FORM 10-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)

(X)  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2015.

OR

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________.

Commission file number 1-11889
 
CEL-SCI CORPORATION
(Exact name of registrant as specified in its charter)
 
COLORADO
 
84-0916344 
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
8229 Boone Blvd., Suite 802
   
Vienna, Virginia
 
22182
(Address of principal executive offices)
 
(Zip Code)
 
Registrant's telephone number, including area code: (703) 506-9460
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
Series S Warrants
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  [  ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [  ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes [X]      No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                          Yes  [X] No  [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,  and will not be contained,  to the best of Registrant's  knowledge,  in definitive proxy or information  statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  [ ]                                                                                                      Accelerated filer  [ X]

Non-accelerated filer  [ ]   (Do not check if a smaller reporting company)                                                                                                                     Smaller reporting company  [ ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):  [  ] Yes   [X] No

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the registrant’s common stock on March 31, 2015, as quoted on the NYSE MKT, was $78,346,298.

As of December 2, 2015, the Registrant had 129,972,144 issued and outstanding shares of common stock.

Documents Incorporated by Reference:   None
 


 
 
 
 

PART I

ITEM 1.  BUSINESS

CEL-SCI is focused on finding the best way to activate the immune system to fight cancer and infectious diseases. CEL-SCI believes that the best results can be achieved by giving its cancer immunotherapy drug before surgery, radiation and chemotherapy, at a time when the immune system is much stronger.  Other cancer immunotherapies are typically given after these conventional treatments.
 
CEL-SCI’s lead investigational therapy Multikine® (Leukocyte Interleukin, Injection) is currently in a pivotal Phase 3 clinical trial against advanced primary (not yet treated) head and neck cancer, for which CEL-SCI has received Orphan Drug Status from the U.S. FDA. If the primary endpoint of the FDA study is achieved, the results will be used to support applications to regulatory agencies around the world for worldwide commercial marketing approvals as a first line cancer therapy. Additional clinical indications for Multikine include cervical dysplasia in HIV/HPV co-infected women, for which a Phase 1 study was successfully concluded; and the treatment of peri-anal warts in HIV/HPV co-infected men and women, for which a Phase 1 trial is now underway in conjunction with the U.S. Naval Medical Center, San Diego under a Cooperative Research and Development Agreement, and at University of California, San Francisco, or UCSF.

CEL-SCI’s immune therapy, Multikine, is designed to be used in a different way than immune therapy is normally used.  It is designed to be administered locally to treat local tumors before any other therapy has been administered. For example, in the ongoing Phase 3 clinical trial, Multikine is injected locally at the site of the tumor and near the adjacent draining lymph nodes as a first line of treatment before surgery, radiation and/or chemotherapy because that is when the immune system is thought to be strongest. The goal is to help the intact immune system recognize and kill the micro metastases that usually cause recurrence of the cancer.  In short, CEL-SCI believes that local administration and administration before weakening of the immune system by chemotherapy and radiation will result in in better anti-tumor response than if Multikine were administered as a second- or later-line therapy.  In clinical studies of Multikine, administration of the investigational therapy to head and neck cancer patients has demonstrated the potential for less or no appreciable toxicity.

CEL-SCI’s focus on HPV is not the development of an antiviral against HPV in the general population.  Instead, it is on developing an immunotherapy product candidate designed to be administered to patients who are immune-suppressed by other diseases, such as HIV, and who are therefore less able or unable to control HPV and its resultant or co-morbid diseases.  This group of patients have limited treatment options available to them.  HPV is also relevant to the head and neck cancer Phase 3 study since it is now known that HPV is a cause of head and neck cancer.  Multikine was shown to kill HPV in an earlier study of HIV infected women with cervical dysplasia.

CEL-SCI is also developing its pre-clinical L.E.A.P.S. (Ligand Epitope Antigen Presentation System) technology for the potential treatment of pandemic influenza in hospitalized patients (LEAPS-H1N1-DC) and as a potential vaccine for the treatment of rheumatoid arthritis (CEL-2000 and CEL-4000). The investigational immunotherapy LEAPS-H1N1-DC treatment involves non-changing regions of H1N1 Pandemic Flu (www.jci.org/articles/view/67550), Avian Flu (H5N1), and the Spanish Flu, as CEL-SCI scientists are very concerned about the possible emergence of a new more virulent hybrid virus through the combination of H1N1 and Avian Flu, or possibly Spanish Flu.
 
 
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CEL-SCI Corporation was formed as a Colorado corporation in 1983. CEL-SCI’s principal office is located at 8229 Boone Boulevard, Suite 802, Vienna, VA 22182with two facilities in/near Baltimore, Maryland.    CEL-SCI’s telephone number is 703-506-9460 and its website is www.cel-sci.com. CEL-SCI does not incorporate the information on its website into this report, and you should not consider it part of this report.

CEL-SCI makes its electronic filings with the Securities and Exchange Commission (SEC), including its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports available on its website free of charge as soon as practicable after they are filed or furnished to the SEC.

CEL-SCI’S PRODUCTS

CEL-SCI is dedicated to research and development directed at improving the treatment of cancer and other diseases by using the immune system, the body’s natural defense system. CEL-SCI is currently focused on the development of the following product candidates and technologies:

 
1)
Multikine (an investigational immunotherapy under development for the potential treatment of certain head and neck cancers, and anal warts or cervical dysplasia in human immunodeficiency virus, or HIV, and human papillomavirus, or HPV, co-infected patients;
 
 
2)
L.E.A.P.S. (Ligand Epitope Antigen Presentation System) technology, or LEAPS, with two investigational therapies, LEAPS-H1N1-DC, a product candidate under development for the potential treatment of pandemic influenza in hospitalized patients, and CEL-2000 and CEL-4000, vaccine product candidates under development for the potential treatment of rheumatoid arthritis.
 

MULTIKINE

CEL-SCI’s lead investigational therapy, Multikine, is currently being developed as a potential therapeutic agent directed at using the immune system to produce an anti-tumor immune response. Data from Phase 1 and Phase 2 clinical trials suggest that Multikine simulates the activities of a healthy person’s immune system, enabling it to use the body’s own anti-tumor immune response. Multikine is the trademark that CEL-SCI has registered for this investigational therapy, and this proprietary name is subject to review by the U.S. Food and Drug Administration, or FDA, in connection with CEL-SCI’s future anticipated regulatory submission for approval.  Multikine has not been licensed or approved for sale, barter or exchange by the FDA or any other regulatory agency. Neither has its safety or efficacy been established for any use.

Multikine is an immunotherapy product candidate comprised of a patented defined mixture of 14 human natural cytokines and is manufactured in a proprietary manner in our manufacturing facility. CEL-SCI spent over 10 years and more than $80 million developing and validating the manufacturing process. The pro-inflammatory cytokine mixture includes interleukins, interferons, chemokines and colony-stimulating factors, which contain elements of the body’s natural mix of defenses against cancer.
 
 
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Multikine is designed to be used in a different way than immune therapy is normally used.  It is designed to be administered locally to treat local tumors before any other therapy has been administered.  For example, in the ongoing Phase 3 clinical trial, Multikine is injected locally at the site of the tumor and near the adjacent draining lymph nodes as a first line of treatment before surgery, radiation and/or chemotherapy because that is when the immune system is thought to be strongest. The goal is to help the intact immune system recognize and kill the micro metastases that usually cause recurrence of the cancer.  In short, CEL-SCI believes that local administration and administration before weakening of the immune system by chemotherapy and radiation will result in better anti-tumor response than if Multikine were administered as a second- or later-line therapy. In clinical studies of Multikine, administration of the investigational therapy to head and neck cancer patients has demonstrated the potential for less or no appreciable toxicity
 

Source: Adapted from Timar et al., Journal of Clinical Oncology 23(15) May 20, 2005

The first indication we are pursuing for our Multikine product candidate is an indication for neoadjuvant therapy in patients with squamous cell carcinoma of the head and neck, or SCCHN.  Multikine investigational immunotherapy was granted Orphan Drug designation for neoadjuvant therapy in patients with SCCHN by the FDA in the United States. SCCHN is a type of head and neck cancer, and CEL-SCI believes that the head and neck cancer market, in the aggregate, represents a large, unmet medical need. The last FDA approval of a therapy for the treatment of advanced primary head and neck cancer was over 50 years ago. In the aggregate, head and neck cancer represents about 6% of the world’s cancer cases, with over 650,000 patients diagnosed worldwide each year, and nearly 60,000 patients diagnosed annually in the United States.

Current Status of Ongoing Phase 3 Clinical Trial

Regulatory authorities in 24 countries around the world, including the FDA in the United States, have allowed Multikine to be studied in a global Phase 3 clinical trial as a potential neoadjuvant therapy in patients with SCCHN.  This trial is currently primarily under the  management of two clinical research organizations, or CROs, ICON Inc. (formerly known as Aptiv), or ICON, and Ergomed Clinical Research Limited, or Ergomed.
 
 
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Ergomed is responsible for new patient enrollment. Enrollment has increased greatly since the transfer of the study to the new CROs.  The following chart depicts the number of patients enrolled per month since the transfer to the new CROs.

 
The primary endpoint of the Phase 3 head and neck cancer study is achieved when a 10% increase is observed in overall survival in the investigational immunotherapy Multikine,  including the administration of CIZ(1), plus Standard of Care (surgery + Radiotherapy or Chemoradiotherapy) Arm over the Control comparator (Standard of Care alone) Arm.  The final determination whether this endpoint has been successfully reached can only be determined when 298 events (deaths) have occurred in the combined comparator arms of the study.  CEL-SCI is currently aiming to enroll 880 patients in order to be able to have 784 evaluable patients for the per-protocol analysis.  It should be noted that the total number of patients enrolled is not a key determinant in this study.  Rather, the number of death events is, since the study derives its power solely from the death events in the study.  If there is any change in the rate of death estimated from survival curves provided in the scientific literature, the number of patients in the study may be decreased or increased so that the number of events (deaths) in the study can be observed in a timely manner.  In addition, if the death rate observed in the study is lower than that which was anticipated at the onset of the study, the study length may be affected.  Currently, CEL-SCI is estimating that the enrollment of 880 patients will be completed in the summer of 2016.

(1)
CIZ = low dose (non-chemotherapeutic) of cyclophosphamide, indomethacin and Zinc-multivitamins) all of which are thought to enhance Multikine activity

 
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A total of 635 have been enrolled in the study as of November 30, 2015.  The former CRO had enrolled 117 patients who are included in the number above.  About 100 of these 117 patients enrolled during the tenure of the former CRO as the global manager of the Phase 3 clinical trial will likely not be considered to be evaluable subjects at the close of the study.  CEL-SCI is currently engaged in a contract dispute alleging that the former CRO failed to comply with the protocol for the Phase 3 clinical trialAssuming that all of these patients must be replaced, CEL-SCI estimates that it could take approximately two to three additional months to do so at the end of the scheduled enrollment period.  

CEL-SCI estimates that the total remaining cost of the Phase 3 clinical trial, excluding any costs that will be paid by CEL-SCI’s partners, will be approximately $21.6 million after September 30, 2015.  This is in addition to the approximately $25 million that CEL-SCI has spent on the trial as of September 30, 2015.  This estimate is based on information currently available under the contracts with the CROs responsible for managing the Phase 3 clinical trial. This number may be affected by the rate of patient enrollment, rate and speed of deaths, foreign currency exchange rates and many other factors, some of which cannot be foreseen today. It is therefore possible that the cost of the Phase 3 clinical trial will be higher than currently estimated.

The current standard of care, or SOC, treatment regimen for advanced primary head and neck cancer patients consist of surgical resection of the tumor and involved lymph nodes followed by either radiotherapy alone or radiotherapy and concurrent chemotherapy.  Our ongoing Phase 3 clinical trial is testing the hypothesis that Multikine treatment, administered prior to such SOC treatment regimen, will extend overall survival, enhance the local/regional control of the disease and reduce the rate of disease progression in patients with squamous cell carcinoma of the head and neck.

The primary clinical endpoint in CEL-SCI's ongoing Phase 3 clinical trial is the achievement of a 10% improvement in overall survival in the Multikine plus SOC treatment arm over that which is achieved in the SOC treatment arm alone (all subjects in the Phase 3 study will receive SOC).  Based on what is presently known about the current survival statistics for this population, CEL-SCI believes that achievement of this endpoint should enable CEL-SCI, subject to further consultations with the FDA, to move forward, prepare and submit a Biologic License Application, or BLA, to the FDA for Multikine as neoadjuvant therapy in patients with SCCHN.

In the Phase 3 clinical trial, Multikine is administered to cancer patients prior to their receiving any conventional treatment for cancer, including surgery, radiation and/or chemotherapy.    This could be shown to be important because conventional therapy may weaken the immune system and may compromise the potential effect of immunotherapy. Because Multikine is given before conventional cancer therapy, when the immune system may be more intact, CEL-SCI believes the possibility exists for it to have a greater likelihood of activating an anti-tumor immune response under these conditions. This likelihood is one of the clinical aspects being evaluated in the ongoing global Phase 3 clinical trial.

Throughout the course of the Phase 3 study thus far, an Independent Data Monitoring Committee, or IDMC, has met periodically to review safety data from the Phase 3 study, and the IDMC is expected to continue doing so throughout the remainder of the Phase 3 study.  At the various points in the study thus far at which the IDMC has completed review of the safety data it has indicated that no safety signals have been identified thus far in the Phase 3 study that would call into question the benefit/risk of continuing the study and has recommended that the Phase 3 study continue. Ultimately, the decision as to whether a drug is safe, and whether it is effective, is made by the FDA and other regulatory authorities based upon an assessment of all of the data from an entire drug development program submitted in an application for marketing approval.
 
 
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Follow-Up Analysis of Overall Survival in Phase 2 Patients

Prior to starting the Phase 3 study, CEL-SCI had tested Multikine in over 200 patients.  The following is a summary of results from CEL-SCI’s last Phase 2 study conducted with Multikine.  This study employed the same treatment protocol as is being followed in CEL-SCI’s Phase 3 study:

·
Reported improved survival: In a follow-up analysis of the Phase 2 clinical study population, which used the same dosage and treatment regimen as is being used in the Phase 3 study, head and neck cancer patients with locally advanced primary disease who received the investigational therapy Multikine as first-line investigational therapy followed by surgery and radiotherapy were reported by the clinical investigators to have had a 63.2% overall survival, or OS, rate at a median of 3.33 years from surgery. This percentage of OS was arrived at as follows: of the 21 subjects enrolled in the Phase 2 study, the consent for the survival follow-up portion of the study was received from 19 subjects. OS was calculated using the entire treatment population that consented to the follow-up portion of the study (19 subjects), including two subjects who, as later determined by three pathologists blinded to the study, did not have oral squamous cell carcinoma, or OSCC.  These two subjects were thus not evaluable per the protocol and were not included in the pathology portion of the study for purposes of calculating complete response rate, as described below, but were included in the OS calculation. The overall survival rate of subjects receiving the investigational therapy in this study was compared to the overall survival rate that was calculated based upon a review of 55 clinical trials conducted in the same cancer population (with a total of 7,294 patients studied), and reported in the peer reviewed scientific literature between 1987 and 2007. Review of this literature showed an approximate survival rate of 47.5% at 3.5 years from treatment. Therefore, the results of CEL-SCI's final Phase 2 study were considered to be potentially favorable in terms of overall survival recognizing the limitations of this early-phase study. It should be noted that an earlier investigational therapy Multikine study appears to lend support to the overall survival findings described above - Feinmesser et al Arch Otolaryngol. Surg. 2003. However, no definitive conclusions can be drawn from these data about the potential efficacy or safety profile of this investigational therapy. Moreover, further research is required, and these results must be confirmed in the Phase 3 clinical trial of this investigational therapy that is currently in progress. Subject to completion of that Phase 3 clinical trial and the FDA’s  review and acceptance of CEL-SCI's entire data set on this investigational therapy, CEL-SCI believes that these early-stage clinical trial results indicate the potential for the Multikine product candidate to become a treatment for advanced primary head and neck cancer, if approved.
 
 
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·
Reported average of 50% reduction in tumor cells in Phase 2 trials (based on 19 patients evaluable by pathology, having OSCC): The clinical investigators who administered the three week Multikine treatment regimen used in the Phase 2 study reported that, as was determined in a controlled pathology study, Multikine administration appeared to have caused, on average, the disappearance of about half of the cancer cells present at surgery (as determined by histopathology assessing the area of Stroma/Tumor (Mean+/- Standard Error of the Mean of the number of cells counted per filed)) even before the start of standard therapy, which normally includes surgery, radiation and chemotherapy (Timar et al JCO 2005).
 
·
Reported 10.5% complete response in the final Phase II trial (based on 19 patients evaluable by pathology, having OSCC): The clinical investigators who administered the three-week Multikine investigational treatment regimen used in the Phase 2 study reported that, as was determined in a controlled pathology study, the tumor apparently was no longer present (as determined by histopathology) in approximately 10.5% of evaluable patients with OSCC (Timar et al JCO 2005).  In the original study, 21 subjects received Multikine, two of which were later excluded, as subsequent analysis by three pathologists blinded to the study revealed that these two patients did not have OSCC. Two subjects in this study had a complete response, leaving a reported complete response rate of two out of 19 assessable subjects with OSCC (or 10.5%) (Timar et al JCO 2005).
 
·
Adverse events reported in clinical trials: In clinical trials conducted to date with the Multikine investigational therapy, adverse events which have been reported by the clinical investigators as possibly or probably related to Multikine administration included pain at the injection site, local minor bleeding and edema at the injection site, diarrhea, headache, nausea, and constipation.

Subsequently, an analysis on the 21 subjects originally treated with Multikine in the study to evaluate overall survival was conducted, as described above.  In connection with the follow-up portion of the study for overall survival, CEL-SCI also conducted an unreported post-hoc analysis of complete response rate in the study population, which included subjects who provided consent for the follow-up and who also had OSCC. Two out of the 21 subjects did not re-consent for follow-up, and two of the remaining 19 subjects were excluded from the post-hoc complete response rate analysis as they had previously been determined by pathology analysis to not have OSCC.  The two complete responders with OSCC both consented to the follow-up study.  Therefore, the post-hoc analysis of complete response was based on a calculation of the two complete responders out of 17 evaluable subjects who consented to the follow-up analysis and who also had OSCC (or 11.8%).

Furthermore, CEL-SCI reported an overall response rate of 42.1% based on the number of evaluable patients who experienced a favorable response to the treatment, including those who experienced minor, major and complete responses. Out of the 19 evaluable patients, two experienced a complete response, two experienced a major response, and four experienced a minor response to treatment. Thus, CEL-SCI calculated the number of patients experiencing a favorable response as eight patients out of 19 (or 42.1%) (Timar et al, JCO 2005).

The clinical significance of these and other data, to date, from the multiple Multikine clinical trials is not yet known. These preliminary clinical data do suggest the potential to demonstrate a possible improvement in the clinical outcome for patients treated with Multikine.
 
 
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Peri-Anal Warts and Cervical Dysplasia in HIV/HPV Co-Infected Patients

HPV is a very common sexually transmitted disease in the United States and also other parts of the world. It can lead to cancer of the cervix, penis, anus, esophagus and head and neck. Our focus in HPV, however, is not on developing an antiviral for the potential treatment or prevention of HPV in the general population. Instead, the focus is on developing an immunotherapy product candidate designed to be administered to patients who are immune-suppressed by other diseases, such as HIV, and who are therefore less able or unable to control HPV and its resultant or co-morbid diseases.  Such patients have limited treatment options available to them.

One condition that is commonly associated with both HIV and HPV is the occurrence of anal intraepithelial dysplasia, or AIN, and anal and genital warts. The incidence of AIN in HIV-infected people is estimated to be about 25%.  The incidence of anal HPV infection in HIV-infected men who have sex with men, or MSM, is estimated to be as high as 95%. In the aggregate, the United States and Europe have about 875,000 HIV-infected patients with AIN (assuming AIN prevalence of approximately 25% of the aggregate HIV-infected population). Persistent HPV infection in the anal region is thought to be responsible for up to 80% of anal cancers, and men and women who are HIV positive have a 30-fold increase in their risk of anal cancer.  Persistent HPV infection can also be a precursor to cervical cancer, as well as certain head and neck cancers.

In October 2013, CEL-SCI announced a cooperative research and development agreement, or CRADA, with the U.S. Naval Medical Center, San Diego, or the USNMC.  Pursuant to this agreement, the USNMC will conduct a Phase 1 study, approved by the Human Subjects Institutional Review Board, of CEL-SCI’s investigational immunotherapy, Multikine, in HIV/HPV co-infected men and women with peri-anal warts.  The purpose of this study is to evaluate the safety and clinical impact of Multikine as a potential treatment of peri-anal warts and assess its effect on AIN in HIV/HPV co-infected men and women.

Pursuant to the CRADA, CEL-SCI is contributing Multikine for use in this Phase 1 study, and CEL-SCI will retain all rights to any currently-owned technology and will have the right to exclusively license any new technology developed from the collaboration. In October 2013, CEL-SCI also entered into a co-development and profit sharing agreement with Ergomed for development of Multikine as a potential treatment of HIV/HPV co-infected men and women with peri-anal warts.  This agreement will initially be in support of the development with the USNMC.

In September 2014, CEL-SCI announced that the first volunteer patient had been enrolled and administered Multikine in this Phase 1 study, which is currently ongoing.  In July 2015, CEL-SCI added an additional site and Key Opinion Leader, or KOL, to the ongoing Phase 1 study.
 
The treatment regimen for this Phase 1 study of up to 15 HIV/HPV co-infected patient volunteers with peri-anal warts, being conducted by the USNMC, is identical to the regimen that was used in an earlier Institutional Review Board-approved Multikine Phase 1 study in HIV/HPV co-infected patients, which was conducted at the University of Maryland. In that study, the Multikine investigational therapy was administered to HIV/HPV co-infected women with cervical dysplasia, resulting in visual and histological evidence of clearance of lesions in three out of the eight subjects.
 
 
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Furthermore, in this earlier Phase 1 study, the number of  HPV viral sub-types in three volunteer subjects tested were reduced post-treatment with Multikine, as opposed to pre-treatment, as determined by in situ polymerase chain reaction performed on tissue biopsy collected before and after Multikine treatment. As reported by the investigators in the earlier study, the study volunteers all appeared to tolerate the treatment with no reported serious adverse events.
 
In October 2013, CEL-SCI entered into a co-development and profit sharing agreement with Ergomed for to continue the development of Multikine in HIV/HPV co-infected women with cervical dysplasia to continue the work conducted at the University of Maryland.

Development Agreements for Multikine

In August 2008, CEL-SCI signed an agreement with Teva Pharmaceutical Industries Ltd., or Teva, that gives Teva the exclusive right and license to market, distribute and sell Multikine in Israel and Turkey for treatment of head and neck cancer, if approved.  The agreement terminates on a country-by-country basis 10 years after the product launch in each country or upon a material breach or upon bankruptcy of either party.  The agreement will automatically extend for additional two year terms unless either party gives notice of its intent not to extend the agreement.  If CEL-SCI develops Multikine for other oncology indications and Teva indicates a desire to participate, the parties have agreed to negotiate in good faith with respect to Teva’s participation and contribution in future clinical trials.
 
Teva has agreed to use all reasonable efforts to obtain regulatory approval to market and sell Multikine in its territory at its own cost and expense.  Pursuant to the agreement, it is CEL-SCI’s responsibility to supply Multikine and Teva’s responsibility to sell Multikine, if approved.  Net sales will be divided 50/50 between the two parties. Teva also initially agreed to fund certain activities relating to the conduct of a clinical trial in Israel as part of the global Phase III trial for Multikine. In January 2012, pursuant to an assignment and assumption agreement between CEL-SCI, Teva and GCP Clinical Studies Ltd., or GCP, Teva transferred all of its rights and obligations concerning the Phase III trial in Israel to GCP.  GCP is now operating the Phase III trial in Israel pursuant to a service agreement with CEL-SCI.
 
In July 2011, Serbia and Croatia were added to Teva’s territory, pursuant to a joinder agreement between CEL-SCI and PLIVA Hrvatska d.o.o., or PLIVA, an affiliate of Teva’s, subject to similar terms as described above.

In consideration for the rights granted by CEL-SCI to PLIVA under the joinder agreement, CEL-SCI will be paid by PLIVA (in U.S. dollars):
 
·
$100,000 upon European Medicines Agency ("EMA") grant of Marketing Authorization for Multikine;
 
·
$50,000 upon Croatia’s grant of reimbursement status for Multikine in Croatia; and
 
·
$50,000 upon Serbia’s grant of reimbursement status for Multikine in Serbia.
 
In November 2000, CEL-SCI signed an agreement with Orient Europharma Co., Ltd., or Orient Europharma, of Taiwan, which agreement was amended in October 2008 and again in June 2010. Pursuant to this agreement, as amended, Orient Europharma has the exclusive marketing and distribution rights to Multikine, if approved, for head and neck cancer, naso-pharyngeal cancer and potentially cervical cancer indications in Taiwan, Singapore, Malaysia, Hong Kong, the Philippines, South Korea, Australia and New Zealand. CEL-SCI has granted Orient Europharma the first right of negotiation with respect to Thailand and China.
 
 
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The agreement requires Orient Europharma to fund 10% of the cost of the clinical trials needed to obtain marketing approvals in these countries for head and neck cancer, naso-pharyngeal cancer and potentially cervical cancer.  Orient Europharma has signed nine centers in Taiwan where it has enrolled patients as part of the ongoing Phase 3 Multikine clinical trial and has made further financial contributions towards the cost of the ongoing Phase 3 clinical trial.  If Multikine is approved for sale, Orient Europharma will purchase Multikine from CEL-SCI for 35% of the gross selling price in each country. Orient Europharma is obligated to use the same diligent efforts to develop, register, market, sell and distribute Multikine in the territory as with its own products or other licensed products.

The agreement will terminate on a country-by-country basis 15 years after the product approval for Multikine in each country, at which point the agreement will be automatically extended for successive two year periods, unless either party gives notice of its intent not to extend the agreement.  The agreement may also be terminated upon bankruptcy of either party or material misrepresentations that are not cured within 60 days.  If the agreement ends before the 15 year term through no fault of either party, CEL-SCI will reimburse Orient Europharma for a prorated part of Orient Europhorma’s costs towards the clinical trials of Multikine.  If Orient Europharma fails to make certain minimum purchases of Multikine during the term of the agreement, Orient Europhorma’s rights to the territory will become non-exclusive.
 
CEL-SCI has a licensing agreement with Byron Biopharma LLC, or Byron, under which CEL-SCI granted Byron an exclusive license to market and distribute Multikine in the Republic of South Africa, if approved.  This license will terminate 20 years after marketing approval in South Africa or after bankruptcy or uncured material breach.  After the 20-year period has expired, the agreement will be automatically extended for successive two year periods, unless either party gives notice of its intent not to extend the agreement.

Pursuant to the agreement, Byron will be responsible for registering Multikine in South Africa.  If Multikine is approved for sale in South Africa, CEL-SCI will be responsible for manufacturing the product, while Byron will be responsible for sales in South Africa.  Sales revenues will be divided between CEL-SCI and Byron.  CEL-SCI will be paid fifty (50%) percent of the net sales of Multikine.

INTELLECTUAL PROPERTY

Patents and other proprietary rights are essential to CEL-SCI’s business. CEL-SCI files patent applications to protect its technologies, inventions and improvements to its inventions that CEL-SCI considers important to the development of its business. CEL-SCI files for patent registration in the United States and in key foreign markets.  CEL-SCI’S intellectual property portfolio covers its proprietary technologies, including Multikine and LEAPS, by multiple issued patents and pending patent applications.
 
 
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Multikine is protected by a US patent, which is a composition-of-matter patent issued in May 2005 that, in its current format, expires in 2024.  Additional composition-of-matter patents for Multikine have been issued in Germany (issued in June 2011 and currently set to expire in 2025), China (issued in May 2011 and currently set to expire in 2024), Japan (issued in November 2012 and currently set to expire in 2025), and Europe (issued in September 2015 and currently set to expire in 2025).

CEL-SCI has two patent applications pending in Europe for Multikine, which, if issued, would extend protection through 2026, subject to any potential patent term extensions. In addition to the patents and applications that offer certain protections for Multikine, the method of manufacture for Multikine, a complex biological product, is held by CEL-SCI as trade secret.
 
LEAPS is protected by patents in the United States issued in February 2006, April 2007, and August 2007.   The LEAPS patents, which expire in 2021, 2022 and 2021, respectively, include overlapping claims, with composition of both matter (new chemical entity), process and methods-of-use, to maximize and extend the coverage in their current format.  Additional patent applications are pending in the United States and Europe that could offer protection through 2034.

CEL-SCI has six patent applications pending in the United States and one in Europe for LEAPS, which, if issued, would extend protection through 2034, subject to any potential patent term extensions.  One pending U.S. application is a joint application with Northeast Ohio Medical University (“Neoucom”). If granted, CEL-SCI will share the ability to use the patent, unless CEL-SCI licenses the rights to the patent application and any ensuing patent from Neoucom.

As of December 1, 2015, there were no contested proceedings and/or third party claims with respect to CEL-SCI’s patents or patent applications.

MANUFACTURING FACILITY

Before starting the Phase 3 clinical trial, CEL-SCI needed to build a dedicated manufacturing facility to produce Multikine.  This facility has been completed and validated, and has produced several clinical lots for the Phase 3 clinical trial.  The facility has also passed review by a European Union Qualified Person on several occasions.

CEL-SCI’s lease on the manufacturing facility expires on October 31, 2028. CEL-SCI completed validation of its new manufacturing facility in January 2010.  The state-of-the-art facility is being used to manufacture Multikine for CEL-SCI’s Phase 3 clinical trial.  In addition to using this facility to manufacture Multikine, CEL-SCI, only if the facility is not being used for Multikine, may offer the use of the facility as a service to pharmaceutical companies and others, particularly those that need to “fill and finish” their drugs in a cold environment (4 degrees Celsius, or approximately 39 degrees Fahrenheit). Fill and finish is the process of filling injectable drugs in a sterile manner and is a key part of the manufacturing process for many medicines. However, priority will always be given to Multikine as management considers the Multikine supply to the clinical studies and preparation for a final marketing approval to be more important than offering fill and finish services.  See Item 2 of this report for more information concerning the terms of this lease.
 
 
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LEAPS

CEL-SCI’s patented T-cell Modulation Process, referred to as LEAPS (Ligand Epitope Antigen Presentation System), uses “heteroconjugates” to direct the body to choose a specific immune response. LEAPS is designed to stimulate the human immune system to more effectively fight bacterial, viral and parasitic infections as well as autoimmune, allergies, transplantation rejection and cancer, when it cannot do so on its own. Administered like a vaccine, LEAPS combines T-cell binding ligands with small, disease associated, peptide antigens and may provide a new method to treat and prevent certain diseases.

The ability to generate a specific immune response is important because many diseases are often not combated effectively due to the body’s selection of the “inappropriate” immune response. The capability to specifically reprogram an immune response may offer a more effective approach than existing vaccines and drugs in attacking an underlying disease.

On July 15, 2014 CEL-SCI announced that it has been awarded a Phase 1 Small Business Innovation Research (SBIR) grant in the amount of $225,000 from the National Institute of Arthritis Muscoskeletal and Skin Diseases, which is part of the National Institutes of Health.  The grant is funding the further development of CEL-SCI’s LEAPS technology as a potential treatment for rheumatoid arthritis, an autoimmune disease of the joints.  The work is being conducted at Rush University Medical Center in Chicago, Illinois in the laboratories of Tibor Glant, MD, Ph.D., The Jorge O. Galante Professor of Orthopedic Surgery; Katalin Mikecz, MD, Ph.D. Professor of Orthopedic Surgery & Biochemistry; and Allison Finnegan, Ph.D. Professor of Medicine.

With the support of the SBIR grant, CEL-SCI is developing two new drug candidates, CEL-2000 and CEL-4000, as potential rheumatoid arthritis therapeutic vaccines.  The data from animal studies using the CEL-2000 treatment vaccine demonstrated that it could be used as an effective treatment against rheumatoid arthritis with fewer administrations than those required by other anti-rheumatoid arthritis treatments currently on the market for arthritic conditions associated with the Th17 signature cytokine TNF-a. The data for CEL-4000 indicates it could be effective against rheumatoid arthritis cases where a Th1 signature cytokine (IFN-γ) is dominant. CEL-4000 and CEL-2000 have the potentially to be a more disease-specific therapy, significantly less expensive, act at an earlier step in the disease process than current therapies and may be useful in patients not responding to existing rheumatoid arthritis therapies. CEL-SCI believes this represents a large unmet medical need in the rheumatoid arthritis market.

In March 2015, CEL-SCI and its collaborators published a review article on vaccine therapies for rheumatoid arthritis based in part on work supported by the SBIR grant.  The article is entitled “Rheumatoid arthritis vaccine therapies: perspectives and lessons from therapeutic Ligand Epitope Antigen Presentation System vaccines for models of rheumatoid arthritis” and was published in Expert Rev. Vaccines 1 - 18 and can be found at http://www.ncbi.nlm.nih.gov/ pubmed/25787143.

In August 2012, Dr. Zimmerman gave a Keynote presentation at the OMICS 2nd International Conference on Vaccines and Vaccinations in Chicago.  This presentation showed how the LEAPS peptides administered altered only select cytokines specific for each disease model, thereby improving the status of the test animals and even preventing death and morbidity.  
 
 
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These results support the growing body of evidence that provides for its mode of action by a common format in these unrelated conditions by regulation of Th1 (e.g., IL12 and IFN-γ) and their action on reducing TNF-a and other inflammatory cytokines as well regulation of antibodies to these disease associated antigens.  This was also illustrated by a schematic model showing how these pathways interact and result in the overall effect of protection and regulation of cytokines in a beneficial manner.

In February 2010, CEL-SCI announced that its CEL-2000 vaccine demonstrated that it was able to block the progression of rheumatoid arthritis in a mouse model, where a Th17 signature cytokine (TNF-a) is dominant.  The results were published in the scientific peer-reviewed Journal of International Immunopharmacology (online edition) in an article titled “CEL-2000: A Therapeutic Vaccine for Rheumatoid Arthritis Arrests Disease Development and Alters Serum Cytokine / Chemokine Patterns in the Bovine Collagen Type II Induced Arthritis in the DBA Mouse Model” Int Immunopharmacol. 2010 Apr; 10(4):412-21 http://www. ncbi.nlm.nih.gov/pubmed/20074669.

Using the LEAPS technology, CEL-SCI has created a potential peptide treatment for H1N1 (swine flu) hospitalized patients.  This LEAPS flu treatment is designed to focus on the conserved, non-changing epitopes of the different strains of Type A Influenza viruses (H1N1, H5N1, H3N1, etc.), including “swine”, “avian or bird”, and “Spanish Influenza”, in order to minimize the chance of viral “escape by mutations” from immune recognition. Therefore one should think of this treatment not really as an H1N1 treatment, but as a potential pandemic flu treatment.  CEL-SCI’s LEAPS flu treatment contains epitopes known to be associated with immune protection against influenza in animal models. 

In September 2009, the U.S. FDA advised CEL-SCI that it could proceed with its first clinical trial to evaluate the effect of LEAPS-H1N1 treatment on the white blood cells of hospitalized H1N1 patients. This followed an expedited initial review of CEL-SCI's regulatory submission for this study proposal.

In November 2009, CEL-SCI announced that The Johns Hopkins University School of Medicine had given clearance for CEL-SCI’s first clinical study to proceed using LEAPS-H1N1.   Soon after the start of the study, the number of hospitalized H1N1 patients dramatically declined and the study was unable to complete the enrollment of patients.

Additional work on this treatment for the pandemic flu is being pursued in collaboration with the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health, USA.  In May 2011 NIAID scientists presented data at the Keystone Conference on “Pathogenesis of Influenza: Virus-Host Interactions” in Hong Kong, China, showing the positive results of efficacy studies in mice of LEAPS H1N1 activated dendritic cells (DCs) to treat the H1N1 virus.  Scientists at the NIAID found that H1N1-infected mice treated with LEAPS-H1N1 DCs showed a survival advantage over mice treated with control DCs. The work was performed in collaboration with scientists led by Kanta Subbarao, M.D., Chief of the Emerging Respiratory Diseases Section in NIAID’s Division of Intramural Research, part of the National Institutes of Health, USA.
 
 
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In July 2013, CEL-SCI announced the publication of the results of influenza studies by researchers from the NIAID in the Journal of Clinical Investigation (www.jci.org/articles/view/67550).  The studies described in the publication show that when CEL-SCI’s investigational J-LEAPS Influenza Virus treatments were used “in vitro” to activate DCs, these activated DCs, when injected into influenza infected mice, arrested the progression of lethal influenza virus infection in these mice.  The work was performed in the laboratory of Dr. Subbarao.

Even though the various LEAPS drug candidates have not yet been given to humans, they have been tested in vitro with human cells.  They have induced similar cytokine responses that were seen in these animal models, which may indicate that the LEAPS technology might translate to humans.  The LEAPS candidates have demonstrated protection against lethal herpes simplex virus (HSV1) and H1N1 influenza infection, as a prophylactic or therapeutic agent in animals.  They have also shown efficacy in animals in two autoimmune conditions, curtailing and sometimes preventing disease progression in arthritis and myocarditis animal models.  CEL-SCI’s belief is that the LEAPS technology may be a significant alternative to the vaccines currently available on the market today for these diseases.

None of the LEAPS investigational products have been approved for sale, barter or exchange by the FDA or any other regulatory agency for any use to treat disease in animals or humans. The safety or efficacy of these products has not been established for any use. Lastly, no definitive conclusions can be drawn from the early-phase, preclinical-trials data involving these investigational products. Before obtaining marketing approval from the FDA in the United States, and by comparable agencies in most foreign countries, these product candidates must undergo rigorous preclinical and clinical testing which is costly and time consuming and subject to unanticipated delays.  There can be no assurance that these approvals will be granted.

RISK FACTORS

The risks described below could adversely affect the price of CEL-SCI’s common stock.

Risks Related to CEL-SCI

CEL-SCI has incurred significant losses since inception, and CEL-SCI anticipates that it will continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability.
 
CEL-SCI has a history of net losses and expects to incur substantial losses and have negative operating cash flow for the foreseeable future, and may never achieve or maintain profitability.  Since the date of its formation and through September 30, 2015, CEL-SCI incurred net losses of approximately $274 million. CEL-SCI has relied principally upon the proceeds of the public and private sales of its securities to finance the activities to date. To date, CEL-SCI has not commercialized any products or generated any revenue from the sale of products, and CEL-SCI does not expect to generate any product revenue for the foreseeable future. CEL-SCI does not know whether or when it will generate product revenue or become profitable.
 
CEL-SCI is heavily dependent on the success of Multikine which is under clinical development. CEL-SCI cannot be certain that Multikine will receive regulatory approval or be successfully commercialized even if CEL-SCI receives regulatory approval. Multikine is the only product candidate in late-stage clinical development, and its business currently depends heavily on its successful development, regulatory approval and commercialization. CEL-SCI has no drug products for sale currently and may never be able to develop approved and marketable drug products.
 
 
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Even if CEL-SCI succeeds in developing and commercializing one or more of its product candidates, CEL-SCI expects to continue to incur significant operating and capital expenditures and anticipates that its expenses will increase substantially in the foreseeable future as CEL-SCI:

·
continues to undertake preclinical development and clinical trials for product candidates;
 
·
seeks regulatory approvals for product candidates;
 
·
implements additional internal systems and infrastructure; and
 
·
hires additional personnel.

To become and remain profitable, CEL-SCI must succeed in developing and commercializing the product candidates which must generate significant revenue. This will require CEL-SCI to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of its product candidates, discovering or acquiring additional product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling any products for which CEL-SCI may obtain regulatory approval. CEL-SCI is only in the preliminary stages of most of these activities. CEL-SCI may never succeed in these activities and, even if it is successful in these areas, may never generate revenue that is significant enough to achieve profitability.
 
Even if CEL-SCI does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis. The failure to become and remain profitable could depress the value of CEL-SCI and could impair its ability to raise capital, expand its business, maintain research and development efforts, diversify product offerings or even continue in operation. A decline in the value of CEL-SCI could cause its stockholders to lose all or part of their investment.
 
CEL-SCI will require substantial additional capital to remain in operation. A failure to obtain this necessary capital when needed could force CEL-SCI to delay, limit, reduce or terminate the product candidates’ development or commercialization efforts.
 
As of September 30, 2015, CEL-SCI had cash and cash equivalents of $5.7 million.  CEL-SCI believes that it will continue to expend substantial resources for the foreseeable future developing Multikine, LEAPS and any other product candidates or technologies that it may develop or acquire. These expenditures will include costs associated with research and development, potentially obtaining regulatory approvals and having the products manufactured, as well as marketing and selling products approved for sale, if any. In addition, other unanticipated costs may arise. Because the outcome of the current and anticipated clinical trials is highly uncertain, CEL-SCI cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of the product candidates.
 
 
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CEL-SCI’s future capital requirements depend on many factors, including:
 
·
the rate of progress of, results of and cost of completing Phase 3 clinical development of Multikine for the treatment of certain head and neck cancers;
 
·
the results of the applications to and meetings with the FDA, the EMA and other regulatory authorities and the consequential effect on operating costs;
 
·
assuming favorable Phase 3 clinical results, the cost, timing and outcome of the efforts to obtain marketing approval for Multikine in the United States, Europe and in other jurisdictions, including the preparation and filing of regulatory submissions for Multikine with the FDA, the EMA and other regulatory authorities;
 
·
the scope, progress, results and costs of additional preclinical, clinical, or other studies for additional indications for Multikine, LEAPS and other product candidates and technologies that CEL-SCI may develop or acquire;
 
·
the timing of, and the costs involved in, obtaining regulatory approvals for LEAPS if clinical studies are successful;
 
·
the cost and timing of future commercialization activities for the products if any of the product candidates are approved for marketing, including product manufacturing, marketing, sales and distribution costs;
 
·
the revenue, if any, received from commercial sales of the product candidates for which CEL-SCI receives marketing approval;
 
·
the cost of having the product candidates manufactured for clinical trials and in preparation for commercialization;
 
·
the ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;
 
·
the costs involved in preparing, filing and prosecuting patent applications and maintaining, defending and enforcing the intellectual property rights, including litigation costs, and the outcome of such litigation; and
 
·
the extent to which CEL-SCI acquires or licenses other products or technologies.

Based on the current operating plan, and absent any future financings or strategic partnerships, CEL-SCI believes that the existing cash and cash equivalents and investments will be sufficient to fund the projected operating expenses and capital expenditure requirements well into fiscal 2016. However, the operating plan may change as a result of many factors currently unknown to CEL-SCI, and CEL-SCI may need additional funds sooner than planned. Additional funds may not be available when CEL-SCI needs them on terms that are acceptable to CEL-SCI, or at all. If adequate funds are not available to CEL-SCI on a timely basis, CEL-SCI may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for Multikine, LEAPS, or any other product candidates or technologies that CEL-SCI develops or acquires, or delay, limit, reduce or terminate the establishment of sales and marketing capabilities or other activities that may be necessary to commercialize the product candidates.
 
 
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The costs of the product candidate development and clinical trials are difficult to estimate and will be very high for many years, preventing CEL-SCI from making a profit for the foreseeable future, if ever.
 
Clinical and other studies necessary to obtain approval of a new drug can be time consuming and costly, especially in the United States, but also in foreign countries. The estimates of the costs associated with future clinical trials and research may be substantially lower than what CEL-SCI actually experiences. It is impossible to predict what CEL-SCI will face in the development of a product candidate, such as Multikine. The purpose of clinical trials is to provide both CEL-SCI and regulatory authorities with safety and efficacy data in humans. It is relatively common to revise a trial or add subjects to a trial in progress.  The difficult and often complex steps necessary to obtain regulatory approval, especially those of the FDA and the European Union’s European Medicine’s Agency, or EMA, involve significant costs and may require several years to complete. CEL-SCI expects that it will need substantial additional financing over an extended period of time in order to fund the costs of future clinical trials, related research, and general and administrative expenses.
 
