Unassociated Document
Advaxis,
Inc.
Common
Stock
This
is
an offering (the “Offering”) by the stockholders identified in this prospectus
(the “Selling Stockholders”) of the following shares of Common Stock, $0.001 par
value, of Advaxis, Inc. (the “Company” or “Advaxis”) issued to
them:
|
·
|
Up
to 12,037,550
shares of outstanding
shares
as
of March 31, 2007.
|
|
·
|
Up
to 43,341,513 shares underlying our Convertible Secured Debentures
due
February 1, 2009 (the “Debentures”) sold in a February and March 2006
private placement of which 5,052,513 shares have been issued upon
conversion of $775,000 principal amount of the
Debentures.
|
|
·
|
Up
to 24,130,588 shares underlying warrants, including 4,500,000 shares
underlying warrants issued in the Debenture private
placement
|
All
of the shares when sold will be sold by the Selling Stockholders who may
sell
the shares of common stock from time to time at prevailing market prices.
We
will
not receive any proceeds from the sales by the Selling Stockholders, but
we will
receive the benefit of a reduction of indebtedness from the conversion of
the
Debentures and the receipt of funds by the cash exercise of the
warrants.
Our
Common
Stock is quoted on the Over The Counter Bulletin Board, which is commonly
referred to as the “OTC Bulletin Board” maintained by various broker dealers,
under the symbol ADXS.OB
No
underwriter or person has been engaged to facilitate the sale of shares of
Common Stock in this offering. None of the proceeds from the sale of the
shares
by the Selling Stockholders will be placed in escrow, trust or any similar
account. There are no underwriting commissions involved in this offering.
We
have agreed to pay all the costs of this offering. Selling Stockholders will
not
pay any offering expenses.
This
offering is highly speculative and these securities involve a high degree
of
risk. You should purchase shares only if you can afford a complete loss.
See
“Risk Factors” beginning on page 7.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal offense.
The
date
of this prospectus is June 14 , 2007.
WHERE
YOU CAN FIND MORE INFORMATION ABOUT US
We
file
reports, proxy statements, information statements and other information with
the
Securities and Exchange Commission (the “SEC”). You may read and copy this
information, for a copying fee, at the SEC’s Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for
more information in its public reference rooms. Our SEC filings are also
available to the public from commercial document retrieval services, and at
the
web site maintained by the SEC at http://www.sec.gov.
We
have
not authorized anyone to give any information or make any representation about
the Offering that differs from, or adds to, the information in this prospectus
or in its documents that are publicly filed with the SEC. Therefore, if anyone
does give you different or additional information, you should not rely on it.
The delivery of this prospectus does not mean that there have not been any
changes in our condition since the date of this prospectus. If you are in a
jurisdiction where it is unlawful to offer the securities offered by this
prospectus, or if you are a person to whom it is unlawful to direct such
activities, then the offer presented by this prospectus does not extend to
you.
This prospectus speaks only as of its date except where it indicates that
another date applies.
THIS
PROSPECTUS IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
Certain
information contained in this prospectus includes forward-looking statements
(as
defined in Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act) that reflect the Company’s current views with respect to future
events and financial performance. Certain factors, such as unanticipated
technological difficulties, the volatile and competitive biotechnological
environment for products, changes in domestic and foreign economic, market
and
regulatory conditions, the inherent uncertainty of financial estimates and
projections, the degree of success, if any, in concluding business partnerships
or licenses with viable pharmaceutical or biotechnological companies,
instabilities arising from terrorist actions and responses thereto, and other
considerations described as “Risk Factors” in this prospectus could cause actual
results to differ materially from those in the forward-looking statements.
We
assume no obligation to update the matters discussed in this
prospectus.
Please
read this prospectus carefully. It describes our business, our financial
condition and results of operations. We have prepared this prospectus so that
you will have the information necessary to make an informed investment
decision.
PROSPECTUS
SUMMARY
This
summary highlights some information from this prospectus, and it may not contain
all of the information that is important to you. You should read the following
summary together with the more detailed information regarding our Company and
the common stock being sold in this offering, including “Risk Factors” and our
consolidated financial statements and related notes, included elsewhere in
this
prospectus.
History
of the Company
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
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. 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.OB
We
maintain a website at www.advaxis.com
which
contains descriptions of our technology, our drugs and the trial status of
each
drug.
General
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, PhD., 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
focused our initial development efforts upon cancer vaccines targeting cervical,
prostate, breast, ovarian, lung and other cancers. Our lead products in
development are as follows:
Product
|
|
Indication
|
|
Stage
|
Lovaxin
C
|
|
Cervical,
head and neck cancers
|
|
Phase
I/II anticipated to be completed during six months ended July 31,
2007,
Phase II study in cervical cancer anticipated to commence in
2007*
|
|
|
|
|
|
Lovaxin
P
|
|
Prostate
cancer
|
|
Pre-clinical;
Phase I study anticipated to commence in late fiscal
2007
|
|
|
|
|
|
Lovaxin
B
|
|
Breast
cancer and melanoma
|
|
Pre-clinical;
Phase I study anticipated to commence in late fiscal
2008
|
|
|
|
|
|
Lovaxin
T
|
|
Cancer
through control of telomerase
|
|
Pre-clinical
|
*
See
“Business - Research and Development Programs”.
Since
our
formation, we have had a history of losses, which as of January 31, 2007
aggregated $9,699,203, and because of the long development period for new drugs,
we expect to continue to incur losses for several years. Our business plan
to
date has been realized by substantial outsourcing of virtually all major
functions of drug development including scaling up for manufacturing, research
and development, grant applications and others. The expenses of these outsourced
services account for most of our accumulated loss. We cannot predict when,
if
ever, any of our product candidates will become commercially viable or FDA
approved. Even if one or more of our products becomes commercially viable and
receives FDA approval, we are not certain that we will ever become a profitable
business.
SUMMARY
CONSOLIDATED FINANCIAL DATA OF ADVAXIS
We
were originally incorporated in the state of Colorado on June 5, 1987 under
the
name Great Expectations, Inc., administratively dissolved on January 1, 1997
and
reinstated on June 18, 1998 under the name Great Expectations and Associates,
Inc. On
November 12, 2004, we acquired Advaxis, Inc., a Delaware corporation
(“Advaxis”), pursuant to 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, 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. The
transaction was accounted for as a recapitalization. On June 6, 2006, the
Company was reincorporated in the state of Delaware by merging the Company
into
its wholly owned subsidiary. The historical financial statements of Advaxis
will
be our financial statements for reporting purposes. Advaxis, Inc changed its
fiscal year to October 31st and as a result is providing herein its audited
financial statements for the years October 31, 2005 and 2006 and the period
March 1, 2002 (inception) to October 31, 2006.
The
following condensed statement of operations data for the years ended October
31,
2005 and October 31, 2006
and the
period March 1, 2002 (inception) to October 31, 2006
are derived from Advaxis’ financial statements and the related notes, audited by
Goldstein Golub Kessler LLP, Certified Public Accountants, 1185 Avenue of the
Americas, Suite 500, New York, NY 10036-2602, Advaxis’ independent registered
public accounting firm, included elsewhere herein. The
condensed unaudited statement of operations data for the year
ended
October 31, 2004, the three month periods ended January 31, 2006 and January
31,
2007 and the period March 1, 2002 (inception) to January 31, 2007 are derived
from Advaxis’ unaudited financial statements, which have been prepared on a
basis consistent with Advaxis’ audited financial statements and, in the opinion
of management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of Advaxis’ financial position
and results of operations. The results of operations for any interim period
are
not necessarily indicative of results to be expected for the entire year. The
following data should be read in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations and Plan of
Operations” and our financial statements and the related notes included
elsewhere in this prospectus.
|
|
Year
Ended October
31,
|
|
Three
Months Ended
January
31,
|
|
Period
from
March
1, 2002 (inception) to
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
2006
|
|
2007
|
|
October
31, 2006
|
|
January
31, 2007
|
|
|
|
(unaudited)
|
|
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
(unaudited) |
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
116,806
|
|
$
|
552,868
|
|
$
|
431,961
|
|
$
|
329,928
|
|
$
|
146,307
|
|
$
|
1,105,235
|
|
$
|
1,251,542
|
|
Total
operating expenses
|
|
$
|
715,754
|
|
$
|
2,395,328
|
|
$
|
3,481,226
|
|
$
|
798,990
|
|
$
|
1,339,179
|
|
$
|
7,591,841
|
|
$
|
8,931,020
|
|
Interest
expense (income)
|
|
$
|
13,132
|
|
$
|
(7,307
|
)
|
$
|
(437,299
|
)
|
$
|
(1,008
|
)
|
$
|
(153,355
|
)
|
$
|
(466,027
|
)
|
$
|
(619,382
|
)
|
Other
income
|
|
$
|
72
|
|
$
|
43,978
|
|
$
|
90,899
|
|
$
|
11,931
|
|
$
|
26,326
|
|
$
|
136,422
|
|
$
|
162,748
|
|
Net
changes in fair value of common stock warrant liability and embedded
derivative liability
|
|
|
—
|
|
|
|
|
$
|
(2,802,078
|
)
|
|
—
|
|
$
|
1,282,871
|
|
$
|
(2,802,078
|
)
|
$
|
(1,519,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(655,892
|
)
|
$
|
(1,805,789
|
)
|
$
|
(6,197,744
|
)
|
$
|
(458,139
|
)
|
$
|
(37,030
|
)
|
$
|
(9,618,289
|
)
|
$
|
(9,655,319
|
)
|
Loss
per Share Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.05
|
)
|
$
|
(0.16
|
)
|
$
|
(0.01
|
)
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
October
31,
|
|
October
31,
|
|
October
31,
|
|
January
31,
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
(unaudited)
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
32,279
|
|
$
|
2,075,206
|
|
$
|
2,761,166
|
|
$
|
1,977,809
|
|
Intangible
assets
|
|
$
|
469,803
|
|
$
|
751,088
|
|
$
|
956,409
|
|
$
|
959,842
|
|
Total
assets
|
|
$
|
502,083
|
|
$
|
2,904,039
|
|
$
|
4,002,704
|
|
$
|
3,239,714
|
|
Total
liabilities
|
|
$
|
1,841,579
|
|
$
|
1,152,465
|
|
$
|
7,709,845
|
|
$
|
6,441,447
|
|
Shareholders’
(Deficiency) Equity
|
|
$
|
(1,339,496
|
)
|
$
|
1,751,575
|
|
$
|
(3,707,141
|
)
|
$
|
(3,201,733
|
)
|
THE
OFFERING
Common
stock offered by Selling Stockholders
|
|
|
|
|
|
Common
stock outstanding as of March 31, 2007
|
|
44,849,283
shares
(2)
|
|
|
|
Use
of proceeds
|
|
We
will not receive any proceeds from the sale of the common stock,
but we
will receive funds from the exercise of warrants by Selling Stockholders,
if exercised for cash.
|
|
|
|
“OTC
Bulletin Board Quote” as of March 30, 2007.
|
|
$.23
|
|
(1)
|
Represents
12,037,550
shares
issued to Selling Shareholders,
24,130,588 shares which may be acquired upon exercise of warrants
issued
to Selling Stockholders, and 12,334,495 shares which may be acquired
upon
conversion of principal and interest on our Debentures issued to
a Selling
Stockholder in February and March 2006 at a fixed conversion price
(“fixed
conversion price”) of $0.287 per share. As of March 31, 2007 to date
$775,000 of the principal was converted into aggregate of 5,052,513
shares
acquired leaving a principal of $2,225,000 to be converted excluding
interest. Assuming the “market price” conversion price of $0.2185 per
share (95% of the March 30, 2007 closing price) the number of shares
upon
conversion will be higher. Such price is to be revised upward to
$0.287 or
downward if the “market price” as defined is lower at time of conversion
in which event the number of shares issued upon conversion will
increase.
Up to an additional 31,007,018 shares may be offered for resale
by the
Selling Stockholders pursuant to this Prospectus in the event the
shares
were acquired by the Selling Stockholders as a result of conversions
or
dividend payments at a price less than $0.287 per share.
|
|
(2) |
The
number of shares of common stock outstanding as of March
31, 2007 listed
above excludes, in addition to the shares
offered,
|
|
·
|
26,009,220
shares issuable upon exercise of the warrants with exercise prices
ranging
from $0.1952 to $0.40 per share;
|
|
·
|
8,512,841
additional shares of common stock issuable upon exercise of
options;
|
|
·
|
Commitments
to issue stock, options or warrants.
|
ADDITIONAL
INFORMATION
In
this
prospectus, the terms “we”, “us”, and “our” refer to Advaxis,
Inc., a Delaware corporation, and its consolidated subsidiary, Advaxis,
as appropriate in the context, and, unless the context otherwise requires,
“common stock” refers to the common stock, par value $0.001 per share,
of
Advaxis, Inc.
RISK
FACTORS
An
investment in the common stock is highly speculative, involves a high degree
of
risk, and should be made only by investors who can afford a complete loss.
You
should carefully consider, together with the other matters referred to in this
prospectus, the following risk factors before you decide whether to buy our
common stock.
Risks
Specific to Us
We
are a development stage company.
We
are an early development stage company with a history of losses and can provide
no assurance as to future operating results. As a result of losses which will
continue throughout our development stage, we may exhaust our financial
resources and be unable to complete the development of our products. Our deficit
will continue to grow during our drug development period.
We
have
sustained losses from operations in each fiscal year since our inception
and
losses are expected to continue, due to the substantial investment in research
and development, for the next several years. At October 31, 2006 and January
31,
2007, we had an accumulated deficit of ($9,662,173) and ($9,699,203),
respectively and stockholders’ deficiency of ($3,707,141) and ($3,201,733),
respectively. We expect to spend substantial additional sums on the continued
research and development of proprietary products and technologies with no
certainty that losses will not increase or that we will ever become profitable
as a result of these expenditures.
We
will require substantial additional financing in order to meet our business
objectives.
Although
we believe that the net proceeds received from private placements (i) in
November 2004 of the Units of shares of our common stock and of our warrants,
and (ii) in February and March 2006 of our $3,000,000 Debenture (iii) current
funding plans will be sufficient to finance our currently planned operations
for
the near-term (approximately 12 months), such amounts will not be sufficient
to
meet our longer-term cash requirements or cash requirements for the
commercialization of certain products currently in development. We will be
required to find additional equity or debt securities placements or enter into
other financial arrangements, including relationships with corporate and other
partners, in order to raise substantial additional capital during the five
to
ten year period of product development and the United States Food and Drug
Administration (“FDA”) testing through Phase III testing. Depending upon market
conditions, we may not be successful in raising sufficient additional capital
for our long-term requirements. If we fail to raise sufficient additional
financing we will not be able to develop our product candidates, we will be
required to reduce staff, reduce or eliminate research and development, slow
the
development of our product candidates and outsource or eliminate several
business functions. Even if we are successful in raising such additional
financing, we may not be able to successfully complete planned clinical trials,
development, and marketing of all, or of any, of our product candidates. In
such
event, our business, prospects, financial condition and results of operations
could be materially adversely affected. We may be required to reduce our staff,
discontinue certain research or development programs of our future products,
and
cease to operate. We may not be able to conduct further clinical trials in
Lovaxin C. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations and Plan of Operations”.
Our
limited operating history does not afford investors a sufficient history on
which to base an investment decision.
We
commenced our Listeria System vaccine development business in February 2002
and
have existed as a development stage company since such time. Prior thereto
we
conducted no business. Accordingly, we have a limited operating history.
Investors must consider the risks and difficulties we have encountered in the
rapidly evolving vaccine and therapeutic biopharmaceutical industry. Such risks
include the following:
|
·
|
competition
from companies that have substantially greater assets and financial
resources than we have;
|
|
·
|
need
for acceptance of products;
|
|
·
|
ability
to anticipate and adapt to a competitive market and rapid technological
developments;
|
|
·
|
amount
and timing of operating costs and capital expenditures relating to
expansion of our business, operations and
infrastructure;
|
|
·
|
need
to rely on multiple levels of outside funding due to the length of
the
product development cycles and governmental approved protocols associated
with the pharmaceutical industry;
and
|
|
·
|
dependence
upon key personnel including key independent consultants and
advisors.
|
We
cannot
be certain that our strategy will be successful or that we will successfully
address these risks. In the event that we do not successfully address these
risks, our business, prospects, financial condition and results of operations
could be materially and adversely affected. We may be required to reduce our
staff, discontinue certain research or development programs of our future
products, and cease to operate. We may not be able to complete the current
clinical trial in Lovaxin C or conduct additional clinical trials.
We
can provide no assurance of the successful and timely development of new
products.
Our
products are at various stages of research and development. Further development
and extensive testing will be required to determine their technical feasibility
and commercial viability. Our success will depend on our ability to achieve
scientific and technological advances and to translate such advances into
reliable, commercially competitive products on a timely basis. Vaccine products
that we may develop are not likely to be commercially available until five
to
ten or more years. The proposed development schedules for our products may
be
affected by a variety of factors, including technological difficulties,
proprietary technology of others, and changes in governmental regulation, many
of which will not be within our control. Any delay in the development,
introduction or marketing of our products could result either in such products
being marketed at a time when their cost and performance characteristics would
not be competitive in the marketplace or in the shortening of their commercial
lives. In light of the long-term nature of our projects, the unproven technology
involved and the other factors described elsewhere in “Risk Factors”, there can
be no assurance that we will be able to complete successfully the development
or
marketing of any new products. See “Business - Research and Development
Program”.
Our
research and development expenses are subject to
uncertainty.
Factors
affecting our research and development (or R&D) expenses include, but are
not limited to:
|
·
|
The
number of and the outcome of clinical studies we are planning to
conduct.
For example, our R&D expenses may increase based on the number of
late-stage clinical studies which we may be required to
conduct;
|
|
·
|
The
number of products entering into development from late-stage research.
For
example, there is no guarantee that internal research efforts will
succeed
in generating sufficient data for us to make a positive development
decision or that an external candidate will be available on terms
acceptable to us. Some promising candidates may not yield sufficiently
positive pre-clinical results to meet our stringent development
criteria;
|
|
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In-licensing
activities, including the timing and amount of related development
funding
or milestone payments. For example, we may enter into agreements
requiring
us to pay a significant up-front fee for the purchase of in-process
research and development which we may record as an R&D
expense;
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Market
conditions. For example, when we seek to raise our next round of
financing
the market conditions may not provide adequate
funding.
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As
part of our strategy, we invest in R&D. R&D as a percent of future
potential revenues can fluctuate with the changes in future levels
of
revenue. Lower revenues can lead to more limited spending on R&D
efforts; and
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Future
levels of revenue.
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We
are subject to numerous risks inherent in conducting clinical
trials.
We
must outsource our clinical trials and are in the process of negotiating with
third parties to conduct, expand or change such trials. There is no assurance
that we will successfully conclude agreements for the completion of our clinical
trials. Delay in concluding such agreements would delay the commencement of
future clinical trials and or the completion of the current Phase 1 Trial of
Lovaxin C.
Agreements
with clinical investigators and medical institutions for clinical testing and
with other third parties for data management services place substantial
responsibilities on these parties, which could result in delays in, or
termination of, our clinical trials if these parties fail to perform as
expected. For example, if any of our clinical trial sites fail to comply with
FDA-approved good clinical practices, we may be unable to use the data gathered
at those sites. If these clinical investigators, medical institutions or other
third parties do not carry out their contractual duties or obligations or fail
to meet expected deadlines, or if the quality or accuracy of the clinical data
they obtain is compromised due to their failure to adhere to our clinical
protocols or for other reasons, our clinical trials may be extended, delayed
or
terminated, and we may be unable to obtain regulatory approval for or
successfully commercialize Lovaxin C.
We
or our regulators may suspend or terminate our clinical trials for a number
of
reasons. We may voluntarily suspend or terminate our clinical trials if at
any
time we believe that they present an unacceptable risk to the patients enrolled
in our clinical trials. In addition, regulatory agencies may order the temporary
or permanent discontinuation of our clinical trials at any time if they believe
that the clinical trials are not being conducted in accordance with applicable
regulatory requirements or that they present an unacceptable safety risk to
the
patients enrolled in our clinical trials.
Our
clinical trial operations are subject to regulatory inspections at any time.
If
regulatory inspectors conclude that we or our clinical trial sites are not
in
compliance with applicable regulatory requirements for conducting clinical
trials, we may receive reports of observations or warning letters detailing
deficiencies, and we will be required to implement corrective actions. If
regulatory agencies deem our responses to be inadequate, or are dissatisfied
with the corrective actions we or our clinical trial sites have implemented,
our
clinical trials may be temporarily or permanently discontinued, we may be fined,
we or our investigators may be precluded from conducting any ongoing or any
future clinical trials, the government may refuse to approve our marketing
applications or allow us to manufacture or market our products, and we may
be
criminally prosecuted.
The
successful development of biopharmaceuticals is highly
uncertain.
Successful
development of biopharmaceuticals is highly uncertain and is dependent on
numerous factors, many of which are beyond our control. Products that appear
promising in the early phases of development may fail to reach the market for
several reasons including:
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Pre-clinical
study results that may show the product to be less effective than
desired
(e.g., the study failed to meet its primary objectives) or to have
harmful
or problematic side effects;
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Failure
to receive the necessary regulatory approvals or a delay in receiving
such
approvals. Among other things, such delays may be caused by slow
enrollment in clinical studies, length of time to achieve study endpoints,
additional time requirements for data analysis or Biological
License Application (“BLA”)
preparation, discussions with the FDA, an FDA request for additional
pre-clinical or clinical data, or unexpected safety or manufacturing
issues.
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Manufacturing
costs, pricing or reimbursement issues, or other factors that make
the
product uneconomical; and
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The
proprietary rights of others and their competing products and technologies
that may prevent the product from being
commercialized.
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Success
in pre-clinical and early clinical studies does not ensure that large-scale
clinical studies will be successful. Clinical results are frequently susceptible
to varying interpretations that may delay, limit or prevent regulatory
approvals. The length of time necessary to complete clinical studies and to
submit an application for marketing approval for a final decision by a
regulatory authority varies significantly from one product to the next, and
may
be difficult to predict.
We
must comply with significant government regulations.
The
research and development, manufacture and marketing of human therapeutic and
diagnostic products are subject to regulation, primarily by the FDA in the
United States and by comparable authorities in other countries. These national
agencies and other federal, state, local and foreign entities regulate, among
other things, research and development activities (including testing in animals
and in humans) and the testing, manufacturing, handling, labeling, storage,
record keeping, approval, advertising and promotion of the products that we
are
developing. Noncompliance with applicable requirements can result in various
adverse consequences, including, delay in approving or refusal to approve
product licenses or other applications, suspension or termination of clinical
investigations, revocation of approvals previously granted, fines, criminal
prosecution, recall or seizure of products, injunctions against shipping
products and total or partial suspension of production and/or refusal to allow
a
company to enter into governmental supply contracts.
The
process of obtaining requisite FDA approval has historically been costly and
time consuming. Current FDA requirements for a new human drug or biological
product to be marketed in the United States include: (1) the successful
conclusion of pre-clinical laboratory and animal tests, if appropriate, to
gain
preliminary information on the product’s safety; (2) filing with the FDA of an
Investigational New Drug Application (“INDA”), to conduct human clinical trials
for drugs or biologics; (3) the successful completion of adequate and
well-controlled human clinical investigations to establish the safety and
efficacy of the product for its recommended use; and (4) filing by a Company
and
acceptance and approval by the FDA of a New Drug Application ("NDA") for a
drug
product or a BLA for a biological product to allow commercial distribution
of
the drug or biologic. A delay in one or more of the procedural steps outlined
above could be harmful to us in terms of getting our product candidates through
clinical testing and to market.
We
can provide no assurance that the Advaxis products will obtain regulatory
approval or that the results of clinical studies will be
favorable.
We
received in February 2006 permission from the appropriate governmental agencies
in Israel, Mexico and Belgrade to conduct in those countries Phase I clinical
testing of Lovaxin C, our Listeria based cancer vaccine which targets cervical
cancer in women. However, the testing, marketing and manufacturing of any
product for sale or distribution in the United States will require the approval
of the FDA. We cannot predict with any certainty the amount of time necessary
to
obtain such FDA approval or further approval, if any, from Israel, Mexico or
Belgrade and whether any such approval will ultimately be granted. Pre-clinical
and clinical trials may reveal that one or more products is ineffective or
unsafe, in which event further development of such products could be seriously
delayed or terminated. Moreover, obtaining approval for certain products may
require the testing on human subjects of substances whose effects on humans
are
not fully understood or documented. Delays in obtaining FDA or any other
necessary regulatory approvals of any proposed product and failure to receive
such approvals would have an adverse effect on the product’s potential
commercial success and on our business, prospects, financial condition and
results of operations. In addition, it is possible that a product may be found
to be ineffective or unsafe due to conditions or facts which arise after
development has been completed and regulatory approvals have been obtained.
In
this event, we may be required to withdraw such product from the market. To
the
extent that our success will depend on any regulatory approvals from
governmental authorities outside of the United States which perform roles
similar to that of the FDA, uncertainties similar to those stated above will
also exist. See “Business - Governmental Regulation”.
We
rely upon patents to protect our technology. We may be unable to protect our
intellectual property rights and we may be liable for infringing the
intellectual property rights of others.
Our
ability to compete effectively will depend on our ability to maintain the
proprietary nature of our technologies, including the Listeria System, and
the
proprietary technology of others with which we have entered into licensing
agreements. We have licensed eleven patents and fifteen patent applications
from
Penn in addition to exercising the option to licenses up to eighteen additional
inventions from Dr. Paterson’s laboratory. Further, we rely on a combination of
trade secrets and nondisclosure, and other contractual agreements and technical
measures to protect our rights in the technology. We depend upon confidentiality
agreements with our officers, employees, consultants, and subcontractors to
maintain the proprietary nature of the technology. These measures may not afford
us sufficient or complete protection, and others may independently develop
technology similar to ours, otherwise avoid the confidentiality agreements,
or
produce patents that would materially and adversely affect our business,
prospects, financial condition, and results of operations. Such competitive
events, technologies and patents may limit our ability to raise funds, prevent
other companies from collaborating with us, and in certain cases prevent us
from
further developing our technology due to third party patent blocking right.
In
2001,
an issue arose regarding the inventorship of U.S. Patent 6,565,852 and U.S.
Patent Application No. 09/537,642. These patent rights are included in the
patent rights licensed by Advaxis from Penn. It is contemplated by GSK, Penn
and
us that the issue will be resolved through: (1) a correction of
inventorship to add certain GSK inventors, (2) where necessary and appropriate,
an assignment of GSK’s possible rights under these patent rights to Penn, and
(3) a sublicense from us to GSK of certain subject matter, which is not central
to our business plan. To date, this arrangement has not been finalized and
we
cannot assure that this issue will ultimately be resolved in the manner
described above.
Pursuant
to our license with Penn, we have an option to license from Penn any new future
invention conceived by either Dr. Yvonne Paterson or by Dr. Fred Frankel in
the
vaccine area until June 17, 2009. We intend to expand our intellectual property
base by exercising this option and gaining access to future inventions. Further,
our consulting agreement with Dr. Paterson provides, among other things, that,
to the extent that Dr. Paterson’s consulting work results in new inventions,
such inventions will be assigned to Penn, and we will have access to those
inventions under license agreements to be negotiated. See “Business -
Partnerships and agreements - Penn. ”
Our
approach to the intellectual property portfolio is to aggressively create
significant offensive and defensive patent protection for every product and
technology platform that we develop. We work closely with our patent counsel
to
maintain a coherent and aggressive strategic approach to building our patent
portfolio with an emphasis in the field of cancer vaccines.
We
have
become aware of a public company, Cerus Corporation, which has issued a press
release claiming to have a proprietary Listeria-based approach to a cancer
vaccine. We believe that through our exclusive license with Penn of U.S. Patent
Nos. 5,830,702, 6,051,237 and 6,565,852, we have earliest known and dominant
patent position in the United States for the use of recombinant Listeria
monocytogenes expressing proteins or tumor antigens as a vaccine for the
treatment of infectious diseases and tumors. Based on searches of publicly
available databases, we do not believe that Cerus or The University of
California Berkeley (which is where Cerus’ consulting scientist works) or any
other third party owns any published Listeria patents or has any issued patent
claims that might materially negatively affect our freedom to operate our
business as currently contemplated in the field of recombinant Listeria
monocytogenes.
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.
Cerus’ allegations in the Opposition are that the EP 835 Patent, which claims a
vaccine for inducing a tumor specific antigen with a 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.
On
November 29, 2006, following oral proceedings, the Opposition Division of the
European Patent Office determined that the claims of the patent as granted
should be revoked due to lack of inventive step under European Patent Office
rules based on certain prior art publications.
We
will
review the formal written decision in order to evaluate whether to file an
appeal. In the event of an appeal there is no assurance that it will be
successful. If such ruling is upheld on appeal, our patent position in Europe
may be eroded. The likely result of this decision will be increased competition
for us in the European market for recombinant live Listeria based vaccines
for
tumor specific antigens. Regardless of the outcome, we believe that our freedom
to operate in Europe, or any other territory, for recombinant live Listeria
based vaccine for tumor specific antigen products will not be
diminished.
For
more
information about Cerus Corporation and its claims with respect to
listeria-based technology, you should visit their web site at
www.cerus.com or to view its publicly filed documents,
www.sec.gov. Others may assert infringement claims against us, and should
we be found to infringe upon their patents, or otherwise impermissibly utilize
their intellectual property, our ability to continue to use our technology
or
the licensed technology could be materially restricted or prohibited. If this
event occurs, we may be required to obtain licenses from the holders of our
intellectual property, enter into royalty agreements or redesign our products
so
as not to utilize the intellectual property, each of which may prove to be
uneconomical or otherwise impossible. Licenses or royalty agreements required
in
order for us to use this technology may not be available on acceptable terms,
or
at all. These claims could result in litigation, which could materially
adversely affect our business, prospects, financial condition and results of
operations. Such competitive events, technologies and patents may limit our
ability to raise funds, prevent other companies from collaborating with us,
and
in certain cases prevent us from further developing our technology due to third
party patent blocking right. See “Business—Patents and Licenses”.
We
are dependent upon our license agreement with Penn, as well as proprietary
technology of others.
The
manufacture and sale of any products developed by us will involve the use of
processes, products or information, the rights to certain of which are owned
by
others. Although we have obtained licenses with regard to the use of Penn’s
patents as described herein and certain of such processes, products and
information of others, we can provide no assurance that such licenses will
not
be terminated or expire during critical periods, that we will be able to obtain
licenses for other rights which may be important to us, or, if obtained, that
such licenses will be obtained on commercially reasonable terms.
If
we are
unable to maintain and/or obtain licenses, we may have to develop alternatives
to avoid infringing on the patents of others, potentially causing increased
costs and delays in product development and introduction or preclude the
development, manufacture, or sale of planned products. Some of our licenses
provide for limited periods of exclusivity that require minimum license fees
and
payments and/or may be extended only with the consent of the licensor. We can
provide no assurance that we will be able to meet these minimum license fees
in
the future or that these third parties will grant extensions on any or all
such
licenses. This same restriction may be contained in licenses obtained in the
future. Additionally, we can provide no assurance that the patents underlying
any licenses will be valid and enforceable. We call to your attention that
in
2001 an issue arose regarding the inventorship of U.S. Patent 6,565,852 and
U.S.
Patent Application No. 09/537,642 of Penn. These patent rights are included
in
the patent rights licensed by us from Penn. It is contemplated by
GlaxoSmithKline Biologicals PLC (“GSK”), Penn and us that the issue will be
resolved through: (1) a correction of inventorship to add certain GSK inventors,
(2) where necessary and appropriate, an assignment of GSK’s possible rights
under these patent rights to Penn, and (3) a sublicense from us to GSK. To
date,
this arrangement has not been finalized and we cannot assure that this issue
will ultimately be resolved in the manner described above. See “Business -
Patents and Licenses”. To the extent any products developed by us are based on
licensed technology, royalty payments on the licenses will reduce our gross
profit from such product sales and may render the sales of such products
uneconomical. See “Business - Partnerships and Agreements”.
For
more
information about Cerus Corporation and its claims with respect to
listeria-based technology, you should visit their web site at
www.cerus.com or to view its publicly filed documents,
www.sec.gov.
We
have no manufacturing, sales, marketing or distribution capability and we must
rely upon third parties for such.
We
do not
intend to create facilities to manufacture our products and therefore are
dependent upon third parties to do so. We currently have an agreement with
Cobra
Manufacturing for production of our vaccines for research and development and
testing purposes. Our reliance on third parties for the manufacture of our
products creates a dependency that could severely disrupt our research and
development, our clinical testing, and ultimately our sales and marketing
efforts if the source of such supply proves to be unreliable or unavailable.
If
the contracted manufacturing source is unreliable or unavailable, we may not
be
able to replace the development of our product candidates, including the
clinical testing program, and therefore it could not go forward and our entire
business plan could fail.
If
we are unable to establish or manage strategic collaborations in the future,
our
revenue and product development may be limited.
Our
strategy includes eventual substantial reliance upon strategic collaborations
for marketing and commercialization of Lovaxin C, and we may rely even more
on
strategic collaborations for research, development, marketing and
commercialization of our other product candidates. To date, we have not entered
into any strategic collaboration with third parties capable of providing these
services although we have been heavily reliant upon third party outsourcing
for
our research and development activities. In addition, we have not yet marketed
or sold any of our product candidates or entered into successful collaborations
for these services in order to ultimately commercialize our product candidates.
Establishing strategic collaborations is difficult and time-consuming. Our
discussion with potential collaborators may not lead to the establishment of
collaborations on favorable terms, if at all. For example, potential
collaborators may reject collaborations based upon their assessment of our
financial, regulatory or intellectual property position. If we successfully
establish new collaborations, these relationships may never result in the
successful development or commercialization of our product candidates or the
generation of sales revenue. To the extent that we enter into co-promotion
or
other collaborative arrangements, our product revenues are likely to be lower
than if we directly marketed and sold any products that we may
develop.
Management
of our relationships with our collaborators will require:
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significant
time and effort from our management
team;
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coordination
of our research and development programs with the research and development
priorities of our collaborators;
and
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effective
allocation of our resources to multiple
projects.
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If
we
continue to enter into research and development collaborations at the early
phases of product development, our success will in part depend on the
performance of our corporate collaborators. We will not directly control the
amount or timing of resources devoted by our corporate collaborators to
activities related to our product candidates. Our corporate collaborators may
not commit sufficient resources to our research and development programs or
the
commercialization, marketing or distribution of our product candidates. If
any
corporate collaborator fails to commit sufficient resources, our pre-clinical
or
clinical development programs related to this collaboration could be delayed
or
terminated. Also, our collaborators may pursue existing or other
development-stage products or alternative technologies in preference to those
being developed in collaboration with us. Finally, if we fail to make required
milestone or royalty payments to our collaborators or to observe other
obligations in our agreements with them, our collaborators may have the right
to
terminate those agreements.
We
may incur substantial liabilities from any product liability claims if our
insurance coverage for those claims is inadequate.
We
face
an inherent risk of product liability exposure related to the testing of our
product candidates in human clinical trials, and will face an even greater
risk
if the product candidates are sold commercially. An individual may bring a
liability claim against us if one of the product candidates causes, or merely
appears to have caused, an injury. If we cannot successfully defend ourselves
against the product liability claim, we will incur substantial liabilities.
Regardless of merit or eventual outcome, liability claims may result in:
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decreased
demand for our product candidates,
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injury
to our reputation,
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withdrawal
of clinical trial participants,
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costs
of related litigation,
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substantial
monetary awards to patients or other claimants,
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the
inability to commercialize product candidates,
and
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increased
difficulty in raising required additional funds in the private and
public
capital markets.
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We
currently do not have product liability insurance. We have obtained insurance
coverage for clinical trials and to plan to expand such coverage to include
the
sale of commercial products if marketing approval is obtained for any of our
product candidates. However, insurance coverage is increasingly expensive.
We
may not be able to maintain insurance coverage at a reasonable cost and we
may
not be able to obtain insurance coverage that will be adequate to satisfy any
liability that may arise.
We
may incur significant costs complying with environmental laws and regulations.
We
will
use hazardous materials, including chemicals and biological agents and compounds
that could be dangerous to human health and safety or the environment. As
appropriate, we will store these materials and wastes resulting from their
use
at our or an outsourced laboratory facility pending their ultimate use or
disposal. We will contract with a third party to properly dispose of these
materials and wastes. We will be subject to a variety of federal, state and
local laws and regulations governing the use, generation, manufacture, storage,
handling and disposal of these materials and wastes. We may also incur
significant costs complying with environmental laws and regulations adopted
in
the future.
If
we use biological and hazardous materials in a manner that causes injury, we
may
be liable for damages.
Our
research and development and manufacturing activities will involve the use
of
biological and hazardous materials. Although we believe our safety procedures
for handling and disposing of these materials will comply with federal, state
and local laws and regulations, we cannot entirely eliminate the risk of
accidental injury or contamination from the use, storage, handling or disposal
of these materials. We do not carry specific biological or hazardous waste
insurance coverage, workers compensation or property and casualty and general
liability insurance policies which include coverage for damages and fines
arising from biological or hazardous waste exposure or contamination.
Accordingly, in the event of contamination or injury, we could be held liable
for damages or penalized with fines in an amount exceeding our resources, and
our clinical trials or regulatory approvals could be suspended or terminated.
We
need to attract and retain highly skilled personnel; we may be unable to
effectively manage growth with our limited resources.
At
the
date of this prospectus, we have nine employees. We intend to expand our
operations and staff as needed. Our new employees may include key managerial,
technical, financial, research and development and operations personnel who
will
not have been fully integrated into our operations. We expect the expansion
of
our business to place a significant strain on our limited managerial,
operational and financial resources. We will be required to expand our
operational and financial systems significantly and to expand, train and manage
our work force in order to manage the expansion of our operations. Our failure
to fully integrate our new employees into our operations could have a material
adverse effect on our business, prospects, financial condition and results
of
operations. Our ability to attract and retain highly skilled personnel is
critical to our operations and expansion. We face competition for these types
of
personnel from other technology companies and more established organizations,
many of which have significantly larger operations and greater financial,
technical, human and other resources than we have. We may not be successful
in
attracting and retaining qualified personnel on a timely basis, on competitive
terms, or at all. If we are not successful in attracting and retaining these
personnel, our business, prospects, financial condition and results of
operations will be materially adversely affected. In such circumstances we
may
be unable to conduct certain research and development programs, unable to
adequately manage our clinical trials of Lovaxin C and other products, and
unable to adequately address the management needs of the Company. See
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations and Plan of Operations”, “Business - Strategy”, and
“Business—Employees.”
We
depend upon our senior management and key consultants and their loss or
unavailability could put us at a competitive disadvantage.
We
depend
upon the efforts and abilities of our senior executive, as well as the services
of several key consultants, including Yvonne Paterson, PhD. The loss or
unavailability of the services of any of these individuals for any significant
period of time could have a material adverse effect on our business, prospects,
financial condition and results of operations. We have not obtained, do not
own,
nor are we the beneficiary of, key-person life insurance. See
“Management—Employment Agreements”.
Risks
Related to the Biotechnology / Biopharmaceutical Industry
The
biotechnology and biopharmaceutical industries are characterized by rapid
technological developments and a high degree of competition. We may be unable
to
compete with more substantial enterprises.
The
biotechnology and biopharmaceutical industries are characterized by rapid
technological developments and a high degree of competition. Competition
in the biopharmaceutical industry is based significantly on scientific and
technological factors. These factors include the availability of patent and
other protection for technology and products, the ability to commercialize
technological developments and the ability to obtain governmental approval
for
testing, manufacturing and marketing. We compete with specialized
biopharmaceutical firms in the United States, Europe and elsewhere, as well
as a
growing number of large pharmaceutical companies that are applying biotechnology
to their operations. Many biopharmaceutical companies have focused their
development efforts in the human therapeutics area, including cancer. Many
major
pharmaceutical companies have developed or acquired internal biotechnology
capabilities or made commercial arrangements with other biopharmaceutical
companies. These companies, as well as academic institutions and governmental
agencies and private research organizations, also compete with us in recruiting
and retaining highly qualified scientific personnel and consultants. Our ability
to compete successfully with other companies in the pharmaceutical field will
also depend to a considerable degree on the continuing availability of capital
to us.
We
are
aware of certain products under development or manufactured by competitors
that
are used for the prevention, diagnosis, or treatment of certain diseases we
have
targeted for product development. Various companies are developing
biopharmaceutical products that potentially directly compete with our product
candidates even though their approach to such treatment is different. Several
companies, such as Cerus Corporation, in particular, Dandreon Corporation and
CancerVax Corporation, are attempting to develop cancer vaccines which would
be
directly competitive with our product candidates. In addition, numerous other
companies, many of which have greater financial resources than we do, are
actively engaged in the research and development of cancer vaccines, and are
in
Stage II and Stage III Testing of such products. Such companies include:
Antigenics, Inc.; Avi BioPharma, Inc.; Biomira, Inc.; Corixa Corporation;
Dendreon Corporation; Epimmune, Inc.; Genzyme Corp.; Progenics Pharmaceuticals,
Inc.; Vical Incorporated; CancerVax Corporation; Genitope Corporation; and
Xcyte
Therapies, Inc.
