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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-K

 

(Mark One)

 

x

[X]

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

 

For the fiscal year ended July 31, 20132016

 

OR

 

o

[  ]

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

 

For the transition period from                        to                     

 

Commission file number 000-54318

 


 

ONCOSEC MEDICAL INCORPORATED

(Exact name of registrant as specified in its charter)

 


 

Nevada

98-0573252

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

incorporation or organization)

Identification Number)

 

9810 Summers5820 Nancy Ridge Road, Suite 110Drive

San Diego, CA 92121

(Address of Principal Executive Offices)(Zip Code)

 

(855) 662-6732

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:None

 

Title of Class:Name of Exchange on which Registered:
Common Stock, par value $0.0001 per shareThe NASDAQ Stock Market LLC
(NASDAQ Capital Market)

Securities registered pursuant to Section 12(g) of the Act: None

 

Common Stock, par value $0.0001 per share

(Title of Class)


 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o[  ] No x[X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o[  ] No x[X]

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x[X] No o[  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x[X]

 

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

 

Large accelerated filer o

[  ]

Accelerated filer o

[  ]

Non-accelerated filer o

[  ]

Smaller reporting company x

[X]

(Do not check if a smaller reporting company)

 

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

 

The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant as of January 31, 20132016 totaled approximately $23,000,000$20,406,000 based on the closing price of $0.22.$1.59. As of September 27, 2013,October 7, 2016, there were 170,838,52619,159,645 shares of the Company’s common stock ($0.0001 par value) outstanding.

 



Table of ContentsDOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s proxy statement for the 2016 Annual Meeting of Stockholders, which is expected to be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended July 31, 2016, are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.

TABLE OF CONTENTS

 

Page

PART I.

PART I.

ITEM 1.

BUSINESS

2

4

ITEM 1A.

RISK FACTORS

11

ITEM 1B.

UNRESOLVED STAFF COMMENTS

22

25

ITEM 2.

PROPERTIES

22

26

ITEM 3.

LEGAL PROCEEDINGS

23

26

ITEM 4.

MINE SAFETY DISCLOSURES

23

26

PART II.II.

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

23

27

ITEM 6.

SELECTED FINANCIAL DATA

24

28

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

24

28

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

30

33

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

30

33

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

30

33

ITEM 9A.

CONTROLS AND PROCEDURES

30

33

ITEM 9B.

OTHER INFORMATION

31

33

PART III.

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

31

34

ITEM 11.

EXECUTIVE COMPENSATION

35

34

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

39

34

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

39

34

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

40

34

PART IV.

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

41

35

SIGNATURES

42

36

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This Annual Report inon Form 10-K contains forward-looking statements that involve risks, uncertainties and assumptions. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. All statements made in this Annual Report on Form 10-K other than statements of historical fact could be deemed forward-looking statements.

 

By their nature, forward-looking statements speak only as of the date they are made, are neither statements of historical fact nor guarantees of future performance and are subject to risks, uncertainties, assumptions and changes in circumstances that are difficult to predict or quantify. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks identified in the section entitled “Risk Factors” in Part I, Item IA of this Annual Report, and similar discussions in our other filings with the Securities and Exchange Commission (the “SEC”). If such risks or uncertainties materialize or such assumptions prove incorrect, our results could differ materially from those expressed or implied by such forward-looking statements and assumptions. Risks that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to: uncertainties inherent in pre-clinical studies and clinical trials; our need to raise additional capital and our ability to obtain financing; general economic and business conditions; our ability to continue as a going concern; our limited operating history; our ability to recruit and retain qualified personnel; our ability to manage future growth; our ability to develop our planned products;product candidates and to develop new product candidates; and our ability to protect our intellectual property.

 

You should not place undue reliance on forward-looking statements. Unless required to do so by law, we do not intend to update or revise any forward-looking statement, because of new information or future developments or otherwise.

 

As used in this Annual Report on Form 10-K and unless otherwise indicated, the terms “the Company”, “we”, “us” and “our” refer to OncoSec Medical Incorporated.

 

OncoSec Medical IncorporatedImmunoPulse is a registered trademark of the Company in the United States. The Company has filed applications to register ImmunoPulse as well as OncoSec and NeoPulse in the following trademarks: ImmunoPulseUnited States and NeoPulse.in certain foreign countries. Other registered trademarks used in this Annual Report are the property of their respective owners.

PART I

 

ITEM 1. BUSINESS

 

The following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K.

Overview

 

We are an emerging drug-medical device and therapeutica biotechnology company focused on designing, developing and commercializing innovative gene therapies, therapeutics and proprietary medical approaches for the treatment of solid tumors that have unmet medical needs or where currently approved therapies are inadequate based on their efficacy or side-effects.  Our company was incorporated under the laws of Nevada on February 8, 2008 as Netventory Solutions Inc. Initially, we provided online inventory services to smallstimulate and medium sized companies. In March 2011, we changed our name to “OncoSec Medical Incorporated” and acquired from Inovio Pharmaceuticals, Inc. (“Inovio”) certain assets related to the use of drug-medical device combination products for the treatment of various cancers. With this acquisition, we have abandoned our efforts in the online inventory services industry and are focusing our efforts in the biomedical industry.

Our Strategy

The assets we acquired include intellectual property relating to certain delivery technologies, which we refer to as the OncoSec Medical System (“OMS”), a therapeutic approach which is based on the use ofguide an electroporation delivery device in combination with an approved chemotherapeutic drug and a DNA-based cytokine to treat solid tumors.  These two different approaches represent unique therapeutic modalities, ImmunoPulse and NeoPulse.  Our ImmunoPulse approach is based on the use of electroporation to enhance the local delivery of DNA plasmids which, upon uptake into cells, direct the production of immunostimulatory cytokines to generate a local, regional and systemicanti-tumor immune response for the treatment of various cutaneous cancers.  NeoPulse utilizescancer. We seek to overcome the problem of tumor-induced immune subversion via intratumoral immunotherapy.

Our Business and Mission

Our mission is to pursue the advancement of immune system-stimulating treatments through the advancement of our proprietary immunotherapy platform which is designed to overcome tumor immune tolerance. Our proprietary intratumoral electroporation-based therapy is a platform which includes immune modulating therapeutic product candidates intended to treat a wide range of solid tumor types, combined with our ImmunoPulse® delivery technology. ImmunoPulse® is an electroporation technologiesdelivery device that we use in combination with our therapeutic product candidates, including DNA plasmids that encode for immunologically active agents, to deliver the local deliverytherapeutic directly into the tumor and promote an inflammatory response against the cancer. This unique therapeutic modality is intended to reverse the immunosuppressive microenvironment in the tumor and engender a systemic anti-tumor response against untreated tumors in other parts of the chemotherapeutic drug bleomycin to treat solid tumors.  OMSbody. Our electroporation delivery device consists of an electrical pulse generator console and various disposable applicators, specific to the individual tumor size, type and location and is designed to increase the permeability of cancer cell membranes and, as a result, increases the intracellular delivery of selected therapeutic agents.  Using either ImmunoPulse, a DNA-based immunotherapy or NeoPulse, a therapywhich can be adapted to treat solid tumors, our mission is to enable people with cancer to live longer with a better quality of life than otherwise possible or available with existing therapies.different tumor types.

Our Strategy

 

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Cancer is a disease of uncontrolled cell growth. The primary front line treatment of solid tumors involves surgical resection and/or radiation to eliminate or debulk tumor growth prior to initiating systemic therapyTraditional modalities for treating cancer have limited clinical efficacy and are frequently associated with chemotherapeutic agents. In the case of invasive surgical procedures, surgeons will often remove or resect an area outside of the obvious tumor mass to ensure that they have excised all of the cancerous tissue because of the difficulty in determining the border, or margin, between healthy and diseased tissue. This treatment can result in the loss of function and appearance of the surrounding tissues, significantly reducing the patient’s quality of life. Although there have been recent advances in non-surgical forms of tumor ablation, such as cryoablation, stereotactic, microwave and high frequency radio ablation therapy, we believe they fail to fully satisfy the clinical need to preserve normal healthy tissue. Given the desire for improved outcomes in the surgical resection of solid tumors, we believe that there can be significant demand for our NeoPulse technology from patients, dermatologists and surgical oncologists.

The NeoPulse approach has been developed up to Phase III clinical trials in the United States for the treatment of recurrent head and neck cancer and Phase I/II for the treatment of recurrent breast cancer. NeoPulse has potential application in a wide range of solid tumors, including basal cell carcinoma, squamous cell carcinoma, melanoma, breast, prostate, and pancreatic cancers.  In addition, Phase IV pre-marketing studies to support the commercialization of NeoPulse in Europe have also been performed for the treatment of primary and recurrent head and neck cancers and cutaneous skin cancers.  We are actively pursuing opportunities primarily focused in Europe, Asia and North America to partner NeoPulse for further clinical development and commercialization.

When detected early and still confined to a single location, cancer may be cured by surgery or radiation and potentially, by promising new technologies such as NeoPulse. However, neither surgery nor radiation can cure cancer that has spread throughout the body. Although chemotherapy can sometimes effectively treat cancer that has spread throughout the body, a number of non-cancerous cells, such as bone marrow cells, are also highly susceptible to chemotherapy. As a result, chemotherapy often has fairly significant side effects. In addition, it is common to see cancer return after apparently successful treatment by each of these means.  We hope that ImmunoPulse can offer a solution for systemic diseases with an improvement in safety and quality of life for patients over conventional systemic treatments such as chemotherapy.

morbidity. Immunotherapy, a process which usesrelatively new therapeutic modality, focuses on modulating the patient’s own immune system to treat cancer, may have advantages over surgery, radiation, and chemotherapy. Many cancers appear to have developed the ability to “hide” from the immune system. A treatment that can augment the immune response against tumor cells by makingrather than directly killing the cancer more “visible” to the immune system would likely represent a significant improvement in cancer therapy. Immune-enhancingcells. Systemic delivery of immune-modulating proteins such as interleukin-2 or IL-2,(IL-2) and interferon-alpha, or IFN- ainterleukin-12 (IL-12) have shown early encouraging results in terms of efficacy but with significant mechanism-based toxicity. More recently, monoclonal antibody (mAb) drugs have been developed, which target critical “immune checkpoint” proteins and augment anti-tumor immunity. Monoclonal antibodies such as, anti-CTLA-4 (cytotoxic T-lymphocyte-associated protein-4) and anti-PD-1 (program cell-death-1), have been developed for treatment of several indications, and have already been approved for treatment of metastatic melanoma and metastatic non-small cell lung cancer. These new immuno-oncology agents have shown encouraging results.tremendous clinical benefit for those patients with late-stage cancer, across multiple tumor types. However, only a subset of patients responds to these agents often require frequent doses that may result in severe side effects.therapies.

 

Two recent drugs for metastatic melanoma were approved in 2011, both on the basis of increased survival. Yervoy ®, a monoclonal antibody marketed by Bristol-Myers Squibb Co., stops the suppression of T-cells that can seek outWe have several completed and destroy melanoma cells. Zelboraf ®, a B-Raf inhibitor marketed by Roche and Daiichi Sankyo, interrupts a key process in melanoma growth in patients with a particular melanoma mutation. Both drugs are associated with significant side effects, and neither is considered a cure for melanoma.

In May 2013, two new drugs for metastatic melanoma were approved. Tafinlar® and Mekinist™ are single-agent oral treatmentshave ongoing clinical trials for the treatmentuse of unresectable metastatic melanoma. Like Zelboraf®, both of these new agents interrupt a key process in melanoma growth by inhibiting the MAP Kinase signaling pathway. Also, like Zelboraf, these agents can cause significant side effectsour therapeutic candidates to treat different tumor types with our electroporation delivery device. We also continue to investigate collaboration opportunities that will enable us to identify rational combinations with current and long-term use may leademerging standard-of-care drugs, including immune-modulating checkpoint inhibitors (such as anti-CTLA-4 or anti-PD-1). We expect to drug resistance by tumor cells.

Our current ImmunoPulse clinical-stage approach consists of directly injecting solid tumors with a DNA plasmid which, upon uptake into cells, direct the production of the encoded immunostimulatory cytokinecontinue to generate a loco-regional immune response against the tumor, which potentially may result in a systemic immune response. The ease of manufacture, convenience, and ability to repeat administration may offer advantages over current modalities of therapy. In addition, cancer therapies using non-viral DNA delivery may offer an added margin of safety compared with viral-based delivery, as no viral particles or other potentially infectious agents are contained in the formulation.  A Phase I clinical trial using our ImmunoPulse approach has been completed and three Phase IIconduct additional clinical trials focused on melanoma, Merkel cell carcinoma and cutaneous T-cell lymphoma have been initiated.

Our business model is based on a development strategy that leverages previous in-depth clinical experiences, previous approvals for the electroporation-based devices and late stage clinical studiesour product candidates in accordance with the United States Food and Europe.  WeDrug Administration (FDA) requirements, some of which may seek regulatory approvalsrelate to initiate specific studies in target markets to collect safety, clinical, reimbursement, and pharmacoeconomic data as part of our development strategy. Our clinical development strategy includes completing the necessary additional clinical trials in accordance with FDA guidelinestherapeutic candidates for cutaneous cancers including select, rare cancers (orphan indications) that have limited adverse or no therapeutic

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alternatives. options. Our strategy also includes expanding the applications of our technologies through strategic collaborations or evaluation of other opportunities such as in-licensing and strategic acquisitions. We may collaborate with major pharmaceutical and biotechnology companies and government agencies, providing us access to complementary technologies and/or greater resources. These business activities are intended to provide us with mutually beneficial opportunities to expand or advance our product pipeline and serve significant unmet medical needs.pipeline. We may license our intellectual property to other companies to leverage our technologies for applications that may not be appropriate for our independent product development.

 

Asset AcquisitionClinical Program

On March 14, 2011, we entered into an Asset Purchase Agreement (as amended, the “Asset Purchase Agreement”) with Inovio to acquire certain assets from Inovio related to certain non-DNA vaccine technology and intellectual property relating to selective electrochemical tumor ablation (that we refer to as the OMS).  The asset purchase was completed on March 24, 2011.  On September 28, 2011 and March 24, 2012, we entered into amendments to the Asset Purchase Agreement to amend certain of the payment terms.  We acquired various assets from Inovio related to the OMS technology.

 

We did not assume anyOur lead product candidate, ImmunoPulse® IL-12, consists of a plasmid construct encoding the liabilities of Inovio except liabilities underproinflammatory cytokine, IL-12, which is delivered into the assigned contracts and assigned intellectual property arising aftertumor through in vivo electroporation. A Phase 1 clinical trial in metastatic melanoma using electroporation to deliver plasmid-DNA encoding for the closing date of the Asset Purchase Agreement. We agreed to pay Inovio $3,000,000IL-12 cytokine was completed in scheduled payments beginning on the closing date as well as certain royalties2008. The data, published in the event we commercialize our OMS technology.  We have entered into amendmentsJournal of Clinical Oncology (Daud A et al, JCO, 2008) indicate that thein vivo gene transfer of IL-12 DNA using electroporation in metastatic melanoma is safe. In addition, anti-tumor activity was observed after a single cycle of treatment, including two complete responses. Importantly, regression in distant, non-injected/non-electroporated lesions was also observed, suggesting that local treatment with ImmunoPulse® IL-12 may lead to the Asset Purchase Agreement with Inovio in September 2011 (the “First Amendment”) and in March 2012 (the “Second Amendment”) to modify the terms of our payment obligations (among other modifications)a systemic anti-tumor immune response (i.e. an abscopal effect). We recently made a payment of $1 million to Inovioare currently pursuing two Phase 2 trials: ImmunoPulse® IL-12 monotherapy in May 2013patients with metastatic melanoma and ImmunoPulse® IL-12 plus pembrolizumab in patients with advanced, metastatic melanoma. In addition, we are required to make a final payment to Inovio of $1 million on December 31, 2013. In consideration for the First Amendment, we issued to Inovio a warrant to purchase 1,000,000 shares of common stockpursuing ImmunoPulse® IL-12 monotherapy in patients with an exercise price of $1.20 per share.  In consideration for the Second Amendment, we issued to Inovio a warrant to purchase 3,000,000 shares of our common stock with an exercise price of $1.00 per share.  Each of the warrants is subject to a five year term.  Each of the warrants also contains a mandatory exercise provision allowing us to request the exercise of the warrant in whole provided that our daily market price (as defined in the warrant) is equal to or greater than $2.40 for twenty consecutive trading days.  We completed an evaluation of the warrants issued to Inovio and determined the warrants should be classified as equity within our consolidated balance sheet.triple negative breast cancer.

We are also party to a cross-license agreementOMS-I100: An Open-Label Phase 2 Trial ofImmunoPulse®IL-12 monotherapy in patients with Inovio, which we entered into concurrently with the closing of our asset acquisition. This agreement provides for the exclusive license to Inovio of rights related to certain OMS technology patents in the field of gene or nucleic acids, outside of those encoding cytokines, delivered by electroporation and for the non-exclusive cross-license by Inovio to us of rights related to certain non-OMS technology patents in the OMS field in exchange for specified sublicensing and other licensing fees and royalties.

University of South Florida Licensemetastatic melanoma

 

On August 24, 2012,December 5, 2014, we released top-line six-month data from the first Phase 2 trial of this product candidate in patients with stage III and IV metastatic melanoma, which was presented in an abstract at the Melanoma Bridge 2014 conference in Naples, Italy. In this Phase 2 study, 30 patients with stage III and IV melanoma received up to four cycles of pIL-12 EP into superficial cutaneous, subcutaneous and nodal lesions on days 1, 5 and 8 of each 12-week cycle.secured We reported that of the 29 patients who were evaluable, an exclusive license for specific patented technology fromobjective response rate of 31% (9/29) was observed, with 14% (4/29) of patients having a complete response (CR) and 17% (5/29) of patients having a partial response. Regression of distant lesions was seen in 50% (13/26) of patients with evaluable non-injected, non-electroporated lesions. Clinical endpoints included objective response rate, local and distant lesion regression, duration of response, overall survival and safety. The results of this study demonstrated that multiple treatment cycles of ImmunoPulse® IL-12 is safe and well-tolerated, with no treatment-limiting toxicities. The vast majority of adverse events were localized to the treatment site and were Grade 1 or 2 in severity. Importantly, there was no evidence of systemic toxicities, which is a key feature of the ImmunoPulse® IL-12 intratumoral treatment strategy. In order to continue to acquire clinical and immune correlational data on melanoma patients treated with ImmunoPulse® IL-12, the protocol was amended to enroll up to an additional 30 patients (OMS-I100 Addendum). Enrollment in OMS-I100 Addendum is complete and activities related to closing out this clinical trial is underway, including completion of a clinical study report that will be filed to the FDA.

Long-term, follow-up data of patients who participated in the OMS-I100 trial at the University of South FloridaCalifornia, San Francisco (UCSF) and later went on to receive an anti-PD-1/PD-L1 therapy was presented by Dr. Alain Algazi at the American Association for Cancer Research Foundation relating(AACR) Annual Meeting 2016 in New Orleans. These data suggest that ImmunoPulse® IL-12 may prime and enhance response rates to PD-1/PD-L1 blockade. Fourteen (14) of the 29 patients who completed ImmunoPulse® IL-12 or progressed went on to receive an anti-PD-1/PD-L1 antibody treatment. Overall, 5 of these 14 patients (36%) experienced a CR and 4 patients had a partial response (PR) (29%), for an ORR of 64%. Two patients experienced SD (14%) and three patients had progressive disease (21%) (Algazi et al. 2016; Chen and Daud 2016). The promising single-agent activity observed in the Phase 1 and Phase 2 clinical studies, as well as the potential of an immune-priming effect with ImmunoPulse® IL-12 prior to anti-PD-1/PD-L1 therapy warrants further clinical investigation.

We consider the results of the OMS-I100 Phase 2 study in advanced melanoma, along with the emerging long-term follow-up data, to be significant and thus we are continuing to identify and develop new therapeutic targets that, like IL-12, can (i) be encoded into DNA, (ii) be delivered intratumorally using electroporation, and (iii) have an ability to reverse the immunosuppressive mechanisms of the tumor. We plan to expand our ImmunoPulse® pipeline beyond the delivery of gene-based therapeutics via intratumoralplasmid-DNA encoding for cytokines to include other molecules that may be critical to key pathways associated with tumor immune subversion.

OMS-I140: Triple Negative Breast Cancer — Biomarker-Focused Pilot Study

Worldwide, approximately 170,000 new cases of triple negative breast cancer (TNBC) are diagnosed each year, accounting for approximately 15% of all breast cancer. TNBC frequently affects younger women (less than 40 years old) and intramuscular electroporation. This patent directly supportsis characterized by higher relapse rates when compared with estrogen receptor (ER)-positive breast cancers. TNBC is also associated with an increased risk of recurrence, both locally and in distant sites including the lung and brain. Advanced TNBC remains a significant area of unmet medical need and there is no established standard-of-care. Treatment generally includes chemotherapy, with or without radiation and/or surgery. However, no treatment regimen has clearly demonstrated superiority.

Toward the end of October 2015, we enrolled the first patient in our biomarker-focused pilot study of ImmunoPulse® IL-12 in patients with TNBC. The study is open for enrollment and on-going. The primary objective of the study is to evaluate the potential of ImmunoPulse® IL-12 to promote a pro-inflammatory molecular and histological signature in tumor samples and the secondary objectives include the evaluation of safety and tolerability; evaluation of local ablation effect (% of necrosis) and description of other evidence of anti-tumor activity. The study is being conducted at Stanford University and is designed to assess whether ImmunoPulse® IL-12 increases TNBC tumor immunogenicity by driving a pro-inflammatory cascade that leads to increases in cytotoxic tumor-infiltrating lymphocytes (TILs). The presence and number of TILs is thought to be a key requirement for promoting the anti-tumor activity of antibodies like anti-PD-1/PD-L1. By driving cytotoxic immune cells into the tumor, ImmunoPulse® IL-12 may be an ideal candidate to combine with checkpoint blockade therapies which have reported some, but limited activity in TNBC.

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CC-15852: An Open-Label Phase 2 Trial ofImmunoPulse® IL-12 plus Pembrolizumab in Patients with Advanced, Metastatic Melanoma

In August 2015, we enrolled the first patient into the Phase 2 investigator sponsored clinical development focustrial led by the University of California, San Francisco to assess the anti-tumor activity, safety, and tolerability of the combination of ImmunoPulse® IL-12, and Merck’s approved anti-PD-1 agent, KEYTRUDA® (pembrolizumab), in solidpatients with unresectable metastatic melanoma. The primary endpoint is the best Overall Response Rate (bORR) of the combination regimen in patients whose tumors are characterized by low numbers of tumor-infiltrating lymphocytes (TILs). Recent data suggest that patients whose tumors are not associated with TILs or CD8+ T-cells at the tumor applicationsmargin are unlikely to respond to anti-PD-1 therapies such as KEYTRUDA®, while those who are PD-L1 positive and have increased TILs are more likely to have a clinical benefit. Therefore, therapies that promote TIL generation and PD-L1 positivity may play an important role in augmenting the clinical efficacy of the anti-PD1/PD-L1 agents. IL-12 is an inflammatory cytokine believed to be a master regulator of the immune system, promoting up-regulation of both the innate and adaptive immune responses and biasing the immune system towards a proinflammatory state. More specifically, metastatic melanoma, MerkelIL-12 stimulates the production of another cytokine, interferon gamma (IFN-γ), which, in turn, results in the stimulation of antigen processing and presentation machinery, leading to increased TILs and anti-tumor cytotoxic T-cell (CTL) activity. The sponsor of this investigator-initiated study, UCSF, expects to enroll up to 42 patients; The study is enrolling and on-going. We currently are on track to complete enrollment by the end of calendar year 2016.

In addition to the three clinical trials described above, we have also pursued Phase 2 clinical trials in patients with merkel cell carcinoma and cutaneous T-cell lymphoma using our ImmunoPulse therapy,head and extends patent protection for the ImmunoPulse technology to the year 2024.neck cancer.

Our ImmunoPulse® Platform

 

The OncoSec Medical System

Manyeffectiveness of many drugs and DNA-based therapeutics must enteris dependent upon their crossing the target cell through its membrane in order to perform their intended function.  However, the effectiveness of these medicines is limited since gaining entry into target cells through the outer membrane can be a significant challenge.membrane. In the 1970s, it was discovered that the brief application of high-intensity, pulsed electric fields to the cell resulted in a temporary and reversible increase in the permeability of the cell membrane.  Asmembrane, a consequence, it was also demonstrated that there was a subsequent increase in the ability of both small and large molecules to move between the cell exterior and interior via the newly formed membrane pores.mechanism known as “electroporation.”

 

The transient, reversible nature of the electrical permeabilization of cell membranes and the resulting increase in intracellular delivery of therapeutic agents is the underlying basis of our OMSImmunoPulse® therapeutic approach. OMSThe electroporation delivery system consists of an electrical pulse generator console and various disposable applicators specific to the individual tumor size, type and location.applicators. While the extent of membrane permeabilization depends on various electrical, physical, chemical, and biological parameters, research with OMSelectroporation delivery has demonstrated an increaseimprovement of cellular uptake of chemical molecules from 1,000-8,000 fold100 to 1,000-fold above baseline. Once insideAfter cessation of the cell,electrical pulse, the membrane permeability decreased therebyre-stabilizes, trapping the molecules within the cell and allowing them to perform their function.  The enhanced delivery of these agents may result in the ability to not only improve cytotoxicity and therapeutic value but also to lower the required doses and thereby providing a potentially safer treatment.

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DNA Delivery With Electroporation — ImmunoPulseImmunoPulse®

 

The greatest obstacles to making conventional immunotherapythe wide acceptance and use of DNA-based immunotherapies a realitytherapeutics has been the limited data supporting safe, efficient, and economical delivery and expression of plasmid-DNA constructs into the target cells.constructs. We are leveraging off the past history and experiencebelieve that electroporation is uniquely capable of certain managers and advisors in developing the methods and devices that optimize the use of electroporation for the efficient and effective delivery of DNA-based therapeutics.  The use of OMS in this approach has been validated from multiple clinical studies assessing DNA-based immunotherapies against cancers.overcoming these obstacles. Together with our partners and collaborators, we plan to be the leader in establishing electroporation-delivered DNA immunotherapies. We believe that electroporation shouldcould become the method of choice for plasmid-DNA delivery into cells in many clinical applications.

 

The immunotherapyImmunoPulse® approach of our OMS therapy usesemploys an electroporation system that is calibrated and designed to create optimalfavorable conditions to deliver plasmid DNA encoding immunotherapeutic cytokines directly into cells of the tumor cells that in turn promote anti-cancer responses.microenvironment. The cytokine-encoding plasmid is first injected with a syringe/needle into the selected tumor. Using a remote control,A needle-electrode array then delivers the electrical pulses produced in the pulse generatorgenerator. OncoSec is switched ondeveloping new technologies called TRACE and electrical pulses are generated and delivered through an attached electrical cord intoHelix to improve electroporation. TRACE, or tissue-based real-time adaptive control electroporation, technology is used to perform electroporation with electrochemical impedance spectroscopy feedback operating in a closed-loop configuration to optimize each pulse duration in real-time. The Helix technology improves the injected tissue through an electrode-needle array on the applicator.  When DNA injection is followed by electroporationdistribution of the targettherapeutic agent in tissue transfection is significantly greater with resultant gene expression generally enhanced from 100and achieves delivery to 1000-fold.  This increase makes many DNA-based candidates potentially feasible without unduly compromising safety or cost.

A Phase I clinical trial in metastatic melanoma has been completed using ImmunoPulse to deliver plasmid-DNA encoding for the IL-12 cytokine.  The study was designed to assess both the adaptive and innate immunity responses from the targeted delivery of the IL-12 into melanoma tumor cells.  Published data have suggested that gene transfer utilizing in vivo DNA electroporation in metastatic melanoma showed that it was safe, effective, reproducible, and titratable.  The findings also demonstrated not only regression of treated melanoma skin lesions, but also regression of distant untreated lesions, suggesting a systemic immune response to the localized treatment.  These results are significant and thus we are now planning to further develop of OMS for the delivery of plasmid-DNA encoding for the IL-12 cytokine in a Phase II clinical trial that has been initiated.

Drug Delivery With Electroporation — NeoPulse

The chemotherapeutic approach of our NeoPulse platform was formerly described as Selective Electrochemical Tumor Ablation (SECTA).  NeoPulse utilizes electroporation technologies for the local delivery of the chemotherapeutic drug bleomycin to treat solid tumors.  The approach has demonstrated safety and efficacy in a wide range of solid tumors including, basal cell, squamous cell, melanoma, breast, prostate, and pancreatic cancers.  NeoPulse has been developed up to Phase III clinical trials in the United States for the treatment of recurrent head and neck cancer and in Phase I/II for the treatment of recurrent breast cancer.  In addition, Phase IV pre-marketing studies to support the commercialization of the OMS system in Europe were also performed for the treatment of primary and recurrent head and neck cancers and cutaneous skin cancers.  The previous sponsor of these studies (Inovio Pharmaceuticals, Inc.) elected not to conclude the clinical testing but rather monetize certain SECTA assets in order to pursue a more focused strategy for development of DNA vaccines.

Clinical Program

We initiated three Phase II clinical trials to assess the cancer-destroying and tissue-sparing properties of the ImmunoPulse technology in patients with melanoma, Merkel cell carcinoma and cutaneous T-cell lymphoma during calendar year 2012.  Our lead ImmunoPulse candidate for these trials is a DNA plasmid coding for IL-12an area that is delivered using our OMS electroporation device. While the DNA IL-12 immunotherapy is administered locally, results from preclinical and Phase I clinical trials indicated that the therapy was safe and without toxic side effects.  Although Phase I trials are designed to study only safety and tolerability, our Phase I trial suggested that our ImmunoPulse produced boththree times larger than a local and systemic effect against cancerous cells. All three Phase II clinical trials were initially physician-sponsored open label, multi-center trials. As of the date of this filing, all three physician sponsored Investigational New Drug (IND) applications have been transferred to the Company.

Phase II Melanoma Trial (OMS-I100)standard injection needle.

 

Our melanoma trial, entitled “Phase II trialImmunoPulse® product candidates are based on our proprietary DNA based immunotherapy technology, which is designed to stimulate the human immune system, resulting in systemic anti-tumor immune responses. Because our candidate therapeutics are plasmid constructs, we expect to benefit from a simpler, more consistent and scalable manufacturing process in comparison to therapies based on patient-derived cells or recombinant proteins. Our lead product candidate, ImmunoPulse® IL-12, consists of intratumoral pIL-12 electroporationa plasmid construct encoding the proinflammatory cytokine, IL-12, which is delivered into the tumor through in advanced stage cutaneousvivo electroporation. ImmunoPulse® IL-12 is being studied in several open-label Phase 2 clinical trials.

Cancer deploys multiple immune-subversive mechanisms in parallel to suppress anti-tumor immune responses and we believe it is unlikely that any single immunotherapy product will suffice to achieve durable responses in most patients and in transit malignant melanoma,” ismost tumor types. Therefore, we are conducting research and development on other DNA-encoded, immunologically-active molecules with an aim to produce additional immunotherapeutic drugs capable of breaking the immune system’s tolerance to cancer. We have the opportunity to leverage the flexibility of a single dose trial treating approximately 25 patients. The primary endpoint is objective response rate (localDNA plasmid-based technology to rapidly pursue candidate molecules and distant) at six months. Secondary trial endpoints include time to objective response (completecombinations of therapeutics. We can introduce, for example, pro-inflammatory cytokines and partial responses), durationchemokines, immune stimulatory receptors, co-stimulatory molecules, adhesion molecules, and T-cell engagement molecules. We expect that electroporation-mediated intratumoral expression of distant response and overall survival. We are building on positive Phase I dose escalation trial results in 24 patients with metastatic melanoma treated with pIL-12 in combination with electroporation. That study established safety and tolerability and suggested a systemic objective response in more than halfimmunologically-active molecules such as these can reverse the immunosuppressive microenvironment of the subjects; 15% of patients showed 100% clearance of distant, non-treated tumors. Based on historical data, less than 0.25% of patients would have been expected to see regression in their untreated tumors.tumor and drive systemic anti-tumor immune responses while limiting systemic exposure and toxicities associated with these potent immunologic effector molecules.

 

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Phase II Merkel Cell Carcinoma Trial (OMS-I110)

Merkel cell carcinoma is a rare but lethal skin cancer affecting about 1,500 people each year with 33% mortality rate. Current outcomes to chemotherapy treatment have demonstrated short-lived responses with no clear impact on overall survival. Our clinical trial, entitled “A Phase II study of intratumoral injection of interleukin-12 plasmid and in vivo electroporation in patients with Merkel cell carcinoma,” is a single dose, open label trial in 15 patients. The study’s endpoints are IL-12 gene expression in tumor tissue at three to four weeks post-treatment and secondary endpoints will evaluate objective response rates (both local and distant) at six months post-treatment, time to relapse or progression and overall survival. This study will evaluate the safety and tolerability of DNA IL-12 as a treatment for Merkel cell carcinoma and aims to further validate the findings from the Phase I dose escalation trial carried out in 24 metastatic melanoma patients.

Phase II Cutaneous T-Cell Lymphoma (OMS-I120)

Cutaneous T-cell lymphoma, or CTCL, is a rare disease affecting approximately 3,000 people each year with current therapies requiring life-long management and treatment. Today’s treatment methods delivered either locally or systemically all result in systemic toxicities. Cytokine therapies have shown some therapeutic benefit, however, the requirement for high dose systemic concentrations results in unwanted toxicities and eventual resistance to the therapy. In contrast, our ImmunoPulse treatment uses locally delivered low dose plasmid-DNA coding for IL-12, which induces a local immune response designed to target and destroy cancerous cells, which may potentially result in a systemic response against distant untreated tumors. A previous Phase I clinical trial in 24 melanoma patients demonstrated a strong safety profile for this mode of treatment.  The planned clinical trial, entitled “Phase II trial of intratumoral IL-12 plasmid electroporation in cutaneous lymphoma,” is an open label, multi-center study and is expected to enroll 27 patients. The trial’s primary endpoint is to assess the objective response rate (both local and distant) at six months post-treatment, with safety and progression-free survival as secondary endpoint measures.  ImmunoPulse is a potentially new treatment being evaluated for patients suffering from CTCL, who currently have few options to treat this chronic life-altering disease.

Scientific Advisory PanelPanels

 

We have consulted with senior and respected oncology researchers and clinicians to provide counsel as part of our scientific advisory panelpanels for our ImmunoPulseImmunoPulse® clinical program, each of whom is employed elsewhere on a full-time basis. As a result, they can only spend a limited amount of time on our affairs.programs. We expect to accesscontinue to establish relationships with scientific, clinical and medical experts in academia, as needed, to support our scientific advisory panel. The scientific advisory panel assistsassist us on issues related to potential product applications, product development, and clinical testing.

 

Commercialization

 

We plan to continue our clinical development strategy for the ImmunoPulseImmunoPulse® IL-12 program with Phase II2 and subsequent pivotal clinical trials focused on cutaneousvarious cancers, including select rare cancersthose that have limited, adversea demonstrated response to anti-PD-1/PD-L1 checkpoint therapies such as metastatic melanoma and squamous cell carcinoma of the head and neck. We believe that there is a significant unmet medical need for patients who are non-responsive or no therapeutic alternatives.  We expect our current studiesrefractory to validate data from previous Phase I clinical experience, which will be used to further develop the Company’s development strategy for this program.anti-PD-1/PD-L1 therapies.

 

Our business modelWe hope to be first-to-market in treatment for the NeoPulse program is basedmetastatic melanoma for patients who are non-responsive or refractory to currently approved anti-PD-1 checkpoint therapies. We continue to also focus on a partnering and commercialization strategystrategies that leverages previous in-depth clinical experiences, and late stageleverage Phase 2 clinical studies in the United States (Phase III) and Europe (Phase IV).States. Our near term plan will beis to identify and engage potential partner(s)partners who are established industry leaders in the field of surgical oncology,immuno-oncology, or who are seekingplan to expand their portfolio intoin this space with the purpose of partnering the NeoPulse asset in select geographic regions, such as Europe and Asia. Once a partner is engaged, we may plan to seek regulatory approvals to initiate specific studies in target markets to collect clinical, reimbursement, and pharmacoeconomic data in order to advance a joint commercialization strategy.space.

Competition

 

We are in a highly competitive industry. We are in competition with traditional and alternative therapies for the indications we are targeting, as well as pharmaceutical and biotechnology companies, hospitals, research organizations, individual scientists and nonprofit organizations engaged in the development of drugs and other therapies for these indications. Our competitors may succeed, and many have already succeeded, in developing competing products, obtaining FDA approval for products, or gaining patient and physician acceptance of products before us for the same markets and indications that we are targeting. Many of these companies, and large pharmaceutical companies in particular, have greater research and development, regulatory, manufacturing, marketing, financial and managerial resources, and experience than we have, and many of these companies may have products and product candidates that are in a more advanced stage of development than our product candidates. If we are not “first to market” for a particular indication, it may be more difficult for us or our collaborators to effectively enter markets unless we can demonstrate our products are clearly superior to existing therapies (see also “Intellectual Property” below).

