CEL-SCI (CVM) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the Company's condensed financial statements, including balance sheets, statements of operations, stockholders' equity, cash flows, detailed notes, and management's discussion and analysis Condensed Balance Sheets Total assets decreased to $44.56 million by December 31, 2022, driven by reduced cash and prepaid expenses, with corresponding declines in liabilities and stockholders' equity | Metric | Dec 31, 2022 (Unaudited) ($) | Sep 30, 2022 ($) | | :-------------------------- | :----------------------- | :----------- | | Assets | | | | Cash and cash equivalents | $18,017,319 | $22,672,138 | | Total current assets | $20,404,330 | $25,435,916 | | Total assets | $44,557,737 | $50,523,706 | | Liabilities | | | | Total current liabilities | $4,741,941 | $4,663,751 | | Total liabilities | $17,966,116 | $18,360,499 | | Stockholders' Equity | | | | Total stockholders' equity | $26,591,621 | $32,163,207 | Condensed Statements of Operations The Company reported a net loss of $7.85 million for the three months ended December 31, 2022, an improvement from the prior year, due to reduced operating expenses and no derivative gains | Metric | 3 months ended Dec 31, 2022 ($) | 3 months ended Dec 31, 2021 ($) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Research and development | $5,392,546 | $6,083,167 | | General and administrative | $2,258,003 | $2,760,208 | | Total operating expenses | $7,650,549 | $8,843,375 | | Operating loss | $(7,650,549) | $(8,843,375) | | Gain on derivative instruments | - | $364,596 | | Net loss | $(7,853,509) | $(8,782,606) | | Net loss per common share – basic | $(0.18) | $(0.20) | | Weighted average common shares outstanding - basic | 43,440,387 (Shares) | 43,077,961 (Shares) | Condensed Statement of Stockholders' Equity Total stockholders' equity decreased to $26.59 million by December 31, 2022, primarily due to a net loss, partially offset by warrant exercises and equity compensation | Metric | Sep 30, 2022 ($) | Dec 31, 2022 ($) | | :--------------------------------------- | :------------- | :------------- | | Common Shares | 43,448,317 (Shares) | 43,725,636 (Shares) | | Common Stock Amount | $434,484 | $437,256 | | Additional Paid-In Capital | $486,625,816 | $488,904,967 | | Accumulated Deficit | $(454,897,093) | $(462,750,602) | | Total Stockholders' Equity | $32,163,207 | $26,591,621 | | Net loss (3 months ended Dec 31, 2022) | - | $(7,853,509) | | Warrant exercises (3 months ended Dec 31, 2022) | - | $447,291 | | Equity based compensation - employees (3 months ended Dec 31, 2022) | - | $1,703,931 | Condensed Statements of Cash Flows Cash and cash equivalents decreased by $4.65 million to $18.02 million for the three months ended December 31, 2022, driven by operating activities, partially offset by financing | Cash Flow Activity | 3 months ended Dec 31, 2022 ($) | 3 months ended Dec 31, 2021 ($) | | :------------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(4,666,649) | $(4,805,946) | | Net cash (used in) provided by investing activities | $(53,580) | $6,112,223 | | Net cash provided by (used in) financing activities | $65,410 | $(256,508) | | NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | $(4,654,819) | $1,049,769 | | CASH AND CASH EQUIVALENTS, END OF PERIOD | $18,017,319 | $37,109,917 | | Non-Cash Investing and Financing Activities | 2022 ($) | 2021 ($) | | :------------------------------------------ | :-------- | :------ | | Property and equipment included in current liabilities | $105,318 | $469,005 | | Prepaid consulting services paid with issuance of common stock | $91,623 | $233,753 | | Cash paid for interest | $277,853 | $290,212 | Notes to Condensed Financial Statements This section details the Company's accounting policies, liquidity, equity changes, fair value measurements, related party transactions, commitments, patents, and loss per share calculations A. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines the basis of financial statement presentation and summarizes key accounting policies, including cash, investments, property, R&D, patents, stock-based compensation, leases, and derivatives - The unaudited condensed financial statements contain all necessary adjustments for fair presentation and should be read in conjunction with the annual report on Form 10-K for the year ended September 30, 2022[49] - There is substantial doubt about the Company's ability to continue as a going concern due to recurring losses and future liquidity needs[50] - Key accounting policies include: cash and cash equivalents (highly liquid investments < 3 months maturity), U.S. Treasury Bills (highly