We
expect
that our products under development and in clinical trials will address major
markets within the cancer sector. Our competition will be determined in part
by
the potential indications for which drugs are developed and ultimately approved
by regulatory authorities. Additionally, the timing of market introduction
of
some of our potential products or of competitors’ products may be an important
competitive factor. Accordingly, the relative speed with which we can develop
products, complete pre-clinical testing, clinical trials and approval processes
and supply commercial quantities to market are expected to be important
competitive factors. We expect that competition among products approved for
sale
will be based on various factors, including product efficacy, safety,
reliability, availability, price and patent position. See “Business - Research
and Development Program” and “Business - Competition”.
Risks
Related to the Securities Markets and Investments in our Common
Stock
The
price of our common stock may be volatile.
The
trading price of our common stock may fluctuate substantially. The price of
the
common stock that will prevail in the market after the sale of the shares of
common stock by the Selling Stockholders may be higher or lower than the price
you have paid, depending on many factors, some of which are beyond our control
and may not be related to our operating performance. These fluctuations could
cause you to lose part or all of your investment in our common stock. Those
factors that could cause fluctuations include, but are not limited to, the
following:
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price
and volume fluctuations in the overall stock market from time to
time;
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fluctuations
in stock market prices and trading volumes of similar companies;
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actual
or anticipated changes in our earnings or fluctuations in our operating
results or in the expectations of securities analysts;
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general
economic conditions and trends;
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major
catastrophic events;
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sales
of large blocks of our stock;
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departures
of key personnel;
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changes
in the regulatory status of our product candidates, including results
of
our clinical trials;
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events
affecting Penn or any future collaborators;
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announcements
of new products or technologies, commercial relationships or other
events
by us or our competitors;
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regulatory
developments in the United States and other countries;
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failure
of our common stock to be listed or quoted on the Nasdaq Small Cap
Market,
American Stock Exchange, OTC Bulletin Board or another national market
system;
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changes
in accounting principles;
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discussion
of us or our stock price by the financial and scientific press and
in
online investor communities; and
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The
impact of the embedded conversion feature in the secured convertible
debenture.
|
In
the
past, following periods of volatility in the market price of a company’s
securities, securities class action litigation has often been brought against
that company. Due to the potential volatility of our stock price, we may
therefore be the target of securities litigation in the future. Securities
litigation could result in substantial costs and divert management’s attention
and resources from our business.
If
additional authorized shares of our common stock available for issuance or
shares eligible for future sale were introduced into the market, it could hurt
our stock price.
We
are
authorized to issue 500,000,000 shares of common stock. As of March 31, 2007,
there were an aggregate of 44,849,283 shares of our common stock issued and
outstanding 8,512,841 shares of our common stock which may be issued upon the
exercise of currently outstanding stock options and 25,009,220 shares of common
stock which may be issued upon the exercise of current outstanding warrants
subject to certain restrictions and or dilution clauses. There is a significant
amount of additional shares that may be issued as a result of: (i.) raising
of
additional funds in the near future at terms that may trigger existing
anti-dilutive clauses in certain outstanding warrants and future options awards,
and (ii). the conversion of the remaining $2,225,000 outstanding principal
amount of the Company’s convertible secured debenture. $775,000 principal amount
of the debenture has been converted into 5,052,513 common shares at an average
price of $0.153 per share by the holder. The future dilution of the conversion
price due to the embedded conversion and warrants features of this instrument
along with the actions of the Debentureholder to hold or sell the shares
converted will materially affect the market price as well as the dilution of
the
other outstanding instruments that may trigger anti-dilutive clauses. We are
unable to estimate the amount, timing or nature of future sales of outstanding
shares of common stock. Sales of substantial amounts of the common stock in
the
public market by these holders or perceptions that such sales may take place
may
lower the common stock’s market price.
The
following table sets forth the number of shares of our common stock issued
and
available for resale pursuant to the prospectus by the Debentureholder if
conversion was at the Fixed Conversion Price of $0.287 or at assumed Market
Conversion Prices of $0.25, $0.20, $0.15, and $0.10 respectively.
Conversion
Price
|
|
Number
of Shares Issuable
on
Conversion of Debentures
|
|
Percentage
of Issued
and
Outstanding as of March 31, 2007(1)
|
|
$0.287
|
|
|
7,752,613
|
|
|
14.7
|
%
|
$0.25
|
|
|
8,900,000
|
|
|
16.6
|
%
|
$0.20
|
|
|
11,125,000
|
|
|
19.9
|
%
|
$0.15
|
|
|
14,833,333
|
|
|
24.9
|
%
|
$0.10
|
|
|
22,250,000
|
|
|
33.2
|
%
|
|
|
|
|
|
|
|
|
(1) |
Assumes
44,849,283 shares outstanding as of March 31, 2007 and gives effect
to the
shares issuable on conversion of the outstanding principal of
$2,225,000.
|
However,
the original Debentureholder has agreed that conversions, payments and exercises
will not result in its holdings and those of its affiliates of shares of our
common stock amounting at the time of each conversion, payment or exercise
into
more than 4.9% of our outstanding shares of common stock.
We
have
also registered for reoffering: 24,130,588
shares which may be acquired upon exercise of certain warrants. Registration
of an additional 25,061,907 outstanding shares on behalf of their holders
has been withdrawn. To the extent not previously sold, such shares may be
reoffered pursuant to and subject to the limitations, if any, of the exemption
from registration afforded by Rule 144 under the Securities Act of 1933,
as
amended. We
are
unable to estimate the amount, timing or nature of future sales of outstanding
common stock. Sales of substantial amounts of the common stock in the public
market by these holders or perceptions that such sales may take place may
lower
the common stock’s market price.
The
Company must account for certain derivative instruments issued on its common
stock as liabilities.
The
Company has outstanding a debenture convertible into a variable number of common
shares. Warrants to purchase 4,500,000 shares of Common Stock were issued in
connection with the sale of the Debenture. In accordance with the provisions
of
EITF 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a
Company’s Own Stock,
the
convertible debentures are not considered to be “conventional” 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 the proceeds from the sale of the Debentures between the relative
fair
values at the date of origination of the sale for the warrants, embedded
derivative and the Debenture. See Note 5: “Notes to Financial Statements - Notes
Payable of Increase”.
Our
common stock is considered to
be “penny
stock”.
Our
common stock may be deemed to be “penny stock” as that term is defined in Rule
3a51-1, promulgated under the Securities and Exchange Act of 1934, as amended
(the “Exchange Act”). Penny stocks are stocks:
|
·
|
with
a price of less than $5.00 per share;
|
|
·
|
that
are not traded on a “recognized” national exchange;
|
|
·
|
whose
prices are not quoted on the NASDAQ automated quotation system; or
|
|
·
|
of
issuers with net tangible assets less than $2,000,000 (if the issuer
has
been in continuous operation for at least three years) or $5,000,000
(if
in continuous operation for less than three years), or with average
revenue of less than $6,000,000 for the last three years.
|
Section
15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder require
broker-dealers dealing in penny stocks to provide potential investors with
a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before effecting any transaction
in a
“penny stock” for the investor’s account. We urge potential investors to obtain
and read this disclosure document carefully before purchasing any shares that
are deemed to be “penny stock.”
Rule
15g-9 promulgated under the Exchange Act requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any “penny stock” to that investor. This procedure requires the
broker-dealer to:
|
·
|
obtain
from the investor information about his or her financial situation,
investment experience and investment objectives;
|
|
·
|
reasonably
determine, based on that information, that transactions in penny
stocks
are suitable for the investor and that the investor has enough knowledge
and experience to be able to evaluate the risks of “penny stock”
transactions;
|
|
·
|
provide
the investor with a written statement setting forth the basis on
which the
broker-dealer made his or her determination; and
|
|
·
|
receive
a signed and dated copy of the statement from the investor, confirming
that it accurately reflects the investor’s financial situation, investment
experience and investment objectives.
|
Compliance
with these requirements may make it harder for investors in our common stock
to
resell their shares to third parties. Accordingly, our common stock should
only
be purchased by investors, who understand that such investment is a long-term
and illiquid investment, and are capable of and prepared to bear the risk of
holding the common stock for an indefinite period of time.
We
will incur increased costs as a result of recently enacted and proposed changes
in laws and regulations relating to corporate governance matters.
Recently
enacted and proposed changes in the laws and regulations affecting public
companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules
adopted or proposed by the SEC and by the Nasdaq Stock Market, will result
in
increased costs to us as we evaluate the implications of these laws and
regulations and respond to their requirements. These laws and regulations could
make it more difficult or more costly for us to obtain certain types of
insurance, including director and officer liability insurance, and we may be
forced to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. The impact of these events
could also make it more difficult for us to attract and retain qualified persons
to serve on our Board of Directors, our board committees or as executive
officers. We are continuously evaluating and monitoring developments with
respect to these laws and regulations and cannot predict or estimate the amount
or timing of additional costs we may incur to respond to their requirements.
A
limited public trading market may cause volatility in the price of our common
stock.
Our
common stock began trading on the OTC Bulletin Board on July 28, 2005 under
the
symbol ADXS. The quotation of our common stock on the OTC Bulletin Board does
not assure that a meaningful, consistent and liquid trading market currently
exists, and in recent years such market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of many smaller
companies like us. Our common stock is thus subject to this volatility. Sales
of
substantial amounts of common stock, or the perception that such sales might
occur, could adversely affect prevailing market prices of our common stock
and
our stock price may decline substantially in a short time and our shareholders
could suffer losses or be unable to liquidate their holdings. . The impact
of
the embedded conversion feature in the secured convertible debenture and the
conversion of the debenture can add to the dilution and subsequent sales of
the
shares can increase volatility.
There
is no assurance of an established public trading market.
A
regular
trading market for our common stock may not be sustained in the future. The
NASD
has enacted recent changes that limit quotation on the OTC Bulletin Board to
securities of issuers that are current in their reports filed with the SEC.
The
effect on the OTC Bulletin Board of these rule changes and other proposed
changes cannot be determined at this time. The OTC Bulletin Board is an
inter-dealer, over-the-counter market that provides significantly less liquidity
than the NASDAQ Stock Market. Quotes for stocks included on the OTC Bulletin
Board are not listed in the financial sections of newspapers as are those for
the NASDAQ Stock Market. Therefore, prices for securities traded solely on
the
OTC:BB may be difficult to obtain and holders of common stock may be unable
to
resell their securities at or near their original offering price or at any
price. Market prices for our common stock will be influenced by a number of
factors, including:
· |
The
issuance of new equity securities pursuant to a future
offering;
|
· |
Changes
in interest rates;
|
· |
Competitive
developments, including announcements by competitors of new products
or
services or significant contracts, acquisitions, strategic partnerships,
joint ventures or capital
commitments;
|
· |
Variations
in quarterly operating results
|
· |
Change
in financial estimates by securities
analysts;
|
· |
The
depth and liquidity of the market for our common
stock;
|
· |
Investor
perceptions of our company and the technologies industries generally;
and
|
· |
General
economic and other national
conditions.
|
Our
common stock is quoted on the OTC:BB. In addition we are subject to a covenant
to use our best efforts to apply to be listed on the American Stock Exchange
or
quoted on the Nasdaq National Stock Market.
We
may not be able to achieve secondary trading of our stock in certain states
because our common stock is not nationally traded.
Because
our common stock is not approved for trading on the Nasdaq National Market
or
listed for trading on a national securities exchange, our common stock is
subject to the securities laws of the various states and jurisdictions of the
United States in addition to federal securities law. This regulation covers
any
primary offering we might attempt and all secondary trading by our stockholders.
While we intend to take appropriate steps to register our common stock or
qualify for exemptions for our common stock, in all of the states and
jurisdictions of the United States, if we fail to do so the investors in those
jurisdictions where we have not taken such steps may not be allowed to purchase
our stock or those who presently hold our stock may not be able to resell their
shares without substantial effort and expense. These restrictions and potential
costs could be significant burdens on our stockholders.
Our
executive officers, directors and principal stockholders control our business
and may make decisions that are not in our best interest.
Our
officers, directors and principal stockholders, and their affiliates, in the
aggregate, beneficially owned, as of October 31, 2006, more than one-third
of
the outstanding shares of our common stock on a fully diluted basis (See
“Principal and Management Stockholders”). As a result, such persons, acting
together, have the ability to substantially influence all matters submitted
to
our stockholders for approval, including the election and removal of directors
and any merger, consolidation or sale of all or substantially all of our assets,
and to control our management and affairs. Accordingly, such concentration
of
ownership may have the effect of delaying, deferring or preventing a change
or
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our business, even if such a transaction would
be beneficial to other stockholders.
Sales
of additional equity securities may adversely affect the market price of our
common stock and your rights in us may be reduced.
We
expect
to continue to incur product development and selling, general and administrative
costs, and in order to satisfy our funding requirements, we will need to sell
additional equity securities, which may be subject to registration rights.
The
sale or the proposed sale of substantial amounts of our common stock in the
public markets may adversely affect the market price of our common stock and
our
stock price may decline substantially. Our stockholders may experience
substantial dilution and a reduction in the price that they are able to obtain
upon sale of their shares. Also, new equity securities issued may have greater
rights, preferences or privileges than our existing common stock.
Additional
authorized shares of common stock available for issuance may adversely affect
the market.
We
are
authorized to issue 500,000,000 shares of our common stock. As of March 31,
2007, we had 44,849,283 shares of our common stock issued and outstanding,
excluding shares issuable upon exercise of our outstanding warrants and options.
As of March 31, 2007, we had outstanding 8,512,841 options to purchase shares
of
our common stock and outstanding warrants to purchase 25,009,220 shares of
our
common stock, with exercise prices ranging from $0.1952 to $0.40 per share.
In
addition as of March 31, 2007 we have estimated that 12,145,309 shares of common
stock for issuance upon “market price” conversion of principal of and payment of
interest on our outstanding Debentures at the Conversion Price (95% of reserved
March 30, 2007 market price) or $0.2185 per share (amounts will vary given
the
embedded conversion feature and the lower Market Conversion Price up to the
Fixed Conversion Price). There are 4,200,000 shares issuable upon exercise
of A
Warrants at a price of $0.287 and 300,000 shares upon exercise of B Warrants
at
a price of $0.344 per share subject to dilution included in the warrants
outstanding. Pursuant to our 2004 Stock Option Plan, 2,381,525 shares of common
stock are reserved for issuance under the plan. Pursuant to our 2005 Stock
Option Plan, 5,600,000 shares of common stock are reserved for issuance under
the plan. The are also 1,001,399 options granted outside the Plans. To the
extent the shares of common stock are issued or options and warrants are
exercised, holders of our common stock will experience dilution. In addition,
in
the event of any future financing by sales of equity securities or securities
convertible into or exchangeable for, common stock, holders of our common stock
may experience dilution.
Shares
eligible for future sale may adversely affect the market.
From
time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in
the
open market pursuant to Rule 144 (“Rule 144”) promulgated under the Securities
Act of 1933, as amended (the “Securities Act of 1933”), subject to certain
limitations. In general, pursuant to Rule 144, a stockholder (or stockholders
whose shares are aggregated) who has satisfied a one-year holding period may,
under certain circumstances, sell within any three-month period a number of
securities which does not exceed the greater of 1% of the then outstanding
shares of common stock or the average weekly trading volume of the class during
the four calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of securities, without any limitations, by a
non-affiliate of our Company who has satisfied a two-year holding period. Any
substantial sale of our common stock pursuant to Rule 144 or pursuant to any
resale prospectus may have an adverse effect on the market price of our
securities.
An
aggregate of 47,841,513 shares are being registered under the Securities
Act by
means of the registration statement of which this prospectus is a part for
reoffering by a Selling Stockholder upon conversion of principal and interest
on
Debentures and exercise of the warrants subject to the agreement of the original
Debentureholder not to acquire shares upon conversion or exercise if it would
result in it and its affiliates owning more than 4.9% of our then outstanding
shares. 19,630,586 shares
of
common stock are also registered under the Securities Act for reoffering
by
other Selling Stockholders upon
exercise of warrants. These shares would otherwise be eligible for future
sale
under Rule 144 after passage of the minimum one year holding period from
cash
exercise or with respect to cashless exercise from date of receipt of the
warrants for holders who are not officers, directors or affiliates of the
Company. 12,037,550 outstanding shares are also registered for offering by
certain affiliates of the Company. The registration and subsequent sales
of such shares of common stock will likely have an adverse effect on the
market
price of our common stock. 25,061,907
additional shares had previously been registered for resale on behalf of
other
stockholders and to the extent not sold prior to the date of the Prospectus,
may
be offered for resale by their owners pursuant to and subject to the
limitations, if any, of the exemption from registration afforded by Rule
144
under the Securities Act of 1933.
Our
Certificate of Incorporation provide for the authorization of 5,000,000 shares
of “blank check” preferred stock. Pursuant to our Articles of Incorporation, our
Board of Directors is authorized to issue such “blank check” preferred stock
with rights that are superior to the rights of stockholders of our common stock,
at a purchase price then approved by our Board of Directors, which purchase
price may be substantially lower than the market price of shares of our common
stock, without stockholder approval. We are able to issue shares of preferred
stock with rights superior to those of holders of our common stock. Such
issuances can dilute the tangible net book value of shares of our common stock.
We have agreed not to issue without the consent of the Debentureholder any
shares of our common stock at a price les than the closing bid price of a share
of our common stock as long as there is outstanding at least $500,000 principal
amount of the Debentures.
The
conversion of the Debentures could encourage short sales by third parties,
which
could contribute to the future decline of our stock price and materially dilute
existing stockholders' equity and voting rights.
The
conversion of the Debentures into common stock has the potential to cause
significant downward pressure on the price of our common stock. This is
particularly the case if the shares being placed into the market following
conversion exceed the market's ability to absorb the increased number of shares.
Such an event could place further downward pressure on the price of our common
stock, presenting an opportunity to short sellers and others to contribute
to
the future decline of our stock price. If there are significant short sales
of
our stock, the price decline that would result from this activity will cause
the
share price to decline more so, which, in turn, may cause long holders of the
stock to sell their shares thereby contributing to sales of stock in the market.
If there is an imbalance on the sell side of the market for the stock, our
stock
price will decline. If this occurs, the number of shares of our common stock
that is issuable upon conversion of the Debentures issued in February and March
2006 will increase, which will materially dilute existing stockholders' equity
and voting rights.
We
are able to issue shares of preferred stock with rights superior to those of
holders of our common stock. Such issuances can dilute the tangible net book
value of shares of our common stock.
Our
Certification of Incorporation provides for the authorization of 5,000,000
shares of “blank check” preferred stock. Pursuant to our Certificate of
Incorporation, our Board of Directors is authorized to issue such “blank check”
preferred stock with rights that are superior to the rights of stockholders
of
our common stock, at a purchase price then approved by our Board of Directors,
which purchase price may be substantially lower than the market price of shares
of our common stock, without stockholder approval.
We
do not intend to pay dividends.
We
have
never declared or paid any dividends on our securities. We currently intend
to
retain our earnings for funding growth and, therefore, do not expect to pay
any
dividends in the foreseeable future.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These statements include, but are not limited to:
|
·
|
statements
as to the anticipated timing of clinical studies and other business
developments;
|
|
·
|
statements
as to the development of new
products;
|
|
·
|
expectations
as to the adequacy of our cash balances to support our operations
for
specified periods of time and as to the nature and level of cash
expenditures; and
|
|
·
|
expectations
as to the market opportunities for our products, as well as our ability
to
take advantage of those
opportunities.
|
These
statements may be found in the sections of this prospectus entitled “Prospectus
Summary,” “Risk Factors”, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations and Plan of Operations”, and “Business,” as
well as in this prospectus generally. Actual results could differ materially
from those anticipated in these forward-looking statements as a result of
various factors, including all the risks discussed in “Risk Factors” and
elsewhere in this prospectus.
In
addition, statements that use the terms “can,” “continue,” “could,” “may,”
“potential,” “predicts,” “should,” “will,” “believe,” “expect,” “plan,”
“intend,” “estimate,” “anticipate,” “scheduled” and similar expressions are
intended to identify forward-looking statements. All forward-looking statements
in this prospectus reflect our current views about future events and are based
on assumptions and are subject to risks and uncertainties that could cause
our
actual results to differ materially from future results expressed or implied
by
the forward-looking statements. Many of these factors are beyond our ability
to
control or predict. Forward-looking statements do not guarantee future
performance and involve risks and uncertainties. Actual results will differ,
and
may differ materially, from projected results as a result of certain risks
and
uncertainties. The risks and uncertainties include, without limitation, those
described under “Risk Factors” and those detailed from time to time in our
filings with the SEC, and include, among others, the following:
|
·
|
Our
limited operating history and ability to continue as a going
concern;
|
|
·
|
Our
ability to successfully develop and commercialize products based
on our
therapies and the Listeria System;
|
|
·
|
A
lengthy approval process and the uncertainty of FDA and other government
regulatory requirements may have a material adverse effect on our
ability
to commercialize our applications;
|
|
·
|
Clinical
trials may fail to demonstrate the safety and effectiveness of our
applications or therapies, which could have a material adverse effect
on
our ability to obtain government regulatory
approval;
|
|
·
|
The
degree and nature of our
competition;
|
|
·
|
Our
ability to employ and retain qualified employees;
and
|
|
·
|
The
other factors referenced in this prospectus, including, without
limitation, under the section entitled “Risk Factors”, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations
and Plan of Operations”, and
Business”.
|
These
risks are not exhaustive. Other sections of this prospectus may include
additional factors which could adversely impact our business and financial
performance. Moreover, we operate in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible
for our management to predict all risk factors, nor can we assess the impact
of
all factors on our business or the extent to which any factor, or combination
of
factors, may cause actual results to differ materially from those contained
in
any forward-looking statements. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements as a prediction
of
actual results. These forward-looking statements are made only as of the date
of
this prospectus. Except for our ongoing obligation to disclose material
information as required by federal securities laws, we do not intend to update
you concerning any future revisions to any forward-looking statements to reflect
events or circumstances occurring after the date of this
prospectus.
USE
OF PROCEEDS
We
will not receive any proceeds from the sale of the shares of common
stock by
the Selling Stockholders. We will receive funds from the exercise of warrants
held by Selling Stockholders if exercised for cash and benefit from a reduction
of our indebtedness of principal to the extent a Selling Stockholder acquires
shares for reoffering through the conversion of the Debentures.
MARKET
FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Since
July 28, 2005, our Common Stock has been quoted on the OTC:BB symbol ADXS.
The
following table shows, for the periods indicated, the high and low sales prices
per share of our Common Stock as reported by the OTC:BB. As of January 31,
2007
there were approximately 83 stockholders of record and the closing sale price
of
Advaxis common stock was $0.163 per share as reported by the
OTC:BB.
Common
Stock
|
|
Fiscal
2006
|
|
Fiscal
2005
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First
Quarter November 1 - January 31
|
|
$
|
0.27
|
|
$
|
0.16
|
|
|
N/A
|
|
|
N/A
|
|
Second
Quarter February 1 - April 30
|
|
$
|
0.37
|
|
$
|
0.21
|
|
|
N/A
|
|
|
N/A
|
|
Third
Quarter…May 1 - July 31
|
|
$
|
0.30
|
|
$
|
0.17
|
|
$
|
1.25
|
|
$
|
0.35
|
|
Fourth
Quarter August 1, - October 31
|
|
$
|
0.25
|
|
$
|
0.13
|
|
$
|
0.52
|
|
$
|
0.15
|
|
DIVIDEND
POLICY
We
have not declared nor paid any cash dividend on our common
stock,
and we currently intend to retain future earnings, if any, to finance the
expansion of our business, and we do not expect to pay any cash dividends in
the
foreseeable future. The decision whether to pay cash dividends on our
common
stock will be made by our Board of Directors, in its discretion, and will depend
on our financial condition, operating results, capital requirements and other
factors that our Board of Directors considers significant.
DILUTION
We
are only registering under this prospectus shares of common stock outstanding
and to be outstanding upon conversion of Debentures and exercise of certain
outstanding warrants held by the Selling Stockholders. As such, purchasers
of
shares of common stock sold under this prospectus shall not experience any
immediate dilution as a result of or upon such purchase.
CAPITALIZATION
The
following table sets forth as of October 31, 2006 and January 31, 2007, our
actual capitalization. This table should be read in conjunction with the
information contained in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations and Plan of Operations” and the consolidated
financial statements and the notes thereto included elsewhere in this
prospectus.
|
|
October
31, 2006
|
|
January
31, 2007
|
|
Indebtedness
|
|
|
|
|
|
Secured
Convertible Debenture due 2/01/09 and fair value of embedded
derivative
|
|
$
|
5,017,696
|
|
$
|
3,880,405
|
|
Notes
Payable*
|
|
|
313,000
|
|
|
345,125
|
|
Total
indebtedness
|
|
$
|
5,330,696
|
|
$
|
4,225,530
|
|
Stockholders’
equity (deficit):
|
|
|
|
|
|
|
|
Preferred
Stock, authorized 5,000,000,
|
|
|
|
|
|
|
|
none
outstanding
|
|
|
—
|
|
|
|
|
Common
Stock, par value $.001
|
|
|
|
|
|
|
|
authorized
500,000,000
|
|
|
|
|
|
|
|
outstanding
40,238,992 and 42,331,051
|
|
|
40,239
|
|
|
42,330
|
|
Additional
paid in capital
|
|
|
5,914,793
|
|
|
6,455,140
|
|
Deficit
accumulated during development
|
|
|
(9,662,173
|
)
|
|
(9,699,203
|
)
|
Stockholders’
Deficiency
|
|
|
(3,707,141
|
)
|
|
(3,201,733
|
)
|
|
|
|
|
|
|
|
|
Total
capitalization
|
|
$
|
1,623,555
|
|
$
|
1,023,797
|
|
*
Not
including short term payables.
SUMMARY
CONSOLIDATED FINANCIAL DATA OF ADVAXIS
On
November 12, 2004, we acquired Advaxis, Inc., a Delaware corporation through
the
Share Exchange. The transaction was accounted for as a recapitalization.
Accordingly, the historical financial statements of Advaxis are our financial
statements for reporting purposes. Advaxis, Inc changed, commencing with the
year ended October 31, 2006, its fiscal year ending October 31 and as a result
is providing herein its audited financial statements for the years ended October
31, 2005 and October 31, 2006 and the period March 1, 2002 (inception) through
October 31, 2006.
The
following condensed statement of operations data for the years ended October
31,
2005 and October 31, 2006
and the
period March 1, 2002 (inception) through October 31, 2006 are
derived from Advaxis’ financial statements and the related notes, audited by
Goldstein Golub Kessler LLP, Certified Public Accountants, 1185 Avenue of the
Americas, Suite 500, New York, NY 10036-2602, Advaxis’ independent registered
public accounting firm,
included elsewhere herein. The selected unaudited statement of operations data
for the
three month periods ended January 31, 2006 and January 31, 2007 and the period
March 1, 2002 (inception) through January 31, 2007
are
derived from Advaxis’ unaudited financial statements, which have been prepared
on a basis consistent with Advaxis’ audited financial statements and, in the
opinion of management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of Advaxis’ financial position
and results of operations. The results of operations for any interim period
are
not necessarily indicative of results to be expected for the entire year. The
following data should be read in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations and Plan of
Operations” and our financial statements and the related notes included
elsewhere in this prospectus.
|
|
Year
Ended October
31,
|
|
Three
Months Ended
January
31,
|
|
Period
from
March
1, 2002 (inception) to
|
|
|
|
2004
(unaudited)
|
|
2005
|
|
2006
|
|
2006
(unaudited)
|
|
2007
(unaudited)
|
|
October
31, 2006
|
|
January
31, 2007
(unaudited)
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
116,806
|
|
$
|
552,868
|
|
$
|
431,961
|
|
$
|
329,928
|
|
$
|
146,307
|
|
$
|
1,105,235
|
|
$
|
1,251,542
|
|
Total
operating expenses
|
|
$
|
715,754
|
|
$
|
2,395,328
|
|
$
|
3,481,226
|
|
$
|
798,990
|
|
$
|
1,339,179
|
|
$
|
7,591,841
|
|
$
|
8,931,020
|
|
Interest
expense (income)
|
|
$
|
13,132
|
|
$
|
(7,307
|
)
|
$
|
(437,299
|
)
|
$
|
(1,008
|
)
|
$
|
(153,355
|
)
|
$
|
(466,027
|
)
|
$
|
(619,382
|
)
|
Other
income
|
|
$
|
72
|
|
$
|
43,978
|
|
$
|
90,899
|
|
$
|
11,931
|
|
$
|
26,326
|
|
$
|
136,422
|
|
$
|
162,748
|
|
Net
changes in fair value of common stock warrant liability and embedded
derivative liability
|
|
|
—
|
|
|
|
|
$
|
(2,802,078
|
)
|
|
|
|
$
|
1,282,871
|
|
$
|
(2,802,078
|
)
|
$
|
(1,519,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(655,892
|
)
|
$
|
(1,805,789
|
)
|
$
|
(6,197,744
|
)
|
$
|
(458,139
|
)
|
$
|
(37,030
|
)
|
$
|
(9,618,289
|
)
|
$
|
(9,655,319
|
)
|
Loss
per Share Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.05
|
)
|
$
|
(0.16
|
)
|
$
|
(0.01
|
)
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
October
31,
|
|
|
|
|
|
January
31,
|
|
|
|
2004
(unaudited)
|
|
October
31,
2005
|
|
October
31,
2006
|
|
2007
(unaudited)
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
32,279
|
|
$
|
2,075,206
|
|
$
|
2,761,166
|
|
$
|
1,977,809
|
|
Intangible
assets
|
|
$
|
469,803
|
|
$
|
751,088
|
|
$
|
956,409
|
|
$
|
959,842
|
|
Total
assets
|
|
$
|
502,083
|
|
$
|
2,904,039
|
|
$
|
4,002,704
|
|
$
|
3,239,714
|
|
Total
liabilities
|
|
$
|
1,841,579
|
|
$
|
1,152,465
|
|
$
|
7,709,845
|
|
$
|
6,441,447
|
|
Shareholders’
(Deficiency) Equity
|
|
$
|
(1,339,496
|
)
|
$
|
1,751,575
|
|
$
|
(3,707,141
|
)
|
$
|
(3,201,733
|
)
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND
PLAN OF OPERATIONS
This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and Plan of Operations and other portions of this Prospectus contain
forward-looking information that involves risks and uncertainties. Our actual
results could differ materially from those anticipated by the forward-looking
information. Factors that may cause such differences include, but are not
limited to, availability and cost of financial resources, product demand, market
acceptance and other factors discussed in this Prospectus under the heading
“Risk Factors”. This Management’s Discussion and Analysis of Financial Condition
and Results of Operations and Plan of Operations should be read in conjunction
with our financial statements and the related notes included elsewhere in this
Prospectus.
Overview
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.
Our
therapeutic approach is based upon, and we have obtained an exclusive license
with respect to, the innovative work of Yvonne Paterson, PhD., 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
focused our initial development efforts on four lead compounds and anticipate
completing a Phase I clinical study of Lovaxin C, a potential cervical cancer
vaccine, mid 2007. See “Business - Research and Development
Program”.
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 restated on 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 Share Exchange,
as
a result of which Advaxis become our wholly-owned subsidiary and our sole
operating company. We then changed our name to Advaxis. On March 29, 2006,
we
merged into Advaxis (the subsidiary) and thereby changed our state in
incorporation from the state of Colorado to the state of Delaware. For financial
reporting purposes, we have treated the Share Exchange as a recapitalization.
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 became our historical financial
statements after the Share Exchange.
On
November 12, 2004, December 8, 2004 and January 4, 2005 (the “Three Tranche
Private Placement) we effected a private placement to “accredited investors”, as
defined in Rule 501(a) of Regulation D under the Securities Act of 1933 of
an
aggregate of 11,334,495 shares of our common stock and warrants to purchase
an
aggregate of 11,334,495 additional shares for net proceeds of approximately
$3,253,000.
On
November 12, 2004, $595,000 of our promissory notes plus accrued interest was
converted into an aggregate of 2,136,441 shares of our common stock and warrants
to purchase 2,223,549 shares of our common stock.
On
January 12, 2005, we effected a private placement to an accredited investor
for
approximately $1,100,000 of 3,832,753 shares of our common stock and warrants
to
purchase 3,832,753 additional shares.
We
sold
to Cornell Capital Partners LP (“Cornell”), $3,000,000 principal amount of our
Secured Convertible Debentures due February 1, 2009 ($1,500,000 on February
2,
2006 and $1,500,000 on March 8, 2006) bearing interest at 6% per annum payable
at maturity and issued it warrants to purchase 4,500,000 shares of our common
stock. The net proceeds were approximately $2,740,000. The value of the warrants
will be charged as interest expense over the three year term of the
Debentures.
In
accounting for the convertible 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 Debentures represents
an embedded derivative since the debenture is convertible into a variable number
of shares upon a conversion formula and the conversion clause allows 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.
Plan
of Operations
We
intend
to use a portion of the proceeds of the sales described above to conduct a
Phase
I clinical trial in cervical cancer using Lovaxin C, one of our lead product
candidates in development using our Listeria System. We also have used the
funds
to further expand our clinical, research and development teams to further
develop the product candidates and to expand our manufacturing capabilities
and
strategic activities. Our corporate staff will be responsible for the general
and administrative activities.
In
April
2007, we concluded the recruitment phase of our Phase I/II trial of Lovaxin
C
after dosing 15 patients in an escalating dose clinical trial and after an
independent safety panel had agreed that Lovaxin C had been dosed safely to
date
and that the trial could proceed to a higher dose. The Company, however, has
determined that it was not necessary. It intends to report the results and
submit an IND to the FDA by October 2007. If the IND is approved, the Company
will proceed to Phase II.
During
the next 12 to 24 months, we anticipate that our strategic focus will be to
achieve several objectives described under “Business - Strategy” and as
follows:
· |
Complete
Phase I clinical study of Lovaxin
C;
|
· |
Initiate
a Phase II clinical study of Lovaxin C Cervical
Cancer;
|
· |
Initiate
Preclinical Studies and a Phase I study of Lovaxin P Prostate
Cancer;
|
· |
Initiate
Preclinical Studies and a Phase I study of Lovaxin B Breast
Cancer;
|
· |
Continue
preclinical development of Lovaxin
T;
|
· |
Continue
research to expand our technology
platform.
|
The
annual cost to maintain our current staff, overhead and preclinical expense
is
estimated to be $2.0 to $2.4 million in fiscal year 2007. We estimate the cost
of our current phase I clinical study in therapeutic treatment of cervical
cancer to be in the range of $0.2 to $0.3 million for the same period. Therefore
we anticipate our current cash will be adequate to meet our needs over the
2007
fiscal year. Our phase II Lovaxin C clinical study is estimated to commence
in
late fiscal year 2007 or early fiscal 2008 to cost from $2.5 to $4.0 million.
We
hope to commence the work in prostate cancer in late fiscal year 2007 and
in breast cancer in fiscal year 2008. The timing and estimated costs of these
projects are difficult to predict. In fiscal 2007 our anticipated needs for
equipment, personnel and space should not be significant. We do plan on adding
a
few key employees in 2007 to address our growing clinical, regulatory and
reporting needs.
Overall
given the clinical stage of our business our financial needs are driven in
large
part by the outcomes of clinical trials and preclinical findings. The cost
of
these clinical trial projects is significant. As a result we will be required
to raise additional debt or equity in the near future and may attempt to
negotiate the restructure of certain existing instruments. If the clinical
outcomes are successful and the value of the Company increases it is more than
likely we will attempt to accelerate the timing of the required financing and,
conversely if the trial or trials aren’t successful or are slow spending will be
deferred. While we will attempt to attract a corporate partnership we have
not
assumed the receipt of any additional financial resources.
For
more
information about Penn and commitments see “Business - Partnerships and
Agreements - University of Pennsylvania. ”
Accounting
Policies; Impact of Growth
Below
is
a brief description of basic accounting principles which we have adopted in
determining our recognition of expenses, as well as a brief description of
the
effects that our management believes that our anticipated growth will have
on
our revenues and expenses in the 12 months ended October 31, 2007.
Revenues.
We do
not anticipate that we will record any material revenues during at least the
twelve months ending October 31, 2007. When we recognize revenues, we anticipate
that they will be principally grants and licensing fees.
Expenses.
We
recorded operating expenses for the years ended October 31, 2005 and 2006 and
the three months ended January 31, 2007 of $2,395,328, $3,481,226 and
$1,339,179, respectively.
The
preparation of financial statements in accordance with GAAP involves the use
of
estimates and assumptions that affect the recorded amounts of assets and
liabilities as the date of the financial statements and the reported amounts
of
revenue and expenses during the reporting period. Actual results may differ
substantially from these estimates. Significant estimates include the fair
value
and recoverability of carrying value of intangible asset (trade marks, patents
and licenses), the fair value of options, the fair value of embedded conversions
features, warrants, recognition of on-going clinical trials, and related
disclosure of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, based on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions.
We
believe the following critical accounting policy involves significant estimate
and judgment. We amortize trademark, license and patent costs over their
estimated useful lives. We may be required to adjust these lives based on
advances in science and competitor actions. We review the recorded amounts
of
trademarks and patents at each period end to determine if their carrying amount
is still recoverable based on expectations regarding potential licensing of
the
intangibles or sales of related products. Such an assessment, in the future,
may
result in a conclusion that the assets are impaired, with a corresponding charge
against earnings.
In
accordance with Securities and Exchange Commission Staff Accounting Bulletin
(SAB) No. 104, revenue from license fees and grants is recognized when the
following criteria are met: persuasive evidence an arrangement exists, services
have been rendered, the contract price is fixed or determinable, and
collectibility is reasonably assured. In licensing arrangements, delivery does
not occur for revenue recognition purposes until the license term begins.
Nonrefundable upfront fees received in exchange for products delivered or
services performed that do not represent the culmination of a separate earnings
process will be deferred and recognized over the term of the agreement using
the
straight-line method or another method if it better represents the timing and
pattern of performance.
For
revenue contracts that contain multiple elements, we will determine whether
the
contract includes multiple units of accounting in accordance with EITF No.
00-21, Revenue Arrangements with Multiple Deliverables. Under that guidance,
revenue arrangements with multiple deliverables are divided into separate units
of accounting if the delivered item has value to the customer on a standalone
basis and there is objective and reliable evidence of the fair value of the
undelivered item.
Research
and Development.
During
the years ended October 31, 2005 and 2006, and the three months ended January
31, 2007 we recorded research and development expenses of $1,175,536,
$1,404,164, and 494,107, respectively. Such expenses were principally comprised
of manufacturing scale up and process development, license fees, sponsored
research, clinical trial and consulting expenses. We recognize research and
development expenses as incurred.
Commencing
with the year ending October 31, 2006, we anticipate that our research and
development expenses will increase as a result of our expanded development
and
commercialization efforts related to clinical trials, product development,
and
development of strategic and other relationships required ultimately for the
licensing, manufacture and distribution of our product candidates. We regard
four of our product candidates as major research and development projects.
The
timing, costs and uncertainties of those projects are as follows:
Lovaxin
C - Phase I/II trial Summary Information (Cervical Cancer)
·
|
Cost
incurred to date: approximately $1,000,000
|
|
|
·
|
Estimated
future costs: $500,000 Phase I and $2,500,000 - $4,000,000 Phase
II
|
|
|
·
|
Anticipated
completion date: second/third quarter fiscal 2007 Phase I and 2008
and
beyond Phase II.
|
|
|
·
|
Uncertainties:
|
|
|
-
|
the
FDA (or relevant foreign regulatory authority) may not approve the
study
|
|
|
-
|
One
or more serious adverse events in patients enrolled in the
trial
|
|
|
-
|
difficulty
in recruiting patients
|
-
|
delays
in the program
|
|
|
-
|
Commencement
of material cash flows:
|
|
|
-
|
Unknown
at this stage and dependent upon a licensing deal or pursuant to
a
marketing collaboration subject to regulatory approval to market
and sell
the product.
|
|
|
-
|
Obtaining
favorable animal data
|
|
|
-
|
Proving
low toxicity in animals
|
|
|
-
|
Manufacturing
scale up to GMP level
|
|
|
-
|
FDA
(or foreign regulatory authority) may not approve the
study
|
|
|
-
|
The
occurrence of a severe or life threatening adverse event in a
patient
|
|
|
-
|
Delays
in the program
|
|
|
-
|
Commencement
of material cash flows:
|
|
|
-
|
Unknown
at this stage, dependent upon a licensing deal or a marketing
collaboration subject to regulatory approval to market and sell the
product.
|
Lovaxin
P - Pre Clinical and Phase I Trial Summary Information (Prostate
Cancer)
·
|
Cost
incurred to date: $100,000
|
|
|
·
|
Estimated
future costs: $1,500,000
|
|
|
·
|
Anticipate
completion dates: fourth quarter of fiscal 2008 or
beyond
|
|
|
·
|
Risks
and uncertainties: Lovaxin C
(above)
|
Lovaxin
B - Phase I trial Summary Information (Breast Cancer)
·
|
Cost
incurred to date: $300,000
|
|
|
·
|
Estimated
future costs: $1,800,000
|
|
|
·
|
Anticipate
completion dates: fourth quarter of fiscal 2008 or
beyond
|
|
|
·
|
Risks
and uncertainties: See Lovaxin P
(above)
|
General
and Administrative Expenses.
