CEL SCI CORP
10-Ks and 10-Qs
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
(Mark
One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended March 31, 2020
OR
☐
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _______________ to
______________.
Commission
File Number 001-11889
CEL-SCI CORPORATION
|
Colorado
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84-0916344
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State
or other jurisdiction incorporation
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|
(IRS)
Employer Identification Number
|
8229
Boone Boulevard, Suite 802
Vienna,
Virginia 22182
Address
of principal executive offices
(703)
506-9460
Registrant's
telephone number, including area code
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which
registered
|
|
Common
Stock
|
CVM
|
NYSE
American
|
Indicate
by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports) and (2) had been subject to such filing requirements for
the past 90 days.
Yes
☒
No
☐
Indicate
by check mark whether the registrant has submitted electronically
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, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check One):
|
Large accelerated filer
|
☐
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Accelerated filer
|
☒
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Non-accelerated
filer
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☐
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Smaller reporting company
|
☒
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|
Emerging
growth company
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☐
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
☐
Indicate
by check mark whether the Registrant is a shell company (as defined
in Exchange Act Rule 12b-2 of the Exchange Act).
Yes
☐
No
☒
|
Class of Stock
|
No. Shares Outstanding
|
Date
|
|
Common
|
37,633,894
|
May 5,
2020
|
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
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Item 1.
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Page
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Condensed Balance Sheets at March 31, 2020 and
September 30, 2019 (unaudited)
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3
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Condensed Statements of Operations for the six months
ended March 31, 2020 and 2019
(unaudited)
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4
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Condensed Statements of Operations for the three months
ended March 31, 2020 and 2019
(unaudited)
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5
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Condensed Statement of Stockholders’ Equity for the six
months ended March 31, 2020 and 2019 (unaudited)
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6
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Condensed Statements of Cash Flows for the six months
ended March 31, 2020 and 2019
(unaudited)
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7
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Notes to Condensed Financial Statements
(unaudited)
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9
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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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25
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Item 4.
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Controls and Procedures
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25
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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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27
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Item 6.
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Exhibits
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27
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Signatures
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28
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2
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CEL-SCI CORPORATION
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|||
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CONDENSED BALANCE SHEETS
|
|||
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(UNAUDITED)
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MARCH 31,
|
SEPTEMBER 30,
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ASSETS
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2020
|
2019
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Current
Assets:
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Cash
and cash equivalents
|
$
14,329,870
|
$
8,444,774
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Receivables
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62,289
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62,765
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Prepaid
expenses
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565,246
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524,953
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Supplies
used for R&D and manufacturing
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849,548
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782,363
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Total
current assets
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15,806,953
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9,814,855
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Finance
lease right of use assets
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12,741,195
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-
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Operating
lease right of use assets
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899,508
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-
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Property
and equipment, net
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3,286,273
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15,825,636
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Patent
costs, net
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312,380
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311,586
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Deposits
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1,670,917
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1,670,917
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Total
Assets
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$
34,717,226
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$
27,622,994
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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Current
Liabilities:
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Accounts
payable
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$
1,139,914
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$
1,586,478
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Accrued
expenses
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316,866
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34,432
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Due
to employees
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675,408
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709,442
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Derivative
instruments, current portion
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2,156,857
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674,442
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Lease
liabilities, current portion
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977,264
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-
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Other
current liabilities
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5,000
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14,956
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Total
current liabilities
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5,271,309
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3,019,750
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Derivative
instruments, net of current portion
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4,067,436
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5,813,868
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Finance
lease obligations, net of current portion
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12,232,493
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13,508,156
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Operating
lease obligations, net of current portion
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812,479
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-
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Other
liabilities
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125,000
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147,553
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Total
liabilities
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22,508,717
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22,489,327
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Commitments
and Contingencies
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STOCKHOLDERS'
EQUITY
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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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37,336,411
and 35,231,776 shares issued and outstanding
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at
March 31, 2020 and September 30, 2019, respectively
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373,365
|
352,318
|
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Additional
paid-in capital
|
379,943,932
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358,507,603
|
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Accumulated
deficit
|
(368,108,788
)
|
(353,726,254
)
|
|
|
|
|
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Total
stockholders' equity
|
12,208,509
|
5,133,667
|
|
|
|
|
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
34,717,226
|
$
27,622,994
|
|
|
|
|
|
See
notes to condensed financial statements.
|
||
3
|
CEL-SCI
CORPORATION
|
||
|
CONDENSED
STATEMENTS OF OPERATIONS
|
||
|
SIX
MONTHS ENDED MARCH 31, 2020 and 2019
|
||
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(UNAUDITED)
|
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2020
|
2019
|
|
|
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Grant
income
|
$
334,232
|
$
277,183
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
Research
and development
|
8,598,960
|
6,304,260
|
|
General
and administrative
|
5,197,418
|
3,313,985
|
|
Total
operating expenses
|
13,796,378
|
9,618,245
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Operating
loss
|
(13,462,146
)
|
(9,341,062
)
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Other
income
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36,896
|
36,127
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(Loss)/gain
on derivative instruments
|
(2,282,518
)
|
4,589,135
|
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Other
non-operating gains
|
1,725,180
|
421,353
|
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Interest
expense, net
|
(504,190
)
|
(907,332
)
|
|
Net
loss
|
(14,486,778
)
|
(5,201,779
)
|
|
|
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Modification
of warrants
|
(21,734
)
|
-
|
|
|
|
|
|
Net
loss available to common shareholders
|
$
(14,508,512
)
|
$
(5,201,779
)
|
|
|
|
|
|
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Net
loss per common share
|
|
|
|
BASIC
|
$
(0.41
)
|
$
(0.18
)
|
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DILUTED
|
$
(0.41
)
|
$
(0.19
)
|
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Weighted
average common shares outstanding
|
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BASIC
|
35,621,711
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28,543,417
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DILUTED
|
35,621,711
|
28,548,818
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|
See
notes to condensed financial statements.
|
||
4
|
CEL-SCI
CORPORATION
|
||
|
CONDENSED
STATEMENTS OF OPERATIONS
|
||
|
THREE
MONTHS ENDED MARCH 31, 2020 and 2019
|
||
|
(UNAUDITED)
|
|
|
2020
|
2019
|
|
|
|
|
|
Grant
income
|
$
298,726
|
$
150,769
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
Research
and development
|
4,402,347
|
2,832,546
|
|
General
and administrative
|
2,558,522
|
1,624,823
|
|
Total
operating expenses
|
6,960,869
|
4,457,369
|
|
|
|
|
|
Operating
loss
|
(6,662,143
)
|
(4,306,600
)
|
|
|
|
|
|
Other
income
|
18,448
|
18,216
|
|
Loss
on derivative instruments
|
(3,049,027
)
|
(967,171
)
|
|
Other
non-operating gains (losses)
|
934,511
|
(730,823
)
|
|
Interest
expense, net
|
(253,407
)
|
(461,303
)
|
|
Net
loss
|
(9,011,618
)
|
(6,447,681
)
|
|
|
|
|
|
Modification
of warrants
|
(21,734
)
|
-
|
|
|
|
|
|
Net
loss available to common shareholders
|
$
(9,033,352
)
|
$
(6,447,681
)
|
|
|
|
|
|
|
|
|
|
Net
loss per common share
|
|
|
|
BASIC
|
$
(0.25
)
|
$
(0.22
)
|
|
DILUTED
|
$
(0.25
)
|
$
(0.22
)
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
BASIC
|
36,165,050
|
29,113,910
|
|
DILUTED
|
36,165,050
|
29,113,910
|
|
|
|
|
|
See
notes to condensed financial statements.
