|
OMB
APPROVAL
|
OMB
Number: 3235-0416
Expires:
January 31, 2007
Estimated
Average burden
Hours
per response……136
|
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
(Mark
One)
x QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
quarterly period ended July 31, 2006
o TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For
the
transition period from to ________________ to
Commission
file number 000
28489
Advaxis,
Inc.
(Exact
name of small business issuer as specified in its charter)
Delaware
|
841521955
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
The
Technology Center of New Jersey, 675 Route 1, Suite 119, North Brunswick, NJ
08902
(Address
of principal executive offices)
(732)
545-1590
(Issuer’s
telephone number)
Great
Expectations and Associates Inc.
(Former
name, former address and former fiscal year, if changed since last
report)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 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
State
the
number of shares outstanding of each of the issuer’s classes of common equity,
as of July 31, 2006:
39,150,100
shares outstanding of the Company’s Common Stock, par value $.001 per share
Transitional
Small Business Disclosure Format (Check one): Yes o Nox
Persons
who are to respond to the collection of information contained in this form
are
not required to respond unless the form displays a currently valid OMB control
number.
ADVAXIS,
INC.
(A
Development Stage Company)
July
31, 2006
INDEX
|
Page
No.
|
|
|
PART
I - FINANCIAL INFORMATION
|
|
|
|
Item
1. Condensed Financial Statements
|
|
|
|
Condensed
Balance Sheet at July 31, 2006 (unaudited)
|
3
|
|
|
Condensed
Statements of Operations for the three and nine-month periods ended
July
31, 2006 and 2005 and the period March 1, 2002 (inception) to July
31,
2006 (unaudited)
|
4
|
|
|
Condensed
Cash Flow Statements for the nine-month periods ended July 31, 2006
and
2005 and the period March 1, 2002 (inception) to July 31, 2006
(unaudited)
|
5
|
|
|
Notes
to Condensed Financial Statements
|
7
|
|
|
Item
2. Plan of Operations
|
12
|
|
|
Item
3. Controls and Procedures
|
14
|
|
|
PART
II - OTHER INFORMATION
|
|
|
|
Item
1. Legal Proceedings
|
15
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
15
|
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
15
|
|
|
Item
5. Other Information
|
15
|
|
|
Item
6. Exhibits and Reports on Form 8-K
|
16
|
|
|
SIGNATURES
|
17
|
|
|
CERTIFICATIONS
|
18
|
PART
I
Item
1. Financial Statements
ADVAXIS,
INC.
(A
Development Stage Company)
Condensed
Balance Sheet
|
|
July
31, 2006
|
|
|
|
(Unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash
|
|
$
|
3,347,222
|
|
Prepaid
expenses
|
|
|
34,973
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
3,382,195
|
|
|
|
|
|
|
Property
and Equipment (net of accumulated depreciation of $20,037)
|
|
|
66,944
|
|
|
|
|
|
|
Intangible
Assets (net of accumulated amortization of $81,798)
|
|
|
908,323
|
|
|
|
|
|
|
Deferred
Financing Costs (net of accumulated amortization of
$39,019)
|
|
|
220,981
|
|
|
|
|
|
|
Other
Assets
|
|
|
19,216
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
4,597,659
|
|
|
|
|
|
|
LIABILITIES
& SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
800,541
|
|
|
|
|
|
|
Accrued
expenses
|
|
|
339,981
|
|
|
|
|
|
|
Notes
payable - current portion
|
|
|
60,568
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
1,201,090
|
|
|
|
|
|
|
Interest
payable
|
|
|
78,037
|
|
|
|
|
|
|
Notes
payable - net of current portion
|
|
|
443,000
|
|
|
|
|
|
|
Convertible
Secured Debentures
|
|
|
2,266,799
|
|
|
|
|
|
|
Embedded
Derivative Liability
|
|
|
562,716
|
|
|
|
|
|
|
Common
Stock Warrants Liability
|
|
|
266,370
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
4,818,012
|
|
|
|
|
|
|
Shareholders’
Equity:
|
|
|
|
|
Common
Stock - $0.001 par value; authorized 500,000,000 shares, issued
and
outstanding 39,150,100
|
|
|
39,150
|
|
Additional
Paid-In Capital
|
|
|
5,652,963
|
|
|
|
|
|
|
Deficit
accumulated during the development stage
|
|
|
(5,912,466
|
)
|
Total
Shareholders' Equity
|
|
|
(220,353
|
)
|
TOTAL
LIABILITIES & SHAREHOLDERS’ EQUITY
|
|
$
|
4,597,659
|
|
See
accompanying notes to condensed financial statements.
ADVAXIS,
INC.
(A
Development Stage Company)
Condensed
Statement of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
3
Months
|
|
3
Months
|
|
9
Months
|
|
9
Months
|
|
March
1, 2002
|
|
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
(Inception)
to
|
|
|
|
July
31,
|
|
July
31,
|
|
July
31,
|
|
July
31,
|
|
July
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
Revenue
|
|
$
|
-
|
|
$
|
440,851
|
|
$
|
397,312
|
|
$
|
440,851
|
|
$
|
1,070,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
& Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
262,257
|
|
|
401,278
|
|
|
1,098,190
|
|
|
965,783
|
|
|
2,942,074
|
|
General
& Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
426,497
|
|
|
444,628
|
|
|
1,444,068
|
|
|
847,605
|
|
|
3,710,800
|
|
Total
Operating expenses
|
|
|
688,754
|
|
|
845,906
|
|
|
2,542,258
|
|
|
1,813,388
|
|
|
6,652,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(688,754
|
)
|
|
(405,055
|
)
|
|
(2,144,946
|
)
|
|
(1,372,537
|
)
|
|
(5,582,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(151,100
|
)
|
|
(1,008
|
)
|
|
(265,109
|
)
|
|
(6,299
|
)
|
|
(293,837
|
)
|
Other
Income
|
|
|
27,928
|
|
|
17,459
|
|
|
63,290
|
|
|
31,371
|
|
|
108,813
|
|
Net
changes in fair value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liability
and embedded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivative
liability
|
|
|
128,652
|
|
|
-
|
|
|
(101,271
|
)
|
|
-
|
|
|
(101,271
|
)
|
Net
loss
|
|
|
(683,274
|
)
|
|
(388,604
|
)
|
|
(2,448,036
|
)
|
|
(1,347,465
|
)
|
|
(5,868,583
|
)
|
Dividends
attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
preferred
shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
$
|
(683,274
|
)
|
$
|
(388,604
|
)
|
$
|
(2,448,036
|
)
|
$
|
(1,347,465
|
)
|
$
|
(5,912,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted
|
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
diluted
|
|
|
38,880,998
|
|
|
37,319,731
|
|
|
38,294,316
|
|
|
35,180,722
|
|
|
24,008,053
|
|
See
accompanying notes to condensed financial statements.