During the years ended October 31, 2005, and 2006
and the three months ended January 31, 2007
we recorded general and administrative expenses of $1,219,792,
$2,077,062 and $845,072,
respectively. General and administrative costs primarily include the salaries
and expenses for executive, consultants, finance, facilities, insurances,
accounting and legal assistance, as well as other corporate and administrative
functions that serve to support Advaxis’ current and our future operations and
provide an infrastructure to support this anticipated future growth. For the
year ending October 31, 2007 and beyond, we anticipate that our general and
administrative costs will increase significantly due to the increased compliance
requirements, including, without limitation, legal, accounting, and insurance
expenses, to comply with periodic reporting and other regulations applicable
to
public companies.
Other
Income (Expense). We recorded interest expense during the year ended October
31,
2005 of ($7,307), during the year ended October 31, 2006 of ($437,299)
and
during the three months ended January 31, 2007 of ($153,355). Interest
expense,
relates primarily to our outstanding secured convertible debenture commencing
at
the closing dates of our Two Tranche Private Placement on February 2 and
March
8, 2006. Other income during the years ended October 31, 2005 and 2006
and
during the three months ended January 31, 2007 represented interest of
$43,978,
$90,899 and $26,326, respectively earned on investments. In the year ended
October 31, 2006 there is a net change ($2,802,078) in fair value of common
stock warrants and embedded derivative liabilities in expense (non-cash
item) as
of October 31, 2006 represents a reduction compared to the original value
for
the secured convertible debenture. In the three months ended January 31,
2007
there is a net change of $1,282,871 of fair value of common stock warrants
and
embedded derivative liabilities in income (non-cash item) as of January
31, 2007
compared to the value as of October 31, 2006. There was no comparable charge
in
the fiscal 2006 first quarter.
Recently
Issued Accounting Pronouncements.
In
December 2004, the Financial Accounting Standards Board issued FASB Statement
No. 123 (revised 2004), share-based payment. This statement requires that
compensation cost relating to share based payment transactions be recognized
in
financial statements. The cost will be measured based on the fair value of
the
equity or liability instruments issued. Refer to “Note 2. to the Financial
Statement - Share-based Compensation Expense” for a summary of the
impact.
In
July 2006, the FASB issued FASB Interpretation No. 48 “Accounting for
Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109)” (“FIN
48”). FIN 48 clarifies the accounting for uncertainty in tax positions and
requires that companies recognize in their financial statements the impact
of a
tax position, if that position is more likely than not of being sustained on
audit, based on the technical merits of the position. The Company will be
required to adopt the provisions of FIN 48 beginning in fiscal 2008, with the
cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings as well as requiring additional
disclosures. The Company is currently assessing the impact of the adoption
of
FIN 48 on its Financial Statements.
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.
Year
Ended October 31, 2006 Compared to the Year Ended October 31,
2005
Revenue.
Our
revenue decreased by $120,907, or 22%, from $552,868 for the year ended October
31, 2005 to $431,961 for the year ended October 31, 2006 primarily due to the
decrease in the FLAIR grant money received by the Company.
Research
and Development Expenses.
Research
and development expenses increased by $228,628, or 19%, from $1,175,536 for
the
twelve months ended October 31, 2005 to $1,404,164 for the twelve months ended
October 31, 2006. This increase was principally attributable to the
following
·
|
Clinical
trial expenses increased $328,389, or 351%, from $93,525 to $421,915
due
to the start-up of our clinical trial in March 2006.
|
|
|
·
|
Wages,
salaries and related lab costs increased by $409,524, or 215%, from
$190,804 to $600,329 principally due to our expanded research and
development staffing in early 2006.
|
|
|
·
|
Subcontracted
expenses increased by $107,949, or 76.3%, from $141,366 to $249,315
reflecting the additional subcontract work performed by Dr. Paterson
at
Penn, pursuant to certain grants.
|
|
|
·
|
Manufacturing
expenses decreased $383,387, or 93.6%, from $409,542 to $26,155;
the
result of the fiscal 2005 manufacturing program in anticipation of
the
Lovaxin C for toxicology and clinical trials required in early
2006.
|
|
|
·
|
Toxicology
study expenses decreased $259,548, or 88.6%, from $293,105 to $33,558;
principally as a result of the initiation in the earlier period of
toxicology studies by Pharm Olam in connection with our Lovaxin C
product
candidates in anticipation of the clinical studies in
2006.
|
General
and Administrative Expenses.
General
and administrative expenses increased by $857,270, or 70.3%, from $1,219,792
for
the year ended October 31, 2005 to $2,077,062 for the year ended October 31,
2006, primarily attributable to the following:
·
|
Consulting
fees and related expenses increased by $580,197, or 190%, from $305,153
for the twelve months ended October 31, 2005 to $885,349 for the
same
period in 2006 arising from a higher bonus expense, stock expense,
consulting fees and the fair value of options primarily for the Chief
Executive Officer(s) and consultants.
|
|
|
·
|
An
increase in legal fees and public relations expenses of $391,611,
or 364%,
from $107,370 for the twelve-months ended October 31, 2005 to $498,611
for
the same period in 2006, primarily as a result of an increase in
the costs
arising from being publicly held.
|
|
|
·
|
A
decrease in offering and analyst expenses of $132,498, all of which
were
incurred in fiscal 2005 while none were incurred in
2006.
|
Other
Income (expense).
Other
income (expense) increased by ($3,185,149) from income of $36,671 for the twelve
months ended October 31, 2005 to ($3,148,478) recorded as expense for the twelve
months ended October 31, 2006. During the years ended October 31, 2005 and
2006
we recorded interest expense of ($7,307), and ($437,299) respectively. Interest
expense, relates primarily to our outstanding secured convertible debenture
commencing at the closing dates on February 2 and March 8, 2006. Interest earned
on investments amounted to $43,978 and $90,899, respectively. In the year ended
October 31, 2006 there is a net change of ($2,802,078) in fair value of common
stock warrants and embedded derivative liabilities in expense (non-cash item)
as
of October 31, 2006 compared to the original value for the secured convertible
debenture.
No
provision for income taxes was made for the year ended October 31, 2005 or
2006
due to significant tax losses during and prior to such periods.
Year
Ended October 31, 2005 Compared to the Year Ended October 31,
2004
Revenue.
Our
revenue increased by $436,462, or 375%, from $116,406 for the year ended October
31, 2004 to $552,868 for the year ended October 31, 2005 due to the increase
in
grant money received by the Company in these periods.
Research
and Development Expenses.
Research
and development expenses increased by $1,049,594, or 833%, from $125,942 for
the
twelve months ended October 31, 2004 to $1,175,536 for the twelve months ended
October 31, 2005, principally attributable to the following:
·
|
An
increase in our related manufacturing expenses of $416,842, from
$(7,300)
to $409,542; such increase reflects the delay in the manufacturing
program
during 2004 because of delays in funding, and the manufacturing in
2005 of
Lovaxin C for toxicology and clinical trials;
|
|
|
·
|
Expenses
in fiscal 2005 of $293,105 reflecting the initiation of toxicology
studies
by Pharm Olam in connection with our Lovaxin C product candidates,
and the
payment of deferred license fees to Penn; none were incurred in the
prior
year.
|
|
|
·
|
Wages
and salaries related to our research and development program of $166,346
reflecting the recruitment of our R&D management team in early 2005;
none were incurred in the prior year.
|
|
|
·
|
Subcontracted
work of $141,366, reflecting the subcontract work performed by Dr.
Paterson at Penn, pursuant to certain grants; none were incurred
in the
prior year.
|
General
and Administrative Expenses.
General
and administrative expenses increased by $695,424, or 133%, from $524,368 for
the year ended October 31, 2004 to $1,219,792 for the year ended October 31,
2005, primarily attributable to the following:
·
|
employee
related expenses increased by $123,157, or 56.4%, from $218,482 for
the
twelve months ended October 31, 2004 to $341,639 for the twelve months
ended October 31, 2005 arising from a bonus to Mr. Derbin, the then
Chief
Executive Officer, in stock, an increase in the salary of Mr. Derbin,
and
the cost of health insurance initiated in 2005;
|
|
|
·
|
offering
expenses increased by $117,498, or 100%, from $0 for the twelve months
ended October 31, 2004 to $117,498 for the twelve months ended October
31,
2005 arising from legal and banking expenses relating to the private
placement closed in November 2004;
|
|
|
·
|
an
increase in professional fees from $231,686 for the twelve-months
ended
October 31, 2004 to $460,691 for the twelve months ended October
31, 2005,
primarily as a result of an increase in legal fees, public relations
fees,
consulting fees and accounting
fees.
|
Interest
(Expenses).
Interest
expense decreased by $5,825, or 44.4%, to ($7,307) for the year ended October
31, 2005 from ($13,132) for the year ended October 31, 2004. The decrease
results primarily from a reduction on interest payable on certain notes which
were converted on November 12, 2004.
Other
Income.
Other
Income increased by $43,907 to 43,978 from $71 for the twelve months ended
October 31, 2004. The increase results primarily from an increase in interest
paid on cash deposits held by the Company.
No
provision for income taxes was made for the year ended October 31, 2004 or
2005
due to significant tax losses during and prior to such periods.
Liquidity
and capital resources
At
October 31, 2005 and 2006 and January 31, 2007, our cash was $2,075,206,
$2,761,166 and $1,977,809, respectively, and we had a working capital of
$1,365,742, $1,254,651 and $439,474 at October 31, 2005 and 2006 and January
31,
2007, respectively.
To
date,
our principal source of liquidity has been cash provided by private placements
of our securities. Some of these offerings have been structured so as to be
exempt from the prospectus delivery requirements under the Securities Act of
1933 (the “Securities Act”). Principal uses of our cash have been to support
research and development, clinical study, financing and working capital. We
anticipate these uses will continue to be our principal uses in the
future.
We
intend
to use our available cash and resources during the twevle 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.
Although
we believe that the net proceeds received by us from the private placement
to
Cornell will be sufficient to finance our currently planned operations for
12
months ending January 31, 2007, they will not be sufficient to meet our
longer-term cash requirements or our cash requirements for the commercialization
of any of our existing or future product candidates. We will be required to
sell
equity or debt securities or to enter into other financial arrangements,
including relationships with corporate and other partners, in order to raise
additional capital. Depending upon market conditions, we may not be successful
in raising sufficient additional capital for our long-term requirements. In
such
event, our business, prospects, financial condition and results of operations
could be materially adversely affected.
The
following factors, among others, could cause actual results to differ from
those
indicated in the above forward-looking statements: increased length and scope
of
our clinical trials, increased costs related to intellectual property related
expenses, increased cost of manufacturing and higher consulting costs. These
factors or additional risks and uncertainties not known to us or that we
currently deem immaterial may impair business operations and may cause our
actual results to differ materially from any forward-looking
statement.
Although
we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.
We
expect
our future sources of liquidity to be primarily equity capital raised from
investors, as well as licensing fees and milestone payments in the event we
enter into licensing agreements with third parties, and research collaboration
fees in the event we enter into research collaborations with third
parties.
On
November 12, 2004, we sold to accredited investors at a closing of the first
tranche of the Three Tranche Private Placement 117 Units at $25,000 per unit
for
an aggregate purchase price of $2,925,000. Each Unit is comprised of (i) 87,108
shares of our common stock and (ii) a five-year warrant to purchase 87,108
shares of our common stock at an exercise price of $0.40 per share. At the
initial closing, the accredited investors received an aggregate of 10,191,638
shares of common stock and warrants to purchase 10,191,638 shares of common
stock. In addition, on November 12, 2004, $595,000 aggregate principal amount
of
outstanding convertible promissory notes including accrued interest, were
converted into units on the same terms as those upon which the Units sold,
accordingly, an aggregate of 2,136,441 shares of common stock and
additional warrants to purchase 2,136,441 shares of common
stock.
On
December 8, 2004, we sold to accredited investors at the closing of the second
tranche 8 units for an aggregate purchase price of $200,000 and the investors
received an aggregate of 696,864 shares of common stock and
additional warrants to purchase 696,864 shares of Common
Stock.
On
January 4, 2005, we sold to accredited investors at a third tranche 5.12 Units
for an aggregate purchase price of $128,000, 445,993 shares of common stock
and
additional warrants to purchase 445,993 shares of Common Stock were
issued.
Pursuant
to the terms of a investment banking agreement, dated March 19, 2004, by and
between us and Sunrise Securities, Corp. (“Sunrise” or the “Placement Agent”),
we issued to the Placement Agent and its designees an aggregate of 2,283,445
shares of common stock and warrants to purchase up to an aggregate of 2,666,900
shares of common stock. The securities were issued along with a cash fee of
$50,530 in consideration for the services of Sunrise, as our placement agent
in
the Private Placement.
On
January 12, 2005, we sold to an accredited investor at a closing the third
tranche, 44 units, for an aggregate purchase price of $1,100,000 and therefore
an aggregate of 3,832,752 shares of common stock and warrants to purchase
3,832,752 shares of common stock.
Pursuant
to a Securities Purchase Agreement dated February 2, 2006 and March 8, 2006
we
sold to Cornell $3,000,000 principal amount of our 6%Secured Convertible
Debentures due February 1, 2009 (the “Debentures”) at face amount (before
commissions and related fees of $260,000), along with five year A 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
6 %
per annum interest due at maturity will be charged to expense over the
three-year term of the Debentures. The investment-banking fee paid to Yorkville
Advisors in connection with the Debentures in the amount of $240,000 will be
charged, in view its relationship with Cornell, as additional interest expense
over the three-year term of the Debentures. The remaining transaction fees
of
$20,000 will be capitalized.
The
Company calculated the fair value of the embedded conversion feature of the
Company’s Debentures and the above mentioned warrants to be recorded as a
warrant liability at the end of the fiscal year 2006. As a result of this
calculation at the end of October 31, 2006 included in the Statement of
Operations for the Company is a $2,802,078 non-cash expense in the establishment
of the liabilities related to the warrants and embedded conversion feature
for
the entire year.
Upon
full
satisfaction of the Debentures (whether though its repayment or conversion
to
equity), the fair value of the remaining warrants on that date will be
reclassified to equity.
We
are party to a license agreement, dated July 1, 2002, as amended and restated,
between Advaxis and The Trustees of the University of Pennsylvania.
For
more information about Penn and commitments see “Business - Partnerships and
Agreements - University of Pennsylvania. ”
For
a
description of material employment agreements to which we are party, see
“Certain Relationships and Related Party Transactions”.
Critical
Accounting Policies
The
preparation of financial statements in accordance with GAAP involves the use
of
estimates and assumptions that affect the recorded amounts of assets and
liabilities as the date of the financial statements and the reported amounts
of
revenue and expenses during the reporting period. Actual results may differ
substantially from these estimates. Significant estimates include the fair
value
and recoverability of carrying value of intangible asset (trademarks, patents
and licenses), the fair value of options, the fair value of embedded conversions
features, warrants, recognition of on-going clinical trials, and related
disclosure of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, based on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions.
Intangible
assets as of October 31, 2006 consist primarily of the Penn license agreement
($482,000), as well as legal and filing costs associated with obtaining
trademarks, patents and licenses. Capitalized license costs 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 October 31, 2006, capitalized costs associated with
patents filed and granted are estimate to be $481,000 and the estimated costs
associated with patents pending are $495,000 out of a total of $976,000 assets
recorded as patents and licenses. 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 or it has no future value. There have been no patent
applications abandoned and charged to expense in the current or prior years
that
were material in value. Amortization expense for licensed technology and
capitalized patent cost is included in general and administrative cost. Patents
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.
We
believe the following critical accounting policy involves significant estimate
and judgment. We amortize trademark, license and patent costs over their
estimated useful lives. We may be required to adjust these lives based on
advances in science and competitor actions. We review the recorded amounts
of
trademarks and patents at each period end to determine if their carrying amount
is still recoverable based on expectations regarding potential licensing of
the
intangibles or sales of related products. Such an assessment, in the future,
may
result in a conclusion that the assets are impaired, with a corresponding charge
against earnings.
Accounting
for Warrants and Convertible Securities
The
Company evaluates whether warrants issued should be accounted for as liabilities
or equity based on the provisions of EITF 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a
Company’s Own Stock.
The
EITF lists conditions under which warrants are required to be classified as
liabilities, including the existence of registration rights where significant
penalties could be required to be paid to the holder of the instrument in the
event the issuer fails to register the shares under a preset time frame, or
where the registration statement fails to remain effective for a preset time
period. Warrants accounted for as liabilities are required to be recorded at
fair value, with changes in fair value recorded in operations.
For
convertible debt instruments, the Company determines whether the conversion
feature must be bifurcated and accounted for as a derivative liability in
accordance with the provisions of EITF 00-19. The first step of the analysis
is
to determine whether the debt instrument is a conventional convertible
instrument, in which case the embedded conversion option would qualify for
equity classification and would not be bifurcated from the debt instrument.
If
the debt does not meet the definition of a conventional convertible instrument,
the Company will analyze whether the conversion feature should be accounted
for
as a liability or equity under the provisions of EITF 00-19. The most common
reason a debt instrument would not be considered to be a conventional
convertible instrument is where the conversion price is variable. If the
conversion feature does qualify for equity classification, the Company will
assess whether there is a beneficial conversion feature that must be accounted
for under the provisions of EITF 98-5, Accounting
for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios,
and
EITF 00-27, Application
of Issue No. 98-5 to Certain Convertible Instruments.
In
February 2006, the FASB issued Statement No. 155, Accounting
for Certain Hybrid Financial Instruments, an amendment of FASB Statements No.
133 and 140.
Among
other matters, that statement provides that where a company is required to
bifurcate a derivative from its host contract, the company may irrevocably
elect
to initially and subsequently measure that hybrid financial instrument in its
entirety at fair value, with changes in fair value recognized in operations.
The
statement is effective for financial instruments issued after the beginning
of
an entity’s first fiscal year that begins after September 15, 2006. Earlier
adoption is permitted as of the beginning of an entity’s fiscal year, provided
the entity has not yet issued financial statements, including financial
statements for any interim period for that fiscal year.
Due
to
the limited nature of the Company’s operations, the Company has not identified
any other accounting policies involving estimates or assumptions that are
material due to the levels of subjectivity and judgment necessary to account
for
highly uncertain matters or the susceptibility of such matters to change, and
where the impact of the estimates and assumptions on financial condition or
operating performance is material.
Off-balance
Sheet Arrangements.
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 amount 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 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. We are responsible for filing
new patents and maintaining the existing patents licensed to us 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 our total payments to Penn
over the next ten years could reach an aggregate of $5,420,000, if we have
net
sales in the aggregate amount of $100 million from our cancer products. 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. Once exercised we have a 90 day period to negotiate in good
faith
a comprehensive license agreement at licensing fees up to $10,000. We recently
exercised the option and have entered into negotiations to license 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.
Impact
of Inflation
We
believe that our results of operations are not dependent upon moderate changes
in inflation rates.
BUSINESS
General
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 Penn
to
use 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, PhD., 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 the Penn License to exploit
the Listeria System.
We
have
focused our initial development efforts upon cancer vaccines targeting cervical,
prostate, breast, ovarian, lung and other cancers. Our lead products in
development are as follows:
Product
|
|
Indication
|
|
Stage
|
Lovaxin
C
|
|
Cervical,
head and neck cancers
|
|
Phase
I/II anticipates to be completed during six months ended July 31,
2007,
Phase II study in cervical cancer anticipated to commence in
2007*
|
|
|
|
|
|
Lovaxin
P
|
|
Prostate
cancer
|
|
Pre-clinical;
Phase I study anticipated to commence in late fiscal
2007
|
|
|
|
|
|
Lovaxin
B
|
|
Breast
cancer and melanoma
|
|
Pre-clinical;
Phase I study anticipated to commence in late fiscal
2008
|
|
|
|
|
|
Lovaxin
T
|
|
Cancer
through control of telomerase
|
|
Pre-clinical
|
*
Possible delays of up to six months may occur based on the production schedule
of Cobra Biomanufacturing PLC of material, vaccine stability testing and the
issuance of required regulatory approval.
See
“Business - Research and Development Program”.
Since
our
formation, we have had a history of losses which as of October 31, 2006
aggregate of $9,662,173, and because of the long development period for new
drugs, we expect to continue to incur losses for several years. Our business
plan to date has been realized by substantial outsourcing of virtually all
major
functions of drug development including scaling up for manufacturing, research
and development, grant applications and others. The expenses of these outsourced
services account for most of our accumulated loss. We cannot predict when,
if
ever, any of our product candidates will become commercially viable or FDA
approved. Even if one or more of our products becomes commercially viable and
receives FDA approval, we are not certain that we will ever become a profitable
business.
Strategy
During
the next 12 to 24 months our strategic focus will be to achieve several
objectives. The foremost of these objectives are as follows:
· |
Complete
our Phase I clinical study of Lovaxin C to document the practicability
of
using this agent safely in the therapeutic treatment of cervical
cancer
;
|
· |
Initiate
our Phase II clinical study of Lovaxin C in the therapeutic treatment
of
cancers;
|
· |
Initiate
a Phase I/II clinical study of Lovaxin P in the therapeutic treatment
of
prostate cancer;
|
· |
Initiate
a Phase I/II clinical study of Lovaxin B in the therapeutic treatment
of
breast cancer;
|
· |
Continue
the pre-clinical development of our product candidates, as well as
continue research to expand our technology platform;
and
|
· |
Initiate
strategic and development collaborations with biotechnology and
pharmaceutical companies.
|
Complete
the Ongoing Phase I Clinical Study of Lovaxin C.
We have
had several meetings with the FDA and the Recombinant Advisory Committee of
the
National Institutes of Health (the “NIH”) and have designed and fielded a Phase
I/II clinical study to assess the safety of Lovaxin C. We plan to complete
this
clinical study in the fiscal third or fourth fiscal quarter 2007.
In
April 2007, we concluded the recruitment phase of
our Phase I/II trial of Lovaxin C after dosing 15 patients with advanced
cervical cancer at sites located in Serbia, Mexico and Israel in an
escalating dose clinical trial and after an independent safety panel agreed
that
Lovaxin C had been dosed safely to date and that the trial could proceed to
a
higher dose. The Company, however, has determined that it was not necessary.
It
intends to report the results and submit an IND to the FDA by October 2007.
If
the IND is approved, the Company will proceed to Phase II.
We
have
demonstrated in over 100 publications in peer reviewed journals that Lovaxin
C
generates a therapeutic effect in animal cancer models. The preliminary safety
data was deemed adequate by both national and institutional regulators in each
of the countries in which our trial is being conducted under the International
Harmonization Treaties (ICH) which govern international drug development. A
safety panel comprised of a founder of the National Cancer Institute (NCI)
Gynecologic Oncology Group, the investigator for the phase III Merck Gardasil
trial, an oncologist, the principal investigator of the study and a
representative of the sponsor was convened according to the clinical protocol,
which states that all severe and life threatening adverse events (grade 3 &
4) are to be promptly reported to the panel who are empowered to stop the trial
at any time in the event of a safety risk to patients. At the time of this
writing, the first two cohorts have completed dosing and no grade 3 or 4 adverse
events associated with Lovaxin C have been observed.
The
Gynecologic Oncology Group (GOG), a collaborative treatment group associated
with the NCI, has agreed to conduct the fieldwork for the Phase II study at
their expense (an estimated value of about $1,500,000 to $2,000,000). We
estimate that we will conduct lab work valued at $250,000 to support of this
study.
Following
the completion of the Phase I study and assuming that the results of this study
are favorable, we intend to prepare Phase II clinical studies to demonstrate
therapeutic efficacy, as well as to optimize the dosage and dosing regimen,
the
tests and assessments to be performed in Phase III, to characterize the
responding patient population, and to understand all factors possible for the
purpose of defining and conducting a definitive test of the safety and efficacy
of Lovaxin C for regulatory approval. Thereafter, and assuming that the results
of the Phase II study are favorable, we intend to conduct Phase III clinical
studies to demonstrate safety, efficacy and the potency of the investigational
vaccine. Such studies are expected to occur in the next five to ten years.
Throughout this process, we will be meeting with the FDA prior to and at the
conclusion of each phase to reach a consensus before initiating any studies,
in
order to minimize regulatory risks during this clinical development
process.
At
the
conclusion of the Phase III studies, we intend to prepare and file a Biologics
License Application (BLA) with the FDA. Prior to submission of the BLA,
depending upon the data, we intend to possibly seek a Special Protocol
Assessment and/or a Fast Track designation from the FDA, which shortens the
internal FDA review process. As we accrue clinical data demonstrating the
safety, efficacy and potency of Lovaxin C in Phase I and II clinical studies
we
will also explore other regulatory approval options with the FDA that could
expedite the licensure of the final vaccine.
We
intend
to continue to devote a portion of our resources to the continued pre-clinical
development of our product candidates as well as the continued research to
expand our technology platform. Specifically, we intend to focus upon research
relating to combining our Listeria System with new and additional tumor antigens
which, if successful, may lead to additional cancer vaccines and other
therapeutic products. These activities may require significant financial
resources, as well as areas of expertise beyond those readily available. In
order to provide additional resources and capital, we may enter into research,
collaborative, or commercial partnerships, joint ventures, or other arrangements
with competitive or complementary companies, including major international
pharmaceutical companies, or with universities, such as Penn and UCLA. See
“Business - Partnerships and Agreements - Penn”.
Background
Cancer
Despite
tremendous advances in science, cancer remains a major health problem, and
for
many it continues to be the most feared of diseases. Although age-adjusted
mortality rates for all cancer fell during the 1990’s, particularly for the
major cancer sites (lung, colorectal, breast, and prostate), mortality rates
are
still increasing in certain sites such as liver and non-Hodgkin’s lymphoma. The
American Cancer Society estimates that more than eight million Americans
were
treated for cancer in 1999. According to the HCUP, in 2000, treatment of
the top
five cancers resulted in $10.8 billion in hospital costs.
Cancer
is
the second largest cause of death in the United States, exceeded only by heart
disease. Approximately 1,399,790 new cases of cancer were expected to be
diagnosed in 2006, and 564,830 Americans were expected to die from the disease.
The NIH estimates the overall cost for cancer in the year 2005 at $209.9
billion: $74.06 billion for direct medical costs, $17.5 billion for indirect
morbidity costs (loss of productivity due to illness) and, $118.4 billion for
indirect mortality costs (cost of lost productivity due to premature death).
(Source: cancer facts & figures 2006, American Cancer Society). Cervical
cancer is estimated to have caused the death in the US of approximately 3,700
patients in 2006.
Immune
System and Normal Antigen Processing
Living
creatures, including humans, are continually confronted with potentially
infectious agents. The immune system has evolved multiple mechanisms that allow
the body to recognize these agents as foreign, and to target a variety of
immunological responses, including innate, antibody, and cellular immunity,
that
mobilize the body’s natural defenses against these foreign agents and will
eliminate them.
Innate
Immunity:
Innate
immunity is the first step in the recognition of a foreign antigen by
lymphocytes, antigen processing by Antigen Processing Cells (APC). APCs are
phagocytic cells that ingest particulate material, infectious agents and
cellular debris. This non-specific ingestion, Phagocytosis, by these cells
results in their activation and the release of soluble mediators called
cytokines that assist the immune response.
Exogenous
pathway of Adaptive Immunity (Class II pathway):
Proteins
and foreign molecules ingested by APC are broken down in
digestive vacuoles into small pieces, called peptides, and the pieces are
combined with proteins called Class 2 MHC (for Major Histocompatibility Complex)
in a part of the cell called the endoplasmic reticulum. The MHC-peptide, termed
and MHC-2 complex from the Class 2 (or exogenous) pathway, is then pushed out
to
the cell surface where it interacts with certain classes of lymphocytes (CD4+)
such as helper T-cells that produce induce a proliferation of stimulate B-cells,
which produce antibodies, or helper T cells that assist in the maturation of
cytotoxic T-lymphocytes. This system is called the exogenous pathway, since
it
is the prototypical response to an exogenous antigen like bacteria.
Endogenous
pathway of Adaptive Immunity (Class I pathway)
There
exists another pathway, called the endogenous pathway. In this system, when
one
of the body's cells begins to create unusual proteins (as happens in most viral
infections and in cancer cells), the protein is broken up into peptides in
the
cytoplasm and directed into the endoplasmic reticulum, where it is incorporated
into an MHC-1 protein and traffics to the cell surface. This signal then calls
effector cells of the cellular immune system, especially CD8+ cytotoxic
T-lymphocytes, to come and kill the cell. The endogenous pathway is primarily
for elimination of virus-infected or cancerous cells.
In
clinical cancer, the body does not always recognize the cancer cells as foreign.
Listeria
based
vaccines are unique for many reasons, one of which is that unlike viral vectors,
DNA or peptide antigens or other vaccines, Listeria
stimulates all of the above mechanisms of immune action. Our technology forces
the body to recognize tumor-associated or tumor-specific antigens as foreign,
thus creating the immune response needed to attack the cancer. It does this
by
combining elements of the endogenous and exogenous pathways utilizing a number
of biologic characteristics of the Listeria bacteria.
Mechanism
of Action
Listeria
is a bacterium well known to medical science because it can cause an infection
in humans. Because Listeria is a live bacterium it stimulates the innate immune
system, thereby priming the adaptive immune system to better respond to the
specific antigens that the Listeria carries, which viruses and other vectors
do
not do. This is a non-specific stimulation of the overall immune system that
results when certain classes of pathogens such as bacteria (but not viruses)
are
detected. It provides some level of immune protection and also serves to prime
the elements of adaptive immunity to respond in a stronger way to the specific
antigenic stimulus.
When
Listeria enters the body, it is seen as foreign by the antigen processing cells
and ingested into cellular compartments called lysosomes, whose destructive
enzymes kill most of the bacteria. A certain percentage of these bacteria,
however, are able to break out of the lysosomes and enter into the cytoplasm
of
the cell, where they are relatively safe from the immune system. The bacteria
multiply in the cell, and the Listeria is able to force the cell to move the
bacteria to its cell surface so it can push into neighboring cells and spread.
Listeria
is a
pathogen that causes food poisoning, typically in people who are either
immunocompromised or who eat a large quantity of the microbe as can occur in
spoiled dairy products. It is not laterally transmitted from person to person,
and is a common microbe in our environment. Most people ingest Listeria
without
being aware of it, but in high quantities or in immune suppressed people
Listeria can cause various clinical conditions, including sepsis, meningitis
and
placental infections in pregnant women. Fortunately, many common antibiotics
can
kill and sterilize Listeria.
Figs
1-7.
When Listeria enters the body, it is seen as foreign by the antigen processing
cells and ingested into cellular compartments called lysosomes, whose
destructive enzymes kill most of the bacteria, fragments of which are then
presented to the immune system via the exogenous pathway.
Figs
8-10. A certain percentage of bacteria are able to break out of the lysosomes
and enter into the cytoplasm of the cell, where they are safe from lysosomal
destruction. The bacteria multiply in the cell, and the Listeria is able to
migrate into neighboring cells and spread without entering the extracellular
space. Antigen produced by these bacteria enter the Class I pathway and directly
stimulate a cytotoxic T cell response.
It
is the
details of Listeria intracellular activity that are important for understanding
Advaxis technology. Inside the lysosome, Listeria produces listeriolysin-O
("LLO"), a protein that digests a hole in the membrane of the lysosome that
allows the bacteria to escape into the cytoplasm. Once in the cytoplasm,
however, LLO is also capable of digesting a hole in the outer cell membrane.
This would destroy the host cell, and spill the bacteria back out into the
intercellular space where it would be exposed to more immune cell attacks and
destruction. To prevent this, the body has evolved a mechanism for recognizing
enzymes with this capability based upon their amino acid sequence. The sequence
of approximately 30 amino acids in LLO and similar molecules is called the
PEST
sequence (for the predominant amino acids it contains) and it is used by normal
cells to force the termination of proteins that need only have a short life
in
the cytoplasm. This PEST sequence serves as a routing tag that tells the cells
to route the LLO in the cytoplasm and to the proteosome for digestion, which
terminates its action and provides fragments that then go to the endoplasmic
reticulum, where it is processed just like a protein antigen in the endogenous
pathway to generate MHC-1 complexes.
This
mechanism used by Listeria to its benefit is that the LLO is neutralized and
the
bacteria do not kill the host cell. Advaxis is co-opting this mechanism by
creating a protein that is comprised of the cancer antigen fused to a
non-hemolytic portion of the LLO molecule that contains the PEST sequence.
This
serves to route the molecule for accelerated proteolytic degradation which
accelerates both the rate of antigen breakdown and the amount of antigen
fragments available for incorporation in to MHC-1 complexes; thus increasing
the
stimultus to activate cytotoxic T cells.
Thus,
Listeria vaccines stimulate every immune pathway simultaneously. It has long
been recognized that cytotoxic T lymphocytes (CTL) are the elements of the
immune system that kill and clear cancer cells. The amplified CTL response
to
Listeria vaccines are arguably the strongest stimulator of CTL yet developed.
The strength of this response is reflected in the data.
It
is
important to note that Advaxis proprietary LLO fusion protein has other salutary
actions that facilitate a therapeutic cancer killing action. We have published
findings which show that Listeria
engineered to deliver our LLO fusion protein are different from Listeria
engineered to deliver the same antigen without the fusion tag in that the
antigen-only system stimulates T regulatory cells (Tregs) and the LLO fusion
protein delivery does not. This is very important since T regulatory cells
are
activated along with other T cells during immune stimulation; however they
inhibit the anti-tumor response. It is believed that these cells serve as a
brake on the immune system to minimize potentially dangerous autoimmune
reactions. Most vaccines stimulate Tregs, and this is currently believed to
be a
reason for less than optimal therapeutic responses. Currently there are drugs
in
development to treat cancer that function exclusively by inhibiting these
Tregs.
Also,
many investigators have shown that LLO has adjuvant effects which result in
the
release of a variety of chemicals with in the body, and within the tumor, termed
cytokines, chemokines and co-stimulatory molecules. These agents facilitate
the
tumor killing effects of activated T cells by creating a local tumor environment
that is most conducive for these actions to occur. Taken together, this is
why
it is believed that live Listeria
which
secrete LLO and escape from the phagocytotic vacuole exerts such profound
immuno-stimulatory effects, while ingested Listeria
that are
digested within the vacuole and do not escape don’t show these
effects.
Thus,
what makes Advaxis live Listeria vaccines so effective, we believe, are a
combination of effects that stimulate multiple arms of the immune system
simultaneously in a manner that generates an integrated physiologic response
conducive to the killing and clearing of tumor cells. These mechanisms
include:
1. |
Innate
immunity: the non-specific stimulation of all aspects of the immune
system
in response to a bacterial
infection.
|
2. |
Exogenous
pathway: the stimulation of helper T cell function that stimulates
and
supports cytotoxic T cell function.
|
3. |
Endogenous
pathway: the direct stimulation of cytotoxic T cells in an amplified
fashion due accelerated antigen fragment
generation.
|
4. |
Lack
of Tregs: the stimulation of the facilitory aspects of an anti-tumoral
immune response without the inhibitory aspects as a result of the
LLO
antigen fusion protein.
|
5. |
Supportive
local tumor environment: the adjuvant stimulation of various chemical
factors within the tumor that support the anti-tumor effect of the
immune
system stimulated by the effective delivery of the specific
antigen.
|
Research
and Development Program
Overview
We
use
genetically engineered Listeria monocytogenes as a therapeutic agent. We start
with an attenuated strain of Listeria, and then add to this bacterium a
plasmid that encodes a protein sequence that includes a portion of the LLO
molecule (including the PEST sequence) and the tumor antigen of interest. This
protein is secreted by the Listeria inside the antigen processing cells, which
then results in the immune response as discussed above.
We
can
use different tumor antigens (or other antigens: e.g. allergy or infectious
disease) in this system. By varying the antigen, we create different therapeutic
agents. Our lead agent, Lovaxin C, uses a human papillomavirus derived antigen
that is present in cervical cancers. Lovaxin B uses her2/neu, an antigen found
in many breast cancer and melanoma cells, to induce an immune response that
should be useful in treating these conditions.
Partnerships
and Agreements
University
of Pennsylvania
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, PhD., 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, most
recently amended and restated on February 13, 2007.
This
license, unless sooner terminated in accordance with its terms, terminates
upon
the later (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 milestone. Penn is entitled to receive 1.5% royalties on net sales
in
all countries. Notwithstanding these royalty rates, 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
are
not expecting to begin within the next five years). In addition, under the
license, executed on February 13, 2007 we are obligated to pay an
annual maintenance fee starting on December 31, 2008, until the first commercial
sale of a Penn licensed product. Under the amended and restated agreement we
are
also required to pay a total of $157,134 in license payments in addition to
the
$215,700 previously paid, or a total of $372,834, in Penn license payments.
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 payment terms reflect lower near term requirements but were 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. 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 certain milestone payments, as follows: $2,500,000 shall
be
due for first commercial sale of the first product in the cancer field. In
addition, $1,000,000 will 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 reach be
$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 Drs’ Paterson and Fred Frankel and their laboratory. Each option is
granted to us at no cost and provides a six month exercise period form the
date
of disclosure. Once exercised we have a 90 day period to negotiate in good
faith
a comprehensive license agreement at licensing fees up to $10,000. We recently
exercised the option and have entered into negotiations to license 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.
Strategically
we continue to enter into sponsored research agreements with Dr. Paterson and
Penn to generate new intellectual property and to exploit all existing
intellectual property covered by the license.
Penn
is
not involved in management of our company or in our decisions with respect
to
exploitation of the patent portfolio.
Dr.
Yvonne Paterson
Dr.
Paterson is a Professor in the Department of Microbiology at Penn and the
inventor of our licensed technology. She has been an invited speaker at national
and international health field conferences and leading academic institutions.
She has served on many federal advisory boards, such as the NIH expert panel
to
review primate centers, the Office of AIDS Research Planning Fiscal Workshop,
and the Allergy and Immunology NIH Study Section. She has written over 140
publications in immunology (including a recently published book) with emphasis
during the last several years on the areas of HIV, AIDS and cancer research.
Her
instruction and mentorship has trained over 30 post-doctoral and doctoral
students in the fields of Biochemistry and Immunology, many of whom are research
leaders in academia and industry.
Dr.
Paterson is currently the principal investigator on grants from the federal
government and charitable trusts totaling approximately $500,000 dollars per
year and training grants totaling approximately $800,000 per year. Her research
interests are broad, but her laboratory has been focused for the past ten years
on developing novel approaches for prophylactic vaccines against infectious
disease and immunotherapeutic approaches to cancer. The approach of the
laboratory is based on a long-standing interest in the properties of proteins
that render them immunogenic and how such immunogenicity may be modulated within
the body.
Consulting
Agreement.
We
entered into a renewed consulting agreement with Dr. Paterson on January 28,
2005 with an initial term expiring on January 31, 2006 with automatic
renewals for up to six additional periods of six months each pursuant to which
we have had access to Dr. Paterson’s consulting services for one full day per
week. We are currently in our fourth renewal period. Dr. Paterson has advised
us
on an exclusive basis on various issues related to our technology, manufacturing
issues, establishing our lab, knowledge transfer, and our long-term research
and
development program. Pursuant to the agreement, Dr. Paterson currently receives
$5,000 per month of which $3,000 is paid in cash and $2,000 is accrued until
the
conversion of the Cornell convertible debenture provided, that upon the closing
of an additional $3 million in equity capital, Dr. Paterson’s rates will
increase to $5,000 per month; provided, further, that upon the closing of an
additional $6 million in equity capital, Dr. Paterson’s rates shall increase to
$7,000 per month; and provided, further, that upon the closing of an additional
of $9 million in equity capital, Dr. Paterson’s rates shall increase to $9,000
per month. In addition, on February 1, 2005, Dr. Paterson received options
to
purchase 400,000 shares of our common stock at an exercise price of $0.287
per
share with 40,000 fully vested when granted and the remaining 360,000 options
vesting equally over 48 months; provided that Dr. Paterson remains a consultant
over the four year period. Since February 1, 2005, Dr. Paterson is being paid
$3,000 per month, and since March 2006 we’ve accrued an additional $2,000 per
month pending the next round of financing of $3,000,000 and she holds options
to
purchase a total of 569,048 shares of Common Stock of which 360,714 are vested
as of October 31, 2006.
