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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the transition period from             to            

Commission File Number 001-14888

INOVIO BIOMEDICAL CORPORATION

(Exact name of Registrant as specified in its charter)

11494 SORRENTO VALLEY ROAD

SAN DIEGO, CALIFORNIA 92121-1318

(Address of principal executive offices)(Zip Code)

(858) 597-6006

(Registrant’s telephone number, including area code)

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 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

The number of shares outstanding of the registrant’s Common Stock, par value $0.001 per share, was 102,128,323 as of November 12, 2009.

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INOVIO BIOMEDICAL CORPORATION

FORM 10-Q

For the Quarterly Period Ended September 30, 2009

INDEX

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Part I. Financial Information

Item 1. Financial Statements

INOVIO BIOMEDICAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes.

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INOVIO BIOMEDICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes.

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INOVIO BIOMEDICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes

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INOVIO BIOMEDICAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.                                      Description of Business

Inovio Biomedical Corporation (the “Company” or “Inovio”) is engaged in the discovery, development, and delivery of a new generation of vaccines, called DNA vaccines, focused on cancers and infectious diseases. Our SynCon™ technology enables the design of “universal” DNA-based vaccines capable of providing cross-protection against new, unmatched strains of pathogens such as influenza. The Company’s electroporation DNA delivery technology uses brief, controlled electrical pulses to increase cellular DNA vaccine uptake. Initial human data has shown this method can safely and significantly increase gene expression and immune responses. The Company’s clinical programs include human papillomavirus (“HPV”)/cervical cancer (therapeutic) and human immunodeficiency virus (“HIV”) vaccines. The Company has filed an Investigational New Drug application (“IND”) with the Food and Drug Administration (“FDA”) for an avian influenza vaccine and is advancing preclinical research for a universal seasonal/pandemic influenza vaccine. The Company’s partners and collaborators include University of Pennsylvania, National Microbiology Laboratory of Public Health Agency of Canada, NIAID (NIH), Merck, Tripep, University of Southampton, and HIV Vaccines Trial Network.

All of the Company’s potential human products are in research and development phases.  No revenues have been generated from the sale of any such products, nor are any such revenues expected for at least the next several years.  The Company earns revenue from license fees, collaborative research and development agreements, grants and government contracts.  The Company’s product candidates will require significant additional research and development efforts, including extensive preclinical and clinical testing.  All product candidates that the Company advances to clinical testing will require regulatory approval prior to commercial use, and will require significant costs for commercialization.

2.                                      Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Inovio have been prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheet as of September 30, 2009, condensed consolidated statements of operations for the three and nine months ended September 30, 2009 and 2008, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2009 and 2008, are unaudited, but include all adjustments (consisting of normal recurring adjustments) that the Company considers necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2009 shown herein are not necessarily indicative of the results that may be expected for the year ending December 31, 2009, or for any other period. These financial statements, and notes thereto, should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2008, included in the Company’s Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 31, 2009.  Further, in connection with preparation of the condensed consolidated financial statements and in accordance with the recently issued guidance regarding subsequent events, the Company evaluated subsequent events after the balance sheet date of September 30, 2009 through November 13, 2009, the date of filing the Form 10-Q.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company incurred net loss attributable to Inovio of $2.9 million and $17.1 million for the three and nine months ended September 30, 2009, respectively.  The Company had working capital of $27.2 million and an accumulated deficit of $169.9 million as of September 30, 2009. The Company’s ability to continue its operations is dependent upon its ability to obtain additional capital in the future and achieve profitable operations. On July 31, 2009, Inovio closed a $30.0 million offering of its shares of common stock and warrants to purchase shares of common stock.  The Company received net proceeds from the transaction of approximately $28.4 million, after deducting offering expenses.  The Company expects to continue to rely on outside sources of financing to meet its capital needs and the Company may never achieve positive cash flow. These unaudited interim condensed consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should the Company be unable to continue in business. The Company’s unaudited interim condensed consolidated financial statements as of and for the period ended

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September 30, 2009 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business for the foreseeable future.

