UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended September 30, 2015

or

¨

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

Commission file number 001-35560

 

ImmunoCellular Therapeutics, Ltd.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

93-1301885

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

23622 Calabasas Road, Suite 300

Calabasas, California

 

91302

(Address of principal executive offices)

 

(Zip code)

(818) 264-2300

(Registrant’s telephone number, including area code)

 

 

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

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

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

 

Large accelerated filer

¨

  

Accelerated Filer

x

 

 

 

 

 

Non-accelerated filer (Do not check if a smaller reporting company)

¨

  

Smaller reporting company

¨

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

The Issuer had 90,310,149 shares of its common stock outstanding as of October 30, 2015.

 

 

 

 

 

 

 


ImmunoCellular Therapeutics, Ltd.

FORM 10-Q

Table of Contents

 

 

Page

PART 1

 

FINANCIAL INFORMATION

3

 

Item 1: Condensed Consolidated Financial Statements

3

 

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

19

 

Item 3: Quantitative and Qualitative Disclosures About Market Risk

23

 

Item 4: Controls and Procedures

23

 

PART II

 

 

OTHER INFORMATION

24

 

Item 1: Legal Proceedings

24

 

Item 1A: Risk Factors

24

 

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

24

 

Item 3: Defaults Upon Senior Securities

24

 

Item 4: Mine Safety Disclosures

24

 

Item 5: Other Information

24

 

Item 6: Exhibits

25

 

SIGNATURES

26

 

EXHIBIT INDEX

27

 

 

 

2


PART 1

FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ImmunoCellular Therapeutics, Ltd.

Condensed Consolidated Balance Sheets

 

 

September 30, 2015

 

 

December 31, 2014

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

24,435,152

 

 

$

23,222,296

 

Other assets

 

1,328,955

 

 

 

1,219,873

 

Total current assets

 

25,764,107

 

 

 

24,442,169

 

Property and equipment, net

 

196,833

 

 

 

47,365

 

Deferred financing costs

 

-

 

 

 

105,563

 

Deposits

 

4,060,977

 

 

 

-

 

Other assets

 

828,524

 

 

 

583,464

 

Total assets

$

30,850,441

 

 

$

25,178,561

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

857,596

 

 

$

322,002

 

Accrued compensation and benefits

 

488,217

 

 

 

334,527

 

Accrued liabilities

 

659,119

 

 

 

632,670

 

Total current liabilities

 

2,004,932

 

 

 

1,289,199

 

Warrant Liability

 

2,555,735

 

 

 

597,719

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 149,000,000 shares authorized;

   90,310,149 and 63,604,823 shares issued and outstanding as of

   September 30, 2015 and December 31, 2014, respectively

 

9,031

 

 

 

6,360

 

Additional paid-in capital

 

95,608,500

 

 

 

84,632,209

 

Accumulated deficit

 

(69,327,757

)

 

 

(61,346,926

)

Total shareholders’ equity

 

26,289,774

 

 

 

23,291,643

 

Total liabilities and shareholders’ equity

$

30,850,441

 

 

$

25,178,561

 

 

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

 

 

 

3


ImmunoCellular Therapeutics, Ltd.

Condensed Consolidated Statements of Operations

(unaudited)

 

 

For the Three

Months Ended

September 30, 2015

 

 

For the Three

Months Ended

September 30, 2014

 

 

For the Nine

Months Ended

September 30, 2015

 

 

For the Nine

Months Ended

September 30, 2014

 

Revenues

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

2,592,255

 

 

 

1,486,352

 

 

 

6,827,691

 

 

 

4,646,156

 

Stock based compensation

 

245,559

 

 

 

170,805

 

 

 

675,523

 

 

 

483,455

 

General and administrative

 

908,075

 

 

 

786,688

 

 

 

2,731,384

 

 

 

2,490,322

 

Total expenses

 

3,745,889

 

 

 

2,443,845

 

 

 

10,234,598

 

 

 

7,619,933

 

Loss before other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and income taxes

 

(3,745,889

)

 

 

(2,443,845

)

 

 

(10,234,598

)

 

 

(7,619,933

)

Interest income

 

5,498

 

 

 

4,207

 

 

 

14,408

 

 

 

10,711

 

Financing expense

 

-

 

 

 

(9,478

)

 

 

(88,939

)

 

 

(34,078

)

Change in fair value of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

warrant liability

 

339,136

 

 

 

559,873

 

 

 

2,328,298

 

 

 

392,940

 

Loss before income taxes

 

(3,401,255

)

 

 

(1,889,243

)

 

 

(7,980,831

)

 

 

(7,250,360

)

Income taxes

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(3,401,255

)

 

$

(1,889,243

)

 

$

(7,980,831

)

 

$

(7,250,360

)

Loss per share

$

(0.04

)

 

$

(0.03

)

 

$

(0.09

)

 

$

(0.12

)

Weighted average number

   of shares basic and diluted:

 

90,260,703

 

 

 

60,678,764

 

 

 

86,156,805

 

 

 

58,933,905

 

 

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

 

 

 

4


ImmunoCellular Therapeutics, Ltd.

Condensed Consolidated Statements of Shareholders’ Equity (Deficit)

(unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional Paid-in Capital

 

 

Accumulated Deficit

 

 

Total

 

Balance at December 31, 2014

 

 

63,604,823

 

 

$

6,360

 

 

$

84,632,209

 

 

$

(61,346,926

)

 

$

23,291,643

 

Common stock and warrants issued for cash during February 2015 at $0.60 per share, net of offering costs

 

 

26,650,000

 

 

 

2,665

 

 

 

10,294,024

 

 

 

 

 

 

10,296,689

 

Stock based compensation

 

 

 

 

 

 

 

 

666,123

 

 

 

 

 

 

666,123

 

Restricted stock issued for services

 

 

20,000

 

 

 

2

 

 

 

9,398

 

 

 

 

 

 

9,400

 

Exercise of stock options

 

 

25,000

 

 

 

3

 

 

 

6,747

 

 

 

 

 

 

6,750

 

Cashless exercise of stock options

 

 

10,326

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

-

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,980,831

)

 

 

(7,980,831

)

Balance at September 30, 2015

 

 

90,310,149

 

 

$

9,031

 

 

$

95,608,500

 

 

$

(69,327,757

)

 

$

26,289,774

 

 

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

 

 

 

5


ImmunoCellular Therapeutics, Ltd.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

For the Nine

Months Ended

September 30, 2015

 

 

For the Nine

Months Ended

September 30, 2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(7,980,831

)

 

$

(7,250,360

)

Adjustments to reconcile net loss to net cash used in

   operating activities:

 

 

 

 

 

 

 

Depreciation

 

20,282

 

 

 

36,846

 

(Gain) loss on disposal of assets

 

-

 

 

 

(3

)

Change in fair value of warrant liability

 

(2,328,298

)

 

 

(392,940

)

Financing expense

 

88,939

 

 

 

34,078

 

Stock-based compensation

 

666,123

 

 

 

483,455

 

Restricted stock issued for services

 

9,400

 

 

 

-

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Deposits

 

(4,060,977

)

 

 

-

 

Other assets

 

(354,142

)

 

 

(573,092

)

Accounts payable

 

535,594

 

 

 

(603,389

)

Accrued liabilities

 

180,139

 

 

 

437,423

 

Net cash used in operating activities

 

(13,223,771

)

 

 

(7,827,982

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchase of property and equipment

 

(169,750

)

 

 

(28,975

)

Proceeds from sale of property and equipment

 

-

 

 

 

400

 

Net cash used in investing activities

 

(169,750

)

 

 

(28,575

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

6,750

 

 

 

1,045,000

 

Proceeds from issuance of common stock and warrants net of

   offering costs

 

14,599,627

 

 

 

2,681,448

 

Net cash provided by financing activities

 

14,606,377

 

 

 

3,726,448

 

Increase (decrease)  in cash and cash equivalents

 

1,212,856

 

 

 

(4,130,109

)

Cash and cash equivalents, beginning of period

 

23,222,296

 

 

 

27,646,351

 

Cash and cash equivalents, end of period

$

24,435,152

 

 

$

23,516,242

 

Supplemental cash flows disclosures:

 

 

 

 

 

 

 

Interest expense paid

 

 

 

 

 

Income taxes paid

 

 

 

 

 

 

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

 

 

 

6


ImmunoCellular Therapeutics, Ltd.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

1. Nature of Organization (Planned Principal Operations Have Not Commenced)

ImmunoCellular Therapeutics, Ltd. (the Company) is seeking to develop and commercialize new therapeutics to fight cancer using the immune system. These condensed consolidated financial statements include the Company’s wholly owned subsidiaries, ImmunoCellular Bermuda, Ltd. in Bermuda and ImmunoCellular Therapeutics (Ireland) Limited and ImmunoCellular Therapeutics (Europe) Limited in Ireland, which were formed during 2014.  

The Company has been primarily engaged in the acquisition of certain intellectual property, together with development of its immunotherapy product candidates and the recent clinical testing activities for one of its immunotherapy product candidates, and has not generated any recurring revenues. The Company’s lead product candidate, ICT-107, has recently begun start-up and planning activities for its Phase 3 trial. The Company has two other product candidates, ICT-140 and ICT-121, both with investigational new drug (IND) applications active at the US Food and Drug Administration (FDA). Currently, the Company has suspended development of ICT-140 until the Company has secured a partner for the program or sufficient financial resources to complete the ICT-107 Phase 3 program.  Additionally, the Company has acquired the rights to technology for the development of certain stem cell immunotherapies for the treatment of cancer.  The Company has incurred operating losses and, as of September 30, 2015, the Company had an accumulated deficit of $69,327,757. The Company expects to incur significant research, development and administrative expenses before any of its products can be launched and recurring revenues generated.

The Company's activities are subject to significant risks and uncertainties, including the failure of any of the Company's product candidates to achieve clinical success or to obtain regulatory approval.  Additionally, it is possible that other companies with competing products and technology might obtain regulatory approval ahead of the Company.  The Company will need significant amounts of additional funding in order to complete the development of any of its product candidates and the availability and terms of such funding cannot be assured.

Interim Results

The accompanying condensed consolidated financial statements as of September 30, 2015 and for the three and nine month periods ended September 30, 2015 and 2014 are unaudited, but include all adjustments, consisting of normal recurring entries, which the Company’s management believes to be necessary for a fair presentation of the periods presented. Interim results are not necessarily indicative of results for a full year. Balance sheet amounts as of December 31, 2014 have been derived from the Company’s audited financial statements included in its Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission (SEC) on March 10, 2015.

The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (GAAP) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements in its Form 10-K for the year ended December 31, 2014. The Company’s operating results will fluctuate for the foreseeable future. Therefore, period-to-period comparisons should not be relied upon as predictive of the results in future periods.

 

2. Summary of Significant Accounting Policies

Liquidity – As of September 30, 2015, the Company had working capital of $23,759,175, compared to working capital of $23,152,970 as of December 31, 2014. The estimated cost of completing the development of any of our current immunotherapy product candidates, including our stem cell immunotherapies, and of obtaining all required regulatory approvals to market any of those product candidates is substantially greater than the amount of funds we currently have available. However, the Company expects to fund its Phase 3 trial of ICT-107 in part with funds in the amount of $19,919,449 awarded in September 2015 by the California Institute of Regenerative Medicine (CIRM). If the Company was to lose this funding it may be required to delay, postpone, or cancel its clinical trials or otherwise reduce or curtail its operations unless it is able to obtain adequate financing for its clinical trials from additional sources. We believe that our existing cash balances are sufficient for our currently planned level of operations for at least the next twelve months, although there is no assurance that such balances will be sufficient for this purpose.  (See Note 7).

Principles of Consolidation - The condensed consolidated balance sheets include the accounts of the Company and its subsidiaries. The consolidated statements of operations include the Company’s accounts and the accounts of its subsidiaries from the date of acquisition. All intercompany transactions and balances have been eliminated in consolidation.

Cash and cash equivalents – The Company considers all highly liquid instruments with an original maturity of 90 days or less at

7


acquisition to be cash equivalents. As o f September 30 , 2015 and December 31, 201 4 , the Company had $ 23,435,936 and $ 10,427,810 , respectively, of certificates of deposit. The Company places its cash and cash equivalents with various banks in order to maintain FDIC insurance on all of its investments.

