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 January 31, 2007
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
(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 Centre of New Jersey, 675 Route 1, Suite 119, North Brunswick, NJ
08902
(Address
of principal executive offices)
(Issuer’s
telephone number)
(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 March 9, 2007:
43,132,250
shares outstanding of the Company’s Common Stock, par value $.001 per share
Transitional
Small Business Disclosure Format (Check one): Yes o No
x
Persons
who are to respond to the collection of information contained in this form
are
not required to respond unless the form displays a currently valid OMB control
number.
ADVAXIS,
INC.
(A
Development Stage Company)
January
31, 2007
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Page
No.
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3
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4
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5
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6
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11
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14
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14
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15
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15
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ADVAXIS,
INC.
(A
Development Stage Company)
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January
31, 2007
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ASSETS |
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Current
Assets: |
|
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Cash
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$
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1,977,809
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Prepaid
expenses
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16,718
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Total Current Assets
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1,994,527
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Property
and Equipment (net of accumulated depreciation of $30,775)
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133,388
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Intangible
Assets (net of accumulated amortization of $107,796)
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959,842
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Deferred
Financing Costs (net of accumulated amortization of
$111,919)
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148,081
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Other
Assets
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3,876
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Total
Assets
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$
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3,239,714
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LIABILITIES
& SHAREHOLDERS’ DEFICIENCY
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Current
Liabilities:
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Accounts
payable
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$
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813,668
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Accrued
expenses
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528,514
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Deferred
revenue
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7,894
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Notes
payable - current portion
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204,977
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Total
Current Liabilities
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1,555,053
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Interest
payable
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159,444
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Notes
payable - net of current portion
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345,125
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Convertible
Secured Debentures and fair value of embedded derivative
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3,880,405
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Common
Stock Warrants
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501,420
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Total
Liabilities
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$
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6,441,447
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Shareholders’
Deficiency:
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Common
Stock - $0.001 par value; authorized 500,000,000 shares, issued and
outstanding 42,331,051
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42,330
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Additional
Paid-In Capital
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6,455,140
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Deficit
accumulated during the development stage
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(9,699,203
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)
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Total
Shareholders' Deficiency
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$
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(3,201,733
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)
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Total
Liabilities & Shareholders’ Deficiency
|
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$
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3,239,714
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|
The
accompanying footnotes are an integral part of these financial
statements.
ADVAXIS,
INC.
(A
Development Stage Company)
(Unaudited)
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|
3
Months
Ended
January
31,
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3
Months
Ended
January
31,
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Period
from
March
1, 2002 (Inception) to
January
31,
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2007
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2006
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2007
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Revenue
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$
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146,307
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$
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329,928
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$
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1,251,542
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Research
& Development Expenses
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494,107
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385,107
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3,742,155
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General
& Administrative Expenses
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845,072
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413,883
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5,188,865
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Total
Operating expenses
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1,339,179
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798,990
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8,931,020
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Loss
from Operations
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(1,192,872
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)
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(469,062
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)
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(7,679,478
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)
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Other
Income (expense):
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Interest
expense
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(153,355
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)
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(1,008
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)
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(619,382
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)
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Other
Income
|
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26,326
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11,931
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162,748
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Net
changes in fair value of common stock warrant liability and embedded
derivative liability
|
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1,282,871
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(1,519,207
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)
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Net
loss
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(37,030
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)
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(458,139
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)
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(9,655,319
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)
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Dividends
attributable to preferred shares
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—
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43,884
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Net
loss applicable to Common Stock
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(37,030
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)
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$
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(458,139
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)
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$
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$(9,699,203
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)
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Net
loss per share, basic and diluted
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$
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(0.00
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)
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$
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(0.01
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)
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Weighted
average number of shares outstanding basic and diluted
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41,168,537
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37,761,557
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The
accompanying footnotes are an integral part of these financial
statements.
ADVAXIS,
INC.
