NOTES
TO FINANCIAL STATEMENTS
CEL-SCI Corporation
(the Company) was incorporated on March 22, 1983, in the state of
Colorado, to finance research and development in biomedical science
and ultimately to engage in marketing and selling
products.
CEL-SCI is focused
on finding the best way to activate the immune system to fight
cancer and infectious diseases. The Company’s lead
investigational therapy, Multikine (Leukocyte Interleukin,
Injection), is currently in a Phase 3 clinical trial as a potential
therapeutic agent directed at using the immune system to produce an
anti-tumor immune response for advanced primary head and neck
cancer. Data from Phase 1 and Phase 2 clinical trials suggest
Multikine has the potential to directly affect tumor cells. These
data also indicate that it appears to activate the patient’s
own anti-tumor immune response. Multikine (Leukocyte Interleukin,
Injection) is the full name of this investigational therapy, which,
for simplicity, is referred to in the remainder of this document 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. Further research is required, and
early-phase clinical trial results must be confirmed in the Phase 3
clinical trial of this investigational therapy that is in progress
and that is currently subject to a clinical hold on enrollment of
additional new patients.
Multikine has been
cleared by the regulators in twenty four countries around the
world, including the U.S. FDA, for a global Phase 3 clinical trial
in advanced primary (not yet treated) head and neck cancer
patients. On September 26, 2016, the Company received verbal notice
from the FDA that the Phase 3 clinical trial has been placed on
clinical hold.
The FDA’s partial
clinical hold letter identified the following specific
deficiencies: there is an unreasonable and significant risk of
illness or injury to human subjects; the investigator brochure is
misleading, erroneous, and materially incomplete; and that the plan
or protocol is deficient in design to meet its stated
objectives.
Pursuant to this communication from FDA,
patients currently receiving study treatments could continue to
receive treatment, and patients already enrolled in the study would
continue to be followed, but no additional patients could be
enrolled. On October 21, 2016, the Company announced it had
received the Partial Clinical Hold letter from the FDA. On November
21, 2016, the Company announced it has submitted what it believes
to be a complete response to the FDA
.
On December 8, 2016, the FDA advised CEL-SCI that the agency was
denying CEL-SCI’s request for a meeting at this time because
FDA’s review of CEL-SCI’s November 17, 2016 response
was ongoing. CEL-SCI was also advised that it will be receiving a
letter addressing CEL-SCI’s response by December 18,
2016.
Multikine is also
being used in a Phase 1 study at the University of California, San
Francisco (UCSF) in HIV/HPV co-infected men and women with
peri-anal warts.
2
.
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 and preferred stock.
The
Company is currently running a large multi-national Phase 3
clinical trial for head and neck cancer. The Company believes that
it has enough capital to support its operations as it believes that
it has ready access to new equity capital should the need arise.
During fiscal year 2016, the Company raised approximately $21.4
million in net proceeds through the sale of common stock and
warrants from public and private offerings. During fiscal year
2015, the Company raised $21.1 million net proceeds from public
offerings. To finance the study beyond the next 12 months, the
Company plans to raise additional capital in the form of corporate
partnerships, debt and/or equity financings. In addition, the
Company expects to receive proceeds from the arbitration against
its former clinical research organization, inVentiv. 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 or that funds will be
available to the Company on acceptable terms or at all. If
the Company does not raise the necessary capital, the Company 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 financial statements have been
prepared assuming that the Company will continue as a going
concern, but due to the Company’s future liquidity needs,
history of net losses, and the expectation that the Company will
incur losses for the foreseeable future, 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 $34.5 million as of September 30,
2016 on direct costs for the Phase 3 clinical trial.
T
he
total remaining cash cost of the Phase 3 clinical trial, excluding
any costs that will be paid by CEL-SCI's partners, would be
approximately $12.1 million after September 30, 2016. This ís
based on the executed contract costs with the CROs only and does
not include other related costs, e.g. the manufacturing of the
drug. 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. 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.
On
September 26, 2016, the Company received verbal notice from the FDA
that the Phase 3 clinical trial has been placed on clinical hold.
Pursuant to this communication from FDA, patients currently
receiving study treatments could continue to receive treatment, and
patients already enrolled in the study would continue to be
followed, but no additional patients could be enrolled. On October
21, 2016, the Company announced it had received the Partial
Clinical Hold letter from the FDA. On November 21, 2016, the
Company announced it has submitted a complete response to the FDA
and will work diligently with the FDA to seek to have the partial
clinical hold lifted.
3.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
– For
purposes of the statements of cash flows, cash and cash equivalents
consist principally of unrestricted cash on deposit and short-term
money market funds. The Company considers all highly liquid
investments with a maturity when purchased of less than three
months as cash and cash equivalents.
Prepaid Expenses
– Prepaid
expenses are payments for future services to be rendered and are
expensed over the time period for which the service is rendered.
Prepaid expenses may also include payment for goods to be received
within one year of the payment date.
Inventory
– Inventory consists of
manufacturing production advances and bulk purchases of laboratory
supplies to be consumed in the manufacturing of the Company’s
product for clinical studies. Inventories are stated at the lower
of cost or market, where cost is determined using the first-in,
first out method applied on a consistent basis.
Deposits
– The deposits are
required by the lease agreement for the manufacturing facility and
by the clinical research organization (CRO)
agreements.
Research and Office Equipment
–
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 assess impairment, if any.
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 to 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
disposition, are 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.
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.
Derivative Instruments
- The Company
has entered into financing arrangements that consist of
freestanding derivative instruments that contain embedded
derivative features, specifically, the settlement provisions in the
warrant agreements preclude the warrants from being treated as
equity. 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 on 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 reporting
period as long as they are outstanding.
Grant Income
– The Company's
grant arrangements are handled on a reimbursement basis. Grant
income under the arrangements is recognized when costs are
incurred.
Research and Development Costs
–
Research and development expenditures are expensed as
incurred.
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.
Net Loss Per Common Share
– The
Company calculates net loss per common share in accordance with ASC
260 “Earnings Per Share” (ASC 260). Basic and diluted
net loss per common share was determined by dividing net loss
applicable to common shareholders by the weighted average number of
common shares outstanding during the period. The Company’s
potentially dilutive shares, which include outstanding common stock
options, restricted stock units, convertible preferred stock and
common stock warrants, have not been included in the computation of
diluted net loss per share for all periods as the result would be
anti-dilutive.
Concentration of Credit Risk
–
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist of cash and cash
equivalents. The Company maintains its cash and cash
equivalents with high quality financial institutions. At
times, these accounts may exceed federally insured limits.
The Company has not experienced any losses in such bank
accounts. The Company believes it is not exposed to
significant credit risk related to cash and cash equivalents. All
non-interest bearing cash balances were fully insured up to
$250,000 at September 30, 2016.
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 September 30, 2016 and 2015.
Use of Estimates
– The
preparation of financial statements in conformity U.S. GAAP
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and the
accompanying disclosures.
These
estimates are based on management’s best knowledge of current
events and actions the Company may undertake in the future.
Estimates are used in accounting for, among other items, inventory
obsolescence, accruals, stock options, useful lives for
depreciation and amortization of long-lived assets, deferred tax
assets and the related valuation allowance, and the valuation of
derivative liabilities.
Actual results could differ from
estimates, although management does not generally believe such
differences would materially affect the financial statements in any
given year. However, in regard to the valuation of derivative
liabilities determined using various valuation techniques including
the Black-Scholes and binomial pricing methodologies, significant
fluctuations may materially affect the financial statements in a
given year. The Company considers such valuations to be significant
estimates.
Fair Value Measurements
– The
Company evaluates financial assets and liabilities subject to fair
value measurements in accordance with a fair value hierarchy to
prioritize the inputs used to measure fair value. A financial
instrument’s level within the fair value hierarchy is based
on the lowest level of input significant to the fair value
measurement, where Level 1 is the highest and Level 3 is the
lowest. See Note 12 for the definition of levels and the
classification of assets and liabilities in those
levels.
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 may be measured using the Black-Scholes valuation
model, based on the type of award. 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 Options 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
Company’s stockholders.
