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9. COMMITMENTS AND CONTINGENCIES | 12 Months Ended
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Sep. 30, 2015
Commitments and Contingencies Disclosure [Abstract] |
9. COMMITMENTS AND CONTINGENCIES | Clinical Research Agreements In March 2013, the Company entered into an agreement with Aptiv Solutions to provide certain clinical research services in accordance with a master service agreement. The Company will reimburse Aptiv for costs incurred. In May 2013, CEL-SCI made an advance payment of $400,000. In October 2013, the Company made the second and final advance payment of $200,000. In November 2014, $150,000 was credited against invoices received in accordance with the agreement. The remaining advances will be credited against future invoices in $150,000 annual increments through December 2017. As of September 30, 2015, $150,000 of the deposit is classified as a current asset. In April 2013, the Company entered into a co-development and revenue sharing agreement with Ergomed. Under the agreement, Ergomed will contribute up to $10 million towards the Phase III head and neck cancer study in the form of offering discounted clinical services in exchange for a single digit percentage of milestone and royalty payments, up to four times Ergomed’s contribution amount. The Company accounted for the co-development and revenue sharing agreement in accordance with ASC 808 “Collaborative Arrangements”. The Company determined the payments to Ergomed are within the scope of ASC 730 “Research and Development.” Therefore, the Company records the discount on the clinical services as a credit to research and development expense on its Statements of Operations. Since the Company entered into the co-development and revenue sharing agreement with Ergomed it has incurred research and development expenses of approximately $11,969,000 related to Ergomed’s services. This amount is net of Ergomed’s discount of approximately $4,159,000. During the years ended September 30, 2015, 2014 and 2013, the Company recorded, approximately $6,746,000, $4,385,000 and $838,000, respectively, as research and development expense related to Ergomed’s services. These amounts were net of Ergomed’s discount of approximately $2,364,000, $1,513,000 and $281,000, respectively, over the comparable periods. In October 2013, the Company entered into two co-development and profit sharing agreements with Ergomed. One agreement supports the U.S. Navy with the development of Multikine as a potential treatment for peri-anal warts in HIV/HPV co-infected men and women. The other agreement focuses on the development of Multikine as a potential treatment for cervical dysplasia in HIV/HPV co-infected women. Ergomed will assume up to $3 million in clinical and regulatory costs for each study. In April 2013, the Company dismissed inVentiv Health Clinical, LLC (f/k/a PharmaNet LLC) and PharmaNet GmbH (f/k/a PharmaNet AG), the Company’s former clinical research organization and replaced it with Aptiv Solutions, Inc. and Ergomed Clinical Research Ltd. On October 31, 2013, the Company initiated the proceedings against inVentiv Health Clinical, LLC, or inVentiv, the former third-party CRO, and is seeking payment for damages related to inVentiv’s prior involvement in the ongoing Phase 3 clinical trial of Multikine. The arbitration claim, initiated under the Commercial Rules of the American Arbitration Association, alleges (i) breach of contract, (ii) fraud in the inducement, and (iii) common law fraud. Currently, CEL-SCI is seeking at least $50 million in damages in its amended statement of claim. Based upon further analysis, however, CEL-SCI believes that its damages (direct and consequential) presently total over $150 million. On December 12, 2013, inVentiv filed a counterclaim, alleging breach of contract on the part of the Company and seeking at least $2 million in damages. On December 20, 2013, inVentiv moved to dismiss certain claims. On June 24, 2014, the arbitrator denied inVentiv’s motion to dismiss. In an amended statement of claim, the Company asserted the claims set forth above as well as an additional claim for professional malpractice. The arbitrator subsequently granted inVentiv’s motion to dismiss the professional malpractice claim based on the “economic loss doctrine” under New Jersey law, a legal doctrine that, under certain circumstances, prohibits bringing a negligence-based claim alongside a claim for breach of contract. The arbitrator denied the remainder of inVentiv’s motion, which had sought to dismiss certain other aspects of the amended statement of claim. In particular, the arbitrator rejected inVentiv’s argument that several aspects of the amended statement of claim were beyond the arbitrator’s jurisdiction. In connection with the pending arbitration proceedings, inVentiv has asserted counterclaims against the Company for (i) breach of contract, seeking at least $2 million in damages for services allegedly performed by inVentiv; (ii) breach of contract, seeking at least $1 million in damages for the Company’s alleged use of inVentiv’s name in connection with publications and promotions in violation of the parties’ contract; (iii) opportunistic breach, restitution and unjust enrichment, seeking at least $20 million in disgorgement of alleged unjust profits allegedly made by the Company as a result of the purported breaches referenced in subsection (ii); and (iv) defamation, seeking at least $1 million in damages for allegedly defamatory statements made about inVentiv. The Company believes inVentiv’s counterclaims are meritless and intends to vigorously defend against them. However, if such defense is unsuccessful, and inVentiv successfully asserts any of its counterclaims, such an adverse determination could have a material adverse effect on our business, results, financial condition and liquidity. In October 2015 CEL-SCI signed a funding agreement with a company established by Lake Whillans Litigation Finance, LLC, a firm specializing in funding litigation expenses. Pursuant to the agreement, an affiliate of Lake Whillans will provide CEL-SCI with up to $5,000,000 in funding for litigation expenses to support its $50,000,000 arbitration claims against inVentiv. The funding will be available to CEL-SCI if and when needed to fund the expenses of the ongoing arbitration and will only be repaid when CEL-SCI receives proceeds from the arbitration. The arbitration hearing on the merits (the “trial”) is expected to occur in the spring of 2016. The exact date has not yet been determined. Lease Agreements The future minimum annual rental payments due under non-cancelable operating leases for office and laboratory space are as follows:
Years Ending September 30, |  |  |  |
2016 |  | $ | 1,861,154 |
2017 |  |  | 1,844,807 |
2018 |  |  | 1,848,235 |
2019 |  |  | 1,912,779 |
2020 |  |  | 1,951,756 |
Thereafter |  |  | 17,698,979 |
Total minimum lease payments: |  | $ | 27,117,710 |
Rent expense, including amortization of deferred rent, for the years ended September 30, 2015, 2014 and 2013, was $2,651,638, $2,650,829 and $2,651,460, respectively. The Company’s three leases expire between February 2017 and October 2028. In August 2007, the Company leased a building near Baltimore, Maryland. 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 III 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. At September 30, 2015, the Company recorded a total deferred rent asset of $4,532,266, of which $4,044,473 is long term and the balance of $487,793 is included in current assets. At September 30, 2014, the Company recorded a total deferred rent asset of $5,277,939, of which $4,733,865 is long term and the balance of $544,074 is included in current assets. On September 30, 2015 and 2014, the Company has included in deferred rent the following: 1) deposit on the manufacturing facility ($3,150,000); 2) the fair value of the warrants issued to lessor ($1,403,654); 3) additional investment ($2,995,541); 4) deposit on the cost of the leasehold improvements for the manufacturing facility ($1,786,591). At September 30, 2015, the Company has also included accrued interest on deposit of $127,927, and accumulated amortization of $4,931,447. At September 30, 2014, the Company has also included accrued interest on deposit of $329,525, and accumulated amortization of $4,387,374. The Company was required to deposit the equivalent of one year of base rent in accordance with the lease. When the Company meets the minimum cash balance required by the lease, the deposit will be returned to the Company. The $1,670,917 is included in non-current assets on September 30, 2015 and 2014. The Company subleases a portion of its rental space on a month to month term lease, which requires a 30 day notice for termination. The sublease rent for the years ended September 30, 2015, 2014 and 2013 was $64,879, $63,144 and $61,305, respectively, and is recorded in grant income and other in the statements of operations. The Company leases its research and development laboratory under a 60 month lease which expires February 28, 2017. The operating lease includes escalating rental payments. The Company is recognizing the related rent expense on a straight line basis over the full 60 month term of the lease at the rate of $11,360 per month. As of September 30, 2015 and 2014, the Company has recorded a deferred rent liability of $6,484 and $6,387, respectively. On July 1, 2015, the Company renewed the operating lease on the office headquarters under a 60 month lease which expires June 30, 2020. The operating lease includes escalating rental payments. The Company is recognizing the related rent expense on a straight line basis over the full 60 month term of the lease at the rate $8,134 per month. Under the prior operating lease, rent expense was recognized at a rate of $7,864. As of September 30, 2015 and 2014, the Company has recorded a deferred rent liability of $12,539 and $6,278, respectively. The Company leases office equipment under a capital lease arrangement. The term of the capital lease is 48 months and expires on September 30, 2016. The monthly lease payment is $1,025. The lease bears interest at approximately 6% per annum. Employment Contracts On August 30, 2013, the Company’s employment agreement with Maximilian de Clara, the Company’s President and a director, as amended on September 8, 2006 and extended on August 30, 2010, was further extended to August 30, 2016. The employment agreement provides that the Company will pay Mr. de Clara an annual salary of $363,000 during the term of the agreement. In the event that there is a material reduction in his authority, duties or activities, or in the event there is a change in the control of the Company, then the agreement allows him to resign from his position at the Company and receive a lump-sum payment