UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2018

 

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 1-37648

 

OncoCyte Corporation

(Exact name of registrant as specified in its charter)

 

California   27-1041563

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1010 Atlantic Avenue, Suite 102

Alameda, California 94501

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code

(510) 775-0515

 

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 ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 ☐ No

 

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

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ (Do not check if a smaller reporting company) Smaller reporting company ☐
  Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 13(a) of the Exchange Act. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

As of August 8, 2018, there were outstanding 40,664,496 shares of common stock, no par value.

 

 

 

     

 

 

PART 1—FINANCIAL INFORMATION

 

Statements made in this Report that are not historical facts may constitute forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed. Such risks and uncertainties include but are not limited to those discussed in this Report under Item 1 of the Notes to Condensed Financial Statements, and under Risk Factors in this Report. Words such as “expects,” “may,” “will,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions identify forward-looking statements.

 

References to “OncoCyte,” “our” or “we” means OncoCyte Corporation.

 

The description or discussion, in this Form 10-Q, of any contract or agreement is a summary only and is qualified in all respects by reference to the full text of the applicable contract or agreement.

 

  2  

 

 

Item 1. Financial Statements

 

ONCOCYTE CORPORATION

CONDENSED BALANCE SHEETS

(IN THOUSANDS)

 

    June 30, 2018 (unaudited)     December 31, 2017  
ASSETS            
CURRENT ASSETS                
Cash and cash equivalents   $ 10,294     $ 7,600  
Marketable equity securities     728       760  
Prepaid expenses and other current assets     382       168  
Total current assets     11,404       8,528  
                 
NONCURRENT ASSETS                
Intangible assets, net (Note 3)     -       746  
Machinery and equipment, net     615       822  
Deposits     177       120  
TOTAL ASSETS   $ 12,196     $ 10,216  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
CURRENT LIABILITIES                
Amount due to BioTime and affiliates   $ 2,100     $ 2,099  
Accounts payable     232       175  
Accrued expenses and other current liabilities     1,043       1,042  
Loan payable, current     800       800  
Capital lease liability, current     310       338  
Total current liabilities     4,485       4,454  
                 
LONG-TERM LIABILITIES                
Loan payable, net of deferred financing costs, noncurrent     713       1,070  
Capital lease liability, noncurrent     152       289  
TOTAL LIABILITIES     5,350       5,813  
                 
Commitments and contingencies (see Note 9)                
                 
STOCKHOLDERS’ EQUITY                
Preferred stock, no par value, 5,000 shares authorized; none issued and outstanding     -       -  
Common stock, no par value, 50,000 shares authorized; 39,408 and 31,452 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively     70,695       59,968  
Accumulated other comprehensive loss     -       (888 )
Accumulated deficit     (63,849 )     (54,677 )
Total stockholders’ equity     6,846       4,403  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 12,196     $ 10,216  

 

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

 

  3  

 

 

ONCOCYTE CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
    2018     2017     2018     2017  
EXPENSES:                        
Research and development   $ 2,322     $ 1,997     $ 3,784     $ 3,831  
General and administrative     1,335       1,115       3,122       3,158  
Sales and marketing     569       477       1,227       1,132  
Total operating expenses     4,226       3,589       8,133       8,121  
                                 
Loss from operations     (4,226 )     (3,589 )     (8,133 )     (8,121 )
                                 
OTHER INCOME (EXPENSES), NET                                
Interest expense, net     (56 )     (65 )     (117 )     (79 )
Unrealized loss on marketable equity securities     (223 )     -       (32 )     -  
Loss on sale of available-for-sale securities and other expenses, net     -       (150 )     (2 )     (309 )
Total other expenses, net     (279 )     (215 )     (151 )     (388 )
                                 
NET LOSS   $ (4,505 )   $ (3,804 )   $ (8,284 )   $ (8,509 )
                                 
Net loss per share; basic and diluted   $ (0.12 )   $ (0.13 )   $ (0.24 )   $ (0.29 )
                                 
Weighted average common shares outstanding: basic and diluted     38,708       29,398       35,211       29,183  

 

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

 

  4  

 

 

ONCOCYTE CORPORATION

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

(UNAUDITED)

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
    2018     2017     2018     2017  
                         
NET LOSS   $ (4,505 )   $ (3,804 )   $ (8,284 )   $ (8,509 )
                                 
Other comprehensive loss, net of tax:                                
Realized loss on sale of available-for-sale securities     -       142       -       293  
Unrealized loss on available-for-sale securities     -       (97 )     -       (174 )
COMPREHENSIVE LOSS   $ (4,505 )   $ (3,759 )   $ (8,284 )   $ (8,390 )

 

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

 

  5  

 

 

ONCOCYTE CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

 

   

Six Months Ended

June 30,

 
    2018     2017  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (8,284 )   $ (8,509 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation expense     207       144  
Amortization of intangible assets     121       121  
Impairment charge for intangible assets     625       -  
Stock-based compensation     735       696  
Loss on sale of BioTime shares     -       309  
Unrealized loss on BioTime shares     32       -  
Warrants issued to certain shareholders as inducement of exercise of warrants     -       1,084  
Amortization of debt issuance costs     44       30  
Other     22       -  
Changes in operating assets and liabilities:                
Amount due to BioTime and affiliates     1       (313 )
Prepaid expenses and other current assets     (214 )     (194 )
Accounts payable and accrued liabilities     1       61  
Net cash used in operating activities     (6,710 )     (6,571 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Net proceeds from sale of BioTime shares     -       934  
Purchase of equipment     (22 )     (55 )
Net cash provided by (used in) investing activities     (22 )     879  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from exercise of options     56       257  
Proceeds from exercise of warrants     -       2,031  
Proceeds from sale of common shares     10,000       -  
Proceeds from issuance of loan payable, net of financing costs     -       1,982  
Financing costs to issue common shares     (65 )     -  
Repayment of loan payable     (400 )     -  
Repayment of capital lease obligations     (165 )     (108 )
Net cash provided by financing activities     9,426       4,162  
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS     2,694       (1,530 )
CASH AND CASH EQUIVALENTS:                
At beginning of the period     7,600       10,174  
At end of the period   $ 10,294     $ 8,644  

 

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

 

  6  

 

 

ONCOCYTE CORPORATION

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

 

1. Organization, Description of the Business and Liquidity

 

OncoCyte Corporation (“OncoCyte”) is a developer of novel, non-invasive blood-based tests for the early detection of cancer. It is focused on developing molecular cancer diagnostics utilizing a discovery platform that focuses on identifying genetic markers that are differentially expressed in certain types of cancers. OncoCyte efforts have focused on developing diagnostic tests for use in detecting lung, bladder, and breast cancers. OncoCyte is currently devoting substantially all of its efforts on developing its lung cancer diagnostic test DetermaVu TM .

 

OncoCyte was incorporated in 2009 in the state of California and was formerly a majority-owned subsidiary of BioTime, Inc. (“BioTime”), a publicly traded, clinical-stage, biotechnology company targeting degenerative diseases, primarily in the fields of ophthalmology, aesthetics and cell/drug delivery. Beginning on February 17, 2017, OncoCyte ceased to be a subsidiary of BioTime for financial reporting purposes when BioTime’s percentage ownership of outstanding OncoCyte common stock declined below 50% as a result of the issuance of additional OncoCyte common stock to certain investors who exercised OncoCyte stock purchase warrants (see Notes 4 and 6).

 

Basis of presentation

 

The unaudited condensed interim financial statements presented herein, and discussed below, have been prepared on a stand-alone basis in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission (the “SEC”). In accordance with those rules and regulations certain information and footnote disclosures normally included in comprehensive financial statements have been condensed or omitted. The condensed balance sheet as of December 31, 2017 was derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP. These condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in OncoCyte’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2017.

 

The accompanying condensed interim financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of OncoCyte’s financial condition and results of operations. The condensed results of operations are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

 

Prior to February 17, 2017, BioTime consolidated the results of OncoCyte into BioTime’s consolidated results based on BioTime’s ability to control OncoCyte’s operating and financial decisions and policies through its majority ownership of OncoCyte common stock. Beginning on February 17, 2017, BioTime’s percentage ownership of the outstanding OncoCyte common stock declined below 50%, resulting in a loss of “control” of OncoCyte under GAAP and, as a result, BioTime deconsolidated OncoCyte’s financial statements from BioTime’s consolidated financial statements. As a result of this deconsolidation, OncoCyte is no longer considered a subsidiary of BioTime under GAAP with effect from February 17, 2017. OncoCyte remains an affiliate of BioTime based on BioTime’s retained share ownership in OncoCyte, which is sufficient to allow BioTime to exert significant influence over the operations and management of OncoCyte.

 

To the extent OncoCyte does not have its own office and laboratory facilities, employees, or human resources for its operations, BioTime provides OncoCyte with use of its facilities and employees for administrative or operational services, as necessary, for the benefit of OncoCyte under the terms of a Shared Facilities and Services Agreement (the “Shared Facilities Agreement”). See Note 4. Accordingly, BioTime allocates expenses such as salaries and payroll related expenses incurred and paid on behalf of OncoCyte based on the amount of time that particular employees devote to OncoCyte affairs. Other expenses, such as legal, accounting, human resources, marketing, travel, and entertainment expenses are allocated to OncoCyte to the extent that those expenses are incurred by or on behalf of OncoCyte. BioTime also allocates certain overhead expenses such as facilities rent and utilities, property taxes, insurance, internet and telephone expenses based on a percentage determined by management. Overhead allocations are made based upon allocation drivers such as percentage of square feet of office or laboratory space used, and percentage of personnel devoted to OncoCyte’s operations or management. See Note 2. Management evaluates the appropriateness of the percentage allocations on a periodic basis and believes that this basis for allocation is reasonable.

 

OncoCyte previously granted stock options to employees of BioTime, or employees of other BioTime subsidiaries who performed services for OncoCyte, and OncoCyte recorded stock-based compensation expense in the accompanying condensed statements of operations for the services performed in the periods presented.

 

  7  

 

 

Liquidity

 

Since inception, OncoCyte has financed its operations through the sale of common stock and warrants, warrant exercises, a bank loan, and sales of BioTime common shares that it holds as marketable equity securities. BioTime also provided OncoCyte with the use of BioTime facilities and services under a Shared Facilities Agreement as described in Note 4. OncoCyte has incurred operating losses and negative cash flows since inception and had an accumulated deficit of $63.8 million as June 30, 2018. OncoCyte expects to continue to incur operating losses and negative cash flows for the near future .

 

At June 30, 2018, OncoCyte had $10.3 million of cash and cash equivalents and held BioTime common shares as marketable equity securities valued at $728,000 and, as further discussed in Note 10, on July 31, 2018, OncoCyte completed a financing in which it received approximately $3.3 million in net proceeds after deducting placement fees and other estimated expenses . OncoCyte believes that its current cash, cash equivalents and marketable equity securities is sufficient to carry out current operations through at least twelve months from the issuance date of the condensed interim financial statements included in this Report.

 

OncoCyte will need to raise additional capital to finance its operations, including the development of its cancer diagnostic tests, until such time as it is able to complete development and commercialize one or more diagnostic tests and generate sufficient revenues to cover its operating expenses. OncoCyte continues to devote substantially all of its research and development resources to the completion of the development of DetermaVu™. If OncoCyte determines to build its own integrated marketing and sales force to commercialize DetermaVu™ after development is complete, OncoCyte will need to raise additional capital for that purpose. OncoCyte may also explore a range of other commercialization options in order to reduce capital needs and the risks associated with the timelines and uncertainty for attaining the Medicare and commercial reimbursement approvals that will be essential for the successful commercialization of DetermaVu™ and any other diagnostic tests that OncoCyte may develop. Those alternative arrangements could include marketing arrangements with other diagnostic companies through which OncoCyte might receive a royalty on sales, or through which it might form a joint venture to market DetermaVu™ and share in net revenues.