The Company’s
stock options are not transferable, and the actual value of the
stock options that an employee may realize, if any, will depend on
the excess of the market price on the date of exercise over the
exercise price. The Company has based its assumption for stock
price volatility on the variance of daily closing prices of the
Company’s stock. The risk-free interest rate assumption was
based on the U.S. Treasury rate at date of the grant with 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 or market conditions and meets the
classification of equity awards. These awards were measured at fair
market value on the grant-dates for issuances where the attainment
of performance criteria is probable 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.
Reclassification
– Certain prior
year items have been reclassified to conform to the current year
presentation.
Recent Accounting
Pronouncements
–
In May 2014, the FASB issued
Accounting Standards Update (ASU) 2014-09,
Revenue from Contracts with
Customers (Topic 606)
that will
supersede virtually all recognition guidance in US GAAP. For public
entities, the guidance is effective for annual and interim periods
beginning after December 15, 2017. Early adoption is permitted for
all entities for annual and interim periods beginning after
December 15, 2016. The FASB issued the following ASUs to amend the
new guidance: ASU 2015-14,
Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date,
ASU 2016-08,
Revenue from Contracts with
Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross versus Net),
ASU 2016-10
, Revenue from Contracts with
Customers (Topic 606): Identifying Performance Obligations and
Licensing, and
ASU
2016-12
,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients.
Management does not expect the new standard or any
of the related updates to have a material effect on its financial
statements and related disclosures.
In January 2016, the FASB issued Accounting
Standards Update (ASU) No. 2016-01,
Financial Instruments –
Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities.
The new guidance is intended to improve the
recognition and measurement of financial instruments. The new
guidance is effective for fiscal years beginning after December 15,
2017, including interim periods within those fiscal years. Early
adoption is permitted for specific provisions within the guidance.
Management does not expect the new standard to have a material
effect on its financial statements and related
disclosures.
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.
In March 2016, the FASB issued ASU No.
2016-09,
Compensation - Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting.
ASU 2016-09
simplifies several aspects of the accounting for share-based
payment award transactions, including income tax consequences,
classification of awards as either equity or liabilities and
classification on the statement of cash flows. The new standard
will be effective for annual and interim periods, within those
fiscal years, beginning after December 15, 2016 but early adoption
is permitted. The Company is currently evaluating the effect of the
new amendment on its financial statements and related
disclosures.
In August 2016, the
FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments. ASU
2016-15 amends eight specific cash flow issues: 1.) Debt Prepayment
or Debt Extinguishment Costs, 2.) Settlement of Zero-Coupon Debt
Instruments or Other Debt Instruments with Coupon Interest Rates
That Are Insignificant in Relation to the Effective Interest Rate
of the Borrowing, 3.) Contingent Consideration Payments Made after
a Business Combination, 4.) Proceeds from the Settlement of
Insurance Claims, 5.) Proceeds from the Settlement of
Corporate-Owned Life Insurance Policies, including Bank-Owned Life
Insurance Policies, 6.) Distributions Received from Equity Method
Investees, 7.) Beneficial Interests in Securitization Transactions,
8.) Separately Identifiable Cash Flows and Application of the
Predominance Principle. Management does not expect the adoption of
the amendments in this Update to have a material effect on its
financial statements and related disclosures.
In November 2016,
the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash. ASU 2016-18 requires that a statement of cash
flows explain the change during the period in the total of cash,
cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. Therefore, amounts generally
described as restricted cash and restricted cash equivalents should
be included with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. The amendments in this Update are
effective for public business entities for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal
years. Management does not expect the adoption of the amendments in
this Update to have a material effect on its financial statements
and related disclosures.
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.
4.
WARRANTS AND
NON-EMPLOYEE OPTIONS
The following chart
represents the warrants and non-employee options outstanding at
September 30, 2016:
Warrant
|
|
Issue
Date
|
Shares Issuable upon Exercise of
Warrant
|
Exercise Price
|
Expiration
Date
|
Refer-ence
|
|
|
|
|
|
|
|
Series
R
|
|
12/6/12
|
105,000
|
$
100,00
|
12/6/16
|
1
|
Series
S
|
|
10/11/13
-10/24/14
|
1,037,120
|
$
31.25
|
10/11/18
|
1
|
Series
U
|
|
4/17/14
|
17,821
|
$
43.75
|
10/17/17
|
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
|
2
|
Series
Y
|
|
2/15/16
|
26,000
|
$
12.00
|
2/15/21
|
2
|
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
AA
|
|
8/26/16
|
200,000
|
$
13.75
|
2/22/22
|
1
|
Series
BB
|
|
8/26/16
|
16,000
|
$
13.75
|
8/22/21
|
1
|
Series
N
|
|
8/18/08
|
113,785
|
$
13.18
|
8/18/17
|
2
|
Series
P
|
|
2/10/12
|
23,600
|
$
112.50
|
3/6/17
|
2
|
Consultants
|
|
12/2/11-
7/1/16
|
25,600
|
$
9.25- $87.50
|
10/27/16-
6/30/19
|
3
|
The following chart
represents the warrants and non-employee options outstanding at
September 30, 2015:
Warrants
|
|
Issue
Date
|
Shares Issuable upon Exercise of
Warrants
|
Exercise Price
|
Expiration
Date
|
Refer-ence
|
|
|
|
|
|
|
|
Series
N
|
|
8/18/08
|
113,785
|
$
13.18
|
8/18/17
|
1
|
Series
Q
|
|
6/21/12
|
48,000
|
$
125.00
|
12/22/15
|
1
|
Series
R
|
|
12/6/12
|
105,000
|
$
100.00
|
12/6/16
|
1
|
Series
S
|
|
10/11/13-
10/24/14
|
1,037,120
|
$
31.25
|
10/11/18
|
1
|
Series
U
|
|
4/17/14
|
17,821
|
$
43.75
|
10/17/17
|
1
|
Series
V
|
|
5/28/15
|
810,127
|
$
19.75
|
5/28/20
|
1
|
Series
P
|
|
2/10/12
|
23,600
|
$
112.50
|
3/6/17
|
2
|
Consultants
|
|
10/14/05 –
7/1/15
|
9,520
|
$
16.50 – $500.00
|
10/14/15 -
6/30/18
|
3
|
The table below
presents the warrants accounted for as derivative liabilities at
September 30.
|
2016
|
2015
|
Series S
warrants
|
$
3,111,361
|
$
7,363,555
|
Series U
warrants
|
-
|
44,551
|
Series V
warrants
|
1,620,253
|
6,278,481
|
Series W
warrants
|
1,799,858
|
-
|
Series Z
warrants
|
970,604
|
-
|
Series ZZ
warrants
|
70,609
|
-
|
Series AA
warrants
|
763,661
|
-
|
Series BB
warrants
|
58,588
|
-
|
|
|
|
Total derivative
liabilities
|
$
8,394,934
|
$
13,686,587
|
The table below
presents the gains and (losses) on the warrant liabilities for the
years ended September 30:
|
2016
|
2015
|
2014
|
Series A -
E
|
$
-
|
$
6,105
|
$
1
|
Series F and
G
|
-
|
-
|
12,667
|
Series
H
|
-
|
12,000
|
24,000
|
Series
N
|
-
|
-
|
(1,404,027
)
|
Series
Q
|
-
|
12,000
|
36,000
|
Series
R
|
-
|
157,500
|
131,250
|
Series
S
|
4,252,193
|
(1,705,466
)
|
1,098,787
|
Series
T
|
-
|
-
|
276,122
|
Series
U
|
44,552
|
75,738
|
73,967
|
Series
V
|
4,658,228
|
1,724,739
|
-
|
Series
W
|
3,260,913
|
-
|
-
|
Series
Z
|
997,226
|
-
|
-
|
Series
ZZ
|
75,229
|
-
|
-
|
Series
AA
|
672,246
|
-
|
-
|
Series
BB
|
53,139
|
-
|
-
|
|
|
|
|
Net
gain
|
$
14,013,726
|
$
282,616
|
$
248,767
|
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 periods is recognized as a gain or loss in the statement
of operations.
Expired warrants
As of September 30,
2015, all Series A, B, C, E, F, G, H, and Q warrants had
expired.