3.                                      VGX Pharmaceuticals Business Acquisition

On June 1, 2009 (the “Acquisition Date”) the Company completed the acquisition of VGX Pharmaceuticals, Inc. (“VGX”), a privately-held company, pursuant to the terms of an Amended and Restated Agreement and Plan of Merger dated December 5, 2008, as further amended on March 31, 2009 (the “Merger Agreement”) by and among Inovio, Inovio’s wholly-owned subsidiary Inovio Acquisition, LLC and VGX (the “Merger”).

Upon the closing of the Merger, based on an exchange ratio of 0.9812 (the “Merger Exchange Ratio”), and on terms and conditions as set forth in the Merger Agreement,

·                  all of the issued and outstanding shares of common stock of VGX were canceled and converted into the right to receive shares of common stock of Inovio,

·                  all outstanding options to purchase shares of VGX common stock became exercisable for shares of Inovio’s common stock,

·                  all outstanding warrants to purchase shares of VGX common stock became exercisable for shares of Inovio’s common stock, and

·                  all outstanding convertible debt of VGX became debt convertible into Inovio’s common stock on existing terms.

As of the Acquisition Date, an aggregate of 41,492,758 shares of Inovio’s common stock were issued to the former stockholders of VGX, and an additional 18,794,187 shares of Inovio’s common stock were reserved for issuance upon exercise of the assumed options and warrants and conversion of the principal of and maximum interest payable on the VGX convertible debt.  Immediately following the Acquisition Date the continuing holders of Inovio securities owned approximately 51.59% of Inovio’s issued and outstanding common stock and the former holders of VGX securities owned approximately 48.41% of Inovio’s issued and outstanding common stock.

Inovio and VGX management teams believed that the transaction would provide substantial benefits to the unified company and its stockholders, including:

·                  the potential for greater ability to mitigate overall development risk through creation of a broader, more balanced, fully-integrated biopharmaceutical company with a deep product development pipeline, which we believe will have significant market potential;

·                  complementary product pipelines addressing a broad spectrum of indications in large markets;

·                  a stronger technology platform, including electroporation assisted DNA vaccine delivery, current good manufacturing practices, or cGMP, experience and capability in production, and the optimized SynCon™ sequencing technology with potential to generate new clinical product candidates on an ongoing basis, which are anticipated to reduce time to market of Inovio and VGX programs;

·                  a broader patent portfolio;

·                  the potential for expanded access to third party funding and validation for Inovio and VGX programs;

·                  an experienced and complete management team; and

·                  other expected potential synergies, efficiencies and cost savings that may be created in combining the research, development and technological strengths of Inovio and VGX.

Upon the closing of the Merger, Inovio Acquisition, LLC succeeded to all of VGX’s business, properties and assets and assumed its obligations (other than the outstanding options and warrants to purchase shares of VGX common stock that became exercisable to purchase shares of Inovio common stock), changed its name to VGX Pharmaceuticals, LLC, and remains a wholly-owned subsidiary of the Company, utilizing a single, integrated management team with Inovio.

Prior to the date of the Merger Agreement, Inovio’s sole relationship with VGX was as a party to a licensing agreement with VGX, entered into in the ordinary course of business, and as a holder of 25,000 shares of VGX common stock acquired in relation to such agreement. The shares of VGX common stock held by Inovio were cancelled upon closing of the Merger.

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After a review of relevant factors and in accordance with the guidance regarding business combinations, Inovio was determined to be the accounting acquirer.  The Merger was accounted for using the purchase method of accounting for business combinations under U.S. GAAP. Accordingly, the historical consolidated financial statements of Inovio will be carried forward at their historical cost and the purchase price is allocated to VGX’s identifiable assets and liabilities based on their estimated fair values at the Acquisition Date.

The final determination of the purchase price allocation was based on the fair values of major classes of assets acquired, including identifiable intangibles, and the fair value of liabilities assumed as of the Acquisition Date. The excess purchase price of the acquired entity over the fair value of assets and liabilities was recognized by the Company as goodwill as an asset on the balance sheet.

As a result of the Merger, Inovio acquired VGX’s developed technology, which consists of VGX’s CELLECTRA® technology and GHRH technology.