The extent of the clinical trials and research programs are primarily based upon the amount of capital available to CEL-SCI and the extent to which CEL-SCI receives regulatory approvals for clinical trials. CEL-SCI has established estimates of the future costs of the Phase 3 clinical trial for Multikine, but, as explained above, the estimates may not prove correct.
 
An adverse determination in any current or future lawsuits or arbitration proceedings to which CEL-SCI is a party could have a material adverse effect on CEL-SCI.
 
CEL-SCI is currently involved in a pending arbitration proceeding, CEL-SCI Corporation v. inVentiv Health Clinical, LLC (f/k/a PharmaNet LLC) and PharmaNet GmbH (f/k/a PharmaNet AG). CEL-SCI 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.

In an amended statement of claim, CEL-SCI 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.
 
 
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In connection with the pending arbitration proceedings, inVentiv has asserted counterclaims against CEL-SCI 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 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 CEL-SCI 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. CEL-SCI 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 its business, results, financial condition and liquidity.  

In October 2015 CEL-SCI signed an arbitration 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.
 
Additionally, CEL-SCI may also be the target of claims asserting violations of securities fraud and derivative actions, or other litigation or arbitration proceedings in the future. Any future litigation could result in substantial costs and divert management’s attention and resources. These lawsuits or arbitration proceedings may result in large judgments or settlements against CEL-SCI, any of which could have a material adverse effect on its business, operating results, financial condition and liquidity.
 
Compliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses.
 
Changing laws, regulations and standards relating to corporate governance and public disclosure may create uncertainty regarding compliance matters. New or changed laws, regulations and standards are subject to varying interpretations in many cases. As a result, their application in practice may evolve over time. CEL-SCI is committed to maintaining high standards of corporate governance and public disclosure. Complying with evolving interpretations of new or changing legal requirements may cause CEL-SCI to incur higher costs as CEL-SCI revises current practices, policies and procedures, and may divert management time and attention from potential revenue-generating activities to compliance matters. If the efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, the reputation may also be harmed. Further, CEL-SCI’s board members, chief executive officer, president and other executive officers could face an increased risk of personal liability in connection with the performance of their duties. As a result, CEL-SCI may have difficulty attracting and retaining qualified board members and executive officers, which could harm its business.
 
 
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CEL-SCI has not established a definite plan for the marketing of Multikine, if approved.
 
CEL-SCI has not established a definitive plan for marketing nor has CEL-SCI established a price structure for any of its product candidates, if approved.  However, CEL-SCI intends, if it is in a position to do so, to sell Multikine itself in certain markets where it is approved, or to enter into written marketing agreements with various third parties with established sales forces in such markets.  The sales forces in turn would, CEL-SCI believes, focus on selling Multikine to targeted cancer centers, physicians and clinics involved in the treatment of head and neck cancer. CEL-SCI has already licensed future sales of Multikine, if approved, to three companies: Teva Pharmaceuticals in Israel, Turkey, Serbia and Croatia; Orient Europharma in Taiwan, Singapore, Hong Kong, Malaysia, South Korea, the Philippines, Australia and New Zealand; and Byron BioPharma, LLC in South Africa.  CEL-SCI believes that these companies will have the resources to market Multikine appropriately in their respective territories, if approved, but there is no guarantee that they will.  There is no assurance that CEL-SCI will be able to find qualified third-party partners to market Multikine in other areas, on terms that are favorable to CEL-SCI, or at all.
 
CEL-SCI may encounter problems, delays and additional expenses in developing marketing plans with third parties. In addition, even if Multikine, if approved, is cost-effective and demonstrated to increase overall patient survival, CEL-SCI may experience other limitations involving the proposed sale of Multikine, such as uncertainty of third-party coverage and reimbursement. There is no assurance that CEL-SCI can successfully market Multikine, if approved, or any other product candidates it may develop.
 
CEL-SCI hopes to expand its clinical development capabilities in the future, and any difficulties hiring or retaining key personnel or managing this growth could disrupt the operations.
 
CEL-SCI is highly dependent on the principal members of its management and development staff. If the ongoing Phase 3 Multikine clinical trial is successful, CEL-SCI expects to expand its clinical development and manufacturing capabilities, which will involve hiring additional employees. Future growth will require CEL-SCI to continue to implement and improve the managerial, operational and financial systems and to continue to retain, recruit and train additional qualified personnel, which may impose a strain on the administrative and its operational infrastructure. The competition for qualified personnel in the biopharmaceutical field is intense. CEL-SCI is highly dependent on its ability to attract, retain and motivate highly qualified management and specialized personnel required for clinical development. Due to limited resources, CEL-SCI may not be able to manage effectively the expansion of its operations or recruit and train additional qualified personnel.  If CEL-SCI is unable to retain key personnel or manage the future growth effectively, CEL-SCI may not be able to implement its business plan.

If product liability or patient injury lawsuits are brought against CEL-SCI, CEL-SCI may incur substantial liabilities and may be required to limit clinical testing or future commercialization of Multikine or its other product candidates.
 
 
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CEL-SCI faces an inherent risk of product liability as a result of the ongoing clinical testing of Multikine and other product candidates, and will face an even greater risk if CEL-SCI commercializes any of its product candidates. For example, CEL-SCI may be sued if the Multikine or LEAPS product candidates, or any other future product candidates, allegedly cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing or, if approved, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product candidate, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts.

Furthermore, Multikine is made, in part, from components of human blood. There are inherent risks associated with products that involve human blood such as possible contamination with viruses, including hepatitis or HIV. Any possible contamination could cause injuries to patients who receive such contaminated Multikine, or could require CEL-SCI to destroy batches of Multikine, thereby subjecting CEL-SCI to possible financial losses, lawsuits and harm to its business.
 
If CEL-SCI cannot successfully defend itself against product liability claims, CEL-SCI may incur substantial liabilities or be required to limit or cease the clinical testing or commercialization of its product candidates, if approved. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
 
·
decreased demand for Multikine or other product candidates, if approved;
 
·
injury to CEL-SCI’s reputation;
 
·
withdrawal of existing, or failure to enroll additional, clinical trial participants;
 
·
costs to defend any related litigation;
 
·
a diversion of management’s time and the resources;
 
·
substantial monetary awards to trial participants or patients;
 
·
product candidate recalls, withdrawals or labeling, marketing or promotional restrictions;
 
·
loss of revenue;
 
·
inability to commercialize Multikine or the other product candidates; and
 
·
a decline in the price of CEL-SCI’s common stock.
 
Although CEL-SCI has product liability insurance for Multikine in the amount of $5.0 million, the successful prosecution of a product liability case against CEL-SCI could have a materially adverse effect upon its business if the amount of any judgment exceeds the insurance coverage. Any claim that may be brought against CEL-SCI could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by CEL-SCI’s insurance or that is in excess of the limits of the insurance coverage. CEL-SCI’s insurance policies also have various exclusions, and CEL-SCI may be subject to a claim for which CEL-SCI has no coverage. CEL-SCI may have to pay any amounts awarded by a court or negotiated in a settlement that exceed the coverage limitations or that are not covered by the insurance, and CEL-SCI may not have, or be able to obtain, sufficient capital to pay such amounts. CEL-SCI commenced the Phase 3 clinical trial for Multikine in December 2010. Although no claims have been brought to date, participants in the clinical trials could bring civil actions against CEL-SCI for any unanticipated harmful effects allegedly arising from the use of Multikine or any other product candidate that CEL-SCI may attempt to develop.
 
 
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CEL-SCI’s commercial success depends, in part, upon attaining significant market acceptance of its product candidates, if approved, among physicians, patients, healthcare payors and major operators of cancer clinics.
 
Even if CEL-SCI obtains regulatory approval for its product candidates, any resulting product may not gain market acceptance among physicians, healthcare payors, patients and the medical community, which are critical to commercial success. Market acceptance of any product candidate for which CEL-SCI receives approval depends on a number of factors, including:
 
·
the efficacy and safety as demonstrated in clinical trials;
 
·
the timing of market introduction of such product candidate as well as competitive products;
 
·
the clinical indications for which the drug is approved;
 
·
the approval, availability, market acceptance and reimbursement for the companion diagnostic;
 
·
acceptance by physicians, major operators of cancer clinics and patients of the drug as a safe and effective treatment;
 
·
the potential and perceived advantages of a product candidate over alternative treatments, especially with respect to patient subsets that are targeted with a product candidate;
 
·
the safety of a product candidate seen in a broader patient group, including its use outside the approved indications;
 
·
the cost of treatment in relation to alternative treatments;
 
·
the availability of adequate reimbursement and pricing by third-party payors and government authorities;
 
·
relative convenience and ease of administration;
 
·
the prevalence and severity of adverse side effects; and
 
·
the effectiveness of sales and marketing efforts.

If CEL-SCI’s product candidates are approved but fail to achieve an adequate level of acceptance by physicians, healthcare payors and patients, CEL-SCI will not be able to generate significant revenues, and CEL-SCI may not become or remain profitable.
 
 
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Risks Related to Government Approvals

CEL-SCI’s product candidates must undergo rigorous preclinical and clinical testing and regulatory approvals, which could be costly and time-consuming and subject CEL-SCI to unanticipated delays or prevent CEL-SCI from marketing any products.
 
CEL-SCI’s product candidates are subject to premarket approval from the FDA in the United States, the EMA in the European Union, and by comparable agencies in most foreign countries before they can be sold. Before obtaining marketing approval, these product candidates must undergo costly and time consuming preclinical and clinical testing which could subject CEL-SCI to unanticipated delays and may prevent CEL-SCI from marketing the product candidates. There can be no assurance that such approvals will be granted on a timely basis, if at all.
 
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of the product candidates may not be predictive of the results of later-stage clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. CEL-SCI’s current and future clinical trials may not be successful.
 
Although CEL-SCI has a Phase 3 clinical trial ongoing for Multikine, CEL-SCI may experience delays in the ongoing clinical trials and CEL-SCI does not know whether other planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays related to:
 
·
the availability of financial resources needed to commence and complete the planned trials;
 
·
obtaining regulatory approval to commence a trial;
 
·
reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
 
·
obtaining Institutional Review Board, or IRB, approval at each clinical trial site;
 
·
recruiting suitable patients to participate in a trial;
 
·
having patients complete a trial or return for post-treatment follow-up;
 
·
clinical trial sites deviating from trial protocol or dropping out of a trial;
 
·
adding new clinical trial sites; or
 
·
manufacturing sufficient quantities of the product candidate for use in clinical trials.

Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the competence of the CRO running the study, size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians' and patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications CEL-SCI is investigating. Furthermore, CEL-SCI relies on CROs and clinical trial sites to ensure the proper and timely conduct of the clinical trials and while CEL-SCI has agreements governing their committed activities, CEL-SCI has limited influence over their actual performance.
 
 
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For example, CEL-SCI is currently involved in a dispute with its former CRO relating to the conduct of the Phase 3 study where CEL-SCI alleges (i) breach of contract, (ii) fraud in the inducement, and (iii) fraud. In connection with this dispute, CEL-SCI has alleged that the CRO failed to properly select, monitor and supervise the study sites and principal investigators, ensure proper enrollment of subjects, and ensure strict compliance with the Phase 3 trial protocol and Good Clinical Practices, or GCP, and other applicable regulatory requirements. If CEL-SCI or regulatory authorities determine that the former CRO did not comply with GCP or other applicable regulatory requirements, data collected by that former CRO may be rendered unusable in support of the marketing applications, and CEL-SCI may be required to enroll additional subjects in the Phase 3 study beyond current plans, which could cause additional delays in its clinical testing and development program.  During the tenure of the former CRO, 117 patients were enrolled in the Phase 3 study.
 
CEL-SCI could also encounter delays if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of the product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be suspended or terminated by CEL-SCI, the IRBs for the institutions in which such trials are being conducted, the Independent Data Monitoring Committee, or IDMC, for such trial, or by the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or the clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
 
If CEL-SCI experiences termination of, or delays in the completion of, any clinical trial of the product candidates, the commercial prospects for the product candidates will be harmed, and the ability to generate product revenues will be delayed. In addition, any delays in completing the clinical trials will increase the costs, slow the product development and approval process and jeopardize the ability to commence product sales and generate revenues. Any of these occurrences may harm CEL-SCI’s business, prospects, financial condition and results of operations significantly. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval for the product candidates.
 
CEL-SCI cannot be certain when or under what conditions it will undertake future clinical trials.  A variety of issues may delay the Phase 3 clinical trial for Multikine or preclinical and early clinical trials for the other product candidates.  For example, early trials, or the plans for later trials, may not satisfy the requirements of regulatory authorities, such as the FDA. CEL-SCI may fail to find subjects willing to enroll in the trials. CEL-SCI manufactures Multikine in its manufacturing facility, but relies on third-party vendors to manage the trial process and other activities, and these vendors may fail to meet appropriate standards. Accordingly, the clinical trials relating to the product candidates may not be completed on schedule, the FDA or foreign regulatory agencies may order CEL-SCI to stop or modify research, or these agencies may not ultimately approve any of the product candidates for commercial sale. Varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory approval of the product candidates. The data collected from the clinical trials may not be sufficient to support regulatory approval of the various product candidates, including Multikine. The failure to adequately demonstrate the safety and efficacy of any of the product candidates would delay or prevent regulatory approval of the product candidates in the United States, which could prevent CEL-SCI from achieving profitability. Although CEL-SCI had positive results in the Phase 2 trials for Multikine, those results were for a very small sample set, and CEL-SCI will not know how Multikine will perform in a larger set of subjects until CEL-SCI is well into, or completes, the Phase 3 clinical trial.
 
 
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The development and testing of product candidates and the process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.  Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include, among other actions, refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls or withdrawals from the market, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on CEL-SCI.
 
The requirements governing the conduct of clinical trials, manufacturing and marketing of the product candidates, including Multikine, outside the United States vary from country to country. Foreign approvals may take longer to obtain than FDA approvals and can require, among other things, additional testing and different trial designs. Foreign regulatory approval processes include all of the risks associated with the FDA approval process. Some of those agencies also must approve prices for products approved for marketing. Approval of a product by the FDA or the EMA does not ensure approval of the same product by the health authorities of other countries. In addition, changes in regulatory requirements for product approval in any country during the clinical trial process and regulatory agency review of each submitted new application may cause delays or rejections.
 
CEL-SCI has only limited experience in filing and pursuing applications necessary to gain regulatory approvals.  The lack of experience may impede the ability to obtain timely approvals from regulatory agencies, if at all. CEL-SCI will not be able to commercialize Multikine and other product candidates until CEL-SCI has obtained regulatory approval.  In addition, regulatory authorities may also limit the types of patients to which CEL-SCI or the third-party partners may market Multikine or the other product candidates. Any failure to obtain or any delay in obtaining required regulatory approvals may adversely affect CEL-SCI’s or the third-party partners’ ability to successfully market the product candidates.
 
 
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Even if CEL-SCI obtains regulatory approval for its product candidates, CEL-SCI will be subject to stringent, ongoing government regulation.
 
If CEL-SCI’s product candidates receive regulatory approval, either in the United States or internationally, those products will be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, and may contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance of the safety and efficacy of the product candidates.  CEL-SCI will continue to be subject to extensive regulatory requirements. These regulations are wide-ranging and govern, among other things:
 
·
product design, development and manufacture;
 
·
product application and use
 
·
adverse drug experience;
 
·
product advertising and promotion;
 
·
product manufacturing, including good manufacturing practices
 
·
record keeping requirements;
 
·
registration and listing of the establishments and products with the FDA, EMA and other state and national agencies;
 
·
product storage and shipping;
 
·
drug sampling and distribution requirements;
 
·
electronic record and signature requirements; and
 
·
labeling changes or modifications.

CEL-SCI and any third-party manufacturers or suppliers must continually adhere to federal regulations setting forth requirements, known as cGMPs, and their foreign equivalents, which are enforced by the FDA, the EMA and other national regulatory bodies through their facilities inspection programs. If the facilities, or the facilities of the contract manufacturers or suppliers, cannot pass a pre-approval plant inspection or fail such inspections in the future, the FDA, EMA or other national regulators will not approve the marketing applications for the product candidates, or may withdraw any prior approval. In complying with cGMP and foreign regulatory requirements, CEL-SCI and any of the potential third-party manufacturers or suppliers will be obligated to expend time, money and effort in production, record-keeping and quality control to ensure that the product candidates meet applicable specifications and other requirements.
 
If CEL-SCI does not comply with regulatory requirements at any stage, whether before or after marketing approval is obtained, CEL-SCI may be subject to, among other things, license suspension or revocation, criminal prosecution, seizure, injunction, fines, be forced to remove a product from the market or experience other adverse consequences, including restrictions or delays in obtaining regulatory marketing approval for such products or for other product candidates for which CEL-SCI seeks approval.  This could materially harm CEL-SCI’s financial results, reputation and stock price. Additionally, CEL-SCI may not be able to obtain the labeling claims necessary or desirable for product promotion. If CEL-SCI or other parties identify adverse effects after any of the products are on the market, or if manufacturing problems occur, regulatory approval may be suspended or withdrawn. CEL-SCI may be required to reformulate products, conduct additional clinical trials, make changes in product labeling or indications of use, or submit additional marketing applications to support any changes. If CEL-SCI encounters any of the foregoing problems, its business and results of operations will be harmed and the market price of its common stock may decline.
 
 
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            FDA and other governmental authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of CEL-SCI’s product candidates. If CEL-SCI is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if CEL-SCI is not able to maintain regulatory compliance, CEL-SCI may lose any marketing approval that it may have obtained, which would adversely affect its business, prospects and ability to achieve or sustain profitability.  CEL-SCI cannot predict the extent of adverse government regulations which might arise from future legislative or administrative action. Without government approval, CEL-SCI will be unable to sell any of its product candidates.

CEL-SCI’s product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

Undesirable side effects caused by the product candidates could cause CEL-SCI or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of the clinical trials could reveal a high and unacceptable severity and/or prevalence of these or other side effects. In such an event, the trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order CEL-SCI to cease further development of, or deny approval of, the product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm CEL-SCI’s business, financial condition and prospects significantly.
 
Additionally if one or more of the product candidates receives marketing approval, and CEL-SCI or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:
 
·
regulatory authorities may withdraw approvals of such product;
 
·
regulatory authorities may require additional warnings on the label;
 
·
CEL-SCI may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
 
·
CEL-SCI could be sued and held liable for harm caused to patients; and
 
·
its reputation may suffer.
 
 
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Any of these events could prevent CEL-SCI from achieving or maintaining market acceptance of a particular product candidate, if approved, and could significantly harm its business, results of operations and prospects.
 
CEL-SCI relies on third parties to conduct its preclinical and clinical trials. If these third parties do not successfully carry out their contractual duties and meet regulatory requirements, or meet expected deadlines, CEL-SCI may not be able to obtain regulatory approval for or commercialize the product candidates and its business could be substantially harmed.
 
CEL-SCI has relied upon and plans to continue to rely upon third-party CROs to prepare for, conduct, monitor and manage data for its ongoing preclinical and clinical programs. CEL-SCI relies on these parties for all aspects of the execution of the preclinical and clinical trials, and although CEL-SCI diligently oversees and carefully manages the CROs, CEL-SCI directly controls only certain aspects of their activities and relies upon them to provide timely, complete, and accurate reports on the conduct of the studies. Although such third parties stand in the shoes for regulatory purposes in the context of the clinical trials, ultimately CEL-SCI is responsible for ensuring that each of the studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards, and the reliance on the CROs does not relieve CEL-SCI of its regulatory responsibilities. CEL-SCI and the CROs, as well as principal investigators and trial sites, are required to comply with GCP and other applicable requirements, which are implemented through regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, or EEA, and comparable foreign regulatory authorities for all of the products in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators, and trial sites. If CEL-SCI or any of the CROs fail to comply with applicable GCPs or other applicable regulations, the data generated in the clinical trials may be determined to be unreliable and CEL-SCI may therefore need to enroll additional subjects in the clinical trials, or the FDA, EMA or comparable foreign regulatory authorities may require CEL-SCI to perform an additional clinical trial or trials before approving the marketing applications. Moreover, if CEL-SCI or any of the CROs, principal investigators, or trial sites, fail to comply with applicable regulatory and GCP requirements, then CEL-SCI, the CROs, principal investigators, or trial sites may be subject to enforcement actions, such as fines, warning letters, untitled letters, clinical holds, civil or criminal penalties, and injunctions. Upon inspection by a given regulatory authority, the regulatory authority may determine that any of the clinical trials fail to comply with GCP regulations. In addition, the clinical trials must be conducted with product produced under GMP regulations. The failure to comply with these regulations may require CEL-SCI to delay or repeat clinical trials, which would delay the regulatory approval process.
 
For example, CEL-SCI is currently involved in a dispute with the former CRO relating to the conduct of the Phase 3 study where CEL-SCI alleges (i) breach of contract, (ii) fraud in the inducement and (iii) fraud. In connection with this dispute, CEL-SCI has alleged that the CRO failed to properly select, monitor and supervise the study sites and principal investigators, ensure proper enrollment of subjects, and ensure strict compliance with the Phase 3 trial protocol and GCP and other applicable regulatory requirements. If CEL-SCI or regulatory authorities determine that the former CRO did not comply with GCP or other applicable regulatory requirements, the data collected by that former CRO may be rendered unusable in support of the marketing applications, and CEL-SCI may be required to enroll additional subjects in the Phase 3 study beyond the current plans, which could cause additional delays in the clinical testing and development program.
 
 
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If any of the relationships with the third-party CROs terminate, CEL-SCI may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. In addition, the CROs are not CEL-SCI’s employees, and except for remedies available to CEL-SCI under the agreements with such CROs, CEL-SCI cannot control whether or not they devote sufficient time and resources to the on-going clinical, nonclinical and preclinical programs. If CROs do not successfully fulfill their regulatory obligations, carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to the clinical protocols, regulatory requirements or for other reasons, the clinical trials may be extended, delayed or terminated, and CEL-SCI may not be able to obtain regulatory approval for or successfully commercialize the product candidates. As a result, CEL-SCI’s results of operations and the commercial prospects for the product candidates would be harmed, the costs could increase and the ability to generate revenues could be delayed.
 
Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays may occur, which can materially impact CEL-SCI’s ability to meet the desired clinical development timelines. Though CEL-SCI diligently oversees and carefully manages the relationships with the CROs, there can be no assurance that CEL-SCI will not encounter similar challenges or delays in clinical development in the future or that these delays or challenges will not have a material adverse impact on CEL-SCI’s business, financial condition and prospects.
 
CEL-SCI has obtained orphan drug designation from the FDA for Multikine for neoadjuvant, or primary, therapy in patients with squamous cell carcinoma of the head and neck, but CEL-SCI may be unable to maintain the benefits associated with orphan drug designation, including the potential for market exclusivity.
 
Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug or biologic will be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a full Biologics License Application, or BLA, to market the same biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product quantity.
 
Even though CEL-SCI has received orphan drug designation for Multikine for the treatment of squamous cell carcinoma of the head and neck, CEL-SCI may not be the first to obtain marketing approval of a product for the orphan-designated indication due to the uncertainties associated with developing pharmaceutical products. In addition, exclusive marketing rights in the United States may be limited if CEL-SCI seeks approval for an indication broader than the orphan-designated indication, or may be lost if the FDA later determines that the request for designation was materially defective or if CEL-SCI is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Further, even if CEL-SCI obtains orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different drugs with different active moieties can be approved for the same condition. Even after an orphan product is approved, the FDA can subsequently approve another drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more effective, or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.
 
 
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The current and future relationships with healthcare professionals, principal investigators, consultants, customers (actual and potential) and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable healthcare laws and regulations.
 
Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any drug candidates for which CEL-SCI obtains marketing approval. The current and future arrangements with healthcare professionals, principal investigators, consultants, customers (actual and potential) and third-party payors may expose CEL-SCI to broadly applicable healthcare laws, including, without limitation:

·
the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under federal and state healthcare programs such as Medicare and Medicaid.  A person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

·
federal civil and criminal false claims laws, including the federal False Claims Act, which impose criminal and civil penalties, including civil whistleblower actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

·
the civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent;
 
 
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·
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a healthcare offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters.  A person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;

·
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which impose obligations on covered entities, including healthcare providers, health plans, and healthcare clearinghouses, as well as their respective business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

·
the federal Physician Payments Sunshine Act and its implementing regulations, which imposed annual reporting requirements for certain manufacturers of drugs, devices, biologicals and medical supplies for payments and “transfers of value” provided to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and

·
analogous state and foreign laws, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that the future business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that the business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws. If CEL-SCI’s operations are found to be in violation of any of these applicable laws or any other governmental regulations, CEL-SCI may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of the operations, all of which could significantly harm CEL-SCI’s business. If any of the physicians or other healthcare providers or entities with whom CEL-SCI expects to do business, including current and future collaborators, are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which could also adversely affect CEL-SCI’s business.
 
 
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Failure to obtain or maintain adequate coverage and reimbursement for the product candidates, if approved, could limit the ability to market those products and decrease CEL-SCI’s ability to generate revenue.

Sales of CEL-SCI’s product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of the product candidates will be paid by health maintenance, managed care, pharmacy benefit, and similar healthcare management organizations, or reimbursed by government authorities, private health insurers and other third-party payors. CEL-SCI anticipates that government authorities and other third-party payors will continue efforts to contain healthcare costs by limiting the coverage and reimbursement levels for new drugs. If coverage and reimbursement are not available, or are available only to limited levels, CEL-SCI may not be able to successfully commercialize its product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow CEL-SCI to establish or maintain pricing sufficient to realize a return on its investment. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for the product candidates.

Healthcare legislative reform measures may have a material adverse effect on CEL-SCI’s business and results of operations.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs that may result in more limited coverage or downward pressure on the price CEL-SCI may otherwise receive for its product candidates. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, was passed, which substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The Affordable Care Act, among other things, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription drugs, and established the Center for Medicare and Medicaid Innovation with broad authority to test and implement new payment models under Medicare and Medicaid, which are designed to reduce expenditures while preserving and enhancing quality of care.
 
 
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In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation's automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2024 unless additional Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers. On April 16, 2015, President Obama signed into law the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA. Among other things, MACRA creates incentives for physicians to participate in alternative payment models under Medicare that emphasize quality and value in place of the traditional, volume-based fee-for-service program. CEL-SCI expects that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for its product candidates or additional pricing pressures.

Foreign governments often impose strict price controls, which may adversely affect CEL-SCI’s future profitability.

CEL-SCI intends to seek approval to market Multikine in both the United States and foreign jurisdictions. If CEL-SCI obtains approval in one or more foreign jurisdictions, CEL-SCI will be subject to rules and regulations in those jurisdictions relating to Multikine. In some foreign countries, particularly in the European Union, prescription drug pricing is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug candidate. Coverage and reimbursement decisions in one foreign jurisdiction may impact decisions in other countries. To obtain reimbursement or pricing approval in some countries, CEL-SCI may be required to conduct clinical trials that demonstrate the product candidate is more effective than current treatments and that compare the cost-effectiveness of Multikine to other available therapies. If reimbursement of Multikine is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, CEL-SCI may be unable to achieve or sustain profitability.

Risks Related to Intellectual Property

CEL-SCI may not be able to achieve or maintain a competitive position, and other technological developments may result in the proprietary technologies becoming uneconomical or obsolete.

CEL-SCI is involved in a biomedical field that is undergoing rapid and significant technological change. The pace of change continues to accelerate.  The successful development of product candidates from the compounds, compositions and processes, through research financed by CEL-SCI, or as a result of possible third-party licensing arrangements with pharmaceutical or other companies, is not assured. CEL-SCI may fail to apply for patents on important technologies or product candidates in a timely fashion, or at all.
 
 
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Many companies are working on drugs designed to cure or treat cancer or cure and treat viruses, such as HPV or H1N1.  Many of these companies have financial, research and development, and marketing resources, which are much greater than CEL-SCI’s, and are capable of providing significant long-term competition either by establishing in-house research groups or by forming collaborative ventures with other entities. In addition, smaller companies and non-profit institutions are active in research relating to cancer and infectious diseases.  The future market share of Multikine or the other product candidates, if approved, will be reduced or eliminated if the competitors develop and obtain approval for products that are safer or more effective than CEL-SCI’S product candidates.  Moreover, the patent positions of pharmaceutical companies are highly uncertain and involve complex legal and factual questions for which important legal principles are often evolving and remain unresolved. As a result, the validity and enforceability of patents cannot be predicted with certainty. In addition, CEL-SCI does not know whether:
 
·
CEL-SCI was the first to make the inventions covered by each of its issued patents and pending patent applications;
 
·
CEL-SCI was the first to file patent applications for these inventions;
 
·
others will independently develop similar or alternative technologies or duplicate any of the technologies;
 
·
any of the pending patent applications will result in issued patents;
 
·
any of the patents will be valid or enforceable;
 
·
any patents issued to CEL-SCI or the collaboration partners will provide CEL-SCI with any competitive advantages, or will be challenged by third parties;
 
·
CEL-SCI will be able to develop additional proprietary technologies that are patentable;
 
·
the U.S. government will exercise any of its statutory rights to CEL-SCI’s intellectual property that was developed with government funding; or
 
·
its business may infringe the patents or other proprietary rights of others.

CEL-SCI’s patents might not protect its technology from competitors, in which case CEL-SCI may not have any advantage over competitors in selling any products that CEL-SCI may develop.

CEL-SCI’s commercial success will depend in part on its ability to obtain additional patents and protect its existing patent position, as well as its ability to maintain adequate intellectual property protection for the technologies, product candidates, and any future products in the United States and other countries. If CEL-SCI does not adequately protect the technology, product candidates and future products, competitors may be able to use or practice them and erode or negate any competitive advantage CEL-SCI may have, which could harm CEL-SCI’s business and ability to achieve profitability. The laws of some foreign countries do not protect the proprietary rights to the same extent or in the same manner as U.S. laws, and CEL-SCI may encounter significant problems in protecting and defending its proprietary rights in these countries. CEL-SCI will be able to protect the proprietary rights from unauthorized use by third parties only to the extent that its proprietary technologies, product candidates and any future products are covered by valid and enforceable patents or are effectively maintained as trade secrets.
 
 
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Certain aspects of CEL-SCI’s technologies are covered by U.S. and foreign patents. In addition, CEL-SCI has a number of new patent applications pending. There is no assurance that the applications still pending or which may be filed in the future will result in the issuance of any patents. Furthermore, there is no assurance as to the breadth and degree of protection any issued patents might afford CEL-SCI. Disputes may arise between CEL-SCI and others as to the scope and validity of these or other patents. Any defense of the patents could prove costly and time consuming and there can be no assurance that CEL-SCI will be in a position, or will deem it advisable, to carry on such a defense.  A suit for patent infringement could result in increasing costs, delaying or halting development, or even forcing CEL-SCI to abandon a product candidate.  Other private and public concerns, including universities, may have filed applications for, may have been issued, or may obtain additional patents and other proprietary rights to technology potentially useful or necessary to CEL-SCI. CEL-SCI is not currently aware of any such patents, but the scope and validity of such patents, if any, and the cost and availability of such rights are impossible to predict.

Much of CEL-SCI’s intellectual property is protected as trade secrets or confidential know-how, not as a patent.

CEL-SCI considers proprietary trade secrets and/or confidential know-how and unpatented know-how to be important to its business.  Much of the intellectual property pertains to CEL-SCI’S manufacturing system, certain aspects of which may not be suitable for patent filings and must be protected as trade secrets and/or confidential know-how.  This type of information must be protected diligently by CEL-SCI to protect its disclosure to competitors, since legal protections after disclosure may be minimal or non-existent.  Accordingly, much of the value is dependent upon the ability to keep the trade secrets and know-how confidential.

To protect this type of information against disclosure or appropriation by competitors, CEL-SCI’s policy is to require its employees, consultants, contractors and advisors to enter into confidentiality agreements with CEL-SCI. However, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose the confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party obtained illegally, and is using, trade secrets and/or confidential know-how is expensive, time consuming and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction.

In addition, in some cases a regulator considering the application for product candidate approval may require the disclosure of some or all of the proprietary information.  In such a case, CEL-SCI must decide whether to disclose the information or forego approval in a particular country.  If CEL-SCI is unable to market its product candidates in key countries, CEL-SCI’s opportunities and value may suffer.
 
 
35

 

Failure to obtain or maintain trade secrets and/or confidential know-how trade protection could adversely affect CEL-SCI’S competitive position. Moreover, competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same. If successful in obtaining such patent protection, competitors could limit the use of such trade secrets and/or confidential know-how.

CEL-SCI may be subject to claims challenging the inventorship or ownership of the patents and other intellectual property.

CEL-SCI may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in its patents or other intellectual property. CEL-SCI may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing the product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If CEL-SCI fails in defending any such claims, in addition to paying monetary damages, CEL-SCI may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on its business. Even if CEL-SCI is successful in defending against such claims, litigation could result in substantial costs and be a distraction to CEL-SCI’s management and employees.

Risks Related to CEL-SCI’s common stock

You may experience future dilution as a result of future equity offerings or other equity issuances.
 
CEL-SCI expects that significant additional capital will be needed in the future to continue the planned operations. To raise additional capital, CEL-SCI may in the future offer additional shares of the common stock or other securities convertible into or exchangeable for the common stock.    To the extent CEL-SCI raises additional capital by issuing equity securities, the stockholders may experience substantial dilution. These sales may result in material dilution to CEL-SCI’s existing stockholders and new investors could gain rights superior to existing stockholders.
 
CEL-SCI’s outstanding options and warrants may adversely affect the trading price of its common stock.
 
As of September 30, 2015, there were outstanding options which allow the holders to purchase approximately 7,546,000 shares of CEL-SCI’s common stock, at prices ranging between $0.55 and $20.00 per share, with a weighted average exercise price of $2.73 per share; outstanding warrants which allow the holders to purchase approximately 53,886,000 shares of CEL-SCI’s common stock, at prices ranging between $0.53 and $5.00 per share, with a weighted average exercise price of $1.28 per share; and a convertible loan, which allows the holder to acquire approximately 1,871,282 shares of CEL-SCI’s common stock at a conversion price of $0.59 per share.  The outstanding options and warrants could adversely affect the ability to obtain future financing or engage in certain mergers or other transactions, since the holders of options and warrants can be expected to exercise them at a time when CEL-SCI may be able to obtain additional capital through a new offering of securities on terms more favorable to CEL-SCI than the terms of the outstanding options and warrants. For the life of the options, warrants and the convertible loan, the holders have the opportunity to profit from a rise in the market price of its common stock without assuming the risk of ownership. The issuance of shares upon the exercise of outstanding options and warrants, or the conversion of the loan, will also dilute the ownership interests of CEL-SCI’s existing stockholders.
 
 
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CEL-SCI’s ability to utilize its net operating loss carryforwards and certain other tax attributes may be limited.

Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. Taking into account the prior securities offerings and other transactions, CEL-SCI may have triggered an “ownership change” limitation. In addition, CEL-SCI may experience ownership changes in the future as a result of subsequent shifts in its stock ownership, some of which are outside its control. As a result, the ability to use the pre-change net operating loss carryforwards and other pre-change tax attributes to offset U.S. federal taxable income may be subject to limitations, which could result in increased tax liability.

Since CEL-SCI does not intend to pay dividends on its common stock, any potential return to investors will result only from any increases in the price of its common stock.
 
At the present time, CEL-SCI intends to use available funds to finance its operations. Accordingly, while payment of dividends rests within the discretion of the board of directors, no common stock dividends have been declared or paid by CEL-SCI and it has no intention of paying any common stock dividends in the foreseeable future. Additionally, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on CEL-SCI’s common stock.  Any return to CEL-SCI’s shareholders will therefore be limited to appreciation in the price of its common stock, which may never occur.  If CEL-SCI’s stock price does not increase, CEL-SCI’S shareholders are unlikely to receive any return on their investments in the common stock.

The price of CEL-SCI’s common stock has been volatile and is likely to continue to be volatile, which could result in substantial losses for CEL-SCI’s shareholders.

CEL-SCI’s stock price has been, and is likely to continue to be, volatile. As a result of this volatility, CEL-SCI’s shareholders may not be able to sell their shares at or above its current market price. The market price for CEL-SCI’s common stock may be influenced by many factors, including:
 
·
actual or anticipated fluctuations in CEL-SCI’s financial condition and operating results;
 
·
actual or anticipated changes in CEL-SCI’s growth rate relative to competitors;
 
·
competition from existing products or new products or product candidates that may emerge;
 
 
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·
development of new technologies that may address the markets and may make CEL-SCI’s technology less attractive;
 
·
changes in physician, hospital or healthcare provider practices that may make CEL-SCI’s product candidates less useful;
 
·
announcements by CEL-SCI, its partners or competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;
 
·
developments or disputes concerning patent applications, issued patents or other proprietary rights;
 
·
the recruitment or departure of key personnel;
 
·
failure to meet or exceed financial estimates and projections of the investment community or that CEL-SCI provides to the public;
 
·
actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
 
·
variations in the financial results or those of companies that are perceived to be similar to CEL-SCI;
 
·
changes to coverage and reimbursement levels by commercial third-party payors and government payors, including Medicare, and any announcements relating to reimbursement levels;
 
·
general economic, industry and market conditions; and
 
·
the other factors described in this “Risk Factors” section.

Under its amended bylaws, stockholders that initiate certain proceedings may be obligated to reimburse CEL-SCI and its officers and directors for all fees, costs and expenses incurred in connection with such proceedings if the claim proves unsuccessful.
 
On February 18, 2015, CEL-SCI adopted new bylaws which include a fee-shifting provision in Article X for stockholder claims. Article X provides that in the event that any stockholder initiates or asserts a claim against CEL-SCI, or any of its officers or directors, including any derivative claim or claim purportedly filed on CEL-SCI’s behalf, and the stockholder does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then the stockholder will be obligated to reimburse CEL-SCI and any of its officers or directors named in the action, for all fees, costs and expenses of every kind and description that CEL-SCI or its officers or directors may incur in connection with the claim.  In adopting Article X, it is the intent that:
 
·
all actions, including federal securities law claims, would be subject to Article X;
 
·
the phrase “a judgment on the merits” means the determination by a court of competent jurisdiction on the matters submitted to the court;
 
·
the phrase “substantially achieves, in both substance and amount” means the plaintiffs in the action would be awarded at least 90% of the relief sought;
 
 
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·
only persons who were stockholders at the time an action was brought would be subject to Article X; and
 
·
only the directors or officers named in the action would be allowed to recover.

The fee-shifting provision contained in Article X of the bylaws is not limited to specific types of actions, but is rather potentially applicable to the fullest extent permitted by law. Fee-shifting bylaws are relatively new and untested. The case law and potential legislative action on fee-shifting bylaws are evolving and there exists considerable uncertainty regarding the validity of, and potential judicial and legislative responses to, such bylaws. For example, it is unclear whether the ability to invoke the fee-shifting bylaw in connection with claims under the federal securities laws would be pre-empted by federal law. Similarly, it is unclear how courts might apply the standard that a claiming stockholder must obtain a judgment that substantially achieves, in substance and amount, the full remedy sought. The application of the fee-shifting bylaw in connection with such claims, if any, will depend in part on future developments of the law. CEL-SCI cannot assure its shareholders that CEL-SCI will or will not invoke the fee-shifting bylaw in any particular dispute. In addition, given the unsettled state of the law related to fee-shifting bylaws, CEL-SCI may incur significant additional costs associated with resolving disputes with respect to such bylaw, which could adversely affect its business and financial condition.
 
If a stockholder that brings any such claim, suit, action or proceeding is unable to obtain the required judgment, the attorneys’ fees and other litigation expenses that might be shifted to a claiming stockholder are potentially significant. This fee-shifting bylaw, therefore, may dissuade or discourage stockholders (and their attorneys) from initiating lawsuits or claims against CEL-SCI or its directors and officers. In addition, it may impact the fees, contingency or otherwise, required by potential plaintiffs’ attorneys to represent the stockholders or otherwise discourage plaintiffs’ attorneys from representing the stockholders at all. As a result, this bylaw may limit the ability of stockholders to affect the management and direction of CEL-SCI, particularly through litigation or the threat of litigation.
 
The provision of the amended bylaws requiring exclusive venue in the U.S. District Court for Delaware for certain types of lawsuits may have the effect of discouraging lawsuits against CEL-SCI and its directors and officers.
 
Article X of CEL-SCI’s amended bylaws provides that stockholder claims brought against CEL-SCI, or its officers or directors, including any derivative claim or claim purportedly filed on CEL-SCI’s behalf, must be brought in the U.S. District Court for the district of Delaware and that with respect to any such claim, the laws of Delaware will apply.
 
The exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum the stockholder finds favorable for disputes with CEL-SCI or its directors or officers, and may have the effect of discouraging lawsuits with respect to claims that may benefit CEL-SCI or the stockholders.

ITEM 1B.                      UNRESOLVED SEC COMMENTS

None
 
 
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ITEM 2.                 PROPERTIES

CEL-SCI leases office space at 8229 Boone Blvd., Suite 802, Vienna, Virginia at a monthly rental of approximately $8,000.  The lease on the office space expires on June 30, 2020.  CEL-SCI believes this arrangement is adequate for the conduct of its present business.

CEL-SCI has a 17,900 square foot laboratory located in Baltimore, Maryland.  The laboratory is leased by CEL-SCI at a cost of approximately $11,000 per month. The laboratory lease expires on February 28, 2017.

In August 2007, CEL-SCI leased a building near Baltimore, Maryland.  The building, which consists of approximately 73,000 square feet, has been remodeled in accordance with CEL-SCI’s specifications so that it can be used by CEL-SCI to manufacture Multikine for CEL-SCI’s Phase 3 clinical trial and sales of the drug if approved by the FDA.  The lease expires on October 31, 2028 and required annual base rent payments of approximately $1,573,000 during the twelve months ending September 30, 2015.   The annual base rent escalates each year at 3% beginning on November 1st.  CEL-SCI is also required to pay all real and personal property taxes, insurance premiums, maintenance expenses, repair costs and utilities, which were approximately $44,000 per month as of September 30, 2015.  The lease allows CEL-SCI, 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 lease required CEL-SCI to pay $3,150,000 towards the remodeling costs, which will be recouped by reductions in the annual base rent of $303,228 beginning in fiscal year 2014.  In August 2011, CEL-SCI was required to deposit $1,670,917, the equivalent of one year of base rent.  The $1,670,917 was required to be deposited when the amount of CEL-SCI’s cash had dropped below the amount stipulated in the lease and is included in non-current assets at September 30, 2015.

ITEM 3.                 LEGAL PROCEEDINGS

 In April 2013, CEL-SCI dismissed inVentiv Health Clinical, LLC and replaced it with two clinical research organizations, Aptiv Solutions, Inc. and Ergomed Clinical Research Ltd.  In October 2013, CEL-SCI initiated arbitration proceedings against inVentiv Health Clinical, LLC (f/k/a PharmaNet LLC) and PharmaNet GmbH (f/k/a PharmaNet AG), CEL-SCI’s former clinical research organization.  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 seeks 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 Health Clinical, LLC filed an answer and counterclaim in response to CEL-SCI’s claims against it.  The counterclaim alleges breach of contract on the part of CEL-SCI and seeks 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.
 
 
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In an amended statement of claim, CEL-SCI 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 CEL-SCI 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 CEL-SCI’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 CEL-SCI 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. CEL-SCI believes inVentiv’s counterclaims are meritless and intends to vigorously defend 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 CEL-SCI’s business, results, financial condition and liquidity.

