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IMUC > SEC Filings for IMUC > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for IMMUNOCELLULAR THERAPEUTICS, LTD. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for IMMUNOCELLULAR THERAPEUTICS, LTD.


9-Nov-2012

Quarterly Report


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

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

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements, which reflect the views of our management with respect to future events and financial performance. These forward-looking statements are subject to a number of uncertainties and other factors that could cause actual results to differ materially from such statements. Forward-looking statements are identified by words such as "anticipates," "believes," "estimates," "expects," "plans," "projects," "targets" and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on the information available to management at this time and which speak only as of this date. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a discussion of some of the factors that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information under the heading "Risk Factors" in Item 1A of Part II of this Quarterly Report on Form 10-Q. The identification in this Quarterly Report of factors that may affect future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

Overview

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

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

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

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

Plan of Operation

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


Since our company's inception on February 25, 2004, we have been primarily engaged in the acquisition of certain intellectual property, together with the recent clinical testing activities for one of our vaccine product candidates, and have not generated any recurring revenues. As a result, we have incurred operating losses and, as of September 30, 2012, we had an accumulated deficit of $43,652,570. We expect to incur significant research, development and administrative expenses before any of our products can be launched and recurring revenues, if ever, are generated.

Critical Accounting Policies

Management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to impairment of long-lived assets, including finite lived intangible assets, accrued liabilities and certain expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

Our significant accounting policies are summarized in Note 2 of our financial statements for the period from February 25, 2004 to September 30, 2012. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:

Development Stage Enterprise

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

Research and Development Costs

Although we believe that our research and development activities and underlying technologies have continuing value, the amount of future benefits to be derived from them is uncertain. Research and development costs are therefore expensed as incurred rather than capitalized. During the nine months ended September 30, 2012 and 2011, we recorded an expense of $6,567,086 and $3,016,562, respectively, related to research and development activities.

Stock-Based Compensation

We recognize in our condensed consolidated financial statements the cost resulting from all share-based compensation transactions, including grants of stock options and restricted stock awards, based on their fair values on the measurement date, and recognized over the vesting period in accordance with FASB ASC Topic 718, "Compensation-Stock Based." We use the Black-Scholes option pricing model to estimate the value of our options. Our assessment of the estimated compensation charges will be affected by our stock price as well as assumptions regarding a number of subjective variables and the related tax impact. These variables include, but are not limited to, our stock price volatility, forfeiture rates and employee stock option exercise behaviors (or expected term).

Results of Operations

Three months ended September 30, 2012 and 2011

Revenues

We had no revenues during the three months ended September 30, 2012 and 2011. We do not expect to generate any operating revenues during 2012.


Expenses

General and administrative expenses for the three months ended September 30, 2012 and 2011 were $1,004,181 and $634,241, respectively. The increase in expenses reflects the expansion of our infrastructure during the latter half of 2011 including the hiring of additional personnel. Additionally, we incurred additional expenses in the areas of investor relations, travel, professional fees and listing fees for the NYSE MKT.

Research and development expenses for the three months ended September 30, 2012 and 2011 were $2,378,917 and $1,241,165, respectively. During the three months ended September 30, 2011, we enrolled a total of 39 patients in our ICT-107 Phase II clinical trial and had a total of 53 patients enrolled on a cumulative basis as of September 30, 2011. During the three months ended September 30, 2012, we completed our enrollment by enrolling 39 new patients thereby bringing the total number of patients enrolled to 278. During the three months ended September 30, 2012, we incurred certain expenses associated with the development of ICT-121, to treat solid tumors including glioblastoma multiforme and ICT-140, to treat ovarian cancer.

We had $45,330 of non-cash expenses during the three months ended September 30, 2012, consisting of $33,887 of stock based compensation and $11,443 of depreciation expense. During the three months ended September 30, 2012, we recorded $2,777,500 of other income related to the decrease in the fair value of our warrant liabilities. We had $329,979 of non-cash expenses for the three months ended September 30, 2011, consisting of $324,283 of stock based compensation and $5,696 of depreciation expense. During the three months ended September 30, 2011, we recorded $2,286,478 of other income related to the decrease in the fair value of our warrant liabilities.

Overall results

We incurred a net loss of $637,627 for the three months ended September 30, 2012, compared to net income of $87,912 during the same period of 2011. During the three months ended September 30, 2011, our overall results of operations benefited from $2,286,478 reduction in the warrant liability.

Nine months ended September 30, 2012 and 2011

Revenues

We had no revenues during the nine months ended September 30, 2012 and 2011. We do not expect to generate any operating revenues during 2012.

Expenses

General and administrative expenses for the nine months ended September 30, 2012 and 2011 were $2,647,301 and $1,767,852, respectively. The increase in expenses reflects the expansion of our infrastructure during the latter half of 2011 including the hiring of additional personnel. Additionally, we incurred additional expenses in the areas of investor relations, travel, professional fees and listing fees for the NYSE MKT.

Research and development expenses for the nine months ended September 30, 2012 and 2011 were $6,567,086 and $3,016,562, respectively. During the nine months ended September 30, 2011, we enrolled a total of 53 patients in our ICT-107 Phase II clinical trial and had a total of 53 patients enrolled on a cumulative basis as of September 30, 2011. During the nine months ended September 30, 2012, we completed our enrollment by enrolling 39 new patients thereby bringing the total number of patients enrolled to 278. Additionally, during the nine months ended September 30, 2012 we brought two manufacturing facilities online and have a total of 25 Phase II trial clinical sites that are operational. During the three months ended September 30, 2012, we incurred certain expenses associated with the development of ICT-121, to treat solid tumors including glioblastoma multiforme and ICT-140, to treat ovarian cancer.