|
||
5
|
CEL-SCI
CORPORATION
|
|||||
|
STATEMENTS
OF STOCKHOLDERS' EQUITY
|
|||||
|
(UNAUDITED)
|
|
|
|
|
Additional
|
|
|
|
|
Common
|
Stock
|
Paid-In
|
Accumulated
|
|
|
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
|
|
|
|
|
|
|
|
BALANCES AT
OCTOBER 1, 2019
|
35,231,776
|
$
352,318
|
$
358,507,603
|
$
(353,726,254
)
|
$
5,133,667
|
|
|
|
|
|
|
|
|
Adoption of
new accounting standard
|
|
|
|
104,244
|
104,244
|
|
Issuance of
common stock
|
606,395
|
6,064
|
5,043,939
|
-
|
5,050,003
|
|
Warrant
exercises
|
132,900
|
1,329
|
295,772
|
-
|
297,101
|
|
Equity based
compensation - employees
|
-
|
-
|
1,800,225
|
-
|
1,800,225
|
|
401(k)
contributions paid in common stock
|
4,474
|
45
|
40,892
|
-
|
40,937
|
|
Stock issued
to nonemployees for service
|
15,819
|
158
|
84,289
|
-
|
84,447
|
|
Purchase of
stock by officer
|
3,725
|
37
|
24,963
|
-
|
25,000
|
|
Share issuance
costs
|
-
|
-
|
(92,150
)
|
-
|
(92,150
)
|
|
Net
loss
|
-
|
-
|
-
|
(5,475,160
)
|
(5,475,160
)
|
|
|
|
|
|
|
|
|
BALANCES AT
DECEMBER 31, 2019
|
35,995,089
|
359,951
|
365,705,533
|
(359,097,170
)
|
6,968,314
|
|
|
|
|
|
|
|
|
Proceeds from
the sale of common stock
|
721,459
|
7,215
|
7,860,414
|
-
|
7,867,629
|
|
Warrant
exercises
|
562,100
|
5,621
|
4,313,085
|
-
|
4,318,706
|
|
Equity based
compensation - employees
|
-
|
-
|
1,780,979
|
-
|
1,780,979
|
|
401(k)
contributions paid in common stock
|
3,376
|
34
|
38,925
|
-
|
38,959
|
|
Stock issued
to nonemployees for service
|
17,120
|
171
|
234,853
|
-
|
235,024
|
|
Purchase of
stock by officers and directors
|
16,787
|
168
|
159,822
|
-
|
159,990
|
|
Option
exercises
|
20,480
|
205
|
49,693
|
-
|
49,898
|
|
Share issuance
costs
|
-
|
-
|
(199,372
)
|
-
|
(199,372
)
|
|
Net
loss
|
-
|
-
|
|
(9,011,618
)
|
(9,011,618
)
|
|
|
|
|
|
|
|
|
BALANCES AT
MARCH 31, 2020
|
37,336,411
|
$
373,365
|
$
379,943,932
|
$
(368,108,788
)
|
$
12,208,509
|
|
|
|
|
Additional
|
|
|
|
|
Common
|
Stock
|
Paid-In
|
Accumulated
|
|
|
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
|
|
|
|
|
|
|
|
BALANCES AT
OCTOBER 1, 2018
|
28,034,487
|
$
280,346
|
$
331,312,184
|
$
(331,591,614
)
|
$
916
|
|
|
|
|
|
|
|
|
Warrant
exercises
|
298,682
|
2,987
|
646,766
|
-
|
649,753
|
|
401(k)
contributions paid in common stock
|
12,279
|
123
|
35,118
|
-
|
35,241
|
|
Stock issued
to nonemployees for service
|
62,784
|
628
|
201,752
|
-
|
202,380
|
|
Shares returned for settlement of
clinical research costs
|
(564,905
)
|
(5,649
)
|
5,649
|
-
|
-
|
|
Equity based
compensation - employees
|
-
|
-
|
573,660
|
-
|
573,660
|
|
Net
income
|
-
|
-
|
-
|
1,245,902
|
1,245,902
|
|
|
|
|
|
|
|
|
BALANCES AT
DECEMBER 31, 2018
|
27,843,327
|
278,435
|
332,775,129
|
(330,345,712
)
|
2,707,852
|
|
|
|
|
|
|
|
|
Warrant
exercises
|
1,523,933
|
15,239
|
2,640,395
|
-
|
2,655,634
|
|
401(k)
contributions paid in common stock
|
10,419
|
104
|
36,779
|
-
|
36,883
|
|
Stock issued
to nonemployees for service
|
77,449
|
774
|
224,855
|
-
|
225,629
|
|
Equity based
compensation - employees
|
(3,500
)
|
(35
)
|
530,865
|
-
|
530,830
|
|
Shares issued for settlement of
clinical research costs
|
500,000
|
5,000
|
1,285,000
|
-
|
1,290,000
|
|
Share issuance
costs
|
-
|
-
|
(43,625
)
|
-
|
(43,625
)
|
|
Net
loss
|
-
|
-
|
-
|
(6,447,681
)
|
(6,447,681
)
|
|
|
|
|
|
|
|
|
BALANCES AT
MARCH 31, 2019
|
29,951,628
|
$
299,517
|
$
337,449,398
|
$
(336,793,393
)
|
$
955,522
|
See notes to condensed financial
statements.
6
|
CEL-SCI
CORPORATION
|
||
|
CONDENSED
STATEMENTS OF CASH FLOWS
|
||
|
SIX
MONTHS ENDED MARCH 31, 2020 and 2019
|
||
|
(UNAUDITED)
|
|
|
2020
|
2019
|
|
|
|
|
|
Net
loss
|
$
(14,486,778
)
|
$
(5,201,779
)
|
|
Adjustments
to reconcile net loss to
|
|
|
|
net
cash used in operating activities:
|
|
|
|
Depreciation
and amortization
|
951,831
|
316,083
|
|
Share-based
payments for services
|
347,227
|
511,424
|
|
Equity
based compensation
|
3,581,204
|
1,104,490
|
|
Common
stock contributed to 401(k) plan
|
79,896
|
72,124
|
|
Shares
issued for settlement of clinical research costs
|
-
|
1,290,000
|
|
Loss
(Gain) on derivative instruments
|
2,282,518
|
(4,589,135
)
|
|
Capitalized
lease interest
|
-
|
64,432
|
|
(Increase)/decrease
in assets:
|
|
|
|
Receivables
|
476
|
(4,579
)
|
|
Prepaid
expenses
|
96,951
|
(74,741
)
|
|
Supplies
used for R&D and manufacturing
|
(67,185
)
|
(115,774
)
|
|
Increase/(decrease)
in liabilities:
|
|
|
|
Accounts
payable
|
(765,872
)
|
(1,489,234
)
|
|
Accrued
expenses
|
20,110
|
82,580
|
|
Due
to employees
|
(34,034
)
|
245,074
|
|
Other
liabilities
|
3,438
|
(1,057
)
|
|
|
|
|
|
Net
cash used in operating activities
|
(7,990,218
)
|
(7,790,092
)
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Purchases
of property and equipment
|
(752,797
)
|
(160,920
)
|
|
Expenditures
for patent costs
|
(13,996
)
|
(67,661
)
|
|
|
|
|
|
Net
cash used in investing activities
|
(766,793
)
|
(228,581
)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Proceeds
from issuance of common stock
|
12,917,632
|
-
|
|
Payments
of stock issuance costs
|
(190,553
)
|
(80,224
)
|
|
Proceeds
from the purchase of stock by officers and directors
|
184,990
|
-
|
|
Proceeds
from exercises of warrants
|
2,069,272
|
3,305,387
|
|
Proceeds
from exercises of options
|
49,898
|
-
|
|
Payments
on obligations under finance lease
|
(389,132
)
|
(2,521
)
|
|
|
|
|
|
Net
cash provided by financing activities
|
14,642,107
|
3,222,642
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
5,885,096
|
(4,796,031
)
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
8,444,774
|
10,310,044
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$
14,329,870
|
$
5,514,013
|
|
|
|
|
|
See
notes to condensed financial statements.
|
||
7
|
CEL-SCI
CORPORATION
|
||
|
CONDENSED
STATEMENTS OF CASH FLOWS
|
||
|
SIX
MONTHS ENDED MARCH 31, 2020 and 2019
|
||
|
|
|
|
|
SUPPLEMENTAL
SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
2020
|
2019
|
|
Property
and equipment included in current liabilities
|
$
318,984
|
$
-
|
|
Capitalizable
patent costs included in current liabilities
|
$
13,465
|
$
-
|
|
Right
of use asset acquired and liability incurred
|
$
13,712
|
$
-
|
|
Finance
lease obligation included in accounts payable
|
$
983
|
$
428
|
|
Prepaid
consulting services paid with issuance of common stock
|
$
137,244
|
$
83,415
|
|
Accrued
consulting services to be paid with common stock
|
$
165,000
|
$
-
|
|
Fair
value of warrant liabilities on date of exercise
|
$
2,546,535
|
$
-
|
|
Stock
issuance costs included in current liabilities
|
$
116,549
|
$
10,000
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
$
585,748
|
$
902,091
|
|
|
|
|
8
CEL-SCI CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2020 AND 2019 (UNAUDITED)
A.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The
accompanying condensed financial statements of CEL-SCI Corporation
(the Company) are unaudited and certain information and footnote
disclosures normally included in the annual financial statements
prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP) have been
omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. While management of the Company believes that
the disclosures presented are adequate to make the information
presented not misleading, these interim condensed financial
statements should be read in conjunction with the financial
statements and notes included in the Company’s annual report
on Form 10-K/A for the year ended September 30, 2019.
In the
opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments necessary for a fair
presentation of the Company’s financial position as of March
31, 2020 and the results of its operations for the six months then
ended. The condensed balance sheet as of September 30, 2019 is
derived from the September 30, 2019 audited financial statements.
