CEL-SCI (US:CVM)2019-12-16 21:20PART I This section provides an overview of CEL-SCI Corporation's business, products, technology, and regulatory environment Business Overview CEL-SCI Corporation is a clinical-stage biotechnology company focused on activating the immune system to combat cancer and infectious diseases. Its lead investigational therapy, Multikine®, is in a pivotal Phase III clinical trial for advanced squamous cell carcinoma of the head and neck and has received FDA orphan drug designation. The company is also developing peptide-based immunotherapies for rheumatoid arthritis using its LEAPS technology platform, supported by an NIH SBIR grant. Its business model relies on product development, regulatory approval, and commercialization, with development and distribution agreements for Multikine already in place with Teva Pharmaceutical Industries Ltd., Orient Europharma Co., Ltd., and Byron Biopharma LLC Products and Technology CEL-SCI focuses on developing Multikine for head and neck cancer and the LEAPS platform for autoimmune diseases and vaccines - CEL-SCI focuses on developing two main product candidates: Multikine (immunotherapy for head and neck cancer) and the LEAPS technology platform (vaccine candidates for rheumatoid arthritis and influenza)15 - Multikine is a proprietary mixture of 14 human natural cytokines, designed as a neoadjuvant therapy administered locally before other treatments to activate the immune system against tumors1719 - Multikine has received FDA orphan drug designation for squamous cell carcinoma of the head and neck (SCCHN), a disease diagnosed in approximately 650,000 patients globally each year, including about 60,000 in the US and 105,000 in Europe22 - The Phase III clinical trial for Multikine completed enrollment of 928 patients in September 2016, with the primary endpoint being a 10% improvement in overall survival for the treatment group825 Multikine Phase III Clinical Trial Costs | Metric | Amount (Million USD) | | :--- | :--- | | Costs incurred as of September 30, 2019 | 55.8 | | Estimated remaining costs | 4.5 | Multikine Development Agreements CEL-SCI has established agreements for Multikine's marketing and distribution in various international markets - Agreement with Teva Pharmaceutical Industries Ltd. grants exclusive marketing, distribution, and sales rights in Israel, Turkey, Serbia, and Croatia, with a 50/50 split of net sales293132 - Agreement with Orient Europharma Co., Ltd. grants exclusive marketing and distribution rights in Taiwan, Singapore, Malaysia, Hong Kong, Philippines, South Korea, Australia, and New Zealand, requiring them to bear 10% of clinical trial costs and purchase Multikine from CEL-SCI at 35% of the gross selling price343536 - Agreement with Byron Biopharma LLC grants exclusive marketing and distribution rights in South Africa, with a 50/50 split of net sales3839 LEAPS Technology Platform The LEAPS platform is a T-cell modulation process designed to guide specific immune responses against various diseases - LEAPS (Ligand Epitope Antigen Presentation System) is a T-cell modulation process designed to guide the body to select specific immune responses against bacterial, viral, parasitic infections, autoimmune diseases, allergies, transplant rejection, and cancer through "heteroconjugates"40 - CEL-SCI received a $1.5 million Phase 2 SBIR grant from NIH to advance its first LEAPS product candidate, CEL-4000 (for rheumatoid arthritis), towards an IND application1043 - CEL-4000 and CEL-2000 are therapeutic vaccine candidates for rheumatoid arthritis, with preclinical data suggesting they may offer personalized, disease-specific therapies acting at early stages of the disease process47 - LEAPS technology is also being tested in preclinical studies for potential peptide treatments for H1N1 (swine flu) hospitalized patients, targeting conserved epitopes of influenza A virus50 Intellectual Property The company protects its Multikine and LEAPS technologies through patents and trade secrets - Multikine is protected by composition of matter patents in the US and several major foreign markets, with US patents expiring in 2023 and patents in Germany, China, Japan, and Europe expiring between 2024-202657 - LEAPS technology is protected by US and European patents, with US patents expiring in 2021, 2022, and 2032, and European patents expiring in 2029, with pending applications potentially extending protection to 20345859 - Multikine's manufacturing method is protected as a trade secret57 Manufacturing Facility CEL-SCI operates a dedicated manufacturing facility for Multikine, preparing for potential commercial production - CEL-SCI has built a dedicated manufacturing facility for Multikine production, which has passed quality system reviews by EU Qualified Persons and is preparing for potential commercialization61 - The lease agreement for the manufacturing facility expires on October 31, 202862 Government Regulation Biopharmaceutical products are subject to extensive and complex regulations from various government agencies throughout their lifecycle - Biologics are extensively regulated by the FDA and other domestic and international regulatory bodies, covering all stages from research and development, testing, manufacturing, quality control, approval, to marketing63 - The US FDA's biologics approval process includes preclinical testing, IND submission, IRB approval, clinical trials (Phases I, II, III), BLA submission and review, manufacturing facility inspection, and final BLA approval6466676869707173747576 - FDA offers expedited review programs such as Fast Track, Priority Review, and Breakthrough Therapy designation to accelerate development and review of products for serious or life-threatening diseases addressing unmet medical needs7879 - Approved products remain subject to ongoing regulatory requirements, including record-keeping, adverse event reporting, advertising, cGMP compliance, with violations potentially leading to fines, product recalls, or withdrawal of approval818283 - Orphan drug designation provides financial incentives and a 7-year market exclusivity period for products treating rare diseases, but does not guarantee accelerated approval or regulatory advantages858687 - Product sales and promotion must also comply with other US healthcare laws, such as anti-kickback statutes, false claims acts, HIPAA, and the Sunshine Act, with violations potentially leading to criminal prosecution and substantial fines8889 - Third-party payer decisions on drug coverage and reimbursement are crucial for product