Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
1—Nature of Operations and Basis of Presentation
OncoSec
Medical Incorporated (together with its subsidiary, unless the context indicates otherwise, being collectively referred to as the “Company”)
began its operations as a biotechnology company in March 2011. The Company has not generated any revenues since its inception. The Company
was incorporated in the State of Nevada on February 8, 2008 under the name of Netventory Solutions, Inc. and changed its name in March
2011 when it began operating as a biotechnology company.
The
Company is a late-stage biotechnology company focused on designing, developing and commercializing innovative therapies and proprietary
medical approaches to stimulate and guide an anti-tumor immune response for the treatment of cancer. Its core technology platform, ImmunoPulse®,
is a drug-device therapeutic modality comprised of proprietary intratumoral electroporation (“EP”) delivery devices (the
“OncoSec Medical System (“OMS”) Electroporation device” or “OMS EP device”). The OMS EP device is
designed to deliver plasmid DNA-encoded drugs directly into a solid tumor and promote an immunological response against cancer. The OMS
EP device can be adapted to treat different tumor types, and consists of an electrical pulse generator, a reusable handle and disposable
applicators. The Company’s lead product candidate is a DNA-encoded interleukin-12 (“IL-12”) called tavokinogene telseplasmid
(“TAVO”). The OMS EP device is used to deliver TAVO intratumorally, with the aim of reversing the immunosuppressive microenvironment
in the treated tumor. The activation of the appropriate inflammatory response can drive a systemic anti-tumor response against untreated
tumors in other parts of the body. In 2017, the Company received Fast Track designation and Orphan Drug Designation from the U.S. Food
and Drug Administration (“FDA”) for TAVO in metastatic melanoma, which could qualify TAVO for expedited FDA review, a rolling
Biologics License Application (“BLA”) review and certain other benefits.
The
Company’s primary focus is to pursue its clinical trials of TAVO in combination with KEYTRUDA® (pembrolizumab) in anti-PD-1
checkpoint refractory metastatic melanoma and metastatic triple negative breast cancer (“TNBC”).
The
Company’s KEYNOTE-695 study targets melanoma patients who are anti-PD-1 non-responders. In May 2017, we entered into a
clinical trial collaboration and supply agreement with a subsidiary of Merck & Co., Inc. (“Merck”) in connection
with the KEYNOTE-695 study. Pursuant to the terms of the agreement, both companies will bear their own costs related to
manufacturing and supply of their product, as well as be responsible for their own internal costs. The Company is the study sponsor
and is responsible for external costs. The KEYNOTE-695 study is fully enrolled and currently treating patients. This study is a
registration-directed, Phase 2b open-label, single-arm, multicenter study in approximately 100 patients of TAVO in combination with
KEYTRUDA® (pembrolizumab) in anti-PD-1 checkpoint refractory (either nivolumab or pembrolizumab) metastatic melanoma being
conducted in the United States, Canada, Australia and Europe. The Company provided interim preliminary data from this study at the
Society of Immunotherapy of Cancer in November 2020. In December 2020, the protocol was amended to include an additional cohort,
consisting of patients who progressed on prior treatment of both ipilimumab and nivolumab. Additionally, we are working on the
commercial version of the OMS EP device currently being used in this trial so that it complies with current regulatory standards, a
prerequisite for FDA clearance. We anticipate using this version of the OMS EP device in this study in an expansion cohort of
approximately 25 patients to enable our plan to file for accelerated approval. We are currently seeking FDA concurrence to use this
updated version in the ongoing trial. Further, based on and subject to the outcome of the study and feedback from FDA, we plan to
file for accelerated approval with the FDA for this patient population in the first half of 2022.
In
May 2018, the Company entered into a second clinical trial collaboration and supply agreement with Merck with respect to a Phase 2 study
of TAVO in combination with KEYTRUDA® to evaluate the safety and efficacy of the combination in patients with inoperable locally
advanced or metastatic TNBC, who have previously failed at least one systemic chemotherapy or immunotherapy. This study is referred to
as KEYNOTE-890, Cohort 1. Pursuant to the terms of the agreement, both companies will bear their own costs related to manufacturing and
supply of their product, as well as be responsible for their own internal costs. The Company is the study sponsor and is responsible
for external costs. The KEYNOTE-890 study, Cohort 1 final patient treatment was completed in December 2020. The Company completed enrollment
in fourth quarter 2019 and provided interim preliminary data from this study at the San Antonio Breast Cancer Symposium in December 2019
and December 2020. The study is a Phase 2 open-label, single-arm, multicenter study in the United States and Australia.
In
May 2019, the Company commenced an investigator-initiated Phase 1 clinical trial conducted by the University of California San Francisco
Helen Diller Family Comprehensive Cancer Center (“OMS-131”). This study targets patients with Squamous Cell Carcinoma Head
& Neck Cancer and is a single-arm open-label clinical trial in which 35 evaluable patients will receive TAVO, KEYTRUDA® and epacadostat.
OMS-131 is currently enrolling and treating patients and is expected to complete enrollment within the next eighteen months.
In
June 2020, the Company amended its second clinical trial collaboration and supply agreement with Merck to include another Phase 2 study
of TAVO in combination with KEYTRUDA® plus chemotherapy to evaluate the safety and efficacy of the combination in patients with inoperable
locally advanced or metastatic TNBC. This study is referred to as KEYNOTE-890, Cohort 2. Pursuant to the terms of the amended agreement,
both companies will bear their own costs related to manufacturing and supply of their product, as well as be responsible for their own
internal costs. The Company is the study sponsor and is responsible for external costs. The KEYNOTE-890, Cohort 2 study began enrolling
patients in January of 2021. The Company expects to complete enrollment within fifteen months from the start of enrollment and expects
to provide interim preliminary data from this study at a future medical conference. The study is a Phase 2 open-label, single-arm, multicenter
study in the United States and Australia.
In
August 2020, the Company commenced an investigator-initiated Phase 2 study conducted by the H. Lee Moffitt Cancer Center and Research
Institute and the University of South Florida Morsani College of Medicine to evaluate TAVO™ as neoadjuvant treatment (administered
before surgery) in combination with intravenous OPDIVO®(nivolumab) in up to 33 patients with operable locally/regionally advanced
melanoma. This investigator-initiated Phase 2 study has been designed to evaluate whether the addition of TAVO can increase the anti-tumor
response observed with monotherapy OPDIVO®, an anti-PD-1 checkpoint inhibitor, in patients with locally/regionally advanced melanoma
prior to surgical resection of tumors. This study began enrolling patients in December of 2020 and is expected to complete enrollment
within eighteen months of the start of enrollment.
In
November 2020, the Company exclusively licensed rights to the Cliniporator® electroporation gene electrotransfer platform from IGEA
Clinical Biophysics. The license encompasses a broad field of use for gene delivery in oncology, including use as part of the Company’s
visceral lesion applicator (“VLA”) program. This platform has been used for electrochemotherapy in and outside of Europe
in over 200 major oncological centers to treat cutaneous metastatic cancer nodules, including melanoma.