Property and Equipment – Property and equipment are stated at cost and depreciated using the straight-line method based on the estimated useful lives (generally three to five years) of the related assets. Computer and computer equipment are depreciated over three years. Management continuously monitors and evaluates the realizability of recorded long-lived assets to determine whether their carrying values have been impaired. The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the nondiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. Any impairment loss is measured by comparing the fair value of the asset to its carrying amount. Repairs and maintenance costs are expensed as incurred.

Research and Development Costs – Research and development expenses consist of costs incurred for direct research and development and are expensed as incurred.

Stock Based Compensation – The Company has in effect an equity incentive plan under which stock options and awards have been granted to employees, key consultants and non-employee members of the Board of Directors. The Company is required to estimate the fair value of share-based awards on the date of grant. The value of the award is principally recognized as expense ratably over the requisite service periods. The Company has estimated the fair value of stock options as of the date of grant using the Black-Scholes option pricing model. The Black-Scholes model considers, among other factors, the expected life of the award and the expected volatility of our stock price. The Company evaluates the assumptions used to value stock options on a quarterly basis. The fair values generated by the Black-Scholes model may not be indicative of the actual fair values of our equity awards, as they do not consider other factors important to those awards to employees, such as continued employment and periodic vesting.

Fair value was estimated at the date of grant using the following weighted average assumptions:

 

 

Nine months
Ended
September 30, 2015

 

 

Nine months
Ended
September 30, 2014

 

Risk-free interest rate

 

1.8

%

 

 

2.18

%

Expected dividend yield

 

None

 

 

 

None

 

Expected life

 

6.5 Years

 

 

 

5.47Years

 

Expected volatility

 

93.8

%

 

 

95.3

%

Expected forfeitures

 

0

%

 

 

0

%

 

The risk-free interest rate used is based on the implied yield currently available in U.S. Treasury securities at maturity with an equivalent term. The Company has not declared or paid any dividends and does not currently expect to do so in the future. The expected term of options represents the period that our stock-based awards are expected to be outstanding and was determined based on projected holding periods for the remaining unexercised options. Consideration was given to the contractual terms of our stock-based awards, vesting schedules and expectations of future employee behavior. For the nine months ended September 30, 2015 and 2014, the expected volatility is based upon the historical volatility of the Company’s common stock. Forfeitures have been estimated to be zero.

The Company’s stock price volatility and option lives involve management’s best estimates, both of which impact the fair value of the option calculated and, ultimately, the expense that will be recognized over the life of the option.

When options are exercised, our policy is to issue reserved but previously unissued shares of common stock to satisfy share option exercises. As of September 30, 2015, the Company had 12,020,536 shares of authorized and unreserved common stock.

No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for all net deferred tax assets.

8


Income Taxes The Company accounts for federal and state income taxes under the liability method, with a d eferred tax asset or liability determined based on the difference between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates. The Company’s provision for income taxes represents the amount of taxes current ly payable, if any, plus the change in the amount of net deferred tax assets or liabilities. A valuation allowance is provided against net deferred tax assets if recoverability is uncertain on a more likely than not basis. As of September 30 , 2015 and Dece mber 31, 201 4 , the Company fully reserved its deferred tax assets. The Company recognizes in its financial statements the impact of an uncertain tax position if the position will more likely than not be sustained upon examination by a taxing authority, bas ed on the technical merits of the position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. As of September 30 , 2015 , the Company had no unrecognized tax benefits a nd as such, no liability, interest or penalties were required to be recorded.  The Company does not expect this to change significantly in the next twelve months.  The Company has determined that its main taxing jurisdictions are the United States of Ameri ca and the State of California.  The Company is not currently under examination by any taxing authority nor has it been notified of a pending examination. The Company’s tax returns are generally no longer subject to examination for the years before Decembe r 31, 20 10 for the state and December 31, 201 1 for the federal taxing authority.

During 2014, the Company licensed the non-U.S. rights to a significant portion of its intellectual property to its Bermuda-based subsidiary for approximately $11.0 million. The fair value of the intellectual property rights was determined by an independent third party. The proceeds from this sale represented a gain for U.S. tax purposes and were offset by current year losses and net operating loss carryforwards. However, the Internal Revenue Service, or the IRS, or the California Franchise Tax Board, or the CFTB, could challenge the valuation of the intellectual property rights and assess a greater valuation, which would require the Company to utilize a larger portion, or all, of its available net operating losses. If an IRS or a CFTB valuation exceeds the available net operating losses, the Company would incur additional income taxes. The Company’s ability to use its net operating losses is subject to the limitations of IRS Section 382, as well as expiration of federal and state net operating loss carryforwards .

Fair Value of Financial Instruments – The carrying amounts reported in the balance sheets for cash, cash equivalents, and accounts payable approximate their fair values due to their quick turnover. The fair value of warrant derivative liability is estimated using the Binomial Lattice option valuation model.

Fair value for financial reporting is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  The Company utilizes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:

Level 1—quoted prices in active markets for identical assets or liabilities

Level 2—quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3—inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

Warrant liabilities represent the only financial assets or liabilities recorded at fair value by the Company. The fair value of warrant liabilities are determined based on Level 3 inputs.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions about the future outcome of current transactions which may affect the reporting and disclosure of these transactions. Accordingly, actual results could differ from those estimates used in the preparation of these financial statements.

The following critical accounting policies affect the Company’s more significant judgments and estimates used in the preparation of these financial statements:

Stock-Based Compensation - Stock-based compensation expense is estimated as of the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally equals the vesting period, based on the number of awards that are expected to vest. Estimating the fair value for stock options requires judgment, including the expected term of the Company’s stock options, volatility of the Company’s stock, expected dividends, risk-free interest rates over the expected term of the options and the expected forfeiture rate. In connection with performance based programs, the Company makes assumptions principally related to the number of awards that are expected to vest after assessing the probability that certain performance criteria will be met.

Warrant Liability - The fair value of warrant liability is estimated using the Binomial Lattice option valuation model.  The use of the Binomial Lattice option valuation model requires estimates including the volatility of the Company’s stock, risk-free rates over the expected term of warrants and early exercise of the warrants.

9


Basic and Diluted Loss per Common Share – Basic and diluted loss per common share are computed based on the weighted average number of common shares outstanding. Common share equivalents (which consist of options and warrants) are excluded from the computation, since the effect would be antidilutive. Common share equivalents which could potentially dilute earnings per share, and which were excluded from the computation of diluted loss per share, totaled 38,890,839 shares and 19,495,807 shares at September 30 , 2015 and 201 4 , respectively.

Recently Issued Accounting Standards In August 2014, the FASB issued ASU No. 2014-15, which applies to entities that have substantial doubt about their ability to continue as a going concern.  This update requires management to assess the probability about the entity’s ability to remain as a going concern for a period of one year from the date the financial statements are ready to be issued.  Depending on management’s conclusions about the entity’s ability to remain as a going concern, the entity must make certain disclosures in its financial statements.  This ASU is effective for annual periods beginning after December 15, 2016.  The adoption of this ASU is not expected to have a material impact on the Company’s consolidated results of operations, financial condition or liquidity.

In January 2015, the FASB issued ASU No. 2015-01, which eliminates the concept of extraordinary items for financial statement presentation purposes.  This ASU is effective for fiscal years beginning after December 15, 2015.  The adoption of this ASU is not expected to have a material impact on the Company’s consolidated results of operations, financial condition or liquidity.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements. 

 

3. Property and Equipment

Property and equipment consist of the following:

 

 

September 30, 2015

 

  

December 31, 2014

 

Computers

$

66,945

 

  

$

59,076

 

Research equipment

 

305,066

 

  

 

143,185

 

 

 

372,011

 

  

 

202,261

 

Accumulated depreciation

 

(175,178

)

  

 

(154,896

)

 

$

196,833

 

  

$

47,365

 

Depreciation expense was $6,997 and $12,930  for the three months ended September 30, 2015 and 2014, respectively. Depreciation expense was $20,282 and $36,846  for the nine months ended September 30, 2015 and 2014, respectively.

 

4. Related-Party Transactions

Cedars-Sinai Medical Center License Agreement

Dr. John Yu, our Chief Scientific Officer and former interim Chief Executive Officer, is a neurosurgeon at Cedars-Sinai Medical Center (Cedars-Sinai). In November 2006, the Company entered into a license agreement with Cedars-Sinai (the Original License Agreement). As an upfront licensing fee, the Company issued Cedars-Sinai 694,000 shares of its common stock and paid Cedars-Sinai $62,000.  Subsequently, the Company issued Cedars-Sinai an additional 100,000 shares of the Company’s common stock as an additional license fee.

On May 13, 2015, the Company entered into an Amended and Restated Exclusive License Agreement (the Amended License Agreement) with Cedars-Sinai to amend and restate the terms of the Original License Agreement.

Pursuant to the Amended License Agreement, the Company acquired an exclusive, worldwide license from Cedars-Sinai to certain patent rights and technology developed in the course of research performed at Cedars-Sinai into the diagnosis of diseases and disorders in humans and the prevention and treatment of disorders in humans utilizing cellular therapies, including dendritic cell-based vaccines for brain tumors and other cancers and neurodegenerative disorders. Under the Amended License Agreement, the Company will have exclusive rights to, among other things, develop, use, manufacture, sell and grant sublicenses to the licensed technology.

The Company has agreed to pay Cedars-Sinai specified milestone payments related to the development and commercialization of ICT-107, ICT-121 and ICT-140. Among other milestone payments, the Company will be required to pay to Cedars-Sinai specified milestone payments upon commencement of the first Phase 3 clinical trial for the Company’s first product and upon first commercial sale of the Company’s first product. If both of these milestones are met, the required milestone payments will total $1.1 million. The

10


Company will pay Cedars-Sinai single digit percentages of gross revenues from the sales of products and high-single digit to low-double digit percentages of the Company’s sublicensing income based on the licensed technology.

The Amended License Agreement will terminate on a country-by-country basis on the expiration date of the last-to-expire licensed patent right in each such country. Either party may terminate the Amended License Agreement in the event of the other party’s material breach of its obligations under the Agreement if such breach remains uncured 60 days after such party’s receipt of written notice of such breach. Cedars-Sinai may also terminate the Amended License Agreement upon 30 days’ written notice to the Company that a required payment by the Company to Cedars-Sinai under the Amended License Agreement is delinquent.

The Company has also entered into various sponsored research agreements with Cedars-Sinai and has paid an aggregate of approximately $1.2 million.  The last agreement concluded on March 19, 2014 at an incremental cost of $126,237.  As of September 30, 2015, Cedars-Sinai is not performing any research activities on behalf of the Company.

 

5. Commitments and Contingencies

Sponsored Research Agreements

In an effort to expand the Company’s intellectual property portfolio to use antigens to create personalized immunotherapies, the Company has entered into various intellectual property and research agreements. Those agreements are long-term in nature and are discussed below.

Novella Clinical LLC

On June 30, 2015, the Company entered into a Master Clinical Research Services Agreement with Novella Clinical LLC (Novella Clinical) to conduct the Phase 3 registration trial of ICT-107.  Novella Clinical is a full-service, global clinical research organization providing clinical trial services to small and mid-sized oncology companies.  Novella Clinical will supervise the trial in the United States, Europe and Canada and will recruit approximately 400 patients with newly diagnosed glioblastoma.  The Company anticipates initiating the Phase 3 trial in the fourth quarter of 2015.  As of September 30, 2015, the Company has deposits of $3,725,722 with Novella Clinical that will be applied against the final trial related invoices.  Since the trial is not expected to be completed within the next twelve months, this amount is included in deposits and reflected as a non-current asset on the September 30, 2015 balance sheet. The Company may terminate this agreement upon 60 days’ notice.

ICON (formerly known as Aptiv Solutions)

The Company has contracted with ICON to provide certain services related to the Company’s ICT-107 Phase 2 trial. The original agreement was entered into in August of 2010.  On September 17, 2013, the Company entered into a Master Services Agreement with ICON to provide certain services related to the Company’s products under development.  Simultaneously, the Company and ICON entered into Project Agreement Number 1 for the ICT-140 Phase 2 trial that provides for payments of approximately $2.7 million until completion of the services described therein.  On May 6, 2014, the Company and ICON entered into Amendment #1 to Project Agreement Number 1 to amend the project schedule and provide additional services for an additional fee of $170,004.  On August 21, 2014, the Company and ICON entered into Amendment #2 to Project Agreement Number 1 to amend the project schedule and replace the aggregate budget.  The total aggregate fee pursuant to the original agreement and the two modifications is $3.5 million. Currently, the Company has suspended development of ICT-140 and, therefore, there is no ongoing commitment related to this program.  On July 17, 2014, the Company and ICON entered into Project Agreement CD-133 for the ICT-121 Phase 1 trial that provides for payments of approximately $2.3 million until completion of the services described therein.

