CEL SCI CORP - Quarter Report: 2021 December (Form 10-Q)

CEL-SCI CORPORATION

 Colorado

  84-0916344

 State or other jurisdiction incorporation

 (IRS) Employer Identification Number

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock

CVM

NYSE American

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

Class of Stock

 No. Shares Outstanding

Date

Common

43,275,738

February 2, 2022

Item 1.

Page

Condensed Balance Sheets at December 31, 2021 (unaudited) and September 30, 2021

3

Condensed Statements of Operations for the three months ended December 31, 2021 and 2020 (unaudited)

4

Condensed Statement of Stockholders’ Equity for the three months ended December 31, 2021 and 2020 (unaudited)

5

Condensed Statements of Cash Flows for the three months ended December 31, 2021 and 2020 (unaudited)

6

Notes to Condensed Financial Statements (unaudited)

8

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures about Market Risks

23

Item 4.

Controls and Procedures

23

PART II

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 6.

Exhibits

25

Signatures

26

CEL-SCI CORPORATION

CONDENSED BALANCE SHEETS

ASSETS

Current assets:

Cash and cash equivalents

U.S. Treasury Bills

Receivables

Prepaid expenses

Supplies used for R&D and manufacturing

Short-term deposits

Total current assets

Finance lease right of use assets

Operating lease right of use assets

Property and equipment, net

Patent costs, net

Deposits

Total assets

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

Accrued expenses

Due to employees

Derivative instruments, current portion

Lease liabilities, current portion

Total current liabilities

Finance lease obligations, net of current portion

Operating lease obligations, net of current portion

Other liabilities

Total liabilities

Commitments and contingencies

STOCKHOLDERS' EQUITY

Preferred stock, $.01par value-200,000shares authorized; -0- shares issued and outstanding

Common stock, $.01par value - 600,000,000shares authorized; 43,259,013and 43,207,183shares issued and outstanding at December 31, 2021 and September 30, 2021, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders' equity

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

See notes to condensed financial statements.

CEL-SCI CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2021 and 2020

(UNAUDITED)

Operating expenses:

Research and development

General and administrative

Total operating expenses

Operating loss

Gain on derivative instruments

Other non-operating gains

Interest expense, net

Net loss

Modification of warrants

Net loss available to common shareholders

Net loss per common share

BASIC and DILUTED

Weighted average common shares outstanding

BASIC

DILUTED

CEL-SCI CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

BALANCES AT OCTOBER 1, 2021

Warrant exercises

Equity based compensation - employees

401(k) contributions paid in common stock

Stock and options issued to nonemployees for service

Option exercises

Share issuance costs

Net loss

BALANCES AT DECEMBER 31, 2021

BALANCES AT OCTOBER 1, 2020

Proceeds from the sale of common stock

Warrant exercises

Equity based compensation - employees

401(k) contributions paid in common stock

Stock and options issued to nonemployees for service

Option exercises

Modification of warrants

Share issuance costs

Net loss

BALANCES AT DECEMBER 31, 2020

CEL-SCI CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED DECEMBER 31, 2021 and 2020

(UNAUDITED)

Net loss

Adjustments to reconcile net loss to

net cash used in operating activities:

Depreciation and amortization

Share-based payments for services

Equity based compensation

Common stock contributed to 401(k) plan

Gain on short-term investments

Loss on patent impairment

Gain on derivative instruments

Modification of warrants

(Increase)/decrease in assets:

Receivables

Prepaid expenses

Supplies used for R&D and manufacturing

Increase/(decrease) in liabilities:

Accounts payable

Accrued expenses

Due to employees

Other liabilities

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturity of US treasury bills

Purchases of property and equipment

Expenditures for patent costs

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock

Payments of stock issuance costs

Proceeds from exercises of warrants and options

Payments on obligations under finance lease

Net cash (used in) provided by financing activities

NET INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS, END OF PERIOD

CEL-SCI CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED DECEMBER 31, 2021 and 2020

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Property and equipment included in current liabilities

Capitalizable patent costs included in current liabilities

Finance lease obligation included in accounts payable

Prepaid consulting services paid with issuance of common stock

Exercise of derivative liabilities

Financing costs included in current liabilities

  Cash paid for interest

A.