Series R Warrants
On December 4,
2012, the Company sold 140,000 shares of its common
stock for $10,500,000, or $75.00 per share, in a
registered direct offering. The investors in this offering also
received Series R warrants which entitle the investors to purchase
up to 105,000 shares of the Company’s common
stock. The Series R warrants may be exercised at any time before
December 6, 2016 at a price of $100.00 per share. The
fair value at issuance of the warrants of $4.2 million was recorded
as a warrant liability.
Series S Warrants
On
October 11, 2013, the Company closed a public offering of
713,043 units of common stock and warrants at a price
of $25.00 per unit for net proceeds of approximately
$16.4 million, net of underwriting discounts and commissions and
offering expenses of the Company. Each unit consisted of one share
of common stock and one Series S warrant to purchase one share of
common stock. The Series S warrants were immediately exercisable,
expire on October 11, 2018, and have an exercise price of
$31.25. In November 2013, the underwriters purchased
an additional 105,957 warrants pursuant to the
overallotment option, for which the Company received net proceeds
of $24,370. The fair value at issuance of the Series S warrants of
$6.1 million was recorded as a warrant liability.
On
December 24, 2013, the Company closed a public offering of
190,476 units of common stock and warrants at a price
of $15.75 per unit for net proceeds of approximately
$2.8 million, net of underwriting discounts and commissions and
offering expenses of the Company. Each unit consisted of one share
of common stock and one Series S warrant to purchase one share of
common stock. The underwriters purchased an additional
19,048 units of common stock and warrants pursuant to
the overallotment option, for which the Company received net
proceeds of approximately $279,000. The fair value at issuance of
the Series S warrants of approximately $1.2 million was recorded as
a warrant liability. On February 7, 2014, the Series S warrants
began trading on the NYSE MKT under the symbol CVM WT.
On
October 24, 2014, the Company closed an underwritten public
offering of 315,789 shares of common stock and
78,947 Series S warrants to purchase shares of common
stock. Additionally, on October 21, 2014, the Company sold
52,800 shares of common stock and 13,200
Series S warrants to purchase shares of common stock in a private
offering. The common stock and Series S warrants were sold at a
combined per unit price of $19.00 for net proceeds of
approximately $6.4 million, net of underwriting discounts and
commissions and offering expenses. The fair value at issuance of
the Series S warrants of approximately $461,000 was added to the
existing Series S warrant liability.
During
the years ended September 30, 2016 and 2015, no Series S warrants
were exercised. During the year ended September 30, 2014,
83,551 Series S Warrants were exercised, and the
Company received proceeds of approximately $2.6
million.
Series T and U Warrants
On
April 17, 2014, the Company closed a public offering of
285,129 shares of common stock at a price of
$35.00 and 71,282 Series T warrants to
purchase one share of common stock for net proceeds of
approximately $9.2 million, net of underwriting commissions and
offering expenses. The Series T warrants were immediately
exercisable and had an exercise price of $39.50. On
October 17, 2014, all of the Series T warrants expired. The
underwriters received 17,821 Series U warrants to
purchase one share of common stock. The Series U warrants were
exercisable beginning October 17, 2014, expire on October 17, 2017,
and have an exercise price of $43.75. The fair value
at issuance of the Series T and U warrants of approximately
$470,000 was recorded as a warrant liability.
Series V Warrants
On May
28, 2015, the Company closed an underwritten public offering of
810,127 shares of common stock and
810,127 Series V warrants to purchase shares of common
stock. The common stock and Series V warrants were sold at a
combined per unit price of $19.75 for net proceeds of
approximately $14.7 million, net of underwriting discounts and
commissions and offering expenses. The Series V warrants were
immediately exercisable at a price of $19.75 and
expire on May 28, 2020. The fair value at issuance of the Series V
warrants of approximately $8.0 million was recorded as a warrant
liability.
Series W Warrants
On
October 28, 2015, the Company closed an underwritten public
offering of 688,930 shares of common stock and
688,930 Series W warrants to purchase shares of common
stock. The common stock and warrants were sold at a combined per
unit price of $16.75 for net proceeds of approximately
$10.5 million, net of underwriting discounts and commissions and
offering expenses. The Series W warrants are immediately
exercisable at a price of $16.75 and expire on October
28, 2020. The fair value at issuance of the Series W warrants of
approximately $5.1 million was recorded as warrant
liability.
Series Z and ZZ Warrants
On May
23, 2016, the Company closed a registered direct offering of
400,000 shares of common stock and
264,000 Series Z warrants to purchase shares of common
stock. The common stock and warrants were sold at a combined per
unit price of $12.50 for net proceeds of approximately
$4.6 million, net of placement agent’s commissions and
offering expenses. The Series Z warrants may be exercised at any
time on or after November 23, 2016 and on or before November 23,
2021 at a price of $13.75 per share. The Company also
issued 20,000 Series ZZ warrants to the placement
agent as part of its compensation. The Series ZZ warrants may be
exercised at any time on or after November 23, 2016 and on or
before May 18, 2021 at a price of $13.75 per share.
The fair value of the Series Z and Series ZZ warrants of
approximately $2.1 million on the date of issuance was recorded as
a warrant liability.
Series AA and BB Warrants
On August 26, 2016,
the Company closed a registered direct offering
of 400,000 shares of common stock and
200,000 Series AA warrants to purchase shares of
common stock. The common stock and warrants were sold at a combined
per unit price of $12.50 for proceeds of approximately
$4.5 million, net of placement agent’s commissions and
offering expenses. The series AA warrants may be exercised at any
time after February 22, 2017 and on or before February 22, 2022 at
a price of $13.75 per share. The Company also issued
16,000 Series BB warrants to the placement agent as
part of its compensation. The Series BB warrants may be exercised
at any time on or after February 22, 2017 and on or before August
22, 2021 at a price of $13.75 per share. The fair
value of the Series AA and Series BB warrants of approximately $1.5
million on the date of issuance was recorded as a warrant
liability.
Series X Warrants
In
January 2016, 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. The de Clara Trust is
controlled by Geert Kersten, the Company's Chief Executive Officer
and a director. Each Series X 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. The Series X warrants qualify for equity treatment in
accordance with ASC 815. The relative fair value of the warrants
was calculated to be approximately $417,000.
Series Y Warrants
On
February 15, 2016, the Company sold 52,000 shares of
its common stock and 26,000 Series Y warrants to a
private investor for $624,000. Each Series Y warrant allows the
holder to purchase one share of the Company's common stock at a
price of $12.00 per share at any time on or before
February 15, 2021. The Series Y warrants qualify for equity
treatment in accordance with ASC 815. The relative fair value on
the date of issuance of the warrants was calculated to be
approximately $144,000.
Series N Warrants
Series
N warrants were previously issued in connection with a financing.
On October 11, 2013 and December 24, 2013, in connection with
public offerings of common stock on those dates, the Company reset
the exercise price of the 20,751 outstanding Series N
warrants from $75.00 to $13.18 and issued
the Series N warrant holders 97,306 additional
warrants exercisable at $13.18, as required by the
warrant agreements. In January 2014, the Company offered the
investors the option to extend the Series N warrants by one year
and allow for cashless exercise in exchange for cancelling the
reset provision in the warrant agreement. One investor, holding
113,785 Series N warrants accepted this offer.
Accordingly, these warrants are no longer considered a derivative
liability due to the cancelation of the reset provision. The fair
value of the warrants on that date totaled approximately $1.3
million and was reclassified from derivative liabilities to
additional paid-in capital. On March 21, 2014, the other investor
exercised 4,272 Series N warrants. The Company
received cash proceeds of approximately $7,000 for 563
of the warrants exercised. The remaining 3,709
warrants were exercised in a cashless exercise. The fair value of
the warrants on the date of exercise was $137,000 and was
reclassified from derivative liabilities to additional paid-in
capital.
On
October 28, 2014, the outstanding 113,785 Series N
Warrants were transferred to the de Clara Trust, of which the
Company’s CEO, Geert Kersten, is the trustee and a
beneficiary. On June 29, 2015, the Company extended the expiration
date of the Series N warrants to August 18, 2017. The incremental
cost of this modification was approximately $475,000. The
modification was concurrent with the extinguishment and reissuance
of a note payable also held in the de Clara Trust, and was recorded
as a loss on debt extinguishment.