ADVAXIS,
INC.
(A
Development Stage Company)
Condensed
Statement of Cash Flows
(Unaudited)
|
|
9
Months ended
July
31,
|
|
9
Months ended
July
31,
|
|
Period
from March 1
2002
(Inception) to July 31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,448,036
|
)
|
$
|
(1,347,467
|
)
|
$
|
(5,868,582
|
)
|
Adjustments
to reconcile net loss
|
|
|
|
|
|
|
|
|
|
|
to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges to consultants and employees for options and stock
|
|
|
326,108
|
|
|
42,527
|
|
|
582,102
|
|
Amortization
of deferred financing costs
|
|
|
39,019
|
|
|
-
|
|
|
39,019
|
|
Non-cash
interest expense
|
|
|
144,614
|
|
|
159,982
|
|
|
144,614
|
|
Accrued
interest on notes payable
|
|
|
81,028
|
|
|
11,299
|
|
|
93,336
|
|
Loss
on change in value of warrants and embedded derivative
|
|
|
101,271
|
|
|
|
|
|
101,271
|
|
Value
of penalty shares issued
|
|
|
|
|
|
117,498
|
|
|
117,498
|
|
Depreciation
expense
|
|
|
12,605
|
|
|
3,442
|
|
|
20,037
|
|
Amortization
expense of intangibles
|
|
|
32,311
|
|
|
24,248
|
|
|
84,969
|
|
Increase
in prepaid expenses
|
|
|
(34,973
|
)
|
|
|
|
|
(34,973
|
)
|
Increase
in other assets
|
|
|
(14,616
|
)
|
|
(4,600
|
)
|
|
(19,216
|
)
|
Increase
(decrease) in accounts payable
|
|
|
148,654
|
|
|
(200,145
|
)
|
|
1,115,747
|
|
Increase
in accrued expenses
|
|
|
339,981
|
|
|
-
|
|
|
339,981
|
|
Net
cash used in operating activities
|
|
|
(1,272,034
|
)
|
|
(1,193,216
|
)
|
|
(3,284,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Cash
paid on acquisition of Great Expectations
|
|
|
-
|
|
|
(44,940
|
)
|
|
(44,940
|
)
|
Purchase
of property and equipment
|
|
|
(6,404
|
)
|
|
(79,028
|
)
|
|
(86,981
|
)
|
Cost
of intangible assets
|
|
|
(189,546
|
)
|
|
(221,166
|
)
|
|
(906,211
|
)
|
Net
cash used in Investing Activities
|
|
|
(195,950
|
)
|
|
(345,134
|
)
|
|
(1,038,132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from convertible secured debenture
|
|
|
3,000,000
|
|
|
-
|
|
|
3,000,000
|
|
Cash
paid for deferred financing costs
|
|
|
(260,000
|
)
|
|
-
|
|
|
(260,000
|
)
|
Proceeds
from notes payable
|
|
|
|
|
|
|
|
|
671,224
|
|
Net
proceeds of issuance of Preferred Stock
|
|
|
|
|
|
|
|
|
235,000
|
|
Net
proceeds of issuance of Common Stock
|
|
|
|
|
|
4,023,327
|
|
|
4,023,327
|
|
Net
cash provided by Financing Activities
|
|
|
2,740,000
|
|
|
4,023,327
|
|
|
7,669,551
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
1,272,016
|
|
|
2,484,977
|
|
|
3,347,222
|
|
Cash
at beginning of period
|
|
|
2,075,206
|
|
|
32,279
|
|
|
0.00
|
|
Cash
at end of period
|
|
$
|
3,347,222
|
|
$
|
2,517,256
|
|
$
|
3,347,222
|
|
See
accompanying notes to condensed financial statements.
Supplemental
Schedule of Noncash Investing and Financing Activities
|
|
9
Months
|
|
9
Months
|
|
Period
from
|
|
|
|
ended
|
|
ended
|
|
March
1, 2002
|
|
|
|
July
31,
|
|
July
31,
|
|
(Inception)
to
|
|
|
|
2006
|
|
2005
|
|
July
31, 2006
|
|
Common
Stock issued to Founders
|
|
|
|
|
|
|
|
$
|
40
|
|
Notes
payable and accrued interest
|
|
|
|
|
|
|
|
|
|
|
converted
to Preferred Stock
|
|
|
|
|
|
|
|
$
|
15,969
|
|
Stock
dividend on Preferred Stock
|
|
|
|
|
|
|
|
$
|
43,884
|
|
Notes
payable and accrued interest
|
|
|
|
|
|
|
|
|
|
|
converted
to Common Stock
|
|
$
|
150,000
|
|
$
|
613,158
|
|
$
|
763,158
|
|
Intangible
assets acquired with notes payable
|
|
|
|
|
|
|
|
$
|
360,000
|
|
Debt
discount in connection with recording the original value
of
|
|
|
|
|
|
|
|
|
|
|
the
embedded derivative liability
|
|
$
|
512,865
|
|
|
|
|
$
|
512,865
|
|
Allocation
of the original secured convertible debentures to
|
|
|
|
|
|
|
|
|
|
|
warrants
|
|
$
|
214,950
|
|
|
|
|
$
|
214,950
|
|
ADVAXIS,
INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
1.
Business description
We
are a
development stage biotechnology company utilizing multiple mechanisms of
immunity with the intent to develop cancer vaccines that are more effective
and
safer than existing vaccines. To that end, we have licensed rights from the
University of Pennsylvania (“Penn”) to use a patented system to engineer a live
attenuated Listeria monocytogenes bacteria (the “Listeria System”) to secrete a
protein sequence containing a tumor-specific antigen. Using the Listeria System,
we believe we will force the body’s immune system to process and recognize the
antigen as if it were foreign, creating the immune response needed to attack
the
cancer. Our licensed Listeria System, developed at Penn over the past 10 years,
provides a scientific basis for believing that this therapeutic approach induces
a significant immune response to a tumor. Accordingly, we believe that the
Listeria System is a broadly enabling platform technology that can be applied
to
many types of cancers. In addition, we believe there may be useful applications
in infectious diseases and auto-immune disorders. The therapeutic approach
that
comprises the Listeria System is based upon the innovative work of Yvonne
Paterson, Ph.D., Professor of Microbiology at Penn, involving the creation
of
genetically engineered Listeria that stimulate the innate immune system and
induce an antigen-specific immune response involving humoral and cellular
components. We have obtained an exclusive 20-year license from Penn to exploit
the Listeria System, subject to meeting various royalty and other obligations
(the “Penn License”).
