C. STOCKHOLDERS EQUITY

9 Months Ended

Jun. 30, 2017

Notes to Financial Statements

C. STOCKHOLDERS' EQUITY

Stock options, stock bonuses and compensation granted by the Company as of June 30, 2017 are as follows:

Name of Plan	Total Shares Reserved Under Plans		Shares Reserved for Outstanding Options		Shares Issued		Remaining Options/Shares Under Plans
Incentive Stock Options Plans		138,400		65,958		N/A		60,454
Non-Qualified Stock Option Plans		1,187,200		298,783		N/A		859,313
Stock Bonus Plans		383,760		N/A		189,940		193,787
Stock Compensation Plan		134,000		N/A		87,590		46,410
Incentive Stock Bonus Plan		640,000		N/A		624,000		16,000

Stock options, stock bonuses and compensation granted by the Company as of September 30, 2016 are as follows:

Name of Plan	Total Shares Reserved Under Plans		Shares Reserved for Outstanding Options		Shares Issued		Remaining Options/Shares Under Plans
Incentive Stock Option Plans		138,400		65,958		N/A		60,453
Non-Qualified Stock Option Plans		387,200		277,613		N/A		82,370
Bonus Plans		223,760		N/A		126,448		97,278
Stock Compensation Plan		134,000		N/A		79,401		53,276
Incentive Stock Bonus Plan		640,000		N/A		624,000		16,000

Stock option activity:

	Nine Months Ended June30,
	2017		2016
Granted		39,225		8,400
Expired		16,081		-
Forfeited		1,980		2,240

	Three Months Ended June 30,
	2017		2016
Granted		39,225		-
Expired		800		-
Forfeited		919		200

No shares of restricted stock were forfeited from the Incentive Stock Bonus Plan during the nine and three months ended June 30, 2017 and 2016.

Stock-Based Compensation Expense

	NineMonths Ended June 30,
	2017		2016
Employees	$	1,002,923	$	1,263,662
Non-employees	$	151,611	$	618,890

	ThreeMonths Ended June 30,
	2017		2016
Employees	$	325,168	$	418,562
Non-employees	$	38,833	$	146,830

Employee compensation expense includes the expense related to options issued or vested and restricted stock. Non-employee expense includes the expense related to options and stock issued to consultants expensed over the period of their service contracts.

Warrants and Non-employee Options

The following chart presents the outstanding warrants and non-employee options listed by expiration date at June 30, 2017:

Warrant	Issue Date	Shares Issuable upon Exercise of Warrant		Exercise Price		Expiration Date	Refer-ence
Series DD	12/8/2016		1,360,960	$	4.50	8/10/2017		1
Series N	8/18/2008		113,785	$	13.18	8/18/2017
Series EE	12/8/2016		1,360,960	$	4.50	9/8/2017		1
Series U	4/17/2014		17,821	$	43.75	10/17/2017		1
Series S	10/11/13- 10/24/14		1,037,120	$	31.25	10/11/2018		1
Series V	5/28/2015		810,127	$	19.75	5/28/2020		1
Series W	10/28/2015		688,930	$	16.75	10/28/2020		1
Series X	1/13/2016		120,000	$	9.25	1/13/2021
Series Y	2/15/2016		26,000	$	12.00	2/15/2021
Series ZZ	5/23/2016		20,000	$	13.75	5/18/2021		1
Series BB	8/26/2016		16,000	$	13.75	8/22/2021		1
Series Z	5/23/2016		264,000	$	13.75	11/23/2021		1
Series FF	12/8/2016		68,048	$	3.91	12/1/2021		1
Series CC	12/8/2016		680,480	$	5.00	12/8/2021		1
Series HH	2/23/2017		20,000	$	3.13	2/16/2022		1
Series AA	8/26/2016		200,000	$	13.75	2/22/2022		1
Series JJ	3/14/2017		30,000	$	3.13	3/8/2022		1
Series LL	4/30/2017		26,398	$	3.59	4/30/2022		1
Series MM	6/22/2017		893,491	$	1.86	6/22/2022		2
Series GG	2/23/2017		400,000	$	3.00	8/23/2022		1
Series II	3/14/2017		600,000	$	3.00	9/14/2022		1
Series KK	5/3/2017		395,970	$	3.04	11/3/2022		1
Consultants	12/28/12- 7/1/16		22,000	$	9.25-$70.00	12/27/17- 6/30/19		3