As of
September 30, 2016, the remaining 113,785 Series N
warrants entitle the holder to purchase one share of the Company's
common stock at a price of $13.18 per share at any
time prior to August 18, 2017. On September 30, 2016 and 2015, no
derivative liability was recorded because the warrants no longer
were considered a liability for accounting purposes.
Series L and Series M Warrants
Series
L and Series M warrants were previously issued in connection with a
financing. In April 2014, 1,000 Series L warrants,
with an exercise price of $187.50, expired. In April
2015, the remaining 2,800 of the Series L warrants,
which had been repriced to $62.50 in April 2013,
expired.
In
October 2013, the Company reduced the exercise prices of the Series
M warrants from $85.00 to $25.00 in
exchange for a reduction in the number of warrants from
24,000 to 20,000. The additional cost of
$76,991 was recorded as non-employee stock expense. In March 2014,
20,000 Series M warrants were exercised at a price of
$25.00, and the Company received proceeds of
$500,000.
Series P Warrants
On
February 10, 2012, the Company issued 23,600 Series P
warrants to purchase up to 23,600 shares of the
Company’s common stock at a price of $112.50 per
share as an inducement for the exercise of previously issued
warrants. The Series P warrants are exercisable at any time prior
to March 6, 2017.
3.
Options and Shares Issued to Consultants
The
Company typically enters into consulting arrangements in exchange
for common stock or stock options. During the years ended September
30, 2016 and 2015, the Company issued 49,953 and
29,599 shares of common stock, respectively, to
consultants, of which 31,360 and 7,200,
respectively, were restricted shares. Under these arrangements, the
common stock was issued with stock prices ranging between
$9.25 and $27.75 per share.
Additionally,
during the years ended September 30, 2016 and 2015, the Company
issued to consultants 16,400 and 3,600
options, respectively, to purchase common stock with exercise
prices ranging from $9.25 to $25.50 per
share and fair values ranging from $3.00 to
$12.50 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 years ended September 30, 2016 and 2015, the Company recorded
total expense of approximately $752,000 and $566,000, respectively,
relating to these consulting agreements. At September 30, 2016 and
2015, approximately $48,000 and $30,000, respectively, are included
in prepaid expenses. As of September 30, 2016, 25,600
options issued to consultants as payment for services remained
outstanding, 17,600 of which are fully vested, and all
of which were issued from the Non-Qualified Stock Option
plans.
5.
PLANT, PROPERTY AND EQUIPMENT
Plant,
property and equipment consisted of the following at
September 30:
|
2016
|
2015
|
Manufacturing
building
|
$
21,183,756
|
$
21,183,756
|
Research
equipment
|
3,158,633
|
3,268,757
|
Furniture and
equipment
|
133,499
|
141,347
|
Leasehold
improvements
|
131,910
|
131,910
|
|
24,607,798
|
24,725,770
|
|
|
|
Accumulated
depreciation and amortization
|
(7,256,962
)
|
(6,779,939
)
|
|
|
|
Net plant,
property and equipment
|
$
17,350,836
|
$
17,945,831
|
The Company
is not the legal owner of the manufacturing building, but is deemed
to be the owner for accounting purposes based on the accounting
guidance for build-to-suit leases. See Note 10, Commitments and
Contingencies – Lease Obligations for additional information.
As of September 30, 2016 and 2015, accumulated depreciation on the
manufacturing building is approximately $4.1 million and $3.5
million, respectively. Depreciation
expense for the years ended September 30, 2016, 2015 and 2014
totaled approximately $626,000, $680,000 and
$703,000, respectively. Depreciation expense
includes depreciation on the leased manufacturing building of
approximately $514,000, which is included in research and
development costs on the Statement of Operations. One asset
is recorded under capital lease with a net book value of $0 and
approximately $8,000 on September 30, 2016 and 2015, respectively.
Amortization of the capital lease asset is included in general and
administrative expenses on the Statements of
Operations.
Patents consisted
of the following at September 30:
|
2016
|
2015
|
|
|
|
Patents
|
$
1,528,610
|
$
1,525,791
|
Accumulated
amortization
|
(1,272,063.00
)
|
(1,234,227.00
)
|
|
|
|
Net
Patents
|
$
256,547
|
$
291,564
|
During the years
ended September 30, 2016, 2015 there was no impairment of patent
costs and a nominal impairment charge in 2014. Amortization expense
for the years ended September 30, 2016, 2015 and 2014 totaled
approximately $38,000, $40,000 and $43,000, respectively. The total
estimated future amortization is as follows:
Years ending September
30,
|
|
2017
|
$
37,000
|
2018
|
36,000
|
2019
|
35,000
|
2020
|
31,000
|
2021
|
28,000
|
Thereafter
|
90,000
|
|
$
257,000
|
At September 30,
2016 and 2015, the Company had federal net operating loss
carryforwards of approximately $170.8 million and
$156.8 million, respectively. The NOLs begin to expire
during the fiscal year ending September 30, 2019 and become fully
expired by the end of the fiscal year ended 2036. In addition, the
Company has a general business credit as a result of the credit for
increasing research activities (“R&D credit”) of
approximately $1.2 million at September 30, 2016 and 2015. The
R&D credit begins to expire during the fiscal year ending
September 30, 2020 and is fully expired during the fiscal year
ended 2029. Deferred taxes consisted of the following at September
30:
|
2016
|
2015
|
|
|
|
Net
operating loss carryforwards
|
$
64,366,000
|
$
61,363,000
|
|
|
|
R&D
credit
|
1,221,000
|
1,221,000
|
Stock-based
compensation
|
6,379,000
|
5,855,000
|
Capitalized
R&D
|
18,508,000
|
15,082,000
|
Vacation
and other
|
179,000
|
114,000
|
Loan
modification
|
-
|
57,000
|
|
|
|
Total
deferred tax assets
|
90,653 ,000
|
83,692,000
|
Fixed assets and intangibles
|
(49,000
)
|
(86,000
)
|
Total
deferred tax liabilities
|
(49,000
)
|
(86,000
)
|
Valuation
allowance
|
(90,604,000
)
|
(83,606,000
)
|
Net
deferred tax asset
|
$
-
|
$
-
|
In assessing the
realization of deferred tax assets, management considered whether
it was more likely than not that some, or all, of the deferred tax
asset will be realized. The ultimate realization of the deferred
tax assets is dependent upon the generation of future taxable
income. Management has considered the history of the
Company’s operating losses and believes that the realization
of the benefit of the deferred tax assets cannot be reasonably
assured. In addition, under Internal Revenue Code Section 382, the
Company’s ability to utilize these net operating loss
carryforwards may be limited or eliminated in the event of future
changes in ownership.
The Company has no
federal or state current or deferred tax expense or benefit. The
Company’s effective tax rate differs from the applicable
federal statutory tax rate. The reconciliation of these rates is as
follows at September 30:
|
2016
|
2015
|
2014
|
|
|
|
|
Federal
Rate
|
34.00
%
|
34.00
%
|
34.00
%
|
State
tax rate, net of federal benefit
|
3.92
|
5.12
|
5.15
|
State
tax rate change
|
(22.00
)
|
(0.15
)
|
0.93
|
Other
adjustments
|
(0.03
)
|
(0.21
)
|
0.00
|
Adjustment
to deferreds
|
0.00
|
0.00
|
19.13
|
Permanent
differences (1)
|
44.90
|
(0.71
)
|
(0.43
)
|
Change
in valuation allowance
|
(60.79
)
|
(38.05
)
|
(58.78
)
|
Effective
tax rate
|
0.00
%
|
0.00
%
|
0.00
%
|
(1)
The 2016 amount is for the most part due to the
approximate $14 million gain on derivative instruments
from the change in fair value of the Company’s warrant
liabilities during the period.
The Company applies
the provisions of ASC 740,
“Accounting for Uncertainty in Income
Taxes,”
which requires financial statement benefits to
be recognized for positions taken for tax return purposes when it
is more likely than not that the position will be sustained. The
Company has elected to reflect any tax penalties or interest
resulting from tax assessments on uncertain tax positions as a
component of tax expense. The Company has generated federal net
operating losses in tax years ending September 30, 1998 through
2015. These years remain open to examination by the major domestic
taxing jurisdictions to which the Company is subject.