 

Delays in the development of DetermaVu™ could prevent OncoCyte from raising sufficient additional capital to finance the completion of development and commercial launch of DetermaVu™ or other cancer diagnostic tests. Even if OncoCyte is successful in completing the development of DetermaVu™, i nvestors may be reluctant to provide OncoCyte with capital until DetermaVu™ is approved for reimbursement by Medicare or private payers . The unavailability or inadequacy of financing or revenues to meet future capital needs could force OncoCyte to modify, curtail, delay, or suspend some or all aspects of planned operations. Sales of additional equity securities could result in the dilution of the interests of its shareholders. OncoCyte cannot assure that adequate financing will be available on favorable terms, if at all.

 

2. Summary of Significant Accounting Policies

 

Research and development expenses

 

Research and development expenses include both direct expenses incurred by OncoCyte and indirect overhead costs allocated by BioTime that benefit or support OncoCyte’s research and development functions. Direct research and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation, outside consultants and suppliers. Indirect research and development expenses allocated by BioTime to OncoCyte under the Shared Facilities Agreement (see Note 4), are primarily based on headcount or space occupied, as applicable, and include laboratory supplies, laboratory expenses, rent and utilities, common area maintenance, telecommunications, property taxes and insurance. Research and development costs are expensed as incurred.

 

General and administrative expenses

 

General and administrative expenses include both direct expenses incurred by OncoCyte and indirect overhead costs allocated by BioTime that benefit or support OncoCyte’s general and administrative functions. Direct general and administrative expenses consist primarily of compensation and related benefits, including stock-based compensation, for executive and corporate personnel, and professional and consulting fees. Indirect general and administrative expenses allocated by BioTime to OncoCyte under the Shared Facilities Agreement (see Note 4) are primarily based on headcount or space occupied, as applicable, and include costs for financial reporting and compliance, rent and utilities, common area maintenance, telecommunications, property taxes and insurance.

 

Sales and marketing expenses

 

Sales and marketing expenses consist primarily of personnel costs and related benefits, including stock-based compensation, trade shows and booths, branding and positioning, and outside consultants. Indirect sales and marketing expenses allocated by BioTime, primarily based on OncoCyte’s headcount or space occupied, as applicable, include costs for rent and utilities, common area maintenance, telecommunications, property taxes and insurance, incurred by BioTime and allocated to us under the Shared Facilities Agreement.

 

  8  

 

 

Accounting for BioTime shares

 

OncoCyte accounts for the BioTime shares it holds as marketable equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities , as amended by Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities , as the shares have a readily determinable fair value quoted on the NYSE American and are held principally to meet future working capital purposes, as necessary. The securities are measured at fair value and reported as current assets on the condensed balance sheet based on the closing trading price of the security as of the date being presented.

 

Beginning on January 1, 2018, with the adoption of ASU 2016-01 discussed below, these securities are now called “marketable equity securities” and unrealized holding gains and losses on these securities are reported in the condensed statements of operations in other income and expenses, net. Prior to January 1, 2018 and the adoption of ASU 2016-01, these securities were called “available-for-sale securities” and unrealized holding gains and losses were reported in other comprehensive income or loss, net of tax, and were a component of the accumulated other comprehensive income or loss on the condensed balance sheet. Realized gains and losses are included in other income and expenses, net, in the condensed statements of operations.

 

On January 1, 2018, in accordance with the adoption of ASU 2016-01, OncoCyte recorded a cumulative-effect adjustment for these available-for-sale-securities to reclassify the unrealized loss of $888,000 included in accumulated other comprehensive loss to the accumulated deficit balance. For the three and six months ended June 30, 2018, OncoCyte recorded an unrealized loss of $223,000 and $32,000, respectively, included in other income and expenses, net, due to the decrease in fair market value of the marketable equity securities from the respective balance sheet dates.

 

During the six months ended June 30, 2017, OncoCyte sold 266,442 shares of BioTime stock for net proceeds of $934,000 and used those proceeds to pay down amounts owed to BioTime and affiliates (see Note 4). OncoCyte recognized a $155,000 and $309,000 loss from the sale of the BioTime shares for the three and six months ended June 30, 2017, respectively, included in other income and expenses, net.

 

OncoCyte did not sell any shares of BioTime stock during the six months ended June 30, 2018. As of June 30, 2018, OncoCyte held 353,264 BioTime common shares as marketable equity securities with a fair market value of $728,000. Any proceeds from the sale of BioTime shares may be used by OncoCyte to pay amounts owed to BioTime and its affiliates or for working capital purposes (see Note 5).

 

Net loss per common share

 

All potentially dilutive common stock equivalents are antidilutive because OncoCyte reported a net loss for all periods presented. The following common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been antidilutive (in thousands):

 

    Three Months Ended June 30,     Six Months Ended June 30,  
    (Unaudited)     (Unaudited)  
    2018     2017     2018     2017  
Stock options     3,477       931       2,894       931  
Warrants     2,779       3,049       2,779       3,049  

 

Recently Issued Accounting Pronouncements

 

Certain recently issued accounting pronouncements applicable to OncoCyte that are not yet effective are disclosed in OncoCyte’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2017.

 

3. Selected Balance Sheet Components

 

Accrued expenses and other current liabilities

 

As of June 30, 2018 and December 31, 2017, prepaid expenses and other current assets were comprised of the following (in thousands):

 

   

June 30, 2018

(Unaudited)

    December 31, 2017  
Accrued compensation   $ 483     $ 636  
Accrued vendors and other expenses     560       406  
Accrued expenses and other current liabilities   $ 1,043     $ 1,042  

 

  9  

 

 

Intangible assets, net

 

As of June 30, 2018 and December 31, 2017, intangible assets, consisting primarily of acquired patents, patent applications, and licenses to use certain patents, were as follows (in thousands):

 

   

June 30, 2018

(Unaudited) (1)

    December 31, 2017  
Intangible assets   $ 2,419     $ 2,419  
Accumulated amortization     (2,419 )     (1,673 )
Intangible assets, net   $ -     $ 746  

 

(1) As part of OncoCyte’s impairment assessment of its intangible assets, OncoCyte determined that these assets were impaired as of June 30, 2018 and, accordingly, OncoCyte recorded a noncash charge of $625,000 representing the net book value of those assets as of that date, and included that charge in research and development expenses for the three and six months ended June 30, 2018. The impairment was primarily due to OncoCyte’s decision to discontinue any further utilization of the underlying patents, patent applications and licenses since those assets are for therapeutic use and not for diagnostic use, as OncoCyte continues to devote all of its research and development resources and commercialization efforts to cancer diagnostic tests. Research and development expenses for the three and six months ended June 30, 2018 also include $60,000 and $121,000, respectively, in amortization expenses related to these intangible assets recorded prior to the impairment charge. For the three and six months ended June 30, 2017, research and development expenses include $60,000 and $121,000 of amortization of intangible assets, respectively.

 

Machinery and equipment, net

 

As of June 30, 2018 and December 31, 2017, machinery and equipment, primarily comprised of assets purchased under capital leases discussed in Note 9, were as follows (in thousands):

 

   

June 30, 2018

(Unaudited)

    December 31, 2017  
Machinery and equipment   $ 1,345     $ 1,479  
Accumulated depreciation     (730 )     (657 )
Machinery and equipment, net   $ 615     $ 822  

 

Depreciation expense amounted to $104,000 and $77,000 for the three months ended June 30, 2018 and 2017, and $207,000 and $144,000 for the six months ended June 30, 2018 and 2017, respectively.

 

4. Related Party Transactions

 

Shared Facilities Agreement

 

On October 8, 2009, OncoCyte and BioTime executed the Shared Facilities Agreement. Under the terms of the Shared Facilities Agreement, BioTime will allow OncoCyte to use its premises and equipment located at Alameda, California for the sole purpose of conducting business. BioTime will also provide accounting, billing, bookkeeping, payroll, treasury, payment of accounts payable, and other similar administrative services to OncoCyte. BioTime may also provide the services of attorneys, accountants, and other professionals who may also provide professional services to BioTime and its other subsidiaries. BioTime will also provide OncoCyte with the services of its laboratory and research personnel, including BioTime employees and contractors, for the performance of research and development work for OncoCyte at the premises.

 

BioTime charges OncoCyte a Use Fee for services received and usage of facilities, equipment, and supplies. For each billing period, BioTime prorates and allocates costs incurred, as applicable, to OncoCyte, such costs include services of Bio Time employees, equipment, insurance, lease, professional, software, supplies and utilities. Allocation depends on key cost drivers including actual documented use, square footage of facilities used, time spent, costs incurred by or for OncoCyte, or upon proportionate usage by BioTime and OncoCyte, as reasonably estimated by BioTime (collectively “Use Fees”). BioTime, at its discretion, has the right to charge OncoCyte a 5% markup on such allocated costs.

 

  10  

 

 

The Use Fee is determined and invoiced to OncoCyte on a quarterly basis for each calendar quarter of each calendar year. If the Shared Facilities Agreement terminates prior to the last day of a billing period, the Use Fee will be determined for the number of days in the billing period elapsed prior to the termination of the Shared Facilities Agreement. Each invoice will be payable in full by OncoCyte within 30 days after receipt. Any invoice, or portion thereof, not paid in full when due will bear interest at the rate of 15% per annum until paid, unless the failure to make a payment is due to any inaction or delay in making a payment by BioTime employees from OncoCyte funds available for such purpose, rather than from the unavailability of sufficient funds legally available for payment or from an act, omission, or delay by any employee or agent of OncoCyte. Through June 30, 2018, BioTime has not charged OncoCyte any interest.

 

In addition to the Use Fees, OncoCyte will reimburse BioTime for any out of pocket costs incurred by BioTime for the purchase of office supplies, laboratory supplies, and other goods and materials and services for the account or use of OncoCyte, provided that invoices documenting such costs are delivered to OncoCyte with each invoice for the Use Fee. BioTime has no obligation to purchase or acquire any office supplies or other goods and materials or any services for OncoCyte, and if any such supplies, goods, materials or services are obtained for OncoCyte, BioTime may arrange for the suppliers thereof to invoice OncoCyte directly.

 

The Shared Facilities Agreement will remain in effect, unless either party gives the other party written notice stating that the Shared Facilities Agreement will terminate on December 31 of that year, or unless the agreement otherwise is terminated under another provision of the agreement.

 

In the aggregate, Use Fees charged to OncoCyte by BioTime are as follows (in thousands):

 

   

Three Months Ended June 30,

(unaudited)

   

Six Months Ended June 30,

(unaudited)

 
    2018     2017     2018     2017  
Research and development   $ 217     $ 312     $ 438     $ 629  
General and administrative     79       78       153       157  
Sales and marketing     95       -       193       -  
Total use fees   $ 391     $ 390     $ 784     $ 786  

 

As of June 30, 2018 and December 31, 2017, OncoCyte had $2.1 million outstanding and payable to BioTime and affiliates included in current liabilities on account of Use Fees under the Shared Facilities Agreement. Since those amounts are due and payable within 30 days of being invoiced, the payables are classified as current liabilities for all periods presented.

 

The minimum fixed payments due under the Shared Facilities Agreement are approximately $131,000 per month.

 

5. Loan Payable to Silicon Valley Bank

 

On February 21, 2017, OncoCyte entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (the “Bank”) pursuant to which OncoCyte borrowed $2 million on March 23, 2017. Payments of interest only on the principal balance were due monthly from the draw date through October 31, 2017, and, beginning on November 1, 2017, monthly payments of principal of approximately $67,000 plus interest are due and payable. The outstanding principal balance of the loan bears interest at a stated floating annual interest rate equal to the greater of (i) three-quarters of one percent (0.75%) above the prime rate or (ii) four and one-quarter percent (4.25%). As of June 30, 2018, the latest published prime rate plus 0.75% was 5.75% per annum.