On October 14, 2015, CEL-SCI entered into an agreement with a litigation firm to provide CEL-SCI with up to $5,000,000 in funding for litigation expenses to support its $50,000,000 arbitration claims against its former clinical research organization. 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 upon CEL-SCI receiving proceeds from the arbitration, subject to the terms and conditions of the agreement.  Refer to the 8-K dated October 12, 2015 for terms of repayment.

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.

ITEM 4.  MINE SAFETY DISCLOSURE

      Not applicable.                                                        

ITEM 5.  MARKET FOR CEL-SCI'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

As of September 30, 2015 there were approximately 1,300 record holders of CEL-SCI’s common stock. CEL-SCI’s common stock is traded on the NYSE MKT under the symbol “CVM”.

Shown below are the range of high and low quotations for CEL-SCI’s common stock for the periods indicated as reported on the NYSE MKT. The market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
 
 
41

 
 
Quarter Ending
 
High
   
Low
 
             
 12/31/13
  $ 1.80     $ 0.53  
 3/31/14
  $ 1.90     $ 0.59  
 6/30/14
  $ 1.72     $ 0.98  
 9/30/14
  $ 1.30     $ 0.75  
                 
 12/31/2014
  $ 0.91     $ 0.54  
 3/31/2015
  $ 1.23     $ 0.59  
 6/30/2015
  $ 1.09     $ 0.59  
 9/30/2015
  $ 0.80     $ 0.48  
 
Holders of common stock are entitled to receive dividends as may be declared by CEL-SCI’s Board of Directors out of legally available funds and, in the event of liquidation, to share pro rata in any distribution of CEL-SCI’s assets after payment of liabilities. The Board of Directors is not obligated to declare a dividend. CEL-SCI has not paid any dividends on its common stock and CEL-SCI does not have any current plans to pay any common stock dividends.

The provisions in CEL-SCI’s Articles of Incorporation relating to CEL-SCI’s preferred stock allow CEL-SCI’s directors to issue preferred stock with rights to multiple votes per share and dividend rights which would have priority over any dividends paid with respect to CEL-SCI’s common stock.  The issuance of preferred stock with such rights may make more difficult the removal of management even if such removal would be considered beneficial to shareholders generally, and will have the effect of limiting shareholder participation in certain transactions such as mergers or tender offers if such transactions are not favored by incumbent management.

The market price of CEL-SCI’s common stock, as well as the securities of other biopharmaceutical and biotechnology companies, have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Factors such as fluctuations in CEL-SCI’s operating results, announcements of technological innovations or new therapeutic products by CEL-SCI or its competitors, governmental regulation, developments in patent or other proprietary rights, public concern as to the safety of products which may be developed by CEL-SCI or other biotechnology and pharmaceutical companies, and general market conditions may have a significant effect on the market price of CEL-SCI’s common stock.

The graph below matches the cumulative 5-year total return of holders of CEL-SCI’s common stock with the cumulative total returns of the NYSE MTK Composite index and the RDG MicroCap Biotechnology index. The graph assumes that the value of an investment in CEL-SCI's common stock and in each of the indexes (including reinvestment of dividends) was $100 on September 30, 2010 and tracks it through September 30, 2015.
 
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
 
 
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      9/10       9/11       9/12       9/13       9/14       9/15  
                                                 
CEL-SCI Corporation
    100.00       56.68       53.57       26.40       14.16       9.32  
NYSE MKT Composite
    100.00       104.37       129.03       131.42       151.13       126.81  
RDG MicroCap Biotechnology
    100.00       72.80       121.61       108.23       79.54       50.43  

ITEM 6.  SELECTED FINANCIAL DATA

The following selected historical consolidated financial data are qualified by reference to, and should be read in conjunction with the consolidated financial statements and the related notes thereto, appearing elsewhere in this report, as well as Item 7 of this report.

Statements of Operations
 
2015
   
2014
   
2013
   
2012
   
2011
 
Grant income and other
  $ 657,377     $ 264,033     $ 159,583     $ 254,610     $ 956,154  
Operating expenses:
                                       
Research and development
     20,949,208        17,000,145       12,681,049       10,368,695       11,745,629  
Depreciation & amortization
     206,750        231,752        364,124       533,468       531,316  
General and administrative
     13,797,964        10,606,248       6,982,686       6,595,287       6,664,883  
Gain on derivative instruments
     282,616        248,767       10,750,666       1,911,683       4,432,148  
Other expenses (3)
     (641,276 )      -       -       -       (12,000,000 )
Interest income
     110,544        122,854       117,086       116,061       164,163  
Interest expense
    (129,985 )      (163,774 )     (170,423 )     (262,214 )     (322,980 )
 
 
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Net loss
    (34,674,646 )     (27,366,265 )     (9,170,947 )     (15,477,310 )     (25,712,343 )
Issuance of additional shares due to reset provision
             (1,117,447 )     -       (250,000 )     -  
Modification of warrants
                    (59,531 )     (325,620 )     (1,068,369 )
Inducement warrants
    -       -       -       (1,593,000 )     -  
Net loss available to common shareholders
  $ (34,674,646 )   $ (28,483,712 )   $ (9,230,478 )   $ (17,645,930 )   $ (26,780,712 )
                                         
Net loss per common share (1)
                                       
Basic
  $ (0.42 )   $ (0.48 )   $ (0.30 )   $ (0.70 )   $ (1.28 )
Diluted
  $ (0.42 )   $ (0.49 )   $ (0.66 )   $ (0.78 )   $ (1.50 )
Weighted average common shares outstanding
                                       
Basic and diluted
    82,519,027       58,804,622       30,279,442       25,183,654       20,848,899  
                                         
Balance Sheets
    2015       2014       2013       2012       2011  
Working capital (deficit)
  $ 1,982,589     $ 8,496,076     $ (1,033,370 )   $ 5,529,438     $ 1,796,349  
Total assets
  $ 15,447,603     $ 19,230,434     $ 10,838,572     $ 16,067,450     $ 18,625,440  
Derivative instruments - current (2)
  $ -     $ 18,105     $ -     $ -     $ 5,068,552  
Derivative instruments –  noncurrent (2)
  $  13,686,587     $  5,487,141     $  433,024     $  6,983,690     $  2,192,521  
Total liabilities
  $ 20,677,846     $ 8,787,034     $ 4,138,482     $ 9,040,018     $ 9,546,616  
Stockholders' (deficit) equity
  $ (5,230,243 )   $ 10,443,400     $ 6,700,090     $ 7,027,432     $ 9,078,824  

(1)
The calculation of diluted earnings per share for the five years in the period ended September 30, 2015 excluded potentially dilutive shares because their effect would have been anti-dilutive.

(2)
Included in total liabilities.

(3)
The $641,276 loss on debt extinguishment related to the renegotiation of terms on the note payable and is disclosed in the notes to the financial statements for the year ended September 30, 2015.   The $12 million other expense in 2011 was the cost of the lawsuit settlement.  The detailed terms of the lawsuit settlement and the related agreements and documents were filed as exhibits to CEL-SCI’s report on Form 10-Q for the three months ended March 31, 2011.

CEL-SCI's net loss available to common shareholders for each fiscal quarter during the two years ended September 30, 2015 were:
 
           Net Loss Per Share
     Quarter
 
Net loss
   
Basic
   
Diluted
 
                   
12/31/2014
  $ (7,845,318 )   $ (0.11 )   $ (0.14 )
  3/31/2015
  $ (12,556,236 )   $ (0.17 )   $ (0.17 )
 
 
44

 
 
  6/30/2015
  $ (4,429,137 )   $ (0.05 )   $ (0.06 )
  9/30/2015
  $ (9,843,955 )   $ (0.10 )   $ (0.10 )
                         
12/31/2013
  $ (5,451,865 )   $ (0.11 )   $ (0.15 )
     3/31/2014
  $ (13,365,580 )   $ (0.24 )   $ (0.24 )
     6/30/2014
  $ (2,444,480 )   $ (0.04 )   $ (0.11 )
     9/30/2014
  $ (7,221,787 )   $ (0.11 )   $ (0.13 )
 
Variances in quarterly gains and losses for the quarters presented are caused by the changes in the fair value outstanding warrants accounted for as derivatives each quarter.  These changes in the fair value of the convertible debt and warrants are recorded on the statements of operations. 

ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and the related notes thereto appearing elsewhere in this report.

CEL-SCI’s lead investigational therapy, Multikine, is cleared for a Phase 3 clinical trial in advanced primary head and neck cancer. It has received a go-ahead by the U.S. FDA as well as twenty-three other countries.

CEL-SCI also owns and is developing a pre-clinical technology called LEAPS.
 
All of CEL-SCI’s projects are under development.  As a result, CEL-SCI cannot predict when it will be able to generate any revenue from the sale of any of its products.

Since inception, CEL-SCI has financed its operations through the issuance of equity securities, convertible notes, loans and certain research grants.  CEL-SCI’s expenses will likely exceed its revenues as it continues the development of Multikine and brings other drug candidates into clinical trials.  Until such time as CEL-SCI becomes profitable, any or all of these financing vehicles or others may be utilized to assist CEL-SCI’s capital requirements.

Results of Operations

Fiscal 2015

During the year ended September 30, 2015, grant and other income increased by $393,344 compared to the year ended September 30, 2014.  The increase is primarily due to the timing of drug shipments to supply the Company’s partner in Taiwan and the grant income earned by the Company’s Small Business Innovation Research (SBIR) grant during fiscal year 2015 compared to fiscal year 2014.

During the year ended September 30, 2015, research and development expenses increased by $3,949,063 compared to the year ended September 30, 2014.  CEL-SCI is continuing the Phase 3 clinical trial and research and development fluctuates based on the activity level of the clinical trial.  In fiscal year 2015, CEL-SCI received clearance from seven new countries for the Phase 3 clinical trial, and enrolled 305 patients in FY 2015 vs 142 in FY 2014.
 
 
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During the year ended September 30, 2015, general and administrative expenses increased by $3,191,746, compared to the year ended September 30, 2014.  This increase is primarily due to an increase of approximately $1,977,000 of equity based compensation costs for restricted stock granted, increased legal fees of approximately $1,778,000 relating to arbitration with the Company’s former CRO, as discussed in Item 3 above and an increase of $220,000 in professional services.  These increases were offset by a decrease of approximately $788,000 in employee compensation primarily due to a decrease in the number of stock options issued and vested in 2015 compared to 2014.

During the years ended September 30, 2015 and 2014, CEL-SCI recorded a derivative gain of $282,616 and $248,767, respectively.  This variation was the result of the change in fair value of the derivative liabilities during the period which was caused by fluctuations in the share price of CEL-SCI’s common stock.

Interest expense decreased $33,789 during the year ended September 30, 2015 compared to the year ended September 30, 2014, and consisted primarily of interest expense on the loan from CEL-SCI’s president and interest on a capital lease.  Effective July 7, 2015, the interest rate on the related party loan was reduced from 15% to 9%, resulting in approximately $11,000 less in interest expense during 2015 than in 2014.  Additionally, the modifications of the loan from de Clara Trust were determined to be substantive, resulting in an extinguishment loss of $641,276 and a premium on the note payable of $165,943.  The premium is being amortized as a reduction of interest expense over the term of the note.  Amortization of the debt premium was $20,819 for the year ended September 30, 2015.

Fiscal 2014

During the year ended September 30, 2014, grant and other income increased by $104,450 compared to the year ended September 30, 2013.  The increase is primarily due to the timing of drug shipments to supply CEL-SCI’s partner in Taiwan during fiscal year 2014 compared to fiscal year 2013.

During the year ended September 30, 2014, research and development expenses increased by $4,319,096 compared to the year ended September 30, 2013.  CEL-SCI is continuing the Phase 3 clinical trial and research and development fluctuates based on the activity level of the clinical trial.  In fiscal year 2014, CEL-SCI received clearance from seven new countries for the Phase 3 clinical trial, added approximately thirty sites and set multiple record breaking months for enrolling patients.

During the year ended September 30, 2014, general and administrative expenses increased by $3,623,562, compared to the year ended September 30, 2013.  This increase is primarily due to $1,477,954 of equity based compensation costs for restricted stock issued, increased public relations costs of $443,596 and legal fees of $1,668,780.  Public relations costs increased to support the progression of the products through clinical trials.  Legal fees increased primarily as a result of arbitration with CEL-SCI’s former CRO, as discussed in Item 3 above.
 
 
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During the year ended September 30, 2014, CEL-SCI recorded a derivative gain of $248,767.  For the year ended September 30, 2013, CEL-SCI recorded a derivative gain of $10,750,666.  This variation was the result of the change in fair value of the derivative liabilities during the period which was caused by fluctuations in the share price of CEL-SCI’s common stock.

Interest expense decreased $6,649 during the year ended September 30, 2014 compared to the year ended September 30, 2013, and consisted primarily of interest expense on the loan from CEL-SCI’s president of $165,609 and interest on a capital lease.

Research and Development Expenses

During the five years ended September 30, 2015, CEL-SCI’s research and development efforts involved Multikine and LEAPS.   The table below shows the research and development expenses associated with each project during this five-year period.

      2015       2014       2013       2012       2011  
MULTIKINE
  $ 20,455,398     $ 16,625,367     $ 12,303,564     $ 9,977,617     $ 11,257,157  
LEAPS
    493,810       374,778       377,485       391,078       488,472  
 
                                       
TOTAL
  $ 20,949,208     $ 17,000,145     $ 12,681,049     $ 10,368,695     $ 11,745,629  
 
In January 2007, CEL-SCI received a “no objection” letter from the FDA indicating that it could proceed with Phase 3 trials with Multikine in head and neck cancer patients.  CEL-SCI had previously received a “no objection” letter from the Canadian Biologics and Genetic Therapies Directorate which enabled CEL-SCI to begin its Phase 3 clinical trial in Canada.  Subsequently, CEL-SCI received similar authorizations from twenty-three other regulators.
 
CEL-SCI’s Phase 3 clinical trial began in December 2010 after the completion and validation of CEL-SCI’s dedicated manufacturing facility.

As explained in Item 1 of this report, as of November 30, 2015, CEL-SCI was involved in pre-clinical studies with respect to its LEAPS technology.  As with Multikine, CEL-SCI does not know what obstacles it will encounter in future pre-clinical and clinical studies involving its LEAPS technology.  Consequently, CEL-SCI cannot predict with any certainty the funds required for future research and clinical trials and the timing of future research and development projects.

Clinical and other studies necessary to obtain regulatory approval of a new drug involve significant costs and require several years to complete.  The extent of CEL-SCI’s clinical trials and research programs are primarily based upon the amount of capital available to CEL-SCI and the extent to which CEL-SCI has received regulatory approvals for clinical trials.  The inability of CEL-SCI to conduct clinical trials or research, whether due to a lack of capital or regulatory approval, will prevent CEL-SCI from completing the studies and research required to obtain regulatory approval for any products which CEL-SCI is developing.  Without regulatory approval, CEL-SCI will be unable to sell any of its products.

 
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Liquidity and Capital Resources

CEL-SCI has had only limited revenues from operations since its inception in March 1983.  CEL-SCI has relied upon capital generated from the public and private offerings of its common stock and convertible notes.  In addition, CEL-SCI has utilized short-term loans to meet its capital requirements.  Capital raised by CEL-SCI has been expended primarily to acquire an exclusive worldwide license to use, and later purchase, certain patented and unpatented proprietary technology and know-how relating to the human immunological defense system and for clinical trials.  Capital has also been used for patent applications, debt repayment, research and development, administrative costs, and the construction of CEL-SCI’s laboratory facilities.  CEL-SCI does not anticipate realizing significant revenues until it enters into licensing arrangements regarding its technology and know-how or until it receives regulatory approval to sell its products (which could take a number of years). As a result, CEL-SCI has been dependent upon the proceeds from the sale of its securities to meet all of its liquidity and capital requirements and anticipates having to do so in the future.  During fiscal year 2015 and 2014, CEL-SCI raised net proceeds of approximately $21,148,000 and $31,546,000, respectively, through the sale of stock and exercise of outstanding warrants.

CEL-SCI will be required to raise additional capital or find additional long-term financing in order to continue with its research efforts.  The ability of CEL-SCI to complete the necessary clinical trials and obtain FDA approval for the sale of products to be developed on a commercial basis is uncertain.  Ultimately, CEL-SCI must complete the development of its products, obtain the appropriate regulatory approvals and obtain sufficient revenues to support its cost structure.

 CEL-SCI estimates the total cash cost of the Phase 3 clinical trial, with the exception of the parts that will be paid by its licensees, Teva Pharmaceuticals and Orient Europharma, to be approximately $21.6 million going forward.

In August 2007, CEL-SCI leased a building near Baltimore, Maryland.  The building, which consists of approximately 73,000 square feet, has been remodeled in accordance with CEL-SCI’s specifications so that it can be used by CEL-SCI to manufacture Multikine for CEL-SCI’s Phase III clinical trials and sales of the drug if approved by the FDA.  The lease expires on October 31, 2028, and required annual base rent payments of approximately $1,573,000 during the twelve months ended September 30, 2015.  See Item 2 of this report for more information concerning the terms of this lease.

In August 2008, CEL-SCI sold 138,339 shares of common stock and 207,508 Series N warrants in a private financing for $1,037,500.  In June 2009, an additional 116,667 shares and 181,570 Series N warrants were issued to the investors.  In October 2011, an additional 83,333 shares and 129,693 Series N warrants were issued to the investors.  In October 2013, an additional 764,602 shares and 1,189,961 Series N warrants were issued to the investors.  In December 2013, an additional 798,481 shares and 1,242,688 Series N warrants were issued to the investors. The additional shares and warrants were issued due to a reset provision included in the private financing.  In January 2014, CEL-SCI offered to the investors to extend the Series N warrants by one year and allow for cashless exercise in exchange for cancelling the reset provision in the warrant agreement. One of the investors accepted this offer. In March 2014, 106,793 Series N Warrants were exercised. On October 28, 2014, the remaining Series N warrants were transferred to the de Clara Trust, of which the Company’s CEO, Geert Kersten, is the trustee and a beneficiary. On June 29, 2015, concurrently with the modification of the note payable held by the de Clara Trust, CEL-SCI extended the expiration date of the Series N warrants to August 18, 2017. As of September 30, 2015, the remaining 2,844,627 Series N warrants entitle the holders to purchase one share of CEL-SCI's common stock at a price of $0.52731 per share at any time prior to August 18, 2017.
 
 
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Between June 23 and July 8, 2009, CEL-SCI sold 1,534,935 shares of its common stock at a price of $4.00 per share totaling $6,139,739.  The investors in this offering also received 1,028,406 Series A warrants which may be exercised at any time prior to December 24, 2014.  As of September 30, 2014, 881,309 Series A warrants had been exercised.   Between December 24, 2014 and January 8, 2015, 147,097 Series A warrants expired.

Between December 2008 and June 2009, Maximilian de Clara, CEL-SCI’s President and a director, loaned CEL-SCI $1,104,057 under a note payable.  The original loan from Mr. de Clara bore interest at 15% per year and was secured by a lien on substantially all of CEL-SCI’s assets.  At Mr. de Clara’s option, the note could be converted into shares of CEL-SCI’s common stock.  The number of shares which would be issued upon any conversion would be determined by dividing the amount to be converted by $4.00.  In accordance with the note agreement, CEL-SCI issued Mr. de Clara warrants to purchase 164,824 shares of CEL-SCI’s common stock at a price of $4.00 per share.  These warrants expired on December 24, 2014.  In consideration for an extension of the due date, Mr. de Clara received warrants to purchase 184,930 shares of CEL-SCI’s common stock at a price of $5.00 per share.  These warrants expired on January 6, 2015.  In consideration of Mr. de Clara’s agreement to subordinate his note to the convertible preferred shares and convertible debt as part of a prior year settlement agreement, CEL-SCI extended the maturity date of the note to July 6, 2015.  In August 2014, the loan and warrants were transferred to the de Clara Trust, of which CEL-SCI’s CEO, Geert Kersten, is the trustee and a beneficiary.  Mr. de Clara will continue to receive the interest payments. On June 29, 2015, CEL-SCI extended the maturity date of the note to July 6, 2017, lowered the interest rate to 9% per year and changed the conversion price to $0.59.  The new terms were effective July 7, 2015. On October 11, 2015, the maturity date of the note was extended for one year to July 6, 2018.  The extension was made at the request of Lake Whillans Vehicle I, LLC, which agreed to provide CEL-SCI with up to $5,000,000 in funding for litigation expenses to support CEL-SCI’s $50,000,000 arbitration claims against CEL-SCI’s former clinical research organization.

CEL-SCI does not have the right to prepay the loan without the consent of the Trust.  The de Clara Trust may demand payment upon giving CEL-SCI a minimum 10 day notice.  As of September 30, 2015, the full amount of the note was outstanding.
 
On August 20, 2009, CEL-SCI sold 1,078,444 shares of its common stock to a group of private investors for $4,852,995 or $4.50 per share.  The investors also received 539,220 Series C warrants which may be exercised at any time prior to February 20, 2015.  As of September 30, 2014, 75,733 Series C warrants had been exercised.  On February 20, 2015, the remaining 463,487 Series C warrants expired.
 
 
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On January 25, 2012, CEL-SCI sold 1,600,000 shares of its common stock to institutional investors for $5,760,000 or $3.60 per share.  The investors also received Series H warrants which may be exercised at any time prior to August 1, 2015.  The Series H warrants entitle the holders to purchase 1,200,000 shares of CEL-SCI's common stock at a price of $5.00 per share.  As of September 30, 2015, none of the Series H Warrants had been exercised.

In February 2012, CEL-SCI received $1,475,000 as a result of the exercise of the remaining Series O warrants. The Series O warrants were exercisable at any time on or prior to March 6, 2016. As an inducement for the early exercise of the Series O warrants, CEL-SCI issued Series P warrants to the former holder of the Series O warrants.  The Series P warrants are exercisable at any time prior to March 7, 2017.  The Series P warrants entitle the holders to purchase 590,001 shares of CEL-SCI's common stock at a price of $4.50 per share.  As of September 30, 2015, none of the Series P Warrants had been exercised.

In June 2012, CEL-SCI sold 1,600,000 shares of its common stock for $5,600,000, or $3.50 per share, in a registered direct offering.  The investors in this offering also received Series Q warrants which may be exercised at any time on or before December 22, 2015.  The Series Q warrants entitle the holders to purchase 1,200,000 shares of CEL-SCI's common stock at a price of $5.00 per share.  As of September 30, 2015, none of the Series Q Warrants had been exercised.

In December 2012, CEL-SCI sold 3,500,000 shares of its common stock to institutional investors for $10,500,000 or $3.00 per share.  The investors also received Series R warrants which may be exercised at any time prior to December 7, 2016.  The Series R warrants entitle the holders to purchase 2,625,000 shares of CEL-SCI's common stock at a price of $4.00 per share.  As of September 30, 2015, none of the Series R Warrants had been exercised.

In October 2013, CEL-SCI sold 17,826,087 shares of its common stock, plus 20,475,000 Series S warrants, in an underwritten offering.  The net proceeds to CEL-SCI from the sale of the shares and warrants were approximately $16,424,000, after deducting the underwriting discount.  The Series S warrants may be exercised at any time on or before October 11, 2018 at a price of $1.25 per share.

In December 2013, CEL-SCI sold 5,238,095 shares of its common stock and Series S warrants, in an underwritten offering.  The net proceeds to CEL-SCI from the sale of the shares and Series S warrants were approximately $2,710,000, after deducting the underwriting discount.  The Series S warrants may be exercised at any time on or before October 11, 2018 at a price of $1.25 per share.

In February 2014, the S warrants began trading on the NYSE MKT under the ticker symbol “CVM WS”.  As of September 30, 2015, 2,088,769 Series S Warrants had been exercised.  The remaining 25,928,010 Series S warrants entitle the holders to purchase one share of CEL-SCI's common stock at a price of $1.25 per share.

In April 2014, CEL-SCI sold 7,128,229 shares of common stock, plus 1,782,057 Series T warrants, in an underwritten offering.  The net proceeds to CEL-SCI from the sale of the stock and warrants were approximately $9.23 million.  The Series T warrants had an exercise price of $1.58 and expired on October 17, 2014.  CEL-SCI also issued 445,514 Series U warrants to the  underwriters for this offering. The Series U warrants may be exercised beginning October 17, 2014 at a price of $1.75 per share and expire on October 17, 2017. As of September 30, 2015, none of the Series U warrants had been exercised.
 
 
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In October 2014, CEL-SCI sold 7,894,737 shares of common stock, plus 1,973,684 Series S warrants in an underwritten public offering. The net proceeds to CEL-SCI from the sale of the stock and warrants were approximately $5.5 million. The warrants are immediately exercisable, expire October 11, 2018 and have an exercise price of $1.25.

Additionally, in October 2014, CEL-SCI sold 1,320,000 shares of common stock, plus 330,000 Series S warrants in a registered direct offering. The net proceeds to CEL-SCI from the sale of the stock and warrants were approximately $941,000. The warrants are immediately exercisable, expire October 11, 2018 and have an exercise price of $1.25.

On May 28, 2015, CEL-SCI sold 20,253,164 shares of common stock, plus 20,253,164 Series V warrants, in an underwritten public offering.  The common stock and Series V warrants were sold at a combined per unit price of $0.79 for net proceeds of approximately $14.7 million.  The Series V warrants are immediately exercisable at a price of $0.79 and expire on May 28, 2020.  As of September 30, 2015, none of the Series V warrants had been exercised.

Inventory decreased by approximately $50,000 at September 30, 2015 as compared to September 30, 2014, due to the timing of supplies purchased and used in  the manufacturing of Multikine for the Phase 3 clinical trial.  In addition, prepaid expenses increased by approximately $72,000. The increase was primarily due to the Company making advance payments to cover future expenses related to its ongoing Phase 3 clinical trial.

During the year ended September 30, 2015, CEL-SCI’s cash decreased by $2,786,938.  Significant components of this decrease include: 1) net cash used in operating activities of $23,833,333, 2) expenditures for equipment and patents of $93,531, and 3) the repayment of $8,452 in capital lease obligations offset by $21,148,378 in proceeds from the sale of stock and warrants.

Future Capital Requirements

Other than funding operating losses, funding its research and development program, and  making required lease payments, CEL-SCI does not have any material capital commitments.  Material contractual obligations as of September 30, 2015 are as follows:
 
    Years Ending September 30,  
    Total     2016     2017     2018     2019     2020     2021 & thereafter  
Operating Leases   $ 27,117,710       1,861,154     $ 1,844,807     $ 1,848,235     $ 1,912,779     $ 1,951,756     $ 17,698,979  
Related Party Note & Interest     1,393,872       107,646       99,365       1,186,861       -       -       -  
Total Contractual Obligations   $ 28,511,582     $ 1,968,800     $ 1,944,172     $ 3,035,096     $ 1,912,779     $ 1,951,756     $ 17,698,979  
 
For information on employment contracts, see Item 11 of this report.

Further, CEL-SCI has contingent obligations with vendors for work that will be completed in relation to the Phase 3 trial.  The timing of these obligations cannot be determined at this time.  
 
 
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The estimated remaining cash cost of these obligations for the Phase 3 clinical trial is approximately $21.6 million.

CEL-SCI will need to raise additional funds, either through the exercise of outstanding warrants/options, through a debt or equity financing or a partnering arrangement, to complete the Phase 3 trial and bring Multikine to market.  If CEL-SCI is able to raise additional funds, then CEL-SCI believes that it has enough capital to support its operations for more than the next twelve months. If CEL-SCI cannot raise the needed funds, CEL-SCI may have to end the Phase 3 clinical trial before its completion.

Clinical and other studies necessary to obtain regulatory approval of a new drug involve significant costs and require several years to complete.  The extent of CEL-SCI’s clinical trials and research programs are primarily based upon the amount of capital available to CEL-SCI and the extent to which CEL-SCI has received regulatory approvals for clinical trials.  The inability of CEL-SCI to conduct clinical trials or research, whether due to a lack of capital or regulatory approval, will prevent CEL-SCI from completing the studies and research required to obtain regulatory approval for any products which CEL-SCI is developing.  Without regulatory approval, CEL-SCI will be unable to sell any of its products.

In the absence of revenues, CEL-SCI will be required to raise additional funds through the sale of securities, debt financing or other arrangements in order to continue with its research efforts.  However, there can be no assurance that such financing will be available or be available on favorable terms.  Ultimately, CEL-SCI must complete the development of its products, obtain appropriate regulatory approvals and obtain sufficient revenues to support its cost structure.

Since all of CEL-SCI’s projects are under development, CEL-SCI cannot predict with any certainty the funds required for future research and clinical trials, the timing of future research and development projects, or when it will be able to generate any revenue from the sale of any of its products.

CEL-SCI's cash flow and earnings are subject to fluctuations due to changes in interest rates on its bank accounts, and, to an immaterial extent, foreign currency exchange rates.

Critical Accounting Policies

CEL-SCI's significant accounting policies are more fully described in Note 1 to the financial statements included as part of this report.  However, certain accounting policies are particularly important to the portrayal of financial position and results of operations and require the application of significant judgments by management. As a result, the financial statements are subject to an inherent degree of uncertainty.  In applying those policies, management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates.  These estimates are based on CEL-SCI's historical experience, terms of existing contracts, observance of trends in the industry and information available from outside sources, as appropriate.  CEL-SCI’s significant accounting policies include:

Patents - Patent expenditures are capitalized and amortized using the straight-line method over 17 years. In the event changes in technology or other circumstances impair the value or life of the patent, appropriate adjustment in the asset value and period of amortization is made. An impairment loss is recognized when estimated future undiscounted cash flows expected to result from the use of the asset, and from disposition, is less than the carrying value of the asset. The amount of the impairment loss is the difference between the estimated fair value of the asset and its carrying value.
 
 
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Stock Options and Warrants – Compensation cost is measured at fair value as of the grant date in accordance with the provisions of ASC 718. The fair value of the stock options is calculated using the Black-Scholes option pricing model. The Black-Scholes model requires various judgmental assumptions including volatility, forfeiture rates and expected option life. The stock-based compensation cost is recognized on the accelerated method as expense over the requisite service or vesting period.

Options to non-employees are accounted for in accordance with ASC 505-50, “Equity-Based Payments to Non-Employees.”  Accordingly, compensation cost is recognized when goods or services are received and is measured using the Black-Scholes valuation model.  The Black-Scholes model requires CEL-SCI’s management to make assumptions regarding the fair value of the options at the date of grant and the expected life of the options.

Asset Valuations and Review for Potential Impairments - CEL-SCI reviews its fixed assets, intangibles and deferred rent every fiscal quarter.  This review requires that CEL-SCI make assumptions regarding the value of these assets and the changes in circumstances that would affect the carrying value of these assets.  If such analysis indicates that a possible impairment may exist, CEL-SCI is then required to estimate the fair value of the asset and, as deemed appropriate, expense all or a portion of the asset. The determination of fair value includes numerous uncertainties, such as the impact of competition on future value. CEL-SCI believes that it has made reasonable estimates and judgments in determining whether its long-lived assets have been impaired; however, if there is a material change in the assumptions used in its determination of fair values or if there is a material change in economic conditions or circumstances influencing fair value, CEL-SCI could be required to recognize certain impairment charges in the future.  As a result of the reviews, no changes in asset values were required.

Prepaid Expenses and Inventory-- Prepaid expenses are payments for future services to be rendered and are expensed over the time period for which the service is rendered.  Prepaid expenses may also include payment for goods to be received within one year of the payment date.   Inventory consists of bulk purchases of laboratory supplies to be consumed in the manufacturing of CEL-SCI’s product for clinical studies and for quality control and bioassay use.  Inventories are stated at the lower of cost or market, where cost is determined using the first-in, first out method applied on a consistent basis.

Derivative Instruments—CEL-SCI enters into financing arrangements that consist of freestanding derivative instruments or hybrid instruments that contain embedded derivative features.  CEL-SCI accounts for these arrangement in accordance with ASC 815, “Accounting for Derivative Instruments and Hedging Activities, as well as related interpretations of these standards. In accordance with accounting principles generally accepted in the United States (“GAAP”), derivative instruments and hybrid instruments are recognized as either assets or liabilities in the statement of financial position and are measured at fair value with gains or losses recognized in earnings or other comprehensive income depending on the nature of the derivative or hybrid instruments. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and recognized at fair value with changes in fair value recognized as either a gain or loss in earnings if they can be reliably measured. When the fair value of embedded derivative features cannot be reliably measured, CEL-SCI measures and reports the entire hybrid instrument at fair value with changes in fair value recognized as either a gain or loss in earnings. CEL-SCI determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, giving consideration to all of the rights and obligations of each instrument and precluding the use of “blockage” discounts or premiums in determining the fair value of a large block of financial instruments. Fair value under these conditions does not necessarily represent fair value determined using valuation standards that give consideration to blockage discounts and other factors that may be considered by market participants in establishing fair value.
 
 
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ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Market risk is the potential change in an instrument's value caused by, for example, fluctuations in interest and currency exchange rates. CEL-SCI enters into financing arrangements that are, or include, freestanding derivative instruments or that are, or include, hybrid instruments that contain embedded derivative features.  CEL-SCI does not enter into derivative instruments for trading purposes.  Additional information is presented in the notes to the financial statements.  The fair value of these instruments is affected primarily by volatility of the trading prices of CEL-SCI’s common stock.  For three years ended September 30, 2015, CEL-SCI recognized a gain of $282,616, $248,767, and $10,750,666, respectively, resulting from changes in fair value of derivative instruments.  CEL-SCI has exposure to risks associated with foreign exchange rate changes because some of the expenses related to the Phase 3 trial are transacted in a foreign currency.  The interest risk on investments on September 30, 2015 was considered immaterial due to the fact that the interest rates at that time were nominal at best and CEL-SCI keeps its cash and cash equivalents in short term maturities.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the financial statements included with this report.

ITEM  9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING  AND FINANCIAL DISCLOSURE

Not applicable

ITEM 9A.   CONTROLS AND PROCEDURES

Under the direction and with the participation of CEL-SCI’s management, including CEL-SCI’s Chief Executive Officer and Chief Financial Officer, CEL-SCI carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of September 30, 2015.  CEL-SCI maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its periodic reports with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations, and that such information is accumulated and communicated to CEL-SCI’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. CEL-SCI’s disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching its desired disclosure control objectives. Based on the evaluation, the Chief Executive and Principal Financial Officer has concluded that CEL-SCI’s disclosure controls were effective as of September 30, 2015.
 
 
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Management’s Report on Internal Control Over Financial Reporting

CEL-SCI’s management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of CEL-SCI’s principal executive officer and principal financial officer and implemented by CEL-SCI’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of CEL-SCI’s financial statements in accordance with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Geert Kersten, CEL-SCI’s Chief Executive and Principal Financial Officer, evaluated the effectiveness of CEL-SCI’s internal control over financial reporting as of September 30, 2015 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework. Management’s assessment included an evaluation of the design of CEL-SCI’s internal control over financial reporting and testing of the operational effectiveness of those controls.
 
Based on this evaluation, Mr. Kersten concluded that CEL-SCI’s internal control over financial reporting was effective as of September 30, 2015. 

There was no change in CEL-SCI’s internal control over financial reporting that occurred during the fiscal year ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, CEL-SCI’s internal control over financial reporting.

CEL-SCI’s independent registered public accounting firm BDO USA, LLP has issued an attestation report on CEL-SCI’s internal control over financial reporting.
 
 
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Report of Independent Registered Public Accounting Firm
 
Board of Directors and Stockholders
CEL-SCI Corporation
Vienna, VA
 
We have audited CEL-SCI Corporation’s internal control over financial reporting as of September 30, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). CEL SCI Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, CEL-SCI Corporation maintained, in all material respects, effective internal control over financial reporting as of September 30, 2015, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets of CEL-SCI Corporation as of September 30, 2015 and 2014, and the related statements of operations, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended September 30, 2015 and our report dated December 11, 2015 expressed an unqualified opinion thereon.
 
 
/s/BDO USA, LLP
 
 
McLean, Virginia
December 11, 2015

 
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ITEM 9B.                      OTHER INFORMATION

 None.

ITEM 10.                   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Officers and Directors
 
Name
 
Age
 
Position
         
Maximilian de Clara
  85  
Director and President
Geert R. Kersten, Esq.
  56  
Director, Chief Executive Officer and Treasurer
Patricia B. Prichep
  64  
Senior Vice President of Operations and Corporate Secretary
Dr. Eyal Talor
  59  
Chief Scientific Officer
Dr. Daniel H. Zimmerman
  74  
Senior Vice President of Research, Cellular Immunology
John Cipriano
  73  
Senior Vice President of Regulatory Affairs
Alexander G. Esterhazy
  74  
Director
Dr. Peter R. Young
  70  
Director
Bruno Baillavoine
  62  
Director
 
The directors of CEL-SCI serve in such capacity until the next annual meeting of CEL-SCI's shareholders and until their successors have been duly elected and qualified. The officers of CEL-SCI serve at the discretion of CEL-SCI's directors.

Mr. Maximilian de Clara, by virtue of his position as an officer and director of CEL-SCI, may be deemed to be the "parent" and "founder" of CEL-SCI as those terms are defined under applicable rules and regulations of the SEC.

All of CEL-SCI’s directors have served as directors for a significant period of time. Consequently, their long-standing experience with CEL-SCI benefits both CEL-SCI and its shareholders.

The principal occupations of CEL-SCI's officers and directors, during the past several years, are as follows:

Maximilian de Clara has been a Director of CEL-SCI since its inception in March l983, and has been President of CEL-SCI since July l983.  Prior to his affiliation with CEL-SCI, and since at least l978, Mr. de Clara was involved in the management of his personal investments and personally funding research in the fields of biotechnology and biomedicine.  Mr. de Clara attended the medical school of the University of Munich from l949 to l955, but left before he received a medical degree.  During the summers of l954 and l955, he worked as a research assistant at the University of Istanbul in the field of cancer research.  For his efforts and dedication to research and development in the fight against cancer and AIDS, Mr. de Clara was awarded the "Pour le Merit" honorary medal of the Austrian Military Order "Merito Navale" as well as the honor cross of the Austrian Albert Schweitzer Society.
 
 
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Geert Kersten has served in his current leadership role at CEL-SCI since 1995. Mr. Kersten has been with CEL-SCI since 1987. He has been involved in the pioneering field of cancer immunotherapy for over two decades and has successfully steered CEL-SCI through many challenging cycles in the biotechnology industry.  Mr. Kersten also provides CEL-SCI with significant expertise in the fields of finance and law and has a unique vision of how CEL-SCI's Multikine product could potentially change the way cancer is treated.  Prior to joining CEL-SCI, Mr. Kersten worked at the law firm of Finley & Kumble and worked at Source Capital, an investment banking firm located in McLean, VA.  He is a native of Germany, graduated from Millfield School in England, and completed his studies in the US. Mr. Kersten received his Undergraduate Degree in Accounting and an M.B.A. from George Washington University, and a law degree (J.D.) from American University in Washington, DC. 

Patricia B. Prichep joined CEL-SCI in 1992 and has been CEL-SCI's Senior Vice President of Operations since March 1994.  Between December 1992 and March 1994, Ms. Prichep was CEL-SCI's Director of Operations.  Ms. Prichep became CEL-SCI's Corporate Secretary in May 2000.  She is responsible for all day-to-day operations of CEL-SCI, including human resources and is the liaison with CEL-SCI’s independent registered public accounting firm for financial reporting.  From June 1990 to December 1992, Ms. Prichep was the Manager of Quality and Productivity for the NASD’s Management, Systems and Support Department and was responsible for the internal auditing and work flow analysis of operations. Between 1982 and 1990, Ms. Prichep was Vice President and Operations Manager for Source Capital, Ltd.  She handled all operations and compliance for Source Capital and was licensed as a securities broker.  Ms. Prichep received her B.A. from the University of Bridgeport in Connecticut.

Eyal Talor, Ph.D. joined CEL-SCI in October 1993. In October 2009, Dr. Talor was promoted to Chief Scientific Officer.   Between this promotion and March of 1994 he was the Senior Vice President of Research and Manufacturing.  He is a clinical immunologist with over 19 years of hands-on management of clinical research and drug development for immunotherapy application; pre-clinical to Phase III, in the biopharmaceutical industry.  His expertise includes; biopharmaceutical R&D and Biologics product development, GMP (Good Manufacturing Practices) manufacture, Quality Control testing, and the design and building of GMP manufacturing and testing facilities.  He served as Director of Clinical Laboratories (certified by the State of Maryland) and has experience in the design of clinical trials (Phase I – III) and GCP (Good Clinical Practices) requirements.  He also has broad experience in the different aspects of biological assay development, analytical methods validation, raw material specifications, and QC (Quality Control) tests development under FDA/GMP, USP, and ICH guidelines.  He has extensive experience in the preparation of documentation for IND and other regulatory submissions.  His scientific area of expertise encompasses immune response assessment.  He is the author of over 25 publications and has published a number of reviews on immune regulations in relation to clinical immunology. Before coming to CEL-SCI, he was Director of R&D and Clinical Development at CBL, Inc., Principal Scientist - Project Director, and Clinical Laboratory Director at SRA Technologies, Inc. Prior to that he was a full time faculty member at The Johns Hopkins University, Medical Institutions; School of Public Health.  He has invented technologies which are covered by two US patents; one on Multikine’s composition of matter and method of use in cancer, and one on a platform Peptide technology (‘Adapt’) for the treatment of autoimmune diseases, asthma, allergy, and transplantation rejection.  He also is responsible for numerous product and process inventions as well as a number of pending US and PCT patent applications. He received his Ph.D. in Microbiology and Immunology from the University of Ottawa, Ottawa, Ontario, Canada, and had post-doctoral training in clinical and cellular immunology at The John Hopkins University, Baltimore, Maryland, USA. He holds an Adjunct Associate teaching position at the Johns Hopkins University Medical Institutions.
 
 
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Daniel H. Zimmerman, Ph.D., was CEL-SCI's Senior Vice President of Cellular Immunology between 1996 and December 2008 and again since November 2009.  He joined CEL-SCI in January 1996 as the Vice President of Research, Cellular Immunology. Dr. Zimmerman founded CELL-MED, Inc. and was its president from 1987-1995.  From 1973-1987, Dr. Zimmerman served in various positions at Electronucleonics, Inc. His positions included: Scientist, Senior Scientist, Technical Director and Program Manager. Dr Zimmerman held various teaching positions at Montgomery College between 1987 and 1995. Dr. Zimmerman has invented technologies which are covered by over a dozen US patents as well as many foreign equivalent patents. He is the author of over 40 scientific publications in the area of immunology and infectious diseases. He has been awarded numerous grants from NIH and DOD.  From 1969-1973, Dr. Zimmerman was a Senior Staff Fellow at NIH. For the following 25 years, he continued on at NIH as a guest worker. Dr. Zimmerman received a Ph.D. in Biochemistry in 1969, and a Masters in Zoology in 1966 from the University of Florida as well as a B.S. in Biology from Emory and Henry College in 1963.

John Cipriano, was CEL-SCI’s Senior Vice President of Regulatory Affairs between March 2004 and December 2008 and again since October 2009.  Mr. Cipriano brings to CEL-SCI over 30 years of experience with both biotech and pharmaceutical companies. In addition, he held positions at the United States Food and Drug Administration (FDA) as Deputy Director, Division of Biologics Investigational New Drugs, Office of Biologics Research and Review and was the Deputy Director, IND Branch, Division of Biologics Evaluation, Office of Biologics.  Mr. Cipriano completed his B.S. in Pharmacy from the Massachusetts College of Pharmacy in Boston, Massachusetts and his M.S. in Pharmaceutical Chemistry from Purdue University in West Lafayette, Indiana.