The Company
recognized the following expenses for options issued or vested and
restricted stock awarded during the year:
|
Year
Ended September 30,
|
|
2016
|
2015
|
2014
|
Employees
|
$
2,113,433
|
$
5,105,827
|
$
3,958,637
|
Non-employees
|
$
751,651
|
$
565,915
|
$
771,946
|
Stock
Compensation is included in general and administrative
expenses. During the years ended September 30, 2016,
2015 and 2014, non-employee stock compensation excluded
approximately $48,000, $30,000 and $26,000, respectively, for
future services to be performed (Note 12).
During the years
ended September 30, the fair value of each option grant was
estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions.
|
2016
|
2015
|
2014
|
Expected stock
price volatility
|
75.58
– 80.9
%
|
73.38
– 86.19
%
|
72.81
– 86.87
%
|
Risk-free interest
rate
|
0.71
– 1.56
%
|
0.93
– 2.35
%
|
0.59
– 2.65
%
|
Expected life of
options
|
3.0 – 9.69 Years
|
3.0 – 9.76 Years
|
3.0
– 9.76 Years
|
Expected dividend
yield
|
-
|
-
|
-
|
Non-Qualified Stock Option
Plans
--At September 30, 2016, the Company has collectively
authorized the issuance of 387,200 shares of common
stock under its Non-Qualified Stock Option Plans. Options typically
vest over a three-year period and expire no later than ten years
after the grant date. Terms of the options are to be determined by
the Company’s Compensation Committee, which administers the
plans. The Company’s employees, directors, officers, and
consultants or advisors are eligible to be granted options under
the Non-Qualified Stock Option Plans.
Incentive Stock Option
Plans
--At September 30, 2016, the Company had collectively
authorized the issuance of 138,400 shares of common
stock under its Incentive Stock Option Plans. Options typically
vest over a three-year period and expire no later than ten years
after the grant date. Terms of the options were determined by the
Company’s Compensation Committee, which administers the
plans. Only the Company’s employees are eligible to be
granted options under the Incentive Stock Option
Plans.
Activity in the
Company’s Non-Qualified and Incentive Stock Option Plans for
the two years ended September 30, 2016 is summarized as
follows:
Non-Qualified and Incentive Stock Option Plans
|
Outstanding
|
Exercisable
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Ave
|
|
|
|
Ave
|
|
|
Number of
|
Weighted
Average
|
Remaining Contractual
|
Aggregate
Intrinsic
|
Number of
|
Weighted
Average
|
Remaining Contractual
|
Aggregate
Intrinsic
|
|
Shares
|
Exercise Price
|
Term (Years)
|
Value
|
Shares
|
Exercise Price
|
Term (Years)
|
Value
|
Outstanding
at October 1, 2014
|
273,246
|
$
74.50
|
6.55
|
$
3,600
|
137,755
|
$
85.00
|
5.49
|
$
3,600
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
46,134
|
$
62.00
|
|
|
Granted
(a)
|
35,748
|
$
16.50
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited
|
4,667
|
$
46.75
|
|
|
|
|
|
|
Expired
|
2,820
|
$
103.75
|
|
|
2,820
|
$
103.75
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2015
|
301,507
|
$
67.75
|
5.98
|
$
50
|
181,070
|
$
78.75
|
5.01
|
$
0
|
Vested
|
|
|
|
|
56,069
|
$
31.75
|
|
|
Granted
(b)
|
48,544
|
$
12.00
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited
|
2,240
|
$
21.50
|
|
|
|
|
|
|
Expired
|
4,240
|
$
145.00
|
|
|
4,240
|
$
145.00
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2016
|
343,571
|
$
59.25
|
5.35
|
$
0
|
232,898
|
$
66.25
|
4.76
|
$
0
|
(a)
Includes 90,000
stock options granted to consultants
(b)
Includes 410,000
stock options granted to consultants
A summary of the
status of the Company’s non-vested options for the two years
ended September 30, 2016 is presented below:
|
Number of
Options
|
Weighted Average
Grant Date
Fair Value
|
|
|
|
Unvested
at October 1, 2014
|
135,491
|
$
53.75
|
Vested
|
(46,134
)
|
|
Granted
|
35,748
|
|
Forfeited
|
(4,667
)
|
|
Unvested
at September 30, 2015
|
120,438
|
$
43.00
|
Vested
|
(56,069
)
|
|
Granted
|
48,544
|
|
Forfeited
|
(2,240
)
|
|
Unvested
at September 30, 2016
|
110,673
|
$
37.00
|
Incentive Stock Bonus Plan
-- On
July 22, 2014 the Company's shareholders approved the 2014
Incentive Stock Bonus Plan, authorizing the issuance of up to
640,000 shares in the Company’s Incentive Stock
Bonus Plan. The shares will only be earned upon the achievement of
certain milestones leading to the commercialization of the
Company’s Multikine technology, or specified increases in the
market price of the Company’s stock. If the performance or
market criteria are not met as specified in the Incentive Stock
Bonus Plan, all or a portion of the awarded shares will be
forfeited. The fair value of the shares on the grant date was
calculated using the market value on the grant-date for issuances
where the attainment of performance criteria is likely and using a
Monte Carlo simulation for issuances where the attainment of
performance criteria is uncertain. The grant date fair value of
shares issued that remain outstanding as of September 30, 2016 is
approximately $8.6 million. The total value of the shares, if
earned, is being expensed over the requisite service periods for
each milestone, provided the requisite service periods are
rendered, regardless of whether the market conditions are met. No
compensation cost is recognized for awards where the requisite
service period is not rendered. During the years ended September
30, 2016 and 2015, the Company recorded expense relating to the
issuance of restricted stock pursuant to the plan of approximately
$634,000 and $3.4 million, respectively. At September 30, 2016, the
Company has unrecognized compensation expense of approximately $3.1
million which is expected to be recognized over a weighted average
period of 5.03 years.
A summary of the
status of the Company’s restricted stock units issued from
the Incentive Stock Bonus Plan for the two years in the period
ended September 30, 2016 is presented below:
|
Number
of Shares
|
Weighted
Average Grant Date Fair Value
|
Unvested at October
1, 2014
|
628,000
|
$
13.75
|
Vested
|
(20,000
)
|
|
Granted
|
-
|
|
Forfeited
|
(4,000
)
|
|
Unvested at
September 30, 2015
|
604,000
|
$
13.75
|
Vested
|
-
|
|
Unvested at
September 30, 2016
|
604,000
|
$
13.75
|
Stock Bonus Plans
-- At
September 30, 2016, the Company was authorized to issue up to
223,760 shares of common stock under its Stock Bonus
Plans. All employees, directors, officers, consultants, and
advisors are eligible to be granted shares. During the year ended
September 30, 2016, 16,340 shares were issued to the
Company’s 401(k) plan for a cost of approximately
$162,000
.
During
the year ended September 30, 2015, 9,727 shares were
issued to the Company’s 401(k) plan for a cost of
approximately $166,000. During the year ended September 30, 2014,
6,591 shares were issued to the Company’s 401(k)
plan for a cost of approximately $155,
000.
As of September 30,
2016, the Company has issued a total of 126,448 shares
of common stock from the Stock Bonus Plans.
Stock Compensation Plans
-- At
September 30, 2016, 134,000 shares were authorized for
use in the Company’s stock compensation plans. During the
years ended September 30, 2016
,
2015 and 2014
,
18,593, 8,733
and 16,399 shares, respectively, were issued from the
Stock Compensation Plans to consultants for payment of services at
a cost of approximately $234,000, $147,000 and $439,00
0
, respectively. During the
year ended September 30, 2016 and 2015, 3,837 and
4,282 shares, respectively, were issued to employees
from the Stock Compensation Plans as part of their compensation at
a cost of approximately $45,000 and $58,000, respectively. No
shares were issued to employees from the Stock Compensation Plans
during the year ended September 30, 2014. As of September 30, 2016,
the Company has issued 79,391 shares of common stock
from the Stock Compensation Plans
.