On October 1, 2019, the
Company adopted Accounting Standards Update (ASU) No. 2016-02 ,
“
Leases”
and its related amendments (collectively referred to as Topic 842
and codified as Accounting Standards Codification 842, or ASC 842)
using the modified
retrospective transition approach. In accordance with this adoption
method, results for the reporting period ended March 31, 2020 are
presented under the new standard, while prior period results
continue to be reported under the previous standard. All
other
significant accounting policies have been consistently
applied in the interim financial statements and the annual
financial statements. The results of operations for the six and
three months ended March 31, 2020 and 2019 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. Management
accrues Clinical Research Organization (“CRO”) expenses
and clinical trial study expenses based on services performed and
relies on the CROs to provide estimates of those costs applicable
to the completion stage of a study. Estimated accrued CRO costs are
subject to revisions as such studies progress to completion. The
Company charges revisions to estimated expense in the period in
which the facts that give rise to the revision become
known.
9
Income Taxes
- The Company uses the
asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred tax assets and liabilities
are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating and tax loss carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company
records a valuation allowance to reduce the deferred tax assets to
the amount that is more likely than not to be recognized.
A full valuation
allowance was recorded against the deferred tax assets as of March
31, 2020 and September 30, 2019.
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
ASC 815, “
Accounting for Derivative
Instruments and Hedging Activities
.”
In accordance with ASC 815,
derivative instruments and hybrid instruments are recognized as
either assets or liabilities in the balance sheet and are measured
at fair value with gains or losses recognized in earnings or other
comprehensive income depending on the nature of the derivative or
hybrid instruments. The Company determines the fair value of
derivative instruments and hybrid instruments based on available
market data using appropriate valuation models considering all the
rights and obligations of each instrument. The derivative
liabilities are re-measured at fair value at the end of each
interim period.
Stock-Based Compensation
–
Compensation cost for all stock-based awards is measured at fair
value as of the grant date in accordance with the provisions of ASC
718 “
Compensation –
Stock Compensation
.” The fair value of stock options
is calculated using the Black-Scholes option pricing model. The
Black-Scholes model requires various judgmental assumptions
including volatility and expected option life. The stock-based
compensation cost is recognized on the straight-line allocation
method as expense over the requisite service or vesting
period.
The
Company has Incentive Stock Option Plans, Non-Qualified Stock
Option Plans, Stock Compensation Plans, Stock Bonus Plans and an
Incentive Stock Bonus Plan. In some cases, these Plans are
collectively referred to as the "Plans". All Plans have been
approved by the 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.
Forfeitures are accounted for when they occur. The expected term of
options represents the period that options granted are expected to
be outstanding and has been determined based on an analysis of
historical exercise behavior. If any of the assumptions used in the
Black-Scholes model change significantly, stock-based compensation
expense for new awards may differ materially in the future from
that recorded in the current period.
Vesting
of restricted stock granted under the Incentive Stock Bonus Plan is
subject to service, performance and market conditions and meets the
classification of equity awards. These awards were measured at
market value on the grant-dates for issuances where the attainment
of performance criteria is likely and at fair value on the
grant-dates, using a Monte Carlo simulation for issuances where the
attainment of performance criteria is uncertain. The total
compensation cost will be expensed over the estimated requisite
service period.
Newly Adopted Accounting Pronouncements
Effective October
1, 2019, the Company adopted ASC 842. ASC 842 requires that lessees
recognize right-of-use assets and lease liabilities that are
measured at the present value of the future lease payments at the
lease commencement date. Subsequent measurement, including the
presentation of expenses and cash flows, depends on the
classification of the lease as either a finance lease or an
operating lease. The Company elected the optional transition method
that allows for a cumulative-effect adjustment in the period of
adoption and did not restate prior periods. The Company also
elected the transition package of three practical expedients which
eliminates the requirements to reassess prior conclusions about
lease identification, lease classification and initial direct
costs. Further, the Company elected a short-term lease exception
policy permitting the option to not apply the recognition
requirements of this standard to short-term leases (i.e., leases
with terms of 12 months or less) and an accounting policy to
account for lease and non-lease components as a single component.
The Company’s lease portfolio includes both finance and
operating leases. The impact of adopting ASC 842 was to increase
long term assets by approximately $1.0 million, decrease total
liabilities by approximately $0.9 million and record a cumulative
effect adjustment of approximately $0.1 million to opening
accumulated deficit.
10
In June
2018, the Financial Accounting Standards Board ("FASB") issued ASU
2018-07,
Compensation—Stock
Compensation (Topic 718
), which expands the scope of Topic
718 to include share-based payment transactions for acquiring goods
and services from nonemployees, and thus, the accounting for
share-based payments to non-employees will be substantially
aligned. The Company adopted ASU 2018-07 as of October 1, 2019 with
no impact on its financial statements and related
disclosures.
New Accounting Pronouncements
In
August 2018, the FASB
issued ASU 2018-13, “
Fair Value Measurement - Disclosure Framework
(Topic
820
)”
(“ASU 2018-13”).
The updated guidance
improves the disclosure
requirements on fair value measurements. The updated guidance
becomes effective for the Company on October 1, 2021. Early
adoption is permitted for any removed or modified disclosures. The
Company is currently assessing the timing and impact of adopting
the updated provisions.
The Company has considered all other recently
issued accounting pronouncements and does not believe the adoption
of such pronouncements will have a material impact on its financial
statements.
B.
OPERATIONS AND FINANCING
On
January 30, 2020, the World Health Organization (“WHO”)
announced a global health emergency because of a new strain of
coronavirus originating in Wuhan, China (the “COVID-19
outbreak”) and the risks to the international community as
the virus spreads globally beyond its point of origin. In March
2020, because of the rapid increase in exposure globally, the WHO
classified the COVID-19 outbreak as a pandemic. The full impact of
the COVID-19 outbreak continues to evolve as of the date of this
report. As such, it is uncertain as to the full magnitude that the
pandemic will have on the Company’s financial condition,
liquidity, and future results of operations. Management is actively
monitoring the impact of the global situation on its financial
condition, liquidity, operations, suppliers, industry, and
workforce. Given the daily evolution of the COVID-19 outbreak and
the global responses to curb its spread, the Company is not able to
estimate the effects of the COVID-19 outbreak on its results of
operations, financial condition, or liquidity for fiscal year
2020. Although the Company cannot estimate the length or
gravity of the impact of the COVID-19 outbreak, if the pandemic
continues, it may have an adverse effect on the Company’s
results of future operations, financial position, and liquidity in
fiscal year 2020.
On
March 27, 2020, the United States enacted the Coronavirus Aid,
Relief and Economic Security Act (CARES Act). The Cares Act
is an emergency economic stimulus package that includes spending
and tax breaks to strengthen the United States economy and fund a
nationwide effort to curtail the effect of COVID-19. While
the CARES Act provides sweeping tax changes in response to the
COVID-19 pandemic, some of the more significant provisions which
are expected to impact the Company’s financial statements
include removal of certain limitations on utilization of net
operating losses, increasing the loss carryback period for certain
losses to five years, and increasing the ability to deduct interest
expense, as well as amending certain provisions of the previously
enacted Tax Cuts and Jobs Act. The Company does not expect
the enactment of the CARES Act to have a material impact to its
financial position, results of operations or cash
flows.
The
Company has incurred significant costs since its inception for the
acquisition of certain patented and unpatented proprietary
technology and know-how relating to the human immunological defense
system, patent applications, research and development,
administrative costs, construction of laboratory facilities, and
clinical trials. The Company has funded such costs with
proceeds from loans and the public and private sale of its common
stock. The Company will be required to raise additional
capital or find additional long-term financing to continue with its
research efforts. The ability to raise capital may be
dependent upon market conditions that are outside the control of
the Company. The ability of the Company to complete the necessary
clinical trials and obtain FDA approval for the sale of products to
be developed on a commercial basis is uncertain. Ultimately, the
Company must complete the development of its products, obtain the
appropriate regulatory approvals and obtain sufficient revenues to
support its cost structure. The Company is taking cost-cutting
initiatives, as well as exploring other sources of funding, to
finance operations over the next 12 months. The Company believes
there is a high likelihood that it will continue to receive funds
from private and public offerings and warrant conversions similar
to the way it has substantially funded operations for the past 12
months. However, there can be no assurance that the Company will be
able to raise sufficient capital to support its
operations.
11
The
Company is currently in the final stages of its large
multi-national Phase 3 clinical trial for head and neck cancer with
its partners TEVA Pharmaceuticals and Orient Europharma. To finance
the study beyond the next twelve months, the Company plans to raise
additional capital in the form of corporate partnerships, warrant
exercises, debt issuances and/or equity financings. The Company
believes that it will be able to obtain additional financing
because it has done so consistently in the past and because
Multikine is a product in the Phase 3 clinical trial stage.
However, there can be no assurance that the Company will be
successful in raising additional funds on a timely basis or that
the funds will be available to the Company on acceptable terms or
at all. If the Company does not raise the necessary amounts
of money, it may have to curtail its operations until it can raise
the required funding.
