Stockholders' Equity

9 Months Ended

Jun. 30, 2011

Stockholders' Equity

C. STOCKHOLDERS’ EQUITY

Below is a chart of the stock options, stock bonuses and compensation granted by the Company. Each option represents the right to purchase one share of the Company’s common stock at June 30, 2011:

Name of Plan	Total Shares Reserved Under Plan	Shares Reserved for Outstanding Options	Shares Issued as Stock Bonus	Remaining Options/Shares Under Plans
Incentive Stock Option Plans	19,100,000	11,168,041	N/A	7,320,225
Non-Qualified Stock Option Plans	35,760,000	23,463,240	N/A	8,690,510
Stock Bonus Plans	13,940,000	N/A	7,587,358	6,350,883
Stock Compensation Plans	11,500,000	N/A	5,386,531	6,113,469

Stock-Based Compensation Expense

	Nine Months Ended June 30				Three Months Ended June 30
	2011		2010		2011		2010
Employees	$	1,210,735	$	1,151,794	$	407,469	$	321,268
Non-Employees		168,133		758,636		5,001		57,900

Options and stock to employees

During the nine months ended June 30, 2011, 29,268 options were exercised from the Company’s option plans at prices ranging from $0.22 to $0.48. The total intrinsic value of options exercised during the nine months ended June 30, 2011 was $10,944. The Company received a total of $13,056 from the exercise of the options during the nine months ended June 30, 2011. During the three months ended June 30, 2011, no options were exercised from the Company’s option plans. During the nine months ended June 30, 2010, 89,958 options were exercised from the Company’s option plans. The total intrinsic value of options exercised during the nine months ended June 30, 2010 was $32,999. The Company received a total of $36,330 from the exercise of options during the nine months ended June 30, 2010. During the three months ended June 30, 2010, no options were exercised from the Company’s option plans.

During the nine months ended June 30, 2011, 2,379,594 stock options were granted at prices ranging from $0.63 to $0.85 with a fair value of $1,458,764 and 30,500 options expired and 2,000 were forfeited. During the three months ended June 30, 2011, 2,360,800 stock options were granted at prices ranging from $0.63 to $0.69 with a fair value of $1,445,172 and 27,500 options expired and 1,000 were forfeited. During the nine months ended June 30, 2010, 400,000 stock options were granted at prices ranging from $0.49 to $1.93 with a fair value of $420,371 and 48,167 options expired and 1,000 were forfeited. During the three months ended June 30, 2010, 6,000 stock options were granted at prices ranging from $0.49 to $0.63 with a fair value of $3,199 and 45,667 options expired.

During the nine months ended June 30, 2011, the Company extended 306,500 employee options. The options were due to expire between January 26, 2011 through December 3, 2011. All options were extended for an additional three years from the current expiration date. The additional cost of $105,802 was recorded as a charge to option expense. The value of the fully vested employee option extension was determined using the Black Scholes method. There were no options extended during the three months ended June 30, 2011. During the nine months ended June 30, 2010, the Company extended 518,832 employee options. The options were due to expire from February 2, 2010 through December 8, 2010. All options were extended for an additional three years from the current expiration date. The additional cost of $212,444 was recorded as a debit to option expense and a credit to additional paid-in capital. The value of the fully vested employee option extension was determined using the Black Scholes method. There were no options extended during the three months ended June 30, 2010.

Options and stock to non-employees

Options to non-employees are accounted for in accordance with Codification 505-50-05-5, “Equity Based Payments to Non-Employees”. Accordingly, compensation is recognized when goods or services are received and is measured using the Black-Scholes valuation model. The Black-Scholes model requires management to make assumptions regarding the fair value of the options at the date of grant and the expected life of the options. There were no options granted to non-employees during the nine and three months ended June 30, 2011. There were no options granted to non-employees during the nine months ended June 30, 2010. During the nine and three months ended June 30, 2011, 100,000 options expired that were issued to a consultant.

There were 277,169 and no shares of common stock issued to consultants during the nine and three months ended June 30, 2011 for a cost of $160,964 and $-0-, respectively, of which $135,965 was expensed for the nine months ended June 30, 2011 and $5,001 was expensed for the three months ended June 30, 2011. Additionally, a portion of the cost of common stock issued in previous quarters was expensed. The cost for the previously issued shares for the nine and three months ended June 30, 2011 was $1,982 and $-0- respectively. There were 370,758 and no shares of common stock issued to consultants during the nine and three months ended June 30, 2010 at a cost for the nine and three months ended June 30, 2010 of $409,562 and $-0-, respectively. In addition, a portion of the cost of common stock issued in previous quarters was expensed. This cost for the nine and three months ended June 30, 2010 was $349,074 and $57,900, respectively.

