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G. COMMITMENTS AND CONTINGENCIES
9 Months Ended
Jun. 30, 2013
Commitments and Contingencies Disclosure [Abstract]  
G. COMMITMENTS AND CONTINGENCIES

G.           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, the Company made an advance payment of $400,000.  An additional advance payment of $200,000 is due on August 1, 2013.  The funds advanced will be credited back in $150,000 annual increments from December 2014 through December of 2017.

 

 

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 Company’s Phase III clinical trial in the form of offering discounted clinical services in exchange for a single digit percentage of milestone and royalty payments, up to a specified maximum 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 Erogmed are within the scope of Topic 730 “Research and Development” expense. Therefore, the Company will record the discount on the clinical services as a credit to research and development expense on its Statement of Operations.  During the nine and three months ending June 30, 2013, the Company recorded approximately $315,000 as research and development expense. This amount was net of Ergomed’s discount of approximately $114,000.

 

Lease Agreements

 

In August 2007, the Company leased a building near Baltimore, Maryland.  The building, which consists of approximately 73,000 square feet, 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 an annual base rent to escalate each year at 3%.  The Company is required to pay all real and personal property taxes, insurance premiums, maintenance expenses, repair costs and utilities.  The lease allows the Company, at its election, to extend the lease for two ten-year periods or to purchase the building at the end of the 20-year lease.

 

The amortization of the deferred rent for the nine months ended June 30, 2013 and 2012 was $489,902 and $528,498, respectively. The amortization of the deferred rent for the three months ended June 30, 2013 and 2012 was $161,866 and $174,773, respectively. 

 

The Company was required to deposit the equivalent of one year of base rent in accordance with the contract.  When the Company meets the minimum cash balance required by the lease, the deposit will be returned to the Company. The $1,670,917 deposit is included in non-current assets at June 30, 2013.

  

On December 7, 2011, the Company entered into a sublease for a period of four months commencing on December 10, 2011.  The Company receives $5,150 per month in rent for the subleased space.  The lease is now a month to month term lease with a 30 day notice requirement for termination.

 

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 June 30, 2013 and September 30, 2012, the Company has recorded a deferred rent liability of $3,393 and $1,033, respectively.

 

The Company leases office headquarters under a 36 month lease which expires June 30, 2015. The operating lease includes escalating rental payments.  The Company is recognizing the related rent expense on a straight line basis over the full 36 month term of the lease at the rate $7,864 per month.  As of June 30, 2013 and September 30, 2012, the Company has recorded a deferred rent liability of $13,759 and $15,479, respectively.

 

During the nine months ended June 30, 2013, the Company leased 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 16% per annum.

 

In May 2003, CEL-SCI entered into a licensing agreement with Eastern Biotech. The agreement provides for future royalty payments up to 2% of the net sales of Multikine worldwide until May 20, 2033.  In March 2013, the Company’s President Maximilian de Clara notified CEL-SCI that Eastern Biotech had offered to sell him the royalty rights for $500,000.  Mr. de Clara, in turn, offered this opportunity to the Company before accepting it himself.  On March 11, 2013 the Board of Directors, without Mr. de Clara present, decided not to pursue this opportunity, and shortly thereafter, Mr. de Clara purchased the royalty rights.