VGX developed two applications in the CELLECTRA® device family. The first covers the intra-muscular (IM) delivery of DNA and the second covers the intra-dermal/subcutaneous delivery (ID) of DNA. Both devices have been validated, manufactured under cGMP and are ready for use in human clinical trials. In 2007, VGX filed a device master file (MAF) with the FDA covering the use of the CELLECTRA®-IM EP device in human clinical trials. The device is intended to be used in combination with a DNA plasmid product. VGX also filed an MAF with the FDA covering the use of the CELLECTRA®-ID EP device in 2009. It is anticipated that the device will be used in combination with VGX-3100, VGX-3400 and the family of PENNVAX™ vaccines. Inovio is also in early stage licensing discussions with other biotechnology companies for the use of the device in combination with their proprietary vaccine candidates.

The GHRH technology refers to LifeTide™ SW5, which was approved for use in pigs by the Australian Pesticides and Veterinary Medicines Authority (APVMA) on January 5, 2008. On September 10, 2008, VGX Animal Health, Inc., or VGX AH, a majority-owned subsidiary of the Company, signed a Marketing & Distribution Agreement with Country Vet Wholesaling Pty Ltd, an Australian proprietary company, for the sale of LifeTide™ SW5. In addition, VGX AH has submitted an application for marketing approval in New Zealand, and plans to seek marketing approvals in several other countries in South East Asia, including the Philippines and Indonesia. VGX AH has also initiated studies to support regulatory approval of this technology in other major markets, including the U.S. and China.

Management estimated the fair value of the VGX developed technology using reasonable assumptions based on historical experience. The valuation methodology used to estimate the value of the technologies was the excess earnings method. This method reflects the present value of the operating cash flows generated by the technologies after taking into account the cost to realize the revenue, and an appropriate discount rate to reflect the time value and risk associated with the assets. First, yearly revenues for each technology were forecasted for a projected period of time of 10 years. Related cost of sales and operating expenses were then deducted from the revenue stream. Next, in order to value the technology, the value and required rate of return for other assets that contribute to the generation of the revenue earned by that particular technology asset were determined. The required returns on these other assets (the other asset classes identified were: net working capital, fixed assets, and assembled workforce) were “charged to” (or rather deducted from) the future net operating income to determine the returns specifically earned by the technology. Then, a discount rate was applied that considered the reasonable expectation of the risk profile of the proprietary technology in order to bring the future income to a present value. In the case of CELLECTRA® technology, a discount rate of 45% was used for the core technology and 60% for the milestone and royalty; for the GHRH technology, a 45% discount rate was utilized.

There was no purchase price amount allocated to acquired in-process research and development.

The percentage of non-controlling ownership interest consists of 12% in VGX Animal Health and 88% ownership by the Company.  The estimated fair value utilized is based on the last round of financing by VGX AH in late 2007, in which that entity issued shares of its common stock to a third party. There have been no subsequent financing rounds. Inovio has updated the valuation model to reflect current assumptions and due to the fact that there have been no additional milestone events, such as additional marketing approval, significant licensing agreements, material adverse events, or large sales contracts that would have materially changed any of the key assumptions used in the last valuation of VGX AH, Inovio believes that the valuation used in the last round of financing continues to reflect current fair value.

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The Company’s investment in an affiliated entity represents the Company’s ownership interest in VGX International, Inc. (“VGX International”) and is measured at fair value. The fair market value of the Company’s interest in VGX International was determined using the closing price of VGX International’s shares of common stock as listed on the Korean Stock Exchange as of June 1, 2009.

The total purchase price of the acquisition is estimated as follows:

The fair value of the Inovio shares used in determining the purchase price was $0.63 per share based on the closing price of Inovio common stock on June 1, 2009.

The purchase price has been allocated to each major class of identifiable assets acquired and liabilities assumed based on their fair values as of June 1, 2009. The allocation to identifiable assets and liabilities is summarized below:

The excess of the purchase price over the fair value of net assets acquired resulted in goodwill of approximately $6.2 million.