Licensing Agreements

The Johns Hopkins University Licensing Agreement

On February 23, 2012, the Company entered into an Exclusive License Agreement, effective as of February 16, 2012, with The Johns Hopkins University (JHU) under which it received an exclusive, worldwide license to JHU’s rights in and to certain intellectual property related to mesothelin-specific cancer immunotherapies. The Company is advancing a cancer immunotherapy program using JHU and other intellectual property according to commercially reasonable development timeline.  If successful and a product ultimately is registered, the Company will either sell the product directly or via a third-party partnership.

Pursuant to the License Agreement, the Company agreed to pay an upfront licensing fee in the low hundreds of thousands of dollars, payable half in cash and half in shares of its common stock in two tranches, within 30 days of the effective date of the License Agreement and upon issuance of the first U.S. patent covering the subject technology. Annual minimum royalties or maintenance fees increase over time and range from low tens of thousands to low hundreds of thousands of dollars. In addition, the Company has agreed

11


to pay milestone license fees upon completio n of specified milestones, totaling single digit millions of dollars if all milestones are met.  R oyalties based on a low single digit percentage of net sales are also due on direct sales, while third party sublicensing payments will be shared at a low dou ble digit percentage.

The Company and JHU each have termination rights that include termination for any reason and for reasons relating to specific performance or financial conditions.   Effective September 24, 2013, the Company entered into an Amendme nt No. 1 to the Exclusive License Agreement that updated certain milestones.  Effective August 7, 2015, the Company entered into a Second Amendment to Exclusive License Agreement that amended certain sections of the License Agreement and further updated certain milestones.

The University of Pittsburgh Patent License Agreement

On March 20, 2012, the Company entered into an Exclusive License Agreement with the University of Pittsburgh under which the Company has licensed intellectual property surrounding EphA2, a tyrosine kinase receptor that is highly expressed by ovarian cancer and other advanced and metastatic malignancies. The License Agreement grants a worldwide exclusive license to the intellectual property for ovarian and pancreatic cancers; and a worldwide non-exclusive license to the intellectual property for brain cancer.

Pursuant to the License Agreement, the Company agreed to pay an upfront nonrefundable and noncreditable licensing fee and nonrefundable and noncreditable maintenance fees due annually starting 12 months from the anniversary of the effective date of the License Agreement. In addition, the Company has agreed to make certain milestone payments upon completion of specified milestones and to pay customary royalties based on a specified percentage of net sales and sublicensing payments, as applicable.

In April 2015, the Company exercised its right to terminate this agreement effective October 12, 2015.

Torrey Pines

On October 1, 2012, the Company entered into a Contract Services Agreement with Torrey Pines under which the Company has engaged Torrey Pines to determine the immunogenicity of certain peptides that are used in conjunction with the Company’s ICT-107 Phase 2 trial and in the development of ICT-140. The Company agreed to pay an upfront nonrefundable and noncreditable fee and is obligated to pay the remainder at the conclusion of the contract. On April 1, 2013, the Company and Torrey Pines expanded the scope of work to be completed by Torrey Pines under an additional Contract Services Agreement. This supplemental agreement provided for the Company to pay an upfront fee and additional fees at the conclusion of the contract. On April 1, 2014, the Company and Torrey Pines entered into an Amended and Restated Contract Services Agreement for Torrey Pines to perform certain additional services in connection with the Company’s vaccine technologies.

California Institute of Technology

On September 9, 2014, the Company entered into an Exclusive License Agreement with the California Institute of Technology (Caltech) under which the Company acquired exclusive rights to novel technology for the development of certain antigen specific stem cell immunotherapies for the treatment of cancers.

Pursuant to the License Agreement, the Company agreed to pay a one time license fee, a minimum annual royalty based on a low single digit percentage of net revenues and an annual maintenance fee in the low tens of thousands of dollars.  In addition, the Company has agreed to make certain milestone payments upon completion of specified milestones.

Cedars-Sinai Medical Center

In connection with the Cedars-Sinai Medical Center License Agreement and sponsored research agreement, the Company has certain commitments as described in Note 4.

Manufacturing

PharmaCell B.V.

In March 2015, the Company entered into an Agreement for GMP manufacturing of ICT-107  with PharmaCell B.V. (PharmaCell), pursuant to which PharmaCell will provide contract manufacturing services for the European production of ICT-107, a dendritic cell immunotherapy for the treatment of newly diagnosed glioblastoma.

The Company will pay for manufacturing services performed by PharmaCell under the Agreement pursuant to statements of work entered into from time to time. The Company may unilaterally terminate the Agreement upon 90 days’ written notice to

12


PharmaCell, or 30 days’ written notice in the event of a clinical hold or other suspens ion or early termination of a clinical trial. PharmaCell may terminate the Agreement in certain circumstances upon 90 days’ written notice to the Company. Either party may terminate the Agreement in the event of the other party’s insolvency or for the othe r party’s material breach of its obligations under the Agreement if such breach remains uncured after 30 days of receiving written notice of such breach. Absent early termination, the Agreement will continue until all services under applicable statements o f work have been completed.

PCT, LLC

On June 11, 2015, the Company entered into a Services Agreement with PCT, LLC, a Caladrius Company (PCT), a subsidiary of Caladrius Biosciences, Inc.

Pursuant to the terms of the Agreement, PCT will provide current good manufacturing practice (cGMP) services for the Phase 3 manufacture of ICT-107 and Phase 1 manufacture of ICT-121. PCT will provide, among other things, a controlled environment room on a semi-dedicated basis and qualified personnel to conduct runs as the parties mutually agree in writing and schedule. PCT’s facilities are registered with the FDA for testing; packaging; processing; storage; labeling and distribution of Peripheral Blood stem and Somatic Cell therapy products, and maintain cGMP-compliant quality systems.

The Company has agreed to pay monthly fees in connection with the use of a controlled environment room on a semi-dedicated basis and monthly fees for PCT personnel performing services under the Agreement.

Services to be performed under the Agreement terminate on the earlier of (i) December 31, 2018, (ii) the date the parties mutually agree, (iii) at any time following the earlier of the one year anniversary of the date on which the Company notifies PCT that services in the semi-dedicated controlled environment room are to commence and August 1, 2016, on the last day of the month following at least 120 days’ written notice from the Company to PCT, or (iv) the last day of the month following at least 60 days’ written notice from the Company to PCT that the Company has received a clinical hold issued by the FDA ordering the Company to suspend clinical trials for ICT-107. Either party may terminate the Agreement in the event of the other party’s insolvency or for the other party’s material breach of its obligations under the Agreement if such breach remains uncured after 30 days of receiving written notice of such breach.

Employment Agreements

The Company has employment agreements with its management that provide for a base salary, bonus and stock option grants.  The aggregate annual base salary payable to this group is approximately $1.1 million and the potential bonus is approximately $400,000.  During the nine months ended September 30, 2015, the Company issued an aggregate of 1,125,000 stock options to its management at a weighted average exercise price of $0.58 that vest over a period of 4 years.  Additionally, during the nine months ended September 30, 2015, the Company issued 260,000 restricted shares of the Company’s common stock that will vest in March 2017.  

Operating Lease

The Company entered into a lease for office space effective June 15, 2013 and continuing through August 31, 2016 at an initial monthly rental of $8,063. The monthly rental increases by 3% on each anniversary date of the lease. Rent for the months of August and September 2013 was abated.  Rent expense was approximately $75,000 and $74,000 for the nine months ended September 30, 2015 and 2014, respectively.

Future minimum rentals under the operating lease are as follows:

 

Years ending December 31,

 

Amount

 

2015

 

 

25,662

 

2016

 

 

68,432

 

Total

 

$

94,094

 

 

13


6. Shareholders’ Equity

Underwritten Public Offering

In February 2015, the Company raised approximately $14,500,000 (after commissions and offering expenses) from the sale of 26,650,000 shares of common stock and warrants to purchase 18,655,000 shares of common stock at an exercise price of $0.66 per share, to various investors in an underwritten public offering.  Each unit was priced at $0.60.  The warrants have a term of 60 months from the date of issuance.  The warrants also provide for a weighted-average adjustment to the exercise price if the Company issues or is deemed to issue additional shares of common stock at a price per share less than the then effective price of the warrants, subject to certain exceptions (see “Warrant Liability” below.)

Controlled Equity Offering

On April 18, 2013, the Company entered into a Controlled Equity Offering SM Sales Agreement (the Sales Agreement) with Cantor Fitzgerald & Co. (Cantor), as agent, pursuant to which the Company may offer from time to time through Cantor, shares of our common stock having an aggregate offering price of up to $25.0 million (of which only $17.0 million is currently registered for offer and sale). Under the Sales Agreement, Cantor may sell shares by any method permitted by law and deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act, as amended, including sales made directly on the NYSE MKT, on any other existing trading market for our common stock or to or through a market maker. The Company may instruct Cantor not to sell shares if the sales cannot be effected at or above the price designated by us from time to time. The Company is not obligated to make any sales of the shares under the Sales Agreement. The offering of shares pursuant to the Sales Agreement will terminate upon the earlier of (a) the sale of all of the shares subject to the Sales Agreement or (b) the termination of the Sales Agreement by Cantor or the Company, as permitted therein. Cantor will receive a commission rate of 3.0% of the aggregate gross proceeds from each sale of shares and the Company has agreed to provide Cantor with customary indemnification and contribution rights. The Company will also reimburse Cantor for certain specified expenses in connection with entering into the Sales Agreement.  On April 22, 2013, NYSE MKT approved the listing of 10,593,220 shares of our common stock in connection with the Sales Agreement. Through September 30, 2015 , the Company sold 6,949,261 shares of our common stock under the Sales Agreement that resulted in proceeds to the Company of approximately $9,402,383.  As of September 30, 2015 , aggregate gross sales for additional common stock of approximately $7,081,494 remained available under the Sales Agreement .  No shares were sold during the three or nine months ended September 30, 2015.

Stock Options

In February 2005, the Company adopted an Equity Incentive Plan (the Plan). Pursuant to the Plan, a committee appointed by the Board of Directors may grant, at its discretion, qualified or nonqualified stock options, stock appreciation rights and may grant or sell restricted stock to key individuals, including employees, nonemployee directors, consultants and advisors. Option prices for qualified incentive stock options (which may only be granted to employees) issued under the plan may not be less than 100% of the fair value of the common stock on the date the option is granted (unless the option is granted to a person who, at the time of grant, owns more than 10% of the total combined voting power of all classes of stock of the Company; in which case the option price may not be less than 110% of the fair value of the common stock on the date the option is granted). Option prices for nonqualified stock options issued under the Plan are at the discretion of the committee and may be equal to, greater or less than fair value of the common stock on the date the option is granted. The options vest over periods determined by the Board of Directors and are exercisable no later than ten years from date of grant (unless they are qualified incentive stock options granted to a person owning more than 10% of the total combined voting power of all classes of stock of the Company, in which case the options are exercisable no later than five years from date of grant). Initially, the Company reserved 6,000,000 shares of common stock for issuance under the Plan. On October 24, 2011, the Company’s shareholders voted to increase the number of authorized shares reserved for the Plan to 8,000,000 shares. On September 20, 2013, the Company’s shareholders voted to increase the number of authorized shares reserved for the Plan to 12,000,000 shares. Options to purchase 4,761,478 common shares have been granted under the Plan and are outstanding as of September 30, 2015. Additionally, 260,000 shares of restricted common stock have been granted to management and 40,000 to members of the Company’s Board of Directors under the Plan.  As of September 30, 2015, there were 4,111,517 options available for issuance under the Plan.

