is lifted in a timely fashion, it remains possible
that the regulatory authorities could determine that the Phase 3
study is not sufficient to be used as a single pivotal study
supporting a marketing application in the United
States.
Multikine
is also being used in a Phase I study at UCSF in HIV/HPV
co-infected men and women with peri-anal warts.
Multikine
(Leukocyte Interleukin, Injection) is the full name of this
investigational therapy, which, for simplicity, is referred to in
the remainder of 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 in
connection with the Company’s future anticipated regulatory
submission for approval. Multikine has not been licensed or
approved by the FDA or any other regulatory agency. Neither has its
safety or efficacy been established for any use.
The
Company also owns and is developing a pre-clinical technology
called LEAPS (Ligand Epitope Antigen Presentation
System).
All of
the Company’s projects are under development. As a result,
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 such time as the
Company becomes profitable, any or all of these financing vehicles
or others may be utilized to assist 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 of the Company’s laboratory facilities. The
Company does not anticipate realizing significant revenues until it
enters into licensing arrangements regarding its technology and
know-how or until it receives regulatory approval to sell its
products (which could take a number of years). As a result the
Company has been dependent upon the proceeds from the sale of its
securities to meet all of its liquidity and capital requirements
and anticipates having to do so in the future.
The
Company will be required to raise additional capital or find
additional long-term financing in order to continue with its
research efforts. The ability to raise capital may be dependent
upon market conditions that are outside the control of the Company.
Additionally, the partial clinical hold may also impact the
Company’s ability to attract new capital. The ability of the
Company to complete the necessary clinical trials and obtain FDA
approval for the sale of products to be developed on a commercial
basis is uncertain. Ultimately, the Company must complete the
development of its products, obtain the appropriate regulatory
approvals and obtain sufficient revenues to support its cost
structure. The Company is taking cost-cutting initiatives, as well
as exploring other sources of funding to finance operations over
the next 12 months. However there can be no assurance that the
Company will be able to raise sufficient capital to support its
operations.
The
Company estimates the total remaining cash cost of the Phase 3
trial, with the exception of the parts that will be paid by its
licensees, Teva Pharmaceuticals and Orient Europharma, to be
approximately $13.5 million. This is in addition to approximately
$36 million which has been paid as of December 31, 2016. It should
be noted that this estimate is based only on the information
currently available in the Company’s contracts with the
Clinical Research Organizations responsible for managing the Phase
3 clinical trial and does not include other related costs, e.g. the
manufacturing of the drug. This number can be affected by the speed
of enrollment, rate of death of patients, 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
trial will be higher than currently estimated.
In
April 2013, the Company announced that it had replaced the CRO
running its Phase 3 clinical trial. This was necessary since the
patient enrollment in the study dropped off substantially following
a takeover of the CRO which caused most of the members of the
CRO’s study team to leave the CRO. The Company announced that
it had hired two CRO’s who will manage the global Phase 3
study; ICON and Ergomed, who are both international leaders in
managing oncology trials. Both CRO’s helped the Company
expand the trial to over 80 clinical sites globally. As of December
31, 2016, the study has enrolled 926 patients.
Under a
co-development agreement, Ergomed will 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, only from sales for
head and neck cancer. Ergomed, a privately-held firm headquartered
in Europe with global operations, has entered into numerous similar
co-development agreements, including one with Genzyme (purchased by
Sanofi in 2011 for over $20 billion). Ergomed will be responsible
for the new patient enrollment.
During
the three months ended December 31, 2016, the Company’s cash
decreased by approximately $531,000. Significant components
of this decrease include net proceeds from the sale of the
Company’s stock of approximately $3.7 million offset by net
cash used to fund the Company’s regular operations, including
its Phase 3 clinical trial, of approximately $4.2 million and
payments on capital leases of approximately $2,000. During the
three months ended December 31, 2015, the Company’s cash
increased by approximately $4.7 million. Significant
components of this increase include net proceeds from the sale of
the Company’s stock of approximately $10.6 million offset by
net cash used to fund the Company’s regular operations,
including its Phase 3 clinical trial, of approximately $5.8
million, purchases of equipment of approximately $15,000 and
payments on capital leases of approximately $2,000.