1. Derivative Liabilities

The table below presents the warrant liabilities and their respective balances at the balance sheet dates:

	June 30, 2017		September 30, 2016
Series S warrants	$	74,673	$	3,111,361
Series U warrants		-		-
Series V warrants		170,127		1,620,253
Series W warrants		181,303		1,799,858
Series Z warrants		141,325		970,604
Series ZZ warrants		9,227		70,609
Series AA warrants		116,651		763,661
Series BB warrants		8,140		58,588
Series CC warrants		643,824		-
Series DD warrants		8,009		-
Series EE warrants		39,885		-
Series FF warrants		75,579		-
Series GG warrants		522,459		-
Series HH warrants		24,977		-
Series II warrants		779,415		-
Series JJ warrants		37,670		-
Series KK warrants		525,332		-
Series LL warrants		32,044		-
Total warrant liabilities	$	3,390,640	$	8,394,934

The table below presents the gains on the warrant liabilities for the nine months ended June 30:

	2017		2016
Series S warrants	$	3,036,688	$	3,432,869
Series U warrants		-		40,096
Series V warrants		1,450,126		2,835,443
Series W warrants		1,618,555		1,502,800
Series Z warrants		829,279		210,848
Series ZZ warrants		61,382		15,918
Series AA warrants		647,010		-
Series BB warrants		50,448		-
Series CC warrants		416,599		-
Series DD warrants		435,263		-
Series EE warrants		651,522		-
Series FF warrants		45,403		-
Series GG warrants		92,178		-
Series HH warrants		4,653		-
Series II warrants		137,044		-
Series JJ warrants		6,943		-
Series KK warrants		172,883		-
Series LL warrants		14,001		-
Net gain on warrant liabilities	$	9,669,977	$	8,037,974

The table below presents the gains and (losses) on the warrant liabilities for the three months ended June 30:

	2017			2016
Series S warrants	$	456,852		$	285,208
Series U warrants		-			13,366
Series V warrants		32,405			1,012,658
Series W warrants		9,140			970,746
Series Z warrants		1,016			210,848
Series ZZ warrants		187			15,918
Series AA warrants		345			-
Series BB warrants		110			-
Series CC warrants		(13,270	)		-
Series DD warrants		21,315			-
Series EE warrants		139,284			-
Series FF warrants		(1,763	)		-
Series GG warrants		(16,033	)		-
Series HH warrants		(687	)		-
Series II warrants		(24,375	)		-
Series JJ warrants		(1,045	)		-
Series KK warrants		172,883			-
Series LL warrants		14,001			-
Net gain on warrant liabilities	$	790,365		$	2,508,744

The Company reviews all outstanding warrants in accordance with the requirements of ASC 815. 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 exercise price for certain dilutive events. Under the provisions of ASC 815, 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.

In accordance with ASC 815, derivative liabilities must be measured at fair value upon issuance and re-valued at the end of each reporting period through expiration. Any change in fair value between the respective reporting dates is recognized as a gain or loss.

Issuance of additional Warrants

On June 22, 2017, in connection with the issuance of convertible notes (see below), the Company issued the note holders Series MM warrants, which entitle the purchasers to acquire up to an aggregate of 893,491 shares of the Company’s common stock. The Series MM warrants are exercisable at a fixed price of $1.86 per share and expire on June 22, 2022. Shares issuable upon the exercise of the notes and warrants will be restricted securities unless registered. Proceeds from the sale of notes payable and the issuance of the warrants were $1.51 million. The Company allocated proceeds received to the Notes and the Series MM warrants on a relative fair value basis. As a result of such allocation, the Company determined the initial carrying value of the Series MM warrants to be approximately $0.6 million. The Series MM warrants qualify for equity treatment in accordance with ASC 815.

