Business Context and Reporting Period
This Form 8-K was filed by OncoCyte Corporation (trading symbol: OCX) on December 23, 2019. The filing reports the entry into a material definitive agreement for a new principal executive, administrative, and laboratory facility located at 15 Cushing, Irvine, California. The company is an emerging growth company.
Key Financial Metrics and Lease Terms
The filing details a new 89-month lease for approximately 26,800 square feet. Key financial terms include:
- Base Rent: $61,640 per month for the first 12 months, increasing annually by 3.5%.
- Rent Abatement: 50% abatement of base rent for the first 10 calendar months of the term.
- Tenant Improvement Allowance: $1,340,000 provided by the lessor for construction and design (less a 1.5% administrative fee).
- Security Deposit: $150,000 cash.
- Letter of Credit: $1,700,000 required to secure the lease.
- Operating Expenses: OncoCyte is responsible for operating expenses and real estate taxes, subject to a 4% annual cumulative cap on expense increases.
The filing does not provide specific revenue, profit, cash flow, or margin data for the reporting period.
Material Changes
OncoCyte terminated its Shared Facilities and Services Agreement with Lineage Cell Therapeutics, Inc., effective December 31, 2019, in connection with the new lease. The company expects to relocate its offices in January 2020 and its laboratories later in 2020.
Outlook, Risks, and Contingencies
Management provided forward-looking statements regarding the relocation and construction of clinical and research laboratories. Key risks and contingencies include:
- Construction Risks: Uncertainty regarding the availability of contractors, costs, and timelines for building improvements.
- Liquidity Impact: The company must maintain a restricted cash deposit to cover the $1.7 million letter of credit, limiting available liquidity.
- Default Consequences: Failure to pay rent or perform obligations could result in the lessor drawing on the letter of credit or applying the security deposit. If the lease is terminated due to default, OncoCyte may be obligated to pay previously abated rent.
- Market Rate Determination: Rent for the optional five-year extension will be based on the greater of the final year's rent or the prevailing market rate, which may be subject to appraisal disputes.
Investor Verification Checklist
- Verify the company's current cash position to ensure it can fund the restricted cash deposit for the $1.7 million letter of credit.
- Confirm the timeline and budget for the $1.34 million tenant improvement allowance and potential cost overruns.
- Review the most recent Form 10-K and 10-Q for detailed risk factors and liquidity status.
- Monitor the completion of the office relocation in January 2020 and the subsequent laboratory construction.