(A
Development Stage Company)
(Unaudited)
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3
Months ended
January
31,
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3
Months ended
January
31,
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Period
from
March
1, 2002(Inception)
to
January
31,
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2007
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2006
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2007
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OPERATING
ACTIVITIES
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Net
loss
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$
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(37,030
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)
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$
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(458,139
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)
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$
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(9,655,319
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)
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Adjustments
to reconcile net loss
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to
net cash used in operating activities:
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Non-cash
charges to consultants and employees for options and stock
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392,439
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165,060
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1,103,648
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Amortization
of deferred financing costs
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29,606
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111,919
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Non-cash
interest expense on convertible secured note
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82,399
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312,616
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Accrued
interest on notes payable
|
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40,518
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1,008
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176,760
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Loss
on change in value of warrants and embedded derivative
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(1,282,871
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)
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1,519,207
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Value
of penalty shares issued
|
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—
|
|
|
|
|
|
117,498
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Depreciation
expense
|
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|
6,334
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4,081
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30,775
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Amortization
expense of intangibles
|
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13,241
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10,159
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110,967
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Decrease
(Increase) in prepaid expenses
|
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21,382
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|
|
|
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(16,718
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)
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Decrease
(Increase) in other assets
|
|
|
724
|
|
|
|
|
|
(3,876
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)
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Increase
in accounts payable
|
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3,447
|
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34,683
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1,128,874
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Decrease
in accrued expenses, net of non cash charges
|
|
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6,047
|
|
|
|
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512,325
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Increase
(Decrease) in Deferred Revenue
|
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(12,456
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)
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|
|
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7,893
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Net
cash used in operating activities
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(736,220
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)
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(243,148
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)
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(4,543,428
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)
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INVESTING
ACTIVITIES
|
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Cash
paid on acquisition of Great Expectations
|
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|
|
|
|
|
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(44,940
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)
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Purchase
of property and equipment
|
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(29,400
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)
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(2,102
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)
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(118,583
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)
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Cost
of intangible assets
|
|
|
(16,674
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)
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|
(24,316
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)
|
|
(983,728
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)
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Net
cash used in Investing Activities
|
|
|
(46,074
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)
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|
(26,418
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)
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(1,147,251
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)
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FINANCING
ACTIVITIES
|
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|
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|
|
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Proceeds
from convertible secured debenture
|
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|
|
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3,000,000
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Cash
paid for deferred financing costs
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|
|
|
|
|
|
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(260,000
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)
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Principal
Payments on notes payable
|
|
|
(1,063
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)
|
|
|
|
|
(1,063
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)
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Proceeds
from notes payable
|
|
|
|
|
|
|
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671,224
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Net
proceeds of issuance of Preferred Stock
|
|
|
|
|
|
|
|
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235,000
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Net
proceeds of issuance of Common Stock
|
|
|
|
|
|
|
|
|
4,023,327
|
|
Net
cash provided by (used in) Financing Activities
|
|
|
(1,063
|
)
|
|
|
|
|
7,668,488
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|
Net
(Decrease) increase in cash
|
|
|
(783,357
|
)
|
|
(269,566
|
)
|
|
1,977,809
|
|
Cash
at beginning of period
|
|
|
2,761,166
|
|
|
2,075,206
|
|
|
|
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Cash
at end of period
|
|
$
|
1,977,809
|
|
$
|
1,805,640
|
|
$
|
1,977,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying footnotes are an integral part of these financial
statements.
Supplemental
Schedule of Noncash Investing and Financing Activities
|
|
3
Months ended
January
31,
|
|
3
Months ended
January
31,
|
|
Period
from
March
1, 2002
(Inception)
to
January
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
Equipment
acquired under capital lease
|
|
$
|
45,580
|
|
|
|
|
$
|
45,580
|
|
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
|
|
|
|
|
$
|
1,063,158
|
|
Intangible
assets acquired with notes payable
|
|
|
|
|
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$
|
360,000
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|
Debt
discount in connection with recording the original value of the
embedded
derivative liability
|
|
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|
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|
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512,865
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Allocation
of the original secured convertible debentures to warrants
|
|
|
|
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$
|
214,950
|
|
The
accompanying footnotes are an integral part of these financial
statements.