 

The outstanding principal amount plus accrued interest will be due and payable to the Bank at maturity on April 1, 2020. At maturity, OncoCyte will also pay the Bank an additional final payment fee of 5.8% of the original principal borrowed. OncoCyte accrued the $116,000 final payment fee included in the loan payable as a deferred financing cost on the March 23, 2017 draw date.

 

OncoCyte may prepay in full the outstanding principal balance at any time, subject to a prepayment fee equal to 2.0% of the outstanding principal balance if prepaid on or before February 21, 2019, or 1.0% of the outstanding principal balance if prepaid after February 21, 2019. Any amounts borrowed and repaid may not be reborrowed. There are no amounts available to be borrowed on the Loan Agreement.

 

The outstanding principal amount of the loan, with interest accrued, the final payment fee, and the prepayment fee may become due and payable prior to the applicable maturity date if an “Event of Default” as defined in the Loan Agreement occurs and is not cured within any applicable cure period. Upon the occurrence and during the continuance of an Event of Default, all obligations due to the Bank will bear interest at a rate per annum which is 5% above the then applicable interest rate. An Event of Default includes, among other events, failure to pay interest and principal when due, material adverse changes, which include a material adverse change in OncoCyte’s business, operations, or condition (financial or otherwise), failure to provide the bank with timely financial statements and copies of filings with the Securities and Exchange Commission, as required, legal judgments or pending or threatened legal actions of $50,000 or more, insolvency, and delisting from the NYSE American. OncoCyte’s obligations under the Loan Agreement are collateralized by substantially all of its assets other than intellectual property such as patents and trade secrets that OncoCyte owns. Accordingly, if an Event of Default were to occur and not be cured, the Bank could foreclose on its security interest in the collateral. OncoCyte was in compliance with the Loan Agreement as of the filing date of this Report.

 

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Under the provisions of the Loan Agreement, as consented by the Bank on October 26, 2017, any proceeds received by OncoCyte from sales of BioTime shares may be used by OncoCyte to fund its operations.

 

Bank Warrants

 

On February 21, 2017, and in conjunction with the $2.0 million becoming available under the Loan Agreement, OncoCyte issued common stock purchase warrants to the Bank (the “Bank Warrants”) entitling the Bank to purchase shares of OncoCyte common stock in tranches related to the availability and borrowing of loan funds under the Loan Agreement. In conjunction with the availability of the loan, the Bank was issued warrants to purchase 8,247 shares of OncoCyte common stock at an exercise price of $4.85 per share, through February 21, 2027. On March 23, 2017, in conjunction with borrowing $2 million, the Bank was issued warrants to purchase an additional 7,321 shares at an exercise price of $5.46 per share, through March 23, 2027. The Bank may elect to exercise the Bank Warrants on a “cashless exercise” basis and receive a number of shares determined by multiplying the number of shares for which the applicable tranche is being exercised by (A) the excess of the fair market value of the common stock over the applicable exercise price, divided by (B) the fair market value of the common stock. The fair market value of the common stock will be the last closing or sale price on a national securities exchange, interdealer quotation system, or over-the-counter market.

 

The Bank Warrants are classified as equity since, among other factors, they are not mandatorily redeemable, cannot be settled in cash or other assets and require settlement by issuing a fixed number of shares of common stock of OncoCyte. OncoCyte determined the fair value of the Bank Warrants using the Black-Scholes option pricing model to be approximately $62,000, which was recorded as a deferred financing cost against the loan payable balance. Aggregate deferred financing costs of $196,000, recorded against the loan payable balance, are amortized to interest expense over the term of the loan using the effective interest method. As of June 30, 2018, unamortized deferred financing costs were $69,000.

 

6. Shareholders’ Equity

 

Preferred Stock

 

OncoCyte is authorized to issue 5,000,000 shares of no par value preferred stock. As of June 30, 2018, no preferred shares were issued or outstanding.

 

Common Stock

 

OncoCyte has up to 50,000,000 shares of no par value common stock authorized.

 

On March 28, 2018, OncoCyte entered into a securities purchase agreement with two accredited investors. The agreement provides for the private placement of 7,936,508 shares of OncoCyte’s common stock for $1.26 per share, for total gross proceeds of $10.0 million before deducting offering expenses, $8.0 million of which was received in March 2018 and $2.0 million in May 2018. The agreement contains certain registration rights. The investors are Broadwood Partners, L.P. and George Karfunkel, who beneficially own more than 5% of OncoCyte’s outstanding common stock.

 

As of June 30, 2018, and December 31, 2017, OncoCyte had 39,407,566 (see Note 10) and 31,451,558 issued and outstanding common shares, respectively.

 

Issuance of common stock and warrants

 

On August 29, 2016, OncoCyte sold an aggregate of 3,246,153 immediately separable units, with each unit consisting of one share of OncoCyte common stock and one warrant to purchase one share of OncoCyte common stock (the “2016 Warrants”), at a price of $3.25 per unit (the “Offering”). The sales were made pursuant to the terms and conditions of certain Purchase Agreements between OncoCyte and the purchasers in the Offering. OncoCyte received $9.8 million in net proceeds after discounts, commissions and expenses from the Offering (see Note 10).

 

2016 Warrants and New Warrants

 

The 2016 Warrants have an exercise price of $3.25 per Warrant Share, and may be exercised for five years from October 17, 2016, the date the 2016 Warrants became exercisable. The 2016 Warrants may be exercised on a net “cashless exercise” basis, meaning that the value of a portion of Warrant Shares may be used to pay the exercise price (rather than payment in cash), in certain circumstances, including if the Resale Registration Statement is not effective when and as required by the Purchase Agreements. The exercise price and the number of Warrant Shares will be adjusted to account for certain transactions, including stock splits, dividends paid in common stock, combinations or reverse splits of common stock, or reclassifications of common stock.

 

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Under certain provisions of the 2016 Warrants, in the event of a Fundamental Transaction, as defined in the 2016 Warrants, OncoCyte will use reasonable best efforts for the acquirer, or any successor entity other than OncoCyte, to assume the 2016 Warrants. If the acquirer does not assume the OncoCyte Offering Warrant obligations, then the acquirer shall pay the holders of 2016 Warrants an amount equal to the aggregate value equal to the Black Scholes Value, as defined in the 2016 Warrants. The payment of the Black Scholes Value shall be made in cash or such other consideration as the acquirer paid to the other OncoCyte shareholders in the Fundamental Transaction.

 

OncoCyte is not required to net cash settle the 2016 Warrants under any circumstance. OncoCyte considered the guidance in ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. Since solely an acquirer, and not OncoCyte itself, may be required to net cash settle the 2016 Warrants in the event of a Fundamental Transaction, the 2016 Warrants are classified as equity.

 

On February 17, 2017, certain OncoCyte investors exercised 2016 Warrants to acquire 625,000 shares of common stock at an exercise price of $3.25 per warrant for total exercise cash proceeds of $2.0 million (the “Warrant exercise”). In order to induce the investors to complete the Warrant exercise and, in conjunction with the Warrant exercise, OncoCyte issued new warrants to those investors (the “New Warrants”). Certain investors received New Warrants to purchase 200,000 shares of common stock at an exercise price of $5.50 per share and one investor received New Warrants to purchase 212,500 shares of common stock at an exercise of $3.25 per share. The New Warrants are exercisable at any time for five years from February 17, 2017.

 

The New Warrants are classified as equity as their terms are consistent with the 2016 Warrants. For financial reporting purposes, the issuance of the New Warrants was treated as an inducement offer to certain shareholders to exercise their 2016 Warrants. Accordingly, the fair value of the New Warrants, determined using the Black-Scholes option pricing model, approximating $1.1 million was recognized by OncoCyte as a noncash charge to shareholder expense included in general and administrative expenses and a corresponding increase to equity on February 17, 2017, the issuance date.

 

On July 21, 2017, OncoCyte entered into three forms of Warrant Exercise Agreements (each, an “Exercise Agreement”) with certain holders of the 2016 Warrants providing for the cash exercise of their 2016 Warrants and the issuance of new warrants (the “July 2017 Warrants”) to them.

 

Pursuant to one form of Exercise Agreement, two investors exercised 2016 Warrants to purchase 226,923 shares of OncoCyte’s common stock at the exercise price of $3.25 per share, and OncoCyte issued to them July 2017 Warrants expiring five years from the date of issue, to purchase 226,923 shares of common stock at an exercise price of $5.50 per share.

 

Pursuant to a second form of Exercise Agreement, one investor exercised 2016 Warrants to purchase 540,000 shares of common stock at the exercise price of $3.25 per share, and OncoCyte issued to the investor a July 2017 Warrant, expiring five years from the date of issue, to purchase 270,000 shares of common stock at an exercise price of $3.25 per share. In this alternative form of Exercise Agreement, OncoCyte also agreed to use commercially reasonable efforts to file with the SEC a registration statement covering the resale of the shares of common stock issuable upon exercise of the July 2017 Warrant and to keep it continuously effective for up to five years, subject to conditions set forth in the Exercise Agreement.

 

Pursuant to a third form of Exercise Agreement, one investor exercised 2016 Warrants to purchase 1,000,000 shares of common stock at the exercise price of $3.25 per share, and OncoCyte issued to the investor (i) a July 2017 Warrant, expiring two years from the date of issue, to purchase 500,000 shares of common stock at an exercise price of $5.50 per share, and (ii) a July 2017 Warrant, expiring two years from the date of issue, to purchase 500,000 shares of common stock at an exercise price of $3.25 per share. In this alternative form of Exercise Agreement, OncoCyte also agreed to use commercially reasonable efforts to file with the SEC a registration statement covering the resale of the shares of common stock issuable upon exercise of the July 2017 Warrant and to keep it continuously effective for up to five years, subject to conditions set forth in the Exercise Agreement.

 

In the aggregate, upon the exercise of 2016 Warrants under the Exercise Agreements, OncoCyte received gross proceeds of approximately $5.74 million and issued July 2017 Warrants to purchase 1,496,923 shares of common stock at a weighted average price of $4.34 per share.

 

The July 2017 Warrants are classified as equity as their terms are consistent with the 2016 Warrants. For financial reporting purposes, the issuance of the July 2017 Warrants is treated as an inducement offer to certain investors to exercise their 2016 Warrants. Accordingly, the fair value of the July 2017 Warrants, determined to be approximately $3.0 million using the Black-Scholes option pricing model, was recorded as a noncash charge to shareholder expense included in general and administrative expenses, and a corresponding increase was recorded to equity on July 21, 2017, the issuance date.

 

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As of June 30, 2018, OncoCyte has an aggregate of 2,779,221 warrants issued and outstanding at exercise prices ranging from $3.25 and $5.50 per warrant (see Note 10).

 

Stock option exercises

 

During the six months ended June 30, 2018, 19,500 shares of common stock were issued upon the exercise of stock options, from which OncoCyte received approximately $56,000 in cash proceeds.

 

7. Stock-based Compensation

 

Options Granted

 

OncoCyte has adopted a 2010 Stock Option Plan (the “Plan”) under which 5,200,000 shares of common stock are authorized for the grant of stock options or the sale of restricted stock. The Plan also permits OncoCyte to issue such other securities as its Board of Directors or the Compensation Committee administering the Plan may determine.