The
accompanying unaudited interim consolidated financial statements include all
adjustments (consisting only of those of a normal recurring nature) necessary
for a fair statement of the results of the interim period. These interim
Financial Statements should be read in conjunction with the Company’s Financial
Statements and Notes for the year ended October 31, 2005 filed on form
10-KSB.
Since
inception through July 31, 2006, all of the Company’s revenue has been from
grants. For the three and nine-month periods ended July 31, 2006, all of the
revenue was received from three National Institute of Health (“NIH”)
grants.
2.
Stock-based Employee Compensation Expense
Effective
November 1, 2005, the Company adopted the fair value based method of accounting
for stock-based employee compensation under the provisions of Statement of
Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),
Accounting
for Stock-Based Payment
(“SFAS
123(R)”) which requires the measurement and recognition of compensation expense
for all share-based payment awards made to employees and directors for employee
stock options based on estimated fair values. SFAS 123(R) supersedes the
Company’s previous accounting under the Accounting Principles Board Option No.
25, Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning
in fiscal 2006. The adoption of SFAS 123R may materially impact our future
results of operations, although it will have no impact on our overall liquidity.
The
Company adopted SFAS 123(R) using the modified prospective transition method,
which requires the application of the accounting standard as of November 1,
2005, the first day of the Company’s fiscal year 2006. The Company’s Condensed
Financial Statements for the nine months ended July 31, 2006 reflect the impact
of SFAS 123(R). In accordance with the modified prospective transition method,
the Company’s Condensed Financial Statements for prior periods have not been
restated to reflect, and do not include the impact of SFAS 123(R). Stock-based
compensation expense for the three and nine months ended July 31, 2006 was
$12,656 and $46,766, respectively which consists of stock-based compensation
expense related to employee and director stock options. Stock-based compensation
expense was not reflected for the three months and nine months ended July 31,
2005 for employee stock based awards in which goods or services were the
consideration received for the equity instrument issued based on the fair value
of the equity instrument in accordance with the previous accounting standard.
The
Company began recognizing expense, in an amount equal to the fair value of
share-based payments (stock option awards) on their date of grant, over the
vesting period of the awards. Under the modified prospective method,
compensation expense for the Company is recognized for all share based
payments granted and vested on or after November 1, 2005 and all awards
granted to employees prior to November 1, 2005 that were unvested on that date
but vested in the period. Prior to the adoption of the fair value method, the
Company accounted for stock-based compensation to employees under the intrinsic
value method of accounting set forth in Accounting Principles Board Opinion
No. 25, Accounting
for Stock Issued to Employees,
and
related interpretations. Therefore, compensation expense related to employee
stock options was not reflected in operating expenses in any period prior to
the
first quarter of 2006 and prior period results have not been restated. In the
three months and nine months ended July 31, 2005, had the Company adopted the
fair value based method of accounting for stock-based employee compensation
under the provisions of SFAS No. 123, Stock Option Expense would have
totaled $52,701 and $136,702 respectively, and the effect on the Company’s net
income and net income per share would have been as follows:
|
|
Three
Months
Ended
July
31,
2005
|
|
Nine
Months
Ended
July
31,
2005
|
|
Net
loss, as reported
|
|
$
|
(388,604
|
)
|
$
|
(1,347,465
|
)
|
Add:
Stock based compensation expense included in recorded net
income
|
|
|
20,748
|
|
|
42,527
|
|
Deduct:
total stock-based employee compensation expense determined under
fair
|
|
|
|
|
|
|
|
value
based method for all awards
|
|
|
(52,701
|
)
|
|
(136,702
|
)
|
|
|
|
|
|
|
|
|
Net
loss, as reported
|
|
|
|
|
|
|
|
Pro
forma net loss
|
|
$
|
(420,557
|
)
|
$
|
(1,441,640
|
)
|
Net
loss per share amounts; basic and diluted:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
Pro
forma
|
|
$
|
(0.01
|
)
|
$
|
(0.04
|
)
|
The
fair
value of each option granted from the Company’s stock option plans during the
three and nine months ended July 31, 2006 was estimated on the date of grant
using the Black-Scholes option-pricing model. Using this model, fair value
is
calculated based on assumptions with respect to (i) expected volatility of
the Company’s Common Stock price, (ii) the periods of time over which employees
and Board Directors are expected to hold their options prior to exercise
(expected lives), (iii) expected dividend yield on the Company’s Common
Stock, and (iv) risk-free interest rates, which are based on quoted U.S.
Treasury rates for securities with maturities approximating the options’
expected lives. Expected volatility for a development stage biotechnology
company is very difficult to estimate as such; management has based its estimate
in part on actual movements in the Company’s stock price (0.06% to 0.36%
volatility), and used the volatility of other companies in our industry and
market size for the periods. Various factors and events may have a significant
impact on the market price of our common stock as such factors out of management
control may lead to swings in the estimated volatility. Expected lives are
based using the simplified method for estimating the expected life. The expected
dividend yield is zero as the Company has never paid dividends and does not
currently anticipate paying any in the foreseeable future.
|
Quarter
Ended
|
|
July
31, 2006
|
|
July
31, 2005
|
Expected
volatility
|
50%
|
|
30%
|
Expected
Life
|
7.8
years
|
|
10
years
|
Dividend
yield
|
0
|
|
0
|
Risk-free
interest rate
|
5%
|
|
3%
|
Stock-based
compensation expense recognized during the period is based on the value of
the
portion of share-based payment awards that vested during the period. Stock-based
compensation expense for the three and nine months ended July 31, 2006 included
compensation expense for share-based payment awards granted prior to, but not
yet vested as of October 31, 2005 based on the grant date fair value
estimated in accordance with the pro forma provisions of SFAS 123 and
compensation expense for the share-based payment awards granted subsequent
to
October 31, 2005 based on the grant date fair value estimated in accordance
with
the provisions of SFAS 123(R). Compensation expense for all share-based payment
awards granted on or prior to October 31, 2005 will continue to be recognized
using SFAS 123 option approach while compensation expense for all share-based
payment awards granted subsequent to October 31, 2005 is recognized using SFAS
123 (R) single-option attribution method. As stock-based compensation expense
for the first nine months of 2006 is based on awards granted and vested, it
has
been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to
be
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. In the Company’s pro forma
information required under SFAS 123 for the periods prior to fiscal 2006, the
Company accounted for forfeitures as they occurred.