Alexander G. Esterhazy has been a Director of CEL-SCI since December 1999 and has been an independent financial advisor since November 1997. Between July 1991 and October 1997, Mr. Esterhazy was a senior partner of Corpofina S.A. Geneva, a firm engaged in mergers, acquisitions and portfolio management. Between January 1988 and July 1991, Mr. Esterhazy was a managing director of DG Bank in Switzerland. During this period Mr. Esterhazy was in charge of the Geneva, Switzerland branch of the DG Bank, founded and served as Vice President of DG Finance (Paris) and was the President and Chief Executive Officer of DG-Bourse, a securities brokerage firm.

Peter R. Young, Ph.D. has been a Director of CEL-SCI since August 2002. Dr. Young has been a senior executive within the pharmaceutical industry in the United States and Canada for most of his career, originally in organizations that are now part of Sanofi S.A. Over the last 20 years he has primarily held positions of Chief Executive Officer or Chief Financial Officer and has extensive experience with acquisitions and equity financing. Since November 2001, Dr. Young has been the President of Agnus Dei, LLC, which has acted as a partner in an organization managing immune system clinics which treats patients with diseases such as cancer, multiple sclerosis and hepatitis.  Dr. Young was also the President and Chief Executive Officer of SRL Technology, Inc., a company involved in the development of pharmaceutical drug delivery systems. Between 1998 and 2001, Dr. Young was the Chief Financial Officer of Adams Laboratories, Inc., the developer of Mucinex®. Dr. Young received his Ph.D. in Organic Chemistry from the University of Bristol, England after obtaining his Bachelor's degree in Honors Chemistry, Mathematics and Economics. Subsequently, he qualified as a Fellow of the Chartered Institute of Management Accountants.
 
 
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Bruno Baillavoine joined CEL-SCI’s board of directors in June 2015.  Since 2010, Mr. Baillavoine has been a partner of Globomass Holdings Limited, a London, England based developer of renewable energy projects from concept through final operations. Since 2012 Mr. Baillavoine has been the Executive Chairman of Globomass Holdings. Globomass Holdings has subsidiaries in Ireland, Bulgaria, Croatia, Serbia, and has recently acquired a 20% stake in a US based renewable energy company. Between 1978 and 1982 he was the marketing manager of Ravenhead Ltd., a manufacturer of glass tableware, and part of United Distillers Group (later acquired by Grand Metropolitan). During this time Mr. Baillavoine became the UK Business Manager where he restored market share and profit for United Distillers.  From 1982 to 1986 Mr. Baillavoine was Group Corporate Planning and Group Marketing Director for Prontaprint where he expanded the number of shops to 500 locations in four years. Mr. Baillavoine joined Grand Metropolitan Plc between 1986-1988 (now Diageo Plc), an FTSE 100 beverage, food, hotel and leisure company, as director in the Special Operations division.  In this capacity, he developed plans for Grand Met’s trouble-shooting division for over 20,000 Grand Met retail outlets. From 1988-1991 he was the Managing Director of Nutri Systems (UK) Ltd., a subsidiary of the US based provider of professionally supervised weight loss programs.  Between 1991 and 1995, Mr. Baillavoine was Director of BET Group plc, a multinational business support services group, and in 1992, was promoted to the Managing Director for the manufacturing businesses. The £2.3 billion turnaround of BET during his tenure is one of the most successful turnarounds of a top 100 FTSE company.  Since 1995, Mr. Baillavoine has held a number of CEO positions across a wide range of industries and geographical locations.  Mr. Baillavoine has European and American educations (US high school and University of Wisconsin Eau Claire 1972-1976).

Mr. Baillavoine is the successor to Dr. C. Richard Kinsolving, who passed away in December 2014.  Dr. Kinsolving served as a director since February 1999.

All of CEL-SCI's officers devote substantially all of their time to CEL-SCI's business.

CEL-SCI’s Board of Directors does not have a “leadership structure”, as such, since each director is entitled to introduce resolutions to be considered by the Board and each director is entitled to one vote on any resolution considered by the Board.  CEL-SCI’s Chief Executive Officer is not the Chairman of CEL-SCI’s Board of Directors.

CEL-SCI’s Board of Directors has the ultimate responsibility to evaluate and respond to risks facing CEL-SCI.  CEL-SCI’s Board of Directors fulfills its obligations in this regard by meeting on a regular basis and communicating, when necessary, with CEL-SCI’s officers.

Alexander G. Esterhazy, Dr. Peter R. Young and Bruno Baillavoine are independent directors as that term is defined in section 803 of the listing standards of the NYSE MKT.
 
 
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CEL-SCI has adopted a Code of Ethics which is applicable to CEL-SCI’S principal executive, financial, and accounting officers and persons performing similar functions.  The Code of Ethics is available on CEL-SCI’s website, located at www.cel-sci.com.

If a violation of this code of ethics act is discovered or suspected, the Senior Officer must (anonymously, if desired) send a detailed note, with relevant documents, to CEL-SCI’s Audit Committee, c/o Dr. Peter Young, 208 Hewitt Drive, Suite 103-143, Waco, TX 76712.

For purposes of electing directors at its annual meeting, CEL-SCI has a nominating committee that is made up of CEL-SCI’s three independent directors.  The nominating committee selects the nominees to the Board of Directors and they are approved by the shareholders.

CEL-SCI does not have any policy regarding the consideration of director candidates recommended by shareholders since a shareholder has never recommended a nominee to the Board of Directors and under Colorado law, any shareholder can nominate a person for election as a director at the annual shareholders’ meeting.  However, CEL-SCI’s Board of Directors will consider candidates recommended by shareholders.  To submit a candidate for the Board of Directors the shareholder should send the name, address and telephone number of the candidate, together with any relevant background or biographical information, to CEL-SCI’s Chief Executive Officer, at the address shown on the cover page of this report.  The Board has not established any specific qualifications or skills a nominee must meet to serve as a director.  Although the Board does not have any process for identifying and evaluating director nominees, the Board does not believe there would be any differences in the manner in which the Board evaluates nominees submitted by shareholders as opposed to nominees submitted by any other person.

CEL-SCI does not have a policy with regard to Board member’s attendance at annual meetings.  All Board members, with the exception of Mr. de Clara and Mr. Esterhazy, attended the last annual shareholder’s meeting held on June 22, 2015.

Holders of CEL-SCI’s common stock can send written communications to CEL-SCI’s entire Board of Directors, or to one or more Board members, by addressing the communication to “the Board of Directors” or to one or more directors, specifying the director or directors by name, and sending the communication to CEL-SCI’s offices in Vienna, Virginia.  Communications addressed to the Board of Directors as whole will be delivered to each Board member.  Communications addressed to a specific director (or directors) will be delivered to the director (or directors) specified.

Security holder communications not sent to the Board of Directors as a whole are not relayed to Board members.

 
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ITEM 11.  EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis (CD&A) outlines CEL-SCI’s compensation philosophy, objectives and process for its executive officers.  This CD&A includes information on how compensation decisions are made, the overall objectives of CEL-SCI’s compensation program, a description of the various components of compensation that are provided, and additional information pertinent to understanding CEL-SCI’s executive officer compensation program.

The Compensation Committee determines the compensation of CEL-SCI’s Chief Executive Officer and President and delegates to the Chief Executive Officer the responsibility to determine the base salaries of all other officers, other than himself, under the constraints of an overall limitation on the total amount of compensation to be paid to them.

Compensation Philosophy

CEL-SCI’s compensation philosophy extends to all employees, including executive officers, and is designed to align employee and shareholder interests. The philosophy’s objective is to pay fairly based upon the employee’s position, experience and individual performance.  Employees may be rewarded through additional compensation when CEL-SCI meets or exceeds targeted business objectives. Generally, under CEL-SCI’s compensation philosophy, as an employee’s level of responsibility increases, a greater portion of his or her total potential compensation becomes contingent upon annual performance.

A substantial portion of an executive's compensation incorporates performance criteria that support and reward achievement of CEL-SCI’s long term business goals.

The fundamental principles of CEL-SCI’s compensation philosophy are described below:

·
Market-driven. Compensation programs are structured to be competitive both in their design and in the total compensation that they offer.
 
·
Performance-based. Certain officers have some portion of their incentive compensation linked to CEL-SCI’s performance. The application of performance measures as well as the form of the reward may vary depending on the employee’s position and responsibilities.

Based on a review of its compensation programs, CEL-SCI does not believe that such programs encourage any of its employees to take risks that would be likely to have a material adverse effect on CEL-SCI.  CEL-SCI reached this conclusion based on the following:

·
The salaries paid to employees are consistent with the employees’ duties and responsibilities.
 
·
Employees who have high impact relative to the expectations of their job duties and functions are rewarded.
 
 
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·
CEL-SCI retains employees who have skills critical to its long term success.

Review of Executive Officer Compensation

CEL-SCI’s current policy is that the various elements of the compensation package are not interrelated in that gains or losses from past equity incentives are not factored into the determination of other compensation.  For instance, if options that are granted in a previous year have an exercise price which is below the market price of CEL-SCI’s common stock, the Committee does not take that circumstance into consideration in determining the amount of the options or restricted stock to be granted the next year.  Similarly, if the options or restricted shares granted in a previous year become extremely valuable, the Committee does not take that into consideration in determining the options or restricted stock to be awarded for the next year.  

CEL-SCI does not have a policy with regard to the adjustment or recovery of awards or payments if relevant performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment.

Components of Compensation—Executive Officers

CEL-SCI’s executive officers are compensated through the following three components:

·
Base Salary
·
Long-Term Incentives (“LTIs”) (stock options and/or grants of stock)
·
Benefits

These components provide a balanced mix of base compensation and compensation that is contingent upon each executive officer’s individual performance. A goal of the compensation program is to provide executive officers with a reasonable level of security through base salary and benefits.  CEL-SCI wants to ensure that the compensation programs are appropriately designed to encourage executive officer retention and motivation to create shareholder value. The Compensation Committee believes that CEL-SCI’s stockholders are best served when CEL-SCI can attract and retain talented executives by providing compensation packages that are competitive but fair.

In past years, base salaries, benefits and incentive compensation opportunities were generally targeted near the median of general survey market data derived from indices covering similar biotech/pharmaceutical companies.  The companies included Advaxis, Inc., Amicus Therapeutics, Inc., Celsion Corp., CytRx Corporation, GERON Corp, Idera Pharmaceuticals, Inc., Northwest Biotherapeutics, Inc., Oragenics, Inc., StemCells, Inc., Taxus Cardium Pharmaceuticals Group Inc., TG Therapeutics, Inc., Venaxis, Inc., Arrowhead Research Corp, CorMedix Inc., Fibrocell Science, Inc., Hemispherx Biopharma, Inc., Opexa Therapeutics, Inc., OXiGENE, Inc., Catalyst Bioscience, Inc. (formerly Targacept, Inc)., Tenax Therapeutics, Inc., Trovagene, Inc. and ZIOPHARM Oncology, Inc.

During fiscal year 2014, CEL-SCI used a third party consultant to provide it with recommendations for strategic long term incentive compensation for certain key executives.  The recommendation resulted in the formation of the 2014 Incentive Stock Bonus Plan that was voted on and passed by the shareholders at the annual meeting on July 22, 2014.
 
 
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Base Salaries

Base salaries generally have been targeted to be competitive when compared to the salary levels of persons holding similar positions in other pharmaceutical companies and other publicly traded companies of comparable size. Each executive officer’s respective responsibilities, experience, expertise and individual performance are considered.

A further consideration in establishing compensation for the senior employees is their long term history with CEL-SCI.  Taken into consideration are factors that have helped CEL-SCI survive in times when it was financially weak, such as: willingness to accept salary cuts, willingness not to be paid at all for extended time periods, and in general an attitude that helped CEL-SCI survive during financially difficult times.

Long-Term Incentives

Stock grants and option grants help to align the interests of CEL-SCI’s employees with those of its shareholders.  Options and stock grants are made under CEL-SCI’s Stock Option, Incentive Stock Bonus, Stock Bonus and Stock Compensation Plans.  Options are granted with exercise prices equal to the closing price of CEL-SCI’s common stock on the day immediately preceding the date of grant, with pro rata vesting at the end of each of the following three years.  

CEL-SCI believes that grants of equity-based compensation:

·
Enhance the link between the creation of shareholder value and long-term executive incentive compensation;
 
·
Provide focus, motivation and retention incentive; and
 
·
Provide competitive levels of total compensation.

CEL-SCI’s management believes that the pricing for biotechnology stocks is highly inefficient until the time of product sales.  As such, any long term compensation tied to progress as measured by share price is not as efficient as it should be.  The plan approved by the shareholders in July 2014, which covers senior and mid-level employees, seeks to address this issue by rewarding employees for meeting major operational milestones and significantly improved share prices.

Benefits

In addition to cash and equity compensation programs, executive officers participate in the health and welfare benefit programs available to other employees. In a few limited circumstances, CEL-SCI provides other benefits to certain executive officers, such as car allowances.

All executive officers are eligible to participate in CEL-SCI’s 401(k) plan on the same basis as its other employees. CEL-SCI matches 100% of each employee’s contribution up to 6% of his or her salary.
 
 
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The following table sets forth in summary form the compensation received by (i) the Chief Executive and Financial Officer of CEL-SCI and (ii) by each other executive officer of CEL-SCI who received in excess of $100,000 during the three fiscal years ended September 30, 2015.

Name and
Principal Position
Fiscal Year
 
Salary (1)
   
Bonus (2)
   
Restricted Stock Awards (3)
   
Option Awards (4)
   
All Other Compen-sation
(5)
   
Total
 
      $     $     $     $     $     $  
                                                   
Maximilian de Clara,
2015
    332,750       --       --       69,190       40,000       441,940  
President
2014
    393,250       --       --       298,648       73,183       765,081  
 
2013
    332,750       --       --       306,863       40,000       679,613  
                                                   
Geert R. Kersten,
2015
    514,083       --       16,050       --       54,981       585,114  
Chief Executive
2014
    584,621       --       3,236,526       82,917       57,581       3,961,645  
Officer and Treasurer
2013
    439,093       --       15,225       1,516,692       53,514       2,024,524  
                                                   
Patricia B. Prichep,
2015
    235,702       --       14,128       --       6,906       256,736  
Senior Vice President
2014
    247,852       --       1,735,938       55,278       6,531       2,045,599  
of Operations and
2013
    202,253       --       13,941       485,634       5,531       707,359  
Secretary
                                                 
                                                   
Eyal Talor, Ph.D.,
2015
    290,983       --       9,600       --       6,031       306,613  
Chief Scientific Officer
2014
    283,283       --       1,731,290       55,278       6,031       2,075,882  
 
2013
    272,388       --       9,600       460,255       6,031       748,274  
                                                   
Daniel Zimmerman, Ph.D.,
2015
    219,026       --       13,148       52,003       6,031       290,209  
Senior Vice President of
2014
    213,231       --       13,274       227,319       6,031       459,855  
Research, Cellular
2013
    205,030       --       12,989       87,911       6,031       311,961  
Immunology
                                                 
                                                   
John Cipriano,
2015
    202,718       --       --       --       31       202,749  
Senior Vice President of
2014
    197,354       --       888,614       41,549       31       1,127,458  
Regulatory Affairs
2013
    189,763       --       --       47,968       31       237,762  

(1)
The dollar value of base salary (cash and non-cash) earned.  The officers of the Company received stock in lieu of salary increases in FY 2015.

(2)
The dollar value of bonus (cash and non-cash) earned.

(3)
The fair value of the shares of restricted stock issued during the periods covered by the table is shown as compensation for services to the persons listed in the table.  For all persons listed in the table, the shares were issued as CEL-SCI's contribution on behalf of the named officer who participates in CEL-SCI's 401(k) retirement plan and, by far the largest part, restricted shares issued from the 2014 Incentive Stock Bonus Plan that was voted on and passed by the shareholders at the annual meeting on July 22, 2014.  These shares are not vested and are held in escrow.  The shares will only be earned upon the achievement of certain milestones leading to the commercialization of CEL-SCI’s Multikine technology, or specified increases in the market price of CEL-SCI’S stock. If the performance or market criteria are not met as specified in the Incentive Stock Bonus Plan, all or a portion of the awarded shares will be forfeited.  The value of all stock awarded during the periods covered by the table is calculated according to ASC 718-10-30-3 which represented the grant date fair value.
 
 
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(4)
The fair value of all stock options granted during the periods covered by the table are calculated on the grant date in accordance with ASC 718-10-30-3 which represented the grant date fair value.

(5)
All other compensation received that CEL-SCI could not properly report in any other column of the table including the dollar value of any insurance premiums paid by, or on behalf of, CEL-SCI with respect to term life insurance for the benefit of the named executive officer and car allowances paid by CEL-SCI.  Includes board of directors fees for Mr. de Clara and Mr. Kersten.

Employee Pension, Profit Sharing or Other Retirement Plans

CEL-SCI has a defined contribution retirement plan, qualifying under Section 401(k) of the Internal Revenue Code and covering substantially all CEL-SCI’s employees.  CEL-SCI’s contribution to the plan is made in shares of CEL-SCI's common stock. Each participant's contribution is matched by CEL-SCI with shares of common stock which have a value equal to 100% of the participant's contribution, not to exceed the lesser of $1,000 or 6% of the participant's total compensation.  CEL-SCI's contribution of common stock is valued each quarter based upon the closing price of its common stock.  The fiscal 2015 expenses for this plan were $165,646.  Other than the 401(k) Plan, CEL-SCI does not have a defined benefit, pension plan, profit sharing or other retirement plan.

Compensation of Directors During Year Ended September 30, 2015

Name
 
Paid in Cash
   
Stock Awards (1)
   
Option Awards (2)
   
Total
 
                         
Maximilian de Clara
  $ 40,000       -     $ 69,190     $ 109,190  
Geert Kersten
  $ 40,000       -       -     $ 40,000  
Alexander Esterhazy
  $ 45,000       -     $ 69,190     $ 114,190  
Peter R. Young
  $ 50,000       -     $ 69,190     $ 119,190  
Bruno Baillavoine (3)
  $ 11,250       -     $ 69,190     $ 80,440  

(1)
The fair value of stock issued for services.

(2)
The fair value of options granted computed in accordance with ASC 718-10-30-3 on the date of grant which represents their grant date fair value.

(3)
Mr. Baillavoine joined the Board of Directors in June 2015.  Mr. Baillavoine is the successor to Dr. C. Richard Kinsolving, who passed away in December 2014.  Dr. Kinsolving served as a director since February 1999.

Directors’ fees paid to Maximilian de Clara and Geert Kersten are included in the Executive Compensation table.
 
 
66

 
 
Employment Contracts

Maximilian de Clara

In April 2005, CEL-SCI entered into a three-year employment agreement with Maximilian de Clara, CEL-SCI’s President.  The employment agreement provided that CEL-SCI would pay Mr. de Clara an annual salary of $363,000 during the term of the agreement.  On September 8, 2006, Mr. de Clara’s Employment Agreement was amended and extended to April 30, 2010.  The terms of the amendment to Mr. de Clara’s employment agreement are referenced in a report on Form 8-K filed with the Securities and Exchange Commission on September 8, 2006.  On August 30, 2010, Mr. de Clara’s employment agreement, as amended on September 8, 2006, was extended to August 30, 2013.  On August 30, 2013, Mr. de Clara’s employment agreement, as amended on September 8, 2006, was extended again to August 30, 2016.

In the event that there is a material reduction in Mr. de Clara's authority, duties or activities, or in the event there is a change in the control of CEL-SCI, the agreement allows Mr. de Clara to resign from his position at CEL-SCI and receive a lump-sum payment from CEL-SCI equal to 18 months of salary ($544,500) and the unvested portion of any stock options would vest immediately ($218,323).  For purposes of the employment agreement, a change in the control of CEL-SCI means the sale of more than 50% of the outstanding shares of CEL-SCI's common stock, or a change in a majority of CEL-SCI's directors.

The employment agreement will also terminate upon the death of Mr. de Clara, Mr. de Clara’s physical or mental disability, the conviction of Mr. de Clara for any crime involving fraud, moral turpitude, or CEL-SCI’s property, or a breach of the employment agreement by Mr. de Clara.  If the employment agreement is terminated for any of these reasons, Mr. de Clara, or his legal representatives, as the case may be, will be paid the salary provided by the employment agreement through the date of termination.

Geert Kersten

In September 1, 2003, CEL-SCI entered into a three-year employment agreement with Mr. Kersten.  On September 1, 2006, Mr. Kersten’s employment agreement was extended to September 1, 2011.  On September 1, 2011, CEL-SCI extended its employment agreement with Mr. Kersten 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 CEL-SCI.  Increases beyond those, if any, shall be made at the sole discretion of CEL-SCI’s directors.

During the employment term, Mr. Kersten will be entitled to receive any other benefits which are provided to CEL-SCI's executive officers or other full time employees in accordance with CEL-SCI'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 reduction in Mr. Kersten’s salary (ii) 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, (iii) a significant and material reduction in Mr. Kersten’s authority, job duties or level of responsibility or the imposition of significant and material limitations on the Mr. Kersten’s autonomy in his position, or (iv) a Change in Control, then the employment agreement will be terminated and Mr. Kersten will be entitled to receive a lump-sum payment from CEL-SCI equal to 24 months of salary ($1,085,538) and the unvested portion of any stock options would vest immediately ($833,996). For purposes of the employment agreement a change in the control of CEL-SCI means: (1) the merger of CEL-SCI with another entity if after such merger the shareholders of CEL-SCI do not own at least 50% of voting capital stock of the surviving corporation; (2) the sale of substantially all of the assets of CEL-SCI; (3) the acquisition by any person of more than 50% of CEL-SCI's common stock; or (4) a change in a majority of CEL-SCI's directors which has not been approved by the incumbent directors.
 
 
67

 
 
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 CEL-SCI, 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 CEL-SCI 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.

On August 30, 2013, CEL-SCI amended certain sections of Mr. Kersten’s employment agreement so that it would correspond with similar sections of the employment agreements with Ms. Prichep and Dr. Talor.

Patricia B. Prichep / Eyal Talor, Ph.D.

On August 30, 2010, CEL-SCI entered into a three-year employment agreement with Patricia B. Prichep, CEL-SCI’s Senior Vice President of Operations.    On August 30, 2013 the employment agreement with Ms. Prichep was extended to August 30, 2016.  Ms. Prichep’s annual salary for fiscal year 2015 was $238,644.

On August 30, 2010, CEL-SCI also entered into a three-year employment agreement with Eyal Talor, Ph.D., CEL-SCI’s Chief Scientific Officer.   On August 30, 2013, the employment agreement with Dr. Talor was extended to August 30, 2016.  Dr. Talor’s annual salary for fiscal year 2015 was $294,614.

If Ms. Prichep or Dr. Talor resigns within ninety (90) days of the occurrence of any of the following events: (i) a relocation (or demand for relocation) of employee’s place of employment to a location more than thirty-five (35) miles from the employee’s current place of employment, (ii) a significant and material reduction in the employee’s authority, job duties or level of responsibility or (iii) the imposition of significant and material limitations on the employee’s autonomy in her or his position, the employment agreement will be terminated and the employee will be paid the salary provided by the employment agreement through the date of termination and the unvested portion of any stock options held by the employee will vest immediately.
 
 
68

 

In the event there is a change in the control of CEL-SCI, 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 CEL-SCI and receive a lump-sum payment from CEL-SCI equal to 18 months of salary ($357,966 and $441,921 respectively). In addition, the unvested portion of any stock options held by the employee will vest immediately ($222,567 and $222,567 respectively). For purposes of the employment agreements, a change in the control of CEL-SCI means: (1) the merger of CEL-SCI with another entity if after such merger the shareholders of CEL-SCI do not own at least 50% of voting capital stock of the surviving corporation; (2) the sale of substantially all of the assets of CEL-SCI; (3) the acquisition by any person of more than 50% of CEL-SCI's common stock; or (4) a change in a majority of CEL-SCI'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 CEL-SCI, 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.

Compensation Committee Interlocks and Insider Participation

CEL-SCI has a compensation committee comprised of Mr. Alexander Esterhazy, Mr. Bruno Baillavoine and Dr. Peter Young, all of whom are independent directors.

During the year ended September 30, 2015, no director of CEL-SCI was also an executive officer of another entity, which had an executive officer of CEL-SCI serving as a director of such entity or as a member of the compensation committee of such entity.

­Loan from Officer and Director

Between December 2008 and June 2009, CEL-SCI’s President, and a director, Maximilian de Clara, loaned CEL-SCI $1,104,057.  Between July 2009 and July 2015, the loan from Mr. de Clara bore interest at 15% per year.  At Mr. de Clara’s option, the loan may be converted into shares of CEL-SCI’s common stock.  The number of shares which will be issued upon any conversion will be determined by dividing the amount to be converted by $4.00.  In accordance with the loan agreement, CEL-SCI issued Mr. de Clara warrants to purchase 164,824 shares of CEL-SCI’s common stock at a price of $4.00 per share.  These warrants expired on December 24, 2014.  In consideration for an extension of the due date, Mr. de Clara received warrants to purchase 184,930 shares of CEL-SCI’s common stock at a price of $5.00 per share.  These warrants expired on January 6, 2015.  In consideration of Mr. de Clara’s agreement to subordinate his note to the convertible preferred shares and convertible debt as part of a prior year settlement agreement, CEL-SCI extended the maturity date of the note to July 6, 2015.   In August 2014, the loan was transferred to the de Clara Trust, of which CEL-SCI’s Chief Executive Officer, Geert Kersten, is the trustee and a beneficiary.  Mr. de Clara will continue to receive the interest payments.

On June 29, 2015, CEL-SCI extended the maturity date of the note to July 6, 2017, lowered the interest rate to 9% per year and changed the conversion price to $0.59, the closing stock price on the previous trading day. The new terms were effective July 7, 2015. The premium increased the face value of the note to $1,270,000 and will be amortized as a reduction of interest expense through the expiration date of the note. Concurrently, CEL-SCI extended the expiration date of the Series N warrants to August 18, 2017. The incremental cost of this modification was $475,333 and was included in debt extinguishment loss on the note, for a total loss of $641,276.
 
 
69

 
 
CEL-SCI does not have the right to prepay the loan without the consent of the Trust.  The loan is secured by a lien on substantially all of CEL-SCI’s assets.  The Trust may demand payment upon giving CEL-SCI a minimum 10-day notice.

On October 11, 2015, at the request of Lake Whillans Vehicle I, LLC, the note was extended for one year to July 6, 2018.

Stock Option, Bonus and Compensation Plans

CEL-SCI has Incentive Stock Option Plans, Non-Qualified Stock Option, Stock Bonus, Stock Compensation Plans and an Incentive Stock Bonus Plan.  All Stock Option, Bonus and Compensation Plans have been approved by the stockholders. A summary description of these Plans follows.  In some cases these Plans are collectively referred to as the "Plans".

Incentive Stock Option Plan. The Incentive Stock Option Plans authorize the issuance of shares of CEL-SCI's common stock to persons who exercise options granted pursuant to the Plans. Only CEL-SCI’s employees may be granted options pursuant to the Incentive Stock Option Plans.

Options may not be exercised until one year following the date of grant.  Options granted to an employee then owning more than 10% of the common stock of CEL-SCI may not be exercisable by its terms after five years from the date of grant. Any other option granted pursuant to the Plans may not be exercisable by its terms after ten years from the date of grant.

The purchase price per share of common stock purchasable under an option is determined by the Committee but cannot be less than the fair market value of the common stock on the date of the grant of the option (or 110% of the fair market value in the case of a person owning more than 10% of CEL-SCI's outstanding shares).

Non-Qualified Stock Option Plans. The Non-Qualified Stock Option Plans authorize the issuance of shares of CEL-SCI's common stock to persons that exercise options granted pursuant to the Plans. CEL-SCI's employees, directors, officers, consultants and advisors are eligible to be granted options pursuant to the Plans, provided however that bona fide services must be rendered by such consultants or advisors and such services must not be in connection with sale a capital-raising transaction or promoting CEL-SCI’s common stock. The option exercise price is determined by CEL-SCI’s Board of Directors.

Stock Bonus Plan. Under the Stock Bonus Plans shares of CEL-SCI’s common stock may be issued to CEL-SCI's employees, directors, officers, consultants and advisors, provided however that bona fide services must be rendered by consultants or advisors and such services must not be in connection with  a capital-raising transaction or promoting CEL-SCI’s common stock.
 
 
70

 

Stock Compensation Plan.  Under the Stock Compensation Plan, shares of CEL-SCI’s common stock may be issued to CEL-SCI’s employees, directors, officers, consultants and advisors in payment of salaries, fees and other compensation owed to these persons.  However, bona fide services must be rendered by consultants or advisors and such services must not be in connection with the offer or sale of securities in a capital-raising transaction or promoting CEL-SCI’s common stock.

Incentive Stock Bonus Plan.  Under the 2014 Incentive Stock Bonus Plan, shares of CEL-SCI’s common stock may be issued to executive officers and other employees who contribute significantly to the success of the Company, to participate in its future prosperity and growth and aligns their interests with those of the shareholders.  The purpose of the Plan is to provide long term incentive for outstanding service to the Company and its shareholders and to assist in recruiting and retaining people of outstanding ability and initiative in executive and management positions.

Other Information Regarding the Plans.  The Plans are administered by CEL-SCI's Compensation Committee (“the Committee”), each member of which is a director of CEL-SCI.  The members of the Committee were selected by CEL-SCI's Board of Directors and serve for a one-year tenure and until their successors are elected.  A member of the Committee may be removed at any time by action of the Board of Directors. Any vacancies which may occur on the Committee will be filled by the Board of Directors.  The Committee is vested with the authority to interpret the provisions of the Plans and supervise the administration of the Plans. In addition, the Committee is empowered to select those persons to whom shares or options are to be granted, to determine the number of shares subject to each grant of a stock bonus or an option and to determine when, and upon what conditions, shares or options granted under the Plans will vest or otherwise be subject to forfeiture and cancellation.

In the discretion of the Committee, any option granted pursuant to the Plans may include installment exercise terms such that the option becomes fully exercisable in a series of cumulating portions. The Committee may also accelerate the date upon which any option (or any part of any options) is first exercisable. Any shares issued pursuant to the Stock Bonus Plan or Stock Compensation Plan and any options granted pursuant to the Incentive Stock Option Plan or the Non-Qualified Stock Option Plans will be forfeited if the "vesting" schedule established by the Committee administering the Plans at the time of the grant is not met. For this purpose, vesting means the period during which the employee must remain an employee of CEL-SCI or the period of time a non-employee must provide services to CEL-SCI. At the time an employee ceases working for CEL-SCI (or at the time a non-employee ceases to perform services for CEL-SCI), any shares or options not fully vested will be forfeited and cancelled. At the discretion of the Committee payment for the shares of common stock underlying options may be paid through the delivery of shares of CEL-SCI's common stock having an aggregate fair market value equal to the option price, provided such shares have been owned by the option holder for at least one year prior to such exercise. A combination of cash and shares of common stock may also be permitted at the discretion of the Committee.

Options are generally non-transferable except upon death of the option holder. Shares issued pursuant to the Stock Bonus Plans will generally not be transferable until the person receiving the shares satisfies the vesting requirements imposed by the Committee when the shares were issued.
 
 
71

 
 
The Board of Directors of CEL-SCI may at any time, and from time to time, amend, terminate, or suspend one or more of the Plans in any manner  it deems appropriate, provided that such amendment, termination or suspension will not adversely affect rights or obligations with respect to shares or options previously granted.

Stock Options

The following tables show information concerning the options granted during the fiscal year ended September 30, 2015, to the persons named below:

Options Granted
 
Name   Grant Date   Options Granted     Price Per Share   Expiration Date
                   
Maximilian de Clara
 
6/22/2015
    125,000     $ 0.66  
6/21/2025
                       
Daniel Zimmerman
 
6/25/2015
    100,000     $ 0.62  
6/24/2025
                       
Alexander Esterhazy
 
6/22/2015
    125,000     $ 0.66  
6/21/2025
                       
Bruno Baillavoine
 
6/22/2015
    125,000     $ 0.66  
6/21/2025
                       
Peter Young
 
6/22/2015
    125,000     $ 0.66  
6/21/2025
 
The following tables show information concerning the options cancelled and exercised during the fiscal year ended September 30, 2015, to the persons named below:

Options Cancelled
 
 
 
Weighted Average
Weighted Average
Remaining Contractual
Employee
Total Options
Exercise Price
Term (Years)
       
 
None

Options Exercised

 
Date of
Shares Acquired
Value
Name
Exercise
On Exercise
Realized
       
None

The following lists the outstanding options held by the persons named below:
 
 
72

 

   
Shares underlying unexercised
         
   
Option which are:
   
Exercise
 
Expiration
Name
 
Exercisable
   
Unexercisable
   
Price
 
Date
                     
Maximilian de Clara
    10,000             5.80  
09/12/16
      20,000             6.30  
09/13/17
      20,000             6.20  
03/04/18
      143,625 (1)           2.50  
04/23/19
      16,667 (2)           3.80  
07/06/19
      25,000             3.80  
07/20/19
      25,000             4.80  
07/20/20
      25,000             6.90  
04/14/21
      47,200             3.20  
12/01/16
      37,500             3.90  
05/17/22
      40,000             2.80  
12/17/22
      25,000             2.10  
06/30/23
      25,000             1.09  
02/25/24
      100,000             1.10  
08/05/24
      150,000             1.08  
08/25/24
      ----------                  
      709,992                  
              33,333 (2)     3.80  
07/06/19
              60,000       2.80  
12/17/22
              12,500       2.10  
06/30/23
              50,000       1.09  
02/25/24
              125,000       0.66  
06/21/25
              ----------            
              280,833            
 
 
73

 
 
   
Shares underlying unexercised
         
   
Option which are:
   
Exercise
 
Expiration
Name
 
Exercisable
   
Unexercisable
   
Price
 
Date
                     
Geert R. Kersten
    20,000             5.80  
09/12/16
      20,000             6.30  
09/13/17
      20,000             6.20  
03/04/18
      183,861 (1)           2.50  
04/23/19
      133,334 (2)           3.80  
07/06/19
      30,000             3.80  
07/20/19
      30,000             4.80  
07/20/20
      30,000             6.90  
04/14/21
      125,440             3.20  
12/01/16
      45,000             3.90  
05/17/22
      189,000             2.80  
12/17/17
      114,140             2.80  
12/17/22
      30,000             2.10  
06/30/23
      30,000             1.09  
02/25/24
      ----------                  
      1,000,775                  
              266,666 (2)     3.80  
07/06/19
              385,860       2.80  
12/17/22
              15,000       2.10  
06/30/23
              60,000       1.09  
02/25/24
              ----------            
              727,526            
                           
Patricia B. Prichep
    9,000               5.80  
09/12/16
      10,000               6.30  
09/13/17
      10,000               6.20  
03/04/18
      71,710 (1)             2.50  
04/23/19
      100,000 (2)             3.80  
07/06/19
      15,000               3.80  
07/20/19
      15,000               4.80  
07/20/20
      15,000               6.90  
04/14/21
      38,520               3.20  
12/01/16
      30,000               3.90  
05/17/22
      58,000               2.80  
12/17/17
      46,780               2.80  
12/17/22
      20,000               2.10  
06/30/23
      20,000               1.09  
02/25/24
      ----------                    
      459,010                    
              200,000 (2)     3.80  
07/06/19
              103,220       2.80  
12/17/22
              10,000       2.10  
06/30/23
              40,000       1.09  
02/25/24
              ----------            
              353,220            
 
 
74

 
 
     
Shares underlying unexercised
           
     
Option which are:
     
Exercise
 
Expiration
Name
   
Exercisable
   
Unexercisable
     
Price
 
Date
                         
Eyal Talor, Ph.D
    8,000             5.80  
09/12/16
      10,000             6.30  
09/13/17
      10,000             6.20  
03/04/18
      24,082 (1)           2.50  
04/23/19
      100,000 (2)           3.80  
07/06/19
      15,000             3.80  
07/20/19
      15,000             4.80  
07/20/20
      15,000             6.90  
04/14/21
      27,773             3.20  
12/01/16
      30,000             3.90  
05/17/22
      37,417             2.80  
12/17/17
      46,780             2.80  
12/17/22
      20,000             2.10  
06/30/23
      20,000             1.09  
02/25/24
      ----------                  
      379,052                  
              200,000 (2)     3.80  
07/06/19
              103,220       2.80  
12/17/22
              10,000       2.10  
06/30/23
              40,000       1.09  
02/25/24
              ----------            
              353,220            
                           
Daniel Zimmerman, Ph.D
    6,000               5.80  
09/12/16
      7,500               6.30  
09/13/17
      7,500               6.20  
03/04/18
      20,000               3.80  
07/15/14
      15,000               4.80  
07/20/20
      15,000               6.90  
04/14/21
      25,200               3.20  
12/01/16
      22,500               3.90  
05/17/22
      39,200               2.80  
12/17/17
      15,000               2.10  
06/30/23
      15,000               1.09  
02/25/24
      66,667               1.10  
08/05/24
      ----------                    
      254,567                    
              7,500       2.10  
06/30/23
              30,000       1.09  
02/25/24
              133,333       1.10  
08/05/24
              100,000       0.62  
06/25/25
              ----------            
              270,833            
 
 
75

 
 
     
Shares underlying unexercised
           
     
Option which are:
     
Exercise
 
Expiration
Name
   
Exercisable
   
Unexercisable
     
Price
 
Date
                         
John Cipriano
    6,000             5.80  
09/12/16
      7,500             6.30  
09/13/17
      7,500             6.20  
03/04/18
      15,000             4.80  
07/20/20
      15,000             6.90  
04/14/21
      1,600             3.20  
12/01/16
      10,000             2.50  
09/30/19
      22,500             3.90  
05/17/22
      15,000             2.10  
06/30/23
      15,000             1.09  
02/25/24
      ----------                  
      115,100                  
              7,500       2.10  
06/30/23
              30,000       1.09  
02/25/24
              ----------            
              37,500            
 
(1)  
Options awarded to employees who did not collect a salary, or reduced or deferred their salary between September 15, 2008 and June 30, 2009. For example, Mr. de Clara, Mr. Kersten and Ms. Prichep did not collect any salary between September 30, 2008 and June 30, 2009.

(2)  
Long-term performance options: The Board of Directors has identified the successful Phase III clinical trial for Multikine to be the most important corporate event to create shareholder value. Therefore, one third of the options can be exercised when the first 400 patients are enrolled in CEL-SCI's Phase III head and neck cancer clinical trial. One third of the options can be exercised when all of the patients have been enrolled in the Phase III clinical trial. One third of the options can be exercised when the Phase III trial is completed.  The grant-date fair value of these options awarded to the senior management of the Company amounts to $3.3 million in total.

Summary. The following shows certain information as of September 30, 2015 concerning the stock options and stock bonuses granted by CEL-SCI.  Each option represents the right to purchase one share of CEL-SCI's common stock.

Name of Plan
 
Total Shares Reserved Under Plans
   
Shares Reserved for Outstanding Options
   
Shares Issued
   
Remaining Options/Shares Under Plans
 
                         
Incentive Stock Option Plans
    1,960,000       1,690,665       N/A       6,635  
Non-Qualified Stock Option Plans
    7,680,000       5,849,103       N/A       1,219,479  
Bonus Plans
    3,594,000       N/A       1,643,714       1,949,459  
Stock Compensation Plan
    3,350,000       N/A       1,423,999       1,892,950  
Incentive Stock Bonus Plan
    16,000,000       N/A       15,600,000       400,000  
 
 
76

 
 
Of the shares issued pursuant to CEL-SCI's Stock Bonus Plans, 705,297 shares were issued as part of CEL-SCI's contribution to its 401(k) plan.

The following table shows the weighted average exercise price of the outstanding options granted pursuant to CEL-SCI’s Incentive and Non-Qualified Stock Option Plans as of September 30, 2015, CEL-SCI’s most recent fiscal year end. CEL-SCI's Incentive and Non-Qualified Stock Option Plans have been approved by CEL-SCI's shareholders.

Plan category
 
Number of Securities to be Issued Upon Exercise of Outstanding Options (a)
   
Weighted-Average Exercise Price of Outstanding Options
   
Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans, Excluding Securities
Reflected in Column (a)
 
                   
Incentive Stock Option Plans
    1,690,665     $ 3.03       6,635  
Non-Qualified Stock Option Plans
    5,849,103     $ 2.62       1,219,479  


Long Term Incentive Plans - Awards in Last Fiscal Year

See footnote 7 to the financial statements included as part of this report.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table shows, as of December 1, 2015, information with respect to the only persons owning beneficially 5% or more of CEL-SCI’s outstanding common stock and the number and percentage of outstanding shares owned by each director and officer of CEL-SCI and by the officers and directors as a group. Unless otherwise indicated, each owner has sole voting and investment powers over his shares of common stock.

                                                                                            
Name and Address   Number of Shares (1)     Percent of Class (2)  
             
Maximilian de Clara
Bergstrasse 79
6078 Lungern,
Obwalden, Switzerland
    780,115       0.6 %
                 
Geert R. Kersten
8229 Boone Blvd., Suite 802
Vienna, VA  22182
    15,043,056 (3)     11.0 %
                 
Patricia B. Prichep
8229 Boone Blvd., Suite 802
Vienna, VA  22182
    3,763,883       2.9 %
                 
 
 
77

 
 
Eyal Talor, Ph.D.
8229 Boone Blvd., Suite 802
Vienna, VA  22182
    3,632,514       2.8 %
                 
Daniel H. Zimmerman, Ph.D.
8229 Boone Blvd., Suite 802
Vienna, VA  22182
    363,891       0.3 %
                 
John Cipriano
8229 Boone Blvd., Suite 802
Vienna, VA  22182
    1,744,718       1.3 %
                 
Alexander G. Esterhazy
20 Chemin du Pre-Poiset
CH- 1253 Vandoeuvres
Geneve, Switzerland
    440,549       0.3 %
                 
Peter R. Young, Ph.D.
208 Hewitt Drive, Suite 103-143
Waco, TX 76712
    456,610       0.4 %
                 
Bruno Baillavoine
8229 Boone Blvd., Suite 802
Vienna, VA  22182
    0       0.0 %
                 
All Officers and Directors as a Group (9 persons)
    26,225,336       18.9 %

(1)  
Includes shares issuable prior to February 28, 2016 upon the exercise of options or warrants granted to the following persons:

 
Name
 
Options or Warrants Exercisable
Prior to February 28, 2016
 
       
Maximilian de Clara
    754,992  
Geert R. Kersten, Esq.
    6,197,093 (3)
Patricia B. Prichep
    513,417  
Eyal Talor, Ph.D.
    433,459  
Daniel Zimmerman, Ph.D.
    269,567  
John Cipriano
    130,100  
Alexander G. Esterhazy
    417,233  
Peter R. Young, Ph.D.
    426,834  
Bruno Baillavoine
    0  

(2)
Amount includes shares referred to in (1) above but excludes shares which may be issued upon the exercise or conversion of other options, warrants and other convertible securities previously issued by CEL-SCI.
 
(3)
Amount includes shares held in trust for the benefit of Mr. Kersten's children and warrants held in the de Clara Trust, of which Mr. Kersten is the trustee and a beneficiary. Mr. Kersten is the stepson of Maximilian de Clara.
 
 
78

 
 
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See Item 7 of this report for information concerning modifications to the terms of a loan originally made by Maximilian de Clara, CEL-SCI’s President and a director, and subsequently transferred to the de Clara Trust.  Geert Kersten, CEL-SCI’s Chief Executive Officer and a director, is the trustee and a beneficiary of the de Clara Trust.

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

BDO USA, LLP served as CEL-SCI’s independent registered public accountant for the two years ended September 30, 2015.  The following table shows the aggregate fees billed to CEL-SCI for these years by BDO USA, LLP:

   
Year Ended September 30,
 
   
2015
   
2014
 
             
Audit Fees
  $ 362,000     $ 397,000  
Audit Related Fees
    -       -  
Tax Fees
    -       -  
All Other Fees
    -       -  

Audit fees represent amounts billed for professional services rendered for the audit of the CEL-SCI’s annual financial statements and the reviews of the financial statements included in CEL-SCI’s 10-Q reports for the fiscal year and all regulatory filings. See Note 1 to the financial statements included with this report for more information.