 

A summary of OncoCyte stock option activity under the Plan and related information follows (in thousands except weighted average exercise price):

 

Options  

Shares

Available

for Grant

(unaudited)

   

Number

of Options

Outstanding

(unaudited)

   

Weighted

Average

Exercise Price

(unaudited)

 
December 31, 2017     1,384       3,390     $ 3.25  
Options granted     (1,121 )     1,121       2.38  
Options exercised     -       (20 )     2.87  
Options forfeited and canceled     126       (126 )     5.10  
June 30, 2018     389       4,365     $ 2.97  
Exercisable at June 30, 2018             2,208     $ 2.70  

 

During the six months ended June 30, 2018, OncoCyte granted 1,050,200 stock options to employees and consultants with exercise prices ranging from $2.35 per share to $2.85 per share, which will vest in increments upon the attainment of specified performance conditions related to the development of DetermaVu™ and obtaining Medicare reimbursement coverage for that test . As of June 30, 2018, none of the vesting conditions were met and, accordingly, no stock-based compensation expense was recorded during the three and six months ended June 30, 2018 with regard to those stock options.

 

OncoCyte recorded stock-based compensation expense in the following categories on the accompanying condensed statements of operations for the three and six months ended June 30, 2018 and 2017 (in thousands):

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
    2018     2017     2018     2017  
Research and development   $ 57     $ 163           $ (22 ) (1)   $ 368  
General and administrative     318       183       574       328  
Sales and marketing     15       -       183       -  
Total stock-based compensation expense   $ 390     $ 346     $ 735     $ 696  

 

(1) The negative stock-based compensation expense is primarily attributable to the decrease in the OncoCyte stock price from $4.65 per share at December 31, 2017 to $2.55 per share at June 30, 2018 for consultant stock options which require mark-to-market adjustment each quarter for unvested shares.

 

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The assumptions that were used to calculate the grant date fair value of OncoCyte’s employee and non-employee stock option grants for the six months ended June 30, 2018 and 2017 were as follows.

 

    2018     2017  
Expected life (in years)     9.74       5.37  
Risk-free interest rates     2.97 %     1.79 %
Volatility     82.21 %     73.39 %
Dividend yield     -   %     - %

 

With the adoption of ASU 2016-09, effectively January 1, 2017, forfeitures are accounted for as they occur instead of based on the number of awards that were expected to vest.

 

The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If OncoCyte had made different assumptions, its stock-based compensation expense and net loss for the three and six months ended June 30, 2018 and 2017 may have been significantly different.

 

OncoCyte does not recognize deferred income taxes for incentive stock option compensation expense and records a tax deduction only when a disqualified disposition has occurred.

 

8. Income Taxes

 

The provision for income taxes is determined using an estimated annual effective tax rate. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, if any, and changes in or the interpretation of tax laws in jurisdictions where OncoCyte conducts business. Due to losses incurred for all periods presented, OncoCyte did not record any provision or benefit for income taxes.

 

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. OncoCyte established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.

 

9. Commitments and Contingencies

 

OncoCyte has certain commitments other than those under the Shared Facilities agreement discussed in Note 4.

 

Master Lease Line Agreement

 

On April 7, 2016, OncoCyte entered into a Master Lease Line Agreement (“Lease Agreement”) with an unrelated financing company for the purchase and financing of certain equipment. OncoCyte may use up to $881,000, as amended, for purchases of equipment financed under the Lease Agreement through April 2017. Each lease schedule OncoCyte enters into under Lease Agreement must be in minimum increments of $50,000 each with a 36-month lease term, collateralized by the equipment financed under the lease schedule. Each lease schedule requires a deposit for the first and last payment under that schedule. Monthly payments will be determined using a lease factor approximating an interest rate of 10% per annum. At the end of each lease schedule under Lease Agreement, assuming no default has occurred, OncoCyte may either return the equipment financed under the schedule for a restocking fee of 7.5% of the original cost of the equipment or purchase the equipment from the financing company at a fair value not less than 12.5% of the original cost of the equipment.

 

On April 7, 2016, OncoCyte entered into a lease schedule under the Lease Agreement (“Lease Schedule No. 1”) for certain equipment costing approximately $435,000 applied against the lease line, requiring payments of $14,442 per month over 36 months. In December 2016, OncoCyte entered into another lease schedule (“Lease Schedule No. 2”) for certain equipment costing approximately $161,000, requiring payments of $5,342 per month over 36 months. In April 2017, OncoCyte entered into a third and final lease schedule (“Lease Schedule No. 3”) for certain equipment costing approximately $285,000, requiring payments of $9,462 per month over 36 months. After this last tranche, the Lease Agreement was closed and has no remaining financing available.

 

OncoCyte has accounted for these leases as a capital lease in accordance with ASC 840, Leases , due to the net present value of the payments under the lease approximating the fair value of the equipment at inception of the lease. The payments under the lease schedules will be amortized to capital lease obligations and interest expense using the interest method at an imputed rate of approximately 10% per annum.

 

On May 11, 2017, OncoCyte entered into another Master Lease Line Agreement (“Lease Agreement No. 2”) with the same finance company above and similar terms. OncoCyte may use up to $900,000 for purchases of equipment financed under Lease Agreement No. 2 through October 28, 2018. As of June 30, 2018, $820,000 under Lease Agreement No. 2 was available to OncoCyte (see Note 10).

 

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Litigation – General

 

OncoCyte will be subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and other matters. When OncoCyte is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, OncoCyte will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, OncoCyte discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. OncoCyte is not aware of any claims likely to have a material adverse effect on its financial condition or results of operations.

 

Employment Contracts

 

OncoCyte has entered into employment contracts with certain executive officers. Under the provisions of the contracts, OncoCyte may be required to incur severance obligations for matters relating to changes in control, as defined, and involuntary terminations.

 

Indemnification

 

In the normal course of business, OncoCyte may provide indemnification of varying scope under OncoCyte’s agreements with other companies or consultants, typically OncoCyte’s clinical research organizations, investigators, clinical sites, suppliers and others. Pursuant to these agreements, OncoCyte will generally agree to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the use or testing of OncoCyte’s diagnostic tests. Indemnification provisions could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to OncoCyte’s diagnostic tests. The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular research, development, services, or license agreement to which they relate. The potential future payments OncoCyte could be required to make under these indemnification agreements will generally not be subject to any specified maximum amounts. Historically, OncoCyte has not been subject to any claims or demands for indemnification. OncoCyte also maintains various liability insurance policies that limit OncoCyte’s financial exposure. As a result, OncoCyte management believes that the fair value of these indemnification agreements is minimal. Accordingly, OncoCyte has not recorded any liabilities for these agreements as of June 30, 2018 and December 31, 2017.

 

10. Subsequent Events

 

On July 2, 2018, OncoCyte entered into a lease schedule under the Lease Agreement No. 2 for certain equipment costing approximately $202,000, requiring payments of $6,709 per month over 36 months, and a $116,000 prepaid maintenance contract for the equipment requiring 12 monthly payments of $10,238, including imputed interest. After the financing of this equipment and the prepaid maintenance contract, there is approximately $502,000 of remaining financing available under Lease Agreement No. 2.

 

On July 31, 2018, OncoCyte raised approximately $3.3 million in net proceeds from the sale of 1,256,118 shares of its common stock and warrants. The shares of common stock and warrants were sold in “Units” at a purchase price of $2.86 per Unit, with each Unit consisting of one share of common stock and one warrant to purchase one share of its common stock. The Units of common stock and warrants were sold in a registered direct offering (the “Offering”). OncoCyte’s Chief Executive Officer, the Chief Financial Officer, the Senior Vice President of Research and Development, and certain members of OncoCyte’s Board of Directors purchased Units in the Offering on the same terms as other investors.

 

Each warrant has an initial exercise price of $3.00 per share, will be exercisable six months after the date of issuance and will expire five years from the date it becomes exercisable. Subject to limited exceptions, a holder of the warrants will not have the right to exercise any portion of such securities if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of OncoCyte’s common stock outstanding immediately after the exercise. The exercise price of the warrants, and in some cases the number of shares of common stock issuable upon exercise of the warrants, will be subject to adjustment in the event of stock splits, stock dividends, combinations, rights offerings and similar events affecting the common stock.

 

OncoCyte has appointed Albert P. Parker as Chief Operating Officer, effective August 6, 2018. Mr. Parker will receive an annual salary of $340,000. In addition to his base salary, OncoCyte will pay the cost of hotel accommodations and meals, and will pay Mr. Parker up to $10,000 for certain other expenses he may incur, in connection with his employment in the state of California.

 

OncoCyte granted Mr. Parker options to purchase 250,000 shares of OncoCyte common stock, 200,000 of which will vest, and thereby become exercisable, in installments based upon the attainment of certain milestones in the development of DetermaVu™, and 50,000 of which will vest upon his completion of six months of service as an OncoCyte employee. All of the options will be exercisable at an exercise price of $2.30 per share. Mr. Parker’s stock options will be subject to the terms and conditions of a stock option agreement and the OncoCyte Employee Stock Option Plan.

 

Mr. Parker will be entitled to severance benefits in the event that his employment is terminated by OncoCyte without “cause” as defined in his Employment Agreement, or if he terminates his employment for “good reason” following a “change of control” of OncoCyte, as those terms are defined in his Employment Agreement. If OncoCyte terminates Mr. Parker’s employment without “cause,” the severance benefits will be payment of six months base salary. However, if after November 6, 2018 a termination of his employment without “cause” or for “good reason” occurs within twelve months following a “change of control” of OncoCyte, his severance benefits will include twelve months base salary.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The matters addressed in this Item 2 that are not historical information constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, including statements about any of the following: any projections of earnings, revenue, cash, effective tax rate, use of net operating losses, or any other financial items; the plans, strategies and objectives of management for future operations or prospects for achieving such plans, and any statements of assumptions underlying any of the foregoing. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. While OncoCyte may elect to update forward-looking statements in the future, it specifically disclaims any obligation to do so, even if the OncoCyte estimates change and readers should not rely on those forward-looking statements as representing OncoCyte views as of any date subsequent to the date of the filing of this Quarterly Report. Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and OncoCyte can give no assurances that its expectations will prove to be correct. Actual results could differ materially from those described in this report because of numerous factors, many of which are beyond the control of OncoCyte. A number of important factors could cause the results of the company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading “Risk Factors” in this Form 10-Q, our Form 10-K, as amended, for the year ended December 31, 2017, and our other reports filled with the SEC from time to time.

 

The following discussion should be read in conjunction with OncoCyte’s condensed interim financial statements and the related notes provided under “Item 1- Financial Statements” above.

 

Critical Accounting Policies

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses and analyzes data in our unaudited condensed interim financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual conditions may differ from our assumptions and actual results may differ from our estimates.

 

An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate are reasonably likely to occur, that could materially impact the financial statements. Management believes that there have been no significant changes during the six months ended June 30, 2018 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2017, except as follows:

 

Accounting for BioTime shares

 

We account for the BioTime shares we hold as marketable equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities , as amended by Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities , as the shares have a readily determinable fair value quoted on the NYSE American and are held principally to meet future working capital purposes, as necessary. The securities are measured at fair value and reported as current assets on the condensed balance sheet based on the closing trading price of the security as of the date being presented.

 

  17  

 

 

Beginning on January 1, 2018, with the adoption of ASU 2016-01, these securities are now called “marketable equity securities” and unrealized holding gains and losses on these securities are reported in the condensed statements of operations in other income and expenses, net. Prior to January 1, 2018 and the adoption of ASU 2016-01, these securities were called “available-for-sale securities” and unrealized holding gains and losses were reported in other comprehensive income or loss, net of tax, and were a component of the accumulated other comprehensive income or loss on the balance sheet. Realized gains and losses are included in other income and expenses, net, in the condensed statements of operations.