The
Company’s 2002 Stock Option Plan, which allowed for grants up to 8,000 shares of
the Company's common stock-was replaced by the Advaxis 2004 Option Plan (the
“2004 Plan”), which allows for grants up to 2,381,525 shares of the Company's
common stock. The board of directors and the Company’s shareholders approved and
adopted the 2005 Stock Option Plan (the “2005 Plan”), which allows for grants up
to an additional 5,600,000 shares of the Company's common stock. The 2004 Plan
and the 2005 Plan are administered and interpreted by the Company's board of
directors.
Both
the
2004 and 2005 Plans provide for the grant of options to purchase shares of
our
common stock to employees, officers, directors and consultants. These options
may be either “incentive stock options” or non-qualified options under the
Federal tax laws.
Subject
to a number of exceptions, the exercise price per share of common stock subject
to an incentive option may not be less than the fair market value per share
of
common stock on the date the option is granted. The per share exercise price
of
the common stock subject to a non-qualified option may be established by the
board of directors, but shall not, however, be less than 85% of the fair market
value per share of common stock on the date the option is granted.
Under
both Plans a stock option may not be transferred by an optionee (except when
agreed to by the board or the administrator of the 2005 Plan upon the death
or
disability of the employee) other than by will or the laws of descent and
distribution, and, during the lifetime of an optionee, the option will be
exercisable upon death or disability of the employee only by the optionee.
In
the event of termination of employment or engagement other than by death or
disability, the optionee will have no more than three months after such
termination during which the optionee shall be entitled to exercise the option
to the extent then exercisable, unless otherwise determined by the board of
directors. If terminated by reason of death or permanent and total disability,
the optionee’s options remain exercisable for one year to the extent the options
were exercisable on the date of such termination.
Options
granted under the Plans must be made by November 11, 2014 under the 2004 Plan
and December 31, 2014 under the 2005 Plan. Under both Plans, the holders of
incentive stock options, subject to a number of exceptions, cannot exercise
these options more than ten years from the date of grant. Options granted under
the Plan generally provide for the payment of the exercise price in cash or
by
delivery of shares of common stock already owned by the optionee having a fair
market value equal to the exercise price of the options being exercised, or
by a
combination of these methods. Therefore, if it is permitted in an optionee’s
option, the optionee may tender shares of common stock to purchase additional
shares of common stock and may theoretically exercise all of his stock options
with no additional investment to the purchase of his original shares.
Any
unexercised options that expire or that terminate upon an employee’s ceasing to
be employed by us become available again for issuance under the
Plan.
A
summary
of the grants, cancellations and expirations (none were exercised) of the
Company’s outstanding options for the nine months ended July 31, 2006 is as
follows:
|
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Remaining
Life
In Years
|
|
|
Aggregate
Intrinsic Value
|
Outstanding
as of October 31, 2005
|
|
|
4,842,539
|
|
$
|
0.27
|
|
|
|
|
|
|
Granted
|
|
|
1,933,179
|
|
$
|
0.23
|
|
|
|
|
|
|
Cancelled
or Expired
|
|
|
(116,641)
|
|
$
|
0.37
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Outstanding
as of July 31, 2006
|
|
|
6,659,077
|
|
$
|
0.25
|
|
|
7.8
|
|
$
|
-0-
|
Vested
& Exercisable at July 31, 2006
|
|
|
3,504,933
|
|
$
|
0.25
|
|
|
7.6
|
|
$
|
-0-
|
At
July
31, 2006, the weighted average price and weighted-average remaining contractual
life of outstanding options were $0.25 and 7.8 years,
respectively.
The
following table summarizes significant ranges of outstanding and exercisable
options as of July 31, 2006 (in thousands, except years and per-share amounts):
|
|
Options
Outstanding
|
|
Options
Exercisable
|
Range
of
Exercise
Prices
|
|
Number
Outstanding
|
|
Weighted-
Average
Remaining
Contractual
Life
(in Years)
|
|
Weighted-
Average
Exercise
Price
per
Share
|
|
Aggregate
Intrinsic
Value
|
|
Number
Exercisable
|
|
Weighted-
Average
Exercise
Price
per
Share
|
|
Aggregate
Intrinsic
Value
|
$0.19-0.21
|
|
2,608
|
|
6.7
|
|
$
|
0.20
|
|
$
|
0
|
|
1,825
|
|
$
|
0.20
|
|
$
|
0
|
0.24-0.26
|
|
760
|
|
9.7
|
|
|
0.26
|
|
|
0
|
|
25
|
|
|
0.26
|
|
|
0
|
0.28-0.29
|
|
2,970
|
|
8.5
|
|
|
0.29
|
|
|
0
|
|
1,333
|
|
|
0.29
|
|
|
0
|
0.35-0.43
|
|
322
|
|
6.6
|
|
|
0.37
|
|
|
0
|
|
322
|
|
|
0.37
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
6,659
|
|
7.8
|
|
$
|
0.25
|
|
$
|
0
|
|
3,505
|
|
$
|
0.25
|
|
$
|
0
|
The
aggregate intrinsic value in the preceding table represents the total pretax
intrinsic value, based on options with an exercise price less than the Company’s
closing stock price of $0.18 as of July 31, 2006, which would have been received
by the option holders had those option holders exercised their options as of
that date.
A
summary
of the status of the Company’s nonvested shares as of July 31, 2006, and changes
during the nine months ended July 31, 2006 are presented below:
|
|
Number
of
Shares
|
|
Weighted
Average Exercise Price at Grant Date
|
|
Weighted-Average
Remaining Contractural Term (in years)
|
|
Non-vested
shares at October 31, 2005
|
|
|
2,386,542
|
|
$
|
0.29
|
|
|
8.5
|
|
Options
granted
|
|
|
1,517,119
|
|
$
|
0.24
|
|
|
9.5
|
|
Options
vested
|
|
|
(749,517
|
)
|
$
|
0.28
|
|
|
8.8
|
|
Options
forfeited or expired
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
Non-vested
shares at July 31, 2006
|
|
|
3,154,144
|
|
$
|
0.26
|
|
|
9.1
|
|
As
of
July 31, 2006, there was approximately $384,000 of unrecognized compensation
cost related to non-vested stock option awards, which is expected to be
recognized over a remaining average vesting period of 3.0 years.
3.