In
April 2020, the Company announced that Providence Cancer Institute, a part of Providence St. Joseph Health (“Providence”),
is pursuing a first-in-human Phase 1 clinical trial of OncoSec’s novel DNA-encodable, investigational vaccine, CORVax12, which
is designed to act as a prophylactic vaccine to prevent COVID-19. CORVax12 consists of the Company’s existing product candidate,
TAVO™, in combination with an immunogenic component of the SARS-CoV-2 virus developed by researchers at NIH’s National Institute
of Allergy and Infectious Diseases (“NIAID”). Providence investigators filed and received an Investigator-Initiated Investigational
New Drug (“IND”) Application; however, at this time, Providence does not intend to continue further enrollment in this study
and has transferred the Investigator Initiated IND to the Company.
In April 2021,
the Company announced that it has received authorization to CE mark, GenPulse™, OMS EP device for use in solid tumors. The CE mark
certification augments the Notified Body certification to the International Organization for Standardization’s (ISO) 13485 standard for
the design, development, manufacture and distribution of electroporation devices, which is renewed annually, subject to a successful
audit. The CE mark certification involved a comprehensive audit of the Company’s quality system, as well as thorough evaluation and testing
of the OMS EP device to assure it performs safely and as designed. A CE mark indicates the OMS EP device complies with Directives of
the European Commission (EC) and therefore can be marketed within the 31-nation European Economic Area (EEA) and Switzerland. The GenPulse
is being used in certain clinical trial sites in Australia and the EU. The Company is currently seeking FDA agreement to use GenPulse
in U.S. clinical sites.
The
Company intends to continue to pursue potential new trials and studies related to TAVO, in various tumor types. In addition, the Company
is also developing its next-generation EP device and applicator, including advancements toward prototypes, pursuing discovery research
to identify other product candidates that, in addition to IL-12, can be encoded into proprietary plasmid-DNA and delivered intratumorally
using EP. Specifically, we are developing a new, proprietary technology to potentially treat liver, lung, bladder, pancreatic
and other difficult to treat visceral lesions through the direct delivery of plasmid-based IL-12 with a new VLA.
The
new VLA has been designed to work with low voltage EP generators, including but not limited to the Company’s proprietary APOLLOTM
EP generator and Cliniporator® to leverage plasmid-optimized EP and enhance the depth of transfection of immunologically
relevant genes into cells located in visceral organs. In early 2020, the Company had two poster presentations, one at the Society for
Interventional Oncology (“SIO”) and one at the Society for Interventional Radiology, where it presented preclinical data
on both the new VLA and APOLLO generator. Additionally, the Company has successfully completed several large animal studies and aim to
bring the new VLA into the clinic in 2021. By using the Company’s next-generation technology with the new VLA (and in cutaneous/subcutaneous
settings as well), the Company’s goal is to reverse the immunosuppressive mechanisms of a tumor, as well as to expand the Company’s
pipeline. The Company believes that the flexibility of the Company’s proprietary plasmid-DNA technology allows the Company
to deliver other immunologically relevant molecules into the tumor microenvironment in addition to the delivery of plasmid-DNA encoding
for IL-12. In June 2020, the Company had two poster presentations at the 2020 America Association for Cancer Research (“AACR”)
where the Company presented pre-clinical data regarding its new anti-tumor product candidate, which will amplify the power of intratumoral
IL-12 through the addition of both CXCL9, a critical T cell chemokine, and anti-CD3, a membrane bound pan T cell stimulator. These other
immunologically relevant molecules may complement IL-12’s activity by limiting or enhancing key pathways associated with tumor
immune subversion.
The Company established a collaboration with Emerge Health Pty (“Emerge”),
the leading Australian company providing full registration, reimbursement, sales, marketing and distribution services of therapeutic
products in Australia and New Zealand, to commercialize TAVO and make it available under Australia’s Special Access Scheme
(“SAS”) program. Emerge was acquired in late 2019 and has since informed the Company that it does not intend
to continue its participation in the SAS program; therefore, the Company intends to terminate the collaboration and not participate
in the SAS program.
Unaudited
Interim Financial Information
The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally
accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Form 10-Q and Article
8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial
statements. The condensed consolidated balance sheet as of April 30, 2021, the condensed consolidated statements of operations, the condensed
consolidated statements of comprehensive loss and the condensed consolidated statements of stockholders’ equity for the three and
nine months ended April 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the nine months ended April 30,
2021 and 2020, are unaudited, but include all adjustments (consisting of normal recurring adjustments) that the Company considers necessary
for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. The
condensed consolidated results of operations for the three and nine months ended April 30, 2021 shown herein are not necessarily indicative
of the consolidated results that may be expected for the year ending July 31, 2021, or for any other period. These condensed consolidated
financial statements, and notes thereto, should be read in conjunction with the audited consolidated financial statements for the fiscal
year ended July 31, 2020, included in the Company’s Annual Report on Form 10-K (the “Annual Report”) filed with the
U.S. Securities and Exchange Commission (“SEC”) on October 28, 2020, as well as the financial information contained in the
Company’s Form 10-K/A filed with the SEC on November 30, 2020. The condensed consolidated balance sheet at July 31, 2020 has been
derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. GAAP
for complete financial statements.
Note
2—Significant Accounting Policies
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, OncoSec
Medical Australia PTY LTD. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use
of Estimates
The
accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of expenses during the reporting period. Such estimates include stock-based
compensation, the accrual of research, product development and clinical obligations, impairment of long-lived assets, determining the
Incremental Borrowing Rate for calculating Right-Of-Use (“ROU”) assets and lease liabilities and accounting for income taxes,
including the related valuation allowance on the deferred tax asset and uncertain tax positions. The Company bases its estimates on historical
experience and on various other assumptions that it believes are 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. On an ongoing
basis, the Company reviews its estimates to ensure that they appropriately reflect changes in the business or as new information becomes
available. Actual results may differ from these estimates.
Segment
Reporting
The
Company operates in a single industry segment—the discovery and development of novel immunotherapeutic product candidates to improve
treatment options for patients and physicians, intended to treat a wide range of oncology indications.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments that are readily convertible into cash and have an original maturity of three months
or less at the time of purchase to be cash equivalents.
Concentrations
and Credit Risk
The
Company maintains cash balances at a small number of financial institutions in both the United States and Australia and such balances
commonly exceed the $250,000 amount insured by the Federal Deposit Insurance Corporation and approximately $194,000 USD insured by
the Australian Financial Claims Scheme. The Company has not experienced any losses in such accounts and management believes that
the Company does not have significant credit risk with respect to such cash and cash equivalents.
Property
and Equipment
The
Company’s capitalization threshold is $5,000 for property and equipment. The cost of property and equipment is depreciated on a
straight-line basis over the estimated useful lives of the related assets. The useful lives of property and equipment for the purpose
of computing depreciation are as follows:
Computers
and equipment:
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3
to 10 years
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Computer
software:
|
1
to 3 years
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Leasehold
improvements:
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Shorter
of lease period or useful life
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Intangible
Assets
Definite
life intangible assets include a license. Intangible assets are recorded at cost. License agreements cost represent the fair value of
the license agreement on the date acquired. Intangible assets are amortized on a straight-line basis over their estimated useful life.
Impairment
of Long-Lived Assets
The
Company periodically assesses the carrying value of intangible and other long-lived assets, and whenever events or changes in circumstances
indicate that the carrying amount of an asset might not be recoverable. The assets are considered to be impaired if the Company determines
that the carrying value may not be recoverable based upon its assessment, which includes consideration of the following events or changes
in circumstances:
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●
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the
asset’s ability to continue to generate income from operations and positive cash flow in future periods;
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●
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loss
of legal ownership or title to the asset(s);
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|
|
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●
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significant
changes in the Company’s strategic business objectives and utilization of the asset(s); and
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●
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the
impact of significant negative industry or economic trends.