On April 30, 2017, the Company entered into a securities purchase agreement with an institutional investor whereby it sold 527,960 shares of its common stock for net proceeds of approximately $1.4 million, or $2.875 per share, in a registered direct offering. In a concurrent private placement, the Company also issued to the purchaser of the Company’s common stock, Series KK warrants to purchase 395,970 shares of common stock. The warrants can be exercised at a price of $3.04 per share, at any time on or after November 3, 2017 and expire on November 3, 2022. In addition, the Company issued 26,398 Series LL warrants to the Placement Agent as part of its compensation. The Series LL warrants are exercisable on October 30, 2017 and expire on April 30, 2022 at a price of $3.59 per share. The fair value of the Series KK and LL warrants of approximately $0.7 million on the date of issuance was recorded as a warrant liability.

On March 14, 2017, the Company sold 600,000 registered shares of common stock and 600,000 Series II warrants to purchase 600,000 unregistered shares of common stock at combined offering price of $2.50 per share.  The Series II warrants have an exercise price of $3.00 per share, are exercisable on September 14, 2017, and expire September 14, 2022. In addition, the Company issued 30,000 Series JJ warrants to purchase 30,000 shares of unregistered common stock to the placement agent. The Series JJ warrants have an exercise price $3.13, are exercisable on September 14, 2017 and expire on March 8, 2022. The net proceeds from this offering were approximately $1.3 million. The fair value of the Series II and JJ warrants of approximately $1.0 million on the date of issuance was recorded as a warrant liability.

On February 23, 2017, the Company sold 400,000 registered shares of common stock and 400,000 Series GG warrants to purchase 400,000 unregistered shares of common stock at a combined price of $2.50 per share.  The Series GG warrants have an exercise price of $3.00 per share, are exercisable on August 23, 2017, and expire August 23, 2022. In addition, the Company issued to the placement agent, 20,000 Series HH warrants to purchase 20,000 shares of unregistered common stock. The Series HH warrants have an exercise price $3.13, are exercisable on August 23, 2017 and expire on February 16, 2022. The net proceeds from this offering were approximately $0.8 million. The fair value of the Series GG and HH warrants of approximately $0.6 million on the date of issuance was recorded as a warrant liability.

On December 8, 2016, the Company sold 1,360,960 shares of common stock and warrants to purchase common stock at a price of $3.13 in a public offering. The warrants consist of 680,480 Series CC warrants to purchase 680,480 shares of common stock, 1,360,960 Series DD warrants to purchase 1,360,960 shares of common stock and 1,360,960 Series EE warrants to purchase 1,360,960 shares of common stock. The Series CC warrants are immediately exercisable, expire in five-years from the offering date and have an exercise price of $5.00 per share. The Series DD warrants are immediately exercisable at an exercise price of $4.50 per share. On June 5, 2017 and June 29, 2017, the expiration date of the Series DD warrants was extended from June 8, 2017 to July 10, 2017 and then to August 10, 2017. The Series EE warrants are immediately exercisable, expire on September 8, 2017 and have an exercise price of $4.50 per share. In addition, the Company issued 68,048 Series FF warrants to purchase 68,048 shares of common stock to the placement agent. The FF warrants are exercisable at any time on or after June 8, 2017, expire on December 1, 2021 and have an exercise price $3.91. Net proceeds from this offering were approximately $3.7 million. The fair value of the Series CC, DD, EE and FF warrants of approximately $2.3 million on the date of issuance was recorded as a warrant liability.

Expiration of Warrants

On March 16, 2017, 23,600 Series P warrants, with an exercise price of $112.50, expired. The fair value of the Series P warrants was $0 on the date of expiration.

On December 6, 2016, 105,000 Series R warrants, with an exercise price of $100.00, expired. The fair value of the Series R warrants was $0 on the date of expiration.

On December 22, 2015, 48,000 Series Q warrants, with an exercise price of $125.00, expired. The fair value of the Series Q warrants was $0 on the date of expiration.