 

On January 1, 2018, in accordance with the adoption of ASU 2016-01, we recorded a cumulative-effect adjustment for these available-for-sale-securities to reclassify the unrealized loss of $888,000 included in accumulated other comprehensive loss to accumulated deficit. For the three months ended June 30, 2018, we recorded an unrealized loss of $223,000 included in other income and expenses, net, due to the increase in fair market value of the marketable equity securities from March 31, 2018 to June 30, 2018. For the six months ended June 30, 2018, we recorded an unrealized loss of $32,000 included in other income and expenses, net, due to the increase in fair market value of the marketable equity securities from December 31, 2017 to June 30, 2018.

 

See Note 2 of our condensed interim financial statements included elsewhere in this Report.

 

Results of Operations

 

Comparison of three and six months ended June 30, 2018 and 2017

 

The following tables show our operating expenses for the three and six months ended June 30, 2018 and 2017 (in thousands).

 

   

Three Months Ended

June 30,

       
    2018     2017     $ Increase     % Increase  
Research and development expenses   $ 2,322     $ 1,997     $ 325       16.3 %
General and administrative expenses     1,335       1,115       220       19.7 %
Sales and marketing expenses     569       477       92       19.3 %

 

   

Six Months Ended

June 30,

             
    2018     2017    

$ Increase

(Decrease)

   

% Increase

(Decrease)

 
Research and development expenses   $ 3,784     $ 3,831     $ (47 )     (1.2) %
General and administrative expenses     3,122       3,158       (36 )     (1.1) %
Sales and marketing expenses     1,227       1,132       95       8.4 %

 

Research and development expenses

 

The increase in research and development expenses of $325,000 for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017, is primarily attributable to the $625,000 noncash impairment charge recorded as of June 30, 2018 related to our intangible assets mainly comprised of patents and patent rights that we had acquired for therapeutic uses that we no longer plan to develop or commercialize. The impact of that expense on our results of operations was partially offset by a decrease in laboratory expenses of $130,000 and a decrease in stock-based compensation expense of $106,000. The reduction in stock-based compensation expense was attributable to the decrease in OncoCyte stock price during the relevant periods for consultant stock options which require mark-to-market adjustment each quarter for unvested shares.

 

The decrease in research and development expenses of $47,000 for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, is primarily attributable to the following decreases: $390,000 in stock-based compensation expense and $285,000 in laboratory expenses. The reduction in stock-based compensation expense was attributable to the decrease in OncoCyte stock price from $4.65 per share at December 31, 2017 to $2.55 per share at June 30, 2018 for consultant stock options which require mark-to-market adjustment each quarter for unvested shares. The decreases were offset by a $625,000 noncash impairment charge recorded as of June 30, 2018 related to intangible assets mainly comprised of patents and patent rights for therapeutic uses that that we no longer plan to develop or commercialize.

 

We expect to continue to incur a significant amount of research and development expenses during the foreseeable future.

 

  18  

 

 

General and administrative expenses

 

General and administrative expenses for the three months ended June 30, 2018 increased by $220,000 in comparison to the three months ended June 30, 2017. This increase is primarily attributable to $135,000 in stock-based compensation expense and $128,000 in personnel and related expenses.

 

General and administrative expenses for the six months ended June 30, 2018 were relatively unchanged from the comparative period in 2017. During the six months ended June 30, 2017, we incurred a noncash expense of $1.1 million for the issuance of warrants to certain investors who exercised warrants. We did not incur a similar expense during the same period in 2018. However, during the six months ended June 30, 2018, general and administrative expenses increased by $640,000 in legal, financing and patent related expenses, an increase $247,000 in stock-based compensation expense, and an increase of $155,000 in personnel and related expenses.

 

Sales and marketing expenses

 

Sales and marketing expenses for the three months ended June 30, 2018 increased by $92,000 in comparison to the three months ended June 30, 2017, and increased by $95,000 for the six months ended June 30, 2018 as compared to the same period in 2017. The increases were primarily attributable to personnel and related expenses for severance costs recorded in the second quarter of 2018.

 

Other income and expenses, net

 

Other income and expenses, net, is primarily comprised of interest expense, net, incurred from our capital lease obligations and a loan payable to the Silicon Valley Bank, and unrealized and realized losses on BioTime marketable equity securities we hold.

 

During the six months ended June 30, 2017, we sold 266,442 shares of BioTime stock for net proceeds of $934,000 and used those proceeds to pay down amounts owed to BioTime and affiliates. We recognized a $155,000 and $309,000 loss from the sale of the BioTime shares for the three and six months ended June 30, 2017, respectively, included in other income and expenses, net.

 

We did not sell any shares of BioTime common stock during the six months ended June 30, 2018. For the three and six months ended June 30, 2018, we recorded unrealized losses of $223,000 and $32,000, respectively, included in other income and expenses, net, due to the decrease in fair market value of the marketable equity securities from the respective balance sheet dates. As of June 30, 2018 and December 31, 2017, we held 353,264 BioTime common shares as marketable equity securities with a fair market value of $728,000 and $760,000, respectively.

 

Income taxes

 

Due to the losses incurred for all periods presented, we did not record any provision or benefit for income taxes for any period presented.

 

A valuation allowance will be provided when it is more likely than not that some portion of the deferred tax assets will not be realized. We established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from our net operating loss carryforwards and other deferred tax assets.

 

Liquidity and Capital Resources

 

Since inception, we have financed our operations through the sale of our common stock and warrants, warrant exercises, a bank loan, and sales of BioTime common shares that we hold as marketable equity securities. BioTime also provided OncoCyte with the use of BioTime facilities and services under a Shared Facilities and Services Agreement as described in Note 4 to the condensed interim financial statements. We have incurred operating losses and negative cash flows since inception, and had an accumulated deficit of $63.8 million at June 30, 2018. We expect to continue to incur operating losses and negative cash flows for the near future .

 

At June 30, 2018, we had $10.3 million of cash and cash equivalents and held BioTime common shares as marketable equity securities valued at $728,000 and, on July 31, 2018, we received an additional $3.3 million in net proceeds from completion of a financing discussed in Note 4 to our condensed interim financial statements. We believe that our current cash, cash equivalents and marketable equity securities is sufficient to carry out our current operations through at least twelve months from the issuance date of the condensed interim financial statements included in this Report.

 

We will need to continue to raise additional capital to finance our operations, including the development of our cancer diagnostic tests, until such time as we are able to complete development and commercialize one or more diagnostic tests and generate sufficient revenues to cover our operating expenses. We are devoting substantially all of our research and development resources to the completion of the development of DetermaVu™. If we determine to build our own integrated marketing and sales force to commercialize DetermaVu™ after development is completed, we will need to raise additional capital for that purpose. We may also explore a range of other commercialization options in order to reduce our capital needs and the risks associated with the timelines and uncertainty for attaining the Medicare and commercial reimbursement approvals that will be essential for the successful commercialization of DetermaVu™ and any other diagnostic tests that we may develop. Those alternative arrangements could include marketing arrangements with other diagnostic companies through which we might receive a royalty on sales, or through which we might form a joint venture to market DetermaVu ™ and share in net revenues .

 

  19  

 

 

Delays in the development of DetermaVu™ could prevent us from raising sufficient additional capital to finance the completion of development and commercial launch of DetermaVu™ or any other cancer diagnostic tests. Even if we are successful in completing the development of DetermaVu™, i nvestors may be reluctant to provide us with capital until DetermaVu™ is approved for reimbursement by Medicare or private payers . The unavailability or inadequacy of financing or revenues to meet future capital needs could force us to modify, curtail, delay, or suspend some or all aspects of our planned operations. Sales of additional equity securities could result in the dilution of the interests of our shareholders. We cannot assure that adequate financing will be available on favorable terms, if at all.

 

Cash used in operations

 

During the six months ended June 30, 2018 and 2017, our total research and development expenses were $3.8 million for each respective period, our general and administrative expenses were $3.1 million and $3.2 million, and our sales and marketing expenses were $1.2 million and $1.1 million, respectively. Net loss for the six months ended June 30, 2018 amounted to $8.3 million and net cash used in operating activities amounted to $6.7 million. The amount by which our net loss exceeded net cash used in our operating activities during the six months ended June 30, 2018 is primarily due to the following noncash items: $735,000 in stock-based compensation, a $625,000 impairment charge recorded for our intangible assets, $328,000 in depreciation and amortization expenses, $44,000 in amortization of debt issuance costs, and a $32,000 unrealized loss on BioTime shares held as marketable equity securities. Changes in working capital were approximately $212,000 as a use of cash.

 

Cash used in investing activities

 

During the six months ended June 30, 2018, cash used for investing activities was insignificant .

 

Cash provided by financing activities

 

During the six months ended June 30, 2018, we received $10.0 million in cash proceeds from the sale of 7,936,508 shares of our common stock in a private offering and received $56,000 from exercise of stock options. These cash inflows were offset by $565 ,000 used to repay the loan payable and capital lease obligations and $65,000 paid in financing costs to issue the common stock .

 

Off-Balance Sheet Arrangements

 

As of June 30, 2018 and December 31, 2017, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

There have been no material changes in our qualitative and quantitative market risk since the disclosure in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2017.

 

Marketable equity securities at fair value

 

As of June 30, 2018, we held 353,264 BioTime common shares at fair value as marketable equity securities. Those shares are subject to changes in market value. BioTime common shares trade on the NYSE American under the ticker “BTX”. As of June 30, 2018, the 52-week high/low stock price per share range for BioTime was $3.15 to $2.03.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

It is management’s responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (“Exchange Act”). Our management, including our principal executive officer and principal financial officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Following this review and evaluation, the principal executive officer and principal financial officer determined that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to management, including our principal executive officer, and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls

 

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

  20  

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

From time to time, we may be involved in routine litigation incidental to the conduct of our business. We are not presently involved in any material litigation or proceedings, and to our knowledge no such litigation or proceedings are contemplated.

 

Item 1A. Risk Factors

 

Our business is subject to various risks, including those described below. You should consider the following risk factors, together with all of the other information included in this Report and the risks described in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2017 and in our other filings with the Securities and Exchange Commission (the “SEC”), which could materially adversely affect our proposed operations, business prospects, and financial condition, and the value of an investment in our business. There may be other factors that are not mentioned here or of which we are not presently aware that could also affect our business operations and prospects.

 

Risks Related to Our Business Operations

 

We have incurred operating losses since inception and we do not know if we will attain profitability.

 

Since our inception in September 2009, we have incurred operating losses and negative cash flows and we expect to continue to incur losses and negative cash flows in the future. Our net losses for the six months ended June 30, 2018 and for the years ended December 31, 2017 and 2016 were $8.3 million, $19.4 million and $11.2 million, respectively, and we had an accumulated deficit of $63.8 million and $54.7 million as of June 30, 2018 and December 31, 2017, respectively. Since inception, we have financed our operations through sales of our common stock and warrants, loans from BioTime and BioTime affiliates, warrant exercises, a bank loan and sale of BioTime common shares that we hold as marketable equity securities. Although BioTime may continue to provide administrative support to us on a reimbursable basis, there is no assurance that BioTime will provide future financing. There is no assurance that we will be able to obtain any additional financing that we may need, or that any such financing that may become available will be on terms that are favorable to us and our shareholders. Ultimately, our ability to generate sufficient operating revenue to earn a profit depends upon our success in developing and marketing or licensing our diagnostic tests and technology.

 

We have experienced a delay in conducting our clinical validation study of DetermaVu™.