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed financial statements of CEL-SCI Corporation (the Company) are unaudited and certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. While management of the Company believes that the disclosures presented are adequate to make the information presented not misleading, these interim condensed financial statements should be read in conjunction with the financial statements and notes included in the Company’s annual report on Form 10-K for the year ended September 30, 2021.

In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments necessary for a fair presentation of the Company’s financial position as of December 31, 2021 and the results of its operations for the three months then ended. The condensed balance sheet as of September 30, 2021 is derived from the September 30, 2021 audited financial statements.

The financial statements have been prepared assuming that the Company will continue as a going concern, but due to recurring losses from operations and future liquidity needs, there is substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Refer to discussion in Note B.

Summary of Significant Accounting Policies:

Cash and Cash Equivalents – 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.

U.S. Treasury Bills – U.S. Treasury Bills (“T-bills”) are highly liquid short-term investments with maturity dates of greater than 3 months, but less than one year. These investments are recorded at fair value.

Property and Equipment – Property and equipment is recorded at cost and depreciated using the straight-line method over estimated useful lives of five to seven years. Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the term of the lease. Repairs and maintenance which do not extend the life of the asset are expensed when incurred. Property and equipment is reviewed on a quarterly basis to determine if any of the assets are impaired.

Patents - Patent expenditures are capitalized and amortized using the straight-line method over the shorter of the expected useful life or the legal life of the patent (17 years). In the event changes in technology or other circumstances impair the value or life of the patent, appropriate adjustment 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.

Leases – The Company accounts for contracts that convey the right to control the use of identified property, plant or equipment over a period of time in exchange for consideration as leases upon inception. The Company leases certain real estate, machinery, laboratory equipment and office equipment over varying periods. Many of these leases include an option to either renew or terminate the lease. For purposes of calculating lease liabilities, these options are included in the lease term when it is reasonably certain that the Company will exercise such options. The incremental borrowing rate utilized to calculate the lease liabilities is based on the information available at the commencement date, as most of the leases do not provide an implicit borrowing rate. Short-term leases, defined as leases with initial terms of 12 months or less, are not reflected on the balance sheet. Lease expense for such short-term leases is not material.

Derivative Instruments – The Company has financing arrangements that consist of freestanding derivative instruments that contain embedded derivative features. The Company accounts for these arrangements in accordance with Accounting Standards Codification (ASC) 815, Accounting for Derivative Instruments and Hedging Activities. In accordance with ASC 815, 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 considering all the rights and obligations of each instrument. The derivative liabilities are re-measured at fair value at the end of each interim period.

The Company adopted Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity effective October 1, 2021. The amendments in this Update simplify and clarify the guidance in Subtopic 815-40. There was no financial impact in the period of adoption.

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 using the straight-line allocation method as expense over the requisite service or vesting period.

The Company has Incentive Stock Option Plans, Non-Qualified Stock Option Plans, Stock Compensation Plans, Stock Bonus Plans and an Incentive Stock Bonus Plan. 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. For options issued with service conditions only, 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 is based on the U.S. Treasury rate at the date of grant with the term equal to the expected life of the option. Forfeitures are accounted for when they occur. The expected term of options represents the period that options granted are expected to be outstanding and has been determined based on an analysis of historical exercise behavior. If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation expense for new awards may differ materially in the future from that recorded in the current period.

Restricted stock granted under the Incentive Stock Bonus Plan and options granted under the 2021 and 2020 Non-Qualified Stock Option Plan are subject to service, performance and market conditions and meet the classification of equity awards. These awards were measured 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.

