Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
1—Nature of Operations and Basis of Presentation
OncoSec
Medical Incorporated (together with its subsidiary, unless the context indicates otherwise, being collectively referred to as the “Company”)
began its operations as a biotechnology company in March 2011. The Company has not generated any revenues since its inception. The Company
was incorporated in the State of Nevada on February 8, 2008 under the name of Netventory Solutions, Inc. and changed its name to OncoSec
Medical Incorporated in March 2011 when it began operating as a biotechnology company.
The
Company is a late-stage immuno-oncology company focused on designing, developing and commercializing innovative, proprietary, intra-tumoral
DNA-based therapeutics delivered by electroporation (“EP”) to stimulate and augment anti-tumor immune responses for the treatment
of cancers. Its core technology, ImmunoPulse®, is a drug-device therapeutic modality platform comprised of a proprietary OncoSec
Medical System EP device (the “OMS EP Device”) and a proprietary DNA plasmid delivery and application method that enables
transient expression of recombinant therapeutic molecules in cells. The OMS EP Device is designed to promote cellular uptake of plasmid
DNA injected directly into solid tumors to allow subsequent expression of the encoded therapeutic protein. The OMS EP Device can be adapted
to treat different tumor types, and consists of an electrical pulse generator and disposable applicator. The Company’s lead product
candidate is a plasmid encoding interleukin-12 (“IL-12”) called tavokinogene telseplasmid (“TAVO™”). The
OMS EP Device is used to deliver TAVO™ into cells in tumor lesions, with the aim of overcoming the immunosuppressive microenvironment
in the treated tumor and elicit systemic tumor-specific immune responses in cancer patients. Activation of an appropriate anti-tumor
inflammatory response in the treated lesion can drive the immune system to mount a systemic anti-tumor response against untreated tumors
in other parts of the body. In 2017, the Company received Fast Track Designation and Orphan Drug Designation from the U.S. Food and Drug
Administration (“FDA”) for TAVO™ in metastatic melanoma, which could qualify TAVO™-EP for expedited FDA review,
a rolling Biologics License Application (“BLA”) review and certain other benefits to achieve faster registration of a therapeutic
product.
The
Company’s primary focus is to pursue its study of TAVO™-EP in combination with KEYTRUDA® (pembrolizumab) in melanoma.
In October 2022, due to its financial position, the Company decreased all clinical activity outside of its melanoma clinical pipeline,
including trials and studies involving triple negative breast cancer (“TNBC”) and squamous cell carcinoma of the head and
neck.
The
Company’s KEYNOTE-695 clinical trial is a registration-directed, Phase 2b open-label, non-randomized, multicenter trial in
approximately 100 patients treated with TAVO™-EP in combination with KEYTRUDA® in anti-PD-1 checkpoint inhibitor
(nivolumab or pembrolizumab) relapsed or refractory metastatic melanoma. The KEYNOTE-695 clinical trial is being conducted in the
United States, Canada, Australia and Europe. In May 2017, the Company entered into a clinical trial collaboration and supply
agreement with a subsidiary of Merck & Co., Inc. (“Merck”) in connection with the KEYNOTE-695 trial. Pursuant to the
terms of the agreement, each company will bear its own costs related to manufacturing and supply of its product, as well as its own
internal costs. The Company is the trial sponsor and is responsible for external costs. The trial completed enrollment of Cohort 1
in December 2020. In December 2020, the protocol was amended to include an additional cohort, consisting of patients who were
exposed to prior treatment with ipilimumab and progressed on prior anti-PD-1 checkpoint inhibitor. The amendment also enabled
enrollment of approximately 25 additional patients to be treated with an updated version of the OMS EP Device (i.e., GenPulseTM generator
and Series 3 Applicator), in preparation for potentially seeking FDA approval. Database lock for the 105 patients enrolled in Cohort
1 was in October 2022. The final data analysis of the key secondary endpoints, including objective response rate by investigator,
was announced in November 2022, and the final data analysis of the primary endpoint, objective response rate (ORR) by blinded
independent central review (BICR) is expected to be available during the first calendar quarter of 2023.
The
Company’s KEYNOTE-890 clinical trial is a Phase 2, open-label, non-randomized, multicenter trial conducted in the United States
and Australia to evaluate the safety and efficacy of TAVO™-EP in combination with KEYTRUDA® in patients with inoperable locally
advanced or metastatic TNBC who have previously failed at least one systemic chemotherapy or immunotherapy (Cohort 1) or TAVO™-EP
in combination with KEYTRUDA® and chemotherapy in patients with inoperable locally advanced or metastatic TNBC who have had no prior
systemic therapy in the advanced or metastatic setting (Cohort 2).
In
May 2018, the Company entered into a second clinical trial collaboration and supply agreement with a subsidiary of Merck with respect
to the KEYNOTE-890 trial, Cohort 1. Pursuant to the terms of the agreement, each company will bear its own costs related to manufacturing
and supply of its product, as well as its own internal costs. The Company is the trial sponsor and is responsible for external costs.
In June 2020, the Company amended its second clinical trial collaboration and supply agreement to include KEYNOTE-890, Cohort 2, for
the frontline treatment of patients with inoperable locally advanced or metastatic TNBC with the combination of TAVO-EP, KEYTRUDA, and
chemotherapy. Enrollment of Cohort 1 (26 patients) was completed in December 2020. Interim data for Cohort 1 was initially presented
at the San Antonio Breast Cancer Symposium (“SABCS”) in December 2019, and an update on this cohort was presented at the
SABCS in December 2021. Enrollment of Cohort 2 (target 40 patients) began in January 2021. Enrollment to Cohort 2 has been closed as
of October 2022; the Company has deferred further development of TAVO™-EP for the treatment of TNBC in order to focus its efforts
and resources on the ongoing development of TAVO™-EP in melanoma.
In
August 2020, the Company supported commencement of an investigator-initiated Phase 2 clinical trial conducted by the H. Lee Moffitt
Cancer Center and Research Institute and the University of South Florida Morsani College of Medicine to evaluate TAVO™-EP as
neoadjuvant treatment (administered before surgery) in combination with intravenous OPDIVO® (nivolumab) in up to 33 patients
with operable locally/regionally advanced melanoma. This trial has been designed to evaluate whether the addition of TAVO™-EP
can increase the complete pathological response rate observed with monotherapy OPDIVO®, an anti-PD-1 checkpoint inhibitor, in
patients with locally/regionally advanced melanoma prior to surgical resection of tumors. This trial began enrolling patients in
December 2020. Enrollment for this trial is expected to be completed in calendar year 2023. Preliminary data from this trial was
presented at an international medical conference, the Society for Immunotherapy of Cancer (SITC), in November 2022.