ADVAXIS,
INC.
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. On July 1, 2002 (effective date) we entered into an exclusive
20-year license from Penn to exploit the Listeria System, subject to meeting
various royalty and other obligations (the “Penn License”).
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.
We plan to complete this clinical study in the second/third fiscal quarter
2007.
The study includes 20 patients with advanced cervical cancer. The sites are
located in Serbia, Mexico and Israel, of which 10 patients have completed the
trial.
We
believe the accompanying unaudited interim 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 fiscal year ended October 31, 2006 filed on Form
10-KSB. Results of operations for the interim periods presented are not
necessarily indicative of results to be expected for the year.
The
preparation of financial statements in conformity with U.S. Generally Accepted
Accounting Principles (“GAAP”) requires management to make estimates and
assumptions that affect the reported amounts and the disclosure of contingent
amounts in the financial statements and accompanying notes. Actual results
could
differ from those estimates.
Since
our
inception, the Company has reported accumulated net losses of approximately
$9,699,203 and recurring negative cash flows from operations. In order to
maintain sufficient cash and investments to fund future operations, we are
seeking to raise additional capital in fiscal year 2007 through various
financing alternatives. We believe that the offering proceeds, if successfully
consummated, plus our cash of approximately $1,978,000 as of January 31, 2007
will be sufficient to sustain our plan of operations for the next twelve months.
However, the Company cannot provide assurances that our plans will not change,
or that changed circumstances will not result in the depletion of capital
resources more rapidly than anticipated. If we are unable to generate sufficient
cash flows from sufficient capital, management believes that planned
expenditures could be curtailed in order to continue operations for the next
twelve months.
Since
inception through January 31, 2007, all of the Company’s revenue has been from
grants. For the three month period ended January 31, 2007, all of the revenue
was received from three National Institute of Health (“NIH”) grants and a grant
from the New Jersey Commission on Science and Technology.
Intangible
assets consist primarily of the Penn license agreement ($660,000), as well
as
legal and filing costs associated with obtaining trademarks, patents and
licenses. Capitalized license costs primarily represent the value assigned
to
the Company’s 20-year exclusive worldwide license with the Penn. The value of
the license is based on management’s assessment regarding the ultimate
recoverability of the amounts paid and the potential for alternative future
uses. This license includes the exclusive right to exploit 11 issued and 15
pending patents. As of January 31, 2007, all capitalized costs associated with
patents filed and granted as well as and costs associated with patents pending
are included in intangible assets on the balance sheet. The expirations of
the
existing patents range from 2014 to 2020. Capitalized costs associated with
patent applications that are abandoned are charged to expense when the
determination is made not to pursue the application. There have been no patent
applications abandoned and charged to expense in the current year. Amortization
expense for licensed technology and capitalized patent cost is included in
general and administrative costs. All intangible assets are amortized over
20
years.
The
Company reviews long-lived assets for impairment whenever events or changes
in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An asset is considered to be impaired when the sum of the
undiscounted future net cash flows expected to result from the use of the asset
and its eventual disposition exceeds its carrying amount. The amount of
impairment loss, if any, is measured as the difference between the net book
value of the asset and its estimated fair value.