The following table summarizes stock option activity for the Company during the nine months ended September 30, 2015 :

 

 

Options

 

  

Weighted
Average
Exercise
Price

 

  

Weighted
Average
Remaining
Contractual
Term

 

  

Aggregate
Intrinsic
Value

 

Outstanding December 31, 2014

9,314,765

 

  

$

1.19

  

  

 

0

  

  

 

0

  

Granted

1,818,000

 

  

$

0.55

  

  

 

0

  

  

 

0

  

Exercised

50,000

 

  

$

0.27

  

  

 

0

  

  

 

0

  

14


 

Options

 

  

Weighted
Average
Exercise
Price

 

  

Weighted
Average
Remaining
Contractual
Term

 

  

Aggregate
Intrinsic
Value

 

Forfeited or expired

(379,111

)

  

$

(1.74

)  

  

 

0

  

  

 

0

  

Outstanding September 30, 2015

10,703,654

 

  

$

1.19

  

  

 

3.36

  

  

$

0

  

Vested at September 30, 2015

8,080,832

 

  

$

1.22

  

  

 

1.90

  

  

$

0

  

 

As of September 30, 2015 , the total unrecognized compensation cost related to unvested stock options amounted to $2.4 million, which will be recognized over the weighted-average remaining requisite service period of approximately 15 months.

 

On March 20, 2015, the Company issued an aggregate of 260,000 shares of restricted common stock to certain members of management.  The shares will vest on March 19, 2017.  For accounting purposes, these shares were valued at $0.58, which was the stock price on the date of grant, and will be expensed over the service period of two years from the date of grant.   On September 18, 2015, the Company issued an aggregate of 40,000 shares of restricted common stock to certain members of the Company’s Board of Directors of which 20,000 were vested on the grant date and 20,000 will vest if certain market conditions are met.

Warrants

In connection with the sale of Preferred Stock in May 2010, the Company issued warrants to purchase 1,350,000 shares of the Company’s common stock at an exercise price of $2.50. The warrants had a five-year term from the date of issuance. On May 16, 2015, the remaining warrants to purchase 1,290,996 shares of the Company’s common stock at $2.50 expired. (See “Warrant Liability” below.)

In connection with the February 2011 common stock private placement, the Company issued to the investors warrants to purchase 2,609,898 shares of the Company’s common stock at $2.25 per share. The warrants have a five-year term from the date of issuance and contain a provision that provides for an adjustment to the exercise price in the event the Company completes an equity financing at a per share price of its common stock that is less than the adjusted exercise price. As a result of the January and October 2012 financings, the exercise price of the warrants was adjusted to $1.87 and the number of warrants was proportionately increased to 2,823,670 net of exercises. During the quarter ended June 30, 2014, the exercise price was further adjusted to $1.85 and the number of warrants outstanding was proportionately increased to 2,854,196 to reflect the issuances pursuant to the Company’s Controlled Equity Offering SM .  During the quarter ended September 30, 2014, the exercise price was further adjusted to $1.84 and the number of warrants outstanding was proportionately increased to 2,869,696 to reflect the issuances pursuant to the Company’s Controlled Equity Offering SM .  During the quarter ended December 31, 2014, the exercise price was further adjusted to $1.79 and the number of warrants outstanding was proportionately increased to 2,949,845 to reflect the issuances pursuant to the Company’s Controlled Equity Offering SM .  As a result of the February 2015 underwritten public offering, the exercise price of the warrants was further adjusted to $1.44 and the number of warrants was proportionately increased to 3,666,836.  As of September 30, 2015 , warrants to purchase 3,666,836 shares of the Company’s common stock remain outstanding related to this private placement. (See “Warrant Liability” below.)

In connection with the January 2012 underwritten public offering, the Company issued to the investors warrants to purchase 4,744,718 shares of the Company’s common stock at $1.41 per share. The warrants have a five-year term from the date of issuance. These warrants qualify for equity treatment since they do not have any provisions that would require the Company to redeem them for cash or that would result in an adjustment to the number of warrants. As of September 30, 2015 , warrants to purchase 1,418,575 shares of the Company’s common stock remain outstanding relating to this public offering.

In connection with the October 2012 underwritten public offering, the Company issued to the investors warrants to purchase 4,500,000 shares of the Company’s common stock at $2.65 per share. The warrants have a five-year term from the date of issuance. These warrants qualify for equity treatment since they do not have any provisions that would require the Company to redeem them for cash or that would result in an adjustment to the number of warrants. As of September 30, 2015 , warrants to purchase 4,446,775 shares of the Company’s common stock remain outstanding relating to this public offering.

In connection with the February 2015 underwritten public offering, the Company issued to the investors warrants to purchase 18,655,000 shares of the Company’s common stock at $0.66 per share.  The warrants have a five-year term from the date of issuance and contain a provision that provides for an adjustment to the exercise price in the event the Company completes an equity financing at a per share price of its common stock that is less than the adjusted exercise price.  Accordingly, these warrants do not qualify for equity treatment.  As of September 30, 2015, warrants to purchase 18,655,000 shares of the Company’s common stock remain outstanding relating to this public offering. (See “Warrant Liability” below.)

15


Warrant Liability

The Company’s warrant liability is adjusted to fair value each reporting period and is influenced by several factors including the price of the Company’s common stock as of the balance sheet date. On September 30, 2015 , the price per share of Company’s common stock was $0.42 per share compared to $ 0.73 per share at December 31, 2014.

In connection with the sale of Preferred Stock in May 2010, the Company issued to the investors warrants to purchase 1,350,000 shares of the Company’s common stock at an exercise price of $2.50 per share. Of the total proceeds from the May 2010 preferred stock sale, $5,710,500 was allocated to the freestanding warrants associated with the units based upon the fair value of these warrants determined under the Black Scholes option pricing model. The warrants contained a provision whereby the warrant may be settled for cash in connection with a change of control with a private company. Due to the potential variability of their exercise price, these warrants did not qualify for equity treatment, and therefore were recognized as a liability. The warrant liability was adjusted to fair value each reporting period and any change in value was recognized in the statement of operations. Prior to 2011, the Company concluded that the Black-Scholes method of valuing the price adjustment feature does not materially differ from the valuation of such warrants using the Monte Carlo or binomial lattice simulation models, and therefore, the use of the Black-Scholes valuation model was considered a reasonable method to value the warrants. The assumptions used in the Black Scholes model for determining the initial fair value of the warrants were as follows: (i) dividend yield of 0%; (ii) expected volatility of 102%, (iii) risk-free interest rate of 2.50%, and (iv) contractual life of 60 months. Effective January 1, 2011, the Company determined that it was more appropriate to value the warrants using a binomial lattice simulation model. For the three and nine months ended September 30, 2014, the Company recorded a credit to other income of $320,167 and $268,527, respectively. For the three and nine months ended September 30, 2015, the Company recorded a credit to other income of $7,746.  The remaining warrants expired during the three months ended June 30, 2015.  

In connection with the February 2011 common stock private placement, the Company issued to the investors warrants to purchase 2,818,675 shares of the Company’s common stock at $2.25 per share. Of the total proceeds from the February 2011 common stock private placement, $2,476,790 was allocated to the freestanding warrants associated with the units based upon the fair value of the warrants determined under the Binomial lattice model. The warrants contain a provision whereby the warrant exercise price would be decreased in the event that certain future common stock issuances are made at a price less than $1.55. Due to the potential variability of their exercise price, these warrants do not qualify for equity treatment, and therefore are recognized as a liability. As a result of the January and October 2012 financings, the exercise price of the warrants was adjusted to $1.87 and the number of warrants was proportionately increased to 2,823,670 net of exercises. The Company recorded a charge to financing expense of $368,524 to reflect the issuance of the additional warrants. As of result of the Company’s Controlled Equity Offering during 2014, the exercise price of the warrants was adjusted to $ 1.79 and the number of warrants was proportionately increased to 2,949,867, net of exercises. The Company recorded a charge to financing expense of $62,683 to reflect the issuance of the additional warrants.   As of result of the Company’s February 2015 underwritten public offering, the exercise price of the warrants was adjusted to $ 1.44 and the number of warrants was proportionately increased to 3,666,836 . The warrant liability is adjusted to fair value each reporting period, and any change in value is recognized in the statement of operations. The Company initially valued these warrants using a binomial lattice simulation model assuming (i) dividend yield of 0%; (ii) expected volatility of 146%; (iii) risk free rate of 1.96% and (iv) expected term of 5 years. Based upon those calculations, the Company calculated the initial valuation of the warrants to be $2,476,790. For the three and nine months ended September 30, 2014, the Company recorded a credit to other income of $239,706 and $124,413, respectively.  As of September 30, 2015 , the Company revalued the warrants using the binomial lattice simulation model assuming (i) dividend yield of 0%; (ii) expected volatility of 45%; (iii) risk free interest rate of .054.% and (iv) expected term of .39 years. For the three and nine months ended September 30, 2015, the Company recorded a credit to other income of $22,001 and $678,912, respectively. As of September 30, 2015 , the carrying value of the warrant liability is $0.

In connection with the February 2015 underwritten public offering, the Company issued to the investors warrants to purchase 18,655,000 shares of the Company’s common stock at $0.66 per share.  The warrants contain a provision whereby the warrant exercise price would be decreased in the event that certain future common stock issuances are made at a price less than $0.66.  Due to the potential variability of their exercise price, these warrants do not qualify for equity treatment, and therefore are recognized as a liability. The Company initially valued these warrants using a binomial lattice simulation model assuming (i) dividend yield of 0%; (ii) expected volatility of 97.0%; (iii) risk free rate of 1.53% and (iv) expected term of 5 years.  Based upon these calculations, the Company calculated the initial valuation of the warrants to be $4,197,375.  As of September 30, 2015, the Company revalued the warrants using the binomial lattice simulation model assuming (i) dividend yield of 0%; (ii) expected volatility of 94%; (iii) risk free rate of 1.23% and (iv) expected term of 4.36 years.  For the three and nine months ended September 30, 2015, the Company recorded a credit to other income of $317,135 and $1,641,640, respectively. As of September 30, 2015, the carrying value of the warrant liability is $2,555,735.

Volatility has been estimated using the historical volatility of the Company’s stock price. 

The following reconciliation of the beginning and ending balances for all warrant liabilities measured at fair market value on a recurring basis using significant unobservable inputs (level 3) during the period ended September 30, 2015 and 2014 :

16


 

 

September 30, 2015

 

 

September 30, 2014

 

Balance – January 1

$

597,719

 

 

$

1,064,810

 

Issuance of warrants and effect of repricing

 

4,286,314

 

 

 

34,078

 

Exercise of warrants

 

0

 

 

 

0

 

(Gain) or loss included in earnings

 

(2,328,298

)

 

 

(392,940

)

Transfers in and out/or out of Level 3

 

0

 

 

 

0

 

Balance – September 30

$

2,555,735

 

 

$

705,948

 

 

Additionally , during the nine months ended September 30, 2015 and 2014, the Company recorded a charge to financing expense of $88,939 and $34,078, respectively, to reflect the issuance of the additional warrants .

 

 

7.  California Institute of Regenerative Medicine Award

 

On September 18, 2015 the Company received an award in the amount of $19.9 million from the California Institute of Regenerative Medicine (CIRM) to partially fund the Company’s Phase 3 trial of ICT-107. The award provides for a $4 million project initial payment and up to $15.9 million in future milestone payments that are primarily dependent on patient enrollment in the ICT-107 Phase3 trial.  Under the terms of the CIRM award, the Company is obligated to share future ICT-107 related revenue with CIRM.  The percentage of revenue sharing is dependent on the amount of the award received by the Company and whether the revenue is from product sales or license fees.  The maximum revenue sharing amount the Company may be required to pay to CIRM is equal to nine (9) times the total amount awarded and paid to the Company.  The Company has the option to decline any and all amounts awarded by CIRM.  As an alternative to revenue sharing, the Company has the option to convert the award to a loan, which such option the Company must exercise on or before ten (10) business days after the FDA notifies the Company that it has accepted the Company’s application for marketing authorization.  In the event the Company exercises it right to convert the award to a loan, it will be obligated to repay the loan within ten (10) business days of making such election, including interest at the rate of the three-month LIBOR rate (0.32% as of September 30, 2015) plus 25% per annum.  Since the Company may be required to repay some or all of the amounts awarded by CIRM, the Company plans to account for this award as a liability rather than revenue.  If the Company was to lose this funding, it may be required to delay, postpone, or cancel its clinical trials or otherwise reduce or curtail its operations unless it is able to obtain adequate financing for its clinical trials from additional sources.  As of September 30, 2015, the Company has not received any proceeds from this award.

 

 

 

 

 

8. 401(k) Profit Sharing Plan

During 2011, the Company adopted a Profit Sharing Plan that qualifies under Section 401(k) of the Internal Revenue Code. Contributions to the plan are at the Company’s discretion. The Company did not make any matching contributions during the three or nine months ended September 30, 2015 or September 30, 2014.