The following unaudited pro forma financial information combines the results of operations of Inovio and VGX assuming the Merger was consummated on January 1, 2008. The pro forma results are not necessarily indicative of what would have occurred if the Merger had been in effect for the periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combined operations.

4.            Principles of Consolidation

These unaudited condensed consolidated financial statements include the accounts of Inovio Biomedical Corporation, incorporated in the state of Delaware, and its wholly-owned subsidiaries, Genetronics, Inc., a company incorporated in the state of California; VGX Pharmaceuticals, LLC, a company incorporated in the state of Delaware, Inovio AS and Inovio Tec AS, companies incorporated in Norway; and Inovio Asia Pte. Ltd. (“IAPL”), a company incorporated in the Republic of Singapore. All intercompany accounts and transactions have been eliminated upon consolidation.

Reorganization

In April 2009, the Company’s Board of Directors implemented a reduction in force which impacted our Norwegian operations.  In connection with this decision, the Company is in the process of dissolving Inovio AS and Inovio Tec AS, companies incorporated in Norway.  Accordingly, operations for Inovio AS ceased on July 31, 2009.  As of September 30, 2009, all significant expenses related to this reorganization have been incurred.

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5.                                      Marketable Securities and Fair Value Measurements

The guidance regarding fair value measurements establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company’s financial assets measured at fair value on a recurring basis at September 30, 2009 are as follows:

Level 1 assets include the Company’s investment in VGX International, Inc., for which the fair value is based on the market value of 8,075,775 common shares on September 30, 2009 listed on the Korean Stock Exchange.

The Company has determined that no items meet the criteria for definition within the Level 2 hierarchy. Level 3 assets held as of September 30, 2009 include municipal debt obligations known as auction rate securities (“ARS”).  Due to conditions in the global credit markets, these securities, representing a par value of $13.6 million, are currently not liquid.

In December 2008, the Company, via its wholly-owned subsidiary Genetronics, Inc. (“Genetronics”), which holds the ARS, accepted an offer of ARS Rights from UBS. The ARS Rights permit the Company to require UBS to purchase the Company’s ARS at par value at any time during the period of June 30, 2010 through July 2, 2012. If the Company does not exercise its ARS Rights, the ARS will continue to accrue interest as determined by the terms of the ARS. If the ARS Rights are not exercised before July 2, 2012 they will expire and UBS will have no further obligation to buy the Company’s ARS. UBS has the discretion to purchase or sell the Company’s ARS at any time without prior notice so long as the Company receives a payment at par upon any sale or disposition. UBS will only exercise its discretion to purchase or sell the Company’s ARS for the purpose of restructurings, dispositions or other solutions that will provide the Company with par value for its ARS. As a condition to accepting the offer of ARS Rights, the Company released UBS from all claims except claims for consequential damages relating to its marketing and sales of ARS. The Company also agreed not to serve as a class representative or receive benefits under any class action settlement or investor fund.

While the Company continues to earn interest on its ARS at the maximum contractual rates, these investments are not currently trading and therefore do not currently have a readily determinable market value. Accordingly, the estimated fair value of the ARS no longer approximates par value. The Company has used a discounted cash flow model to determine the estimated fair value of its investment in ARS and its ARS Rights as of September 30, 2009. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows and expected holding period of the ARS and ARS Rights.

At June 30, 2009, these ARS investment securities and the ARS and Put option were reclassified from long-term assets to current assets due to the time frame in which they can be readily convertible to cash.

The Company elected to measure the ARS Rights at fair value to mitigate volatility in reported earnings due to their linkage to the ARS.  The ARS Rights will continue to be measured at fair value utilizing Level 3 inputs until the earlier of their maturity or exercise.