Basic
loss per share is computed by dividing net loss by the weighted-average number
of shares of common stock outstanding during the periods. Diluted earnings
per
share gives effect to dilutive options, warrants, convertible debt and
other potential common stock outstanding during the period. The impact of the
potential common stock resulting from warrants, outstanding stock options and
convertible debt are not included in the computation of diluted loss per
share, as the effect would be anti-dilutive. The table sets forth the number
of
potential shares of common stock that have been excluded from diluted net loss
per share.
|
|
January
31, 2007
|
|
Warrants
|
|
|
25,009,220
|
|
Stock
Options
|
|
|
8,126,123
|
|
Convertible
Debt (1)
|
|
|
17,317,487
|
|
Total
All
|
|
|
50,452,830
|
|
|
|
|
|
|
|
(1) |
Conversion
of the outstanding principal of $2,550,000 converted at 95% of the
January
31, 2007 closing price of $0.155 per share or $0.147 per
share.
|
Certain
2006 amounts have been reclassified, where appropriate, to conform to the
financial statement presentation used in 2007.
In
July
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48 “Accounting for Uncertainty in Income Taxes”, and
interpretation of FASB Statement No. 109 (“FIN48”), which provides criteria for
the recognition, measurement, presentation and disclosure of an uncertain
position may be recognized only if it is “more likely than not” that the
position is sustainable based on its technical merits. The provisions of FIN
48
are effective for fiscal years beginning after December 15, 2006. We do not
expect that FIN 48 will have a material effect on our financial condition or
results of operations.
In
September 2006, the Securities and Exchange Commission (“SEC”) released
Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s
views regarding the process of quantifying materiality of financial statement
misstatements. The
adoption of SAB 108 is not expected to have a material impact on the Company's
consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements”. This standard defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. This statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007. The
Company has not evaluated the effect that the adoption of this Statement will
have on its financial statements at this time.
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities- Including an amendment of FASB
Statement No. 115" ("SFAS 159"). This statement permits entities to choose
to
measure many financial instruments and certain other items at fair value. SFAS
159 is effective as of the beginning of fiscal years that begin after November
15, 2007. The Company has not evaluated the effect that the adoption of this
Statement will have on its financial statements at this time.
2. |
Secured
Convertible Debenture:
|
Pursuant
to a Securities Purchase Agreement dated February 2, 2006 ($1,500,000 principal
amount) and March 8, 2006 ($1,500,000 principal amount) 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 after such conversion or exercise, its and its affiliates’ holdings will be
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 the
Registration Rights Agreement, the Company has registered at its expense under
the Securities Act of 1933, as amended (the “Act”) for reoffering by the holders
of the Debentures and of the Warrants and B Warrants shares of Common Stock
received upon conversion or exercise.
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 a fee of 8% of the principal amount of
the
Debentures sold or $240,000 and structuring and due diligence fees of $15,000
and $5,000, respectively. The amount paid to Yorkville Advisor, LLC in
connection with the Debentures 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 amount charged
as
interest for the three months ended January 31, 2007 was $29,606 and since
inception was $111,919. The net proceeds after deducting legal and accounting
fees and other expenses, has been or will be used for working capital including
Phase I and initiation of Phase II testing of its Lovaxin C, its first Listeria
cancer immunotherapy in cervical cancer patients, and acceleration of
preclinical testing for several pipeline vaccines including Lovaxin B and
Lovaxin P for breast and prostate 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 which could require the Company
to
issue shares in excess of its authorized amount. The convertible debentures
are
not considered to be “conventional” convertible debt under EITF 00-19 and the
embedded conversion feature was bifurcated from the debt host and accounted
for
as a derivative liability.