sales, and drug pricing and reimbursement policies vary significantly across countries (especially in the EU), potentially impacting profitability909293 Risk Factors This section details the various risks associated with CEL-SCI's operations, product development, regulatory approvals, and market commercialization Risks Related to CEL-SCI CEL-SCI has incurred continuous losses since inception and expects to continue doing so, with uncertain profitability. The company heavily relies on Multikine's success, but its development and commercialization face significant uncertainties. The company requires substantial additional capital to sustain operations, otherwise it may be forced to delay or terminate product development. Additionally, the company faces risks such as delays in manufacturing facility renovation, potential legal proceedings, changes in corporate governance regulations, uncertain marketing plans, difficulties in recruiting and retaining key personnel, product liability risks, and insufficient market acceptance - CEL-SCI has accumulated losses of approximately $354 million since inception, expects to continue incurring losses, and has not yet generated revenue from product sales96 - The company heavily relies on the success of Multikine, its sole product candidate in late-stage clinical development, whose development, regulatory approval, and commercialization are highly uncertain97 - As of September 30, 2019, the company's cash and cash equivalents were approximately $8.4 million, requiring substantial additional capital to fund R&D, regulatory approval, and commercialization activities107 - Auditors have expressed substantial doubt about the company's ability to continue as a going concern, which may affect the execution of its business plans and financing capabilities102105 - Renovation of the manufacturing facility may delay Multikine's BLA submission and approval114115 - The company has not developed a clear marketing plan for Multikine and relies on third-party partners for international sales, whose success is uncertain119120 - Product liability litigation risk is high, potentially leading to substantial damages or limiting product development and commercialization, and existing insurance may be insufficient to cover all losses123124125127128 - Even if approved, commercial success depends on market acceptance by physicians, patients, and payers, influenced by factors such as product efficacy, safety, cost, and convenience130131132 Risks Related to Clinical Development, Government Approvals and the Marketing of Biopharmaceutical Products The clinical development, government approval, and commercialization of biopharmaceutical products are lengthy, expensive, and uncertain processes. CEL-SCI's product candidates must undergo rigorous preclinical and clinical testing and regulatory approval, which may lead to unexpected delays or failure to market. Clinical trials may be delayed or terminated due to various factors, and early trial results do not necessarily predict later success. The company relies on third-party CROs for clinical trials, whose performance may affect trial progress and data reliability. Even with orphan drug designation, market exclusivity is not guaranteed. Biologics development and manufacturing carry unique risks and face intense competition. Furthermore, changes in healthcare laws and regulations, strict price controls, and failure to establish an effective sales and marketing team could significantly and adversely impact the company's business and profitability - Clinical trials are expensive and time-consuming, with uncertain outcomes, and may be delayed or terminated due to financial resources, regulatory approvals, patient enrollment, CRO performance, ethical issues, or safety risks145146147149150 - The company lacks experience in submitting and pursuing regulatory approvals, which may lead to approval delays or rejections154 - Even if approved, products will be subject to strict ongoing government regulation, including product design, manufacturing (cGMP), advertising, adverse event reporting, with non-compliance potentially leading to license suspension or revocation, or criminal prosecution156157158159 - Product candidates may cause adverse side effects, leading to clinical trial interruptions, delayed or denied regulatory approval, or negative post-market consequences, including product recalls or withdrawal of approval162163164 - The company relies on third-party CROs for preclinical and clinical trials, and if these third parties fail to perform their duties or comply with regulatory requirements, it may prevent product approval or commercialization166167169 - Even with orphan drug designation, market exclusivity may be lost due to earlier approval by competitors, pursuit of broader indications, or inability to ensure sufficient product supply171172173 - The discovery, development, manufacturing, and sales processes for biologics are complex and uncertain, involving unique risks such as biological material acquisition, complex manufacturing processes, and strict regulation174 - The company faces intense competition from large pharmaceutical companies, specialty pharmaceutical companies, and biotechnology companies, which typically possess greater resources and expertise176177178 - The company may not successfully scale up Multikine production to meet commercialization needs, which could delay or prevent product launch179180181 - Changes and enforcement of healthcare laws and regulations (such as FCPA, anti-kickback statutes, false claims acts) may significantly and adversely impact the company's business, especially post-commercialization183184186197198199 - Failure to obtain or maintain adequate reimbursement and coverage, as well as foreign government price controls, may limit product markets and reduce profitability187188189203204207 - The company currently lacks a marketing and sales team, and establishing or partnering with a third-party sales team carries risks, potentially affecting product commercialization and revenue generation194195196 - Failure to comply with environmental, health, and safety laws and regulations may result in fines or additional costs208209 - The company's patents may not effectively protect its technology from competition, and the validity and enforceability of intellectual property are uncertain210211212214215216 - Many intellectual properties are protected as trade secrets, posing a risk of disclosure to competitors, and enforcing confidentiality agreements may be difficult217218219220 - The company