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If
the assets are considered to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the
fair value of the assets. Fair value is determined by the application of discounted cash flow models to project cash flows from the assets.
In addition, the Company bases estimates of the useful lives and related amortization or depreciation expense on its subjective estimate
of the period the assets will generate revenue or otherwise be used by it. Assets to be disposed of are reported at the lower of the
carrying amount or fair value, less selling costs. The Company also periodically reviews the lives assigned to long-lived assets to ensure
that the initial estimates do not exceed any revised estimated periods from which the Company expects to realize cash flows from its
assets.
Research
and Development Expenses
Research
and development expenses consist of costs incurred for internal projects, as well as partner-funded collaborative research and development
activities. These costs include direct and research-related overhead expenses, which include salaries, stock-based compensation and other
personnel-related expenses, facility costs, supplies, depreciation of facilities and laboratory equipment, as well as research consultants
and the cost of funding research at universities and other research institutions, and are expensed as incurred. Costs to acquire technologies
that are utilized in research and development that have no alternative future use, are expensed when incurred.
Accruals
for Research and Development Expenses and Clinical Trials
The
Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations
and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts
vary from contract to contract and may result in payment terms that do not match the periods over which materials or services are provided
under such contracts. The Company accounts for these expenses in its financial statements by matching those expenses with the period
in which services are performed and efforts are expended. The Company determines accrual estimates through financial models and takes
into account discussion with applicable personnel and outside service providers as to the progress of clinical trials, or the services
completed. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known
to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research
organizations and other third-party vendors. During the course of a clinical trial, the Company adjusts its clinical expense recognition
if actual results differ from its estimates.
Fair
Value of Financial Instruments
The
carrying amounts for cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses and notes payable approximate
fair value due to the short-term nature of these instruments. It is management’s opinion that the Company is not exposed to significant
interest, currency, or credit risks arising from its other financial instruments and that their fair values approximate their carrying
values except where expressly disclosed.
The
accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair
value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date, based on the Company’s principal or, in the absence of
a principal, most advantageous market for the specific asset or liability.
The
Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring
basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement.
The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining
fair value.
The
three tiers are defined as follows:
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Level
1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets at
the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation
of these products does not entail a significant degree of judgment.
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Level
2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace
for identical or similar assets and liabilities.
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●
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Level
3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
The
development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility
of the Company’s management.
Changes
in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates
or assumptions and recorded as appropriate.
The
Company had no assets or liabilities that required remeasurement on a recurring basis as of April 30, 2021 and July 31, 2020.
Warrants
The
Company assesses its warrants as either equity or a liability based upon the characteristics and provisions of each instrument. Warrants
classified as equity are recorded at fair value as of the date of issuance on the Company’s balance sheet and no further adjustments
to their valuation are made. Warrants classified as derivative liabilities and other derivative financial instruments that require separate
accounting as liabilities are recorded on the Company’s balance sheet at their fair value on the date of issuance and are re-measured
on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting
periods recorded as other income or expense. Management estimates the fair value of these liabilities using option pricing models and
assumptions that are based on the individual characteristics of the warrants or other instruments on the valuation date, as well as assumptions
for future financings, expected volatility, expected life, yield and risk-free interest rate. As of April 30, 2021 and July 31, 2020,
all outstanding warrants issued by the Company were classified as equity.
Net
Loss Per Share
The
Company computes basic net loss per common share by dividing the applicable net loss by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed by dividing the applicable net loss by the weighted-average number
of common shares outstanding during the period plus additional shares to account for the dilutive effect of potential future issuances
of common stock relating to stock options and other potentially dilutive securities using the treasury stock method.
The
Company did not include shares underlying stock options, restricted stock units and warrants issued and outstanding during any of the
periods presented in the computation of net loss per share, as the effect would have been anti-dilutive. The following potentially dilutive
outstanding securities were excluded from diluted net loss per share because of their anti-dilutive effect:
|
|
For the Three and Nine Months Ended
April 30, 2021
|
|
|
For the Three and Nine Months Ended
April 30, 2020
|
|
Stock options
|
|
|
2,491,898
|
|
|
|
15,000
|
|
Restricted stock units
|
|
|
21,541
|
|
|
|
41,456
|
|
Warrants
|
|
|
1,714,315
|
|
|
|
3,114,288
|
|
Total
|
|
|
4,227,754
|
|
|
|
3,170,744
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Stock-Based
Compensation
The
Company grants equity-based awards (typically stock options or restricted stock units) under its stock-based compensation plan and outside
of its stock-based compensation plan, with terms generally similar to the terms under the Company’s stock-based compensation plan.
The Company estimates the fair value of stock option awards using the Black-Scholes option valuation model. For employees, directors
and consultants, the fair value of the award is measured on the grant date. The fair value amount is then recognized over the period
during which services are required to be provided in exchange for the award, usually the vesting period. The Black-Scholes option valuation
model requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend
yield, and expected life of the option. The Company estimates the fair value of restricted stock unit awards based on the closing price
of the Company’s common stock on the date of issuance.
Employee
Stock Purchase Plan
Employees
may elect to participate in the Company’s stockholder-approved employee stock purchase plan. The stock purchase plan allows for
the purchase of the Company’s common stock at not less than 85% of the lesser of (i) the fair market value of a share of common
stock on the beginning date of the offering period and (ii) the fair market value of a share of common stock on the purchase date of
the offering period, subject to a share and dollar limit as defined in the plan and subject to the applicable legal requirements. There
are two six-month offering periods during each fiscal year, ending on January 31 and July 31.
In
accordance with applicable accounting guidance, the fair value of awards under the stock purchase plan is calculated at the beginning
of each offering period. The Company estimates the fair value of the awards using the Black-Scholes option valuation model. The Black-Scholes
option valuation model requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest
rate, dividend yield, and the offering period. This fair value is then amortized at the beginning of the offering period. Stock-based
compensation expense is based on awards expected to be purchased at the beginning of the offering period, and therefore is reduced when
participants withdraw during the offering period.
Leases
The
Company determines if an arrangement is a lease at inception. Operating lease ROU assets represent the Company’s right to use an
underlying asset during the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments
arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities, and long-term operating lease
liabilities on the Company’s condensed consolidated balance sheets.
Lease
ROU assets and lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease
term at commencement date calculated using the Company’s incremental borrowing rate applicable to the lease asset, unless the implicit
rate is readily determinable. ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives
received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the
Company will exercise that option. Leases with a term of 12 months or less are not recognized on the condensed consolidated balance sheets.
The Company’s leases do not contain any residual value guarantees. Lease expense for minimum lease payments is recognized on a
straight-line basis over the lease term. The Company accounts for lease and non-lease components as a single lease component for all
its leases.
Foreign
Currency Translation
The
Company uses the U.S. Dollar as the reporting currency for its financial statements. Functional currency is the currency of the primary
economic environment in which an entity operates. The functional currency of the Company’s wholly owned subsidiary is the Australian
dollar.
Assets
and liabilities of the Company’s subsidiary are translated into U.S. Dollars at period-end foreign exchange rates, and revenues
and expenses are translated at average rates prevailing throughout the period. Translation adjustments are included in “Accumulated
other comprehensive income” a separate component of stockholders’ equity, and in the “Effect of exchange rate changes
on cash and cash equivalents,” on the Company’s condensed consolidated statements of cash flows. Transaction gains and losses
including intercompany transactions denominated in a currency other than the functional currency of the entity involved are included
in “Foreign currency exchange gain (loss), net” on the Company’s condensed consolidated statements of operations.
