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Table of Contents

 

 

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 March 31, 2012

 

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

Commission file number 033-17264-NY

 

 

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.)

21900 Burbank Boulevard, 3rd Floor

Woodland Hills, California 91367

(Address of principal executive offices)

(818) 992-2907

(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   ¨
Non-accelerated filer   ¨    Smaller reporting company   x

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 39,809,313 shares of its common stock outstanding as of May 07, 2012.

 

 

 


Table of Contents

ImmunoCellular Therapeutics, Ltd.

FORM 10-Q

Table of Contents

 

     Page   
PART I FINANCIAL INFORMATION   
 

Item 1.

  

Financial Statements

  
    

Condensed Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011

     1   
    

Condensed Statements of Operations for the Three Months Ended March  31, 2012 (unaudited) and 2011 (unaudited) and from February 25, 2004 (Inception) to March 31, 2012 (unaudited)

     2   
    

Condensed Statements of Shareholders’ Equity (Deficit) for the Three Months Ended March  31, 2012 (unaudited) and from February 25, 2004 (Inception) to March 31, 2012 (unaudited)

     3   
    

Condensed Statements of Cash Flows for the Three Months Ended March  31, 2012 (unaudited) and 2011 (unaudited) and from February 25, 2004 (Inception) to March 31, 2012 (unaudited)

     4   
    

Notes to Unaudited Condensed Financial Statements

     5   
  Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.      16   
  Item 3.    Quantitative and Qualitative Disclosures About Market Risk      18   
  Item 4.    Controls and Procedures      18   

PART II OTHER INFORMATION

     19   
  Item 1.    Legal Proceedings      19   
  Item 1A.    Risk Factors      19   
  Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      19   
  Item 3.    Defaults Upon Senior Securities      19   
  Item 4.   

Mine Safety Disclosures Not applicable

     19   
  Item 6.    Exhibits      19   

SIGNATURES

       21   

EXHIBIT LIST

    


Table of Contents

PART 1

FINANCIAL INFORMATION

 

Item 1. Financial Statements

ImmunoCellular Therapeutics, Ltd.

(A Development Stage Company)

Condensed Balance Sheets

 

     March 31,     December 31,  
     2012     2011  
     (unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 13,555,909      $ 6,653,168   

Other assets

     742,515        91,286   
  

 

 

   

 

 

 

Total current assets

     14,298,424        6,744,454   

Property and equipment, net

     106,508        76,402   

Other assets

    

Deferred offering costs

     0        282,599   

Deposits

     11,420        47,302   
  

 

 

   

 

 

 

Total assets

   $ 14,416,352      $ 7,150,757   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current liabilities:

    

Accounts payable

   $ 703,221      $ 1,316,540   

Accrued liabilities

     739,988        444,749   
  

 

 

   

 

 

 

Total current liabilities

     1,443,209        1,761,289   

Warrant Liability

     6,423,239        2,157,408   

Commitments and contingencies (Note 5)

    

Shareholders’ equity:

    

Common stock, $0.0001 par value; 99,000,000 shares authorized; 39,384,634 shares and 28,613,984 shares issued and outstanding as of March 31, 2012 and December 31, 2011, respectively

     3,938        2,861   

Additional paid in capital

     43,109,092        31,902,890   

Deficit accumulated during the development stage

     (36,563,126     (28,673,691
  

 

 

   

 

 

 

Total shareholders’ equity

     6,549,904        3,232,060   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 14,416,352      $ 7,150,757   
  

 

 

   

 

 

 

 

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

 

1


Table of Contents

ImmunoCellular Therapeutics, Ltd.

(A Development Stage Company)

Condensed Statements of Operations

(unaudited)

 

     For the Three
Months Ended
March 31,

2012
    For the Three
Months Ended
March 31,
2011
    February 25,
2004 (Inception)
to March 31,

2012
 

Revenues

   $ 0      $ 0      $ 300,000   

Expenses:

      

Research and development

     1,998,536        917,214        12,547,415   

Merger costs

     0        0        73,977   

Stock based compensation

     245,107        241,981        8,465,112   

General and administrative

     805,798        553,721        9,797,278   
  

 

 

   

 

 

   

 

 

 

Total expenses

     3,049,441        1,712,916        30,883,782   

Loss before other income (expense) and income taxes

     (3,049,441     (1,712,916     (30,583,782

Interest income

     1,034        1,636        340,169   

Financing expense

     (368,524     0        (368,524

Change in fair value of warrant liability

     (4,472,504     (1,046,991     (3,858,489
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (7,889,435     (2,758,271     (34,470,626

Income taxes

     0        0        0   
  

 

 

   

 

 

   

 

 

 

Net loss

     (7,889,435     (2,758,271     (34,470,626

Deemed dividend on redemption of preferred stock

     0        0        (2,092,500
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stock

   $ (7,889,435   $ (2,758,271   $ (36,563,126
  

 

 

   

 

 

   

 

 

 

Loss per share:

   $ (0.21   $ (0.11   $ (2.60
  

 

 

   

 

 

   

 

 

 

Weighted average number of shares basic and diluted:

     36,984,459        24,314,228        14,086,250   
  

 

 

   

 

 

   

 

 

 

 

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

 

2


Table of Contents

ImmunoCellular Therapeutics, Ltd.

(A Development Stage Company)

Condensed Statements of Shareholders’ Equity (Deficit)

(unaudited)

 

                Additional           Deficit
Accumulated
During the
       
    Preferred Stock     Common Stock     Paid-in     Promissory     Development        
    Shares     Amount     Shares     Amount     Capital     Note     Stage     Total  

Initial capitalization at $0.00002 per share

    0      $ 0        6,256,500      $ 10      $ 87      $ 0      $ 0      $ 97   

Common stock issued for cash during 2004 at $0.00078 per share

    0        0        193,500        15        135        0        0        150   

Net loss

    0        0        0        0        0        0        (11,741     (11,741
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2004

    0        0        6,450,000        25        222        0        (11,741     (11,494

Common stock issued for cash during 2005 at $0.19 per share

    0        0        387,000        659        74,341        0        0        75,000   

Common stock issued for cash during 2005 at $0.32 per share

    0        0        154,800        16        49,984        0        0        50,000   

Common stock issued for research and development during 2005 at $0.99 per share

    0        0        154,800        15        152,745        0        0        152,760   

Net loss

    0        0        0        0        0        0        (246,004     (246,004
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2005

    0        0        7,146,600        715        277,292        0        (257,745     20,262   

Common stock issued for services during 2006 at $0.50 per share

    0        0        73,093        7        36,539        0        0        36,546   

Common stock issued for cash during 2006 in private placements at $1.00 per share, net of redemptions

    0        0        1,510,000        151        549,249        0        0        549,400   

Common stock issued for research and development during 2006 at $1.00 per share

    0        0        694,000        69        693,931        0        0        694,000   

Shares issued in connection with reverse merger

    0        0        825,124        83        (83     0        0        0   

Shares cancelled in connection with the sale of Optical Molecular Imaging, Inc.

    0        0        (2,059,100     (206     (64,794     0        0        (65,000

Exercise of stock options

    0        0        10,062        1        3,521        0        0        3,522   

Stock based compensation (options)

    0        0        0        0        4,103,645        0        0        4,103,645   

Net loss

    0        0        0        0        0        0        (5,152,713     (5,152,713
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2006

    0        0        8,199,779        820        5,599,300        0        (5,410,458     189,662   

Common stock issued for cash during 2007 in private placements at $1.50 per share

    0        0        3,531,603        353        4,892,133        0        0        4,892,486   

Exercise of stock options

    0        0        51,111        5        (5     0        0        0   

Reclassification of warrant derivative liability

    0        0        0        0        2,233,600        0        0        2,233,600   

Stock based compensation (options)

    0        0        0        0        1,296,714        0        0        1,296,714   

Net loss

    0        0        0        0        0        0        (3,614,753     (3,614,753
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2007

    0        0        11,782,493        1,178        14,021,742        0        (9,025,211     4,997,709   

Common stock issued for research and development during 2008 at $0.53 per share

    0        0        800,000        80        423,920        0        0        424,000   

Common stock issued for research and development during 2008 at $0.65 per share

    0        0        100,000        10        64,990        0        0        65,000   

Stock based compensation (options)

    0        0        0        0        513,357        0        0        513,357   

Net loss

    0        0        0        0        0        0        (3,059,730     (3,059,730
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2008

    0        0        12,682,493        1,268        15,024,009        0        (12,084,941     2,940,336   

Exercise of warrants

    0        0        1,970,992        197        462,551        0        0        462,748   

Exercise of stock options

    0        0        214,357        22        64,460        (52,668     0        11,814   

Stock based compensation

               

(options)

    0        0        0        0        308,302        0        0        308,302   

Net loss

    0        0        0        0        0        0        (2,626,205     (2,626,205
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2009

    0        0        14,867,842        1,487        15,859,322        (52,668     (14,711,146     1,096,995   

Common stock and warrants issued for cash during 2010 at $1.00 per share, net of offering costs

    0        0        4,230,910        423        3,248,315        0        0        3,248,738   

Preferred stock and warrants issued for cash during 2010 at $10,000 per share, net of offering costs

    400        0        0        0        0        0        0        0   

Exercise of warrants in exchange for promissory note

    0        0        2,700,000        270        5,399,730        (5,400,000     0        0   

Redemption of preferred stock for repayment of promissory note

    (400     0        0        0        0        5,400,000        (2,092,500     3,307,500   

Exercise of stock options

    0        0        50,000        5        26,495        0        0        26,500   

Cashless exercise of stock options

    0        0        297,156        30        (30     0        0        0   

Common stock issued for services during 2010 at $0.90 per share

    0        0        60,000        6        53,994        0        0        54,000   

Common stock issued for services during 2010 at $1.06 per share

    0        0        7,694        0        8,156        0        0        8,156   

Stock based compensation

    0        0        0        0        745,697        0        0        745,697   

Interest on promissory note

    0        0        0        0        0        (1,614     0        (1,614

Net loss

    0        0        0        0        0        0        (6,150,142     (6,150,142
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2010

    0        0        22,213,602        2,221        25,341,679        (54,282     (22,953,788     2,335,830   

Common stock and warrants issued for cash during 2011 at $1.55 per share, net of offering costs

    0        0        5,219,768        522        4,982,817        0        0        4,983,339   

Exercise of stock options

    0        0        382,000        38        388,341        0        0        388,379   

Cashless exercise of stock options

    0        0        667,077        67        (67     0        0        0   

Stock based compensation

    0        0        131,537        13        1,190,120        0        0        1,190,133   

Interest on promissory note

    0        0        0        0        0        (352     0        (352

Redemption of promissory note

    0        0        0        0        0        54,634        0        54,634   

Net loss

    0        0        0        0        0        0        (5,719,903     (5,719,903
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

    0        0        28,613,984        2,861        31,902,890        —          (28,673,691     3,232,060   

Common stock and warrants issued for cash during 2012 at $1.10 per share, net of offering costs

    0        0        9,489,436        949        9,270,421        0        0        9,271,370   

Exercise of warrants

    0        0        818,773        82        1,115,523        0        0        1,115,605   

Reclassification of warrant liability upon exercise

    0        0        0        0        575,197        0        0        575,197   

Cashless exercise of warrants

    0        0        52,918        5        (5     0        0        0   

Cashless exercise of stock options

    0        0        409,523        41        (41     0        0        0   

Stock based compensation

    0        0        0        0        245,107        0        0        245,107   

Net loss

    0        0        0        0        0        0        (7,889,435    
(7,889,435

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

    0        0        39,384,634      $ 3,938      $ 43,109,092      $ —        $ (36,563,126   $ 6,549,904   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

3


Table of Contents

ImmunoCellular Therapeutics, Ltd.

(A Development Stage Company)

Condensed Statements of Cash Flows

(unaudited)

 

     For the
Three Months
Ended
March 31,
2012
    For the
Three Months
Ended

March 31,
2011
    February 25,
2004 (Inception)
March 31,

2012
 

Cash flows from operating activities:

      

Net loss

   $ (7,889,435   $ (2,758,271   $ (34,470,626

Adjustments to reconcile net loss to net cash used in operating activities:

      

Depreciation and amortization

     11,444        3,603        40,906   

Interest accrued on promissory note

     0        (352     0   

Change in fair value of warrant liability

     4,472,504        1,046,981        3,858,489   

Financing expense

     368,524        0        368,524   

Stock-based compensation

     245,107        241,981        8,402,956   

Common stock issued for services

     0        0        98,703   

Common stock issued for research and development

     0        0        1,335,760   

Changes in assets and liabilities:

      

Other assets

     (651,229     (36,271     (820,098

Accounts payable

     (430,720     (120,453     702,871   

Accrued liabilities

     295,239        87,449        739,988   
  

 

 

   

 

 

   

 

 

 

Net cash used in operating activities

     (3,578,566     (1,535,333     (19,742,527

Cash flows from investing activities:

      

Purchase of property and equipment

     (5,668     (37,925     (151,532

Cash paid for sale of Optical Molecular Imaging, Inc.

     0        0        (25,000
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (5,668     (37,925     (176,532

Cash flows from financing activities:

      

Exercise of stock options

     0        47,578        430,213   

Exercise of warrants

     1,115,605          1,578,353   

Payments on promissory note receivable

     0        0        53,018   

Proceeds from issuance of common stock and warrants under private placements, net of offering costs

     9,371,370        7,460,129        27,508,979   

Proceeds from issuance of preferred stock and warrants, net of offering costs

     0        0        3,779,158   

Proceeds from issuance of common stock

     0        0        125,247   
  

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     10,486,975        7,507,707        33,474,968   

Increase in cash and cash equivalents

     6,902,741        5,934,449        13,555,909   

Cash and cash equivalents, beginning of period

     6,653,168        5,319,776        0   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 13,555,909      $ 11,254,225      $ 13,555,909   
  

 

 

   

 

 

   

 

 

 

Supplemental cash flows disclosures:

      

Interest expense paid

   $ 0      $ 0      $ 0   
  

 

 

   

 

 

   

 

 

 

Income taxes paid

   $ 0      $ 0      $ 0   
  

 

 

   

 

 

   

 

 

 

Supplemental non-cash financing disclosures:

      

Exercise of warrants in exchange for promissory note

   $ 0      $ 0      $ 3,350,000   
  

 

 

   

 

 

   

 

 

 

Redemption of preferred stock for repayment of promissory note

   $ 0      $ 0      $ 3,350,000   
  

 

 

   

 

 

   

 

 

 

Deemed dividend on redemption of preferred stock

   $ 0      $ 0      $ 954,750   
  

 

 

   

 

 

   

 

 

 

Warrant liability converted to additional paid in capital upon exercise

   $ 575,197      $ 0      $ 575,197   
  

 

 

   

 

 

   

 

 

 

Deposits used to acquire property and equipment

   $ 35,882      $ 0      $ 35,882   
  

 

 

   

 

 

   

 

 

 

 

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

 

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ImmunoCellular Therapeutics, Ltd.

(A Development Stage Company)

Notes to Unaudited Condensed Financial Statements

 

1. Nature of Organization and Development Stage Operations

ImmunoCellular Therapeutics, Ltd. (the Company) is a development stage company that is seeking to develop and commercialize new therapeutics to fight cancer using the immune system. Presently, the Company’s activities are primarily focused on the testing of ICT-107, which is a cancer immune therapy to treat glioblastoma multiforme. The Company is also in the pre-clinical development stage to develop two additional therapies to treat ovarian and solid tumor cancers.

Since the Company’s inception on February 25, 2004, 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 activities for one of its vaccine product candidates, and has not generated any recurring revenues. As a result, the Company has incurred operating losses and, as of March 31, 2012, the Company had an accumulated deficit of $36,563,126. The Company expects to incur significant research, development and administrative expenses before any of its products can be launched and recurring revenues generated.

Interim Results

The accompanying condensed financial statements as of March 31, 2012 and for the three month periods ended March 31, 2012 and 2011 and for the period February 25, 2004 (inception) to March 31, 2012 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, 2011 have been derived from the Company’s audited financial statements as of that date.

The financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted pursuant to such rules and regulations. The 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, 2011. 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

Development Stage Enterprise – The Company is a development stage enterprise and is devoting substantially all of its present efforts to research and development. All losses accumulated since inception are considered part of the Company’s development stage activities.

Liquidity – As of March 31, 2012, the Company had working capital of $12,855,215, compared to working capital of $4,983,165 as of December 31, 2011. We believe that our existing cash balances are sufficient to complete our current Phase II clinical trial of ICT 107. However, we will need additional capital to commercialize this product and to fund research of the Company’s other immunotherapy products. The Company believes that its existing cash balances are sufficient for its currently planned level of operations for at least the next twelve months, although there is no assurance that our current cash balance will be sufficient for this purpose.

Cash and cash equivalents – The Company considers all highly liquid instruments with an original maturity of 90 days or less at acquisition to be cash equivalents. As of March 31, 2012 and December 31, 2011, the Company had $12,489,347 and $6,238,313, respectively, of certificates of deposit. They are classified as held-to-maturity and are measured at cost since the Company has the intent and ability to hold these securities to maturity. The Company places its cash and cash equivalents with high credit quality financial institutions. However, from time to time such cash balances may be in excess of the FDIC insurance limit of $250,000. As of March 31, 2012, we had $816,562 of deposits that were in excess of the FDIC insurance limit.

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 3 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 expenses the cost for all share-based payment transactions in the Company’s financial statements.

 

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Stock option grants issued prior to March 31, 2011 to employees and officers and directors were valued using the Black-Scholes pricing model. Stock option grants made subsequent to March 31, 2011 were valued using the binomial lattice simulation model. Fair value was estimated at the date of grant using the following weighted average assumptions:

 

     Three months
ended
March  31,

2012
 

Risk-free interest rate

     0.80

Expected dividend yield

     None   

Expected life

     3.8 years   

Expected volatility

     75.40

Expected Forfeitures

     0

There were no stock option grants during the three months ended March 31, 2011.

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 shares. Consideration was given to the contractual terms of our stock-based awards, vesting schedules and expectations of future employee behavior. Expected volatility is based on market prices of traded options for comparable entities within our industry. Forfeitures have been estimated to be nil.

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 previously unissued shares of common stock to satisfy share option exercises. As of March 31, 2012, the Company had approximately 43.7 million shares of authorized but unissued common stock.

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

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 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. As of March 31, 2012, the Company has not recorded any liability, interest or penalties related to uncertain tax positions to date. The Company has determined that its major tax jurisdictions are the U.S. and California. 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, 2011, 2010, 2009 and 2008 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 derivative liability is estimated using the Binomial Lattice option valuation model.

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. The most complex and subjective estimates include: fair value calculations, including derivative liabilities and stock based compensation, and income taxes, including uncertain tax positions and recoverability of deferred tax assets. Accordingly, actual results could differ from those estimates used in the preparation of these financial statements.

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 basic earnings per share in the future, and which were excluded from the computation of diluted loss per share, totaled 15,895,165 shares and 40,977,430 shares at March 31, 2012 and 2011 respectively.

Recently Issued Accounting Standards – In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-4, which amends the Fair Value Measurements Topic of the Accounting Standards Codification (ASC) to help achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. ASU No. 2011-4 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Adoption of this ASU did not affect the Company’s fair value disclosures, or the Company’s results of operations, financial condition or liquidity.

 

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In June 2011, the FASB issued ASU No. 2011-5, which amends the Comprehensive Income Topic of the ASC. The ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements. ASU No. 2011-5 is effective for interim and annual periods beginning after December 15, 2011. The Adoption of this ASU did not have a material impact on the Company’s results of operations, financial condition or liquidity.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

 

3. Property and Equipment

Property and equipment consist of the following:

 

     March 31,     December 31,  
     2012     2011  

Computers

   $ 19,033      $ 15,494   

Research equipment

     128,381        90,370   
  

 

 

   

 

 

 
     147,414        105,864   

Accumulated depreciation

     (40,906     (29,462
  

 

 

   

 

 

 
   $ 106,508      $ 76,402   
  

 

 

   

 

 

 

Depreciation expense was $11,444 and $3,606 for the three months ended March 31, 2012 and 2011 respectively. Depreciation expense was $40,906 for the period from February 25, 2004 (date of inception) to March 31, 2012.

 

4. Related-Party Transactions

Cedars-Sinai Medical Center License Agreement

In November 2006, the Company entered into a license agreement with Cedars-Sinai Medical Center (“Cedars-Sinai”) under which the Company acquired an exclusive, worldwide license to its technology for use as cellular therapies, including cancer stem cell and dendritic cell-based vaccines for neurological disorders that include brain tumors and neurodegenerative disorders and other cancers. This technology is covered by a number of pending U.S. and foreign patent applications, and the term of the license will be until the last to expire of any patents that are issued covering this technology.

As an upfront licensing fee, the Company issued Cedars-Sinai 694,000 shares of its common stock and paid Cedars-Sinai $62,000. Additional specified milestone payments will be required to be paid to Cedars-Sinai when the Company initiates patient enrollment in its first Phase III clinical trial and when it receives FDA marketing approval for its first product.

The Company has agreed to pay Cedars-Sinai specified percentages of all of its sublicensing income and gross revenues from sales of products based on the licensed technology, subject to a reduction if it must make any payments to any third party whose proprietary rights would be infringed by sale of the products. To maintain its rights to the licensed technology, the Company must meet certain development and funding milestones. These milestones include, among others, commencing a Phase I clinical trial for a product candidate by March 31, 2007 and raising at least $5,000,000 in funding from equity or other sources by December 31, 2008. The Company satisfied the foregoing funding requirement in 2007 and commenced a Phase I clinical trial in May 2007, which was within the applicable cure period for the milestone requirement. Through December 31, 2009, the Company has paid Cedars-Sinai a total of $166,660 in connection with the Phase I clinical trial. The Company also was required to commence a Phase II clinical trial for a product candidate by December 31, 2008 and a waiver of this requirement was obtained from Cedars-Sinai (see Second Amendment below).

On June 16, 2008, the Company entered into a First Amendment to Exclusive License Agreement (the “Amendment”) with Cedars-Sinai. The Amendment amended the License Agreement to include in the Company’s exclusive license from Cedars-Sinai under that agreement an epitope to CD133 and certain related intellectual property. Management believes this technology will be covered by a U.S. patent application that will be filed by the parties. Pursuant to the Amendment, the Company issued Cedars-Sinai 100,000 shares of the Company’s common stock as an additional license fee for the licensed CD133 epitope technology, which will be subject to the royalty and other terms of the License Agreement.

On July 22, 2009, the Company entered into a Second Amendment to Exclusive License Agreement (the “Second Amendment”) with Cedars-Sinai to become effective August 1, 2009. The Second Amendment amended the License Agreement to revise the milestones set forth in the License Agreement that the Company must achieve in order to maintain its license rights under that agreement. The revised milestones include the replacement of a milestone that required commencement of a Phase II clinical trial for the Company’s first product candidate by no later than December 31, 2008 with milestones that require commencement of a Phase I clinical trial for the Company’s second product candidate by no later than June 30, 2010 and commencement of a Phase II clinical trial for one of the Company’s product candidates by no later than March 31, 2012.

 

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Effective March 23, 2010, the Company entered into a Third Amendment to Exclusive License Agreement (the “Third Amendment”) with Cedars-Sinai. The Third Amendment amended the License Agreement to revise the milestones set forth in the License Agreement that the Company must achieve in order to maintain its license rights under that agreement. The revised milestones include the replacement of a milestone that required commencement of a Phase I clinical trial for the Company’s second product candidate by no later than June 30, 2010 and commencement of a Phase II clinical trial for one of the Company’s product candidates by no later than March 31, 2012 with a requirement that the Company by September 30, 2011 either commence a Phase II clinical trial for its dendritic cell vaccine candidate or a Phase I clinical trial for its cancer stem cell vaccine candidate. The amendment also added a requirement that the Company obtain certain defined forms of equity or other funding in the amount of at least $2,500,000 by December 31, 2010 and a total of at least $5,000,000 by September 30, 2011. These funding requirements were fully satisfied as of June 30, 2011.

 

5. Commitments and Contingencies:

Sponsored Research Agreements

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

Aptiv Solutions

The Company has contracted with Aptiv Solutions to provide certain services related to the Company’s ICT-107 Phase II trial. The original agreement was entered into in August of 2010 and provided for estimated payments of approximately $3 million for services through September 2013. Subsequently, the Company and Aptiv entered into two contract amendments. The first amendment occurred on January 20, 2011, whereby Aptiv agreed to provide additional services in conjunction with the Phase II trial of ICT-107 for an additional fee of $469,807. On February 4, 2012, the second amendment was finalized. This second amendment extended the services to be provided by Aptiv and further increased the fees by $986,783. Additionally, the second amendment extended the term of the agreement to March 31, 2014. The total aggregate fee pursuant to the original agreement and the two modifications is $4,463,631. As of March 31, 2012, the Company’s remaining obligation under this commitment is $1,138,512.

University of Pennsylvania

On February 13, 2012, the Company entered into a Patent License Agreement with The Trustees of the University of Pennsylvania under which the Company acquired an exclusive, world-wide license relating to patent technology for the production, use and cryopreservation of high-activity dendritic cell cancer vaccines, including ICT-107, its lead dentritic cell-based cancer vaccine candidate for the treatment of glioblastoma multiforme.

Pursuant to the License Agreement, the Company paid an upfront licensing fee and will be obligated to pay annual license maintenance fees. In addition, the Company has agreed to make payments upon completion of specified milestones and to pay royalties of a specified percentage on net sales, subject to a specified minimum royalty, and sublicensing fees.

The John Hopkins University Licensing Agreement

On February 23, 2012, the Company entered into an Exclusive License Agreement, effective as of February 16, 2012, with The John Hopkins University under which it received an exclusive, world-wide license to JHU’s rights in and to certain patent-pending technology related to mesothelin-specific cancer immunotherapies.

Pursuant to the License Agreement, the Company agreed to pay an upfront licensing fee, payable half in cash and half in shares of its common stock, within 30 days of the effective date of the License Agreement and upon issuance of the first U.S. patent covering the subject technology. In addition, the Company has agreed to pay milestone license fees upon completion of specified milestones, customary royalties based on a specified percentage of net sales, sublicensing payments and annual minimum royalties.

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 world-wide exclusive license to the intellectual property for ovarian and pancreatic cancers; and a world-wide non-exclusive license to the intellectual property for brain cancer. The Company intends to employ the intellectual property in the development and commercialization of ICT-140, a multivalent, dendritic cell-based vaccine for the treatment of ovarian 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 connection with the Cedars-Sinai Medical Center License Agreement, the Company has certain commitments as described in Note 4.

Operating Lease

The Company leases for its office space through June 30, 2012 at a monthly rental of $3,493. Rent expense was approximately $14,000 and $12,000 for the three months ended March 31, 2012 and 2011 respectively.

Employment Agreement with Dr. Manish Singh

On May 10, 2011, the Company entered into an Employment Agreement, effective as of February 18, 2011, with Dr. Manish Singh pursuant to which Dr. Singh will continue to serve on a full-time basis as the Company’s President and Chief Executive Officer for a one-year term commencing February 18, 2011. The Company is required under the Employment Agreement to use its commercially reasonable efforts to have Dr. Singh continue to serve as a member of the Company’s Board of Directors during the term of the Employment Agreement. The Employment Agreement automatically renews on the one-year anniversary date of the effective date of February 18, 2011 of each year thereafter for successive one-year terms unless terminated by either party. The Employment Agreement was automatically renewed on February 18, 2012.

The May 10, 2011 Employment Agreement provided for an annual base salary of $315,000. Upon the February 18, 2012 renewal, Dr. Singh’s annual base salary was increased to $330,750. In addition, provided that Dr. Singh continues to serve as the Company’s President and Chief Executive Officer for the entire one-year term of the Employment Agreement, the Company will pay Dr. Singh a discretionary cash bonus upon the attainment of certain corporate goals.

The Employment Agreement also provides Dr. Singh a seven-year incentive stock option grant to purchase 270,000 shares of common stock under the Company’s 2006 Equity Incentive Plan (the “Plan”) at an exercise price of $2.25 per share, which was the closing price of the Company’s common stock on the date of grant. The option will vest as follows; (i) 20,000 shares on February 17, 2012, (ii) 50,000 shares on February 17, 2013, (iii) 50,000 shares on February 17, 2014, (iv) 50,000 shares upon the Company attaining a market capitalization of at least $100 million for ten consecutive trading dates, (v) 50,000 shares upon the Company attaining a market capitalization of at least $150 million for ten consecutive trading days and (vi) 50,000 shares upon the Company attaining a market capitalization of at least $200 million for ten consecutive trading days. The option may be exercised during the term that Dr. Singh provides services to the Company and for twelve months after termination for any reason except termination for cause by the Company, provided that such exercise is within the seven-year term of the option.

In the event that the Company terminates the Employment Agreement without cause, then (i) the Company upon such termination will be required to make a lump sum payment to Dr. Singh equal to six months of his base annual salary, (ii) any stock options granted to Dr. Singh, to the extent vested, will be retained by Dr. Singh and will be exercisable on the terms described above, and (3) the vesting of an additional number of shares subject to all options granted to Dr. Singh equal to 50% of all shares subject to such options that vest based solely on the passage of time and that have not already vested will immediately accelerate and will be exercisable on the terms described above. If Dr. Singh terminates his employment for “good reason” as defined in the Employment Agreement, he will receive the severance benefits described in the preceding sentence, except that 100% of his options will vest if his employment terminates for good reason following a merger or similar corporate transaction in which the Company is not the surviving entity and the surviving entity does not offer Dr. Singh an executive position at a compensation level at least equal to his then compensation under the Employment Agreement.

Employment Agreement with David Fractor

On April 4, 2011, the Company entered into an Employment Agreement with David Fractor pursuant to which Mr. Fractor will serve as the Company’s Treasurer and Chief Financial Officer on a part-time basis for a three-year term, subject to termination by either party on 30 days notice. Under this agreement, Mr. Fractor received a monthly salary of $6,000 and was granted a seven-year option to purchase 42,000 shares of the Company’s common stock at a price of $2.25 per share, with such option to vest in equal monthly installments over the three-year term of the agreement. On October 24, 2011, the Company increased Mr. Fractor’s monthly salary to $8,000 and the Company granted Mr. Fractor an additional 10,000 stock options with an exercise price of $1.42 per share, with such options to vest in equal annual installments over a four-year term. On February 24, 2012, the Company granted Mr. Fractor an additional 10,000 stock options with an exercise price of $1.90 per share, with such options to vest over a two-year term.

 

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Employment Agreement with Dr. James Bender

On May 10, 2011, the Company entered into an Employment Agreement, effective as of February 1, 2011, with Dr. James Bender pursuant to which Dr. Bender will continue to serve on a full-time basis as the Company’s Vice President – Product Development and Manufacturing for a one-year term commencing February 1, 2011. The Employment Agreement automatically renews on the one-year anniversary date of the effective date of February 1, 2011 of each year thereafter for successive one-year terms unless terminated by either party. The Employment Agreement was automatically renewed on February 1, 2012.

The May 10, 2011 Employment Agreement provided for an annual base salary of $175,000. Upon the February 1, 2012 automatic renewal, Mr. Bender’s annual base salary was increased to $188,000. In addition, provided that Dr. Bender continues to serve as the Company’s Vice President – Product Development and Manufacturing for the entire one-year term of the Employment Agreement, the Company will pay Dr. Bender a discretionary cash bonus upon the attainment of certain corporate goals.

The Employment Agreement also provides Dr. Bender a seven-year incentive stock option grant to purchase 120,000 shares of common stock under the Plan at an exercise price of $2.25 per share, which was the closing price of the Company’s common stock on the date of grant. The option will vest as to (i) 60,000 shares in three annual installments of 20,000 shares each, with the first installment to vest on January 31, 2012; (ii) 20,000 shares upon the Company attaining a market capitalization of at least $100 million for ten consecutive trading dates; (iii) 20,000 shares upon the Company attaining a market capitalization of at least $150 million for ten consecutive trading dates; and (iv) 20,000 shares upon the Company attaining a market capitalization of at least $200 million for ten consecutive trading dates. The option may be exercised during the term that Dr. Bender provides services to the Company and for twelve months after termination for any reason except termination for cause by the Company, provided that such exercise is within the seven-year term of the option.

In the event that the Company terminates the Employment Agreement without cause, then (i) the Company upon such termination will be required to make a lump sum payment to Dr. Bender equal to six months of his base annual salary, (ii) any stock options granted to Dr. Bender, to the extent vested, will be retained by Dr. Bender and will be exercisable on the terms described above, and (iii) the vesting of an additional number of shares subject to all options granted to Dr. Bender equal to 50% of all shares subject to such options that vest solely on the passage of time and that have not already vested will immediately accelerate and will be exercisable on the terms described above. If Dr. Bender terminates his employment for “good reason” as defined in the Employment Agreement, he will receive the severance benefits described in the preceding sentence, except that 100% of his options will vest if his employment terminates for good reason following a merger or similar corporate transaction in which the Company is not the surviving entity and the surviving entity does not offer Dr. Bender an executive position at a compensation level at least equal to his then compensation under the Employment Agreement.

Employment agreement with Peter Ho

Effective September 1, 2011, the Company entered into an Employment Agreement with Mr. Peter Ho pursuant to which Mr. Ho will serve on a full-time basis as the Company’s Director of Business Development and Technical Licensing for a one-year term commencing September 1, 2011. The Employment Agreement automatically renews on the anniversary date each year thereafter for successive one-year terms unless terminated by either party.

The Employment Agreement initially provided for an annual base salary of $130,000. Effective February 1, 2012, the Company increased Mr. Ho’s annual base salary to $135,200. In addition, provided that Mr. Ho continues to serve as the Company’s Director of Business Development and Technical Licensing for the entire one-year term of the Employment Agreement, the Company will pay Mr. Ho a discretionary cash bonus upon the attainment of certain corporate goals.

The Employment Agreement also provides Mr. Ho a seven-year incentive stock option grant to purchase 30,000 shares of common stock under the Plan at an exercise price of $1.41 per share, which was the closing price of the Company’s common stock on the date of grant. The option will vest in three equal annual installments. The option may be exercised during the term that Mr. Ho provides services to the Company and for three months after termination for any reason except termination for cause by the Company, provided that such exercise is within the seven-year term of the option.

Agreement with Dr. John Yu

On May 10, 2011, the Company entered into an Agreement, effective as of March 1, 2011, with Dr. John Yu pursuant to which Dr. Yu will continue to serve as the Company’s Chief Scientific Officer for a one-year term commencing March 1, 2011. The term of this Agreement will automatically renew on the one-year anniversary date of the Agreement each year after March 1, 2011 for successive one-year terms unless either party terminates. Dr. Yu may also terminate the Agreement at any time upon 60 days notice. On March 1, 2012, the Agreement was automatically renewed.

The May 10, 2011 Agreement provides for an annual base salary of $70,000. Effective March 1, 2012, the Company increased Dr. Yu’s annual base salary to $72,800. In addition, Dr. Yu will receive a bonus of $15,000 each (a maximum total of $30,000) upon and provided that the Company achieves each of the following milestones within one year from the March 1, 2011: (i) enrollment of 75 patients in the Phase II trial of ICT-107 and (ii) filing of an IND for either a new indication for ICT-107 or for another product candidate of the Company. The Company determined that Dr. Yu earned $23,250 of this potential bonus.

The Agreement also provides Dr. Yu a seven-year incentive stock option grant to purchase 50,000 shares of common stock under the Plan at an exercise price of $1.95 per share, which was the closing price of the Company’s common stock on the date of grant. The option will vest in three equal annual installments, with the first vesting date to be February 29, 2012. The option may be

 

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exercised during the term that Dr. Yu provides services to the Company and for twelve months after termination for any reason except termination without cause by Dr. Yu or termination for cause by the Company, provided that such exercise is within the seven-year term of the option. All of the options granted to Dr. Yu will vest if his services terminate following a merger or similar corporate transaction in which the Company is not the surviving entity and the surviving entity does not offer Dr. Yu an executive position at a compensation level at least equal to his then compensation level under the Agreement.

 

6. Shareholders’ Equity

Common Stock

In March 2010, the Company raised $1,654,686 (after commissions and offering expenses) from the sale of 1,740,000 shares of common stock and warrants to purchase 696,000 shares of common stock at an exercise price of $1.15 per share, to various investors in a private placement. (See “Warrants and Warrant Liabilities” below.)

 

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In May 2010, the Company raised $2,716,308 (after commissions and offering expenses) from the sale of 2,490,910 shares of common stock and warrants to purchase 1,245,455 shares of common stock at an exercise price of $1.50 per share, to various investors in a private placement. (See “Warrants and Warrant Liabilities” below)

In February 2011, the Company raised $7,460,129 (after commissions and offering expenses) from the sale of 5,219,768 shares of common stock and warrants to purchase 2,609,898 shares of common stock at an exercise price of $2.25 per share, to various investors in a private placement. 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. The January 2012 underwritten public offering (see below) provided for the issuance of shares at a price of $1.10. Accordingly, the exercise price of these warrants was adjusted to $1.90 and the number of warrants was proportionally increased to 3,337,849 (See “Warrants and Warrant Liabilities” below)

In January 2012, the Company raised approximately $9,270,421 in an underwritten public offering, net of offering expenses of approximately $1.1 million, from the sale of 9,489,436 shares of common stock and warrants to purchase 4,744,718 shares of common stock at an exercise price of $1.41 per share, to various investors in an underwritten public offering. The warrants have a term of 60 months from the date of issuance. The warrants do not contain any features (such as net cash settlement or anti-dilution features) that would preclude the Company from accounting for these warrants as equity. Accordingly, the warrants are accounted for as equity.

Preferred Stock

On December 3, 2009, the Company entered into a Preferred Stock Purchase Agreement dated as of December 3, 2009 (the “Preferred Stock Agreement”) with Socius Capital Group, LLC, a Delaware limited liability company d/b/a Socius Life Sciences Capital Group, LLC (the “Investor”). Pursuant to the Preferred Stock Agreement, the Company will issue to the Investor up to $10,000,000 of the Company’s newly created Series A Preferred Stock (the “Preferred Stock”). The purchase price of the Preferred Stock is $10,000 per share. The shares of Preferred Stock that are issued to the Investor will bear a cumulative dividend of 10.0% per annum, payable in shares of Preferred Stock, will be redeemable under certain circumstances and will not be convertible into shares of the Company’s common stock. Subject to the terms and conditions of the Preferred Stock Agreement, the Company has the right to determine (1) the number of shares of Preferred Stock that it will require the Investor to purchase from the Company, up to a maximum purchase price of $10,000,000, (2) whether it will require the Investor to purchase Preferred Stock in one or more traunches, and (3) the timing of such required purchase or purchases of Preferred Stock.

The terms of the Preferred Stock are set forth in a Certificate of Designations of Preferences, Rights and Limitations of Series A Preferred Stock that the Company filed with the Delaware Secretary of State on December 3, 2009.

Pursuant to the Preferred Stock Agreement, the Company agreed to pay the Investor a commitment fee of $500,000 (the “Commitment Fee”), with $250,000 payable when the Company makes its first election to require the Investor to purchase shares of Preferred Stock and with the remaining $250,000 payable when the aggregate amount of Preferred Stock purchased by the Investor equals at least $5,000,000; provided, however, that the first $250,000 portion of the Commitment Fee will be due and payable on the six-month anniversary of the effective date of the registration statement described below even if no sales of Preferred Stock to the Investor have occurred by that date. The Company has the right to elect to pay each installment of the Commitment Fee in immediately available funds or by issuance of shares of common stock. In January 2010, the Company accrued $250,000 in commitment fees associated with the Preferred Stock Agreement that were subsequently paid in cash.

Concurrently with its execution of the Preferred Stock Agreement, the Company issued to the Investor a warrant (the “Warrant”) to purchase shares of common stock with an aggregate exercise price of up to $13,500,000 depending upon the amount of Preferred Stock that is purchased by the Investor. Each time that the Company requires the Investor to purchase shares of Preferred Stock, a portion of the Warrant will become exercisable by the Investor over a five-year period for a number of shares of common stock equal to (1) the aggregate purchase price payable by the Investor for such shares of Preferred Stock multiplied by 135%, with such amount divided by (2) the per share Warrant exercise price. The initial exercise price under the Warrant is $1.04 per share of common stock. Thereafter, the exercise price for each portion of the Warrant that becomes exercisable upon the Company’s election to require the Investor to purchase Preferred Stock will equal the closing price of the common stock on the date that the Company delivers its election notice. The Investor is entitled to pay the Warrant exercise price in immediately available funds, by delivery of a secured promissory note or, if a registration statement covering the resale of the common stock subject to the Warrant is not in effect, on a cashless basis.

Pursuant to the Preferred Stock Agreement, the Company agreed to file with the Securities and Exchange Commission a registration statement covering the resale of the shares of common stock that are issuable to the Investor under the Warrant and in satisfaction of the Commitment Fee. The registration statement was deemed effective on January 22, 2010. The 600,000 shares of common stock registered for the Commitment Fee are held in escrow by the Company.

In connection with the foregoing transaction, a portion of the warrants held by an affiliate of Socius became vested and exercisable covering 2,700,000 shares of the Company’s common stock for a five-year period at an exercise price of $2.00 per share

 

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under the terms of the Preferred Stock Agreement. In consideration of Socius agreeing to grant the Company certain waivers under the Preferred Stock Agreement, this affiliate also became entitled to purchase up to an additional 1,350,000 shares of the Company’s common stock at an exercise price of $2.50 per share. On May 2, 2010, the affiliate of Socius exercised a portion of its warrant for 1,675,000 shares and paid the $3,350,000 exercise price for these shares by delivering a four-year full recourse promissory note for this amount, as permitted by the Preferred Stock Agreement. The Company immediately thereafter redeemed approximately 248 shares of the Preferred Stock by offsetting the $3,350,000 redemption price for these shares against the $3,350,000 owed to the Company under the note. On December 2, 2010, the affiliate of Socius exercised the remaining portion of its warrant for 1,025,000 shares and paid the $2,050,000 exercise price for these shares by delivering a four-year full recourse promissory note for this amount, as permitted by the Preferred Stock Agreement. The Company immediately thereafter redeemed approximately 152 shares of the Preferred Stock by offsetting the $2,050,000 redemption price for these shares against the $2,050,000 owed to the Company under the note. (See “Warrants” and “Warrant Liabilities” below.)

Stock Options

In February 2005, the Company adopted an Equity Incentive Plan (“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 market 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 market 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 market 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. Options to purchase 3,160,654 common shares have been granted under the Plan and are outstanding as of March 31, 2012.

The following is a summary of stock option grants issued outside the Plan:

In January 2007, the Company granted an option to purchase 1,500,000 shares of its common stock at an exercise price of $1.10 per share to the Chairman of the Company’s Scientific Advisory Board.

In November 2006, the Company granted an option to purchase 300,000 shares of its common stock at an exercise price of $1.00 per share to an affiliate of the Company’s then Chairman of the Board.

In November 2006, the Company granted an option to purchase 5,933,424 shares of its common stock at an exercise price of $1.00 per share to a Board member in connection with the Cedars-Sinai license acquisition.

The following table summarizes stock option activity for the Company during the three months ended March 31, 2012:

 

     Options     Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual
Term
     Aggregate
Intrinsic
Value
 

Outstanding December 31, 2011

     10,774,078      $ 1.07         

Granted

     20,000        1.66         

Exercised

     (600,000     1.00         

Forfeited or expired

     —          —           
  

 

 

   

 

 

    

 

 

    

 

 

 

Outstanding March 31, 2012

     10,194,078      $ 1.08         4.7       $ 19,479,603   
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested or expected to vest at March 31, 2012

     9,406,582      $ 1.93         4.5       $ 18,603,260   
  

 

 

   

 

 

    

 

 

    

 

 

 

As of March 31, 2012, the total unrecognized compensation cost related to unvested stock options amounted to $371,576, which will be amortized over the weighted-average remaining requisite service period of approximately 10 months.

Warrants

In connection with the March 2010 common stock private placement, the Company issued to the investors warrants to purchase 696,000 shares of the Company’s common stock at $1.15 per share. The warrants have a term of 26 months from the date of issuance. As of March 31, 2012, warrants to purchase 310,000 shares of the Company’s common stock were outstanding related to this private placement. (See Warrant Liabilities below)

 

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In connection with the May 2010 common stock private placement, the Company issued to the investors warrants to purchase 1,245,455 shares of the Company’s common stock at $1.50 per share. The warrants have a term of 36 months from the date of issuance. As of March 31, 2011, warrants to purchase 1,245,455 shares of the Company’s common stock were outstanding related to this private placement. (See Warrant Liabilities below)

In connection with the May 2010 Preferred Stock sale, the Company issued warrants to purchase 2,700,000 shares of common stock at an exercise price of $2.00 held by an affiliate of Socius. The warrants have a term of five-years from the date of issuance. In consideration of Socius agreeing to grant the Company certain waivers under the Preferred Stock Purchase Agreement, this affiliate also became entitled to purchase up to an additional 1,350,000 shares of the Company’s common stock at an exercise price of $2.50 per share. In May 2010, the affiliate of Socius exercised a portion of its warrant for 1,675,000 shares and paid the $3,350,000 exercise price for these shares by delivering a four-year full recourse promissory note for this amount, as permitted by the Preferred Stock Purchase Agreement. The Company immediately thereafter redeemed approximately 248 shares of the Preferred Stock by offsetting the $3,350,000 redemption price for these shares against the $3,350,000 owed to the Company under the note. In December 2010, the affiliate of Socius exercised the remaining portion of its warrant for 1,025,000 shares and paid the $2,050,000 exercise price for these shares by delivering a four-year full recourse promissory note for this amount, as permitted by the Preferred Stock Purchase Agreement. The Company immediately thereafter redeemed approximately 152 shares of the Preferred Stock by offsetting the $2,050,000 redemption price for these shares against the $2,050,000 owed to the Company under the note. As of March 31, 2012, no warrants to purchase of the Company’s common stock at $2.00 were outstanding and warrants to purchase 1,350,000 shares of the Company’s common stock at $2.50 were outstanding related to this private placement. (See “Warrant Liabilities” below.)

In connection with an investor relations agreement in December 2010, the Company issued a two-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.60.

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. 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 $1.55. Since the January 2012, underwritten public offering provided for the sale of the Company’s common stock at a price of $1.10 per share, the exercise price of the February 2011 warrants was adjusted to $1.90 and the number of warrants outstanding increased to 3,337,849 . As of March 31, 2012, warrants to purchase 3,212,348 shares of the Company’s common stock were outstanding related to this private placement. (See “Warrant Liabilities” 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.

Warrant Liability

In connection with the March 2010 common stock private placement, the Company issued to the investors warrants to purchase 696,000 shares of the Company’s common stock at $1.15 per share. Of the total proceeds from the March 2010 common stock private placement, $257,520 was allocated to the freestanding warrants associated with the units based upon the fair value of the warrants determined under the Black Scholes option pricing model. The warrants contain a provision whereby the warrant exercise price would be decreased in the event that future common stock issuances are made at a price less than $1.00. 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 warrant liability is adjusted to fair value each reporting period, and any change in value is recognized in the statement of operations. Prior to 2011, the Company had concluded that Black-Scholes method of valuing the price adjustment feature does not materially differ from the valuation of such warrants using the lattice simulation model, 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 1.00%, and (iv) contractual life of 26 months. During the three months ended March 31, 2011, the Company recorded a credit to other expense for the change in fair value of warrant liability of $80,040. During the year ended December 31, 2011, the Company determined that it was more appropriate to value the warrants using a binomial lattice simulation model. The lattice simulation model used by the Company at March 31, 2012, assumed (i) dividend yield of 0%; (ii) expected volatility of 44.3%; (iii) risk free rate of 0.06% and (iv) expected term of .17 years. Based upon this model, the Company recorded a charge to other expense of $367,970 during the three months ended March 31, 2012. As of March 31, 2012, the carrying value of the warrant liability is $450,430.

In connection with the May 2010 common stock private placement, the Company issued to the investors warrants to purchase 1,245,455 shares of the Company’s common stock at $1.50 per share. Of the total proceeds from the May 2010 common stock private placement, $834,455 was allocated to the freestanding warrants associated with the units based upon the fair value of the warrants determined under the Black Scholes option pricing model. The warrants contain a provision whereby the warrant exercise price would be decreased in the event that future common stock issuances are made at a price less than $1.00. 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 warrant liability is adjusted to fair value each reporting period, and any change in value is recognized in the statement of operations. Prior to 2011, the Company had concluded that the Black-Scholes method of valuing the price adjustment feature does not materially differ from the valuation of such warrants using the binomial lattice simulation model, 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 1.375%, and (iv) contractual life of 36 months. For the three months ended March 31, 2011, the Company recorded a charge to

 

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other expense of $184,328 for the change in fair value of warrant liability. During 2011, the Company determined that it was more appropriate to value the warrants using a binomial lattice simulation model. The lattice simulation model used by the Company at March 31, 2012, assumed (i) dividend yield of 0%; (ii) expected volatility of 56.6%; (iii) risk free rate of 0.21% and (iv) expected term of 1.17 years. Based upon this model, the Company recorded a charge to other expense of $1,120,910 during the three months ended March 31, 2012. As of March 31, 2012, the carrying value of the warrant liability is $1,465,901.

In connection with the May 2010 Preferred Stock sale, the Company vested warrants to purchase 2,700,000 shares of common stock at an exercise price of $2.00 held by an affiliate of Socius and issued warrants to purchase an additional 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 excess of the value of the freestanding warrants over the net proceeds of $1,931,342 was charged to change in fair value of warrant liability in the statement of operations. The warrants contain 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 do not qualify for equity treatment, and therefore are recognized as a liability. The warrant liability is adjusted to fair value each reporting period and any change in value is 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. For the three months ended March 31, 2011, the Company recorded a charge to other expense of $214,650 for the change in fair value of warrant liability. During 2011, the Company determined that it was more appropriate to value the warrants using a binomial lattice simulation model. The lattice simulation model used by the Company at March 31, 2012, assumed (i) dividend yield of 0%; (ii) expected volatility of 62.6%; (iii) risk free rate of 0.55% and (iv) expected term of 3.17 years. Based upon this model, the Company recorded a charge to other expense of $792,450 during the three months ended March 31, 2012. As of March 31, 2012, the carrying value of the warrant liability is $1,252,800. In May 2010, the affiliate of Socius exercised a portion of its $2.00 warrants for 1,675,000 shares, which reduced warrant liabilities by $2,395,250. In December 2010, the affiliate of Socius exercised a portion of its $2.00 warrants for 1,025,000 shares, which reduced warrant liabilities by $912,250 and eliminated the remaining liability associated with the $2.00 warrants.

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 financing, the exercise of these warrants was reduced to $1.90 and the number of warrants outstanding was increased by 519,174 to 3,337,849. The Company recorded a charge to financing expense of $368,524 to reflect the issuance of the additional warrants.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 months ended March 31, 2011, the Company recorded a charge to other expense of $728,053. As of March 31, 2012, the Company revalued the warrants using the lattice simulation model assuming (i) dividend yield of 0%; (ii) expected volatility of 65.8%; (iii) risk free rate of 0.75% and (iv) expected term of 3.9 years. Based upon this model, the Company recorded a charge to other expense of $2,139,134 during the three months ended March 31, 2012. As of March 31, 2012, the carrying value of the warrant liability is $3,254,109.

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 March 31, 2012 and 2011:

 

     March 31,
2012
    March 31,
2011
 

Balance - January 1

   $ 2,157,408      $ 2,581,871   

Issuance of warrants and effect of repricing

     368,524        2,476,790   

Exercise of warrants

     (575,197     —     

(Gain) or loss included in earnings

     4,472,504        1,046,981   

Transfers in and out/or out of Level 3

     —          —     
  

 

 

   

 

 

 

Balance - March 31

   $ 6,423,239      $ 6,105,642   
  

 

 

   

 

 

 

 

7. 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 months ended March 31, 2012 or March 31, 2011.

 

8. 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.

 

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As of March 31, 2012, the Company has an insufficient history to support the likelihood of ultimate realization of the benefit associated with the deferred tax asset. Accordingly, a valuation allowance has been established for the full amount of the net deferred tax asset.

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

 

     March 31,
2012
    March 31,
2011
 

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

     20     20

Change in valuation allowance for deferred tax assets

     20     20
  

 

 

   

 

 

 

Total

     0     0
  

 

 

   

 

 

 

 

     March 31,
2012
    December 31,
2011
 
    

Net operating loss carryforwards

   $ 11,746,941      $ 8,274,061   

Stock-based compesnation

     2,857,005        2,730,729   

Less valuation allowance

     (14,603,946     (11,004,790
  

 

 

   

 

 

 

Net deferred tax asset

   $ —        $ —     
  

 

 

   

 

 

 

As of March 31, 2012 and December 31, 2011, the Company had federal and California income tax net operating loss carryforwards of approximately $22,368,000 and $22,128,000, respectively. These 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. The Company is in the process of evaluating whether such changes in ownership occurred, and its effect on the utilization of its loss carryforwards.

 

9. Subsequent Events

Warrant exercises

Subsequent to March 31, 2012, certain warrant holders exercised 410,000 warrants for cash and the Company received $497,500.

 

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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.

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 in the “Risk Factors” section in our Form 10-K for the year ended December 31, 2011. 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

On January 31, 2006, we completed a merger pursuant to which Spectral Molecular Imaging, Inc. became our wholly owned subsidiary. At the time of the merger, we had virtually no assets or liabilities, and we had not conducted any business operations for several years. In connection with the merger, we changed our name from Patco Industries, Ltd. to Optical Molecular Imaging, Inc. and replaced our officers and directors with those of Spectral Molecular Imaging. Although we acquired Spectral Molecular Imaging in the merger, for accounting purposes the merger was treated as a reverse merger since the stockholders of Spectral Molecular Imaging acquired a majority of our outstanding shares of common stock and the directors and executive officers of Spectral Molecular Imaging became our directors and executive officers. Accordingly, our financial statements contained in this Annual Report and the description of our results of operations and financial condition reflect the operations of Spectral Molecular Imaging.

In May 2006, we decided to suspend our research and development activities on Spectral Molecular Imaging’s spectral imaging technology, and on September 11, 2006, we sold all of the outstanding capital stock of Spectral Molecular Imaging to Dr. Daniel Farkas, a co-founder of Spectral Molecular Imaging and inventor of its technology.

In November 2006, we acquired an exclusive, worldwide license from Cedars-Sinai Medical Center for certain cellular-based therapy technology that we are developing for the potential treatment of brain tumors and other forms of cancer and neurodegenerative disorders. We recently completed a Phase I clinical trial of a vaccine product candidate for the treatment of glioblastomamultiforme based on this technology.

In February 2008, we acquired certain monoclonal antibody related technology owned by Molecular Discoveries LLC. This technology consists of (1) a platform technology referred to by Molecular Discoveries as DIAAD for the potentially rapid discovery of targets (antigens) and monoclonal antibodies for diagnosis and treatment of diverse human diseases and (2) certain monoclonal antibody candidates for the potential detection and treatment of multiple myeloma, small cell lung, pancreatic and ovarian cancers.

Plan of Operation

We are a development stage company that is seeking to develop and commercialize new therapeutics to fight cancer using the immune system. Presently, the Company’s activities are primarily focused on the testing of ICT-107, which is a cancer immune therapy to treat glioblastomamultiforme. The Company is also in the pre-clinical development stage to develop two additional therapies to treat ovarian and solid tumor cancers.

Since our company’s inception on February 25, 2004, we have been primarily engaged in the acquisition of certain intellectual property, together with the recent clinical testing activities for one of our vaccine product candidates, and have not generated any recurring revenues. As a result, we have incurred operating losses and, as of March 31, 2012, we had an accumulated deficit of $36,563,126. We expect to incur significant research, development and administrative expenses before any of our products can be launched and recurring revenues, if ever, are generated.

Critical Accounting Policies

Management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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 and

 

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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 financial statements for the period from February 25, 2004 to March 31, 2012. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:

Development Stage Enterprise

We are a development stage enterprise as defined by FASB ASC Topic 915, “Development Stage Enterprises.” We are devoting substantially all of our present efforts to research and development. All losses accumulated since inception are considered as part of our development stage activities.

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 therefore expensed as incurred rather than capitalized. During the three months ended March 31, 2012 and 2011, we recorded an expense of $1,998,536 and $917,214, respectively, related to research and development activities.

Stock-Based Compensation

FASB ASC Topic 718, “Compensation-Stock Based” require that the cost resulting from all share-based payment transactions be recognized in our condensed financial statements.

We adopted the fair value recognition provisions of ASC Topic 718 utilizing the modified-prospective-transition method. Under this transition method, compensation cost recognized during the twelve months ended December 31, 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated, and (b) compensation expense for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated. Under the modified-prospective-transition method, results for the prior periods have not been restated.

Results of Operations

Revenues

We had no revenues during the three months ended March 31, 2012 and 2011. We do not expect to generate any operating revenues during 2012.