Before BDO USA, LLP was engaged by CEL-SCI to render audit or non-audit services, the engagement was approved by CEL-SCI’s audit committee.  CEL-SCI’s Board of Directors is of the opinion that the Audit Related Fees charged by BDO USA, LLP are consistent with BDO USA, LLP maintaining its independence from CEL-SCI.

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)           See the Financial Statements attached to this Report.
 
Exhibits
       
         
3(a)
 
Articles of Incorporation
 
Incorporated by reference to Exhibit 3(a) of CEL-SCI's combined Registration Statement on Form S-1 and Post-Effective Amendment ("Registration Statement"), Registration Nos. 2-85547-D and 33-7531.
         
3(b)
 
Amended Articles
 
Incorporated by reference to Exhibit 3(a) of CEL-SCI's Registration Statement on Form S-1, Registration Nos. 2-85547-D and 33-7531.
         
3(c)
 
Amended Articles (Name change only)
 
Filed as Exhibit 3(c) to CEL-SCI's Registration Statement on Form S-1 Registration Statement (No. 33-34878).
         
3(d)
 
Bylaws
 
Incorporated by reference to Exhibit 3(b) of CEL-SCI's Registration Statement on Form S-1, Registration Nos. 2-85547-D and 33-7531.
         
3(e)
 
Amended Bylaws
 
Incorporated by reference to Exhibit 3(ii) of CEL-SCI’s report on Form 8-K dated March 16, 2015.
         
4
 
Shareholders Rights Agreement, as Amended
 
__________________
         
4(b)
 
Incentive Stock Option Plan
 
Incorporated by reference to Exhibit 4 (b) filed on September 25, 2012 with the Company’s registration statement on Form S¬8 (File number 333-184092.
         
4(c)
 
Non-Qualified Stock Option Plan
 
Incorporated by reference to Exhibit 4 (b) filed on August 19, 2014 with the Company’s registration statement on Form S¬8 (File number 333-198244).
         
4(d)
 
Stock Bonus Plan
 
Incorporated by reference to Exhibit 4 (d) filed on September 25, 2012 with the Company’s registration statement on Form S¬8 (File number 333-184092.
         
4(e)
 
Stock Compensation Plan
 
Incorporated by reference to Exhibit 4 (e) filed on September 25, 2012 with the Company’s registration statement on Form S¬8 (File number 333-184092.
         
4(f)
 
2014 Incentive Stock Bonus Plan
 
Filed with this Amendment No. 2 to the Company’s annual report on Form 10-K for the year ended September 30, 2014.
         
10(d)
 
Employment Agreement with Maximilian de Clara
 
Incorporated by reference to Exhibit 10(d) of CEL-SCI’s report on Form 8-K (dated April 21, 2005) and Exhibit 10(d) to CEL-SCI’s report on Form 8-K dated September 8, 2006.
         
10(f)
 
Securities Purchase Agreement (together with schedule required by Instruction 2 to Item 601 of Regulation S-K) pertaining to Series K notes and warrants, together with the exhibits to the Securities Purchase Agreement
 
Incorporated by reference to Exhibit 10 to CEL-SCI’s report on Form 8-K dated August 4, 2006.
 
 
79

 
 
Exhibits
       
10(g)
 
Subscription Agreement (together with Schedule required by Instruction 2 toItem 601 of Regulation S-K) pertaining to April 2007 sale of 20,000,000 shares of CEL-SCI’s common stock, 10,000,000 Series L warrants and 10,000,000 Series M Warrants
 
Incorporated by reference to Exhibit 10 of CEL-SCI’s report on Form 8-K dated April 18, 2007
         
10(h)
 
Warrant Adjustment Agreement with Laksya Ventures
 
Incorporated by reference to Exhibit 10(i) of CEL-SCI’s report on Form 8-K dated August 3, 2010
         
10(i)
 
Employment Agreement with Patricia Prichep (2013-2016)
 
Incorporated by reference to Exhibit 10(j) of CEL-SCI’s report on Form 8-K dated August 30, 2013
         
10(j)
 
Employment Agreement with Eyal Taylor (2013-2016)
 
Incorporated by reference to Exhibit 10(k) of CEL-SCI’s report on Form 8-K dated August 30, 2013.
         
10(k)
 
Amendment to Employment Agreement with Maximilian de Clara
 
Incorporated by reference to Exhibit 10(l) of CEL-SCI’s report on Form 8-K dated August 30, 2010 and Exhibit 10(l) of CEL-SCI’s report on Form 8-K dated August 30, 2013.
         
10(l)
 
First Amendment to Development Supply and Distribution Agreement with Orient Europharma.
 
Incorporated by reference to Exhibit 10(m) filed with CEL-SCI’s 10-K report for the year ended September 30, 2010.
         
10(m)
 
Exclusive License and Distribution Agreement with Teva Pharmaceutical Industries Ltd.
 
Incorporated by reference to Exhibit 10(n) filed with CEL-SCI’s 10-K report for the year ended September 30, 2010.
         
10(n)
 
Lease Agreement
 
Incorporated by reference to Exhibit 10(o) filed with CEL-SCI’s 10-K report for the year ended September 30, 2010.
         
10(o)
 
Promissory Note with Maximilian de Clara, together with Amendments 1 and 2
 
Incorporated by reference to Exhibit 10(p) filed with CEL-SCI’s 10-K report for the year ended September 30, 2010.
         
10(p)
 
Licensing Agreement with Byron Biopharma
 
Incorporated by reference to Exhibit 10(i) of CEL-SCI’s report on Form 8-K dated March 27, 2009
         
10(q)
 
At Market Issuance Sales Agreement with McNicoll, Lewis & Vlak LLC
 
Incorporated by reference to Exhibit 10(r) filed with CEL-SCI’s 10-K report for the year ended September 30, 2010
         
10(z)
 
Development, Supply and Distribution Agreement with Orient Europharma
 
Incorporated by reference to Exhibit 10(z) filed with CEL-SCI’s report on Form 10-K for the year ended September 30, 2003.
         
10(za)
 
Employment Agreement with Geert Kersten.  Amendment to Employment Agreement
 
Incorporated by reference to Exhibit 10(za) to CEL-SCI’s report on Form 8-K dated September 1, 2011 and Exhibit 10(za) of CEL-SCI’s report on Form 8-K dated August 30, 2013.
         
10(aa)
 
Securities Purchase Agreement and form of the Series F warrants, which is and exhibit to the Securities Purchase Agreement
 
Incorporated by reference to Exhibit 10(aa) of CEL-SCI’s report on Form 8-K dated October 3, 2011.
         
10(bb)
 
Placement Agent Agreement
 
Incorporated by reference to Exhibit 10(bb) of CEL-SCI’s report on Form 8-K dated October 3, 2011.
         
10(cc)
 
Securities  Purchase Agreement,  together with  the form of the Series H warrant, which is an exhibit to the securities Purchase Agreement
 
Incorporated by reference to Exhibit 10(cc) of CEL-SCI’s report on Form 8-K dated January 25, 2012.
         
10(dd)
 
Placement Agent Agreement
 
Incorporated by reference to Exhibit 10(dd) of CEL-SCI’s report on Form 8-K dated January 25, 2012.
         
10(ee)   Warrant Amendment Agreement, together with the form of the Series P warrant, which is an exhibit to the Warrant Amendment Agreement   Incorporated by reference to Exhibit 10(ee) of CEL-SCI’s report on Form 8-K dated February 10, 2012.
         
10(ff)   Placement Agent Agreement   Incorporated by reference to Exhibit 10(ff) of CEL-SCI’s report on Form 8-K dated February 10, 2012.
         
10(gg)   Securities Purchase Agreement and the form of the Series Q warrant, which is an exhibit to the Securities Purchase Agreement   Incorporated by reference to Exhibit 10(gg) of CEL-SCI’s report on Form 8-K dated June 18, 2012.
         
10(hh)   Placement Agent Agreement   Incorporated by reference to Exhibit 10(hh) of CEL-SCI’s report on Form 8-K dated June 18, 2012.
         
10 (ii)   Securities Purchase Agreement and the form of the Series R warrant, which is an exhibit to the Securities Purchase Agreement   Incorporated by reference to Exhibit 10(ii) of CEL-SCI’s report on Form 8-K dated December 5, 2012.
         
10 (jj)   Placement Agent Agreement   Incorporated by reference to Exhibit 10(jj) of CEL-SCI’s report on Form 8-K dated December 5, 2012.
 
 
80

 
 
Exhibits        
10 (nn)   Underwriting Agreement, together with the form of Series S warrant which is an exhibit to the underwriting agreement   Incorporated by reference to Exhibit 1.1 of CEL-SCI’s report on Form 8-K dated October 8, 2013.
         
10 (oo)   Underwriting Agreement, together with the form of Series S warrant which is an exhibit to the underwriting agreement   Incorporated by reference to Exhibit 1.1 of CEL-SCI’s report on Form 8-K dated December 19, 2013.
         
10 (pp)   Underwriting Agreement, together with the form of Series T warrant which is an exhibit to the warrant agent agreement   Incorporated by reference to Exhibit 1.1 of CEL-SCI’s report on Form 8-K dated April 15, 2014.
         
10 (qq)   Underwriting Agreement, together with the form of Series S warrant which is an exhibit to the warrant agent agreement   Incorporated by reference to Exhibit 1.1 of CEL-SCI’s report on Form 8-K dated October 23, 2014.
         
10 (rr)   Assignment and Assumption Agreement with Teva Pharmaceutical Industries, Ltd. and GCP Clinical Studies, Ltd.   Incorporated by reference to Exhibit 10(rr) of CEL-SCI’s report on Form 10-K/A report for the year ended September 30, 2014 dated April 17, 2015.
         
10 (ss)   Service Agreement with GCP Clinical Studies, Ltd., together with Amendment 1 thereto*   Incorporated by reference to Exhibit 10(ss) of CEL-SCI’s first amendment to its Form 10-K report for the year ended September 30, 2014 dated April 17, 2015.
         
10 (tt)   Joinder Agreement with PLIVA Hrvatska d.o.o.   Incorporated by reference to Exhibit 10(tt) of CEL-SCI’s first amendment to its Form 10-K report for the year ended September 30, 2014 dated April 17, 2015.
         
10 (uu)   Master Service Agreement with Ergomed Clinical Research, Ltd., and Clinical Trial Orders thereunder   Incorporated by reference to Exhibit 10(uu) of CEL-SCI’s first amendment to its Form 10-K report for the year ended September 30, 2014 dated April 17, 2015.
         
10 (vv)   Co-Development and Revenue Sharing Agreement with Ergomed Clinical Research Ltd., dated April 19, 2013, as amended   Incorporated by reference to Exhibit 10(vv) of CEL-SCI’s first amendment to its Form 10-K report for the year ended September 30, 2014 dated April 17, 2015.
         
10 (ww)   Co-Development and Revenue Sharing Agreement II: Cervical Intraepithelial Neoplasia in HIV/HPV co-infected women, with Ergomed Clinical Research Ltd., dated October 10, 2013, as amended   Incorporated by reference to Exhibit 10(ww) of CEL- first amendment to its Form 10-K report for the year ended September 30, 2014 dated April 17, 2015.
         
10 (xx)   Co-Development and Revenue Sharing Agreement III: Anal warts and anal intraepithelial neoplasia in HIV/HPV co-infected patients, with Ergomed Clinical Research Ltd., dated October 24, 2013   Incorporated by reference to Exhibit 10(xx) of CEL-SCI’s first amendment to its Form 10-K report for the year ended September 30, 2014 dated April 17, 2015.
         
10 (yy)   Master Services Agreement with Aptiv Solutions, Inc.   Incorporated by reference to Exhibit 10(yy) of CEL-SCI’s first amendment to its Form 10-K report for the year ended September 30, 2014 dated April 17, 2015.
         
10 (zz)   Project Agreement Number 1 with Aptiv Solutions, Inc. together with Amendments 1 and 2 thereto*   Incorporated by reference to Exhibit 10(zz) of CEL-SCI’s first amendment to its Form 10-K report for the year ended September 30, 2014 dated April 17, 2015.
         
10 (aaa)   Second Amendment to Development Supply and Distribution Agreement with Orient Europharma   Incorporated by reference to Exhibit 10(aaa) of CEL-SCI’s first amendment to its Form 10-K report for the year ended September 30, 2014 dated April 17, 2015.
         
10 (bbb)   Amended and Restated Promissory Note with Maximilian de Clara   Incorporated by reference to Exhibit 10(bbb) of CEL-SCI’s report on Form 10-K/A report for the year ended September 30, 2014 dated April 17, 2015.
         
10 (ccc)   Placement Agent Agreement dated May 22, 2015 by and among CEL-SCI Corporation and Dawson James Securities, Inc.   Incorporated by reference to Exhibit 1.1 of CEL-SCI’s report on Form 8-K filed on May 26, 2015.
         
10 (ddd)   Warrant Agent Agreement (as amended), Series V warrants   Incorporated by reference to Exhibit 10 (ccc) of CEL-SCI’s report on Form 8-K filed on May 29, 2015.
         
10 (eee)   Assignment of Proceeds and Investment Agreement between CEL-SCI Corporation and Lake Whillans Vehicle 1.   Incorporated by reference to Exhibit 10 (ddd) of CEL-SCI’s report on Form 8-K filed on October 16, 2015.
         
10 (fff)   Placement Agent Agreement dated October 22, 2015 by and among CEL-SCI Corporation and Dawson James Securities, Inc.   Incorporated by reference to Exhibit 1.1 of CEL-SCI’s report on Form 8-K filed on October 23, 2015.
         
10 (ggg)   Warrant Agent Agreement, Series W warrants   Incorporated by reference to Exhibit 10 (eee) of CEL-SCI’s report on Form 8-K filed on October 23, 2015.
         
10 (hhh)   Amendment to Promissory Note held by the de Clara Trust   ____________________
         
10 (iii)   Amendment to Co-Development and Revenue Sharing Agreement with Ergomed Clinical Research, Ltd., dated September 15, 2015   ____________________
         
23.1   Consent of BDO USA, LLP    
         
31   Rule 13a-14(a) Certifications    
         
32   Section 1350 Certifications    
 
*
Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission under Rule 24b-2 of the Securities Exchange Act of 1934. The omitted confidential material has been filed separately with the Commission. The location of the omitted confidential information is indicated in the exhibit with asterisks (*)

 
81

 
 
CEL-SCI CORPORATION
 

 
Financial Statements for the Years
 
Ended September 30, 2015, 2014 and 2013, and
 
Report of Independent Registered Public Accounting Firm
 
 
 
 

 

 
CEL-SCI CORPORATION

TABLE OF CONTENTS
 
  Page
   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F- 2
   
FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2015, 2014 and 2013:
 
   
   Balance Sheets
F- 3
   
   Statements of Operations
F- 4
   
   Statements of Stockholders’ (Deficit) Equity
F- 5
   
   Statements of Cash Flows
F- 6
   
  Notes to Financial Statements
F- 8
 
 
 

 

Report of Independent Registered Public Accounting Firm
 
Board of Directors and Stockholders
CEL-SCI Corporation
Vienna, Virginia
 
We have audited the accompanying balance sheets of CEL-SCI Corporation as of September 30, 2015 and 2014 and the related statements of operations, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended September 30, 2015.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CEL-SCI Corporation at September 30, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2015, in conformity with accounting principles generally accepted in the United States of America.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CEL-SCI Corporation’s internal control over financial reporting as of September 30, 2015 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated December 11, 2015 expressed an unqualified opinion thereon.
 
 

/s/ BDO USA, LLP

McLean, Virginia
December 11, 2015
 
 
F- 2

 
 
CEL-SCI CORPORATION
 
BALANCE SHEETS
 
SEPTEMBER 30, 2015 and 2014
 
             
ASSETS
 
2015
   
2014
 
             
CURRENT ASSETS:
           
     Cash and cash equivalents
  $ 5,726,682     $ 8,513,620  
     Receivables
    87,214       81,820  
     Prepaid expenses
    979,655       907,526  
     Deposits - current portion
    150,000       150,000  
     Inventory used for R&D and manufacturing
    1,401,839       1,452,020  
     Deferred rent - current portion
    487,793       544,074  
                 
Total current assets
    8,833,183       11,649,060  
                 
RESEARCH AND OFFICE EQUIPMENT, net
    307,466       403,004  
                 
PATENT COSTS, net
    291,564       323,588  
DEFERRED RENT - net of current portion
    4,044,473       4,733,865  
                 
DEPOSITS
    1,970,917       2,120,917  
                 
TOTAL ASSETS
  $ 15,447,603     $ 19,230,434  
                 
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
               
                 
CURRENT LIABILITIES:
               
  Accounts payable
  $ 5,128,682     $ 1,160,783  
  Accrued expenses
    88,575       547,208  
  Due to employees
    365,131       307,961  
  Related party loan
    1,249,181       1,104,057  
  Deferred rent - current portion
    9,997       6,375  
  Lease obligation  - current portion
    9,028       8,495  
  Derivative instruments - current portion
    -       18,105  
                 
  Total current liabilities
    6,850,594       3,152,984  
                 
  Derivative instruments - net of current portion
    13,686,587       5,487,141  
  Deferred revenue
    126,639       126,591  
  Deferred rent - net of current portion
    9,026       6,290  
  Lease obligation - net of current portion
    -       9,028  
  Deposits held
    5,000       5,000  
                 
Total liabilities
    20,677,846       8,787,034  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS' (DEFICIT) EQUITY
               
  Preferred stock, $.01 par value-200,000 shares authorized;
               
    -0- shares issued and outstanding
    -       -  
  Common stock, $.01 par value - 600,000,000 shares authorized;
               
    112,360,568 and 81,902,471 shares issued and outstanding
               
    at September 30, 2015 and 2014, respectively
    1,123,606       819,025  
  Additional paid-in capital
    267,847,630       249,151,208  
  Accumulated deficit
    (274,201,479 )     (239,526,833 )
                 
Total stockholders' (deficit) equity
    (5,230,243 )     10,443,400  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
  $ 15,447,603     $ 19,230,434  
                 
See notes to financial statements.
 

 
F- 3

 

CEL-SCI CORPORATION
 
STATEMENTS OF OPERATIONS
 
YEARS ENDED SEPTEMBER 30, 2015, 2014 and 2013
 
                   
   
2015
   
2014
   
2013
 
                   
GRANT INCOME AND OTHER
  $ 657,377     $ 264,033     $ 159,583  
                         
OPERATING EXPENSES:
                       
  Research and development (excluding
                       
    R&D depreciation of $148,939, $172,442
                       
    and $253,072 respectively, included below)
    20,949,208       17,000,145       12,681,049  
  Depreciation and amortization
    206,750       231,752       364,124  
  General & administrative
    13,797,964       10,606,248       6,982,686  
                         
Total operating expenses
    34,953,922       27,838,145       20,027,859  
                         
OPERATING LOSS
    (34,296,545 )     (27,574,112 )     (19,868,276 )
                         
GAIN ON DERIVATIVE INSTRUMENTS
    282,616       248,767       10,750,666  
                         
LOSS ON DEBT EXTINGUISHMENT
    (641,276 )     -       -  
                         
INTEREST INCOME
    110,544       122,854       117,086  
                         
INTEREST EXPENSE
    (129,985 )     (163,774 )     (170,423 )
                         
NET LOSS
    (34,674,646 )     (27,366,265 )     (9,170,947 )
                         
ISSUANCE OF ADDITIONAL SHARES DUE TO RESET PROVISIONS
    -       (1,117,447 )     -  
MODIFICATION OF WARRANTS
    -       -       (59,531 )
                         
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
  $ (34,674,646 )   $ (28,483,712 )   $ (9,230,478 )
                         
NET LOSS PER COMMON SHARE
                       
      BASIC
  $ (0.42 )   $ (0.48 )   $ (0.30 )
      DILUTED
  $ (0.42 )   $ (0.49 )   $ (0.66 )
                         
WEIGHTED AVERAGE COMMON SHARES
                       
  OUTSTANDING
                       
      BASIC and DILUTED
    82,519,027       58,804,622       30,279,442  
                         
                         
See notes to financial statements.

 
F- 4

 
 
CEL-SCI CORPORATION
 
STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
 
YEARS ENDED SEPTEMBER 30, 2015, 2014 and 2013
 
                               
               
Additional
             
   
Common
   
Stock
   
Paid-In
   
Accumulated
       
   
Shares
   
Amount
   
Capital
   
Deficit
   
Total
 
                               
                               
BALANCE, OCTOBER 1, 2012
    27,312,492       273,125       209,743,928       (202,989,621 )     7,027,432  
                                         
Sale of stock
    3,500,000       35,000       9,753,769       -       9,788,769  
Issuance of warrants in connection with
                                       
  sale of common stock
    -       -       (4,200,000 )     -       (4,200,000 )
401(k) contributions paid
                                       
  in common stock
    74,230       742       158,114       -       158,856  
Stock issued to nonemployees for service
    138,297       1,383       359,542       -       360,925  
Equity based compensation - employees
    -       -       2,636,905       -       2,636,905  
Equity based compensation - non-employees
    -       -       98,150       -       98,150  
Net loss
    -       -       -       (9,170,947 )     (9,170,947 )
                                         
BALANCE, SEPTEMBER 30, 2013
    31,025,019       310,250       218,550,408       (212,160,568 )     6,700,090  
                                         
Sale of stock
    31,755,494       317,555       28,129,691       -       28,447,246  
Issuance of warrants in connection with
                                       
  sale of common stock
    -       -       (7,791,448 )     -       (7,791,448 )
401(k) contributions paid
                                       
  in common stock
    164,787       1,647       153,787       -       155,434  
Exercise of warrants
    2,668,508       26,686       4,253,632       -       4,280,318  
Conversion of warrant liability to equity
    -       -       1,308,528       -       1,308,528  
Stock issued to nonemployees for service
    579,968       5,800       621,318       -       627,118  
Stock issued for patents
    8,695       87       9,912       -       9,999  
Modification of options issued to consultants
    -       -       76,991       -       76,991  
Issuance of restricted stock
    15,700,000       157,000       (157,000 )     -       -  
Equity based compensation - employees
    -       -       3,958,637       -       3,958,637  
Equity based compensation - non-employees
    -       -       36,752       -       36,752  
Net loss
    -       -       -       (27,366,265 )     (27,366,265 )
                                         
BALANCE, SEPTEMBER 30, 2014
    81,902,471       819,025       249,151,208       (239,526,833 )     10,443,400  
                                         
Sale of stock
    29,467,901       294,679       20,853,699               21,148,378  
Issuance of warrants in connection with
                                       
  sale of common stock
    -       -       (8,463,957 )             (8,463,957 )
401(k) contributions paid
                                       
  in common stock
    243,178       2,432       163,214               165,646  
Stock issued to nonemployees for service
    739,968       7,400       526,576               533,976  
Modification of warrants
    -       -       475,333               475,333  
Forfeiture of unvested restricted stock
    (100,000 )     (1,000 )     1,000               -  
Equity based compensation - employees
    107,050       1,070       5,104,757               5,105,827  
Equity based compensation - non-employees
    -       -       35,800               35,800  
Net loss
    -       -       -       (34,674,646 )     (34,674,646 )
                                         
BALANCE, SEPTEMBER 30, 2015
    112,360,568     $ 1,123,606     $ 267,847,630     $ (274,201,479 )   $ (5,230,243 )
 
See notes to financial statements.
 
 
F- 5

 
 
CEL-SCI CORPORATION
 
STATEMENTS OF CASH FLOWS
 
YEARS ENDED SEPTEMBER 30, 2015, 2014 and 2013
 
                   
   
2015
   
2014
   
2013
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
  Net loss
  $ (34,674,646 )   $ (27,366,265 )   $ (9,170,947 )
  Adjustments to reconcile net loss to
                       
    net cash used in operating activities:
                       
      Depreciation and amortization
    206,750       231,752       364,124  
      Amortization of debt premium
    (20,819 )     -       -  
      Issuance of common stock, warrants and options for services
    565,915       694,955       454,855  
      Modification of warrants issued to consultants
    -       76,991       -  
      Equity based compensation
    5,105,827       3,958,637       2,636,905  
      Common stock contributed to 401(k) plan
    165,646       155,434       158,856  
      Impairment loss on abandonment of patents
    -       1,182       22,628  
      Loss on retired equipment
    313       268       4,350  
      Gain on derivative instruments
    (282,616 )     (248,767 )     (10,750,666 )
      Loss on debt extinguishment
    641,276       -       -  
      (Increase)/decrease in assets:
                       
      Receivables
    (5,394 )     (7,557 )     84,351  
      Deferred rent
    745,673       769,159       544,028  
      Prepaid expenses
    (68,268 )     (158,088 )     529,738  
      Inventory used for R&D and manufacturing
    50,181       (435,392 )     367,856  
      Deposits
    150,000       (200,000 )     (400,000 )
      Increase/(decrease) in liabilities:
                       
      Accounts payable
    3,981,886       (751,971 )     1,316,964  
      Accrued expenses
    (458,633 )     433,712       101,995  
      Deferred revenue
    48       46       45  
      Due to employees
    57,170       (78,376 )     186,446  
      Deferred rent liability
    6,358       (3,739 )     (108 )
                         
Net cash used in operating activities
    (23,833,333 )     (22,928,019 )     (13,548,580 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
      Purchases of equipment
    (73,399 )     (103,977 )     (102,033 )
      Expenditures for patent costs
    (20,132 )     (34,887 )     (30,728 )
                         
Net cash used in investing activities
    (93,531 )     (138,864 )     (132,761 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
     Proceeds from issuance of common stock and warrants
    21,148,378       28,428,641       9,788,769  
     Proceeds from exercise of warrants
    -       3,118,387       -  
     Payments on obligations under capital lease
    (8,452 )     (8,137 )     (6,858 )
                         
Net cash provided by financing activities
    21,139,926       31,538,891       9,781,911  
                         
 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (2,786,938 )     8,472,008       (3,899,430 )
                         
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    8,513,620       41,612       3,941,042  
                         
CASH AND CASH EQUIVALENTS, END OF YEAR
  $ 5,726,682     $ 8,513,620     $ 41,612  
 
See notes to financial statements.
 
 
F- 6

 
 
CEL-SCI CORPORATION
 
STATEMENTS OF CASH FLOWS
 
YEARS ENDED SEPTEMBER 30, 2015, 2014 and 2013
 
                   
   
2015
   
2014
   
2013
 
                   
ACCOUNTS PAYABLE
                 
    (Decrease) Increase  in research and office equipment
  $ (2,345 )   $ (1,074 )   $ 36,622  
    Decrease (increase) in capital lease obligation
    43       3,477       (35,995 )
    (Decrease) increase in patent costs
    (11,685 )     4,474       14,024  
    Decrease (increase) in accounts payable
    13,987       (6,877 )     (14,651 )
    $ -     $ -     $ -  
                         
                         
ADDITIONAL PAID IN CAPITAL
                       
    (Increase) in derivative liabilities
  $ (8,463,957 )   $ (5,320,989 )   $ (4,200,000 )
    Decrease (Increase) in common stock
    1,000       (16,375 )     -  
    Increase in prepaid services
    3,861       31,085       57,553  
    Increase in patent costs
    -       9,999       -  
    Decrease in additional paid in capital
    8,459,096       5,296,280       4,142,447  
    $ -     $ -     $ -  
                         
                         
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
                       
   INFORMATION:
                       
  Cash paid for interest expense
  $ 147,166     $ 180,654     $ 156,225  
 
See notes to financial statements.
 
 
F- 7

 
 
CEL-SCI CORPORATION
NOTES TO FINANCIAL STATEMENTS

1.      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CEL-SCI Corporation (the Company) was incorporated on March 22, 1983, in the state of Colorado, to finance research and development in biomedical science and ultimately to engage in marketing and selling products.
 
CEL-SCI’s work is focused on finding the best way to activate the immune system to fight cancer and infectious diseases. The Company believes that the best results can be achieved by giving its cancer immunotherapy drug before surgery, radiation and chemotherapy, at a time when the immune system is much stronger.  Other cancer immunotherapies are typically given after these conventional treatments. The Company’s lead investigational therapy, Multikine (Leukocyte Interleukin, Injection), is currently being tested in a Phase 3 clinical trial as a potential therapeutic agent directed at using the immune system to produce an anti-tumor immune response for advanced primary head and neck cancer.  Data from Phase 1 and Phase 2 clinical trials suggest Multikine has the potential to directly affect tumor cells. These data also indicate that it appears to activate the patient’s own anti-tumor immune response. Multikine (Leukocyte Interleukin, Injection) is the full name of this investigational therapy, which, for simplicity, is referred to in the remainder of this document as Multikine.  Multikine is the trademark that the Company has registered for this investigational therapy, and this proprietary name is subject to FDA review in connection with the Company’s future anticipated regulatory submission for approval.  Multikine has not been licensed or approved by the FDA or any other regulatory agency. Neither has its safety or efficacy been established for any use.
 
Multikine has been cleared by the regulators in twenty four countries around the world, including the U.S. FDA, for a global Phase III clinical trial in advanced primary (not yet treated) head and neck cancer patients.  Multikine is also being used in a Phase 1 study at the Naval Medical Center, San Diego under a Cooperative Research and Development Agreement (CRADA) and at the University of California, San Francisco (UCSF) in HIV/HPV co-infected men and women with peri-anal warts.
 
On June 25, 2013, CEL-SCI’s shareholders approved a reverse split of the Company’s common stock.  The reverse split became effective on the NYSE MKT on September 25, 2013.  On that date, every ten issued and outstanding shares of the Company’s common stock automatically converted into one outstanding share.  As a result of the reverse stock split, the number of the Company’s outstanding shares of common stock decreased from 310,005,272 (pre-split) shares to 31,001,686 (post-split) shares.  In addition, by reducing the number of CEL-SCI’s outstanding shares, CEL-SCI’s loss per share in all prior periods will increase by a factor of ten.  The reverse stock split affected all stockholders of the Company’s common stock uniformly, and did not affect any stockholder’s percentage of ownership interest.  The par value of the Company’s stock remained unchanged at $0.01 per share and the number of authorized shares of common stock remained the same after the reverse stock split.
 
 
F- 8

 
 
As the par value per share of the Company’s common stock remained unchanged at $0.01 per share, a total of $2,790,036 was reclassified from common stock to additional paid-in capital. In connection with this reverse stock split, the number of shares of common stock reserved for issuance under the Company’s incentive and non-qualified stock option plans (Note 7) as well as the shares of common stock underlying outstanding stock options, and warrants were also proportionately reduced while the exercise prices of such stock options and warrants were proportionately increased. All references to shares of common stock and per share data for all periods presented in the accompanying financial statements and notes thereto have been adjusted to reflect the reverse stock split on a retroactive basis.
 
Summary of Significant Accounting Policies:

Cash and Cash Equivalents – For purposes of the statements of cash flows, cash and cash equivalents consist principally of unrestricted cash on deposit and short-term money market funds.  The Company considers all highly liquid investments with a maturity when purchased of less than three months as cash and cash equivalents.

Prepaid Expenses – Prepaid expenses are payments for future services to be rendered and are expensed over the time period for which the service is rendered.  Prepaid expenses may also include payment for goods to be received within one year of the payment date.

Inventory – Inventory consists of manufacturing production advances and bulk purchases of laboratory supplies to be consumed in the manufacturing of the Company’s product for clinical studies.  Inventories are stated at the lower of cost or market, where cost is determined using the first-in, first out method applied on a consistent basis.

Deposits – The deposits are required by the lease agreement for the manufacturing facility and by the clinical research organization (CRO) agreements.

Research and Office Equipment and Leasehold Improvements – Research and office equipment is recorded at cost and depreciated using the straight-line method over estimated useful lives of five to seven years.  Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the term of the lease.  Repairs and maintenance which do not extend the life of the asset are expensed when incurred. The fixed assets are reviewed on a quarterly basis to assess impairment, if any.

Patents – Patent expenditures are capitalized and amortized using the straight-line method over the shorter of the expected useful life or the legal life of the patent (17 years).  In the event changes in technology or other circumstances impair the value or life of the patent, appropriate adjustment to the asset value and period of amortization is made. An impairment loss is recognized when estimated future undiscounted cash flows expected to result from the use of the asset, and from disposition, is less than the carrying value of the asset.  The amount of the impairment loss would be the difference between the estimated fair value of the asset and its carrying value.

Deferred Rent (Asset) – Consideration paid, including deposits, related to operating leases is recorded as a deferred rent asset and amortized as rent expense over the lease term. Interest on the deferred rent is calculated at 3% on the funds deposited on the manufacturing facility and is included in deferred rent. This interest income will be used to offset future rent.
 
 
F- 9

 
 
Deferred Rent (Liability) – Certain of the Company’s operating leases provide for minimum annual payments that adjust over the life of the lease.  The aggregate minimum annual payments are expensed on a straight-line basis over the minimum lease term. The Company recognizes a deferred rent liability for rent escalations when the amount of straight-line rent exceeds the lease payments, and reduces the deferred rent liability when the lease payments exceed the straight-line rent expense.  For tenant improvement allowances and rent holidays, the Company records a deferred rent liability and amortizes the deferred rent over the lease term as a reduction to rent expense.

Derivative Instruments - The Company has entered into financing arrangements that consist of freestanding derivative instruments that contain embedded derivative features. The Company accounts for these arrangements in accordance with Accounting Standards Codification (ASC) 815, “Accounting for Derivative Instruments and Hedging Activities”. In accordance with accounting principles generally accepted in the United States (U.S.GAAP), derivative instruments and hybrid instruments are recognized as either assets or liabilities on the balance sheet and are measured at fair value with gains or losses recognized in earnings or other comprehensive income depending on the nature of the derivative or hybrid instruments. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, giving consideration to all of the rights and obligations of each instrument.  The derivative liabilities are remeasured at fair value at the end of each reporting period as long as they are outstanding.

Grant Income – The Company's grant arrangements are handled on a reimbursement basis. Grant income under the arrangements is recognized when costs are incurred.

Research and Development Costs – Research and development expenditures are expensed as incurred.

Net Loss Per Common Share – The Company calculates net loss per common share in accordance with ASC 260 “Earnings Per Share” (ASC 260).  Basic and diluted net loss per common share was determined by dividing net loss applicable to common shareholders by the weighted average number of common shares outstanding during the period.  The Company’s potentially dilutive shares, which include outstanding common stock options, restricted stock units, convertible preferred stock and common stock warrants, have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive.

Concentration of Credit Risk – Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents.  The Company maintains its cash and cash equivalents with high quality financial institutions.  At times, these accounts may exceed federally insured limits.  The Company has not experienced any losses in such bank accounts.  The Company believes it is not exposed to significant credit risk related to cash and cash equivalents.  All non-interest bearing cash balances were fully insured up to $250,000 at September 30, 2015.
 
 
F- 10

 

Income Taxes – The Company uses the asset and liability method of accounting for income taxes.  Under the asset and liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating and tax loss carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  The Company records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be recognized.

Use of Estimates – The preparation of financial statements in conformity U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying disclosures.  These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, inventory obsolescence, accruals, stock options, useful lives for depreciation and amortization of long-lived assets, deferred tax assets and the valuation of derivative liabilities. Actual results could differ from estimates, although management does not generally believe such differences would materially affect the financial statements in any given year.  However, in regard to the valuation of derivative liabilities determined using various valuation techniques including the Black-Scholes and binomial pricing methodologies, significant fluctuations may materially affect the financial statements in a given year.  The Company considers such valuations to be significant estimates.

Fair Value Measurements – The Company evaluates financial assets and liabilities subject to fair value measurements in accordance with a fair value hierarchy to prioritize the inputs used to measure fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement, where Level 1 is the highest and Level 3 is the lowest. See Note 12 for the definition of levels and the classification of assets and liabilities in those levels.
 
Stock-Based Compensation – Compensation cost for all stock-based awards is measured at fair value as of the grant date in accordance with the provisions of ASC 718, “Compensation – Stock Compensation.” The fair value of stock options is calculated using the Black-Scholes option pricing model. The Black-Scholes model requires various judgmental assumptions including volatility and expected option life. The stock-based compensation cost is recognized on the straight line allocation method as expense over the requisite service or vesting period.

Equity instruments issued to non-employees are accounted for in accordance with ASC 505-50, “Equity-Based Payments to Non-Employees.”  Accordingly, compensation is recognized when goods or services are received and may be measured using the Black-Scholes valuation model, based on the type of award.  The Black-Scholes model requires various judgmental assumptions regarding the fair value of the equity instruments at the measurement date and the expected life of the options.

The Company has Incentive Stock Option Plans, Non-Qualified Stock Options Plans, Stock Compensation Plans, Stock Bonus Plans and an Incentive Stock Bonus Plan.  In some cases, these  Plans are collectively referred to as the “Plans.” All Plans have been approved by the Company’s stockholders.
 
 
F- 11

 
 
The Company’s stock options are not transferable, and the actual value of the stock options that an employee may realize, if any, will depend on the excess of the market price on the date of exercise over the exercise price.  The Company has based its assumption for stock price volatility on the variance of daily closing prices of the Company’s stock.  The risk-free interest rate assumption was based on the U.S. Treasury rate at date of the grant with term equal to the expected life of the option. Historical data was used to estimate option exercise and employee termination within the valuation model.  The expected term of options represents the period of time that options granted are expected to be outstanding and has been determined based on an analysis of historical exercise behavior. If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation expense for new awards may differ materially in the future from that recorded in the current period.

Vesting of restricted stock granted under the Incentive Stock Bonus Plan is subject to service, performance or market conditions and meets the classification of equity awards.  These awards were measured at fair market value on the grant-dates for issuances where the attainment of performance criteria is probable and at fair value on the grant-dates, using a Monte Carlo simulation for issuances where the attainment of performance criteria is uncertain. The total compensation cost will be expensed over the estimated requisite service period.
 
Recent Accounting Pronouncements – In April 2015, the FASB issued ASU 2015-03 to simplify the presentation of debt issuance costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by these amendments.  For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.   Management does not expect this amendment to have a material effect on the financial statements.

In July 2015, the FASB issued ASU 2015-11 to simplify the accounting for inventory measured using FIFO or average cost. The amendments in this ASU require that inventory be measured at the lower of cost or net realizable value instead of the lower of cost or market value.  For public business entities, the amendment is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years.   Management does not expect this amendment to have a material effect on the financial statements.
 
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements.

 
F- 12

 
 
2.         DERIVATIVES LIABILITIES, WARRANTS AND OTHER OPTIONS

Below is a chart presenting the derivative liabilities, warrants and other options outstanding at September 30, 2015:

Warrants
Issue Date
 
Shares Issuable upon Exercise of Warrants
   
Exercise Price
 
Expiration Date
 
Refer
-ence
 
                       
Series N
8/18/08
    2,844,627       0.53  
8/18/17
    1  
Series Q
6/21/12
    1,200,000       5.00  
12/22/15
    1  
Series R
12/6/12
    2,625,000       4.00  
12/6/16
    1  
Series S
10/11/13- 10/24/14
    25,928,010       1.25  
10/11/18
    1  
Series U
4/17/14
    445,514       1.75  
10/17/17
    1  
Series V
5/28/15
    20,253,164       0.79  
5/28/20
    1  
                             
Series P
2/10/12
    590,001       4.50  
3/6/17
    2  
                             
Consultants
10/14/05 – 7/1/15
    238,000       0.66 – 20.00  
10/14/15 - 6/30/18
    3  
 
1.  
Derivative Liabilities

The table below presents the derivative instruments and their respective balances at September 30.

   
2015
   
2014
 
Series A through E warrants
  $ -     $ 6,105  
Series H warrants
    -       12,000  
Series Q warrants
    -       12,000  
Series R warrants
    -       157,500  
Series S warrants
    7,363,555       5,197,352  
Series U warrants
    44,551       120,289  
Series V warrants
    6,278,481       -  
 
               
Total derivative liabilities
  $ 13,686,587     $ 5,505,246  
 
The table below presents the gains and (losses) on the derivative instruments for the years ended September 30:

Warrant Series
 
2015
   
2014
   
2013
 
Series A - E
  $ 6,105     $ 1     $ 780,883  
Series F and G
    -       12,667       1,634,000  
Series H
    12,000       24,000       1,764,000  
Series N
    -       (1,404,027 )     788,533  
Series Q
    12,000       36,000       1,872,000  
Series R
    157,500       131,250       3,911,250  
 
 
F- 13

 
 
Series S
    (1,705,466 )     1,098,787       -  
Series T
    -       276,122       -  
Series U
    75,738       73,967       -  
Series V
    1,724,739       -       -  
 
                       
Net gain
  $ 282,616     $ 248,767     $ 10,750,666  

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 periods is recognized as a gain or loss in the statement of operations.

Series A through E Warrants

As of September 30, 2015, all Series A through E warrants had expired.  The Company accounted for the Series A through E Warrants as derivative liabilities in accordance with ASC 815. These warrants did not qualify for equity accounting and were accounted for as derivative liabilities because the warrant agreements provided the holders the right to require a cash settlement of the warrants in the event of a Fundamental Transaction, as defined in the warrant agreement.  Since the occurrence of a Fundamental Transaction is not entirely within the Company’s control, circumstances existed that would require net-cash settlement of the warrants while holders of shares would not receive a cash settlement.

On December 24, 2014, 130,347 Series A warrants, with an exercise price of $5.00, expired.  The fair value of the warrants on the date of expiration was $1,303.  As of September 30, 2014, all of these warrants were outstanding and the fair value of these derivative liabilities was $1,303. On January 8, 2015, 16,750 Series A warrants, with an exercise price of $5.00, expired.   The fair value of the Series A warrants was $0 on the date of expiration.  As of September 30, 2014, all of these warrants were outstanding and the fair value of these derivative liabilities was $167.

In connection with a loan received and fully repaid in a prior period, the Company issued 50,000 Series B warrants with an exercise price of $6.80 per share. On September 4, 2014, all outstanding Series B warrants expired.  As of September 30, 2014, no Series B warrants remained outstanding.

On February 20, 2015, 463,487 Series C warrants, with an exercise price of $5.50, expired.   The fair value of the Series C warrants was $0 on the date of expiration.  As of September 30, 2014, all of these warrants were outstanding. As of September 30, 2014, the fair value of the Series C warrants was $4,635.
 
 
F- 14

 
 
On August 12, 2014, all 71,428 outstanding Series E warrants, with an exercise price of $17.50, expired.  As of September 30, 2014, no Series E warrants remained outstanding.

Series F and G warrants

In October 2011, in connection with a financing, the Company issued 1,200,000 Series F warrants exercisable at $4.00 per share at any time prior to October 6, 2014.  The Company also issued 66,667 Series G warrants exercisable at $4.00 per share to the placement agent for this offering.  On August 12, 2014, all outstanding Series G warrants expired.  The fair value of the Series G warrants on the date of expiration was $0.  On October 6, 2014, all outstanding Series F warrants expired.  The fair value of the Series F warrants on the date of expiration was $0.    As of September 30, 2014, the fair value of the Series F warrants was $0.

Series H Warrants

In January 2012, in connection with a financing, the Company issued 1,200,000 Series H warrants exercisable at $5.00 per share at any time prior to August 1, 2015.    On August 1, 2015, all outstanding Series H warrants expired.  The fair value of the Series H warrants was $0 on the date of expiration.

Series Q Warrants

In June 2012, in connection with a financing, the Company issued 1,200,000 Series Q warrants exercisable at $5.00 per share at any time prior to December 22, 2015. The initial cost of the warrants of $2,160,000 was recorded as a debit to additional paid-in capital and a credit to derivative liabilities.  As of September 30, 2015, 1,200,000 Series Q warrants remained outstanding.