The
financial statements have been prepared assuming the Company will
continue as a going concern, but due to the Company’s
recurring losses from operations and future liquidity needs, there
is substantial doubt about the Company’s ability to continue
as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Nine
hundred twenty-eight (928) head and neck cancer patients have been
enrolled and have completed treatment in the Phase 3 study. The
study end point is a 10% increase in overall survival of patients
between the two main comparator groups in favor of the group
receiving the Multikine treatment regimen. The determination if the
study end point is met will occur when there are a total of 298
deaths in those two groups. On May 4, 2020, we announced the
threshold of 298 deaths (events) was reached.
C.
STOCKHOLDERS’ EQUITY
Proceeds from the Sale of Common Stock
In
March 2020, the Company sold 630,500 shares of common stock at a
public offering price of $12.22 per share and received aggregate
net proceeds of approximately $7.1 million. Under the terms of the
Underwriting Agreement the Company granted the Underwriters a
45-day option to purchase up to an additional 94,575 shares of
common stock solely to cover over-allotments. The underwriter fully
exercised this option in May 2020 resulting in additional net
proceeds to the Company of approximately $1.1 million.
In
December 2019, the Company sold 606,395 shares of common stock at a
public offering price of $9.07 per share and received aggregate net
proceeds of approximately $5.0 million. In January 2020, the
underwriters of that offering fully exercised the option to
purchase 90,959 additional shares of common stock at the public
offering price of $9.07 per share for aggregate net proceeds to the
Company of approximately $0.8 million.
Equity Compensation
Underlying share
information for equity compensation plans as of March 31, 2020 is
as follows:
|
Name of
Plan
|
Total Shares
Reserved Under Plans
|
Shares Reserved
for Outstanding Options
|
Shares
Issued
|
Remaining
Options/Shares
Under
Plans
|
|
|
|
|
|
|
|
Incentive Stock
Options Plans
|
138,400
|
89,895
|
N/A
|
213
|
|
Non-Qualified Stock
Option Plans
|
6,387,200
|
6,108,173
|
N/A
|
131,146
|
|
Stock Bonus
Plans
|
783,760
|
N/A
|
339,076
|
444,651
|
|
Stock Compensation
Plans
|
634,000
|
N/A
|
150,695
|
464,895
|
|
Incentive Stock
Bonus Plan
|
640,000
|
N/A
|
616,500
|
23,500
|
12
Underlying share
information for equity compensation plans as of September 30, 2019
is as follows:
|
Name of
Plan
|
Total Shares
Reserved Under Plans
|
Shares Reserved
for Outstanding Options
|
Shares
Issued
|
Remaining
Options/Shares Under Plans
|
|
|
|
|
|
|
|
Incentive Stock
Option Plans
|
138,400
|
89,895
|
N/A
|
213
|
|
Non-Qualified Stock
Option Plans
|
6,387,200
|
6,128,321
|
N/A
|
112,166
|
|
Stock Bonus
Plans
|
783,760
|
N/A
|
331,226
|
452,501
|
|
Stock Compensation
Plans
|
634,000
|
N/A
|
130,183
|
485,407
|
|
Incentive Stock
Bonus Plan
|
640,000
|
N/A
|
616,500
|
23,500
|
Stock option
activity
:
|
|
Six Months Ended
March 31,
|
|
|
|
2020
|
2019
|
|
Options
granted
|
2,500
|
500
|
|
Options
exercised
|
20,480
|
-
|
|
Options
forfeited
|
1,000
|
24,193
|
|
Options
expired
|
1,168
|
2,400
|
|
|
Three Months
Ended March 31,
|
|
|
|
2020
|
2019
|
|
Options
granted
|
1,500
|
-
|
|
Options
exercised
|
20,480
|
-
|
|
Options
forfeited
|
1,000
|
24,193
|
|
Options
expired
|
1,132
|
-
|
Stock-Based Compensation Expense
|
|
Six months Ended
March 31,
|
|
|
|
2020
|
2019
|
|
Employees
|
$
3,581,204
|
$
1,104,490
|
|
Non-employees
|
$
347,227
|
$
511,424
|
|
|
Three months
Ended March 31,
|
|
|
|
2020
|
2019
|
|
Employees
|
$
1,780,979
|
$
530,830
|
|
Non-employees
|
$
191,487
|
$
272,520
|
Employee
compensation expense includes the expense related to options issued
or vested and restricted stock granted. Non-employee expense
includes the expense related to options and stock issued to
consultants expensed over the period of their service
contracts.
13
Warrants and Non-Employee Options
The
following chart represents the warrants and non-employee options
outstanding at March 31, 2020:
|
Warrant/Options
|
|
Issue Date
|
Shares Issuable upon Exercise
of Warrants/ Options
|
Exercise Price
|
Expiration Date
|
Reference
|
|
Series
N
|
|
8/18/2008
|
85,339
|
$
3.00
|
2/18/2021
|
2
|
|
Series
V
|
|
5/28/2015
|
810,127
|
$
19.75
|
5/28/2020
|
1
|
|
Series
UU
|
|
6/11/2018
|
154,810
|
$
2.80
|
6/11/2020
|
*
|
|
Series
W
|
|
10/28/2015
|
688,930
|
$
16.75
|
10/28/2020
|
1
|
|
Series
X
|
|
1/13/2016
|
120,000
|
$
9.25
|
1/13/2021
|
*
|
|
Series
Y
|
|
2/15/2016
|
26,000
|
$
12.00
|
2/15/2021
|
*
|
|
Series
ZZ
|
|
5/23/2016
|
20,000
|
$
13.75
|
5/18/2021
|
1
|
|
Series
BB
|
|
8/26/2016
|
16,000
|
$
13.75
|
8/22/2021
|
1
|
|
Series
Z
|
|
5/23/2016
|
264,000
|
$
13.75
|
11/23/2021
|
1
|
|
Series
CC
|
|
12/8/2016
|
153,643
|
$
5.00
|
12/8/2021
|
1
|
|
Series
HH
|
|
2/23/2017
|
200
|
$
3.13
|
2/16/2022
|
1
|
|
Series
AA
|
|
8/26/2016
|
200,000
|
$
13.75
|
2/22/2022
|
1
|
|
Series
MM
|
|
6/22/2017
|
893,491
|
$
1.86
|
6/22/2022
|
*
|
|
Series
NN
|
|
7/24/2017
|
375,545
|
$
2.52
|
7/24/2022
|
2
|
|
Series
OO
|
|
7/31/2017
|
10,000
|
$
2.52
|
7/31/2022
|
2
|
|
Series
RR
|
|
10/30/2017
|
457,116
|
$
1.65
|
10/30/2022
|
*
|
|
Series
SS
|
|
12/19/2017
|
365,538
|
$
2.09
|
12/18/2022
|
2
|
|
Series
TT
|
|
2/5/2018
|
381,564
|
$
2.24
|
2/5/2023
|
2
|
|
Series
VV
|
|
7/2/2018
|
55,000
|
$
1.75
|
1/2/2024
|
2
|
|
Consultants
|
|
7/28/17
|
10,000
|
$
2.18
|
7/27/2027
|
*
|
* No
current period changes to these warrants and non-employee
options
1.
Warrant Liabilities
The
table below presents the fair value of the warrant liabilities at
the balance sheet dates:
|
|
March
31,
2020
|
September
30,
2019
|
|
Series V
warrants
|
$
595,981
|
$
674,442
|
|
Series W
warrants
|
1,560,876
|
1,193,507
|
|
Series Z
warrants
|
1,421,421
|
1,109,545
|
|
Series ZZ
warrants
|
82,223
|
77,638
|
|
Series AA
warrants
|
1,243,531
|
916,908
|
|
Series BB
warrants
|
70,994
|
63,966
|
|
Series CC
warrants
|
1,247,399
|
1,710,898
|
|
Series FF
warrants
|
-
|
446,185
|
|
Series HH
warrants
|
1,868
|
45,657
|
|
Series JJ
warrants
|
-
|
66,599
|
|
Series LL
warrants
|
-
|
182,965
|
|
Total warrant
liabilities
|
$
6,224,293
|
$
6,488,310
|
14
The
table below presents the gains/(losses) on the warrant liabilities
for the six months ended March 31:
|
|
2020
|
2019
|
|
Series S
warrants
|
$
-
|
$
33
|
|
Series V
warrants
|
78,461
|
494,852
|
|
Series W
warrants
|
(367,369
)
|
616,028
|
|
Series Z
warrants
|
(311,876
)
|
114,831
|
|
Series ZZ
warrants
|
(4,585
)
|
12,638
|
|
Series AA
warrants
|
(326,623
)
|
93,268
|
|
Series BB
warrants
|
(7,028
)
|
7,736
|
|
Series CC
warrants
|
(826,277
)
|
339,698
|
|
Series DD
warrants
|
-
|
1,249,287
|
|
Series EE
warrants
|
-
|
1,249,287
|
|
Series FF
warrants
|
(319,706
)
|
34,603
|
|
Series GG
warrants
|
-
|
106,750
|
|
Series HH
warrants
|
(34,457
)
|
10,642
|
|
Series II
warrants
|
-
|
115,343
|
|
Series JJ
warrants
|
(64,992
)
|
15,926
|
|
Series KK
warrants
|
-
|
113,467
|
|
Series LL
warrants
|
(98,066
)
|
14,746
|
|
Net (loss)/gain on
warrant liabilities
|
$
(2,282,518
)
|
$
4,589,135
|
The
table below presents the losses on the warrant liabilities for the
three months ended March 31:
|
|
2020
|
2019
|
|
Series V
warrants
|
$
(476,570
)
|
$
(61,480
)
|
|
Series W
warrants
|
(518,743
)
|
(10,822
)
|
|
Series Z
warrants
|
(322,425
)
|
(89,290
)
|
|
Series ZZ
warrants
|
(19,432
)
|
(1,685
)
|
|
Series AA
warrants
|
(391,601
)
|
(63,951
)
|
|
Series BB
warrants
|
(6,597
)
|
(4,374
)
|
|
Series CC
warrants
|
(803,596
)
|
(325,908
)
|
|
Series FF
warrants
|
(312,517
)
|
(34,459
)
|
|
Series GG
warrants
|
-
|
(106,032
)
|
|
Series HH
warrants
|
(34,375
)
|
(10,309
)
|
|
Series II
warrants
|
-
|
(115,246
)
|
|
Series JJ
warrants
|
(64,862
)
|
(15,536
)
|
|
Series KK
warrants
|
-
|
(114,628
)
|
|
Series LL
warrants
|
(98,309
)
|
(13,451
)
|
|
Net loss on warrant
liabilities
|
$
(3,049,027
)
|
$
(967,171
)
|
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.