Research and Development Costs - Research and development costs are expensed as incurred. Management accrues Clinical Research Organization (“CRO”) expenses and clinical trial study expenses based on services performed and relies on the CROs to provide estimates of those costs applicable to the completion stage of a study. Estimated accrued CRO costs are subject to revisions as such studies progress to completion. The Company records revisions to estimated expense in the period in which the facts that give rise to the revision become known.

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, unvested restricted 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.

Income Taxes – The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating and tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be recognized. A full valuation allowance was recorded against the deferred tax assets as of December 31, 2021 and September 30, 2021.

The Company adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes effective October 1, 2021. The new standard includes several provisions that simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and increasing consistency and clarity for the users of financial statements. The adoption of ASU 2019-12 had no impact on the Company’s financial statements.

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, right of use assets and lease liabilities, 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 the Black-Scholes pricing model, significant fluctuations may materially affect the financial statements in a given year. Additionally, in calculating the right of use assets and lease liabilities, estimates and assumptions were used to determine the incremental borrowing rates and the expected lease terms. The Company considers the estimates used in valuing the derivative liabilities, stock options and the lease assets and liabilities to be significant.

New Accounting Pronouncements

The Company has considered all recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements.

B.

OPERATIONS AND FINANCING

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

Liquidity

The Company has incurred significant costs since its inception for the acquisition of certain proprietary technology and scientific knowledge relating to the human immunological defense system, patent applications, research and development, administrative costs, construction of laboratory facilities and participation in clinical trials. The Company has funded such costs primarily with proceeds from loans and the public and private sale of its securities. The Company will be required to raise additional capital or find additional long-term financing to continue with its efforts to bring Multikine to market. The ability to raise capital may be dependent upon market conditions that are outside the control of the Company. The ability of the Company to obtain approval from the U.S. Food and Drug Administration (FDA) for the sale of products to be developed on a commercial basis is uncertain. Ultimately, the Company must complete the development of its products, obtain the appropriate regulatory approvals and obtain sufficient revenues to support its cost structure. The Company believes there is a high likelihood that it will continue to receive funds from private and public offerings and warrant exercises similarly to the way it has funded operations in the past. However, there can be no assurance that the Company will be able to raise sufficient capital to support its operations.

To finance the Company through marketing approval, the Company plans to raise additional capital in the form of warrant exercises, corporate partnerships, and debt and/or equity financings. The Company believes that it will be able to obtain additional financing because it has done so consistently in the past and because it showed great survival benefit in the Phase 3 study in one of the two treatment arms for advanced primary head and neck cancer. However, there can be no assurance that the Company will be successful in raising additional funds on a timely basis or that the funds will be available to the Company on acceptable terms or at all. If the Company does not raise the necessary amounts of money, it may have to curtail its operations until such time as it is able to raise the required funding.

Primarily as a result of the Company’s losses incurred to date, the Company’s expected continued future losses, and the uncertainties associated with obtaining regulatory approval and ultimately commercializing its products, management has identified conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern. Management has evaluated the significance of those conditions and has concluded that here is sufficient cash on hand to meet the Company’s budgeted cash requirements, substantial doubt about the Company’s ability to continue as a going concern for more than twelve months from the date of these financial statements has been alleviated.

Impact of the COVID-19 Pandemic

In response to the global outbreak of COVID-19 and the World Health Organization’s classification of the outbreak as a pandemic, the Company continues to take the necessary precautions to ensure the safety of its employees and to minimize interruptions to its operations. Management follows the Centers for Disease Control and Prevention’s (“CDC”) guidance and the recommendations and restrictions provided by state and local authorities. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude of impact the pandemic will have on the Company’s financial condition, liquidity and future results of operations. Management is actively monitoring the risks to public health and the impact of overall global business activity on its financial condition, liquidity, operations, suppliers, industry, and workforce.

C.

STOCKHOLDERS’ EQUITY

Proceeds from the Sale of Common Stock

In December 2020, the Company sold 1,000,000shares of common stock at a public offering price of $14.65 per share and received aggregate proceeds of approximately $13.6 million.