In
November 2020, the Company obtained an exclusive license to the Cliniporator® electroporation gene electrotransfer platform from
IGEA Clinical Biophysics. This platform has been used for electrochemotherapy in and outside of Europe in over 200 major oncological
centers to treat cutaneous metastatic cancer nodules, including melanoma. The license encompasses a broad field of use for gene delivery
in oncology, including use as part of the Company’s Visceral Lesion applicator (“VLA”) program. The Company may continue
to pursue potential new trials and studies related to TAVO™-EP, in various tumor types.
The
VLA is intended and may be designed to work with low voltage EP generators, including but not limited to the Company’s proprietary
APOLLO™ EP generator and Cliniporator®, and it is expected to enable transfection of immunologically relevant genes into cells located
in visceral primary or metastatic tumor lesions. For example, the Company may develop this proprietary technology to treat liver, lung,
bladder, pancreatic and other difficult to treat visceral lesions. In early 2020, the Company presented early preclinical data pertaining
to visceral delivery of plasmid-based therapeutics at meeting of the Society for Interventional Oncology and the Society for Interventional
Radiology, and the Company has since successfully completed several animal studies to assess the VLA. The Company has deferred further
development of the VLA in order to focus its efforts and resources on the ongoing development of TAVO™-EP in melanoma.
Restructuring Plan
On October 2, 2022, the Company’s Board of Directors
authorized a restructuring plan (the “Restructuring Plan”) that is designed to prioritize clinical activities in melanoma
to reduce operating expenses while advancing the Company’s lead product candidate, TAVO™ EP, toward near-term data milestones
in connection with the KEYNOTE-695 clinical trial. As part of the Restructuring Plan, the Company restructured its internal operations
and reduced its workforce by approximately 45%, or 17 employees.
The Company currently estimates that it will incur
charges of approximately $750,000 to $800,000 in connection with the Restructuring Plan, consisting primarily of cash expenditures for
employee transition, notice period and severance payments, retention bonus payments, and related costs. The Company expects that the majority
of the restructuring charges will be incurred in the fourth calendar quarter of 2022 and first calendar quarter of 2023, and that the
execution of the Restructuring Plan will be substantially complete by the second calendar quarter of 2023.
The charges that the Company expects to incur in connection
with the Restructuring Plan are estimates and subject to a number of assumptions, and actual results may differ materially. The foregoing
estimated amounts do not include any non-cash charges associated with stock-based compensation. The Company expects to operationalize
additional cost reduction actions that will include other incremental cost reduction actions unrelated to workforce reductions.
Unaudited
Interim Financial Information
The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S.
generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Form
10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for
complete financial statements. The condensed consolidated balance sheet as of October 31, 2022, the condensed consolidated
statements of operations for the three months ended October 31, 2022 and 2021, the condensed consolidated statements of
comprehensive loss for the three months ended October 31, 2022 and 2021, the condensed consolidated statements of
stockholders’ equity (deficit) for the three months ended October 31, 2022 and 2021, and the condensed consolidated statements
of cash flows for the three months ended October 31, 2022 and 2021, are unaudited, but include all adjustments (consisting of normal
recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the Company’s financial
position, results of operations and cash flows for the periods presented and necessary in order to make the Company’s
financial statements not misleading. The condensed consolidated results of operations for the three months ended October 31, 2022
shown herein are not necessarily indicative of the consolidated results that may be expected for the year ending July 31, 2023, or
for any other period. These condensed consolidated financial statements, and notes thereto, should be read in conjunction with the
audited consolidated financial statements for the fiscal year ended July 31, 2022, included in the Company’s Annual Report on
Form 10-K (the “Annual Report”) filed with the U.S. Securities and Exchange Commission (“SEC”) on October
31, 2022. The condensed consolidated balance sheet at July 31, 2022 has been derived from the audited financial statements at that
date but does not include all the information and footnotes required by U.S. GAAP for complete financial statements.
Note
2—Significant Accounting Policies
Reverse
Stock Split
The
Board of Directors of the Company approved a reverse stock split of the Company’s authorized, issued and outstanding shares of
common stock at a ratio of 1-for-22 (the “Reverse Stock Split”). The Reverse Stock Split became effective on November 9,
2022 (the “Effective Date”). All share and per share amounts for all periods presented in the accompanying condensed consolidated
financial statements and notes thereto have been adjusted, on a retrospective basis, to reflect the Reverse Stock Split, unless otherwise
stated. The number of authorized shares were also proportionately adjusted and the par value remained unaffected. The Company will issue
one whole share of the post-Reverse Stock Split Common Stock to any stockholder who otherwise would have received a fractional share
as a result of the Reverse Stock Split. As a result, no fractional shares will be issued in connection with the Reverse Stock Split and
no cash or other consideration will be paid in connection with any fractional shares that would otherwise have resulted from the Reverse
Stock Split.
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary,
OncoSec Medical Australia PTY LTD. All significant intercompany accounts and transactions have been eliminated in
consolidation.
Use
of Estimates
The
accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which requires Management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant
accounting estimates related to the Company’s ability to continue as a going concern and certain calculations related to that
determination. The Company bases its estimates on historical experience and on various other assumptions that it believes are
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. On an ongoing basis, the Company reviews its estimates to ensure that
they appropriately reflect changes in the business or as new information becomes available. Actual results may differ from these
estimates.
Segment
Reporting
The
Company operates in a single industry segment—the discovery and development of novel immunotherapeutic product candidates to improve
treatment options for patients and physicians, intended to treat a wide range of oncology indications.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments that are readily convertible into cash and have an original maturity of three months
or less at the time of purchase to be cash equivalents.
Concentrations
and Credit Risk
The
Company maintains cash balances at a small number of financial institutions in both the United States and Australia and such balances
commonly exceed the $250,000 amount insured by the Federal Deposit Insurance Corporation and $250,000 AUD (approximately $160,000 USD)
insured by the Australian Financial Claims Scheme. The Company has not experienced any losses in such accounts and Management believes
that the Company does not have significant credit risk with respect to such cash and cash equivalents.
Property
and Equipment
The
Company’s capitalization threshold is $5,000 for property and equipment. The cost of property and equipment is depreciated on a
straight-line basis over the estimated useful lives of the related assets. The useful lives of property and equipment for the purpose
of computing depreciation are as follows:
Schedule of Useful Lives of Property and Equipment for Purpose of Computing Depreciation
Computers
and equipment: |
|
3
to 10 years |
Computer
software: |
|
1
to 3 years |
Leasehold
improvements: |
|
Shorter
of lease period or useful life |
Construction-in-progress
is stated at cost, which relates to the cost of equipment not yet placed into service. No depreciation expense is recorded on construction-in-progress
until such time as the relevant assets are completed and put into use.