liquid, >3 months but <1 year maturity, recorded at fair value), property and equipment (straight-line depreciation 5-7 years), R&D and manufacturing supplies (recorded at cost, expensed when used), patents (capitalized, amortized over shorter of useful/legal life, impairment recognized if future undiscounted cash flows are less than carrying value)[51][52][53][54][55] - Stock-based compensation for equity awards is measured at fair value on grant date using Black-Scholes or Monte Carlo simulation, expensed over the service period[56][57][67][69] - Leases are accounted for under ASC 842, recognizing right-of-use assets and lease liabilities for contracts conveying control over identified assets; short-term leases (12 months or less) are not reflected on the balance sheet[62] - Derivative instruments are recognized as assets or liabilities at fair value, with gains or losses recognized in earnings, in accordance with ASC 815[64] B. LIQUIDITY This section addresses significant R&D and clinical trial costs, ongoing capital requirements, and substantial doubt about the Company's ability to continue as a going concern - The Company has incurred significant costs for technology acquisition, R&D, administrative costs, facility expansion, and clinical trials, funded primarily by loans and public/private sale of securities[88] - Additional capital is required to finance the Company through marketing approval, with plans to raise funds through warrant exercises, corporate partnerships, and debt/equity financings[74] - There is substantial doubt about the Company's ability to continue as a going concern due to recurring losses and future liquidity needs, with no assurance of successful fundraising on acceptable terms[75][88] - The full impact of the COVID-19 pandemic on the Company's financial condition, liquidity, and future operations remains uncertain, with management actively monitoring risks[89] C. STOCKHOLDERS' EQUITY This section details changes in stockholders' equity, including equity compensation plans, stock option activity, restricted stock issuances, warrant exercises, and derivative instrument impact Equity Compensation Plan | Equity Compensation Plan | Total Shares Reserved Under Plans (Shares) | | :----------------------------- | :-------------------------------- | | Incentive Stock Option Plans | 138,400 | | Non-Qualified Stock Option Plans | 13,787,200 | | Stock Bonus Plans | 783,760 | | Stock Compensation Plans | 634,000 | | Incentive Stock Bonus Plan | 640,000 | Stock Option Activity | Stock Option Activity | 3 months ended Dec 31, 2022 (Options) | 3 months ended Dec 31, 2021 (Options) | | :-------------------- | :-------------------------- | :-------------------------- | | Options granted | 2,500 | 251,000 | | Options exercised | - | 6,500 | | Options forfeited | 96,832 | 13,000 | | Options expired | 45,400 | - | - During the three months ended December 31, 2022, 40,236 shares of restricted common stock were issued to consultants for services, with a weighted average grant date fair value of $2.53 per share, compared to 18,020 shares issued at $9.93 per share in 2021[12][146] - Stock-based compensation expense for consulting agreements was approximately $149,000 in Q4 2022, down from $218,000 in Q4 2021[117] - On October 28, 2022, the expiration date of Series RR warrants was extended by two years, resulting in an incremental cost of approximately $172,000, recorded as a deemed dividend[96][102] Warrants Exercised (Equity) | Warrants Exercised (Equity) | 3 months ended Dec 31, 2022 (Warrants) | Proceeds (2022) ($) | 3 months ended Dec 31, 2021 (Warrants) | Proceeds (2021) ($) | | :-------------------------- | :-------------------------- | :-------------- | :-------------------------- | :-------------- | | Series RR | 17,752 | $29,291 | - | - | | Series SS | 200,000 | $418,000 | - | - | | Series NN | - | - | 4,500 | $11,340 | | Series TT | - | - | 10,000 | $22,400 | | Series CC | - | - | 15,205 | $76,000 | | Total | 217,752 | $447,291 | 29,705 | $109,740 | - No warrant liabilities were outstanding during the three months ended December 31, 2022, compared to a net gain on warrant liabilities of $364,596 in 2021[11][182] D. FAIR VALUE MEASUREMENTS This section defines fair value measurement principles, outlines the fair value hierarchy, and confirms the absence of Level 3 derivative instruments - Fair value is determined as the price to sell an asset or transfer a liability in an orderly transaction between market participants, generally using the income approach[98] - The fair value hierarchy prioritizes inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs reflecting management's assumptions)[99][118] - As