 

During the process of running initial samples for the clinical validation study of DetermaVu™ in 2017, inconsistent analytic results were observed by our technical team. We determined that the inconsistent results were caused by a variance in the lots of consumables used in the diagnostic testing platform that we were using to analyzes blood samples for the genetic biomarkers that may indicate whether lung nodules found in patients are benign or suspicious. Due to the issues with that diagnostic testing platform, we have evaluated and provisionally selected an alternative diagnostic testing platform for DetermaVu™. We plan to complete our DetermaVu™ development work on the selected platform by carrying out an R&D validation study followed by an analytical validation study, and if those studies are successfully completed, we plan to conduct a clinical validation study. Clinical validation is the final step prior to commercial launch of a diagnostic test, and we are targeting completion of a clinical validation during the first half of 2019. If these studies are completed successfully, we plan to commercialize or to arrange for the commercialization of the test. Until we perform these studies, we will not know whether we can successfully complete the development of DetermaVu™.

 

The need to address the issues we encountered with the original diagnostic testing platform caused a delay in the development of DetermaVu™ and has caused us to incur additional costs. In addition to a loss of productivity during the period of the delay, we incurred additional quality control costs, the cost of acquiring new diagnostic testing platform equipment and reagents, and the time and cost of training our staff in the use of the new platform, and we will be incurring the costs of conducting additional development work and studies. Any further delays in the successful completion of the clinical validation study and commercialization of DetermaVu™ could prevent us from raising, when needed, sufficient additional capital to finance the completion of development and commercial launch of DetermaVu™ or the other cancer diagnostic tests that we have been developing.

 

We may record an impairment of assets and take a charge to earnings for financial reporting purposes in the future if we discontinue the use of our original diagnostic testing platform in our CLIA lab.

 

Although we have changed diagnostic testing platforms for research and development purposes, we are continuing to use our original platform for clinical testing in our CLIA laboratory for certification purposes. If we discontinue that use of the original diagnostic testing platform, that equipment could be considered an impaired asset for financial reporting purposes and we would write down the value of that equipment on our condensed balance sheet and take a charge to earnings for the impaired value. We acquired the equipment through a lease and we would remain obligated to continue to make payments under the lease even if we discontinue use of the equipment.

 

  21  

 

 

We will spend a substantial amount of our capital on research and development, but we might not succeed in developing diagnostic tests and technologies that are useful in clinical practice.

 

We are attempting to develop new medical diagnostic tests and technologies. The focus of our business is on diagnostic tests for cancer. Our diagnostic tests are being developed through the use of blood and urine samples obtained in prospective and retrospective clinical trials involving humans, but none of our diagnostic tests have been used in clinical practice to diagnose cancer. Our technologies many not prove to be sufficiently efficacious to use in the diagnosis of cancer.
   
The experimentation we are doing is costly, time consuming, and uncertain as to its results. We incurred research and development expenses amounting to approximately $3.8 million, $7.2 million and $5.7 million during the six months ended June 30, 2018 and years ended December 31, 2017 and 2016, respectively. Since 2011, most of our research has been devoted to the development of our lead diagnostic tests to detect lung cancer, breast cancer, and bladder cancer.
   
If we are successful in developing a new technology or diagnostic test, refinement of the new technology or diagnostic test and definition of the practical applications and limitations of the technology or diagnostic test may take years and require the expenditure of large sums of money.

 

We will need to issue additional equity or debt securities in order to raise additional capital needed to pay our operating expenses.

 

We plan to continue to incur substantial research and development expenses and we anticipate that we will be incurring significant sales and marketing costs as we develop and commercialize our diagnostic test candidates. We will need to raise additional capital to pay operating expenses until we are able to generate sufficient revenues from diagnostic test sales, royalties, and license fees, and we will need to sell additional equity or debt securities to meet those capital needs.
   
Our ability to raise additional equity or debt capital will depend not only on progress made in developing our diagnostic tests and receiving reimbursement approval from Medicare and other third-party payors, but also will depend on access to capital and conditions in the capital markets. Obtaining Medicare reimbursement approval for a diagnostic test generally takes two to three years, and investors may be reluctant to provide us with capital until we obtain Medicare reimbursement approval for any diagnostic tests we develop. There is no assurance that we will be able to raise capital at times and in amounts needed to finance the development and commercialization of our diagnostic tests and general operations. Even if capital is available, it may not be available on terms that we or our shareholders would consider favorable.
   
Sales or other issuances of additional equity securities by us could result in the dilution of the interests of our shareholders.

 

We have limited capital, marketing, and sales resources and no distribution resources for the commercialization of any diagnostic tests that we might successfully develop.

 

If we are successful in developing marketable diagnostic tests, we will need to build our own marketing and sales capability, which will require the investment of significant financial and management resources to recruit, train, and manage a sales force. In the alternative, due to our limited capital resources, we may need to enter into marketing arrangements with other diagnostic companies for our diagnostic tests. Under such marketing arrangements we may license marketing rights to one or more other companies or to one or more joint venture companies formed to market our diagnostic tests, and we might receive only a royalty on sales of the diagnostic tests or an equity interest in a joint venture company. As a result, our revenues from the sale of those diagnostic tests may be substantially less than the amount of revenues and gross profits that we might receive if we were to market the diagnostic tests ourselves.

 

The reduction of our sales and marketing staff as part of a cost savings plan could delay our ability to commercialize our diagnostic tests, and we may explore a range of alternative options for commercialization.

 

We have reduced our sales and marketing staff to reduce our operating costs while we are developing DetermaVu™. This staff reduction could delay commercial availability or a full commercial launch of DetermaVu™ or could result in an acceleration of expenses to build a commercialization staff.

 

While we may elect to build our own integrated commercial organization if we successfully complete the development of DetermaVu™, we may also explore a range of other commercialization options in order to reduce our capital needs and the risks associated with the timelines and uncertainty for attaining Medicare and commercial reimbursement approval. These other options may include entering into arrangements with other companies for the commercialization of DetermaVu™ or other diagnostic tests that we may develop, or pursuing other business development opportunities. There is no assurance that we will be able to make alternative arrangements for the commercialization of any diagnostic tests that we may develop.

 

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You may experience dilution of your ownership interests if we issue additional shares of common stock or preferred stock.

 

In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present shareholders. We are currently authorized to issue an aggregate of 55,000,000 shares of capital stock consisting of 50,000,000 shares of common stock and 5,000,000 “blank check” shares of preferred stock. At June 30, 2018, there were 39,407,566 shares of common stock outstanding, 2,779,221 shares of common stock reserved for exercise of warrants and 4,365,219 shares of common stock reserved for issuance upon the exercise of options under our employee stock option plan. We issued an additional 1,256,118 shares of common stock and stock purchase warrants in a financing during July 2018. No shares of preferred stock are presently outstanding. We are asking our shareholders, at our annual meeting, to approve an amendment to our Articles of Incorporation to increase the number of shares of common stock that we are authorized to issue from 50,000,000 shares to 85,000,000 shares. We may issue additional common stock or other securities that are convertible into or exercisable for common stock in order to raise additional capital, or in connection with hiring or retaining employees, directors, or consultants, or in connection with future acquisitions of licenses to technology or diagnostic tests in connection with future business acquisitions, or for other business purposes. The future issuance of any such additional common stock or other securities may create downward pressure on the trading price of our common stock.

 

We may also issue preferred stock having rights, preferences, and privileges senior to the rights of our common stock with respect to dividends, rights to share in distributions of our assets if we liquidate our company, or voting rights. Any preferred stock may also be convertible into common stock on terms that would be dilutive to holders of common stock.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3 Default Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5 Other Information

 

On August 10, 2018, OncoCyte’s Board of Directors approved an amendment to Section 8 of Article II of our Bylaws (the “Amendment”). The Amendment changes the last sentence of the first paragraph of Section 8 of Article II to read as follows:

 

Subject to Section 6 of this Article II, on any matter (other than the election of directors) the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present shall be the act of the shareholders if such shares voting affirmatively also constitute at least a majority of the required quorum, unless the vote of a greater number of shares or voting by classes is required by California General Corporation Law or by the articles of incorporation.

 

The Amendment conforms the Bylaws voting requirement with the minimum shareholder vote required under the California General Corporation Law by requiring the affirmative vote of a majority of the shares represented and voting at a meeting at which a quorum is present, if the affirmative vote also constitutes a majority of the quorum, to approve matters other than the election of directors and certain other matters for which the law requires a greater vote or voting by class.

 

In contrast, the prior to the Amendment the Bylaws required approval by a majority of the shares represented at the meeting and entitled to vote on any matter other than the election of directors and those matters for which a greater number or voting by classes is required by the California General Corporation Law or by the articles of incorporation. Prior to the Amendment, the last sentence of the first paragraph of Section 8 of Article II read as follows:

 

If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by California General Corporation Law or by the articles of incorporation.

 

The Amendment could facilitate shareholder approval of certain matters that are subject to “broker non-votes.” Broker non-votes can arise for, certain matters, due to stock exchange rules prohibiting brokers from voting shares they hold in street name for their customers unless their customers instruct them how to vote on those matters.

 

The foregoing discussion of the Amendment and the Bylaws is a summary only, and is qualified in its entirety by the full text of the Bylaws, as amended, which is being filed as an Exhibit to this Report and is incorporated by reference herein.

 

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Item 6

 

Exhibit

Numbers

  Exhibit Description
3.1   Articles of Incorporation with all amendments (1)
     
3.2   By-Laws, as amended*
     
4.1   Form of August 2016 Warrant (2)
     
4.2   Form of 2017 Warrant, Exercise Price $3.25 (3)
     
4.3   Form of 2017 Warrant, Exercise Price $5.50 (3)
     
4.4   Silicon Valley Bank Warrant (3)
     
4.5   Form of July 2018 Warrant (4)
     
10.1   Form of Securities Purchase Agreement dated July 26, 2018, by and among OncoCyte Corporation and the investors signatory thereto (4)
     
10.2   Engagement Agreement, dated July 26, 2018, by and between OncoCyte Corporation and Chardan Capital Markets, LLC (4)
     
31   Rule 13a-14(a)/15d-14(a) Certification*
     
32   Section 1350 Certification*
     
101   Interactive Data Files
     
101.INS   XBRL Instance Document*
     
101.SCH   XBRL Taxonomy Extension Schema*
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase*
     
101.DEF   XBRL Taxonomy Extension Definition Document*
     
101.LAB   XBRL Taxonomy Extension Label Linkbase*
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase*

 

(1) Incorporated by reference to OncoCyte Corporation’s Form 10 12(b) filed on November 23, 2015.
   
( 2) Incorporated by reference to OncoCyte Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 29, 2016.
   
(3) Incorporated by reference to OncoCyte Corporation’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2017.
   
(4) Incorporated by reference to OncoCyte Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 1, 2018.
   
* Filed herewith

 

  24  

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  ONCOCYTE CORPORATION
   
Date: August 14, 2018 /s/ William Annett
  William Annett
  President and Chief Executive Officer
   
Date: August 14, 2018 /s/ Mitchell Levine
  Mitchell Levine
  Chief Financial Officer

 

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BYLAWS OF

ONCOCYTE CORPORATION

a California corporation

 

ARTICLE I

Offices

 

Section 1. Principal Office . Offices may be established and maintained at such place or places, either within or without the State of California, as the Board of Directors may from time to time designate. The Board of Directors shall fix the location of the principal executive office of the corporation at any place within or without the State of California. If the principal executive office is located outside the State of California, and the corporation has one or more business offices in the State of California, the Board of Directors shall fix and designate a principal business office in the State of California.

 

ARTICLE II

Meetings of Shareholders

 

Section 1. Place of Meetings . All meetings of shareholders shall be held at such place, either within or without the State of California, as the Board of Directors may designate. If no designation is made, the meeting shall be held at the principal executive office of the corporation.

 

Section 2. Annual Meetings . The annual meetings of shareholders shall be held once each year on a date and time designated by the Board of Directors, but in any event not less frequently than once every 15 months. At each annual meeting, directors shall be elected to serve during the ensuing year and until their successors are elected and qualified; reports of the affairs of the corporation shall be considered, and any other business may be transacted which is within the powers of the shareholders.