Intangible
Assets
Definite
life intangible assets include a license. Intangible assets are recorded at cost. License agreement cost represents the fair value of
the license agreement on the date acquired. Intangible assets are amortized on a straight-line basis over their estimated useful life.
Impairment
of Long-Lived Assets
The
Company periodically assesses the carrying value of intangible and other long-lived assets, and whenever events or changes in circumstances
indicate that the carrying amount of an asset might not be recoverable. The assets are considered to be impaired if the Company determines
that the carrying value may not be recoverable based upon its assessment, which includes consideration of the following events or changes
in circumstances:
|
● |
the
asset’s ability to continue to generate income from operations and positive cash flow in future periods; |
|
|
|
|
● |
loss
of legal ownership or title to the asset(s); |
|
|
|
|
● |
significant
changes in the Company’s strategic business objectives and utilization of the asset(s); and |
|
|
|
|
● |
the
impact of significant negative industry or economic trends. |
If
the assets are considered to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the
fair value of the assets. Fair value is determined by the application of discounted cash flow models to projected cash flows from the assets.
In addition, the Company bases estimates of the useful lives and related amortization or depreciation expense on its subjective estimate
of the period the assets will generate revenue or otherwise be used by it. Assets to be disposed of are reported at the lower of the
carrying amount or fair value, less selling costs. The Company also periodically reviews the lives assigned to long-lived assets to ensure
that the initial estimates do not exceed any revised estimated periods from which the Company expects to realize cash flows from its
assets.
Research
and Development Expenses
Research
and development expenses consist of costs incurred for internal projects, as well as partner-funded collaborative research and development
activities. These costs include direct and research-related overhead expenses, which include salaries, stock-based compensation and other
personnel-related expenses, facility costs, supplies, depreciation of facilities and laboratory equipment, as well as research consultants
and the cost of funding research at universities and other research institutions, and are expensed as incurred. Costs to acquire technologies
that are utilized in research and development that have no alternative future use, are expensed when incurred. In accordance with Accounting
Standards Codification (“ASC”) 730-20, the Company accounts for upfront, non-refundable research and development payments
received from a related party as a long-term liability as there has not been a substantive and genuine transfer of risk and there is
a presumption that the Company is obligated to repay the related party.
Accruals
for Research and Development Expenses and Clinical Trials
The
Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations
and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts
vary from contract to contract and may result in payment terms that do not match the periods over which materials or services are provided
under such contracts. The Company accounts for these expenses in its financial statements by matching those expenses with the period
in which services are performed and efforts are expended. The Company determines accrual estimates through financial models and takes
into account discussion with applicable personnel and outside service providers as to the progress of clinical trials, or the services
completed. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known
to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research
organizations and other third-party vendors. During the course of a clinical trial, the Company adjusts its clinical expense recognition
if actual results differ from its estimates.
Fair
Value of Financial Instruments
The
carrying amounts for cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses and notes payable approximate
fair value due to the short-term nature of these instruments. It is Management’s opinion that the Company is not exposed to significant
interest, currency, or credit risks arising from its other financial instruments and that their fair values approximate their carrying
values except where expressly disclosed.
The
accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair
value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date, based on the Company’s principal or, in the absence of
a principal, most advantageous market for the specific asset or liability.
The
Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring
basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement.
The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining
fair value.
The
three tiers are defined as follows:
● |
Level
1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets at
the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation
of these products does not entail a significant degree of judgment. |
|
|
● |
Level
2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace
for identical or similar assets and liabilities. |
|
|
● |
Level
3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
The
development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility
of the Company’s Management.
Changes
in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates
or assumptions and recorded as appropriate.
The
Company had no assets or liabilities that required remeasurement on a recurring basis as of October 31, 2022 and July 31, 2022.
Warrants
The
Company assesses its warrants as either equity or a liability based upon the characteristics and provisions of each instrument. Warrants
classified as equity are recorded at fair value as of the date of issuance on the Company’s balance sheet and no further adjustments
to their valuation are made. Warrants classified as derivative liabilities and other derivative financial instruments that require separate
accounting as liabilities are recorded on the Company’s balance sheet at their fair value on the date of issuance and are re-measured
on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting
periods recorded as other income or expense. Management estimates the fair value of these liabilities using option pricing models and
assumptions that are based on the individual characteristics of the warrants or other instruments on the valuation date, as well as assumptions
for future financings, expected volatility, expected life, yield and risk-free interest rate. As of October 31, 2022 and July 31, 2022,
all outstanding warrants issued by the Company were classified as equity.
Net
Loss Per Share
The
Company computes basic net loss per common share by dividing the applicable net loss by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed by dividing the applicable net loss by the weighted-average number
of common shares outstanding during the period plus additional shares to account for the dilutive effect of potential future issuances
of common stock relating to stock options and other potentially dilutive securities using the treasury stock method.
The
Company did not include shares underlying stock options, restricted stock units and warrants issued and outstanding during any of the
periods presented in the computation of net loss per share, as the effect would have been anti-dilutive. The following potentially dilutive
outstanding securities were excluded from diluted net loss per share because of their anti-dilutive effect:
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
| |
For the Three
Months Ended | | |
For the Three
Months
Ended | |
| |
October 31, 2022 | | |
October 31, 2021 | |
Stock options | |
| 129,261 | | |
| 129,656 | |
Restricted stock units | |
| 2,020 | | |
| 4,780 | |
Warrants | |
| 75,897 | | |
| 77,554 | |
Total | |
| 207,178 | | |
| 211,990 | |
Stock-Based
Compensation
The
Company grants equity-based awards (typically stock options or restricted stock units) under its stock-based compensation plan and occasionally
outside of its stock-based compensation plan, with terms generally similar to the terms under the Company’s stock-based compensation
plan. The Company estimates the fair value of stock option awards using the Black-Scholes option valuation model. For employees, directors
and consultants, the fair value of the award is measured on the grant date. The fair value amount is then recognized over the period
during which services are required to be provided in exchange for the award, usually the vesting period. The Black-Scholes option valuation
model requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend
yield, and expected life of the option. The Company estimates the fair value of restricted stock unit awards based on the closing price
of the Company’s common stock on the date of grant.
Employee
Stock Purchase Plan
Employees
may elect to participate in the Company’s stockholder-approved employee stock purchase plan. The stock purchase plan allows for
the purchase of the Company’s common stock at not less than 85% of the lesser of (i) the fair market value of a share of common
stock on the beginning date of the offering period and (ii) the fair market value of a share of common stock on the purchase date of
the offering period, subject to a share and dollar limit as defined in the plan and subject to the applicable legal requirements. There
are two six-month offering periods during each fiscal year, ending on January 31 and July 31.