of December 31, 2022, and September 30, 2022, the Company did not have any derivative instruments classified as Level 3 in the fair value hierarchy[119][121] E. RELATED PARTY TRANSACTIONS This section details co-development and revenue sharing agreements with Ergomed, including their $12 million contribution to the Phase 3 Clinical Trial and related R&D expenses - Under co-development and revenue sharing agreements, Ergomed agreed to contribute up to $12 million towards the Phase 3 Clinical Trial in discounted clinical services, in exchange for milestone and royalty payments[103][194] - Approximately $11.8 million of Ergomed's committed $12 million contribution has been realized as of December 31, 2022[194] - The Company recorded approximately $0.1 million and $0.2 million (net of Ergomed's discount) as R&D expense related to Ergomed's services for the three months ended December 31, 2022 and 2021, respectively[103] F. COMMITMENTS AND CONTINGENCIES This section outlines the Company's lease obligations for manufacturing and R&D facilities, including finance and operating lease liabilities and future payment schedules - The Company leases a manufacturing facility (San Tomas lease) for a 20-year term, expiring October 2028, with annual base rent escalating at 3%[105][175] - The facility was upgraded for potential commercial production of Multikine, with the landlord financing $2.4 million[175] - As of December 31, 2022, the net book value of finance lease right-of-use assets was approximately $10.5 million, and the finance lease liability was approximately $12.9 million[104] - The weighted average discount rate is 8.45% with a weighted average time to maturity of 5.08 years[104] Finance Lease Payments (as of Dec 31, 2022) | Finance Lease Payments (as of Dec 31, 2022) | Amount ($) | | :------------------------------------------ | :------------ | | Nine months ending September 30, 2023 | $1,937,000 | | Year ending September 30, 2024 | $2,655,000 | | Year ending September 30, 2025 | $2,741,000 | | Year ending September 30, 2026 | $2,832,000 | | Year ending September 30, 2027 | $2,923,000 | | Year ending September 30, 2028 | $3,015,000 | | Thereafter | $252,000 | | Total future minimum lease obligation | $16,355,000 | | Less imputed interest | $(3,446,000) | | Net present value of finance lease obligations | $12,909,000 | - The Company leases two facilities under operating leases, with the R&D laboratory lease renewed until February 29, 2032[149] - As of December 31, 2022, the net book value of operating lease right-of-use assets was approximately $1.8 million, and the operating lease liability was approximately $2.0 million[149] - The weighted average discount rate is 9.10% with a weighted average time to maturity of 7.6 years[149] Operating Lease Payments (as of Dec 31, 2022) | Operating Lease Payments (as of Dec 31, 2022) | Amount ($) | | :-------------------------------------------- | :------------ | | Nine months ending September 30, 2023 | $262,000 | | Year ending September 30, 2024 | $357,000 | | Year ending September 30, 2025 | $366,000 | | Year ending September 30, 2026 | $287,000 | | Year ending September 30, 2027 | $277,000 | | Year ending September 30, 2028 | $285,000 | | Thereafter | $1,040,000 | | Total future minimum lease obligation | $2,874,000 | | Less imputed interest | $(893,000) | | Net present value of operating lease obligation | $1,981,000 | G. PATENTS This section details patent impairment charges and amortization expenses, along with estimated future patent amortization expenses - During the three months ended December 31, 2022, the Company recorded $0 in patent impairment charges, compared to $31,000 in 2021[150] - Amortization of patent costs totaled approximately $10,000 in 2022 and $14,000 in 2021[150] Estimated Future Patent Amortization Expense | Estimated Future Patent Amortization Expense | Amount ($) | | :------------------------------------------- | :----------- | | Nine months ending September 30, 2023 | $28,000 | | Year ending September 30, 2024 | $30,000 | | Year ending September 30, 2025 | $28,000 | | Year ending September 30, 2026 | $24,000 | | Year ending September 30, 2027 | $21,000 | | Year ending September 30, 2028 | $17,000 | | Thereafter | $54,000 | | Total | $202,000 | H. LOSS PER COMMON SHARE This section explains the calculation of basic and diluted loss per common share and lists anti-dilutive securities - Basic loss per share is calculated by dividing net loss available to common shareholders by the weighted average number of common shares outstanding; diluted loss per share excludes anti-dilutive securities[151] Loss Per Share Metric | Loss Per