During the nine months ended June 30, 2011, the Company extended 80,000 options issued to a consultant. The options were scheduled to expire in October 2010. All options were extended for an additional five years from the current expiration date. The additional cost of $30,186 was recorded as a charge to stock-based compensation expense. The value of the fully vested option extension was determined using the Black Scholes method. There was no extension of options issued to consultants during the three months ended June 30, 2011. There was no extension of options issued to consultants during the nine and three months ended June 30, 2010.

Derivative liabilities and warrants

Below is a chart showing the derivative liabilities and the number of warrants outstanding at June 30, 2011:

Warrant	Issue Date	Shares Issuable upon Exercise of Warrant	Exercise Price	Expiration Date	Refer-ence
Series K	8/4/06	2,638,163	$   0.40	2/4/12	1
Series N	8/18/08	3,890,782	0.40	8/18/14	1
Series A	6/24/09	1,303,472	0.50	12/24/14	1
C. Schleuning (Series A)	7/8/09	167,500	0.50	01/08/15	1
Series B	9/4/09	500,000	0.68	9/4/14	1
Series C	8/20/09 – 8/26/09	4,634,886	0.55	2/20/15	1
Series D	9/21/09	4,714,284	1.50	9/21/11	1
Series E	9/21/09	714,286	1.75	8/12/14	1
Series L	4/18/07	951,669	0.75	4/17/12	2
Series L (repriced)	4/18/07	1,000,000	0.56	4/17/13	2
Series M	4/18/07	1,221,668	2.00	4/17/12	2
Series M (modified)	4/18/07	6,000,000	0.60	7/31/14	2
Series O	3/6/09	6,800,000	0.25	3/6/16	3
Private Investors	5/30/03- 6/30/09	8,609,375	0.47 – 1.25	5/30/13 - 7/18/14	4
Warrants held by Officer and Director	6/24/09- 7/6/09	3,497,539	0.40 – 0.50	12/24/14 – 1/6/15	5

1.      Derivative Liabilities

See below for details of the balances of derivative instruments at June 30, 2011 and September 30, 2010.

		June 30, 2011		September 30,2010
Series K warrants	$	422,106	$	1,002,502
2009 financings warrants (Series A thru E)		2,208,062		4,037,066
2008 warrants reclassified from equity to derivative liabilities on October 1, 2009 (Series N)		1,245,050		1,906,483
Preferred stock issued in settlement (Note G)		3,043,000		0
Convertible notes issued in settlement (Note G)		4,929,000		0
Total derivative liabilities	$	11,847,218	$	6,946,051

The Company accounted for the Series K and A through E Warrants as derivative liabilities in accordance with Codification 815-10, “Accounting for Derivative Instruments and Hedging Activities”. For the nine and three months ended June 30, 2011, the Company recorded a gain of $1,393,282 and a gain of $877,166 on the Series A through E derivative instruments, respectively. During the nine and three months ended June 30, 2011, the Company recorded a gain of $580,396 and a gain of $369,343 on the remaining Series K warrants, respectively. During the nine and three months ended June 30, 2010, the Company recognized a gain of $13,956,036 and a gain of $1,897,335 on the remaining Series A through E derivative instruments, respectively. During the nine and three months ended June 30, 2010, the Company recorded a gain of $3,120,172 and a gain of $422,106, respectively, on the remaining Series K warrants.

During the nine months ended June 30, 2010, 1,335,221 Series K warrants, on which the Company recognized a gain on exercise of $280,223 and 8,813,088 Series A warrants, on which the Company recognized a total gain of $8,433,451 were exercised. When the warrants were exercised, the value of these warrants was converted from derivative liabilities to equity. Series K warrants transferred to equity totaled $1,223,518 and Series A warrants transferred to equity totaled $4,276,972. During the three months ended June 30, 2010, no Series A warrants were exercised. During the three months ended June 30, 2010, 319,767 Series K warrants, on which the Company recognized a loss on exercise of $148,546, were exercised.