In
accordance with applicable accounting guidance, the fair value of awards under the stock purchase plan is calculated at the beginning
of each offering period. The Company estimates the fair value of the awards using the Black-Scholes option valuation model. The Black-Scholes
option valuation model requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest
rate, dividend yield, and the offering period. This fair value is then amortized at the beginning of the offering period. Stock-based
compensation expense is based on awards expected to be purchased at the beginning of the offering period, and therefore is reduced when
participants withdraw during the offering period.
Leases
The
Company determines if an arrangement is a lease at inception. Operating lease right of use (“ROU”) assets represent the Company’s
right to use an underlying asset during the lease term, and operating lease liabilities represent the Company’s obligation to make
lease payments arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities, and long-term
operating lease liabilities on the Company’s consolidated balance sheets.
Lease
ROU assets and lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease
term at commencement date calculated using the Company’s incremental borrowing rate applicable to the lease asset, unless the implicit
rate is readily determinable. ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives
received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the
Company will exercise that option. Leases with a term of 12 months or less are not recognized on the consolidated balance sheets. The
Company’s leases do not contain any residual value guarantees. Lease expense for minimum lease payments is recognized on a straight-line
basis over the lease term. The Company accounts for lease and non-lease components as a single lease component for all its leases.
Foreign
Currency Translation
The
Company uses the U.S. Dollar as the reporting currency for its financial statements. Functional currency is the currency of the primary
economic environment in which an entity operates. The functional currency of the Company’s wholly owned subsidiary is the Australian
dollar.
Assets
and liabilities of the Company’s subsidiary are translated into U.S. Dollars at period-end foreign exchange rates, and
revenues and expenses are translated at average rates prevailing throughout the period. Translation adjustments are included in
“Accumulated other comprehensive income” as a separate component of stockholders’ equity, and in the “Effect
of exchange rate changes on cash and cash equivalents,” on the Company’s consolidated statements of cash flows.
Transaction gains and losses including intercompany transactions denominated in a currency other than the functional currency of the
entity involved are included in “Foreign currency exchange gain (loss), net” on the Company’s consolidated
statements of operations.
Accumulated
Other Comprehensive Income (Loss)
Accumulated
other comprehensive income (loss) includes foreign currency translation adjustments related to the Company’s subsidiary in Australia
and is excluded from the accompanying consolidated statements of operations.
Australia
Research and Development Tax Credit
The
Company’s wholly-owned Australian subsidiary incurs research and development expenses, primarily in the course of conducting clinical
trials. The Company’s Australian research and development activities qualify for the Australian government’s tax credit program,
which provides a 43.5% credit for qualifying research and development expenses. The tax credit does not depend on the Company’s
generation of future taxable income or ongoing tax status or position. Accordingly, the credit is not considered an element of income
tax accounting under ASC 740 “Income Taxes” and is recorded against qualifying research and development expenses
Recent
Accounting Pronouncements
No
recent accounting pronouncements are anticipated to have an impact on or related to the Company’s financial condition, results
of operations, or related disclosures.
Note
3—Going Concern and Management’s Plans
The
Company has sustained losses in all reporting periods since inception, with an accumulated deficit of approximately $294 million as of
October 31, 2022. These losses are expected to continue for an extended period of time. Further, the Company has never generated any
cash from its operations and does not expect to generate such cash in the near term. The aforementioned factors raise substantial doubt
about the Company’s ability to continue as a going concern within one year from the issuance date of the consolidated financial
statements. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include
any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be
necessary should the Company be unable to continue as a going concern within one year after the date the consolidated financial statements
are issued.
As
of December 1, 2022, the Company had cash and cash equivalents of $8.1 million. Since inception, cash flows from financing activities
have been the primary source of the Company’s liquidity. Based on the Company’s current cash levels, the Company believes
its cash resources are insufficient to meet the Company’s anticipated needs for the 12 months following the date the consolidated
financial statements are issued.
The
Company recognizes it will need to raise additional capital to continue operating its business and fund its planned operations, including
research and development, clinical trials and, if regulatory approval is obtained, commercialization of its product candidates. In addition,
the Company will require additional financing if it desires to in-license or acquire new assets, research and develop new compounds or
new technologies and pursue related patent protection, or obtain any other intellectual property rights or other assets. There is no
assurance that additional financing will be available to the Company when needed, that Management will be able to obtain financing on
terms acceptable to the Company, or whether the Company will become profitable and generate positive operating cash flow. The source,
timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress
of our clinical development programs. Similarly, if our common stock is delisted from the Nasdaq Capital Market, it may limit our ability
to raise additional funds (see Note 12). The ongoing COVID-19 pandemic has also caused volatility in the global financial markets and
threatened a slowdown in the global economy, which may negatively affect our ability to raise additional capital on attractive terms
or at all. If the Company is unable to raise sufficient additional funds when needed, on favorable terms or at all, the Company will
not be able to continue the development of its product candidates as currently planned or at all, will need to reevaluate its planned
operations and may need to delay, scale back or eliminate some or all of its development programs, reduce expenses or cease operations,
any of which would have a significant negative impact on the Company’s prospects and financial condition.
Note
4—Balance Sheet Details
Property
and Equipment
Property
and equipment, net, is comprised of the following:
Schedule of Property and Equipment, Net
| |
October 31, 2022 | | |
July 31, 2022 | |
Equipment and furniture | |
$ | 1,944,540 | | |
$ | 1,944,540 | |
Computer software | |
| 109,242 | | |
| 109,242 | |
Leasehold improvements | |
| 32,651 | | |
| 32,651 | |
Construction in progress | |
| 446,367 | | |
| 446,367 | |
Property and equipment, gross | |
| 2,532,800 | | |
| 2,532,800 | |
Accumulated depreciation and amortization | |
| (1,599,099 | ) | |
| (1,554,186 | ) |
Total | |
$ | 933,701 | | |
$ | 978,614 | |
Depreciation
and amortization expense recorded for the three months ended October 31, 2022 was approximately $45,000.
Depreciation
and amortization expense recorded for the three months ended October 31, 2021 was approximately $47,000.
Intangible
Assets
Intangible
assets, net, is comprised of the following:
Schedule of Intangible Assets
| |
October 31, 2022 | | |
July 31, 2022 | |
License | |
$ | 495,000 | | |
$ | 495,000 | |
Accumulated amortization | |
| (133,941 | ) | |
| (116,471 | ) |
Total | |
$ | 361,059 | | |
$ | 378,529 | |
In
November 2020, the Company licensed generator technology for use in its clinical trials and other research and development efforts. Unless
earlier terminated, the term of the license agreement will remain in effect for 85 months. The Company has determined that the license
has alternative future uses in research and development projects. The value of the acquired license is recorded as an intangible asset
with amortization over the estimated useful life of 85 months.