Share Metric | 3 months ended Dec 31, 2022 ($) | 3 months ended Dec 31, 2021 ($) | | :---------------------------------------- | :-------------------------- | :-------------------------- | | Net loss available to common shareholders - basic | $(8,025,061) | $(8,782,606) | | Weighted average shares outstanding - basic | 43,440,387 (Shares) | 43,077,961 (Shares) | | Basic loss per common share | $(0.18) | $(0.20) | | Diluted loss earnings per common share | $(0.18) | $(0.20) | Anti-Dilutive Securities (as of Dec 31) | Anti-Dilutive Securities (as of Dec 31) | 2022 (Securities) | 2021 (Securities) | | :-------------------------------------- | :----------- | :----------- | | Options and Warrants | 13,917,352 | 10,477,966 | | Unvested Restricted Stock | 149,250 | 151,250 | | Total | 14,066,602 | 10,629,216 | I. New Accounting Pronouncements This section discusses the adoption of new accounting standards, ASU 2020-06 and ASU 2019-12, and their immaterial impact on the Company's financial statements - The Company adopted ASU 2020-06 (Debt with Conversion and Other Options) effective October 1, 2021, with no financial impact in the period of adoption[65][66] - The Company adopted ASU 2019-12 (Income Taxes) effective October 1, 2021, with no impact on its financial statements[86] - The Company has considered all recently issued accounting pronouncements and does not believe their adoption will have a material impact on its financial statements[73] J. SUBSEQUENT EVENTS This section reports a subsequent event where the Company deposited $2.3 million to its landlord due to falling below a stipulated cash threshold - On January 11, 2023, the Company was required to deposit approximately $2.3 million to its landlord for falling below the stipulated cash threshold in accordance with the San Tomas lease[15] - This amount will be included in current assets until the minimum cash balance is met and the deposit is returned[15] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition, operational results, and liquidity for the three months ended December 31, 2022, including clinical trial progress and funding strategies Overview This overview details the completion of the Multikine Phase 3 study, its survival benefits, the impact of chemotherapy, and the development of LEAPS technology - The Company completed its 9.5-year pivotal Phase 3 study for Multikine® (Leukocyte Interleukin, Injection) in advanced head and neck cancer (SCCHN)[8] - The Phase 3 study showed a long-term 5-year overall survival (OS) benefit of 14.1% for the Multikine treatment arm followed by surgery and radiation (62.7% vs. 48.6% for control), with no safety issues; this benefit was robust, durable, and increased over time[8][131] - When chemotherapy was added to the treatment arm, the immunological effect of Multikine was negated, leading to the combined study not achieving its primary endpoint of a 10% improvement in overall survival[154] - The Company is also developing LEAPS (Ligand Epitope Antigen Presentation System) technology, investigating CEL-4000 as a potential therapeutic vaccine for rheumatoid arthritis[187] - All projects are under development, and the Company cannot predict when it will generate revenue from product sales[156] Liquidity and Capital Resources This section discusses the Company's historical financing, ongoing capital needs for clinical trials, cash flow changes, and the necessity of raising additional capital - Since inception, operations have been financed through equity securities, convertible notes, loans, and research grants; the Company anticipates continued net operating losses and will rely on these financing vehicles[133] - The Company has incurred approximately $64.2 million in direct costs for the Phase 3 clinical trial and filing as of December 31, 2022, with an estimated additional $0.6 million needed for completion[134] - During the three months ended December 31, 2022, cash decreased by approximately $4.7 million, primarily due to $4.7 million used in regular operations, including the Phase 3 clinical trial[135] - The Company incurred a net operating loss of approximately $7.7 million for the three months ended December 31, 2022, including significant non-cash expenses like $1.7 million in stock-based employee compensation and $1.0 million in depreciation and amortization[160] - Prepaid expenses decreased by approximately $0.2 million (29%) at December 31, 2022, compared to September 30, 2022, mainly due to a decrease in prepaid stock compensation to non-employees[159] - The Company will need to raise additional capital or secure long-term financing to continue research and development efforts, with no assurance