Secured Convertible Debenture:
Pursuant
to a Securities Purchase Agreement dated February 2, 2006, we issued to Cornell
Capital Partners, LP (“Cornell”) $3,000,000 principal amount of the Company’s
Secured Convertible Debentures due February 1, 2009 (the “Debentures”) at face
amount, and five year Warrants to purchase 4,200,000 shares of Common Stock
at
the price of $0.287 per share and five year B Warrants to purchase 300,000
shares of Common Stock at a price of $0.3444 per share.
The
Debentures are convertible at a price equal to the lesser of (i) $0.287 per
share (“Fixed Conversion Price”), or (ii) 95% of the lowest volume weighted
average price of the Common Stock on the market on which the shares are listed
or traded during the 30 trading days immediately preceding the date of
conversion (“Market Conversion Price”). Interest is payable at maturity at the
rate of 6% per annum in cash or shares of Common Stock valued at the conversion
price then in effect.
Cornell
has agreed that (i) it will not convert the Debenture or exercise the Warrants
if the effect of such conversion or exercise would result in its and its
affiliates’ holdings of more than 4.9% of the outstanding shares of Common
Stock, (ii) neither it nor its affiliates will maintain a short position or
effect short sales of the Common Stock while the Debentures are outstanding,
and
(iii) no more than $300,000 principal amount of the Debenture may be converted
at the Market Conversion Price during a calendar month.
The
Company may call the Debentures for redemption at the Redemption Price at any
time or from time to time but not more than $500,000 principal amount may be
called during any 30 consecutive day period. The Redemption Price will be 120%
of the principal redeemed plus accrued interest. The Company has also granted
the holder an 18-month right of first refusal assuming the Debentures are still
outstanding with respect to the Company’s issuance or sale of shares of capital
stock, options, warrants or other convertible securities. Pursuant to a
Registration Rights Agreement, the Company has registered at its expense under
the Securities Act of 1933, as amended (the “Act”) shares of Common Stock which
may be received upon conversion or exercise for reoffering by the holders of
the
Debentures and of the A Warrants and B Warrants.
The
Company has granted the holders a first security interest on its assets as
security for payment of the Company’s obligations.
The
Company has also agreed that as long as there is outstanding at least $500,000
principal amount of Debentures it would not, without the consent of the
Debenture holder, issue or sell any securities at a price or warrants, options
or convertible securities with an exercise or conversion price less than the
bid
price, as defined, immediately prior to the issuance; grant a further security
interest in its assets or file a registration statement on Form
S-8.
In
the
event of a Debenture default the Debenture shall, at the holder’s election,
become immediately due and payable in cash or, at the holder’s option, may be
converted into shares of Common Stock. Events of default include failure to
pay
principal when due or interest within five days following due date; failure
to
cure breaches or defaults of covenants, agreements or warrants within 10 days
following written notice of such breach or default; the entry into a change
of
control transaction meaning (A) the acquisition of effective control of more
than 50% of the outstanding voting securities by an individual or group (not
including the holder or its affiliates), or (B) the replacement of more than
one-half of the Directors not approved by a majority of the Company’s directors
as of February 2, 2006 or by directors appointed by such directors or (C) the
Company entering into an agreement to effect any of the foregoing; bankruptcy
or
insolvency acts; breach or default which results in acceleration of the maturity
of other debentures, mortgages or credit facilities, indebtedness or factor
agreements involving outstanding principal of at least $100,000; breach of
the
Registration Rights Agreement as to the maintaining effectiveness of the
registration statement which results in an inability to sell shares by holder
for a designated period; failure to maintain the eligibility of the Common
Stock
to trade on at least the Over-the-Counter Bulletin Board, and failure to make
delivery within five trading days of certificates for shares to be issued upon
conversion or the date the Company publicly announces its intention not to
comply with requests for conversion in accordance with the Debenture
terms.
The
Company paid Yorkville Advisor, LLC $240,000 as a structuring fee and due
diligence fees of $15,000 and $5,000, respectively. The amounts paid to
Yorkville Advisor, LLC was capitalized and charged to interest expense over
the
three-year term of the Debentures since Yorkville is related to the holders
of
the Debentures by virtue of common ownership. The amounts charged as interest
for the three month and nine month periods ended July 31, 2006 were $21,977
and
$39,019, respectively.
The
net
proceeds after deducting legal and accounting fees and other expenses, will
be
used for working capital including Phase I and initiation of Phase II testing
of
its Lovoxin C, its first Listeria cancer immunotherapy in cervical cancer
patients, and acceleration of pre-clinical testing for several pipeline vaccines
including Lovaxin B and Lovaxin S for breast and ovarian cancer,
respectively.
In
accounting for the Debentures and the warrants described above the Company
considered the guidance contained in EITF 00-19, "Accounting for Derivative
Financial Instruments Indexed To, and Potentially Settled In, a Company's Own
Common Stock," and SFAS 133 “Accounting for Derivative Instruments and Hedging
Activities.” In accordance with the guidance provided in EITF 00-19, the Company
determined that the conversion feature of the convertible debentures represents
an embedded derivative since the debenture is convertible into a variable number
of shares based upon the conversion formula and the conversion clause allowing
cash or shares of common stock in payment to the debenture holders. Accordingly,
the convertible debentures are not considered to be “conventional” convertible
debt under EITF 00-19 and thus the embedded conversion feature must be
bifurcated from the debt host and accounted for as a derivative
liability.
The
Company is required to measure the fair value of the warrants and the embedded
conversion feature to be calculated using the Black-Scholes valuation model
on
the date of each reporting period until the debt is extinguished. The Company
allocated from the proceeds of the sale of the Debentures the relative fair
values at the date of origination of the sale for the warrants, embedded
derivative and the debenture principal. The fair value of the warrants was
calculated by using the Black-Scholes valuation model with the following
assumptions: (i) 4,200,000 warrants at market price of common stock on the
date
of sale of $0.21 per share, and exercise price of $0.287 and (ii) 300,000
warrants at the market price of common stock of $0.21 per share, and exercise
price of $0.3444, both at risk-free interest rate of 4.5%, expected volatility
of 30% and expected life of five years. The fair value of the warrants of
$214,950 was recorded as a reduction to the Debenture liability and will be
amortized over the loan period and charged to interest expense. The portion
of
the fair value of the warrants charged to interest expense for the three and
nine months period ended July 31, 2006 was $17,912 and $35,825,
respectively.