15
Changes in Warrant Liabilities
On
December 10, 2018, 1,360,960 Series DD and 1,360,960 Series EE
warrants, with an exercise price of $4.50 expired.
On
October 11, 2018, 327,729 Series S warrants, with an exercise price
of $31.25 expired.
Exercise of Warrant Liabilities
The
following warrants recorded as liabilities were exercised during
the periods ended March 31, 2020.
|
|
Three Months
|
Six Months
|
||||
|
Warrants
|
Warrants
Exercised
|
Exercise
Price
|
Proceeds
|
Warrants
Exercised
|
Exercise
Price
|
Proceeds
|
|
Series
CC
|
123,820
|
$
5.00
|
$
619,100
|
123,820
|
$
5.00
|
$
619,100
|
|
Series
FF
|
68,048
|
$
3.91
|
265,812
|
68,048
|
$
3.91
|
265,812
|
|
Series
HH
|
6,300
|
$
3.13
|
19,687
|
6,300
|
$
3.13
|
19,687
|
|
Series
JJ
|
9,450
|
$
3.13
|
29,531
|
9,450
|
$
3.13
|
29,531
|
|
Series
LL
|
26,398
|
$
3.59
|
94,867
|
26,398
|
$
3.59
|
94,867
|
|
|
234,016
|
|
$
1,028,997
|
234,016
|
|
$
1,028,997
|
No
warrants recorded as liabilities were exercised during the six and
three months ended March 31, 2019.
2.
Equity Warrants
Changes in Equity Warrants
On
January 23, 2020, the expiration date of the Series N warrants was
extended to February 18, 2021. The incremental cost of this
extension was approximately $22,000, which was recorded as a deemed
dividend in the financial statements for the six and three months
ended March 31, 2020. The Series N warrants are held by the de
Clara Trust, of which the Company’s CEO, Geert Kersten, is a
beneficiary.
Exercise of Equity Warrants
The
following warrants recorded as equity were exercised during the
periods ended March 31, 2020.
|
|
Three Months
|
Six Months
|
||||
|
Warrants
|
Warrants
Exercised
|
Exercise
Price
|
Proceeds
|
Warrants
Exercised
|
Exercise
Price
|
Proceeds
|
|
Series
NN
|
98,253
|
$
2.52
|
$
247,598
|
98,253
|
$
2.52
|
$
247,598
|
|
Series
OO
|
30,000
|
$
2.52
|
75,600
|
40,000
|
$
2.52
|
100,800
|
|
Series
SS
|
94,474
|
$
2.09
|
197,451
|
117,106
|
$
2.09
|
244,752
|
|
Series
TT
|
77,857
|
$
2.24
|
174,400
|
178,125
|
$
2.24
|
399,000
|
|
Series
VV
|
27,500
|
$
1.75
|
48,125
|
27,500
|
$
1.75
|
48,125
|
|
|
328,084
|
|
$
743,174
|
460,984
|
|
$
1,040,275
|
The
following warrants recorded as equity were exercised during the
periods ended March 31, 2019.
|
|
Three Months
|
Six Months
|
||||
|
Warrants
|
Warrants
Exercised
|
Exercise
Price
|
Proceeds
|
Warrants
Exercised
|
Exercise
Price
|
Proceeds
|
|
Series
PP
|
-
|
-
|
-
|
60,000
|
$
2.30
|
$
138,000
|
|
Series
SS
|
13,158
|
$
2.09
|
$
27,500
|
165,790
|
$
2.09
|
346,501
|
|
Series
TT
|
-
|
-
|
-
|
86,050
|
$
2.24
|
192,752
|
|
Series
VV
|
1,385,000
|
$
1.75
|
2,423,750
|
1,385,000
|
$
1.75
|
2,423,750
|
|
Series
WW
|
125,775
|
$
1.63
|
204,384
|
125,775
|
$
1.63
|
204,384
|
|
|
1,523,933
|
|
$
2,655,635
|
1,822,615
|
|
$
3,305,387
|
16
3.
Options and Shares Issued to Consultants
During
the six months ended March 31, 2020 and 2019, the Company issued
32,939 and 140,233 shares, respectively, of restricted common stock
to consultants for services. The weighted average grant date fair
value of the shares issued to consultants was $9.44 and $3.04
during the six months ended March 31, 2020 and 2019, respectively.
During the three months ended March 31, 2020 and 2019, the Company
issued 17,120 and 77,449 shares of restricted common stock to
consultants for services. The weighted average grant date fair
value of the shares issued to consultants was $11.53 and $2.89,
respectively, during the three months ended March 31, 2020 and
2019. The aggregate values of the issuances of restricted common
stock and common stock options are recorded as prepaid expenses and
are charged to general and administrative expenses over the periods
of service.
During
the six months ended March 31, 2020 and 2019, the Company recorded
total expense of approximately $347,000 and $511,000, respectively,
relating to these consulting agreements. At March 31, 2020 and
September 30, 2019, approximately $367,000 and $230,000,
respectively, are included in prepaid expenses. At March 31, 2020,
the Company has accrued $165,000 for shares to be issued. As of
March 31, 2020, 10,000 options issued to consultants remained
outstanding, all of which were issued from the Non-Qualified Stock
Option plans and are fully vested.
4.
Securities Purchase Agreements
The
Company has entered into Securities Purchase Agreements (SPA) with
Ergomed plc, one of the Company’s Clinical Research
Organizations responsible for managing the Company’s Phase 3
clinical trial, to facilitate payment of amounts due Ergomed. Under
the Agreements, the Company issued Ergomed shares of common stock
and the net proceeds from the sales of those shares would reduce
outstanding amounts due Ergomed. Upon issuance, the Company
expenses the full value of the shares as Other non-operating
gain/loss and subsequently offsets the expense as amounts are
realized through the sale by Ergomed and reduces accounts payable
to Ergomed.
On
January 9, 2019, the Company entered into an SPA under which it
issued Ergomed 500,000 restricted shares of the Company’s
common stock valued at approximately $1.3 million. No other shares
were issued under the SPA during the periods
presented.
The
following table summarizes the Other Non-Operating Gains (Loss) for
the six and three months ended March 31, 2020 and 2019 relating to
these agreements:
|
|
Six Months Ended
|
Three Months Ended
|
||
|
|
3/31/2020
|
3/31/2019
|
3/31/2020
|
3/31/2019
|
|
Amount
realized through the resale of shares
|
$
1,720,680
|
$
1,711,353
|
$
934,511
|
$
559,177
|
|
Fair
value of shares upon issuance
|
-
|
1,290,000
|
-
|
1,290,000
|
|
Other
non-operating gain (loss)
|
$
1,720,680
|
$
421,353
|
$
934,511
|
$
(730,823
)
|
On
August 15, 2019, the Company entered into an SPA under which it
issued Ergomed 250,000 restricted shares of the Company’s
common stock. As of March 31, 2020, Ergomed held 20,250 shares for
resale.
D.
FAIR VALUE MEASUREMENTS
In
accordance with ASC 820-10,
“Fair Value Measurements,”
the Company determines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date. The Company generally applies the income approach to
determine fair value. This method uses valuation techniques to
convert future amounts to a single present amount. The measurement
is based on the value indicated by current market expectations with
respect to those future amounts.