from the Company equal to 18 months of salary. For purposes of the employment agreement, a change in the control of the Company means the sale of more than 50% of the outstanding shares of the Company’s common stock, or a change in a majority of the Company’s directors. On September 1, 2011, the Company agreed to extend its employment agreement with Geert Kersten, the Company’s Chief Executive Officer, to August 31, 2016. Mr. Kersten’s annual salary for fiscal year 2015 was $542,769. Mr. Kersten will receive at least the same salary increases each year as do other senior executives of the Company. Further increases, if any, will be made at the sole discretion of the Company’s directors. During the employment term, Mr. Kersten will be entitled to receive any other benefits which are provided to the Company’s executive officers or other fulltime employees in accordance with the Company’s policies and practices and subject to Mr. Kersten’s satisfaction of any applicable condition of eligibility. If Mr. Kersten resigns within ninety (90) days of the occurrence of any of the following events: (i) a relocation (or demand for relocation) of Mr. Kersten’s place of employment to a location more than thirty-five (35) miles from his current place of employment, (ii) a significant and material reduction in Mr. Kersten’s authority, job duties or level of responsibility or (iii) the imposition of significant and material limitations on the Mr. Kersten’s autonomy in his position, the employment agreement will be terminated. The employment agreement will also terminate upon the death of Mr. Kersten, Mr. Kersten’s physical or mental disability, willful misconduct, an act of fraud against the Company, or a breach of the employment agreement by Mr. Kersten. If the employment agreement is terminated for any of the foregoing, Mr. Kersten, or his legal representatives, as the case may be, will be paid the salary provided by the employment agreement through the date of termination, any options or bonus shares of the Company then held by Mr. Kersten will become fully vested and the expiration date of any options which would expire during the four year period following his termination of employment will be extended to the date which is four years after his termination of employment. In the event there is a change in the control of the Company, the agreement allows Mr. Kersten to resign from his position at the Company and receive a lump-sum payment from the Company equal to 24 months of salary, based upon his salary then in effect on the date of his resignation. For purposes of the employment agreement a change in the control of the Company means: (1) the merger of the Company with another entity if after such merger the shareholders of the Company do not own at least 50% of voting capital stock of the surviving corporation; (2) the sale of substantially all of the assets of the Company; (3) the acquisition by any person of more than 50% of the Company’s common stock; or (4) a change in a majority of the Company’s directors which has not been approved by the incumbent directors. On August 30, 2013, the Company amended certain sections of Mr. Kersten’s employee agreement so that it would correspond with similar sections of the employment agreements discussed below. On August 30, 2013, the Company extended its employment agreement with Patricia B. Prichep, the Company’s Senior Vice President of Operations, through August 30, 2016. Ms. Prichep’s annual salary for fiscal year 2015 was $238,644. On August 30, 2013, the Company extended its employment agreement with Eyal Talor, Ph.D., the Company’s Chief Scientific Officer, through August 30, 2016. Dr. Talor’s annual salary for fiscal year 2015 was $294,615. In the event there is a change in the control of the Company, the employment agreements with Ms. Prichep and Dr. Talor allow Ms. Prichep and/or Dr. Talor (as the case may be) to resign from her or his position at the Company and receive a lump-sum payment from the Company equal to 18 months of salary. For purposes of the employment agreements, a change in the control of the Company means: (1) the merger of the Company with another entity if after such merger the shareholders of the Company do not own at least 50% of voting capital stock of the surviving corporation; (2) the sale of substantially all of the assets of the Company; (3) the acquisition by any person of more than 50% of the Company’s common stock; or (4) a change in a majority of the Company’s directors which has not been approved by the incumbent directors. The employment agreements with Ms. Prichep and Dr. Talor will also terminate upon the death of the employee, the employee’s physical or mental disability, willful misconduct, an act of fraud against the Company, or a breach of the employment agreement by the employee. If the employment agreement is terminated for any of these reasons the employee, or her or his legal representatives, as the case may be, will be paid the salary provided by the employment agreement through the date of termination. Further, the Company has contingent obligations with other vendors for work that will be completed in relation to the Phase III trial. The timing of these obligations cannot be determined at this time. The total remaining cash cost of these future obligations for the Phase III trial is estimated to be approximately $21.6 million.

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