 

9. Income Taxes

Deferred taxes represent the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. Temporary differences result primarily from the recording of tax benefits of net operating loss carry forwards and stock-based compensation.

A valuation allowance is required if the weight of available evidence suggests it is more likely than not that some portion or all of the deferred tax asset will not be recognized.  Accordingly, a valuation allowance has been established for the full amount of the deferred tax assets.

17


The Company’s effective income tax rate differs from the amount computed by applying the federal stat utory income tax rate to loss before income taxes as follows:

 

 

September 30, 2015

 

 

September 30, 2014

 

Income tax benefit at the federal statutory rate

 

-34

%

 

 

-34

%

State income tax benefit, net of federal tax benefit

 

-6

%

 

 

-6

%

Change in fair value of warrant liability

 

12

%

 

 

-2

%

Change in valuation allowance for deferred tax assets

 

28

%

 

 

42

%

Total

 

0

%

 

 

0

%

 

Deferred taxes consisted of the following:

 

September 30, 2015

 

 

December 31, 2014

 

Net operating loss carryforwards

$

20,155,461

 

 

$

16,302,000

 

Stock-based compensation

 

2,503,106

 

 

 

2,191,000

 

Less valuation allowance

 

(22,658,567

)

 

 

(18,493,000

)

Net deferred tax asset

$

0

 

 

$

0

 

As of December 31, 2014, the Company had federal and California income tax net operating loss carry forwards of approximately $40.8 million, and as of September 30, 2015, management has estimated federal and California income tax net operating loss carry forwards of approximately $50.4 million. These federal and California net operating losses will begin to expire in 2022 and 2016, respectively, unless previously utilized.

Section 382 of the Internal Revenue Code can limit the amount of net operating losses which may be utilized if certain changes to a company’s ownership occur. While the Company underwent an ownership change in 2012 as defined by Section 382 of the Internal Revenue Code, management estimated that the Company had not incurred any limitations on its ability to utilize its net operating losses under Section 382 of the Internal Revenue Code during 2012. The Company may incur limitations in the future if there is a change in ownership as computed under the prescribed method of the Internal Revenue Code.

During the fourth quarter of 2014, the Company licensed the non-U.S. rights to a significant portion of its intellectual property to its Bermuda-based subsidiary for approximately $11.0 million. The fair value of the intellectual property rights was determined by an independent third party. The proceeds from this sale represent a gain for U.S. tax purposes and are offset by current year losses and net operating loss carryforwards. However, the Internal Revenue Service, or the IRS, or the California Franchise Tax Board, or the CFTB, could challenge the valuation of the intellectual property rights and assess a greater valuation, which would require the Company to utilize a portion, or all, of its available net operating losses. If an IRS or a CFTB valuation exceeds the available net operating losses, the Company would incur additional income taxes. The Company’s ability to use its net operating losses is subject to the potential future limitations of IRS Section 382, as well as expiration of federal and state net operating loss carryforwards.

 

10. Subsequent Events

 

Effective October 1, 2015, Dr. John Yu provided notice of his resignation from his position as Chief Scientific Officer of the Company. Dr. Yu will remain a member the Board of Directors of the Company, but will no longer serve as chairman. Dr. Yu’s resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

 

Dr. Yu will continue to provide services to the Company pursuant to a consulting agreement, effective October 1, 2015. Pursuant to the agreement, Dr. Yu will support the execution of the phase 3 clinical trial of ICT-107 and assist with the evaluation and acquisition of outside technology. Dr. Yu will receive a fee of $11,103 per month. The term of the a greement expires on December 31, 2015, and may be terminated by either party upon 30 days prior written notice.

 

 

 

 

18


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

Throughout this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” and “our company” refer to ImmunoCellular Therapeutics, Ltd., a Delaware corporation and its subsidiaries.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements, which reflect the views of our management with respect to future events and financial performance. These forward-looking statements are subject to a number of uncertainties and other factors that could cause actual results to differ materially from such statements. Forward-looking statements are identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “plans,” “projects,” “targets” and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on the information available to management at this time and which speak only as of this date. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a discussion of some of the factors that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information under the heading “Risk Factors” in our Form 10-K for the year ended December 31, 2014. The identification in this Quarterly Report of factors that may affect future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

Overview

ImmunoCellular Therapeutics, Ltd. and its subsidiaries (the Company) is a biotechnology company that is seeking to develop and commercialize new therapeutics to fight cancer using the immune system.

The Company has been primarily engaged in the acquisition of certain intellectual property, together with development of its product candidates and the recent clinical testing for its immunotherapy product candidates, and has not generated any recurring revenues. The Company’s lead product candidate, ICT-107, completed Phase 2 testing in December 2013. The Company has two other product candidates, ICT-140 and ICT-121, both with investigational new drug (IND) applications active at the US Food and Drug Administration (FDA). The Company is holding the initiation of its ICT-140 trial until we can find a partner for the program to share expenses or until we have secured sufficient financial resources to complete the ICT-107 Phase 3 program. Additionally, the Company has acquired the rights to technology for the development of certain stem cell immunotherapies for the treatment of cancer.  The Company has incurred operating losses and, as of September 30, 2015, the Company had an accumulated deficit of $69,327,757. The Company expects to incur significant research, development and administrative expenses before any of its products can be launched and recurring revenues generated.

Critical Accounting Policies

Management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to impairment of long-lived assets, including finite lived intangible assets, accrued liabilities, fair value of warrant derivatives and certain expenses. We base our estimates on historical experience and on various other assumptions that we believe 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. Actual results may differ materially from these estimates under different assumptions or conditions.

Our significant accounting policies are summarized in Note 2 of our condensed consolidated financial statements. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Research and Development Costs

Although we believe that our research and development activities and underlying technologies have continuing value, the amount of future benefits to be derived from them is uncertain. Research and development costs are expensed as incurred. During the nine months ended September 30, 2015 and 2014, we recorded an expense of $6,827,691 and $4,646,156, respectively, related to research and development activities.

19


Stock-Based Compensation

Stock-based compensation expense is estimated as of the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally equals the vesting period, based on the number of awards that are expected to vest. Estimating the fair value for stock options requires judgment, including the expected term of our stock options, volatility of our stock, expected dividends, risk-free interest rates over the expected term of the options and the expected forfeiture rate. In connection with our performance based programs, we make assumptions principally related to the number of awards that are expected to vest after assessing the probability that certain performance criteria will be met.

Income Taxes

The Company accounts for federal and state income taxes under the liability method, with a deferred tax asset or liability determined based on the difference between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates. The Company’s provision for income taxes represents the amount of taxes currently payable, if any, plus the change in the amount of net deferred tax assets or liabilities. A valuation allowance is provided against net deferred tax assets if recoverability is uncertain on a more likely than not basis. The Company recognizes in its consolidated financial statements the impact of an uncertain tax position if the position will more likely than not be sustained upon examination by a taxing authority, based on the technical merits of the position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. The Company is not currently under examination by any taxing authority nor has it been notified of an impending examination. The Company’s tax returns for the years ended December 31, 2010 to 2014, remain open for possible review.

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheets for cash, cash equivalents, and accounts payable approximate their fair values due to their quick turnover. The fair value of warrant liability is estimated using the Binomial Lattice option valuation model.

Results of Operations

Three months ended September 30, 2015 and 2014

Net Loss

We incurred a net loss of $3,401,255 and $1,889,243 for the three months ended September 30, 2015 and 2014, respectively. The increase in the net loss is primarily due to an increase in research and development expenses during the most recent quarter.  Additionally, general and administrative and stock based compensation expenses were also higher during the quarter ended September 30, 2015.  

Revenues

We did not have any revenue during the three months ended September 30, 2015 and 2014 and we do not expect to have any revenue in 2015.

Expenses

 

Research and development expenses for the three months ended September 30, 2015 were $2,592,255 compared to $1,486,352 in the same period in 2014.  During the quarter ended September 30, 2015, we incurred expenses related to the start-up and planning of the Company’s ICT-107 Phase 3 trial.  We also increased the number of participating sites in the Company’s ICT-121 program.  Additionally, we incurred expenses related to our stem cell immunotherapies for the treatment of cancer.  These incremental expenses were partially offset by the wind down of expenses related to the Phase 2 trial of ICT-107.  As of December 31, 2014, our ICT-140 trial for ovarian cancer was placed on hold.  As a result, we incurred minimal expense related to this program during the most recent quarter.  We anticipate that this program will remain on hold until we obtain additional financing or find a partner for this program.

General and administrative expenses for the three months ended September 30, 2015 and 2014 were $908,075 and $786,688, respectively. The increase reflects additional professional fees incurred to support various contract negotiations, patent protection costs and governmental compliance.   

20


Nine months ended September 30, 2015 and 2014

Net Loss

We incurred a net loss of $7,980,831 and $7,250,360 for the nine months ended September 30, 2015 and 2014, respectively. The increase in the net loss is primarily due to an increase in research and development expenses, general and administrative expenses and stock based compensation, partially offset by a credit to other income related to the revaluation of the Company’s warrant derivatives.

Revenues

We did not have any revenue during the nine months ended September 30, 2015 and 2014 and we do not expect to have any revenue in 2015.

Expenses

Research and development expenses for the nine months ended September 30, 2015 and 2014 were $6,827,691 and $4,646,156, respectively. During the nine months ended September 30, 2015 we incurred expenses related to the start-up and planning of our ICT-107 Phase 3 trial.  Additionally, we incurred certain expenses related to the development of certain stem cell immunotherapies for the treatment of cancer.  We expect these expenses to increase in future periods as we progress in the ICT-107 Phase 3 trial and as we develop our stem cell immunotherapies.  As of December 31, 2014, our ICT-140 ovarian cancer program was placed on hold.  As a result, we incurred minimal expenses related to this trial during the most recent quarter and we expect future expenses to continue to decline until such time as we obtain additional financing or find a partner for this program.

 

General and administrative expenses for the nine months ended September 30, 2015 and 2014 were $2,731,384 and $2,490,322, respectively. The increase reflects additional professional fees incurred to support various contract negotiations, patent protection costs and governmental compliance.  

Liquidity and Capital Resources

As of September 30, 2015, we had working capital of $23,759,175, compared to working capital of $23,152,970 as of December 31, 2014. The estimated cost of completing the development of any of our current immunotherapy product candidates and of obtaining all required regulatory approvals to market either of those product candidates is substantially greater than the amount of funds we currently have available. However, we believe that our existing cash balances will be sufficient to fund our operations for at least the next twelve months from the date of filing this Quarterly report on Form 10-Q, although there is no assurance that such proceeds will be sufficient.

On September 18, 2015 we received an award in the amount of $19.9 million from the California Institute of Regenerative Medicine (CIRM) to partially fund our Phase 3 trial of ICT-107. The award provides for a $4 million project initial payment and $15.9 million in future milestone payments that are primarily dependent on patient enrollment.  We are obligated to share future ICT-107 related revenue with CIRM.  The percentage of revenue sharing is dependent on the amount of the award received by us and whether the revenue is from product sales or license fees.  The maximum revenue sharing amount we may be required to pay to CIRM is equal to nine times the total amount awarded and paid to us.  We have the option to decline any and all amounts awarded by CIRM.  As an alternative to revenue sharing, we have the option to convert the award to a loan.  We may exercise this loan conversion option until ten business days after the FDA notifies us that it has accepted our application for marketing authorization.  In the event we exercise our right to convert the award to a loan, we will be obligated to repay the loan within ten business days of making the election including interest at the rate of the three-month LIBOR rate (0.32% as of September 30, 2015) plus 25% per annum.  Since we may be required to repay some or all of the amounts awarded by CIRM, we plan to account for this award as a liability rather than revenue.

On February 12, 2015, we entered into an underwriting agreement with Roth Capital Partners, LLC, pursuant to we sold 26,650,000 shares of our common stock and warrants to purchase 18,655,000 shares of our common stock at a combined public offering price of $0.60 per share and accompanying warrant to purchase 0.70 of a share of our common stock. The resulting aggregate net proceeds from the offering was approximately $14.5 million, after deducting underwriting discounts and other offering expenses payable by us of approximately $1.5 million. The warrants have an exercise price of $0.66 per share and a term of 60 months from the date of issuance. The warrants provide for a weighted-average adjustment to the exercise price if we issue or are deemed to issue additional shares of our common stock at a price per share less than the then effective exercise price of the warrants, subject to certain exceptions.  Accordingly, these warrants have been accounted for as derivative liabilities and approximately $4.2 million of the net proceeds was allocated to the warrant derivative and the remaining $10.3 million was allocated to equity.  