Intangible
asset amortization expense recorded for the three months ended October 31, 2022 was approximately $17,000.
Intangible
asset amortization expense recorded for the three months ended October 31, 2021 was approximately $17,000.
At
October 31, 2022, the estimated amortization expense by fiscal year based on the current carrying value of intangible assets is as follows:
Schedule of Amortization Expense of Intangible Assets
Years ending July 31, | | |
| |
2023 – the remainder of the fiscal year | | |
$ | 52,412 | |
2024 | | |
| 69,882 | |
2025 | | |
| 69,882 | |
2026 | | |
| 69,882 | |
2027 | | |
| 69,882 | |
Thereafter | | |
| 29,119 | |
Total | | |
$ | 361,059 | |
Accounts
Payable and Accrued Liabilities
Accounts
payable and accrued liabilities are comprised of the following:
Schedule of Accounts Payable and Accrued Liabilities
| |
October 31, 2022 | | |
July 31, 2022 | |
Research and development costs | |
$ | 3,402,401 | | |
$ | 3,210,627 | |
Professional services fees | |
| 1,319,890 | | |
| 877,411 | |
Other | |
| 80,165 | | |
| 120,184 | |
Total | |
$ | 4,802,456 | | |
$ | 4,208,222 | |
Accrued
Compensation
Accrued
compensation is comprised of the following:
Schedule of Accrued Compensation
| |
October 31, 2022 | | |
July 31, 2022 | |
Accrued payroll | |
$ | 208,781 | | |
$ | 311,662 | |
401K payable | |
| 15,579 | | |
| 7,333 | |
Accrued severance | |
| 244,258 | | |
| 57,982 | |
Total | |
$ | 468,618 | | |
$ | 376,977 | |
Note
5—Note Payable
On
July 11, 2022, the Company entered into a finance agreement with AFCO Premium Credit LLC (“AFCO”). Pursuant to the terms
of the agreement, AFCO loaned the Company the principal amount of $1,027,986, which would accrue interest at 5.248% per annum, to partially
fund the payment of the premium of the Company’s Director & Officer insurance. The agreement requires the Company to make eleven
monthly payments of $95,923, including interest starting on July 18, 2022. At October 31, 2022, the outstanding balance related to this
finance agreement was $659,870.
Note
6—Stockholders’ Equity
Outstanding
Warrants
At
October 31, 2022, the Company had outstanding warrants to purchase 75,897
shares of its common stock, with exercise prices ranging from $75.90
to $275.00,
all of which were classified as equity instruments. These warrants expire at various dates between April 2023 and May
2024.
China
Grand Pharmaceutical and Healthcare Holdings Limited and Sirtex Medical US Holdings, Inc.
On
October 10, 2019, the Company and Grand Decade Developments Limited (“GDDL”), a direct, wholly-owned subsidiary of Grand
Pharmaceutical Group Limited (formerly China Grand Pharmaceutical and Healthcare Holdings Limited), a company formed under the laws
of the British Virgin Islands (“CGP”), and its affiliate, Sirtex Medical US Holdings, Inc., a Delaware corporation
(“Sirtex”) entered into Stock Purchase Agreements (as amended, the “Purchase Agreements”), pursuant to which
the Company agreed to sell and issue to CGP and Sirtex 454,545
shares and 90,909
shares, respectively, of the Company’s common stock for a total purchase price of $30.0
million. The net proceeds, after deducting offering fees and expenses paid by the Company, were approximately $28.0
million. This transaction closed on February 7, 2020 (the “Closing”). Pursuant to the Purchase Agreements, CGP and
Sirtex were given the right under certain circumstances to purchase in the future additional shares of common stock in order to
maintain CGP and Sirtex’s respective ownership percentages of the outstanding shares of common stock of the Company as of the
Closing.
Note
7—Stock-Based Compensation
The
OncoSec Medical Incorporated 2011 Stock Incentive Plan (as amended and approved by the Company’s stockholders (the “2011
Plan”)), authorizes the Company’s Board of Directors to grant equity awards, including but not limited to, stock options
and restricted stock units, to employees, directors and consultants. The 2011 Plan authorizes a total of 209,091 shares of common stock
for issuance. Under the 2011 Plan, incentive stock options are to be granted at a price that is no less than 100% of the fair value of
the Company’s common stock at the date of grant. Stock options vest over a period specified in the individual option agreements
entered into with grantees and are exercisable for a maximum period of 10 years after the date of grant. Incentive stock options granted
to stockholders who own more than 10% of the outstanding stock of the Company at the time of grant must be issued at an exercise price
of no less than 110% of the fair value of the Company’s common stock on the date of grant.
Stock
Options
During
the three months ended October 31, 2022, the Company granted an equity award that consisted of options to purchase 2,273
shares of its common stock to a director under the 2011 Plan. The stock options issued to a director have a 10-year
term, vest over one year and have an exercise price of $9.94.
During
the three months ended October 31, 2021, the Company granted options to purchase 1,064 shares of its common stock to employees under
the 2011 Plan. The stock options issued to employees have a 10-year term, vest over two years and have exercise prices
ranging from $44.22 to $49.72.
The
Company accounts for stock-based compensation based on the fair value of the stock-based awards granted and records forfeitures as they
occur. As such, the Company recognizes stock-based compensation cost only for those stock-based awards that vest over their requisite
service period, based on the vesting provisions of the individual grants. The service period is generally the vesting period, with the
exception of stock options granted pursuant to a consulting agreement, in which case the stock option vesting period and the service
period are defined pursuant to the terms of the consulting agreement.
The
following assumptions were used for the Black-Scholes calculation of the fair value of stock-based compensation related to stock options
granted during the periods presented:
Schedule of Assumptions used to Calculate Fair Value of Stock Based Compensation
| |
Three Months Ended October 31, 2022 | | |
Three Months Ended October 31, 2021 | |
Expected term (years) | |
| 5.12 – 5.49 years | | |
| 5.13 – 6.00 years | |
Risk-free interest rate | |
| 4.07 – 4.09 | % | |
| 0.69 – 0.92 | % |
Volatility | |
| 89.96 – 91.75 | % | |
| 86.98 – 88.89 | % |
Dividend yield | |
| 0 | % | |
| 0 | % |
The
Company’s expected volatility is derived from the historical daily change in the market price of its common stock. The Company
uses the simplified method to calculate the expected term of options issued to employees, non-employees and directors, as the Company
does not have much stock option exercise history and thus does not have enough information on exercise behavior to calculate a refined
expected term based on that information. The risk-free interest rate used in the Black-Scholes calculation is based on the prevailing
U.S. Treasury yield in effect at the time of grant, commensurate with the expected term. For the expected dividend yield used in the
Black-Scholes calculation, the Company has never paid any dividends on its common stock and does not anticipate paying dividends on its
common stock in the foreseeable future.