 

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Examples of competitive therapies include the following:

 

Immunotherapy. This therapeutic approach stimulates the patient’s own immune system to attack malignant tumor cells, which have managed to circumvent the body’s natural immune processes that would normally recognize and destroy these cells before they are able to form growing cancerous tumors. Several methods have been employed to evoke this immune response, including monoclonal antibodies and autologous cell-based vaccines, as well as viral and non-viral targeted delivery of immunotherapeutic agents.
YERVOY® (ipilimumab), approved in 2011, is a monoclonal antibody that acts to block the CTLA-4 receptor (an immune checkpoint receptor) on T-cells. In the presence of CTLA-4 receptor it is believed tumors are able to suppress the immune system from recognizing cancerous cells, however blockade of this receptor with YERVOY® (an anti-CTLA-4 antibody) appears to allow the immune system to generate an antitumor T-cell response.
YERVOY® was the first approved immunotherapy in melanoma, and current research is evaluating the use of other anti-checkpoint monoclonal antibodies.
Other monoclonal antibodies approved that act to block a checkpoint receptor, PD-1, were recently approved by the FDA. KEYTRUDA® (pembrolizumab) and OPDIVO® (nivolumab), were both approved for use in late-stage unresectable metastatic melanoma in 2014 based on the impressive objective response rate data from Phase I and II clinical trials. A third monoclonal antibody like KEYTRUDA and OPDIVO, that targets the PD-1/PD-L1 checkpoint axis, TECENTRIQ (atezolizumab), was approved on May 18, 2016 by the FDA for the treatment of urothelial carcinoma, the most common type of bladder cancer.
Moreover, there are an increasing number of combination immunotherapies being evaluated, including combinations of checkpoint inhibitor therapies. In October 2015, the FDA announced the approval of the first immune checkpoint inhibitor combination of YERVOY® (ipilimumab) plus OPDIVO® (nivolumab) in advanced melanoma. We expect more approvals of this combination, and other novel combinations, to be approved in the coming years as more and more combinations continue to be investigated.
Provenge®, a product developed and marketed by Dendreon Corporation, and many emerging therapies continue to employ an autologous cell-based mode of delivery, which involves the harvesting of a patient’s own cells, growing them in a lab, incubating with a vaccine or immune stimulating agent, and re-administering the resulting product to the patient.
Other cell-based approaches include Tumor Infiltrating Lymphocyte (TIL) and chimeric antigen receptor T-cell (CART) therapies. These therapies continue to be investigated in clinical trials for both solid and hematologic cancers.
Viral vectors, such as adenoviruses and oncolytic viruses, have also been used to deliver immunotherapeutic payloads to fight against cancerous cells, either systemically or through direct injection into the tumor. Clinical trials for this therapeutic delivery method are ongoing with no approved therapies yet to be available in the clinic. Recently, Amgen’s tamoligene laherparapvec, or T-VEC, completed its Phase III trial and met its primary endpoint. This data was presented to the Oncologic Drugs Advisory Committee, who voted to recommend approval of this therapy to the FDA. The final decision on approval of this therapy remains with the FDA.
Other non-viral vector methods, that deliver nucleic-acid based therapies, are also currently being developed and employed in ongoing clinical trials. Examples of other non-viral vector methods include, liposome-based delivery systems, bacterial-based delivery systems, and mechanical delivery systems.
Vaccination. The use of peripheral vaccination has long held interest as another potential modality that could prove beneficial in treating and limiting systemic oncologic disease. Several antigen-specific investigational vaccines have been tested in humans in the past, in particular in melanoma, such as MAGE-A3, however none of these have proven to be successful in a large Phase 3 registration trial.

·Surgical Resection.  In most cases, the primary treatment for localized and operable tumors or lesions is surgical resection alone or in combination with other modalities such as radiation therapy.  Given the ability to cut an appropriate margin around the tumor in order to avoid recurrence from microscopic disease populating the periphery of the tumor mass makes surgery highly effective for early stage cancers. Recent advances in robotic surgical technology have provided more minimally invasive surgical options.  However, accessibility of a tumor at times prevents the use of surgery or limits the margin that can be removed especially at sites such as the tongue where the loss of tissue results in the loss of critical function such as speech. The drawback to resecting tissue is potential disfigurement or debilitating effects on organ function. Surgery also requires additional cost in the form of hospitalization and post-operative care.Employees

 

·Radiation Therapy. Radiation therapy is the use of high-energy rays generated by an external machine or by radioactive materials placed directly into or near the tumor and used to damage and stop growth of malignant cells, which are more sensitive to the effects of radiation. Radiation is often used in combination with surgery and chemotherapy. In cases where a tumor is inoperable or unresponsive to chemotherapy, radiation is often used palliatively to limit the complications of disease progression.  Radiation therapy has a number of significant side effects, in that it damages healthy cells surrounding the target area and takes several weeks to administer. It may also be costly due to the number of procedures and cost of administration.

·Chemotherapy. Post-surgery or in cases where surgery is contraindicated, chemotherapy is often used to treat systemic disease and may frequently be combined with radiation therapy. Typically it is used under the following circumstances:

·When cancer is disseminated requiring treatment of systemic or metastatic disease;

·Where the prognosis for local regional disease is poor due to the likelihood of disease progression;

·Where surgery is contraindicated, e.g. certain liver or pancreatic carcinoma or as a result of the patient’s overall health condition; and

·For palliation, to achieve tumor shrinkage to ameliorate tumor symptoms or complications.

The cytotoxicity of many existing anti-cancer drugs is well proven, but with many undesirable proven side effects including immunosuppression alopecia (loss of hair), nausea, vomiting, and in some cases drug resistance. Surgery and radiation cannot be used where treatment poses a risk to nearby nerves, blood vessels, or vital organs. All of these practicesWe have limited efficacy in treating cancers of certain organs, such as the pancreas.

·Alternative treatments.  Competitive therapies also include alternative treatments, such as radio frequency ablation, photodynamic therapy, cryoablation, brachytherapy and biologic or immunotherapy:

·Radio Frequency Ablation (“RFA”). This modality uses radio frequency energy to heat tissue to a high enough temperature to cause ablation or cell death. An RFA ablation probe is placed directly into the target tissue. An array of several small, curved electrodes is deployed from the end of the probe. Once sufficient temperatures are reached, the heat kills the target tissue within a few minutes. This treatment has been proven efficacious in treating some solid tumors but suffers from not being tumor specific by destroying healthy as well as malignant tissue.

·Photodynamic Therapy.  Photodynamic therapy (“PDT”) uses intravenous administration of a light-activated drug that accumulates in malignant cells. A non-thermal laser is used to activate the drug, producing free radical oxygen molecules that destroy the cancer. PDT has low risk of damage to adjacent normal tissue, the ability to retreat, and can be used concurrently with other treatment modalities. A major side effect of PDT is patient photosensitivity that can last for as long as six to eight weeks following treatment. Other side effects include nausea and vomiting. This method is limited by the shallow depth of penetration of the laser light which makes it more applicable to surface lesions on the skin or esophagus.

·Cryoablation. Cryoablation is a technique being used to treat lesions in liver, kidney, prostate, and breast cancer. This method uses liquid nitrogen filled probes inserted into the tumor mass with image guided surgery to freeze cancer cells. Necrosis (cell death) occurs and the dead cells are naturally sloughed off into the body. Cryoablation has been most commonly adopted for use in treating prostate carcinoma where surgery can often lead to impotence. The technology is claimed to limit nerve damage in the prostate allowing for the retention of bladder and sexual function. Therefore, it may afford advantages over surgery and brachytherapy (see below).

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·Brachytherapy. Brachytherapy involves the local implantation of radioactive seeds into or near a tumor mass. It has been most widely used in prostate and breast carcinoma in situ. The seeds decay over time resulting in the local destruction of malignant cells. The difficulty with brachytherapy, in addition to the concomitant destruction of nascent healthy tissue, is the investment and training required to administer the therapy. Recent reports also suggest that the therapy may not produce durable responses (i.e. long term cures). Consequently, brachytherapy does not appear to be growing in acceptance in the marketplace.

·Immunotherapy. This therapeutic approach stimulates the patient’s own immune system to attack malignant tumor cells, which have managed to circumvent the body’s natural immune processes that would normally recognize and destroy these cells before they are able to form growing cancerous tumors. Several methods have been employed to evoke this immune response, including monoclonal antibodies and autologous cell-based vaccines, as well as viral and non-viral targeted delivery of immunotherapeutic agents.

Yervoy® is a monoclonal antibody that acts to block the CTLA-4 receptor (an immune checkpoint receptor) on T-cells. In the presence of CTLA-4 receptor it is believed tumors are able suppress the immune system from recognizing cancerous cells, however, blockade of this receptor with Yervoy® (an anti-CTLA-4 antibody) appears to allow the immune system to generate an antitumor T-cell response. Yervoy® was the first approved immunotherapy in melanoma, and current research is evaluating the use of other anti-checkpoint monoclonal antibodies. Despite these therapies showing benefit to some patients by extending life beyond traditional therapeutic options, safety and tolerance to these drugs, as well as ease of administration of the therapies, may be a deterrent for some patients. As a result, emerging therapies continue to be developed to improve upon the safety, efficacy and ease-of-use problems currently encountered by immunotherapies.

Like Provenge®, a product developed and marketed by Dendreon Corporation, many emerging therapies continue to employ an autologous cell-based mode of delivery, which involves the harvesting of a patients own cells, growing them in a lab, incubating with a vaccine or immune stimulating agent, and re-administering the resulting product to the patient. This autologous cell-based approach has shown safety and efficacy, however, the significant cost and time involved in preparing this therapeutic treatment for each individual patient has been unattractive for many patients and clinicians.

Viral vectors, such as adenoviruses and oncolytic viruses, have also been used to deliver immunotherapeutic payloads to fight against cancerous cells, either systemically or through direct injection into the tumor. Clinical trials for this therapeutic delivery method are on-going with no approved therapies yet to be available in the clinic, however, questions still remain about efficacy of viral vectors as a delivery method, since the patient may mobilize an immune reaction against the virus itself resulting in neutralization of the virus and clearance from the body before an effectual response is elicited.  Since viral vectors are occasionally created from pathogenic viruses, involving a deletion of a part of the viral genome critical for viral replication, safety has also been a concern to avoid production of new virions.

Other non-viral vector methods, including liposome-based delivery systems, are also currently being developed and employed in on-going clinical trials. The impact of all these emerging cancer immunotherapies will ultimately be determined by their ability to improve upon the safety, efficacy, utility and cost of currently available therapies.

·Vaccination.  The use of vaccination has long held interest as another potential modality that could prove beneficial in treating and limiting systemic disease. The challenge has been that many tumors do not display antigens unique to the tumor cell that the immune system can use to specifically target for selective destruction of the malignant tissue. Even though tumors over-express normal cellular products that the immune system ignores, due to a process called tolerization, the immune system is educated not to recognize self antigens early in development. As a result of the lack of immune system detection, it has proven difficult to use conventional vaccination strategies to break or overcome tolerance and generate immunity against tumor cells.

·Targeted Small Molecule Therapy. Mutations that drive signaling pathways critical to tumor growth and survival have recently been identified. One such mutation of the mitogen activated protein (MAP) kinase pathway has been shown to be important in the proliferation approximately 50% of all cutaneous melanomas. The introduction of BRAF inhibitors, that block the BRAF V600E mutation, has greatly improved the short term prospects of some patients with these tumors, but the tumors tend to become resistant to therapy with time by activating alternative signaling pathways.

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Research and Development Expenditures

Prior to our asset purchase from Inovio in March 2011, we did not engage in any research and development activities.  We incurred $3,159,209 and $2,368,481 in research and development expenses during our fiscal years ended July 31, 2013 (“Fiscal 2013”) and July 31, 2012 (“Fiscal 2012”), respectively. We expect research and development to account for a significant portion of our total expenses in the future as we continue to focus on designing and developing our therapies. Our expenditures will be primarily related to the advancement of three Phase II clinical trials to assess the ImmunoPulse technology in patients with melanoma, Merkel cell carcinoma and cutaneous T-cell lymphoma. Expenditures related to these studies began during calendar year 2011 and we expect to ramp up expenditures based on enrollment in the trials and subsequent analysis of patient data from the separate studies.

Employees

Concurrent with the asset acquisition, we assembled a senior management team with many years of experience and success in biotech/pharma operations, business and commercial development, and capital markets. In addition, we have assembled a clinical and regulatory team that has had many years of experienceexperienced in developing and advancing novel therapeutic approaches through clinical testing and regulatory approvals. As of September 25, 2013,October 7, 2016, we have a total of twelve full-time46 employees. None of our employees is represented by a labor union or covered by a collective bargaining agreement, and we believe that our relations with our employees are good.

 

We expect to hire additional staff and to engage consultants in regulatory, compliance, investor and public relations, and general administration as necessary. We also expect to engage experts in healthcare and in general business to advise us in various capacities.

 

Intellectual Property

 

Our success and ability to compete depends upon our intellectual property. We have acquired and haveor been issued 2728 U.S. patents and have two U.S. patent applications pending. We expecthave filed 14 U.S. provisional patent applications, and have converted three provisional applications into regular utility applications. We will continue to file additional patent applications.applications, when appropriate. We have a total of 1813 issued patents and six pending patent applications in other jurisdictions. In addition, we have licensed intellectual property rights that allow us to use certain electroporation technology and methods of delivering DNA-based cytokines as an immunotherapy, including using catheter-based delivery. The bulk of our patents, including fundamental patents directed toward our proprietary technology, expire between 20142017 and 2027.  In addition, we have licensed intellectual property rights to use certain electroporation technology and intellectual property for delivering DNA-based cytokines as an immunotherapy.

 

We are party to a cross-license agreement with Inovio Pharmaceuticals, Inc. (“Inovio”), which we entered into concurrently with the closing of our acquisition of certain assets from Inovio in 2011. This agreement provides for the exclusive license to Inovio of patent rights sold to us by Inovio. Inovio is restricted to using these patent rights for the electroporation mediated delivery of gene or nucleic acids, outside of those encoding cytokines. We received a non-exclusive cross-license by Inovio to patent rights related to certain technology patents in exchange for specified sublicensing and other licensing fees and royalties.

Government Regulation

 

United States

 

In the United States, our product candidates are subject to extensive regulation by the Food and Drug Administration (the “FDA”).FDA. Federal and state statutes and regulations, many of which are administered by the FDA, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable FDA or other requirements may subject a company to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending applications, a clinical hold, warning letters, recall or seizure of products, partial or total suspension of production, withdrawal of the product from the market, injunctions, fines, civil penalties or criminal prosecution.

 

FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug, can be marketed in the United States. The process required by the FDA before a drug may be marketed in the United States generally involves, among other things:

 

·completion of pre-clinical testing and formulation studies in compliance with the FDA’s good laboratory practice regulations;

·submission to the FDA of an investigational new drug application, or IND, for human clinical testing, which must become effective before human clinical trials may begin in the United States;

·performance of adequate human clinical trials in accordance with good clinical practices to establish the safety and efficacy of the proposed drug product for each intended use; and

·submission to the FDA of a new drug application, or NDA, which the FDA must review and approve.

completion of pre-clinical testing and formulation studies in compliance with the FDA’s good laboratory practice regulations;
submission to the FDA of an investigational new drug application, or IND, for human clinical testing, which must become effective before human clinical trials may begin in the United States;
performance of adequate human clinical trials in accordance with good clinical practices to establish the safety and efficacy of the proposed drug product for each intended use; and
submission to the FDA of a new drug application, or NDA, which the FDA must review and approve.

 

The pre-clinical and clinical testing and approval process requires substantial time, effort, and financial resources, and the receipt and timing of approval, if any, is highly uncertain. The results of pre-clinical tests, together with certain manufacturing information, analytical data and a proposed clinical trial protocol and other information, are submitted as part of an IND to the FDA. Once an IND is in effect, the protocol for each clinical trial to be conducted under the IND must be submitted to the FDA, which may or may not allow the trial to proceed. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development.

 

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Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with good clinical practice requirements. For purposes of an NDA submission and approval, human clinical trials are typically conducted in the following sequential phases, which may overlap or be combined:

 

·Phase I:  The drug is initially introduced into healthy human subjects or patients and tested for safety, dose tolerance, absorption, metabolism, distribution and excretion and, if possible, to gain an early indication of its effectiveness.

·Phase II:  The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications and to determine dose tolerance and optimal dosage.  Multiple Phase II clinical trials may be conducted.

·Phase III:  The drug is administered in large patient populations to obtain additional evidence of clinical efficacy and safety in an expanded patient population at multiple, geographically-dispersed clinical trial sites and to establish the overall risk-benefit relationship of the drug.

·Phase IV:  In some cases, the FDA may condition approval of an NDA for a product candidate on the sponsor’s agreement to conduct additional clinical trials to further assess the drug’s safety and effectiveness after NDA approval.

Phase 1: The drug is initially introduced into healthy human subjects or patients and tested for safety, dose tolerance, absorption, metabolism, distribution, and excretion and, if possible, to gain an early indication of its effectiveness.
Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications, and to determine dose tolerance and optimal dosage. Multiple Phase II clinical trials may be conducted.
Phase 3: The drug is administered in large patient populations to obtain additional evidence of clinical efficacy and safety in an expanded patient population at multiple, geographically-dispersed clinical trial sites and to establish the overall risk-benefit relationship of the drug.
Phase 4: In some cases, the FDA may condition approval of an NDA for a product candidate on the sponsor’s agreement to conduct additional clinical trials to further assess the drug’s safety and effectiveness after NDA approval.

 

The results of product development, pre-clinical studies and clinical trials are submitted to the FDA as part of an NDA requesting approval to market the product. NDAs must also contain extensive information relating to the product’s pharmacology, chemistry, manufacture, controls, and proposed labeling, among other things.

 

Once the submission has been accepted for filing, the FDA begins an in-depth substantive review. Pursuant to the FDA’s performance goals, NDA reviews are to be completed within ten months, subject to extensions by the FDA. Before approving an NDA, the FDA often inspects the facility or facilities where the product is manufactured and will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with good manufacturing practices. Additionally, the FDA will typically inspect one or more clinical sites to assure compliance with good clinical practices before approving an NDA. If the FDA determines that the NDA is not acceptable, then the FDA may outline the deficiencies in the NDA and often will request additional information or additional clinical trials. Notwithstanding the submission of any requested additional testing or information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

 

Even if regulatory approval of a product candidate is obtained, such approval will usually entailimpose limitations on the indicated uses for which the product may be marketed. Additionally, the FDA may require post-approval testing, such as Phase IV studies, or surveillance programs to monitor the effect of approved products, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

 

After FDA approval, a product will be subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to drug/device listing, recordkeeping, periodic reporting, product sampling and distribution, manufacturing practices, labeling, advertising and promotion, and reporting of adverse experiences with the product. The FDA may withdraw its approval of a product if compliance with regulatory requirements and manufacturing standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things: restrictions on the marketing or manufacturing of the product; complete withdrawal of the product from the market or product recalls; fines, warning letters or holds on post-approval clinical trials; or injunctions or the imposition of civil or criminal penalties.

 

International Regulation

 

IfWhen we pursue research and/or commercialization of our product candidates in countries other than the United States, then we wouldwill need to obtain the necessary approvals by the regulatory authorities of such foreign countries comparable to the FDA before we could commence clinical trials or marketing of our product candidates in those countries, and we would be subject to a variety of foreign regulations regarding safety and efficacy and governing, among other things, clinical trials and commercial sales and distribution of our products. The approval processprocesses and requirements vary by country and can involve additional product testing and additional review periods, and the time may be longer or shorter than that required to obtain FDA approval.

 

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Other Regulatory Requirements and Environmental Matters

 

We are or may become subject to various laws and regulations regarding laboratory practices and the experimental use of animals, as well as environmental laws and regulations governing, among other things, any use and disposal by us of hazardous or potentially hazardous substances in connection with our research. In each of these areas, as above, the FDA and other government agencies have broad regulatory and enforcement powers, including, among other things, the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw approvals, any one or more of which could have a material adverse effect on us. Additionally, if we are able to successfully obtain approvals for and commercialize our product candidates, then we may become subject to various federal, state, and local laws targeting fraud, abuse, privacy, and security in the healthcare industry.

Manufacturing

We currently contract with third parties for the manufacture, testing and storage of our plasmid product candidate and intend to continue to do so in the future.We currently assemble certain components of our electroporation systems, which is our delivery mechanism for our biologic to a patient’s cell. We utilize the services of contract manufacturers to manufacture the remaining components of these systems and our product supplies for clinical trials and intend to continue to do so in the future. We are ISO 13485 certified and have an audited quality management system. In addition, all manufacturers of our products must comply with cGMP requirements enforced by the FDA through its facilities inspection program.

We do not own and have no plans to build our own clinical or commercial plasmid manufacturing capabilities. The use of contracted manufacturing is relatively cost-efficient and has eliminated the need for our direct investment in manufacturing facilities. Because we rely on contract manufacturers, we employ personnel with extensive technical, manufacturing, analytical and quality experience to oversee contract manufacturing and testing activities, and to compile manufacturing and quality information for our regulatory submissions.

Manufacturing is subject to extensive regulations that impose various procedural and documentation requirements, and which govern record keeping, manufacturing processes and controls, personnel, quality control and quality assurance, among others. Our systems and our contractors are required to be in compliance with these regulations, and this is assessed regularly through monitoring of performance and a formal audit program. We believe that there are alternate sources of raw material supply and finished goods manufacturing that can satisfy our requirements, although we cannot be certain that transitioning to such vendors, if necessary, would not result in significant delay or material additional costs.

Research and Development

We recognized $14.7 million and $13.1 million in research and development expenses in the fiscal years ended July 31, 2016 and 2015, respectively. From our inception through July 31, 2016, we have incurred an aggregate of approximately $39.7 million of research and development expenses, the significant majority of which relate to our development of immuno-oncology therapeutic product candidates, with the use of an electroporation device.

CorporateInformation

We were incorporated under the laws of Nevada on February 8, 2008 under the name “Netventory Solutions Inc.” Initially, we provided online inventory services to small and medium sized companies. On March 1, 2011, we changed our name to “OncoSec Medical Incorporated.” In March 2011, we acquired certain assets related to the use of drug-medical device combination products for the treatment of various cancers from Inovio. With this acquisition, we abandoned our efforts in the online inventory services industry and began focusing our efforts in the biotechnology industry. Our corporate headquarters is currently located at 5820 Nancy Ridge Drive, San Diego, CA 92121 and the telephone number is 855-662-6732.

We make available, free of charge, on our website,www.oncosec.com, our reports on Forms 10-K, 10-Q, 8-K and amendments thereto, as soon as reasonably practical after we file such materials with the Securities and Exchange Commission. Any information that we include on or link to our website is not a part of this report or any registration statement that incorporates this report by reference.

 

ITEM 1A. RISK FACTORS

 

Investment in our common stock involves a high degree of risk. The risk factorsYou should carefully consider the risks described below, summarize some of the material risks inherent in and affecting our business.  You should consider each of the following factors as well as theall other information included in this Annual Report in evaluatingon Form 10-K, including our businessfinancial statements, the notes thereto and our prospects.  the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations. Our business, financial condition, results of operations and stock price could be materially adversely affected by a wide rangeany of factors. Additional risks not presently known to us or that we currently deem immaterial may also impair our business financial condition, results of operations and stock price.these risks.

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We will need to raise additional capital in future periods to continue operating our business, and such additional funds may not be available on acceptable terms or at all.

 

We do not generate, and may never generate any cash from operations and mustwill need to raise additional funds in future periods in order to continue operating our business. We estimate our cash requirements for the next 12 months to be approximately $9.1 million, which is inclusive of our $1 million payment to be made in December 2013 to Inovio under the Asset Purchase Agreement.$22.3 million. As of July 31, 2013,2016, we had cash and cash equivalents of approximately $4.9$29.0 million.  On September 18, 2013, we closed a public offering and issued an aggregate of 47,792,000 shares of our common stock plus warrants to purchase an aggregate of 23,896,000 additional shares of our common stock, at a per share price of $0.25, resulting in net proceeds to us of approximately $11.1 million.

 

We have a history of raising funds through offerings of our common stock and we may in the future raise additional funds through public or private equity offerings, debt financings or corporate collaborations and licensing arrangements.warrants to purchase our common stock. We expect to continue to fund our operations primarily through public or private equity and debt financings in the future. If additional capital is not available,near future, and we may not be able to continue to operate our business pursuant to our business planalso raise funds through debt financings, grants, corporate collaborations, or we may have to discontinue our operations entirely. licensing arrangements.

We will require additional financing to fund our planned operations, including developing and commercializing our intellectual property, seeking to license or acquire new assets, researching and developing any potential patents, related compounds, and other intellectual property, funding potential acquisitions, and supporting clinical trials and seeking regulatory approval relating to our assets and any assets we may develop or acquire in the future. Additional financing may not be available to us when needed or, if available, may not be available on commercially reasonable terms. If we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience substantial dilution, and the new equity or debt securities may have rights, preferences, and privileges senior to those of our existing stockholders. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses.expense. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments.

 

We may not be able to obtain additional financing if the volatile and uncertain conditions in the capital and financial markets, and more particularly the market for early development stage biomedicalearly-development-stage biotechnology and life science company stocks, persist. Weak economic and capital markets conditions could result in increased difficulties in raising capital for our operations. We may not be able to raise money through the sale of our equity securities or through borrowing funds on terms we find acceptable. If we cannot raise the funds that we need, we willmay be unable to continue our operations, and our stockholders could lose their entire investment in our company.Company.

 

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We have never generated revenue from our operations.

We have not generated any revenue from operations since our inception. During Fiscal 2013, we incurred a net loss of approximately $7.2 million. From inception through July 31, 2013, we incurred an aggregate loss of approximately $13.4 million. We expect that our operating expenses will continue to increase as we continue to pursue FDA approval for our product candidates.

We are an early-stage company with a limited operating history, which may hinder our ability to successfully meet our objectives.

We are an early-stage company with only a limited operating history upon which to base an evaluation of our current business and future prospects and how we will respond to competitive, financial or technological challenges. Only recently have we explored opportunities in the biomedical industry.  As a result, the revenue and income potential of our business is unproven. In addition, because of our limited operating history, we have limited insight into trends that may emerge and affect our business. Errors may be made in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets. We may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause our business, results of operations and financial condition to suffer or fail.

We have not commercialized any of our potential product candidates and we cannot predict if or when we will become profitable.

We have not commercialized any product candidate relating to our current assets in the biomedical industry. Our ability to generate revenues from any of our product candidates will depend on a number of factors, including our ability to successfully complete clinical trials, obtain necessary regulatory approvals and negotiate arrangements with third parties to help finance the development of, and market and distribute, any product candidate that receives regulatory approval. In addition, we will be subject to the risk that the marketplace will not accept our products.

Because of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to predict the extent of our future losses or when or if we will become profitable, and it is possible we will never commercialize any of our product candidates or become profitable. Our failure to obtain regulatory approval and successfully commercialize any of our product candidates would have a material adverse effect on our business, results of operations, financial condition and prospects and could result in our inability to continue operations.

If we are unable to successfully recruit and retain qualified personnel, we may not be able to continue our operations.

In order to successfully implement and manage our business plan, we will depend upon, among other things, successfully recruiting and retaining qualified personnel having experience in the biomedical industry. Competition for qualified individuals is intense. If we are not able to find, attract and retain qualified personnel on acceptable terms, our business operations could suffer.

Additionally, although we have employment agreements with each of our executive officers, these agreements are terminable by them at will and we may not be able to retain their services. The loss of the services of any members of our senior management team could delay or prevent the development and commercialization of any other product candidates and our business could be harmed to the extent that we are not able to find suitable replacements.

Future growth could strain our resources, and if we are unable to manage our growth, we may not be able to successfully implement our business plan.

We hope to experience rapid growth in our operations, which will place a significant strain on our management, administrative, operational and financial infrastructure. Our future success will depend in part upon the ability of our executive officers to manage growth effectively. This will require that we hire and train additional personnel to manage our expanding operations. In addition, we must continue to improve our operational, financial and management controls and our reporting systems and procedures. If we fail to successfully manage our growth, we may be unable to execute upon our business plan.

We may be unable to successfully develop and commercialize the assets we have acquired or acquire, or develop and commercialize new assets and product candidates.

 

Our future results of operations will depend to a significant extent upon our ability to successfully develop and commercialize in a timely mannerour product candidates, including the assets we acquired from Inovio related to certain non-DNA vaccine technology and intellectual property relating to selective electrochemical tumor ablation, which we refer to as the OncoSec Medical System (“OMS”).Inovio. In addition, we may acquireplan to expand our clinical pipeline and to build our product portfolio through the acquisition or licensing of new assets, or product candidates in the future.or approved products. There are numerous difficulties inherent in acquiring, developing and commercializing new products and product candidates, including difficulties related to:

 

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·successfully identifying potential product candidates;

·developing potential product candidates;

·difficulties in conducting or completing clinical trials, including receiving incomplete, unconvincing or equivocal clinical trials data;

·obtaining requisite regulatory approvals for such products in a timely manner or at all;

·acquiring, developing, testing and manufacturing products in compliance with regulatory standards in a timely manner or at all;

·being subject to legal actions brought by our competitors, which may delay or prevent the development and commercialization of new products;

·delays or unanticipated costs; and

·significant and unpredictable changes in the payer landscape, coverage and reimbursement for any products we develop.

successfully identifying potential product candidates;
developing potential product candidates;
conducting or completing clinical trials, including receiving incomplete, unconvincing, or equivocal clinical trials data;
obtaining requisite regulatory approvals for such products in a timely manner or at all;
acquiring, developing, testing, and manufacturing products in compliance with regulatory standards in a timely manner or at all;
being subject to legal actions brought by our competitors, which may delay or prevent the development and commercialization of new products;
significant and unpredictable changes in the payor landscape, coverage, and reimbursement for any products we successfully develop and commercialize; and
delays or unanticipated costs, including those related to the foregoing.

 

As a result of these and other difficulties, we may be unable to develop potential product candidates using our intellectual property, and our potential products in development by us may not receive timely regulatory approvals in a timely manner or approvals at all, necessary for marketing by us or our third-party partners.all. If we do not acquire or develop product candidates, if any of our product candidates are not approved in a timely fashionmanner or at all, or if any of our product candidates, when acquired or developed and approved, cannot be successfully manufactured and commercialized, our operating results would be adversely affected. In addition, we may not recoup our investment in developing products, even if we are successful in commercializing those products. Our business expenditures may not result in the successful acquisition, development, or commercialization of products that will prove to be commercially successful or result in the long-term profitability of our business.

Certain of our intellectual property is licensed from Inovio pursuant to a non-exclusive license.

As we describe elsewhere in this Annual Report, we have acquired certain technology and related assets from Inovio pursuant to the Asset Purchase Agreement.  In connection with the closing of the Asset Purchase Agreement, we entered into a cross-license agreement with Inovio. Under the terms of the cross-license agreement, Inovio granted to us a non-exclusive, worldwide license to certain non-SECTA technology patents held by Inovio, and we granted to Inovio a limited, exclusive license to our acquired SECTA technology.  While we do not currently rely on the intellectual property we have licensed from Inovio pursuant to this non-exclusive license, our product candidates may in the future utilize this intellectual property.  Because the license is non-exclusive, Inovio may use its technology to compete with us.  In addition, there are no restrictions on Inovio’s ability to license their technology to others.  As a result Inovio could license to others, including our competitors, the intellectual property rights covered by their license to us, including any of our improvements to the licensed intellectual property.  In addition, either party may terminate the cross-license agreement with 30 days’ notice if they no longer utilize or sublicense the patent rights they have acquired pursuant to the cross-license.  If either party were to terminate the cross-license agreement, they would no longer have the right to use intellectual property that is subject to the cross license.

Regulatory authorities may not approve our product candidates or the approvals we secure may be too limited for us to earn sufficient revenues.

The FDA and other foreign regulatory agencies can delay approval of or refuse to approve our product candidates for a variety of reasons, including failure to meet safety and efficacy endpoints in our clinical trials. Our product candidates may not be approved even if they achieve their endpoints in clinical trials. Regulatory agencies, including the FDA, may disagree with our trial design and our interpretation of data from preclinical studies and clinical trials. Clinical trials of our product candidates may not demonstrate that they are safe and effective to the extent necessary to obtain regulatory approvals. We have initiated three Phase II clinical trials to assess our ImmunoPulse technology in patients with metastatic melanoma, Merkel cell carcinoma and cutaneous T-cell lymphoma. If we cannot adequately demonstrate through the clinical trial process that a therapeutic product we are developing is safe and effective, regulatory approval of that product would be delayed or prevented, which would impair our reputation, increase our costs and prevent us from earning revenues. Even if a product candidate is approved, it may be approved for fewer or more limited indications than requested or the approval may be subject to the performance of significant post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates. Any limitation, condition or denial of approval would have an adverse affect on our business, reputation and results of operations.

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Acquisition of the OMS technology included an extensive clinical database from two Phase III clinical trials that were halted before enrollment was completed. In 2007, these two Phase III clinical trials, HNBE-01 and HNBE-02, which were designed to evaluate the use of the NeoPulse technology as a treatment for resectable recurrent and second primary squamous cell carcinomas of the head and neck were halted as a result of a recommendation from the Data Monitoring Committee (DMC). The DMC cited concerns regarding efficacy and safety, including mortality rates and enrollment futility. In the DMC’s opinion, although no single parameter was sufficient to warrant recommending a review of the trial, the totality of data for these recurrent head and neck cancer studies suggested an unfavorable benefit-to-risk profile for the NeoPulse arm relative to the surgery arm. Without conducting further analysis, enrollment for both studies were halted, however the treated patients were followed up to two years to further evaluate safety and efficacy, as per the protocol, and the clinical trials were not reinitiated. We are continuing to analyze the available data from 214 patients treated in both Phase III studies.  If we are unable to partner, initiate or complete new Phase III or pivotal clinical studies, we will be unable to commercialize the NeoPulse technology.

Delays in the commencement or completion of clinical testing for product candidates based on our OMS technology is delayed or prevented, that could result in increased costs to us and delay or limit our ability to pursue regulatory approval or generate revenues.

 

Clinical trials are very expensive, time consumingtime-consuming, and difficult to design and implement. Even if the results ofwe are able to complete our proposed clinical trials and the results are favorable, clinical trials for product candidates based on our OMS technology will continue for several years and may take significantly longer than expected to complete.

Delays in the commencement or completion of clinical testing could significantly affect our product development costs and business plan. We do not know whether our Phase II2 clinical trials will be completed on schedule, if at all. In addition, weall; however, current enrollment in the clinical trials suggest completion in late calendar 2016 or early calendar 2017. We do not know whether any other pre-clinical or clinical trials, including Phase 3 clinical trials, will begin on time or be completed on schedule, if at all. In addition, a number of pre-clinical and clinical trials related to our product candidates are investigator-initiated and sponsored. An investigator-initiated trial is a research effort in which the investigator designs and implements the study and the investigator or the institution acts as the study sponsor. The trial sponsor has control over the design, conduct and timing of such trials, and we have limited or no control over the commencement and completion of such trials.

In addition, to the extent that our strategy focuses on the combination of our product candidates with third parties’ anti-PD-1/PD-L1 products or product candidates, certain of our clinical studies may invole the combination of our product candidates with the products or product candidates of third parties. This is true of our combination IST, a Phase 2 investigator sponsored clinical trial led by the University of California San Francisco to assess the combination of ImmunoPulse® IL-12 and Merck’s anti-PD-1 antibody KEYTRUDA®. This study raises additional risks due to its reliance on factors outside our control, such as those relating to the availability and marketability of KEYTRUDA®. If we or our clinical investigators are unable to secure a sufficient supply of third-party products or candidates, such as KEYTRUDA®, on commercially reasonable terms, our clinical studies could be delayed or we could be forced to terminate these studies. Such a delay or termination would have a material impact on our development strategy, business, results of operations, financial conditions, and prospects.

The commencement and completion of clinical trials can be delayed or prevented for a number of reasons, including delays or issues related to:

 

·obtaining clearance from the FDA or respective international regulatory equivalent to commence a clinical trial;

·reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, clinical investigators and trial sites;

·obtaining institutional review board, or IRB, approval to initiate and conduct a clinical trial at a prospective site;

·identifying, recruiting and training suitable clinical investigators;

·identifying, recruiting and enrolling subjects to participate in clinical trials for a variety of reasons, including competition from other clinical trial programs for similar indications; and

·retaining patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy, personal issues, or for any other reason they choose, or who are lost to further follow-up.

obtaining clearance from theFood and Drug Administration, or FDA, or respective international regulatory body equivalents to commence a clinical trial;
reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, clinical investigators, and trial sites;
obtaining institutional review board, or IRB, approval to initiate and conduct a clinical trial at a prospective site;
identifying, recruiting and training suitable clinical investigators;
identifying, recruiting and enrolling subjects to participate in clinical trials for a variety of reasons, including competition from other clinical trial programs for similar indications;
retaining patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy, personal issues, death, or for any other reason they choose, or who are lost to further follow-up; and
identifying and maintaining a sufficient supply of third-party products or product candidates, including those produced by third parties, on commercially reasonable terms.

 

We believe that we have planned and designed an adequate clinical trial programdevelopment strategy for our product candidates based on our OMSelectroporation technology. However, the FDA could determine that it is not satisfied with our plan or the details of our pivotal clinical trial protocols and designs.

 

Additionally, changes in applicable regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for our product candidates may be harmed, which may have a material adverse effect on our business, results of operations, financial condition and prospects.

If we are unable to successfully recruit and retain qualified personnel, we may not successfully maintain or grow our business.

In order to successfully implement and manage our business plan, we will depend upon, among other things, successfully recruiting and retaining qualified executives, managers, scientists and other employees having relevant experience in the biotechnology industry. Competition for qualified individuals is intense, particularly in our geographical location where there are several larger, more established biotechnology companies that compete with us for talent. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to support us. If we are not able to retain existing personnel and find, attract, and retain new qualified personnel on acceptable terms and in a timely manner to coincide with our growth, we may not be able to successful maintain or grow our business and our business operations and prospects could suffer.

Additionally, although we have employment agreements with each of our executive officers, these agreements are terminable by them at will and we may not be able to retain any one or more of our executives. The loss of the services of any one or more members of our senior management team, including recent changes within our management team, could (i) disrupt or divert our focus from pursuing our business plan while we seek to recruit other executives, (ii) impact the perceptions of our employees, partners and investors, and perceptions of prospective employees, partners and investors, regarding our business and prospects, (iii) cause us to incur substantial costs in connection with managing transitions and recruiting suitable replacements, and (iv) delay or prevent the development and commercialization of our product candidates. These and other potential consequences could cause significant harm to our business, especially to the extent that we are not able to recruit suitable replacements in a timely manner.

Future growth could strain our resources, and if we are unable to manage our growth, we may not be able to successfully implement our business plan.

Our business plan includes the continued growth of our operations, including, but not limited to, the opening of one or more foreign subsidiaries and the expansion of our clinical studies beyond the U.S. Such growth could place a significant strain on our management, administrative, operational, and financial infrastructure. Our future success will depend, in part, upon the ability of our executive officers to manage growth effectively. This will require that we hire and train additional personnel to support our expanding operations. International growth will expose us to more complexity in our regulatory and accounting compliance and will expose us to new risks and challenges inherent in international operations with which we may not be familiar, such as changing taxes or duties, fluctuations in currency exchange rates, changes in applicable laws or policies, and potential for war or civil unrest. In addition, we must continue to improve our operational, financial, and management controls and our reporting systems and procedures, which can be made even more challenging while our operations are growing. If we fail to successfully manage our growth, we may be unable to execute upon our business plan.