Accumulated
Other Comprehensive Income (Loss)
Accumulated
other comprehensive income (loss) includes foreign currency translation adjustments related to the Company’s subsidiary in Australia
and is excluded from the accompanying condensed consolidated statements of operations.
Australia
Research and Development Tax Credit
The
Company’s wholly-owned Australian subsidiary incurs research and development expenses, primarily in the course of conducting clinical
trials. The Company’s Australian research and development activities qualify for the Australian government’s tax credit program,
which provides a 43.5% credit for qualifying research and development expenses. The tax credit does not depend on the Company’s
generation of future taxable income or ongoing tax status or position. Accordingly, the credit is not considered an element of income
tax accounting under ASC 740 “Income Taxes” and is recorded against qualifying research and development expenses.
Tax
Reform
On
March 27, 2020, the president signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) providing
nearly $2 trillion in economic relief to eligible businesses impacted by the coronavirus outbreak. The CARES Act, among other things,
includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss (“NOL”)
utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation
methods for qualified improvement property. In addition to the Small Business Administration (“SBA”) loan received in April
2020 (See Note 5), the Company continues to review, and may seek, any other available and appropriate potential benefits under the CARES
Act as well as any future legislation signed into law during 2021. Other than the proceeds from the SBA loan, the effects of the CARES
Act did not have a significant impact on the Company’s condensed consolidated financial statements during the three and nine months
ended April 30, 2021 and 2020.
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts
in Entity’s Own Equity (Subtopic 815-40)-Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.
The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently,
more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion
features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope
exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share
calculation in certain areas. The new guidance is effective for annual and interim periods beginning after December 15, 2023,
and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal
years. The Company is currently evaluating the impact that this new guidance will have on its condensed consolidated financial
statements.
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50),
Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus
of the FASB Emerging Issues Task Force). The ASU clarifies and reduces diversity in an issuer’s accounting for modifications or
exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification
or exchange. The ASU provides guidance that will clarify whether an issuer should account for a modification or an exchange of a freestanding
equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and,
if so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The
new guidance is effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted, including
adoption in an interim period. The Company is currently evaluating the impact that this new guidance will have on its condensed consolidated
financial statements.
Note
3— Liquidity and Financial Condition
The Company’s
products are being developed and have not generated revenue. As of April 30, 2021, the Company had approximately $54.4 million in cash
and cash equivalents on its balance sheet. The Company believes its current cash position is sufficient to fund its business plan into
approximately the third calendar quarter of 2022. The estimate is based on assumptions that may prove to be wrong, and the Company could
use available capital resources sooner than currently expected. Because of the numerous risks and uncertainties associated with the development
and commercialization of its product candidates, the Company is unable to estimate the amount of increased capital outlays and operating
expenses associated with completing the development of its current product candidates.
The Company recognizes
it may need to raise additional capital in order to continue to execute its business plan. There is no assurance that additional financing
will be available when needed or that management will be able to obtain financing on terms acceptable to the Company or whether the Company
will become profitable and generate positive operating cash flow. If the Company is unable to raise sufficient additional funds, it will
have to scale back its business plan. The ongoing COVID-19 pandemic has also caused volatility in the global financial markets and
threatened a slowdown in the global economy, which may negatively affect our ability to raise additional capital on attractive terms
or at all.
Note
4—Balance Sheet Details
Property
and Equipment
Property
and equipment, net, is comprised of the following:
|
|
April 30, 2021
|
|
|
July 31, 2020
|
|
Equipment and furniture
|
|
$
|
2,119,486
|
|
|
$
|
1,859,824
|
|
Computer software
|
|
|
109,242
|
|
|
|
109,242
|
|
Leasehold improvements
|
|
|
21,934
|
|
|
|
21,934
|
|
Property and equipment, gross
|
|
|
2,250,662
|
|
|
|
1,991,000
|
|
Accumulated depreciation and amortization
|
|
|
(1,319,462
|
)
|
|
|
(1,176,506
|
)
|
Total
|
|
$
|
931,200
|
|
|
$
|
814,494
|
|
Depreciation
and amortization expense recorded for the three and nine months ended April 30, 2021 was approximately $47,000 and $143,000, respectively.
Depreciation and amortization expense recorded for the three and nine months ended April 30, 2020 was approximately $54,000 and $166,000,
respectively.
Intangible
Assets
Intangible
assets, net, is comprised of the following:
|
|
April 30, 2021
|
|
License
|
|
$
|
495,000
|
|
Accumulated amortization
|
|
|
(29,118
|
)
|
Total
|
|
$
|
465,882
|
|
In
November 2020, the Company licensed generator technology for use in its clinical trials and other research and development efforts. Unless
earlier terminated, the term of the license agreement will remain in effect for 85 months. The Company has determined that the license
has alternative future uses in research and development projects. The value of the acquired license is recorded as an intangible asset
with amortization over the estimated useful life of 85 months.
Intangible
asset amortization expense recorded for the three and nine months ended April 30, 2021 was approximately $17,000 and $29,000, respectively.
Intangible asset amortization expense recorded for both the three and nine months ended April 30, 2020 was $0.
At
April 30, 2021, the estimated amortization expense by fiscal year based on the current carrying value of intangible assets is as follows:
2021
|
|
$
|
17,471
|
|
2022
|
|
|
69,882
|
|
2023
|
|
|
69,882
|
|
2024
|
|
|
69,882
|
|
2025
|
|
|
69,882
|
|
Thereafter
|
|
|
168,883
|
|
Total
|
|
$
|
465,882
|
|
Accounts
Payable and Accrued Liabilities
Accounts
payable and accrued liabilities are comprised of the following:
|
|
April 30, 2021
|
|
|
July 31, 2020
|
|
Research and development costs
|
|
$
|
3,672,010
|
|
|
$
|
4,730,347
|
|
Professional services fees
|
|
|
985,228
|
|
|
|
3,097,881
|
|
Other
|
|
|
8,949
|
|
|
|
94,808
|
|
Total
|
|
$
|
4,666,187
|
|
|
$
|
7,923,036
|
|
Accrued
Compensation
Accrued
compensation is comprised of the following:
|
|
April 30, 2021
|
|
|
July 31, 2020
|
|
Accrued payroll
|
|
$
|
207,619
|
|
|
$
|
279,473
|
|
401K payable
|
|
|
41,165
|
|
|
|
5,654
|
|
Total
|
|
$
|
248,784
|
|
|
$
|
285,127
|
|
Note
5—Notes Payable
On
April 27, 2020, the Company was granted a two-year loan (the “Loan”) from the Banc of California in the aggregate
amount of $952,744, pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act, which was enacted March
27, 2020. Interest
accrues at 1% per year, effective on the date of initial disbursement.
The
Company submitted its application for full loan forgiveness on January 6, 2021. On February 12, 2021, the Company received notice that
the full Loan amount of $952,744 and $8,046 of accrued interest had been forgiven. As a result, the Company recorded a $960,790 gain
on extinguishment of debt in its condensed consolidated statement of operations for the three and nine months ended April
30, 2021.