17
ASC
820-10 establishes a fair value hierarchy that prioritizes the
inputs used to measure fair value. The hierarchy gives the highest
priority to active markets for identical assets and liabilities
(Level 1 measurement) and the lowest priority to unobservable
inputs (Level 3 measurement). The Company classifies fair value
balances based on the observability of those inputs. The three
levels of the fair value hierarchy are as follows:
●
Level 1 –
Observable inputs such as quoted prices in active markets for
identical assets or liabilities
●
Level 2 –
Inputs other than quoted prices that are observable for the asset
or liability, either directly or indirectly. These include quoted
prices for similar assets or liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets
that are not active and amounts derived from valuation models where
all significant inputs are observable in active
markets
●
Level 3 –
Unobservable inputs that reflect management’s
assumptions
For
disclosure purposes, assets and liabilities are classified in their
entirety in the fair value hierarchy level based on the lowest
level of input that is significant to the overall fair value
measurement. The Company’s assessment of the significance of
an input to the fair value measurement requires judgment and may
affect the placement within the fair value hierarchy
levels.
The
table below sets forth the assets and liabilities measured at fair
value on a recurring basis, by input level, in the condensed
balance sheet at March 31, 2020:
|
|
Quoted Prices in
Active Markets for Identical Assets or Liabilities
(Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs
(Level
3)
|
Total
|
|
|
|
|
|
|
|
Derivative
instruments
|
$
-
|
$
-
|
$
6,224,293
|
$
6,224,293
|
The
table below sets forth the assets and liabilities measured at fair
value on a recurring basis, by input level, in the condensed
balance sheet at September 30, 2019:
|
|
Quoted Prices in
Active Markets for Identical Assets or Liabilities
(Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs
(Level
3)
|
Total
|
|
|
|
|
|
|
|
Derivative
instruments
|
$
-
|
$
-
|
$
6,488,310
|
$
6,488,310
|
The
following sets forth the reconciliation of beginning and ending
balances related to fair value measurements using significant
unobservable inputs (Level 3) for the six months ended March 31,
2020 and the year ended September 30, 2019:
|
|
Six months ended
|
Twelve months ended
|
|
|
March 31, 2020
|
September 30, 2019
|
|
|
|
|
|
Beginning
balance
|
$
6,488,310
|
$
9,317,031
|
|
Issuances
|
-
|
-
|
|
Exercises
|
(2,546,535
)
|
(3,589,357
)
|
|
Realized and
unrealized losses
|
2,282,518
|
760,636
|
|
Ending
balance
|
$
6,224,293
|
$
6,488,310
|
18
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
During
the six months ended March 31, 2020, officers and directors of the
Company purchased 20,512 shares of restricted common stock at an
aggregate fair market value of approximately $185,000. This include
16,787 shares purchased during the three months ended March 31,
2020 with an aggregate fair market value of approximately
$160,000.
On
January 23, 2020, the expiration date of the Series N warrants was
extended to February 18, 2021. The incremental cost of this
extension was approximately $22,000, which was recorded as a deemed
dividend in the financial statements for the six and three months
ended March 31, 2020. The Series N warrants are held by the de
Clara Trust, of which the Company’s CEO, Geert Kersten, is a
beneficiary.
F.
COMMITMENTS AND
CONTINGENCIES
Clinical Research
Agreements
Under co-development and revenue sharing
agreements with Ergomed, Ergomed agreed to contribute up to $12
million towards the Company’s Phase 3 Clinical Trial in the
form of discounted clinical services in exchange for a single digit
percentage of milestone and royalty payments, up to a specific
maximum amount
. The Company accounted for the co-development
and revenue sharing agreements in accordance with ASC 808
“Collaborative Arrangements”. The Company determined
the payments to Ergomed are within the scope of ASC 730
“Research and Development.” Therefore, the Company
records the discount on the clinical services as a credit to
research and development expense on its Statements of Operations.
Since the inception of the agreement with Ergomed, the Company has
incurred research and development expenses of approximately $32.5
million for Ergomed’s services. This amount is net of
Ergomed’s discount of approximately $11 million. During the
six months ended March 31, 2020 and 2019, the Company recorded, net
of Ergomed’s discount, approximately $1.6 million and $1.5
million, respectively, as research and development expense related
to Ergomed’s services. During the three months ended March
31, 2020 and 2019, the Company recorded, net of Ergomed’s
discount, approximately $0.8 million and $0.7 million,
respectively, as research and development expense related to
Ergomed’s services.
Lease Agreements
The
Company determines whether a contract contains a lease at the
inception of a contract by determining if the contract conveys the
right to control the use of identified property, plant or equipment
over a period of time in exchange for consideration. The Company
leases certain real estate, machinery, equipment and office
equipment for varying periods. Many of these leases include an
option to either renew or terminate the lease. For purposes of
calculating lease liabilities, these options are included in the
lease term when it is reasonably certain that the Company will
exercise such options. The incremental borrowing rate utilized to
calculate the lease liabilities is based on the information
available at commencement date, as most of the leases do not
provide an implicit borrowing rate. Short-term leases, defined as
leases with initial terms of 12 months or less, are not reflected
on the balance sheet. Lease expense for such short-term leases is
not material. For purposes of calculating lease liabilities, lease
and non-lease components are combined.
The
Company leases a manufacturing facility near Baltimore, Maryland
(the San Tomas lease). The building was remodeled in accordance
with the Company’s specifications so that it can be used by
the Company to manufacture Multikine for the Company’s Phase
3 clinical trial and sales of the drug if approved by the FDA. The
lease is for a term of twenty years and requires annual base rent
to escalate each year at 3%. The Company is required to pay all
real estate and personal property taxes, insurance premiums,
maintenance expenses, repair costs and utilities. The lease allows
the Company, at its election, to extend the lease for two ten-year
periods or to purchase the building at the end of the 20-year
lease, which expires in October 2028.
19
Upon adoption of ASC 842 on October 1, 2019, the
Company recorded a finance lease right of use asset and a finance
lease liability of approximately $13.5 million. As of March 31,
2020, the net book value of the finance lease right of use asset is
approximately $12.7 million and the balance of the finance lease
liability is approximately $13.1 million, of which approximately
$0.9 million is current. These amounts include the San Tomas lease
as well as several other smaller finance leases for office
equipment. The finance right of use assets are being depreciated
using a straight-line method over the underlying lease terms. Total
cash paid related to finance leases during the six months ended
March 31, 2020 was approximately $940,000, of which approximately
$586,000 was for interest.
The weighted average discount
rate of the Company’s finance leases is 8.8% and the weighted
average time to maturity is 8.8 years.
The
Company was required to deposit the equivalent of one year of base
rent in accordance with the lease. When the Company meets the
minimum cash balance required by the lease, the deposit will be
returned to the Company. The approximate $1.7 million deposit is
included in non-current assets at March 31, 2020 and September 30,
2019.
Approximate future
minimum lease payments under finance leases as of March 31, 2020
are as follows:
|
Six months
ending September 30, 2020
|
$
946,000
|
|
Year ending
September 30,
|
|
|
2021
|
1,953,000
|
|
2022
|
2,014,000
|
|
2023
|
2,083,000
|
|
2024
|
2,148,000
|
|
2025
|
2,218,000
|
|
Thereafter
|
7,322,000
|
|
Total future
minimum lease obligation
|
18,684,000
|
|
Less imputed
interest on finance lease obligations
|
(5,585,000
)
|
|
Net present
value of lease finance lease obligations
|
$
13,099,000
|
The
Company rents a portion of its space on a month-to-month term
basis, which requires a 30-day notice for termination. On January
3, 2020, the Company notified the tenant of the sublet property of
its intention to terminate the sublease effective April 30, 2020
since this space is needed to
prepare
the
facility to produce Multikine for commercial purposes and before
the Company’s Biologics License Application (BLA) can be
submitted to the FDA.
The rental income for each of the six
months ended March 31, 2020 and 2019 was approximately $37,000 and
$36,000, respectively.
The sublease
rental income for each of the three months ended March 31, 2020 and
2019 was approximately $18,000.
The
Company leases two facilities under 60-month operating leases
– the lease for its research and development laboratory
expires February 28, 2022 and the lease for its office headquarters
expires June 30, 2020. During the six months ended March 31, 2020,
the Company incurred approximately $80,000 in leasehold
improvements costs for the research and development lab and is
reasonably certain to renew the lease through February 28, 2027.
The renewal period is included in the right of use asset and
liability calculations. The operating leases include escalating
rental payments. The Company is recognizing the related rent
expense on a straight-line basis over the full 60-month terms of
the leases.
Upon adoption of ASC 842
on October 1, 2019, the Company recorded an operating lease right
of use asset and an operating lease liability of approximately $1.0
million. As of March 31, 2020, the net book value of the operating
lease right of use asset is approximately $0.9 million and the
balance of the operating lease liability is approximately $0.9
million, of which approximately $0.1 million is current. The
Company incurred lease expense under operating leases of
approximately $135,000 and $68,000 for the six and three months
ended March 31, 2020, respectively. Total cash paid related to
operating leases during the six and three months ended March 31,
2020 was approximately $132,000 and $66,000,
respectively.