Our success depends in large part on our ability to protect our intellectual property using a combination of patents, trade secrets, and confidentiality agreements. Certain of our patents will expire in the near future, and we may have difficulties protecting our proprietary rights and technology and we may not be able to ensure their protection.

Our commercial success will depend in large part on obtaining and maintaining patent, trademark, and trade secret protection of our product candidates and their respective components, including devices, formulations, manufacturing methods, and methods of treatment, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell, or importing our product candidates is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. As we describe elsewhere in this Annual Report, we have patent protection for components of our ImmunoPulse® product candidates. Our current device portfolio includes US7,412,284 and EP999867, which cover our current clinical device. These patents will expire between 2017 and 2018, at which point we can no longer enforce these against third parties to prevent them from making, using, selling, offering to sell, or importing our current clinical device. This could expose us to substantially more competition and have a material adverse impact on our business and our ability to commercialize or license our technology and products.

In addition, the coverage claimed in a patent application typically is significantly reduced before a patent is issued, either in the United States or abroad. Consequently, any of our pending or future patent applications may not result in the issuance of patents and any patents issued may be subjected to further proceedings limiting their scope and may in any event not contain claims broad enough to provide meaningful protection. Any patents that are issued to us or our future collaborators may not provide significant proprietary protection or competitive advantage and may be circumvented or invalidated. In addition, unpatented proprietary rights, including trade secrets and know-how, can be difficult to protect and may lose their value if they are independently developed by a third party or if their secrecy is lost. Further, because development and commercialization of our potential product candidates can be subject to substantial delays, our patents may expire or provide only a short period of protection, if any, following any future commercialization of products. Moreover, obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. If any of our patents are found to be invalid or unenforceable, or if we are otherwise unable to adequately protect our rights, it could have a material adverse impact on our business and our ability to commercialize or license our technology and products.

We have never generated, and may never generate, profit from our operations.

We have not generated any revenue from operations since our inception. During the fiscal year ended July 31, 2016, we incurred a net loss of approximately $26.9 million. From inception through July 31, 2016, we have incurred an aggregate net loss of approximately $73.5 million. We expect that our operating expenses will continue to increase as we expand our current headcount, further our development activities, and continue to pursue FDA approval for our product candidates.

Because of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to predict the extent of our future losses or when or if we will become profitable, and it is possible we will never commercialize any of our product candidates or become profitable. Our failure to obtain regulatory approval and successfully commercialize any of our product candidates would have a material adverse effect on our business, results of operations, financial condition, and prospects and could result in our inability to continue operations.

Regulatory authorities may not approve our product candidates or the approvals we secure may be too limited or too late for us to earn sufficient revenues.

The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of our product candidates are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country. The FDA and other foreign regulatory agencies can delay approval of or refuse to approve our product candidates for a variety of reasons, including failure to meet safety and efficacy endpoints in our clinical trials. Our product candidates may not be approved even if they achieve their endpoints in clinical trials. Regulatory agencies, including the FDA, may disagree with our or our partners’ trial design and our interpretation of data from preclinical studies and clinical trials. Clinical trials of our product candidates may not demonstrate that they are safe and effective to the extent necessary to obtain regulatory approvals. Our clinical trial addendum to assess our ImmunoPulse® IL-12 single-agent therapy in patients with metastatic melanoma recently closed enrollment and we have one biomarker-focused pilot study of ImmunoPulse® IL-12 in patients with triple negative breast cancer open for enrollment. In addition, our combination IST, a Phase 2 investigator sponsored clinical trial led by the University of California San Francisco to assess the combination of ImmunoPulse® IL-12 and Merck’s anti-PD-1 antibody KEYTRUDA®, is ongoing and continues to enroll patients. This combination trial raises additional risks due to its reliance on factors outside our control, such as those risks described elsewhere in these Risk Factors relating to the availability and marketability of KEYTRUDA®.

If we cannot adequately demonstrate through the clinical trial process that a therapeutic product we are developing is safe and effective, regulatory approval of that product would be delayed or prevented, which would impair our reputation, increase our costs and prevent us from earning revenues. Success in preclinical testing and early clinical studies does not ensure that later clinical trials will generate adequate data to demonstrate the efficacy and safety of an investigational drug. A number of companies in the pharmaceutical and biotechnology industries, including many with greater resources and experience than us, have suffered significant setbacks in clinical trials, even after seeing promising results in earlier clinical trials. Even if a product candidate is approved, it may be approved for fewer or more limited indications than requested or the approval may be subject to the performance of significant post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates. Any limitation, condition or denial of approval would have an adverse effect on our business, reputation and results of operations.

Because of the substantial competition we face, even if we are able to secure regulatory approval of our product candidates, delays in such regulatory approval could delay or even prevent our ability to commercialize our product candidates. Even a failure to secure accelerated regulatory approval under the FDA Accelerated Approval Program, or similar foreign programs, could lead us to reconsider our development strategies and delay or prevent us from commercializing our product candidates.

We must rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

 

We have entered into, and expect to continue to enter into, agreements with third-party clinical research organizations, or CROs, to conduct our planned clinical trials and anticipate that we may enter into other such agreements in the future regarding any future product candidates.trials. We currently rely on these parties for the execution of our clinical and pre-clinical studies, and control only certain aspects of their activities. We, and our CROs, are required to comply with the current FDA Code of Federal Regulations for Conducting Clinical Trials and Good Clinical Practice, or GCP, and International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use, or ICH, guidelines. The FDA

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enforces and similar foreign regulators enforce these GCP regulations through periodic inspections of trial sponsors, principal investigators, CRO trial sites, laboratories, and any entity having to do with the completion of the study protocol and processing of data. If we, or our CROs, fail to comply with applicable GCP regulations, the data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. Upon inspection, the FDA and similar foreign regulators may determine that our clinical trials are not compliant with GCP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would increase costs and delay the regulatory approval process.

 

If any of our relationships with third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs on commercially reasonable terms, on a timely basis, or at all. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates could be harmed, our costs could increase and our ability to generate additional revenues could be delayed.

 

We mayhave participated in, and continue to participate in, clinical trials conducted under an approved investigator sponsoredinvestigator-sponsored investigational new drug (IND) application, and correspondence and communication with the FDA pertaining to these trials will strictly be between the investigator and the FDA.

 

We have participated in, the past, and may in the future,continue to participate in, clinical trials conducted under an approved investigator sponsoredinvestigator-sponsored investigational new drug (IND) application.application, including our Phase 2 investigator sponsored clinical trial led by the University of California San Francisco to assess the combination of ImmunoPulse® IL-12 and Merck’s anti-PD-1 antibody KEYTRUDA®. Regulations and guidelines imposed by the FDA with respect to IND applications include a requirement that the sponsor of a clinical trial provide ongoing communication with the agency as it pertains to safety of the treatment. This communication can be relayed to the agency in the form of safety reports, annual reports, or verbal communication at the request of the FDA. Accordingly, it is the responsibility of each investigator (as the sponsor of the trial) to be the point of contact with the FDA. The communication and information provided by the investigator may not be appropriate and accurate, and the investigator has the ultimate responsibility and final decision-making authority with respect to submissions to the FDA. This may result in reviews, audits, delays, or clinical holds by the FDA ultimately affecting the timelines for these studies and potentially risking the completion of these trials.

 

We are an early-stage, pre-commercial company with a limited operating history, which may hinder our ability to successfully generate revenues and meet our objectives.

We are an early-stage, pre-commercial company with only a limited operating history upon which to base an evaluation of our current business and future prospects and how we will respond to competitive, financial, or technological challenges. Although we plan to investigate licensing and partnering opportunities, we are not currently planning on generating any significant near term revenue; therefore, the income potential of our business is unproven. In addition, because of our limited operating history, we have limited insight into trends that may emerge and affect our business. Errors may be made in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties, and difficulties frequently encountered by early-stage companies in evolving markets. We may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause our business, results of operations, and financial condition to suffer or fail.

We have not commercialized any of our product candidates. Our ability to generate revenues from any of our product candidates will depend on a number of factors, including our ability to successfully complete clinical trials, obtain necessary regulatory approvals, and negotiate arrangements with third parties to help finance the development of, and market and distribute, any product candidate that receives regulatory approval. In addition, even if we achieve regulatory approval for one or more of our product candidates, we will be subject to the risk that the marketplace may not accept our products in sufficient levels for us to achieve profitability, or at all.

The biotechnology industry is highly competitive and our competitors tend to be larger and have been in business longer than us.

The biotechnology industry has an intensely competitive environment that will require an ongoing, extensive search for technological innovations and the ability to market products effectively, including the ability to communicate the effectiveness, safety, and value of products to healthcare professionals in private practice, group practices, and payors in managed care organizations, group purchasing organizations, and Medicare & Medicaid services.

We face competition from a number of sources, including large pharmaceutical companies, biotechnology companies, academic institutions, government agencies and private and public research institutions. We are smaller than almost all of our competitors. Most of our competitors have been in business for a longer period of time than us, have a greater number of products on the market, and have greater financial and other resources than we do. Furthermore, recent trends in this industry are that large drug companies are consolidating into a smaller number of very large entities, which further concentrates financial, technical, and market strength and increases competitive pressure in the industry.

Our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual property rights that limit or block us from developing or commercializing our product candidates. If we are able to obtain regulatory approval of our product candidates or any assets we may acquire in the future, we will face competition from products currently marketed by larger competitors that address our targeted indications. If we directly compete with these very large entities for the same markets and/or products, their financial strength could prevent us from capturing a share of those markets. Our competitors may also develop products that are more effective, more useful, better tolerated, subject to fewer or less severe side effects, more widely prescribed or accepted, or less costly than ours and may also be more successful than us in manufacturing and marketing their products.

We also face competition from product candidates that are or could be under development. We expect our product candidates, if approved and commercialized, to compete on the basis of, among other things, product efficacy and safety, time to market, price, patient reimbursement by third-party payors, extent of adverse side effects, and convenience of treatment procedures. We may not be able to effectively compete in one or more of these areas.

If we are unable to compete effectively with the marketed therapeutics of our competitors or if such competitors are successful in developing products that compete with our potential product candidates, our business, results of operations, financial condition, and prospects may be materially adversely affected.

Our failure to successfully develop, acquire, and market additional product candidates or approved products would impair our ability to grow.

Our business plan includes the expansion of our clinical pipeline and our product portfolio through the acquisition, in-license, development and/or marketing of additional products and product candidates. The success of our efforts to expand our clinical pipeline and to build our product portfolio will depend in significant part on our ability to successfully identify, select and acquire promising product candidates and products.

The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product can be lengthy and complex. Other companies, including many of our competitors with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. Our experience in making acquisitions, entering collaborations and in-licensing product candidates is limited, and we have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. We may incorrectly judge the value or worth of an acquired or in-licensed product candidate, approved product or other asset. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all.

In addition, future acquisitions may entail numerous operational and financial risks, including:

exposure to unknown liabilities;
disruption of our business and diversion of our management’s time and attention to manage the acquisition and develop acquired products or technologies;
incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions;
higher than expected acquisition and integration costs;
increased amortization expenses;
difficulty and cost in combining the operations and personnel of any acquired business with our operations and personnel;
impairment of relationships with key suppliers or customers of any acquired business due to changes in management and ownership; and
inability to retain key employees of any acquired business.

Any collaboration arrangement that we have entered into or may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our current and potential future product candidates.

We may seek collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of our current and potential future product candidates, including our pursuit of combination trials to develop and commercialize our product candidates as combination products. Drug/device combination products are particularly complex, expensive and time-consuming to develop due to the number of variables involved in the final product design, including ease of patient and doctor use, maintenance of clinical efficacy, reliability and cost of manufacturing, regulatory approval requirements and standards, and other important factors. Thereafter, such products face continued risk and uncertainty related to manufacturing and supply until the commercial supply chain is validated and proven.

We will face, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time-consuming to negotiate, document and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we choose to enter into such arrangements, or the terms of such arrangements may not be favorable to us. If and when we collaborate with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators, who would likely have significant discretion in determining the efforts and resources that they will apply to these collaborations.

Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither party has final decision-making authority. Collaborations with third parties often are terminated or allowed to expire by the third party, which would adversely affect us financially and could harm our business reputation.

We may incur liability if our promotions of product candidates are determined, or are perceived, to be inconsistent with regulatory guidelines.

 

The FDA provides guidelines with respect to appropriate product promotion and continuing medical and health education activities. Although we endeavor to follow these guidelines, the FDA or the Office of the Inspector General: U.S. Department of Health and Human Services may disagree, and we may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. In addition, management’s attention could be diverted and our reputation could be damaged.

 

If we and the contract manufacturers upon whom we rely fail to produce our systems and product candidates in the volumes that we require on a timely basis, or fail to comply with stringent regulations, we may face delays in the development and commercialization of our electroporation equipment and product candidates.

 

We currently assemble certain components of our electroporation systems, andwhich is our delivery mechanism for our biologic to a patient’s cell. We utilize the services of contract manufacturers to manufacture the remaining components of these systems and our product supplies for clinical trials. We expect to increase our reliance on third party manufacturers if and when we commercialize our productsproduct candidates and systems. The manufacture of our systems and product supplies requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers often encounter difficulties in production, particularly in scaling up for commercial production. These problems include difficulties with production costs and yields, quality control, including stability of the equipment and product candidates and quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. If we or our manufacturers were to encounter any of these difficulties or our manufacturers otherwise fail to comply with their obligations to us, our ability to provide our electroporation equipment to our partners and products to patients in our clinical trials or to commercially launch a product would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of our clinical trials, increase the costs associated with maintaining our clinical trial program, and, depending upon the period of delay, require us to commence new trials at significant additional expense or terminate the trials completely.

In addition, all manufacturers of our products must comply with cGMP requirements enforced by the FDA through its facilities inspection program. These requirements include, among other things, quality control, quality assurance, and the generation and maintenance of records and documentation. Manufacturers of our products may be unable to comply with these cGMP requirements and with other FDA, state, and foreign regulatory requirements. We have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the

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safety of any product is compromised due to our or our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products, and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical trials, regulatory submissions, approvals, or commercialization of our products, entail higher costs, or result in our being unable to effectively commercialize our products. Furthermore, assuming we are successful in commercializing one or more of our product candidates, if our manufacturers fail to deliver the required commercial quantities on a timely basis, pursuant to provided specifications and at commercially reasonable prices, we may be unable to meet demand for our products and would lose potential revenues.

 

We may not be successful in executing our strategy for the commercialization of our product candidates. If we are unable to successfully execute our commercialization strategy, we may not be able to generate significant revenue.

We intend to advance a commercialization strategy that leverages previous in-depth clinical experiences, previous CE (Conformité Européene) approvals, and late-stage clinical studies in the United States. This strategy includes seeking approval from the FDA and similar foreign regulators to initiate pivotal registration studies in the United States and abroad, including studies in select rare cancers that have limited, adverse, or no therapeutic alternatives. This strategy also includes expanding the addressable markets for our therapies through the addition of relevant indications. Our commercialization plan also includes partnering and/or co-developing our technology in developing regions, such as Eastern Europe and Asia, where local resources are best leveraged and appropriate collaborators can be secured.

We may not be able to implement a commercialization strategy as we have planned. Further, we have not proven our ability to succeed in the biotechnology industry and are not certain that our implementation strategy, if implemented correctly, would lead to significant revenue. If we are unable to successfully implement our commercialization plans and drive adoption by patients and physicians of our potential future products through our sales, marketing, and commercialization efforts, then we will not be able to generate significant revenue which will have a material adverse effect on our business, results of operations, financial condition, and prospects.

If any product candidate for which we receive regulatory approval does not achieve broad market acceptance or coverage by third-party payors, our revenues may be limited.

 

The commercial success of any potential product candidates for which we obtain marketing approval from the FDA or other regulatory authorities will depend upon the acceptance of these products by physicians, patients, healthcare payors, and the medical community. Coverage and reimbursement of our approved product by third-party payors is also necessary for commercial success. The degree of market acceptance of any potential product candidates for which we may receive regulatory approval will depend on a number of factors, including:

 

·our ability to provide acceptable evidence of safety and efficacy;

·
our ability to provide acceptable evidence of safety and efficacy;
acceptance by physicians and patients of the product as a safe and effective treatment;
the prevalence and severity of adverse side effects;
limitations or warnings contained in a product’s FDA-approved labeling or other regulator-approved labeling;
the clinical indications for which the product is approved;
availability and perceived advantages of alternative treatments;
any negative publicity related to our or our competitors’ products;
the effectiveness of our or any current or future collaborators’ sales, marketing, and distribution strategies;
pricing and cost effectiveness;
our ability to obtain sufficient third-party payor coverage or reimbursement; and
the willingness of patients to pay out-of-pocket in the absence of third-party payor coverage.

Cost containment is a primary trend in the U.S. healthcare industry. Third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular products and procedures. Increasingly, third-party payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot assure you that coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. If coverage and reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate that we successfully develop.

In addition, the regulations that govern marketing approvals, pricing, coverage and reimbursement for new therapeutic products vary widely from country to country. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product as a safe and effective treatment;

·negatively impact the prevalence and severityrevenue we are able to generate from the sale of adverse side effects;

·limitations or warnings contained in a product’s FDA-approved labeling;

·the clinical indications for which the product is approved;

·availability and perceived advantages of alternative treatments;

·any negative publicity related to our or our competitors’ products;

·the effectiveness of our or any current or future collaborators’ sales, marketing and distribution strategies;

·pricing and cost effectiveness;

·our ability to obtain sufficient third-party payor coverage or reimbursement; and

·the willingness of patients to pay out of pocket in the absence of third-party payor coverage.that country.

 

Our efforts to educate the medical community and third-party payors on the benefits of any of our potential product candidates for which we obtain marketing approval from the FDA or other regulatory authorities may require significant resources and may never be successful. If our potential products do not achieve an adequate level of acceptance by physicians, third-party payors, and patients, physicians may not choose to utilize our product and we may not generate sufficient revenue from these products to become or remain profitable.

 

We may not be successful in executing our strategy for the commercialization of our product candidates. If we are unable to successfully execute our commercialization strategy, we may not be able to generate significant revenue.

We intend to advance a commercialization strategy that leverages previous in-depth clinical experiences, previous CE (Conformité Européene) approvals for the electroporation-based devices and late stage clinical studies in the United States (Phase III) and Europe (Phase IV).  This strategy includes seeking approval from the FDA to initiate pivotal registration studies in the United States for select rare cancers that have limited, adverse or no therapeutic alternatives.  This strategy also includes expanding the addressable markets for the OMS therapies through the addition of relevant indications. Our commercialization plan also includes partnering and/or co-developing OMS in developing geographic locations, such as Eastern Europe and Asia, where local resources are best leveraged and appropriate collaborators can be secured.

We may not be able to implement our commercialization strategy as we have planned.  Further, we have little experience and have not proven our ability to succeed in the biomedical industry and are not certain that our implementation strategy, if implemented correctly, would lead to significant revenue.  If we are unable to successfully implement our commercialization plans and drive adoption by patients and physicians of our potential future products through our sales, marketing and commercialization efforts, then we will not be able to generate significant revenue which will have a material adverse effect on our business, results of operations, financial condition and prospects.

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In order to market our proprietary products, we may choose to establish our own sales, marketing, and distribution capabilities. We have no experience in these areas,capabilities, and if we have problems establishing these capabilities, the commercialization of our products would be impaired.

 

We may choose to establish our own sales, marketing, and distribution capabilities to market products to our target markets. We have no experience in these areas, and developingDeveloping these capabilities will require significant expenditures on personnel and infrastructure. While we intend to market products that are aimed at a small patient population, we may not be able to create an effective sales force around even a niche market. In addition, some of our product candidates may require a large sales force to call on, educate, and support physicians and patients. We may desire in the future to enter into collaborations with one or more pharmaceutical companies to sell, market, and distribute such products, but we may not be able to enter into any such arrangement on acceptable terms, if at all. Any collaboration we do enter into may not be effective in generating meaningful product royalties or other revenues for us.

 

Our success depends in part on our ability to protect our intellectual property. Because of the difficulties of protecting our proprietary rights and technology, we may not be able to ensure their protection.

Our commercial success will depend in large part on obtaining and maintaining patent, trademark and trade secret protection of our product candidates and their respective components, formulations, manufacturing methods and methods of treatment, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our product candidates is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.

The coverage claimed in a patent application typically is significantly reduced before a patent is issued, either in the United States or abroad. Consequently, any of our pending or future patent applications may not result in the issuance of patents and any patents issued may be subjected to further proceedings limiting their scope and may in any event not contain claims broad enough to provide meaningful protection. Any patents that are issued to us or our future collaborators may not provide significant proprietary protection or competitive advantage, and may be circumvented or invalidated. In addition, unpatented proprietary rights, including trade secrets and know-how, can be difficult to protect and may lose their value if they are independently developed by a third party or if their secrecy is lost. Further, because development and commercialization of our potential product candidates can be subject to substantial delays, our patents may expire and provide only a short period of protection, if any, following any future commercialization of products. Moreover, obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. If any of our patents are found to be invalid or unenforceable, or if we are otherwise unable to adequately protect our rights, it could have a material adverse impact on our business and our ability to commercialize or license our technology and products.

We may incur substantial costs as a result of litigation or other proceedings relating to protection of our patent and other intellectual property rights, and we may be unable to successfully protect our rights to our potential products and technology.

If we choose to go to court to stop a third party from using the inventions claimed by our patents, that third party may ask the court to rule that the patents are invalid and/or should not be enforced. These lawsuits are expensive and could consume time and other resources even if we were successful in stopping the infringing activity. In addition, the court could decide that our patents are not valid and that we do not have the right to stop others from using the inventions claimed by the patents.

Additionally, even if the validity of these patents is upheld, the court could refuse to stop a third party’s infringing activity on the ground that such activities do not infringe our patents. The U.S. Supreme Court has recently revised certain tests regarding granting patents and assessing the validity of patents to make it more difficult to obtain patents. As a consequence, issued patents may be found to contain invalid claims according to the newly revised standards. Some of our patents may be subject to challenge and subsequent invalidation or significant narrowing of claim scope in a reexamination proceeding, or during litigation, under the revised criteria.

Third parties may claim that we infringe their proprietary rights and may prevent us from manufacturing and selling some of our products.

The manufacture, use and sale of new products that are the subject of conflicting patent rights have been the subject of substantial litigation in the biomedical industry. These lawsuits relate to the validity and infringement of patents or proprietary rights of third parties. Litigation may be costly and time-consuming, and could divert the attention of our management and technical personnel. In addition, if we infringe on the rights of others, we could lose our right to develop, manufacture or market products or

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could be required to pay monetary damages or royalties to license proprietary rights from third parties. Although the parties to patent and intellectual property disputes in the biomedical industry have often settled their disputes through licensing or similar arrangements, the costs associated with these arrangements may be substantial and could include ongoing royalties. Furthermore, we cannot be certain that the necessary licenses would be available to us on commercially reasonable terms or at all. As a result, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products, and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Extensive industry regulation has had, and will continue to have, a significant impact on our business, especially our product development, manufacturing, and distribution capabilities.

 

All biomedicalbiotechnology companies are subject to extensive, complex, costly, and evolving government regulation. For the U.S., these regulations are principally administered by the FDA and to a lesser extent by the United States Drug Enforcement Agency, (the “DEA”)or DEA, and state government agencies, as well as by various regulatory agencies in foreign countries where products or product candidates are being manufactured and/or marketed. The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act, and other federal statutes and regulations, and similar foreign statutes and regulations, govern or influence the testing, manufacturing, packing, labeling, storing, record keeping, safety, approval, advertising, promotion, sale, and distribution of our products. Under these regulations, we may become subject to periodic inspection of our facilities, procedures, and operations and/or the testing of our product candidates and products by the FDA, the DEA, and other authorities, which conduct periodic inspections to confirm that we are in compliance with all applicable regulations. In addition, the FDA and foreign regulatory agencies conduct pre-approval and post-approval reviews and plant inspections to determine whether our systems and processes are in compliance with cGMP and other regulations. Following such inspections, the FDA or other agency may issue observations, notices, citations, and/or warning letters that could cause us to modify certain activities identified during the inspection. To the extent that we successfully commercialize any product, we may also be subject to ongoing FDA obligations and continued regulatory review with respect to manufacturing, processing, labeling, packaging, distribution, storage, advertising, promotion, and recordkeeping for the product. Additionally, we may be required to conduct potentially costly post-approval studies and report adverse events associated with our products to the FDA and other regulatory authorities. Unexpected or serious health or safety concerns would result in labeling changes, recalls, market withdrawals, or other regulatory actions.

 

The range of possible sanctions includes, among others, FDA issuance of adverse publicity, product recalls or seizures, fines, total or partial suspension of production and/or distribution, suspension of the FDA’s review of product applications, enforcement actions, injunctions, and civil or criminal prosecution. Any such sanctions, if imposed, could have a material adverse effect on our business, operating results, financial condition, and cash flows. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Similar sanctions as detailed above may be available to the FDA under a consent decree, depending upon the actual terms of such decree. If internal compliance programs do not meet regulatory agency standards or if compliance is deemed deficient in any significant way, it could materially harm our business.

Moreover, the regulations, policies, or guidance of the FDA or other regulatory agencies may change and new or additional statutes or government regulations may be enacted that could prevent or delay regulatory approval of our product candidates or further restrict or regulate post-approval activities. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our potential product candidates, which would adversely affect our ability to generate revenue and achieve or maintain profitability.

 

If we fail to comply with applicable healthcare laws and regulations, we could face substantial penalties and our business, operations, prospects and financial condition could be adversely affected.

Certain federal and state healthcare laws and regulations may be applicable to our business, including:

the federal Anti-Kickback Statute, which prohibits, among other things, people from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;
federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;
the Patient Protection and Affordable Care Act, or ACA, expands the government’s investigative and enforcement authority and increases the penalties for fraud and abuse, including amendments to both the False Claims Act and the Anti-Kickback Statute to make it easier to bring suit under those statutes;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;
the Federal Food, Drug and Cosmetic Act, which among other things, strictly regulates drug product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of drug samples; and
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by Health Insurance Portability and Accountability Act, or HIPAA, thus complicating compliance efforts.

Additionally, the compliance environment is changing, with more states, such as California and Massachusetts, mandating implementation of compliance programs, compliance with industry ethics codes, and spending limits, and other states, such as Vermont, Maine, and Minnesota requiring reporting to state governments of gifts, compensation, and other remuneration to physicians. Under the ACA, pharmaceutical companies must record any transfers of value made to doctors and teaching hospitals and to disclose such data to the U.S. Department of Health and Human Services, or HHS. These laws all provide for penalties for non-compliance. The shifting regulatory environment, along with the requirement to comply with multiple jurisdictions with different compliance and/or reporting requirements, increases the possibility that a company may run afoul of one or more laws. It also may adversely affect:

our ability to set a price we believe is fair for our products;
our ability to generate revenues and achieve or maintain profitability;
the availability of capital; and
our ability to obtain timely approval of our products.

Further, even though we do not and will not control referrals of healthcare services or bill directly to third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights may be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business.

To the extent that we operate in a foreign country or any product we make is sold in a foreign country, we also may be subject to foreign laws and regulations.

If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly and have a significant adverse effect on us.

We face potential product liability exposure and if successful claims are brought against us, we may incur substantial liability.

 

The clinical use of our product candidates exposes us to the risk of product liability claims. Any side effects, manufacturing defects, misuse, or abuse associated with our product candidates could result in injury to a patient or even death. In addition, a liability claim may be brought against us even if our product candidates merely appear to have caused an injury. Product liability claims may be brought against us by consumers, healthcare providers, pharmaceutical companies, or others coming into contact with our product candidates, among others.

 

Regardless of merit or potential outcome, product liability claims against us may result in, among other effects, the inability to commercialize our product candidates, impairment of our business reputation, withdrawal of clinical trial participants, and distraction of management’s attention from our primary business. If we cannot successfully defend ourselves against product liability claims, we could incur substantial liabilities.

 

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The biomedical industry is highly competitive.

The biomedical industry has an intensely competitive environment that will require an ongoing, extensive search for technological innovations and the ability to market products effectively, including the ability to communicate the effectiveness, safety and value of products to healthcare professionals in private practice, group practices and payers in managed care organizations, group purchasing organizations and Medicare & Medicaid services. We face competition from a number of sources, including large pharmaceutical companies, biotechnology companies, academic institutions, government agencies and private and public research institutions. We are smaller than almost all of our competitors. Most of our competitors have been in business for a longer period of time than us, have a greater number of products on the market and have greater financial and other resources than we do. Furthermore, recent trends in this industry are that large drug companies are consolidating into a smaller number of very large entities, which further concentrates financial, technical and market strength and increases competitive pressure in the industry. If we directly compete with these very large entities for the same markets and/or products, their financial strength could prevent us from capturing a share of those markets. It is possible that developments by our competitors will make any products or technologies that we develop or acquire noncompetitive or obsolete.

If our competitors market and/or develop competing product candidates that are marketed more effectively, approved more quickly or demonstrated to be safer or more effective than our product candidates, then our commercial opportunities may be reduced or eliminated.

The biomedical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary therapeutics. If we are able to obtain regulatory approval of our product candidates related to our OMS technology or any assets we may acquire in the future, we will face competition from products currently marketed by companies much larger than us that address our targeted indications.

In addition to already marketed products, we also face competition from product candidates that are or could be under development. We expect our product candidates, if approved and commercialized, to compete on the basis of, among other things, product efficacy and safety, time to market, price, patient reimbursement by third-party payors, extent of adverse side effects and convenience of treatment procedures. We may not be able to effectively compete in one or more of these areas. We also may not be able to differentiate any products that we are able to market from those of our competitors or successfully develop or introduce new products that are less costly or offer better results than those of our competitors.

Additionally, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual property rights that limit or block us from developing or commercializing our product candidates. Our competitors may also develop products that are more effective, more useful, better tolerated, subject to fewer or less severe side effects, more widely prescribed or accepted or less costly than ours and may also be more successful than us in manufacturing and marketing their products. If we are unable to compete effectively with the marketed therapeutics of our competitors or if such competitors are successful in developing products that compete with our potential product candidates that are approved, our business, results of operations, financial condition and prospects may be materially adversely affected.

If we fail to comply with federal and state healthcare laws, including fraud and abuse and health information privacy and security laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.

Even though we do not and will not control referrals of healthcare services or bill directly to third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights may be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. To the extent that any product we make is sold in a foreign country, we also may be subject to foreign laws and regulations. If we or our operations are found to be in violation of any of these laws or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in U.S. federal or state health care programs, and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could materially adversely affect our ability to operate our business and our financial results. Further, any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

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We may engage in strategic transactions that could impact our liquidity, increase our expenses, and present significant distractions to our management.

 

From time to time we may consider engaging in strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing of products, product candidates or technologies. Any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term expenditures, and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, these transactions may entail numerous operational and financial risks, including, among others, exposure to unknown liabilities, disruption of our business and diversion of our management’s time and attention in order to develop acquired products, product candidates, or technologies, difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel, and inability to retain key employees of any acquired businesses. The pursuit of such transactions could also create a distraction for management and entail increased expenses in connection with the pursuit, evaluation, and negotiation of such transactions. Further, such transactions could result in substantial dilution to our stockholders. Accordingly, although we may not choose to undertake or may not be able to successfully complete any transactions of the nature described above, the pursuit of such transactions, and any transactions that we do complete, could have a material adverse effect on our business, results of operations, financial condition, and prospects.

 

Our business and operations would suffer in the event of cyber-attacks or system failures.

 

Despite the implementation of security measures, our internal computer systems and those of our current and any future partners, contractors, and consultants are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failures. System failures, accidents, or security breaches could cause interruptions in our operations, and could result in a material disruption of our commercialization activities, development programs and our business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the commercialization of any potential product candidate could be delayed.delayed or prevented.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business.

 

Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our operating results could be misstated, our reputation may be harmed, and the trading price of our stock could be negatively affected. Our controls over financial processes and reporting may not continue to be effective, or we may identify additionalsignificant deficiencies or material weaknesses or significant deficiencies in our internal controls in the future. Any failure to remediate any futuresignificant deficiencies or material weaknesses or to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations, or result in material misstatements in our financial statements or other public disclosures. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

 

Maintaining compliance with our obligations as a public company may strain our resources and distract management, and if we do not remain compliant our stock price may be adversely affected.

 

We are required to evaluate our internal control systems in order to allow management to report on our internal controls as required by Section 404 of the Sarbanes-Oxley Act of 2002, and our management is required to attest to the adequacy of our internal controls. Recent SEC pronouncements suggest that in the next several years we may be requiredThe U.S. Financial Accounting Standards Board and International Accounting Standards Board have been working together since 2002 to report our financial results using newachieve convergence of U.S. generally accepted accounting principles, or GAAP, and International Financial Reporting Standards, replacingor IFRS. As GAAP which wouldand IFRS converge into a single set of high quality standards, implementing the new standards could require us to make adjustments to our previously reported financial statements and could require us to make significant investments in training, hiring, consulting, and information technology, among other investments. All of these and other reporting requirements and heightened corporate governance obligations that we face, or will face, will further increase the cost to us, perhaps substantially, of remaining compliant with our obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and other applicable laws, including the Sarbanes-Oxley Act and the Dodd-Frank Act of 2010.

We may not be able to realize value from, or otherwise preserve and utilize, our net operating loss (NOL) carryforwards.

Significant equity restructuring often results in an Internal Revenue Section 382 ownership change that limits the future use of net operating loss (NOL) carryforwards and other tax attributes. The Company may have undergone such ownership changes, however, a Section 382 ownership change study has not been conducted; thus, our NOL carryforwards generated prior to the ownership change would be subject to annual limitations, which could reduce, eliminate, or defer the utilization of these losses. Further, the recognition and measurement of our NOL carryforwards may include estimates and judgments by our management, and the Internal Revenue Service has not audited or otherwise validated the amount of our NOL carryforwards. Additionally, legislative changes could negatively impact our ability to use any tax benefits associated with our NOL carryforwards. If we put in place limitations on ownership of our common stock or adopt a shareholder rights plan to preserve our ability to use NOL carryforwards, this could deter potential buyers of our common stock and adversely impact the trading price of our common stock.

Our licensed intellectual property may not provide us with sufficient rights and may not prevent competitors from pursuing similar technology.

We have licensed certain technology and related assets that cover our current therapeutic methods. Patents for technology we have licensed are still pending in certain jurisdictions, and the patent family will expire between 2025 and 2027. Method-of-use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products off-label. Although off-label prescriptions may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute.

We have entered into a cross-license agreement for certain electroporation technology with Inovio. Under the terms of the cross-license agreement, Inovio granted to us a non-exclusive, worldwide license to certain electroporation patents held by Inovio. In orderexchange, we granted to meetInovio an exclusive license to our acquired technology in a limited field of use. While we do not currently substantially rely on the intellectual property we have non-exclusively licensed from Inovio, our product candidates may, in the future, utilize this intellectual property. This license is non-exclusive and Inovio may use its technology to compete with us. As there are no restrictions on Inovio’s ability to license their technology to others, Inovio could license to others, including our competitors, the intellectual property rights covered by their license to us, including any of our improvements to the licensed intellectual property. Either party may terminate the cross-license agreement with 30 days’ notice; and, if either party were to terminate the cross-license agreement, they would no longer have the right to use intellectual property that is subject to the cross license.

We may incur substantial costs as a result of litigation or other proceedings relating to protection of our patent and other intellectual property rights, and we may be unable to successfully protect our rights to our potential products and technology.

If we choose to go to court to stop a third party from using the inventions claimed by our patents, that third party may ask the court to rule that the patents are invalid and/or should not be enforced. Even if we were successful in stopping the infringing activity, these incremental obligations,lawsuits are expensive and could consume time and other resources. In addition, the court could decide that our patents are not valid and that we will needdo not have the right to investstop others from making, using, or selling the inventions claimed by the patents.

Additionally, even if the validity of these patents is upheld, the court could refuse to stop a third party’s infringing activity on the ground that such activities do not infringe our patents. The U.S. Supreme Court has recently revised certain tests regarding granting patents and assessing the validity of patents, making it more difficult to obtain patents. As a consequence, issued patents may be found to contain invalid claims according to the newly revised standards. Some of our patents may be subject to challenge and subsequent invalidation or significant narrowing of claim scope in a reexamination proceeding, or during litigation, under the revised criteria.

Third parties may claim that we infringe their proprietary rights and may prevent us from manufacturing and selling some of our corporateproducts.

The manufacture, use and accounting infrastructuresale of new products that are the subject of conflicting patent rights have been the subject of substantial litigation in the biotechnology industry relating to the validity and systems,infringement of patents or proprietary rights of third parties. Litigation may be costly and acquire additional servicestime-consuming and could divert the attention of our management and technical personnel. In addition, if we infringe on the rights of others, we could lose our right to develop, manufacture, or market products or could be required to pay monetary damages or royalties to license proprietary rights from third party auditorsparties. Although the parties to patent and advisors.intellectual property disputes in the biotechnology industry have often settled their disputes through licensing or similar arrangements, the costs associated with these arrangements may be substantial and could include ongoing royalties. Furthermore, we cannot be certain that the necessary licenses would be available to us on commercially reasonable terms or at all. These risks may be amplified by our size relative to many of our competitors. As a result, of these requirements and investments, we may incur significant additional expenses and may suffer a significant diversion of management’s time. There is no guarantee that we will be able to continue to meet these obligationsan adverse determination in a timely manner,judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and weselling our products, and could therefore be subject to sanctions or investigation by regulatory authorities such ashave a material adverse effect on our business, results of operations, financial condition, and cash flows.

Our common stock has low trading volume and the SEC. Any such actions could adversely affect the market price of our common stock perhaps significantly.has been, and will likely continue to be, highly volatile.

 

Risks Related to our Common Stock

We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.

The continued operation and expansionTrading of our business will require substantial funding. Investors seeking cash dividends in the foreseeable future should not purchase our common stock. We have paid no cash dividends on any of our capital stock to date and we currently intend to retain our available cash to fund the development and growth of our business. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our Board of Directors deems relevant. We do not anticipate paying any cash dividends on our common stock is frequently highly volatile, with low trading volume. We have experienced, and are likely to continue experiencing, significant fluctuations in the foreseeable future. Any returnstock price and trading volume. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for stockholders to stockholders will therefore be limitedsell their stock. Furthermore, the volatility of our stock price could negatively impact our ability to the appreciation of their stock, which may never occur.raise capital or acquire businesses or technologies.