The Company
maintains a defined contribution retirement plan, qualifying under
Section 401(k) of the Internal Revenue Code, subject to the
Employee Retirement Income Security Act of 1974, as amended, and
covering substantially all Company employees. Each
participant’s contribution is matched by the Company with
shares of common stock that have a value equal to 100% of the
participant’s contribution, not to exceed the lesser of
$10,000 or 6% of the participant’s total compensation. The
Company’s contribution of common stock is valued each quarter
based upon the closing bid price of the Company’s common
stock. Total expense, including plan maintenance, for the years
ended September 30, 2016, 2015 and 2014, in connection with this
Plan was approximately $168,000, $170,000 and $160,000,
respectively.
10.
COMMITMENTS AND CONTINGENCIES
Clinical Research Agreements
In
March 2013, the Company entered into an agreement with Aptiv
Solutions to provide certain clinical research services in
accordance with a master service agreement. The Company will
reimburse Aptiv 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 September 30, 2016, the total balance
advanced is $300,000, of which $150,000 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
$19.2 million related to Ergomed’s services. This amount is
net of Ergomed’s discount of approximately $6.3 million.
During the years ended September 30, 2016, 2015 and 2014, the
Company recorded, approximately $7.2 million, $6.7 million and $4.4
million, respectively, as research and development expense related
to Ergomed’s services. These amounts were net of
Ergomed’s discount of approximately $2.1 million, $2.4
million and $1.5 million, respectively, over the comparable
periods.
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 UCSF for the development of Multikine as a
potential treatment for peri-anal warts in HIV/HPV co-infected men
and women. 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). On October 31, 2013,
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 ongoing 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. The Company is seeking at least $50 million in
damages in its amended statement of claim. Based upon further
analysis, however, the Company believes that its damages (direct
and consequential) presently total over $150
million.
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 Company’s 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. However, if 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
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
when the Company receives proceeds from the arbitration. During the
year ended September 30, 2016, 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 (the “trial”) began on September
26, 2016.
Lease Agreements
The
Company leases a manufacturing facility near
Baltimore, Maryland under an operating lease (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
of 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 San Tomas 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 on September 30, 2016 and
2015.
Future
minimum lease payments under the San Tomas lease as of September
30, 2016 are as follows:
Years ending September
30,
|
|
2017
|
$
1,687,000
|
2018
|
1,747,000
|
2019
|
1,808,000
|
2020
|
1,872,000
|
2021
|
1,937,000
|
Thereafter
|
15,762,000
|
Total future
minimum lease obligation
|
24,813,000
|
Less imputed
interest on financing obligation
|
(11,802,000
)
|
Net present value
of lease financing obligation
|
$
13,011,000
|
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 sublease
rent for the years ended September 30, 2016, 2015 and 2014 was
approximately $67,000, $65,000 and $63,000, respectively, and is
recorded in grant income and other in the statements of
operations.
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
September 30, 2016 and 2015, the Company has recorded a deferred
rent liability of approximately $2,000 and $6,000,
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 September 30, 2016 and 2015,
the Company has recorded a deferred rent liability of approximately
$18,000 and $13,000, respectively.
The Company leases
office equipment under a capital lease arrangement. The term of the
capital lease is 48 months and expired on September 30, 2016. The
monthly lease payment is $1,025. The lease bears interest at
approximately 6% per annum.
Approximate future minimum annual lease payments due under
non-cancelable operating leases, excluding the San Thomas, lease
for the years ending after September 30, 2016 are as
follows:
2017
|
$
243,000
|
2018
|
251,000
|
2019
|
258,000
|
2020
|
238,000
|
2021
|
163,000
|
Thereafter
|
69,000
|
Total
minimum lease payments:
|
$
1,222,000
|
Rent expense,
for the years ended September 30, 2016, 2015 and 2014, excluding
the rent paid on the San Tomas lease was approximately $300,000.
The Company’s three leases expire between June 2020 and
October 2028.
Vendor Obligations
Further, the
Company has contingent obligations with other vendors for work that
will be completed in relation to the Phase 3 trial. The timing of
these obligations cannot be determined at this time. The total
remaining cash cost of the Phase 3 clinical trial, excluding any
costs that will be paid by CEL-SCI's partners, would be
approximately $12.1 million after September 30, 2016. This is based
on the executed contract costs with the CROs only and does not
include other related costs, e.g. the manufacturing of the drug.
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.
11.
RELATED PARTY TRANSACTIONS
Effective August
31, 2016, Maximilian de Clara, the Company’s 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. The market value of the shares granted, including the accrued
value of the shares to be issued in August 2017, totaled
$253,500.
On January 13,
2016, the de Clara Trust demanded payment on the note payable, of
which the balance, including accrued and unpaid interest, was
$1,105,989. 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.
Prior to the
repayment, on June 29, 2015, the Company had extended the maturity
date of the note to July 6, 2017, lowered the interest rate from
15% to 9% and changed the conversion price from
$100.00 to $14.75, the closing stock
price on the previous trading day. The Company determined these
modifications to be substantive and accounted for the modification
as an extinguishment of the pre-modification note and issuance of
the post-modification note. The Company recorded an extinguishment
loss and a premium on the note payable of approximately $166,000,
which was credited to additional paid in capital. Concurrently, the
Company extended the expiration date of the Series N warrants to
August 18, 2017. The incremental cost of this modification was
approximately $475,000 and was included in debt extinguishment loss
on the note, for a total loss of approximately $620,000 during the
year ended September 30, 2015.
During the years
ended September 30, 2016, 2015 and 2014, the Company paid
approximately $43,000, $146,000 and $179,000, respectively, in
interest expense to Mr. de Clara.
12.
STOCKHOLDERS’ EQUITY
During the years
ended September 30, 2016 and 2015, no warrants were exercised.
During the year ended September 30, 2014, 107,822
Series M, N and S warrants were exercised. The Company issued
106,740 shares of common stock and received
approximately $3.1 million from the exercise of these warrants
since 3,709 Series N warrants were exercised in a
cashless exercise.
On October 11,
2013, the Company closed a public offering of units of common stock
and Series S warrants at a price of $25.00 per unit
for net proceeds of $16.4 million, net of underwriting discounts
and commissions. Each unit consisted of one share of common stock
and a warrant to purchase one share of common stock. The warrants
were immediately exercisable and expire on October 11, 2018, and
have an exercise price of $31.25. In November 2013,
the underwriters purchased an additional 105,957
warrants pursuant to the overallotment option, for which the
Company received net proceeds of approximately
$24,000.
On December 24,
2013, the Company closed a public offering of units of common stock
and Series S warrants at a price of $15.75 per unit
for net proceeds of approximately $2.8 million, net of underwriting
discounts and commissions. Each unit consisted of one share of
common stock and a warrant to purchase one share of common stock.
The warrants are immediately exercisable and expire on October 11,
2018, and have an exercise price of $31.25. The
underwriters exercised the option for the full 10% overallotment,
for which the Company received net proceeds of approximately
$279,000.
The October and
December 2013 financings triggered the reset provision from the
August 2008 financing which resulted in the issuance of an
additional 62,523 shares of common stock. The cost of
additional shares issued was approximately $1.1 million. This cost
was recorded as a deemed a dividend.
On
October 24, 2014, the Company closed an underwritten public
offering of 315,789 shares of common stock and
78,947 Series S warrants to purchase shares of common
stock. Additionally, in a related private offering on October 21,
2014, the Company sold 52,800 shares of common stock
and 13,200 Series S warrants to purchase shares of
common stock. The common stock and Series S warrants were sold at a
combined price of $19.00 for net proceeds of
approximately $6.4 million, net of offering expenses. The Series S
warrants trade of the NYSE MKT under the symbol CVM
WT.
On
April 17, 2014, the Company closed a public offering of units
consisting of 285,129 shares of common stock and
Series T warrants to purchase an aggregate of 71,282
shares of common stock. The units were sold at a price of
$35.00 per unit. The Company received net proceeds of
approximately $9.1 million after deducting the underwriting
commissions and offering expenses. The common stock and warrants
separated immediately. The Series T warrants, with an exercise
price of $39.50 per share, expired on October 17,
2014. The underwriters in the offering received 17,821
Series U warrants to purchase one share of common stock. The Series
U warrants expire on October 17, 2017, and have an exercise price
of $43.75.