Sponsored
Research Agreement.
We
entered into a sponsored research agreement on December 6, 2006 with Penn and
Dr. Paterson under which we are obligated to pay $159,598 per year for a total
period of 2 years covering the development of potential vaccine candidates
based
on our Listeria technology as well as other basic research
projects.
We
intend
to enter into additional sponsored research agreements with Penn in the future
with respect to research and development on our product candidates.
We
believe that Dr. Paterson’s continuing research will serve as a source of
ongoing findings and data that both supports and strengthen the existing
patents. Her work will expand the claims of the patent portfolio (potentially
including adding claims for new tumor specific antigens, the utilization of
new
vectors to deliver antigens, and applying the technology to new disease
conditions) and create the infrastructure for the future filing of new
patents.
Dr.
Paterson is also the chairman of our Scientific Advisory Board.
Dr.
David Filer
We
have
entered a consulting agreement with Dr. David Filer, a biotech consultant.
The
Agreement commenced on January 7, 2005 and had a six month term, but has been
and may further be extended by agreement. Dr. Filer shall continue to provide
to
us for three days per month during the term of the agreement assistance on
our
development efforts, reviewing our scientific technical and business data and
materials and introducing us to industry analysts, institutional investors
collaborators and strategic partners. In consideration for the consulting
services we pay Dr. Filer $2,000 per month. In addition, Dr. Filer
received options to purchase 40,000 shares of common stock which are
currently vested.
Freemind
Group LLC (“Freemind”)
We
have
entered into an agreement with Freemind to develop and manage our grant writing
strategy and application program. Advaxis will pay Freemind according to a
fee
structure based on achievement of grants awarded to us at the rate of 6-7%
of
the grant amount. Advaxis will also pay Freemind fixed consulting fees based
on
the type of grants submitted, ranging from $5,000-7,000 depending on the type
of
application submitted. Freemind has extensive experience in accessing public
financing opportunities, the national SBIR and related NIH/NCI programs.
Freemind has assisted us to file grant applications with NIH covering the use
of
Lovaxin C for cervical dysplasia.
University
of California
On
March 14, 2004 we entered into a nonexclusive license and bailment agreement
with the Regents of the University of California (“UCLA”) to commercially
develop products using the XFL7 strain of Listeria monoctyogenes in humans
and
animals. The agreement is effective for a period of 15 years and renewable
by
mutual consent of the parties. Advaxis paid UCLA an initial licensee fee and
annual maintenance fees for use of the Listeria. We may not sell products using
the XFL7 strain Listeria other than agreed upon products or sublicense the
rights granted under the license agreement without the prior written consent
of
UCLA.
Cobra
Biomanufacturing PLC
In
July
2003, we entered into an agreement with Cobra Biomanufacturing PLC for the
purpose of manufacturing our cervical cancer vaccine Lovaxin C. Cobra has
extensive experience in manufacturing gene therapy products for investigational
studies. Cobra is a full service manufacturing organization that manufactures
and supplies DNA-based therapeutics for the pharmaceutical and biotech industry.
These services include the GMP manufacturing of DNA, recombinant protein,
viruses, mammalian cell products and cell banking. Cobra’s manufacturing plan
for us involves several manufacturing stages, including process development,
manufacturing of non-GMP material for toxicology studies and manufacturing
of
GMP material for the Phase I trial. The agreement to manufacture expired in
December 2005 upon the delivery and completion of stability testing of the
GMP
material for the Phase I trial. Cobra has agreed to convert $300,000 of its
existing fees for manufacturing into future royalties from the sales of Lovaxin
C at the rate of 1.5% of net sales, with payments not to exceed
$1,950,000.
In
November 2005, in order to secure production
of Lovaxin C on a long-term basis as well as other drug candidates which we
are developing, we entered into a Strategic Collaboration and Long-Term Vaccine
Supply Agreement for Listeria Cancer Vaccines, under which Cobra will
manufacture experimental and commercial supplies of our Listeria
cancer
vaccines, beginning with Lovaxin C, our therapeutic vaccine for the treatment
of
cervical and head and neck cancers, currently in a phase I/II study in
cervical cancer patients. The new agreement leaves the existing agreement in
place with respect to the studies contemplated therein, and supersedes a prior
agreement and provides for mutual exclusivity, priority of supply, collaboration
on regulatory issues, research and development of manufacturing processes that
have already resulted in new intellectual property owned by Advaxis, and the
long-term supply of live Listeria
based
vaccines on a discounted basis.
LVEP
Management, LLC
The
Company entered into a consulting agreement with LVEP Management LLC (LVEP)
dated as of January 19, 2005, and amended on April 15, 2005, and October 31,
2005, pursuant to which Mr. Roni Appel served as Chief Executive Officer, Chief
Financial Officer and Secretary of the Company and was compensated by consulting
fees paid to LVEP. LVEP is owned by the estate of Scott Flamm (deceased January
2006) previously, one of our directors and a principal shareholder. Pursuant
to
an amendment dated December 15, 2006 ("effective date") Mr. Appel resigned
as
President and Chief Executive Officer and Secretary of the Company on the
effective date, but remains as a board member and consultant to the Company.
The
term of the agreement, as amended, is 24 months from December 15, 2006, the
effective date. Mr. Appel agreed to devote 50% of his time over the first 12
months of the consulting period. Also as a consultant, he will be paid at a
rate
of $22,500 per month in addition to benefits as provided to other Company
officers. He is to receive severance payments over an additional 12 months
at a
rate of $10,416.67 per month and be reimbursed for family health care. All
his
stock options on the effective date vested fully and are exercisable over the
option contract life. Also, Mr. Appel was issued 1,000,000 shares of our common
stock. He is to receive a $250,000 bonus of which $100,000 was to be paid on
January 2, 2007 and the remainder to be paid on June 1, 2007.
David
Carpi
On
December 15, 2006 we entered into a consulting agreement with David Carpi,
whereby Mr. Carpi will assist us in the preparation and refinement of our
marketing summary and presentation materials and introduce us to pre-defined
pharmaceutical and biotechnology companies which may be interested in strategic
partnerships. Mr. Carpi is to receive a monthly cash fee of $1,500 and
reimbursement of approved expenses, and in addition success based compensation
payable in cash and stock ranging from 5% to 4% of transaction proceeds, upon
completion of a transaction with a strategic partner introduced by Mr. Carpi.
The agreement will be effective until July 12, 2007. Thereafter it will
automatically renew on a month-to-month basis if on the same terms or terminated
by the Company.
Pharm-Olam
International Ltd. (“POI”)
In
April
2005, we entered into a consulting agreement with POI, based on which POI is
to
execute and manage our Phase 1 clinical trial in Lovaxin C with POI to receive
in consideration therefore $430,000 (50% of which is contingent on the closing
by us of a $5 million equity financing) and reimbursement of certain
expenses of $181,060. On December 13, 2006 we approved a change order reflecting
the changes to the protocol the cost of which is estimated at $92,000 for a
total contractual obligation of $522,000.
Cato
Research Israel Ltd (“CATO”)
We
have
entered into a master service agreement with Cato Research Israel Ltd, on
December 27, 2005, a contract research organization (CRO), that provides
clinical trial management services in the state of Israel in connection with
our
Phase I/II clinical trial in Lovaxin C. Under the agreement we are to pay CATO
approximately $40,000.
Apothecaries
Limited
We
entered into a master service agreement with Apothecaries Limited on September
20, 2006, a CRO for the purpose of providing us with clinical trial management
services in the state of India in connection with our Phase I/II clinical trial
in Lovaxin C. Under the agreement we are to pay Apothecaries amounts based
on
certain criteria detailed in the agreement such as clinical sites qualified
($1,500 per site), submitting and obtaining regulatory approval ($17,000),
and
numbers of patients enrolled to the clinical trial ($7,500 for each treated
patient). If regulatory approval shall be obtained and 10 patients shall be
recruited and treated in 6 clinical sites, the payments will total
$101,000.
We
entered into an agreement with IRG whereby IRG is to serve as an investor
relations and public relations consultant on a month-to-month basis. In
consideration for performing its services, IRG is to be paid $10,000 per
month plus out of pocket expenses, and 200,000 shares of common stock, or 11,111
shares per month over a period of 18 months commencing October 1, 2005, provided
the agreement has not been terminated. Through October 31, 2006 we issued 99,999
shares out of the 133,332 earned shares as per the agreement.
Biologics
Consulting Group, Inc. (“BCG”)
On
June
1, 2006 we entered into an one year time and material agreement with BCG to
provide biologics regulatory consulting services to the Company in support
of
the IND submission to the FDA. The tasks to be performed under this Agreement
will be agreed to in advance by the Company and BCG. The term of the agreement
is from June 1, 2006 to June 1, 2007. This is a time and material
agreement.
PATENTS
AND LICENSES
Dr.
Paterson and Penn have invested significant resources and time in developing
a
broad base of intellectual property around the cancer vaccine platform
technology to which on July 1, 2002 (effective date) we entered into a 20-year
exclusive worldwide license and a right to grant sublicenses pursuant to our
license agreement with Penn. Penn currently has 11 issued and 15 pending patents
in the United States and other countries including Japan, Canada, Israel,
Australia, and the European Union, through the Patent Cooperation Treaty (PCT)
system pursuant to which we have an exclusive license to exploit the patents.
We
believe that these patents will allow us to take a strong lead in the field
of
Listeria-based therapy.
The
Penn
patent portfolio is currently comprised of the following:
United
States
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Patents
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U.S.
Patent No. 6,051,237, issued April 18, 2000. Patent Application No.
08/336,372, filed November 8, 1994 for “Specific Immunotherapy of Cancer
Using a Live Recombinant Bacterial Vaccine Vector.” Filed November 8,
1994. Expires April 18, 2017.
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|
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U.S.
Patent No. 6,565,852, issued May 20, 2003, Paterson, et al., CIP
Patent
Application No. 09/535,212, filed March 27, 2000 for “Specific
Immunotherapy of Cancer Using a Live Recombinant Bacterial Vaccine
Vector.” Filed March 27, 2000. Expires November 8,
2014.
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|
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U.S.
Patent No. 6,099,848, issued August 8, 2000, Frankel et al., Patent
Application No. 08/972,902 “Immunogenic Compositions Comprising DAL/DAT
Double-Mutant, Auxotrophic, Attenuated Strains of Listeria and Their
Methods of Use.” Filed November 18, 1997. Expires November 18,
2017.
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U.S.
Patent No. 6,504,020, issued January 7, 2003, Frankel et al. Divisional
Application No. 09/520,207 “Isolated Nucleic Acids Comprising Listeria DAL
And DAT Genes”. Filed March 7, 2000, Expires November 18,
2017.
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U.S.
Patent No. 6,635,749, issued October 21, 2003, Frankel, et
al. Divisional U.S. Patent Application No. 10/136,253 for “Isolated
Nucleic Acids Comprising Listeria DAL and DAT Genes.” Filed May 1,
2002, Filed May 1, 2022. Expires November 18,
2017.
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U.S.
Patent No. 5,830,702, issued November 3, 1998, Portnoy, et al. Patent
Application No. 08/366,477, filed December 30, 1994 for “Live, Recombinant
Listeria SSP Vaccines and Productions of Cytotoxic T Cell Response” Filed
December 30, 1997. Expires November 3, 2015.
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US
Patent No. 6,767,542 issued July 27, 2004, Paterson, et al. Patent
Application No. 09/735,450 for “Compositions and Methods for Enhancing
Immunogenicity of Antigens.” Filed December 13, 2000. Expires March 29,
2020.
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US
Patent No. 6,855,320 issued February 15, 2005, Paterson. Patent
Application No. 09/537,642 for “Fusion of Non-Hemolytic, Truncated Form of
Listeriolysin o to Antigens to Enhance Immunogenicity.” Filed March 29,
2000. Expires March 29, 2020.
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US
Patent No. 7,135,188 issued November 14, 2006, Paterson, Patent
Application No. 10/441,851 for “Methods and compositions for immunotherapy
of cancer.” Filed May 20, 2003. Expires November 8,
2014.
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Patent
Applications
|
|
|
U.S.
Patent Application No. 10/239,703 for “Compositions and Methods for
Enhancing Immunogenicity of Antigens.” Filed September 24, 2002, Paterson,
et al.
|
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U.S.
Patent Application No. 10/660,194, “Immunogenic Compositions Comprising
DAL/DAT Double Mutant, Auxotrophic Attenuated Strains Of Listeria
And
Their Methods Of Use,” Filed September 11, 2003, Frankel et
al.
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U.S.
Patent Application No. 10/835,662, “Compositions and methods for enhancing
the immunogenicity of antigens,” Filed April 30, 2004, Paterson et
al.
|
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U.S.
Patent Application No. 10/949,667, “Methods and compositions for
immunotherapy of cancer,” Filed September 24, 2004, Paterson et
al.
|
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U.S.
Patent Application No. 11/223,945, “Listeria-based and LLO-based
vaccines,” Filed September 13, 2005, Paterson et al.
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U.S.
Patent Application No. 11/376,564, “Compositions and methods for enhancing
the immunogenicity of antigens,” Filed March 16, 2006, Paterson et
al.
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U.S.
Patent Application No. 11/376,572, “Compositions and methods for enhancing
the immunogenicity of antigens,” Filed March 16, 2006, Paterson et
al.
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International
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Patents
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Australian
Patent No. 730296, Patent Application No. 14108/99 for “Bacterial Vaccines
Comprising Auxotrophic, Attenuated Strains of Listeria Expressing
Heterologous Antigens.” Filed May 18, 2000. Frankel, et al. Expires
November 13, 2018.
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Canadian
Patent Application No. 2,309,790 for “Bacterial Vaccines Comprising
Auxotrophic, Attenuated Strains of Listeria Expressing Heterologous
Antigens.” Filed May 18, 2000, Frankel, et al.
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Patent
Applications
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Canadian
Patent Application No. 2,204,666, for “Specific Immunotherapy of Cancer
Using a Live Recombinant Bacterial Vaccine Vector”. Filed November 3,
1995, Paterson et al.
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Canadian
Patent Application No. 2,404,164 for “Compositions and Methods for
Enhancing Immunogenicity of Antigens.” Filed March 26, 2001. Paterson, et
al.
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European
Patent Application No. 01928324.1 for “Compositions and Methods for
Enhancing Immunogenicity of Antigens.” Filed March 26, 2001. Paterson, et
al.
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European
Patent Application No. 98957980.0 for “Bacterial Vaccines Comprising
Auxotrophic, Attenuated Strains of Listeria Expressing Heterologous
Antigens.” Filed May 18, 2000, Frankel, et al.
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Israel
Patent Application No. 151942 for “Compositions and Methods for Enhancing
Immunogenicity of Antigens.” Filed March 26, 2001, Paterson, et
al.
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Japanese
Patent Application No. 515534/96, filed November 3, 1995 for “Specific
Immunotherapy of Cancer Using a Live Recombinant Bacterial Vaccine
Vector”, Paterson, et al.
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Japanese
Patent Application No. 2001-570290 for “Compositions and Methods for
Enhancing Immunogenicity of Antigens.” Filed March 26, 2001, Paterson, et
al.
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PCT
International Patent Application No. PCT/US06/44681 for “Methods For
Producing, Growing, And Preserving Listeria
Vaccine Vectors.” Filed November 16, 2006, Rothman, et
al.
|
In
2001,
an issue arose regarding the inventorship of U.S. Patent 6,565,852 and U.S.
Patent Application No. 09/537,642. These patent rights are included in the
patent rights licensed by Advaxis from Penn. It is contemplated by GSK, Penn
and
us that the issue will be resolved through: (1) a correction of
inventorship to add certain GSK inventors, (2) where necessary and appropriate,
an assignment of GSK’s possible rights under these patent rights to Penn, and
(3) a sublicense from us to GSK of certain subject matter, which is not central
to our business plan. To date, this arrangement has not been finalized and
we
cannot assure that this issue will ultimately be resolved in the manner
described above.
Pursuant
to our license with Penn, we have an option to license from Penn any new future
invention conceived by either Dr. Yvonne Paterson or by Dr. Fred Frankel in
the
vaccine area until June 17, 2009. We intend to expand our intellectual property
base by exercising this option and gaining access to future inventions. Further,
our consulting agreement with Dr. Paterson provides, among other things, that,
to the extent that Dr. Paterson’s consulting work results in new inventions,
such inventions will be assigned to Penn, and we will have access to those
inventions under license agreements to be negotiated. See “Business -
Partnerships and Agreements - Penn. ”
Our
approach to the intellectual property portfolio is to aggressively create
significant offensive and defensive patent protection for every product and
technology platform that we develop. We work closely with our patent counsel
to
maintain a coherent and aggressive strategic approach to building our patent
portfolio with an emphasis in the field of cancer vaccines.
We
have
become aware of a public company, Cerus Corporation, which has issued a press
release claiming to have a proprietary Listeria-based approach to a cancer
vaccine. We believe that through our exclusive license with Penn of U.S. Patent
Nos. 5,830,702, 6,051,237 and 6,565,852, we have earliest known and dominant
patent position in the United States for the use of recombinant Listeria
monocytogenes expressing proteins or tumor antigens as a vaccine for the
treatment of infectious diseases and tumors. Based on searches of publicly
available databases, we do not believe that Cerus or The University of
California Berkeley (which is where Cerus’ consulting scientist works) or any
other third party owns any published Listeria patents or has any issued patent
claims that might materially negatively affect our freedom to operate our
business as currently contemplated in the field of recombinant Listeria
monocytogenes.
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.
Cerus’ allegations in the Opposition are that the EP 835 Patent, which claims a
vaccine for inducing a tumor specific antigen with a 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.
On
November 29, 2006, following oral proceedings, the Opposition Division of the
European Patent Office determined that the claims of the patent as granted
should be revoked due to lack of inventive step under European Patent Office
rules based on certain prior art publications. This decision has no material
effect upon our ability to conduct business as currently
contemplated.
We
will
review the formal written decision in order to evaluate whether to file an
appeal. In the event of an appeal there is no assurance that it will be
successful. If such ruling is upheld on appeal, our patent position in Europe
may be eroded. The likely result of this decision will be increased competition
for us in the European market for recombinant live Listeria based vaccines
for
tumor specific antigens. Regardless of the outcome, we believe that our freedom
to operate in Europe, or any other territory, for recombinant live Listeria
based vaccine for tumor specific antigen products will not be
diminished.
For
more
information about Cerus Corporation and its claims with respect to
Listeria-based technology, you should visit their web site at www.cerus.com
or view
its publicly filed documents.
Lovaxin
has been registered as a trademark in Israel, Australia, South Korea, Hong
Kong
and Taiwan.
The
U.S.
trademark application for Lovaxin has been allowed by the United States Patent
and Trademark Office and is pending. Trademark applications in China and in
the
European Union for Lovaxin are also pending. The Chinese application was
recently published for opposition, and the European Union application has passed
through the opposition stage.
The
Canadian trademark application for Lovaxin has been opposed by Aventis Pharma
S.A. The opposition proceeding is pending.
In
2006,
Nycomed Pharma, of Sweden, claimed owner of the mark Levaxin, filed an
opposition to our CTM (European Union) application to register
Lovaxin. The opposition was refused solely on procedural
grounds. If our CTM application is ultimately granted,
Nycomed Pharma may file to cancel such registration of Lovaxin.
Nycomed Pharma has also demanded that we cease to use Lovaxin in
Sweden.
The
U.S.
trademark applications for Advaxis and for Advaxis and design, Serial Nos.
78/252527 and 78/252586, have been withdrawn. Oppositions to those applications
have been terminated in favor of Aventis, Inc.
Governmental
Regulation
The
Drug Development Process
The
FDA
requires that pharmaceutical and certain other therapeutic products undergo
significant clinical experimentation and clinical testing prior to their
marketing or introduction to the general public. Clinical testing, known as
clinical trials or clinical studies, is either conducted internally by
pharmaceutical or biotechnology companies or is conducted on behalf of these
companies by contract research organizations.
The
process of conducting clinical studies is highly regulated by the FDA, as well
as by other governmental and professional bodies. Below are described the
principal framework in which clinical studies are conducted, as well as a number
of the parties involved in these studies.
Protocols.
Before
commencing human clinical studies, the sponsor of a new drug must typically
receive governmental and institutional approval. In the US Federal approval
is
obtained by submitting an investigational new drug application, or IND, to
the
FDA. The application contains what is known in the industry as a protocol.
A
protocol is the blueprint for each drug study. The protocol sets forth, among
other things, the following:
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who
must be recruited as qualified
participants;
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how
often to administer the drug; and
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what
tests to perform on the
participants.
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Institutional
Review Board (Ethics Committee.
An
institutional review board is an independent committee of professionals and
lay
persons which reviews clinical research studies involving human beings and
is
required to adhere to guidelines issued by the FDA. The institutional review
board does not report to the FDA, but its records are audited by the FDA. Its
members are not appointed by the FDA. All clinical studies must be approved
by
an institutional review board. The institutional review board is convened by
the
institution where the protocol will be conducted and its role is to protect
the
rights of the participants in the clinical studies. It must approve the
protocols to be used, and then oversees the conduct of the study, including:
the
communications which the Company or contract research organization conducting
the study at that specific site proposes to use to recruit participants,
and the form of consent which the participants will be required to sign prior
to
their participation in the clinical studies.
Clinical
Trials.
Human
clinical studies or testing of a potential product prior to Federal approval
are
generally done in three stages known as Phase I through Phase III testing.
The
names of the phases are derived from the CFR 21 that regulates the FDA.
Generally, there are multiple studies conducted in each phase.
Phase
I.
Phase I
studies involve testing a drug or product on a limited number of healthy
participants, typically 24 to 100 people at a time. Phase I studies determine
a
drug’s basic safety and how the drug is absorbed by, and eliminated from, the
body. This phase lasts an average of six months to a year. Cancer drugs,
however, are a special case, as they are not given to normal healthy people.
Typically, cancer therapeutics are initially tested on very late stage cancer
patients.
Phase
II.
Phase
II trials involve testing up to 200 participants at a time who may suffer from
the targeted disease or condition. Phase II testing typically lasts an average
of one to three years. In Phase II, the drug is tested to determine its safety
and effectiveness for treating a specific illness or condition. Phase II testing
also involves determining acceptable dosage levels of the drug. If Phase II
studies show that a new drug has an acceptable range of safety risks and
probable effectiveness, a company will continue to review the substance in
Phase
III studies. It is during phase II that everything that goes into a phase III
test is determined.
Phase
III.
Phase
III studies involve testing large numbers of participants, typically several
hundred to several thousand persons. The purpose is to verify effectiveness
and
long-term safety on a large scale. These studies generally last two to six
years. Phase III studies are conducted at multiple locations or sites. Like
the
other phases, Phase III requires the site to keep detailed records of data
collected and procedures performed.
New
Drug Approval.
The
results of the clinical trials are submitted to the FDA as part of a new drug
application (“NDA”) or Biologics License Application (BLA).
Following the completion of Phase III studies, assuming the sponsor of a
potential product in the United States believes it has sufficient information
to
support the safety and effectiveness of its product, it submits an NDA or BLA
to
the FDA requesting that the product be approved for marketing. The application
is a comprehensive, multi-volume filing that includes the results of all
preclinical and clinical studies, information about the drug’s composition, and
the sponsor’s plans for producing, packaging, labeling and testing the product.
The FDA’s review of an application can take a few months to many years, with the
average review lasting 18 months. Once approved, drugs and other products may
be
marketed in the United States, subject to any conditions imposed by the
FDA.
Phase
IV.
The FDA
may require that the sponsor conduct additional clinical trials following new
drug approval. The purpose of these trials, known as Phase IV studies, is to
monitor long-term risks and benefits, study different dosage levels or evaluate
safety and effectiveness. In recent years, the FDA has increased its reliance
on
these trials. Phase IV studies usually involve thousands of participants. Phase
IV studies also may be initiated by the company sponsoring the new drug to
gain
broader market value for an approved drug. For example, large-scale trials
may
also be used to prove effectiveness and safety of new forms of drug delivery
for
approved drugs. Examples may be using an inhalation spray versus taking tablets
or a sustained-release form of medication versus capsules taken multiple times
per day.
The
drug
approval process is time-consuming, involves substantial expenditures of
resources, and depends upon a number of factors, including the severity of
the
illness in question, the availability of alternative treatments, and the risks
and benefits demonstrated in the clinical trials.
On
November 21, 1997, then President Clinton signed into law the Food and Drug
Administration Modernization Act. That act codified the FDA’s policy of granting
"Fast Track" approval for cancer therapies and other therapies intended to
treat
serious or life threatening diseases and that demonstrate the potential to
address unmet medical needs. The Fast Track program emphasizes close, early
communications between FDA and the sponsor to improve the efficiency of
preclinical and clinical development, and to reach agreement on the design
of
the major clinical efficacy studies that will be needed to support approval.
Under the Fast Track program, a sponsor also has the option to submit and
receive review of parts of the NDA or BLA on a rolling schedule approved by
FDA,
which expedites the review process.
The
FDA’s
Guidelines for Industry Fast Track Development Programs require that a clinical
development program must continue to meet the criteria for Fast Track
designation for an application to be reviewed under the Fast Track Program.
Previously, the FDA approved cancer therapies primarily based on patient
survival rates or data on improved quality of life. While the FDA could consider
evidence of partial tumor shrinkage, which is often part of the data relied
on
for approval, such information alone was usually insufficient to warrant
approval of a cancer therapy, except in limited situations. Under the FDA’s new
policy, which became effective on February 19, 1998, Fast Track designation
ordinarily allows a product to be considered for accelerated approval through
the use of surrogate endpoints to demonstrate effectiveness. As a result of
these provisions, the FDA has broadened authority to consider evidence of
partial tumor shrinkage or other surrogate endpoints of clinical benefit for
approval. This new policy is intended to facilitate the study of cancer
therapies and shorten the total time for marketing approvals. Under accelerated
approval, the manufacturer must continue with the clinical testing of the
product after marketing approval to validate that the surrogate endpoint did
predict meaningful clinical benefit. To the extent applicable, we intend to
take
advantage of the Fast Track programs to obtain accelerated approval on our
future products; however, it is too early to tell what effect, if any, these
provisions may have on the approval of our product candidates.
The
Orphan Drug Act provides incentives to develop and market drugs (“Orphan Drugs”)
for rare disease conditions in the United States. A drug that receives Orphan
Drug designation and is the first product to receive FDA marketing approval
for
its product claim is entitled to a seven-year exclusive marketing period in
the
United States for that product claim. A drug which is considered by the FDA
to
be different than such FDA-approved Orphan Drug is not barred from sale in
the
United States during such exclusive marketing period even if it receives
approval for the same claim. We can provide no assurance that the Orphan Drug
Act’s provisions will be the same at the time of the approval, if any, of our
products.
Other
Regulations
Various
Federal and state laws, regulations, and recommendations relating to safe
working conditions, laboratory practices, the experimental use of animals,
and
the purchase, storage, movements, import, export, use, and disposal of hazardous
or potentially hazardous substances, including radioactive compounds and
infectious disease agents, are used in connection with our research or
applicable to our activities. They include, among others, the United States
Atomic Energy Act, the Clean Air Act, the Clean Water Act, the Occupational
Safety and Health Act, the National Environmental Policy Act, the Toxic
Substances Control Act, and Resources Conservation and Recovery Act, national
restrictions on technology transfer, import, export, and customs regulations,
and other present and possible future local, state, or federal regulation.
The
extent of governmental regulation which might result from future legislation
or
administrative action cannot be accurately predicted.
Manufacturing
The
FDA
requires that any drug or formulation to be tested in humans be manufactured
in
accordance with its Good Manufacturing Practices (GMP) regulations. This has
been extended to include any drug which will be tested for safety in animals
in
support of human testing. The GMPs set certain minimum requirements for
procedures, record-keeping, and the physical characteristics of the laboratories
used in the production of these drugs.
We
have
entered into a Long Term Vaccine Supply Agreement with Cobra Biomanufacturing
PLC for the purpose of manufacturing our vaccines. Cobra has extensive
experience in manufacturing gene therapy products for investigational studies.
Cobra is a full service manufacturing organization that manufactures and
supplies DNA-based therapeutics for the pharmaceutical and biotech industry.
These services include the GMP manufacturing of DNA, recombinant protein,
viruses, mammalian cells products and cell banking. Cobra’s manufacturing plan
for us calls for several manufacturing stages, including process development,
manufacturing of non-GMP material for toxicology studies and manufacturing
of
GMP material for the Phase I trial.
Competition
The
biotechnology and biopharmaceutical industries are characterized by rapid
technological developments and a high degree of competition.
As a
result, our actual or proposed products could become obsolete before we recoup
any portion of our related research and development and commercialization
expenses. The biotechnology and biopharmaceutical industries are highly
competitive, and this competition comes from both biotechnology firms and major
pharmaceutical and chemical companies, including Antigenics, Inc., Avi
BioPharma, Inc., Biomira, Inc., Cerus Corporation, Dendreon Corporation,
Epimmune, Inc., Genzyme Corp., Progenics Pharmaceuticals, Inc., and Vical
Incorporated, each of which is pursuing cancer vaccines. Many of these companies
have substantially greater financial, marketing, and human resources than we
do
(including, in some cases, substantially greater experience in clinical testing,
manufacturing, and marketing of pharmaceutical products). We also experience
competition in the development of our products from universities and other
research institutions and compete with others in acquiring technology from
such
universities and institutions. In addition, certain of our products may be
subject to competition from products developed using other technologies, some
of
which have completed numerous clinical trials.
We
expect
that our products under development and in clinical trials will address major
markets within the cancer sector. Our competition will be determined in part
by
the potential indications for which drugs are developed and ultimately approved
by regulatory authorities. Additionally, the timing of market introduction
of
some of our potential products or of competitors’ products may be an important
competitive factor. Accordingly, the relative speed with which we can develop
products, complete preclinical testing, clinical trials and approval processes
and supply commercial quantities to market are expected to be important
competitive factors. We expect that competition among products approved for
sale
will be based on various factors, including product efficacy, safety,
reliability, availability, price and patent position. See “Business - Research
and Development Program”.
See
“Business - Patents and Licenses” for information as to claims by a competitor
opposing one of our related European Patent Applications.
Scientific
Advisory Board
We
maintain a scientific advisory board consisting of internationally recognized
scientists who advise us on scientific and technical aspects of our business.
The scientific advisory board meets periodically to review specific projects
and
to assess the value of new technologies and developments to us. In addition,
individual members of the scientific advisory board meet with us periodically
to
provide advice in particular areas of expertise. The scientific advisory board
consists of: Yvonne Paterson, Ph.D.; Carl June, M.D.; Pramod Srivastava, Ph.D.;
Bennett Lorber, M.D. and David Weiner, Ph.D.
Dr.
Yvonne Paterson.
For a
description of our relationship with Dr. Paterson, please see “Business -
Partnerships and Agreements”.
Carl
June, M.D. Dr.
June is currently Director of Translational Research at the Abramson Cancer
Center at Penn, and is an Investigator of the Abramson Family Cancer Research
Institute. He is a graduate of the Naval Academy in Annapolis, and Baylor
College of Medicine in Houston. He had graduate training in immunology and
malaria with Dr. Paul-Henri Lambert at the World Health Organization, Geneva,
Switzerland from 1978 to 1979, and post-doctoral training in transplantation
biology with Dr. E. Donnell Thomas at the Fred Hutchinson Cancer Research Center
in Seattle from 1983 to 1986. He is board certified in Internal Medicine and
Medical Oncology. Dr. June founded the Immune Cell Biology Program and was
head
of the Department of Immunology at the Naval Medical Research Institute from
1990 to 1995. Dr. June rose to Professor in the Departments of Medicine and
Cell
and Molecular Biology at the Uniformed Services University for the Health
Sciences in Bethesda, Maryland before assuming his current positions as of
February 1, 1999. Dr. June maintains a research laboratory that studies various
mechanisms of lymphocyte activation that relate to immune tolerance and adoptive
immunotherapy.
Pramod
Srivastava, Ph.D.
Dr.
Srivastava is Professor of Immunology at the University of Connecticut School
of
Medicine, where he is also Director of the Center for Immunotherapy of Cancer
and Infectious Diseases. He holds the Physicians Health Services Chair in Cancer
Immunology at the University. Professor Srivastava is the Scientific Founder
of
Antigenics, Inc. He serves on the Scientific Advisory Council of the Cancer
Research Institute, New York, and was a member of the Experimental Immunology
Study Section of the National Institutes of Health of the U.S. Government (1994
to 1999). He serves presently on the Board of Directors of two privately held
companies: Ikonisys (New Haven, Connecticut) and CambriaTech (Lugano,
Switzerland). In 1997, he was inducted into the Roll of Honor of the
International Union Against Cancer and was listed in Who’s Who in Science and
Engineering. He is among the 20 founding members of the Academy of Cancer
Immunology, New York. Dr. Srivastava obtained his bachelor’s degree in biology
and chemistry and a master’s degree in botany (paleontology) from the University
of Allahabad, India. He then studied yeast genetics at Osaka University, Japan.
He completed his Ph.D. in biochemistry at the Center for Cellular and Molecular
Biology, Hyderabad, India, where he began his work on tumor immunity, including
identification of the first proteins that can mediate tumor rejection. He
trained at Yale University and the Sloan-Kettering Institute for Cancer
Research. Dr. Srivastava has held faculty positions at the Mount Sinai School
of
Medicine and Fordham University in New York City.
Bennett
Lorber, M.D.
Dr.
Lorber attended Swarthmore College where he studied zoology and art history.
He
graduated from the University of Pennsylvania School of Medicine and did his
residency in internal medicine and fellowship in infectious diseases at Temple
University, following which he joined the Temple faculty. At Temple he rose
through the ranks to become Professor of Medicine and, in 1988, was named the
first recipient of the Thomas Durant Chair in Medicine. He is also a Professor
of Microbiology and Immunology and serves as the Chief of the Section of
Infectious Diseases. He is a Fellow of the American College of Physicians,
a
Fellow of the Infectious Diseases Society of America, and a Fellow of the
College of Physicians of Philadelphia where he serves as College Secretary
and
as a member of the Board of Trustees. Dr. Lorber’s major interest in infectious
diseases is in human listeriosis, an area in which he is regarded as an
international authority. He has also been interested in the impact of societal
changes on infectious disease patterns as well the relationship between
infectious agents and chronic illness, and he has authored papers exploring
these associations. He has been repeatedly honored for his teaching - among
his
honors are 10 golden apples, the Temple University Great Teacher Award, the
Clinical Practice Award from the Pennsylvania College of Internal Medicine,
and
the Bristol Award from the Infectious Diseases Society of America. On two
occasions the graduating medical school class dedicated their yearbook to Dr.
Lorber. In 1996 he was the recipient of an honorary Doctor of Science degree
from Swarthmore College.
David
B. Weiner, Ph.D.
Dr. David Weiner received his B.S in Biology from the State University of New
York and performed undergraduate research in the Department of Microbiology,
chaired by Dr. Arnie Levine, at Stony Brook University. He completed his MS.
and
Ph.D. in Developmental Biology/Immunology from the Children’s Hospital Research
Foundation at the University of Cincinnati in 1986. He completed his Post
Doctoral Fellowship in the Department of Pathology at the University of
Pennsylvania in 1989, under the direction of Dr. Mark Greene. At that time
he
joined the Faculty at the Wistar Institute in Philadelphia. He was recruited
back to the University of Pennsylvania in 1994. He is currently an Associate
Professor with Tenure in the Department of Pathology, and he is the Associate
Chair of the Gene Therapy and Vaccines Graduate Program at the University of
Pennsylvania. Of relevance during his career he has worked extensively in the
areas of molecular immunology, the development of vaccines and vaccine
technology for infectious diseases and in the area of molecular oncology and
immune therapy. His laboratory is considered one of the founders of the field
of
DNA vaccines as his group not only was the first to report on the use of this
technology for vaccines against HIV, but was also the first group to advance
DNA
vaccine technology to clinical evaluation. In addition he has worked on the
identification of novel approaches to inhibit HIV infection by targeting the
accessory gene functions of the virus. Dr. Weiner has authored over 260 articles
in peer reviewed journals and is the author of more than 28 awarded US patents
as well as their international counterparts. He has served and still serves
on
many national and international review boards and panels including NIH Study
section, WHO advisory panels, the NIBSC, Department of Veterans Affairs
Scientific Review Panel, as well as the FDA Advisory panel - CEBR, and AACTG
among others. He also serves or has served in an advisory capacity to several
Biotechnology and Pharmaceutical Companies. Dr. Weiner has, through training
of
young people in his laboratory, advanced over 35 undergraduate scientists to
Medical School or Doctoral Programs and has trained 28 Post Doctoral Fellows
and
7 Doctoral Candidates as well as served on 14 Doctoral Student
Committees.
Employees:
As
of
January 31, 2007, we employed nine employees, all of whom are on a full-time
basis, including six who hold the following degrees: (an MD, PhD, four PhD’s and
a BS), five who serve in research, one who serves in the clinical development
areas and three who serve in the general and administration area.
Our
Chairman and Chief Executive Officer, Mr. Thomas Moore joined our Company on
December 15, 2006 at which time Mr. Roni Appel resigned as our President and
Chief Executive Officer. Mr. Appel still serves as a director and remains a
consultant to the Company.
Dr. John
Rothman serves as our Vice President of Clinical and Officer and joined the
Company on March 7, 2005.
Fredrick
D. Cobb, who is our Vice President, Finance and Principal Financial Officer,
joined the Company on February 20, 2006.
Doctor
Vafa Shahabi, who serves as Director of Research and Development, joined
the Company on March 1, 2005. Two of our Senior Scientists joined the Company
from Doctor Paterson’s laboratory at Penn.
We
anticipate increasing the number of employees in the clinical and the research
and development areas to support clinical requirements, and in the general
and
administrative and business development areas over the next two
years.
Facilities
Our
corporate offices are currently located at a biotech industrial park located
at
675 Rt. 1, Suite B113, North Brunswick, NJ 08902. We entered into a lease
effective June 1, 2005 and certain lease amendments as of November 15, 2005,
as
of March 15, 2006, and as of October 1, 2006 with the NEW JERSEY ECONOMIC
DEVELOPMENT AUTHORITY (NJEDA) which will continue on a monthly basis at for
two
research and development laboratory units (total of 1,600 square feet) and
two
offices (total of 250 square feet). Our facility will be sufficient for our
near
term purposes and offers additional space for our foreseeable future. Our
monthly payment is approximately $6,000. The term of the lease expires on May
31, 2007 and upon mutual consent, may be extended for one year. NJEDA is allowed
to bill the Company for a one time Milestone Rent based on an equity financing
of more than $1,000,000 but less than $5,000,000; accordingly, billed the
Company $2,500 for this milestone in anticipation of the conversion of the
debenture into the equity. In the event that our facility should, for any
reason, become unavailable, we believe that alternative facilities are available
at competitive rates.
Litigation
There
are
no material legal proceedings threatened against us. 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. Aventis, Inc. has
filed
trademark opposition proceedings in Canada against our trademark application
for
Lovaxin. That opposition is still pending.
The
U.S.
trademark application for Lovaxin has been allowed by the United States Patent
and Trademark Office and is pending. Trademark applications in China and in
the
European Union for Lovaxin are also pending. The Chinese application was
recently published for opposition, and the European Union application has passed
through the opposition stage. This action will impact the naming of our
products.
The
U.S.
trademark applications for Advaxis and for Advaxis and design, Serial Nos.
78/252527 and 78/252586, have been withdrawn after oppositions to those
applications by Aventis, Inc.
In
2006,
Nycomed Pharma, of Sweden, claimed owner of the mark Levaxin, filed an
opposition to our CTM (European Union) application to register
Lovaxin. The opposition was refused solely on procedural
grounds. If our CTM application is ultimately granted,
Nycomed Pharma may file to cancel such registration of Lovaxin.
Nycomed Pharma has also demanded that we cease to use Lovaxin in
Sweden.
See
“Business - Patents and Licenses” for information as to the opposition by Cerus
Corporation 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 and
the decision of the Opposition Division of the European Patent Office to revoke
the claims of the patent.
MANAGEMENT
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Thomas
Moore (3)
|
|
56
|
|
Chief
Executive Officer and Chairman of the Board of
Directors
|
|
|
|
|
|
Dr.
James Patton (1)
|
|
48
|
|
Director
|
|
|
|
|
|
Roni
A. Appel (3) (4) (5)
|
|
39
|
|
Director
|
|
|
|
|
|
Dr.