The
fair
value of the embedded conversion feature at the date of origination allocated
to
the Debentures liability was based on the Black-Scholes valuation model with
the
following assumptions: (i) the conversion price equal to 95% of the lowest
volume weighted average price of the Common Stock on the market on which the
shares are listed or traded during the 30 trading days immediately preceding
the
date of conversion, or $0.2293 during the quarter ending April 30, 2006 (most
beneficial conversion rate), (ii) the conversion price of $0.287, (iii) the
risk
free interest rate of 4.5%, (iv) expected volatility of 30% and (v) expected
life of three years. The fair value of the embedded conversion feature of
$512,865 was recorded as a reduction to the Debenture liability and will be
amortized over the loan period and charged to interest expense. The portion
of
the fair value of the embedded conversion feature charged to interest expense
for the three and nine months period ended July 31, 2006 was, $40,408 and
$108,790, respectively.
Convertible
Secured Debenture due February 1, 2009: 6% per annum
|
|
$
|
3,000,000
|
|
Common
Stock Warrant liability
|
|
|
($214,950
|
)
|
Embedded
derivative liability
|
|
|
($512,865
|
)
|
Convertible
Debenture as the date of sale
|
|
$
|
2,272,185
|
|
Amortization
of discount on warrants & embedded feature as of July 31,
2006
|
|
$
|
144,614
|
|
Conversion
by Cornell Capital Partners LP
|
|
|
($150,000
|
)
|
Convertible
Secured Debenture Liability as of July 31, 2006
|
|
$
|
2,266,799
|
|
On
the
following dates Cornell Capital Partners LP converted the convertible notes
into
shares of the Company’s Common Stock as follows:
April
20,
2006 and May 9, 2006 - $50,000 into 212,947 shares on each date at an average
share price of $0.2348/share.
July
6,
2006 - $25,000 into 112,918 shares at an average share price of
$0.2214/share.
July
19,
2006 - $25,000 in to 139,198 shares at an average share price of
$0.1769/share.
The
Company is required to continue to measure the fair value of the warrants and
embedded conversion feature at each reporting date using the Black-Scholes
valuation model based on the current assumptions at that point in time. The
July
31, 2006 fair value calculation resulted in a value different than the April
30,
2006 reporting period as reported below. The decrease in the fair market value
of the warrants and embedded conversion feature from the April 30, 2006 period
resulted in a non-cash income reported on the other income line item in the
Statement of Operations along with a corresponding decrease in the respective
Warrant and Embedded Derivative Liability.
The
change in fair value of the warrants from April 30, 2006 was calculated using
the Black-Scholes valuation model as of the July 31, 2006 reporting date with
the following assumptions: (i) 4,200,000 warrants at market price of Common
Stock on the date of sale of $0.18 per share, exercise price of $0.287 and
(ii)
300,000 warrants at the market price of Common Stock of $0.18 per share,
exercise price of $0.3444. Both sets of options have a risk-free interest rate
of 4.89%, expected volatility of 50% and expected life of 4.50 years. This
change in the fair value resulted in a decrease of $88,680 from the $355,050
recorded on April 30, 2006, or a balance of $266,370, as of July 31, 2006.
This
decrease of the fair value of the warrants was recorded in the statement of
operations as other income with the offset reducing the Common Stock Warrants
Liability.
The
change in fair value of the embedded derivative feature calculated using the
Black Scholes valuation model as of July 31, 2006 was recorded in the Embedded
Derivative Liability. On July 31, 2006 the fair value of this feature was based
on the following assumptions: (i) conversion price equal to 95% of the lowest
volume weighted average price of the Common Stock on the market on which the
shares are listed or traded during the 30 trading days immediately preceding
the
date of conversion, or $0.1651, on July 31, 2006, (ii) the market price, (iii)
the risk free interest rate of 4.91%, (iv) expected volatility of 50% and (v)
expected life of 2.5 years. The fair value of the embedded conversion feature
was $562,716 as of July 31, 2006, or a decrease of $39,972 from $602,688
recorded on April 30, 2006. This decrease of the fair value of the feature
was
charged to the statement of operations as other income and the offset reduced
the Embedded Derivative Liability.
Upon
full
payment of the Debentures (through repayment or conversion to equity) the fair
value of the warrants on that date will be reclassified to equity.
Item
2. Plan of Operations
The
Company has included in this Quarterly Report certain “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning the Company’s business, operations and financial condition.
“Forward-looking statements” consist of all non-historical information, and the
analysis of historical information, including the references in this Quarterly
Report to future revenue growth, collaborative agreements, future expense
growth, future credit exposure, earnings before interest, taxes, depreciation
and amortization, future profitability, anticipated cash resources, anticipated
capital expenditures, capital requirements, and the Company’s plans for future
periods. In addition, the words “could”, “expects”, “anticipates”, “objective”,
“plan”, “may affect”, “may depend”, “believes”, “estimates”, “projects” and
similar words and phrases are also intended to identify such forward-looking
statements.
Actual
results could differ materially from those projected in the Company’s
forward-looking statements due to numerous known and unknown risks and
uncertainties, including, among other things, unanticipated technological
difficulties, the length and scope of our clinical trials, costs related to
intellectual property related expense, cost of manufacturing and higher
consulting costs, product demand, changes in domestic and foreign economic,
market and regulatory conditions, the inherent uncertainty of financial
estimates and projections, the uncertainties involved in certain legal
proceedings, instabilities arising from terrorist actions and responses thereto,
and other considerations described as “Risk Factors” in other filings by the
Company with the SEC. Such factors may also cause substantial volatility in
the
market price of the Company’s Common Stock. All such forward-looking statements
are current only as of the date on which such statements were made. The Company
does not undertake any obligation to publicly update any forward-looking
statement to reflect events or circumstances after the date on which any such
statement is made or to reflect the occurrence of unanticipated
events.
Plan
of Operations
We
were
originally incorporated in the state of Colorado on June 5, 1987 under the
name
Great Expectations, Inc. We were administratively dissolved January 1, 1997
and
reinstated June 18, 1998 under the name Great Expectations and Associates,
Inc.
In 1999, we became a reporting company under the Securities Exchange Act of
1934, as amended. We were a publicly traded “shell” company without any business
until November 12, 2004 when we acquired Advaxis through the issuance of
15,597,723 shares of our Common Stock (the “Share Exchange”), as a result of
which Advaxis become our wholly-owned subsidiary and our sole operating company.
For financial reporting purposes, we have treated the Share Exchange as a
recapitalization, where Advaxis was the acquirer. As a result of the foregoing
as well as the fact that the Share Exchange is treated as a recapitalization
of
Advaxis rather than as a business combination, the historical financial
statements of Advaxis on November 12, 2004 became our historical financial
statements after the Share Exchange. On June 6, 2006 our shareholders approved
the reincorporation of the Company from the state of Colorado to the state
of
Delaware by merging the Company into its wholly-owned subsidiary.