Series R Warrants

On December 4, 2012, the Company sold 3,500,000 shares of its common stock for $10,500,000, or $3.00 per share, in a registered direct offering.  The investors in this offering also received Series R warrants which entitle the investors to purchase up to 2,625,000 shares of the Company’s common stock.  The Series R warrants may be exercised at any time before December 6, 2016 at a price of $4.00 per share.  The initial cost of the warrants of $4,200,000 was recorded as a debit to additional paid-in capital and a credit to derivative liabilities.  As of September 30, 2015, 2,625,000 Series R warrants remained outstanding.

Series S Warrants

On October 11, 2013, the Company closed a public offering of 17,826,087 units of common stock and warrants at a price of $1.00 per unit for net proceeds of $16,400,000, net of underwriting discounts and commissions and offering expenses of the Company.  Each unit consisted of one share of common stock and one Series S warrant to purchase one share of common stock. The Series S warrants were immediately exercisable, expire on October 11, 2018, and have an exercise price of $1.25. In November 2013, the underwriters purchased an additional 2,648,913 warrants pursuant to the overallotment option, for which the Company received net proceeds of $24,370. The initial cost of the Series S warrants of $6,142,500 was recorded as a debit to additional paid-in capital and a credit to derivative liabilities.
 
 
F- 15

 
 
On December 24, 2013, the Company closed a public offering of 4,761,905 units of common stock and warrants at a price of $0.63 per unit for net proceeds of $2,790,000, net of underwriting discounts and commissions and offering expenses of the Company.  Each unit consisted of one share of common stock and one Series S warrant to purchase one share of common stock.  The underwriters purchased an additional 476,190 units of common stock and warrants pursuant to the overallotment option, for which the Company received net proceeds of approximately $279,000.  The initial cost of the Series S warrants of $1,178,571 was recorded as a debit to additional paid-in capital and a credit to derivative liabilities.  On February 7, 2014, the Series S warrants began trading on the NYSE MKT under the symbol CVM WS.

On October 24, 2014, the Company closed an underwritten public offering of 7,894,737 shares of common stock and 1,973,684 Series S warrants to purchase shares of common stock. Additionally, on October 21, 2014, the Company sold 1,320,000 shares of common stock and 330,000 Series S warrants to purchase shares of common stock in a private offering.  The common stock and Series S warrants were sold at a combined per unit price of $0.76 for net proceeds of approximately $6.4 million, net of underwriting discounts and commissions and offering expenses.  The initial cost of the Series S warrants of $460,737 was added to the existing Series S warrant liability.

During the year ended September 30, 2015, no Series S warrants were exercised.  During the year ended September 30, 2014, 2,088,769 Series S Warrants were exercised, and the Company received proceeds of $2,610,961.  The total fair value of the Series S warrants on the dates of exercise was $1,024,932.

As of September 30, 2015, the remaining 25,928,010 Series S warrants entitle the holders to purchase one share of the Company's common stock at a price of $1.25 per share.

Series T and U Warrants

On April 17, 2014, the Company closed a public offering of 7,128,229 shares of common stock at a price of $1.40 and 1,782,057 Series T warrants to purchase one share of common stock for net proceeds of $9,230,000, net of underwriting commissions and offering expenses.  The Series T warrants were immediately exercisable and had an exercise price of $1.58. On October 17, 2014, all of the Series T warrants expired.  The fair value of the Series T warrants was $0 on the date of expiration.  The underwriters received 445,514 Series U warrants to purchase one share of common stock.  The Series U warrants were exercisable beginning October 17, 2014, expire on October 17, 2017, and have an exercise price of $1.75.  The initial cost of the Series T and U warrants of $470,377 was recorded as a debit to additional paid-in capital and a credit to derivative liabilities.  As of September 30, 2015, 445,514 Series U warrants remained outstanding.
 
 
F- 16

 

Series V Warrants

On May 28, 2015, the Company closed an underwritten public offering of 20,253,164 shares of common stock and 20,253,164 Series V warrants to purchase shares of common stock. The common stock and Series V warrants were sold at a combined per unit price of $0.79 for net proceeds of approximately $14.7 million, net of underwriting discounts and commissions and offering expenses.  The Series V warrants were immediately exercisable at a price of $0.79 and expire on May 28, 2020.  The initial cost of the Series V warrants of $8,003,220 was recorded as derivative liability. As of September 30, 2015, 20,253,164 Series V warrants remained outstanding.

2.  
Equity Warrants

Series N Warrants

Series N warrants were previously issued in connection with a financing.  On October 11, 2013 and December 24, 2013, in connection with public offerings of common stock on those dates, the Company reset the exercise price of the 518,771 outstanding Series N warrants from $3.00 to $0.53 and issued the Series N warrant holders 2,432,649 additional warrants exercisable at $0.53, as required by the warrant agreements.  In January 2014, the Company offered the investors the option to extend the Series N warrants by one year and allow for cashless exercise in exchange for cancelling the reset provision in the warrant agreement.  One investor, holding 2,844,627 Series N warrants accepted this offer.  Accordingly, these warrants are no longer considered a derivative liability due to the cancelation of the reset provision.  The fair value of the warrants on that date totaled $1,308,528 and was reclassified from derivative liabilities to additional paid-in capital.  On March 21, 2014, the other investor exercised 106,793 Series N warrants.  The Company received cash proceeds of $7,424 for 14,078 of the warrants exercised.  The remaining 92,715 warrants were exercised in a cashless exercise.  The fair value of the warrants on the date of exercise was $137,000 and was reclassified from derivative liabilities to additional paid-in capital.

In addition, the October and December 2013 financings triggered the reset provision related to the initial Series N financing which resulted in the issuance of an additional 1,563,083 shares of common stock.  The cost of additional shares issued was $1,117,447.  This cost was recorded as a debit and a credit to additional paid-in capital and was deemed a dividend.

On October 28, 2014, the outstanding 2,844,627 Series N Warrants were transferred to the de Clara Trust, of which the Company’s CEO, Geert Kersten, is the trustee and a beneficiary. On June 29, 2015, the Company extended the expiration date of the Series N warrants to August 18, 2017.  The incremental cost of this modification was $475,333. The modification was concurrent with the extinguishment and reissuance of a note payable also held in the de Clara Trust, and was recorded as a loss on debt extinguishment.

As of September 30, 2015, the remaining 2,844,627 Series N warrants entitle the holders to purchase one share of the Company's common stock at a price of $0.53 per share at any time prior to August 18, 2017.  On September 30, 2015 and 2014, no derivative liability was recorded because the warrants no longer were considered a liability for accounting purposes.
 
 
F- 17

 

Series L and Series M Warrants

Series L and Series M warrants were previously issued in connection with a financing. In April 2012, 25,000 Series L warrants exercisable at a price of $7.50 per share were transferred to a consultant and were extended for two years from the current expiration date.  The additional value of $43,910 was accounted for as a credit to additional paid-in capital and a debit to general and administrative expense.  On April 17, 2014, the 25,000 Series L warrants expired.  In April 2013, 100,000 Series L warrants were repriced to $2.50 per share and were extended for two years to April 2, 2015 in return for a reduction in outstanding warrants to 70,000.  The additional cost of $59,531 was recorded as a debit and a credit to additional paid-in capital and was a deemed dividend.  This cost was included in modification of warrants and increased the net loss available to shareholders on the statements of operations.  In April 2015, the remaining 70,000 of the Series L warrants, at an exercise price of $2.50, expired.  As of September 30, 2015, no Series L warrants remained outstanding.

In October 2013, the Company reduced the exercise prices of the Series M warrants from $3.40 to $1.00 in exchange for a reduction in the number of warrants from 600,000 to 500,000.  The additional cost of $76,991 was recorded as non-employee stock compensation expense.  In March 2014, 500,000 Series M warrants were exercised at a price of $1.00, and the Company received proceeds of $500,000.  As of September 30, 2014, no Series M warrants remained outstanding.

Series O and P Warrants

On February 10, 2012, the Company issued 590,001 Series P warrants to the former holder of the Series O warrants as an inducement for the early exercise of the Series O warrants. The Series P warrants allow the holder to purchase up to 590,001 shares of the Company’s common stock at a price of $4.50 per share.  The Series P warrants are exercisable at any time prior to March 6, 2017.  The warrants qualified for equity treatment in accordance with ASC 815 and were valued using the Black-Scholes method.  As of September 30, 2015, 590,001 Series P warrants remained outstanding.

Private Investor Warrants

Between February and August 2014, 132,500 warrants held by a private investor, with exercise prices between $5.60 and $8.20, expired.    On January 26, 2014, 608,438 warrants issued to the lessor of the Company’s manufacturing facility, with an exercise price of $7.50 per share, expired.  As of September 30, 2014, no private investor warrants remained outstanding.

Warrants held by Officer and Director

The Company’s President and a director, Maximilian de Clara, loaned the Company $1,104,057 under a note payable.  In accordance with the loan agreement, the Company issued Mr. de Clara warrants to purchase 164,824 shares of the Company’s common stock at a price of $4.00 per share.  In August 2014, the loan and warrants were transferred to the de Clara Trust, of which the Company’s CEO, Geert Kersten, is the trustee and a beneficiary.  The warrants expired on December 24, 2014. In consideration for an extension of the due date for the note, Mr. de Clara received warrants to purchase 184,930 shares of the Company’s common stock at a price of $5.00 per share. These warrants were also transferred to the de Clara Trust and expired on January 6, 2015.
 
 
F- 18

 
 
3.  
Options and Shares Issued to Consultants

As of September 30, 2015, 238,000 options issued to consultants as payment for services remained outstanding, of which 230,000 options were issued from the Non-Qualified Stock Option plans.

During the year ended September 30, 2015, the Company entered into four new short-term agreements for consulting services.  In accordance with these agreements, the Company issued 70,000 shares of restricted stock at an aggregate fair market value of $54,850 and 90,000 fully vested options to purchase common stock at prices ranging from $0.66 to $1.02, at an aggregate fair value of $35,800. The aggregate fair market values were recorded as prepaid expenses and are being charged to general and administrative expense over the period of service.

On December 15, 2014, the Company extended a one-year consulting agreement for services to be provided through December 15, 2015.  In consideration for services provided under the original contract and the extension, the Company issued the consultant 100,000 shares of restricted common stock during each of the years ended September 30, 2015 and 2014. The shares were issued at the fair market value on the grant dates with an aggregate fair market value of $66,900 and $108,710 for shares issued during the year ended September 30, 2015 and 2014, respectively.  The fair market value of the shares issued was recorded as a prepaid expense and is being charged to general and administrative expense over the period of service.

On October 20, 2013, the Company entered into a consulting agreement for services to be provided through October 19, 2016.  In consideration for services provided, the Company agreed to issue the consultant 34,164 restricted shares each month of the agreement, with the first three months being issued in advance. During the years ended September 30, 2015 and 2014, the Company issued the consultant 409,968 shares of restricted stock at the fair market value of $307,476 and $439,008, respectively.  The aggregate fair market value was recorded as a prepaid expense and is being charged to general and administrative expense over the period of service.  In November 2014, the Company issued the same consultant 150,000 shares of common stock at the aggregate fair market value of $97,500, in consideration for services provided.

The Company also engaged an additional consultant for services to be provided through November 30, 2014.  During the year ended September 30, 2015, the Company issued the consultant 10,000 shares of restricted stock at the fair market value of $7,250.  During the year ended September 30, 2014, the Company issued the consultant 70,000 shares of restricted stock at the fair market value of $79,400.  The fair market value of the shares issued was recorded as a prepaid expense and was charged to general and administrative expense over the period of service.
 
 
F- 19

 

During the years ended September 30, 2015 and 2014, the Company recorded total expense of $565,915 and $600,650 relating to these consulting agreements.  In addition, $94,305 was expensed during the year ended September 30, 2014 for other prior year consulting agreements.  At September 30, 2015 and 2014, respectively, $30,329 and $26,468 relating to these consulting agreements is included in prepaid expenses.
 
3.     OPERATIONS AND FINANCING

The Company has incurred significant costs since its inception in connection with the acquisition of certain patented and unpatented proprietary technology and know-how relating to the human immunological defense system, patent applications, research and development, administrative costs, construction of laboratory facilities, and clinical trials.  The Company has funded such costs with proceeds from loans and the public and private sale of its common and preferred stock.  The Company will be required to raise additional capital or find additional long-term financing in order to continue with its research efforts.  To date, the Company has not generated any revenue from product sales.  The ability of the Company to complete the necessary clinical trials and obtain Federal Drug Administration (FDA) approval for the sale of products to be developed on a commercial basis is uncertain. Ultimately, the Company must complete the development of its products, obtain the appropriate regulatory approvals and obtain sufficient revenues to support its cost structure.

The Company is currently running a large multi-national Phase 3 clinical trial for head and neck cancer.  The Company believes that it has enough capital to support its operations for more than the next twelve months as it believes that it has ready access to new equity capital should the need arise. During fiscal year 2015, the Company raised $21.1 million net proceeds from public offerings.  During fiscal year 2014, the Company raised approximately $31.5 million in net proceeds through the sale of common stock and warrants in three public offerings and from the exercise of previously issued warrants.  To finance the study beyond the next 12 months, the Company plans to raise additional capital in the form of corporate partnerships, debt and/or equity financings.  In addition, the Company expects to receive proceeds from the arbitration against its former clinical research organization, Inventiv.  The Company believes that it will be able to obtain additional financing because it has done so consistently in the past, and because Multikine is a product in the Phase 3 clinical trial stage. However, there can be no assurance that the Company will be successful in raising additional funds or that funds will be available to the Company on acceptable terms or at all.  If the Company does not raise the necessary capital, the Company will either have to slow or delay the Phase 3 clinical trial or even significantly curtail its operations until such time as it is able to raise the required funding.

Since the Company launched its Phase 3 clinical trial for Multikine, the Company has spent approximately $25 million as of September 30, 2015 on direct costs for the Phase 3 clinical trial.  The total remaining cash cost of the clinical trial is estimated to be approximately $21.6 million.  It should be noted that this estimate is based only on the information currently available in the Company’s contracts with the Clinical Research Organizations responsible for managing the Phase 3 clinical trial.  This number can be affected by the speed of enrollment, foreign currency exchange rates and many other factors, some of which cannot be foreseen  today. It is therefore possible that the cost of the Phase 3 clinical trial will be higher than currently estimated.
 
 
F- 20

 
 
4.    RESEARCH AND OFFICE EQUIPMENT

Research and office equipment consisted of the following at September 30:
  
      2015       2014  
                 
Research equipment
  $ 3,268,757     $ 3,230,882  
Furniture and equipment
    141,347       141,269  
Leasehold improvements
    131,910       131,910  
                 
      3,542,014       3,504,061  
                 
Accumulated depreciation and amortization
    (3,234,548 )     (3,101,057 )
                 
Net research and office equipment
  $ 307,466     $ 403,004  
 
Depreciation expense for the years ended September 30, 2015, 2014 and 2013 totaled $166,279, $188,967 and $275,917, respectively.  During the years ended September 30, 2015, 2014 and 2013, equipment with a net book value of $313, $268 and $4,350, respectively, was retired.  One asset is recorded under capital lease with a cost of $33,203 at September 30, 2015 and 2014.  Accumulated amortization on this asset is $24,902 and$16,660 at September 30, 2015 and 2014, respectively.  Amortization of the capital lease asset is included in depreciation and amortization expense in the Statements of Operations.

5.     PATENTS

Patents consisted of the following at September 30:
 
      2015       2014  
                 
Patents
  $ 1,525,791     $ 1,517,344  
Accumulated amortization
    (1,234,227 )     (1,193,756 )
                 
Net Patents
  $ 291,564     $ 323,588  
 
During the years ended September 30, 2015, 2014 and 2013, the Company recorded patent impairment charges of $0, $1,182 and $22,628, respectively, for the net book value of patents abandoned during the year. These amounts are included in general and administrative expenses.  Amortization expense for the years ended September 30, 2015, 2014 and 2013 totaled $40,471, $42,785 and $88,207, respectively. The total estimated future amortization is as follows:
 
 
F- 21

 
 
     
Years ending September 30,
 
         
  2016
  $ 36,547  
  2017
    36,547  
  2018
    36,213  
  2019
    34,510  
  2020
    31,317  
Thereafter
    116,430  
    $ 291,564  
 
6.      INCOME TAXES

At September 30, 2015 and 2014, the Company had federal net operating loss carryforwards of approximately $157.0 million and 141.0 million, respectively. The NOLs begin to expire during the fiscal year ended in 2018 and become fully expired by the end of the fiscal year ended 2035. In addition, the Company has a general business credit as a result of the credit for increasing research activities (“R&D credit”) of approximately $1.2 million at September 30, 2015 and 2014.  The R&D credit begins to expire during the fiscal year ended 2020 and is fully expired during the fiscal year ended 2029.  Deferred taxes at September 30 consisted of the following:
 
      2015          2014     
                 
Net operating loss carryforwards
  $ 61,363,080     $ 55,229,799  
                 
R&D credit
    1,221,487       1,221,487  
Stock-based compensation
    5,854,794       4,054,450  
Fixed assets and intangibles
    41,018       26,329  
Capitalized R&D
    15,081,545       9,897,041  
Vacation and other
    114,625       108,891  
Loan modification
    56,779       -  
                 
Total deferred tax assets
    83,733,328       70,537,997  
 
               
Valuation allowance
    (83,733,328 )     (70,537,9977 )
Net deferred tax asset
  $ -     $ -  
 
In assessing the realization of deferred tax assets, management considered whether it was more likely than not that some, or all, of the deferred tax asset will be realized.  The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income.  Management has considered the history of the Company’s operating losses and believes that the realization of the benefit of the deferred tax assets cannot be reasonably assured.  In addition, under Internal Revenue Code Section 382, the Company’s ability to utilize these net operating loss carryforwards may be limited or eliminated in the event of future changes in ownership.
 
 
F- 22

 

The Company has no federal or state current or deferred tax expense or benefit.  The Company’s effective tax rate differs from the applicable federal statutory tax rate.  The reconciliation of these rates for the three years ended September 30, 2015 is as follows:
 
      2015       2014       2013  
                         
Federal Rate
    34.00 %     34.00 %     34.00 %
State tax rate, net of federal benefit
    5.12       5.15       4.97  
State tax rate change
    (0.15 )     0.93       (3.77 )
Other adjustments
    (0.21 )     0.00       0.00  
Expired tax attributes
    0.00       0.00       (87.87 )
Adjustment to deferreds
    0.00       19.13       14.30  
Permanent differences
    (0.71 )     (0.43 )     (1.59 )
Change in valuation allowance
    (38.05 )     (58.78 )     39.96  
                         
Effective tax rate
    0.00 %     0.00 %     0.00 %
 
The Company applies the provisions of ASC 740, “Accounting for Uncertainty in Income Taxes,” which requires financial statement benefits to be recognized for positions taken for tax return purposes when it is more likely than not that the position will be sustained.  The Company has elected to reflect any tax penalties or interest resulting from tax assessments on uncertain tax positions as a component of tax expense.  The Company has generated federal net operating losses in tax years ending September 30, 1998 through 2014.  These years remain open to examination by the major domestic taxing jurisdictions to which the Company is subject.
 
7.      STOCK COMPENSATION

The Company recognized the following expenses for options issued or vested and restricted stock awarded during the year:
 
    Year Ended September 30,  
   
2015
   
2014
   
2013
 
Employees
  $ 5,105,827     $ 3,958,637     $ 2,636,905  
Non-employees
  $ 565,915     $ 771,946     $ 454,855  
 
These expenses were recorded as general and administrative expense.  During the years ended September 30, 2015, 2014 and 2013, non-employee compensation excluded $30,329, $26,468 and $57,553, respectively, for future services to be performed (Note 11).

During the years ended September 30, 2015, 2014 and 2013, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions.
 
   
2015
   
2014
   
2013
 
Expected stock price volatility
    73.38 – 86.19 %     72.81 – 86.87 %     84.41-92.28 %
Risk-free interest rate
    0.93 – 2.35 %     0.59 – 2.65 %     0.75-2.73 %
Expected life of options
 
3.0 – 9.76 Years
   
3.0 – 9.76 Years
      4.85-9.77  
Expected dividend yield
    -       -       -  
 
 
F- 23

 
 
Non-Qualified Stock Option Plans--At September 30, 2015, the Company has collectively authorized the issuance of 7,680,000 shares of common stock under its Non-Qualified Stock Option Plans. Options typically vest over a three-year period and expire no later than ten years after the grant date. Terms of the options are to be determined by the Company’s Compensation Committee, which administers the plans. The Company’s employees, directors, officers, and consultants or advisors are eligible to be granted options under the Non-Qualified Stock Option Plans.

Incentive Stock Option Plans--At September 30, 2015, the Company had collectively authorized the issuance of 1,960,000 shares of common stock under its Incentive Stock Option Plans.  Options typically vest over a three-year period and expire no later than ten years after the grant date.  Terms of the options were determined by the Company’s Compensation Committee, which administers the plans.  Only the Company’s employees are eligible to be granted options under the Incentive Stock Option Plans.

Activity in the Company’s Non-Qualified and Incentive Stock Option Plans for the two years ended September 30, 2015 is summarized as follows:

Non-Qualified and Incentive Stock Option Plans

   
Outstanding
   
Exercisable
 
   
Number of
Shares
   
Weighted
Average
Exercise Price
   
Weighted
Ave
Remaining Contractual
Term (Years)
   
Aggregate
Intrinsic
Value
   
Number of
Shares
   
Weighted
Average
Exercise Price
   
Weighted
Ave
Remaining Contractual
Term (Years)
   
Aggregate
Intrinsic
Value
 
Outstanding at October 1, 2013
    5,188,141     $ 3.62       6.53     $ 133       2,422,997     $ 4.00       4.95     $ 133  
                                                                 
Vested
                                    1,094,803     $ 2.14                  
Granted (a)
    1,723,240     $ 1.09                                                  
Exercised
                                                               
Forfeited
    6,316     $ 1.60                                                  
Expired
    73,916     $ 4.29                       73,916     $ 4.29                  
Cancelled
                                                               
                                                                 
Outstanding at September 30, 2014
    6,831,149     $ 2.98       6.55     $ 3,600       3,443,884     $ 3.40       5.49     $ 3,600  
Vested
                                    1,153,357     $ 2.48                  
Granted (b)
    893,700     $ 0.66                                                  
Exercised
                                                               
Forfeited
    116,665     $ 1.87                                                  
Expired
    70,499     $ 4.15                       70,499     $ 4.15                  
Cancelled
                                                               
                                                                 
Outstanding at September 30, 2015
    7,537,685     $ 2.71       5.98     $ 50       4,526,742     $ 3.15       5.01     $ 0  
 
(a)  
 Includes 80,000 stock options granted to consultants
(b)  
Includes 90,000 stock options granted to consultants

 
F- 24

 

A summary of the status of the Company’s non-vested options for the two years ended September 30, 2015 is presented below:
 
     
Number of
Shares
     
Weighted Average
Grant Date
Fair Value
 
                 
Unvested at October 1, 2013
    2,765,144     $ 2.79  
Vested
    (1,094,803 )        
Granted
    1,723,240          
Forfeited
    (6,316 )        
Unvested at September 30, 2014
    3,387,265     $ 2.15  
Vested
    (1,153,357 )        
Granted
    893,700          
Forfeited
    (116,665 )        
Unvested at September 30, 2015
    3,010,943     $ 1.72  
 
A summary of the status of the Company’s restricted stock units issued from the Incentive Stock Bonus Plan for the two years ended September 30, 2015 is presented below:
 
   
Number of Shares
   
Weighted Average Grant Date Fair Value
 
Unvested at October 1, 2013
    -       -  
     Vested
    -          
     Granted
    15,700,000          
     Forfeited
    -          
Unvested at September 30, 2014
    15,700,000     $ 0.55  
     Vested
    (500,000 )        
     Granted
    -          
     Forfeited
    (100,000 )        
Unvested at September 30, 2015
    15,100,000     $ 0.55  

In December 2012, the Company offered employees and directors holding options that expire on April 1, 2013 the opportunity to forfeit these options and have new options issued with expiration dates of December 17, 2017.  All twelve employees and directors eligible for this offer accepted the terms.  This resulted in the cancellation of 387,466 options priced at $2.20 per share and the concurrent issuance of the same number of options at $2.80 per share.  At the cancellation date, the incremental compensation cost was $477,879 which was amortized over the remaining service period. As of September 30, 2015, all options remained outstanding.

Stock Bonus Plans -- At September 30, 2015, the Company was authorized to issue up to 3,594,000 shares of common stock under its Stock Bonus Plans.  All employees, directors, officers, consultants, and advisors are eligible to be granted shares.  During the year ended September 30, 2015, 243,178 shares were issued to the Company’s 401(k) plan for a cost of $165,646.  During the year ended September 30, 2014, 164,787 shares were issued to the Company’s 401(k) plan for a cost of $155,434.  During the year ended September 30, 2013, 74,230 shares were issued to the Company’s 401(k) plan for a cost of $158,856.  As of September 30, 2015, the Company has issued a total of 1,643,714 shares of common stock from the Stock Bonus Plans.
 
 
F- 25

 
 
Stock Compensation Plans-- At September 30, 2015, 3,350,000 shares were authorized for use in the Company’s stock compensation plans.  During the years ended September 30, 2015, 2014 and 2013, 218,328, 409,968 and  50,000 shares were issued from the Stock Compensation Plans to consultants for payment of services at a cost of $146,696, $439,008 and $140,000, respectively.  During the year ended September 30, 2015, 107,050 shares were issued to employees from the Stock Compensation Plans as part of their compensation at a cost of $57,807.  No shares were issued to employees from the Stock Compensation Plans during the years ended September 30, 2014 and 2013.   As of September 30, 2015, the Company has issued 1,423,999 shares of common stock from the Stock Compensation Plans.

Incentive Stock Bonus Plan-- On July 22, 2014 the Company's shareholders approved the 2014 Incentive Stock Bonus Plan, authorizing the issuance of up to 16,000,000 shares in the Company’s Incentive Stock Bonus Plan.  During the year ended September 30, 2014, 15,700,000 shares were issued from the Incentive Stock Bonus Plan to officers and employees.  During the year ended September 30, 2015, 100,000 shares were forfeited, 500,000 shares vested and were issued and the remaining 15,100,000 shares are unvested and are held in escrow.  The shares will only be earned upon the achievement of certain milestones leading to the commercialization of the Company’s Multikine technology, or specified increases in the market price of the Company’s stock. If the performance or market criteria are not met as specified in the Incentive Stock Bonus Plan, all or a portion of the awarded shares will be forfeited.  The fair value of the shares on the grant date was calculated using the market value on the grant-date for issuances where the attainment of performance criteria is likely and using a Monte Carlo simulation for issuances where the attainment of performance criteria is uncertain.  The grant date fair value of shares issued that remain outstanding as of September 30, 2015 is $8,609,679.  The total value of the shares, if earned, is being expensed over the requisite service periods for each milestone, provided the requisite service periods are rendered, regardless of whether the market conditions are met.  No compensation cost is recognized for awards where the requisite service period is not rendered.  During the years ended September 30, 2015 and 2014, the Company recorded expense relating to the issuance of restricted stock pursuant to the plan of $3,396,771 and $1,477,954, respectively.  At September 30, 2015, the Company has unrecognized compensation expense of $3,734,954 which is expected to be recognized over a weighted average period of 6.04 years.
 
8.     EMPLOYEE BENEFIT PLAN

The Company maintains a defined contribution retirement plan, qualifying under Section 401(k) of the Internal Revenue Code, subject to the Employee Retirement Income Security Act of 1974, as amended, and covering substantially all Company employees.  Each participant’s contribution is matched by the Company with shares of common stock that have a value equal to 100% of the participant’s contribution, not to exceed the lesser of $10,000 or 6% of the participant’s total compensation.  The Company’s contribution of common stock is valued each quarter based upon the closing bid price of the Company’s common stock. Total expense, including plan maintenance, for the years ended September 30, 2015, 2014 and 2013, in connection with this Plan was $169,759, $159,632 and $162,865, respectively.
 
 
F- 26

 
 
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.
 
 
F- 27

 
 
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.
 
 
F- 28

 

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.
 
 
F- 29

 

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.
 
 
F- 30

 

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.
 
 
F- 31

 
 
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.
 
10.  LOAN FROM OFFICER

In 2009 the Company’s President, and a director, Maximilian de Clara, loaned the Company $1,104,057 under a note payable.  The original loan from Mr. de Clara bore interest at 15% per year and was secured by a lien on substantially all of the Company’s assets.  At Mr. de Clara’s option, the note may be converted into shares of the Company’s common stock.  The number of shares which will be issued upon any conversion will be determined by dividing the amount to be converted by $4.00. The Company did not have the right to prepay the note without Mr. de Clara’s consent.  In accordance with the loan agreement, the Company issued Mr. de Clara warrants to purchase 164,824 shares of the Company’s common stock at a price of $4.00 per share.  These warrants expired on December 24, 2014.  In consideration for an extension of the due date, Mr. de Clara received warrants to purchase 184,930 shares of the Company’s common stock at a price of $5.00 per share.  These warrants expired on January 6, 2015.  In consideration of Mr. de Clara’s agreement to subordinate his note to the convertible preferred shares and convertible debt as part of a prior year settlement agreement the Company extended the maturity date of the note to July 6, 2015.  In August 2014, the loan and warrants were transferred to the de Clara Trust, of which the Company’s CEO, Geert Kersten, is the trustee and a beneficiary.  Mr. de Clara receives the interest payments.

On June 29, 2015, the Company extended the maturity date of the note to July 6, 2017, lowered the interest rate to 9% per year and changed the conversion price to $0.59, the closing stock price on the previous trading day.  The de Clara Trust may demand payment upon giving the Company 10 days of notice.  The new terms were effective July 7, 2015.  The Company determined these modifications to be substantive and therefore accounted for the modifications as an extinguishment of the pre-modification note and issuance of the post-modification note.  The Company recorded an extinguishment loss and a premium on the note payable of $165,943.  The premium increased the face value of the note to $1,270,000 and will be amortized as a reduction of interest expense through the expiration date of the note.   Concurrently, the Company extended the expiration date of the Series N warrants to August 18, 2017. The incremental cost of this modification was $475,333 and was included in debt extinguishment loss on the note, for a total loss of $641,276.
 
 
F- 32

 
 
On October 11, 2015, the maturity date of the note was extended for one year to July 6, 2018.  The extension was made at the request of Lake Whillans Vehicle I, LLC, which agreed to provide the Company with up to $5,000,000 in funding for litigation expenses to support the Company’s $50,000,000 arbitration claims against the Company’s former clinical research organization.  As of September 30, 2015, the full amount of the note payable was outstanding.

During the years ended September 30, 2015, 2014 and 2013, the Company paid $146,288, $179,409 and $151,808, respectively, in interest expense to Mr. de Clara.  During the year ended September 30, 2015, $20,816 was amortized as a reduction of interest expense, reducing the effective rate of the note payable to 6.98%.
 
11.  STOCKHOLDERS’ EQUITY

During the year ended September 30, 2015, no warrants were exercised. During the year ended September 30, 2014, 2,695,562 Series M, N and S warrants were exercised.  The Company issued 2,668,508 shares of common stock and received $3,118,387 from the exercise of these warrants since 92,715 Series N warrants were exercised in a cashless exercise.  During the year ended September 30, 2013, no warrants were exercised.

In December 2012, the Company sold 3,500,000 shares of its common stock for $10,500,000, or $3.00 per share, in a registered direct offering.  The investors in this offering also received Series R warrants which entitle the investors to purchase up to 2,625,000 shares of the Company’s common stock.  The Series R warrants may be exercised at any time before December 7, 2016 at a price of $4.00 per share.   The Company paid Chardan Capital Markets, LLC, the placement agent for this offering, a cash commission of $682,500.  The initial cost of the warrants was $4,200,000 and was recorded as a debit to additional paid-in capital and a credit to derivative liabilities.  As of September 30, 2015, all of the Series R warrants remained outstanding, with a fair value of $0.

On October 11, 2013, the Company closed a public offering of units of common stock and Series S warrants at a price of $1.00 per unit for net proceeds of $16,400,000, net of underwriting discounts and commissions.  Each unit consisted of one share of common stock and a warrant to purchase one share of common stock.  The warrants were immediately exercisable and expire on October 11, 2018, and have an exercise price of $1.25.  In November 2013, the underwriters purchased an additional 2,648,913 warrants pursuant to the overallotment option, for which the Company received net proceeds of $24,370.

On December 24, 2013, the Company closed a public offering of units of common stock and Series S warrants at a price of $0.63 per unit for net proceeds of $2,790,000, net of underwriting discounts and commissions.  Each unit consisted of one share of common stock and a warrant to purchase one share of common stock.  The warrants are immediately exercisable and expire on October 11, 2018, and have an exercise price of $1.25.   The underwriters exercised the option for the full 10% overallotment, for which the Company received net proceeds of approximately $279,000.
 
 
F- 33

 
 
The Company incurred $189,188 in offering costs related to the October and December 2013 offerings which were charged to additional paid-in capital and netted against the cash proceeds in the Statement of Cash Flows.

The October and December 2013 financings triggered the reset provision from the August 2008 financing which resulted in the issuance of an additional 1,563,083 shares of common stock.  The cost of additional shares issued was $1,117,447. This cost was recorded as a debit and a credit to additional paid-in capital and was deemed a dividend.

On October 24, 2014, the Company closed an underwritten public offering of 7,894,737 shares of common stock and 1,973,684 Series S warrants to purchase shares of common stock.  Additionally, in a related private offering on October 21, 2014, the Company sold 1,320,000 shares of common stock and 330,000 Series S warrants to purchase shares of common stock. The common stock and Series S warrants were sold at a combined price of $0.76 for net proceeds of approximately $6.4 million, net of underwriting discounts and commissions and $85,335 in offering expenses.

The Series S warrants trade of the NYSE MKT under the symbol CVM WS.  As of September 30, 2015, 25,928,010 Series S warrants remained outstanding, with a fair value of $7,363,555, which is recorded as a derivative liability on the Company’s balance sheet (Note 2).

On April 17, 2014, the Company closed a public offering of units consisting of an aggregate of 7,128,229 shares of common stock and Series T warrants to purchase an aggregate of 1,782,057 shares of common stock.  The units were sold at a price of $1.40 per unit.  The Company received net proceeds of approximately $9,143,000, after deducting the underwriting commissions and offering expenses.  The common stock and warrants separated immediately.  The Series T warrants, with an exercise price of $1.58 per share, expired on October 17, 2014.  The fair value of the Series T warrants was $0 on the date of expiration.  The underwriters in the offering received 445,514 Series U warrants to purchase one share of common stock.  The Series U warrants expire on October 17, 2017, and have an exercise price of $1.75.  As of September 30, 2015, all of the Series U warrants remain outstanding, and are recorded at a fair value of $44,551, which is shown on the Company’s balance sheet as a derivative liability (Note 2).

On May 28, 2015, the Company closed an underwritten public offering of 20,253,164 shares of common stock and 20,253,164 Series V warrants to purchase shares of common stock. The common stock and Series V warrants were sold at a combined per unit price of $0.79 for net proceeds of approximately $14.7 million, net of underwriting discounts and commissions and offering expenses.  The Series V warrants are immediately exercisable at a price of $0.79 and expire on May 28, 2020.  The initial cost of the Series V warrants of $8,003,220 was recorded as a warrant liability.  As of September 30, 2015, the total Series V warrant liability was adjusted to fair value of $6,278,481.
 
 
F- 34

 

During the year ended September 30, 2014, the Company issued 15,700,000 restricted shares of its common stock from its Incentive Stock Bonus Plan to officers and employees.  During the year ended September 30, 2015, 100,000 restricted shares were forfeited, 500,000 restricted shares vested and the remaining 15,100,000 restricted shares are unvested and held in escrow.  The shares are only to be earned upon the achievement of certain milestones leading to the commercialization of the Company’s Multikine technology, or specified increases in the market price of the Company’s stock. If the performance or market criteria are not met as specified in the Incentive Stock Bonus Plan, all or a portion of the awarded shares will be forfeited.  The fair value of the shares on the date of issuance was calculated by using the market value on the grant-date for issuances where the attainment of performance criteria is likely and using a Monte Carlo simulation for issuances where the attainment of performance criteria is uncertain.  The total value of the shares, if earned, is calculated to be $8,662,502 and will be expensed over the requisite service period for each milestone.  At September 30, 2015, the Company had unrecognized compensation expense of $3,734,954 relating to the restricted stock awards.
 
12.  FAIR VALUE MEASUREMENTS

In accordance with the provisions of ASC 820, “Fair Value Measurements,” the Company determines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The Company generally applies the income approach to determine fair value.  This method uses valuation techniques to convert future amounts to a single present amount.  The measurement is based on the value indicated by current market expectations about those future amounts.

ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value.  The hierarchy gives the highest priority to active markets for identical assets and liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).  The Company classifies fair value balances based on the observability of those inputs.  The three levels of the fair value hierarchy are as follows:

o
Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities
 
o
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and amounts derived from valuation models where all significant inputs are observable in active markets
 
o
Level 3 – Unobservable inputs that reflect management’s assumptions

For disclosure purposes, assets and liabilities are classified in their entirety in the fair value hierarchy level based on the lowest level of input that is significant to the overall fair value measurement.  The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels.
 
 
F- 35

 

The table below sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, on the balance sheet at September 30, 2015:
 
   
Quoted Prices in
Active Markets for Identical Assets or
Liabilities (Level 1)
   
Significant
Other
Observable
Inputs (Level 2)
   
Significant
Unobservable
Inputs (Level 3)
    Total  
Derivative Instruments   $ 7,363,555     $ -     $ 6,323,032     $ 13,686,587  
 
The table below sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the balance sheet at September 30, 2014:
 
   
Quoted Prices in
Active Markets for Identical Assets or
Liabilities (Level 1)
   
Significant
Other
Observable
Inputs (Level 2)
   
Significant
Unobservable
Inputs (Level 3)
    Total  
Derivative Instruments   $ 5,197,352     $  -     $ 307,894     $ 5,505,246  

 
The following sets forth the reconciliation of beginning and ending balances related to fair value measurements using significant unobservable inputs (Level 3), as of September 30:

   
2015
   
2014
           
Beginning balance
  $ 307,894     $ 433,024  
  Issuances
    8,003,220       7,791,448  
  Settlements
    -       (1,445,528 )
 Transfers to Level 1
    -       (7,321,071 )
 Net realized and unrealized derivative (gain)/loss
    (1,988,082 )     850,021  
Ending balance
  $ 6,323,032     $ 307,894  

The fair values of the Company’s derivative instruments disclosed above under Level 3 are primarily derived from valuation models where significant inputs such as historical price and volatility of the Company’s stock as well as U.S. Treasury Bill rates are observable in active markets.
 
13.  NET LOSS PER COMMON SHARE

Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period.  The Company’s potentially dilutive shares, which include outstanding common stock options, common stock warrants, restricted stock and shares issuable on convertible debt, have not been included in the computation of diluted net loss per share for all periods presented, as the result would be anti-dilutive. For the years presented, the gain on derivative instruments in not included in net loss available to common shareholders for purposes of computing dilutive loss per share because its effect is anti-dilutive.
 
 
F- 36

 
 
The following table provides a reconciliation of the numerators and denominators of the basic and diluted per-share computations:  
 
    2015     2014     2013  
Net loss available to
                 
   common shareholders
  $ (34,674,646 )   $ (28,483,712 )   $ (9,230,478 )
  Less:  Gain on derivative
                       
              Instruments
    -       (248,767 )     (10,750,666 )
Net loss - diluted
  $ (34,674,646 )   $ (28,732,479 )   $ (19,981,144 )
                         
Weighted average number of
                       
    shares - basic and diluted
    82,519,027       58,804,622       30,279,442  
                         
Loss per share - basic
  $ (0.42 )   $ (0.48 )   $ (0.30 )
Loss per share - diluted
  $ (0.42 )   $ (0.49 )   $ (0.66 )
 
For the year ended September 30, 2015, the gain on derivatives is not excluded from the numerator in calculating diluted loss per share because the gain relates to derivative warrants that were priced higher than the average market price during the period.

In accordance with the contingently issuable shares guidance of FASB ASC Topic 260, Earnings Per Share, the calculation of diluted net loss per share excludes the following dilutive securities because their inclusion would have been anti-dilutive as of September 30:

 
2015
 
2014
 
2013
           
Options and Warrants
58,421,058
 
39,994,707
 
12,350,633
Convertible Debt
1,871,283
 
276,014
 
276,014
Unvested Restricted Stock
15,100,000
 
15,700,000
 
-
Total
75,392,341
 
55,970,721
 
12,626,647
 
14.  SEGMENT REPORTING

ASC 280, “Disclosure about Segments of an Enterprise and Related Information” establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders.  This topic also establishes standards for related disclosures about products and services and geographic areas.  Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance.  The Company’s chief decision maker, as defined under this topic, is the Chief Executive Officer. To date, the Company has viewed its operations as principally one segment, the research and development of certain drugs and vaccines. As a result, the financial information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment.
 
 
F- 37

 
 
15.  QUARTERLY INFORMATION (UNAUDITED)

The following quarterly data are derived from the Company’s statements of operations.

Financial Data

Fiscal 2015
                             
   
Three months ended
December 31 
2014
   
Three months ended
March 31,
2015
   
Three months ended
June 30,
2015
   
Three months 
Ended
September 30,
2015
   
 Year ended September 30,
2015
 
                     
                     
Grant income and other
  $ 136,838     $ 197,620     $ 389,223     $ (66,304 )   $ 657,377  
Operating expenses
    10,132,579       7,956,963       8,590,698       8,273,682       34,953,922  
Non-operating  (expense) income, net
    (12,547 )     (14,097 )     (15,166 )     22,369       (19,441 )
Gain (loss) on derivative instruments
    2,162,970       (4,782,796 )     4,428,780       (1,526,338 )     282,616  
Loss on debt extinguishment
    -       -       (641,276 )     -       (641,276 )
Net loss available to
                                       
   common shareholders
  $ (7,845,318 )   $ (12,556,236 )   $ (4,429,137 )   $ (9,843,955 )   $ (34,674,646 )
Net loss per share-basic
  $ (0.11 )   $ (0.17 )   $ (0.05 )   $ (0.10 )   $ (0.42 )
Net loss per share-diluted
  $ (0.14 )   $ (0.17 )   $ (0.06 )   $ (0.10 )   $ (0.42 )
Weighted average shares:
                                       
Basic
    73,260,783       75,847,869       83,796,311       97,040,004       82,519,027  
Diluted
    73,260,783       75,847,869       85,134,107       97,040,004       82,519,027  
 
Fiscal 2014
                             
   
Three months
   
Three months
   
Three months
   
Three months
   
 
 
   
ended
December 31
 2013
   
ended
March 31,
2014
   
ended
June 30,
2014
   
Ended
September 30,
2014
   
Year ended
September 30,
2014
 
Grant income and other
  $ 113,144     $ 67,157     $ 15,914     $ 67,818     $ 264,033  
Operating expenses
    6,047,454       6,293,592       6,917,243       8,579,856       27,838,145  
Non-operating  expenses, net
    (10,925 )     (6,797 )     (10,927 )     (12,271 )     (40,920 )
Gain (loss) on derivative instruments
    1,610,817       (7,132,348 )     4,467,776       1,302,522       248,767  
Net loss
    (4,334,418 )     (13,365,580 )     (2,444,480 )     (7,221,787 )     (27,366,265 )
 
 
F- 38

 
 
Issuance of shares due to reset provisions
    (1,117,447 )     -       -       -       (1,117,447 ) 
Net loss available to
                                       
   common shareholders
  $ (5,451,865 )   $ (13,365,580 )   $ (2,444,480 )   $ (7,221,787 )   $ (28,483,712 )
Net loss per share-basic
  $ (0.11 )   $ (0.24 )   $ (0.04 )   $ (0.11 )   $ (0.48 )
Net loss per share-diluted
  $ (0.15 )   $ (0.24 )   $ (0.11 )   $ (0.13 )   $ (0.49 )
Weighted average shares-basic and diluted
    48,215,919       56,239,562       64,664,274       66,091,826       58,804,622  

The Company has experienced large swings in its quarterly gains and losses in 2015 and 2014 caused by the changes in the fair value of warrants each quarter.
 