On
June 18, 2020, the Company entered into a finance agreement with AFCO Premium Credit LLC (“AFCO”). Pursuant to the terms
of the agreement, AFCO loaned the Company the principal amount of $551,803, which accrues interest at 3.381% per annum, to partially
fund the payment of the premium of the Company’s director & officer insurance. The agreement requires the Company to make ten
monthly payments of $56,039, including interest, starting on July 18, 2020. At April 30, 2021, the outstanding balance related to this
finance agreement was paid in full.
Note
6—Stockholders’ Equity
January
2021 Offering
On
January 25, 2021, the Company completed the offer and sale of an aggregate of 7,711,284 shares of its common stock at a purchase price
of $5.45 per share in a public offering. The gross proceeds from the offering were approximately $42.0 million, and the net proceeds,
after deducting the placement agent’s fee and other offering fees and expenses paid by the Company, were approximately $39.1 million.
In connection with the offering, the Company paid the placement agent and other financial advisors an aggregate cash fee equal to 6.0%
of the gross proceeds of the offering, as well as legal and other expenses equal to approximately $0.4 million.
August
2020 Offering
On
August 19, 2020, the Company completed the offer and sale of an aggregate of 4,608,589 shares of its common stock at a purchase price
of $3.25 per share in a registered direct offering. The gross proceeds from the offering were approximately $15.0 million, and the net
proceeds, after deducting the placement agent’s fee and other offering fees and expenses paid by the Company, were approximately
$13.5 million. In connection with the offering, the Company paid the placement agent and other financial advisors an aggregate cash fee
equal to 8.0% of the gross proceeds of the offering, as well as legal and other expenses equal to approximately $0.3 million.
China
Grand Pharmaceutical and Healthcare Holdings Limited and Sirtex Medical US Holdings, Inc.
On
February 7, 2020, the Company closed (the “Closing”) a strategic transaction (the “Transaction”) with Grand Decade
Developments Limited, a direct, wholly-owned subsidiary of China Grand Pharmaceutical and Healthcare Holdings Limited, a company formed
under the laws of the British Virgin Islands (“CGP”), and its affiliate, Sirtex Medical US Holdings, Inc., a Delaware corporation
(“Sirtex” and, together with CGP, the “Buyers”). On October 10, 2019, the Company and the Buyers entered into
Stock Purchase Agreements, as amended, pursuant to which the Company agreed to sell and issue to CGP and Sirtex 10,000,000 shares and
2,000,000 shares, respectively, of the Company’s common stock for a total purchase price of $30.0 million. The net proceeds, after
deducting offering fees and expenses paid by the Company, were approximately $28.0 million.
During
the nine months ended April 30, 2021, shares of common stock issued to third party investors related to warrant exercises totaled 1,389,261.
On April 16, 2021, in accordance with their respective stock purchase agreements originally entered into on October 10, 2019, CGP and
Sirtex, related parties of the Company, exercised their rights to purchase additional shares of common stock at a purchase price
equal to the same exercise price paid by each warrant holder in order to maintain their respective ownership percentages of the
outstanding shares of common stock of the Company as of October 10, 2019. These significant related party relationships are
based on Sirtex’s approximate 8% ownership of the outstanding shares of the Company’s common stock, and that of
its significant equity holder, CGP (which owns 49% of Sirtex), which owns approximately 42% of the outstanding shares of the Company’s
common stock. The Company issued 1,409,838 shares of common stock to CGP at an exercise price of $3.45 per share, resulting in gross
proceeds of approximately $4.8 million. The Company issued 281,968 shares of common stock to Sirtex at an exercise price of $3.45 per
share, resulting in gross proceeds of approximately $1.0 million.
Common
Stock Option Exercise
During
the nine months ended April 30, 2021, shares of common stock issued related to option exercises totaled 294,884. The Company realized
proceeds of approximately $0.5 million from the stock option exercises. There were no stock options exercised during the nine months
ended April 30, 2020.
Outstanding
Warrants
During
the nine months ended April 30, 2021, shares of common stock issued related to warrant exercises totaled 1,389,261. The Company realized
proceeds of approximately $4.8 million from the warrant exercises. There were no warrants exercised during the nine months ended April
30, 2020.
During
the nine months ended April 30, 2020, the Company repurchased an aggregate of 266,098 warrants from certain warrant holders for an aggregate
of approximately $0.2 million. The repurchase price was paid in cash, and upon repurchase, all of these warrants were cancelled.
At
April 30, 2021, the Company had outstanding warrants to purchase 1,714,315 shares of its common stock, with exercise prices ranging from
$3.45 to $22.69, all of which were classified as equity instruments. These warrants expire at various dates between May 2021 and May
2024.
Note
7—Stock-Based Compensation
The
OncoSec Medical Incorporated 2011 Stock Incentive Plan (as amended and approved by the Company’s stockholders (the “2011
Plan”)), authorizes the Company’s Board of Directors to grant equity awards, including stock options and restricted stock
units, to employees, directors and consultants. The 2011 Plan authorizes a total of 4,600,000 shares of common stock for issuance. Under
the 2011 Plan, incentive stock options are to be granted at a price that is no less than 100% of the fair value of the Company’s
common stock at the date of grant. Stock options vest over a period specified in the individual option agreements entered into with grantees
and are exercisable for a maximum period of 10 years after the date of grant. Incentive stock options granted to stockholders who own
more than 10% of the outstanding stock of the Company at the time of grant must be issued at an exercise price of no less than 110% of
the fair value of the Company’s common stock on the date of grant.
At
the Company’s Annual Meeting of Stockholders on April 29, 2021,
the Company’s stockholders approved an amendment to the 2011 Plan to increase the number
of shares authorized under the 2011 Plan by 1,250,000 shares, from 3,350,000 shares to 4,600,000 shares.
Modification
of Stock Option Awards
During
the nine months ended April 30, 2021, the compensation committee of the Company’s Board of Directors approved the accelerated vesting
of 791,019 and 91,666 previously granted time-vesting awards for employees and directors, respectively. The Company accounted for the
effects of the stock option modifications described above under the guidance of ASC 718 as follows:
|
●
|
The
unamortized compensation costs associated with the time-vesting options was expensed on the date of acceleration, which was approximately
$1.2 million and $0.1 million for the employees and directors, respectively.
|
|
|
|
|
●
|
Upon
modification, it is required under ASC 718 to analyze the fair value of the instruments, before and after the modification, recognizing
additional compensation cost for any incremental value. The Company computed the fair value of the award immediately prior to the
modification and compared the fair value to that of the modified award. Since the value of the awards were less after the modification
as compared to immediately prior to the modification, no additional compensation expense was recorded.
|
During
the nine months ended April 30, 2020, the Company cancelled 878,534 outstanding common stock option awards under the following terms:
|
●
|
The
Company entered into Stock Option Cancellation Agreements (the “Cancellation Agreements”) with certain executive officers,
directors and other senior level employees of the Company, pursuant to which such individuals (the “Senior Level Option Holders”)
agreed to the voluntary surrender and cancellation of certain previously granted stock options (the “Cancelled Options”)
to purchase in the aggregate 699,140 shares of the Company’s common stock. Under the terms of the Cancellation Agreements,
each Senior Level Option Holder and the Company acknowledged and agreed that the surrender and cancellation of the Cancelled Options
was without any expectation on the part of each Senior Level Option Holder to receive, and without any obligation on the Company
to pay or grant, any cash, equity awards or other consideration presently or in the future with respect to the Cancelled Options.