On May
28, 2015, the Company closed an underwritten public offering of
810,127 shares of common stock and
810,127 Series V warrants to purchase shares of common
stock. The common stock and Series V warrants were sold at a
combined per unit price of $19.75 for net proceeds of
approximately $14.7 million, net of underwriting discounts and
commissions and offering expenses. The Series V warrants are
immediately exercisable at a price of $19.75 and
expire on May 28, 2020.
On
October 28, 2015, the Company closed an underwritten public
offering of 688,930 shares of common stock and
688,930 Series W warrants to purchase shares of common
stock. The common stock and warrants were sold at a combined price
of $16.75 for net proceeds of approximately $10.5
million, net of underwriting commissions and offering expenses. The
warrants were immediately exercisable, expire October 28, 2020 and
have an exercise price of $16.75.
On May
23, 2016, the Company closed a registered direct offering of
400,000 shares of common stock and
264,000 Series Z warrants to purchase shares of common
stock. The common stock and warrants were sold at a combined per
unit price of $12.50 for net proceeds of approximately
$4.6 million, net of placement agent’s commissions and
offering expenses. The Series Z warrants may be exercised at any
time on or after November 23, 2016 and on or before November 23,
2021 at a price of $13.75 per share. The Company also
issued 20,000 Series ZZ warrants to the placement
agent as part of its compensation. The Series ZZ warrants may be
exercised at any time on or after November 23, 2016 and on or
before May 18, 2021 at a price of $13.75 per
share.
On August 26, 2016, the Company closed a
registered direct offering of 400,000 shares of
common stock and Series AA warrants to purchase up to
200,000 shares of common stock. Each share of common
stock was sold together with a Series AA warrant to purchase
one-half of a share of common stock for the combined purchase price
of $12.50. Each warrant can be exercised at any time
after February 22, 2017 and on or before February 22, 2022 at a
price of $13.75 per share.
The Company also
issued 16,000 Series BB warrants to the placement
agent as part of its compensation. The Series BB warrants may be
exercised at any time on or after February 22, 2017 and on or
before August 22, 2021 at a price of $13.75 per share.
The Company received proceeds from the sale of Series AA and Series
BB shares and warrants of approximately $4.5 million, net of
placement agent’s commissions and offering
expenses
13.
FAIR VALUE MEASUREMENTS
In accordance with
the provisions of ASC 820, “
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 about those future
amounts.
ASC 820 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:
o
Level 1 –
Observable inputs such as quoted prices in active markets for
identical assets or liabilities
o
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
o
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 liabilities measured at fair value on a recurring
basis, by input level, on the balance sheet at September 30,
2016:
|
Quoted
Prices in
|
Significant
|
|
|
|
Active
Markets for
|
Other
|
Significant
|
|
|
Identical
|
Observable
|
Unobservable
|
|
|
Liabilities
(Level 1)
|
Inputs
(Level 2)
|
Inputs
(Level 3)
|
Total
|
|
|
|
|
|
Derivative
Instruments
|
$
3,111,361
|
|
$
5,283,573
|
$
8,394,934
|
The table below
sets forth the liabilities measured at fair value on a recurring
basis, by input level, on the balance sheet at September 30,
2015:
|
Quoted
Prices in
|
Significant
|
|
|
|
Active
Markets for
|
Other
|
Significant
|
|
|
Identical
|
Observable
|
Unobservable
|
|
|
Liabilities
(Level 1)
|
Inputs
(Level 2)
|
Inputs
(Level 3)
|
Total
|
|
|
|
|
|
Derivative
Instuments
|
$
7,365,555
|
|
$
6,323,032
|
$
13,686,587
|
The following sets
forth the reconciliation of beginning and ending balances related
to fair value measurements using significant unobservable inputs
(Level 3), as of September 30:
|
2016
|
2015
|
|
|
|
Beginning
balance
|
$
6,323,032
|
$
307,894
|
Issuances
|
8,722,073
|
8,003,220
|
Net realized
and unrealized derivative gain
|
(9,761,532
)
|
(1,988,082
)
|
Ending
balance
|
$
5,283,573
|
$
6,323,032
|
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. At September 30, 2016, the
Company’s Level 3 derivative instruments have a weighted
average fair value of $0.10 per share and a weighted average
exercise price of $0.86 per share. Fair values were determined
using a weighted average risk free interest rate of 1.04% and 75%
volatility.
14.
NET LOSS PER COMMON SHARE
Basic loss per
share is computed by dividing net loss available to common
shareholders by the weighted average number of common shares
outstanding during the period. The Company’s potentially
dilutive shares, which include outstanding common stock options,
common stock warrants, restricted stock and shares issuable on
convertible debt, have not been included in the computation of
diluted net loss per share for all periods presented, as the result
would be anti-dilutive. For the years presented, the gain on
derivative instruments is not included in net loss available to
common shareholders for purposes of computing dilutive loss per
share because its effect is anti-dilutive.
The following table
provides a reconciliation of the numerators and denominators of the
basic and diluted per-share computations:
|
2016
|
2015
|
2014
|
Net
loss available to common shareholders – Restated
(1)
|
$
(11,512,492
)
|
$
(34,692,210
)
|
$
(28,470,126
)
|
Less:
Gain on derivative instruments
|
-
|
-
|
(248,767
)
|
Net
loss available to common shareholders – diluted
(restated)
|
$
(11,512,492
)
|
$
(34,692,210
)
|
$
(28,718,893
)
|
|
|
|
|
Weighted
average number of shares - basic and diluted
|
4,866,204
|
3,300,761
|
2,352,185
|
|
|
|
|
Loss
per share – basic (restated)
|
$
(2.37
)
|
$
(10.51
)
|
$
(12.10
)
|
Loss
per share – diluted (restated)
|
$
(2.37
)
|
$
(10.51
)
|
$
(12.21
)
|
(1) See Note
17 Restatement
For the years ended
September 30, 2016 and 2015, the gain on derivatives is not
excluded from the numerator in calculating diluted loss per share
because the gain relates to derivative warrants that were priced
higher than the average market price during the
period.
In accordance with
the contingently issuable shares guidance of FASB ASC Topic 260,
Earnings Per Share
, the
calculation of diluted net loss per share excludes the following
dilutive securities because their inclusion would have been
anti-dilutive as of September 30:
|
2016
|
2015
|
2014
|
|
|
|
|
Options and
Warrants
|
3,675,281
|
2,336,842
|
1,599,788
|
Convertible
Debt
|
-
|
74,851
|
11,041
|
Unvested Restricted
Stock
|
604,000
|
604,000
|
628,000
|
Total
|
4,279,281
|
3,015,693
|
2,238,829
|
15.
SEGMENT REPORTING
ASC 280,
“
Disclosure about Segments
of an Enterprise and Related Information
” establishes
standards for reporting information regarding operating segments in
annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued
to stockholders. This topic also establishes standards for related
disclosures about products and services and geographic areas.
Operating segments are identified as components of an enterprise
about which separate discrete financial information is available
for evaluation by the chief operating decision maker, or
decision-making group, in making decisions how to allocate
resources and assess performance. The Company’s chief
decision maker, as defined under this topic, is the Chief Executive
Officer. To date, the Company has viewed its operations as
principally one segment, the research and development of certain
drugs and vaccines. As a result, the financial information
disclosed herein materially represents all of the financial
information related to the Company’s principal operating
segment.
16.
QUARTERLY INFORMATION (UNAUDITED)
The following
quarterly data are derived from the Company’s restated
statement of operations. See Note 17 for information concerning the
Restatement of the Company’s financial
statements.