17.      SUBSEQUENT EVENTS

In accordance with ASC 855, “Subsequent Events”, the Company has reviewed subsequent events through the date of the filing.

On October 5, 2015, the Company and its CRO Ergomed plc expanded their co-development agreement with increased activities to be undertaken by Ergomed. Pursuant to the expanded co-development agreement, Ergomed's contribution to the Phase 3 clinical trial will increase from $10,000,000 to $12,000,000.
 
On October 14, 2015, the Company entered into an agreement with a litigation firm to provide the Company with up to $5,000,000 in funding for litigation expenses to support its $50,000,000 arbitration claims against its former clinical research organization. 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 upon CEL-SCI receiving proceeds from the arbitration, subject to the terms and conditions of the agreement.  As of September 30, 2015, the Company has recorded approximately $1,104,000 in accounts payable that will be assumed by the litigation firm.  On October 14, 2015, the Company will record the transfer of the liability to the litigation firm as a gain on the derecognition of legal costs.  The gain will be included as a reduction of operating expenses on the Statement of Operations.
 
On October 28, 2015 the Company announced that it closed an underwritten public offering of 17,223,248 shares of common stock and 17,223,248 Series W warrants to purchase shares of common stock.  The common stock and warrants were sold at a combined price of $0.67 for net proceeds of approximately $10.59 million, net of underwriting commissions and offering expenses.  The warrants were immediately exercisable, expire October 28, 2020 and have an exercise price of $0.67.

 
F- 39

 
 
SIGNATURES

In accordance with Section 13 or 15(a) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 11th day of December 2015.
 
  CEL-SCI CORPORATION  
       
 
By:
/s/ Maximilian de Clara  
    Maximilian de Clara, President  
       
       
 
Pursuant to the requirements of the Securities Act of l934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
Signature
Title
Date
     
     
/s/ Maximilian de Clara
Director
December 11, 2015
Maximilian de Clara
   
     
     
/s/ Geert R. Kersten
Chief Executive, Principal
 
Geert R. Kersten
Accounting, Principal Financial
 
 
Officer and a Director
December 11, 2015
     
     
/s/ Alexander G. Esterhazy
Director
December 11, 2015
Alexander G. Esterhazy
   
     
     
/s/Peter R. Young
Director
December 11, 2015
Dr. Peter R. Young
   
     
     
/s/ Bruno Baillavoine
Director
December 11, 2015
Bruno Baillavoine
   

 


82



 


Exhibit 4

 
SHAREHOLDER RIGHTS AGREEMENT
(As Amended)


CEL-SCI CORPORATION
  8229 Boone Boulevard, Suite 802
Vienna, Virginia  22182
 
 
 

 
 
TABLE OF CONTENTS
 
SECTION       PAGE
1  
Certain Definitions
  1
2
 
Appointment of Rights Agent
 
5
3
 
Issue of Right Certificates
 
5
4
 
Form of Right Certificates
 
7
5
 
Countersignature and Registration
 
8
6  
Transfer, Split-Up, Combination and Exchange of Rights Certificates; Lost, Stolen, Destroyedor Mutilated Right Certificates
 
8
7  
Exercise of Rights; Purchase Price; Expiration  Date of Rights
 
9
8
 
Cancellation and Destruction of Right Certificates
 
10
9
 
Reservation and Availability of Common Shares
 
11
10
 
Common Shares Record Date
 
12
11  
Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights
 
12
12  
Certificate of Adjusted Purchase Price or Number of Shares
 
22
13  
Consolidation, Merger, Statutory Share Exchange or Sale or Transfer of Assets or Earning Power
 
22
14
 
Fractional Rights and Fractional Shares
 
25
15
 
Rights of Action
 
26
16
 
Agreement of Right Holders
 
26
17
 
Right Certificate Holder Not Deemed a Shareholder
 
27
18
 
Concerning the Rights Agent
 
28
19  
Merger or Consolidation or Change of Name of Rights Agent
 
28
20
 
Duties of Rights Agent
 
29
21
 
Change of Rights Agent
 
31
22
 
Issuance of New Right Certificates
 
32
23
 
Redemption
 
32
24
 
Exchange
 
33
25
 
Notice of Certain Events
 
34
26
 
Notices
 
35
27
 
Supplements and Amendments
 
36
28
 
Successors
 
36
29
 
Benefits of this Agreement
 
36
30
 
Severability
 
37
31
 
Governing Law
 
38
32
 
Counterparts
 
37
33
 
Descriptive Headings
 
37
 
 
 

 
 
SHAREHOLDER RIGHTS AGREEMENT


Agreement, dated as of November 7, 2007, between CEL-SCI Corporation, a Colorado corporation (the "Company"), and Computershare Trust Company, N.A.. (the “Rights Agent”).

The Board of Directors of the Company has authorized and declared a dividend of one Series A Right and one Series B Right (individually a "Series A Right" or a "Series B Right" and collectively the "Rights" for each Common Share (as defined in this Agreement) of the Company outstanding on November 9, 2007 (the “Record Date”).  Each Series A Right initially represents the right to purchase one share of the Company's Common Stock (as defined in this Agreement), upon the terms and subject to the conditions set forth in this Agreement.  Each Series B Right is initially exercisable at $100 (the "Purchase Price" for the Series B Right).  The Board of Directors has further authorized the issuance of one Series A Right and one Series B Right (as such number may hereafter be adjusted) with respect to each Common Share that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date (as such terms are defined in this Agreement).

Accordingly, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:

Section 1.  Certain Definitions.  For purposes of this Agreement, the following terms have the meanings indicated:

(a)          "Acquiring Person" shall mean any Person (as such term is defined in this Agreement) who or which, together with all Affiliates and Associates (as such terms are defined in this Agreement) of such Person, shall be the Beneficial Owner (as such terms are defined in this Agreement) of 15% or more of the Common Shares of the Company then outstanding, but shall not include (i) the Company, (ii) any wholly owned Subsidiary (as such term is defined in this Agreement) of the Company, or (iii) any employee benefit plan of the Company or of any Subsidiary of the Company.  Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of Common Shares by the Company which, by reducing the number of Common Shares Outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the Common Shares of the Company then outstanding; provided, however, that if a Person shall, together with all Affiliates or Associates of such Person, become the Beneficial Owner of 15% or more  of the Common Shares of the Company then outstanding by reason of share acquisitions by the Company and if such Person or such Person's Affiliates or Associates shall, after such share acquisitions by the Company, become the Beneficial Owner of any additional Common Shares of the Company, and, immediately after becoming the Beneficial Owner of such additional Common Shares, such Person shall, together with all Affiliates and Associates of such Person, be the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding, then such Person (unless such Person shall be (1) the Company, (2) any wholly owned subsidiary of the Company, or (3) any employee benefit plan of the Company or of any Subsidiary of the Company) shall be deemed an "Acquiring Person".
 
 
1

 
 
(b)          "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date of this Agreement.  Notwithstanding anything in this definition of "Affiliate" or "Associate" to the contrary, no trustee or other Person holding Common Shares for or pursuant to the terms of any employee benefit plan of the Company or of any Subsidiary of the Company (and no Affiliate or Associate of such trustee or other Person), and no member of any investment committee for any such employee benefit plan (and no Affiliate or Associate of such member) shall be deemed an Affiliate or Associate of any such employee benefit plan with respect to which such Person (or such Person's Affiliate or Associate) is trustee, holder, beneficiary or member of any investment committee and any such employee benefit plan shall not be deemed an Affiliate or Associate of such trustee, beneficiary, member of any investment committee or other Person (or of any Affiliate or Associate of such trustee, beneficiary, member of any investment committee or other Person).

(c)          A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own" or have "beneficial ownership" of, any securities:

(i)             which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly, including without limitation securities with respect to which such Person or any of such Person's Affiliates or Associates has "beneficial ownership" pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act;

(ii)             which such Person or any of such Person's Affiliates or Associates has, directly or indirectly, (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, whether or not in writing (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, other rights (other than the Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, or to have beneficial ownership of, any securities pursuant to subparagraph (i), (ii) or (iii) of this paragraph (c) solely because such securities are tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote or dispose of (including without limitation pursuant to any agreement, arrangement or understanding, whether or not in writing); provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, or to have beneficial ownership of, any securities pursuant to subparagraph (i), (ii) or (iii) of this paragraph (c) solely because of the right to vote such securities pursuant to an agreement, arrangement or understanding if the agreement, arrangement or understanding to vote such securities (1) arises solely from a revocable proxy or consent given to such Person or any of such Person's Affiliates or Associates in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act and (2) is not also then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report) as being beneficially owned by such person; or
 
 
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(iii)             which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (ii) of this paragraph (c)) or disposing of any voting securities of the Company.

Notwithstanding anything in these definitions to the contrary, the phrase "then outstanding", when used with reference to a Person's beneficial ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to beneficially own under this Agreement.

Notwithstanding anything in these definitions to the contrary, no trustee or other Person holding Common Shares for or pursuant to the terms of any employee benefit plan of the Company or of any Subsidiary of the Company (and no Affiliate or Associate of such trustee or other Person), and no member of any investment committee for any such employee benefit plan (an no Affiliate or Associate of such member) shall be deemed the Beneficial Owner of, or to beneficially own, or to have beneficial ownership of, any Common Share of the Company beneficially owned by any employee benefit plan of the Company or of any Subsidiary of the Company with respect to which such Person (or such Person's Affiliate or Associate) is trustee, holder, beneficiary or member of any investment committee (including without limitation Common Shares held of record by such trustee, beneficiary member of any investment committee or other Person for or pursuant to the terms of any such employee benefit plan) and any such employee benefit plan shall not be deemed to be the Beneficial Owner of, or to beneficially own, or to have beneficial ownership of, any Common Shares of the Company beneficially owned by such trustee, beneficiary, member of any investment committee or other Person.

(d)          "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York or Colorado are authorized or obligated by law or executive order to close.

(e)          "Close of Business" on any given date shall mean 5:00 P.M., Denver, Colorado time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., Denver, Colorado time, on the next succeeding Business Day.

(f)          "Common Shares", when used with reference to the Company, shall mean Common Shares of the Company.  "Common Shares", when used with reference to any Person other than the Company, shall mean the capital stock (or equity interest) with the greatest voting power of such other Person.

(g)          "Continuing Director" shall mean any Person who is a member of the Board of Directors of the Company, while such Person is a member of the Board of Directors, who is not an Acquiring Person, a Tender Offer Person or an Affiliate or Associate of an Acquiring Person or a Tender Offer Person, or a representative or nominee of an Acquiring Person or a Tender Offer Person or of any such Affiliate or Associate, and who was a member of the Board of Directors of the Company on the date of this Agreement.  A “Continuing Director” shall also mean any Person who subsequently becomes a member of the Board of Directors of the Company, while such Person is a member of the Board of Directors, who is not an Acquiring Person or a Tender Offer Person, or an Affiliate or Associate, or a representative or nominee of any such Person or of any such Affiliate or Associate, if such Person's initial nomination for election or initial election to the Board of Directors is recommended or approved by the Board of Directors (at a time when a majority of the directors then serving are Continuing Directors).
 
 
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(h)          “Distribution Date” shall have the meaning set forth in Section 3.

(i)          “Final Expiration Date” shall be October 30, 2020.

(j)          “Person” shall mean an individual, firm, corporation, partnership or other entity, and shall include any successor (by merger or otherwise) of any such entity.

(k)          "Preferred Shares" shall mean any Preferred Shares or any series or class of Preferred Shares which may be issued or designated by the Company's Board of Directors.

(l)          "Redemption Date" shall have the meaning set forth in Section 7.

(m)          "Section 11(a)(ii) Event" shall mean any event described in Section 11(a)(ii)(A) or (B).

(n)          "Section 13 Event" shall mean any event described in clauses (w), (x), (y) or (z) of Section 13(a).

(o)          "Share Acquisition Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such.

(p)          "Subsidiary" of any Person shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or other equity interests entitled to vote in the election of directors (or Persons with comparable responsibilities if the entity has no directors) is beneficially owned, directly or indirectly, by such Person, or otherwise controlled by such Person.

(q)          "Tender Offer Person" shall mean any person who commences, or publicly announces the intention to commence (which intention shall not have been withdrawn within five Business Days after the commencement of such tender offer or such public announcement), a tender or exchange offer the consummation of which would result in beneficial ownership by a Person (other than the Company, any wholly owned Subsidiary of the Company or any employee benefit plan of the Company or of any Subsidiary of the Company) of 15% or more of the Company's then outstanding Common Shares.
 
 
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(r)          "Trading Day" shall have the meaning set forth in Section 11(d).

Section 2.  Appointment of Rights Agent.  The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3, shall prior to the Distribution Date also be the holders of the Common Shares) in accordance with the terms and conditions of this Agreement, and the Rights Agent hereby accepts such appointment.  The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable.

Section 3.  Issue of Right Certificates.  (a) Until the earlier of (i) the Close of Business on the 15th business day after the Share Acquisition Date or (ii) the Close of Business on the 15th business day (or such later date as may be determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) after the date of the commencement of, or first public announcement of the intention of any Person to commence (which intention shall not have been withdrawn within five Business Days after such public announcement), a tender or exchange offer the consummation of which would result in beneficial ownership by a Person (other than the Company, any wholly owned Subsidiary of the Company or any employee benefit plan of the Company or of any Subsidiary of the Company) of 15% or more of the then outstanding Common Shares (including any such date that is after the date of this Agreement and prior to the issuance of the Rights) the earlier of such dates being herein referred to as the "Distribution Date", (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section) by the certificates for Common Shares registered in the names of the holders thereof (which certificates shall also be deemed to be Right Certificates where the context so requires ) and not by separate Right Certificates, and (y) the right to receive Right Certificates will be transferable only in connection with the transfer of Common Shares.  As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested, send) by first-class, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, Right Certificates, in substantially the form of Exhibit A (the "Right Certificates"), evidencing one Series A Right and one Series B Right for each Common Share so held.  In the event that an adjustment has been made pursuant to Section 11, at the time Right Certificates are distributed, the Company may, to the extent provided in Section 14(a), make the necessary and appropriate rounding adjustments (as set forth in Section 14(a)) so that Right Certificates are distributed representing only whole numbers  of Rights and pay cash in lieu of fractional Rights pursuant to Section 14(a).  As of and after the Distribution Date, the Rights will be evidenced solely by such Right Certificates.

Notwithstanding the above, the Distribution Date may be deferred indefinitely by action of the Board of Directors if an Acquiring Person becomes such pursuant to a transaction at a price and on terms approved by the Board of Directors of the Company at a time when a majority of directors the serving are Continuing Directors.
 
 
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(b)          On the Record Date, or as soon as practicable thereafter, the Company will send a copy of a Summary of Rights to Purchase Common Shares, in substantially the form of Exhibit B (the "Summary of Rights"), to each record holder of Common Shares as of the close of business on the Record Date, at the address of such holder shown on the records of the Company.  With respect to certificates for Common Shares outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates registered in the names of the holders thereof and the registered holders of the Common Shares shall also be registered holders of the associated Rights.  Until the Distribution Date (or the earlier of the Redemption Date or the Final Expiration Date), the surrender for transfer of any certificate for Common Shares, with or without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Shares represented thereby.

(c) Rights shall be issued in respect of all Common Shares that are issued after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date.  Certificates for Common Shares which become outstanding after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend:

This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between CEL-SCI Corporation and Computershare Trust Company, N.A.., dated as of November 7, 2007 (the "Rights Agreement"), the terms of which (including restrictions on the transfer of such Rights) are incorporated herein by reference and a copy of which is on file with the Secretary at the principal executive offices of CEL-SCI Corporation.  Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate.  CEL-SCI Corporation will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor to its Secretary from such holder. Under certain circumstances, as set forth in the Rights Agreement, Rights issued to or held by a Person who is, was or becomes an Acquiring Person or any Associate or Affiliate thereof (as such terms are defined in the Rights Agreement), or certain transferees of such Person, may become null and void.

With respect to certificates containing this legend, until the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date, the Rights associated with the Common Shares represented by such certificates shall be evidenced by such certificates alone, the registered holders of the Common Shares shall also be the registered holders of the associated Rights and the surrender for transfer of any such certificate shall also constitute the transfer of the Rights associated with the Common Shares represented thereby.  In the event that the Company purchases or acquires any Common Shares after the Record Date but prior to the Distribution Date, any rights associated with such Common Shares shall be deemed cancelled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Shares which are no longer outstanding.
 
 
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Section 4.  Form of Right Certificates.  The Right Certificates (and the forms of election and of assignment to be printed on the reverse thereof) shall be in substantially the form of Exhibit A and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law, rule or regulation or to conform to usage.  Subject to the provisions of Section 11 and 22, the initial Right Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such securities as shall be set forth therein at the price set forth therein (the "Purchase Price"), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price shall be subject to adjustment as provided in this Agreement.

Section 5.  Countersignature and Registration.

(a)          The Right Certificates shall be executed on behalf of the Company by its Chairman, Chief Executive Officer, President, any Vice President or Secretary, either manually or by facsimile signature.  The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless so countersigned.  In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the signing of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer.

(b)          Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office or the office or offices designated as the appropriate place for surrender of Right Certificates upon exercise or transfer, books for registration and transfer of the Right Certificates.  Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates.

Section 6.  Transfer, Split-Up, Combination and Exchange of Rights Certificates; Lost, Stolen, Destroyed or Mutilated Right Certificates.

(a)          Subject to the provisions of Section 14, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates (other than Right Certificates representing Rights that have become void pursuant to Section 11(a)(ii) or that have been exchanged pursuant to Section 24) may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of securities as the Right Certificate or Right Certificates surrendered then entitled such holder (or former holder in the case of a transfer) to purchase.  Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Rights Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the office or offices of the Rights Agent designated for such purpose.  Thereupon the Rights Agent shall, subject to Section 14, countersign and deliver to the Person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested.  The Company may require payment by the registered holder of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split-up, combination or exchange of Right Certificates.  Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Right Certificate until the registered holder shall have duly completed and executed the form of assignment on the reverse side of such Right Certificate and shall have provided such additional evidence of the identity of  the Beneficial Owner (or former Beneficial Owner) of such Right Certificate or Affiliates or Associates thereof as the Company shall reasonably request.
 
 
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(b)          Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation  of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.

Section 7.  Exercise of Rights; Purchase Price; Expiration Date of Rights.

(a)          Subject to Section 11(a)(ii), the registered holder of any Series A Right may exercise the Rights evidenced thereby (except as otherwise provided in this Agreement) in whole or in part at any time after the Distribution Date upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly completed and executed, to the Rights Agent at the office or offices of the Rights Agent designated for such purpose, together with payment of the Purchase Price for which the Rights are exercised, at or prior to the earliest of (i) the close of business on the Final Expiration Date, (ii) the time at which the Rights are redeemed as provided in Section 23 (the "Redemption Date"), or (iii) the time at which such Rights are exchanged as provided in Section 24.

(b)          The Purchase Price for each Common Share issuable pursuant to the exercise of a Series A Right shall initially be 20% (the "Purchase Price Percentage") of the current per share market price of the Company's Common Shares computed as of the Distribution Date and in accordance with Section 11(d) of this Agreement.  The Purchase Price Percentage shall be subject to adjustment from time to time as provided in this Agreement and the Purchase Price shall be payable in lawful money of the United States in accordance with paragraph (c) below.

(c)          Upon receipt of a Right Certificate representing exercisable Series A Rights, with the form of election to purchase duly completed and executed, accompanied by payment of the Purchase Price for the shares to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 in cash, or by certified check or bank cashier check or money order payable to the order of the Company, the Rights Agent shall, subject to Section 20(k), thereupon promptly (i) (A) requisition from any transfer agent of the Common Shares (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the number of Common Shares to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of Common Shares issuable upon exercise of the Series A Rights under this Agreement with a depositary agent, requisition from the depositary agent depositary receipts representing such number of Common Shares as are to be purchased (in which case certificates for the Common Shares represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company hereby directs the depositary agent to comply with such request, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional interests in shares in accordance with Section 14, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when appropriate, after receipt, deliver such cash for fractional interests in Common Shares to or upon the order of the registered holder of such Right Certificate.
 
 
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(d)          In case the registered holder of any Series A Right Certificate shall exercise less than all the Series A Rights evidenced thereby, a new Right Certificate evidencing Series A Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to the registered holder of such Right Certificate or to such holder's duly authorized assigns, subject to the provisions of Section 14.

(e)          Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section unless such registered holder shall have (i) duly completed and executed the form of election to purchase set forth on the reverse side of the Right Certificate surrendered for such exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) of such Right Certificate or Affiliates or Associates thereof as the Company shall reasonably request.

Section 8.  Cancellation and Destruction of Right Certificates.  All Right Certificates surrendered for the purpose of exercise, transfer, split-up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement.  The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof.  The Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Right Certificates after any retention period required by the Securities and Exchange Commission has lapsed, and in such case shall deliver a certificate of destruction thereof to the Company.
 
 
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Section 9.  Reservation and Availability of Common Shares.

(a)          The Company covenants and agrees that it will use its best efforts to reserve and keep available out of its authorized and unissued Common Shares, the number of Common Shares Shares that will be sufficient to permit the exercise in full of all outstanding Rights.

(b)          At such time, if any, as the Common Shares issuable upon the exercise of Rights may be listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable (but only to the extent that it is reasonably likely that the Rights will be exercised), all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise.

(c)          The Company will prepare and file, as soon as practicable following the Share Acquisition Date or any announcement of a Tender Offer or Exchange Offer as contemplated by Section 3, a registration statement under the Securities Act of 1933, as amended (the "Act"), with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and use its best efforts to cause such registration statement to (i) become effective as soon as practicable after such filing, and (ii) remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities or (B) the Final Expiration Date.  The company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights.  The Company may temporarily suspend, for a period of time not to exceed 90 days after the date the registration statement is filed, the exercise of the Rights in order to permit the registration statement to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercise of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect.  Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction if the requisite qualification  in such jurisdiction shall not have been obtained or the exercise thereof is not permitted under applicable law.

(d)          The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Common Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such Common Shares (subject to payment of the Purchase Price and any applicable transfer taxes), be duly and validly authorized and issued and fully paid and nonassessable shares.

(e)          The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges that may be payable in respect of the issuance or delivery of the Right Certificates or of any Common Shares upon the exercise of Rights.  The Company shall not, however, be required to pay any transfer tax that may be payable in respect of any transfer or delivery of Right Certificates to a person other than, or the issuance or delivery of certificates or depositary receipts for the Common Shares in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise, or to issue or deliver any certificates or depositary receipts for Common Shares upon the exercise of any Rights, until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due.
 
 
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Section 10.  Common Shares Record Date.  Each person in whose name any certificate for Common Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Common Shares represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the transfer books of the Company are open.  Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate as such shall not be entitled to any rights of a holder of Common Shares for which the Rights shall be exercisable, including without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.

Section 11.  Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights.  The Purchase Price, the number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11.

(a)          (i)          In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Common Shares payable in Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the outstanding Common Shares into a smaller number of Common Shares or (D) issue any shares of its capital stock in a reclassification of the Common Shares (including any such reclassification in connection with a consolidation, merger or statutory share exchange in which the Company is the continuing, surviving or acquiring corporation), except as otherwise provided in this Section 11(a), the Purchase Price and/or Purchase Price Percentage in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date pursuant to the exercise of the Rights, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect (and any applicable transfer taxes), the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the transfer books of the Company were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right.  If an event occurs which would require an adjustment under both Section 11(a)(i) and Section 11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to any adjustment required pursuant to Section 11(a)(ii).

 
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(ii)           Subject to Section 24 of this Agreement, in the event:

(A)           any Person shall become an Acquiring Person or a Tender Offer Person other than (1) pursuant to any transaction set forth in Section 13(a) or (2) as a result of an acquisition of Common Shares of the Company pursuant to a tender offer or an exchange offer for all outstanding Common Shares of the Company at a price and on terms determined by the Board of Directors of the Company, at a time when a majority of the directors then serving are Continuing Directors and after receiving advice from one or more investment banking firms, to be (a) fair to shareholders (taking into account all factors which the Board of Directors deems relevant), and (b) otherwise in the best interests of the Company and its shareholders and which the Board of Directors determines to recommend to the shareholders of the Company, or

(B)           during such time as there is an Acquiring Person or a Tender Offer Person, there shall be any reclassification of securities (including any reverse stock split) or recapitalization or reorganization of the Company or other transaction or series of related transactions involving the Company (whether or not with or into or otherwise involving an Acquiring Person, or a Tender Offer Person or any of their Affiliates or Associates) which has the effect, directly or indirectly, of increasing by more than 1% the proportionate share of the outstanding shares of any class of equity securities or of securities exercisable for or convertible into equity securities of the Company or any of its Subsidiaries that is directly or indirectly beneficially owned in the aggregate by any Acquiring Person or a Tender Offer Person or any of their Associates or Affiliates, then, from and after the first occurrence of a Section 11(a)(ii) Event, any Rights that are beneficially owned by (i) any Acquiring Person or Tender Offer Person or any Associate or Affiliate of such Acquiring Person or Tender Offer Person, (ii) a transferee of an Acquiring Person or Tender Offer Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person or Tender Offer Person becomes such, or (iii) a transferee of an Acquiring Person or Tender Offer Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person or Tender Offer Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person or Tender Offer Person to holders of equity interests in such Acquiring Person or Tender Offer Person or to any Person with whom the Acquiring Person or Tender Offer Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is a part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this paragraph, shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise.  The Company shall use all reasonable efforts to insure that the provisions hereof are complied with, but shall have no liability to any holder of a Right Certificate or other Person as a result of its failure to make any determinations with respect to an Acquiring Person, a Tender Offer Person or its Affiliates, Associates or Transferrees.

(iii)             If, on the date of the first occurrence of a Section 11(a)(ii) Event (the "Adjustment Date"), the Company does not have sufficient authorized, unissued and unreserved Common Shares available to permit the exercise in full of all Series A Rights that are exercisable on the Adjustment Date for the number of Common Shares provided by such Series A Rights, then the Exercise Price (as defined below) and the number of Common Shares to be delivered by the Company upon exercise of a Series A Right shall be further adjusted as provided in this subparagraph (iii).
 
 
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(1)          Definitions:

(A)          "Remaining Rights" are the number of Rights remaining outstanding immediately prior to the Adjustment Date (which number shall not include the Rights that are or were beneficially owned by any Acquiring Person or Tender Offer Person (or any Associate or Affiliate or certain transferees thereof) that shall have become void pursuant to Section 11(a)(ii)).

(B)          The "Available Shares" are all unreserved Common Shares which are authorized and unissued immediately prior to the Adjustment Date.

(C)          The "Exercise Price" is the amount of the payment that must be made by the holder of a Series A Right in connection with the exercise of one Series A Right immediately prior to the Adjustment Date.

(2)          (A)          The number of Common Shares to be delivered by the Company  upon exercise of a Series A Right shall be adjusted to equal the number obtained by multiplying (i) the number of Common Shares issuable upon the exercise of all remaining Series A Rights on the Adjustment Date by (ii) the ratio obtained by dividing the Available Shares by the number of Common Shares issuable upon the exercise of all remaining Series A Rights on the Adjustment Date;

(B)          the New Exercise Price shall equal the Exercise Price multiplied by the ratio described in (2)(A) above; and

(C)          in lieu of issuing Common Shares (in whole or in part upon the exercise of Rights) the Company may issue, upon the exercise of Rights, other equity securities of the Company (including, without limitation, shares, or units or fractions of shares, or preferred stock which the Board of Directors of the Company has determined to have substantially the same value as Common Shares (such equity securities are herein called "common share equivalents")).  To the extent that such common share equivalents (or fractions thereof) are substituted for Common Shares upon exercise of the Rights following the occurrence of a Section 11(a)(ii) Event, they shall be substituted on a pro-rata basis with respect to all Rights (other than Rights that are or were beneficially owned by any Acquiring Person or Tender Offer Person (or any Associate or Affiliate or certain transferees thereof) that shall have become void pursuant to Section 11(a) (ii)).  Such common share equivalents shall not be included in Available Shares, and all of the Available Shares shall be reserved, as of the Adjustment Date, for issuance, on a pro-rata basis, upon exercise of the Rights and may not be substituted for common share equivalents upon the exercise of any Right except to the extent that the number of Common Shares required to be delivered upon the exercise of such Rights exceeds the number of Available Shares.
 
 
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(3)          If, at the time any adjustment is required pursuant to this Section 11(a)(iii), the Common Shares shall have no par value, then for the purposes of this Section 11(a)(iii) the par value of the Common Shares shall be deemed to be $.001 per share.

(4)          In the event that there shall not be sufficient authorized but unissued and unreserved Common Shares (or common share equivalents the issuance of which is permitted under Section 11(a)(iii)(2)(C)) to permit the exercise in full of the Rights in accordance with this subparagraph, the Company shall use its best efforts to cause the authorization of sufficient additional Common Shares or common share equivalents to permit such exercise, and if the Board of Directors of the Company shall determine in good faith that it is likely that sufficient additional Common Shares or common share equivalents could be authorized to permit such exercise, the Company may suspend the exercisability of the Series A Rights for a period not to exceed 90 days in order to seek any authorization of additional Common Shares or other common share equivalents.  In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect.

(b)          In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Common Shares entitling them to subscribe for or purchase Common Shares (or shares having the same rights, privileges and preferences as the Common Shares ("equivalent common shares")) or securities convertible into Common Shares or equivalent common shares at a price per Common Share or equivalent common share (or having a conversion price per share, if a security convertible into Common Shares or equivalent common shares) less than the current per share market price of the Common Shares (as determined pursuant to Section 11(d)) on such record date, the Purchase Price Percentage to be in effect after such record date shall be determined by multiplying the Purchase Price Percentage in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Common Shares outstanding on such record date, plus the number of Common Shares which the aggregate offering price of the total number of Common  Shares and/or equivalent common shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase, at such current per share market price, and the denominator of which shall be the number of Common Shares outstanding on such record date, plus the number of additional Common Shares and/or equivalent common shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event shall the consideration to be paid upon the exercise of one Series A Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Series A Right.  In case such subscription price may be paid in a consideration part or all of which shall  be in a form other than cash, the value of such consideration shall be as determined in good faith by a majority of the Continuing Directors (or, if there are no Continuing Directors, by the Board of Directors of the Company), whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights.  Common Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation.  Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights or warrants are not so issued; the Purchase Price Percentage shall again be adjusted to be the Purchase Price Percentage which would then be in effect if such record date had not been fixed.
 
 
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(c)          In case the Company shall fix a record date for the making of a distribution to all holders of the Common Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation or in a statutory share exchange) of evidences or indebtedness or cash or non-cash assets (other than a regular cash dividend or a dividend payable in Common Shares) or subscription rights or warrants (excluding those referred to in Section 11(b)), the Purchase Price Percentage to be in effect after such record date shall be determined by multiplying the Purchase Price Percentage in effect immediately prior to such record date by a fraction, the numerator of which shall be the current per share market price of the Common Shares (as determined pursuant to Section 11(d)) on such record date, less the fair market value (as determined in good faith by a majority of the Continuing Directors or, if there are no Continuing Directors, the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the evidences of indebtedness or cash or non-cash assets so to be distributed on, or the fair market value of such subscription rights or warrants applicable to, one Common Share, and the denominator of which shall be such current per share market price of the Common Shares; provided, however, that in no event shall the consideration to be paid upon the exercise of one Series A Right be less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of one Series A Right.  Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price Percentage shall again be adjusted to be the Purchase Price Percentage that would then be in effect if such record date had not been fixed.

(d)          (1)          For the purpose of any computation hereunder, the "current per share market price" of the Common Shares on any date shall be deemed to be the average of the daily closing prices per share of such Common Shares for the five consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the current per share market price of the Common Shares is determined during a period following the announcement by the issuer of such Common Shares of (A) a dividend or distribution on such Common Shares payable in such Common Shares or securities convertible into such Common Shares (other than the Rights) or (B) any subdivision, combination or reclassification of such Common Shares, and prior to the expiration of five Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market price shall be appropriately adjusted to reflect the current market price per common share equivalent.  The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Shares are listed or admitted to trading or, if the Common Shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use, or, if on any such day the Common shares are not quoted by any such organization, the average of the closing bid and asked prices  as furnished by a professional market maker making a market in the Common Shares selected by a majority of the Continuing Directors (or, if there are no Continuing Directors, the Board of Directors of the Company).  If on any such day no market maker is making a market in the Common Shares, the fair value of such shares on such day as determined in good faith by a majority of the Continuing Directors (or, if there are no Continuing Directors, the Board of Directors of the Company) shall be used in lieu of the closing price for such day.  The term "Trading Day" shall mean a day on which the principal national securities exchange on which the Common Shares are listed or admitted to trading is open for the transaction of business or, if the Common Shares are not listed or admitted to trading on any national securities exchange, a Business Day.  If the Common Shares are not publicly held or not so listed or traded, the current per share market price shall mean the fair value per share as determined in good faith by a majority of the Continuing Directors (or, if there are no Continuing Directors, the Board of Directors of the Company), whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes.
 
 
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(e)          Except as provided below, no adjustment in the Purchase Price Percentage shall be required unless such adjustment would require an increase or decrease of at least one-half of 1% in the Purchase Price Percentage; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment.  Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11, but for the first sentence of this Section 11(e), shall be made no later than the earlier of (i) three days from the date of the transaction that requires such adjustment or (ii) the Final Expiration Date.

(f)          If as a result of an adjustment made pursuant to Section 11(a) or Section 13(a), the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Common Shares, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions contained in Section 11(a) through (c), inclusive and the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Common Shares shall apply on like terms to any such other shares.

(g)          All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price Percentage under this Agreement shall evidence the right to purchase, at the adjusted Purchase Price Percentage, the number of Common Shares (or other securities) purchasable from time to time under this Agreement upon exercise of the Rights, all subject to further adjustment as provided in this Agreement.

(h)          Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Section 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of Common Shares (calculated to the nearest one onetenth of a Common Share) obtained by (i) multiplying (x) the number of one Common Share covered by a Series A Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price.
 
 
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(i)          The Company may elect on or after the date of any adjustment of the Purchase Price or Purchase Price Percentage to adjust the number of Series A Rights, in substitution for any adjustment in the number of Common Shares purchasable upon the exercise of a Series A Right.  Each of the Series A Rights outstanding after such adjustment of the number of Series A Rights shall be exercisable for the number of Common Shares for which a Series A Right was exercisable immediately prior to such adjustment.  Each Series A Right held of record prior to such adjustment of the number of Series A Rights shall become that number of Rights (calculated to the nearest one tenthousandth) obtained by multiplying the number one by the Purchase Price in effect immediately prior to adjustment of the Purchase Price and then dividing such amount by the Purchase Price in effect immediately after adjustment of the Purchase Price.  The Company shall make a public announcement of its election to adjust the number of Series A Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Series A Right Certificates have been issued on or after the Distribution Date, shall be at least three days later than the date of the public announcement.  If Series A Right Certificates have been issued on or after the Distribution Date, upon each adjustment of the number of Series A Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Series A Right Certificates on such record date Series A Right Certificates evidencing, subject to Section 14, the additional Series A Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Series A Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required  by the Company, new Series A Right Certificates evidencing all the Series A Rights to which such holders shall be entitled after such adjustment.  Series A Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for in this Agreement, may bear, at the option of the Company, the adjusted Purchase Price or Purchase Price Percentage, and shall be registered in the names of the holders of record of Series A Right Certificates on the record date specified in the public announcement.

(j)          Irrespective of any adjustment or change in the Purchase Price, the Purchase Price Percentage or the number of Common Shares issuable upon the exercise of the Rights and the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price, the Purchase Price Percentage and the number of Common Shares which were expressed in the initial Right Certificates issued under this Agreement.

(k)          Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the Common Shares issuable upon exercise of the Rights, the Company shall take such corporate action, if any, which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Common Shares at such adjusted Purchase Price.
 
 
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(l)          In any case in which this Section 11 shall require that an adjustment in the Purchase Price or Purchase Price Percentage be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date the Common Shares and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Common Shares and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price or Purchase Price Percentage in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment.

(m)          Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price or Purhase Price Percentage, in addition to those adjustments expressly required by this Section 11, as and to the extent that in their sole discretion a majority of the Continuing Directors (or, if there are no Continuing Directors, the Board of Directors of the Company) shall determine to be advisable in order that any (i) consolidation or subdivision of the Common Shares, (ii) issuance wholly for cash of any of the Common Shares at less than the current market price, (iii) issuance wholly for cash of Common Shares or securities which by their terms are convertible into or exchangeable for Common Shares, (iv) dividends on Common Shares payable in Common Shares or (v) issuance of rights, options or warrants referred to in paragraph (b) of this Section 11, hereafter made by the Company to holders of its Common Shares shall not be taxable to such shareholders.

(n)          The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23, 24 or 27, take (or permit any Subsidiary of the Company to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights unless such action is approved by the Board of Directors of the Company at a time when a majority of the directors then serving are Continuing Directors.

(o)          Anything in this Agreement or the Rights to the contrary notwithstanding, in the event that at any time after the date of this Agreement and prior to the Distribution Date, the Company shall (i) declare or pay any dividend on the Common Shares payable in Common Shares or (ii) effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise) into a greater or lesser number of Common Shares, then in any such case (x) the number of Common Shares purchasable after such event upon proper exercise of each Series A Right shall be determined by multiplying the number of Common Shares so purchasable immediately prior to such event by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares outstanding immediately before such event and (y) each Common Share outstanding immediately before such event shall have issued with respect to it that number of Rights which each Common Share outstanding immediately prior to such event had issued with respect to it.  The adjustments provided for in this Section 11(o) shall be made successively whenever such a dividend is declared or paid or such a subdivision, combination or consolidation is effected.  If an event occurs which would require an adjustment under Section 11(a)(ii) and this Section 11(o), the adjustments provided for in this Section 11(o) shall be in addition and prior to any adjustment required pursuant to Section 11(a)(ii).
 
 
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(p)          If any adjustment in the Purchase Price pursuant to this Section 11 would not be permitted by law or under the Company's Articles of Incorporation, no issuance of securities or distribution of evidences of indebtedness or other assets or subscription rights or warrants, as the case may be, that would require such an adjustment but for the limitations established by law or the Company's Articles of Incorporation shall be made by the Company.

Section 12.  Certificate of Adjusted Purchase Price or Number of Shares.  Whenever an adjustment is made as provided in this Agreement, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent and with the transfer agent for the Common Shares a copy of such certificate and (c) at any time after the Distribution Date, mail a brief summary thereof to each holder of record of a Right Certificate in accordance with Section 25.  The Rights Agent shall be fully protected in relying on such certificate and on any adjustment therein contained.

Section 13.  Consolidation, Merger, Statutory Share Exchange or Sale or Transfer of Assets or Earning Power.

(a)          In the event, after the Distribution Date or within 15 days prior thereto, directly or indirectly,

(w)          the Company shall consolidate with, or merge with an into, any other Person (other than a Subsidiary of the Company), and the Company shall not be the continuing or surviving corporation of such consolidation or merger,

(x)          any Person (other than a Subsidiary of the Company) shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such consolidation or merger, all or part of the outstanding Common Shares of the Company held by existing shareholders of the Company shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or money or any other property,

(y)          The Company shall effect a statutory share exchange with the outstanding Common Shares of the Company being exchanged for stock or other securities of any other Person, money or other property, or

(z)          the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or a series of related transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or one or more of its wholly owned Subsidiaries), then, and in each such case (except as may be contemplated by Section 13(e)), proper provision shall be made so that (i) each holder of a Series B Right (except as otherwise provided herein) shall thereafter have the right to receive, upon the exercise thereof by payment of the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, nonassessable and freely tradeable Common Shares (and/or fraction of shares thereof) of the Principal Party (as hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or adverse claims, as shall be equal to the result obtained by dividing the then current Purchase Price for the Series B Right by 50% of the then current per share market price of the Common Shares of such Principal Party (determined pursuant to Section 11(d)) on the date of consummation of such Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such merger, consolidation, statutory share exchange, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party; and (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares to permit the exercise of all outstanding Rights) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its Common Shares thereafter deliverable upon the exercise of the Rights.
 
 
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(b)          "Principal Party" shall mean:

(i)          in the case of any transaction described in clauses (w), (x) or (y) of Section 13(a), the Person that is the issuer of any securities into which Common Shares of the Company are converted in such merger, consolidation or exchange, or if no securities are so issued, the Person that is the other party to such merger, consolidation or exchange; and

(ii)          in the case of any transaction described in clause (z) of Section 13(a), the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions; provided, however, that in any such case, (1) if the Common Shares of such Person are not at such time or have not been continuously over the preceding 12 month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Shares of which are and have been so registered, "Principal Party" shall refer to such other Person, and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Shares of two or more of which are and have been so registered, "Principal Party" shall refer to whichever of such Persons is the issuer of the Common Shares having the greatest aggregate market value.

(c)          The Company shall not consummate any Section 13 Event unless the Principal Party shall have a sufficient number of authorized, unreserved Common Shares which have not been issued or are held in treasury to permit the exercise in full of the Rights in accordance with this Agreement and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any Section 13 Event, the Principal Party will:
 
 
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(i)           prepare and file a registration statement under the Act, with respect to the Rights and the securities purchasable upon exercise of the Rights, on an appropriate form, and use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (1) the date as of which the Rights are no longer exercisable for such securities or (2) the Final Expiration Date;

(ii)           take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights; and

(iii)           deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 under the Exchange Act.

(d)          The Company shall not enter into any transaction of the kind referred to in this Section 13 if at the time of such transaction there are any rights, warrants, instruments or securities outstanding or any agreements or arrangements which, as a result of the consummation of such transaction, would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights.  Without limiting the generality of the preceding sentence, in case the Principal Party which is to be a party to a transaction of the kind referred to in this Section 13 has a provision in any of its authorized securities or in its articles of incorporation or by-laws or other instrument governing its corporate affairs, which provision would have the effect of (i) causing such Principal party to issue, in connection with, or as a consequence of, the consummation of a transaction of the kind referred to in this Section 13, Common Shares of such Principal Party at less than the then current per share market price (determined pursuant to Section 11(d)) or securities exercisable for or convertible into Common Shares of such Principal Party at less than such then current market price (other than to holders of Rights pursuant to this Agreement) or (ii) providing for any special payment, tax or similar provisions in connection with the issuance of Common Shares of such Principal Party pursuant to the provisions of Section 13; then, in such event, the Company shall not consummate any such transaction unless prior thereto the provision in question of such Principal Party shall have been cancelled, waived or amended so as to avoid any of the effects referred to in clauses (i) and (ii), or the authorized securities shall have been redeemed, so that the applicable provision will have no effect in connection with, or as a consequence of, the consummation of the proposed transaction.

(e)          Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be applicable to a transaction described in Section 13(a) if (i) such transaction is consummated with a Person or Persons who acquired Common Shares pursuant to a tender offer or exchange offer for all outstanding Common Shares which complies with the provisions of clause (2) of Section 11(a)(ii)(A) (or a wholly owned Subsidiary of any such Person or Person), (ii) the price per Common Share offered in such transaction is not less than the price per Common Share paid to all holders of Common Shares whose shares were purchased pursuant to such tender offer or exchange offer and (iii) the form of consideration being offered to the remaining holders of Common Shares pursuant to such transaction is the same as the form of consideration paid pursuant to such tender offer or exchange offer.  Upon consummation of any such transaction contemplated by this Section 13(e), all Rights not yet exercised hereunder shall expire.
 
 
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The provisions of this Section 13 shall similarly apply to successive mergers, consolidations, statutory share exchanges or sales or other transfers.