The following table presents a summary of changes in fair value of the Company’s assets measured on a recurring basis using Level 3 inputs for the nine months ended September 30, 2009:

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6.            Line of Credit

On August 26, 2008, the Company received notice from UBS Bank USA (“UBS”) that the Company’s application had been approved for a $5.0 million uncommitted demand revolving line of credit (“Line of Credit”) secured by ARS held by the Company in an account with UBS Financial Services, Inc. (the “Collateral Account”), to provide additional working capital. On December 19, 2008, the Company amended its existing loan agreement with UBS Bank USA, increasing the existing credit line up to $12.1 million, with the ARS pledged as collateral. The Company fully drew down on the line of credit on December 23, 2008. Advances under the Line of Credit bear interest at LIBOR plus 1.00% (the “Spread Over LIBOR”). UBS may change the Spread Over LIBOR at its discretion when the Collateral consisting of ARS may be sold, exchanged or otherwise conveyed by the Company for gross proceeds that are, in the aggregate, not less than the par value of such securities. The loan is treated as a “no net cost loan”, as it bears interest at a rate equal to the average rate of interest paid to the Company on the pledged ARS, and the net interest cost to the Company is zero.

7.            Goodwill and Intangible Assets

In accordance with the guidance regarding goodwill and other intangible assets, the Company’s goodwill is not amortized, but is subject to an annual impairment test which is performed by the Company as of November each year or sooner if indicators of impairment exist. The following sets forth the intangible assets by major asset class:

(a) Goodwill was recorded from the Inovio AS acquisition in January 2005 and from the acquisition of VGX in June 2009 for $3.9 million and $6.2 million, respectively.

(b) Other intangible assets represent the fair value of acquired contracts and intellectual property from the Inovio AS acquisition.

(c) CELLECTRA® and GHRH are developed technologies which were recorded from the acquisition of VGX.

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Aggregate amortization expense on intangible assets for the three and nine months ended September 30, 2009 was $489,000 and $955,000, respectively, and for the three and nine months ended September 30, 2008 was $200,000 and $615,000, respectively.   The estimated aggregate amortization expense for each of the five succeeding fiscal years is $484,000 for the remainder of fiscal year 2009, $1.9 million for 2010, $1.9 million for 2011, $1.8 million for 2012, and $1.8 million for 2013.

8.            Stockholders’ Equity

The following is a summary of the Company’s authorized and issued common and preferred stock as of September 30, 2009 and December 31, 2008:

Preferred Stock

The following is a summary of changes in the number of outstanding shares of the Company’s preferred stock for the three months ended September 30, 2009 and 2008:

The following is a summary of changes in the number of outstanding shares of the Company’s preferred stock for the nine months ended September 30, 2009 and 2008:

During the three and nine months ended September 30, 2009, 45 shares of the Company’s Series C preferred stock were converted into 66,176 shares of the Company’s common stock.

Convertible Subordinated Promissory Notes

On June 1, 2009, the Company consummated the transactions contemplated by the Merger Agreement.  VGX Pharmaceuticals, Inc. had an aggregate of $4,400,000 in principal amount of convertible subordinated promissory notes, and an aggregate of $468,000 in accrued and unpaid interest on such notes, as of June 30, 2009.  Pursuant to the Merger Agreement the notes were convertible at the selling stockholders’ option into our common stock; the notes also automatically converted into the Company’s common stock in the event that the Company’s common stock traded at or above $2.10 per

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share for five consecutive trading days. The conversion price of the notes was $1.05 per share. As of August 4, 2009, the Company’s common stock had traded at or above $2.10 per share for five consecutive trading days, and the notes were automatically converted into 4,600,681 shares of Inovio’s common stock.  Such shares are subject to a lock-up agreement which provides that such shares may not be sold for a period of 180 days following the date the Merger closed, provided that such restriction lapsed with respect to 50% of such shares on that date that is 90 days from the date the Merger closed.

Common Stock

In July 2009, the Company entered into a securities purchase agreement with certain institutional investors relating to the sale and issuance of (a) 11,111,110 shares of common stock and (b) warrants to purchase a total of 2,777,776 shares of common stock with an exercise price of $3.50 per share, for an aggregate purchase price of approximately $30 million.  The warrants will be exercisable beginning six months after issuance and will expire six months from the date they are first exercisable. The shares of common stock and warrants were sold in units, consisting of one share of common stock and a warrant to purchase 0.25 of a share of common stock, at a purchase price of $2.70 per unit.  The Company received net proceeds from the transaction of approximately $28.4 million, after deducting offering expenses.  As of September 30, 2009, none of these warrants have been exercised.