may face claims of inventorship or ownership disputes regarding patents or other intellectual property222 Properties This section details CEL-SCI's leased office, laboratory, and manufacturing facilities Office and Laboratory Leases CEL-SCI leases office space in Vienna, Virginia, and a laboratory in Baltimore, Maryland - Office lease: monthly rent of approximately $8,000, lease term until June 30, 2020230 - Laboratory lease: 17,900 square feet, monthly rent of approximately $13,000, lease term until February 28, 2022231 Manufacturing Facility Lease CEL-SCI leases a 73,000 square foot manufacturing facility near Baltimore, Maryland, with a lease term until October 31, 2028 - Manufacturing facility: approximately 73,000 square feet, lease term until October 31, 2028232 - Annual base rent: approximately $1.8 million for the 12 months ended September 30, 2019, with a 3% annual increase232 - Other expenses: approximately $43,000 per month for real estate taxes, insurance, maintenance, and utilities232 - Lease terms: allow the company to extend the lease twice (each for ten years) or purchase the building at the end of the 20-year lease term232 - Accounting treatment: The company is considered the owner of the manufacturing building for accounting purposes232 Legal Proceedings This section addresses any legal proceedings involving the company Not Applicable No applicable legal proceedings during this reporting period Mine Safety Disclosures This section addresses any mine safety disclosures required for the reporting period Not Applicable No applicable mine safety disclosures during this reporting period Market for CEL-SCI's Common Equity and Related Stockholder Matters This section provides information on CEL-SCI's common stock market, trading, and shareholder matters Common Stock Information CEL-SCI's common stock is traded on NYSE American under "CVM", with approximately 700 registered holders as of September 30, 2019 - As of September 30, 2019, CEL-SCI's common stock had approximately 700 registered holders234 - CEL-SCI's common stock trades on NYSE American under the ticker symbol “CVM”234 CEL-SCI Common Stock Quarterly High and Low Quotes (NYSE American) | Quarter End | High Price ($) | Low Price ($) | | :--- | :--- | :--- | | December 31, 2017 | 2.14 | 1.60 | | March 31, 2018 | 2.50 | 1.30 | | June 30, 2018 | 3.66 | 0.83 | | September 30, 2018 | 4.44 | 0.82 | | December 31, 2018 | 4.39 | 2.60 | | March 31, 2019 | 3.55 | 2.37 | | June 30, 2019 | 8.99 | 3.77 | | September 30, 2019 | 9.93 | 5.80 | - The company currently does not intend to pay dividends on its common stock, nor does it have plans to do so in the future236 - Provisions in the company's certificate of incorporation regarding preferred stock allow the board to issue preferred stock with multiple voting rights and preferential dividend rights, which could make it more difficult to remove management and limit shareholder participation in certain transactions237 - The market price of the company's common stock has been highly volatile, influenced by various factors including financial performance, competition, regulation, patents, changes in key personnel, and macroeconomic conditions238 Selected Financial Data This section presents selected financial data for the company Smaller Reporting Company Exemption CEL-SCI, as a smaller reporting company, is exempt from providing information under this item as defined by SEC Rule 12b-2 - CEL-SCI is a smaller reporting company and is not required to provide information under this item239 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operating results Results of Operations For the year ended September 30, 2019, CEL-SCI's operating results show a narrowed net loss due to significantly reduced derivative losses and net interest expense, despite increases in R&D and general and administrative expenses. The company's primary revenue source is grant income, as all projects remain in development and have not yet generated product sales revenue Summary of Results of Operations (2019 vs 2018) | Metric | 2019 ($) | 2018 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Grant Revenue | 462,754 | 476,556 | (13,802) | -2.9% | | Research and Development Expenses | 12,659,287 | 10,914,531 | 1,744,756 | 16.0% | | General and Administrative Expenses | 7,998,573 | 6,334,271 | 1,664,302 | 26.3% | | Operating Loss | (20,195,106) | (16,772,246) | (3,422,860) | 20.4% | | Loss on Derivative Instruments | (760,603) | (8,643,561) | 7,882,958 | -91.2% | | Other Non-Operating Income (Loss) | 545,528 | (2,276,604) | 2,822,132 | -124.0% | | Net Interest Expense | (1,797,481) | (4,215,690) | 2,418,209 | -57.4% | | Net Loss | (22,134,640) | (31,837,205) | 9,702,565 | -30.5% | | Basic and Diluted Net Loss Per Share | (0.71) | (1.87) | 1.16 | -62.0% | | Weighted Average Common Shares (Basic and Diluted) | 31,174,394 | 17,004,722 | 14,169,672 | 83.3% | - Grant revenue primarily derived from an NIH Phase 2 SBIR grant to advance the IND application for LEAPS product candidate CEL-4000244 - Increase in R&D expenses primarily due to an approximately $0.6 million increase in Phase 3 clinical trial costs, an approximately $0.7 million increase in stock-based compensation expense, and an approximately $0.4 million increase in other R&D expenses for preparing the manufacturing facility for Multikine commercial production245 - Increase in general and administrative expenses primarily due to an approximately $1.0 million increase in employee stock-based compensation costs, partially offset by an approximately $0.7 million decrease in incentive stock bonus plan expenses, and an approximately $0.7 million increase in public relations expenses246 - Significant decrease in derivative losses primarily due to changes in the fair value of derivative liabilities resulting from fluctuations in the company's common stock price247 - Net interest expense decreased by approximately $2.4 million, primarily because all convertible notes were converted before September 30, 2018248 Research and Development Expenses Breakdown | Item | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | Multikine | 11,623,050 | 10,082,972 | | LEAPS | 1,036,237 | 831,559 | | Total R&D Expenses | 12,659,287 | 10,914,531 | Liquidity and Capital Resources CEL-SCI has limited revenue since inception, relying on equity securities, convertible notes, and loans for capital. The company raised approximately $14.8 million and $21.4 million in net proceeds in fiscal years 2019 and 2018, respectively, through common stock issuance and warrant/option