 

20



TableIn addition to the risks and uncertainties described in this section of Contentsthis Annual Report, other factors affecting the trading price and trading volume of our common stock may include:

 

adverse research and development or clinical trial results;
conducting open-ended clinical trials which could lead to results (success or setbacks) being obtained by the public prior to a formal announcement by us;
our inability to obtain additional capital;
announcement that the FDA denied our request to approve our products for commercialization in the United States, or similar denial by other regulatory bodies which make independent decisions outside the United States;
potential negative market reaction to the terms or volume of any issuance of shares of our stock to new investors or service providers;
sales of substantial amounts of our common stock, or the perception that substantial amounts of our common stock will be sold, by our stockholders in the public market;
declining working capital to fund operations, or other signs of apparent financial uncertainty;
significant advances made by competitors that adversely affect our potential market position; and
the loss of key personnel and the inability to attract and retain additional highly-skilled personnel.

If we issue additional shares in the future, our existing stockholders will be diluted.

 

Our articles of incorporation authorize the issuance of up to 3,200,000,000160,000,000 shares of common stock with a par value of $0.0001 per share. In addition to capital raising activities, other possible business and financial uses for our authorized common stock include, without limitation, future stock splits, acquiring other companies, businesses, or products in exchange for shares of common stock, issuing shares of our common stock to partners in connection with strategic alliances, attracting and retaining employees by the issuance of additional securities under our various equity compensation plans, or other transactions and corporate purposes that our Board of Directors deems are in the Company’s best interest. Additionally, shares of common stock could be used for anti-takeover purposes or to delay or prevent changes in control or management of the Company. We cannot provide assurances that any issuances of common stock will be consummated on favorable terms or at all, that they will enhance stockholder value, or that they will not adversely affect our business or the trading price of our common stock. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current stockholders. Further, such issuance may result in a change of control of our corporation.company.

 

Sales of common stock by our stockholders, or the perception that such sales may occur, could depress our stock price.

 

Sales of our common stock in the public market following this offering could lower the market price of our common stock. Sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that our management deems acceptable or at all.

In addition, theThe market price of our common stock could decline as a result of sales by, or the perceived possibility of sales by, our existing stockholders. Since March 2011, we have completed a number of offerings of our common stock and warrants and as of September 25, 2013, have issued an aggregate of 201,419,600 shares of our common stock, including common stock underlying warrants. Future sales of common stock by significant stockholders, including by those who acquired their shares in our prior offerings or who are affiliates, or the perception that such sales may occur, could depress the price of our common stock.

 

If outstanding options and warrants to purchase shares of our common stock are exercised or outstanding restricted stock units vest or settle, the interests of our stockholders could be diluted.

 

AsSubsequent to July 31, 2016 through the date of September 25, 2013 infiling this Report, we have issued an aggregate of 1,105,593 shares of our common stock related to the exercise of warrants. In addition, we have outstanding (i) options to 170,838,526purchase 3,507,671 shares of common stock, issued(ii) warrants to purchase 11,903,693 shares of our common stock, including Series B Warrants to purchase 3,339,000 shares of common stock at an exercise price of $0.01 per share, and outstanding,(iii) 655,000 restricted stock units. In addition, we currently have 9,000,000as of October 7, 2016, 18,908 shares reserved for future issuance under equity compensation plan for vestedour 2011 Stock Incentive Plan and unvested stock options. We also482,211 shares have 53,111,974 sharesbeen reserved for future issuance on the exercise of outstanding warrants as of such date. We may elect to reduce the exercise price of outstanding warrants as a means of providing additional financing to us.under our 2015 Employee Stock Purchase Plan. The exercise of options and warrants, the vesting and settlement of restricted stock units, the issuance of additional shares of common stock or other awards under our 2011 Stock Incentive Plan and the sale of any resulting shares underlying such options or warrants,of our common stock in connection with the foregoing, could have an adverse effect on the market for our common stock, including the price that an investor could obtain for their shares. Investors may experience dilution in the net tangible book value of their investment upon the exercise of outstanding options and warrants or the vesting of restricted stock units granted under our stock option plans, and options,restricted stock units and warrants that may be granted or issued in the future.

Trading In addition, in future periods, we may elect to reduce the exercise price of our stock is restricted by the SEC’s “penny stock” regulations and certain FINRA rules, which may limitoutstanding warrants as a stockholder’s abilitymeans of providing additional financing to buy and sell our common stock.us.

 

Our securities are covered by certain “penny stock” rules, which impose additional sales practice requirements on broker-dealers who sell low-priced securities to persons other than established customers and accredited investors. For transactions covered by these rules, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale, among other things. In addition, the penny stock rules require a broker-dealer, before effecting a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market.  The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account.  The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing before effecting the transaction, and must be given to the customer in writing before or with the customer’s confirmation.  These rules may affect the ability of broker-dealers and holders to sellIf our common stock is delisted from The Nasdaq Capital Market or we are found noncompliant with Nasdaq regulations, our stock’s market price and may negatively impact the level of trading activity for our common stock. To the extent our common stock remains subject to the penny stock regulations, such regulations may discourage investor interest in and adversely affect the market liquidity of our common stock.

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The Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Our common stock is illiquid and the price of our common stock maycould be negatively impacted by factors which are unrelated to our operations.impacted.

 

Our common stock only recently began quotinglisting on The Nasdaq Capital Market (“NASDAQ”) is contingent upon our meeting all the OTC Markets Group, Inc.’s OTCQB tier (“OTCQB”), and has a limited trading history on that market.  Trading of securities quoted on OTCQB is frequently highly volatile, with low trading volume. Sincecontinued listing requirements. If we are found noncompliant by NASDAQ, or if our common stock became available for trading on the OTCQB, we have experienced significant fluctuationsis delisted from NASDAQ, our stock price could be negatively impacted, our stock’s liquidity could be reduced, and our ability to raise capital in the stock price and trading volume of our common stock. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for stockholders to sell their stock. The market price of our common stock could continue to fluctuate substantially.

Factors affecting the trading price of our common stock may include:

·adverse research and development or clinical trial results;

·our inability to obtain additional capital;

·announcement that the FDA denied our request to approve our products for commercialization in the United States, or similar denial by other regulatory bodies which make independent decisions outside the United States;

·potential negative market reaction to the terms or volume of any issuance of shares of our stock to new investors or service providers;

·sales of substantial amounts of our common stock, or the perception that substantial amounts of our common stock will be sold, by our stockholders in the public market;

·declining working capital to fund operations, or other signs of apparent financial uncertainty;

·significant advances made by competitors that adversely affect our potential market position; and

·the loss of key personnel and the inability to attract and retain additional highly-skilled personnel.

Additionally, our clinical trials will be open-ended and, therefore, there is the possibility that information regarding the success (or setbacks) of our clinical trialsfuture may be obtained by the public prior to a formal announcement by us.limited.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.None.

 

ITEM 2. PROPERTIES

 

Description of Property

 

We do not own any real property. On MayDecember 31, 2013,2014, we entered into a thirty-eight month lease agreement for office space for our headquarters inapproximately 34,000 rentable square feet located at 5820 Nancy Ridge Drive, San Diego, California thatto serve as our new corporate headquarters and research and development laboratory. The term of the lease commenced on July 1, 2013, with an initial base monthlyOctober 19, 2015, our move-in date, and expires 120 months after commencement. Base rent is at $2.65 per rentable square feet, subject to a 3% rate increase on each annual anniversary of the first day of the first full month during the lease term. We received a 12-month rent abatement for our first year of occupancy. In addition, we are required to share in certain operating expenses and we delivered a security deposit of approximately $8,000.  The$90,000 in conjunction with signing the lease. This lease callshas not been sublet or renegotiated and we expect to have continued obligations under this lease for annual increasesthe duration of the lease term.

We have also entered into lease arrangements for office space in San Jose, California to the base rent of three percent.  support our legal department and we have lease arrangements for vivarium space to support our discovery research.

We believe our current and future facilities arewill be adequate to meet our operating needs for our immediate and near-term needs. Additionalthe foreseeable future. Should we need additional space, may be required as we expand our activities. Wecurrently do not currently foresee any significant difficulties in obtaining any required additional facilities.

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ITEM 3. LEGAL PROCEEDINGS

 

In the ordinary course of business, we may become a party to lawsuits involving various matters.The impact and outcome of litigation, if any, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not currently a party to any proceedings the adverse outcome of which, individually or in the aggregate, would have a material adverse effect on our financial condition or results of operations.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Trading Information

 

Our common stock hashad been quoted on OTCQB under the symbol ONCS since March 2011.  Prior to Marchfrom April 8, 2011 through May 29, 2015.On May 18, 2015, the Company effected a reverse stock split, in which each 20 shares of issued and outstanding common stock were combined into and became one share of common stock and no fractional shares were issued. On May 29, 2015, our common stock tradedbegan trading on the OTCQB and the OTC Bulletin BoardThe NASDAQ Stock Market LLC’s NASDAQ Capital Market tier, under the symbol NTVS.  As soon as practicable, and assuming we satisfy all necessary initial listing requirements, we intend to apply to have our common stock listed for trading on a national securities exchange, although we cannot be certain that any application would be approved or that we will ever be able to satisfy the qualitative or quantitative listing requirements for our common stock to be listed on an exchange.ONCS.

 

The transfer agent for our common stock is Nevada Agency and Transfer Company, located at 50 West Liberty Street, Suite 880, Reno, Nevada 89501.

 

The following table sets forth the range of reported high and low closing bid quotations for our common stock for the fiscal quarters indicated as reported on the NASDAQ and OTCQB. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

 

 

High

 

Low

 

 

 

 

 

 

 

Fiscal 2012

 

 

 

 

 

First Quarter ended October 31, 2011

 

$

1.00

 

$

0.31

 

Second Quarter ended January 31, 2012

 

$

0.81

 

$

0.12

 

Third Quarter ended April 30, 2012

 

$

1.00

 

$

0.18

 

Fourth Quarter ended July 31, 2012

 

$

0.30

 

$

0.15

 

 

 

 

 

 

 

Fiscal 2013

 

 

 

 

 

First Quarter ended October 31, 2012

 

$

0.49

 

$

0.18

 

Second Quarter ended January 31, 2013

 

$

0.41

 

$

0.20

 

Third Quarter ended April 30, 2013

 

$

0.29

 

$

0.18

 

Fourth Quarter ended July 31, 2013

 

$

0.34

 

$

0.23

 

 

 

 

 

 

 

Fiscal 2014

 

 

 

 

 

First Quarter ending October 31, 2013 (through September 25, 2013)

 

$

0.36

 

$

0.25

 

  High  Low 
Fiscal 2015        
First Quarter ended October 31, 2014* $13.00  $7.20 
Second Quarter ended January 31, 2015* $13.20  $7.00 
Third Quarter ended April 30, 2015* $8.60  $5.20 
Fourth Quarter ended July 31, 2015* $8.40  $4.40 

Fiscal 2016        
First Quarter ended October 31, 2015 $6.94  $3.37 
Second Quarter ended January 31, 2016 $4.42  $1.36 
Third Quarter ended April 30, 2016 $3.49  $1.43 
Fourth Quarter ended July 31, 2016 $2.05  $1.43 

*High and low closing bid quotations have been adjusted for the 1:20 reverse stock split

 

Our common stock is thinly tradedhas low trading volume and any reported sale prices may not be a true market-based valuation of our common stock.

 

As of September 25, 2013,October 7, 2016, there were 3933 holders of record of our common stock, not including stockholders whose shares are held in“in street name.

 

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Dividends

 

We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

In May 2011, our BoardThe information included under Item 12 of Directors adopted the OncoSec Medical Incorporated 2011 Stock Incentive Plan (the “2011 Plan”).  The 2011 Plan was approvedPart III of this report, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” is hereby incorporated by our stockholders in March 2012 and originally authorized the Boardreference into this Item 5 of Directors to grant equity awards to employees, directors, and consultants for up to 5,200,000 sharesPart II of our common stock.  On April 15, 2013, our stockholders approved an amendment to the 2011 Plan to authorize the issuance of an additional 3,800,000 shares of our common stock under the 2011 Plan, increasing the total number of shares reserved for issuance under the 2011 Plan to 9,000,000 shares. The 2011 Plan provides for the issuance of a variety of forms of awards, including stock options, stock appreciation rights, restricted stock and restricted stock units. The following table provides information as of July 31, 2013, with respect to our equity compensation plans:this report.

Equity Compensation Plan Information

Plan category

 

Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights

 

Weighted-average exercise
price of outstanding
options, warrants and
rights

 

Number of securities remaining available
for future issuance under equity
compensation plans (excluding securities
reflected in column (a))

 

 

 

(a)

 

(b)

 

(c)

 

Equity compensation plans approved by security holders

 

5,150,000

 

$

0.23

 

3,083,500

 

Equity compensation plans not approved by security holders

 

 

 

 

Total

 

5,150,000

 

$

0.23

 

3,083,500

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Annual Report. ReadersExcept for the historical information contained herein, the following discussion contains forward-looking statements which are also urgedsubject to carefully reviewknown and consider the various disclosures madeunknown risks, uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied by us which attempt to advise interested parties of thesuch forward-looking statements. We discuss such risks, uncertainties and other factors which affect our business, including without limitation the disclosures made inthroughout this Report and specifically under Item 1A of Part I of this Annual Report, under the caption “Risk Factors”. Factors.”The following discussion and other sections of this report contain forward looking statements. We make forward-looking statements, as defined by the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and in some cases, you can identify these statements by forward-looking words such as “if,” “shall,” “may,” “might,” “will likely result,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “intend,” “goal,” “objective,” “predict,” “potential” or “continue,” or the negative of these terms and other comparable terminology. These forward-looking statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events that we believe to be reasonable. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the historical or future results, level of activity, performance or achievements expressed or implied by such forward-looking statements.  These factors include, but are not limited to, those discussed under the caption “Risk Factors” in this report.  We undertake no duty to update any of these forward-looking statements after the date of filing of this report to conform such forward-looking statements to actual results or revised expectations, except as otherwise required by law.

 

Company Overview

 

We are a biotechnology company with a proprietary immunotherapy platform (ImmunoPulse®) designed to overcome tumor immune tolerance through electroporation-based local delivery of immune-modulating therapeutic product candidates intended to treat a wide range of tumor types. Our technology encompasses intellectual property relating to our immuno-oncology product portfolio which consists of ImmunoPulse® delivery technology (an electroporation delivery device) that we use in combination with our potential therapeutic product candidates, including DNA plasmids that encode for immunologically active agents, to deliver the therapeutic directly into the tumor and promote an inflammatory response against the cancer. This unique therapeutic modality is intended to reverse the immunosuppressive microenvironment in the tumor and engender a systemic anti-tumor response against untreated tumors in other parts of the body. Our electroporation delivery device consists of an electrical pulse generator and disposable applicators, which can be adapted to treat different tumor types and our lead product candidate, ImmunoPulse® IL-12, is ideal for combination with other therapies, such as anti-PD-1/PD-L1 therapies.

ImmunoPulse® IL-12, consists of a plasmid construct encoding the proinflammatory cytokine IL-12, that is delivered into the tumor through in vivo electroporation, which enhances local delivery and uptake of the therapeutic directly into the tumor. We have completed two Phase 2 studies, OMS-I100 in metastatic melanoma and OMS-I110 in Merkel Cell Carcinoma (“MCC”). The OMS-I100 clinical study demonstrated that multiple treatments of ImmunoPulse® IL-12 were safe and well tolerated, with no treatment-limiting toxicities. This lack of evidence of systematic toxicities led to the OMS-I100 Addendum study, in which the OMS-I100 protocol was amended to enroll up to an additional 30 patients in order to continue to acquire clinical and immune correlational data. Enrolllment in OMS-I100 Addendum is complete. The data from the OMS-I100 metastatic melanoma clinical trial suggest that ImmunoPulse® IL-12 may prime and enhance response rates to PD-1/PD-L1 blockade and exploratory biomarker analyses from the OMS-I110 MCC clinical trial showed a trend toward increased intratumoral expression of a variety of genes associated with inflammation, which we believe promotes tumor immunogenicity.

The safety and efficacy of intratumoral electroporation with plasmid IL-12 is also being tested in other cancer indications. We have an ongoing pilot study, OMS-I140 in triple negative breast cancer (“TNBC”), which is designed to assess whether ImmunoPulse® IL-12 increases TNBC tumor immunogenicity through increases in cytotoxic tumor-infiltrating lymphocytes (“TILs”). This study is open for enrollment and ongoing. We also have a Phase 2 clinical study in head and neck squamous cell carcinoma (“HNSCC”) in which one patient continues to receive treatment; otherwise the HNSCC clinical trial is no longer enrolling patients.

In addition to studying ImmunoPulse® IL-12 as monotherapy, in collaboration with the University of California, San Francisco, (the sponsor of the study) we are investigating the safety and efficacy of ImmunoPulse® IL-12 in combination therapy. CC-15852 is an open label Phase 2 clinical trial of ImmunoPulse® IL-12 plus KEYTRUDA® (“pembrolizumab”) in patients with “low TIL”, advanced, metastatic melanoma (“combination IST”). This investigator-initated study is enrolling and ongoing.

We began our operations as a biotechnology company in March 2011, following our completion of the acquisition of certain technology and related assets from Inovio Pharmaceuticals, Inc. (“Inovio”) pursuant to an asset purchase agreement dated March 14, 2011.On May 18, 2015, we effected a reverse stock split, pursuant to which each 20 shares of issues and outstanding common stock were combined into and became one share of common stock. The accompanying financial statements and related disclosures give retroactive effect to the reverse stock split for the periods presented related to our fiscal period ended July 31, 2015. On May 29, 2015, our common stock began trading on The NASDAQ Stock Market LLC’s NASDAQ Capital Market tier, under the symbol ONCS. Prior to operating as a biotechnology company, we were incorporated under the laws of the State of Nevada on February 8, 2008 under the name of Netventory Solutions, Inc. to pursue

Recent Equity Financings

May 2016 Registered Direct Offering

On May 26, 2016 our stock price closed at $1.62 and we closed an “at-the-market registered direct offering” (the “May 2016 Offering”) with a single healthcare-dedicated institutional fund for the businesspurchase of inventory management solutions.  Effective March 1, 2011, we effected a 32 for one forward stock split(i) 665,049 shares of our common stock, (ii) Series B Warrants to purchase 4,844,593 shares of our common stock at an exercise price of $0.01, and completed(iii) Series A Warrants to purchase up to an aggregate of 5,509,642 shares of common stock at an exercise price of $1.69 per share with a merger withterm of nine (9) years. The warrants are immediately exercisable on the date of issuance. At the closing, the placement agents were also issued warrants to purchase an aggregate of up to five percent (5%) of the aggregate number of shares of common stock and Series B Warrants sold in this offering, or 275,482 shares. The placement agent warrants have an exercise price of $2.26875, are immediately exercisable, and expire on May 24, 2021. The investor paid a purchase price of $1.815 per share of common stock and an accompanying Series A Warrant to purchase one share of common stock and $1.805 per Series B Warrant and accompanying Series A warrant to purchase one share of our subsidiary, OncoSec Medical Incorporated, a Nevada corporation which was incorporated solelycommon stock. The gross proceeds of the offering were $9.9 million. Net proceeds, after deducting the placement agent’s fee, financial advisory fees, and other estimated offering expenses payable by us, were approximately $9.2 million. We intend to effectuse proceeds from the change in our name to “OncoSec Medical Incorporated”.offering for general corporate purposes, including clinical trial expenses and research and development expenses.

 

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Recent Events — September 2013November 2015 Public Offering

 

On September 18, 2013,November 9, 2015, we closed a registered publicdirect offering and issuedof an aggregate of 47,792,0002,142,860 shares of our common stock at a purchase price of $3.50 per share and warrants to purchase an aggregate of 23,896,0001,071,430 shares of our common stock for gross proceeds of approximately $11.95 million (the “September 2013 Public“November 2015 Offering”). The warrants have an exercise price of $0.35$4.50 per share, are exercisable immediately upon issuanceon May 9, 2016 and have a term of exercise equalexpire on May 9, 2021. The gross proceeds to four yearsus from the date of issuance of the warrants.November 2015 Offering was approximately $7.5 million. After deducting for fees and expenses, the aggregate net proceeds to us from the sale of the common stock and the warrants in the September 2013November 2015 Public Offering were approximately $11.1$6.9 million.

In connection with the offering,November 2015 Offering, we paid placement agent fees consisting of (i) a cash fee equal to 6%six percent (6%) of the gross proceeds of the offering, as well as a non-accountable expense allowance equal to 1%one percent (1%) of the gross proceeds, and (ii) warrants to purchase up to an aggregate of 5%five percent (5%) of the aggregate number of shares of common stock sold in the offering, or 2,389,600107,143 shares of our common stock (the “September 2013 Placement Agent Warrants”).stock. The September 2013 Placement Agent Warrants have substantially the same terms as the warrants issued to the purchasers in the offering, except that such warrants haveplacement agent are exercisable at an exercise price of $0.3125 and expire on September 13, 2018.  We intend to use the net proceeds from the September 2013 Public Offering for general corporate purposes, including clinical trial expenses and research and development expenses.  As described below, we are obligated to make a final payment of $1 million to Inovio on December 31, 2013.

Asset Purchase Agreement

We have acquired certain assets pursuant to our Asset Purchase Agreement with Inovio Pharmaceuticals, Inc. (“Inovio”), dated March 14, 2011 (as amended, the “Asset Purchase Agreement”).  The acquired assets relate to certain non-DNA vaccine technology and intellectual property relating to selective tumor ablation technologies, which we now refer to as the OncoSec Medical System (“OMS”), a therapy which uses an electroporation device to facilitate delivery of chemotherapy agents, or nucleic acids encoding cytokines, into tumors and/or surrounding tissue for the treatment and diagnosis of various cancers.  The acquired assets included various assets related to the OMS technology.

We did not assume any of the liabilities of Inovio except liabilities under the assigned contracts and assigned intellectual property arising after the closing date of the Asset Purchase Agreement. We agreed to pay Inovio $3,000,000 in scheduled payments beginning on the closing date as well as certain royalties in the event we commercialize our OMS technology.  We have entered into amendments to the Asset Purchase Agreement with Inovio in September 2011 (the “First Amendment”) and in March 2012 (the “Second Amendment”) to modify the terms of our payment obligations (among other modifications).  We recently made a payment of $1 million to Inovio in May 2013 and we are required to make a final payment to Inovio of $1 million on December 31, 2013. In consideration for the First Amendment we issued to Inovio a warrant to purchase 1,000,000 shares of common stock with an exercise price of $1.20$4.375 per share.  In consideration for the Second Amendment, we issued to Inovio a warrant to purchase 3,000,000 shares of our common stock with an exercise price of $1.00 per share.  Each of the warrants is subject to a five year term.  Each of the warrants also contains a mandatory exercise provision allowing us to request the exercise of the warrant in whole provided that our daily market price (as defined in the warrant) is equal to or greater than $2.40 for twenty consecutive trading days.  We completed an evaluation of the warrants issued to Inovio and determined the warrants should be classified as equity within our consolidated balance sheet.

We are also party to a cross-license agreement with Inovio, which we entered into concurrently with the closing of our asset acquisition.  This agreement provides for the exclusive license to Inovio of rights related to certain OMS technology patents in the field of gene or nucleic acids, outside of those encoding cytokines, delivered by electroporation and for the non-exclusive cross-license by Inovio to us of rights related to certain non-OMS technology patents in the OMS field in exchange for specified sublicensing and other licensing fees and royalties.

We are focused on designing, developing and commercializing innovative and proprietary medical approaches for the treatment of solid tumors where currently approved therapies are inadequate based on their therapeutic benefit or side-effect profile.  Our therapies are based on the use of electroporation to deliver either an approved chemotherapeutic agent (“NeoPulse”), or a DNA plasmid construct that encodes for a cytokine (“ImmunoPulse”) to treat solid tumors.  NeoPulse and ImmunoPulse specifically target destruction of cancerous cells and not healthy normal tissues.  Our goal is to improve the lives of people suffering from the life-altering effects of cancer through the development of our novel treatment approaches.  We have initiated three Phase II clinical trials for the use of our therapies to treat metastatic melanoma, Merkel cell carcinoma and cutaneous T-cell lymphoma.

University of South Florida License

On August 24, 2012, we secured an exclusive license for specific patented technology from the University of South Florida Research Foundation relating to the delivery of gene-based therapeutics via intratumoral and intramuscular electroporation. This patent is directly supports our clinical development focus in solid tumor applications and specifically metastatic melanoma, Merkel cell carcinoma and cutaneous T-cell lymphoma using our ImmunoPulse therapy, and extends patent protection for the ImmunoPulse technology to the year 2024.

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Facility Lease

On May 31, 2013, we entered into a thirty-eight month lease agreement for office space to serve as our corporate headquarters.  Our lease commenced on July 1, 2013 and is subject to an initial base monthly rent of approximately $8,000.  The lease calls for annual increases to the base rent of three percent.

Recent Equity Financings

September 2013 Public Offering

On September 18, 2013, we closed the September 2013 Public Offering, which is described above under the heading “Recent Events — September 2013 Public Offering”

December 2012 Public Offering

On December 17, 2012, we completed a registered public offering of an aggregate of 28,800,000 shares of our common stock and warrants to purchase an aggregate of 14,400,000 shares of common stock for gross proceeds of $7.2 million (the “December 2012 Public Offering”). After deducting for fees and expenses, the aggregate net proceeds to us from the sale of the common stock and the warrants in the December 2012 Public Offering were approximately $6.7 million.  In connection with the offering, we paid placement agent fees consisting of (i) a cash fee equal to 6% of the gross proceeds of the offering, as well as a non-accountable expense allowance equal to 1% of the gross proceeds and (ii) warrants to purchase up to an aggregate of 5% of the aggregate number of shares of common stock sold in the offering, or 1,440,000 shares of our common stock (the “December 2012 Placement Agent Warrants”).  The December 2012 Placement Agent Warrants have substantially the same terms as the warrants issued to the purchasers in the offering, except that such warrants have an exercise price of $0.3125 and expire on December 11, 2017.

March 2012 Public Offering

In March 2012, we completed a registered public offering of an aggregate of 31,000,000 shares of common stock and warrants to purchase an aggregate of 31,000,000 shares of common stock at an aggregate purchase price of $7.75 million (the “March 2012 Public Offering”).  After deducting for fees and expenses, the aggregate net proceeds to us from the March 2012 Public Offering were approximately $7.2 million.  The warrants issued in the offering have an exercise price of $0.35 per share, are exercisable immediately upon issuance and have a term of exercise equal to five (5) years from the date of issuance of the warrants. In connection with the offering, we paid placement agent fees consisting of (i) a cash fee equal to 6% of the gross proceeds of the offering, as well as a non-accountable expense allowance equal to 1% of the gross proceeds of the offering and (ii) warrants to purchase up to an aggregate of 5% of the aggregate number of shares of common stock sold in the offering, or 1,550,000 shares of common stock (the “March 2012 Placement Agent Warrants”).  The March 2012 Placement Agent Warrants have substantially the same terms as the warrants issued to the purchasers in the offering, except that such warrants have an exercise price of $0.3125became exercisable on May 9, 2016, and expire on March 23, 2017.November 9, 2020.

 

We completed an evaluation of all of the warrants issued in connection with the December 2012 Public Offering and the March 2012 Public Offering and determined the warrants should be classified as equity within the consolidated balance sheet.

Critical Accounting Policies

 

Accounting for Long-Lived Assets / Intangible Assets

 

We assess the impairment of long-lived assets, consisting of property and equipment, and finite-lived intangible assets, whenever events or circumstances indicate that the carry value may not be recoverable. Examples of such circumstances include: (1) loss of legal ownership or title to an asset; (2) significant changes in our strategic business objectives and utilization of the assets; and (3) the impact of significant negative industry or economic trends. If a change were to occur in any of the above-mentioned factors the likelihood of a material change in our net loss would increase.

 

Recoverability of assets to be held and used in operations is measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the assets. The factors used to evaluate the future net cash flows, while reasonable, require a high degree of judgment and the results could vary if the actual results are materially different than the forecasts. In addition, we base useful lives and amortization or depreciation expense on our subjective estimate of the period that the assets will generate revenue or otherwise be used by us. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less selling costs.

 

26Stock-Based Compensation



Table of Contents

We also periodically review the lives assigned to our intangible assets to ensure that our initial estimates do not exceed any revised estimated periods from which we expect to realize cash flows from the technologies.  If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase.

Derivative Liabilities

In conjunction with the June 2011 Private Placement, we issued warrants that are accounted for as derivative liabilities.  These derivative liabilities were determined to be ineligible for equity classification due to certain price protection and anti-dilution provisions.

These derivative liabilities were initially recorded at their estimated fair value on the date of issuance of the common stock and warrants, and are subsequently adjusted to reflect the estimated fair value at each period end, with any decrease or increase in the estimated fair value being recorded as other income or expense. The fair value of these liabilities is estimated using option pricing models that are based on the individual characteristics of the common stock, the derivative liabilities on the valuation date, probabilities related to future financings, as well as assumptions for volatility, remaining expected life, and risk-free interest rate. The option pricing models of our derivative liabilities are estimates and are sensitive to changes to inputs and assumptions used in the option pricing models.

Share-Based Compensation

 

We grant equity-based awards under our share-based compensation plan and outside of our stock-based compensation plan. We estimate the fair value of share-based paymentstock option awards using the Black-Scholes option valuation model. This fair value is then amortized over the requisite service periods of the awards. 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. Share-basedWe estimate the fair value of restricted stock unit awards based on the closing price of our common stock at the date of grant. Stock-based compensation expense is based on awards ultimately expected to vest, and therefore is reduced by expected forfeitures. Changes in assumptions used under the Black-Scholes option valuation model could materially affect our net loss and net loss per share.

We have issued equity for services or as consideration within contractual agreements. Stock-based compensation expense related to such equity issuances are based on the closing price of our stock on the date the liability is incurred, with the stock-based compensation adjusted on the date of issuance, based on our stock price on the issuance date.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is contained in Note 2 to the Financial Statements, included elsewhere in this report.

Results of Operations

 

Comparison of Fiscal Years Ended July 31, 20132016 and 20122015

 

The audited consolidated financial data for the yearsfiscal year ended July 31, 20132016 and the audited financial data for the fiscal year ended July 31, 2012 is2015 are presented in the following table and the results of these two periods are used in the discussion thereafter.

 

 

 

July 31,
 2013
($)

 

July 31,
2012
($)

 

Increase/
(Decrease)
($)

 

Increase/
(Decrease)
%

 

Revenue

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Research and development

 

3,159,209

 

2,368,481

 

790,728

 

33

 

General and administrative

 

3,905,763

 

3,158,693

 

747,070

 

24

 

Loss from operations

 

(7,064,972

)

(5,527,174

)

1,537,798

 

28

 

Other income (expense)

 

 

 

 

 

 

 

 

 

Interest expense — non-cash

 

(83,215

)

(266,567

)

(183,352

)

(69

)

Loss on extinguishment of debt

 

 

(761,492

)

(761,492

)

(100

)

Adjustments to fair value of derivative liabilities

 

 

4,192,781

 

(4,192,781

)

(100

)

Net loss before income taxes

 

(7,148,187

)

(2,362,452

)

(4,785,735

)

**

 

Income tax provision

 

2,000

 

2,400

 

(400

)

(17

)

Net loss

 

(7,150,187

)

(2,364,852

)

(4,785,335

)

**

 


** Percentage increase/(decrease) is greater than 100%.

  July 31, 2016  July 31, 2015  Increase/ (Decrease)  Increase/ (Decrease) 
  ($)  ($)  ($)  % 
Revenue            
Operating expenses                
Research and development  14,741,694   13,132,898   1,608,796   12%
General and administrative  12,144,358   8,108,244   4,036,114   50%
Loss from operations  (26,886,052)  (21,241,142)  5,644,910   27%
Income tax provision  2,462   1,969   493   25%
Net loss  (26,888,514)  (21,243,111)  5,645,403   27%

 

Research and Development Expenses

Our research and development expenses primarily include expenses related to the development of our therapeutic product candidates, the advancement of electroporation technologies and discovery research for our product pipeline. These expenses also include certain clinical study expenses, intellectual property prosecution and maintenance costs, and quality assurance expenses. The expenses primarily consisted of salaries, benefits, stock-based compensation costs, outside design and consulting services, laboratory supplies, contract research organization expenses and clinical study supplies. We expense all research and development costs in the periods in which they are incurred.

During our fiscal year ending July 31, 2016 (“Fiscal 2016”), of the $14.7 million of research and development expenses, we incurred (exclusive of personnel costs), engineering costs of approximately $2.8 million, clinical costs of approximately $3.1 million and discovery research costs of approximately $3.8 million.

 

The $791,000approximately $1.6 million increase in research and development expenses for the fiscal year ended July 31, 20132016 as compared to the fiscal year ended July 31, 20122015 (“Fiscal 2015”) was mainlyprimarily the result of (i) increased clinical trial expenses of $723,000.$1.2 million due to (a) the progression of our melanoma extension study which has completed enrollment and (b) progression of the combination IST which continues to enroll patients and is on-going, (ii) increased outside services expenses of approximately $0.9 million related to sponsored research, clinical development consulting and engineering consulting to assist in the research of novel electroporation technologies, combination studies and to facilitate the planning and development of our next generation electroporation device and (iii) increased expenses of approximately $0.9 million related to facility costs as we relocated our labs to our new corporate headquarters, offset by (i) a reduction in intangibles amortization of approximately $0.5 million due to our patents being fully amortized, (ii) a decrease of approximately $0.5 million in engineering and discovery research supplies spend due to moving our labs and refocusing our discovery research priorities, (iii) a decrease of approximately $0.3 million in salary-related costs and (iv) a reduction of $0.1 million in fees and licenses primarily related to patent acquisition. We expect research and development to continue to account for a significant portion of our total expenses in the future as we continue to focus on designing and developingto develop our therapies.product pipeline.

 

27We expect to use our current funds for the advancement of our clinical and R&D milestones. We anticipate our spending on clinical trials and CMC to increase as we continue to define and execute our registration pathway for metastatic melanoma and we anticipate our spending on discovery research and next-generation electroporation technologies to increase as we further pursue novel immuno-therapies and future product candidates.



Table of ContentsGeneral and Administrative

 

GeneralOur general and Administrativeadministrative expenses include expenses related to our executive, accounting and finance, compliance, information technology, legal, facilities, human resource, administrative and corporate communications activities. These expenses consist primarily of salaries, benefits, stock-based compensation costs, independent auditor costs, legal fees, consultants, travel, insurance, and public company expenses, such as stock transfer agent fees and listing fees in connection with obtaining our listing on the NASDAQ Capital Market.

 

The $747,000approximately $4.0 million increase in general and administrative expenses for the year ended July 31, 2013Fiscal 2016, as compared to the year ended July 31, 2012Fiscal 2015, was primarily the result of increased corporate communications(i) an increase in salary-related costs of $160,000 consisting primarily$0.4 million due to hiring additional personnel to support the growth of investor relation services, contract labor costs of $40,000, rental expense of $72,000, salariesoperations and wage expense of $67,000, information technology costs of $53,000, conference registration fees of $58,000, share basednon-cash stock-based compensation expense of $168,000 as well as other generalapproximately $3.5 million due to the issuance of restricted stock units and stock option grants to senior management and the Board, (ii) an increase of $0.4 million in overall operational expenses primarily consisting of rent, insurance and internet costs, and (iii) a $0.2 million increase in our audit costs primarily related to internal controls attestation, offset by (i) a decrease of approximately $0.3 million in outside services related primarily to corporate matterscommunications and increased travelcorporate development due to performing these functions in-house, and associated costs(ii) a decrease of $29,000.$0.2 million in conference fees.

 

Other Income (Expense)We expect to use our current funds to support our corporate infrastructure. We anticipate our corporate headquarters’ facility costs to increase based on the terms of our long-term lease agreement and we expect our investor and public relations spend to increase as we continue to grow our institutional shareholder base and keep our shareholders informed.

 

The $3,082,000 decrease in other income for the year ended July 31, 2013 as compared to the year ended July 31, 2012 was primarily due to the recording of other income of $4,193,000 as a result of the adjustment to fair value of the derivative liabilities as of April 30, 2012. In connection with the June 2011 Private Placement, we issued warrants to purchase 240,000 shares of our common stock to the co-placement agents and warrants to purchase 12,000,000 shares of our common stock to the investors in the private placement. As more fully described in Note 7 to our consolidated financial statements, certain warrants issued in connection with the June 2011 Private Placement were determined to be derivative liabilities as a result of the anti-dilution provisions contained in the warrant agreements.  All of these warrants ceased to be classified as derivative liabilities as of March 28, 2012.

Liquidity and Capital Resources

 

Our primary uses of cash have been to finance research and development activities focused on the discovery, the design and the development of innovative and proprietary medical approaches for the treatment of cancer and to strengthen our corporate infrastructure to enable commercialization of potential product candidates.

Working Capital

 

Our working capital as of July 31, 20132016 and 20122015 is summarized as follows:

 

 At
July 31, 2016
 At
July 31, 2015
 

 

At
July 31, 2013
($)

 

At
July 31, 2012
($)

 

 ($)  ($) 

Current assets

 

5,169,687

 

5,493,056

 

  29,417,408   33,567,981 

Current liabilities

 

1,770,604

 

2,023,156

 

  3,466,251   2,861,951 

Working capital (deficiency)

 

3,399,083

 

3,469,900

 

Working capital  25,951,157   30,706,030 

 

Current Assets

 

The decrease in our currentCurrent assets was primarily due to a decrease in cash from $5,142,000 as of July 31, 2012,2016 decreased to $4,970,000approximately $29.4 million from approximately $33.6 million as of July 31, 2013, as a result cash used in operations during the year ended July 31, 2013.

Current Liabilities

Current liabilities as of July 31, 2013 decreased to $1,771,000 from $2,023,000 as of July 31, 2012.2015. This decrease was primarily due to the $500,000 payment made on September 24, 2012, in accordance withuse of cash to fund operations during Fiscal 2016, net of the Asset Purchase Agreement as more fully discussed in Note 6 to our consolidated financial statements.proceeds received from the November 2015 and May 2016 Public Offerings.