|
|
|
|
|
●
|
The
Company cancelled outstanding common stock options held by employees and consultants other than the Senior Level Option Holders,
pursuant to which such individuals were previously granted stock options to purchase in the aggregate 179,394 shares of the Company’s
common stock, for aggregate cash consideration of approximately $26,000.
|
The
Company accounted for the effects of the stock option modifications described above under the guidance of ASC 718 as follows:
|
●
|
A
cancellation of an award that is not accompanied by the concurrent grant of (or offer to grant) a replacement award or other valuable
consideration shall be accounted for as a repurchase for no consideration. Accordingly, any previously unrecognized compensation
is recognized at the cancellation date.
|
|
|
|
|
●
|
The
amount of cash paid to settle an equity-classified award is charged directly to equity as long as that amount is equal to or less
than the fair-value-based measure of the award on the settlement date. To the extent that the settlement consideration exceeds the
fair-value-based measure of the equity-classified award on the settlement date, that difference is recognized as additional compensation
cost. The cash paid to settle employee and consultant equity-classified awards, other than the Senior Level Option Holders, was less
than the fair-value-based measure of the award on the settlement date. The approximately $26,000 in cash paid to settle the equity-classified
awards was charged directly to additional paid in capital.
|
Following
the cancellation of the outstanding stock option awards described above, there were 15,000 stock option awards outstanding under the
2011 Plan. The Company recorded the previously unrecognized compensation cost related to the cancelled outstanding stock option awards
of approximately $1.2 million on the date of cancellation.
Modification
of Award
On
October 2, 2019, the Company entered into an amendment to a consulting agreement with a consulting firm. Prior to the amendment, the
Company was required to issue 3,000 shares of restricted common stock monthly for services through July 2, 2020. As per the terms of
the amended agreement, starting October 2, 2019, the Company was required to issue 15,000 shares of restricted common stock monthly for
services through July 2, 2020. Upon modification, it is required under ASC 718 to analyze the fair value of the instruments, before and
after the modification, recognizing additional compensation cost for any incremental value. The Company computed the fair value of the
award prior to the amendment and compared the fair value to that of the modified award. The incremental compensation cost of approximately
$0.2 million resulting from the modification was recognized ratably over the remaining term of the consulting agreement.
Stock
Options
During
the nine months ended April 30, 2021, the Company granted options to purchase 879,226, 125,000 and 25,000 shares of its common stock
to employees, directors and a consultant under the 2011 Plan, respectively. The stock options issued to employees have a 10-year term,
vest over two to three years and have exercise prices ranging from $3.43 to $7.64. The stock options issued to directors have a 10-year
term, vest over one year and have an exercise price of $3.43. The stock options issued to the consultant have a 10-year term, vest over
one year and have an exercise price of $3.82.
During
the nine months ended April 30, 2021, in accordance with Nasdaq Listing Rule 5635(c)(4), the Company granted inducement equity awards
that consisted of options to purchase 520,000 shares of its common stock to employees outside the 2011 Plan. The stock options issued
to the employee are nonqualified, have a 10-year term, vest over one to two years and have exercise prices ranging from $3.56 to $7.45.
During
the nine months ended April 30, 2020, the Company granted options to purchase 5,050 shares of its common stock to employees under the
2011 Plan. The stock options issued to employees have a 10-year term, vest over three years, and have exercise prices ranging
from $1.89 to $2.21. All options granted during the nine months ended April 30, 2020 were cancelled during the second quarter of fiscal
year 2020 as part of the stock option cancellation transaction discussed previously.
The
Company accounts for stock-based compensation based on the fair value of the stock-based awards granted and records forfeitures as they
occur. As such, the Company recognizes stock-based compensation cost only for those stock-based awards that vest over their requisite
service period, based on the vesting provisions of the individual grants. The service period is generally the vesting period, with the
exception of stock options granted pursuant to a consulting agreement, in which case the stock option vesting period and the service
period are defined pursuant to the terms of the consulting agreement.
The
following assumptions were used for the Black-Scholes calculation of the fair value of stock-based compensation related to stock options
granted during the periods presented:
|
|
Nine Months Ended
April 30, 2021
|
|
|
Nine Months Ended
April 30, 2020
|
|
Expected term (years)
|
|
|
5.00 – 6.50 years
|
|
|
|
5.00 – 6.50 years
|
|
Risk-free interest rate
|
|
|
0.27
– 1.13
|
%
|
|
|
1.35 – 1.70
|
%
|
Volatility
|
|
|
85.31 – 89.08
|
%
|
|
|
80.93 – 83.66
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
The
Company’s expected volatility is derived from the historical daily change in the market price of its common stock. The Company
uses the simplified method to calculate the expected term of options issued to employees, non-employees and directors. The risk-free
interest rate used in the Black-Scholes calculation is based on the prevailing U.S. Treasury yield in effect at the time of grant, commensurate
with the expected term. For the expected dividend yield used in the Black-Scholes calculation, the Company has never paid any dividends
on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future.
The
following is a summary of the Company’s 2011 Plan and non-Plan stock option activity for the nine months ended April 30, 2021:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
Outstanding - July 31, 2020
|
|
|
1,442,856
|
|
|
$
|
1.65
|
|
Granted
|
|
|
1,549,226
|
|
|
$
|
4.47
|
|
Exercised
|
|
|
(294,884
|
)
|
|
$
|
1.66
|
|
Forfeited/Cancelled
|
|
|
(205,300
|
)
|
|
$
|
3.65
|
|
Outstanding – April 30, 2021
|
|
|
2,491,898
|
|
|
$
|
3.23
|
|
Outstanding and expected to vest – April 30, 2021
|
|
|
2,491,898
|
|
|
$
|
3.23
|
|
Exercisable – April 30, 2021
|
|
|
1,416,717
|
|
|
$
|
2.31
|
|
As
of April 30, 2021, the total intrinsic value of options outstanding and exercisable was $4.9 million and $3.8 million, respectively.
As of April 30, 2021, the Company has approximately $2.8 million in unrecognized stock-based compensation expense attributable to the
outstanding options, which will be amortized over a period of approximately 1.86 years.
Stock-based
compensation expense recorded in the Company’s condensed consolidated statements of operations for the three and nine months ended
April 30, 2021 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately $0.8
million and $3.1 million, which included approximately $0 and $1.3 million, respectively, related to the accelerated vesting of time-vesting
options. Of the total expense, $0.3 million and $1.6 million, respectively, was recorded to research and development and $0.5 million
and $1.5 million, respectively, was recorded in general and administrative in the Company’s condensed consolidated statements of
operations for the three and nine months ended April 30, 2021.
Stock-based
compensation expense recorded in the Company’s condensed consolidated statements of operations for the three and nine months ended
April 30, 2020 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately $1,900
and $1.7 million, respectively, which included approximately $0 and $1.2 million, respectively, related to the cancellation of certain
stock option awards. Of the total expense, $0 and $0.8 million, respectively, was recorded to research and development and $1,900 and
$0.9 million, respectively, was recorded in general and administrative in the Company’s condensed consolidated statements of operations
for the three and nine months ended April 30, 2020.
The
weighted-average grant date fair value of stock options granted during the three and nine months ended April 30, 2021 was $5.04 and $3.14,
respectively.
The
weighted-average grant date fair value of stock options granted during the nine months ended April 30, 2020 was $1.35. There were no
stock options granted during the three months ended April 30, 2020.