exercises. It also issued stock to clinical research organizations for services. Due to continuous losses and limited cash, there is substantial doubt about the company's ability to continue as a going concern - The company primarily finances operations through the issuance of equity securities, convertible notes, and loans, and expects to continue doing so in the future254 Net Proceeds from Equity Financing | Fiscal Year | Net Proceeds (Million USD) | | :--- | :--- | | 2019 | 14.8 | | 2018 | 21.4 | - In fiscal year 2018, all outstanding convertible notes (principal of $2,294,300) were converted into 1,166,105 shares of common stock256 Fiscal Year 2019 Warrant Exercises and Proceeds | Warrant Series | Number Exercised | Exercise Price ($) | Proceeds ($) | | :--- | :--- | :--- | :--- | | Series CC | 403,017 | 5.00 | 2,015,085 | | Series GG | 200,000 | 3.00 | 600,000 | | Series HH | 13,500 | 3.13 | 42,188 | | Series II | 216,500 | 3.00 | 649,500 | | Series JJ | 20,550 | 3.13 | 64,219 | | Series KK | 213,870 | 3.04 | 649,095 | | Series NN | 65,502 | 2.52 | 165,065 | | Series OO | 10,000 | 2.52 | 25,200 | | Series PP | 172,500 | 2.30 | 396,750 | | Series QQ | 3,500 | 2.50 | 8,750 | | Series RR | 98,254 | 1.65 | 162,119 | | Series SS | 477,886 | 2.09 | 998,782 | | Series TT | 737,188 | 2.24 | 1,651,301 | | Series UU | 32,752 | 2.80 | 91,706 | | Series VV | 3,817,500 | 1.75 | 6,680,625 | | Series WW | 195,000 | 1.63 | 316,875 | | Total | 6,677,519 | | 14,517,260 | Fiscal Year 2018 Warrant Exercises and Proceeds | Warrant Series | Number Exercised | Exercise Price ($) | Proceeds ($) | | :--- | :--- | :--- | :--- | | Series S | 709,391 | 1.75 | 1,241,434 | | Series GG | 200,000 | 3.00 | 600,000 | | Series II | 383,500 | 3.00 | 1,150,500 | | Series KK | 182,100 | 3.04 | 522,674 | | Series PP | 1,577,500 | 2.30 | 3,628,250 | | Series QQ | 84,000 | 2.50 | 210,000 | | Series RR | 27,687 | 1.65 | 45,684 | | Series SS | 328,948 | 2.09 | 687,500 | | Series TT | 578,983 | 2.24 | 1,296,922 | | Total | 4,072,109 | | 9,412,964 | Summary of Other Non-Operating Income (Loss) (Related to Ergomed Agreement) | Metric | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | Amount realized through resale of shares | 3,945,528 | 3,230,796 | | Fair value of shares issued | 3,400,000 | 5,507,400 | | Other Non-Operating Income (Loss) | 545,528 | (2,276,604) | - As of September 30, 2019, Ergomed held 198,000 shares available for resale266 - Cash decreased by approximately $1.9 million in fiscal year 2019, primarily due to net cash used in operating activities of approximately $16.3 million, purchases of capitalized property, equipment, and patents of approximately $0.3 million, and payment of stock issuance costs of approximately $0.2 million, partially offset by total proceeds of approximately $14.9 million from common stock issuance and warrant/option exercises267 - Due to continuous losses and limited cash balances, there is substantial doubt about the company's ability to continue as a going concern268 Future Capital Requirements CEL-SCI's future capital needs include funding operating losses, R&D projects, lease payments, and convertible note repayments - The company estimates remaining costs for the Multikine Phase III clinical trial to be approximately $4.5 million, excluding potential commercial manufacturing costs271 - The company needs to raise additional capital through warrant/option exercises, debt or equity financing, or collaborative arrangements to bring Multikine to market272 - There is substantial doubt about the company's ability to continue as a going concern, and it may not generate sufficient cash to maintain current operating levels272 - Clinical trials and R&D projects are costly and time-consuming, and there is uncertainty regarding the company's ability to obtain sufficient capital and regulatory approvals273 Critical Accounting Policies CEL-SCI's critical accounting policies involve significant management judgments and estimates in preparing financial statements, including stock-based compensation, derivative valuation, lease accounting, and recent accounting standard changes - Stock-based compensation: Employee stock-based compensation costs are measured at fair value on the grant date using the Black-Scholes option pricing model and recognized as expense over the vesting period. Non-employee stock-based compensation costs are recognized as services are received and valued using the Black-Scholes model279280 - Derivative instruments: The company recognizes derivative instruments and hybrid instruments with embedded derivative features as assets or liabilities, measured at fair value, with gains and losses recognized in current earnings281 Quantitative and Qualitative Disclosure About Market Risks This section provides disclosures regarding the company's exposure to market risks Not Applicable No applicable quantitative and qualitative disclosure about market risks during this reporting period - This item is not applicable282 Financial Statements and Supplementary Data This section contains the company's financial statements and related supplementary data See the Financial Statements Included with This Report The financial statements and supplementary data for this report are included in the financial statements section - Financial statements are included in this report283 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section addresses any changes in or disagreements with accountants on accounting and financial disclosures Not Applicable No applicable changes in and disagreements with accountants on accounting and financial disclosure during this reporting period - This item is not applicable284 Controls and Procedures This section details the company's disclosure controls and internal controls over financial reporting Disclosure Controls and Procedures As of September 30, 2019, CEL-SCI's management concluded that its disclosure controls and procedures were effective - As of September 30, 2019, the company's Chief Executive Officer and Chief Financial Officer evaluated and concluded that the company's disclosure controls and procedures were effective285 Management's Report on Internal Control over Financial Reporting CEL-SCI's management is responsible for establishing and maintaining effective internal control over financial reporting, which was deemed effective as of September 30, 2019 - Management is responsible for establishing and maintaining effective internal control over financial reporting287 - As of September 30, 2019, the Chief Executive Officer and Chief Financial