of obtaining sufficient funds[157] Results of Operations and Financial Condition This section analyzes changes in research and development, general and administrative expenses, derivative gains, and net interest expense for the three months ended December 31, 2022 Research and Development Expenses | Research and Development Expenses | 3 months ended Dec 31, 2022 ($) | 3 months ended Dec 31, 2021 ($) | | :-------------------------------- | :-------------------------- | :-------------------------- | | MULTIKINE | $5,294,377 | $5,791,419 | | LEAPS | $98,169 | $291,748 | | TOTAL | $5,392,546 | $6,083,167 | - Research and development expenses decreased by approximately $0.7 million (11%) in Q4 2022 compared to Q4 2021, primarily due to a $0.9 million decrease in employee stock compensation and a $0.4 million decrease in Phase 3 clinical study costs, partially offset by increases in commercial preparation costs ($0.4 million) and other R&D costs ($0.2 million)[138] - General and administrative expenses decreased by approximately $0.5 million (18%) in Q4 2022 compared to Q4 2021, mainly due to a $0.7 million decrease in employee stock compensation costs, offset by a $0.2 million increase in other G&A costs[178] - The Company recorded derivative gains of approximately $0 million in Q4 2022, a decrease from $0.4 million in Q4 2021, due to fluctuations in the common stock share price affecting the fair value of derivative liabilities[161] - Net interest expense remained relatively constant at approximately $0.2 million in Q4 2022 and $0.3 million in Q4 2021, primarily consisting of interest paid on lease liabilities[139] Critical Accounting Estimates and Policies This section highlights critical accounting estimates for lease assets and liabilities, requiring judgment in lease terms and borrowing rates, and share-based compensation valuation - Critical accounting estimates include the measurement of finance and operating lease right-of-use assets and lease liabilities, which require judgment in determining estimated lease terms and incremental borrowing rates[165][179] - Share-based compensation cost for employees is measured at fair value using the Black-Scholes option pricing model (requiring assumptions like volatility and expected option life) or Monte-Carlo simulation for performance-based options (requiring estimates of performance/market conditions)[165] Item 3. Quantitative and Qualitative Disclosures about Market Risks The Company assesses its market risk exposure and concludes that it does not have any significant market risk - The Company does not believe that it has any significant exposure to market risk[196] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of December 31, 2022, due to material weaknesses, with no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures The CEO and CFO determined that the Company's disclosure controls and procedures were not effective as of December 31, 2022, due to previously identified material weaknesses - The Company's Chief Executive and Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2022, due to material weaknesses described in the Annual Report on Form 10-K for the year ended September 30, 2022[166] Changes in Internal Control over Financial Reporting No material changes in the Company's internal control over financial reporting occurred during the three months ended December 31, 2022 - There were no changes in the Company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the three months ended December 31, 2022[190] PART II This section covers unregistered sales of equity securities and lists exhibits filed with the quarterly report Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company issued 40,236 restricted common shares to consultants for investor relations services during the three months ended December 31, 2022, under a Section 4(a)(2) exemption - During the three months ended December 31, 2022, the Company issued 40,236 restricted shares of common stock to consultants for investor relations services[146] - The issuance relied on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, with shares acquired by sophisticated investors for their own accounts, without general solicitation, and bearing a restricted legend[169] Item 6. Exhibits This section provides a list of exhibits filed with the quarterly report | Number | Exhibit | | :----- | :------ | | 31 | Rule 13a-14(a) Certifications | | 32 | Section 1350 Certifications | Signatures The report was signed by Geert Kersten, Principal Executive Officer of CEL-SCI Corporation, on February 14, 2023 - The report was signed by Geert Kersten, Principal Executive Officer, on February 14, 2023[170]