On April 18, 2013, we entered into a Controlled Equity Offering SM Sales Agreement (the Sales Agreement) with Cantor Fitzgerald & Co. (Cantor), as agent, pursuant to which we may offer and sell, from time to time through Cantor, shares of our common stock having an aggregate offering price of up to $25.0 million (of which only $17.0 million was initially registered for offer and sale).

21


Under the Sales Agr eement, Cantor may sell shares by any method permitted by law and deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act, as amended , including sales made directly on the NYSE MKT, on any other existing trading market for our common stock or to or through a market maker. We may instruct Cantor not to sell shares if the sales cannot be effected at or above the price designated by us from time to time. We are not obligated to make any sales of the shares under the Sales Agreement. The offering of shares pursuant to the Sales Agreement will terminate upon the earlier of (a) the sale of all of the shares subject to the Sales Agreement or (b) the termination of the Sales Agreement by Cantor or the Company, as permitte d therein. We will pay Cantor a commission rate of 3.0% of the aggregate gross proceeds from each sale of shares and have agreed to provide Cantor with customary indemnification and contribution rights. We will also reimburse Cantor for certain specified e xpenses in connection with entering into the Sales Agreement. On April 22, 2013, NYSE MKT approved the listing of 10,593,220 shares of our common stock in connection with the Sales Agreement. Through September 30 , 2015 , we sold 6,949,261 shares of our comm on stock under the Sales Agreement that resulted in proceeds to the Company of approximately $ 9,402,383 .   As of September 30 , 2015 , we had $ 7,081,494 available under the Sales Agreement .  See additional discussion in Notes 6 to the unaudited condensed cons olidated financial statements which are included in Part 1 of this Form 10-Q.

We may in the future seek to obtain funding through strategic alliances with larger pharmaceutical or biomedical companies. We cannot be sure that we will be able to obtain any additional funding from either financings or alliances, or that the terms under which we may be able to obtain such funding will be beneficial to us. If we are unsuccessful or only partly successful in our efforts to secure additional financing, we may find it necessary to suspend or terminate some or all of our product development and other activities.

As of September 30, 2015, we had no long-term debt obligations or other similar long-term liabilities. We have various purchase commitments for sponsored research and license fees. We have no financial guarantees, debt or lease agreements or other arrangements that could trigger a requirement for an early payment or that could change the value of our assets, and we do not engage in trading activities involving non-exchange traded contracts. We do not have any bank credit lines.

Contractual Obligations

The following is a summary of our contractual obligations including those entered into subsequent to September 30, 2015.

 

 

Total

 

 

Less than
1 year

 

 

1-3
years

 

 

3-5
years

 

 

More than
5 years

 

Unconditional purchase obligations

$

78,000

 

 

$

26,000

 

 

$

52,000

 

 

$

-

 

 

$

-

 

Operating lease obligation

 

94,094

 

 

 

94,094

 

 

 

-

 

 

 

-

 

 

 

-

 

 

$

172,094

 

 

$

120,094

 

 

$

52,000

 

 

$

-

 

 

$

-

 

Cash Flows

We used $13,223,771 of cash in our operations for the nine months ended September 30, 2015, compared to $7,827,982 for the nine months ended September 30, 2014. During the nine months ended September 30, 2015 we incurred expenses related to the start-up and planning of our ICT-107 Phase 3 trial.  We also made deposits of $4.1 million with Novella Clinical LLC, the project’s clinical research organization, and other key vendors.  These deposits will be applied by the vendors against the final amounts owed by the Company at the end of the trial. Since the deposits will not be used to offset vendor expenses in the next twelve months, we have accounted them as non-current assets in the balance sheet.   Additionally, we purchased many of the supplies that will be used during the course of the trial.  Since most of these supplies will be used over a multi-year period, they are included in other assets in the balance sheet.  Additionally, we incurred certain expenses related to the development of certain stem cell immunotherapies for the treatment of cancer.  We expect these expenses to increase in future periods as we progress in the ICT-107 Phase 3 trial and as we develop our stem cell immunotherapies.  As of December 31, 2014, our ICT-140 ovarian cancer program was placed on hold.  As a result, we incurred minimal expenses related to this trial during the most recent quarter and we expect future expenses to continue to decline until such time as we secure a partner for this program or obtain sufficient financial resources to complete the ICT-107 Phase 3 program.   During the nine months ended September 30, 2014, we incurred certain pre-clinical expenses related to ICT-121 and ICT‑140 and certain ICT-107 expenses related to patient follow up and data analysis for the Phase 2 trial. Our general and administrative expenses increased between periods as we incurred additional professional fees.  We recorded a non-cash credit of $2,328,298 related to the revaluation of our warrant derivatives.   We had $784,744 of non-cash expenses for the nine months ended September 30, 2015, consisting of $88,939 of financing expense associated with the repricing of warrants resulting from the February 2015 financing, $675,523 of stock based compensation and $20,282 of depreciation expense.  We had $554,379 of non-cash expenses during the nine months ended September 30, 2014, consisting of $483,455 of stock based compensation and $36,846 of depreciation expense and $34,078 of financing expense associated with the repricing of our warrant derivatives resulting from the issuance of shares of our common stock pursuant to our Sales Agreement with Cantor.  Also during the nine months ended September 30, 2014, we recorded a non-cash credit to income of $392,940 related the revaluation of our warrant derivatives.

22


D uring the nine months ended September 30 , 2015 , our investing cash flows used $ 169,750 primarily to acquire research equipment to support the Phase 3 trial of ICT-107. During the nine months ended September 30 , 2014, our investing cash flows used $ 28,975 to acquire certain research and development equipment and computer software.  

As described above, we completed an underwritten public offering during the nine months ended September 30, 2015.  We received net proceeds of $14,599,627, excluding $105,563 of deferred offering costs that were previously advanced by the Company, from the issuance of common stock and warrants.  

During the nine months ended September 30, 2015, we received proceeds of $6,750 from the exercise of stock options.  We did not receive any proceeds from the exercise of warrants or from our controlled equity offering.  During the nine months ended September 30, 2014, we received net proceeds of $1,045,000 from the exercise of stock options and $2,681,448 in net proceeds from our controlled equity offering. 

Inflation and changing prices have had no effect on our income or losses from operations over our two most recent fiscal years.

Off-Balance Sheet Arrangements

We are not party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

During the three months ended September 30, 2015, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2014, filed on March 10,  2015 with the SEC.

 

  Item 4. Controls and Procedures

As of the end of the fiscal quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, regarding the effectiveness of the design and operation of our disclosure controls and procedures pursuant to SEC Rule 15d-15(b) of the Exchange Act. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2015, (i) our disclosure controls and procedures were effective to ensure that information that is required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported or submitted within the time period specified in the rules and forms of the SEC and (ii) our disclosure controls and procedures were effective to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Exchange Act was accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure. There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We do not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. The design of any system of controls also is based in part upon assurance that any design will succeed in achieving its stated goals under all potential future conditions. However, controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

 

 

23


PART II

OTHER INFORMATION

 

Item 1. Legal Proceedings

None.

 

Item 1A. Risk Factors

You should read and consider the risk factors included under Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2014, filed on March 10, 2015 with the SEC.

 

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

None.

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

Item 5. Other Information

None.

 

 

 

24


  Item 6. Exh ibits

 

Exhibit
No.

  

Description

 

10.1

 

 

Second Amendment to Exclusive License Agreement dated August 7, 2015 between ImmunoCellular Therapeutics, Ltd. and Johns Hopkins University

 

10.2

 

 

Employment Agreement dated September 15, 2015 between David Fractor and ImmunoCellular Therapeutics. Ltd.*

 

31.1

  

 

Certification of the Registrant’s Principal Executive Officer under Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

  

 

Certification of the Registrant’s Principal Financial Officer under Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1

  

 

Certification of the Registrant’s Principal Executive Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2

  

 

Certification of the Registrant’s Principal Financial Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS

  

 

XBRL Instance Document

 

101.SCH

  

 

XBRL Taxonomy Extension Schema Document

 

101.CAL

  

 

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

101.LAB

  

 

XBRL Taxonomy Extension Labels Linkbase Document

 

101.PRE

  

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

101.DEF

  

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

Certain portions of the exhibit have been omitted based upon a request for confidential treatment filed by us with the Securities and Exchange Commission. The omitted portions of the exhibit have been separately filed by us with the Securities and Exchange Commission

*

 

Indicates a management contract or compensatory arrangement.

 

 

25


SIGNA TURES

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.

 

Dated: November 9, 2015

 

IMMUNOCELLULAR THERAPEUTICS, LTD.

 

 

By:

 

/s/ Andrew Gengos

 

Name:

 

Andrew Gengos

 

Title:

 

President and Chief Executive Officer

(Principal Executive Officer)

 

 

By:

 

/s/ David Fractor

 

Name:

 

David Fractor

 

Title:

 

Principal Accounting Officer

(Principal Financial and Accounting Officer)

 

 

 

26


EXHIBIT INDEX

IMMUNOCELLULAR THERAPEUTICS, LTD.

FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2015

 

Exhibit
No.

  

Description

 

10.1

 

 

Second Amendment to Exclusive License Agreement dated August 7, 2015 between ImmunoCellular Therapeutics, Ltd. and Johns Hopkins University

 

10.2

 

 

Employment Agreement dated September 15, 2015 between David Fractor and ImmunoCellular Therapeutics. Ltd.*

 

31.1

  

 

Certification of the Registrant’s Principal Executive Officer under Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

  

 

Certification of the Registrant’s Principal Financial Officer under Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1

  

 

Certification of the Registrant’s Principal Executive Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2

  

 

Certification of the Registrant’s Principal Financial Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS

  

 

XBRL Instance Document

 

101.SCH

  

 

XBRL Taxonomy Extension Schema Document

 

101.CAL

  

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

101.LAB

  

 

XBRL Taxonomy Extension Labels Linkbase Document

 

101.PRE

  

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

101.DEF

  

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

Certain portions of the exhibit have been omitted based upon a request for confidential treatment filed by us with the Securities and Exchange Commission. The omitted portions of the exhibit have been separately filed by us with the Securities and Exchange Commission

*

 

Indicates a management contract or compensatory arrangement.

 

27

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

Exhibit 10.1

 

CONFIDENTIAL

 

SECOND AMENDMENT TO EXCLUSIVE LICENSE AGREEMENT

 

 

This SECOND Amendment (the “Second Amendment”) to the Exclusive License Agreement (JHU Agreement A20530) dated February 16, 2012 and First Amendment (JHU Agreement A24634) dated September 24, 2013 (the Exclusive License Agreement and the First Amendment referred to herein as the “Agreement”), is entered into as of August 7, 2015 (“Amendment Effective Date”), by and among ImmunoCellular Therapeutics Ltd., a Delaware limited liability company having an address at 23622 Calabasas Road, Suite 300, Calabasas, CA 91302 (“COMPANY”) and Johns Hopkins University (“JHU”), having offices at 3400 N. Charles Street, Baltimore, MD 21218-2695.

 

 

RECITALS

 

 

Pursuant to Section 10.10 of the Agreement, Company and JHU seek to amend the Agreement, as set forth in detail below.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual promises made herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend the Agreement as follows:  

 

 

AMENDMENT

 

1. Terms. Capitalized terms in this Amendment shall have the same meaning as those in the Agreement, unless specifically defined in this Amendment. All section and paragraph references refer to sections or paragraphs as applicable, in the Agreement. References to the term “Agreement” in the Agreement shall be deemed to include the Amendment.  References to “Section” and “Paragraph” herein are interchangeable.

 

2. Interpretation. Except as expressly modified herein, the Agreement shall remain in full force and effect in accordance with its terms. To the extent there are any inconsistencies or ambiguities between this Amendment and the Agreement, the terms of this Amendment shall supersede the Agreement.

 

1.

Page 1 of 5

 


 

CONFIDENTIAL

 

3. Amendment.

 

 

1.

Amendment of Section 1.4:  Section 1.4 is hereby deleted in its entirety and amended and shall read as follows:

1.4 “FIRST COMMERCIAL SALE” shall mean, with respect to any LICENSED PRODUCT or LICENSED SERVICE and in any country of the world, the first commercial sale of such LICENSED PRODUCT or LICENSED SERVICE under this Agreement by Company, its AFFILIATED COMPANY or SUBLICENSEE(S) to a non-affiliate third party in such country.