Officer evaluated and concluded that the company's internal control over financial reporting was effective289 - Independent registered public accounting firm BDO USA, LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of September 30, 2019289 - No significant changes occurred in the company's internal control over financial reporting during fiscal year 2019290 Other Information This section includes any other information required for disclosure None No other information to disclose for this reporting period - This item has no other information291 Directors and Executive Officers of the Registrant This section provides information on the company's directors and executive officers Officers and Directors CEL-SCI's leadership team comprises experienced professionals, including CEO Geert R. Kersten, and an independent board responsible for risk oversight and ethical conduct Officers and Directors | Name | Age | Position | | :--- | :--- | :--- | | Geert R. Kersten, Esq. | 61 | Director, Chief Executive Officer and Treasurer | | Patricia B. Prichep | 68 | Senior Vice President of Operations and Corporate Secretary | | Dr. Eyal Talor | 63 | Chief Scientific Officer | | Dr. Daniel H. Zimmerman | 78 | Senior Vice President of Cellular Immunology Research | | John Cipriano | 77 | Senior Vice President of Regulatory Affairs | | Dr. Peter R. Young | 74 | Director | | Bruno Baillavoine | 67 | Director | | Robert Watson | 62 | Director | - All directors have long tenures, bringing extensive experience to the company294 - Geert Kersten has served in his current leadership roles since 1995, with over two decades of experience in cancer immunotherapy295 - Dr. Eyal Talor joined in 1993 and was promoted to Chief Scientific Officer in 2009, possessing over 25 years of experience in clinical immunology and biopharmaceutical R&D, holding multiple Multikine and LEAPS-related patents298 - Dr. Daniel H. Zimmerman joined in 1996 as Senior Vice President of Cellular Immunology Research, holds multiple US patents, and has published over 40 scientific publications in immunology and infectious diseases299 - John Cipriano has served as Senior Vice President of Regulatory Affairs since 2004, with over 30 years of experience in biotechnology and pharmaceutical companies, as well as the FDA300 - Dr. Peter R. Young, Bruno Baillavoine, and Robert Watson are independent directors306 - The company has adopted a code of ethics applicable to senior management, available on its website307 Executive Compensation This section details the compensation of the company's executive officers and directors Components of Compensation — Executive Officers CEL-SCI's executive compensation comprises base salary, long-term incentives (stock options and/or stock awards), and benefits, designed to balance compensation security with performance incentives, attract and retain talent, and align executive interests with shareholder value creation - Executive compensation includes base salary, long-term incentives (stock options and/or stock awards), and benefits313 - Base salary aims to be competitive with comparable pharmaceutical and public companies, considering executive responsibilities, experience, expertise, and individual performance314 - Long-term incentives (equity compensation) are designed to align employee interests with shareholder interests, providing incentive and retention mechanisms316317 - Benefits include health and welfare plans, and a 401(k) plan, with the company matching 100% of employee contributions (up to 6% of salary or $1,000)318 Summary Compensation Table This table summarizes the compensation received by CEL-SCI's CEO and other highly compensated executives for the two fiscal years ended September 30, 2019 Executive Compensation Summary Table (2019 vs 2018) | Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Geert R. Kersten, CEO and Treasurer | 2019 | 511,387 | -- | 16,500 | 3,922,841 | 55,631 | 4,506,359 | | | 2018 | 557,756 | -- | 16,350 | 1,011,048 | 55,631 | 1,640,784 | | Patricia B. Prichep, SVP of Operations and Corporate Secretary | 2019 | 285,964 | -- | 14,679 | 1,956,794 | 9,031 | 2,266,467 | | | 2018 | 162,374 | -- | 14,679 | 424,557 | 9,031 | 610,641 | | Eyal Talor, Ph.D., Chief Scientific Officer | 2019 | 370,355 | -- | 9,600 | 1,846,231 | 6,031 | 2,232,217 | | | 2018 | 264,927 | -- | 9,600 | 681,389 | 6,031 | 961,946 | | Daniel Zimmerman, Ph.D., SVP of Cellular Immunology Research | 2019 | 243,551 | -- | 13,666 | 1,020,094 | 6,031 | 1,283,341 | | | 2018 | 276,159 | -- | 13,666 | 240,677 | 6,031 | 536,534 | | John Cipriano, SVP of Regulatory Affairs | 2019 | 202,651 | -- | -- | 998,005 | 31 | 1,200,686 | | | 2018 | 234,207 | -- | -- | 282,928 | 31 | 517,166 | - As of September 30, 2019, the company owed Geert Kersten, Patricia Prichep, Eyal Talor, Daniel Zimmerman, and John Cipriano salaries of $196,546, $114,918, $4,796, $5,194, and $17,811, respectively321 Compensation of Directors During Year Ended September 30, 2019 This table outlines the compensation received by CEL-SCI's directors for the fiscal year ended September 30, 2019, primarily consisting of director fees and option awards Director Compensation Summary Table (Fiscal Year 2019) | Name | Fees ($) | Stock Awards ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Geert Kersten | 40,000 | - | 3,922,841 | 3,962,841 | | Peter R. Young | 50,000 | - | 771,852 | 821,852 | | Bruno Baillavoine | 45,000 | - | 771,852 | 816,852 | | Robert Watson | 45,000 | - | 771,852 | 816,852 | Employment Contracts CEL-SCI has new employment agreements with its CEO, SVP of Operations, and CSO, detailing annual salaries, benefits, and severance terms - Geert Kersten's four-year employment agreement stipulates an annual salary of $559,052 and, upon certain termination events (such as change of control or significant reduction in duties), a severance payment of 24 months' salary ($1,118,104) and immediate vesting of unvested stock options330333 - Patricia B. Prichep and Dr. Eyal Talor's three-year employment agreements stipulate annual salaries of $245,804 and $303,453, respectively335336 - In the event of a change of control, Ms. Prichep and Dr. Talor may elect to resign and receive 18 months' salary as severance (approximately $368,706 and $455,180, respectively), along with immediate vesting of unvested stock options338 Stock Option, Bonus and Compensation Plans CEL-SCI maintains various shareholder-approved equity incentive plans to motivate and align employees, directors, and officers with company interests - The company has Incentive Stock Option