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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
 9 Months Ended
Jun. 30, 2012
Summary Of Significant Accounting Policies Policies  
Basis of Presentation
  The accompanying condensed consolidated financial statements of CEL-SCI Corporation and subsidiary (the Company) are unaudited and certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. While management of the Company believes that the disclosures presented are adequate to make the information presented not misleading, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s annual report on Form 10-K for the year ended September 30, 2011.

 

  In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all accruals and adjustments (each of which is of a normal recurring nature) necessary for a fair presentation of the Company’s financial position as of June 30, 2012 and the results of its operations for the nineand three-month periods then ended.  The condensed consolidated balance sheet as of September 30, 2011 is derived from the September 30, 2011 audited consolidated financial statements.  Significant accounting policies have been consistently applied in the interim financial statements and the annual financial statements.  The results of operations for the nine and three-month periods ended June 30, 2012 and 2011 are not necessarily indicative of the results to be expected for the entire year.
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.  Depreciation and amortization expense for the nine-month periods ended June 30, 2012 and 2011 was $337,453 and $373,022respectively.  Depreciation and amortization expense for the three-month periods ended June 30, 2012 and 2011 was $112,172 and$126,438, respectively.  During the nine months ended June 30, 2012 and 2011, equipment with a net book value of $9,016 and $2,828, respectively, was retired.  During the three months ended June 30, 2012 and 2011, equipment with a net book value of $4,951 and$2,591, respectively,was retired.
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 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 its 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.  During the nine months ended June 30, 2012 and 2011, the Company recorded patent impairment charges of $37,352 and $0, respectively.  During the three months ended June 30, 2012 and 2011, the Company recorded patent impairment charges of $16,018 and $0, respectively.  For the nine months ended June 30, 2012 and 2011, amortization of patent costs totaled $54,118 and $61,414, respectively. For the three months ended June 30, 2012 and 2011, amortization of patent costs totaled $16,459 and $21,710, respectively.The Company estimates that future amortization expense will be as follows:

 

Three months ending September 30, 2012   $ 21,288  
Year ending September 30,        
2013     58,391  
2014     31,860  
2015     31,860  
2016     31,860  
2017     31,860  
Thereafter     194,528  
Total    $ 401,647  
Research and Development Costs

Research and development expenditures are expensed as incurred.  Total research and development costs, excluding depreciation, were $7,519,586and $9,231,296, respectively, for the nine-month periods ended June 30, 2012 and 2011.  Total research and development costs, excluding depreciation, were $2,469,166and $2,924,771, respectively, for the three-month periods ended June 30, 2012 and 2011.
Income Taxes

The Company has net operating loss carryforwards of approximately $141 million.  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. A full valuation was recorded against the deferred tax assets as of June 30, 2012 and September 30, 2011.
Derivative Instruments

The Company has entered into financing arrangements that consist of freestanding derivative instruments or hybrid instruments that contain embedded derivative features.  The Company has also issued warrants to various parties in connection with work performed by these parties.  The Company accounts for these arrangements in accordance with Codification 815-10-50, “Accounting for Derivative Instruments and Hedging Activities”.  The Company also accounts for warrants in accordance with Codification 815-40-15, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”.  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 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 interim period as long as they are outstanding.
Deferred rent (asset)

The deferred rent is discussed at Note G.  Long-term interest receivable on the deposit on the manufacturing facility has been combined with the deferred rent (asset) for both periods for comparability.
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.  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, stock price and expected option life.  The stock-based compensation cost is recognized on the accelerated method as expense over the requisite service or vesting period.  The Company's options vest over a three-year period from the date of grant.  After one year, the stock is one-third vested, with an additional one-third vesting after two years and the final one-third vesting at the end of the three-year period. Options are granted with an exercise price equal to the closing price of the Company's stock on the day before the grant.

 

There were 6,679,372 and 2,379,594 options granted to employees and directors during the nine-months ended June 30, 2012 and 2011, respectively.  There were 3,559,000 and 2,360,800 options granted to employees and directors during the three months ended June 30, 2012 and 2011, respectively.  For the nine months ended June 30, 2012 and 2011, the Company recorded $1,724,375and $1,104,933, respectively, in general and administrative expense for the cost of employee and director options. For the three months ended June 30, 2012 and 2011, the Company recorded $463,314 and $407,469, respectively, in general and administrative expense for the cost of employee and director options.

 

The Company has Incentive Stock Option Plans, Non-Qualified Stock Option Plans, a Stock Compensation Plan and Stock Bonus Plans. In some cases these Plans are collectively referred to as the "Plans".  All Plans have been approved by the stockholders. A summary chart and description of activity for the quarter of the Plans follows in Note C. For further discussion of the Stock Option Plans, Stock Compensation Plan and Stock Bonus Plans, see the Company’s Form 10-K for the year ended September 30, 2011.
Reclassifications

Certain prior period items have been reclassified to conform to the current period presentation.
Fair Value Measurement

In accordance with Codification 820-10, 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 with respect to those future amounts.

 

Codification 820-10 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:

 

·   Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities
·   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

 

·   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.