We
are a
biotechnology company which utilizes multiple mechanisms of immunity with the
intent to develop cancer vaccines that are more effective and safer than
existing vaccines. We believe that by using our licensed Listeria System to
engineer a live attenuated Listeria monocytogenes bacteria to secrete a protein
sequence containing a tumor-specific antigen, we will force the body’s immune
system to process and recognize the antigen as if it were foreign, creating
the
immune response needed to attack the cancer.
We
have
no customers. We are in the development stage and have focused our initial
development efforts on six lead compounds. In February 2006 we received
governmental approvals in Mexico, Israel and Serbia to commence in those
countries a Phase I clinical study of Lovaxin C, a vaccine with a potential
for
treatment of cervical and neck cancer.
Our
revenues are primarily grants received from the NIH. For the three months ended
July 31, 2006 there were no revenues. Revenues reported in the same period
last
year were $440,851. For the nine months ended July 31, 2006 the revenue was
$397,312 or a decrease of $43,539, or 9.9% compared to the same period last
year.
Research
and development (R&D) expenses for the three months ended July 31, 2006 were
$262,257, a decrease of $139,021, or 34.6% from those of the same period of
the
prior year. This decrease was primarily related to the outside costs involved
in
working on grants and a toxicology study that took place in the prior period
and
didn’t recur in the current period. These decreases in cost were partially
offset by additional research cost due to additional key research personnel
and
clinical study costs. For the nine months ended July 31, 2006 R&D expenses
were $1,098,190, an increase of $132,407, or 13.7%, over those for the same
prior year period. The increase in R&D expenses was primarily due to the
cost associated with the employment of key research personnel in 2006 and
clinical study costs partially offset by costs involved in working on grants
and
a toxicology study that took place in the comparable prior year
period.
We
anticipate a continued increase in R&D expenses as a result of expanded
development and commercialization efforts related to toxicology studies,
clinical trials, and product development, and expenses to be incurred in the
development of strategic and other relationships required ultimately for the
licensing, manufacture and distribution of our product candidates.
General
and Administrative (G&A) expenses for the three months ended July 31, 2006
were $426,497, a decrease of $18,131, or 4.1%, from G&A the same period in
the prior year. This decrease was primarily related to the lower offering costs
involved in fund raising in the prior period, partially offset by higher
consulting fees in the 2006 period. For the nine months ended July 31, 2006
G&A expenses were $1,444,068 an increase of $596,463, or 70.4%, over G&A
for the same prior year period. The increase in G&A expenses was primarily
due to the higher legal and consulting fees involved in raising funds than
those
incurred in the same period of the prior year.
Other
Income/(Expense) for the three months ended July 31, 2006 were $5,480, a
decrease in income of $10,971, or 66.7%, from that for the same period of the
prior year. While the interest income for the three months ended July 31, 2006
increased by $10,469, an increase in non-cash interest expenses of ($150,092)
was more than offset by $128,652 of non-cash income resulting from the recording
of the change in fair values. Both interest expense and change in fair values
were primarily related to the accounting for our secured convertible debenture
issued in February and March 2006. The interest expenses were comprised of
interest accrued on the debenture ($43,763), amortization of deferred financing
costs ($21,977), amortization of the initial values of the initial warrant
($17,913) and embedded derivative ($66,051) and the recording of interest
payable on the long term notes ($1,008) and other ($388). We did not incur
the
expense related to the debenture in prior year period. Changes in fair value
are
a non-cash record of the changes in fair value from the April 30, 2006 reporting
period
Other
Income/(Expense) for the nine months ended July 31, 2006 was $(303,090), an
increase in expense of ($328,161) from that for the same period of the prior
year. While by way of comparison for the two nine month periods ended July
31,
2006 and 2005, respectively interest income increased by $31,919, non-cash
interest expense increased by ($258,810), and the non-cash expense recorded
for
the change in fair value of the warrants and embedded conversion feature
increased by ($101,271). Both interest expense and changes in fair value
primarily related to the accounting for our secured convertible debenture issued
in February and March 2006. The interest expenses were comprised of interest
accrued on the debenture ($78,037), amortization of deferred financing costs
($39,019), amortization of our initial valuation of the initial warrant
($35,825) and embedded derivative ($108,790) interest payable on the long term
notes ($1,984) and other ($1,454). We did not incur the expense related to
the
debenture in prior year period. Changes in Fair Value are a non-cash record
of
the changes in fair value from the original valuation dates and as of record
period July 31, 2006 of the warrant and the embedded derivative
liabilities.
On
July
31, 2006, our cash balance was $3,347,222, and our working capital was
$2,181,105 primarily as a result of net proceeds of approximately $2,760,000
from the sale to an investor of our 6% Secured Convertible Debentures in the
principal amount of $3,000,000 in February and March 2006.
We
intend
to use our available cash and resources during the 12 months ending July 31,
2007 to conduct Phase I clinical trials in cervical cancer using Lovaxin C,
one
of our lead product candidates in development using our Listeria System, expand
our research and development team, to further develop Lovaxin B (our Listeria
vaccine directed toward treatment of breast cancer), and Lovaxin P (our Listeria
vaccine directed toward treatment of prostate cancer) as well as several
additional Listeria based vaccines for the treatment of cancer, and to expand
our manufacturing capabilities and strategic activities.
Off-balanceSheet
Arrangements.
We
are
party to a license agreement, dated June 17, 2002, as amended, with The Trustees
of the University of Pennsylvania, pursuant to which we agreed to pay, an
aggregate of $482,000 in licensing fees in three annual installments on December
15, 2005, 2006 and 2007, respectively or upon achieving certain financing
milestones. In addition, commencing with the first commercial sale of our
products covered by the license product Advaxis is to pay a royalty of $525,000
over a four-year period and annual license maintenance fees ranging from $25,000
to $125,000 per year. We do not expect that the first commercial sale will
occur
prior to 2011.
Item
3. Controls and Procedures.
As
of the
end of the period covered by this report, based on an evaluation of the
Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)
under the Securities Exchange Act of 1934), the President, Chief Executive
Officer and the Vice President of Finance, Principal Financial Officer of the
Company has concluded that the Company’s disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company
in
its Exchange Act reports is recorded, processed, summarized and reported within
the applicable time periods specified by the rules and forms of the Securities
and Exchange Commission.
There
were no significant changes in the Company’s internal controls or in any other
factors that could significantly affect those controls subsequent to the date
of
the most recent evaluation of the Company’s internal controls by the Company,
including any corrective actions with regard to any significant deficiencies
or
material weaknesses.