 

Section 3. Special Meetings . Special meetings of the shareholders, for any purpose or purposes whatsoever, may be called at any time by the Chairman of the Board or by the President, or by the Board of Directors, or by any two directors, or by one or more shareholders entitled to cast not less than 10% of the votes eligible to be cast at that meeting.

 

 
 

 

Upon request in writing to the Chairman of the Board, the President, any Vice President or the Secretary, specifying the general nature of the business proposed to be transacted, sent by certified mail or telegraphic or other electronic facsimile transmission or delivered to such officer in person, by any person or persons (other than the Board of Directors) entitled to call a special meeting of shareholders, it shall be the duty of such officer forthwith to cause notice to be given to the shareholders entitled to vote that a meeting will be held on a date requested by the person or persons calling the meeting; provided, that the date of the meeting requested by such person or persons calling the meeting shall be not less than 35 nor more than 60 days after the receipt of such request. If such notice shall not be given within 20 days after the date of receipt of such request, the person or persons entitled to call the meeting may fix the time of meeting and give the notice thereof in the manner provided by law or in these bylaws. Nothing in this paragraph shall limit, fix, or affect the time or notice requirements for shareholder meetings called by the Board of Directors.

 

Section 4. Notice of Shareholders’ Meetings . All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 5 of this Article II not less than 10 (or, if sent by third class mail, 30) nor more than 60 days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, or (ii) in the case of the annual meeting, those matters which the Board of Directors, at the time of giving the notice, intends to present for action by the shareholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, management intends to present for election.

 

If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the California Corporations Code, (ii) an amendment of the articles of incorporation, pursuant to Section 902 of the California Corporations Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the California Corporations Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the California Corporations Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the California Corporations Code, the notice shall also state the general nature of that proposal.

 

Section 5. Manner of Giving Notice; Affidavit of Notice. Notice of any meeting of shareholders shall be given either personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation’s books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation’s principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication.

 

2
 

 

If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if these shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of 1 year from the date of the giving of the notice.

 

An affidavit of the mailing or other means of giving any notice of any shareholders’ meeting shall be executed by the Secretary, assistant secretary, or any transfer agent of the corporation giving the notice, and shall be filed and maintained in the minute book of the corporation.

 

Section 6. Quorum . The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting, annual or special, shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

 

Section 7. Adjourned Meeting and Notice Thereof . Any shareholders’ meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy, but in the absence of a quorum at the commencement of the meeting, or if no quorum can be subsequently raised, no other business may be transacted at such meeting.

 

When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place are announced at the meeting at which the adjournment is taken, provided that if the adjournment is for more than forty-five (45) days from the date set for the original meeting, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.

 

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Section 8. Voting . The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 11 of this Article II, subject to the provisions of Sections 702 to 704, inclusive, of the California Corporations Code (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership). The shareholders’ vote may be by voice vote or by ballot, provided, however, that any election for directors must be by ballot if demanded by any shareholder before the voting has begun. On any matter other than the election of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remainder shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder’s approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by California General Corporation Law or by the articles of incorporation.

 

At a shareholders’ meeting at which directors are to be elected, no shareholder shall be entitled to cumulate votes (i.e., cast for any one or more candidates a number of votes greater than the number of the shareholder’s shares) unless the candidates’ names have been placed in nomination prior to commencement of the voting and a shareholder has given notice prior to commencement of the voting of the shareholder’s intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder’s shares are entitled, or distribute the shareholder’s votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected.

 

Section 9. Consent of Absentees . The transactions of any meeting of shareholders, either annual or special, however called and noticed and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of such meeting, or an approval of the minutes thereof. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that, if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent shall state the general nature of the proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

 

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Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the meeting.

 

Section 10. Shareholder Action by Written Consent Without a Meeting. Any action that may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors, provided, however, that a director may be elected at any time to fill a vacancy on the Board of Directors other than a vacancy created by removal of a director, that has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be filed with the Secretary of the corporation and shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder’s proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the Secretary of the corporation before written consents of the number of shares to authorize the proposed action have been filed with the Secretary.

 

If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the Secretary shall give prompt notice of the corporation action approved by the shareholders without a meeting. This notice shall be given in the manner specified in Section 5 of this Article II. In the case of approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, pursuant to Section 310 of the California Corporations Code, (ii) indemnification of agents of the corporation, pursuant to Section 317 of the California Corporations Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the California Corporations Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the California Corporations Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval.

 

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Section 11. Record Date for Shareholder Notice, Voting, and Giving Consents . For purposes of determining the shareholders entitled to notice of any meeting or to vote or entitled to give consent to corporate action without a meeting, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any meeting or action, and in this event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the California General Corporation Law.

 

If the Board of Directors does not so fix a record date:

 

(a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

 

(b) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the Board of Directors has been taken, shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to that action, or the 60th day before the date of such other action, whichever is later.

 

Section 12. Proxies . Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of the corporation. A proxy shall be deemed signed if the shareholder’s name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, or otherwise) by the shareholder or the shareholder’s attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked, or by a subsequent proxy executed by, or attendance at the meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted, provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided for in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the California Corporations Code.

 

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Section 13. Inspectors of Election . Before any meeting of shareholders, the Board of Directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder’s proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder’s proxy shall, appoint a person to fill that vacancy.

 

These inspectors shall:

 

(a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies;

 

(b) Receive votes, ballots or consents;

 

(c) Hear and determine all challenges and questions in any way arising in connection with the right to vote;

 

(d) Count and tabulate all votes or consents;

 

(e) Determine when the polls shall close;

 

(f) Determine the result; and

 

(g) Do any other acts that may be proper to conduct the election or voting with fairness to all shareholders.

 

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ARTICLE III

Directors

 

Section 1. Powers . Subject to the provisions of the California General Corporation Law and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.

 

Section 2. Number and Qualification of Directors . The authorized number of directors shall be not less than three (3) nor more than five (5) and, and the exact number of directors shall be fixed, within the limits specified, by approval of the board of directors. After the issuance of shares, the provisions of this bylaw may be changed only by a duly adopted amendment adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, in accordance with the provisions of Section 212 of the California Corporations Code.

 

Section 3. Election and Term of Office . The directors shall be elected at each annual meeting of shareholders but, if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose. All directors shall hold office until their respective successors are elected, or until death, resignation or removal.

 

Section 4. Vacancies . Vacancies in the Board of Directors may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of holders of a majority of the outstanding shares entitled to vote. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified.

 

A vacancy or vacancies in the Board of Directors shall be deemed to exist in the event of the death, resignation, or removal of any director, or if the Board of Directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, or if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be voted for at that meeting.

 

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The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote.

 

Any director may resign effective on giving written notice to the Chairman of the Board, the President, the Secretary, or the Board of Directors, unless the notice specifies a later time for that resignation to become effective. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. If the resignation of a director is effective at some future time, the Board of Directors may elect a successor to take office when the resignation becomes effective.

 

No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

 

Section 5. Place of Meetings and Meetings by Telephone . Regular meetings of the Board of Directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the Board of Directors. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the Board of Directors shall be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at a principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another, and all such directors shall be deemed to be present in person at the meeting.

 

Section 6. Regular Meetings . Regular meetings of the Board of Directors shall be held, without call or notice, immediately following each annual meeting of shareholders for the purpose of organization, election of officers and the transaction of other business. Other regular meetings may be held without call or notice at such time and place as may be fixed by the Board of Directors from time to time.

 

Section 7. Special Meetings . Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board or the President or the Secretary or any two directors.

 

Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director’s address as it is shown on the records of the corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. In case the notice is delivered personally, or by telephone or telegram, it shall be delivered personally or by telephone or telegram to the corporation at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation.

 

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Section 8. Action Without Meeting . Any action by the Board of Directors may be taken without a meeting if all members of the Board of Directors shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors.

 

Section 9. Quorum . A majority of the authorized number of directors shall be necessary to constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, subject to the provisions of Section 310 of the California Corporations Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the California Corporations Code (as to appointment of committees), and Section 317(e) of the California Corporations Code (as to indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

 

Section 10. Waiver of Notice . The transactions of any meeting of the Board of Directors, however called or noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice or a consent to holding such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting, before or at its commencement, the lack of notice to that director.

 

Section 11. Adjournment . A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.

 

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Section 12. Notice of Adjournment . Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four hours, in which case notice of the time and place shall be given before the time of the adjourned meeting, in the manner specified in Section 7 of this Article III, to the directors who were not present at the time of the adjournment.

 

Section 13. Fees and Compensation . Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors. This Section 13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for those services.

 

Section 14. Removal of Directors . The entire Board of Directors or any individual director may be removed as provided by law.

 

Section 15. Conduct of Meetings . Directors’ meetings shall be presided over by the Chairman of the Board, or, in the absence of the Chairman of the Board, by the President, or in the absence of both such officers, by a director chosen by a majority of the directors present. The Secretary of the corporation shall act as secretary of the meetings of the Board of Directors. In case the Secretary shall be absent from any meeting, the presiding officer may appoint any person to act as secretary of the meeting.

 

ARTICLE IV

Committees

 

Section 1. Committees of Directors . The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Any committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors, except with respect to:

 

(a) the approval of any action which, under the General Corporation Law of California, also requires shareholders’ approval of the outstanding shares;

 

(b) the filling of vacancies on the Board of Directors or on any committee;

 

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(c) the fixing of compensation of the directors for serving on the Board of Directors or on any committee;

 

(d) the amendment or repeal of the bylaws or the adoption of new bylaws;

 

(e) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable;

 

(f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range set forth in the Articles of Incorporation or determined by the Board of Directors; or

 

(g) the appointment of any other committees of the Board of Directors or the members of such committees.

 

Section 2. Meetings and Action of Committees . Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 5 (place of meetings), 6 (regular meetings), 7 (special meetings and notice), 8 (action without meeting), 9 (quorum), 10 (waiver of notice), 11 (adjournment), and 12 (notice of adjournment), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members, except that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee; special meetings of committees may also be called by resolution of the Board of Directors; and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

 

ARTICLE V

Officers

 

Section 1. Designation . The officers of the corporation shall be a President, a Secretary and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. Any number of offices may be held by the same person.

 

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Section 2. Election . The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen by the Board of Directors, and each shall serve at the pleasure of the Board of Directors, subject to the rights, if any, of an officer under any contract of employment approved by the Board of Directors.

 

Section 3. Subordinate Officers, etc . The Board of Directors may appoint, and may empower the President to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the Board of Directors may from time to time determine.

 

Section 4. Removal and Resignation . Subject to his or her rights, if any, under any contract of employment, any officer may be removed, either with or without cause by the Board of Directors, at any regular or special meeting thereof, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.

 

Any officer may resign at any time by giving written notice to the Board of Directors or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

 

Section 5. Vacancies . A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the bylaws for regular appointments to such office.

 

Section 6. Chairman of the Board . The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the bylaws. If there is no President, the Chairman of the Board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V.

 

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Section 7. President . Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the chief executive officer of the corporation and, subject to the control of the Board of Directors, shall have general supervision, direction and control of the business and officers of the corporation. The President shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board, or, if there be none, at all meetings of the Board of Directors. The President shall be ex officio a member of all the standing committees, including the executive committee, if any. The President may sign and execute, in the name of the corporation, deeds, mortgages, bonds, notes, contracts and other instruments authorized by the Board of Directors, and, in general, shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the bylaws.

 

Section 8. Vice Presidents . In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the bylaws, and the President, or the Chairman of the Board.

 

Section 9. Secretary . The Secretary shall keep or cause to be kept, at the principal office or such other place as the Board of Directors may order, a book of minutes of all meetings of directors, committees of directors and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors’ meetings, the number of shares present or represented at shareholders’ meetings, and the proceedings thereof.