Thomas McKearn (2)
|
|
56
|
|
Director
|
|
|
|
|
|
Richard
Berman (1) (2) (4)
|
|
63
|
|
Director
|
|
|
|
|
|
Martin
R. Wade III
|
|
56
|
|
Director
|
|
|
|
|
|
Dr.
John Rothman
|
|
59
|
|
Vice
President, Clinical Development
|
|
|
|
|
|
Fredrick
D. Cobb
|
|
60
|
|
Vice
President, Finance and Principal Financial
Officer
|
(1)
|
Member
of the Audit Committee.
|
|
|
(2)
|
Member
of the Compensation Committee.
|
|
|
(3)
|
Member
of the Nominating and Corporate Governance Committee.
|
|
|
(4)
|
Member
of the Finance Committee
|
|
|
(5)
|
Mr.
Appel resigned as President, Chief Executive Officer on December
15,
2006
|
Thomas
A. Moore.
Effective December 15, 2006, Thomas Moore was appointed our Chairman and Chief
Executive Officer. He is currently also a Director of Alteon, Inc., a publicly
traded developer of pharmaceuticals for the treatment of diabetes and
age-related diseases; El Dorado Inc., a targeted marketer to unassimilated
Hispanics; Medmeme, which measures medical education effectiveness; MD Offices,
an electronic medical records provider; and Opt-e-scrip, Inc., which markets
a
clinical system to compare multiple drugs in the same patient. He also serves as
Chairman of the Board of Directors of Mayan Pigments, Inc., which has developed
and patented Mayan pigment technology. Previously, from June 2002 to June 2004
Mr. Moore was President and Chief Executive Officer of Biopure Corporation,
a
developer of oxygen therapeutics that are intravenously administered to deliver
oxygen to the body’s tissues. From 1996 to November 2000 he was President and
Chief Executive Officer of Nelson Communications. Prior to 1996, Mr. Moore
had a
23-year career with the Procter & Gamble Company in multiple managerial
positions, including president of Health Care Products where he was responsible
for prescription and over-the-counter medications worldwide, and group vice
president of the Procter & Gamble Company.
Mr.
Moore
is a defendant in a civil enforcement action captioned Securities
& Exchange Commission v. Biopure Corp. et al.,
No.
05-11853-PBS (D. Mass.), filed on September 14, 2005, which alleges that Mr.
Moore made and approved misleading public statements about the status of FDA
regulatory proceedings concerning a product manufactured by his former employer,
Biopure Corp. Mr. Moore has vigorously defended the action. On December 11,
2006, the SEC and Mr. Moore jointly sought a continuance of all proceedings
based upon a tentative agreement in principle to settle the SEC action. The
SEC
approved the terms of the settlement, which has been submitted to the Court
for
its formal adoption. Mr. Moore is also a defendant in a purported class action
lawsuit, styled In
reBiopure Corp. Securities Litigation,
No.
1:03-cv-12628 (D. Mass), which is based upon similar allegations. The parties
have reached an agreement in principle for the settlement of this action subject
to the Court’s approval.
Dr.
James Patton.
Dr.
Patton, a Director since February 2002, served as Chairman of our Board of
Directors from November 2004 until December 31, 2005.and as Advaxis’ Chief
Executive Officer from February 2002 to November 2002. Since February 1999,
Dr.
Patton has been the President of Comprehensive Oncology Care, LLC, which owns
and operates a cancer treatment facility in Exton, Pennsylvania and Vice
President of Millennium Oncology Management, Inc., which provides technical
services for oncology care to four sites. From February 1999 to September 2003,
Dr. Patton also served as a consultant to LibertyView Equity Partners SBIC,
LP,
a venture capital fund based in Jersey City, New Jersey. He served as a director
from July 2000 to December 2002, of Pinpoint Data Corp, from February 2000
to
November 2000, of Healthware Solutions and, from June 2000 to June 2003, of
LifeStar Response. He earned his B.S. from the University of Michigan, his
Medical Doctorate from Medical College of Pennsylvania, and his M.B.A. from
the
University of Pennsylvania’s Wharton School. Dr. Patton was also a Robert Wood
Johnson Foundation Clinical Scholar. He has published papers regarding
scientific research in human genetics, diagnostic test performance and medical
economic analysis.
Roni
A. Appel.
Mr.
Appel has been a Director since November 2004. He was President and Chief
Executive Officer from January 1, 2006 and Secretary and Chief Financial
Officer from November 2004, until he resigned as Chief Financial Officer on
September 7, 2006 and as President, Chief Executive Officer and Secretary on
December 15, 2006. He has provided consulting services to us through LVEP
Management, LLC, since January 19, 2005. He had been from 1999 to 2004, a
partner and managing director of LVEP Equity Partners (f/k/a LibertyView Equity
Partners) and from 1998 until 1999, a director of business development at
Americana Financial Services, Inc. Mr. Appel, an attorney, was engaged in the
practice of law from 1994 to 1998. He completed his MBA at Columbia
University.
Dr.
Thomas McKearn.
Dr.
McKearn has served as a member of our Board of Directors since July 2002. He
has
more than 20 years experience in the translation of biotechnology science into
innovative products that address unmet medical needs in oncology. First as
one
of the founders of Cytogen Corporation, then as an Executive Director of
Strategic Science and Medicine at Bristol-Myers Squibb and now as the VP.
Medical Affairs at GPC-Biotech, Dr. McKearn has worked at bringing the most
innovative scientific findings into the clinic and through the FDA regulatory
process for the ultimate benefit of patients who need better ways to cope with
their afflictions. Prior to entering the then-nascent biotechnology industry
in
1981, Dr. McKearn did his medical, graduate and post-graduate training at the
University of Chicago and served on the faculty of the Medical School at the
University of Pennsylvania.
Martin
R. Wade III.
Mr. Wade was appointed to the Board on March 29, 2006. Since
August 2001, he has been Chief Executive Officer (CEO) of International
Microcomputer Software Inc. Since May 2000 Mr. Wade has also been CEO
of Bengal Capital Partners, LLC, a merger and acquisition firm. Mr. Wade
currently serves as a director of the following publicly traded companies:
International Microcomputer Software Inc., Alliance One, Inc., Nexmed and
Command Security Corp. He is a director and the Chairman of the Audit Committee
of Command Security Corp. From April 2000 until December 2001,
Mr. Wade served as Chief Executive Officer, Executive Vice President and a
director of Digital Creative Development Corporation, an acquisition and
investment company. From June 1998 until April 2000, Mr. Wade was a
Managing Director of Investment Banking for Prudential Securities, Inc. Prior
to
joining Prudential Securities, Inc. in 1998, Mr. Wade served in progressive
management roles with Bankers Trust Company, Lehman Brothers, CJ Lawrence,
Morgan Grenfell, Price Waterhouse Company and Salomon Brothers over a 23 year
period. Mr. Wade has been deeply involved in mergers and acquisitions,
corporate finance and investment banking throughout his career. He received
a
Master of Business Administration in Finance from the University of Wyoming
in
1975 and a Bachelor of Science in Business Administration from West Virginia
University in 1971. From 1971 through 1975, Mr. Wade also served as a
Captain in the United States Air Force.
Richard
Berman.
Mr.
Berman a Director since September 1, 2005. In the last five years, Mr. Berman
has served as a professional director and/or officer of about a dozen public
and
private companies. He is currently CEO ofr Nexmed, a public biotech company.
He
is Chairman of National Investment Managers, Candidate Resources, and Fortress
Technology Systems. Mr. Berman is a director of eight public companies: Dyadic
International, Inc., Broadcaster, Inc., Internet Commerce Corporation, MediaBay,
Inc., NexMed, Inc., National Investment Managers, Advaxis, Inc., and NeoStem,
Inc. Previously, Mr. Berman worked at Goldman Sachs; was Senior Vice President
of Bankers Trust Company, where he started the M&A and Leverage Buyout
Departments. He is a past director of the Stern School of Business of NYU where
he earned a B.S. and an M.B.A. He also has law degrees from Boston College
and
The Hague Academy of International Law.
John
Rothman, Ph.D.
Dr.
Rothman joined the Company in March 2005 as Vice President of
Clinical Development. During the period from 2001 and 2003 he and a colleague
purchased a 180 bed hospital from the University of Ohio system, sold it and
moved the facility to Ibaden Nigeria. From 2002 to 2005 Dr. Rothman was Vice
President and Chief Technology Officer of Princeton Technology Partners.
Previously, he was involved in the development of the first interferon at
Schering Inc, was director of a variety of clinical development sections at
Hoffman LaRoche, and the Senior Director of Clinical Data Management at Roche.
While at Roche his work in Kaposis’ Sarcoma became the clinical basis for the
first filed BLA which involved the treatment of AIDS patients with
interferon.
Fredrick
D. Cobb.
Mr. Cobb
joined the Company in February 2006 as the Vice President of Finance and on
September 7, 2006 was appointed Principal Financial Officer (PFO) and Assistant
Secretary. He was the PFO and Corporate Controller for Metaphore Pharmaceuticals
Inc., a private company, from June 2004 to December 2005 and PFO and Corporate
Controller of the publicly held company, Emisphere Technologies, Inc., from
2001
until 2004 Prior thereto he served as Vice President and Chief Financial Officer
at MetaMorphix, Inc from 1997 to 2000. Mr. Cobb holds an M.S. in Accounting
from
Seton Hall University in 1997 and a B.S. degree in Management from Cornell
University.
Board
of Directors and Officers
Each
director is elected for a period of one year at our annual meeting of
stockholders and serves until the next such meeting and until his or her
successor is duly elected and qualified. Officers are elected by, and serve
at
the discretion of, our board of directors. Our directors, other than Mr. Berman
who since joining the Board receives a fee of $2,000 per month payable in shares
of our common stock (at $0.50 per share), do not presently receive any
compensation for their services as directors. The Board of Directors may also
appoint additional directors up to the maximum number permitted under our
by-laws, currently nine. A director appointed will hold office until the next
annual meeting of stockholders. Each of our executive officers serves at the
discretion of our Board of Directors subject to the terms of his employment
agreement and holds office until his or her earlier resignation or removal
in
accordance with our articles of incorporation and by-laws.
Meetings
and Committees of the Board of Directors
During
each of the years ended October 31, 2006, and October 31, 2005, our Board of
Directors held three meetings and took action by written consent on three
occasions.
Audit
Committee
The
Audit
Committee of the Board of Directors was established in November 2004. The
Committee now consists of Mr. Berman and Dr. Patton with Mr. Berman serving
as
the Audit Committee’s financial expert. The Audit Committee held four meetings
during the year ended October 31, 2006.
The
Audit Committee is responsible for the following:
|
·
|
reviewing
the results of the audit engagement with the independent registered
public
accounting firm;
|
|
|
|
|
·
|
identifying
irregularities in the management of our business in consultation
with our
independent accountants, and suggesting an appropriate course of
action;
|
|
|
|
|
·
|
reviewing
the adequacy, scope, and results of the internal accounting controls
and
procedures;
|
|
|
|
|
·
|
reviewing
the degree of independence of the auditors, as well as the nature
and
scope of our relationship with our independent registered public
accounting firm;
|
|
|
|
|
·
|
reviewing
the auditors’ fees; and
|
|
|
|
|
·
|
recommending
the engagement of auditors to the full Board of
Directors.
|
Compensation
Committee
The
Compensation Committee of the Board of Directors was established in November
2004. The committee now consists of Mr. Berman and Dr. McKearn. The Compensation
Committee held four meetings during the year ended October 31, 2006. The
Compensation Committee determines the salaries, incentive compensation of our
officers subject to applicable employment agreements, and provides
recommendations for the salaries and incentive compensation of our other
employees and consultants.
Compensation
Issuance and Analyses
The
Committee’s goal is to structure our compensation program to attract, motivate,
reward and retain the management talent required to achieve corporate objectives
and thereby increase stockholder value. Its policy is to provide incentives
to
our senior management to achieve both short-term and long-term objectives and
to
reward exceptional performance and contributions to the development of our
business. Accordingly, the program seeks to provide a competitive base salary,
cash incentive bonuses and stock-based compensation.
Stock
options have been granted to our senior executive officer by the Board of
Directors or the Compensation Committee under the Stock Option Plans. The
Committee believes that stock options provide an incentive that focuses the
executive’s attention on managing us from the perspective of an owner with an
equity stake in the business. Options are awarded with an exercise price equal
to the market value of common stock on the date of grant, have a maximum term
of
ten years and generally become exercisable, in whole or in part, starting one
year from the date of grant. Among our executive officers, the number of shares
subject to options granted to each individual generally depends upon the level
of that officer’s responsibility. The largest grants are awarded to the most
senior officers who, in our view, have the greatest potential impact on our
profitability and growth. Previous grants of stock options are reviewed but
are
not considered the most important factor in determining the size of any
executive’s stock option award in a particular year. The Compensation Committee
reserves the right to engage services of independent consultants to perform
analyses and to make recommendations to the committee relative to executive
compensation matters. None have been retained to date.
The
Compensation Committee will annually establish, subject to the approval of
the
Board of Directors and any applicable employment agreements, the salaries to
be
paid to our executive officers.
In
setting salaries, the Committee takes into account several factors, including
competitive compensation data, the extent to which an individual may participate
in the stock plans maintained by us, and qualitative factors bearing on an
individual’s experience, responsibilities, management and leadership abilities
and job performance.
Nominating
and Corporate Governance Committee
The
Nominating and Corporate Governance Committee of the Board of Directors
established in November 2004. presently consists of Mr. Appel and Mr. Moore.
The
functions of the nominating and corporate governance include the
following:
|
·
|
identifying
and recommending to the Board of Directors individuals qualified
to serve
as directors of the Company and on the committees of the
board;
|
|
|
|
|
·
|
advising
the Board with respect to matters of board composition, procedures
and
committees;
|
|
|
|
|
·
|
developing
and recommending to the Board a set of corporate governance principles
applicable to us and overseeing corporate governance matters generally
including review of possible conflicts and transactions with persons
affiliated with Directors or members of management; and
|
|
|
|
|
·
|
overseeing
the annual evaluation of the Board and our
management.
|
The
Nominating and Corporate Governance Committee will be governed by a charter,
which we intend to adopt.
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our directors
and executive officers and each person who owns more than ten percent of a
registered class of our equity securities (collectively, “Reporting Persons”) to
file with the SEC initial reports of ownership and reports of changes in
ownership of our common stock and our other equity securities. Reporting Persons
are required by SEC regulation to furnish us with copies of all Section 16(a)
forms that they file. Based solely on the Company’s review of the copies of the
forms received by it during the fiscal year ended October 31, 2006 and written
representations that no other reports were required, the Company believes that
each person who, at any time during such fiscal year, was a director, officer
or
beneficial owner of more than ten percent of the Company’s common stock complied
with all Section 16(a) filing requirements during such fiscal year, except
with
respect to the following: (i) the Trustees of the University of Pennsylvania,
were late in filing their Form 3; (ii) James Patton was late in filing his
Form
3; (iii) Roni Appel was late in filing a Form 3 and three Form 4s; (iii) Scott
Flamm late in filing his amended Form 3; (iv) J. Todd Derbin has not filed
three
Form 4s; and (v) Thomas McKearn, was late filing a Form 3 and a Form
4.
Code
of Ethics
We
have
adopted a code of ethics that applies to our officers, employees and Directors,
including our principal executive officers, principal financial officer and
principal accounting officer. The code of ethics sets forth written standards
that are designated to deter wrongdoing and to promote:
|
·
|
honest
and ethical conduct, including the ethical handling of actual or
apparent
conflicts of interest between personal and professional
relationships;
|
|
|
|
|
·
|
full,
fair, accurate, timely and understandable disclosure in reports and
documents that we file with, or submit to, the SEC and in other public
communications made by us;
|
|
|
|
|
·
|
compliance
with applicable governmental laws, rules and
regulations;
|
|
|
|
|
·
|
the
prompt internal reporting of violations of the code to an appropriate
person or persons identified in our code of ethics; and
|
|
|
|
|
·
|
accountability
for adherence to our code of
ethics.
|
A
copy of
our code of ethics has been filed with the SEC as an exhibit to our Form 8K
dated November 12, 2004 and a copy of our code is posted on our website at
www.advaxis.com.
The
following table sets forth the information as to compensation paid to or earned
by the Chief Executive Officer during the ten months ended October 31, 2004
and
the twelve months ended October 31, 2005 and 2006 by our former and current
executive officers. It also provides similar information for the other
employees, each of whom received total compensation in excess of $100,000 for
the year ended October 31, 2006:
|
|
|
|
Annual
Compensation
|
|
Long
Term Compensation
Awards
|
|
Name
And Principal Position
|
|
Year
|
|
Salary($)
|
|
Bonus
($)
|
|
Other**
|
|
Securities
Underlying Options
|
|
Thomas
Moore*
|
|
|
2006
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roni
Appel(1)
|
|
|
2006
|
|
$
|
243,042
|
(2)
|
$
|
320,000
|
(3)
|
$
|
53,774
|
(5)
|
|
1,173,179
|
(2)
|
President,
CEO, Secretary, Chief
|
|
|
2005
|
|
$
|
139,250
|
(2)
|
$
|
35,000
|
(4)
|
|
|
|
|
1,114,344
|
(2)
|
Financial
Officer, and Director
|
|
|
2004
|
|
$
|
50,000
|
(4)
|
|
|
|
|
|
|
|
35,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.
Todd Derbin(6)
|
|
|
2006
|
|
$
|
73,200
|
|
$
|
3,850
|
(7)
|
$
|
4,043
|
(8)
|
|
|
|
President,
Chief Executive Officer,
|
|
|
2005
|
|
$
|
225,000
|
|
$
|
45,000
|
(7)
|
|
|
|
|
684,473
|
(9)
|
and
Director
|
|
|
2004
|
|
$
|
125,000
|
|
$
|
60,000
|
(7)
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
John Rothman
|
|
|
2006
|
|
$
|
201,538
|
(10)
|
$
|
10,000
|
|
$
|
23,320
|
(8)(17)
|
|
150,000
|
(11)
|
Vice
President, Clinical
|
|
|
2005
|
|
$
|
141,667
|
(13)
|
|
|
|
|
—
|
|
|
360,000
|
(12)
|
Development
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fredrick
D. Cobb
|
|
|
2006
|
|
$
|
93,195
|
(14)
|
|
—
|
|
|
—
|
|
|
300,000
|
(15)
|
Vice
President Finance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Vafa Shahabi
|
|
|
2006
|
|
$
|
111,370
|
(14)
|
|
—
|
|
$
|
3,288
|
(17)
|
|
250,000
|
(18)
|
|
|
|
2005
|
|
$
|
82,190
|
(16)
|
|
—
|
|
|
|
|
|
150,000
|
(19)
|
*Thomas
Moore joined the Company on December 15, 2006.
**None
of
the officers listed received prerequisites from us which exceed more than the
lesser of $50,000 or 10% of the officer’s total compensation in 2004 and
2005.
(1).
|
Mr.
Appel served as consultant (LVEP) in the capacity of Secretary and
CFO in
2004 and 2005. He was appointed President and CEO on January 1, 2006.
He
resigned his position of President, CEO and Secretary on December
15, 2006
and resigned from his CFO position on September 7, 2006. Pursuant
to the
consulting agreement, dated as of January 19, 2005, and amended on
April
15, 2005, October 31, 2005, and December 15, 2006, LVEP is to provide
various financial and strategic consulting services to
us.
|
(2).
|
Mr.
Appel’s compensation in 2005 and 2006 was paid through our consulting
agreement with LVEP. The option awards were the result of grants
of
options at $0.217 per share in fiscal 2006 and 0.287 per share in
fiscal
2005.
|
(3).
|
Represents
2005 bonus of $70,000 ($20,000 cash and $50,000 in stock) paid in
2006 and
a 2006 bonus of $250,000 paid in cash on January 2, 2007. It does
not
include the 1,000,000 shares of common stock awarded on December
15, 2006
and issued on January 3, 2007
|
(4). |
Represents
consulting fees of $50,000 in the ten months ended October 31, 2004
paid
to Carmel Ventures, Inc., of which he is a principal stockholder.
He
assigned $35,000 of such fees to Mr. Scott
Flamm.
|
(5). |
Represents
reimbursements for payroll taxes, healthcare cost, workers compensation,
401K match and employment related
cost.
|
(6). |
Mr.
Derbin resigned as President and CEO on December 31, 2005 and as
a
Director on September 7, 2006.
|
(7). |
In
determining Mr. Derbin’s bonus, the Board acted in part on a discretionary
basis. His 2004 bonus of $45,000 was paid in 2005 by issuance of
156,794
shares of the Company’s Common Stock based on $0.287 per share. His 2005
bonus of $3,850 was paid in 2006 by issuance of 17,422 shares of
Company’s
Common Stock based on $0.22 per
share
|
Mr.
Derbin’s 2003 bonus of $60,000 was paid in 2004 by the issuance of 307,377
shares of common Stock of the Company on the basis of a price of $0.1952 per
share and was two-third’s of the maximum amount of $90,000 he could have been
awarded.
(8). |
Health
care insurance.
|
(9). |
Pursuant
to an employment agreement, 928,441 of options granted in 2003 had
vested,
and 427,796 of the 684,473 options granted in 2005 had vested on
termination of the agreement on December 31, 2005. The balance of
the
options were cancelled.
|
(10). |
Included
in his base compensation is $25,000 payable in
stock.
|
(11). |
Options
granted at $0.26 share.
|
(12). |
Options
granted at $0.287 per share.
|
(13). |
Dr.
Rothman entered employment on March 7, 2005; included in his salary
is the
issuance of 80,000 shares of common stock valued at
$14,800.
|
(14). |
Included
in base compensation is $6,667 payable in
stock.
|
(15). |
Includes
150,000 options at $0.26 per share as part of his employment agreement
and
150,000 options at $0.16 per share granted on September 21,
2006.
|
(16). |
Dr.
Shahabi entered employment on March 1, 2005; included in her compensation
is 80,000 shares of common stock valued at
$14,800.
|
(17). |
Represents
401(k) match.
|
(18). |
Represents
100,000 options granted at $0.24 per share and 150,000 options granted
at
$0.16 per share.
|
(19). |
Represents
150,000 options granted at $0.287 per share as part of her employment
agreement.
|
Option
Grants In Recent Fiscal
Years
The
following table sets forth each grant of stock options during the ten month
period ended October 31, 2004 and the years ended October 31, 2005 and 2006
to
our current and former executive officers under the 2004 Stock Option Plan.
The
assumed 5% and 10% rates of stock price appreciation are provided in accordance
with rules of the SEC and do not represent our estimate or projection of our
common stock price. Actual gains, if any, on stock option exercises are
dependent on the future performance of our common stock, overall market
conditions and the option holders’ continued employment through the vesting
period. Unless the market price of our common stock appreciates over the option
term, no value will be realized from the option grants made to these executive
officers. The potential realizable values shown in the table are calculated
by
assuming that the estimated fair market value of our common stock on the date
of
grant increases by 5% and 10%, respectively, during each year of the option
term.
Individual
Grants
Name
|
|
Fiscal
Year
|
|
Number
Of Securities Underlying Options Granted
|
|
Percent
Of Total Options Granted To Employees In Fiscal
Period
|
|
Exercise Price
|
|
Expiration Date
|
|
Potential
Realizable Value At Assumed Annual Rates of Stock Price Appreciation
For
Option
Term($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5%
|
|
10%
|
|
Roni
Appel
|
|
|
2006
|
|
|
1,173,179
|
(1)
|
|
53
|
%
|
$
|
0.217
|
|
|
12/31/2015
|
|
$
|
160,113
|
|
$
|
405,809
|
|
|
|
|
2005
|
|
|
1,114,344
|
(2)
|
|
34
|
%
|
$
|
0.29
|
|
|
3/31/2015
|
|
$
|
201,165
|
|
$
|
509,788
|
|
|
|
|
2004
|
|
|
35,218
|
|
|
27
|
%
|
$
|
0.35
|
|
|
11/1/2012
|
|
$
|
7,753
|
|
$
|
19,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.
Todd Derbin
|
|
|
2006
|
|
|
-
|
(3)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
2005
|
|
|
427,796
|
(4)
|
|
13
|
%
|
$
|
0.29
|
|
|
2/1/2015
|
|
$
|
78,034
|
|
$
|
197,753
|
|
|
|
|
2004
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
John Rothman
|
|
|
2006
|
|
|
150,000
|
|
|
7
|
%
|
$
|
.026
|
|
|
3/29/2016
|
|
$
|
24,528
|
|
$
|
62,167
|
|
|
|
|
2005
|
|
|
360,000
|
|
|
11
|
%
|
$
|
0.29
|
|
|
3/1/2015
|
|
$
|
64,988
|
|
$
|
164,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fredrick
D. Cobb
|
|
|
2006
|
|
|
150,000
|
|
|
7
|
%
|
$
|
0.26
|
|
|
2/20/2016
|
|
$
|
19,811
|
|
$
|
50,212
|
|
|
|
|
2006
|
|
|
150,000
|
|
|
7
|
%
|
$
|
0.16
|
|
|
9/20/2016
|
|
$
|
15,094
|
|
$
|
38,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Vafa Shahabi
|
|
|
2006
|
|
|
100,000
|
|
|
5
|
%
|
$
|
0.24
|
|
|
7/1/2016
|
|
$
|
15,094
|
|
$
|
38,257
|
|
|
|
|
2006
|
|
|
150,000
|
|
|
7
|
%
|
$
|
0.16
|
|
|
9/20/2016
|
|
$
|
15,094
|
|
$
|
38,257
|
|
|
|
|
2005
|
|
|
150,000
|
|
|
5
|
%
|
$
|
0.29
|
|
|
3/1/2015
|
|
$
|
22,641
|
|
$
|
57,385
|
|
(1).
|
Reflects
a grant in January 2006 post 2005 fiscal year end increasing the
number of
options to 5% of the outstanding shares and options of the Company
as of
December 31, 2005.
|
(2).
|
Reflects
the grant in April 2005 equal to 3% of the outstanding shares and
other
options made.
|
(3). |
As
of January 1, 2007, 1,356,237 previously granted and vested but
unexercised options were forfeited.
|
(4).
|
684,473
options were granted to Mr. Derbin under the 2005 option plan of
which
256,677 options were surrendered pursuant to a termination of his
employment agreement.
|
No
options were exercised by an executive officer in the 10 months ended October
31, 2004 or either of the years ended October 31, 2005 and 2006. The following
table sets forth the value of unexercised options with respect to each of the
named executive and former executive officers.
|
|
|
|
Shares
Acquired On
|
|
Number
Of Securities
Underlying
Unexercised Options
At
Fiscal
Year-End (1)
|
|
Value
Of Unexercised
In-The-Money
Options
At
Fiscal Year-End($) (2)
|
|
Name
|
|
Year
|
|
Exercise
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
Roni
Appel (3)
|
|
|
2006
|
|
|
0
|
|
|
997,045
|
|
|
1,382,045
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
2005
|
|
|
0
|
|
|
254,075
|
|
|
951,835
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
2004
|
|
|
0
|
|
|
91,567
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.
Todd Derbin
|
|
|
2006
|
|
|
0
|
|
|
1,356,236
|
(4)
|
|
-
|
|
$
|
4,445
|
|
|
-
|
|
|
|
|
2005
|
|
|
0
|
|
|
1,273,135
|
|
|
83,101
|
|
$
|
47,033
|
|
$
|
4,017
|
|
|
|
|
2004
|
|
|
0
|
|
|
586,382
|
|
|
586,382
|
|
$
|
53,947
|
|
$
|
51,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
John Rothman
|
|
|
2006
|
|
|
0
|
|
|
135,000
|
|
|
375,000
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
2005
|
|
|
0
|
|
|
-
|
|
|
360,000
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fredrick
D. Cobb
|
|
|
2006
|
|
|
0
|
|
|
-
|
|
|
300,000
|
|
$
|
-
|
|
$
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Vafa Shahabi
|
|
|
2006
|
|
|
0
|
|
|
56,250
|
|
|
343,750
|
|
$
|
-
|
|
$
|
6,000
|
|
|
|
|
2005
|
|
|
0
|
|
|
|
|
|
150,000
|
|
$
|
-
|
|
$
|
-
|
|
(1).
|
Certain
of the options are immediately exercisable of the date of grant but
any
shares purchased are subject to repurchase by us at the original
exercise
price paid per share if the optionee ceases service with us before
vesting
in such shares.
|
(2).
|
Based
respectively on the closing price of $0.20 per share as of October
31,
2006, the highest-bid price of $0.25 per share on October 31, 2005
quoted
on the OTC:BB, and the fair market value of October 31, 2004 of $0.195
per
share determined by the Board of Directors to equal our 2004 Private
Placement price per share less the exercise price payable for such
shares..
|
(3).
|
As
of December 15, 2006 all Mr. Appel’s options became fully vested and are
exercisable until the end of his ten year option
term.
|
(4).
|
Forfeited
as of January 1, 2007.
|
Board
of Directors Compensation
With
the
exception of Mr. Berman who receives $2,000 a month in shares of Common Stock
at
a set price of $0.50 per share (4,000 shares), none of our Directors has
received any compensation for his services as a director other than stock
options and reimbursement of expenses. Each Director is granted options upon
joining the Board and as the Compensation Committee so directs.
2004
Stock Option Plan
In
November 2004, our Board of Directors adopted and stockholders approved the
2004
Stock Option Plan (“2004 Plan”). The 2004 Plan provides for the grant of
options to purchase up to 2,381,525 shares of our common stock to employees,
officers, directors and consultants. Options may be either “incentive stock
options” or non-qualified options under the Federal tax laws. Incentive stock
options may be granted only to our employees, while non-qualified options may
be
issued, in addition to employees, to non-employee directors, and
consultants.
The
2004 Plan is administered by “disinterested members” of the Board of Directors
or the Compensation Committee, who determine, among other things, the
individuals who shall receive options, the time period during which the options
may be partially or fully exercised, the number of shares of common stock
issuable upon the exercise of each option and the option exercise
price.
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. The aggregate
fair market value of common stock for which any person may be granted incentive
stock options which first become exercisable in any calendar year may not exceed
$100,000 on the date of grant.
No
stock
option may be transferred by an optionee other than by will or the laws of
descent and distribution, and, during the lifetime of an optionee, the option
will be exercisable 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 vested at termination,
unless otherwise determined by the Board of Directors. Upon termination of
employment or engagement of an optionee 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. No similar
limitation applies to non-qualified options.
We
must grant options under the 2004 Plan within ten years from November 12, 2004,
the effective date of the 2004 Plan. Subject to a number of exceptions, holders
of incentive stock options granted under the Plan cannot exercise these options
more than ten years from the date of grant. Options granted under the 2004
Plan
generally provide for the payment of the exercise price in cash and may provide
for the payment of the exercise price by delivery to us 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 provided in an optionee’s options, the optionee may
be able to 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 other than 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 2004
Plan.
2005
Stock Option Plan
Our
board of directors adopted in June 2005 and stockholders approved on June
6, 2006, the 2005 Stock Option Plan (“2005 Plan”).
The
2005 Plan provides for the grant of options to purchase up to 5,600,000 shares
of our common stock to employees, officers, directors and consultants. Options
may be either “incentive stock options” or non-qualified options under the
Federal tax laws. Incentive stock options may be granted only to our employees,
while non-qualified options may be issued to non-employee directors, consultants
and others, as well as to our employees.
The
2005 Plan is administered by “disinterested members” of the board of directors
or the compensation committee, who determine, among other things, the
individuals who shall receive options, the time period during which the options
may be partially or fully exercised, the number of shares of common stock
issuable upon the exercise of each option and the option exercise
price.
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. The aggregate
fair market value of common stock for which any person may be granted incentive
stock options which first become exercisable in any calendar year may not exceed
$100,000 on the date of grant.
Except
when agreed by the Board or the administrator of the 2005 Plan, no stock option
may be transferred by an optionee other than by will or the laws of descent
and
distribution, and, during the lifetime of an optionee, the option will be
exercisable 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, unless otherwise determined by the Board of
Directors. Upon termination of employment or engagement of an optionee 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. No similar limitation applies to non-qualified
options.
We
must grant options under the 2005 Plan within ten years from January 1, 2005,
the effective date of the 2005 Plan. Subject to a number of exceptions, holders
of incentive stock options granted under the 2005 Plan cannot exercise these
options more than ten years from the date of grant. Options granted under the
2005 Plan generally provide for the payment of the exercise price in cash and
may provide for the payment of the exercise price by delivery to us 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 provided in an optionee’s options, the optionee may
be able to 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 other than 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 2005
Plan.
Employment
Agreements
Thomas
Moore.
He
agreed, effective December 15, 2006, to be employed as Chief Executive
Officer and Chairman, pursuant to terms to be embodied in an employment
agreement. The agreement is to provide that he may also nominate one additional
Board Member of his choice subject to the By-Laws. Mr. Moore is to receive
an
annual salary of $250,000 to increase to $350,000, subject to a successful
sale
by the Company of its securities for at least $4,000,000. He is to receive
750,000 shares of common stock upon the successful sale. He will receive an
additional grant of 750,000 shares upon the completion of sales or a sale of
securities for gross proceeds of an additional $6,000,000. He also received
a
grant of 2,400,000 options at the price of $0.143 per share as of December
15,
2006 to vest monthly over 2 years. If he doesn’t successfully complete, on
behalf of the Company, a securities placement of at least $4,000,000 by June
2007, he is to tender his resignation and return all options and not be entitled
to severance. Mr. Moore is eligible to receive an additional grant of 1,500,000
shares of the Company’s common stock, if the Company stock share price is at
least $0.40 per share or higher, over 40 consecutive days. He is to receive
health care benefits at no cost to him. In the event of a change of control
or a
sale of the Company while Mr. Moore is employed, all options will be awarded
and
vested. Mr. Moore has agreed to personally participate in the 2007 securities
sale by the Company up to $500,000.
In
the
event of termination of Mr. Moore's employment by the Company following a
$4,000,000 security sale , he will also receive a severance payment equal to
one
year of salary at his then compensation level.
Vafa
Shahabi, PhD.
Dr.
Shahabi has been Head of Director of Science since March 1, 2005, terminable
on
30 days notice. Her duties are to work on and/or manage research and development
projects as specified by the Company. Her compensation is $115,000 per annum
with a potential bonus of $20,000. In addition, Dr. Shahabi was granted 150,000
options per her employment agreement - 100,000 in July 2006 and 150,000 in
September 2006. On July 1, 2006 her annual salary increased by $20,000 payable
in two installments of shares of common stock on July 1, and January
1.
Dr.
John Rothman.
The
Company entered into an employment agreement effective March 7, 2005 with Dr.
Rothman, PhD as Vice President of Clinical Development for a term of one year
ending February 28, 2006 and terminable thereafter upon 30 days prior
notice. His compensation is $170,000 per annum, to increase to $180,000 upon
the
closing of a $15 million equity financing. Upon meeting incentives to be set
by
the Company, he is to receive a bonus of up to $45,000. In fiscal year 2006
he
was paid a bonus of $10,000 in cash plus $14,800 in shares of common stock.
Effective January 1, 2006 his annual salary increased by $30,000 payable in
shares of common stock in equal installments on July 1 and January 1 valued
at
market but not less than $0.20 per share. In addition, Dr. Rothman was granted
360,000 stock options per his employment agreement and an additional 150,000
options in March 2006.
Fredrick
D. Cobb.
The
Company entered into an employment agreement with Mr. Cobb as Vice President
of
Finance effective February 20, 2006, terminable on 30 days notice. His
compensation is $140,000 per annum. Upon meeting incentives to be set by the
Company, he is to receive a bonus of up to $28,000. On July 1, 2006 his annual
salary increased by $20,000 payable in shares of common stock in two
installments on July 1 and January 1. In addition, Mr. Cobb was granted 150,000
stock options per his employment agreement and 150,000 additional options in
March 2006.
Roni
Appel.
Mr.
Appel served as our Chief Executive Officer and Chief Financial Officer until
September 7, 2006 pursuant to the terms of the Consulting Agreement with LVEP
Management LLC.
J.
Todd Derbin.
Pursuant to an agreement dated December 31, 2005, he resigned as our President
and Chief Executive Officer. Following his resignation, Mr. Derbin served as
a
consultant to the Company for a fee of $6,250 per month for 6 months ending
June
30, 2006. He served as Chairman and a member of our Board of Directors until
he
resigned on September 7, 2006.
·
|
each
person who is known by us to be the owner of record or beneficial
owner of
more than 5% of our outstanding Common Stock and each person who
owns less
than 5% but is significant nonetheless;
|
|
|
|
each
of our directors;
|
|
|
|
our
chief executive officer and each of our executive officers;
and
|
|
|
|
all
of our directors and executive officers as a
group.
|
As
used
in
the table below and
elsewhere in this the
term
beneficial
ownership
with
respect to a security consists of sole or shared voting power, including the
power to or direct the vote and/or sole or shared investment power, including
the power to dispose or direct the vote disposition, with respect to the
security through any contract, arrangement, understanding, relationship, or
otherwise, including a right to acquire such power(s) during the next 60 days
following October 31, 2006 (the “60 Day Period”). Except as otherwise indicated,
the stockholders listed in the table have sole voting and investment powers
with
respect to the shares indicated.
Except
as otherwise noted below, the address of each of the persons in the table in
Technology Center of NJ, 675 Route One, Suite B113, North Brunswick, NJ
08902.
|
|
Number
of Shares of
Registrant
Common Stock
Beneficially
Owned as of
October
31, 2006
|
|
Percentage
of Class
Beneficially
Owned
|
|
|
|
|
|
|
|
J.
Todd Derbin(1)
|
|
|
2,195,033
|
(3)
|
|
5.2
|
%
|
Roni
Appel(1)(2)
|
|
|
6,355,378
|
(4)
|
|
14.6
|
%
|
Richard
Berman(1)
|
|
|
476,000
|
(5)
|
|
1.2
|
%
|
Dr.
James Patton(1)
|
|
|
2,893,829
|
(6)
|
|
7.2
|
%
|
Dr.
Thomas McKearn(1)
|
|
|
524,876
|
(7)
|
|
1.3
|
%
|
Martin
R. Wade III(1)
|
|
|
150,000
|
(8)
|
|
0.4
|
%
|
Dr.
John Rothman(2)
|
|
|
724,732
|
(9)
|
|
1.8
|
%
|
Fredrick
D. Cobb(2)
|
|
|
349,641
|
(10)
|
|
0.9
|
%
|
Estate
of Scott Flamm(1)
|
|
|
2,838,664
|
|
|
7.0
|
%
|
The
Trustees of the University of Pennsylvania
Center
for Technology
Transfer,
University of Pennsylvania
3160
Chestnut Street, Suite 200
Philadelphia,
PA 19104-6283
|
|
|
6,339,282
|
|
|
15.8
|
%
|
Nathan
Low
c/o
Sunrise Securities Corp.
641
Lexington Ave-25fl
New
York, NY 10022
|
|
|
2,728,526
|
|
|
6.8
|
%
|
Amnon
Mandelbaum
c/o
Sunrise Securities Corp.
641
Lexington Ave-25fl
New
York, NY 10022
|
|
|
2,315,018
|
|
|
5.8
|
%
|
Emigrant
Capital Corp.
6
East 43 Street, 8th Fl.
New
York, NY 10017
|
|
|
2,011,950
|
|
|
5.0
|
%
|
Harvest
Advaxis LLC
30052
Aventura, Suite C
Rancho
Santa Margarita, CA 92688
|
|
|
2,011,950
|
|
|
4.8
|
%
|
Cornell
Capital Partners LP
101
Hudson Street, Suite 3700
Jersey
City, New Jersey 07302
|
|
|
2,011,950
|
|
|
4.8
|
%
|
All
Directors and Officers as a Group (9 people)
|
|
|
16,508,153
|
|
|
41.0
|
%
|
*
Based
on 40,238,992 shares of common stock outstanding as of October 31,
2006.
(1)
|
Director,
except for Mr. Derbin who served as a Director until his resignation
on
September 6, 2006 and Mr. Flamm who served as a Director until his
death
in January 2006
|
|
|
(2)
|
Officer,
except Mr. Appel who ceased to be an officer on December 15,
2006
|
|
|
(3)
|
Reflects
469,982 shares, 1,356,236 options and 368,815 warrants to purchase
shares.