Part
II - OTHER INFORMATION
Item
1. Legal Proceedings
Sanofi
Aventis filed trademark opposition proceedings in the United States Patent
and
Trademark Office against our trademark applications Serial Nos. 78/252527
and 78/252586 related to the trademark of “Advaxis”. In response to the
opposition we agreed in August 28, 2006 to withdraw our mark,
“Advaxis”.
In
the
ordinary course of our business we may become subject to litigation regarding
our products or our compliance with applicable laws, rules, and regulations.
There are no material legal proceedings threatened against us except as
follows:
We
had
received written notice from the European Patent Office that Cerus Corporation
(Cerus) has filed an Opposition against European Patent Application Number
0790835 (EP 835 Patent) which was granted by the European Patent Office and
which is assigned to The Trustees of the University of Pennsylvania and
exclusively licensed to us. We are defending against Cerus’ allegations in the
Opposition that the EP 835 Patent, which claims a vaccine for inducing a tumor
specific antigen with recombinant live Listeria, is deficient because of (i)
insufficient disclosure in the specifications of the granted claims, (ii) the
inclusion of additional subject matter in the granted claims, and (iii) a lack
of inventive steps of the granted claims of the EP 835 Patent. We plan to
vigorously defend the claims and responded to their claims on February 20,
2006.
The
Opposition is in the early stages and, as yet, we are unable to
evaluate the merits, if any, of the Opposition. If the European Patent
Office rules that the allegations are correct in whole or in part, and such
ruling is upheld on appeal, our patent position in Europe may be eroded to
the
degree that the claims of the patent are narrowed or not allowed. The likely
result of this decision will be increased competition for us in the European
market for recombinant live Listeria based vaccines. Regardless of the outcome
of the Opposition proceeding, we believe that our freedom to operate for our
recombinant live Listeria based vaccine products will not be
diminished.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
During
the nine months ended July 31, 2006, we issued 177,422 shares of Common Stock
to
our employees as bonuses, 52,000 shares of Common Stock to a director as fees
and 556,241 shares of Common Stock to consultants and service providers in
payment for their services. The recipients agreed that no transfer of the shares
may be effected unless the shares registered under the Securities Act of 1933,
as amended or exempt from registration.
In
February and March 2006, we sold for $3,000,000 to Cornell Capital Partners
LP
(“Cornell”) our Secured Convertible Debenture due February 1, 2009 in the
principal amount of $3,000,000 and five year warrants to purchase: 4,200,000
shares of Common Stock at a price of $0.287 per share and 300,000 shares of
Common Stock at a price of $0.3444 per share. The net proceeds of $2,760,000
after deducting commission, diligence and structure fees are being used for
working capital and research and development. See Item 2. “Plan of
Operations”
The
above
sales were exempt from registration under the Act by virtue of the provisions
of
4(2) thereof.
Pursuant
to our agreement with Cornell, we have registered under the Act for reoffering
shares which are acquired upon conversion of the Debentures and shares which
are
acquired upon exercise of the Warrants. The Debentures are convertible at a
price equal to the lesser of (i) $0.287 per share, or (ii) 95% of the lowest
volume weighted average price of the Common Stock on the market on which the
shares are listed or traded during the 30 trading days immediately preceding
the
date of conversion. Interest is payable at maturity at the rate of 6% per annum
in cash or shares of Common Stock valued at the conversion price then in effect.
As of July 31, 2006 Cornell Capital Partners LP converted $150,000 into 678,010
shares of common stock.
Item
4. Submission
of Matters to a Vote of Security
Holders
At
our
Annual Meeting of Stockholders held on June 6, 2006, stockholders took the
following actions:
|
|
Votes
For
|
|
Votes
Against
|
|
Election
of Directors:
|
|
|
|
|
|
|
|
J.
Todd Derbin
|
|
|
28,450,225
|
|
|
233,990
|
|
Roni
Appel
|
|
|
28,629,515
|
|
|
54,700
|
|
James
Patton
|
|
|
28,629,515
|
|
|
54,700
|
|
Thomas
McKearn
|
|
|
28,629,515
|
|
|
54,700
|
|
Martin
Wade
|
|
|
28,629,515
|
|
|
54,700
|
|
Richard
Berman
|
|
|
28,629,515
|
|
|
54,700
|
|
|
|
Votes
For
|
|
Votes
Against
|
|
Abstentions
|
|
Broker
Non-votes
|
|
|
|
|
|
|
|
|
|
|
|
Approved
and adopted the 2005 Stock Option Plan
|
|
|
18,543,773
|
|
|
66,200
|
|
|
6,374,683
|
|
|
|
|
Approved
the reincorporation of the Company from the state of Colorado to
the state
of Delaware
|
|
|
24,966,456
|
|
|
6,200
|
|
|
7,000
|
|
|
|
|
Ratified
the appointment by the Board of Directors of Goldstein Golub Kessler
LLP
as auditor of the Company’s financial statements for the year ending
October 31, 2006
|
|
|
22,320,326
|
|
|
1,200
|
|
|
6,362,688
|
|
|
|
|
Item
5. Other Information.
The
merger (reincorporation) with the Parent Company was effective June 23,
2006.
Item
6. Exhibits and Reports on Form 8-K
|
10.1
|
Advaxis,
Inc. 2005 Stock Option Plan (previously filed as ANNEX A to the Company’s
Definitive Proxy Statement filed with the Commission on May 15, 2006
and
hereby incorporated by reference).
|
|
10.2
|
Agreement
and Plan of Merger of Advaxis, Inc., a Colorado corporation, and
Advaxis,
Inc., a Delaware corporation (previously filed as ANNEX B to the
Company’s
Definitive Proxy Statement filed with the Commission on May 15, 2006
and
hereby incorporated by reference).
|
|
10.3
|
Amended
and Restated Certificate of Incorporation of Advaxis, Inc. (previously
filed as ANNEX C to the Company’s Definitive Proxy Statement filed with
the Commission on May 15, 2006 and hereby incorporated by
reference).
|
|
10.4
|
Advaxis,
Inc. Amended By-Laws (filed herewith)
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley
Act of 2002
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley
Act of 2002
|
|
32.2
|
Certification
of Principal Financial Officer pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
|
No
Reports in Form 8-K were filed since April 30, 2006.
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized.
|
|
|
|
Advaxis,
Inc.
Registrant
|
|
|
|
Date: September
13, 2006
|
By:
|
/s/ Roni
Appel
|
|
Roni
Appel
|
|
President,
Chief Executive Officer
|
|
|
|
|
By:
|
/s/ Fred
Cobb
|
|
Fred
Cobb
|
|
Vice
President Finance, Principal Financial Officer
|
|
|