Plans, Non-Qualified Stock Option Plans, Stock Bonus Plans, Stock Compensation Plans, and Incentive Stock Bonus Plans, all approved by shareholders342 - Incentive Stock Option Plans are granted only to employees, with exercise prices no less than the fair market value of common stock on the grant date, typically exercisable one year after grant, and valid for a maximum of ten years343344345 - Non-Qualified Stock Option Plans can be granted to employees, directors, officers, consultants, and advisors, with exercise prices determined by the Compensation Committee346 - Stock Bonus Plans and Stock Compensation Plans allow for the issuance of common stock to employees, directors, officers, consultants, and advisors as salary, fees, or other compensation347348 - Incentive Stock Bonus Plans aim to grant stock to executives and other employees who make significant contributions to the company's success, based on achieving specific milestones or stock price appreciation349 - All plans are administered by the Compensation Committee, which is responsible for selecting grantees, determining grant quantities, vesting conditions, and forfeiture terms350351 Fiscal Year 2019 Option Grant Information | Name | Grant Date | Number of Options Granted | Price Per Share ($) | Expiration Date | | :--- | :--- | :--- | :--- | :--- | | Geert Kersten | April 11, 2019 | 813,180 | 5.65 | April 10, 2029 | | Patricia Prichep | April 11, 2019 | 405,631 | 5.65 | April 10, 2029 | | Eyal Talor | April 11, 2019 | 382,712 | 5.65 | April 10, 2029 | | John Cipriano | April 11, 2019 | 206,880 | 5.65 | April 10, 2029 | | Dan Zimmerman | April 11, 2019 | 211,459 | 5.65 | April 10, 2029 | | Bruno Baillavoine | April 11, 2019 | 160,000 | 5.65 | April 10, 2029 | | Peter Young | April 11, 2019 | 160,000 | 5.65 | April 10, 2029 | | Robert Watson | April 11, 2019 | 160,000 | 5.65 | April 10, 2029 | Summary of Outstanding Options as of September 30, 2019 | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options | Weighted-Average Exercise Price of Outstanding Options ($) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the Column Above) | | :--- | :--- | :--- | :--- | | Incentive Stock Option Plans | 89,895 | 36.26 | 213 | | Non-Qualified Stock Option Plans | 6,128,216 | 5.09 | 112,166 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section outlines the beneficial ownership of the company's securities by certain individuals and management Beneficial Ownership As of December 1, 2019, certain beneficial owners, directors, and executive officers held CEL-SCI common stock, with CEO Geert R. Kersten being the largest individual beneficial owner Beneficial Ownership as of December 1, 2019 | Name and Address | Number of Shares | Percent of Class (%) | | :--- | :--- | :--- | | Geert R. Kersten | 2,428,308 | 6.6 | | Patricia B. Prichep | 387,789 | 1.1 | | Eyal Talor, Ph.D. | 308,205 | * | | Daniel H. Zimmerman, Ph.D. | 193,291 | * | | John Cipriano | 197,357 | * | | Peter R. Young, Ph.D. | 86,892 | * | | Bruno Baillavoine | 58,001 | * | | Robert Watson | 34,792 | * | | All Executive Officers and Directors as a Group (8 persons) | 3,694,635 | 9.88 | | * Less than 1% | | | Options or Warrants Exercisable by February 28, 2020 | Name | Options or Warrants Exercisable by February 28, 2020 | | :--- | :--- | | Geert R. Kersten, Esq. | 1,320,884 | | Patricia B. Prichep | 184,762 | | Eyal Talor, Ph.D. | 189,979 | | Daniel Zimmerman, Ph.D. | 80,200 | | John Cipriano | 114,249 | | Peter R. Young, Ph.D. | 65,801 | | Bruno Baillavoine | 55,001 | | Robert Watson | 33,334 | Certain Relationships and Related Transactions This section describes transactions between the company and its related parties Related Party Transactions Summary In fiscal year 2019, officers and one director purchased approximately $292,000 worth of restricted common stock, with similar transactions in fiscal year 2018 - In fiscal year 2019, officers and one director purchased 45,205 shares of restricted common stock with a total market value of approximately $292,000366 - In fiscal year 2018, officers purchased 463,855 shares of restricted common stock with a total market value of approximately $385,000366 Principal Accounting Fees and Services This section details the fees paid for principal accounting and audit services Audit Fees BDO USA, LLP served as CEL-SCI's independent registered public accountant, with audit fees of $363,000 in fiscal year 2019 and $445,000 in fiscal year 2018 BDO USA, LLP Audit Fees | Fee Type | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | Audit Fees | 363,000 | 445,000 | | Audit-Related Fees | - | - | | Tax Fees | - | - | | All Other Fees | - | - | - All audit and non-audit services were pre-approved by the Audit Committee369 Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed with the report Exhibits List This section lists various exhibits filed with the SEC, including corporate charters, bylaws, shareholder rights agreements, stock option plans, and development agreements - Exhibits include the company's certificate of incorporation, bylaws, shareholder rights agreement, stock option plans, securities purchase agreements, development and distribution agreements, and lease agreements372373374375376378380 - Some exhibits are incorporated by reference, with original filing locations noted372373374375376378380 Financial Statements for the Years Ended September 30, 2019 and 2018, and Report of Independent Registered Public Accounting Firm This section presents the company's financial statements for 2019 and 2018, along with the independent auditor's report Report of Independent Registered Public Accounting Firm BDO USA, LLP issued an unqualified opinion on CEL-SCI's financial statements and internal controls, while highlighting substantial doubt about the company's going concern ability - BDO USA, LLP issued an unqualified opinion on the company's financial statements for the years ended September 30, 2019 and 2018384 - The auditors issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of September 30, 2019385390 - The auditors included an explanatory paragraph in their report, noting that the company has incurred and expects to continue incurring losses, raising substantial doubt about its ability to continue as a going concern386 Balance Sheets As of September 30, 2019, CEL-SCI's total assets decreased, with a reduction in cash and an increase in stockholders' equity due to additional paid-in capital Summary of Balance Sheets (as of September 30) | Item | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and Cash Equivalents | 