Convertible
Secured Debentures 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 January 31,
2007
|
|
$
|
312,618
|
|
Conversion
of Cornell Capital Partners LP
|
|
$
|
(450,000
|
)
|
Convertible
Secured Debenture Liability as of January 31, 2007
|
|
$
|
2,134,803
|
|
Embedded
Derivative Liability
|
|
|
1,745,602
|
|
Convertible
Secured Debentures and Fair Value of Embedded Derivative
Liability
|
|
$
|
3,880,405
|
|
On
the
following dates Cornell Capital Partners LP converted the following dollars
of
convertible notes into shares of the Company’s common stock since October
31, 2006:
Date
of
Conversion
|
|
Amount
of
Conversion
|
|
Number
of
Shares
|
|
Conversion
Share
Price
|
|
November
7, 2006
|
|
$
|
25,000
|
|
|
177,305
|
|
$
|
.1410
|
|
November
17, 2006
|
|
$
|
25,000
|
|
|
169,377
|
|
$
|
.1476
|
|
December
1, 2006
|
|
$
|
25,000
|
|
|
160,979
|
|
$
|
.1553
|
|
December
18, 2006
|
|
$
|
50,000
|
|
|
367,377
|
|
$
|
.1361
|
|
January
19, 2007
|
|
$
|
25,000
|
|
|
183,688
|
|
$
|
.1361
|
|
Total
|
|
$
|
150,000
|
|
|
1,058,726
|
|
|
|
|
On
the
following dates Cornell converted the following dollars of convertible notes
into shares of the Company’s common stock from February 1, 2007 until March 5,
2007:
Date
of
Conversion
|
|
Amount
of
Conversion
|
|
Number
of
Shares
|
|
Conversion
Share
Price
|
|
February
1, 2007
|
|
$
|
25,000
|
|
|
166,445
|
|
|
.1502
|
|
March
5, 2007
|
|
$
|
50,000
|
|
|
343,407
|
|
|
.1456
|
|
Inception
to date
|
|
$
|
525,000
|
|
|
3,335,480
|
|
|
|
|
The
Company will continue to measure the fair value of the warrants and embedded
conversion features at each reporting date using the Black-Scholes-Merton
valuation model based on the current assumptions at that point in time. This
calculation has resulted in a fair market value significantly different than
the
previous reporting period. The increase or decrease in the fair market value
of
the warrants and embedded conversion feature at each period results in a
non-cash income or expense which is recorded in other income (expense) in the
Statement of Operations along with corresponding changes in fair value of the
liability.
The
Company is required to measure the fair value of the warrants calculated using
the Black-Scholes-Merton valuation model on the date of each reporting period
until the debt is extinguished. On January 31, 2007 the fair value of the
warrants was calculated by using the Black-Scholes-Merton valuation model with
the following assumptions: (i) 4,200,000 warrants at market price of common
stock on the date of sale of $0.155 per share, exercise price of $0.287 and
(ii)
300,000 warrants at the market price of common stock of $0.155 per share,
exercise price of $0.3444 both at risk-free interest rate of 4.83%, expected
volatility of 120% and expected life of 4 years. The fair value of the warrants
as of January 31, 2007 was $501,420, or a decrease of $213,180 over the $714,600
recorded on October 31, 2006. This decrease in the fair value of the warrants
was charged to the Statement of Operations as income to Net Change in Fair
Value
of Common Stock Warrant and Embedded Derivative Liability and debited to the
Balance Sheet: Common Stock Warrants Liabilities.
Similarly
the Company is also required to measure the fair value of the embedded
conversion feature allocated to the Debentures liability was based on the
Black-Scholes-Merton valuation model on the date of each reporting period.
On
January 31, 2007 the fair value of this feature was based on the following
assumptions: (i) the Market 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 $0.1473 on January 31, 2007, (ii) the January 31, 2007 market
price of $0.155, (iii) the risk free interest rate of 4.97%, (iv) expected
volatility of 120.19% and (v) expected life of 2 years. The fair value of the
embedded conversion feature on January 31, 2007 was $1,745,602, or a decrease
of
$1,069,691 from the $2,815,293 recorded on October 31, 2006. This decrease
in
the fair value of the embedded conversion feature was charged to the Statements
of Operations as income to the Net Change in Fair Value of Common Stock Warrant
and Embedded Derivative Liability and recorded in the Balance Sheet as a debit
to 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.