During the nine and three months ended June 30, 2011, 757,331 and no Series C warrants were exercised. The Company recognized a gain on exercise of $232,892 and $-0-, respectively. When the warrants were exercised, the value of these warrants was converted from derivative liabilities to equity. Series C warrants transferred to equity totaled $202,830 and $-0-, respectively.

On October 1, 2009, the Company reviewed all outstanding warrants in accordance with the requirements of Codification 815-40, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”. This topic provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. The warrant agreements provide for adjustments to the purchase price for certain dilutive events, which includes an adjustment to the number of shares issuable upon the exercise of the warrant in the event that the Company makes certain equity offerings in the future at a price lower than the exercise prices of the warrant instruments. Under the provisions of Codification 815-40, the warrants are not considered indexed to the Company’s stock because future equity offerings or sales of the Company’s stock are not an input to the fair value of a “fixed-for-fixed” option on equity shares, and equity classification is therefore precluded. Accordingly, effective October 1, 2009, 3,890,782 Series N warrants issued in August 2008 were determined to be subject to the requirements of this topic and were valued using the Black-Scholes formula as of October 1, 2009 at $6,186,343. Effective October 1, 2009, the Series N warrants are recognized as a liability in the Company’s condensed consolidated balance sheet at fair value with a corresponding adjustment to accumulated deficit and will be marked-to-market each reporting period. The Series N warrants were revalued on June 30, 2011 at $1,245,050, which resulted in a gain on derivatives and a decrease in derivative liabilities of $661,433 and $505,802 for the nine and three months ended June 30, 2011, respectively, due to the decrease in the Company’s stock price since September 30, 2010. During the nine and three months ended June 30, 2010, the Company recorded a gain of $4,824,569 and $583,617, respectively, on the Series N warrants.

Accounting for the Senior Convertible Notes and Redeemable Series A Convertible Preferred Stock – The Senior Secured Convertible Note falls within the scope of ASC 815. Under ASC 815-15-25-4 through 6 or ASC 825-10-10-1, the Company may make an irrevocable election to initially and subsequently measure a hybrid financial instrument in its entirety at fair value. Any change in fair value between the respective reporting dates shall be recognized as gain or loss. Based on the Company’s analysis of the Senior Secured Convertible Note, the Company identified several embedded derivative features. The Company elected, in accordance with ASC 825-10-10-1, to initially and subsequently carry the instrument at fair value without bifurcating the embedded derivatives. For the nine and three months ended June 30, 2011, the Company recorded a gain of $21,000 on the Senior Secured Convertible Notes.

The Series A Convertible Preferred Stock falls within the scope of ASC 480 because the nonconversion option was considered nonsubstantive. ASC 480-10-30-1 states, “Mandatorily redeemable financial instruments shall be measured initially at fair value.” Therefore, immediately after initially recording Series A Convertible Preferred Stock, the carrying value of the instrument in its entirety must be adjusted to fair value as of the issuance date with the difference recorded to loss. The Company also elected to adopt the fair value option ASC 825. The Series A Convertible Preferred Stock should be measured in its entirety and reported at fair value at each reporting date for so long as shares remain outstanding. Any change in fair value between the respective reporting dates shall be recognized as gain or loss. For the nine and three months ended June 30, 2011, the Company recorded a loss of $10,000 on the Series A Convertible Preferred Stock.

2. Series L and M Warrants

On April 18, 2007, the Company completed a $15 million private financing. Shares were sold at $0.75, a premium over the closing price of the previous two weeks. The financing was accompanied by 10 million warrants with an exercise price of $0.75 and 10 million warrants with an exercise price of $2.00. The warrants are known as Series L and Series M warrants, respectively.

In September 2008, 2,250,000 of the original Series L warrants were repriced at $0.56 and extended for one year to April 17, 2013. The increase in the value of the warrants of $173,187 was recorded as a debit and a credit to additional paid-in capital in accordance with the original accounting for the Series L warrants. As of June 30, 2011, 1,000,000 of the Series L warrants at the reduced exercise price of $0.56 and 951,669 at the original exercise price of $0.75 remained outstanding.