Current Liabilities

 

Cash FlowCurrent liabilities as of July 31, 2016 increased to approximately $3.5 million from approximately $2.9 million as of July 31, 2015. This increase was primarily due to an increase in accrued liabilities which was primarily a result of increased enrollment in our melanoma extension and our combination IST clinical trials.

 

Cash Flow

Cash Flow Used in Operating Activities

 

CashNet cash used in operating activities for the year ended July 31, 2013Fiscal 2016 was $5,533,000,approximately $17.8 million, as compared to $4,219,000approximately $17.7 million for Fiscal 2015. Operating activities encompassing research and development and general and administration efforts generated a net loss of $26.9 million, which included non-cash expenses (stock-based compensation and depreciation) and changes in working capital due to the year ended July 31, 2012.  This increase was relatedtiming of payment of liabilities and the utilization of prepaid assets. Overall our operational cash use increased approximately by $0.1 million from the same period in Fiscal 2015 primarily due to increased costs of operations, such as salary expense and associated costs, clinical trial costs, legal fees and professional fees, primarily.facilities costs.

Cash Flow Used in Investing Activities

 

CashNet cash used in investing activities for the year ended July 31, 2013Fiscal 2016 was $115,000,approximately $1.6 million, as compared to $55,000approximately $1.4 million for Fiscal 2015. Investing activities resulted in cash outflows for leashold improvements of $0.1 million and the year ended July 31, 2012 purchase of property and equipment of $1.5 million. Overall ourand relatedinvesting cash use increased by approximately $0.2 million from the same period in Fiscal 2015 primarily due to the acquisition of property and equipment for our new office location.corporate headquarters and lab facility.

 

Cash Flow Provided by Financing Activities

 

CashNet cash provided by financing activities was $5,476,000approximately $16.1 million for the year ended July 31, 2013 and primarily relatedFiscal 2016, as compared to approximately $13.3 million for Fiscal 2015. The net cash received from the December 2012 Public Offering partially offset by the payment of offering costs and scheduled payments to Inovio in connection with the Asset Purchase Agreement. Cash provided by financing activities was $6,958,000 for the year ended July 31, 2012, and was primarily related to proceeds we received from the March 2012 Public Offering.

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Equity Financings Since March 2011

In March 2011 we closed a private placement of 1,456,000 units at a purchase price of $0.75 per unit for gross proceeds of $1,092,000 (the “March 2011 Private Placement”). Each unit consisted of one share of our common stock and one share purchase warrant entitling the holder to acquire one share of our common stock at a price of $1.00 per share for a period of five years from the closing of the March 2011 Private Placement. The warrants were exercisable as of March 18, 2011 and any unexercised warrants will expire on March 18, 2016.  We completed an evaluation of the warrants issued with this private placement and determined the warrants should be classified as equity within our consolidated balance sheet.  We are not obligated to register any of the shares issued or issuable upon exercise of the warrants issued in the March 2011 Private Placement.

On June 24, 2011, we sold in a private placement an aggregate of 4,000,000 shares of our common stock and three series of warrants to purchase an aggregate of 12,000,000 shares of our common stock at a per unit purchase price of $0.75 per unit, for gross proceeds of $3.0 million (the “June 2011 Private Placement”).  We also issued warrants to purchase 240,000 shares of our common stock to the co-placement agents in the offering. After deducting for fees and expenses, the aggregate net cash proceeds from the June 2011 Private Placement were approximately $2.79 million.

Pursuant to the terms of the Securities Purchase Agreement that we entered into with the purchasers in the June 2011 Private Placement, each purchaser was issued a Series A Warrant, a Series B Warrant and a Series C Warrant, each to purchase up to a number of shares of our common stock equal to 100% of the shares issued to such purchaser pursuant to the Securities Purchase Agreement.  The Series A Warrants had an initial exercise price of $1.20 per share, are exercisable immediately upon issuance and have a term of five years.  On February 21, 2012, the Series B and Series C Warrants expired unexercised.  On March 28, 2012, the exercise price of the Series A Warrants reset to $0.50 upon the closing of the March 2012 Public Offering.

On March 28, 2012, in the March 2012 Public Offering, we sold an aggregate of 31,000,000 units, each consisting of one sharesale of common stock and a warrantwarrants from our November 2015 Offering and May 2016 Offering. Overall cash provided by financing activities increased approximately $2.8 million due to purchase one share of common stock, at a purchase price of $0.25 per unit. The warrants have an exercise price of $0.35 per share, are exercisable immediately upon issuancethe net proceeds received from our November 2015 Offering and have a term of exercise equal to five yearsMay 2016 Offering were greater than the net proceeds received from the date of issuance. We paid fees and expenses of $542,500 and issued warrants to purchase 1,550,000 shares of our common stock on terms substantially similar to the purchaser warrants to the placement agent and a financial advisorfinancing in the March 2012 Public Offering. After deducting for fees and expenses, our aggregate net proceeds from the offering were approximately $7.2 million.Fiscal 2015.

 

On December 17, 2012, in the December 2012 Public Offering, we sold an aggregate of 28,800,000 shares of our common stock and warrants to purchase an aggregate of 14,400,000 shares of common stock for an aggregate purchase price of $7.2 million.  The warrants have an exercise price of $0.26 per share, are exercisable immediately upon issuance and have a term of exercise equal to four years from the date of issuance. We paid fees and expenses of $504,000 and issued warrants to purchase 1,440,000 shares of our common stock on terms substantially similar to the purchaser warrants to the placement agent and our financial advisors in the December 2012 Public Offering.  After deducting for fees and expenses, the aggregate net proceeds from the offering were approximately $6.7 million.Cash Requirements

 

On September 18, 2013, we closed the September 2013 Public Offering, in which we sold an aggregate of 47,792,000 shares of our common stock plus warrants to purchase an aggregate of 23,896,000 shares of common stock for a purchase price of $0.25 per share, for gross proceeds of approximately $11.95 million.  The warrants have an exercise price of $0.35 per share, are exercisable immediately upon issuance and have a term of exercise equal to four years from the date of issuance. We paid placement agent fees consisting of (i) $836,000 in cash fees and expenses and (ii) issued warrants to purchase 2,390,000 shares of our common stock on terms substantially similar to the purchaser warrants in the September 2013 Public Offering.  After deducting for fees and expenses, the aggregate net proceeds from the September 2013 Public Offering were approximately $11.1 million.

Cash Requirements

Our primary objectives for the next twelve-month period are to develop and pursuecontinue the commercializationadvancement of our planned productsoperational milestones, which includes developing a registration pathway for metastatic melanoma (ImmunoPulse® IL-12 in combination with anti-PD-1/PD-Ll), expanding our product pipeline and to identify additional productsadvancing our device gene electro-transfer technologies for acquisition and development.immunotherapy. We will also continuously search for industry experts to expand our management team and better positionfurther strengthen our company. In addition, we expect to pursue raising sufficient capital to fund our operations and to acquire and develop additional assets and technology consistent with our business objectives.

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We currently estimate our operating expenses and working capital requirements for the next 12 monthsfiscal year ending July 31, 2017 (“Fiscal 2017”) to be approximately $22.3 million, although we may modify or deviate from our estimates and it is likely that our actual results for certain categories of operating expenses and working capital requirements will vary from the estimates as follows:set forth in the table below (in millions).

 

Expense

 

Amount

 

Cash Requirements for Fiscal 2017 Amount 

Product development

 

$

4,900,000

 

 $12.3 

Employee compensation

 

2,500,000

 

  5.9 

General and administration

 

1,300,000

 

  3.8 

Professional services fees

 

400,000

 

  0.3 

Total

 

$

9,100,000

 

 $22.3 

 

As of July 31, 2013,2016, we had cash and cash equivalents of approximately $4,970,000. On September 18, 2013, we closed a public offering of our equity securities whereby we issued an aggregate of 47,792,000 shares of our common stock plus warrants to purchase an aggregate of 23,896,000 shares of our common stock, at a purchase price of $0.25 per share, which resulted in net proceeds to us of approximately $11.1$29 million. We expect these funds to be sufficient to allow us to continue to operate our business for at least the next twelve12 months.

 

During Fiscal 2016, we received a minimal amount of cash related to the exercise of warrants. If the investorsholders of our Series A Warrants and Series B Warrants were to exercise all of the Series A Warrants and Series B Warrants in full on a cash basis, we would receive an aggregate of approximately $9.4 million in proceeds. If the June 2011 Private Placement, the March 2012 Public Offering, December 2012 Public Offering and the September 2013 Public Offering chooseholders of all of our other outstanding warrants to purchase our common stock were to exercise their remaining outstanding warrants in full on a cash basis, we would receive an aggregate of approximately $2$25.1 million $11 million, $4 million and $8 million, respectively.in proceeds. However, the warrant holders may choose not to exercise any of the warrants they hold, may choose to net exercise their warrants as provided in such warrants under certain limited circumstances, or may choose to exercise only a portion of the warrants issued. The exercise prices of the outstanding warrants issued with each such offering currently exceed the current market price of our common stock on the OTCQB Marketplace. As a result, we may never receive proceeds from the exercise of such warrants.

 

Since the inception of our current business in March 2011, we have funded our operations primarily through equity and debt financings, and we expect to continue to do sopursue capital-raising transactions in the future.future periods. If we obtain additional financing by issuing equity securities or convertible debt, our existing stockholders’ ownership will be diluted. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.commitments and may subject us to financial covenants and other restrictions applicable to our business. We may be unable to maintain operations at a level sufficient for investors to obtain a return on their investments in our common stock. Further, we may continue to be unprofitable.

Off-Balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to stockholders.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Not applicable.We are exposed to changes in interest rates primarily from our certificate of deposit and cash held in interest bearing U.S. savings accounts. Accordingly, we believe that we are not subject to any material risks arising from changes in interest rates or foreign currency exchange rates.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statementsinformation required by this item are set forthItem 8 is incorporated by reference to our Financial Statements and Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm beginning at the endpage F-1 of this Annual Report beginning on page 43 and are incorporated herein by reference. We are not required to provide the supplementary data required by this item as we are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act.report.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can

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provide only reasonable assurance of achieving the desired control objectives.In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

As required by Rule 13a-15(b) under the Exchange Act, our management conducted an evaluation, with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of July 31, 2013.2016. Based on the foregoing evaluation, our principal executive officer and principal financial officer concluded that, as of July 31, 2013,2016, our disclosure controls and procedures were effective.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) under the Exchange Act, for our company. With the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of July 31, 2013 based on2016. Management used the frameworkcriteria set forth in the report entitledInternal Control - Integrated FrameworkFramework” issuedpublished by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under this framework,Commission (2013 framework) to evaluate the effectiveness of our managementinternal control over financial reporting. Management has concluded that our internal control over financial reporting was effective as of July 31, 2013.2016, based on those criteria.

 

Changes in Internal Control Over Financial Reporting

 

In May 2013, we implemented Microsoft Dynamics GP software as our new enterprise resource planning (“ERP”) system. The change in our ERP system was not made in response to any identified deficiency or weakness in our internal control over financial reporting.  The new ERP software, which became operational during the quarter ended July 31 2013, now forms the basis of our computerized accounting and operational control systems and has been implemented with the intent of improving those systems. The new system has been fully tested and the effectiveness of its design and operation have been evaluated, and management will continue to monitor, test and evaluate the system as necessary during the post-implementation period to ensure our continued adequate internal control over financial reporting.None

Other than as described above, there has been no change in our internal control over financial reporting during the quarter ended July 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Set forth below is certain information regarding our directors and executive officers:

Name

Position

Age

Director / Officer Since

Avtar Dhillon, M.D. (2)(3)(4)(5)

Chairman and Director

52

March 10, 2011

James DeMesa, M.D. (1)(2)(3)

Director

55

February 3, 2011

Anthony Maida, III, Ph.D (1)(3)(4)

Director

61

June 21, 2011

Punit Dhillon

President, Chief Executive Officer and Director

33

March 10, 2011

Veronica Vallejo

Chief Financial Officer

40

March 10, 2011


(1) Member of Audit Committee

(2) Member of Compensation Committee

(3) Member of Nomination and Corporate Governance Committee

(4) Member of Clinical and Regulatory Affairs Committee

(5) Member of Financing Committee

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Business Experience

 

The following is a brief account of the education and business experience of our directors and executive officers during at least the past five years, indicating their principal occupation during the period, and the name and principal business of the organization by which they were employed.

Avtar Dhillon, M.D., Chairman and Director

Dr. Dhillon has served as our Chairman, since March 2011. Previously, Dr Dhillon was the President and Chief Executive Officer of Inovio Pharmaceuticals, Inc. (formerly Inovio Biomedical Corporation) (NYSE Euronext: INO) from October 2001 to June 2009, as President and Chairman of Inovio from June 2009 until October 2009, as Executive Chairman until August 2011, and as Chairman from September 2011. During his tenure at Inovio, Dr. Dhillon led the successfully turnaround of the company through a restructuring, acquisition of technology from several European and North American companies, and a merger with VGX Pharmaceuticals to develop a vertically integrated DNA vaccine development company with one of the strongest development pipelines in the industry. Dr. Dhillon led multiple successful financings for Inovio and concluded several licensing deals that included global giants, Merck and Wyeth (now Pfizer). Prior to joining Inovio, Dr. Dhillon was vice president of MDS Capital Corp. (now Lumira Capital Corp.), one of North America’s leading healthcare venture capital organizations. In July 1989, Dr. Dhillon started a medical clinic and subsequently practiced family medicine for over 12 years. Dr. Dhillon has been instrumental in successfully turning around struggling companies and influential as an active member in the biotech community. From March 1997 to July 1998, Dr. Dhillon was a consultant to Cardiome Pharma Corp. (NASDAQ: CRME), where he led a turnaround based on three pivotal financings, establishing a clinical development strategy, and procuring a new management team. In his role as a founder and board member of companies, Dr. Dhillon has been involved in several early stage healthcare focused companies listed on the USA or Canadian stock exchanges, which have successfully matured through advances in their development pipeline and subsequent M&A transactions. Most recently, he was a founding board member (May 2003) of Protox Therapeutics, Inc. (TSX-V: SHS) (now Sophiris Bio Inc.), a publicly traded specialty pharmaceutical company. Dr. Dhillon maintained his board position until the execution of a financing of up to $35 million with Warburg Pincus in November 2010. Dr. Dhillon currently sits on the Board of Directors of BC Advantage Funds, a Venture Capital Corporation in British Columbia, and since March 2012 has been the Chairman of Stevia First Corp. (OTCQB: STVF), an agricultural biotechnology company engaged in the cultivation and harvest of stevia leaf and the development of stevia products.  Since May 2011, Dr. Dhillon has also served as a Director and was appointed Chairman in April 2013 of Arch Therapeutics, Inc. (OTCBB: ARTH), a medical device company offering an innovative therapeutic approach to stasis and barrier applications. Dr. Dhillon plays a key role on our Board of Directors because of his extensive experience with pharmaceutical and biotech companies, including based on his tenure as President and CEO of Inovio where he was responsible for developing and executing on the clinical programs that provide the extensive clinical database supporting the Company’s current clinical development plan and partnering efforts for treating solid tumors.

James M. DeMesa, M.D., Director

Dr. DeMesa has been a practicing physician and has served as a senior executive with several international pharmaceutical and biotech companies in the areas of corporate management, regulatory affairs, and pre-clinical and clinical pharmaceutical and medical device product development. In addition to OncoSec, Dr. DeMesa is currently on the Board of Directors of Induce Biologics and Stem Cell Therapeutics. In August 2008, Dr. DeMesa retired from his role as President, Chief Executive Officer and a director of Migenix Inc.,, a public biotechnology company focused on infectious and neurodegenerative diseases. From 1997 to 2001, he was President, Chief Executive Officer and a director of GenSci Regeneration Sciences Inc., a public biotech company involved in regenerative medicine (now part of Integra LifeSciences). From 1992 to 1997, he was Vice President, Medical and Regulatory Affairs at Biodynamics International, Inc. (now part of Regeneration Technologies), and from 1989 to 1992 was Vice President, Medical and Regulatory Affairs of Bentley Pharmaceuticals (now part of Teva Pharmaceuticals). Dr. DeMesa is a co-founder of CommGeniX, a medical communications company, and MedXcel, a medical education company. Dr. DeMesa attended the University of South Florida where he received his B.A. (Chemistry), M.D. and M.B.A. degrees and did his medical residency at the University of North Carolina. He is the author of two books and speaks regularly to companies and organizations throughout North America. Dr. DeMesa provides the Board with extensive experience with pharmaceutical and biotechnology companies.

Anthony Maida, III, Ph.D, MA, MBA, Director

On June 21, 2011, Dr. Maida joined our Board of Directors.  Dr. Maida has served as a director on the Board of Directors of Spectrum Pharmaceuticals, Inc. since December 2003 and currently serves as the Chair of its Audit Committee and a member of its Compensation Committee, Placement Committee, Nomination and Corporate Governance Committee and Product Acquisition Committee. He is currently Chief Operating Officer at Northwest Biotherapeutics, Inc., a company focused on the development of therapeutic DC cell-based vaccines to treat patients with cancer. Dr. Maida has been the acting Chairman of Dendri Therapeutics, Inc., a startup company focused on the clinical development of therapeutic vaccines for patients with cancer, since 2003 and as Principal of

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Anthony Maida Consulting International since 1999, providing consulting services to large and small biopharmaceutical firms in the clinical development of oncology products and product acquisitions and to venture capital firms evaluating life science investment opportunities. Recently Dr. Maida was Vice President of Clinical Research and General Manager, Oncology, world-wide for PharmaNet, Inc. He served as the President and Chief Executive Officer of Replicon NeuroTherapeutics, Inc., a biopharmaceutical company focused on the therapy of patients with tumors (both primary and metastatic) of the central nervous system, where he successfully raised financing from both venture capital and strategic investors and was responsible for all financial and operational aspects of the company, from June 2001 to July 2003. From 1999 to 2001, he held positions as Interim Chief Executive Officer for Trellis Bioscience, Inc., a privately held biotechnology company that addresses high clinical stage failure rates in pharmaceutical development, and President of CancerVax Corporation, a biotechnology company dedicated to the treatment of cancer. From 1992 until 1999, Dr. Maida served as President and CEO of Jenner Biotherapies, Inc., a biopharmaceutical company. From 1980 to 1992, he held senior management positions with various companies including Vice President Finance and Chief Financial Officer of Data Plan, Inc., a wholly owned subsidiary of Lockheed Corporation. Dr. Maida serves or has served as a consultant and technical analyst for several investment firms, including CMX Capital, LLC, Sagamore Bioventures, Roaring Fork Capital, North Sound Capital, The Bonnie J. Addario Lung Cancer Foundation and Pediatric BioScience, Inc. Additionally, he has been retained by Abraxis BioScience, Inc., Northwest Biotherapeutics, Inc., Takeda Chemical Industries, Ltd. (Osaka, Japan), and Toucan Capital to conduct corporate and technical due diligence on investment opportunities. Dr. Maida formerly served as a member of the board of directors of Sirion Therapeutics, Inc., a privately held ophthalmic- focused company, and GlycoMetrix, Inc., a startup company focused on the development of assays to identify carbohydrates that can indicate cancer. He is a speaker at industry conferences and is a member of the American Society of Clinical Oncology, the American Association for Cancer Research, the Society of Neuro-Oncology and the International Society for Biological Therapy of Cancer. Dr. Maida received a B.A. in History from Santa Clara University in 1975, a B.A. in Biology from San Jose State University in 1977, an M.B.A. from Santa Clara University in 1978, an M.A. in Toxicology from San Jose State University in 1986 and a Ph.D. in Immunology from the University of California in 2010. Dr. Maida brings to the Board extensive experience in our industry and significant expertise in clinical development and clinical trials. We believe that his financial and operational experience in our industry provide important resources to our Board.

Punit Dhillon, President, Chief Executive Officer and Director

On March 10, 2011, Mr. Punit Dhillon was appointed Chief Executive Officer.  Mr. Dhillon was formerly Vice President of Finance and Operations at Inovio from September 2003 until March 2011. In his corporate finance role, Mr. Dhillon was pivotal to the company raising over $125 million through multiple financings and several licensing deals including early stage deals with Merck and Wyeth. Mr. Dhillon was responsible for implementation of Inovio’s corporate strategy, including achievement of annual budgets and milestones. He was also instrumental to the successful in-licensing of key intellectual property and a number of corporate transactions, including the acquisition and consolidation of Inovio AS, a Norwegian DNA delivery company, and the merger with VGX Pharmaceuticals (“VGX”), which solidified Inovio’s position in the DNA vaccine industry. Mr. Dhillon played an effective role as head of operations for Inovio. He completed the integration of the VGX with Inovio, including achieving cost-cutting of over 30% through the synergy assessment of both companies, consolidating four operating locations into two bi-coastal offices, and managing the existing stockholders from both companies. Mr. Dhillon was a director of Auricle Biomedical, a capital pool company, from July 2007 to April 2010. Mr. Dhillon has also previously been a consultant and board member for several TSX Venture Exchange listed early stage life science companies, which matured through advances in their development pipelines and subsequent M&A transactions. Most recently, Mr. Dhillon was involved as a board member in the completion of a trilateral merger between three Capital Pool Companies listed on the TSX Venture Exchange, which completed a qualifying transaction in April 2010 with a company specializing in conservation and demand management accessories for the utilities industry. Prior to joining Inovio, Mr. Dhillon worked for a corporate finance law firm as a law clerk. Since September 1999 to July 2002, he worked with MDS Capital Corp. (now Lumira Capital Corp.) as an intern analyst. Mr. Dhillon is an active member in his community and co-founder of Inbalance Network Inc. an organization focused on promoting an active lifestyle and grass roots community involvement, including scholarships to support students pursuing post-secondary education. Mr. Dhillon has a Bachelor of Arts with honors in Political Science and a minor in Business Administration from Simon Fraser University. Mr. Dhillon’s in depth knowledge of our business and operations as our Chief Executive Officer, his experience in the biotechnology and pharmaceutical industry, and his experience with publicly traded companies, position him well to serve as a member of our Board of Directors.

Veronica Vallejo, Chief Financial Officer

Ms. Vallejo serves as our Chief Financial Officer.  Ms. Vallejo has been a corporate officer of OncoSec since February 2011, having previously served as our Controller, Secretary and Treasurer prior to being appointed as our Chief Financial Officer in February 2013. Prior to working for us, Ms. Vallejo worked in public accounting since 1997, most recently working as a Senior Manager with Mayer Hoffman McCann P.C., from January 2001 to December 2010. Ms. Vallejo holds a B.S. in Business Administration with an emphasis in accounting from San Diego State University. She is a certified public accountant and a member of the American Institute of Certified Public Accountants.

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Term of Office

Our directors are elected at each annual meeting of stockholders and serve until the next annual meeting of stockholders or until their successor has been duly elected and qualified, or until their earlier death, resignation or removal.

Committees of the Board of Directors

On June 30, 2011, our Board of Directors established an Audit Committee, a Compensation Committee, a Nomination and Corporate Governance Committee, a Clinical and Regulatory Affairs Committee and a Financing Committee, each of which has the composition and responsibilities described below.

Audit Committee

The Audit Committee of our Board of Directors consists of Dr. Anthony Maida and Dr. James DeMesa, with Dr. Maida serving as Chairman. Our Board of Directors has determined that each of the members of our Audit Committee is independent within the meaning of applicable Securities and Exchange Commission rules and Rule 803B of the NYSE MKT LLC Company Guide, and has determined that Dr. Maida is an audit committee financial expert, as such term is defined in the rules and regulations of the Securities and Exchange Commission and is financially sophisticated within the meaning of Rule 803B of the NYSE MKT LLC Company Guide. The Audit Committee has oversight responsibilities regarding, among other things: the preparation of our financial statements and our financial reporting and disclosure processes; the administration, maintenance and review of our system of internal controls regarding accounting compliance; our practices and processes relating to internal audits of our financial statements; the appointment of our independent registered public accounting firm and the review of its qualifications and independence; the review of reports, written statements and letters from our independent registered public accounting firm; and our compliance with legal and regulatory requirements in connection with the foregoing. Our Board of Directors has adopted a written charter for our Audit Committee, which is available on our website, www.oncosec.com, under the Investors tab.

Compensation Committee

The Compensation Committee of our Board of Directors consists of Dr. Avtar Dhillon and Dr. James DeMesa, with Dr. Dhillon serving as Chairman. Our Board of Directors has determined that each of the members of our Compensation Committee is independent within the meaning of applicable Securities and Exchange Commission rules and Rule 803A of the NYSE MKT LLC Company Guide. The duties of our Compensation Committee include, without limitation: reviewing, approving and administering compensation programs and arrangements to ensure that they are effective in attracting and retaining key employees and reinforcing business strategies and objectives; determining the objectives of our executive officer compensation programs and the specific objectives relating to CEO compensation, including evaluating the performance of the CEO in light of those objectives; approving the compensation of our other executive officers and our directors; administering our as-in-effect incentive-compensation and equity-based plans; and producing an annual report on executive officer compensation for inclusion in our proxy statement, when required and in accordance with applicable rules and regulations. Our Board of Directors has adopted a written charter for our Compensation Committee, which is available on our website, www.oncosec.com, under the Investors tab.

Nomination and Corporate Governance Committee

The Nomination and Corporate Governance Committee of our Board of Directors consists of Dr. James DeMesa, Dr. Avtar Dhillon and Dr. Anthony Maida, with Dr. DeMesa serving as Chairman. Our Board of Directors has determined that each of the members of our Nomination and Corporate Governance Committee is independent within the meaning of applicable Securities and Exchange Commission rules and Rule 803A of the NYSE MKT LLC Company Guide. The responsibilities of the Nomination and Corporate Governance Committee include, without limitation: assisting in the identification of nominees for election to our Board of Directors, consistent with approved qualifications and criteria; determining the composition of the Board of Directors and its committees; recommending to the Board of Directors the director nominees for the annual meeting of stockholders; establishing and monitoring a process of assessing the effectiveness of the Board of Directors; developing and overseeing a set of corporate governance guidelines and procedures; and overseeing the evaluation of our directors and executive officers. Our Board of Directors has adopted a written charter for our Nomination and Corporate Governance Committee, which is available on our website, www.oncosec.com, under the Investors tab.

Clinical and Regulatory Affairs Committee

The Clinical and Regulatory Affairs Committee of our Board of Directors consists of Dr. Anthony Maida and Dr. Avtar Dhillon, with Dr. Maida serving as Chairman. The Clinical and Regulatory Affairs Committee does not currently have a charter. The Clinical and Regulatory Affairs Committee has responsibilities relating to reviewing and providing comments on the clinical development plan for our OMS ImmunoPulse programs, including introducing the clinical team to established opinion leaders, potential doctors and investigators, regulatory contacts and other professionals in the clinical oncology field that could benefit us in executing our development plan.

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Financing Committee

Dr. Avtar Dhillon is the Chairman and sole member of our Financing Committee. The Financing Committee does not currently have a charter. The Financing Committee has responsibilities relating to our efforts to obtain adequate funding to finance our development programs and operations.

Family Relationships

Mr. Punit Dhillon, director, President and Chief Executive Officer, is the nephew of Dr. Avtar Dhillon, a director and our Chairman of the Board.  No other family relationships exist between any of the directors or executive officers of our company.

Section 16 Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and persons who beneficially own more than 10% of our common stock to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons areinformation required by SEC regulations to furnish us with copies of all Section 16(a) forms filed by such person.

Based solely on our review of such forms furnished to us from such reporting persons, we believe that all such filing requirements applicable to our executive officers, directors and more than 10% stockholders were met in a timely manner.

Code of Business Conduct and Ethics

Our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer and controller.  The Code of Business Conduct and Ethicsthis Item 10 is available for review on our website at www.oncosec.com, under the Investors tab, and is also available in print, without charge, to any stockholder who requests a copy by writing to us at OncoSec Medical Incorporated, 9810 Summers Ridge Road, Suite 110, San Diego, CA 92121, Attention: Investor Relations.  Each of our directors, employees and officers, including our Chief Executive Officer and Chief Financial Officer, and all of our other executive officers, are required to comply with the Code of Business Conduct and Ethics. There have not been any amendments or waivers from the Code of Business Conduct and Ethics relating to any of our executive officers or directors in the past year.

Corporate Governance Documents

Our corporate governance documents, including the charters of each of the Audit Committee, Compensation Committee and Nomination and Corporate Governance Committee are available, free of charge, on our website at www.oncosec.com, under the Investors tab. Please note, however, that the information contained on the website is nothereby incorporated by reference in, or considered partfrom our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of this Annual Report on Form 10-K. We will also provide copies of these documents, free of charge, to any stockholder upon written request to OncoSec Medical Incorporated, 9810 Summers Ridge Road, Suite 110, San Diego, CA 92121, Attention: Investor Relations.our fiscal year ended July 31, 2016.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The following table summarizes all compensation recordedinformation required by us in eachthis Item 11 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of Fiscal 2013 and Fiscal 2012 for our named executive officers, consisting of (i) our principal executive officer, (ii) our principal financial officer, and (iii) our next most highly compensated executive officer whose total compensation exceeded $100,000 in Fiscal 2013 (of which there were none).

Summary Compensation Table

Name

 

Fiscal
Year

 

Salary
($)

 

Bonus
($)

 

Stock
Awards
($)

 

Option
Awards
($) (4)

 

Non-Equity
Incentive Plan
Compensation
($)

 

Nonqualified
Deferred
Compensation
Earnings
($)

 

All Other
Compensation
($) (3)

 

Total
($)

 

Punit Dhillon, President & CEO (1)

 

2013

 

$

293,958

 

96,000

 

 

30,128

 

 

 

20,250

 

$

440,336

 

 

 

2012

 

$

247,500

 

 

 

34,699

 

 

 

 

$

282,199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Veronica Vallejo, CFO (2)

 

2013

 

$

199,167

 

48,000

 

 

10,813

 

 

 

3,894

 

$

261,874

 

 

 

2012

 

$

165,000

 

 

 

10,410

 

 

 

 

$

175,410

 


(1)Mr. Dhillon was appointed our President and Chief Executive Officer on March 10, 2011.

(2)Ms. Vallejo was appointed our Secretary and Treasurer on March 10, 2011 and our Chief Financial Officer on February 8, 2013. Ms. Vallejo is also our Principal Financial and Accounting Officer.

(3)Amounts under the “All Other Compensation” column consist of the payment of accrued vacation benefits.

(4)The values listed in the above table represent the fair value of the option grants that was recognized during Fiscal 2013 and Fiscal 2012, as applicable, under Accounting Standards Codification Topic 718 and is calculated as of the grant date using a Black-Scholes option-pricing model.  For information on the valuation assumptions with respect to the grants made during Fiscal 2013 and Fiscal 2012, refer to Note 9 “Stock-Based Compensation” in our consolidated financial statements for Fiscal 2013, included in this filing.

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Table of Contents

Outstanding Equity Awards At Fiscal Year-End

The following table summarizes the aggregate number of option awards held by our named executive officers atfiscal year ended July 31, 2013.2016.

Name

 

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

 

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

 

Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)

 

Option
Exercise Price
($)

 

Option
Expiration
Date

 

Punit Dhillon (1)

 

330,000

 

170,000

 

 

$

0.21

 

4/25/22

 

 

 

 

250,000

 

 

0.23

 

2/8/23

 

 

 

 

 

 

 

 

 

 

 

 

 

Veronica Vallejo (2)

 

99,000

 

51,000

 

 

$

0.21

 

4/25/22

 

 

 

 

100,000

 

 

$

0.23

 

2/8/23

 


(1) Mr. Dhillon was issued an option to purchase 500,000 shares of our common stock on April 25, 2012.  The option vests on the following schedule:  33% upon grant, 33% one year anniversary of grant date, 34% two year anniversary of grant date. 

Mr. Dhillon was also issued an option to purchase 250,000 shares of our common stock on February 8, 2013.  The option vests on the following schedule:  33% one year anniversary of grant date, with the remaining option shares vesting monthly thereafter in equal increments.

(2) Ms. Vallejo was issued an option to purchase 150,000 shares of our common stock on April 25, 2012.  The option vests on the following schedule:  33% upon grant, 33% one year anniversary of grant date, 34% two year anniversary of grant date. 

Ms. Vallejo was also issued an option to purchase 100,000 shares of our common stock on February 8, 2013.  The option vests on the following schedule:  33% one year anniversary of grant date, with the remaining option shares vesting monthly thereafter in equal increments.

Employment Agreements

Punit Dhillon

On May 18, 2011, we entered into an Employment Agreement with our current President and Chief Executive Officer, Mr. Punit Dhillon. The Employment Agreement provides for the following, among other things: (a) an initial annual base salary of $240,000; (b) eligibility to receive an annual bonus at the discretion of the Board of Directors; (c) eligibility to participate in the Company’s stock incentive program at the discretion of the Board of Directors; (d) acceleration of vesting of any unvested stock options outstanding upon a change of control of the Company; (e) if Mr. Dhillon is terminated other than for cause, death or disability, or if he terminates his employment with the Company for good reason, Mr. Dhillon is entitled to receive (i) severance payments equal to 24 months of his then current annual base salary, (ii) a pro rata percentage of the annual bonus he had received the prior fiscal year and (iii) payment of health benefits for 24 months, conditioned on his execution of a release; and (f) if Mr. Dhillon’s employment is terminated for death or disability, he or his estate is entitled to receive a pro rata percentage of the annual bonus he had received for the prior fiscal year. Mr. Dhillon’s Employment Agreement has an initial term of five years.

The term “good reason” is defined to mean termination by Mr. Dhillon following the occurrence of any of the following events without Mr. Dhillon’s consent: (a) Mr. Dhillon ceases to report to the Board of Directors, provided that such change in reporting relationship results in a material reduction in his authority, duties or responsibilities; or (b) any other material reduction in his duties, authority or responsibilities relative to those in effect immediately prior to the reduction.

On April 25, 2012, our Board of Directors approved an increase in Mr. Dhillon’s annual base salary to $270,000. On February 8, 2013, our Board of Directors approved an increase in Mr. Dhillon’s annual base salary to $320,000.

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Table of Contents

On April 25, 2012, Mr. Dhillon was granted an option to purchase up to 500,000 shares of our common stock at an exercise price of $0.21 per share under the 2011 Plan. The option vests over a two year period, with 33% vesting immediately upon issuance, 33% vesting on the one year anniversary of the grant date and 34% vesting on the two year anniversary of the grant date. The option may vest immediately upon a corporate transaction or change in control, as defined in the 2011 Plan.

On February 8, 2013, Mr. Dhillon was granted an option to purchase 250,000 shares of our common stock at an exercise price of $0.23 per share under the 2011 Plan.  The option vests over a three year period, with 33% vesting on the one year anniversary of grant date and the remaining option shares vesting monthly thereafter in equal increments.  The option may vest immediately upon a corporate transaction or change in control, as defined in the 2011 Plan.

Veronica Vallejo

On May 18, 2011, we entered into an Employment Agreement with Ms. Veronica Vallejo, who was then Vice President, Finance and Controller and who is currently our Chief Financial Officer. The Employment Agreement provides for the following, among other things: (a) an initial annual base salary of $140,000; (b) eligibility to receive an annual bonus at the discretion of the Board of Directors; (c) eligibility to participate in the Company’s stock incentive program at the discretion of the Board of Directors; (d) acceleration of vesting of any unvested stock options outstanding upon a change of control of the Company; (e) if Ms. Vallejo is terminated other than for cause, death or disability, or if she terminates her employment with the Company for good reason, she is entitled to receive (i) severance payments equal to six months of her then current annual base salary, (ii) a pro rata percentage of the annual bonus she had received the prior fiscal year and (iii) payment of health benefits for six months, conditioned on her execution of a release; and (f) if Ms. Vallejo’s employment is terminated for death or disability, she or her estate is entitled to receive a pro rata percentage of the annual bonus she had received for the prior fiscal year. Ms. Vallejo’s Employment Agreement has an initial term of five years.

The term “good reason” is defined to mean termination by Ms. Vallejo following the occurrence of any of the following events without Ms. Vallejo’s consent: (a) Ms. Vallejo ceases to report directly to the President and Chief Executive Officer or the Board of Directors, provided that such change in reporting relationship results in a material reduction in her authority, duties or responsibilities; or (b) any other material reduction in her duties, authority or responsibilities relative to those in effect immediately prior to the reduction.

On June 30, 2011, Ms. Vallejo was promoted to Vice President, Finance, and a commensurate increase in her base annual salary to $160,000. On April 25, 2012, our Board of Directors approved an increase in Ms. Vallejo’s annual base salary to $180,000. On February 8, 2013, our Board of Directors appointed Ms. Vallejo as our Chief Financial Officer and increased in her annual base salary to $220,000.

On August 2, 2013, the Compensation Committee of our Board of Directors approved an amendment to Ms. Vallejo’s Employment Agreement, pursuant to which (i) the severance payment payable to Ms. Vallejo in the event of her termination has been amended to equal 12 months instead of six months of her annual base salary at the time of termination, and (ii) the period for which we will pay for applicable premium costs for continued group health plan coverage has been increased from six months to 12 months following the date of her termination, subject in each case to the terms of the Employment Agreement.

On April 25, 2012, Ms. Vallejo was granted an option to purchase up to 150,000 shares of our common stock at an exercise price of $0.21 per share under the 2011 Plan. The option vests over a two year period, with 33% vesting immediately upon issuance, 33% vesting on the one year anniversary of the grant date and 34% vesting on the two year anniversary of the grant date. The option may vest immediately upon a corporate transaction or change in control, as defined in the 2011 Plan.

On February 8, 2013, Ms. Vallejo was granted an option to purchase 100,000 shares of our common stock at an exercise price of $0.23 per share under the 2011 Plan.  The option vests over a three year period, with 33% vesting on the one year anniversary of grant date and the remaining option shares vesting monthly thereafter in equal increments.  The option may vest immediately upon a corporate transaction or change in control, as defined in the 2011 Plan.

Compensation of Directors

All directors received reimbursement for reasonable out-of-pocket expenses in attending Board of Directors meetings and for promoting our business.

