Liquidity and Capital Resources

The Company's lead investigational therapy, MultikineŽ (Leukocyte Interleukin, Injection), is cleared for a Phase III clinical trial in advanced primary head and neck cancer. It has received a go-ahead by the US FDA as well as the Canadian, Polish, Hungarian, Russian, Israeli, Indian and Taiwanese regulators.

Multikine (Leukocyte Interleukin, Injection) is the full name of this investigational therapy, which, for simplicity, is referred to in the remainder of this report 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.

The Company also owns and is developing a pre-clinical technology called LEAPS (Ligand Epitope Antigen Presentation System).

All of the Company's projects are under development. As a result, the Company cannot predict when it will be able to generate any revenue from the sale of any of its products.

Since inception, the Company has financed its operations through the sale of equity securities, convertible notes, loans and certain research grants. The Company'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 the Company becomes profitable, any or all of these financing vehicles or others may be utilized to assist the Company's capital requirements.

Capital raised by the Company 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. Capital has also been used for patent applications, debt repayment, research and development, administrative costs, and the construction of the Company's laboratory facilities. The Company 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 the Company 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.

The Company will be required to raise additional capital or find additional long-term financing in order to continue with its research efforts. The ability of the Company to complete the necessary clinical trials and obtain Food and Drug Administration (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. The Company believes that, counting its cash on hand and access to the capital markets established over the years, it will have enough capital to support its operations through year end. On March 1, 2012, the Company paid the remaining balance due on its convertible note agreement, thereby releasing the Company from all obligations under the Settlement Agreement.

The Company estimates the total cost of the Phase III trial, with the exception of the parts that will be paid by its licensees, Teva Pharmaceuticals and Orient Europharma, to be approximately $32,000,000 of which approximately $7,600,000 has been paid as of December 31, 2012. Out of the planned 48 sites, 38 sites have completed their site initiation visits and patients are being screened/enrolled in multiple locations. It should be noted that this estimate is only an estimate based on the information currently available in the Company's contracts with the Clinical Research Organization responsible for managing the Phase III 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 III trial will be higher than currently estimated.

During the three months ended December 31, 2012, the Company's cash increased by approximately $6,800,000. Significant components of this increase include net proceeds from the sale of the Company's stock of approximately $9,807,000 offset by net cash used to fund the Company's regular operations including its on-going Phase III clinical trial of approximately $2,995,000. This compares to approximately $2,612,000 used in operations during the three months ended December 31, 2011. For the three months ended December 31, 2012 and 2011, net cash provided by financing activities totaled approximately $9,806,000 and $1,830,000, respectively. The increase in cash provided by financing activities is due to proceeds of the December 2012 financing, which were approximately $10,500,000, less expenses of approximately $693,000. Cash used by investing activities was approximately $16,000 and $17,000, for the three months ended December 31, 2012 and 2011, respectively. The use of cash in investing activities consisted primarily of purchases of equipment and legal costs incurred in patent applications.

In August 2011, the Company paid a deposit of $1,670,917 to the landlord since the Company's cash balances did not meet the minimum amount required by the lease. When the Company meets the minimum cash balance required by the lease, the deposit will be returned to the Company.

In October 2011, the Company sold 13,333,334 shares of its common stock to private investors for $4,000,000, or $0.30 per share. The investors also received 12,000,000 Series F warrants. Each Series F warrant entitles the holder to purchase one share of the Company's common stock at a price of $0.40 per share at any time prior to October 6, 2014. The Company paid the placement agent for this offering a commission consisting of $140,000 in cash and 666,667 Series G warrants. Each Series G warrant entitles the holder to purchase one share of the Company's common stock at a price of $0.40 per share at any time prior to August 12, 2014.

On December 4, 2012 CEL-SCI sold 35,000,000 shares of its common stock for $10,500,000, or $0.30 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 26,250,000 shares of CEL-SCI's common stock. The Series R warrants may be exercised at any time on or after June 7, 2013 and on or before December 7, 2016 at a price of $0.40 per share. CEL-SCI paid Chardan Capital Markets, LLC, the placement agent for this offering, a cash commission of $682,500.

Results of Operations and Financial Condition

During the three months ended December 31, 2012, grant and other income increased by approximately $10,000 compared to the three months ended December 31, 2011.

During the three months ended December 31, 2012, research and development expenses increased by approximately $469,000 compared to the three months ended December 31, 2011. The Company is continuing the Phase III clinical trial and research and development fluctuates based on the activity level of the clinical trial.