20
As of
March 31, 2020, future minimum lease payments on operating leases
are as follows:
|
Six months ending
September 30, 2020
|
$
107,000
|
|
Year ending
September 30,
|
|
|
2021
|
163,000
|
|
2022
|
168,000
|
|
2023
|
173,000
|
|
2024
|
178,000
|
|
2025
|
183,000
|
|
Thereafter
|
269,000
|
|
Total
future minimum lease obligation
|
1,241,000
|
|
Less
imputed interest on operating lease obligation
|
(317,000
)
|
|
Net
present value of operating lease obligation
|
$
924,000
|
G.
PATENTS
During
the six months ended March 31, 2020 and 2019, no patent impairment
charges were recorded. For the six months ended March 31, 2020 and
2019, amortization of patent costs totaled approximately $27,000
and $23,000, respectively. For the three months ended March 31,
2020 and 2019, amortization of patent costs totaled approximately
$14,000 and $11,000, respectively. Approximate estimated future
amortization expense is as follows:
|
Six months ending
September 30, 2020
|
$
26,000
|
|
Year ending
September 30,
|
|
|
2021
|
50,000
|
|
2022
|
46,000
|
|
2023
|
36,000
|
|
2024
|
28,000
|
|
2025
|
25,000
|
|
Thereafter
|
101,000
|
|
Total
|
$
312,000
|
H.
LOSS
PER COMMON SHARE
The
following tables provide the details of the basic and diluted loss
per-share computations:
|
|
Six months ended March 31,
|
Three months ended March 31,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Loss per share - basic
|
|
|
|
|
|
Net
loss available to common shareholders - basic
|
$
(14,508,512
)
|
$
(5,201,779
)
|
$
(9,033,352
)
|
$
(6,447,681
)
|
|
Weighted
average shares outstanding - basic
|
35,621,711
|
28,543,417
|
36,165,050
|
29,113,910
|
|
Basic
loss per common share
|
$
(0.41
)
|
$
(0.18
)
|
$
(0.25
)
|
$
(0.22
)
|
|
|
|
|
|
|
|
Loss per share - diluted
|
|
|
|
|
|
Net
loss available to common shareholders - basic
|
$
(14,508,512
)
|
$
(5,201,779
)
|
$
(9,033,352
)
|
$
(6,447,681
)
|
|
Gain on derivatives
(1)
|
-
|
(335,560
)
|
-
|
-
|
|
Net
loss available to common shareholders - diluted
|
$
(14,508,512
)
|
$
(5,537,339
)
|
$
(9,033,352
)
|
$
(6,447,681
)
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic
|
35,621,711
|
28,543,417
|
36,165,050
|
29,113,910
|
|
Incremental shares underlying dilutive "in the
money" warrants
(1)
|
-
|
5,401
|
-
|
-
|
|
Weighted
average shares outstanding - diluted
|
35,621,711
|
28,548,818
|
36,165,050
|
29,113,910
|
|
Diluted
loss per common share
|
$
(0.41
)
|
$
(0.19
)
|
$
(0.25
)
|
$
(0.22
)
|
(1)
Includes shares issuable upon the exercise of the Series GG, II and
KK warrants for the six months ended March 31, 2019.
21
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 March 31:
|
|
2020
|
2019
|
|
|
|
|
|
Options
and Warrants
|
6,452,645
|
10,576,881
|
|
Unvested
Restricted Stock
|
318,798
|
308,500
|
|
Total
|
6,771,443
|
10,885,381
|
J.
SUBSEQUENT
EVENTS
On
April 6, 2020, the Company agreed to issue Ergomed 100,000
restricted shares of the Company’s common stock in payment of
amounts the Company may owe Ergomed for providing services to the
Company.
Under
the terms of the March 2020
Underwriting Agreement the Company granted the Underwriters a
45-day option to purchase up to an additional 94,575 shares of
common stock solely to cover over-allotments. The underwriter fully
exercised this option on May 4, 2020 resulting in additional net
proceeds to the Company of approximately $1.1
million.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 by the regulators in twenty-four countries around
the world, including the U.S.
Multikine
(Leukocyte Interleukin, Injection) is the full name of this
investigational therapy, which, for simplicity, is referred to in
this report as Multikine. Multikine is the trademark that the
Company has registered for this investigational therapy, and this
proprietary name is subject to FDA review under the Company’s
future anticipated regulatory submission for approval. Multikine
has not been licensed or approved by the FDA or any other
regulatory agency. Neither has its safety or efficacy been
established for any use.
The
Company also owns and is developing a pre-clinical technology
called LEAPS (Ligand Epitope Antigen Presentation
System).
All the
Company’s projects are under development. Consequently, the
Company cannot predict when it will be able to generate any revenue
from the sale of any of its products.
Since
inception, the Company has financed its operations through the sale
of equity securities, convertible notes, loans and certain research
grants. The Company’s expenses will continue to exceed its
revenues as it continues the development of Multikine and brings
other drug candidates into clinical trials. Until the Company
becomes profitable, any or all of these financing vehicles or
others may be utilized to assist in funding the Company’s
capital requirements.
Capital
raised by the Company has been expended primarily for patent
applications, research and development, administrative costs, and
the construction of the Company’s manufacturing and
laboratory facilities. The Company does not anticipate realizing
significant revenues until it enters into licensing arrangements
for its technology and know-how or until it receives regulatory
approval to sell its products (which could take several years).
Thus, the Company has been dependent upon the proceeds from the
sale of its securities to meet all its liquidity and capital
requirements and anticipates having to do so in the
future.
22
The
Company will be required to raise additional capital or find
additional long-term financing to continue with its research
efforts. The ability to raise capital may be dependent upon market
conditions that are outside the control of the Company. The ability
of the Company to complete the necessary clinical trials and obtain
FDA approval for the sale of products to be developed on a
commercial basis is uncertain. Ultimately, the Company must
complete the development of its products, obtain the appropriate
regulatory approvals and obtain sufficient revenues to support its
cost structure. The Company 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.
Since the Company launched its Phase 3 clinical trial for
Multikine, the Company has incurred expenses of approximately $58
million as of March 31, 2020 on direct costs for the Phase 3
clinical trial. The Company estimates it will incur additional
expenses of approximately $3.2 million for the remainder of the
Phase 3 clinical trial. It should be noted that this estimate is
based only on the information currently available in the
Company’s contracts with the Clinical Research Organizations
responsible for managing the Phase 3 clinical trial and does not
include other related costs, e.g., the manufacturing of the drug.
This number may be affected by the 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.
The
Company uses two CRO’s to manage the global Phase 3 study;
ICON and Ergomed, which are both international leaders in managing
oncology trials. As of September 2016, the study was fully enrolled
with 928 patients.
Under a
co-development agreement, Ergomed agreed to contribute up to $12
million towards the study where it will perform clinical services
in exchange for a single digit percentage of milestone and royalty
payments, up to a specified maximum amount. Approximately $11
million of these credits were realized as of March 31,
2020.
During
the six months ended March 31, 2020, the Company’s cash
increased by approximately $5.9 million. Significant
components of this increase include approximately $12.9 million in
net proceeds from the sale of common stock through public offerings
and approximately $2.1 million in proceeds from the exercise of
warrants and options, offset by net cash used to fund the
Company’s regular operations, including its Phase 3 clinical
trial, of approximately $8.0 million, approximately $0.8 million of
equipment and leasehold improvement expenditures and approximately
$0.4 million in lease payments. During the six months ended March
31, 2019, the Company’s cash decreased by approximately $4.8
million. Significant components of this decrease include net
cash used to fund the Company’s regular operations, including
its Phase 3 clinical trial, of approximately $7.8 million and
approximately $0.2 million to purchase long term assets. The
decrease was offset by net proceeds from the exercise of warrants
of approximately $3.3 million.
During the six months ended March 31, 2020, 695,000 warrants were
exercised at a weighted average exercise price of $2.98 for total
proceeds of approximately $2.1 million
.
These exercises include 562,100 warrants exercised
during three months ended March 31, 2020 for proceeds of
approximately $1.8 million. During the six months ended March 31,
2019, 1,822,615 warrants were exercised at a weighted average
exercise price of $1.81 for proceeds of approximately $3.3 million.
These exercises include 1,523,933 warrants exercised during the
three months ended March 31, 2019 for proceeds of approximately
$2.7 million.
The
Company has entered into Securities Purchase Agreements with
Ergomed plc, one of the Company’s Clinical Research
Organizations responsible for managing the Company’s Phase 3
clinical trial, to facilitate a payment of amounts due Ergomed.