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Table of Contents

On June 30, 2011, the Board of Directors adopted a director compensation policy for non-employee directors, retroactive to the date of each non-employee director’s appointment. According to such policy, the Chairman of our Board of Directors receives an annual fee of $30,000 and all other independent directors receive an annual fee of $15,000 for service on our Board of Directors. In addition, non-employee directors receive the following compensation for serving on the following committees of the Board of Directors:

·The Chairman of the Audit Committee receives $12,000 per year and each member of the Audit Committee receives $6,000 per year;

·The Chairman of the Compensation Committee receives $8,000 per year and each member of our Compensation Committee receives $4,000 per year;

·The Chairman of our Nomination and Corporate Governance Committee receives $6,000 per year and each member of the committee receives $3,000 per year; and

·In recognition of the significant contributions expected of the members of our Clinical and Regulatory Affairs Committee and our Financing Committee, each member of the Clinical and Regulatory Affairs Committee receives $20,000 per year and each member of our Financing Committee receives $40,000 per year.

Additionally, members of all of our committees receive a fee of $1,500 for each committee meeting attended in person and $750 for each committee meeting attended telephonically.

The following table summarizes all compensation paid to our non-employee directors during Fiscal 2013:

Director Compensation Table

Name

 

Fees
Earned
or Paid
In Cash
($)

 

Stock
Awards
($)

 

Option
Awards
($)(4)

 

Non-
Equity
Incentive
Plan
Compensation
($)

 

Nonqualified
Deferred
Compensation
Earnings
($)

 

All other
Compensation
($)

 

Total
($)

 

Dr. Avtar Dhillon (1)

 

$

110,000

 

 

18,514

 

 

 

 

$

128,514

 

Dr. Anthony Maida (2)

 

$

60,000

 

 

18,514

 

 

 

 

$

78,514

 

Dr. James DeMesa (3)

 

$

37,750

 

 

18,514

 

 

 

 

$

56,264

 


(1) On April 15, 2013, Dr. Dhillon was granted an option to purchase 100,000 shares of common stock with an exercise price of $0.25 and a ten-year term.  The option vests over a one-year period, as follows: 25% on the date of grant, and 25% quarterly thereafter. As of July 31, 2013, Dr. Dhillon held (i) outstanding option awards to purchase up to an aggregate of 200,000 shares of common stock, and (ii) no outstanding stock awards.

(2) On April 15, 2013, Dr. Maida was granted an option to purchase 100,000 shares of common stock with an exercise price of $0.25 and a ten-year term.  The option vests over a one-year period, as follows: 25% on the date of grant, and 25% quarterly thereafter. As of July 31, 2013, Dr. Maida held (i) outstanding option awards to purchase up to an aggregate of 300,000 shares of common stock, and (ii) no outstanding stock awards.

(3) On April 15, 2013, Dr. DeMesa was granted an option to purchase 100,000 shares of common stock with an exercise price of $0.25 and a ten-year term.  The option vests over a one-year period, as follows: 25% on the date of grant, and 25% quarterly thereafter. As of July 31, 2013, Dr. DeMesa held (i) outstanding option awards to purchase up to an aggregate of 200,000 shares of common stock, and (ii) no outstanding stock awards.

(4) Reflects the dollar amount of the grant date fair value of awards granted during Fiscal 2013, measured in accordance with Accounting Standards Codification Topic 718 and without adjustment for estimated forfeitures. For information on the valuation assumptions with respect to such awards, refer to Note 9 “Stock-Based Compensation” in our unaudited condensed consolidated financial statements for Fiscal 2013, included in this filing.

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Table of Contents

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information regardingrequired by this Item 12 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the beneficial ownershipend of our common stock by (i) each person who, to our knowledge, owns more than 5% of our common stock as of September 25, 2013, (ii) each of our directors and executive officers, and (iii) all of our executive officers and directors as a group.  Unless otherwise indicated in the footnotes to the following table, the address of each person named in the table is: c/o OncoSec Medical Incorporated, 9810 Summers Ridge Road, Suite 110, San Diego, CA 92121.  Shares of our common stock subject to options, warrants, or other rights currently exercisable or exercisable within 60 days of September 25, 2013, are deemed to be beneficially owned and outstanding for computing the share and percentage ownership of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage ownership of any other person.fiscal year ended July 31, 2016.

Name of Beneficial Owner

 

Number of
Shares
Beneficially
Owned

 

Percentage
Beneficially
Owned (1)

 

Directors and Named Executive Officers:

 

 

 

 

 

Avtar Dhillon (2)

 

10,085,480

 

5.9

%

Punit Dhillon (3) (4)

 

4,724,000

 

2.8

%

Anthony Maida (5)

 

275,000

 

*

 

James DeMesa (2)

 

425,000

 

*

 

Veronica Vallejo (6)

 

299,000

 

*

 

Current Directors and Executive Officers as a Group (5 persons)

 

15,808,480

 

9.2

%


*Less than 1%

(1)Based on 170,838,526 shares of our common stock issued and outstanding as of September 25, 2013.  Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.

(2)Includes 175,000 shares of common stock issuable upon exercise of options exercisable within 60 days of September 25, 2013.

(3)Includes 120,000 shares held by Inbalance Network Inc., and 25,000 shares held by Four Front Investments.  Mr. Dhillon is a stockholder and managing partner of Inbalance Network, Inc. and Four Front Investments.  Also includes 607,000 shares held by Mr. Dhillon’s spouse.

(4)Includes 330,000 shares of common stock issuable upon exercise of options exercisable within 60 days of September 25, 2013.

(5)Includes 275,000 shares of common stock issuable upon exercise of options exercisable within 60 days of September 25, 2013.

(6)Includes 99,000 shares of common stock issuable upon exercise of options exercisable within 60 days of September 25, 2013.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Transactions with Related Persons

Since August 1, 2011, there have been no transactions, or currently proposed transactions, in which we were or areDirector independence and other information required by this Item 13 is hereby incorporated by reference from our definitive proxy statement, to be a participant andfiled pursuant to Regulation 14A within 120 days after the amount involved exceeds the lesser of $120,000 or one percent of the averageend of our total assets at year-end for the last two completed fiscal years and in which any related person had or will have a direct or indirect material interest.year ended July 31, 2016.

Director Independence

We are not currently listed on any national securities exchange that has a requirement that the majority of our Board of Directors be independent.  However, our Board of Directors has determined that all of the current members of our Board of Directors would be considered independent under Rule 803A of the NYSE MKT LLC Company Guide as applied to directors and to members of audit, nominating and corporate governance and compensation committees of the Board of Directors, except that Punit Dhillon would not be considered independent because he is our President and Chief Executive Officer.

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Table of Contents

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The following table presentsinformation required by this Item 14 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the aggregate fees billed to the Company for Fiscal 2013 and Fiscal 2012 for the indicated services rendered by Mayer Hoffman McCann P.C. and Silberstein Ungar, PLLC during those periods:

 

 

Fiscal 2013

 

Fiscal 2012

 

Audit Fees — Mayer Hoffman McCann P.C.

 

$

133,928

 

$

116,800

 

Audit Fees — Silberstein Ungar, PLLC

 

 

2,000

 

Audit Related Fees

 

 

 

Tax Fees

 

10,750

 

 

All Other Fees

 

3,750

 

3,500

 

Total

 

$

148,248

 

122,300

 

Silberstein Ungar, PLLC was our independent registered public accounting firm through May 27, 2011, at which time Mayer Hoffman McCann P.C. was appointed as our independent registered public accounting firm.

Audit Fees. The fees identified under this caption were for professional services rendered by Mayer Hoffman McCann P.C. for the auditsend of our annual financial statements. The fees identified under this caption also include fees for professional services rendered by Mayer Hoffman McCann P.C. for the review of the financial statements included in our quarterly reports on Forms 10-Q. In addition, the amounts include fees for services that are normally provided by the auditor in connection with statutory and regulatory filings and engagements for the years identified. Audit fees in 2013 and 2012 include an aggregate of $32,000 and $17,000, respectively, in fees paid to Mayer Hoffman McCann P.C. and Silberstein Ungar, PLLC in connection with the filing of Registration Statements on Form S-1 to register the shares of common stock and common stock underlying warrants issued in the December 2012 Public Offering and the March 2012 Public Offering.

Tax Fees. Tax fees consist principally of assistance related to tax compliance and reporting.

All Other Fees. These fees consist primarily of consultation fees for the calculation, documentation and disclosure requirements under Financial Accounting Standards Board ASC 740.

Pre-approval Policy

Our Audit Committee’s charter requires our Audit Committee to pre-approve all audit and permissible non-audit services to be performed for the Company by our independent registered public accounting firm, giving effect to the “de minimus” exception for ratification of certain non-audit services allowed by the applicable rules of the SEC, in order to assure that the provision of such services does not impair the auditor’s independence.  Subsequent to the establishment of our Audit Committee on June 30, 2011, the Audit Committee approved in advance all services provided by our independent registered public accounting firms.

MHM has advised the Company that MHM leases substantially all of its personnel, who work under the control of MHM’s shareholders, from wholly-owned subsidiaries of CBIZ, Inc., in an alternative practice structure. Accordingly, substantially all of the hours expended on MHM’s engagement to audit the Company’s financial statements for thefiscal year ended July 31, 2013 and 2012, were attributed to work performed by persons other than MHM’s full-time, permanent employees.

2016.

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Table of Contents

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)Documents filed as part of this report.(1)Financial Statements

 

1. The following consolidated financial statements of OncoSec Medical Incorporated and Subsidiary are filed as part of this report under Item 8 — Financial Statements and Supplementary Data:

 

Report of Independent Registered Public Accounting Firm

43

F-1

Consolidated Balance Sheets at July 31, 20132016 and 2012July 31, 2015

44

F-2

Consolidated Statements of Operations for the years endedYears Ended July 31, 20132016 and 2012 and for the Period From Inception (February 8, 2008) to July 31, 20132015

45

F-3

Consolidated Statements of Stockholders’ Equity (Deficit) for the Period From Inception (February 8, 2008) toYears Ended July 31, 20132016 and July 31, 2015

46

F-4

Consolidated Statements of Cash Flows for the years endedYears Ended July 31, 20132016 and 2012 and for the period From Inception (February 8, 2008) to July 31, 20132015

47

F-5

Notes to Consolidated Financial Statements

48

F-6

 

2. Financial Statement Schedules

 

These schedules are omitted because they are not required, or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto.

 

3. Exhibits

 

The exhibit index included atExhibits listed in the end of this reportExhibit Index, which appears immediately following the signature page and is incorporated herein by reference, are filed or incorporated by reference herein.

as part of this Annual Report on Form 10-K.

41SIGNATURES



Table of Contents

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

ONCOSEC MEDICAL INCORPORATED

By:

By:

/s/ Punit Dhillon

Date: September 27, 2013

October 13, 2016

Punit Dhillon

President and Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

 

SIGNATURE

TITLE

DATE

President, Chief Executive Officer and Director

/s/ Punit Dhillon

(Principal Executive Officer)

September 27, 2013

October 13, 2016

Punit Dhillon

Chief Financial Officer

/s/ Veronica Vallejo

Richard Slansky

(Principal Financial and Accounting Officer)

September 27, 2013

October 13, 2016

Veronica Vallejo

Richard Slansky

/s/ James DeMesa

Director

September 27, 2013

October 13, 2016

Dr. James DeMesa

/s/ Avtar Dhillon

Director

September 27, 2013

October 13, 2016

Dr. Avtar Dhillon

/s/ Anthony Maida,

III

Director

September 27, 2013

October 13, 2016

Dr. Anthony Maida, III

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

 

OncoSec Medical Incorporated and Subsidiary

 

We have audited the accompanying consolidated balance sheets of OncoSec Medical Incorporated and Subsidiary (a development stage company)(the “Company”) as of July 31, 20132016 and 2012,2015, and the related consolidated statements of operations, stockholders’ equity, (deficit), and cash flows for each of the years thenin the two year period ended and for the period from inception (February 8, 2008) to July 31, 2013.2016, and the related notes to the financial statements. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of OncoSec Medical Incorporated and Subsidiary as of July 31, 20132016 and 2012,2015, and the results of theirits operations and theirits cash flows for each of the years thenin the two year period ended and for the period from inception (February 8, 2008) to July 31, 2013,2016, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Mayer Hoffman McCann P.C.
San Diego, California
October 13, 2016

San Diego, California

September 27, 2013

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Table of Contents

OncoSec Medical Incorporated

(A Development Stage Company)

Consolidated Balance Sheets

As of July 31, 2013 and July 31, 2012

 

 

July 31,
2013

 

July 31,
2012

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

4,970,175

 

$

5,141,509

 

Prepaid expenses

 

186,984

 

343,180

 

Other current assets

 

12,528

 

8,367

 

Total Current Assets

 

5,169,687

 

5,493,056

 

Property and equipment, net

 

151,625

 

76,911

 

Intangible assets, net

 

1,161,731

 

1,858,770

 

Other long-term assets

 

26,685

 

 

Total Assets

 

$

6,509,728

 

$

7,428,737

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

729,085

 

$

384,321

 

Accrued compensation

 

 

218,849

 

Accrued income taxes

 

1,600

 

3,200

 

Acquisition obligation, current

 

979,316

 

1,416,786

 

Accrued other

 

60,603

 

 

Total Current Liabilities

 

1,770,604

 

2,023,156

 

Acquisition obligation, net of current portion

 

 

979,316

 

Total Liabilities

 

1,770,604

 

3,002,472

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

Common stock authorized - 3,200,000,000 common shares with a par value of $0.0001, common stock issued and outstanding - 118,014,224 and 87,856,000 common shares as of July 31, 2013 and July 31, 2012, respectively

 

11,802

 

8,786

 

Additional paid-in capital

 

11,467,139

 

5,593,567

 

Warrants issued and outstanding - 57,644,276 and 42,246,000 warrants as of July 31, 2013 and July 31, 2012, respectively

 

6,611,098

 

5,024,640

 

Deficit accumulated during the development stage

 

(13,350,915

)

(6,200,728

)

Total Stockholders’ Equity

 

4,739,124

 

4,426,265

 

Total Liabilities and Stockholders’ Equity

 

$

6,509,728

 

$

7,428,737

 

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

 

44



Table of ContentsBalance Sheets

 

OncoSec Medical Incorporated

(A Development Stage Company)

Consolidated Statements of Operations

 

 

Fiscal
Year
Ended
July 31,
2013

 

Fiscal
Year
Ended
July 31,
2012

 

Period
from
Inception
(February 8,
2008) to
July 31,
2013

 

Revenue

 

$

 

$

 

$

 

Expenses:

 

 

 

 

 

 

 

Research and development

 

3,159,209

 

2,368,481

 

6,202,156

 

General and administrative

 

3,905,763

 

3,158,693

 

8,153,524

 

Loss from operations

 

(7,064,972

)

(5,527,174

)

(14,355,680

)

Other income (expense):

 

 

 

 

 

 

 

Fair value of derivative liabilities in excess of proceeds

 

 

 

(808,590

)

Adjustments to fair value of derivative liabilities

 

 

4,192,781

 

3,150,986

 

Loss on extinguishment of debt

 

 

(761,492

)

(761,492

)

Financing transaction costs

 

 

 

(210,000

)

Non-cash interest expense

 

(83,215

)

(266,567

)

(349,782

)

Interest expense

 

 

 

(1,357

)

Impairment charges

 

 

 

(9,000

)

Net loss before income taxes

 

(7,148,187

)

(2,362,452

)

(13,344,915

)

Provision for income taxes

 

2,000

 

2,400

 

6,000

 

Net loss

 

$

(7,150,187

)

$

(2,364,852

)

$

(13,350,915

)

Basic and diluted net loss per common share

 

$

(0.07

)

$

(0.04

)

 

 

Weighted average shares used in computing basic and diluted net loss per common share

 

106,558,325

 

67,443,432

 

 

 

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

45



Table of Contents

OncoSec Medical Incorporated

(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficit)

For the period from Inception (February 8, 2008) to July 31, 2013

 

 

Common Stock (1)

 

Additional
Paid-In

 

Warrants

 

Deficit
Accumulated
during the
Development

 

Total
Stockholders’
Equity

 

 

 

Shares

 

Amount

 

Capital (1)

 

Shares

 

Amount

 

Stage

 

(Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, February 8, 2008

 

 

$

 

$

 

 

$

 

$

 

$

 

Shares issued to founder on Feb 8, 2008

 

48,000,000

 

4,800

 

10,200

 

 

 

 

15,000

 

Private placement on June 30, 2008

 

20,480,000

 

2,048

 

29,952

 

 

 

 

32,000

 

Net loss

 

 

 

 

 

 

(7,187

)

(7,187

)

Balance, July 31, 2008

 

68,480,000

 

6,848

 

40,152

 

 

 

(7,187

)

39,813

 

Net loss

 

 

 

 

 

 

(33,714

)

(33,714

)

Balance, July 31, 2009

 

68,480,000

 

6,848

 

40,152

 

 

 

(40,901

)

6,099

 

Net loss

 

 

 

 

 

 

(36,158

)

(36,158

)

Balance, July 31, 2010

 

68,480,000

 

6,848

 

40,152

 

 

 

(77,059

)

(30,059

)

Common stock cancelled

 

(17,280,000

)

(1,728

)

1,728

 

 

 

 

 

Private placement on March 18, 2011

 

1,456,000

 

146

 

659,873

 

1,456,000

 

431,981

 

 

1,092,000

 

Common stock issued for services

 

200,000

 

20

 

331,980

 

 

 

 

332,000

 

Private placement on June 24, 2011

 

4,000,000

 

400

 

(400

)

4,000,000

 

 

 

 

Net loss

 

 

 

 

 

 

(3,758,817

)

(3,758,817

)

Balance, July 31, 2011

 

56,856,000

 

5,686

 

1,033,333

 

5,456,000

 

431,981

 

(3,835,876

)

(2,364,876

)

Issuance of warrants — Inovio

 

 

 

 

4,000,000

 

958,111

 

 

958,111

 

Expiration of Series B Warrants

 

 

 

 

(4,000,000

)

 

 

 

Re-classification of Series A Warrants

 

 

 

 

4,240,000

 

657,604

 

 

657,604

 

Public offering on March 28, 2012, net of issuance costs of $542,500

 

31,000,000

 

3,100

 

4,227,456

 

32,550,000

 

2,976,944

 

 

7,207,500

 

Share-based compensation expense

 

 

 

332,778

 

 

 

 

332,778

 

Net loss

 

 

 

 

 

 

(2,364,852

)

(2,364,852

)

Balance, July 31, 2012

 

87,856,000

 

8,786

 

5,593,567

 

42,246,000

 

5,024,640

 

(6,200,728

)

4,426,265

 

Exercise of stock options

 

766,500

 

76

 

138,224

 

 

 

 

138,300

 

Exercise of common stock warrants

 

441,724

 

45

 

181,931

 

(441,724

)

(39,858

)

 

142,118

 

Common stock issued in connection with license agreement

 

150,000

 

15

 

34,485

 

 

 

 

34,500

 

Public offering on December 17, 2012, net of issuance costs of $504,000

 

28,800,000

 

2,880

 

5,066,804

 

15,840,000

 

1,626,316

 

 

6,696,000

 

Share-based compensation expense

 

 

 

452,128

 

 

 

 

452,128

 

Net loss

 

 

 

 

 

 

(7,150,187

)

(7,150,187

)

Balance, July 31, 2013

 

118,014,224

 

$

11,802

 

$

11,467,139

 

57,644,276

 

$

6,611,098

 

$

(13,350,915

)

$

4,739,124

 

  July 31, 2016  July 31,2015 
Assets        
Current assets        
Cash and cash equivalents $28,746,224  $32,035,264 
Prepaid expenses  656,434   1,511,587 
Other current assets  14,750   21,130 
Total Current Assets  29,417,408   33,567,981 
Property and equipment, net  2,799,930   1,807,982 
Other long-term assets  189,309   214,127 
Total Assets $32,406,647  $35,590,090 
         
Liabilities and Stockholders’ Equity        
         
Liabilities        
Current liabilities        
Accounts payable and accrued liabilities $3,223,327  $2,360,505 
Accrued compensation related  242,924   501,446 
Total Current Liabilities  3,466,251   2,861,951 
Other long-term liabilities  887,292   32,518 
Total Liabilities  4,353,543   2,894,469 
         
Commitments and Contingencies (Note 9)        
         
Stockholders’ Equity        
Common stock authorized - 160,000,000 common shares with a par value of $0.0001, common stock issued and outstanding — 18,036,263 and 14,820,854 common shares as of July 31, 2016 and July 31, 2015, respectively (1)  25,269   24,947 
Additional paid-in capital  88,233,965   71,572,714 
Warrants issued and outstanding — 12,859,286 and 1,895,102 warrants as of July 31, 2016 and July 31, 2015, respectively (1)  13,288,527   7,704,103 
Accumulated deficit  (73,494,657)  (46,606,143)
Total Stockholders’ Equity  28,053,104   32,695,621 
Total Liabilities and Stockholders’ Equity $32,406,647  $35,590,090 

 


(1) Adjusted to reflect the forward stock split of 32-for-1 effective MarchSee Note 1, 2011.“Reverse Stock Split”

 

The accompanying notes are an integral part of these consolidated financial statementsstatements.

46



Table of Contents

OncoSec Medical Incorporated

(A Development Stage Company)

 

Consolidated Statements of Cash FlowsOperations

 

 

 

Year
Ended
July 31,
2013

 

Year
Ended
July 31,
2012

 

Period
from
Inception
(February 8,

2008) to
July 31,
2013

 

Operating activities

 

 

 

 

 

 

 

Net loss

 

$

(7,150,187

)

$

(2,364,852

)

$

(13,350,915

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

736,875

 

717,450

 

1,705,145

 

Write-down of supplies inventory

 

 

 

38,000

 

Write-down of web development costs

 

 

 

9,000

 

Fair value of derivative liabilities in excess of proceeds

 

 

 

808,590

 

Loss on extinguishment of debt

 

 

761,492

 

761,492

 

Gain on adjustment to fair value of derivative liabilities

 

 

(4,192,781

)

(3,150,986

)

Non-cash interest expense

 

83,215

 

266,567

 

349,782

 

Share-based compensation

 

452,128

 

332,778

 

784,906

 

Common stock paid for services

 

34,500

 

249,000

 

366,500

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

(Increase) decrease in prepaid expenses

 

156,194

 

(164,220

)

(186,986

)

(Increase) decrease in other current and long-term assets

 

(30,845

)

7,572

 

(39,212

)

(Decrease) increase in accounts payable and accrued liabilities

 

344,764

 

15,146

 

729,085

 

(Decrease) increase in accrued compensation

 

(218,849

)

151,075

 

 

(Decrease) increase in accrued other

 

60,603

 

 

60,603

 

(Decrease) Increase in accrued income taxes

 

(1,600

)

1,600

 

1,600

 

Net cash used in operating activities

 

(5,533,202

)

(4,219,173

)

(11,113,396

)

Investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

 

(114,550

)

(54,511

)

(239,347

)

Investment in intangible assets

 

 

 

(250,000

)

Net cash used in investing activities

 

(114,550

)

(54,511

)

(489,347

)

Financing activities

 

 

 

 

 

 

 

Proceeds from issuance of common stock and warrants

 

7,200,000

 

7,750,000

 

19,089,000

 

Payment of financing and offering costs

 

(504,000

)

(542,500

)

(1,046,500

)

Payment of amounts due under acquisition obligation

 

(1,500,000

)

(250,000

)

(1,750,000

)

Proceeds from exercise of warrants and stock options

 

280,418

 

 

280,418

 

Proceeds from amounts due to stockholder

 

 

 

153,867

 

Repayment of amounts due to stockholder

 

 

 

(153,867

)

Net cash provided by financing activities

 

5,476,418

 

6,957,500

 

16,572,918

 

Net increase (decrease) in cash

 

(171,334

)

2,683,816

 

4,970,175

 

Cash and cash equivalents, at beginning of period

 

5,141,509

 

2,457,693

 

 

Cash and cash equivalents, at end of period

 

$

4,970,175

 

$

5,141,509

 

$

4,970,175

 

 

 

 

 

 

 

 

 

Supplemental disclosure for cash flow information:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest

 

$

 

$

 

$

1,357

 

Income taxes

 

$

2,800

 

$

800

 

$

3,600

 

 

 

 

 

 

 

 

 

Noncash investing and financing transaction:

 

 

 

 

 

 

 

Fair value of placement agent warrants issued in the public offering

 

$

228,240

 

$

276,980

 

$

505,220

 

Acquisition obligation of asset purchase agreement

 

$

 

$

 

$

2,750,000

 

Acquisition obligation discounts - imputed interest and fair value of warrants

 

$

 

$

402,355

 

$

402,355

 

  Year Ended  Year Ended 
  July 31, 2016  July 31, 2015 
Revenue $  $ 
Expenses:        
Research and development  14,741,694   13,132,898 
General and administrative  12,144,358   8,108,244 
Loss from operations  (26,886,052)  (21,241,142)
Provision for income taxes  2,462   1,969 
Net loss $(26,888,514) $(21,243,111)
Basic and diluted net loss per common share (1) $(1.63) $(1.67)
Weighted average shares used in computing basic and diluted net loss per common share (1)  16,514,737   12,708,974 

(1) See Note 1, “Reverse Stock Split”

 

The accompanying notes are an integral part of these consolidated financial statementsstatements.

OncoSec Medical Incorporated

 

47



TableStatements of ContentsStockholders’ Equity

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Additional        Total 
  Common Stock  Paid-In  Warrants  Accumulated  Stockholders’ 
  Shares (1)  Amount  Capital  Shares (1)  Amount  Deficit  Equity 
                      
Balance, July 31, 2014  12,233,203  $24,463  $56,081,475   1,882,399  $7,325,152  $(25,363,032) $38,068,058 
Exercise of common stock warrants  110,752   222   967,945   (110,752)  (192,917)     775,250 
Exercise of common stock options  308   1   1,737            1,738 
Common stock issued for services  7,500   15   57,735            57,750 
Public offering on June 9, 2015, net of issuance costs of $1,091,794  2,469,091   246   11,916,093   123,455   571,868      12,488,207 
Stock-based compensation expense        2,547,729            2,547,729 
Net loss                 (21,243,111)  (21,243,111)
Balance, July 31, 2015  14,820,854   24,947  $71,572,714   1,895,102  $7,704,103  $(46,606,143) $32,695,621 
Exercise of common stock warrants  400,000   40   9,960   (600,000)  (6,000)     4,000 
Common stock issued for services  7,500   1   55,386            55,387 
Public offering on November 9, 2015, net of issuance costs of $613,915  2,142,860   214   5,047,405   1,178,573   1,838,476      6,886,095 
Public offering on May 26, 2016, net of issuance costs of $767,700  665,049   67   4,468,484   10,629,717   4,715,304      9,183,855 
Cancellation of expired warrants        963,356   (244,106)  (963,356)      
Stock-based compensation expense        6,116,660            6,116,660 
Net loss                 (26,888,514)  (26,888,514)
Balance, July 31, 2016  18,036,263  $25,269  $88,233,965   12,859,286  $13,288,527  $(73,494,657) $28,053,104 

 

(1) See Note 1, “Reverse Stock Split”

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

OncoSec Medical Incorporated

Statements of Cash Flows

  Year Ended  Year Ended 
  July 31, 2016  July 31, 2015 
Operating activities        
Net loss $(26,888,514) $(21,243,111)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  355,583   664,596 
Stock-based compensation  6,116,660   2,547,729 
Stock-based compensation related to stock issuance liability in connection with a contractual agreement     55,500 
Common stock issued for services  55,387   57,750 
Loss on disposal of property and equipment  203,196   4,325 
Changes in operating assets and liabilities:        
(Increase) decrease in prepaid expenses  855,152   (1,068,699)
(Increase) decrease in other current  6,380   2,465 
(Increase) decrease in other long-term assets  24,818   (187,442)
(Decrease) increase in accounts payable and accrued liabilities  861,634   1,068,652 
(Decrease) increase in accrued compensation  (258,522)  459,592 
(Decrease) increase in other long-term liabilities  854,773   (12,027)
(Decrease) Increase in accrued income taxes  (800)  (800)
Net cash used in operating activities  (17,814,253)  (17,651,470)
Investing activities        
Purchases of property and equipment  (1,470,635)  (1,412,217)
Leasehold improvements  (80,102)  (18,938)
Net cash used in investing activities  (1,550,737)  (1,431,155)
Financing activities        
Proceeds from issuance of common stock and warrants  17,451,565   13,580,001 
Payment of financing and offering costs  (1,381,615)  (1,091,794)
Proceeds from exercise of warrants and stock options  6,000   776,988 
Net cash provided by financing activities  16,075,950   13,265,195 
Net increase (decrease) in cash  (3,289,040)  (5,817,430)
Cash and cash equivalents, at beginning of year  32,035,264   37,852,694 
Cash and cash equivalents, at end of year $28,746,224  $32,035,264 
         
Supplemental disclosure for cash flow information:        
Cash paid during the period for:        
Interest $  $ 
Income taxes $2,462  $1,969 
         
Noncash investing and financing transaction:        
Fair value of placement agent warrants issued in the public offerings $536,909  $571,868 
Noncash expiration of March 2011 and June 2011 warrants $963,356  $ 

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

NOTES TO FINANCIAL STATEMENTS

Note 1—Nature of Operations and Basis of Presentation

 

OncoSec Medical Incorporated (the “Company”) was incorporated under the namebegan its operations as a biotechnology company in March 2011, following its completion of Netventory Solutions Inc., in the state of Nevada on February 8, 2008 to pursue the business of inventory management solutions.  On March 1, 2011, Netventory Solutions Inc. completed a merger with its subsidiary OncoSec Medical Incorporated and changed its name to OncoSec Medical Incorporated.  On March 24, 2011, the Company completed the acquisition of certain technology and related assets from Inovio Pharmaceuticals, Inc. (“Inovio”) pursuant to an Asset Purchase Agreement (the “Asset Purchase Agreement”)asset purchase agreement dated March 14, 2011.  The acquired technology and related assets relate to the use of drug-medical device combination products for the treatment of various cancers.  Since this acquisition, the Company has focused its efforts in the biomedical industry and abandoned its efforts in the online inventory services industry.  Prior to the acquisition of the assets from Inovio, the Company had been inactive since March 2010 and had no continuing operations other than those of a company seeking a business opportunity. The Company has not produced any revenues, fromnor has it commenced planned principal operations. The Company’s technology includes intellectual property relating to certain delivery technologies including ImmunoPulse®, an electroporation delivery device that is used in combination with the Company’s therapeutic product candidates, including DNA plasmids that encode for immunologically active agents, to deliver the therapeutic directly into the tumor and promote an inflammatory response against the cancer. The Company was incorporated in the State of Nevada on February 8, 2008 under the name of Netventory Solutions, Inc. and changed its newly acquired assets and is consideredname in March 2011 when it began operating as a development stagebiotechnology company.

 

The accompanying consolidated financial statements includeCompany’s core technology the accountsImmunoPulse® platformis a unique therapeutic modality intended to reverse the immunosuppressive microenvironment in the tumor and engender a systemic anti-tumor response against untreated tumors in other parts of OncoSec Medical Incorporatedthe body. The Company’s lead product candidate, ImmunoPulse® IL-12, consists of a proprietary electroporation delivery device (an electrical pulse generator and disposable applicators) and DNA-encoded interleukin-12 (“IL-12”) which can be adapted to treat different tumor types and can be used in combination with anti-PD-1/PD-L1 therapies to drive tumor infiltrating lymphocytes and stimulate anti-cancer immune activity.

The Company recently completed enrollment in a Phase 2 clinical trial of ImmunoPulse® IL-12 in patients with metastatic melanoma and is in collaboration with the University of California, San Francisco (“UCSF”), in which UCSF is the sponsor of a Phase 2 clinical trial of ImmunoPulse® IL-12 plus pembrolizumab (KEYTRUDA®) in patients with advanced, metastatic melanoma. In addition, the Company has a biomarker-focused pilot study in triple negative breast cancer open for enrollment.The Company’s research and development activities are subject to significant risks and uncertainties, including potentially failing to secure additional funding to continue the advancement of its wholly-owned inactive subsidiary,product candidates, obtain FDA approval to market and sell one or more of its product candidates and commercialize its product candidates before similar or competing technology is developed by competitors.

On October 28, 2014, OncoSec Medical Therapeutics Incorporated (“OncoSec Medical Therapeutics”), which was incorporated in Delaware on July 2, 2010 and acquired on June 3, 2011 for a total purchase price of $1,000.  OncoSec Medical Therapeutics$1,000, was incorporated in Delaware on July 2, 2010.dissolved. There have beenwere no significant transactions related to this subsidiary since its inception. All significant intercompany transactionsThe Company currently has no subsidiaries.

Reclassifications

Certain amounts in the balance sheet for the year ended July 31, 2015 and balancesthe statement of cash flows for the twelve-month period ended July 31, 2015 have been eliminatedreclassified to conform the presentation of other long-term liabilities to the presentation at consolidation.July 31, 2016.

Reverse Stock Split

 

Effective May 18, 2015, the Company implemented a reverse stock split pursuant to which each 20 shares of issued and outstanding common stock held by each stockholder were combined into and became one share of common stock, with such resulting shares rounded up to the next whole share. No fractional shares were issued. All options, warrants and other convertible securities outstanding immediately prior to the reverse split were adjusted by dividing the number of shares of common stock into which the options, warrants and other convertible securities are exercisable or convertible by 20 and multiplying the exercise or conversion price by 20, all in accordance with the terms of the agreements governing such options, warrants and other convertible securities. The accompanying financial statement data for the annual prior periods presented have been retroactively adjusted to reflect the effects of the reverse stock split.

On May 29, 2015, the Company’s common stock began trading on The NASDAQ Stock Market LLC’s NASDAQ Capital Market tier, under the symbol “ONCS”.

Note 2—Significant Accounting Policies

 

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.

Concentrations and Credit Risk

The Company maintains cash balances at a small number of financial institutions, where such balances commonly exceed the $250,000 amount insured by the Federal Deposit Insurance Corporation. 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.

Financial Instruments

 

The carrying amounts for cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses approximate fair value due to their short-term nature, generally less than three months.  The carrying amount of the Company’s short-term acquisition obligation outstanding approximates fair value based upon current rates and terms available to us for similar activity. 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 separately disclosed.

 

Derivative LiabilitiesWarrants

 

The Company accounts for its warrants and other derivative financial instruments as either equity or liabilities 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 consolidated balance sheetssheet 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 consolidated balance sheetssheet at their fair value on the date of issuance and will be revalued 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 instruments on the valuation date, as well as assumptions for future financings, expected volatility, expected life, yield, and risk-free interest rate.

 

Use of Estimates

 

The preparation of consolidatedaccompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which requires management to make estimates and assumptions that affectthe reported amounts inof assets and liabilities and disclosure of contingent assets and liabilities at the consolidateddate of the financial statements and disclosures madethe reported amounts of expenses during the reporting period. Such estimates include stock-based compensation 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 are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. On an ongoing basis, the Company reviews its estimates to ensure that these estimates appropriately reflect changes in the accompanying notes to the consolidated financial statements.business or as new information becomes available. Actual results could differ materially from the estimates.

 

Intangible Assets

In accordance with the provisions of the applicable authoritative guidance, the Company’s long-lived assets and amortizable intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The Company assesses the recoverability of such assets by determining whether their carrying value can be recovered through undiscounted future operating cash flows, including its estimates of revenue driven by assumed market segment share and estimated costs. If impairment is indicated, the Company measures the amount of such impairment by comparing the fair value to the carrying value. As of July 31, 2015, the Company recognized $0.4 million of amortization in its statement of operations related to the intangible assets acquired from Inovio under the asset purchase agreement dated March 14, 2011. While these assets are fully depreciated, during the years ended July 31, 2016 and 2015, no impairment was recorded.

Property and Equipment

 

Our 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:

 

Computers and Equipment

3 to 510 years

Computer Software

1 to 3 years

Leasehold Improvements

3 years

Shorter of lease period or useful life

Total depreciation expense recorded for the years ended July 31, 2013 and 2012 was approximately $40,000 and $35,000 respectively.

48



Table of Contents

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 respective period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential future issuances of common stock relating to stock options and other potentially dilutive securities using the treasury stock method. In calculating diluted earnings per share, the dilutive effect of stock options is computed using the average market price for the respective period. In addition, the assumed proceeds under the treasury stock method include the average unrecognized compensation expense of stock options that are in-the-money. This results in the “assumed” buyback of additional shares, thereby reducing the dilutive impact of stock options. The Company did not include shares underlying stock options 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.

 

Potentially dilutive outstanding securities excluded from diluted net loss per common share because of their anti-dilutive effect:

  July 31, 2016  July 31, 2015 
Stock Options 3,263,460  1,148,746 
Warrants  12,859,286   1,895,102 
   16,122,746  3,043,848 

Stock Options to Non-EmployeesStock-based Compensation

 

Expense forThe Company grants equity-based awards (typically stock options or restricted stock units) under our stock-based compensation plan and outside of our stock-based compensation plan, with terms generally similar to the terms under our stock-based compensation plan. The Company estimates the fair value of stock option awards using the Black-Scholes option valuation model. This fair value is then amortized over the requisite service periods of the awards. 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. Stock-based compensation expense is based on awards ultimately expected to vest, and therefore is reduced by forfeitures. Changes in assumptions used under the Black-Scholes option valuation model could materially affect the Company’s net loss and net loss per share. Stock options granted to non-employees has been determined using the estimated fair value of the stock options issued, based on the Black-Scholes Option Pricing Model.  Such options are revalued quarterlymonthly until fully vested, with any change in fair value expensed.  During

The Company has issued equity for services or as consideration within contractual agreements. Stock-based compensation expense related to such equity issuances are based on the yearsclosing price of the Company’s stock on the date the liability is incurred, with the stock-based compensation adjusted on the date of issuance, based on the Company’s stock price on the issuance date.

Employee Stock Purchase Program

Pursuant to the Company’s December 2015 Annual Shareholders Meeting, the Company’s shareholders approved the Company’s 2015 Employee Stock Purchase Plan (or, 2015 ESPP). The 2015 ESPP provides an incentive to attract, retain and reward eligible employees to contribute to the growth and profitability of the Company through the opportunity to acquire Company stock at a discount. The ESPP allows for the purchase of Company stock at not less than 85% of the lesser of (a) the fair market value of a share of stock on the beginning date of the offering period or (b) the fair market value of a share of stock on the purchase date of the offering period, subject to a share and dollar limit as defined in the 2015 ESPP and subject to the requirements of IRS code section 423. The first 2015 ESPP offering period commenced on February 7, 2016 and lasted approximately six (6) months, with the first purchase date on July 31, 2016.