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 revenues, 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, scope and outcome of our clinical trial, costs related
to intellectual property, 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 on 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 (the “Exchange Act’). Until November 2004, we were a publicly-traded
“shell” company without any business until November 12, 2004 when we acquired
Advaxis, Inc., a Delaware corporation (“Advaxis”), through a Share Exchange and
Reorganization Agreement, dated as of August 25, 2004 (the “Share Exchange”), by
and among Advaxis, the stockholders of Advaxis and us. As a result of such
acquisition, Advaxis became our wholly-owned subsidiary and our sole operating
company. On December 23, 2004, we amended and restated our articles of
incorporation and changed our name to Advaxis, Inc. 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, which was effected on June 20, 2006. As used herein, the words
“Company” and "Advaxis" refer to the current Delaware corporation only
unless the context references such entity prior to the June 20, 2006
reincorporation into Delaware. Our principal executive offices are located
at
Technology Centre of NJ, 675 US Highway One, North Brunswick, NJ 08902 and
our
telephone number is (732) 545-1590.
On
July
28, 2005 we began trading on the Over-The-Counter Bulletin Board (OTC:BB) under
the ticker symbol ADXS.
We
are a
biotechnology company utilizing 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. The 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 the tumor.
Accordingly, we believe that the Listeria System is a broadly enabling platform
technology that can be applied in many cancers, infectious diseases and
auto-immune disorders.
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. We plan to complete this clinical study
in the second/third fiscal quarter 2007. The study includes 20 patients with
advanced cervical cancer. The sites are located in Serbia, Mexico and Israel,
of
which 10 patients have completed the trial.
Three
months ended January 31, 2007 Compared to the three months ended January 31,
2006
Revenue.
Our
revenue decreased by $183,621, or 56%, to $146,307 for the three months ended
January 31, 2007 (“Fiscal 2007 Quarter”) as compared with $329,928 for the three
months ended January 31, 2006 (“Fiscal 2006 Quarter”) primarily due to the
greater amount of the her-2 SBIR, fusion and the FLAIR grant money received
by
the Company in the Fiscal 2006 Quarter than the $133,850 in new grant money
from
the National Cancer Institute in the Fiscal 2007 Quarter.
Research
and Development Expenses.
Research
and development expenses increased by $109,000, or 28%, to $494,107 for the
Fiscal 2007 Quarter as compared with $385,107 for the Fiscal 2006 Quarter,
principally attributable to the following:
·
|
Clinical
trial expenses increased $96,425, or 370%, to $122,465 from $26,040
due to
the start-up of our clinical trial in the second quarter of Fiscal
2006. |
·
|
Wages,
salaries and related lab costs increased $125,619, or 97%, to $255,138
from $129,519 principally due to our expanded research and development
staffing.
|
·
|
Subcontracted
and consulting expenses decreased by $76,512, or 44%, to $99,244
from
$175,756, primarily reflecting the reduced subcontract work performed
by
Dr. Paterson at Penn, pursuant to certain grants.
|
·
|
Manufacturing
expenses decreased $10,775, or 87%, to $1,585 from $12,360; the result
of
the completion of our manufacturing program in late fiscal year 2005
in
anticipation of the Lovaxin C toxicology and clinical trials required
in
2006.
|
·
|
Toxicology
study expenses of $33,558, incurred in the Fiscal 2006 Quarter as
a result
of the initiation of toxicology studies by Pharm Olam in connection
with
our Lovaxin C product candidates in anticipation of clinical studies in
2006; none were incurred in the Fiscal 2007
Quarter.
|
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 if the
licensing, manufacture and distribution of our product candidates is
undertaken.
General
and Administrative Expenses.
General
and administrative expenses increased by $431,189, or 104%, to $845,072 for
Fiscal 2007 Quarter as compared with $413,883 for the Fiscal 2006 Quarter,
primarily attributable to the following:
·
|
Wages
and benefit expenses increased by $91,080, or $177% to $142,421 from
$51,342 due to hiring of a finance and administrative staff in the
second
quarter Fiscal 2006.
|
·
|
Consulting
fees and expenses increased by $323,422, or 202%, to $483,675 from
$160,253. Such increase was primarily attributed to an amendment
of Mr.