On March 12, 2010, the Company temporarily reduced the exercise price of the Series M warrants, originally issued on April 18, 2007. The exercise price was reduced from $2.00 to $0.75. At any time prior to June 16, 2010 investors could have exercised the Series M warrants at a price of $0.75 per share. For every two Series M warrants exercised prior to June 16, 2010 the investor would have received one Series F warrant. Each Series F warrant would have allowed the holder to purchase one share of CEL-SCI’s common stock at a price of $2.50 per share at any time on or before June 15, 2014. After June 15, 2010 the exercise price of the Series M warrants reverted back to $2.00 per share. Any person exercising a Series M warrant after June 15, 2010 would not receive any Series F warrants. The Series M warrants expire on April 17, 2012. An analysis of the modification to the warrants determined that the modification increased the value of the warrants by $1,432,456. This cost was recorded as a debit and a credit to additional paid-in capital and was a deemed dividend. This cost is included in modification of warrants and increased the net loss available to shareholders on the condensed, consolidated statements of operations. There were no exercises of the Series M warrants at the reduced price and the exercise price of the Series M warrants reverted back to $2.00 on June 16, 2010.

On August 3, 2010, the Company’s Board of Directors approved an amendment to the terms of the Series M warrants held by an investor. The investor was the owner of 8,800,000 warrants priced at $2.00 per share. The investor may now purchase 6,000,000 shares of the Company’s common stock (reduced from 8,800,000) at a price of $0.60 per share. An analysis of the modification to the warrants determined that the modification increased the value of the warrants by $100,000. The adjustment was recorded as a debit and a credit to additional paid-in capital. As of June 30, 2011, all of these warrants remained outstanding. In addition, 1,221,668 Series M warrants at the original exercise price of $2.00 were outstanding as of June 30, 2011.

On February 1, 2011, 6,000,000 Series M warrants were extended for two years. The warrants expire on July 31, 2014. The increase in the fair value of the warrants was $661,457. This cost was recorded as a debit and a credit to additional paid-in capital and was a deemed dividend. This cost is included in modification of warrants and increased the net loss available to shareholders on the condensed, consolidated statements of operations.

3.      Licensing Agreement Warrants

On March 6, 2009, the Company entered into a licensing agreement with Byron Biopharma LLC (“Byron”) under which the Company granted Byron an exclusive license to market and distribute the Company’s cancer drug Multikine in the Republic of South Africa. Pursuant to the agreement Byron will be responsible for registering the product in South Africa. Once Multikine has been approved for sale, the Company will be responsible for manufacturing the product, while Byron will be responsible for sales in South Africa. Revenues will be divided equally between the Company and Byron. To maintain the license Byron, among other requirements, made a $125,000 payment to the Company on March 8, 2010. On March 30, 2009, and as further consideration for its rights under the licensing agreement, Byron purchased 3,750,000 Units from the Company at a price of $0.20 per Unit. Each Unit consisted of one share of the Company’s common stock and two warrants. Each warrant entitles the holder to purchase one share of the Company’s common stock at a price of $0.25 per share. The warrants expire on March 6, 2016. The Company filed a registration statement to register the shares issuable upon the exercise of the warrants. The Units were accounted for as an equity transaction using the Black Scholes method to value the warrants. The fair value of the warrants was calculated to be $1,015,771. As of June 30, 2011, 6,800,000 warrants remain outstanding. During the nine and three months ended June 30, 2011, 700,000 of these warrants were exercised, for which the Company received $175,000.

4.      Private Investor Warrants

Between May 30, 2003 and June 30, 2009 CEL-SCI sold shares of its common stock in private transactions. In some cases warrants were issued as part of a financing. As of June 30, 2011, 8,609,375 warrants remain outstanding. For further discussion of these warrants, see the Company’s Form 10-K for the year ended September 30, 2010.

On February 1, 2011, 1,325,000 warrants were extended for three years. The increase in the fair value of the warrants was $406,912. This cost was recorded as a debit and a credit to additional paid-in capital and is a deemed dividend. This cost is included in modification of warrants and increased the net loss available to shareholders on the condensed, consolidated statements of operations.

5.      Warrants held by Officer and Director

 Between December 2008 and June 2009, Maximilian de Clara, the Company’s President and a director, loaned the Company $1,104,057. In accordance with the loan agreement, the Company issued Mr. de Clara warrants which entitle him to purchase 1,648,244 shares of the Company’s common stock at a price of $0.40 per share. The warrants are exercisable at any time prior to December 24, 2014. As consideration for a further extension of the note, Mr. de Clara received warrants which allow him to purchase 1,849,295 shares of the Company’s common stock at a price of $0.50 per share at any time prior to January 6, 2015. As of June 30, 2011, all warrants remain outstanding. See Note E for additional information.