Under FASB ASC 718 Compensation –Stock Compensation, the Company’s 2015 ESPP would be considered a Type B plan 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 2015 ESPP enables the participant to “buy-up” to the plan’s share limit, if the stock price is lower on the purchase date.

Because the 2015 ESPP is considered a Type B plan, the fair value of the award would be calculated at the beginning of the offering period as the sum of:

15% of the share price of a nonvested share at the beginning of the offering period,

85% of the fair market value of a six (6)-month call on the nonvested share aforementioned, and

15% of the fair market value of a six (6)-month put on the nonvested share aforementioned.

The fair market value of the 6-month call and 6-month put are based on the Black-Scholes option pricing model, using the following assumptions: six (6) month maturity, 0.45% risk free interest, 81.06% volatility, 0% forfeitures and $0 dividends. Approximately $16,000 was recorded as stock-based compensation during the year end period ended July 31, 2013 and 2012, the Company recorded $11,000 and $25,000, respectively, in research and development expense and $289,000 and $133,000, respectively, in general and administrative expense for stock options granted to non-employees.2016.

 

Comprehensive Income (Loss)

 

Comprehensive income or loss includes all changes in equity except those resulting from investments by owners and distributions to owners. The Company did not have any items of comprehensive income or loss other than net loss from operations for the years ended July 31, 20132016 and 2012,2015.

Recent Accounting Pronouncements

Recent pronouncements that are not anticipated to have an impact on or are unrelated to the Company’s financial condition, results of operations, or related disclosures are not discussed.

In August 2014, the FASB issued ASU No. 2014-15,Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not intend to early adopt this standard. The adoption of this standard will not have an impact on the financial condition of the Company.

In February 2016, the FASB issued new lease accounting guidance in Accounting Standards Update No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize for all leases (with the exception of short-term leases) at the commencement date (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the period from inception (February 8, 2008) through July 31, 2013.lease term. Lessor accounting, however, remains largely unchanged. In addition, the new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. The new lease guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted, however, the Company does not intend to early adopt. The Company believes that adoption of this new guidance will not have a material impact on the Company’s financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments cover both public and private companies that issue share-based payment awards to their employees. Under the amendment several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted, however, the Company does not intend to early adopt and the Company does not believe that adoption of these clarifying amendments will have a material impact on the Company’s financial statements.

In August 2016, the Financial Accounting Standards Board (or, FASB) issued new cash flow statement guidance in Accounting Standards Update (or, ASU) No. 2016-15, Statement of Cash Flow (Topic 230): Clarification of Certain Cash Receipts and Cash Payments. The new guidance specifically addresses diversity of presentation and classification with regard to:

Debt Prepayment or Debt Extinguishment Costs;
Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing;
Contingent Consideration Payments Made after a Business Combination;
Proceeds from the Settlement of Insurance Claims;
Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned;
Life Insurance Policies;
Distributions Received from Equity Method Investees;
Beneficial Interests in Securitization Transactions; and
Separately Identifiable Cash Flows and Application of the Predominance Principle.

The amendments are effective for fiscal year beginning after December 15, 2017 and interim periods within those fiscal years and amendments should be applied using a retrospective transition method to each period presented. However, prospective application as of the earliest practicable date is permitted for some issues. Early adoption is permitted, however, the Company does not intend to early adopt. The Company also believes that adoption of this guidance will not have a material impact on the Company’s financial statements.

Note 3—Cash and Cash Equivalents and Liquidity

 

The Company considers all liquid investments with maturities of ninety days or less when purchased to be cash equivalents. As of July 31, 20132016 and July 31, 2012,2015, cash and cash equivalents were principally comprised of cash in savings and checking accounts.

 

The Company’s activities to date have been supported primarily by equity and debt financing. It has sustained losses in previous reporting periods with an inception to date loss of $13,350,915$73.5 million as of July 31, 2013.2016.

 

As of July 31, 2013,2016, the Company had cash and cash equivalents of approximately $4.9$28.7 million.On September 18, 2013, the Company completed a registered public offering and issued an aggregate of 47,792,000 shares of the Company’s common stock and warrants to purchase an aggregate of 23,896,000 shares of the Company’s common stock, for net proceeds to the Company, after deducting for fees and expenses, of approximately $11.1 million (the “September 2013 Public Offering”) (see Note 13)  As a result of the September 2013 Public Offering, theThe Company believes its cash resources are sufficient to meet its anticipated needs during the next twelve months. Even after giving effect to the proceeds received from that public offering, theThe Company will require additional financing to fund its future planned operations, including research and development and clinical trials and commercialization of the intellectual property acquired from Inovio pursuant to the Asset Purchase Agreement (see Note 5).potential product candidates. In addition, the Company will require additional financing in order to seek to license or acquire new assets, research and develop any potential patents and the related compounds, and obtain any further intellectual property that the Company may seek to acquire. Additional financing may not be available to the Company when needed or, if available, it may not be obtained on commercially reasonable terms. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be forced to delay or scale down some or all of its development activities or perhaps even cease the operation of its business. Historically, the Company has funded its operations primarily through equity financings and it expects that it will continue to fund its operations through equity and debt financing. If the Company raises additional financing by issuing equity securities, its existing stockholders’ ownership will be diluted. Obtaining commercial loans, assuming those loans would be available, will increase the Company’s liabilities and future cash commitments. The Company also expects to pursue non-dilutive financing sources. However, obtaining such financing would require significant efforts by the Company’s management team, and such financing may not be available, and if available, could take a long period of time to obtain.

 

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Note 4Fair Value of Financial Instruments

 

Financial assets and liabilities are measured at fair value, which 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. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

 

·

Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

At July 31, 2016 and 2015 approximately $90,000 was recorded in other long-term assets relating to a long-term certificate of deposit, which is classified within Level 1.

Note 5—Balance Sheet Details

 

·Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.Property and Equipment

 

·Level 3 — Unobservable inputs that are supported by little or no market activityProperty and that are significant to the fair valueequipment, net, is comprised of the assets or liabilities.following:

 

In conjunction with the June 2011 Private Placement, the Company issued warrants with derivative features. These instruments, the Series A and Series C Warrants, were accounted for as derivative liabilities (see Note 7).

  July 31, 2016  July 31, 2015 
Computers and Equipment $2,866,879  $1,589,914 
Computer Software  211,228   18,701 
Leasehold Improvements  80,102   112,469 
Construction In Progress  85,402   417,440 
Property and Equipment, gross  3,243,611   2,138,524 
Accumulated Depreciation  (443,681)  (330,542)
  $2,799,930  $1,807,982 

 

The Company used Level 3 inputs for its valuation methodologyDepreciation expense recorded for the warrant derivative liabilities. The estimated fair values were determined using a Monte Carlo option pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect estimated fair value at each period end, with any decrease or increase in the estimated fair value being recorded in other income or expense accordingly, as adjustments to fair value of derivative liabilities.

On February 21, 2012, Series C Warrants to purchase an aggregate of 4,000,000 shares of the Company’s stock expired unexercised.  On March 28, 2012, the Series A Warrants were reclassified to equity, following the reset of the exercise price to the base floor price of $0.50 per warrant shareyears ended July 31, 2016 and an evaluation of the instrument’s settlement provisions which were determined to be fixed-for-fixed (see Note 7).

2015 was approximately $356,000 and $200,000, respectively.During the year ended July 31, 2012, the estimated fair value of derivative liabilities decreased by $4,192,781.  This amount was recorded as other income during the year ended July 31, 2012.

Note 5—Intangible Asset Acquisition and Cross License Agreement

On March 14, 2011, the Company entered into the Asset Purchase Agreement with Inovio, whereby the Company agreed to purchase certain assets of Inovio related to certain non-DNA vaccine and selective electrochemical tumor ablation (“SECTA”) technology (which we now refer to as the OncoSec Medical System, or OMS), including, among other things: (a) certain patents, including patent applications, and trademarks2016, leasehold improvements related to the SECTA technology; (b) certain equipment, machinery, inventory and other tangible assets relatedCompany’s former corporate headquarters of approximately $112,000 were written off upon moving to the technology; (c) certain engineering and quality documentation related to the technology; and (d) the assignment of certain contracts related to the technology.  In return, the Company agreed to pay Inovio $3,000,000 in scheduled payments and a royalty on commercial product sales related to the SECTA technology.  The transaction closed on March 24, 2011. The Asset Purchase Agreement has been amended by the parties to modify the schedule of payments to Inovio (see Note 6).new corporate headquarters.

 

In connection with the closingAccounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities are comprised of the Asset Purchase Agreement, the Company entered into a cross-license agreement with Inovio.  Under the termsfollowing:

  July 31, 2016  July 31, 2015 
Research and Development Costs $2,389,711  $1,865,087 
Professional and Other Outside Service Fees  707,070   213,122 
Office Equipment (not-capitalized)  794   69,900 
Other  125,752   212,396 
  $3,223,327  $2,360,505 

Accrued Compensation

Accrued compensation is comprised of the agreement, the Company granted Inovio a fully paid-up, exclusive, worldwide licensefollowing:

  July 31, 2016  July 31, 2015 
Separation Costs $134,993  $353,909 
Relocation Costs     76,884 
Stock issuance liability     55,500 
Accrued payroll  93,021    
401K costs  14,365   14,329 
Other  545   824 
  $242,924  $501,446 

Separation costs relate to agreements with certain of the acquired SECTA technology patents in the field of use of electroporation. No consideration was received by the Company, nor will Inovio be liableCompany’s former executive officers—see Note 9, Commitments and Contingencies for future royalty fees related to this arrangement.  Inovio also granted the Company a non-exclusive, worldwide license to certain non-SECTA technology patents held by it in consideration for the following: (a) a fee for any sublicense of the Inovio technology, not to exceed 10%; (b) a royalty on net sales of any business the Company develops with the Inovio technology, not to exceed 10%; and (c) payment to Inovio of any amount Inovio pays to one licensor of the Inovio technology that is a direct result of the license.  In addition, the Company agreed not to transfer this non-exclusive license apart from the assigned intellectual property.

further information.

ASC 805, Business CombinationsOther Long-Term Liabilities, provides guidance on determining whether an acquired set of assets meets the definition of a business for accounting purposes.  Under the framework, the acquired set of activities and assets have to be capable of being operated as a business, from the viewpoint of a market participant as defined in ASC 820, Fair Value Measurements.  Two essential elements required for an integrated set of activities are inputs and outputs.  The Company evaluated the Asset Purchase Agreement and in accordance with the guidance, determined it did not meet the definition of a business acquisition as the acquisition consisted solely of the SECTA technology and certain other tangible assets.  The Company did not acquire the right to any employees previously involved with the technology, or research processes previously in place at Inovio.  The Company has therefore accounted for the transaction as an asset acquisition.

 

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TableOther long-term liabilities are comprised of Contentsthe following:

 

  July 31, 2016  July 31, 2015 
Deferred Rent $887,292  $32,518 
  $887,292  $32,518 

The purchase price was allocated to

At July 31, 2016, deferred rent is primarily comprised of the identified tangible and intangible assets acquired basedCompany’s rent liability on their relative fair values, which were derived from their individual estimated fair values of $38,000 and $3,000,000, respectively.  Includedits new Corporate headquarters (or, Nancy Ridge), whereas in the estimated fair valueprior year ended period deferred rent was primarily comprised of the intangible assets isCompany’s rent liability on its previous corporate headquarters (or, Summers Ridge). (See Note 9 Commitments and Contingencies for more information on the value associated with the engineeringNancy Ridge lease.) The Company terminated its Summers Ridge lease early and quality documentation acquired, which was determined to havehas no stand-alone value apart from the patents.  The relative fair value of the intangible assets of $2,962,000 was reduced by a discount of approximately $174,000 recorded for the acquisition obligation (see Note 6).  The relative fair value of the tangible assets of $38,000 was expensed to research and development as of the acquisition date.

The following table summarizes the purchase price allocation for the assets acquired:

Intangible assets - patents

 

$

2,788,154

 

Tangible assets - machinery, property and inventory

 

$

38,000

 

Patents are stated net of accumulated amortization of approximately $1,626,000 and $929,000further obligations on that lease as of July 31, 2013 and July 31, 2012, respectively. The patents are amortized on a straight-line basis over the estimated remaining useful lives of the assets, determined as four years from the date of acquisition.  2016.

Amortization expense for the years ended July 31, 2013 and 2012 was approximately $697,000 and $682,000, respectively.  At July 31, 2013, the weighted average remaining amortization period for all patents was approximately 1.67 years.  Estimated amortization expense over the annual periods ended July 31, 2014 and 2015 is approximately $697,000 and $465,000, respectively.Note 6—Common Stock Transactions

 

In accordance with the provisions of the applicable authoritative guidance,May 2016 Registered Direct Offering

On May 26, 2016 the Company’s long-lived assetsstock price closed at $1.62 and amortizable intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable.  The Company assesses the recoverability of such assets by determining whether their carrying value can be recovered through undiscounted future operating cash flows, including its estimates of revenue driven by assumed market segment share and estimated costs.  If impairment is indicated, the Company measures the amount of such impairment by comparing the fair value to the carrying value.  During the years ended July 31, 2013 and 2012, no impairment was recorded.

Note 6—Acquisition Obligation

On March 24, 2011, the Company recordedclosed an acquisition obligation for amounts due to Inovio in accordance“at-the-market registered direct offering” (or, May 2016 Offering) with the Asset Purchase Agreement (see Note 5).  On September 28, 2011, the Company entered into a First Amendment to Asset Purchase Agreement (the “First Amendment”).  The First Amendment modified the payment of $750,000 due to Inovio by September 24, 2011, requiring the Company to make a payment of $100,000 to Inovio on September 30, 2011, with the remaining $650,000 to be paid to Inovio at the earlier of: (a) 30 days following the receipt by the Company of aggregate net proceeds of more than $5,000,000 from one or more financings occurring on or after September 30, 2011, or (b) March 31, 2012.  On March 24, 2012, the Company entered into a Second Amendment to Asset Purchase Agreement (the “Second Amendment”).  The Second Amendment further modified the payment termssingle healthcare-dedicated institutional fund for the $1,150,000 scheduled payments due to Inovio in March 2012 by requiring the Company to make a paymentpurchase of $150,000 on March 31, 2012, with the remaining $1,000,000 to be paid to Inovio on December 31, 2013.  In consideration for the First Amendment, the Company issued to Inovio a warrant to purchase 1,000,000(i) 665,049 shares of common stock, (see Note 8).  In consideration for the Second Amendment, the Company issued to Inovio a warrant(ii) Series B Warrants to purchase 3,000,0004,844,593 shares of common stock (see Note 8).

In accordance with ASC 835-30 “Interest on Receivables and Payables”, the future payments under the acquisition obligation were discounted using the incremental borrowing rate of 5.00%, to arrive at an initial imputed interest discount on the obligation asexercise price of the acquisition date$0.01, and (iii) Series A Warrants to purchase up to an aggregate of approximately $174,000.  The imputed interest discount was recorded as5,509,642 shares of common stock at an exercise price of $1.69 per share with a reduction to the relative fair value of the intangible assets acquired (see Note 5).  The discount was revised as of the date of the First and Second Amendments to arrive at a revised imputed interest discount on the obligation of approximately $132,000 as of September 28, 2011 and $145,000 as of March 24, 2012.  The increase in imputed interest as of the date of the Second Amendment was primarily due to the extended payment terms.  Non-cash interest expense recognized during the years ended July 31, 2013 and 2012 was approximately $83,000 and $152,000, respectively.  As of July 31, 2013, the outstanding acquisition obligation was reduced by a short-term imputed interest discount of approximately $21,000.

The Company evaluated both amendments in accordance with ASC 470-50.  The Company determined the modification of the terms upon entry into the First Amendment to the Asset Purchase Agreement on September 28, 2011, was not considered substantial as of that date.  In accordance with the guidance, the fair value of the warrants issued to Inovio as consideration for the First Amendment were recorded as a discount to the acquisition obligation to be amortized to interest expense over the remaining term of the modified obligation payable, starting September 28, 2011.  On March 24, 2012, the Company entered into the Second Amendment.  In accordance with the guidance, the Company evaluated the cumulative impact of both amendments and determined the modification of the terms of the Asset Purchase Agreement as a result of the Second Amendment was considered substantial.nine (9) years. The Company recorded the difference between the re-acquisition price and carrying value of the debt as of the modification date of March 24, 2012 as a loss on debt extinguishment of $761,492.  The loss on debt extinguishment recorded resulted in the write-off of the unamortized portion of the discount to the debt obligation initially recorded upon entry into the First Amendment in the amount of approximately $113,000 as of March 24, 2012.  As of March 24, 2012, the acquisition obligation’s fair value was $2,504,178.  During the year ended July 31, 2012, approximately $115,000 was recognized as non-cash interest expense for amortization of the discount to the acquisition obligation.

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The scheduled payments for the $3,000,000 obligation under this arrangement, as amended, are as follows:

·$   250,000 - Upon the closing of the Asset Purchase Agreement

·$   100,000 - September 30, 2011

·$   150,000 - March 31, 2012

·$   500,000 - September 24, 2012

·$ 1,000,000 - March 31, 2013

·$ 1,000,000 - December 31, 2013

On March 24, 2011, September 30, 2011, March 30, 2012 and September 24, 2012, the Company made payments of $250,000, $100,000, $150,000 and $500,000, respectively, to Inovio.  On May 15, 2013, the Company made the March 31, 2013 payment of $1,000,000 to Inovio, which payment did not constitute a default under the Asset Purchase Agreement.

Note 7—Private Placements and Public Offerings

March 2011 Private Placement

On March 18, 2011, the Company closed a private placement whereby it issued 1,456,000 units atinvestor paid a purchase price of $0.75$1.815 per unit for gross proceedsshare of $1,092,000.  Each unit consists ofcommon stock and an accompanying Series A Warrant to purchase one share of common stock and one share$1.805 per Series B Warrant and accompanying Series A warrant to purchase warrant entitling the holder to acquire one share of common stock at a price of $1.00 per share for a period of five years fromstock. The Series B warrants were issued to prevent the closingbeneficial ownership of the private placement.  purchaser (together with its affiliates and certain related parties) of the Company’s common stock from exceeding 4.99%. The Series B warrants expire upon their exercise in full. Both the Series A and Series B warrants are immediately exercisable on the date of issuance.The fair value of the Series A and Series B warrants issued to the purchaser in connection with the May 2016 registered direct offering, based on their fair value relative to the common stock issued, was $431,981$4.4 million (based on the Black-Scholes Option Pricing Model assuming no dividend yield, a 9 year life, volatility of 89.68%100.03%, and a risk-free interest rate of 2.11%1.74%).  The, of which $48,446 of the relative fair market value was ascribed to the Series B warrants, were exercisable asbased on the number of March 18, 2011 and any unexercised warrants will expire on March 18, 2016.issued at its exercise price of $0.01 per share. The Company completed an evaluation of the Series A and Series B warrants issued to the purchaser and determined that the Series A and Series B warrants should be classified as equity within the balance sheet.

At the closing of the May 2016 Offering, the placement agents were also issued warrants to purchase an aggregate of up to five percent (5%) of the aggregate number of shares of common stock and Series B warrants sold in connection with this privateoffering, or 275,482 shares. The placement agent warrants have an exercise price of $2.26875, are immediately exercisable and expire on May 24, 2021. The fair value of the placement agent warrants was $0.3 million (based on the Black-Scholes Option Pricing Model assuming no dividend yield, a 5 year life, volatility of 94.36%, and a risk-free interest rate of 1.38%). The Company completed an evaluation of these warrants and determined the warrants should be classified as equity within the consolidated balance sheetssheet.

The gross proceeds of the offering were $9.9 million. Net proceeds, after deducting the placement agent’s fee, financial advisory fees, and other estimated offering expenses payable by the Company, were approximately $9.2 million. The Company intends to use proceeds from the offering for general corporate purposes, including clinical trial expenses and research and development expenses.

November 2015 Public Offering

On November 9, 2015, the Company closed a public offering of an aggregate of 2,142,860 shares of common stock and warrants to purchase an aggregate of 1,071,430 shares of common stock at a purchase price of $3.50 per unit. Each purchaser was issued a warrant to purchase up to that number of shares of the Company’s common stock equal to 50% of the shares issued to such purchaser. The warrants to the purchasers have an exercise price of $4.50 per share, became exercisable six months after issuance, and expire on May 9, 2021. The fair value of the warrants to the purchasers, based on their fair value relative to the common stock issued, was approximately $1.6 million (based on the Black-Scholes Option Pricing Model assuming no dividend yield, a 5.05 year life, volatility of 88.63%, and a risk-free interest rate of 1.75%). The Company completed an evaluation of these warrants and determined the warrants should be classified as equity within the balance sheet.

The Company agreed to pay an aggregate cash fee for placement agent and financial advisory services equal to six percent (6%) of the gross proceeds of the November 2015 public offering, as well as a non-accountable expense allowance equal to one percent (1%) of the gross proceeds of the offering and certain other expense reimbursements. In addition, placement agents were also issued warrants to purchase an aggregate of up to five percent (5%) of the aggregate number of shares of common stock sold in the offering, or 107,143 shares. The Placement Agent Warrants have substantially the same terms as the instrument’s settlement provisions were fixed-for-fixed.Warrants, except that they have an exercise price of $4.375 and expire on November 9, 2020. The fair value of the placement agent warrants was $0.2 million (based on the Black-Scholes Option Pricing Model assuming no dividend yield, a 5 year life, volatility of 89.08%, and a risk-free interest rate of 1.75%). The Company completed an evaluation of these warrants and determined the warrants should be classified as equity within the balance sheet.

 

The gross proceeds of the offering were $7.5 million. Net proceeds, after deducting the placement agent’s fee, financial advisory fees, and other offering expenses payable by the Company, were approximately $6.9 million. The Company intends to use proceeds from the offering for general corporate purposes, including clinical trial expenses and research and development expenses.

June 2011 Private Placement2015 Public Offering

 

On June 24, 2011,8, 2015, the Company closed a private placement whereby it issuedregistered direct public offering of an aggregate of 4,000,0002,469,091 shares of the Company’s common stock at a purchase price of $0.75$5.50 per share, and three series of warrants, the Series A Warrants, the Series B Warrants and the Series C Warrants, to purchase an aggregate of 12,000,000 shares of the Company’s common stock, forshare. The gross proceeds to the Company of $3.0 million (the “June 2011 Private Placement”).were approximately $13.6 million. After deducting for fees and expenses, the aggregate net proceeds from the sale of the common stock and the warrants in the June Private Placement were approximately $2.79$12.5 million.

Pursuant to the terms of the Securities Purchase Agreement, each investor was issued a Series A Warrant, a Series B Warrant and a Series C Warrant, each to purchase up to a number of shares of the Company’s common stock equal to 100% of the shares issued to such investor.  The Series A Warrants have an exercise price of $1.20 per share, are exercisable immediately upon issuance and have a term of exercise equal to five years.  The Series B Warrants have an exercise price of $0.75 per share, are exercisable immediately upon issuance and expire on February 21, 2012.  The Series C Warrants have an exercise price of $1.20 per share, vest and are exercisable ratably commencing on the exercise of the Series B Warrants held by each investor and have a term of exercise equal to five years. The Series C Warrants also expire if the Series B Warrants expire unexercised.  On February 21, 2012, the Series B and Series C Warrants expired unexercised.

On June 24, 2011, in connection with the closing of the June 2011 Private Placement, the Company and the Purchasers entered into a registration rights agreement pursuant to which the Company is required to file a registration statement within 30 days following such closing to register the resale of the common stock and the common stock underlying the warrants issued in the June 2011 Private Placement.  The failure on the part of the Company to meet the filing deadlines and other requirements set forth in the registration rights agreement may subject the Company to payment of certain monetary penalties, up to a maximum of 9% of the aggregate proceeds of the June 2011 Private Placement.  As of July 31, 2013 the Company was in compliance with the requirements set forth in the registration rights agreement.

In addition, pursuant to the terms of a placement agent agreement entered into with the lead placement agent on June 1, 2011 and amended on June 21, 2011, the Company agreed to pay the lead placement agent and the co-placement agent fees equal to 6% of the aggregate gross proceeds raised in the private placement of $180,000 and reimbursement to the lead placement agent for certain expenses in the amount of $30,000.  The total cash fees of $210,000 paid to the placement agents were recorded as a period expense as of the closing date. In connection with the agreement,June 2015 public offering, the Company alsopaid placement agent fees and issued to the placement agents Series A Warrants to purchase 6% of the aggregate common stock issued in the June 2011 Private Placement, or 240,000 shares of common stock.

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Allocation of Proceeds

At the closing date of the June 2011 Private Placement, the estimated fair value of the Series A and Series C Warrants exceeded the proceeds from the June 2011 Private Placement of $3,000,000 (see the valuations of these derivative liabilities under the heading, “Derivative Liabilities” below). As a result, all of the proceeds were allocated to these derivative liabilities and no proceeds remained for allocation to the common stock and Series B Warrants issued in the financing.

Common Stock

At the closing date of the June 2011 Private Placement, the Company issued 4,000,000 shares of unregistered common stock and recorded the par value of the shares issued of $400 (at par value of $0.0001 per share) with a corresponding reduction to paid-in capital, given that there was no allocated value from the proceeds to the common stock.

Derivative Liabilities

The Company accounted for the Series A and C Warrants in accordance with accounting guidance for derivatives. The accounting guidance provides a two-step model to be applied in determining whether a financial instrument is indexed to an entity’s own stock that would qualify such financial instruments for a scope exception. This scope exception specifies that a contract that would otherwise meet the definition of a derivative financial instrument would not be considered as such if the contract is both (i) indexed to the entity’s own stock and (ii) classified in the stockholders’ equity section of the balance sheet. The Company determined that its Series A and Series C Warrants were ineligible for equity classification as a result of the anti-dilution provisions in the Series A and Series C Warrants that may result in an adjustment to the warrant exercise price.

On the closing date of the June 2011 Private Placement, the derivative liabilities were recorded at an estimated fair value of $3,808,590. Given that the fair value of the derivative liabilities exceeded the total proceeds of the private placement of $3,000,000, no net amounts were allocated to the common stock. The $808,590 amount by which the recorded liabilities exceeded the proceeds was charged to other expense at the closing date. The Company revalued the derivative liability as of each subsequent balance sheet date, with any changes in the fair value between reporting periods recorded as other income or expense.

On March 28, 2012, the anti-dilution provisions of the Series A Warrants were triggered upon the closing of the Company’s March 2012 registered public offering, which resulted in the reset of the exercise price of the Series A Warrants to the base floor price of $0.50.  The fair value of the derivative liabilities as of March 28, 2012 was $657,604.  The reset of the exercise price to the base floor price caused the anti-dilution provisions to become void as of March 28, 2012 and for future periods.  As a result, on March 28, 2012, the Series A Warrants were reclassified as equity within the Company’s consolidated financial statements, at a fair value of $657,604.

The change in the estimated fair value of the Series A and C Warrants during the year ended July 31, 2012, resulted in other income of $4,192,781. Such change in the estimated fair value was primarily due to the fluctuation in the Company’s common stock price and updates to the assumptions used in the option pricing models.

The derivative liabilities were valued as of March 28, 2012, using a Monte Carlo valuation model with the following assumptions:

March 28, 2012

Closing price per share of common stock

0.22

Exercise price per share

0.50

Expected volatility

125.0

%

Risk-free interest rate

1.05

%

Dividend yield

Floor price

0.50

Remaining expected term of underlying securities (years)

4.24

In addition, as of the valuation date, management assessed the probabilities of future financings assumptions in the Monte Carlo valuation models.

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March 2012 Public Offering

On March 28, 2012, the Company closed a registered public offering of an aggregate of 31,000,000 shares of the Company’s common stock and warrants to purchase an aggregate of 31,000,000 shares of common stock for gross proceeds to the Company of $7.75 million (the “March 2012 Public Offering”).  On March 23, 2012, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) for the issuance and sale by the Company of the common stock and warrants in the March 2012 Public Offering.  After deducting for fees and expenses, the aggregate net proceeds from the March 2012 Public Offering were approximately $7.2 million.

Pursuant to the terms of the Securities Purchase Agreement, at the closing each purchaser was issued a warrant to purchase up to a number of shares of the Company’s common stock equal to 100% of the shares issued to such purchaser in the offering.  The warrants have an exercise price of $0.35 per share, are exercisable immediately upon issuance and have a term of exercise equal to five years from the date of issuance of the warrants, or March 28, 2017.

Pursuant to a Placement Agent Agreement dated January 23, 2012 by and between the Company and Rodman & Renshaw, LLC (“Rodman”), as subsequently amended on March 12, 2012 (as amended, the “Placement Agent Agreement”), Rodman agreed to act as the Company’s placement agent in connection with the offering.  Under the Placement Agent Agreement, the Company agreed to pay Rodman a cash fee equal to 6% of the gross proceeds of the offering, as well as a non-accountable expense allowance equal to 1% of the gross proceeds of the offering.  In addition, the Company agreed to issue to the placement agent warrants to purchase up to an aggregate of 5% of the aggregate number of shares of common stock sold in the offering, or warrants to purchase 1,550,000123,455 shares of the Company’s common stock (the “Placement Agent Warrants”).  As permitted under the Placement Agent Agreement, the Company elected to pay 30% of the 5% Placement Agent Warrants directly to Roth Capital Partners, LLC (“Roth”), who acted as financial advisors in the offering, and as a result issued to Rodman a Placement Agent Warrant to purchase 1,085,000 shares of common stock and issued to Roth a Placement Agent Warrant to purchase 465,000 shares of common stock. The Placement Agent Warrants have substantially the same termsplacement agent warrants are exercisable at $6.88 per share as the warrants issued to the purchasers in the offering, except that such warrants have an exercise price of $0.3125December 8, 2015 and shallwill expire on March 23, 2017.May 12, 2019. The fair value of the Placement Agent Warrantsplacement agent warrants was $276,980approximately $0.6 million (based on the Black-Scholes Option Pricing Model assuming no dividend yield, a 5 year life, volatility of 125.0%,88.40% and a risk-freerisk free interest rate of 1.05%1.72%), and was recorded as an offering cost.. The Placement Agent Warrantsplacement agent warrants and the shares of the Company’s common stock underlying the Placement Agent Warrantsplacement agent warrants have not been registered under the Securities Act of 1933, as amended (the “Securities Act”).

The fair value of the warrants issued in connection with the March 2012 Public Offering to the purchasers, based on their fair value relative to the common stock issued, was $3,206,486 (based on the Black-Scholes Option Pricing Model assuming no dividend yield, volatility of 125.0%, and a risk-free interest rate of 1.05%).Act. The Company completed an evaluation of all of thethese warrants issued in connection with this offering and determined the warrants should be classified as equity within the consolidated balance sheet.

December 2012 Public Offering

On December 17, 2012, the Company closed a registered public offering of an aggregate of 28,800,000 shares of the Company’s common stock and warrants to purchase an aggregate of 14,400,000 shares of common stock for gross proceeds to the Company of $7.2 million (the “December 2012 Public Offering”).  On December 12, 2012, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) for the issuance and sale by the Company of the common stock and warrants in the December 2012 Public Offering.  After deducting for fees and expenses, the aggregate net proceeds from the sale of the common stock and the warrants in the December 2012 Public Offering were approximately $6.7 million.

 

Pursuant to the terms of the Securities Purchase Agreement, at the closing each purchaser was issued a warrant to purchase up to a number of shares of the Company’s common stock equal to 50% of the shares issued to such purchaser in the offering.  The warrants have an exercise price of $0.26 per share, are exercisable immediately upon issuance and have a term of exercise equal to four years from the date of issuance of the warrants, or December 17, 2016.

Pursuant to a Placement Agent Agreement dated November 16, 2012 by and between the Company and Dawson James Securities, Inc. (“Dawson”), Dawson agreed to act as the Company’s placement agent in connection with the offering.  Under the Placement Agent Agreement, the Company agreed to pay Dawson a cash fee equal to 6% of the gross proceeds of the offering, as well as a non-accountable expense allowance equal to 1% of the gross proceeds of the offering.  In addition, the Company agreed to issue to the placement agent warrants to purchase up to an aggregate of 5% of the aggregate number of shares of common stock sold in the offering, or warrants to purchase 1,440,000 shares of the Company’s common stock (the “Placement Agent Warrants”).  As permitted under the Placement Agent Agreement, the Company elected to pay 50% of the 5% Placement AgentOutstanding Warrants directly to Noble International Investments, Inc. and Burrill LLC (“Noble” and “Burrill”, respectively), who acted as financial advisors in the offering, and as a result issued to Dawson a Placement Agent Warrant to purchase 720,000 shares of common stock, and issued to Noble and Burrill Placement Agent Warrants to purchase 360,000 shares of common stock each.  The Placement Agent Warrants have

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substantially the same terms as the warrants issued to the purchasers in the offering, except that such warrants have an exercise price of $0.3125 and shall expire on December 11, 2017.  The fair value of the Placement Agent Warrants was $228,240 (based on the Black-Scholes Option Pricing Model assuming no dividend yield, volatility of 98.09%, and a risk-free interest rate of 0.74%), and was recorded as an offering cost.  The Placement Agent Warrants and the shares of the Company’s common stock underlying the Placement Agent Warrants have not been registered under the Securities Act.

The fair value of the warrants issued in connection with the December 2012 Public Offering to the purchasers, based on their fair value relative to the common stock issued, was $2,151,360 (based on the Black-Scholes Option Pricing Model assuming no dividend yield, volatility of 96.66%, and a risk-free interest rate of 0.56%).  The Company completed an evaluation of all of the warrants issued in connection with this offering and determined the warrants should be classified as equity within the consolidated balance sheets.

Note 8— Other Equity and Common Stock Transactions

On March 1, 2011, the Company effected a 32 for one forward stock split of its authorized, issued and outstanding common stock.  As a result, its authorized capital increased from 100,000,000 shares of common stock at $0.001 par value to 3,200,000,000 shares of common stock at $0.0001 par value, and its outstanding common stock has increased from 2,140,000 shares of common stock to 68,480,000 shares of common stock as of that date.  The accompanying consolidated financial statements for the annual prior periods presented have been retroactively adjusted to reflect the effects of the forward stock split.

On March 22, 2011, 17,280,000 shares of common stock held by previous majority stockholders were returned to the Company for no consideration.  The shares were not retired and are available for future issuance.

On May 9, 2011, the Board of Directors authorized the issuance of 200,000 fully vested shares of the Company’s common stock to a consultant in exchange for advisory services.  The shares were valued at $332,000, based on the closing price of the Company’s common stock on the date of issuance, and are amortized over the service period of twelve months.

On September 28, 2011, in consideration for the First Amendment entered into with Inovio, the Company issued to Inovio a warrant to purchase 1,000,000 shares of the Company’s common stock (see Note 6).  The warrant has an exercise price of $1.20 per share, is exercisable immediately upon issuance and has an exercise term of five years.  The warrant also contains a mandatory exercise provision allowing the Company to request the exercise of the warrant in whole provided that the Company’s Daily Market Price (as defined in the warrant) is equal to or greater than $2.40 for twenty consecutive trading days.  The Company completed an evaluation of the warrant issued in connection with this private placement and determined the warrants should be classified as equity within the consolidated balance sheet. The fair value of the warrant was $228,509 (based on the Black-Scholes Option Pricing Model assuming no dividend yield, volatility of 87.62%, and a risk-free interest rate of 0.96%).  In accordance with the guidance, the fair value of the warrant was recorded as a discount to the acquisition obligation and amortized to interest expense over the remaining term of the modified obligation payable (see Note 6).

On March 24, 2012, in consideration for the Second Amendment entered into with Inovio, the Company issued to Inovio a warrant to purchase 3,000,000 shares of the Company’s common stock (see Note 6).  The warrant has an exercise price of $1.00 per share, is exercisable immediately upon issuance and has an exercise term of five years.  The warrant also contains a mandatory exercise provision allowing the Company to request the exercise of the warrant in whole provided that the Company’s Daily Market Price (as defined in the warrant) is equal to or greater than $2.40 for twenty consecutive trading days.  The Company completed an evaluation of the warrant issued in connection with this private placement and determined the warrants should be classified as equity within the consolidated balance sheet. The fair value of the warrant was $729,602 (based on the Black-Scholes Option Pricing Model assuming no dividend yield, volatility of 125.0%, and a risk-free interest rate of 1.04%).  In accordance with the applicable guidance, the fair value of the warrant was recorded as part of the loss on debt extinguishment as of the issuance date (see Note 6).

On December 18, 2012, the Board of Directors authorized the issuance of 150,000 fully vested shares of the Company’s common stock to the University of South Florida Research Foundation in connection with an agreement to license certain intellectual property to the Company entered into on August 24, 2012.  The shares were valued at $34,500, based on the closing price of the Company’s common stock on the date of issuance.  The shares have not been registered under the Securities Act and were issued in reliance on an exemption from the registration requirements of the Securities Act afforded by Section 4(2) thereof. The Company is responsible for payments upon the achievement of specified milestones and royalty payments at specified percentages of net sales of licensed products and processes, as defined, upon commercialization of stipulated licensed products or processes. The first payment will be for $50,000 upon the start of a future Phase II clinical trial for specific indications, $100,000 upon the start of a specified future Phase III clinical trial and $250,000 upon FDA approval under certain conditions.  The Company also agreed to pay for certain patent prosecution and filing fees.

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At July 31, 2013,2016, the Company had outstanding warrants to purchase 57,644,27612,859,286 shares of common stock, with exercise prices ranging from $0.26$0.01 to $1.20,$24.00, all of which were classified as equity instruments. These warrants expire at various times between MarchSeptember 2016 and December 2017.May 2025, with the exception of the Series B Warrants, as aforementioned, which expire upon their exercise in full. At July 31, 2016, 4,244,593 Series B Warrants were available to exercise.

Dividends

 

The Company has not adopted any policy regarding payment of dividends.  Nodividends and no dividends have been paid during the periods presented.