Appel’s (LVEP) consulting agreement resulting in: (i) an increase of
$159,909 of option expense of which $20,016 is due to vesting and
$139,893
is due to acceleration of his vesting; (ii) a decrease of his bonus
by
$15,476; and (iii) the issuance to Mr. Appel of 1,000,000 shares
of common
stock of the Company ($200,000). These expenses were partially offset
by
the decrease in other consulting expenses due to lower fair values
in the
Fiscal 2007 Quarter verses the prior Fiscal quarter in 2006 for other
consultants.
|
·
|
An
increase in legal fees and public relations expenses of $19,377,
or 32%,
to $79,509 from $61,151, primarily as a result of growth in personnel
and
changes in management.
|
Other
Income (expense).
Other
Income (expense) increased by $1,144,919 to $1,155,842, for Fiscal 2007 Quarter
from income of $10,923 for the Fiscal 2006 Quarter. During the Fiscal 2006
and
the Fiscal 2007 Quarters, we recorded interest expense of $1,008, and $153,355
respectively, primarily related to our outstanding secured convertible debenture
issued on February 2 and March 8, 2006. Interest earned on investments for
the
Fiscal 2006 and Fiscal 2007 Quarters amounted to $11,931 and $26,326,
respectively. In the Fiscal 2007 Quarter there was a net change of $1,282,871
in
the fair value of common stock warrants and embedded derivative liabilities
recorded as income (non-cash item) compared to the fair values as of October
31,
2006 of the secured convertible debenture. There was no comparable charge in
Fiscal 2006 Quarter.
No
provision for income taxes was made for either Fiscal Quarter due to significant
tax losses during and prior to such periods.
On
January 31, 2007, our cash balance was $1,977,809, and our working capital
was
$439,474, primarily the result of net proceeds of approximately $2,740,000
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 less the higher
overall cost of development and operating as a public company.
We
intend
to use our available cash and resources during the next 12 months following
January 31, 2007 to conduct our Phase I clinical trial in cervical cancer using
Lovaxin C, one of our lead product candidates in development using our Listeria
System, maintain our research and development team to assist in the further
development of 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 in the development of several additional Listeria
based vaccines for the treatment of cancer, and to enhance our manufacturing
capabilities and strategic activities.
Contingent
obligations
On
July
1, 2002 (effective date) we entered into a 20-year exclusive worldwide license,
with the University of Pennsylvania (“Penn”) with respect to the
innovative work of Yvonne Paterson, Ph.D., Professor of Microbiology in the
area
of innate immunity, or the immune response attributable to immune cells,
including dentritic cells, macrophages and natural killer cells, that respond
to
pathogens non-specifically. This agreement has been amended from time to time
and was amended and restated on February 13, 2007.