 

2.

Amendment of Section 1.5:   Section 1.5 is hereby deleted in its entirety and amended and shall read as follows:

 

1.5. LICENSED FIELD” shall mean peptide use in vaccines to treat or prevent ovarian cancer specifically; excluding bacteria based, viral vector based and nucleic acid-based vaccines for cancer treatment or prevention.

 

3.

Amendment of Section 1.16 : Section 1.16 is hereby deleted in its entirety and amended and shall read as follows:

 

1.16 “VALID CLAIM” shall mean a claim of any (i) unexpired United States or foreign issued patent within the PATENT RIGHTS or (ii) pending patent application within the PATENT RIGHTS that shall not have been dedicated to the public, disclaimed, nor held invalid or unenforceable by a court or government agency of competent jurisdiction in an unappealed or unappealable decision.

 

4.

Amendment of Section 2.1 .  The second sentence of Section 2.1 is hereby deleted in its entirety and amended and shall read as follows:

“This Grant shall apply to the Company and any AFFILIATED COMPANY.”

 

5.

Amendment of Section 2.2 .  The first sentence of Section 2.2 is hereby deleted in its entirety and amended and shall read as follows:

 

“Company and any AFFILIATED COMPANY may sublicense rights granted by JHU under Paragraph 2.1 to others under this Agreement, subject to the terms and conditions of this Paragraph 2.2.”

 

6.

Amendment of Section 3.4 .  The second paragraph of Section 3.4 is hereby deleted in its entirety.

  

 

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

Page 2 of 5

 


 

CONFIDENTIAL

 

7.

Amendment of Section 3.5 .  The fourth sentence of Section 3.5 is hereby amended by adding the following to the end of the sentence:

 

“and for the manufacture and supply of LICENSED PRODUCT(S) or components thereof to SUBLICENSEE(S) or their affiliates for non-clinical, pre-clinical, clinical or commercial use”

 

8.

Amendment of Section 5.3 .  Section 5.3 is hereby amended by changing the heading to “Commercially Reasonable Efforts” and by deleting the last sentence in its entirety.  

 

9.

Amendment of Section 5.4.   Section 5.4 is hereby deleted in its entirety and amended and shall read as follows:

 

      5.4.      Developmental Obligations.  Commercially reasonable efforts shall be demonstrated, among other ways, by achievement of the following diligence milestones:

 

 

(i)

Event:  Treatment of at least one (1) patient in any CLINICAL TRIAL by December 31, 2017

 

With regard to the diligence milestone specified in Section 5.4(i), Company may extend such milestone just twice, by [*] increments [*] each, and with written notice to JHU prior to the due date thereof specified in Section 5.4(i) and upon paying JHU a non-creditable, non-refundable fee of [*] each time within thirty (30) days of such notice.  

 

 

10.

Amendment of Section 5.5 .  Section 5.5 is hereby deleted in its entirety.

 

11.

Amendment of Section 10.8 .  Section 10.8 is hereby amended by the addition of the following sentence:

 

“Company may also assign this Agreement to an AFFILIATED COMPANY without the consent of JHU but shall provide proper notice thereof to JHU in advance of such assignment.”

 

12.

Amendment of Exhibit B, Section 2.   Exhibit B, Section 2 is amended by replacing (i)-(v) in their entirety with the following:

(i):  [*] upon dosing using a LICENSED PRODUCT in a first CLINICAL TRIAL not conducted at JHU; and

 

CONFIDENTIAL

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

Page 3 of 5

 


 

 

(ii): [*] upon dosing using a LICENSED PRODUCT in a second CLINICAL TRIAL not conducted at JHU; and

(iii): [*] upon FIRST COMMERCIAL SALE of LICENSED PRODUCT in the United States; and

(iv):  One time only payment of [*] upon Company first achieving [*] in annual NET SALES OF LICENSED PRODUCTS; and

(v):  One time only payment of [*] upon Company first achieving [*] in annual NET SALES OF LICENSED PRODUCTS.

 

 

13.

Amendment of Exhibit B, Section 3.   Exhibit B, Section 3 is amended by replacing the minimum annual royalties due as follows:

       Amount:  [*] payable annually pursuant to Paragraph 3.3.

14.

Amendment of Exhibit B, Section 5.   Exhibit B, Section 5(i) is amended by deleting (i)-(ii) and any clause thereafter under this section and replacing with the following:

 

(i):  [*] of all Royalty Sublicense Consideration based on NET SALES of LICENSED PRODUCTS and NET SERVICE REVENUES from LICENSED SERVICES; and

 

(ii)  Non royalty Sublicense Consideration as set forth below:

(a)[*] of Non-royalty Sublicense Consideration that Company or an Affiliated Company receives under any sublicense agreement executed prior to dosing a first patient in the first PHASE II CLINICAL TRIAL provided that on the effective date of such sublicense agreement, there is a VALID CLAIM covering the manufacture, use or sale of one or more LICENSED PRODUCTS in the territory of such sublicense; or

(b)   [*] of Non-royalty Sublicense Consideration that Company or an Affiliated Company receives under any sublicense agreement executed after dosing a first patient in the first PHASE II CLINICAL TRIAL provided that on the effective date of such sublicense agreement, there is a VALID CLAIM covering the manufacture, use or sale of one or more LICENSED PRODUCTS in the territory of such sublicense.

 

Such Sublicense consideration will not be subject to stacking provisions.

 

 

15.

Amendment Fee: An Amendment Fee of [*] is due within thirty (30) days of Amendment Effective Date.  

CONFIDENTIAL

 

16.

Term.  Section 9.1 of the Agreement is hereby deleted in its entirety and amended and shall read as follows:

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

Page 4 of 5

 


 

 

“Term.  The term of this Agreement shall commence on the EFFECTIVE DATE and shall continue until the date of expiration of the last to expire VALID CLAIM within the PATENT RIGHTS.

 

17.

No Other Amendment .  Except as expressly amended hereby, the provisions of the Agreement shall remain in full force and effect.

 

18.

Counterparts .  The parties may execute this Amendment in counterparts, each of which is deemed an original, but all of which together constitute one and the same agreement.  The Amendment may be delivered electronically and the parties hereby agree that any electronic signatures hereto are legal, valid and enforceable as originals.

 

IN WITNESS WHEREOF, this Amendment shall take effect as of the Amendment Effective Date after it has been executed below by the duly authorized representatives of the parties.  

 

THE JOHNS HOPKINS UNIVERSITY

ImmunoCellular Therapeutics, Ltd

 

 

 

By: /s/ Neil Veloso By: /s/ Andrew Gengos

      Name: Neil Veloso                    Name: Andrew Gengos

      Title:   Executive Director           Title: President & CEO

                  Johns Hopkins Technology Ventures

 

 

 

Date: August 7, 2015 Date: August 7, 2015

 

 

 

 

 

 

 

 

 

 

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

Page 5 of 5

 

Exhibit 10.2

ImmunoCellular Therapeutics, Ltd.

EMPLOYMENT AGREEMENT

for

David Fractor

This Employment Agreement (the “ Agreement ”) is made between ImmunoCellular Therapeutics, Ltd. (the “ Company ”) and David Fractor (“ Executive ”) (collectively, the “ Parties ”), effective as of the date signed by all Parties (the “ Effective Date ”).

Whereas , Executive is a current executive of the Company, and wishes to continue to be employed by and to provide services to the Company in return for certain compensation and benefits;

Whereas , the Company desires to continue to employ Executive and wishes to provide Executive with certain compensation and benefits in return for such employment services;

Whereas , the Parties seek to memorialize existing terms and conditions of Executive’s employment; and

Whereas , the Company seeks to provide Executive with certain new terms and conditions of employment;

Now, Therefore , in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree to the following:

1. Employment by the Company.

1.1 Position.   Executive shall continue to serve as the Company’s Vice President, Finance and Principal Accounting Officer. This is a part-time position requiring approximately 80% of a regular full-time schedule.  

1.2 Duties and Location.   Executive shall perform such duties as are required by the Company’s President and Chief Executive Officer, to whom Executive reports.  Executive shall work in the Company’s headquarters. The Company reserves the right to reasonably require Executive to perform his duties at places other than Executive’s primary office location from time to time, and to require reasonable business travel.  The Company may modify Executive’s job title and duties as it deems necessary and appropriate in light of the Company’s needs and interests from time to time.

1.3 Policies and Procedures.   The employment relationship between the Parties shall continue to be governed by the general employment policies and practices of the Company, except that when the terms of this Agreement differ from or are in conflict with the Company’s general employment policies or practices, this Agreement shall control.

1.


Exhibit 10.2

2. Compensation.

2.1 Salary.   Executive’s base salary shall be $184,233.50 per year (the “ Base Salary ”), subject to standard payroll deductions and withholdings and payable in accordance with the Company’s regular payroll schedule.

2.2 Annual Cash Bonus.    Executive will be eligible for an annual discretionary cash bonus of up to twenty percent (20%) of Executive’s Base Salary (the “ Annual Bonus ”).  Whether Executive receives an Annual Bonus for any given year, and the amount of any such Annual Bonus, will be determined by the Board of Directors (the Board ”) (or the Compensation Committee of the Board) in its sole discretion based upon the Company’s and Executive’s achievement of objectives and milestones to be determined on an annual basis.  Any Annual Bonus that is awarded will be paid within the first ninety (90) days of the calendar year following the applicable bonus year.   Executive will not be eligible for, and will not earn, any Annual Bonus (including a prorated bonus) if Executive’s employment terminates for any reason before the payment date.

2.3 Equity.   Executive has previously been granted certain equity interests in the Company.  Those equity interests shall continue to be governed in all respects by the terms and conditions set forth in the applicable equity plan documents and option agreement.

3. Standard Company Benefits. Executive shall continue to be eligible to participate in all employee benefit programs for which Executive is eligible under the terms and conditions of the benefit plans that may be in effect from time to time and provided by the Company to its employees.  The Company reserves the right to cancel or change the benefit plans or programs it offers to its employees at any time.  

4. Expenses.   The Company will continue to reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in furtherance or in connection with the performance of Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time.

5. Termination of Employment; Severance

5.1 At-Will Employment.   Executive’s employment relationship remains at-will.  Either Executive or the Company may terminate the employment relationship at any time, with or without cause or advance notice.  

5.2 Termination Without Cause; Resignation for Good Reason.  

(i) The Company may terminate Executive’s employment with the Company at any time without Cause (as defined below).  Further, Executive may resign at any time for Good Reason (as defined below).

(ii) In the event Executive’s employment with the Company is terminated by the Company without Cause, or Executive resigns for Good Reason, then provided such termination constitutes a “separation from service” (as defined under

2.


Exhibit 10.2

Treasury Regulation Section 1.409A-1(h), without regard to any alternative definition thereunder, a “ Separation from Service ”), and provided that Executive remains in compliance with the terms of this Agreement, the Company shall provide Executive with the following severance benefits:

(a) The Company shall pay Executive, as severance, four (4) months of Executive’s base salary in effect as of the date of Executive’s employment termination, subject to standard payroll deductions and withholdings (the “ Severance ”).  The Severance will be paid in equal installments on the Company’s regular payroll schedule over the four (4) month period following Executive’s Separation from Service; provided, however, that no payments will be made prior to the 60th day following Executive’s Separation from Service.  On the 60th day following Executive’s Separation from Service, the Company will pay Executive in a lump sum the Severance that Executive would have received on or prior to such date under the standard payroll schedule but for the delay while waiting for the 60 th day in compliance with Code Section 409A, with the balance of the Severance being paid as originally scheduled.

(b) Provided Executive timely elects continued coverage under COBRA, the Company shall pay Executive’s COBRA premiums to continue Executive’s coverage (including coverage for eligible dependents, if applicable) (“ COBRA Premiums ”) through the period (the “ COBRA Premium Period ”) starting on Executive’s Separation from Service and ending on the earliest to occur of: (i) six (6) months following Executive’s Separation from Service; (ii) the date Executive becomes eligible for group health insurance coverage through a new employer; or (iii) the date Executive ceases to be eligible for COBRA continuation coverage for any reason, including plan termination. In the event Executive becomes covered under another employer's group health plan or otherwise cease to be eligible for COBRA during the COBRA Premium Period, Executive must immediately notify the Company of such event.  Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay the COBRA Premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall pay to Executive, on the first day of each calendar month, a fully taxable cash payment equal to the applicable COBRA premiums for that month (including premiums for Executive and Executive’s eligible dependents who have elected and remain enrolled in such COBRA coverage), subject to applicable tax withholdings (such amount, the “ Special Cash Payment ”), for the remainder of the COBRA Premium Period.  Executive may, but is not obligated to, use such Special Cash Payments toward the cost of COBRA premiums.  