Restricted
Stock Units (“RSUs”)
For
the three and nine months ended April 30, 2021, the Company recorded approximately $0.05 million and $0.1 million, respectively, in stock-based
compensation related to RSUs, which is reflected in the condensed consolidated statements of operations.
As
of April 30, 2021, there were 21,541 RSUs outstanding. During the nine months ended April 30, 2021, 19,623 RSU’s vested.
For
the three and nine months ended April 30, 2020, the Company recorded $0.05 million and $0.2 million, respectively, in stock-based
compensation related to RSUs, which is reflected in the condensed consolidated statements of operations.
Shares
Issued to Consultants
During
the three and nine months ended April 30, 2021, 37,500 and 100,000 shares of common stock valued at approximately $0.1 million and $0.3
million, respectively, were issued to a consultant for services. The common stock share values were based on the date the shares were
granted. The Company recorded compensation expense relating to the share issuances of approximately $0.1 million and $0.3 million,
respectively, during the three and nine months ended April 30, 2021.
During
the three and nine months ended April 30, 2020, 0 and 94,499 shares of common stock valued at $0 and approximately $0.5 million, respectively,
were issued to consultants for services. The common stock share values were based on the dates the shares were granted. The Company recorded
compensation expense relating to the share issuances of $0 and approximately $0.5 million, respectively, during the three and nine months
ended April 30, 2020. During both the three and nine months ended April 30, 2020, the Company recorded share-based compensation expense
of approximately $0.2 million relating to 45,000 shares of common stock to be issued as per the terms of a consulting agreement. The
common stock share value was based on the date the shares were granted. The shares were issued in May 2020.
2015
Employee Stock Purchase Plan
Under
the Company’s 2015 Employee Stock Purchase Plan (“ESPP”), the Company is authorized to issue 50,000 shares of the Company’s
common stock. The ninth offering period under the ESPP ended on January 31, 2021, with 1,538 shares purchased and distributed to employees.
At April 30, 2021, there were 31,871 shares remaining available for issuance under the ESPP.
The
ESPP is considered a Type B plan under FASB ASC Topic 718 because the number of shares a participant is permitted to purchase is not
fixed based on the stock price at the beginning of the offering period and the expected withholdings. The ESPP enables the participant
to “buy-up” to the plan’s share limit, if the stock price is lower on the purchase date. As a result, the fair value
of the awards granted under the ESPP is calculated at the beginning of each offering period as the sum of:
|
●
|
15%
of the share price of an unvested share at the beginning of the offering period,
|
|
●
|
85%
of the fair market value of a six-month call on the unvested share aforementioned, and
|
|
●
|
15%
of the fair market value of a six-month put on the unvested share aforementioned.
|
The
fair market value of the six-month call and six-month put are based on the Black-Scholes option valuation model. For the six-month offering
period ended January 31, 2021, the following assumptions were used: six-month maturity, 0.1% risk free interest, 122.84% volatility,
0% forfeitures and $0 dividends. For the six-month offering period ended January 31, 2020, the following assumptions were used: six-month
maturity, 2.04% risk free interest, 90.64% volatility, 0% forfeitures and $0 dividends.
Approximately
$10,300 and $3,800 was recorded as stock-based compensation during the nine months ended April 30, 2021 and 2020, respectively.
Common
Stock Reserved for Future Issuance
The
following table summarizes all common stock reserved for future issuance at April 30, 2021:
Common Stock options outstanding (within the 2011 Plan and outside of the terms of the 2011 Plan)
|
|
|
2,491,898
|
|
Common Stock reserved for restricted stock unit release
|
|
|
21,541
|
|
Common Stock authorized for future grant under the 2011 Plan
|
|
|
2,034,225
|
|
Common Stock reserved for warrant exercise
|
|
|
1,714,315
|
|
Shares issuable under CGP and Sirtex stock purchase agreements
|
|
|
1,933,163
|
|
Common Stock reserved for future ESPP issuance
|
|
|
31,871
|
|
Total Common Stock reserved for future issuance
|
|
|
8,227,013
|
|
Note
8—Commitments and Contingencies
Contingencies
In
June 2019, Dana Farber Cancer Institute (“DFCI”) and OncoSec (each a “Party” and collectively the “Parties”)
entered into a Sponsored Research Agreement (the “SRA”). On May 11, 2020, the SRA was terminated by DFCI, after a dispute
arose between the parties. The Parties resolved the dispute through mediation and reached an agreement in principle. OncoSec agreed to
pay DFCI a total of $900,000 in full and complete satisfaction of any and all claims that DFCI may have for reimbursement of expenses
under the SRA in two equal installments of $450,000, the first of which was due on December 7, 2020 and the second of which was
due on March 31, 2021. As of April 30, 2021, the Company paid both installments.
The
Company is not a party to any other legal proceeding or aware of any other threatened action as of the date of this report.
Employment
Agreements
The
Company has entered into employment agreements with certain executive officers and certain other key employees. Generally, the terms
of these agreements provide that, if the Company terminates the officer or employee other than for cause, death or disability, or if
the officer terminates his or her employment with the Company for good cause, the officer shall be entitled to receive certain severance
compensation and benefits as described in each such agreement.
Note
9 – Leases
Lease
Agreements
On
August 25, 2020, the Company entered into a second amended lease agreement (“Second Amendment”) with MawIt Inc. to further
extend the lease term at 24 N. Main Street, Pennington, New Jersey, which serves as the Company’s New Jersey corporate headquarters.
Under the Second Amendment, effective January 1, 2021, the lease term is extended through and included December 31, 2021 and the base
rent for 2021 is $12,416 per month. The lease term shall automatically renew for up to two additional one-year terms unless the Company
gives the Landlord a notice of non-renewal at least six months prior to the end of the renewal term then in effect. During 2022, the
base rent will be $12,665 per month and during 2023, the base rent will be $12,918 per month. The Company accounted for the Second Amendment
as a contract modification, and accordingly, recorded an additional ROU asset for approximately $388,000 and lease liabilities of approximately
$388,000 for this operating lease.
The
Company has operating leases for corporate offices and lab space. These leases have remaining lease terms of approximately one year to
seven years, some of which include options to extend the lease. For any lease where the Company is reasonably certain that a renewal
option will be exercised, the lease payments associated with the renewal option period are included in the ROU asset and lease liability
as of April 30, 2021.