Mr. Derbin resigned from the Board effective September 6, 2006 and
the
1,356,236 unexercised options expired on January 1,
2007.
|
|
|
(4)
|
Represents
2,976,288 shares and 2,379,090 options owned by Mr. Appel but does
not
reflect: (i) 486,470 warrants because such warrants are not exercisable
within 60 days due to the restriction that they are unexercisable
if after
exercise he would beneficially own more than 4.99% of the outstanding
shares, and (ii) 1,000,000 shares issued in December 2006 pursuant
to the
Third Amended LVEP Consulting agreement dated December 15,
2006.
|
|
|
|
Reflects
52,000 shares issued, 24,000 shares earned and 400,000
options.
|
|
|
(6)
|
Reflects
2,820,576 shares and 73,253 options but does not reflect 184,267
warrants
because of the restriction that they are unexercisable if after exercise
he would beneficially own more than 4.99% of the outstanding
shares.
|
|
|
(7)
|
Reflects
179,290 shares, 232,763 options and 112,823 warrants.
|
|
|
(8)
|
Reflects
options
|
|
|
(9)
|
Reflects
80,000 shares issued, 134,732 shares earned and 510,000
options
|
|
|
(10)
|
Reflects
49,641 shares earned and 300,000 options
|
|
|
(11)
|
Reflects
125,772 shares and 91,567 options owned by the estate and 2,621,325
shares
beneficially owned by Flamm Family Partners LP, of which the estate
is a
partner but does not reflect: (i) 202,097 warrants because of the
restriction that they are unexercisable if after exercise he would
beneficially own more than 4.99% of the outstanding shares, and (ii)
98,664 shares owned by a family member.
|
|
|
(12)
|
Reflects
1,124,253 shares owned by Mr. Low, 1,220,998 shares held by Sunrise
Equity
Partners (“SEP”) and 383,275 shares held by Sunrise Securities Corp., of
which Mr. Low is sole stockholder and director. It does not include
761,971 warrants held by Mr. Low and 1,742,160 warrants held by SEP
because of the restriction that they are unexercisable if after exercise
he would beneficially own more than 4.99% of the outstanding shares.
Mr.
Low is a manager of LC, the general partner of SEP, and as such,
is deemed
to have beneficial ownership of the securities held by SEP. However,
Mr.
Low disclaims beneficial interest in such shares except to the extent
of
his pecuniary interest therein. It also does not include 636,370
warrants
owned by Mr. Mandelbaum and 348,432 warrants held by Sunrise Securities
Corp., because of the similar 4.9% restriction and 71,497 shares
held by
Sunrise Foundation Trust, a charitable trust of which Mr. Low is
a
trustee. Mr. Low disclaims beneficial ownership of shares held by
Sunrise
Foundation Trust.
|
|
|
(13)
|
Reflects
1,094,020 shares owned by Mr. Mandelbaum and 1,220,998 shares held
by SEP,
but does not include 1,742,160 warrants held by SEP or 636,370 warrants
held by Mr. Mendelbaum because of the restriction that they are
unexercisable if after exercise he would beneficially own more than
4.99%
of the outstanding shares.
Mr. Mandelbaum is a manager of LC, the general partner of SEP, and
as
such, is deemed to have beneficial ownership of the securities held
by
SEP. However, Mr. Mandelbaum disclaims beneficial interest in such
shares
except to the extent of his pecuniary interest therein.
|
|
|
(14)
|
Reflects
1,777,003 shares and 234,947 warrants, but does not include 1,507,213
warrants because of the restriction that they are unexercisable if
after
exercise he would beneficially own more than 4.99% of the outstanding
shares, under current circumstances. Mr. Howard Milstein is the Chairman
and CEO and Mr. John Hart is the President of Emigrant.
|
|
|
(15)
|
Reflects
2,011,950 warrants but does not reflect 1,820,803 warrants because
of the
restriction that they are unexercisable if after exercise he would
beneficially own more than 4.99% of the outstanding shares. Mr. Robert
Harvey is the manager of Harvest Advaxis LLC.
|
|
|
(16)
|
Reflects
185,874 shares and 1,826,076 warrants but does not include: (i) 1,225,171
shares issued upon conversion of $175,000 principal amount of Debentures
subsequent to October 31, 2006 through February 1, 2007 and (ii)
the
shares issuable upon conversion of the outstanding $2,550,000 principal
amount of Debentures and exercise of 4,500,000 warrants which may
not be
converted or exercised, if Cornell and its affiliates after conversion
or
exercise would own in the aggregate more than 4.9% of the outstanding
voting shares. If the outstanding $2,550,000 of Debenture were otherwise
converted into shares at the average conversion price of $0.159 per
share
it could be converted into 16,037,736 shares. If the market price
decreases or increases the actual number of shares converted can
change
materially from the actual average price above.
|
|
|
(17)
|
Includes
an aggregate of 7,182,920 options, warrants and earned-but-not-issued
shares.
|
Consulting
Agreement with Carmel Ventures, Inc.
Carmel
Ventures, Inc. (“Carmel”) is owned by Roni Appel, a director and former Chief
Executive Officer, President and Chief Financial Officer. Pursuant to a
consulting agreement, dated as of November 1, 2002, Carmel provided various
consulting services to us principally in management, business development and
recruiting strategies and earned consulting fees of $5,000 per month from
November 1, 2002 through December 31, 2004. The fees amounted to $130,000 of
which $30,000 was paid in cash and $35,000 was assigned by Carmel to Mr. Scott
Flamm, then a Director and principal stockholder of the Company. Carmel
converted the $65,000 balance of the fees, and Mr. Flamm converted $35,000
into
shares of common stock and warrants to purchase additional shares. In addition,
we granted Carmel a bonus of $35,000 which was converted into units in the
November 2004 Private Placement and we granted Carmel options to purchase at
a
price of $0.35 per share 183,134 shares of our common stock at the rate of
7,044
options per month from November 1, 2002 to December 31, 2004. Carmel assigned
91,567 of these options to Mr. Flamm.
Consulting
Agreement with LVEP Management, LLC
The
Company entered into a consulting agreement with LVEP Management LLC (“LVEP”),
dated as of January 19, 2005, and amended on April 15, 2005, and October 31,
2005, pursuant to which Mr. Roni Appel served as Chief Executive Officer, Chief
Financial Officer and Secretary of the Company and was compensated by consulting
fees paid to LVEP. LVEP is owned by the estate of Scott Flamm who had been
a
director and principal shareholder until his death in January 2006. Pursuant
to
an amendment dated December 15, 2006 ("effective date") Mr. Appel resigned
as
President and Chief Executive Officer and Secretary of the Company on the
effective date, but continues as a director and consultant to the Company.
The
term of the agreement, as amended, is 24 months from effective date. Mr. Appel
is to devote 50% of his time to perform consulting services over the first
12
months of the consulting period and be paid at a rate of $22,500 per month
and
receive benefits of the same nature provided to other Company officers. He
is to
receive severance payments over an additional 12 months at a rate of $10,416.67
per month and be reimbursed for family health care. All his stock options vested
fully on the effective date. The Company also issued to him 1,000,000 shares
of
common stock and granted him a $250,000 bonus, of which $100,000 was paid on
January 2, 2007 and $150,000 is to be paid on June 1, 2007.
Sentinel
Consulting, Inc.
Sentinel
Consulting Inc., owned by Robert Harvey, a former observer to our Board and
the
manager of Harvest Advaxis LLC, one of our principal stockholders, provided
financial consulting, scientific validation and business strategy advice to
us
for the period from September 5, 2004 until August 2005. We paid Sentinel
$33,000 for their services and issued to it 287,451 shares of our common stock,
and agreed to issue a 5-year warrant
to purchase 191,638 shares of our common stock at an exercise price of an $0.40
per share and to pay it a retainer of $5,000. We also paid Sentinel a $10,000
video preparation fee and agreed to reimburse it for expenses of $6,000 in
connection with the preparation of a scientific review.
FEBRUARY
2006 PRIVATE PLACEMENT
Pursuant
to a Securities Purchase Agreement, dated February 2, 2006, Cornell Capital
Partners, LP purchased in February and March 2006, $3,000,000 principal amount
of our Secured Convertible Debentures due February 1, 2009 (the “Debentures”) at
face amount, and received five year Warrants to purchase 4,200,000 shares of
common stock at $0.287 per share and five year B Warrants to purchase 300,000
shares of common stock at $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 Debentures or exercise the Warrants
if after such conversion or exercise it and its affiliates would own in the
aggregate more than 4.9% of our then 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 Debenture is outstanding, and (iii) no
more
than $300,000 principal amount of the Debentures may be converted at the Market
Conversion Price during a calendar month.
During
the period from April 20, 2006 through March 31, 2007, the holder converted
an
aggregate of $775,000 principal amount of the Debenture into 5,052,513 shares
of
Common Stock at a conversion price ranging from $0.1340 per share to $0.2348
per
share, or an average price of $0.1534 per share. As of that date, as a result
of
sales subsequent to conversion, it and its affiliates beneficially own an
aggregate of 2,197,916 shares of common stock representing 4.9% of our
outstanding shares of common stock.
The
Debentures may be called by us 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. We also granted the holder
an
18-month right of first refusal assuming the Debentures are still outstanding
with respect to our issuance or sale of shares of capital stock, options,
warrants or other convertible securities. We have agreed to register at our
expense under the Securities Act of 1933, as amended (the “Act”) the shares of
common stock offered for resale acquired upon conversion of the Debentures
and
exercise of the Warrants and B Warrants.
We
granted the holder a first security interest in our assets as security for
payment of our obligations to Cornell. We also agreed that in the event due
to
no fault of the holder of the Debentures, sales of the registered shares cannot
be made as a result of failure to provide material information or to keep
current the registration statement, of which this prospectus is a part, we
will
pay to the holders in cash or shares of common stock liquidated damages equal
to
2% of the principal amount then outstanding plus accrued interest for each
30-day period thereafter but not to exceed an aggregate of
$600,000.
We
have
also agreed that as long as there is outstanding at least $500,000 principal
amount of Debentures, we would not, without the consent of the Debentureholder,
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
our assets or file a registration statement on Form S-8.
In
the
event of a Debenture default, at the holder’s election, the Debenture shall
become immediately due and payable in cash or, at the holder’s option, in shares
of common stock or 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 our directors
if
not approved by a majority of directors as of February 2, 2006 or by directors
appointed by such directors or (C) our entry 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 holder’s Registration Rights Agreement as to
the scheduled filing or effectiveness, and maintaining effectiveness of the
registration statement which results in an inability to sell shares by the
holder for a designated period; failure to maintain the eligibility of the
common stock to trade on the Over-the-Counter Bulletin Board, and failure to
make delivery within five trading days of certificates for shares to be issued
upon conversion for four trading days after the conversion or the date we
publicly announce an intention not to comply with requests for conversion in
accordance with the Debenture terms.
We
paid
Yorkville Advisors, LLC in connection with the sale, a fee of $240,000 (8%
of
the principal amount) and structuring and due diligence fees of $15,000 and
$5,000, respectively.
The
net
proceeds of $2,740,000 prior to deducting legal and accounting fees and other
expenses, has been and will be used for working capital, including Phase I
and
initiation of Phase II testing of our Lovaxin C, first Listeria cancer
immunotherapy in cervical cancer patients, and acceleration of preclinical
testing for several pipeline vaccines including Lovaxin B and Lovaxin S for
breast and ovarian cancer, respectively.
The
sale
and issuance of the Debentures and warrants was exempt from registration by
virtue of Section 4(2) of the Act.
The
6 %
per annum interest due at maturity will be charged to expense over the
three-year term of the Debentures. The $240,000 investment-banking fee paid
to
Yorkville Advisors was charged, in view of its relationship with Cornell, as
additional interest expense over the three-year term of the Debentures. The
remaining transaction fees of $20,000 has been capitalized.
In
accounting for the convertible debentures and the warrants and all outstanding
warrants, 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 Debentures represents an embedded derivative since the debenture is
convertible into a variable number of shares pursuant to a 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 embedded derivative liability was $512,865
at
date of sale.
The
Company calculated the fair value of the embedded conversion of the Company’s
above-mentioned warrants in addition to all outstanding warrants as a warrant
liability as of February 2, 2006. The fair value of the warrants has been
calculated using the Black-Scholes valuation model based on the market price
of
common stock on the date of grant, exercise price of warrants of each
outstanding warrant, risk-free interest rate, expected volatility of and
expected life. The common stock warrant liability at date of sale was calculated
at $214,950.
The
Company is required to re-measure the fair value of the warrants and the
conversion feature at each reporting period until the potential issuance upon
exercise of all warrants does not exceed the authorized shares of the Company.
As of October 31, 2006 the embedded derivative liability was calculated at
$2,815,293 and for the year ended October 31, 2006 the fair value of that
feature charged to interest expense was $176,481.
Upon
the
full satisfaction of the Debentures (whether through its repayment or conversion
to equity), the fair value of the warrants on that date will be reclassified
to
equity.
SELLING
STOCKHOLDERS
This
prospectus relates to the sale or resale from time to time of the following
shares of common stock by Selling Stockholders:
|
·
|
12,037,550
shares of common stock
outstanding
|
|
·
|
12,334,495
shares of common stock issued upon conversion and underlying our
Secured
Convertible Debenture issued to Cornell Capital Partners LP (“Cornell”), a
Selling Stockholder, pursuant to a transaction exempt from registration
under the Act. Up to 31,007,018 additional shares may be offered
by the
Selling Stockholder if the Debentures are converted in whole or in
part at
a price lower than the Fixed Conversion Price of $0.287 per share
(see
“February 2006 Private Placement”);
and
|
|
·
|
24,130,588
shares of common stock underlying warrants that were issued to Selling
Stockholders pursuant to transactions exempt from registration under
the
Act, including 4,500,000 warrants issued to Cornell in the private
placement of our Debentures.
|
The
following tables set forth certain information regarding the beneficial
ownership of our common stock as to the Selling Stockholders and the shares
offered by them in this prospectus. Beneficial ownership is determined in
accordance with the rules of the SEC. In computing the number of shares
beneficially owned by a Selling Stockholder and the percentage of ownership
of
that Selling Stockholder, shares of common stock underlying shares of our
Secured Convertible Debentures and options or warrants held by that Selling
Stockholder that are convertible or exercisable, as the case may be, within
60
days of the commencement of this offering are included. Those shares, however,
are not deemed outstanding for the purpose of computing the percentage ownership
of any other Selling Stockholder. Each Selling Stockholder’s percentage of
ownership in the following tables is based upon 44,849,283 shares of our common
stock outstanding on March 31, 2007.
Except
as
described below, none of the Selling Stockholders within the past three years
has had any material relationship with us or any of our affiliates:
|
· |
J.
Todd Derbin served as a consultant to the Company until June 30,
2006,
served as our Chief Executive Officer until December 31, 2005, our
Chairman of the Board of Directors from January 1, 2006 until September
6,
2006, and a director from November 12, 2004 until September 6,
2006;
|
|
· |
Roni
Appel served as President and Chief Executive Officer from January
1, 2006
to December 15, 2006, and as our Chief Financial Officer from November
12,
2004 until December 15, 2006, and has served as a director since
November
12, 2004. Carmel Ventures, Inc., of which Mr. Appel is the principal
stockholder, provided consulting services to us from November 1,
2002 to
December 31, 2004; LVEP by which Mr. Appel is employed had paid his
compensation as our officer until December 15,
2006;
|
|
· |
Scott
Flamm served from November 12, 2004 until his death in January 2006
as a
director of the Company and of LVEP, of which he was a principal
stockholder and an employee, and which provides consulting services
to us.
He was a general partner of Flamm Family Partners,
L.P.;
|
|
· |
Thomas
McKearn has served as a director since November 12,
2004;
|
|
· |
Dr.
James Patton has served as a director since November 12, 2004 and
has
served as a consultant to us in the
past;
|
|
· |
Dr.
Yvonne Paterson has serves as a
consultant;
|
|
· |
The
Trustees of the University of Pennsylvania own the patents as to
which we
have an exclusive license;
|
|
· |
Sunrise
Securities Corp. acted as placement agent in the November 2004 Private
Placement. Nathan Low, Amnon Mandelbaum, Marcia Kucher, Derek Caldwell,
Richard Stone and David Goodfriend are all affiliated with or employed
by
Sunrise Securities Corp., the placement agent in that Private
Placement. Sunrise
Equity Partners, LP and Sunrise Foundation Trust are also affiliates
of
Sunrise Securities Corp;
|
|
· |
Dr.
David Filer is a consultant to us and provided consulting services
to the
Sunrise Securities Corp; and
|
|
· |
Reitler
Brown Holdings, LLC is an affiliate of Reitler Brown & Rosenblatt LLC,
counsel to the Company.
|
The
term
“Selling Stockholders” also includes any transferees, pledges, donees, or other
successors in interest to the Selling Stockholders named in the table below.
To
our knowledge, subject to applicable community property laws, each person named
in the table has sole voting and investment power with respect to the shares
of
common stock set forth opposite such person’s name.
The
Selling Stockholders named below are selling the securities. The table assumes
that all of the securities will be sold in this offering and does not give
effect to additional shares which are or may be issuable upon exercise of
warrants or options or conversion of convertible securities pursuant to
ani-dilution provisions in such securities. However, any or all of the
securities listed below may be retained by any of the Selling Stockholders,
and
therefore, no accurate forecast can be made as to the number of securities
that
will be held by the Selling Stockholders upon termination of this offering.
These Selling Stockholders acquired their shares by purchases exempt from
registration under section 4(2) of the Securities Act of 1933 or Regulation
D
under the Securities Act of 1933. The Selling Stockholders acquired their shares
in the ordinary course of business. We believe that, except as indicated, the
Selling Stockholders listed in the table have sole voting and investment powers
with respect to the securities indicated. We will not receive any proceeds
from
the sale of the securities by the Selling Stockholders. No Selling Stockholders
are broker-dealers or affiliates or employees of broker-dealers other than
Sunrise Securities Corp., David Goodfriend, Amnon Mandelbaum, Marcia Kucher,
Derek Caldwell, Richard Stone, Nathan Low, Sunrise Equity Partners LP, Sunrise
Foundation Trust and Cornell Capital Partners LP. The securities included in
this list include securities which would otherwise become saleable from time
to
time pursuant to Rule 144 as currently in effect.
Name
|
|
Total
Shares
Owned
as of March 31,
2007
|
|
Shares
Registered
|
|
%
Before Offering***
|
|
%
After Offering***
|
|
|
|
|
|
|
|
|
|
|
|
Adele
Pfenninger
12
Spring Brook Road
Annandale,
NJ 08801
|
|
|
79,600
(1
|
)
|
|
|
)
|
|
0.18
|
%
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AI
International Corporate (a) Holdings, Ltd.
c/o
FCIM Corp.
1
Rockefeller Plaza, Suite 1730
New
York, NY 10020
|
|
|
174,216
(2
|
)
|
|
87,108
(2)(A
|
)
|
|
0.
39
|
%
|
|
0.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
Gelband Company (b)
Defined
Contribution Pension Plan and Trust
30
Lincoln Plaza
New
York, NY 10023
|
|
|
174,216
(3
|
)
|
|
174,216
(3
|
)
|
|
0.39
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
Kestenbaum
18
Clover Drive
Great
Neck, NY 11021
|
|
|
177,700
(3)(A
|
)
|
|
174,216
(3
|
)
|
|
0.39
|
%
|
|
0.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beretz
Family Partners LP (c)
48
South Drive
Great
Neck, NY 11021
|
|
|
174,216
(2
|
)
|
|
87,108
(2)(A
|
)
|
|
0.39
|
%
|
|
0.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridges
& Pipes, LLC (d)
830
Third Avenue
14th
Floor
New
York, NY 10022
|
|
|
696,864
(4
|
)
|
|
696,864
(4
|
)
|
|
1.53
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce
Fogel
218
Everglade Avenue
Palm
Beach, FL 33480
|
|
|
174,216
(3
|
)
|
|
174,216
(3
|
)
|
|
0.39
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C.
Leonard Gordon
551
Fifth Avenue
New
York, NY 10176
|
|
|
174,216
(2
|
)
|
|
87,108
(2)(A
|
)
|
|
0.39
|
%
|
|
0.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carmel
Ventures, Inc* (e)
22
Ruth Lane
Demarest,
NJ 07627
|
|
|
505,008
(5
|
)
|
|
355,528
(5)(A
|
)
|
|
1.11
|
%
|
|
0.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catherine
Janus
4817
Creak Dr.
Western
Spring, IL 60558
|
|
|
65,949
(6
|
)
|
|
52,883
(6)(A
|
)
|
|
0.15
|
%
|
|
0.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chaim
Cymerman
c/o
Tomer Cymerman
Paamoni
10, Apt. 19
Bavli,
Tel Aviv
Israel
|
|
|
109,074
(7
|
)
|
|
87,297
(7)(A
|
)
|
|
0.24
|
%
|
|
0.05
|
%
|
Name
|
|
|
Total
Shares
Owned
as of
March
31,
2007
|
|
|
Shares
Registered
|
|
|
%
Before Offering***
|
|
|
%
After Offering***
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
Kwon
834
Monror Street
Evanston,
Il 60202
|
|
|
491,233
(8
|
)
|
|
211,063
(8)(A
|
)
|
|
1.09
|
%
|
|
0.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranshire
Capital, LP (f)
666
Dundee Road
Suite
1901
Northbrook,
IL 60602
|
|
|
522,648
(9
|
)
|
|
522,648
(9
|
)
|
|
1.15
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crestwood
Holdings, LLC (g)
c/o
Ran Nizan
109
Boulevard Drive
Danbury,
CT 06810
|
|
|
360,253
(10
|
)
|
|
93,046
(10)(A
|
)
|
|
0.80
|
%
|
|
0.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Stone
228
St. Charles Avenue,
Suite
1024
New
Orleans, LA 70130
|
|
|
348,432
(10)(B
|
)
|
|
174,216
(10)(C
|
)
|
|
0.77
|
%
|
|
0.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Tendler
401
East 60th
Street
New
York, NY 10022
|
|
|
696,864
(11
|
)
|
|
348,432
(11)(A
|
)
|
|
1.54
|
%
|
|
0.77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Design
Investments, LTD (h)
9
Tanbark Circuit, Suite 1442
Werrington
Downs
NSW
2747
Australia
|
|
|
348,432
(11)(A
|
)
|
|
348,432
(11)(A
|
)
|
|
0.77
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emigrant
Capital Corp. (i)
6
East 43rd
Street, 8th
Floor
New
York, NY 10017
|
|
|
3,519,163(12
|
)
|
|
1,742,160
(12)(A
|
)
|
|
7.55
|
%
|
|
3.81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eugene
Mancino
Blau
Mancino
12
Roszel Road, Suite C-101
Princeton,
NJ 08540
|
|
|
355,099
(13
|
)
|
|
106,272
(13)(A
|
)
|
|
0.79
|
%
|
|
0.55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fawdon
Investments Ltd. (j)
4
Ibn Shaprut Street
Jerusalem,
Israel 92478
|
|
|
1,407,665
(4)(A
|
)
|
|
696,864
(4
|
)
|
|
3.09
|
%
|
|
1.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flamm
Family Partners, LP.* (k)
c/o
Scott Flamm
70
West Road
Short
Hills, NJ 07078
|
|
|
2,666,466
(14
|
)
|
|
36,231
(14)(A
|
)
|
|
5.94
|
%
|
|
5.86
|
%
|
Name
|
|
|
Total
Shares
Owned
as of
March
31,
2007
|
|
|
Shares
Registered
|
|
|
%
Before Offering***
|
|
|
%
After Offering***
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fred
Berdon Co, LP (l)
717
Post Road
Suite
105
Scarsdale,
NY 10583
|
|
|
348,432
(10)(B
|
)
|
|
|
)
|
|
0.77
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gina
Ferarri
36
Stone Run Road
Bedmingter,
NJ 07921
|
|
|
79,932
(15
|
)
|
|
|
)
|
|
0.18
|
%
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hal
H. Beretz
48
South Drive
Great
Neck, NY 11021
|
|
|
522,648
(16
|
)
|
|
|
)
|
|
1.16
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Howard
Kaye Family Fund (m)
2
Mohican Trail
Scarsdale,
NY 10583
|
|
|
261,324
(16)(A
|
)
|
|
261,324
(16)(A
|
)
|
|
0.58
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRA
FBO / Walter S. Grossman (n) Pershing LLC
Custodian
277
North Ave.
Westport,
CT 06880
|
|
|
696,864
(11
|
)
|
|
|
)
|
|
1.55
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Itai
Portnoi
26
Yakinton St.
Haifa,
Israel 34406
|
|
|
157,608
(17
|
)
|
|
|
)
|
|
0.35
|
%
|
|
0.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.
Todd Derbin*
P.O.
Box 128
Solebury,
PA 18963-0128
|
|
|
838,797(18
|
)
|
|
|
)
|
|
1.85
|
%
|
|
1.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Patton*
1937
Swedesford
Malvern,
PA 19355
|
|
|
3,078,096
(19
|
)
|
|
2,968,292
(19)(A
|
)
|
|
6.82
|
%
|
|
0.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Paul
c/o
Fulwider Patton
Howard
Hughes Center
6060
Center Drive, 10th
Floor
Los
Angeles, CA 90045
|
|
|
39,215
(20
|
)
|
|
|
)
|
|
0.09
|
%
|
|
0.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonas
Grossman
59
Huratio St.
New
York, NY 10014
|
|
|
80,640
(21
|
)
|
|
|
)
|
|
0.18
|
%
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kerry
Propper
59
Huratio St.
New
York, NY 10014
|
|
|
111,937
(22
|
)
|
|
89,663
(22)(A
|
)
|
|
0.25
|
%
|
|
0.05
|
%
|
Name
|
|
|
Total
Shares
Owned
as of
March
31,
2007
|
|
|
Shares
Registered
|
|
|
%
Before Offering***
|
|
|
%
After Offering***
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lilian
Flamm
c/o
Scott Flamm
70
West Road
Short
Hills, NJ 07078
|
|
|
197,328
(23
|
)
|
|
|
)
|
|
0.44
|
%
|
|
0.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marilyn
Mendell
1203
River Road,
Apt.
Penthouse 4
Edgewater,
NJ 07020
|
|
|
239,500
(24
|
)
|
|
126,658
(24)(A
|
)
|
|
0.53
|
%
|
|
0.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mary
Ann Ryan Francis
1115
Beanaqt Ave.
Seaside
Park, NJ 08752
|
|
|
79,161
(25
|
)
|
|
35,180
(25)(A
|
)
|
|
0.18
|
%
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mordechai
Mashiach
8
Shlomzion Hamalka
Haifa,
Israel 34406
|
|
|
257,608
(25)(B
|
)
|
|
70,093
(25)(C
|
)
|
|
0.57
|
%
|
|
0.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEA
Group, LLC (o)
145
Talmadge Road
Edison,
NJ 08817
|
|
|
351,916
(25)(D
|
)
|
|
174,216
(25)(E
|
)
|
|
0.78
|
%
|
|
0.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peggy
Fern
1548
Herlong Court
Rock
Hill, SC 29732
|
|
|
79,712
(26
|
)
|
|
35,401
(26)(A
|
)
|
|
0.18
|
%
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penn
Footware Retirement Trust (q)
Line
& Grove Streets
PO
Box 87
Nanticoke,
PA 18634
|
|
|
174,216
(3
|
)
|
|
174,216
(3
|
)
|
|
0.39
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roni
Appel*
16
Sunset Road
Demarest,
NJ 07627
|
|
|
6,336,840(27
|
)
|
|
2,936,272
(27)(A
|
)
|
|
13.42
|
%
|
|
7.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RP
Capital, LLC (r)
10900
Wilshire Blvd., Suite 500
Los
Angeles, CA 90024
|
|
|
87,108
(27)(B
|
)
|
|
87,108
(27)(B
|
)
|
|
0.19
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shai
Stern
43
Maple Avenue
Cedarhurst,
NY 11516
|
|
|
87,108
(27)(B
|
)
|
|
87,108
(27)(B
|
)
|
|
0.19
|
%
|
|
**
|
|
Name
|
|
|
Total
Shares
Owned
as of
March
31,
2007
|
|
|
Shares
Registered
|
|
|
%
Before Offering***
|
|
|
%
After Offering***
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott
Flamm*
70
West Road
Short
Hills, NJ 07078
|
|
|
374,295
(28
|
)
|
|
125,772
(28)(A
|
)
|
|
0.83
|
%
|
|
0.55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SRG
Capital, LLC (s)
120
Broadway, 40th
Floor
New
York, NY 10271
|
|
|
348,432
(11)(A
|
)
|
|
348,432
(11)(A
|
)
|
|
0.77
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sunrise
Equity Partners, LP (t)
641
Lexington Avenue, 25th
Floor
New
York, NY 10022
|
|
|
2,838,158(28)(B
|
)
|
|
1,742,160
(28)(C
|
)
|
|
6.09
|
%
|
|
2.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
McKearn*
6040
Lower Mountain Road
New
Hope, PA 18938
|
|
|
424,876
(29
|
)
|
|
90,549
(29)(A
|
)
|
|
0.94
|
%
|
|
0.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Titan
Capital Management, LLC (u)
(TCMP3
Partners)
7
Centure Drive, Suite 201
Parsippany,
NJ 07054
|
|
|
348,432
(11)(A
|
)
|
|
348,432
(11)(A
|
)
|
|
0.77
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Trustees of the University
of Pennsylvania
Center
for Technology Transfer University
of Pennsylvania
3160
Chestnut Street, Suite 200
Philadelphia,
PA 19104-6283
|
|
|
6,339,282
|
|
|
6,339,282
|
|
|
14.13
|
%
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yair
Talmor
517
Old Chappaqua Road
Briarcliff
Manor, NY 10510
|
|
|
174,216
(2
|
)
|
|
87,108
(2)(A
|
)
|
|
0.39
|
%
|
|
0.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yoav
Millet
950
Third Avenue
New
York, NY 10022
|
|
|
175,958
(2)(B
|
)
|
|
87,108 (2)(A
|
)
|
|
0.39
|
%
|
|
0.20
|
%
|
Name
|
|
|
Total
Shares
Owned
as of
March
31,
2007
|
|
|
Shares
Registered
|
|
|
%
Before Offering***
|
|
|
%
After Offering***
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amnon
Mandelbaum*
c/o
Sunrise Securities Corp.
641
Lexington Avenue, 25th
Floor
New
York, NY 10022
|
|
|
1,766,559
(30
|
)
|
|
672,539
(30)(A
|
)
|
|
3.88
|
%
|
|
2.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Goodfriend*
c/o
Sunrise Securities Corp.
641
Lexington Avenue, 25th
Floor
New
York, NY 10022
|
|
|
194,193
(31
|
)
|
|
74,727
(31)(A
|
)
|
|
0.43
|
%
|
|
0.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Filer*
165
East 32 Street
New
York, NY 10016
|
|
|
428,476
(32
|
)
|
|
285,211
(32)(A
|
)
|
|
0.95
|
%
|
|
0.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcia
Kucher*
c/o
Sunrise Securities Corp.
641
Lexington Avenue, 25th
Floor
New
York, NY 10022
|
|
|
2,070
(33
|
)
|
|
2,070
(33
|
)
|
|
0.00
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nathan
Low*(x)
c/o
Sunrise Securities Corp.
641
Lexington Avenue, 25th
Floor
New
York, NY 10022
|
|
|
761,971
(34
|
)
|
|
761,971
(34
|
)
|
|
1.67
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derek
Caldwell*
c/o
Sunrise Securities Corp.
641
Lexington Avenue, 25th
Floor
New
York, NY 10022
|
|
|
76,244
(35
|
)
|
|
73,170
(35)(A
|
)
|
|
0.17
|
%
|
|
0.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sunrise
Securities Corp.* (x)
641
Lexington Avenue, 25th
Floor
New
York, NY 10022
|
|
|
731,707
(36
|
)
|
|
348,432
(36)(A
|
)
|
|
1.62
|
%
|
|
0.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Stone*
c/o
Sunrise Securities Corp.
641
Lexington Avenue, 25th
Floor
New
York, NY 10022
|
|
|
146,817
(37
|
)
|
|
146,341
(37)(A
|
)
|
|
0.33
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin
Trust Agreement
U/A/
DTD 11/05/01
Peter
L. Martin TTE
3757
Webster St, Apt 203
San
Francisco, CA 94123
|
|
|
174,216
(3
|
)
|
|
174,216
(3
|
)
|
|
0.39
|
%
|
|
**
|
|
Name
|
|
|
Total
Shares
Owned
as of
March
31,
2007
|
|
|
Shares
Registered
|
|
|
%
Before Offering***
|
|
|
%
After Offering***
|
|
A.
Heifetz Technologies Ltd. (y)
22
Kanfey Nesharim St
Jerusalem,
Israel 95464
|
|
|
351,916
(25)(D
|
)
|
|
174,216
(25)(E
|
)
|
|
0.78
|
%
|
|
0.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balestra
Spectrum Partners, LLC (z)
1185
Avenue of the Americas
32nd
Floor
New
York, NY 10036
|
|
|
1,045,296
(38
|
)
|
|
522,648
(38)(A
|
)
|
|
2.30
|
%
|
|
1.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reitler
Brown Holdings, LLC* (aa)
800
Third Avenue, 21st
Floor
New
York, NY 10022
|
|
|
60,000
(39
|
)
|
|
60,000
(39
|
)
|
|
0.13
|
%
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leon
Recanata
Levinstein
Tower #21st
23
Menahem Begin Road
Tel
Aviv, Israel
|
|
|
487,805
(40
|
)
|
|
487,805
(40
|
)
|
|
1.08
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCC,
Ltd.
Levinstein
Tower #21st
23
Menahem Begin Road
Tel
Aviv, Israel
|
|
|
209,059(41
|
)
|
|
209,059(41
|
)
|
|
0.46
|
%
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvest
Advaxis LLC (bb)
30052
Aventura, Suite C
Rancho
Santa Margarita, CA 92688
|
|
|
4,625,888
(42
|
) |
|
3,832,753 (42)(A |
) |
|
7.87 |
%
|
|
** |
|
*
See
information above for Selling Stockholder’s relationship with the
Company
**Less
than 0.01%
***
Based
on 44,849,283 shares outstanding on March 31, 2007.
(a)
|
Rima
Salam has voting and disposition rights on behalf of AI International
Corporate Holdings, Ltd.
|
(b)
|
Alan
Gelband has voting and disposition rights on behalf of Alan Gelband
Company Defined Contribution Pension Plan and Trust.
|
(c)
|
Hal
Beretz has voting and disposition rights on behalf of Beretz
Family
Partners LLP.
|
(d)
|
David
Fuchs has voting and disposition rights on behalf of Bridges
& Pipes
LLC.
|
(e)
|
Roni
Appel has voting and disposition rights on behalf of Carmel Ventures,
Inc.
|
(f)
|
Mitchell
P. Kopin, president of Downsview Capital Inc., the general partner
of
Cranshire Capital, L.P, has voting and disposition rights.
|
(g)
|
Ran
Nizan has voting and disposition rights on behalf of Crestwood
Holdings,
LLC.
|
(h)
|
Haim
Rolnitsky has voting and disposition rights on behalf of Design
Investments Ltd.
|
(i)
|
Howard
Milstein and John Hart have voting and disposition rights on
behalf of
Emigrant Capital Corp.
|
(j)
|
Joseph
Franck has voting and disposition rights on behalf of Fawdon
Investments,
Ltd.
|
(k)
|
Scott
Flamm, a former director of the Company, had voting and disposition
rights
on behalf of Flamm Family Partners LP., until his death in January
2006.
|
(l)
|
Frederick
Berdon has voting and disposition rights on behalf of Fred Berdon
Co.,
LP.
|
(m)
|
Howard
Kaye, the managing partner, has voting and disposition rights
on behalf of
Kay Family Fund.
|
(n)
|
Pershing
IMS has voting and disposition rights on behalf of IRA FBO /
Walter S.