2. Notes Payable

On June 22, 2017, CEL-SCI issued convertible notes (Notes) in the aggregate principal amount of $1.51 million to six individual investors. The Notes bear interest at 4% per year and are due on December 22, 2017. At the option of the note holders, the Notes can be converted into shares of the Company’s common stock at a fixed conversion rate of $1.69. The number of shares of the Company’s common stock issued upon conversion will be determined by dividing the principal amount to be converted by $1.69, which could result in the issuance of 893,491 shares, subject to a proportionate adjustment in the event of any stock split or capital reorganization.

The Notes were issued together with Series MM warrants, as discussed in the preceding section. Upon issuance of the Notes and Series MM warrants, the Company allocated proceeds received to the Notes and the Series MM warrants on a relative fair value basis. As a result of such allocation, the Company determined the initial carrying value of the Notes to be approximately $0.9 million, the initial carrying value of the Series MM warrants to be approximately $0.6 million, and recorded a debt discount in the amount of approximately $0.6 million.

Pursuant to the guidance in ASC 815-40, Contracts in Entity’s Own Equity, the Company evaluated whether the conversion feature of the Note needed to be bifurcated from the host instrument as a freestanding financial instrument. Under ASC 815-40, to qualify for equity classification (or nonbifurcation, if embedded) the instrument (or embedded feature) must be both (1) indexed to the issuer’s own stock and (2) meet the requirements of the equity classification guidance. Based upon the Company’s analysis, it was determined the conversion option is indexed to its own stock and also met all the criteria for equity classification. Accordingly, the conversion option is not required to be bifurcated from the host instrument as a freestanding financial instrument. Since the conversion feature meets the equity scope exception from derivative accounting, the Company then evaluated whether the conversion feature needed to be separately accounted for as an equity component under ASC 470-20, Debt with Conversion and Other Options. Based upon the Company’s analysis, it was determined that a beneficial conversion feature existed as a result of the reduction in the face value of the Notes, due to a portion of proceeds being allocated to the Series MM warrants, and thus the conversion feature needed to be separately accounted for as equity component. The Company recorded a beneficial conversion feature relating to the Notes Payable of approximately $0.6 million, which was also recorded as a debt discount.

The total debt discount of approximately $1.2 million will be amortized to interest expense using the effective interest method over the expected term of the Notes.

During the nine and three months ended June 30, 2017, the Company recorded approximately $23,000 in interest expense related to the Notes, of which approximately $2,000 was recorded as accrued interest, and approximately $21,000 was recorded as amortization of the debt discount.

The Notes are secured by a first lien on all of the Company’s assets.

3. Options and shares issued to Consultants

The Company typically enters into consulting arrangements in exchange for common stock or stock options. During the nine and three months ended June 30, 2017, the Company issued 36,999 and 18,000 shares of common stock, respectively. The common stock was issued with stock prices ranging between $2.25 and $7.25 per share. During the nine and three months ended June 30, 2016, the Company issued 39,602 and 7,451 shares of common stock, respectively. The common stock was issued with stock prices ranging between $9.25 and $18.00 per share. Additionally, during the nine and three months ended June 30, 2016, the Company issued a consultant 8,400 and 0 options, respectively, to purchase common stock at prices between $9.25 and $15.00 per share with fair values ranging between $4.75 and $7.50 per share. These options are fully vested. The aggregate values of the issuances of restricted common stock and common stock options are recorded as prepaid expenses and are charged to general and administrative expenses over the periods of service.

During the nine and three months ended June 30, 2017, the Company recorded total expense of approximately $152,000 and $39,000, respectively, relating to these consulting agreements. During the nine and three months ended June 30, 2016, the Company recorded total expense of approximately $619,000 and $147,000, respectively, relating to these consulting agreements. At June 30, 2017 and September 30, 2016, approximately $11,000 and $48,000, respectively, are included in prepaid expenses. As of June 30, 2017, 22,000 options were outstanding and vested, which were issued to consultants as payment for services from the Non-Qualified Stock Option plans.