Financial
Data
Fiscal
2016 (restated)
|
Three months ended December 31,
2015
|
Three months ended March 31, 2016
|
Three months ended June 30, 2016
|
Three months ended September 30,
2016
|
Year ended
September 30, 2016
|
Grant
and other income
|
$
20,976
|
$
32,775
|
$
129,975
|
$
101,329
|
$
285,055
|
Operating
expenses
|
5,327,509
|
5,829,779
|
6,036,123
|
6,738,472
|
23,931,883
|
Non-operating
(expenses) income, net
|
(483,693
)
|
(464,796
)
|
(464,202
)
|
(466,699
)
|
(1,879,390
)
|
Gain
(loss) on derivatives
|
8,122,960
|
(2,593,730
)
|
2,508,744
|
5,975,752
|
14,013,726
|
Net
income (loss) available to common shareholders
|
$
2,332,734
|
$
(8,855,530
)
|
$
(3,861,606
)
|
$
(1,128,090
)
|
$
(11,512,492
)
|
EPS
(LPS) - basic and diluted
|
$
0.53
|
$
(1.87
)
|
$
(0.78
)
|
$
(0.21
)
|
$
(2.37
)
|
Weighted
average shares:
|
|
|
|
|
|
Basic
|
4,390,740
|
4,736,809
|
4,965,300
|
5,371,635
|
4,866,204
|
Diluted
|
4,465,591
|
4,736,809
|
4,965,300
|
5,371,635
|
4,866,204
|
Fiscal
2015 (restated)
|
Three months ended December 31,
2014
|
Three months ended March 31, 2015
|
Three months ended June 30, 2015
|
Three months ended September 30,
2015
|
Year ended
September 30, 2015
|
Grant
and other income
|
$
136,838
|
$
197,620
|
$
389,223
|
$
(66,304
)
|
$
657,377
|
Operating
expenses
|
9,655,979
|
7,480,363
|
8,114,099
|
7,797,084
|
33,047,525
|
Non-operating
(expenses) income, net
|
(490,812
)
|
(494,156
)
|
(497,040
)
|
(482,213
)
|
(1,964,221
)
|
Gain
(loss) on derivatives
|
2,162,970
|
(4,782,796
)
|
4,428,780
|
(1,526,338
)
|
282,616
|
Loss
on debt extinguishment
|
-
|
-
|
(620,457
)
|
-
|
(620,457
)
|
Net
loss available to common shareholders
|
$
(7,846,983
)
|
$
(12,559,695
)
|
$
(4,413,593
)
|
$
(9,871,939
)
|
$
(34,692,210
)
|
LPS
- basic
|
$
(2.68
)
|
$
(4.14
)
|
$
(1.32
)
|
$
(2.54
)
|
$
(10.51
)
|
LPS
- diluted
|
$
(3.42
)
|
$
(4.14
)
|
$
(1.62
)
|
$
(2.54
)
|
$
(10.51
)
|
Weighted
average shares:
|
|
|
|
|
|
Basic
|
2,930,431
|
3,033,915
|
3,351,852
|
3,881,600
|
3,300,761
|
Diluted
|
2,930,431
|
3,033,915
|
3,405,364
|
3,881,600
|
3,300,761
|
The
Company has experienced large swings in its quarterly gains and
losses caused by the changes in the fair value of warrants each
quarter. The results of the restatement did not impact loss
per share for any of the periods presented except for the effects
of the 1:25 reverse stock split.
17.
RESTATEMENT
The Company has
restated its previously issued 2016, 2015 and 2014 financial
statements to correct an error in the way it accounted for a lease
entered into in October 2008. 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
correction 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.
Accordingly, the
historical financial statements in this report have been restated.
The accompanying financial statements for the three years in the
period ended September 30, 2016 have been restated to reflect the
correction of the error for the lease accounting. Accumulated
deficit at October 1, 2013, was reduced by
$326,827.
On June 12, 2017,
the Company’s shareholders approved a reverse split of the
Company’s common stock which became effective on the NYSE
American on June 15, 2017. On that date, every twenty five issued
and outstanding shares of the Company’s common stock
automatically converted into one outstanding share. As a result of
the reverse stock split, the number of the Company’s
outstanding shares of common stock decreased from 230,127,331
(pre-split) shares to 9,201,645 (post-split) shares. In addition,
by reducing the number of the Company’s outstanding shares,
the Company’s loss per share in all prior periods will
increase by a factor of twenty five. The reverse stock split
affected all stockholders of the Company’s common stock
uniformly, and did not affect any stockholder’s percentage of
ownership interest. The par value of the Company’s stock
remained unchanged at $0.01 per share and the number of authorized
shares of common stock remained the same after the reverse stock
split.
As the par value
per share of the Company’s common stock remained unchanged at
$0.01 per share, a total of $2,204,938 was reclassified from common
stock to additional paid-in capital. In connection with this
reverse stock split, the number of shares of common stock reserved
for issuance under the Company’s incentive and non-qualified
stock option plans, as well as the shares of common stock
underlying outstanding stock options and warrants, were also
proportionately reduced while the exercise prices of such stock
options and warrants were proportionately increased. All references
to shares of common stock and per share data for all periods
presented in the accompanying financial statements and notes
thereto have been adjusted to reflect the reverse stock split on a
retroactive basis.
The following is a
summary of the restatements for 2016:
|
9/30/2016
|
|
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, September 30, 2016
|
(956,068
)
|
276,855
|
(679,213
)
|
|
9/30/2015
|
Balance
Sheet
|
PREVIOUSLY REPORTED
|
ADJUSTMENT
|
RESTATED
|
|
|
|
|
Total
current assets
|
$
8,833,183
|
$
(487,793
)
|
$
8,345,390
|
Other
assets
|
6,614,420
|
13,593,892
|
20,208,312
|
Total
assets
|
15,447,603
|
13,106,099
|
28,553,702
|
Total
liabilities
|
20,532,722
|
12,783,250
|
33,315,972
|
|
|
|
|
Stockholders'
deficit, September 30, 2015
|
(5,085,119
)
|
322,855
|
(4,762,270
)
|
|
YEAR ENDED 9/30/2016
|
|
PREVIOUSLY REPORTED
|
ADJUSTMENT
|
RESTATED
|
|
|
|
|
Research
and development expenses
|
$
19,351,779
|
$
(1,906,397
)
|
$
17,445,382
|
Total
operating expenses
|
25,838,280
|
(1,906,397
)
|
23,931,883
|
Operating
loss
|
(25,553,225
)
|
1,906,397
|
(23,646,828
)
|
Interest
income (expense), net
|
73,001
|
(1,952,391
)
|
(1,879,390
)
|
Net
loss
|
(11,466,498
)
|
(45,994
)
|
(11,512,492
)
|
|
|
|
|
Net
loss per common share, basic and diluted
|
$
(2.36
)
|
|
$
(2.37
)
|
|
YEAR ENDED 9/30/2015
|
|
PREVIOUSLY REPORTED
|
ADJUSTMENT
|
RESTATED
|
|
|
|
|
Research
and development expenses
|
$
21,098,147
|
$
(1,906,397
)
|
$
19,191,750
|
Total
operating expenses
|
34,953,922
|
(1,906,397
)
|
33,047,525
|
Operating
loss
|
(34,296,545
)
|
1,906,397
|
(32,390,148
)
|
Interest
income (expense), net
|
(40,260
)
|
(1,923,961
)
|
(1,964,221
)
|
Net
loss
|
(34,674,646
)
|
(17,564
)
|
(34,692,210
)
|
|
|
|
|
Net
loss per common share, basic and diluted
|
$
(10.51
)
|
|
$
(10.51
)
|
|
YEAR ENDED 9/30/2014
|
|
PREVIOUSLY REPORTED
|
ADJUSTMENT
|
RESTATED
|
|
|
|
|
Research
and development expenses
|
$
17,172,587
|
$
(1,906,398
)
|
$
15,266,189
|
Total
operating expenses
|
27,838,145
|
(1,906,398
)
|
25,931,747
|
Operating
loss
|
(27,574,112
)
|
1,906,398
|
(25,667,714
)
|
Interest
income (expense), net
|
(40,920
)
|
(1,892,812
)
|
(1,933,732
)
|
Net
loss
|
(27,366,265
)
|
13,586
|
(27,352,679
)
|
|
|
|
|
Net
loss per common share, basic
|
$
(12.11
)
|
|
$
(12.10
)
|
Net
loss per common share, diluted
|
$
(12.22
)
|
|
$
(12.21
)
|