Section 14.  Fractional Rights and Fractional Shares.

(a)          The Company may, but shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights.  In lieu of such fractional Rights, there may be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Right.  For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable.  The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by a majority of the Continuing Directors (or if there are no Continuing Directors, the Board of Directors of the Company).  If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by a majority of the Continuing Directors (or if there are no Continuing Directors, the Board of Directors of the Company) shall be used in lieu of the closing price for such day.

(b)          The Company may, but shall not be required to issue fractions of Common Shares upon exercise of the Series A Rights or to distribute certificates which evidence fractions of Common Shares.  In lieu of fractional Common Shares, the Company may pay to the registered holders of Series A Rights at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Common Share. For purposes of this Section 14(b), the current market value of a Common Share shall be the closing price of a Common Share (as determined pursuant to Section 11(d)(ii)) for the Trading Day immediately prior to the date of such exercise.

(c)          The holder of a Right by the acceptance of the Rights expressly waives such holder's right to receive any fractional Rights or any fractional shares (except as provided above) upon exercise of a Right.
 
 
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Section 15.  Rights of Action.  All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under Section 18, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of any Common Share), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Shares), may, in such holder's own behalf and for such holder's own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holder's right to exercise the Rights evidenced by such Right Certificate (or, prior to the Distribution Date, the Common Shares certificate) in the manner provided in such Right Certificate and in this Agreement.  Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of this Agreement.

Section 16.  Agreement of Right Holders.  Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that:

(a)          prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Shares;

(b)          after the Distribution date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer;

(c)          the Company and the Rights Agent may deem and treat the person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Shares certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificate or the associated Common Shares certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary;

(d)          the Company may issue Rights after the Record Date but prior to the Distribution Date as provided in this Agreement; and

(e)          notwithstanding anything in this Agreement or the Rights Certificates to the contrary, the Company, the Rights Agent, the Board of Directors of the Company and the Continuing Directors shall not have any liability to any holder of a Right or other Person as a result of the inability of the Company or the Rights Agent to perform any of its obligations under this Agreement by reason  of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority prohibiting or otherwise restraining performance of such obligation.
 
 
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Section 17.  Right Certificate Holder Not Deemed a Shareholder.  No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Common Shares or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained in this Agreement or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in Section 25), or to receive dividends or subscriptions rights, or otherwise, until the Right or Rights evidenced by such Right Certificates shall have been exercised in accordance with the provisions of this Agreement.

Section 18.  Concerning the Rights Agent.

(a)          The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it under this Agreement and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties under this Agreement.  Prior to transmitting to the Company the Purchase Price derived from the exercise of the Right Certificates, the Rights Agent is authorized to deduct therefrom an amount sufficient to pay in full any outstanding fees and expenses incurred in the performance of its duties hereunder.  The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability or expense (including the costs and expenses of defending against any claim of liability), incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement.

(b)          The Rights Agent shall be protected and shall incur no liability for, or in respect of any action taken, suffered or omitted by it in connection with, its administration of this Agreement in reliance upon any Right Certificate or certificate for the Common Shares or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons, or otherwise upon the advise of its counsel as set forth in Section 20.

Section 19.  Merger or Consolidation or Change of Name of Rights Agent.

(a)          Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties to this Agreement; provided, however, that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21.  If at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement.
 
 
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(b)          In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement.

Section 20.  Duties of Rights Agent.  The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and holders of Right Certificates (or, prior to the Distribution Date, the Common Shares certificates), by their acceptance of the Rights, shall be bound:

(a)          The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion.

(b)          Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation , the identify of any Acquiring Person and the determination of the "current per share market price") be proved or established by the Company prior to taking or suffering any action under this Agreement, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman, the Chief Executive Officer, the President, any Vice President or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.

(c)          The Rights Agent shall be liable hereunder to the Company and any other Person only for its own gross negligence, bad faith or willful misconduct.
 
 
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(d)          The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only.

(e)          The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery of this Agreement (except the due execution by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to this Agreement) or any adjustment in the terms of the Rights (including the manner, method or amount thereof), or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice that such change or adjustment is required); nor shall it by any act under this Agreement be deemed to make any representation or warranty as to the authorization or reservation of any securities to be issued pursuant to this Agreement or any Right Certificate or as to whether any Common Shares or other security will, when issued, be validly authorized and issued, fully paid and nonassessable.

(f)          The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement.

(g)          The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties under this Agreement from any one of the Chairman, the Chief Executive Officers, the President, any Vice President or the Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer or for delay in acting while waiting for those instructions.

(h)          The Rights Agent and any shareholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company or its Subsidiaries may be interested, or contract with or lend money to the Company or its Subsidiaries or otherwise act as fully and freely as though it were not the Rights Agent under this Agreement.  Nothing in this Agreement shall preclude the Rights Agent from acting in any other capacity for the Company or its Subsidiaries or for any other legal entity.

(i)          The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty under this Agreement either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof.
 
 
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(j)          No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under this Agreement or in the exercise of its rights or powers if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it.

(k)          If, with respect to any Right Certificate surrendered to the Rights Agent for exercise or transfer, the form of assignment or form of election to purchase, as the case may be, has either not been duly completed and executed or indicates an affirmative response to enumerated clause 1 and/or 2 on the reverse side of the applicable Right Certificate, the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company.

Section 21.  Change of Rights Agent.  The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Shares by registered or certified mail, and, after the Distribution Date, to the holders of the Right Certificates by first-class mail.  The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares by registered or certified mail, and, after the Distribution Date, to the holders of the Right Certificates by first-class mail.  If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent.  If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit such holder's Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent.  Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or of the States of Colorado or New York (or of any other state of the United States so long as such corporation is authorized to do business in the States of Colorado or New York), in good standing, having an office in the States of Colorado or New York which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority or (b) an affiliate of a corporation described in clause (a) of this sentence.  After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it under this Agreement, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose.  Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares and, after the Distribution Date, mail a notice thereof in writing to the registered holders of the Right Certificates.  Failure to give any notice provided for in this Section, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.
 
 
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Section 22.  Issuance of New Right Certificates.  Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in the such form as may be approved by its Board of Directors  to reflect any adjustment or change in the Purchase Price, the Purchase Price Percentage or the number or kind or class of Common Shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement.

Section 23.  Redemption.

(a)          Subject to the provisions of Section 27, the Board of Directors  of the Company may, at its option, at any time prior to the Close of Business on the Distribution Date redeem all but not less than all of the then outstanding Series A Rights or Series B Rights, or all outstanding Series A and Series B Rights at a redemption price of $.0001 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date of this Agreement (such redemption price being hereinafter referred to as the "Redemption Price"); provided, however, that for the purposes hereof the Board of Directors of the Company shall be entitled to so redeem the Rights after the time at which any Person first becomes an Acquiring Person only if a majority of the directors then serving are Continuing Directors.  The Company may, at its option, pay the Redemption Price in cash, Common Shares of the Company (based on the current per share market price of the Common Shares at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors.  The redemption of the Rights by the Board of Directors may be made effective at such time and on such basis and with such conditions as the Board of Directors and the Company shall not have any liability to any person as a result of the redemption of Rights pursuant to the terms of this Section 23.

(b)          Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights pursuant to paragraph (a) of this Section 23, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held.  Promptly after the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares; provided, however, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption.  Any notice which is mailed in the manner provided in this paragraph shall be deemed given whether or not the holder receives the notice.  Each such notice of redemption will state the method by which the payment of the Redemption Price will be made.  Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time except as specifically set forth in this Section or in Section 24 or in connection with the purchase of Common Shares prior to the Distribution Date.
 
 
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Section 24.  Exchange.

(a)          The Board of Directors of the Company may (at a time when a majority of the directors then serving are Continuing Directors), at its option, at any time after a Person becomes an Acquiring Person or a Tender Offer Person, exchange all or part of the then outstanding and exercisable Series A Rights and/or Series B. Rights (which shall not include Rights that have become void pursuant to the provisions of Section 11(a) (ii)) for Common Shares, with each Right to be exchanged for one Common Share (such number of shares being hereinafter referred to as the "Exchange Ratio"). The Exchange Ratio shall be appropriately adjusted to reflect any stock split, stock dividend or similar transaction affecting the Common Shares that occurs after the Adjustment Date.  Notwithstanding the foregoing, the Board of Directors of the Company shall not be empowered to effect such exchange at any time after any Person (other than (1) the Company, (2) any wholly owned Subsidiary of the Company or (3) any employee benefit plan of the Company or of any Subsidiary of the Company), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common Shares then outstanding.

(b)          Immediately upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of Common Shares equal to the number of such Rights held by such holder multiplied by the Exchange Ratio.  The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange.  The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent.  Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice.  Each such notice of exchange will state the method by which the exchange of the Common Shares for Rights will be effected and, in the event of any partial exchange, the number of Rights will be exchanged.  Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 11(a)(ii)) held by each holder of Rights.

(c)          In any exchange pursuant to this Section 24, the Company, at its option, may substitute common share equivalents, as such term is defined in Section 11(a)(iii)(3)(C)), for Common Shares exchangeable for Rights, at the initial rate of one common share equivalent for each Common Share, as appropriately adjusted to reflect stock splits, stock dividends or similar transactions affecting the Common Shares that occur after the date of this Agreement.

(d)          In the event that there shall not be sufficient Common Shares or common share equivalents, authorized, unissued and unreserved to permit any exchange or Rights as contemplated in accordance with this Section 24, the Company shall take all such action as may be necessary to authorize additional Common Shares or common share equivalents for issuance upon exchange of the Rights.
 
 
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(e)          The Company may, but shall not be required to issue fractions of Common Shares or to distribute certificates which evidence fractional Common Shares.  In lieu of such fractional Common Shares, the Company may pay to the registered holders of the Right Certificates with regard to which such fractional Common Shares would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Common Share.  For the purposes of this paragraph (e), the current market value of a whole Common Share shall be the closing price of a Common Share (as determined pursuant to Section 11) for the Trading Day immediately prior to the date of exchange pursuant to this Section.  The Board of Directors and the Company shall not have any liability to any Person as a result of the exchange of Rights pursuant to the terms of this Section.

Section 25.  Notice of Certain Events.

(a)          In case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of its Common Shares or to make any other distribution to the holders of its Common Shares, or (ii) to offer to the holders of its Common Shares rights or warrants to subscribe for or to purchase any additional Common Shares or shares of stock of any class or any other securities, rights or options, or (iii) to effect any reclassification of its Common Shares (other than a reclassification involving only the subdivision of outstanding Common Shares), or (iv) to effect any consolidation or merger into or with any other Person (other than a wholly owned Subsidiary of the Company), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), on one or a series of related transactions, of 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person or Persons (other than the Company and/or any of its wholly owned Subsidiaries), or (v) to effect any statutory share exchange with the outstanding Common Shares of the Company being exchanged for stock or other securities of any other corporation or money or other property, or (vi) to effect the liquidation, dissolution or winding up of the Company, or (vii) to declare or pay any dividend on the Common Shares payable in Common Shares or to effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise), then, in each such case, the Company shall give to each holder of a Right Certificate, to the extent feasible and in accordance with Section 26, a notice of such proposed  action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, exchange, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the Common Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the Common Shares for purposes of such action, and in the case of any such other action, at least l0 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares, whichever shall be the earlier.
 
 
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(b)          In case any Section ll(a)(ii) Event shall occur, then, in any such case, the Company shall as soon as practicable thereafter give to each holder of a Right Certificate, in accordance with Section 26, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section ll(a) (ii).

Section 26.  Notices.  Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage-prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows:

CEL-SCI CORPORATION
8229 Boone Boulevard, Suite 802
Vienna, Virginia  22182

Subject to the provisions of Section 2l, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage-prepaid, addressed (until another address is filed in writing with the Company) as follows:

Computershare Trust Company, N.A..
350 Indiana St., Suite 800
Golden, CO  80401-5099

Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postageprepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.

Section 27.  Supplements and Amendments.  The Company may and the Rights Agent shall, if so directed by the Company, from time to time supplement or amend this Agreement, provided that at the time of such supplement or amendment no Person has become an Acquiring Person or a majority of the directors are Continuing Directors, without the approval of any holders of Common Shares or Right Certificates in order (i) to extend the Final Expiration Date or the period during which the Rights may be redeemed, notwithstanding anything to the contrary provided in clause (iv) hereof, (ii) to cure any ambiguity, or to correct or supplement any provision contained in this Agreement which may be defective or inconsistent with any other provisions in this Agreement, (iii) prior to the Distribution Date, to otherwise change or supplement any provision in this Agreement in any manner which the Company may deem necessary or desirable, or (iv) following the Distribution Date, to otherwise change or supplement any provision in this Agreement in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Right Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person).  Without limiting the foregoing, the Company may at any time prior to such time as any Person becomes an Acquiring Person or a Tender Offer Person amend this Agreement to change the thresholds set forth in Sections l(a) and 3(a) of this Agreement.
 
 
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Section 28.  Successors.  All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.

Section 29.  Benefits of this Agreement.

(a)          Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of Common Shares) any legal or equitable right, remedy or claim under this Agreement.  This Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of Common Shares).

(b) The Board of Directors of the Company (and/or, as provided for in this Agreement, the Continuing Directors) shall have the exclusive power and total and complete authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board of Directors or the Company (and/or, as provided for in this Agreement, a majority of the Continuing Directors, as the case may be) or necessary or advisable in the administration of this Agreement, including without limitation the right and power to interpret this Agreement and to make conclusively all determinations deemed necessary or advisable for the administration of this Agreement.  All such acts, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) that are done or made by the Board of Directors and/or a majority of the Continuing Directors, as the case may be, in good faith shall (x) be final, conclusive and binding on the Company, the Rights Agent and the holders of the Rights and all other parties and (y) not subject the Board of Directors or the Continuing Directors to any liability to the holders of the Rights or any other party.

Section 30. Severability.  If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided, however, that notwithstanding  anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board of Directors of the Company determines, at a time when a majority of the directors then serving are Continuing Directors, in their good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 shall be reinstated and shall not expire until the close of business on the tenth day following the date of such determination by the Board of Directors.

Section 3l.  Governing Law.  This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Colorado and for all purposes shall be governed by and construed in accordance with the laws of the State of Colorado.
 
 
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Section 32.  Counterparts.  This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

Section 33.  Descriptive Headings.  Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

CEL-SCI CORPORATION


By /s/ Geert R. Kersten                                                                    
Geert R. Kersten, Chief Executive Officer


COMPUTERSHARE TRUST COMPANY, N.A..



By /s/ Kelle Gwinn                                                                            
Kelle Gwinn, Vice President

 
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SERIES A RIGHTS CERTIFICATE

CEL-SCI CORPORATION
 
Certificate No. R-    Rights
 
NOT EXERCISABLE AFTER OCTOBER 30, 2020, OR SUCH EARLIER DATE AS THE BOARD OF DIRECTORS ORDERS REDEMPTION OR EXCHANGE OF THE RIGHTS.  THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.000l PER RIGHT (SUBJECT TO ADJUSTMENT) AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENHT.  UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY A PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND SUBSEQUENT HOLDERS OF SUCH RIGHTS MAY BECOME NULL AND VOID.

This certifies that                      , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement dated as of November 7, 2007 (the “Rights Agreement”) between Cel-Sci Corporation, a Colorado corporation (the "Company"), and Computershare Trust Company, N.A.. (the “Rights Agent”), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 p.m. (Denver, Colorado) on October 30, 2020 at the office of or offices of the Rights Agent designated for such purpose, or of its successor as Rights Agent, one share of the Common Stock (the "Common Shares") of the Company, at a purchase price equal to 20% of the current per share market price of the Company's Common Stock, computed in accordance with the Rights Agreement (the "Purchase Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly completed and executed.

As provided in the Rights Agreement, the number of Rights evidenced by this Rights Certificate, the Purchase Price and the number of shares of Common Stock which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events.

This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and which contains a full description of the rights, limitations, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates (which limitations of rights include the suspension of the exercisability of such Rights under certain circumstances specified in the Rights Agreement).  Copies of the Rights Agreement are on file with the Secretary at the principal executive office of the Company and will be mailed without charge by the Company or the Rights Agent to the holder of this certificate promptly following receipt by the Company or the Rights Agent of a written request therefor.
 
 
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Upon the occurrence of a Section ll(a)(ii) Event (as such term is defined in the Rights Agreement), any Rights evidenced by this Right Certificate that are beneficially owned by (i) an Acquiring Person, a Tender Offer Person  or an Associate or Affiliate of such Acquiring Person or Tender Offer Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any such Acquiring Person, Tender Offer Person or Associate or Affiliate who becomes a transferee after the Acquiring Person or Tender Offer Person becomes such or (iii) under certain circumstances specified in the Rights Agreement, a transferee of such Acquiring Person, Tender Offer Person or Associate or Affiliate who becomes a transferee prior to or concurrently with the Acquiring Person or Tender Offer Person becoming such, shall be null and void from and after the occurrence of such Section ll(a)(ii) Event.

This Right Certificate, with or without other Right Certificates, upon surrender at the office or offices of the Rights Agent designated for such purpose, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Common Stock as the Rights evidenced by the Right Certificate or Right Certificates surrendered.  If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of Rights not exercised.

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may, but are not required to, be redeemed by the Company (but, in certain events, only if a majority of the directors then serving are Continuing Directors, as defined in the Rights Agreement) at a redemption price of $.000l per Right, subject to adjustment as provided in the Rights Agreement, payable in cash, Common Shares (as such term is defined in the Rights Agreement) or any other form of consideration deemed appropriate by the Board of Directors, and (ii) may, but are not required to, be exchanged by the Company (if a majority of the directors then serving are Continuing Directors) in whole or in part for Common Shares or other property.  The Board of Directors of the Company and the Company shall not have any liability to any person as a result of the redemption or exchange of the Rights pursuant to the provisions of the Rights Agreement.

Fractional Shares, if required, may be issued upon the exercise of any Right or Rights evidenced hereby.  In the alternative, the Company may, in lieu of issuing Fractional Shares, redeem the Fractional Shares for cash or other property as provided in the Rights Agreement.
 
 
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No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Common Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement.

This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

WITNESS the manual or facsimile signature of the proper officer of the Company.

Dated:                                                   
CEL-SCI CORPORATION


By:                                                                       
 
Title: _____________________________


Countersigned:

Computershare Trust Company, N.A..


By:                                                                                           
        Authorized Signature

 
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FORM OF ASSIGNMENT


(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)


FOR VALUE RECEIVED                           hereby sells, assigns and transfers unto:
__________________________________________
(Please print name and address of transferee)

__________________________________________

__________________________________________


Rights represented by this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ___________________________ Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution.

Please insert social security or other identifying number of Transferee:                               


Dated:                      

                                                                                                         
Signature


Signature Guaranteed:
 
 The signature must be medallion guaranteed by a financial institution (commercial bank, stockbroker, savings and loan, credit union or trust company) that is a participant in the Securities Transfer Agents Medallion Program, pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended.  A notary public is not sufficient.).
 
 
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CERTIFICATE
 
The undersigned hereby certifies (after due inquiry and to the best of its knowledge) by checking the appropriate boxes that:

(l)  this Right Certificate
[   ] is
[   ] is not

being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); and

(2)  the undersigned
[   ] did
[   ] did not

acquire the Rights evidenced by this Right Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.


                                                                                                                 
Signature


NOTICE

The signature of the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever.
 
 
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FORM OF ELECTION TO EXERCISE

(To be executed if holder desires to exercise
Rights represented by the Right Certificate)
 
To CEL-SCI CORPORATION

The undersigned hereby irrevocably elects to exercise __________ Rights represented by this Right Certificate to purchase the Common Shares issuable upon the exercise of such Rights (or such other securities of the Company or of any other person which may be issuable upon exercise of the Rights) and requests that certificates for such shares be issued in the name of:

__________________________________________
(Please print name and address of transferee)

__________________________________________

__________________________________________

If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to:
 
__________________________________________
(Please print name and address of transferee)

__________________________________________

__________________________________________

Please insert social security
or other identifying number:                               

Dated:                  
                                                                                              `                 
Signature

Signature Guaranteed:
 
The signature must be medallion guaranteed by a financial institution (commercial bank, stockbroker, savings and loan, credit union or trust company) that is a participant in the Securities Transfer Agents Medallion Program, pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended.  A notary public is not sufficient.)
 
 
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CERTIFICATE
 
The undersigned hereby certifies (after due inquiry and to the best of its knowledge) by checking the appropriate boxes that:

(l)  the Rights evidenced by this Right Certificate

[   ] are
[   ] are not

being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); and

(2)  the undersigned

[   ] did
[   ] did not

acquire the Rights evidenced by this Right Certificate from any Person who is, was or subsequently became an Acquiring Person or an affiliate or Associate of an Acquiring Person.

                                                                                                                 
Signature


NOTICE

The signature of the foregoing Election to Exercise and Certificate must correspond to the name as written upon the face of this Right Certificate in every particular, without alternation or enlargement or any change whatsoever.

 
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SERIES B RIGHTS CERTIFICATE

CEL-SCI CORPORATION
 
Certificate No. R-    Rights
 
NOT EXERCISABLE AFTER OCTOBER 30, 2020, OR SUCH EARLIER DATE AS THE BOARD OF DIRECTORS ORDERS REDEMPTION OR EXCHANGE OF THE RIGHTS.  THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.000l PER RIGHT (SUBJECT TO ADJUSTMENT) AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENHT.  UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY A PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND SUBSEQUENT HOLDERS OF SUCH RIGHTS MAY BECOME NULL AND VOID.

This certifies that                      , or registered assigns, is the registered owner of the number of Rights set forth above.  The Rights are subject to the terms, provisions and conditions of the Rights Agreement dated November 7, 2007 (the “Rights Agreement”) between Cel-Sci Corporation, a Colorado corportaion (the “Company”), and Computershare Trust Company, N.A.. (the “Rights Agent”).  The Rights may be exercised at the office or offices of the Rights Agent designated for such purpose, or of its successor as Rights Agent, or any other office designated by the Company, by payment of $100 for each Right exercised (the Purchase Price) upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly completed and executed.

The Rights represented by this Certificate, if not exercised, redeemed or exchanged in accordance with the Rights Agreement, will expire at 5:00 p.m. (Mountain Time) on October 30, 2020.

In the event, after the Distribution Date (as that term is defined in the Rights Agreement) or within 15 days prior thereto, directly or indirectly,

(a)          the Company shall consolidate with, or merge with an into, any other Person (other than a Subsidiary of the Company), and the Company shall not be the continuing or surviving corporation of such consolidation or merger,

(b)          any Person (other than a Subsidiary of the Company) shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such consolidation or merger, all or part of the outstanding Common Shares of the Company held by existing shareholders of the Company shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or money or any other property,
 
 
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(c)          The Company shall effect a statutory share exchange with the outstanding Common Shares of the Company being exchanged for stock or other securities of any other Person, money or other property, or

(d)          the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or a series of related transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or one or more of its wholly owned Subsidiaries),

then, and in each such case, proper provision shall be made so that the holder of this Series B Right Certificate (except as otherwise provided in the Rights Agreement) shall thereafter have the right to receive, upon the exercise thereof by payment of the then current Purchase Price in accordance with the terms of the Rights Agreement, such number of validly authorized and issued, fully paid, non-assessable and freely tradeable Common Shares (and/or fraction of shares thereof) of the Principal Party, not subject to any liens, encumbrances, rights of first refusal or adverse claims, as shall be equal to the result obtained by dividing the Purchase Price for each Series B Right represented by this Certificate by 50% of the then current per share market price of the Common Shares of such Principal Party (determined pursuant to the Rights Agreement) on the date of such consolidation, merger or other event specified above.

Principal Party (except as otherwise provided in the Rights Agreement means (i) in the case of any transaction described in clauses (a), (b) or (c) above, the Person that is the issuer of any securities into which Common Shares of the Company are converted in such merger, consolidation or exchange, or if no securities are so issued, the Person that is the other party to such merger, consolidation or exchange; and (ii) in the case of any transaction described in (d) above, the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions.

Notwithstanding the above, the Rights evidenced by this Certificate may not be exercised if a transaction described in (a), (b), (c), or (d) above is with a person who acquired Common Shares through a tender offer or exchange offer for all outstanding Common Shares approved by the Board of Directors of the Company in accordance with the terms of the Rights Agreement.

As provided in the Rights Agreement, the number of Rights evidenced by this Rights Certificate, the Purchase Price and the securities which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events.

 
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This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and which contains a full description of the rights, limitations, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates (which limitations of rights include the suspension of the exercisability of such Rights under certain circumstances specified in the Rights Agreement).  Copies of the Rights Agreement are on file with the Secretary at the principal executive office of the Company and will be mailed without charge by the Company or the Rights Agent to the holder of this certificate promptly following receipt by the Company or the Rights Agent of a written request therefor.

Upon the occurrence of a Section ll(a)(ii) Event (as such term is defined in the Rights Agreement), any Rights evidenced by this Right Certificate that are beneficially owned by (i) an Acquiring Person, a Tender Offer Person  or an Associate or Affiliate of such Acquiring Person or Tender Offer Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any such Acquiring Person, Tender Offer Person or Associate or Affiliate who becomes a transferee after the Acquiring Person or Tender Offer Person becomes such or (iii) under certain circumstances specified in the Rights Agreement, a transferee of such Acquiring Person, Tender Offer Person or Associate or Affiliate who becomes a transferee prior to or concurrently with the Acquiring Person or Tender Offer Person becoming such, shall be null and void from and after the occurrence of such Section ll(a)(ii) Event.

This Right Certificate, with or without other Right Certificates, upon surrender at the office or offices of the Rights Agent designated for such purpose, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Common Stock as the Rights evidenced by the Right Certificate or Right Certificates surrendered.  If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of Rights not exercised.

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may, but are not required to, be redeemed by the Company (but, in certain events, only if a majority of the directors then serving are Continuing Directors, as defined in the Rights Agreement) at a redemption price of $.000l per Right, subject to adjustment as provided in the Rights Agreement, payable in cash, Common Shares (as such term is defined in the Rights Agreement) or any other form of consideration deemed appropriate by the Board of Directors, and (ii) may, but are not required to, be exchanged by the Company (if a majority of the directors then serving are Continuing Directors) in whole or in part for Common Shares or other property.  The Board of Directors of the Company and the Company shall not have any liability to any person as a result of the redemption or exchange of the Rights pursuant to the provisions of the Rights Agreement.

Fractional Shares, if required, may be issued upon the exercise of any Right or Rights evidenced hereby.  In lieu of issuing Fractional Shares, cash or other property may be paid as provided in the Rights Agreement.
 
 
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No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Common Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement.

This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

WITNESS the manual or facsimile signature of the proper officer of the Company.

Dated:               
CEL-SCI CORPORATION
 
By:                                                                                                       

Title: ____________________________

Countersigned:

Computershare Trust Company, N.A..


By:                                                                                           
        Authorized Signature
 
 
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[Form of Reverse Side of Right Certificate]

FORM OF ASSIGNMENT


(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)
 
FOR VALUE RECEIVED                           hereby sells, assigns and transfers unto:
 
__________________________________________
(Please print name and address of transferee)

__________________________________________

__________________________________________


Rights represented by this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ______________________ Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution.

Please insert social security or other identifying number of Transferee:                               


Dated:                      

                                                                                                         
Signature


Signature Guaranteed:
 
 The signature must be medallion guaranteed by a financial institution (commercial bank, stockbroker, savings and loan, credit union or trust company) that is a participant in the Securities Transfer Agents Medallion Program, pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended.  A notary public is not sufficient.)
 
 
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CERTIFICATE
 
The undersigned hereby certifies (after due inquiry and to the best of its knowledge) by checking the appropriate boxes that:

(l)  this Right Certificate
[   ] is
[   ] is not

being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); and

(2)  the undersigned
[   ] did
[   ] did not

acquire the Rights evidenced by this Right Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.


                                                                                                                 
Signature

 
NOTICE

The signature of the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever.
 
 
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FORM OF ELECTION TO EXERCISE

(To be executed if holder desires to exercise
Rights represented by the Right Certificate)

To CEL-SCI CORPORATION

The undersigned hereby irrevocably elects to exercise __________ Rights represented by this Right Certificate to purchase the Common Shares issuable upon the exercise of such Rights (or such other securities of the Company or of any other person which may be issuable upon exercise of the Rights) and requests that certificates for such shares be issued in the name of:

__________________________________________
(Please print name and address of transferee)

__________________________________________

__________________________________________

If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to:

__________________________________________
(Please print name and address of transferee)

__________________________________________

__________________________________________

Please insert social security
or other identifying number:                               

Dated:                  
                                                                                                   
Signature

Signature Guaranteed:
 
 The signature must be medallion guaranteed by a financial institution (commercial bank, stockbroker, savings and loan, credit union or trust company) that is a participant in the Securities Transfer Agents Medallion Program, pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended.  A notary public is not sufficient.).
 
 
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CERTIFICATE
 
The undersigned hereby certifies (after due inquiry and to the best of its knowledge) by checking the appropriate boxes that:

(l)  the Rights evidenced by this Right Certificate

[   ] are
[   ] are not

being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); and

(2)  the undersigned

[   ] did
[   ] did not

acquire the Rights evidenced by this Right Certificate from any Person who is, was or subsequently became an Acquiring Person or an affiliate or Associate of an Acquiring Person.

                                                                                                 
Signature


NOTICE

The signature of the foregoing Election to Exercise and Certificate must correspond to the name as written upon the face of this Right Certificate in every particular, without alternation or enlargement or any change whatsoever.

 
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EXHIBIT B
 
CEL-SCI CORPORATION
SUMMARY OF SHAREHOLDER RIGHTS PLAN
 
On November 7, 2007, the Board of Directors of CEL-SCI Corporation (the “Company”) declared a dividend of one Series A Right and one Series B Right (collectively the “Rights”) for each outstanding share of Common Stock (the “Common Shares”), of the Company. The dividend is payable on November 9, 2007 (the “Record Date”) to the shareholders of record as of that date.  When the Rights become exercisable, each Series A Right will entitle the registered holder, subject to the terms of the Rights Agreement, to purchase from the Company one Common Share at a purchase price equal to 20% (the “Purchase Price Percentage”) of the market price of the Company's Common Stock on the exercise date (the “Purchase Price”), although the price may be adjusted as described below.  If after a person becomes an Acquiring Person or a Tender Offer Person (i) the Company is acquired in a merger or other business combination transaction and the Company is not the surviving corporation, (ii) any person consolidates or merges with the Company and all or part of the Company's Common Shares are converted or exchanged for securities, cash or property of any other person, or (iii) 50% or more of the Company's consolidated assets or earning power are sold, proper provision will be made so that each holder of a Series B Right will thereafter have the right to receive, upon the exercise thereof at the exercise price of $100 (subject to adjustment), that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value that is twice the exercise price of the Series B Right.

The description and terms of the Rights are set forth in a Rights Agreement (the “Rights Agreement”) between the Company and American Securities Transfer, Inc., as Rights Agent (the "Rights Agent").

Trading and Distribution of Rights

Initially, shareholders will not receive separate certificates for the Rights as the Rights will be represented by outstanding Common Share certificates.  Until the date the rights are exercisable, the Rights cannot be bought, sold or otherwise traded separately from the Common Shares.  Certificates for Common Shares issued after the Record Date will carry a notation that indicates that Rights are attached to the Common Shares and incorporate the terms of the Rights Agreement.

Separate certificates representing the Rights will be distributed as soon as practicable after the earliest to occur of:

(1)           15 business days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired beneficial ownership of 15% or more of the outstanding Common Shares, or

 
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(2)           15 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of such outstanding Common Shares.

The earlier of such dates described above is called the "Distribution Date".

Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for Common Shares outstanding as of the Record Date, even without such notation, will also constitute the transfer of the Rights associated with the Common Shares represented by such certificate.  As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights.

Exercise and Expiration

The holders of the Rights are not required to take any action until the Rights become exercisable.  The Rights are not exercisable until the Distribution Date.  Holders of the Rights will be notified by the Company that the Rights have become exercisable.  The Rights will expire on October 30, 2020 (the "Final Expiration Date"), unless the Final Expiration Date is extended or unless the Rights are earlier redeemed by the Company as described below.

Adjustments

In order to protect the value of the Rights to the holders, the Purchase Price payable, and the number of Common Shares or other securities or property issuable upon exercise of the Rights are subject to adjustment from time to time (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Common Shares, (ii) upon the grant to holders of the Common Shares of certain rights or warrants to subscribe for or purchase Common Shares at a price, or securities convertible into Common Shares with a conversion price, less than the then current market price of Common Shares, or (iii) upon the distribution to holders of the Common Shares of evidences of indebtedness or assets (excluding regular periodic cash dividends paid out of earnings or retained earnings or dividends payable in Common Shares) or of subscription rights or warrants (other than those referred to above.

The foregoing adjustments are intended to ensure that a holder of the Rights will not be adversely affected by the occurrence of certain events.  With certain exceptions, the Company is not required to adjust the Purchase Price Percentage until cumulative adjustments require a change of at least 1% in the Purchase Price Percentage.  The Company may elect not to issue fractional Common Shares upon the exercise of the Rights and in lieu thereof, an adjustment in cash or other property will be made based on the market price of the Common Shares on the last trading day prior to the date of exercise.
 
 
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Redemption

At any time prior to the Distribution Date, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.0001 per Right (the "Redemption Price").  Subject to the foregoing, the redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish.  Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only entitlement of the holders of Rights will be to receive the Redemption Price.

Exchange Option

At any time after a person becomes an Acquiring Person or a Tender Offer Person, and prior to the acquisition by such Acquiring Person of 50% or more of the outstanding Common Shares, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one Common Share per Right (subject to adjustment).

Other Provisions

The terms of the Rights may be amended by the Board of Directors of the Company without the consent of the holders of the Rights, except that from and after such time as any person becomes an Acquiring Person no such amendment may adversely affect the interests of the holders of the Rights.

Until a Right is exercised, the holder of the Right, as such, will not have any rights as a shareholder of the Company, including, without limitation, the right to vote or to receive divideds.

As of November 7, 2007 115,699,129 shares of the Company's Common Stock were issued and outstanding.  Each outstanding share on November 9, 2007 will receive one Series A Right and one Series B Right.  As long as the Rights are attached to the Common Shares, the Company will issue one Series A Right and one Series B Right for each Common Share issued between the Record Date and the Distribution Date.

The Rights may have certain anti-takeover effects.  The Rights will cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Board of Directors.  However, the Rights should not interfere with any merger or other business combination approved by a majority of the Board of Directors since the Rights may be redeemed by the Company at any time prior to the Distribution Date.  Thus, the Rights are intended to encourage persons who may seek to acquire control of the Company to initiate such an acquisition through negotiations with the Board of Directors. However, the effect of the Rights may be to discourage a third party from making a partial tender offer or otherwise attempting to obtain a substantial position in the equity securities of, or seeking to obtain control of, the Company.  To the extent any potential acquisition is deterred by the Rights, the Rights may have the effect of preserving incumbent management in office.
 
 
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In certain events specified in the Rights Agreement, the Company is permitted to temporarily suspend the exercisability of the Rights.

A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Current Report on Form 8-K dated November 7, 2007.  A copy of the Rights Agreement is available free of charge from the Company by contacting the Secretary at CEL-SCI Corporation, 8229 Boone Boulevard, Suite 802, Vienna, Virginia  22182.  This summary description of the Rights does not purport to be complete and is qualifed in its entirety by reference to the Rights Agreement, which is hereby incorporated herein by reference.





12



Exhibit 10.iii
 
ERGOMED PLC, with registered officers at 26-28 Frederick Sanger Road, Surrey Research Park, Guildford GU2 7YD, Surrey, England, VAT number:  GB809610630, Company number:  4081094 (hereinafter:  “ERGOMED”),
 
and
 
CEL-SCI Corporation, a company duly established pursuant to the laws of Colorado, with registered offices at 8229 Boone Boulevard, Suite 802, Vienna, VA 22182, USA (hereinafter: “CEL-SCI”),

or separately referred as “the Party” or jointly as “the Parties”

Have concluded on this 15th day of September, 2015
 
ANNEX 1 TO CO-DEVELOPMENT AND REVENUE SHARING AGREEMENT
 
(hereinafter:  “the Annex”)
 
WHEREAS: On April 19th, 2013 CEL-SCI and ERGOMED entered into the following:
 
 
(i)
Co-Development and Revenue Sharing Agreement (Co-Development Agreement) pursuant to which they have undertaken to jointly develop and commercialized a compound known as Multikine;

WHEREAS: With this Annex the Parties wish to amend the terms of the Co-Development Agreement.
 
Article 1
 
1.1.
The Parties would like to delete Section 3.1 of the Co-Development Agreement in its entirety and replace it with the following:
 
 
“3.1
With respect to the Product, Ergomed shall invest up to Twelve Million US dollars ($12 million) toward the clinical and regulatory costs for the conduct the Co-Developed Clinical Trial for the Product in Europe, Russia, India, and North America (the actual amount of such investment, determined in accordance with Section 6.  The Ergomed Co-Development Investment shall not exceed US$12,000,000 Twelve million dollars), (the “Ergomed Co-Development Investment Cap”).”

1.2
The Parties would like to delete Section 6.1 of the Co-Development Agreement in its entirety and replace it with the following:
 
 
“6.1
CEL-SCI shall make payments to Ergomed for invoices submitted by Ergomed for Egromed’s activities on each Co-Developed Clinical Trial in accordance within the terms stipulated in the MSA and the relevant related CTOs and any annex thereto; provided, however, that Ergomed’s invoices for each Co-Developed Clinical Trial will be reduced by 30% (thirty percent) from the costs set forth in the relevant CTO, and any annex thereto (“Ergomed Invoiced Costs”).  The 30% reduction described in the
 
Confidential
 
 
Page 1

 
 
foregoing shall be accrued as the Ergomed Co-Development Investment for the Product and shall be tracked. Each invoice subject to the reduction shall clearly set forth, with respect to the Product, the fee schedule set forth in the relevant CTO and any annex thereto and the relevant reduction to be applied toward the Ergomed Co-Development Investment.”

Article 2
 
2.1.
All other provisions of the Co-Development Agreement remain unchanged, valid and in force.
 
2.2.
This Annex is being executed in 2 (two) may be executed in two or more counterparts, each of which shall be deemed an original and all of which shall together be deemed to constitute one agreement.  The parties agree that execution of this Annex by industry standard electric signature software and /or by exchanging PDF signatures shall have the same legal force and effect as the exchange of original signatures, and that in any proceeding arising under or relating to this Annex, each party hereby waives any right to raise any defense or waiver based upon execution of this Annex by means of such electronic signatures or maintenance of the executed agreement electronically.
 
Signatures Begin on Next Page
 
 
 
 
 
 
 
Confidential
 
 
Page 2

 
 
Upon signature by authorized representatives of ERGOMED and CEL-SCI below, this Annex shall be incorporated into and made part of the Co-Development Agreement between the Parties.
 
 
ERGOMED:   CEL-SCI:
     
     
/s/ M. Reljanovic
 
/s/ Geert Kersten
Printed Name
 
Printed Name
     
CEO
 
CEO
Title
 
Title
     
15 September 2015
 
15 September 2015
Date
 
Date

 

 
Confidential
 
Page 3

 


Exhibit 10 hhh
 
Third Amendment to PROMISSORY NOTE
 
June 29, 2015
 
On December 28, 2008, CEL-SCI Corporation (the “Company”) issued a promissory note (the “Note”) to Maximilian de Clara or order (the “Holder”).  On April 30, 2009 the Company signed a 1st Amendment to the Note due to the Company’s inability to repay the Note.  On July 6, 2009 a 2nd Amendment to the Note was signed.  On August 22, 2011, the Note was amended for the third time and restated.  In August 2014 the Note was transferred to the de Clara Trust.  The parties agree to further amend the Note as follows:
 
1)  
Effective July 7, 2015, interest on the Note will be at an annual rate of 9% and will be payable monthly.
 
2)  
The maturity date of the Note is extended to July 6, 2017.
 
3)  
The Note, in whole or in part, will be convertible at the Holder’s option into shares of the Company’s common stock at a price of $0.59 per share, subject to the customary adjustments.  The Company agrees to deliver the shares within 3 trading days of a conversion notice.
 
All other terms and conditions of said Note shall remain in full force and effect.

AGREED TO AND ACCEPTED as of June 29, 2015:

CEL-SCI CORPORATION

By: /s/ Patricia B. Prichep
Patricia B. Prichep                                      
Senior Vice President of Operations
 
 
 

 
 
Fourth Amendment to PROMISSORY NOTE
 
October 11, 2015
 
On December 28, 2008, CEL-SCI Corporation (the “Company”) issued a promissory note (the “Note”) to Maximilian de Clara or order (the “Holder”).  On April 30, 2009 the Company signed a 1st Amendment to the Note due to the Company’s inability to repay the Note.  On July 6, 2009 a 2nd Amendment to the Note was signed.  On August 22, 2011, the Note was amended for the third time and restated.  In August 2014 the Note was transferred to the de Clara Trust.  On June 29. 2015 the 3rd amendment to the Note was signed.  The parties agree to further amend the Note as follows:
 
1)  
The maturity date of the Note is extended to July 6, 2018.
 
All other terms and conditions of said Note shall remain in full force and effect.

AGREED TO AND ACCEPTED as of October 11, 2015:

CEL-SCI CORPORATION

By: /s/ Patricia B. Prichep
Patricia B. Prichep                                      
Senior Vice President of Operations
 
 
DE CLARA TRUST (Dtd 6-13-14)
 
By: /s/ Geert Kersten Geert Kersten
Trustee

 


Exhibit 23.1
 
Consent of Independent Registered Public Accounting Firm
 

 
CEL-SCI Corporation
Vienna, Virginia
 
We hereby consent to the incorporation by reference in the Registration Statements on Form S¬3 (File numbers 333-162039, 333-161504, 333-162792, 333-184094, 333-186103, 333-196243 and 333-205444) and Form S¬8 (File numbers 333-117088, 333-140792, 333-162265, 333-179477, 333-184092 and 333-198244) of CEL-SCI Corporation of our reports dated December 11, 2015, relating to the financial statements and the effectiveness of CEL-SCI Corporation’s internal control over financial reporting, which appear in this Form 10-K.
 
/s/BDO USA, LLP
 
 
McLean, Virginia
December 11, 2015


Exhibit 31
 
CERTIFICATIONS

I, Geert Kersten, of CEL-SCI Corporation, certify that:

1.           I have reviewed this annual report on Form 10-K of CEL-SCI Corporation;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)           designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)           designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)           evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;  and

d)           disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)           all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)           any fraud, whether or not material, that involves management or other employees who have significant role in the registrant’s internal control over financial reporting.
 
       
December 11, 2015
By:
/s/ Geert R. Kersten  
    Geert R. Kersten  
   
Principal Executive Officer
 
 
 
 
 

 
 
CERTIFICATIONS

I, Geert Kersten, of CEL-SCI Corporation, certify that:

1.           I have reviewed this annual report on Form 10-K of CEL-SCI Corporation;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)           designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)           designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)           evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;  and

d)           disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)           all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)           any fraud, whether or not material, that involves management or other employees who have significant role in the registrant’s internal control over financial reporting.
 
       
December 11, 2015
By:
/s/ Geert R. Kersten  
    Geert R. Kersten  
   
Principal Financial Officer
 



Exhibit 32
 
In connection with the Annual Report of CEL-SCI Corporation (the “Company”) on Form 10-K for the period ending September 30, 2013 as filed with the Securities and Exchange Commission (the “Report”), Geert Kersten, the Chief Executive and Principal Financial Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

(1)  
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  
The information contained in the Report fairly presents, in all material respects the financial condition and results of the Company.

       
December 11, 2015
By:
/s/ Geert R. Kersten  
   
Geert Kersten, Chief Executive and Principal
Financial and Accounting Officer
 



 

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