Upon the closing of the Merger in June 2009, an aggregate of 41,492,758 shares of the Company’s common stock were issued to the former stockholders of VGX, and an additional 18,794,187 shares of the Company’s common stock were reserved for issuance upon exercise of the assumed options and warrants and conversion of the principal of and maximum interest payable on the VGX convertible debt.  In August 2009 the VGX convertible debt was automatically converted into 4,600,681 shares of the Company’s common stock.

In August 2007, the Company entered into an agreement with an outside consulting advisor pursuant to which the Company issued 230,000 registered shares of common stock and registered warrants to purchase 150,000 shares of common stock, as payment of a non-refundable retainer in connection with the engagement of its services. The warrants issued have an exercise price of $3.00 per share, and are exercisable through August 6, 2012. As of September 30, 2009, none of these warrants have been exercised.

In May 2007, the Company completed a registered equity financing, whereby it sold 4,595,094 shares of common stock resulting in gross aggregate cash proceeds of $16.2 million.

In March 2007, the Company entered into an agreement in which it agreed to issue a total of 90,000 restricted shares of common stock in equal quarterly installments in exchange for consulting services. As of September 30, 2009, the Company had issued all 90,000 restricted common shares.

In March 2007, the Company terminated its exclusive royalty-free license to IAPL allowing the Company’s subsidiary to use certain of the Company’s intellectual property, which had been issued in October 2006 prior to the ordinary share financing described below, in exchange for 6,584,365 ordinary shares of IAPL. Upon termination the Company retained the IAPL ordinary shares received in the license transaction.

In January 2007, the Company exchanged for 2,201,644 restricted shares of common stock and warrants to purchase up to 770,573 restricted shares of common stock for 2,201,644 ordinary shares of its Singapore subsidiary Inovio Asia Pte. Ltd. (IAPL), pursuant to the terms of the Securities Purchase and Exchange Agreement under which the ordinary shares were originally issued by IAPL in October 2006 for $5.3 million. The warrants issued have an exercise price of $2.87 per share and are exercisable through October 13, 2011. As of September 30, 2009, none of these warrants have been exercised.

In October 2006, the Company completed a registered offering with foreign investors, whereby it sold 4,074,067 shares of common stock and issued warrants to purchase 1,425,919 shares of common stock which resulted in gross aggregate cash proceeds of $9.9 million. As part of this offering, the Company informed holders of our then outstanding Series C Preferred Stock who held participation rights of their ability to participate in the offering based upon the pricing of the transaction and the applicable liquidation preference for their series of preferred shares. Some of these stockholders had previously converted a portion of their shares of preferred stock pursuant to their optional conversion rights, and most of these stockholders wholly converted their remaining shares of the Company’s preferred stock through exercise of their participation rights in this offering. By electing to participate in this offering, these stockholders converted 115.12 shares of previously issued Series C Preferred Stock and $14,571 of accrued dividends into 479,722 restricted shares of common stock and warrants to purchase 167,902 restricted shares of common stock. These participating stockholders received 304,450 additional restricted shares of the Company’s common stock as compared to the number of shares of the Company’s common stock into which their existing Series C Preferred Stock could have been converted under the original terms of the Series C

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Preferred Stock. As a result, the Company recorded an imputed dividend charge of $1.9 million related to the participating stockholders who converted $1.2 million of their previous Series C Preferred Stock investment. The Company calculated this imputed dividend charge, where the incremental number of shares of common stock which was received by participating Series C Preferred Stockholders was multiplied by the price of the Company’s common stock on the commitment date of the original Series C Preferred Stock issuance, or $6.08 per share, to calculate the imputed dividend charge associated with this beneficial conversion. All warrants issued in connection with the 2006 registered offering have an exercise price of $2.87 per share and are exercisable through October 13, 2011. As of September 30, 2009, none of these warrants have been exercised.