 

The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation’s transfer agent, a share register, or a duplicate share register, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.

 

The Secretary shall give notice, or cause notice to be given, of all the meetings of the shareholders and of the Board of Directors of Directors as law or the bylaws require notice to be given, and he shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the bylaws.

 

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Section 10. Chief Financial Officer . The Chief Financial Officer, who may be designated as the Treasurer, shall keep and maintain, or cause to be kept and maintained, adequate and correct books and accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares.

 

The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the bylaws.

 

Section 11. Salaries . The salaries of the officers shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director of the corporation.

 

ARTICLE VI

Indemnification of Directors, Officers, Employees, and Other Agents

 

Section 1. Agents, Proceedings, and Expenses . For the purposes of this Article, “agent” means any person who is or was a director, officer, employee, or other agent of this corporation, or is or was serving at the request of this corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation which was a predecessor corporation of this corporation or of another enterprise at the request of such predecessor corporation; “proceeding” means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative, or investigative; and “expenses” includes, without limitation, attorneys’ fees and any expenses of establishing a right to indemnification under Section 4 or Section 5(c) of this Article.

 

Section 2. Actions Other Than by the Corporation . This corporation shall, to the maximum extent permitted by the California General Corporation Law, indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this corporation) by reason of the fact that such person is or was an agent of this corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with such proceeding if that person acted in good faith and in a manner that person reasonably believed to be in the best interests of this corporation and, in the case of a criminal proceeding, had no reasonable cause to believe his conduct of was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of this corporation or that the person had reasonable cause to believe that his conduct was unlawful.

 

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Section 3. Actions by the Corporation . This corporation shall indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending or completed action by or in the right of this corporation to procure a judgment in its favor by reason of the fact that person is or was an agent of this corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of that action if that person acted in good faith, in a manner that person believed to be in the best interests of this corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. No indemnification shall be made under this Section 3:

 

(a) In respect of any claim, issue or matter as to which that person shall have been adjudged to be liable to this corporation in the performance of that person’s duty to this corporation, unless and only to the extent that the court in which that action was brought shall determine upon application that, in view of all the circumstances of the case, that person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine;

 

(b) Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or

 

(c) Of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval.

 

Section 4. Successful Defense by Agent . To the extent that an agent of this corporation has been successful on the merits in defense of any proceeding referred to in Sections 2 or 3 of this Article, or in defense of any claim, issue or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.

 

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Section 5. Required Approval . Except as provided in Section 4 of this Article, any indemnification under this Article shall be made by this corporation only if authorized in the specific case on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in Sections 2 or 3 of this Article, by:

 

(a) A majority vote of a quorum consisting of directors who are not parties to the proceeding;

 

(b) Approval by the affirmative vote of a majority of the shares of this corporation entitled to vote represented at a duly held meeting at which a quorum is present or by the written consent of holders of a majority of the outstanding shares entitled to vote. For this purpose, the shares owned by the person to be indemnified shall not be considered outstanding or entitled to vote thereon; or

 

(c) The court in which the proceeding is or was pending, on application made by this corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not such application by the agent, attorney, or other person is opposed by this corporation.

 

Section 6. Advance of Expenses . Expenses incurred in defending any proceeding may be advanced by this corporation before the final disposition of the proceeding on receipt of an undertaking by or on behalf of the agent to repay the amount of the advance unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Article.

 

Section 7. Other Contractual Rights . Nothing contained in this Article shall affect any right to indemnification to which persons other than directors and officers of this corporation or any subsidiary hereof may be entitled by contract or otherwise.

 

Section 8. Limitations . No indemnification or advance shall be made under this Article, except as provided in Section 4 or Section 5(c), in any circumstance where it appears:

 

(a) That it would be inconsistent with a provision of the articles, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or

 

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(b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.

 

Section 9. Insurance . Upon and in event of a determination by the Board of Directors of this corporation to purchase such insurance, this corporation shall purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent’s status as such whether or not this corporation would have the power to indemnify the agent against that liability under the provisions of this section.

 

Section 10. Fiduciaries of Corporate Employee Benefit Plan . This Article does not apply to any proceeding against any trustee, investment manager, or other fiduciary of an employee benefit plan in that person’s capacity as such, even though that person may also be an agent of the corporation as defined in Section 1 of this Article. Nothing contained in this Article shall limit any right to indemnification to which such a trustee, investment manager, or other fiduciary may be entitled by contract or otherwise, which shall be enforceable to the extent permitted by applicable law other than this Article.

 

ARTICLE VII

Records and Reports

 

Section 1. Maintenance and Inspection of Share Register . The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the Board of Directors, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each shareholder.

 

A shareholder or shareholders of the corporation holding at least 5% in the aggregate of the outstanding voting shares of the corporation may (i) inspect and copy the records of shareholders’ names and addresses and shareholdings during usual business hours on 5 days prior written demand on the corporation, and (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent’s usual charges for such list, a list of the shareholders’ names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. This list shall be made available to any such shareholder by the transfer agent on or before the later of 5 days after the demand is received or the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder’s interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand.

 

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Section 2. Maintenance and Inspection of Bylaws . The corporation shall keep at its principal executive office, or, if its principal executive office is not in the State of California, at its principal business office in this state, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in this state, the Secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of the bylaws as amended to date.

 

Section 3. Maintenance and Inspection of Other Corporate Records . The accounting books and records and minutes of proceedings of the shareholders and the Board of Directors and any committee or committees of the Board of Directors shall be kept at such place or places designated by the Board of Directors, or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder’s interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. These rights of inspection shall extend to the records of each subsidiary corporation of the corporation.

 

Section 4. Inspection by Directors . Every director shall have the absolute right at any reasonable time to inspect all books, records and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations. This inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents.

 

Section 5. Annual Report to Shareholders . The annual report to shareholders referred to in Section 1501 of the California General Corporation Law is expressly dispensed with, but nothing herein shall be interpreted as prohibiting the Board of Directors from issuing annual or other periodic reports to the shareholders of the corporation as they consider appropriate.

 

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Section 6. Financial Statements . A copy of any annual financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, that has been prepared by the corporation shall be kept on file in the principal executive office of the corporation for 12 months and each such statement shall be exhibited at all reasonable times to any shareholder demanding an examination of any such statement or a copy shall be mailed to any such shareholder.

 

If a shareholder or shareholders holding at least 5% of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then-current fiscal year ended more than 30 days before the date of the request, and a balance sheet of the corporation as of the end of that period, the Chief Financial Officer shall cause that statement to be prepared, if not already prepared, and shall deliver personally or mail that statement or statements to the person making the request within 30 days after the receipt of the request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, this report shall likewise be delivered or mailed to the shareholder or shareholders within 30 days after the request.

 

The corporation shall also, on the written request of any shareholder, mail to the shareholder a copy of the last annual, semiannual or quarterly income statement which it has prepared, and a balance sheet as of the end of that period.

 

The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation stating that the financial statements were prepared without audit from the books and records of the corporation.

 

Section 7. Annual Statement of General Information . The corporation shall annually file with the Secretary of State of the State of California, on the prescribed form, setting forth the authorized number of directors, the names and complete business or residence addresses of all incumbent directors, the names and complete business or residence addresses of the Chief Executive Officer, Secretary, and Chief Financial Officer, the street address of its principal executive office or principal office in this state, and the general type of business constituting the principal business activity of the corporation for the purpose of service of process, all in compliance with Section 1502 of the California Corporations Code.

 

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ARTICLE VIII

General Corporate Matters

 

Section 1. Record Date for Purposes Other Than Notice and Voting . For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the Board of Directors may fix, in advance, a record date, which shall not be more than 60 days before any such action, and in that case only shareholders of record on the date so fixed are entitled to receive the dividend, distribution, or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the California General Corporation Law.

 

If the Board of Directors does not so fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the applicable resolution or the 60th day before the date of that action, whichever is later.

 

Section 2. Checks, Drafts, Evidences of Indebtedness . All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors.

 

Section 3. Corporation Contracts and Instruments; How Executed . The Board of Directors, except as otherwise provided in these bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and this authority may be general or confined to specific instances; and, unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

 

Section 4. Certificates for Shares . A certificate or certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any of these shares are fully paid, and the Board of Directors may authorize the issuance of certificates or shares as partly paid provided that these certificates shall state the amount of the consideration to be paid for them and the amount paid. All certificates shall be signed in the name of the corporation by the Chairman of the Board, or Vice Chairman of the Board, or the President, or a Vice President, and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.

 

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Section 5. Lost Certificates . Except as provided in this Section 5, no new certificates for shares shall be issued to replace an old certificate unless the latter is surrendered to the corporation and canceled at the same time. The Board of Directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of a replacement certificate on such terms and conditions as the Board of Directors may require, including provision for indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate.

 

Section 6. Representation of Shares of Other Corporations . The Chairman of the Board, the President, or any Vice President, or any other person authorized by resolution of the Board of Directors or by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority granted to these officers to vote on behalf of or represent the corporation in any other corporation or corporations may be exercised by any of these officers in person or by any person authorized to do so by a proxy duly executed by these officers.

 

Section 7. Construction and Definitions . Unless the context requires otherwise, the general provisions, rules of construction and definitions in the California General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, the use of the masculine includes the feminine and neuter, and the term “person” includes both a corporation and a natural person.

 

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ARTICLE IX

Amendments

 

Section 1. Amendment by Shareholders . New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, provided, however, that, if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment of the articles of incorporation.

 

Section 2. Amendment by Directors . Subject to the rights of the shareholders as provided in Section 1 of this Article IX, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors, may be adopted, amended or repealed by the Board of Directors.

 

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AMENDMENT OF BYLAWS

OF

ONCOCYTE CORPORATION

Adopted March 31, 2015

 

Section 2 of Article III of the Bylaws is amended in its entirety to read as follows:

 

ARTICLE III

Directors

 

Section 2. Number and Qualification of Directors . The authorized number of directors shall be not less than four (4) nor more than seven (7) and, and the exact number of directors shall be fixed, within the limits specified, by approval of the board of directors. After the issuance of shares, the provisions of this bylaw may be changed only by a duly adopted amendment adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, in accordance with the provisions of Section 212 of the California Corporations Code.

 

 
 

 

AMENDMENT OF BYLAWS

OF

ONCOCYTE CORPORATION

Adopted August 10, 2018

 

The last sentence of the first paragraph of Section 8 of Article II of the Bylaws of the Company is amended to read as follow:

 

Subject to Section 6 of this Article II, on any matter (other than the election of directors) the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present shall be the act of the shareholders if such shares voting affirmatively also constitute at least a majority of the required quorum, unless the vote of a greater number of shares or voting by classes is required by California General Corporation Law or by the articles of incorporation.

 

 
 

 

 

Exhibit 31

 

CERTIFICATIONS

 

I, William Annett, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of OncoCyte 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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) 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 periodic report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused 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 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 and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of 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 a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2018

 

/s/ William Annett  
William Annett  
Chief Executive Officer  

 

     

 

 

Exhibit 31

 

CERTIFICATIONS

 

I, Mitchell Levine , certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of OncoCyte 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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) 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 periodic report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused 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 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 and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of 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 a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2018

 

/s/ Mitchell Levine  
Mitchell Levine  
Chief Financial Officer  

 

     

 

 

Exhibit 32

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of OncoCyte Corporation (the “Company”) for the quarter ended June 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, William Annett, Chief Executive Officer, and Mitchell Levine, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
   
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 14, 2018

 

/s/ William Annett  
William Annett  
Chief Executive Officer  
   
/s/ Mitchell Levine  
Mitchell Levine  
Chief Financial Officer