Equity Compensation

Underlying share information for equity compensation plans as of December 31, 2021 is as follows:

Name of Plan

Incentive Stock Option Plans

Non-Qualified Stock Option Plans

Stock Bonus Plans

Stock Compensation Plans

Incentive Stock Bonus Plan

Name of Plan

Incentive Stock Option Plans

Non-Qualified Stock Option Plans

Stock Bonus Plans

Stock Compensation Plans

Incentive Stock Bonus Plan

Stock option activity:

Options granted

Options exercised

Options forfeited

Options expired

During the quarter ended December 31, 2021, the Company granted 250,000performance-based stock options from the 2020 Non-Qualified Stock Option Plan to officers. Each option entitles the holder to purchase one share of the Company’s common stock at a price of $10.48per share, the fair value on the date of issuance. The stock options will vest 100% upon approval of the first marketing application for any pharmaceutical based upon the Company’s Multikine technology in any of the USA, Canada, UK, Germany, France, Italy, Spain, Japan, or Australia. None of the options will be exercisable before November 19, 2022. All options which have not vested as of November 18, 2031 will be canceled. On the grant date, the options were valued using a Monte Carlo Simulation approach. A Monte Carlo Simulation is a statistical technique that is used to model probabilistic systems and establish the probabilities for a variety of outcomes. However, because attainment of the performance condition cannot be considered probable, no compensation cost is recognized relating to these options as of December 31, 2021. Management will re-assess the probability of achieving the performance condition at each reporting date.

Stock-Based Compensation Expense

Employees

Non-employees

Employee compensation expense includes the expense related to options and restricted stock that is expensed over the vesting periods. Non-employee expense includes the expense related to options and stock issued to consultants expensed over the period of the related service contracts.

Warrant/Options

Series N

8/18/2008

8/18/2022 

*

Series UU

6/11/2018

6/30/2022

*

Series X

1/13/2016

7/13/2022

*

Series Y

2/15/2016

8/15/2022

*

Series HH

2/23/2017

2/16/2022

*

Series AA

8/26/2016

2/22/2022

*

Series MM

6/22/2017

6/22/2022

*

Series NN

7/24/2017

7/24/2022

2

Series RR

10/30/2017

10/30/2022

*

Series SS

12/19/2017

12/18/2022

*

Series TT

2/5/2018

2/5/2023

*

Consultants

7/28/2017 - 11/18/2020

$2.18 $11.61

11/17/2022 - 7/27/2027

*

1.

Series Z warrants 

Series AA warrants 

Series CC warrants 

Series HH warrants

Total warrant liabilities

Series W warrants 

Series Z warrants 

Series ZZ warrants 

Series AA warrants 

Series BB warrants 

Series CC warrants 

Series HH warrants

Net gain on warrant liabilities

The Company reviews all outstanding warrants in accordance with the requirements of ASC 815. This topic provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. The warrant agreements provide for adjustments to the exercise price for certain dilutive events. Under the provisions of ASC 815, the warrants are not considered indexed to the Company’s stock because future equity offerings or sales of the Company’s stock are not an input to the fair value of a “fixed-for-fixed” option on equity shares, and equity classification is therefore precluded.

In accordance with ASC 815, derivative liabilities must be measured at fair value upon issuance and re-valued at the end of each reporting period through expiration. Any change in fair value between the respective reporting dates is recognized as a gain or loss.

Changes in Warrant Liabilities

During the three months ended December 31, 2021, 15,205 Series CC warrants were exercised at an exercise price of $5.00for gross proceeds of $76,000. During the three months ended December 31, 2020, 5,000 Series CC warrants were exercised at an exercise price of $5.00for gross proceeds of $25,000.

On December 8, 2021, 640 Series CC warrants, with an exercise price of $5.00, expired. On November 23, 2021, 184,800 Series Z warrants, with an exercise price of $13.75, expired.

On August 22, 2021, 16,000 Series BB warrants, with an exercise price of $13.75, expired. On October 28, 2020, 688,930 Series W warrants, with an exercise price of $16.75, expired.