On December 8, 2016, the Company
sold 1,360,960 shares of common stock and
warrants to purchase common stock at a price of $3.13
in a public offering. The warrants consist of 680,480
Series CC warrants to purchase 680,480 shares of
common stock, 1,360,960 Series DD warrants to purchase
1,360,960 shares of
common stock and 1,360,960 Series EE warrants to purchase
1,360,960 shares of common stock. The Series CC
warrants are immediately exercisable, expire in five-years and have
an exercise price of $5.00 per share. The Series DD
warrants are immediately exercisable, expire in six-months and have
an exercise price of $4.50 per share. The Series EE
warrants are immediately exercisable, expire in nine-months and
have an exercise price of $4.50 per share. In addition, the Company
issued 68,048 Series FF warrants to purchase
68,048 shares of common stock to the placement agent.
The FF warrants are exercisable at any time on or after June 8,
2017 and expire on December 1, 2021 and have an exercise price
$3.91. The net proceeds to CEL-SCI from this offering
was approximately $3.7 million, excluding any future proceeds that
may be received from the exercise of the warrants.
Inventory decreased by approximately $314,000 at December 31, 2016
as compared to September 30, 2016, due to the timing of supplies
purchased and used in the manufacturing of Multikine for the Phase
3 clinical trial. In addition, receivables decreased by
approximately $390,000, primarily due to the timing of payments
reimbursed under the litigation funding arrangement noted
above.
Results of Operations and Financial Condition
During
the three months ended December 31, 2016, research and development
expenses decreased by approximately $1.1 million compared to the
three months ended December 31, 2015. The Company is continuing the
Phase 3 clinical trial subject to the partial clinical hold, and
research and development fluctuates based on the activity level of
the clinical trial.
During
the three months ended December 31, 2016, general and
administrative expenses increased by approximately $772,000
compared to the three months ended December 31, 2015. This increase
is primarily due to an approximate $1.1 million gain on
de-recognition of legal fees to record the transfer of the
liability from the Company to Lake Whillans that existed prior to
the execution of the financing agreement. The gain on
de-recognition of legal fees is recorded as a reduction of general
and administrative expenses in the three months ended December 31,
2015, offset by an approximate $366,000 decrease in employee and
non-employee stock compensation due to the decrease in the market
value of the common stock and 2,800 fewer shares
issued in the three months ended December 31, 2016.
The
gain on derivative instruments of approximately $8.9 million for
the three months ended December 31, 2016 was the result of the
change in fair value of the derivative liabilities during the
quarter. This change was caused by decreases in the share price of
the Company’s common stock.
Net
interest expense decreased by approximately
$15,000 for the three months ended December 31, 2016
compared to the three months ended December 31, 2015.
Interest expense consists primarily of interest
expense on the financing lease offset by interest
income earned on the Company’s cash balances.
Research and Development Expenses
The
Company’s research and development efforts involve Multikine
and LEAPS. The table below shows the research and development
expenses associated with each project.
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Three months ended December 31,
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2016
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2015
|
|
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MULTIKINE -
Restated
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$ 3,463,006
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$ 4,597,826
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LEAPS
|
85,251
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95,082
|
|
|
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TOTAL -
Restated
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$ 3,548,257
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$ 4,692,908
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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, 2016. 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 December 31, 2016. 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.
As explained in Note I to the accompanying financial
statements which are part of this report, in November 2017, the
Company discovered an error in the way it accounted for the lease
for its manufacturing facility. Management has concluded
that the correction of the error for this lease, the lack of
impairment assessment for the related asset, and the operating
effectiveness of the financial close process are control
deficiencies that constitute material weaknesses. Based on the
above, the Company’s Chief Executive and
Financial Officer concluded that the Company’s disclosure
controls and procedures were not effective as of
December 31, 2016.
Changes in Internal Control over Financial Reporting
The
Company’s management, with the participation of the Chief
Executive and Chief Financial Officer, has evaluated whether any
change in the Company’s internal control over financial
reporting occurred during the first three months of fiscal year
2017. There was no change in the Company’s
internal control over financial reporting during the three months
ended December 31, 2016.
PART II
Item
2.
Unregistered Sales
of Equity Securities and Use of Proceeds.
During
the three months ended December 31, 2016 the Company issued
10,800 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 our 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 certificate representing these shares
bears a restricted legend providing that 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.
(a) Exhibits
Rule 13a-14(a)
Certifications
Section 1350
Certifications
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.
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CEL-SCI
CORPORATION
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Date:
December 11, 2017
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By:
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/s/
Geert
Kersten
|
|
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Geert
Kersten
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Principal Executive
Officer*
|
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* Also
signing in the capacity of the Principal Accounting and Financial
Officer.