This
license, unless sooner terminated in accordance with its terms, terminates
upon
the later of: (a) expiration of the last to expire Penn patent rights; or (b)
twenty years after the effective date. The license provides us with the
exclusive commercial rights to the patent portfolio developed at Penn as of
the
effective date, in connection with Dr. Paterson and requires us to raise
capital, pay various milestone, legal, filing and licensing payments to
commercialize the technology. In exchange for the license, Penn received shares
of our common stock which currently represents approximately 16% of our common
stock outstanding on a fully-diluted basis. In addition, Penn is entitled to
receive a non-refundable initial license fee, license fees, royalty payments
and
milestone payments based on net sales and percentages of sublicense fees and
certain commercial milestones, as follows: 1.5% royalties on net sales in all
countries; notwithstanding this royalty rate, we have agreed to pay Penn a
total
of $525,000 over a three-year period as an advance minimum royalty after the
first commercial sale of a product under each license (which payments we do
not
expect to begin within the next five years); an annual maintenance fee starting
on December 31, 2008, until the first commercial sale of a Penn licensed
product; a total of $157,134 in license payments in addition to the $215,700
previously paid, or a total of $372,834. Under the agreement prior to the
amendment and restatement we were required to pay $660,000 to Penn (a portion
of
which is reflected as an obligation on our balance sheet) upon receiving
financing or on certain dates on or before December 15, 2007, whichever is
earlier. Overall the amended and restated agreement dated February 13, 2007
payment terms reflect lower near-term requirements but are more than offset
by
higher longer term milestone payments for the initiation of a phase III clinical
trial and the regulatory approval for the first Penn Licensed Product. The
impact of this amended and restated agreement are not included in the following
financial statements as of January 31, 2007. We are responsible for filing
new patents and maintaining the existing patents licensed to use and we are
obligated to reimburse Penn for all attorneys’ fees, expenses, official
fees
and
other charges incurred in the preparation, prosecution and maintenance
of the patents licensed from Penn.
Furthermore,
upon the achievement of the first sale of a product in certain fields, Penn
shall be entitled to milestone payments, as follows: $2,500,000 shall be due
for
first commercial sale of the first product in the cancer field; and $1,000,000
shall be due upon the date of first commercial sale of a product in each of
the
secondary strategic fields sold. Therefore, the total potential amount of
milestone payments is $3,500,000 in the cancer field.
As
a
result of our payment obligations under the license assuming we have net sales
in the aggregate amount of $100 million from our cancer products, our total
payments to Penn over the next ten years could reach an aggregate of $5,420,000.
If over the next 10 years our net sales total an aggregate amount of only $10
million from our cancer products, total payments to Penn could aggregate
$4,445,000.
This
license also grants us exclusive negotiation and exclusive options until June
17, 2009 to obtain exclusive licenses to new inventions on therapeutic vaccines
developed by Drs.’ Paterson and Fred Frankel and their laboratory. Each option
is granted to us at no cost and provides a six-month exercise period from the
date of disclosure. On February 13, 2007 we exercised the option and entered
into a 90 day period to negotiate in good faith a comprehensive license
agreement at licensing fees up to $10,000. This option allows us to negotiate
licenses for approximately 18 inventions. The license fees, legal expense,
and
other filing expenses for such 18 inventions are estimated to amount to $400,000
over a period of several years.
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), each of the 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.
During
the three months ended January 31, 2007, in payment for their services we issued
1,000,000 shares of Common Stock to our consultant Mr. Appel (LVEP, LLC) as
part
of its his amended consultant agreement, and 33,333 shares of Common Stock
to
other consultant and service providers. The recipients agreed that no transfer
of the shares may be effected unless the shares are registered under the
Securities Act of 1933, as amended (the “Act”) or exempt from
registration.
The
above
sales were exempt from registration under the Act by virtue of the provisions
of
Section 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 January 31, 2007
Cornell Capital Partners LP converted $450,000 into 2,825,628 shares of common
stock. The issuance of shares upon conversion was exempt from registration
under
the Act by virtue of Section 3(a)(9) thereof.
|
|
Certification
of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
Certification
of Principal Financial Officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
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Certification
of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley
Act of 2002
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Certification
of Principal Financial Officer pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
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No
Reports on Form 8-K were filed during the three months ended January 31, 2007
except as follows:
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i.
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Report
on Form 8-K filed November 14, 2006 relating to items: 5.02 and
9.01.
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ii.
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Report
on Form 8-K filed November 29, 2006 relating to item: 8.01
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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.
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ADVAXIS,
INC.
Registrant
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Date: March
19, 2007
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By:
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/s/ Thomas
Moore
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Thomas
Moore
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Chief
Executive Officer and Chairman of the Board
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By:
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/s/ Fredrick
Cobb
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Fredrick
Cobb
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Vice
President Finance, Principal Financial Officer
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