8,444,774 | 10,310,044 | | Accounts Receivable | 62,765 | 118,657 | | Prepaid Expenses | 524,953 | 364,622 | | Inventory for R&D and Production | 782,363 | 645,238 | | Total Current Assets | 9,814,855 | 11,438,561 | | Property, Plant and Equipment, Net | 15,825,636 | 16,218,851 | | Patent Costs, Net | 311,586 | 258,093 | | Deposits | 1,670,917 | 1,670,917 | | Total Assets | 27,622,994 | 29,586,422 | | Liabilities and Stockholders' Equity | | | | Accounts Payable | 1,586,478 | 5,743,913 | | Accrued Expenses | 34,432 | 205,310 | | Amounts Due to Employees | 709,442 | 764,941 | | Derivative Instruments (Current Portion) | 674,442 | 2,498,606 | | Other Current Liabilities | 14,956 | 14,029 | | Total Current Liabilities | 3,019,750 | 9,226,799 | | Derivative Instruments (Non-Current Portion) | 5,813,868 | 6,818,458 | | Lease Liabilities | 13,508,156 | 13,379,962 | | Deferred Revenue | 125,000 | 126,795 | | Other Liabilities | 22,553 | 33,492 | | Total Liabilities | 22,489,327 | 29,585,506 | | Common Stock | 352,318 | 280,346 | | Additional Paid-in Capital | 358,507,603 | 331,312,184 | | Accumulated Deficit | (353,726,254) | (331,591,614) | | Total Stockholders' Equity | 5,133,667 | 916 | | Total Liabilities and Stockholders' Equity | 27,622,994 | 29,586,422 | Statements of Operations For the year ended September 30, 2019, CEL-SCI's net loss narrowed to $22.1 million, primarily due to reduced derivative losses and net interest expense Summary of Statements of Operations (as of September 30) | Item | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | Grant Revenue | 462,754 | 476,556 | | Research and Development Expenses | 12,659,287 | 10,914,531 | | General and Administrative Expenses | 7,998,573 | 6,334,271 | | Total Operating Expenses | 20,657,860 | 17,248,802 | | Operating Loss | (20,195,106) | (16,772,246) | | Other Income | 73,022 | 70,896 | | Loss on Derivative Instruments | (760,603) | (8,643,561) | | Other Non-Operating Income (Loss) | 545,528 | (2,276,604) | | Net Interest Expense | (1,797,481) | (4,215,690) | | Net Loss | (22,134,640) | (31,837,205) | | Warrant Modification | - | (14,368) | | Net Loss Attributable to Common Stockholders | (22,134,640) | (31,851,573) | | Basic and Diluted Net Loss Per Share | (0.71) | (1.87) | | Weighted Average Common Shares (Basic and Diluted) | 31,174,394 | 17,004,722 | Statements of Stockholders' Equity As of September 30, 2019, CEL-SCI's stockholders' equity significantly increased to $5.1 million, driven by additional paid-in capital from equity activities Summary of Statements of Stockholders' Equity (as of September 30) | Item | Common Stock Shares | Common Stock Amount ($) | Additional Paid-in Capital ($) | Accumulated Deficit ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Balance as of October 1, 2017 | 11,903,133 | 119,031 | 296,298,401 | (299,754,409) | (3,336,977) | | 2018 Common Stock Sales | 7,690,623 | 76,906 | 11,715,335 | - | 11,792,241 | | 2018 Warrant Exercises | 4,072,109 | 40,721 | 10,752,142 | - | 10,792,863 | | 2018 401(k) Contributions | 93,640 | 937 | 144,153 | - | 145,090 | | 2018 Non-Employee Services Stock Issuance | 356,197 | 3,562 | 689,626 | - | 693,188 | | 2018 Employee Stock-Based Compensation | - | - | 2,743,267 | - | 2,743,267 | | 2018 Executive and Director Stock Purchases | 463,855 | 4,639 | 380,361 | - | 385,000 | | 2018 Stock Issuance Costs | - | - | (206,583) | - | (206,583) | | 2018 Warrants Issued with Notes | - | - | 947,616 | - | 947,616 | | 2018 Notes and Interest Converted to Stock | 1,194,930 | 11,950 | 2,363,066 | - | 2,375,016 | | 2018 Clinical Research Cost Settlement Stock | 2,260,000 | 22,600 | 5,484,800 | - | 5,507,400 | | 2018 Net Loss | - | - | - | (31,837,205) | (31,837,205) | | Balance as of September 30, 2018 | 28,034,487 | 280,346 | 331,312,184 | (331,591,614) | 916 | | 2019 Warrant Exercises | 6,677,519 | 66,775 | 18,039,842 | - | 18,106,617 | | 2019 401(k) Contributions | 30,996 | 310 | 143,568 | - | 143,878 | | 2019 Non-Employee Services Stock Issuance | 199,977 | 1,999 | 876,589 | - | 878,588 | | 2019 Employee Stock-Based Compensation | (7,500) | (75) | 4,428,249 | - | 4,428,174 | | 2019 Option Exercises | 65,997 | 660 | 149,822 | - | 150,482 | | 2019 Executive and Director Stock Purchases | 45,205 | 452 | 291,545 | - | 291,997 | | 2019 Stock Issuance Costs | - | - | (132,345) | - | (132,345) | | 2019 Clinical Research Cost Settlement Stock | 185,095 | 1,851 | 3,398,149 | - | 3,400,000 | | 2019 Net Loss | - | - | - | (22,134,640) | (22,134,640) | | Balance as of September 30, 2019 | 35,231,776 | 352,318 | 358,507,603 | (353,726,254) | 5,133,667 | Statements of Cash Flows For the year ended September 30, 2019, CEL-SCI's cash and cash equivalents decreased by $1.87 million, primarily due to operating outflows offset by financing inflows Summary of Statements of Cash Flows (as of September 30) | Item | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | (16,300,000) | (16,700,000) | | Net Cash Used in Investing Activities | (300,000) | (100,000) | | Net Cash Provided by Financing Activities | 14,434,730 | 17,800,000 | | Net Increase (Decrease) in Cash and Cash Equivalents | (1,865,270) | 1,000,000 | | Cash and Cash Equivalents at Beginning of Period | 10,310,044 | 9,310,044 | | Cash and Cash Equivalents at End of Period | 8,444,774 | 10,310,044 | - Cash interest paid was $1,809,242 in 2019 and $1,750,897 in 2018407 Supplemental Schedule of Non-Cash Investing and Financing Activities | Item | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | Purchases of property, plant and equipment included in accounts payable | 17,329 | - | | Prepaid consulting services paid by issuance of common stock | 22,563 | 162,452 | | Notes payable converted to common stock | - | 2,294,300 | | Exercise of derivative liabilities | 3,589,357 | 1,379,899 | | Capital lease obligations included in accounts payable | 441 | 415 | | Stock issuance costs included in current liabilities | 15,580 | 46,599 | Notes to Financial Statements The notes provide detailed information on CEL-SCI's organization, operations, financing, accounting policies, equity instruments, assets, liabilities, and other financial disclosures 1. Organization CEL-SCI Corporation, founded in 1983, focuses on immune system activation for cancer and infectious diseases - CEL-SCI Corporation was incorporated in Colorado on March 22, 1983, focusing on immune system activation to combat cancer and infectious diseases409 - Its lead investigational therapy, Multikine®, is undergoing a pivotal Phase III clinical trial for head and neck