The Company accounts for registered common stock warrants issued in October 2006, August 2007 and July 2009 under the authoritative guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, on the understanding that in compliance with applicable securities laws, the registered warrants require the issuance of registered securities upon exercise and do not sufficiently preclude an implied right to net cash settlement. The Company classifies registered warrants on the consolidated balance sheet as a current liability which is revalued at each balance sheet date subsequent to the initial issuance. Determining the appropriate fair-value model and calculating the fair value of registered warrants requires considerable judgment, including estimating stock price volatility and expected warrant life. The Company develops its estimates based on historical data. A small change in the estimates used may have a relatively large change in the estimated valuation. The Company uses the Black-Scholes pricing model to value the registered warrants. Changes in the fair market value of the warrants are reflected in the consolidated statement of operations as “Other income/(expense), net.”

Warrants

In addition to warrants granted as discussed above, the Company has issued the following additional warrants:

On June 1, 2009, pursuant to the terms of the Merger Agreement the Company assumed all of the outstanding warrants to purchase shares of VGX common stock.  Such warrants are exercisable to purchase 4,923,406 shares of common stock at a weighted average exercise price of $1.10.  As of September 30, 2009, none of these warrants have been exercised.

Participants in the Company’s December 2005 private placement were issued five-year warrants to purchase an aggregate of 3,462,451 shares of the Company’s common stock with an exercise price of $2.93 per share, exercisable through December 30, 2010. As of September 30, 2009, none of these warrants have been exercised.

In connection with the leasing of its corporate headquarters, the Company issued a warrant to purchase 50,000 shares of common stock at $5.00 per share to the landlord of this leased facility in December 2004. This warrant is immediately exercisable and expires on December 6, 2009, five years from the date of issuance. This warrant was valued on the date of issuance using the Black-Scholes pricing model. The fair value of this warrant, $121,000, will be recognized ratably over the five-year term of the lease as rent expense. As of September 30, 2009, none of these warrants have been exercised.

On September 15, 2000, the Company entered into an exclusive license agreement with the University of South Florida Research Foundation, Inc. (USF), whereby USF granted the Company an exclusive, worldwide license to USF’s rights in patents and patent applications generally related to needle electrodes (“License Agreement”). Pursuant to the License Agreement, the Company granted USF and its designees warrants to acquire 150,000 common shares for $9.00 per share until September 14, 2010. Of the total warrants granted, 75,000 vested at the date of grant and the remainder will vest upon the achievement of certain milestones. The 75,000 non-forfeitable vested warrants were valued at $554,000 using the Black-Scholes pricing model and were recorded as other assets with a credit to additional paid-in capital. The remaining 75,000 warrants are forfeitable and will be valued at the fair value on the date of vesting using the Black-Scholes pricing model. As of September 30, 2009, no warrants issued in connection with this licensing agreement had been exercised.

In July 2008, warrants to purchase 2,001,552 shares of the Company’s common stock, issued in connection with the Company’s Series A and B Preferred Stock offerings, expired.

In May 2009, warrants to purchase 713,603 shares of the Company’s common stock, issued in connection with Company’s Series C Preferred Stock offering, expired.

Stock Options

The Company has one active stock and cash-based incentive plan, the Amended and Restated 2007 Omnibus Incentive Plan (the “Incentive Plan”), pursuant to which the Company has granted stock options and restricted stock awards to executive officers, directors and employees. The plan was adopted on March 31, 2007, approved by the stockholders on

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May 4, 2007, approved by the stockholders as amended on May 2, 2008, and approved by the stockholders as amended and restated on August 25, 2009. The Incentive Plan reserves 3,750,000 shares of common stock for issuance as or upon exercise of incentive awards granted and to be granted at future dates. At September 30, 2009, the Company had 592,876 shares of common stock available for future grant under the plan, and 240,000 shares of vested restricted stock and options to purchase 2,772,999 shares of common stock outstanding under the plan. The awards granted and available for future grant under the Incentive Plan generally have a term of ten years and generally vest over a period of three years. The Incentive Plan terminates by its terms on March 31, 2017.