The
following is a summary of the Company’s 2011 Plan and non-Plan stock option activity for the three months ended October 31, 2022:
Summary of Stock Option Activity
| |
Options | | |
Weighted Average Exercise Price | | |
Weighted - Average Remaining Contract (in years) | | |
Aggregate Intrinsic Value ($000) | |
Outstanding - July 31, 2022 | |
| 133,973 | | |
$ | 57.34 | | |
| | | |
| | |
Granted | |
| 2,273 | | |
$ | 9.94 | | |
| | | |
| | |
Forfeited/Cancelled | |
| (6,985 | ) | |
$ | 133.46 | | |
| | | |
| | |
Outstanding - October 31, 2022 | |
| 129,261 | | |
$ | 52.39 | | |
| 8.3 | | |
$ | - | |
Exercisable - October 31, 2022 | |
| 104,238 | | |
$ | 56.79 | | |
| 8.1 | | |
$ | - | |
The
weighted-average grant date fair value of stock options granted during the three months ended October 31, 2022 and 2021 was $7.31 and
$33.00, respectively.
As
of October 31, 2022, the Company has approximately $0.5 million in unrecognized stock-based compensation expense attributable to the
outstanding options, which is expected to be recognized over a weighted-average period of 0.60 years.
Stock-based
compensation expense recorded in the Company’s condensed consolidated statements of operations for the three months ended
October 31, 2022 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately
$0.3
million. Of the total expense, $0.1
million was recorded to research and
development and $0.2 million was
recorded in general and administrative in the Company’s condensed consolidated statements of operations for the three months
ended October 31, 2022.
Stock-based
compensation expense recorded in the Company’s condensed consolidated statements of operations for the three months ended October
31, 2021 resulting from stock options awarded to the Company’s employees, directors and consultants was approximately $0.5 million.
Of the total expense, $0.3 million was recorded to research and development and $0.2 million was recorded in general and administrative
in the Company’s condensed consolidated statements of operations for the three months ended October 31, 2021.
Restricted
Stock Units (“RSUs”)
For
the three months ended October 31, 2022, the Company recorded approximately $53,000 in stock-based compensation related to RSUs, which
is reflected in the condensed consolidated statements of operations.
For
the three months ended October 31, 2021, the Company recorded approximately $76,000 in stock-based compensation related to RSUs, which
is reflected in the condensed consolidated statements of operations.
The
following table summarize RSUs issued and outstanding:
Summary of Restricted Stock Units
| |
RSUs | | |
Weighted Average Grant Date Fair Value | |
Nonvested - July 31, 2022 | |
| 2,710 | | |
$ | 74.94 | |
Vested | |
| (690 | ) | |
$ | 76.62 | |
Nonvested - October 31, 2022 | |
| 2,020 | | |
$ | 74.37 | |
As
of October 31, 2022, there was approximately $0.1 million unrecognized compensation cost related to unvested RSUs. This amount is expected
to be recognized over a weighted-average period of 0.63 years.
Shares
Issued to Consultants
During
the three months ended October 31, 2021, 568 shares of common stock valued at approximately $0.04 million, were issued to a consultant
for services. The common stock share values were based on the closing stock price of the Company’s common stock on the date the
shares were granted.
2015
Employee Stock Purchase Plan
Under
the Company’s 2015 Employee Stock Purchase Plan (“ESPP”), the Company is authorized to issue 2,273 shares of the Company’s
common stock. At October 31, 2022, there were 1,218 shares remaining available for issuance under the ESPP.
The
ESPP is considered a Type B plan under FASB ASC Topic 718 because the number of shares a participant is permitted to purchase is not
fixed based on the stock price at the beginning of the offering period and the expected withholdings. The ESPP enables the participant
to “buy-up” to the plan’s share limit, if the stock price is lower on the purchase date. As a result, the fair value
of the awards granted under the ESPP is calculated at the beginning of each offering period as the sum of:
|
● |
15%
of the share price of an unvested share at the beginning of the offering period, |
|
● |
85%
of the fair market value of a six-month call on the unvested share aforementioned, and |
|
● |
15%
of the fair market value of a six-month put on the unvested share aforementioned. |
The
fair market value of the six-month call and six-month put are based on the Black-Scholes option valuation model.
For
the six-month offering period ending on January 31, 2023, the following assumptions were used: six-month maturity, 2.91% risk free interest,
75.04% volatility, 0% forfeitures and $0 dividends. For the six-month offering period that ended on January 31, 2022, the following assumptions
were used: six-month maturity, 0.05% risk free interest, 72.99% volatility, 0% forfeitures and $0 dividends.
Approximately
$300 and $1,200 was recorded as stock-based compensation during the three months ended October 31, 2022 and 2021, respectively.
Common
Stock Reserved for Future Issuance
The
following table summarizes all common stock reserved for future issuance at October 31, 2022:
Summary of Common Stock Reserved for Future Issuance
| |
| | |
Common Stock options outstanding (within the 2011 Plan and outside of the terms of the 2011 Plan) | |
| 129,261 | |
Common Stock reserved for restricted stock unit settlement | |
| 2,020 | |
Common Stock authorized for future grant under the 2011 Plan | |
| 80,069 | |
Common Stock reserved for warrant exercise | |
| 75,897 | |
Shares issuable under CGP and Sirtex stock purchase agreements (Note 6) | |
| 85,585 | |
Common Stock reserved for future ESPP issuance | |
| 1,218 | |
Total Common Stock reserved for future issuance | |
| 374,050 | |
Note
8—Commitments and Contingencies
Contingencies
The
Company is not a party to any other legal proceeding or aware of any other threatened action as of the date of this report.
Employment
Agreements
The
Company has entered into employment agreements with certain executive officers and certain other key employees. Generally, the terms
of these agreements provide that, if the Company terminates the officer or employee other than for cause, death or disability, or if
the officer terminates his or her employment with the Company for good cause, the officer shall be entitled to receive certain severance
compensation and benefits as described in each such agreement.
Note
9—Leases
Lease
Agreements
On
August 31, 2022, the Company provided a six month notice to MawIt Inc. (the “Six Month Notice”) for a property at Pennington,
New Jersey, which serves as the Company’s New Jersey corporate headquarters. Under the Six Month Notice, the Company will not be
renewing the lease and will be vacating the property before February 28, 2023. The Company remeasured the lease payments and recorded decreases of ROU asset for approximately $120,000 and lease liabilities of approximately $120,000
for this operating lease.