Supplemental
balance sheet information related to leases as of April 30, 2021 was as follows:
Operating Leases:
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
5,660,558
|
|
Operating Leases:
|
|
|
|
|
Current portion included in current liabilities
|
|
$
|
815,045
|
|
Long-term portion included in non-current liabilities
|
|
|
5,492,111
|
|
Total operating lease liabilities
|
|
$
|
6,307,156
|
|
Supplemental
lease expense related to leases was as follows:
|
|
For the Three Months Ended
April 30, 2021
|
|
|
For the Nine Months Ended
April 30, 2021
|
|
Operating lease cost
|
|
$
|
369,792
|
|
|
$
|
1,113,165
|
|
Total lease expense
|
|
$
|
369,792
|
|
|
$
|
1,113,165
|
|
Other
information related to leases where the Company is the lessee is as follows:
|
|
As of
April 30, 2021
|
|
Weighted-average remaining lease term
|
|
|
5.2 years
|
|
|
|
|
|
|
Weighted-average discount rate
|
|
|
9.94
|
%
|
Supplemental
cash flow information related to operating leases was as follows:
|
|
For the Three Months Ended
April 30, 2021
|
|
|
For the Nine Months Ended
April 30, 2021
|
|
Cash paid for operating lease liabilities
|
|
$
|
377,454
|
|
|
$
|
893,845
|
|
Total cash flows related to operating lease liabilities
|
|
$
|
377,454
|
|
|
$
|
893,845
|
|
Future
minimum lease payments under non-cancellable leases as of April 30, 2021 were as follows:
Years ending July 31,
|
|
|
|
2021
|
|
$
|
378,445
|
|
2022
|
|
|
1,418,580
|
|
2023
|
|
|
1,585,224
|
|
2024
|
|
|
1,539,142
|
|
2025
|
|
|
1,516,126
|
|
Thereafter
|
|
|
1,774,569
|
|
Total minimum lease payments
|
|
|
8,212,086
|
|
Less: Imputed interest
|
|
|
(1,904,930
|
)
|
Total
|
|
$
|
6,307,156
|
|
Note
10—401(k) Plan
Effective
May 15, 2012, the Company adopted a defined contribution savings plan pursuant to Section 401(k) of the Code. The plan is for the benefit
of all qualifying employees and permits voluntary contributions by employees of up to 100% of eligible compensation, subject to the maximum
limits imposed by Internal Revenue Service. The terms of the plan allow for discretionary employer contributions and the Company currently
matches 100% of its employees’ contributions, up to 3% of their annual compensation. The Company’s contributions are recorded
as expense in the accompanying condensed consolidated statements of operations and totaled approximately $30,000 and $91,000 for the
three and nine months ended April 30, 2021, respectively. The Company’s contributions totaled approximately $39,000 and $98,000
for the three and nine months ended April 30, 2020, respectively.
Note
11—Related Party Transactions
Except
as disclosed elsewhere herein, below are the Company’s related party transactions.
Equity
Offerings
On
January 25, 2021, the Company completed the offer and sale of an aggregate of 7,711,284 shares of its common stock at a purchase price
of $5.45 per share in a public offering (See Note 6). CGP and its affiliate Sirtex participated in the offering. Each of CGP and Sirtex
exercised its right of participation in future offerings in order to maintain respective ownership percentages of the outstanding shares
of common stock of the Company upon close.
On
August 19, 2020, the Company completed the offer and sale of an aggregate of 4,608,589 shares of its common stock at a purchase price
of $3.25 per share in a registered direct offering (See Note 6). CGP and Sirtex participated in the registered direct offering and maintained
their respective ownership percentages of the outstanding shares of common stock of the Company upon close.
Co-Promotion
and Funded Research Agreement
In
January 2021, the Company entered into a co-promotion agreement with Sirtex, pursuant to which the Company granted Sirtex the option
to co-promote TAVO for the treatment of anti-PD-1 refractory locally advanced or metastatic melanoma in the U.S., including its territories
and possessions. In consideration for the option, the Company received an upfront, non-refundable payment of $5.0 million from Sirtex
(the “option fee”). The option to co-promote is non-exclusive and may be exercised at any time by Sirtex from the effective
date until 90 days following the receipt by Sirtex of a complete copy of the final BLA filed by the Company with the FDA (the “option
period”). If Sirtex exercises the option, the Company will receive an additional non-refundable and non-creditable option exercise
fee of $25.0 million, comprised of $20.0 million in cash, and $5.0 million for the issuance of common shares of the Company determined
by the average closing price of the stock for the 30 days prior to the date of receipt of the exercise notice for the option.
Under
the terms of the co-promotion agreement, if Sirtex exercises the co-promote option, the Company will pay to Sirtex a high-teens to low-twenties
royalty (“promotion fee”) of U.S. net sales of the TAVO products. The co-promotion agreement will continue until the earlier
of the expiration of the option period without Sirtex extending the option or the eighth anniversary of the first FDA approval of the
BLA, and can be extended by mutual agreement between the Company and Sirtex. During the co-promotion term, the Company is responsible
for funding approximately two-thirds of the promotional costs incurred by Sirtex and Sirtex shall be responsible for approximately one-third.
The
Company has determined that the co-promotion agreement represents a funded research and development arrangement within the scope of ASC
Subtopic 730-20, Research and Development—Research and Development Arrangements (ASC 730-20). The Company concluded that there
has not been a substantive and genuine transfer of risk related to the co-promotion agreement and the Company’s ongoing development
of TAVO as there is a presumption that the Company is obligated to repay Sirtex based on the significant related party relationship that
exists between the parties. This significant related party relationship is based on Sirtex’s approximate 8% ownership of the outstanding
shares of the Company’s common stock, and that of its significant equity holder, CGP (which owns 49% of Sirtex), which owns approximately
42% of the outstanding shares of the Company’s common stock and is the Company’s largest shareholder.
The
Company has determined that the appropriate accounting treatment under ASC 730-20 is to record any proceeds received from Sirtex for
the co-promote option or upon exercise of the option as cash and cash equivalents as the Company has the ability to direct the usage
of funds, and as a corresponding long-term liability (“Liability under co-promotion agreement – related party”) on
the Company’s condensed consolidated balance sheet when received. The liability will remain on the balance sheet until (i) Sirtex
exercises the option which results in royalties paid by the Company to Sirtex based on the net sales of the TAVO products, or (ii) Sirtex
does not exercise the option and the co-promotion agreement is terminated by the parties.
As
of April 30, 2021, the balance of the Liability under co-promotion agreement – related party relates to the option fee payment
of $5.0 million received from Sirtex.
Consulting
Agreement
On
February 12, 2020, the Company entered into a consulting agreement with the spouse of the Company’s Chief Scientific Officer. The
term of the agreement is four months and can be extended by written agreement. The agreement provides for an hourly based fee structure
for assisting the Company with matters related to oncology and device development related to the Company’s platform. In addition
to an hourly based fee structure, the consultant will be eligible to receive stock option awards. On June 12, 2020, the Company amended
the consulting agreement, extending the term of the existing agreement until December 12, 2020. In addition, the consultant was granted
30,000 non-qualified stock options valued at approximately $48,000 on the date of grant. The non-qualified stock options have a 10-year
term, vest immediately and have an exercise price of $1.56. The consultant was paid consulting fees of approximately $0 and $0.2 million
during the three months and nine months ended April 30, 2021. Effective October 9, 2020, the Company hired the consultant as an employee.
Note
12—Subsequent Events
Except
as disclosed elsewhere herein, below are the Company’s subsequent events.
On June 7, 2021, the
Company received $2.4 million in net proceeds from the sale of its New Jersey Net Operating Losses under the State of New Jersey
NOL Transfer Program for the period ended July 31, 2020.
On
June 10, 2021, the Company granted options to purchase 612,375 and 212,500 shares of its common stock to employees and directors under
the 2011 Plan, respectively. The stock options issued to employees have a 10-year term, vest over two years and have an exercise price
$3.93. The stock options issued to directors have a 10-year term, vest over one year and have an exercise price of $3.93.
On
June 10, 2021, the Company granted an aggregate of 1,149,625 RSUs to certain employees under the 2011 Plan. The units vest as follows:
287,407 units vested on June 10, 2021, and the remaining 862,218 units vest in equal quarterly installments over two years. The closing
price of the Company’s common stock on the date of grant was $3.93 per share, which is the fair market value per unit of the RSUs.