2.

Equity Warrants

Changes in Equity Warrants

During the three months ended December 31, 2021, 4,500 Series NN warrants were exercised at an exercise price of $2.52 for gross proceeds of $11,340.

During the three months ended December 31, 2020, 10,000 Series TT warrants were exercised at an exercise price of $2.24 for gross proceeds of $22,400.

On December 7, 2020, the expiration date of the Series N warrants was extended six months from February 18, 2021 to August 18, 2021. The incremental cost of this extension was approximately $1,000, which was recorded as a deemed dividend in the financial statements for the three months ended December 31, 2020. The Series N warrants are held by the de Clara Trust, of which the Company’s CEO, Geert Kersten, is a beneficiary.

On December 7, 2020, the expiration date of the Series X warrants was extended six months from January 13, 2021 to July 13, 2021. The incremental cost of this extension was approximately $85,000, which was recorded as a deemed dividend in the financial statements for the three months ended December 31, 2020. The Series X warrants are also held by the de Clara Trust.

On December 7, 2020, the expiration date of the Series Y warrants, which were issued in connection with a financing, was extended six months from February 15, 2021 to August 15, 2021. The incremental cost of this extension was approximately $41,000 and was recorded as additional paid-in capital.

On December 7, 2020, the expiration date of Series UU warrants was extended six months from December 31, 2020 to June 30, 2021. These warrants were previously issued as an inducement to convert notes payable into shares of common stock. The incremental cost of this extension was $192 and was recorded as interest expense for the three months ended December 31, 2020. The Series UU warrants are held by Geert Kersten, Patricia Prichep (current Officers of the Company) and the de Clara Trust.

3.

Options and Shares Issued to Consultants

During the three months ended December 31, 2021 and 2020, the Company issued 18,020 and 15,044 shares of restricted common stock, respectively, to consultants for services. The weighted average grant date fair value of the shares issued to consultants was $9.93 and $12.45 per share, respectively, during the three months ended December 31, 2021 and 2020.

During the three months ended December 31, 2020, the Company issued to a consultant 5,000 options to purchase common stock with an exercise price of $11.61. The options are exercisable beginning May 18, 2021 and expire on November 17, 2022. The options were expensed on a straight-line basis over the six month vesting period at a fair value of approximately $28,000 or $5.65 per option.

As of December 31, 2021 and September 30, 2021, 15,000 options issued to consultants remained outstanding, all of which were issued from the Non-Qualified Stock Option plans. All 15,000 options are vested as of December 31, 2021.

During the three months ended December 31, 2021 and 2020, the Company recorded total expense of approximately $218,000 and $249,000, respectively, relating to the share based compensation under these consulting agreements. At December 31, 2021 and September 30, 2021, approximately $234,000and $364,000, respectively, are included in prepaid expenses.

4.

Securities Purchase Agreement

The Company entered into a Securities Purchase Agreement with Ergomed plc (Ergomed), one of the Company’s CROs responsible for managing the Company’s Phase 3 clinical trial, to facilitate payment of amounts due to Ergomed. Under the Agreement, the Company issued Ergomed shares of common stock and the net proceeds from Ergomed's sales of those shares would reduce outstanding amounts due to Ergomed. Upon issuance, the Company expensed the full value of the shares as other non-operating gain/loss and subsequently offset the gain/loss as amounts were realized through the sale by Ergomed and reduced accounts payable to Ergomed.

No sales were made by Ergomed during the three months ended December 31, 2021. As of December 31, 2021, Ergomed had no shares for resale. During the three months ended December 31, 2020, the Company realized approximately $0.1 million through the sale by Ergomed of 9,000 shares of the Company’s common stock and the Company reduced the payables to Ergomed and credited Other Operating Gain by that amount. No shares were issued to Ergomed during the three months ended December 31, 2021 and 2020.

D.