On
October 17, 2022, the Company provided a notice to Explora BioLabs (the “Notice”) for a property at San Diego, California,
which serves as the Company’s lab space. Under the Notice, the Company will terminate the lease on December 16, 2022. The Company
accounted for the Notice as a contract modification, and accordingly, recorded decreases of ROU asset for approximately $363,000 and
lease liabilities of approximately $363,000 for this operating lease.
The
Company has operating leases for corporate offices and lab space. These leases have remaining lease terms of approximately less than
a year to four years, some of which include options to extend the lease. For any lease where the Company is reasonably certain that a
renewal option will be exercised, the lease payments associated with the renewal option period are included in the ROU asset and lease
liability as of October 31, 2022.
Supplemental
balance sheet information related to leases as of October 31, 2022 was as follows:
Schedule of Operating Lease Liabilities
Operating Leases: | |
As of October 31,
2022 | | |
As of July 31,
2022 | |
Operating lease right-of-use assets | |
$ | 3,931,083 | | |
$ | 4,665,515 | |
Operating Leases: | |
| | | |
| | |
Current portion included in current liabilities | |
$ | 978,570 | | |
$ | 1,111,571 | |
Long-term portion included in non-current liabilities | |
| 3,513,897 | | |
| 4,126,636 | |
Total operating lease liabilities | |
$ | 4,492,467 | | |
$ | 5,238,207 | |
Supplemental
lease expense related to leases is as follows:
Schedule of Lease Expenses
| |
For the Three
Months Ended October 31, 2022 | | |
For the Three Months Ended October 31, 2021 | |
Operating lease cost | |
$ | 379,116 | | |
$ | 369,792 | |
Total lease expense | |
$ | 379,116 | | |
$ | 369,792 | |
Other
information related to leases where the Company is the lessee is as follows:
Schedule of Other Information Related to Leases
| |
As of October 31, 2022 | |
Weighted-average remaining lease term | |
| 3.9 years | |
Weighted-average discount rate | |
| 10.13 | % |
Supplemental
cash flow information related to operating leases is as follows:
Schedule of Cash Flow Information Related to Operating Leases
| |
For the Three
Months Ended October 31, 2022 | | |
For the Three Months Ended October 31, 2021 | |
Cash paid for operating lease liabilities | |
$ | 390,424 | | |
$ | 380,284 | |
Total cash flows related to operating lease liabilities | |
$ | 390,424 | | |
$ | 380,284 | |
Future
minimum lease payments under non-cancellable leases as of October 31, 2022 is as follows:
Schedule of Future Minimum Lease Payments Under Non-Cancellable Lease
Years ending July 31, | | |
| |
2023 – the remainder of the fiscal year | | |
$ | 1,054,361 | |
2024 | | |
| 1,350,056 | |
2025 | | |
| 1,390,558 | |
2026 | | |
| 1,432,274 | |
2027 | | |
| 240,688 | |
Total minimum lease payments | | |
| 5,467,937 | |
Less: Imputed interest | | |
| (975,470 | ) |
Total | | |
$ | 4,492,467 | |
Note
10—401(k) Plan
Effective
May 15, 2012, the Company adopted a defined contribution savings plan pursuant to Section 401(k) of the Code. The plan is for the benefit
of all qualifying employees and permits voluntary contributions by employees of up to 100% of eligible compensation, subject to the maximum
limits imposed by Internal Revenue Service. The terms of the plan allow for discretionary employer contributions and the Company currently
matches 100% of its employees’ contributions, up to 3% of their annual compensation. The Company’s contributions are recorded
as expense in the accompanying condensed consolidated statements of operations. The Company’s contributions totaled approximately
$47,000 for the three months ended October 31, 2022. The Company’s contributions totaled approximately $54,000 for the three months
ended October 31, 2021.
Note
11—Related Party Transactions
Except
as disclosed elsewhere herein, below are the Company’s related party transactions for the three months ended October 31, 2022 and
2021.
Co-Promotion
Agreement
In
January 2021, the Company entered into a co-promotion agreement with Sirtex, pursuant to which the Company granted Sirtex the option
to co-promote TAVO™-EP for the treatment of anti-PD-1 refractory locally advanced or metastatic melanoma in the U.S., including
its territories and possessions. In consideration for the option, the Company received an upfront, non-refundable payment of $5.0 million
from Sirtex (the “option fee”). The option to co-promote is non-exclusive and may be exercised at any time by Sirtex from
the effective date until 90 days following the receipt by Sirtex of a complete copy of the final BLA filed by the Company with the FDA
(the “option period”). If Sirtex exercises the option, the Company will receive an additional non-refundable and non-creditable
option exercise fee of $25.0 million, comprised of $20.0 million in cash, and $5.0 million for the issuance of common shares of the Company
determined by the average closing price of the stock for the 30 days prior to the date of receipt of the exercise notice for the option.
Under
the terms of the co-promotion agreement, if Sirtex exercises the co-promote option, the Company will pay to Sirtex a high-teens to
low-twenties royalty (the “promotion fee”) of U.S. net sales of the TAVO™ products. The co-promotion agreement
will continue until the earlier of the expiration of the option period without Sirtex extending the option or the eighth anniversary
of the first FDA approval of the BLA, and can be extended by mutual agreement between the Company and Sirtex. During the
co-promotion term, the Company is responsible for funding approximately two-thirds of the promotional costs incurred by Sirtex and
Sirtex shall be responsible for approximately one-third.
The
Company has determined that the co-promotion agreement represents a funded research and development arrangement within the scope of ASC
Subtopic 730-20, Research and Development—Research and Development Arrangements (ASC 730-20). The Company concluded that there
has not been a substantive and genuine transfer of risk related to the co-promotion agreement and the Company’s ongoing development
of TAVO™-EP as there is a presumption that the Company is obligated to repay Sirtex based on the significant related party relationship
that exists between the parties. This significant related party relationship is based on Sirtex’s approximate 8% ownership of the
outstanding shares of the Company’s common stock, and that of its significant equity holder, CGP (which owns 49% of Sirtex), which,
at the time of entering into the agreement, owned approximately 42% of the outstanding shares of the Company’s common stock and
is the Company’s largest shareholder.
The
Company has determined that the appropriate accounting treatment under ASC 730-20 is to record any proceeds received from Sirtex for
the co-promote option or upon exercise of the option as cash and cash equivalents as the Company has the ability to direct the usage
of funds, and as a corresponding long-term liability (“Liability under co-promotion agreement – related party”) on
the Company’s consolidated balance sheet when received. The liability will remain on the balance sheet until (i) Sirtex exercises
the option which results in royalties paid by the Company to Sirtex based on the net sales of the TAVO™ products, or (ii) Sirtex
does not exercise the option and the co-promotion agreement is terminated by the parties.