During the three months ended December 31, 2012, general and administrative expenses increased by approximately $148,000 compared to the three months ended December 31, 2011. This increase is primarily due to increased public relation costs.

The gain on derivative instruments of approximately $2,746,000 for the three months ended December 31, 2012 was the result of the change in fair value of the derivative liabilities during the period. This change was caused by fluctuations in the share price of the Company's common stock.

Interest expense was approximately $41,000 for the three months ended December 31, 2012 and consisted entirely of interest expense on the loan from the Company's president. Interest expense was approximately $123,000 for the three months ended December 31, 2011 and consisted of interest expense on the loan from the Company's president of approximately $41,000 and interest on the convertible notes of approximately $82,000.

On May 16, 2011, the Company entered into an Exchange Agreement (referred to herein as the "Settlement Agreement") with thirteen hedge funds (the "plaintiffs") to settle all claims arising from a lawsuit initiated by the plaintiffs in October 2009 in the United States District Court for the Southern District of New York (the "Court"). As previously disclosed by the Company in its public filings, in August 2006 the plaintiffs (or their predecessors) purchased from the Company Series K notes convertible into the Company common stock and Series K warrants to purchase the Company common stock under financing agreements which provided the Series K notes and warrants with anti-dilution protection if the Company sold additional shares of common stock, or securities convertible into common stock, at a price below the then applicable conversion price of the notes or the exercise price of the warrants. In their lawsuit, the plaintiffs alleged that a March 2009 drug marketing and distribution agreement in which the Company sold units of common stock and warrants to an unrelated third party triggered these anti-dilution provisions, and that the Company failed to give effect to these provisions. The plaintiffs sought $30 million in actual damages, $90 million in punitive damages, the issuance of additional shares of common stock and warrants, and a reduction in the conversion price of the Series K notes and the exercise price of the Series K warrants. The Company denied the plaintiffs' allegations in the lawsuit and asserted that the 2009 agreement was a strategic transaction which did not trigger the anti-dilution provisions of the 2006 financing agreements.

Although the Company vigorously defended the lawsuit and believed the plaintiffs' claims were without merit, the Company believes that a settlement of this lawsuit was in the best interests of the shareholders. The settlement was entered into to avoid the substantial costs of further litigation and the risk and uncertainty that the litigation entails. By ending this dispute, and ending the significant demands on the time and attention of the Company's management necessary to respond to the litigation, the Company is better able to focus on executing its ongoing Phase III clinical trial with its novel and non-toxic cancer drug Multikine.

Under the terms of the Settlement Agreement and its related agreements, the plaintiffs and the Company terminated the pending litigation and released each other from all claims each may have against the other, with certain customary exceptions. The Company agreed to make a $3 million cash payment and issue $9 million of securities to the plaintiffs. These securities consist of senior secured convertible promissory notes with an aggregate principal amount of $4.95 million and 4,050 shares of redeemable Series A Convertible Preferred Stock with an aggregate stated value of $4.05 million. The $3 million cash payment was made at the closing under the Settlement Agreement. The preferred shares were fully redeemed during the year ended September 30, 2012. All convertible notes had been paid as of March 1, 2012.

Research and Development Expenses

During the three and three month periods ended December 31, 2012 and 2011, the
Company's research and development efforts involved Multikine and LEAPS. The
table below shows the research and development expenses associated with each
project during three month periods.

                                 Three months ended December 31,
                                   2012                   2011

                 MULTIKINE   $      2,832,695       $      2,358,210
                 LEAPS                 92,027                 97,975

                 TOTAL       $      2,924,722       $      2,456,185

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 the Company's clinical trials and research programs are primarily based upon the amount of capital available to the Company and the extent to which the Company has received regulatory approvals for clinical trials. The inability of the Company to conduct clinical trials or research, whether due to a lack of capital or regulatory approval, will prevent the Company from completing the studies and research required to obtain regulatory approval for any products which the Company is developing. Without regulatory approval, the Company will be unable to sell any of its products. Since all of the Company's projects are under development, the Company cannot predict when it will be able to generate any revenue from the sale of any of its products.

Critical Accounting Estimates and Policies

Management's discussion and analysis of the Company's financial condition and results of operations is based on its unaudited condensed financial statements. The preparation of these financial statements is based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and notes. The Company believes some of the more critical estimates and policies that affect its financial condition and results of operations are in the areas of operating leases and stock-based compensation. For more information regarding the Company's critical accounting estimates and policies, see Part II, Item 7 of the Company's 2012 10-K report. The application of these critical accounting policies and estimates has been discussed with the Audit Committee of the Company's Board of Directors.