(c) The Company will accelerate the vesting of the equity interests granted to Executive, such that the shares that would have vested in the six (6) months following Executive’s Separation from Service shall be deemed vested and exercisable as of Executive’s last day of employment (the “Accelerated Vesting” ).  

(iii) If the Company terminates Executive’s employment with the Company without Cause, or Executive resigns for Good Reason, in either case within twelve (12) months following the closing of a Change in Control (as defined below), then in addition to the Severance and COBRA Premiums (or Special Cash Payments set forth

3.


Exhibit 10.2

above ), the Company will accelerate the vesting of the equity interests granted to Executive, such that twenty-five percent (25%) of the then-unvested shares subject to the equity interests will be deemed vested and exercisable as of Executive’s last day of employment .

5.3 Termination for Cause; Resignation Without Good Reason; Death or Disability.

(i) The Company may terminate Executive’s employment with the Company at any time for Cause.  Further, Executive may resign at any time without Good Reason.  Executive’s employment with the Company may also be terminated due to Executive’s death or disability.  

(ii) If Executive resigns without Good Reason, or the Company terminates Executive’s employment for Cause, or upon Executive’s death or disability, then (i) Executive will no longer vest in any equity interests, (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately (except as to amounts already earned), and (c) Executive will not be entitled to any severance benefits, including (without limitation) the Severance, COBRA Premiums, Special Cash Payments or Accelerated Vesting.  

6. Conditions to Receipt of Severance, COBRA Premiums, Special Cash Payments and Accelerated Vesting.   The receipt of the Severance, COBRA Premiums, Special Cash Payments and Accelerated Vesting will be subject to Executive signing and not revoking a separation agreement and release of claims in a form satisfactory to the Company (the “ Separation Agreement” ) within a time period specified by the Company.  No Severance, COBRA Premiums, Special Cash Payments or Accelerated Vesting will be paid or provided until the Separation Agreement becomes effective.  Executive shall also resign from all positions and terminate any relationships as an employee, advisor, officer or director with the Company and any of its affiliates, each effective on the date of termination.

7. Section 409A.   It is intended that all of the severance benefits and other payments payable under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A provided under Treasury Regulations 1.409A‑1(b)(4), 1.409A‑1(b)(5) and 1.409A‑1(b)(9), and this Agreement will be construed to the greatest extent possible as consistent with those provisions, and to the extent no so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A.  For purposes of Code Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A‑2(b)(2)(iii)), Executive’s right to receive any installment payments under this Agreement (whether severance payments, reimbursements or otherwise) shall be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder shall at all times be considered a separate and distinct payment.  Notwithstanding any provision to the contrary in this Agreement, if Executive is deemed by the Company at the time of Executive’s Separation from Service to be a “specified employee” for purposes of Code Section 409A(a)(2)(B)(i), and if any of the payments upon Separation from Service set forth herein and/or under any other agreement with the Company are deemed to be

4.


Exhibit 10.2

“deferred compensation”, then to the extent delayed commencement of any portion of such payments is required in order to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i) and the related adverse taxation under Section 409A, such payments shall not be provided to Executive prior to the earliest of (i) the expiration of the six-month period measured from the date of Executive’s Separation from Service with the Company, (ii) the date of Executive’s death or (iii) such earlier date as permitted under Section 409A without the imposition of adverse taxation.  Upon the first business day following the expiration of such applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Paragraph shall be paid in a lump sum to Executive, and any remaining payments due shall be paid as otherwise provided herein or in the applicable agreement. No interest shall be due on any amounts so deferred.

8. Definitions.   

(i) Cause.   For purposes of this Agreement, “Cause” for termination will mean:  (a) commission of any felony or crime involving dishonesty; (b) participation in any fraud against the Company; (c) material breach of Executive’s duties to the Company; (d) persistent unsatisfactory performance of job duties after written notice from the Board and a reasonable opportunity to cure (if deemed curable); (e) intentional damage to any property of the Company; (f) misconduct, or other violation of Company policy that causes harm; (g) breach of any written agreement with the Company; and
(h) conduct by Executive which in the good faith and reasonable determination of the Board demonstrates gross unfitness to serve.  

(ii) Good Reason.   For purposes of this Agreement, Executive shall have “ Good Reason ” for resignation from employment with the Company if any of the following actions are taken by the Company without Executive’s prior written consent:  (a) a material reduction in Executive’s base salary, which the parties agree is a reduction of at least 10% of Executive’s base salary (unless pursuant to a salary reduction program applicable generally to the Company’s similarly situated employees); or (b) a material reduction in Executive’s duties (including responsibilities and/or authorities), provided, however, that a change in job position shall not be deemed a “material reduction” in and of itself unless Executive’s new duties are materially reduced from the prior duties; or (c) relocation of Executive’s principal place of employment to a place that increases Executive’s one-way commute by more than sixty (60) miles as compared to Executive’s then-current principal place of employment immediately prior to such relocation.  In order to resign for Good Reason, Executive must provide written notice to the Company’s CEO within 30 days after the first occurrence of the event giving rise to Good Reason setting forth the basis for Executive’s resignation, allow the Company at least 30 days from receipt of such written notice to cure such event, and if such event is not reasonably cured within such period, Executive must resign from all positions Executive then holds with the Company not later than 90 days after the expiration of the cure period.

(iii) Change of Control.   For purposes of this Agreement, “Change of Control” shall mean:  (a) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series

5.


Exhibit 10.2

of transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), as a result of shares in the Company held by such holders prior to such transaction, at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such transaction or series of transactions; (b) a sale, lease or other conveyance of all or substantially all of the assets of the Company; or (c) any liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily.

9. Proprietary Information Obligations.

9.1 Confidential Information Agreement.   Executive shall continue to abide by the At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement (the “ Confidentiality Agreement ”) Executive previously executed.

9.2 Third-Party Agreements and Information.   Executive represents and warrants that Executive’s employment by the Company does not conflict with any prior employment or consulting agreement or other agreement with any third party, and that Executive will perform Executive’s duties to the Company without violating any such agreement.  Executive represents and warrants that Executive does not possess confidential information arising out of prior employment, consulting, or other third party relationships, that would be used in connection with Executive’s employment by the Company, except as expressly authorized by that third party.  During Executive’s employment by the Company, Executive will use in the performance of Executive’s duties only information which is generally known and used by persons with training and experience comparable to Executive’s own, common knowledge in the industry, otherwise legally in the public domain, or obtained or developed by the Company or by Executive in the course of Executive’s work for the Company.  

10. Outside Activities During Employment.   Because Executive is a part-time employee, Executive is permitted to engage in outside employment or business ventures (including consulting work for other entities), so long as such activities do not materially interfere with the performance of Executive’s duties hereunder; provided, however, that prior to commencing any such work, Executive shall be required to identify such employment or consulting work to the Company’s CEO for prior approval.  It is presumed that the Company will not approve any activity for, or on behalf of, any entity that is adverse to, antagonistic to, or competitive with the Company or its business or prospects, financial or otherwise.

11. Non-Solicitation.   Executive agree that during the period of employment with the Company and for twelve (12) months after the date Executive’s employment is terminated for any reason, Executive will not, either directly or through others, solicit or encourage or attempt to solicit or encourage any employee, independent contractor, or consultant of the Company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity.

6.


Exhibit 10.2

12. Dispute Resolution.    To ensure the timely and economical resolution of disputes that may arise in connection with Executive’s employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance, negotiation, execution, or interpretation of this Agreement, Executive’s employment, or the termination of Executive’s employment, including but not limited to statutory claims, shall be resolved to the fullest extent permitted by law by final, binding and confidential arbitration, by a single arbitrator, in Los Angeles , California, conducted by JAMS, Inc. (“ JAMS ”) under the then applicable JAMS rules (which can be found at the following web address: MACROBUTTON HtmlResAnchor http://www.jamsadr.com/rulesclauses ) .   By agreeing to this arbitration procedure, both Executive and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding.  The Company acknowledges that Executive will have the right to be represented by legal counsel at any arbitration proceeding.   The arbitrator shall:  (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision, to include the arbitrator’s essential findings and conclusions and a statement of the award.  The arbitrator shall be authorized to award any or all remedies that Executive or the Company would be entitled to seek in a court of law.  The Company shall pay all JAMS’ arbitration fees in excess of the amount of court fees that would be required of the Executive if the dispute were decided in a court of law.  Nothing in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.  Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.

13. General Provisions.

13.1 Notices.   Any notices provided must be in writing and will be deemed effective upon the earlier of personal delivery (including personal delivery by fax) or the next day after sending by overnight carrier, to the Company at its primary office location and to Executive at the address as listed on the Company payroll.

13.2 Severability.   Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction to the extent possible in keeping with the intent of the parties.

13.3 Waiver.   Any waiver of any breach of any provisions of this Agreement must be in writing to be effective, and it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

13.4 Complete Agreement.   This Agreement, together with the Confidentiality Agreement, constitutes the entire agreement between Executive and the Company with regard to this subject matter and is the complete , final, and exclusive

7.


Exhibit 10.2

embodiment of the Parties’ agreement with regard to this subject matter.  This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations.  It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in a writing signed by a duly authorized officer of the Company.

13.5 Counterparts.   This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.

13.6 Headings.   The headings of the paragraphs hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.

13.7 Successors and Assigns.   This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which shall not be withheld unreasonably.

13.8 Tax Withholding and Indemnification.   All payments and awards contemplated or made pursuant to this Agreement will be subject to withholdings of applicable taxes in compliance with all relevant laws and regulations of all appropriate government authorities.  Executive acknowledges and agrees that the Company has neither made any assurances nor any guarantees concerning the tax treatment of any payments or awards contemplated by or made pursuant to this Agreement.  Executive has had the opportunity to retain a tax and financial advisor and fully understands the tax and economic consequences of all payments and awards made pursuant to the Agreement.

13.9 Choice of Law.   All questions concerning the construction, validity and interpretation of this Agreement will be governed by the laws of the State of California.  

In Witness Whereof , the Parties have executed this Agreement on the day and year written below.

ImmunoCellular Therapeutics, Ltd.

By: /s/ Andrew Gengos

Andrew Gengos

Chief Executive Officer

 

Date: September 17, 2015

 

 

8.


Exhibit 10.2

Executive

 

/s/ David Fractor

David Fractor

 

 

Date: September 17, 2015

 

9.

Exhibit 31.1

Certification of the Principal Executive Officer Under Section 302 of the Sarbanes-Oxley Act

I, Andrew Gengos, certify that:

1.

I have reviewed this Form 10-Q of ImmunoCellular Therapeutics, Ltd.;

2.

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

3.

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

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(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 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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

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

 

(a)

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

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 9, 2015

By:

/s/ Andrew Gengos 

 

 

Name:

Andrew Gengos

 

 

Title:

President and Chief Executive Officer

 

Exhibit 31.2

Certification of the Principal Financial Officer Under Section 302 of the Sarbanes-Oxley Act

I, David Fractor, certify that:

1.

I have reviewed this Form 10-Q of ImmunoCellular Therapeutics, Ltd.;

2.

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

3.

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

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(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 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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

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

 

(a)

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

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 9, 2015

By:

/s/ David Fractor  

 

 

Name:

David Fractor

 

 

Title:

Principal Financial and Accounting Officer

 

Exhibit 32.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

Pursuant to the requirement set forth in Rule 13a -14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), the undersigned officer of ImmunoCellular Therapeutics, Ltd. (the “Company”) hereby certifies that, to the best of his knowledge:

 

1.

The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2015 (“Periodic Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and

 

2.

The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:  November 9, 2015

By:

/s/ Andrew Gengos  

 

 

Name:

Andrew Gengos

 

 

Title:

President and Chief Executive Officer

 

Exhibit 32.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), the undersigned officer of ImmunoCellular Therapeutics, Ltd. (the “Company”) hereby certifies that, to the best of his knowledge:

 

1.

The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2015 (“Periodic Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and

 

2.

The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 9, 2015

By:

/s/ David Fractor  

 

 

Name:

David Fractor

 

 

Title:

Principal Financial and Accounting Officer