As
of October 31, 2022, the balance of the Liability under co-promotion agreement – related party relates to the option fee payment
of $5.0 million received from Sirtex.
Note
12—Nasdaq Deficiency Notice
On
June 2, 2022, the Company received notice (the “Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”) that the
Company is not in compliance with Nasdaq Listing Rule 5550(a)(2), as the minimum bid price of its common stock had been below $1.00 per
share for 30 consecutive business days as of the date of the Notice. The Notice had no immediate effect on the listing of the Company’s
common stock, which continues to trade at this time on the Nasdaq Capital Market under the symbol “ONCS.”
On
November 25, 2022, the Company received a letter from Nasdaq confirming that the Company had regained compliance with Nasdaq Listing
Rule 5550(a)(2) that requires companies listed on Nasdaq to maintain a minimum bid price of at least $1.00
per share to ensure continued listing (the “Listing
Requirement”). The Company completed a 1-for-22 reverse stock split of its authorized, issued and outstanding shares of Common
Stock on November 9, 2022. The Company regained compliance with the Listing Requirement after the closing bid price for its common stock
listed on Nasdaq equaled or exceeded $1.00
per share for 10 consecutive business days.
Note
13—Subsequent Events
Reverse
Stock Split
The
Board of Directors of the Company approved a reverse stock split of the Company’s authorized, issued and outstanding shares of
common stock at a ratio of 1-for-22 (the “Reverse Stock Split”). The Reverse Stock Split became effective on November 9,
2022 (the “Effective Date”). All share and per share amounts for all periods presented in the accompanying consolidated financial
statements and notes thereto have been adjusted, on a retrospective basis, to reflect the Reverse Stock Split, unless otherwise stated.
The number of authorized shares were also proportionately adjusted and the par value remained unaffected. The Company will issue one
whole share of the post-Reverse Stock Split Common Stock to any stockholder who otherwise would have received a fractional share as a
result of the Reverse Stock Split. As a result, no fractional shares will be issued in connection with the Reverse Stock Split and no
cash or other consideration will be paid in connection with any fractional shares that would otherwise have resulted from the Reverse
Stock Split.
Convertible
Promissory Note – Related Party
On
November 25, 2022 (the “Funding Date”), the Company entered into a Convertible Promissory Note and Security agreement with
GDDL, a British Virgin Islands limited company and a wholly owned subsidiary of Grand Pharmaceutical Group
Limited, pursuant to which the Company issued a Secured Convertible Promissory Note (the “Note”) to
GDDL. The Note has a principal amount of $2,000,000, bears interest at a rate of 5% per annum until November 25, 2023 and 10% per annum
thereafter (the “Interest Rate”) and matures on November 25, 2024 (the “Maturity Date”), on which date the principal
balance and all accrued interest under the Note shall be due and payable. The Interest Rate will be 10% per annum upon occurrence of
an event of default, including, but not limited to, the failure by the Company to make payment of principal or interest due under the
Note on the Maturity Date, and any commencement by the Company of a case under any applicable bankruptcy or insolvency laws. The principal
and interest accrued on the Note may be prepaid without any further agreement of the parties to the Note, or converted (as described
below) upon the agreement of the parties to the Note, at any time without penalty to the Company.
Subject
to the consent of GDDL, the Note is convertible into such number of fully paid and non-assessable shares of the Company’s common
stock, par value $0.0001 per share (the “Common Stock”) as determined by dividing (i) any portion of the unpaid principal and accrued interest of the Note then outstanding by (ii) the
greater of (a) the last closing bid price of a share of Common Stock as reported on the Nasdaq Capital Market (“Nasdaq”)
on the date the Company and GDDL agree to such conversion and (b) the average closing bid price of a share of Common Stock as reported
on Nasdaq for the thirty trading days immediately preceding such date, subject to a share cap of 360,769 shares of Common Stock (the
“Share Cap”), representing 19.99% of the total issued and outstanding shares of Common Stock as of November 25, 2022.
Additionally,
if at any time after the Funding Date the last closing bid price of a share of Common Stock as reported on the Nasdaq for ten consecutive
trading days or the average closing bid price of a share Common Stock as reported on Nasdaq for the thirty trading days immediately preceding
such date is equal to or exceeds $44.00 (subject to any reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other substantially similar transaction), GDDL may require that the Company prepay the Note through conversion
of the then outstanding principal and/or any accrued interest thereon into shares of Common Stock, in whole or in part.
The
unpaid principal of and any accrued interest on the Note constitute unsubordinated obligations of the Company and are senior and preferred
in right of payment to all equity securities of the Company outstanding as of the Funding Date, which are secured by all of the Company’s
right, title and interest, in and to certain of the Company’s intellectual property rights in Hong Kong, Taiwan, China and South
Korea, as specified in the Note; provided, however, that the Company may incur or guarantee additional indebtedness after the Funding
Date, whether such indebtedness are senior, pari passu or junior to the obligations under the Note.
December
2022 Offering
On
November 30, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain
investors (the “Investors”) that closed on December 1, 2022, pursuant to which the Company sold, issued, and delivered,
in a registered public offering (the “Offering”) (i) 1,166,667
shares of the Company’s common stock (the “Common Stock”), par value $0.0001
per share (each a “Share” and collectively the “Shares”); (ii) pre-funded warrants in lieu of shares of
Common Stock (the “Pre-Funded Warrants”) to purchase shares of Common Stock and (iii) 1,166,667
Common Warrants (the “Common Warrants” and collectively with the Pre-Funded Warrants, the “Warrants”) to
purchase shares of Common Stock, to the Investors. Under the terms of the Purchase Agreement, the Company agreed to sell one share
of its Common Stock or a Pre-Funded Warrant and one Common Warrant for each share of Common Stock or Pre-Funded Warrant sold at a
price of $3.00.
For each Pre-Funded Warrant sold in the Offering, the number of shares of Common Stock offered was decreased on a one-for-one basis.
The Pre-Funded Warrants are exercisable immediately upon the date of issuance, may be exercised at any time until all of the
Pre-Funded Warrants are exercised in full and have a nominal exercise price of $0.0001 per share. The Common Warrants are
exercisable immediately upon the date of issuance and have an exercise price of $3.00
per share, subject to adjustment. The Common Warrants will expire five (5)
years from the date of issuance.
The
Offering closed on December 1, 2022. The Company received gross proceeds of $3,500,001
in connection with the Offering before deducting
placement agent fees and other offering expenses.