FAIR VALUE MEASUREMENTS

In accordance with ASC 820-10, “Fair Value Measurements,” the Company determines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company generally applies the income approach to determine fair value. This method uses valuation techniques to convert future amounts to a single present amount. The measurement is based on the value indicated by current market expectations with respect to those future amounts.

ASC 820-10 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to active markets for identical assets and liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company classifies fair value balances based on the observability of those inputs. The three levels of the fair value hierarchy are as follows:

·

Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities

·

Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and amounts derived from valuation models where all significant inputs are observable in active markets

·

Level 3 – Unobservable inputs that reflect management’s assumptions. Assumptions from market participants are used when pricing the asset or liabilities, given there is no readily available market information.

For disclosure purposes, assets and liabilities are classified in their entirety in the fair value hierarchy level based on the lowest level of input that is significant to the overall fair value measurement. The Company’s assessment of the significance of an input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels.

The Company purchased short-term U.S. Treasury bills during the year ended September 30, 2021 that are classified as trading securities. Quoted market prices were applied to determine the fair value of short-term investments; therefore, they were categorized as Level 1 in the fair value hierarchy. The Treasury bills matured in December 2021 and yielded a weighted average interest rate of 0.10%.

As of December 31, 2021 and September 30, 2021, all of the Company’s derivative instruments are classified as Level 3 on the fair value hierarchy.

The following sets forth a reconciliation of beginning and ending balances related to fair value measurements using significant unobservable inputs (Level 3) for the three months ended December 31, 2021 and the year ended September 30, 2021:

Beginning balance

Issuances

Exercises

Realized and unrealized (gains) and losses

Ending balance

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 December 31, 2021, the Company’s Level 3 derivative instruments have a weighted average fair value of $0.02 per share and a weighted average exercise price of $13.73 per share. Fair values were determined using a weighted average risk-free interest rate of 0.06% and weighted average volatility of 79%. The instruments have a weighted average time to maturity of 0.14 years. At September 30, 2021, the Company’s Level 3 derivative instruments have a weighted average fair value of $1.45 per share and a weighted average exercise price of $13.28 per share. Fair values were determined using a weighted average risk-free interest rate of 0.05% and volatility of 109%. The instruments have a weighted average time to maturity of 0.3 years.

E.

RELATED PARTY TRANSACTIONS

During the quarter ended December 31, 2021, the Company issued officers 250,000 options that vest upon FDA approval of the marketing application. See Note C for more information about the options.

On December 7, 2020, the expiration dates of the Series N and Series X warrants held by the de Clara Trust were extended by six months (Note C). The incremental cost of these modifications was approximately $86,000 and was recorded as a deemed dividend in the financial statements for the three months ended December 31, 2020.

On December 7, 2020, the expiration date of 93,603 Series UU warrants was extended from December 31, 2020 to June 30, 2021. The incremental cost of this extension was $192 and was recorded as interest expense for the three months ended December 31, 2020. The Series UU warrants are held by certain officers of the Company and were originally issued with convertible debt.

F.

COMMITMENTS AND CONTINGENCIES

Clinical Research Agreements

Under co-development and revenue sharing agreements with Ergomed, Ergomed agreed to contribute up to $12 million towards the Company’s Phase 3 Clinical Trial in the form of discounted clinical services in exchange for a single digit percentage of milestone and royalty payments, up to a specific maximum amount. The Company accounted for the co-development and revenue sharing agreements in accordance with ASC 808 “Collaborative Arrangements”. The Company determined the payments to Ergomed are within the scope of ASC 730 “Research and Development.” Therefore, the Company records the discount on the clinical services as a credit to research and development expense on its statements of operations. Since the inception of the agreement with Ergomed, the Company has incurred research and development expenses of approximately $35.3 million for Ergomed’s services. This amount is net of Ergomed’s discount of approximately $11.7 million. During the three months ended December 31, 2021 and 2020, the Company recorded, net of Ergomed’s discount, approximately $0.2 million and $0.6 million, respectively, as research and development expense related to Ergomed’s services.