Under the Agreements, the Company issued Ergomed shares of common
stock and the net proceeds from the sales of those shares would
reduce outstanding amounts due Ergomed. Upon issuance, the Company
expenses the full value of the shares as Other non-operating loss
and subsequently offsets the expense as amounts are realized
through the sale of the Company’s shares by Ergomed and
reduces accounts payable to Ergomed. During the six months ended
March 31, 2020 and 2019, the Company realized approximately $1.7
million through the sale by Ergomed of 177,750 and 545,324 shares
of the Company’s common stock, respectively, and the Company
reduced accounts payable to Ergomed and credited Other operating
gains by those amounts. For more information regarding the SPAs
refer to Item 4 under Note C above.
23
Current assets other than cash, remained constant at March 31, 2020
as compared to September 30, 2019. Receivables consist primarily of
amounts due from the Company’s partners for reimbursed
clinical study costs related to its Phase 3 clinical trial and
amounts to be reimbursed for costs related to its Small Business
Innovation Research (SBIR) grant. Prepaid expenses at March 31,
2020 were approximately $40,000 higher than the balances at
September 30, 2019 due to the timing of payments and recognition of
related expenses.
Supplies are purchased for use in the Company’s manufacturing
and R&D efforts and vary with the study requirements. During
the six months ended March 31, 2020, the supplies increased by
approximately $67,000 in support of the work on modifications of
the manufacturing facility to prepare the facility to produce
Multikine for commercial purposes and before the Company’s
Biologics License Application (BLA) can be submitted to the
FDA.
Results of Operations and Financial Condition
During
the six months ended March 31, 2020, research and development
expenses increased by approximately $2.3 million, or 36%, compared
to the six months ended March 31, 2019. Major components of this
increase include approximately $1.2 million of costs incurred to
prepare the manufacturing facility for the potential commercial
manufacture of Multikine, $1.1 million increase in employee stock
compensation expense, $0.5 million increase in depreciation expense
resulting from the adoption of the new leasing standard and an
increase in approximately $0.2 million in other miscellaneous
research and development expenses. These increases were offset by a
decrease of approximately $0.7 million in expenses related to the
Company’s on-going Phase 3 clinical trial. During the three
months ended March 31, 2020, research and development expenses
increased by approximately $1.6 million, or 55%, compared to the
three months ended March 31, 2019. Major components of this
increase include approximately $0.6 million of costs incurred to
prepare the manufacturing facility for the potential commercial
manufacture of Multikine, $0.5 million increase in employee stock
compensation expense, $0.3 million increase in depreciation expense
resulting from adoption of the new leasing standard and an increase
in approximately $0.2 million in other miscellaneous research and
development expenses.
During
the six months ended March 31, 2020, general and administrative
expenses increased by approximately $1.9 million, or 57%, compared
to the six months ended March 31, 2019. Approximately $1.4 million
of the change relates to an increase in employee stock compensation
expense. The remaining increase consists of approximately $0.5
million in net other general and administrative account variations.
During the three months ended March 31, 2020, general and
administrative expenses increased by approximately $0.9 million, or
58%, compared to the three months ended March 31, 2019.
Approximately $0.7 million of the change relates to an increase in
employee stock compensation expense. The remaining increase
consists of approximately $0.2 million in net other general and
administrative account variations.
The
approximate $2.3 million loss on derivative instruments for the six
months ended March 31, 2020 varies significantly from the
approximate $4.6 million gain on derivative instruments for the six
months ended March 31, 2019. The variance is the result of the
change in fair value of the derivative liabilities at the
respective period ends. These changes were caused mainly by
fluctuation in the share price of the Company’s common
stock.
Other
non-operating gain increased $1.3 million for the six months ended
March 31, 2020 as compared to the six months ended March 31, 2019.
This gain relates to the SPA described in Item 4 under Note C. The
amount of the gain or loss is a result of the timing of shares
issued to Ergomed and the subsequent re-sale of those shares.
During each of the six-month periods ended March 31, 2020 and 2019,
the Company realized approximately $1.7 million in value upon the
resale of shares. Additionally, during the six months ended March
31, 2019, the Company issued 500,000 shares to Ergomed and recorded
a non-operating loss equal to the fair value of those shares of
approximately $1.3 million.
Net
interest expense decreased by approximately $0.4 million for the
six months ended March 31, 2020 compared to the six months ended
March 31, 2019 and decreased by approximately $0.2 million for the
three months ended March 31, 2020 compared to the three months
ended March 31, 2019 The decrease is due to a reduction in the
interest rate applied to the Company’s finance leases that
were re-measured in connection with the adoption of ASC 842,
Leases,
effective October
1, 2019.
24
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.
|
|
Six months ended March 31,
|
Three months ended March
31,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
MULTIKINE
|
$
7,847,763
|
$
5,839,245
|
$
3,891,319
|
$
2,588,967
|
|
LEAPS
|
751,197
|
465,015
|
511,028
|
243,579
|
|
TOTAL
|
$
8,598,960
|
$
6,304,260
|
$
4,402,347
|
$
2,832,546
|
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 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/A for the year ended September 30, 2019. 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 March 31, 2020. 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. Due to the
material weakness outlined below, CEL-SCI’s Chief Executive
and Principal Financial and Accounting Officer has concluded that
CEL-SCI’s disclosure controls and procedures were not
effective as of March 31, 2020.
25
Management’s Report on Internal Control over Financial
Reporting
CEL-SCI’s
management is responsible for establishing and maintaining adequate
internal control over financial reporting and for the assessment of
the effectiveness of internal control over financial reporting. As
defined by the Securities and Exchange Commission, internal control
over financial reporting is a process designed by, or under the
supervision of CEL-SCI’s Chief Executive and Principal
Financial and Accounting Officer and implemented by CEL-SCI’s
Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of CEL-SCI’s financial
statements in accordance with U.S. generally accepted accounting
principles.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Geert
Kersten, CEL-SCI’s Chief Executive and Principal Financial
and Accounting Officer, evaluated the effectiveness of
CEL-SCI’s internal control over financial reporting as of
March 31, 2020 based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or the COSO Framework.
Management’s assessment included an evaluation of the design
of CEL-SCI’s internal control over financial reporting and
testing of the operational effectiveness of those
controls.
On
December 20, 2019, CEL-SCI discovered an error in the EDGAR filed
Form 10-K report. The Company’s complete Statements of Cash
Flows for the years ended September 30, 2019 and 2018 were not
included, in their entirety, in the EDGAR filed Form 10-K report
filed on December 16, 2019 with the SEC. However, the entire
Statements of Cash Flows were included in the Interactive Data
Files (“XBRL”) which were filed on December 16, 2019.
The omission of the Statements of Cash Flows was the result of a
failure of the Company to perform an adequate review of the EDGAR
Form 10-K proof to ensure that the filing was accurate and
complete. The failure of the Company to perform an adequate review
of the EDGAR Form 10-K proof is a control deficiency that
constitutes a material weakness.
To
remediate this material weakness, the Company will change certain
control activities to include the following:
●
The
Company will compare the final EDGAR proofs with the Company
reports that are provided to the EDGAR filing service to ensure
that the EDGAR proofs are accurate and complete.
Based
on the evaluation of CEL-SCI’s internal control over
financial reporting as of March 31, 2020, and the material weakness
identified above, Mr. Kersten concluded that as of such date,
CEL-SCI's internal control over financial reporting was not
effective.
Changes in Internal Control over Financial Reporting
Other
than the improvement noted in the preceding section, there were no
other changes in the Company’s internal control over
financial reporting that occurred during the quarter ended March
31, 2020 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over
financial reporting
26
PART II
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
During
the six months ended March 31, 2020 the Company issued 32,939
restricted shares of common stock to consultants for investor
relations services.
The
Company relied upon the exemption provided by Section 4(a)(2) of
the Securities Act of 1933 with respect to the issuance of these
shares. The individuals who acquired these shares were
sophisticated investors and were provided full information
regarding the Company’s business and operations. There was no
general solicitation in connection with the offer or sale of these
securities. The individuals who acquired these shares acquired them
for their own accounts. The certificates representing these shares
bear a restricted legend which provides they cannot be sold except
pursuant to an effective registration statement or an exemption
from registration. No commission or other form of remuneration was
given to any person in connection with the issuance of these
shares.
Item
6.
Exhibits
Number
Exhibit
Rule 13a-14(a)
Certifications
Section 1350
Certifications
27
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
CEL-SCI
CORPORATION
|
|
|
|
|
|
|
|
|
Date:
May 8, 2020
|
By:
|
/s/
Geert
Kersten
|
|
|
|
|
Geert
Kersten
|
|
|
|
|
Principal
Executive Officer*
|
|
* Also
signing in the capacity of the Principal Accounting and Financial
Officer.
28
TABLE OF CONTENTS
Part I Financial InformationItem 1. PageItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations 22Item 3. Quantitative and Qualitative Disclosures About Market Risks 25Item 4. Controls and Procedures 25Part IIItem 2. Unregistered Sales Of Equity Securities and Use Of Proceeds 27Item 6. Exhibits 27Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RisksItem 4. Controls and ProceduresItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits