Notes to Unaudited Condensed Consolidated Financial Statements
1. Nature of Organization (Planned Principal Operations Have Not Commenced)
ImmunoCellular Therapeutics, Ltd. (the Company) is seeking to develop and commercialize new therapeutics to fight cancer using the immune system. These condensed consolidated financial statements include the Company’s wholly owned subsidiaries, ImmunoCellular Bermuda, Ltd. in Bermuda and ImmunoCellular Therapeutics (Ireland) Limited and ImmunoCellular Therapeutics (Europe) Limited in Ireland, that were formed during 2014. The Company has been primarily engaged in the acquisition of certain intellectual property, together with development of its product candidates and the recent clinical testing for its immunotherapy product candidates, and has not generated any recurring revenues.
In June 2017, the Company announced that it had determined that it was unable to secure sufficient additional financial resources to complete the phase 3 registration trial of ICT-107, its patient-specific, dendritic cell-based immunotherapy for patients with newly diagnosed glioblastoma, which was previously its lead product candidate. As a result, the Company suspended further patient randomization in the ICT-107 trial while it continues to seek a collaborative arrangement or acquisition of its ICT-107 program. The suspension of the phase 3 registration trial of ICT-107 is expected to reduce the amount of cash used in the Company's operations.
As a result of suspending the ICT-107 trial, the Company recorded a charge to research and development of
$2,349,404
during the three months ended June 30, 2017 to write-off the remaining trial related supplies. Additionally, at June 30, 2017, the Company recorded a charge to research and development of approximately
$3.0 million
to reflect the estimated costs to wind down the trial. This amount is included in accrued expenses. The Company recorded a credit to other income of
$7,719,440
to account for the derecognition of the CIRM award liability including accrued interest. Previously, the Company accounted for the award as a loan and accrued interest expense (See Note 7). Further, the Company also reclassified
$1,922,218
of vendor deposits from deposits to other current assets as these amounts will be applied against final vendor invoices.
The Company is developing Stem-to-T-Cell immunotherapies for the treatment of cancer based on rights to novel technology it exclusively licensed from the California Institute of Technology (Caltech). The technology originated from the labs of David Baltimore, Ph.D., Nobel Laureate and President Emeritus at Caltech, and utilizes the patient’s own hematopoietic stem cells to create antigen-specific killer T cells to treat cancer. The Company plans to utilize this technology to expand and complement its DC-based cancer immunotherapy platform, with the goal of developing new immunotherapies that kill cancer cells in a highly directed and specific manner and that can function as monotherapies or in combination therapy approaches.
The Company is also developing two other therapeutic immunotherapies: ICT-140 for ovarian cancer and ICT-121 for recurrent glioblastoma. During the third quarter of 2016, the Company completed its enrollment of ICT-121 and closed the trial in March 2017. Currently, the Company is holding the initiation ICT-140 until it can find a partner to share expenses.
The Company has incurred operating losses and, as of
June 30, 2017
, the Company had an accumulated deficit of
$105,657,577
. The Company expects to incur significant research, development and administrative expenses before any of its products can be launched and recurring revenues generated.
The Company's activities are subject to significant risks and uncertainties, including the failure of any of the Company's product candidates to achieve clinical success or to obtain regulatory approval. Additionally, it is possible that other companies with competing products and technology might obtain regulatory approval ahead of the Company. The Company will need significant amounts of additional funding in order to complete the development of any of its product candidates and the availability and terms of such funding cannot be assured.
Interim Results
The accompanying condensed consolidated financial statements as of
June 30, 2017
and for the
three and six
month periods ended
June 30, 2017
and
2016
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, 2016
have been derived from the Company’s audited financial statements included in its Form 10-K for the year ended
December 31, 2016
filed with the Securities and Exchange Commission (SEC) on March 9, 2017.
The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (GAAP) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements in its Form 10-K for the year ended
December 31, 2016
. 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
Basis of presentation and going concern
- The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Since inception, the Company has been engaged in research and development activities and has not generated any cash flows from operations. Through
June 30, 2017
, the Company has incurred accumulated losses of
$105,657,577
and as of
June 30, 2017
, the Company had
$1,814,005
of cash. The Company believes that it will not have enough cash resources to fund the business for the next 12 months. Successful completion of the Company’s research and development activities, and its transition to attaining profitable operations, is dependent upon obtaining additional financing. Additional financing may not be available on acceptable terms or at all. If the Company issues additional equity securities to raise funds, the ownership percentage of existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of common stock. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date the financial statements are issued. These consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.
In June 2017, the Company announced that it had determined that it was unable to secure sufficient additional financial resources to complete the phase 3 registration trial of ICT-107. As a result, the Company has suspended further patient randomization in the ICT-107 trial while it continues to seek a collaborative arrangement or acquisition of its ICT-107 program. The suspension of the phase 3 registration trial of ICT-107 is expected to reduce the amount of cash used in the Company's operations.
The Company plans to improve its liquidity by obtaining additional financing through the issuance of financial instruments such as equity and warrants or through the receipt of grants and awards. Additionally, the Company continues to evaluate its strategic alternatives, which may include a potential merger, consolidation, reorganization or other business combination, as well as the sale of the Company or the Company's assets.
Principles of Consolidation -
The condensed consolidated balance sheets include the accounts of the Company and its subsidiaries. The condensed consolidated statements of operations include the Company’s accounts and the accounts of its subsidiaries from the date of acquisition. All intercompany transactions and balances have been eliminated in consolidation.
Cash and cash equivalents
– The Company considers all highly liquid instruments with an original maturity of 90 days or less at acquisition to be cash equivalents. As of
June 30, 2017
and
December 31, 2016
, the Company had
$466,492
and
$3,462,617
, respectively, of certificates of deposit. The Company places its cash and cash equivalents with various banks in order to maintain FDIC insurance on all of its
investments.
Supplies for clinical trials
- Supplies are stated at the lower of cost or market, with cost determined by the first-in, first-out basis and consist of items that will be used in the Company’s ongoing clinical trials. Management analyzes historical and prospective usage to estimate obsolescence and during the quarter ended
June 30, 2017
, determined that the remaining supplies should be expensed. Accordingly, the Company recorded a charge to expense of
$2,560,220
, which is included in research and development expenses. The Company did not record any reserve for obsolescence during the
three and six
month period ended
June 30, 2016
.
Property and Equipment
– Property and equipment are stated at cost and depreciated using the straight-line method based on the estimated useful lives (generally
three
to
five years
) of the related assets. Computer and computer equipment are depreciated over
three years
. Management continuously monitors and evaluates the realizability of recorded long-lived assets to determine whether their carrying values have been impaired. The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the nondiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. Any impairment loss is measured by comparing the fair value of the asset to its carrying amount. Repairs and maintenance costs are expensed as incurred.
Research and Development Costs
– Research and development expenses consist of costs incurred for direct research and development and are expensed as incurred.
Stock Based Compensation
– The Company records the cost for all share-based payment transactions in the Company’s consolidated financial statements. Stock option grants issued to employees and officers and directors were valued using the Black-Scholes pricing model. The Company did not issue any stock-based compensation during the six months ended
June 30, 2017
.
Fair value was estimated at the date of grant using the following weighted average grant date assumptions:
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2017
|
|
Six Months Ended
June 30, 2016
|
Risk-free interest rate
|
—
|
%
|
|
1.3
|
%
|
Expected dividend yield
|
None
|
|
|
None
|
|
Expected life
|
0.0 years
|
|
|
6.0 years
|
|
Expected volatility
|
—
|
%
|
|
82.7
|
%
|
Expected forfeitures
|
—
|
%
|
|
—
|
%
|
The risk-free interest rate used is based on the implied yield currently available in U.S. Treasury securities at maturity with an equivalent term. The Company has not declared or paid any dividends and does not currently expect to do so in the future. The expected term of options represents the period that our stock-based awards are expected to be outstanding and was determined based on projected holding periods for the remaining unexercised options. Consideration was given to the contractual terms of our stock-based awards, vesting schedules and expectations of future employee behavior. The expected volatility is based upon the historical volatility of the Company’s common stock. Forfeitures are accounted for when they occur.
The Company’s stock price volatility and option lives involve management’s best estimates, both of which impact the fair value of the option calculated and, ultimately, the expense that will be recognized over the life of the option.
When options are exercised, our policy is to issue reserved but previously unissued shares of common stock to satisfy share option exercises. As of
June 30, 2017
, the Company had
44,500,061
shares of authorized and unreserved common stock.
No
tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for all net deferred tax assets.
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. As of
June 30, 2017
and
December 31, 2016
, the Company fully reserved its deferred tax assets. The Company recognizes in its financial statements the impact of an uncertain tax position if the position will more likely than not be sustained upon examination by a taxing authority, 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
June 30, 2017
, the Company had
no
unrecognized tax benefits and as such,
no
liability, interest or penalties were required to be recorded. The Company does not expect this to change significantly in the next twelve months. The Company has determined that its main taxing jurisdictions are the United States of America and the State of California. The Company is not currently under examination by any taxing authority nor has it been notified of a pending examination. The Company’s tax returns are generally
no
longer subject to examination for the years before December 31, 2011
for the state and December 31, 2012
for the federal taxing authority.
During 2014, the Company licensed the non-U.S. rights to a significant portion of its intellectual property to its Bermuda-based subsidiary for approximately
$11.0 million
. The fair value of the intellectual property rights was determined by an independent third party. The proceeds from this sale represented a gain for U.S. tax purposes and were offset by current year losses and net operating loss carryforwards. However, the Internal Revenue Service, or the IRS, or the California Franchise Tax Board, or the CFTB, could challenge the valuation of the intellectual property rights and assess a greater valuation, which would require the Company to utilize a larger portion, or all, of its available net operating losses. If an IRS or a CFTB valuation exceeds the available net operating losses, the Company would incur additional income taxes. The Company’s ability to use its
net operating losses is subject to the limitations of IRS Section 382, as well as expiration of federal and state net operating loss carryforwards
.
Fair Value of Financial Instruments
– The carrying amounts reported in the balance sheets for cash, cash equivalents, and accounts payable approximate their fair values due to their quick turnover. The fair value of warrant derivative liability is estimated using the Binomial Lattice option valuation model for warrants that are not publicly traded. The Company determines the fair value of the warrant derivative liability of its publicly traded warrants based upon the last trading price as of the balance sheet date.
Fair value for financial reporting is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:
Level 1—quoted prices in active markets for identical assets or liabilities
Level 2—quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3—inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
Warrant liabilities represent the only financial assets or liabilities recorded at fair value by the Company. The fair value of warrant liabilities is based on Level 1 or Level 3 inputs.
Reverse Stock Split
- On November 18, 2016, the Company effected a one-for-forty reverse stock split of its common stock through an amendment to its amended and restated certificate of incorporation (the 2016 Amendment). As of the effective time of the reverse stock split, every forty shares of the Company’s issued and outstanding common stock were converted into one issued and outstanding share of common stock, without any change in par value per share. The reverse stock split affected all shares of the Company’s common stock outstanding immediately prior to the effective time of the reverse stock split, as well as the number of shares of common stock available for issuance under the Company’s equity incentive plans and outstanding warrants. No fractional shares were issued as a result of the reverse stock split. Stockholders who would otherwise have been entitled to receive a fractional share received cash payments in lieu thereof. In addition, the 2016 Amendment reduced the number of authorized shares of common stock to
25.0 million
.
In June 2017, the Company's stockholders approved a certificate of amendment to its amended and restated certificate of incorporation to increase the number of authorized shares of common stock from
25.0 million
to
50.0 million
, which was effective on June 16, 2017.
Use of Estimates
– The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions about the future outcome of current transactions which may affect the reporting and disclosure of these transactions. Accordingly, actual results could differ from those estimates used in the preparation of these consolidated financial statements.
The following critical accounting policies affect the Company’s more significant judgments and estimates used in the preparation of these consolidated financial statements:
Stock-Based Compensation
- Stock-based compensation expense is estimated as of the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally equals the vesting period, based on the number of awards that are expected to vest. Estimating the fair value for stock options requires judgment, including the expected term of the Company’s stock options, volatility of the Company’s stock, expected dividends, risk-free interest rates over the expected term of the options and the expected forfeiture rate. In connection with performance based programs, the Company makes assumptions principally related to the number of awards that are expected to vest after assessing the probability that certain performance criteria will be met.
Warrant Liability
-
The fair value of the Company's derivative warrants that are not traded on the NYSE MKT is estimated using the Binomial Lattice option valuation model. The use of the Binomial Lattice option valuation model requires estimates including the volatility of the Company’s stock, risk-free rates over the expected term of warrants and early exercise of the warrants. The Company determines the warrant derivative liability of its publicly traded warrants based upon the last trading price as of the balance sheet date.
Basic and Diluted Loss per Common Share –
Basic and diluted loss per common share
are computed based on the weighted average number of common shares outstanding. Common share equivalents (which consist of options and warrants) are excluded from the computation, since the effect would be antidilutive. Common share equivalents which could
potentially dilute earnings per share, and which were excluded from the computation of diluted loss per share, totaled
1,724,515
shares and
928,001
shares at
June 30, 2017
and
2016
, respectively.
Recently Issued Accounting Standards
–
In August
2014
, the FASB issued ASU No. 2014-15,
which applies to entities that have substantial doubt about their ability to continue as a going concern. This update requires management to perform interim and annual assessments of the probability about the entity’s ability to remain as a going concern for a period of one year from the date the financial statements are issued. Depending on management’s conclusions about the entity’s ability to remain as a going concern, the entity must make certain disclosures in its financial statements. This ASU is effective for annual periods ending after December 15, 2016. The adoption of this ASU did not have a material impact on the Company’s consolidated results of operations, financial condition or liquidity.
In February 2016, the FASB issued ASU No. 2016-02, which requires lessees to recognize in the balance sheet, a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term (the lease asset). For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This ASU is effective for fiscal years beginning after December 15, 2018. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated results of operations, finance condition or liquidity.
In March 2016, the FASB issued ASU No. 2016-09, which simplifies some of the rules relating to the accounting for stock options. Among other items, this update permits entities to account for stock option forfeitures when they occur unlike the current practice that requires estimation of forfeitures at the time of issuance. This ASU is effective for annual periods beginning after December 15, 2016, and early adoption is permitted. The Company has adopted this ASU, which has not had a material impact on the Company’s consolidated results of operations, financial condition or liquidity.
In July 2017, the FASB issued ASU No. 2017-11, which eliminates the requirement to classify financial instruments as derivative liabilities simply because they have down round pricing protection. The Company has often issued warrants with down round pricing protection as part of its financing activities. Currently, the Company has two warrant tranches with down round pricing protection that are classified as derivative liabilities. The Company revalues these warrant tranches each reporting period and records the valuation differences as a component of other income in the statement of operations. The adoption of this ASU will eliminate the fluctuation in earnings associated with the quarterly warrant revaluation. Additionally, the adoption of this ASU will allow the Company to classify its remaining warrant derivatives as equity and future warrants that might be issued by the Company with down round price protection will qualify as equity rather than derivative liability for balance sheet presentation purposes. This ASU is effective for annual periods beginning after December 15, 2018, and early adoption is permitted. The Company is determining the financial impact of this ASU.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
3. Property and Equipment
Property and equipment consist of the following:
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|
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|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Computers
|
$
|
70,960
|
|
|
$
|
70,960
|
|
Research equipment
|
305,066
|
|
|
305,066
|
|
|
376,026
|
|
|
376,026
|
|
Accumulated depreciation
|
(299,393
|
)
|
|
(266,203
|
)
|
|
$
|
76,633
|
|
|
$
|
109,823
|
|
Depreciation expense was
$16,595
and
$20,593
for the three months ended
June 30, 2017
and
2016
, respectively. Additionally, depreciation expense was
$33,190
and
$40,963
for the six months ended
June 30, 2017
and
2016
, respectively.
4. Related-Party Transactions
Cedars-Sinai Medical Center License Agreement
Dr. John Yu, the Company's founder and member of the Company's Board of Directors, is a neurosurgeon at Cedars-Sinai Medical Center (Cedars-Sinai).
On May 13, 2015, the Company entered into an Amended and Restated Exclusive License Agreement (the Amended License Agreement) with Cedars-Sinai. Pursuant to the Amended License Agreement, the Company acquired an exclusive, worldwide license from Cedars-Sinai to certain patent rights and technology developed in the course of research performed at Cedars-Sinai into the diagnosis of diseases and disorders in humans and the prevention and treatment of disorders in humans utilizing cellular therapies, including dendritic cell-based vaccines for brain tumors and other cancers and neurodegenerative disorders. Under the Amended License Agreement, the Company will have exclusive rights to, among other things, develop, use, manufacture, sell and grant sublicenses to the licensed technology.
The Company has agreed to pay Cedars-Sinai specified milestone payments related to the development and commercialization of ICT-107, ICT-121 and ICT-140. The Company will be required to pay to Cedars-Sinai
$1.0 million
upon first commercial sale of the Company’s first product. The Company will pay Cedars-Sinai single digit percentages of gross revenues from the sales of products and high-single digit to low-double digit percentages of the Company’s sublicensing income based on the licensed technology. During the
six
months ended
June 30, 2016
, the Company incurred
$100,000
of licensing fees to Cedars-Sinai.
No
licensing fees were incurred during the
six
months ended
June 30, 2017
.
The Amended License Agreement will terminate on a country-by-country basis on the expiration date of the last-to-expire licensed patent right in each such country. Either party may terminate the Amended License Agreement in the event of the other party’s material breach of its obligations under the Agreement if such breach remains uncured 60 days after such party’s receipt of written notice of such breach. Cedars-Sinai may also terminate the Amended License Agreement upon 30 days’ written notice to the Company that a required payment by the Company to Cedars-Sinai under the Amended License Agreement is delinquent.
The Company has also entered into various sponsored research agreements with Cedars-Sinai and has paid an aggregate of approximately
$1.2 million
. The last agreement concluded on March 19, 2014 at an incremental cost of
$126,237
. During the
six
months ended
June 30, 2017
and
2016
, Cedars-Sinai did not perform any research activities on behalf of the Company.
5. Co
mmitments and Contingencies
Legal Proceedings
On May 1, 2017, a purported securities class action lawsuit was filed in the United States District Court for the Central District of California, captioned
Arthur Kaye IRA FCC as Custodian DTD 6-8-00 v. ImmunoCellular Therapeutics, Ltd. et al
(Case No. 2:17-cv-03250) against the Company, certain of its current and former officers and directors and others. The complaint asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and SEC Rule 10b-5 promulgated thereunder, related to allegedly materially false or misleading statements made between May 1, 2012 and December 11, 2013. The complaint alleges, among other things, that the Company failed to disclose that it purportedly paid for articles to be published about ICT-107. The plaintiff seeks an award of unspecified damages, prejudgment and post-judgment interest, as well as reasonable attorneys’ fees, and other costs. The Company intends to vigorously defend against the claims. It is possible that similar lawsuits may yet be filed in the same or other courts that name the same or additional defendants.
On July 27, 2017, a shareholder filed a derivative class action lawsuit in the Superior Court for the State of California in the County of Los Angeles, captioned
David Wiener, Derivatively and on Behalf of ImmunoCellular Therapeutics, Ltd. v. certain former and current officers and directors
(Case No. BC670134)
.
The complaint sets forth violations of, 1) breach of duty, 2) unjust enrichment, 3) abuse of control, 4) gross mismanagement and 5) waste of corporate assets. The complaint alleges that the lack of oversight allowed the publication of articles about ICT-107 without disclosing that the articles were either directly, or indirectly, paid for by the Company. The complaint further alleges that from May 1, 2012 to April 2017, certain of its current and former officers and directors failed to disclose that the stock promotion scheme in fact occurred or was occurring, the extent of it, as well as the Company's involvement. The plaintiff seeks an award of unspecified damages, prejudgment and post-judgment interest, as well as reasonable attorneys’ fees, and other costs. The Company intends to vigorously defend against the claims. The Company may be obligated to indemnify its officers and directors in connection with this matter.
Commitments
In an effort to expand the Company’s intellectual 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. In addition to the vendors described below, the Company has deposits with other vendors.
Sponsored Research Agreements
Novella Clinical LLC
On June 30, 2015, the Company entered into a Master Clinical Research Services Agreement with Novella Clinical LLC (Novella Clinical) to conduct the Phase
3
registration trial of IC
T-107.
Novella Clinical is a full-service, global clinical research organization providing clinical trial services to small and mid-sized oncology companies. Novella Clinical was engaged to supervise the trial in the United States, Europe and Canada and recruit
542
patients with newly diagnosed glioblastoma. As described above, the Company suspended the trial in June 2017, and as of
June 30, 2017
, the Company has deposits of
$1,740,937
with Novella Clinical that will be applied against the final trial related invoices. Since the trial was suspended, this amount is classified as other current assets.
Licensing Agreements
The Johns Hopkins University Licensing Agreement
On February 23, 2012, the Company entered into an Exclusive License Agreement, effective as of February 16, 2012, with The Johns Hopkins University (JHU) under which it received an exclusive, worldwide license to JHU’s rights in and to certain intellectual property related to mesothelin-specific cancer immunotherapies. The Company is advancing a cancer immunotherapy program using JHU and other intellectual property according to commercially reasonable development timeline. If successful and a product ultimately is registered, the Company will either sell the product directly or via a third-party partnership.
Pursuant to the License Agreement, the Company agreed to pay an upfront licensing fee in the low hundreds of thousands of dollars, payable half in cash and half in shares of its common stock in two tranches, within
30 days
of the effective date of the License Agreement and upon issuance of the first U.S. patent covering the subject technology. Annual minimum royalties or maintenance fees increase over time and range from low tens of thousands to low hundreds of thousands of dollars. In addition, the Company has agreed to pay milestone license fees upon completion of specified milestones, totaling single digit millions of dollars if all milestones are met. Royalties based on a low single digit percentage of net sales are also due on direct sales, while third party sublicensing payments will be shared at a low double digit percentage.
The Company and JHU each have termination rights that include termination for any reason and for reasons relating to specific performance or financial conditions. Effective September 24, 2013, the Company entered into an Amendment No. 1
to the Exclusive License Agreement that updated certain milestones. Effective August 7, 2015, the Company entered into a Second Amendment to the Exclusive License Agreement that amended certain sections of the License Agreement and further updated certain milestones.
California Institute of Technology
On September 9, 2014, the Company entered into an Exclusive License Agreement with the California Institute of Technology under which the Company acquired exclusive rights to novel technology for the development of certain antigen specific stem cell immunotherapies for the treatment of cancers.
Pursuant to the License Agreement, the Company agreed to pay a one time license fee, a minimum annual royalty based on a low single digit percentage of net revenues and an annual maintenance fee in the low tens of thousands of dollars. In addition, the Company has agreed to make certain milestone payments upon completion of specified milestones.
Cedars-Sinai Medical Center
In connection with the Cedars-Sinai Medical Center License Agreement and sponsored research agreement, the Company has certain commitments as described in Note 4.
Manufacturing
PharmaCell B.V.
In March 2015, the Company entered into an agreement for GMP manufacturing of ICT-107 with PharmaCell B.V. (PharmaCell), pursuant to which PharmaCell provided contract manufacturing services for the European production of ICT-107, a dendritic cell
immunotherapy
for the treatment of newly diagnosed glioblastoma.
In connection with the June 2017 suspension of the Phase 3 trial of ICT-107, the Company unilaterally terminated the agreement. Pursuant to the terms of the agreement, the Company was required to provide
90
days’
written notice to PharmaCell. As a result, the Company is obligated to make future payments to Pharmacell of approximately
$600,000
, which is included in other current liabilities as of June 30, 2017.
PCT, LLC
On June 11, 2015, the Company entered into an agreement with PCT Cell Therapy Services, LLC (PCT). Pursuant to the terms of the agreement, PCT provided current good manufacturing practice (cGMP) services for the Phase
3 manufacture of ICT-107 and Phase 1 manufacture of ICT-121.
In connection with the June 2017 termination of the Phase 3 trial of ICT-107, the Company unilaterally terminated the agreement. Pursuant to the terms of the agreement, the Company was required to provide
120
days written notice to PCT. As a result, the Company is obligated to make future payments to PCT of approximately
$1,120,000
, which is included in other current liabilities as of June 30, 2017.
Employment Agreements
The Company has employment agreements with its management that provide for a base salary, bonus and stock option grants. The aggregate annual base salary payable to this group is approximately
$830,000
and the potential bonus is approximately
$231,000
. During the
six
months ended
June 30, 2017
, the Company did not issue any stock options or restricted stock units.
Operating Lease
The Company entered into a lease for office space effective June 15, 2013 and continuing through August 31, 2016 at an initial monthly rental of
$8,063
. During 2016, the Company extended this lease through
August 31, 2017
, at a monthly rental of
$8,554
. The Company will not renew its lease beyond August 31, 2017. Rent expense was approximately
$54,000
for each of the
six
months ended
June 30, 2017
and
2016
, respectively.
6.
Shareholders’ Equity
Underwritten Public Offering
In August 2016, the Company entered into an underwriting agreement with Maxim Group LLC, pursuant to which the Company received net proceeds of approximately
$6.6 million
(after deducting the underwriting discount and offering expenses) from the initial sale of
863,750
shares of the Company’s common stock, base warrants to purchase
881,250
shares of common stock at an exercise price of
$7.68
per share, and pre-funded warrants to purchase
311,250
shares of common stock at an exercise price of
$0.40
per share. The underwriters partially exercised their option to purchase additional shares and warrants and purchased an additional
37,500
shares of the Company’s common stock at a price of
$6.00
per share and warrants to purchase
111,965
shares of common stock at an exercise price of
$0.40
per warrant. The pre-funded warrants have a term of
ten years
, and the base warrants have a term of
five years
from the date of issuance. They also provide for a weighted average adjustment to the exercise price if the Company issues, or is deemed to issue, additional shares of common stock at a price per share less than the then effective price of the warrants, subject to certain exceptions (see “Warrant Liability” below). 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 pre-funded warrants were substantially paid for at the time of the offering and have an exercise price of
$0.40
per share. These warrants qualify for equity treatment. Through
December 31, 2016
,
208,750
pre-funded warrants were exercised and resulted in proceeds to the Company of
$83,500
. During the three months ended
June 30, 2017
, the remaining
102,500
pre-funded warrants were exercised and resulted in proceeds to the Company of
$41,000
.
Controlled Equity Offering
On April 18, 2013, the Company entered into a Controlled Equity Offering
SM
Sales Agreement (the Sales Agreement) with Cantor Fitzgerald & Co. (Cantor), as agent, pursuant to which the Company may offer from time to time through Cantor, shares of our common stock having an aggregate offering price of up to
$25.0 million
(of which only
$17.0 million
was initially registered for offer and sale). Under the Sales Agreement, Cantor may sell shares by any method permitted by law and deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act, as amended, including sales made directly on the NYSE MKT, on any other existing trading market for our common stock or to or through a market maker. The Company may instruct Cantor not to sell shares if the sales cannot be effected at or above the price designated by us from time to time. The Company is not obligated to make any sales of the shares under the Sales Agreement. The offering of shares pursuant to the Sales Agreement will terminate upon the earlier of (a) the sale of all of the shares subject to the Sales Agreement or (b) the termination of the Sales Agreement by Cantor or the Company, as permitted therein. Cantor will receive a commission rate of
3.0%
of the aggregate gross proceeds from each sale of shares and the Company has agreed to provide Cantor with customary indemnification and contribution rights. The Company will also reimburse Cantor for certain specified expenses in connection with entering into the Sales Agreement. On April 22, 2013, NYSE MKT approved the listing of
264,831
shares of our common stock in connection with the Sales Agreement.
As of September 21, 2015, the registration statement previously filed with the SEC to facilitate the sale of registered shares of the Company's common stock under the Controlled Equity Offering expired.
The Company filed a new registration statement with the SEC that was declared effective on
January 19, 2016
to facilitate the sale of additional shares under the Controlled Equity Offering. Under the terms of the prospectus, the Company may sell up to
$15,081,494
of the Company’s common stock through the aforementioned Controlled Equity Offering. Pursuant to Instruction I.B.6 to Form S-3 (the Baby Shelf Rules), the Company may not sell more than the equivalent of one-third of its public float during any 12 consecutive months so long as the Company's public float is less than
$75 million
. During the
six
months ended
June 30, 2016
, the Company sold
77,141
shares of common stock that resulted in net proceeds of
$691,187
, of which
$48,977
represented the recovery of deferred offering costs that had been incurred as of
December 31, 2015
. Subsequent to June 30, 2017 (See Note 10. Subsequent Events), the Company completed an underwritten public offering. As a condition of the offering, the Company agreed not to sell shares pursuant to the Controlled Equity Offering for a period of
60
days after closing (See Note 10. Subsequent Events). At
June 30, 2017
, the Company had
$14.3 million
available to be sold under the Sales Agreement.
Stock Options
In February 2005, the Company adopted an Equity Incentive Plan (the Plan). Pursuant to the Plan, a committee appointed by the Board of Directors may grant, at its discretion, qualified or nonqualified stock options, stock appreciation rights and may grant or sell restricted stock to key individuals, including employees, nonemployee directors, consultants and advisors. Option prices for qualified incentive stock options (which may only be granted to employees) issued under the plan may
not be less than 100%
of the fair value of the common stock on the date the option is granted (unless the option is granted to a person who, at the time of grant, owns
more than 10%
of the total combined voting power of all classes of stock of the Company; in which case the option price may not be
less than 110%
of the fair value of the common stock on the date the option is granted). Option prices for nonqualified stock options issued under the Plan are at the discretion of the committee and may be equal to, greater or less than fair value of the common stock on the date the option is granted. The options vest over periods determined by the Board of Directors and are exercisable no later than
ten years
from date of grant (unless they are qualified incentive stock options granted to a person owning
more than 10%
of the total combined voting power of all classes of stock of the Company, in which case the options are exercisable no later than
five years
from date of grant). Initially, the Company reserved
150,000
shares of common stock for issuance under the Plan, which was subsequently increased by the Company's shareholders to
300,000
shares. Options to purchase
105,843
common shares have been granted under the Plan and are outstanding as of
June 30, 2017
. Additionally,
6,500
shares of restricted common stock have been granted to management and
1,000
shares of restricted common stock have been granted to members of the Company’s Board of Directors under the Plan. This plan expired in January 2016.
On March 11, 2016, the Company's Board of Directors adopted the 2016 Equity Incentive Plan (the 2016 Plan) and reserved
250,000
shares of common stock for issuance under the 2016 Plan. The 2016 Plan was approved by the Company's stockholders at its 2016 Annual Meeting of Stockholders. During the
six
months ended
June 30, 2017
, no equity compensation was granted by the Company. As of
June 30, 2017
, options to purchase
48,065
common stock shares have been granted and are outstanding under the plan.
The following table summarizes stock option activity for the Company during the
six
months ended
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
Outstanding December 31, 2016
|
162,665
|
|
|
$
|
43.11
|
|
|
—
|
|
|
—
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited or expired
|
(8,753
|
)
|
|
$
|
59.12
|
|
|
—
|
|
|
—
|
|
Outstanding June 30, 2017
|
153,912
|
|
|
$
|
42.20
|
|
|
6.12
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Vested at June 30, 2017
|
112,567
|
|
|
$
|
49.37
|
|
|
5.58
|
|
|
$
|
—
|
|
As of
June 30, 2017
, the total unrecognized compensation cost related to unvested stock options amounted to
$467,882
, which will be recognized over the weighted average remaining requisite service period of approximately
11 months
.
On March 11, 2016, the Company issued an aggregate of
7,862
restricted stock units to certain officers and employees. The restricted stock units are outstanding as of
June 30, 2017
and are subject to cliff vesting on March 10, 2018. For accounting purposes, these shares were valued at
$13.20
, which was the stock price on the date of grant, and will be expensed over the service period of
two
years from the date of grant. As of June 30, 2017,
4,550
restricted stock units are unvested.
Warrants Accounted for As Equity
In connection with the January 2012 underwritten public offering, the Company issued to the investors warrants to purchase
118,618
shares of the Company’s common stock at
$56.40
per share. The warrants had a
five
-year term from the date of issuance. These warrants qualified for equity treatment since they did 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. In January 2017, the remaining
35,454
warrants expired.
In connection with the October 2012 underwritten public offering, the Company issued to the investors warrants to purchase
112,500
shares of the Company’s common stock at
$106.00
per share. The warrants have a
five
-year term from the date of issuance. These warrants qualify for equity treatment since they do not have any provisions that would require the Company to redeem them for cash or that would result in an adjustment to the number of warrants. As of
June 30, 2017
, warrants to purchase
111,119
shares of the Company’s common stock remain outstanding relating to this public offering.
In connection with the August 2016 underwritten public offering, the Company issued pre-funded warrants to purchase
311,250
shares of common stock to certain investors. These pre-funded warrants were substantially paid for at the time of the offering, have a ten-year term and an exercise price of
$0.40
per share. During 2016, pre-funded warrants to purchase
208,750
shares of common stock were exercised. In June 2017, the remaining pre-funded warrants to purchase
102,500
shares of common stock were exercised. These pre-funded 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.
Warrants Accounted for As Liabilities
The Company’s warrant liability is adjusted to fair value each reporting period and is influenced by several factors including the price of the Company’s common stock as of the balance sheet date. On
June 30, 2017
, the price per share of Company’s common stock was
$0.85
per share compared to
$2.05
per share at December 31, 2016.
In connection with the February 2011 common stock private placement, the Company issued to the investors warrants to purchase
70,467
shares of the Company’s common stock at
$90.00
per share. The warrants had a term of
five years
and contained 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
$62.00
. Due to the potential variability of their exercise price, these warrants did not qualify for equity treatment, and therefore were recognized as a liability. As a result of the January 2012, October 2012, and February 2015 financings and shares sold through the Company's Controlled Equity Offering, the exercise price of the warrants was adjusted to
$57.60
and the number of warrants was proportionately increased to
91,670
net of exercises. On February 24, 2016, the remaining warrants to purchase
91,670
shares of the Company's common stock expired.
In connection with the February 2015 underwritten public offering, the Company issued to the investors warrants to purchase
466,369
shares of the Company’s common stock at
$26.40
per share. The warrants have a term of
five years
and contain a provision whereby the warrant exercise price will be decreased in the event that certain future common stock issuances are made at a price less than
$26.40
. Due to the potential variability of their exercise price, these warrants do not qualify for equity treatment, and therefore are recognized as a liability. During 2016, the exercise price of these warrants was adjusted to
$20.00
to reflect the shares sold under the Company's controlled equity offering and the August 2016 public offering. The Company initially valued these warrants using a binomial lattice simulation model assuming (i) dividend yield of
0%
; (ii) expected volatility of
97.0%
; (iii) risk free rate of
1.53%
and (iv) expected term of
5 years
. Based upon these calculations, the Company calculated the initial valuation of the warrants to be
$4,197,375
. For the three and six months ended June 30, 2016, the Company revalued these warrants using the binomial lattice simulation model and recorded a credit to other income of
$445,660
and
$926,671
, respectively. As of
June 30, 2017
, the Company revalued the warrants assuming (i) dividend yield of
0%
; (ii) expected volatility of
66%
; (iii) risk free rate of
1.47%
and (iv) expected term of
2.64 years
and the Company recorded a credit to other income of
$46,331
and
$69,650
during the three and six months ended June 30, 2017. As of
June 30, 2017
, warrants to purchase
466,369
shares of the Company’s common stock remain outstanding relating to this public offering and the carrying value of the warrant liability is
$7,302
.
In connection with the August 2016 underwritten public offering, the Company issued to the investors warrants to purchase
993,115
shares of common stock with an initial exercise price of
$7.68
per share. The warrants have a term
five years
and contain a provision whereby the warrant exercise price would be proportionately decreased in the event that future common stock issuances are made at a price less than
$7.68
per share. Due to the potential variability of their exercise price, these warrants do not qualify for equity treatment, and therefore are recognized as a liability. These warrants are traded on the NYSE MKT (symbol IMUC.WS). The Company initially valued these warrants using the closing price on August 12, 2016 at
$2.30
, which was the first day the warrants were traded on the NYSE MKT. Accordingly, the Company allocated
$2,284,395
of the total proceeds from the August 2016 offering to the base warrants. As of June 30, 2017, warrants to purchase
993,115
shares of the Company's common stock remain outstanding and the warrants were valued using the last trading price of the quarter at
$0.02
. Accordingly, the warrant liability was adjusted to
$20,560
and the Company recorded a credit to other income of
$396,591
and
$476,048
during the three and six months ended June 30, 2017, respectively.
Volatility has been estimated using the historical volatility of the Company’s stock price.
The following reconciliation of the beginning and ending balances for all warrant liabilities measured at fair market value on a recurring basis during the six months ended
June 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
June 30, 2016
|
Balance – January 1
|
$
|
573,560
|
|
|
$
|
1,958,775
|
|
Issuance of warrants and effect of repricing
|
—
|
|
|
31,231
|
|
Exercise of warrants
|
—
|
|
|
—
|
|
(Gain) or loss included in earnings
|
(545,698
|
)
|
|
(926,671
|
)
|
Balance – June 30
|
$
|
27,862
|
|
|
$
|
1,063,335
|
|
During the
six
months ended
June 30, 2016
, the Company recorded a charge to financing expense of
$31,231
to reflect the repricing of previously issued warrants
.
The Company did
not
incur a financing expense during the
six
months ended
June 30, 2017
.
7. California Institute of Regenerative Medicine Award
On September 18, 2015 the Company received an award in the amount of
$19.9 million
from the California Institute of Regenerative Medicine (CIRM) to partially fund the Company’s Phase 3 trial of ICT-107. The award originally provided for a
$4.0 million
project initial payment that was received during the fourth quarter of 2015, and up to
$15.9 million
in future milestone payments that are primarily dependent on patient randomization in the ICT-107 Phase 3 trial. In August 2016, the Company and CIRM modified the award such that the Company received an additional
$1.5 million
initial payment. The total amount of the award and other award conditions remain unchanged. Under the terms of the CIRM award, the Company is obligated to share future ICT-107 related revenue with CIRM. The percentage of revenue sharing is dependent on the amount of the award received by the Company and whether the revenue is from product sales or license fees. The maximum revenue sharing amount the Company may be required to pay to CIRM is equal to nine (
9
) times the total amount awarded and paid to the Company. The Company has the option to decline any and all amounts awarded by CIRM. As an alternative to revenue sharing, the Company has the option to convert the award to a loan, which such option the Company must exercise on or before ten (10) business days after the FDA notifies the Company that it has accepted the Company’s application for marketing authorization. In the event the Company exercises it right to convert the award to a loan, it will be obligated to repay the loan within ten (10) business days of making such election, including interest at the rate of the
three-month LIBOR rate
(
1.30%
as of
June 30, 2017
) plus
25%
per annum. Since the Company may be required to repay some or all of the amounts awarded by CIRM, the Company accounts for this award as a liability rather than revenue and has accrued interest through June 20, 2017, at the aforementioned rates. During the three and six months ended June 30, 2017, the Company accrued interest of
$430,024
and
$882,683
respectively. For the three and six months ended
June 30, 2016
, the Company recorded accrued interest of
$281,996
and
$546,823
. As described in Note 1, the Company suspended the Phase 3 trial of ICT-107 and will not be required to return the CIRM funds that were spent on the trial. Consequently, the Company recognized a gain of
$7,719,440
as derecgonition of the CIRM award liability including accrued interest. As of
June 30, 2017
, the Company had
$108,984
of unused CIRM funds. The Company is required to either use these funds to pay the final CIRM liabilities or return the funds to CIRM.
8. 401(k) Profit Sharing Plan
During 2011, the Company adopted a Profit Sharing Plan that qualifies under Section 401(k) of the Internal Revenue Code. Contributions to the plan are at the Company’s discretion. The Company did not make any matching contributions during the
six
months ended
June 30, 2017
or
June 30, 2016
.
9. Income Taxes
Deferred taxes represent the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. Temporary differences result primarily from the recording of tax benefits of net operating loss carry forwards and stock-based compensation.
A valuation allowance is required if the weight of available evidence suggests it is more likely than not that some portion or all of the deferred tax asset will not be recognized. Accordingly, a valuation allowance has been established for the full amount of the deferred tax assets.
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:
|
|
|
|
|
|
|
|
June 30, 2017
|
|
June 30, 2016
|
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
|
8
|
%
|
|
4
|
%
|
Change in valuation allowance for deferred tax assets
|
12
|
%
|
|
36
|
%
|
Other
|
20
|
%
|
|
—
|
%
|
Total
|
—
|
%
|
|
—
|
%
|
Deferred taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Net operating loss carryforwards
|
28,499,782
|
|
|
27,267,545
|
|
Stock-based compensation
|
2,728,866
|
|
|
3,090,903
|
|
Less valuation allowance
|
(31,228,648
|
)
|
|
(30,358,448
|
)
|
Net deferred tax asset
|
$
|
—
|
|
|
$
|
—
|
|
The valuation allowance increased by
$870,200
and
$3,538,739
during the
six
months ended
June 30, 2017
and
2016
, respectively.
As of
December 31, 2016
, the Company had federal and California income tax net operating loss carry forwards of approximately
$68.2 million
, and as of
June 30, 2017
, management has estimated federal and California income tax net operating loss carry forwards of approximately
$78.1 million
. These net operating losses will begin to expire in taxable years
2027 through 2036
and
2017 through 2036
, 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. As of
June 30, 2017
, the Company has not experienced a change in ownership as defined by Section 382 of the Internal Revenue Code, based on a revised analysis completed by management. Management estimated that the Company has not incurred any limitations on its ability to utilize its net operating losses under Section 382 of the Internal Revenue Code as a result of its February 2015 and August 2016 financings.
During 2014, the Company licensed the non-U.S. rights to a significant portion of its intellectual property to its Bermuda-based subsidiary for approximately
$11.0 million
. The fair value of the intellectual property rights was determined by an independent third party. The proceeds from this sale represent a gain for U.S. tax purposes and are offset by current year losses and net operating loss carryforwards. However, the Internal Revenue Service, or the IRS, or the California Franchise Tax Board, or the CFTB, could challenge the valuation of the intellectual property rights and assess a greater valuation, which would require the Company to utilize a portion, or all, of its available net operating losses. If an IRS or a CFTB valuation exceeds the available net operating losses, the Company would incur additional income taxes. The Company’s ability to use its net operating losses is subject to the potential future limitations of IRS Section 382, as well as expiration of federal and state net operating loss carryforwards.
10. Subsequent Events
Underwritten Public Offering
Subsequent to
June 30, 2017
, the Company entered into an underwriting agreement with Maxim Group, LLC, pursuant to which the Company sold
5,000
shares of Series B
8%
Mandatorily Convertible Preferred Stock (the Preferred Stock) and related warrants (the “Warrants”) to purchase up to
9,000
shares of Preferred Stock for gross proceeds of
$5.0 million
, prior to deducting underwriting discounts, commissions and offering expenses payable by the Company and excluding the proceeds from the exercise of the Warrants. The Preferred Stock is convertible into common stock using a conversion price equal to the lesser of (i)
$1.22
, subject to certain adjustments, and (ii)
87.5%
of the lowest volume weighted average price of our common stock during the ten trading days ending on, and including, the date of the notice of conversion. The conversion price described in (ii) is subject to a floor of
$0.35
, except in the event of anti-dilution adjustments.
The Warrants consist of three tranches with expirations in October 2017, January 2018 and July 2018. Each tranche allows the holders to purchase up to
3,000
shares of Preferred Stock at a price of
$1,000
per share. If fully exercised, each tranche would provide the Company with
$3.0 million
of additional financing (
$9.0 million
in total). Upon exercise, the Warrant holders receive shares of Preferred Stock. The Preferred Stock is convertible in common stock using a conversion price equal to
87.5%
of the lowest volume weighted average price of our common stock during the ten trading days ending on, and including, the date of the notice conversion. The conversion price is subject to a floor of
$0.35
.
Through August 4, 2017, holders of Preferred Stock converted
4,351
shares of the Preferred Stock into
11,904,984
shares of the Company’s Common Stock. Additionally, Warrant holders exercised Warrants for the issuance of
120
shares of Preferred Stock and simultaneously converted those shares into
370,284
shares of common stock. The Company received gross proceeds of
$120,000
from the exercise of the Warrants.
The Company has not finalized the accounting for this transaction.
Legal Proceedings
As described in Note 5, Commitments and Contingencies, on July 27, 2017, a shareholder filed a derivative class action lawsuit in the Superior Court for the State of California in the County of Los Angeles, captioned
David Wiener, Derivatively and on Behalf of ImmunoCellular Therapeutics, Ltd. v. certain former and current officers and directors
(Case No. BC670134)
.
The complaint sets forth violations of, 1) breach of fiduciary duty, 2) unjust enrichment, 3) abuse of control, 4) gross mismanagement and 5) waste of corporate assets. The complaint alleges that the lack of oversight allowed the publication of articles about ICT-107 without disclosing that the articles were either directly, or indirectly, paid for by the Company. The complaint further alleges that, from May 1 2012 to April 2017, certain of its current and former officers and directors failed to disclose that the stock promotion scheme in fact occurred or was occurring, the extent of it, as well as the Company's involvement. The plaintiff seeks an award of unspecified damages, prejudgment and post-judgment interest, as well as reasonable attorneys’ fees, and other costs. The Company intends to vigorously defend against the claims. The Company may be obligated to indemnify its officers and directors in connection with this matter.