The Incentive Plan supersedes all of the Company’s previous stock option plans, which include the 1997 Stock Option Plan, under which the Company had options to purchase 3,750 shares of common stock outstanding and the Amended 2000 Stock Option Plan, under which the Company had options to purchase 2,396,870 shares of common stock outstanding at September 30, 2009. The terms and conditions of the options outstanding under these plans remain unchanged.

9.            Net loss per share

Basic loss per share is computed by dividing the net loss for the year by the weighted average number of common shares outstanding during the year. Diluted loss per share is calculated in accordance with the treasury stock method and reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. Since the effect of the assumed exercise of common stock options and other convertible securities was anti-dilutive for all periods presented in 2009 and 2008, there is no difference between basic and diluted loss per share.

10.          Stock-Based Compensation

The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility and expected option life. The Company amortizes the fair value of the awards on a straight-line basis. All option grants are amortized over the requisite service period of the awards. Expected volatility is based on historical volatility. The expected life of options granted is based on historical expected life. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. The forfeiture rate is based on historical data and the Company records stock-based compensation expense only for those awards that are expected to vest. The dividend yield is based on the fact that no dividends have been paid historically and none are currently expected to be paid.

The assumptions used to estimate the fair value of stock options granted for the three and nine month period ended September 30, 2009 and 2008 are presented below:

Total compensation cost for the Company’s stock plans that has been recognized in the condensed consolidated statement of operations for the three and nine months ended September 30, 2009 was $749,000 and $1.6 million, respectively, of which $389,000 and $541,000 was included in research and development expenses and $360,000 and $1.1 million was included in general and administrative expenses, respectively.

Total compensation cost for the Company’s stock plans that has been recognized in the condensed consolidated statement of operations for the three and nine months ended September 30, 2008 was $270,000 and $797,000, respectively, of which $76,000 and $222,000 was included in research and development expenses and $194,000 and $575,000 was included in general and administrative expenses, respectively.

As of September 30, 2009, there was $1.4 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements for Inovio stock options, which is expected to be recognized over a weighted-average period of three years, as well as $770,000 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements from VGX stock options assumed in the Merger, which is expected to be recognized over a weighted-average period of 1.6 years. All compensation expense related to Inovio stock options granted prior to the Merger was fully vested upon the Merger.

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As of September 30, 2008, there was $978,000 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements for Inovio stock options, which was expected to be recognized over a weighted-average period of one year.

The weighted average grant date fair value per share was $1.27 and $1.25 for employee stock options granted during the three and nine months ended September 30, 2009, respectively, excluding VGX stock options assumed pursuant to the merger, and $1.06 and $0.98 for employee stock options granted during the three and nine months ended September 30, 2008, respectively.

There was no restricted stock granted during the three and nine months ended September 30, 2009.  The weighted average grant date fair value per share was $0.87 for non-vested restricted stock granted during the nine months ended September 30, 2008.  There was no restricted stock granted during the three months ended September 30, 2008.

At September 30, 2009, there was no unrecognized compensation cost related to non-vested restricted stock as all restricted stock became vested upon the Merger.  At September 30, 2008, there was $216,000 of total unrecognized compensation cost related to non-vested restricted stock, which was expected to be recognized over a weighted-average period of 1.3 years.

The fair value of options granted to non-employees at the measurement dates were estimated using the Black-Scholes pricing model. Total stock-based compensation for options granted to non-employees for the three and nine months ended September 30, 2009 was $185,000 and $221,000, respectively.  Total stock-based compensation for options granted to non-employees for the three and nine months ended September 30, 2008 was $8,000 and $47,000, respectively.

VGX AH, a majority owned subsidiary of VGX, has adopted a 2007 equity incentive plan for the issuance of options to employees and consultants.  There were no options granted during the three and nine months ended September 30, 2009, and 409,500 options were granted during the three and nine months ended September 30, 2008.

11.                              Comprehensive Loss

Comprehensive loss for the three and nine months ended September 30, 2009 and September 30, 2008 includes net loss, foreign currency translation adjustments and unrealized losses on investments.  A summary of the Company’s comprehensive loss is as follows:

12.                              Supplemental Disclosures of Cash Flow Information