Grossman.
|
(o)
|
Albert
Chabot has voting and disposition rights on behalf of MEA
Group
|
(p)
|
Shoshana
Loeb has voting and disposition rights on behalf of Open Ventures,
LLC.
|
(q)
|
Jeff
Davidowitz has voting and disposition rights on behalf of Penn
Footwear
Retirement Trust.
|
(r)
|
Eric
Richardson has voting and disposition rights on behalf of RP
Capital,
LLC.
|
(s)
|
Edwin
Mecabe and Tai May Lee jointly have voting and disposition rights
on
behalf of SRB Capital LLC.
|
(t)
|
Nathan
Low, Marilyn Adler and Amnon Mandelbaum are the managers of Level
Counter,
LLC, the general partner of Sunrise Equity Partners, L.P. The
unanimous
vote of such managers is required for voting and disposition
rights.
|
(u)
|
Walter
Schenker and Steven Slawson have voting and disposition rights
on behalf
of Titan Capital Management LLC.
|
(v)
|
Morten
Kiellan has voting and disposition rights on behalf of Trinity,
LLC.
|
(w)
|
Nathan
Low is a trustee of Sunrise Securities Corp.
|
(x)
|
Nathan
Low has voting and disposition rights on behalf of Sunrise Securities
Corp.
|
(y)
|
Avit
Heifetz has voting and disposition rights on behalf of A. Heifetz
Technologies Ltd.
|
(z)
|
James
L. Melcher has voting and disposition rights on behalf of Balestra
Spectrum Partners, LLC.
|
(aa)
|
Robert
Brown, Scott Rosenblatt, Edward G. Reitler and John Watkins have
voting
and disposition rights on behalf of Reitler Brown Holdings,
LLC.
|
(bb)
|
Robert
Harvey has voting and disposition rights on behalf of Harvest
Advaxis,,
LLC.
|
(1)
|
Reflects
35,395 shares of common stock and 44,205 warrants to purchase
shares of
common stock.
|
(1)(A)
|
Reflects
35,395 warrants
to purchase shares of common stock.
|
(2)
|
Reflects
87,108 shares of common stock and 87,108 warrants to purchase
shares of
common stock.
|
(2)(A)
|
Reflects
87,108
warrants to purchase shares of common stock.
|
(2)(B)
|
Reflects
88,850 shares of common stock and 87,108 warrants to purchase
shares of
common stock.
|
(3)
|
Reflects
174,216 warrants to purchase shares of common stock.
|
(3)(A)
|
Reflects
3,484 shares of common stock and 174,216 warrants to purchase
shares of
common stock.
|
(4)
|
Reflects
696,864 warrants to purchase shares of common stock.
|
(4)(A)
|
Reflects
710,801 shares of common stock and 696,864 warrants to purchase
shares of
common stock.
|
(5)
|
Reflects
413,441 warrants and 91,567 options exercisable for shares of
common stock
after a prior transfer of 355,528 shares of common
stock to affiliate, Roni Appel.
|
(5)(A)
|
Reflects
355,528 warrants to purchase shares of common stock.
|
(6)
|
Reflects
65,949 warrants to purchase shares of common stock.
|
(6)(A)
|
Reflects
52,883 warrants to purchase shares of common stock.
|
(7)
|
Reflects
109,074 warrants to purchase shares of common stock.
|
(7)(A)
|
Reflects
87,297 warrants to purchase shares of common stock.
|
(8)
|
Reflects
271,260 shares of common stock and 219,973 warrants to purchase
shares of
common stock.
|
(8)(A)
|
Reflects
211,063
warrants to purchase shares of common stock.
|
(9)
|
Reflects
522,648 warrants to purchase shares of common stock.
|
(10)
|
Reflects
244,933 shares of common stock and 115,320 warrants to purchase
shares of
common stock.
|
(10)(A)
|
Reflects
93,046
warrants to purchase shares of common
stock.
|
(10)(B)
|
Reflects
174,216 shares of common stock and 174,216 warrants to purchase
shares of
common stock.
|
(10)(C)
|
Reflects
174,216 warrants to purchase shares of common stock.
|
(11)
|
Reflects
348,432 shares of common stock and 348,432 warrants to purchase
shares of
common stock.
|
(11)(A)
|
Reflects
348,432 warrants to purchase shares of common
stock.
|
(12)
|
Reflects
1,777,003 shares of common stock and 1,742,160 warrants to purchase
shares
of common stock.
|
(12)(A)
|
Reflects
1,742,160 warrants to purchase shares of common stock.
|
(13)
|
Reflects
106,272 shares of common stock and 248,827 warrants to purchase
shares of
common stock.
|
(13)(A)
|
Reflects
106,272 warrants to purchase shares of common stock.
|
(14)
|
Reflects
2,621,325 shares of common stock and 45,141 warrants to purchase
shares of
common stock.
|
(14)(A)
|
Reflects
36,231 warrants to purchase shares of common stock.
|
(15)
|
Reflects
35,511 shares of common stock and 44,421 warrants to purchase shares
of
common stock.
|
(15)(A)
|
Reflects
35,511 warrants to purchase shares of common stock.
|
(16)
|
Reflects
261,324 shares of common stock and 261,324 warrants to purchase
shares of
common stock.
|
(16)(A)
|
Reflects
261,324 warrants to purchase shares of common stock.
|
(17)
|
Reflects
70,093 shares of common stock and 87,515 warrants to purchase shares
of
common stock.
|
(17)(A)
|
Reflects
70,093 warrants to purchase shares of common stock.
|
(18)
|
Reflects
469,982 shares of common stock and 368,815 shares of common stock
issuable
upon exercise of warrants.
|
(18)(A)
|
Reflects
295,766 warrants to purchase shares of common stock.
|
(19)
|
Reflects
73,253 options and 184,267 warrants to purchase shares of common
stock and
2,820,576 shares of common stock.
|
(19)(A)
|
Reflects 2,820,576
shares of common stock and 147,716 warrants to purchase shares of
common stock.
|
(20)
|
Reflects
17,430 shares of common stock and 21,785 warrants to purchase shares
of
common stock.
|
(20)(A)
|
Reflects
17,430 warrants to purchase shares of common stock.
|
(21)
|
Reflects
35,865 shares of common stock and 44,775 warrants to purchase shares
of
common stock.
|
(21)(A)
|
Reflects
35,865 warrants to purchase shares of common stock.
|
(22)
|
Reflects
111,937 warrants to purchase shares of common stock.
|
(22)(A)
|
Reflects
89,663 warrants to purchase shares of common stock.
|
(23)
|
Reflects
98,664 shares of common stock and 98,664 warrants to purchase shares
of
common stock.
|
(23)(A)
|
Reflects
98,664 warrants to purchase shares of common stock.
|
(24)
|
Reflects
81,658 shares of common stock and 157,842 warrants to purchase
shares of
common stock.
|
(24)(A)
|
Reflects
126,658 warrants to purchase shares of common stock.
|
(25)
|
Reflects
35,180 shares of common stock and 43,981 warrants to purchase shares
of
common stock.
|
(25)(A)
|
Reflects
35,180 warrants to purchase shares of common stock.
|
(25)(B)
|
Reflects
170,093 shares of common stock and 87,515 warrants to purchase
shares of
common stock.
|
(25)(C)
|
Reflects
70,093 warrants to purchase shares of common stock.
|
(25)(D)
|
Reflects
177,700 shares of common stock and 174,216 warrants to purchase
shares of
common stock.
|
(25)(E)
|
Reflects
174,216 warrants to purchase shares of common stock.
|
(26)
|
Reflects
35,401 shares of common stock and 44,311 warrants to purchase shares
of
common stock.
|
(26)(A)
|
Reflects
35,401 warrants to purchase shares of common stock.
|
(27)
|
Reflects
3,976,288 shares of common stock (including 355,528 shares of common
stock
transferred to him subsequent to the commencement of the offering
from his
affiliate, Carmel) and 2,287,523 options and 73,029 warrants to
purchase
shares of common stock.
|
(27)(A)
|
Reflects 2,877,692
shares of common stock including 355,528 shares of common stock
transferred to him subsequent to the commencement of the offering
from his
affiliate, Carmel and, 58,580 warrants to purchase shares of common
stock
|
(27)(B)
|
Reflects
87,108 warrants to purchase shares of common stock
|
(28)
|
Reflects
125,772 shares of common stock, 156,956 warrants to purchase shares
of
common stock and 91,567 options.
|
(28)(A)
|
Reflects
125,772 warrants to purchase shares of common stock.
|
(28)(B)
|
Reflects
1,095,998 shares of common stock and 1,742,160 warrants to purchase
shares
of common stock.
|
(28)(C)
|
Reflects
1,742,160 warrants to purchase shares of common stock.
|
(29)
|
Reflects
179,290 shares of common stock, 132,763 options and 112,823 warrants
to
purchase shares of common stock.
|
(29)(A)
|
Reflects
90,549 warrants to purchase shares of common stock.
|
(30)
|
Reflects
1,094,020 shares of common stock and warrants to purchase 672,539
shares
of common stock, all of which securities were received as compensation
in
the ordinary course of business of his employer, Sunrise Securities
Corp.
as Placement Agent.
|
(30)(A)
|
Represents
warrants to purchase 672,539 shares of common stock.
|
(31)
|
Reflects
119,466 shares of common stock and 74,727 warrants to purchase
shares of
common stock, all of which securities were received as compensation
in the
ordinary course of business of the Selling Stockholder’s employer, Sunrise
Securities Corp. as Placement Agent.
|
(31)(A)
|
Represents
74,727 warrants to purchase shares of common stock.
|
(32)
|
Reflects
103,265 shares of common stock and 285,211 warrants to purchase
shares of
common stock which securities were purchased in the private placement,
of
which 187,650 warrants to purchase common stock were received as
compensation for consulting services rendered to Sunrise Securities
Corp.
as Placement Agent, and 40,000 options to purchase shares of common
stock. Dr. Filer is a consultant to Sunrise Securities
Corp.
|
(32)(A)
|
Reflects
97,561 warrants to purchase shares of common stock which securities
were
purchased in the private placement and 187,650 warrants to
purchase common
stock, received as compensation for consulting services rendered
to
Sunrise Securities Corp. as Placement Agent. Dr. Filer is a
consultant to
Sunrise Securities Corp.
|
(33)
|
Reflects
2,070 warrants to purchase shares of common stock, all of which
securities
were received as compensation in the ordinary course of business
of the
Selling Stockholder’s employer, Sunrise Securities Corp. as Placement
Agent.
|
(34)
|
Reflects
warrants to purchase 761,971 shares of common stock owned by
Mr. Low, all
of which securities were received as compensation in the ordinary
course
of business of his employer, Sunrise Capital as Placement
Agent.
|
(35)
|
Reflects
3,074 shares of common stock and 73,170 warrants to purchase
shares of
common stock, all of which securities were received as compensation
in the
ordinary course of business of his employer, Sunrise Securities
Corp. as
Placement Agent.
|
(35)(A)
|
Reflects
73,170 warrants to purchase shares of common stock.
|
(36)
|
Reflects
383,275 shares of common stock and 348,432 warrants to purchase
shares of
common stock. Nathan Low is its sole director and stockholder,
with 100%
beneficial ownership, voting and
|
(36)(A)
|
Reflects
348,432 warrants to purchase shares of common stock disposition
rights.
|
(37)
|
Reflects
476 shares of common stock and 146,341 warrants to purchase
shares of
common stock, all of which securities were received as compensation
in the
ordinary course of business of the Selling Stockholder’s employer, Sunrise
Securities Corp. as Placement Agent.
|
(37)(A)
|
Reflects
146,341 warrants to purchase shares of common stock.
|
(38)
|
Reflects
522,648 shares of common stock and 522,648 warrants to purchase
shares of
common stock.
|
(38)(A)
|
Reflects
522,648 warrants to purchase shares of common stock.
|
(39)
|
Reflects
60,000 warrants to purchase shares of common stock.
|
(40)
|
Reflects 487,805
warrants to purchase shares of common stock.
|
(41)
|
Reflects 209,059
warrants to purchase shares of common stock.
|
(42)
|
Reflects 3,832,753
warrants to purchase shares of common stock, 287,456 shares
of common
stock owned by a transferee, Compass International and 505,679
shares
owned by Harvey and Company Employee Pension Plan.
|
(42)(A)
|
Reflects 3,832,753
warrants to purchase shares of common stock.
|
In
addition to the Selling Stockholders set forth above, the following table sets
forth relevant information as to Cornell’s offering for resale the shares of our
common stock it may acquire upon conversion of our Debentures and exercise
of
warrants acquired in the February and March 2006 Private
Placement.
|
|
Shares
Owned
|
|
Name
|
|
Total
|
|
%
Before Offering
|
|
%
After Offering
|
|
Shares
Registered
|
|
Cornell
Capital Partners LP
101
Hudson Street, Suite 3700
Jersey
City, New Jersey 07302
|
|
|
1,966,547
|
(1)
|
|
4.9
|
%
|
|
0.0%
|
(2)
|
|
47,841,513
|
(3)
|
1)
Represents shares issued upon conversion of the Debentures or exercise
of
warrants owned by Cornell Capital Partners LP (“Cornell”) adjusted for the
limitation that a conversion or exercise by Cornell may not result in it
and its
affiliates owning more than 4.9% of the shares of our common stock outstanding
at the time of such conversion or exercise. Based on 38,167,028 shares
outstanding as of January 31, 2006, no more than 1,966,547 shares in aggregate
may be issued to Cornell and its affiliates upon conversion and exercise.
The
number of shares, offered by Cornell, would increase as the outstanding
shares
of common stock increase. Based on the Fixed Conversion Price of $0.287,
there
are 10,452,962 shares reserved for issuance upon conversion, which will
also
increase if the “Market Conversion Price” is used. All investment decisions of,
and control of, Cornell are made by its general partner, Yorkville Advisors,
LLC. Mark Angelo, the managing member of Yorkville Advisors, makes the
investment decisions on behalf of and controls Yorkville Advisors. Yorkville
Advisors and Mr. Angelo may also be deemed the beneficial owner of the
shares.
2)
Except
for the shares offered pursuant to this Prospectus, Cornell did not beneficially
own any shares of our common stock at the commencement of the
offering.
3)
The
shares registered are based on the full conversion of principal and interest
on
the Debentures at an assumed Market Conversion Price of $0.0956 per share,
which
is one-third of the Fixed Conversion Price of $0.287 per share, and (ii)
the
4,500,000 Warrants are exercised in full. Additional shares could be acquired
if
conversion is at a lower price, although such additional shares may not be
reoffered pursuant to this prospectus.
Blue
Sky
Thirty-five
states have what is commonly referred to as the “standard manual exemption” for
secondary trading of securities such as those to be resold by a selling
stockholder under this registration statement. In these states, so long as
we
obtain and maintain a listing in one of the commonly accepted standard manuals
e.g. Standard and Poor’s Corporate Manual, and the manual sets forth certain
information: (1) the names of our officers and directors, (2) our balance
sheet,
and (3) our profit and loss statement for either the fiscal year preceding
the
balance sheet or for the most recent fiscal year of operations, secondary
trading can occur without any filing, review or approval by state regulatory
authorities in these states. These states are: Alaska, Arizona, Arkansas,
Colorado, Connecticut, Delaware, District of Columbia, Delaware, Hawaii,
Idaho,
Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Mississippi,
Missouri, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, North
Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Texas, Utah,
Washington, West Virginia, and Wyoming. We cannot secure this listing, and
thus
this qualification, until after this registration statement is declared
effective. Once we secure this listing, secondary trading can occur in these
states without further action.
We
currently do not intend to and may not be able to qualify securities for
resale
in other states which require shares to be qualified before they can be resold
by our stockholders; provided however that we intend to take appropriate
action
to qualify securities for resale in the State of New York.
We
are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the Selling Stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act of 1933.
Because
a
Selling Stockholder may be deemed to be an “underwriter” within the meaning of
the Securities Act of 1933, it will be subject to the prospectus delivery
requirements of the Securities Act of 1933. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act of 1933 may be sold under Rule 144 rather than under this
prospectus. The Selling Stockholder has advised us that they have not entered
into any agreements, understandings or arrangements with any underwriter
or
broker-dealer regarding the sale of the resale shares. There is no underwriter
or coordinating broker acting in connection with the proposed sale of the
resale
shares by the Selling Stockholder.
We
agreed
to keep this prospectus effective until the earlier of the date as of which
all
of the common stock registered for resale hereunder has been sold or the
holder
is entitled to sell the shares pursuant to the Rule 144(k) exemption from
registration under the Act. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not
be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement
is
available and is complied with.
Under
applicable rules and regulations under the Securities Exchange Act of 1934,
any
person engaged in the distribution of the resale shares may not simultaneously
engage in market making activities with respect to our common stock for a
period
of two business days prior to the commencement of the distribution. In addition,
the Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation
M,
which may limit the timing of purchases and sales of shares of our common
stock
by the Selling Stockholders or any other person. We will make copies of this
prospectus available to the Selling Stockholders and have informed them of
the
need to deliver a copy of this prospectus to each purchaser at or prior to
the
time of the sale.
At
the
date hereof we are authorized by our articles of incorporation to issue
an
aggregate of 500,000,000 shares of common stock, par value $0.001 per share
and
5,000,000 shares of “blank
check” preferred stock ,
par
value $0.001 per share. 38,167,028
shares of common stock and
no
shares of preferred
stock
were
outstanding as of January 31, 2006. We estimate that ss of January 5, 2006,
there are approximately 200 beneficial holders of our conversion shares.
Holders of
common
stock are entitled
to one vote for each share held of record on each matter submitted to a
vote of
stockholders. There is no cumulative voting for the election of directors.
Subject to the prior rights of any class or series of preferred stock which
may
from time to time be outstanding, if any, holders
of common stock are entitled
to receive ratably, dividends when, as, and if declared by our Board of
Directors out of funds legally available for that purpose and, upon our
liquidation, dissolution, or winding up ,
are
entitled to share ratably in all assets remaining after payment of liabilities
and payment of accrued dividends and liquidation preferences on the
preferred stock ,
if any.
Holders of
common
stock have
no
preemptive rights and have no rights to convert their
common stock into
any
other securities. The outstanding common stock is
validly authorized and issued, fully-paid and nonassessable.
We are
authorized to issue up to 5,000,000 shares of “blank check” preferred stock.
Preferred stock
may
be issued in one or more series and having the rights, privileges and
limitations, including voting rights, conversion privileges and redemption
rights, as may, from time to time, be determined by the Board of Directors.
Preferred stock may be issued in the future in connection with acquisitions,
financings, or other matters as the Board of Directors deems appropriate.
In the
event that any shares
of
preferred stock are to
be
issued, a certificate of designation containing the rights, privileges
and
limitations of such series of preferred stock shall be filed with the Secretary
of State of the State of Colorado. The effect of such preferred stock is
that,
subject to Federal securities laws and Colorado law, the Board of Directors
alone, may be able to authorize the issuance of preferred stock which could
have
the effect of delaying, deferring, or preventing a change in control
of the
Company without
further action by the stockholders, and may adversely affect the voting
and
other rights of the holders of the
common stock .
The
issuance of preferred stock with voting and conversion rights may also
adversely
affect the voting power of the holders
of common stock ,
including the loss of voting control to others.
Our
common stock is traded on the OTC Bulletin Board under the Symbol ADXS.
The
closing bid price on March 29, 2006, was $0.26.
Assuming
the issuance of (i) 12,334,495 shares of common stock upon conversion in
full of
the principal amount of and payment of interest of the Debentures at the
Fixed
Conversion Price (a greater number will be required to be issued if the
conversion is at the Market Conversion Price (see “Selling Stockholders” for the
possible limitation on the number of shares which may be issued upon conversion
or exercise) and (ii) 4,500,000 shares of our common stock upon full exercise
of
the Warrants issued in our February 2006 Private Placement of the Debenture,
there are outstanding 55,520,925 shares of our common stock. In addition
19,680,588 shares of common stock are registered for resale under the Securities
Act of 1933, as amended (the “Act”) for reoffering upon there being issued upon
exercise of warrants issued in a private placement effected in November 2004.
These
shares of common stock will be deemed to be “ restricted
securities”
under Rule 144.
Restricted securities may only be sold in the public market pursuant to an
effective registration statement under the Act or
pursuant to an exemption from registration under Rule
144 , Rule
701 or Rule
904 under
the Act
. These
rules are summarized below.
In
general, under Rule 701, any of our employees, directors, officers, consultants,
or advisors (other than affiliates) who purchased shares of common stock
from us
under a compensatory stock option plan or other written agreement before
the
closing of the Share Exchange is entitled to resell these shares. These shares
can be resold 90 days after the effective date of the Share Exchange in reliance
on Rule 144, without having to comply with restrictions, including the holding
period, contained in Rule 144.
We
have
registered by means of a registration statement on Form S-8 under the Act 2,381,525 shares
of
common stock reserved for
issuance under our
2004
Stock Option
Plan.
As of January 31, 2007, options to purchase 2,381,525
shares of common stock were granted
under the 2004 Stock Option Plan, of which options to purchase approximately 1,046,628
shares of common stock have vested
and have not been exercised. Shares
of
common
stock issued upon
exercise of a share option and registered under the Form S-8 registration
statement will, subject to vesting provisions and Rule
144
volume limitations applicable to our affiliates and the lock-up provision
described above, be available for sale in the open market immediately.
Our
agreement with Cornell prohibits us from filing a registration statement
on Form
S-8 under the Act to register 5,600,000 shares of common stock reserved for
issuance under our 2005 stock option plan as long as any Debentures are
outstanding. As of January 31, 2007, options to purchase 4,679,917 shares
of
common stock were issued under the 2005 Stock Option Plan, of which options
to
purchase approximately 2,889,398 shares of common stock have
vested.
As
of
January 31, 2007 we have granted 1,001,399 options as non-plan option of
which
41,725 options are vested.
Shares
of
common stock issued upon exercise of a share option and registered under
the
Form S-8 registration statement will be subject to vesting provisions and
Rule
144 volume limitations applicable to our affiliates available for sale in
the
open market immediately.
At
the
date of this prospectus, none of our shares are subject to a lock up agreement.
PLAN
OF DISTRIBUTION
A
Selling
Stockholder, and any of its pledgees, assignees and successors-in-interest,
may
from time to time, sell any or all of their registered shares of our common
stock acquired including those upon exercise of its warrants or conversion
of
the Debenture on any stock exchange, market or trading facility on which
the
shares are traded or in private transactions. These sales may be at fixed
or
negotiated prices. A Selling Stockholder may use any one or more of the
following methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits Investors;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer
for its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
short
sales provided as to Cornell Capital that the Debenture is fully
converted;
|
|
·
|
broker-dealers
may agree with a Selling Stockholder to sell a specified number
of such
shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of sale;
and
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
A
Selling
Stockholder may also sell shares under Rule 144 under the Securities Act
of
1933, if available, rather than under this prospectus.
Broker-dealers
engaged by a Selling Stockholder may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or discounts
from
the Selling Stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
Selling Stockholders do not expect these commissions and discounts relating
to
its sales of shares to exceed what is customary in the types of transactions
involved.
A
Selling
Stockholder may from time to time pledge or grant a security interest in
some or
all of the registrable securities owned by it and, if it defaults in the
performance of its secured obligations, the pledgees or secured parties may
offer and sell shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, as amended (the “Act”),
identifying the pledgee, transferee or other successors in interest as Selling
Stockholders under this prospectus.
Upon
us
being notified in writing by a Selling Stockholder that any material arrangement
has been entered into with a broker-dealer for the sale of common stock through
a block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this prospectus will
be
filed, if required, pursuant to Rule 424(b) under the Act, disclosing (i)
the
name of such Selling Stockholder and of the participating broker-dealer(s),
(ii)
the number of shares involved, (iii) the price at which such the shares of
common stock were sold, (iv) the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information
set
out in this prospectus, and (vi) other facts material to the transaction.
In
addition, upon us being notified in writing by a Selling Stockholder that
a
donee or pledgee intends to sell more than 500 shares of common stock, a
supplement to this prospectus will be filed if then required in accordance
with
applicable securities law.
The
Selling Stockholder also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this
prospectus.
The
Selling Stockholder and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning
of the
Act in connection with such sales. In such event, any commissions received
by
such broker-dealers or agents and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Act. The Selling Stockholder has represented and warranted to us
that
it does not have any agreement or understanding, directly or indirectly,
with
any person to distribute the common stock and has agreed that while any portion
of the Debenture is outstanding neither it nor its affiliates will have short
position on our common stock or engage in short sales of our common
stock.
We
are
required to pay all fees and expenses incident to the registration of the
shares. We have agreed to indemnify the Selling Stockholders against certain
losses, claims, damages and liabilities, including liabilities under the
Act.
LEGAL
MATTERS
The
validity of the common stock offered by this prospectus will be passed upon
for
us by Jody M. Walker, Esq., with respect to shares issued by the Company
prior
to the Company reincorporating in Delaware and Reitler Brown & Rosenblatt
LLC with respect to shares issued by the Company thereafter.
EXPERTS
The
financial statements appearing in this prospectus and registration statement
have been audited by Goldstein Golub Kessler LLP, independent accountants;
to
the extent and for the periods indicated in their report appearing elsewhere
herein, and are included in reliance upon such report and upon the authority
of
such firms as experts in accounting and auditing.
ADDITIONAL
INFORMATION
We
filed
with the SEC a registration statement on Form SB-2 under the Securities Act
of
1933 for the shares of common stock in this offering. This prospectus does
not
contain all of the information in the registration statement and the exhibits
and schedule that were filed with the registration statement. For further
information with respect to us and our common stock, we refer you to the
registration statement and the exhibits that were filed with the registration
statement. Statements contained in this prospectus about the contents or any
contract or any other document that is filed as an exhibit to the registration
statement are not necessarily complete, and we refer you to the full text of
the
contract or other document filed as an exhibit to the registration statement.
A
copy of the registration statement and the exhibits and schedules that were
filed with the registration statement may be inspected without charge at the
Public Reference Room maintained by the SEC at 450 Fifth Street, N.W.,
Washington, DC 20549, and copies of all or any part of the registration
statement may be obtained from the SEC upon payment of the prescribed fee.
Information regarding the operation of the Public Reference Room may be obtained
by calling the SEC at 800-SEC-0330. The SEC maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the site
is
www.sec.gov.
We
are
subject to the information and periodic reporting requirements of the Securities
Exchange Act of 1934, and in accordance with the Securities Exchange Act of
1934, we file annual, quarterly and special reports, and other information
with
the SEC. These periodic reports, and other information are available for
inspection and copying at the regional offices, public reference facilities
and
website of the SEC referred to above.
FINANCIAL
STATEMENTS
Advaxis,
Inc.
|
|
Page
|
|
|
|
Balance
Sheet at January 31, 2007 (unaudited)
|
|
F-2
|
|
|
|
Statements
of Operations for the three month periods ended January 31, 2007
and 2006
and the period March 1, 2002 (inception) to January 31, 2007
(unaudited)
|
|
F-3
|
|
|
|
Cash
Flow Statements for the three month periods ended January 31, 2007
and
2006 and the period March 1,
2002
(inception) to January 31, 2007 (unaudited)
|
|
F-4
- F-5
|
|
|
|
Notes
to Financial Statements
|
|
F-6
- F-10
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-11
|
|
|
|
Balance
Sheet as of October 31, 2006
|
|
F-12
|
|
|
|
Statements
of Operations for the years ended October 31, 2005 and 2006 and the
period
from
|
|
|
March
1, 2002 (Inception) to October 31, 2006
|
|
F-13
|
|
|
|
Statements
of Stockholders’ Equity (Deficiency) for the Period from March 1, 2002
(Inception) to
|
|
|
October
31, 2006
|
|
F-14
|
|
|
|
Statements
of Cash Flows for the years ended October 31, 2005 and 2006 and the
period
from
|
|
|
March
1, 2002 (Inception) to October 31, 2006
|
|
F-15
- F-16
|
|
|
|
Notes
to the Financial Statements
|
|
F-17
- F-32
|
ADVAXIS,
INC.
(A
Development Stage Company)
(Unaudited)
|
|
|
January
31, 2007
|
|
ASSETS
|
|
|
|
|
Current
Assets:
|
|
|
|
|
Cash
|
|
$
|
1,977,809
|
|
Prepaid
expenses
|
|
|
16,718
|
|
Total Current Assets
|
|
|
1,994,527
|
|
|
|
|
|
|
Property
and Equipment (net of accumulated depreciation of $30,775)
|
|
|
133,388
|
|
Intangible
Assets (net of accumulated amortization of $107,796)
|
|
|
959,842
|
|
Deferred
Financing Costs (net of accumulated amortization of
$111,919)
|
|
|
148,081
|
|
Other
Assets
|
|
|
3,876
|
|
Total Assets
|
|
$
|
3,239,714
|
|
LIABILITIES
& SHAREHOLDERS’ DEFICIENCY
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
payable
|
|
$
|
813,668
|
|
Accrued
expenses
|
|
|
528,514
|
|
Deferred
revenue
|
|
|
7,894
|
|
Notes
payable - current portion
|
|
|
204,977
|
|
Total
Current Liabilities
|
|
|
1,555,053
|
|
|
|
|
|
|
Interest
payable
|
|
|
159,444
|
|
Notes
payable - net of current portion
|
|
|
345,125
|
|
Convertible
Secured Debentures and fair value of embedded derivative
|
|
|
3,880,405
|
|
Common
Stock Warrants
|
|
|
501,420
|
|
Total
Liabilities
|
|
$
|
6,441,447
|
|
|
|
|
|
|
Shareholders’
Deficiency:
|
|
|
|
|
Common
Stock - $0.001 par value; authorized 500,000,000 shares, issued and
outstanding 42,331,051
|
|
|
42,330
|
|
Additional
Paid-In Capital
|
|
|
6,455,140
|
|
Deficit
accumulated during the development stage
|
|
|
(9,699,203
|
)
|
Total
Shareholders' Deficiency
|
|
$
|
(3,201,733
|
)
|
Total Liabilities & Shareholders’ Deficiency
|
|
$
|
3,239,714
|
|
The
accompanying footnotes are an integral part of these financial
statements.
Table
of Contents
ADVAXIS,
INC.
(A
Development Stage Company)
(Unaudited)
|
|
3
Months
Ended
January
31,
|
|
3
Months
Ended
January
31,
|
|
Period
from
March
1, 2002
(Inception)
to
January
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
Revenue
|
|
$
|
146,307
|
|
$
|
329,928
|
|
$
|
1,251,542
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
& Development Expenses
|
|
|
494,107
|
|
|
385,107
|
|
|
3,742,155
|
|
General
& Administrative Expenses
|
|
|
845,072
|
|
|
413,883
|
|
|
5,188,865
|
|
Total
Operating expenses
|
|
|
1,339,179
|
|
|
798,990
|
|
|
8,931,020
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(1,192,872
|
)
|
|
(469,062
|
)
|
|
(7,679,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(153,355
|
)
|
|
(1,008
|
)
|
|
(619,382
|
)
|
Other
Income
|
|
|
26,326
|
|
|
11,931
|
|
|
162,748
|
|
Net
changes in fair value of common stock warrant
liability and embedded derivative liability
|
|
|
1,282,871
|
|
|
—
|
|
|
(1,519,207
|
)
|
Net
loss
|
|
|
(37,030
|
)
|
|
(458,139
|
)
|
|
(9,655,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
attributable to preferred shares
|
|
|
—
|
|
|
—
|
|
|
43,884
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to Common Stock
|
|
|
(37,030
|
)
|
$
|
(458,139
|
)
|
$
|
(9,699,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding basic and diluted
|
|
|
41,168,537
|
|
|
37,761,557
|
|
|
|
|
The
accompanying footnotes are an integral part of these financial
statements.
ADVAXIS,
INC.
(A
Development Stage Company)
Statement
of Cash Flows
(Unaudited)
|
|
3
Months ended
January
31,
|
|
3
Months ended
January
31,
|
|
Period
from
March
1,2002
(Inception)
to
January
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(37,030
|
)
|
$
|
(458,139
|
)
|
$
|
(9,655,319
|
)
|
Adjustments
to reconcile net loss
|
|
|
|
|
|
|
|
|
|
|
to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges to consultants and employees for options and stock
|
|
|
392,439
|
|
|
165,060
|
|
|
1,103,648
|
|
Amortization
of deferred financing costs
|
|
|
29,606
|
|
|
|
|
|
111,919
|
|
Non-cash
interest expense on convertible secured note
|
|
|
82,399
|
|
|
|
|
|
312,616
|
|
Accrued
interest on notes payable
|
|
|
40,518
|
|
|
1,008
|
|
|
176,760
|
|
Loss
on change in value of warrants and embedded derivative
|
|
|
(1,282,871
|
)
|
|
|
|
|
1,519,207
|
|
Value
of penalty shares issued
|
|
|
—
|
|
|
—
|
|
|
117,498
|
|
Depreciation
expense
|
|
|
6,334
|
|
|
4,081
|
|
|
30,775
|
|
Amortization
expense of intangibles
|
|
|
13,241
|
|
|
10,159
|
|
|
110,967
|
|
Decrease
(Increase) in prepaid expenses
|
|
|
21,382
|
|
|
—
|
|
|
(16,718
|
)
|
Decrease
(Increase) in other assets
|
|
|
724
|
|
|
—
|
|
|
(3,876
|
)
|
Increase
in accounts payable
|
|
|
3,447
|
|
|
34,683
|
|
|
1,128,874
|
|
Decrease
in accrued expenses, net of non cash charges
|
|
|
6,047
|
|
|
—
|
|
|
512,325
|
|
Increase
(Decrease) in Deferred Revenue
|
|
|
(12,456
|
)
|
|
—
|
|
|
7,893
|
|
Net
cash used in operating activities
|
|
|
(736,220
|
)
|
|
(243,148
|
)
|
|
(4,543,428
|
)
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Cash
paid on acquisition of Great Expectations
|
|
|
—
|
|
|
—
|
|
|
(44,940
|
)
|
Purchase
of property and equipment
|
|
|
(29,400
|
)
|
|
(2,102
|
)
|
|
(118,583
|
)
|
Cost
of intangible assets
|
|
|
(16,674
|
)
|
|
(24,316
|
)
|
|
(983,728
|
)
|
Net
cash used in Investing Activities
|
|
|
(46,074
|
)
|
|
(26,418
|
)
|
|
(1,147,251
|
)
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from convertible secured debenture
|
|
|
—
|
|
|
—
|
|
|
3,000,000
|
|
Cash
paid for deferred financing costs
|
|
|
—
|
|
|
—
|
|
|
(260,000
|
)
|
Principal
Payments on notes payable
|
|
|
(1,063
|
)
|
|
—
|
|
|
(1,063
|
)
|
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
|
|
Net
cash provided by (used in) Financing Activities
|
|
|
(1,063
|
)
|
|
—
|
|
|
7,668,488
|
|
Net
(Decrease) increase in cash
|
|
|
(783,357
|
)
|
|
(269,566
|
)
|
|
1,977,809
|
|
Cash
at beginning of period
|
|
|
2,761,166
|
|
|
2,075,206
|
|
|
—
|
|
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.
Table
of Contents
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
|
|
|
—
|
|
|
—
|
|
$
|
360,000
|
|
Debt
discount in connection with recording the original value of the embedded
derivative liability
|
|
|
—
|
|
|
—
|
|
|
512,865
|
|
Allocation
of the original secured convertible debentures to warrants
|
|
|
—
|
|
|
—
|
|
$
|
214,950
|
|
The
accompanying footnotes are an integral part of these financial
statements.
Table
of Contents
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.
Table
of Contents
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.
Table
of Contents
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
|
|
Table
of Contents
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:
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:
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.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
Advaxis,
Inc.
We
have
audited the accompanying balance sheet of Advaxis, Inc. (a development stage
company) as of October 31, 2006, the related statements of operations,
shareholders' equity (deficiency), and cash flows for the years ended October
31, 2006, and 2005 and the period from March 1, 2002 (inception) to October
31,
2006. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Advaxis, Inc. as of October 31,
2006 the results of its operations and its cash flows for the years ended
October 31, 2006 and 2005 and the period from March 1, 2002 (inception) to
October 31, 2006 in conformity with United States generally accepted accounting
principles.
As
discussed in Note 2, the Company changed its method of accounting for stock
based compensation, effective November 1, 2005.
GOLDSTEIN
GOLUB KESSLER LLP
New
York,
New York
December
11, 2006
ADVAXIS,
INC.
(A
Development Stage Company)
Balance
Sheet
|
|
October
31,
2006
|
|
ASSETS
|
|
|
|
Current
Assets:
|
|
|
|
Cash
|
|
$
|
2,761,166
|
|
Prepaid
expenses
|
|
|
38,100
|
|
Total Current Assets
|
|
|
2,799,266
|
|
|
|
|
|
|
Property
and Equipment (net of accumulated depreciation of $24,441)
|
|
|
64,742
|
|
Intangible
Assets (net of accumulated amortization of $94,555)
|
|
|
956,409
|
|
Deferred
Financing Costs (net of accumulated amortization of
$82,313)
|
|
|
177,687
|
|
Other
Assets
|
|
|
4,600
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
4,002,704
|
|
|
|
|
|
|
LIABILITIES
& SHAREHOLDERS’ DEFICIENCY
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
payable
|
|
$
|
810,221
|
|
Accrued
expenses
|
|
|
522,467
|
|
Deferred
revenue
|
|
|
20,350
|
|
Notes
payable - current portion
|
|
|
191,577
|
|
Total
Current Liabilities
|
|
|
1,544,615
|
|
|
|
|
|
|
Interest
payable
|
|
|
119,934
|
|
Notes
payable - net of current portion
|
|
|
313,000
|
|
Convertible
Secured Debentures and fair value of embedded derivative
|
|
|
5,017,696
|
|
Common
Stock Warrants
|
|
|
714,600
|
|
Total
Liabilities
|
|
$
|
7,709,845
|
|
|
|
|
|
|
Shareholders’
Deficiency:
|
|
|
|
|
Common
Stock - $0.001 par value; authorized 500,000,000 shares, issued and
outstanding 40,238,992
|
|
|
40,239
|
|
Additional
Paid-In Capital
|
|
|
5,914,793
|
|
Deficit
accumulated during the development stage
|
|
|
(9,662,173
|
)
|
Total
Shareholders' Deficiency
|
|
|
(3,707,141
|
)
|
TOTAL
LIABILITIES & SHAREHOLDERS’ DEFICIENCY
|
|
$
|
4,002,704
|
|
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial
statements.
ADVAXIS,
INC.
(A
Developmental Stage Company)
Statement
of Operations
|
|
Year
Ended
October
31,
|
|
Year
Ended
October
31,
|
|
Period
from
March
1, 2002 (Inception) to
October
31,
|
|
|
|
2005
|
|
2006
|
|
2006
|
|
Revenue
|
|
$
|
552,868
|
|
$
|
431,961
|
|
$
|
1,105,235
|
|
Research
& Development Expenses
|
|
|
1,175,536
|
|
|
1,404,164
|
|
|
3,248,048
|
|
General
& Administrative Expenses
|
|
|
1,219,792
|
|
|
2,077,062
|
|
|
4,343,793
|
|
Total
Operating expenses
|
|
|
2,395,328
|
|
|
3,481,226
|
|
|
7,591,841
|
|
Loss
from Operations
|
|
|
(1,842,460
|
)
|
|
(3,049,265
|
)
|
|
(6,486,606
|
)
|
Other
Income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(7,307
|
)
|
|
(437,299
|
)
|
|
(466,027
|
)
|
Other
Income
|
|
|
43,978
|
|
|
90,899
|
|
|
136,422
|
|
Net
changes in fair value of common stock warrant liability and embedded
derivative liability
|
|
|
-
|
|
|
(2,802,078
|
)
|
|
(2,802,078
|
)
|
Net
loss
|
|
|
(1,805,789
|
)
|
|
(6,197,744
|
)
|
|
(9,618,289
|
)
|
Dividends
attributable to preferred shares
|
|
|
|
|
|
|
|
|
43,884
|
|
Net
loss applicable to Common Stock
|
|
$
|
(1,805,789
|
)
|
$
|
(6,197,744
|
)
|
$
|
(9,662,173
|
)
|
Net
loss per share, basic and diluted
|
|
$
|
(0.05
|
)
|
$
|
(0.16
|
)
|
|
|
|
Weighted
average number of shares outstanding basic and diluted
|
|
|
35,783,666
|
|
|
38,646,769
|
|
|
|
|
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial statements.
ADVAXIS,
INC.
(a
development stage company)
STATEMENT
OF SHAREHOLDERS’ EQUITY (DEFICIENCY)
Period
from March 1, 2002 (inception) to October 31, 2006
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
Number
of Shares Outstanding
|
|
Amount
|
|
Number
of shares outstanding
|
|
Amount
|
|
Additional
Paid-in Capital
|
|
Deficit
Accumulated During the Development Stage
|
|
Shareholders'
Equity (Deficiency)
|
|
Preferred
stock issued
|
|
|
3,418
|
|
$
|
235,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
235,000
|
|
Common
Stock Issued
|
|
|
|
|
|
|
|
|
40,000
|
|
$
|
40
|
|
$
|
(40
|
)
|
|
|
|
|
|
|
Options
granted to consultants and professionals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,493
|
|
|
|
|
|
10,493
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(166,936
|
)
|
|
(166,936
|
)
|
Retroactive
restatement to reflect re-capitalization on November 12,
2004
|
|
|
(3,481
|
)
|
|
(235,000
|
)
|
|
15,557,723
|
|
|
15,558
|
|
|
219,442
|
|
|
|
|
|
|
|
Balance
at December 31, 2002
|
|
|
|
|
|
|
|
|
15,597,723
|
|
$
|
15,598
|
|
$
|
229,895
|
|
$
|
(166,936
|
)
|
$
|
78,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable converted into preferred stock
|
|
|
232
|
|
|
15,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,969
|
|
Options
granted to consultants and professionals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,484
|
|
|
|
|
|
8,484
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(909,745
|
)
|
|
(909,745
|
)
|
Retroactive
restatement to reflect re-capitalization on November 12,
2004
|
|
|
(232
|
)
|
|
(15,969
|
)
|
|
|
|
|
|
|
|
15,969
|
|
|
|
|
|
|
|
Balance
at December 31, 2003
|
|
|
|
|
|
|
|
|
15,597,723
|
|
$
|
15,598
|
|
$
|
254,348
|
|
$
|
(1,076,681
|
)
|
$
|
(806,735
|
)
|
Stock
dividend on preferred stock
|
|
|
638
|
|
|
43,884
|
|
|
|
|
|
|
|
|
|
|
|
(43,884
|
)
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(538,076
|
)
|
|
(538,076
|
)
|
Options
granted to consultants and professionals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,315
|
|
|
|
|
|
5,315
|
|
Retroactive
restatement to reflect re-capitalization on November 12,
2004
|
|
|
(638
|
)
|
|
(43,884
|
)
|
|
|
|
|
|
|
|
43,884
|
|
|
|
|
|
|
|
Balance
at October 31, 2004
|
|
|
|
|
|
|
|
|
15,597,723
|
|
$
|
15,598
|
|
$
|
303,547
|
|
$
|
(1,658,641
|
)
|
$
|
(1,339,496
|
)
|
Common
Stock issued to Placement Agent on re-capitalization
|
|
|
|
|
|
|
|
|
752,600
|
|
|
753
|
|
|
(753
|
)
|
|
|
|
|
|
|
Effect
of re-capitalization
|
|
|
|
|
|
|
|
|
752,600
|
|
|
753
|
|
|
(753
|
)
|
|
|
|
|
|
|
Options
granted to consultants and professionals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,924
|
|
|
|
|
|
64,924
|
|
Conversion
of Note payable to Common Stock
|
|
|
|
|
|
|
|
|
2,136,441
|
|
|
2,136
|
|
|
611,022
|
|
|
|
|
|
613,158
|
|
Issuance
of Common Stock for cash, net of shares to Placement Agent
|
|
|
|
|
|
|
|
|
17,450,693
|
|
|
17,451
|
|
|
4,335,549
|
|
|
|
|
|
4,353,000
|
|
Issuance
of common stock to consultants
|
|
|
|
|
|
|
|
|
586,970
|
|
|
587
|
|
|
166,190
|
|
|
|
|
|
166,777
|
|
Issuance
of common stock in connection with the registration
statement
|
|
|
|
|
|
|
|
|
409,401
|
|
|
408
|
|
|
117,090
|
|
|
|
|
|
117,498
|
|
Issuance
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(329,673
|
)
|
|
|
|
|
(329,673
|
)
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,805,789
|
)
|
|
(1,805,789
|
)
|
Restatement
to reflect re- capitalization on November 12, 2004 including cash
paid of
$44,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88,824
|
)
|
|
|
|
|
(88,824
|
)
|
Balance
at October 31, 2005
|
|
|
|
|
|
|
|
|
37,686,428
|
|
$
|
37,686
|
|
$
|
5,178,319
|
|
$
|
(3,464,430
|
)
|
$
|
1,751,575
|
|
Options
granted to consultants and professionals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,831
|
|
|
|
|
|
172,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted to employees and directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,667
|
|
|
|
|
|
71,667
|
|
Conversion
of debenture to Common Stock
|
|
|
|
|
|
|
|
|
1,766,902
|
|
|
1,767
|
|
|
298,233
|
|
|
|
|
|
300,000
|
|
Issuance
of Common Stock to employees and directors
|
|
|
|
|
|
|
|
|
229,422
|
|
|
229
|
|
|
54,629
|
|
|
|
|
|
54,858
|
|
Issuance
of common stock to consultants
|
|
|
|
|
|
|
|
|
556,240
|
|
|
557
|
|
|
139,114
|
|
|
|
|
|
139,674
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,197,744
|
)
|
|
(6,197,744
|
)
|
Balance
at October 31, 2006
|
|
|
|
|
|
|
|
|
40,238,992
|
|
$
|
40,239
|
|
$
|
5,914,793
|
|
$
|
(9,662,173
|
)
|
$
|
(3,707,141
|
)
|
.
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial statements.
ADVAXIS,
INC.