Lease Agreements

The Company leases a manufacturing facility near Baltimore, Maryland (the San Tomas lease). The building was remodeled in accordance with the Company’s specifications so that it can be used by the Company to manufacture Multikine for the Company’s Phase 3 clinical trial and sales of the drug if approved by the FDA. The lease is for a term of twenty years and requires annual base rent to escalate each year at 3%. The Company is required to pay all real estate and personal property taxes, insurance premiums, maintenance expenses, repair costs and utilities. The lease allows the Company, at its election, to extend the lease for two ten-year periods or to purchase the building at the end of the 20-year lease, which expires in October 2028. The renewal options are not included in the calculation of the right of use asset and lease liability because exercise of those options is not probable.

On December 31, 2021 and September 30, 2021, the net book value of the finance lease right of use asset is approximately $12.3 million and $12.7 million, respectively and the balance of the finance lease liability is approximately $13.5 million and $13.8 million, respectively, of which approximately $0.6 million is current in each quarter. These amounts include the San Tomas lease as well as several other smaller finance leases for office equipment. The finance right of use assets are being depreciated using the straight-line method over the underlying lease terms. Total cash paid related to finance leases during the three months ended December 31, 2021 and 2020 was approximately $0.6 million and $0.5 million, respectively, of which approximately $0.3 million was for interest in each quarter. As of December 31, 2021, the weighted average discount rate of the Company’s finance leases is 8.45% and the weighted average time to maturity is 6.8 years.

In August 2020, the Company entered into an amendment to the San Tomas lease under which the landlord agreed to allow the Company to substantially upgrade the manufacturing facility in preparation for the potential commercial production of Multikine. The project was finished and the improvements were placed in service in October 2021. Total cost was $11.1 million, of which the landlord agreed to finance $2.4 million. Approximately $1.6 million of the landlord financing was received as of December 31 2021, and the remaining balance is expected to be received in the second quarter of fiscal year 2022. The landlord financing is being repaid through increased lease payments which started in March 2021 and extend over the remaining lease term. The repayment includes a base rent which escalates at 3% each year plus interest that accrues at 13.75% per year. The Company remeasured the lease liability to account for the modified payments using a 8.45% implicit interest rate. The rate was determined using a synthetic credit rating analysis prepared by an outside valuation specialist. Additionally, this financing is considered to be a lease incentive from the landlord and has been included in the calculation of the lease liability as it is realized. The leasehold improvements are recorded in property and equipment, were deemed to be placed in service in October 2021 and are being amortized over the remaining lease term.

The Company was required to deposit the equivalent of one year of base rent in accordance with the lease. Under the landlord’s $2.4 million financing arrangement, the Company was required to deposit an additional $0.2 million in March 2021. When the Company meets the minimum cash balance required by the lease, the deposit will be returned to the Company. During the quarter ended December 31, 2021, it was determined that the Company met the minimum cash requirement and the deposits were returned in January 2022. The approximate $1.9 million deposit is included in current assets at December 31, 2021 and non-current assets at September 30, 2021.

Nine months ending September 30, 2022 

Year ending September 30,

2023

2024

2025

2026

2027

Thereafter

Total future minimum lease obligation*

Less imputed interest on finance lease obligations

Net present value of finance lease obligations

The Company leases two facilities under operating leases. The lease for the Company’s office headquarters will expire on November 30, 2025. The lease for its research and development laboratory was renewed in September 2021 for an additional ten years and will expire on February 29, 2032. The renewal was considered a modification for accounting purposes and the right of use asset and liability were remeasured as of the date of the renewal. This resulted in an increase of approximately $1.1 million to the operating lease right of use asset and liability. The operating leases include escalating rental payments. The Company is recognizing the related rent expense on a straight-line basis over the terms of the leases. As of December 31, 2021 and September 30, 2021, the net book value of the operating lease right of use assets is approximately $2.0 million and $2.1 million, respectively. As of December 31, 2021 and September 30, 2021, the balance of the operating lease liabilities is approximately $2.1 million. of which approximately $0.1 million, is current in each quarter. The Company incurred lease expense for operating leases of approximately $91,000 and $66,000, respectively, for the three months ended December 31, 2021 and 2020. Total cash paid related to operating leases during the three months ended December 31, 2021 and 2020 was approximately $66,000 and $48,000, respectively. The weighted average discount rate of the Company’s operating leases is 9.11% and the weighted average time to maturity is 9.5 years.

