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7. NOTES PAYABLE | 12 Months Ended
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Sep. 30, 2017
Notes Payable [Abstract] |
7. NOTES PAYABLE | On July 24, 2017, the Company issued Series NN convertible notes in the aggregate principal amount of $1.2 million to 12 individual investors. A trust in which Geert Kersten, the Company’s Chief Executive Officer, holds a beneficial interest participated in the offering and purchased a note in the principal amount of $250,000. Patricia B. Prichep, the Company’s Senior Vice President of Operations, participated in the offering and purchased a note in the principal amount of $25,000. The Series NN Notes bear interest at 4% per year and are due on December 22, 2017. At the option of the note holders, the Series NN Notes can be converted into shares of the Company’s common stock at a fixed conversion rate of $2.29, the closing price on July 21, 2017. The purchasers of the convertible notes also received Series NN warrants which entitle the purchasers to acquire up to 539,300 shares of the Company’s common stock. The warrants are exercisable at a price of $2.52 per share and expire on July 24, 2022. Shares issuable upon the exercise of the warrants were restricted securities unless registered. The shares were registered effective September 1, 2017. The Series NN Notes were issued together with Series NN warrants, as discussed in the preceding section. Upon issuance of the Series NN Notes and Series NN warrants, the Company allocated proceeds received to the notes and warrants on a relative fair value basis. As a result of such allocation, the Company determined the initial carrying value of the Series NN Notes to be approximately $0.7 million, the initial carrying value of the Series NN warrants to be approximately $0.5 million, and recorded a debt discount in the amount of approximately $0.5 million. On June 22, 2017, CEL-SCI issued Series MM convertible notes in the aggregate principal amount of $1.5 million to six individual investors. The Series MM Notes bear interest at 4% per year and are due on December 22, 2017. At the option of the note holders, the Series MM Notes can be converted into shares of the Company’s common stock at a fixed conversion rate of $1.69. The number of shares of the Company’s common stock issued upon conversion will be determined by dividing the principal amount to be converted by $1.69, which could result in the issuance of 893,491 shares of the Company’s common stock. The purchasers of the convertible notes also received Series MM warrants which entitle the purchasers to acquire up to 893,491 shares of the Company’s common stock. The warrants are exercisable at a price of $1.86 per share and expire on June 22, 2022. Shares issuable upon the exercise of the warrants were restricted securities unless registered. The shares were registered effective August 8, 2017. The Series MM Notes were issued together with Series MM warrants, as discussed in the preceding section. Upon issuance of the Series MM Notes and Series MM warrants, the Company allocated proceeds received to the notes and warrants on a relative fair value basis. As a result of such allocation, the Company determined the initial carrying value of the Series MM Notes to be approximately $0.9 million, the initial carrying value of the Series MM warrants to be approximately $0.6 million, and recorded a debt discount in the amount of approximately $0.6 million. During the quarter ended September 30, 2017, two note holders converted their Series MM notes into shares of common stock. The face value of the converted notes was $450,700. The unamortized debt discount relating to the converted notes was charged to interest expense. Pursuant to the guidance in ASC 815-40, Contracts in Entity’s Own Equity, the Company evaluated whether the conversion feature of the note needed to be bifurcated from the host instrument as a freestanding financial instrument. Under ASC 815-40, to qualify for equity classification (or non-bifurcation, if embedded) the instrument (or embedded feature) must be both (1) indexed to the issuer’s own stock and (2) meet the requirements of the equity classification guidance. Based upon the Company’s analysis, it was determined the conversion option is indexed to its own stock and also met all the criteria for equity classification. Accordingly, the conversion option is not required to be bifurcated from the host instrument as a freestanding financial instrument. Since the conversion feature meets the equity scope exception from derivative accounting, the Company then evaluated whether the conversion feature needed to be separately accounted for as an equity component under ASC 470-20, Debt with Conversion and Other Options. Based upon the Company’s analysis, it was determined that a beneficial conversion feature existed as a result of the reduction in the face value of the Series MM and NN Notes, due to a portion of proceeds being allocated to the related warrants, and thus the conversion features needed to be separately accounted for as an equity component. The Company recorded beneficial conversion features relating to the Series MM and NN notes of approximately $603,000 and $506,000, respectively, which were also recorded as debt discounts. The total debt discount on both Series MM and NN notes is being amortized to interest expense using the effective interest method over the expected term of the notes. At September 30, 2017, the remaining debt discount is approximately $1.3 million. During the year ended September 30, 2017, the Company recorded approximately $941,000 in interest expense related to the Series MM and NN notes, of which approximately $23,000 was recorded as accrued interest, and approximately $918,000 was recorded as amortization of the debt discount. The Series MM and Series NN notes are secured by a first lien on all of the Company’s assets.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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