 

Note 97 — Stock-Based Compensation

2011 Stock Incentive Plan (as amended)

 

In May 2011, the Company’s Board of Directors adopted theThe OncoSec Medical Incorporated 2011 Stock Incentive Plan (the “2011 Plan”).  The 2011 Plan was(as amended and approved by the Company’s stockholders in March 2012 and originally authorizedstockholders), (or 2011 Plan), authorizes the Board of Directors to grant equity awards, inclusive of stock options and restricted stock units, to employees, directors, and consultants for up to 5,200,0004,000,000 shares of common stock. On April 15, 2013,The 2011 Plan includes an automatic increase of its available share reserve on the first business day of each calendar year by the lesser of 3% of the shares of the Company’s stockholders approvedcommon stock outstanding as of the last day of the immediately preceding calendar year, 500,000 shares, or such lesser number of shares as determined by the Board of Directors and the 2011Plan allows for an amendmentannual fiscal year per-individual grant of up to 500,000 shares. Under the 2011 Plan, to authorize the issuance of an additional 3,800,000 shares of common stock under the 2011 Plan, increasing the total number of shares reserved for issuance under the 2011 Plan to 9,000,000 shares. Incentiveincentive stock options are to be granted at a price that is no less than 100% of the fair value of the Company’s stock at the date of grant. Options vest over a period specified in individual option agreements entered into with grantees, and are exercisable for a maximum period of ten years after the date of grant. 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 no less than 110% of the fair value of the Company’s stock on the date of grant.

Stock Options

 

During the fiscal year ended July 31, 2013,2016, the Company granted options to purchase 685,0001,995,750, 655,500 and 300,00078,000 shares of the Company’s common stock to employees, directors and directors, respectively,consultants under the 2011 Plan.Plan, respectively. The options issued to employees under the 2011 Plan have a ten-year term, vest over three years, and have exercise prices ranging from $1.64 to $6.21. The options issued to directors have a ten-year term, vest quarterly in equal increments over one year and have exercise prices ranging from $2.02 to $5.76. The options issued to consultants have one- to three-year terms, vest in accordance with the terms of the applicable consulting agreement, and have exercise prices ranging from $2.02 to $5.76.

During the fiscal year ended July 31, 2015, the Company granted options to purchase 491,001, 37,500 and 80,000 shares of the Company’s common stock to employees, directors and consultants under the 2011 Plan, respectively. The options issued to employees under the 2011 Plan have a ten-year term, vest over a range of twoone to three years, and have exercise prices ranging from $0.20$5.60 to $0.42.$10.60. The options issued to directors have a ten-year term, vest quarterly in equal increments over one year and have an exercise price of $0.25.  During the year ended July 31, 2013, the Company also granted options to purchase 2,030,000 shares of the Company’s common stock to consultants under the 2011 Plan.$7.60. The options issued to consultants have threeone- to ten yearthree-year terms, vest in accordance with the terms of the applicable consulting agreement, and have exercise prices ranging from $0.18$6.01 to $0.35.

During the year ended July 31, 2012, the Company granted options to purchase 1,300,000 and 400,000 shares of the Company’s common stock to employees and directors, respectively, under the 2011 Plan.  The options issued to employees have a ten-year term, vest over two years and have exercise prices ranging from $0.21 to $0.40.  The options issued to directors have a ten-year term, vest quarterly in equal increments over one year and have exercise prices ranging from $0.21 to $0.40.  During the year ended July 31, 2012, the Company also granted options to purchase 1,560,000 shares of the Company’s common stock to consultants under the 2011 Plan. The options issued to consultants have three to ten year terms, vest in accordance with the terms of the applicable consulting agreement, and have exercise prices ranging from $0.18 to $0.39.

The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award.  The service period is generally the vesting period, with the exception of options granted subject to a consulting agreement, whereby the option vesting period and the service period are defined pursuant to the terms of the consulting agreement. Share-based compensation expense for awards granted during the years ended July 31, 2013 and 2012, were based on the grant date fair value estimated using the Black-Scholes Option Pricing Model.$7.80.

 

The following assumptions were used to calculate the fair value of share-basedstock-based compensation related to stock options during the years ended:

 

 

July 31, 2013

 

July 31, 2012

 

 July 31, 2016  July 31, 2015 

Expected volatility

 

80.32% - 97.85%

 

85.96 - 125.00%

 

  83.57% - 98.23%  86.02% - 117.50%

Risk-free interest rate

 

0.31% - 1.97%

 

0.35% - 2.08%

 

  0.71% - 2.01  0.36% - 2.13

Expected forfeiture rate

 

0.00%

 

0.00%

 

  0.00%  0.00%

Expected dividend yield

 

 

 

      

Expected term

 

3 - 10 years

 

3 - 10 years

 

  2.08 – 10 years   1.6 – 6.5 years 

 

Expected price volatility is the measure by which the Company’s stock price is expected to fluctuate during the expected term of an option. The Company exited shell status on March 24, 2011 and its stock became available for trading on April 8, 2011.In situations where a newly public entity has limited historical data on the price of its publicly traded shares and no other traded financial instruments, authoritative guidance is provided on estimating this assumption by basing its expected volatility on the historical, expected, or implied volatility of similar entities whose share option prices are publicly available. In making the determination as to similarity, the guidance recommends the consideration of industry, stage of life cycle, size and financial leverage of such other entities. The Company’s expected volatility is derived from the historical daily change in the market price of its common stock since it exited shell status,its stock became available for trading, as well as the historical daily changes in the market price for theof its peer group, based on weighting, as determined by the Company.

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The expected term of the options represents the period that stock-based awards are expected to be outstanding based on the simplified method provided in ASC Topic 718, which averages an award’s weighted-average vesting period and contractual term for share options and warrants. The Company will continue to use the simplified method until it has the historical data necessary to provide a reasonable estimate of expected life in accordance with ASC Topic 718, as amended by SAB 110. For the expected term of options issued to employees and directors, the Company used the simplified method.The Company expects to continually evaluate its historical data as a basis for determining the expected terms of options granted under the 2011 Plan.

The Company’s estimation of the expected term for stock options granted to parties other than employees or directors is the contractual term of the option award.

For the purposes of estimating the fair value of stock option awards, the risk-free interest rate used in the Black-Scholes calculation is based on the prevailing U.S. Treasury yield. 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.

 

Stock-based compensation expense recognized in the Company’s consolidated statements of operations is based on awards ultimately expected to vest, reduced for estimated forfeitures. Authoritative guidance requires forfeitures to be estimated at the time of grant, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Due toBecause the Company’s minimalCompany records stock-based compensation activity, the Company has not had significant forfeitures of stock options granted to employeesmonthly and directors. Therefore,utilizes cliff vesting and/or monthly vesting, the Company has estimated the forfeiture rate of its outstanding stock options as zero but will continually evaluate its historical data as a basis for determining expected forfeitures.since the Company can adjust stock-based compensation due to terminations in the month of termination.

 

Share-basedStock-based compensation expense (resulting from stock options awarded) recorded in the Company’s consolidated statementsstatement of operations for the years ended July 31, 20132016 and 2012 resulting from share-based compensation awarded to the Company’s employees, directors and consultants2015, respectively, was approximately $452,000$6.1 million and $333,000,$2.7 million, respectively. Of these balances duringDuring the fiscal years ended July 31, 20132016 and 2012, $41,0002015, approximately $1.0 million and $89,000,$1.1 million of this amount, respectively, was recorded to research and development, and $411,000approximately $5.1 and $244,000,$1.6 million, respectively, was recorded in general and administrative in the Company’s consolidated statementsstatement of operations.

See Note 9, Commitments and Contingencies, regarding the impact of stock option modifications (due to a separation package) on stock-based compensation expense for the year ended July 31, 2015.

A summary of the Company’s stock option activity for the years ended July 31, 20132016 and 2012,2015 is as follows:

 

 

 

Option Shares
Outstanding

 

Weighted-Average
Exercise Price

 

Aggregate Intrinsic
Value ($000’s)

 

Balance at July 31, 2011

 

 

$

 

$

 

Granted

 

3,260,000

 

0.24

 

 

Exercised

 

 

 

 

Forfeited / Cancelled

 

(85,000

)

0.40

 

 

Balance at July 31, 2012

 

3,175,000

 

0.24

 

24

 

Granted

 

3,015,000

 

0.22

 

232

 

Exercised

 

(766,500

)

0.18

 

52

 

Forfeited / Cancelled

 

(273,500

)

0.33

 

9

 

Balance at July 31, 2013

 

5,150,000

 

$

0.23

 

$

372

 

  Option Shares
Outstanding
  Weighted-Average
Exercise Price
  Aggregate Intrinsic
Value ($000’s)
 
Balance at July 31, 2014 (1)  588,045  $11.20  $844 
Granted (1)  608,501   7.45   1 
Exercised (1)  (308)  5.60   1 
Forfeited / Cancelled / Expired (1)  (47,474)  12.29   46 
Balance at July 31, 2015  1,148,764  $9.20  $216 
Granted  2,729,250   4.84    
Exercised         
Forfeited / Cancelled / Expired  (614,554)  7.49   33 
Balance at July 31, 2016  3,263,460   5.88   9 
Exercisable at July 31, 2016  1,824,862  $6.60  $3 

 

Range of Exercise Prices

 

Number of
Shares
Outstanding

 

Weighted
Average
Contractual Life
(in years)

 

Weighted
Average
Exercise Price

 

Number
Of Shares
Exercisable

 

Weighted
Average
Remaining
Contractual
Life (in years)

 

Weighted Average
Exercise Price

 

$

0.18 - 0.42

 

5,150,000

 

6.08

 

$

0.25

 

3,387,700

 

5.58

 

$

0.23

 

(1) Recast to reflect the 1-for-20 reverse stock split effected May 2015

Range of Exercise Prices  Number of
Shares
Outstanding
  Weighted
Average
Contractual Life
(in years)
  Number
Of Shares
Exercisable
  Weighted
Average
Remaining
Contractual
Life (in years)
 
$1.64 - $16.10 (1)   3,263,460   8.6   1,824,862   8.3 

(1) Recast to reflect the 1-for-20 reverse stock split effected May 2015

 

The weighted-average grant date fair value of stock options granted during the years ended July 31, 20132016 and 2012 were $0.142015 was $3.45 and $0.18,$5.57, respectively. As of July 31, 2013,2016, there was approximately $227,000$5.0 million of unrecognized non-cash compensation cost related to unvested options, which will be recognized over a weighted average period of 1.281.8 years. The weighted-average fair value of stock options vested during the years ended July 31, 2016 and 2015 was $5.69 and $7.12.

 

Restricted Stock Unit Awards

In March 2016, the Company granted 555,000, 100,000 and 25,000 restricted stock unit awards (or, RSUs) to motivate and retain certain employees, directors and consultants, respectively, under the 2011 Plan. All RSUs vest in full 3 years following the date of grant. The Company’s closing common stock price on the date of issue was $2.02 per share, which is the RSUs fair market value per unit. Stock-based compensation expense related to RSUs for the year end period ended July 31, 2016 was approximately $184,000, approximately $41,000 of which was recorded to research and development and $143,000 was recorded to general and administrative. As of July 31, 2016, 655,000 RSUs are outstanding.

2015 Employee Stock Purchase Plan

The Company’s 2015 ESPP is authorized to issue 500,000 shares of the Company stock. The first offering period of the 2015 ESPP closed at the end of July 2016 and 17,789 shares were purchased by participants at a purchase price of $1.44, which represented a 15% discount off of the Company’s closing stock price at the beginning of the offering period. At July 31, 2016, 482,211 shares are available for issuance under the 2015 ESPP.

Common Stock Reserved for Future Issuance

The following table summarizes common stock reserved for future issuance at July 31, 2016:

Common Stock options outstanding (within the 2011 Plan and outside of the terms of the 2011 Plan)3,263,460
Common Stock reserved for restricted stock unit release655,000
Common Stock authorized for future grant under the 2011 Plan330,408
Common Stock reserved for warrant exercise12,859,286
Commons Stock reserved for future ESSP issuance482,211
Total common stock reserved for future issuance17,590,365

Note 10—8—Income Taxes

 

The FASB Topic on Income Taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company has had no unrecognized tax benefits.

 

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The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had an accrual of $0 and $0 for interest or penalties on the Company’s consolidated balance sheetssheet at July 31, 20132016 and July 31, 2012 respectively,2015 and has not recognized $0 and $0 ofany interest and/or penalties in the consolidated statementsstatement of operations for the yearsyear ended July 31, 20132016 and 2012, respectively.2015.

 

The Company is subject to taxation in the United States, California, New York, North Carolina and California.Washington. The Company’s tax years for 2008 and forward and 2011 and forward are subject to examination by the United States federal tax authorities and California tax authorities, respectively, due to the carry forward of unutilized net operating losses and research and development credits.

 

At July 31, 2013,2016, the Company had federal and California income tax net operating loss carryforwards of approximately $11,989,000$61,202,000 and $11,832,000,$56,349,000, respectively. In addition, the Company has federal and California research and development tax credit carryforwards of approximately $133,000$871,000 and $140,000,$916,000, respectively. The Company also has California Hiring Credits of approximately $9,300. The federal net operating loss, research tax credit carryforwards and California net operating loss carryforwards will begin to expire in 20302027 unless previously utilized. The California research and development credit carryforwards will carry forward indefinitely until utilized.The Company has not completed a study to assess whether an ownership change has occurred, as defined by IRC Section 382/383 or whether there have been multiple ownership changes since the Company’s formation due to the complexity and cost associated with such a study, and the fact that there may be additional such ownership changes in the future. Based on a preliminary assessment, the Company believes that an ownership change occurred in 2011.changes have occurred. The Company estimates that if such a change did occur, the federal and state net operating loss carry-forwards and research and development credits that can be utilized in the future will be significantly limited. There can be no assurance that the Company will ever be able to realize the benefit of some or all of the federal and state loss carryforwards or the credit carryforwards, either due to ongoing operating losses or due to ownership changes, which limit the usefulness of the loss carryforwards.

 

Significant components of the Company’s deferred tax assets as of July 31, 20132016 and 20122015 are listed below (in thousands):below:

 

 

2013

 

2012

 

 2016  2015 

Net operating loss carryforwards

 

4,444,000

 

1,986,000

 

 $23,568,000  $15,460,000 

Credits

 

190,000

 

124,000

 

  1,440,000   1,082,000 

Start-up costs

 

67,000

 

72,000

 

  51,000   56,000 

Accumulated Depreciation

 

450,000

 

282,000

 

  341,000   591,000 

Other

 

253,000

 

129,000

 

  3,850,000   1,691,000 

Net deferred tax assets

 

5,404,000

 

2,593,000

 

  29,250,000   18,880,000 

Valuation allowance for deferred tax assets

 

(5,404,000

)

(2,593,000

)

  (29,250,000)  (18,880,000)

Net deferred taxes

 

$

 

$

 

 $  $ 

 

A valuation allowance of $5,404,000$29,250,000 and $2,593,000$18,880,000 at July 31, 20132016 and 2012,2015, respectively, has been recognized to offset the net deferred tax assets as realization of such assets is uncertain.

 

A reconciliation of incomes taxes using the statutory income tax rate, compared to the effective rate, is as follows:

 

 

2013

 

2012

 

 2016  2015 

Federal tax benefit a the expected statutory rate

 

34.00

%

34.00

%

Federal tax benefit at the expected statutory rate  34.00%  34.00%

State income tax, net of federal tax benefit

 

(0.01

)%

(0.07

)%

  (0.00)%  (0.01)%

Loss on extinguishment of debt

 

(0.00

)%

(11.48

)%

Adjustment to fair value of derivative liabilities

 

0.00

%

63.20

%

Non-deductible expenses

 

(0.08

)%

(6.63

)%

  (2.21)%  (1.34)%

Change in valuation allowance

 

(33.93

)%

(81.58

)%

  (32.83)%  (34.55)%

Other

 

0.00

%

2.45

%

  1.03%  1.89%

Income tax benefit — effective rate

 

(0.02

)%

(0.11

)%

Income tax benefit - effective rate  (0.01)%  (0.01)%

 

Note 11—9—Commitments and Contingencies

 

In the ordinary course of business, the Company may become a party to lawsuits involving various matters. The Company is unaware of any such lawsuits presently pending against it which individually or in the aggregate, are deemed to be material to the Company’s financial condition or results of operations.

On May 12, 2011,Effective November 1, 2015, the Company entered into a one-year12-month lease agreement for office space with ain Campbell, California to support its legal department. The base annual rent of $42,000.  is $2,008 per month.

On June 1, 2012, the Company entered into an amendment to its lease agreement.  The lease amendment extended the lease term for a period of seven months commencing on June 1, 2012, through December 31, 2012.  The amendment also increased the base monthly rent to approximately $10,000.  On December 18, 2012,2014, the Company entered into a second amendment to its lease agreement.  The second amendment extended the lease term for a period of six months commencing on January 1, 2013 through June 30, 2013, with no changes to remaining terms of the lease.

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On May 31, 2013, the Company entered into a thirty-eight month lease agreement for approximately 34,000 rentable square feet located at 5820 Nancy Ridge Drive, San Diego, California to serve as the Company’s new office space, commencingcorporate headquarters and research and development laboratory. The lease term commenced on July 1, 2013.October 19, 2015 and expires 120 months after commencement. The initialCompany has an option to extend the lease for an additional 5 years, if notice is given within 12 months prior to the expiration of the lease term. The Company also has the right to terminate the lease after the expiration of the 84th month after the lease commencement so long as the Company delivers to the landlord a written notice of its election to exercise its termination right no less than 12 months in advance. The lease agreement provides for base monthly rent at $2.65 per rentable square feet, subject to a 3% rate increase on each annual anniversary of the first day of the first full month during the term of the lease agreement. Upon commencement of the lease, 12 months of rent abatement is approximately $8,000, with scheduled annual increases of 3%.  provided. Under the terms of the lease, agreement, the Company receivedis also required to share in certain monthly operating expenses of the premises and in December 2014 the Company delivered a tenant improvement allowancesecurity deposit of approximately $60,000, which$90,000.

Total rent expense for the years ended July 31, 2016 and 2015 was classified as deferred rentapproximately $1.4 million and is being amortized on a straight-line basis over the term of the lease as a reduction to rent expense. Tenant improvements associated with the lease agreement are recorded as an addition to leasehold improvements and are being amortized over the shorter of the estimated useful life of the improvement or the remaining life of the lease.$0.3 million, respectively.

 

At July 31, 2013,2016, future minimum lease payments under the non-cancelable operating leases are approximately as follows:

 

Year Ended July 31, 

 

Operating Lease

 

2014

 

$

86,390

 

2015

 

100,860

 

2016

 

103,891

 

2017

 

8,895

 

Total minimum payments

 

$

300,036

 

Year Ending July 31, Operating Lease 
2017 $959,000 
2018  1,145,000 
2019  1,173,000 
2020  1,208,000 
2021  1,245,000 
Thereafter  5,598,000 
Total minimum payments $11,328,000 

 

On May 18, 2011,March 6, 2015, the Company entered into Employment Agreementstwo research and development services agreements, one with Rev.1 Engineering Inc., (or, Rev.1) and the other with Merlin CSI, LLC (or, Merlin). Each company had been engaged to perform research, development, testing, and regulatory filing services related to an engineering project. During Fiscal 2016, the Company terminated both the Rev.1 and Merlin agreements and no longer has any obligations to either company under their respective agreement. As a termresult of five yearsterminating the Rev.1 agreement, the Company forfeited the remaining deposit with Rev.1, which resulted in the Company recording approximately $0.2 million of expense upon its release of the deposit.

The Company has entered employment agreements with each of its President and Chief Executive Officer, its Chief Business Officer and its Chief Financial Officer, who was then our VP Finance and Controller, (the “Officers”)executive level officers. UnderGenerally, the terms of each agreement are such that if the agreements, if any of the Officers areofficer is terminated other than for cause, death or disability, or if the case of termination of employment with the Company is for good reason,cause, the Officers areofficer shall be entitled to receive (i) severance payments equal to between six and twenty foureither 6 or 12 months of thehis/her then-current annual base salary (ii)plus any accrued bonus and 6 or 12 months of benefits coverage.

On April 15, 2016, the Company and the Company’s former Chief Scientific Officer (or, CSO) entered into a pro rata percentageseparation, release and consulting agreement, in which the CSO would voluntarily resign from the Company on June 18, 2016 and become a consultant of the annual bonus received the prior fiscal year and (iii) payment of health benefits for a period between six and twenty four months, conditioned on the execution of a release.  In addition, in the event of a change in controlCompany. The terms of the Company, the agreements provide for the acceleration of vesting of any unvested stock options outstanding.  Effective April 26, 2012, as a result ofagreement afforded no severance pay related to the termination of employmentemployment; however, the terms of the Company’s Chief Business Officer and his executionagreement provide for a fee of $30,000 per month for consulting services. The consulting agreement will terminate automatically on June 18, 2017, unless renewed by a release,written agreement of both parties or earlier terminated as provided within the agreement. On the date of termination of employment, the Company recorded a severance liability of $220,000$360,000 in its balance sheet as the consulting services to be performed are not substantive and the offsetting charge was recorded in research and development as other outside service fees. As of July 31, 2016, the Company has paid $30,000 against the liability.

On December 27, 2015, the Company and the Company’s former Chief Medical Officer (or, CMO) entered into a separation and release agreement pursuant to which the Company agreed to pay the former CMO $286,000, less applicable withholdings, in the form of salary continuation in accordance with the termsCompany’s customary payroll practices. In addition, the CMO would be eligible to receive a bonus for calendar year 2015, should the Company’s Board of Directors or Compensation Committee thereof choose to grant discretionary bonuses to the Employment AgreementCompany’s officers. At the separation date, the Company recorded a liability of $286,000 in its balance sheet and the offsetting charge was recorded in research and development as salary expense. As of July 31, 2016, the Company has paid approximately $150,000 against the liability and no bonuses were granted or paid related to calendar 2015.

On June 24, 2015, the Company and the Company’s former Chief Financial Officer (or, CFO) entered into a separation release.  On August 2, 2013,and release agreement pursuant to which the Employment AgreementCompany agreed to pay the former CFO $309,833, less applicable withholdings, in the form of salary continuation in accordance with the Company’s Chief Financial Officer was amendedcustomary payroll practices and a pro rata bonus for fiscal year 2015 equal to increase (i) the severance payment in the event of termination$35,100. The Company agreed to equal pay for 12 months instead of six monthsbenefits coverage and accelerated the vesting of the Chief Financial Officer’s annual base salary at the time31,586 stock options as of the termination, and (ii) the period for which the Company will pay for applicable premium costs for continued group health plan coverage to 12 months instead of six months following the date of termination and to extend the termination, subjectexercise period for one year post-termination for all vested stock options. The Company accounted for the stock option modification pursuant to ASC Topic 718. Based on a Black-Scholes Option Pricing Model (assuming a term of 1 year, no dividend yield, volatility of 74.61% and a risk free interest rate of .30%), the Company recorded at July 31, 2015 approximately $41,000 of additional stock-based compensation expense in each caseits statement of operations related to the termsstock option modification. The additional stock-based compensation was categorized as general and administrative expense. At July 31, 2015, the Company recorded a liability of approximately $354,000 in its balance sheet and the Employment Agreement.offsetting charge was recorded in general and administrative as salary expense. As of July 31, 2016, all monetary obligations have been paid in full and all related options have terminated as they were not exercised during the post-termination period.

Note 10—401(k) Plan

 

Effective May 15, 2012, the Company adopted a defined contribution savings plan pursuant to Section 401(k) of the Internal Revenue Code. The plan is for the benefit of all qualifying employees and permits voluntary contributions by employees up to 100% of eligible compensation, subject to the Internal Revenue Service imposed maximum limits. The terms of the plan allowsallow for discretionary employer matching contributions. No employer matchingThe Company currently matches 100% of its employees’ contributions, were made duringup to 3% of their annual compensation. The Company’s contributions are recorded as expense in the accompanying statement of operations and totaled approximately $236,000 and $133,000 for the years ended July 31, 20132016 and 2012.2015, respectively.

 

Note 12—Related Party Transactions11—Quarterly Financial Data (Unaudited)

 

The Company’s Chairmanfollowing financial information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the Board of Directors is also a director and the Chairman (formerly Executive Chairman) of Inovio.  The Company’s Chairman abstained from all discussions and voting related to negotiationsresults of the Asset Purchase Agreement disclosed in Note 5interim periods. Summarized quarterly data for fiscal 2016 and the amendments (and related warrants) disclosed in Notes 6 and 8, while performing his duties2015 are as Executive Chairman of Inovio.follows:

 

Note 13 — Subsequent Events

  Year ended July 31, 2016 
  1st  2nd  3rd  4th 
  Quarter  Quarter  Quarter  Quarter 
Selected quarterly financial data:                
Revenue $  $  $  $ 
Loss from operations  (7,035,219)  (7,037,720)  (6,251,119)  (6,561,994)
Net loss $(7,037,391) $(7,037,720) $(6,251,409) $(6,561,994)
Net loss applicable to common stockholders $(7,037,391) $(7,037,720) $(6,251,409) $(6,561,994)
Basic and diluted net loss per share $0.47  $0.42  $0.37  $0.39 

  Year ended July 31, 2015 
  1st  2nd  3rd  4th 
  Quarter  Quarter  Quarter  Quarter 
Selected quarterly financial data:                
Revenue $  $  $  $ 
Loss from operations  (4,060,206)  (4,618,237)  (5,986,286)  (6,576,413)
Net loss $(4,061,116) $(4,618,237) $(5,987,345) $(6,576,413)
Net loss applicable to common stockholders $(4,061,116) $(4,618,237) $(5,987,345) $(6,576,413)
Basic and diluted net loss per share (1) (2) $0.33  $0.38  $0.48  $0.48 

 

On September 18, 2013, the Company closed the September 2013 Public Offering and issued an aggregate of 47,792,000 shares of its common stock and warrants to purchase an aggregate of 23,896,000 shares of common stock for gross proceeds of approximately $11.95 million. The warrants have an exercise price of $0.35

(1) Loss per share are exercisable immediately upon issuance and have a term of exercise equal to four years from the date of issuanceis computed independently for each of the warrants. After deducting for fees and expenses,quarters presented.

Therefore, the aggregate net proceeds to the Company from the salesum of the commonquarterly net loss per share will not necessarily equal the total for the year.

(2) Recast to account for the 1-for-20 reverse stock and the warrants in the September 2013 Public Offering were approximately $11.1 million.split effected May 2015.

In connection with the offering, the Company paid placement agent fees of (i) a cash fee equal to 6% of the gross proceeds of the offering, as well as a non-accountable expense allowance equal to 1% of the gross proceeds and (ii) warrants to purchase up to an aggregate of 5% of the aggregate number of shares of common stock sold in the offering, or 2,389,600 shares of our common stock (the “September 2013 Placement Agent Warrants”).  The September 2013 Placement Agent Warrants have substantially the same terms as the warrants issued to the purchasers in the offering, except that such warrants have an exercise price of $0.3125 and expire on September 13, 2018.

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EXHIBIT INDEX

 

The following exhibits are being filed with this Annual Report on Form 10-K.

 

Exhibit
Number

Description of Exhibit

3.1

3.1Certificate of Incorporation of Netventory Solutions, Inc. (incorporated by reference to our Registration Statement on Form S-1, filed on September 3, 2008)

3.2

Amended and Restated Bylaws (incorporated by reference to our Current Report on Form 8-K, filed on March 6, 2012)

3.3

Articles of Merger dated February 9, 2011 (incorporated by reference to our Current Report on Form 8-K, filed on March 3, 2011)

3.4

Certificate of Change dated February 9, 2011 (incorporated by reference to our Current Report on Form 8-K, filed on March 3, 2011)

3.5

Certificate of Correction dated March 9, 2011 (incorporated by reference to our Current Report on Form 8-K, filed on March 14, 2011)

10.1*

3.6

Certificate of Change dated May 12, 2015 (incorporated by reference to our Current Report on Form 8-K, filed on May 15, 2015)

10.1*Asset Purchase Agreement, dated March 14, 2011, by and between OncoSec Medical Incorporated and Inovio Pharmaceuticals, Inc. (incorporated by reference to our Quarterly Report on Form 10-Q, filed on June 14, 2011)

10.2*

Cross-License Agreement, dated March 24, 2011 by and between OncoSec Medical Incorporated and Inovio Pharmaceuticals, Inc. (incorporated by reference to our Quarterly Report on Form 10-Q, filed on June 14, 2011)

10.3#

Employment Agreement with Punit Dhillon dated May 18, 2011 (incorporated by reference to our Quarterly Report on Form 10-Q, filed on June 14, 2011)

10.4#

Employment Agreement with Veronica Vallejo dated May 18, 2011 (incorporated by reference to our Quarterly Report on Form 10-Q, filed on June 14, 2011)

10.5#

Amendment No. 1 to Employment Agreement, dated August 2, 2013, by and between OncoSec Medical Incorporated and Veronica Vallejo (incorporated by reference to our Current Report on Form 8-K, filed on August 8, 2013)

10.6

10.6#

2014 Stock Option Award Agreement, dated March 7, 2014, by and between the Company and Punit Dhillon (incorporated by reference to our Current Report on From 8-K, filed on March 13, 2014)

10.7#2014 Stock Option Award Agreement, dated March 7, 2014, by and between the Company and Veronica Vallejo (incorporated by reference to our Current Report on From 8-K, filed on March 13, 2014)
10.8#Executive Employment Agreement, dated December 11, 2013, by and between the Company and Robert Pierce (incorporated by reference to our Current Report on From 8-K, filed on December 17, 2013)
10.9#Inducement Stock Option Award Agreement, dated December 11, 2013, by and between the Company and Robert Pierce (incorporated by reference to Exhibit A to the Executive Employment Agreement filed as Exhibit 10.8 hereto)
10.10#Executive Employment Agreement, dated September 16, 2014, by and between the Company and Mai Hope Le (incorporated by reference to our Current Report on Form 8-K, filed on September 19, 2014)
10.11#Form of Private Placement SubscriptionIndemnification Agreement (incorporated by reference to our Current Report on Form 8-K, filed on March 24, 2011)

October 29, 2015)
10.12#Executive Employment Agreement and Inducement Stock Option Award Agreement, effective July 6, 2015, by and between the Company and Richard Slansky (incorporated by reference to our Quarterly Report on Form 10-Q, filed on December 8, 2015)

 

Exhibit NumberDescription of Exhibit
10.13#

Form of Executive Employment Agreement, effective November 1, 2015, by and between the Company and Sheela Mohan-Peterson (incorporated by reference to our Quarterly Report on Form 10-Q, filed on December 8, 2015)

 

10.7

10.14#

Separation and Release Agreement, effective December 31, 2015, by and between the Company and Mai Hope Le, MD (incorporated by reference to our Current Report on Form 8-K, filed on December 29, 2015)

10.15#Separation and Release Agreement, effective June 18, 2016, by and between the Company and Robert Pierce, MD (incorporated by reference to our Current Report on Form 8-K, filed on April 15, 2016)
10.16#Form of ShareExecutive Employment Agreement and Inducement Stock Option Award Agreement, effective September 1, 2016, by and between the Company and Sharron Gargosky, PhD (incorporated by reference to our Current Report on Form 8-K, filed September 6, 2016)
10.17Form of Securities Purchase Agreement, dated as of June 3, 2015, by and among the Company and the purchaser identified on the signature pages thereto (incorporated by reference to our Current Report on Form 8-K, filed on June 4, 2015)
10.18Sponsored Research Agreement, dated as of June 4, 2013 by and among OncoSec Medical Incorporated, Old Dominion University and The Frank Reidy Research Center for Bioelectrics (incorporated by reference to our Quarterly Report on Form 10-Q, filed December 16, 2013)
10.19Form of Common Stock Purchase Warrant (incorporated by reference to our Current Report on Form 8-K, filed on March 24, 2011)

June 5, 2014)

10.8

10.20

Securities Purchase Agreement, dated June 21, 2011, by and among OncoSec Medical Incorporated and the purchasers identified therein (incorporated by reference to our Registration Statement on Form S-1/A, filed on September 6, 2011, File No. 333-175779)

10.9

Form of Registration Rights Agreement, dated June 24, 2011, by and among OncoSec Medical Incorporated and the purchasers identified therein (incorporated by reference to our Current Report on Form 8-K, filed on June 27, 2011)

10.10

Placement Agent Agreement between Rodman & Renshaw and OncoSec Medical Incorporated dated June 1, 2011, as amended on June 21, 2011 (incorporated by reference to our Registration Statement on Form S-1/A, filed on October 11, 2011, File No. 333-175779)

10.11

Consulting Agreement between Vista Partners LLC and OncoSec Medical Incorporated dated April 27, 2011, as amended on June 6, 2011 (incorporated by reference to our Registration Statement on Form S-1/A, filed on September 6, 2011, File No. 333-175779)

10.12

Amendment to Asset Purchase Agreement, dated September 28, 2011 by and between OncoSec Medical Incorporated and Inovio Pharmaceuticals, Inc. (incorporated by reference to our Current Report on Form 8-K, filed on October 3, 2011)

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10.13

Form of Series A Warrant (incorporated by reference to our Current Report on Form 8-K, filed on June 27, 2011)

10.14

10.21

Form of Series B Warrant (incorporated by reference to our Current Report on Form 8-K, filed on June 27, 2011)

10.15

Form of Series C Warrant (incorporated by reference to our Current Report on Form 8-K, filed on June 27, 2011)

10.16

ShareCommon Stock Purchase Warrant (incorporated by reference to our Current Report on Form 8-K, filed on October 3, 2011)

10.17

10.22

Placement Agent Agreement between Rodman & Renshaw and OncoSec Medical Incorporated, dated January 23, 2012 (incorporated by reference to our Registration Statement on Form S-1, filed on January 24, 2012, File No. 333-179146)

10.18

Amendment Agreement to Placement Agent Agreement between Rodman & Renshaw and OncoSec Medical Incorporated, dated March 12, 2012 (incorporated by reference to our Registration Statement on Form S-1/A, filed on March 12, 2012, File No. 333-179146)

10.19

Form of Common Stock Purchase Warrant (incorporated by reference to our Current Report on Form 8-K, filed on March 29, 2012)

10.20

10.23

Securities Purchase Agreement, dated March 23, 2012, by and among Oncosec Medical Incorporated and each purchaser identified on the signature pages thereto (incorporated by reference to our Current Report on Form 8-K, filed on March 29, 2012)

10.21

Second Amendment to Asset Purchase Agreement, dated March 24, 2012, by and between OncoSec Medical Incorporated and Inovio Pharmaceuticals, Inc. (incorporated by reference to our Current Report on Form 8-K, filed on March 29, 2012)

10.22

10.24

Common Stock Purchase Warrant (issued to Inovio Pharmaceuticals on March 24, 2012) (incorporated by reference to our Current Report on Form 8-K, filed on March 29, 2012)

10.23

10.25

Placement Agent Agreement, dated November 16, 2012, between Dawson James Securities, Inc. and OncoSec Medical Incorporated (incorporated by reference to our Registration Statement on Form S-1/A, filed on November 19, 2012, File No. 333-183544)

10.24

Form of Securities Purchase Agreement (incorporated by reference to our Current Report on Form 8-K, filed on December 19, 2012)

10.25

Form of Common Stock Purchase Warrant (incorporated by reference to our Current Report on Form 8-K, filed on December 19, 2012)

10.26

10.26#

Standard Industrial Lease, dated May 31, 2013, by and between OncoSec Medical Incorporated and H.G. Fenton Property Company (incorporated by reference to our Current Report on Form 8-K, filed on June 6, 2013)

10.27#

OncoSec Medical Incorporated 2011 Stock Incentive Plan, as amended and restated (incorporated by reference to our Registration Statement on Form S-8, filed on August 29, 2011,July 28, 2014, File No. 333-176537)

333-197678)

10.28#

10.27

Amendment No. 1 to the OncoSec Medical Incorporated 2011 Stock Incentive Plan (incorporated by reference to our Registration Statement on Form S-8, filed on May 21, 2013, File No. 333-188726)

10.29

Securities Purchase Agreement, dated September 16, 2013, by and among Oncosec Medical Incorporated and the purchasers party thereto (incorporated by reference to our Current Report on Form 8-K, filed on September 19, 2013)

10.30

Form of Common Stock Purchase Warrant (incorporated by reference to our Current Report on Form 8-K, filed on September 19, 2013)

10.31

10.28

Placement AgentLease Agreement, dated August 16, 2013,December 31, 2014, by and between the Company and ARE-SD Region No. 18, LLC (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K, filed on January 2, 2015)

10.29Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K, filed on June 4, 2015)

Exhibit NumberOncoSec Medical IncorporatedDescription of Exhibit
10.30Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K, filed on November 5, 2015)
10.31Securities Purchase Agreement, dated as of November 3, 2015, by and among the Company and signatories thereto (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K, filed on November 5, 2015)
10.32Placement Agency Agreement, dated as of November 3, 2015, by and between the Company and H.C. WainwrightWainright & Co., LLC (incorporated by reference to Exhibit 10.2 of our Registration StatementCurrent Report on Form S-1/A,8-K, filed on August 16, 2013, File No. 333-189516)

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10.32

Amendment to Placement Agent Agreement, dated September 11, 2013, by and between OncoSec Medical Incorporated and H.C. Wainwright & Co., LLC (filed herewith)

November 5, 2015)

21.1

10.33

SubsidiariesForm of the registrantSeries A Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 of our Registration StatementCurrent Report on Form S-1,8-K, filed on July 25, 2011, File No. 333-175779)

May 24, 2016)

23.1

10.34

Form of Series B Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 of our Current Report on Form 8-K, filed on May 24, 2016)

10.35Securities Purchase Agreement, dated as of May 22, 2016, by and among the Company and signatories thereto (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K, filed on May 24, 2016)
10.36Placement Agency Agreement, dated as of May 22, 2016, by and between the Company and H.C. Wainright & Co., LLC (incorporated by reference to Exhibit 10.2 our Current Report on Form 8-K, filed on May 24, 2016)
23.1Consent of Independent Registered Public Accounting Firm, Mayer Hoffman McCann P.C.

31.1

Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934

31.2

Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS++

101.INS

XBRL Instant Document

101.SCH++

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL++

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF++

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB++

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE++

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 


# Management contract or compensatory plan or arrangement.

* Confidential treatment has been granted or requested with respect to portions of this exhibit pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 and these confidential portions have been redacted from the filing that is incorporated by reference. A complete copy of this exhibit, including the redacted terms, has been separately filed with the Securities and Exchange Commission.

++ Furnished herewith.  In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report on Form 10-K shall be deemed to be “furnished” and not “filed.”

 

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