Nine months ending September 30, 2022

Year ending September 30,

2023

2024

2025

2026

2027

Thereafter

Total future minimum lease obligation

Less imputed interest on operating lease obligation

Net present value of operating lease obligation

G.

During the three months ended December 31, 2021, the Company recorded approximately $31,000 in patent impairment charges. No patent impairment charges were recorded during the three months ended December 2020. During the three months ended December 31, 2021 and 2020, amortization of patent costs totaled approximately $14,000 and $13,000, respectively. Approximate estimated future amortization expense is as follows:

Nine months ending September 30, 2022

Year ending September 30,

2023

2024

2025

2026

2027

Thereafter

Total

H.

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. For the years presented, the gain on warrant liabilities priced lower than the average market price during the period is excluded from the numerator and the incremental shares, determined using the treasury stock method, are added to the denominator in calculating diluted loss per share.

Three months ended December 31,

2021

2020

Loss per share – basic

Net loss available to common shareholders - basic

Weighted average shares outstanding - basic

Basic loss per common share

Loss per share – diluted

Net loss available to common shareholders - basic

Gain on derivatives (1)

Net loss available to common shareholders - diluted

Weighted average shares outstanding - basic

Incremental shares underlying dilutive - warrants and options (1)

Weighted average shares outstanding – diluted

Diluted loss earnings per common share

(1)

In accordance with the contingently issuable shares guidance of FASB ASC Topic 260, Earnings Per Share, the calculation of diluted net earnings (loss) per share excludes the following securities because their inclusion would have been anti-dilutive as of December 31:

Options and Warrants

Unvested Restricted Stock

Total

J.

MULTIKINE

LEAPS

TOTAL

Number

Exhibit

3(a)

Articles of Incorporation

Incorporated by reference to Exhibit 3(a) of CEL-SCI's combined Registration Statement on Form S-1 and Post-Effective Amendment ("Registration Statement"), Registration Nos. 2-85547-D and 33-7531.

3(b)

Amended Articles

Incorporated by reference to Exhibit 3(a) of CEL-SCI's Registration Statement on Form S-1, Registration Nos. 2-85547-D and 33-7531.

3(c)

Amended Articles (Name change only)

Incorporated by reference to Exhibit 3(c) of CEL-SCI's Registration Statement on Form S-1 Registration Statement (No. 33-34878).

3(d)

By laws (as amended)

Incorporated by reference to Exhibit 3(d) of CEL-SCI's Post-Effective Amendment No. 3 to Registration Statement on Form S-1 (No. 333-229295).

4

Shareholders Rights Agreement, as Amended

Incorporated by reference to Exhibit 4 filed with CEL-SCI’s 8-K report dated October 30, 2020.

4(b)

Incentive Stock Option Plan

Incorporated by reference to Exhibit 4 (b) filed on September 25, 2012 with CEL-SCI’s registration statement on Form S¬8 (File number 333-184092.

4(c)

Non-Qualified Stock Option Plan

Incorporated by reference to Exhibit 4 (b) filed on August 19, 2014 with CEL-SCI’s registration statement on Form S¬8 (File number 333-198244).

4(d)

Stock Bonus Plan

Incorporated by reference to Exhibit 4 (d) filed on September 25, 2012 with CEL-SCI’s registration statement on Form S¬8 (File number 333-184092).

4(e)

Stock Compensation Plan

Incorporated by reference to Exhibit 4 (e) filed on September 25, 2012 with CEL-SCI’s registration statement on Form S¬8 (File number 333-184092).