Expenses

General and administrative expenses during the three months ended March 31, 2012 were $805,798 compared to $553,721 during the same period in 2011. The increase in expenses reflects the expansion of the Company’s infrastructure during the latter half of 2011 including the hiring of additional personnel. Additionally, during the three months ended March 31, 2012 the Company incurred additional expenses in the areas of board fees, travel and investor relations.

Research and development expenses during the three months ended March 31, 2012 were $1,998,536 compared to $917,214 during the three months ended March 31, 2011. Research and development expenses consist primarily of the Company’s Phase II clinical trial of ICT-107. During the three months ended March 31, 2011, the Company had only started to enroll patients in its ICT-107 Phase II clinical trial and a total of five patients were enrolled. During the three months ended March 31, 2012, the Company enrolled 68 patients in the trial. Additionally, as of March 31, 2012, the Company has two manufacturing facilities and 25 Phase II trial clinical sites that are operational.

The warrants issued as part of the February 2011 financing contained a provision whereby the exercise price of those warrants, and the number of underlying warrants, would be adjusted in the event the Company subsequently sold shares of its common stock at a price that was less than $1.55 per share. As part of the January 2012 financing, the Company sold shares of its common stock at a price that was less than $1.55 per share and the exercise price of the February 2011 warrants was decreased from $2.25 to $1.90 and the number of warrants outstanding was increased by 519,174. The Company has recorded a non-cash financing expense charge of $368,524 during the three months ended March 31, 2012 to account for the issuance of these additional warrants. There was no comparable charge in the same period of last year.

During the three months ended March 31, 2012 we had $5,097,579 of non-cash expenses consisting of $11,444 of depreciation expense, $4,472,504 change in warrant liability, $368,524 of financing expense and $245,107 of stock based compensation. During the three months ended March 31, 2011 we had $1,292,565 of non-cash expenses consisting of $3,603 of depreciation expense, $1,046,981 change in warrant liability and $241,981 of stock based compensation.

 

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Loss

We incurred a net loss of $7,889,435 and $2,758,271 for the three months ended March 31, 2012 and 2011 respectively.

Liquidity and Capital Resources

As of March 31, 2012, we had working capital of $12,855,215, compared to working capital of $4,983,165 as of December 31, 2011.

The estimated cost of completing the development of either of our current vaccine 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 through the end of 2013, although there is no assurance that such proceeds will be sufficient.

We do not have any bank credit lines. In January 2012, we completed a $9,271,370 underwritten public offering of 9,489,436 units at a price of $1.10 per unit. Each unit consists of one share of stock and a warrant to purchase 0.5 of a share of our common stock at an exercise price of $1.41 per share. In February 2011, we completed an $8,090,644 private placement, before commissions and costs, of 5,219,768 units at a price of $1.55 per unit, with each unit consisting of one share of our common stock and a warrant to purchase 0.5 of a share of our common stock at an exercise price of $2.25 per share. We may also 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 March 31, 2012, we had no long-term debt obligations, no capital lease 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.

The following is a summary of our contractual obligations as of March 31, 2012:

 

     2012      2013 to
2014
     2014 to
2015
     Beyond
2015
 

Unconditional purchase obligations

     451,942         669,256         142,314         —     

Operating lease obligation

     10,479         —           —           —     

Cash Flows

We used $3,578,566 of cash in our operations for the three months ended March 31, 2012, compared to $1,535,333 for the three months ended March 31, 2011. During the three months ended March 31, 2012, we greatly expanded our research and development activities, hired additional personnel and expanded our investor relations programs. We also incurred greater non-cash expenses consisting primarily of a valuation adjustment to our warrant liabilities of $4,472,504 compared to $1,046,981 in the same period last year. Additionally, during the three months ended March 31, 2012, we recorded a non-cash financing expense of $368,524 related to the issuance of additional warrants triggered by the January 2012 stock issuance.

We used $5,668 of cash from our investing activities for the three months ended March 31, 2012 to acquire office equipment. During the three months ended March 31, 2011, we purchased $37,925 of machinery to support our research and development activities.

During the three months ended March 31, 2012, we received net proceeds $9,271,370, excluding $100,000 of deferred offering costs that were previously advanced by the Company, from the issuance of common stock and warrants and we received $1,115,605 of proceeds from the exercise of warrants. During the three months ended March 31, 2011, we received net proceeds of $7,460,129 from the issuance of common stock and warrants. Additionally, during the three months ended March 31, 2011, we received $47,578 from the exercise of stock options.

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

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

 

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 March 31, 2012, (i) our disclosure controls and

 

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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.

PART II

OTHER INFORMATION

 

Item 1. Legal Proceedings

None.

 

Item 1A. Risk Factors

Not applicable.

 

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

 

Item 6. Exhibits

 

Exhibit
No.
   Description
    4.1    Form of Warrant issued to participants in the January 13, 2012 underwritten public offering.(1)
  10.1    Patent License Agreement, effective February 10, 2012, among The Trustees of the University of Pennsylvania and ImmunoCellular Therapeutics, Ltd.†(2)
  10.2    Exclusive License Agreement, effective February 16, 2012, between the Johns Hopkins University and ImmunoCellular Therapeutics, Ltd.†(2)
  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.*

 

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Exhibit
No.
   Description
  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    The following financial information from the Quarterly Report on Form 10-Q of ImmunoCellular Therapeutics, Ltd. for the quarter ended March 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (1) Condensed Balance Sheets as of March 31, 2012 and December 31, 2011; (2) Condensed Statements of Operations for the three months ended March 31, 2012 and 2011 and for the period from February 25, 2004 (inception) to March 31, 2012; (3) Condensed Statements of Shareholders’ Equity for the period from 2004 to March, 2012; (4) Condensed Statements of Cash Flows for the three months ended March 31, 2012 and 2011 and for the period from February 25, 2004 (inception) to March 31, 2012; and (5) Notes to Unaudited Condensed Financial Statements.**

 

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.
* Filed with this Form 10-Q.
** Pursuant to Rule 406T of Regulation S-T, the information in Exhibit 101 (a) is “furnished” and is not deemed to be “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, (b) is deemed not to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and (c) is not otherwise subject to liability under those sections.
(1) Previously filed by us on January 10, 2012 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.
(2) Previously filed by us on March 21, 2012 as an exhibit to our Annual Report on Form 10-K and incorporated herein by reference.

 

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SIGNATURES

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

 

Dated: May 11, 2012     IMMUNOCELLULAR THERAPEUTICS, LTD.
    By:  

/s/ Manish Singh

   

Name:

  Manish Singh, Ph.D.
   

Title:

 

President and Chief Executive Officer

(Principal Executive Officer)

 

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EXHIBIT INDEX

IMMUNOCELLULAR THERAPEUTICS, LTD.

FORM 10-Q FOR QUARTER ENDED MARCH 31, 2012

 

Exhibit
No.
   Description
    4.1    Form of Warrant issued to participants in the January 13, 2012 underwritten public offering.(1)
  10.1    Patent License Agreement, effective February 10, 2012, among The Trustees of the University of Pennsylvania and ImmunoCellular Therapeutics, Ltd.†(2)
  10.2    Exclusive License Agreement, effective February 16, 2012, between the Johns Hopkins University and ImmunoCellular Therapeutics, Ltd.†(2)
  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    The following financial information from the Quarterly Report on Form 10-Q of ImmunoCellular Therapeutics, Ltd. for the quarter ended March 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (1) Condensed Balance Sheets as of March 31, 2012 and December 31, 2011; (2) Condensed Statements of Operations for the three months ended March 31, 2012 and 2011 and for the period from February 25, 2004 (inception) to March 31, 2012; (3) Condensed Statements of Shareholders’ Equity for the period from 2004 to March, 2012; (4) Condensed Statements of Cash Flows for the three months ended March 31, 2012 and 2011 and for the period from February 25, 2004 (inception) to March 31, 2012; and (5) Notes to Unaudited Condensed Financial Statements.**

 

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.
* Filed with this Form 10-Q.
** Pursuant to Rule 406T of Regulation S-T, the information in Exhibit 101 (a) is “furnished” and is not deemed to be “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, (b) is deemed not to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and (c) is not otherwise subject to liability under those sections.
(1) Previously filed by us on January 10, 2012 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.
(2) Previously filed by us on March 21, 2012 as an exhibit to our Annual Report on Form 10-K and incorporated herein by reference.

 

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