The warrants issued as part of the February 2011 financing contained a provision whereby the exercise price of those warrants, and the number of underlying warrants, would be adjusted in the event that we subsequently sold shares of our common stock at a price that was less than $1.55 per share. As part of the January 2012 financing, we sold shares of its common stock at a price that was less than $1.55 per share and the exercise price of the February 2011 warrants was decreased from $2.25 to $1.90 and the number of warrants outstanding was increased by 519,174. We recorded a non-cash financing expense charge of $368,524 during the nine months ended September 30, 2012 to account for the issuance of these additional warrants. There was no comparable charge during the nine months ended September 30, 2012.


During the nine months ended September 30, 2012, we incurred $5,435,166 of non-cash expenses, consisting of $382,611 of stock based compensation, $5,018,224 of change in fair value of warrant derivatives and $34,331 of depreciation expense. The change in fair value of warrant derivative is highly influenced by the price of our Company's common stock as of September 30, 2012. As of September 30, 2012, the price of our common stock increased to $2.81 per share. During the nine months ended September 30, 2011, we incurred $971,833 of non-cash expenses consisting of $958,121 of stock based compensation and $13,712 of depreciation expense. During the nine months ended September 30, 2011, we recorded $1,517,583 of other income related to the decrease in the fair value of our warrant liabilities.

Loss

We incurred a net loss of $14,978,879 and $4,221,184 for the nine months ended September 30, 2012 and 2011, respectively.

Liquidity and Capital Resources

As of September 30, 2012, we had working capital of $8,530,629, compared to working capital of $4,983,165 as of December 31, 2011.

The estimated cost of completing the development of either of our current vaccine product candidates and of obtaining all required regulatory approvals to market either of those product candidates is substantially greater than the amount of funds we currently have available. However, we believe that our existing cash balances, plus the proceeds from our October 2012 underwritten public offering, will be sufficient to fund our operations for the next twelve months, although there is no assurance that such proceeds will be sufficient.

We do not have any bank credit lines. In October 2012, we completed an underwritten public offering in which we issued 10 million shares of our common stock at a price of $2.10 per share and five-year warrants to purchase 4.5 million shares of our common stock with an exercise price of $2.65 per share. We expect the net proceeds from this offering to be approximately $19.3 million. In January 2012, we completed a $9,271,370 underwritten public offering of 9,489,436 units at a price of $1.10 per unit. Each unit consists of one share of stock and a warrant to purchase 0.5 of a share of our common stock at an exercise price of $1.41 per share. In February 2011, we completed an $8,090,644 private placement, before commissions and costs, of 5,219,768 units at a price of $1.55 per unit, with each unit consisting of one share of our common stock and a warrant to purchase 0.5 of a share of our common stock at an exercise price of $2.25 per share. We may also in the future seek to obtain funding through strategic alliances with larger pharmaceutical or biomedical companies. We cannot be sure that we will be able to obtain any additional funding from either financings or alliances, or that the terms under which we may be able to obtain such funding will be beneficial to us. If we are unsuccessful or only partly successful in our efforts to secure additional financing, we may find it necessary to suspend or terminate some or all of our product development and other activities.

As of September 30, 2012, we had no long-term debt obligations, no capital lease obligations, or other similar long-term liabilities. We have various purchase commitments for sponsored research and license fees. We have no financial guarantees, debt or lease agreements or other arrangements that could trigger a requirement for an early payment or that could change the value of our assets, and we do not engage in trading activities involving non-exchange traded contracts.

The following is a summary of our contractual obligations as of September 30, 2012:

                                                        2013 to        2014 to      Beyond
                                          2012           2014           2015         2015
   Unconditional purchase obligations     236,228       1,164,334       422,457          -
   Operating lease obligation              13,230          26,460            -           -

Cash Flows

We used $9,187,583 of cash in our operations for the nine months ended September 30, 2012, compared to $4,599,062 for the nine months ended September 30, 2011. During the nine months ended September 30, 2012, we greatly expanded our research and development activities, hired additional personnel, expanded our investor


relations programs and obtained a listing on NYSE MKT. Additionally, we expanded our manufacturing activities, purchased the rights to key antigens and initiated efforts to expand our intellectual property portfolio. We also incurred greater non-cash expenses consisting primarily of a valuation adjustment to our warrant liabilities of $5,018,224. During the nine months ended September 30, 2012 we recognized non-cash expense of $5,018,224 related to the valuation adjustment to our warrant liabilities. Additionally, during the nine months ended September 30, 2012, we recorded a non-cash financing expense of $368,524 related to the issuance of additional warrants triggered by the January 2012 stock issuance.

We used $5,668 of cash from our investing activities for the nine months ended September 30, 2012 to acquire office equipment. During the nine months ended September 30, 2011, we purchased $65,108 of machinery to support our research and development activities.

During the nine months ended September 30, 2012, we received net proceeds of $9,371,370, from the issuance of common stock and warrants and we received $3,153,852 of proceeds from the exercise of warrants. During the nine months ended September, 2011, we received net proceeds of $7,460,129 from the issuance of common stock and warrants. Additionally, during the nine months ended September 30, 2011, we received $382,680 from the exercise of stock options and we received $53,018 from payments received on a promissory note receivable.

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

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