cancer and has received FDA orphan drug designation410 - Multikine is administered locally as a neoadjuvant therapy before other treatments, aiming to help the immune system recognize and kill tumor micrometastases411 - The company is also developing peptide-based rheumatoid arthritis vaccines and has received an NIH Phase 2 SBIR grant to advance the IND application for LEAPS product candidate CEL-4000412 2. Operations and Financing CEL-SCI has continuously incurred significant costs, primarily financed through securities issuance and loans, without product sales revenue - The company has continuously incurred significant costs since inception, primarily financed through the issuance of securities and loans, and has not generated product sales revenue413 - In fiscal years 2019 and 2018, the company received approximately $14.8 million and $21.4 million in net proceeds, respectively, from stock sales and warrant/option exercises413 - There is substantial doubt about the company's ability to continue as a going concern, requiring additional financing to complete clinical trials and bring products to market414416 - As of September 30, 2019, approximately $55.8 million in direct costs had been incurred for the Multikine Phase III clinical trial, with estimated remaining costs of approximately $4.5 million417 - The Phase III study enrolled 928 head and neck cancer patients, with the primary endpoint being a 10% improvement in overall survival for the Multikine treatment group when total deaths in the two main control groups reach 298418 - The company was awarded $2,917,834 in arbitration with former CRO inVentiv Health Clinical, LLC, but all proceeds were paid to Lake Whillans Litigation Finance per agreement419 3. Revision of Prior Period Financial Statements for Correction of Immaterial Errors In November 2019, the company reclassified approximately $1.5 million of employee compensation from general and administrative expenses to R&D expenses for prior period financial statements - In November 2019, the company identified a classification error in prior period financial statements, where approximately $1.5 million of certain employee compensation was misclassified from R&D expenses to general and administrative expenses420421 - This error did not affect total expenses, operating loss, net loss, net loss per share, cash flows, or stockholders' deficit420 Operating Expenses Reclassification (Fiscal Year 2018) | Operating Expense | Originally Reported ($) | Reclassification as of September 30, 2018 ($) | Restated ($) | | :--- | :--- | :--- | :--- | | Research and Development Expenses | 9,400,306 | 1,514,225 | 10,914,531 | | General and Administrative Expenses | 7,848,496 | (1,514,225) | 6,334,271 | | Total Operating Expenses | 17,248,802 | - | 17,248,802 | 4. Summary of Significant Accounting Policies This section outlines CEL-SCI's key accounting policies, including cash, inventory, property, patents, leases, derivatives, and revenue recognition - Cash and cash equivalents: include unrestricted cash in deposits and short-term money market funds with maturities of less than three months at purchase423 - Prepaid expenses: payments for future services or goods to be received within one year424 - Inventory: includes production prepayments and laboratory supplies for clinical research product manufacturing, measured at the lower of cost or market (first-in, first-out)425 - Deposits: required by lease agreements and CRO agreements425 - Property, plant, and equipment: Leased manufacturing facility recorded at total project cost and depreciated over a 20-year useful life. R&D and office equipment recorded at cost and depreciated using the straight-line method over 5-7 years. Leasehold improvements depreciated over the shorter of the asset's useful life or the lease term427 - Patents: Patent expenditures are capitalized and amortized using the straight-line method over the shorter of their estimated useful life or legal life (17 years)428 - Leases: Leases are classified as operating or finance leases. For build-to-suit leases, the company recognizes construction costs as assets and liabilities. The manufacturing facility lease is treated as a financing obligation due to not meeting sale-leaseback criteria429 - Deferred rent: Minimum annual payments for operating leases are recognized as expense on a straight-line basis over the lease term, with rent escalations and rent holidays creating deferred rent liabilities430 - Derivative instruments: Measured at fair value, with gains and losses recognized in current earnings and revalued periodically431 - Grant revenue: Treated on a reimbursement basis, recognized as expenses are incurred432 - Research and development costs: Expensed as incurred, with CRO and clinical trial expenses accrued based on service performance and study completion stage433 - Net loss per common share: Basic and diluted net loss per common share calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding. Potentially dilutive securities are excluded from diluted net loss per share due to their anti-dilutive effect434 - Concentration of credit risk: Primarily concentrated in cash and cash equivalents, which the company holds in high-quality financial institutions, with no losses incurred435 - Income taxes: The balance sheet method is used, with deferred tax assets and liabilities recognized based on future tax rates. A full valuation allowance has been provided for deferred tax assets due to uncertainty regarding future taxable income436 - Use of estimates: Financial statement preparation involves significant management judgments and assumptions regarding inventory obsolescence, accruals, stock options, depreciation and amortization of long-lived assets, valuation of deferred tax assets, and valuation of derivative liabilities438 - Fair value measurements: Fair value is determined in accordance with ASC 820, classified into a three-level fair value hierarchy (Level 1, Level 2, Level 3)439541 - Stock-based compensation: Employee stock-based compensation costs are measured at fair value on the grant date using the Black-Scholes model. Non-employee stock-based compensation costs are recognized as services are received and valued using the Black-Scholes model440441 - Recent accounting pronouncements: The company is evaluating the impact of ASU 2018-07 (stock-based compensation) and ASU 2016-02 (leases) on its financial statements. Adoption of ASU 2016-02 is expected to result in recording $13.1 million in right-of-use assets, a decrease of approximately $13.4 million in property a