(A
Development Stage Company)
Statement
of Cash Flows
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
March
1
|
|
|
|
|
|
|
|
2002
|
|
|
|
Year
ended
|
|
Year
ended
|
|
(Inception)
to
|
|
|
|
October
31,
|
|
October
31,
|
|
October
31,
|
|
|
|
2005
|
|
2006
|
|
2006
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,805,789
|
)
|
$
|
(6,197,744
|
)
|
$
|
(9,618,289
|
)
|
Adjustments
to reconcile net loss
|
|
|
|
|
|
|
|
|
|
|
to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges to consultants and employees for options and stock
|
|
|
231,701
|
|
|
439,027
|
|
|
711,210
|
|
Amortization
of deferred financing costs
|
|
|
|
|
|
82,313
|
|
|
82,313
|
|
Non-cash
interest expense
|
|
|
|
|
|
230,218
|
|
|
230,218
|
|
Accrued
interest on notes payable
|
|
|
12,308
|
|
|
123,934
|
|
|
136,242
|
|
Loss
on change in value of warrants and embedded derivative
|
|
|
|
|
|
2,802,078
|
|
|
2,802,078
|
|
Value
of penalty shares issued
|
|
|
117,498
|
|
|
|
|
|
117,498
|
|
Depreciation
expense
|
|
|
7,432
|
|
|
17,009
|
|
|
24,441
|
|
Amortization
expense of intangibles
|
|
|
33,669
|
|
|
45,068
|
|
|
97,726
|
|
Increase
in prepaid expenses
|
|
|
|
|
|
(38,100
|
)
|
|
(38,100
|
)
|
Increase
in other assets
|
|
|
(4,600
|
)
|
|
|
|
|
(4,600
|
)
|
Increase
(decrease) in accounts payable
|
|
|
(132,149
|
)
|
|
158,335
|
|
|
1,125,427
|
|
Increase
in accrued expenses
|
|
|
-
|
|
|
522,467
|
|
|
506,278
|
|
Deferred
Revenue
|
|
|
-
|
|
|
20,350
|
|
|
20,350
|
|
Net
cash used in operating activities
|
|
|
(1,539,930
|
)
|
|
(1,795,045
|
)
|
|
(3,807,208
|
)
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Cash
paid on acquisition of Great Expectations
|
|
|
(44,940
|
)
|
|
|
|
|
(44,940
|
)
|
Purchase
of property and equipment
|
|
|
(80,577
|
)
|
|
(8,606
|
)
|
|
(89,183
|
)
|
Cost
of intangible assets
|
|
|
(314,953
|
)
|
|
(250,389
|
)
|
|
(967,054
|
)
|
Net
cash used in Investing Activities
|
|
|
(440,470
|
)
|
|
(258,995
|
)
|
|
(1,101,177
|
)
|
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
|
|
|
0
|
|
|
|
|
|
235,000
|
|
Net
proceeds of issuance of Common Stock
|
|
|
4,023,327
|
|
|
|
|
|
4,023,327
|
|
Net
cash provided by Financing Activities
|
|
|
4,023,327
|
|
|
2,740,000
|
|
|
7,669,551
|
|
Net
increase in cash
|
|
|
2,042,927
|
|
|
685,960
|
|
|
2,761,166
|
|
Cash
at beginning of period
|
|
|
32,279
|
|
|
2,075,206
|
|
|
|
|
Cash
at end of period
|
|
$
|
2,075,206
|
|
$
|
2,761,166
|
|
$
|
2,761,166
|
|
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial statements.
Supplemental Schedule of Noncash Investing and Financing
Activities
|
|
|
|
|
|
|
Period
from
|
|
|
|
Year
ended
|
|
Year
ended
|
|
March
1, 2002
|
|
|
|
October 31,
|
|
October
31,
|
|
(Inception)
to
|
|
|
|
2005
|
|
2006
|
|
October
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
|
|
$
|
613,158
|
|
$
|
300,000
|
|
$
|
913,158
|
|
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
|
|
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial statements.
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
1.
PRINCIPAL
BUSINESS ACTIVITY AND SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
Advaxis,
Inc. (the "Company") was incorporated in 2002 and is a biotechnology company
researching and developing new cancer-fighting techniques. The Company is in
the
development stage and its operations are subject to all of the risks inherent
in
an emerging business enterprise.
As
shown
in the financial statements, the Company has incurred losses from operations.
These losses are expected to continue for an extended period of time. Although
we believe that the net proceeds received by us from the Private Placement
and
the private offerings will be sufficient to finance our currently planned
operations for approximately the next 12 months, they will not be sufficient
to
meet our longer-term cash requirements or our cash requirements for the
commercialization of any of our existing or future product candidates. We will
be required to issue equity or debt securities or to enter into other financial
arrangements, including relationships with corporate and other partners, in
order to raise additional capital. Depending upon market conditions, we may
not
be successful in raising sufficient additional capital for our long-term
requirements. In such event, our business, prospects, financial condition and
results of operations could be materially adversely affected.
In
accordance with Securities and Exchange Commission (SEC) Staff Accounting
Bulletin (SAB) No. 104, revenue from license fees and grants is recognized
when
the following criteria are met; persuasive evidence of an arrangement exists,
services have been rendered, the contract price is fixed or determinable, and
collectibility is reasonably assured. In licensing arrangements, delivery does
not occur for revenue recognition purposes until the license term begins.
Nonrefundable upfront fees received in exchange for products delivered or
services performed that do not represent the culmination of a separate earnings
process will be deferred and recognized over the term of the agreement using
the
straight line method or another method if it better represents the timing and
pattern of performance. Since its inception and through October 31, 2006, all
of
the Company’s revenues have been from grants. For the year ended October 31,
2006 100% of the Company’s revenues were received from four grants. For the
twelve month period ended October 31, 2005, all of the Company’s revenue was
received from two grants.
For
revenue contracts that contain multiple elements, the Company will determine
whether the contract includes multiple units of accounting in accordance with
EITF No. 00-21, Revenue
Arrangements with Multiple Deliverables.
Under
that guidance, revenue arrangements with multiple deliverables are divided
into
separate units of accounting if the delivered item has value to the customer
on
a standalone basis and there is objective and reliable evidence of the fair
value of the undelivered item.
The
Company maintains its cash in bank deposit accounts (money market) that exceed
federally insured limits.
Intangible
assets, which consist primarily of legal costs in obtaining trademarks, patents
and licenses and are being amortized on a straight-line basis 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. Therefore, 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
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
|
|
October
31, 2006
|
|
Warrants
|
|
|
25,009,220
|
|
Stock
Options
|
|
|
6,959,077
|
|
Convertible
Debt (1)
|
|
|
14,210,526
|
|
Total
All
|
|
|
46,178,823
|
|
|
(1)
|
Conversion
of the outstanding principal of $2,700,000 converted at 95% of the
October
31, 2006 closing price of $0.20 per share, or $0.19 per
share.
|
No
deferred income taxes are provided for the differences between the bases of
assets and liabilities for financial reporting and income tax
purposes.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the use of estimates
by management. Actual results could differ from these estimates.
The
estimated fair value of the notes payable approximates the principal amount
based on the rates available to the Company for similar debt.
Accounts
payable consists entirely of trade accounts payable.
Research
and development costs are charged to expense as incurred.
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 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.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
2.
SHARE-BASED
COMPENSATION EXPENSE
Effective
November 1, 2005, the Company adopted the fair value based method of accounting
for share-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 resulted in a charge to operations
of
$71,667 for the year ended October 31, 2006.
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 Financial
Statements for the twelve months ended October 31, 2006 reflect the impact
of
SFAS 123(R). In accordance with the modified prospective transition method,
the
Company’s 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 fiscal year ended October 31, 2006 was $71,667 that consists of
stock-based compensation expense related to employee and director stock options.
Stock-based compensation expense was not reflected for the twelve months ended
October 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.
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
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
request service period of the awards (usually the vesting period). 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 over the requisite
service periods in the Company’s Statement of Operations. 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
fiscal year of 2006 and prior period results have not been restated. In the
twelve months ended and date of inception to October 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 $200,942 for the year ended October 31, 2005 and $328,176
for
the period March 1, 2002 (date of inception) to October 31, 2005, and the effect
on the Company’s net loss and net loss per share would have been as
follows:
|
|
Year
ended October 31, 2005
|
|
March
1, 2002
(date
of inception)
to
October
31, 2006
|
|
|
|
|
|
|
|
Net
Loss as reported
|
|
$
|
(1,805,789
|
)
|
$
|
(9,618,289
|
)
|
Add:
Stock based option expense included in recorded net loss
|
|
|
64,924
|
|
|
89,217
|
|
Deduct
stock option compensation expense determined under fair value based
method
|
|
|
(200,942
|
)
|
|
(328,176
|
)
|
Adjusted
Net Loss
|
|
$
|
(1,941,807
|
)
|
$
|
(9,379,330
|
)
|
Basic
and Diluted Net Loss per share as reported
|
|
$
|
(0.05
|
)
|
|
|
|
Basic
and Diluted Net Loss per share pro forma
|
|
$
|
(0.05
|
)
|
|
|
|
The
fair
value of each option granted from the Company’s stock option plans during the
years ended October 31, 2005 and 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; the Company considered several
factors in computing volatility. The Company used their own historical
volatility as well as those of comparable companies in determining the
volatility to be used. 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 and fair
value. Expected lives are based contractual terms given the early stage of
the business, lack of intrinsic value and significant future dilution along
typical of early stage biotech. The expected dividend yield is zero as the
Company has never paid dividends and does not currently anticipate paying any
in
the foreseeable future.
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
October
31, 2005
|
|
October
31, 2006
|
|
Expected
volatility
|
|
|
30
|
%
|
|
127.37
|
%
|
Expected
Life
|
|
|
10
years
|
|
|
7.7
years
|
|
Dividend
yield
|
|
|
0
|
|
|
0
|
|
Risk-free
interest rate
|
|
|
4.5%-5.25
|
%
|
|
4.6
|
%
|
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 twelve months ended October 31, 2006 includes
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 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 to be recognized
using the straight line method over the requisite service period. As stock-based
compensation expense for the twelve months of 2006 is based on awards granted
and vested, it has been reduced for estimated forfeitures (4.4%). 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 accounts for nonemployee stock-based awards in which goods or services
are the consideration received for the equity instruments issued based on the
fair value of the equity instruments in accordance with the guidance provided
in
the consensus opinion of the Emerging Issues Task Force ("EITF") Issue 96-18,
Accounting
for Equity Instruments that Are Issued to Other than Employees for Acquiring,
or
in Conjunction With Selling Goods or Services.
Intangible
assets consist of trademarks, patents,
and
licenses which are amortized on a straight-line basis over their remaining
useful lives, which are estimated to be twenty years
Capitalized license costs represent the value assigned to the Company’s 20 year
exclusive worldwide license with the University of Pennsylvania. 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 October 31, 2006, capitalized costs associated with
patents filed and granted are estimated to be $481,000 and the estimated costs
associated with patents pending are estimated to be $495,000. 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. Amortization expense for
licensed technology and capitalized patent cost is included in general and
administrative cost. There have been no patent applications abandoned and
charged to expense in the current or prior year that were material in
value.
Intangible
assets consist of the following at October 31, 2006.
Trademarks
|
|
$
|
74,948
|
|
Patents
|
|
|
490,893
|
|
License
|
|
|
485,123
|
|
Less:
Accumulated Amortization
|
|
|
(94,555
|
)
|
|
|
|
|
|
|
|
$
|
956,409
|
|
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
As
of
October 31, 2006, the estimated annual amortization expense for patents,
licenses and trademarks for each of the succeeding five years total $262,740
as
follows:
Year
ending October 31,
|
|
|
|
2007
|
|
$
|
52,548
|
|
2008
|
|
|
52,548
|
|
2009
|
|
|
52,548
|
|
2010
|
|
|
52,548
|
|
2011
|
|
|
52,548
|
|
Amortization
expense of intangibles amounted to $45,068 and $33,669 for the years ended
October 31, 2006 and 2005, respectively.
4.
ACCRUED EXPENSES:
The
following table represents the major components of accrued
expenses:
Salaries
and other compensation
|
|
$
|
275,478
|
|
Consulting
|
|
|
185,683
|
|
Other
(less than 5%)
|
|
|
61,306
|
|
|
|
$
|
522,467
|
|
5.
NOTES PAYABLE:
Notes
payable consist of the following at October 31, 2006:
Two
notes payable with interest at 8% per annum, due on December 17,
2008. The
lender has served notice demanding payment pursuant to the November
2004
recapitalization and financing agreement
|
|
$
|
61,577
|
|
Note
payable with no interest payable at the time of the closing of the
Company's contemplated $5,000,000 equity financing
|
|
|
75,000
|
|
Note
payable with no interest payable at the time of the closing of the
Company's contemplated $5,000,000 equity financing
|
|
|
8,000
|
|
Note
payable with no interest payable at December 15, 2006, or at the
time of
the closing of the Company's contemplated $5,000,000 equity
financing
|
|
|
130,000
|
|
|
|
|
230,000
|
|
Total
|
|
|
504,577
|
|
Less
current portion
|
|
|
191,577
|
|
|
|
$
|
313,000
|
|
Aggregate
maturities of notes payable at October 31, 2006 are as
follows:
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
191,577
|
|
2008
|
|
|
313,000
|
|
|
|
|
|
|
Total
|
|
$
|
504,577
|
|
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.
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
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”) 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 since inception to October 31, 2006 was $82,313. 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
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 S for breast and ovarian cancer,
respectively.
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
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 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 the proceeds from the sale of the Debentures between the relative
fair
values at the date of origination of the sale for the warrants, embedded
derivative and the debenture. 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, exercise price of $0.287 and (ii) 300,000 warrants at the market
price of common stock of $0.21 per share, exercise price of $0.3444, both at
risk-free interest rate of 4.5%, expected volatility of 25% 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 since inception to October 31, 2006 was
$53,738.
The
fair
value of the embedded conversion feature allocated to the Debentures liability
was based on the Black-Scholes valuation model with the following
assumptions: (i) the market price convertible at the 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 on the date of origination (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 twelve
months ended October 31, 2006 was $176,481.
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 October 31,
2006
|
|
$
|
230,218
|
|
Conversion
by Cornell Capital Partners LP
|
|
$
|
(300,000
|
)
|
Convertible
Secured Debenture Liability as of October 31, 2006
|
|
$
|
2,202,403
|
|
Embedded
Derivative Liability
|
|
|
2,815,293
|
|
Convertible
Secured Debentures and Fair Value of Embedded Derivative
Liability
|
|
$
|
5,017,696
|
|
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
Date
of
Conversion
|
|
Amount
of
Conversion
|
|
Number
of
Shares
|
|
Conversion
Share
Price
|
|
April
20, 2006
|
|
$
|
50,000
|
|
|
212,947
|
|
|
.2348
|
|
May
9, 2006
|
|
$
|
50,000
|
|
|
212,947
|
|
|
.2348
|
|
July
6, 2006
|
|
$
|
25,000
|
|
|
112,918
|
|
|
.2214
|
|
July
19, 2006
|
|
$
|
25,000
|
|
|
139,198
|
|
|
.1796
|
|
August
2, 2006
|
|
$
|
25,000
|
|
|
160,051
|
|
|
.1562
|
|
August
10, 2006
|
|
$
|
25,000
|
|
|
183,959
|
|
|
.1359
|
|
September
14, 2006
|
|
$
|
25,000
|
|
|
186,567
|
|
|
.1340
|
|
September
26, 2006
|
|
$
|
25,000
|
|
|
186,567
|
|
|
.1340
|
|
October
9, 2006
|
|
$
|
25,000
|
|
|
185,874
|
|
|
.1345
|
|
October
20, 2006
|
|
$
|
25,000
|
|
|
185,874
|
|
|
.1345
|
|
Total
|
|
$
|
300,000
|
|
|
1,766,902
|
|
|
|
|
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
|
|
February
1, 2007
|
|
$
|
25,000
|
|
|
166,445
|
|
$
|
.1502
|
|
Total
|
|
$
|
175,000
|
|
|
1,225,171
|
|
|
|
|
The
Company will continue to measure the fair value of the warrants and embedded
conversion features at each reporting date using the Black-Scholes 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 loss to the other income or loss line item in the Statement of
Operations along with a corresponding change in liability.
The
Company is required to measure the fair value of the warrants calculated using
the Black-Scholes valuation model on the date of each reporting period until
the
debt is extinguished. On October 31, 2006 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 $0.20 per share, exercise price of $0.287 and (ii) 300,000 warrants
at the market price of common stock of $0.20 per share, exercise price of
$0.3444 both at risk-free interest rate of 4.56%, expected volatility of 122%
and expected life of 4.33 years. The fair value of the warrants was $714,600,
or
an increase of $499,650 over the $214,950 recorded at inception. This increase
of the fair value of the warrants was charged to the Statements of Operations
as
expenses to Net Change in Fair Value of Common Stock Warrant and Embedded
Derivative Liability and credited to Balance Sheet: Common Stock Warrants
Liabilities.
Likewise
the Company is also required to measure the fair value of the embedded
conversion feature allocated to the Debentures liability based upon the
Black-Scholes valuation model on the date of each reporting period. On October
31, 2006 the fair value of this feature was based on the following assumptions:
(i) the market price convertible at the 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 $0.141 on October 31, 2006, (ii) the conversion price of $0.20,
(iii) the risk free interest rate of 4.62%, (iv) expected volatility of 127.37%
and (v) expected life of 2.333 years. The fair value of the embedded conversion
feature was $2,815,293, or an increase of $2,302,428 over the $512,865 recorded
at inception. This increase of the fair value of the embedded conversion feature
was charged to the Consolidated Statements of Operations expensed as Net Change
in Fair Value of Common Stock Warrant and Embedded Derivative Liability and
credited to the Embedded Derivative Liability on the Balance Sheet.
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
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.
6.
STOCK OPTIONS
:
The
Company has adopted the Advaxis, Inc. 2002 Stock Option Plan (the "Plan"),
which
allows for grants up to 8,000 shares of the Company's common stock. This Plan
was replaced by the Advaxis 2004 Option Plan, which allows for grants of up
to
2,381,525 shares of the Company's common stock. The board of directors adopted
and the shareholders approved the Company’s 2005 stock option plan on June
6, 2006, which allows for grants up to 5,600,000 shares of the Company's common
stock. Both the 2004 plan and the 2005 plan shall be administered and
interpreted by the Company's board of directors
Stock
option activity during the periods indicated is as follows:
On
November 12, 2004, in connection with the recapitalization (see Note 8), the
options granted under the 2002 option plan were canceled, and employees and
consultants were granted options of Advaxis under the 2004 plan. The
cancellation and replacement had no accounting consequence since the aggregate
intrinsic value of the options immediately after the cancellation and
replacement was not greater than the aggregate intrinsic value immediately
before the cancellation and replacement, and the ratio of the exercise price
per
share to the fair value per share was not reduced. Additionally, the original
options were not modified to accelerate vesting or extend the life of the new
options. The table provided in this Note 4 reflects the options on a post
recapitalization basis.
A
summary
of the grants, cancellations and expirations (none were exercised) of the
Company’s outstanding options for the periods starting with October 31, 2004
through October 31, 2006 is as follows:
|
|
Shares
|
|
Weighted
Average Exercise Price
|
|
Remaining
Life
In Years
|
|
Aggregate
Intrinsic Value
|
|
Outstanding
as of October 31, 2004
|
|
|
2,389,271
|
|
$
|
0.23
|
|
|
8.4
|
|
|
|
|
Granted
|
|
|
3,242,547
|
|
$
|
0.29
|
|
|
|
|
|
|
|
Cancelled
or Expired
|
|
|
(789,279
|
)
|
$
|
0.23
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
as of October 31, 2005
|
|
|
4,842,539
|
|
$
|
0.27
|
|
|
8.1
|
|
|
6,867
|
|
Granted
|
|
|
2,233,179
|
|
$
|
0.22
|
|
|
|
|
|
12,000
|
|
Cancelled
or Expired
|
|
|
(116,641
|
)
|
$
|
0.37
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Outstanding
as of October 31, 2006
|
|
|
6,959,077
|
|
$
|
0.25
|
|
|
7.7
|
|
$
|
18,867
|
|
Vested
& Exercisable at October 31, 2006
|
|
|
3,755,910
|
|
$
|
0.25
|
|
|
7.3
|
|
$
|
6,867
|
|
The
fair
value of options granted for the year ended October 31, 2006 amounted to
$301,015.
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
The
following table summarizes significant ranges of outstanding and exercisable
options as of October 31, 2006 (number outstanding and exercisable in
thousands):
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
|
|
|
Weighted-
Average
Remaining
Contractual
Life (in Years)
|
|
Weighted-
Average
Exercise
Price
per
Share
|
|
Aggregate
Intrinsic
Value
|
|
|
|
Weighted-
Average
Exercise
Price
per
Share
|
|
Aggregate
Intrinsic
Value
|
|
$
0.16-0.18
|
|
|
300
|
|
|
9.9
|
|
$
|
0.16
|
|
$
|
12,000
|
|
|
0
|
|
$
|
0.16
|
|
|
0
|
|
0.19-0.21
|
|
|
2,607
|
|
|
6.7
|
|
|
0.20
|
|
|
6,867
|
|
|
1,899
|
|
|
0.20
|
|
$
|
6,867
|
|
0.24-0.26
|
|
|
760
|
|
|
9.4
|
|
|
0.26
|
|
|
0
|
|
|
50
|
|
|
0.26
|
|
|
0
|
|
0.28-0.29
|
|
|
2,970
|
|
|
8.3
|
|
|
0.29
|
|
|
0
|
|
|
1,485
|
|
|
0.29
|
|
|
0
|
|
0.35-0.43
|
|
|
322
|
|
|
6.3
|
|
|
0.37
|
|
|
|
|
|
322
|
|
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,959
|
|
|
7.7
|
|
$
|
0.25
|
|
$
|
18,867
|
|
|
3,756
|
|
$
|
0.25
|
|
$
|
6,867
|
|
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 $0.20 as of October 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 October 31, 2006, and
changes during the twelve months ended October 31, 2006 are presented
below:
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price at Grant Date
|
|
Weighted
Average Remaining Contractual Term (in years)
|
|
Non-vested
shares at October 31, 2005
|
|
|
2,386,542
|
|
$
|
0.29
|
|
|
8.5
|
|
Options
granted
|
|
|
2,233,179
|
|
$
|
0.22
|
|
|
9.4
|
|
Options
vested
|
|
|
(1,416,554
|
)
|
$
|
0.25
|
|
|
7.8
|
|
Options
forfeited or expired
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Non-vested
shares at October 31, 2006
|
|
|
3,203,167
|
|
$
|
0.25
|
|
|
9.0
|
|
As
of
October 31, 2006, there was approximately $381,000 of unrecognized compensation
cost related to non-vested stock option awards, which is expected to be
recognized over a remaining average vesting period of 2.8 years.
7.
COMMITMENTS AND CONTINGENCIES
:
Pursuant
to multiple consulting agreements and a licensing agreement, the Company is
contingently liable for the following:
The
Company is obligated to pay $75,000 to its former patent counsel upon receiving
financing of $5,000,000 or greater.
The
Company is obligated to pay $8,000 to a consultant upon receiving financing
of
$5,000,000 or greater.
Under
an
amended and restated 20-year exclusive worldwide (July 1, 2002 effective date)
license agreement, the Company is obligated to pay (a) $525,000 in aggregate,
divided over a three-year period as a minimum royalty after the first commercial
sale of a product. Such payments are not anticipated within the next five years.
(b) On December 31, 2008 the Company is also obligated to pay annual license
maintenance fees of $50,000 increasing to a maximum of $100,000 per year until
the first commercial sale of a licensed product (c) Upon the initiation of
a
phase III clinical trial and the regulatory approval for the first Licensor
product the Company is obligated to pay milestone payments of $400,000 and
$600,000, respectively. (d) Upon the achievement of the first sale of a product
in certain fields, the Company shall be obligated to pay certain milestone
payments, as follows: $2,500,000 shall be due for first commercial sale of
the
first product in the cancer field (of which $1,000,000 shall be paid within
forty-five (45) days of the date of the first commercial sale, $1,000,000 shall
be paid on the first anniversary of the first commercial sale; and $500,000
shall be paid on the second anniversary of the date of the first commercial
sale). In addition, $1,000,000 shall be due and payable within forty-five (45)
days following the date of the first commercial sale of a product in each
of the following fields: (a) infectious disease, (b) allergy, (c) autoimmune
disease, and (d) any other therapeutic indications for which licensed products
are developed. Therefore, the maximum total potential amount of milestone
payments is $3,500,000 in a cancer field. The milestone payments related to
first sales are not expected prior to obtaining a regulatory approval to market
and sell the Company’s vaccines, and such regulatory approval is not expected
within the next 5 years. In addition, the Licensor is entitled to receive a
non-refundable $157,134 payment of historical license costs. Under a licensing
agreement, the Licensor is also entitled to receive royalties of 1.5% on net
sales in all countries. In addition, we are obligated to reimburse the
Licensor for all attorneys fees, expenses, official fees and other charges
incurred in the preparation, prosecution and maintenance of the
patents licensed from the Licensor.
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
Also
pursuant to our restated and amended license agreement our option terms to
license from the Licensor any new future invention conceived by either Dr.
Paterson or Dr. Fred Frankel in the vaccine area were extended until June 17,
2009. We intend to expand our intellectual property base by exercising this
option and gaining access to such future inventions. Further, our consulting
agreement with Dr. Paterson provides, among other things, that, to the extent
that Dr. Paterson’s consulting work results in new inventions, such inventions
will be assigned to Licensor, and we will have access to those inventions under
license agreements to be negotiated. We recently exercised the option and have
entered into negotiations to license up to 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. With each patent the Licensor
can negotiate an initiation fee up to $10,000 for each license.
Under
a
consulting agreement with the Company’s scientific inventor, the Company is
obligated to pay $3,000 per month until the Company closes a $3,000,000 equity
financing, $5,000 per month pursuant to a $3,000,000 equity financing, $7,000
per month pursuant to a $6,000,000 equity financing, and $9,000 per month
pursuant to a $9,000,000 equity financing.
We
entered into a sponsored research agreement on December 6, 2006 with Penn and
the consultant under which we are obligated to pay $159,598 per year for two
years covering the development of potential vaccine candidate based on our
Listeria technology as well as other basic research projects.
Under
a
partial deferral fee payment agreement with the Company’s attorney payment of
one half of an invoice for $56,826 is to be deferred until the Company’s closing
of the next round of financing, whether debt or equity.
Pursuant
to a Clinical Research Service Agreement, the Company is obligated to pay
$522,000 to a vendor, of which $215,000 shall be paid upon the occurrence of
a
$5,000,000 equity financing.
The
Company is obligated under a non-cancelable operating lease for laboratory
and
office space expiring in May 2007 with aggregate future minimum payments due
amounting to $39,200.
We
have
entered a consulting agreement with a biotech consultant. The Agreement
commenced on January 7, 2005 and has a six month term, which was extended upon
the agreement of both parties. The consultant is to provide three days per
month
service during the term of the agreement, assist on our development efforts,
review our scientific technical and business data and materials and introduce
us
to industry analysts, institutional investors collaborators and strategic
partners. In consideration for the consulting services we are to pay the
consultant $2,000 per month.
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
We
have
entered into an agreement with a consultant to develop and manage our grant
writing strategy and application program. Advaxis is to pay the consultant
according to a fee structure based on achievement of grants awarded to us at
the
rate of 6-7% of the grant amount. Advaxis will also pay a fixed consulting
fees
based on the type of grants submitted, ranging from $5,000 to $7,000 depending
on the type of application submitted to the national SBIR and related NIH/NCI
programs.
We
have
entered into a nonexclusive license and bailment agreement with the Regents
of
the University of California (“UCLA”) to commercially develop products using the
XFL7 strain of Listeria monoctyogenes in humans and animals. The agreement
is
effective for a period of 15 years and renewable by mutual consent of the
parties. Advaxis is to pay UCLA an initial licensee fee and annual maintenance
fees for use of the Listeria. We may not sell products using the XFL7 strain
Listeria other than agreed upon products or sublicense the rights granted under
the license agreement without the prior written consent of UCLA.
In
July
2003, we entered into an agreement with a biomanufacturing company for the
purpose of manufacturing our cervical cancer vaccine Lovaxin C. The agreement
was to expire in December 2005 upon the delivery and completion of stability
testing of the GMP material for the Phase I trial. The manufacturing
(??)
company
has agreed to convert $300,000 of its existing fees for manufacturing into
future royalties from the sales of Lovaxin C at the rate of 1.5% of net sales,
with payments not to exceed $1,950,000. In November 2005, in order to cover
Lovaxin C on a long-term basis and to cover other drug candidates which we
are
developing, we entered into a Strategic Collaboration and Long-Term Vaccine
Supply Agreement for Listeria Cancer Vaccines, under which the company agreed
to
manufacture experimental and commercial supplies of our Listeria
cancer
vaccines.
The
Company entered into a consulting agreement with LVEP Management LLC (LVEP)
dated as of January 19, 2005, and amended on April 15, 2005, and October 31,
2005, pursuant to which Mr. Roni Appel served as Chief Executive Officer, Chief
Financial Officer and Secretary of the Company and was compensated by consulting
fees paid to LVEP. LVEP is owned by the estate of Scott Flamm (deceased January
2006), previously, one of our directors and a principal shareholder. Pursuant
to
an amendment dated December 15, 2006 ("effective date") Mr. Appel resigned
as
President and Chief Executive Officer and Secretary of the Company on the
effective date, but remains as a board member and consultant to the Company.
The
term of the agreement as amended is 24 months from effective date. Mr. Appel
will devote 50% of his time to the company over the first 12 months of the
consulting period. Also as a consultant, he will be paid at a rate of $22,500
per month in addition to benefits as provided to other Company officers. He
will
receive severance payments over an additional 12 months at a rate of $10,416.67
per month and shall be reimbursed for family health care. All his stock options
vested fully on the effective date and are exercisable over the option contract
life. The Company will record a charge to its statement of operation in 2007
for
the effect of the modification of these options. Also, Mr. Appel was issued
1,000,000 shares of our common stock. He will receive a $250,000 bonus of which
$100,000 is to be paid on January 2, 2007 and the remainder is to be paid on
June 1, 2007.
We
have
entered into a consulting agreement with a consultant, whereby he will assist
us
in the preparation and refinement of our marketing summary and presentation
materials and introduce us to pre-defined pharmaceutical and biotechnology
companies which may be interested in strategic partnerships. The consultant
will
receive a monthly cash fee of $1,500 and approved expenses, and, in addition,
success based compensation payable in cash and stock ranging from 5% to 4%
of
transaction proceeds, upon completion of a transaction with a strategic partner
introduced by the consultant. The agreement will be effective until July 12,
2007.
We
have
entered into a master service agreement with Apothecaries Limited on September
20, 2006, a contract research organization (CRO) for the purpose of providing
us
with clinical trial management services in the country of India in
connection with our Phase I/II clinical trial in Lovaxin C. Under the agreement
we will pay Apothecaries amounts based on certain criteria detailed in the
agreement such as clinical sites qualified ($1,500 per site), submitting and
obtaining regulatory approval ($17,000), and numbers of patients enrolled to
the
clinical trial ($7,500 for each treated patient). If regulatory approval shall
be obtained and 10 patients shall be recruited and treated in 6 clinical sites,
we shall pay Apothecaries a total of $101,000.
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
We
entered into an agreement with Investor Relations Group (IRG) whereby IRG will
serve as an investor relations and public relations consultant. The agreement
is
on a month to month basis. In consideration for performing its services, SGI
is
to be paid $10,000 per month plus out of pocket expenses, and 200,000 common
shares over a period of 18 months commencing October 1, 2005, provided the
agreement has not terminated. Through October 31, 2006 we issued 99,999 shares
out of the 133,332 vested shares as per the agreement.
We
entered into a time and material agreement with a consulting firm to provide
biologics regulatory consulting services to the Company in support of the IND
submission to the FDA. The tasks to be performed under this Agreement are to
be
agreed to in advance by the Company and consulting firm. The term of the
agreement is from June 1, 2006 to June 1, 2007.
Thomas
Moore, effective December 15, 2006, agreed to terms with the Company
whereby he was named CEO and Chairman. He may also nominate one additional
Board
Member of his choice subject to the By-Laws. Mr. Moore is to receive a salary
of
$250,000 annually. Subject to a financial raise by the Company of $4,000,000,
Mr. Moore’s annual salary is to increase to $350,000 and he is to be granted
750,000 shares of common stock. He is to receive an additional grant of 750,000
shares of common stock upon the raise of an additional $6,000,000. He is also
to
receive a grant of 2,400,000 options at the price of $0.143 per share as of
December 15, 2006 to vest monthly over 2 years. If he is unsuccessful in the
Company completing a financing of at least $4,000,000 by June 2007, he is to
tender his resignation and return all options and receive no severance. Moore
is
eligible to receive an additional grant of 1,500,000 shares if the common stock
is $0.40 per share or higher over 40 consecutive days.
The
Company entered into an employment agreement with Dr. Vafa Shahabi PhD to become
Head of Director of Science effective March 1, 2005, terminable on 30 days
notice. Her current compensation is $115,000 per annum with a potential bonus
of
$20,000. In January 2006 she was paid a bonus in stock with a market value
of
$14,800. In addition, Dr. Shahabi received, commencing July 1, 2006, a $20,000
per annum salary increase payable in shares to be issued every July 1 and
January 1 (at a price of not less than $0.20 per share). She was granted 150,000
options on her being employed plus 250,000 options in fiscal year
2006.
The
Company entered into an employment agreement with Dr. John Rothman, PhD to
become Vice President of Clinical Development effective March 7, 2005 for a
term
of one year ending February 28, 2006 and terminable on 30 days notice. His
compensation is $170,000 per annum, to increase to $180,000 per annum upon
the
closing of a $15 million equity financing of the Company. Upon meeting
incentives to be set by the Company, he will receive a bonus of up to $45,000.
In fiscal year 2006 he was paid a bonus of $10,000 in cash plus $14,800 in
shares of common stock. Effective January 1, 2006 his salary increased by
$30,000 annually payable in stock to be issued every July 1 st
and
January 1 st
(at a
price of not less than $0.20 per share). In addition, Dr. Rothman was granted
360,000 stock options per his employment agreement and was granted 150,000
options in March 2006.
The
Company entered into an employment agreement with Fred Cobb to become Vice
President of Finance effective February 20, 2006 terminable on 30 days notice.
His compensation is $140,000 per annum. Upon meeting incentives to be set by
the
Company, he is to receive a bonus of up to $28,000. In July 1, 2006 his annual
salary annually increased by $20,000 payable in shares of common stock to be
issued every July 1 st
and
January 1 st.
In
addition, Mr. Cobb was granted 150,000 stock options pursuant to his employment
agreement and was granted an additional 150,000 options in March
2006.
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
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.
Cerus’ allegations in the Opposition are that the EP 835 Patent, which claims a
vaccine for inducing a tumor specific antigen with a 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. On November 29, 2006, following oral proceedings, the Opposition
Division of the European Patent Office determined that the claims of the patent
as granted should be revoked due to lack of inventive steps under European
Patent Office rules based on certain prior art publications. This decision
has
no material effect upon our ability to conduct business as currently
contemplated. We will review the formal written decision in order to
evaluate whether to file an appeal. In the event of an appeal there is no
assurance that it will be successful. If such ruling is upheld on appeal, our
patent position in Europe may be eroded. The likely result of such decision
will
be increased competition for us in the European market for recombinant live
Listeria based vaccines for tumor specific antigens. Regardless of the outcome,
we believe that our freedom to operate in Europe, or any other territory, for
recombinant live Listeria based vaccine for tumor specific antigen products
will
not be diminished.
The
Company is involved in various claims and legal actions arising in the ordinary
course of business. Management is of the opinion that the ultimate outcome
of
these matters would not have a material adverse impact on the financial position
of the Company or the results of its operations.
8.
INCOME
TAXES:
The
Company has a net operating loss carry forward of approximately $5,227,000
at
October 31, 2006 available to offset taxable income through 2026.
The
tax
effects of loss carry forwards give rise to a deferred tax asset and a related
valuation allowance at October 31, 2006 as follows:
Net
operating losses
|
|
$
|
2,090,711
|
|
Stock
based compensation
|
|
|
182,086
|
|
Less
valuation allowance
|
|
|
(2,272,797
|
)
|
Deferred
tax asset
|
|
$
|
-0-
|
|
The
difference between income taxes computed at the statutory federal rate of 34%
and the provision for income taxes relates to the following:
|
|
Year ended
October
31,
2005
|
|
Year ended
October
31,
2006
|
|
Period
from
March
1, 2002
(inception)
to
October
31, 2006
|
|
|
|
|
|
|
|
|
|
Provision
at federal statutory rate
|
|
|
34
|
%
|
|
34
|
%
|
|
34
|
%
|
Valuation
allowance
|
|
|
(34
|
)
|
|
(34
|
)
|
|
(34
|
)
|
|
|
|
-0-
|
%
|
|
-0-
|
%
|
|
-0-
|
%
|
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
9.
RECAPITALIZATION:
On
November 12, 2004, Great Expectations and Associates, Inc. ("Great
Expectations") acquired the Company through a share exchange and reorganization
(the "Recapitalization"), pursuant to which the Company became a wholly owned
subsidiary of Great Expectations. Great Expectations acquired (i) all of the
issued and outstanding shares of common stock of the Company and the Series
A
preferred stock of the Company in exchange for an aggregate of 15,597,723 shares
of authorized, but theretofore unissued, shares of common stock, no par value,
of Great Expectations; (ii) all of the issued and outstanding warrants to
purchase the Company's common stock, in exchange for warrants to purchase
584,885 shares of Great Expectations; and (iii) all of the issued and
outstanding options to purchase the Company's common stock in exchange for
an
aggregate of 2,381,525 options to purchase common stock of Great Expectations,
constituting approximately 96% of the common stock of Great Expectations prior
to the issuance of shares of common stock of Great Expectations in the private
placement described below. Prior to the closing of the Recapitalization, Great
Expectations performed a 200-for-1 reverse stock split, thus reducing the issued
and outstanding shares of common stock of Great Expectations from 150,520,000
shares to 752,600 shares. Additionally, 752,600 shares of common stock of Great
Expectations were issued to the financial advisor in connection with the
Recapitalization. Pursuant to the Recapitalization, there were 17,102,923 common
shares outstanding in Great Expectations. As a result of the transaction, the
former shareholders of Advaxis are the controlling shareholders of the Company.
Additionally, prior to the transaction, Great Expectations had no substantial
assets. Accordingly, the transaction is treated as a recapitalization, rather
than a business combination. The historical financial statements of Advaxis
are
now the historical financial statements of the Company. Historical shareholders'
equity (deficiency) of Advaxis has been restated to reflect the
recapitalization, and include the shares received in the
transaction.
On
November 12, 2004, the Company completed an initial closing of a private
placement offering (the “Private Placement”), whereby it sold an aggregate of
$2.925 million
worth of
units to accredited investors. Each unit was sold for $25,000 (the “Unit Price”)
and consisted of (a) 87,108 shares of common stock and (b) a warrant to
purchase, at any time prior to the fifth anniversary following the date of
issuance of the warrant, 87,108 shares of common stock at a price equal to
$0.40
per share of common stock (a “Unit”). In consideration of the investment, the
Company granted to each investor certain registration rights and anti-dilution
rights. Also, in November 2004, the Company converted approximately $618,000
of
aggregate principal promissory notes and accrued interest outstanding into
Units.
On
December 8, 2004, the Company completed a second closing of the Private
Placement, whereby it sold an aggregate of $200,000 of Units to accredited
investors.
On
January 4, 2005, the Company completed a third and final closing of the Private
Placement, whereby it sold an aggregate of $128,000 of Units to accredited
investors.
Pursuant
to the terms of a investment banking agreement, dated March 19, 2004, by and
between the Company and Sunrise Securities, Corp. (the “Placement Agent”), the
Company issued to the Placement Agent and its designees an aggregate of
2,283,445 shares of common stock and warrants to purchase up to an aggregate
of
2,666,900 shares of common stock. The shares were issued as part consideration
for the services of the Placement Agent, as placement agent for the Company
in
the Private Placement. In addition, the Company paid the Placement Agent a
total
cash fee of $50,530.
On
January 12, 2005, the Company completed a second private placement offering
whereby it sold an aggregate of $1,100,000 of units to a single investor. As
with the Private Placement, each unit issued and sold in this subsequent private
placement was sold at $25,000 per unit and comprised (i) 87,108 shares of common
stock, and (ii) a five-year warrant to purchase 87,108 shares of our common
stock at an exercise price of $0.40 per share. Upon the closing of this second
private placement offering the Company issued to the investor 3,832,753 shares
of common stock and warrants to purchase up to an aggregate of 3,832,753 shares
of common stock.
ADVAXIS,
INC
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
The
aggregate sale from the four private placements was $4,353,000, which was netted
against transaction costs of $329,673 for net proceeds of
$4,023,327.
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 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.